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

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

Thank you, Carlotta, and thank you all for joining us today. I'm pleased to report that PSEG has achieved several major milestones on our path to becoming a primarily regulated utility company with a complementary and significantly contracted carbon-free generating fleet. PSEG posted solid results earlier this morning, reporting non-GAAP operating earnings for the first quarter of 2021 of $1.28 per share versus $1.03 per share in last year's first quarter. Our GAAP results for the first quarter were also $1.28 per share versus $0.88 per share in the first quarter of 2020. Results from ongoing regulated investments at PSE&G and the effect of cold weather on PSEG Power drove favorable comparisons at both businesses. We present details on the quarter's results on Slide 5 of the earnings presentation. We are well positioned to execute on our financial and strategic goals for the balance of the year given this eventful quarter. Beginning 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 3 New Jersey nuclear units, that would be Hope Creek, Salem number 1 and Salem number 2 through May of 2025. This was the maximum amount that the BPU could have awarded, and we are appreciative of the support received from the many community, labor, business, environmental and employee organizations that participated in this enormously important process.

Great. Thank you, Ralph, and good morning, everyone. As Ralph mentioned, PSEG reported non-GAAP operating earnings for the first quarter of 2021 of $1.28 per share versus $1.03 per share in last year's first quarter. We've provided you with information on Slide 12 regarding the contribution to non-GAAP operating earnings by business for the quarter. And Slide 13 contains a waterfall chart that takes you through the net changes quarter-over-quarter in non-GAAP operating earnings by major business. I'll now review each company in more detail.

. The first question is from the line of Julien Dumoulin-Smith with Bank of America. Julien Dumoulin-Smith: Well, first off, if you don't mind, there was an article this morning here in Reuters, I believe, around federal support for production tax credits. Obviously, you all just received your own state level support here on ZECs. Can you talk about how those 2 might match together, understanding that, obviously, it's very early days on any federal effort here? And then related to that, on the Nuclear front, as you think about your cost reduction efforts and offsetting the dissynergies, how should we think about the cost structure above -- sitting above the nuclear plant sort of once everything's said and done after this year, if you think about that, too?

Julien, thanks for your question. So in the New Jersey statute -- for 2018 statute, there's an explicit offset that would reduce the ZEC payment if there's a federal payment for the carbon-free attributes of the plants. And we have always maintained that whether it's nuclear or wind or solar that reducing the nation's carbon emissions should be governed by a nationwide program. So we are actively pursuing these federal remedies. And yes, they would be, as I just said a moment ago, offset the ZEC. I don't know that I fully understand your question about the cost structure on top of the plants. Julien Dumoulin-Smith: Let me rephrase that, if you don't mind, team.

Sure. Julien Dumoulin-Smith: Thank you, Ralph. Just as you think about the legacy SG&A, sort of the corporate costs, as you think about divesting these other packages here, can you just elaborate as to how you think about sort of what the run rate is of that business without asking what the actual profitability of the nuclear plants are? How do you think about the cost structure therein just as we look to refine ourselves in kind of a '22 going-forward basis?

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

Yes. These are direct or indirect, as Ralph pointed out. Julien Dumoulin-Smith: Right. Excellent team. And just clarifying, there's no further clues you can offer us on the sale price for the portfolio today upside and not taking a write down.

Yes. So it's -- bracket, it's a big bracket. It was between $500 million and $600 million. And the value accretion is based upon an average of the next 3 years of what we thought the EBITDA would be. And the earnings accretion is if we used the proceeds simply to retire debt. So we're not making any heroic assumptions. So as I said in my remarks. it was a robust process, we had credible participants, and we had -- the prices we received were quite credible, and we think it worked quite well. I'm -- you're tired of hearing me say this, but so far, the only surprise I've had since July is that there have been no surprises. So -- and I hope I can continue to say that, and I'm sure I will.

Our next question comes from the line of Jeremy Tonet with JPMorgan.

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

Sure, Jeremy. We were one of the very small group of companies candidly in our industry who worked to the President and supported his 80% reduction by 2030 for the electric sector. And we're working with members of Congress on making sure that nuclear is included in any clean energy standard in a technology-neutral way. Candidly, we have been talking to folks about the possibility that if tax credits are extended for carbon-free energy that nuclear be eligible for that as well. That, to an extent, an incentive system is set up to achieve these targets that may not be technology specific, but that they be, I'll repeat myself here, technology indifferent as long as you're achieving the desired outcome, which is carbon reductions. We know that there is a lot of wisdom to all the above approach, including nuclear, solar, wind, carbon capture and storage. And we're pleased to see what the President has said about the prospects for offshore wind in New Jersey in the middle of the second round, solicitation looking from another 2.4 gigawatts. Maryland is seeking an additional fee of 100-gig megawatts. So I do think the momentum is real. And the combination of enthusiasm coming out of Washington and enthusiasm on the part of Governors in the region in which we operate leads me to believe that there is going to be a lot of opportunity to invest both in the transmission infrastructure needed to access carbon-free resources and the continued development of carbon-free resources as well as the preservation of existing carbon-free resources. Don't forget, I know you know this, but nationwide, the existing nuclear fleet is responsible for over -- just over 50% of the carbon-free energy in the nation, even though it only supplies 20% of the total electricity. And in New Jersey, those numbers are even more pronounced. Our nuclear plants are over 90% of the carbon-free energy. So he's got this really nice confluence of political leadership in capital and in the states, all rowing the same -- rowing the boat in the same direction.

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

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

The next question comes from the line of Shah Pourreza with Guggenheim and Partners.

A couple of questions here. First, just curious how you're thinking about maybe capital allocation from the Fossil sale -- pending sale? And especially as you guys are getting over the finish line, I mean, kind of with the derisking nature of the transaction, do you sort of need the cash proceeds further delevering? Or do you anticipate the transaction to be credit accretive. And then maybe as a sub-point, how efficiently do you think you could redeploy proceeds on the organic side? Because we've seen some pretty healthy transactions on the asset side with PEG, so curious there.

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

Got it. Got it. And then just a transmission ROE question, how active, Ralph and Dan, are your discussions on returns? Now that some of the other agenda items have been taken off the BP plate. And this is in light of the headlines from the FERC ALJs I'm pretty draconian views for ROEs and cap structures, which obviously sent a message to investors. How qualitative do you think the BPU is in regard to target ROEs, both on -- at the transmission and state level side in light of what we're seeing at the federal side?

So I think the conversations remain very constructive. And the issue, as you correctly pointed out, Shahriar, has been a combination of how busy the Board was given what we wanted to do, but that's only part of it. I mean the Board is in the middle of a second round solicitation on offshore wind for 2.4 gigawatts. They're in the middle of an FRR proceeding. They regulate water companies other electric and gas companies and then COVID does introduce an element of inefficiency in terms of how and when it can . So there's been no indication in the conversations that anyone is any less motivated to find a common ground than we started. And I know -- I realized it's over a year ago that we started It's taking that amount of time, but that's just a function of what I said a moment ago. And again, the motivation for us is to get a fair outcome that removes any uncertainty on the part of our investors and as well as to provide some level of rate relief for customers. And the motivation for the Board staff is to achieve that team very belief, but to do it now instead of getting immersed into a FERC proceeding that might resolve itself in many years from now.

The next question comes from the line of Durgesh Chopra with Evercore ISI.

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

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

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

Yes. So we have had a long and story history of not trying to predict public where things are going. We've -- I think we've done a decent job internally of having our own views. But ultimately, as a participant there, I don't tend to share too many. I mean the only thing I would say is that if you take a look overall at the parameters that have been put forth for this auction, there is more of a bearish tilt than a bullish tent, if I think back compared to some prior auctions. So we'll get the results June 2 and see where things go. But on balance, we see just as a comparison to prior auctions, we see a little bit more bearish than bullish signals coming out of this one, just from the inputs that we've gotten so far.

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

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

Next question comes from the line of Steve Fleishman with Wolfe Research.

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

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

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

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

Yes -- see, the dynamic environment that we've had from a credit perspective in Washington does tend to shift things around. And as Ralph said, we're the tax equity in the social wind project. So it remains, a little bit of flux, exactly what it will look like because the tax equity is going to be influenced by the ultimate tax rules where they sit. So we've had some changes over time with respect to, I guess, last December, you saw a shift between the equalization, if you will, between PTC and ITC. And with all of the, I guess, I'd say, proposals as opposed to proposed legislation because it's not at that stage yet with respect to where some of these credits may go. It's got to turn into actual legislation before we know a final answer there. So those will tend to influence ultimately some of the cash flows in the initial years, too.

Okay. And this question kind of got asked, but I'll just -- I'll ask a little differently there. Given the FERC MOPR that came out, just how are you -- how is that, if at all, impacting your ability to settle the New Jersey transmission ROE? Is that tying into it at all? Or if you're okay?

It's a course part of the background environment in which we're talking sort of ironic. 6 months ago, we were having this conversation that I think you would have phrased that as how does the...

The other way.

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

Next question comes from the line of Paul Patterson with Glenrock Associates.

Just quickly on the sort of the market for off a cap. As you're aware, there's -- there was a filing by P3 sort of seeming somewhat concerned about whether or not there was going to be a safe harbor that have been -- that they perceive to be -- that they -- whether that was going to be continuing for this upcoming auction? And I was wondering, I didn't see really anybody other than them raise this issue. And obviously, counter filings and what have you, but any sense as to whether or not that's a significant issue or could impact you guys in any significant way?

Not to my knowledge, Paul, Dan and I are looking at each other right now, saying we haven't joined any alarm bell -- rang any alarm bells over that at all.

Okay. Great. And then just with the MOPR and the FRR, given where the MOPR is and these things that are happening at PJM plus what we're having at FERC, is there -- what are the chances that there will be any significant action until the MOPR issue is resolved with respect to the FRR?

I think what the state will do is to continue to make progress on what an FRR should look like if the MOPR doesn't resolve the duplicative payment, I'm not -- I don't want to conjecture whether the state would proceed with the FRR if the duplication and the capacity payment were eliminated might choose to continue anyway, just to some dependents and not have to worry about the future FERC going back in the other direction, right? So because New Jersey is clearly in for the long-haul in terms of securing carbon-free energy. And we've had some sizable changes in the direction of FERC, whether it's the MOPR, whether it's the RTO adder. And I could see the states are saying, okay, I can't live that way, let me chart my own course. Having said that, they might equally say, well, I don't need to chart that course for a little while because the offshore wind that's coming into play in the 2024 energy year will no longer have this penalty to imposed upon it. So it does give the state some optionality if the MOPR is fixed.

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

Our next question comes from the line of David Arcaro with Morgan Stanley.

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

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

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

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

Your next question comes from the line of Michael Lapides with Goldman Sachs.

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

So yes. So we would accept a broader opportunities. As you probably know, Michael, our Garden State Offshore Energy site that we call that has ready access to Maryland. And it's actually been used for something called the Skipjack project, which serves Maryland. We also reach into Delaware, should Delaware choose to pursue Ocean Wind and can reach New Jersey. It's in the southern tip of New Jersey. So that has a 3-state reach. Our arrangement with Ørsted is in a certain part of the Mid-Atlantic region. So we're free to work with others outside this region. But as you're well aware, most of the participants in offshore wind are seeking partnerships, if at all, with local utilities for a variety of regulatory and planning -- transmission planning reasons. So while we would be open to it, I think it's safe to conclude that our primary focus and emphasis is with this partner in this Mid-Atlantic region.

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

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

That's a project developer, right? So the PPA, the Board order has a energy price and then an escalator for 20, 25 years, I forget. And anything that's -- any costs or issues that were not anticipated or planned for are at the risk of the developer.

Your final question comes from the line of Jonathan Arnold from Vertical Research Partners.

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

So Jonathan, you broke up. Either there's a chance that Dan heard you better than I did, or maybe you just there repeat that.

Could you repeat the question, Jon?

My question was whether you have -- just if you could remind us what your involvement or potential involvement with Ocean Wind 2 might be the project that was bid in to the current solicitation?

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

Great. And then just one -- just to clean up issue on the Power and the balance sheet. And Dan, you mentioned your comments about use of proceeds. Is there an amount of debt that you indicated that you would continue to carry on Power? Just trying to sort of gauge how we should think about some of these sort of coming up? And what the go-forward balance sheet might look like?

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

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

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

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

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

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

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