PSEG Reports Flat, "Not Very High" Headroom in New Jersey

Customer migration in New Jersey negatively impacted PSEG Power's earnings by $5.1 million during the first quarter of 2011, though migration was less than expected by PSEG.

The average level of migration of BGS-related volume in New Jersey over the quarter was approximately 31%, compared with migration levels of 28% at the end of 2010.

However, headroom was flat versus the year-ago quarter, and, "flat at not a very high amount." Headroom two years ago was three times the current level of headroom, PSEG said.

Although headroom was flat year over year, PSEG said that it was too early to update its forecasted impact from migration on an annual basis.

Asked by analysts whether, due to other recent mergers integrating generation and retail load, PSEG was revaluating its wholesale-only strategy, PSEG CEO Ralph Izzo reiterated, as he has done on several recent earnings calls, that PSEG is not interested in pursuing a retail strategy, though it will continue to monitor the situation.

"[L]ow barriers to entry in the retail business appear to be resulting in a fairly competitive world where customers are being signed up for thin margins barely above wholesale," Izzo noted. Izzo also said that he does not see the retail business as being a hedge for the wholesale power business the way others do.

An erosion of the margin on certain wholesale electric supply contracts, outside of New Jersey, that PSEG Power sources from the market also reduced earnings in the quarter by $15 million, partially due to customer migration.

PSEG Power said that, going forward, it will be limiting load contracting to transactions that provide hedges directly to its own assets.

PSEG Power reported operating earnings of $267 million for the first quarter of 2011 compared with operating earnings of $312 million for the first quarter of 2010.