Q2 2023 Public Service Enterprise Group Incorporated Earnings Call
Ladies and gentlemen, thank you for standing by.
My name is Rob and I am your event operator today.
I would like to welcome everyone to today's conference Public service Enterprise groups second quarter 2023 earnings conference call and webcast.
At this time, all participants are in listen only mode.
Later, well 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 August one 2023 and will be available for replay as an audio webcast on Pseg's Investor Relations website.
Investor that P. S E T dot com.
I would now like to turn the conference over to Carlotta Chan. Please go ahead.
Good morning, and welcome to Pseg's second quarter 2023 earnings presentation on today's call are Ralph Larosa Chair, President and CEO as well as Dan Craig Executive Vice President and CFO . The press release attachments and slides for today's discussion are posted on our IR website at <unk>.
<unk> Dot PSEG dot com and our 10-Q will be filed shortly.
<unk> 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 net loss as reported in accordance with generally accepted accounting principles or GAAP.
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 will now turn the call over to Ralph Larosa.
Thank you Caroline good morning, everyone and thanks for joining us to review Pseg's second quarter results.
This morning, PSEG reported second quarter 2023, net income of $1 18 per share compared to net income of 26 per share for the second quarter of 2022.
non-GAAP operating earnings for the second quarter was <unk> 70 per share compared to 64 per share for the second quarter of 2022.
And non-GAAP results for the second quarter of 2023, and 2020 to exclude items shown in attachment eight and nine provided with the earnings release.
Results for the second quarter and year to date, along with our full year 2023, non-GAAP operating earnings guidance of $3 40 to $3 50 per share, which we reaffirmed along with our outlook for 5% to 7% long term earnings growth through 2027 in this mornings earnings announcement.
Sure.
Then we will also discuss our financial results in greater detail, but this was a relatively straightforward quarter for both <unk> and <unk>.
PSEG power and other results fully meeting planning expectations and supporting full year segment guidance.
We are focused on proving out the execution of our plans to grow PSEG, while also increasing the predictability of our business earn.
During the quarter, we completed PSEG exit from offshore wind generation through the sale of our 25% equity stake in Ocean wind one factors that Rick.
Covering our investment in the project.
We also continued to implement the solutions, we outlined to address pension variability DST.
PSEG recently executed an agreement for pension lift out to further reduce prospective earnings variability.
This transaction covers approximately 2000 retirees and will transfer approximately $1 billion of related obligations and associated planned assets to the insurer.
The transaction is expected to be completed this month will result in no changes to the amount of benefits payable to the retirees and have no material impact on Pseg's non-GAAP operating earnings in 2023.
Turning now to Pseg's capital spending plans the utility portion of $15 5 billion to $18 billion remains focused on system monetization of our aging distribution infrastructure.
Last mile support and.
In preparation for easy and building electrification Amit.
Climate mitigation aligns with new Jersey's energy policies.
Clean energy investments.
<unk> investment program drives are expected compound annual growth rate in rate base of six to seven 5% from year end 2022 by year end 2027.
The low end of the street based CAGR as soon as an extension of our gas system modernization program and our clean energy investments at their current average annual levels. While the upper end includes an extension of our energy strong II program, which is scheduled to conclude in 2024 as well as the remaining portion of our proposal for medium and <unk>.
Due to Evs and energy storage programs.
As well as a potentially higher amount of investment for GSM in energy efficiency above current levels.
This robust capital program, we are ever mindful of customer affordability.
On this front <unk> continues to compare well to peers on a share of wallet basis, both in the region as well as nationally.
I mentioned last quarter that our 2023 utility capital spending budget of $3 5 billion was the largest single year plan in our history.
During the second quarter, we invested approximately $900 million, bringing us to $1 7 billion year to date at mid year.
We're on schedule and on budget.
In fact, <unk> just the sold its one millionth smart meter out of $2 3 million and we have plans and we continue to notice higher spend on electric new business related to electric vehicles and strong demand for our energy efficiency solutions.
Speaking of energy efficiency.
New Jersey Board of public utilities recently approved the second energy efficiency framework for the next three year cycle that will begin in July of 2024 and run through June of 2027.
This past may the <unk> approved a $280 million nine month extension of Pseg's first energy efficiency program to sink us up with the completion of the state's first cycle in June of 2024.
You may recall that <unk> started its energy efficiency programs earlier than the other new Jersey utilities.
The <unk> new framework sets up guidelines for the next round of energy efficiency filings, which are now due this October for implementation in July of 2024.
The energy efficiency annual reduction goals of 75% for gas and 2% for electric per program years, 'twenty six 'twenty seven remain unchanged.
The <unk> also improved the performance incentive mechanism to drive energy efficiency above the preset goals.
On the gas side of the utility <unk> filed the third phase of its gas system modernization program during the first quarter of 2023.
Which remains pending with Btu.
Our guests at the monetization program, we reduced methane leaks by approximately 22% system wide and assuming the extension at similar to current levels, we expect to achieve an overall reduction in methane emissions about leased 60% over.
Over the 2011 to 2030 period.
There was also good news for customer bills for this coming winter.
Following two basic gas supply service commodity charge reductions as past heating season.
Our recently filed Bgs S. Right proposes a reduction from 47 to <unk> 40 per therm.
If approved by the <unk>, the new rate will keep <unk> monthly bill for typical residential gas customers among the lowest in the region for the upcoming 2020 for heating season.
The bp's future natural gas stakeholder proceeding will also start this month and we expect to participate in the upcoming technical conference and on follow up meetings with New Jersey achieves its emission reduction targets, which will also be considering the impact on costs and jobs.
Tim <unk> President of PSEG is already actively involved in the state's clean buildings working group that is considering various approaches to building electrification.
<unk> the development of a three week standard.
Our overall approach to energy transition is to continue advocating for practical expansion of electrification in a manner, which protect customer affordability safety and reliability.
We were having impactful conversation for PJM or regional grid operator.
Jersey stakeholders.
Kris the coordination and understanding of a relative perspective on future load growth and the investment needed in existing T&D infrastructure.
To meet even a diluted version of new Jersey's energy transition.
Now turning to nuclear operations to PSEG nuclear fleet continues to safely generate the majority of new Jersey's carbon free base load electricity.
During the first half of 2023, our nuclear units generated over 16 terawatt hours of electricity and operated a capacity factor of 95, 8%.
Jasmine theaters, who many of you met at our March Investor Conference was promoted to Chief nuclear officer during the quarter in a seamless and well planned transition that included the sale of two refueling outage completed on schedule and on budget.
The power and the other portion of Pseg's five year capital program is significantly smaller amount of Pseg's total, mainly reflecting basic nuclear capital spending but does include several low cost high impact projects like the Hope Creek transition from 18 months to 24 month refueling cycles.
So just to wrap up what I believe is a quarter that delivers on what we have committed to you.
We are reiterating our full year non-GAAP operating earnings guidance of $3 40 to $3 50 per share.
Second we continue to make progress on building our earnings growth platform by keeping our largest ever capital program on track.
Finance with a strong balance sheet without the need for new equity or asset sales through 2027 and.
And this financial strength gives us confidence in our long term, 5% to 7% growth rate in non-GAAP operating earnings through 2027 and supports our ability to pay a competitive and growing dividend as we have for 116 years.
Third.
We increase the predictability of our financial results by streamlining the business with the completed offshore wind sale and delivering progress on reducing pension variability with the lift out.
Finally, we are working to keep our customer bills affordable during the energy transition with help from stringent cost controls and a culture of continuous improvement.
Moving out the execution of our strategy and maintaining a safe and reliable operations that is what you can expect from this team.
I'll now turn the call over to Dan for more details on the operating results and I will be available for your questions. After his remarks.
Great. Thank you Ralph and good morning, everybody.
Earlier, Ralph mentioned that PSEG reported net income of $591 million for $1 18 per share.
For the second quarter of 2023 compared to net income of 131 million or <unk> 26 per share for the second quarter of 2022.
non-GAAP operating earnings for the second quarter of 2023 were $351 million or <unk> 70 per share.
Fair to 320 million or <unk> 64 per share for the second quarter of 2022.
We've provided you with information on slides nine and 11 regarding the contribution to non-GAAP operating earnings per share by business for the second quarter and year to date periods.
In slides 10, and 12 contain waterfall charts that take you through the net changes for the quarter over quarter and year to date periods and non-GAAP operating earnings per share by major business.
Starting with PSA in G, which reported second quarter 2023, net income of 336 million or <unk> 67 per share.
This compares to $305 million or <unk> 61 per share in the second quarter of 2022.
Second quarter 2023, non-GAAP operating earnings were $341 million or <unk> 68 per share compared to 305 million or <unk> 61 per share in the second quarter of 2022.
The main drivers for both GAAP and non-GAAP results for the quarter were growth in rate base reflected in higher transmission formula rate recovery of.
Infrastructure investments with rolling mechanisms.
And a benefit from a reversal in timing of taxes, which we mentioned on the first quarter call nets to zero over the course of the year.
These favorable items were partly offset by our anticipated lower pension income and <unk> credits.
Along with higher depreciation and interest expense from increased investment versus the year earlier quarter.
Compared to the second quarter of 2022 transmission was <unk> <unk> per share higher.
Gas margin was a penny per share higher driven by the clause recovery of <unk> investment.
Electric margin was <unk> per share higher reflecting investment returns from energy strong.
And other electric and gas margin added <unk> <unk> per share based on a benefit from the tax adjustment credit at appliance service results.
Lower distribution O&M expense added <unk> <unk> per share compared to the second quarter of 2022.
Primarily reflecting reduced weather related corrective maintenance.
Depreciation and interest expense increased by one and two pennies per share respectively compared to the second quarter of 2020 to.
Reflecting continued growth and investment.
Lower pension income, resulting from 2020 two's investment returns combined with lower OPEC credits scheduled to end in 2023.
Resulted in a four cent per share unfavorable comparison to the year earlier quarter.
Lastly, the timing of taxes recorded through an effective tax rate, which nets to zero over a full year and.
In other flow through taxes had a net favorable impact of <unk> <unk> per share in the quarter compared to the second quarter of 2022.
Second quarter weather typically contains both heating and cooling sales.
For 2023 winter weather during the second quarter was 23% warmer in terms of heating degree days in the second quarter of 2022.
And summer weather was 34% cooler than second quarter 2022, as measured by the temperature humidity index.
As we've mentioned the Sip mechanism in effect since 2021.
Limits the impact of weather and other sales variances positive or negative on electric and gas margins.
Importantly, enabling <unk> to promote the widespread adoption of its energy efficiency programs.
Growth in the number of electric and gas customers the driver of margin under the <unk> mechanism continues to be positive.
And were each up 1% during the trailing 12 month period.
On capital spending <unk> invested $900 million during the second quarter and is on plan to deliver its largest annual capital investment program at $3 5 billion.
The program includes upgrades to our T&D facilities.
Energy strong II investments last mile spend in the infrastructure Advancement program.
And the continued rollout of the clean energy investments and energy efficiency in the energy cloud, including smart meters.
Related to our pension and February 2023, the Btu approved an accounting order authorizing piece Angie to modify its method for calculating the amortization of the net actuarial gain or loss component for ratemaking purposes.
This change is effective for the calendar year, ending December 31, 2023 and forward.
For the full year 2023, <unk> forecast of non-GAAP operating earnings is unchanged at.
At $1.500 billion to $1 billion $525 million.
Moving on to power and other.
As a reminder, power other includes our nuclear fleet gas operations.
Island, and parent activities, including interest expense.
For the second quarter of 2023.
PSEG power and other reported net income of $255 million or <unk> 51 per share.
non-GAAP operating earnings of $10 million or <unk> <unk> per share.
This compares to second quarter 2022, net loss of $174 million or <unk> 35 per share and.
And non-GAAP operating earnings of $15 million or <unk> <unk> per share.
We previously mentioned that during the first quarter of 2023, TCG power realize the majority of the approximate $4 per megawatt hour increase in the average price of our 2023 hedged output.
Which rose to approximately $31 per megawatt hour with higher winter pricing driving most of the increase.
For the second quarter of 2023 gross margin rose by a total of five cents per share, reflecting the absence of certain full requirements bgs load contracts that remained following the sale of the fossil business in 2022 and.
It resulted in a lower cost to serve compared to the prior year.
The increase in gross margin includes higher generation of a penny per share from fewer refueling outage days in the second quarter of 2023.
Offset by lower capacity revenues of a penny per share compared to the year ago quarter.
O&M cost comparisons in the second quarter improved by a penny per share in 2023.
Higher interest expense covering PSEG power and parent financings were <unk> <unk> per share unfavorable compared to the year ago quarter from higher variable rates on term loans and refinancing maturing debt at higher rates.
Lower pension income from 2022 investment returns and OPEC credits from the lower amortization benefit mentioned earlier.
Were <unk> <unk> per share unfavorable versus the second quarter of 2022.
And taxes and other was <unk> <unk> per share unfavorable compared to the second quarter of 2022.
Reflecting a partial reversal of the effective tax rate benefit from the first quarter and lower investment income.
On the operating side the nuclear fleet produced approximately seven seven terawatt hours during the second quarter and 16 Terawatt hours for the year to date period in 2023.
Running at a capacity factor of 91, 2% for the quarter and 95, 8% for the year to date period.
For the full year 2023, <unk> is forecasting generation output of 30 to 32, Terawatt hours and has hedged approximately 95% to 200% of this production at an average price of $31 per megawatt hour.
For 2024.
Fleet is forecasted to produce 30% to 32 terawatt hours of Baseload output.
It is hedged 75% to 80% of this generation at an average price of $38 per megawatt hour.
The forecast of non-GAAP operating earnings for PSEG power and other is unchanged.
At $200 million to $225 million for the full year.
This forecast reflects the realization of a majority of the expected increase in the average 2023 annual hedged price in the first quarter of 'twenty three as we previously discussed.
Touching on some recent financing activity as of June 32023, PSEG had total available liquidity of $4 billion, including five.
500 million of cash and cash equivalents on hand.
TCG power at net cash collateral postings of approximately 400 million at June 30th.
Which is well below the levels experienced during 2022.
Through the second quarter, we repaid $2 billion of term loans, which were entered into during 2022 to support our collateral needs.
In April we entered into a $750 million 364 to a variable rate term loan to support our liquidity needs.
As of June 32023.
<unk> had $750 million outstanding of 364 day variable rate term loan and.
And PSEG power had one $2 5 billion outstanding of our variable rate term loan maturing in March of 2025.
As of the end of the quarter PSEG had swapped $900 million of the power term loan from a variable rate to a fixed rate.
And in May <unk> paid at maturity $500 million of secured medium term notes.
As Ralph mentioned earlier, PSEG recently executed an agreement for a pension lift out.
That will further increase the predictability of our financial results.
This transaction covers approximately 2000 retirees from PSEG power and other.
I will transfer approximately $1 billion of related obligations and associated planned assets.
This transaction will have no material impact on Pseg's non-GAAP operating earnings in 2023.
Upon completion of the pension lift out we anticipate taking a one time noncash settlement charge in the third quarter of 2023.
Related to the immediate recognition of unamortized net actuarial loss associated with a portion of the pension involved in the transaction.
After providing for the effect of this transaction our pension plans remain well funded.
As Ralph mentioned, we are reaffirming pseg's full year 2023, non-GAAP operating earnings guidance of $3 40.
The $3 50 per share with.
With PS EMG forecasted to contribute between $1.500 billion to $1 billion and $525 million and PSEG power another forecasted at 200 million to $225 million.
The settlement charge related to the lift out is not included in the full year of 2023, non-GAAP operating earnings guidance for PSEG, <unk> or PSEG power and other.
That concludes our formal remarks, and operator, we are ready to begin the question and answer session.
Thank you.
Ladies and gentlemen, Luna, we will now begin the question and answer session for members of the financial community.
If you ask a question press the star and the number one on your telephone keypad.
If your question has been answered and you wish to withdraw your pulling request you may do so by pressing the star and the number two.
If you're on a speakerphone please pick up your handset before entering your request.
One moment please.
For the first question.
Thank you and the first question is comes from Shar <unk> with Guggenheim Partners. Please proceed with your question.
Hey, good morning, guys. Good morning, Sean Thanks sure.
Good morning.
Can you talk about.
Some uncertainties remaining.
Power and energy prices until we get that PTC guidance any update.
Conversations with charter there seems to be some delay.
Tax tax credit issues that potentially push.
Like the PTC implementation and is unchanged.
Power as you think about earnings hedging any of the efficiency projects like refueling, Canada et cetera.
Yeah. Thanks, sure I don't think it changes much.
For Us I think maybe an analogy.
<unk> 2023, the corporate minimum tax kicks in.
Still guidance that we're looking for for that as well so I think.
From a PTC perspective, its a tax credit.
It applies under the existing law states.
<unk> one of 2024, so I've heard nothing from the standpoint of any.
Les and implementation I think what we may have.
The potential for is we may not know on the first of January exactly how they will define grocery receipts, if I think about it.
Technically that.
Tax return, we will get filed until into 'twenty five.
I still would love to have information now cause that's playing what we do.
But I don't think Theres any question nothing that I've heard of any way that would tell you that the start date would be anything other than one or 2024.
But I have also not heard anything with respect to the.
Date, with which we will get further guidance.
Yeah.
Okay, and then just on the 24 case expectations. I mean, you guys have highlighted the need to recover our base spending thats not it.
<unk> to the tune of like 30.
Earnings in 'twenty, five as we're getting closer to a filing.
Maybe just talk a little bit about how we should think about the revenue deficiency in the overall rate impact as we are seeing higher cost of capital. It's certainly a different inflationary environment over the last several months.
Yes, I don't think I would think about it any differently than we talked about it before right.
Filing date for the rate case remains fourth quarter I think the nature of the capital that we still have in front of us for roll in.
All remains the same as what we've talked about before.
And so it will be a part of the filing that we'll make and again most of that.
Our items that we've been through proceedings with the btu, whether its stipulated base or whether it's some of the clauses that we've actually set up a deferral mechanism for those roll in so.
I don't think that we're in a different place from that approach and where it will go I think we're just kind of moving forward and getting that filing ready.
To be submitted in the fourth quarter.
Okay perfect.
Clear cut quarters. So that's all I had thank you guys I appreciate it thanks sure.
The next question is from Jeremy Tonet with Jpmorgan. Please proceed with your question Hey, Jeremy.
Hi, good morning.
Yes.
Good just wanted to get into the pension lift out a little bit more just wondering if you could provide some more details such as is there any cash changing hands here and how does the equity fixed income mix and the lifted out push compared to the breast and any thoughts on equity fixed income mix goes.
<unk> forward with the strength in equity markets, yes.
Yeah, So Jeremy I'm going to I'm going to have then give you some details.
Hello.
Discussed much on the Pik.
Pension investment committee plans, but.
I just wanted to kind of preface it by saying a couple of things one.
Really proud of the work that the entire team here did at PSEG I mean, there was a lot of hard work and we've talked about this pension lift out not too long ago and got to the point, where we executed on it.
And in a very timely manner. So just really happy with the work that they did really happy about the way that we were able to protect our retirees.
And the folks that.
Thanks, so much for us over the years and the way that we transacted here in.
A lot of details and we'll get out to those folks but.
I'm very happy about that part of this process as well and certainly happy about the results that we were able to achieve which Dan will go into a little more detail here, but.
It's more and more of the execution that we've talked about and trying to build that confidence for you all.
I expect that from us.
Yes, Jeremy.
Jeremy to your more particular questions. So your first question about cash transacted.
By its very nature of what the transaction is.
As a liability for future pension payments that will move out of the company and that liability will be match basically with cash that's going to go out with it and so yes, there is a cash.
Element to the transaction. However, you should think about that cash is coming out of the pension trust, where those liabilities will be paid from so from more general corporate cash.
Don't think about any cash from that perspective solely from the trust.
That said and I think that that is very a logical way to think about it given your second question, which is where does that cash come from and so we have investments across a bunch of.
Different elements spectrums of investments that we have made through different managers and the pension trust and I think it's just the most natural way to think about it without putting too fine a point on it is.
It's roughly 20%.
The pension and you could think of us as essentially taking about 20% of our investments across the board and moving them over there is that there wont be a perfect interpretation, but pretty close to how to think about what it would look like on a go forward basis from the remaining mix with it within the funds. So I think that's a simple way to think of.
About it but in an appropriate way to think about.
Got it that's very helpful. Thanks for that and then.
Thinking about the pension lift out here and thinking about kind of 5% to 7% growth.
CAGR as previously communicated is there any impact that we should think about here from this transaction.
No you should not.
The $5 to seven you should think about as being intact really Jeremy. This was all about looking to the potential variability in results that we could see corporately because of the size of the pension and that was the driver behind the transaction Ralph made a.
Hugely important point, we've said all along the first thing that we needed to do with our diligence wasn't sure that this was going to be a move that would protect the benefit to our retirees.
We did significant diligence there felt very comfortable there and then secondarily it needed to ultimately.
Come through in a way that made sense for the company as well and so that's exactly what we did.
I think that.
Managing that variability going forward is what we have talked about for a while but we wanted to deliver on.
And you could see some very very de Minimis.
Effects as we step forward within the plan, but nothing thats going to move us out of that range at all.
Got it that's very clear and helpful. I'll leave it there. Thanks, Thanks Jeremy.
The next question is from the line of David Arcaro with Morgan Stanley . Please proceed with your question Hey, David.
Hey, Thanks, good morning.
Quick.
Quick follow up on the lift out where does that leave you in terms of our funding ratio post the post the transfer there.
Yes, So we finished the year at 87% and the year has been.
Pretty good as we worked through so you can kind of think about that as increasing into the low ninety's.
And so we're.
In a good position from a funding perspective.
With what remains still within that kind of a range as we go forward from here.
Okay got it perfect and then.
On the Hope Creek fuel cycle extension is that kicking off earlier here than you had anticipated previously or is that still on track toward the potential fall 2025 outage that you had mentioned previously at the Investor Day, Yes.
So good pickup David it's definitely.
On track for that date that we talked about in the Investor day, but the work starts earlier right. Because it's just a lot of engineering work that needs to be done because some of those some of that fabrication starts.
Years in advance so well.
The engineering is taken place and kicked off we have a good idea of the cluster minimal as we did as we had explained and it's on target for that date that we had said so again more execution from the team down there.
Yeah, great. Thanks, and then just one other question related to that just as a follow on are you. How are you thinking about hydrogen in the.
Prospects of potentially producing hydrogen nuclear facilities do you have involvement or any perspective on the discussions going on now in terms of framing up that.
That policy structure and how additionality.
It might be might be considered just wondering if that's front of mind for you.
It's not top of mind, because it's not a big driver for us one way or the other but it's something we certainly want to do for two for a couple of reasons one it's.
It's the right thing to do from an environmental standpoint, if we can we can help on the hydrogen development front. So thats one piece of it too it's good for the region economically for New Jersey, and the southern part of the state down there if we could get some activities additional construction activity more jobs that southern area around our sales plan.
Has been challenged economically over the year, so another positive from that aspect.
And then from the.
Third it is going to have some incremental financial impact for us I think conditionality might make a lot of sense, but again I think we're a small player in that and we'll see where policymakers go with it.
Okay, great. Thanks for the color I appreciate it thanks David.
The next question is from <unk> Chopra with Evercore ISI. Please proceed with your question.
Hey, guys.
Hey, Rob good morning, Thanks for taking my questions.
I want to go back to the pension lift out real quick Dan Congrats for getting it done in short order here just.
If memory serves me right.
But a portion of the pension which is not covered by rates.
Or on the regulatory side was around 30% and this lift out is for 20%. So I'm just I'm just wondering if that.
What are you doing with the 10% that is not covered by rates just any thoughts there.
Yes.
Magnitude is right there to guests and.
Essentially the transaction and the go forward pension plans would have been more complicated to do this kind of a transaction with active employees because you kind of got a moving target right.
Your service cost continues to go forward your and those kind of elements come into play and so right. Now just think about what sits outside of this lift adding power and other as just being status quo.
Got it Okay. That's helpful. And then just any thoughts on potential for a settlement.
And the <unk> filing.
You've had.
This track record here energy efficiency was a very constructive outcome. So any color you can share there.
So I guess I'll give you a couple of pieces, Yes last night was the first public hearing that we had on the GSP.
Filing 17 individual spoke in favor of the.
Of the filing one against.
So just just in sheer numbers and conversation that was it was a very positive outcome.
For public officials spoke.
In favor of the project and the work that's been done so far by our folks out in the field. So.
Really really positive there.
No.
I'm very optimistic that.
<unk> sentiment is in the right direction that should all lead to a continuation of.
Of our opportunity to settle.
I would be surprised if.
We were in a situation that was anything about a settlement when we when we get to the end of this.
Excellent congrats guys great quarter here. Thank you.
Yes.
Sure.
The next question comes from the line of Carly Davenport with Goldman Sachs excuse me with your questions.
Hey, good morning, Thanks for taking the questions early.
Maybe just to start as you think about the regulatory environment in New Jersey, a couple of new commissioners.
You've joined the commission there anything that you would highlight in terms of changes or expectations around the regulatory landscape. There following the personnel additions.
Yeah, no nothing that I would I would expect to change dramatically. We've got we've got some real good conversations that are going on it.
But what I can tell.
And what folks have had drilling from conversations would be aligned with the.
Things that two new commissioners to talk about.
Focus on environmental issues focused on affordability.
I think what we're doing on the GSM programs completely in line from that standpoint, especially with our with the methane reductions that are involved there and the work that we're doing getting those price ready for whatever they may carry down the road the electrification work.
Is certainly aligned with.
Comments that those new commissioners have made in other settings before they were in the commission. So I think that's a.
A real defining that from an affordability standpoint.
I got to tell you the more we dig into this in preparation for our upcoming rate case, the proud of where I am a fourth new Jersey has done over the years I mean, we no matter, which way you look at it.
Rate increases for the entire state I'm, not just talking about us, but for the entire state of real estate.
Below inflation rates and with all the work that we're doing to electrified.
Homes Electrify transportation.
Clean up the grid.
It has really proved out in new Jersey that we can if you do it right you can do it in an affordable way and the numbers are proving that out so.
I think everything we're doing is aligned with what those two new commissioners would expect and things that they have said in prior positions that they've held.
Great. That's helpful. Thank you and then just on on collateral postings looks like that was down to about $400 million at quarter end any thoughts on how we should think about the cadence of incremental hedges rolling off from here.
Yes, Charlie.
Thank you.
If you think about us continuing to do what we've historically done.
It's probably the right answer and maybe just for a little bit of a different reason I answered. The question earlier on the on the PTC timing.
And you know that.
That chart had asked and we are still waiting, but we work. We've also thought through what some of those potential.
Outcomes could be from the Treasury regs, and we're taking into account admittedly a little bit in the dark what they could look like as we're continuing to move forward. So.
I think until we know something different I'd say, it's an educated.
Thought process.
But maybe not as educated as we'd like with the guidance that we have and thinking about what to do.
But we are layering on some incremental hedges as we go through time I think you've seen within the materials today over the last quarter have you seen a little bit more and a little bit of a higher price but.
So we're just trying to be smart about it and are in a situation, where we don't know everything we'd like to now.
But hopefully we'll get some information San from Treasury.
Got it thanks, so much.
The next question is from the line of Julien Dumoulin Smith with Bank of America. Please proceed with your questions.
Good morning team. Thank you guys very much I appreciate it.
Just wanted to follow up on a few things.
Hey.
Following up on a few things that have been said here first off coming back to that pension lift out.
And to run this by you guys just with the $1 billion applying a return on asset flipping the liability around Conversely, I mean, it sounds like that might be like in like maybe upwards of a nickel drag here again, it's it's difficult from the outside to run the math, but does that sound like ballpark is it a drag or is there sort of a net drag on a run rate 24.
Basis, if you will.
Or are there other offsets here to think about that.
On that one Julian listen I don't think those numbers you just quoted would be aligned with the words de minimis.
So.
We I think that would be a little bit more than what we would certainly expect that aligns with what our expectations are.
Got it. Thank you for clarifying that I appreciate it and then separately look I did I just hear you say additionality might makes sense on the nuclear side I just wanted you to.
Could you clarify your thoughts around that.
I can understand why people would make that argument so it might make sense in some circles to do that right I certainly would make the most sense from a from a if you just wanted to generate hydrogen.
And create hydrogen from the nuclear plants, but I could understand why people make that argument from a tax credit standpoint, right, because if youre getting tax credits for providing clean energy into the grid and then you convert that the hydrogen do you get both tax credits and I can understand that.
Legitimate argument to make so.
Yes.
That's something we're taken a position on one way or the other but I can certainly understand why some people would approach it that way I can understand why other people would approach it listen we really have to kick start the hydrogen.
Generation and so therefore, we want to see that.
We want to see all of those tax credits go to that to that angle I think thats. It.
It's a real policy call that some folks are going to need to make within.
Washington, So, we'll see where it goes.
Got it all right excellent and then just Meanwhile, if not going down the hydrogen right. I mean, how do you think about parallel avenues of datacenters or what have you just to maximize your opportunity set around these nuclear plants. Obviously, we've seen some of your peers out there maximizing around some of these.
Low carbon transactions, if you will yes. So so again I think what Dan has been say from the beginning and I just going to reinforce here is we really need to understand what treasury is going to seem to be the revenues at.
And once we understand that that we can optimize that.
For our <unk>.
Shareholders.
Everything I've been saying up to this point is just respectful of the conversation has been taken place that's not meant to take sides on anything so even whether it's data centers.
We try to do what's right for New Jersey, and New Jersey customers and so does that make sense as a data center here, where that data center or we will empower theres all sorts of things that are going to go into our thought process as we go forward.
One is what Dan has been say, let's see what the role of the Treasury say as to how revenues are going to be calculated.
Right got it but the point is youll come up with a or you could come up with a new strategy.
Pro forma for wherever the IRS lands on some of these racks.
For an update from you, yeah, 100% and but again it give us give us a week to digest the rules when they come out and then we will we'll have a plan ready where those conversations are not.
<unk>.
They're already we already are looking at things inside we'll figure it out.
Got it Youre already working on things pro forming here.
With folks.
Always.
That's why we were able to move as fast.
Yes.
Love It alright, good luck guys will speak to that.
Actually.
Our next question is from the line of Paul Patterson with <unk> Associates. Please proceed with your question.
Hey, good morning, how are you doing.
So just almost all my questions have been answered, but just on.
I apologize for missing this what was the what is the expected GAAP impact to deal with them.
Yep Yep.
In fact, yes.
Paul We said it is both as we look at 2023.
De Minimis impact.
Even worth kind of included within any models very very small impact anticipated and then going forward.
I'd say the same right that there's a very modest positive arbitrage, but by the same token what we're.
What we've also talked about here is we will see a one time charge coming through from the standpoint.
The unrecognized element and so the absence of that going forward. It does provide somewhat of an offset so that.
I would not think about it as having much of an impact 'twenty three.
We're going forward.
So the main driver that we talked about is mitigating the volatility.
Okay.
The charge itself.
The the charge itself is not going to be big either is what you're saying.
No that one charge. So if you take a look at our our year end 2022 that are amortized amount was about $2 billion. So we've disclosed that we would see something in the low two hundreds after tax from the standpoint.
That was in the release of the amortization of that chart. So think about the pension as a whole having that unamortized balance and if this is about a 20% impact you're saying about that coming through on the one time charge.
Okay. Thanks, so much for cloud.
Our next question is from the line of Anthony crowd out with Mizuho Securities. Please proceed with your questions.
Hey, good morning, Ralph Good morning, Dan morning, Anthony Anthony.
You may have addressed this in <unk> question, So I apologize, but if we think about from.
Year end to now you had the approval from the Btu on the pension smoothing and now the lift out how much of your pension volatility have you.
Reduced or removed from the end of 2022.
A little less than half somewhere between 40 and 50%.
Okay, and then I.
I. Appreciate you you did go through that this is for the <unk>.
<unk> power employees.
Regulated and in the fourth quarter Youre going to file the general rate case, where I believe you're going to request a pension tracker.
If the company is unsuccessful or.
Or the regulators did not approve the pension tracker.
It is this an option that you would look deeper into for the regulated employees or just structurally it just makes it very hard to do it for existing employees.
This type of lift out yes, Anthony So we will absolutely have a conversation with the <unk> about a mechanism to address strength.
Pension and the volatility around that so.
They worked with us on the last mechanism they worked with other companies.
So we will we'll be and they're having a conversation about it it's good for us good for ratepayers as well as us accretive reduces their volatility is well over a longer period of time as you go in for rates. So it makes sense for everyone.
Ed.
We always will continue to take a look at things like we just executed on but I will tell you that.
It's really tough to figure out for active employees.
What the right Formula is for all the reasons that Dan mentioned.
I think it was asked earlier.
How long is somebody going to work, what's gonna be their earnings trajectory.
And so on and so forth. So I think those pieces of the puzzle make it tougher when you have.
Grupo employees like we just went through it it was a lot easier to have that conversation again.
Got us in a really good place.
Great. Thanks for taking my questions. Thanks Anthony.
Our next.
Is from the line of Ryan Levine with Citi. Please proceed with your questions.
Good morning.
Given the range of grocery seed treatment outcomes from Treasury, what's the range of 24 hedges that you'd be considering adding onto to your nuclear plant.
Yes.
It's a tough question to answer.
Given that we don't have what we need to have from treasury.
We have been stepping into hedges as we've approached the year fairly similar to what we've done in the past to be as as prepared to mitigate the market volatility as we can and so I think a question is gonna be best answered.
When we do have that guidance.
And as we continue to go through the rest of the year.
It's a follow up on that I mean, when I look back on where you were last year at this time from a hedge standpoint, and you are meaningfully more hedged on a one year forward basis than you are today.
Given that comment.
What's driving the lower hedge book.
Well Ryan.
The other thing I would add to that as we've said in the past that we've tended to work our way through a three year period within a range.
But kind of a band of hedges across those three years and so there are periods of time, where we will try to take a look at what the market looks like within that range to take advantage of market opportunities and so if you just think about where we've been historically from a price point perspective, and where we are now I think the opportunities led us to be a little bit higher.
Within that band before and a little bit lower within that band compared to last year right now.
Which at the end of the day is exactly the way it Dan is manage this for years and the team has managed it for years and they flipped for those opportunities. So absent really clear guidance from Treasury, where we're doing what we've done in the past.
Okay.
Topics, how does the recently approved second energy efficiency framework impact the company's approach to energy efficiency into the next filing later this year.
Yes, I don't think it impacted what's going to happen in the next filing will really impact will impact what's going to happen in the next filing is what was just released by the board of public utilities, which is their triennial.
A report or a direction there was an order that came out on energy efficiency and.
No we're still studying that but that has a lot of.
Upside for US there that we think will really encourage additional energy efficiency.
Investments from companies like ours, so more to come on that but.
I would I would encourage you to take a hard look at that order because I think it really.
It provides a good roadmap for all of the utilities in New Jersey to follow in and provide some opportunity for us.
Thanks for taking my questions.
Thanks, Rob we'll take one last call and then we'll turn it back to Ralph for closing comments.
Thank you that that last call will come from Paul Fremont with Ladenburg Thalmann.
Hey, thanks.
Quick question on generation gross margin year to date, and how we should think about generation gross margin.
Or you're following your hedges.
Yes, I think if you take a look year to date.
All of the things we talked about upfront was the hedged price we saw most of that uplift within the first quarter. So we got more of the benefit from the timing of the hedges that were put on during the winter period.
What you are more likely to see as you go through the balance of the year is a little bit of a change from the standpoint of looking back at 22, when we kind of rolled off our final load serving contract compared to where we are now without them is that we have a little bit higher cost to serve last year compared to what we're seeing this year because of those contracts.
So.
Most of the top line benefit has been recognized year over year. If you take a look at where the hedge prices are but the cost to serve will benefit as we go through the balance of the year Paul.
So if I look at next year, you would expect.
The gross margin to be roughly comparable in terms of how it's calculated.
The differential to the hedge price as it is as it is this year.
No. We'll give you guidance next year for next year's results as we head in there.
But I think next year, you're also going to have a situation where you'll have ptc's in place that'll that'll change things. So it's a more complicated.
The structure that we can talk through as we go forward and to give next year's guidance.
Great.
Thank you very much thanks, Paul Thanks, Paul.
Thank you I would now like to turn the floor back over to Mr. <unk> for closing comments.
Thank you. So so I would just leave everyone with with this.
As we as we kind of.
With this new management team in place in and talked about things, we said, we weren't going to change much.
Continuing on our strategy, but I think.
This quarter kind of reinforced a lot of things that we've been telling you over the first six months here.
Alignment with public policy, especially in the state of New Jersey is really important.
And the great work from the workforce that we have and our alignment with.
With them on a regular basis and the reason for that is that you know.
We were able to execute the way we did three big wins I would say this.
This quarter.
Our exit from offshore wind done in a way that.
Really I would I would say, we're very very proud of we entered we took a hard look at that opportunity and we exited it in a way that.
We were able to keep our heads up financially policy wise and without and with the labor workforce and the state of New Jersey as we did that.
Second we stayed in line with public policy on our energy efficiency filing and took.
It's a good step forward, but as a result of that will really be able to take some advantage of some new orders that came out from the board that we just talked about.
So again really aligns with policy and a workforce that can deliver on that.
Third piece was what we just talked about on the pension the pension execution and work that was done there and again I just want to reinforce how happy we are that we were able to accomplish all the things that we set out to accomplish through some great great team work from a number of folks here on our team.
And then.
I don't want to lose sight of the the heat storm that we just had here in new Jersey and the work that was done again by the number of folks that that.
Has stepped up time and time again, whether it's our appliance service technicians out fixing and air conditioners.
Gone bad.
Two our overhead line workers, making sure that the Pull-top transformers or are back in service in the underground folks, making sure to networks here in Newark, and other cities are up and running in our call takers.
Answering any questions customers might have.
Timing of restoration for the few that did go out of power.
It was just it was just great work and really with seamless Tonight.
It did identify some additional opportunities for us in that last mile, which we're going to learn from and continue to put into our plans but.
Can't say enough about about execution.
On that front on the heat storm, but execution across the board on all the things that we've accomplished in the last quarter. So I. Appreciate you all calling in listening and we will continue to build your confidence as we move forward through the remainder of 'twenty three.
Talk to you next quarter.
Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.