Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by my name is Chrissy and I'm Your E beam operator today.
I would like to welcome everyone to today's conference Public Service Enterprise Group first quarter 2020 earnings conference call and webcast.
At this time all participants are in it listen only mode. Later, we will conduct a question and answer session for members of the financial community.
At that time, if your other question you wouldn't you press the star Indeed number one owned your telephone keypad to withdraw your question. Please press the pound ending number one <unk>.
As a reminder, this conference is being recorded today may four twentytwenty and bill will be available for a telephone replay beginning at one o'clock PM Eastern time today, it's a little over 30 PM Eastern time on May 13 Twentytwenty.
He will also be available as an audio webcast on P.P.S. EG corporate website at Www Dot P.S. EG Dot com.
I'd now like to turn the conference or what you call that a Chan. Please go ahead.
Thank you Christine good morning.
Yes, EG released first quarter 2020 earnings results earlier today.
Next release attachments and squad be telling results are posted on P.S. EG IR website, and our 10-Q will be filed shortly.
Earnings release, another mature matters, we will discuss on today's 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.
Reconciliations of our non-GAAP financial measures and the disclaimer regarding forward looking statements are posted on our IR website and included in today's earnings materials.
Now I'll 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 right Executive Vice President and Chief Financial Officer.
Conclusion of their remarks, there will be calling for your question.
Thank you for a lot it sounds like you're all for joining us today.
Before we begin to review this quarter's results, let me take a moment to express my sincere condolences.
To anyone on the call has been personally affected by covert 19th.
I also extend my gratitude to the health care and emergency first responders.
At least frontline heroes in New Jersey, PSG recently, Johnny 50000.
95 masks and 200000 parents of gloves to help replenish personal protective equipment.
Please refer to that as P.P. from Illinois.
S.G. Foundation has also made a two and a half million dollar commitment to provide grants to regional food banks and health and social services organizations, you know communities.
Yes, he just first and foremost responsibility is always been to provide safe and reliable delivery of electric and gas service.
3.7 million customers in New Jersey, and on long Island.
As part of the New York Metropolitan Area, New Jersey Long Island have been among the hardest hit areas by corporate 19, what is showing signs of improvement.
Confirmed to cope with 19 incidence rates among P.S. EG employees remain below those of the New Jersey and long Island General populations.
Approximately 1% of our employees are currently self monitoring.
So personnel availability continues to be strong.
Attest to the effectiveness of the 60 protocols, we put in place early on.
This will become even more important does this summer storm season begins and access to mutual aid resources may be limited.
The ongoing safety of our employees at our customers is central to P.S. Egcs response to covert 19.
We review our safety protocols on a regular basis against recommendations from federal state and local health authorities.
Guarding practicing physical distancing P P and performing extensive cleaning protocols.
Well, we have suspended nonessential field worked activities.
Yes, he Angie and P.S. EG long island are continuing to respond to customer outages and request for emergency services, such as no he or no hot water calls.
Importantly, we are continuing our work on critical energy infrastructure projects that contribute to the system reliability and resilience set of customers value.
Last week government Murphy outlined the road back a multi step approach for recovery and restart of New Jersey economy in the coming weeks and months that's conditions permit.
Looking ahead, we have also started planning a responsible re entry for the PSC. She workforce once the states in which we operate New Jersey, New York, Connecticut, Maryland.
Again that transition to recovery mode.
Toward that goal P.S. IGI is carefully preparing to make changes to our work site work practices and procedures in order to protect the health and safety about employees and customers.
We will take the step so as to emerge stronger more nimble and more resilient on the other side of this transition.
Now switching over to <unk> financial results for the first quarter, we've had a good start to the year.
Yes, EG reported one dollar and three cents per share of non-GAAP operating earnings versus a dollar an eight cents per share in the first quarter of 2019.
Our GAAP results for the quarter were 88 cents per share compared to $1.38 per share and last year's first quarter.
Details on the results for the quarter can be found on slide five of the earnings presentation.
Drivers for the quarter, including your rate base expansion from the continued investment in transmission and distribution infrastructure PNC Angie.
The addition of zero emission certificates or Sachs I.P.G. power, which didn't begin until the second quarter of 2019.
Offset by a schedule decline in powers capacity prices.
And on favorable weather comparisons at both P is eating Gi and especially in power caused by the second mildness first quarter ever recorded in New Jersey.
Due to the temporary closure of most new Jersey businesses schools and government buildings. Following the stay at home orders that began in March 21st.
The P.S. EG service territory experienced the wasn't normalize decline of approximately 5% to 7% and electric load from the end of March through April.
[laughter] excuse me. This is in line with the more aggregate data, we get from PJM, which suggests that demand is down by the same 5% to 7%.
These ranges as well as the mix of usage among residential commercial and industrial customers are in precise.
As the lack of smart meters or am I in new Jersey limits, our ability to analyze changes in demand in real time.
That said, we anticipate that this reduction could extend through the second quarter and possibly longer.
Addressing this directly we have less volume rest of less margin risk than the reduction in PSC Angies kilowatt hour sales might suggest.
Transmission and residential electric and gas customers comprised three quarters of the total utility margins.
Transmission is not volume sensitive and residential customer margin is expected to be higher doing to shelter at home periods.
The remaining one quarter of margin comes from commercial and industrial customers, which is largely driven by peak demands and forget assistant on an annual basis rather than volume.
Also non residential customer segments contributed much smaller percentage of margin during the lower use shoulder season that covers most of the second quarter.
The covert 19 related reduction in demand appears late in the first quarter, but attitude of the negative effects of the warm winter in New Jersey.
However, PS IGI has managed through these challenges continuing our investment program at P. S. E G, providing new Jersey was zero carbon emission power from out of nuclear facilities, and ensuring efficient cost management across our business.
One of the biggest at most complex projects one can undertake even in normal times is managing a nuclear refueling outage. So I'm pleased to report that the sell them to refueling outage is going quite well the nuclear team is doing a great job and has reduced the scope of the outage, while expanding health screenings to include non PC.
Crews in order to protect all workers at the multi unit side, which also include sell them, one and Hope Creek.
As we celebrated the Fiftyth anniversary of Earth day last month, albeit virtually PS EG also released its inaugural climate reports following the framework established by the task force on climate related financial disclosures.
So known as she she ft.
The reported acknowledges the continuing impact the climate change is having on PNC G.'s operations, our service territory and on our customers' lives and it probably details our support for the preservation of nuclear generation.
Implementation of energy efficiency to curb greenhouse gas emissions and advocacy for effective climate policies.
Most importantly, a price on carbon emissions.
On the regulatory policy front, there have been several constructive developments at both FERC the federal Energy regulatory Commission.
The New Jersey Board of public utilities, the BP or since our last earnings call.
In March FERC signal that I noticed the proposed rulemaking it support for the continuation of transmission incentives and recognize the overall value of transmission investments FERC also propose increasing the Archie ill add or from 50 to 100 basis points for participating in a read.
Total transmission organization such as PJM.
The New Jersey energy Masterplan finalize this past January noted that the BP you would increasingly engaged in transmission or are we in cost allocation proceedings at FERC.
On behalf of New Jersey rate per.
We continue to work with the BP you on these matters.
The BP was also kept pace on that multiple clean energy agenda priorities, continuing its energy efficiency transition proceedings, which stakeholder working group at Webinars, including one being held today.
Gpus staff hasn't facets of you want administering E programs.
To meet the annual 2% electric savings and 0.75% guess savings targets in the 2008 clean energy.
With utilities, having a lead role in managing these critical efforts to cost effectively reduce usage, and therefore emissions and customer bills.
Gpus that also continues to continue to consider stakeholder input on energy efficiency cost recovery.
PSC and she has been an active participant in this they call the dialogue on these and other energy efficiency topics.
It is expected to be fuels staff will submit its final energy efficiency proposal for a vote at an upcoming agenda meeting in the near future.
The BP was also supported the need for am lie and recently ended the state wide moratorium on smart meters.
The BP has set procedural schedules for the clean energy future proposals covering $600 million of energy cloud or advanced metering infrastructure smart meter, if you will and 400 million of electric vehicle energy storage programs.
We will be working to conclude the a mine electric vehicle energy storage proceeding towards the end of this year or the turn of the new year.
Most recently the BP you moved to investigate the six resource requirements or as far as far as an alternative to satisfy the state's future capacity obligations with its preferred resource mix.
To be Peeves action was this was in response to the Fercs December 2019 order that set replacement rules for the PJM capacity auction and expanded the application for the minimum offer price rule to certain new and existing states subsidize generating resources, specifically offshore wind solar.
Nuclear.
As you May recall offshore wind and a new Jersey nuclear units were both identified and the recent energy Master plan as essential to the state's ability to achieve its carbon reduction goals.
PJM is March compliance filing also in response to Fercs December order propose the price floor for the New Jersey nuclear units.
Called the a CR or affordable cost rate.
That would preserve the full bidding flexibility to clear in the upcoming PJM capacity auction.
If new Jersey were to implement the F. our auction in broad terms. It would provide a choice for nuclear units and the majority of our fossil fleet to bid into either PJM capacity auction or into a new Jersey fr.
And how far are could be structure to have a longer tenor.
Hey preference for zero carbon generation and would have locational delivery requirements. We believe that the state could pursue went out for our without legislation, but ultimately the decision to move forward as theirs.
We intend to participate in this proceeding and will suggest ways to design the far to best minimize the cost impact of Fercs capacity ruling on New Jersey customers.
We remain committed to executing on a five year 12 to 16 billion dollar capital plan without the need to issue equity.
This plant is expected to generate compound annual growth in PSC angies rate base of 6.5% to 8%.
Starting from a 2019 year end base of just over 20 billion.
Ill also note that more than 90% of the utilities investments receive the formula rate or Clos based recovery.
And on capital.
PS IGI is continuing its due diligence and negotiations towards a joint venture agreement to potentially acquire a 25% equity interest.
Or since 1100 megawatts Ocean wind project.
And expects to make a decision this fall.
PS EG.
Has also improved its net liquidity position ending March with approximately $4 billion of available liquidity.
And as always we recognize the importance of our common dividend to our shareholders ever mindful about 113 year track record and we're committed to continuing to provide the opportunity for consistent and sustainable growth in that dividend.
Today, we are reaffirming our non-GAAP operating earnings guidance for full year 2020.
3030 to 3050 cents per share.
Our guidance does assume normal weather and plant operations for the remainder of the year.
Extremely mild weather in the corridor and the associated weakness in market demand as well as impacts of cobot 19 will require maintaining solid operations and strong cost control at both utility and PS EG power, especially during this third quarter cooling season.
I'll conclude by thanking all about 13000 employees for their extraordinary dedication flexibility and concern for each other and for our customers over these many difficult weeks.
Now I'll turn the call over to Dan for more details on our financial and operating results Dan.
No.
Okay.
I can finish here.
We can't hear you now.
Okay.
I'll go back to the beginning of out of my remarks.
Sorry for the technical difficulties.
As Ralph mentioned PCG reported non-GAAP operating earnings for the first quarter of 2020 of a dollar and three cents per share versus dollar an eight cents per share in last year's first quarter.
We have provided you with information on slide 10 regarding the contribution to non-GAAP operating earnings by business for the quarter and Slide 11 contains a waterfall chart that takes you through the net changes quarter over quarter in non-GAAP operating earnings by major business.
And I will start to review each company in more detail with PSC Angie.
Hey, CNG as shown on slide 13 reported net income for the first quarter of 2020 of 87 cents per share.
Compared with 79 cents per share for the first quarter 2019.
Up 10% versus last year.
CNG is results were driven by revenue growth from ongoing capital investment programs and transmission and distribution.
Which more than offset the impact of unfavorable winter weather on electric and gas margin.
As a reminder, our gas distribution business has a weather normalization clause that moderates the impact of weather related sales variances versus normal weather.
Growth in transmission rate base, which added six cents per share to first quarter net income.
Includes approximately two cents per share of items that will reverse over the second and third quarters of 2020.
Due to timing of expenses in 2019 true ups.
Gas margin, which includes the recovery of investments made under the gas system modernization program or G. S&P too.
As well as higher weather normalized gas sales margins.
The improved quarter over quarter net income comparisons by four cents.
Winter weather as measured by heating degree days was 19% warmer than normal and 19% warmer than the first quarter of 2019.
The negative impact of unfavorable weather on gas margin quarter over quarter was largely offset by the gas weather normalization clause.
However, the decline in electric sales and revenue as a result of the large difference in weather reduced quarter over quarter earnings comparisons by two cents per share.
For the trailing 12 months ended March 30 Onest.
Weather normalized electric and weather normalized from gas sales were each down approximately 1%.
Led by declines in commercial and industrial usage.
Residential sales were flat with.
With customer growth just under 1%.
Offset by increases in energy efficiency and solar net metering.
PCGS capital program remains on schedule as mentioned earlier with essential we're continuing on the majority of our critical reliability in infrastructure replacement projects at our transmission and distribution facilities.
PC and Jeff in PNG, LNG invested approximately $600 million in the first quarter.
And is on track to meet its full year planned capital investment program of $2.7 million billion dollars.
Progress continues on several important projects, including the mid touching Trenton Burlington project.
Which energized its second phase and the aldin to lend and project that recently energized and upgraded circuit connecting all Dean and London.
Both projects are on plan and on budget.
Customer Bill affordability remains a key consideration as we invest in the system.
In PNG remains well positioned on this metric with its combined electric and gas bills under 3% of New Jersey median household income as of January Onest 2020.
In March PNG temporarily suspended all non safety related service shot offs for non payment during the coben 19 crisis, recognizing the financial hardship that many of our customers are currently experiencing.
And we will be advising them of available payment assistance programs and Bill management tools.
And as a reminder, on the electric side, we recover our bad debt expense through the societal benefits charge, which is trued up periodically.
We are reaffirming PSC ngs net income forecast for 2020 at 1.310 billion to 1.370 billion.
Now I'll move to power.
DCG power reported non-GAAP operating earnings of 17 cents per share.
And non-GAAP adjusted EBITDA of $201 million.
This compares to operating earnings of 29 cents per share and adjusted EBITDA of $304 million reported for the first quarter of 2019.
Net income for the first quarter was $13 million or two cents per share.
At a pre tax charge of $20 million to reflect a lower of cost or market adjustment to oil inventory was recognized in the first quarter.
And excluded from our non-GAAP measures.
The earnings release, and Slide 18 provide you with a detailed analysis of the items, having an impact on powers non-GAAP operating earnings and non-GAAP adjusted EBITDA relative to net income quarter over quarter.
We've also provided you more detail on generation for the quarter on slide 19.
PCG powers first quarter results were negatively affected by an extremely mild winter weather conditions compared to the first quarter of 2019.
A scheduled decline in PJM capacity revenue reduced non-GAAP operating earnings comparisons by 11 cents per share compared to Q1 2019.
The addition of Zach revenues to first quarter results added seven cents per share.
Lower generation output for the quarter reduce comparisons by one penny per share and re contracting reduced results by a penny per share, reflecting an approximate $1 per megawatt hour decline in the average hedge price versus a year ago quarter.
The weather related decline in total gas send out to commercial and industrial customers reduced results by four cents per share.
Hi, Rowan M. expense from an unplanned outage at Salem unit, one lowered results by one cents per share.
And higher interest expense lower comparisons by one cents per share versus the year ago quarter.
Gross margin for the first quarter declined slightly to $30 per megawatt hour compared to $31 per megawatt hour in the year ago period.
Power prices were weaker across PJM, we work in new England compared to the year earlier quarter as winter temperatures were 16% higher on average versus the first quarter of 2019.
DCG powers average capacity prices in PJM are set to rise in the second half of 2020.
And beginning on June Onest, the average PJM capacity price will rise to $168 per megawatt day.
Up from $116 per megawatt day.
And ISO new England capacity prices are scheduled to decline.
But the impact on our capacity revenue will be moderated by the addition of Bridgeport Harbor, five and its seven year capacity lock at $232 per megawatt day.
Now lets started powers operations.
Total generation output declined by 6.5% to 13.2 terawatt hours, reflecting the sale of the Keystone economy units last fall.
PCG Power's combined cycle fleet produced 5.1, terawatt hours of output up 16%, reflecting the addition of Bridgeport Harbor, five which was placed into operation in June of 2019.
The three newest combined cycle units keys see worn in Bridgeport combined to post a strong average capacity factor of 81% in the quarter.
The nuclear fleet operated at an average capacity factor of 94.9% for the first quarter, producing eight terawatt hours, representing 61% of total generation.
Higher output from Hope Creek in Salem, two partly offset a month long repair outage at Salem unit, one, resulting in a 2% decrease in nuclear output for the quarter.
Salem, two entered its 24th refueling outage on April 11.
And the outages and scaled back to complete a core set of essential tasks, which is expected to reduce the duration and cost of the outage.
PCG power continues to forecast annual output for the years 2020 through 2022 at 50 to 52 Terawatt hours.
The remainder of 2020.
Power has hedged approximately 95% to 100% of production at an average price of $36 per megawatt hour.
For 2021.
Power has hedged 55% to 60% of forecasted production at an average price of $35 per megawatt hour.
And for 2022 power has hedged 25% to 30% of forecasted output at an average price of $35 per megawatt hour.
More than 70% of PCG power as expected gross margin in 2020 is secured by our higher hedge position of energy output.
Capacity revenue set in previous auctions.
The opportunity to earn a full year of Zach revenues and certain ancillary service payments such as reactive power.
We are reaffirming our forecast of PCG powers non-GAAP operating earnings for 2020.
At 345 million to 435 million.
And non-GAAP adjusted EBITDA at 950 million to 1.050 billion.
Adjusted EBITDA for the first quarter of 2020 includes pre tax expenses of 35 million related to the purchase of New Jersey tax credits.
And the benefit from this program is included below EBITDA in the income tax expense.
And it combines for a net benefit for the quarter of $5 million and there were no similar transactions in Q1 of 2019.
Now, let me briefly address results from TCG enterprise and other.
For the first quarter of 2020 enterprise and other reported a net loss of 5 million or a penny per share.
Compared to net income of $1 million flat on a per share basis in the year earlier quarter.
The net loss for the first quarter reflects higher interest and tax expenses at the parent partially offsetted costs, partially offset by ongoing contributions from PCG long Island.
For 2020, we are reaffirming that the forecast for PCG enterprise and other remains unchanged at a net loss of 5 million.
PCG ended the quarter was $799 million of cash on the balance sheet.
In March of this year PCG closed on a 300 million dollar variable rate loans due March 2021.
As of March 30, Onest PCG had access to $3.2 billion under its 4.2 billion our credit facility.
With a $4 billion revolver extended by a year to March of 2024.
Yet at the end of March stood at 52% of our consolidated capital.
And debt at PCG power represented 32%.
Of its capital at the end of the quarter.
During the first quarter PNG issued $300 million of 10 year.
2.45% secured medium term loans and $300 million of 30 year, 3.15% secured medium term loans.
In addition, we retired a 406 million dollar, 5.13% note and PSG power that matured in April.
Also in April PCG close two additional term loans totaling $500 million.
For the balance of the year, we have approximately $260 million of PS LNG maturities that come due in August.
And a $700 million parent maturity in November.
Our solid balance sheet and credit metrics keep us in a position to internally fund our 2020 to 2024 capital investment program without the need to issue new equity.
And as Ralph mentioned earlier, we are reaffirming our forecast of non-GAAP operating earnings for the full year 2020.
$3.30 to 3050 cents per share.
That concludes my remarks, and now I'll turn the call back for questions.
Ladies and gentlemen, we will now begin the question and answer session for members of the financial community.
If you had a question. Please press Star then the number one on your telephone keypad.
If your question has been answered and you wish to withdraw your question you may do so by pressing the pounds followed by the number one.
The only speakerphone, please pick up your handset before answering your question.
One moment. Please from the question first question.
First question comes from Julien Dumoulin Smith of Bank of America.
Hey, good morning, congratulations on holding everything together here.
Sure.
Absolutely so I wanted to dig in a little bit further on the power and PNC energy.
We reaffirm when you think about the cost control that you've embedded.
And I appreciate it's a dynamic situation. So it's hard to put your finger on it.
What we order of magnitude that you all are contemplated in reaffirming here today.
Especially as it relates to the power side of the business you guys obviously.
That is hedged.
Largely but not entirely so I'm just trying to understand the order of magnitude that you all are.
Concentrating in your guidance here when you take out the puts and takes here.
Against what is obviously a moving target.
Expectations for full year loading and average pricing.
So so julien.
Rather than give you piece parts with specific numbers attached to each piece part well first of its could you give voice I hope you in your family a well in that.
You're you're managing.
In these challenging times as well is some of the things that we've done as a for instance is we recalibrated our nuclear refueling outage.
And we took a bunch of days off I.
I can't give you that number because I don't think we've posted it on Oasis, we didn't have the original number of days.
And so therefore I don't want to give you the new number of days.
While OEM goes up given the work rules, we have to put in place for an outage and therefore, we only saved a modest amount of owned and by shortage shortening the outage, we increased a lot of the revenue expectations. So things like exact payments things of that sort by.
Abbreviating the outage.
You mentioned, the hedge position and even though the hedges are perfect.
They were we're about 95% hedge for this year.
Theres been some.
Fairly modest our NIM reductions just in terms of support services that we've been able to capture.
Just because of the change in work practices. So those are the types of things over a power in the utility because we are only doing the essential work for customers.
There's been some reduction in on M. associated with some of the appliance repair work and things of that nature that the governor has asked us to not do and in the meantime, we're still full speed ahead on the capital program, which as you know gets at 90% clause recovery. So.
It's been a combination of things and the team is working 24 seven to make sure that we're constantly adjusting and tweaking and Dan for please feel free to Ed Ridley.
I think thats, a good summary, and I also think that.
You will see some some benefit come through as well to the extent that you see a lower cost to serve on some of our hedges as well so to the extent that we've got a a lower market that we can work to two to support some of the hedges you could see some benefits coming through there and some of those contracts tend to lean a little bit more on the smaller side or on the.
Residential side, so that there can there can be some uptick there as well Julien.
Got it actually if I can quickly follow up.
Second piece here the.
Well, if you're wondering how are you thinking about coming to terms on that and ultimately is the timing of this ultimately.
Drawn into a broader conversation that far and election and thought processing the state.
And do we need to see some kind of resolution from the state in order for you to feel comfortable to participate in whatever form.
No that thank you fueling and good question.
Let me be more explicit that I've been in the past because source that is just a terrific.
Company and a very valuable partner.
But time as our friend.
So we are just.
I don't mean to upset my colleagues that or is that if they're listening, but it has to our advantage to take everyday to learn as much as we possibly can about this business and maximize the timeframe that theyve granted us to make that decision because we started from a position of relative ignorance. So that so really it should.
Making use of every day to be smarter and smarter about what is entailed in developing that project. The state is absolutely committed to building that project. It would appear the federal agencies are as well, David there had been well publicized delays and different pro.
Projects around the company or said themselves have talked about some of the delays in getting through the federal permits. So it's really not a question of the fr are at all the BP orders quite clear on what the commercial terms of that project.
We will be are and will be.
And we just need to understand given that very well established topline.
What does the middle of the income statement look like in terms of the ongoing operational costs and and then.
Make a decision sometime in the fall. So it's just it's just that.
I'm going to repeat myself time, as our friend in terms of collecting more and more information and getting smarter and smarter.
Gotcha excellent no no update on timeline graph our resolution.
As far as you are concerned.
I might leave it there my educated guess and as I don't mean to sell presumptuous by putting the additive educated and is that is probably.
At the earliest end of year more likely spilling into Q1 of next year remember the state really doesnt have to worry about.
Paying double for capacity now that the nuclear units are covered or at least for the foreseeable future.
Until offshore wind comes online and Thats not going to happen until 2024.
So you'd have to worry about the 2021 auction of before you have to kick in your fr ourselves to avoid that duplicative payment for capacity.
Excellent. Thank you very much although thats a.
Thats joint.
Your next question comes at a line of Constantine.
Guggenheim partners.
Thank you.
Hi, good morning, guys.
Sure has I jumped on taking the questions here.
Great to hear the update on everyone. Thanks, Dave and work going on.
You mentioned, the kind of 5% to 7% load impact when you're you're seeing and so if we kind of just look at.
And extended Lockdown in New Jersey, saying kind of full second quarter.
What does that kind of mean in terms of sensitivities as some kind of understanding that there are some offsetting dynamics and kind of having only a quarter or the margin on really MCN I.
And can you talk about kind of you mentioned the dead on the cost efficiency levers that are being applied when those a little bit more detail in terms of kind of magnitude versus that sensitivity.
Yeah concentrated so.
It's been a little challenging and Ralph referenced in his original Mark remarks that without am either granularity that we would like to have we don't have so we know for a fact that in the aggregate when we take a look it at what reductions are warned that 5% to 7% range on a weather normalized basis and by Ondeck.
Patients were going to see an uptick on the residential side and we're going to see more challenges on the scene ISI just knowing what's going on so we basically have taken a look at that kind of a trajectory and presumed that we would continue to see that through the balance of the year now it's going to have varied effects. As you go through the year youre going to have different seasons.
Now that you're going to have.
Different effects moving through the year, but that's what we used to try to gauge what things would look like and if you take a look at.
Both from a a power any utility.
Business combined and you try to take a look at what that's going to do from an EPS perspective.
Ranges in the order of about a penny a month from the standpoint of impact from an enterprise earnings perspective through the summer period, and then when you get into the fall into more of a shoulder period, you could see a little bit less of an impact just because you've got a different dynamic with respect to what overall loads are so that's.
And admittedly.
Rough estimate given the data that we do have and how we've been able to forecasted AD and as we go through time, we'll continue to get more data and more data on a customer segment perspective and be able to refine that but that's that's the order of magnitude that we've seen from the standpoint of of losses to date, and where we think it may end up coming out.
That's a gross margin number.
So we're going to take that and then you would tax effect that and then you're going to.
Our work your way through on the cost side and.
There are some basic things that are fairly obvious if you think about the cost structure the business and you can think about.
Things like travel you can think about.
So at some of the basic things like like Ralph described that we're going to strip some of the outages down too. So some work may be more expensive to do but there'll be some of it that will not be done during this period, which will cause some savings so.
We will continue to manage this as we go through the balance of the year and I think from taking all this and looking at it that's what gives us confidence to be able to reaffirm guidance.
Okay that makes sense kind of offsetting on both sides.
Not only in kind of doesn't have it this maybe one for Ralph.
Talking about kind of the NGP, you and kind of engaging stakeholders on ROI. We are there any advancements in with what sorts of conversation there kind of being had at this stage.
Yes casting.
Right.
Echo what I mentioned, a moment ago, but your voice and help you in your family or Wells. In addition.
So so I don't want to go into details on the conversation with the BPU on transmission or are we but suffice to say that we still are in conversation and the motivation for that really is the fact that.
The New Jersey economy is in a tough state right now and I think the BP realizes that this is a great opportunity for.
Possibly refunding to customers.
Many many dollars as a result of a reduction in our allowed our we and rather than to enter into a protracted litigated.
The case at FERC, which would take many years to have that.
The rate relief occur.
Now as a good time to do it and we would agree with that having said that we've been very clear with the BPU as to what we think is of a fair return and we're not going to settle on something unless it matches. What we think is a fair return and I'm sure. They feel the same way. So the good news is where you are still in conversation and we both recognize that there.
Could be a win win if we can narrow the gap that continues to exist between us.
So.
I'm, sorry for not giving you a specific number specific answer right now constant, but just the nature of that dialogue that doesn't allow me to do that but all parties realize it would be.
A great benefits of to many folks to reach resolution and if and if we can then then.
So be it.
It will be decided elsewhere.
We had technical difficulties before I'm, hoping that we didnt just got silent again.
No there that I.
I just have undervalued.
Just one real quick one for for Dan is there any kind of volume metric risk remaining with the hedges on power for the remainder of the year or that kind of pretty hedged out.
I, there's volume metric aspects on some of our hedges, there's volume metric aspects on some of our generation as well and that's how I would have you think about it Constantine so.
The nuclear units.
Are going to run like nuclear units and then our gas units.
With pretty significant capacity factors will still follow load.
And similarly, we will have some some blockages that will be on and we will have some low deals, though beyond that makes up the aggregate of our of our hedge portfolio. So I think you've got the ability for some of your generation to flex based upon changes in load and I think you've got some of your hedges that will do the same and so.
They will not be an absolute lockstep, but I think that that those hedges will work well for the fleet that we have and you'll see some of them working in a approximate tandem.
Perfect.
Thanks, guys.
Thanks, Jeff Asia.
Your next question is from Stephen Byrd with Morgan Stanley.
Mr. Baird. Your line is open.
Kristina its going to the next.
Question.
Yes. Your next question comes from the line of Steve Fleishman with Wolfe Research.
Yes, hi, good morning, hopefully can you hear me.
African area.
We continue nearly as much as high I think I've seen new Ralph nearly as much as my family on TV.
The last few weeks so.
It's been nice good to see your face.
So a couple of things.
Just on.
On the guidance for 2020, you mentioned, the just continued strong operations and.
Cost control is that just to kind of say that there are pressures and.
You don't have as much cushion is normal or what are you trying to kind of emphasize there.
I know nothing more than what we said there Steve any sense of the kind of flexibility you have is outage duration.
And that helps both in terms of the costs associated with the outage as well as the opportunity for margin acquisition.
In the utility to type of thing that you have is if you do less on M. and more capital.
You can.
Both benefit from the clause recovery associated with the capital and benefit from the reduced selling them.
And eliminating some of the non essential services there some reduction in overtime.
So so it's a it's really a combination things like that is not one specific item by the way that TV spot that you saw was recorded by my wife on an iPhone until we save money there Im curious.
We almost have to encourage some expense with a divorce attorney but that was okay. We met and Super that so you know I know that everybody wants the okay. So what are we doing to get five cents. What are we doing a three cents, but it just doesn't work that way it's really.
A never ending.
Focus on a bunch of on a bunch of small things that add up.
In terms of.
The guidance range as Dan said, yes, we are going to be swimming against about a penny a share. If this current trend in demand reduction continues with a lesser amount after the summer so that the bogey that we're fighting against so.
Okay, Let me give a 20% range.
We we have enough flexibility in there with that kind of headwind.
With some of the offsets to just to reaffirm.
Great.
And then just on the New Jersey capital programs outside of.
The base rate case, just based on the schedules you have now how are you feeling about.
Some some meaningful amount of those investments.
Starting to be made are being made in 2021.
Well.
I feel good about it let me tell you why because.
That is something you've heard me say before.
Yep.
Despite phenomenally good management on the part of Governor Murphy, New Jersey had been dealt a really tough hand here.
We are a densely populated state.
And therefore as result of that population density.
We are being hit harder than no other state other than New York in terms of Cobot 19.
That is having huge since social impact health impact as well as economic impact.
And we are as a company probably best position.
To help.
In regard to.
Economic impacts the energy efficiency filing that we have made has huge benefits and Ed in terms of.
Up to 5000 jobs that could be created as a result of that and to bill reductions for customers and shareholder benefits. I mean that there is nothing that you can point to that has that kind of multiple benefit.
In the past I'm not saying this will be repeated now but in the past in 2008, when we had economic downturn. There was a desire on the part of the BP you to accelerate some of the aging infrastructure replacement as a form of economic stimulus will certainly remind them of that.
And we do have bandwidth to to do more on electric distribution side than we're doing now which is useful stuff to do that wall, while recognizing some of the economic.
Impacts that that we're experiencing as the state. So I do think that that we are generally viewed as someone that can help.
With with economic recovery and right now as you well know we were expecting to resolve the energy efficiency component by September of this year.
Okay, great. Thank you be well, thank you to stay safe.
Your next question comes from Jonathan Arnold with vertical research.
Hi, Good morning, guys Hey.
Okay.
Same John.
A quick one on.
Okay hearing you right now I think what you're saying is good.
Pretty much all of the capital where you're currently doing is.
Continuing.
Under an essential header, but it's really more yen.
Type activities that you are having to curtail is that correct or is that although some sort of elements of the capital program. The also going to need to catch up little bit when things start to normalize. So thats correct. Jonathan you heard me correctly.
Okay.
With them.
That was one and then.
You mentioned Ralph in your prepared remarks that.
You have some concerns about mutual aid.
And how that will work as we get further into the year in storm season can could you maybe talk about some of the thing fuel doing a little thinking about as you try to address that are some surprises you can tell if those are prepared remarks, I thought you realize that I just.
[laughter], Yes, no sensor, we had alluded to the taste of this Jonathan.
About two or so weeks ago.
We had a significant storm roll through but it was it was high winds and lots of rain, but it happened before the trees all leased out.
So we got rid of a bullet there, but normally what you do when you see a storm coming.
As you will arrange for contractors and other utilities will not likely.
It's a good effect because they're not in the past the storm twos stager workforce.
And it might be just getting them ready to leave from wherever they are all you might actually get them to new Jersey and have them in place.
We were able to secure about 40% of what we asked for and it was a combination of.
Candidly utilities, not willing that risk their own employees in terms of.
Their exposure to jobs and travel limitations click on.
Some of the contractors so.
So if we have that experience when the trees, all have leaks on them and the wind blows.
And we will have the.
Communicate.
Make sense really customers about some of the likely delays, which they will experience and being restored.
Great. Okay. So that you alluded to pointing out the issue as opposed to that being via a way of addressing at this point.
Right. Okay. Thanks, Lou you off the way off that everything else I think well. Thank you.
Thank you.
Your next question comes from Jeremy Tonet with JP Morgan.
Good morning, Thanks for anatomy.
Just want to go back a F.F., our our if I could then how do you see the near term.
Cost dynamics of an EMR versus the PJM capacity auction influencing the bps evaluation of the long term issue of double payment for capacity.
So this multiple factors that are worse.
Exploring with the VP, who as they are exported with many other people I didn't mean to suggest that we're the only folks are talking to us not the case that before proceeding that they've announced.
You one possibility is that you could be seeing a different pricing in new Jersey than you would see in PJM writ large, but the fact that you only need to secure a 15 or 16% reserve margin.
As opposed to the larger reserve margin that's in the broader PJM.
Could allow the total amount of money that is paid by customers to be less I'd say.
Whether that was the says you have a case, where you pay a higher price in new Jersey, but you buy less of it. So the unit cost is more but the number of units is less of the product of the two turns out to be less expensive for the state.
If you were to just look at.
Offshore wind.
Aspirations of the stayed in that and take a look at what typical eastern Mac capacity prices have been and then you factor in what the capacity value of the offshore wind might be granted by PJM.
You quickly get to aid if not nine figures and just a few years in terms of extra payments on the part of New Jersey customers for not having offshore wind.
Be able to clear the auction.
So you have those two potential savings by one savings as is the avoidance of paying twice thats. The eightnine figures for offshore wind capacity that won't be.
Granted.
A recognition on the part of PJM and would not be able to clear the auction at the AC ours that have been proposed and the second is just a mere fact that by virtue of New Jersey, having to secure only a 15 or 16% reserve margin it could save there as well. So so you have these this double benefit that the state could realize if it.
Designs the fr are in a competitive way.
That recognizes the carbon free resources that it is committed to securing.
Great Thats really helpful. Thank you for that and just one more if I could.
If you have any thoughts you could share when you think settlement discussions could begin on the T.F. proceeding.
Well, we've had good conversations with the board staff. They know what's important to us and we've been very clear its.
To be indifferent to energy efficiency investments.
We would hope that the board would incentivize aside if I may have just created a verb.
But but at the very lease we should be indifferent to whether we invest in.
A circuit meter or energy efficiency and Thats worked in other states, we need to have fixed cost recovery.
Because the profitability of energy efficiency is much smaller than the fixed costs lost.
If you avoid a kilowatt hour sale and Thats.
I have been recognized by other leading states.
And last but not least we want to make sure that the state recognizes the importance of.
Having the the useful life of the assets have.
Be matched up with the depreciable life for the asset, which is just sort of good rate, making practice that we applied to our $30 billion in rate base.
Throughout the system so.
So I think those are the three critical items.
Then you.
You have much more latitude about well how much of this do you want to do and Weve size the program.
To achieve the targets of the clean energy actions, we can do more.
If the state doesn't want to change the targets of to clean energy actor wants the phase that in more slowly it may ask us to do less.
I am encouraged by the fact that the state gave US a 100, <unk> and $10 million Bridge and just these next six months.
While we wait to resolve the settlement discussions and if you look at 110 million over six months and you compare to the 40 million per year, we've been averaging that's certainly a nice step into right direction I'm not trying to signal anything with that other than.
Obviously growing enthusiasm.
For energy efficiency. So, we'll we'll know more by September and that's that's a lot sooner than and.
When you May think.
Hope that helps Jeremy I notes.
Once again in confidential settlement discussions.
I have to be just be careful that how much detail I share because I don't think that's fair to the other parties.
That does helpful. Appreciate the color there. Thanks.
Your next question is from Paul Patterson with Glenrock Associates.
Hey, good morning, if they all hope you're well I.
Managing thank you.
So I'm just.
It is repo up on the forward discussion it sounds like the given everything you're saying and.
And what the commission and what have you were saying.
It's very likely that they probably will go for the F or option is that the way we should be thinking.
Yeah look there the final decider of that but I think that that is the logical thing for the state to do why New Jersey would want to pay twice.
For capacity in at what is it obviously has an extremely ambitious.
Carbon free energy agenda.
We're boggles my mind.
New solar and offshore wind are not going to clear the auction at these AC ours. So.
I would think that the state would be greatly incented to.
I do enough or okay that makes sense and so I guess, what I was sort of also wondering sort of follow up on you mentioned the stimulus benefit and.
Infrastructure development that you guys to do that she goes it produced in the past and you also mentioned the order we are transmission discussion that you're having with the commission so I'm sort of wondering.
You know how should we think about.
I think probably maybe you disagree, but the problem is gonna be substantial budget.
Pressure.
Even with federal assistance in New Jersey, how should we think about.
Sort of just the potential financial problems at the states can be facing.
And weighing the to issue that you mentioned, which is one perhaps.
Not wanting to see big rate impacts and into.
Wanting to probably see economic activity.
Oh stimulated before what I'm, saying, how should I know I do I do I mean, if is it. So if it were me and I were writing the script, which I don't but certainly what were telling policymakers is that.
Yeah and adjustments your transmission are we to a reasonable level would still be a very attractive and you will get back of rates to customers.
A significant investments in energy efficiency also puts more money into customers pockets by virtue of bill reductions.
Infrastructure investments helps us to employ contractors and other folks and up in doing work that gets paid back over 40, and 60 years, because that's how long these assets.
Last.
So so you have.
Yes to both expense savings through transmission or are we reset and energy efficiency as well as.
Uh huh.
Payroll increases through energy efficiency and payroll increases through infrastructure investment felt the latter of which gets paid over many decades because that is.
So the life of the assets so all that.
If done properly results in net reductions in bills and creations of thousands of jobs and Thats not alchemy. That's just.
The hard reality in the benefits associated with energy efficiency rate relief and infrastructure investment.
So I.
I would do that in a heartbeat and and we are having those kind of conversations I.
You know.
That will be up to the BP, though to decide.
Awesome. Thanks, so much I really appreciate hanging there they can't.
So I think we're at the appointed hour.
I I just want to conclude with.
Three thoughts for you I know, it's a bit of a cliche at this point, but I I must tell you I couldn't be more proud of our employees.
Whether it's managing a nuclear outage safely with.
It was de Minimis impact on health and safety and and being able to get the work done on time or of the storm response to what I mentioned before in terms that rain event.
Our call center stats or even better than they were we we've closed the books on time, our communications personnel are working from home, but keeping our employees apprised of what's going on and.
And and a shout out as Steve Fleishman mentioned to Mike why for superior cameramen skills and getting our commercial on the air and by the way folks are not working five days a week anymore. They are 24 by seven during this and somehow managing to get all of this done I guess I couldn't be more proud of them and I really want to say.
Thank you.
Policymakers and decision makers at the BP went in New Jersey government. They have recognize the essential nature of the work we've done they've allowed us to keep our capital work on track with the rights social distancing and with the right precautions and we've we've taken that.
I trust that they've given us quite seriously and our and our exposure rates are lower.
Then the population at large despite the fact that.
Out half our employees are out there in the field doing work on a regular basis.
BP you working remotely has kept a procedural schedules on track not only now do we have procedural schedules for all of CEF, not only for energy efficiency, but for ally and for electric vehicles and battery storage, but they've also taken on the challenge of resolving in F. R. R and they have engaged us and then our OE disk.
A question for transmission so.
Folks at the state government or just doing tremendous things in terms of a meeting these challenges that we all feel personally while at the same time, keeping the trains running on time and adding a few trains to the schedule.
So I. Despite these tough times it I'm just into all of what people are doing everywhere in terms of rising to the challenge into all of you on the call. If you have friends or family members, who are in the healthcare services are providing those services to to the to the rest of the population of please express our saying.
So them on our behalf and our respect and admiration for all that they are doing so.
We'll see some of you virtually I'm told in various meetings and conferences and we'll we'll do a little more webex or whatever works and then hope to see you in person in the not very distant future. Thank you be well and stay safe take care.
Okay.
Ladies and gentlemen that does conclude your conference for today you may disconnect and thank you for participating.
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