Yahoo Finance Public Service Enterprise Group Incorporated (NYSE:PEG) Q1 2024 Earnings Call Transcript
Public Service Enterprise Group Incorporated (NYSE:PEG) Q1 2024 Earnings Call Transcript April 30, 2024
Public Service Enterprise Group Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. My name is Rob, and I am your event operator today. I would like to welcome everyone to today's Conference, Public Service Enterprise Group's First Quarter 2024 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. Later, we'll conduct a question-and-answer session for members of the financial community. [Operator Instructions]. As a reminder, this conference is being recorded today, April 30th, 2024 and will be available for replay as an audio webcast on PSEGs Investor Relations website at https://investor.pseg.com. I would now like to turn the conference over to Carlotta Chan. Please go ahead.
Carlotta Chan : Good morning and welcome to PSEG's first quarter 2024 earnings presentation. On today’s call are Ralph LaRossa, Chair, President and CEO; and Dan Cregg, Executive Vice President and CFO. The press release, attachments and slides for today’s discussion are posted on our IR website at investor.pseg.com and our 10-Q will be filed later today. PSEG’s earnings release and other matters discussed during today’s call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We will also discuss non-GAAP operating earnings, which differs from net income as reported in accordance with generally accepted accounting principles, or GAAP in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today’s materials.
Following the prepared remarks, we will conduct a 30-minute question-and-answer session. I will now turn the call over to Ralph LaRossa.
Ralph LaRossa : Thank you, Carlotta. Good morning to everyone and thanks for joining us to review PSEG’s first quarter 2024 results. PSEG’s financial results for the first quarter are in line with our full-year expectations for 2024, and we are reaffirming our non-GAAP operating earnings guidance of $3.60 to $3.70 per share. We are also continuing to execute on our long-term strategy to grow PEG’s non-GAAP operating earnings by 5% to 7% through 2028, which we are also reaffirming today. This will be accomplished by investing in energy infrastructure and energy efficiency programs, which support greater electrification of transportation homes and workplaces, while also reducing greenhouse gas emissions while helping our customers lower their bills.
Turning to the first quarter of 2024 PSEG reported net income of $1.06 per share compared to $2.58 per share in 2023, which reflects the absence of mark to market gains that benefited first quarter GAAP earnings in 2023. Non-GAAP operating earnings were $1.31 per share in the first quarter of 2024 compared to $1.39 per share in 2023. As a reminder, our non-GAAP results exclude to items shown in attachment seven and eight, which we provide with the earnings release. The main driver for the quarter was continued rate-based growth from investments focused on infrastructure replacement, which was offset by higher investment-related expense. These expenses will build over the balance of 2024 as we await the resolution of our pending distribution rate case later this year.
In addition, the nuclear production tax credit went into effect on January 1st, 2024, which provides our nuclear fleet with downside price protection through 2032, an important contributor to the increasing predictability of PEGS’ results. Dan will provide a detailed financial review later in the call, but I want to note for PSEG, power and other, some margin contribution will be skewed to the back half of 2024 as we expect to realize most of the increase in 2024 as gross margin versus 2023 during the second half of the year. Turning to operations, we are pleased to report that both our utility and nuclear businesses continue to exemplify operational excellence. PSE&G and PSEG Long Island met the challenge of quickly restoring service to tens of thousands of customers following severe rain and windstorms early in the year.
And at PSEG Power, our nuclear fleet also operated well during the quarter, achieving a capacity factor of 96.8% and supplying New Jersey and the region with over eight terawatt hours of reliable carbon free base load energy. Shifting to an update of our pending rate case, our combined electric and gas base distribution case covering 57% of our rate base is progressing as expected at the BPU. We are currently working through the discovery and documentation phase, responding to requests for information from parties to the case, and we recently submitted updated test your financials. The procedural schedule for the case includes several weeks of built-in settlement discussions beginning later in the second quarter. Based on recent and prior rate case timelines, we anticipate that this rate case will be settled later in 2024.
As a reminder, this combined electric and gas filing proposes an overall revenue increase of 9% with a typical combined residential electric and gas customer seeing a proposed increase of 12% or less than 2% compounded growth over this six-year period. During the same period, we have consistently delivered on our reputation for reliability, affordability, and nationally top-tier customer satisfaction scores with a nonstop focus on cost containment. PSE&G continues to manage its o and m to minimize customer bills while continuing to compare favorably to regional peers for residential, electric and gas service, and are among the lowest in national comparisons on a share of wallet basis. Now moving on to capital investments. We are on track to execute PSEGs five year $19 billion to $22.5 billion capital plan through 2028.
The regulated portion of that program is $18 billion to $21 billion and it's focused on infrastructure replacement as well as our Clean Energy Future EE program. PSE&G has installed and placed into service about 1.8 million of the plan 2.3 million smart meters through our AMI program, still on schedule, it's still on budget for completion by the year end. These investments are projected to result in a compound annual growth in rate base of 6% to 7.5% through the 2024 through 2028 period. Premised on PSEG's year-end 2023 rate base of $29 billion, which was up 10% over the prior year, and we continue to pursue potential investment opportunities for future regulated growth. Among those opportunities, we are currently evaluating our competitive transmission solicitations in a Mid-Atlantic region, similar to PSEGs award of a $424 million project from PJMs 2022.
Window three process. In April of 2024, PSE&G submitted bids to the New Jersey Board of Public Utilities or the BPU for its pre-built infrastructure project to support offshore wind. The BPU is expected to announce the winner or winners of the pre-built infrastructure solicitation in the second half of 2024. PSEG is also evaluating two other upcoming regulated transmission solicitations this July. The first is the BPU's second public policy solicitation for offshore wind transmission infrastructure utilizing the state agreement approach. The second is PJM's 2024 regional transmission expansion plan window one solicitation, which is expected to include the impacts of higher load growth forecasts that have been influenced by increased electrification expectations and data center load growth through throughout PJM.
At Power, our nuclear fleet is also pursuing multiple growth paths with modest capital spending needs. We have previously commented on our plans for thermal up rates at the Salem nuclear station, which could potentially add up to 200 megawatts of additional capacity and would qualify for clean hydrogen tax credits under current rules for both additionality and hourly matching. PSEG nuclear has also notified the Nuclear Regulatory Commission of its intention to pursue subsequent 20-year license renewals for our three reactors in New Jersey. This would extend the operational capabilities from 2036, 2040, and 2046 for Salem units 1 and 2 in Hope Creek to 2056, 2060, and 2066 respectively. Beyond these opportunities in nuclear, there's been discussion lately about the potential for direct power sales to data centers from our 3 unit artificial island site.
We have had discussions related to both sides of the meter in recent months. In a form of new business inquiries at PSE&G for mid-sized data center construction of approximately 50 megawatts to 100 megawatts and behind the meter inquiries for co-located facilities that prioritize highly reliable carbon-free baseload power from existing facilities, all without the challenges faced by non-dispatchable generation. PSEG has a long history of aligning with New Jersey policy goals. This data center opportunity has the potential to create a nexus between economic development and energy policy, and we stand ready to support New Jersey. In its recent efforts to create an in-state artificial intelligence hub, our New Jersey nuclear units could provide access to a highly reliable, carbon-free source of baseload power and infrastructure consideration as increasingly mission critical for the large data center developers and hyperscalers.
One thing that is certain at this point is that all these opportunities in nuclear would be incremental to our long-term forecasted growth rate guidance of 5% to 7% through 2028 based upon that PTC threshold price. Another differentiating factor for PSEG overall is that our nuclear operations provide the business with the added flexibility to fund its current regulated investment plan without the need to issue new equity or sell assets. I'd like -- my remarks by thanking our employees for all they do and their dedication to safety, reliability, and our customers. I'll now turn the call over to Dan to discuss our financial results and outlook in greater detail, and I will be available for your questions after his remarks.
Dan Cregg : Thank you, Ralph. Good morning everyone. As Ralph mentioned earlier, PSEG reported net income of $1.06 per share for the first quarter of 2024 compared to $2.58 per share in 2023. Non-GAAP operating earnings were $1.31 per share in the first quarter of 2024 compared to $1.39 per share in 2023. We provided you with information on Slide 7 regarding the contribution to non-GAAP operating earnings per share by business for the first quarter, and Slide 8 contains a waterfall chart that takes you through the net changes quarter over quarter and non-GAAP operating earnings per share by major business. Going with PSE&G, which reported first quarter net income of $0.98 per share for both 2024 and 2023, PSE&G had non-GAAP operating earnings of $0.98 per share for the first quarter of ‘24 compared to $0.99 per share in 2023.
The main drivers for both net income and non-GAAP results for the quarter were growth and rate based from continued investments in infrastructure replacement offset by higher distribution, investment-related depreciation and interest expense, not yet reflected in rates as well as higher O&M costs compared to the first quarter of 2023. Margin was $0.07 higher in total driven by transmission at $0.03 per share, gas margin at a penny per share and other utility margin added $0.03 per share. Distribution O&M expense increased $0.05 per share compared to the first quarter of 2023, primarily due to gas meter inspections and overhead corrective maintenance following severe rain, wind, and flooding events early in the year, and tree trimming. Appreciation and interest expense increased by a penny per share and $0.03 per share respectively compared to the first quarter of 2023.
Reflecting continued growth and investment, these costs of weight recovery in our pending distribution rate case anticipated to be settled later this year. Lower pension and OPEB income resulting from the cessation of OPEB-related credits, which ended in 2023, resulted in a penny per share, unfavorable comparison to the year earlier quarter. Lastly, the timing of taxes recorded through an annual effective tax rate, which nets to zero over a full year had a net favorable impact of $0.02 per share in the quarter compared to 2023, whether during the first quarter as measured by heating degree days was 17% warmer than normal, but 9% colder than the first quarter of 2023, which was the warmest first quarter in PSE&G’s records. As we've mentioned, the conservation incentive program or SIP limits the impact of weather and other sales variances positive or negative on electric and gas margins.
While helping PSE&G broadly promote the adoption of its energy efficiency programs. The number of electric and gas customers, which is the driver of margin under the SIP mechanism, continue to grow by approximately 1% over the past year. On capital spending, as Ralph mentioned, PSE&G invested approximately $800 million during the first quarter, and we remain on track to execute on our 2024 regulated capital investment plan of $3.4 billion focused on enter on infrastructure modernization and electrification initiatives. These include upgrades and replacements to our T&D facilities, last mile spend in the Infrastructure advancement program, ongoing gas infrastructure replacement spending, Energy Strong II investments, and the continued rollout of the clean energy investments in EE, smart meter installation, and EV make-ready infrastructure.
We are reaffirming our five-year regulated capital investment plan of $18 billion to $21 billion. This 2024 to 2028 plan includes the $3.1 billion CEF EE2 filing made in December, 2023, which would enable commitments starting January, 2025 through June of 2027. Based upon the BPU’s EE framework with investments being made over a six-year period. This proceeding is expected to be resolved at the BPU later this year. Moving on to PSEG Power and other, for the first quarter of 2024 PSEG Power and other reported net income of $0.08 per share compared to $1.60 per share for the first quarter of 2023. Non-GAAP operating earnings were $0.33 per share for the first quarter of 2024, compared to non-GAAP operating earnings of $0.40 per share for the first quarter of 2023.
For the first quarter of this year, net energy margin rose by $0.03 per share, including $0.02 favorable contribution from nuclear driven by the net impact of the nuclear production tax credit, which went into effect January 1st of this year, partially offset by reduction in capacity revenue. Also, in energy margin gas operations increased by a penny per share compared to the year earlier quarter. Importantly, for 2024, while the PTC begins this year, there will be a shape to our results per quarter as we move through the year. We anticipate realizing the majority of the increase in the 2024 gross margin, over 2023s gross margin during the second half of the year based upon the shape of our underlying hedges. This will differ from last year when PSEG Power realized most of the step up in the annual hedge price in the first quarter based on lower pricing in the winter of 2022 compared to 2023.
O&M increased by $0.03 per share, mostly driven by the start of the scheduled refueling at our 100% owned Oak Creek nuclear plant. Interest expense was a penny unfavorable reflecting higher interest rates partially offset by lower short-term debt balances. Taxes and other were $0.06 per share unfavorable compared to the first quarter of 2023, primarily reflecting the use of a higher effective tax rate in the quarter. That will reverse over the balance of 2024. Operating standpoint, the nuclear fleet produced approximately 8.2 terawatt hours during the first quarter of 2024 compared to 8.4 terawatt hours in the year earlier period, and ran at a capacity factor of 96.8%. Our Hope Creek Nuclear Unit is undergoing its scheduled refueling outage, which will include preliminary work on the fuel cycle extension project.
As a result, as is always the case with outages for our a hundred percent owned Hope Creek Unit, we expect a little higher O&M and lower generation in the second quarter. Touching on some recent financing activity at the end of March, PCG had a total available liquidity of $5 billion, including $1.2 billion of cash on hand. Our revolving credit facilities totaling $3.75 billion were also extended by one year to March of 2028. During the first quarter at the end of March, PSEG had $500 million outstanding of a 364-day variable rate term loan, which subsequently matured in April of 2024, and PSEG Power had $1.25 billion outstanding of a variable rate term loan maturing March of 2025. The entirety of these term loans were swapped from a variable rate to a fixed rate, mitigating the fluctuations in interest rates as of the end of March.
Given our swaps in cash position, we had minimal variable rate debt in early March. PSE&G issued $1 billion of 10 and 30 year secured medium term notes consisting of $450 million at 5.2% due March, 2034 and 550 million at 5.45% due March, 2054. A portion of the proceeds was used to pay the maturity of $250 million of 3.75% secured MTMs on March 15th. Later in March, PSEG issued $1.25 billion of senior notes consisting of 750 million at 5.2% through April 2029 and 500 million at 5.45% due April, 2034. A portion of the proceeds will be used to pay the maturity of $750 million of 2.875% senior notes in June. We continue to maintain solid investment-grade ratings. Looking ahead, we expect that PSEG's considerable cash generation combined with PSEG powers enhanced cash flow visibility from the nuclear PTC will support the execution of PSEG's five-year capital spending plan dominated by regulated CapEx without the need to issue new equity or sell assets.
In closing, we are reaffirming PSEG’s full-year 2024 non-GAAP operating earnings guidance for $3.60 to $3.70 per share, which reflects continued rate-based growth from ongoing regulated investments offset by higher depreciation and interest expense that will build over the balances of 2024. As we await resolution of our pending distribution rate case later this year, we are also reaffirming our forecast of long-term 5% to 7% compound annual growth and non-GAAP operating earnings through 2028, supported by our capital investment programs and the new nuclear PTC. That concludes our formal remarks, and we are ready to begin the question and answer session.
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