Public Service Enterprise Group Incorporated

ladies and gentlemen thank you for standing by my name is jesse and i'm your event operator for today i'd like to welcome everyone to today's conference entitled the public service enterprise group third quarter 2021 earnings conference call and webcast at this time all participants are in the 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'll need to press the star key followed by the number one on your telephone keypads. To withdraw your question, you may press the pound key. As a reminder, this conference is being recorded today, November 2, 2021, and will be available as an audio webcast on PSEG's Investor Relations website at investor.pseg.com. I'll now turn the call over to your moderator for today, Carlotta Chan. Ma'am? You may go ahead.

Thank you, Jesse. Good morning. PSCG has posted its third quarter 2021 earnings release attachments and slides detailing operating results by company on our website at investor.pscg.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 or loss 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 PFBG. 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 to all of you for joining us on our call this morning. As you've seen, PSEG reported non-GAAP operating earnings of $0.98 per share for the third quarter of 2021 versus $0.96 per share in the year-ago quarter. Gap results for the third quarter were a $3.10 per share net loss related to transition charges at PSEG Power, and they compare with a $1.14 per share of net income for the third quarter of 2020. In this year's quarter, PSEG Power recorded a pre-tax impairment loss of approximately $2.17 billion to reflect the announced sale of its fossil generating fleet That includes $13 million of other related costs. Results for the third quarter bring non-GAAP operating earnings for the first nine months of 2021 to $2.96 per share. This 6.5% increase over non-GAAP results of $2.78 per share for the first nine months of 2020 reflects the growing contribution from our regulated operations and continued de-risking at PSEG power. Slides 12 and 14 summarize the results for the third quarter and the first nine months of 2021. The third quarter of 2021 was one of the most significant in recent PSEG history. Since July, we've announced the sale of power spotlessly and reached the transmission rate settlement that will help lower customer bill. In addition, At our recent investor conference, we announced an increase in our five-year capital spending plan by $1 billion, a $0.12 per share increase to the common stock dividend for 2022, a $500 million share repurchase program expected to be implemented upon the close of the fossil sale, and initiated a 5% to 7% long-term earnings growth projections over the 2022 to 2025 period. On the ESG front, we advanced our decarbonization efforts with the elimination of coal in our fuel mix this past June. Our participation in the New Jersey wind port and ongoing consideration of regional offshore wind opportunities in generation and transmission demonstrates our alignment with the Clean Energy Agenda and our Clean Energy Future Program was recently named a Star of Energy Efficiency recipient. Of critical importance, we have staked out a leadership position in the industry by accelerating our net zero vision to 2030 and joining a UN-backed Race to Zero campaign that will put us on a path to establish science-based targets to all of our missions across scopes one, two, and three. Later this week, I will be attending the Conference of Parties, referred to as COP26, to engage with policymakers and further support emissions reductions goals. This includes advocating for climate action now and advancing the case for preserving existing nuclear generation. This month, we issued a combined sustainability and climate report that outlines our progress to date and commitments for the future. we intend to continue taking meaningful climate action in response to the increased frequency and severity of extreme weather in our service area. Speaking of extreme weather, tropical storm Ike soaked parts of New Jersey with nearly nine inches of rain within a 24 hour period and caused extensive flooding throughout the state. Our past and current energy storm investments that hardened flood prone energy infrastructure for a tremendous benefit to customers during Ida, minimizing the damage to adapted substations and switching stations and keeping them operational. That said, the extreme weather did wreak havoc throughout our service area and our thoughts go out to the families who lost loved ones to the storm and to the communities still recovering from flood-damaged homes and businesses. To continue these enhancements and bring them closer to the customer, We are expanding our reliability improvement programs to the last mile work we will propose in our upcoming infrastructure advancement program, which we plan to file with the BPU in a few days. This proposal, if approved, would direct approximately $848 million of investment over a four-year period to improve the reliability of our electric distribution system, addressing aging substations and gas metering and regulating stations, and electric vehicle charging infrastructure at PSE&G facilities that will support the planned electrification of the utility fleet. All this while serving the dual purpose of creating important high quality jobs and helping to further stimulate the New Jersey economy. The foundation of results for the quarter was the solid operating performances by both PSE&G and PSEG power. This summer, the third hottest on record contributed to the hottest first nine months we've ever recorded, pushing the number of total hours with temperatures exceeding 90 degrees or greater nearly 65% higher than the same period in 2020 and versus normal, thereby increasing peak demand. The Conservation Incentive Program effective since June 1 for electric and October 1 for natural gas, provides recovery for variations in customer usage due to weather, economic conditions, and energy efficiency, thereby enabling the utility to promote maximum customer participation in energy efficiency programs without the loss of margin from lower sales. This also has a stabilizing effect on our margins more broadly. The continued reopening of the New Jersey economy is unwinding some of the shift in sales experienced during most of 2020. Residential electric sales declined, adjusted for weather, as more people returned to work, school, and other activities outside the home, partly offset by higher commercial and industrial sales. Due to the warmer than normal summer weather and a lifting of COVID-19 restrictions, The daily peak load for the quarter topped out at 9,620 megawatts compared to last year's third quarter daily peak, which was slightly less, at 9,557 megawatts. Our peak load for the year remains the 10,064 megawatt we hit on June 30th, which exceeded the 10,000 megawatt mark for the first time since 2013. Moving to the zero carbon and infrastructure side of PSEG, we recently announced that we've submitted several joint proposals to New Jersey's competitive state agreement approach, Open Window, to build offshore wind transmission infrastructure. These joint proposals submitted with IRSTED are collectively named the Coastal Wind Link and leverage the experienced partnership of PSEG and IRSTED and New Jersey Energy Infrastructure, our commitment to diverse suppliers, and our mature working relationships with local building and construction trades. The proposals cover onshore upgrades, new onshore transmission connection facilities, new offshore transmission connection facilities, and a networked offshore transmission system in any standalone configuration or combination. PJM is providing the technical analysis and recommendations to the New Jersey Board of Public Utilities who will make the final decisions based on an evaluation of reliability and economic benefits, cost, constructability, environmental benefits, permitting risks, and other myriad New Jersey benefits. A BPU decision is not expected before the third or fourth quarter of 2022. FERC has granted PJM's request to delay the next capacity auction covering the 2023-2024 energy year to late January 2022. This revised timeline places the 2024-2025 auction into August of 2022, and the 2025-26 auction into February of 2023. These upcoming capacity auctions will provide additional surety for the gross margin of our nuclear fleet in the outer years of our 2021-2025 planning horizon. Nuclear powers economic struggles are a national challenge that call for a broad federal solution so that individual states like New Jersey aren't shouldering more than their share of the load. We are continuing efforts to secure support for existing at-risk nuclear plants in the federal tax code. The House version of the Build Back Better infrastructure legislation currently contains an eight-year production tax credit for existing nuclear plants. $15 per megawatt hour, with the value of the credit declining as market revenues increase. The proposal has support in the Senate and from the Biden administration. While passage is not assured, this would be an impactful provision for the nation's nuclear fleet, and we are hopeful that Congress can enact it this fall. You may recall that the New Jersey ZEC law contained considerable customer protections and specifically requires that states zero emission certificate payments, that I just referred to a moment ago as ZEC payments, be offset by any out-of-market payment compensating nuclear for the same zero carbon attribute. Specific to the nuclear production tax credit, the value of the PTC for our New Jersey units would reduce the ZEC payment up to the maximum $10 per megawatt hour. However, the ZEC would not reduce the value of the PTC and our share of the two Pennsylvania peach bottom units would benefit from the full production tax credit. Moving forward, there needs to be broad recognition at both the state and federal level of the value of nuclear zero carbon attributes, both for the quality of air today and the climate tomorrow. To avoid backsliding for decades to come, we need to ensure that the long-term viability of New Jersey's nuclear generation is preserved. as we bring more clean energy resources into the mix. Turning my attention to guidance, we are raising our forecast for full year 2021 non-GAAP operating earnings to a range of $3.55 per share to $3.70 per share from the prior range of $3.50 to $3.00 per share. And this is based on results in the first nine months of the year. Results for the third quarter and the first nine months incorporate the planned August 1st implementation of PSEG's transmission rate settlement. In addition, full-year forecasted results also reflect PSEG power cessation of depreciation expense on the fossil assets based upon the move to health bail accounting treatment in August, while otherwise continuing to contribute to consolidated results. We are also reaffirming PSEG's 2022 non-GAAP operating earnings guidance of 330 to 360 per share. We remain on track to execute on PSEG's 2021 planned capital spend of $2.7 billion. This spend is part of PSEG's consolidated five-year $15 to $17 billion capital plan. which we still intend to execute without the need to issue new equity while continuing to offer the opportunity for consistent and sustainable growth in our dividend. Following the close of the fossil sale, PSEG will be a 90% regulated and predominantly contracted platform of stable, carbon-friendly businesses. As we continue to execute on this strategy, as well as on the significant financial announcements made at our recent investor conference we remain fully dedicated to providing our shareholders with the premier opportunity to pursue sustainable growth in earnings and dividends with an industry-leading ESG platform. I'll now turn the call over to Dan for more details on our options, and we'll make myself available for your questions after his remarks.