Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Chrissy and I'm your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group First Quarter 2020 earnings conference call and webcast. At this time, all participants are on 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 pound and the number one. As a reminder, this conference is being recorded today, May 4, 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 May 13, 2020. It will also be available as an audio webcast on PSEG corporate website at .pseg.com. I will now like to turn the conference over to Carletta Chan. Please go ahead.

Thank you, Chrissy. Good morning. PSEG released First Quarter 2020 earnings results earlier today. The earnings release attachments and slides detailing results are posted on PSEG's IR website and our 10-Q 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 discussed 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. Reconciliation 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 thank you all for joining us today. Before we begin our review of this quarter's results, let me take a moment to express my sincere condolences to anyone on the call who has been personally affected by COVID-19. I also extend my gratitude to the healthcare and emergency first responders. For these frontline heroes in New Jersey, PSEG recently donated 50,000 N95 masks and 200,000 pairs of gloves to help replenish personal protective equipment. I'll refer to that as PPE from now on. The PSEG Foundation has also made a two and a half million dollar commitment to provide grants to regional food banks and health and social services organizations in our communities. PSEG's first and foremost responsibility has always been to provide safe and reliable delivery of electric and gas service to our 3.7 million customers in New Jersey and on Long Island. As part of the New York metropolitan area, New Jersey and Long Island have been among the hardest hit areas by COVID-19, but are showing signs of improvement. Confirmed COVID-19 incidence rates among PSEG employees remain below those of the New Jersey and Long Island general populations. Approximately 1% of our employees are currently self-monitoring, so personnel availability continues to be strong and attests to the effectiveness of the safety protocols we put in place early on. This will become even more important as the summer storm season begins and access to mutual aid resources may be limited. The ongoing safety of our employees and our customers is central to PSEG's response to COVID-19. We review our safety protocols on a regular basis against recommendations from federal, state, and local health authorities regarding practicing physical distancing, PPE, and performing extensive cleaning protocols. While we've suspended non-essential fieldwork activities, PSEG and PSEG Long Island are continuing to respond to customer outages and requests for emergency services, such as no heat or no hot water calls. Importantly, we are continuing our work on critical energy infrastructure projects that contribute to the system reliability and resilience that our customers value. Last week, Governor Murphy outlined the road back, a multi-step approach for recovery and restart of the New Jersey economy in the coming weeks and months as conditions permit. Looking ahead, we have also started planning a responsible reentry for the PSEG workforce once the states in which we operate, New Jersey, New York, Connecticut, and Maryland, begin their transition to recovery mode. Toward that goal, PSEG is carefully preparing to make changes to our work sites, work practices, and procedures in order to protect the health and safety of our employees and customers. We will take these steps so as to emerge stronger, more nimble, and more resilient on the other side of this transition. Now, switching over to our financial results for the first quarter, we've had a good start to the year. PSEG reported $1.03 per share of non-GAAP operating earnings versus $1.08 per share in the first quarter of 2019. Our GAAP results for the quarter were $0.88 per share compared to $1.38 per share in last year's first quarter. Details on the results for the quarter can be found on slide five of the earnings presentation. And until the second quarter of 2019, offset by a scheduled decline in powers capacity prices and unfavorable weather comparisons at both PSE&G and especially at Power, caused by the second mildest first quarter ever recorded in New Jersey. Due to the temporary closure of most New Jersey businesses, schools, and government buildings following the -at-home orders that began March 21st, the PSE&G service territory experienced a weather normalized decline of approximately five to 7% in electric load from the end of March through April. Excuse me. This is in line with the more aggregate data we get from PJM, which suggests that demand is down by the same five to 7%. These ranges, as well as the mix of usage among residential, commercial, and industrial customers, are imprecise as the lack of smart meters, or AMI, in New Jersey limits our ability to analyze changes in demand in real time. That said, we anticipate that this reduction could extend through the second quarter and possibly longer. Addressing this directly, we have less volume risk and less margin risk than the reduction in PSE&G's kilowatt-hour sales might suggest. Transmission and residential, electric, and gas customers comprise three quarters of the total utility margin. Transmission is not volume-sensitive, and residential customer margin is expected to be higher during the -at-home period. The remaining one quarter of margin comes from commercial and industrial customers, which is largely driven by peak demands, and for gas is set on an annual basis rather than volumes. Also, non-residential customer segments contribute a much smaller percentage of margin during the lower-use shoulder season that covers most of the second quarter. The -19-related reduction in demand appeared late in the first quarter, but added to the negative effects of the warm winter in New Jersey. However, PSEG has managed through these challenges, continuing our investment program at PSE&G, providing New Jersey with zero carbon emission power from our nuclear facilities, and ensuring efficient cost management across our business. One of the biggest and most complex projects one can undertake, even in normal times, is managing a nuclear refueling outage. So I'm pleased to report that the Salem 2 refueling outage is going quite well. The nuclear team is doing a great job and has reduced the scope of the outage while expanding health screenings to include non-PSEG crews in order to protect all workers at the multi-unit site, which also includes Salem 1 and Hope Creek. As we celebrated the 50th anniversary of Earth Day last month, albeit virtually, PSEG also released its inaugural climate report following the framework established by the task force on climate-related financial disclosures, also known as TCFD. The report acknowledges the continuing impact that climate change is having on PSEG's operations, our service territory, and on our customers' lives. And it proudly details our support for the preservation of nuclear generation, implementation of energy efficiency to curb greenhouse gas emissions, and advocacy for effective climate policies, most importantly, a price on carbon emissions. On the regulatory and policy front, there have been several constructive developments at both FERC, the Federal Energy Regulatory Commission, and the New Jersey Board of Public Utilities, the BPU, since our last earnings call. In March, FERC signaled in a notice that proposed rulemaking its support for the continuation of transmission incentives and recognized the overall value of transmission investments. FERC also proposed increasing the RTO adder from 50 to 100 basis points for participating in a regional transmission organization, such as PJM. The New Jersey Energy Master Plan finalized this past January, noted that the BPU would increasingly engage in transmission ROE and cost allocation proceedings at FERC on behalf of New Jersey ratepayers. We continue to work with the BPU on these matters. The BPU has also kept pace on their multiple clean energy agenda priorities, continuing its energy efficiency transition proceeding with stakeholder working group met webinars, including one being held today. The BPU's staff has advanced its view on administering EE programs to meet the annual 2% electric savings and .75% gas savings targets in the 2008 Clean Energy Act, with the utilities having a lead role in managing these critical efforts to cost-effectively reduce usage and therefore emissions and customer bills. BPU's staff also continues to consider stakeholder input on energy efficiency cost recovery. PSE-ING has been an active participant in a stakeholder dialogue on these and other energy efficiency topics. It is expected that the BPU's staff will submit its final energy efficiency proposal for a vote at an upcoming agenda meeting in the near future. The BPU has also supported the need for AMI and recently ended the statewide moratorium on smart meters. The BPU has set procedural schedules for the clean energy future proposals, covering $600 million of energy cloud or advanced metering infrastructure, smart meter if you will, and 400 million of electric vehicle energy storage programs. We will be working to conclude the AMI and electric vehicle and energy storage proceedings toward the end of this year or the turn of the new year. Most recently, the BPU moved to investigate the fixed resource requirement or FRR as an alternative to satisfy the state's future capacity obligations with its preferred resource mix. The BPU's action was in response to the first December 2019 order that set replacement rules for the PJAM capacity auction and expanded the application for the minimum offer price rule to certain new and existing state subsidized generating resources. Specifically, offshore wind, stoller, and nuclear. As you may recall, offshore wind and the New Jersey nuclear units were both identified in the recent energy master plan as essential to the state's ability to achieve its carbon reduction goal. PJAM's March compliance filing, also in response to first December order, proposed a price floor for the New Jersey nuclear units called the ACR or avoidable cost rate that would preserve the full bidding flexibility to clear in the upcoming PJAM capacity auction. If New Jersey were to implement the FRR auction in broad terms, it would provide a choice for our nuclear units and the majority of our fossil fleet to bid into either PJAM's capacity auction or into a New Jersey FRR. An FRR could be structured to have a longer tenor a preference for zero carbon generation and would have locational delivery requirements. We believe that the state could pursue an FRR without legislation, but ultimately the decision to move forward is theirs. We intend to participate in this proceeding and will suggest ways to design the FRR to best minimize the cost impact of first capacity ruling on New Jersey's customers. We remain committed to executing on our five year 12 to $16 billion capital plan without the need to issue equity. This plan is expected to generate compound annual growth in PSE&G's rate base of six and a half to 8%, starting from a 2019 year end base of just over 20 billion. I will also note that more than 90% of the utilities investments receive either formula rate or clause based recovery of and on capital. PSE&G is continuing its due diligence and negotiations towards a joint venture agreement to potentially acquire a 25% equity interest in Orsted's 1,100 megawatt ocean wind project and expects to make a decision this fall. PSE&G has also improved its net liquidity position ending March with approximately $4 billion of available liquidity. And as always, we recognize the importance of our common dividend to our shareholders, ever mindful of our 113 year track record, and we're committed to continuing to provide the opportunity for consistent and sustainable growth in that dividend. Today, we are reaffirming our non-GAAP operating earnings guidance for full year of 2020 of 3030 to 3050 cents per share. Our guidance does assume normal weather and plant operations for the remainder of the year. The extremely mild weather in the quarter and the associated weakness in market demand as well as impacts of COVID-19 will require maintaining solid operations and strong cost control at both the utility and PSE&G power, especially during the third quarter cooling season. I'll conclude by thanking all of our 13,000 employees for their extraordinary dedication, flexibility, and concern for each other and for our customers over these many difficult weeks. Now I'll turn the call over to Dan for more details on our financial and operating results. Dan?

Hello? Can folks hear?

We can hear you now.

Okay. I'll go back to the beginning of my remarks. Sorry for the technical difficulties. As Ralph mentioned, PSE&G reported non-GAAP operating earnings for the first quarter of 2020 of $1.03 per share. Versus $1.08 per share in last year's first quarter. We have provided you with information on slide 10 regarding the contribution to non-GAAP operating earnings by business for the quarter. And slide 11 contains a waterfall chart that takes you through the net changes quarter over quarter in non-GAAP operating earnings by major business. And I'll start to review each company in more detail with PSE&G. PSE&G has shown on slide 13 reported net income for the first quarter of 2020 of $0.87 per share compared with $0.79 per share for the first quarter of 2019, up 10% versus last year. PSE&G's results were driven by revenue growth from ongoing capital investment programs and transmission and distribution, which more than offset the impact of unfavorable winter weather on electric and gas margin. As a reminder, our gas distribution business has a weather normalization clause that moderates the impact of weather-related sales variances versus normal weather. Growth and transmission rate base, which added $0.06 per share to first quarter net income, includes approximately $0.02 per share of items that will reverse over the second and third quarters of 2020 due to timing of expenses in 2019 true-ups. Gas margin, which includes the recovery of investments made under the Gas System Modernization Program, or GSMP2, as well as higher weather-normalized gas sales margins, improved -over-quarter net income comparisons by $0.04. Winter weather, as measured by heating degree days, was 19% warmer than normal and 19% warmer than the first quarter of 2019. The negative impact of unfavorable weather on gas margin, -over-quarter, was largely offset by the gas weather normalization clause. However, the decline in electric sales and revenue, as a result of a large difference in weather, reduced -over-quarter earnings comparisons by $0.02 per share. The trailing 12 months ended March 31st. Weather-normalized electric and weather-normalized firm gas sales were each down approximately 1%, led by declines in commercial and industrial usage. Residential sales were flat, with customer growth just under 1%, offset by increases in energy efficiency and solar net metering. PSE&G's capital program remains on schedule, as mentioned earlier, with essential work continuing on the majority of our critical reliability and infrastructure replacement projects at our transmission and distribution facilities. PSE&G invested approximately $600 million in the first quarter, and is on track to meet its full-year planned capital investment program of $2.7 billion. Progress continues on several important projects, including the -Trenton-Burlington project, which energized its second phase, and the -to-Linden project that recently energized an upgraded circuit connecting Aldean and Linden. Both projects are on plan and on budget. Customer bill affordability remains a key consideration as we invest in the system, and PSE&G remains well positioned on this metric, with its combined electric and gas bills under 3% of New Jersey median household income as of January 1, 2020. In March, PSE&G temporarily suspended all -safety-related service shutoffs for non-payment during the COVID-19 crisis, recognizing the financial hardship that many of our customers are currently experiencing. And we will be advising them of available payment assistance programs and bill management tools. And as a reminder, on the electric side, we recover our bad debt expense through the societal benefits charge, which is trued up periodically. We are reaffirming PSE&G's net income forecast for 2020 at ,000,000 to ,000,000. Now I'll move to power. PSE&G Power reported non-GAAP operating earnings of 17 cents per share, and non-GAAP adjusted EBITDA of $201 million. This compares to operating earnings of 29 cents per share and adjusted EBITDA of $304 million, reported for the first quarter of 2019. Net income for the first quarter was 13 million, or two cents per share. At a pre-tax charge of 20 million, to reflect a -or-market adjustment to oil inventory was recognized in the first quarter and excluded from our non-GAAP measures. The earnings release and slide 18 provide you with a detailed analysis of the items having an impact on Power's non-GAAP operating earnings and non-GAAP adjusted EBITDA relative to net income quarter over quarter. We've also provided you more detail on generation for the quarter on slide 19. PCG Power's first quarter results were negatively affected by an extremely mild winter weather conditions compared to the first quarter of 2019. A scheduled decline in PGM capacity revenue reduced non-GAAP operating earnings comparisons by 11 cents per share compared to Q1 2019. The addition of ZEC revenues to first quarter results added seven cents per share. Lower generation output for the quarter reduced comparisons by one penny per share and re-contracting reduced results by a penny per share, reflecting an approximate $1 per megawatt-hour decline in the average hedge price versus the year-ago quarter. The weather-related decline in total gas send-out to commercial and industrial customers reduced results by four cents per share. Higher O&M expense from an unplanned outage at Salem Unit 1 lowered results by one cent per share. And higher interest expense lowered comparisons by one cent per share versus the year-ago quarter. First margin for the first quarter declined slightly to $30 per megawatt-hour compared to $31 per megawatt-hour in the year-ago period. Power prices were weaker across PGM, New York and New England, compared to the year-earlier quarter, as winter temperatures were 16% higher on average versus the first quarter of 2019. BCG Power's average capacity prices in PGM are set to rise in the second half of 2020. And beginning on June 1st, the average PGM capacity price will rise to $168 per megawatt-day, up from $116 per megawatt-day. And ISO New England capacity prices are scheduled to decline, but the impact on our capacity revenue will be moderated by the addition of Bridgeport Harbor 5 and its seven-year capacity lock at $232 per megawatt-day. Now let's turn to Power's operations. Total generation output declined by .5% to 13.2 terawatt-hours, reflecting the sale of the Keystone Economi units last fall. PCG Power's combined cycle fleet produced 5.1 terawatt-hours of output, up 16%, reflecting the addition of Bridgeport Harbor 5, which was placed into operation in June of 2019. The three newest combined cycle units, Keyes, Seaworn, and Bridgeport, combined to post a strong average capacity factor of 81% in the quarter. The nuclear fleet operated at an average capacity factor of .9% for the first quarter, producing 8 terawatt-hours, representing 61% of total generation. Higher output from Hope Creek and Salem 2 hardly offset a month-long repair or outage at Salem Unit 1, resulting in a 2% decrease in nuclear output for the quarter. Salem 2 entered its 24th refueling outage on April 11th,

and

the outage has been scaled back to complete a core set of essential tasks, which is expected to reduce the duration and cost of the outage. PCG Power continues to forecast annual output for the years 2020 through 2022, at 50 to 52 terawatt-hours. For a major of 2020, Power has hedged approximately 95 to 100% of production at an average price of $36 per megawatt-hour. For 2021, Power has hedged 55 to 60% of forecasted production at an average price of $35 per megawatt-hour. And for 2022, Power has hedged 25 to 30% of forecasted output at an average price of $35 per megawatt-hour. More than 70% of PCG Power's expected gross margin in 2020 is secured by our higher hedge position of energy output, capacity revenue set in previous auctions, the opportunity to earn a full year of ZEC revenues, and certain ancillary service payments, such as reactive power. We are reaffirming our forecast of PCG Power's non-GAAP operating earnings for 2020 at 345 million to 435 million, and non-GAAP adjusted EBITDA at 950 million to 1 billion 50 million. Adjusted EBITDA for the first quarter of 2020 includes pre-tax expenses of 35 million related to the purchase of New Jersey tax credits. And the benefit from this program is included below EBITDA in the income tax expense, and it combines for a net benefit for the quarter of $5 million. And there were no similar transactions in Q1 of 2019. Now let me briefly address results from PCG Enterprise and Other for the first quarter of 2020. Enterprise and Other reported a net loss of 5 million or a penny per share, compared to net income of 1 million flat on a per share basis in the year earlier quarter. The net loss for the first quarter reflects higher interest in tax expenses at the parent, partially offset by ongoing contributions from PCG Long Island. For 2020, we are reaffirming that the forecast for PCG Enterprise and Other remains unchanged at a net loss of 5 million. PCG entered the quarter with $799 million of cash on the balance sheet. In March of this year, PCG closed on a $300 million variable rate loan due March of 2021. As of March 31st, PCG had access to 3.2 billion under its $4.2 billion credit facility, with a $4 billion revolver extended by a year to March of 2024. Debt at the end of March stood at 52% of our consolidated capital, and debt at PCG Power represented 32% of its capital at the end of the quarter. During the first quarter, PCG issued $300 million of 10-year, .45% secured medium-term loans, and $300 million of 30-year, .15% secured medium-term loans. In addition, we retired a $406 million, .13% note at PCG Power that matured in April. Also in April, PCG closed two additional term loans totaling $500 million. For the balance of the year, we have approximately $260 million of PSE&G maturities that come due in August, and a $700 million parent maturity in November. Our solid balance sheet and credit metrics keep us in a position to internally fund our 2020 to 2024 capital investment program without the need to issue new equity. As Ralph mentioned earlier, we are reaffirming our forecast of non-GAAP operating earnings for the full year 2020 of $3.30 to $3.50 per share. That concludes my remarks, and now I'll turn the call back for questions.

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 star, then the number one on your telephone keypad. If your question has been answered and you wish to withdraw your question, you may do so by pressing the pound followed by number one. If you're on a speakerphone, please pick up your handset before entering your question. One moment please for the first question. First question comes from Julian Dumele Smith of Bank in America.

Good morning. Congratulations on holding everything together here. Thanks, Julian. Absolutely. So I wanted to dig in a little bit further on the power and PSE and G20 reaffirm. When you think about the cost control that you've embedded, and I appreciate it's a dynamic situation, so it's hard to put your finger on it. What's the order of magnitude that you all are contemplating in reaffirming here today? Especially as it relates to the power side of the business, just because obviously that is hedged largely, but not entirely. So I'm just trying to understand the order of magnitude that you all are contemplating in your guidance here when you think about the puts and takes here against what is obviously moving target and expectations for full year load and average pricing.

So Julian, rather than give you piece parts with specific numbers attached to each piece part, but first of all, it's good to hear your voice. I hope you and your family are well and that you're managing in these challenging times as well. Is some of the things that we've done as a for instance, is we recalibrated our nuclear refueling outage. And we took a bunch of days off. I can't give you that number because I don't think we've posted it on Oasis. We didn't have the original number of days. And so therefore I don't wanna give you the new number of days. While O&M goes up, given the work rules we have to put in place for an outage, and therefore we only saved a modest amount of O&M by shortening the outage, we increased a lot of the revenue expectations for things like ZEC payments, things of that sort, by abbreviating the outage. You mentioned the hedge position, and even though the hedges aren't perfect, they were, we were about 95% hedge for this year. There's been some fairly modest O&M reductions just in terms of support services that we've been able to capture just because of the change in work practices. So those are the types of things over at Power in the utility because we were only doing the essential work for customers. There's been some reduction in O&M associated with some of the appliance repair work and things of that nature that the governor's asked us to not do, and in the meantime, we're still full speed ahead on the capital program, which as you know, gets that 90% clause recovery. So it's been a combination of things, and the team is working 24-7 to make sure that we're constantly adjusting and tweaking, and Dan, please feel free to add to that if you'd like. I think that's

a good summary, and I also think that you will see some benefit come through as well to the extent that you see a lower cost to serve on some of our hedges as well. So to the extent that we've got a lower market that we can work to support some of the hedges, you could see some benefits coming through there, and some of those contracts tend to lean a little bit more on the smaller side or on the residential side so that there can be some uptake there as well, Julian.

Got it, excellent. And if I can quickly follow up on a second piece here, the officer window, how are you thinking about coming to terms on that, and ultimately, is the timing of this ultimately drawn into a broader conversation about FLR and election and thought process in the state? And do we need to see some kind of resolution from the state in order for you to feel comfortable to participate in whatever form?

No, thank you, Eileen, good question. Let me be more explicit than I've been in the past because Orsted is just a terrific company and a very valuable partner. But time is our friend. So we are just, I don't mean to upset my colleagues at Orsted if they're listening, but it is to our advantage to take every day to learn as much as we possibly can about this business and maximize the timeframe that they've granted us to make that decision because we started from a position of relative ignorance. So that, so really, it's just making use of every day to be smarter and smarter about what is entailed in developing that project. The state is absolutely committed to building that project. It would appear the federal agencies are as well. There have been well-publicized delays in different projects around the company. Orsted themselves have talked about some of the delays in getting through the federal permits. So it's really not a question of the FRR at all. The BPU order is quite clear on what the commercial terms of that project will be, are and will be. And we just now need to understand, given that very well-established top line, what does the middle of the income statement look like in terms of the ongoing operational costs and then make a decision sometime in the fall. So it's just that, I'm gonna repeat myself, time is our friend in terms of collecting more and more information and getting smarter and smarter.

Gotcha, excellent. And no update on timeline for FRR resolution as far as you're concerned.

My educated guess, and I don't mean to sound presumptuous, but putting the adjective educated in is that it's probably at the earliest end of year, more likely spilling into Q1 of next year. Remember the state really doesn't have to worry about paying double for capacity now that the nuclear units are covered or at least for the foreseeable future until offshore wind comes online. And that's not going to happen until 2024. So you have to worry about the 2021 auction before you have to kick in your FRR so as to avoid that duplicative payment for capacity.

Excellent, thank you all very much. All the best, stay safe.

Thanks, Joey.

Your next question comes from the line of Constantine with Duganheim Partners.

Hi, good morning guys. This is Shar has a jump, so I'm taking some questions here. It's great to hear the update on everyone staying safe and work going on. You mentioned the kind of 5% to 7% load impact that you're seeing. And so if we kind of just look at kind of an extended lockdown in New Jersey, saying kind of full second quarter, what does that kind of mean in terms of sensitivities for EPS and kind of understanding that there's some offsetting dynamics and kind of having only a quarter of the margin on really on CNI? And can you talk about kind of, you've mentioned a bit on the cost efficiency levers that are being applied, but a little bit more detail in terms of kind of magnitude versus that sensitivity.

Yeah, Constantine, so it's been a little challenging and Ralph referenced in his original remarks that without AMI, the granularity that we would like to have, we don't have. So we know for a fact that in the aggregate, when we take a look at what reductions are, we're in that 5% to 7% range on a weather normalized basis. And by all indications, we're gonna see an uptick on the residential side, and we're gonna see more challenges on the CNI side, just knowing what's going on. So we basically have taken a look at that kind of a trajectory and presumed that we would continue to see that through the balance of the year. Now, it's gonna have varied effects as you go through the year, you're gonna have different seasonality, you're gonna have different effects moving through the year, but that's what we use to try to gauge what things would look like. And if you take a look at both from a power and a utility business combined, and you try to take a look at what that's gonna do from an EPS perspective, ranges in the order of about a penny a month from the standpoint of impact from an enterprise earnings perspective through the summer periods. And then when you get into the fall into more of a shoulder period, you could see a little bit less of an impact just because you've got a different dynamic with respect to what overall loads are. So that's an admittedly rough estimate given the data that we do have and how we've been able to forecast to that. And as we go through time, we'll continue to get more data and more data on a customer segment perspective and be able to refine that. But that's the order of magnitude that we've seen from the standpoint of losses to date and where we think it may end up coming out. That's a gross margin number. So we're gonna take that and then you would tax effect that and then you're gonna work your way through on the cost side. And there are some basic things that are fairly obvious if you think about the cost structure of the business and things like travel you could think about that we're gonna strip some of the outages down to. So some work may be more expensive to do, but there will be some of it that will not be done during this period, which will cause some savings. So we will continue to manage this as we go through the balance of the year. And I think from taking all this and looking at it, that's what gives us confidence to be able to reaffirm guidance.

Okay, that makes sense, kind of offsetting on both sides. Another one you kind of, this might be one for Ralph. You talked about kind of the NJBPU and kind of engaging stakeholders on ROE. Are there any advancements and what sorts of conversations are kind of being had at this stage?

Yeah, Constance, and I echo what I mentioned a moment ago. I'm glad to hear your voice and hope you and your family are well in addition. So I don't wanna go into details on the conversation with the BPU on transmission ROE, but suffice to say that we still are in conversation. And the motivation for that really is the fact that the New Jersey economy is in a tough state right now. And I think the BPU realizes that this is a great opportunity for possibly refunding to customers many, many dollars as a result of a reduction in our allowed ROE and rather than turn to a protracted litigated case at FERC, which would take many years to have that rate relief occur, now is a good time to do it. And we would agree with that. Having said that, we've been very clear with the BPU as to what we think is a fair return and we're not gonna settle on something unless it matches what we think is a fair return. And I'm sure they feel the same way. So the good news is we are still in conversation and we both recognize that there could be a win-win if we can narrow the gap that continues to exist between us. So I'm sorry for not giving you a specific number or a specific answer right now, Constance, but just the nature of that dialogue doesn't allow me to do that. But all parties realize that it would be a great benefit to many folks to reach resolution. And if we can't, then so be it, it'll be decided elsewhere. We had technical difficulties before, I'm hoping that we didn't just go silent again.

No, sorry about that, I just happened to be on mute. Just one real quick one for Dan, is there any kind of volumetric risk remaining with the hedges on power for the remainder of the year or is that kind of pretty hedged out?

There's volumetric aspects on some of our hedges, there's volumetric aspects on some of our generation as well. And that's how I would have you think about it, Constantine. So the nuclear units are gonna run like nuclear units and then our gas units with pretty significant capacity factors will still follow load. And similarly, we will have some block edges that will be on and we will have some load deals that will be on that makes up the aggregate of our hedge portfolio. So I think you've got the ability for some of your generation to flex based upon changes in load and I think you've got some of your hedges that will do the same. And so they will not be an absolute lockstep, but I think that those hedges will work well for the fleet that we have and then you'll see some of them working in approximate tandem.

Perfect, thanks for that guys, stay safe out there. Thanks Constantine, you too.

And next question is from Stephen Berg with Morgan Stanley. Mr. Berg, your line is open.

Let's go to the next question.

Yes, your next question comes from the line of Steve Flashman with Wolf Research.

Yeah, hi, good morning. Hopefully you can hear me.

Yeah, we can hear you.

We can hear you. I've seen you

nearly as much as, hi, I think I've seen you Ralph nearly as much as my family on TV the last few weeks. So it's been nice, good to see your face. So a couple things, just on the guidance for 2020 you mentioned the just continued strong operations and cost control, is that just to kind of say that there are pressures and you don't have as much cushion as normal or what are you trying to kind of emphasize there?

Nothing more than what we said there, Steve. So the kind of flexibility you have is average duration and that helps both in terms of the cost associated with the outage as well as the opportunity for margin acquisition. In the utilities type of thing that you have is if you do less O&M and more capital, you can both benefit from the clause recovery associated with the capital and benefit from the reduced O&M. In eliminating some of the non-essential services there's some reduction in overtime. So it's really a combination of things like that, it's not one specific item. By the way, that TV spot that you saw was recorded by my wife on an iPhone, so we saved money there if you're curious. We almost incurred some expense with a divorce attorney, but that was okay, we met and paid for that. So I know that everybody wants the, okay, so what are we doing to get five cents, what are we doing to get three cents? But it just doesn't work that way. It's really a never ending focus on a bunch of small things that add up. In terms of the guidance range, as Dan said, we are gonna be swimming against about a penny a share if this current trend in demand reduction continues with a lesser amount after the summer. So that's the bogey that we're fighting against. When we give a 20 cent range, we have enough flexibility in there with that kind of a headwind with some of the offsets to reaffirm.

Great. And then just on the New Jersey capital programs outside of the base rate case, just based on the schedules you have now, how are you feeling about some meaningful amount of those investments starting to be made or being made in 2021?

Well, I feel good about it. Let me tell you why, because that is something you've heard me say before. Despite part of Governor Murphy, New Jersey has been dealt a really tough hand here. We are a densely populated state, and therefore as a result of that population density, we are being hit harder than no other state other than New York in terms of COVID-19. That is having huge social impacts, health impacts, as well as economic impacts. And we are as a company probably best positioned to help in regard to those economic impacts. The energy efficiency filing that we have made has huge benefits in terms of up to 5,000 jobs that could be created as a result of that and bill reductions for customers and shareholder benefits. I mean, there is nothing that you can point to that has that kind of multiple benefit. In the past, I'm not saying this will be repeated now, but in the past in 2008, when we had economic downturn, there was a desire on the part of the BPU to accelerate some of the aging infrastructure replacement as a form of economic stimulus. We'll certainly remind them of that. And we do have bandwidth to do more on the electric distribution side than we're doing now, which is useful stuff to do while recognizing some of the economic impacts that we're experiencing as a state. So I do think that we are generally viewed as someone that can help with economic recovery. And right now, as you well know, we're expecting to resolve the energy efficiency component by September of this year.

Okay, great. Thank you. Be well.

Thank you, too, Steve. Your next question comes from Jonathan Arnichol with Vertical Research.

Hi, good morning, guys. Good to hear from you.

Same, Jonathan.

A quick one on, I'm not hearing you right, Ralph. I think what you're saying is that pretty much all of the capital work you're currently doing is continuing under an essential header, but it's really more O&M type activities that you're having to curtail. Is that correct, or are there some sort of elements to the capital program that are also gonna need to catch up a little bit when things start to normalize?

No, that's correct, Jonathan. You heard me correctly.

Okay, so that was one. And then you mentioned, Ralph, in your prepared remarks that you have some concerns about mutual aid and how that will work as we get further into the year and storm season. Could you maybe talk about some of the things you're doing or thinking about as you try to address that?

First off, I'm surprised that you can tell if those are prepared remarks. I thought you realized that I just... Yeah, no, so we had a little bit of a taste of this, Jonathan. About two or so weeks ago, we had a significant storm roll through, but it was high winds and lots of rain, but it happened before the trees all leaped out. So we dodged a bit of a bullet there, but normally what you do when you see a storm coming is you arrange for contractors and other utilities who are not likely to be affected because they're not in the path of the storm to stage a workforce. And it might be just getting them ready to leave from wherever they are, or you might actually get them to New Jersey and have them in place. We were able to secure about 40% of what we asked for, and it was a combination of a candidate utility not willing to risk their own employees in terms of their exposure to jobs and travel limitations put on some of the contractors. So if we have that experience when the trees all have leaves on them and the wind blows, then we will have to communicate extensively with customers about some of the likely delays that they will experience in being restored.

Great, okay, so you're really just pointing out the issue as opposed to there being a way of addressing it at this point. All right. Okay, thanks for all, you answered everything else, I think, Ralph. Thank you. Thank you.

Your next question comes from Jeremy Tannet with JPMorgan.

Good morning, thanks for having me. Good morning. Okay, just wanted to go back to the last question about FRR if I could, and how do you see the near-term cost dynamics of an FRR versus the PGM capacity auction influencing the BPU's evaluation of the long-term issue of a double payment per capacity?

So there's multiple factors that we're exploring with the BPU as they are exploring with many other people. I didn't mean to suggest that we're the only folks that they're talking to, that's not the case. They have a formal proceeding that they've announced. One possibility is that you could be seeing a different price in New Jersey than you would see in PGM writ large, but the fact that you only need to secure a 15 or 16% reserve margin as opposed to the larger reserve margin that's in the broader PGM could allow the total amount of money that is paid by customers to be less, right? Whether you have a case where you pay a higher price in New Jersey but you buy less of it, so the unit cost is more but the number of units is less, so the product of the two turns out to be less expensive for the state. If you were to just look at offshore wind aspirations of the state and then take a look at what typical Eastern MAC capacity prices have been, and then you factor in what the capacity value of the offshore wind might be granted by PGM, you quickly get to eight if not nine figures in just a few years in terms of extra payments on the part of New Jersey customers for not having offshore wind be able to clear the auction. So you have those two potential savings, right? One savings is the avoidance of paying twice, that's the eight to nine figures for offshore wind capacity that won't be granted recognition on the part of PGM and would not be able to clear the auction at the ACRs that have been proposed. And the second is just the mere fact that by virtue of New Jersey having to secure only a 15 or 16% reserve margin, it could save there as well. So you have this double benefit that the state could realize if it designs the FRR in a competitive way, that recognizes the carbon free resources that it is committed to securing.

Great, that's really helpful, thank you for that. And just one more if I could, if you have any thoughts you could share when you think settlement discussions could begin on the CEF proceeding.

Well, so we've had good conversations with the board staff, they know what's important to us and we've been very clear, it's to be indifferent to energy efficiency investments. We would hope that the board would incentivize us, I may have just created a verb, but at the very least we should be indifferent to whether we invest in a circuit, a meter, or energy efficiency and that's worked in other states. We need to have fixed cost recovery because the profitability of energy efficiency is much smaller than the fixed cost lost if you avoid a kilowatt hour sale and that's been recognized by other leading states. And last but not least, we wanna make sure that the state recognizes the importance of having the useful life of the asset be matched up with the depreciable life of the asset, which is just sort of good rate making practice that we apply to our $30 billion in rate base throughout the system. So I think those are the three critical items. Then you have much more latitude about, well, how much of this do you want to do? And we've sized the program to achieve the targets of the Clean Energy Act. We could do more, but if the state doesn't wanna achieve the targets of the Clean Energy Act or wants to phase that in more slowly, it may ask us to do less. I am encouraged by the fact that the state gave us a $110 million bridge in just these next six months while we wait to resolve the settlement discussions. And if you look at 110 million over six months and you compare that to the 40 million per year we've been averaging, that's certainly a nice step in the right direction. I'm not trying to signal anything with that other than obviously growing enthusiasm for energy efficiency. So we'll know more by September and that's a lot sooner than you may think. Hope that helps, Jeremy. I know it's, once again, in confidential settlement discussions, I have to just be careful about how much detail I share because I don't think that's fair to the other parties.

That does help, appreciate the color there, thanks.

Your next question is from Paul Patterson with Glen Rock Associates.

Hey, good morning. Hey, Paul, hope you're well. I'm managing, thank you. So just to sort of follow up on the FRR discussion, it sounds like that given everything you're saying and what the commission and what have you are saying, it's very likely that they probably will go for the FRR option, is that the way we should be thinking?

Look, they're the final decider of that, but I think that that is the logical thing for the state to do. Why New Jersey would wanna pay twice for capacity in what is obviously an extremely ambitious carbon-free energy agenda would boggle my mind. New solar and offshore wind are not gonna clear the auction at these ACRs. So I would think that the state would be greatly incented to do an FRR.

Okay, that makes sense. And so I guess what I was sort of also wondering sort of to follow up on, you mentioned the stimulus benefit and infrastructure development that you guys have produced in the past and you also mentioned the ROE transmission discussion that you're having with the commission. So I'm sort of wondering, you know, how should we think about what I think probably, maybe you disagree, but there probably is gonna be substantial budget pressure even with federal assistance in New Jersey. How should we think about sort of just the potential financial problems that the state's gonna be facing and weighing the two issues that you mentioned, which is one, perhaps not wanting to see big rate impacts and then two, wanting to probably see economic activity stimulated.

Do you follow what I'm saying? How should we think? I know, I do, I do. I mean, so if it were me and I were writing a script, which I don't, but certainly what we're telling policy makers is that an adjustment to transmission ROE to a reasonable level would still be a very attractive annual give back of rates to customers. Significant investments in energy efficiency also puts more money into customers' pockets by virtue of bill reductions. Infrastructure investments helps us to employ contractors and other folks and in doing work, that gets paid back over 40 and 60 years, because that's how long these assets last. So you have, you know, both expense savings through transmission ROE reset and energy efficiency, as well as payroll increases through energy efficiency and payroll increases through infrastructure investment, the latter of which gets paid over many decades because that is the life of the asset. So all of that, if done properly, results in net reductions in bills and creations of thousands of jobs. And that's not alchemy, that's just the hard reality and the benefits associated with energy efficiency, rate relief and infrastructure investment. So I would do that in a heartbeat and we are having those kinds of conversations. That will be up to the BPU though to decide.

Awesome, thanks so much. I really appreciate it, hang in there.

Take care. Thank you, Paul. So I think we're at the appointed hour. I just wanna conclude with three thoughts for you. I know it's a bit of a cliche at this point, but I must tell you, I couldn't be more proud of our employees, whether it's managing a nuclear outage safely with de minimis impact on health and safety and being able to get the work done on time or the storm response to what I mentioned before in terms of that rain event. Our call center stats are even better than they were. We've closed the books on time. Our communications personnel are working from home but keeping our employees apprised of what's going on and a shout out as Steve Fleischman mentioned to my wife for her superior cameraman skills and getting our commercial on the air. And by the way, folks are not working five days a week anymore. They are 24 by seven during this and somehow managing to get all of this done. So I couldn't be more proud of them. And I really wanna thank the policy makers and decision makers at the BPU and in New Jersey government. They have recognized the essential nature of the work we've done. They've allowed us to keep our capital work on track with the right social distancing and with the right precautions. And we've taken that trust that they've given us quite seriously and our exposure rates are lower than the population at large despite the fact that about half of our employees are out there in the field doing work on a regular basis. And the BPU working remotely has kept their procedural schedules on track. Not only now do we have procedural schedules for all of CEF, not only for energy efficiency, but for AMI and for electric vehicles and battery storage, but they've also taken on the challenge of resolving an FRR and they've engaged us in an ROE discussion for transmission. So folks at the state government are just doing tremendous things in terms of meeting these challenges that we all feel personally while at the same time, keeping the trains running on time and adding a few trains to the schedule. So despite these tough times, I'm just in awe of what people are doing everywhere in terms of rising to the challenge. And to all of you on the call, if you have friends or family members who are in healthcare services or providing those services to the rest of the population, please express our thanks to them on our behalf and our respect and admiration for all that they are doing. So we'll see some of you virtually, I'm told, in various meetings and conferences and we'll Zoom or WebEx or do whatever works and then hope to see you in person in the not very distant future. Thank you, be well and stay safe. Take care.

Ladies and gentlemen, that does conclude your conference for today. You may disconnect and thank you for participating.