Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by my name is keeping me and I am sorry, then operator today.
Like to welcome everyone to today's conference Public service Enterprise group fourth quarter and full year 2019 earnings conference call and webcast.
This time, all participants are in English and Lemos.
Later, we'll conduct a question and answer session for members of the financial community.
At that time, if you'd have a question Nick you want me to press the star and the number one on your telephone keypad.
To withdraw your question. Please press the pound and the number one.
As a reminder, this conference is being recorded today Wednesday February 26, 2020, and will be available for a telephone replay beginning at one o'clock PM Eastern time today until 11 30 PM Eastern time on March 2020.
Also be available as an audio webcast on P. S E G corporate website at Www Dot P. S E G Dot com.
Now I'd like to turn the conference over to carve out a Chan. Please go ahead.
Thank you Stephanie good morning.
CG released its fourth quarter and full year 2019 earnings results earlier today, the earnings release attachments and slides detailing results by company are posted on the IR website, and our 10-K will be filed shortly.
Earnings release, and other matters, we will discuss on todays call contain forward looking statements and estimates that are subject to various risks and uncertainties. We also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States.
Reconciliations of our non-GAAP financial measures and a disclaimer regarding forward looking statements are posted on our IR website and included in today's earnings materials I will now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer Public Service Enterprise group, joining Ralph on today's call is Dan Craig.
Executive Vice President and Chief Financial Officer at the conclusion of their remarks, there will be time for your question.
Okay. Thank you for a lot and good morning, everyone joining us on the call today.
Oh, yes, She's you reported non-GAAP operating earnings for the fourth quarter of 64 cents per share.
It's an increase of 14% versus non-GAAP results with 56 cents per share in the fourth quarter of 2018.
Non-GAAP operating earnings for the full year were $3.28 per share, which are 5% higher than 2018 non-GAAP results of $3.12 per share.
We achieved solid operating and financial results in 2009 shoes.
Mark the 15th consecutive year appear CG delivered results within or above our original guidance our earnings guidance.
Oh GAAP results for 2019 of 3033 cents per share.
Parents, and net income of 2083 cents per share for 2000, and aging and reflected higher earnings due to several factors.
These included the conclusion appears CNG is 2018 distribution rate review.
Gives me a partially Europe zero emission certificates or Xaxis I'll refer to later on.
Mark to market games, and nuclear decommissioning Trust fund gains compared to losses in 2000 anything.
Higher pension credits from benefit plan changes in 2019.
Net income for 2019 also included a loss recorded on the sale of PS EG powers ownership interest in the coal far Keystone and Conemaugh units in Pennsylvania.
Closed in the third quarter.
Details on the results for the quarter and the full year can be found on slide six and seven.
I P. S. In Gi net income grew by 17% to $2.46 per share in 2019.
In rate base grew to over 20 billion at year end, representing an increase of 6%.
We invested over $2.7 billion appears CNG in 2019, directed at improving the reliability of resiliency of our transmission and distribution system.
While also reducing methane emissions through the second phase of our guests system modernization program or GSM Pete as I will also remarks are literally.
Yes, EG completed its energy strong resilience work for nearly $200 million less than the authorized amount.
And we finalized the second energy strong agreements to invest an additional $842 million on system hardening to better adapt to a climate challenges world.
For 2019, P.S. CNG once again, a cheap top of course, all osha scores for safety and posted our best ever JD power scores for electric and gas customer satisfaction.
We outpaced the industry the average industry improvement on metrics that consider total monthly cost build clarity fairness of pricing it options and ability to manage monthly usage.
We're also gratified to receive for the 18th year in a row P. Eight consultings reliability Warner Ward has the most reliable electric utility in the mid Atlantic region.
We remain strongly supportive of new Jersey, Governor Murphy's goals of reaching reductions in electric usage of 2% and gas usage of three quarters of a percent within five years Programatic energy efficiency implementation.
Last week, we agreed to extend the procedural schedule of our clean energy future energy efficiency proposal from March to the end of September 2020 in order to provide regulators with additional time to complete their review of our two and a half a billion dollar filing which is essential for new Jersey to reach its carbon neutral energy goals.
But 2050.
This agreement was approved by the New Jersey Board of public utilities RVP you at the February 19th meetings.
The same time, our existing programs were authorized to invest an additional $111 billion.
Of note could be lifted a statewide moratorium on advanced metering infrastructure am I, if you will.
And direct to the electric distribution companies to file new proposals or in our case to update previously filed proposals to install am I across the state.
This is a significant advance for customers as it will help them better manage their energy use and improve outage restoration times.
Am I will also support the integration of E programs, which can limit growth and the customer Bill we look forward to applying best practices learn from our experience installing about 1 billion smart meters.
Yes, UGI long island over the last three years.
In addition to be pews staff, a circular circulated draft procedural schedules covering the meaning the remaining $1 billion up propose clean energy future investments in A.M.I. electric vehicles and energy storage.
The draft schedules out one concluding these cases by BP of decisions in the first quarter of 2021 or possibly later this year if settlements can be agreed to by the parties in the cases.
Since we file appears CNG is for part clean energy future program in January of 2019, much has happened on the clean energy front in New Jersey and surrounding states.
Last April the BP awarded three years of Zacks to each of our New Jersey nuclear units supporting their continued operation as new Jersey's largest source of base load carbon free generation.
In June the BP rewarded the state's first offshore wind solicitation.
So the 1100 megawatt Ocean wind project.
At the start of 2020, New Jersey re entered the regional greenhouse gas initiative for Reggie.
So when you're in Virginia, or considering joining reggie as well, which could address some of the price this advantage or leakage experienced by lower carbon states surrounded by non Reggie participants.
The BP to finalize the state's energy Master plan last month last month.
Which broadly supports the de carbonization in modernization of new Jersey's energy systems in order to achieve its goal of 100% clean energy by 2050.
Cornerstone of meeting that objective is retaining nuclear generation through 2050.
Maximizing energy efficiency.
Deployment of offshore wind and other renewable generation as well as electrifying the transportation and building sector.
The final version of the Energy Master plan also mentioned the BP is intent to be more proactive in matters related to transmission siding.
Cost allocation and financial returns the term determined by the federal energy regulatory Commission or FERC.
This is an issue that has come into a sharp focus following the first November 2019 order narrowing the methodologies used to determine the return on equity for group of Midwest transmission owners.
We are reaffirming the earnings sensitivity for transmission returns we have provided in the past.
Where each 10 basis point move into our week from our base of 11.18%.
Would result in a one cents per share change in annual utility earnings.
I must tell you the market appears to have assumed a reduction of PSC angies transmission orally.
As a result of the Midwest or are we order and then some.
I would point out that the Midwest or are we order appears far from final.
The complexity expense and uncertainty on timing and which calculation methodologies FERC ultimately adopt makes the outcome of any potential complaint should want be filed difficult to predict.
I also would like to address the EMS you masterplans goal to maintain existing guess pipeline system reliability and safety, while planning for future reductions in natural gas consumption tied to energy efficiency.
We believe that it may become more difficult to site, new natural gas infrastructure, such as pipelines in power plants in New Jersey.
That said.
Regulators have been publicly supportive of maintaining and modernizing existing guess infrastructure to ensure safety and to minimize harmful methane emissions. Both of these are benefits of our gas system modernization program.
From a practical standpoint, 80% of new Jersey households, already use natural gas to keep their homes or to Cook and in fact, many of our customers converted to natural gas from using oil or electricity for these purposes.
Conversion cost per customer would be upwards of $10000 or higher.
This would be a significant economic burden on every household and contrary to most customers personal preferences.
PNG customers enjoy the lowest natural gas prices in the region.
So a mandate to switch to electrification of homes would also diminished the decade long price benefit shell gas has provided some new jersey. Moreover, it would be worse for the environment until zero carbon generation dominated the fuel mix, we strongly believe and to be pure acknowledges that natural gas and nuclear power are.
Essential to new Jersey's energy mix and will remain that way for the foreseeable future.
What's this backdrop of clean energy progress the urgency for needed climate action and major elements of the 2018 clean Energy Act awaiting implementation.
He has IGI is 3.5 billion dollar clean energy future filings is as important as ever to get done.
I propose energy efficiency programs.
Every customer the opportunity to reduce their energy bills, while lowering emissions.
As part of the Beep you approve the extension of the energy efficiency filing PS Eons, you will expand investment in several of its existing programs by $111 billion. The previous extension authorized last fall quickly sold out underscoring the demand for energy efficiency offerings provide.
Lighting universal access to energy efficiency is but one of the many ways, we demonstrate our commitment to minimizing the customer bill as we've always recognize this to be a vitally important factor in our ability to make system investments in an affordable manner.
In addition to the Bill comparisons we've highlighted previously and I will repeat here that combine customer bills or 30% lower than they were 10 years ago, and a 40% lower in real terms. It should be noted that over the 2018 to 2023 period.
CNG will lower bills by nearly $3 billion of tax reform related benefits.
With approximately $650 million in 2019 alone.
Over half of that $380 million went to lower transmission bills.
We're able to pass through these savings in some cases on an accelerated basis.
In 2019, PNG LNG returned all eligible excess deferred tax balances at transmission.
Offsetting a schedule formula rate increase that resulted in a 52 million dollar rate reduction.
We continued to be mindful that PSC angies balance sheet strength enables us to pass through these savings on an accelerated basis.
Which in turn age the affordability of investing in large infrastructure projects that benefit customers.
Let me turn my attention to PCG power for a moment.
Powers non-GAAP operating earnings for the full year or 409 million or 81 cents per share were 19% below 2018.
Reflecting the effective re contracting at lower market prices and lower capacity revenues that were partly offset by sex starting in April.
We completed powers 1800 megawatt combined cycle construction program.
With the placement into service of Bridgeport Harbor five.
We also made significant progress and replacing reactor vessel bulk at Salem one.
Power continues to exercise stringent cost discipline.
To remain competitive in a challenging market.
PSG power made progress in 2019 to reduce the already low carbon footprint of its 11 gigawatt fleet was an output profile now comprised of over 50% base load zero carbon nuclear generation.
Given the completed sale of nearly 800 megawatts of coal interesting Keystone and Conemaugh power expects it will eliminate all coal fired generation from its fuel mix by mid 2021 with the scheduled early retirement of Bridgeport Harbor three.
On the power market and policy front. The recent capacity auction held an ISO new England produced a week capacity clearing price that reflected a significantly lower demand forecast.
However, our largest asset in new England is the new Bridgeport Harbor, five combined cycle gas turbine.
Which as you know cleared the 2019 2020 auctions.
And the locked in a $231 per megawatt day capacity payments for seven years, thereby limiting our exposure to this latest auction results.
The long awaited for capacity order to expand the application of the minimum offer price rule and I'll just referred it out as mope are going forward.
Puts PJM states that want to support clean energy resources on notice.
But they will need to seek an alternative to the capacity market auction in order to procure that preferred resources and avoids the risk of costly double payments to satisfy that capacity obligation.
PJM is expected to update the price floors for all PGM nuclear units soon and we'll submit these default avoidable cost rates or AC ours.
To FERC in their compliance filing on March 18.
The HCR will be used as the price floor for subsidized nuclear units.
And we'll likely determine whether our new Jersey nuclear units can clear the PJM capacity auction for the 2020 to 2023 energy or.
As a reminder, our capacity revenues are locked in through May 2022.
As the FERC order currently stands the MOPR will also be applied to new states supported renewable generation such as offshore wind.
Which will have the net cost of new entry as its price for.
That price floor results in a very remote possibility of clearing the capacity auction, which has prompted several PJM states to consider a fixed resource requirements or fr our self supply options.
We will work cooperatively cooperatively with the board of public utilities in New Jersey, and PJM to find the best path forward, whether that is to bid and cleared the capacity auction under a business as usual scenario or seek the fr alternative in partnership with New Jersey to preserve its preferred zero carbon resources.
And let's remember that the underlying rationale for Fercs action.
To eliminate price depression.
Caused by units that were receiving out of market payments.
Also it or Weve reached an agreement.
To sell our interest in yards Creek pump storage generating station that we jointly owned with first energy.
Sell reflects our ongoing commitment to optimize the value of the generating fleet.
These proceeds will add to the improved cash flow at power given the completion of the combined cycle construction program and powers declining capital needs.
PS IGI is long term strategy to transition our business to a mostly regulated company with predictable cash flows is on track.
Our financial condition remains strong with a healthy balance sheet that provides us the ability to finance our five year capital plans and provides the opportunity for growth and the common dividends without the need to issue equity.
Our total capital program for the 20 to 24 time period is now $12 billion to $16 billion.
Over 90% of that amount directed at regulated utility growth that improves the reliability and efficiency of our operations and supports new Jersey's energy policy goals.
PSC Angies planned capital spending program over 2000, 22024, as 11 and a half to $15 billion and is projected to produce compound annual growth in rate base of 6.5% to 8%.
Starting from 2019 to year end base of just over $20 billion.
So that denominator in a CAGR keeps growing.
For 2020, we are forecasting consolidated non-GAAP operating earnings of $3 and 33050 cents per share, which at the midpoint represents approximately a 4% increased 3.6% to be precise over 2019 results.
Full year 2020 consolidated guidance remains at a consistent 20 cents band as provided in recent years.
While subsidiary guidance ranges, a modestly wider to allow for variability by business that is often offset in consolidated results.
The increase for 2020 is led by a higher contribution from regulated earnings appear CNG approaching 80% of consolidated results, partially offset by an expected decline in power's results to account for lower expected market prices for energy and capacity.
This guidance includes the benefit from a full year of Zacks for all three of our New Jersey nuclear plant.
The board of directors recent decision to increase the company's common dividends to the indicative annual level of $1.96 per share is the 16th increased in the last 17 years and reflects our commitment to returning capital to our shareholders as well as preserving the financial flexibility to preserve to pursue growth we.
Finished 2019 well position to.
To execute on our policy and regulatory priorities as well as our environmental social and governance priorities.
CG recently adopted the sustainability accounting standards board or SaaS be disclosure practice and incorporated the you and sustainable development goals and our 2019 sustainability report.
Yes, EG power adopted a net zero by 2050 goal in July assuming advancements in technology public policy and customer behavior.
And this coming April we expect to issue a first climate report.
Using the task force on climate related financial disclosures framework.
PS EG was again named to the Dow Jones Sustainability Index for North America for the 12th consecutive year in 2019.
Most recently PCG was recognized among America's most just companies for 2020 by Forbes and just capital.
And Forbes included PS Eugene is 2020 list of America's best employers for diversity for the third year in a row.
With that mine I want to thank all of our employees for their dedication and customer commitment each and every day. That's helped make these results possible.
I will now turn the call over the Dan for more details on our operating results and will be available for your questions. After his remarks.
Great Thanks, Ralph and good morning, everybody.
As Ralph said piece that you reported non-GAAP operating earnings for the fourth quarter 29.
64 cents per share versus 56 cents per share for the fourth quarter of 2018.
Earnings in the quarter brought non-GAAP operating earnings for the full year $3.28 per share.
Which is 5% higher than 20 teens non-GAAP operating earnings of $3.12 per share.
On slide six we provide you with a reconciliation of non-GAAP operating earnings to net income for the quarter.
We also provide you with information on slide 12 regarding the contribution to non-GAAP operating earnings by business for the quarter.
In slide 13 in 15 contain waterfall charts that take you through the quarter over quarter and year over year net changes and non-GAAP operating earnings by major business.
I'll now review each company in detail starting with P.S. LNG.
PCG reported net income for the fourth quarter 2019.
54 cents per share.
Compared with 47 cents per share for the fourth quarter of 2018.
Full year 2019, net income was 1.250 billion or $2.46 per share.
An improvement of over 17% compared with net income of 1.067 billion or $2.10 per share.
In 2018.
As shown on slide 17 piece LNG is net income in the fourth quarter increased as a result of expanded investment and transmission and distribution infrastructure.
And distribution rate really for the full quarter as new rates were put into effect on November 1st of 2018.
Growth in PMC Angies investment in transmission improved quarter over quarter net income comparisons by four cents per share.
Gas margin improved by two cents per share as a result of rate relief.
And recovery of investment in gas distribution made under the gas system monetization program.
Electric margin was flat in the quarter as one month of incremental rate relief versus 20 eighteens fourth quarter.
Was offset by lower weather normalized volume and demand.
Operating and maintenance expense improved by two cents per share compared with the prior quarter.
Reflecting lower tree trimming and preventative maintenance work.
In addition, retiree medical plan benefit changes implemented in 2019.
Had a three cents per share positive impact on net income compared to the year earlier core.
These positives were partially offset by a penny per share of higher depreciation expense on higher plant balances.
A penny of higher interest expense on higher debt outstanding.
And higher taxes, and other items that were two cents unfavorable compared to the year earlier quarter.
For the full year weather normalized residential electric sales were <unk>, 0.2% lower and weather normalized residential gas sales declined by 1.8%.
Total electric and gas customers for the full year increased 5.9% and 0.6% respectively.
Last October PNG updated its transmission formula rate filing for 2020 to implement a rate increase after having completed the return of excess deferred tax benefits in 2019.
In 2019 piercing G.'s formula rate filing included the flow back to customers of the tax benefits related to accumulated deferred income taxes on an accelerated basis in a single year.
Which had the effect of lowering the annual revenue requirements and transmission revenue for 2019, after reflecting system investments.
You have seen g.'s investment over $2.7 billion and its transmission and distribution infrastructure in 2019.
Resulted in 6% growth in rate base to over $20 billion and of this amount.
If you've seen ngs investment in transmission represents 45% or just over 9 billion of the company's consolidated rate base at the end of 2019.
PCGS net income for 2020 is forecasted at 1.310 billion to $1.370 billion.
Now, let's turn to power.
PCG power reported non-GAAP operating earnings of 10 cents per share in the fourth quarter.
Compared with non-GAAP operating earnings of 11 cents per share a year ago.
The results for the quarter brought powers full year non-GAAP operating earnings to 409 million for 81 cents per share.
Compared to 20, eighteens non-GAAP operating earnings of 502 million or 99 cents per share.
Powers non-GAAP adjusted EBITDA for the quarter and the year amounted to 198 million and 1.035 billion respectively.
This compares with non-GAAP adjusted EBITDA for the fourth quarter of 2018 of 176 million and for the full year of $1.059 billion.
The earnings release as well as slides 13 at 15 provide you with detailed analysis and Power's operating earnings quarter over quarter end year over year.
From changes in revenue and cost.
Our reported net income that increased by 39 cents per share.
Non-GAAP operating earnings that declined by one cents per share.
Paired with the fourth quarter of 2018 as shown on slide 23.
The schedule declining capacity prices in PJM, and ISO new England in the second half of 2019.
Reduced fourth quarter non-GAAP operating earnings comparisons by 11 cents per share.
Lower generation output for the quarter also reduced comparisons by two cents per share.
The benefits of a full quarter of Zach revenues of six cents per share.
And lower cost to serve a five cents per share.
Were partly offset by a three cents per share decline from re contracting a lower market prices.
Yes operations were flat as lower commodity prices pressured margins and limited off system sales.
The decline in or what I am expense improved comparisons by three cents per share reflecting savings from the Keystone and Conemaugh sale.
And lower fall 2019, fossil outage expense that more than offset higher costs related to the hope Creek refueling outage and Bridgeport Harbor fives in service as of mid year 2019.
Higher interest in depreciation expenses were offset by savings from retiree medical plan benefit changes that were implemented in 2019.
And lower taxes improved non-GAAP operating earnings by a penny over the fourth over the prior years fourth quarter.
Gross margin in the fourth quarter stabilized at $31 per megawatt hour from the same level in 2018 fourth quarter as a scheduled declining capacity prices that began on June 1st in PJM and ISO New England was largely offset by the Zacks awarded in April.
For the year gross margin declined to $32 per megawatt hour from $33 per megawatt hour.
Reflecting the average decline in 2019 hedge prices for energy of approximately $3 per megawatt hour.
Now lets started powers operations. We've provided you with detailed on generation for the quarter and for the year on slides 24 and 25.
Output from power generating facilities in the fourth quarter declined by 6.2% from last year.
Primarily reflecting the sale at the end of the third quarter of the Keystone and Conemaugh coal fired generating units as well as an extended refueling outage at Hope Creek.
Full year 2019 output of 57 Terawatt hours was at the low end of our 50 759 Terawatt hour forecast.
The nuclear fleet operated at an average capacity factor Bacon, 1.9% in the quarter, resulting in a full year capacity factor of 88.7%.
In total production of approximately 30 terawatt hours.
The combined cycle fleet operated at an average capacity factor of approximately 54.8% in the quarter.
Tilting in a full year capacity factor, a 52.2% and total production of approximately 23 terawatt hours for the year.
An increase of over 20% year over year, reflecting the addition of Bridgeport Harbor, five and high capacity factors achieved at the other two new combined cycle units keys and see war.
Coal fired generation for the quarter end the year was significantly reduced as a result of the sale of Keystone and Conemaugh.
An update of power has hedged position following the bgs auction in early February is provided on slide 27.
PCG powers forecasting a decrease in output for both 2020 and 2021.
To 50 to 52 Terawatt hours down two terawatt hours since the third quarter 2019 update.
Merely reflecting weak prices and lower market demand.
Following completion of the recent basic generation service or Bgs auction in New Jersey, approximately 85% to 90% of production for 2020 is hedged at an average price of $37 per megawatt hour.
With Baseload production hedged at approximately one dollar lower than the average hedge price in 2019.
For 2021.
Power has hedged 45% to 50% of forecast output of 50 to 52 Terawatt hours.
At an average price of $36 per megawatt hour.
For 2022 power has hedged 20% to 25% of forecast output of 50 to 52 Terawatt hours at an average price of $36 per megawatt hour.
The forecast for 2020 to 2022 volumes fully reflects the sale of Keystone and Conemaugh, which had produced approximately five terawatt hours of annual generation in prior years.
The generation from the three new Cc duties.
Approximately three terawatt hours of lower generation in each year consistent with current market conditions and the planned retirement of 383 megawatts of coal fired generation at the Bridgeport Harbor three stations in June of 2021.
Powers 2020, non-GAAP operating earnings and non-GAAP adjusted EBITDA forecast is projected to be 345 million to 435 million.
And 950 million to 1.050 billion respectively.
Moving on to enterprise and other for the fourth quarter 2019 enterprise and other reported net income that increased by a penny per share and non-GAAP operating earnings increased by two cents per share compared with the fourth quarter of 2018.
Net income of 2 million for the fourth quarter of 2019, compared with a net loss of 5 million or penny per share in the fourth quarter 2018 and for the full year 2019, PCG enterprise and other reported a net loss for 25 million or six cents per share.
Compared with net income of 6 million or a penny per share for all 2018.
Enterprise and other reported non-GAAP operating earnings for the fourth quarter 2019 of 2 million, bringing full year results 70 million or a penny per share.
Which compares to non-GAAP operating loss of 12 million or two cents per share.
In the fourth quarter of 2018 that brought results to 13 million or three cents per share for full year 2018.
For 2020 enterprise another is expected to produce a non-GAAP operating loss of 5 million and this guidance reflects the continued PCG long island results that are more than offset by higher parent interest expense.
PCG Coast concluded 29 team with a 147 million of cash on hand.
And debt, representing 52% of our consolidated capital position.
How is that was 33% of its total capital base and its year end debt position stood at just over 2.7 times 2019, non-GAAP adjusted EBITDA.
We expect internally generated cash flow will enable us to fund our current 2020 to 2024 capital program of 12 to 16 billion.
Dominate incremental investment in previously identified opportunities without the need to issue equity.
While providing the opportunity to grow our dividends.
So to recap, we're guiding to non-GAAP operating earnings for $2023.30 to $3.50 per share at approximate 4% increase over 2019.
With regulated operations appears CNG approaching 80% of consolidated earnings.
We also raised PCGS common dividend by eight cents to the indicative annual level of $1.96 per share a 4.3% increase over 2018.
This level continues to represent about a 58% payout of consolidated earnings at the midpoint of 2020 guidance and is comfortably covered by utility only earnings and has contributed to a 4.7% annual rate of growth in the dividends over the last five years.
And with that Tiffany, we're now ready to take some questions.
[noise], ladies and gentlemen, we will now begin the question and answer session. What the members of the financial community. If you'd have a question. Please press star and the number one on your telephone keypad. If your question has been answered any wish sublett side, you're pulling question you may be FFO by pressing pound Hello.
By the number one if you are on a speakerphone. Please pick up your handset before entering your with clashed.
One moment please for the first question.
Your first question comes from the line of Pofahl Mehta with Citigroup.
Thanks, So much high guys.
Level.
Hi, so Ralph on the PJM capacity auction I am showing you expecting the question.
Unfortunately, the way focus left that it's going to be difficult difficult to see how states stay in it if they really want to push the renewable mandates, especially like you said offshore wind and we'll see how they do you see all comes out from nuclear but what is your view on on that Youve States referred to.
Just separate or drug at least have their own I thought I'd like you said, what does that mean for new Jersey, what does the process and timing bake and what does that mean for your portfolio in particular.
So thats a very thanks. Thanks profile that is a very complicated question and so much of it is really summarize into words it depends.
I don't think new Jersey wants to pay twice.
Our capacity from carbon free sources in particular from offshore wind.
So under the current construct which as you know many people have files for rehearing.
But under the current construct that would mean, new Jersey would have to have either zonal or state why that far our.
Which to me is suboptimal right, because now you're going to be.
Solving a.
Small problem with a rather large tool.
If you're if your aspirations of for 7000 megawatts of offshore wind the need to pull out 15000 megawatts.
From the capacity market seems to that of overkill.
It also depends upon the design of the F or are you are you taking out what is the engineering assessment of the reserve margin you need a 15, 16% if so you're leaving behind a.
Residual market that is grotesquely oversupplied and crushing capacity prices in that market.
Uh Huh, how is price set I mean, there's just a ton of questions.
I feel good about is number one we have an energy mess clinisys nuclear is important to 2050, so that has to be economically supported.
Number two we have fossil assets that are located close to the load centers and have a deliverability advantages that will make some important factors in any capacity reliability.
Construct that has created so.
Candidly Weve already filed comments and by virtue of those comments I think a safe for me to say that we've said FERC didn't quite get this right and it looks like.
The most likely outcome as folks that are not close to load centers and that are in other regions I may face of residual market that is that that.
That does experienced some pricing pressure, which is the exact opposite aboard perks as they want us to do.
So just so everything I said after the first two words of it depends you should take was a little bit of a very cloudy crystal ball.
In terms of its ability to be precise and at all and where I started which is it defense and profitable thing to add the as we mentioned in the prepared remarks that we will find out a little bit more from PJM on the 18th of March with respect to the HCR as much as part of your question as well so that's that depends as well, but we'll get.
A little bit more insight.
Oh, we anticipate that to come out on the.
And you do no problem show that the IMS numbers would suggest that our nuclear plants should we choose to participate would be.
I would be certainly competitive.
Right no invested right.
Yeah, no. Thanks for all that color and obviously I do appreciate that nuclear should at least based on Imam numbers.
But I guess given all of the it depends and uncertainty from a timing perspective, if FERC ROE to go ahead do you think New Jersey Gan reacting time to get you have thought or if that's what the pop forward like you said that a big doing from a smaller bedroom, but if that was the only Bob said word.
What is the timing expectation you think that far could that beat that a new jersey can get together and kind of solve the problem from a if on our perspective. So so remember our capacity prices are set for 2022. So we have a little over the time there.
Depending upon whether or not FERC response, probably to the marching filing that Dan referenced it's conceivable that the next auction would take place late in Q4 this year.
And a new Jersey will not have offshore wind.
Collecting payments until sometime in 2024.
So it doesn't start paying double until the.
Second auction from now, but because we're still working on the on the 19 auction just yet so the 2024 energy year as a 2021 auction, so new Jersey as a little bit of time.
And in conversations with staff.
We believe and we're hearing from staff that they also believe they may not need legislation to go forward within that four are now it's not always uncertain.
But but I do think that there will be adequate time for new Jersey to avoid double paying for capacity in 2024, it won't be a walk in the park.
Got it fair enough I'll get back in queue back lots more questions, but thanks for your thank you Pat.
Your next question comes from the line of Julien Dumoulin Smith.
With bank of America.
Thank you good morning game.
Joining me.
Hey, excellent. So let me turn the subject to a slightly different more utility oriented subject.
MP talk the pleased in little bit about transmission returns I'd be curious to get your latest thoughts on New Jersey specific dynamics, obviously, you're already alluded to in your prepared remarks to the MISO situation.
And specifically with the New Jersey do you think the potential to file like a tool five to get ahead of any kind of process in new Jersey or how do you see this playing out if at all just curious on your reaction there.
So I I don't know how to predict whether or not there will be a tool five at all Julian I mean, we've we've often talked about up to a six.
And there there is a high threshold for someone who files and to a six I.
I think we do you have to do a better job here quite candidly reminding people.
The enormous value of our transmission investments over the years right.
If I take you back.
Up to.
August of 2003, when the grid was very different and that structure and how much more improve that is now from reliability point of view, we've literally reduced transmission outages by 300% I believe over that period.
Once upon a time when when there was low cost fuel for generators in the west.
New Jersey faced prices was that a $20 basis uplift in the east.
Nowadays the nature of that low cost fuel in the west has changed from coal to gas, but it's still lower cost fuel in the west New Jersey doesn't have any natural gas and basis differentials now instead of being positive 20 or negative three so it's been a bunch of advantages associated with transmission and we still have no shortage of 90 year old transmission assets that needs to be replaced having said.
We are not likely to file a to all five to change our OE.
Well, because we really don't know what the FERC rules are going to be it seems pretty clear to me that FERC has.
As professionally as humanly possible basically said whoops, maybe we need to rethink what we did here and and I believe the chairman himself as to that they are open to potentially rehearing. This case so.
A two of six filing is extremely complicated. It takes many years just take a look at what happened in new England similar to what happened in Midwest and that's what people knew what the methodology was going to be sent out in the absence of unknown methodology with that complexity.
I think it's not particularly beneficial to our customers are the us to to to begin to go in and start to summarize what those rules might be in the form of a tool five five so.
I am proud of every dollar we spent on transmission and the customer benefits, we've delivered and as soon as FERC gets the rules straight than maybe we can have an intelligent conversation with our regulators and our customers about what what is a fair return.
But right now the market seems to have anticipated every bit and then subs.
Indeed, and then if I if I may just a follow up on this.
Sort of bridging the two conversations in power and utilities, obviously pressure across the market.
And then also a pretax potentially slowing utility growth trajectory even on the margin. How do you think about the power business again strategically as you think about dividends and Cashel required back in into the utility again trying to bridge that financing conversation against both sides as business yeah.
Okay. So all in light of the latest asset sale too yeah. No. So so first of all the remember because of the delay in CF.
Combined with the 6% growth in rate base.
<unk> was part of a 17% growth and utility earnings.
Yeah, we redo it lowers the bottom and of our rate based growth.
To 6.5%, but I would I would take issue with the slowing utility growth I think that we're very mindful of customer bills and the impact and the customer value creation associated with the type of investments, we're making right. We're we're not here to just grow the rate base. We're here to.
Reward shareholders by doing better things for customers and so that 6.5% to 8% I would still say is not only robust but.
At the risk of being a little bit.
Well, it's real so.
Let me just leave it that since that was describing it and so six that percentage programs and things that we know and 8% as if we get some part of CF and what the BP, you're saying please bringing in a in my or modify array. My proposal I think it's safe to assume that some part of CEF, both the and am I will be approved now in terms of power too.
To your so the heart of your question I just saw joined I just want to take issue with some of the assumptions behind the question.
Yeah, we're making progress we sell Keystone Karma is that made sense, we're selling yards Creek is that makes sense.
Right now, we're not selling best time, because it seems that we can get more value out of it than the market was willing to pay for it and utilities can be almost 80% of our earnings this year with 90% of our capital deployed in that direction in the next five years. So.
The cash flow from power is an attractive way to fund utility operations. The debt capacity of hours are attractive way for us to fund the equity component of the utility it will keep doing that but as people come forward and say, we can make better use of that asset filling the blind just what that asset is that were more than happy to have a conversation and those conversations take place all the time.
And sometimes that fruitful and other times, we realize people are just trying to take something is quite valuable at a discount price and we're not going let them do that.
Alright. Thank you guys have yet I think Julien the only other thing to add really is if you think about it we have talked for a long time about a growing base of rate base.
It is going to trend towards the potential for a lower growth rate off of that because of the higher base and that's that's a little bit about what you see from the standpoint of the range that we have put out in addition to the fact, if you think about some of the C. B clauses that are in place related to just on fee related Saturday strong.
Have five year run rates, which runs through 2023 and the five year plan that we talk about now runs through 2024 so.
Remember the low end of the range is what we know is approved and is moving forward and so we kind of fall off one year within our five year forecast from the standpoint of what is approved.
And we've also talked about there was there was a lot of gas pipe cast iron pipe. That's out there that has a a longer a run rate from the standpoint of being able to move through all that to eliminate all the methane leaks that come from that so.
I think some consistency with that that's not approved as yet into 2024 as approved through 2023. So you see some drop off on the lower end of that range for that.
Thank you.
Your next question comes from the line of Jonathan Arnold from fertile for research.
Yes.
Hi, Jonathan.
Thank you Likewise, just a quick on the Capex.
Slide I just was curious the you 2023, there's obviously a big increase in the Orange segment. The electric distribution is.
You can use reminds us will not piece is that is the am I am that'll.
So there is still up in the Green hashed out sex no Jonathan I I think Theres, a maybe two things that you can think about a little bit from that perspective. One is the fact that as it and I just referenced energy strong Angie S&P and there's usually some of what we called stipulated base within the overall spend that is there and that spend can tend to lag a little bit occur.
Cross the five year period of the clauses that we have so to the extent that the stipulated base comes through.
At the end of those programs you may see some of that come through and usually there is a little bit of capital that I've been at capital at or as we move towards the rate case, you're just based upon a ultimately pulling capital together. So those are the two things that would come to mind related to think that they love the orange and leave it. So that's why the three particularly have really really.
The increase the law versus what you were showing up.
Most recently.
And am I is above in the cross hatcheries and John Rogers, Okay did not know what's driving it and then just sort of generally when I will try to design the numbers on underlying slide with the.
Yes slide rule.
But it seems that you're spending.
Through the 2023 is probably out.
$1 billion, maybe a little more than the rate base is more or less ending up in the same place to my on base without observation oil.
I'll close with respect to too.
I'm not quite sure I fully.
Look at what you'll you'll slide implies in terms of yes.
The 23 kind of timeframe rate base.
Although you have a moving around on the Capex. It looks like it ends up in more or less the same place I just want to make sure in right about that.
2023 ends up in the same place as well for Oh.
Oh it was what.
I don't have that comparison, you're saying it as compared to.
Have you will let me rephrase that you'll 2023.
Vintage type of rate base will cost changed very much.
Once you put all this together.
I think from the from the lower end of the range I would say no and what you're seeing on on the on the top end of the range basically is inclusive of both the CF potential as well as the IP perpetual.
Well, we can we can pull on slide rules, together and kind of look through ups there.
Okay.
You are basically looking at what was a 7% to 8% increase off of 19 versus a six and a half at the lower end off of 20, and you're seeing a 6% increase year over year. So net net that just becomes Matt.
Okay. The destination does seems to be kind of know pathway for enough I think that low.
I think Thats fair.
Different if it's okay got it and I think that the dependency of CF is a part of that that's been what's been the biggest part of our range and remains that way because we're still in progress with respect to those filings.
Perfect and then you just one other thing what was the goodwill impairment of power that you took in the quarter.
Oh that adjustment that was from.
Many years ago, when we acquired a location in New York, which ultimately became the Bethlehem Energy Center and we built that so many guests a couple of years to build that it might have been in 2001 2002 timeframe something like that.
We acquired a site of the old Albany seems stage steam station from Niagara Mohawk and at the time of that acquisition. There was some goodwill that came on the books and that goes through an annual impairment tests and that was impaired as we went through this year. There was a fairly modest amount, but ultimately it was just that accounting testers.
Okay, but it was an yeah. So there are no I'm not one of your core assets.
Non cash and and relatively small Matt Thank you well.
Your next question comes from the line of Michael Leftish with Goldman Sachs.
Hey, guys. Just quick question on the transmission Capex embedded in the five year outlook.
Just curious how much clarity do you have at this point in time on 21 in 22 transmission Capex levels.
I would I would answer you generally as a very high degree.
If you think about a lot of those projects they end up being multiyear projects and so a lot of that spend is not awaiting approval in those years, it's more related to spend on projects that had to have a longer term.
Okay and the only just wanted to ask that question is historically if you go back over time when you all put out a five year forecast of transmission spend what the actual spending years three to five at work versus what the forecast where a couple of years earlier turned out to be vastly different numbers I'm just.
Curious if we're looking at something where there could be a significant uptick relative to what we're seeing on slide 19 in terms of expected transmission spend, especially since the rollover seems to be occurring really net next year and 21 normally it's kind of years three to five when you guys and forecast that out.
So I mean, I think you could.
Rest assured that we're putting out there the best about knowledge right now.
We have set in the past that some of the larger projects, which tended to make the future a little bit lumpier, so to speak as new projects were approved.
Those large projects are not in the forecast, we don't envision any I mean, you never say never a depending on what PGM does with the our TEP much of the transmission improvements now or end of life projects and 69 kv upgrade projects. So the subsequent Susquehanna Roseland type projects the northeast corridor projects.
Which could take something that was at X and make it much bigger than acts as it gets approved or not likely to show up in the near term.
Got it and then one following actually is one of many sure can you remind me what happens is now on the am I process is that spin that's approved does that spend that's part of the ongoing dockets on the CF that needs to get approved and in <unk> eight.
And if it's a separate part of that when does that kind of role when is that as part of the energy cloud docket.
Yes, so so what does so the BP lifted the moratorium said, okay based upon.
Some work that was done to rock pores electric and independent consult report. This makes sense, we should do this statewide.
So they put forth a procedural schedule, which would if it were fully litigated in its outcome based on our experience that would wrap up sometime in Q1 of next year.
And they said to utilities. Okay. Please submit your filing you could do it under the rubric of the infrastructure improvement program, which you may recall was passed in.
December of 18.
I guess since we already have a filing in we don't need to write a new filings.
So so we are going to simply take the am I component of our CEF the energy cloud component.
And make sure it doesn't need to be treated anyway and pilot under the infrastructure improvement.
Clause recovery mechanism.
So I I would think I would hope that we'd have a very strong opportunity to come through negotiated settlement on that since everybody recognizes the value of a mine since the recovery mechanism and the IP is.
Pretty well documented and has been used extensively so.
Maybe this is something we could actually had done this year, but we'll see.
Got it and last question can you remind me on energy efficiency spend that PSC Angie how was that treated from an earnings perspective.
Its rate base rate of return.
And we've had a mechanism in all of our prior programs, which continues in this case.
To recover we have the opportunity to recover the lost revenue.
Through an administrative fee that is set in a way that allows us to run the programs and have the opportunity if we run them efficiently to recover that that lost revenue.
Got it. Thank you much appreciate it guys.
Your next question comes from the line of Paul Patterson of Glenrock Associates.
Good morning, how you doing.
I'm just really quickly.
Any reason to think that I mean that there'd be a significant difference between the pgms you see our values versus the.
I am him.
There's nothing that jumps out at us all they don't always agree as you know on either policy or.
Their analyses, but there's nothing that jumps out at this moment right now.
Okay, and then with respect to the <unk> four or if that's the route that's taken how should we think about the amount of capacity.
That.
New Jersey would be.
Procuring I guess.
And.
How it would be selected I guess.
That's that's really to be determined.
We would want to work with the state to make sure that reliability concerns are met but that doesn't oversupply itself and therefore pay.
More people that it needs to but that that that all its visitors.
And because of that.
Lets say would provide information to be PJM.
To ensure that they have actually met the requirements that they need to me. So you can kind of like you can think about the.
The concept of needing to meet the reliability is being consistent with.
PJM from the standpoint of what kind of a credit you would give us a particular types of units like a solar unit wouldn't get a megawatt for megawatt credit because it's not dispatchable.
But I think the details are to be determined.
So we'd be who would basically one would normally think that it would be basically the PGM rules for capacity what have you and what their.
What the goal is for reserve margin for PJM is that how we should.
Probably think about it or that's the way I think about it Paul because.
Clearly.
You want to avoid the free rider case, because new Jersey is not going to sever its interconnection to the rest of PJM.
And it.
And you're not suggesting is but if this new jersey designed that fr are of that created greater opportunities for reliability concerns in new Jersey to be backstopped by the rest the PJM, but yet new Jersey isn't pay for.
That does not seem to be fair.
But like but yes, I mean, I think that we all know that PJM right now has reserve margins that exceed.
Its stated requirements.
And presumably if new Jersey, just follow the PJM fr requirements that would be more akin to what they've traditionally said into 16% range not.
20, plus percent range and that's why I think there ought to be concerns about the residual market.
Oh food okay. Thanks, so much.
This and you will take a final question.
Your next question will come from the line of Sherry hard for me that with Guggenheim partners.
Hi, Good morning, it's actually Constantine here for sharp.
Okay.
Just a quick on what kind of slipping from distribution to transmission degeneration fairly frequently but it just high level when we're thinking about kind of clean energy future programs and advanced metering.
Energy efficiency opportunities.
Well, it's kind of this update but you're.
Potentially thinking about how does that kind of translate into opportunity and I'm just thinking in aggregate. There you have about 2.3 million customers on.
What's kind of an official rate at which you think you would deploy am I and kind of how to think about trajectory overall.
So the the annual rate I I don't have committed to memory constant but.
The $2.5 billion for energy efficiency was over six years and we are convinced that we can deploy that right now we have the authorities to commit 111 million over the next six months, but that won't get spent six months, but if we could committed based upon the demand for our programs I'm pretty tough I'm very confident.
Yes.
Hey, My estimate we've made is about five to 600 million dollar investment that's for all 2 million electric customers.
Yes system is.
A fairly extensive amount of.
Drive by reading capability.
And on electric vehicles and stores. That's the one that it really is just a question of what does the regulatory appetite and enthusiasm the state has.
600 megawatt battery storage goal for 2021, which is clearly is not going ahead, and we're just proposing $100 million for 30 megawatts. So as the state wants to really aggressively pursue that 2021 target we could do a lot more.
And then electric vehicles is similar.
Question of what is the appetite we propose a 300 million dollar program for a variety of different charging station infrastructure deployments. So the aggregate fair those numbers up is $3 billion to $5 billion over six years.
With the being the single biggest piece and.
Hi.
Probably being a little bit more of the backend loaded piece.
There is once you.
Get the approval and then.
Stock during the deployment I think that's that deployment is going to run a few years by the time you rolled out to everybody. Thanks, a couple of unique aspects of the A.M.I. is that it certainly feels more like an all or none scenario, you're not going to do every third house what am I, it's going to you really going to roll out MIT or not so it's got to.
More of a have a binary aspect to it and to do that full rollout is going to take I don't know, maybe three or four years or so depending upon pay so it'll take a little waterworks little.
Okay. That's very helpful. On just one quick follow up.
On kind of offshore wind and the timing and kind of opportunities going forward.
I don't have you made the commitment or is there a timeline for making a commitment with or stand and how are you positioning for any kind of future RFP, New jersey or otherwise.
So we have not made the commitment yet.
We do need to resolve that.
By the third quarter of this year I think.
Both we and horse that would like to see that sooner rather than later, but we don't want to do that.
And the absence of being fully comfortable that I've due diligence is complete.
And we have retained.
Ownership of another site.
That is a residual from our prior partnership with deepwater when new which was acquired by or stuff and that side has access really I think the three stage to Maryland, Delaware and New Jersey.
In terms of future solicitation.
Okay, that's very helpful on.
Any.
Way that you're thinking about kind of partnerships and structure going forward or is it a little too early to tell.
Yes, we does those discussions are underway with or set and I'd I'd rather not.
Like the public conversation about that until we resolve that without future partner.
Okay. That's very helpful. Thanks, Thanks, so much.
Mr. Izzo Mr. Craig that is all the time, we have for questions. Please continue with your presentation, where you're closing remarks.
Yes. So thank you for joining us today, and we will be on erode the balance of next week in a few days after that so we'd be more than happy to have.
I meet with folks and have further conversations I know that there's a little bit of.
Yes.
There's a fair amount to talk about in terms of the FERC loper and the future of the regulatory decisions, but I must admit that we are encouraged by some of the things that have happened in new Jersey of late you may recall, the white paper and utility role in energy efficiency that came out at the end of last year.
As you Master plan has come out we are seeing procedural schedules for all aspects of our CEO filing and we do have an extension of an $11 million for just the next six months. So I'd say that of course, we're never satisfied with pace, but we are directionally satisfied with the dialogue in the substance.
Continued growth of utility in ways that benefits the customers. So look forward to seeing you all on the road and thank you for joining us today.
Ladies and gentlemen that does conclude your conference call for today, you may disconnect and thank you for participating.
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