PUBLIC SERVICE ELECTRIC & GAS CO

PSE&G

Our regulated T&D public utility, PSE&G, distributes electric energy and natural gas to customers within a designated service territory running diagonally across New Jersey where approximately 6.8 million people, or about 74% of New Jersey’s population resides.

Products and Services

Our utility operations primarily earn margins through:

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Transmission—the movement of electricity at high voltage from generating plants to substations and transformers, where it is then reduced to a lower voltage for distribution to homes, businesses and industrial customers. Our revenues for these services are based upon tariffs approved by the Federal Energy Regulatory Commission (FERC).

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Distribution—the delivery of electricity and gas to the retail customer’s home, business or industrial facility. Our revenues for these services are based upon tariffs approved by the New Jersey Board of Public Utilities (BPU).

The commodity portion of our utility business’ electric and gas sales is managed by basic generation service (BGS) and basic gas supply service (BGSS) suppliers. Pricing for those services is set by the BPU as a pass-through, resulting in no margin for our utility operations.

In addition, we continue to invest in and pursue opportunities in regulated clean energy programs, including EE, electric vehicle (EV) make-ready charging infrastructure and other potential investments.

We also earn margins through competitive services, such as appliance repair, in our service territory.

How PSE&G Operates

We are a transmission owner in PJM Interconnection, L.L.C. (PJM) which is an Independent System Operator (ISO) and Regional Transmission Organization (RTO) that operates the electric transmission system in the Mid-Atlantic Region, including New Jersey and the surrounding states. We provide distribution service to 2.4 million electric customers and 1.9 million gas customers in a service area that covers approximately 2,600 square miles running diagonally across New Jersey. We serve the most densely populated, commercialized and industrialized territory in New Jersey, including its six largest cities and approximately 300 suburban and rural communities.

Transmission

We use formula rates for our transmission cost of service and investments. Formula rates provide a method of rate recovery where the transmission owner annually determines its revenue requirements through a fixed formula that provides for a recovery of our operating costs and a return of and on our capital investments in the system, net of accumulated depreciation and deferred tax liabilities (also known as rate base) using an approved return on equity (ROE) in developing the weighted average cost of capital. Under this formula, rates are put into effect in January of each year based upon our internal forecast of annual expenses and capital expenditures. Rates are subsequently trued up to reflect actual annual expenses and capital expenditures. Our transmission revenues are not impacted by sales volumes. Our current approved transmission rates provide for a base ROE of 9.90% and a 50 basis point adder for our membership in PJM as an RTO. See Item 7. MD&A—Executive Overview of 2025 and Future Outlook for additional information.

Distribution

PSE&G distributes electricity and natural gas to end users in our respective franchised service territories. Our distribution rates are subject to periodic rate cases approved by the BPU. In October 2024, the BPU issued an Order approving the settlement of PSE&G’s electric and gas distribution base rate case with new rates effective October 15, 2024. The Order provided for a $17.8 billion rate base, a 9.6% return on equity for PSE&G’s distribution business and a 55% equity component of its capitalization structure. For additional information, see Item 8. Note 5. Regulatory Assets and Liabilities.

The BPU has also approved a series of PSE&G infrastructure, EE, EV and renewable energy investment programs with cost recovery through various clause mechanisms. For a discussion of proposed and approved programs, see Investment Clause Programs as follows and Item 7. MD&A—Executive Overview of 2025 and Future Outlook.

Our load requirements are split among commercial, residential and industrial customers, as shown in the following table for 2025:

Our customer base has modestly increased since 2021, with electric and gas loads changing as illustrated in the following table:

(A)

Excludes sales from Gas rate classes that do not impact margin, specifically Contract, Non-Firm Transportation, Cogeneration Interruptible and Interruptible Services.

As part of the BPU's approval of the Clean Energy Future-Energy Efficiency (CEF-EE) filing in 2021, we implemented the Conservation Incentive Program (CIP) that trues up PSE&G’s distribution margin to a rate case-approved baseline per customer for the majority of our customers. As a result, electric and gas sales volumes and demands are no longer a driver of our margin and over 90% of our Electric and Gas Distribution margin will only vary based upon the number of customers. While load has modestly decreased in the past due to a decline in larger industrial customers, greater EE and other factors, a significant increase in load is anticipated due to the increasing adoption of EVs, the expansion of data centers and other large users in our area, ongoing growth in the number of customers, other sources of electrification and other factors, which will collectively drive the need for increased system investment.

Investment Clause Programs

The following table lists our major approved investment clause programs that are in progress:

(A)

Rolling three-year program with over 80% of spending within 5 years, with limited spending thereafter.

(B)

The program has a small amount of trailing costs expected to be spent in year 4.

(C)

The program has a small amount of trailing costs expected to be spent in year 3.

To date, we launched three of the four components of our CEF:

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EE—designed to achieve EE targets required under New Jersey’s Clean Energy Act through a suite of ten programs for residential, C&I programs, including low-income, multi-family, small business and local government.

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Energy Cloud (EC)—driven by the implementation of “smart meters,” and new software and product solutions to improve our processes and better manage the electric grid. This project was completed in 2024.

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EV—primarily relating to preparatory work to deliver infrastructure to the charging point for three programs: residential smart charging; Level-2 mixed use charging; and direct current (dc) fast charging.

Our CEF-Energy Storage (ES) program, which was filed with the BPU in October 2018, is being held in abeyance.

GSMP III—designed to replace at least 600 miles of cast iron and unprotected steel mains and services in our gas system.

GSMP II Extension—designed to replace at least 400 miles of cast iron and unprotected steel mains and services in our gas system.

IAP—designed to improve the reliability of the “last mile” of our electric distribution system and address aging substations and gas metering and regulation stations.

See Item 7. MD&A—Executive Overview of 2025 and Future Outlook for additional information.

Solar Generation

We have also undertaken solar initiatives at PSE&G, which primarily invest in utility-owned solar photovoltaic (PV) grid-connected solar systems installed on PSE&G property and third-party sites with our economics driven by our net investment in solar, with a contemporaneous return on that rate base.

Supply

We make no margin on the default supply of electricity and gas since the actual costs are passed through to our customers.

All electric and gas customers in New Jersey have the ability to choose their electric energy and/or gas supplier. Pursuant to BPU requirements, we serve as the supplier of last resort for two types of electric and gas customers within our service territory that are not served by another supplier. The first type provides default supply service for smaller C&I customers and residential customers at seasonally-adjusted fixed prices for a three-year term (BGS-Residential Small Commercial Pricing (RSCP)). These rates change annually on June 1 and are based on the average price obtained at auctions in the current year and two prior years. The second type provides default supply for larger customers, with energy priced at hourly PJM real-time market prices for a contract term of 12 months (BGS-Commercial Industrial Energy Pricing).

We procure the supply to meet our BGS obligations through auctions authorized by the BPU for New Jersey’s total BGS requirement. These auctions take place annually in February. Once approved by the BPU, electricity prices for BGS service are set. Approximately one-third of PSE&G’s total BGS-RSCP eligible load is auctioned each year for a three-year term. For information on current prices, see Item 8. Note 12. Commitments and Contingent Liabilities.

PSE&G procures the supply requirements of its default service BGSS gas customers through a full-requirements contract with PSEG Power. The BPU has approved a mechanism designed to recover all gas commodity costs related to BGSS for residential customers. BGSS filings are made annually by June 1 of each year, with a targeted effective date of provisional rates by October 1. PSE&G’s revenues are matched with its costs using deferral accounting, with the goal of achieving a zero cumulative balance by September 30 of each year. In addition, we have the ability to put in place two self-implementing BGSS increases on December 1 and February 1 of up to 5% and also may reduce the BGSS rate at any time and/or provide bill credits. Any difference between rates charged under the BGSS contract and rates charged to our residential customers is deferred and collected or refunded through adjustments in future rates. C&I customers that do not select third-party suppliers are also supplied under the BGSS arrangement. These customers are charged a market-based price largely determined by prices for commodity futures contracts.

PSEG Power & Other is predominantly comprised of its nuclear generation assets, its natural gas supply operations, the Operating Services Agreement (OSA) of PSEG LI with LIPA, and other legacy investments. PSEG Power is a public utility within the meaning of the Federal Power Act (FPA) and the payments it receives and how it operates are subject to FERC regulation.

Products and Services

As a nuclear generation owner and operator, our revenue has been derived primarily from energy, capacity and ancillary services sold to PJM in the spot markets. These products and services may also be hedged through exchange markets or bilaterally.

PSEG Power also sells wholesale natural gas, primarily through a full-requirements BGSS contract with PSE&G to meet the needs of PSE&G’s default service customers. In 2022, the BPU approved an extension of the long-term BGSS contract to March 31, 2027, and thereafter the contract remains in effect unless terminated by either party with a two-year notice.

PSEG Power supplies PSE&G’s peak daily gas requirements through its balanced portfolio of firm gas transportation capacity, storage contracts, contract peaking supply, and liquefied natural gas and propane. Based upon the availability of natural gas beyond PSE&G’s actual daily needs, PSEG Power sells gas to other customers and shares these proceeds with PSE&G’s customers.

How PSEG Power’s Nuclear Generation Operates

As of December 31, 2025, PSEG Power had 3,758 MW of nuclear generation capacity. All of our nuclear generation capacity is located in New Jersey and Pennsylvania.

Our nuclear generation is considered to be base load. Base load units run the most and typically are called to operate whenever they are available. Variable operating costs are low due to the combination of highly efficient operations and the use of relatively lower-cost fuels. Performance is generally measured by the unit’s “capacity factor,” or the ratio of the actual output to the theoretical maximum output.

Nuclear Fuel Supply

We have long-term contracts for nuclear fuel. These contracts provide for:

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purchase of uranium (concentrates and uranium hexafluoride),

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conversion of uranium concentrates to uranium hexafluoride,

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enrichment of uranium hexafluoride, and

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fabrication of nuclear fuel assemblies.

We expect to be able to meet the nuclear fuel supply demands of our operations. However, there are limited suppliers for certain aspects of this supply chain and the ability to maintain an adequate fuel supply could be affected by several factors not within our control, including changes in prices and demand, tariffs, curtailments by suppliers, severe weather, environmental regulations, war and hostilities, and other factors. For additional information and a discussion of risks, see Item 1A. Risk Factors, Item 7. MD&A—Executive Overview of 2025 and Future Outlook and Item 8. Note 12. Commitments and Contingent Liabilities.

Markets and Market Pricing

All of PSEG Power’s nuclear generation assets are located within the PJM RTO. In PJM, owners of power plants specify prices at which they are prepared to generate and sell energy based on the marginal cost of generating energy from each individual unit. Typically, the bid price of the last unit dispatched by PJM establishes the energy market-clearing price.

This method of determining supply and pricing creates a situation where natural gas prices often have a major influence on the price that generators will receive for their output, especially in periods of relatively strong or weak demand. Therefore, changes in the price of natural gas will often translate into changes in the wholesale price of electricity and will continue to have a strong influence on the price of electricity in the markets in which we operate.

Market wholesale prices may vary by location resulting from congestion or other factors and do not necessarily reflect our contract prices. Forward prices are volatile and there can be no assurance that current forward prices will remain in effect or that we will be able to contract output at these forward prices.

In August 2022, the Inflation Reduction Act (IRA) was signed into law expanding incentives that promote carbon-free generation. The enacted legislation established the production tax credit (PTC) for electricity generation using nuclear energy, which began January 1, 2024 and is available through 2032. PSEG Power’s nuclear plants are eligible to benefit from the PTC. The expected PTC rate is up to $15 per megawatt hour (MWh) subject to adjustment based upon a facility’s gross receipts and meeting prevailing wage rules. The PTC rate and the gross receipts threshold are subject to annual inflation adjustments. Until additional guidance is issued by the U.S. Treasury, the final realized value of the PTC is subject to adjustment, which may be material. PSEG did not record any PTCs for any of its nuclear units in 2025 as gross receipts exceeded the level at which we would receive PTCs. However, the PTC continues to provide a benefit to our nuclear units by helping to mitigate the exposure to potential downside market volatility.

Our nuclear generating units’ performance and market prices have a considerable effect on our profitability. The PTC is designed to increase with inflation, and therefore, future inflation levels will impact the potential financial support for our nuclear units. In addition, market revenues in excess of the PTC threshold provide opportunity for incremental benefit.

PSEG Power’s Salem 1, Salem 2 and Hope Creek nuclear plants were also awarded zero emission certificates (ZECs) by the BPU through May 2025. These nuclear plants received ZEC revenue from the electric distribution companies (EDCs) in New Jersey, which was equivalent to approximately $10/MWh. ZEC revenue recorded was reduced by the estimated PTCs generated from PSEG Power’s Salem 1, Salem 2, and Hope Creek nuclear plants. ZEC revenue will be adjusted based upon the actual amount of the PTCs when guidance is issued on how to calculate gross receipts and that adjustment could be material.

In addition to energy sales, we earn revenue from capacity payments for our generating assets. These payments are compensation for committing our generating units to PJM for dispatch at its discretion. Capacity payments reflect the value to PJM of assurance that there will be sufficient generating capacity available at all times to meet system reliability and energy requirements.

In PJM the market design for capacity payments provides for a forward-looking, capacity pricing mechanism through the Reliability Pricing Model (RPM). For additional information regarding auction delays, complaints against PJM regarding RPM, PJM and FERC actions related to the capacity market construct and resulting market uncertainty, see Regulatory Issues—Federal Regulation.

The prices to be received by generating units in PJM for capacity have been set through RPM base residual and incremental auctions and depend upon the zone in which the generating unit is located. The average capacity prices that PSEG expects to receive from the base residual and incremental auctions which have been completed are disclosed in Item 8. Note 2. Revenues.

In addition, the PJM capacity market imposes performance obligations and non-performance penalties on resources during times of system stress. These rules provide an opportunity for bonus payments or require the payment of penalties depending on whether a unit is available during a performance interval.

Hedging Strategy

Generally, we seek to hedge the financial risks of our generation through sales at PJM West or other nodes corresponding to our nuclear generation portfolio. Our hedge transactions in PJM generally reflect energy sales at the liquid PJM Western Hub or other basis locations when available and other transactions that seek to secure price certainty for our energy output. Our hedging practices help to manage some of the volatility of the nuclear generation business when forward prices are greater than the level at which we would receive PTCs.

To mitigate volatility in our results, we seek to contract in advance to hedge the price exposure for a significant portion of our anticipated electric output, capacity and fuel needs. Our hedging strategy also considers the risk reduction impact of the PTC, as the PTC is intended to provide sufficient and stable support for nuclear units. While the PTC eligibility period began in January 2024, the U.S. Treasury has yet to issue guidance regarding the definition of gross receipts. We continue to analyze the impact of the IRA on our nuclear units, including potential future guidance from the U.S. Treasury, potential impacts on hedging strategies and overall financial support.

We historically have sold a portion of our anticipated generation over a multi-year forward horizon, normally over a period of up to three years, while also retaining the flexibility to add hedges for longer terms if market conditions are favorable. Our hedging strategy has incorporated an estimated range of risk reduction impacts from the PTCs on our nuclear generation portfolio while retaining the ability to benefit when market pricing exceeds the level at which we would receive PTCs. As of December 31, 2025, we expect that our current portfolio position for 2026 will result in the realized value of our nuclear generation output being above the level at which we would receive PTCs. Our strategy may continue to evolve taking into account energy market conditions, PTC guidance uncertainty, and potential incremental changes upon receiving U.S. Treasury guidance.

Our fuel strategy is to maintain certain levels of uranium in inventory and to make periodic purchases to support such levels.

LIPA Operations Services Agreement (OSA)

PSEG LI has been operating LIPA’s electric T&D system in Long Island, New York since 2014 under a 12-year OSA with LIPA that expired on December 31, 2025. In 2025, a five year extension of the contract was approved. A competitor in the contract bidding process filed litigation against LIPA challenging the process. LIPA filed a motion to dismiss the competitor’s claim as untimely, which was granted by the New York Supreme Court in December 2025. The competitor filed an appeal in January 2026.

Under the OSA, PSEG LI acts as LIPA’s agent in performing many of its obligations and in return (a) is prefunded for pass-through operating expenditures, (b) receives a fixed management fee and (c) is eligible to receive an incentive fee contingent on meeting established performance metrics.

PSEG continues to evaluate investment opportunities in regulated transmission. In December 2023, PJM awarded us an approximately $424 million project to construct a 500 kV transmission line to address increasing load and reliability issues in Maryland and northern Virginia as part of its 2022 Window 3 competitive solicitation. PJM directed that the project be placed in service in 2027. However, based on the procedural timeline established by order of the Maryland Public Service Commission, we do not currently believe a 2027 in-service date for the project is reasonably achievable. We are continuing to take all available steps to obtain approvals for timely project execution. We cannot predict the outcome.

PSEG will continue to evaluate opportunities to participate in transmission solicitation processes and may decide to submit bids for these opportunities, some of which could be material investments. For additional information, see Item 7. MD&A— Executive Overview of 2025 and Future Outlook.

Energy Holdings

Energy Holdings maintains our portfolio of legacy lease investments. See Item 8. Note 7. Long-Term Investments and Note 8. Financing Receivables for additional information.