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Transmission May Account for 50% of PEG’s Future Capital Spending

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Jan. 14 2016, Updated 9:05 a.m. ET

Capital spending

Given the centralized power generation model of Public Service Enterprise Group (PEG), expanding its transmission infrastructure is a necessity in order to grow. PEG expects to spend $15.6 billion in the next five years, of which ~$7.5 billion will be spent on its transmission segment alone. This spending includes new transmission asset development as well as maintenance costs for the aging infrastructure.

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Transmission projects

During the nine months ended September 30, 2015, Public Service Electric and Gas (or PSE&G), the principal subsidiary of PEG, spent $1.9 billion on the transmission and distribution system. PSE&G operates and maintains a 4,800-mile cast iron gas distribution system, the largest such system in any single state. The company is expected to spend $1.6 billion on the modernization of this gas system. Many utilities (VPU)(FXU) like Consolidated Edison (ED) and FirstEnergy (FE) are enhancing their transmission asset bases to improve service reliability and efficiency. This is a welcome move considering the slow business growth of the electric segment.

PEG’s power segment has a planned investment of around $850 million for the construction of a new gas-fired power plant in Maryland. This 755-megawatt project is expected to be operational in 2018. Another gas-fired power plant, Sewaren 7, with an estimated cost of $650 million, will also be operational in 2018.

This huge capital expenditure plan with a focus on transmission may boost the operational efficiency of PEG in the medium to long term. On the other hand, investors should also note that it may strain the company’s financials with a giant debt burden.

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