PUBLIC SERVICE ENTERPRISE GROUP INC

PSE&G

Our T&D business is not affected when customers choose alternate electric or gas suppliers since we earn our return on our net investment in rate base to provide T&D service, not by supplying the commodity. Based on our transmission formula rate and the CIP program for electric and gas distribution, we are also minimally impacted by changes in customers’ usage. Our growth is driven by (i) our investment program to deliver energy more reliably by investing to meet anticipated demand growth and modernizing our electric transmission and electric and gas distribution system and (ii) investing in programs that meet State targets to help deliver cleaner energy, including our EE programs to help customers use less energy and investment programs to build EV infrastructure and solar generation. There may also be opportunities to expand into related clean energy areas, such as renewable natural gas, hydrogen, energy storage, additional solar and renewables, and broader EE investments, though utility participation in these areas is subject to regulatory approval and market design, which continues to evolve. That growth can be affected by customer cost pressures which could result from higher commodity costs, higher supply costs to support subsidized renewable generation, higher operating costs, higher tax rates, macro-economic conditions including inflation, and other factors. Further rate regulated recovery methods, such as net metered generation and/or changes in customer usage behavior could lead to a reduction in billed customer usage to recover our costs, resulting in higher rates overall. Conversely, an increase in EV adoption and other factors could lead to an increase in system usage, require incremental investments to meet higher peak demands and result in a larger customer usage base. There could also be a shift toward greater electrification and less gas usage in the coming decades. While current costs and relative emission savings would limit any substantial change in the near term, technological advances for heat pumps, actions by certain jurisdictions in our service territory and other factors could drive these potential changes, which could result in a slowing in the growth of our gas distribution and an increase in the growth of our electric T&D business. Our CIP reduces the impact on our distribution revenues from changes in sales volumes and demand for most customers. The CIP, which is calculated annually, provides for a true-up of our current period revenue as compared to revenue thresholds established in our most recent distribution base rate proceeding. Recovery under the CIP is subject to certain limitations, including an actual versus allowed ROE test and ceilings on customer rate increases.

Changes previously ordered by FERC and implemented by PJM and other ISOs to eliminate contractual provisions that previously provided us a “right of first refusal” to construct new transmission projects in our service territory could result in third-party construction of transmission lines in our area in the future and also allow us to seek opportunities to build in other service territories. While there has been minimal impact so far, these rules continue to evolve so both the extent of the risk within our service territory and the opportunities for our transmission business elsewhere remain difficult to assess.

Various market participants compete with us and one another in transacting in the wholesale energy marketsand entering into bilateral contracts. Our competitors include but are not limited to merchant generators, utility generators, energy marketers, retailers, private equity firms, and other financial entities.

Anticipated demand growth and the pace of that relative to retirements of existing firm generation and new additions of intermittent and firm generation capacity, as well as subsidized generation capacity, or technological advances could impact forward market prices in the future.

PJM has a capacity market that has been approved by FERC. FERC regulates this market and must approve market design rule changes proposed by PJM. For information regarding recent actions by FERC relating to capacity market design, see the discussion in Regulatory Issues—Federal Regulation.

Environmental issues could also impact our competitiveness, including requirements regarding capital investments at our nuclear stations, such as cooling towers, and could lead to a material adverse effect, while other actions to further regulate carbon dioxide emissions could better position our nuclear plants.