Ladies and gentlemen, thank you for standing by. My name is Sylvia, and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Third Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session for members of the financial community. At that time, if you have a question, you will need to press star one on your telephone keypad. To withdraw your question, press the pound key. As a reminder, this conference is being recorded today, October 30th, 2020, and will be available for telephone replay beginning at 1:00 P.M. Eastern Standard Time today until 11:59 P.M. Eastern Standard Time on November 5th, 2020. 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 Carlotta Chan. Please go ahead.
Thank you, Sylvia. Good morning, and thank you for participating in our earnings call. PSEG's third quarter 2020 earnings release attachments and slides detailing operating results by company are posted on our website at investor.pseg.com, and our 10-Q will be filed shortly. The earnings release and other matters discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. We will discuss non-GAAP operating earnings and non-GAAP Adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's earnings material. I'll now turn the call over to Ralph Izzo, Chairman, President, and Chief Executive Officer of PSEG. Joining Ralph on today's call is Dan Cregg, Executive Vice President and Chief Financial Officer.
At the conclusion of their remarks, there will be time for your questions. Ralph?
Thank you, Carlotta, and thank you, everyone, for joining us this morning. PSEG reported non-GAAP operating earnings for the third quarter of 2020 of $0.96 per share versus $0.98 per share in last year's third quarter. PSEG's GAAP results for the third quarter were $1.14 per share, compared with $0.79 per share in the third quarter of 2019. Our results for the third quarter bring non-GAAP operating earnings for the year-to-date to $2.78 per share, up 5.3% compared to the $2.64 per share in the first months of 2019. This performance reflects the strong contribution from our regulated operations at PSE&G, cost controls at both the utility and PSEG Power, lower pension expense, and the favorable settlement of tax audits mentioned last quarter. We delivered a solid quarter at both PSE&G and PSEG Power.
We are updating PSEG's non-GAAP operating earnings guidance for 2020 to the range of $3.35-$3.50 per share, which removes $0.05 per share from the lower end of our original guidance range. Last month, the New Jersey Board of Public Utilities, I'll refer to them as the BPU, approved the settlement of the energy efficiency component of our Clean Energy Future filing. As you know, we proposed a comprehensive filing covering energy efficiency, Energy Cloud, and electric vehicles and storage in October of 2018 to help deliver on the goals of New Jersey's Clean Energy Act. The BPU's landmark decision on energy efficiency will enable PSE&G to invest $1 billion over three years to help bring universal access to energy efficiency for all New Jersey customers. These programs will lower customer bills, shrink their carbon footprint, and give them greater control over their energy usage.
PSE&G's Clean Energy Future energy efficiency program will also establish a clean energy jobs training program, create over 3,200 direct jobs, and enable everyone in New Jersey to benefit from the avoidance of 8 million metric tons of carbon emissions through 2050. The $1 billion of remaining CEF programs we've proposed to implement, which is the Energy Cloud or otherwise known as advanced metering infrastructure, to expand the electric vehicle infrastructure and energy storage, are entering hearing stages later this year. We expect them to conclude in the first quarter of 2021. Our service area experienced significantly warmer weather during the first half of the summer, which along with the continued reopening of the New Jersey economy, served to moderate the 7% load loss seen earlier in the year caused by the COVID-19 pandemic.
New Jersey has aggressively managed its positivity rate since the spring with some recent resurgence, but continues a phased reopening of businesses, schools, and activities that will determine the pace of economic recovery going forward. Recognizing the extraordinary economic stress the pandemic has placed on many of our customers, PSE&G, in partnership with Governor Murphy and the BPU, extended the non-safety-related shutoff moratorium to March of 2021 for residential electric and gas service. The shutoff moratoriums for commercial and industrial customers will continue through November 15th. PSEG, as always, will work with customers on alternative payment plans as needed to maintain essential services and inform customers about assistance programs that are available, such as LIHEAP.
PSEG continues to provide the latest health and safety information and protocols to all of its employees. They recently launched a new mobile app that includes a health questionnaire for employees and contractors who physically report to a PSEG location. Many of our employees continue to effectively work remotely. Our responsible re-entry planning is ongoing. Our cross-functional executive crisis management team continues to monitor the business impacts of COVID-19 going into these critical winter months. In early August, Tropical Storm Isaias wreaked havoc across the New York-New Jersey area with powerful winds and heavy rains in a fast-moving storm that left approximately 1 million of our customers in New Jersey and Long Island without power. This was by far the most damaging storm we had experienced since Superstorm Sandy in 2012. Its impact was made worse on several fronts by COVID-19 restrictions.
PSEG and PSEG Long Island worked around the clock alongside nearly 3,000 mutual aid personnel in New Jersey and over 5,000 on Long Island to restore service. In New Jersey, we restored 90% of our customers within 72 hours. The storm was mostly a wind event, which caused significant physical damage to poles and wires. PSEG's transmission system did not experience any outages during the storm event, underscoring the reliability and resiliency benefits of our transmission investment programs. The PSEG Long Island experience was more challenging. We were able to restore 80% of customers who lost service within 72 hours. However, our customer communications and restoration time estimates were simply not up to our standards, and we are fixing that. We have spent the past six years making dramatic improvements to customer service on Long Island, and J.D.
Power recently recognized PSEG Long Island as the most improved utility nationally in customer service metrics over this period. Our commitment to continuous improvement remains in place. Lessons learned from Tropical Storm Isaias will be leveraged to further improve customer satisfaction. On the regulatory front, we are continuing confidential settlement discussions with the BPU and other parties concerning the return on equity related to PSEG's Federal Energy Regulatory Commission formula rates for transmission. At the state level, the energy efficiency decision authorizing a $1 billion investment over 3 years represents an annual run rate of about $350 million, which is nearly a tenfold increase from our previous annual energy efficiency spend.
These investments will receive recovery of and on capital through a clause mechanism at the current authorized return on equity of 9.6% and be amortized over 10 years with no incentives or penalties applied during the first five years from the start of the program. The 10-year energy efficiency programs approved by the BPU will help New Jersey achieve its preliminary energy savings targets of 2.15% for electricity and 1.1% for gas within five years. In addition, as part of the energy efficiency settlement, the BPU approved a conservation incentive program to provide a lost revenue recovery mechanism for sales variations due to energy efficiency, weather, and other variables. This conservation incentive program will begin in June 2021 for electric revenues and in October 2021 for gas revenues.
On the power side, current market conditions continue to be influenced by lower loads due to COVID-19, low natural gas prices, and ample generation. These persistent conditions kept PJM day-ahead around-the-clock prices in the mid-teens to low $20 per MW hour for most days during the third quarter, despite a few weather-driven spikes above $30 per MW hour over the summer. Persistently low PJM day-ahead power prices make the economic pressures on our base load carbon-free nuclear units even more challenging. PSEG Power recently submitted its application to extend the Zero Emission Certificate program, I'll refer to that as ZEC, into 2025, as specified in the 2018 ZEC law. A BPU final decision is expected in April of 2021.
Our application, filed on October 1st, demonstrates the financial need for the zero carbon attribute payment has increased in the last two years as energy prices have further declined and continue to pressure the economic viability of our New Jersey nuclear units. The addition of evidentiary hearings to the second ZEC proceeding will improve transparency, and we believe our application supports the need for more than a $10 per megawatt attribute payment for the Salem and Hope Creek units. A new Brattle report estimates that preservation of our New Jersey nuclear units through an extension of the $10 per MWh attribute payment saves customers approximately $175 million per year in lower energy costs over the next 10 years.
The New Jersey Department of Environmental Protection also weighed in through a recently issued report evaluating the state's progress in reducing its greenhouse gas emissions, with a goal of 80% by the year 2050. One of the recommendations in the DEP's 80x50 report is to retain existing carbon-free resources, including the state's 3 nuclear power plants. That's a direct quote. They called it a key path to reducing emissions from the electric power generation sector. As our state and region move increasingly toward carbon-free energy, preserving existing nuclear generation, currently the reliability backbone of New Jersey's zero carbon energy mix, will grow in importance.
On the ESG front, I'm pleased to announce that we have incorporated equity into our diversity and inclusion programs, expanding our commitment through new and ongoing initiatives to ensure that all employees have access to the benefits and opportunities the company offers, and promoting equity in our lower-income communities. Regarding governance, we continue to garner first-tier scores for our contributions disclosure and transparency, as cited in the 2020 update of the Corporate Political Disclosure and Accountability Index, also known as the CPA-Zicklin Index, with a score of 85.7, which exceeds both the S&P 500 company average as well as the utility average score of 77.2. Turning to earnings guidance, as I mentioned, we are narrowing PSEG's non-GAAP operating earnings guidance for full-year 2020 by removing $0.05 per share off the lower end.
This updates our guidance range to $3.35-$3.50 per share based on solid results through the first nine months of the year and our ongoing confidence that we can effectively manage costs at both businesses, continue executing on PSE&G's investment programs, and provide New Jersey with safe, reliable sources of efficient and zero carbon sources of electricity. We continue to expect regulated operations to contribute nearly 80% of total non-GAAP operating earnings for the year, reflecting the benefits of PSE&G's ongoing investment in New Jersey's energy infrastructure. We also remain on track to execute on the PSEG five-year $13 billion-$15.7 billion capital plan without the need to issue new equity, and our liquidity position at September 30th stood at nearly $5 billion.
PSEG continues its due diligence and negotiations with Ørsted in preparation of making a final recommendation to our board of directors on whether to invest up to a 25% equity stake in the Ocean Wind project. We expect to announce our decision later this year. Before moving to the financial review, I'd also like to mention that since our late July announcement that PSEG was exploring strategic alternatives for Power's non-nuclear generating fleet, we have received positive feedback from investors and regulators. Our intent to accelerate the transformation of PSEG into a primarily regulated electric and gas utility and contracted zero-carbon generation is proceeding as planned. We are still in the early stages of this process, and we expect to begin marketing a potential transaction in one or a series of steps by the end of this year. If successful, we should be able to complete the process during 2021.
I will now turn the call over to Dan for more details on our operating results and will be available for your questions after his remarks.
Great. Thank you, Ralph, and good morning, everybody. As Ralph said, PSEG reported non-GAAP operating earnings for the third quarter of 2020 of $0.96 per share versus $0.98 per share in last year's third quarter. We've provided you with information on slide nine regarding contribution to non-GAAP operating earnings by business for the quarter. Slide 10 contains a waterfall chart that takes you through the net changes quarter-over-quarter in non-GAAP operating earnings by major business. I will now review each company in more detail, starting with PSE&G. PSE&G reported net income of $0.61 per share for the third quarter of 2020, compared with net income of $0.68 per share for the third quarter of 2019, as shown on slide 14.
The utility's third-quarter results reflected ongoing growth from our investment programs, offset by certain items, largely reflecting tax adjustments that are timing in nature. For the year-to-date period, PSE&G results are on track to achieve our full-year guidance, driven by revenue growth from ongoing capital investment programs, lower pension expense, and cost control. Investment in transmission added $0.04 per share to third-quarter net income. Electric margin was $0.01 per share favorable compared to the year-earlier quarter, driven by higher weather-normalized residential volumes, mostly offset by lower commercial and industrial demand. Summer 2020 weather was $0.01 per share ahead of weather experienced in the third quarter of 2019.
O&M expense was $0.03 unfavorable versus the third quarter of 2019, primarily reflecting our internal labor costs from Tropical Storm Isaias, and timing of certain maintenance activities, partly offset by the reversal of certain COVID-19-related costs recognized in prior quarters. In July, the BPU authorized PSE&G to defer certain expenses incurred because of the COVID-19 pandemic. To reflect that order, PSE&G deferred certain COVID-19-related O&M and gas bad debt expense previously recorded and established a corresponding regulatory asset of approximately $0.05 per share for future recovery.
Partially offsetting this timing item, PSE&G reversed a $0.04 accrual of revenue under the weather normalization clause for collection of lower gas margins resulting from warmer than normal winter earlier in the year due to recovery limitations under that clause's earnings test. Distribution-related depreciation lowered net income by $0.01 per share, and non-operating pension expense was $0.01 per share favorable compared with last year's third quarter. Flow-through taxes and other items lowered net income by $0.07 per share compared to the third quarter of 2019, driven largely by timing of taxes and taxes related to bad debt expense. The majority of these tax items are expected to reverse about half in the fourth quarter, with taxes related to bad debts reversing in the future based upon the timing of actual write-offs.
Summer weather in the third quarter, as measured by the temperature-humidity index, was nearly 18% warmer than normal and 7% warmer than the third quarter of 2019. Weather-normalized electric sales for the quarter declined by approximately 1% versus last year, again reflecting the increases that we've seen in residential volumes, but which only partially offsets lower commercial industrial sales. Residential weather-normalized sales were up 7% due to the COVID-19 work-from-home impact. However, C&I sales declined by approximately 6%, with many parts of the New Jersey economy not yet fully reopened. On a net margin basis, however, residential margins, which are driven by volumes of 5% year-to-date weather normalized, have offset the margin impact of lower C&I demands. PSEG's capital program remains on schedule.
PSEG invested approximately $700 million in the third quarter and $1.9 billion through September 30th as part of its 2020 capital investment program of approximately $2.7 billion in infrastructure upgrades to its transmission and distribution facilities to maintain reliability, increase resiliency, and replace aging energy infrastructure. The Clean Energy Future energy efficiency investment will begin later this year and ramp up to approximately $125 million in 2021 before reaching a full annual run rate of about $350 million in 2022. We continue to forecast that over 90% of PSEG's planned capital investment will be directed to the utility over the 2020-2024 timeframe. Earlier this month, PSEG filed its annual transmission formula rate update with FERC to reflect, among other updates, net plant additions.
PJM cost reallocations will more than offset the higher revenue requirements of approximately $119 million and result in a net reduction in costs to PSEG customers when implemented in January of 2021. PSEG's forecast of net income for the full year has been updated to $1.325 billion-$1.355 billion from $1.310 billion-$1.370 billion. Now we'll move on to PSEG Power. PSEG Power reported non-GAAP operating earnings for the third quarter of $0.33 per share and non-GAAP Adjusted EBITDA of $349 million. This compares to non-GAAP operating earnings of $0.29 per share and non-GAAP Adjusted EBITDA of $322 million for the third quarter of 2019. Non-GAAP Adjusted EBITDA excludes the same items as our non-GAAP operating earnings measure, as well as income tax expense, interest expense, depreciation, and amortization expense.
The earnings release and Slide 20 provide you with a detailed analysis of the items having an impact on PSEG Power's non-GAAP operating earnings relative to net income quarter-over-quarter. We've also provided you with more detail on generation for the quarter and for year-to-date 2020 on Slides 21 and 22. PSEG Power's third quarter non-GAAP operating earnings were positively affected by several items that have improved results by $0.04 per share compared to the year-ago quarter. The scheduled rise in PJM's capacity revenue on June 1st increased non-GAAP operating earnings comparisons by $0.03 per share compared with the third quarter of 2019. Reduced generation volumes lowered results by $0.02 per share versus the third quarter of 2019, reflecting the sale of the Keystone and Conemaugh coal units last year, as well as some lower market demand.
Recontracting and market impacts reduced results by $0.02 per share versus the year-ago quarter. Gas operations were $0.02 per share higher. Lower O&M expense was $0.03 per share favorable compared to last year's third quarter, reflecting lower fossil maintenance costs, including the absence of a major outage at Linden that occurred in the third quarter of 2019. Lower interest and depreciation expense combined to add $0.01 per share versus the year-ago quarter. Also during the quarter, New Jersey enacted an increase in the corporate surtax to 2.5% as part of their fiscal year 2021 budget, which lowered comparisons $0.01 per share to the third quarter of 2019.
Gross margin for the third quarter was $33 per MWh, an improvement of $2 per MWh over the third quarter of 2019, mainly reflecting the scheduled increase in capacity prices with the new energy year that began June 1st. Power prices and natural gas prices stayed low through the summer as reduced commercial activity across PJM, New York, and Maryland experienced lower loads and countered most of the weather-related demand surges. Turning to power's operations, total generating output declined 9% to 14.9 terawatt-hours for the third quarter, reflecting the sale of Keystone and Conemaugh.
PSEG Power's combined cycle fleet produced 6.7 terawatt-hours of output, down 7%, reflecting lower market demand driven by ongoing COVID-19-related impacts on economic activity in the state. The nuclear fleet operated at an average capacity factor of 95.7% for the quarter, producing 8.2 TWh, up 5% over the third quarter of 2019, and representing 55% of total generation. PSEG Power continues to forecast total output of 2020 of 50 to 52 TWh. For the remainder of 2020, Power has hedged approximately 95%-100% of production at an average price of $36 per MWh. For 2021, Power has hedged 75%-80% of forecast production of 48 to 50 TWh at an average price of $35 per MWh.
PSEG Power is also forecasting output for 2022 of 48-50 TWh, and approximately 35%-40% of PSEG Power's output in 2022 is hedged at an average price of $34 per MWh. We're updating the forecast of both PSEG Power's non-GAAP operating earnings for 2020 to a range of $385 million-$430 million, from $345 million-$435 million. Our estimate of non-GAAP operating EBITDA to a range of $980 million-$1.045 billion, from $950 million-$1.050 billion. I'll briefly address operating results from Enterprise and Other, who reported net income of $8 million, or $0.02 per share for the third quarter of 2020, compared to net income of $6 million or $0.10 per share in the third quarter of 2019.
Net income for the quarter reflects ongoing contributions from PSEG Long Island and lower taxes that were partially offset by a small loss on the sale of the Powerton and Joliet investments at Energy Holdings. The forecast for PSEG Enterprise and Other for 2020 has been updated to a net loss of $10 million from a net loss of $5 million. PSEG ended the third quarter with over $4.9 billion of available liquidity, including cash on hand of about $966 million, and debt representing 52% of our consolidated capital. In August, PSEG issued $550 million five-year senior notes at 80 basis points, and $550 million 10-year senior notes at 1.6%, and retired $500 million of the 364-day term loan agreements issued in the spring. PSEG also has $700 million of floating rate term loans that will mature in November of 2020.
Also in August, PSE&G issued $375 million of 30-year secured medium-term notes at a coupon rate of 2.05% and retired $250 million of MTNs at maturity. Following PSEG's announcement that it would explore strategic alternatives for Power's non-nuclear fleet, S&P lowered PSEG Power's credit ratings to BBB with a stable outlook from BBB+ with a stable outlook, citing its view that PSEG Power was no longer viewed as core to PSEG. S&P's rationale reflects its family rating methodology that had previously provided a one-notch uplift to Power due to that core designation. Moody's also published updated issuer comments following the announcement and left Power's credit ratings unchanged at Baa1, with a stable outlook.
Power's debt as a percentage of capital declined to 28% at September 30th, we still expect to fully fund PSEG's five-year $13 billion-$15.7 billion capital investment program over the 2020-2024 period without the need to issue new equity. As Ralph mentioned, we've narrowed our non-GAAP operating earnings guidance for the full year by removing $0.05 per share from the lower end of the original guidance and updated the range to $3.35-$3.50 per share. That concludes my comments. Sylvia, we are now ready to answer questions.
Ladies and gentlemen, we will now begin the question-and-answer session for members of the financial community. If you have a question, please press star and the one on your telephone keypad. If your question has been answered and you wish to withdraw your polling request, you may do so by pressing the pound key. If you are on a speakerphone, please pick up your handset before entering your request. Your first question comes from Jeremy Tonet from JP Morgan.
Hi, good morning.
Morning, Jeremy.
Just wanted to start off with offshore wind, if that's okay. Just wanted to see if the recent Ørsted commentary on seeing delays on some of their U.S.-based onshore projects influence your thinking and your involvement here, and do you have any thoughts on some of the feedback Ørsted's received in New Jersey, some negative feedback recently?
I'd say, Jeremy, that given the fact that this is an industry in its infancy, candidly, all of us expected there to be regulatory delays. The issue that I think you're referring to in the state of New Jersey was just over the extent to which offshore wind would help grow the economy. With something as new as this, the expectations for job growth versus the delivery of job growth and the pace at which it's happening are not in complete alignment, but the direction is completely aligned. The state remains committed to growing the industry. Ørsted remains committed to supporting its project with the hiring practices that it put forth in its solicitation, and I think it's just a case of people needing to talk to each other more often about how much and how fast. There's no dispute over what direction it's going.
Got it. That makes sense. It sounds like this wouldn't influence your appetite for participating in future rounds of bids for offshore wind, like the one that's expected soon.
No, that's correct. We have maintained that if we assume the 25% equity position, we would only do so with the expectation of participating in future solicitation. We would not be particularly interested in just a one-off project.
Got it. Understood. Just switching gears here, do you have any thoughts on the delayed BPU FRR evaluation here? Do you have any thoughts on what some of the drivers of the delay could be? Do you have any sense on how the FRR study could impact your ZEC application?
Well, yeah. I want to make sure everyone hears this clearly and quotes me and gets this back to the BPU. I have to commend the BPU on the schedule they've maintained in what has been a very ambitious agenda. When you think about all that they've accomplished, getting the first offshore wind solicitation complete, getting the second one out the door, initiating the analysis of the FRR. Really the critical period for New Jersey is that when the offshore wind projects go commercial in 2024, and that won't be all 1,000 megawatts, that'll be a fraction of that, to not have to pay twice for capacity. That PJM capacity auction is not likely to take place until, at best, late in 2021, probably in 2022.
To my knowledge, the BPU process is really on the schedule that the staff laid out, that sometime the end of this year or early next year, they'll get their consultants' report out, and then they'll consider whether they need legislation. We don't think that they do, but it depends on the design. I'd say, Jeremy, that they're in pretty good shape to avoid this double capacity payment by the 2024 auction at this point.
Got it. That is very helpful. I'll leave it there. Thanks.
Your next question comes from the line of Julien Dumoulin-Smith from Bank of America.
Hey, good morning, team. Thanks for the time. Appreciate it.
Hi, Julien.
Hey, good morning, and thanks for the clarity there a second ago. Crystal clear. I wanted to come back to this, though. How are you thinking about strategic decisions on the nuclear business as it stands today? And I'd be curious if a sale or spin would be something that you would be amenable to, and I'm sure you all are familiar with some of the media reports out there. I just want to get ahead of that and try to see if that's a part of your considerations one way or another.
Julien, there were two reasons why we opted to simply focus on our non-nuclear assets. Number one was to further solidify what we believe to be a strong ESG position. Secondly, as you know, we are in the process, as Dan and I just discussed, of filing for round two of the ZEC process. We didn't think it was fair to New Jersey or the BPU to undertake a ZEC process and not know who the eventual owners of nuclear might be. We're more than happy to own and operate nuclear plants if they are meeting the state's energy needs, if they are marching the state towards its carbon aspirations. This is a critical third condition, they are economically viable. Those plants are not economically viable without the ZECs.
In fact, I can't go into details because the financials that we submitted are confidential, but they actually are in need of more than $10 per MWh. We were willing to operate them at $10 a MWh because we do think that the direction of public policy, both in New Jersey and in the nation, is the increased recognition of the importance of carbon-free energy to mitigate climate change, and that value will eventually be more fully recognized. In the absence of that payment, then we wouldn't be able to operate those plants. That's an old story, right? Because that's been going on for at least three or four years now. I'm not familiar with any media reports you're referring to, so I'm not going to be able to comment on that. I'm sure that there will be a constant attention to this regulatory process.
Got it. Okay. Well, that's clear enough. Just in terms of the disclosures that you're providing to the BPU. There's obviously been a lot of discussion about transparency and the need for nuclear support across a variety of states. I'm sure you're aware. Can you talk about how this go around might differ from the last initial request for ZECs, especially from a disclosure perspective? I understand it may not necessarily all be public either. I'm just curious if you can elaborate a little bit.
As you know, there's two main differences in round two versus round one, and then I'll turn it over to Dan for a second. In round two, there's a much more transparent public process that we think is great for everyone. There'll be a preliminary decision in December, followed by evidentiary hearings, response to the preliminary decision, and the final decision in April. I think that that's great because look, those plants are necessary. As we pointed out they save consumers almost $200 million a year, $175 million a year over 10 years. They eliminate 13 million tons of carbon a year. They provide employment for 1,600 PSEG employees, 5,000 employees in general.
The reality is, at the current advantages enjoyed by natural gas in the absence of a price on carbon and at the subsidized levels for renewables, which are far above the cost of nuclear, they're under tremendous economic disadvantages. You don't have to do a very sophisticated analysis. NEI published what the average cost is of operating a nuclear plant, and it's about $30 per MWh. In fact, if you look at what round-the-clock prices are doing in net capacity to it's around $30 a MWh. Unless you think that companies should invest over $1 billion a year for zero return, those plants are not reliable. Of course the last attribute in addition to their carbon-free energy is they are base load workhorses. Despite our enthusiasm for wind and solar, mother nature doesn't answer to us.
The dispatch ability of those resources we all know, screams for the need for battery storage or some storage mechanism. That just adds additional economic pain to customers above and beyond what they're already experiencing. Nuclear is a slam dunk winner, and I'm sure the regulatory process will bear that out.
Julien, I think Ralph said everything I would've said about it and just about the process and how everything runs. The only other thing I would add is just as we go into this process, we're in a more challenging price environment. Things have from a standpoint of the environment that the facilities are in, from a market environment, you've got a continued decline in forward prices and incremental zero cost energy that's coming online. It is more challenging economically than it's been in the past. We'll go through the process that Ralph described in the next six months or so.
Great. Excellent. Thanks guys.
Your next question comes from Shar Pourreza from Guggenheim Partners.
Hi. Good morning. It's actually Constantine here for Shar, stepping in. Thanks for the very comprehensive update. Just wanted to kind of follow up on some of your thinking on the infrastructure programs and kind of the Clean Energy Future programs. Just in terms of kind of longevity at the current CapEx levels, how would those kind of programs help New Jersey reach the broader policy goals? In the same line of thinking kind of how long is the runway, so to speak, for the infrastructure programs like the GSMP and Energy Strong and so forth?
Good questions. Two related but slightly different answers, right? On the kind of traditional infrastructure programs, remember what we're doing there is we're not building new infrastructure to meet new demand, which was the primary thesis for utilities for many, many decades in the better part of the entire 20th century. In our case, we're having to replace an aging infrastructure, not because of a growth in demand, but because of a variety of factors, including increased reliance upon electricity for our way of life and more extreme weather conditions driven by what we believe to be climate change. Others may choose to have other beliefs. That aging infrastructure replacement program is essentially perpetual because we cannot replace that aging infrastructure in just a few short years. It would just be prohibitively expensive.
You get in this position where as it was the case for our Gas System Modernization Program, even at the $400 million a year that we're currently spending, we have another 20 years worth of work to do then. Since we started that program 10 years ago, we will then have our newest pipe be 30 years old. Some of the pipe that's currently 50 years old will be 70 years old by that point. The same can be said about our transmission system and our substations. As you probably know, we haven't even touched the last mile of our electric system, right? We have done this double-digit or near double-digit growth rate in our regulated utility focused primarily on cast iron gas main transmission and electric substations.
Now with the increased dependence of residential customers on reliability, which we think will have a post-Covid permanency to it, we do think that increased reliability to the home that last mile is going to become increasingly important. There is interest in New Jersey around helping the state recover from its current economic downturn by accelerating some of that infrastructure replacement work and in doing more in the way of kind of stimulus activities because it is essential work. That could lead us to perhaps deviating, at least in the short term, from what is the one and only controlling limitation to the amount of investment that's required. That's the impact on the customer bill.
As you may be aware, we have steadfastly tried to pace ourselves so that our clause recovery and our formula rate treatment at FERC, our clause recovery in the state and our formula rate treatment at FERC allows us to make this infrastructure replacement yet allow the bill to kind of move up that CPI. A bill which by the way is 30% below where it was 10 years ago in nominal terms and 40% below where it was 10 years ago in real terms. Stimulus might allow us to break that rule a little bit and just recognizing that if you take utility bills from 3% of their disposable income to 3.06% of their disposable income, that's a price worth paying to put people to work and make some major infrastructure improvements.
Separate and apart from that, though, is the question you asked about the Clean Energy Future. That's a different set of circumstances, right? In our case, where we're choosing to focus is on energy efficiency, which I call the quadruple winner. It is 8 million less tons of carbon emitted into the atmosphere, so the environment loves it. There's lower bills for customers who participate, and in fact, there's a net savings to the whole customer base of $1 billion. Customers are smiling. There's over 4,000 jobs that we think we can create, so the economy smiles. Our shareholders are getting a 9.6% ROE with contemporaneous return on the investment. It's just a phenomenal investment opportunity and opens up a whole new definition of rate base for us.
One that I am firmly convinced the state will be eager to continue beyond the three years of the program. In fact, if you look at the $1 billion three-year grant approval we received, that's actually a faster run rate in the initial period than the $2.5 billion six-year program that we had originally proposed. For the state's aspirations for other clean technologies such as offshore wind and solar, that is a different story. That is far more expensive, and that will have to rely upon the price curve coming down and technology bending that price down, and the state pacing its appetite for that so as to not overburden the consumer. In terms of the areas that we're involved with, I have a high degree of confidence that there's very strong support for continuing those. Sorry for the long answer.
No, it's definitely well appreciated. Jumping again to follow up a little bit on the fossil asset sale process and some of the thoughts around it. Obviously a pretty good set of assets in the market, and the equity part of the price tag is definitely going to be sizable, just given the fact that there's not much leverage on the business. Curious to get some of your thoughts on capital recycling and what the priority would be for reinvestment, buybacks, and how to keep it all efficient.
Yeah. It's a great question. You're right, if you take a look at PSEG Power, it is not very heavily levered. There's about $2.4 billion right now of debt outstanding. By the time we get to the end of a potential transaction, you would see about $1 billion that would be redeemed at that point. About $1.4 billion. I agree with your commentary. If you think about the quality of the assets that we're talking about, that would provide some more than sufficient capital, one would think, to take care of that debt. Yes, you would think about the repayment of that debt, meaning first and foremost, you would think about having excess capital. I would say, really general corporate purposes is what is normally conveyed, and I think that's the right conveyance here.
I think that we've talked about an existing capital program that's in place. We talked about the potential for some incremental capital identification. We have always gone through our five-year plan with a declining capital forecast. By the time we get to the end of that five years, there's other opportunities that we've seen on the other side. Whether some of that could be something from a stimulus perspective coming out of this economic impacts that we've seen from COVID is to be seen. I think the continued deployment of capital into the utility is the first place that we would look to. To the extent there's excess, we would weigh that against incremental potential opportunities for capital as well as some kind of a return to the extent that those opportunities didn't exist from, could be dividends, could be buybacks.
Not out of the question, but certainly not first and foremost on the list.
Okay. Thank you.
Your next question comes from the line of Durgesh Chopra from Evercore.
Hey, good morning, team. Thank you for taking my question. Ralph, can I just go back to I want to make sure I understand the Conservation Incentive Program.
Sure.
What does that entail? Does that protect you going forward from lost revenues from storms, weather, something like COVID-19? Can you just talk through that? Second, is this a pilot program where you have to make a filing every other year or things like that, or is this basically a permanent thing at this point?
Dan will answer the question about how often we have to make the filing. I do know that whenever we file, we don't suffer any lag associated with that. I forget if it's six or 12 months. No, what I was referring to, and hopefully I'm answering your question, if not, just nudge me back in the right direction, is, look, the city of Newark, as an example, we have dual 26KV distribution loops into the city because we have commercial centers that have thousands of employees who come here every day and expect the lights to be on, the air conditioning to run, and the computer systems to operate. They're not here now. There's four of us in the office today. Most of our employees are working from home.
Well, the level of reliability they have in their homes is quite different than the level of reliability that we have feeding this building. It's not because it's the PSEG building. That's just typical of businesses in the Newark area. If now the home is going to become the place where not only you eat and sleep, but you work. You fill up your gas tank, so to speak. You energize your vehicle. You charge all of your information tools, your phone, your computers. That grid is not prepared to deliver the kind of reliability that people will expect when another Isaias hits or another Superstorm Sandy, or just a typical Northeast thunderstorm.
The investment in the last mile, what I'm talking about there is the overhead system, will need to be made if the economy is not to come to a grinding halt during fairly routine storm events that we have nowadays. I'm not calling Sandy a routine event, but as we've seen in some parts of the country, whether it's what's going on in the Gulf or what we have had in the past in the Northeast, we are getting more intense weather events. You can't ask people to just stop work for 3-5 days if they have that weather event when they're working from home. That's what I was referring to, and I think policymakers are really plugging into that. We will benefit from AMI and our ability to identify outages at the individual customer location.
Regrettably, New Jersey does not have that capability now. I do believe our BPU commissioners understand the importance of that, and I'm hopeful and optimistic we can resolve that in just a few short months. Dan, did you want to talk a little bit about how we file for these things?
Yes. If you think about what New Jersey is trying to get at from an energy efficiency program standpoint, it is a step change from where we have been historically. I think it literally will catapult the state to among the best in the country with respect to energy efficiency programs. If you think about a program of that magnitude, it's important from the utility perspective as it pursues that there is some kind of a form of loss revenue recovery. That's what was in the filing. It has been a topic of the discussion that we have gone through as we've gone through the process. Where we ended up was really borrowing from something that the gas utilities had largely had in place historically, and that's the CIP, the Conservation Incentive Program.
We talked about it a little bit in our prepared remarks. It is an annual filing. It would begin into 2021. If you think about let the program get up and running as we implement the lost revenue recovery for the program that we are talking about. It would start June for the electric side of the business and October for the gas side of the business. You think about the seasonality of those businesses, it is a very logical way to do it. It will be an annual filing. It is not a lag-oriented filing. Basically, it is going to cover the changes from the baseline year that you had.
I think the way to think about that is the last rate case from a usage perspective, will essentially be put in place to be able to recover the shortfalls or provide the excess back to basically bring back to a more stable revenue stream. I think it's a great solution for the challenge that would come about by virtue of lost revenues through an energy efficiency program. I think we ended up in a very good place there.
Thanks there, Dan. I just want to be clear, does that only cover lost revenues from efficiency programs, or does it cover lost revenues from weather-related changes or perhaps lost revenues from storms and other events?
It is more broad than the energy efficiency. It's going to cover broader loss revenues. In fact, if you think about our gas weather normalization clause, that will essentially be suspended against the backdrop of this. This will kind of supersede that. It is broader.
Excellent. That's super constructive. Maybe just a quick follow-up on the fossil transactions. I appreciate you launched the process here last quarter knowing the elections are around the corner. Does a potential tax rate change impact your thinking at all? Does it matter for that transaction, for the non-nuclear potential sale transaction?
Yeah. Look, obviously, it will have an impact on the dollars that flow out of what happens. It will not change the bottom line intent and nature of where we are headed. I think that's the simplest way to say it.
Okay. Thanks, guys. I appreciate the time.
Absolutely. Thank you.
Your next question comes from David Arcaro from Morgan Stanley.
Hey, good morning. Thanks for taking my question.
Hi, David.
Could you give an update, a status update on the transmission ROE discussion that's going on with the BPU?
David. Unfortunately, I can't say much more than what we did in our initial remarks because they are confidential. I do think that there is still a lot of goodwill and good intent on the part of all parties. It's a three-person conversation. It's us, the BPU, and the consumer advocate, the ratepayer advocate. Clearly what motivates our colleagues in the BPU and the ratepayer advocate is providing immediate relief to New Jersey consumers in the form of lower rates, in particular exacerbated by COVID-19 challenges. What motivates us is removing some uncertainty over where things could end up if we went to FERC. We've closed a significant difference in points of view from when we first started talking. There still is a small gap between us.
Whether or not we can resolve that, I really do remain hopeful, but I can't say for sure that we will. We're still talking to each other, and I think that that's a positive thing. The gap is small, and that's a positive thing, but it's not done. I don't want to violate the confidentiality of it by saying any more.
Okay. Understood. Thanks for that update. I was just curious if you could touch on, in the gas utility side of the business, your thoughts in the long term, maybe vision for that business and how you're thinking about it in the context of on your side, taking an ESG step in the sale of some of the merchant assets, and then also in the context of the state moving aggressively over time, to reduce its gas consumption.
Yeah. This is one, we get this question quite a bit. I got to tell you, I respect everybody's right to ask the question, but of the 10 things that keep me awake at night, this one's like number 100. The state, under one of the greenest governors in the nation, is asking us to spend more money on the gas distribution system, largely to eliminate the methane leakage that results from an aged system. As you know, if you look at the 100-year effect of methane versus carbon dioxide, it's about 28 x bigger. Methane being 28 x bigger than carbon dioxide. There is definitely a commitment towards preserving the existing infrastructure as it relates to natural gas. Also, I would point out that over 90% of the homes in New Jersey cook and heat their homes with natural gas.
For them to change that would cost on average $10,000. That's for a bunch of homes that not that long ago moved from oil because of energy security concerns and pollution concerns. That's not exactly something that anyone is going to tackle in the near term. Plus, I'm a firm believer, as someone who is adamant that we need to be far more aggressive on climate change as a nation, that the consumer dividend associated with relatively clean fuel like natural gas really does motivate the nation to do something about carbon capture and storage. To walk away from this resource, which doesn't have any SO2, doesn't have any mercury, doesn't have any fine particulates, and has its NOx and ozone-related impacts relatively well-controlled, just begs for a carbon capture and storage solution.
I don't think you're going to see a lot of new pipeline construction. I don't think you're going to see a lot of new gas plants built, but I do think you're going to see people heating their homes and cooking their food with natural gas for many years to come. Last but not least, if you think about the fact that we still have largely a 75% fossil fuel-driven electric system in the nation, and New Jersey's part of PJM with a large fossil fuel component. The thought of taking that fossil fuel, wasting two-thirds of its energy content, converting the other one-third into electricity, and then using that one-third to then heat a home and to cook, is just a really bad use of the environmental dollar. That two-thirds that is wasted is referred to as waste heat.
If you didn't waste it by converting it to electricity and you simply converted it directly into hot water in the home or hot air in the home, you'd capture a lot more of the energy content. It's just that nonsensical thing to do, certainly in the near term, and I suspect over the long term too, as we do a better job of developing carbon capture and storage.
Okay, great. Thanks so much.
Your next question comes from the line of Michael Lapides from Goldman Sachs.
Hey, guys. First of all, congrats on a good quarter. Two questions. One is New Jersey specific. In trying to think about what has to happen to have a more significant expansion of batteries or storage in New Jersey. Is it a price point question, meaning a cost question? Is it a market design or regulatory design and construct question? Would love your thoughts, Ralph.
I just think it's a question of how much is on the plate right now, Mike. I mean, the state has in its Clean Energy Act, passed in May of 2018, signed into law in May of 2018, a 600 MW goal for battery storage next year. I think it's by the end of the year. Of course, we're nowhere near that. When you're spending $98.10 for offshore wind, when your solar renewable energy credit's at $220, and your transition program for solar renewable energy is at, I think, 150 or 175 per MWh, there's just so much you're willing to put on the customer's plate, right? Battery storage has gotten the sort of lower priority.
I don't think the state has abandoned it, but the state has so much more work to do with some of the core things that you would think we would be further along in. I've mentioned one of them before, AMI is something that is just screaming to be implemented, not only because of the operational benefits it provides, but because of the consumer benefits it provides in terms of helping the customer understand where they are in their bills during a month, as opposed to waiting to the end of the month. What it might mean for us in terms of more granular data and being able to do energy efficiency in ways we never did before. I just think that battery storage is falling victim to some other priorities.
Got it. One other, Ralph, with the election next week, obviously one of the candidates has been very open about talking about higher corporate income tax rates. How do you think about what that means, not just for PSEG, especially as you become less focused on the non-regulated business, but also what it means for the customer and the customer bill and the pace of change in that bill?
Well, as you know, the regulated business, historically, has been able to pass through taxes. Higher taxes will result in a greater bill impact, to be sure. I think that we're getting kind of far ahead of ourselves in that regard. I certainly don't want to be one to predict what might or might not happen on Tuesday. If you have any comments on that. I'm getting all sorts of hand signals from our folks here that we've gone past our allotted time. Folks may have other commitments that they need to do as well. Dan, do you want to go ahead?
Yeah, Mike, I would just say, look, the first thing that needs to happen is it needs to get enacted, it'll take some time for that to happen. When it does, as Ralph says, yes, the statutory rate will pass through on a normal basis. You'll also have right now what you're seeing is the flow back of excess deferreds go back. There's some restrictions on what can happen for certain of those excess deferred taxes, and there's flexibility on others of those deferred taxes. That's I think the other part of it. The other thing I would say is that it's very simple to think about a change in tax regime as being the corporate tax rate changes by X%.
Underlying that, there's usually a whole host of other changes, and those things can have pretty considerable impacts from a cash perspective, positive or negative, so both to the company and to the customer. The devil's in the details, and there's usually a lot of details beyond just that headline rate that can have impacts up and down to both sides of the equation.
Got it. Thank you. Much appreciated, guys.
Thanks, Michael.
I think we are going to close right now. I would be remiss if I didn't simply say thank you to all of you for joining us and extending my sincere hope that all of you are safe, and your families and friends are safe and healthy and free of this dreaded virus and its impacts. Also to say to each of you that know of someone or have any kind of relationship with someone who's on the front line as a healthcare provider assisting with this clear second wave and spike in this virus, to extend our thanks as a company to those individuals who are doing that, whether that's in our operating region or elsewhere. I know that we thank our employees every day for providing the services that enable those frontline workers to do their job.
I suspect we'll see many of you in a couple of weeks at EEI virtually. Be safe on Halloween. Protect your kids. Wear your mask, wash your hands, keep space distance, and thanks again. See you soon, folks.
Thanks, everybody.
Thank you.
Ladies and gentlemen, this does conclude today's conference. We thank you for your participation. You may now disconnect.