Financing Receivables

3 Months Ended

Mar. 31, 2017

Schedule of Financial Receivables [Line Items]

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.”




Outstanding Loans by Class of Customer
	As of		As of
Consumer Loans	March 31, 2017		December 31, 2016
	Millions
Commercial/Industrial	$	168	$	164
Residential	11		11
Total	$	179	$	175

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’ equity investments in the leases are comprised of the total expected lease receivables 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.

During the third quarter of 2016, Energy Holdings completed its annual review of estimated residual values embedded in the

NRG REMA, LLC (REMA) leveraged leases. The outcome indicated that the revised residual value estimates were lower than

the recorded residual values and the decline was deemed to be other than temporary due to the adverse economic conditions

experienced by coal generation in PJM, as discussed in Note 3. Early Plant Retirements, negatively impacting the economic

outlook of the leased assets. As a result, a pre-tax write-down of $137 million was reflected in Operating Revenues in the

quarter ended September 30, 2016, calculated by comparing the gross investment in the leases before and after the revised residual estimates. During the fourth quarter of 2016, Energy Holdings recorded a $10 million pre-tax charge for its best estimate of loss related to the leveraged leases as a result of the current liquidity issues facing REMA, which was reflected in Operating Revenues and is included in Gross Investments in Leases as of December 31, 2016.

During the first quarter of 2017, due to continuing liquidity issues facing REMA, economic challenges facing coal generation in PJM, and based upon an ongoing review of available alternatives as well as certain recent discussions with REMA management, Energy Holdings recorded an additional $55 million pre-tax charge for its current best estimate of loss related to the lease investments, which was reflected in Operating Revenues and is included in Gross Investments in Leases as of March 31, 2017.

The following table shows Energy Holdings’ gross and net lease investment as of March 31, 2017 and December 31, 2016, respectively.




	As of			As of
	March 31, 2017			December 31, 2016
	Millions
Lease Receivables (net of Non-Recourse Debt)	$	574		$	629
Estimated Residual Value of Leased Assets	346			346
Total Investment in Rental Receivables	920			975
Unearned and Deferred Income	(324		)	(326		)
Gross Investment in Leases	596			649
Deferred Tax Liabilities	(640		)	(674		)
Net Investment in Leases	$	(44	)	$	(25	)

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.




	Lease Receivables, Net of Non-Recourse Debt
Counterparties’ Credit Rating Standard & Poor’s (S&P) as of March 31, 2017
	As of March 31, 2017
	Millions
AA	$	16
BBB+ — BBB-	316
BB-	133
CCC-	109
Total	$	574

The “BB-” and the “CCC-” ratings in the preceding table represent lease receivables related to coal and gas-fired assets in Illinois and Pennsylvania, respectively. As of March 31, 2017, the gross investment in the leases of such assets, net of non-recourse debt, was $371 million ($(154) million, net of deferred taxes). A more detailed description of such assets under lease, as of March 31, 2017, is presented in the following table.




Asset	Location	Gross Investment		% Owned		Total MW	Fuel Type	Counterparties’ S&P Credit Ratings	Counterparty
		Millions
Powerton Station Units 5 and 6	IL	$	134	64	%	1,538	Coal	BB-	NRG Energy, Inc.
Joliet Station Units 7 and 8	IL	$	83	64	%	1,036	Gas	BB-	NRG Energy, Inc.
Keystone Station Units 1 and 2	PA	$	26	17	%	1,711	Coal	CCC- (A)	REMA
Conemaugh Station Units 1 and 2	PA	$	29	17	%	1,711	Coal	CCC- (A)	REMA
Shawville Station Units 1, 2, 3 and 4	PA	$	99	100	%	596	Gas	CCC- (A)	REMA

(A)

REMA’s parent company, GenOn Energy Inc. (GenOn), reported in August 2016 that GenOn did not expect to have sufficient liquidity to repay its senior unsecured notes due in June 2017. In January 2017, S&P further lowered its corporate credit rating on GenOn and its affiliates (including REMA) to “CCC-” from “CCC” reflecting the primary credit concern of the near-term maturity of GenOn’s senior unsecured notes in June 2017 and expressed a negative outlook reflecting the continuing pressure on financial measures. In October 2016, Moody’s downgraded the GenOn Corporate Family Rating to “Caa3” to reflect its high debt burden relative to cash flow.

The credit exposure for lessors is partially mitigated through various credit enhancement mechanisms within the lease structures. 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 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 and trigger certain material tax obligations which could wholly or partially be mitigated by tax indemnification claims against the counterparty. A bankruptcy of a lessee would likely delay and potentially limit 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. Although all lease payments are current, PSEG cannot predict the outcome of GenOn’s efforts to restructure its portfolio and improve its liquidity and the possible related impact on REMA. PSEG continues to monitor any changes to REMA’s and GenOn’s status and potential impacts on Energy Holdings’ lease investments. If lease rejections or foreclosures were to occur, Energy Holdings could potentially record additional pre-tax write-offs up to its gross investment in these facilities and may also be required to pay material cash tax liabilities to the Internal Revenue Service.

Additional factors that 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 their affiliates and the quality and condition of assets under lease.

PSE And G [Member]