Public Service Enterprise Group Inc Q4 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Julia, and I will be your event operator today. I'd like to welcome everyone to today's conference, Public Service Enterprise Group Fourth Quarter and Full Year 2021 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session for members of the financial community. As a reminder, this conference is being recorded today, February 24, 2022, and will be available as an audio webcast on PSEG's Investor Relations website. I'd now like to turn the conference over to Carlotta Chan. Please go ahead.

Thank you, Julia. Good morning and thank you for participating in our earnings call. PSEG's fourth quarter and full year 2021 earnings release, attachments, and slides detailing operating results by company are posted on our IR website, and our 10-K will be filed shortly. The earnings release and other matters discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's earnings material. I'll now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of PSEG. Joining Ralph on today's call is Dan Cregg, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. Ralph?

Thank you, Carlotta. Good morning, everyone. Sadly, the events of today do warrant a slight deviation from our normal beginning remarks. And let me just offer our thoughts and prayers from everyone at PSEG to those of you who are more deeply and personally affected by the events in Eastern Europe. And of course, we pray for a rapid diplomatic resolution of matters. Let me proceed, however, with a review of our 2021 performance and our outlook for 2022 and beyond. We are, in fact, pleased to report strong operating and financial results for 2021, which marked the 17th year in a row that PSEG has delivered results within management's original or raised non-GAAP operating earnings guidance. PSEG's GAAP results were $0.88 per share for the fourth quarter of 2021, compared to $0.85 per share in the fourth quarter of 2020. For the full year, PSEG reported a 2021 net loss of $1.29 per share, driven by charges related to the sale of PSEG Fossil. This compares to net income of $3.76 per share in 2020. PSEG reported non-GAAP operating earnings for the fourth quarter of $0.69 per share, compared to $0.65 per share in the fourth quarter of the prior year. Non-GAAP results for the full year 2021 rose to $3.65 per share, compared to $3.43 per share in 2020. For 2021, PSE&G net income increased by 9% above 2020 results and contributed approximately 80% of PSEG's consolidated non-GAAP operating earnings. Slides 15 and 17 detail these results for the quarter and the full year. We're pleased to report that PSEG has completed the sale of the Fossil portfolio. We closed on the PJM assets on February 18, and the New York and New England assets closed yesterday, having received all required regulatory approvals from the Federal Energy Regulatory Commission and regulators in Connecticut and New York. I extend my heartfelt thanks to the PSEG Fossil employees for their professionalism throughout the sale process, which resulted in impressive 2021 operating statistics that actually were among the best in our history. PSEG Fossil's commitment to operational excellence and continuous improvement will continue to inspire all of us at PSEG going forward. The closing of both Fossil sales along with other key priorities achieved during 2021 will support our pursuit of a robust set of regulated and contracted opportunities. PSEG is focused on clean energy and infrastructure investments to drive regulated utility growth with a vision toward powering a future where people use less energy, and it's cleaner, safer, and delivered more reliably than ever. PSEG's improved business mix further enhances an already compelling environmental, social, and governance profile and will help us achieve the powering progress vision. Let me take a minute to recap a few significant accomplishments from last year. PSE&G initiated investments in its $2 billion Clean Energy Future program that has expanded the traditional definition of rate base while helping New Jersey to achieve its clean energy goals and importantly, will provide customers with options to lower their bills. PSE&G also settled the potential challenge to the return on equity in its FERC transmission formula rate last July, resulting in reduced rates for customers and eliminating a regulatory overhang. In addition, our energy strong investments proved their value in the aftermath of a devastating tropical storm Ida last August, despite floodwaters approaching five feet in height in parts of New Jersey, all of the Energy Strong hardened substations remained operational and helped to minimize customer outages across our system. PSEG Power secured a second three-year term of zero emission certificates, which will carry us through May of 2025, and help to preserve the state's carbon-free nuclear generating resource. We detailed these and other accomplishments at last September's Investor Day, which highlighted a company built around a 2022 business mix that is projected to be 90% regulated. This more predictable and visible earnings platform has enabled PSEG to provide a multi-year earnings growth rate of 5% to 7% from the 2022 guidance midpoint to 2025. PSEG also announced at last year's Investor Day that we would pursue a $500 million share repurchase program and raised the 2022 annual dividend by nearly 6% to $2.16 per share. We have completed half of that repurchase program, and we'll be executing the remaining $250 million in the near future. In addition, our Board of Directors recently declared a $0.54 per share first quarter 2022 dividend at the indicative $2.16 per share annual rate. Supporting our strong financial capabilities is our commitment to operational excellence and continuous improvement. I'm proud to report that for 2021, PSE&G achieved better-than-top decile rankings and OSHA scores for safety and SADE scores, which is an industry standard for reliability as shown on Slide 8. The Utilities JD Power Customer Satisfaction scores improved in both its electric and gas areas and in each of the residential and business customer segments. These results were our highest cumulative scores to date, achieving a top quartile ranking in the Eastern group in three of the four studies. In addition, for the 20th year in a row, PA Consulting recognized PSE&G with its ReliabilityOne Award as the most reliable electric utility in the Mid-Atlantic region. After a sustained period of low natural gas prices, New Jersey and the rest of the country are experiencing increases in energy prices. This has resulted in PSE&G implementing two 5% gas rate increases for this winter's heating season. Yet following these adjustments, our typical gas residential customer bills are still the lowest among our regional peers. On the electric side, monthly residential bills remain below our peer group average, and default supply rates will actually decline this coming June, based on the results of New Jersey's basic generation service auction earlier this month. This will result in a decrease in the average PSE&G electric bill of about 2.8%. Including the BGS rate reduction in June and other requested changes, the combined bill of a typical residential customer will be at least 20% lower compared to more than a decade ago, and 35% to 40% lower when you take into account inflation. Next month, in March, the statewide moratorium on shutoffs to residential electric and gas service, which began in March of 2020, is set to be lifted. And PSE&G in partnership with the New Jersey Board of Public Utilities and several community groups, is helping customers enroll in several payment assistance programs. Now turning to our 2022 earnings guidance on Slide 9. We have narrowed the range of full year guidance for non-GAAP operating earnings to $3.35 to $3.55 per share from the $3.30 to $3.60 per share initiated last September. The subsidiary guidance ranges for 2022 are narrower also, with a slightly higher midpoint at PSE&G that is 6% above 2021 results and reflects a more predictable earnings profile and improved business mix overall. The narrowed range reflects the benefit of a full-year impact of the Conservation Incentive Program and finalizing 2022 pension drivers updated for our December 31 performance measurement date. Last September, we introduced PSEG's five-year 2021 through 2025 Capital Investment Program of $15 billion to $17 billion, with approximately 90% or $14 billion to $16 billion allocated to the utility. This plan is expected to produce 6.5% to 8% compound annual growth in rate base over that same five-year period. Recall that we added the Infrastructure Advancement Program, I'll refer to that as IAP, to our 2021 to 2025 capital plan with an investment to be made over four years to improve the reliability of the last mile or the lower voltage of our electric distribution system. This will also address aging substations, and gas metering and regulating stations and allow us to invest in electric vehicle charging infrastructure at our facilities to support the electrification of the utilities' vehicle fleet. We remain in discussions with the BPU regarding our IAP proposal. And based on the current status of the proceeding, we anticipate BPU action in the autumn of this year. With respect to financing our capital spending program, I will reiterate that we expect our strong cash flow, enhanced financial flexibility, and solid investment-grade ratings to enable funding this $15 billion to $17 billion program, as well as our planned investment in Ocean Wind 1 without the need to issue new equity. Now before moving to Dan's financial review, I would like to touch upon some of the exciting new initiatives for future growth. These range from the new Clean Energy Future investments, which enable opportunities for rate base growth behind the meter, to supporting electrification of transportation, and a growing mix of renewables into the distribution system, to expanding the aging infrastructure replacement programs that have been the hallmark of our growth this past decade. During 2021, we advanced our regional offshore wind efforts by acquiring a 25% equity interest in Ocean Wind 1 and submitting several onshore and offshore solutions into the New Jersey PJM competitive transmission solicitation with Orsted, our regional offshore wind partner, as well as through standalone PSE&G bids for onshore upgrades. We submitted nine solutions into the state agreement approach proposal window being pursued by the BPU with technical assistance from PJM. Seven of those proposals were jointly made with Orsted under our partnership, which we've named Coastal Wind Link. These solutions are designed to deliver thousands of megawatts of offshore wind energy into New Jersey, drawing from PSEG's extensive transmission experience, and Orsted's expertise in offshore wind energy. These projects range from single collectors at various landing points to a linked transmission network out in the ocean, with total project costs ranging from $2 billion to $7 billion. We continue to expect a third or fourth quarter 2022 decision from the BPU on this matter. We're also in discussions with Orsted regarding near-term opportunities and options to expand our offshore wind investments in the Mid-Atlantic by way of our joint ownership of the Garden State Offshore Energy side and Orsted's recent award of the Skipjack 2 project. Turning to our climate advocacy efforts, we are continuing our active dialogue with federal, state regulators, PJM, and other stakeholders to develop regulatory and market mechanisms that appropriately recognize the value of carbon-free nuclear generation over the long term. As a top 10 producer of carbon-free energy in the United States with a coal-free fuel mix, we're especially supportive of the nuclear production tax credit and clean energy incentives proposed in previous legislative efforts and are hopeful that the broad support for the clean energy measures will result in new legislative proposals in the coming months. Let us move through our updated environmental, social, and governance summary on Slide 11, where you can see our comprehensive and growing list of action items as well as an equally impressive list of recognition. In 2021, we not only accelerated and expanded PSEG's climate vision by 20 years to net-zero 2030 covering scopes one and two for our entire operations, but we also made a significant commitment by signing on to the United Nations Back to Race to Zero campaign, that will validate science-based targets for all three scopes of our mission reduction goals. We're fully engaged in meeting this commitment and look forward to updating you on our progress. PSEG was recently named to Just Capital's 2022 Just 100 ranking of America's Most Just companies. That's a lot of justs in there. And we were headed to the 2022 Bloomberg Gender Equality Index as well. Among the many ESG accomplishments and recognition we attained in 2021, I'm gratified that our corporate strategy grounded in sustainability is one that is appealing to ESG investors more and more. Finally, I thank the 13,000 strong PSEG workforce contributing to our solid operating and financial results in 2021. The Board of Directors' recent dividend declaration is the 18th annual increase in the last 19 years. Our 2022 dividend marks 115 consecutive years that PSEG has paid a common dividend to shareholders, one of only a very few companies that can make such a claim. This year's $0.12 per share increase reflects our confidence in the durability of our growth strategy, as well as an ongoing commitment to returning capital to our shareholders. In summary, with the Fossil sale now behind us, we look forward to executing on our robust set of opportunities to grow both the regulated and contracted areas of our business. Solid alignment with the State of New Jersey's energy policy goals and our cost-conscious focus on the customer bill continue to underpin our approach to regulated growth investments that powers progress in New Jersey, which has been our core mission for the last 119 years and counting. I’ll now turn the call over to Dan for more details on our operating results, and we’ll be available for your questions after his remarks.

Thank you, Ralph. Good morning, everybody. As Ralph mentioned, for the full year and fourth quarter 2021, PSEG reported a net loss of $1.29 per share related to the fossil sale charges and mark-to-market impacts and net income of $0.88 per share, respectively. PSEG also reported full year and fourth quarter 2021 non-GAAP operating earnings of $3.65 per share and $0.69 per share, respectively. We’ve provided you with information on Slides 15 and 17 regarding the contribution to non-GAAP operating earnings by business for the fourth quarter and for the full year 2021. And Slides 16 and 18 contain waterfall charts that take you through the net changes quarter-over-quarter and year-over-year, and non-GAAP operating earnings by major business. And I’ll now review each company in more detail. For the full year, PSE&G net income increased by $119 million or approximately 9%, compared to 2020 results. This improvement reflects a 10% increase in rate base to $24.5 billion at year-end 2021, driven by our investment programs focused on infrastructure replacement, resiliency, and beginning our Clean Energy Future investments. We also note on Slide 32, approximately $1.2 billion of Construction Work In Progress, or CWIP, mostly transmission, not included in that year-end 2021 rate base numbers. For the fourth quarter of 2021, PSE&G’s net income was $0.53 per share, compared to net income of $0.58 per share for the fourth quarter of 2020. As shown on Slide 20, transmission margin was $0.01 per share lower compared to the year-earlier quarter, reflecting the formula rate settlement implemented earlier in 2021, partly offset by growth in rate base and a benefit from O&M timing. Gas margin was $0.03 per share favorable, reflecting GSMP roll-ins and the implementation of the Conservation Incentive Program, or CIP, compared to last year’s fourth quarter. Electric margin was $0.01 per share higher compared to the fourth quarter of 2020, also reflecting ongoing investments and the adoption of the CIP. O&M expense was a $0.01 unfavorable versus the year-earlier quarter. Higher distribution depreciation expense reduced results by $0.01 per share, reflecting higher planned service. Lower pension expense added $0.02 per share versus the year-ago quarter. As we signaled last quarter, flow-through taxes and other were $0.08 per share unfavorable, reflecting the expected reversal of similar positive impacts in taxes in the second and third quarter 2021 net income. The New Jersey economy continued to recover from COVID-related restrictions throughout 2021, as more people returned to work outside the home and commercial activity stabilized. For the full year, weather-normalized electric sales were flat versus 2020 and weather-normalized gas sales were slightly higher, up 0.3% over 2020. I should note with the CIP now in effect for electric and gas, growth in the number of customers, not sales, will drive net income for the utility. The number of electric and gas customers rose by approximately 1% each in 2021. PSE&G invested over $770 million during the fourth quarter of 2021 and fully executed on its planned full year $2.7 billion electric and gas infrastructure capital spending program in 2021 to upgrade transmission and distribution facilities, enhance reliability and increase resiliency, and launch its Clean Energy Future programs. We’re on track to meet our higher $2.9 billion capital plan for 2022, and while we’re seeing pockets of delays affecting certain equipment procurement, we are managing our work accordingly and do not expect that conditions will affect the overall capital plan. As detailed on Slide 31, approximately $865 million of our 2022 Capital Plan is allocated to transmission, $840 million to electric distribution, which includes over $200 million in Energy Strong II, $940 million in gas distribution, which includes over $400 million for GSMP II, and $275 million for our award-winning energy efficiency programs. Of these amounts, the vast majority, about 90%, receives contemporaneous or near-contemporaneous regulatory treatment, either through the FERC formula rate cause recovery mechanisms or recovered in base rates as replacement spend or new business. As a reminder, the Conservation Incentive Program is now in effect for both electric and gas sales with the implementation for the electric side of the business last June and for gas last October. This mechanism removes the variations of weather economic activity, efficiency, and customer usage from our financial results, resetting margins to a baseline level per customer. The mechanism supports PSE&G’s ability to promote maximum customer participation in energy efficiency programs without the loss of margin from lower sales and retains earnings impacts based on the number of customers. And as a reminder, PSE&G suspended its gas weather-normalization charge in October 2021 when the gas CIP began. We continue to expect the remaining balance of PSE&G’s Clean Energy Future filings, which includes energy storage and the remaining EV programs, will be addressed in future stakeholder proceedings. Moving on to Power. For the full year 2021, PSEG Power reported a net loss of $4.09 per share and non-GAAP operating earnings of $0.86 per share, respectively. For the fourth quarter of 2021, PSEG Power had net income of $0.40 per share, an increase of $0.10 per share compared to the fourth quarter of 2020. Power also reported fourth quarter non-GAAP operating earnings of $0.21 per share, an increase of $0.11 per share over the year-earlier quarter. In both instances, the quarterly improvement mainly reflected the cessation of depreciation expense related to the Fossil sale and lower interest expense following the redemption of PSEG Power’s remaining long-term debt in October 2021. Non-GAAP adjusted EBITDA totaled $179 million for the quarter and $896 million for the full year 2021. This compares to non-GAAP adjusted EBITDA of $182 million and $990 million for the fourth quarter and full year 2020, respectively. The earnings release and Slide 25 provide you with a detailed analysis of the items having an impact on PSEG Power’s non-GAAP operating earnings relative to net income quarter-over-quarter from changes in revenue and cost. And we’ve also provided you with added detail on generation for the fourth quarter and the full year on Slide 26. Gross margin for both the fourth quarter and full year 2021 was $30 per megawatt hour, a decline of $2 per megawatt hour over the fourth quarter and full year of 2020, mainly reflecting prior recontracting at lower prices. As we turn to Power’s operations, total generation output for the fourth quarter of 13.3 terawatt hours was 9% higher than the fourth quarter of 2020. The nuclear fleet operated at an average capacity of 88.5% during the quarter producing 7.6 terawatt hours, which represented 57% of total generation. The combined cycle fleet produced 5.7 terawatt hours of output and operated at a 49.4% capacity factor. For the full year, 2021 generation totaled 54 terawatt hours, up 2% over 2020. The nuclear fleet operated at an average capacity factor of 91.9% for the full year and produced over 31 terawatt hours of carbon-free baseload power, representing 58% of total generation. PSEG is forecasting total baseload nuclear generation of 31 terawatt hours for the full year 2022, hedged 95% to 100% at an average price of $29 per megawatt hour, representing an approximate $3 per megawatt hour decline from 2021. For 2023, nuclear generation is forecasted to be 31 terawatt hours and is 85% to 90% hedged at an average price of $28 per megawatt hour. And for 2024, total nuclear generation is forecasted to be 30 terawatt hours and is hedged 45% to 50% at an average price of $31 per megawatt hour. For 2022, PJM capacity prices, determined in previous auctions, are expected to provide approximately $150 million of revenue for our nuclear units. This is based on EMAC pricing of $166 per megawatt day for the first five months, followed by a scheduled decline to $98 per megawatt day for the last seven months of 2022. The next PJM capacity auction for the 2023 to 2024 delivery year is expected to be held in June of 2022. Now let me briefly address results of Enterprise and Other, where we reported a net loss that increased by $0.02 per share compared to the fourth quarter of 2020 as a result of higher contributions to the PSEG Foundation and interest expense, partly offset by lower taxes. PSEG ended 2021 with approximately $2.9 billion of available liquidity, including cash on hand of $818 million and debt representing 57% of our consolidated capital. During 2021, PSEG issued $715 million of senior notes at 84 basis points due November 2023 and $715 million of 2.45% senior notes due 2031. And we also retired $300 million of senior notes at maturity. As Ralph mentioned earlier, PSEG redeemed all remaining outstanding senior notes of PSEG Power in connection with the sale of Power’s Fossil generating units. The receipt of the Fossil sale proceeds supports the share repurchase program and provides cash to help repay funds borrowed from the parent for the power debt redemption. We’re providing 2022 non-GAAP operating earnings guidance for PSE&G, with an updated description for the remaining businesses for nuclear, offshore wind, gas operations, Long Island, and other investments as well as power financing costs to be described as carbon-free infrastructure and other. For the full year of 2022, PSE&G’s net income is forecasted at $1,510 million to $1,560 million, and reflects the benefit of contemporaneously recovered investments and the full year benefit of the CIP. Non-GAAP operating earnings for carbon-free infrastructure and other is forecasted at $170 million to $220 million. PSEG’s 2022 operating earnings will exclude results from the Fossil assets and the free cash flow previously generated from the Fossil units translates into an adjustment in the purchase price. PSEG also raised its common dividend by $0.12 per share to the indicative annual level of $2.16, a 5.9% increase over 2021. The 2022 indicative rate represents a 63% payout ratio of consolidated earnings at the midpoint of our 2022 guidance, and utility earnings alone are expected to cover 140% of the dividend at the midpoint of 2022 guidance. That concludes our formal remarks. To summarize the non-GAAP results for the quarter was $0.69 per share for the full year were $3.65 per share. And for 2022 we’ve narrowed our guidance to $3.35 to $3.55 per share. With regulated operations contributing about 90%. The narrowing of our guidance reflects the setting of our 2022 pension expense, which incorporates strong investment returns through year-end 2021, offset by a more conservative portfolio composition, given a strong year-end funded status. As Ralph mentioned, our strong cash flow, improved financial flexibility, and solid investment-grade profile will enable us to fund PSEG’s five-year $15 billion to $17 billion capital program, as well as our planned Ocean Wind 1 investment without the need to issue new equity. And with that, Ralph and I are ready to take your questions.

Just what to start with, given the significant intention on offshore projects and cost increases here, I just wanted to get your latest thoughts on this part of the business. And if there’s any color you could provide on kind of return expectations.

Hi, Jeremy. Yes, I think our message has been pretty consistent on this, that we look at the returns and that could come from these projects, and it’s just upon them being above our regulated opportunities. The nature of the relationship with the state is that the commercial risk is minimized by virtue of the fixed price with escalators, but this clearly operational construction risk that would exceed what we’re normally accustomed to in the utility. So we look at the earnings accretion potential in those returns, and we haven’t given a specific number except to say that they have to be higher than the utility. And we’re pleased that we think it’s a regional opportunity for us, the state’s committed to going forward. I will say there’s been a lot of discussion around this topic of late, and it just feels like some of the enthusiasm and exuberance for this that we questioned early on has been tamped down a bit. But over that period of time, we’ve learned a lot more about the capabilities and skills of our partner, and we’ve learned a lot more about the commitment of other states and the development of the supply chain. Some of the regulatory hurdles have been eased by virtue of some state actions and some federal actions. So our initial early caution has actually been diminished, and it feels like the lines are converging in terms of what the return expectations are from these projects. But suffice to say that we do have an internal set target, and we’ll be disciplined about making sure that we exceed that.

Got it. That’s very helpful. Thank you for that. And then just wondering as you look into D.C., if there are any thoughts you could share with regards to not maybe build back better itself, but the energy policy elements there, and if you see hope for that passing moving forward in some fashion?

I do. I mean I think we’re all right now in a little bit of a holding pattern. Clearly, there are current events that are superseding build back better and issues around energy policy. I do think, however, that the current events are going to motivate additional conversation around energy policy and how comfortable are we as a nation with sort of the increased globalization of gas prices, right? I mean gas markets used to be very, very regional, very tightly priced. And clearly, some of the dependency that our allies in Europe have on Russian gas is going to be a factor in LNG exports, which is going to be a factor in prices here in the U.S. So I think we have a new dynamic that over the long term has a positive read-through to our nuclear fleet and to renewable energy. The near term is going to be a little bit tougher to predict. But I think in general, I’m optimistic that the provisions that were first motivated by climate change and now I think can also be motivated by energy security are both positive forces for us.

Hi. Can you hear me? Ralph, I just wanted to get your perspective on the value of nuclear to sort of PSEG and more broadly kind of in the market? I mean, obviously, you envision some sort of a policy change at the federal level. And as a follow-up, just given the recent public mark for the asset, how do these sort of factors play into the value proposition for long-term ownership of the nuclear assets? I guess, sum it all up, do you see value in transitioning to a pure distribution business – single-state pure distribution business?

So Shar, it’s good to hear from you. I’m going to ask you to have a little bit of patience with us as we focus on that question. And the reality is we’re going to let our investors determine who the logical owner of nuclear is in the future. Our priority is right now the continued outstanding operations that we’ve realized. And Dan talked about a 92% capacity. In fact, I think it was 91.9%. I can’t re-round those numbers up. And we just talked to Jeremy about the importance of nuclear from a climate change and energy security point of view. I think I’m confident we can resolve those issues, if not at the federal level, certainly at the New Jersey state level within the calendar year. And once that’s done, if PSE&G doesn’t get the kind of recognition that it deserves, that I believe it deserves in the market, co-located with nuclear, then I think the market will really be signaling us that maybe we’re not the natural owners of it. But there are a couple of things that I want to get done before we jump to any conclusions, because it is a well-run operation that contributes to earnings and is a fairly steady earnings producer. I mean, it’s not – we’re not hedging the spark spread here. We’re not following full requirements to load contracts. We’re a base load generator that can be hedged pretty comfortably over a three-year period, and be part of a fairly stable earnings stream. But as is often the case with us, we pay very careful attention to what the market and our investors are telling us. And I will give you a more definitive answer to that in the not-too-distant future, but right now, we’ve got just a couple of tasks ahead of us that we want to resolve.

No, that’s helpful. And that’s pretty consistent with what you’ve been saying. So thank you for that. And then just maybe just the CapEx question here. The current plan remains at around $17 billion top end. What level of spending, if any, just remind us, is embedded for offshore wind, the transmission proposals, and any supporting infrastructure? And do you have an update around Ocean Wind 2? Sorry, if you highlighted that, but I had to jump on late. Thank you.

Yes. And maybe we’re following accounting a little bit. But if you think about what’s in that $15 billion to $17 billion, you do not have the Ocean Wind 1 investment in there. That’s going to be accounted for as an equity interest in a joint venture. So it is separate and apart from that $15 billion to $17 billion, Shar. And I would say the same with the Ocean Wind Link there. There are some modest dollars you can think about from the standpoint of the onshore infrastructure that would be necessary that is going to support offshore wind more generally. But the Ocean Wind Link spending – think about offshore wind as being outside of that $15 billion to $17 billion.

Got it. Got it. And any just Ocean Wind 2? Is there any sort of updates there at all?

Yes, nothing brand-new there, Shar. I think it’s safe to say, though, that we have a series of conversations underway that are related to Ocean Wind 2, Skipjack, potential further upside in Ocean Wind 1 and they all fall into this notion of what are the return expectations that can be derived from each of those.

Good morning. How are you doing?

Great, Paul. How are you?

All right. So just to sort of follow-up on offshore wind and you guys with a history of being conservative and looking at risk-adjusted rate of returns and mentioning that there is quite a bit of excitement out there among parties looking to get into the business. Is there any potential of – obviously, it depends on what you see out there, but I’m wondering if you’ve been approached or if there’s any potential for monetizing it if, in fact, you guys see more opportunity? The risk-adjusted rate of return compared to other things and what people are offering, it looks like you can maybe monetize it.

Yes. I mean there's always that opportunity, right. Paul, you never say never, I just said never. I mean, we monetized the solar assets that we had 400-plus megawatts. So that could be something. I think it's premature to monetize something that still has a pretty robust growth trajectory and is right in our regional wheelhouse and has some enormous potential from a transmission point of view. But yes, I mean, we would always be open to that. I mean our core business is the regulated utility. It's beyond core. It's the dominant part of our business, right, 90%. But folks always know we're open to inquiries that enhance shareholder value.

Okay. And then with respect to the – you mentioned the PJM and the BPU selection for transmission associated with offshore wind in the Q3 and Q4. I'm just curious, is that just going to be an announcement of – do you think there’ll be any shortlist that will be provided sort of in the interim? Or do you think it's just going to be a sort of a selection of the winner, so to speak, or the winners when it's finalized?

Yes. So the short answer to that is I don't know. I mean, the BPU has always prided itself on transparency and visibility and public outreach. So that would lead me to say, yes. But I think so little will be known just coming out of PJM in terms of the other criteria that the BPU may want to apply that would lead me to say, no, that it would be too premature. So the most accurate answer is we just don't know. We have some vague dates that have been given to us. We do know that the BPU wants to get this done before the next solicitation, which goes out, I think, in the third quarter. And so if you want people to bid an offshore wind farm based upon knowledge of what they might have by way of transmission assets, then that would argue for Q3 results from the BPU. But there's a lot of flexibility built into the SAA approach that allows the BPU to take advantage of the transmission proposals or not, depending upon what the ultimate wind farm there is that gets proposed.

Okay. Great. And then just finally on electric efficiency and that you guys are big on making a big effort in that. I'm just sort of – and I realize the way the investment works and what have you. But I'm just sort of wondering what – given COVID and everything, it looks like essentially growth was sort of flat this year. Over the next several years or next three to four years, what do you expect sales growth to sort of be in your region given COVID and of course, the energy efficiency efforts that you guys are making a big effort on?

Yes. So I mean I think we have a less than 1% projected growth rate for electric sales. We're going to do our best to turn that into a negative number. Because, again, our business is not predicated on electric sales. It's predicated on electric value and with an aging infrastructure that cannot meet the challenges of today's weather patterns or today's customer expectations. We have a huge task ahead of us of replacing that aging infrastructure. And the customer side of the meter, there's a huge opportunity set for us in terms of customer bills and climate change impact. And again, this isn't Foo Foo Dust. I mean, the way in which we continue to make money off these infrastructure investments is by basically sharing the fuel cost savings with our customers, but we're not the fuel business. So that's a real win-win for us and our customers.

Yes. Paul, just what Ralph is referencing is as we went into this upsize of the energy efficiency program in conjunction with the state, I mean it's about a tenfold increase in our investment amount. And so it was increasingly important at that point to ensure that lost revenues from those sales did not create a disincentive with respect to the program. So that's when this conservation incentive program went in place that essentially separated the sales volumes and the revenue that we see from the volume of the product that we sell. And so that all made sense to get all of the incentives aligned, but it also dampened the implications to us from the standpoint of what sales are. It's more about numbers of customers than it is about actual sales volumes.

Just checking handy, so one quick question. You gave a stat on the bill impact from BGS. I think it was – I think I heard 2.8%, something like that. Was that the supply rate? Or is that the average bill? And just maybe a quick headline on what – how that sort of works?

That's the bill impact, Jonathan, the whole bill, not just the supply rate.

Okay. And that's based on the auction that just happened effectively.

Yes, that was driven by – you may recall, because of the delays in PJM capacity auctions. There was an assumed capacity price that was in prior BGS auctions that ended up being much higher than what the actual capacity price turned out to be. Okay. Well, thanks, everyone, for joining us. Hopefully, you've gotten the information you need. But I know from Carlotta and Dan that we will be on the road at a couple of major conferences coming up in the next few days, and we'll be more than happy to meet with folks and provide greater clarity. But at the end of the day, I just can't help but overemphasize, we are well on track to deliver on what we promised we would deliver last September. The dividend increase is in place. The share repurchase program is well underway. The growth rate is intact. And we are 90% regulated utility, and another 10% is basically a contract on Long Island, strong nuclear operations, and ongoing gas supply contributions. So we're excited about the opportunities and prospects going forward in terms of the utility capital program being the underlying driver of our growth. But the additional augmented opportunities that may come from regional offshore wind, all under a very, very strong balance sheet that is not in need of additional equity as far as the eye can see, not in need of additional equity. So we can provide more color when we see you in person, and we look forward to that opportunity. Thank you all. Have a safe and good day.

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