Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Phyllis, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Second Quarter 2020 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 one on your telephone keypad. To withdraw your question, press the pound key. As a reminder, this conference is being recorded today, July 31st, 2020, and will be available for telephone replay beginning at 1 o'clock p.m. Eastern Time today until 1130 p.m. Eastern Time today. on August 11, 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, Phyllis. Good morning, and thank you for participating in our earnings call. PSEG second quarter 2020 earnings release attachments and slides detailing operating results by company are posted on our website at investor.pseg.com, and our 10-Q will be filed shortly. The earnings release and other matters discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's earnings materials. I'll now turn the call over to Ralph Izzo, Chairman, President, and Chief Executive Officer of PSEG. 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. PSEG reported non-GAAP operating earnings for the second quarter of 2020 of 79 cents per share versus 58 cents per share in last year's second quarter. PSEG's GAAP results for the second quarter were 89 cents per share compared with 30 cents per share in last year's second quarter. Our results for the second quarter bring non-GAAP operating earnings for the first half of 2020 to $1.82 per share. This increase over non-GAAP results of $1.66 per share for the first half of 2019 reflects the growing contribution from our regulated operations, effective cost controls at both the utility and PSEG power, the absence of two extended plant outages that took place in last year's second quarter, and the favorable settlement of audits covering the 2011 through 2016 tax years, which in combination have mitigated much of the weather-related headwinds experienced in the first quarter of 2020. Slides 11 and 13 summarize the results for the quarter and the first half of the year. We're especially pleased to report solid operating and financial results at both businesses. Our employees continue to effectively respond to the challenges and requirements of providing essential energy services under extraordinary conditions. The statewide mandated closure of most businesses, schools, and government buildings in New Jersey contributed to a decline of approximately 7% in weather normalized electric sales for the second quarter. As the state continues the gradual reopening of businesses and activities, effective containment of COVID-19 should expand commercial activity and energy usage in the months ahead. New Jersey has done a very good job of flattening the curve of new COVID-19 cases over the last few months, but we must all remain vigilant as we see signs of potential increases. Earlier this month, the New Jersey Board of Public Utilities, I'll just say BPU, authorized utilities in the state to defer prudently incurred incremental costs related to COVID-19 from March 9th of this year through at least September 30 of 2021. PSE&G will file its first quarterly report to the BPU on August 3rd, outlining its COVID-related costs and offsets for the period ended June 30th. And we expect to record a deferral in the third quarter. Our utility field crews are at full force and construction work continues on our infrastructure programs. In May, PSE&G also resumed on-premises customer work using personal protection equipment, PPE, as we often refer to it, customer contact screening, and physical distancing to ensure customer and employee safety. Our associates who are able to work remotely continue to do so, and we are continuing to assess when we will begin a phased return for those employees. In early June, southern New Jersey experienced a series of severe straight-line storm systems, known as a derecho, with high wind speeds that topped 93 miles per hour and resulted in 127,000 customer outages. The extent of the damage to poles and trees, plus the ongoing high winds and required physical distancing restrictions, made this storm particularly challenging. Our PSEG crews work day and night on outage restoration and were ably assisted by mutual aid from PSEG Long Island to help restore power in New Jersey, and we can't thank them enough. This ability to draw on local mutual aid from New York is especially critical now given the impact on our work crews of New Jersey's required 14-day COVID-19-related quarantine periods for visitors coming from states with increasing COVID. were still high infection rates. PSE&G continues progress on its portfolio of capital improvements, including several key transmission projects. This quarter, we energized the second phase of our $739 million Metuchen Trenton Burlington project and upgraded the transmission circuits between Brunswick Station and Trenton Station. The utility also expects to complete work on a six-mile upgrade of 230 kV overhead transmission circuits running between Aldine Station and the Linden Variable Frequency Transformer Station by year-end 2020, having already completed approximately half of this important project. On the regulatory front, we're continuing active discussions with the New Jersey BPU and other parties to settle several items, including the return on equity related to PSE&G's Federal Energy Regulatory Commission, FERC, formula rate for transmission, as well as the pending $2.5 billion six-year clean energy future energy efficiency filing, which restarted in June following the BPU's adoption of a framework to implement energy efficiency throughout the state. Our proposed program is expected to create 3,700 jobs over six years. The final energy efficiency framework adopted by the BPU in June was an improvement over earlier versions and supports expanded utility investment in energy efficiency by broadening utility participation in program offerings, by eliminating the ROE reduction applied to energy efficiency investment, by extending the amortization period to 10 years, and delaying any penalties until the fifth year of implementation, while increasing the state's energy savings targets to 2.15% and 1.1%, for electric and gas, respectively. In addition, the BPU directed utilities to work with BPU staff and rate council to establish a conservation incentive program, or SIP, as I'll refer to it, to recover lost revenues or use the lost revenue adjustment mechanism, also known as LRAM, as the default alternative. As I said a moment ago, PSE&G energy volumes have declined due to the COVID-19 restrictions. But peak load for the second quarter remained in a normal seasonal range, averaging 5,100 megawatts versus last year's second quarter average of 5,330 megawatts. PSE&G's summer load peaked at 9,753 megawatts in 2019. So far this summer, we experienced a peak load of 9,521 megawatts on July 22nd. about 2.5% below last year due to COVID-19, but helped by warmer weather. That said, PJM day-ahead round-the-clock power prices have remained in the mid-teens to low $20 per megawatt hour most days during the second quarter. More recently, New Jersey has experienced several weeks in a row with temperatures hovering in the mid-80s to mid-90s. Even with this recent heat wave, average day-ahead prices remain have only crossed the $30 per megawatt-hour price point in the PSEG zone twice in the last 30 days. This is a reflection of current market conditions characterized by reduced loads, sub-$2 per mm BTU natural gas, and ample generation. This market environment is the reality we face at our nuclear stations and is the driver behind zero emission certificates, or ZECs. Our Salomon Hope Creek nuclear plants produce over 90% of New Jersey's zero-carbon electricity. These nuclear units are a cost-efficient and necessary component of the state's transition to 100% clean energy by 2050, as outlined in New Jersey's energy master plan finalized this past January. As we begin the second round of the ZEC program by filing our applications this fall, It's important to note that the financial need for ZECs is more critical than ever. PJM forward prices have declined from where they were just two years ago, when forward round-the-clock prices for the PSEG zone were approximately $30 per megawatt hour. Today, they are just over $25 per megawatt hour. ZEC payments compensate nuclear generation for the zero carbon attributes that are otherwise unrecognized by the wholesale markets and are an essential component to the economic viability of the New Jersey nuclear fleet. The second ZEC application process is expected to conclude with a BPU decision in mid-April 2021. On the ESG front, I'm pleased to report that PSEG is gaining broader recognition for our industry-leading position. As many of you know, our carbon intensity is among the lowest of our industry peers. driven by the large percentage of our output from nuclear power plants. And our utility is working hard to reduce emissions through its clean energy filings and infrastructure programs. In May, our ESG score from MSCI was raised to AA from single A, placing us in the top 20% of all companies they evaluate on environmental, social, and governance disclosure. And in June, PSEG was recognized as a trusted brand, ranking first among combined gas and electric utilities by Escalant in the 2020 Cogent Utility, Syndicated Utility Trusted Brand and Customer Engagement Study. Turning to earnings guidance, we are reaffirming PSEG's non-GAAP operating earnings guidance for full year 2020 of $3.30 to $3.50 per share. Based on our solid results through the first half of the year, and our confidence that we can effectively manage costs across our businesses, continue executing our investment program at PSE&G, and provide New Jersey with reliable sources of electricity. We are on track to execute our five-year, $12 to $16 billion capital plan without the need to issue new equity, and our net liquidity position as of June 30th remains ample at $4 billion. And finally, As you have all seen by now, this morning we also announced that PSEG is exploring strategic alternatives for PSEG Power's non-nuclear generating fleet. Our intent is to accelerate the transformation of PSEG into a primarily regulated electric and gas utility, a plan we have been executing successfully for over a decade. PSEG will explore how a potential separation of the non-nuclear assets could reduce overall business risk and earnings volatility, improve our credit profile, and enhance an already compelling ESG position driven by pending clean energy investments, methane reduction, and zero carbon generation. We believe PSEG is among the best utilities in the country and that our valuation should align with that profile. PSEG intends to retain ownership of PSEG Power's existing nuclear fleet, The nuclear fleet is a necessary component in enabling New Jersey to meet its long-term carbon reduction goals and also helps to satisfy the state's capacity obligations for resource adequacy with a cost-effective source of zero-carbon electricity. Given the relatively small part of PSEG that the non-nuclear business represents, this decision will not have an impact on the company's current shareholder dividend policy, which will continue to be subject to approval by the PSEG Board of Directors. PSEG will manage this process, taking into account the interests of our diverse stakeholders, including our 13,000 valued employees. Any decision regarding the non-nuclear assets will not impact PSEG or PSEG Long Island customers, their operations, or tariffs, but would be subject to customary regulatory approval. Marketing a potential transaction in one or a series of steps is anticipated to launch in the fourth quarter of this year and is expected to be completed sometime in 2021. We're excited to explore the opportunities that will shape PSEG's future. It is a future focused on advancing our business as a sustainable, customer-focused provider of essential electricity and natural gas service delivered by our regulated utility and contracted businesses. I will now turn the call over to Dan for more details on our operating results, and we will both be available for your questions after his remarks.