Q4 2020 Public Service Enterprise Group Inc Earnings Call
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Now like to hand, the conference over to Carlotta Chan VP Investor Relations.
Please go ahead ma'am.
Good morning.
Thank you for participating in our earnings call.
<unk> fourth quarter and full year 2020 earnings release attachments and slides detailing operating results by company are posted on our website at Investor day at PSEG Dot Com and our 10-K will be filed shortly.
The 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 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.
The other 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.
I will now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of PSEG, joining Ralph on today's call is Dan Cregg Executive Vice President and Chief Financial Officer at the conclusion of their remarks, there will be time for your questions.
Ralph Thank you Caroline good morning, everyone and thank you for joining us for our 2020 review and future outlook.
PSEG reported non-GAAP operating earnings for the fourth quarter of 64 cents per share.
Non-GAAP operating earnings for the full year rose by four 6% to $3 43 per share and morph the 16th year in a row that PSEG delivered results.
Our original earnings guidance.
Pseg's GAAP results were <unk> 85 cents per share for the fourth quarter of 2020.
With 86 cents per share for the fourth quarter of 2019.
In addition for the full year PSEG reported 2020 net income of.
Of $3 76 per share compared with $3 <unk> per share in 2019.
Details on the results for the quarter and the full year can be found on slides 12 and 14.
I am pleased to report that <unk> fourth quarter and full year results reflected solid contributions from both PSE and G and PSEG power and are particularly proud of the achievements of our employees. During this past year as it was one of the most challenging in recent memory.
Their efforts have kept our customers connected to essential energy services to power their homes businesses and vitally important institutions.
We have also made steady progress on several key business priority is the most important of which is our transition to becoming primarily a regulated utility with contracted generation comprised of a zero carbon nuclear fleet and future investments in regional offshore wind.
In the past six months, we've announced the exploration of strategic alternatives for PSEG, Power's 7200, plus megawatts of non nuclear generating assets.
And have received initial indications of interest for both the fossil and solar source assets.
P. S. LNG successfully initiated its landmark clean energy future program.
Securing approval to spend nearly $2 billion in energy efficiency smart meter installations in electric vehicle charging infrastructure.
All of which will enhance new Jersey's environmental profile for years to come.
In addition from.
New Jersey Board of public utilities, I'll refer to them as the Btu.
<unk> concluded public hearings regarding PSEG nuclear application to extend the zero emission certificate I think I'll shorten that to Zack from now on.
Through May 2025.
Our service area experienced milder than normal weather during the fourth quarter.
Book, ending the week heating season of the first quarter in 2020.
Regarding weather normalized sales for the year.
While total electric sales volume declined by 2%.
Gas sales rose by 1%.
In both the electric and gas businesses higher residential usage of approximately 5%.
Largely offset declines in commercial and industrial sales, resulting in stable margins overall.
Working with COVID-19, health and safety protocols since last March PSC EMG was able to execute on its plan to $7 billion capital spending program in 2020.
These capital programs provided critical investments to support the New Jersey economy, particularly in the early months of the pandemic and preserve the essential jobs, while replacing vitally important energy infrastructure and generating customer benefits of improved reliability and resiliency as well as methane reduction.
In January of 2021, the Btu approved two settlements with PSC LNG and other parties.
And the clean energy future energy cloud and electric vehicle proceedings.
The energy cloud investment program is estimated to be approximately $707 million over the next four years.
And will result in a replacement of over 2 million electric meters with smart meters.
Electric vehicle program will direct $166 million into EV charging infrastructure over the next six years.
With these recent settlements the Btu has constructively address the vast majority of the clean energy future filing.
And as approved nearly $2 billion of investment.
To help realize new Jersey's energy goals.
The energy efficiency program will also established clean energy job training for over 3200 direct jobs.
Enabling the avoidance of 8 million metric tons of carbon emissions through the year 2015.
Investing in energy efficiency programs, the most cost effective solution to reducing carbon emissions.
Importantly.
The conservation incentive of the settlement encourages the broad adoption of energy efficiency.
With certain programs focusing on low and moderate income customers.
That will lower builds will participate.
We expect the balance of the clean energy future filing, which includes a request to spend under $200 million on energy storage and a few remaining EV programs will be addressed following future stakeholder proceedings.
PSEG continues to engage with the Btu staff and rate counsel to advanced confidential discussions towards the settlement of the return on equity related to PSC and Gs formula rate per transmission overseen by the federal Energy Regulatory Commission.
The annual update on <unk> existing Formula rate filed last October was implemented this past January and.
And together with cost Reallocations of our revenue requirements for certain transmission projects.
Candidly to customers outside of our zone.
This resulted in a net reduction in PSC and G customer costs.
For 2020, <unk> once again achieved top quartile osha scores.
We also achieved the top quartile J D power ranking eastern large company category for both residential electric and gas company.
<unk> posted its best ever J D power scores for electric and gas customer satisfaction outpacing the average industry results on metrics that consider total monthly cost bill clarity fairness of pricing and options and ability to manage monthly usage among residential customers.
All sorts of the 19th year in a row consulting recognized <unk> with its reliability One award as the most reliable electric utility in the mid Atlantic region.
And for the first time with their 2020 outstanding customer engagement Award.
New Jersey has recently made solid progress in lowering its COVID-19 positivity rates.
And continues a phased reopening of businesses schools and other activities.
We have a long history of partnering with this day to support the economy and we continue to work with them on investment programs that can spur economic development and employment recovery, all while being quite thoughtful about managing customer rate impacts.
Regarding collection activities.
The moratorium on shut offs residential electric and gas services currently scheduled to conclude in March recognizing.
Recognizing the economic hardship that many of our customers continue to face.
<unk> in partnership with the Btu and community groups is working hard to enroll customers in customer payments support programs, such as light heat and deferred payment already.
When the moratorium is lifted we will work closely with the Btu.
Other stakeholders and our customers.
To ensure our collections process that supports our customers' individual situations.
Turning now to PSEG power.
We are continuing all activities related to the exploration of strategic alternatives, we announced last July.
In the fourth quarter of last year, we launched a formal sales processes of the 467 megawatts solar source and over 6750 megawatt thoughtful portfolios.
We are currently evaluating indications of interest and believe we are on track to announce an outcome in the second half of 2021.
As we launched the strategic alternatives initiative last year and throughout the process thus far.
C. G power has continued to deliver on expectations.
For non-GAAP operating earnings and adjusted EBITDA.
Last year PSEG fossil posted one of its best operational performance records ever.
And completed its entire maintenance outage schedule without any osha safety violations.
In addition, PSEG nuclear completed two complex refuelling outages in 2020 with new COVID-19 safety protocols.
And continue its overall outstanding operating performance.
These achievements speak volumes about the professionalism of our dedicated work force that exemplifies our focus on safety and operational excellence.
PSEG nuclear zero emission certificate application and the extension of the current Zac.
It is currently under consideration at the Btu.
Last month, the Bp's best consultant released their preliminary findings.
The consult found that all three of our New Jersey units were eligible recognizing that each unit had a financial need for index.
There are other aspects of the preliminary findings that we view as inconsistent with the zone.
And we look forward to upcoming hearings, where we will have the opportunity to address those items.
It is clear that new Jersey recognizes the need for nuclear power in order to achieve its short and long term clean energy goals.
As laid out in the states on LNG energy Master plan.
And the EPS 80 by 50 per port.
The recent weather related power and market failures in Texas, and California further underscore the importance of maintaining new Jersey's reliable resource mix.
Over the next few weeks you will hear as mentioned net are confidential filings show that these units are actually in need of more than $10 per megawatt hour.
Partly due to the fact that PJM forward market prices are lower versus 2018, which was the year about first <unk> application.
As stated in the 2018 exact law nuclear operating risk and market risk must be recognized as a cost in any economic determination exec eligibility.
We have responded flow information request in a share confidential financial information with rate counts on the PJM independent market monitor in order to support transparency around this important per season.
In the absence of an extension of the current debt.
We would not continue to operate the plants.
While the direction of public policy, both in New Jersey and in the nation as the increased recognition of carbon free energy to mitigate climate change.
That realization in the form of a future price on carbon is.
Its highly uncertain at best.
With a final decision on the <unk> application expected on April 27.
We are hopeful that the Btu will act to extend the $10 per megawatt hour atrophy payment to preserve nuclear units and 3400 megawatts of zero carbon baseload generation through may of 2025.
The BPA is also moving forward with its investigation of resource adequacy and the potential for the creation of fixed resource.
The fixed resource requirement service area within New Jersey.
I'm, just going to call that fr or in the future.
We have maintained the mutual spans from the potential of an alternative capacity procurement paradigm, but remains supportive of accommodations that enables state supported resources.
To qualify as capacity that can satisfy both the stage capacity obligations and its clean energy goals.
As we've previously stated the cash.
Current minimum offer.
Floor prices are not expected to prevent either our nuclear or gas fired units.
From clearing in the upcoming PJM capacity auction scheduled for this may.
Now, let me turn my attention to 2021 guidance.
We are introducing non-GAAP operating earnings guidance of $3 35 to $3 55 per share.
With the utility expected to contribute between one.
$1 $410 million.
And $1 $470 million.
PSEG power between $280 million and $370 million.
Parent and other is expected to post a loss of $15 million.
This year, we expect <unk> to contribute just over 80% of consolidated non-GAAP operating earnings at the midpoint of guidance.
Going forward, we expect that the utility earnings will represent 80% to 90%.
Pseg's non-GAAP results with the remaining balance expected to be comprised of long term agreements for zero carbon offshore wind generation and our debt supported New Jersey nuclear units.
For PSEG power over 70% of its 2021 gross margin has been secured by way of energy hedges capacity revenues established prior auctions zero emission certificates and ancillary service payments. However.
However for 2021 re contracting at lower market prices high.
Higher costs tied to our hope Creek refueling outage and the absence of tax benefits realized in 2020.
The result in the lower non-GAAP operating earnings guidance for 2021.
Our PSEG five year capital spending forecast has been updated.
14 billion to $16 billion from 2021 through 2025.
And includes approximately $2 billion of clean energy future investments.
As well as the expected extension of the gas system modernization program and energy efficiency program at their average annual run rates for the last two years or the period debt being 2024 and 2025.
Consistent with past years approximately 90%.
Our 13 billion to $15 billion capital program will be directed to grow regulated operations at PSEG.
This ongoing investment in essential energy infrastructure and clean energy programs is expected to produce six 5% to 8% compound annual growth in rate base over the five year period.
Starting from 22 billion at year end 2020.
On Slide 10, we've provided you with an ultimate view of our updated capital program for 2021 from 2025, we've classified it by investments in de Carbonization energy transition climate adaptation for resilience and reliability and methane reduction.
As a sidebar any spend for offshore wind will be incremental to these totals and is not included in the 14% to $16 billion capital plan them.
We also expect that our strong cash flow will enable us to fund our entire five year capital spending program as well as a planned offshore wind investments during the 21 from 25 period without the need to issue new equity.
As we continue to plant from the responsible reentry to our offices and facilities currently targeted for this July.
Have to thank our dedicated employees for their professionalism.
Assistance and flexibility over the past year.
Whether responding to a myriad of COVID-19 challenges or they're excellent injury free response to the Northeaster that we just experienced this past month.
Employees across our organization has embodied operational excellence as they provide our New Jersey, New York, Connecticut, and mid Atlantic customers with reliable essential energy services.
Before moving to Dan's financial review I will summarize the new initiatives in place for future growth in areas of our continued strategic focus.
These range from the new clean energy future investments behind the meter.
To infrastructure opportunities supporting electrification of transportation and a growing mix of renewables in the distribution system.
Two expanding the existing aging infrastructure replacement programs to assist the new Jersey economic recovery.
In addition.
We are advancing the strategic alternatives exploration through a robust bidding process.
Pursuing near term opportunities to expand our offshore wind investments and the mid Atlantic.
And are engaged in ongoing efforts to preserve the new Jersey nuclear fleet.
Cost effective and most reliable source of base load supply to reduce emissions.
Each of these action serves to further pseg's already strong ESG leadership position.
Which we continuously strive to improve.
In 2020, we move to Decarbonize, our generating fleet announced an investment in New Jersey offshore wind and initiated a landmark energy efficiency investment to bring universal access to a broad range of clean energy opportunities.
In 2021 rejoined the company network of the series organization.
<unk> two.
To advance our climate advocacy.
We will achieve a coal free generating fleet in June.
And we recently published our first ESG performance reported.
PSEG is getting recognized for our ESG initiatives by standard and Poor's was included us in their 2021 sustainability yearbook.
And by the Dow Jones Sustainability Index was named PSEG to the North American Index for 13 years in a row.
We were also gratified to be named to the 2021 listing of America's most responsible companies by Newsweek magazine.
And the Forbes list of best employers for diversity in 2020, and best employers for veterans in 2012.
The board of Directors' recent decision to increase the Companys common dividend.
The indicative annual level of $2 <unk> per share as the 17th increase in the last 18 years and reflects our ongoing commitment to returning capital to our shareholders to enhance our total return profile as we also pursue growth.
There is no lack of opportunity for PSEG as we continue the transformation to a primarily regulated electric and gas utility focused on clean energy infrastructure complemented with contracted zero carbon generation.
We are working towards a sustainable future where customers universally used less energy.
The energy they use is cleaner.
And its delivery is more reliable and more resilient.
We are confident that pursuing this strategy will enhance our ability to provide our customers with the essential energy services, which has been our core mission for the last 118 years.
I'll now turn the call over to Dan for more details on our operating results and I'll be available lithium for your questions After zone.
Terrific. Thank you Ralph good morning, everybody.
As Ralph said PSEG reported non-GAAP operating earnings for the fourth quarter of 2020 of <unk> 65 per share.
And we have provided you with information on slides 12 and 14.
Regarding the contribution of non-GAAP operating earnings by business for the fourth quarter and for the full year of 2020.
Slides 13, and 15 contain waterfall charts that take you through the net changes quarter over quarter and year over year.
Non-GAAP operating earnings by major business.
I'll now review each company in more detail starting with <unk>.
<unk> net income for the fourth quarter of 2020 increased by <unk> to <unk> 58 per share.
Paired with net income of 54 per share for the fourth quarter of 2019.
As shown on slide 17.
For the full year <unk> net income increased by <unk> 16 per share.
We're six 5%.
Compared with 2019 results.
This improvement reflects an 8% increase in rate base at year end 2020 to just over $22 billion.
Which as we note on slide 22 does not include approximately $1 $8 billion of construction work in progress or see what that's mostly transmission.
The continued growth in utility earnings resulting from investments in transmission.
Added <unk> <unk> per share versus the fourth quarter of 2019.
GAAP margin was <unk> <unk> favorable.
Reflecting GSM P Rollins and higher weather normalized volume.
Electric margin was flat compared to the fourth quarter of 2019.
As higher weather normalized volumes were offset by lower demand.
Mild temperatures during the quarter had a negative <unk> <unk> per share impact, mostly reflecting recovery limitations under the earnings test of the gas weather normalization clause.
O&M expense was flat versus the fourth quarter of 2019.
Higher distribution depreciation expense of a penny per share.
Offset lower pension expense or a penny per share in the quarter.
Taxes, and other was <unk> <unk> per share favorable.
Reversing the negative seven per share impact.
The timing of taxes had a third quarter of 2020 net income.
Recall in the third quarter flow through taxes, and other items lowered net income by seven per share compared to the third quarter of 2019.
And we indicated at that time at about half of the seven would reverse in the fourth quarter.
The balance is related to bad debt, which we anticipate reversing in the future based upon the timing of actual write offs.
Really want to rather than the fourth quarter as measured by the heating degree days, it was 9% milder than normal and 14% milder than in the fourth quarter of 2019.
For the full year <unk> webinar analyzed residential electric sales increased by five 6%.
Due to the COVID-19 work from home impact.
But a larger decline in commercial sales resulted in total electric sales declining by 2%.
Total weather normalized gas sales were up one 2% for 2020, but.
Led by a four 9% increase in residential use.
Partially offset by a smaller decline in the commercial and industrial segment.
For both electric and gas sales higher residential usage, largely offset declines in commercial and industrial sales.
Resulting in stable margins overall.
<unk> invested $700 million in the fourth quarter as part of its 2020 capital investment program of approximately $2 7 billion.
Directed to infrastructure upgrades of transmission and distribution facilities to maintain reliability Inc.
Kris resiliency.
Cycle replacements and clean energy investments.
<unk> updated five year capital spending plan includes investing $2 7 billion in 2021.
And as detailed on slide 21, approximately $960 million is allocated to transmission 700 million to electric distribution, which includes approximately 200 million for energy strong II.
875 million to gas distribution, which group includes over $400 million for GSM pizza.
And 200 million for new clean energy future <unk> programs and the beginning of the <unk> rollout.
The clean energy future EBITDA investment will ramp up to approximately $125 million in 2021.
Before reaching a full annual run rate of about $350 million in 2023.
As Ralph mentioned, the Btu approved <unk> settlements in January.
Totaling approximately $875 million.
Covering energy cloud and electric vehicle investments.
The capital and operating costs of these programs will begin to be recovered and <unk> net rate proceeding expected to be filed in the second half of 2023.
From the start of the programs until the commencement of new base rates estimated in late 2024.
Return on capital will be included for recovery and these rates as well as operating costs.
And stranded costs associated with the retirement of the existing theaters.
Of these amounts the vast majority about 90% receives contemporaneous or near contemporaneous regulatory treatment either through the FERC formula rate, where clause recovery mechanisms.
Recovered in rates as replacement spend or new business.
As Ralph also mentioned, we continue settlement discussions with the Btu staff and rate counsel regarding our FERC transmission return on equity.
Although our forecast for 2021 assumes a resolution effective in the near term those discussions remain confidential and ongoing.
<unk> net income for 2021 is forecasted at $1.410 billion.
$1 $470 million.
Which reflects an assumed reduction of our transmission formula rate as well as incremental investment in T&D infrastructure and energy efficiency.
So moving to power from <unk> power reported non-GAAP operating earnings of <unk> <unk> per share in the fourth quarter unchanged from the non-GAAP results in the fourth quarter of 2019.
The results for the quarter brought power's full year, non-GAAP operating earnings to $430 million or <unk> 84 per share.
Compared with 2019, non-GAAP results on 409 million or <unk> 81 per share.
Non-GAAP adjusted EBITDA totaled $182 million for the quarter and $990 million for.
For the full year of 2020.
This compares to non-GAAP adjusted EBITDA of $198 million.
And $1 billion $35 million for the fourth quarter and full year 2019, respectively.
Non-GAAP adjusted EBITDA excludes the same items as our non-GAAP operating earnings measure as.
As well as income tax expense interest expense depreciation and amortization expense.
The earnings release, and the waterfall on slides 13, and 15 provide you with a detailed analysis of the items, having an impact on PSEG Power's non-GAAP operating earnings relative to net income.
Quarter over quarter and year over year from changes in revenue and costs.
We've also provided you with added detail on generation for the fourth quarter and full year on slide 26.
P. J D Power's fourth quarter non-GAAP operating earnings were aided by the scheduled increase in PSEG Power's average capacity prices in PJM covering the second half of 2020.
And higher gas operations.
This resulted in improved non-GAAP operating earnings comparisons by <unk> <unk> per share respectively.
Compared to the fourth quarter of 2019.
However, lower generation output and re contracting at lower market prices reduced non-GAAP operating earnings by a total of eight <unk> per share versus the year ago quarter.
A decline in O&M expenses in the quarter improved results by a penny per share Andrew.
And reflects the absence of the hope Creek refueling outage that occurred in the fourth quarter of 2019.
The extension of the Peach bottom nuclear operating licenses contributed to lower depreciation expense of a penny per share.
And lower taxes improved non-GAAP operating earnings by a penny over the year ago quarter.
Gross margin for the quarter was $32, a megawatt hour and a $1 per megawatt hour improvement over the fourth quarter of 2019.
Mainly reflecting the scheduled increase in capacity prices that began June one 2020 and remain in place through may of 2021.
For the full year 2020, gross margin was flat at $32 per megawatt hour compared to full year 2019.
Mild fall temperatures and holiday related spikes in COVID-19 positivity rates.
Dampened market demand in new Jersey, and kept power prices and natural gas prices lower.
In the quarter and year ago comparisons.
So, let's turn to Power's operations total output from Power's generating facilities declined 9% in the fourth quarter of 2020 compared to the fourth quarter of 2019.
And planned outages at fossil and an extended outage at Salem, one nuclear unit reduced fourth quarter generation levels compared to the fourth quarter of 2019.
However, full year 2020 output of 53 Terawatt hours came in above our 50% to 52 Terawatt hour forecast.
The nuclear fleet operated at an average capacity factor of 78, 9% in the quarter and 93% for the full year.
Producing nearly 31 terawatt hours of zero carbon Baseload power.
The combined cycle fleet operated at an average capacity factor of 46, 2% in the quarter.
At 48, 3% for the full year.
<unk> generated approximately 22 terawatt hours in 2020.
The three newest combined cycle generating units are keys, <unk> and Bridgeport Harbor five.
Posted an average capacity factor of over 75% for the full year 2020.
And this coming June PSEG.
PSEG power will complete the planned early retirement.
Of the 383 megawatt coal fired Bridgeport Harbor, three generating station eliminating.
Eliminating the last coal unit and Power's fleet.
For 2021 power has hedged approximately 90% to 95% of its expected output of 48 to 50 Terawatt hours.
At an average price of $32 per megawatt hour, which represents an approximately $2 per megawatt hour decline from 2020.
In addition, 2021 average hedge price is no longer include cost based transmission charges.
New Jersey's basic generation service contracts due to a change in how they are billed and collected.
This change further reduces revenue by approximately $3 per megawatt hour starting on February one 2021.
And is offset on the cost side. So there's no P&L impact as a result.
We're forecasting 2021, non-GAAP operating earnings and non-GAAP adjusted EBITDA at PSEG power.
To be $280 million to $370 million.
And 850 million from $950 million respectively.
Power segment guidance reflects a full year of fossil and solar operations.
Lower expected generation volume and lower market prices as.
As well as the absence of a one time tax benefit realized in 2020.
Now, let me briefly address operating results from enterprise and other.
Which reported a net loss debt increased by <unk> <unk> per share.
Compared to the fourth quarter of 2019.
And reflects lower tax benefits compared with the fourth quarter of 2019.
And lower results from PSEG long Island.
Regarding PSEG long island following several challenges related to our response to tropical storm <unk>, yes.
We've made significant improvements in our outage management telephony.
This continuity and other systems and processes.
The long Island power Authority filed a complaint against PSEG Long Island, and New York State Court last December.
Alleging multiple breaches of the operating services agreement or OSA in connection with PSEG long island's preparation and response to tropical storm <unk>.
We are in discussions with likely to address their concerns.
It could include potential amendments to our OSA with LIFO.
And to resolve all claims.
As a reminder, our 12 year contract is scheduled to run through 2025.
We are committed to addressing the identify performance issues and to continue our strong track record.
<unk> from the islands customers since taking over operations.
For 2021, PSEG enterprise and other is forecasted to have a net loss of $15 million as parent financing and other costs exceed earnings from PSEG volume.
PSEG ended 2020 with approximately $3 8 billion of available liquidity.
Including cash on hand of $543 million.
And debt, representing 52% of our consolidated capital.
In December PSEG issued $96 million of 863% senior notes due April 2031 in exchange for a like amount of $8 six 3% senior notes due April 2031, originally issued at power, which were canceled following the completion of the exchange.
PSEG also retired a $700 million term loan at maturity.
Power's debt as a percentage of capital declined to 27% on December 31.
28% at September 30.
To summarize non-GAAP results for the quarter was <unk> 65 per share full year 2020, non-GAAP operating earnings were $303 43 per share.
And as we move into 2021, our guidance for the year is $3 35 to $3 55 per share.
With regulated operations expected to contribute over 80% of consolidated results.
The range for 2021 reflects incremental investment in our T&D infrastructure.
Our ramp up of a new clean energy future programs as well as an assumed reduction return on equity of our transmission formula rate during the European AMG and.
On a full year of fossil until our operations at PCT.
Peter do you also raised its common dividend by <unk> <unk> per share to the indicative annual level of $2 <unk>.
Our force percent increase over 2020.
The 2021 indicative rate continues to represent a conservative 59% payout of consolidated earnings at the midpoint from 2021 guidance and utility earnings alone are expected to cover 140% of the dividend at the midpoint from 2021 guidance.
We still expect our strong cash flow will enable us to fully fund pseg's five year, 14% to $16 billion capital investment program.
As well as our plan to offshore wind investment during the 2021 to 2025 period.
Without the need to issue new equity.
That concludes my comments and Shelby, we are now ready to take questions.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Star one to ask that you limit yourself to one question and one follow up.
Your first question is from Jimmy <unk> of Jpmorgan.
Hi, good morning.
Sure.
Just wanted to start off with the power sales.
Sales if I could if there's any additional color that might be possible.
<unk>, maybe the relative progress up so were versus the wind asset there and if the events in Texas last week have any impacts on the process overall.
So I'll handle that because Daniel B to modest Dan laid out for the board in July but.
But this process would look like in terms of.
Participants timing expected outcomes.
I knew he had done good work in terms of assessing it and coming out with some predictions, but I got to tell you.
Sales every element of it so the process is going exactly as planned.
Our near death experience in January of 2014, with our own polar vortex.
Really has winterized these assets in a way that I'm sure, Texas will now.
Followed suit with so I know, Texas has not had any impact on us.
I do.
I don't apologize for not being able to get more information, we will give greater clarity.
Sometime in the summer I'm sure as we as we.
Get past the round two bids, but so far no surprises and the process is going well and our assets are fully winterize as a result of the 2014.
Polar vortex that we experience.
Got it.
Makes sense.
Maybe just kind of flipping over.
The transmission Roe.
And just timing expectations for transmission ROE reduction are incorporated into your 2021 guide here in <unk>.
Should we assume any changes on a prospective basis versus having a retroactive impact as well.
So the second question.
I can give greater specificity on yes, it would only be perspective.
Typically we'll put that gets filed with FERC.
Notwithstanding the time lapse to the actual decision.
<unk>.
Tariff adjustments due to the following day and not sooner.
So.
So yes, it would be prospective.
As you can appreciate just given the nature of.
The negotiation that we're in.
Involved and we really can't disclose what we've assumed.
In terms of the guidance, but but that shouldn't be a big surprise.
We don't break out the guidance in terms of individual components, whether it's weather or outage durations of plans and things of that nature. So.
Yes.
We are where we were for a while now were closed both sides are eager to resolve this.
Got it.
Inc. In deference to the VP of they've had an incredibly active agenda.
The better part of two years and they are dealing with the same challenges everyone else's in terms of working from home and despite that the successful debt one offshore wind solicitation during the middle of the second one day.
Don stakeholder processes for as far our energy efficiency. So they are getting a lot done.
Okay.
Yes.
ROE discussion as part of that is part of the portfolio activities, but not resolved yet.
Got it fair enough figured I'd give it a try thank you.
Youre welcome.
Probably the last one zone.
Perfect.
Your next question is from Julien Dumoulin Smith of Bank of America.
Hey, good morning team, thanks for the time and the opportunity.
So I I E. What's intriguing in your slides you talked about potential investments in offshore wind here as well can you talk about obviously is dynamic and certainly evolving from quarter over quarter can you talk about your latest expectations on offshore and how that could fit into your capital budgeting process and earnings.
Altogether, but as best you see today between.
Expanding owner chips and potential new leases et cetera.
Just a high level Julien.
Im sure Youre aware that Theres, an ongoing solicitation in Maryland.
There is a second round of New Jersey.
We have not fully developed.
And.
Gordon State offshore energy.
Jointly owned with <unk> debt.
Daniel.
The Cape May.
So.
There's been 29000, I think megawatts of hopes and dreams announced by states up and down the East coast. The 9000 megawatts of awards granted.
So.
Even if we were to just focus on the mid Atlantic region going from Maryland, Delaware, New Jersey, there are ample opportunities.
And as I said, a moment ago, we still have leasehold that's not fully developed so.
I don't think we've said it a more specific from that right Daniel.
So I'll leave it there.
But maybe if I can ask you to put parameters or how you're thinking about this business, maybe there may be more palatable rate pretty soon how do you thinking about return metrics.
Tolerability, obviously, you've seen some data points out there in the Americas and Europe of late.
And separately do you have any thoughts about.
What percent ownership in a given project et cetera, what size it should be relative to the business.
Anything that you're thinking about to help size it out and even though the minimum or how are you thinking about the return.
Palin ability if you will yes, so sales.
So first of all I think we've been clear that.
We don't view ourselves as the lead developer we do this in partnership with others.
<unk>.
Right now we have an option of 25% on an ocean.
Ocean wind and we have entertained.
Possibly going as high as 50% previously on this project.
There is likely to be a transmission solicitation.
That will be managed by PJM on behalf of New Jersey debt.
We feel.
So very confident that we could do something like that.
Not necessarily meeting partners, although we would be welcome to partnerships in that regard too.
I think at the end of the day.
Our number one growth engine remains.
Rate base growth and PSC in June.
Having said that yes, there is a window of opportunity here as states aggressively pursue offshore wind and we don't want it.
Have ourselves excluded from net debt.
The commercial risk is.
Completely mitigated by the PPA or the orders and.
In the operational risk is mitigated by making sure you're partnering with a world class partner and we think we have that <unk> debt.
So the risk profile is something that we're now comfortable with.
It took us the better part of I guess it was close to two years of us kind of inching, along and we're very grateful for such patients.
Mission side, I think the risk reward zone, we're very comfortable with.
It always was and on the.
The wind farm side, having the right partner mitigates that.
We've never disclosed what our.
Hurdle rates are but suffice to say group, even though I think we can manage the risk both the commercial and the operational risk as I. Just mentioned, we wouldn't do these projects for lower than we would only do these projects for both utility with you.
Joining other thing to think about too is that.
It come about solicitation by solicitation, so as far as what the ultimate end game is gonna be it gets determined in those bite sized chunks as we as we work our way through both New Jersey.
Alan.
This opportunity that Ralph talked about so net net that will be the manner in which we will come through and what the ultimate outcome.
Got it Okay fair enough I'll leave it there. Thank you guys very much and great day.
Sure.
Your next question is from Michael Lapides of Goldman Sachs.
Hey, Ralph Thank you for taking my question one other thing utility.
Looking out at the Capex guidance.
I want to make sure I understand something I'm looking at this and it basically has transmission spend falling off a cliff.
Meaning spending levels here by year, just curious when you think about the type of things that made back to maybe where it doesn't fall off as much in years three through five what are the type of things what are the type of opportunities to Tien Tsin you hearing teams are looking at.
Yeah. So.
Yeah.
A couple of things that happened Michael is that even though the.
Number looked like they're coming down in years, four and five as we get closer to that point in time, we learn more and that very that very spend comes back up so.
So one thing you could say, it's just more of the same youre not going to see the Susquehanna Roseland Mega project debt.
At least that's net.
Not readily predictable, but you could see more of the 69 kv upgrade and and just the transmission budget coming up as we get more knowledgeable about what.
The group status is.
I think one of the areas, though that we are increasingly paying attention to and it's difficult to quantify.
As a result of the pandemic I believe long term.
Patterns lifestyle titles are going to change I know at PSEG, we're already telling you our employees that many more of them will be able to work from home.
The combination of the household becoming now.
A place of business and greater penetration of electric vehicles, which are charged at the household.
And the growth of electric devices in the home, whether it's smart devices.
Communication devices.
Really changing the whole calculus behind the importance of reliability into the home.
So I'm not I'm right now in the office with Dan and Carlotta and we've got multiple 2006 kv feeds into this building because Newark is a commercial center from New Jersey.
That's true in New Brunswick, and many other day.
<unk> commercial areas without New Jersey, that's not true in my home.
And it's not true in anybody's home from New Jersey So.
So the need to invest in the last mile.
Reflect the reliability expectations as the home becomes a commercial center and and really a bunch of small business operations.
As a public policy discussion that I think is just beginning to take place and there's no way reflected in our numbers. So so I would say youll see those numbers come up in the future. They always come up in the future either because we'll just get smarter about the traditional stuff, we need to do or there's this whole less model.
That will lead to growth.
Got it and then my question and this is a little bit of maybe one for Dan in the.
In the rate base by year exhibit one of the footnotes talked about the 1 billion a day and you brought it up to 1 billion eight of transmission that is construction working progress can you remind me you earn on that quick can you just don't necessarily earn a cash return even that's prompt here.
Yeah, we are non equivalent frankly from Michael the reason that it really isn't there is from the concept of when folks who've done the calculation and tried to figure out whether or not there was over earning going on.
People, sometimes with mist equip component and so what we've really tried to do is lay that out so that people were aware.
But if I think about the true earnings power of the business, meaning of transmission rate base I would actually add that on top of the stack bars.
Yes, right exactly okay. Thank you Dan as much appreciated guys you all have a good weekend. Thank you.
Your next question is from Steve Fleishman of Wolfe Research.
Okay.
Hey, good morning.
It.
Hi, Hey, guys.
So just a question on the 80% to 90% from peak <unk>.
You highlighted Ralph so.
That's a little bit.
Less than I would've thought after selling these fossil assets.
I know you mentioned offshore wind, but thats not for a while.
So could you just give a is it more like 90% once the sales done before the offshore wind.
And then it kind of comes down again some are.
How should I think about.
That range, yes.
There's some building blocks.
Sure you are aware the right so.
The foundation of the house the roof.
Everything but maybe.
The unnecessary furniture is the utility and that's got a rate base CAGR of six 5% to 8%.
And that will do a little worse because of O&M or a little better because the load growth.
But as you know both of those numbers have hovered around zero and there'll be some regulatory lag maybe in some.
Some of the final years of clause.
Clause mechanisms have some non clause recovery back into them.
The debt that's.
Utility is what 80% this year of close to that and continued growth.
This year, we're still including all fossil that will go away, but hopefully in new Jersey will abide by their own energy Master plan and nuclear will still be around so that will be on top of the utility.
You may recall our GSS.
It's around debt fund.
On top of the utility.
Long island notwithstanding serious.
Challenges, where some of that will stick around that's on top of the utility and.
And then yes, we're making some assumptions.
In.
2020 for mostly 2025 on pushing rate.
So those are making up the other 10% to 20% I'd rather not.
Not narrowed that and I certainly don't want to give it to you by year I do want to remind you, though we are.
Very much interested and willing after the.
If we sell the fossil units when we sell a fossil units.
This process is over.
Going to revisit the notion of multiple year earnings guidance.
Investor meeting, where we kind of recalibrate, everyone tried to provide greater clarity of what.
The company.
It looks like with those different components, but right now in the middle of a competitive solicitation.
For the assets in the middle of is that negotiation.
And the ROE negotiation, that's the best I can.
Can do for them.
Okay.
Okay and then.
One other question just on nuclear if I heard you right.
I think you reiterated that you.
You would shut the nuclear plants.
But I think you said.
Does that give you anything but the $10. It currently is given the market prices are even lower.
Is that correct.
That's correct Steve.
We value, our corporate citizenship and the state and.
I think we've shown over the past few months.
How important is this too far.
<unk> leadership in terms of its clean energy aspirations and governor Murphy's aspirations, we've had some very.
Constructive outcomes, because we have followed their lead on energy efficiency on AMRI on electric vehicles.
Uh huh.
Having said that.
The nuclear plants need more than $10 and what we've said is we'll look at.
Longer term solutions to that and hopefully coming out of the federal government with a price on carbon.
Hopefully.
That doesn't work coming out of the <unk> process.
And that's the only reason and the other reason why we would accept $10 now is because that's what we can do.
So thats really not a negotiation that's just kind of a match the state has available to it and that's why we need it.
And we need more than that.
So that's that's kind of where we are stuck right. If you need more intent you can't accept less than 10 and then the other party can only offer you turn the net venn diagram ends up at one point and only one point, which is 10.
But that does not preclude the need for additional work after that.
And at the risk of stating the obvious if you don't get the Chan.
And what confidence can you, possibly have that the longer term solution can be cash.
Can be realized and that's why with each other units.
I guess I could simply say, yes to but I guess, maybe one installation of the yes.
I appreciate it thank you I'll, let someone else ask.
Your next question is from David Arcaro of Morgan Stanley.
Hi, good morning, Thanks, so much for taking my question.
I was going to ask a basically a follow up on that last line of Inc.
The new Funky place do you think there's a chance that new Jersey does end up pursuing a Ferrari it's achieved a new path ahead for <unk> and how do you think about your strategy with the nuclear plants, if that were to happen.
So.
So I mean, the short answer is anything is possible right.
Think what new jerseys.
Goal is at least what we've encourage new Jersey to service its goal.
It wasn't because we had any debt or insights and the state already did is to not pay twice for capacity.
And under the current construct.
Without question offshore wind will not clear the market.
At some point in the future, it's likely nuclear won't clear the market I'm, referring to the capacity market.
Solar certainly won't.
That's a market so.
So as new Jersey grows its carbon free footprint.
And even if its existing partnership with current and former nuclear you'd have increasing.
Double payments for capacity and it is about $25 million to $30 million per gigawatt that you end up paying.
So that starts adding up very quickly.
If you went to a unit specific fr, which is something that we were supportive of.
The original capacity market discussions this is.
If PJM could come up with some sort of stakeholder process that has the original price on carbon there is a whole bunch of ifs and I won't.
Audio with delivery of them.
Because they're all equally and probable.
And yes, maybe the state can do something differently.
And a simple broad based MLR, but.
At the end of the day the mechanism.
Has to be won.
Debt.
That avoids the customer the burden of paying twice.
The capacity debt maturity.
Yeah.
And David it to some degree it also comes down to it.
Timing so as things stand today, you do have that double payment issue that Ralph talked about.
So your question is if something changes at FERC with topic.
In New Jersey.
And so part of it comes down to how quickly might you see something change at FERC.
Wear with new Jersey and their process.
These things tend to not happened extremely quickly so.
Against that backdrop, you do start to have that double payment Ralph talked about in 2025.
It's a bit of a necessarily a race.
Two timelines coming to that.
Years capacity determination with respect to how quickly.
And what new Jersey's reaction would be to whatever it is they do and how much of a solution. It is true that the whole problem. So those are I think.
Some other things to think about with respect to other parties might be.
Approaching a change from the current path.
Got it that's helpful color and just in terms of how that influences your strategic thinking around the nuclear plant. It. So is it fair to say if you do get a $10 deck you still think there is more that would be needed.
For the nuclear plants to provide longer term clarity.
Beyond just getting that though.
Yes, so there's two things become obvious since the passage of the law in 2018 power markets continues to decline.
More so than we expected them to.
That's only going to get worse as more zero marginal cost.
Renewables are introduced to the market and we're in a market that dispatches on marginal costs and the nuclear plants.
Rely on those <unk> from marginal revenues to service their economics work in that day.
Patched Coors getting flatter and lower each passing year.
Secondly.
The state has very ambitious carbon free energy goals, which are great.
We completely applaud.
But they still ambitious that they exceed the current license life of the nuclear plants.
And youre not going to go into re licensing and youre not going to make capital improvements on the basis of the three years that process.
Even if even if it was adequately compensating, which it isn't so so the two problems with the SEC.
The overall dollar amount and the duration.
The review process so.
And we just wanted net over the past few years as the market continues to implode on us also.
For nuclear plants.
Cash used to do right. They are running 70 plus percent of the time advancement there.
Spark spreads.
And they're working beautifully.
So, yes long term nuclear courses of each resolution, but there are multiple pathways to get there.
Okay understood. Thanks, so much.
Your next question is from Paul Fremont of Mizuho.
Hi, Paul.
Hey, how are you.
Yes.
Just a quick question on the hedging there where I think some other adjustments that were originally in your hedge calculations like.
From renewable program and maybe ancillary charges.
Are those are.
I don't have eliminated as well to know should there be sort of no adjusted whatsoever to the $32 number that you are providing.
Think about the opposite way Paul the single change is the delta with respect to transmission charges.
Yeah.
And that's just because then the right right.
So you would continue to add the other charges into your number.
Or stated another way and not try to back out those pieces.
Okay as a revenue oriented number we've stripped out capacity as a separate item and now since transmission is not in the revenue it will not.
Revenue.
Okay.
And then the other question I have is.
Do you have a 25%.
The option, obviously on an ocean wind.
If you were to go to a higher level would that just be a separate negotiation that you would need to have one of the worst debt.
Or is there any contractual rights that you have to go higher.
We have to get their approval.
Okay and then.
A lot.
If I take your comments you guys don't want to be sort of a majority.
Project, So the limit of where you would be is roughly 50% of our labs.
That's correct.
Okay.
Thank you very much.
So I think one of the appointed hour. Thank you all for joining us just by way of recap.
It was the rate base growth at the utility as it has for the past decade plus.
Ah continues to drive the EPS growth of POC and <unk>, all the while doing things that are vitally important to customers.
And we continue to project now.
5% to 8% CAGR in that rate base over the next five years.
Doing things that are.
Really driven by state policy leadership, and an aging infrastructure.
That's it.
Attract our attention to the customer.
I think can add his.
A positive outcome from.
What has occurred last year is this conservation incentive program, providing much greater even greater stability to utility revenues.
The debt.
The positive constructive outcomes, we've had with the Btu again repeating myself.
By virtue of US following their lead on energy Master plan and public policy.
<unk>.
It is.
Have all just made for a terrific terrific set of outcomes.
Yes, we do have an ROE negotiation and is that application that is.
As in front of the GPU.
Resolution to those two items will introduce a prolonged period of relative or regulatory com.
Significant execution of these.
Great programs that we've got approval for.
I'll give you a greater classification on the strategic alternatives and a couple of months.
I said, a moment ago I couldn't be happier with the fact that its met every one of our expectations so far.
And I think it will continue to do so.
I would be remiss, if I didn't close my remarks as I have.
Sadly for each of the last three quarters by expressing my thanks to all of you who have family members or loved ones, who are frontline workers.
And what is an improving situation for school I.
Tragic situation related to COVID-19.
No that's it.
Got to be a tremendous burden on you and your families but please from.
Our family of PSEG, a sincere thank you to anyone.
Gain from that.
Otherwise, we look forward to seeing you, albeit as pixels.
Over the next few weeks and there's a bunch of conferences coming up.
Maybe in the not too distant future.
You are live into the flash. Thank you have a great day from.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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