Public Service Enterprise Group Incorporated (PEG) | The Buildout — AI Infrastructure
The Verdict
Public Service Enterprise Group is a utility holding company whose two segments play different roles in the power supply chain. PSE&G is a franchised New Jersey utility that moves electricity and gas over wires and pipes — the network any large new load must connect to. PSEG Power owns and runs nuclear plants and sells that output into PJM's wholesale market. PEG does not sell AI hardware or services; its exposure is demand-side, because data centers and other large loads need electricity, capacity, and firm generation. Management talks about "data center–driven load growth" and "large loads," not AI as a product.
| Market Cap | — |
| Revenue (TTM) | $12.5B |
| Revenue Growth | +12.7% |
| EBITDA Margin (TTM) | 33.3% |
| Net Debt | $24.5B |
| Earnings Beats | 6 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Management reaffirmed FY2026 non-GAAP operating earnings guidance of $4.28–$4.40 per share at both the Q1 and Q2 2026 calls.
- The five-year plan targets 6%–8% non-GAAP operating earnings CAGR and 6%–7.5% rate base CAGR through 2030.
- The capital program is $22.5B–$25.5B of regulated investment within a $24B–$28B total, which management says is fundable without issuing new equity or selling assets.
- The nuclear fleet ran at a 92% capacity factor in Q2 2026 and 95.5% in Q1, including a second consecutive breaker-to-breaker run at Salem Unit 2.
- The 2026 indicative dividend is $2.68 per share, which management describes as a roughly 6% increase and the 15th consecutive annual increase.
What We’re Watching
- PSE&G expects to file a base rate case by year-end 2026 — roughly two and a half years earlier than the prior requirement — and management has not disclosed the size of the request.
- The loss of the RTO incentive adder is quantified at $40 million of net income, or about $0.08 per share, annually, effective January 2027; management says it was already modeled into the long-term guide.
- PJM's capacity price collar stays in place through the auction covering pricing into mid-2030, capping upside; the latest auction cleared at $325/MW-day while the uncapped price would have been $555.
- Data-center interest has leveled off in New Jersey absent tax incentives, and the ~11.8 GW large-load pipeline has not been updated since December.
The thesis looks intact rather than strengthening. The regulated engine is doing what it is supposed to — capital deployed at a steady run-rate, guidance reaffirmed, funding without dilution — and PSEG Power's non-GAAP earnings are recovering even as GAAP swings on roll-offs. What has not changed is the AI piece: it is optionality with no disclosed revenue line, and management's own language is "no inflections." The open question is the base rate case — whether New Jersey resets the cost of service in a way that lets the capital program earn its return and the 6%–7.5% rate base CAGR flow through to earnings.
Earnings Beat
PEG reported second-quarter 2026 revenue of $2,554 million. Net income was $334 million, or $0.67 per share, down from $585 million, or $1.17, a year earlier. Non-GAAP operating earnings were $425 million, or $0.86 per share, versus $0.77. PSE&G net income rose to $342 million from $332 million on energy-efficiency and gas system modernization investment. PSEG Power and Other swung to an $8 million net loss from $253 million of income, mainly on the absence of Zero Emission Certificates and LIPA fuel and energy management fees; its non-GAAP operating earnings rose to $83 million from $52 million. EBITDA was $782 million, a 30.6% margin.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $2.6B | $3.8B | $2.8B | −8.9% |
| Gross margin | 64.5% | 75.6% | 40.1% | +2440bps |
| EBITDA | $782M | $1.4B | $1.2B | −33.3% |
| EPS | $0.67 | $1.48 | $1.17 | −42.9% |
| Nuclear capacity factor | 92% | 95.5% | n/a | — |
| Nuclear generation | 7.8 TWh | ~8 TWh | n/a | — |
We're looking for utility-like returns because we're looking for utility-like risk. And I don't want to go much further than that other than to reinforce utility-like, utility-like, utility-like.— Ralph LaRossa, CEO, 2026-08-04
Management tone: Management's tone stayed consistent and disciplined across the two calls in the record. On the prior call, management discussed regulatory outreach in the abstract; on this call it gave a dated commitment to file a base rate case by year-end 2026. PSEG Power moved from monitoring PJM's reliability backstop to submitting project proposals. Management tempered expectations on the virtual power plant, saying there is "not a tremendous financial opportunity" there, and declined to size the rate case, set a return target, or detail hedging beyond 2026.
Management Guidance
Management reaffirmed FY2026 non-GAAP operating earnings of $4.28–$4.40 per share, a 6%–8% non-GAAP operating earnings CAGR through 2030, a $22.5B–$25.5B regulated capital plan within a $24B–$28B total program, and 6%–7.5% rate base CAGR — all funded, it says, without new equity or asset sales. It quantified the RTO incentive loss at $40 million of net income, or about $0.08 per share, annually from January 2027, and said the scenario was considered when the long-term guide was rolled forward. New forward items in the quarter: a base rate case filing anticipated by year-end 2026, an EE2 Triennium extension proposal to file by September 30, and a residential gas bill decrease of more than 5%.
Trajectory
Revenue is stable but lumpy — $3,848 million in Q1 2026 and $2,554 million in Q2 — because much of the distribution line is commodity revenue that is offset in energy costs. The durable growth is rate base: PSE&G invests at roughly a $4.2 billion annual run-rate against a 6%–7.5% rate base CAGR through 2030. EBITDA margin slipped to 30.6% in Q2 2026 from 41.8% a year earlier. Inside PSEG Power, non-GAAP operating earnings improved to $83 million from $52 million even as GAAP swung on Zero Emission Certificate and LIPA roll-offs.
The Model
The model projects FY+1 revenue of $12,850 million and EBITDA of $4,639 million, a 36.1% margin. For FY+2 it projects revenue of $13,600 million and EBITDA of $5,005 million, a 36.8% margin. The near-term anchor is the regulated capital plan converting into rate base; FY+2 depends on whether that investment pace holds and whether nuclear contracting or PJM backstop awards add contracted revenue.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $12.2B | $12.8B | $13.6B |
| YoY Growth | — | +5.6% | +5.8% |
| EBITDA | $4.3B | $4.6B | $5.0B |
| EBITDA Margin | 35.7% | 36.1% | 36.8% |
Projections are the median of 5 independent model runs. The model’s revenue sits 4.6% above analyst consensus.
Management reaffirmed FY2026 non-GAAP operating earnings of $4.28–$4.40 per share, a 6%–8% non-GAAP operating earnings CAGR through 2030, a $22.5B–$25.5B regulated capital plan within a $24B–$28B total program, and 6%–7.5% rate base CAGR — all funded, it says, without new equity or asset sales. It quantified the RTO incentive loss at $40 million of net income, or about $0.08 per share, annually from January 2027, and said the scenario was considered when the long-term guide was rolled forward. New forward items in the quarter: a base rate case filing anticipated by year-end 2026, an EE2 Triennium extension proposal to file by September 30, and a residential gas bill decrease of more than 5%.
What Could Go Right — and Wrong
- A signed multiyear nuclear offtake agreement would convert existing fleet output from collar-capped spot sales into contracted revenue; management says discussions are ongoing but has named no counterparty, volume, tenor, or price.
- A base rate case that resets the cost of service and resolves regulatory lag, supporting the 6%–7.5% rate base CAGR through 2030.
- PJM reliability backstop awards or bilateral contracts on utility-like terms, validating PSEG Power's re-entry into dispatchable generation.
- New Jersey reversing course on large-load incentives, reviving in-state data-center interest and the incremental system investment that would come with it.
- A competitive transmission award, or a further favorable FERC ruling on cost allocation, building on the transmission cost-allocation win management treats as the template for the RBP fight.
- A rate case that fails to resolve regulatory lag — if the state applies its affordability lens to the allowed return or revenue requirement, rate base growth may not convert into earnings growth.
- No nuclear offtake, no in-state data-center load, and no backstop award, leaving the AI thesis thematic with no disclosed revenue.
- Large loads choosing behind-the-meter generation instead of taking utility service, shrinking both load growth and the contracting opportunity.
- Further adverse regulatory rulings — on transmission cost allocation or zonal charges — on top of the already-modeled RTO adder loss.
- Merchant re-entry at merchant risk, reversing the risk posture the company chose when it exited market-based generation.
Looking Ahead
The next twelve months are dominated by regulatory milestones rather than new business. PSE&G expects to file its base rate case by year-end 2026, the BPU is due to issue its Executive Order 1 framework, and the December 2026 PJM auction will show whether the capacity price collar binds again. Nuclear uprates are tied to a 2027 or 2029 outage, and new nuclear procurement under the Power New Jersey Act remains a roughly 12-year project.
- September 30, 2026EE2 Triennium filing — One-year extension proposal for the energy-efficiency program.
- December 2026PJM Base Residual Auction — Tests whether capacity prices stay at the collar.
- Year-end 2026Base rate case filing — PSE&G's first base rate filing since the October 2024 settlement.
- Q4 2026 / early 2027EO1 framework order — BPU order on the performance-based ratemaking framework.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $10.3B | $12.2B | $12.5B | +18.3% |
| Gross Margin | 34.4% | 70.5% | 85.4% | +3,612bps |
| EBITDA | $3.7B | $4.3B | $4.2B | +16.4% |
| EBITDA Margin | 36.2% | 35.7% | 33.3% | 56bps |
| Net Income | $1.8B | $2.1B | $2.0B | +19.1% |
| Free Cash Flow | −$1.2B | $276M | $2.0B | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)85.4%
- EBITDA Margin (TTM)33.3%
- Net Margin (TTM)16.0%
- ROIC5.5%
- FCF Conversion47.5%
- SBC / Revenue0.0%
The Company
PEG is a holding company whose 10-K describes it as "a predominantly regulated electric and gas utility and a nuclear generation business." It runs two reportable segments. PSE&G is a franchised New Jersey utility providing electric transmission and electric and gas distribution to residential, commercial, and industrial customers, plus appliance services and regulated solar and energy-efficiency programs. PSEG Power owns and operates nuclear plants, selling energy and capacity into PJM's wholesale markets, and sells wholesale natural gas to PSE&G under a full-requirements contract. Management's stated plan is to grow by investing in regulated infrastructure and realizing value from the nuclear fleet.
The nuclear fleet is the physical anchor on the generation side: Hope Creek (1,174 MW, 100% owned), Salem 1 & 2 (2,280 MW total, 57% owned, 1,309 MW net), and Peach Bottom 2 & 3 in Pennsylvania (2,549 MW total, 50% owned, 1,275 MW net). PSEG Long Island operates the Long Island Power Authority's electric transmission and distribution system under a renewed contract that commenced January 2026. On the regulated side, PSE&G deploys about $4.2 billion of capital in 2026 under a five-year regulated plan that management says is fundable without new equity or asset sales.
Business Segments
Competitive Landscape
PEG's 10-K describes competition in broad categories rather than by name: "merchant generators, utility generators, energy marketers, retailers, private equity firms, and other financial entities." In the AI-adjacent nuclear space, the source's wiring layer names Constellation (CEG) as a competitor on nuclear-powered data-center PPAs. Management's stated posture is to participate only on utility-like terms, and a pure market solution is not something it is interested in.
- Constellation (CEG)Named in the wiring layer as a competitor on nuclear-powered data-center PPAs; not discussed in filings.
Supply Chain
PEG sits at the supply end of the buildout — it provides electricity and capacity, not equipment. No downstream neighbor names PEG in the source material. Its one documented supplier constraint is a single, unnamed nuclear fuel fabrication provider.
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