Q4 2022 Public Service Enterprise Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Molly and I am your event operator today.
Like to welcome everyone to today's conference Public service Enterprise group's fourth quarter and full year 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 the 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 February 21, 2023 and will be available for replay as an audio webcast on Pseg's Investor Relations website at investors that PSEG Dot Com I would now like to turn the conference over.
Carlotta Chan. Please go ahead.
Thank you sure Molly welcome to Pseg's fourth quarter and full year 2022 earnings presentation, joining us on the call today are Ralph the Rosa Chair, President and CEO of PSEG, and Dan Craig Executive Vice President and CFO .
The press release attachments and slides for today's discussion are posted on our IR website at Investor PSEG Dot Com and our 10-K will be filed shortly.
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 differ from net income or net loss as reported in accordance with generally accepted accounting principles in the United States.
We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward looking statements on our IR website and in today's materials.
Following Ralph and Dan's prepared remarks, we will conduct a question and answer session I will now turn the call over to Ralph Loretta.
Thank you Carolina and thank you to everyone joining us on our call. This morning.
Since the third quarter 'twenty to 'twenty to 'twenty two earnings report, we have had several important updates.
Dan will provide you with a full financial review later in our prepared remarks as I will focus on some of the strategic highlights.
Okay.
We are pleased to report strong operating and financial results for both the fourth quarter and full year of 2000 22022.
We successfully navigated last year's challenges, including inflation supply chain disruptions energy price spikes in the steep rise in interest rates delivered GAAP earnings of $2 six per share and non-GAAP operating earnings of $3 47 per share.
Placing our results for the full year above the midpoint of our 2022 non-GAAP earnings guidance.
In fact 2022 was the 18th year in a row that PSEG has delivered non-GAAP results at or above management's original operating earnings guidance.
PSE and G, which contributed to the vast majority of our results posted an eight 2% annual increase in net income from the continued investment in T&D infrastructure clean energy programs and our <unk>.
First full year of decoupling.
<unk> invested over $3 billion of capital during 2022 and transmission upgrades gas system monetization.
<unk> efficiency electric vehicle infrastructure and launched our efforts to address the reliability of the last mile of our distribution system.
At year end 2022, <unk> rate based top $26 4 billion, a seven 7% increase over the year end 2021.
We know the important shareholders place on a predictability and visibility of our financial results and during the past 12 months, we have taken many steps to deliver just that.
First we completed the strategic alternatives process, which included the sale of PSEG fossil last February .
This increased our regulated contribution to about 90% of our consolidated non-GAAP earnings.
We completed a $500 million share repurchase program in May of 2022 and increase the cash returned to shareholders by raising the annual dividend by 12.
Or five 9% for 2022.
Second the passage of the inflation reduction act of 2022, well off our nuclear generation a level of much needed stability when it goes into effect in 2024.
While the industry weights.
For clarifications, we believe the inflation reduction act as a game changer that should provide the stability required for long term financial viability of the U S nuclear fleet.
As a result of the nuclear production tax credits extending through at least 2032.
We are now able to consider small but important value added investments.
Including the potential for capacity upgrades to sell them a fuel cycle extension at Hope Creek and the license extension of our New Jersey units.
Critical to these decisions will be our determination of how predictable and visible nuclear revenues could be.
Beyond our current three years that window.
The IRA also created valuable incentives for <unk> customers to accelerate their transition to electric vehicles, which will invest in advanced New Jersey, the carbonization goals and expand our opportunities to invest in last mile reliability and make ready infrastructure.
This aligns with the recent state objectives to increase the electrification.
Just last week Governor Murphy issued three executive orders that establish or accelerate the state's existing 2050 targets for clean source energy building electrification and electric vehicle adoption goals with new target dates in 2030 and 2035.
The board of public utilities, and other state agencies were directed to collaborate with stakeholders to develop plans to reach these goals.
These included an updated energy Master plan in 2024, and a new proceeding to develop a future of natural gas utility plant.
We set a new revenue streams, such as conversion of existing facilities to district, geothermal and new technologies to meet 2019 energy Master plan goal of 50% reduced emissions below 2006 levels by 2030.
Third we announced our strategic decision to exit our investment in offshore wind generation by selling our 25% equity stake in Ocean wind one back to our joint venture partner or is that.
This decision to exit offshore generation was consistent with our goal to increase the predictability of our business.
PSEG will continue to provide offshore wind onshore construction management services to ensure the onshore substations and associated onshore cabling are ready to receive the projects output when it goes in service.
We also intend to continue pursuing regulated transmission projects offshore.
And investing in related transmission and distribution projects onshore and enabling the New Jersey went port in Salem County.
And finally last week, the <unk> approved the settlement of our pension accounting filing.
<unk> as of January one 2023 and.
An important step we have pursued to limit pension expense volatility.
This improved business platform created by the strategic actions, we have taken over the past two years combined with our efforts to increase the predictability of our results.
<unk> us to narrow our 2023 non-GAAP operating earnings to a range of $3 40.
The $3 50 per share from.
From our original guidance of $3 35 to $3 55, a share provided last November .
This new 10 set range compares to the 20% range, we have provided in previous years.
These strategic moves also drive our outlook for long term compound annual earnings growth rate of 5% to 7% through 2027.
And enable us to pursue this growth path without the need to issue new equity during this five year period.
Yes.
Moving to 2043, we extended our 2022 dividend increase of <unk> 12 per share to set the 2023 indicative annual rate at $2 28 per share.
Marking our 116th year of paying a dividend to shareholders.
<unk> has begun executing its capital investment plan of over $3 4 billion for 2023.
Which is expected to be the largest single year spend in the utilities 120 year history.
So we'll be directed primarily towards infrastructure replacement energy efficiency and last mile reliability.
Good news is that additional headroom was created in our gas and combined customer bill as the recent decline in natural gas prices has enabled <unk> to reduce its residential defaults gas supply rates by 15.
The <unk> 15 per therm for the balance of the winter 2022, 2023 heating season.
This decrease in the pass through commodity charge will reduce the typical residential winter gas bill by $13 per month annualized or 11, 5%.
Speaking of our customers. They rated <unk> number one in the 2022 J D power customer satisfaction studies for both residential electric and natural gas service in the east among large utilities.
This is the first time, we have achieved both number one rankings in the same year.
This honor culminated a year that saw PSEG recognized by the Edison Electric Institute with the Edison Award.
The industry's highest honor for leadership and innovation.
And speaking of leadership.
Pseg's Pseg's environmental social and governance credentials continued to be recognized.
In addition to our MSCI upgrades to AAA its highest ESG rating.
<unk> was also named to the Dow Jones Sustainability, North America index for the 15th year in a row.
As well as just 100 list of America's most just companies for 2023 recognized.
Recognizing our commitment to serving our customers workforce communities and environment, the environment and shareholders.
Now none of this could be accomplished without our employees, who remain pseg's most important resource.
Together, we continue to be guided by Pseg's long standing commitment to operational excellence.
Disciplined investment and financial strength.
As a recognized our employees I must take a moment on the one that lost his life in a tragic act of violence.
Some of you may have heard about the horrible loss when a member of the PSEG team was killed by a former employee.
It was one of the Saturday stays in our Companys history.
Our condolences and prayers go out to all of those that have been impacted by this event.
I also want to thank our employees are supported each other during this difficult time.
We will continue to provide resources to protect the health safety and wellbeing of all PSEG employees, including grief counseling for any employees seeking it.
In closing and as I mentioned earlier, we know the important stakeholders place on predictability and visibility of our financial results and goals.
I have made both.
Have made increasing both factors are key focus of Pseg's strategic plan.
We intend to share the details of this plan at our upcoming Investor Conference on March 10th.
As we continue to build a practical path towards Decarbonising, the New Jersey economy.
I'll now turn the call over to Dan and return after his remarks for Q&A.
Thank you Ralph good morning, everybody for the full year of 2022.
GAAP earnings were $2 <unk> per share compared to a GAAP loss of $1 29 per share for the full year of 2021, which.
Which included fossil sale related impairments.
non-GAAP results were $3 47 per share for 2022.
Compared to 2021 non-GAAP results of $3 65 per share.
Which you may recall excluded depreciation related to the fossil assets held for sale in the fourth quarter of 'twenty, one and retirement of power that.
For the fourth quarter of 2022, GAAP earnings improved to one <unk>.
$581 58 per share.
Compared with 88 cents per share for the fourth quarter of 2021 non.
non-GAAP operating earnings were <unk> 64 per share compared with 69 per share for the fourth quarter of 2021, which contain the fossil sale related items I just mentioned.
We've provided you with information on slides nine and 11 regarding the contribution to non-GAAP operating earnings by business.
The fourth quarter and full year periods ended December 31.
Slides 10, and 12 contain waterfall charts that take you through the net changes quarter over quarter and year over year.
And non-GAAP operating earnings by major business.
Which I will review now starting with PSA Angie.
Full year 2022, net income rose by $119 million or over 8% to $1 $565 million compared.
Compared to 2021, net income of 1 billion and $446 million, reflecting higher.
The earnings from continued investment in T&D programs and.
And the favorable impact of a full year of decoupling in 2022.
For the fourth quarter of 2022 utilities net income rose by $81 million.
The $352 million or <unk> 70 per share compared.
Compared to <unk> 53 per share in the fourth quarter of 2021.
As you can see on slide 10.
Transmission margin added a penny per share compared to the year earlier quarter.
<unk> growth in rate base, partly offset by the timing of O&M recovery.
Gas electric and other margin contributed to add combined to add seven per share compared with last year's fourth quarter.
Reflecting GSM to Rollins.
Conservation incentive program or Sip decoupling for both electric and gas.
Our client service and other margin.
On the expense side O&M was flat versus the prior year quarter.
Higher distribution depreciation and interest expense each reduced results by a penny per share, reflecting higher plant in service and investment.
Lower pension expense added a penny per share versus the year ago quarter.
And flow through taxes, the impact of lower outstanding shares and other items added <unk> 10 per share compared to the fourth quarter of 'twenty, one with seven cents of that amount reversing the timing impact of taxes from prior quarters in 2022.
During 2002, <unk> invested over $3 billion in planned capital spending to upgrade transmission and distribution facilities.
Enhanced reliability and increase resiliency.
In 2022, we also launched the IAP, our $511 million infrastructure Advancement program.
Which the Btu authorized last June to improve the reliability of the last mile of our electric distribution system.
And address ageing substations and gas MTR stations.
And as Ralph mentioned at year end 2022, <unk> rate base stood at approximately $26 4 billion, a seven 7% increase over year end 2021.
Last Friday, the board of public utilities approved in order authorizing <unk> to modify its method of pension accounting for ratemaking purposes.
Which will mitigate variability in the calculation of <unk> pension expense for calendar year 2023 and beyond.
The backdrop of economic conditions continue to improve in new Jersey during 2022.
New jerseys unemployment rate return to pre pandemic levels, a three 3% in September and remained below the national average at year end.
System peak load reached 10147 megawatts on August 9th exceeding 10000 megawatt level for the second year in a row.
Weather normalized electric sales increased by 2% for the year with residential sales flat in C&I sales increasing by 3%.
Weather normalized gas sales were flat for the year with residential gas sales down 1%, while C&I sales increased by 2%.
The mechanism to cover the impact of most customer usage from margin subject to earnings a recap limitations, leaving the change in the number of customers as the major driver of margin growth going forward.
The number of electric and gas customer rose by approximately 1% each in 2022.
Wrapping up the utility update we've narrowed our forecast of <unk> net income for 2023 to $1 $500 million to $1.525 billion.
Which reflects pension and OPEC updates compared to 2022.
Set by the benefit of contemporaneously recovered investments.
Stability of utility margin from the Sip decoupling as well as the implementation of the pension accounting filing effective for calendar year 'twenty three.
Now turning to carbon free infrastructure and other.
Full year, 2002, <unk> net loss of $534 million or $1 six per share.
Selected higher losses on both Mark to market transactions and nuclear decommissioning Trust fund related activity.
Full year 2021, net loss included impairments and debt extinguishment costs related to the fossil sale.
non-GAAP operating earnings declined 174 million or <unk> 35 per share from $407 million for full year 'twenty, one, reflecting the absence of the fossil assets.
For the fourth quarter 'twenty to CFO as net income improved to $436 million or <unk> 88 per share.
From $174 million in the year ago quarter.
<unk> higher gains on both mark to market transactions and NTT fund related activities.
Net income for the fourth quarter of 'twenty, one included debt extinguishment costs and other charges related to the sale of fossil.
For the fourth quarter 2022, the non-GAAP operating earnings loss of 34 million or <unk> <unk> per share reflected the absence of the fossil assets compared to the fourth quarter 2021, non-GAAP earnings of $81 million or <unk> 16 per share.
Which reflected the cessation of depreciation and lower interest costs related to the fossil sale.
Referring again to slide 10, non-GAAP operating earnings were <unk> 22 per share lower than the fourth quarter than the fourth quarter of 2021, driven by lower capacity prices for the remaining nuclear fleet lower generation volume re contracting at lower prices, however, as that revenue compared to the year ago quarter.
Combined these items drove electric gross margin to declined 34 cents per share gas.
Gas operations improved by four cents per share, reflecting higher off system sales higher commodity pricing and higher storage margins.
Power related cost comparisons for the fourth quarter of 2022 improved as overall O&M expense was <unk> seven per share favorable compared to the year ago quarter again, reflecting the fossil asset sale.
Partly offset by the planned refueling at the 100% owned Hope Creek nuclear plant in this year's fourth quarter.
Depreciation and interest were higher by a penny per share.
It reflected the March 2022 debt issuance of power versus the year earlier debt retirements related to the fossil sale.
Current activity was a penny per share favorable compared to the fourth quarter 2021.
Primarily reflecting the absence of 2020 once donation to the PCT Foundation, partly offset by higher parent interest of four <unk>.
Taxes, and other improved by a penny per share over the fourth quarter of 2021.
That includes the accelerated receipt of expected tax carryback claim in 'twenty, two instead of 'twenty three.
Which was partially offset by the reversing of a timing impact from tax benefits in prior quarters in 2022.
Turning to ops the nuclear fleet operated at an average capacity factor of 85, 8% during the fourth quarter.
Which included the Hope Creek refueling.
And produced seven three terawatt hours of a carbon free generation.
An unplanned outage at Salem unit two in late December of 2022 occurred during a PJM region wide generation of urgency action.
And resulted in capacity performance penalties.
Net financial impact of the outage, including replacement power capacity penalties as well as bonuses earned by the other operating PSEG units did not expect it to be material.
For the full year the nuclear fleet operated at an average capacity factor of 92, 2% producer.
Producing 31, three terawatt hours of generation.
<unk> is forecasting total baseline base load nuclear generation of approximately 31 terawatt hours for the full year of 'twenty, three hedged 95% to 100% at an average price of $31 per megawatt hour, an increase of about $4 per megawatt hour compared to 22.
For 24 total nuclear nuclear generation is forecasted also to be approximately 31, terawatt hours and 55% to 60% hedged at an average price of $32 per megawatt hour.
In addition in December we exited certain legacy bgs or basic generation service contracts in order to rebalance our hedge portfolio realignment to our base load nuclear fleet and reduce volatility in 2023.
Wrapping up CFO , we've narrowed our forecast of non-GAAP operating earnings to $200 million to $225 million from 185 million to $235 million.
A quick update on financing activity collateral postings.
As of December 31, 2022, total available credit capacity was $3 7 billion, including $1 billion at Pes EMG.
In addition, we had total cash and cash equivalents on hand of approximately $465 million.
PSEG power had net cash collateral postings of $1 5 billion at December 31.
Primarily related to out of the money hedge positions, resulting from higher energy prices.
Which declined to 700 million through last Friday.
Given the recent improvement in our collateral position in January of this year, we prepaid $750 million or a $1 $5 billion short term loan that was due in April .
Following the repayment of this term loan.
<unk> had outstanding a total of $1 5 billion, a 365 day term loans expiring this spring to support powers collateral needs and.
Power had a outstanding a 125 billion term loan expiring in March of 2025.
Combined these term loans comprised $2 5 billion of variable rate debt.
As we mentioned during our third quarter call. We entered into interest rate swaps during September and October of last year, which converted one $5 billion of our outstanding term loans from floating to fixed rate, reducing our variable rate debt exposure.
Following the measurement of the pension at year end 2022, we've incorporated the impact of the actual 2022 investment returns.
Right and interest rates into the 2023 pension calix.
Our expected return on plan assets increased to eight 1% for 2023.
As the decline in value of the fixed income securities due to higher interest rates during 'twenty two enables a higher yield on them going forward.
While 2022 investment returns had a negative impact on 2023 pension calculations. The increase in interest rates served to reduce the pension liability with the funded status of our pension plan ending the year at a solid 87% and.
In addition, accounting settlement approved by the Btu will create a regulatory asset or liability to overlay, our current accounting, which will partly mitigate the impact of certain expense related pension calculations going forward.
As Ralph mentioned earlier, we've narrowed our 23 2023, non-GAAP operating earnings guidance to $3 40 to $3 50 per share.
Around the same $3 45 per share midpoint with regulated operations continuing to contribute approximately 90% of that total.
As a reminder, <unk> does not forecast GAAP earnings related and related long term growth rates.
Amg's forecast of 2023, net income is narrowed to $1 billion and $500 million to $1.525 billion, reflecting the predictability provided by the Sip.
Expected transmission distribution investment recovery and focus on O&M cost control.
non-GAAP operating earnings guidance for <unk> is now forecasted at $200 million to $225 million.
<unk> narrowed guidance also removes the previously expected benefits of the tax carryback claim from Pseg's 2023 operating guidance.
That concludes our prepared remarks, so shomali. Please open the line and we will take some questions.
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 the number one on your telephone keypad. If your question has been answered and you wish to withdraw your poling requests you may do so by pressing the star and the number two.
You are on Speakerphone, please pick up your handset before entering your requests one of them.
Please for the first question.
Okay.
And the first question is from Shar reasonably Guggenheim Partners. Please proceed with your question.
Good morning, Ralph and team, it's actually Constantine here for Shar congrats on the quarter.
Got it.
Just wanted to start off with a 23 guidance updates and specifically on the utility do you have any updates on the O&M cost initiative targets and interest costs that are embedded in guidance versus what was presented in November .
Yes, youre winding down some of the collateral needs and just maybe to clarify was the pension outcome. The main driver for the $15 million decrease at the top end of the guidance.
I think the way to think about the pension honestly is just reducing our volatility overall as we think about it it was in November .
We're providing guidance and as you know we snap the tape at 12 31, and so I think the elimination of the ups and downs that could have come from year end, which was not known at the time was part of the the reason that we had a wider.
Range at that point in our more narrow now I would say that that number came in right about where we thought it was going to and so I would say we are consistent with that but with the absence of the movement that we could have had we had presumed at that time constants, saying that we would obtain.
Obtain what we did subsequently obtained from the BP use so that was presumed already.
And I would say from an O&M perspective, I'd say, it's fair to think about the assumptions as being consistent is what.
What we said at EI.
We may see some.
Benefits coming through by virtue of our collateral coming off a little quicker, but the euro is not over we'll continue to see some movements and are and will continue to manage that going forward.
It constantly and the only thing I would add from a O&M standpoint.
We've been a culture of continuous improvement and we'll continue to look for opportunities when they when they arise but.
We don't normally publicize any specific numbers on that in that area.
Okay. Thanks for that clarification on this one might be more for Dan again, with the with the announced exit from offshore wind in the first part being though that put option on the JV and the potential incremental acreage sales kind of more directly how are you thinking about the use of proceeds and as we think about the old investment capacity slide.
With the sale proceeds the unwind of the short term financing is there a target <unk> to debt metrics that we need to think about it in your longer term planning assumptions.
Yeah I think.
When we set all along that that exit from Ocean wind one.
Would be at our cost to date and we've characterized it as being right around 200 million just in just in excess of $200 million. So.
It certainly is nice to have back, but it's not a major item to move the needle with respect to the broader numbers.
I think we've talked about having an overall, if I put that threshold, 13% to 14%.
And we've talked in the past about living somewhere.
North of that into.
Into the 15 16 area and I think that's a fair way to continue to think about where we are.
Great and maybe for just one second shifting to nuclear.
The threshold for including operational or Capex from an outside into the plan and the needs associated with it just thinking of the co owner and some of the assets.
Just being an hour and at the announcements around some of the uprights elsewhere, just curious on any thoughts or conversations that you've had.
Yeah.
So we'll have our normal run rate operating capital, but to the extent that there is an opportunity to deploy.
Deploy capital to enhance the results overall obviously.
Obviously that analysis is going to go through just like any other analysis, we would do and be up against the hurdle rate that's going to show that it's gonna make sense for us to do that I think we have.
Some promise on some things going forward and maybe we will give you a little bit more color about that as.
As we get a little further down the road on that.
And any specific conversations that you've had or still too early.
About the Capex with.
With the corners.
When we talk to our color is all the time I mean, that's just the normal operating but nothing nothing specific yeah awesome thing, though okay. Thank you I appreciate.
Thanks for taking the questions.
Our next question comes from the line of Jeremy Tonet with J P. Morgan. Please proceed with your question.
Hi, Good morning, it's actually rich Sunderland on for Jeremy can you hear me.
Sure.
Hey, Thanks circle back to the offshore wind update.
On the.
Acreage any options youre evaluating beyond an outright sale here also curious when we could expect the next update on this front.
Yeah, no. So so rich just unequivocally we are not going to be in the offshore generation business.
And the timing of what we do we will just be keeping an eye on the market and see what makes sense.
Very clear got it.
Then just.
Governor Murphy's executive orders within that I guess, the 100% clean energy plan.
How do you see this impacting the energy Master plan overall Im curious at a high level, what you're focused on either from that front or from an E&P fronts.
So I would kind of say theres a lot of good news in that and that announcement last week for a company like ours and especially one that's been focused we kicked off this this effort on the last mile.
Last year and I think that's just kind of reinforces the need for it from a customer standpoint from a reliability standpoint, so lots of opportunities.
We will be engaged in that.
Personally.
Tripling down on on electric vehicles as much as we can in this area and that is that driving the de carbonization and the state and then from a from a gas system standpoint.
Certainly some push on on whether or not theres a lot of expansion of the gas system. We are about as.
Hi, 80% saturation rate for our customers. So we never had our business plan is set up for.
Growth on that on the gas side, that's not in our numbers, we just kind of hook up customers as they call this but or replacement plans are completely aligned if you look at the wording that's in the.
In the executive order by reducing methane emissions so.
We think there's just a lot of positives in that in that announcement and we will work with the state and policymakers on whatever whatever we can itself drive that in the energy Master plan.
Got it very helpful and sorry, just wanted to circle back one last time to offshore wind.
So the acreage just asked you said all uncommitted and can you just run the numbers on whats in there and what's next.
Yeah.
It's like 35000 acres and so it was about 35000 acres that are still available to some degree we've committed some of that the Earth's that if they go ahead with the skipjack I don't have the exact numbers in front of us, but it's a de minimis amount of that 35000.
Yes, there is.
Is that project was going forward there was a need for some incremental.
Acreage and so some of those were were made available for that purpose.
Oh.
Great. Thank you for the time today.
Thanks Rich.
Our next question comes from the line of doing a shot route with Evercore ISI. Please proceed with your question.
Hey, good morning team thanks for taking my questions.
Good morning, guys just on.
On the on the pension front, just I just wanted to reconcile them to make sure. We have this accurately captured the accounting order from the Btu last week that roughly mitigates about 20% to 30%.
The pension expense volatility. So if you can confirm that Dan if that's still the right number and then maybe you can update us on the sort of the lift out.
Broach that.
You highlighted you were considering just any updates that you can share there as well.
I guess on the first question I think that's a reasonable way to think about it. Although you will see as you step through time some of the components of pension will change. So it's not a I think it's a fair way to think about where we sit today, but as we step through time some of that could could move as some of the component.
Incentives changing I think with respect to the lift that we've talked about it a little bit in the past we are continuing to explore that as a potential again as a reminder, really what that does is just shrink. The overall size of the tension for us and I think that that that potential still exists for us we're still doing diligence on it and are working our way through the process.
And we'll have some more information for you as we go through the year, but I wouldn't expect anything to be imminent, but I would hope to see something happen this year.
Okay.
It was easier to go.
Okay.
Linda Wilson.
Are you on mute.
I'm not sure he's doing next.
Okay. So not only we can move to the next question and if <unk> comes back well will continue with them.
No problem. Our next question comes from the line of David <unk> with Morgan Stanley . Please proceed with your question.
Hey, Ralph and Dan Good morning, Thanks for taking my question.
Hey, Dave.
Let's see I was curious on.
Nuclear so many of your peers recently announced higher levels of nuclear O&M heading into 2023 curious if you would expect a similar dynamic in terms of upward O&M pressure on your nuclear units.
And then separate but somewhat related on nuclear fuel.
They also you know we're taking a more conservative approach in terms of building inventory and lowering risk of any kind of Russian supply interruptions that could occur in the future wondering if.
You have considered a similar strategic approach in terms of sourcing nuclear fuel.
So a couple a couple of things on that front on the just from an O&M standpoint.
As you recall the inflation reduction act required anyone who wanted to participate in the PTC or not participate but fully participate in the PTC.
Who paid prevailing wages.
At at the sites.
And we have been doing that for years here at PSEG. So no upward O&M impact for us I don't know if theres anything beyond that that the others are talking about but specifically for us I don't see anything that would be driving additional O&M expenses at those plants.
And then on a fuel supply.
We were not as dependent on on Russian fuel supply as it at all for for our fuel supply so.
It's not an issue for us that we needed to get in front of and I think.
We'll talk a little bit more about that at the at the.
Investor meeting, but.
I just again, that's something that was forefront for us or something that we have proactively address because we're not we're just not in that marketplace. I think there is an impact on the entire market there'll be an impact for for everyone, but thats something we are trying to jump in front of right now.
Yes, I think we've got pretty good line of sight in the near term on nuclear fuel David just given the.
From the standpoint of the fuel in the reactor and then you've got your upcoming.
Fuel reloads and those that as you kind of go through the years, the near term is pretty well hedged and known and that's on top of the fuel thats in the reactor. So I think we're in pretty good shape for the pursuit.
Stable future.
Got it got it thanks that's helpful.
And then.
Just wanted to clarify on the collateral postings, it's great to see that.
They've come down maybe sooner than expected I was wondering if you could just remind us of how the collateral kind of falls off through the year end is that earlier than you had previously anticipated the I think $800 million that you're able to.
That pay down early or is that helpful for EPS in terms of taking some of the short term debt off the balance sheet for this year.
Yeah, David we have said before if you think about most of the price differential and most of the period that we do have hedged a lot of what we would expect to see is that those positions would roll off through 'twenty three and into the winter of 'twenty four was where the the bigger element of the.
The totals were and so that timing is fairly consistent I think to the extent that you saw prices come down you're going to see a lower overall balance to the extent that they go back up that will continue to move so it will continue to be dynamic, but to the extent that that stays a little bit lower as we run through these next 12 months.
Would have less overall collateral posted and that would be a benefit.
Okay, great. Thanks, so much.
Our next question comes from the line of Douglas Chocolate with Evercore ISI. Please proceed with your question.
Okay got you back.
Can you hear me now we can we can okay, sorry about that it was actually my my headset. So so Dan. Thank you I heard all of that I appreciate it.
<unk> up lift that was roughly another 20% 30%.
That would reduce the pension volatility by and so if you were able to get that successfully the uplift successfully executed that would essentially basically.
Of the.
50% of the pension expense volatility would have been taken care off included inclusive of the SBB order last week am I thinking about that correctly.
Is that uplift, but I think I mean, the lift out.
Right and yeah, that's right that's right yeah. So I think that's a good way to think about if you think about building blocks you'll have.
At element related to the utility with respect to the unrecognized losses, and then you would have.
Other element, which would be a comparable size. So I think I think the way youre thinking about the math is right. That's the only caveat is again as you do go through time, you will see the different cost components.
Turn components change a little bit so you could see some movement I think thats, a fair way to think about it there yet.
Okay, Perfect and then just one last one again on bench in terms of timing.
You might have said that expect an update sometime this year. So by by our analyst day at your Investor Day in March we shouldn't be expecting that you got to you got a bench and lift out right. That's coming later in the year, that's the right way to think about it yet.
Thank you so much I appreciate it again guys and thank you for bringing me back in.
To ask my questions any time, if they go take care of that.
[laughter].
And our next question comes from the line of Michael Sullivan with Wolfe Research. Please proceed with your question.
Hey, Michael.
Hey, Ralph how are you.
Great.
I didn't want to front run the analyst day too much here, but just can you maybe give us a little preview of what else do you expect just in terms of new.
New disclosures I mean.
Imagine the growth rate and all of that is kind of set but in terms of.
Like some of the nuclear things you alluded to when we get some more flavor. There and then I guess on offshore wind side. It sounds like that timing is not really tied to the analyst day.
Yes, no thats not I look I would say this Michael.
If you walk out of that meeting with even more confidence in our ability to execute on the things that we've been talking about that would be my golf for that for that Investor meeting, we we've done that over the last year and some crazy turbulent times and I think that youll see more of that and I want you to walk out of that meeting where more confidence so more doubling down on some of the things that we've got planned in the utility.
<unk>.
And that should be the real highlight in the conversation a little more about our thoughts about how to respond to the governor's call for action.
Okay, Great and then I think this kind of got asked a little bit, but just on the offshore wind.
Proceeds so it sounds like the 200 million you already got back it's not a big needle mover, but when you stack that on top of what you.
Potentially get for GSO.
I'd imagine that's a little more materials, some kind of how do we think about where those those proceeds could go and just so Michael.
Particularly we have not received a $200 million back yet right. That's in the process with with our partner and we're going through.
Dot the i's and crossing the Ts and that whole conversation so more to come on that front, but.
But I think the materiality of the of the GSO is TBD and we'll see what the market.
It gives us on that front and then then Dan and the team will do with Dan and the team have done for many years and put it to the best use so.
Sorry, So you are used to.
Adjusting that.
It could end up being a material like users.
Is there a reason.
I would like to be worth anything no I, just don't want to we're not building a plan that's based on getting.
Some are new.
New York fight.
Multiples on it so I don't want people to walk away with some inflated.
Inflated opinion on what those what those acres are going to be worth well see what the market comes back with.
Okay fair enough okay. Thanks very much.
Yeah.
Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your question.
Hey, good morning, Tim Thanks for the time appreciate it good to chat with you guys.
Julian it's been a while.
It's been a second here absolutely.
Just with respect to hedges just want to come back to just real quickly a couple of different moving pieces first off if I heard right in the comments BG as ask here you guys are moving away from that it seems like.
A slightly more important strategic decision after years of a benefiting there can you talk about that a little bit here again, obviously not a big contribution, but then also related to your probably more critical and looking forward here. What's your latest interpretation of the PTC and how that interplay with your 'twenty for hedges and ultimately how do you think.
Hedging right now considering what IRS may or may not do.
Let me I want to give that Dan to give you details on that but that is not a recent move on our part we have been moving away over time under <unk> and I think we've bgs and we've talked about that for a while and that bgs S for PGS and.
And we've been we've been doing that.
Different product right, it's more of a shape product than a set of baseball product, that's our nuclear plants with support but that'll give you a lot more details on that in the hedging piece.
Yes, just to just to be Super clear Julien if you think about it.
S.
Product as the default product in New Jersey on the electric side of the business and so PSEG power has used that as a hedge for a long time and PSEG power at nuclear and fossil units and had a very shaped output.
Seasonality by virtue of having both nuclear and fossil generation as.
We sold the fossil units and we still had some bgs obligations. You think about those are three years at a time that was not an ideal fit for nuclear which has more shaped in a more of a block power and so really don't.
Don't take too much from the sale of the Bgs. It just those remaining legacy tranches were not a good fit for a.
Nuclear output that looks more like block blockchain power what is not is related to the bgs, which is basic gas supply service that.
That we provide to P. S E N G and actually can leverage some of that excess capacity.
In a way that we've done for many years and will continue to do that so that the move away as for just the small remaining legacy tranches that we had on BG asks on the electric side that were taken on three years at a time and unrelated to be GSS with respect to.
The interpretations I would love to have more of an interpretation that I do right now, but we don't have guidance from treasury related to how they will define grocery seats and determining what the PTC will be based upon and so we are still a little bit at the mercy of what Treasury will do I think the outcome of the PT.
<unk> is going to be positive and supportive, but the exact dynamics of exactly what numbers you would use to figure out what that is going to be is determined by that I mean to the other part of your question.
How they will.
Account for hedges and their calculation and so that's the guidance, we're still waiting upon I think that the outcome will influence how we will end up hedging the nuclear units, we will try to align with how they will define grocery seats. So that ultimately the PTC that we get what kind of fit the overall mechanism.
As it's supposed to work and we can end up with that steady ultimate result at the PTC threshold or above if the markets are higher and so we're still we're still a little bit of a waiting game and I don't even have a date to tell you when treasury is going to come out with at the Ptc's come into play for the first time in Cal 'twenty four obviously companies like <unk>.
Ours hedge in advance of that so I'd love to have information sooner rather than later, but other elements of the IRA do kick in in 2023. So we have not heard back from treasury any.
Any guidance with respect to how they're thinking about that exact definition.
Got it related here with respect to new Jersey stakeholders any update.
Are you thinking about treating it there any changes in that construct as you think about like a belt and suspenders as the federal program here I know, we heard some comments from your peers here no. I mean look I think the upshot is that to the extent that PTC has a payment for the attribute and is that because the payment for the attributes we will net back that amount to the state and that was in the original Zach.
And that was put together.
And so I think if that's net net over the long run this is going to be a very good thing for new Jersey, because the payment for.
For the attribute this gonna help nuclear ensure that it does have a financial backing is going to be borne.
By the federal government, rather than just new Jersey, and that that'll be a positive thing on the bills over the long run.
I would just support that by just saying from a belt and suspenders standpoint, I think anything we do here, we being us and policymakers in New Jersey would be for next generations, it's not something that would be belt and suspenders for anything.
Anything in the near term.
Got it understood what do you mean by that and I appreciate that all right excellent. Thank you guys very much appreciate it.
Actually one last quick one on power just if I if you don't mind.
With respect to all the commentary from the Governor's office et cetera are you thinking about updating investments around power and the opportunities to maximize value of those assets here.
We've seen some commentary again from some of your peers, there, but again, given what's going on with governor et cetera, I'm. Just curious if that is even more of an opportunity. Yes, I think that flips to PTC that is in my opening remarks, a little bit there Julian was all about hey, we potentially do some up rates or sell them. Some some change in the fuel cycle at Hope Creek and a long term extension of.
Of the licenses themselves not to mention you know everybody's talking about hydrogen elephants, but we'll talk a little bit more about that on March 10th.
Got it all right that's what I thought. Thank you guys. Appreciate it good luck.
Our next question comes from the line of Paul Patterson with <unk> Associates. Please proceed with your question.
Hey, good morning.
Morning, Paul.
Just really quickly just.
The extension of licenses.
Is that already reflected in the depreciation schedule.
Of the assets.
And how.
How much might.
Uh huh.
What was the level of depreciation yes.
Yes, so the depreciation runs through <unk>.
2030, 6040, <unk> 46 for the New Jersey units in 2050 3054 for the Pennsylvania units. So those are presumptive of the extensions that gets you to those dates but we've talked about so there's two things going on and we've talked about is the potential for another extension in New Jersey.
That is not what is in place right now and also you may recall.
<unk> in Turkey point had some questions raised by the NRC.
<unk> about their existing license extension, which has not changed what we have done we believe that that will.
We will be restored without any change and so with respect to the incremental 20 years I don't have a number off the top of my head as to what that would do to us.
But we can that's easy math I think that's all available and we could get that to you Paul.
Okay.
Over the years, we've seen different companies.
Recognize.
The depreciation changes.
Because of license extensions.
At different times.
Some do it even before they file with the NRC some do it only when they get.
The NRC is official.
You know a ruling on it.
Any thoughts about when we might see.
The depreciation benefit show up yes, I think it's most likely what we have in hand.
The extension.
Okay.
And Paul Let me just reiterate what Dan said about the timing right. You got 36 $40 to 46 on these units and normally you would apply in about 10 years in advance so just to kind of set the timeframe for you as to when the application going we're just talking about it because it would be within the five years of our business plan.
Okay got you. Thanks, so much.
The work done probably not for the receipt of correctly extension.
Okay. Thank you.
Our next question comes from the line of Travis Miller with Morningstar, Inc. Please proceed with your question.
Hi, everyone. Thanks for taking my question.
Yes.
Yeah.
On the transmission the onshore of the offshore transmission and any update on solicitations or development, there or anything along those lines.
We're waiting on that as well.
Not expect anything in the very near term on that at least the <unk> committed to seeing through the work that they've said they've had approved so far but we have not.
No indication at this point on the timing of any new solicitations.
Okay.
The gating factor in the development.
Future offshore wind or would there be additional transmission.
I think a bunch of it has to do with the IRI and understanding how the tax treatment would be for a y or whether it's a wired is deemed to generate a lead or a wired it's deemed the offshore transmission. So once they get through that process I think there'll be some some better idea of timing.
Okay makes sense and then I said I mentioned about the rate case at the end of the year.
Thing unusual about that.
Come out or just typical operating cost capital cost updates nope, just just typical.
Okay.
It's all I had I appreciate it.
Thanks Ross.
Our next question comes from the line of Anthony <unk> with Mizuho. Please proceed with your question.
Hey, good morning, Ralph Good morning, again are you opening.
Just two quick ones I wanted to follow up on the <unk> is a two parter.
You talked about maybe two of the three parts youre going to use to mitigate pension volatility I.
I think the third party didn't talk about was a pension tracker that you're going to ask for it.
Rate case, you file at the end of the year any feedback or discussions you've had with policymakers on support or anything around that.
I'll start and Dan can add.
Anything he wants to put there, but I look at the end of the day, whether it's attract or any other kind of mechanism. We absolutely plan to have a conversation with the BP you about that.
I'm, just very happy with the near term, what we were able to accomplish and.
And I think the combined with the American water adjustment mechanism. They put in for them I think the <unk> is recognized and there may be some value here for not just for companies, but for the customers as well as they look at this so we will continue to have a conversation I don't get tied into a tracker or a mechanism, but we will have a conversation about it.
It'd be part of the whole rate case.
Great and then just one last housekeeping if I look at the long term EPS growth rate, 5% to 7% cap.
Capital spending drives rate based on your 6% to seven five.
The difference there is just a difference on the bookends there.
The growth.
<unk> CFO .
Yeah, Yeah, because the five to seven is for enterprise in the rate base growth is solely as a utility so anything and everything and see if I was going to be in there and then you'll have a little bit of noise. As you go through O&M and different to other components, but I think I think they're largely consistent you should think about it that way.
Great. Thanks for taking my questions.
Our next question comes from the line of Paul Fremont with Ladenburg Thalmann. Please proceed with your question.
Hey, Paul.
Hey, good morning, good morning, good morning.
A quick question on rate base growth.
Guys I think had a range, but I think most of the stretch capex look to be in the out years. So I was wondering how you got such a strong level of rate base growth.
In 2022.
Yeah.
Okay.
I'm not the only thing I can think of it I'm trying to interpret your question a little bit fall as whether any any.
It kind of worked its way through the numbers that could change your ultimate rate basis, you'd go year to year.
Okay.
Yeah.
Also can you give a sense for sure in terms of what change in pension cost youre assuming in 2023.
Yes versus 'twenty two.
Yeah, we had given a range of 25% to 30 for pension and OPEC and we.
Were right within that range kind of around the midpoint of that range. So that's a consistent number.
Obviously, the <unk>, we were estimating where we would come out and we didn't see too much movement, either end markets or interest rates.
Away from that so when you think about middle of that range I mean in pretty good shape, okay, but you still got the accounting on it right and that didn't change the range is what you're saying it was assumed we had filed it at that point and we had commented that we were.
Optimistic that that would come through it came through as expected. So it was part of what we were thinking at the time when we provided the range.
Okay and in terms of hedge guidance I mean is there a reason why we haven't seen sort of 25 hedge guidance for for Peg power.
No we got updated through 'twenty, three and 'twenty four part of the answer could well be if you want to think about it. This way Paul is that we still are awaiting what treasuries are going to do.
From the standpoint of our guidance and so that's going to be an important element as we go forward.
Okay, and then last question from me.
Gave a gross margin.
Per megawatt hour.
Is there any guidance you can provide on our gross margin per megawatt hour basis for peg power in 2023.
No I mean, I think we've given you the overall hedge price across 23 and characterize as 95% to 100% there. So.
I think youll see that as we go through the quarters.
Okay.
Thank you very much thanks, Paul Thanks, Paul.
<unk>.
Our next question comes at a time for one more question.
Alright, no problem.
Last question comes from the line of Sophie Karp with Keybanc capital markets. Please proceed with your question.
Hi, Hi, good morning, Thank you.
Sure.
Hi, Mark.
My questions have been answered actually but maybe I can just ask you about the.
Gas utility.
Future in New Jersey, but given the.
And the comment that.
<unk> from the Governor and just overall help us on the electrification how do you think about kind of the.
Hum.
Now that you have going into this.
It could be a multi decade trend.
Specifically are your electric and gas territories fully overlaps in terms of customers like where whatever you might lose as a gas business you will gain as an electric business or are they going to cannibalize. The other utilities, how should that how should we think about that yes. So it's a it's a mixed bag for us if we have some gas.
Only territory, some electric only territory, but the bulk of our customers all our combined so you know.
I don't want to say, it's a win win but it is a win win for us to a great extent.
And because we're focused on on all of our gas investments being replacement activities not new activities, but replacement activities that are going to help reduce methane.
Taking those investments we'll make.
Ton of sense, and we will continue so I.
I actually think about this more from the standpoint of the speed in which we electrify and the cost for consumers and how we think about that so we'll continue to drive that point.
We able offset a bunch of it with the energy efficiency work that we've started and will continue.
You know, we don't talk about our energy efficiency programs half as much as we did in the past, but that's because it's just become such a core part of our business like any other.
Else, we do so.
I'm thinking that the energy efficiency will help create more headroom on the bill as we do that for customers. The electrification can can move faster in those areas, but for some of our urban centers.
The challenges will remain and we'll have to really work closer policymakers not to not to have sticker shock for everyone in the state.
Terrific. Thanks, so much.
That sounds something.
Thanks, Ravi Thank you.
And that is all the time, we have for questions I would like to turn the floor back over to Mr. Larue for closing comments.
Well, thank you and I just.
Three things I wanted to hit on one again, our thoughts and prayers to all those who were impacted by the tragic events that we had here earlier this month.
The organization is still dealing with that and we'll continue for.
Probably years to come.
But during that time.
We have always talked a lot about the.
The transition in leadership here.
I think Ralph Izzo and in a number of other people in the past, but no time, what I'd rather.
Want to do more than now and thank the entire team and my direct reports that have been.
Standing here with me and been able to not only deal with the tragic events, but also to execute on a plan that you heard earlier today.
We've accomplished a lot in a short period of time, we will continue to do that and we'll continue to build your confidence and look forward to having that conversation with you on March 10th when we meet with you at the stock exchange in New York.
Thanks for calling in.
And ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
Thank you symbolic.
Hum.
Mhm.
Uh huh.
Yes.
[noise].