Ladies and gentlemen, thank you for standing by. My name is Julie and I'm your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group's 4th Quarter 2018 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 As a reminder, this conference is being recorded Wednesday, February 27, 2019, and will be available for telephone replay beginning at 1 pm Eastern today until 11:30 pm Eastern on Thursday, March 7, 2019.
It will also be available as an audio webcast on PSEG's corporate website at www.psec.com. I would now like to turn the conference over to Carlotta Chen. Please go ahead. Thank you, Julie. Good morning and thank you for participating in our earnings call.
We released our Q4 and full year 2018 earnings results earlier today. The earnings release, attachments and slides detailing operating results for the company are posted on the IR website at investor. Pseg.com and our 10 ks will be filed later today. The earnings release and other materials we'll discuss during today's call contain forward looking statements and estimates that are subject to various risks and uncertainties. We also discussed non GAAP operating earnings and non GAAP adjusted EBITDA, which differ from net income as recorded 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 are included in today's slides and in our earnings release. I would now like to turn the call over to Ralph Izzo, Chairman, President and Chief Executive of Public Service Enterprise Group. Joining Ralph on today's call is Dan Plank, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions.
Ralph? Thank you, Carlotta, and thank you all for joining us today to discuss our 4th quarter and full year 2018 financial results. Earlier today, we reported non GAAP operating earnings for the 4th quarter of $0.56 per share versus non GAAP operating earnings of $0.57 per share in the Q4 of 2017. Non GAAP operating earnings for the full year were $3.12 per share, up 6.5% over 20 seventeen non GAAP operating earnings of $2.93 per share. Our GAAP results for the full year of $2.83 per share includes the recognition of net unrealized losses on nuclear decommissioning trust equity securities as a result of new accounting rules, mark to market losses and a gain related to the sale of the retired Hudson and Mercer generating units.
Details on the results for the quarter and the full year can be found on Slide 56. CSEG had a successful year in 2018, our long term strategy of investing in GSEMG's infrastructure and growing the percentage of our earnings coming from the regulated business. We put $3,000,000,000 of capital to work at PSE and G, constructively settled our 1st distribution base rate case in 8 years, obtained approval for the next phase of our Gas System Modernization Program, which I'll refer to as GSMP II, and filed 2 other significant regulatory programs. The first filing Energy Strong II will enhance system reliability and resiliency and the second filing, our Clean Energy Future or CES support New Jersey's clean energy goals and give every customer the opportunity to reduce their energy bill while lowering emissions. You may recall that New Jersey passed clean energy legislation in 2018, which requires utilities to implement energy efficiency measures to reduce electricity usage by 2% and natural gas usage by 3 quarters of a percent.
Our CES proposals are aligned with the objectives outlined by Governor Murphy and the legislature and designed to advance energy efficiency, electric vehicles and energy storage, as well as smart electric meters or otherwise referred to as advanced meeting infrastructure, AMI, to a broad group of customers in a least cost manner. We consider our proposal to be the best way to achieve the safe energy efficiency savings targets as it accomplishes this while limiting the growth in the customer bill and providing fair broad based access to such benefits. Speaking of the customer bill, PSE and G was the 1st utility in New Jersey to return the benefits of lower corporate income tax rates, which totaled approximately $262,000,000 in customer savings last year. In addition, in 2019, we have implemented a return of $380,000,000 of additional cash performance savings related to a simulated deferred income taxes that will further moderate customer bills going forward. Bill to make major progress at PNCG Tower with last made legislation that recognizes 0 carbon attributes provided by New Jersey's nuclear generation and established a 0 emission certificate program.
In addition, power completed and placed into service 1300 megawatts of new highly efficient combined cycle gas units or CCGTs into our CGM fleet. With 2 of the 3 CCGTs now online, Power is expecting to complete its multiyear construction program in the middle of 2019. That will also bring an improvement in its free cash flow as Power's ongoing capital needs decline. PSEG's operations performed with high reliability in 2018 when it mattered most. During critical times when our service territory experienced extreme weather events that included a seism bomb, a polar vortex, multiple nor'easters, an extended summer heat wave and the wettest year on record.
In addition to safely operating our T and D system throughout the year, our associates shared their expertise and provided mutual aid to many of our neighboring utilities. At PSEG Power, our Hope Creek nuclear plant achieved its first ever breaker to breaker continuous run-in April of 2018, helping deliver carbon free energy in support of the state's clean energy goals. Non GAAP operating earnings at PSE and G grew by 10.5% to $2.10 per share in 20 18, benefiting from incremental investments in transmission and distribution programs that expanded rate base by $2,000,000,000 to end the year above $19,000,000,000 for an increase of 13%. This growth is consistent with the approximate 12% compounded annual growth rate in PSE and G's earnings over the past 5 years and reflects a record $14,400,000,000 of capital invested in the reliability and resiliency of our system over the same period. Of note, Chiazzini achieved this growth in earnings and rate base through constructive regulatory mechanisms that allow for contemporaneous or cloud based recovery for the majority of those important infrastructure investments.
Moreover, PSE and G's efficiency and discipline in managing costs enabled us to operate without a base rate increase since 2010. And our recent distribution base rate review was completed with customer rates remaining basically flat. We will continue to drive this disciplined approach to efficient growth and earnings and rate base along with a continued focus on the customer bill. Our investments in system reliability continue to be recognized for the value brought to our customers. For the 17th year in a row, PSE and G was recognized as the most reliable electric facility in the Mid Atlantic region and was also awarded the 2018 Outstanding Customer Reliability Experience Award, highlighting our outage reporting and restoration communication.
Last May, the New Jersey Board of Public Utilities approved a $1,900,000,000 5 year investment plan to extend PSE and G's innovative gas system modernization program, modeled after the infrastructure investment program process established by the BPU to incentivize investments in critical utility infrastructure. PSE and G recently began this next stage of accelerated replacement up to 875 miles of Asian gas type, which will carry it through 2023. In the coming months, we will strive to make progress on both the Energy Strong II filing and the Clean Energy Future Energy Efficiency Program with anticipated decisions on both programs sometime in Q3. Now let me turn my attention to PFPG Power. Power's non GAAP operating earnings for the full year of $502,000,000 or $0.99 per share were 1% below last year.
Power continues to exercise stringent cost discipline, while producing solid operating results that include its higher generation from our gas and coal fired units over the prior year. As I mentioned previously, PSTG Power is nearing completion of its construction program related to its 3 new natural gas combined cycle generation stations. The last unit, Bridgeport Harbor 5, expected to be completed in the middle of this year. The Keys and Key Warren stations completed last year have operated well since coming into service. Together, these three units represent 1800 megawatts of new efficient clean gas fired capacity that will replace some older units and improve Power's competitive position.
On the policy front, I want to bring you up to date on our efforts to secure recognition for the value of the environmental, fuel diversity and resiliency attributes provided by our 3 New Jersey nuclear units. Nuclear generation is a critical component of New Jersey's generation portfolio and it provides approximately 40% of New Jersey's electric power needs and over 90% of its carbon through electricity. The legislation created a 0 emission certificate program that is being administered by the VCU, which is now in the process of evaluating the 3 applications submitted by Power in December of 2018. It's awarded the New Jersey Zero Emission Certificate. It will be set for a 3 year period at 0.4¢ I'm sorry, 0.004¢ per kilowatt hour, which allows for approximately $10 per megawatt hour in payments to any selected nuclear plant.
The legislation requires a BPU decision by April 18th. Any plant receiving a ZEC award starts accruing benefits in April with the first award period ending in May of 2022. The legislation requires nuclear plants to reapply for any subsequent 3 year award period. In December 2018, Power submitted ZEC applications to the VCU for the Salem 1 and 2 and Hope Creek Nuclear Plants. These were the only applications submitted.
As required, the 3 applications included a certification in which Pali confirmed that each of the Salem I, Salem II and Hope Creek plants will cease operations within 3 years, absent a material financial change. While we are fully confident that each of our 3 VEC applications demonstrates inclusively that the financial environmental standards required under New Jersey's legislation has been met, we cannot predict what the GPU will decide. As a result, we have continued contingency planning to shut down the units. In the event that any of the Salem 1, Salem 2 or Hope Creek plants is not selected to receive 0 emission certificates starting in April of this year and don't otherwise experience a material financial change, Power will then take all necessary steps to retire all 3 plants at their next refueling outages. With respect to PERC's pending rule on the PJM capacity option design, an interim decision remains pending.
As you know, last June, FERC issued an order finding that PJM's current capacity market structure is unjust and unreasonable because it allows state supported resources to suppress capacity prices. FERC suggested alternative approaches, which included modifying its minimum offer price rule to apply to new and existing resources that receive out of market payments. First, other directors was to establish an option that would allow on a resource specific basis, state supported resources to be removed from PJM capacity market along with the commensurate amount of load for a period of time. PJM submitted its recommendation for a 2 stage capacity auction, which would leave in state supported resources and lower during the initial auction to determine capacity obligations. PJM would then remove the state supported units and rerun the auction with the remaining supply stack.
The filling generation that replaced the removed resources sets the final capacity market clearing price for all resources. These selling resources are needed for the overall capacity obligation. They don't receive the market clearing price, but instead they get what's referred to as a lost opportunity payment equal to the reporting proposal or the first suggested resource specific FRR alternative can work with New Jersey's existing ZEC structure. Alternatively, if all of our New Jersey nuclear plants are selected to receive 0 emission certificate payments in April 2019, but the financial condition of the plant is materially adversely impacted by potential changes to the capacity market construction considered by FERC and in the action of sufficient capacity revenues provided under program approved by the BPU in accordance with the FERC authorized capacity mechanism, then Tower would still take all necessary steps to retire all of these plans. With respect to Energy, the PJM Board recently decided to submit a Section 206 filing to HERSC covering PJM's reserve price formation proposal, also known as ORDC or operating reserve demand curve.
This effort is intended to improve scarcity price formation and overhaul operating reserve levels and energy prices to better reflect system conditions and appropriately value scarcity. TGM expects to submit the filings in the next few weeks, but the timing and ultimate implementation remain uncertain. And in fact, if implemented, any revenue recognition could be well into the future. The state of New Jersey has also made progress in its efforts to become a leader in offshore wind. Following Governor Murphy's executive offer directing the BPU to move the state's order 2,030 goal of 3,500 Megawatts of Offshore Wind Energy Generation.
An initial solicitation was established for 1100 Megawatts of offshore wind and the state received 3 bids just this past December. In connection with the bid submitted by Ocean Wind LLC, a subsidiary of Orsted U. S. Offshore Wind, we agreed to provide energy management services and the potential lease of land for use in project development. We also retain an option to acquire an equity interest in the project.
If Orsted did is selected, we would expect to make a decision regarding what, if any, investment we may have in the Ocean Wind project in the second half of twenty nineteen. Our financial condition remains a competitive advantage and we continue to benefit from the financial flexibility that a healthy balance sheet provides. We ended 2018 with solid credit metrics that will enable us to finance our considerable capital plans over the coming 5 years and provide the opportunity for growth in our dividend without the need to issue equity. Our total capital program for the year 2019 through 2023 is now $12,000,000,000 to $17,000,000,000 with over 90% of that amount directed at regulated utility growth that improves the reliability and efficiency of our operations and supports New Jersey's energy policy goals. Over the coming 5 years, PSE and G plans to invest approximately $11,000,000,000 to $16,000,000,000 on programs which are expected to provide annual rate base growth of 7% to 9% starting from the higher 2018 year end base of $19,000,000,000 Power's CCGT program is largely complete with just the commercial operation of the 4 85 Megawatt Bridgeport Harbor unit remaining.
CFPG's continuing long term strategy to transition our business to a mostly regulated company with predictable cash flows and is on track. Our regulated utility PSE and G is projected to represent nearly 75 percent of our consolidated non GAAP operating earnings this year. PSEG Power, our high quality generation business will see its free cash flow improve and will continue to support our investment programs and dividend growth. So as for 2019 guidance, the conclusion of our distribution based rate case and incremental investments in transmission and distribution infrastructure, combined with a relentless approach to minimizing O and M growth, have offset the expected declines in energy and capacity prices in 2019. PSEG's business mix is expected to produce growth in 2019 consolidated non GAAP operating earnings.
So for this year, we are forecasting consolidated non GAAP operating earnings of $3.15 to $3.35 per share, which at the midpoint represents over 4% growth in earnings over 2018 results. This increase led by a higher contribution from regulated earnings at the utility, moderated by the expected decline in Power's results that reflects market prices for energy and capacity and also included the benefit from a partial year of 0 emission certificates for all three of our New Jersey nuclear plants. The Board of Directors' recent decision to increase the company's common dividend by $0.08 per share to the indicative annual level of $1.88 per share is the 15th increase in the last 16 years and reflects our financial strength, business mix and confidence in our outlook. Let me also acknowledge and thank all of our employees in both New Jersey and on Long Island for the outstanding contributions made over the past year in utility operations and construction, in nuclear and fossil operations and all the support organizations that enabled us to execute on a full regulatory and policies ended in 'eighteen. I should not admit, obviously, our employees in Connecticut and upstate New York as well.
As we enter our 116th year, PSEG remains committed to our strategy to build long term value for our shareholders as we meet the evolving needs of our customers and the diverse communities we serve. I'll now turn the call over to Dan for more details on our operating results and we'll be available to answer your questions after the call. Rick, thank you, Ralph, and good morning, everyone. As Ralph said, we reported non GAAP operating earnings for the Q4 of 2018 of $0.56 per share, and that's versus $0.57 per share for the Q4 of 2017. Our earnings in the quarter brought non GAAP operating earnings for the full year to $3.12 per share, a 6.5% increase over 20 seventeen's non GAAP operating earnings of $2.93 per share.
Then on Slide 5, we've provided you with a reconciliation of non GAAP operating earnings to net income for the quarter. We also provide you with information on Slide 11 regarding the contribution to non GAAP operating earnings by business for the quarter and Slides 12 and 14 contain waterfall charts that take you through the quarter over quarter and year over year net changes in non GAAP operating earnings and major business. And I will now review the company in more detail starting with PSE and G. PSE and G reported net income for the Q4 of 2018 of $0.47 per share compared with $0.43 per share for the Q4 of 2017. GFNG's full year 2018 net income was 1.67 $1,000,000,000 or $2.10 per share compared with net income of $973,000,000 or $1.92 per share in 2017, which included $0.02 per share of benefits from tax reform.
Non GAAP operating earnings for the full year 2018 represented a 10.5% increase over 2017 results. As shown on Slide 16, PSE and G's net income in the 4th quarter increased as a result of expanded investments in transmission and distribution infrastructure and a rate release put into effect on November 1st, which more than offset an increase in distribution O and M. GSE and G's investment in transmission improved quarter over quarter net income comparisons by $0.04 per share. Gas margin improved by $0.06 per share as a result of rate relief and recovery of investment in gas distribution made under the gas system modernization program. Our license margin improved by $0.02 per share reflecting rate release as well as higher volumes and demand.
Changes to the account treatment of the non service component of Pentair and other close to retirement benefit or OPED resulted in a favorable $0.02 per share comparison over 20 seventeen's Q4. These positives were partially offset by $0.05 of higher O and M expense in the quarter associated with increased fee trimming and higher collective maintenance. And in addition, depreciation expense increased by $0.02 per share, reflecting the higher client balances. Taxes and other were 0 point 0 $0.01 per share higher compared to 20 seventeen's Q4. For the full year, weather normalized residential electric sales were 0.6% higher and weather normalized residential gas sales rose by 3.3%.
PSE and G's October 2018 distribution case rate settlement provides a balanced and constructive framework for regulatory stability over the next several years. PSE and G anticipates its next distribution base rate review by the end of 2023 and that's based on terms reached in the GFMT II settlement of last May. The rate settlement recognized the inclusion of capital spending that was not recovered via clauses, deferred strong costs and an equity percentage of 54% offset by a lower return on equity of 9.6%. PSE and G also updated its transition formula rate filing for 2019 to pass through additional tax benefits related to accumulated deferred income taxes. This latest update reduced the annual revenue requirement by approximately $155,000,000 in the original filing amount, which called for revenue increase of $100,000,000 GCNG's investment of $3,000,000,000 in its transmission and distribution infrastructure in 2018 helped drive a 13% growth in rate base to approximately $19,000,000,000 at year end.
Of this amount, QSE and G's investment in transmission represents 45% or about $8,700,000,000 of the company's consolidated rate base at the end of 2018. For 2019, we forecast E and G's net income at $1,200,000,000 to $1,230,000,000 reflecting incremental investments in transmission and distribution and a full year upgrade release. Now let's Turning Power. As shown on page Slide 24, KCG Power reported non GAAP operating earnings of $0.11 per share compared with non GAAP operating earnings of $0.20 per share a year ago. The results for the quarter brought Power's full year non GAAP operating earnings of $502,000,000 or $0.99 per share compared to 20 seventeen's non GAAP operating earnings of $505,000,000 or $1 per share.
Tower's non GAAP adjusted EBITDA for the quarter and for the year amounted to $176,000,000 and $1,059,000,000 respectively. This compares with non GAAP adjusted EBITDA for the Q4 of 'seventeen of $196,000,000 and for the full year 2017 of $1,172,000,000 The earnings release as well as the earnings slides on Pages 12 14 provide you with a detailed analysis of Tower's operating earnings quarter over quarter year over year with changes in revenue and costs. Power's results for the quarter were down from the year ago period, largely reflecting a $6 per megawatt hour decline in the average price received on energy hedges as re contracting led to a $0.09 reduction in net income compared to last year's 4th quarter. This was partially offset by a scheduled increase in capacity prices in New England and PJM, which improved comparisons by $0.04 per share. The increase in generation output for the quarter improved comparisons by $0.03 per share.
Gas operations declined by $0.02 per share as higher natural gas prices lowered commodity margin and impacted office from sales following the start up of the Atlantic Sunrise Gas Pipeline and has enabled price convergence of RightyGas with higher prices at Henry Hub as expected. In addition, the decline in Power's O and M expense improved net income comparisons by $0.01 per share. Interest expense of $0.03 per share and depreciation expense of $0.02 per share, both rose as a result of 2 new combined cycle units in service at midyear. And higher taxes reduced net income comparisons by a penny over the prior year's Q4 as the absence of investment tax credits and other items offset the benefit of tax reforms. Gross margins in the Q4 declined to $31 per megawatt hour from $38 per megawatt hour in the year ago quarter, largely the result of the step down in power prices for recontracting.
Power prices in the quarter improved slightly as gas prices rose in response to a long cold snap that lasted through most of November to mid December. For the year, gross margins declined to $33 per megawatt hour from $38 per megawatt hour, reflecting the decline in average hedge prices for energy. Now let's turn to Power's operations and we provided you some detail on generation for the quarter and for the year on Slide 2526. Output from powers generating facilities in the Q4 increased by 19% over the Q4 of 2017. And that's mainly from new capacity additions at Sewaren and Keyes, but also from higher output at our older New Jersey combined cycle units.
Quarterly comparisons were also influenced by increased demand in response to the extended period of cold weather from most of the quarter. Our output of 56 terawatt hours is at the high end of our forecast provided at the end of the Q3, which calls for a bigger output of 54 terawatt hours to 56 terawatt hours. Nuclear fleet operated at an average capacity factor of 86.9% in the quarter, resulting in a full year capacity factor of 91.4 percent, which included, as Ralph mentioned, Hope Creek's 1st uninterrupted breaker to breaker run going into last range recently. For the year, nuclear production totaled 31.2 terawatt hours. Power's gas fired combined cycle fleet operated at average capacity factor of approximately 51% in the quarter, developing a full year capacity factor of 52%, producing 18.5 terawatt hours of electricity for the year, up approximately 36% year over year.
For the quarter, total fleet from the coal fleet was up 10%, primarily from the Pennsylvania units, which is in response to higher weather related demand. For the full year, output from the coal fleet increased 7 percent to 5.7 terawatt hours as an increase in gas prices improved coal's competitiveness. I'll take a Power's hedge position is provided on Slide 29. For 2019, with a full year of the Keyes and SeaOne combined cycle units and expected half year of production from Bridgeport Harbor V, Power is forecasting an increase in output to 60 to 62 terawatt hours, about 2 terawatt hours since the Q3 2018 update. Following completion of the recent basic generation service of BGS Auctions in New Jersey, approximately 80% to 85% of production for 2019 is hedged at an average price of $37 per Megawatt.
As a reminder, our average hedge prices tend to steep higher after we layer in hedges from the BGS auction. In 2020, Powerhead has had 55% to 60% of forecast reduction of 60 to 62 terawatt hours at an average price of $38 per megawatt hour. And Power is also forecasting output for 2021 at 60 to 62 terawatt hours. Approximately 15% to 20% of Power's output in 2021 is hedged at an average price of $42 per megawatt hour. The forecast for the 20 19 to 2021 period includes generation associated with the full year contribution of 1300 Megawatts of gas fired combined cycle capacity at Keys and Q1, the mid-twenty 19 commercial operation of the 4 85 Megawatt gas fired combined cycle plant in Bridgeport and the mid-twenty 21 retirement of the 383 Megawatt Bridgeport Harbor Coal Fire Generating Station.
Consistent with our hedging practice, the gas fired from my cycle assets remain more open to the market in the out years and can take advantage of spot spread opportunities within our ratable hedging program. Tower's 2019 non GAAP operating earnings and non GAAP adjusted EBITDA forecast is projected to be 395,000,000 dollars to $460,000,000 $1,030,000,000 to $1,130,000,000 respectively. The operating earnings guidance for 2019 reflects the benefits of including a partial year of ZECs and the incremental contribution from 3 new CCGT units, offset by lower pricing on re contracting, lower capacity revenues, higher interest expense due to the absence of capitalized interest on construction and higher taxes due to the absence of the nuclear carryback benefit we received in 2018. Now moving on to CSEG Enterprise and Other. We reported a net loss for the Q4 of 2018 of $5,000,000 or $0.10 per share compared to net income of $126,000,000 or $0.25 per
share for the Q4 of 2017.
For the full year, SAGE Unified has another reported net income of $6,000,000 or 0 point $0.01 per share compared to net income in 2017 of $122,000,000 or $0.24 per share. The results for 2018 reflect the absence of the one time non cash earnings benefit of $147,000,000 related to tax reform and a decrease in Energy Holdings deferred tax liabilities, partially offset by an after tax charge related to Rima in 2017. Enterprise and other reported non GAAP operating earnings loss for the Q4 of $12,000,000 or $0.02 per share, compared to non GAAP operating loss of $21,000,000 or $0.04 per share in the year ago quarter. Results for the Q4 brought GSEG Enterprise and other non GAAP operating earnings for the full year to $13,000,000 or $0.03 per share versus $20,000,000 which also equated to $0.03 per share in 2017. The Q4 non GAAP operating earnings loss versus the Q4 2017 primarily reflects the absence of certain tax provisions and holdings taken in the Q4 of 2017, our overall tax expense in 2018 as a result of tax reform, higher interest expense mostly offset by some lower donations in 20 18.
The 2019 non GAAP operating earnings for PSEG Enterprise and Other are forecast to be $5,000,000 to $10,000,000 This guidance reflects the continued PSEG Long Island results largely offset by some higher interest expense. Business mix continues to make us a beneficiary under the Tax Act of 2017 and our financial flexibility remains strong. And then, for Tower and for Enterprise, we'll realize an ongoing benefit from the decline in federal tax rate overall. However, recently updated rules proposed by the IRS would limit the amount of interest that could be deducted in a given year by non regulated businesses. Just as proposed, depreciation is excluded from the definition of adjusted taxable income in 2018 2019.
The bonus depreciation related to the new CCGT units in service during 2018 2019 will cap the amount of deductible interest into a few years. However, any amount of interest expense disallowed can be carried forward indefinitely and therefore, we do not expect this to have an earnings impact for us in either year. We ended 2018 with $177,000,000 of cash on hand and debt representing 52% of our consolidated capital position. Tower's debt was 32% of its total capital base and its year end debt position was just over 2.6 times 2018 non GAAP adjusted EBITDA. Given the strength of our balance sheet and internally generated cash flow from total businesses, we are able to fund our capital program and manage the cash impact of tax reform without the need for additional equity.
To recap, we're guiding to non GAAP operating earnings for 2019 of $2.15 to $3.34 per share, a 4% increase over 2018 and nearly 75% of that amount being generated by PSE and G, our regulated utility. And the common dividend recently was increased $0.08 to the indicative level of $1.88 per share. This level represents a 58% payout of earnings at the midpoint of 2019 guidance and has contributed to a 4.9% annual rate of growth in the dividend over the last 5 years. And Julie, we are now ready for questions.
Certainly. Ladies and gentlemen, we will now begin the question and answer session for members of the financial community. Your first question comes from the line of Julien Dumoulin Smith from Bank of America. Please go ahead with your question.
Hey, good morning, everyone. Good morning, Julien. Hey. So, let's just start out with some of the conversations we left off with our Q3. Can you perhaps revisit just in brief a little more on the Leidy Hub conversation with respect to 2019 expectations?
And obviously, given a percentage amount of gyrations in gas basis in the quarter here, I know you reviewed to a certain extent your power guidance already. So just how does that what is reflected with respect to basis? And how have you seen that even evolve in the last few months since the last update in November? I just want to make sure we put this one to rest as one of the lingering concerns out there in Q3. Sure, Joanna.
I don't think we've seen a tremendous amount of change since the Q3. I think we talked about some takeaway capacity coming from the Marcellus and having a little bit of a tightening between some of the gas bases and that could have some compression on spark spreads. We also talked a little bit about some of the electric basis. And I think both of those things we will remain somewhat open to and are reflected in the guidance that we have provided. I think even as you look through the Q4, we saw a fairly consistent story with what we told in the Q3.
We did see some uptick during that quarter related to some incremental volume at Tower, largely weather related and also some O and M benefits. But I think what we talked about and expected in the Q3, we've seen through the Q4 and we'll continue to rely upon what polar prices show us as we go through 'nineteen and beyond. Got it. Excellent. And then turning to the other side of the house, on the utility for the 'nineteen guidance, can you talk through a little bit about the earnings components there?
And obviously, you provide projected rate base, but expected returns and equity ratio perhaps. It's just in brief. Really, the return piece can imply the guidance. Are you expecting to are you authorized is basically a long ever weighted asset? Yes, Julien, it's Ralph.
We're just 2 months out of a basis rate case. So we've I've seen 9.6% on the distribution rate base and the 11.68% on the transmission rate base at the 54% equity level. Yes, no, I think that's the data was pretty current and the settlement is pretty current. So there's we should hit those numbers. Excellent.
And just a quick last one, just in terms of the offer efforts, you know, there's been a lot of focus on this by your peers. So just with respect to returning the risk profile, what you're contemplating to invest in, how especially with respect to the risk would it be different from just this great equity investment for the project altogether? And obviously this is preliminary. Yes, I know. So again, what we've been very clear about is that we know what we know and we fortunately, you know what we don't know.
And we know transmission, how to build that at a low cost in a reliable way and we understand the PJM market, but we've never built anything offshore and we're not eager to take any significant risk on offshore construction. So that's, we're delighted to be part of the Orsted team in terms of them being the leading developer of offshore wind around the world, but there are certain strengths that we bring to the table that I think everybody on this call is aware of and those areas where we're not strong, we're not going to take a big stand by.
Your next question comes from the line of Jonathan Arnold from Deutsche Bank.
Can I just ask, do we look at the new rate base and CapEx outlook and does it often have a little bit of a fade in the later years? Do you have a sense, Ralph, of what the likelihood is of doing some of that in? And what kind of things and what the timing for some of that materializing might be? Or is it too early to be having that conversation?
Yes, Justice. Thanks, Jonathan. So what I tried to tell is that we had 2 major programs with some of the B2 right now, Energy Strong 2 and Clean Energy Future. I think in aggregate they're over $6,000,000,000 And if we take every penny of that, it would be money well spent on behalf of customers. It's not a surprise to you that typically when we work with the professionals at the BPU, we don't, get complete agreements on every dollar being well worth spending.
So but I know that 0 is not the right answer as well. So those two programs will have the potential to fill in some of the later years.
Okay. And then just to your answer on the question on offshore and knowing what you know, Is it safe to assume that whatever you did there would largely be within the utility footprint or
That's what we're talking about. Yeah. That would not be the case, Seth, Seth. It would be on our unregulated side of the business that we would do that work. To the extent that there's any transition implications that are in the utilities sort of territory, then that would be undertaken by PSE and G.
But any connection on land or any improvements that needs to be made at the connection points would not be in PSE and G territory. So that would be a project responsibility that we could participate in. And by the way, Jonathan, I'd just take myself to answer your timing question. We do expect to have some resolution on these two filings in the Q3 this year.
And to that, that would be incremental to the plan,
what you're talking about? Yes. So what we said is that based on currently approved programs, we'll achieve that 7% compound annual growth rate. And based upon the way in which we propose to spend for the new programs, if they were fully funded, we would achieve the 9%. Remember those most of those programs take us outside the timeframe of the 7% to 9% that we're proposing.
So both the rate at which the money is spent and the amount of money will probably land you somewhere in between those two numbers. Yes. And, Gerard, just as we think about it, as a way of thinking about the uptake, were at 7% to 9%, but really that's all about the increased pace of returning off end of 'eighteen instead of end of 'nineteen end of 'seventeen, I should say. So the kind of the embedded capital, you can think about it as being consistent. The update is more about updating off of this 1 year increase rate case.
Right. Here's the thing. We've got the math because he's in the same place. Right. Okay.
And then I just have one other thing. Just on the guidance the holdings, it seems to be quite a lower number than you've been talking about. And you talked about LIFO minus interest offset. But is there something else going on in there that's structurally shifting holdings a little lower? And will that continue?
No, Josh. Really, all it is, is that the interest expense at holdings, if you think about shorter term rates coming up a little bit, you're seeing some of that effect come through at the parent level. So some of the debt at the parent in shorter term is seeing a little bit of an increase in risk. That's all. Nothing structural.
Okay. So we should probably just see if that continues along this.
Yes. So we would give you the guidance for 'nineteen, and and we'll kind of go from there. I have to plug out folks down in Long Island. They're doing a great job. So there's no issues out there.
All right. Thank you, guys.
Your next question comes from the line of Paul Patterson from Glenrock Associates. Please go ahead with your question.
Hey, good morning. Good morning, Paul. So looking at your comments on the capacity market and I guess sort of concerns about if the nuclear plants are squeezed in the market or if there's not for the adoption of something similar to the PBM proposal, which you would still potentially have to look at closing the plant. Would there be no what would the thought be in terms of perhaps doing a PPA or what alternatives might there be if in fact there isn't an effort to do a if in fact you were excluded from the market, if you follow-up, then? Yes.
You go back if you is that It really depends on the nature of the proposal from FERC, correct? I mean, what we rely upon is the fact that New Jersey demonstrated a commitment to nuclear power through passage of large deflation. So it's hard to imagine, although we'd have to work out the details that FERC action, which is intended to allow states to continue to choose certain resources to achieve environmental or other objectives, that that mechanism would in some way preempt New Jersey's ability to pursue some options to keep the plants online. I mean, so think we've got the state saying we want these plants online as witnessed by the legislation. First thing, we don't want to interfere with state's ability to do that.
And now it's, of course, somewhere between those two broad policy statements, we'll just have to wait to see what the order from FERC looks like to figure out the mechanics of how we achieve both of those objectives. But I've got to believe that those objectives are consistent here and we've demonstrated an ability in the past to meet policy objectives when they're articulated as clearly as those 2. But in theory, the CTU or the safety of the, I guess, more generically could just simply arrange a situation where the carve out loads would provide a capacity payment in lieu of the fact that for mimicking what the PGM capacity market would have provided if you were part of it. You've all been saying so? That's absolutely true, right?
I just I wouldn't want to be so presumptuous to say what the BPU will do except to say that the policy objectives are to say it are very clear and the BPU has a lot of professional expertise that will want to weigh in on what they think is right in creating solutions to keep that policy objective. And we'll certainly work as hard as we can to make sure the state achieves its goal. Okay, great. And then on the energy efficiency and the legislation and your move meeting those goals. What should we think about in terms of the retail sales growth in New Jersey going forward from here.
Is that negative 2% we should be thinking about? Or how should we be thinking about that? No. So I think that 2% decline was off of a base year. I think I think it was.
So I think we saw about 2% to 6% increase this year. So there's going to be some netting, right? I don't think it should be 2% plus the incremental increase. But remember, Paul, I know you know this, but forgive me for repeating it. The utility growth is not about load growth, right?
Our utility growth is about an aging infrastructure that is in desperate unit replacements. And then on top of that, new technology is needed to achieve some of the policy objectives in particular the climate objectives of the state. So I'm not going to say that we're completely indifferent to what the load does, but that's really not at the heart and soul nor the foundation of what the utilities operations or investment or financial performance will look like in the future. Sure. Sure.
I was just trying to get to the better market picture. Just and then I think you might have said that, that would offset sort of bill increases as well. Was that an offset from the cost to achieve through the energy efficiency? Or is that just sort of how should we think about customer build? I know you guys are concerned about that and looking out on that end.
How should we think about that in terms of your forecast? Yes. So first of all, the rate case resulted basically no net change in customer bills because of the way in which we will flow back to customers' tax benefits. And we still are about 30% below for an average residential customer bill where we were in 2,008. The EE program is specifically proposed to regulate.
Now they have a lot to say about whether or not they do that proposal. So even those customers propose good cost control is too burdensome, right? So we've targeted low income customers, critical assets like hospitals that serve the public at large, municipal facilities, government facilities, schools, things of that nature. So we fundamentally do believe that the bill is what matters, not the rate, and that there are some customers even in this reduced bill environment that we've been operating on this for the past decade that struggle. And so we take out that shot at same time to the BQ who we think we can help and I'm sure that we'll have a great conversation with the staff over the next few months as to whether they agree with that or if they'd like to see it directly differently.
Your next question comes from the line of Greg Gordon from Evercore ISI. Please proceed with your question.
Thanks. Good morning. Good morning, Greg. Going back to Julian's question, it just would appear on basic rate base math, just looking at the two slides and taking that income and dividing it into rate base math, the ROE would appear to be a bit higher than the authorized return, but I presume that we're missing things like earnings on AFUDC and other adjustments that you have to make to walk back down to a regulatory ROE. Is that a fair summary?
Because if you just do your list, I think it seems Yes. Not seeing your exact math, but
I think that's right.
There's a regulatory ROE that ultimately just came out of the rate case that we had, and we're moving into that now. So I think it's a pretty clean number right now. And then as we go through time, we'll continue to move forward. So Greg, every time we have this call, we always sort of come out of here with like, okay, that makes sense, pretty understood. That's the second question on earning ROEs that is 2 questions too many.
I just don't know where that's coming from. I mean, if you're looking at this room right now, you see nothing but some really confused and political faces. So we're fighting every day to control all of them to make sure we earn that a lot ROE. So I don't know where that's coming from, but no, we just came out of a rate case and we are at our allowed earnings and somehow we have to figure out how to increase salaries 3% this year with demand growing by 6 percent in full earned allowed salaries. I'll come to a lot, I'll figure it out.
My second question is, if you look at the rate base, you've got a transmission component, right? You've got an ASP and a fine service business, which is a piece of it. You've got some different treatment for some of the clauses, some of the ready clauses. So that is really coming into play and I think we can work through the math and bring it back to an understanding as to where we are with the that are that's sure that's easy to do. The second question was on the power side.
You know, the increase in in fuel costs, you know, that sort of compressed the spark spread in in q4, has there been some sort of structural change in basis on, you know, delivered gas to your plants that you need to sort of extrapolate forward? Or was that just a demand driven, you know, sort of surge into pricing that it will just there was more weather and demand volatility? So having said that, Greg, I said there's a little bit of both. I think what we saw in the Q3 when we talked about some of the weather related aspects, if you look at where things were for most of November and the first half or so of December, we also had some pretty cold weather and back end of December, just like we ran into holiday. So I think if you look at aggregate monthly or quarterly data, it may blur a little bit about the fact that when you had more of your core demand going on, you had higher weather during that period.
And so that's going to pull a little bit more on that price comparison that you see in addition to some of the takeaway capacity. So some of it is structural that we saw within the back half of twenty eighteen and some of that is going to be more weather and demand oriented as well. Final question, Ralph, if you first come back and rules that the, you know, unit specific FRR option is in fact part of the portfolio that TJM used to use going forward to run its its market, would you go to the New Jersey government and say you'd like to pursue the full, that far our option to remove their units from PJM, or would you consider other avenues? I think it's safe to say we would consider a bunch of different avenues at that point. I would not at all want to either think that we would exclude that possibility, but we could still bid.
Who knows? We would take a look at that, and we would consider other options as well. Okay. So you wouldn't preclude pursuing the FRR option, but you'd look at the whole decision before you'd make the call? That's correct.
Your next question comes from the line of Steve Kauffman from Wolfe Research. Please proceed with your question.
Thanks. Good morning. First, just a quick question on FERC. Do you have any updated sense on timing of when they might make a decision? You know, I appreciate it.
Steve, I mean, our business to clerk really has suggested they are struggling with the capacity market decision. I had this sense that fast start might happen sooner, but September 30th, I thought was 2018. I don't coming across as a smart aleck. I shouldn't do that. So I have I've kind of stopped predicting timing efforts.
Okay. And then I guess Ralph, a high level strategic question. So if you look at New Jersey is obviously moving to kind of a trend towards a lot of clean energy, energy efficiency, offshore wind, etcetera. And then if you look at New England states, a lot of them are also doing the same thing. So what how does that kind of are you thinking strategically more about the power business in context to that?
What does that mean? Absolutely. So the question is what's the environmental footprint of the fleet and how does it fit in that? And then quite honestly, given market structures that dispatch on a short run marginal cost basis and an increased willingness on the part of policymakers to fund the capital needs of assets that then did into that market of 0, you have to pay very serious attention to what that means to the dispatch queue and the profitability of plants in the future. So we've taken some actions, as you know, Steve.
We shut our ACVD units. We shut in America. We're going to be shutting our Bridgeport coal facility. We've got some pretty impressive heat rates in our gas plants. And we are looking at some role in offshore wind.
But there's no doubt that one has to look at the power business in the context of an increasingly clean energy future. Okay. Thank you.
And our next question comes from the line of Michael Lapides from Fear.
Just Dan, real quick question on 2019 on these expectations at the utility at E and G. The growth rate at just take actual in 'eighteen versus 2019 is a pretty 60 ticket growth rate. It even appears higher than your risk based growth. Can you just kind of walk me through the puts and takes? Is there something unusual with tax?
Is there a contingent on what tax rate that assumes? Or is there something unusual that happened in 'eighteen outside of the $0.04 or $0.05 from fee trending we ought to think about? No. I think maybe just as you put it in 2 big buckets, you've got your rate base growth that's going to be a part of it, but you also have a rate relief component that's going on, on the distribution side. So if you think about a relatively flat overall rate case settlement, you've got an increment to your base rates that's come through and then you've got that being offset by some tax flowbacks.
And that tax piece is more balance sheet oriented, taking deferred taxes and flowing it back through cash and the base rates are more of that survives. So I think you're going to get a little bit of a benefit coming through there in addition to what you're seeing from an investment in an overall rate base perspective. So I'd look at those 2 components as being some of what's driving the delta as you look year over year. Got it. And Ralph, just curious, I want to come back on the offshore wind piece.
If you take an equity stake in the project, how do you have shield yourself from long term construction risk? I mean, we know the Europeans has built a lot of offshore rooms. There's been one of a small project built here. But it's not the same infrastructure and supply chain and some of the other kind of items that are necessary to build out lots of the first of a kind large to offshore wind here. How do you kind of protect yourself from material construction risk?
Have you ever really been a company that's right to take that kind of risk? Yeah. I mean, we're all do we're not in a position to kind of have a negotiation here with horses through you. But I mean, at the end of the day, if you can't shield yourself, then the ultimate shield is you don't invest, right. So we have some incredibly talented engineers and we have some equally talented contract people and lawyers that if they can't figure it out, then the ultimate protection is we don't participate.
Got it. Thank you, Ralph. Much appreciated. Everyone for joining us today and thank you for your continued interest and we will be confident in us. We'll be on the road next few days and next few weeks.
We look forward to seeing you in some of our upcoming meetings and conference appearances. And in the meantime, at the risk of stating the obvious, rest assured, we're going to continue to work hard and smart every day, and we're going to meet the needs of customers in a safe, reliable, economic and environmentally protective way. And I think we should if we do that, which we've been pretty good at, then our shareholders will realize a fair return allowed return, sorry, Greg, on the infrastructure investments we've been making that allows us to achieve that best in class service level. So thanks everyone and we'll talk real soon.
Ladies and gentlemen, that does conclude your conference call for today. You may now disconnect. Thank you for participating.