To share the benefits of a consistent decline in input costs, Public Service Electric and Gas Co. (PSE&G), a unit of Public Service Enterprise Group Inc. (PEG) or PSEG, again proposed to lower residential gas bills by 6.8%. Excluding the proposed rate curtailments, PSE&G has lowered the gas bills by 21% since January 2009, when the prices of wholesale natural gas started to drop.
 
The current filing with the New Jersey Board of Public Utilities (BPU) to reduce rates comes immediately after a net 4% reduction in the residential gas bills implemented on July 9, 2010.
 
If the present filing by PSEG is approved by the New Jersey BPU, it will benefit the consumers again before the winter season. A residential consumer, who uses 160 therms in a winter month, or 1,050 therms per year, would see a decrease of $94 on an annual basis if the new rates are approved. With the new rates, a monthly winter residential bill would amount to $194.13, a decline of $14.26 per month.
 
The natural gas supply revenue of PSEG in the first quarter of 2010 decreased by $245 million over the year-ago period. A net decrease of $215 million in revenue is attributable to lower average gas prices on lower volumes of sales caused by milder weather in 2010, lower net gains on financial hedging transactions in 2010 and a net decrease of $30 million due to reduction in sales volumes to third party customers.
 
PSEG maintains its operating guidance range of $3.00-$3.25 per share for 2010. The Zacks Consensus Estimates for second quarter 2010, fiscal year 2010 and fiscal year 2011 are 62 cents per share, $3.13 per share and $2.99 per share, respectively.
 
We appreciate the initiatives taken by PSEG to lower natural gas rates, as the company is booking no profit on the sale of natural gas and instead passing on the benefits to its customers. The positive catalysts for PSEG are its robust portfolio of regulated and non-regulated utility assets that offer a steady earnings base and significant long-term growth prospects.
 
However, we believe the current adverse macro backdrop, the increasing cost of coal, higher pension and financial costs, and the power-price volatility will make the shares of PSEG perform in line with the broader market. We presently retain a Neutral rating and Zacks #3 Rank (Hold) on the stock.
 
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