XML 35 R22.htm IDEA: XBRL DOCUMENT

Financial Risk Management Activities

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosures [Line Items]

Note 11. Financial Risk Management Activities

Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include normal purchases and normal sales (NPNS), cash flow hedge and fair value hedge accounting. PSEG uses interest rate swaps and other derivatives, which are designated and qualifying as cash flow or fair value hedges. PSEG Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value with changes recognized in earnings.

Commodity Prices

Within PSEG and its affiliate companies, PSEG Power has the most exposure to commodity price risk primarily relating to changes in the market price of electricity, natural gas and other commodities. Fluctuations in market prices result from changes

in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. PSEG Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of PSEG Power’s expected generation. PSEG Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 9. Commitments and Contingent Liabilities. Additionally, prospective changes in the fair market value of these derivative contracts are recorded in earnings.

Interest Rates

PSEG, PSE&G and PSEG Power are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. PSEG, PSE&G and PSEG Power may use a mix of fixed and floating rate debt and interest rate hedges.

Cash Flow Hedges

PSEG uses interest rate hedges which are designated and effective as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments or anticipated future long-term debt issuances.

As of September 30, 2024, PSEG had interest rate hedges outstanding totaling $1.25 billion which were executed to convert to fixed PSEG Power’s $1.25 billion variable rate term loan due March 2025. The fair value of these hedges was $1 million and $5 million as of September 30, 2024 and December 31, 2023, respectively.

In the third quarter of 2024, PSEG entered into interest rate hedges to fix the interest rate for a portion of anticipated debt issuances for PSEG and PSEG Power. As of September 30, 2024, these swaps had a fair value of $(3) million.

The Accumulated Other Comprehensive Income (Loss) (after tax) related to outstanding and terminated interest rate hedges designated as cash flow hedges was $12 million and $3 million as of September 30, 2024 and December 31, 2023, respectively. The after-tax unrealized gains on these hedges expected to be reclassified to earnings during the next 12 months is $3 million.

Fair Values of Derivative Instruments

The following are the fair values of derivative instruments on the Condensed Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Condensed Consolidated Balance Sheets of PSEG. For additional information see Note 12. Fair Value Measurements.

Substantially all derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of September 30, 2024 and December 31, 2023. The following tabular disclosure does not include the offsetting of trade receivables and payables.



	As of September 30, 2024
	PSEG			PSEG Power									Consolidated
	Cash Flow Hedges			Not Designated
Balance Sheet Location	Interest Rate Derivatives			Energy- Related Contracts			Netting (A)			Total PSEG Power			Total Derivatives
	Millions
Derivative Contracts
Current Assets	$	1		$	509		$	(475	)	$	34		$	35
Noncurrent Assets		1			507			(472	)		35			36
Total Mark-to-Market Derivative Assets	$	2		$	1,016		$	(947	)	$	69		$	71
Derivative Contracts
Current Liabilities	$	(1	)	$	(558	)	$	541		$	(17	)	$	(18	)
Noncurrent Liabilities		(3	)		(444	)		441			(3	)		(6	)
Total Mark-to-Market Derivative (Liabilities)	$	(4	)	$	(1,002	)	$	982		$	(20	)	$	(24	)
Total Net Mark-to-Market Derivative Assets (Liabilities)	$	(2	)	$	14		$	35		$	49		$	47



	As of December 31, 2023
	PSEG			PSEG Power									Consolidated
	Cash Flow Hedges			Not Designated
Balance Sheet Location	Interest Rate Derivatives			Energy- Related Contracts			Netting (A)			Total PSEG Power			Total Derivatives
	Millions
Derivative Contracts
Current Assets	$	6		$	912		$	(806	)	$	106		$	112
Noncurrent Assets		—			440			(411	)		29			29
Total Mark-to-Market Derivative Assets	$	6		$	1,352		$	(1,217	)	$	135		$	141
Derivative Contracts
Current Liabilities	$	(16	)	$	(890	)	$	820		$	(70	)	$	(86	)
Noncurrent Liabilities		(1	)		(424	)		419			(5	)		(6	)
Total Mark-to-Market Derivative (Liabilities)	$	(17	)	$	(1,314	)	$	1,239		$	(75	)	$	(92	)
Total Net Mark-to-Market Derivative Assets (Liabilities)	$	(11	)	$	38		$	22		$	60		$	49

(A)

Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of cash collateral. All cash collateral (received) posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Condensed Consolidated Balance Sheets. As of September 30, 2024 and December 31, 2023, PSEG Power had net cash collateral (receipts) payments to counterparties of $116 million and $113 million, respectively. Of these net cash collateral (receipts) payments, $35 million and $22 million as of September 30, 2024 and December 31, 2023, respectively, were netted against the corresponding net derivative contract positions. Of the $35 million as of September 30, 2024, $(31) million was netted against noncurrent assets and $66 million against current liabilities. Of the $22 million as of December 31, 2023, $(1) million was netted against current assets, $15 million against current liabilities and $8 million against noncurrent liabilities.

Certain of PSEG Power’s derivative instruments contain provisions that require PSEG Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon PSEG Power’s credit rating from each of

the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if PSEG Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for PSEG Power would represent a two-level downgrade from its current Moody’s and S&P ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. PSEG Power may also enter into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements.

The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $32 million as of September 30, 2024 and $77 million as of December 31, 2023. As of September 30, 2024 and December 31, 2023, PSEG Power had the contractual right of offset of $12 million and $3 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If PSEG Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $20 million and $74 million as of September 30, 2024 and December 31, 2023, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral.

The following shows the effect on the Condensed Consolidated Statements of Operations and on AOCL of derivative instruments designated as cash flow hedges for the three and nine months ended September 30, 2024 and 2023:



	Amount of Pre-Tax Gain (Loss) Recognized in AOCL on Derivatives					Location of Pre-Tax Gain (Loss) Reclassified from AOCL into Income	Amount of Pre-Tax Gain (Loss) Reclassified from AOCL into Income
	Three Months Ended						Three Months Ended
Derivatives in Cash Flow	September 30,						September 30,
Hedging Relationships	2024			2023			2024		2023
	Millions						Millions
PSEG
Interest Rate Derivatives	$	(6	)	$	18	Interest Expense	$	4	$	3
Total PSEG	$	(6	)	$	18		$	4	$	3



	Amount of Pre-Tax Gain (Loss) Recognized in AOCL on Derivatives				Location of Pre-Tax Gain (Loss) Reclassified from AOCL into Income	Amount of Pre-Tax Gain (Loss) Reclassified from AOCL into Income
	Nine Months Ended					Nine Months Ended
Derivatives in Cash Flow	September 30,					September 30,
Hedging Relationships	2024		2023			2024		2023
	Millions					Millions
PSEG
Interest Rate Derivatives	$	24	$	32	Interest Expense	$	11	$	3
Total PSEG	$	24	$	32		$	11	$	3

The effect of interest rate cash flow hedges is recorded in Interest Expense in PSEG’s Condensed Consolidated Statement of Operations. For the nine months ended September 30, 2024 and 2023, the amount of gain on interest rate hedges reclassified from AOCL into income was $8 million and $2 million after-tax, respectively.

The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in AOCL of PSEG on a pre-tax and after-tax basis.



Accumulated Other Comprehensive Income (Loss)	Pre-Tax			After-Tax
	Millions
Balance as of December 31, 2022	$	(4	)	$	(3	)
Gain Recognized in AOCL		13			9
Less: Gain Reclassified into Income		(5	)		(3	)
Balance as of December 31, 2023	$	4		$	3
Gain Recognized in AOCL		24			17
Less: Gain Reclassified into Income		(11	)		(8	)
Balance as of September 30, 2024	$	17		$	12

The following shows the effect on the Condensed Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the three months and nine months ended September 30, 2024 and 2023, respectively. PSEG Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel.



Derivatives Not Designated as Hedges	Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives	Pre-Tax Gain (Loss) Recognized in Income on Derivatives
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2024		2023		2024		2023
		Millions
Energy-Related Contracts	Operating Revenues	$	56	$	3	$	133	$	1,244
Total		$	56	$	3	$	133	$	1,244

The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of September 30, 2024 and December 31, 2023.



		As of			As of
Type	Notional	September 30, 2024			December 31, 2023
		Millions
Natural Gas	Dekatherm (Dth)		66			66
Electricity	MWh		(57	)		(60	)
Financial Transmission Rights (FTRs)	MWh		21			19
Interest Rate Derivatives	U.S. Dollars		1,750			2,000

Credit Risk

Credit risk relates to the risk of loss that PSEG Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations for the purchase and/or sale of energy, nuclear fuel and other related products, where PSEG Power has extended unsecured credit. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on PSEG’s financial condition, results of operations or net cash flows.

As of September 30, 2024, nearly 100% of the net credit exposure for PSEG Power’s wholesale operations was with investment grade counterparties. There were two counterparties with credit exposure greater than 10% of the total. These credit exposures were with PSE&G and one non-affiliated counterparty. The PSE&G credit exposure is eliminated in consolidation. See Note 18. Related-Party Transactions for additional information.

PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guarantee or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of September 30, 2024, PSEG held parental guarantees, letters of credit and cash as security. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of September 30, 2024, PSE&G had no unsecured mark-to-market credit exposure with its suppliers.

PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.

Public Service Electric and Gas Company [Member]