PEG, §1A diff (2016 → 2017)

ITEM 1A. RISK FACTORS The following factors should be considered when reviewing our business. These factors could have a material adverse impact on our business, prospects, financial position, results of operations or cash flows and could cause results to differ materially from those expressed elsewhere in this report. MARKET AND COMPETITION RISKS Fluctuations in the wholesale power and natural gas markets could negatively affect our financial condition, results of operations and cash flows. In the markets where we operate, natural gas prices have a major impact on the price that generators receive for their output. Over the past several years, wholesale prices for natural gas have remained well below the peak levels experienced in 2008, in part due to increased shale gas production as extraction technology has improved. Lower gas prices have resulted in lower electricity prices, which have reduced our margins as nuclear and coal generation costs have not declined similarly. PSEG and Power continue to monitor their remaining coal assets, including the Keystone and Conemaugh generating stations, to ensure their economic viability through the end of their designated useful lives and their continued classification as held for use. The precise timing of a change in useful lives may be dependent upon events out of PSEG’s and Power’s control and may impact our ability to operate or maintain these assets in the future. These generating stations may be impacted by factors such as continued depressed wholesale power prices or capacity factors, among other things. Any early retirement of these coal units before the end of their current estimated useful lives or change in the classification as held for use may have a material adverse impact on PSEG’s and Power’s future financial results. The decline in market prices of energy, resulting from low natural gas prices driven by the growth of shale gas production since 2007, the continuing cost of regulatory compliance and enhanced security for nuclear facilities, both federal and state-level policies that provide financial incentives to construct renewable energy such as wind and solar and the failure to adequately compensate nuclear generating stations for the attributes they bring similar to renewable energy production have been contributing factors to the significantly reduced revenues from nuclear generating stations while simultaneously raising the unit cost of production. In the ordinary course, management, and in the case of the Salem units the co-owner, each makes a number of decisions that impact the operation of our nuclear units beyond the current year, including whether and to what extent these units participate in RPM capacity auctions, commitments relating to refueling outages and significant capital expenditures, and decisions regarding our hedging arrangements. When considering whether to make these future commitments, management’s decisions will primarily be influenced by the financial outlook of the units, including the progress, timing and continued outlook for enactment of proposed legislation in the state of New Jersey. We cannot predict whether the legislation will be enacted or, if enacted, whether our nuclear generating stations in New Jersey will be selected or whether the legislation will provide a sufficient safety net for the continued operation of nuclear generating stations in New Jersey. If market prices continue to be depressed and legislation is not enacted that adequately compensates nuclear generating stations for their attributes, Power anticipates it will no longer be covering its costs nor be adequately compensated for its market and operational risks at the Salem and Hope Creek nuclear units and would anticipate retiring these units early. The costs associated with any such retirement, which may include, among other things, accelerated depreciation and amortization or impairment charges, accelerated asset retirement costs, severance costs, environmental remediation costs and additional funding of the Nuclear Decommissioning Trust Fund (NDT) would be material to both PSEG and Power. We may be unable to obtain an adequate fuel supply in the future. We obtain substantially all of our physical natural gas, coal and nuclear fuel supply from third parties pursuant to arrangements that vary in term, pricing structure, firmness and delivery flexibility. Our fuel supply arrangements must be coordinated with transportation agreements, balancing agreements, storage services, financial hedging transactions and other contracts to ensure that the natural gas, coal and nuclear fuel are delivered to our power plants at the times, in the quantities and otherwise in a manner that meets the needs of our generation portfolio and our customers. We must also comply with laws and regulations governing the transportation of such fuels. Additionally, the PJM power market has recently experienced an increase in natural gas-fired generation assets that supply electricity to the region. As a result, there has been a corresponding increase in the need for natural gas transportation assets to serve power generation assets. When extreme cold temperatures significantly increase the demand for natural gas used for residential heating, it can also create constraints on natural gas pipelines that serve power generation assets. When these conditions exist, it could interrupt the fuel supply to our natural gas-fired power plants in the PJM power market. We are exposed to increases in the price of natural gas, coal and nuclear fuel, and it is possible that sufficient supplies to operate our generating facilities profitably may not continue to be available to us. Significant changes in the price of natural gas, coal and nuclear fuel could affect our future results and impact our liquidity needs. In addition, we face risks with regard to the delivery to, and the use of natural gas, coal and nuclear fuel by, our power plants including the following: • transportation may be unavailable if pipeline infrastructure is damaged or disabled; • pipeline tariff changes may adversely affect our ability to, or cost to, deliver such fuels; • creditworthiness of third-party suppliers, defaults by third-party suppliers on supply obligations and our ability to replace supplies currently under contract may delay or prevent timely delivery; • market liquidity for physical supplies of such fuels or availability of related services (e.g. storage) may be insufficient or available only at prices that are not acceptable to us; • variation in the quality of such fuels may adversely affect our power plant operations; • legislative or regulatory actions or requirements, including those related to pipeline integrity inspections, may increase the cost of such fuels; • fuel supplies diverted to residential heating may limit the availability of such fuels for our power plants; and • the loss of critical infrastructure, terrorist attacks (including cybersecurity breaches) or catastrophic events such as fires, earthquakes, explosions, floods, severe storms or other similar occurrences could impede the delivery of such fuels. Our nuclear units have a diversified portfolio of contracts and inventory that provide a substantial portion of our fuel raw material needs over the next several years. However, each of our nuclear units has contracted with a single fuel fabrication services provider, and transitioning to an alternative provider could take an extended period of time. Certain of our other generation facilities also require fuel or other services that may only be available from one or a limited number of suppliers. The availability and price of this fuel may vary due to supplier financial or operational disruptions, transportation disruptions and force majeure. At times, such fuel may not be available at any price, or we may not be able to transport it to our facilities on a timely basis. In this case, we may not be able to run those facilities even if it would be profitable. If we had sold forward the power from such a facility, we could be required to supply or purchase power from alternate sources, perhaps at a loss. This could have a material adverse impact on our business, the financial results of specific plants and on our results of operations. In March 2017, WEC announced that it had filed for Chapter 11 bankruptcy in New York. WEC provides nuclear fuel fabrication services for Salem Units 1 and 2. In January 2018, Brookfield Business Partners LP announced its intention to acquire WEC. The acquisition is expected to close in 2018 if it receives the required approvals from the regulators and bankruptcy courts. No assurances can be given that the acquisition will be approved. In the event that WEC is unable to continue to provide fabrication services, we can provide no assurance that Power would be able to find alternative providers of such services in a timely manner or on acceptable terms. A failure by WEC to perform its obligations during the pendency of, or following its emergence from, bankruptcy could have a material adverse impact on our business, the financial results of specific plants and on our results of operations. Although our fuel contract portfolio provides a degree of hedging against these market risks, such hedging may not be effective and future increases in our fuel costs could materially and adversely affect our liquidity, financial condition and results of operations. While our generation runs on a mix of fuels, primarily natural gas and nuclear fuel, an increase in the cost of any particular fuel ultimately used could impact our results of operations. Our inability to balance energy obligations with available supply could negatively impact results. The revenues provided by the operation of our generating stations are subject to market risks that are beyond our control. Generation output will either be used to satisfy wholesale contract requirements or other bilateral contracts or be sold into competitive power markets. Participants in the competitive power markets are not guaranteed any specified rate of return on their capital investments. Generation revenues and results of operations are dependent upon prevailing market prices for energy, capacity, ancillary services and fuel supply in the markets served. Changes in prevailing market prices could have a material adverse effect on our financial condition and results of operations. Factors that may cause market price fluctuations include: • increases and decreases in generation capacity, including the addition of new supplies of power as a result of the development of new power plants, expansion of existing power plants or additional transmission capacity; • power transmission or fuel transportation capacity constraints or inefficiencies; • power supply disruptions, including power plant outages and transmission disruptions; • weather conditions, particularly unusually mild summers or warm winters in our market areas; • quarterly and seasonal fluctuations; • economic and political conditions that could negatively impact demand for power; • changes in the supply of, and demand for, energy commodities; • development of new fuels or new technologies for the production or storage of power; • federal and state regulations and actions of the ISOs; and • federal and state power, market and environmental regulation and legislation, including financial incentives for new renewable energy generation capacity that could lead to oversupply. Our generation business frequently involves the establishment of forward sale positions in the wholesale energy markets on long-term and short-term bases. To the extent that we have produced or purchased energy in excess of our contracted obligations, a reduction in market prices could reduce profitability. Conversely, to the extent that we have contracted obligations in excess of energy we have produced or purchased, an increase in market prices could reduce profitability. If the strategy we utilize to hedge our exposure to these various risks is not effective, we could incur material losses. Our market positions can also be adversely affected by the level of volatility in the energy markets that, in turn, depends on various factors, including weather in various geographical areas, short-term supply and demand imbalances, customer migration and pricing differentials at various geographic locations. These risks cannot be predicted with certainty. Increases in market prices also affect our ability to hedge generation output and fuel requirements as the obligation to post margin increases with increasing prices. We face significant competition in the wholesale energy and capacity markets. Our wholesale power and marketing businesses are subject to significant competition that may adversely affect our ability to make investments or sales on favorable terms and achieve our business objectives. Increased competition could contribute to a reduction in prices offered for power and could result in lower earnings. Decreased competition could negatively impact results through a decline in market liquidity. Regulatory, environmental, industry and other operational developments will have a significant impact on our ability to compete in energy and capacity markets, potentially resulting in erosion of our market share and impairment in the value of our power plants. Recently, certain states have taken, or are considering taking, actions to subsidize or otherwise provide economic support to renewables, energy efficiency initiatives and existing, uneconomic generation facilities that could adversely affect capacity and energy prices. Increased generation supply and lower energy prices due to these subsidies could have an adverse impact on our results of operations. The introduction or expansion of technologies related to energy generation, distribution and consumption and changes in customer usage patterns and could adversely impact us. The power generation business has seen a substantial change in the technologies used to produce power. Newer generation facilities are often more efficient than aging facilities, which may put some of these older facilities at a competitive disadvantage to the extent newer facilities are able to consume the same or less fuel to achieve a higher level of generation output. Federal and state incentives for the development and production of renewable sources of power have allowed for the penetration of competing technologies, such as wind, solar, and commercial-sized power storage. Additionally, the development of DSM tools and practices can impact peak demand requirements for some of our markets at certain times during the year. The continued development of subsidized, competing power generation technologies and significant development of DSM tools and practices could alter the market and price structure for power generation and could result in a reduction in load requirements, negatively impacting our financial condition, results of operations and cash flows. Additionally, technological advances driven by federal laws mandating new levels of energy efficiency in end-use electric devices or other improvements in, or applications of, technology could lead to declines in per capita energy consumption. Advances in distributed generation technologies, such as fuel cells, micro turbines, micro grids, windmills and net-metered solar installations, may reduce the cost of alternative methods of producing electricity to a level that is competitive with that of most central station electric production. Large customers, such as universities and hospitals, continue to explore potential micro grid installation. Certain states, such as Massachusetts and California, are also considering mandating the use of power storage resources to replace uneconomic or retiring generation facilities. Such developments could (i) affect the price of energy, (ii) reduce energy deliveries as customer-owned generation becomes more cost-effective, (iii) require further improvements to our distribution systems to address changing load demands and (iv) make portions of our transmission and/or distribution facilities obsolete prior to the end of their useful lives. Such technologies could also result in further declines in commodity prices or demand for delivered energy. Some or all of these factors, could result in a lack of growth or decline in customer demand for electricity or number of customers, and may cause us to fail to fully realize anticipated benefits from significant capital investments and expenditures, which could have a material adverse effect on our financial position, results of operations and cash flows. These factors could also materially affect our results of operations, cash flows or financial positions through, among other things, reduced operating revenues, increased operating and maintenance expenses, and increased capital expenditures, as well as potential asset impairment charges or accelerated depreciation and decommissioning expenses over shortened remaining asset useful lives. Economic downturns would likely have a material adverse effect on our businesses. Our results of operations may be negatively affected by sustained downturns or sluggishness in the economy, including low levels in the market prices for power, generation capacity and natural gas, which can fluctuate substantially. Increased unemployment of residential customers and decreased demand for products and services provided by commercial and industrial customers resulting from an economic downturn could lead to declines in the demand for energy and an increase in the number of uncollectible customer balances, which would negatively impact our overall sales and cash flows. Although our utility business is subject to regulated allowable rates of return, overall declines in electricity and gas sold could materially adversely affect our financial condition, results of operations and cash flows. Additionally, prolonged economic downturns that negatively impact our financial condition, results of operations and cash flows could result in future material impairment charges to write down the carrying value of certain assets to their respective fair values. We are subject to third-party credit risk relating to our sale of generation output and purchase of fuel. We sell generation output and buy fuel through the execution of bilateral contracts. We also seek to contract in advance for a significant proportion of our anticipated output capacity and fuel needs. These contracts are subject to credit risk, which relates to the ability of our counterparties to meet their contractual obligations to us. Any failure to perform by these counterparties could require Power to purchase or sell energy or fuel in the wholesale markets at less favorable prices and incur additional losses, which could have a material adverse impact on our results of operations, cash flows and financial position. In the spot markets, we are exposed to the risks of the default sharing mechanisms that exist in those markets, some of which attempt to spread the risk across all participants. Therefore, a default by a third party could increase our costs, which could negatively impact our results of operations and cash flows. Financial market performance directly affects the asset values of our nuclear decommissioning trust funds and defined benefit plan trust funds. Market performance and other factors could decrease the value of trust assets and could result in the need for significant additional funding. The performance of the financial markets will affect the value of the assets that are held in trust to satisfy our future obligations under our defined benefit plans and to decommission our nuclear generating plants. A decline in the market value of our nuclear decommissioning trust funds could increase Power’s funding requirements to decommission its nuclear plants. A decline in the market value of the defined benefit plan trust funds could increase our pension and other postretirement benefit (OPEB) plan funding requirements. The market value of our trusts could be negatively impacted by decreases in the rate of return on trust assets, decreased interest rates used to measure the required minimum funding levels and future government regulation. Additional funding requirements for our defined benefit plans could be caused by changes in required or voluntary contributions, an increase in the number of employees becoming eligible to retire and changes in life expectancy assumptions. Increased costs could also lead to additional funding requirements for our decommissioning trust. Failure to adequately manage our investments in our nuclear decommissioning trust and defined benefit plan trusts could result in the need for us to make significant cash contributions in the future to maintain our funding at sufficient levels, which would negatively impact our results of operations, cash flows and financial position. REGULATORY, LEGISLATIVE AND LEGAL RISKS PSE&G’s revenues, earnings and results of operations are dependent upon state laws and regulations that affect distribution and related activities. PSE&G is subject to regulation by the BPU. Such regulation affects almost every aspect of its businesses, including its retail rates, and failure to comply with these regulations could have a material adverse impact on PSE&G’s ability to operate its business and could result in fines, penalties or sanctions. The retail rates for electric and gas distribution services are established in a base rate case and remain in effect until a new base rate case is filed and concluded. In January 2018, PSE&G filed a distribution base rate case proceeding. In addition, our utility has received approval for several clause recovery mechanisms, some of which provide for recovery of costs and earn returns on authorized investments. These clause mechanisms require periodic updates to be reviewed and approved by the BPU and are subject to prudency reviews. Inability to obtain fair or timely recovery of all our costs, including a return of, or on, our investments in rates, could have a material adverse impact on our results of operations and cash flows. In addition, if legislative and regulatory structures were to evolve in such a way that PSE&G’s exclusive rights to serve its regulated customers were eroded, its future earnings could be negatively impacted. Efforts designed to promote and expand the use of energy efficiency measures and distributed generation technologies, such as rooftop solar and battery storage, in PSE&G’s service territories could result in customers leaving the electric distribution system and an increase in customer net energy metering. Over time, customer adoption of these and other technologies and increased energy efficiency could adversely impact PSE&G’s revenue and ability to fully recover its costs, which could require PSE&G to pursue a rate case to adjust revenue requirements or seek recovery though other mechanisms. The BPU also conducts periodic combined management/competitive service audits of New Jersey utilities related to affiliate standard requirements, competitive services, cross-subsidization, cost allocation and other issues. A finding by the BPU of non-compliance with these requirements could result in fines, a reduction in PSE&G’s authorized base rate or the disallowance of the recovery of certain costs, which could have a materially adverse impact on our business, results of operations and cash flows. In addition, PSE&G procures the supply requirements of its default service BGSS gas customers through a full-requirements contract with Power. Government officials, legislators and advocacy groups are aware of the affiliation between PSE&G and Power. In periods of rising utility rates, those officials and advocacy groups may question or challenge costs and transactions incurred by PSE&G with Power, irrespective of any previous regulatory processes or approvals underlying those transactions. The occurrence of such challenges may subject Power to a level of scrutiny not faced by other unaffiliated competitors in those markets and could adversely affect retail rates received by PSE&G in an effort to offset any perceived benefit to Power from the affiliation. PSE&G periodically files base rate case proceedings. Such proceedings are at times contentious, lengthy and subject to appeal, which could lead to uncertainty as to the ultimate results and which could introduce time delays in effectuating rate changes. PSE&G periodically files base rate case proceedings with the BPU. In particular, in January 2018, PSE&G filed a distribution base rate case proceeding. These proceedings typically involve multiple parties, including governmental bodies and officials, consumer advocacy groups and various consumers of energy, who have differing concerns but who have the common objective of limiting rate increases or even reducing rates. The proceedings generally have timelines that may not be limited by statute. Decisions are subject to appeal, potentially leading to additional uncertainty associated with the approval proceedings. The potential duration of such proceedings creates a risk that rates ultimately approved by the applicable regulatory body may not be sufficient for PSE&G to recover its costs by the time the rates become effective. Established rates are also subject to subsequent reviews by state regulators, whereby various portions of rates could be adjusted, including recovery mechanisms for costs associated with the procurement of electricity or gas, bad debt, manufactured gas plant (MGP) remediation, smart grid infrastructure and energy efficiency, demand response and renewable energy programs. If the base rate case proceeding is protracted or results in approved rates that do not allow PSE&G to fully recover its costs or result in ROEs that are below historical levels, our financial condition, results of operations and cash flows would be materially adversely impacted. We are subject to comprehensive federal regulation that affects, or may affect, our businesses. We are subject to regulation by federal authorities. Such regulation affects almost every aspect of our businesses, including management and operations; the terms and rates of transmission services; investment strategies; the financing of our operations and the payment of dividends. Failure to comply with these regulations could have a material adverse impact on our ability to operate our business and could result in fines, penalties or sanctions. Recovery of wholesale transmission rates-PSE&G’s wholesale transmission rates are regulated by FERC and are recovered through a FERC-approved formula rate. The revenue requirements are reset each year through this formula. In addition, transmission ROEs have recently become the target of certain state utility commissions, municipal utilities, consumer advocates and consumer groups seeking to lower customer rates. These agencies and groups have filed complaints with FERC asking to reduce the base ROE of various transmission owners. They point to changes in the capital markets as justification for lowering the ROE of these companies. While we are not the subject of any of these complaints, they could set a precedent for FERC-regulated transmission owners, such as PSE&G. Inability to obtain fair or timely recovery of all our costs, including a return of or on our investments in rates, could have a material adverse impact on our business. North American Electric Reliability Council (NERC) Compliance-Mandatory NERC and Critical Infrastructure Protection standards have been established to ensure the reliability of the U.S. electric transmission and generation system and to prevent major system black-outs. We have been, and will continue to be, periodically audited by NERC for compliance and are subject to penalties for non-compliance with applicable NERC standards. Failure to comply with such standards could result in penalties or increased costs to bring such facilities into compliance. Such penalties and costs, as well as lost revenue from prolonged outages required to bring facilities into compliance with these standards, could materially adversely impact our business, results of operations and cash flows. Market-Based Rate (MBR) Authority and Other Regulatory Approvals-Under FERC regulations, public utilities that wish to sell power at market rates must receive MBR Authority before making power sales, and the majority of our businesses operate with such authority. Failure to maintain MBR authorization, or the effects of any severe mitigation measures that may be required if market power was evaluated differently in the future, could have a material adverse effect on our business, financial condition and results of operations. In November 2017, FERC issued an order accepting the triennial filing made by the PSEG companies seeking authority to sell energy, capacity and ancillary services at market-based rates. Oversight by the Commodity Futures Trading Commission (CFTC) relating to derivative transactions-The CFTC has regulatory oversight of the swap and futures markets and options, including energy trading, and licensed futures professionals such as brokers, clearing members and large traders. Changes to regulations or adoption of additional regulations by the CFTC, including any regulations relating to position limits on futures and other derivatives or margin for derivatives and increased investigations by the CFTC, could negatively impact Power’s ability to hedge its portfolio in an efficient, cost-effective manner by, among other things, potentially decreasing liquidity in the forward commodity and derivatives markets or limiting Power’s ability to utilize non-cash collateral for derivatives transactions. We may also be required to obtain various other regulatory approvals to, among other things, buy or sell assets, engage in transactions between our public utility and our other subsidiaries, and, in some cases, enter into financing arrangements, issue securities and allow our subsidiaries to pay dividends. Failure to obtain these approvals on a timely basis could materially adversely affect our results of operations and cash flows. Our ownership and operation of nuclear power plants involve regulatory, financial, environmental, health and safety risks. Approximately half of our total generation output each year is provided by our nuclear fleet. For this reason, we are exposed to risks related to the continued successful operation of our nuclear facilities and issues that may adversely affect the nuclear generation industry. These include: Storage and Disposal of Spent Nuclear Fuel-Federal law requires the DOE to provide for the permanent storage of spent nuclear fuel but the DOE has not yet begun accepting spent nuclear fuel. Until a federal site is available, we use on-site storage for spent nuclear fuel, which is reimbursed by the DOE. However, future capital expenditures may be required to increase spent fuel storage capacity at our nuclear facilities. Once a federal site is available, the DOE may impose fees to support a permanent repository. In addition, the on-site storage for spent nuclear fuel may significantly increase the decommissioning costs of our nuclear units. Regulatory and Legal Risk-We may be required to substantially increase capital expenditures or operating or decommissioning costs at our nuclear facilities to the extent there is a change in the Atomic Energy Act or the applicable regulations or the environmental rules and regulations applicable to nuclear facilities; a modification, suspension or revocation of licenses issued by the NRC; the imposition of civil penalties for failure to comply with the Atomic Energy Act, related regulations or the terms and conditions of the licenses for nuclear generating facilities or the shutdown of one of our nuclear facilities. Any such event could have a material adverse effect on our financial position or results of operations. Operational Risk-Operations at any of our nuclear generating units could degrade to the point where the affected unit needs to be shut down or operated at less than full capacity. If this were to happen, identifying and correcting the causes may require significant time and expense. Any significant outages could result in reduced earnings as we would need to purchase or generate higher-priced energy to meet our contractual obligations. In addition, if a station cannot be operated through the end of its current estimated useful life, our results of operations could be adversely affected by increased depreciation rates, impairment charges and accelerated future decommissioning costs. Nuclear Incident or Accident Risk-Accidents and other unforeseen problems have occurred at nuclear stations, both in the U.S. and elsewhere. The consequences of an accident can be severe and may include loss of life, significant property damage and/or a change in the regulatory climate. We have nuclear units at two sites. It is possible that an accident or other incident at a nuclear generating unit could adversely affect our ability to continue to operate unaffected units located at the same site, which would further affect our financial condition, results of operations and cash flows. An accident or incident at a nuclear unit not owned by us could also affect our ability to continue to operate our units. Any resulting financial impact from a nuclear accident may exceed our resources, including insurance coverages. Further, as a licensed nuclear operator subject to the Price-Anderson Act and a member of a nuclear industry mutual insurance company, Power is subject to potential retroactive assessments as a result of a nuclear incident or retroactive adverse loss experience. In the event of non-compliance with applicable legislation, regulation and licenses, the NRC may increase regulatory oversight, impose fines, and/or shut down a unit, depending on its assessment of the severity of the non-compliance. If a serious nuclear incident were to occur, our business, reputation, financial condition and results of operations could be materially adversely affected. In each case, the amount and types of insurance commercially available to cover losses that might arise in connection with the operation of our nuclear fleet are limited and may be insufficient to cover any costs we may incur. Decommissioning-NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available to decommission the facility at the end of its useful life. PSEG Nuclear has established a Nuclear Decommissioning Trust (NDT) to satisfy these obligations. However, forecasting trust fund investment earnings and costs to decommission nuclear generating stations requires significant judgment, and actual results could differ significantly from current estimates. If we determine that it is necessary to retire one of our nuclear generating stations before the end of its useful life, there is a risk that it will no longer meet the NRC minimum funding requirements due to the earlier commencement of decommissioning activities and a shorter time period over which the NDT investments could appreciate in value. A shortfall could require PSEG to post parental guarantees or make additional cash contributions to ensure that the NDT continues to satisfy the NRC minimum funding requirements. As a result, our financial position or cash flows could be significantly adversely affected. We may be adversely affected by changes in energy regulatory policies, including energy and capacity market design rules and developments affecting transmission. The energy industry continues to be regulated and the rules to which our businesses are subject are always at risk of being changed. Our business has been impacted by established rules that create locational capacity markets in each of PJM, ISO-NE and NYISO. Under these rules, generators located in constrained areas are paid more for their capacity so there is an incentive to locate in those areas where generation capacity is most needed. Because much of our generation has historically been located in constrained areas in PJM and ISO-NE, the existence of these rules has had a positive impact on our revenues. PJM’s capacity market design rules and ISO-NE’s forward capacity market rules continue to evolve, most recently in response to efforts to integrate public policy initiatives into the wholesale markets. Any changes to these rules may have an adverse impact on our financial condition, results of operations and cash flows. We could also be impacted by a number of other events, including regulatory or legislative actions such as direct and indirect subsidies, favoring certain types of resources and/or technologies. Further, some of the market-based mechanisms in which we participate, including BGS auctions, are at times the subject of review or discussion by some of the participants in the New Jersey and federal arenas. We can provide no assurance that these mechanisms will continue to exist in their current form, nor otherwise be modified. To the extent that additions to the transmission system relieve or reduce congestion in eastern PJM where most of our plants are located, Power’s capacity and energy revenues could be adversely affected. Moreover, through changes encouraged by FERC to transmission planning processes, or through RTO/ISO initiatives to change their planning processes, more transmission may ultimately be built to facilitate renewable generation or support other public policy initiatives. Any such addition to the transmission system could have a material adverse impact on our financial condition and results of operations. We are subject to numerous federal, state and local environmental laws and regulations that may significantly limit or affect our businesses, adversely impact our business plans or expose us to significant environmental fines and liabilities. We are subject to extensive federal, state and local environmental laws and regulations regarding air quality, water quality, site remediation, land use, waste disposal, the impact on global climate, natural resources damages and other matters. These laws and regulations affect the manner in which we conduct our operations and make capital expenditures. We expect there will be changes to existing environmental laws and regulations, particularly in light of the change in administration following the 2016 U.S. presidential election. Changes in these laws, or violations of laws, could result in significant increases in our compliance costs, capital expenditures to bring our facilities into compliance, operating costs for remediation and clean-up actions, civil penalties or damages from actions brought by third parties for alleged health or property damages. Any such increase in our costs could have a material impact on our financial condition, results of operations and cash flows and could require further economic review to determine whether to continue operations or decommission an affected facility. We may also be unable to successfully recover certain of these cost increases through our existing regulatory rate structures, in the case of PSE&G, or our contracts with our customers, in the case of Power. Environmental laws and regulations have generally become more stringent over time, and this trend is likely to continue. In particular: Concerns over global climate change could result in laws and regulations to limit CO2 emissions or other GHG emissions produced by our fossil generation facilities-Federal and state legislation and regulation designed to address global climate change through the reduction of GHG emissions could materially impact our fossil generation facilities. For example, in 2015 the EPA published new rules for both new and existing power plants. While the EPA recently repealed these rules for existing power plants, actions by northeastern states, including New Jersey, could have cost implications for our fossil generation facilities. Such expenditures could materially affect the continued economic viability of one or more such facilities. In addition to legislative and regulatory initiatives, the outcome of certain legal proceedings regarding alleged impacts of global climate change not involving us could be material to the future liability of energy companies. If relevant federal or state common law were to develop that imposed liability upon those that emit GHGs for alleged impacts of GHGs emissions, such potential liability to our fossil generation operations could be material. Potential closed-cycle cooling requirements-In 2014, the EPA finalized rules regarding the regulation of cooling water intake structures. The EPA has structured the rule so that each state will continue to consider renewal permits for existing power facilities on a case by case basis. The rule requires that facilities seeking permit renewals conduct a wide range of studies related to impingement mortality and entrainment and submit the results with their permit applications. State actions to renew permits under the provisions of this rule are ongoing at this time. If the NJDEP or the CTEEP were to require installation of closed-cycle cooling or its equivalent at any of our Salem, Bridgeport or New Haven generating stations, the related increased costs and impacts would be material to our financial position, results of operations and cash flows and would require further economic review to determine whether to continue operations or decommission any such station. Remediation of environmental contamination at current or formerly-owned facilities-We are subject to liability under environmental laws for the costs of remediating environmental contamination of property now or formerly owned by us and of property contaminated by hazardous substances that we generated. Remediation activities associated with our former Manufactured Gas Plant (MGP) operations are one source of such costs. In addition, the historic operations of our companies and the operations of numerous other companies along the Passaic and Hackensack Rivers are alleged by Federal and State agencies to have discharged substantial contamination into the Passaic River/Newark Bay Complex in violation of various statutes. The EPA is also evaluating the Hackensack River, a tributary to Newark Bay, for inclusion in the Superfund program. We are also involved in a number of proceedings relating to sites where other hazardous substances may have been discharged and may be subject to additional proceedings in the future, the related costs of which could have a material adverse effect on our financial condition, results of operations and cash flows. New Jersey law places affirmative obligations on us to investigate and, if necessary, remediate contaminated property upon which we were in any way responsible for a discharge of hazardous substances, impacting the speed by which we will need to investigate contaminated properties, which could adversely impact cash flows. We cannot predict what further actions, if any, or the costs or the timing thereof, that may be required with respect to these or other natural resource damages claims. However, exposure to natural resource damages could subject us to additional potentially material liability. For a discussion of these and other environmental matters, see Item 8. Financial Statements and Supplementary Data-Note 13. Commitments and Contingent Liabilities. We may not receive necessary licenses and permits in a timely manner or at all, which could adversely impact our business and results of operations. We must periodically apply for licenses and permits from various regulatory authorities, including environmental regulatory authorities, and abide by their respective orders. Delay in obtaining, or failure to obtain and maintain, any permits or approvals, including environmental permits or approvals, or delay in or failure to satisfy any applicable regulatory requirements, could: • prevent construction of new facilities, • limit or prevent continued operation of existing facilities, • limit or prevent the sale of energy from these facilities, or • result in significant additional costs, each of which could materially affect our business, financial condition, results of operations and cash flows. In addition, the process of obtaining licenses and permits from regulatory authorities may be delayed or defeated by concerted community opposition and such delay or defeat could have a material effect on our business. We cannot predict the outcome of any legal, regulatory or other proceeding, settlement, investigation or claim relating to our business activities. An adverse determination could negatively impact our financial condition, results of operations and cash flows. From time to time we are involved in legal, regulatory and other proceedings or claims arising out of our business operations, the most significant of which are summarized in Item 8. Financial Statements and Supplementary Data-Note 13. Commitments and Contingent Liabilities. Adverse outcomes in any of these proceedings could require significant expenditures that could have a material adverse effect on our financial condition, results of operations and cash flows. In particular, as previously disclosed, Power has discovered that it incorrectly calculated certain components of its cost-based bids for its New Jersey fossil generating units in the PJM energy market. Upon discovery of the errors, PSEG retained outside counsel to assist in the conduct of an investigation into the matter and self-reported the errors to FERC, PJM and the PJM Independent Market Monitor (IMM). FERC Staff initiated a preliminary, non-public staff investigation into the matter, which is ongoing. We are unable to reasonably estimate the range of possible loss for this matter; however, the amounts of potential disgorgement and other potential penalties that Power may incur span a wide range depending on the success of PSEG’s legal arguments. If we do not prevail in whole or in part with FERC or in a judicial challenge that we may choose to pursue, it is likely that Power would record additional losses and that such additional losses would be material to our results of operations. Changes in tax law and regulation and the inherent difficulty in quantifying potential tax effects of business decisions could negatively impact our results of operations and cash flows. In December 2017, the Tax Act was enacted, which made significant changes to U.S. tax law. Among other things, under the Tax Act, the statutory U.S. corporate income tax rate decreased from a maximum of 35% to 21%, effective January 1, 2018, and certain changes were made to bonus depreciation rules. However, the Tax Act is unclear in certain respects and will require interpretations and implementing regulations by the Internal Revenue Service (IRS), as well as state tax authorities, and the Tax Act could be subject to potential amendments and technical corrections. We cannot assess the impact that any such interpretations, regulations, amendments or corrections could have on our results of operations or financial condition. In addition, the regulatory treatment of certain impacts of the Tax Act will be subject to the discretion of FERC and the state regulators which we are unable to determine at this time. We are subject to the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification 740, Income Taxes (ASC 740), which requires that the effect on deferred tax assets and liabilities of a change in tax rates be recognized in the period the tax rate change was enacted. The impact of the rate change in 2017’s financial statements is discussed in Item 8. Financial Statements and Supplementary Data-Note 20. Income Taxes. We do not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting under ASC 740 for certain income tax effects of the Tax Act for the reporting period in which the Tax Act was enacted. Accordingly, the amounts recognized in the current reporting period should be considered provisional, in accordance with SEC Staff Accounting Bulletin No. 118, and any revisions to these amounts could be material. Further, the Tax Act is unclear in certain respects and will require interpretations and implementing regulations by the Internal Revenue Service (IRS), as well as state tax authorities. The Tax Act could also be subject to potential amendments and technical corrections which could impact PSEG, PSE&G and Power’s financial statements. In addition, we are required to make judgments in order to estimate our obligations to taxing authorities. These tax obligations include income, real estate, sales and use and employment-related taxes. These judgments can include reserves for potential adverse outcomes regarding tax positions that have been taken that could be subject to challenge by the tax authorities. If our actual tax obligations materially differ from our estimated obligations, our results of operations and cash flows could be materially adversely affected. OPERATIONAL RISKS Because PSEG is a holding company, its ability to meet its corporate funding needs, service debt and pay dividends could be limited. PSEG is a holding company with no material assets other than the stock or membership interests of its subsidiaries. Accordingly, all of the operations of PSEG are conducted by its subsidiaries, which are separate and distinct legal entities that have no obligation, contingent or otherwise, to pay the debt of PSEG or to make any funds available to PSEG to pay such debt or satisfy its other corporate funding needs. These corporate funding needs include PSEG’s operating expenses, the payment of interest on and principal of its outstanding indebtedness and the payment of dividends on its capital stock. As a result, PSEG can give no assurances that its subsidiaries will be able to transfer funds to PSEG to meet all of these obligations. Lack of growth or slower growth in the number of customers, or a decline in customer demand, could adversely impact our financial condition, results of operations and cash flows. Growth in customer accounts and growth of customer usage each directly influence demand for electricity and the need for additional generation, transmission and distribution facilities. Customer growth and customer usage may be affected by a number of factors, including: • regulatory incentives to reduce energy consumption; • mandated energy efficiency measures; • demand-side management tools; • technological advances; and • a shift in the composition of our customer base from commercial and industrial customers to residential customers. Some or all of these factors could result in a lack of growth or decline in customer demand for electricity and may prevent us from fully realizing the benefits from significant capital investments and expenditures, which could have a material adverse effect on our financial position, results of operations and cash flows. There may be periods when Power may not be able to meet its commitments under forward sale obligations at a reasonable cost or at all. A substantial portion of Power’s generation output has been sold forward under fixed price power sales contracts and Power also sells forward the output from its intermediate and peaking facilities when it deems it commercially advantageous to do so. Our forward sales of energy and capacity assume sustained, acceptable levels of operating performance. This is especially important at our lower-cost facilities. Operations at any of our plants could degrade to the point where the plant has to shut down or operate at less than full capacity. Some issues that could impact the operation of our facilities are: • breakdown or failure of equipment, information technology, processes or management effectiveness; • disruptions in the transmission of electricity; • labor disputes or work stoppages; • fuel supply interruptions; • transportation constraints; • limitations which may be imposed by environmental or other regulatory requirements; and • operator error, terrorist attacks (including cybersecurity breaches) or catastrophic events such as fires, earthquakes, explosions, floods, severe storms or other similar occurrences. Identifying and correcting any of these issues may require significant time and expense. Depending on the materiality of the issue, we may choose to close a plant rather than incur the expense of restarting it or returning it to full capacity. Because the obligations under most of these agreements are not contingent on a unit being available to generate power, Power is generally required to deliver power to the buyer, even in the event of a plant outage, fuel supply disruption or a reduction in the available capacity of the unit. To the extent that Power does not have sufficient lower cost capacity to meet its commitments under its forward sale obligations, Power would be required to supply replacement power either by running its other higher cost power plants or by obtaining power from third-party sources at market prices that could substantially exceed the contract price. This could have a material adverse effect on our financial condition, results of operations and cash flows. If Power fails to deliver the contracted power, it would be required to pay the difference between the market price at the delivery point and the contract price, and the amount of such payments could be substantial. In addition, as market prices for energy and fuel fluctuate, our forward energy sale and forward fuel purchase contracts could require us to post substantial additional collateral, thus requiring us to obtain additional sources of liquidity during periods when our ability to do so may be limited. Certain of our generation facilities rely on transmission facilities that we do not own or control and that may be subject to transmission constraints. Our inability to maintain adequate transmission capacity could restrict our ability to deliver wholesale electric power to our customers and we may either incur additional costs or forego revenues. Conversely, improvements to certain transmission systems could also reduce revenues. We depend on transmission facilities owned and operated by others to deliver the wholesale power we sell from our generation facilities. If transmission is disrupted or if the transmission capacity infrastructure is inadequate, our ability to sell and deliver wholesale power may be adversely impacted. If a region’s power transmission infrastructure is inadequate, our recovery of wholesale costs and profits may be limited. If restrictive transmission price regulation is imposed, the transmission companies may not have sufficient incentive to invest in expansion of transmission infrastructure. We also cannot predict whether transmission facilities will be expanded in specific markets to accommodate competitive access to those markets. In addition, in certain of the markets in which we operate, energy transmission congestion may occur and we may be deemed responsible for congestion costs if we schedule delivery of power between congestion zones during times when congestion occurs between the zones. If we were liable for such congestion costs, our financial results could be adversely affected. A portion of our generation is located in load pockets. Expansion of transmission systems to reduce or eliminate these load pockets could negatively impact the value or profitability of our existing generation facilities in these areas. Inability to successfully develop or construct generation, transmission and distribution projects could adversely impact our businesses. Our business plan calls for extensive investment in capital improvements and additions, including the installation of required environmental upgrades and retrofits; construction and/or acquisition of additional generation units and transmission and distribution facilities; and modernizing existing infrastructure pursuant to investment programs entitled to current recovery. Currently, we have several significant projects underway or being contemplated. The successful construction and development of these projects will depend, in part, on our ability to: • obtain necessary governmental and regulatory approvals; • obtain environmental permits and approvals; • obtain community support for such projects to avoid delays in the receipt of permits and approvals from regulatory authorities; • complete such projects within budgets and on commercially reasonable terms and conditions; • obtain any necessary debt financing on acceptable terms and/or necessary governmental financial incentives; • ensure that contracting parties, including suppliers, perform under their contracts in a timely and cost effective manner; and • at PSE&G, recover the related costs through rates. Any delays, cost escalations or otherwise unsuccessful construction and development could materially affect our financial position, results of operations and cash flows. Further, any unexpected failure of our existing facilities, including failure associated with breakdowns, forced outages or any unanticipated capital expenditures could result in reduced profitability. Modifications to existing facilities may require us to install the best available control technology or to achieve the lowest achievable emission rates required by then-current regulations, which would likely result in substantial additional capital expenditures. In addition, the successful operation of new or upgraded generation facilities or transmission or distribution projects is subject to risks relating to supply interruptions; work stoppages and labor disputes; weather interferences; unforeseen engineering and environmental problems, including those related to climate change; and the other risks described herein. Any of these risks could cause our return on these investments to be lower than expected or they could cause these facilities to operate below expected capacity or availability levels, which would adversely impact our financial condition and results of operations through lost revenue, increased expenses, higher maintenance costs and penalties. FERC Order 1000 has generally opened transmission development to competition from independent developers, allowing such developers to compete with incumbent utilities for the construction and operation of transmission facilities in its service territory. While Order 1000 retains limited carve-outs for certain projects that will continue to default to incumbents for construction responsibility, including immediately needed reliability projects, upgrades to existing transmission facilities, projects cost-allocated to a single transmission zone, and projects being built on existing rights-of-way and whose construction would interfere with incumbents’ use of their rights-of-way, increased competition for transmission projects could decrease the value of new investments that would be subject to recovery by PSE&G under its rate base, which could have a material adverse impact on our financial condition and results of operations. In addition, certain PJM cost allocation determinations have been recently challenged at FERC, the resolution of which could impact costs borne by New Jersey ratepayers and increase customer bills. We may be adversely affected by equipment failures, accidents, severe weather events or other incidents that impact our ability to provide safe and reliable service to our customers and remain competitive and could result in substantial financial losses. The success of our businesses is dependent on our ability to continue providing safe and reliable service to our customers while minimizing service disruptions. We are exposed to the risk of equipment failures, accidents, severe weather events, or other incidents which could result in damage to or destruction of our facilities or damage to persons or property. For instance, equipment failures in our natural gas distribution could give rise to a variety of hazards and operating risks, such as leaks, accidental explosions and mechanical problems, which could cause substantial financial losses and harm our reputation. In addition, the physical risks of severe weather events, such as experienced from Hurricane Irene and Superstorm Sandy, and of climate change, changes in sea level, temperature and precipitation patterns and other related phenomena have further exacerbated these risks. Such issues experienced at our facilities, or by others in our industry, could adversely impact our revenues; increase costs to repair and maintain our systems; subject us to potential litigation and/or damage claims, fines/penalties; and increase the level of oversight of our utility and generation operations and infrastructure through investigations or through the imposition of additional regulatory or legislative requirements. Such actions could adversely affect our costs, competitiveness and future investments, which could be material to our financial position, results of operations and cash flow. For our transmission and distribution business, the cost of storm restoration efforts may not be fully recoverable through the regulatory process. We own less than a controlling interest in some of our generating facilities. We have limited control over the operation of some of our generating facilities, including the Keystone, Conemaugh and Peach Bottom facilities, because our investments represent less than a controlling interest. We seek to exert a degree of influence with respect to the management and operation of projects in which we own less than a controlling interest by negotiating to obtain positions on management committees or to receive certain limited governance rights. However, we may not always succeed in such negotiations. As a result, we may be dependent on our partners to operate such facilities. The approval of our partners also may be required for us to transfer our interest in such projects. Reliance on our partners for the management and operation of these facilities could result in a lower return on these facilities than what we believe we could have otherwise achieved. Any inability to recover the carrying amount of our long-lived assets and leveraged leases could result in future impairment charges which could have a material adverse impact on our financial condition and results of operations. Long-lived assets represent approximately 74%, 81% and 69% of the total assets of PSEG, PSE&G and Power, respectively, as of December 31, 2017. Management evaluates long-lived assets for impairment whenever events or changes in circumstances, such as significant adverse changes in regulation business climate or market conditions, including prolonged periods of adverse commodity and capacity prices, could potentially indicate an asset’s or group of assets’ carrying amount may not be recoverable. Significant reductions in our expected revenues or cash flows for an extended period of time resulting from such events could result in future asset impairment charges, which could have a material adverse impact on our financial condition and results of operations. Energy Holdings has investments in domestic energy and real estate assets subject primarily to leveraged lease accounting. A leveraged lease is typically comprised of an investment by an equity investor and debt provided by a third-party debt investor. As an equity investor, Energy Holdings’ equity investments in the leases are comprised of the total expected lease receivables over the lease terms plus the estimated residual values at the end of the lease terms, reduced for any income not yet earned on the leases. Our receipt of payments related to our leveraged lease portfolio in accordance with the lease contracts can be impacted by various factors, including new environmental legislation regarding air quality and other discharges in the process of generating electricity; market prices for fuel and electricity, including the impact of low gas prices on our coal generation investments; overall financial condition of lease counterparties; and the quality and condition of assets under lease. During 2016, due to the adverse economic conditions experienced by coal generation in PJM, Energy Holdings recorded pre-tax write-downs relating to the NRG REMA, LLC (REMA) leveraged leases in the aggregate of $147 million. During 2017, due to continuing liquidity issues facing REMA, economic challenges facing coal generation in PJM, and based upon an ongoing review of available alternatives as well as certain discussions with REMA management, Energy Holdings recorded additional pre-tax charges of $77 million in the aggregate. In June 2017, GenOn Energy, Inc. (GenOn) and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. REMA was not included in the GenOn filing. Energy Holdings continues to monitor the restructuring of GenOn and its possible impacts on REMA and continues to discuss the situation with various parties relevant to this matter. PSEG cannot predict the outcome of GenOn’s efforts to restructure its portfolio and improve its liquidity and the possible related impact on REMA. PSEG continues to monitor any changes to REMA’s and GenOn’s status and potential impacts on Energy Holdings’ lease investments, which could include further write-downs of the values of Energy Holdings’ leveraged leases. There can be no assurance that a continuation or worsening of the adverse economic conditions would not lead to additional write-downs at any of our other generation units in our leveraged lease portfolio, and such write-downs could be material Inability to maintain sufficient liquidity in the amounts and at the times needed or access sufficient capital at reasonable rates or on commercially reasonable terms could adversely impact our business. Funding for our investments in capital improvement and additions, scheduled payments of principal and interest on our existing indebtedness and the extension and refinancing of such indebtedness has been provided primarily by internally-generated cash flow and external financings. We have significant capital requirements and depend on our ability to generate cash in the future from our operations and continued access to capital and credit markets to efficiently fund our cash flow needs. Our ability to generate cash flow is dependent upon, among other things, industry conditions and general economic, financial, competitive, legislative, regulatory and other factors. The ability to arrange financing and the costs of such financing depend on numerous factors including, among other things. • general economic and capital market conditions; • the availability of credit from banks and other financial institutions; • tax, regulatory and securities law developments; • for PSE&G, our ability to obtain necessary regulatory approvals for the incurrence of additional indebtedness; • investor confidence in us and our industry; • our current level of indebtedness and compliance with covenants in our debt agreements; • the success of current projects and the quality of new projects; • our current and future capital structure; • our financial performance and the continued reliable operation of our business; and • maintenance of our investment grade credit ratings. Market disruptions, such as economic downturns experienced in the U.S. and abroad in recent years, the bankruptcy of an unrelated energy company, changes in market prices for electricity and gas, and actual or threatened terrorist attacks, may increase our cost of borrowing or adversely affect our ability to access capital. As a result, no assurance can be given that we will be successful in obtaining financing for projects and investments, to extend or refinance maturing debt or for our other cash flow needs on acceptable terms or at all, which could materially adversely impact our financial position, results of operations and future growth. In addition, if Power were to lose its investment grade credit rating from S&P or Moody’s, it would be required under certain agreements to provide a significant amount of additional collateral in the form of letters of credit or cash, which would have a material adverse effect on our liquidity and cash flows. We may be unable to realize anticipated tax benefits or retain existing tax credits. The deferred tax assets and tax credits of PSEG, PSE&G or Power are evaluated for ultimate ability to realize these assets. A valuation allowance may be recorded against the deferred tax assets if we estimate that such assets are more likely than not to be unrealizable based on available evidence including cumulative and forecasted pretax book earnings at the time the estimate is made. A valuation allowance related to deferred tax assets or the monetization of tax credits can be affected by changes to tax laws, statutory tax rates and future taxable income levels. In the event that we determine that we would not be able to realize all or a portion of our deferred tax assets in the future or the benefit of tax credits, we would reduce such amounts through a charge to income tax expense in the period in which that determination was made, which could have a material adverse impact on our financial condition and results of operations. Challenges associated with recruitment and/or retention of key executives and a skilled workforce could adversely impact our businesses. Our operations depend on the recruitment and retention of key executives and a skilled workforce. The loss or retirement of key executives or other employees, including those with the specialized knowledge required to support our generation, transmission and distribution operations, could result in various operational challenges. Certain events, such as the potential for early retirement of our nuclear facilities, can make it more difficult to retain these employees. We may incur increased costs for contractors to replace employees, and the loss of institutional and industry knowledge and the increased costs to hire and lengthy time to train new personnel could result in lower productivity, resulting in increased costs, which would negatively impact our results of operations. This has the potential to become more critical as a growing number of employees become eligible to retire. As of December 31, 2017, approximately 62% of our employees were covered by collective bargaining agreements. As a result, our success will depend on our ability to successfully renegotiate these agreements as they expire. Inability to do so may result in employee strikes or work stoppages which would disrupt our operations and could also result in increased costs, all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Covenants in our debt instruments may adversely affect our operations. PSEG’s, PSE&G’s and Power’s debt instruments contain events of default customary for financings of their type, including cross accelerations to other debt of that entity and, in the case of PSEG’s and Power’s bank credit agreements, certain change of control events. Power’s bank credit agreements and outstanding notes also contain limitations on the incurrence of subsidiary debt and liens and Power’s outstanding notes require Power to repurchase such notes upon certain change of control events. Our ability to comply with these covenants may be affected by events beyond our control. If we fail to comply with the covenants and are unable to obtain a waiver or amendment, or a default exists and is continuing under such debt, the lenders or the holders or trustee of such debt, as applicable, could give notice and declare outstanding borrowings and other obligations under such debt immediately due and payable. We may not be able to obtain waivers, amendments or alternative financing, or if obtainable, it could be on terms that are not acceptable to us. Any of these events could adversely impact our financial condition, results of operations and cash flows. Cybersecurity attacks or intrusions could adversely impact our businesses. Cybersecurity threats to the U.S. energy market infrastructure are increasing in sophistication, magnitude and frequency. We rely on information technology systems that utilize sophisticated digital systems and network infrastructure to operate our generation, transmission and distribution systems. We also store sensitive data, intellectual property and proprietary or personally identifiable information regarding our business, employees, shareholders, customers and vendors on our systems and conduct power marketing and hedging activities. In addition, the operation of our business is dependent upon the information technology systems of third parties, including our vendors, regulators, RTOs and Independent System Operators (ISOs), among others. Our and third-party information technology systems may be vulnerable to cybersecurity attacks involving domestic or foreign sources. A cybersecurity attack may also leverage such information technology to cause disruptions at a third party. Cybersecurity impacts to our operations include: • disruption of the operation of our assets and the power grid, • theft of confidential company, employee, shareholder, vendor or customer information, which may cause us to be in breach of certain covenants and contractual obligations, • general business system and process interruption or compromise, including preventing us from servicing our customers, collecting revenues or the ability to record, process and/or report financial information correctly, and • breaches of vendors’ infrastructures where our confidential information is stored. In late 2017, PSE&G learned that its customers may be affected by a potential data breach involving the systems of TIO Networks, a subsidiary of PayPal Holdings. PayPal notified PSE&G that there was unauthorized access to TIO Networks’ system that stores customer information. TIO Networks processed payments made at automated kiosks in PSE&G’s walk-in customer service centers between 2012 and 2017. TIO Networks also facilitated payments PSE&G customers made at third-party payment centers, such as local convenience stores, that accept utility bill payments. The account numbers and addresses for PSE&G’s approximately 2.5 million customers may have been exposed as a result of the suspected breach. Customers paying by check via kiosk at one of PSE&G’s Customer Service Centers also may have had their personal checking account number and routing number exposed. We continue to work with TIO Networks and PayPal to analyze the impact of this event. While we have experienced and expect to continue to experience actual or attempted cyber-attacks on our information technology systems, none of these incidents has had a material impact on our operations or financial condition. If a significant cybersecurity event or breach should occur within our company or with one of our material vendors, we could be exposed to significant loss of revenue, material repair costs to intellectual and physical property, significant fines and penalties for non-compliance with existing laws and regulations, significant litigation costs, increased costs to finance our businesses, reputational damage and loss of confidence from our customers, regulators, investors, vendors and employees. Similarly, a significant cybersecurity event or breach experienced by a competitor, regulatory authority, RTO, ISO, or vendor could also materially impact our business and results of operations via enhanced legal and regulatory requirements. For a discussion of state and federal cybersecurity regulatory requirements and information regarding our cybersecurity program, see Part 1, Item 1. Regulatory Issues. The market for cybersecurity insurance is relatively new and coverage available for cybersecurity events may evolve as the industry matures. While we maintain insurance relating to cybersecurity events, such insurance is subject to a number of exclusions and may be insufficient to offset any losses, costs or damage we experience. Acts of war or terrorism could adversely affect our operations. Our businesses and industry may be impacted by acts and threats of war or terrorism. These actions could result in increased political, economic and financial and insurance market instability and volatility in power and fuel markets, which could materially adversely affect our business and results of operations, including our ability to access capital on terms and conditions acceptable to us. In addition, our infrastructure facilities, such as our generating stations, transmission and distribution facilities and information technology systems, could be direct or indirect targets or be affected by terrorist or other criminal activity. Such events could severely disrupt our business operations and prevent us from servicing our customers. New or updated security regulations may require us to make changes to our current measures which could also result in additional expenses. ITEM 1B.