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, our 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 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 www.pseg.com. I would now like to turn the conference over to Carlotta Chan. Please go ahead.

Thank you, Christy. Good morning. PSEG released first quarter 2020 earnings results earlier today. The earnings release attachments and slide 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 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 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 $2.5 million 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 suspended nonessential 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. 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 gap 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 and 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 stay-at-home orders that began March 21st, the PSE&G service territory experienced a weather normalized decline of approximately 5% 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 5% 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 shelter-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 COVID-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 PSEG, 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 recognize 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 staff has advanced its view on administering EE programs to meet the annual 2% electric savings and 0.75% 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 staff also continues to consider stakeholder input on energy efficiency cost recovery. PSENG has been an active participant in a stakeholder dialogue on these and other energy efficiency topics. It is expected that the BPU 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 PGM capacity auction and expanded the application for the minimum offer price rule to certain new and existing state subsidized generating resources, specifically offshore wind, solar, 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. PJM's March compliance filing, also in response to FERC's December order, proposed a price floor for the New Jersey nuclear units, called the ACR, or avoidable cost rate, that would preserve their full bidding flexibility to clear in the upcoming PJM 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 PJM'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 FERC's 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 PSEG's rate base of 6.5% to 8%, starting from a 2019 year-end base of just over $20 billion. I will also note that more than 90% of the utility's investments receive either formula rate or clause-based recovery of and on capital. PSEG 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. PSEG 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 the full year of 2020 of $3,030 to $3,050 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 PSEG 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?