Ladies and gentlemen, thank you for standing by. My name is Christie and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group First 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.
As a reminder, this conference is being recorded today, May 4, 2020, and will be available for telephone replay beginning at 1 o'clock p. M. Eastern Time today until 11:30 p. M. Eastern Time on May 13, 2020.
It will also be available as an audio webcast on PSEG corporate website at www.pseg.com. I would now like to turn the conference over to Carletta Chan. Please go ahead.
Thank you, Christie. Good morning. PSEG released Q1 2020 earnings results earlier today. The earnings release, attachments and slides detailing results are posted on PSEG's IR 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 Dan Craig, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions.
Thank you, Carlotta, and thank you all for joining us today. Before we begin our review of this quarter's results, let me take a moment to express my sincere condolences to anyone on the call who has been personally affected by COVID-nineteen. I also extend my gratitude to the healthcare and emergency first responders. For these frontline heroes in New Jersey, PSEG recently donated 50,095 masks 200,000 pairs of gloves to help replenish personal protective equipment. I'll refer to that as PPE from now on.
The PSEG Foundation has also made a a $2,500,000 commitment to provide grants to regional food banks and health and social services organizations in our communities. PSEG's first and foremost responsibility has always been to provide safe and reliable delivery of electric and gas service to our 3,700,000 customers in New Jersey and on Long Island. As part of the New York Metropolitan area, New Jersey and Long Island have been among the hardest hit areas by COVID-nineteen, but are showing signs of improvement. Confirmed COVID-nineteen incidence rates among PSEG employees remain below those of the New Jersey and Long Island general populations. Approximately 1% of our employees are currently self monitoring.
So personnel availability continues to be strong and attest to the effectiveness of the safety protocols we put in place early on. This will become even more important as the summer storm season begins and access to mutual aid resources may be limited. The ongoing safety of our employees and our customers is central to PSEG's response to COVID-nineteen. We review our safety protocols on a regular basis against recommendations from federal, state and local health authorities regarding practicing physical distancing, PPE and performing extensive cleaning protocols. While we suspended non essential fieldwork activities, PSE and G and PSEG Long Island are continuing to respond to customer outages and requests for emergency services such as no heat or no hot water calls.
Importantly, we are continuing our work on critical energy infrastructure projects that contribute to the system reliability and resilience that our customers value. Last week, Governor Murphy outlined the road back, a multi step approach for recovery and restart of the New Jersey economy in the coming weeks months as conditions permit. Looking ahead, we have also started planning a responsible reentry for the PSEG workforce once the states in which we operate, New Jersey, New York, Connecticut, Maryland begin their transition to recovery mode. Toward that goal, PSEG is carefully preparing to make changes to our work sites, work practices and procedures in order to protect the health and safety of our employees and customers. We will take these steps so as to emerge stronger, more nimble and more resilient on the other side of this transition.
Now switching over to our financial results for the Q1. We've had a good start to the year. PSEG reported $1.03 per share of non GAAP operating earnings versus $1.08 per share in the Q1 of 2019. Our GAAP results for the quarter were $0.88 per share compared to $1.38 per share in last year's Q1. Details on the results for the quarter can be found on Slide 5 of the earnings presentation.
Drivers for the quarter included rate based expansion from the continued investment in transmission and distribution infrastructure at PSE and G, The addition of 0 emission certificates or ZECs at PSEG Power, which didn't begin until the Q2 of 2019, offset by a scheduled decline in Power's capacity prices and unfavorable weather comparisons at both PSE and G and especially at Power caused by the 2nd mildest first quarter ever recorded in New Jersey. Due to the temporary closure of most New Jersey businesses, schools and government buildings following the stay at home orders that began March 21, The PSE and G service territory experienced a weather normalized decline of approximately 5% to 7% in electric load from the end of March through April. This is in line with the more aggregate data we get from PJM, which suggests that demand is down by the same 5% to 7%. These ranges as well as the mix of usage among residential, commercial and industrial customers are imprecise as the lack of smart meters or AMI in New Jersey limits our ability to analyze changes in demand in real time. That said, we anticipate that this reduction could extend through the Q2 and possibly longer.
Addressing this directly, we have less volume risk and less margin risk than the reduction in PSE and G's kilowatt hour sales might suggest. Transmission and residential electric and gas customers comprised 3 quarters of the total utility margin. Transmission is not volume sensitive and residential customer margin is expected to be higher during the shelter at home period. The remaining 1 quarter of margin comes from commercial and industrial customers, which is largely driven by peak demand and for gas is set on an annual basis rather than volumes. Also non residential customer segments contribute a much smaller percentage of margin during the lower use shoulder season that covers most of the second quarter.
The COVID-nineteen related reduction in demand appeared late in the Q1, but added to the negative effects of the warm winter in New Jersey. However, PSEG has managed through these challenges, continuing our investment program at PSE and G, providing New Jersey with 0 carbon emission power from our nuclear facilities and ensuring efficient cost management across our business. 1 of the biggest and most complex projects one can undertake even in normal times is managing a nuclear refueling outage. So I'm pleased to report that the Salem II refueling outage is going quite well. The nuclear team is doing a great job and has reduced the scope of the outage while expanding health screenings to include non PSEG crews in order to protect all workers at the multi unit site, which also includes Salem 1 and Hope Creek.
As we celebrated the 50th anniversary of Earth Day last month, albeit virtually, PSEG also released its inaugural climate report following the framework established by the Task Force on Climate Related Financial Disclosures, also known as TCFD. The report acknowledges the continuing impact that climate change is having on PSEG's operations, our service territory and on our customers' lives. And it proudly details our support for the preservation of nuclear generation, implementation of energy efficiency to curb greenhouse gas emissions and advocacy for effective climate policies, most importantly a price on carbon emissions. On the regulatory and policy front, there have been several constructive developments at both FERC, the Federal Energy Regulatory Commission and the New Jersey Board of Public Utilities, the BPU since our last earnings call. In March, FERC signaled in a notice that proposed rulemaking its support for the continuation of transmission incentives and recognize the overall value of transmission investments.
FERC also proposed increasing the RTO adder from 50 to 100 basis points for participating in a regional transmission organization such as PJM. The New Jersey Energy Master Plan finalized this past January noted that the BPU would increasingly engage in transmission ROE and cost allocation proceedings at first on behalf of New Jersey ratepayers. We continue to work with the BPU on these matters. The BPU has also kept pace on their multiple clean energy agenda priorities, continuing its energy efficiency transition proceeding with stakeholder working group met webinars, including one being held today. The BPU staff has advanced its view on administering EE programs to meet the annual 2% electric savings and 0.75% gas savings targets in the 2,008 Clean Energy Act, with the utilities having a lead role in managing these critical efforts to cost effectively reduce usage and therefore emissions and customer bills.
BPU staff also continues to consider stakeholder input on energy efficiency cost recovery. PSE and G has been an active participant in the stakeholder dialogue on these and other energy efficiency topics. It is expected that the BPU staff will submit its final energy efficiency proposal for a vote at an upcoming agenda meeting in the near future. The BPU has also supported the need for AMI and recently ended the statewide moratorium on smart meters. The BPU has set procedural schedules for the clean energy future proposals covering $600,000,000 of energy cloud or advanced metering infrastructure, smart meter if you will, and $400,000,000 of electric vehicle energy storage programs.
We will be working to conclude the AMI and electric vehicle and energy storage proceedings toward the end of this year or the turn of the New Year. Most recently, the BPU moved to investigate the Fixed Resource Requirement or FRR as an alternative to satisfy the state's future capacity obligations with its preferred resource mix. The BPU's action was in response to the 1st December 2019 order that set replacement rules for the PJM capacity auction and expanded the application for the minimum offer price rule to certain new and existing state subsidized generating resources, specifically offshore wind, solar and nuclear. As you may recall, offshore wind and the New Jersey nuclear units were both identified in the recent Energy Master Plant as essential to the state's ability to achieve its carbon reduction goal. PJM's March compliance filing also in response to FERC's December order proposed a price floor for the New Jersey nuclear units called the ACR or avoidable cost rate that would preserve the full bidding flexibility to clear any upcoming PJM capacity auction.
If New Jersey were to implement the FRR auction in broad terms, it would provide a choice for our nuclear units and the majority of our fossil fleet to bid into either PJM's capacity auction or into a New Jersey FRR. An FRR could be structured to have a longer tenor, a preference for 0 carbon generation and would have locational delivery requirements. We believe that the state could pursue an FRR without legislation, but ultimately the decision to move forward is theirs. We intend to participate in this proceeding and we'll suggest ways to design the FRR to best minimize the cost impact of FERC's capacity ruling on New Jersey's customers. We remain committed to executing on our 5 year $12,000,000,000 to $16,000,000,000 capital plan without the need to issue equity.
This plan is expected to generate compound annual growth in PSE and G's rate base of 6.5% to 8% starting from a 2019 year end base of just over $20,000,000,000 I will also note that more than 90% of the utilities investments receive either formula rate or clause based recovery of and on capital. PSEG is continuing its due diligence and negotiations towards a joint venture agreement to potentially acquire a 25 percent equity interest in 1100 Megawatt Ocean Wind project and expects to make a decision this fall. PSEG has also improved its net liquidity position ending March with approximately $4,000,000,000 of available liquidity. And as always, we recognize the importance of our common dividend to our shareholders ever mindful of our 113 year track record and we're committed to continuing to provide the opportunity for consistent and sustainable growth in that dividend. Today, we are reaffirming our non GAAP operating earnings guidance for full year of 2020 of $3.30 to $3.50 per share.
Our guidance does assume normal weather and plant operations for the remainder of the year. The extremely mild weather in the quarter and the associated weakness in market demand as well as impacts of COVID-nineteen will require maintaining solid operations and strong cost control at both the utility and PSEG Power, especially during the Q3 cooling season. I'll conclude by thanking all of our 13,000 employees for their extraordinary dedication, flexibility and concern for each other and for our customers over these many difficult weeks. Now I'll turn the call over to Dan for more details on our financial and operating results. Dan?
Hello?
Can folks hear?
We can hear you now.
Okay. I'll go back to the beginning of my remarks. For the technical difficulties. As Ralph mentioned, PSEG reported non GAAP operating earnings for the Q1 of 2020 of $1.03 per share versus $1.08 per share in last year's Q1. We have provided you with information on Slide 10 regarding the contribution to non GAAP operating earnings by business for the quarter.
And Slide 11 contains a waterfall chart that takes you through the net changes quarter over quarter in non GAAP operating earnings by major business. And I'll start to review each company in more detail with PSE and G. PSE and G, as shown on Slide 13, reported net income for the Q1 of 2020 of $0.87 per share compared with $0.79 per share for the Q1 of 2019, up 10% versus last year. PSE Energy's results were driven by revenue growth from ongoing capital investment programs in transmission and distribution, which more than offset the impact of unfavorable winter weather on electric and gas margin. As a reminder, our gas distribution business has a weather normalization clause that moderates the impact of weather related sales variances versus normal weather.
Growth in transmission rate base, which added $0.06 per share to 1st quarter net income, includes approximately $0.02 per share of items that will reverse over the 2nd 3rd quarters of 2020 due to timing of expenses in 2019 true ups. Gas margin, which includes the recovery of investments made under the Gas System Modernization Program or GSMP 2 as well as higher weather normalized gas sales margins improved quarter over quarter net income comparisons by 0 point 0 $4 Winter weather, as measured by heating degree days, was 19% warmer than normal and 19% warmer than the Q1 of 2019. The negative impact of unfavorable weather on gas margin quarter over quarter was largely offset by the gas weather normalization clause. However, the decline in electric sales and revenue as a result of a large difference in weather reduced quarter over quarter earnings comparisons by $0.02 per share. For the trailing 12 months ended March 31, weather normalized electric and weather normalized firm gas sales were each down approximately 1%, led by declines in commercial and industrial usage.
Residential sales were flat with customer growth just under 1%, offset by increases in energy efficiency and solar net metering. PSE and G's capital program remains on schedule, as mentioned earlier, with essential work continuing on the majority of our critical reliability and infrastructure replacement projects at our transmission and distribution facilities. PSE and G invested approximately $600,000,000 in the first quarter and is on track to meet its full year planned capital investment program of $2,700,000,000 Progress continues on several important projects, including the Metuchen Trenton Burlington project, which energized its 2nd phase and the Aldine to Linden project that recently energized an upgraded circuit connecting Aldine and Linden. Both projects are on plan and on budget. Customer bill affordability remains a key consideration as we invest in And PSE and G remains well positioned on this metric with its combined electric and gas bills under 3% of New Jersey median household income as of January 1, 2020.
In March, PSE and G temporarily suspended all non safety related service shutoffs for non payment during the COVID-nineteen crisis, recognizing the financial hardship that many of our customers are currently experiencing. And we will be advising them of available payment assistance programs and bill management tools. As a reminder, on the electric side, we recover our bad debt expense through the societal benefits charge, which is trued up periodically. We are reaffirming PSE and G's net income forecast for 2020 at $1,310,000,000 to $1,370,000,000 Now I'll move to Power. PSEG Power reported non GAAP operating earnings of $0.17 per share and non GAAP adjusted EBITDA of $201,000,000 This compares to operating earnings of $0.29 per share and adjusted EBITDA of $304,000,000 reported for the Q1 of 2019.
Net income for the Q1 was $13,000,000 or $0.02 per share and a pretax charge of 20,000,000 dollars to reflect a lower of cost or market adjustment to oil inventory was recognized in the Q1 and excluded from our non GAAP measures. The earnings release and Slide 18 provide you with a detailed analysis of the items having an impact on Power's non GAAP operating earnings and non GAAP adjusted EBITDA relative to net income quarter over quarter. We've also provided you more detail on generation for the quarter on Slide 19. BSEG Power's 1st quarter results were negatively affected by an extremely mild winter weather conditions compared to the Q1 of 2019. A scheduled decline in PGM capacity revenue reduced non GAAP operating earnings comparisons by $0.11 per share compared to Q1 2019.
The addition of ZEC revenues to 1st quarter results added $0.07 per share. Lower generation output for the quarter reduced comparisons by $0.01 per share and recontracting reduced results by $0.01 per share, reflecting an approximate $1 per megawatt hour decline in the average hedge price versus the year ago quarter. The weather related decline in total gas send out to commercial and industrial customers reduced results by $0.04 per share. Higher O and M expense from an unplanned outage at Salem Unit 1 lowered results by $0.01 per share and higher interest expense lowered comparisons by $0.01 per share versus the year ago quarter. Gross margin for the Q1 declined slightly to $30 per megawatt hour compared to $31 per megawatt hour in the year ago period.
Power prices were weaker across PJM, New York and New England compared to the year earlier quarter as winter temperatures were 16% higher on average versus the Q1 of 2019. PSEG Power's average capacity prices in PJM are set to rise in the second half of twenty twenty. And beginning on June 1, the average PJM capacity price will rise to 100 and $68 per megawatt day, up from $116 per megawatt day. And ISO New England capacity prices are scheduled to decline, but the impact on our capacity revenue will be moderated by the addition of Bridgeport Harbor 5 and its 7 year capacity lock at $2.32 per megawatt day. Now let's turn to Power's operations.
Total generation output declined by 6.5% to 13.2 terawatt hours, reflecting the sale of the Keystone Economay units last fall. PCG Power's combined cycle fleet produced 5.1 terawatt hours of output, up 16%, reflecting the addition of Bridgeport Harbor 5, which was placed into operation in June of 2019. The 3 newest combined cycle units, Keyes, Sewaren and Bridgeport, combined to post a strong average capacity factor of 81% in the quarter. The nuclear fleet operated at an average capacity factor of 94.9% for the Q1, producing 8 terawatt hours, representing 61 percent of total generation. Higher output from Hoke Creek and Salem 2 partly offset a month long repair outage at Salem Unit 1, resulting in a 2% decrease in nuclear output for the quarter.
Salem 2 entered its 24th refueling outage on April 11. The outage has been scaled back to complete a core set of essential tasks, which is expected to reduce the duration and cost of the outage. BCG Power continues to forecast annual output for the years 2020 through 2022 at 50 to 52 terawatt hours. The remainder of 2020, Power has hedged approximately 95% to 100% of production at an average price of $36 per megawatt hour. 2021, Power has hedged 55% to 60% of forecasted production at an average price of $35 per megawatt hour.
And for 2022, PowerEdge Hedge 25% to 30% of forecasted output at an average price of $35 per megawatt hour. More than 70% of PSEG Power's expected gross margin in 2020 is secured by our higher hedge position of energy output, capacity revenue set in previous auctions, the opportunity to earn a full year of ZEC revenues and certain ancillary service payments such as reactive power. We are reaffirming our forecast of PSEG Power's non GAAP operating earnings for 2020 at 345,000,000 dollars to $435,000,000 and non GAAP adjusted EBITDA at $950,000,000 to 1,050,000,000 dollars Adjusted EBITDA for the Q1 of 2020 includes pretax expenses of $35,000,000 related to the purchase of New Jersey tax credits and the benefit from this program is included below EBITDA and the income tax expense, and it combines for a net benefit for the quarter of 5 and there were no similar transactions in Q1 of 2019. Now let me briefly address results from PSEG Enterprise and Other. For the Q1 of 2020, Enterprise and Other reported a net loss of $5,000,000 or $0.01 per share compared to net income of $1,000,000 flat on a per share basis in the year earlier quarter.
The net loss for the Q1 reflects higher interest and tax expenses at the parent, partially offset by ongoing contributions from PSEG Long Island. For 2020, we're reaffirming that the forecast for PSEG Enterprise and Other remains unchanged at a net loss of $5,000,000 PSEG ended the quarter with $799,000,000 of cash on the balance sheet. In March of this year, PSEG closed on a $300,000,000 variable rate loan due March of 2021. As of March 31, PSEG had access to $3,200,000,000 under its $4,200,000,000 credit facility, with a $4,000,000,000 revolver extended by a year to March of 2024. Debt at the end of March stood at 52% of our consolidated capital and debt at PSEG Power represented 32% of its capital at the end of the quarter.
During the Q1, PSEG issued $300,000,000 of 10 year, 2.45 percent secured medium term loans and $300,000,000 of 30 year, 3.15 percent secured medium term loans. In addition, we retired a $406,000,000 5.13 percent note at PSEG Power that matured in April. Also in April, PSEG closed 2 additional term loans totaling $500,000,000 For the balance of the year, we have approximately $260,000,000 of PSE and G maturities that come due in August and a $700,000,000 parent maturity in November. Our solid balance sheet and credit metrics keep us in a position to internally fund our 2020 to 2024 Capital Investment Program without the need to issue new equity. As Ralph mentioned earlier, we are reaffirming our forecast of non GAAP operating earnings for the full year 2020 of $3.30 to $3.50 per share.
That concludes my remarks. And now I'll turn the call back for questions.
First question comes from Julien Dumoulin Smith of Bank of America.
Hey, good morning. Congratulations on holding everything together here.
Thanks, Julien.
Absolutely. Well, so I wanted to dig in a little bit further on the power and PSE and G20 Reaffirm. When you think about the cost controls that you've embedded, and I appreciate it's a dynamic situation, so it's hard to put your finger on it. What's the order of magnitude that you all are contemplating and reaffirming here today, especially as it relates to the power side of the business, just because obviously that is hedged largely, but not entirely. So I'm just trying to understand the order of magnitude that you all are contemplating in your guidance here when you think about the puts and takes here, against what is obviously a moving target and expectations for full year load and average pricing?
So Julien, rather than give you piece parts with specific numbers attached to each piece part. So first of all, it's good to hear your voice. I hope you and your family are well and that you're managing in these challenging times as well. Some of the things that we've done as a for instance is we recalibrated our nuclear refueling outage and we took a bunch of days off. I can't give you that number because I don't think we've posted it on Oasis.
We didn't have the original number of days. And so therefore, I don't want to give you the new number of days. While O and M goes up, given the work rules we have to put in place for an outage and therefore we only saved a modest amount of O and M by shortening the outage, we increased a lot of the revenue expectations, the things like ZEC payments and things of that sort by abbreviating the outage. You've mentioned the hedge position and even though the hedges aren't perfect, they were we were about 95% hedged for this year. There's been some fairly modest O and M reductions just in terms of support services that we've been able to capture just because of the change in work practices.
So those are the types of things over at Power in the utility because we are only doing the essential work for customers. There's been some reduction in O and M associated with some of the appliance repair work and things of that nature that the governor has asked us to not do. And in the meantime, we're still full speed ahead on the capital program, which as you know gets a 90% clause recovery. So it's been a combination of things and the team is working 20 fourseven to make sure that we're constantly adjusting and tweaking. And Dan, please feel free to add to that if you'd like.
I think that's a good summary. And I also think that you will see some benefit come through as well to the extent that you see a lower cost to serve on some of our hedges as well. So to the extent that we've got a lower market that we can work to support some of the hedges, you could see some benefits coming through there and some of those contracts tend to lean a little bit more on the smaller side or on the residential side, so that there can be some uptick there as well, Julien.
Got it. Excellent. And then if I can quickly follow-up on the second piece here, the offshore wind arrangement, how are you thinking about coming to terms on that? And ultimately, is the timing of this ultimately drawn into a broader conversation about FRR and election and thought process in the state? And do we need to see some kind of resolution from the state in order for you to feel comfortable to participate in whatever form?
No, thank you, Elon. Good question. Let me be more explicit than I've been in the past, because is just a terrific company and a very valuable partner. But time is our friend. So we are just I don't mean to upset my colleagues at if they're listening, but it is to our advantage to take every day to learn as much as we possibly can about this business and maximize the timeframe that they've granted us to make that decision, because we started from a position of relative ignorance.
So that so really it's just making use of every day to be smarter and smarter about what is entailed in developing that project. The state is absolutely committed to building that project. It would appear the federal agencies are as well. There have been well publicized delays in different projects around the company themselves have talked about some of the delays in getting through the federal permits. So it's really not a question of the FRR at all.
The BPU orders quite clear on what the commercial terms of that project will be are and will be. And we just now need to understand given that very well established top line, what does the middle of the income statement look like in terms of the ongoing operational costs and then make a decision sometime in the fall. So it's just that I'm going to repeat myself, time is our friend in terms of collecting more and more information and getting smarter and smarter.
Got you. Excellent. And then no update on timeline for FRR resolution as far as you're concerned?
My educated guess and I don't mean to sound presumptuous by putting the adjective educated it is that it's probably at the earliest end of year, more likely spilling into Q1 of next year. Remember, the state really doesn't have to worry about paying double for capacity now that the nuclear units are covered or at least for the foreseeable future until offshore wind comes online and that's not going to happen until 2024. So you have to worry about the 2021 auction before you have to kick in your FRR so as to avoid that duplicative payment for capacity.
Excellent. Thank you all very much. All the best. Stay safe.
Thanks, Troy.
Your next question comes from the line of Konstantin with Guggenheim Partners.
Hi, good morning guys. This is Sharad to jump, so I'm taking some questions here. It's great to hear the update on everyone staying safe and work going on. You mentioned the kind of 5% to 7% load impact that you're seeing. And so if we kind of just look at kind of an extended lockdown in New Jersey, saying kind of full second quarter, what does that kind of mean in terms of sensitivities for EPS and understanding that there's some offsetting dynamics and kind of having only a quarter of the margin on really on C and I?
And can you talk about kind of you mentioned a bit on the cost efficiency levers that are being applied, but a little bit more detail in terms of kind of magnitude versus that sensitivity?
Yes. Constantine, so it's been
a little challenging. Ralph referenced in his original remarks that without AMI, the granularity that we would like to have, we don't have. So we know for a fact that in the aggregate, when we take a look at what reductions are, we're in that 5% to 7% range on a weather normalized basis. And by all indications, we're going to see an uptick on the residential side and we're going to see more challenges on the C and I side just knowing what's going on. So we basically have taken a look at that kind of a trajectory and presume that we would continue to see that through the balance of the year.
Now it's going to have varied effects as you go through the year. You're going to have different seasonality. You're going to have different effects moving through the year, but that's what we use to try to gauge what things would look like. And if you take a look at both from a power and a utility business combined and you try to take a look at what that's going to do from an EPS perspective, it ranges in the order of about $0.01 a month from the standpoint of impact from an enterprise earnings perspective through the summer periods. And then when you get into the fall into more of a shoulder period, you could see a little bit less of an impact just because you've got a different dynamic with data on a customer segment perspective and be able to refine that.
But that's the order of magnitude that we've seen from the standpoint of losses to date and where we think it may end up coming out. That's a gross margin number. So we're going to take that and then you would tax effect that and then you're going to work your way through on the cost side. And there are some basic things that are fairly obvious if you think about the cost structure of the business and you could think about things like travel, you could think about some of the basic things like Ralph described that we're going to strip some of the outages down to. So some work may be more expensive to do, but there will be some of it that will not be done during this period, which will cause some savings.
So we will continue to manage this as we go through the balance of the year. And I think from taking all this and looking at it, that's what gives us confidence to be able to reaffirm guidance.
Okay. That makes sense. Kind of offsetting on both sides. Another one you kind of this might be one for Ralph. You talked about kind of the NJDPU and kind of engaging stakeholders on ROE.
Is there kind of any advancements and what sorts of conversations are being had at this stage?
Yes, Constance, and I echo what I mentioned a moment ago. I'm glad to hear your voice and hope you and your family are well in addition. So I don't want to go into details on the conversation with the BPU on transmission ROE, but suffice to say that we still are in conversation. And the motivation for that really is the fact that the New Jersey economy is in a tough state right now. And I think the BPU realizes that this is a great opportunity for possibly refunding to customers many, many dollars as a result of a reduction in our allowed ROE and rather than enter into a protracted litigated case at FERC, which would take many years to have that rate relief occur, now is a good time to do it.
And we would agree with that. Having said that, we've been very clear with the BPU as to what we think is a fair return and we're not going to settle on something unless it matches what we think is a fair return. And I'm sure they feel the same way. So the good news is we are still in conversation and we both recognize that there could be a win win if we can narrow the gap that continues to exist between us. So I'm sorry for not giving you a specific number or a specific answer right now, Constan, but just the nature of that dialogue doesn't allow me to do that.
But all parties realize that it would be a great benefit to many folks to reach resolution. And if we can't, then so be it. It will be decided elsewhere. We had technical difficulties before. I'm hoping that we didn't just go silent again.
Sorry about that. I just happened to be on Just one real quick one for Dan. Is there any kind of volumetric risk remaining with the hedges on power for the remainder of the year? Or is that kind of pretty hedged out?
There's volumetric aspects on some of our hedges. There's volumetric aspects on some of our generation as well. And that's how I would have you think about it, Constantine. So the nuclear units are going to run like nuclear units and then our gas units with pretty significant capacity factors will still follow load. And similarly, we will have some block hedges that will be on and we will have some load deals that will be on.
That makes up the aggregate of of our hedge portfolio. So I think you've got the ability for some of your generation to flex based upon changes in load and I think you've got some of your hedges that will do the same. And so they will not be an absolute lockstep, but I think that those hedges will work well for the fleet that we have and you'll see some of them working in approximate tandem.
Perfect. Thanks for that guys. Stay safe out there.
Thanks, John.
Our next question is from Stephen Byrd with Morgan Stanley. Mr. Byrd, your line is open.
Christy, let's go to the next question.
Yes. Your next question comes from the line of Steve Fleishman with Wolfe Research.
Yes, hi, good morning. Hopefully, you can hear me.
Yes, we can hear you.
We can hear you now.
I've seen
you nearly as much as hi. I think I've seen you, Ralph, nearly as much as my family on TV the last few weeks. So
it's been nice.
Good to see your face. So couple of things. Just on the guidance for 2020, you mentioned that you just continued strong operations and cost control. Is that just to kind of say that there are pressures and you don't have as much cushion as normal? Or what are you trying to kind of emphasize there?
Nothing more than what we said there, Steve. I mean, so the kind of flexibility you have is outage duration and that helps both in terms of the cost associated with the outage as well as the opportunity for margin acquisition. In the utilities type of thing that you have is if you do less O and M and more capital, you can both benefit from the clause recovery associated with the capital and benefit from the reduced O and M. In eliminating some of the non essential services, there's some reduction in overtime. So it's really a combination of things like that.
There's not one specific item. By the way, that TV spot that you saw was recorded by my wife on an iPhone, so we save money there, if you're curious. We almost incurred some expense with a divorce attorney, but that was okay. We met and did that. So I know that everybody wants to, okay, so what are we doing to get $0.05 What are we doing to get $0.03 But it just doesn't work that way.
It's really a never ending focus on a bunch of small things that add up. In terms of the guidance range, as Dan said, we are going to be swimming against about a penny a share if this current trend in demand reduction continues with the lesser amount after the summer. So that's the bogey that we're fighting against. So we give a $0.20 range, we have enough flexibility in there with that kind of a headwind with some of the offsets to reaffirm.
Great. And then just on the New Jersey capital programs outside of the base rate case, just based on the schedules you have now, how are you feeling about some meaningful amount of those investments starting to be made or being made in 2021?
Well, I feel good about it. Let me tell you why, because that is something you've heard me say before. Despite phenomenally good management on the part of Governor Murphy, New Jersey has been dealt a really tough hand here. We are a densely populated state and therefore as a result of that population density, we are being hit harder than no other state other than New York in terms of COVID-nineteen that is having huge social impacts, health impacts as well as economic impacts. And we are as a company probably best positioned to help in regard to those economic impacts, right?
The energy efficiency filing that we have made has huge benefits in terms of up to 5,000 jobs that could be created as a result of that and the bill reductions for customers and shareholder benefits. I mean that there is nothing that you can point to that has that kind of multiple benefit. In the past, I'm not saying this will be repeated now, but in the past in 2,008, when we had economic downturn, there was a desire on the part of the BPU to accelerate some of the aging infrastructure replacement as a form of economic stimulus. We'll certainly remind them of that. And we do have bandwidth to do more on the electric distribution side than we're doing now, which is useful stuff to do, while recognizing some of the economic impacts that we're experiencing as a state.
So I do think that we are generally viewed as someone that can help with economic recovery. And right now, as you well know, we're expecting to resolve the energy efficiency component by September of this year.
Okay, great. Thank you. Be well.
Thanks. Thanks, Steve.
Your next question comes from Jonathan Arnold with Vertical Research.
Hi, good morning, guys. Good to hear from you.
Same, John.
A quick one on just am I hearing you right Ralph, I think what you're saying is that pretty much all of the capital work you're currently doing is continuing under an essential header, but it's really more O and M type activities that you're having to curtail. Is that correct? Or is there are there some sort of elements of the capital program that are also going to need to catch up a little bit when things start to normalize?
No, that's correct, Jonathan. You heard me correctly.
Okay. So that was one. And then you mentioned, Ralph, in your prepared remarks that you have some concerns about mutual aid and how that will work as we get further into the year in storm season. Could you maybe talk about some of the things you're doing or thinking about as you try to address that?
First off, surprise as you can tell that those are prepared remarks. I thought you realized that I just yes, so we had a little bit of a taste of this Jonathan. About 2 or so weeks ago, we had a significant storm roll through, but it was high winds and lots of rain, but it happened before the trees all leafed out. So we dodged a bit of a bullet there, but normally what you do when you see a storm coming is you arrange for contractors and other utilities who are not likely to be affected because they're not in the path of the storm to stage a workforce. And it might be just getting them ready to leave from wherever they are or you might actually get them to New Jersey and have them in place.
We were able to secure about 40% of what we asked for. And it was a combination of candidly utilities not willing to risk their own employees in terms of their exposure to jobs and travel limitations put on some of the contractors. So if we have that experience when the trees all have leaves on them and the wind blows, then we will have to communicate extensively with customers about some of the likely delays that they will experience in being restored.
Great. Okay. So you're really just pointing out the issue as opposed to that being a way of addressing it at this point? Right. Okay.
Thanks for all. You asked all my answered everything else, I think, Ralph. Thank you.
Thank you.
Your next question comes from Jeremy Tonet with JPMorgan.
Good morning. Thanks for having me. Good
morning, Jeremy.
I just want to go back to FRR if I could. And how do you see the near term cost dynamics of an FRR versus the PGM capacity auction influencing the BPU's evaluation of the long term issue of double payment per capacity?
So there's multiple factors that we're exploring with the BPU as they are exploring with many other people. I didn't mean to suggest that we're the only folks that they're talking to. That's not the case. They have a formal proceeding that they've announced. One possibility is that you could be seeing a different price in New Jersey than you would see in PJM writ large.
But the fact that you only need to secure a 15% or 16% reserve margin as opposed to the larger reserve margin that's in the broader PJM could allow the total amount of money that is paid by customers to be less, right? So whether that you have a case where you pay a higher price in New Jersey, but you buy less of it, so the unit cost is more, but the number of units is less. So the product of the 2 turns out to be less expensive for the state. If you were to just look at offshore wind aspirations of the state and then take a look at what typical Eastern MAC capacity prices have been and then you factor in what the capacity value of the offshore wind might be granted by PJM, you quickly get to 8, if not 9 figures in just a few years in terms of extra payments on the part of New Jersey customers for not having offshore wind be able to clear the auction. So you have those 2 potential savings.
One savings is the avoidance of paying twice, that's the 8 to 9 figures for offshore wind capacity that won't be granted recognition on the part of PJM and would not be able to clear the auction at the ACRs that have been proposed. And the second is just the mere fact that by virtue of New Jersey having to secure only a 15% or 16% reserve margin, it could save there as well. So you have this double benefit that the state could realize if it designs the FRR a competitive way that recognizes the carbon free resources that it is committed to securing.
Great. That's really helpful. Thank you for that. And just one more if I could. If you have any thoughts you could share when you think settlement discussions could begin on the CEF proceeding?
Well, so we've had good conversations with the Board staff. They know what's important to us and we've been very clear. It's to be indifferent to energy efficiency investments. We would hope that the Board would incentivize us. I may have just created a verb.
But at the very least, we should be indifferent to whether we invest in a circuit, a meter or energy efficiency and that's worked in other states. We need to have fixed cost recovery because the profitability of energy efficiency is much smaller than the fixed cost lost if you avoid a kilowatt hour sale and that's been recognized by other leading states. And last but not least, we want to make sure that the state recognize the importance of having the useful life of the asset be matched up with the depreciable life of the asset, which is just sort of good rate making practice that we apply to our $30,000,000,000 in rate base throughout the system. So I think those are the 3 critical items. Then you have much more latitude about, well, how much of this do you want to do?
And we've sized the program to achieve the targets of the Clean Energy Act. We could do more, but if the state doesn't want to achieve the targets of the Clean Energy Act or wants to phase that in more slowly, it may ask us to do less. I am encouraged by the fact that the state gave us $110,000,000 bridge in just these next 6 months while we wait to resolve the settlement discussions. And if you look at $110,000,000 over 6 months and you compare that to the $40,000,000 per year we've been averaging, that's certainly a nice step in the right direction. I'm not trying to signal anything with that other than obviously growing enthusiasm for energy efficiency.
So we'll know more by September and that's a lot sooner than you may think. Hope that helps, Jeremy. I know it's once again in confidential settlement discussions. I have to just be careful about how much detail I share because I don't think that's fair to the other parties.
That does help. Appreciate the color there. Thanks.
Your next question is from Paul Peterson with Glenrock Associates.
Hey, good morning. Hey Paul, hope you're well. I'm managing. Thank you. So just to sort of follow-up on the FRR discussion, it sounds like that given everything you're saying and what the commission and what have you are saying, it's very likely that they probably will go for the FRR option.
Is that the way we should be thinking?
Look, they're the final decider of that, but I think that that is the logical thing for the state to do. Why New Jersey would want to pay twice for capacity in what is obviously an extremely ambitious carbon free energy agenda would boggle my mind. New solar and offshore wind are not going to clear the auction at these ACRs. So I would think that the state would be greatly incented and do an FRR.
Okay. That makes sense.
And so I guess what I was sort of also wondering sort of follow-up on, you mentioned the stimulus benefit of infrastructure development that you guys have been that you guys have produced in the past. And you also mentioned the ROE transmission discussion that you're having with the commission. So I'm sort of wondering, how should we think about what I think probably maybe you disagree, but there probably is going to be substantial budget pressure even with federal assistance in New Jersey. How should we think about sort of just the potential financial problems that the states can be facing and weighing the 2 issues that you mentioned, which is 1, perhaps not wanting to see big rate impacts and then 2, wanting to probably see economic activity stimulated. You follow what I'm saying?
How should
we No, I do. I mean, so if it were me and I were writing a script, which I don't, but certainly what we're telling policymakers is that an adjustment to your transmission ROE to a reasonable level would still be a very attractive annual giveback of rates to customers. Significant investments in energy efficiency also puts more money into customers' pockets by virtue of bill reductions. Infrastructure investments helps us to employ contractors and other folks and in doing work that gets paid back over 40 60 years because that's how long these assets last. So you have both expense savings through transmission ROE reset and energy efficiency as well as payroll increases through energy efficiency payroll increases through energy efficiency and payroll increases through infrastructure investment, the latter of which gets paid over many decades because that is the life of the assets.
So all of that, if done properly, results in net reductions in bills and creations of thousands of jobs. And that's not alchemy, that's just the hard reality and benefits associated with energy efficiency, rate relief and infrastructure investment. So I would do that in a heartbeat and we are having those kind of conversations. That will be up to the BPU though to decide.
Awesome. Thanks so much. I really appreciate it. Hang in there.
Take care. So I think we're at the appointed hour. I just want to conclude with three thoughts for you. I know it's a bit of a cliche at this point, but I must tell you, I couldn't be more proud of our employees, whether it's managing a nuclear outage safely with de minimis impact on health and safety and being able to get the work done on time or the storm response to what I mentioned before in terms of that rain event. Our call center stats are even better than they were.
We've closed the books on time. Our communications personnel are working from home, but keeping our employees apprised of what's going on. And a shout out as Steve Fleishman mentioned to my wife, her superior cameraman skills and getting our commercial on the air. And by the way, folks are not working 5 days a week anymore. They are 20 fourseven during this and somehow managing to get all of this done.
So I couldn't be more proud of them. And I really want to thank the policymakers and decision makers at the BPU and in New Jersey government. They have recognized the essential nature of the work we've done. They've allowed us to keep our capital work on track with the right social distancing and with the right precautions. And we've taken that trust that they've given us quite seriously and our exposure rates are lower than the population at large despite the fact that about half of our employees are out there in the field doing work on a regular basis.
And the BPU working remotely has kept their procedural schedules on track. Not only now do we have procedural schedules for all of CEF, not only for energy efficiency, but for AMI and for electric vehicles and battery storage, but they've also taken on the challenge of resolving an FRR and they've engaged us in an ROE discussion for transmission. So folks at the in state government are just doing tremendous things in terms of meeting these challenges that we all feel personally, while at the same time keeping the trains running on time and adding a few trains to the schedule. So despite these tough times, I'm just in awe of what people are doing everywhere in terms of rising to the challenge. And to all of you on the call, if you have friends or family members who are in health care services or providing those services to the rest of the population, please express our thanks to them on our behalf and our respect and admiration for all that they are doing.
So we'll see some of you virtually, I'm told, in various meetings and conferences and we'll Zoom or WebEx or do whatever works and then hope to see you in person in the not very distant future. Thank you. Be well and stay safe. Take care.
Ladies and gentlemen, that does conclude your conference for today. You may disconnect and thank you for participating.