PSEG Forecasts Higher Migration in New Jersey Continuing in 2011

The migration of customers away from Basic Generation Service negatively impacted PSEG Power's earnings by about $5.1 million in the fourth quarter of 2010 versus the year-ago quarter, parent Public Service Enterprise Group said yesterday.

For the year 2010, customer migration reduced PSEG Power's earnings by about $20.3 million.

At year-end, approximately 30% of the New Jersey BGS-related contract volume had switched to third party suppliers of energy, PSEG said. PSEG said that, at year-end, commercial and industrial migration was 55%, and residential migration was about 7%.

The level of switching was higher than anticipated by PSEG earlier in the year, as retail suppliers turned their attention to the residential market which PSEG had not anticipated.

For 2011, PSEG is forecasting total migration to reach 38% to 40% of volumes by the end of the year, which will further reduce PSEG Power's margins.

This level of migration would reduce the amount of energy supplied through the BGS contracts to an average of 14-15 terawatt-hours for the year, compared to 17 terawatt-hours served through BGS contracts in 2010, PSEG said.

Asked by an analyst if the increased migration has changed PSEG's retail strategy, which thus far has eschewed establishing its own retail supplier, PSEG CEO Ralph Izzo said that the company is not reconsidering its retail strategy. "It's a very difficult business with razor-thin margins where one mistake wipes out a year's worth of effort," Izzo said in explaining PSEG's decision not to enter the retail supply space.

Merchant generator PSEG Power reported operating earnings of $212 million for the fourth quarter of 2010, versus operating earnings of $260 million a year ago. Aside from the migration impact previously cited, Power's earnings were hurt by outages, as well as lower margins from certain wholesale contracts.

These negatives were partially offset by higher pricing in the wholesale market, which improved Power's gross margin in the quarter to $53.20/MWh from $51/MWh a year ago.