Q2 2020 Public Service Enterprise Group Inc Earnings Call
[music].
Ladies and gentlemen, thank you for spending by my name is Phyllis and I am your event operator today.
I'd like to welcome everyone to today's conference Public Service Enterprise Group second quarter Twentytwenty earnings Conference call and webcast. At this time all participants are in listen only mode.
Later, we will conduct a question and answer session.
Members of the financial community.
At that time, if you have a question you would need to press the star and been number one on your telephone keypad.
To withdraw your question press the pound key.
As a reminder, this conference is being recorded today July 31st Twentytwenty and will be available for a telephone replay beginning at one o'clock PM Eastern time today until 11 30, P.M. Eastern time on August 11, two when.
He 20.
It will also be available as an audio webcast on P.S.C.G. corporate website at Www Dot P.S.C.G. Dot com.
I would now like to turn the conference over to Carlotta Chan. Please go ahead.
Thank you fill it.
Good morning, and thank you for participating in our earnings call. He has TJ second quarter 2020 earnings release attachments and slides detailing operating results like company are posted on our website at Investor Dot P.S. EG Dot com and our 10-Q will be filed shortly the earnings release and other matters discussed during two.
Todays call contain forward looking statements in estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States.
We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward looking statements on our IR website and in today's earnings materials.
Now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of P.S. EG, joining Ralph on today's call is Dan Craig Executive Vice President and Chief Financial Officer at the conclusion of their remarks, there will be time for your questions Ralph.
Thank you for a lot of and thank you all for joining us.
You see GE reported non-GAAP operating earnings for the second quarter of 2027 nine cents per share.
Versus 58 cents per share in last year's second quarter.
PST Jews gap results for the second quarter were 89 cents per share.
It was 30 cents per share in last year's second quarter.
Our results for the second quarter bring non-GAAP operating earnings for the first half of 2020 to $1.82 cents per share.
This increase over non-GAAP results of the Dollarssixty six per share.
The first half of 2019.
Reflects the growing contribution from a regulated operations.
Effective cost controls at both the utility and PCG power.
The absence of two extended plant outages that took place in last year's second quarter.
And the favorable settlement of autos covering the 2011 for 2016 tax years.
Which in combination of mitigated much of the weather related headwinds experienced in the first 20 to 20.
Slide 11 in 13 summarize the results for the quarter in the first half of the here.
We're especially pleased to report solid operating and financial result at both businesses.
Our employees continue to effectively respond to the challenges in the requirements of providing essential energy services under extraordinary conditions.
The statewide mandated closure of most businesses schools and government buildings in New Jersey contributed to a decline of approximately 7%.
It wasn't normalized electric sales for the second quarter.
As the state continues the gradual reopening of businesses and activities effective containment of covert 19 should expand commercial activity and energy usage in the months ahead.
The Jersey has done a very good job a flattening the curve of new Cobrand 19 cases over the last few months, but we must have all remain vigilant as we see signs of potential increases.
Earlier this month in New Jersey Board of public utilities, I'll, just say BP you.
Authorized utilities in the state to defer prudently incurred incremental costs related to covert 19.
From March 9th of this year through at least September 30 of 2021.
He has CNG, we'll file with his first quarterly report to the BP you on August Threerd outlining it's covered related costs and offsets for the period ended June thirtyth.
And we expect to record a deferral in the third quarter.
Our utility field crews or full force and construction work continues on our infrastructure programs.
In May appear CNG also resumed on premises customer work using personal protect protection equipment P. as long as we often refer to.
Customer contact screen, and physical distancing to ensure customer and employee safety.
Our associates, who are able to work remotely continue to do so and we are continuing to assess one we will begin a phase return for those employees.
In early June Southern New Jersey experienced a series of severe straight line storm systems known as a direct show with high wind speeds. The top 93 miles per hour and resulted in 127000 customer outages.
The extended the damage to poles and trees, plus the ongoing high winds.
And required physical distancing restrictions made the storm, particularly challenging.
Our peer CNG crews worked day and night on outage restoration, where ably assisted by mutual aid from PCG long Island to help restore power in New Jersey, and we can't thank them enough.
This ability to draw a local mutual aid from New York is especially critical now given the impact on L. work crews of New Jersey's required 14 day coated 19 related quarantine periods for visitors coming from states was increasing or still high infection rates.
Peter CNG continuous progress on its portfolio of capital improvements, including several key transmission projects.
This quarter, we energize the second phase of our $739 million, but touch and Trenton Burlington projects.
An upgraded the transmission circuits between Brunswick station and Trenton solution.
The utility also expects to complete work on a six mile upgrade of 230 kv overhead transmission circuits running between all the same station and the Linden variable frequency transformer station by year end 2020.
Having already completed approximately half of this important project.
On the regulatory front, we're continuing active discussions with the New Jersey BP you and other parties to settle several items, including the return on equity related to PSC Ngs.
Federal Energy regulatory Commission FERC formula rate for transmission.
As well as the pending two and a half billion dollar six year clean energy future energy efficiency filing which restarted in June following the beep use adoption of a framework to implement energy efficiency throughout the state.
Our proposed program is expected to create 3700 jobs over six years.
The final energy efficiency framework adopted by the be peering June was an improvement over earlier versions and supports expanded utility investments in energy efficiency by broadening utility participation and program offerings by eliminating they are are we reduction apply to energy efficiency investments.
By extending the amortization period to 10 years and delaying any penalties until a 50 of implementation.
While increasing the state's energy savings targets, the 2.15% and 1.1% for electric and gas respectively.
In addition, the BBU.
In addition to the.
The BP is directed utilities to work with BP, you staff and Ray Council to establish a conservation incentive program or sit because I'll refer to it.
To recover lost revenues or use the loss revenue adjustment reckon mechanism also known as all Ram.
As the default alternative.
As I said, a moment ago PNG energy volumes have declined due to the covered 19 restrictions, but peak load for the second quarter remained in a normal seasonal range, averaging 5100 megawatts versus last year's second quarter average.
50 330 megawatts.
PNG summer load Pete that 9753 megawatts in 2019.
So far this summer we experienced the peak load of 9521 megawatts on July 22nd about two and half percent below last year due to covert 19, but helped by warmer weather.
That said PJM day ahead round the clock power prices have remained in the mid teens below $20 per megawatt hour most days during the second quarter.
More recently, New Jersey has experienced several weeks in a row with temperatures hovering in the mid eightys to mid nineties.
Even with this recent heat wave average day, Ed prices have only cross the $30 per megawatt hour price point in the PCG zone twice in the last 30 days.
This is a reflection of current market conditions characterized by reduced loads, so $2 per MBT, you natural gas and ample generation.
This market environment is the reality, we face at our nuclear stations and is the market is the driver behind zero emission certificates or zacks.
Our settlement Hope Creek nuclear plants produce over 90% of New Jersey zero carbon electricity.
These nuclear units, our cost efficient necessary component of the state's transition to 100% clean energy by 2050 as outlined in new Jersey's energy Masterplan finalize this past January.
As we begin the second round of the Zach program by filing our applications. This fall it's important to note that the financial need for Zacks is more critical than ever.
PJM forward prices have declined from where they were just two years ago when forward round the clock prices for the PSC diesel and were approximately $30 per megawatt hour.
Today, they are just over $25 per megawatt hour.
Zec payments compensate nuclear generation for the zero carbon attributes that are otherwise unrecognized by the wholesale markets and our an essential component to the economic viability of the New Jersey nuclear fleet.
The second Zach application process is expected to conclude with the BPU decision in mid April 2021.
On the S.G. front room broader recognition for our industry leading position.
Carbon intensity is among the lowest of our industry peers.
Driven by the large percentage of our output from nuclear power plants.
And our utility is working hard to reduce emissions roots clean energy filings and infrastructure programs.
In May our SG score from Sci was raised to double A. from single a placing us in the top 20% of all companies they evaluate on environmental social and governance disclosure.
And in June PSC, and GE was recognized as a trusted brand ranking first among combined with gas and electric utilities by Ashland in the 2020, cogent utility syndicated utility trusted brand and customer engagement study.
Turning to earnings guidance, we are reaffirming PCGS non-GAAP operating earnings guidance for full year 2020.
3030 to 3050 cents per share.
Based on our solid results through the first half of the year and our conference that we can effectively manage costs across our businesses.
Continue executing our investment program appears CNG and provide new Jersey with reliable sources of electricity.
We are on track to execute our five year $12 billion to $16 billion capital plan without the need to issue equity and our net liquidity position as of June Thirtyth remains ample at $4 billion.
And finally as you've all seen by now this morning, we also announced the PCG as exploring strategic alternatives for PCG powers non nuclear generating fleet.
Our intent is to accelerate the transformation of PCG.
And to a primarily regulated electric and gas utility.
<unk> plan, we have been executing successfully for over a decade.
PSC GE will explore how a potential separation of the non nuclear assets could reduce overall business risk and earnings volatility improve our credit profile and enhance an already compelling SG position driven by pending clean energy investments methane reduction and zero carbon generation.
We believe PSC LNG is among the best utilities in the country and that our valuation should lie and with that profile.
PCG intensely powers existing nuclear fleet.
The nuclear fleet isn't necessarily to meet its long term carbon reduction goals and also helps to satisfy the state's capacity album, Sikorsky with a cost effective source.
I was zero carbon electricity.
Given the relatively small part of PCG that the non nuclear business represents.
Yes.
The decision will not have an impact on the company's current shareholder dividend policy, which will continue to be subject to approval by the PCG board of directors.
PSC GE will managers process, taking into account the interest of our diverse stakeholders, including AR 13000 valued employees.
Any decision regarding the non nuclear assets will not impact PNG, LNG or PS EG long island customers their operations or tariffs, but would be subject to customary regulatory approvals.
Marketing a potential transaction in one or a series of steps is anticipated to launch in the fourth quarter of this year and is expected to be completed sometime in 2021.
We're excited to explore the opportunities that will shape CJIS future.
It is a future focused on advancing our business as a sustainable customer focus provider of essential electricity and natural gas service.
Delivered by a regulated utility and contracted businesses.
Ill now turn the call over the Dan for more details on our operating results and we will both be available for your questions. After his remarks.
Terrific. Thank you Ralph and good morning, everyone.
Ralph said PCG reported non-GAAP operating earnings for the second quarter 2019 of 79 cents per share.
And that's versus 58 cents per share in last year's second quarter.
We have provided you information on slide 11 regarding the contribution to non-GAAP operating earnings by business for the quarter.
And slide 12, you'll see a waterfall chart that takes you through the net changes quarter over quarter and non-GAAP operating earnings by major business.
So now I'll go through each company in more detail starting with PS LNG.
It seems you reported net income of 56 cents per share for the second quarter 2020.
Compared with net income of 45 cents per share for the second quarter 2019.
And that's shown on slide 16.
Hey, CNG second quarter results were driven by revenue growth from ongoing capital investment programs.
Transmission of results contributed an incremental five cents per share to second quarter net income.
Which included approximately two cents per share related to 2019 true ups and lower pension expense.
Gas margin was two cents per share favorable.
Driven by gas system modernization program investments.
And weather normalized volumes.
Favorable weather comparisons quarter over quarter added a penny per share.
And while electric bad debt expenses recovered through our societal benefits charge.
Gas related bad debt expense in excess of the amount included in rates.
Reduced earnings by a penny per share compared to the second quarter of 2019.
Reflecting higher uncollectibles related to covert 19.
Distribution related depreciation and interest it's a penny per share.
Yeah.
For share a favorable compared to the second quarter.
And lastly flow through taxes, and other items or three cents favorable compared to the second quarter 2019.
That's driven by the timing of taxes and the settlement of federal tax audits for the 2011 to 2016 years.
Whether in the second quarter 2020 was favorable compare.
And with the second quarter 2019.
But year to date, whether remains a mild headwind.
Early summer weather was below normal, but 7% warmer than second quarter 2019.
And weather normalized electric sales in the second quarter declined by about 7%.
With residential loads up 8%.
By about 7%.
With residential loads of 8%, but more than offset by commercial and industrial sales that were approximately 14% lower in the quarter.
I know that a majority of residential margin is driven by volume.
While commercial and industrial margins are driven by peak demands.
As a result for the year to date period.
The net margin impact of higher residential margin has largely offset the lower commercial and industrial demands.
On a trailing 12 month basis weather normalized electric sales were down approximately 3% and.
And gas sales were flat with residential electric and gas usage, both up by over 2%.
He is angies capital program remains on schedule.
CNG invested approximately $600 million in the second quarter and 1.2 billion through June.
As part of its 2020 capital investment program.
The 2020 capital program reflects $2.7 billion in electric and gas infrastructure upgrades.
For our transmission and distribution facilities to maintain reliability and increase resiliency.
We continue to forecast over 90% are planned capital investment will be directed to the utility.
Over the 2020 to 2024 timeframe.
The of CNG has continued to temporary suspension of non safety related service shut off that began in March few authorize regulated utilities in new Jersey, including over 19 related regulatory asset.
By deferring prudently incurred incremental costs beginning March nine 2020 through September Thirtyth of 2021.
Yes, Andy is evaluating the order and expects to record a deferral and the third quarter of 2020.
PCGS forecasts of netting core income for 2020 is unchanged at 1.310 billion to 1.370 billion.
Now moving on to power.
DCG power reported non-GAAP operating earnings for the second quarter of 24 cents per share.
And non-GAAP adjusted EBITDA of 258 million.
Of 13 cents per share.
11 million.
For the second quarter 2019.
Our non-GAAP adjusted EBITDA excludes the same items as our non-GAAP operating tax expense interest expense depreciation.
The earnings release and slide 22.
To provide you with a detailed analysis of the items, having impact on PCG powers non-GAAP operating earnings relative to net income.
Quarter over quarter.
We've also provided you with more and for the first half of 2020.
Slides 23 and 24.
Our second quarter non-GAAP operating earnings were positively affected by several items that in total produce results 11 cents per share higher than a year ago quarter.
But june 1st scheduled increase in PJM capacity revenue.
Moderated non-GAAP operating earnings comparisons to a decline of seven cents per share compared with Q2 2019.
The addition of Zecs to second quarter results added two cents per share.
Re contracting and market impacts lifted results by three cents per share.
Reflecting seasonal shape of hedging activity and lower cost to serve versus a year ago quarter.
Gas operations improved by a pay for share over the prior year quarter.
And lower oil and I'm expense was a favorable six cents per share comparison over the last year's second quarter.
Reflecting savings from de scoping the plan Salem, two refueling outage in April.
The absence of last year's Salem, one extended outage.
Okay.
And lower fossil outage.
Lower pension expense added a penny per share versus a year ago quarter.
Five cents favorable compared to second quarter 2019.
Driven by the settlement of federal tax audits for the 2011 to 2016 years.
Gross margin in the second quarter was $33 per megawatt hour approximately the same.
As last year's second quarter.
Our prices and natural gas prices stayed low.
As reduced commercial activity across PJM, New York, and Maryland resulted in the press loads.
Turning to powers operations total generation output declined by 3%.
The totaled 12.7 terawatt hours in the second quarter of 2020.
Reflecting the sale the Keystone and Conemaugh units last fall.
Power's combined cycle fleet produced 4.9, terawatt hours of output up 3%.
Reflecting the addition of Bridgeport Harbor, five which is placement operation in June of 2019.
The nuclear fleet operate added capacity factor of 91.9% for the quarter.
Producing 7.8, terawatt hours up 9% over the second quarter of 2019.
And that represented 61% of total generation.
This quarter's higher nuclear output reflects the absence of the extended Salem, one outage in the second quarter of last year related to repair of reactor vessel bowls.
Our continues to forecast output for 2020 of 50 to 52 Terawatt hours.
And for the remainder of 2020 power has hedged approximately 95% to 100% of production.
At an average price of $36 per megawatt hour.
Lower prices for power and lower spark spreads have resulted in a slight reduction in our total forecasted combined cycle generation volumes in 2021.
Where we have hedged 65% to 70% of forecast production of 49 to 51 Terawatt hours at an average price of $35 a megawatt hour.
And for 2022 powers forecasting output of 50 to 52 Terawatt hours with approximately 25% to 30% of total output hedged at an average price of $35 per megawatt hour.
Forecast for powers non-GAAP operating earnings for 2020 remains unchanged at 345 million to 435 million.
As does our estimate of non-GAAP adjusted EBITDA from 950 million to a billion 50 million.
I'll briefly address the operating results from enterprise and other where for the second quarter, we reported a net loss of $2 million compared to a net loss of 34 million for the second quarter 2019.
Our non-GAAP operating results for the second quarter 2020 loss of 2 million compared to non-GAAP operating earnings that was flat for the second quarter of 29 team.
And the net loss in the second quarter 2020 reflects higher interest expense the parent partially offset by ongoing contributions from PCG long Island.
And for 2020 to forecast in this area remains unchanged at a net loss of 5 million.
PCGS financial position remains strong.
At June Thirtyth, we had approximately $4 billion of available liquidity, including cash on hand of about $400 million.
And get represented 50.
During the first half of 2020 PCG also issued three 364 day terminal.
As for an added liquidity cushion.
PCGS $700 million, a floating rate term loans maturing in November of 2020.
Yes, LNG issued $375 million, a 30 year, 2.7%.
Secured medium term loan.
In may.
And as 259 million of medium term notes maturing during the remainder of the year.
And power retired $406 million a senior notes in April and ended June with debt as a percentage of capital of 29%.
Our credit rating agencies published updated research for PCG during the second quarter with unchanged ratings at a stable outlook.
We expect to fully fund PCGS five year $12 billion to $16 billion capital investment program over the 2020 to 2024 period without the need to issue new equity.
As Ralph mentioned, we continue to forecast non-GAAP operating earnings for the full year.
$3.30 to $3 in 50 cents.
And we look forward to moving ahead with a strategic review we reported earlier today.
Yes, we're now ready to take questions.
Ladies and gentlemen, we will now begin the question and answer session, but members of the financial community. If you have a question. Please press the star and the number one on your telephone keypad. If your question has been answered and you wish to withdraw your polling requests you may do so by price.
In the pound key.
If you were on they speakerphone, please pick up your handset.
Before answering your request one moment please for the first question.
My first question.
Comes from the line of Durgesh Chopra with Evercore ISI. Please proceed with your question.
Hey, good morning team. Thank you for taking my question.
Morning Durgesh.
Maybe.
If you could help us just as I used the EBITDA for the non nuclear.
Generation assets.
We're thinking it's roughly 20% of that don't power, even does that does that seem reasonable can you comment to that.
Yeah, I guess, we have not broken that out in the past and are not going to do that at this juncture I think as we continue to to go through the process more informational come forward, but.
At this point, we're not going to provide that and you can pull together your best estimate.
Understood. That's fair and then maybe give you get your thoughts on just in terms of you know the current market or just you more can generation and going into this strategic review how are you thinking about valuation for these assets just any any high level color on that front.
Yeah, I'd say, a durgesh that our expectations as to conducted an extremely robust process.
Without free determining or self limiting it in any way and we'll let the market decide what these assets are worth they're all highly efficient good heat rates.
Environmentally compliant in terrific markets, So we're pretty optimistic about it.
Okay.
Thanks for that Ralph and just one really quick one and then I'll jump back into queue is there a regulator to non regulated business mix Ralph that you were targeting from this transaction.
Yes, so what we're trying to do is become as regulated as is possible and whatever remains being as contracted as is possible to remove that earnings volatility and to.
People explicitly recognize devaluation that PSC and you deserve so the the contracted piece would be things like PSG long Island right, that's a multi year.
Contract to operate.
That system out there and then to the extent that the nuclear plants are supported by a zacks, that's that's not exactly contracted but it.
Plaza supported by public policy an instrumental.
In terms of new Jersey's carbon aspirations.
So basically get to regulate it get too as high regulated plus contractedness mixes your cat and that's exactly right.
Okay, all right to get rid of the merchant fees.
Understood. Thanks, guys appreciate the time.
Your next question comes from the line of Jeremy today with JP Morgan.
Hi, good morning.
Morning.
Just want to a follow up with the strategic process as well and just wondering if you'd give a little bit more flavor as far as why now versus any point in the past and I imagine it's sensitive overall the process, but didn't know if you could speak at all to what would be the driver for a single asset versus multi asset process in the release you mentioned there.
He's just trying to see what details you can share here.
Jeremy So we.
I've said for.
For quite some time.
That we eventually both these businesses with separate and when we gave certain conditions under which we thought that would happen.
And one of those I won't border with all of them one of those was a sustained discounted devaluation.
Which also be a demonstration that investors.
We're not satisfied with an integrated model.
And yeah, we have a couple of things that we're in the process of.
Tackling as that.
Seem to us at least to be.
The market waiting for good news like it recently utilities gonna grow six and 8% caper CAGR.
But CF is going to add to that so that's the absence of a positive we've a very public about our discussions on transmission or are we.
So.
That's that's a bit of an unknown, yet, but not a not a big unknown and and we got good news coming out of the FERC Moelfre in terms of our nuclear plants being able to bid.
Basically zero and clear that market.
So the remaining pieces the discount associated with having integrated model and.
And.
You can't put our current valuation on the back of transmission are what you'd have to make.
Forgive me if it's implied put some really crazy assumptions to get PSC devaluations that made sense with the lapping the only case. So so we don't where you just said right that predetermine factor that we've always been paying attention to which is a sustained discount and evaluation.
Appears to have manifest itself, so, let's let's pursue acting on them.
Great that makes sense that's helpful.
You asked the also in terms of pieces are the whole thing.
I I really at the risk of repeat what I said, a moment ago. Our plan is to make this process as robust as possible to get the cleanest signal from the market about how to optimize the value to our shareholders and if that means.
One check for everything or yeah.
1700, 6700 checks for each megawatt I'm being observed there obviously.
The we'll we'll entertain that whole range.
Got it that's very helpful. Thank you and then do.
Do you expect any material change to managing the newer portfolio. After you divest the other power assets and how might the sale here impact your financing plans given the importance of power free cash flow to funding utility growth.
So in terms of the nuclear I'll, let Dan speak to the financing, but in terms of nuclear operations that they have largely been separate for their entire existence nuclear has its own engineering group, it's on maintenance group its own operations group.
It's on supply chain, it's on HR support so.
That that should be a non event from an operations point.
Yeah, I think from a from a financing perspective, I think that one of the key uses of proceeds I think would be to tip to pay down debt at power. Obviously, if you think about the indenture and the and the structure of that you've got.
The asset sitting underneath power and to the extent that we see some separation there sale the cash that would come in.
I would be used to pay down that that so you would also have less interest expense on a go forward basis to the extent that that would end up happening.
And also a.
A better business mix and at a better credit profile, so the ability to to draw some debt capacity from that as well. So that's how we would think about.
So overall, no real impact to future equity needs at this point.
That's correct that's correct.
Great. Thank you so much for taking my question.
Thanks, Jeff.
Your next question comes from the mine and Julien Dumoulin Smith with Bank of America.
Hey, good morning team takes the time good morning, Julie.
Well I Wonder Hey, so following up on Jeremys question. There can we talk about how you think about the financing on a go forward bases I don't want to get to the proceeds expectation, but again, given the backdrop with the Dominion transaction recently and the repositioning.
Can you just give us a little bit of it depends on how you think about finding new business prospectively and specifically, how you think about equity needs relative to dividend and specifically emphasis on dividend to begin.
I'll start and then Dan I'll tell you the real story.
I mean, he has a utility earnings far and away more than covered the dividend.
And the utility rate base CAGR growth is in excess of our dividend growth over the past.
Five to 10 years so.
From the point of your dividend policy.
You know, obviously reserving the right at the board to always make decisions each quarter.
We are highly confident that that's an no never mind.
In terms of financing either the change in a business mix is going to change the.
Potential for the parent.
Tomorrow and.
The de levering that will take place from the proceeds will and you'll be residual power function from nuclear plant point of view will will free up some investment capacity, there as well and don't forget Julien the our biggest cash generator for the past few years has been the utility.
So I, yeah, we've done a bunch of analysis and.
Obviously, we'll wait and see how the process unfolds, but we feel pretty good about about where our.
Financing will come from and how we'll be able to support strong utility growth. That's the goal here right strong consistent utility growth.
Right, but what I would go for it okay gudger.
Oh, sorry, I'm going to set me up to that point, how do you think about your balance sheet at a consolidated level you talked about paying down the number if I heard you right.
The basically the the entirety of proceeds would be used to pay down powered yet but from a consolidated basis. How do you think about pro forma metrics remain.
That perspective, right given a different risk profile et cetera that that's probably another angle here right.
Yeah, you know whether it's the entirety of proceeds is to be determine right I think that it's more likely the entirety of the debt and then we'll see what ultimate aggregate proceeds or add up come in at I., I think that who you know where you land from the standpoint of overall debt capacity is gonna be a function of that business mix and it's going to be a function.
Of working with rating agencies to make that determination and but undoubtedly that is going to be an improvement at undoubtedly that's going to do some debt capacity, that's going to open up from that perspective. So so that's how we're thinking about it the fine points on that or are ahead of us yet, but but I think that's how you think about it and and frankly drilling we we tend to think.
About.
Our overall financing is coming from view tilda.
Very strong cash from operations and its own right.
And then ultimately the on the other side, there's there's a money pool, where you'd have access to the tower and the parent as funding vehicles and I think that what you're gonna see is just more of a shift in potential to the parent although the the there the remaining operations that would sit at tower certainly would have a stream of cash flow and and would have the ability to have some financing.
Our as well.
Cool, it's just a quick question or clarification on the release timing you need to wait for after already some of these key issues get resolved before actually completing.
No no penalty I was are totally instead of the dependent processes.
Fair.
Excellent thanks for clarifying that especially the dividend.
Thanks.
Your next question comes from the line a baby apparel with Morgan Stanley.
Hi, good morning, Thanks for taking my.
Tom could could you give your latest thoughts on the transmission or are we negotiations in terms of what timing you might be for and then.
One.
Other ways that you have in mind that could potentially mitigate two bps.
From that whether it be on the equity ratio were cost allocation Sanofi.
If there would you have the the negotiations are confidential so I apologize for not being able to give you specifics but your.
The contents of your.
Question actually gets rights to the heart of the matter that this isn't about a single number what the our OE is this is about a variety of issues.
What is the depreciation rate or the assets or what's the equity layer associated with the business.
What are.
Acceptable components of the FERC formula rate filing.
In terms of cost that maybe had not been captured in the past it could be captured now so.
What I'd say is.
You know both sides are eager to provide.
Relief to customers.
And eliminate a uncertainty.
In terms of where this could end up however, what matters such as the overall economics.
And up and I think what matters to the regulators as the.
The.
Cash impact on customers of so so what we're trying to do is balance each of those.
The variables, if you will too to each achieve our stated objective.
Yeah, I'm hopeful we can do it but I'm not certainly can do it.
And and we'll we'll just unfortunately I can't say more than that at this point in time and I mean, that's the BP staff is working hard the consumer advocates working hardware.
We talked I think at least we know they have other things that they need to attend.
The but it is an overall economic assessment that that we need something voluntarily that we believe is.
More difficult or.
Yes.
She buffer so.
So to be continued.
Thanks, It and it.
Yes, we would there be any change in the timing of is the rough time three that you've communicated in the past four that no I don't think so I mean, you know it's a question of.
The patience is that the.
It appears that from the consumer advocate have I mean, they could.
Filed a complaint tomorrow.
And.
Yeah, we certainly.
No not encouraging that but we're not we're not going to let the potential of filing a complaint make us deviate from what we know is an economically reasonable outcome.
And it wouldn't it wouldn't be a shame if we could reach that outcome. Because you know the fact that matter as a complaint was filed.
It wouldn't be resolved at FERC for years to come.
And New Jersey is struggling with 16% unemployment and all manner of economic challenges that it would it would be in everybody's interest to try to return some rate relief to customers today.
No I mean, yeah, they could file tomorrow.
I I cant constrained that.
But we're still try.
Okay, great. Thank you very much.
Your next question comes from the line of Michael a piece with Goldman Sachs.
Hey, guys. Thank you for taking my question, obviously lots going on and congrats on it interesting steps two questions one on power and why sell down given the clean attributes associated with it I know, it's small, but why sell down the solar assets.
Or why sell off the solar assets why not keep those embedded and do you see utility scale solar or not see it is that an attractive business longer term.
So Michael on that when it's 479 megawatts I think the biggest project is like 40 or 50 megawatts and most of them are five and six.
The spread around 17 states.
So the scale isn't what we like it to be and.
Candidly, we'd like to focus more about green and carbon free attributes in the mid Atlantic region, and as it relates to particularly nuclear and potentially offshore wind plus it's really because of its size one I'm about to say it's hard to prove.
We don't think we were getting proper credit for it in our own valuation.
Almost never picked up.
Are you putting EBITDA multiple it's something that's.
Largely benefiting from an investment tax credits and that doesn't reflected in the stock price in a way that.
Got it it might provide greater value to somebody who is a a different calculus around what it had a measure economic value yeah.
You said your second question, Michael Yeah, I had a second question when I go back and look at your Investor Slide decks.
And I'm looking at the capital spending charts and ER slide decks from the last few months or so.
In the cap capex by year for P. at the Angie.
And this has happened for years with with with your company. It is that your forecast transmission Capex to just fall off a cliff you know kind of gradually every year year to slower than year, one year threed lowered the year to year for is lower than year three.
It actually never happens.
You have any incremental color about what could make 2021 or 2022 transmission capex.
Materially different or a significantly different than kind of what you've shown on your latest slide decks, but those years.
No. So you know what you said about transmission is actually truly capital program overall, and we we tried to point that out and the girl days, when we could actually be face to face at an investor conference that is purely a function of the fact that things are less from in years, three four and five than they are in years wanting to do your specific.
What about transmission.
Most of the big projects that came out of the PJM our TEP.
Pretty much complete or near complete.
And a good part of our effort now is in upgrading our 26 kv system to 69.
That will result in overall reduction in the transmission spend.
But that's fully baked into that six and a half a percent CAGR number that we put out there.
Oh, the the possible increase there is a possibility of increasing transmission investment as new Jersey continues its pursuit of offshore wind.
And we go from a one gigawatt to potentially.
Yes, seven and a half gigawatt future <unk>. The current project that oersted, one had a very miniscule effect on the onshore transmission system, but as you start moving seven and a half gigawatts of power onto onto.
On to new Jersey than that that could change.
So I.
And then last but not least.
One of the things that the BP was talking to all utilities not just us about is the possibility for accelerating some of the infrastructure structured programs that we want to do.
To help.
Create some economic stimulus and just given the age of our transmission infrastructure in the age of our gas infrastructure.
It is something that could provide further opportunities for us as well.
Are there any public filings or or or E. Any dockets or proceedings open whether you know whether at PJM war, whether at the bps regarding incremental transmission spend over the next couple of years.
No I don't think so I'm wondering though they may be a beep.
We could get back to Michael there, maybe a beep you docket on how to a bit future offshore wind projects, whether the separate the transmission from the actual wind farm because as you.
Probably know the the first unless it together and I thought the people he was looking and whatnot to separate them, but that may be over I'm not sure we can get touched on it.
Michael really was it was offshore wind and the line coming into sure. Our all in one solicitations. So to the extent that there is and if there had been the only solicitation in new Jersey to the extent that there are more solicitations and and more of an ability to link up projects that are out.
In the Ocean and then doing it in different ways.
He is and maybe carving it up that's the kind of thing that that is being looked at as a policy question.
But but what I.
I think that wherever that doesn't glad it sounded like your question was really nearer term so for capital deployment really in the immediate term I wouldn't expect to I think your question was would be on the early and of of anything.
The frame a a what we're talking about so if that's your timeframe I think less likely.
Your turn determinations as how to best target that the the magnitude of buffer one at the state is looking for.
He makes you more into the future.
Got it thank you Ralph Thank you Dan.
Yeah.
Your next question comes from the line of Paul Patterson with Glenrock Associates.
They are you guys doing.
Just sort of make sure that I just.
Wanted to clarify something here so.
The divestiture or the the strategic review squeeze driven body.
<unk>.
I understand its dog valuation, there's market outlook or regulatory stuff. That's going on here. This is just basically a is it worth more to the devaluation equation basically mean, it's a good time to look out at my understanding it correctly, that's exactly right now.
And then and then with respect to 'em deep yep or or.
And I, just I guess the mills touched on this there's no change in that process that you see picking places. The result of this and do we still do you think I think you guys were basically under the impression that when you lose a very good chance you don't need legislation has that sort of still because.
So well I've two questions. There so we're not driving the f., our our bus right that's being driven by the be peers. So that's a totally independent and process and I think the stage is still trying to figure out do they wanted that far that simply secures the carbon free energy because they want to do enough or our that secures all of their energy.
And and I don't see that being any way shape or form influenced by our decision to.
Divest of our fast.
Well assets.
In terms of legislation.
<unk>.
That's that's it that is a purely a function of what kind of enough or are they design.
So if there's a better than even chance it no legislation is needed but.
For example in the creation of an Overact legislation was required if there's a similar thinking about any other kind of that particular technology than that and then there might be a need for legislation. So it's just too early in the fr discussions to be definitive.
What your accurately quoting Paul is that a once upon a time when we thought all that would be supported by bgs that they would not be a need for legislation.
Oh, the PJM compliance filing that shows the dog nuclear plants are free to bid and and competing capacity markets has really diminished the need for anything specific to our nuclear plants at this time.
Okay. Great. It was one of course has been when asked and answered in a fix it looks like <unk>.
Your next question comes from the line of Paul Fremont with Mizuho.
Hi, Thanks, Hi, I think I, just want to follow up a little bit on June.
[laughter].
It looks like your downgrade threshold. According to the Moody's report they put out earlier this year was 17 <unk>.
1% below that.
If you were.
Essentially lose some additional cash flows on the merchant side can use back leverage to find utility investment going forward and I could put further pressure.
On your appetite FFO to debt ratio so I.
I guess my question is would or would you be willing to accept ultimately a downgrade in the credit rating.
Or what would you see is potentially happening on the F I thought it outside.
Yeah, Paul obviously, a whole lot of moving parts with respect to ER to what we're talking about and a lot of of discussions yet to be adding and and and ability to work through those things that I think what I would say is if you think about the overall business mix of enterprise and you think about.
Ah that business mix without a than non nuclear generation.
Thank you have a more stable.
Set of cash flows coming off the business and I think at the end of the day you would have a lower threshold from the standpoint of what that newly designed to entity. It looked like a so I think that's a that's a part of the calculus that that becomes important and all this as we work forward and income to self determination.
Great. Thank you.
Oh, sorry, I was I was hoping you'd asked against a question about so yes [laughter].
Our annual run rate right now and so yes, yes is 200 million a year.
Not 40 million year, because we got 110 million dollar extension for six months.
And off.
So as far as we get gel negotiations are pretty active by the BP you in September So I think we where we're definitely anticipating.
A a settlement I think is when we wrote in the last report that we put out.
So we don't know the timing, but we are very optimistic that there will be a settlement in that proceeding. Okay. All right. My timing is September just on the world those.
Thanks.
Your next question comes from the line of Steve Fleishman with Wolfe Research.
Hey, good morning thought it was gonna Michelle.
Hey, Ralph.
Doing great. Thanks, So just.
Couple of questions first of all you have kinda talk.
For a little while about.
Kind of willingness to sell the fossil assets. So maybe can you just give a little more color like what.
What is different now versus what you've already been saying for kind of six to 12 months, Sean I think you were worried about getting a fair price.
To some degree so are you more confident on that or some color there.
Yeah, I'd say two things Steve <unk> number one is getting a fair price given the capacity market uncertainty and PJM and that I think yeah. We don't we haven't run an auction, but rules are pretty clear in terms of what's going to happen there.
Well I always say, it's just the valuation discount has expanded to the point where.
It's just it's it's not that it's just doesn't make any sense.
For Pete it's easy to reside where it is and right you can't put it all on the backs of transmission or are we without making truly ludicrous assumption. So it really was a case of enough is enough.
And I do think that unlike the B C process, where we candidly we did a little bit of a test problem. We went out to a handful of people what we thought might have interest or we're not gonna do that we're going to conduct a very robust process.
And we're going to.
Yeah, just run it differently than than that probe was run so.
I I'd say, yeah, there's there's a calling in the.
Power markets and a further expansion of the discount in evaluation that conspired to say enough is enough.
Okay.
Couple just.
Technical questions on it.
Do you have that the tax basis of the assets that you could provide us.
And also just how how should we think about dealing with like dis synergies. If that's something you can manage.
Yes, Steve we're not tax basis number to to provide it it's certainly going to be lower on the federal side. If you think about some of the expensing that that that's gone on so yeah, I would think about it against the backdrop as some of bonus as Scott on.
And there's not a dis synergy number, but obviously to the extent that you've got some of the costs.
That you see getting spread across the various businesses the there'll be some of that right that yeah, you'll have a smaller entity to you to be able to spread over but also as we look at this we'll we'll be looking at efficiencies across the business as a whole to try to make up some of that.
Great and then last question on offshore wind.
Is there any I I may be over reading, it, but I kind of feel like there's a little bit more of a tone of.
It's kind of interest in moving forward with with offer when growth could you maybe just give a little more color on on that talking about you know the future auctions coming up to win.
Yeah.
Yeah, Yeah, no I. So certainly you know, we're still where we have been.
All along Steve from the point of view trying to maximize this opportunity that's available to us to learn.
Where we're in a different places we have learned more.
And we are are.
Gaining confidence and the ability to construct and own and operate well probably can't say the same in terms of the regulatory process, particularly the national level.
And you you I'm sure aware that New Jersey has begun discussions about round two solicitation and that's expected to yeah, I think and a couple of months.
So the state is moving and I do believe all within Governor Murphy's first term you'll see.
Visitations and securing of 3500 megawatts ultra win so this is becoming more and more real with everyday and I.
I have no reason to did not believe that the state's full aspirations of 7500 megawatts as well as New York State Tonight thousand megawatts and so on the list wont be realized so.
Yes, you are picking up in my voice that this is going to happen at a <unk> <unk> at a scale that I would not have predicted three or four years ago.
But but you see it coming along right now.
Great. Thank you.
Hi, Bill one final question.
Sochi car with Keybanc.
Hi, Tom can you hear me.
Hi.
<unk>.
If I could sneak in a couple of automated questions on the on the power side.
Right. So you're keeping you quit proclaims then we understand they have.
Vince essentially right yeah, the exact and is there however, a scenario where you can envision that they may find.
And then another question I had is is there any implications are there any implication for.
How much headroom on your customer do you have a new jersey in it.
Okay.
Yes.
So for <unk> in the spirit of you never say never.
Yeah, I wouldn't want to.
Say that work never [laughter], but we are not marketing those nuclear plants. We have every intention an expectation of holding onto them and marketing the non nuclear assist sole source in the fossil fleet.
Okay, and plus I just think that's the.
The candidate pool for purchasing is vastly vastly larger for the Fossilizes right. So.
Again, I said risk repeat myself, you never say never but I I think it's you put it that would be into conjecture and <unk>.
So that is not in time, we'll spend.
Oh, no I forgot what your second question.
Well it was.
Hi, guys that are there any implications on the deal headroom in New Jersey, No no I would think not no I mean.
Your power prices and afford market a as we've said are down from where they were just too.
Years ago, and it continues to be pressure.
On forward power prices, both because of the abundance in natural gas the reduction in load.
And the a and the availability of highly efficient generation. So.
So we we match we try to match all of our utility propose programs.
To bill impact of roughly <unk>, and we tried to do that in a ways that includes rolling into rates every six to 12 months. So there was no.
Price and rate shock to the customer.
And of course, we are firm believers that energy efficiency can be targets those customers, who are a either most vulnerable or b.
Providers of services to the population at large and therefore, a benefit the popular shouldnt large by reducing their energy consumption.
I I do think that that one ones this past the appointed hour.
So I I guess I wouldn't be remiss.
Notwithstanding all the news and hopefully a really good an exciting news that we shared with you if I didn't simply say to everyone on the call that I hope you and your families and friends.
Our experiencing good health and have not been affected by this.
A horrible challenge that we having a form of covert 19 and to the extent that any of you.
Our friends or family, who have been frontline health workers.
I I, we we're PCG truly express my thanks to you and to them a indirectly and please I mean that convey that to them.
We had just an amazing terrific effort by our employees.
We've not been untouched by covert 19, our infection rates are about half of the general population. Our employees are managing to work safe and just produce some phenomenal cost savings yielding a very strong quarter I know, we had some one time stuff, but even if you back that onetime stuff up I think we had a terrific quarter.
And.
Yeah, Dan and I are the dancing types, but hopefully you can hear and I've always the excitement the genuine excitement we feel that the pursuit of the strategic alternative and what that means for the Oh concentrated focus the growth of the utility, especially a C. S that we expect to be resolved by September hi, Paul and [laughter].
[laughter], we'll look forward to seeing you all in person, but until then we'll we'll see what some upcoming virtual conferences over the next several weeks thanks, everyone.
Ladies and gentlemen that does conclude your conference call for today, you may disconnect and thank you for participating.
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