Q2 2019 Earnings Call
I would like to welcome everyone to today's conference Public Service Enterprise Group second quarter 2019 earnings conference call and webcast.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session for members of the financial community.
At that time, if you have a question you will need to pass the star and then the number one on your telephone keypad.
To withdraw your question. Please press the pound key.
As a reminder, this conference is being recorded today July Thirtyth 2019, and will be available for telephone replay beginning at one PM Eastern today until 11 30 P.M. Eastern on August eight 2019.
It will also be available as an audio webcast on P.S. <unk> corporate website at Www Dot P.S. EG Dot com.
I would now like to turn the conference over to come out of Chen. Please go ahead.
Thank you Maria.
Good morning, and thank you for participating in our earnings call.
<unk> second quarter 2019 earnings release attachments and slides detailing operating results by company are posted on our website at Investor Dot P.S.C.G. Dotcom 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 also discuss non-GAAP operating earnings a non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward looking statements on our IR website and in today's earnings materials.
I'll now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of P.S. EG, joining Ralph on today's call is Dan Craig Executive Vice President and Chief Financial Officer at the conclusion of their remarks, there will be time for your questions.
Thank you Carlos and thank you all for joining us [laughter] PCG reported non-GAAP operating earnings for the second quarter of 2019 68 per share.
Versus 64 cents per share in last year's second quarter.
He is he jeeze GAAP results for the second quarter was 30 cents per share compared with 53 cents per share in last year's second quarter.
Our results for the second quarter, bringing non-GAAP operating earnings for the first half of 2019.
Two $1.66 cents per share.
This is a 3.1% increase over non-GAAP operating earnings of $1.61 cents per share.
For the first half of 2018.
And reflects the growing contribution from our regulated operations.
Earnings that PSC LNG reflects the benefits of our continued investment in new Jersey's energy infrastructure.
And rate relief from the 2018 settlement of our distribution rate review.
Slide six and seven summarize the results for the quarter and the first half of 2019.
We've had a constructive quarter with respect to several regulatory and policy about is that will advance our long term strategy on several fronts.
PNG has reached an agreement in principle.
With key parties in the energy strong to infrastructure filing.
That will enable the continuation of increasing the resiliency and improving the reliability of critical energy infrastructure in New Jersey.
PSC and she is working with the New Jersey Board of public utilities stuff was rate Council and other parties.
On finalizing a stipulation of settlement.
Which we will then submit to the New Jersey Board of public utilities for approval in September .
The agreement provides for $842 million of investment for projects that commence in the fourth quarter of this year.
And which are expected to be completed by December of 2000 Twentys Threed.
Providing an annual level of spend.
That is comparable to that of energy strong one.
PSC LNG would be eligible to recover $692 million on an accelerated basis.
With the remaining 150 million recovered in a future rate case.
The program is split 741 million to electric.
Which is approximately one half of our requested amounts.
And 101 million suggests.
PSC Angies original filing of the energy strong to infrastructure plan.
Outline.
Two and a half a billion dollars of capital spend through the end of 2024.
With one and a half billion for electric infrastructure and $1 billion for gas infrastructure.
The energy efficiency component of PSC, Ngs clean energy future filing different from energy strong too.
Remains pending before the New Jersey board of public utilities.
We have reached an agreement in principle that extends the matter into 2020.
In anticipation of Finalization of the state's energy Master plan.
In the sense that authorizes and in the interim.
PSC Angie to continue work on four of its existing award winning energy efficiency programs for an additional year.
The clean energy falling is designed to achieve the electricity and gas energy savings goals outlined in 2000 eighteens clean Energy Act.
Which requires the state utilities.
To implement energy efficiency programs to achieve annual savings of 2%.
Three quarters of a percent for electric and gas usage, respectively.
The agreement covering an extension of both the clean energy filing matter and the four existing energy efficiency programs will require new Jersey BPU approval.
With these recent updates PSC LNG remains on track to invest $2.7 billion.
In electric and gas infrastructure upgrades to its transmission and distribution facilities.
During 2019.
To improve reliability and increase resiliency.
We continue to forecast over 90% of PSC Egcs plans capital investment will be directed to the utility.
Over the 2019 to 2000 Twentys three timeframe.
Updating for the recent energy strong two agreement.
Pierre CNG is narrowing its estimated capital spending range.
To 12 to 14 and a half billion dollars.
From what had been an estimate of $11 billion to $16 billion.
Which translates to a compound annual growth rate in rate base.
Of 7.5% to 8%.
From the starting point of 19 billion at year end 2018.
New Jersey continues to advance its clean energy agenda in recently issued a draft energy Master plan.
To reach 100% clean energy by 2016.
The board of public utilities announced the total of six stakeholder meetings through early September .
And expects to finalize the draft energy Master plan in December .
Pierre CNG believes our clean energy future filings are aligned with the broad goals of the energy Master plan.
And notes the Masterplans recognition of the benefits of electrifying transportation.
Energy storage and advanced meter infrastructure or smart meters.
And their importance to providing customers and utilities with essential information to facilitate energy efficiency and outage restoration.
This type of data.
We'll accelerate service restoration times for customers during storms such as those we experienced last week in New Jersey.
Another part of Governor Murphy's clean energy agenda includes the development of a robust offshore wind industry in this state.
In June .
The board of public utilities awarded the first of three planned solicitations.
Or says 1100 megawatt Ocean wind project.
We expect to make a decision on our option to pursue an equity interest in the Ocean wind project.
In the coming months.
At PCG power, the BPU awarded zero emission certificates or Zacks.
Power's three new Jersey nuclear units on April 18th.
To help preserve the state's largest source of zero carbon generation.
PCG power also completed its 1800 megawatt combined cycle gas turbine construction program during the quarter.
With the commercial operation of the Bridgeport Harbor five generating station in early June .
In late June PCG power announced the sale of a 776 megawatt interest.
In the Keystone and Conemaugh coal fired generating units in Pennsylvania.
The sale expected to close later this year subject to customary closing conditions and regulatory approvals.
Resulted in an after tax impairment charge of $284 million.
That reduced net income in the second quarter.
The transaction will allow us to dispose of non core assets.
And move PCG power closer to eliminating coal from its fuel mix.
This process will be complete by mid 2021.
When the Bridgeport Harbor, three coal fired generating plant is scheduled to be retired.
The sale announcement is part of the 2400 megawatts of total coal fired generation.
PCG power will have either retired early or sold between 2017 and 2021.
And further reduces the intensity of our carbon dioxide emissions.
This move is on top of the fact that PS EG already has one of the lowest carbon emission rates among large us power producers.
PSG Power's fleet has reduced its carbon emission intensity by more than 40% since 2005.
And as about half the emission intensity compared to the country overall.
This has been achieved by maintaining its nuclear units.
Investing in highly efficient gas fired generation units and renewables.
And the exiting coal fired generation assets.
As outlined during our May 29th Investor Conference of just a few months ago.
Yes, EG continues to advance its climate strategy.
Last week, we proactively established plans to reduce the carbon emissions of PCG Power's generating fleet.
80% by the year 2046 from 2005 levels.
With the vision of net zero emissions by 2015.
In support of these carbon reduction goals.
We also announced that it has no plans to build or acquire new fossil fuel power plants.
However, we do plan to operate existing assets through the useful lives.
PSG also committed to reporting annually on sustainability and climate using the task force on climate related financial disclosures framework.
Starting in 2020, which is what we will also issue our first client report.
We continue to weigh the final order from the Federal Energy regulatory commission in their effort to reform the PJM capacity capacity auction.
Toward a just and reasonable constructs.
As I'm sure you know on July 25th the FERC issued an order directing PJM.
To delay its August capacity auction until they can approve replacement auction rules.
Given our second quarter results.
We are affirming the full year forecast the PSC GE is non-GAAP operating earnings.
A $3.15 to $3.35 per share.
At the midpoint of our guidance this represents over 4% growth in earnings over 2000 eighteens full year.
non-GAAP operating results of 3012 cents per share.
A higher percentage contribution from regulated earnings at PNG, which is approximately 75%.
Is driving this increase.
And offsetting challenging market conditions in the power and natural gas markets.
And just as a reminder, our 2019 operating earnings guidance includes the benefits from a partial year of zec payments covering all three of our new Jersey nuclear plants.
I'd like to thank our employees for their tireless efforts to restore service to our customers and New Jersey.
Who lost power as a result of severe storms last week.
It's their commitment and ability to safely restore customers that continues to provide me with the confidence in our operating excellence model.
I'll now turn the call over to Dan for more details on our operating results and will be available for your questions. After his remarks.
Great. Thank you Ralph and good morning, everyone.
As Ralph said PCG reported non-GAAP operating earnings for the second quarter of 2019 of 58 cents per share.
Versus 64 cents per share in last year's second quarter.
We've provided you with information on slide 11 regarding the contribution to non-GAAP operating earnings by business for the quarter.
Slide 12 contains a waterfall chart that takes you through the net changes quarter over quarter.
non-GAAP operating earnings by major business.
And I'll now review each company in more detail starting with PNG LNG.
PCG as shown on slide 16 reported net income for the second quarter of 2019 of 45 cents per share.
Compared with 46 cents per share for the first second quarter of 2018.
For the first half of the year net income was $1.24 per share up 13.8% from the dollar nine per share earned in the first half of 2018.
Pcms. These results were driven by rate relief and investments in transmission and distribution.
Offset by the reversal of the lower tax rate in the first quarter that resulted from the flow back to customers of excess deferred income taxes.
And by unfavorable weather that resulted in lower electric demand.
As a reminder, we mentioned on the first quarter call that a positive impact of the effective tax rate reflected in last quarter's earnings would largely reverse in the second quarter.
Piecing these growth in transmission investment added four cents per share to quarter over quarter net income comparisons.
Unfavorable weather lowered results by a penny per share as a result of a mild spring and a cool early summer.
Gas margin improved quarter over quarter net income comparisons by two cents.
Benefiting from the 2018 distribution rate case settlement.
As well as the remaining recovery of investments made under our first GSM Pete program.
Electric margin was flat compared to the year ago quarter as rate relief was offset by lower demand.
Hi, rolling them expense reduced net income by a penny per share.
And in addition, higher depreciation and interest expense, reflecting the utilities expanded asset base each reduced net income by a penny per share versus the second quarter of 2018.
Non operating pension and OPEB added a penny per share versus the second quarter of 2018.
And the effect of flow through taxes in the second quarter of 2019 had a negative four cents per share impact on net income compared with last years second quarter.
Reflecting the reversal of a benefit seen in the first quarter this year.
When the flow back of excess deferred taxes to customers had a larger impact on revenue and tax expense.
Adjusting for this item utility earnings for the second quarter would have been 49 cents per share up 6.5% from last year's results of 46 cents per share in the second quarter.
Weather for the second quarter. This year was unfavorable compared with weather experienced during last years second quarter.
Heating degree days were 23% lower.
But due to the gas weather normalization clause weather did not impact gas results.
Early summer weather was cooler.
Causing lower electric demand.
But on a trailing 12 month basis, which provides longer term trending data.
Weather normalized electric and gas sales were both relatively flat.
Residential electric and gas customer growth.
Continues to trend higher at approximately 1% per year.
The CNG is on track to invest $2.7 billion in electric and gas infrastructure upgrades to its transmission and distribution facilities during 2019.
To maintain reliability and increase resiliency.
We continue to forecast over 90% of PCGS planned capital investment will be directed at the utility over the 2019% to 2023 timeframe.
And updating for the recent energy strong two agreements.
PNG is narrowing its estimated capital spend range to 12 to 14 and a half billion.
From $11 billion to $16 billion.
Which translates to a compounded annual growth rate of 7.5 to eight and 5%.
From the starting point of $19 billion of year end 2018 rate base.
And we are maintaining our forecast of PSC synergies net income for 2019.
Of $1.2 billion.
Two $1.230 billion.
Now moving to power.
Power reported non-GAAP operating earnings in the second quarter of 13 cents per share and non-GAAP adjusted EBITDA of $211 million.
This compares to non-GAAP operating earnings of 16 cents per share and non-GAAP adjusted EBITDA of $210 million for the second quarter of 2018.
Our non-GAAP adjusted EBITDA excludes the same items as our non-GAAP operating earnings measure as well as income tax expense interest expense depreciation and amortization expense.
The earnings release, and Slide 20 provides you with detailed analysis of the items, having an impact on PCG Power's non-GAAP operating earnings relative to net income quarter over quarter.
And we've also provided you with more detail on generation for the quarter and for the first half of 2019.
On slides 21 and 22.
PCG Power's results for the second quarter reflected the anticipated step down in capacity prices in both PJM and ISO new England that lowered results by a penny per share compared with last years second quarter.
Re contracting and market impacts reduced results by three cents cents per share and this reflects an approximately $3 per megawatt hour decline.
And the average hedge price compared with the year ago quarter and lower realized margins.
PCG powers, three new Jersey nuclear plants were rewarded zero emission certificates, starting on April 18, which added five cents compared with the year ago quarter.
Volume increases versus the year ago quarter added a penny per share.
And gas operations were lower by two cents per share versus the year ago quarter, reflecting the absence of a cold April 2018, and reduced off system sales on lower gas prices.
Higher depreciation and higher interest expense together.
Lower net income comparisons by four cents per share versus the year ago quarter.
And taxes and other were a penny per share benefit over last years second quarter.
Gross margin in the second quarter declined to $33 per megawatt hour from $34 per megawatt hour in the year ago quarter.
Power prices and natural gas prices were lower across PJM, New York and Maryland.
Reflecting unseasonably mild weather that also depressed load.
Weather related weakness in demand pressured power prices lower.
And accelerated the price reduction compared with natural gas, which compress spark spreads.
As I mentioned capacity revenues for the first five months of 2019 were positive compared to the same period in 2018.
But starting June Onest Power's average capacity prices declined as we move into a new energy year on June Onest.
In PJM prices declined from 205 to $116 per megawatt day.
And and ISO new England prices declined from $314 to $231 per megawatt day.
These lower average prices will continue through the first five months of 2020.
Bridgeport Harbor five began commercial operations in June .
And started receiving capacity payments of $231 per megawatt day for the units 485 megawatts, which is locked in on an escalating basis for seven years.
Now, let's turn to PCG Power's operations.
Generation output increased by 8.8 Terawatt hours to a total of 13.1 terawatt hours.
Driven by the addition of new combined cycle capacity compared with last years second quarter.
PCG Power's combined cycle fleet produced 4.8, terawatt hours of output up 36%.
Primarily from the benefit of a full quarter of production from keys and C. Warren.
And the addition of Bridgeport Harbor five late in the second quarter.
Wholesale energy prices were affected by declines in the price of gas and weak demand given the mild temperatures in the spring and early summer.
Which also limited the dispatch of older less efficient combined cycles in an increasingly efficient PJM market.
Lower spark spreads continue to pressure realized margins as infrastructure Buildout in the Marcellus shale region continues to erode Power's gas cost advantage.
And power prices fell more than gas prices.
Coal generated 1.2, terawatt hours slightly down as a result of lower market demand.
And Power's nuclear fleet operated at an average capacity factor of 84.4% for the quarter, producing 7.1, terawatt hours and representing 54% of total generation.
Salem, one completed its 26, the refueling outage and returned to service in mid June after completing the reactor bolt replacements, we discussed last quarter.
During the one month outage extension Power's nuclear team successfully replaced 272 of the units 832 reactor vessels.
Over the next few operating cycles PCG power plants to proactively address the remaining reactor vessel bolts identified for replacement at Salem, One and Salem two.
That said lower prices for power and natural gas as well as the expected sale of PCG powers interests in Keystone and Conemaugh have prompted a reduction in projected volumes for the remainder of 2019.
As well as 2020 and 2021.
From our previous 60 to 62 Terawatt hours.
The sale of Keystone and Conemaugh is expected to lower volumes by 1.2 Terawatt hours in 2019.
And by five Terawatt hours in each of 2020 and 2021.
And PCG power is now forecasting output for the remainder of 2019.
Of 30 to 32 Terawatt hours.
And it's hedged approximately 85% to 90% of production at an average price of $38 per megawatt hour.
For 2020 power has had 65% to 70% of forecast production of 52 to 54 Terawatt hours.
At an average price of $38 per megawatt hour.
And powers also forecasting output of 2021 of 52 to 54 Terawatt hours with approximately 25% to 30% of this output hedged at an average price of $39 per megawatt hour.
The forecast for 2019% to 2021 volumes includes generation from recent additions of the three new combined cycle units.
Lower volumes from current market conditions, and the announced sale of Keystone and Conemaugh.
We continue to forecast Power's non-GAAP operating earnings for 2019, and non-GAAP adjusted EBITDA.
At 395 million to $460 million.
And 1 billion 32 $1.130 billion respectively.
Now, let me briefly address operating results for enterprise and other.
For the second quarter, we reported a net loss of $34 million or seven cents per share.
Compared to a net loss of $3 million or a penny per share for the second quarter of 2018.
non-GAAP operating loss for the second quarter of 2019 was $2 million compared to non-GAAP operating earnings of $11 million for the second quarter of 2018.
During the second quarter 2019 Energy Holdings completed its annual review of the estimated residual values embedded in its leverage leases.
And impairment of $32 million. After tax was recorded in net income as a result of the expected future adverse market conditions.
Related to the residual value of the coal fired power ton unit lease.
This compares with an impairment of 14 million after tax related to liquidity challenges at NRG REMA in the year ago quarter.
Results of this quarter also reflect lower investment income at energy holdings related to the absence of a onetime gain last year.
As well as higher interest expense at the parent versus the year ago period.
For 2019, the forecast of PCG enterprise and other net income remains unchanged at $5 million to $10 million.
Our financial position remains strong.
PCG closed the quarter with $82 million of cash on the balance sheet.
And with debt at the end of June representing 52% of our consolidated capital.
And debt at PCG power, representing 32% of its capital at the end of the quarter.
During the quarter PCG issued $750 million of five year senior notes at favorable interest rates and repaid $350 million of a term loan that matures in June of 2019.
PNG issued a total of $750 million of 10, and 30 year secured medium term notes.
And interest rates of 3.2% and 3.85% respectively.
And retire $250 million of maturing, 1.8% medium term notes.
We continue to expect to fully fund PCGS updated five year 13 to 15 and a half billion dollars capital investment program over the 2019 to 2023 period.
Without the need to issue new equity and as Ralph mentioned, we continue to forecast non-GAAP operating earnings for the full year.
$3.15 to $3.35 per share.
That concludes my remarks, and we're now ready to take your questions Maria.
Thank you ladies and gentlemen, we will now begin the question and answer session for members of the financial community.
If you have a question. Please press the star and then the number one on your telephone keypad.
If your question has been answered and you wish to remove yourself.
You may do so by pressing the pound key.
If you're on a speakerphone please pick up your handset before entering your request.
One moment. Please for your first question.
Our first question is from profit Mehta of Citigroup. Please proceed with your question.
Thanks, so much guys.
Hi, So I guess, the big move between last quarter and this quarter has been.
Power prices and that Youre ball markets. So wanted to get a little bit more perspective on what you think has been the big driver that's driving this drop in pricing and do you see this is more structural or do you see this as more onetime or short term in nature.
The profit so hard to answer that question right and we've heard everything that ranges from a move on the part of certain.
Active participants in the market too.
Sixtyl position issues that they had to the fact that there's no doubt that we are seeing.
Limitations to the amount of infrastructure that can move gas to this region and therefore, the potential for an oversupply of natural gas prices keeping prices low which is a continuation of the pattern. We've seen over the past few years right. So.
You have a new construction low gas prices and that combines to.
Your low power prices in this market and.
Yeah, we're we see we see a little bit of relief in terms of the construction of a pipeline capacity outside of our immediate region.
That of course could over the long term give some support to gas prices in the region, which will help our nuclear plants.
We still don't have the compliance filing from PJM on fast start that may help but in theory. The forward price curve should have anticipated that already.
I think given the.
The level of.
Candidly slow movement at FERC on things.
That range from capacity markets to the operating reserve demand curve.
The market probably isn't pricing a lot in for some of these reforms.
So.
So I think I think our answers, it's certainly not a temporary aberration. There. There are some there are some developments taking place in the market.
That our combination of low gas highly efficient combined cycle gas turbines that are creating a lower new normal weather not $26 round. The clock is the new normal.
We're skeptical book.
As is always the case, we run the company in accordance with the markets predicting and not not any other point of view.
Okay. That's that's super helpful color in that context, then does that change how you strategically look at the generation business in terms of like the whole spin off and separation that at one time was on the table does that change your view in any way or is that still kind of keep the businesses together is still the focus well notices.
I think you can judge that questions answered by our actions right. So you've seen us move on some quote noncore assets.
So we were pruning ourselves of Keystone Panama.
You've seen us make sure that to the extent that we operate fossil units.
We have a heat rate that's competitive and now with the addition of these three units were at a heat rate of just over 7000 Bts per kwh.
Even though the gold.
Marginal he raised in the areas closer to nine or 10000.
And the nuclear plants are really going to continue to operate as long as the state values. Those attributes they are not in the money assets from a.
From a.
From a current market design and its only.
Recognition of their carbon.
Value that.
That creates.
Them as a viable market participant.
So with all that said, we're 90% of our investment is going to the utility and.
And the ability of power to generate a fairly healthy cash flow allows us to.
Operate the combined entity without.
The need for any new equity, but however, you will see us continue to look at non core assets. The way, we're looking at Keystone Conemaugh.
All right really appreciate the color. Thank you I'll get back in queue.
Our next question comes from the line of Shahriar Pourreza of Guggenheim Partners.
Hey, good morning, guys I shared ledger.
So just on the step down.
Yes, two from sort of what your ask was is there any sort of programs that were negotiated down and Im curious if anything was eliminated or simply pushed out in and you're right. In your prepared remarks that program is definitely comparable but it seems like the prior program. Yes, one supported more closer to the top end of your range. Your prior range. So just trying to figure out what the Delta is yes, I'm not sure. It's a good question so the headline number.
People reporting as a light of what they expected and I respect that it certainly is the case.
But this is the several things you have to look at beyond the headline number first of all we thought the program would be a five year program and as we reported this program is now scheduled to sunset at the end of 2023.
Secondly.
The the ask was for a billion and a half in electric over that five year period, and we were granted 740 of electric.
Up until 2023 so.
That.
Depending on how you want to look at things is at least 50% of the ask the big difference was really some policy daylight between us at the staff and I'm going to defend the staff and defend ourselves at the same time at the risk of sounding at.
Hypocritical.
We have seen given the increased demand for natural gas in our region electric generation is gas driven residential customers are seeking more natural gas.
That whenever and it's rare fortunately, but whenever there are issues with the Interstate pipeline system.
That we run into some operational.
The challenges in terms of supplying natural gas to our customers.
And candidly there has been some fairly well organized opposition to further construction of Interstate pipelines into our region right. So the people that were seeing gas pipelines tends to be heading south of us.
Much more than it is in in directly into the Metropolitan New Jersey, New York region.
So we propose a fairly large program that would deal with that issue. So that we would have a highly resilient gas distribution system.
And and candidly isn't itself. So we think thats a really good thing to do because even though we talk about lots of things around here. The number one thing our customers expect from US time, and time again as reliability, whether thats electric reliability or gas reliability, it's always reliability.
And I think.
We propose the very good program to enhance the reliability of our gas distribution system in the face of.
Limited new pipeline construction and the possibility of future operational challenges on the existing system.
And in light of all that the BP you staff believes they have on their hands in terms of demands on customer bills.
Not the least of which is our own gas system modernization program to replace an existing cast iron system and things like offshore wind and.
Various other renewable targets that are included in the solar expectations. They just did not have the appetite at this time.
To pay for what they viewed as more of an insurance program rather than a pressing operational correction such as.
Energy strong to electric or gas system modernization. So.
Long winded answer the short answer is yes, there was a significant gas resiliency program that the staff simply did not want to do under clause type recovery at this time.
And and that's understandable, we don't agree but it's understandable.
Right and just one follow up Ralph is.
One of the strongest attributes of the story has always been well power shrinking CNG is growing right. So our earnings mix is improving we are getting more regulated so as you sort of sort of think about youre correct range right at the utility. Our there are items that we should be thinking about that could be incremental to your growth not items that can sort of extend the runway, but be incremental but you're not ready to embedded in your plan.
Well.
Sort of bizarre I feel like we are the only company come out with a 7.5% to 8.5% CAGR.
[laughter] development that were growing fast enough but.
Hi, I promised myself I wouldn't wind today in there I go I'm going to catch it from this.
[laughter] nope.
No you know look one of the things that I'm sure. You are interested in is the we had predicted a third quarter resolution of the clean energy future filing and Thats not a third quarter resolution anymore, right Weve rebates as a continuation of our programs which are over.
So, but that's that's not what that filing is about I mean or whatever it is $35 million or your program is not what we're trying to achieve there.
And that is really a.
Healthy great conversation that we're having with people about where the state is heading whether or not you put the cart before the horse in this case.
We think the car is the energy Master plan, we were the horse and other things that the energy Master plan is the horse and our filing should be the cart.
So so don't don't look past that I know that the future is what matters, but that is still a three and a half billion dollar filing that is a drop in the bucket from an electric vehicle point of view and from an energy efficiency point of view in terms of the overall market need.
Right. Then there are other things are that we think about all the time and talk about all the time that we're just not ready to.
Discuss publicly I'm I'm not trying to create any false expectations, there, but there are always other ideas.
That we have that would benefit the state of new Jersey, and that relate to primarily electricity and the infrastructure needed to keep the state's economy and quality of life at an elevated level.
The number one gating function is not ideas. It has an impact on the customer's Bill which is why you see us looking at a different part of the customer share of wallet.
And that's what's so important about the clean energy future filings.
Is that we're going to ask customers to actually pay us less while we make more.
Because we're going to be doing things for them the right now others do for them.
And that's an important consideration and I think the other thing I'd add Charles This if you think about that the governor's agenda everything he's trying to do from a clean energy perspective, there's a there's an awful lot of things that are out there that I think provide opportunities, but I also think it's a matter of working through all those things and it's been a pretty heavy agenda to date and I think thats going to continue but part of that is what you're seeing with respect to letting the energy Master plan.
Run its course through the balance of the year and working our way through the clean energy plan.
Right and I think Thats one of the things that's being overlooked tonight. Thanks, Thanks, guys.
Okay.
Our next question comes from the line of Angie Storozynski of Macquarie.
Thank you.
From a longer term question so.
You mentioned that you are planning to operate your other conventional power plants.
Over their useful life, which I understand no plans to sell your gas plants.
But the new gas plants.
Oh, that's actually existing ones as well seem to be exposed.
To not only.
Over supply of natural gas, but also offshore wind.
You have this.
Oh potential equity investment in offshore wind in new Jersey, but even without that it seems like.
The other northeast and New Jersey, Maryland, this well likely well get additional offshore wind capacity. So how do you see that growth in offshore wind installations vis-a-vis your your existing conventional gas labs.
Oh, so angie that I'm. So glad you asked that question because.
That's an important clarification.
I think if we would have been more precise we would have said that if we had retained our gas plants than their natural evolution would have been an 80% reduction in carbon emissions by the year 2046. The only thing that is in our plans right now is to not acquire any new or build any new we're not locking ourselves in the into the continued ownership of the gas plants by 2046.
So so that is.
Thats a gap in our communication to I'm glad you are exposed.
So the the main thesis that we're we're trying to achieve here is to get an important seat at the table on what constitutes a net zero conversation by 2015.
And there are two things that we think are real important.
Our number one that there was a technology gap, you're getting to net zero as of today and that technology gap needs to be fixed and a way to fix that technology gap is by giving clear signals in the market that carbon matters. So call that a national energy price call that a PJM energy carbon price quote where you want but we think that the the market's not unleashed it's fully creative forces in the absence of that price and we've got this fairly inefficient mechanism, where people execs and Rex and every other.
Alphabet soup you can apply.
Going on a state by state basis.
The second thing we want to expose is that we're going to greatly improve our carbon emission rate when we sell Keystone Conemaugh plant. It doesn't care that we sell Keystone Conemaugh, let's plans are still going to run.
So this notion of what is our carbon intensity is not necessarily going to strike at the.
Physical reality that needs to be achieved in terms of carbon reduction emissions reductions.
So all we were pointing out as if we just continue if we were to continue to run our gas plants as planned than we would be 80% lower by 2046 than we are today that does not mean that we that we will it doesnt mean that we won't but doesn't mean that we will retain all ownership of those plants before them and Dan did you want to add to that.
No I think that distinction is exactly right, it's not reflecting in early closure.
It's reflecting running them through their useful life with ownership certainly just like econ, certainly could change as we step through time.
And despite some side.
I guess, just one follow up if I understand you said, you're not trying to say that the you will or won't retain the ownership, but I'm just just thinking that does it play a role that decision on the future ownership of these assets into you know your decision on on on having an equity stake in that.
What's that.
Project in New Jersey.
So so the horse that project in New Jersey as you note came about as a result of us having.
Early roll in a predecessor company the ore said, where we owned an offshore land you.
Offshore lease and that was acquired by or said and given the state's commitment to build offshore wind.
I think somebody help me is the contract price public I think it is is it not.
Yes, yes, yes, you know it at $98.10 a share starting in 2024 megawatt installation per megawatt hour.
We believe thats, an economically viable project and want to participate in a way that matches our skill set.
Having said that ill.
I can't even begin to tell you what I would do to get a $98 per megawatt hour contract for our nuclear plants are our gas plants. I mean, it's it's it's at least three times the above market and.
And Thats, yes.
Decision. The state has made and it will as you you're correct. It will factor into probably the earlier than normally planned retirement of some inefficient gas units.
But the absence of storage technology, the absence of demand side management controls through advanced metering infrastructure necessitates the need for ongoing.
Natural gas Dispatchable.
Power and to the extent that those units.
Come marginal units and don't realize any value in the energy markets.
Then the capacity market design will be instrumental to the reliability of the grid. So so these challenges that we pay attention to every day and we try to have good conversations and we do with PJM and FERC.
And to this end with the state, but yes, 3500 megawatts of zero marginal cost highly subsidized offshore wind is going to have a negative effect on less efficient gas plants. There's no question about that and we will be mindful of that and making all of our investment decisions going forward, but ownership potential within the offshore wind opportunity is not premised on on ownership or lack thereof of gas plants onshore.
Great. Thank you.
Our next question comes from the line of Christopher Turnure of JP Morgan.
Good morning.
Dan.
Because.
I was wondering if you guys can just give us any thoughts you might have on the next steps at FERC for PJM reform.
Any constraints on the commission or constraints that they might be thinking about that might make them want to act faster.
Well, it's Chris I, sometimes I wish that.
We could have a.
20% of the Q and a reserve for us to ask you folks questions. Because there is still some mysteries that.
We would love to see on shrouded as well.
I'm going to quote for you what I've heard.
Quoted of chairman Chatterji that they are working on this every hour of every day every day of everyday of the week and they understand the importance of it and.
You know that they're not.
Delaying the August auction the August auctions are ready.
Four month delay from what should have been a may auction.
There there is a point of view I think that is not unreasonable that says okay. When you have four people is the chance for two to vote. When you have three there is no such chance for you to vote I guess, there's a chance for 111 vote I don't know.
And that perhaps there are some philosophical log jam that can be broken now.
I do believe there were comments quoted in the press those that that was not the issue.
So.
If if if it's resolved the middle of September than I suspect that that might have been the issue. If it takes longer than that then I think it's this challenge that.
There has been quoted coming out of the chairman that on the one hand, how do you protect states rights to choose and the other hand, how do you allow regional market too.
Operate efficiently.
We are of the point of view that the market wasn't broken to begin with but if you want to fix it the best route that we've seen is the current PJM proposal, but.
That was a really long winded way of saying you have no clue, what's going on there right now other than what is publicly been revealed named Chris maybe just just to add to that it has been a very long time since they have rule. They have had a proposal in front of their for long in front of them for a long time and yet when you read the order there the words and especially some of the consenting opinions reflected some urgency.
We haven't seen anything so I think.
The potential breaking of a logjam I mean, having an odd number of commissioners may end up helping and I think that from folks we've talked to it seems like maybe something in September if you marry up that urgency.
With the fact that nothing has happened to date Something's got to change and maybe just going to an on number commissioners will get us there but.
I think theres theres more speculation than knowledge right now and we'll wait to see what happens.
Okay all right.
I appreciate the commentary there in a difficult question.
And then certainly I think both of you have talked a lot about the energy Master plan and the.
The potential settlement agreements around gas investment and what this all means for the future of the state, but just a little bit more tactically.
As the negotiations continue into a final version here.
Do you have a sense of kind of where party stand and what direction that final version might head versus the draft.
Well, Chris Unfortunately those.
Negotiations are confidential I think.
Yeah, no it's not it's not a breach of confidentiality to realize that New Jersey is one of the few states that does not have decoupling on the electric side and we recommend as a mechanism to achieve that and and then this is a much much bigger program literally an order of magnitude bigger than anything we've done in the past.
However, everything we've done in the past has been received with accolades and.
Tremendous support so I don't think I want to get into any more details than that it's just given.
Yes.
Before.
Respecting the confidentiality of of what's being discussed around the table, but on on the MP in particular Theres a series of six hearings that are scheduled related to the MP and I think some of those are I want to say August eight than another went into September so.
Those will be two hearings on each of those days, where you can at least get a sense as to where all the parties are coming out.
But from a timing perspective year end for conclusion of that S&P is what's anticipated.
Okay, I guess kind of so far.
No major pushback to speak on when it comes to the.
Anti gas direction DMP is going up.
From a clean energy future filing.
I'm confused because are not grasping the full.
No sorry, I was referring more just to the energy Master plan and the Finalization of of that in kind of the direction that that's that's going to go and ourselves to try and no one should not construe the decision on our energy strong to filing is having to do it.
Whether or not natural gas.
Pipelines into the.
State or an aunt.
Our our problematic for clean energy future I think.
You know if anything you can just look at just simply too to realize that.
The importance of.
Making sure that our current.
The system.
Is not leaking and is in fact operating well as a as a recognition of the certainly the near term near term being next few decades importance of natural gas.
Okay. That's helpful. Thank you.
Our next question comes from the line of Greg Gordon of Evercore ISI.
Hi, Thanks, guys good morning.
Most of my questions have been answered.
But I was just hoping maybe we could go back over.
The numbers on the proposed settlement on.
On energy strong and be clear on sort of like on an apples to apples basis, where where you where that settled proposed settlement is versus what the initial ask was sure sure. It right and then also you know given the.
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When is it that we we now you know think that more rational expectation is of getting a.
Clean energy future decision that that was going to I guess be sequenced behind the energy Master plan filing. So yeah that was this your whole car horse horse card question, that's right right and so sort of how do we think about the timing of that and what milestones should we be looking at to get a sense of where we end up.
Okay. So let's do enjoy strong too.
First.
So your call we filed a two and a half billion dollar program over five years typically these programs take about a year to resolve so we're close to that one year mark coming up.
And that request was 1.5 billion on electric and 1 billion on natural gas.
And what we received was a program that we expect to see approved in September of this year.
That will only run until December of 23.
And of the 1.5 billion in electric $741 million of that was approved but importantly, just about every program that was asked for was approved just not the dollar amounts or the.
So the prudency of the programs I think we feel really good about.
Conversely on the natural gas component of the 1 billion.
That was requested.
Most of that about 800 million that was for this notion of resiliency of the distribution system basically more interconnections between our distribution pipes.
And the then there is about 200 million.
Reinforcing some of our measurement.
Our metering and regulating.
Stations.
And half of that smaller piece was approved 100 million.
So electric 740 out of 1.5 billion gas 100 out of 1 billion at December 23 end date versus a five year program.
And that ends up yielding an annual run rate, that's about 10% less than the annual run rate of energy strong one.
Okay.
On clean energy future.
The energy Master plan is scheduled to be finalized. This December the end of the year and the draft was issued already.
And the stakeholder hearings are already scheduled so.
There should be no reason why the board can complete that work by the end of the year.
And then you may recall that the clean Energy Act of May of 2018 had a requirement that rules be promulgated.
On the energy efficiency programs within a year. So we're we're late there.
That that year.
Lapse three months ago.
So we're understanding of the full pay the full range of issues on the bps that plate.
So were expecting resolution of our filing early in 2012.
That's very clear thank you.
Our next question comes from the line of Travis Miller of Morningstar.
Thank you Hello.
Hi, Travis I could go back real quick to that pull net zero concept in the vision. There I was wondering one.
Does net zero mean zero such that.
By that answer to that vision, you wouldn't have any fossil fuel.
In your fleet at least and then two and more of the visionary aspect do those plants even exist.
Even if you don't own them do you think they exist in the market, we're in an environment where.
We see a lot of the region going to kind of this idea of zero 2050.
Yeah, So Travis so I.
I apologize for repeating perhaps and I have said before one of the reasons why we made that commitment.
It is because we want to engage actively in the discussion around net zero because there is nobody who owns the definition of net zero.
Typically it refers to generation and the reason why the word net is inserted is that if you are still emitting carbon but you then come up with a way to extract carbon from the atmosphere.
Then your net effect is zero right, so you're you're putting a ton of carbon and see air a year and you extracted by.
Planting trees are coming up with some method to extract carbon dioxide into dissolving in the ocean or something of that sort that's typically what people refer to.
We think that that is not.
What.
It's not the full breadth of what matters to the planet and you use the Great example, just a second ago right. So.
So if we.
One accolades for reducing our carbon footprint, but always done a solar plant to somebody else, who still running it.
The plan it doesn't care about that.
By the same token if we get approval of a multibillion dollar clean energy filing and people use less energy, we don't get credit for that we think we should.
If we electrify transportation, we don't get credit for that and we think we should so.
So we're just trying to remind people.
That are the subject is complicated and never lose sight of what problem as you're trying to solve.
Whenever you engage in these policy discussions because sometimes we forget what problem, we're trying to solve and we do crazy things like put production tax credits in place that produce negative marginal cost and put pressure on nuclear plants to retire.
So so there is no unique ownership of the term net zero, but typically speaking nowadays it refers to.
Both the simultaneous production and removal.
Of carbon dioxide from the atmosphere.
Okay, Yeah, that's clear and so it's so you do think there's a place for fossil fuel in.
No.
Net zero or this is kinda zero, Wisconsin no no. That's right. We do I mean, your carbon capture and storage would allow for fossil fuels to continue to operate.
That's great. Okay. Thanks, a lot.
Our next question comes from the line of Michael Peterson of Goldman Sachs.
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On a must sale deal view that as accretive or dilutive or kind of neutral to EPS.
Hi, Thank you cut out there in the beginning but I think your question was is the Keystone Conemaugh sale accretive or dilutive I think for.
For 19, it doesn't really move the needle at all and then as we step forward, we would see some mild benefit.
Got it and just trying to kind of think through the puts and takes of that how material is the millennium and kind of what's the book value that you had prior to the write down I'm just trying to think about backing out a win in the DNA just kind of think about the accretion impact of this.
Yes, I don't think Weve had a separate disclosure of the only on but the book value is on the order of about 400 million or so.
Got it prior to the write down okay.
And then one last thing when you think about.
Any potential portfolio additions, including offshore wind.
Do you look at it and say Hey.
We'd like to have a controlling position or we'd like to have an operating position just given your history as a pretty strong operator plans are you willing to be a minority owner.
Yes, we're definitely willing to be a minority owner and something that's new to us where we don't have.
Operating experience.
Got it okay. Thanks, guys much appreciated.
All right. Thanks.
And Mr., Arizona Mr. Kang at this time, we do not have any time from any further questions I will turn the call back over to you for closing remarks. Thank you Maria so thanks, everyone for joining us today I know that.
Dan and car lot and I have a bunch of plans to be on the road to visit with many of you and we look forward to that and hope you enjoy the rest of the summer thanks for joining us.
Ladies and gentlemen that does conclude the conference call for today you may now disconnect. Thank you for your participation.
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