Variable Interest Entities (VIEs)

9 Months Ended

Sep. 30, 2022

Variable Interest Entity [Line Items]

Variable Interest Entities (VIEs)

Variable Interest Entities (VIEs)

VIE for which PSEG LI is the Primary Beneficiary

PSEG LI consolidates Servco, a marginally capitalized VIE, which was created for the purpose of operating LIPA’s T&D system in Long Island, New York as well as providing administrative support functions to LIPA. PSEG LI is the primary beneficiary of Servco because it directs the operations of Servco, the activity that most significantly impacts Servco’s economic performance and it has the obligation to absorb losses of Servco that could potentially be significant to Servco. Such losses would be immaterial to PSEG.

Pursuant to the OSA, Servco’s operating costs are paid entirely by LIPA, and therefore, PSEG LI’s risk is limited related to the activities of Servco. PSEG LI has no current obligation to provide direct financial support to Servco. In addition to payment of Servco’s operating costs as provided for in the OSA, PSEG LI receives an annual contract management fee. PSEG LI’s annual contractual management fee, in certain situations, could be partially offset by Servco’s annual storm costs not approved by the Federal Emergency Management Agency, limited contingent liabilities and penalties for failing to meet certain performance metrics.

For transactions in which Servco acts as principal and controls the services provided to LIPA, such as transactions with its employees for labor and labor-related activities, including pension and OPEB-related transactions, Servco records revenues and the related pass-through expenditures separately in Operating Revenues and Operation and Maintenance (O&M) Expense, respectively. Servco recorded $137 million and $142 million for the three months and $389 million and $394 million for the nine months ended September 30, 2022 and 2021, respectively, of O&M costs, the full reimbursement of which was reflected in Operating Revenues. For transactions in which Servco acts as an agent for LIPA, it records revenues and the related expenses on a net basis, resulting in no impact on PSEG’s Condensed Consolidated Statement of Operations.

VIE for which PSEG is not the Primary Beneficiary

PSEG holds a 25% equity interest in Ocean Wind JV HoldCo, LLC (OWH), which holds Ørsted North America Inc.’s (Ørsted) Ocean Wind 1 project that is expected to achieve full commercial operation in 2025. OWH is considered a VIE since its equity investments at risk are not sufficient to permit this entity to finance its activities without additional subordinated financial support. Since PSEG does not have voting control or the power to direct the activities of OWH that most significantly impact its economic performance, PSEG has determined that it is not the primary beneficiary and therefore accounts for this investment under the equity method. As of September 30, 2022 and December 31, 2021, PSEG’s carrying amount of its investment in

OWH was $190 million and $111 million, respectively, which is included in Long-Term Investments on PSEG’s Condensed Consolidated Balance Sheets. PSEG’s maximum exposure to loss is limited to the carrying amount of its investment and additional planned funding of approximately $35 million to support continued project development to its final investment decision (FID).

PSEG’s continuation as an equity owner of the Ocean Wind 1 project is subject to its FID, which represents the decision to proceed to the construction phase of the project. Each of Ørsted and PSEG is expected to make its own decision on whether to take FID. If PSEG chooses not to proceed with the project and Ørsted determines to proceed, Ørsted is required to purchase PSEG’s 25% equity interest. PSEG is reviewing its options regarding the status of PSEG’s equity investment in the project and the final outcome cannot be determined at this time.