Q1 2022 Public Service Enterprise Group Inc Earnings Call
Per share by over 7% above first quarter 2021 results.
And following the February fossil sale close we are reporting results from our non utility activities.
Under the heading carbon free infrastructure and other or CFO .
For the first quarter of 2022, <unk> reported a net loss of $1 <unk> per share driven by the same mark to market adjustments and non-GAAP operating earnings of 32 per share.
This compares with 34 per share for both net income and non-GAAP operating earnings for the first quarter of 2021, which once again included results from the divested fossil assets Slide 11 details these results for the quarter.
<unk> customer satisfaction scores reflect our commitment to safe and reliable service achieve.
Achieving top quartile performance in all six factors of measurement among large utilities in the east in the J D power first quarter 2022 residential electric study.
The statewide moratorium on shut offs for residential electric and gas service was lifted in mid March and.
In late March New Jersey passed legislation that provides protection from shut offs to customers who have applied for payment assistance programs by June 15th 2022.
Customers, who apply for assistance will be protected from shut offs, while awaiting their application determination.
<unk> in partnership with the New Jersey Board of public utilities and community groups has stepped up efforts to help customers in arrears enroll in the readily available payment assistance programs, such as USS and light heat as well as providing deferred payment arrangements. We recognize the continued economic.
Strain that the pandemic has brought to many of our customers.
We will continue to work with empathy as we conduct our collection efforts.
We continue to make progress on our infrastructure Advancement program, a proposed four year investment in the last mile of our electric distribution system to address ageing substations and gas metering and regulating station and to integrate electric vehicle charging infrastructure at our facilities to support the electrification of PSC.
<unk> vehicle fleet.
The discovery phase responding to inquiries from <unk> staff and rate counsel is coming to conclusion in confidential settlement discussions are scheduled to begin within the next week.
We continue to expect based on the current procedural schedule that final <unk> action will take place this fall.
With the fossil sale completed on February 23rd PSEG will continue to focus on regulated growth and powering a future where people use less energy.
It's cleaner safer and delivered more reliably than ever before.
As you know last September PSEG committed to United Nations backed race to zero campaign pledging to develop and submit our emission reduction goals consistent with the objectives of the Paris agreement to limit global temperature increases to one five degrees Celsius or less what are known as science based targets.
Slides five and six detail out a five year, 15% to $17 billion of capital spending program and show the spending in various categories. The majority of which supports our business ambition for one five degrees.
Either through direct carbon emissions reductions energy efficiency or climate adaptation.
The business ambition for one five degrees includes a net zero by 2030 goals as well as keeping our emissions targets across all three scopes within the one five degree limit consistent with the Paris agreement.
Essentially the business ambition for one five degree C will use science to validate pseg's net zero commitments to inform needed investments and our resulting growth opportunities.
We are fully engaged in developing a plan to staff with technical advisors and internal teams that are preparing to submit our targets to the science based target initiative by the end of this year, which is well ahead of the fall 'twenty three time frame required.
Based on our initial carbon inventory, our scope, one and scope two emissions comprise roughly 15% of our total carbon emissions.
Our challenge one that we embrace is to address our largest submissions category, which falls under scope three.
Largely downstream customer use of our energy products that also includes the emissions profiles of our upstream suppliers.
Our various capital programs support our climate vision and net zero 2030 goals by addressing decarbonization with with gas infrastructure replacement, expanding our energy efficiency programs, which can also lower customer bills integrating climate adaptation and resiliency design into our systems.
Supporting the electrification of transportation preserving carbon free nuclear generation and investing in offshore wind infrastructure. In addition to our base spending.
With an improved business mix and an already compelling environmental social and governance profile. We are confident that we are creating shareholder value by growing our rate base and alignment with new Jersey's clean energy goals as well as our business ambition for one five degree centigrade helped.
Helping to enable a lower carbon in competitive New Jersey economy.
Over the past several weeks and months energy prices have risen to levels not seen a sustained and many years utility customers around the country have been experiencing commodity price increases in the electric and natural gas bills for the first time in a decade.
<unk> customers have benefited from the price moderating effects of new Jersey's electric and gas default supply mechanisms.
Known as basic generation service or Bgs.
And basic gas supply service or BG SaaS.
On the electric side, PSE and G contracts, where it's expected bgs load on a three year rolling basis in.
And each year, one third of the load is procured for a three year period.
When the new Bgs rate goes into effect. This June one I'll.
Electric bills will actually declined by two 8%.
Owing to a significant reduction in actual versus assumed PJM capacity costs.
On the gas side, the Btu permits PSE and G to recover the cost of natural gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements.
Through the Bgs tariff.
<unk> June we make the filing for our anticipated bgs's cost to go into effect in rates before the upcoming winter season, and that filing will be driven by market prices at that time, and then shoot up for actual cost overtime.
On the nuclear side of the business, we are essentially fully hedged in 2022, and 2023 and approximately 50% hedged in 2020 for.
While the energy price increase is helpful to nuclear and the long term.
We continue to monitor pricing together with impacts from rising interest rates adverse financial market conditions impacting future returns for our pension trust.
As well as general inflationary pressure and the broader economy, covering labor and supply chain materials.
Collective of these factors, we remain confident in our multi year, 5% to 7% EPS CAGR to 2025.
On a related note we have seen a positive shift in public sentiment in support of nuclear power and its carbon free energy security attributes since the Russian invasion of Ukraine.
And we remain hopeful that a tax incentive to preserve the economic viability of nuclear generation can be passed in Washington that provides a floor price needed to sustain these carbon free resources over the long term.
The Department of Energy recently opened its first funding window to help struggling nuclear plants with the civilian nuclear program.
None of our nuclear units qualified for deal with funding on the under the initial criteria, we will endeavor to obtain the maximum benefit for our nuclear units from the Doa program should we qualify in future rounds.
However, we do not believe that the Doe Grant program provides sufficient revenue stability or visibility needed to make longer dated fuel and license extension decisions.
In late February the nuclear regulatory commission the NRC reverse the previously granted subsequent license renewal for Peach bottom units two and three.
The NRC is requesting an updated environmental reviews that addresses the impacts of extending the operating licenses by 20 years.
In the interim the NRC has rolled back the license expiration dates for Peach bottom two units two and three to $2 33 in 2034, respectively.
Moving to offshore wind the New Jersey Btu hosted a series of four public meetings in March and April as part of its ongoing evaluation of bids submitted in its offshore wind transmission solicitation.
Better known as the state agreement approach or SAA process.
The meeting solicited public input on topics, including integration with offshore wind generation projects environmental effects, permitting and ratepayer protections and cost controls.
We participated in each of the four public meetings to advocate for us emissions.
And submitted our formal comments to the Btu on April 29.
In support of our coastal wind link partnership with <unk>.
The solutions, we submitted ranged from single collectors at various landing points.
Two are linked to transmission network out in the ocean and could range in an investment opportunity for us from $1 billion to $3 billion of selected.
Now, let me turn my attention to guidance for 2022 are.
Our regulated investment programs are producing predictable utility growth.
And the conservation incentive program or Sip as we often refer to it as.
As effectively minimizing variations on electric and gas revenues.
The rollout of our energy efficiency programs and other impacts including weather.
We are on track to execute <unk> $2 9 billion dollar 2022 capital spending plan, which is part of Pseg's five year $15 billion to $17 billion.
Capital plan through the year 2025.
Over 90% of this capital program is directed towards <unk> and is expected to produce a 6% to seven 5%.
Compound annual growth rate in rate base over the 22 to 25 period.
Starting from our year end 2021 rate base of approximately $25 million.
While the first quarter results reflect a lower regulated contribution in the 90% we outlined at our September 2021 Investor Conference.
This is due to the favorable first half of 2022 cost comparisons at <unk> operations from divestiture activity, Dan will go into more detail on those drivers during his review.
Nonetheless, we continue to see the full year shaping up consistent with our 2022 non-GAAP operating earnings guidance.
$3 35 to $3 55 per share.
And for each of <unk> and <unk> as I said, a moment ago. We continue on track for our multiyear EPS growth rate of 5% to 7% from the 2022 guidance mid point to 2025.
Now, let me wrap up my comments by mentioning to you what you've all heard by now that I will be retiring as CEO and president of PSEG on September one.
But I will stay on as executive chair of the board until the end of the year.
As part of our planned leadership succession. The PSEG Board of Directors has selected Ralph Larosa to be the next president and Chief Executive Officer.
<unk> September one and Ralph will then assuming the additional responsibilities of chair of the board in the new year.
Most of you are familiar with Ralph and his incredible operating experience that is guided PSE and G and generating business over the course of my tenure as CEO .
I have every confidence that the other Ralph as we often refer to him will continue the strong heritage of this 119 year old organization and lead its bright future.
Now I'll turn the call over to Dan for more details on our operating results and will be available for your questions. After his remarks.
Thank you Ralph and good morning, everyone.
As Ralph mentioned for the first quarter of 2022 patient.
<unk> reported a net loss of under a penny per share primarily related to the mark to market adjustments and non-GAAP operating earnings of $1 33 per share.
We've provided you with information on slide 11 regarding the contribution to non-GAAP operating earnings by business for the first quarter of 2022 and slide 12.
The waterfall chart that takes you through the net changes quarter over quarter and non-GAAP operating earnings by major business.
Let's start with <unk>.
<unk> first quarter 2022, non-GAAP operating earnings improved by <unk> <unk> per share over the prior year's quarter.
<unk> rate base additions from our investment programs in the gas system modernization program and the implementation of the conservation incentive program.
Compared to the first quarter of 2021 transmission was <unk> <unk> per share unfavorable reflecting the implementation effective August of 2021 of the settlement agreement of our transmission formula rate, including a lower return on equity, partly offset by growth in rate base.
For distribution.
Gas margin improved by eight cents per share over the first quarter of 2021.
Half of which was driven by the scheduled recovery of investments made under the gas system modernization program.
With the balance reflecting growth in the number of gas customers and the true up from the conservation incentive program.
Electric margin rose by two cents per share compared to the first quarter of 2021 also reflecting a higher number of customers and the implementation of this mechanism.
The ship was not in effect in last year's first quarter for either gas or electric distribution.
Other margin primarily related to appliance service was <unk> <unk> per share favorable compared to the first quarter of 2021.
Higher O&M expense was <unk> <unk> per share unfavorable compared with the first quarter of 2021, reflecting timing in various costs higher depreciation expense reduced results by a penny per share.
Fucking higher plant in service.
Lower pension expense added a penny per share compared to the first quarter of 'twenty one.
In addition to the impact of <unk> $500 million share repurchase had a <unk> <unk> per share benefit in the first quarter of 2022.
Flow through taxes, and other items had a net unfavorable impact of a penny per share compared to the first quarter 'twenty one.
Was more favorable than we will see over the remainder of the year driven by the use of an annual effective tax rate.
Winter weather in the first quarter of 2022.
Measured by heating degree days was slightly colder than normal.
As a result of implementing the Sep.
<unk> and whether positive or negative now have a limited impact on electric and gas margins, while enabling a widespread adoption of <unk> energy efficiency programs.
For the trailing 12 months ended March 31.
Weather normalized electric sales reflected lower residential sales.
Or by four 8% and three 2% respectively.
At higher C&I sales.
By three 3% and two 8% respectively.
As more people return to work outside the home.
Growth in the number of electric and gas customers remain positive by approximately 1% during the trailing 12 month period.
Yes, Angie invested $656 million during the first quarter and is on track to execute its plan 2022 capital investment program of $2 9 billion.
Which includes infrastructure upgrades to transmission and distribution facilities.
As well as the continued rollout of the clean energy future investments in energy efficiency.
Energy cloud or smart meters.
In the electric vehicle charging station infrastructure.
Yes, Angie as forecast of net income for 2022 is unchanged at $1.510 billion to $1 billion $560 million.
Moving out to carbon free infrastructure and other or CFO , we reported a net loss of $511 million or $1 <unk> per share for the first quarter of 2002, and non-GAAP operating earnings of $163 million or <unk> 32 per share.
This compares to first quarter 2021, net income of $171 million or <unk> 34 per share and non-GAAP operating earnings of $173 million or <unk> 34 per share which included the results of the divested fossil assets.
For the first quarter of 2020 to.
Electric gross margin declined by 27 per share primarily due to the completed sale of the 6750 megawatt fossil portfolio in February 2022, and the sale of solar source.
This reduction in gross margin also includes re contracting approximately eight terawatt hours of nuclear generation at a $3 per megawatt hour lower average price.
Higher margins from gas operations of <unk> <unk> per share compared favorably with the year earlier quarter.
Year over year cost comparisons were better by <unk> 21 per share due to the divestitures driven by lower O&M depreciation and interest expense that will mainly benefit first half 2022 results.
The third and fourth quarters of 2021.
Reflected the sale of solar source in June .
The cessation of fossil depreciation due to held for sale status from August onwards, and.
And the retirement of PSEG Power's outstanding debt in October .
Taxes, and other was favorable to the tune of <unk> <unk> per share versus the first quarter of 2021 and parent activity was one cent per share unfavorable reflecting higher interest expense.
I also want to make one point on the NRC decision to revert the peach bottom two and three licenses to 2023, and 2033 and 32034, respectively that Ralph mentioned earlier.
Cause the NRC anticipates that it will complete its environmental analysis before 2033.
And we believe the licenses will be updated to the previously extended lives of 2053 in 2054 PSEG has not adjusted the useful lives of the units and we'll continue to depreciate the assets through that period.
On the operating side.
Nuclear generating output increased by over 2% to eight four terawatt hours.
Reflecting the absence of the coast down to Oak Creek Spring 2021 refueling.
The full availability of Hope Creek during the first quarter of 2022 helped the nuclear fleet operated at a capacity factor of 100% first quarter.
<unk> is forecasting generation output of 21 to 'twenty three terawatt hours for the remaining quarters of 2022.
And has hedged approximately 95 to one 5% of this production at an average price of $28 per megawatt hour.
For 2023, Pseg's forecasting nuclear Baseload output of 30 to 32 Terawatt hours.
<unk> 95 to one 2% of this output at an average price of $30 per megawatt hour.
And for 2020 for PCT is forecasting nuclear Baseload output of 29 to 31 Terawatt hours is hedged 50% to 55% of this output at an average price of $31 per megawatt hour.
The forecast of non-GAAP operating earnings for carbon free infrastructure and other is unchanged at $170 million to $220 million for 2022.
This guidance excludes results related to the fossil assets sold in February 2022.
As all free cash flow generated in 2022 from the fossil operations prior to closing.
Translated into an adjustment to the final purchase price.
With respect to financing in March of 2022, PSEG and PSEG power consolidated their revolving credit agreements into a master credit facility with total borrowing capacity of $2 75 billion.
With an initial PSEG sub limit of $1 5 billion and an initial PSEG power supplement of one 5 billion.
PSEG supplement includes sustainability linked pricing mechanism with potential increases or decreases depending upon performance relative to targeted methane emissions reductions.
In addition, <unk> expanded its existing revolving credit agreement to provide for $1 billion of credit capacity.
Both facilities are extended through March of 2027.
As of March 31, Pseg's total available credit capacity was $3 2 billion.
In addition to approximately $1 6 billion of cash and short term investments on pseg's balance sheet inclusive of $910 million at <unk>.
As of March 31, our liquidity position reflects the repayment of a $500 million PSEG term loan at maturity in March repayment.
The repayment of the $750 million PSEG term loan due in may of 2022, and $500 million of capital being returned through share repurchases.
PSEG power had net cash collateral postings of $1 5 billion at March 31.
Related to out of my hedge positions from higher energy prices during the first quarter of 2022.
Collateral postings have continued to increase subsequent to March 31, as power prices have continued to rise at the end of April PSEG power had net collateral postings of approximately $2 6 billion.
The majority of this collateral relates to hedges in place through the end of 2023 and is expected to be returned to PSEG power as it satisfies its obligations under those contracts.
In March of 2022, PSEG power closed on a $1 5 billion variable rate three year term loan three.
To re lever power after redeeming all long term debt outstanding prior to the sale of our fossil fleet.
<unk> Angie we issued our first green bond in March of 2022, consisting of $500 million of secured medium term notes due 2032 under <unk>, new sustainable financing framework.
And subsequent to March 31, PSEG entered into a $1 5 billion variable rate term loan and PSEG power closed on LC facilities totaling $200 million.
Lastly, we have successfully implemented our $500 million share repurchase through $250 million of open market purchases completed earlier in 2022, and an accelerated share repurchase program for the remaining amount that will be completed no later than June of 2022.
We are reaffirming <unk> 2022, non-GAAP operating earnings guidance of $3 35 to $3 55 per share with regulated.
Operations contributing approximately 90% of the total.
For the full year of 2022, <unk> net income is forecasted at $1.510 billion to $1.560 billion non.
non-GAAP operating earnings for CFO was forecasted at $170 million to $220 million.
<unk> 2022 earnings guidance excludes financial results from the divested fossil assets and includes the additional interest expense related to the recent financings.
That concludes our formal remarks and with that we're ready to take your questions.
Thank you and 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 Star then the number one on your telephone keypad.
<unk> has been answered and you wish you would you argue Hollywood you.
You may do so by pressing the pound key.
<unk> you speak up your handset before answering your question one moment. Please for the first question.
The first question comes from the line of Nicholas Coppola from Credit Suisse. Please proceed with your question.
Yes.
Hey, good morning, everyone and congrats to Ralph and Ralph.
Good morning, good morning there.
Yes, absolutely.
So hey, just on the higher energy prices.
Great to see customers well insulated.
Bgs and I guess, just as it translates to your unregulated nuclear business Youre, partially opened on 24 power prices are higher.
Then where the current hedges are today I think you mentioned in your prepared remarks that this is helpful to nuclear over the long term.
So I'm just curious like how has this changed your thinking or your calculus at all in how Youre thinking about the long term ownership of the nuclear fleet.
No Nick.
We are sticking by the three part.
Plan that we've had in place which is that.
<unk>.
What we really want to see is action in Washington.
Or failing that in new Jersey.
That provides more.
More stability over the long term to the revenue stream that nuclear can expect these grew production tax credit or.
And emissions credits.
Along the lines about zech.
And up and at that point in time, we will we will we will reach a conclusion as to what.
The logical long term positioning of those assets should be or we are the logical owner or somebody else's logical owner, but.
But we do think that.
Current markets might make it easy.
Each year candidly in Washington to score a production tax credit in terms of the impact on the federal budget and certainly.
That would be helpful in new Jersey to reduce the pressure on new Jersey customers.
But but.
We're still right now in that phase II of trying to assess how we can get the long term solution.
And eliminate some of the volatility that that I know, our investors and our fans of in terms of the wholesale tomer.
That's great I appreciate that color and if I.
I can just shift to offshore wind quick.
And just.
<unk>.
The New York REIT auctions, we definitely saw some impressive comps out there now and just thinking about your unused lease beds, specifically the garden state JV with or instead, it's our understanding that the Skipjack award is out there and.
Those lease areas might be potentially used for skipjack, but.
I'm just.
Question on just overall kind of commitment to the offshore program in excess of Ocean wind one at this point and how Youre thinking about your unused lease met if at all thanks.
So, we're having multi pronged conversations with us.
We still have one more step to go on Ocean wind one in terms of an FID decision.
We're waiting to hear back from the Btu on coastal wind link, which we talked about in our remarks.
Youre right that or if it cannot build out its expansion of skipjack without making use of our share a part of our share of the.
Gordon stayed offshore energy lease that we own.
When we when we signed up Roche and when one we said, we werent going to do that if it was going to be one and done that we wanted to take a look at.
This market opportunity, which new Jersey is committed to doing seven five gigawatts of this in Maryland, probably a couple of Gigawatts I think they're targeted at this point in time.
Okay.
But we're looking to do.
Diligence associated with all these projects and what what that means from a return point of view and how that compares.
With our alternative uses of capital.
Assure that.
Unless they exceed what.
The demands are in our regulated utility on a risk adjusted basis, then we wouldn't go forward, but if if.
If they do then we do think that this is going to be something that policymakers are committed to do and we want to be able to participate in that.
Got it that's helpful I'll leave it there. Thanks again, thank you Nick.
Your next question comes from the line of sharp Lovaza at Guggenheim Partners. Your line is open.
Hey, good morning, guys.
Well if I just wanted to just a quick follow up on Nick's question around around the viability of the longevity of the assets within the portfolio I guess I'm trying to get a sense on why would the outcome of a federal PTC or or zacks kind of be a deciding factor.
If these assets are logical for you to own them or not I mean is it or is it a more of a function of trying to cement the value of the assets post sort of any kind of policy initiatives I guess.
How do we sort of think about these kind of bookend here.
That would be helpful. Because I'm, just trying to get a sense on timing and if there is any sort of discussions happening.
So look these are <unk>.
Really highly performing assets from an operational point of view.
If you can come up with an economic construct that makes them look regulated.
By that I mean, you basically in the federal PTC, you've essentially set.
Price of $44 per megawatt hour for the output as it was originally designed.
It could be higher than that.
Hopefully people wouldn't complain about that.
And it could conceivably be lower than that if power prices drop below $15, a megawatt hour which was.
Which we haven't seen you never say never.
So then the question becomes if you've achieved that kind of.
Earnings or margin stability.
You've done two things you've either convince the market that you are legitimate and natural owner of the plant and it reflects.
That's reflected in your valuation, which which would be great.
Or you haven't come into the market that you are a natural owner, but you've enhanced the value of those assets.
For whoever it is a natural owner is.
No.
So since since nuclear has gained so much.
In international markets, and domestic markets and certainly in New Jersey.
Why would you lose patients and do something.
Sooner than otherwise.
The value on the table. If you are not the natural owner will realize that value. If you are the natural owner.
Yes.
I pride ourselves on running this company not for them.
Next few weeks, but for the next few decades.
I think we're going to know a lot in the next couple of months in Washington.
Then, we'll turn our attention to new Jersey and Washington.
This is unable to act.
The situation in Ukraine is heightened.
CERN over natural gas markets and what that means for us is domestic users and what that means for us is LNG exporters that has huge implications for the nations fuel mix for electricity in nuclear has to be a vital part of that so.
So I see opportunity here right.
To maximize the value of those vessels.
So just to paraphrase, but but the topic is really around value accretion.
For another owner versus trying to emulate a regulated type of return within within within <unk>.
I think that's the question on the table can we got it and then we fashion regulated.
Return on PSC on those assets through whatever construct we come up with and I think PTC gives you a shot at that but we won't be once the determined that that'll be.
That will be decided in Washington, and failing that I still think by by giving it the kind of predictability and long term.
Floor price that's envisioned in that you maximize the value of those plants to whoever the natural owner is.
Got it got it okay. Thanks, so a little bit more to more to come here on that and then just maybe a little bit minor, but from sort of the fourth quarter to the <unk> the volumes terawatt hours for the assets. The generation volumes went from 31 to a range of 30% to 32 423 is there.
Kind of a reason there Ralph that you're providing a range now versus kind of an absolute number we would have we would've thought obviously the plants will be running around the clock, except for like a refueling outage. So as any changes in the planning assumptions. There and then we can let me just get a quick update on the operating strategy for the asset in light of the commodity price moves.
And the policy uncertainty, so what's sort of hedge profile as appropriate to kind of maybe maximize value with these externalities.
So there is zero change in the expected operating performance of the assets.
31% to 33, it was a pretty narrow range that.
It Hasnt target mid point that shouldn't be a surprise to anyone.
And in terms of the hedging profile.
We do the three years pro ratable in.
We do give our folks some flexibility depending upon market moves that seem to be.
A little bit of an outlier or maybe deviating from what the fundamentals might predict.
That's why we're a little bit more heavily hedged then than we would normally be two years out.
But Dan I know, if you want to supplement that but I'd say no massive change yes sure. There is no change I guess, if you think about even in my prepared remarks, I talked a little bit about overall volumes and as we go into an outage. If we have run very well as has been our recent history throughout the entire run since the last refueling outage you end up coasting down on.
The way in and so it's those kinds of things that can add a little bit of change between what's there, but I think your question was we said 31 now we said 30 to $32 31 is that in that midpoint. So theres really no difference at all and we're going to operate to be able to continue to have those units on round the clock to be able to capture.
Capture what's there now we're hedged upfront.
As Ralph said, we look at it over three years. These are a little band around that and if we like where prices are we can move up a little bit. So we're a little bit north of that if you take a look at where we are on hedges, but don't read anything into a change that says 31 turns to 30 to 32, it's the same midpoint and it just has a little bit of that variability that exists, but it's still.
Frankly, it's as much about strong operations and coasting into a refueling outage than anything else.
Okay terrific. Thanks, and then Ralph Ralph Congrats on Phase two I appreciate it guys.
Sure.
Okay.
Your next question comes from the line of Jeremy Tonet.
J P. Morgan your line is open.
Hi, good morning good.
Morning, Jeremy King Sound Chipper.
Thanks, just wanted to start off on on results you talked I think you mentioned them being on track and just wondering if you could walk us through <unk> results to your full year guidance here, particularly for <unk> CFO .
Are you trending towards the high end of the range here at least for that segment results seemed a bit better than maybe we would've expected there.
Yes, Jeremy I mean, I think the one thing that I would look at it some of the shape that we have as you look at the year as a whole that we have will have a shift in capacity revenues as we go through the year and those will come off based upon the auctions that we've already seen we have another auction coming up.
In about a month or so we'll get back to a regular regular process there but.
Is that there is a little bit of tax movement that you see throughout the year as we book to an annual effective tax rate and some of the re contracting has little shape to it. So I would say that we reiterated guidance for CFO .
And kind of hold just to that to that blanket statement.
Got it thank you for that.
And now that settlement discussions are active for the IAP.
Do you see prospects for reaching a broad agreement among stakeholders at this juncture.
Jeremy.
The temptation is to give you a play by play but they are confidential settlement discussions.
And I would simply say that we go out of our way to pick things that are essential from a reliability point of view and consistent with state policy, but those discussions have just started and I want to be respectful of the rig council and the GPU staff that.
They've asked us to treat those confidentially.
To them.
Got it yes, it makes sense I'll leave it there. Thank you. Thank you Sir.
The next question is from Julien Dumoulin Smith from Bank of America. Please proceed with your question.
Hey, good morning team and congratulations on this call it Ralph squared decided that rather than Ralph and route but thank you Tim.
Congratulations.
And to the abuse, we take on this I just want you to know how hard it was to find another route.
Absolutely he just had two.
But.
Probably be in the messaging that you just threw out there with the EPS CAGR range through 25 still intact that 5% to seven how do you reconcile that with the current 'twenty four 'twenty five wholesale forward given you're likely open position in that time period.
Does the opposite here.
The headwinds from inflation and pension that real to offset this magnitude of upside in what we've seen in the power price environment.
Julian believe it or not we actually expected that question.
So look we tried the cadence and not change our earnings guidance with every quarterly call for the long term.
So what we'll do is we'll fill you in on our hedge position if you want to predict where the market will be tomorrow.
That's okay.
We just tried to ratably hedging and in September we'll have.
An investor Conference and we will give you 23 guidance and multiyear guidance at that point and.
We'll have the benefit of a few more months of market purchases.
But yes, we can.
Rather not.
<unk>, a four year CAGR five year CAGR with every quarterly call. So.
That's how we justify.
We appreciate that.
Yes.
I would say Julian our sales will kind of.
What they are we'll keep giving you that update and just a reminder, because as you take a look at some of the prices that youre seeing you've got some.
Significantly higher prices in the very near term than you do further out and so if you take a look at.
Where the overall complex.
Got the balance of year 'twenty, two and 'twenty three are significantly higher than $24 25 to $2 23. We are we are hedged alright, so really the opportunity is with yes, those higher prices that you see in 'twenty four 'twenty five but not nearly as high as we've seen in 'twenty two 'twenty three.
Yeah, no I appreciate that dynamic.
And perhaps related here, if we can speak to it I mean, how are you thinking about your conversations with the Btu and others in an effort to sort of it's actually had a longer term solution I mean, it seems that particularly.
Opportunistic moment here to take advantage of the environment.
Kind of engage in a more wholesome discussion with the state.
Stakeholders.
Something that might be more.
Sustainable in the long term and help provide a some derisking the upside for customers.
I, absolutely agree with you Julien and I do think that.
Forward prices in the market.
Do afford us an opportunity to think about okay, well the market on its own sustained nuclear units and as.
Is there an opportunity to move away from this three year cycle that really does impair our ability to make any major long term decisions about capital improvements or license extension or anything of that nature.
No.
So the.
Production tax credit.
Type of solution at the federal level of course is the.
Tremendous benefit of stabilizing margin, while removing the burden on new Jersey.
And I do think it's perfectly normal for the state to say, well, let's sort that out because.
Absent action at the federal level, then we know we have to address.
The long term stability of the assets, but what we do in the state.
Vary depending upon what happens at the federal level. So.
So we don't have to be sequential.
For an infinite amount of time for the federal government to act.
But as you know there is talk in Washington, right now of a climate only provision and there's talk of that happening sooner rather than later.
But you're spot on.
The robustness of the forward price.
That we're seeing in the market does create an opportunity to stabilize.
Nuclear units for the long term.
Right and I think if I hear you right. The key the linchpin here is for the state recognizes that you all don't have the visibility you need for the subsequent license extension, which is obviously.
Something that the state would be likely be keen towards.
Cant.
Emphasize you cant invest given the construct at present.
That's exactly what we can't and nor would I expect anybody else could somebody else, where it would be the logical owner and it's broader than that right. I mean, these nuclear plants are terrific.
But every once a while something happens and it's really tough to do a discounted cash flow over three years and convince yourself that its going to pay itself off.
You have to.
Prepare for that possibility.
So and there was another study came out recently by Princeton University.
We funded but their demands for academic independents I assure you we're at the highest level and they clearly articulated that.
Continued operation of those nuclear units was amongst the lowest cost pathways to achieve the state's carbon targets. So.
I've lost track of how many studies are verified.
The need for the ongoing operation of those plants beyond their current license life.
Excellent guys. Thank you.
The next question is from <unk> Chopra from Evercore ISI. Please proceed with your question.
Hey, good morning, good evening.
Congratulations also to Ralph and Ralph.
Just.
Sure.
I wanted to go back I have two questions one on offshore wind generation and then a follow up on the transmission piece of it.
Ralph can you remind us if there is on the skipjack and skipjack two opportunity.
I guess the partnership.
Got interested offshore energy partnership is there sort of a timeline or exploration data and sort of when can you make that decision in terms of whether you're going to have ownership stake in the project or not.
A hard date, when we've been telling people you should expect that to be measured in months rather than weeks.
Obviously that has the obligation to meet the deadlines that they have in Maryland.
And theyre going to continue.
And that path, but we don't have a.
A hard and fast deadline for making a decision it would be nice to make an integrated decision right. So so we have an FID decision on ocean wind one coming up probably Q1 of next year late this year and it would be it would be wise to kind of come up with a bundled approach. The btu will give feedback on the coastal wind link.
In October of this year so.
It would be months and did you want to add just recalls are guests that.
On skipjack that wasn't Earth's stead bid.
And so upon the success of that bid the opportunity was put to us. So we kind of began our due diligence on the other side of the acceptance of that of that bid and the winning.
Part of that solicitation, so that the timeline of that really started after that bid was successful.
Got it so I guess in turn.
A month like in Europe .
You mentioned the December Investor Conference Analyst Day would you have a sense of where you know Directionally you were headed here or is that still.
Kind of.
He will still be in the decision making phased in.
Yes, if we do it in September .
That would be before we know what's going to happen in offshore wind just because the BP was saying they will give a decision on transmission in October .
And they've been really good about sticking to that promise deadlines on offshore wind, but you always have to.
As soon as there's the potential for some slippage there.
I don't think in any of our.
Thinking is there any decision that would happen as early as September . So so probably we'll know more but we won't have decided things by that point.
Got it and then just one quick follow up Ralph I mean, you've said.
Lee roughly over $1 billion in the transmission offshore opportunities.
And I heard you say in your prepared remarks about $1 billion to $3 billion is that just.
Obviously, that's a it's a pretty large number from the $1 billion, but is that just confidence.
In your sort of.
Bids or sort of what's driving that one to three versus sort of roughly 1 billion previously yes.
First of all the Btu.
Working through the state agreement approach has.
Categorized the transmission investments and really four ways. This kind of an offshore backbone is the connection to the backbone for land and that connection to land could be at an existing facility or a new facility and then theres the upgrades to the existing grid that needs to be made because of those first three pieces.
<unk>.
The BP you can decide to give.
All of that to one bidder they can decide to give some of that to one better some of it to another bidder or the BP you can decide we're going to stick with generated leads we don't need to build the transmission network.
So they have such tremendous flexibility and latitude in terms of how they want to design.
Transmission for offshore wind.
By definition has to be pretty broad in our range of what's possible, we put $1 billion to $3 billion in terms of if we got.
The smallest of our projects versus some of the larger projects.
Don't Misunderstand me.
Bottom end of the range could be zero. So we're not guarantee anything in that solicitation. We happen to think we are the best bidder.
A lot so.
And I trust the wisdom of the BP in PJM to recognize that but that's by no means guarantees yes, I just think that there is I guess the open nature of the solicitation with such that a lot of different solutions could come about.
Whether or not it is a series of winning bidders within the solicitation is also something that could end up moving that number around a little bit so.
We did put out a series of different values and thus the range of different potential outcomes with <unk> zero is certainly a possibility.
Understood appreciate the color guys. Thank you so much.
The next question comes from the line of Michael Lapides from Goldman Sachs. Please proceed with your question.
Hey, guys. Thanks for taking my question just one maybe more for Dan Dan can you talk to us about.
The cash outflows required for collateral postings.
And how we should think about kind of what happens cash wise once those postings reverse.
How much actual cash is going out the door for postings versus given your strong credit rating or is it not really a cash posting or something else and how should we think about the timing of if theres cash going out the door when that cash comes back in.
Yeah. Thanks, Michael So I alluded a little bit to it within my remarks, and we have some some data within the slides as well and so right now the.
The number for the amount of cash out the door at the end of April was $2 6 billion and those are those are mostly for exchange trades and very simply the way to think about it is that it's covering the positions that we have hedged and reflective of the delta between the price that we put the hedge on and then we put the sale on.
And where prices are now and so if you think about the nature of our overall hedging program most of the volume for those hedges is within 2022 and 2023. So most of that cash would come back to us as we deliver that power across 2022 and 2023.
And so certainly so thats one way it comes back to US is by the by the delivery of that power. The other way it comes back to us as to the extent that you see price declines.
And the escalation that we've seen our prices coming off some of that would end up and bringing some cash back to us. So.
So the amount that's what's posted and Thats, how we end up coming back to us. So if I think about the balance sheet as of the quarter and may be April because you've posted more in April .
$2 6 billion of cash inflow roughly ballpark between now and the end of the year 2023, So call. It 30 months 32 month timeframe something like that.
What do you do with that money.
Where does that money go that's a lot of money yeah. There's a lot of money and I think the simple answer is it goes back largely where it comes from and so we would normally tap a commercial paper program to put some of those postings in place. We've recently put some some some term loans in place to have that flexibility with respect to the funding and so that is where you would end up.
Seeing that reverse literally where it came from from those areas.
Got it thank you Dan much appreciate it thanks, Mike.
And the next question comes from the line of Paul Fremont from Mizuho. Your line is open.
Thank you very much and I want to wish both routes all the best in terms of.
Your next move.
Thanks.
I guess, if you were to be successful on the 1% to $3 billion.
With that.
Change.
Youre past discussion.
On no equity need through 'twenty five.
No no not at this point, though.
Okay.
I don't mean to be.
Or at least the same but.
That was something that we've envisioned.
Corporate and other.
If you think about it Paul Youre going to end up with with that in service date going out into the latter half of the decade as well so that the spending in earnest is going to be on the back end of the decade.
Okay.
Also when I look at sort of the first quarter.
Nuclear fuel cost per megawatt hour it looks to be a little bit lower than it was last year I guess, we've sort of seen inflation in uranium prices and sort of other components of nuclear fuel costs.
What what's driving sort of the.
<unk>.
The lower <unk>.
Nuclear fuel cost per megawatt hour.
Dan has the specific answers that can hopefully remember nuclear fuels.
Over a multiyear period and all components.
Some of these contracts are.
Six years in advance of enrichment.
Inversion, but sandy.
Exactly.
For our facilities, if you kind of break it apart unit by unit is a little bit more effort on the pitch by outside but.
But russ exactly right. If you think about the actual uranium and the conversion of the fabrication. Those are contracts that are put in place over a long period of time. So the what we are amortizing now is many years in the making making the fuel that you are seeing on the P&L.
Great.
So I mean, the hedges on average run for.
For six years is that sort of a fair assumption.
Different components of the fuel cycle, yes, Thats true.
Yes.
And then you talked about sort of.
The remaining $2 50, a share repurchase being completed by June how much of that $2 50 has already been completed.
80% of it Paul.
Predominantly completed its an ASR so.
The accelerated nature of it is such that the upfront pieces most of it and then you just just true it up as we finish the overall purchases of most of it is behind us.
And last question for me the date of your next planned New Jersey Trc filing.
Oh Gee, our general rate case filing right.
By the end of 'twenty February 4th quarter next year.
Okay.
That's it for me thank you.
Yes.
And the next question is from Paul Patterson at <unk>.
Please proceed.
Gene.
Hello can you hear me.
Paul.
Okay. Congratulations.
I wanted to touch base with you guys.
I'm sorry, you guys mentioned the life extension.
But it wasn't in numbers.
Yes.
I'm just wondering what the potential depreciation benefit might be if that were to come about.
Well, so you're talking at the Peach bottom license extension or the potential for a settlement Hope Creek life extension.
Both.
While the Peach bottom.
Depreciation benefit we already took that was worth $2 million a month or something.
And we wouldn't dream of depreciation benefit on sale until we have a long term solution for nuclear.
Fully baked and determined that we were the logical owners of that so.
I don't even.
I don't have a number of areas. So that's a long number of years away Paul.
Well I was just wondering if you were to get legislation that would enable you guys to go forward with it.
Different companies do it differently, but often.
If you if you applied for a license extension for the most part.
In other words open.
Companies that.
We will take that we'll adjust the depreciation.
Just on just the ability to file for <unk>.
License extension default, what I'm, saying, yes.
I would anticipate that we would extend the lives when we have the license extension in here.
Okay.
Like I said.
Company company so okay. So.
And then with the.
Could you just remind us what the <unk>.
Book value is.
On a GAAP basis for those for those planes.
Okay.
I don't have any but I mean, the other thing I would say is if you are thinking about a license extension youre getting to the point, where you were kind of make that commitment which is after you have some long term certainty then youre going to put the filing together then youre going to make the filing and then youre going to get the response from the filing so really what would matter would be the book value at that time.
And there is a lot of daylight between now and then.
Okay.
And then the.
Your appointment.
The two positive could you just elaborate a little bit more what's driving that and what the what the out.
What might be associated with them.
Client services.
Yes.
Yes.
I'm sure. It was some combination of what we call.
Oh, My gosh, it's called <unk>, which is people call us up to pause their heating system broke and they didn't have a contract and we go out there.
But but I don't have the details in front of me right now Paul we can get that for it.
The other possibility is that the part of your client services contracts.
And if.
The weather was modeled enough, where we didn't have to go out and service.
Our folks with the normal frequency that we might have.
Better top line with a lower cost of goods sold in that business, but.
We can get that specific.
Okay, I expect it to be a major driver as we go through the balance of the year, Okay awesome once again congratulations.
Thanks, so much.
Thank you and ladies and gentlemen that is all the time, we have for questions. Mr. Izzo. Mr. Cregg. Please continue with your closing remarks, Thank you Larry and thanks, everyone for joining us today.
So we're not going to hide Ralph B other Ralph is going to be joining carlotta, Dan and me for a bunch of upcoming industry conferences.
He'll also be on the next quarterly call and then I can't Count My quarters I think the one after that is going to just run with that and then on the zone, but we do look forward to seeing all of you in person again and thanks for joining us today take care.
Ladies and gentlemen that concludes.
Your conference call for today. Thank you for participating you may now disconnect.
Okay.