PSEG (PEG) Q2 2026 earnings review
Core Earnings Accelerate as Power Margins Offset Top-Line Decline
PSEG delivered a mixed Q2 2026 report where surface-level metrics hide strong operational execution. Total revenue dropped 9% YoY and GAAP Net Income plunged 43% to $0.67 per share, driven primarily by massive Mark-to-Market (MTM) accounting swings on forward hedges. However, looking at core operations, Non-GAAP Operating Earnings grew 12% to $0.86 per share. The PSEG Power segment was the standout, surging 60% in non-GAAP earnings to effectively offset the complete loss of Zero Emission Certificate (ZEC) subsidies. Management maintained its FY26 guidance of $4.28-$4.40, signaling confidence that the underlying regulated investment thesis remains fully intact despite wholesale market volatility.
🐂 Bull Case
Despite ZECs ending in May 2025, PSEG Power & Other Non-GAAP Operating Earnings increased from $52M in 25Q2 to $83M in 26Q2. Higher realized capacity and energy prices are completely offsetting lost subsidies.
The utility successfully deployed ~$1B in capital during Q2, remaining on track for its $4.2B target for 2026. This reinforces the highly predictable 6%-7.5% rate base CAGR.
🐻 Bear Case
A staggering $258M pre-tax MTM loss completely wiped out the narrative of an earnings beat on a GAAP basis, reminding investors of the inherent volatility in the unhedged portions of the power generation business.
While PSE&G utility earnings grew slightly, they were heavily burdened by surging Operation & Maintenance (O&M) costs (up 8% YoY) and rising interest expenses, indicating operational leverage is under pressure.
⚖️ Verdict: ⚪
Neutral to Bullish. The 43% drop in GAAP net income is ugly on paper but almost entirely driven by non-cash MTM items. The 12% rise in non-GAAP EPS and excellent nuclear execution show a fundamentally sound, well-managed utility, even if top-line revenue is decelerating.
Key Themes
PSEG Power Margin Expansion
Accelerating. The nuclear fleet's transition from a subsidized asset to a market-driven cash engine is succeeding. Despite the absence of ZECs (which ended May 2025), PSEG Power & Other non-GAAP earnings jumped to $83M (from $52M). The segment benefited from a higher capacity factor (92.0% vs 88.8%) and clearing PJM capacity prices at $329/MW-day for the current delivery year. This validates management's strategy to hedge >95% of expected output while capturing capacity market upside.
Uninterrupted Utility Base Investment
Stable. PSE&G invested ~$1 billion in Q2, keeping it firmly on pace to hit the ~$4.2 billion 2026 target. These expenditures—funneled directly into the Gas System Modernization Program (GSMP) and electric transmission—are the bedrock of the 6-8% long-term earnings CAGR, driving predictable returns irrespective of power market swings.
Clean Energy Future & Tech Integration
Accelerating. PSEG is effectively leveraging technology to manage the grid and lower structural costs. During early July's record 14-year peak load of 10,446 MW, the company seamlessly activated Demand Response protocols under the Clean Energy Future umbrella. These programs have generated over $1 billion in annual savings for 525,000 customers since 2020, providing crucial political cover to continue growing the rate base.
Massive Mark-to-Market Reversals
Reversing. While management prefers to focus on non-GAAP results, a $258 million pre-tax MTM loss in Q2 represents a dramatic $448 million negative swing compared to Q2 2025's $190 million gain. This MTM volatility, related to forward delivery months on wholesale power and gas, obscures core utility performance and introduces earnings risk if market dynamics structurally decouple from PSEG's hedging strategy.
Utility O&M and Expense Creep
Decelerating. PSE&G utility margin expansion is facing friction. Operation and maintenance (O&M) expenses at the utility increased from $504M in 25Q2 to $545M in 26Q2 (+8%). Additionally, depreciation and interest expenses rose due to incremental investments and a prior year Transmission true-up. This expense creep limited the utility segment's non-GAAP earnings growth to a mere 3% ($342M vs $332M), contrasting sharply with the Power segment's 60% leap.
Balancing Affordability with Record Capex
Stable. The macro picture remains heavily focused on the social license to operate in New Jersey. To offset the upward pressure of its massive $24B-$28B capital plan, PSE&G filed to lower residential gas bills by 5% beginning October 1. While this ensures New Jersey maintains the lowest gas bills in the Mid-Atlantic, it underscores the political limits on total customer bill impacts, which could ultimately cap authorized returns on future electric grid expansions.
Other KPIs
Reversing. Down 9% from $2.80 billion a year ago. However, this is largely optical due to the pass-through nature of lower energy costs. Energy costs fell from $826M to $866M (wait, energy costs actually rose on a standalone PSE&G basis, but consolidated energy costs were heavily impacted by intercompany eliminations). The true top-line deceleration heavily contradicts the earnings growth narrative but reflects commodity market pricing rather than lost customer volume.
Accelerating. Up from 88.8% in Q2 2025. This generated 7.8 TWh of carbon-free baseload power. Operational excellence here directly feeds the bottom line, especially now that PJM capacity prices have structurally stepped up and ZECs have been removed.
Guidance
Stable. The midpoint of $4.34 implies roughly a 7% acceleration over the $4.05 achieved in FY25. Management's confidence in reaffirming this metric despite a turbulent Q2 for GAAP results indicates high visibility into H2 utility rate recovery and hedged power margins.
Stable. Reaffirmed alongside the $24B-$28B total five-year capital investment program. Crucially, management stressed again that this will be funded entirely without the need to issue new equity or sell assets.
Key Questions
Early July Storm Impact
The release notes early July storms (70mph winds) required 330 crews to restore 380,000 customers. What is the estimated O&M drag for Q3 from this event, and will any of those costs be deferred?
Data Center Conversion Rates
You noted in previous quarters a massive 11 GW pipeline for large load data center inquiries. With Q2 showing flat residential gas customer growth and only 1% C&I electric sales growth, what is the updated conversion rate from inquiry to signed interconnection agreement?
Post-ZEC Hedging Strategy
With ZECs expiring in May 2025, you rely fully on the market and the federal PTC floor. With >95% of 2026 output hedged, at what price points are you layering on hedges for 2027 to protect the elevated margins generated this quarter?
MTM Volatility Drivers
The $258 million pre-tax MTM loss was a massive swing. Could you provide granularity on which specific forward curves or delivery months drove this reversal, and how it impacts your collateral posting requirements?