Q3 2021 Public Service Enterprise Group Inc Earnings Call
Ladies and gentlemen, we will now begin to.
Ladies and gentlemen, thank you for standing by my name is Jesse benign your event operator for today I'd like to welcome everyone to today's conference entitled of Public Service Enterprise Group third quarter 2021 earnings conference call and webcast at.
At this time all participants are in a listen only mode.
We will conduct a question and answer session for members of the financial community.
At that time, if you have a question you'll need to press the star key followed by the number one on your telephone keypads to withdraw your question you May press the pound key.
As a reminder, this conference is being recorded today.
November 2nd 2021, and will be available as an audio webcast on P. S <unk> Investor Relations website at.
An investor Dot P S EG dot com.
I'll now turn the call over to your moderator for today Carlotta Chan Ma'am you May go ahead.
Thank you Jessie good morning.
P J.
Third quarter 2021 earnings release attachments and slides detailing operating results by company on our website at Investor PSEG Dot Com and our 10-Q 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 or loss as reported in accordance with generally accepted accounting principles in the United States.
We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward looking statements on our IR website and in today's earnings materials.
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.
Thank you Carl order and so all of you for joining us on our call. This morning.
As you've seen PSEG reported non-GAAP operating earnings of 98 cents per share.
Third quarter of 2021 versus <unk> 96 per share in the year ago quarter.
GAAP results for the third quarter were at a $3 10 per share net loss related to the transition charges at PSEG power.
And they compare with the $1 14 per share of net income for the third quarter of 2020.
In this year's quarter PSEG power recorded a pre tax impairment loss of approximately 2.1 dollars $7 billion.
To reflect the announced sale of its fossil generating fleet.
That includes $13 million of other related costs.
Results for the third quarter bring non-GAAP operating earnings first nine months of 2021.
The $2 96 per share.
The six 5% increase over non-GAAP results of $2 78 per share for the first nine months of 2020.
It reflects the growing contribution from our regulated operations.
And continued de risking at PSEG power.
Slides 12, and 14 summarizes the results for the third quarter and the first nine months of 2021.
The third quarter of 2021 was one of the most significant recent PSEG history.
Since July we have announced the sale of Power's fossil fleet.
And reached the transmission rate settlement that will help lower customer bills.
In addition.
At a recent Investor conference.
Announced an increase in our five year capital spending plan by $1 billion.
<unk> per share increase to the common stock dividend for 2022.
<unk> $500 million share repurchase program.
<unk> to be implemented upon the close of the fossil sale.
<unk> initiated a 5% to 7% long term earnings growth projection.
Over the 2022 to 2025 period.
On the ESG front.
Advanced our decarbonization efforts with the elimination of coal in our fuel mix this past year.
Our participation in the New Jersey, when port and ongoing consideration of regional offshore wind opportunities in generation and transmission.
<unk> alignment.
And she agenda.
And our clean energy future program was recently named a star of energy efficiency recipient.
Okay.
Of critical importance, we have staked out a leadership position in the industry by.
Our net zero of vision 2030, and.
And joining me are you, adding back rigs to zero campaign.
That will put us on a test to establish science based targets to all of our missions across scopes, one two and three.
Later this week I will be attending the conference of parties referred to was cop 26.
To engage with policymakers and further support our emissions reduction goals.
This includes advocating for climate action now and advancing a case for preserving existing nuclear generation.
This month, we issued a combined sustainability and climate report that outlines our progress to date and commitments for the future.
We intend to continue taking meaningful climate action in response to the increased frequency and severity of extreme weather in our service area.
Speaking of extreme weather.
Tropical storm so parts of New Jersey was nearly nine inches of rain within a 24 hour period.
And caused extensive flooding throughout the state.
Our past and current energy strong investments.
Hardened flood prone energy infrastructure for a tremendous benefit to customers during item minimizing the damage to adaptive substations and switching stations and keeping them operational.
That said the extreme weather did wreak havoc throughout our service area and our thoughts go out to the families who lost loved ones to the store and.
And to the community is still recovering from flood damaged homes and businesses.
To continue these invest in enhancements and bring them closer to the customer we are expanding our reliability improvement programs such as <unk>.
Last mile work, we will propose in our upcoming infrastructure advancement program.
We plan to file with the Btu and a few days.
This proposal if approved with.
With direct approximately $848 million of investment over a four year period to improve the reliability of our electric distribution system.
Addressing ageing substations in gas metering and regulating stations.
And in electric vehicle charging infrastructure.
PSC LNG facilities that will support the planned electrification of the utility asleep.
All of this while serving the dual purpose of creating important high quality jobs and helping to further stimulate the new Jersey economy.
The foundation of results for the quarter was the solid operating performances by both P. S EOG and PSEG power.
This summer the third hottest on record contributed to the hottest first nine months we've ever recorded.
<unk> the number of total hours, where temperatures exceeding 90 degrees.
Or greater.
Nearly 65% higher than the same period in 2020 and versus normal.
Thereby increasing peak demands.
The conservation incentive program.
Effective since June one for electric and October one for for natural gas.
<unk> provides recovery for variations in customer usage due to weather economic conditions in energy efficiency.
Thereby enabling the utility to promote maximum customer participation in energy efficiency programs without the loss of margin from lower sales.
Also a stabilizing effect on our margins more broadly.
The continued reopening of the New Jersey economy is unwinding some of the shift in sales experienced during most of 2020.
Residential electric sales declined adjusted for weather is more people return to work school and other activities outside the home.
Partly offset by higher commercial industrial sales.
Due to the warmer than normal summer weather and a lifting of COVID-19 restrictions the daily peak load for the quarter topped out at 9620 megawatts.
Compared to last year's third quarter Daily peak, which was slightly less at 9557 megawatts.
Our peak load for the year remains the 10064 megawatt we hit on June 30th which exceeded the 10000 megawatt Mark for the first time since 2013.
Moving to the zero carbon and infrastructure side of PSEG, We recently announced that we have submitted several joint proposals to new Jersey's competitive ste.
<unk> agreement approach open window.
To build offshore wind transmission infrastructure.
These joint proposals submitted with Earth that are collectively named the coastal wind link and leverage the experienced partnership of PSEG Interstate in New Jersey energy infrastructure.
Our commitment to diverse suppliers.
In a mature working relationships with local building and construction trades.
The proposals cover onshore upgrades, new onshore transmission connection facilities.
New offshore transmission connection facilities.
And then networked offshore transmission system, and any standalone configuration or combination.
PJM is providing the technical analysis and recommendations to the New Jersey Board of public utilities, who will make the final decisions based on an evaluation of reliability and economic benefits.
Cost.
Struct ability environmental benefits permitting risks and other myriad New Jersey benefits.
Our V. P decision is not expected before the third or fourth quarter of 2022.
FERC has granted pjm's request to delay the next capacity auction.
Covering the 2023 2024 energy here.
Late January 2022.
This revised timeline places the 2020 for 2025 auction.
August of 2022 and.
And the $25 26 auction into February of 2023.
These upcoming capacity auctions will provide additional surety.
Gross margin of our nuclear fleet.
In the outer years of our 21 to 2020 planning horizon.
Nuclear powers economic struggles are national challenge.
Call for abroad Federal solution, so that individual states like New Jersey, arent shouldering more than their share of the loan.
We are continuing efforts to secure support for existing at risk nuclear plants in the federal tax code.
The house version of the build back better infrastructure legislation.
Currently can change at eight year production tax credit for existing nuclear.
$15 per megawatt hour.
The value of the credit declining as market revenues increase.
The proposal.
<unk> in the Senate and from the by the administration.
While passage is not assured this would be an impactful provision for the nation's nuclear fleet.
And we are hopeful that Congress can enacted this fall.
You may recall that the new Jersey exact law contain considerable customer protections and.
And specifically requires that state zero emission certificate payments I, just referred to a moment ago Zec payments.
The offset.
By any out of market payment compensating nuclear for this same zero carbon attributes.
Specific to the nuclear production tax credit the value of the P. T C for our new Jersey units with reduced the zec payment up to the maximum $10 per megawatt hour.
However, the exact would not reduce the value of the P. C.
And our share of the two Pennsylvania Peach bottom units would benefit from the full production tax credit.
Moving forward there needs to be broad recognition at both the state and federal level have the value of nuclear zero carbon attributes.
Both for the quality of their today and the climate Tomorrow.
To avoid back sliding for decades to come we need to ensure that the long term viability of new Jersey's nuclear generation is.
Preserved as we bring more clean energy resources into the mix.
Turning my attention to guidance.
We are raising our forecast for full year 2021, non-GAAP operating earnings to a range of $3 55 per share to $3 70 per share from the prior range of $3 50 to three.
Sure.
This is based on results in the first nine months of the year.
Results for the third quarter and the first nine months incorporate the planned August 1st implementation of <unk> transmission rate settlement.
In addition, full year forecasted results also reflect PSEG power's cessation of depreciation expense on the fossil assets based upon the move to held for sale accounting treatment in August.
While otherwise continuing to contribute to consolidated results.
We are also reaffirming pseg's 2022, non-GAAP operating earnings guidance of $3 30 to $3 60 per share.
We remain on track to execute on <unk> 2021 planned capital spend of $2 7 billion.
This spend is part of Pseg's consolidated five year $15 billion to $17 billion capital plan, which.
Which we still intend to execute without the need to issue new equity.
While continuing to offer the opportunity for consistent and sustainable growth in our dividend.
Following the close of the peak of the fossil sale PSEG, who will be at 90% regulated and predominantly contracted platform of stable carbon friendly businesses.
As we continue to execute on this strategy as well as on the significant financial announcements made at a recent Investor Conference.
We remain fully dedicated to providing our shareholders with a premier opportunity to pursue sustainable growth in earnings and dividends.
Industry, leading ESG platform.
I'll now turn the call over to Dan for more details on our calls and we will make sure make myself available for your questions. After his remarks.
Great. Thank you Ralph and good morning, everybody.
As Ralph said PSEG reported non-GAAP operating earnings for the third quarter of 98 per share versus <unk> 96 per share in last year's third quarter.
We've provided you with information on slides 12, and 14 regarding the contribution to non-GAAP operating earnings by business for.
For the quarter and the year to date period.
In slides 13, and 15 containing walked a corresponding.
Corresponding waterfall charts that take you through the net changes in non-GAAP operating earnings by major business.
So now I'll review each company in more detail starting with P. S EOG.
<unk> reported net income of $389 million.
Were <unk> 77 per share.
For the third quarter of 2021.
Compared with net income of $313 million or <unk> 61 per share for the third quarter of 2020.
<unk> third quarter results rose by 16 per share over third quarter 2020.
And it reflects revenue growth from ongoing capital investments as well as several onetime items.
Growth in transmission rate base added <unk> <unk> per share for the third quarter net income.
Even after incorporating the August 1st implementation of <unk> transmission rate settlement.
Which for approved in October bringing.
Bringing the return on equity and our formula rate to nine 9%.
Electric margin added <unk> <unk> per share to net income compared to the year ago quarter.
As the conservation incentive program.
Combined with energy strong to Rollins.
More than offset a reduction in weather normalized volumes.
GAAP results were <unk>, <unk> favorable compared to the year ago quarter, reflecting the absence of the gas weather normalization clause reversal in the third quarter of 2020.
O&M expense was one cent per share favorable compared to the year ago quarter.
And nonoperating pension expense was <unk> <unk> per share favorable compared to the third quarter of 2020.
Lastly tax expense was <unk> <unk> favorable compared to the third quarter of 2020, driven by the timing of taxes to reflect <unk> lower estimated annual effective tax rate.
Due to higher tax flow backs in 2021.
This impact is expected to reverse next quarter when PSEG final.
Actual tax rate for the year.
Moving to sales for the quarter the weather for the third quarter of 2021 was 4% warmer than the year ago period.
22% warmer than normal was significantly higher than normal number of hours at 90 degrees or greater.
On a trailing 12 month basis weather normalized electric sales were flat.
Gas sales were up nearly 2%.
Growth in the number of both electric and gas customers rose by approximately one 5% each versus the third quarter of 2020.
Ralph mentioned earlier, the stabilizing impact of the conservation incentive program now fully in effect for both electric and gas margins resetting those margins to a baseline level.
Going forward about 85% of our electric distribution about 90% of gas distribution will be stabilized via this mechanism.
Which will still pass through the variation in the actual number of customers.
<unk> capital program remains on schedule.
<unk> invested approximately $670 million in the third quarter aggregating to $1 $95 billion year to date through September.
This capital as part of 2021 to $2 7 billion electric and gas capital program to upgrade transmission and distribution infrastructure 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 time frame.
We have raised <unk> forecast of net income for 2021.
Two $1.430 billion to $1.480 billion.
From $1 $420 million to $1.470 billion.
Now moving to power.
Power reported a net loss of $1 billion $933 million or $3 84 per share for the third quarter of 2021.
Non-GAAP operating earnings of 119 million or <unk> 23 per share.
And non-GAAP adjusted EBITDA of $237 million.
This compares to third quarter 2020, net income of $254 million or <unk> 51 per share non-GAAP operating earnings of $167 million or <unk> 33 per share.
And non-GAAP adjusted EBITDA of $349 million.
Non-GAAP adjusted EBITDA excludes the same items from our non-GAAP operating earnings measure as well as income tax expense interest expense depreciation and amortization expense and the benefit of net operating loss purchases, which are included in net income.
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 for over quarter.
We've also provided you with more detail on generation for the quarter and for the year to date 2021 on slide 24.
Power's third quarter non-GAAP operating earnings were <unk> 10 per share lower than third quarter 2020 results.
Contracting of tower market impacts reduced results by <unk> 11 per share.
As the seasonal shape of hedging activity and higher cost to serve load versus the year ago quarter lower gross margin.
The sale of the solar source portfolio earlier in the year also lower gross margin results by <unk> <unk> compared to the year ago quarter.
The retirement of Bridgeport Harbor three.
On May 31.
Power's last coal unit, lower new England capacity revenues by a penny per share versus the third quarter of 2020.
Gas operations were lower by <unk> <unk> per share, reflecting the absence of a pipeline refund received in last year's third quarter.
O&M expense lowered results by a penny per share compared to the year ago quarter as higher nuclear costs were partly offset by lower solar expenses.
And lower depreciation expense associated with fossil assets moving to held for sale accounting status.
The sale of the solar source portfolio.
And the early retirement of Bridgeport Harbor.
Combined with lower interest expense to add <unk> <unk> per share versus the year ago quarter.
Lastly, taxes and other items were a penny per share unfavorable compared to the third quarter of 2020.
Gross margin in the third quarter of 2021 was $28 a megawatt hour compared to $33 a megawatt hour for last year's third quarter.
This decline reflects the seasonal price impact of re contracting including.
Including the third quarter's anticipated higher portion of the $2 per megawatt hour annualized price decline and the hedged portfolio.
We expect to re contracting results in the fourth quarter of 2021.
To moderate from Q3 levels.
Now, let's turn to PSEG Power's operations with total generation output of 14, nine terawatt hours matched the output of third quarter 2020.
Power's combined cycle fleet produced six eight terawatt hours of output in response to higher market prices.
The nuclear fleet operated at an average capacity factor of 94, 8% for the quarter.
<unk> eight one terawatt hours.
Which represent 54% of total generation.
For the balance of 'twenty, one totaled baseload and combined cycle generation.
<unk> forecasted to be 12 to 14 Terawatt hours.
85% to 90% at an average price of $32 per megawatt hour.
Our third quarter activity included the announcement of the fossil sale to Arclight in August of this year.
As previously mentioned PSEG fossils assets have been reclassified to held for sale as of the date of the sale of the announcement.
This change was prompted the cessation of depreciation and amortization expense for these held for sale units and.
And resulted in a favorable impact to GAAP and non-GAAP operating earnings for.
Through the close of the sale and contributed to the increase of our 2021 full year non-GAAP operating earnings guidance.
Power has raised the forecast for non-GAAP operating earnings for 2021.
To $3 $65 million to $440 million from $350 million to $425 million.
Our estimate of non-GAAP adjusted EBITDA has also been raised to.
$870 million to $970 million.
From $850 million to $950 million.
Now, let me briefly address operating results for enterprise and other.
Where for the third quarter, we reported a net loss of 20 million or <unk> <unk> per share compared to net income of 8 million or <unk> <unk> per share for the third quarter of 2020.
The non-GAAP operating loss for the third quarter was 13 million or <unk> <unk> per share.
Compared to non-GAAP operating earnings of <unk>, 8 million or <unk> <unk> per share for.
For the third quarter of 2020.
Results this quarter reflected higher tax on O&M expenses at the parent versus the year ago period.
For 2021, the forecast of enterprise and other is unchanged at a non-GAAP operating loss of $20 million.
From a financial standpoint at September 30, we had approximately $3 billion of available liquidity as well as cash and cash equivalents of $1 8 billion and.
And that represented 58% of our consolidated capital.
PSEG power had net cash collateral postings of $999 million at September 30.
Related to out of the money hedge positions, resulting from higher energy prices.
During the third quarter of 2021.
It's been several years since a sustained rise in power prices has caused collateral postings of this magnitude.
Our liquidity and cash position are ample and capable of accommodating additional cash collateral postings if necessary.
Overall, our ratable hedging program remains an effective risk management tool that we implement over a rolling three year period.
Which smooth volatility in earnings through the averaging of forward sales and importantly locks in gross margin.
Turning to financings during the quarter and August <unk> issued $425 million of one 9% secured medium term notes due 2031.
Also in August PSEG entered into a $1 25 billion $3 64 to a variable rate term loan agreement.
In September power announced the retirement of its three senior notes totaling $1 4 billion on October eight.
These remaining notes were retired at a redemption price that included a make whole premium of approximately $294 million.
Following the retirement of all of its debt.
KCG powers 862, 5% senior notes due 2031 were delisted from the New York Stock Exchange effective October 18th.
Because PSEG power no longer has any registered securities outstanding will go through a process to terminated status is FCC registrar.
In October Moodys lowered the credit ratings of <unk>, and PSEG power and PSEG.
The current senior secured ratings of <unk> or <unk> at Moody's and S&P, respectively.
With stable credit outlooks from both agencies.
PSEG senior unsecured credit ratings and patient your towers issuer credit ratings.
To triple B at Moody's and S&P, respectively.
Also with stable outlooks from both agencies.
As we outlined during the Investor Conference, we raised Pseg's 2021 to 2025 capital program.
By $1 billion to a range of 15% to $17 billion.
We continue to anticipate execution of this five year capital program.
Without the need to issue new equity as we continue to offer a compelling shareholder dividend.
But the opportunity for consistent and sustainable growth.
And as Ralph mentioned, we've raised our 2021 guidance and non-GAAP operating earnings for the full year.
$3 55 to $3 70 per share.
Based on solid results year to date.
And the benefit from cessation of depreciation on the fossil assets.
So.
The initial 2022 non-GAAP operating earnings guidance of $3 30 to $3 60 per share that we provided at the Investor Conference on September 27.
That concludes my remarks, and Jesse Ralph and I are ready to take questions.
Thank you Mr. Craig Ladies and gentlemen, we will now begin the question and answer session from members of the financial community.
As a reminder, if you have a question. Please press the star key followed by the number one on your telephone keypad.
Question has been answered and wish to withdraw your request you may do so by pressing the county.
Again, Thats star one to ask a question or the <unk> to withdraw your question.
If you're on a speakerphone please pick up your handset before entering your request.
One moment please for the first question.
Speakers. Our first question is from Jeremy Tonet with Jpmorgan. Your line is now open.
Hi, good morning.
Sure.
Just wanted to start off with the nuclear PTC. If he could just wondering if you might be able to talk a little bit more about the type of support you're seeing their confidence that it makes it through to the yen and if it does maybe just kind of the impact on your business, helping de risk and if theres any possible benefit the agencies could T could have a positive reaction here if this.
Does go all the way through.
Hi, Jeremy So I feel very good about the bipartisan nature of the support for the PTC.
I would be less in Canada, I didn't express some.
Consented hesitation about the overriding piece of legislation to which it is attached.
So.
So the debate that's taking placement as you know is around two separate pieces of legislation. One is roughly one trillion dollars bipartisan bill.
The PTC is not part of that then there is depending.
Depending upon what press accounts, you believe a 175 to 185 trillion.
Bill that is is not bipartisan.
Requiring.
Reconciliation rules and full Democratic party support to get through.
But the nuclear component has has not attracted any controversy whatsoever.
I believe the estimates in that Bill is that is about $550 billion of that legislation dedicated to climate mitigation.
It's widespread recognition that if we're going to make progress it's got to be based upon the existing nuclear fleet.
Being around upon which to build that progress. So the house version is an eight year PTC rough.
Roughly speaking it targets all in.
$15 per megawatt hour of tax credits starting.
Finishing prices of $25 per megawatt hour or less.
And then there is a declining scale of the PTC benefit as as market revenues climb above 20 hotels per megawatt out where every dollar above that level <unk> PTC is removed.
Kind of gets you to a $40 per megawatt hour or so.
Outcome.
That's a pre and post tax.
Adjustments in each data set but for simplicity sake. So it's really I think great news and I think just today for example, president Biden announced.
And SLR development project in Romania that is going to be done with new scale, you should check the press accounts on that I don't want to speak for others, but it's just indicative of the support that nuclear.
Gaining in recognition of the pretty aggressive carbon reduction goals and needs to be achieved.
Yeah, Jeremy the other part of your question was.
How the rating agencies will look at it and clearly longer term support for nuclear is going to be much more valuable and much more stabilizing and then something on a shorter term basis, that's something that we have.
We have been pretty vocal about for quite some time and so I think that's a positive as well the number of years that's been <unk>.
Right into the PTC has moved around a little bit Ralph mentioned earlier, an eight year period, So we'll see where it goes.
I do think that what you have seen us increasing support.
I think universally both we saw it initially and in New Jersey, as we went through the SEC process and kind of I think folks are getting onboard in Washington, as well I don't want to beat it to death, Jeremy but in addition to that.
Emphasizing our forward looking statements I would just remind you what the history of ITC and PTC had been.
They've all had five and 10 year lifespan that have been renewed for multiple decades. So I am not at all worried about the eight year PTC.
By the way I do want to add one other thing thats happening at top 26, right now Thats great news for us.
If there is a growing consensus around a 30% reduction in methane.
By the year 2030, there is.
Today, but Fred truck with EDF in the Wall Street Journal, highlighting the importance of methane reduction and that is just incredibly supportive of our gas system modernization program and continued funding for that an extension of that so I think between nuclear.
Offshore wind and methane reduction were really quite well positioned for some important investments going forward.
Got it that's very helpful. Thanks for that maybe.
And maybe switching gears here a bit as we looked at the <unk> update in kind of the narrowing of the 22 range can.
Can you give us a little bit more color on some of the items have been coming in kind of ahead of plan this year.
Think about that those items, if they are sustainable into 2022.
Excluding the fossil settlement impact.
Yes.
I think rather than sort of front running our own guidance just by way of reminder, we do expect to narrow that.
And the real variability is around the pension.
Equity markets have been strong interest rates have been low they work against each other in terms of <unk>.
Projected benefit obligation at year end, but I don't I don't think we want to go further than that at this point in time John.
Got it just wanted to try I appreciate that.
Maybe last one if I could just thinking through the potential changes that FERC and returned to a full commission can you frame some of your expectations moving forward.
As we think about the transmission items out there in the future of the <unk>.
Yes, well in terms of future.
Thats.
Candidly become less of a concern for us within out sale.
Revenues are really the primary consideration for nuclear plants, that's not to say that.
Completely disregard.
Capacity revenues for the fleet.
Having said that our units have not needed to be mitigated according to the IMF.
They should be able to compete in that capacity market whatever that.
Ends up being.
And in the future I would say the other changes at FERC that we're eagerly anticipating is the recognition of the importance of transmission investment to carbon mitigation.
That's a little bit.
I'll, let head scratcher, when you think about.
Some of them.
Mentioned earlier this year.
Reducing <unk>.
<unk>.
For transmission Roe.
Which seems to have quieted down right now and has given way to the.
A noteworthy advance notice of proposed rulemaking, which is looking at transmission planning on a much more comprehensive basis. So.
So I just think at a high level.
Things are being discussed and taken up at FERC are favorable.
Two our business both in terms of.
Nuclear being able to participate in capacity markets states being able to.
Make renewable energy decisions.
Free of penalties from the prior version of the mobile which is important to state like New Jersey, where people otherwise would have been paying twice for offshore wind capacity, which was the.
This is significant.
The headroom on the utility Bill.
Now, we don't have to worry about.
Got it that's very helpful. Thank you.
Next question is from Julien Dumoulin Smith of Bank of America. Your line is now open.
Hey, good morning team. Thanks for the time appreciate it.
If I can keep going with Jeremy thought process here on reconciliation and prospects I wanted to just focus a little bit more on some of the complementary nature of.
Nuclear and specifically hydrogen here.
As you see the magnitude of that potential subsidy here.
And the opportunities afforded they're in how are you thinking about.
That being a complement to your current nuclear portfolio and strategy understanding there's all sorts of different nuances here, but would be curious to hear at least as you stand here today and assuming there is something that stays the course.
How could or does this fit into our future strategy.
So we're closely monitoring the progress of hydrogen Julian but to your point I mean the value of it.
To nuclear.
Ability to avoid any cycling.
The nuclear plants and being able to find yield.
Is the lack of dispatch ability of renewables and then to just continue the baseload operations in nuclear where where in some cases, the offtake or might be.
In electrolysis project or some other hydrogen create.
Creation.
And.
Yes, there is a hearing I think along this week or next week and the Senate on alternate sources of nuclear power in terms of its applicability to.
The health Sciences, and medical field, I think Theres just growing recognition of.
Nuclear as a carbon mitigate.
And the multiple ways that we need to act to keep it around and keep it vibrant whether its a PTC or.
Ore source for hydrogen creation or medical science.
Yes.
By no means we want to be a Scott to the party I do think that there needs to be much more conversation around the safety of large scale hydrogen generation than we're seeing right now and.
In various forums.
Ill.
That's that's an engineering challenge.
Other engineering challenges I'm sure their solutions, but that doesn't need to be discussed much more prominently than it's getting attention right now.
And maybe related to this if I can.
Are you thinking about just hedging I heard your comments on collateral postings earlier, but how are you thinking about taking advantage of the current commodity deck and or frankly, any other shall we say long term contracting opportunities that might be arising whether that script data centers looking above and beyond hydrogen opportunities I mean, certainly we havent seen as robust as you say.
Commodity environment.
Yes.
The crypto stuff is a little bit more niche opportunities.
You should think about what we're doing as being aligned with what we've talked about in the past I mean, we still think that.
That's a multiyear hedging program for Baseload power such as nuclear it does makes sense, what you saw with them some of the numbers that we provided.
Align very closely to if you were to just step back over time and take a look at where forward prices have done for the years that we've hedged and take a look at those types of prices that it's consistent with exactly what.
What we have told you that we have done on that front.
We've always talked a little bit too about the fact that.
Well that's a.
General range there is some.
A little bit of a range around what we can hedge as we go through those times and so.
Like what we've seen more recently, it's been a little bit more activity to try to capture some of those prices, but if you think about it over the long run it over a three year hedging periods youre not going to be able to move the needle that much with respect to what.
What's been done.
On the nearer term and as you step out while prices are a little bit backward dated and if there's maybe a little bit less of an opportunity.
You went into a little bit of a challenge on liquidity. So we seek to capture some of these higher prices absolutely.
But should you anticipate that it's going to have a very big move of the needle I think against the backdrop of a base of hedges that we have.
And the backwardation and some liquidity challenges on the backend it will be more moderated.
Of an impact.
Got it excellent team best of luck see you soon thank you. Thanks Joan.
Next question is from Shar <unk> Guggenheim Partners. Your line is now open.
Hey, good morning, guys.
Correct.
So just not to beat a dead horse, but just starting on the nuclear side for Sac and <unk>.
Obviously, you highlighted the PTC opportunities and potential upside from federal nuclear incentives I'm, just curious over the long term right as youre thinking about the portfolio could sort of federal policy can that change your view on keeping these assets over the long term or could there still be a better steward of your nuclear capital.
As you move towards becoming essentially a pure wires business with offshore wind Optionality sure sure no. It's a fair question.
It's really TBD.
I think the more we can make the nuclear fleet look like a regulated asset.
Combination of predictable cash flows.
Since then as that would be something that investors would view, we're consistently within the predictable earnings streams of our regulated business.
But I think we'll do is we'll let investors tell us right.
I've not been quiet about the fact that I think given our strength of our balance sheet. The security of our dividend the lack of a need for equity the growth in our rate base. The regulatory relations we have.
I think we're premium utility.
Im not showing up in our valuation yet so we will get there.
And then the question will be is nuclear.
An adder to that ESG profile, which further enhances our premium status or.
Not in and we will be guided by our investors to do that but our number one objective is first of all safe nuclear operations. We've achieved that our number two objective is long term economic viability of those plants I think we're on we're on the cusp of that and then low then we will be able to better answer the important question that you raised.
So I'm not trying to duck it I'll just.
Rest assured it's foremost in our thinking too.
No no I think that's a fair point I mean, that's a paraphrase that its obviously more to come in and you are sensitive to I guess investors ascribe value to these assets.
There was a terminal okay perfect that was.
That was the first question and then just lastly.
As we're thinking about the strong performance in 'twenty. One are you starting to see some O&M flex being carried into 'twenty. Two are you do you have sort of that ability to pre fund some of the work going into the tail end of 'twenty, one that creates some contingency to execute in 'twenty two as we're thinking about bridging from.
21, being a relatively strong year into 'twenty two.
Well, there's always a little bit on the margin, but it's not.
The last thing you want to do to.
Massive work management plans.
Abandonment extend them on their head right. So.
You would not change the nuclear issue.
Outage plan you wouldn't you wouldn't change a major maintenance on.
On large transmission assets.
Can you move some tree trimming up because the first for us hasnt hit yet.
But you are still on a four year cycle. So so theres some theres some incremental stuff that you can do but.
Not big items.
Got it terrific. Thanks, guys seen it seen a couple of days I appreciate it.
Sure.
Next question is from drew guest Chopra of Evercore ISI. Your line is now open.
Hey, good morning. Thank you for taking my question, Ralph and Dan just.
You mentioned the.
I just wanted to get more clarity on the proposals.
You submitted.
With the CPU in PJM in conjunction are those transmission solutions or is it a combination of some.
Sure wind wood transmission.
So they are both there.
That primarily.
Offshore wind too.
First of all create a grid out in the ocean that connects the seven five gigawatts that are planned.
Secondly to bring.
That onto land and third is the upgrades that the needs as Ottawa and to support this injection of new supply, but it's it's dominated by the.
<unk> that there'll be an additional four gigawatts of offshore wind developers in new Jersey, but just for clarity to guests that they are both on land and at sea, but the proposals are not both generation and transmission that is only a transmission solution. So new Jersey is about halfway through the awards that <unk> had towards their goal of.
7500 megawatts.
The actual generation of the turbines.
So this is essentially an effort to seek.
Getting that power back to shore. So it is not incremental generation. This.
Effort that the Btu in conjunction with PJM is pursuing it as just a transmission solution, but it's both.
Perfect I appreciate that clarity so it is regulated transmission.
In addition of onshore and offshore that thank you for that can you size that for us again in the.
Ralph you've previously talked about nine figure number in terms of transmission investment opportunities. What are we talking about in terms of the size of these proposals.
When could we see you learned these projects.
And to your Capex plan if approved.
Yes.
No other nine figures, it's about 10.
And.
Schedule is.
Not been carved in stone, but what's been said.
By PJM is that they would expect to make their technical assessment known to the New Jersey Btu sometime late in Q1 early Q2 next year.
The GPU set that they will probably take six months to evaluate that and naturally it would not be decided prior to Q3.
But they are motivated.
To try to make a decision before Q4.
Cause the next solicitation of offshore wind farms.
The supply piece are due at the end of next year. So.
Hope would be that delivers bidding in offshore wind farm for the next tranche would have the benefit of knowing what transmission resources would be available to them.
Got it so it sounds like.
Q4, 'twenty correct and then any.
Sort of guidance on capital dollars, where may be you might be looking at these opportunities are these initial opportunities either.
Yeah.
They range in size.
And as I said it is tend to figures.
It doesn't round to 11.
It would stay in the 10 figure range, but it really does depend on which or how many.
That were the case of our proposals.
The btu in PJM or to embrace.
The only other thing I would mention too that maybe helpful. Digestion is that if you think about the timing for the capital this would run towards the back half of the decade from it and service perspective.
If you are kind of in the two.
2028, and 2029 ish kind of a timeframe.
<unk> and service.
Youre going to see some of that capital to come in over a somewhat longer period of time.
Understood.
We shared the detail and color there guys. Thank you so much.
Next question is from Paul Peterson of Glen Rock Associates. Your line is now open.
Hey, Good morning, Hi, Paul April.
Just to sort of.
Follow up on those questions.
We spoke to the.
Two the Capex as I recall, there was a potential for a few D C.
Is that still the case.
For the offshore wind transmission projects, yes, there absolutely will be Paul sure.
And so and I.
Just was wondering you got a number of projects I realize that it's all sort of very early but.
When you talk about the range could you give us maybe pause.
On slide <unk>.
What the range from the low end to the high end might be.
Or is that just too early.
Are you talking about from the standpoint of investment potential yes, yes, I mean, I think it is a little hard to tell by virtue of a couple of things one.
<unk> recently submitted and Ralph gave you the timeline for when we will start to get a determination of.
We feel very good about our proposals, but it's unknown exactly what's going to come back and on top of that there are a series of different proposals that are out there and so the the prospect of all of them actually being part of the solution.
As unlikely and so youre going to get piece parts.
You don't know what they're going to do from a standpoint of magnitude of bidders. So I think it's it's early and it's just a little bit tough to gauge.
Do think as I said I think we have a solid position with respect to what we have submitted.
But that said, it's tough to tell exactly where they're going to go with the solutions they see.
And how widely distributed.
Have you seen proposals from other parties, both so far.
We have not seen others proposals, but we have seen is that the.
Magnitude of proposals that are in.
On the stage I think the number was 79 proposals et cetera.
Players that are involved we submitted ourselves.
Nine different proposals.
So that gives you some indication as to there is a lot of potential different ways to get at with the <unk>.
Problem that they are trying to solve is.
So they will have to analyze all of that.
From a cost runoff.
Operation standpoint to make that determination.
And then with respect to the technical assessment that PJM is going to be making.
That's gonna be just simply given to the GPU or is that going to be widely provided to people like us.
Yes.
Yes.
I suspect it will be just given to the VP of it because the <unk> is a decision maker here.
<unk>.
Whether or not to be pure makes that public or not remains to be seen I mean typically.
The board doesn't.
Revealed the detailed scoring.
Its assessment of projects.
Just out of the winter.
Okay.
I really appreciate it my other questions have been answered. Thanks, so much have a great one.
Thank you Paul.
Next question is from David Arcaro of Morgan Stanley. Your line is now open.
Hey, good morning, Thanks for taking my question.
Yeah.
<unk> posted a good customer growth this quarter one 5%.
Electric and gas I was wondering if you could remind us kind of how that compares to your longer term assumptions for for.
The increase in the customer count over time.
Its comparable.
We're in that range with maybe just a hair below that on an ongoing basis I think it's kind of been around a 1%. It's something that we do update on a regular basis.
Upon the data that we get regularly but.
It's a little bit lower than that but we do see customer growth going out into the future.
Okay got it that's helpful. And then I was wondering if you could just.
Talk about heading into the winter for the guest.
With what we've seen natural gas prices do could you talk about the pressure on the customer bill heading into this year, maybe how are you.
Have been hedged into the winter heating season anything any kind of relief.
Or strategies that you're pursuing.
For managing that customer bill increases here over the next couple of months.
Yes, so David I think that is.
The mechanisms that are in place or are there and do protect the customer pretty well both on the electric and gas side, because obviously when gas prices go up you see the effect on the electric prices in so.
What we have and we actually referred to with our remarks is.
Our ability to put forth a 5% increase on a commodity component of the bill.
Two times during the year and so there is a because of some timing and some.
Kind of a technical.
Technical aspects of work through the.
The utilities in the state are looking through the ability to do that so you can think about that on the gas side as being 5% or 5% as of June.
Just the.
The supply side of things that you may end up saying and then more.
Most customers I think on the on the electric side.
The best model to think about is the provider of last resort contract with Etfs and so what folks are paying now.
Our prices that were established this past February the.
February before February before that on a one third one third one third basis and so nothing will change from a residential standpoint until we get to <unk>.
Next year.
And the auction that will come this February.
Get put in place next June.
We'll get put in place for one third.
That will roll off.
The remaining two thirds will be sticky from the prior to auction. So that has a mitigating effect as well that mechanism as a mitigating effect as does the fact that if you think about some of the most current prices.
On the electric side, they are higher for the current year for the upcoming year than they are for the following couple of years, we've got a backward dated curve and so that.
That auction in February we will cover three years forward, which will have a higher priced year for 2022. If you just look at the forwards and in lower as you go into 'twenty, three and 'twenty four.
All to say that that also has a very moderating effect.
How this stuff will ultimately flow through to the customer bill. So if we are.
In a position where prices like we're seeing now are sustained for the longer term, obviously that would all work its way down to the retail customer but.
If anything it's shorter lived youre going to see less of an impact because of those mechanisms that I described.
Okay got it that's helpful. Thanks, so much.
Next question is from Michael Lapping of Goldman Sachs. Your line is now open Hey, guys. Thank you for taking my question I want to come back the transmission for offshore wind.
Your proposal is both for an offshore and onshore component.
I'm not entirely sure I understand that.
When I think about the onshore component does the utility.
Where this where the substations are where.
<unk> are being blamed it effectively where the substation where the capacity is first hitting onshore is that the utility that probably has a competitive advantage for the approval or the grant to build out the onshore transmission.
Yeah, Michael So we put forward a series of proposals that came.
Used in a comprehensive manner.
The witness all without proposals their alternative options that are in there and they can also be mixed and matched with proposals made by others.
So we tried to create is robust.
Set of options for PJM in the GPU as was possible.
Yes, the short answer to your specific questions. Yes, there are some onshore advantages to being the landing point.
From a right away point of view as an example.
But beyond that.
It's really just a question of.
What are the past lengths.
Are your relationships with suppliers and your ability to manage the work can be cost competitive.
What do those right of ways look like with respect to environmental permits and other issues that will come up so.
So right now.
I guess technically the short answer is yes, there are some advantages but.
By no means assured victory for whoever that.
Substation longer.
Got it thank you much appreciated.
Next question is from Jonathan Arnold from vertical research. Your line is now open.
Good morning, guys, Hi, Joe Hi, Joe.
Quick hedging question.
And the disclosure you say that.
90% of the gross margin for 'twenty, two is locked in via energy capacity and Zacks.
Curious whether the percentages.
Prices that you then get.
22, three and four.
On that basis or is that just energy.
Okay.
From the.
When you then say 90% of the 29 22 75 to 80 23 as I sort of on a full gross margin basis or are those just the percentage of the baseload output.
Oh I got you yes.
Our energy based challenge your basic energy.
The capacity auctions for some of the outer years right.
That number is really just look at energy rather than energy and capacity.
You got it that is correct, yes, okay.
That was really like everything else.
Thank you.
Great.
Thank you participants that is all the time, we have for questions.
Mr. Craig you May now continue with your closing remarks, great. Thank you Jessie and thanks, everyone for joining us today.
I know that.
Alright.
We will see a bunch of you.
Dan and Carlotta, Bryan and Ralph Larosa will be with you and warm and Sunny, Florida, I am off to Chile, and Twizzlers, Glasgow Holdup I am looking forward to I think to some important things to be done there will be arguing and helping the administration argue for significant reductions in carbon.
Significant support for all of the things that we are advocates of from energy efficiency to offshore wind and nuclear and a variety of other things.
Using methane reduction so.
I will Miss you, there, but we'll catch up with many of you at upcoming virtual conferences. So thanks again for joining us today take care.
Ladies and gentlemen that concludes your conference call for today. Thank.
Thank you all for participating you may now disconnect.
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Yes.
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Okay.