Q1 2020 Earnings Call
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[music]. It is now my pleasure to think that he spoke them over to Dan Eggers Senior Vice President corporate finance the floor is yours.
Thank you married good morning, everyone and thank you for joining our first quarter 2020 earnings conference call, leading the call today or Chris Crane, Exelons, President and Chief Executive Officer, and Joe and I go Exelons Chief Financial Officer their joined by other members of Exelons Senior management team will be available to answer your questions. Following our prepared remarks.
You should earnings release this morning, along with the presentation, both of which can be found in the Investor Relations section of Exelons website, the earnings release and other matters, which we discussed during today's call contain forward looking statements and estimates that are subject to various risks and uncertainties actual results could differ from our forward looking statements based on.
Factors and assumptions discussed in todays material and comments made during this call. Please refer to days AK, an excellent other FCC filings were discussions or risk factors and other factors, including uncertainty surrounding the impacts of the cobot 19 pandemic that may cause results to differ from managements projections forecasts and expectations.
Today's presentation also include references to adjusted operating earnings and other non-GAAP measures. Please refer to the information contained in the appendix of our presentation and earnings release for reconciliations between the non-GAAP measures and the nearest equivalent GAAP measures all I'll turn the call over to Chris Crane Axlon CEO.
Thanks, Dan and thanks to everybody. That's join today first started off with the first quarter results, we had a strong quarter, even with one of the warmest winters. We've seen an along fine the GAAP basis earned 60 cents per share non gap.
Basis earned 87 cents per share.
Joe is going to cover all those details in his remark we had very solid operations throughout the first quarter first quartile outage frequency and duration and record setting nuclear refueling outages that I'll go into further as we continue.
Hearings and working groups.
In Illinois on clean energy legislation or a which is very critical right. Now are meeting the discussions going on we still haven't determined how the legislature will get back into session to resume work, but I think they all understand the priority of what needs to be done not only.
For energy, but the capital budgets, another issues and Illinois, So we'll work and continue to work on that through May.
Our number one focus.
At this pandemic has been focusing on the safety and well being of our employees. Our employees are on a mission they know where mission critical in as many as possible working remotely in supporting the critical infrastructure, we have approximately 17000 people employees.
In another 8000 contractors, working remotely and being able to execute on their their tasks without any false show our frontline workers. The 17000 frontline workers and the contractors that are maintaining the electric gas system and.
The power plants, we're protecting with pp social distancing increase screening.
We have not laid off for furlough to reduced hours or pay as a result to the pandemic.
We've done a couple things employs diagnosed with covance remain in pay status and no charge to sick leave.
Overall, we've had 100 to employees have been diagnosed with coal that plus 25 contractors 82 of those total comp have returned back to work and so we're continuing to focus on the health and safety in the wellbeing.
We believe we give full pay to employees that are being quarantined if a they've become in contact throughout tracing mechanisms that we're providing it all of our facilities. We quarantine them from the required amount of time, which allows us to keep not only them and their families safe, but but also other employees.
We also.
Expanded access to backup care for dependence. So those frontline employees are supporting frontline employees that need to be in a in the workspace out in the field do not have to worry about their children out of school or their elderly parents. So that's another service.
Providing to the employees to keep everybody focused on their own safety the job one keeping the grid up and keeping the gas flowing.
And keeping the power plants running.
A big part on slide four you'll see a big part of HM.
What we do what we've always been doing and what we will continue to do is support our customers and communities.
As you know and you heard all the utilities suspended disconnects a wave new late fees and we did reconnect or reach out to customers that had been disconnected since the first to March and offered to reconnect those individuals who had been disconnected and this gives us.
The ability to for people that are laid off or people that are in financially challenged times to have one of the most critical social and and as needed.
Energy sources that we can provide.
We also at the excellent foundation in our companies have contributed over more than 5.9 million to relief organizations, ensuring food banks and other programs can be supported during this time of need and we'll continue to focus on that.
But at the core of everything after safety in the community.
Is there operational excellence, which is even more critical right now keeping the lights on in this crisis, keeping the hospitals with power health care providers grocery stores medical food production facilities, you can see the list of the priorities that are there and we have do as a company.
An organization continued to have reliable service.
And that is strong as the utilities, we've had a spring storms already this year.
We restored more than 350000 customers across a service territories in late March in early April we've been able to do that in test ourselves on moving in resources and being able to adequately and safely shelter our employees, but allow them to work safe.
Early in the field to restore the power.
On the powered side and the nuclear group has completed seven of eight refueling outages.
All better than planned.
There's one refueling outage left to go that will be closing up later in this month a major rewind on the good news station, but if you look at the majority of the plants its world class its been world class performance.
With the outages in performed between 16 and 18 days. If you look about these oh trying times, we've only had 25 employees.
That have excuse me 29, a including contractors 25 employees have been infected with covert virus and all but four have returned to work. So the work that we're doing with pp social distancing in allowing the critical resource.
Has to come in and operate the facilities that are needed.
Has been a has been very critical to us and as I mentioned earlier, we have.
We've expanded our care to to.
Those families that need extra resources, we've completed 26 maintenance outages at our power facilities readying for summer readiness.
And all done without issue so with that that's the the overall view of the operations and what we're focused on and I'll turn it over to Joe to go through the financial.
[noise] [noise] again.
Thank you, Chris and good morning, everyone.
Today I'll cover our first quarter results and our updated full year guidance, including the financial impacts of Cobot 19.
Sensitivities for the remainder of the year.
Starting with slide 10.
We earned 60 cents per share on a GAAP basis.
And 87 cents per share on a non-GAAP basis, which was slightly below the midpoint of our guidance range.
We're particularly pleased with the results considering we had one of the warmest winters on record.
Temperatures in the mid Atlantic were five to seven degrees higher than average in January through March costing that's 14 cents per share Beechwood between next one generation in our non de coupled utilities.
This quarter with the most impacted by weather if any quarter since the P.H.I. merger.
Excellent utilities delivered 55 cents per share and get them holding company expenses.
Our non de coupled utilities Kigo Delmarva, Delaware in Atlantic City electric were impacted by the warm winter weather across these territories heating degree days were down 18% to 22% during the quarter.
These impacts were partially offset by Oh in m. timing across the utility.
Actually I'm was also impacted by weather.
Earning 32 cents per share in the first quarter.
The weather impact on gross margin in unplanned outages that shale woman Fitzpatrick were offset by favorable or when EM and nuclear decommissioning Trust fund again.
Turning to slide 11 efforts to combat the spread of Koby 19, including stay at home order seeing our states have caused dramatic changes in electricity demand in the national economic outlook.
Taking into account the impact of coking 19.
I'm favorable weather and lower our we used to comment we're revising our 2020 full year guidance range from $3 to $3.30 per share.
$2 in $83.10 per share.
Well typically we would not change guidance so early in the year.
We want to provide a complete picture of where we stand at this point in the year and include our best estimates of the Cobot 19 impacts.
Let me start by saying that none of us have ever has ever experienced anything like this before.
The full <unk> impacts, including the duration and structural changes to the economy continue to evolve.
In developing our revised guidance range, we looked at the loading economic data we were seeing in April talk to our customers about their expectations for the year.
And consider different economic outlook.
In Q2, we expect commercial industrial load to decreased by 9% to 15%.
And residential load to increased by 47% depending on the region.
Over the remainder of the year, we expect commercial industrial and favorability and residential favorability to diminish as the economy recovers.
Weve taken a cautious view of the world and you can see the assumptions on this slide that underpinned our new guidance range.
We also recognized that the situation is changing rapidly.
So we show a number of sensitivities to our guidance on the following paid pages. So you can calibrate.
I also want to come back to a point on actions we're taking.
The challenge the organization against the current backdrop, identifying and pursuing initiatives across the company to lower our cost and improve our profitability.
These provide $250 million of offsets.
Other pressures, which we reflecting this updated forecast.
At the utility it 10 cents per share degradation from prior guidance.
I'd be split into a little over a nickel for lower distribution our lease at comments.
You did they drop in the 30 year Treasury.
A little less than a nickel for the record mild first quarter weather.
For Kobin 19 related impacts, we expect to be able to offset the impact of lower loads that are non de coupled utility through cost reductions any assumption that are regulators allow for timely recovery of expected bad higher bad debt.
Our next Gen 10 cents per share degradation reflects a nickel of drag from the mirror very mild Q1 weather and then in nickel and cobalt 19 impacts on load net of our cost in business initiatives. In addition to the going M. savings, we remained focused on Kashi nexgen.
We have lowered capex by $125 million in 2020.
We expect our earnings to be most impacted in the second quarter and are provided adjusted operating earnings guidance.
35 to 45 cents per share.
Looking at the impact of Cobot 19 on the utilities on slide 12.
As you can see 70% of the Exline utilities are decouple and the revenues there not subject to load fluctuations.
The majority of volumes that are non de couple of utilities Pico Atlantic City electric and Delmarva, Delaware, our commercial industrial customers.
The table at the bottom right, we provide sensitivities for load by customer class.
And Conmeds distribution are are we for the remainder of the year.
Each of our utilities is working with the regulators on cobot 19 cost in bad debt recovery mechanisms, where we do not have them.
Atlantic City electric can comment have existing bad debt mechanisms recovery mechanisms that result, no earnings impact.
With the cash being recovered in 2021 and 2022, respectively.
Last month, the P.S. season, Maryland in DC issue waters.
Ought to write a regulatory assets that tracks prudent kobin 19 related costs incurred which will allow for an assessment of recovery of incremental bad debt or atypical costs related to the pandemic.
We are currently engaged with our commissions and stakeholders in Delaware, New Jersey, and Pennsylvania regarding a potential recovery of costs.
On slide 27 of the appendix, we provide more detail in these efforts incurring bad debt recovery mechanisms.
Turning to slide 13, the impacts of the constellation business.
I like those of a non de coupled utility.
Constellation delivers around 210 terawatt hours annually.
Customer loaded through its wholesale and retail channels.
In retail constellations 2019 customer breakdown.
90% commercial industrial and of those customers, 70% of them more on fixed price contract.
When we look at volumes for the rest of the year and exclude index contracts, we have about 125 terawatt hours.
Normal annualized load exposed to co good related demand destruction.
For the last last nine months through the year, we assumed constellation load is down 6% in total we see an eye down 9% and residential increasing 2%.
I know there have been questions about how constellation to fixed price load contracts.
Our impacted by Cobot 19, So let me take a minute to explain.
These fixed price contracts assumed that the customer will use a certain amount of electricity and are impacted by fluctuations in customer usage in three ways.
First margin second commodity value and three or three collection of fixed price charges.
We are seeing the impacts of lower load on meeting your current environment.
When load is lower constellation loses the original sales margin I noticed on I'm consumed megawatt hours.
Customer contracts they can become in an added the money over time.
Went a forward contract is signed.
It assumes a price for electricity over the term of the contract.
The power procured for the customer is at a higher price than the current market and then the customer consumes less than forecasted.
The generation must be sold into the open market at a lower price, creating a gap in revenues.
Finally customers are billed for capacity in transmission charges that are charged by the I show.
Although these are typically fixed charges for many customers, we used tied to them over the expected quantity of electricity and collect them on a dollars per megawatt hour basis.
So when the customer consumes less we under collected fish fixed charge due to the ice show interest due to the I show and are responsible for the shortfall.
These fluctuations can be positive or negative to our bottom line in a normal world where load fluctuations are primarily driven by weather a risk is priced in an assumed in the contract.
That assumption of risks could not have predicted demand shocks and impacts that are where we are seeing you didnt pandemic.
2020.
We're seeing I'd load is significantly displays.
We are seeing pressure on our gross margin, which is reflected in our guidance.
We also expect the dropping profits to be limited to the period in time, that's the pandemic drives very wide differences in actual when you seem to usage looking to the future the constellation business will return to profitability levels similar to those under normal conditions.
By decide to this highly unusual situation.
Having our load be primarily commercial industrial customers remains key to our strategy.
Firstly, you not customer usage patterns align with our base load generation portfolio.
I see and I load is much more predictable and stable then residential loan.
In normal circumstances seen I customer load is less exposed to weather flow fluctuations due to a tired load factors in residential customers.
Second see Eni customers allow us to achieve scale that cannot be done with residential customers.
Finally across.
Finally, although the gross margins maybe higher on residential customers. These margins do not account for the cost to acquire these customers.
You are higher than seen off.
You can see the impacts on of weather and cobot 19 on a gross margin.
On slide 14.
In 2020 total gross margin is down 300 million.
100 million due to Q1 weather, which can be pretty evenly split between lower volumes on our powering gas customer business.
As a reminder, our gas business make makes most of its margin in the winter.
We then or $200 million lower due to the impacts of koby 19 on the balance midyear.
During the quarter, we expect we executed 100 million and 50 million in power, new business and non power new business respectively.
In 2021, total gross margins down $100 million, primarily due to lower power prices.
In PJM, and New York as well as some modest carryover of Cobiz 19 year Lady drag on the load bins.
Since the ended the quarter, we have seen power prices right rebound to levels above the started hearing recovering most of the gross margin decline.
We also executed $50 million of powering non power new business during the quarter.
We remain behind our ratable hedging program in both 2000 2021.
We ended the quarter slightly more behind ratable. When 20, then at year end at 8% to 11% due to the reduction in load offsetting hedges made during the quarter.
2021 is 2% to 5% behind ratable.
We continue to see some upside in certain markets.
What are not expecting a significant rebound in power prices or volatility.
Slide 15 provides our 2020 projected sources and uses of cash.
Our free cash flow is down 775 million from our last disclosure.
Utilities cash flow accounted for 600 million of the degradation.
Largely due to timing of accounts receivable and bad debt, which we expect to reverse exchange free cash flow is down $100 million, reflecting the gross margin decline, but is mitigated by cost reductions and lower capex.
Our liquidity position is strong as you know in March there were there were significant disruptions in the <unk> commercial paper markets and we temporarily drew down 1.5 billion on next Gen 5.3 billion dollar credit facility, which we repaid in early April given the.
Uncertainty in that market and a 900 million dollar June holding company refinancing.
We issued $2 billion in April at corporate which gives us additional flexibility.
We have we're confident that we have ample liquidity to meet our <unk>.
We also remain committed to strong investment grade credit ratings.
Our after FFO to debt is projected to fall to 18% and is below our 19% to 21% target.
Which reflects the combination of lower FFO in higher debt in 2020 due to the pressures I previously disclosed.
We expect to see improvement in our after flow in 2021 as some of the cash timing issues that the utilities resolve next year.
Any impacts from koby doesn't warrant.
Yeah. They were to persist we have levers, we can take to enhance our credit profile.
We talk to the rating agencies and their understanding of the current marketing bar.
I'll now turn the call back to crash.
Thanks, Joe.
A pandemic is brought unexpected challenges to our business in 2020.
We have found ways to offset much of the financial impact of this unique challenge, but we're not done.
We will continue to look for ways, we can increase profitability and cash flow through the next three quarters.
The impact on the covert 19 does not change the fact that exelons fundamental business is strong in our strategy remains strong.
Our utility rate base is growing over 7% annually for the next four years.
In that time, we will add more than 13 billion in rate base nearly equivalent to adding a utility the size of comment.
Our utility operations are best in class first core tile first quarter performance and reliability and customer satisfaction are continuing to solid performance for the rest of the year.
Constellation is a premier integrator in their competitive platform. It's the most effective way to bring our generation to market, while providing customized mobile solutions to fit the needs of customers.
Our generation fleet is the cleanest in the nation.
We are delivering one out of every nine megawatts.
Clean energy in a significant portion of the nations.
Clean energy, we continue to advocate for policies that will compensate our nuclear fleet for the essential role it plays and reducing carbon and air pollution and ensure their continued operations.
If you look at our value proposition on slide 18, I'll close with this the value of Propers proposition is unchanged. We're focused on a growth of our utilities targeting 7.3 rate base growth in the 6% to 8% escrow through 2023.
We're confident in our rate base growth and continued needs for these investments for the customers that we serve.
But we're also mindful of the impact a that the.
Current 30 year Treasury rate has on Conmeds distribution are are we in the impact on EPS in growth rates if that rate was to stay this low.
We will use the free cash flow from X gene to support utility growth pay down X Gen debt and support the external dividends.
We will continue to optimize the value of the genco business by seeking fair compensation for our zero admitting generation fleet closing on economic plants monetizing assets in maximizing their value through constellation.
We will sustain a strong investment grade credit rating metrics throughout this period.
Operator, we can now open it up for questions.
Thank you.
[noise] long pause here as a reminder.
And then reminder, if you would like to ask a question simply press Star then to number one on your telephone keypad. If you would like to withdraw your question asked about.
Our first question comes from the line up Stephen by from Morgan Stanley. Your line is now open.
Hey, Good morning Hope you all are doing well.
Hope you are too.
Thank you I wanted to just first talk to well thanks for the thorough update and disclosure very helpful. The a the Illinois legislative process.
We're trying to follow this as closely as we can I guess, the Illinois Department of public Health gave some guide guidance around sort of how the legislature might be able to.
Under what circumstances, they could reconvene do you have a sense for sort of the the process and sort of the the potential for the legislative session to to go through the summer just given that the the formal lending date.
In in May obviously does not coincide very well with the state's plan to sort of reopened but it does look like there are some potential.
No that the legislature may be able to to meet if they if they meet sort of these Ah health Department guidelines. What is your sense in terms the ability of the legislature to meet and do business.
We have seen in other jurisdictions legislative bodies be able to work through and convene Kathleen you want to talk specifically to the path forward here and in Illinois.
Sure Good morning, Stephen and Oh.
As you know those stayed home order does extend through the end of May. So it is good a good sign to see the department of public health guidance to the legislature on how they might bring people back to the capital safely.
That is good progress, but it just remains to be seen whether the leaders will decide to bring folks back to Springfield discussion or even if they cannot come back in may they can come back in the summer I agreement of the Sun President the speaker they could call a session. After may 31st or the governor himself to call a special session at the cost.
The tuition so.
We are where we're glad to see that there has been guidance provided there's just not yet any indication that when exactly they will come back.
Understood. The a lot lot of uncertainties, there and then just I guess in a related.
Matt or in terms of operational decisions for your nuclear plants, Illinois.
Yes, you had mentioned a lot of refuelings been completed and quite quickly as well, but are there any operational considerations. You you all would have to make for example, if legislations not passed in this.
Call at some recession or do you have some flexibility. So that you can get the legislature bit of time, just given the obviously they have a lot on on their plate to Ah to address in Illinois.
Yeah, it's tough to speculate [noise] with with everything going on with the coal that what the outcome of this legislative session or being able to go into an extended session what weve stress to all the stakeholders is.
Hey, Jim is committed to run the auctions.
And their stated time was towards the end of the year.
And that could be extended we haven't gotten the public statement that it was extended that I know of.
So we're up against the clock and once those auctions or run work, we're highly confident that minimal or any of our clean.
Megawatts will completely or in that capacity auction there will be replaced by fossil units, which is detrimental to the state's goal of being 100% clean by 2030.
So the clock is ticking and I wouldn't speculate on timing of decisions right now, but but I'm. We're just stressing the importance to the administration and the key legislative stakeholders and others about not only the importance for the nuclear megawatt.
Watch, but the importance for the renewable megawatts. So they have been invested in in the state of Illinois to continue to be able to operate with a profitability. That's reasonable so that's where we're at right now we're continuing the dialogue Kathleen.
Bill Varner Hany are leading the conversations.
Through.
Through the state legislators and stakeholders and we'll continue to push on that.
Very good I'll, let others ask questions. Thanks.
Yep.
Next question comes from the line, Steve Fleishman from Wolfe Research.
I see your line is now open.
Yeah, Hi, good morning, just wanted to Hey, Chris I wanted to.
Well I guess, just get a little more color on the comments on.
The 60% utility growth rate and you mentioned you'd be mindful.
Thank you said of the Illinois.
Our are we in just can you maybe.
A little more color on how to think about it's obvious what you're embedding now for 2020.
But how about for their kind of broader growth rate and.
No if rates don't get better are you still within that range or or just what you've been assuming in there.
Yeah, you know we have a continued to work our five year plan I think we report out in some places a four year plan and others, a five year plan, but we're continuing on our long range plan and it is helped us significantly and customer satisfaction or liability.
And it's also a allowed us to maintain a cash flow and profitability while doing so in the last three rig cases, we actually gave a rate reduction. So you know as you can imagine.
As you would expect we look at multiple scenarios and if the economy continues to degrade.
Impact on customers whatever it could be is out in the future. The plans can be adjusted but at this time, we don't plan on adjusting we plan on continuing to do the much needed a reliability and efficiency modifications and prepare the system.
For the onset of much more distributed and renewable.
Energy coming on it won't be able to happen if we don't make the investments in facilitated if we see a day that we're not getting that return or don't see a path to to go back I mean, we haven't seen that day and we haven't seen that in the in the near future. So we're continuing on with the invest.
Smith, and I'm watching the treasuries and watching the recovery mechanisms.
Okay, so, but just to clarify is the.
The you know if if we're in its kinda lower rate environment, I don't know exactly where the whole for curve of 30 or is are.
You are still expect to be within the six to eight range.
Let's go ahead, John we're not changing the target or the six day percentage as Chris said, we're moving forward.
With the investment that we plan to make we update that target once a year. We also show you sensitivities related to the comment are always obviously they've dropped some since the first thing you have an impact. We also give your earnings bands that we gave you out 323, and we're still well within the bands that we gave you.
We'll continue to look for ways to to a challenge ourselves in this regard at this point it would thanks very short it we'd be very short sighted for us to start stop start stop depending on an interest rate. The most efficient ways to get the long term investments prudently done and support the customer's needs.
Got it I see I see what you're saying, so you're saying, Chris that you're not going to hold back on investment in the state because of the temporary.
Rates being lower got it.
Just one other question yeah.
One other question just for I guess for Joe you mentioned.
Levers on your credit you have a levers on your credit profile.
Yes, I guess things stay weaker there could you just give some color on what those levers are.
I think Steve I think we've got a track record of proving that we continue to challenge ourselves and our cost structure I mean, we're reducing our costs by $250 million. It this year with actions, we've taken and we're going to continue to challenge ourselves in the future in that regard we we've been clear that we have so.
I'm on economic power plants, and we're working hard to rectify that we would have to address that those would be two big levers that we would have to address.
Okay. Thank you.
Thanks.
Your next question comes from the line of sharp Pourreza.
Guggenheim Your line is now open.
Hey, good morning, guys.
Uh huh.
So you know couple of questions here, you know realized with Illinois. There is significant uncertainty over 22, PJM, but can you speak a little bit at a high level to how gross margin is developing maybe just directionally, ignoring the upside or downside from capacity reform.
I realize this is secondary at this point to everything going on but do you still think something can get done in Illinois at the veto session.
We're we're still working we still have significant support on what we have to do.
Where it gets done you know we would hope that it would get done before the end of the session.
That's what we've stressed to give the IP a time to be able to develop their their own auction process.
And that that will allow us.
To break away on capacity needs for the state of Illinois from PJM.
It's a it's as I said earlier, it's a very tight time frame.
They were able to come in in a summer session and we had assurances they were going to address this in the summer session. Under you know the requirements by the Illinois Health, we would continue to work with them on that but you know its.
It's.
There's a lot of things that have to get done in Springfield, but they also realize it. This is a very important issue to address and a along with the state budget and some other large issue so.
We know there's a will to get to work its just the way to get to work and how fast we can get this Doug.
Got it and then just you know.
What kind of seen I attrition or you guys expecting your assumptions and sort of how do we sort of think about constellation more broadly as we look at 21 and beyond and does the current situation present any strategic opportunities in your view maybe on the on the retail side or does sort of some of the reprieves.
Been seeing.
At the state level on the retail side push off and its potential.
Position opportunities as you guys look to tighten up that natural hedge.
Jim do you want to Ah Jim acute went on to cover that one.
Sure absolutely I'll answer kind of two parts I think what we expect from.
The low decreases were seeing now is you know as the state's reopen them as things recover you know, we're seeing about a 15% reduction in that Cninety on average in these front near months by the ended the year.
As Joe mentioned on the call that's more now probably 4% to 6% range in coming back into mid next year.
From a load perspective, it's temporary and I think we expect a we expect that to bounce back I think from a strategic perspective, a couple things we definitely for for acquisition space will continue to look for any value of books that that come to the market there could be some suppliers that.
That would need to let go of their books, we've talked about our strategy before we'll stay the same which is you know we would be looking to buy savings by books of business that we could easily fit into our platform. We've developed can you know I think a world class platform over the years.
That we can integrate easily and we've shown that before when we bought books of business and then lastly, I think strategically it's just product development, where we'll look to either continue to refine the products, we sell now and and look for demand charges that could be either caster, where more associated with the customers fixed charges.
And look look for other products that we can develop to give them access to data analysis, and and das sustainability targets that they have.
Got it got and just lastly, Joe I know you, obviously highlighted that the rating agencies understand how transient in nature of the cash flow dip is 2020 can you just remind us.
Just from a perpetual ongoing perspective, how to think about the 250 million dollar cost savings and the next gen Capex reductions for our modeling perspective.
Yeah, I would say right now.
Most of the $250 million were viewing is a one onetime item and some of it's being driven by the situation. When when you think about you know weve things like reducing contractor spend reducing non critical eye Ti spend when you look at reductions in travel spending.
Consulting spend holding vacancy rates in our organization.
With those things are contributing to the reduction you know we now I will say, though when you know when we go through our planning process, which begins here late in the second quarter in three D. ended a year, we've had a track record of continuing to challenge ourselves and find ways to reduce costs and given the environment. We're in it.
Some of the things quite frankly, we've learned we maybe able to carry over some of these cost savings as we look at future periods. We just haven't made a determination on that yet.
Terrific. Thanks, guys I'll pass it to someone else. Thank you.
Thanks.
<unk>.
Yes of course.
Operator next caller please.
[noise] area, we lost you.
Oh, I'm, sorry, Hello <unk>.
Yeah.
Okay. Thanks next question comes from the line up games, Tyler Perry from being Oh, probably don't might gets your line is now open.
James you there.
Can you guys hear me.
Yeah, we can now.
Okay. Thank you sorry. This is obviously a little bit more of a granular question, but just looking on slide 14.
It was a 100 million dollar I guess changed from December.
Non power new business to go I was just wondering if you guys can talk a little bit about what's exactly in that bucket.
Yeah, I got 100 million dollar non power new business to go is attributing partially to execution and partially as I said in my prepared remarks in Q1, we've had we had impact both sunpower non power related to weather and we took a reduction for the balance of the year.
That's all embedded in the <unk> totaled $300 million that you've seen the gross margin change.
In the hedge disclosure.
Okay. I was just wondering it was it a specific.
Specific product do you guys are selling.
You know, we saw the weather impact or just trying to understand.
What's embedded in that non power to go is it the bulk of it is our big piece means our gas business and since that so seasonal related to the winter you see the impact there.
Got it was just retail gas okay perfect. Thank you very very much.
Next question comes from the line of Durgesh Chopra from Evercore. Your line is now open.
Thanks for taking my question I just have a quick clarification question you answered most of the things I had in terms of just.
States or or territories, where you don't have writers on corporate cost like bad debt.
Just want to clarify that you were zooming recovery of those in the future right. So the 250 million kind of targeted.
Cost reductions don't cover that.
No. They don't this is Calvin and.
In all of our jurisdictions, where we are not well for our bad debt and we do not have a rider we are working in partnership with the.
Commissions to sit back and establish regulatory assets as Chris alluded to in his opening comments, Maryland in DC, both their commissions unanimously passed.
Regulation, allowing the utilities to set up regulatory assets and also set aside what identify prudently incurred.
Cobot related night costs, and we will operate under the same standard that we use the operating on showing that it's just and reasonable we're working with the Pennsylvania Commission and Delaware Commission and we hope to have rulings from them in the next week to 10 days to drive batch. So at the end of this all of our jurisdictions we believe.
We'll be operating under regulatory asset to show what those are bad debt cost and the covered related costs are.
Got it perfect. That's it for me guys. Thank you very much.
Next question comes from the line of Julien Dumoulin Smith of Bank of America. Your line is now open.
[noise] hidden hey, good morning theme of you all alone.
I'm.
Doing one thing for you.
Excellent. Thank you.
One of the follow up or perhaps a clean up little bit on some of the questions. The far first with respect to the earnings.
Tiger and how you're thinking about that.
But for the oscillation in the 30 year Treasury anything else shifting in your outlook, obviously, the slides slightly different here. So I just wanted to make sure we're not missing anything coming back to cease question.
Going there's nothing else shifting that CAGR, rather than the 30 year Treasury.
Can you give us a little bit of a sense and I mean that more in the context of C. and nice sales degradation improvement as well as.
Some of the <unk> optimization of volatility dynamics here, as well and and how that could play out in 20 as well as what are you, reflecting and 21 just be extra clear about that.
If you want to cover that.
Not sure we'd get over 21, yet, but but we can cover 20.
Yeah.
Sure glad to do it <unk> you know the way we think about the balance of this year and then I'll talk about 2021, you know you see the sensitivity on the side that for every 1% change and see and I load you see about a 15 million net income impact and rosie's about seven.
Million dollar impact we've assumed as we said a slow return through the balance of this year and into into next year. So that was the 1% sensitivities at least allow you to do is say well if any if a crossover those months it moves up or down 1% <unk>. That's the number you would expect I think as far as the.
Optimization activity with this with these gross margin estimates we've given you we see line of sight to being able to hit our normal optimization activity in the remainder of the new business to go back. It. So we don't expect too much impact there, we we fantastically realizing these targets now.
These adjustments to to have good line of sight to balance of the year for 2021. We've include it about $50 million of impact for Cove, It and that is more a little bit of of an impact on the low trickling into the air but it also represents the fact that some of the new business activities assigned customers up has slowed down just because of the.
The status of of work that people are am we've been tracking that and we feel like that's a really good estimate right now and we've been able to maintain a pretty good signing up of new customers a little bit of dip in the when and renewable rates for for you know the month of April as we get granular on really.
Being able to understand which loader impacted by how much those when rates and raining rates bounce back up to I think more on normal levels and the $50 million. We've included is a good estimate.
Okay <unk> I can just quit for your priors <unk>.
With respect to what the what the date as of for the 30 year Treasury that you that you are assuming in that the U.P.S. kyger.
I want to be extra cleared again I don't know if you have a specific date or curved that you're using the want to establish that.
Yeah, a 331 is the date we're using.
The end of the first quarter.
End of recorder for the Dirtier Treasury so.
Yes.
Okay excellent. Thank you.
There are no further question at this time, Mr. Christine do you have any.
Okay. Yeah no. Thank you all for joining the call I want to think our employees for their commitment and dedication in these unprecedented times and I hope that all you and your families are safe and healthy and without a will close out the call. Thank you very much.
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