Public Service Enterprise Group Incorporated

Ladies and gentlemen, thank you for standing by. My name is Rob, and I'll be your operator of event today. I would like to welcome everyone to today's conference, Public Service Enterprise Group's first quarter 2023 earnings conference call on webcast. At this time, all participants are in listen-only mode. Later, we'll 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 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, May 2, 2023, and will be available for replay 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 welcome to PSEG's first quarter 2023 earnings presentation. On today's call are Ralph LaRosa, Chair, President, and CEO, as well as Dan Craig, Executive Vice President and CFO. The press release attachments and slides for today's discussion are posted on our IR website at investor.pseg.com and our 10Q will be filed shortly. PSEG's 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 or net loss, 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 materials. Following Ralph and Dan's prepared remarks, we will conduct a 30-minute question and answer session. I will now turn the call over to Ralph La Rosa.

Thank you, Carlotta. Good morning to everyone, and thanks for joining us to review PSEG's first quarter results. As indicated in our release, PSCG reported first quarter 2023 net income of 1.287 billion dollars, or $2.58 a share, compared to a net loss of 2 million, or less than 1 cent a share, for the first quarter of 2022. Non-GAAP operating earnings for the first quarter were 695 million, or $1.39 per share, compared to 672 million, or $1.33 per share for the first quarter of 2022. The non-GAAP results for first quarter 2023 and 2022 exclude items shown in attachments 7 and 8 provided in the release. PSEG delivered solid operating and financial performance to begin the year, and we are on track to achieve our full year 2023 non-GAAP operating earnings guidance of $3.40 to $3.50 per share. We are executing our plan to grow PSCG while also increasing its predictability, which we outlined in our March 10th investor conference. In addition to introducing PSCG's 10-year capital spending forecast during the conference, we announced the decision to retain our five-unit nuclear generating fleet and exit offshore wind generation. The utility invested approximately $800 million during the first quarter of 2023, consistent with its full-year capital plan of $3.5 billion. These investments will be directed to modernizing T&D infrastructure, clean energy future programs, and the last mile projects in the infrastructure advancement program that support New Jersey's policies for energy transition. The 2023 capital spending program also represents PSE&G's largest investment plan to date. and drives PSEG's long-term growth outlook for non-GAAP operating earnings of 5 to 7 percent over the five-year period through 2027. PSEG completed the second phase of its gas system modernization program in February, and in order to continue these critical infrastructure investments, proposed a third phase with the New Jersey Board of Public Utilities, or the BPU, to invest $2.5 billion over a three-year period. This effort will reduce methane leaks and carbon emissions as we work to expand clean energy options for our customers. Also in February, the BPU approved an accounting order allowing PSE&G to modify its methodology for amortizing a component of pension expense for rate-making purposes. This is consistent with our request to reduce the impact of pension accounting on our reported results. Additionally, during the first quarter, PSEG achieved several milestone metrics in customer satisfaction and nuclear operations, ratified new labor agreements with all of our New Jersey unions, and implemented back-to-back gas supply cost reductions that helped on the customer affordability front. On the customer satisfaction measures, PSEG achieved top quartile performance overall among large utilities in the east in J.D. Power's first quarter, 2023 residential electric and gas studies. This follows our full year 2022 J.D. Power recognition of ranking number one in customer satisfaction with both residential electric and gas service among large utilities in the East. On the customer affordability front, PSE&G implemented two basic gas supply service commodity charge reductions during the 2023 heating season, resulting in a total bill reduction of approximately 14% per month for a typical residential gas customer. Our nuclear fleet demonstrated strong performance in the first quarter, operated at 100% capacity factor and maintained a strong ranking on the Institute for Nuclear Power Operations Performance Indicator Index. We have also authorized the funding required to transition our 100% owned Hope Creek unit from an 18 month to a 24-month fuel cycle starting in 2025 and are monitoring NRC approval of a fuel change that would enable the transition of our co-owned Salem units to a 24-month fuel cycle in the future. We also continue to evaluate power upgrade options for our Salem units to increase their generation capacity in the back half of this decade. Salem Unit 2 has completed a scheduled refueling outage and was synchronized to the regional power grid last Friday. Turning to our union contracts, following constructive discussions, PSEG recently reached new four-year labor agreements with all of our unions representing employees in New Jersey. This provides all parties with visibility and predictability on compensation and benefits into 2027. During 2022, PSEG also hired over 1000 new employees and maintained and created thousands of essential good paying jobs for the New Jersey economy. Like PSEG's award winning Clean Energy Jobs Training Program, which is focused on employment opportunities for underserved communities. According to Governor Murphy's three executive orders issued in February to combat climate change and power the next New Jersey, We are developing proposals to help support and advance the state's updated and expanded energy policy goals, which we also believe can represent a $3 to $7 billion incremental investment opportunity for PSE&G through 2032. BPU is expected to be the primary implementation agency for all three executive orders over the next 12 to 18 months. We anticipate that the BPU will update their energy master plan with specific short and long term proposals to achieve the state's accelerated target of 100% of electricity sold in the state coming from carbon free resources by 2035. Introducing a strategic roadmap with strategies to achieve the goals of having 400,000 homes, 20,000 commercial properties, and an additional 10% of all low to moderate income properties electrification ready by 2030 and convene a stakeholder process for the future of natural gas utilities aimed at reducing emissions all consistent with the state goals while also considering impacts on costs and jobs on the esg front forbes recently added pseg to its 2023 list of america's best employers for diversity in addition PSEG continues to work towards developing and submitting for validation our emissions targets for scope 1, 2, and 3 to the UN-backed science-based target initiative this fall. We are off to a solid start in 2023. We are on track with PSEG's full year 2023 non-GAAP operating earnings guidance of $3.40 to $3.50 per share. and with PSE&G's $3.5 billion planned capital spend for 2023. The five-year capital spending program over 2023 to 2027, $15.5 billion to $18 billion drives our 6% to 7.5% compound annual growth rate in rate base over that same five-year period. These utility investments and the cash generation from our nuclear fleet position us to continue supporting growth in our common dividend, which we recently raised by 12 cents to the indicative annual rate of $2.28 per share. It enables funding our capital investment program through 2027 without the need to issue new equity or sell parts of our company in order to grow. The month of May marks the 120th anniversary of public service. We thank our 12,000 dedicated employees and the ones before us for carrying forward the company's proud legacy of safe and reliable service. As we look to the next 120 years, I see a long runway of opportunity in the energy transition. We are seeing trends like the new business request trickle in for behind-the-charger infrastructure work, policymakers pushing ahead on the next phase of offshore wind transmission, and future investment opportunities in New Jersey's accelerated and expanded clean energy policy goals. In fact, just last week, the BPU, in keeping with their stated intentions, opened the next solicitation window for offshore wind transmission solutions in 2024. The board staff and PJM recommended the PSE&G Dean's 500 kV substation as the preferred interconnection point to facilitate the additional injection of 3,500 megawatts of power, part of New Jersey's goal of adding 11,000 megawatts of offshore wind resources. We fully intend to continue pursuing regulated offshore wind transmission investment opportunities both at our utility and separately at PSEG Power and Other. This ongoing investment in the New Jersey economy and its energy infrastructure improves the reliability of our networks, as well as the predictability of the business, which we hope our stakeholders find to be a compelling value proposition. I'll now turn the call over to Dan for more details on the operating results, and we'll be available for your questions after his remarks.

Good morning, everybody, and thank you, Ralph. As Ralph mentioned, for the first quarter of 2023, PCG reported net income of $1,287,000,000, or $2.58 per share. compared to a net loss of $2 million or less than a penny per share for the first quarter of 2022. Non-GAAP operating earnings for the first quarter of 2023 were $695 million or $1.39 per share compared to $672 million or $1.33 per share for the first quarter of 2022. We have provided you with information on slide nine regarding the contribution to non-GAAP operating earnings per share by business for the first quarter of 2023, and slide 10 contains a waterfall chart that takes you through the net changes quarter over quarter in the non-GAAP operating earnings per share by major business. Starting with PSE&G, PSE&G reported first quarter 2023 net income of $487 million, or $0.98 per share, compared to $509 million or $2 per share in the first quarter of 2022. First quarter 2023 non-GAAP operating earnings were $492 million or $0.99 per share compared with $509 million or $1.01 per share in the first quarter of 2022. Main drivers for the quarter were the rate-based additions from transmission and our gas system modernization investment programs, which were offset by the lower pension credits and the timing of taxes. Compared to the first quarter of 2022, transmission was a penny per share higher Gas margin was a penny per share higher, driven by 3 cents per share of favorable GSMP investment return that was partly offset by a penny per share of lower non-SIP demand due to the warm weather and other margin items. Electric margin was flat compared to the first quarter of 2022, also reflecting the absence of favorable SIP true-up in the year earlier quarter, partly offset by growth in the number of customers. Other electric and gas margin added a penny per share, reflecting both the earnings impact of the TAC or the tax adjustment credit and appliance service results. Lower distribution O&M expense added three cents per share compared to the first quarter of 2022, primarily reflecting reduced weather-related corrective maintenance and gas maintenance costs. Both depreciation and interest expense increased by one penny per share compared to the first quarter of 2022, reflecting continued growth in investment. Lower pension credits reflecting 2022's investment returns resulted in a four penny per share unfavorable comparison to the year earlier quarter. The impact of PSCG's $500 million share repurchase program completed in May 2022 had a penny per share benefit in the first quarter of 2023. Lastly, the timing of an effective tax rate adjustment and other flow through taxes had a net unfavorable impact of 3 cents per share compared to the first quarter of 2022, but will reverse over the remainder of the year, driven by the use of an annual effective tax rate. The SHIP mechanism, in effect, since 2021, limits the impact of weather and other sales variances, positive or negative, on electric and gas margins, while enabling PSE&G to promote the widespread adoption of its energy efficiency programs. Winter weather in the first quarter of 2023 was the warmest first quarter in PSE&G's records. Measured by heating degree days, the first quarter of 2023 was 23 percent warmer than the first quarter of 2022 and 23 percent warmer than normal. The ship mechanism allowed us to recover the impact of this extreme weather on sales. Growth in the number of electric and gas customers the driver of margin under the SIPP mechanism, continues to be positive, and we're each up 1% during the trailing 12-month period. E&G invested $800 million during the first quarter and is on track to execute its planned 2023 capital investment program of $3.5 billion that includes infrastructure upgrades to its transmission and distribution facilities, Energy Strong II investments, last-mile spend in the infrastructure advancement program, and the continued rollout of the clean energy future investments in energy efficiency and the energy cloud, including smart meters. For the full year 2023, PSE&G's forecast of non-GAAP operating earnings is unchanged at $1.5 billion to $1.525 billion. Moving on to PSE&G power and other, which includes our nuclear fleet, gas operations, Long Island, and parent activities including interest expense. For the first quarter of 2023, Power & Other reported net income of $800 million or $1.60 per share and non-GAAP operating earnings of $203 million or $0.40 per share. This compares to first quarter 2022 net loss of $511 million or $1.02 per share and non-GAAP operating earnings of $163 million, or 32 cents per share. We previously mentioned that PSEG power would benefit from an approximate $4 per megawatt hour increase in the average price of our 2023 hedged output, which rose to approximately $31 per megawatt hour. The majority of this annual price improvement was realized during the first three months of the year, with higher winter pricing driving most of the increase. And as a result, Gross margin for the quarter rose by a total of $0.10 per share, driven primarily by a $0.17 per share increase from recontracting 8.4 terawatt hours of generation and market impacts from the step-up in power prices. The gross margin increase also includes lower capacity revenues of $0.02 per share and lower gas operations of $0.05 per share, reflecting lower capacity and natural gas prices during the first quarter of 2022. First quarter cost comparisons improved by a penny per share in 2023, reflecting lower nuclear costs and reduced spend on offshore wind activity versus 2022. Higher interest expense covering PSG power and parent financings were 4 cents per share unfavorable compared to the year-ago quarter from refinancing maturing debt at higher rates. Lower pension credits from 2022 investment returns were 3 cents per share unfavorable versus the first quarter of 2022. Taxes, in other words, $0.04 per share favorable compared to the first quarter of 2022, reflecting the use of a lower effective tax rate in the quarter that will reverse over the balance of 2023, partly offset by lower investment income. On the operating side, the nuclear fleet produced approximately 8.4 terawatt hours during the first quarter of 2023, similar to the first quarter of 2022, and ran at a capacity factor of 100%. For the full year 2023, PCG is forecasting generation output of 30 to 32 terawatt hours, and it's hedged approximately 95 to 100 percent of this production at an average price of $31 per megawatt hour. For 2024, PCG is again forecasting nuclear basal output of 30 to 32 terawatt hours, and it's hedged 75 to 80 percent of this output at an effective price of $37 per megawatt hour. The forecast non-GAAP operating earnings for PSG Power and others unchanged at $200 million to $225 million for the full year. This forecast reflects the realization of a majority of the expected increase in the average 2023 annual hedged price in the first quarter of the year, with minimal incremental pricing improvement compared to the prior year expected over the balance of 2023. Moving on to recent financing activity. As of March 31st, 2023, PSG had available credit capacity of $3.9 billion, including a billion at PSE&G. In addition, PSG had total cash and cash equivalents on hand of approximately $1.2 billion. PSG Power had net cash collateral postings of $700 million at March 31st, primarily related to out-of-the-money hedge positions resulting from higher energy prices. As these historical lower-priced trades continue to settle through 2023 and into 2024, collateral is returned as PSEG power satisfies its obligations under those contracts. Thus far in 2023, collateral postings have been below the high levels experienced during 2022 and remain subject to market moves. Early in the first quarter, we prepaid $750 million of the $1.5 billion 364-day variable rate term loan due in April. Subsequent to the end of the quarter, the remaining $750 million of the April 2023 term loan matured and was replaced by a new $750 million 364-day variable rate term loan maturing in April 2024. As of March 31st, 2023, PCG had outstanding total of $1.25 billion of 364-day variable rate term loans expiring April and May of 2023 to support PSG Power's collateral needs. And PSG Power had outstanding a $1.25 billion variable rate term loan expiring March 2025. In total, $1.05 billion of Power and others' variable rate debt has been swapped from variable rate to fixed as of March 31, 2023, with an additional $175 million swapped in April. Also in March, PSEG issued a total of $900 million of green bonds consisting of $500 million of secured medium-term notes due 2033 and $400 million of secured medium-term notes due 2053. As Ralph mentioned, we are reaffirming PSEG's 2023 non-GAAP operating earnings guidance of $3.40 to $3.50 per share, with regulated operations at PSE&G forecasted to contribute $1.5 billion to $1.525 billion, and PSE&G Power and Other forecasted at $200 million to $225 million, noting that PSE&G Power and Other has realized the majority of the expected annual price increase in recontracting during the first quarter of 2023. That concludes our formal remarks. And operator, we are ready to begin the question and answer session.

Thank you. Ladies and gentlemen, we will now begin the question and answer session for members of the financial community. If you have a question, please press the star and the number one on your telephone keypad. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing the star and the number two. If you're on a speakerphone, please pick up your handset before entering your request. One moment, please, for the first question.

Thank you. Thank you.

And our first question is from the line of Char Perreza with Guggenheim Partners. Please proceed with your questions.

Hey, guys. Good morning.

Good morning, Char.

Good morning. So first question is on just looking at maybe opportunities to efficiently finance. I know, obviously, interest rate risk has been a headwind recently, but It's embedded in plan. You don't need equity, but do you feel like you have some opportunities for maybe financing efficiencies on the debt side, especially as, you know, we kind of see a very attractive cash pay convert market unfolding, you know, five-year terms, low 3% costs. And could that sort of benefit be accretive to that five to seven you guys rated today, especially since you do embed a higher interest rate cost step up?

Yes, sure. Thanks for that. And I will give it to Dan in a second here. We're never going to walk away from an opportunity to save a few dollars, which is what you're referring to there. And so we wouldn't do that. I also think there's a fine line there that you have to watch from being too cute to being folks thinking that you're actually issuing equity. So I guess every one of those deals are different, and we look at it and how it's structured. But We don't need to issue equity, and I just want to be certain that anything that we did to look at that would not be done in that light. So, Dan, do you want to add?

Yeah, I think that's the right theme. Sure, we obviously are going to consider all options, and we do on a regular basis when we try to look at how we finance the business. But I think it probably is a better fit for somebody who has an equity need coming up, but obviously we would look at it the same way that we would look at anything else to make sure we're financing efficiently.

Perfect. That was very clear. And then just lastly, on the strategic side, it's obviously maybe a small upside, but do you have any sort of efficient ways to allocate proceeds for the lease sales if those occur? I mean, there's been some activity on that front across the offshore wind players. So I wonder if you think it could be more accretive to hold on to some of those leases for a more competitive process and maybe more stable capital market environment there. Thanks.

Yeah, I don't know that you can perfectly time the market. I do know that acreage that we do have is off the coast of Maryland. Maryland just upsized their targeted offshore wind. New Jersey has done the same. Those are, I think, probably the two markets that those acres would serve the best. And so I think you'd look at it from an operating perspective and from a market perspective, I should say, as to when you were going to execute on that sale. When they come in, I think it's just going to be part of general corporate funds. Probably the quickest and most efficient way to use those funds would be a pay down of some debt and then just redeploying capital as we see needed. It's not like we're going to, I guess, embed it within REL's comments. We're not selling parts of the business in addition to not issuing equity for what we need to do. And so it's not like that's going to be required from a timing perspective to do what we need to do to fund the capital plan. I think that's all sound. And I think it's just going to go back and be part of the overall financing plan.

Got it. Fantastic, guys. Kudos on today. We'll see you soon.

Thanks, Trevor. Have a good one.

The next question is from Durgesh Chopra with Evercore. Please receive your question.

Hey, good morning, team. Thanks for giving me time here. Just to Dan, quick clarification on the proceeds from the lease. That would be all incremental to the current CapEx plan, right? I just want to be clear on that.

Yeah. And look, we shouldn't overplay the magnitude of what that's going to look like. It's going to be great, but it's not going to be life-changing for the company as we go forward. It is a transaction that will be around the edges, and we'll do it when it makes the most sense to make it the most efficient.

Makes sense. Okay. I didn't hear you mention the lift out on the pension on the call. Sorry if I missed it. Can you just talk to that? What are the latest developments there? And is that still sort of something you're considering?

Yeah, I think you didn't really hear anything because there really isn't nothing new to report, which is not to imply nothing's going on. Diligence does continue. It's something that we're continuing to explore just with the same purpose, to dampen the volatility that we would have within the pension. And I think things are continuing productively, but there's nothing new to report. But don't take the absence as if it's off the table. It remains something we're pursuing.

Got it. That's very clear. And then just one last one for me. Can you comment on how did the quarter shake out versus your expectations and how does that position you for 2023 with respect to your guidance range?

Yes, it shook out exactly the way we expected it to. So we're, you know, that's why we're so certain about reaffirming guidance. I think what you also heard in a bunch of the answers that Dan just gave you was flexibility that we have. We're not None of the things that you're talking about or opportunities we have require us to thread a needle to execute the plan that we have in front of us. And, you know, that confidence, I hope, comes across in both the way that we're answering and with the optionalities that we have.

It does. Well done, guys. Thanks so much.

Thanks, sir, guys.

The next question comes from Julianne DeMolio-Smith with Bank of America. Please proceed with your question.

Hey, good morning, team. Thank you guys for the time. Just following up on hedging and hedging strategy here post IRA, it seems like there's been a pretty nice step up here in hedge prices versus the fourth quarter deck, $37 a megawatt hour versus $32. Can you talk about that? What drove the significantly higher price? Is there a change in how commercial activities are being characterized, or is that actually a real step up in economic value that you're showing there? I just want to make sure we're all clear about that.

Yeah, and I'll give it to Dan to give you because he's got that trading operation. But I just do want to reinforce that there's still some uncertainty out there in the out years until we get the rules back from Treasury. So what we are describing there, though, is what we expect to have. And, Dan, you could fill some more details in there.

Yeah, Julian, what you're describing is not some kind of dramatic shift in what we're doing. We've always worked within a range. across a ratable period. There are bounds within that range. It's not a perfectly scientific range. So you could see some movement within a fairly bounded range for what we do. The quarter started with some higher prices, ended with an uptick, and in the middle had a drop-off. And so I think that we did a nice job of capturing some decent pricing. The other thing I would say, though, that you don't want to lose sight of is that not everything is robotically across the year as well. So you could have some on-peak, some off-peak hedges come on. You could have some winter hedges, some seasonal hedges, some calendar hedges come on. And that can make a little bit of a difference as you go through quarter to quarter. It's a little bit of a granular look. So to your question, I do think that we did a nice job in moving forward and capturing some value. But I think some of the other things that I described also could come into play in any quarter. Frankly, I say that more generically as we go quarter to quarter, and you look at it granularly through time.

Just to clarify that commentary, so basically this is more about hedging on-peak versus off-peak than it is anything tied to IRA or otherwise. And again, you did a nice job commercially hedging, but you wouldn't necessarily say that this is anything in terms of a change methodology, importantly.

You got that last part is the most important point that we said that we are kind of continuing on our path, similar methodologies to what we've done in the past, pending the real update that is when we'll get that from Treasury and understand it. My only comment is, you know, You can't take too much of a fine point because there are some nuances with the timing of hedges, whether they're on off-peak and seasonal versus counter hedges and things of that nature. But on balance, definitely a good quarter from a value perspective as we step through time.

And then super quick, if I can, you alluded to these plans that you're developing proposals for around electrification. When do you expect that to come? I know we've talked about this a bit in the past. Just what's the timeline there, and then especially any thoughts about a parallel higher load forecast with that and the timeline there?

Yeah, so, Julian, I think you're going to – all of that's going to play out over the next 12 to 18 months on multiple fronts. First, we have to get agreement on that load forecast that you said. I continue to believe that the current load forecast that we see from PGM is light. Isn't that a big impact to us, again, because we are decoupled, which we've seen the benefit of this year? But I think that it will drive additional investments for us, both potentially at the transmission level and at the distribution level, depending upon where those forecasts levelize off that. There is a gap between our internal forecast and what PJM has. We provide that information. But PJM is the ultimate transmission provider. authority from a planning standpoint, so we build our system out to that. I think there are, though, as we get alignment on rates of EV turnover in the state of New Jersey, as we get alignment on the electrification plans of the governor, and then as we get more alignment on this clean energy transition as a whole, and specifically in regards to the offshore wind transmission, I think we'll be able to give you a little more guidance on that over that next 12 to 18 months.

Excellent. Good luck, guys. Speak soon.

Thanks, Julian. Thanks, Julian.

The next question is from Travis Miller with Morningstar. Please proceed with your questions.

Good morning, everyone. Thank you. Hey, Travis. I know it's really early in the process, but I wonder if you could characterize the discussion and issues that might come up on the GSMP3 filing so far.

Sure, Travis. I think you said the key, though, which is it's so early in the process right now, but we still don't have any red flags as far as what we've seen and in the conversations that we've had. with the regulator, so we're confident at the end of the day that we'll get a similar run rate to what we have currently with our GSMP-2 filing. And I think you've heard and seen in all the comments made from the administration, specifically the governor's office, that there's no intent to stop any gas installations, there's no intent at this point, to stop stoves from being tied into gas. So it's a little bit different environment that we have, and I think that the lack of attention that it has had is also a very good indicator for all of us as to where policy will be heading in the state.

So you're not taking anybody's stoves away?

Yeah, no, I mean, there's no plan on that. And, you know, look, we've got to be careful on all of this because, you know, that process is confidential, right? So we... I think you can see from the newspaper articles and so on that there's really no challenge to us on the replacement of our facilities.

Yes, just joking on that one. Perhaps I should have asked this first, but how early is it in the process? What kind of timeline are you thinking about?

Yeah, we usually talk about those things in a 12-month-plus timeline for a filing like that, and I think we're only a couple months into it yet. So they just named a presiding officer at the BPU for this filing, and so I think we're 12 months-plus away for an early-inning decision. Early innings, for sure.

Okay, great. Thanks so much. Appreciate it.

The next question is from the line of Andrew Weissel with Scotiabank. Please just use your questions.

Hi. Good morning, everyone. Good morning, Andrew. First question on the new four-year labor agreement. First of all, I'm glad you had more success than the Hollywood writers did. My question is, given the inflationary pressures, how do the cost structures compare to prior deals, and how will that affect customer bills?

Yeah, so... Andrew, a couple things there. Let me start backwards with the customer bills. I think there's been a few reports out that I just would encourage everybody to take a look at. New Jersey, from 21 to 22, was I think the fourth lowest state in the U.S. as far as residential electric rate increases. So the process here is working. It's not just what we do in the T&D business, but it's also the way they procure power, and we've talked about that a bunch of times. kudos to the BPU on that and the process that's been in place. So, because of that rolling nature, any kind of increase that we would have is going to be minimal to start with. That said, labor is a large component of our O&M and the largest component of our O&M expenses within the utility. So, it will be a piece that goes into our rate case filing that we have. But the 4% increase that we were able to negotiate in three in the out years is just a good indication of the relationship that we have, the strong relationship that we have with our unions, all of our unions in the state. And the fact that in prior years when we had a 3% labor increase and inflation was at 1% to 2%, the unions recognize that and the unions recognize now when inflation is higher than the 3% to 4%. they had some benefit in prior years. So I think the outcome is pretty flat, and it's flat from a growth standpoint for our folks because the good working relationships that we have and the way it plays out. At the end of the day, I don't think this will have a major impact on the rates, again, because of a number of different factors. So exactly what we expected and should give you some confidence and others on the call as to our O&M projections in the out years because it is the biggest component of our expenses.

Great. That's very helpful. And, yeah, I know those negotiations are never easy, so congrats. Next question is on electric vehicles. Can you talk a little bit about how soon you expect to see the impact in terms of both infrastructure investment and higher residential demand? And then just remind me, under the CIP decoupling mechanism, would you benefit with higher revenues as EVs pick up, or would that be kind of more of an affordability story?

Yeah, so a whole bunch in there. First of all, as far as timing goes, we are starting to see some new business requests come in. We see it in some of the Garden State Parkway rest stops. We're seeing it in New Jersey Turnpike rest stops. We're seeing it in some of the large commercial organizations that were just granted approval by the BPU to install the charging infrastructure. That activity has started, and we're going to keep an eye on that and see about what kind of capital is required for each one of those installations on a standalone basis. It'll help with some projections going forward, but it's just a start. As far as load increases, Phil, and individual residences, we'll know more about that as we deploy AMI. We have our AMI process. rollout going very well in New Jersey, and we'll have a lot more details that we can talk about, I would say, 12 months from now as far as when we start to see folks connecting their EVs. We had an engineer that had worked here for, he just retired after about 60 years, and he said that he sees this transition as the transition when we went to central air conditioners back in the 1950s. So it'll happen, it'll happen sporadically, and then it'll take off just like like that um that deployment took place so uh we are you know we we'll have more to say about it as we go forward but i'm just i'm just really excited about the fact that we're starting to see it take place already and his first set of grants came out from the bpu uh last week um so and on the affordability side of things andrew too i think that you know there will be infrastructure improvements that will need to be made you know that last mile of our system is

It is pretty dated, and there's a lot of work that will need to be done. But I think part of what you're going to see is a shift where a piece of the wallet that used to end up at the gas station is going to end up on the electric bill.

So that helps things as well. And that's only for the commodity because, again, as you mentioned from the SIP, we're not going to collect any more for the pipes or the wires other than for what we deploy additional capital on.

Okay. Thank you very much. Thanks, Andrew.

The next question is from the line of Paul Patterson with Glenrock. Please proceed with your question.

Hey, good morning.

Good morning, Paul.

You mentioned the selection of the offshore wind injection point. And I was just wondering if you could elaborate a little bit more what that actually might mean for you. If you could just elaborate a little bit more on that, I guess.

Yeah, sure, Paul. So it wasn't a selection. It was a recommendation by the BPU to PJM to look at our Dean's switching station as the entry point. So what it means for us, certainly, is that if PJM does agree with the Board of Public Utilities and does select that, any of the work inside the fence will be the responsibility of PSE&G to complete inside the fence. The work outside the fence will still follow under that state agreement approach and be a competitive solicitation. However, what I'm encouraged by is the fact that Deans is in our service territory. We know our service territory, and we should be very knowledgeable about the routes to get from the shore to that Deans substation. I wouldn't go beyond that at this point, but I just... I'm happy to see that Dean's was selected. I also would tell you that I'm very happy about the work that we've done on our transmission system because the indication that that gives us is that our transmission system is robust enough to take that injection of offshore wind generation into it. So we've done a nice – our engineering team has done a really nice job of readying the system for what might come, and here it is.

Is there any potential – I guess when we talk about inside the fence, do we have any number about how much that might be?

No, Paul, I wouldn't know. We won't know until we actually see the size and magnitude of what comes in there versus, you know, down to the area JCP and L just is rebuilding and – and maybe even some down in the Atlantic City Electric Territory. So a lot of flows to be figured out by PJM between now and then.

Okay. That's something to watch, I guess. Then with respect to going from an 18-month fuel cycle to a 24-month fuel cycle, can you tell us what the potential impact of that might be, I guess, starting in 2025? Sure.

Well, from a capital expenditure standpoint, I think we told you it's going to be around $30 million or so. It's about that same amount, so it's a very small number. What the impact will be is there will be some savings in O&M that we'll have as a result of that. And we're also obviously going to get additional megawatts. I don't think we've published that anywhere yet, so... I stay away from disclosing any of that information until we get the engineering completed, which is what that $30 million – you know, there's really not a lot of work to do to actually ready a nuclear plant for this. What really has to be done is the engineering on the fuel rods and how they're going to interact with each other. And as that's completed, then we're going to tell what additional power we're going to get out of the unit.

Okay, great.

Thanks so much. The next question is from the line of Ryan Levine with Citi. Please proceed with your question.

Hey, Ryan.

Hi. How are you? A couple of follow-up questions. As the organization continues to evaluate the pension lift-out opportunities, do you think the company will be in a position to make a decision later this year, or has the timeline changed as you continue to work through the mechanics and details of how that would all work?

We'll give that one to Dev. There's really no change in schedule. I think we think about it as being a 23 event, but we'll continue to watch what's going on. We'll continue to watch what the market looks for. There's a large deal announced today on that front, so we'll make sure that as we do move forward, first and foremost, you know, continuation of benefits and certainty around all that and all that diligence that we're going to do and that everything works well is going to be super important. But we'll also keep an eye on what the overall market conditions are to move forward on that.

Appreciate the color. And then, Ez, in terms of Salem, what's the remaining process to extend the fueling cycle there? And are there any other capacity additions or changes to maintenance or refueling that you're contemplating in the near term?

Yeah, what we referred to in the script was that the NRC has several PWR plants that are looking at changing their fuel cycle from 18 to 24 months. So we're monitoring that. What we had discussed in the past and what we're continuing to look at is the additional upgrades, which are different than the fuel cycle down at Salem. So more to come on that. We have not disclosed anything further than what we talked about at the investor meeting.

I appreciate the comment. Thank you.

Thank you.

Our next question comes from the line of Anthony Crowdle with Mizuho. Please receive your questions.

Hey, good morning, Ralph. Good morning, Dan.

Good morning, Anthony. Is your first comment going to be congratulations, Devils?

It was. Congratulations, Devils. Big win last night. Congratulations.

I'm a little sad with my Rangers, but most of my questions answered. Just one super quick one. Following up on Char's question earlier on I think the thought of maybe using a hybrid maybe for financing, I guess, are you guys forecasting additional debt at the parent to fund CapEx either at power or utility?

Yeah, we gave a little bit of indication in March on that, Anthony, that the parent will see some debt levels come down as the existing collateral cycle kind of works off down to a more baseline amount of collateral. But then over time, we do expect... as we continue to fund the capital plan that we have, we do anticipate some incremental financing over time. And so when Char asked the question, is it something that we think of first and foremost as we're going to finance? No, we don't have equity needs as we go through the capital plan, but is it something that we would look at just to make sure we're not missing anything? I think that answers yes.

Great. That's all I had. Thanks so much. Thanks, Anthony. Thanks, Anthony.

The next question is from the line of Ross Fowler with UBS. Please proceed with your question.

Morning. Morning, Ross. I'll echo the congratulations devils, and my Bruins laid a big egg, so they cleared the way for you, for sure. So most of my questions have been answered. Just maybe a couple for you, Dan. So customer growth came in pretty good in the quarter, tracking around 1%. Can you just kind of remind us with a sip

what you've assumed for customer growth in your in your go forward earnings growth guidance yeah less than what between zero and one percent is is kind of the range that we've assumed for for customer growth uh over time um and again that's number of customers that's the important element for us right right right uh and then there was this um 10 cents of expected tax carryback

uh in your walk from 22 to 23 but that ended up coming in in 2022 so you know what other things are now sort of in 2023 given the absence of that 10 cents that get you back to sort of your 23 guidance rate yeah it's a great question and it that that 10 cents was not entirely that they carried back that was the biggest chunk of it and so that did come in early

What we're seeing in 23 really that offsets some of that without going through a whole bunch of puts and takes with respect to the guidance, which is still in the same place it was last quarter, is some of the lower collateral deriving lower interest, which is a little bit of a tailwind. So a headwind from the former, a tailwind from the latter, and we're still in the same place from an overall guidance perspective.

All right, perfect. That's all I had. Thank you.

Thanks, Ross. And I'll fill you in on my Panthers connection later.

Thank you. The next question is from the line of Michael Sullivan with Wolf Research. Please receive your questions.

Hey, Michael.

Hey, Ralph. How are you? Good. Just wanted to circle back to the offshore wind transmission opportunity and solicitation next year. I guess, like, how should we think about the read-through from the first go-around? And I think the fact that it came on, shore in JCP&L's territory and the fact that they got most of the opportunity there? Should we take that as a read-through with using the Dean's substation?

No, Michael. I think, look, the fact that that work was awarded to JCP&L just indicated that they had some work to do to make that system more robust to catch the power coming in, to use an analogy there. what you're hearing now is that the work that we have been doing at Deans has readied our system already. So we're in a little better place from a readiness standpoint at Deans, and I think that you're now seeing the BPU executing on what they had originally said from the beginning, which was we want to come into the southern part of the state, the central part of the state, and the northern part of the state. And our Deans substation, switching station, allows them to to execute on that plan.

Okay, that's very helpful. And then just in terms of the timeline for any spend related to this, so solicitations next year?

Yeah, it's all under the decade, Michael. We've been saying from the beginning they'll go through the solicitation process. Again, they're still waiting for Treasury as well to figure out the tax rules. Once they get there, we'll determine what's going to be transmission, what's going to be generator leads, and we'll be off to the races at that point. But that still puts us at the end of the decade before anyone's deploying capital on us.

Okay. Very helpful. One quick one back to the quarter on the electric and gas margin. I just wanted to make sure I understood correctly. The impact that was not covered by the SIP, what was that related to?

Oh, it's So I think we said in March that there's about 95% of our overall revenue is covered by the SIP, and there is some component that is not. And so we do have some variability, albeit much more on the smaller end. I think the variance you're talking about was a penny. So it was not a significant amount, but there is some element that falls outside of it. Some of the larger customers, that's all.

It's the INC. It's a small piece of the INC customer base. Right.

Understood. Thanks, guys. Appreciate it.

You got it, Michael.

Our next question is from the line of Angie Straczynski with Seaport Global. Please proceed with your questions.

Thank you. So I know you guys covered this in detail during the analyst day, but I still want to ask a question about the future of your nuclear plans. And so you talked about the assets being an important source of cash to finance the growth of the utility, that you wanted to do upgrades at the assets. and you were waiting for more guidance from the IRS around nuclear PTCs. So my question is, so is it just a question of timing in the sense that you're not ready yet to separate these assets, or maybe there's no easy way to separate these assets without any tax leakage, so it could still come in the future, or is it just a long-term strategy that you plan to stick with these assets and you hope that investors will value them, at least the PTC-backed earnings as regulated like?

Yeah, Angie, I was trying to be as clear as possible at that investor meeting. We want to and expect to keep those assets in a portfolio. I don't see any scenario that we've been presented with that would make us waver from that. And so I just want to be as as clear and crisp as I can be on that. You laid out exactly up front all the reasons why we articulated and I stand by that today as to why we're keeping those plants. They're a great cash flow. They've been run really, really well and they continue to be run really well. And so when you have that operating excellence combined with the cash flow, it does create a very unique utility-like revenue stream for us that we think differentiates us from some of our peers. And, you know, hopefully, you know, across the board today, you're seeing that differentiation.

And hard to think of a more valuable asset in these times, Angie.

Yeah, I mean, I don't disagree. And then lastly, so we're waiting for that guidance on nuclear PTCs, and it sounds like it's only going to come in the fourth quarter. Do you guys have any Like, what is the main question mark here? You know, what is it? Is it, you know, is it about the low market hedges? If those are going to get recognized in that true up associated with the nuclear PTC? I'm just wondering, what is it that we're really waiting for?

Yeah, and I'll give it to Dan to give you some more details on this. But look, at the very high level, it's the definition of revenues. and how that's going to be treated by Treasury, but Dan can give you a lot more.

Yeah, just the mechanics of how it works, Andy, as I'm sure you know, is there's a calculation of gross receipts. I'm going to compare this to what the PTC threshold is, and the credit kind of fills that gap. And so how that definition is determined, and you went to exactly some of the areas that I would reference, and how do you treat hedges? Is it a spot price? Is it some kind of an assumption around what hedges have happened? Is it actual hedges? It's just... it's unclear exactly how they will define the gross receipts in order to figure out how you move from that amount to the PTC threshold. And so that's what we're waiting on. I think that at the end of the day, we'll get a reasonable answer. And I think that there's a significant support for what's there. And I think we just got to work, Treasury's got to work their way through what's going to make the sense across units that are in various situations across the country.

Okay. And then lastly, so, you know, we've heard from conservation, for example, that they are thinking about replacing some of the state support for their nuclear plants with those federal subsidies. You know, in your case, I'm just thinking about it, so the 20, so the nuclear PTCs would accrue in 2024, but you would collect them only in 25, so New Jersey ZECs expire in May of 25. So is it fair to assume that it's unlikely that there would be any changes in the current structure, given that, again, the payments roughly coincide with the expiration period for the current ZECs?

Yeah, I think those mechanics are still ahead of us to be worked out. But I do think, you know, look, I think that All along, one of the things that we were saying that was so, so important is that we had a long-term solution for nuclear. I think that we were very happy to see that the PTCs did create that and honestly did create that at the federal level. If you think about most of the other elements that support renewable energy are the types of things through ITCs and PTCs that ultimately are funded at the federal level. that's another element that I think is very important within this, and that's what we'll end up moving towards once this PTCM app starts to kick in.

Operator, we're going to conclude the Q&A session at this time, and I'll turn it over to Ralph for just the closing comments.

Thanks. So, listen, I appreciate everyone getting on. I appreciate the robust questions. I just leave you, again, with what we've been saying ad nauseum at this point, but predictability and stability and confidence. And I think that all three of those things have come across again today in both our results and hopefully in our Q&A. We're proud of the organization we've got here. We're proud of the results we've been able to achieve. And we're just trying to build on 120 years of great history that we've been able to inherit. And as we've said multiple, multiple times, we want to leave it better than we found it. So thank you for calling in, and I appreciate the time.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.