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Financing Receivables
3 Months Ended
Mar. 31, 2015
Financing Receivables
Financing Receivables
PSE&G
PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. The loans are generally paid back with Solar Renewable Energy Certificates generated from the installed solar electric system. A substantial portion of these amounts are noncurrent and reported in Long-Term Investments on PSEG's and PSE&G's Condensed Consolidated Balance Sheets. The following table reflects the outstanding loans by class of customer, none of which are considered “non-performing.”
 
 
 
 
 
 
 
 
Credit Risk Profile Based on Payment Activity
 
 
 
 
As of
 
As of
 
 
Consumer Loans
 
March 31,
2015
 
December 31,
2014
 
 
 
 
Millions
 
 
Commercial/Industrial
$
191

 
$
188

 
 
Residential
 
13

 
13

 
 
Total
 
$
204

 
$
201

 
 
 
 
 
 
 
 


Energy Holdings
Energy Holdings, through several of its indirect subsidiary companies, has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings’ investments in the leases are comprised of the total expected lease receivables on its investments over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Condensed Consolidated Balance Sheets. 
The following table shows Energy Holdings’ gross and net lease investment as of March 31, 2015 and December 31, 2014, respectively.
 
 
 
 
 
 
 
 
As of
 
As of
 
 
 
March 31,
2015
 
December 31,
2014
 
 
 
Millions
 
 
Lease Receivables (net of Non-Recourse Debt)
$
663

 
$
691

 
 
Estimated Residual Value of Leased Assets
525

 
525

 
 
Unearned and Deferred Income
(377
)
 
(380
)
 
 
Gross Investment in Leases
811

 
836

 
 
Deferred Tax Liabilities
(717
)
 
(738
)
 
 
Net Investment in Leases
$
94

 
$
98

 
 
 
 
 
 
 

The corresponding receivables associated with the lease portfolio are reflected in the following table, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings. "Not Rated" counterparties represent investments in lease receivables related to commercial real estate properties.
 
 
 
 
 
 
 
 
Lease Receivables, Net of
Non-Recourse Debt
 
 
Counterparties’ Credit Rating (Standard & Poor's (S&P))
 
As of
 
 
As of March 31, 2015
 
March 31, 2015
 
 
 
 
Millions
 
 
AA
 
$
18

 
 
AA-
 
29

 
 
BBB+ — BBB-
 
316

 
 
BB-
 
134

 
 
B-
 
164

 
 
Not Rated
 
2

 
 
Total
 
$
663

 
 
 
 
 
 

The “BB-” and the "B-" ratings in the preceding table represent lease receivables related to coal-fired assets in Illinois and Pennsylvania, respectively. As of March 31, 2015, the gross investment in the leases of such assets, net of non-recourse debt, was $573 million ($(9) million, net of deferred taxes). A more detailed description of such assets under lease is presented in the following table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset
 
Location
 
Gross
Investment
 
%
Owned
 
Total
 
Fuel
Type
 
Counter-parties’
S&P Credit
Ratings
 
Counterparty
 
 
 
 
 
 
Millions
 
 
 
MW
 
 
 
 
 
 
 
 
Powerton Station Units 5 and 6
 
IL
 
$
134

 
64
%
 
1,538

 
Coal
 
BB-
 
NRG Energy, Inc.
 
 
Joliet Station Units 7 and 8
 
IL
 
$
84

 
64
%
 
1,044

 
Coal
 
BB-
 
NRG Energy, Inc.
 
 
Keystone Station Units 1 and 2
 
PA
 
$
121

 
17
%
 
1,711

 
Coal
 
B-
 
NRG REMA LLC
 
 
Conemaugh Station Units 1 and 2
 
PA
 
$
121

 
17
%
 
1,711

 
Coal
 
B-
 
NRG REMA LLC
 
 
Shawville Station Units 1, 2, 3 and 4
 
PA
 
$
113

 
100
%
 
603

 
Coal
 
B-
 
NRG REMA LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease transactions. These credit enhancement features vary from lease to lease and may include letters of credit or affiliate guarantees. Upon the occurrence of certain defaults, indirect subsidiary companies of Energy Holdings would exercise their rights and attempt to seek recovery of their investment, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital investments and trigger certain material tax obligations. A bankruptcy of a lessee would likely delay any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims. Failure to recover adequate value could ultimately lead to a foreclosure on the assets under lease by the lenders. If foreclosures were to occur, Energy Holdings could potentially record a pre-tax write-off up to its gross investment in these facilities and may also be required to pay significant cash tax liabilities to the Internal Revenue Service.
Although all lease payments are current, no assurances can be given that future payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel, electricity and capacity, overall financial condition of lease counterparties and the quality and condition of assets under lease.
In early 2014, NRG REMA LLC, an indirect subsidiary of NRG Energy, Inc. (NRG) had disclosed its plan to place the Shawville generating facility in a “long-term protective layup” by April 2015 as it evaluated its alternatives under the lease. However, NRG has since notified PJM that it intends to deactivate the coal-fired units at the Shawville generating facility by May 2015 and has disclosed that it expects to return the Shawville units to service no later than the summer of 2016 with the ability to use natural gas.
PSE And G [Member]  
Financing Receivables
Financing Receivables
PSE&G
PSE&G sponsors a solar loan program designed to help finance the installation of solar power systems throughout its electric service area. The loans are generally paid back with Solar Renewable Energy Certificates generated from the installed solar electric system. A substantial portion of these amounts are noncurrent and reported in Long-Term Investments on PSEG's and PSE&G's Condensed Consolidated Balance Sheets. The following table reflects the outstanding loans by class of customer, none of which are considered “non-performing.”
 
 
 
 
 
 
 
 
Credit Risk Profile Based on Payment Activity
 
 
 
 
As of
 
As of
 
 
Consumer Loans
 
March 31,
2015
 
December 31,
2014
 
 
 
 
Millions
 
 
Commercial/Industrial
$
191

 
$
188

 
 
Residential
 
13

 
13

 
 
Total
 
$
204

 
$
201

 
 
 
 
 
 
 
 


Energy Holdings
Energy Holdings, through several of its indirect subsidiary companies, has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third party debt investor. The debt is recourse only to the assets subject to lease and is not included on PSEG’s Condensed Consolidated Balance Sheets. As an equity investor, Energy Holdings’ investments in the leases are comprised of the total expected lease receivables on its investments over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. This amount is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. The more rapid depreciation of the leased property for tax purposes creates tax cash flow that will be repaid to the taxing authority in later periods. As such, the liability for such taxes due is recorded in Deferred Income Taxes on PSEG’s Condensed Consolidated Balance Sheets. 
The following table shows Energy Holdings’ gross and net lease investment as of March 31, 2015 and December 31, 2014, respectively.
 
 
 
 
 
 
 
 
As of
 
As of
 
 
 
March 31,
2015
 
December 31,
2014
 
 
 
Millions
 
 
Lease Receivables (net of Non-Recourse Debt)
$
663

 
$
691

 
 
Estimated Residual Value of Leased Assets
525

 
525

 
 
Unearned and Deferred Income
(377
)
 
(380
)
 
 
Gross Investment in Leases
811

 
836

 
 
Deferred Tax Liabilities
(717
)
 
(738
)
 
 
Net Investment in Leases
$
94

 
$
98

 
 
 
 
 
 
 

The corresponding receivables associated with the lease portfolio are reflected in the following table, net of non-recourse debt. The ratings in the table represent the ratings of the entities providing payment assurance to Energy Holdings. "Not Rated" counterparties represent investments in lease receivables related to commercial real estate properties.
 
 
 
 
 
 
 
 
Lease Receivables, Net of
Non-Recourse Debt
 
 
Counterparties’ Credit Rating (Standard & Poor's (S&P))
 
As of
 
 
As of March 31, 2015
 
March 31, 2015
 
 
 
 
Millions
 
 
AA
 
$
18

 
 
AA-
 
29

 
 
BBB+ — BBB-
 
316

 
 
BB-
 
134

 
 
B-
 
164

 
 
Not Rated
 
2

 
 
Total
 
$
663

 
 
 
 
 
 

The “BB-” and the "B-" ratings in the preceding table represent lease receivables related to coal-fired assets in Illinois and Pennsylvania, respectively. As of March 31, 2015, the gross investment in the leases of such assets, net of non-recourse debt, was $573 million ($(9) million, net of deferred taxes). A more detailed description of such assets under lease is presented in the following table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset
 
Location
 
Gross
Investment
 
%
Owned
 
Total
 
Fuel
Type
 
Counter-parties’
S&P Credit
Ratings
 
Counterparty
 
 
 
 
 
 
Millions
 
 
 
MW
 
 
 
 
 
 
 
 
Powerton Station Units 5 and 6
 
IL
 
$
134

 
64
%
 
1,538

 
Coal
 
BB-
 
NRG Energy, Inc.
 
 
Joliet Station Units 7 and 8
 
IL
 
$
84

 
64
%
 
1,044

 
Coal
 
BB-
 
NRG Energy, Inc.
 
 
Keystone Station Units 1 and 2
 
PA
 
$
121

 
17
%
 
1,711

 
Coal
 
B-
 
NRG REMA LLC
 
 
Conemaugh Station Units 1 and 2
 
PA
 
$
121

 
17
%
 
1,711

 
Coal
 
B-
 
NRG REMA LLC
 
 
Shawville Station Units 1, 2, 3 and 4
 
PA
 
$
113

 
100
%
 
603

 
Coal
 
B-
 
NRG REMA LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease transactions. These credit enhancement features vary from lease to lease and may include letters of credit or affiliate guarantees. Upon the occurrence of certain defaults, indirect subsidiary companies of Energy Holdings would exercise their rights and attempt to seek recovery of their investment, potentially including stepping into the lease directly to protect their investments. While these actions could ultimately protect or mitigate the loss of value, they could require the use of significant capital investments and trigger certain material tax obligations. A bankruptcy of a lessee would likely delay any efforts on the part of the lessors to assert their rights upon default and could delay the monetization of claims. Failure to recover adequate value could ultimately lead to a foreclosure on the assets under lease by the lenders. If foreclosures were to occur, Energy Holdings could potentially record a pre-tax write-off up to its gross investment in these facilities and may also be required to pay significant cash tax liabilities to the Internal Revenue Service.
Although all lease payments are current, no assurances can be given that future payments in accordance with the lease contracts will continue. Factors which may impact future lease cash flows include, but are not limited to, new environmental legislation and regulation regarding air quality, water and other discharges in the process of generating electricity, market prices for fuel, electricity and capacity, overall financial condition of lease counterparties and the quality and condition of assets under lease.
In early 2014, NRG REMA LLC, an indirect subsidiary of NRG Energy, Inc. (NRG) had disclosed its plan to place the Shawville generating facility in a “long-term protective layup” by April 2015 as it evaluated its alternatives under the lease. However, NRG has since notified PJM that it intends to deactivate the coal-fired units at the Shawville generating facility by May 2015 and has disclosed that it expects to return the Shawville units to service no later than the summer of 2016 with the ability to use natural gas.