Kathleen Lally - IR Ralph Izzo - President & CEO Dan Cregg - EVP & CFO

Praful Mehta - Citigroup Jonathan Arnold - Deutsche Bank Gregory Gordon - Evercore ISI Christopher Turnure - JP Morgan Securities Michael Lapides - Goldman Sachs

Ladies and gentlemen, thank you for standing by. My name is Shelby and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Fourth Quarter 2017 and Year End Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded today, February 23, 2018 and will be available for telephone replay beginning at 2 o'clock P.M. Eastern Time today until 11:30 P.M. Eastern Time on Friday, March 2, 20178. It will also be available as an 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, Shelby. Good morning, everyone. Thank you for participating in our earnings call. As you are aware, we released our fourth quarter and full year 2017 earnings results earlier today. The release and attachments as mentioned 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 and year. Our 10-K for the period ended December 31, 2017 is expected to be filed early next week. I'm not going to read the full disclaimer statement or the comments we have on the difference between operating earnings 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 if our estimates change unless required by applicable securities laws. We also provide commentary with regard to the difference between operating earnings and adjusted EBITDA and net income reported in accordance with Generally Accepted Accounting Principles in the United States. PSE&G 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'm now going 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 question, and we hope to get to everyone's questions. Thank you.

Thank you, Kathleen and thanks everyone for joining us today. This morning we reported non-GAAP operating earnings for the fourth quarter of 2017, a $0.57 per share versus non-GAAP operating earnings of $0.54 per share earned in the fourth quarter of 2016. Non-GAAP operating earnings for the full year of $2.93 per share versus 2016 non-GAAP operating earnings of $2.90 per share were above the midpoint of our guidance range which was $2.80 to $3 per share. Our GAAP results for the full year of $3.10 per share included onetime non-cash benefits associated with the revaluation of deferred tax liabilities at enterprise and PSEG Power associated with a reduction in the federal tax rate and expenses associated with our decision to retire the Hudson & Mercer coal fire generating stations in June of '17. Details on the results for the quarter and the full year can be found on Slides 5 and 6. Successful execution of our capital program at PSE&G, an increased output coupled with strong cost control at PSEG Power offset earnings weakness experienced earlier in the year from abnormal weather conditions. Non-GAAP operating earnings from our regulated utility business grew 8.6% in 2017 as PSE&G's investment program expanded rate base by 12.5% to $17 billion at the end of the year. The utilities earnings have grown at an annual rate of approximately 13% over the past five years which is in line with its growth in rate base over this timeframe. While the growth in earnings occurred with PSE&G maintaining cost discipline -- I'm sorry, the growth in earnings occurred with PSE&G maintaining cost has been while was successfully implementing infrastructure programs that upgraded its electric and gas systems to make them both, more reliable and resilient. Importantly, PSE&G has achieved these results as customer bills have declined. This past January the utility filed it's first distribution base rate case since 2010. The filing which was required by the 2014 energy strong settlement calls for a 1% increase in revenue as it incorporates a reduction in revenue associated with the decline in the federal tax rate. Also in January PSE&G updated it's 2018 annual transmission formula rate with the Federal Energy Regulatory Commission; the update reflecting a lower federal corporate tax rate reduced the utilities annual transmission revenue requirement by $148 million. The timing of the reduction in the federal tax rate and the base rate filing places us in a position to pass along tax savings to our customers and keep rates low allowing us to continue to improve our ageing infrastructure. As important, PSE&G's achievements allowed us to maintain our best-in-class reliability. For the 16th year in a row PSE&G has worked to protect and strengthen the system yielded recognition as the most reliable electric utility in the Mid-Atlantic region. Also during the year the New Jersey Board of Public Utilities approved PSE&G's plans to expand its investment in energy efficiency by $69 million. PSE&G also filed with the BPU plans to extend its innovative gas system modernization program. The extension otherwise known as GSMP2 would accelerate the pace of replacement of ageing cast iron and unprotected steel. The program would in turn replacing 250 miles of pipe per year over five years at a total cost of $2.7 billion. We hope to have a decision on this program in the second quarter. The GSMP2 filing is modeled on the process outlined in the infrastructure investment program, and if I refer to that a future, I'll just say IIP which was approved by the BPU in January. The Board's approval of IIP provides for a rate recovery mechanism that encourages and supports the continued safety, reliability and resiliency of utility infrastructure which is essential for economic growth in New Jersey. In the coming months, you should expect PSE&G to seek approval once again under the IIP process. To extend this energy strong related investment programs, we also expect to make a filing to broaden our investment in energy efficiency. And expansion of energy efficiency is one of the best means of achieving the state's clean energy goals and simultaneously limiting growth in the customer bill. Now let me turn my attention to PSEG Power. Power's non-GAAP operating earnings for the full year of $505 million or $1 per share we're at the upper end of our guidance range. Cost discipline across the fleet and strong operations from Power's nuclear generating asset supported the better than forecast results. Power's nuclear fleet operated at 93.9% capacity factor for the year generating record electric output of 31.8 terawatt hours. PSEG Power has also made progress on construction activities related to it's three new natural gas combined cycle generation stations. Two plans; the Keys and Sewaren stations are expected to be operational during the second quarter of this year. And Bridgeport Harbor 5 is expected to achieve commercial operation during the second quarter of 2019. Together these represent 1,800 megawatts of efficient clean gas-fired capacity that will improve Power's competitive position. Safe and reliable operation has been a hallmark of PSEG Power. The cold weather experienced early in 2018 reinforced the importance of Power's diverse fleet and of course, making sure the assets were available when needed to meet demand. The nuclear plants ran at full power providing base load capacity for everyday demand as shortage of natural gas required some of Power stations to operate on oil. Power's management team has continued to drive efficient operations at it's fossils missions which included the early retirement of the Hudson & Mercer coal fire stations, as well as at nuclear. Controlling costs is vital but we face continued challenges in maintaining operations, particularly at our nuclear plants as the average price for Power's energy hedges is expected to decline by $5 per megawatt hour in 2018 from $45 dollar per megawatt hour in 2017 with even further erosion foreseen in 2019. On the policy front as you know, we've been focusing on raising awareness of the financial condition of our nuclear generating assets and communicating to the State of New Jersey the detrimental impact closure would have on the state's cost of electricity, its air quality and overall economy. The loss of the approximately 32 terawatt hours of clean electric energy produced by Power's nuclear generation in 2017 would represent a severe setback to the state's ability to meet its clean energy goals and result in crushing economic impacts due to resulting increases in electricity prices and major job losses. We remain involved in discussions with key stakeholders here in New Jersey and with those in charge of the wholesale energy market at FERC and PJM to secure the long-term viability of our nuclear generation assets. A bill as proposed in the New Jersey legislature would value the attributes of nuclear and create a safety net for our at-risk nuclear capacity. The bill also addresses the state's pass toward a clean energy future. We're pleased that the legislature is giving this issue the careful attention it deserves, and hope for timely resolution. But the risk of closure remains without a change in the financial condition of nuclear. To that end, Power recorded $276 million increase in its asset retirement obligation liabilities at the end of 2017 to take into account a higher assumed probability of early retirement of its nuclear units. Our financial condition is strong given the focus we've placed on maintaining a healthy balance sheet that supports our investment goals. Our balance sheet continues to provide us with a competitive advantage as we adapt to recently enacted changes in the federal tax code. We ended 2017 with strong credit metrics which support continued growth in our regulated investment program without the need to issue equity; and this position is unchanged with tax reform. Our capital program for the five year period ending in 2022 has expanded to $13 billion to $15 billion from the $13 billion level outlined a year ago. And it remains focused on investments that improved reliability and inefficiency of our operations which also advanced the state's plans to a clean energy future. The utilities investment program of roughly $11.5 billion to $13.2 billion, which accounts for 90% of the total PSEG program addresses customers desires for reliable, efficient and clean energy and provides for continuation of our projected 7% to 9% compound annual growth rate for rate base off a higher 2017 base. Also given the impacts of tax reform, we feel comfortable achieving the midpoint of that range. PSEG Power's major capital program will be complete in 2019 following the commercial operation of Bridgeport Harbor 5. The start-up of that 485 megawatt gas-fired combined cycle unit will represent the conclusion of Power's $2 billion capital investment in 3 new gas-fired combined cycle stations including the previously mentioned Keys Energy Center and Sewaren which as I said are scheduled to start up by the middle of this year. Power's focus will be on efficient operations, improving the returns on the generating assets and resolving the fate of its nuclear units. PSEG strategy implemented a decade ago has transitioned our business mix to one that is more aligned on regulated earnings. PSE&G, our regulated company has grown to represent two-thirds of our consolidated non-GAAP operating earnings. PSEG Power focused on improving its operational efficiency and maintaining a strong balance sheet continues to provide strong cash flow in support of our investment program. The growth in our investment program and the disciplined approach to O&M have overcome a decline in energy prices over the past five years and produced annual growth in consolidated non-GAAP operating earnings of approximately 4% during that time. Despite the challenges we continue to face in the wholesale markets, especially our nuclear units, the continued successful investment in regulated programs that provide reliability and quality service to our customers and the benefits of a reduction in the federal tax rate are expected to support continued growth in earnings. For 2018 we are forecasting consolidated non-GAAP operating earnings of $3 to $3.20 per share which at the midpoint represent 6% growth in earnings over 2017. The Board of Directors recent decision to increase the Company's common dividend 4.7% to the indicative annual rate of $1.80 per share is an acknowledgement and expression of confidence in our strategy and outlook. It needs to be said that our success as the result of the outstanding effort of our dedicated workforce, and we are positioned to continue to execute on our strategy to provide long-term value to our shareholders as we meet the needs of our customers in the communities we serve. I'll now turn the call over to Dan for more details on our operating results and will be available for your questions after his remarks.

Thank you, Ralph and good morning, everyone. As Ralph said, PSEG reported non-GAAP operating earnings for the fourth quarter of $0.57 per share versus $0.54 per share for the fourth quarter of 2016. Our earnings in the quarter brought non-GAAP operating earnings for the full year to $2.93 per share, a 1% increase over 2016's non-GAAP operating earnings of $2.90 per share and at the upper end of our non-GAAP operating earnings guidance for 2017 of $2.80 to $3 per share. And on Slide 5 we have provided you with a reconciliation of non-GAAP operating earnings to net income for the quarter. We've provided you with information on Slide 11 regarding the contribution to non-GAAP operating earnings by business for the quarter. Slides 12 and 14 contain waterfall charts that take you through the quarter-over-quarter and year-over-year net changes in non-GAAP operating earnings by major business. I will review each company in more detail starting with PSE&G. PSE&G reported net income for the fourth quarter of 2017 of $0.43 per share compared with $0.38 per share for the fourth quarter of 2016. PSE&G's full year 2017 net income was $973 million or $1.92 per share compared with net income of $889 million or $1.75 per share in 2016. Non-GAAP operating earnings for the full year were $963 million or $1.90 per share, an 8.5% increase over 2016 non-GAAP operating earnings of $1.75 per share. As shown on Slide 16, PSE&G's net income in the fourth quarter continue to benefit from a return on its expanded investment in transmission and distribution infrastructure which more than offset an increase in O&M. Growth in PSE&G's investment in transmission improved quarter-over-quarter net income comparisons by $0.03 per share, and recovery in investment made in gas distribution under PSE&G's energy strong and gas system modernization programs increased quarter-over-quarter net income by $0.01 per share. Colder than normal weather as compared to more normal weather conditions in the year ago quarter improved net income by $0.01 per share. An increase in O&M expenses associated with preventative and corrective maintenance reduced quarter-over-quarter net income by $0.02 per share. Electric sales on a weather normalized basis modestly declined 0.4% for the year as energy, efficiency and solar net metering offset growth in a number of customers. Weather normalized gas sales for the year increased 1.2% led by growth from commercial and industrial customers. PSE&G's distribution rate base filing provides it with an opportunity to reflect current estimates of electric and gas sales growth, and proposes improvements in it's rate design including decoupling and higher monthly fixed charges offset by lower volume metric rates to minimize the impact of sales variability. This aligns our interest with achieving greater energy efficiency results. Details of the base rate filing are outlined on Slide 18. The filing is based on a test year ending June 30, 2018 with some adjustments for the following months including rate base of $9.6 billion as of December 31, 2018. And as Ralph mentioned, PSE&G filed for 1% increase in revenue or $95 million. In keeping with maintenance of PSE&G's credit metrics, the request is based on a cap structure consisting of 54% common equity and reflects a 10.3% return on equity. PSE&G's filing took into account approximately $130 million reduction in its annual revenue requirement as a result of the federal corporate income tax rate reduction from 35% to 21%; and in addition provides for a one-time credit for estimated excess income tax collected from January 1, 2018 to the time rates go into effect. PSE&G is also proposing to increase the amount of tax credits flowed back to customers in subsequent years. This would result in rate decreases which would have the effect of offsetting the impact on the customer bill associated with investments such as the GSMP2 capital program. Pursuing to a recent BPU order, we expect to make a filing to lower our rates sooner by April 1 to account for the lower federal tax rate and we'll update our rate case filing accordingly. A decision on the base rate filing is anticipated in the fourth quarter. PSE&G has separately updated its transmission formula rate filing for 2018 to incorporate the lower federal tax rate. The update reduced it's annual revenue requirement by $148 million from the original filing which called for an increase in revenue of $212 million. This adjustment has no impact on earnings expectations. PSE&G's investment of $3.1 billion and it's transmission and distribution infrastructure in 2017 provided for approximately 13% growth in rate base to $17 billion. Of this amount, PSE&G's investment in transmission has grown to represent 46% or $7.8 billion of the Company's consolidated rate base at the end of 2017. Reported by the ongoing transmission and distribution investment program, we are forecasting continued growth in PSE&G's net income to a range of $1 billion to $1.030 billion in 2018. Now let's turn to Power. As shown on Slide 21, PSEG Power reported non-GAAP operating earnings of $0.20 per share compared with non-GAAP operating earnings of $0.13 per share a year ago. The results for the quarter brought Power's full year non-GAAP operating earnings to $505 million or $1 per share compared to 2016's non-GAAP operating earnings of $514 million or $1.01 per share. Power's adjusted EBITDA for the quarter and the year amounted to $196 million and $1.172 billion respectively, and this compares with adjusted EBITDA for the fourth quarter of 2016 of $155 million and adjusted EBITDA for the full year 2016 of $1.201 billion. We provided you with more detail on generation for the quarter and for the year on Slide 22 and 23. The earnings release as well as the earnings slides on Pages 12 and 14 provide you with a detailed analysis of Power's operating earnings quarter-over-quarter and year-over-year from changes in revenue and costs. Power's earnings benefited from an increase in capacity prices in New England NPJM which improved quarterly net income comparisons by $0.02 per share. A 2% increase in output improved net income comparisons by $0.01 per share as colder than normal weather resulted in higher gas end out which increased net income by $0.01 per share. A decline in the average price received on energy hedges of $4 per megawatt hour was partially offset by an increase in market prices on unhedged output which combined to reduce quarterly net income by $0.01 per share. A decline in O&M expense improved net income comparisons by $0.03 per share. A decline in depreciation expense associated with the retirement of Hudson & Mercer, as well as a decline in interest and taxes combined to improve fourth quarter net income comparisons by $0.01 per share. Gross margins in the fourth quarter increased to $38 per megawatt hour from $37 per megawatt hour, and power prices held up vis-à-vis gas prices in response to the colder than normal weather. For the year, gross margins declined to $38 per megawatt hour from $40 per megawatt hour, given a decline in average hedge prices for energy. Now let's turn to Power's operations. Output from Power's generating facilities decreased 2% in the fourth quarter and quarterly comparisons were influenced by the timing of nuclear plant refueling outages and increased demand in response to colder than normal weather during the month of December. Based on results for the fourth quarter output for the year of 51 terawatt hours was stronger than the forecast we provided you at the end of the third quarter which calls for full year output of 49 to 50 terawatt hours. The nuclear fleet operated at an average capacity factor of 89.9% in the fourth quarter, and the fleet's performance in the quarter resulted in a full year capacity factor of 93.9% producing record electric output for the year of 31.8 terawatt hours. The fleet's output was aided by strong performance from Power's 100% owned Oak Creek nuclear plant which operated at 100% capacity factor for the year. And based on our normal 18 months refueling cycle, Oak Creek is scheduled for refueling this spring and the spring of 2018. Power's gas-fired combined cycle fleet operated an average capacity factor of approximately 40% for the quarter, and approximately 47% for the year producing 13.6 terawatt hours of electric energy for the year. Output from the coal fleet declined slightly during the quarter as a result of the outage work at Keystone which for the year output from the coal fleet increased 12% as the fleets competitiveness benefited from an increase in gas prices. For 2018 with the addition of Keys and Sewaren combined cycle units, Power is forecasting an increase in output to 55 to 57 terawatt hours. Following completion of the recent basic generation or BGS auction in New Jersey, approximately 80% to 85% of production for the year is hedged at an average price of $40 per megawatt hour. Power is forecasting a further increase in output for 2019 to 59 to 61 terawatt hours for the full year of Keys and Sewaren in operation and a partial year from the new combined cycle unit at Bridgeport Harbor. And for 2020, Power is forecasting output of 63 to 65 terawatt hours; approximately 55% to 60% of 2019's expected output has been hedged at an average price of $38 per megawatt hour and approximately 25% to 30% of 2020's expected output has been hedged at an average price also of $38 per megawatt hour. And update of Power's hedged position is provided on Slide 26, and as you can see, Power has hedged it's base load nuclear and coal output for 2018 and is mostly hedged in 2019. The gas-fired combined cycle assets remain more open to the market during those years and will be available to take advantage of spark spread opportunities that have improved based upon recent fluctuations in commodity prices. The outlook for 2018 and 2019 has improved since our last update based on an increase in sparks in the region and Power prices have not declined to the same degree as gas. Power's non-GAAP operating earnings for 2018 are forecasted $485 million to $516 million and the forecast represents non-GAAP adjusted EBITDA for the full year 2018 of $1.075 billion to $1.118 billion. PSEG Enterprise and other reported net income for the fourth quarter of 2017 of $126 million or $0.25 per share compared to net income of $11 million or $0.02 per share for the fourth quarter of 2016. For the full year, PSEG Enterprise and other reported net income of $122 million or $0.24 per share which compares to a net loss of 2016 of $20 million or $0.04 per share and the results for 2017 include a one-time non-cash earnings benefit of $147 million related to the reduction in the federal corporate tax rate resulting in a decrease in energy holdings deferred tax liabilities, partially offset by an after-tax charge taken earlier in the year related to ongoing challenges facing energy Rina [ph]. The fourth quarter of 2017 PSEG Enterprise and other reported a non-GAAP operating loss of $21 million or $0.04 per share compared to non-GAAP operating earnings of $17 million or $0.03 per share in the year ago quarter. Results for the fourth quarter of PSEG Enterprise and other non-GAAP operating earnings for the full year to $20 million or $0.03 per share versus $72 million or $0.14 per share in 2017. The decline in non-GAAP operating earnings in the fourth quarter reflects the impact of a $15 million after-tax contribution to the PSEG foundation, as well as certain tax items that's apparent and PSEG Energy Holdings in the absence of certain tax items in the fourth quarter of 2016 at PSEG Energy Holdings. For 2018, non-GAAP operating earnings for PSEG Enterprise and other, which are driven by PSEG [indiscernible] and partially offset by parent interest expense are forecast at $35 million. I want to spend just a moment on the subject of tax reform; PSEG is a net beneficiary under the Tax Cut and Jobs Act of 2017 and our financial flexibility remains strong. PSE&G as mentioned will be returning 100% of the benefit from the decline in the federal tax rate to its customers in the recently file distribution base rate request reflects a $130 million annual reduction in revenue associated with a lower federal tax rate. And as mentioned, we amended our 2018 transmission formula rate to incorporate the decline in revenue of $148 million associated with the lower federal tax rate. Net income from PSEG Power and Enterprise is expected to benefit from the decline in the federal tax rate; and our estimate of 2018's non-GAAP operating earnings reflects an improvement in earnings of approximately $0.16 per share. PSE&G's cash flow will be negatively impacted by the elimination of bonus depreciation and lower tax rates for ongoing tax depreciation. PSE&G Power's cash flow on the other hand is expected to benefit from it's ability to expense 100% of its capital expenditures. PSEG Power's cash flow in 2018 will also benefit from the reduction in the federal tax rate, as well as a decline in capital spending in 2018 of about $400 million with the mid-2018 completion of construction at both, Keys and at Sewaren. Given our strong balance sheet and low debt balance, we estimate that interest expense at PSEG Power and Enterprise will remain fully deductible for tax purposes. The reduction in the federal tax rate under the Tax Act also reduced the deferred tax liability of PSEG Power and Enterprise which was originally recorded based upon the higher 35% rate. At PSEG Power and Energy Holdings, we recorded onetime non-cash earnings benefits in the fourth quarter of 2017 of $588 million and $147 million respectively, resulting from this reduction in deferred tax liability. PSE&G has excess deferred taxes of approximately $2.1 billion as of December 31, 2017; and as recorded the impact of these excess deferred taxes as a regulatory liability. Approximately 70% of PSE&G's excess deferred taxes are deemed protected under the IRS normalization rules which requires the protected deferred taxes be returned to customers over the life of the remaining asset that generated deferred taxes in the first place. Given the long life nature of utility assets, it will take many many years for all of these protected taxes to be returned to customers. Remaining 30% or about $600 million; some of which were included in our distribution base rate filing will be returned to customers over a timeframe that will be determined in discussions with the BPU and with FERC. Of course as you know, the loss of bonus depreciation and reduction of PSE&G's deferred tax balance serves to increase it's rate base. We estimate that these two items combined will increase the annual growth in PSE&G's rate base by approximately 1% through 2022. The net result of the change in federal tax law on PSEG's consolidated cash flow and credit metrics is manageable given our business mix and the strength of our balance sheet. We do not anticipate the need to issue equity to finance our capital program and we continue to have excess balance sheet capacity to finance further growth. As Rob mentioned, our financial condition remains strong, we closed 2017 with $313 million of cash-on-hand, and debt representing 49.6% of our consolidated capital position and debit Power approximating 29% of it's capital base. At year end, Power's debt position was just over 2.1x the midpoint of our forecasted 2018 adjusted EBITDA. We are guiding to a non-GAAP operating earnings at PSEG for 2018 of $3 to $3.20 per share which is a 6% increase over 2017. And the common dividend was recently increased 4.7% to the indicative annual level of $1.80 per share. This represents a 58% payout of earnings at the midpoint of our 2018 guidance and builds on the 3.4% annual rate of growth in the dividend over the last 10 years. Shelby, we are now ready to take questions.

[Operator Instructions] And your first question comes from Julien Smith of Bank of America Merrill Lynch.

I just was wondering, could you provide a little bit of commentary on your outlook of ongoing PBM price commission reform discussion, as well as the potential for comprehensive energy legislation in New Jersey?

As you know there is due date -- I believe it's sometimes in the first week of March where each RTO was supposed to get back to FERC with respect to the FERC decision to close the DOE [ph] and to ask the question about fuel diversity and resiliency of the grid. There have very public conversations and statements by PJM that they believe in particular inflexible unit challenges are things that need to be corrected in the market, these showed up in abundance during -- it's not called a pole vortex [ph], there is some other name for this past January, some sort of a cold bond. We're in the odd testified in front of the Senate Energy and Natural Resources Committee that there had to be $4 million to $5 million in daily uplift payments. So without having control [indiscernible], I fully expect PJM management to submit comments to FERC that they have some improvements to make in their current tariff if prices in fact going to be the way in which the market is reliably dispatched because there continues to be out of marketing moments that are relied upon to achieve that. Switching gears on and moving over to New Jersey; we've had some very good conversations, we had a good day yesterday with a comprehensive energy bill which included our nuclear concerns reported out of the Senate Budget Committee in the Assembly Telecommunications and Utilities Committee getting further reference in the assembly to its budget committee, it's appropriations committee if you will. And I think the encouraging news there is that everyone who has testified and we now had four hearings on this thing I think with the exception of our competitors have said they don't want to see those plants closed. And our competitors obviously want to see those plants closed because that means higher prices. I just have a high degree of confidence that New Jersey policymakers understand the value of those plants and will do the right thing, but of course, one cannot guarantee any outcome.

You talked about roughly $80 million benefit from tax reform at Power but increased guidance by only $50 million. Are there any headwinds that limit the ability to fully recognize that tax reform benefit?

I think if you think about the overall impact year-over-year, we referenced the $0.16 related to tax reform but of course there is other impact as you step from year-to-year. What we'll see changes in capacity prices which will help but we also have a reduction in the average price that we sold our power. So that's a headwind that we have been fighting, and as you mentioned that we're [indiscernible] per megawatt hour, so you think about that across the fleet and then you compare that to an uplifting capacity and a benefit from tax reform, those are your biggest pieces.

Your next question comes from [indiscernible].

I understand that you have a pending rate case for your utility but your guidance for '18 imply relatively low pick up in earnings power of the utility versus what we have seen in the past. Is this just because you are waiting for your rate to be shoot up in the rate case?

If you think about the timing of the rate case, we are essentially saying that we would intend to see rates at the end of the year; I think we referenced fourth quarter in our prepared remarks. So I think a big part of it is just related to the rate relief on the distribution side being -- coming at the end of the rate case which was really towards the end of the year.

But how about your at previous expectations that there would be a rate based growth of around -- let's look at 8% or 9% and a commensurate increase in earnings. Is that -- does this still hold? I mean, that we're still waiting for the outcome of the rate base.

Yes, I think -- if you think about the two sides of the business; the transmission side, that's going to move along by virtue of the formula rate which is always the norm. But when we take a look at the utility side of the business, I wouldn't expect to see anything different. We have 6% increases to the midpoint of the range and with the rate case following on later in the year. And as we move into '19, I think that would bridge the gap for you.

On the Power side; it seems like you've marginally reduced your expectations of volumes for the VGS auction, there has been also some news or press coverage of your interest in the retail business. How should we think about it? How you are actually trying to shape up the merchant power earnings given the weakness of the fuller curves?

We've been pretty consistent that the reach of our business is defensive play; it's primarily targeted at improving the negativity and basis differentials that we've experienced. We're looking at it as a nice supplement if you will to diminish of the BGS load contract that we have seen occurring over the years. What did change probably about a year or so ago was our recognition that we would not find an acquisition opportunity just kind of step into a New Jersey focused PJM centric opportunity; so we're building it organically and that's going fine but when you do something organically, it's a little bit more gradual than just stepping into it. So no change in strategy there at all.

And as we step from year to year, we will have a BGS auction roll-off, so the state goes out to auction, a third of the load each year; so over three years they auction everything, and so as we step from year to year to year there could be some modest differences within volumes of the number of tranches that we would have as we go from auction to auction to auction.

I want to supplement something the Dan mentioned before. So the rate base growth; we're still saying 7% to 9% and comfortable with the midpoint. But remember, we had a fair amount of capital that was deployed coming at the back end of GSMP1 and energy strong, that is part of the rate case proceeding we are in now. So the 12% growth in rate base that you saw last year by necessity is then correctly pointed out is awaiting rate relief at the end of the year and when you get at the end of the year, you just -- and now Dan and I repeating ourselves, it doesn't give you the full 12 months of impact.

Your next question comes from Praful Mehta of Citi Investments.

I wanted to just clarify in terms of tax reform, what is exactly built into the forecast? I know on the back power side it sounds like you've incorporated the lower taxes. On the utility side, the DTA refund the unprotected didn't sound like it was; so I just wanted to clarify specifically what is currently built in tax reform and what is more left in terms of regulatory outcomes than you're waiting to see?

I think if you think about the utility side of the ledger, it's much more a cash story especially right away. So it's about the pass back of taxes because frankly, you're not going to end up paying taxes. So if you think about what we did, we proactively in January went to FERC knowing that there was going to be a rate change and we knew we were going to pay less tax in 2018; so we proactively want to FERC to get that money back in customers hands; revenues come down, taxes come down, end up being a wash. There will be some modest benefit as we step through time because if you have less deferred taxes on your books and you pass that back to customers, you know deferred taxes as a reduction in rate base, so your rate base will grow as you step through time with that reduction in rate base but that will grow overtime and does not have really much of a P&L impact as you look at 2018 in particular for the utility.

I was -- again, more focused on the cash impact specifically; like for example, the DDL refund, is that currently incorporated within the forecast or no?

Yes. And further to the prepared remarks as well, you think about some of those are protected deferred taxes, that's the lion share of our deferred taxes; and that will get passed back over what's called the average rate assumption method, that's over the remaining life of the asset and I think it's a true statement to say that we are still passing back some deferred taxes from the 1986 Tax Act when it happened because we have such a long lived property. So that will go on for a period of time as those different lives end up turning. But yes, we've incorporated what we know and estimates of what we don't know into our numbers.

And then secondly, in terms of the New Jersey bill; it's helpful and yes, the conversations say you were productive from what we heard yesterday. How do you see that playing out from here in terms of timing? And when does it reach the governor's desk? And all of that; how do you see that playing out from here?

My high degree of confidence in the ultimate outcome is matched by mild certainty over timing. I mean what I can tell you is the bill is posted for a vote Monday in the State Senate. The assembly doesn't have a voting session, I don't think at present scheduled until the end of March. So we're 140 year old company Praful, Salem is 40 years old, Oak Creek is 30 years old; I'm not going to sweat a couple of weeks one direction or another but I feel pretty good about the nature of the conversation and clearly, earnest desire in the part of all stakeholders to preserve those plans but timing is not something I can predict.

Your next question comes from Jonathan Arnold of Deutsche Bank.

My question has to do with -- on tax reform and your comments; Dan, I think you said obviously that you're not planning any equity but you said you also still have access balance sheet capacity. And I think you don't normally update till the Analyst Day but if I recall, at EEI [ph] you gave us a slide which showed something like $1.8 billion reduction or roughly halving of what it had been without tax reform. So I guess, my question is that still a good number or as you further refined your inputs and outputs, is this -- are we somewhere else?

No, I think you're still at very much in that range, Jonathan. I think that what we tried to do at that point is highlight that -- a number that we have provided was based on large part on FFO to debt and there was a lot of FFO that came from bonus depreciations. So by either the passage of time or by tax reform because at EEI we had not had tax reform at that point in time. Unless bonus was extended the FFO was going to come down; and so that was kind of a temporal aspect and what we tried to do to your good memory was to give some indication that that was going to come down. So the order of magnitude numbers was about $3 billion at that point and we were highlighting that about $1.8 billion or so would go away with bonus depreciation; so that's still in the right ballpark and I think the right way to think about it. And when I referenced before the strength of balance sheet and the ability to fund further investments, it's still that order of magnitude.

And so, that was -- if I remember the math was like $300 million FFO divided by your 18% target, and effectively that's how you got that. So presumably that means you're sort of -- as you've put all this together, you see FFO degradation roughly in that $300 million range.

Yes, as you step out into -- I think our number were target around 2020 or so timeframe, right. So you're kind of come off of the bonus years but that's -- you're thinking about it exactly right.

Holdings is on the increase in '18 over '17; is that all tax reform related or is this -- and I guess some uptick in the Long Island contract or is anything else driving that?

No, it's not a lot. If you have a little bit lower taxes, you'll have a little bit higher income and that's not -- the $35 million we threw out is kind of a normal range; last year we had some tax issues coming through and we had made a contribution to the foundation. So I think you can look at '18 as being a more normal year.

So it's more that '17 was a little skewed low and '18 is more normal?

That's exactly right.

Your next question comes from Greg Gordon of Evercore ISI.

A lot of my questions have been answered, and this one you may not be able to answer but I'll try. In terms of your observation from the outside looking in at how PJM gets to the answer on implementing their price reform initiatives?

It appears that there is a bit of a cart-horse [ph] issue here and that one path is to wait for the FERC to potentially order a 206 proceeding and say that their rates are unjust and unreasonable. So my first question is, are we on a path in the current FERC docket where you believe at the end of the initial filings and the responses that the FERC could look at the evidence that PJM files to show that their rates are not appropriate? Can they actually get to a place at the end of this proceeding where they could legally say, yes, you've proven your rates are unjust and unreasonable and allow them to go ahead and change the rate? Or are we realistically on a path here where they have to make a decision on whether they're going to go through stakeholder process; and then it's whether they go through a truncated process with a Board vote or a more elongated process with a stakeholder vote knowing -- understanding that the former was what they used when they did capacity performance. It's a long question but hopefully, you get the gist.

Yes, that was just a jist but you we're right at the start; Greg, I'm sorry, there is no way to predict that. I would point out to you though that there is multiple things going off at FERC that matter right from PJM there is the capacity market reform as fast stock pricing as price formation So there is multiple issues, there is multiple degrees of freedom, is it 205, 206 or is it a truncated process. So it just -- I think we're all visiting with the commissioners and telling them how important and I think we're all seeing the same comments come out of PJM. So I don't know what else to say at this point in time.

Your next question comes from Christopher Turnure of JP Morgan Securities.

The only question that I have left is on New Jersey in nuclear support. You've answered a couple questions on it already of course, but I'm wondering if there is a couple of potential hurdles to getting across the finish line this session that you're concerned about it seems like the governor could potentially further his environmental kind of effort and the emission free our efforts long-term through this and there the some other stakeholders that seem to have come in-line here but what might we be missing that could start all the entire operation?

Chris, it's always nice to have quarterly calls where we're trying to explain the past but now you guys are really pushing us to predict the future, it is so hard. I mean the good news is, the Governor has publicly stated on numerous occasions that those plans have to continue to operate as a bridge to long-term renewables future. And as I said before, everyone has testified other than our competitors have begun their testimony by saying we don't want these plants to close but -- and they each have but that they put in there. So are there hurdles? Yes there are but I stay grounded on the support -- the articulated support of consumer groups, environmental groups, and the Governor, and the legislature itself and we have made progress in terms of schedule and in terms of going through the committee process. So we'll just keep making sure people know what it means if they go away. And then of course, the risk of stating obvious, all of our shareholders know that we will do what is right by our fiduciary responsibility in terms of [indiscernible] regardless of New Jersey's action.

Your next question comes from Michael Lapides of Goldman Sachs.

On PSE&G, I just want to make sure I understand the puts and takes in rates or revenue requirements that are happening this year. So on a year-over-year basis, is what you're saying is that transmission is actually down year-over-year and that's just all tax related.

From a pure revenue perspective, but completely neutral from an earnings perspective.

And then the distribution revenue reduction for tax is going to happen in April of this year?

Correct.

And that's not a full year number, that's an annualized number; so it says if they were able this year through March of next year?

Right.

And then the rate increase won't happen -- well, I'm going to rephrase that; anything tied to rate changes tied from the rate case won't happen until the end of the year?

That's right.

What about like tracker or GSMP1 or even GSMP2 related revenue changes or are you still getting those in 2018 or do the things we've talked about kind of supersede that or incorporate?

The only thing that ends up superseding that Michael is when the rate case is done. And so they roll in as we work our way forward, they'll be done I think by the time we get to the rate case and so that kind of wrap up at about the same time. But until then we'll have roll-ins as we always have.

So in 2018 you'll have the transmission revenue decline, obviously offset by tax. You'll have the distribution revenue decline offset by tax; and then whatever you'll have in the rate case, none of the other trackers or anything will flow in 2018 but they will kick back in 2019?

Yes. You'll have our continuing roll-ins as they are from the standpoint of energy strong and GSMP. And then we'll have the rate case as it comes in at the end of the year. So I don't think it's any different than the norm; the only thing different than the norm the way to think about it really is the two tax return actual rate -- the return of the taxes at both, the distribution and the transmission side which has no P&L impact, revenues go down and taxes go down. Also I think our solar and energy efficiency filings are not part of rate case proceedings, they will continue to have their trackers.

And then finally, what the tax rate are you assuming at both, E&G and Power this year? Like, what's in guidance?

If statutory moves to '21 and then we'll have some modest moves like we normally do. So for instance the update to taxes has eliminated a production deduction, a manufacturing deduction that Power would take to the tune of a couple pennies but other than that it's still modest adjustments off of the statutory rate.

And no significant state tax level added on top of that?

True but no different and other than the fact that the federal benefit you get from states is going to change by virtue of the federal tax rate change.

[Operator Instructions] Your next question comes from Paul Fremont of Muziho [ph].

Does your GRC filing and the rate base numbers that are in there, does that reflect the rate base numbers after-tax reform or would there be a further adjustment that we need to make?

What we have filed within the rate case -- assume that we did have the tax rate, the tax changes come through. We had also within our base rate case filing, had a pass back of some deferred taxes within that rate case; and we will continue to do so as we make our prospective filings. Now what may end up happening in our prospective filings is some of the pass back of deferred taxes that were embedded within the filing may get swapped out compared to some of the excess taxes that we will ultimately pass back to customers. So part of the -- I guess I would say the -- as we step through the next steps of this rate case, we will have overlaid on top of it the BPU order to provide back the tax rate change which was in our base rate case. So we will adjust the base rate case in our next filing to adjust for the fact that a separate filing will be made by virtue of the BPU order outside of the rate case.

And then can you at all discuss what the retail contribution was in 2017?

We don't break that out. It would have been very, very modest at this point.

I mean, can you give us maybe a metric like how many megawatt hours did you sell and…

I just don't have that number. I don't think we're -- we were really -- we'd like to tell you so many people we were hiring to get going but not in megawatts we sold.

So when would be sort of the first year that you would expect any type of material contribution out of that business?

Depends on your definition of material really. We don't break out a lot of the sub-numbers in Power, and we don't power plant by power plant; we don't give you gas versus electric. So I don't think you should expect us to break out something that is purely an organically grown defensive mechanism. There can be some changes in revenue recognition portrayals and SEC documents that may be a little more illuminating.

And your final question comes from [indiscernible].

You kind of referred to it that utility growth is a little bit muted this year but then can we expect -- what the inference I got from your comments is that we make it up in '19 because of the back end loaded nature of the rate case. That's my one question. And the second question I had was that you mentioned the 7% to 9% growth rate in the utility rate base; and that's the same number you mentioned at your Analyst Day but now you also mentioned that you have an additional $1 billion of rate base because of the tax reform. Is that $1 billion rate base included in that 7% to 9% or no? Just a clarification on those two issues.

I think the way to think about it is that we jump off as we do every year from a higher base by virtue of the prior year's investment in rate base. So as rate base steps up, the ability to grow at the same rate kind of presupposes an incremental increase to rate base from a pure dollar amount. And if you take a look at the incremental rate base by virtue of the lower deferred taxes, and if you take a look at the bump up in the starting point year-over-year; it's a bit of an offset. So I think that you think about as going from 7% to 9% on a lower basis, 7% to 9% on a higher base. Basically, it's tougher to do but some of the deferred tax of tax reform provides that offset and leave us at comparably the same place.

And what base are you using; can you just mention.

End of '17.

And then on the utility earning question?

I think it it's essentially what we referenced before; if we have incremental spend that Ralph reference from both GSMP and Energy strong and that was going to roll into the rate case and we have rates that come in towards the end of the year, you would anticipate seeing maybe a little bit of a modest shave-off of rate of growth. What comes in 2019 will end up giving you the details on it this time next year from the standpoint of total '19 earnings guidance.

So I guess that was our last question. Thank you, all. Dan and Kathleen will be on the road, hopefully seeing many of you next week. Three of us will be on the road a couple of weeks after that, maybe we will see many of you then. One thing that's little different this year, you may have noticed that we moved our Analyst and Investor Conference to June; please read nothing into that other than bad scheduling on my part that required some coordination of family calendars and business calendars but nonetheless, I think we have some good things to talk to about and we'll know a lot more than about the New Jersey nuclear situation, we'll know a lot more about RPM, comments will be into FERC from PJM and other folks. So I think we have a lot of opportunities ahead of us in the next few months. With that, thank you for participating in the call and we look forward to seeing you soon. Take care.

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