Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Julie, and I'm your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Fourth Quarter 2018 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 star, and the number one on your telephone keypad. To withdraw your question, please press pound and the number one. As a reminder, this conference is being recorded Wednesday, February 27, 2019, and will be available for telephone replay beginning at 1 p.m. Eastern today until 11.30 p.m. Eastern on Thursday, March 7, 2019. It will also be available as an audio webcast on PSEG's corporate website, at www.pseg.com. I would now like to turn the conference over to Carlotta Chan. Please go ahead.

Thank you, Julie. Good morning, and thank you for participating in our earnings call. We released our fourth quarter and full year 2018 earnings results earlier today. The earnings release, attachments, and slides detailing operating results by company are posted on the IR website at investor.pseg.com. and our 10-K will be filed later today. The earnings release and other materials we'll discuss during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income, as reported in accordance with generally accepted accounting principles in the United States. Reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements are posted on our IR website and are included in today's slides and in our earnings release. I would now like to turn the call over to Ralph Izzo, Chairman President and Chief Executive Officer of Public Service Enterprise Group. Joining Ralph on today's call is Dan Craig, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. Ralph?

Thank you, Carlotta, and thank you all for joining us today to discuss our fourth quarter and full year 2018 financial results. Earlier today, we reported non-GAAP operating earnings for the fourth quarter of $0.56 per share versus non-GAAP operating earnings of $0.57 per share in the fourth quarter of 2017. Non-GAAP operating earnings for the full year were $3.12 per share, up 6.5% over 2017's operating earnings of $2.93 per share. Our GAAP results for the full year of $2.83 per share include the recognition of net unrealized losses on nuclear decommissioning trust equity securities as a result of new accounting rules, mark-to-market losses, and the gain related to the sale of the retired Hudson and Mercer generating units. Details on the results for the quarter and the full year can be found on slides five and six. PSEG had a successful year in 2018, continuing our long-term strategy of investing in PSEG's infrastructure and growing the percentage of our earnings coming from the regulated business. We put $3 billion of capital to work at PSEG, constructively settled our first distribution-based rate case in eight years, obtained approval for the next phase of our gas system modernization program, which I'll refer to as GSMP2, and filed two other significant regulatory programs. The first filing, Energy Strong 2, will enhance system reliability and resiliency, and the second filing, our Clean Energy Future, or CEF, support New Jersey's clean energy goals and give every customer the opportunity to reduce their energy bill while lowering emissions. You may recall that New Jersey passed clean energy legislation in 2018, which requires utilities to implement energy efficiency measures to reduce electricity usage by 2% and natural gas usage by three-quarters of a percent. Our CEF proposals are aligned with the objectives outlined by Governor Murphy and the legislature and designed to advance energy efficiency, electric vehicles, and energy storage as well as smart electric meters, or otherwise referred to as advanced metering infrastructure, AMI, to a broad group of customers in a least-cost manner. We consider our proposal to be the best way to achieve the state's energy efficiency savings targets, as it accomplishes this while limiting the growth in the customer bill and providing fairer, broad-based access to such benefits. Speaking of the customer bill, PSEG was the first utility in New Jersey to return the benefits of lower corporate income tax rates, which totaled approximately $262 million in customer savings last year. In addition, in 2019, we have implemented the return of $380 million of additional tax reform savings related to accumulated deferred income taxes that will further moderate customer bills going forward. We also made major progress at PSEG Power with last May's legislation that recognized the zero carbon attributes provided by New Jersey's nuclear generation and established a zero emission certificate program. In addition, power completed and placed into service 1,300 megawatts of new, highly efficient combined cycle gas units, or CCGTs, into our PJM fleet. With two of the three CCGTs now online, Power is expecting to complete its multi-year construction program in the middle of 2019. That will also bring an improvement in its free cash flow as Power's ongoing capital needs decline. BSEG's operations performed with high reliability in 2018 when it mattered most, during critical times when our service territory experienced extreme weather events that included a cyclone bomb, a polar vortex, multiple nor'easters, an extended summer heat wave, and the wettest year on record. In addition to safely operating our T&D system throughout the year, our associates shared their expertise and provided mutual aid to many of our neighboring utilities. At PSEG Power, our Hope Creek Nuclear Plant achieved its first ever breaker-to-breaker continuous run in April of 2018, helping deliver carbon-free energy in support of the state's clean energy goals. Non-GAAP operating earnings at PSE&G grew by 10.5% to $2.10 per share in 2018, benefiting from incremental investments in transmission and distribution programs that expanded rate base by $2 billion to end the year above $19 billion for an increase of 13%. This growth is consistent with the approximate 12% compounded annual growth rate in PSE&G's earnings over the past five years, and reflects the record $14.4 billion of capital invested in the reliability and resiliency of our system over the same period. Of note, PSE&G achieved this growth in earnings and rate base through constructive regulatory mechanisms that allow for contemporaneous or clause-based recovery for the majority of those important infrastructure investments. PSE&G's efficiency and discipline in managing costs enabled it to operate without a base rate increase since 2010. And our recent distribution base rate review was completed with customer rates remaining basically flat. We will continue to drive this disciplined approach to efficient growth in earnings and rate base, along with a continued focus on the customer bill. Our investments in system reliability continue to be recognized for the value brought to our customers. For the 17th year in a row, PSE&G was recognized as the most reliable electric utility in the Mid-Atlantic region and was also awarded the 2018 Outstanding Customer Reliability Experience Award, highlighting our outage reporting and restoration communications. Last May, the New Jersey Board of Public Utilities approved a $1.9 billion five-year investment plan to extend PSE&G's innovative gas system modernization program modeled after the infrastructure investment program process established by the BPU to incentivize investments in critical utility infrastructure. PSE&G recently began this next stage of accelerated replacement of up to 875 miles of aging gas pipe, which will carry us through 2023. In the coming months, we will strive to make progress on both the Energy Strong II filing and the Clean Energy Future Energy Efficiency Program, with anticipated decisions on both programs sometime in the third quarter. Now let me turn my attention to PSEG Power. Power's non-GAAP operating earnings for the full year of $502 million, or 99 cents per share, were 1% below last year. Power continues to exercise stringent cost discipline, while producing solid operating results that included higher generation from our gas and coal-fired units over the prior year. As I mentioned previously, PSTG Power is nearing completion of its construction program related to its three new natural gas combined cycle generation stations, with the last unit, Bridgeport Harbor 5, expected to be completed in the middle of this year. The Keys and Sea Warrant stations completed last year have operated well since coming into service. Together, these three units represent 1,800 megawatts of new, efficient, clean gas-fired capacity that will replace some older units and improve power's competitive position. On the policy front, I want to bring you up to date on our efforts to secure recognition for the value of the environmental, fuel diversity, and resiliency attributes provided by our three New Jersey nuclear units. Nuclear generation is a critical component of New Jersey's generation portfolio, and it provides approximately 40% of New Jersey's electric power needs and over 90% of its carbon-free electricity. The legislation created a zero-emission certificate program that is being administered by the BPU, which is now in the process of evaluating the three applications submitted by power in December of 2018. If awarded the New Jersey zero-emission certificate, They will be set for a three-year period at 0.004 cents per kilowatt hour, which allows for approximately $10 per megawatt hour in payments to any selected nuclear plant. The legislation requires a BPU decision by April 18th. Any plant receiving a ZEC award starts accruing benefits in April, with the first award period ending in May of 2022. The legislation requires nuclear plants to reapply for any subsequent three-year award period. In December 2018, Power submitted VEC applications to the BPU for the Salem I and II and Hope Creek nuclear plants. These were the only applications submitted. As required, the three applications included a certification in which Power confirmed that each of the Salem I, Salem II and Hope Creek plants will cease operations within three years absent a material financial change. While we are fully confident that each of our three ZEC applications demonstrates conclusively that the financial and environmental standards required under New Jersey's legislation have been met, we cannot predict what the BP will decide. As a result, we have continued contingency planning to shut down the units. In the event that any of the Salem 1, Salem 2, or Hope Creek plants is not selected to receive zero-emission certificates starting in April of this year and don't otherwise experience a material financial change, power will then take all necessary steps to retire all three plants at their next refueling outages. With respect to FERC's pending rule on the PGM capacity auction design, an interim decision remains pending. As you know, last June, FERC issued an order finding that PJM's current capacity market construct is unjust and unreasonable because it allows state-supported resources to suppress capacity prices. FERC suggested alternative approaches, which included modifying its minimum offer price rule to apply to new and existing resources that receive out-of-market payments. FERC's other directive was to establish an option that would allow on a resource-specific basis state-supported resources to be removed from the PJM capacity market, along with a commensurate amount of load for a period of time. PJM submitted its recommendation for a two-stage capacity auction, which would leave in state-supported resources and load during the initial auction to determine capacity obligations. PJM would then remove the state-supported units and rerun the auction with the remaining supply stack. The fill-in generation that replaced the removed resources sets the final capacity market clearing price for all resources. These fill-in resources aren't needed for the overall capacity obligation. They don't receive the market clearing price, but instead they get what's referred to as a lost opportunity payment equal to the difference between their bid and the market clearing price. We believe that either PJM's two-stage repricing proposal or the FERC's suggested resource-specific FRR alternative, can work with New Jersey's existing ZEC structure. Alternatively, if all of our New Jersey nuclear plants are selected to receive zero-emission certificate payments in April 2019, but the financial condition of the plants is materially adversely impacted by potential changes to the capacity market construct being considered by FERC, and in the absence of sufficient capacity revenues provided under a program approved by the BPU in accordance with a FERC authorized capacity mechanism, then Powell would still take all necessary steps to retire all of these plans. With respect to energy, the PJM Board recently decided to submit a Section 206 filing to FERC covering PJM's reserve price formation proposal, also known as ORDC, or Operating Reserve Demand Curve. This effort is intended to improve scarcity price formation and overhaul operating reserve levels and energy prices to better reflect system conditions and appropriately value scarcity. PGM expects to submit the filing within the next few weeks, but the timing and ultimate implementation remain uncertain. And in fact, if implemented, any revenue recognition could be well into the future. The State of New Jersey has also made progress in its efforts to become a leader in offshore wind. Following Governor Murphy's executive offer directing the BPU to move the state toward a 2030 goal of 3,500 megawatts of offshore wind energy generation, an initial solicitation was established for 1,100 megawatts of offshore wind, and the state received three bids just this past December. In connection with the bid submitted by Ocean Wind LLC, a subsidiary of Orsted U.S. Offshore Wind, We agree to provide energy management services and the potential lease of land for use in project development. We also retain an option to acquire an equity interest in the project. If ORSPED's bid is selected, we would expect to make a decision regarding what, if any, investment we may have in the ocean wind project in the second half of 2019. Our financial condition remains a competitive advantage, and we continue to benefit from the financial flexibility that a healthy balance sheet provides. We ended 2018 with solid credit metrics that will enable us to finance our considerable capital plans over the coming five years and provide the opportunity for growth in our dividend without the need to issue equity. Our total capital program for the years 2019 through 2023 is now $12 to $17 billion, with over 90% of that amount directed at regulated utility growth. that improves the reliability and efficiency of our operation and supports New Jersey's energy policy goals. Over the coming five years, PSE&G plans to invest approximately $11 to $16 billion on programs which are expected to provide annual rate-based growth of 7 to 9 percent starting from the higher 2018 year-end base of $19 billion. Our CCGT program is largely complete with just the commercial operation of the 485-megawatt Bridgeport Harbor unit remaining. PSEG's continuing long-term strategy to transition our business to a mostly regulated company with predictable cash flows is on track. Our regulated utility, PSE&G, is projected to represent nearly 75% of our consolidated non-GAAP operating earnings this year. PSEG Power, Our high-quality generation business will see its free cash flow improve and will continue to support our investment programs and dividend growth. So as for 2019 guidance, the conclusion of our distribution base rate case and incremental investments in transmission and distribution infrastructure, combined with a relentless approach to minimizing O&M growth, have offset the expected declines in energy and capacity prices in 2019. PSEG's business mix is expected to produce growth in 2019 consolidated non-GAAP operating earnings. So for this year, we are forecasting consolidated non-GAAP operating earnings of $3.15 to $3.35 per share, which at the midpoint represents over 4% growth in earnings over 2018 results. This increase is led by a higher contribution from regulated earnings at the utility moderated by the expected decline in powers results that reflect market prices for energy and capacity, and also includes the benefit from a partial year of zero emission certificates for all three of our New Jersey nuclear plants. The Board of Directors' recent decision to increase the company's common dividend by $0.08 per share to the indicative annual level of $1.88 per share is the 15th increase in the last 16 years. and reflects our financial strength, business mix, and confidence in our outlook. Let me also acknowledge and thank all of our employees in both New Jersey and on Long Island for the outstanding contributions made over the past year in utility operations and construction, in nuclear and fossil operations, and all the support organizations that enabled us to execute on a full regulatory and policy agenda in 18th. Oh, and I should not admit, obviously, our employees in Connecticut and upstate New York as well. As we enter our 116th year, PSEG remains committed to our strategy to build long-term value for our shareholders as we meet the evolving needs of our customers and the diverse communities we serve. I'll now turn the call over to Dan for more details on our operating results, and we'll be available to answer your questions after his remarks.