Turning the tax department into a value center

Q:Tell us about your background, and how you found your way to the VP of Tax role at a major utility.

A:I'm not your typical VP of Tax. I started at a Big Four firm, Ernst & Young, and I came from the accounting side.

I've been in energy pretty much my entire life, whether I was auditing energy companies in the Northeast where I live, or throughout the country. My background has primarily been in energy trading derivatives, which kind of fits into the tax credit world, because I don't see it any different than trading in another commodity of sorts.

I came to PSEG in 2016 after a stint at Exelon [a major utility company], so I've been here for about 10 years. Last year, they asked me to take over the tax group while maintaining some responsibilities on the accounting front.

Q:What exposure did you have to tax before stepping into the VP role?

A:When I was assistant controller, everything on the power generation side fell in my purview. I also did all the M&A and project development work for the company; I've worked on nuclear PTCs, tax equity partnerships, and also our sale of fossil and solar portfolios back in 2021 and 2022. Tax is always a part of these types of deals, so from that regard I've always had one foot in tax.

Q:How has the role of the tax function changed at PSEG?

A:Tax here has become really more of a value-add aspect in recent times. A big part of that is because of tax credits — both because we are generating our own credits from the nuclear side, but also from being able to go out and buy transferable credits. Buying credits allows us to offset some current year income, and we can also carry them back to offset prior year income as well. We've come to be viewed as a value creator — you're bringing real earnings to the table every year now, versus just being a cost center.

In the utility industry, EPS [Earnings Per Share] is very important. Adding a penny or two to the bottom line is meaningful. And what's important is that tax credits are not just a one-time thing; it's repeatable, which is important from an external investor view.

From a timing standpoint, on some of these deals you can fund and have your cash back in a few months, with 6 or 7% savings on top. And the IRRs on some of these — they're unbelievable. In a three-month timeframe you're looking at IRR like 15-plus percent on some of these, which is significant value.

Q:Walk us through PSEG's internal process for buying tax credits.

A:Step one is figuring out what the tax capacity looks like, and that can be all over the place which can cause a few gray hairs [laughs]. I need to be able to prove to our CFO that I am only buying credits that I know I'm going to be able to use. For example, if you are subject to CAMT like we are, then new interpretations on IRS notices that have been coming out can cause tax forecasts to move up and down.

Then, the hard part is going out and finding the type of credits you are looking for. We had to look through quite a few opportunities to find the deal that we are ultimately moving forward with for 2025. One observation is that 2025 tax year credits got scooped up pretty quickly by early 2026; there isn't as much supply as there was at this time last year. Tax credit purchases are catching on among corporate buyers.

Then after we get comfortable on the deal itself, we really focus on the creditworthiness of the seller. The diligence is one piece — that's where Reunion and our external counsel come into play. But the single most important aspect of all of this to us is the credit of the counterparty. We're only willing to do investment grade deals. Our credit group is significantly involved. And then we have a risk management committee that approves the deal when it's close to being [finalized].

Q:Is there a deal that stands out as particularly memorable?

A:Each one comes with its benefits. One of the transactions that we did with Reunion was start-to-finish in two or three weeks. We also found the credits themselves to be incredibly interesting; it wasn't your boilerplate solar or wind credit. This particular transaction involved taking rare metals out of used equipment and getting a §45X production tax credit for it.

The credit seller made it a really great experience to work through. Everybody wanted to just get to a fair place — once you've got the price identified, it's like, how do we get this done? They were really accommodating from that perspective, and they said we were as well. They were good people, and we got together to celebrate the closing when it was finished. It was nice from a networking perspective, which you don't always get to see a lot of times these days.

Q:What frustrates you most about how this market currently works?

A:It's important to be open upfront about what's important to you — if there are core items that you know you are going to need, then it's helpful to have your broker understand that and deliver that message before you get into the term sheet or beyond. Your team is really good about communicating our key preferences, but not everybody is. Sometimes we get a week or even a few weeks into a deal, sign an NDA, and the other party says "oh, no, we're not going to accept that credit provision. Sorry." And then the deal's done. It's that fast.

We've also had situations where you kind of have a handshake agreement with somebody, and then three days later I find out they accepted a higher offer elsewhere. That's extremely frustrating. They'll come back and say, "Do you want to bid more?" And no — I'm not even going to entertain that.

And then one thing that needs to happen as an industry: we need an ISDA [a standardized contract in the derivatives industry] for buying, for transferring these credits. Sometimes you might be purchasing three different credits in one deal, and external counsel is saying "that's three opinions I need to give you." We've got to figure out a better way to standardize the agreements and the diligence.

Q:What advice do you have for other buyers?

A:It's important to know what you want, and not be afraid to walk away from a deal in the beginning if you're not getting where you need to be. You should hold strong on what is important to you.

Our view is: if the counterparty has good credit, then you're really signing the deal based on whether or not you think somebody can afford to pay you back $100 million. If you're signing it with a reputable counterparty, your risk is contained.

So my advice would be to be conservative — don't just go for the lowest price deal that could make it more dicey from an IRS challenge standpoint. Don't go aggressive. Get one done conservatively and then move on from there.

Q:What does life outside of PSEG look like for you?

A:My family is the center of my life. As soon as I leave here, the best I can do is be present for them, and try to not think about tax strategy at the dinner table. That's step one — which doesn't always happen, right? It's hard to disconnect. And then exercising — aspects to try to stay healthy.

And then golf — golf is one of the best networking tools out there. I played in high school, and once it was found out that I could play golf well, I will tell you — I don't know of any other activity that will get you four hours of face time with executives, which can be very valuable.