Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Kyle, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group's Second 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 the star and the number one on your telephone keypad. To withdraw your question, please press star and the number 2. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded today, August 2, 2022, and will be available for replay as an audio webcast on PSEG's Investor Relations website at investor.pseg.com. I would now like to turn the conference over to Carlotta Chan. Please go ahead.

Thank you, Kyle. Good morning, everyone. PSEG's second 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 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, which differs from net income, as reported in accordance with generally accepted accounting principles, or GAAP, 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. On today's call are Ralph Izzo, Chair, President, and Chief Executive Officer of PSEG, Dan Craig, Executive Vice President and Chief Financial Officer, and following their prepared remarks, Ralph LaRosa, currently our Chief Operating Officer and our next CEO, will join Ralph and Dan to take your questions. Ralph?

Thank you, Carlotta. Excuse me. Good morning, everyone, and thanks for joining us for a review of PSEG's second quarter 2022 results. For the second quarter, PSEG reported net income of $131 million or 26 cents per share compared to a net loss of $177 million or 35 cents per share in the second quarter of 2021. Non-GAAP operating earnings for the second quarter of 22 were $320 million or 64 cents per share compared to non-GAAP operating earnings of $356 million or 70 cents per share in 2021 second quarter. And just a reminder, and I'll repeat this several times throughout this call, that the second quarter 2021 included the results from our divested fossil assets and solar source. PSEG is on track to achieve our 2022 non-GAAP operating earnings guidance of $3.35 to $3.55 per share based on results through the first six months of 2022. This is largely driven by ongoing rate-based growth from regulated investments and lower costs due to the already mentioned sale of generation assets on the carbon-free infrastructure side of the business. Utility earnings for the first half of 2022 are up 4% over last year. At carbon-free infrastructure, the year-over-year comparisons are skewed by our asset sales. Also, the majority of 2022's earnings at the carbon-free infrastructure and other side of the business have been realized as of June 30th. So for the balance of 2022, the utility will continue to be the main driver of PSEG's growth profile, which results squarely within our guidance range. I'm very encouraged by the revived climate compromise contained in the proposed Inflation Reduction Act that includes production tax credit provisions for existing nuclear and new offshore wind resources. We hope to see it move on to the Senate floor this week, but more on that later. I know many of you have been following the potential for an impact to our pension results in 2023 due to the significant declines in equity and fixed income markets since the beginning of the year. Should market conditions remain stressed on our December 31st measurement date, we would anticipate non-cash pension headwinds related to these market declines. December 31st is the single date that will determine the pension impact for 2023. So instead of continually updating a number as our dynamic market changes on a daily basis, we would rather simply assure you that in the interim, we are actively developing plans to counteract the potential near-term headwinds to the extent that they remain at year end. I want to emphasize that our pension remains very well funded. and does not, I repeat, does not require any cash contributions for the foreseeable future. From a funding perspective, our pensions were approximately 95% funded a year in 2021, and the increase in the discount rate year-to-date has kept the funding ratio in a comparable place to year-end. Rest assured that we will work tirelessly to mitigate the potential future headwinds, including pension, supply chain, and general inflationary pressures. I hope you will see through these near-term challenges and recognize what we see, that the underlying fundamental utility growth story of PSE&G remains intact and that our valuation will reflect the improved business mix and overall de-risking that continues. All of which gives us the confidence to reiterate our multi-year 5% to 7% EPS CAGR from the midpoint of 2022 non-GAAP operating earnings guidance to 2025. We remain focused on improving our system reliability and resiliency, further de-risking the business overall, and maximizing affordability for our customers. The statewide moratorium on shutoffs for residential electric and gas service was lifted in mid-March 2022, and collections and shutoffs have since restarted. However, New Jersey did pass legislation after the moratorium ended that provided protection from shutoffs to customers who applied for payment assistance programs by June 15th of 22. Applicants for assistance are protected from shutoffs while awaiting their application determination. As a result, PSE&G continues to experience higher accounts receivable aging, which we expect will take the next several years to reset to historical levels. PSE&G's alleged distribution bad debt expense is recoverable through its Societal Benefits Clause mechanism. and has deferred its incremental gas distribution debt expense as well as other incremental COVID-19 costs to future recovery, which will likely take place in our next distribution-based rate case. Our regulatory framework in New Jersey continues to be constructive. Working with the BPU staff and Rate Council, we reached the settlement to begin work this quarter on the Infrastructure Advancement Program. The BPU approved the settlement in June And over the next four years, we will invest $500 million to extend reliability improvements inclusive of the last model of our distribution system as we prepare the grid for the rapid transition to electric vehicles and enable a greater integration of renewable energy resources. Turning to our efforts on the environmental, social, and governance, or ESG, front, we are continuing our internal preparations to finalize company-wide emission reduction goals. And we will be submitting those targets to the United Nations-backed Science-Based Targets Initiative for validation that they are, in fact, consistent with the objectives of the Paris Agreement to limit the global temperature increase to 1.5 degrees Celsius or less. We have until September of 2023 to finalize and submit our targets for validation, although we're aiming to present our pathways before then, which will address all three scopes of PSEG's emissions reduction goals. Let me turn now to commodity markets, where we've seen a continued increase in electric and natural gas prices during the second quarter. And although some PJM prices have moderated recently, prices remain at high levels. With gas and electricity supply costs, which are passed through a PSE&G, comprising approximately 40% to 45% of a typical residential gas and electric bill, we are keenly focused on controlling costs to minimize the impact. of rising commodity costs on these customer bills and maximizing affordability. On the electric side, PSE&G contracts for its default BGS, Basic Generation Service, as we often refer to it, requirements on a three-year rolling basis. And each year, one-third of the load is procured for a three-year period. New BGS rates went into effect June 1st. And despite what I just said a moment ago, but due to a decline in actual versus assumed capacity costs, Electricity bills actually declined. On the gas side, PSE&G is permitted to recover the cost of hedging up to 80% or roughly 115 BCF of its annual residential requirements through the BGSS tariff. We recently filed for our anticipated BGSS costs to go into effect in rates before the upcoming winter season that will reflect current market prices at the time. and be trued up for actual costs over subsequent time periods. On the nuclear side of the business, we remain fully hedged in 2022 and 2023, and a little more than half hedged in 2024. With our rateable baseload hedging program in effect, we should begin to see higher prices layer in as we continue to incrementally sell power forward into 2024 and 2025, assuming that prices remain at today's higher levels. The uncertainty of power prices highlights the critical need for longer revenue visibility to safeguard the economic viability of existing nuclear plants, which are increasingly recognized as an irreplaceable source of carbon-free domestic energy supply. I might add this is also taking place at the international level in terms of the recognition as an irreplaceable source of carbon-free energy supply. We continue to observe a positive shift in public sentiment in support of preserving these nuclear plants, most recently as part of what I mentioned before, the proposed Inflation Reduction Act of 2022, as our country invests in energy security and climate change solutions, which can help to stabilize rising electricity prices. This proposed legislation, agreed to last Thursday by Senators Manchin and Schumer, includes the Nuclear Production Tax Credit we have advocated for over the last two years and would be in effect from January 24 through 2032. This pricing floor for nuclear generation squarely addresses our need for a longer-term framework within which we can continue to own and operate our fleet with extended revenue visibility beyond the current three-year zero-emission certificate cycle. The bill also includes transitioning to a technology-neutral ITCPTC beginning in 2025 for new carbon-free resources. And there is a 15% corporate minimum tax on net book income that would impact us and our customers. We are analyzing all aspects of the bill, including the many provisions that will help address climate change. We are hopeful that these provisions will pass Congress. Senate Majority Leader Schumer indicated his intention to bring the bill to the Senate floor this week, but there is a review process involving the Senate parliamentarian that could take a week by itself to complete. If the Senate is able to approve the measure, the House would likely return from the August recess to vote on it. In the meantime, we continue to have policy level discussions with New Jersey state legislators who are currently in summer recess to discuss a longer duration alternative to the current zero emission certificate framework for nuclear, should the price floor contained in the reconciliation bill prove elusive. Now let me turn to an update of our offshore wind opportunities, which we continue to advance on a number of fronts. On the Transmission Partnership Coastal Wind Link, the timing of New Jersey's decision on its state agreement approach to transmission offshore is still expected this October. On Ocean Wind 1, development efforts are ongoing as we approach the upcoming FID date in the coming months, while the Bureau of Ocean Energy Management will continue public hearings on the draft environmental impact statement later this summer. As related to the opportunity to co-invest with Orsted, we continue to have conversations on a variety of fronts. In fact, due diligence continues in earnest in this regard. As I step down from my CEO duties on September 1st, PSEG is well positioned to enter its 120th year of serving New Jersey with essential energy services that help to power the economic engine of the state, and advance its energy policy leadership. In my role as executive chair of the board through the end of 22, I will continue to advocate on behalf of PSEG in key policy arenas. Now, later you'll hear from Ralph LaRosa, and I must say he is the most well-prepared, ready CEO elect in the history of our company. And with Ralph at the helm, PSEG will further advance its power and progress vision of a future where people use less energy, and it's cleaner, safer, and delivered more reliably than ever. PSEG's dedicated workforce will continue the public service heritage that recently earned us the 2022 Edison Award from the Edison Electric Institute, the electric utility's highest industry honor, in recognition of PSEG's infrastructure modernization programs focused on protecting our customers and communities from extreme weather conditions. I think that's our second Edison Award in the last 10 or 12 years or so. I will now turn the call over to Dan for more details on our operating results. Then Dan, Ralph, and I will be available for your questions.