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Text: PSEG released first quarter 2021 earnings results earlier today.
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.
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.
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 are well positioned to execute on our financial and strategic goals for the balance of the year given this eventful quarter.
Beginning was out 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 community.
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, I'll just call them ZECs from now on, for all three New Jersey nuclear units, that would be Hope Creek, Salem number one and Salem number two through May of 2025.
This was the maximum amount that the BPU could have awarded, and we are appreciative of the support received from the many community, labor, business, environmental and employee organizations that participated in this enormously important process.
Each of these groups recognizes the value of the reliable around the clock and carbon-free electricity supply our nuclear plants provide.
Throughout this process, our nuclear team has approached operations at the units with the utmost professionalism and dedication to safety.
I congratulate PSEG Nuclear for being recognized by as an industry leader in operational reliability, one of only two nuclear fleets across the industry with no scrams over the past 365 days.
The BPU's decision to extend the ZEC program will advance climate action in New Jersey by helping to preserve the state's largest carbon-free generating resource and is consistent with the growing interest at the federal level in preserving existing nuclear as an essential part of a clean energy mix.
We applaud the BPU for its decision, which is in the best interest of the state of New Jersey and its ability to achieve its long-term clean energy goals without compromising reliability or going backward on environmental gains made to date.
Looking ahead, we will soon work with stakeholders to obtain alignment of state and federal climate goals in seeking ways to extend the duration of support for carbon-free nuclear power.
During the quarter, the BPU also approved PSEG's 25% equity investment in Orsted's Ocean Wind project.
In addition, Ocean Wind received a notice of intent to prepare an environmental impact statement from the Bureau of Ocean Energy Management, or BOEM, which we will also review -- which will also review the project's construction and operations plan.
In April, PJM, closed cooperation with the BPU, opened a four month solicitation window to seek transmission solutions to support New Jersey's offshore wind generation target.
This process is PGM's first public policy transmission solicitation, and we will participate in this proceeding.
The recent Biden administration proposal focusing on climate action is clearly supportive of offshore wind, existing nuclear generation and electrification of transportation, all of which are aligned with PSEG's business plan and strategy for sustainability.
PSEG eagerly encourages an advocate for a national approach to accelerate economy wide, net zero emissions even sooner than 2050 in a constructive manner that expands green jobs by investing in clean energy infrastructure.
I am more optimistic than ever that the momentum for real climate action is taking hold, PSEG continues to press ahead with our powering, progress, vision, that incorporates energy efficiency and the electrification of transportation to help our customers use energy -- use less energy.
We are pairing that with our move to make the energy our customers use cleaner, which aligns with our efforts to preserve our existing nuclear units and pursue strategic alternatives for our Fossil fleet.
Then we strive to deliver with high reliability and resiliency, which ties to our investments in Energy Infrastructure and the Energy cloud.
Today, we are also announcing progress on our strategic alternatives exploration with an agreement to sell our solar source portfolio to an affiliate of LS Power.
The sale resulted from a robust marketing process, and we're pleased with the outcome of the sale, having determined that the transaction is modestly accretive on the sum of the parts and on an operating earnings basis going forward.
We expect the solar source portfolio deals to close in the second or third quarter of 2021, subject to customary, regulatory and other closing conditions.
PSEG Power is continuing the exploration of strategic alternatives for its Fossil generating fleet and currently anticipate reaching an agreement around midyear.
These expected transactions, along with over a decade of capital allocation directed mainly toward PSE&G to position the remaining company as a primarily regulated electric and gas utility with a complementary carbon-free nuclear fleet and offshore wind investments that will be highly contracted.
The COVID-19 pandemic and its economic impact continued to affect the New Jersey economy.
The large contribution of the transmission and residential electric and gas components to our overall sales mix has had a stabilizing effect on the margins of our utility business as does a supportive regulatory order that authorizes deferral of certain COVID-19-related costs for future recovery.
Governor Murphy recently announced that a significant easing of COVID-19 restrictions on the state's businesses, venues and gatherings would begin on May 19 following progress in vaccinating over half of the state's population and a sustained reduction in positivity and hospitalization rates.
PSE&G has begun implementing the Clean Energy Future Energy Efficiency programs by initiating customer engagement and outreach as well as advancing the clean energy jobs training program I mentioned earlier and related IT system build-out activity.
Following the BPU approval of our $700 million AMI proposal in January, we have begun implementation of the 4-year program.
Our current focus is on planning the AMI communications network, customer outreach and developing the installation schedule of the new meters.
On the regulatory and policy front, there are several upcoming developments at the FERC, the Federal Energy Regulatory Commission, the BPU and PJM that could influence future results.
Last month, FERC promulgated a new proposed rule to limit the 50 basis point RTO return on equity incentive to a 3-year period.
Given the Biden administration's interest in the significant transmission build out to expand the integration of Clean Energy into the nation's power grid, this development was disappointed.
We have long supported the need for higher incentives for transmission investment over distribution returns based on the added complexity and risk of these projects.
Coordination through the RTO has benefits, but -- risks and complications must be considered as well.
Based on the short comment window provided, the proposed rule could be enacted as early as the third quarter.
We will file comments to recognize the merits of continuing the RTO adder, but this looks to be an uphill battle, given the Chair's support for the supplemental rule.
While we await the results of the first PJM capacity auction in three years, which PGM will announce on June 2, PSEG is continuing to advocate for a minimum offer price rule, I'll call it MOPR going forward, that will avoid double payment for resources such as offshore wind and nuclear or other supply need to achieve state goals.
FERC Commissioner Danly has developed a state option to choose resources proposal, or SOCR, intended to achieve the major goals of establishing the rights of states to choose their preferred capacity resources to achieve their energy policy objectives and eliminate double payments by states for the capacity they choose.
This proposal could have the added benefit of keeping much of FERC's capacity market reform rules intact while addressing state objections.
New Jersey is expected to issue its consultants report and recommendation for resource adequacy this month.
This report could determine whether a fixed resource requirement, or FRR, will be chosen to satisfy the state's future capacity obligations beyond the 2022 and 2023 energy year.
We continue to believe that the state could pursue an FRR without legislation and will suggest options to minimize the cost impact of FERC's capacity ruling on New Jersey customers.
Earlier in April, the BPU released its strong proposal to address the design of the solar successor program.
Stakeholder meetings are being conducted to consider a solar financial incentive program that will permanently replace the Solar Renewable Energy Certificate, or SREC program, and the Temporary Transitional Renewable Energy Certificate, or TRAC program, which was instituted in 2020 upon the state attainment of 5.1% of kilowatt hours sold from solar generation fee.
Given the substantial increase in New Jersey solar target, the high cost of solar and the solar cost caps in the Clean Energy Act of 2018, we believe it is critical to develop a cost-effective approach to incent future solar generation.
By far, the most efficient and cost-effective way for New Jersey to optimize what solar can bring to the achievement of its clean energy goals is to maximize grid-connected utility-scale projects by involving the state's electric distribution company.
So to wrap up my remarks, we are reaffirming non-GAAP operating earnings guidance for the full year of 2021 of $3.35 to $3.55 per share.
Our guidance assumes normal weather and plant operations for the remainder of the year and incorporates the conservation incentive programs that begin in June for electric and in October for gas to cover variations in revenue due to energy efficiency and other impacts.
In addition, as we mentioned on our year-end call, our 2021 guidance assumes a prospective settlement of our transmission return on equity at a lower rate and the inclusion of Fossil's results for the full year.
We are on track to execute PSEG's 5-year $14 billion to $16 billion capital program through 2025 and had the financial strength to fund it without the need to issue new equity.
Over 90% of the current capital program is directed to PSE&G, which is expected to produce 6.5% to 8% compound annual growth in rate base over the '21 to '25 period, starting from PSEG's year-end 2020 rate base of $22 billion.
As we've noted previously, PSE&G's considerable cash-generating capabilities are supported by over 90% of its capital spending, continuing to receive either formula rate last based or current rate recovery of and on capital.
From nuclear operations marking a second breaker-to-breaker uninterrupted run at Hope Creek to a cross-functional regulatory, legal, financing, government affairs group that multi cash on Clean Energy Future, ZECs and a host of other regulatory proceedings, to our field crews in New Jersey and Long Island who exemplify a safety conscious mindset, I could not be prouder of our entire PSEG team.
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.
PSE&G, as shown on Slide 15, reported net income for the first quarter 2021 of $0.94 per share compared with $0.87 per share for the first quarter of 2020, up 8% versus last year.
Results improved by $0.07 per share, driven by revenue growth from ongoing capital investment program and favorable pension OPEB results.
Transmission capital spending added $0.02 per share of the first quarter net income compared to the first quarter of 2020.
On the distribution side, gas margin improved by $0.03 per share over last year's first quarter, driven by the scheduled recovery of investments made under the second phase of the Gas System Modernization Program.
Electric margin was $0.01 per share favorable compared to the first quarter of 2020 on a higher weather-normalized residential volume.
O&M expense was $0.02 per share unfavorable compared to the first quarter of 2020, reflecting higher costs from several February snowstorms.
Depreciation expense increased by $0.01 per share, reflecting higher plant in service, and pension expense was $0.02 per share favorable compared to the first quarter of 2020.
Flow through taxes and other were $0.02 per share favorable compared to the first quarter of 2020.
And this tax benefit is due to the use of an annual effective tax rate that will reverse over the remainder of the year and was partly offset by the timing of taxes related to bad debt expense.
Winter weather, as measured by heating degree days, was 4% milder than normal, but was 18% colder than the mild winter experienced in the first quarter of 2020.
For the trailing 12 months ended March 31, total weather-normalized sales reflected the higher expected residential and lower commercial and industrial sales observed in 2020 due to the economic impacts of COVID-19.
Total electric sales declined by 2%, while gas sales increased by approximately 1%.
Residential customer growth for electric and gas remained positive during the period.
PSE&G invested approximately $600 million in the first quarter and is on track to fully execute on its planned 2021 capital investment program of $2.7 billion.
The 2021 capital spending program will include infrastructure upgrades to transmission and distribution facilities as well as the rollout of the Clean Energy Future investments in Energy Efficiency, Energy Cloud, including smart meters and electric vehicle charging infrastructure.
PSE&G is continuing to defer the impact of additional expenses incurred to protect its employees and customers as a result of the COVID-19 pandemic.
PSE&G has experienced significantly higher accounts receivables and bad debts, and lower cash collections from customers due to the moratorium on shut offs for residential customers that began last March and has been extended through June of this year.
We've launched an Expanded Customer Communications Program designed to inform all customers about payment assistance programs and bill management tools.
As a reminder, PSE&G continues to make quarterly filings with the BPU, detailing the COVID-19 pandemic related deferrals.
And as of March 31, PSE&G has recorded a regulatory asset of approximately $60 million for net incremental costs, which includes $35 million for incremental gas bad debt expense.
Electric bad debt expenses recovered through the societal benefits charge and trued up periodically.
With respect to subsidiary guidance for PSE&G, our forecast of net income for 2021 is unchanged at $1.410 billion to $1.470 billion.
Now moving to Power.
In the first quarter of 2021, PSEG Power reported net income of $161 million or $0.32 per share, non-GAAP operating earnings of $163 million or $0.32 per share, and non-GAAP adjusted EBITDA of $321 million.
This compares to first quarter 2020 net income of $13 million, non-GAAP operating earnings of $85 million and non-GAAP adjusted EBITDA of $201 million.
And we have also provided you with more detail on generation for the quarter on Slide 22.
PSEG Power's first quarter results benefited from a scheduled improvement in capacity prices for the first half of 2021, a favorable weather comparison to the mild winter in the first quarter of 2020, and other items, some of which are expected to reverse in subsequent quarters.
The expected increase in PJM's capacity revenue improved non-GAAP operating earnings comparisons by $0.03 per share compared with last year's first quarter.
Higher generation in the 2021 first quarter added $0.01 per share due to the absence of the first quarter 2020 unplanned [on one average.
] And favorable market conditions influenced by February's cold weather benefited results by $0.03 per share compared to last year's first quarter.
We continue to forecast a $2 per megawatt hour average decline in recontracting for the full year recognizing that the shape of the annual average change favors the winter months of the first quarter.
The weather-related improvement in total gas send out to commercial and industrial customers increased results by $0.04 per share.
We expect some of this increase to gas apps will reverse later in 2021, reflecting the absence of a onetime benefit recognized in the third quarter of 2020 related to a pipeline refund.
O&M expense was $0.03 per share favorable in the quarter, benefiting from the absence of first quarter 2020 outages at Bergen two and Salem 1, and lower depreciation and lower interest expense combined to improve by $0.01 per share versus the quarter ago -- or the year ago quarter.
Generation output increased by just under 1% to total 13.3-terawatt hours versus last year's first quarter when Salem Unit one experienced a month-long unplanned outage.
PSEG Power's combined cycle fleet produced 4.7-terawatt hours, down 8%, reflecting lower market demand in the quarter.
The Nuclear fleet produced 8.2-terawatt hours, up 3%, and operated at a capacity factor of 98.8% for the first quarter, representing 62% of total generation.
As Ralph mentioned, Hope Creek posted an uninterrupted run between refueling outages and just began its 23rd refueling outage in April.
PSEG Power is forecasting generation output of 36 to 38 terawatt hours for the remaining three quarters of 2021 and has hedged approximately 95% to 100% of this production at an average price of $30 per megawatt hour.
Gross margin for the first quarter rose to approximately $34 per megawatt hour compared to $30 per megawatt hour in the first quarter of 2020, which contained one of the mildest winters in recent history.
Power prices in the first quarter of 2021 were stronger across PJM New York and New England compared to the year earlier period.
And this winter's temperatures were 12% cooler on average and resulted in better market conditions compared to the first quarter of 2020.
Power's average capacity prices in PJM were higher in the first quarter of 2021 versus the first quarter of 2020 and will remain stable at $168 per megawatt hour -- per megawatt day through May of 2022.
In New England, our average realized capacity price will decline slightly to $192 per megawatt day, beginning June 1.
However, Power's cleared capacity will decline by 383 megawatts with the scheduled retirement of the Bridgeport Harbor Unit 3, achieving our goal of making Power's fleet completely coal free.
Over 75% of PSEG Power's expected gross margin in 2021 is secured by our fully hedged position of energy output, capacity revenue set in previous auctions and the opportunity to earn a full year of ZEC revenues and certain ancillary service payments such as reactive power.
The forecast of PSEG Power's non-GAAP operating earnings and non-GAAP adjusted EBITDA for 2021 remain unchanged at $280 million to $370 million and $850 million to $950 million, respectively.
Now let me briefly address results from PSEG Enterprise and Other.
For the first quarter of 2021, Enterprise and Other reported net income of $10 million or $0.02 per share for the first quarter of 2021 compared to a net loss of $5 million or $0.01 per share for the first quarter of 2020.
The improvement in the quarter reflects higher tax benefits recorded in the first quarter of 2021 due to the use of an annual effective tax rate that will reverse over the remainder of the year as well as interest income associated with a prior IRS audit settlement.
For 2021, the forecast for PSEG Enterprise and Other remains unchanged at a net loss of $15 million.
With respect to financial position, PSG ended the quarter with $803 million of cash on the balance sheet.
During the first quarter, PSE&G issued $450 million of 5-year secured medium-term notes at 95 basis points and $450 million of 30-year secured medium-term notes at 3%.
In addition, we retired a $300 million, 1.9% medium-term note at PSE&G that matured in March.
In March of 2021, PSEG closed on a $500 million, 364-day variable rate term loan agreement, following the January prepayment of a $300 million term loan initiated in March of 2020.
For the balance of the year, we have approximately $950 million of debt at PSEG Power scheduled to mature in June and September.
$300 million of debt scheduled to mature at the parent in November and $134 million of debt at PSE&G scheduled to mature in June.
Our solid balance sheet and credit metrics keep us in a position to fund our 2021 to 2025 capital investment program without the need to issue new equity.
As Ralph mentioned earlier, we are affirming our forecast of non-GAAP operating earnings for the full year of 2021 of $3.35 to $3.55 per share.
That concludes my comments.
And Christi, we are now ready to take questions.

user
compname announces q1 earnings per share of $1.28.
sees fy non-gaap operating earnings per share $3.35 to $3.55.
qtrly earnings per share $1.28.
qtrly non-gaap operating earnings $1.28 per share.
public service enterprise group - on track to execute five-year, $14 billion to $16 billion capital plan through 2025.
public service enterprise group - on track to execute 5-year capital plan through 2025, have financial strength to fund without need to issue new equity.

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