Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Christy, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group First Quarter 2021 Earnings Conference Call and Webcast. At this time, I'll protest first 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 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, the conference is being recorded today, May 5, 2021, and will be available for telephone replay beginning at 2 p.m. Eastern Time today until 11.30 p.m. Eastern Time on May 11, 2021. It will also be available as an audio webcast on PSEG's corporate website at investor.pseg.com. Alan, I'd like to turn the conference over to Kalana Chan. Please go ahead.

Thank you, Christy. Good morning. PSEG released first quarter 2021 earnings results earlier today. The earnings release attachments and today's slides can be found on the PSEG Investor Relations 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 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.

Ralph. Thank you, Carlotta, and thank you all for joining us today. I'm pleased to report that PSEG has achieved several major milestones on our path to becoming a primarily regulated utility company with a complementary and significantly contracted carbon-free generating fleet. PSEG posted solid results earlier this morning reporting non-GAAP operating earnings for the first quarter of 2021 of $1.28 per share versus $1.03 per share in last year's first quarter. Our GAAP results for the first quarter were also $1.28 per share, versus $0.88 per share in the first quarter of 2020. Results from ongoing regulated investments at PSE&G and the effect of cold weather on PSE&G Power drove favorable comparisons at both businesses. We present details of the quarter's results on slide five of the earnings presentation. We are well positioned to execute on our financial and strategic goals for the balance of the year given this eventful quarter. beginning with nearly $2 billion of clean energy future programs, which have moved from approval to execution. PSE&G is helping to advance the decarbonization of New Jersey in a sizable and equitable way. Our clean energy future investments are paired with a jobs training program that offers opportunities to low- and middle-income New Jersey communities. Last week, the New Jersey Board of Public Utilities voted unanimously to award a continuation of the full $10 per megawatt-hour zero-emission certificates, I'll just call them ZECs from now on, for all three New Jersey nuclear units, that would be Hope Creek, Salamuna 1, and Salamuna 2, through May of 2025. This was the maximum amount that the VPU could have awarded, and we are appreciative of the support received from the many community, labor, business, environmental, and employee organizations that participated in this enormously important process. Each of these groups recognizes the value of the reliable around-the-clock and carbon-free electricity supply our nuclear plants provide. Throughout this process, our nuclear team has approached operations at the units with the utmost professionalism and dedication to safety. I congratulate PSEG Nuclear for being recognized by INPO as an industry leader in operational reliability. one of only two nuclear fleets across the industry with no scrams over the past 365 days. The BPU's decision to extend the ZEC program will advance climate action in New Jersey by helping to preserve the state's largest carbon-free generating resource and is consistent with a growing interest at the federal level in preserving existing nuclear as an essential part of a clean energy mix. We applaud the BPU for its decision which is in the best interest of the state of New Jersey, and its ability to achieve its long-term clean energy goals without compromising reliability or going backward on environmental gains made to date. Looking ahead, we will soon work with stakeholders to obtain alignment of state and federal climate goals in seeking ways to extend the duration of support for carbon-free nuclear power. During the quarter, the BPU also approved PSEG's 25% equity investment in Orsted's Ocean Wind project. In addition, Ocean Wind received a notice of intent to prepare an environmental impact statement from the Bureau of Ocean Energy Management, or BOEM, which will also review the project's construction and operations plan. In April, PJM, in close cooperation with the BPU, opened a four-month solicitation window to seek transmission solutions to support New Jersey's offshore wind generation target. This process is PGM's first public policy transmission solicitation, and we will participate in this proceeding. The recent Biden administration proposal focusing on climate action is clearly supportive of offshore wind, existing nuclear generation, and electrification of transportation. all of which are aligned with PSEG's business plan and strategy for sustainability. PSEG eagerly encourages and advocates for a national approach to accelerate economy-wide net zero emissions even sooner than 2050 in a constructive manner that expands green jobs by investing in clean energy infrastructure. I am more optimistic than ever that the momentum for real climate action is taking hold PSEG continues to press ahead with our Powering Progress vision that incorporates energy efficiency and electrification of transportation to help our customers use less energy. We are pairing that with our move to make the energy our customers use cleaner, which aligns with our efforts to preserve our existing nuclear units and pursue strategic alternatives for our fossil fleet. Then, we strive to deliver with high reliability and resiliency. which ties to our investments in energy infrastructure and the energy cloud. Today, we are also announcing progress on our strategic alternatives exploration with an agreement to sell our solar source portfolio to an affiliate of LS Power. The sale resulted from a robust marketing process, and we're pleased with the outcome of the sale, having determined that the transaction is modestly accretive on some of the parts and on an operating earnings basis going forward. We expect the solar source portfolio deal to close in the second or third quarter of 2021, subject to customary regulatory and other closing conditions. PSEG powers continuing the exploration of strategic alternatives for its fossil generating fleet in mid-year. These expected transactions, along with over a decade of capital allocation directed mainly toward PSEG position the remaining company as a primarily regulated electric and gas utility with a complementary carbon-free nuclear fleet and offshore wind investments that will be highly contracted. The COVID-19 pandemic and its economic impact continue to affect the New Jersey economy. The large contribution of the transmission and residential electric and gas components to our overall sales mix has had a stabilizing effect on the margins of our utility business, as does a supportive regulatory order that authorizes deferral of certain COVID-19 related costs for future recovery. Governor Murphy recently announced that a significant easing of COVID-19 restrictions on the state's businesses, venues, and gatherings would begin on May 19th, following progress in vaccinating over half of the state's population and a sustained reduction in positivity and hospitalization rates. PSE&G has begun implementing the Clean Energy Future energy efficiency programs by initiating customer engagement and outreach, as well as advancing the Clean Energy Jobs training program I mentioned earlier, and related IT system build-out activities. Following the BPU approval of our $700 million AMI proposal in January, we have begun implementation of the four-year program, Our current focus is on planning the AMI communications network, customer outreach, and developing the installation schedule of the new meters. On the regulatory and policy front, there are several upcoming developments at the FERC, the Federal Energy Regulatory Commission, the BPU, and PJM that could influence future results. Last month, FERC promulgated a new proposed rule to limit the 50 basis point RTO return on equity incentive to a three-year period. Given the Biden administration's interest in the significant transmission build-out to expand the integration of clean energy into the nation's power grid, this development was disappointing. We have long supported the need for higher incentives for transmission investment over distribution returns based on the added complexity and risk of these projects. Coordination through the RTO has benefits, but myriad risks and complications must be considered as well. Based on the short comment window provided, the proposed rule could be enacted as early as the third quarter. We will file comments to recognize the merits of continuing the RTO order, but this looks to be an uphill battle, given the chair's support for the supplemental rule. While we await the results of the first PGM capacity auction in three years, which PGM will announce on June 2nd, PSEGs continue to advocate for a minimum offer price rule, I'll just call that MOPR going forward, that will avoid double payment for resources such as offshore wind and nuclear or other carbon-free supplies needed to achieve state goals. First, Commissioner Danley has developed a state option to choose resources proposal, or SOCR, intended to achieve the major goals of establishing the rights of states to choose their energy policy objectives and eliminate double payments by states for the capacity they choose. This proposal could have the added benefit of keeping much of FERC's capacity market reform rules intact while addressing state objections. New Jersey is expected to issue its consultant's report and recommendation for resource adequacy this month. This report could determine whether a fixed resource requirement, or FRR, will be chosen to satisfy the state's future capacity obligations beyond the 2022 and 2023 energy year. We continue to believe that the state could pursue an FRR without legislation and will suggest options to minimize the cost impact of FERC's capacity ruling on New Jersey customers. Earlier in April, the BPU released its strong proposal to address the design of the solar successor program, Stakeholder meetings are being conducted to consider a solar financial incentive program that will permanently replace the solar renewable energy certificate, or SREC program, and the temporary transitional renewable energy certificate, or TREC program, which was instituted in 2020 upon the state's attainment of 5.1% of kilowatt hours sold from solar generation. Given the substantial increase in New Jersey's solar targets, the high cost of solar, and the solar cost caps in the Clean Energy Act of 2018, we believe it is critical to develop a cost-effective approach to incent future solar generation. By far, the most efficient and cost-effective way for New Jersey to optimize what solar can bring to the achievement of its clean energy goals is to maximize grid-connected utility-scale projects by involving the state's electric distribution companies. So to wrap up my remarks, we are reaffirming non-GAAP operating earnings guidance for the full year of 2021 of $3.35 to $3.55 per share. Our guidance assumes normal weather and plant operations for the remainder of the year and incorporates the conservation incentive programs that begin in June for electric and in October for gas to cover variations in revenue due to energy efficiency and other impacts. In addition, as we mentioned on our year-end call, our 2021 guidance assumes a prospective settlement of our transmission return on equity at a lower rate and the inclusion of fossils results for the full year. We are on track to execute PSEG's five-year $14 billion to $16 billion capital program through 2025 and have the financial strength to fund it without the need to issue new equity. Over 90% of the current capital programs directed to PSE&G, which is expected to produce 6.5% to 8% compound annual growth in rate base over the 21 to 25 period, starting from PSE&G's year end 2020 rate base of $22 billion. As we've noted previously, PSE&G's considerable cash generating capabilities are supported by over 90% of its capital spending continuing to receive either formula rate, clause-based, or current rate recovery of and on capital. Finally, I thank our employees for their exceptional contributions to a compelling PSEG story this quarter. From nuclear operations marking a second breaker-to-breaker uninterrupted run at Hope Creek, to a cross-functional regulatory, legal, finance, and government affairs group that multitasks on Clean Energy Future, ZECS, and a host of other regulatory proceedings, to our field crews in New Jersey and Long Island who exemplify a safety-conscious mindset. I could not be prouder of our entire PSGT team. And now I'll turn the call over to Dan for more details on our financial and operating results, and we'll be available for your questions after his remarks.