Public Service Enterprise Group Incorporated (PEG) Q1 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Nicole and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group First Quarter Earnings 2018 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded Monday, April 30, 2018 and will be available for telephone replay beginning at 1P.M. Eastern today until 11:30 P.M. Eastern on Tuesday, May 8, 2018. It will also be available for audio webcast on PSEG's corporate website at www.pseg.com. I would now like to turn the conference over to Kathleen Lally. Please go ahead.

Thank you, Nicole. Good morning, everyone. Thank you for participating in our earnings call. As you are aware, we released first quarter 2018 earnings statements earlier this morning. The release and attachments are posted on our website at www.pseg.com under the Investors section. We also posted a series of slides that detail operating results by company for the quarter. Our 10-Q for the period ended March 31, 2018 is expected to be filed shortly. I'm not going to read the full disclaimer statement or the comments we have on the difference between operating earnings and adjusted EBITDA and GAAP results. But I do ask that you all read those comments contained in our slides and on our website. The disclaimer statement regarding forward-looking statements details the number of risks and uncertainties that could cause actual results to differ materially from forward-looking statements made there in. And although we may elect to update forward-looking statements from time-to-time, we specifically disclaim any obligation to do so, even in light of new information or future events unless required by applicable securities laws. We also provide commentary with regard to the difference between non-GAAP operating earnings and non-GAAP adjusted EBITDA and net income reported in accordance with Generally Accepted Accounting Principles in the United States. PSEG believes that the non-GAAP financial measures of operating earnings and adjusted EBITDA provide a consistent and comparable measure of performance to help shareholders understand operating and financial trends, but should not be considered an alternative to our corresponding GAAP measure net income. I would now like to turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Public Service Enterprise Group. And joining Ralph on the call is Dan Cregg, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. We ask that you limit yourself to one question and one follow-up to provide enough time for everyone. Thank you. Ralph?

Thank you, Kathleen and thank you everyone for joining us today. Earlier this morning we reported non-GAAP operating earnings for the first quarter of 2018 of $0.97 per share versus non-GAAP operating earnings of $0.92 per share in the last year's first quarter. Our GAAP results for the first quarter of $1.10 per share reflect solid operating and financial contributions from both businesses. This compares to GAAP results of $0.22 per share in last year's first quarter, which includes expenses associated with our decision to retire the Hudson and Mercer coal-fired generating stations. Details on the results for the quarter can be found on Slide 5. Non-GAAP operating earnings for the first quarter benefited from an increase in earnings at both PSE&G and Power. On the operating front, our service area experienced four consecutive Nor'easters in March that wreaked havoc on trees and power lines. The repeated battering of freezing rain, heavy snow and high winds caused widespread service outages to over 500,000 customers during two of the back to back storms. PSEG employees once again rose to the challenge beginning with comprehensive storm preparation and then efficiently and safely completing PSE&G and PSEG- Long Island customer restorations the utility then actually offered assistance to neighboring utilities. The diversity of PSEG Power's generating fleet was also responsive to the extremes in weather that range from a near zero temperatures experienced in January to the very mild weather in February. Eight days of severe weather in January however, demonstrated again the importance of fuel diversity. Power's high nuclear availability and greater use of oil was able to meet weather related demand. For the quarter, PSEG's nuclear plants achieved the near perfect capacity factor of 99.5% anchored by a record setting 517 consecutive day run at the Hope Creek generating station. We have successfully advanced many policy and regulatory initiatives during the quarter. Last week, PSE&G reached the settlement to expand and extent its Gas System Modernization Program. The settlement which is awaiting approval by the Board of Public Utilities would allow PSE&G to invest approximately $1.9 billion over five years beginning in 2019. This next phase of GSMP will replace approximately 875 of miles of gas mains and make other improvements that will reduce methane emissions and ensure we have the critical infrastructure needed to grow New Jersey's economy. PSE&G is also implemented transmission and distribution rate reductions to pester the benefits of recently enacted lower federal corporate tax rates to our customers. In addition, PSE&G filed with the BPU this past January its first base rate case since 2010. PSEG Power made significant progress in its continuing efforts to ensure the economic viability of its nuclear plants. With broad bipartisan support the New Jersey Legislature passed the Zero Emissions Certificate bill in early April, key provisions of the ZEC Bill as we refer to it are outlined on Slide 6. We are hopeful that the safety net mechanism to be implemented by the BPU upon Governor Murphy's signature will secure Power's nuclear fleet as a major source of New Jersey's carbon free energy supply and acts as a bridge through a cleaner energy future as the state implements companion legislation to further promote renewable energy. The major energy policy goals of the new clean energy bill are outlined on Slide 7. PSEG has been incorporating climate change considerations into its business planning and investment decisions for many years. We look forward to working with the Murphy administration as New Jersey pursues energy policies which recognize the value of existing carbon free energy resources and promotes new opportunities to advance New Jersey's clean energy goals. Also in the category of good news, we have reached the full and final resolution of the long standing FERC investigation into Power's cost based bidding matter. PSEG continues to focus on its strategic investment program of $13 billion to $15 billion over the 2018 to 2022 period. Earnings for PSE&G are expected to grow by 5% in 2018 to represent 65% of our full year 2018 non-GAAP operating earnings. The previously mentioned $1.9 billion of settlement providing for the second phase of PSE&G's Gas System Monetization Program is aligned with our investment goals and supports annual growth in PSE&G's rate base at the upper end of our forecasted rate of growth of 7% to 9% through 2022. PSEG Power continues to operates its assets safely and efficiently and remains focused on the cost discipline essential in today's power market. Construction of two of Power's three combined cycle gas turbines under construction, is expected to conclude around mid-year and will at 1,300 megawatts of clean highly efficient gas fired generating capacity in favorable locations. This significant list of accomplishments could not have been achieved without the tireless effort of many talented teams across PSEG, from the Utility's line crews and Power's plant operations to state government affairs, communications, regulatory, legal and finance. I'd like to recognize their exceptional contributions to our progress. Today we are reaffirming our non-GAAP operating earnings guidance for the full year of $3.20 per share. At the midpoint this represents 6% increase over 2017's full year non-GAAP results of $2.93 per share. With the support of our 13,000 dedicated employees, we expect to be able to successfully deliver on the promise of our investment programs that should provide growth for our shareholders and a sustainable energy future for our customers. With that I'll turn the call over to Dan who will discuss our financials in greater detail.

Thank you, Ralph and Good morning everyone. As Ralph said, PSEG reported non-GAAP operating earnings for the first quarter of 2018 of $0.97 per share versus non-GAAP operating earnings of $0.92 per share in last year's first quarter. On Slide 5, we've provided you with a reconciliation of non-GAAP operating earnings to net income for the quarter. And we've provided you with information on Slide 10 regarding the contribution to non-GAAP operating earnings by business for the quarter. Slide 11 contains a waterfall chart that takes you through the net changes quarter-over-quarter in non-GAAP operating earnings by major business. I'll now review each company in more detail starting with PSE&G. PSE&G as shown on Slide 13, reported net income for the first quarter of 2018 of $0.63 per share, compared to $0.59 per share for the first quarter of 2017. PSE&G's first quarter results reflected continued successful execution of our infrastructure investment programs. Growth in PSE&G's investment and transmission added $0.03 per share or the first quarter. And recovery of investments made under the Gas System Modernization Program, improve net income by $0.02 per share and favorable weather comparisons added $0.01 per share versus the year ago quarter. PSE&G experienced higher cost associated with restoring service to customers following four storms that occurred over a 30 day period. The increase in storm costs when combined with the change in pension accounting standards from non-service costs increased O&M by $0.01. In addition, higher depreciation expense reflecting the utility's expanded asset base reduced net income by $0.01 per share versus the first quarter of 2017. Weather-normalized electric sales to residential and commercial customers rose by four tenths of a percent compared to the first quarter of 2017. Weather-normalized gas sales were higher by 1.6% in the quarter led by increased residential and commercial usage. Residential and commercial growth continues to trend higher at eight tenths of a percent per year. PSE&G implemented a revised $64 million annual increase in transmission revenue under the company's FERC approved formula rate effective January 1, after factoring in the $148 million decrease in its revenue requirement associated with a lower federal tax rate. PSE&G also reduced its distribution revenue by 114 million in response to the BPU's order to accelerate returning the benefits of federal tax reform to customers effective April 1. Combined, that's $262 million of benefit to customers. As Ralph mentioned, PSE&G the GSMP II filing with the staff of the New Jersey BPU rate council and other parties, which remains subject to BPU approval. The details of the agreement are summarized on Slide 16. Model this to the BPU's recently enacted infrastructure investment program or IIP initiative, the agreement will allow PSE&G to invest 1.9 billion over five years beginning in 2019 to continue and accelerate the replacement of cast iron and unprotected steel mains in addition to other improvements to the gas system. The settlement provides five year project visibility to efficiently plan labor, materials vendors and permitting. Approximately 1.6 billion of the total program will be eligible for semi-annual rate ruling's with the remaining 300 million to be addressed in a future base rate case. The return on equity for the GSMP II investment will be determined in PSE&G's pending base rate case and as part of the settlement PSE&G agreed to file a base rate case no later than five years from the commencement of GSMP II. We are maintaining our forecast of PSE&G's net income for 2018 of $1 billion to $1.13 billion. Moving on to Power, PSEG Power reported non-GAAP operating earnings for the first quarter of $0.33 per share and non-GAAP adjusted EBITDA of 313 million. This compares to non-GAAP operating earnings of $0.30 per share and non-GAAP adjusted EBITDA of 359 million for the first quarter of 2017. Non-GAAP adjusted EBITDA includes the same items as our non-GAAP operating earnings measure as well as income tax expense, interest expense, depreciation and amortization expense. The earnings release and Slide 21 provide you with detailed analysis of the earnings having an impact on Power's non-GAAP operating earnings relative to net income quarter-over-quarter. And we've also provided you with more detail on generation for the quarter in Slide 22. Power's net income comparison for the first quarter reflects an increase in capacity prices of $0.01 per share. Re-contracting and lower market demand reduced results by $0.06 per share versus the first quarter of 2017. Plant maintenance increased O&M expense and reduced net income comparisons by one penny per share. And lower depreciation associated with the early retirement of Hudson and Mercer generating stations in June of '17, along with lower interest expense added $0.02 per share versus the year ago quarter. A reduction in the corporate tax rate for recently enacted federal tax reform and other tax items improves first quarter net income comparisons by $0.07 per share. Gross margin in the first quarter declined just $35 per megawatt hour from $37 per megawatt hour in the year ago quarter. Although power prices were higher on average driven by extreme temperatures in early January, lower market demand experienced in February lowered dispatch of Power's intermediate fleet. Compared to last year's first quarter Power experienced the $4 per megawatt hour decline in the average hedge price. This decline is lower than the anticipated annular reduction of $6 per megawatt hour forecasted for the full year. As a result the first quarter benefited from the cold weather experienced in January. We forecast average hedge prices for the remainder of the year to decline by more than $6 per megawatt hour resulting in an average decline for the full year of $6 per megawatt hour. Capacity revenues by comparison are expected to increase throughout the remainder of the year with the average price received scheduled to increase on June 1, 2018 to $205 per megawatt hour in PJM and to $314 per megawatt day in ISO New England, that's 205 per megawatt day in PJM. Now let's turn to Power's operations. Generation output declined modestly compared to the first quarter of 2017. Output was affected by severe winter weather at the start of the year. And in conjunction with an unseasonably warm February and higher planned outage hours at the Bergen and Linden combined cycle units, Power's gas fired CCGT fleet operated at an average capacity factor of 37% and produced 2.7 terawatt hours of output. A higher price for gas in the quarter favored a shift to more production from coal, which generated 1.5 terawatt hours and a doubling of peaking output. Power's nuclear fleet operated an average capacity factor of 99.5% for the quarter, producing 8.4 terawatt hours representing 66% of total generation for the fleet. And of note, Hope Creek's strong performance was evidenced by a breaker-to-breaker run 517 consecutive days of production before entering its planned refueling and maintenance outage on April 13. Power continues to forecast an improvement in output for 2018 to 55 to 57 terawatt hours. For the remainder of 2018, Power has hedged 80% to 85% of total forecast production at an average price of $38 per megawatt hour. For 2019, Power has hedged 60% to 65% of forecast production of 59 to 61 terawatt hours at an average price of $37 per megawatt hour. And for 2020, output is forecast to be 63 to 65 terawatt hours with 35% to 40% of forecast output hedged at an average price of $36 per megawatt hour. The forecasted increase in output for 2018 to 2020 includes generation associated with the mid 2018 commercial startup of 1,300 a combined cycle capacity at the Keys Energy Center in Maryland and at Sewaren in New Jersey and the mid 2019 commercial startup of the 485 megawatt combined cycle unit at Bridgeport Harbor, Connecticut, that will also mark the conclusion of Power's construction program. I'd also like to update you on the conclusion of the FERC investigation for Power's cost based bidding matter that has been pending since 2014. Last week FERC issued an order fully resolving this issue. Financially, Power has recorded an incremental $5 million pretax charge to income in accordance with the order, which included $8 million non-tax deductible penalty, so $0.02 impact from that item. And operationally we do not believe that the order will have any material impact on Power's ongoing business operations. We continue to forecast Power's non-GAAP operating earnings for 2018 and non-GAAP adjusted EBITDA at 485 million to 560 million and $1.75 billion to $1.180 billion respectively. Now let me briefly address the operating results from Enterprise and Other. For the first quarter Enterprise and Other reported net income of 5 million or a penny per share versus a net loss of 15 million or $0.03 per share in the first quarter of 2017. Net income for the first quarter of 2018 reflects the absence of tax benefits in the year ago quarter at PSEG Energy Holdings and higher interest expense is apparent. The net loss in the first quarter of 2017 included $55 million pretax charge related to the continuing liquidity issues facing energy arena partially offset by tax benefits at PSEG Energy Holdings and the forecast for PSEG Enterprise and Other net income remains unchanged at $35 million. PSEG closed the quarter with $118 million of cash on the balance sheet with debt at the end of March representing 49$ of our consolidated capital and debt at Power representing 28% of its capital at the end of the quarter. Based on our strong balance sheet and credit metrics we are able to fund our five year capital investment program without the need to issue equity. We continue to forecast our non-GAAP operating earnings for the full year of $3 to $3.20 per share. That concludes my remarks and I'll now turn the call back to Nicole for a question-and-answer session.

Ladies and gentlemen, we will now begin the question-and-answer session for members of the financial community. [Operator Instructions] And the first question is from Julien Dumoulin Smith from Bank of America Merrill Lynch. Please proceed with your question.

Hey, good morning.

Good morning, Julien.

Hey, I wanted to follow up on the latest clean energy bill signed at the legislation that passed. Can you define a little bit more specifically the energy efficiency opportunity at the Utility to how to think about the net income impacts at the end of the day and then separately related just the possibility of pursuing offshore wins given its risk profile and given your current position, I mean how do you think about approaching or tackling that opportunity here or if at all?

Yeah, so Julian thanks for the question. We are generally excited by the Murphy administrations stated energy policies. As I think you know, we've been strong at the case of energy efficiency. We've done in kind of small bites; I think total over the past10 years or may be little bit north of $400 million worth of energy efficiency programs. And the clean energy bill anticipates 1.50% or 2% reduction depending on whether it electrical gas. I think it's 2% on electric and three quarters of a percent on gas. And the BPU is going to come up with rules, but surprise to say we've been thinking about this for a good long time, as the legislation also talks about recovering that utilities have the right to file annually to recover their cost including return on and off their capital and loss revenues as well. So this is great news and we will jump into this feet first and deliver universal access to energy efficiency for all the New Jerseyan's. On the offshore wind piece, we don't have a track record on the offshore wind, but we do have at least offshore and we do have a partner that's part of a JB that we have in place. So I would say that whether it's a participant in the transmission aspect or in the offshore wind aspects the form itself - that's probably not quite as mature in our own thinking as the energy efficiency, but overall this notion of a sustainable energy future is one we've been talking about for a decade or more and we are excited by the prospects that are created.

But just to clarifying the EE piece of this, I mean, how do you think about that in the context of de-coupling specifically and maybe that's a more wrecked question and separately if I can re-characterize a little bit how you describe when you talk to that sort of initial 400 million of cumulative spending. I mean, how does that compare versus what prospective you've been talking about even in order of magnitude?

Yeah, I said that's right, an order magnitude difference. We analytically released our planned number for filing, but we have said that we anticipate putting a filing before the middle of the year and we still are on track to do that. I'd rather not give a specific number because there's a pre-filing meeting we need to go through before the Board of Public Utilities and they deserve to hear that kind of before we start blurting it out in the quarterly Earnings call. But it is an order of magnitude difference in terms of the opportunity.

And to your point Julian, related to the rate case, we did file a de-couplings mechanism as part of the rate case and that really fits hand in glove with, what's going on from an energy subsidy standpoint.

Okay, thank you.

Our next question comes from the line of Praful Mehta from Citigroup. Please proceed with your question.

Alright thanks so much. Hi guys.

Hi, Praful.

Hi, so on the GSMP and the settlement and the distribution rate case, I'm trying to understand, where you're saying that if you achieve both you would be at the upper end of the 7% to 9%, just wanted to confirm that?

So, it's a combination of multiple factors Praful, there is the rate case which includes various tax give backs that have to do with also change in federal tax policy and differed tax balances. There's GSMP II which takes up $300 million per year prior GSMP per room up to about 375 million per year program. It is still the number one investment area that we will be focused on, which is transmission and all of our expectations there. And then there is some expectation for continuation of energy strong and energy efficiency, but not at numbers that we have completely disclosed yet, but when you add all that together, at least just think that we're bias towards the higher end of the 7% to 9% range, but then you may want to turn the real stone.

Gary, we said we are on the higher end of that and we anticipate being there and Praful I guess if we think about the rate case, the rate base element of that, it is a couple of things. One, it's the rolling some remaining portion of some prior clauses, but it's also rolling in the give back on some of the taxes effect. So with the way we characterized that earlier in the year was that we always talked about our growth rate and as we continue the capital program that we have, the existing rate base goes up. So, you're jumping off at a higher base and last year we were at about 7% to 9% growth rate, this year right about 7% and 9% growth. But, that higher base was really offset by some of the tax flow back that we would anticipate. So, that is what - basically the rate case and that flow back would hold you about steady and then with the existing GSMP settlement plus energy strong. Two, which we've talked a little bit about and possibly an energy filing we would anticipate moving higher up within that range.

Got you, that's super helpful. So, just to clarify, I think you said 600 million will be unprotected BTL on I think previous calls, is that re-fund expected to happen pretty soon? And is that part of like the growth that's kind of flowing in to the rate base?

That will ultimately be determined in the rate case. So I think that the bulk of the excess deferred are going to be through the average rate assumption method, which will be a longer term period but some of that, in addition to some of the excess deferred it's going to be worked through the rate case related to some other item. So we will know more about that toward the end of the year.

Fair enough and just quickly on ZEC. Congratulations to where it's kind of come out so far, just wanted to understand in terms of the three year extension, it sounds like if the prices don't change meaningfully, you have a shot at continuous extensions. But, just wanted to understand from your perspective, how do you see that extension discussion going? Because if you do get the three year, what does it take to kind of happen next three year extension?

So, first of all you got to realize that the ZEC price is not tied to market price, right. The ZEC price is an attribute payment for the carbon and field diversity dimensions of nuclear power. There is a consumer protection put in the bill that goes to simply the affordability of ZEC's, when viewed in a context of overall energy prices that customers have to pay. As well as a provision in the bill that anticipates a review by the BPU as to whether or not the plans are in any kind of economic de-rest. So, that's what the three year review is for right. Can New Jersey continue to afford to pay for zero emissions energy and that's a question the BPU will have to answer on behalf of the customers. We will always be mindful, both on behalf of customers, but on behalf of our shareholders as to whether or not the plans are making their cost of capital on a risk adjusted basis and if they are not then we will close the plan. It's not [indiscernible] that's just to share responsibility. And we will always work extra hard to make sure New Jersey is aware of those situations and what that means in terms of the wars of attributes. So I just think it's a - as you know in nuclear space nothing happens in less than a year anyway and in RPM and PGM world things tend to happen in three year increment. So, just checking in every three years as to affordability, economic viability seems like very natural rhythm to put in to public costs.

Fair enough, thanks so much guys.

Nicole, do we have any other questions.

Your next question comes from the line of Jonathan Arnold from Deutsche Bank. Please proceed with your question.

Good morning guys.

Good morning Jonathan.

Just on the energy efficiency and I hear you comment about filing by the middle of the year and then needing to go through a pre-file with the BPU. Is it a reasonable expectation that you'd be through that and able to give us a little more flavor by the time of the Analyst Day?

Yes, so we should definitely get the pre-file done before the Analyst Day, Jonathan and then we will tell you everything that we plan to file that point correct.

So, the filing itself might not have been made, but you'll have a better sense of the scope of it?

It will be because the pre-file meeting is - there's a 30 day clock that starts from then and as you know the Analyst Day is on the 31and we haven't had the pre-file meeting yet although we like to have it.

So, now I've got hearing you tell us a bit more than you told us today?

Yeah and we'll tell you lot more. We are just too excited not to tell you a lot more so. This is a favor.

Switching to something a little different, Slide 22 on power generation measures and just wanted to understand a little better, the coal costs up 9 million, it's about over 25% and the generation was a more like mid-single digits. So, is that just the fact that you're less hedged than you have been in the past and you are buying some spot to cover the extreme weather or is it a contract rolling off or how should we think about that, when we're trying to calculate coal cost for the rest of the year?

I don't think I would too much weight into that Jonathan. I think it's especially if I think about it from an overall component of the generation. I think what we saw was really a little bit more reliance on coal because of the weather, and I think on an ongoing basis, I don't anticipate it to be much of an impact as we go through the rest of the year.

Yeah, I didn't do the numbers Jonathan. But if you look at that slide, you'll see that Pennsylvania is down a little bit and Connecticut's up quite a bit and Pennsylvania is a lot more expensive coal.

Okay, that's helpful, thank you. But then on the oil piece presumably the denominator for those few –25 million of cost is in the gas segment?

That's correct.

And again is there any - I guess what I'm trying to get a feel for is to what extent the weather may have actually hurt you at Power this quarter.

I think it had a lot to do with what you are seeing on the delta quarter versus quarter from sample on the oil. That number under normal situation would be much, much lower and what you saw was prices moving up and gas getting a little bit tighter and gas prices going to extreme levels for the quarter. So, I think what you saw was much more an anomaly with respect to oil burn for the quarter and that's all -

Did you make that up in price or was that really just lost margin?

We were economic when we were running on oil. So, if we weren't economic we wouldn't have been running. But, if you took a look at where gas prices were, I mean gas prices during that part of the year, very early part of the year we were dressing up looking like a very healthy age old power prices as opposed gas prices, well up into the double digits.

So, you don't feel that there was the - net-net this was a drag on the quarter, it just the moving pieces within the revenue and cost lines?

Yeah, I think that's right. I think some anticipated spark for earlier January wasn't quite were we would have wanted it to be because gas prices basically push you into oil which had lower margin. But it was a fairly short term phenomenon in January and anomaly. But it really does drive all the oil burn that you see there for the quarter.

Okay, thank you.

Your next question comes from the line of Greg Gordon from Evercore ISI. Please proceed with your question.

Thanks, good morning. We were on the subject of PSE&G Power, there's several initiatives at PJM that are certainly in their pendency whether it's capacity market, design update or DC pricing, fast start pricing. I believe Andy put out a letter recently indicating that he hoped those three things would get done this year. Can you review what's your expectation is for the timing on those and the potential impacts on Power and then there's one thing extent, which is the management of PJM still seem support of overall price perform. There hasn't been much progress there, so can you give us an update on your expectations on that front?

Sure Greg, sure. On capacity market reform we've been public that we prefer the two phase approach, which is the PJM preferred approach even though they submitted the market monitors [indiscernible] based approach as well. I think we have every reason to believe that will go on to effect by May of '19, obviously that won't have any effect on the current RPM. So, I think that's the timing there. I would view fast-start as yet another piece of the price formation puzzle. I know that many people including ourselves talked about the inflexible unit dimension of price formation. But fast-start does have now a proposed zero threshold element to it, which is characteristic of inflexible units right. They can't move over the time frames that PJM is seeking. We've never been one to quote whether or not the forward price curve has these numbers in it nor have we been one to quote what these changes will mean to the forward price curve. We just say the market is the best determinant to that and our all internal views will influence whether we hedge a little bit to the high side or to the low side of our own internal disciplined approach. I think Andy, himself has said that these should be able the energy prices fixes should be able to be put in place by a little bit more than a year from now, but sometime in the summer of '19, so that is a delay. I think that once upon a time there was a talk of fall of '18 for some of these reforms, but I think the combination effect has introduced that [indiscernible]. I think the good news if I might is that the PGM board appears to be willing to undertake what's called the Liaison process [ph] as opposed to the full-fledged stake holder process, which can put a little bit more of a limitation on the amount of time. I should by the way point out that in terms of RPM, we prefer the status score, but the middle of that PGM is made we think the two phase approach is better than one phase approach. I don't think PGM has given up on the full inflexible unit pricing, they see that as part of their resiliency discussion which continues comments due back from I think the rest of us, [indiscernible] has already made their comment, ours is due back I think in the middle of June or the middle May, I suppose. So, it's still working process not over by any shreds or something's that's bit of a date certain - are either capacity market reforms and energy market forms we think are still creep into the market.

Thank you for the update.

Your next question comes from the line of Travis Miller from MorningStar. Please proceed with your question.

Thank you. Reading through the ZEC, it sounds like there could be out-of-state plans that would be eligible and most interested in your thoughts Peach Bottom plant if that is true, if I am in fact reading the ZEC correctly?

Yes, so Travis, you are absolutely reading it correctly. The bill simply says that New Jersey wants 40% of its power supply by nuclear energy and it does not limit geographically. In terms of there being - more than 40% of New Jersey's electricity being deliverable by nuclear power plants whether its Salem, Hope Creek, Peach Bottom or a variety of others. Then there's a ranking system that the BPU is encouraged to undertake that is really driven off of the greatest impact on New Jersey from an air quality point of view and various other parameters that are detailed in the legislation. But the short answer to your question is yes. Out of state plans would be eligible, but New Jersey would not support or coincide to legislation more than 40% of its energy being supplied by nuclear power.

Okay, what's the thought that Peach Bottom would rank at the bottom, just giving us on New Jersey?

No, I don't want to pre-determine what the BPU will do. Peach Bottom will compete with Salem and Hope Creek and [indiscernible] but it doesn't.

Yeah, sure, so second question on the clean energy bill. What components specifically could generate rate base growth if any? Just clarifying a couple I guess?

There are multiple, right. So the utility has done grid connected solar, utility done roof top solar and the utility has done energy efficiency, it has done pilot programs in battery storage technology, so various - no shortage of opportunities that are expanded in the clean energy world. Two others, there's a transmission components offshore wind, there's offshore wind itself, so I think you just have to remember what the Governor says, he sees nuclear power as an important bridge to renewal future and the renewable future he has in that bill which he has not signed yet, is the 50% renewable target in 2035. And we expect to be participants in every aspect of that sustainable energy agenda.

Got it and those are investments you foresee could go under rate basis and not just on an exit to rotate collections right?

That's correct. Well, I mean yes. Look the reality is in New Jersey just given our geographic and natural resource profile, you are not going to be able to do merchant seller or merchant off shore wind, those will have to be supported through some type of regulatory revenue stream that's either in the form of renewable energy credit and - or some other mechanism. And again on the offshore wind piece I just want to empathize that while we have at least - we've never done that before, so we would be interested in the transmission component probably as much if not more than the actual wind farms and we are - as I said a moment ago, we are all in on energy efficiency piece.

I think some elements of the legislation Travis, talks specifically about utilities investing and having recovery, I don't know, like the energy efficiency. Off shore wind, very different situation, not specifically laid out as to how that will work out. In fact, the legislation really calls for a study for that to be determined - things like that to be determined.

Okay, great. Yeah, that's helpful. Thank you very much.

Your next question comes from the line of Paul Patterson from Glenrock Associates. Please proceed with your question.

Hey good morning.

Hi, Paul.

Just ZEC under suspect [ph], when is the Governor expected to sign the nuclear legislation?

Paul, so he has - so the New Jersey Governor has 45 days to act on legislation and that action could be either an outright veto which would require two thirds majority of the legislation to over write, something called the conditional veto which is like this except for and then he sends it back to legislature to change the piece that you like except for or to sign in for law. In addition, if he doesn't act for 45 days, it automatically goes it for a while. So those are the options.

Okay. So let me ask you this. If we don't get in signing it by the RPM auction which is in that far from now, how should we think about how that might effect, how you guys would be bidding into the capacity auction?

You know we never comment on our bidding in plans prior to the auction but I - let's say this that we would view things differently if we do the legislation versus simply not get around to signing it yet. So those are two things.

I see. Okay, I got it. So, okay, absolutely you guys sort of expecting that this bill be enacted?

You know he is - like ever wants to pretend to be constraining your government. He is a very important person and he is a talented person one that we admire. So I am not going to try to tell me what to do on an earnings call. But having said that I mean he has been outspoken and supportive of nuclear is a bridge to renewable energy in the future and he is also been outspoken and support of the important of those jobs so South Jersey. So I feel pretty good about those public statements on this part.

Okay. And then the LG efficiency program, just how should we think about how that impacts the demand forecast longer term and just in general how we should think about how you see energy demand for electricity demand working in the State?

You know Paul, we've been working hard to try to remind investors that the utility growth story is really independent of demand growth. Demand growth are the absence of it has significant implications for how regulations needs to be restart to avoid the compounding of inevitable when regulatory lag on investment returns. But PSE&G's growth over the past ten years and its continued future growth really is about an aging infrastructure and these replacement and a higher degree of customer service and customer demand for clean energy future. And I am absolutely convinced that we can continue to invest in a resilient grade cleaner energy and more efficient use of energy which would - that third piece would help lower customer bills and put smiles on our shareholders. So I think that energy efficiency is an important part of controlling the bill from the point of view of the extra cost associated renewable energy and making the group more resilient.

So you guys had demonstrated that too, so you guys have been the head of the group on that, but I guess sort of wondering though it does have an impact perhaps on non-regulated generation not just in your state but all over. So what you guys like be doing could have an impact there, I am just sort of curious is to what you guys think. And just roughly speaking all these demands - what you see the demand for cost kind of being?

Well, I think RPM is a good example, demand forecast is down. I think that's the consecutive year over some large single digit number, well that's been the case. We've obviously made the decision in our own service territory that power has a much bigger market in which you plan and therefore to the extent that our own efforts cannibalize power, we've been willing and continue to be willing and continue to be willing to do that. I do think that the primary supply demand economics in the wholesale market are going to be determined as much by the shrinkage of supply as it is going to be determined by any changes in demand.

Okay, thank you very much.

Your next question comes from the line of Michael [indiscernible] from Goldman Sachs. Please proceed with your question.

Hi guys, thank you for taking my question. One easy one, you have talked about this in prior earnings call during Analyst Day, haven't circle back on this a bit. Can you just talk about how much extra balance sheet capacity that you think the company has right now, meaning either the fund, incremental rate base closed or incremental renewable growth at PS Power. Just kind of when you think about your credit metrics in a post-tax reform world and balance sheet strength, how big is that balance sheet strength?

And Michael, I think you'd want to think about it really in two steps right, we've talked about the ability to fund the capital plans such as we have without the need for any addition equity. And then as you mentioned consistent with we talked about it in the past, if we take a look at our existing credit statistics and you take a look at where some of the threshold points are, you got somewhere in the order of $1 billion of excess at PSEG Power which then can be utilized at the utility within the existing regulatory capital structure. So that can be matched with debt and so you'd come up with that double if you think about from a utility overall investment incremental standpoint without having any impact on the existing ratings.

Got it. And incremental for potential holding incremental holding company leverage or do you just think about it as if opportunities came up for incremental investment at power or at E&G, you would simply make the leverage down at power?

I think that the leverage could happen at power or at the parent company. I think we've had some parent company debt and we tend to talk a look at what makes them more sense from economics standpoint when looking to source that debt. So I think that it could be at either location but I think you are in the same ballpark when I talk about the numbers that I just referenced.

Got it. Thank you, Dan, much appreciated.

Yeah.

Your next question comes from the line of Paul Fremont from Mizuho. Please proceed with your question.

Thanks. I guess the first question would be on the clean energy bill. When I think of the 7% to 9% rate based growth target and the fact that you guys are seeing yourself footed with the upper end. Do the investment opportunities under the clean energy bill keep you within that 7% to 9% band or would that potentially put you outside of that band?

So I'd rather give more detail on the band at the upcoming investor conference Paul, right now because I think we'll have more information coming out of our pre-filing meeting with the board staff and hopefully definite resolution of the nuclear build by that point in time.

Okay. And then sort of a quick question on Hope Creek, the 60 megawatt upgrade that was approved, when would that take affect?

It was 16 or 60?

16.

16, it was much small. You know I have to get on it Paul, I don't know the answer. Our nuclear has been jammed with broader issues than 16 out of the 1100. It wasn't occur - I mean this was a change I believe and our problem was to take risk assessment that allowed us to run the plant at different numbers. But I'm tempted to say it's coming out.

I think coming out of this outage is the right answer, but we can't confirm that for you.

Okay.

Any questions we can answer for you Paul?

No, that's good. Thank you very much and congratulation.

Your next question comes from the line of Angie Storozynski with Macquarie. Your line is open.

Thank you. So my only question is you guys in the past mentioned that you might try to pursue electric retail in the mid-Atlantic, we haven't actually had much, haven't heard much about it. And you know do you think that this is still something you'll be interested in and so do you think that this would be done organically or would you need to acquire every tool book? Thank you.

Yeah, Angie, thanks for the question. We're still at work, it is exclusively an organic effort. We did look at the potential for acquisitions but given that the purely defensive nature of this effort and our desire for it to basically help us improve our margins based on our own assets. You know there's been no book that kind of sit back to high enough degree of accuracy that the transaction costs what those swamped the benefits of, because whatever book we bought, we have to sell off a piece of it and that would be suboptimal. So we're continue to pursue an organic growth strategy there.

Cool. And my other question on the regulated side. So even your rate base what you grow at 9%, would you consider acquisitions of other regulated under invested systems than your, around your service territory or in the same state?

You know we always, there are logic announcements. I don't know if any that are available in that state that are bigger entity. So we always look at those right, but we've been very public that we are quite an advert with our organic growth strategy and without any disrespect to our colleagues in the industry sometimes are puzzled by the premiums that others are willing to pay and we've not putting a little pencil of those in the way that works. But we always look at those possibilities.

Okay, thank you.

Your next question comes from the line of Steve Fleishman from Wolfe Research. Please proceed with your question.

Hi, good morning. Sorry, quite buggy with some clarifications but just on the weight base growth comment, could you clarify what the base of your growth forecast, is that change due to some of the tax reform adjustments or is it the same current base level 37 to 9?

Hi Steve. I think probably I'll let Dan dive into that. Yeah, but that's just a year end 2016 number, because 2017 number which is $17 billion.

Okay. So the base is still the same base?

Yeah.

And then and saying that you might be toward the high end that is including the GSMP but nothing else defined?

It would include as we look forward, some opportunity related to future filings right. So I would say that if we had nothing beyond the GSMP filing will be more middle of the road within that range and with the opportunity for future filings, we could see the opportunity to go higher than the middle of the range.

Okay. So it may include some of these clean energy investments or?

And any other adjustments as we step forward through time, yes, yes.

Okay. And then - yeah, I am good. Thank you.

Your next question comes from the line of Michael Weinstein from Credit Suisse. Please proceed with your question.

Hey Ralph. It's Mike Weinstein. A quick question. You said before you prefer the status quo for the current capacity market reforms I believe, I've heard some similar sentiment on and I'm just wondering what, is it about the status quo that's better than any of the proposal systems out there?

I just said it the status quo has new plants being mopped as opposed to existing plants being mopped and it doesn't interfere with the state's ability to price attributes that the market isn't currently pricing. So we just don't see a need for this kind of a modification at the current time.

I mean do you think any - is it that you think the modifications won't have an effect at all or?

No, no, no. I mean they will have different effects, I think that the two phase approach at least continues to allow states to recognize the value of renewables and carbon free energy sources. The market monitors approaches this for tracked administrative battle over what constitutes the appropriate minimal of offer price which as you know can be moved quite a bit depending upon whether you believe something has a 30-year life or 40 depreciable life if you cross the capital's X or 1.1X or 0.9X. So to characterize that is a correction to ensure the market is working properly. I think is inaccurate, I think it's a correction to assure administrative power refers to people who want to have administrative power and that's not necessarily consistent with markets. I mean what we are all dancing around here is we need a price on carbon and then let the market pick the technology. And then I think you see every participant in the market sign up for that, or it's for me the carbon heavy participants I guess.

Is that more handle better on the energy side basically and then you think, yeah total capital market reforms are currently distraction of some sort maybe?

Yeah, you've got a collapse an interim marginal revenues because there's no carbon price in energy markets. And that collapse in from marginal revenues, high fixed costs participants are getting crushed and that's, and yet people are saying they want the attributes of these high fixed cost participants are. You know you have the decoder ring right, the high fixed cost participant, there's a nuclear plant and yet people are paying record prices of anywhere from $5 to $200 per ton of carbon. And so the markets just got these inherent inconsistency is built into it. so if we did get a single price on carbon in energy markets then the in for marginal revenues will increase and the fixed cost recovery would be mitigated and then capacity markets can do what they were supposed to do, being for a liability mechanisms and nothing more.

Got it. Okay, thank you.

You're welcome. And I think we have time for one more question and then we'll I think let folks out the day back.

It sounds like there are no further questions at this time. Please continue with your presentation or closing remarks.

It's always a magic no matter where you are, whether it's a teleconference or public speaking, if we say one more questions there are no questions but that's great. So anyway, so thank you folks for joining us today and I hope you heard from Dan and I that there's a lot of good things happening at PSEG and they range from a continuation of a $143 to $15 billion investment program 90% of which is going to the utility and leads to be biased towards the upper end of that 7% to 9% rate base growth looking out to 2022 twenty offered the higher base in at the end of 2017. Again we've got to give kudos to the great work done by our utility crews and our power plant operations during what were some very, very difficult circumstances certainly in January. And Kudos to our regular team and all of our support functions for the strives that made on some of the policy fronts with the settlement of GSMP II and legislation that recognizes the value powers, nuclear generation, I mean getting 60 out of 80 votes in the assembly and 30 out of 40 votes there on basis, I think validates what we've been saying along that New Jersey will recognize the important of these plants to our environment, to our cost of energy, to our economic wellbeing and that they are much cheaper to keep than they are until it's shutdown. And then of course our ongoing commitment to maintain our financial strength which gives us flexibility to support the growth and dividend, fund these rate based growth investment and no need to issue equity and still some balance sheet capacity leftover. So hopefully we'll see all of you on May 31. I know that's the weekend after that's Memorial Day, so coming Chubby's or whatever other beach where you have, we will have a great conversation about the rate base growth in detail where we are with our PM and I think there is a brand of clothing. And we'll see you soon. Thanks a lot everyone. Take care.

Ladies and gentlemen, this does conclude your conference call for today. You may disconnect and thank you for your participation.