Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Tiffany, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Fourth Quarter and Full Year 2019 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session for members of the financial community. At that time, if you have a question, you will need to press the star and the number 1 on your telephone keypad. To withdraw your question, please press pound and the number 1. As a reminder, this conference is being recorded today, Wednesday, February 26, 2020, and will be available for telephone replay beginning at 1 o'clock p.m. Eastern Time today until 1130 p.m. Eastern Time on March 5, 2020. 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, Tiffany. Good morning. PSEG released its fourth quarter and full year 2019 earnings results earlier today. The earnings release attachments and slides detailing results by company are posted on the IR website, and our 10-K will be filed shortly. The earnings release and other matters we will discuss on 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 included in today's earnings materials. I will now 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.

Thank you, Carlotta, and good morning, everyone, and thanks for joining us on the call today. PSEG reported non-GAAP operating earnings for the fourth quarter of $0.64 per share. That's an increase of 14% versus non-GAAP results of $0.56 per share in the fourth quarter of 2018. Non-GAAP operating earnings for the full year were $3.28 per share, which are 5% higher than 2018's non-GAAP results of $3.12 per share. We achieved solid operating and financial results in 2019, which marked the 15th consecutive year that PSEG delivered results within or above our original earnings guidance. Our gap results for 2019 of $3.33 per share compared to net income of $2.83 per share for 2018 and reflected higher earnings due to several factors, these included the conclusion of PSE&G's 2018 distribution rate review, excuse me, a partial year of zero-emission certificates, or ZECs, as I'll refer to them later on, mark-to-market gains and nuclear decommissioning trust fund gains compared to losses in 2018, and higher pension credits from benefit plan changes in 2019. Net income for 2019 also included a loss recorded on the sale of PSEG Power's ownership interest in the coal-fired Keystone and Conaway units in Pennsylvania that closed in the third quarter. Details on the results for the quarter and the full year can be found on slides six and seven. At PSE&G, net income grew by 17%, to $2.46 per share in 2019, and rate base grew to over $20 billion at year-end, representing an increase of 6%. We invested over $2.7 billion at PSE&G in 2019, directed at improving the reliability and resiliency of our transmission and distribution system, while also reducing methane emissions through the second phase of our gas system modernization program, or GSMP, as I will also refer to later on. PSE&G completed its energy-strong resilience work for nearly $200 million less than the authorized amount. and we finalized the second Energy Strong Agreement to invest an additional $842 million on system hardening to better adapt to a climate-challenged world. For 2019, PSE&G once again achieved top-coercile OSHA scores for safety and posted our best-ever J.D. Power scores for electric and gas customer satisfaction. We outpaced the industry the average industry improvement on metrics that consider total monthly costs, build clarity, fairness of pricing and options, and ability to manage monthly usage. We were also gratified to receive, for the 18th year in a row, PA Consulting's Reliability I Award as the most reliable electric utility in the Mid-Atlantic region. We remain strongly supportive of New Jersey Governor Murphy's goals of reaching reductions in electric usage of 2%, and gas usage of three-quarters of a percent within five years of programmatic energy efficiency implementation. Last week, we agreed to extend the procedural schedule of our Clean Energy Future energy efficiency proposal from March to the end of September 2020 in order to provide regulators with additional time to complete their review of our $2.5 billion filing, which is essential for New Jersey to reach its carbon neutral energy goal by 2050. This agreement was approved by the New Jersey Board of Public Utilities, our BPU, at their February 19th meeting. At the same time, our existing programs were authorized to invest an additional $111 million. Of note, the BPU lifted a statewide moratorium on Advanced Metering Infrastructure, AMI if you will, and directed the electric distribution companies to file new proposals, or in our case, to update previously filed proposals to install AMI across the state. This is a significant advance for customers as it will help them better manage their energy use and improve outage restoration times. AMI will also support the integration of EE programs, which can limit growth in the customer bill. We look forward to applying best practices learned from our experience installing about one million smart meters at PSEG Long Island over the last three years. In addition, the BPU staff has circulated draft procedural schedules covering the remaining $1 billion of proposed clean energy future investments in AMI, electric vehicles, and energy storage. The draft schedules outline concluding these cases by BPU decisions in the first quarter of 2021, or possibly later this year if settlements can be agreed to by the parties in the cases. Since we filed PSE&G's four-part Clean Energy Future program in January of 2019, much has happened on the clean energy front in New Jersey and surrounding states. Last April, the BPU awarded three years of ZECs to each of our New Jersey nuclear units, supporting their continued operation as New Jersey's largest source of baseload carbon-free generation. In June, the BPU awarded the state's first offshore wind solicitation, to the 1,100 megawatt ocean wind project. And at the start of 2020, New Jersey reentered the Regional Greenhouse Gas Initiative, or RGGI. Pennsylvania and Virginia are considering joining RGGI as well, which could address some of the price disadvantage or leakage experienced by lower carbon states surrounded by non-RGGI participants. The BPU finalized the state's energy master plan last month. which broadly supports the decarbonization and modernization of New Jersey's energy system in order to achieve its goal of 100% clean energy by 2050. A cornerstone of meeting that objective is retaining nuclear generation through 2050, maximizing energy efficiency, the deployment of offshore wind, and other renewable generation, as well as electrifying the transportation and building sectors. The final version of the Energy Master Plan also mentioned the BPU's intent to be more proactive in matters related to transmission siting, cost allocation, and financial returns determined by the Federal Energy Regulatory Commission, or FERC. This is an issue that has come into sharp focus following the FERC's November 2019 order, narrowing the methodologies used to determine the return on equity for a group of Midwest transmission owners. we are reaffirming the earnings sensitivity for transmission returns we have provided in the past, where each 10 basis point move in ROE from our base of 11.18% would result in a one cent per share change in annual utility earnings. I must tell you, the market appears to have assumed a reduction of PSE&G's transmission ROE as a result of the Midwest ROE order, and then some. I would point out that the Midwest ROE order appears far from final. The complexity, expense, and uncertainty on timing and which calculation methodologies FERC ultimately adopts makes the outcome of any potential complaint, should one be filed, difficult to predict. I also would like to address the Energy Master Plan's goal to maintain existing gas pipeline system reliability and safety while planning for future reductions in natural gas consumption tied to energy efficiency. We believe that it may become more difficult to site new natural gas infrastructure such as pipelines and power plants in New Jersey. That said, regulators have been publicly supportive of maintaining and modernizing existing gas infrastructure to ensure safety and to minimize harmful methane emissions. Both of these are benefits of our gas system modernization program. From a practical standpoint, 80% of New Jersey households already use natural gas to heat their homes or to cook. And in fact, many of our customers converted to natural gas from using oil or electricity for these purposes. Conversion costs per customer would be upwards of $10,000 or higher. This would be a significant economic burden on every household. and contrary to most customers' personal preferences. PSE&G customers enjoy the lowest natural gas prices in the region, so a mandated switch to electrification of homes would also diminish the decade-long price benefit shale gas has provided to New Jersey. Moreover, it would be worse for the environment until zero-carbon generation dominated the fuel mix. We strongly believe, and the BPU acknowledges, that natural gas and nuclear power are essential to New Jersey's energy mix and will remain that way for the foreseeable future. With this backdrop of clean energy progress, the urgency for needed climate action, and major elements of the 2018 Clean Energy Act awaiting implementation, PSE&G's $3.5 billion clean energy future filing is as important as ever to get done. Our proposed energy efficiency programs give every customer the opportunity to reduce their energy bills while lowering emissions. As part of the BPU-approved extension of the energy efficiency filing, PSE&G will expand investment in several of its existing programs by $111 million. The previous extension, authorized last fall, quickly sold out, underscoring the demand for our energy efficiency offerings. Providing universal access to energy efficiency is but one of the many ways we demonstrate our commitment to minimizing the customer build, as we have always recognized this to be a vitally important factor in our ability to make system investments in an affordable manner. In addition to the bill comparisons we've highlighted previously, and I will repeat here, that combined customer bills are 30% lower than they were 10 years ago and are 40% lower in real terms, it should be noted that over the 2018 to 2023 period, PSE&G will lower bills by nearly $3 billion. of tax reform-related benefits, with approximately $650 million in 2019 alone. Over half of that, $380 million, went to lower transmission bills. We're able to pass through these savings, in some cases on an accelerated basis. In 2019, PSE&G returned all eligible excess deferred tax balances at transmission, offsetting a scheduled formula rate increase that resulted in a $52 million rate reduction. We continue to be mindful that PSE&G's balance sheet strength enables us to pass through these savings on an accelerated basis, which in turn aids the affordability of investing in large infrastructure projects that benefit customers. Let me turn my attention to PSE&G Power for a moment. Power's non-GAAP operating earnings for the full year of $409 million or 81 cents per share, were 19% below 2018, reflecting the effect of recontracting at lower market prices and lower capacity revenues that were partly offset by ZECs starting in April. We completed Power's 1,800 megawatt combined cycle construction program with the placement into service of Bridgeport Harbor 5. We also made significant progress in replacing reactive vessel bolts at Salem 1. Power continues to exercise stringent cost discipline to remain competitive in a challenging market. PSEG Power made progress in 2019 to reduce the already low-carbon footprint of its 11-gigawatt fleet, with an output profile now comprised of over 50% baseload zero-carbon nuclear generation. Given the completed sale of nearly 800 megawatts of coal interest in Keystone and Conema, Power expects it will eliminate all coal-fired generation from its fuel mix by mid-2021, with the scheduled early retirement of Bridgeport Harbor III. On the power market and policy front, the recent capacity auction held in ISO New England produced a weak capacity clearing price that reflected a significantly lower demand forecast. However, our largest asset in New England is the new Bridgeport Harbor V combined cycle gas turbine. which, as you know, cleared the 2019-2020 auction and locked in a $231 per megawatt day capacity payment for seven years, thereby limiting our exposure to this latest auction result. The long-awaited FERC capacity order to expand the application of the minimum offer price rule, and I'll just refer to that as MOPR going forward, puts PJM states that want to support clean energy resources on notice, that they will need to seek an alternative to the capacity market auction in order to procure their preferred resources and avoid the risk of costly double payments to satisfy their capacity obligation. PGM is expected to update their price floors for all PGM nuclear units soon and will submit these default avoidable cost rates, or ACRs, to FERC in their compliance filing on March 18th. The ACR will be used as the price floor for subsidized nuclear units and will likely determine whether our New Jersey nuclear units can clear the PGM capacity auction for the 2022-2023 energy year. As a reminder, our capacity revenues are locked in through May 2022. As the FERC order currently stands, the MOPR will also be applied to new state-supported renewable generations, such as offshore wind. which will have the net cost of new entry as its price floor. That price floor results in a very remote possibility of clearing the capacity auction, which has prompted several PJM states to consider a fixed resource requirement, or FRR, self-supply option. We will work cooperatively with the Board of Public Utilities in New Jersey and PJM to find the best path forward. whether that is to bid and clear the capacity auction under a business-as-usual scenario or seek the FRR alternative in partnership with New Jersey to preserve its preferred zero-carbon resources. And let's remember that the underlying rationale for FERC's action was to eliminate price suppression caused by units that were receiving out-of-market payments. Also at Power, we've reached an agreement to sell our interest in the Yards Creek Pump Storage Generating Station that we jointly own with First Energy. This sale reflects our ongoing commitment to optimize the value of the generating fleet. These proceeds will add to the improved cash flow at power, given the completion of the combined cycle construction program and power's declining capital needs. BSEG's long-term strategy to transition our business to a mostly regulated company with predictable cash flows is on track. our financial condition remains strong with a healthy balance sheet that provides us the ability to finance our five-year capital plans and provides the opportunity for growth in the common dividend without the need to issue equity. Our total capital program for the 20 to 24 time period is now $12 to $16 billion, with over 90% of that amount directed at regulated utility growth that improves the reliability and efficiency of our operations and supports New Jersey's energy policy goals. PSE&G's planned capital spending program over 2020 to 2024 is $11.5 to $15 billion, and it's projected to produce compound annual growth in rate base of 6.5 to 8%, starting from 2019's year-end base of just over $20 billion. So that denominator in the CAGR keeps growing. For 2020, we are forecasting consolidated non-GAAP operating earnings of $3.30 to $3.50 per share, which at the midpoint represents approximately a 4% increase, 3.6% to be precise, over 2019 results. Full year 2020 consolidated guidance remains at a consistent 20 cents band as provided in recent years. While subsidiary guidance ranges are modestly wider, to allow for variability by business that is often offset in consolidated results. The increase for 2020 is led by a higher contribution from regulated earnings at PSE&G approaching 80% of consolidated results, partially offset by an expected decline in powers results to account for lower expected market prices for energy and capacity. This guidance includes the benefit from a full year of ZECs for all three of our New Jersey nuclear plants. The Board of Directors' recent decision to increase the company's common dividend to the indicative annual level of $1.96 per share is the 16th increase in the last 17 years and reflects our commitment to returning capital to our shareholders, as well as preserving the financial flexibility to pursue growth. We finished 2019 well-positioned to execute on our policy and regulatory priorities, as well as our environmental, social, and governance priorities. PSEG recently adopted the Sustainability Accounting Standards Board, or SASB, disclosure practice, and incorporated the UN Sustainable Development Goals in our 2019 sustainability report. PSEG Power adopted a net zero by 2050 goal in July, assuming advancements in technology, public policy, and customer behavior. And this coming April, we expect to issue our first climate report using the Task Force on Climate-Related Financial Disclosures framework. PSEG was again named to the Dow Jones Sustainability Index for North America for the 12th consecutive year in 2019. Most recently, PSEG was recognized among America's most just companies for 2020 by Forbes and Just Capital. And Forbes included PSEG in its 2020 list of America's best employers for diversity for the third year in a row. With that in mind, I want to thank all of our employees for their dedication and customer commitment each and every day that helped make these results possible. I will now turn the call over to Dan for more details on our operating results, and we'll be available for your questions after his remarks.