Public Service Lowers Gas Bills

Public Service Enterprise Group Inc. (PEG - Analyst Report) yesterday lowered residential natural gas bills by approximately 7% with immediate effect. The revision, which was in advance of the winter heating season, was already approved by the New Jersey Board of Public Utilities.

As a result of the recent reduction of natural gas supply rates, the monthly bill of an average residential gas heating customer consuming 200 therms in a winter month will reduce by $20.54 to $270.85. This is the third instance of a rate cut for the supply of natural gas in fiscal 2009. Earlier in fiscal 2009, Public Service Enterprise lowered residential gas bills by 5% and 7% on Jan 1 and Mar 1, respectively. The cumulative decrease in rates was 18% as compared to October 2008 rates.

The rate cuts are in response to a steep fall in natural gas prices in fiscal 2009. Public Service Enterprise does not indulge in profit booking on the sale of natural gas and passes along the benefits of lower rates to its customers.

Public Service Enterprise Group, based in Newark, New Jersey, is a diversified utility holding company. Its operations are mostly located in the Northeastern and Mid-Atlantic parts of the U.S. The company principally operates through three key subsidiaries: Public Service Electric and Gas Company (PSE&G), PSEG Power LLC (PSEG Power) and PSEG Energy Holdings LLC (PSEG Energy).

Public Service Enterprise’s robust portfolio of regulated as well as non-regulated utility assets provides the company with a steady earnings base and significant growth prospect over the long run. The company has been striving to optimize generation margins by improving cost-structure, performance and reliability of its nuclear as well as fossil units. Management has taken several measures to improve financial stability and reduce the overall risk profile of the company.

Public Service Enterprise has been pursuing growth opportunities in the core U.S. market and increasing capital allocation in projects that provide good risk-adjusted returns. Going forward, the company's earnings growth will be driven by its low-cost nuclear fleet, assumed rate relief and added generating capacities.

However, the present unfavorable macro backdrop - Which includes the rising cost of coal, higher pension and financial costs, power-price volatility and the IRS challenge to some of its leveraged lease transactions - might overshadow the positives. We maintain our market Neutral recommendation on the shares.