Ladies and gentlemen, thank you for standing by. My name is Christi, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group First Quarter 2021 Earnings Conference Call and Webcast. As a reminder, the conference is being recorded today, May 5, 2021, and will be available for telephone replay beginning at 2:00 p.m. Eastern Time today until 11:30 p.m. Eastern Time on May 11, 2021. It will also be available as an audio webcast on PSEG's corporate website at investor.pseg.com.

Thank you, Christi. Good morning. PSEG released first quarter 2021 earnings results earlier today. The earnings release, attachments, and today's slides can be found on the PSEG Investor Relations website, and our 10-Q will be filed shortly. The earnings release and other matters we will discuss on today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States. Reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements are posted on our IR website and included in today's earnings material. I will now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Public Service Enterprise Group. Joining Ralph on today's call is Daniel Cregg, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions.

Thank you, Carlotta, and thank you all for joining us today. I'm pleased to report that PSEG has achieved several major milestones on our path to becoming a primarily regulated utility company with a complementary and significantly contracted carbon-free generating fleet. PSEG posted solid results earlier this morning, reporting non-GAAP operating earnings for the first quarter of 2021 of $1.28 per share versus $1.03 per share in last year's first quarter. Our GAAP results for the first quarter were also $1.28 per share versus $0.88 per share in the first quarter of 2020. Results from ongoing regulated investments at PSE&G and the effect of cold weather on PSEG Power drove favorable comparisons at both businesses. We present details on the quarter's results on Slide 5 of the earnings presentation. We are well positioned to execute on our financial and strategic goals for the balance of the year given this eventful quarter. Beginning with nearly $2 billion of Clean Energy Future programs, which have moved from approval to execution. PSE&G is helping to advance the decarbonization of New Jersey in a sizable and equitable way. Our Clean Energy Future investments are paired with a jobs training program that offers opportunities to low and middle-income New Jersey communities. Last week, the New Jersey Board of Public Utilities voted unanimously to award a continuation of the full $10 per megawatt hour zero-emission certificates, which I'll just call ZECs from now on, for all three New Jersey nuclear units, that would be Hope Creek, Salem number 1, and Salem number 2 through May of 2025. This was the maximum amount that the BPU could have awarded, and we appreciate the support received from the many community, labor, business, environmental, and employee organizations that participated in this enormously important process.

Great. Thank you, Ralph, and good morning, everyone. As Ralph mentioned, PSEG reported non-GAAP operating earnings for the first quarter of 2021 of $1.28 per share versus $1.03 per share in last year's first quarter. We've provided you with information on Slide 12 regarding the contribution to non-GAAP operating earnings by business for the quarter. And Slide 13 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.

First, there was an article in Reuters this morning about federal support for production tax credits. You recently received state-level support related to ZECs. Can you discuss how these two might align, keeping in mind that it's still early in any federal initiatives? Additionally, regarding the nuclear sector, as you consider your cost reduction strategies and mitigating challenges, how should we view the cost structure above the nuclear plant once this year concludes?

Thank you for your question, Julien. In the New Jersey statute from 2018, there is a specific provision that reduces the ZEC payment if there is a federal payment for the carbon-free attributes of the plants. We have consistently argued that the responsibility for reducing the nation's carbon emissions, whether from nuclear, wind, or solar energy, should be managed through a nationwide program. Therefore, we are actively seeking these federal solutions, and as I mentioned earlier, they would offset the ZEC. I'm not sure I completely grasp your question regarding the cost structure related to the plants.

Let me rephrase that, if you don't mind, team. Thank you, Ralph. Just as you think about the legacy SG&A, sort of the corporate costs, as you think about divesting these other packages here, can you just elaborate as to how you think about sort of what the run rate is of that business without asking what the actual profitability of the nuclear plants are? How do you think about the cost structure therein just as we look to refine ourselves in kind of a '22 going forward basis?

Yes. No, we have set a goal for ourselves that there would be no stranded costs that would remain upon a divestiture of assets. The philosophy we've adopted is that we want to be extremely ambitious in eliminating positions, but extremely accommodating in helping people get reassigned to the extent that their skills match needs in the company, right? I mean we churn over 7% of our employee population every year. So we're always looking for talent. Now the one exception to that, of course, is that to the extent that we have people like myself, whose compensation was spread over a bigger asset base, that's going to be something that we will have to make up. So no, we are not having any residual stranded support or costs remaining.

Yes. These are direct or indirect, as Ralph pointed out.

Right. Excellent team. And just clarifying, there's no further clues you can offer us on the sale price for the portfolio today upside and not taking a write down.

Yes, the range was between $500 million and $600 million. The value increase is based on an average of the next three years regarding our expected EBITDA. The earnings increase is calculated as if we used the proceeds solely to pay off debt. We are not making any overly ambitious projections. As I mentioned earlier, the process was robust, with credible participants, and the prices we received were reasonable, making us confident that it was effective. Frankly, the only unexpected aspect since July has been that there have been no surprises. I hope to continue reporting that, and I believe I will.

I just want to take a step a bit higher level here with the Biden plan and granted, it's very early here, things can change, but just wondering what you're looking for here and how could it impact PEG as far as what it could mean for offshore wind, transmission development, or even kind of different things such as nuclear with green hydrogen in the future? Just any type of thoughts that you could share as far as what possibilities or what you're looking for here?

Certainly, Jeremy. We are among a small group of companies in our industry that has worked with the President and supported his goal of an 80% reduction in emissions for the electric sector by 2030. We are also collaborating with Congress to ensure that nuclear energy is included in any clean energy standards in a technology-neutral manner. We've been discussing the potential for nuclear to qualify for tax credits aimed at promoting carbon-free energy if those credits are extended. It's important that any incentive system set in place is designed to achieve the emissions reduction targets, regardless of specific technologies utilized, as long as we achieve the desired outcome of carbon reductions. We recognize the value of an all-of-the-above strategy, which encompasses nuclear, solar, wind, carbon capture, and storage. We're encouraged by the President's commitment to offshore wind in New Jersey, with a focus on a potential additional 2.4 gigawatts in the second round solicitation, while Maryland is pursuing an extra 100 megawatts. This momentum is significant. The enthusiasm from Washington and regional Governors gives me confidence that there will be substantial opportunities to invest in both the necessary transmission infrastructure to access carbon-free resources and in the ongoing development and preservation of these resources. It's worth noting that the current nuclear fleet contributes over 50% of the country's carbon-free energy, despite only providing 20% of the total electricity. In New Jersey, that figure is even more striking, with nuclear plants supplying over 90% of carbon-free energy. We are experiencing a strong alignment of political support and investment across states, all moving in the same direction.

Got it. That's very helpful. And granted, as you said, federal support could supersede what happens at the state level. And it's great to see you just get the 3-year extension is there. But just wondering, as you look down the road here, do you see the potential for changes to the ZEC program in New Jersey, be it higher levels, longer duration? Or just trying to get a feeling for what you think might be possible there?

Yes, listen, we've been quite consistent in saying that we see a multi-phase process to secure the long-term viability of our nuclear plants, and getting around to a ZEC was the successful combination of Phase I. In Phase II, there are three pathways we're going to explore. One is a federal pathway via that clean energy standard or production tax credit, and we talked about that just a moment ago. So we're going to work hard to pursue that because it is global climate change, not New Jersey climate change. The second path is to being an honest broker and adviser to the state in its pursuit of an FRR. And that, as I said in my remarks, is in process, and we're expecting a summary report from the state consultants sometime this month. That's just a little bit behind schedule, but not by much, and the state has some time to do that thoughtfully and well. In the unlikely event that all of that doesn't achieve the long-term economic viability of the nuclear plants, then we would talk to state policymakers about modifying the ZEC program to do that. It is pretty clear that a 3-year process is untenable in such a capital-intensive asset. And as we said throughout the proceeding, the $10 per megawatt hour was not commensurate with the cost of capital associated on a risk-adjusted basis when operating those plants. But given the opportunity to pursue these three other remedy paths, we would accept the $10 per megawatt. So I do think that there's a fair amount of opportunity to change the economic support for the nuclear plants.

I have a couple of questions. First, can you share your thoughts on capital allocation related to the pending Fossil sale? As you approach the completion of this transaction, do you need the cash proceeds for further debt reduction, or do you expect this transaction to enhance your credit position? Additionally, I would like to know how efficiently you think you could reinvest the proceeds in organic growth, especially considering the healthy transactions we've observed in the asset market with PEG.

Yes, it's a great question, Shahriar. And we've said throughout the year and even before, if you take a look at the capital program that we have in front of us for 21 to '25 that we could fund that without the need for incremental equity. So take that as it is and start to think about the sale of the business and proceeds coming in, there's going to be excess proceeds. And so your question is the right one. What do you think about for use of proceeds? And so there's debt at the Power level. And if you think about working your way through some of the terms of that debt, you'll see that some of the conditions there rely upon some of the assets that are being sold. So I think, pay down of debt at the Power level is an obvious first use of proceeds. We would anticipate excess proceeds beyond that, at which point you start to take a look at how we have described the business and how we've described the business is continuing to grow the utility. It has a fairly voracious appetite. The existing capital plan can be done without additional equity. But as we step through time, as we've always said, if you take a look at the 5-year capital plan, there are additional things that end up coming to bear during those 4- or 5-year periods and then towards the back end of that plan that are not known at the beginning. So there certainly ends up being opportunity at the utility. We've had a lot of discussion about offshore wind. We've talked about investing in Ocean Wind, and that we would not intend to do ocean wind as a one-off project, so we would either be in the business or not. So opportunities will come there, and they tend to be lumpy when they come based upon the various solicitations. So I think there's another opportunity to deploy capital there. And then there is always the opportunity to return some capital to shareholders. To your point, we have said very often that, to the extent that we look at some of the transactions that are going on and people are paying more than 1x rate base to get the ability to earn on a dollar of rate base, that's a challenging economic situation for us. So we have looked, and we'll continue to look at those opportunities. But to date, they have kind of fallen below the optimal things that we can do with our capital.

Got it. How active are your discussions on returns now that some of the other agenda items have been removed from the BPU's responsibilities? Considering the recent headlines from the FERC ALJs expressing strict views on ROEs and capital structures, which clearly communicated a message to investors, how qualitative do you think the BPU's stance is regarding target ROEs at both the transmission and state levels in light of the current federal developments?

I believe the discussions remain very positive. As you correctly noted, Shahriar, the main challenge has been the busy schedule of the Board due to our plans, but that's just one aspect. The Board is currently engaged in a second round of solicitation for 2.4 gigawatts of offshore wind and is also involved in an FRR proceeding. They oversee water companies in addition to electric and gas companies, and the impact of COVID has added some inefficiencies regarding the timing and manner of these processes. However, there has been no indication in the discussions that anyone is less eager to find common ground than when we first began over a year ago. While it has taken some time, that is simply due to the factors I mentioned. Our goal is to reach a fair resolution that eliminates any uncertainty for our investors and provides some level of rate relief for customers. The Board staff shares this goal and aims to achieve it promptly rather than becoming deeply involved in a FERC proceeding that could take years to resolve.

Maybe just a clarification on the FERC discussion you were just having. Have you quantified what the 50 basis points elimination does in terms of an earnings impact to you guys?

Yes. I think we did I said it would be about $0.06 a share on an annual basis.

Perfect. And then just maybe get your thoughts directionally, how you're thinking about the PJM here, the capacity option here next month, maybe you can just talk about it directionally, where do you see prices going? And then how does that impact your sort of process of selling the Fossil assets?

We have a long history of refraining from predicting public trends. Internally, we have formed our own perspectives, but I prefer not to disclose too many of them. One observation I can share is that the parameters outlined for this auction seem to lean more bearish than bullish compared to previous auctions. We'll receive the results on June 2 and see how things unfold. Overall, in comparison to earlier auctions, we are noticing somewhat more bearish indicators from the information we've gathered so far.

That's super helpful. And just any color on sort of your discussions with active parties interested in those assets? What are you seeing there?

So I think it will play a little bit of a role. If I tend to think about the assets that we're selling, they are assets that are very efficient, have great capacity factors. And so they're getting significant spark spreads that ultimately drive their value. Capacity has some of the value, obviously. But given how much they run, I think the energy margins are going to be critical to that determination. And this auction is going to be 1 year. And what folks will see after that, they can draw some conclusions from a year. But as I just talked about, you think about historical auctions compared to the current auction, you're going to have differences in the parameters as you step through time. So I think that the capacity auctions of the past have not been a wonderful forebearer of what could happen in future auctions. So obviously, each participant is going to take a look at that and see what they're going to do with it from a bid perspective. But it's not as big of an impact to look at a historical capacity auction as some other things.

I think most of my questions were answered, but just on the Fossil sale discussed, based on the initial bids you've had and different scenarios for the auction. How confident are you that you will complete a sale out of this and get somewhere in the range you were expecting?

Steve, I think we have had a robust process. I think that we've had a lot of interest. I think the assets themselves deserve and have drawn a lot of interest. So I guess I'd echo what Ralph said a couple of minutes ago, if we think about that things have gone as expected, I think that's a relative positive for continued progress here, and we would anticipate coming to a good conclusion.

Okay. And then on the offshore wind, both the commitment you've made so far and potential future ones, when will we get a little more kind of insight into the amount of the investment you're going to make and timing of that, yes?

So that happens in an increment, Steve, right? So good news at a bone is on the impact statement, it will be done, and I think that's a '22 event. We've talked about making some capital decisions in the second half of this year, it's called a pre-FID decision. And as I said, that's a financial investment decision. And then I think there's another major decision a year later than that. But so it's multiple steps in the process. We're pleased with how things are going right now. There's some tax flow changes that are being bandied about that need to be sorted through in terms of our original premise in a tax equity partner. And I think right now, to be honest with you, that team is more focused on execution and a little bit more attention being paid to the ongoing solicitations to create even further opportunities.

Yes, the changing credit environment in Washington tends to alter our plans. As Ralph mentioned, we're involved in the tax equity for the offshore wind project, which remains uncertain due to the impending tax rules. We've experienced some changes recently, especially with the shift observed last December between the Production Tax Credit and the Investment Tax Credit. There are various proposals regarding the potential direction of these credits, but until they are transformed into actual legislation, we won't have a definitive answer. This uncertainty will likely impact some of our cash flows in the initial years as well.

Okay. This question has been raised before, but I will ask it in a different way. With the recent FERC MOPR, how is it, if at all, affecting your ability to finalize the New Jersey transmission ROE? Is it connected in any way, or is everything fine on your end?

It's a course part of the background environment in which we're talking, sort of ironic. Six months ago, we were having this conversation that I think you would have phrased that as how does the...

The other way.

Framing realization. And of course, our colleagues at the regulatory team were saying, right, maybe another 50 basis points, we need to have it lower and our response was well that's not guaranteed and we can depend on we were ride. And now we're tempted to say, well, with RTO taken away, then our settlement number needs to be higher what they're saying there's no guarantee that's going to happen. So it's part of the background. The negotiation has always been around the base ROE. And both sides realize that any RTO incentives adder was separate from that.

I would like to briefly discuss the market for off cap. There was a filing by P3 that raised concerns about the continuation of a safe harbor for the upcoming auction. I didn't notice anyone else addressing this issue aside from them. While there have been counter filings, do you think this concern is significant and could potentially affect your operations in any notable way?

Not to my knowledge, Paul, Dan and I are looking at each other right now, saying we haven't raised any concerns about that at all.

Okay. Great. Given the current state of the MOPR and the events occurring at PJM, along with the situation at FERC, what are the chances of any significant action being taken until the MOPR issue is resolved in relation to the FRR?

I believe the state will continue making progress on defining what an FRR should entail if the MOPR does not address the issue of duplicate payments. I'm hesitant to speculate on whether the state would move forward with the FRR if the duplication and capacity payment were eliminated. They may decide to proceed anyway to avoid concerns about future changes from FERC. New Jersey is committed to pursuing carbon-free energy in the long term, and there have been significant changes in FERC's direction, including the MOPR and the RTO adder. I can see states deciding to forge their own path. However, they might also think they can hold off on that decision for a while since the offshore wind projects coming in during the 2024 energy year will no longer face this penalty. This situation gives the state some flexibility if the MOPR is resolved.

And if resolved quickly enough, perhaps gets done before anything gets finalized on the FRR, that would, I think, be the ideal situation that the state would have all the information to be able to finalize against.

How do you think about your chances in the offshore transmission solicitation and the eventual scale of that opportunity?

Yes. So one of the landing points is a switching station of ours. And that doesn't give us a hard and fast advantage, except we know the area, we know the right-of-ways, we know the transmission flow, and we understand how to engineer multiple solutions to bring that power online without creating any other reliability issues. I don't have a figure for the scale, I mean, the magnitude of the opportunity? I don't think we have, right? Because it's an RFP. So if we struck numbers out there, that'd give competitors a fair amount of information about what we think we'll be bidding. But it is a consequential number. I mean, it's something that would be a sizable project and a good use of capital.

Okay. Great. That's helpful. And I guess I was just curious with recent cable issues that they ran into. Just wondering if that's something that needs kind of reevaluation or changes economics in any way for the Ocean Wind project?

So I don't want to pretend to be an expert on that. I think the economic impact is more on having to go back and fix it as opposed to designing in advance to avoid. But that would be a better question to ask the folks at Ørsted. We will of course see all of that included in the project financial analysis during the pre-FID stage. But I don't have a more specific answer than that. I know what's been in domain has been existing project in mitigation.

Real quick. First of all, offshore wind, are you thinking that your interest is primarily owning or co-owning or owning stakes in projects that primarily serve New Jersey? Or are you looking to be more broad, more diverse across the Eastern Seaboard and with more venture partners besides just the one you're doing on ocean wind?

We are open to broader opportunities. As you may know, our Garden State Offshore Energy site has direct access to Maryland and has been utilized for the Skipjack project, which benefits Maryland. We can also extend to Delaware if it decides to pursue Ocean Wind, and we can reach New Jersey as well, specifically the southern tip of the state. This gives us a three-state reach. Our partnership with Ørsted is focused on a specific area in the Mid-Atlantic region, allowing us the flexibility to collaborate with others outside this area. However, it's important to note that most players in the offshore wind sector are looking to partner with local utilities for various regulatory and transmission planning reasons. While we are open to opportunities, our main focus remains on this partnership in the Mid-Atlantic region.

It's, Michael, a pretty opportunity-rich area as well. I mean, we have said that we wouldn't expect to be going to the Philippines to do any projects there. But if you think about what is closer to home, it is a pretty opportunity-rich area.

Got it. And then just one last one. On Ocean Wind or on other New Jersey ones, can you remind me once the PPA is signed who warehouses construction cost risk? Is that the project developers? Is it the customer? Like how does that work?

That's a project developer, right? The Power Purchase Agreement has an energy price and then an escalator for 20 or 25 years, I forget. Any costs or issues that were not anticipated or planned for are the responsibility of the developer.

Just a quick one. On the offshore again, can you remind us, Ralph, if you have any involvement with Ocean Wind 2 at this stage? And or if there's kind of an opportunity to have one?

Yes. So basically, that's Ørsted's project. And if they want to partner with someone, we have the right of first refusal in doing that.

Great. I just wanted to clarify the issue regarding Power and the balance sheet. Dan, you mentioned your comments about the use of proceeds. Is there a specific amount of debt you expect to carry on Power? I’m trying to understand how we should anticipate the upcoming events and what the future balance sheet might look like.

There's not a number that we put out, Jonathan. I think the way to think about it is that there's cash flows that come off of Power. And certainly, those cash flows are financeable to the extent that there's a, for instance, a longer-term solution for Nuclear, then you've got a longer-term understanding of what that could be and it could carry an incremental amount of debt for a longer period of time, depending upon where all that lands. And separate and apart, I'm sorry, Power the offshore wind proposal, as Ralph talked about, it escalates for 20 years, and that price is fixed. So yes, the construction risk is on the developer. But what you see from a revenue stream standpoint is not market-oriented; you get paid the OREC, and then you provide back the market revenues that would come from that. So there's some stability there as well. So I have not put a number on that, but there is a financeable cash flow stream in both of those instances.

So your comments before were not sort of pointing to a kind of a debt-free Power there?

Right, that is not necessarily the case. Certainly, it would probably not involve the same issuances, but there could be some debt on the other side of that.

Okay. And then just maybe a similar vein. Any plans to term out the parent maturity that's coming up in November? Or is that one you're just going to retire?

It will be based upon everything else that happens between now and then, which includes the status of what's going on from a sales perspective.

I think we're going to wrap up at this point. Thank you all for joining us. And I know we've been on the phone for about an hour, but the message I hope you heard is a fairly simple one; that is that we're executing on our plan and doing the things that we said we would do to reinforce and create primarily an ESG leading utility. So thank you again for spending time with us. And I hope to see you all soon in person. Have a great day, folks. Thank you.

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