Income Taxes

PSEG’s, PSE&G’s and PSEG Power’s effective tax rates for the three months ended March 31, 2020 and 2019 were as follows:




	Three Months Ended
	March 31,
	2020	2019
PSEG	8.9%	17.6%
PSE&G	19.9%	5.8%
PSEG Power	122.8%	29.5%

For the three months ended March 31, 2020, the difference in PSEG’s effective tax rate as compared to the same period in the prior year was due primarily to the benefit of purchasing 2019 net operating losses (NOLs) under the New Jersey Technology Tax Benefit Transfer Program in 2020, and the tax benefit of a pre-tax loss on the NDT qualified fund in 2020, which is subject to an additional trust tax. The difference in PSEG’s effective tax rate as compared to the statutory tax rate of 28.11% was due primarily to the flowback of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes, the benefit of purchasing 2019 NOLs under the New Jersey Technology Tax Benefit Transfer Program in 2020, and the tax benefit of a pre-tax loss on the NDT qualified fund in 2020, which is subject to an additional trust tax.

For the three months ended March 31, 2020, the difference in PSE&G’s effective tax rate as compared to the same period in the prior year was due primarily to the reduction in the 2020 flowback of PSE&G’s excess deferred income tax liabilities, as PSE&G refunded all FERC-approved transmission-related excess deferred income taxes that are not subject to the normalization rules in 2019. The difference in PSE&G’s effective tax rate as compared to the statutory tax rate of 28.11% was

due primarily to the flowback of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes.

For the three months ended March 31, 2020, the difference in PSEG Power’s effective tax rate as compared to the same period in the prior year and the statutory tax rate of 28.11% was due primarily to the favorable impacts the benefit of purchasing 2019 NOLs under the New Jersey Technology Tax Benefit Transfer Program in 2020 and the tax benefit of a pre-tax loss on the NDT qualified fund, which is subject to an additional trust tax, had on PSEG Power’s pre-tax loss.

Tax Act

Effective January 1, 2018, the Tax Cuts and Jobs Act of 2017 (Tax Act) established tax laws including, but not limited to, a limitation on deductible interest and limitations on the utilization of NOLS, such as eliminating carrybacks.

In November 2018, the IRS issued proposed regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018 and 2019, the tax deductibility of a portion of PSEG’s and PSEG Power’s interest expense was disallowed and was recorded as a deferred tax asset as it is expected to be realized in future periods. Amounts recorded under the Tax Act and relevant statutes, including but not limited to depreciation and interest disallowance, are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing additional guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and PSEG Power’s financial statements.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

In March 2020, the CARES Act was signed into federal law. As applicable to PSEG and PSEG Power, the CARES Act favorably increases the limitation on the amount of interest that can be deducted in 2020. The increased limitation will allow a portion of the previously disallowed amounts to reduce PSEG’s and PSEG Power’s 2020 taxable income. The CARES Act also reversed certain NOL provisions from the Tax Act such as allowing five-year carrybacks of 2018, 2019, and 2020 NOLs. This provision, coupled with anticipated Treasury-issued guidance may impact PSEG’s, PSE&G’s, and PSEG Power’s financial statements.

Unrecognized Tax Benefits

In April 2020, the Joint Committee on Taxation approved PSEG’s nuclear carryback claim and federal tax returns for the years 2011 and 2012. We anticipate this will enable PSEG to conclude the IRS’ federal income tax audit for years 2011 through 2016. As a result, in the second quarter of 2020, PSEG expects to decrease its total unrecognized tax benefits in the range of $130 million to $190 million, primarily related to temporary differences for which there are associated accumulated deferred income taxes.

New Jersey State Tax Reform

In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group.

There are certain aspects of the law that remain unclear. Any further guidance or clarification could impact PSEG’s and PSEG Power’s financial statements.

Income Taxes [Line Items]

Income Taxes

PSEG’s, PSE&G’s and PSEG Power’s effective tax rates for the three months ended March 31, 2020 and 2019 were as follows:




	Three Months Ended
	March 31,
	2020	2019
PSEG	8.9%	17.6%
PSE&G	19.9%	5.8%
PSEG Power	122.8%	29.5%

For the three months ended March 31, 2020, the difference in PSEG’s effective tax rate as compared to the same period in the prior year was due primarily to the benefit of purchasing 2019 net operating losses (NOLs) under the New Jersey Technology Tax Benefit Transfer Program in 2020, and the tax benefit of a pre-tax loss on the NDT qualified fund in 2020, which is subject to an additional trust tax. The difference in PSEG’s effective tax rate as compared to the statutory tax rate of 28.11% was due primarily to the flowback of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes, the benefit of purchasing 2019 NOLs under the New Jersey Technology Tax Benefit Transfer Program in 2020, and the tax benefit of a pre-tax loss on the NDT qualified fund in 2020, which is subject to an additional trust tax.

For the three months ended March 31, 2020, the difference in PSE&G’s effective tax rate as compared to the same period in the prior year was due primarily to the reduction in the 2020 flowback of PSE&G’s excess deferred income tax liabilities, as PSE&G refunded all FERC-approved transmission-related excess deferred income taxes that are not subject to the normalization rules in 2019. The difference in PSE&G’s effective tax rate as compared to the statutory tax rate of 28.11% was

due primarily to the flowback of PSE&G’s excess deferred income tax liabilities and tax repair-related accumulated deferred income taxes.

For the three months ended March 31, 2020, the difference in PSEG Power’s effective tax rate as compared to the same period in the prior year and the statutory tax rate of 28.11% was due primarily to the favorable impacts the benefit of purchasing 2019 NOLs under the New Jersey Technology Tax Benefit Transfer Program in 2020 and the tax benefit of a pre-tax loss on the NDT qualified fund, which is subject to an additional trust tax, had on PSEG Power’s pre-tax loss.

Tax Act

Effective January 1, 2018, the Tax Cuts and Jobs Act of 2017 (Tax Act) established tax laws including, but not limited to, a limitation on deductible interest and limitations on the utilization of NOLS, such as eliminating carrybacks.

In November 2018, the IRS issued proposed regulations addressing the interest disallowance rules contained in the Tax Act. For non-regulated businesses, these rules set a cap on the amount of interest that can be deducted in a given year. Any amount that is disallowed can be carried forward indefinitely. For 2018 and 2019, the tax deductibility of a portion of PSEG’s and PSEG Power’s interest expense was disallowed and was recorded as a deferred tax asset as it is expected to be realized in future periods. Amounts recorded under the Tax Act and relevant statutes, including but not limited to depreciation and interest disallowance, are subject to change based on several factors, including but not limited to, the IRS and state taxing authorities issuing additional guidance and/or further clarification. Any further guidance or clarification could impact PSEG’s, PSE&G’s and PSEG Power’s financial statements.

Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

In March 2020, the CARES Act was signed into federal law. As applicable to PSEG and PSEG Power, the CARES Act favorably increases the limitation on the amount of interest that can be deducted in 2020. The increased limitation will allow a portion of the previously disallowed amounts to reduce PSEG’s and PSEG Power’s 2020 taxable income. The CARES Act also reversed certain NOL provisions from the Tax Act such as allowing five-year carrybacks of 2018, 2019, and 2020 NOLs. This provision, coupled with anticipated Treasury-issued guidance may impact PSEG’s, PSE&G’s, and PSEG Power’s financial statements.

Unrecognized Tax Benefits

In April 2020, the Joint Committee on Taxation approved PSEG’s nuclear carryback claim and federal tax returns for the years 2011 and 2012. We anticipate this will enable PSEG to conclude the IRS’ federal income tax audit for years 2011 through 2016. As a result, in the second quarter of 2020, PSEG expects to decrease its total unrecognized tax benefits in the range of $130 million to $190 million, primarily related to temporary differences for which there are associated accumulated deferred income taxes.

New Jersey State Tax Reform

In July 2018, the State of New Jersey made changes to its income tax laws, including imposing a temporary surtax on allocated corporate taxable income of 2.5% effective January 1, 2018 and 2019 and 1.5% in 2020 and 2021, as well as requiring corporate taxpayers to file in a combined reporting group as defined under New Jersey law starting in 2019. Both provisions include an exemption for public utilities. PSEG believes PSE&G meets the definition of a public utility and, therefore, will not be impacted by the temporary surtax or be included in the combined reporting group.

There are certain aspects of the law that remain unclear. Any further guidance or clarification could impact PSEG’s and PSEG Power’s financial statements.