Q2 2021 Public Service Enterprise Group Inc Earnings Call
Forward looking statements on our IR website and in today's earnings materials and.
I'll 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.
Well, thank you for a water and thank you everyone for joining us this morning.
PSEG reported non-GAAP operating earnings of <unk> 70 per share for the second quarter of 2021.
Versus 79 cents per share and last year's second quarter.
GAAP results for the second quarter were <unk> 35 per share net losses related to transition charges of PSEG power.
And that compares with 89 per share of net income for the second quarter of 2020.
Also in the quarter PSEG power reported a pre tax impairment of $519 million at its new England asset group.
Partly offset by a pre tax gain of $62 million from the sale of the solar sources portfolio.
We continue to make great progress on a number of fronts to position ourselves for the future we.
We had a strong operating quarter that once again produced non-GAAP operating earnings in line with our expectations for the year.
Our results for the second quarter bring non-GAAP operating earnings for the first half of 2021 to $1.98 per share.
This 9% increase over non-GAAP results of $1.82 per share.
For the first set for 2020 reflects the growing contribution from our regulated operations and.
And continued de risking at PSEG power.
Slide $13.15 summarize the results for the quarter and the first half of the year.
It's been a year since we announced our intention to explore strategic alternatives for our non nuclear generation assets and I am pleased with the progress to date and what I believe is a compelling platform for future regulated growth at PSC and Judy.
Our utility our clean energy infrastructure focused business will be complemented by a significantly contracted carbon free generating portfolio, consisting of our nuclear fleet and investments and opportunities and regional offshore wind.
The marketing of the fossil assets has garnered a significant level of interest from numerous qualified buyers and a competitive process, which is advancing as expected and we expect to provide you with more information on this process and the very near future.
I am pleased that we've reached a balanced agreement with the New Jersey Board of public utilities, and the division of rig Council and PSC and <unk> transmission rate.
Which if approved by FERC.
Will resolve a significant regulatory uncertainty for us and provide a timely rate reduction for customers.
<unk> has volume has agreed to voluntarily reduce its annual transmission revenue requirement.
Which includes a reduction and its base return on equity to 9.9% from 11, 8%.
If approved by the FERC for typical electric residential customer will save 3% on their monthly bills.
New Jersey continues to experience positive economic activity since Governor Murphy lifted.
Public health emergency order in June.
Larger customer class in terms of sales the commercial segment has shown a rebound and electricity demand.
Electric sales overall adjusted for weather were up nearly 4% over the second quarter of 2020 led by an 11% increase and commercial sales.
Which was partly offset by a 5% decline and residential sales as people gradually returned to work outside the home.
For warmer than normal summer has also increased POC and <unk> average daily peak load for the quarter to 5480 megawatts.
And to last year's second quarter average of 5100 megawatts.
And the 5000 and 330 megawatts experienced and the pre Covid second quarter of 2019.
And so far this summer and <unk> load has peaked at 10.64 megawatts on June 3rd is exceeding the 10 megawatt Mark for the first time since July and 19 of the year 2013.8 years ago.
Turning to clean energy developments, and New Jersey, the Btu and June award and the second round of offshore wind projects.
Totaling 2000, and 658 megawatts and is now halfway towards the state's goal of procuring 7500 megawatts of offshore wind generation by 2035.
The award was split between the 510 megawatt Atlantic <unk> project, and <unk> 1148 megawatt Ocean wind too.
The average prices set and the second round range from about $86 to $84 for the Atlantic shores and Ocean wind projects respectively.
And last week, the Btu approve the new solar successor incentive framework that consists of 2 programs and.
And and administratively determined and incentive.
And a competitive solicitation incentive which would apply to larger projects defined as 5 megawatts and above.
Incentive levels for the administratively determined segment.
Range from $90 per megawatt hour for net metered residential projects.
So 70 to $100 per megawatt hour.
For the commercial and community solar segments.
And up to $120 per megawatt hour for certain public entity projects.
You will recall that the prior program consisting of solar renewable energy credits or as we frequently referred from the zest for Rex.
Average well above $200 per megawatt hour over the past decade.
And combined with net metering subsidies and federal tax credits for.
Provided delayed incentives topping $300 per megawatt hour.
So the successor program is a positive step towards balancing the need for clean energy, while recognizing the importance of affordability for our customers.
Pseg's existing solar programs are essentially fully subscribed will continue to work with the state and <unk> programs that can help me for solar goals and the energy Master plan.
PSEG continues to make tangible progress on our own de carbonization and ESG goals and the second quarter alone. We closed on our 25% equity stake and the 1100 megawatt Ocean Wind project, and New Jersey Zero Sugar and 1 project and obviously.
And we retired our last coal unit at Bridgeport Harbor and Connecticut.
And our generating fleet coal free.
And moving up our net zero efficient by 20 years to 2030, but not only do we accelerate the net zero vision. We also expanded to include scope, 1 and direct greenhouse gas emissions and scope to indirect greenhouse gas emissions from operations at both PSEG power and PSE and G.
Expanding the net zero vision to include both utility and power operations.
Significant move forward and our decarbonization efforts and.
1 that will both inspire and challenge is to do more and do it better.
Coming up PSEG is preparing to bid into a competitive process to build offshore wind transmission infrastructure.
The solicitation is intended to procure transmission solutions.
To support New Jersey's 7500 megawatt offshore wind target by 2035.
The potential projects can cover onshore upgrades and.
New onshore transmission connection facilities.
New offshore transmission connection facilities.
And a networked offshore transmission system.
Proposals may address any or all of these for components.
The decision, making criteria is expected to include among other things and evaluation of reliability and economic benefits cost construct ability environmental benefits and permitting risks and other quote unquote, New Jersey benefits.
This competitive transmission open window will be jointly conducted by PJM and the New Jersey Board of public utilities.
PJM will lead the technical analysis of the proposed transmission solutions and the BP will be the ultimate decision maker.
And we support the state's efforts to procure transmission and a manner that is most reliable constructively and cost effective for our customers.
All of this is great progress and our de Carbonization efforts and continues to demonstrate our alignment with the state's clean energy agenda, and our industry leadership on environmental stewardship.
New Jersey is reached and endorsement of the environmental benefits provided by our New Jersey and nuclear plants through the second zero emission certificates I'll refer to that exact for the vessels conversation.
Up extends the $10 per megawatt hour carbon free attribute recognition through may of 2025.
This extension will allow us along with stakeholders and new Jersey and at the federal level. The time, we need to work on our long term economic solution to keep out merchant nuclear fleet economically viable and preserve its currently unmatched contribution of reliable carbon free baseload generation.
The most cost effective clean generation sources available.
During the deliberations and growing recognition that these nuclear units for economically at risk for vitally important to new Jersey and ability to reach its clean energy and carbon goals gained further traction.
The importance of the New Jersey, and nuclear units and the state's climate goals was also recognized in the Btu steps for recent resource adequacy report.
The report recommends that New Jersey should continue exploring a region wide or new Jersey, only integrated clean capacity market with the fixed resource requirement or off and we refer to that as and fr.
We expect that the <unk> will be closely watching to see whether FERC accepts pjm's just filed modifications to the minimum offer price rule.
Which appears to better align the PJM capacity market with new Jersey's clean energy goals.
The results of the first PJM capacity auction and 3 years and.
Influenced by COVID-19, pandemic stifled demand curve service further evidence of the market risks faced by our nuclear units.
Sentiment is shared by by the administration officials, including Secretary Grand Hall, and White House domestic climate adviser Gina Mccarthy.
Both spoke and publicly on the importance of nuclear energy as a clean energy resource.
We continue to work and promoting a federal nuclear production tax credit proposal for.
And where the value of the credit declines as market revenue increases.
This is the primary federal policy that would help prevent premature closing of merchant plants, whose market revenues and are currently covering costs and risks.
Other options such as a federal nuclear Grant program administered by the Department of Energy are also being discussed.
However, we and others and the industry share the view that and competitive grant program will not provide timely relief nor the certainty these plants need to remain operational.
Nonetheless, we're encouraged by the attention that at risk nuclear plants are getting and Washington.
And we especially appreciate the efforts of New Jersey Congress from Bill price Grau, who is leading this effort and the house of Representatives and Senators Carton mansion, and Booker and the Senate.
That said, we do expect the federal infrastructure effort to take the better part of the rest of the year to unfold.
On the social side of ESG during the second quarter, we recognize the juneteenth holiday by giving employees paid time off to commemorate and celebrate this important day and our nation's history.
And supported.
Our <unk> plus community with numerous events for 5 months.
Also in June <unk>.
<unk> was named to just capital's top 100, <unk> 100 companies supporting healthy families and communities.
Overall, we had a solid quarter and results for the first for heavily year have positioned us to update our full year guidance somewhat earlier than it has been our practice.
We are raising by <unk> <unk> per share to the bottom end of Pseg's non-GAAP operating earnings guidance for full year 2021 to a range of $3.40 to $3.55 per share.
Based on favorable results at POC, and <unk> and power through the first 6 months of the year.
This update also incorporates and August 1 effective date to implement the transmission rate settlement and the expectation that the fossil assets will contribute to consolidated results through the end of the year.
We're on track to achieve the utility's 2021 planned capital spending of $2.7 billion.
On schedule and on budget.
This spend is part of Pseg's consolidated 5 year $14 billion to $16 billion capital plan, which.
Which we still intend to execute without the need to issue new equity, while also continuing to offer the opportunity for consistent and sustainable growth and our dividend.
Before closing I do want to recognize the contributions of Dave Daly, who will be retiring on January 4.2022 and.
After 35 years of dedicated service to the company.
Kim <unk>, who had been named PSC, and <unk> Senior Vice President and Chief operating Officer.
Was promoted to succeed Davis, President and CFO of POC and <unk> effective June 30.
And supportive of a seamless transition of leadership at POC and <unk>.
David serving as an executive adviser through the end of the year.
With her promotion Kim is the first woman to lead New Jersey, and largest electric and gas utility and.
And a 118 year history.
Many of you know came as the power behind the transmission build out over the past 10 years and I Hope all of you will have the opportunity to meter and in near future.
Speaking of meeting New Jersey is among the highest rates of fully vaccinated people and the country.
Vaccination rates and the state of recently plateaued. So we're carefully monitoring the impact that highly contagious variance or having an update is health and safety protocols.
So whether in person or virtually.
We are looking forward to hosting an investor owned and Investor event and the fall when we expect to share with us and many good things that are happening and PSEG regarding our improved business mix increased financial flexibility and solid growth opportunities.
So now I'll turn the call over to Dan for more details on our operating results and we'll rejoin you at the end of this for your questions.
Great. Thank you Ralph and good morning, everybody.
As Ralph said PSEG reported non-GAAP operating earnings for the second quarter of 2021 of <unk> 70 per share for 79 per share and last year's second quarter.
We provide you with information on slides 13, and 15 regarding the contribution to non-GAAP operating earnings by business for the quarter and year to date periods.
And slide 14, and 16 contained corresponding waterfall charts that take you through the net changes and non-GAAP operating earnings by major business.
I'll now review each company and more details starting with <unk>.
Do you think you've reported net income of $309 million for 61 per share for the second quarter of 2021.
Compared with net income of $283 million for 56 per share for the second quarter of 2020.
<unk> second quarter results reflect revenue growth from ongoing capital investment programs.
Growth in transmission and added a penny per share for second quarter net income.
<unk> continued infrastructure investment as well as the timing of transmission O&M and the quarter and true ups from prior year filings.
Electric margin added <unk> <unk> per share to net income compared to the year earlier quarter drill.
Driven by commercial and industrial demand, reflecting higher margins and April and may compared to the COVID-19 restrictions that affected prior year results.
And the implementation of the conservation incentive program or Sip mechanism and June.
Gas margin added a penny per share driven by the gas system modernization program rate Rollins.
Gas related bad debt expense and O&M expense for both 1 penny per share favorable compared to the year earlier quarter.
Driven by the timing of Covid related deferrals since the issuance of the beta used ordering and the third quarter of last year.
And increase in distribution related depreciation due to higher rate base.
Lowered net income by a penny per share.
Non operating pension expense was <unk> <unk> per share favorable compared to the second quarter of 2020.
Reflecting the continued recognition of strong asset returns experienced last year.
Tax expense was <unk> <unk> unfavorable compared to the second quarter of 2020.
Driven by the timing of adjustments to reflect <unk> estimated annual effective tax rate.
The transmission agreement between PSA and <unk>, the Btu and rate Council that Ralph mentioned earlier has been filed with FERC for approval.
And August 1st requested effective date.
Theres no timetable from what FERC must respond. However, we will begin recording the impacts of the settlement of our financials, starting with the August 1st requested effective date.
The agreement would reset the base ROE for <unk> formula rate to $9.9 from 11, 8%.
Which lowers the annual transmission revenue requirement by about $100 million per year on a pre tax basis.
Other key elements of the settlement lower annual depreciation expense by approximately $42 million.
Which has a corresponding reduction in revenue that results and no net impact on earnings.
And and improved cost recovery methodology for our administrative and general costs and investments and materials and supplies.
The agreement also includes an increase of <unk> equity ratio from 54%, 55% of total capitalization.
The financial and talk to the settlement agreement is expected to lower <unk> net income by approximately $50 million to $60 million.
For 10 to 12 per share on an annual basis and the first 12 months once implemented.
Weather for the second quarter was significantly warmer than the second quarter of 2020.
For the temperature humidity index that was 34% higher than normal and a significantly higher than normal number of hours at 90 degrees or greater.
And New Jersey economy continues to recover and the second quarter increased by total weather normalized electric sales by approximately 4% compared to the second quarter of 2020.
Which was at the height of the COVID-19 economic restrictions.
On a trailing 12 month basis weather normalized electric and gas sales for each higher by approximately 1% with residential electric and gas usage up by 4% and 2% respectively.
The conservation incentive program, which started June 1st for electric sales.
Removes the variations of weather economic activity.
Efficiency and customer usage from our financial results resetting margins to a baseline level.
This new mechanism supports PSC and <unk> ability to maximize customer participation and energy efficiency programs without losing margins from lower sales.
And similar program covering gas sales will commence October 1 and replace for weather normalization clause.
<unk> capital program remains on schedule.
<unk> invested approximately $700 million and the second quarter and.
And $1.3 billion year to date through June.
This capital is part of 'twenty, 'twenty, 1 and $2.7 billion electric and gas infrastructure program.
To upgrade transmission and distribution facilities and enhance reliability and increase resiliency.
We continue to forecast over 90% of Pseg's planned capital investment will be directed to the utility over the 2021% to 2025 timeframe.
These gains were as forecasted net income for 2021 has been updated to 1 billion and $420 million to $1 billion $70 million.
From $1 billion $110 million from $101.470 billion.
Now moving on to power.
PSEG power reported non-GAAP operating earnings for the second quarter of <unk> 10 per share and.
And non-GAAP adjusted EBITDA from 159 million.
This compares to non-GAAP operating earnings of 24 per share and <unk>.
Non-GAAP adjusted EBITDA for $258 million for the second quarter of 2020.
Non-GAAP adjusted EBITDA excludes the same items as our non-GAAP operating earnings measure as well as income tax expense interest expense depreciation and amortization expenses.
The earnings release, and Slide 23 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.
We also provided you with more detail on generation for the quarter and for the first half of 2021 on.
On slide 24.
PSEG Power's second quarter non-GAAP operating earnings were affected by several items that combined lowered results by <unk> 14 per share below the quarter from a year ago.
Re contracting and market impacts reduced results by <unk> <unk> per share, reflecting seasonal shape of hedging activity and higher cost to serve load versus the year ago quarter.
Generating volume and net zero emission certificates for each down by a penny per share.
Effected by lower nuclear output related to the spring refueling outage at the 100% owned Hope Creek nuclear plant.
PJM capacity revenue added <unk> <unk> per share for the year ago quarterly comparison.
For the year ended June 30.
For the year to date ended June 30 capacity is and <unk> per share favorable.
Compared to the first half of 2020, reflecting the scheduled higher price of approximately $167 per megawatt day for.
For the majority of the first half of 2021 versus.
Versus the $116 per megawatt day for the same period and 2020.
Higher O&M expense reduced results by for per share compared to last year's second quarter, primarily reflecting the planned hope Creek refueling outage and higher fossil operating expenses.
Lower depreciation expense, reflecting the sale of solar source portfolio and the early retirement of the Bridgeport Harbor coal fired generating station and.
And bind with lower interest expense to add <unk> <unk> per share versus a year ago quarter.
Taxes and other items for <unk> per share unfavorable reflecting the absence of a multiyear tax audit settlement included and the second quarter 2020 results.
Gross margin and the second quarter of 2020 was $28 per megawatt hour compared with $33 per megawatt hour for last year's second quarter.
The decline quarter over quarter reflects the seasonal price impact of re contracting.
Anticipated to result in a negative $2 per megawatt hour price decline and the hedge portfolio for the full year.
We expect for re contracting results and the third quarter of 2021 to be similarly negative as we mentioned last quarter were more than offset the <unk> <unk> per share benefit seen in the first quarter.
Now, let's turn to Power's operations.
Total generation output declined by 1% to $12.6 terawatt hours and the second quarter as the refueling outage at Hope Creek and a subsequent forced outage lower nuclear output versus the second quarter of 2020.
And nuclear fleet operated at an average capacity factor and 86% for the quarter for.
<unk> 7.2 terawatt hours down by 7% versus last year.
Which represented 57% of total generation.
Power's combined cycle fleet produced 5.3 terawatt hours of output up 8% and in response to higher market demand helped by warm weather.
Power's forecasting generation output of 25 to 27 Terawatt hours for the remaining 2 quarters of 2021.
And as hedged 95% to 100% of this production at an average price of $30 per megawatt hour.
Also during the quarter, we were pleased to remind you that PSEG power eliminated all coal from its generating mix for the early retirement of Bridgeport Harbor station.
Right.
Powers quarterly impairment assessments, including consideration of its strategic review of the non nuclear fleet.
Determined that the ISO new England asset grouping showed and impairment as of June 32021.
As a result power recorded a pretax charge of $519 million for this asset group.
PJM and New York ISO asset group things did not show and impairment as of June 32021.
However, a move of these assets to held for sale.
Which would be effective upon and anticipated sale agreement with the expected profit and additional material impairment for the fossil portfolio.
Such a move to held for sale would also profit cessation of depreciation and amortization expense for the held for sale units, resulting.
Resulting in a favorable impact to GAAP and non-GAAP operating earnings through the close of the transaction.
In June of 2021, PSEG completed the sale of TCG solar source.
Which resulted in a pretax gain of approximately $62 million and income tax expense of approximately $63 million per.
Due to the recapture of investment tax credits on units and operated for less than 5 years.
For the remainder of the year depreciation expense will also decline by approximately <unk> <unk> per share as a result of the solar source sales.
Forecast of PSEG Power's non-GAAP operating earnings for 2021 has been updated to 295 million to $370 million.
From $280 million and $3.7.
While our estimate of non-GAAP adjusted EBITDA remains unchanged.
At 850 day 950 million.
Now, let me briefly address operating results from enterprise and other and provide an update on PSEG long Island.
For the second quarter of 2021 piece to enterprise and other reported and net loss of $3 million or a penny per share the second quarter of 2021.
Which was flat compared to a net loss of $2 million or a penny per share for the second quarter of 2020.
And net loss for the second quarter 2021 reflects higher interest expenses at the parent initially offset partially offset I should say by the ongoing contributions from PSEG volume.
And June PSEG long island entered into a non binding term sheet with the long Island power authority.
That would resolve all the authorities claims related to tropical storm <unk>.
The terms will be adopted into amendments to our operations service agreement or OSA and.
And submitted to New York State authorities for approval later this year.
The OSA contract term will continue through 2025.
And mutual option to extend.
For 2021% and forecast for TCG enterprise and other remains unchanged at a net loss of 15 million.
Pseg's financial position remains strong.
At June 30, we had approximately $4 billion and available liquidity, including cash on hand of about $107 million and that represented 52% of our consolidated capital.
During the first half of 2021 PSEG entered into 2.
364 day variable rate term loan agreements totaling $1.2.5 day.
During the second quarter PSEG power retired $950 million of senior notes.
During June and September 2021, and.
And ended June with debt as a percentage of capital of 20%.
In May and Moody's changed <unk> credit rating outlook to negative from stable.
Their first mortgage bond rating remains <unk> III.
We still expect to fund Pseg's $14 billion to $16 billion capital investment program over the 2021 and 2025 period.
Without the need to issue new equity.
And while also continuing to offer consistent and sustainable growth and our dividend payment.
As Ralph mentioned, we've raised the bottom end of our forecast of non-GAAP operating earnings for the full year.
And $3.43.55 per share.
Up by <unk> <unk> per share based on the solid results, we've seen and the first half of the year that give us confidence that we can deliver results at the upper end of our original guidance.
That concludes my comments and Carol we are now ready to answer questions.
Thank you ladies and gentlemen, we will now begin the question and answer session from members of the financial community. If you have a question. Please press the star and the number 1 and your telephone keypad. If your question has been answered and you wish to withdraw your tolling replay you may do so by pressing the pound key.
If you are on speakerphone, please pick up your handset before entering your request 1 moment. Please for the first question.
The first question comes from the line of Jeremy Tonet with J P. Morgan.
Please go ahead Jeremy.
Hi, good morning, and.
Adam.
Just wanted to dig into the fossil sales process, a little bit more if I could and.
Given the impairment and here I, just want to make sure Im clear.
The 1 taken new England, and it would seem that that process might wrap up more near term than the other.
And then at the same time for for the other pieces of the sale. It seems like the process might slip into 'twenty, 2 a little bit if I saw that right. Just wondering if you could walk through some of the drivers on that.
Sure Jeremy with respect to your question on the different asset groupings.
And we think about and when we do our impairment tests, we use those asset group things and so there is an asset grouping for new England, and 1 for New York and 1 for PJM and so I would not look at it.
The timing of the impairment and the second quarter, and new England as being different timing for different components.
I think.
And what you would look at is the way that the test is done by looking at both the traditional.
View of and undiscovered set of future cash flows as well as the potential for a sale that go into that calculation and basically.
And that calculation was such that we did as of the end of the second quarter Sienna.
<unk> impairment and new England, but did not see 1 and New York and PJM as I noted in my remarks.
As we continue forward and upon a movement to held for sale you could see.
And material impairment incremental to what's there.
But it does not have to do with timing per se of the sale and.
And what we've said all along list somewhere around mid year, we would be.
Moving to agreement and we're still in that ballpark I believe but I still think year and is about.
But you would anticipate that.
Path that we're on but it does not imply separate sales by virtue of what's happened and it's more just based upon the overall accounting and how that test works. These are and let's say for the balance on our books.
Got it.
Helpful. Thank you for that and maybe just kind of.
Moving towards the offshore wind here and <unk>.
And timing and in transmission and just wondering how you think about the opportunity post the settlement here and then I guess as well.
And with nuclear.
Federal outcomes here, if that might kind of play into the process in.
And any way at all and importance on the state goes about the review just wondering if you could update us there and that.
Yes, Jeff and it's Ralph So we're excited about playing at all for parts of the offshore transmission opportunity and we do see that as a quite sizable opportunity.
Bids are due.
And if im not mistaken the end of this month.
<unk> been delayed they originally duty and the splits but they were delayed notes and sometimes September probably end of September.
We're expecting PJM or to review that through the balance of the year and then handing their results over to the Btu for and early.
Decision, probably and the first quarter and next year could slip a little further than that but there is a sizeable opportunity and offshore wind.
And it's quite real and just given the fact that we now have over 3700 megawatts.
<unk>.
Wind farms that are due to become operational depending upon the project and away from.
2024 to 2028.
Nuclear is wholly separate from net.
And we are greatly encouraged by.
The amount of attention being given to.
Merchant plants in particular by President Biden, and his administration by bipartisan members of the house and the Senate.
There is a component of the infrastructure Bill.
And Bill it right now allows for a grant program for nuclear and rollout is by no means the preferred path for US just a matter of fact, the Congress is recognizing the challenge of nuclear plants I think is important.
For the nation and could relieve some of the cost pressure on New Jersey customers, who are currently bearing the full burden of keeping out 3 units.
Economically viable.
But I don't see that connected to offshore wind and anyway.
Got it.
I'll leave it there thanks.
Your next question comes from the line of Sharp Arena.
<unk> Guggenheim partners.
Hey, good morning, guys.
Sure.
And.
Can you just elaborate.
From the impact of the FERC Roe settlement.
Do you anticipate that 12 to 10 to 12 cents of drag to be perpetual or are there offsets like Capex go forwards.
And maybe the ability to raise the equity ratios and the distribution business O&M levers how do we think about that yes, so the 10% to 12.
Is the all in effect of some of the improvements and the formula rate treatment.
Some of the benefits realized from an earnings point of view.
Reducing the depreciation rate.
But also includes.
It will establish drag of lowering the allowed Roe.
Now a couple of things will happen by virtue of changing the depreciation rate.
And the rate base will decline and more slowly so that's an improvement to earnings and the.
Having said that however, though as you as you grow the rate base from new Capex.
Lower ROE is going to be a drag on earnings so.
We will break it out in the future.
Shar because theres no sense talking about what is no longer our Roe.
But it will all be factored into any earnings guidance, we give for 2022 and beyond.
Got it got it.
For that.
And that's it.
Okay.
Okay, Great and then just can you just give us some thoughts on how you see sort of the business trajectory post the power. So just thinking about like how do you bridge the.
For $6, 5% to 8% utility rate base growth with the romance and moving pieces like nuclear and holdings business offshore wind JV and do you sort of plan to provide.
Longer term EPS guidance close to sell at the analyst day, So how do we sort of think about that.
So we're hoping that gets the other late in September.
Still our current thinking.
And we view anticipate being able to give a multi year earnings guidance and.
And revisit our dividend policy at that point in time.
I think multimedia and right now we can give you 10 months of earnings guidance.
So multiyear may start out being 3 to 5 years I don't think it's going to it's certainly not going to be beyond that it's just so tough to predict longer term and that shock.
But.
Really what we what we highlighted not that long ago is still in place we think after the sale.
We will be.
Close to 90% regulated and now that that could drop a little bit as we start adding offshore win but that we expect to be fully contracted.
And so that that was the 80% to 90% range that we had given in prior earnings calls and that's still in place.
We are determined to get a longer term.
Treatment of our nuclear plants, we've said and <unk>.
And Budd.
3 years that is untenable and we're delighted that new Jersey Davis that to be able to enter into this more.
Thoughtful discussion either at the federal level or if it has to be at the state level to expand that timeframe.
But the utility growth.
Trajectory has only been enhanced.
<unk> growth trajectory has always been supported.
By the fact that we have and aging infrastructure.
That Ken and a not meet the needs of our customer base that is increasingly dependent on the infrastructure and.
And the that infrastructure and addition to its age is confronting more intense weather patterns and storms. So so the need to replace aging infrastructure and inclusive of greater emphasis on last mile as more and more people work from home is.
Just.
Equally if not growing and prominence and then we have the ability to add to that.
And the carbon free agenda, and the Green agenda of New Jersey, which allows this whole opportunity of adding to the rate based on the customer side and the meter and as such.
Set and the past it takes a lot of light bulbs to replace the transmission tower in terms of earnings power, but they're equally important to the customer both from a.
Energy efficiency point of view and a reliability and so I'd say that the utility growth prospects remain intact. If not are enhanced by what we continue to see in terms of climate change and are stressed and puts on the infrastructure and the desire to battle that and the opportunity to create and a customer side of the meter.
So should we should we as we're thinking about the 3 to 5 year growth rate should we think about it as the rate base that you guys are currently at the utility level and.
And.
When offshore wind starts to become more material you kind of rebase that year higher and then grow off of that or as youre thinking about that 3 to 5 year growth rate are you going to.
And I will revert back to your traditional the way you guide, which is looking at your Capex and probabilistic scenarios right and I guess, the bookends of that growth rate.
For the rate base growth would really be based on I guess.
The Capex visibility you have right that we did take the bottom and top of that is that the way to think about it and so.
I don't want to give that long term growth today.
But you ought to think of us.
And when you're thinking about shows that we have given a 5 year CAGR and rate base growth.
And so that will form the template of how we.
Think about our long term earnings growth and growth. So it will be all from the.
And the end of last year until we get into the new year, and then and then it will build off of that.
Offshore wind.
As a little bit more difficult at this point and time, obviously, because we only have 1 project fits and the in the bank so to speak Thats Ocean with 1, but we have lots of opportunities that are and the discussion phase and.
And to your point, yes, we will still suffer from the fact that the capital program is not as well known and years 4 and 5 and then.
And that a little bit of potential conservatism and the rate base growth, which we've tended to.
Be able to make up for in the past and we'll think that through and give you further clarity about what were assuming in terms of and final programs or continuation of programs. When we meet with him and September foot, but we'll make that will make that abundantly clear and know how.
The earnings growth.
Great.
What's being assumed in it.
Okay perfect. Thank you for that and I appreciate it I'll leave it at that.
Thanks.
That's true.
Your next question comes from the line of Julien and then.
Smith with Bank of America.
Hey, good morning, everyone. Thanks for taking the time I appreciate it.
If I can.
Thank you.
So I wanted to come back to the guidance and can you just on 'twenty, 1 here and just wanted to understand a little bit more of the confidence and the confidence and raising now with second quarter I mean, obviously the Roe impact.
None, but you also have the solar and fossil headwind.
And not fully reflected and expectations here.
Gaining the confidence to raise at this point it's notable.
And Julien I think it's a couple of things first off.
We have solar that has been sold and that that was and what we have going forward and as we sit here today and what.
And what we have still assumes that fossil continues and so.
That's more status quo than anything else.
And the other thing that I would think it's probably worth mentioning though is just the if.
If you think about the utility if you think about on the electric side.
And that program, which has a level rising effect.
And as an effect for electric and June and affirm.
And in October for gas and if you think about going through the summer period guests usages is low during that period. So that'll take some volatility out of the balance of the year from those perspectives. So just seeing where we are with the events that we know and with.
With the effect of some volatility reducing aspects of the Sip I think.
And that it made sense right now to do what we did do and.
We'll see what happens from here.
Excellent.
And perhaps I can breakfast and I know the rating agencies are already acting in some respects, but can you elaborate on the increased flexibility right.
I know you that were very specifically here as you mentioned the topic of the analyst day.
What kind of financial metrics are you thinking about with respect to your balance sheet on a prospective basis, perhaps pro forma for your strategic repositioning.
Yes.
Embedded within your question is an acknowledgement that that as we step forward.
And the company will have a more stable business mix on top of the aspect that I just talked about with respect to the ship, having a stabilizing effect.
I think analyst day at the right time to put that out but if you think about just that that change and business mix is going to put us in a and a position where we have some more flexibility. So I think for for more details on that stay tuned but.
I think the direction of it is obviously favorable given the business mix.
But just to clarify should we still broadly be thinking about use of proceeds this is entirely towards debt paydown.
No I mean, what we said is that.
Use of proceeds certainly would go towards power's debt pay down and you've seen some of that happen already.
But also the continued ability to invest and the business. If you think about.
Investment opportunities that Ralph just talked about with respect to <unk> and certainly within some of the out years as well as offshore wind.
And the potential for a return of capital to shareholders. So those are the buckets that we've talked about.
And probably with respect to.
The first use I would think about the power that being taken out.
Got it.
And I appreciate it.
Buyback dividend and.
And Capex all day.
Yes.
And then but you can see that [laughter], okay alright.
I like the non verbal queue I appreciate it I'll leave it there and thank you guys and best of luck and the preparation and next.
Julien.
Your next question comes from the line of <unk> Chopra with Evercore ISI.
Hey, good morning, and thanks for taking my question.
Hey, David.
Just quickly on 2020, 1 can you quantify how much.
Benefit was weather.
And the second quarter I'm, just trying to reconcile your move up and guidance given sort of the.
We had gains and the combination of other things, including sort of day.
Demand recovery load recovery year over year.
Yes, we didn't have a penny provided on weather, but modest and it's kind of and a penny or 2 zone across the businesses.
Yeah.
Got it okay. So small and then just maybe 1 of my questions have been answered, but Ralph is there a way to size.
The transmission investment and like what could be the upside and then you have a $16 billion by your Capex line towards the high end of your range, but what could be a.
Thanks for the upside from the older print media investment and New Jersey.
Yeah, and I'm glad you asked that question because what we have been telling folks is that we expect it to be.
9 figure investment opportunity, but I think we've understated it looking at the breadth of.
What new Jersey wants to see happen, we may need to zero and so that does look like a more of a 10 figure investment opportunity at this point.
Got it so very large and presumably sort of.
Structure, yes, it's a lot of infrastructure alright.
Alright and overseeing for.
And kind of a 510 year timeline is that the right way to think about it and I appreciate early innings, but yes, no I think that's about.
Alright, because it's supposed to be.
And if new Jersey goes ahead with it the intent is to be able to manage the 2035.
Target of 7.5 gigawatts.
But it's not necessarily all going to be regulated right. Some of the online stuff probably will be but the components that are.
Landing sites onshore and the backbone out and the ocean and the <unk>.
He says that.
<unk> to the ocean more than likely would be unregulated, but but supported by a contract or board order.
And I guess, you know the nature of and we talked a little bit about it and the prepared remarks.
There's a lot of options as to what actually can end up calling for coming forward and so I think with <unk>.
You are likely to see.
A submission that would include multiple.
Alternatives.
Some may or may not be mutually exclusive depending upon the weighted.
For the decision was ultimately made.
So you may see.
And kind of a bigger number going forward and from the standpoint.
All alternatives, which may distilled down to and to a smaller number that we end up getting now and.
And I'll, obviously with would end up being.
FERC regulated but you may not see that embedded within our PSP and GE regulated entity.
Understood. Thanks, guys, we will be closely watched and thank you.
Your next question comes from the line of Jonathan.
Jonathan Arnold with vertical.
Hi, good morning, guys.
Hi, Jonathan.
Quickly on.
Ocean wind 2 and.
You'll potentially interested in becoming involved there and any sense of warehousing, we mind that about that and you're already talking about it and.
And that you can share that.
Yes, I don't think we want to.
Get into details on that Jonathan and I mean, we have a range of.
Conversations across several projects.
Our and the mid Atlantic region underway with our spec.
And.
Yes, I think thats.
Probably as far as I want to go out and I do want to make sure that net.
That dance.
Common second ago.
And just the right. So when we say it's not regularly what would mean as it is not going to be the transmission is actually part of his EOG, but all transmissions for regulated.
And it would still get that kind of treatment, but in terms of ocean wind too.
It is it is obviously safe to conclude that we will have.
<unk> had some conversations with us at about that.
As well and some other opportunities and the region.
Alright, Thank you and just.
And you said that you were hoping to announce the tough things to tell us and I think the very near future.
Also and.
The analyst day still targeting September but you did it does look like you.
First quarter was 22.
And the official statement on when we might.
Clothing and might happen. So can you just.
So look for us down a little bit it did nothing shift back of tangible assets.
Happy to touch and you look.
So from from.
And from my perspective for <unk>.
Running a 12 month process thats been and.
Not only successful it's been extremely robust.
And I, just don't want to sacrifice value for an arbitrary deadline.
So we think and in near future label and give you more detail and we're still holding out for and.
And a September analyst day.
But I'm not going to sacrifice value for as I said, an arbitrary deadline for Q1 of 'twenty..2 is just if you look at FERC approval timeframes for similar sized deals.
And 1 things were filed with FERC finally, blessed and you tack that on to where we are at the moment.
It could bleed into next year is always saying that it could still happen by the end of this year.
But it could also just look at the range of dates bleed into next year.
Again, I think for the process has been incredibly robust.
And I don't want to diminish how well its gone.
Forcing it.
And expedited.
Closing of the.
The final stages.
And so just as Ralph mentioned Jonathan.
The initial announcement.
Was this time last year, so and talks about 12 months, we literally are <unk> activities and not to be exact day at 12 months and other.
Our process and it does not have a firm timeline on it and so.
So that's and we think about timing.
So a little bit of a.
Uncertainty target.
From approximately.
And just curious.
Look like and slight change and language that's great. Thank.
Yes.
And other quick thing on the CIP and implementing that.
Does not.
Because I guess.
And would pull out any.
Overall Rhonda.
The performance on whether.
Through the balance of the year does it help with <unk> relative to guidance.
Having having the CIP that are coming to effect and I realize it makes it less volatile going forward, but I'm just curious as you sort of pull out the.
We have and the base.
Yeah, honestly, John and it will depend a little bit upon what the weather and the economic activity is right. We will be back to a more neutralized outcome and as you mentioned and embedded within your question and there's more stability to that.
But I think it's probably a question better answered as we get through our year and call them and where it is now.
But I thought it might be a question of what weather was good.
And.
And which will then as we think about sort of day after year comps that will fall away and then it becomes normally.
Yes.
We would be thinking, Nevada, prospectively as being normal.
And I think it's I don't think there'd be a strong bias 1 way or the other.
Thank you.
Your next question comes from the line of Michael Lapides with Goldman Sachs.
Hey, guys couple of questions. Thank you for taking them.
First 1 I just need a little help here.
The net revenue change tied to the FERC FERC ROE adjustment and there's $100 million if I back out the 42 I'm just struggling to get to how it's only 10 to 12 and from an impact would think just that $100 million tax and fact that has a bigger impact and 10 to 12.
Bob.
I'm, sorry, if I can say again.
Well I'm just a little.
<unk> revenue reduction is $142 million, but theres, a $42 million reduction and DNA, so kind of down to the EBIT line or operating income line, it's $100 million adjustment.
Net net.
And our tax affected that that would imply a bigger impact and since.
<unk> per share you've you've disclosed when you first and you don't think can you just help me bridge the gap there yes, yes, if you think about the other things that we kind of talked about within the overall <unk>.
Settlement for the the way we've constructed for some folks and it's probably the easiest thing to think about it is just.
We spend a dollar on G&A.
And perfected.
<unk> grew of state and federal regulation might have us receiving 49 back from state and 49 cents back from federal and and so theres not for recovery and so it seemed like the right time as we were talking through August to be able to just make sure that we were able to recoverable costs and so something like that that would get us back in my example, about <unk> of it.
And dollar is additive as well and so it's that kind of thing that went into the overall settlement, which helped a little bit beyond just the headline math of MRO and Delta.
Great day somehow.
And it's kind of things around the edges and that were a little bit helpful that we cleaned up as we went through the trial.
Got it and then Ralph just a question for you and this is think and multi years out and really long term.
What is it a better business from a risk profile and return standpoint.
Minority Stakes and offshore wind generating facility itself.
And we're owning and developing and building either contracted or a FERC regulated transmission and serve that wind.
Well it depends on the skill sets that you can change right. So for us it's clearly the transmission component, but we're fortunate to have a partner that's the world leader and <unk>.
Operating those offshore wind farms.
<unk>.
So by virtue of that skill set that we can candidly lean on.
Economic and different in that regard.
Got.
It's pretty clear, we've not been shy about it and the case of building the wind farms rhythm.
For the passenger on the bus.
And but we have a very good bus driver that we trust and in the case of the transmission, we're more than happy to be the bus driver.
But in both cases, we look at risk adjusted returns.
And the risk component is a function of for the skill sets that you have or less important for us.
Got it and can you remind me just.
And in an environment right now where a hot topic for conversation as inflation, especially on commodity cost inputs.
The price for the cost to build the offshore wind plants rises above kind of the original expectation how does that get share between you and <unk>.
So for.
And the projects a share it according to our equity percentages alright. So.
25% owner of the project for 75% on a per project and.
And Thats what.
Benefits.
Benefits from our burdens would be going forward.
Got it thank you Ralph much appreciate it.
Your next question comes from the line of Paul Patterson with Glenmark Associate.
Hey, good morning.
Paul.
So just.
On the asset sales.
With the write down and everything where does the book the book value of the asset value on the books.
Of the thoughtful portfolio at this point.
And if so.
Laid out within our SEC, Dr Paul and the possible appetite for naphtha.
Okay and.
And then.
Just on the transmission build out.
And.
Would you guys went over and it sounds like a great opportunity.
We go through with it and everything but.
How would it work could be and it sounds like it's competitive.
And would there be a PDC.
And if you guys would have to win a substantial portion of that.
That would be with EBITDA. If you can see there will be associated with the construction of that or would it basically be.
And the situation would you'd get the earnings impact when when the project is complete.
And the ability for see recovery there.
Okay and then.
For.
Just finally sort of.
You mentioned that any component can be bid on.
But it would seem to me that.
How would that work I guess, if if if if there was sort of a comprehensive bid.
You can sophisticated like you can do a comprehensive bid.
Is it really the ability for somebody to say, hey, there's a substation or something I want to I wanted to build.
How could somebody sort of.
Modularize. It if you follow what I'm, saying is that really a possibility that you would have a project that would be put out there, but they would say well, we'll take part of your project and.
And split it up really would it be pretty much.
Do you follow what I'm, saying.
Yes.
And then actually that's been done successfully and the past Paul If you think about.
For quarter, 1000, and so a sufficiency pleasure Colby artificial island project.
Sickly.
And you were given part of the project and someone else just given another part of the project.
And that were considered complementary to each other and mutually reinforcing.
The voltage and stability issue that was trying to be resolved.
I do think.
And your question points in a day.
Direction that I would agree with that it is probably easier to optimize the whole by putting it all for components and a specialist that just wants to be 1 component.
They are may not fit as naturally into the other components.
But they could have just such a.
Low cost solution.
And land are out and the ocean net.
The PJM figures out a way to shore.
For the technical.
The requirements of the project are achieved and then leaves it to the computers, so whether or not.
And I want to have.
And the bifurcated ownership of.
Will become.
Offshore wind grid.
Okay, great. Thanks, so much.
Ladies and gentlemen that is all the time and we have for questions and now I will turn the call back over to management for closing remarks, great.
Great. Thank you so.
Look I hope you agree we've made.
Tremendous progress on multiple fronts operational regulatory and legislative.
I'm, particularly optimistic and encouraged by the amount of federal attention being given to nuclear production tax credit and other.
And the clearing of the decks so to speak of some of our own state issues that are now behind us both in terms of the ROE settlement and the second round and <unk>.
We're going to continue to make progress I'm sure on the fossil assets sale to get us to that.
Fully regulated or contracted position that.
We have targeted for the better part of the year and we're looking forward to speaking with many of you at some of the upcoming virtual conferences over the next several weeks and.
For our Investor day, and the fault so.
Stay safe stay healthy and thank you for joining us.
Ladies and gentlemen that does conclude your conference call for today, you may disconnect and thank you for participating.
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Thanks.
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