PSEG: Headroom Versus BGS Narrows, In Single Digits

Migration away from New Jersey Basic Generation Service at the end of 2012 was in line with expectations as headroom narrowed in the fourth quarter, PSEG said yesterday in reporting earnings.

PSEG CFO Caroline Dorsa said that PSEG had previously forecast migration at 36% to 40% by year-end 2012, and while PSEG is still waiting on final data, its best estimate is that migration was at the very high end of that range, but not in excess of that range, at year-end 2012.

Versus the fourth quarter of 2011, the impact to PSEG Power from migration was actually a net positive, because headroom was narrower in Q4 2012 versus Q4 2011, and because wholesale market prices improved versus the year-ago, meaning PSEG Power was able to recover incremental margin on remarketing power supplies made available from migration away from BGS, when compared to the year-ago.

Headroom came down "significantly" during 2012, Dorsa said.

"Now to what we see, and you have to calculate your own, but what we see is a single-digit number [for headroom]," Dorsa told investors.

"As to headroom, if it stays to be a single-digit like number and [with] the prices embedded in the most recent BGS clear, that means the impact of migration, as we've always talked about, becomes a smaller and smaller impact to our margin, because the real impact is that difference or that headroom," Dorsa said. "So we're not forecasting a specific migration level as we come into the upcoming years. I think you've heard on my remarks what we're really forecasting is terawatt-hours for BGS. So 12 [TWh] ranging down to 10 terawatt-hours for BGS this year and next year, but again, with a smaller headroom, it becomes less of an impact as to what you would previously have thought about the impact for BGS would be when we started having migration."