Q3 2020 Public Service Enterprise Group Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by my name is Sylvia and I am your operator today.
I would like to welcome everyone to today's conference Public Service Enterprise Group third quarter 2020 earnings conference call and webcast.
It's time all participants are in a listen only mode. Later, we will conduct a question and answer session for members of the financial community at that time. If you have any question you will need to press star one on your telephone keypad to withdraw your question press the pound key as a reminder, this conference is being recorded today.
October Thirtyth 2020, and would be available for telephone replay beginning at one PM Eastern standard time today until 11 59 Eastern standard time on November <unk> 2020.
It will also be available as an audio webcast on P.S.E. cheese corporate website at Www Dot P. S E G Dot com.
I would now like to turn the conference over to Carl lot of Chan. Please go ahead.
Thank you Sylvia.
Good morning, and thank you for participating in our earnings call Yes.
Third quarter 2020 earnings release attachments like he said.
Operating results by company are posted on our website at Investor Dot P.S.C.G. Dot com and our 10-Q will be filed shortly.
Earnings release, and other matters discussed during today's call contain forward looking statements and estimates that are subject to various risks and uncertainties.
We will discuss non-GAAP operating earnings a 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 todays.
Earnings materials I'll.
I'll now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Pmts 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.
Ralph.
Thank you Carlos Thank you everyone for joining us this morning.
Since you reported non-GAAP operating earnings for the third quarter of 2020 was 96 cents per share versus 98 cents per share in last years third quarter.
50, G.'s GAAP results for the third quarter were $1.14 per share compared with 79 cents per share in the third quarter of 2019.
Our results for the third quarter bring long gap operating earnings for the year to date.
The 2078 cents per share up 5.3% compared to the $2 or 64 cents per share in the first month of 2019.
This performance reflects the strong contribution from our regulated operations.
Yeah Angie.
Cost controls at both utilities and PCG power.
Lower pension expense and the.
Favorable settlement of tax audits mentioned last quarter.
We delivered a solid quarter, both P.S. and P. as UGI power.
We are updating P.S.G. non-GAAP operating things go.
As for 2020.
To the range of $3.35 to $3.50 per share.
Which removes five cents per share from the lower end of our original guidance range.
Last month, the New Jersey Board of public utilities, all for them as a BP or.
Approves the settlement of the energy efficiency component of a clean energy future filings.
As you know we proposed a comprehensive filing current energy efficiency energy cloud.
Electric vehicles in storage in October of 2018 to help deliver on the goals of new Jersey's clean energy.
The BP is landmark decision on energy efficiency will enable people CNG to invest $1 billion over three years to help bring universal access to energy efficiency for all New Jersey coast.
These programs will lower customer bills.
Shrink their carbon footprint and give them greater control over their energy usage.
He is CNG clean energy future energy efficiency program will also establish a clean energy jobs training program.
Over 3200 direct jobs and enable every one in new Jersey to benefit from the avoidance of 8 million metric tons of carbon emissions 25th.
The $1 billion of remaining CEF programs, we have proposed to implement which is energy cloud or otherwise known as advanced metering infrastructure.
Through expanded electric vehicle infrastructure and energy storage are entering hearing stages later this year.
We expect them to conclude in the first quarter of 2020 more.
Our service area experienced significantly warmer weather during the first half of the summer which.
Which along with the continued reopening of a new Jersey, a comedy serve to moderate the 7% load was seen earlier in the year caused by the COVID-19 pandemic.
The Jersey has aggressively manage its positivity rate since the spring with some recent resurgence but continues the phase reopening of businesses schools and activities that will determine the pace of economic recovery going forward.
Recognizing the extraordinary economic stress the pandemic has placed on many of our customers.
He is changing in partnership with Governor Murphy and the DP you extended the non safety related shut off moratorium to March of 2021 for residential electric and gas service.
The shut off moratoriums for commercial and industrial customers will continue through November 15th.
He is ngs all boys will work with customers on alternative payment plans as needed to maintain essential services and inform customers without assistance programs that are available such as life.
Yes, EG continues to provide the latest health and safety information and protocols to all of its employees and.
We recently launched a new mobile App that includes a health questionnaire for employees and contractors, who physically report to appear suji location.
Many of our employees continue to effectively work remotely.
At our responsible re entry planning is ongoing.
Our cross functional executive crisis management team continues to mom little business impacts of covert thinking going into these critical winter months.
In early August tropical storm sinus wreaked havoc across the New York, New Jersey area with powerful winds and heavy rains in a fast moving storm that left approximately 1 million of our customers in New Jersey in long Island L. tower.
This was by far the most damaging storm, we had experienced since superstorm Sandy in 2012 and its impact was made worse on several fronts.
COVID-19 restrictions.
CNG NPS UGI long island worked around the clock alongside nearly 3000 mutually personnel in New Jersey at over 5000 on long island to restore service.
In New Jersey, we restored 90% of our customers within 72 hours.
Storm is mostly a wind event, which caused significant physical damage to poles and wires.
He is he and G.'s transmission system did not experience any outages during the storm event.
Underscoring the reliability and resiliency benefits of our transmission investment programs.
The PSC GE long island experience was more challenging.
We were able to restore 80% of customers, who lost service within 72 hours.
However, our customer communications and restoration time estimates were simply not up to our standards and we are fixing that.
We have spent spent the past six years, making dramatic improvements to customer service on long Island.
And JD power recently recognized.
Yes, if you will how as the most improved utility nationally.
Customer service metrics over this period.
Our commitment to continuous improvement remains in place and lessons learnt from tropical storm you say is will be leveraged to further improve customer satisfaction.
On the regulatory front, we're continuing confidential settlement discussions with the BP and other parties concerning the return on equity related to the PSC Agee's Federal Energy regulatory Commission formula rate for transmission.
At the state level, the energy efficiency decision authorizing a 1 billion dollar investment over three years represents an annual run rate of about $350 million.
Which is nearly a 10 fold increase from our previous annual energy efficiency span.
These investments will receive recovery of and on capital through a clause mechanism at the current authorized return on equity of 9.6%.
I'd be amortized over 10 years with no incentives or penalties applied during the first five years from the start of the program.
The 10 year energy efficiency programs approved button, if you will help new Jersey achieve its preliminary energy savings targets of 2.15 per cent for electricity and 1.1% for gas within five years.
In addition, as part of the energy efficiency settlement, the BP to approve a conservation incentive program to.
To provide a lost revenue recovery mechanism for sales variations due to energy efficiency weather and other variable other variables.
This conservation incentive program will begin in June 2021 for electric revenues and in October 2021 forgets revenues.
On the power side current market conditions continue to be influenced by lower loads due to COVID-19 loan.
Low natural gas prices and ample generation.
These persistent conditions kept PJM their head around the clock prices in the mid teens to low $20 per megawatt hour for most days during the third quarter. Despite a few weather driven spikes above $30 per megawatt hour over the summer.
Persistently low PJM dad, tallow prices makes economic pressures.
In our base load carbon free nuclear units, even more challenging.
Yes. Thank you power recently submitted its application to extend the zero emission certificate program I'll refer that as zacks into 2025 as specified in the 2018 Zach law.
A BP or final decision is expected in April of 2021.
Our application filed on October Onest demonstrates the financial need for the zero carbon atrophy payment has increased in the last two years as energy prices has further declined and continue to pressure the economic viability without new Jersey nuclear units.
The addition of evidentiary hearings to the second set proceeding will improve transparency and we believe our applications supports the need for more than a $10 per megawatt attribute payment for the settlement Hope Creek units.
A new bridal report estimates that preservation of our New Jersey nuclear units through an extension of the $10 per megawatt hour attribute payment saved customers approximately $175 million per year and lower energy costs over the next 10 years.
The New Jersey Department of Environmental Protection also ways and through a recently issued a report evaluating the state's progress in reducing its greenhouse gas emissions with the goal of the 80%.
The year 2015.
One of the recommendations and the D. P 80 by 2080 by 50 report is to retain existing carbon free resources, including the stage three nuclear power plants and that's a direct quote.
And they called it a key path to reducing emissions from the electric power generation sector.
As our state and region move increasingly toward carbon free energy preserving existing nuclear generation currently the reliability backbone of New Jersey zero carbon energy mix will grow in importance.
On the U.S.G. front I'm pleased to announce that we have incorporated equity into our diversity and inclusion programs expanding out commitments for new and ongoing initiatives to ensure that all employees have access to the benefits and opportunities. The company offers and promoting equity in our lower income two words.
And regarding governance, we continue to garner first to your scores for our contributions disclosure and transparency as cited in the 2020 uptake of the corporate political disclosure and Accountability Index also known as the CPH Zyklon index with a score of 85.7.
She sees both the S&P 500 company average as well as the utility average score of 77.2.
Turning to earnings guidance as I mentioned, we are narrowing PSC <unk> non-GAAP operating earnings guidance for full year 2020 by removing five cents per share off the lower end. This.
This updates our guidance range to $3.35 to 3050 cents per share based on solid results through the first nine months of the year and our ongoing confidence that we can effectively manage costs at both businesses.
Continue executing our peers Energy's investment programs and provide new Jersey with safe reliable sources of efficient and zero carbon sources of electricity.
We continue to expect regulated operations to contribute nearly 80% of total non-GAAP operating earnings for the year, reflecting the benefits of PSC Energy's ongoing investment in new Jersey's energy infrastructure.
We also remain on track to execute on the PSC G. Five year 13 billion to $17 billion to $15.7 billion capital plan without the need to issue new equity and our liquidity position at September Thirtyth stood at nearly $5 billion.
P. S. EG continues its due diligence and negotiations with or said in preparation of making a final recommendation to our board of directors on whether to invest up to 25% equity stake in the Ocean Wind project, we expect to announce our decision later this year.
Before moving to the financial review I'd also like to mention that since our late July announcement that PCG was exploring strategic alternatives for power's non nuclear generating sleep well.
We have received positive feedback from investors and regulators.
Our intent to accelerate the transformation of PSC G into a primarily regulated electric and gas utility and contractor zero carbon generation is proceeding as planned.
We are still in the early stages of this process and we expect to begin marketing a potential transaction in one or a series of steps by the end of this year.
So if successful we should be able to complete the process during 2021.
I will now turn the call over to Dan for more details on our operating results and will be available for your questions. After his remarks.
Great. Thank you Ralph and good morning, everybody.
<unk> said PCG reported non-GAAP operating earnings for the third quarter of 2020 of 96 cents per share versus 98 cents per share in last year's third quarter.
We provided you with information on slide nine regarding contribution to non-GAAP operating earnings by business for the quarter.
Slide 10 contains a waterfall chart that takes you through the net changes quarter over quarter non-GAAP operating earnings by major business and I will now review each company in more detail starting with P.S.E. in June.
PCG reported net income of 61 cents per share for the third quarter of 2020 comps.
Compared with net income of 68 cents per share for the third quarter of 2019 as shown on slide 14.
Utilities third quarter results reflected ongoing growth from our investment programs offset by certain items, largely reflecting tax adjustments met or timing in nature.
For the year to date period PNG results are on track to achieve our full year guidance driven by revenue growth from ongoing capital investment programs.
Pension expense and cost control.
Investment in transmission 84 cents per share in the third quarter net income.
Electric margin was a penny per share favorable compared to the year earlier quarter, driven by higher weather normalized residential volumes, mostly offset by lower commercial and industrial demand.
Summer 2020 weather was a penny per share ahead of weather experienced in the third quarter of 2019.
I want them expense was three cents unfavorable versus the third quarter of 2019.
Primarily reflecting our internal labor costs from tropical storm science.
And timing of certain maintenance activities.
Currently offset by the reversal of certain Coca 19 related costs recognized in prior quarters.
In July the BP, you authorized p. CNG to defer certain expenses incurred because of the COVID-19 pandemic.
To reflect that order pizza CNG deferred certain COVID-19 related to going out and gas bad debt expense previously recorded.
And established a corresponding regulatory asset of approximately five cents per share for future recovery.
Partially offsetting these timing items. He is angie reversed a four cent accrual of revenue under the weather normalization clause.
A collection of lower gas margins, resulting from warmer than normal winter earlier in the year due.
Due to recovery limitations under that causes earnings test.
Distribution related depreciation lowered net income by a penny per share.
And non operating pension expense was a penny per share favorable compared with last years third quarter.
Flow through taxes, and other items lowered net income by seven cents per share compared to the third quarter 2019.
Driven largely by timing of taxes and taxes related to bad debt expense.
The majority of these tax items are expected to reverse that.
Half in the fourth quarter with.
With taxes related to bad debts reversing in the future based upon the timing of actual write offs.
Summer weather in the third quarter as measured by the temperature humidity index with nearly 18% warmer than normal and 7% warmer than the third quarter of 2019.
Weather normalized electric sales for the quarter declined by approximately 1% versus last year.
Again, reflecting the increases that we've seen in residential volumes.
Originally partially offsets lower commercial industrial sales.
Residential weather normalized sales were up 7% due to the COVID-19 work from home impact.
However, cnf sales declined by approximately 6% with many parts of the New Jersey economy, not yet fully reopened.
On a net margin basis, however, residential margins, which are driven by volumes of 5% year to date weather normalized.
I'll start the margin impact of lower seen on demands.
Did seem to use capital program remains on schedule.
CNG invested approximately $700 million in the third quarter.
On 1.9 billion through September Thirtyth.
As part of its 2020 capital investment program of approximately $2.7 billion.
In infrastructure upgrades to its transmission and distribution facilities to remain to maintain reliability increase resiliency and replace aging energy infrastructure.
The clean energy future energy efficiency investment will begin later this year.
The ramp up to approximately $125 million in 2021 before.
Before reaching the full annual run rate of about 350 million in 2022.
We continue to forecast that over 90% of PCT is planned capital investments will be directed to the utility over the 2020 to 2024 timeframe.
Earlier this month PNG filed its annual transmission formula rate update with FERC through.
To reflect among other updates net plant additions.
PJM cost reallocations will more than offset the higher revenue requirements of approximately $119 million.
And result in a net reduction in costs to PS CNG customers when implemented in January of 2021.
Yes, and you forecasted net income for the full year has been updated to 1.325 billion to 1.355 billion.
From $1.310 billion to 1 billion 307.
Now I'll move on to power.
She said you power reported non-GAAP operating earnings for the third quarter of 33 cents per share.
Non-GAAP adjusted EBITDA of 349 million.
This compares to non-GAAP operating earnings of 29 cents per share.
Non-GAAP adjusted EBITDA of 322 million for the third quarter of 2019.
Non-GAAP adjusted EBITDA excludes the same items, our non-GAAP operating earnings measure.
As well as income tax expense interest expense depreciation and amortization expense.
The earnings release, and Slide 20 provide you with a detailed analysis of the items, having an impact on PGT Power's non-GAAP operating earnings relative to net income quarter over quarter.
And we've also provided you with more detail on generation for the quarter and for year to date 2020 on slides 21 and 22.
He said you Power's third quarter non-GAAP operating earnings were positively affected by several items that improved results by four cents per share compared to the year ago quarter.
The scheduled rise in PJM capacity revenue on June Onest increase non-GAAP operating earnings comparisons by three cents per share.
Compared with the third quarter of 2019.
Reduced generation volumes load results by two cents per share versus the third quarter of 19.
Reflecting the sale of the Keystone and Conemaugh coal units last year.
As well as some lower market demand.
Re contracting and market impacts reduced results by two cents per share versus the year ago quarter.
The gas operations were two cents per share higher.
Lower OEM expense was three cents per share favorable compared to last year's third quarter roughly.
Reflecting lower fossil maintenance costs, including the absence of a major outage at Linden then.
Occurred in the third quarter of 2019.
Lower interest and depreciation expense combined to add a penny per share versus the year ago quarter.
And also during the quarter, New Jersey enacted an increase in the corporate surtax to 2.5%.
As part of the fiscal year 2021 budget.
Which lowered comparisons a penny per share for the third quarter of 2019.
Gross margin for the third quarter was $33 per megawatt hour per minute $2 per megawatt hour over the third quarter of 2019.
Mainly reflecting the scheduled increasing capacity prices with a new energy year that began June 1st.
Power prices natural gas prices stayed low through the summer as reduced commercial activity across PJM, New York in Maryland experienced lower loads and captured most of the weather related demand surges.
Turning to powers operations total generating output declined 9% to 14.9 terawatt hours for the third quarter roughly.
Reflecting the sale of Keystone and Conemaugh.
PCG Power's combined cycle fleet produced 6.7, terawatt hours of output down.
On 7%, reflecting lower market demand driven by ongoing koby 19 related impacts on economic activity in the state.
The nuclear fleet operated at an average capacity factor of 95.9% I'm, sorry, 95.7% for the quarter.
Producing 8.2, terawatt hours up 5% over the third quarter of 19.
And represent 55% of total generation.
This is your power continues to forecast total output in 2020.
50 to 52 Terawatt hours.
For the remainder of 2020 power has hedged approximately 95, 100% of production.
An average price of $36 per megawatt hour.
For 2021 power has hedged 75% to 80% of forecast production of 40 to 50 Terawatt hours at an average price of $35 per megawatt hour and powers also forecasting output for 2020 to 48 to 50, terawatt hours and approximately 35% to 40% of Power's output in 2022 is hedged at an average price of 34.
Our dollars per megawatt hour.
We are updating the forecast of both Power's non-GAAP operating earnings for 2020.
To a range of 385 million to 430 million.
From 345 million to 435.
And our estimate of non-GAAP operating EBITDA to a range of 980 million to a $1 billion 45 million.
From $950 million 2 billion of 59.
I'll briefly address address operating roles results from enterprise and other who reported net income of 8 million or two cents per share for the third quarter of 2020 compared.
Compared to net income of 6 million for a penny per share in the third quarter of 2019.
Net income for the quarter reflects ongoing contributions from PCG long island and lower taxes.
Were partially offset by a small loss on the sale of the Powerton and Joliet investments at energy Holdings.
On the forecast for TG enterprise and other for 2020 has been updated to a net loss of 10 million permanent loss of fund them.
PCG ended the third quarter with over $4.9 billion of available liquidity, including cash on hand of about $966 million in.
Debt, representing 52% of our consolidated capital.
In August PCG issued $550 million five year senior notes at 80 basis points.
And 550 million 10 year senior notes at 1.6% and retired 500 million of the 364 to a term loan agreements issued in the spring.
BTD is also also $700 million of floating rate term loans that will mature in November 2020.
Also in August PS LNG issue $375 million of 30 year secured medium term notes.
At a coupon rate of 2.05%.
And retired $250 million of MTS at maturity.
Following PCGS announcement that it would explore strategic alternatives for power's non nuclear fleet Esa.
S&P lower Ts EG powers credit ratings to triple B with a stable outlook from Triple B, plus with a stable outlook.
Turning his view the PCG power was no longer viewed as core to PS EG.
Some peas rationale reflects his family rating methodology that had previously provided a one notch uplift to power due to that core designation.
And Moodys also published updated issuer comments following the announcement and left powers credit ratings unchanged it'd be delay one with a stable outlook.
Power's debt as a percentage of capital declined to 28% at September Thirtyth.
And we still expect to fully fund PCG is five year 13 billion to $15.7 billion capital investment program.
For the 2020 to 2024 period without the need to issue new equity.
And as Ralph mentioned, we've narrowed our non-GAAP operating earnings guidance for the full year.
Removing five cents per share from the lower end of the original guidance.
An updated range to $3.35 to $3.50 per share.
That concludes my comments and Sylvia we're now ready to answer questions.
Ladies and gentlemen, we will now begin the question and answer session for members of the financial community. If you have a question. Please press star and the number one on your telephone keypad. If your question has been answered you wish to withdraw your pulling request you may do so by pressing the pound key if you're on a speaker phone.
Please pick up your handset before entering your request one moment for your first question.
Your first question comes from Jeremy Tonet from JP Morgan.
Hi, good morning, Brian.
Jeremy.
Just wanted to start off with offshore wind if that's okay and just want to see is the recent worsted commentary on seeing delays on some of their U.S. based onshore projects influence your thinking in your involvement here in June.
Do you have any thoughts on some of the feedback or is that received the new Jersey, some negative feedback recently.
So I think there is that a.
Given the fact that this is an industry in its infancy candidly all of us expected there to be regulatory delays.
And the issue that I think you're referring to in the state of New Jersey was just over the.
The extent to which offshore wind would help grow the economy.
End up.
Yeah, well, it's something as new as this.
The expectations for job growth.
Of course, with the delivery of job growth and the and the pace at which is happening.
Not in complete alignment, but the direction is it completely.
Completely aligned with the state remains committed to growing industry.
Or said remains committed to.
Supporting its project.
With with the hiring practices.
That is the fourth and its solicitation and I, yes.
I think it's just a case of.
People needing to talk to each other more often about how much and how fast, but but there's no. There's no dispute over what direction it's going.
Got it that makes sense so it sounds like.
This win implement your appetite for participating in future rounds of bids for offshore wind like and when that's expected to.
That's correct, we have maintained that if we assume the 25% equity position, we would only do so with the expectation of parts.
Participating in future solicitation would would not it.
Particularly interested in not just the one off project.
Got it understood.
Just switching.
Switching gears here do you have any thoughts on the delayed.
GPU at bar, our evaluation here and.
Do you have any thoughts on what some of the drivers of the delay could be and do you have any sense on how the FFR at our our study could impact your Zack application.
Yes. This is up.
Yep.
I want to make sure everyone. Here's this clearly quotes mean gets affected if you I I.
Yes, I commend the BP you ought to schedule, they've maintained and what has been a very ambitious agenda.
And then when you think about all they have accomplished getting.
First offshore wind solicitation completed in the second one out the door initiating the analysis of the fr.
Really the critical period for for New Jersey is that when the offshore wind project still commercial and 2024.
And that will be all 1000 megawatts that will be a fraction of that so.
And not have to pay twice for capacity.
That PJM capacity auction is not likely to take place.
Until.
Yes.
Late in 2021, probably 20 to 22.
To my knowledge into the BP you process is really on the schedule at the staff laid out but it's sometime the end of this year or early next year, though that that Consultant's report out and then they'll consider whether they need legislation, we don't think that they do but it depends on the design.
So I'd say, Germany that is that they are in pretty good shape to avoid this double capacity payment.
It was a 2024 auction at this point.
Got it.
That is very helpful. I'll leave it there thanks.
Your next question comes from the line of Julian <unk>.
Millions Smith from Bank of America.
Hey, good morning, Thanks for the time appreciate it.
Hey, good morning, and thanks for the clarity there a second ago Crystal clear.
So one of them come back because this though how are you thinking about strategic decisions on the nuclear business as it stands today and I'd be curious if a sale or spin would be something that you would all would be amenable to and I'm sure. You all are familiar with some of the media reports out there. So just want to get ahead of that and try to see.
With that.
Order of your considerations when we know it.
So so julien.
There were two reasons why we are.
Often says simply focus on our long nuclear assets number one was to further solidify what we believe to be a strong U.S.G. position.
And secondly, as you know we are in the process as Dan I just discussed the filing for round two of the deck.
At this and we didn't think it.
It was fair to new Jersey or that they pay you to undertake as that process and not know who the eventual owners of nuclear might be so we're more than happy to own and operate nuclear plants.
If they are meeting the state's energy needs. If they are marching the state towards its carbon aspiration to end. This is a critical link a third condition they are economically viable.
And those plans are not economically viable.
Without the decks in effect I can't go into details because the financial that we submitted.
Our are confidential, but they actually.
Oh in need of more than $10 per megawatt hour.
We were willing to operate them at $10 a megawatt hour because we do think.
That's the direction of public policy, both in New Jersey and in the nation is the increased recognition of the importance of carbon free energy to mitigate climate change and that.
Value will eventually be more fully recognized.
But but yeah. So so so in the absence of that payment then yeah, we wouldn't be able operate those plants.
And that that's an audience that's an old story right because that's been going on for at least three or four years now.
I'm not familiar with any immediate report you're referring to so I'm not really comment on that.
But yeah I'm sure I'm sure this.
There will be a tough and attention to this regulatory process.
Got it okay that was cleared up in just in terms of disclosure that you provided you. The beep you you know.
Obviously been a lot of discussion about transparency in the need for.
Support across a variety of states I'm sure you're aware can you talk about how this go around may differ from the last initial request through that so.
So if you're going to disclose perspective, and it doesn't mean that there will be published guidance.
I'm just curious if you could elaborate a little bit.
Well since as you know there's two main differences in round two versus around one and then I'll turn it over to Dan for a second round.
Around two we have the ability of the BP you to set a number between zero and 10, whereas in round one there was either zero or 10.
Oh, well also it around two there's a there's a much more transparent public process.
That we think is great for everyone. There will be a preliminary decision in December followed by evidentiary hearings responses a preliminary decision in a final decision in April so I think that that's great. Okay.
First look deal does those plants are necessary, but as we pointed out they save consumers almost $200 million a year I, just 75 million a year over 10 years.
They eliminate 13 million tons of carbon a year that they provide employment for.
16, underpin EG employees 5000 employees in general but.
But but the reality is.
At.
The current advantages enjoyed by natural gas.
The absence of a price on carbon at the subsidized levels for renewables, which are far above the cost of nuclear they're under tremendous economic disadvantages.
And I, if you don't have to do a very sophisticated analysis and the I.
Published what the average cost of operating a nuclear plant and its about $30 per megawatt hour and in fact, if you look at what round the clock prices are doing and add capacity to do it.
It's around $30 a megawatt hour so.
Do you think that the company should invest over $1 billion a year for zero return those plants are not reliable. So and then of course you know the last attribute in addition to the carbon free energy they are base load workforces and despite our enthusiasm for wind and solar.
Mother nature that doesn't answer to us and the dispatch ability of those resources, we all know screens for the need for for battery storage or some storage mechanism and that just adds additional.
Economic pain to customers above and beyond what they're already experiencing so so nuclear slam dunk whenever and I'm sure the regulatory process will bear that out.
And enjoyed I think Ralph at everything I would have thought about it and just the the process and how everything runs and the only other thing I would add is just as we go into this process where in a more challenging price environment.
So things have a remote from the standpoint of the of the environment that the facilities or in from a market environment. You've got to a continued decline in forward prices and then incremental zero cost energy that's coming online. So if it is it is more challenging economically than it's been in the past. So we'll go through the process a that Ralph described.
In the next six months or so.
Great excellent thanks, guys.
Your next question comes from sharper Raza from Guggenheim Partners.
Hi, good morning, it's actually being there for sure.
Thanks for the very comprehensive update.
One of the kind of follow up on some of your thinking on the infrastructure programs in kind of a clean energy future programs.
Sure in terms of like kind of the longevity of the current capex levels.
Oh gosh.
Got programs to help new Jersey reach the broader policy goal than.
In the same line of thinking Dennis how long the runway so to speak for the industry.
Construction programs like that yeah, bumpy at least calling and so forth.
So so so good questions.
Two related but a slightly different answers right omni.
Kinda traditional infrastructure programs remember what we're doing there is we're not building new infrastructure to meet new demand, which.
Was the primary thesis for utilities for many many years.
Decades in the better part of the entire Twentyth century and.
In our case, we're having to replace aging infrastructure.
Not because of the growth in demand because of a variety of factors, including increased reliance upon electricity for our way of life and more.
The more extreme weather conditions driven by what.
What we believed to be climate change others may not choose to other beliefs.
So that aging infrastructure replacement program is is this actually perpetual because we cannot replace that aging infrastructure and just a few short years. It would just be prohibitively expensive so you're getting this position rep.
As was the case, where I guess, just the monetization program even at that.
$400 million either we're currently spending we have another 20 years worth of work to do that.
Since we started that program 10 years ago.
We will then have our newest type b 30 years old and some of the pipe is currently.
50 years, it will be seven years old by that point so.
And the same can be said about our transmission system and such.
Substation.
As you probably know we haven't even touched the last mile about electric system. We if we have done this double digit or near double digit growth rate in our regulated utility.
Focus primarily on test I guess thing I try.
Transmission and electric Substations and now with the increased dependence of residential customers.
On reliability, which we think will well have a post cobot permanency to it.
We we do think that increased the liability to the home that last mile is going to become increasingly important.
So there is interest in new Jersey around helping the state recover from its current economic downturn by accelerating some of that infrastructure replacement work and doing more.
In the way of kind of stimulus activities because it is essential work.
That could lead.
Us to perhaps deviating.
Deviating at least in the short term from what is the one and only controlling limitation to the amount of investment that's required and that's the impact on the customer Bill.
As you may be aware, we have steadfastly try to pace ourselves so that out clause recovery.
And our formula rate treatment at FERC applause, we're covering the state a formula rate treatment effect.
Allows us to make this infrastructure replacement yet allow the bill to kind of move up that CPR.
A bill by the way is 30% below where it was 10 years ago in nominal terms and 40% below where it was 10 years ago in real terms.
So.
The stimulus might allow us to break that rule, a little bit and just you are recognizing that.
If you take customers are.
Our utility bills from 3% of the disposable income to 3.6% of their disposable income, but that's a price worth paying to to put people to work and make some major infrastructure improvements.
That's separate and apart from that that was the question you asked about.
The clean energy future.
And that's a that's a different set of circumstances.
In our case, we're choosing the focus is on energy efficiency.
Which I call the quadruple winner.
This 8 million less tons of carbon emitted into the atmosphere, if the environment loves it there.
Theres lower bills for customers, who participate in fact as a net savings to the whole customer base of $1 billion.
So so so customers are smiling.
Over 4000 jobs that we think we can create so the economy smiles.
And our shareholders are getting a 9.6% our early with contemporaneous return on the investment and it's really it's just a phenomenal invest.
The investment opportunity and opens up a whole new definition a rate base for us one that I am firmly convinced the state will be eager to continue beyond the three years of the program.
In fact, if you look at the the $1 billion three year grant.
Granted a lot of approval, we received that's actually a faster run rate.
An initial period than the 2.5 billion six year program that we had originally proposed.
No that's fair to say desperation for other clean technologies, such as offshore wind and solar that is a different story that is far more expensive and that will have to.
Ah rely upon the price curve coming down and technology bending that price down and the state pacing its appetite for that so as to.
Not overburden, the consumer but in terms of the areas that were involved with.
Hi, I have a high degree of confidence that there's very strong.
That supports the continuing those sorry for the long answer.
Okay.
Oh, it's definitely well appreciated.
Jumping again to follow up a little bit on kind of the the fossil assets. They all kind of profit from some of the thoughts around that.
I mean, it's obviously a pretty good set of assets in the market and then kind of the equity part of the price tags and we're gonna be sizable just kind of given the fact that there's not much leverage on the business.
Curious to get some of your thoughts on like capital recycling and kind of what the priority would be for reinvestment buybacks and kind of how to keep it more efficient.
Yes, it's a great question in you're right. If you take a look at power.
It is not very heavily levered, a there's about $2.4 billion right now good outstanding the time, we get to the to the end of the potential transaction you would see about <unk> billion.
That would be redeemed at the upcoming so about a building for and HM.
I agree your commentary if you think about the quality of the assets that were talking about that would that would provide some some are more than sufficient capital one listening to it to take care of them do so.
Yes, you would you would think about the repayment of the debt me first and foremost you would think about having excess capital and I would say you know really general corporate purposes is what is normally conveyed and I think that's the right conditions here I think that.
You know we've talked about it.
With an existing capital program, that's in place and we've talked about the potential for some incremental capital identification. We we have always gone through our five year plan.
With a declining capital forecast and by the time, we get to the end of that five years, there's other opportunities that we've seen on the other side.
And where there's some of that could be something from a stimulus perspective coming out of this economic.
The impacts that we've seen from go to do this is to be seen so I think you know that.
The continued deployment of this capital into.
The utility is the first place that we would look to and then to the extent.
Theres excess we would weigh that against the incremental potential opportunities for capital as well as some kind of a return.
To the extent that those opportunities didn't exist it could be dividends could be bought them. So not out of the question, but certainly.
Certainly first and foremost on the list.
Okay. Thanks.
Your next question comes from the line of New dance to <unk> from Evercore.
Hey, Good morning, Daniel taking my question Ralph can I just go back to the.
I want to understand each I understand the conservation efficiency program.
What does it mean to go there.
Does that protect you.
Going forward just from like lost revenues from storms.
Well there was something like Colin can you just talk to that and then second like is this a pilot program, where you have to make a buying every other year or things like that or is this just basically a permanent thing at this point.
So Dan I'll answer the question about how off with like the filing I thought, but I do know that whenever we file. We we we kept we don't suffer any lag associated with that but I forget if it six to 12 months.
No what I was referring to and hopefully I'm answering your question if not just a nudge me back in the right direction is what is the city of new work as an example, we have.
Dual 20 6K the.
The distribution.
Loops into the city, because we have commercial centers that have thousands of employees that come here every day and expect the likes to be on the air conditioning to run at a computer systems to operate.
They're not here now.
For the city office today.
And most of our employees are working from home well the level of reliability. They have in their homes is quite different than the level of reliability that we have feeding this building and it's not because it's the PCG building, that's just difficult businesses and the New York area. So.
Now the home is going to become the place where not only you eat and sleep, but you work you you fill up your gas tank so to speak you energize your vehicle.
Do you you charge all of your information tools, you're falling your computers.
Right.
That was great as not prepare to deliver the kind of a liability.
People will expect when another east Saudi it sets or another superstorm sandy or just the typical northeast thunderstorm. So.
So the investment in the last mile what I'm talking about there's the overhead system well.
Well need to be made if the economy is not a comfortable grinding halt.
During your fairly routine storm events that we have now that I'm, not calling sandy a routine event, but but but as we've seen in some parts of the country, whether it's what's going out of the Gulf for what we have had in the past in the northeast we are getting more intense weather events and you can't as people just stopped work for three to five days.
If they have that whether that when they're working from home. So that's what I was referring to and I think policymakers are I really plugging inside and out we will benefit from am I and our ability to identify outages at the individual customer location and.
Regrettably, New Jersey does not have that capability now, but I do believe our VP of commission is.
I understand the importance of that and I'm hopeful and optimistic we can resolve that in just a few short months.
But but but Dan did you want to talk a little bit about how we filed in the same city U.S. It. Soon so you know if you think about what new Jersey is trying to get out from an energy efficiency program standpoint. It is a step change from where we have been historically and I think it will it literally will catapult the state to two.
Among the best in the country with respect to energy efficiency programs and so if you think about a program of that magnitude it's important from the.
The utility perspective as it pursues that that there was some kind of a form of loss revenue recovery and that's what we're going to filing it has been a topic of the discussion that we have gone through as we've gone through the process and where we ended up was really borrowing from something that that the gas utility said largely got in place.
Historically and that's the CIA pay the conservation incentive program.
So it is do we talk about a little bit in her prepared remarks. It was a good annual filing it would be game into 2021, if you think about that get with the program get up and running as we implement the one sort of in a recovery for the program that we're talking with them.
And so it would start in June for the electric side of the business in October for the gas side of the business, we think about seasonality those businesses very logical way to do it.
It will be in any Ohio.
Hi, It is not a lag oriented filing basically its going to cover the changes from the baseline you are that you have to think about the way to think about those because it was the last rate case for new usage perspective, and a well essentially.
Do you put in place to to be able to recover the or the shortfalls or or or promoting access back to basically bring back to a more stable revenue stream. So I think it I think it's a it's a great solution for the challenges that would come a bit on the virtue of gross revenues are in energy efficiency curve sort of.
I think we ended up at a very good place there.
Thank you Dan I, just want to be clear is that only cover lost revenues from efficiency programs are.
It does its dollar lost revenues from weather related changes or perhaps lost revenues from storms and other events. Yeah. It is more broad than the energy efficiency, which is going to cover Berlet's revenues. In fact, if you think about our gas weather normalization clause that will essentially.
Be suspended against the backdrop of this this will kind of swept supersede, though it's burke.
Excellent that's Super constructive then maybe just a quick follow up on the the fossil transactions does.
Does the and I appreciate you launch the process here last quarter in winning elections around the corner, but it has the potential to actually change in back or thinking at all does it doesn't matter for that transaction for the non nuclear.
Potential sale transaction.
Yeah, I mean look obviously it will have an impact on the dollars that flew out of what happens, but it will not change the the bottom line intent in nature of where we are headed I think that's the simplest way so.
Okay. Thanks, guys. Appreciate the time absolutely. Thank you.
Your next question comes from David Carr room from Morgan Stanley.
Hey, good morning, Thanks for taking my question.
[music].
Could you give an update and a status update on the transmission or weak discussion that's going on with the BP.
Yeah, Dave Unfortunately can't say much more than what we did and our initial remarks, because they are confidential.
I do think that there's still a lot of goodwill and good intent on the part of all parties. So it's a three person conversation it's us the BP you and the consumer advocate the repair advocate.
And clearly what motivates up our colleagues in the BP you and the Ratepayer advocate is.
Providing immediate relief.
New Jersey consumers in the form of lower rates in particular exacerbated by COVID-19 challenges.
And what motivates us is.
Removing some uncertainty over where things could end up if we went to FERC.
But and.
And Weve closed a significant difference in the points of view from when we first started talking but there still is a small gap between us and whether or not we can resolve that I really do.
We remain hopeful but up but I can't say for sure that we will so.
We're still talking to each other I think that that's that's a positive thing and the gap. The small that's a positive thing, but it's but it's not done.
I I don't want to violate the confidentiality of replacing anymore.
Okay understood. Thanks for that update I was just curious if you could touch on your on the gas utility side of the business you thoughts in the long term and maybe for that business and how you're thinking about it in the context of you know on your side kicking east she.
Steph you fill in some of the merchant assets and then also in the context of the state.
We gradually over time to reduce its gas consumption yeah.
Yeah. Yeah. So this is what we get this question quite a bit I I got to tell you I I respect everybody tried to ask the question, but as the 10 things that keeps me awake at night. This was like number 100, we.
Yeah. The state under one of the greenest governors in the nation is asking us to spend more money on the gas distribution system largely to eliminate the methane leakage that results from an age system.
And as you know if you look at the 100 year effect of that same versus copper that said its about 28 times bigger that same being 28 times bigger than carbon dioxide.
So there is definitely a.
Commitment towards.
Preserving the existing infrastructure as it relates to natural gas also I would point out that.
Over 90% of the homes in New Jersey, Cook and heat their homes with natural gas.
And for that to change that would cost about average $10000.
And that that's for a bunch of homes that not that wasn't removed from the oil because of energy security concerns and pollution concerns. So thats not exactly something that anyone is going to attack will in the near term plus I'm a firm believer someone who is add.
Adamant that we need to be far more aggressive on climate change as a nation that the consumer dividend associated with relatively clean fuel like natural gas really does motivate the nation to do something about carbon capture and storage, but to walk away from this fund this resource which doesn't have any assets here doesn't have any mercury doesn't have any fine particulates and.
It has it's not an always on related impacts relatively well control.
Just begs for carbon capture and storage solution. So I <unk> I don't think you're going to see a lot of new pipeline construction I don't think you're going to see a lot of new gas plants built but I do think you're going to see people heating their homes and cooking a super natural gas for many many years to come and then last but not least I.
If you think about the fact that when we have that we still have largely a 75% fossil fuel driven.
Electric system in the nation in New Jersey, as part of PJM with a large fossil fuel component the thought of taking that fossil fuel wasting two thirds of its energy content converting the other one third into electricity and then using that one third. So then he to home would have cut off is just a really bad use of the environmental a dollar.
Yeah that two thirds of that is wasted is referred to as wage teach and if you didn't waste that by converting into electricity and you simply converted that directly into a hot water in the home warm or hot air and the home you capture a lot more of the energy content. So it's just that it's just not nonsensical things, there's certainly in the near term and I suspect over the long term too.
As we as we do a better job of developing carbon capture and storage.
Okay, great. Thanks, so much.
<unk>.
Your next question comes from the line of Michael Nothing is from Goldman Sachs.
Hey, guys.
First of all congrats on a good quarter second two questions. One is new Jersey specific im trying to think about.
What has to happen to have a more significant extension expansion of batteries or storage in New Jersey is it a price point question, maybe not quite the question is that.
Kind of a market designing or regulatory design and construct question but.
Good thoughts Ralph.
I think it's a question of how much is on the plate right now Michael I mean, the state has in its clean Energy Act passed in May of 18 signed into law in May of 18, a 600 megawatt golf the battery storage next year I guess, it's I think it's by the end of the year and of course, we're nowhere near that.
But but you have when you're spending $98.10 for offshore wind when your solar renewable energy credits at $220 and your transition program for solar renewable energy is that I think 150, or what 75 per megawatt hour. There's just so much you're willing to put on the customer's plate right. So so the batteries.
George has has gotten to the sort of a lower priority I don't think the state has abandoned that but the state is so much more work to do with some of the kind of core things that you would think we would be further along and then and you had mentioned one of the before am I is something that is just screaming to be implemented not only because of the.
Operational benefits it provides but because of the consumer benefits. It provides in terms of helping the customer understand where they are in their bills. During a month as opposed to waiting to the end of the month, what it might mean for us in terms of more granular data and being able to do energy efficiency in ways. We never did before so I just think that battery storage is falling victim system others.
Yes.
Got it and then one other Ralph you know with the election next week, obviously one of the key entered it says it's been very open about talking about higher corporate income tax rates.
How do you think about what that means not just for P.S.P.G., especially if you become less focused on the nonregulated business, but also what it means for the customer and the customer bill in the pace of change in that Bill.
But you know the regulated business historically has been able to test for taxes.
And up a higher taxes will result in a greater bill impact to be sure.
But you know I think that that's we're getting kind of far ahead of ourselves in that regard.
So and I don't want to I, certainly, though I do want to predict whats what might or might not happen on Tuesday.
So Dan.
Yeah, I don't know if you have any comments on that but but I'm I'm getting all sorts of hand signals for about Oh.
Folks here that we've we've gone past that a lot of time and folks may have other commitments that they need to do itself. So Dan do you want as you know Mike I would just say look the first thing that needs to happen as it needs to get enacted and so it will take some time for that to happen.
Then when it does Israel says, yes, the the kind of the statutory rate will pass through on a normal basis, but you also have right now what you're seeing is the flow back of excess deferred to go back and there's some.
Some restrictions on what can happen for certain of those excess deferred taxes and there's flexibility on others of those deferred taxes. So that's I think the other part of it. The other thing I would say is that you know it's very simple to think about a change in tax regime is being the corporate tax rate changes by X percent underlying that there's usually a whole host.
No other changes and and those things can have pretty considerable attacks from a cash perspective positive or negative for both of the company and to the customer so.
You know the Devil's in the details and is usually a lot of details beyond just the headline rate that can have a impact of up and down to both sides of the equation.
Got it. Thank you much appreciate it guys. Thanks, Mike I think we are going to close right now and I would be remiss if I didnt.
Simply say, thank you to all of you for joining us and a lot of extending my sincere hope that all of you our safe and your families and friends are safe and healthy.
And free of this this dreaded virus and its impact.
And also to say to each of you that no of someone or.
Any kind of relationship with someone who's on the front line is a health care provider.
Assisting with this are clear.
Your second wave and spike and in this virus that's extend.
I think as a company to those individuals who are doing that whether that's in there.
Operating region or elsewhere, and I know that we thank our employees everyday for providing the services that enable those a front line workers to do their job.
I suspect, we'll see many of you in a couple of weeks Eddie I virtually [laughter] be safe Halloween protect your kids, where are your mask wash your hands keepsakes disciplines and thanks again see you soon thanks.
Thanks, everybody. Thank you.
Ladies and gentlemen. This concludes today's conference you can prepare your participation you may now disconnect.
Yeah.
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