Q3 2022 Public Service Enterprise Group Inc Earnings Call
Yeah.
[music].
Ladies and gentlemen, thank you for standing by my name is Robin and I'm your event operator today.
I'd like to welcome everyone to today's conference Public service Enterprise group's third quarter 2022 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 press the star and the number one on your telephone keypad to withdraw your question. Please press Star and then number two.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded today October 31, 2022 and will be available for replay as an audio webcast on Pseg's Investor Relations website at https. Colon forward slash <unk> slash investor that PSEG Dot com.
I would now like to turn the conference over to Carlotta Chan. Please go ahead.
Thank you Rob welcome to Pseg's third quarter 2022 earnings presentation, joining us on the call today are Ralph on the Rosa President and Chief Executive Officer of PSEG, and Dan Craig Executive Vice President and Chief Financial Officer, Our press release attachments and slides discuss.
And today are posted on our website and our 10-Q will be filed shortly the earnings release and other matters discussed during today's call contain forward looking statements and estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings which differs from net income or loss as well.
Reported in accordance with generally accepted accounting principles or GAAP 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 materials following Ralph and Dan's prepared remarks, we will conduct a 30 minute question and answer session.
I'll now turn the call over to Ralph.
Thank you <unk> and thank you all for joining us today.
As you May know this is my first earnings call since becoming CEO in September .
And if you've met with us over the past few months you have heard me lay out my initial action plan for PSEG to deliver value to our investors.
Focus is clear and simple continue to grow the company through investments with appropriate risk adjusted returns.
And increase the predictability of our business by reducing the variability in both financial and operating results.
PSEG has a solid utility operation, a constructive regulatory and policy environment and.
Now a federal tax incentive for our nuclear fleet that stabilizes its cash flows for a decade.
Together these attributes make PSEG a compelling investment.
Earlier today, we reported net income of <unk> 22 per share for the third quarter of 2022.
Compared to a net loss of $3 10 per share in the third quarter of 2021 that was related to the announced sale of our fossil assets.
We also reported non-GAAP operating earnings of <unk> 86 per share for this third quarter compared to 98 per share in the third quarter of 2021.
Results for the nine months ended September 30 of $2 83 per share places us squarely within our guidance range. So we are narrowing our 2022 non-GAAP operating earnings guidance to $3 40 to $3 50 per share.
Assuming normal operations over the remaining two months of 2022.
We remain highly confident in the growth potential of our regulated investments and are committed to the cost discipline needed to minimize the impact of current economic conditions.
We also reaffirm a 5% to 7% multi year EPS CAGR to 2025.
With the understanding that the CAGR is non linear.
And we fully intend to deliver on our earnings guidance expectations as we've done for the last 17 years and counting.
<unk> investments in transmission and distribution infrastructure continue to produce rate based growth consistent with our long term expectations.
Our new infrastructure Advancement program, which launches investment in a critical last mile of our distribution system.
And the clean energy future investments are also supporting wide ranging de carbonization priorities.
Driven by our programs through expand energy efficiency electric vehicles solar investments and create clean energy jobs and training opportunities.
Now turning to our offshore wind ventures, we are approaching a final investment decision on Ocean wind one in new Jersey to determine if we will proceed through the construction phase.
We are reviewing our options related to our 25% equity investment in <unk>, one as well as our option to purchase 50% of our debt subject to project and options regarding pseg's interest in our remaining garden state offshore energy lease area.
Last week, the <unk> completed its review of offshore wind transmission competitive proposals and awarded several onshore only projects.
<unk> was awarded 50, sorry, $40 million of system upgrade work needed to accommodate the injection of offshore wind generation in Central New Jersey.
However, the beef you also indicated they will consider an additional solicitation to address the states increased offshore wind generation targets.
We remain optimistic that our emphasis on reliability and resiliency will keep it as a strong contender for any future offshore transmission solicitations to bring regional offshore wind projects onshore.
Our energy strong investments in the aftermath of Sandy lifted and Harding <unk> substations against future storms with similar foresight. The Btu is recognized 30 infrastructure advancement program that tension is needed to address that last mile of our distribution system and proactively replaced critical components.
In advance of electrification.
Safe and reliable operations will always be the core of our customer focused mindset.
This is the focus our team of over 12000 dedicated employees as everyday and providing safe and reliable service to over 3 million customers in New Jersey and long Island.
As a result of these efforts I am pleased to report that both PSE and G.
Our nuclear operations are trending at above top quartile metrics on several key measures.
In addition.
PSEG continues to receive some of its highest ever customer satisfaction ratings from J D power.
The 2020 through Hurricane season has been relatively quiet in New Jersey, and long island, which enabled <unk> to sell mutual aid to Florida to assist with hurricane and restoration.
Our thoughts and prayers. In addition to our support went out to all those impacted by it.
I mentioned this cooperation because it is unique in our industry and we all benefit from it.
And its 10 year anniversary of Superstorm Sandy we remain acutely aware of how a single powerful storm rolling up the Atlantic coast can permanently affect lives destroyed homes businesses and livelihoods for extended periods of time.
And we remember how grateful we are for the support we receive them.
I'm also proud to announce that MSCI has raised pseg's corporate environmental social and governance ratings of AAA from double a.
Placing us at its highest rating.
PSEG has also improved its score within the top tier of the 2022, CPA zinc <unk> index of corporate political disclosure and accountability.
I have met and listened intently to many of you. These past few months.
And I recognize the importance of maintaining our financial strength.
Serving our ability to grow without needing to dilute our existing shareholder base and.
And rewarding our shareholders with a compelling common dividend yield.
As we approach several critical decisions in the weeks and months ahead.
I won't be guided by the approach that I mentioned at the very beginning.
Prioritizing predictability and increasing shareholder returns.
I look forward to meeting with many of you at the EI Financial conference over in November 13th through November 15th.
We will announce Pseg's 2023 full year earnings guidance.
Provide more detail around our estimate of pension impact on 'twenty three 2023 financials.
As well as a longer term EPS growth rate.
I'll now turn the call over to Dan who will provide you with the financial review and outlook.
Thanks, Ralph good morning, everybody.
As Ralph mentioned for the third quarter of 2022.
<unk> reported net income of 22 per share and non-GAAP operating earnings of <unk> 86 per share.
We've provided you with information on slides eight and 10 regarding the contribution to non-GAAP operating earnings by business.
Third quarter and year to date periods ended September 30.
Slides nine and 11 can contain waterfall charts that take you through the net changes quarter over quarter and year to date for 2022 and 2021.
And non-GAAP operating earnings by major business.
I will now discuss results starting with <unk>.
<unk> results were <unk> <unk> higher compared to the third quarter of 2021, driven by continued capital investments in transmission distribution and clean energy.
Compared to the third quarter of 2021 transmission margin was flat.
As growth in rate base of <unk> <unk> per share was offset by the combination of the August 2021 formula rate settlement.
Which included a lower return on equity and the timing of O&M expense versus recovery.
For distribution electric margin was <unk> <unk> favorable compared to the third quarter of 2021, driven by investments in energy strong too Andy.
And the impact of the conservation incentive program or Sip mechanism.
Gas margin improved by <unk> <unk> per share over the third quarter of 2021.
Reflecting recoveries of our gas system modernization to investments in.
In other margin primarily related to our appliance service business.
<unk> added <unk> <unk> per share compared with the third quarter of 2021.
O&M expense was <unk> <unk> per share unfavorable compared with the third quarter of 2021 and interest expense was <unk> <unk> per share unfavorable reflecting higher investment.
Flow through taxes, and other items had a net unfavorable impact of <unk> <unk> per share compared to the third quarter of 2021, driven by the use of an annual effective tax rate.
For the year to date unfavorable flow through taxes of <unk> <unk> per share year over year will reverse in the fourth quarter of 2022.
Lower shares outstanding at a <unk> <unk> per share benefit on third quarter 2022 results versus the year earlier quarter.
Reflecting the impact of the completed $500 million share repurchase program.
And in addition, nonoperating pension expense was <unk> <unk> per share favorable compared with the third quarter of 2021.
Weather during the third quarter as measured by the temperature humidity index or <unk> was 19% warmer than normal but similar to conditions during the third quarter of 2021.
With the Sip it affect variations in weather, both positive and negative have a limited impact on electric and gas margins.
While enabling the widespread adoption of <unk> energy efficiency programs.
<unk> system peak load exceeded 10000 megawatts for a second summer in a row on August nine.
And growth in the number of electric and gas customers has continued to track at approximately 1% for the trailing 12 months period ended September 30.
Regarding our capital spending program <unk> invested approximately $795 million during the third quarter.
And $2 2 billion year to date through September 30.
<unk> now expects a revised capital spending forecast of $3 billion for 2022 up from the planned 2022 capital program of $2 9 billion.
The 2022 capital spending program includes transmission investment the continued rollout of the gas system modernization program.
Energy strong II and clean energy future investments as well as the infrastructure Advancement program focused on our distribution systems last mile.
On the regulatory front in September of 2022, <unk> filed a petition with the Btu requesting an accounting order.
An effective date of January one 2023 to authorize <unk> to modify its method for calculating pension expense for ratemaking purposes.
Which was partly reduced future variability in pension expense.
Also in September <unk> filed a petition with the BPA requesting a $320 million.
Nine month extension of its clean energy future energy efficiency program.
Which would serve to align future program timing with the other new Jersey electric and gas utilities.
And in October .
<unk> filed its annual transmission formula rate update with FERC, which.
Which increases its annual transmission revenue requirement by $69 million effective January one 2023.
Now turning to carbon free infrastructure, and other which reported a net loss of $285 million or <unk> 58 per share.
Third quarter of 2022.
Compared compared with a net loss of $1 $953 million or $3 87 per share in the third quarter impacted by the fossil sale process.
non-GAAP operating earnings were <unk> 15 per share lower in the third quarter of 2021.
Driven by the lower margin related to the fossil divestiture lower capacity prices for the remaining nuclear fleet.
Re contracting at lower prices.
For the third quarter of 2022 electric gross margin declined by 29 per share.
Which includes re contracting approximately eight terawatt hours of nuclear generation at a $3 per megawatt hour lower average price.
In addition, higher off system sales and gas operations from heightened commodity volatility.
Added one penny per share for a total gross margin versus the third quarter 'twenty, one with customers also benefiting from our long standing sharing mechanism in place.
Cost comparisons for the third quarter 2022 improved by <unk> <unk> per share from the year earlier period, driven by lower O&M depreciation and interest expense related to the fossil divestiture.
Taxes, and other were <unk> <unk> per share favorable versus the third quarter of 2021.
During 'twenty one the solar source sale was reflected in June .
Cessation of fossil depreciation began in August onward, as the assets were held for sale.
And the retirement of PSEG Power's outstanding that occurred in October .
And accordingly, the majority of the favorable cost comparisons related to the fossil divestiture occurred in the first half of 2022.
Nuclear generating alpha declined slightly to approximately eight terawatt hours in the third quarter of 2020 to.
Reflecting the ramp down of Hope Creek, and Peach bottom two into their fourth quarter refueling outages.
The capacity factor of our nuclear fleet for the year to date period through September 30 was 94, 3%.
PSEG forecasts generation output of approximately seven terawatt hours for the fourth quarter of 2022.
And has hedged approximately 95% to 100% of this production at an average price of $27 a megawatt hour.
For 'twenty three PSEG is forecasting nuclear baseload output of 30% to 32 Terawatt hours.
And it says 95% to 100% of this output at an average price of $30 a megawatt hour.
For 2020 for PSEG is forecasting nuclear Baseload output of 29 to 31 Terawatt hours and is at 55% to 60% of this output at an average price of $32 a megawatt hour.
As of September 32022, our total available credit capacity was $3 $4 billion.
Putting a $1 billion at PSC Angie.
PSEG power had net cash collateral postings of $2 2 billion at.
At September 30th.
To out of the money hedge positions as a result of higher energy prices.
And that amount was $1 7 billion through last Friday.
The majority of this collateral relates to hedges in place through the end of 'twenty three and is expected to be returned as PSEG power satisfies its obligations under those contracts or if market prices decline in the interim.
In July of 2022, PSEG repaid a $1 billion to $5 billion short term loan that was due in August .
Following the repayment of this term loan PSEG had outstanding a total of $2 billion of.
364 day term loans expiring April may of 2023 to support power collateral needs.
And PSEG power had outstanding of $1 billion to $5 billion term loan expiring March of 'twenty five.
Combined these term loans comprised $3 to $5 billion of variable rate debt.
And during September and October we entered into interest rate swaps from floating to fixed.
For $1 5 billion of our outstanding term loans, reducing variable rate debt exposure.
Moody's recently published updated credit opinions for KCG is EOG and PSEG power.
With credit ratings and outlooks remaining unchanged.
Regarding the potential headwinds that pension impact on 2023 costs.
To monitor several items that will influence the pension calculations when we take the actual measure on December 31.
We will assess the net impact of various factors, including a decline in financial markets year to date.
Updating the discount rate and interest component setting the expected return on plan assets for 2023, and the inclusion of the impact of the petition filed with the Btu earlier this year.
We will include an estimate of the impacts of passion on our 2023 earnings guidance.
Which as Ralph said, we will provide at EI.
As Rob also mentioned earlier, we've narrowed our 2022 non-GAAP operating earnings guidance to $3 40 to $3 50 per share with regulated operations contributing approximately 90% of the total.
For the full year <unk> forecast for 2022 net income is narrowed to $1.545 billion to $1.575 billion.
Selecting strong transmission and distribution margin growth in the year to date period.
2022, non-GAAP operating earnings for CFO is now forecasted at $160 million to $180 million, reflecting higher interest costs.
<unk> 2022 earnings guidance excludes financial results from the divested fossil assets.
That concludes our prepared remarks. So we can now open up the line to begin the question and answer session.
Just a reminder, before we go to Q&A.
I'd ask you to state your name and your firm and that we ask you to limit your question to one and one follow up so that we can get to as many of you as possible.
Rob you can you can start the queue.
Thank you.
Thank you very much ladies and gentlemen, we will now begin the question and answer session from members of the financial community.
Do you have a question press the star and number one on your telephone keypad.
If your question has been answered or you wish to withdraw your polling request you may do so by pressing the star and number two.
If you're on a speakerphone please pick up your handset before entering your request one moment, please while we pull.
Poll for questions.
Our first question comes from the line of Shar <unk> with Guggenheim Partners. Please proceed with your question.
Hey, guys.
Good morning, Good morning, How're, you doing hey, Charlotte.
Excellent so kendra.
Getting closer to year end, and we still see continued turbulence in the market.
What are some of the moving pieces around offsetting pension headwinds is it your regulatory filing is that enough to cushion some of the drag as we're thinking about 'twenty three and is that kind of a contributing factor for the removal of that 5% to 7% language, which I think caused a lot of investor confusion. This morning, even though.
Just verbally reiterated can you just elaborate on this and kind of what you mean by non linear for modeling purposes. Thanks.
Sure sure. So a couple of things there is if you just look at the pension there were three factors that we've been looking to offset the pension impacts and the headwinds from the market.
But you referenced one the filing that we made at the Btu.
We've talked about that being around 20% or so.
The pension impact we've got.
The lift out that Dan has been working on and I'd say, that's in the same 20% to 30% range.
And then O&M offsets that we've been working on inside the building, which again, we've talked about for quite some time, we're not going to do anything that's shortsighted, but looking for O&M offsets that we possibly can.
That will stay in place even post rate case, when we make that filing in 'twenty, three which will be effective in 'twenty five.
That.
Those three pieces there together are kind of what we're looking at thoughts at the pension and then the five to seven to specifically address that.
That that we've always had said is non linear I think we've talked about that quite a bit.
On prior calls so we have a.
The test year in 'twenty, we're going to be filing in 'twenty three.
And then we expect rates to be effective in 25, so inherent in that will be an uplift and kind of drive a little bit of what we talked about it being non linear.
Got it but just to reiterate you have not removed the language around five to seven we have not.
Tremendous at a five to seven through 25.
Perfect 25.
Great.
And then just lastly, I guess.
As we're sort of thinking about your offshore wind segment and sort of the remaining nuclear assets in a sale.
Sale of retention scenario, we could see some interesting public marks on both fairly soon from some of your eastern peers I mean, Ralph you've been in the helm now for a few months so you're ready to go I mean, what's your latest thinking here or are you waiting for public signals to decide what you want to do and where the value is is the.
Analyst day, the right podium to announce any strategic paths if any I guess, how are you sort of thinking about the non distribution business.
If you've taken your seat right, yes, so sure split those into two pieces first the first from a win standpoint, do we have a pretty and we've been we haven't mentioned it in my prepared remarks.
We're looking at <unk> on the on Ocean wind one that's the project in New Jersey.
So one of the things we're looking at there is where the costs come in and where we finally with that project looks like from an investment standpoint, that's pretty straightforward.
And then for Skipjack and other projects, we are certainly looking at what might be out there from a.
From a from a mark as you said, whether it's from some of our peers or for some other entities.
<unk>.
I think the offshore wind is pretty straightforward.
Transmission, obviously as we've talked about again I'm very happy to see what the Btu did not.
Got.
Seem to make a lot of sense, when I say that but the.
Btu kind of kicking the can and moving.
That decision later is the right thing to do from a for the rate payers in New Jersey, there's some uncertainty around the tax treatment of the copper that will be in the water and so I think what they did there made a ton of sense of just focus onshore for the time being.
So that kind of ties together everything from a from an offshore standpoint than from a from a nuclear standpoint look this may not be the most popular but I think again, you still need more and more time, there theres a lot of details to be worked out in the treasury rates. When those are worked out and we see some marks in the March.
Place, we should be in a very good position to tell whether or not.
As my predecessor, Ralph Izzo said multiple times theirs.
Whether or not we're the natural owners got.
Got it perfect Congrats Ralph on your first earnings call and we'll see you guys in a couple of weeks.
Looking forward the future.
Thank you. Our next question is from the line of David <unk> with Morgan Stanley . Please proceed with your question.
Hey, David.
Good morning, Thanks, so much for taking my questions.
Maybe on the pension first I think you could clarify or give a little bit more color around the lift I would approach that.
That you mentioned could be pursued for a portion of the pension and I was just curious if there are any.
Other regulatory approaches that could be pursued as kind of a follow on to what you've already requested with the btu yes.
Yes, so thats going to give you more than a lift out just the other obvious regulatory.
Solution, we could when we file for rate cases to put in a pension tracker and at this point, we fully expect to be doing that in a rate filing but.
Then Mike to talk a little more about the lift out.
And David really theirs.
I think the easiest way to think about that is just if the pension is giving us some variability within results then.
Having it be smaller would give us less variability and in that same vein.
We continue to have a pension that is well funded.
Yet we have seen assets decline is I think every pension fund in the country have but we've also seen discount rates come down and as they come down in parallel the fund stays pretty well funded.
But you can do a lift out which essentially would be taking some of the assets and taken some of the obligations.
And then moving them to a inappropriate credit worthy entity and have that be housed elsewhere. It's just essentially would shrink the size of the pension we are.
Beginning down a path of that exploration and I think to the extent that we find that to be a successful way to go we would inform you at that time, but it is also.
Would have the effect of just basically shrinking the overall the overall pension and therefore, the overall variability of it. So I think that's the way to think about it and we will continue to keep you posted as we continue to go down that path.
Okay got it great Thats helpful.
And then Ralph you mentioned, a little bit on the offshore wind transmission opportunity, but I was just curious.
Given maybe what you saw with the <unk> decisions and elections within this first solicitation in how the other bidders.
Approached it any thoughts on how you might look at future opportunities or whether you still think you can be competitive and how you might respond.
In terms of setting up other future.
Project designs for solicitations.
Sure. So the selection the BP made was again focused onshore and.
I'd like to just <unk>.
Think about the state north central and South.
Southern part of New Jersey has a lot of what I'll call takeaway capability already on the transmission system, because we had oyster Creek retire NPL, England retire in the southern part of the state so that that onshore transmission system was pretty well set up for.
For to take onshore offshore generation.
The northern part of the state is also has a pretty robust transmission system because a lot of the work that we've done at.
PSEG over the past 10 years 15 years after we started to get approval for projects.
After the 2003 blackout. So then that kind of left the central part of the state and that project that was approved for <unk> Larabee substation and again very.
Very consistent with the need to have to take more takeaway ability from the shoreline into new Jersey. So.
Not a lot learns from that that was all information that we had and we would've expected to be.
In place than what we've all learned both us and our competitors as well.
Others are thinking about and how they are both from a financial standpoint, but also from an engineering standpoint, how they were going to design. The offshore grid, we think our mesh network is.
It is absolutely the most resilient and most robust.
We're very proud of that design.
Keep the pizza lines in and very unique in how we did that.
And for all 11000 megawatts I'm, absolutely convinced that you need that robust solution to be in place. So I think we'll all learn from each other in the next set of bids will be more robust as a result of that so looking forward to it but I am confident that our design is a really good design and we will meet the reliability.
Resiliency to state demands.
Okay I appreciate that thanks, so much.
Thanks, Dave.
Our next question is from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning team. Thanks for the time and the opportunity you guys are well.
George is seeing you guys soon.
Thank you.
Just following up on Charlie's question here, if I can just break down your expectation for an update versus your reaffirmation of the 22 to 25, 5% to 7%.
Is what you're prepared to disclose in coming weeks more around rolling that forward here.
Are we talking about keeping 22 as the baseline I know because of this non linearity I think folks who would be very focused on this piece.
Is this about including the non utility businesses as well, but then the EPS guide can you give us a little bit more of a flavor of how youre thinking about that relative to what you just reaffirmed on on the call here, Yeah, well Julien I won't front run what we're going to do it much but I will tell you that we think about the business is the business we have in front of us at the moment and we'll look.
At it from that direction, we'll give you 23 guidance and then we will extend the guidance beyond that.
So that's that's the way we're thinking about it in the way you should be thinking about it and be prepared for.
Got it and just to clarify would that be based off of 'twenty. Three and then also are you assuming 'twenty 'twenty four year has.
The PTC in effect versus the hedge in terms of an uplift.
So think about that what you just asked me from a PTC and our hedge standpoint that exactly is the issue that was raised earlier, which is treasury regs and how thats going to come out right. So we'll pick one of those and give you some guidance based upon that and will for 'twenty two 'twenty three drilling <unk> 'twenty one as the baseline right you have all.
That data so whatever CAGR, you decided to use going forward, but we will cycle will talk to you about 'twenty three and we'll talk to you about future years.
Got it okay, but you feel comfortable using baseline for 'twenty, one and 'twenty. Two so you can do that.
I'll go back to where we want to go Julien So I love it.
CAGR off but we'll give you that will give you the CAGR going forward.
Wonderful. Thank you guys very much well see then good luck.
The next question comes from the line of Nicholas Campanella with Credit Suisse. Please proceed with your question.
Hey, Nick Hey, Thanks, Hey, how are you. Thanks, so much for taking the questions.
I just wanted to ask on the hedges I think your hedge percentages are unchanged for 24. So I guess my question here is just why not do more can you just give us an update on your general hedging strategy for the nuclear assets. Please yeah, and I'm going to ask Dan to give you a little more color on this but but again I'll point, everyone back to the the regs that are needed out of <unk>.
<unk> and some of the guidance there.
It's a balance as to how we're going to how we're going to be looking at this both from a PTC standpoint.
And and frankly, our exact process in oil and everything in between so so Dan if you want to give a little more yes, I think Nick if you take a look at.
2022 2023 essentially.
Essentially fully hedged for those years, and really where theres. Some open is into those years, where the PTC comes about and so ralphs exactly right trying to make sure that we understand the backdrop of the PTC is going to be important I would say that by the same token we have seen some decline in markets in the near term.
But those declines really have been mostly focused on 'twenty, two and 'twenty three and we've seen the backend hold up fairly well. So we are I would say within the same ranges that we've provided a doesn't mean, we're in exactly the same place, but I think keeping an eye on what happens down in treasury and as well as keeping an eye on market is how we're approaching things as we go forward.
Thanks, a lot. Thanks, a lot so I guess just on the lift out.
As rich as it pertains to the pension I think you said potentially can mitigate 20% to 30% of the impact is that is that something that we should have clarity on by by yearend or is that something that you are continuing to work through maybe it's more of an analyst day item and then just as I think about transacting.
That lift out and the overall contribution to EPS is it a headwind like I E stepped down a headwind to the five to seven CAGR or is it just one more onetime in nature and reduces volatility going forward just trying to think through like how a decision like that could impact 'twenty three and 'twenty four.
Yep so so.
You are probably somewhere I would say analyst day is probably the right approximate time for that is going to depend upon how our analysis has gone on for us to give you a little bit more detail about it and I think.
At the highest level one of the ways to think about what happens from the pension perspective as you determine an estimated return on your assets and you have a discount rate for your liabilities in those comparisons.
And that gap really determines what you see coming out of it. So if you assume that youre going to earn north of the discount rate.
And then a smaller pension while having less volatility.
We would also have less of a contribution we would certainly include that in whatever guidance, we were to give but I think as we've seen interest rates come up we've seen discount discount rates come up.
There's not a whole lot of daylight between those two so whatever we give you will be based upon our plans at the time in our calculations at the time and I think it's probably around analyst day, when we'd be able to find that for you.
My expectation that could be around the analyst day.
Alright. Thanks, so much really appreciate it seen a few weeks here.
Yep.
Our next question is from the line of Douglas <unk> with Evercore ISI. Please proceed with your question.
Hey, good morning team. Thanks for giving me time here Hey, just.
On the on the pension discussion can you remind us what the regulated versus nonregulated mixed the pension is it is it still around 80% regulated board mentioned.
Is it closer to 70 30.
Got at 70% and so when we think about the lift out.
Ah Rethinking you know I'm just trying to see the 'twenty is it could you lift out the regulated portion of the pension do or is it just the nonregulated portion I'm just wondering if there's any.
State opposition of regulatory opposition to lifting of the regulated portion of the pension the cash I think it'd be premature for us to get into into that level of detail at this point. So some work to be done and again I think our expectation and tried to set for you is that we will have those kind of details at analyst day.
Understood. Thanks, guys I appreciate it.
Thanks.
The next question is from the line of Jeremy Tonet with J P. Morgan. Please proceed with your questions.
Hi, good morning good.
Good morning, Jeremy how are you.
Just wanted to start off with offshore when I got here, how do you view offshore with offshore wind risk currently, particularly given some of the high profile development of other projects that have kind of implied a degradation of returns in this inflationary environment.
Jeremy I think Luke.
These projects are no different from some of the other projects that you've that you've been reading about but we have been steadfast in that front running our partner who has the 75% stake in this so the nurse that.
That is there.
Paul coming off in the future and I'll, let them talk to about that level of detail but.
Certainly at a very high level, what <unk> been seeing with others is consistent with what we've been seeing with our projects here.
Got it that makes sense, there and I was just wondering as it relates to power. If you could walk us through the return of your collateral postings on power hedges and is it kind of fair to think of this these financings says.
Incremental drag in the current environment and are there any kind of offsets looking versus that.
Yes.
If you think about our overall hedging picture and our percent hedged 2022 is mostly behind US 2023 is where most of the hedges are so you would see most of that collateral come back as we go through 2023.
And so as that cash comes back to US frankly, there's two ways that it could you could see market moves, which could move that up or down but over time as you deliver on those contracts you would see that coming back to you and so.
Frankly, what that's going to do is just going to lessen the overall cash needs that we have in.
And ultimately reduce.
Some of those borrowings and so as that cash comes back you can almost think about it as just taking out.
Those borrowings overtime.
If you look at the second.
Second to last paragraph in our release.
<unk> dropped from two two to $1 7 billion and Thats exactly a reflection of the moves in the market over that over that timeframe. That's listed there since the end of September into at the end of October so.
<unk> explanation is completely aligned with what we have there in that release.
Got it that's helpful. Thank you.
Thanks, Jeremy.
The next question is from the line of Steve Fleishman with Wolfe Research. Please proceed with your questions.
Yes, hi, good morning, Thanks, Ralph Congrats on your first call.
Thank you Steve good to have you and looking forward to this for a long time so.
Just.
So.
You said youre going to give 'twenty three guidance and then you've reaffirmed the 5% to 7% from 25.
Is there are you going to give some kind of.
Tassos, how you go from whatever you get to 'twenty three to get to that.
In game five to 725, so we have kind of a.
With that yes.
Absolutely well okay.
That would be very helpful. And then secondly, given the.
Pension impact in 'twenty, three as well as the <unk>.
Before we get to the rate case test year is it fair to assume that you.
You may be kind of under earning in 2023.
Yes.
Thank you.
Yes, Steve I don't usually like to holding to that but I would not make an assumption one way or the other on that about how were.
We're entering that test year.
Okay.
Yes.
Lastly, just on nuclear.
Perhaps you've talked about the kind of.
Better visibility of nuclear but also trying to kind of reduce volatility obviously with a floor price super visible.
A lot of.
Certainly.
At higher price in theory, there is yes.
Yes, great Great news, great returns, but but more.
More variability just any thoughts on how that fits into your framework that you've talked about.
Yeah, No a 100% I think looked at a lot of that gets back to the hedging strategy and what makes sense from a from a treasury standpoint. So.
I think we need to see that visibility understand what the potential volatility is down the road and then also look at what growth, we potentially have from that business and put all three of those pieces together in the third.
Or whether or not it fits and that's exactly what we've been talking about and get that going to happen tomorrow, but we need those regs in place we need to understand what those growth opportunities are and we need to see what these marks are.
Royalty and stuff like hydrogen.
We've talked a little bit about some some growth opportunities that we now have in front of us because the the revenue stream is more certain rights. So so simple things like fuel cycles.
And there was a couple of those things that are out there as well.
We've mentioned in the past we would not have pursued based upon a three year cycle, but now with a with a much longer runway out of the PTC.
We have those opportunities in front of us.
Yes, so Steve I mean, I think thank you I think implied in your question is you do have that floor, which is helpful from a variability standpoint, if you're above it.
We're happy to be above it because you're at a higher value location and then the challenge really just is trying to manage whatever variability does does happen there, but frankly, that's a better place to be obviously, if you are above that floor right.
Oh, great. Thank you very much.
Our next question is from the line of Travis Miller.
Morningstar. Please proceed with your question.
Hello, Thanks for taking my questions Hey drivers.
When you think back to the offshore winds discussion if you weren't to go forward with that or if you were to sell out of that how do you think about capital allocation over the next four to five years.
Okay.
Yes, I think frankly, Travis it's right now that is one of the options. That's there I think we've talked a little bit about the other side of offshore wind, which could be some transmission work and we've referenced that as being somewhere in the 2% to $7 billion range.
For our 50 50 partnership and so there is still a degree of capital that I think as Ralph alluded to before with the state's target of 11000 megawatts.
We will still continue to look for whether that solution does make some sense predominantly.
Predominantly capital would be going to the utility part of the business I think.
There continues to be areas to invest within the utility and that would be the number one place where we would deploy capital.
Just again, we're still hopeful that offshore transmission.
Full mesh network I think theres an opportunity there in addition to the core utility activities in all of this though is we've been kind of teeing up will come together at the Investor Conference.
Okay, and I think you answered my second question, but.
On your update on the opportunity set in terms of dollars for that transmission offshore related transmission does that the $2 7 billion.
Yeah again, just based upon the selection that was made by the by the CPU.
Just focused on the onshore portions of work that was required.
A large part of that opportunity set is still in front of us.
Okay.
That would be both the onshore and the say on under the sea.
Most of most of what's needed and most of all were in our bids were offshore there's a little piece of onshore that that work that could be done up in the northern part of the state as I kind of laid out earlier kind of think about those three three doors are entry points into new Jersey for offshore wind.
The largest amount of work that was.
That was needed was in the central part of the state and that Jersey Central power <unk> light territory, but there's a little bit for us up in the north if that entry point is selected.
Okay perfect. Thanks, so much.
Thanks Ross.
Our next question is from the line of Paul Patterson with <unk> Associates. Please proceed with your question.
Hey, Good morning, guys, Hey, Paul and Paul.
So just I apologize if I missed it but the btu order on the pension accounting, whether you're expecting them to act on that.
Yes, we our petition had requested a response by year end.
We have.
We have some discovery and so that there is activity that has gone on it but they will act on their own time.
But our request was to see if we could get that in place by year end.
And probably as importantly to have it be effective yearend. So there is potential if we get something more.
Modestly after that that it could still be effective as of yet but that was the anticipation and.
And that's where things stand.
And then on the wind.
Given what you are saying about.
The economics, and how they might be similar to others.
How should we think about S E E.
The steps that.
We should be looking out for here in terms of.
Central for asking.
Asking for a chain.
And the contract would there actually be Rebidding, where we are.
Where should we think about I mean, just sort of how should we think about the timeline associated with your review process and the up I do think given the <unk>.
The change the change the economics, yes, so Paul again are.
These decisions our decision to invest in a joint venture.
Joint ventures decision as to whether or not they want to talk to the state our customers. However, they want to do that that's with the joint venture.
I'll leave that to our partners that are set to talk about.
So choose.
Okay, but I guess, what I'm wondering is is it would seem to me that your decision would be dependent upon the jb's.
Accident and the response to the J these actions default what I'm, saying.
But it also might be independent right and that's the point I wanted to make to you we could go in either direction.
And theyre not dependent upon each other whether it's changes in the revenue or changes in expenses, either one of those things could impact our decision, but I would also tell you that they may not so.
Okay, and then just what's the timing that we should think about with respect to the FY D decision. Yes. There is no set time and we've talked about that on a number of prior calls.
That is a decision of the joint venture will make based upon what contracts they choose to enter into and what timeline. So again, we've left that too.
So the majority owner to speak to but there is no set timeline in any of our contracts is on X date, there will be decision.
Calendar day, Paul It's just really exciting moves you to the construction phase of the project and so it's when things are ready to move to that phase.
Okay fair enough. Thanks, so much.
The next question is from the line of Ryan Levine with Citi. Please proceed with your question.
Hey, Rob good morning.
Hi, everybody and thanks for taking my question given.
Given the EPS growth guidance through 2025, the new PTC due 2032 and had to be made decision around transacting. The nuclear decision. How are you thinking about managing the 2025 our debt maturities.
Continue your EPS growth rate under the various scenarios.
Yeah, I think rod it'll depend upon overall cash needs and overall revenue picture I mean, we would.
Determine what the best magnitude of that would be at that entity based upon what the.
The overall economics that can be supported there and what makes sense there. So.
We don't have an absolute number but we do have in place is a three year term loan that sits at power and rents of 25, and that's what we've put in place after the sale of fossil.
And so as we get a little closer to that date will be looking at that all of that to make that determination.
Is there any consideration to amend and extend the duration to be able to provide more earnings.
Smith answer that keep things or visible.
The duration of the debt.
Yeah.
Yes.
It would make sense as we approach that maturity.
Or even before if it makes sense to do it before.
But.
That will come as we step towards that maturity timeframe.
I appreciate it thank you.
Thank you there are no further questions at this time I would like to turn the floor back to Mr. <unk> for closing comments.
Okay. Thanks will.
First of all thank you for participating in the first call that I've had I was I.
I appreciate the interest and the opportunity to talk to all of you I also just wanted to reiterate in this form my thanks to our board and to my predecessor, Ralph Izzo for this opportunity I am.
I am eternally grateful and humbled by this.
What's in front of us, but at the same time excited and.
Look forward to continuing the conversations and providing more clarity and more a little bit about.
What we're trying to do to remove some of the volatility that has been a concern for some of you at EI. So I can't wait to have those conversations.
I appreciate you all calling it.
Yeah.
Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Yeah.