Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Ludi, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group First Quarter 2022 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 star 1 on your telephone keypad. To withdraw your question, please press the found key. And as a reminder, this conference call is being recorded today, May 3, 2022, and will be made available as an audio webcast on PSEG's Investor Relations website at https://investor.pseg.com. I would now like to turn the conference over to Carlotta Chan. Please go ahead.

Good morning, and thank you for participating in our earnings call. PSEG's first quarter 2022 earnings release, attachments and slides detailing operating results by company are posted on our IR website located at www.investor.pseg.com and our 10Q 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. which differs from net 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 will now turn the call over to Ralph Izzo, Chair, 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.

Thank you, Carlotta. Good morning, everyone, and thanks for joining us for a review of PSEG's first quarter results. PSEG reported a gap net loss of under one cent per share, resulting predominantly from mark-to-market adjustments related to higher energy prices versus our existing forward sale contracts. We exclude these items in calculating PSEG's non-GAAP operating earnings, which were $1.33 per share for the first quarter of 2022. For the first quarter of 2021, PSEG reported $1.28 per share for both net income and non-GAAP operating earnings. And just a reminder that first quarter 2021 included the results from our divested fossil assets and solar source. Our non-GAAP results for the first quarter of 22 reflect solid utility and nuclear operations. That foundation, combined with rate-based growth from regulated investments, as well as lower costs resulting from the completed sale of PSEG fossil, offset lower capacity and re-contracting this quarter. Regulated operations at PSEG continue to benefit from our ongoing investments in energy infrastructure and clean energy. increasing first quarter 22 earnings per share by over 7% above first quarter 2021 results. And following the February fossil sale close, we are reporting results from our non-utility activities under the heading carbon-free infrastructure and other, or CFIO. For the first quarter of 2022, CFIO reported a net loss of $1.02 per share driven by these same mark-to-market adjustments, and non-GAAP operating earnings of 32 cents per share. This compares with 34 cents per share for both net income and non-GAAP operating earnings for the first quarter of 2021, which, once again, included results from the divested fossil assets. Slide 11 details these results for the quarter. PSE&G's customer satisfaction scores reflect our commitment to safe and reliable service achieving top quartile performance in all six factors of measurement among large utilities in the east in the J.D. Power first quarter 2022 residential electric study. The statewide moratorium on shutoffs for residential electric and gas service was lifted in mid-March. In late March, New Jersey passed legislation that provides protection from shutoffs to customers who have applied for payment assistance programs by June 15, 2022. Customers who apply for assistance will be protected from shutoffs while awaiting their application determination. PSE&G, in partnership with the New Jersey Board of Public Utilities and community groups, has stepped up efforts to help customers in arrears enroll in the readily available payment assistance programs, such as USF and LIHEAP, as well as providing deferred payment arrangements. We recognize the continued economic strain that the pandemic has brought to many of our customers, and we will continue to work with empathy as we conduct our collection efforts. We continue to make progress on our infrastructure advancement program, a proposed four-year investment in the last mile of our electric distribution system, to address aging substations and gas metering and regulating stations, and to integrate electric vehicle charging infrastructure at our facilities to support the electrification of PSEG's vehicle fleet. The discovery phase, responding to inquiries from BPU staff and rate council, is coming to a conclusion, and confidential settlement discussions are scheduled to begin within the next week. We continue to expect, based on the current procedural schedule, that final BPU action will take place this fall. With the fossil sale completed on February 23rd, PSEG will continue to focus on regulated growth empowering a future where people use less energy, it's cleaner, safer, and delivered more reliably than ever before. As you know, last September, PSEG committed to the United Nations-backed Race to Zero campaign, pledging to develop and submit our mission reduction goals consistent with the objectives of the Paris Agreement to limit global temperature increases to 1.5 degrees Celsius or less, what are known as science-based targets. Slides five and six detail our five-year, $15 to $17 billion capital spending program and show the spending in various categories, the majority of which supports our business ambition for 1.5 degrees, either through direct carbon emissions reductions, energy efficiency, or climate adaptation. The business ambition for 1.5 degrees includes our net zero by 2030 goals, as well as keeping our emissions targets across all three scopes, within the one and a half degree limit consistent with the Paris Agreement. Essentially, the business ambition for one and a half degree C will use science to validate PSEG's net zero commitments to inform needed investments and our resulting growth opportunities. We are fully engaged in developing our plan, staffed with technical advisors and internal teams that are preparing to submit our targets to the science-based target initiative by the end of this year. which is well ahead of the Fall 23 timeframe required. Based on our initial carbon inventory, our Scope 1 and Scope 2 emissions comprise roughly 15% of our total carbon emissions. Our challenge, one that we embrace, is to address our largest emissions category, which falls under Scope 3, the largely downstream customer use of our energy products that also includes the emissions profiles of our upstream suppliers. Our various capital programs support our climate vision and Net Zero 2030 goals by addressing decarbonization with gas infrastructure replacement, expanding our energy efficiency programs, which can also lower customer bills, integrating climate adaptation and resiliency design into our systems, supporting the electrification of transportation, preserving carbon-free nuclear generation, and investing in offshore wind infrastructure in addition to our base spending. With an improved business mix and an already compelling environmental, social, and governance profile, we are confident that we are creating shareholder value by growing our rate base in alignment with New Jersey's clean energy goals, as well as our business ambition for 1.5 degrees centigrade, helping to enable a lower carbon and competitive New Jersey economy. Over the past several weeks and months, energy prices have risen to levels not seen or sustained in many years. Utility customers around the country have been experiencing commodity price increases in their electric and natural gas bills for the first time in a decade. PSE&G's customers have benefited from the price moderating effects of New Jersey's electric and gas default supply mechanisms, better known as Basic Generation Service, or BGS, and Basic Gas Supply Service, or BGSS. On the electric side, PSE&G contracts for its expected BGS load on a three-year rolling basis. And each year, one-third of the load is procured for a three-year period. When the new BGS rate goes into effect this June 1st, electric bills will actually decline by 2.8%, owing to a significant reduction in actual versus assumed PJM capacity costs. On the gas side, the BPU permits PSE&G to recover the cost of natural gas hedging up to 115 billion cubic feet or 80% of its residential gas supply annual requirements through the BGSS tariff. Each June, we make a filing for our anticipated BGSS costs to go into effect in rates before the upcoming winter season. And that filing will be driven by market prices at that time and then chewed up for actual costs over time. On the nuclear side of the business, we are essentially fully hedged in 2022 and 2023. and approximately 50% hedged in 2024. While the energy price increase is helpful to nuclear in the long term, we continue to monitor pricing together with impacts from rising interest rates, adverse financial market conditions impacting future returns for our pension trusts, as well as general inflationary pressure in the broader economy covering labor and supply chain materials. Collective of these factors, we remain confident in our multi-year five to 7% EPS CAGR to 2025. On a related note, we have seen a positive shift in public sentiment in support of nuclear power and its carbon free energy security attributes since the Russian invasion of Ukraine. And we remain hopeful that a tax incentive to preserve the economic viability of nuclear generation can be passed in Washington. that provides a floor price needed to sustain these carbon-free resources over the long term. The Department of Energy recently opened its first funding window to help struggling nuclear plants with their civilian nuclear program. None of our nuclear units qualified for DOE funding under the initial criteria. We will endeavor to obtain the maximum benefit for our nuclear units from the DOE program should we qualify in future rounds. However, we do not believe that the DOE grant program provides sufficient revenue stability or visibility needed to make longer dated fuel and license extension decisions. In late February, the Nuclear Regulatory Commission, the NRC, reversed the previously granted subsequent license renewal for Peach Bottom Units 2 and 3. The NRC is requesting an updated environmental review that addresses the impacts of extending the operating licenses by 20 years. In the interim, the NRC has rolled back the license expiration dates for peach bottom units two and three to 2033 and 2034, respectively. Moving to offshore wind, the New Jersey BPU hosted a series of four public meetings in March and April as part of its ongoing evaluation of bids submitted in its offshore wind transmission solicitation, better known as the State Agreement Approach, or SAA process. The meeting solicited public input on topics including integration with offshore wind generation projects, environmental effects, permitting, and ratepayer protections and cost controls. We participated in each of the four public meetings to advocate for our submissions and submitted our formal comments to the BPU on April 29th in support of our coastal wind link partnership with ORSTED. The solutions we submitted ranged from single collectors at various landing points to a linked transmission network out in the ocean and could range in an investment opportunity for us from $1 to $3 billion if selected. Now let me turn my attention to guidance for 2022. Our regulated investment programs are producing predictable utility growth, and the Conservation Incentive Program, or SIP as we often refer to it, is effectively minimizing variations on electric and gas revenues from the rollout of our energy efficiency programs and other impacts, including weather. We are on track to execute PSE&G's $2.9 billion 2022 capital spending plan, which is part of PSEG's five-year $15 to $17 billion capital plan through the year 2025. Over 90% of this capital program is directed toward PSE&G and is expected to produce a 6% to 7.5% compound annual growth rate in rate base over the 22 to 25 period, starting from a year-end 2021 rate base of approximately $25 billion. While the first quarter results reflect a lower regulated contribution than the 90 percent we outlined at our September 2021 investor conference, this is due to the favorable first half of 2022 cost comparisons at CFIO operations from divestiture activity. Dan will go into more detail on those drivers during his review. Nonetheless, we continue to see the full year shaping up consistent with our 2022 non-GAAP operating earnings guidance of $3.35 to $3.55 per share, and for each of PSE&G and CFIO. As I said a moment ago, we continue on track for our multi-year EPS growth rate of 5% to 7%, from the 2022 guidance midpoint to 2025. Now let me wrap up my comments by mentioning to you what you've all heard by now, that I will be retiring as CEO and President of PSEG on September 1st, but I will stay on as Executive Chair of the Board until the end of the year. As part of a planned leadership succession, the PSEG Board of Directors has elected Ralph LaRosa to be the next President and Chief Executive Officer, effective September 1, and Ralph will then assume the additional responsibilities of chair of the board in the new year. Most of you are familiar with Ralph and his incredible operating experience that has guided PSE&G and our generating business over the course of my tenure as CEO. I have every confidence that the other Ralph, as we often refer to him, will continue the strong heritage of this 119-year-old organization and lead its bright future. I'll now turn the call over to Dan for more details on our operating results and will be available for your questions after his remarks.