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 2021 Earnings Conference Call and Webcast. As a reminder, the conference is being recorded today, May 5, 2021, and will be available for telephone replay beginning at 2 p. M.
Eastern today until 11:30 pm Eastern Time on May 11, 2021. It will also be available as an audio webcast on PSEG's corporate website at investor. Pseg.com. I would now like to turn the conference over to Colada Chan. Please go ahead.
Thank you, Christie. Good morning. PSEG released Q1 2021 earnings results earlier today. The earnings release, attachments and Today's slides can be found on the PSEG Investor Relations website, and our 10 Q will be filed shortly. The earnings release and other matters we will Discuss on today's call contain forward looking statements and estimates that are subject to various risks and uncertainties.
We also discuss non GAAP operating earnings and non GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally Accounting Principles in the United States. Reconciliations of our non GAAP financial measures and a disclaimer regarding forward looking statements are posted with 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. I'm pleased to report that PSEG has achieved several major milestones on our path to a primarily regulated utility company with a complementary and significantly contracted carbon free generating fleet. PSEG posted solid results earlier this morning reporting non GAAP operating earnings for the Q1 2021 of $1.28 per share versus $1.03 per share in last year's Q1. Our GAAP results for the Q1 were also $1.28 per share versus $0.88 per share in the Q1 of 2020. Results from ongoing regulated investments at PSE and G and the effect of cold weather on PSEG Power drilled favorable comparisons at both businesses.
We present details of the quarter's results on Slide 5 of the earnings presentation. We are well positioned to execute on our financial and strategic goals for the balance of the year given this eventful quarter. Beginning with our nearly $2,000,000,000 of Clean Energy Future Programs, which have moved from approval to execution, PSE and G is helping to advance the decarbonization of New Jersey in a sizable and equitable way. Our clean energy future investments are paired with a jobs training program that offers opportunities to low and middle income New Jersey community. Last week, The New Jersey Board of Public Utilities voted unanimously to award a continuation of the full $10 per megawatt hour 0 emission certificates, I'll just call them ZEC from now on.
For all three New Jersey nuclear units, that would be Hope Creek, Salin Unit 1 and Salin Unit 2, Through May of 2025. This was the maximum amount that the BPU could have awarded, And we are appreciative of the support received from the many community, labor, business, environmental and employee organizations that participated in this Enormously important process. Each of these groups recognizes the value of the reliable around the clock In carbon free electricity supply, our nuclear plants provide. Throughout this process, our nuclear team has approached operations at the units With the utmost professionalism and dedication to safety. I congratulate PSEG Nuclear for being recognized by INPO As an industry leader in operational reliability, one of only 2 nuclear fleets across the industry with no grams over the past 365 days.
The BPU's decision to extend the ZEC program will advance And it's consistent with the growing interest at the federal level in preserving existing nuclear as an essential part of a clean energy mix. We applaud the BPU which is in the best interest of the state of New Jersey and its ability to achieve its long term clean energy goals Without compromising reliability, we're going backward on environmental gains made to date. Looking ahead, we will soon work with stakeholders to In addition, Ocean Wind received a notice of intent to prepare an environmental impact statement from the Bureau of Ocean Energy Which we will also review the project's construction and operations plan. In April, PJM in close cooperation with the BPU opened a 4 month solicitation window to seek transmission solutions to support New Jersey's offshore wind generation target. This process is PJM's first public Policy transmission solicitation and we will participate in this proceeding.
The recent Biden administration proposal focusing on climate action is clearly Supportive of offshore wind, existing nuclear generation and electrification of transportation, all of which are aligned with PSEG's business plan and strategy PSEG eagerly encourages and advocates for a national approach to accelerate economy wide, Net 0 emissions, even sooner than 2,050 in a constructive manner that expands green jobs by investing in clean energy infrastructure. I am more optimistic than ever that the momentum for real climate action is taking hold. PSEG continues to press ahead with our powering progress That incorporates energy efficiency and the electrification of transportation to help our customers use less energy. We are pairing that with our move to make the energy our customers use cleaner, which aligns with our efforts to preserve our existing nuclear units and pursue strategic alternatives for our fossil fleet. Then we strive to deliver with high reliability and resiliency, which ties to our investments in energy infrastructure and the energy cloud.
Today, we are also announcing progress on our strategic alternatives with an agreement to sell our solar source portfolio to an affiliate of LS Power. The sale resulted from a robust marketing process and We're pleased with the outcome of the sale, having determined that the transaction is modestly accretive on some of the parts and on an operating earnings basis going We expect the SolarSource portfolio deal to close in the 2nd or Q3 of 2021, Subject to customary, regulatory and other closing conditions. PSEG Power is continuing the exploration of strategic alternatives for its fossil generating fleet and currently anticipates reaching an agreement around mid year. These expected transactions along with over a decade of Capital allocation directed mainly toward PSE and G positioned the remaining company as a primarily regulated electric and gas With a complementary carbon free nuclear fleet and offshore wind investments that will be highly contracted. The COVID-nineteen pandemic and its economic impacts continue to affect the New Jersey economy.
The large contribution of the transmission and residential electric and gas components to our overall sales mix Has had a stabilizing effect on the margins of our utility business as does a supportive regulatory order that authorizes deferral of certain COVID-nineteen All the state's businesses, venues and gatherings will begin on May 19 following progress over half of the state's population and a sustained reduction in positivity and hospitalization rates. PSE and G has begun implementing the Clean Energy Future Energy Efficiency Programs by initiating customer engagement and outreach As well as advancing the clean energy jobs training program I mentioned earlier and related IT system build out activities. Following the BPU approval of our $700,000,000 AMI proposal in January, we have begun implementation of the 4 year program. Our current focus is on planning the AMI communications network, customer outreach and developing the installation schedule On the regulatory and policy front, there are several upcoming developments at the FERC, the Federal Energy Regulatory Commission, The BPU and PJM that could influence future results. Last month, FERC promulgated a New proposed rule to limit the 50 basis point RTO return on equity incentive to a 3 year period.
Given the Biden administration's interest in the significant transmission build out to expand the integration of clean energy into the nation's power grid, This development was disappointing. We have long supported the need for higher incentives for transmission investment over distribution Based on the added complexity and risk of these projects, coordination through the RTO has benefits, but myriad risks And complications must be considered as well. Based on the short comment window provided, the proposed rule could be enacted as early as the Q3. We will file comments to recognize the merits of continuing the RTO adder, but this looks to be an uphill battle given the chair's support for the While we await the results of the 1st PGM capacity auction in 3 years, which PGM will announce on June 2, PSEG is continuing to advocate for a minimum offer price rule, I'll just call that MOPR going forward, That will avoid double payment for resources such as offshore wind and nuclear or other carbon free supplies needed to achieve state goals. FERC Commissioner Danley has developed a state option to choose resources proposal or intended to achieve the major goals of establishing the right to states to choose their preferred capacity resources to achieve their policy objectives and eliminate double payments by states for the capacity they choose.
This proposal could have the added benefit of keeping much of FERC's capacity market reform rules intact while addressing state objections. New Jersey is expected to issue its consultants report and recommendation for resource adequacy this month. This report could determine whether a Resource requirement or FRR will be chosen to satisfy the state's future capacity obligations beyond the 2022 And 2023 energy year. We continue to believe that the state could pursue an FRR without legislation And we'll suggest options to minimize the cost impact of FERC's capacity ruling on New Jersey customers. Earlier in April, the BPU released its strong proposal to address the design of the solar successor program.
Stakeholder meetings are being conducted to consider a solar financial incentive program That will permanently replace the Solar Renewable Energy Certificate or SREC program and the temporary Transitional Renewable Energy Certificate or TREC program, which was instituted in 2020 upon the state containment of 5.1% of Kilowatt hours sold from solar generation. Given the substantial increase in New Jersey solar targets, The high cost of solar and solar cost caps in the Clean Energy Act of 2018, we believe it is critical to develop a cost effective approach to incent future solar generation. By far, the most efficient and cost effective way for New Jersey to optimize What solar can bring to the achievement of its clean energy goals is to maximize grid connected utility scale projects By involving the state's electric distribution company. So to wrap up my remarks, we are reaffirming non GAAP operating earnings Guidance for the full year of 2021 of $3.35 to $3.55 per share. Our guidance assumes normal weather and plant operations for the remainder of the year and incorporates the conservation incentive programs That begin in June for electric and in October for gas to cover variations in revenue due to energy efficiency and other impacts.
In addition, as we mentioned on our year end call, our 2021 guidance assumes a prospective settlement of our transmission return on equity at And the inclusion of Fossil's results for the full year. We are on track to execute PSEG's 5 year $14,000,000,000 to $16,000,000,000 capital program through 2025 and has the financial strength to fund it without the need to issue new equity. Over 90% of the current capital program is directed to PSE and G, which is expected to produce 6.5 8% compound annual growth in rate base over the 2021 to 2025 period, starting from PSEG's year end 2020 Are supported by over 90% of its capital spending continuing to receive either formula rate, clause based or current rate recovery Of and on capital. Finally, I thank our employees for their exceptional contributions to a compelling PSEG story this quarter. From nuclear operations marking a second breaker to breaker uninterrupted run at Hope Creek to a cross functional regulatory, legal, finance To our field crews in New Jersey and Long Island who exemplify a safety conscious mindset, I could not be prouder of our entire And now I'll turn the call over to Dan for more details on our financial and operating results and we'll be available for your questions after
Great. Thank you, Ralph, and good morning, everyone. As Ralph mentioned, PSEG reported non GAAP operating earnings for the Q1 21 of $1.28 per share versus $1.03 per share in last year's Q1. We've provided you with information on Slide 12 Regarding the contribution to non GAAP operating earnings by business for the quarter, and Slide 13 contains a waterfall chart that takes you through the net changes quarter over quarter And non GAAP operating earnings by major business. I'll now review each company in more detail.
PSE and G, As shown on Slide 15, reported net income for the Q1 2021 of $0.94 per share compared with $0.87 per share for the Q1 of 2020, up 8% versus last year. Results improved by $0.07 per share driven by revenue growth ongoing capital investment programs and favorable pension OPEB results. Transmission capital spending added $0.02 per share to net income compared to the Q1 of 2020. On the distribution side, gas margin improved by $0.03 per share over last year's Q1, Driven by the scheduled recovery of investments made under the 2nd phase of the gas system modernization program, electric margin was a O and M expense was $0.02 per share unfavorable compared to the Q1 of 2020, reflecting higher costs from several February snowstorms. Depreciation expense increased by $0.01 per share, reflecting higher plant and service, and pension expense was $0.02 per share favorable compared to the Q1 of 2020.
Flow through taxes and other were $0.02 per share favorable compared to the Q1 of 2020. And this tax benefit is due to the use of an annual effective tax rate that will reverse over the remainder of the year and was partly offset by the Timing of taxes related to bad debt expense. Winter weather as measured by heating degree days was 4% milder than normal, I was 18% colder than the mild winter experienced in the Q1 of 2020. For the trailing 12 months ended March 31, Total weather normalized sales reflected the higher expected residential and lower commercial and industrial sales observed in 2020 Due to the economic impacts of COVID-nineteen, total electric sales declined by 2%, while gas sales increased by 1%. Residential customer growth for electric and gas remained positive during the period.
PSE and G invested approximately $600,000,000 in the Q1 and is on track to fully execute on planned 2021 capital investment program of $2,700,000,000 The 2021 capital spending program will include infrastructure upgrades To transmission and distribution facilities as well as the rollout of the clean energy future investments in energy efficiency, Energy cloud, including smart meters and electric vehicle charging infrastructure. PSE and G is continuing to defer the impact Additional expenses incurred to protect its employees and customers as a result of the COVID-nineteen pandemic. PSE and G has experienced significantly higher accounts receivables and bad debts and lower cash collections from customers due to the moratorium on shutoffs for residential customers that began last March and has been extended through June of this year. We've launched an expanded customer communications program designed to inform all customers about payment As a reminder, PSE and G continues to make quarterly filings with the BPU detailing the COVID-nineteen And as of March 31, PSE and G has recorded a regulatory asset of approximately $60,000,000 for net incremental costs, Which includes $35,000,000 for incremental gas bad debt expense. Electric bad debt expense is recovered through the societal benefits charge and trued up periodically.
With respect to subsidiary guidance for PSE and G, our forecast of net income for 2021 is unchanged At $1,410,000,000 to $1,470,000,000 Now moving to Power. In Q1 of 2021, PSEG Power reported net income of $161,000,000 or $0.32 per share, Non GAAP operating earnings of $163,000,000 or $0.32 per share and non GAAP adjusted EBITDA of $321,000,000 This compares to Q1 2020 net income of $13,000,000 non GAAP operating earnings of 85,000,000 And non GAAP adjusted EBITDA of $201,000,000 The earnings release and Slide 21 provide you with Detailed analysis of the items having an impact on Power's non GAAP operating earnings relative to net income quarter over quarter. And we have also provided you with more detail on generation for the quarter on Slide 22. PCG Power's first Quarter results benefited from a scheduled improvement in capacity prices for the first half of twenty twenty one, a favorable weather comparison to the mild winter in the Q1 of 2020 And other items, some of which are expected to reverse in subsequent quarters. The expected increase in PJM's capacity Revenue improved non GAAP operating earning comparisons by $0.03 per share compared with last year's Q1.
Higher generation in the 2021 first Quarter added $0.01 per share due to the absence of the Q1 2020 unplanned snow and one average. And favorable market conditions Influenced by February's cold weather benefited results by $0.03 per share compared to last year's Q1. We continue to forecast a $2 per megawatt hour average decline in recontracting for the full year, recognizing that the shape of the annual average change The weather related improvement in total gas send down to commercial and industrial customers increased results by $0.04 per Sure. We expect some of this increase to gas ops will reverse later in 2021, reflecting the Absence of a one time benefit recognized in the Q3 of 2020 related to a pipeline refund. O and M expense was $0.03 per share favorable in the quarter, benefiting from the absence of Q1 2020 outages at Bergen II and Salem A lower depreciation and lower interest expense combined to improve by $0.01 per share versus the quarter ago or the year ago Generation output increased by just under 1% to total 13.3 terawatt hours Last year's Q1 when Salem Unit 1 experienced a month long unplanned outage.
PSEG Power's combined cycle fleet produced 4.7 terawatt hours, Down 8%, reflecting lower market demand in the quarter. The nuclear fleet produced 8.2 terawatt hours, up 3% And operated at a capacity factor of 98.8 percent for the Q1, representing 62% of total generation. As Ralph mentioned, Hope Creek posted an uninterrupted run between refueling outages and just began its 23rd refueling PCG Power is forecasting generation output of 36 terawatt hours to 38 terawatt hours for the remaining three quarters of 2021 and has hedged approximately 95% to 100% of this production at an average price of $30 per megawatt hour. Gross margin for the Q1 rose to approximately $34 per megawatt hour to $30 per megawatt hour in the Q1 of 2020, which contained one of the mildest winters in recent history. Power prices in the Q1 2021 were stronger across PJM New York and New England compared to the year earlier period.
And this winter's temperatures We're 12% cooler on average and resulted in better market conditions compared to the Q1 of 2020. Power's capacity prices in PJM were higher in the Q1 of 2021 versus the Q1 of 2020 and will remain stable at $168 Per Megawatt Day through May of 2022. In New England, our average realized capacity price will decline Slightly $2.92 per megawatt day beginning June 1. However, Power's cleared capacity will decline by 3 83 megawatts The scheduled retirement of the Bridgeport Harbor Unit 3, achieving our goal of making Power's fleet completely coal Over 75 percent of PSEG Power's expected gross margin in 2021 is secured by our fully hedged position of energy output, Capacity revenue set in previous auctions and the opportunity to earn a full year of ZEC revenues and certain ancillary service payments such as reactive power. The forecast of PSEG Power's non GAAP operating earnings and non GAAP adjusted EBITDA For 2021 remain unchanged at $280,000,000 to $370,000,000 $850,000,000 to 950,000,000 respectively.
Now let me briefly address results from PSEG Enterprise and Other. For the Q1 of 20 21, Enterprise and other reported net income of $10,000,000 or $0.02 per share for the Q1 of 2021 compared to a net loss of $5,000,000 or $0.01 per share for The improvement in the quarter reflects higher tax benefits recorded in the Q1 of 2021 Due to the use of an annual effective tax rate that will reverse over the remainder of the year
as well as
With respect to financial position, PSE and G ended the quarter with $803,000,000 of cash on the balance sheet. During the Q1, PSE and G issued $450,000,000 of 5 year secured medium term notes at 95 basis points and $450,000,000 of 30 year secured medium term notes at 3%. In addition, we retired a $300,000,000 1.9 Medium term note at PSE and G that matured in March. In March of 2021, PSEG closed on a 500,000,000 364 day variable rate term loan agreement following the January prepayment of a $300,000,000 term loan initiated in March of 2020. For the balance of the year, we have approximately $950,000,000 of debt at PSEG Power scheduled to mature in June September, $300,000,000 of debt scheduled to mature at the parent in November and $134,000,000 of debt at PSE and G scheduled to Our solid balance sheet and credit metrics keep us in a position to fund our 2021 to 2025 capital investment program without the need to issue new equity.
As Ralph mentioned earlier, we are affirming our forecast of non GAAP operating earnings for the full year of 2021 of
Ladies and gentlemen, we will now begin the question and answer session for members of the financial community. And you wish to withdraw your polling request, you may do so by pressing pound followed by the number 1. If you're on a speakerphone, please pick up your handset The first question is from the line of Julien Dumoulin Smith with Bank of America.
Hey, good morning. Thanks, Steve. Well, first off, if you don't mind, there was an article this morning here In Reuters, I believe around the federal support for production tax credits, obviously you all just received your own state level support here on Zacks. Can you talk about how those 2 might mesh together understanding that obviously it's very early days on any federal effort here? And then related to that on the nuclear front, as you think about your cost reduction efforts and offsetting the dissynergy, how should we think about the cost structure above Sitting above the nuclear plants, sort of once everything is said and done after this year, if
you think about that too. Hi, Julian. Thanks for your question. So in the New Jersey statute, the 2018 statute, there's an explicit offset That would reduce the ZEC payment if there's a federal payment for the carbon free attributes And we have always maintained that whether it's nuclear or Wind or solar that reducing the nation's carbon emissions should be governed by a nationwide program. So we are actively pursuing these federal remedies.
And yes, they would be, as I just said a moment ago, I don't know that I fully understand your question about the cost structure that's on top of the plans.
Let me rephrase that if you don't mind, Tim. Thank you, Rob. Just as you think about the legacy SG and A, sort of the corporate Cost as you think about divesting these other packages here, can you just elaborate as to how you think about sort of what the run rate is of that business Without asking what the actual profitability of the nuclear plants are, how do you think about the cost structure there and just as we Look to refine ourselves in kind of a 'twenty two going forward basis.
Yes. We have set a goal for ourselves that there would be no stranded Costs that would remain upon divestiture of assets. The philosophy we've adopted We want to be extremely ambitious in eliminating positions, but extremely accommodating and helping people Yet reassigned to the extent that their skills match needs in the company, right? I mean, we turn over 7% of our employee population every year. So We're always looking for talent.
Now the one exception to that, of course, is that to the extent that We have people like myself whose compensation was spread over a bigger asset base that's going to be something that we will Makeup in a different way and we obviously have certain positions like that that will be the case. So no, we are quite focused and Upon not having any residual stranded support or overhead costs remaining after
Yes, be them direct or indirect as Ralph pointed out.
Right. Excellent team. And just Clarify, there's no further clues you can offer us on the sale price for the portfolio today outside of not taking a write down to preview?
Yes. So it's bracket for you, it's a big bracket. It was between $500,000,000 $600,000,000 And the value accretion Based upon an average of the next 3 years of what we thought the EBITDA would be and the earnings accretion is if we use the proceeds simply So we're not making any heroic assumptions. So it was as I said in my remarks, it was a robust Process, we had credible participants. We had the prices we received were quite credible And we think it worked quite well.
You're tired
of hearing me say this, but so
far the only surprise I've had since July is that there have been no surprises. So and I hope I can continue to say that. I'm sure I will.
Indeed. Well, congratulations again on the progress. Speak to you soon.
Thank you. Our next question comes from the line of Jeremy Tonet with JPMorgan.
Hi, good morning.
Good morning, Jeremy.
Just wanted to take a step a bit high level here with Biden plan and granted it's very early here, But just wondering what you're looking for here and how could it impact PEG as far as what it could mean for offshore wind, Transmission development or even kind of different things such as nuclear With Green Hydrogen in the future, just any type of thoughts that you could share as far as what possibilities or what you're looking for here?
Sure, Jeremy. We were one of the Very small group of companies candidly in our industry who wrote to the President and supported his 80% production by 2,030 for the electric And we're working with members of Congress on making sure that nuclear is included In any clean energy standard, in a technology neutral way, candidly, we have been talking to folks about The possibility that if tax credits are extended for carbon free energy that nuclear be eligible for that as well. That to an extent an incentive system is set up To achieve these targets that they not be technology specific, but that they be Repeat myself here, technology is different as long as you're achieving the desired outcome, which is carbon reductions. We know that there is A lot of wisdom to an all the above approach, including nuclear, solar, wind, carbon capture and storage. And we're pleased to see what the President has said about the prospects for offshore wind.
New Jersey is in the middle of a second round 2.4 Gigawatts. Maryland is seeking an additional few 100 megawatts. So I do think the momentum is real. And the combination of enthusiasm coming out of Washington and enthusiasm on the part of governors in the region in which we operate That leads me to believe that there is going to be a lot of opportunity to invest both in the transmission infrastructure needed To access carbon free resources and the continued development of carbon free resources as well as the preservation Of existing carbon free resources. Don't forget, I know you know this, but nationwide the existing nuclear fleet is responsible for just over 50 the carbon free energy in the nation even though it only supplies 20% of the total electricity.
And in New Jersey those numbers are even more pronounced. Our nuclear plants are Over 90% of the carpentry energy in the states. So you've got this really nice confluence of political leadership And capital and in the states, all rolling the same all rolling the boat in the same direction.
Got it. That's very helpful. Thanks. And granted as you said, federal support could supersede what happens at the state level and it's great to see you Just got the 3 year extensions there. But just wondering, as you look down the road here, do you see the potential for changes to the ZEC Program in New Jersey, be it higher levels, longer duration or just trying to get a feeling for what you think might be possible there?
Yes. We've been quite consistent in saying that we see a multi phase process to secure the long term viability of our nuclear plants and getting Round 2 of ZECs was the successful combination of Phase 1. In Phase 2, there are 3 pathways we're going Well, one is a federal pathway, be that a clean energy standard or a production tax credit. And we talked about that just a moment ago. So we're going to work hard to pursue that because it is global climate change, not New Jersey climate change.
2nd path is to Be an artist, broker and advisor to the state in its pursuit of an FRR. And that as I Said in my remarks is in process and we're expecting to see a summary Report from the Sage consultant sometime this month. That's just a little bit behind schedule, but not by much and the State has some time to do that thoughtfully and well. In the unlikely event that all of that doesn't achieve the long term economic viability of the nuclear plants, then we would Talk to state policymakers about modifying the ZEC program to do that. It is pretty Clear that a 3 year process is untenable in such a capital intensive asset.
And as we said throughout the ZEC Proceeding, the $10 per megawatt hour was not commensurate with the cost of capital associated on But given the opportunity to pursue these 3 other remedied pads that we would accept the $10 per megawatt. So I do think that there's a fair amount of opportunity to change the economic support for the nuclear plants. Great. That's helpful. I'll leave it there.
Thanks.
Next question comes from the line of Shahriar Pourreza with Guggenheim Partners.
Hey, guys. Good morning. Sure.
A couple of questions here. First, just curious how you're thinking about maybe Capital allocation from the Fossil sale, pending sale, and especially as you guys are getting over the finish line, I mean, Kind of with the de risking nature of the transaction, do you sort of need the cash proceeds with further delevering or do you anticipate the transaction to be credit accretive. And then maybe at some point, how efficiently do you think you can redeploy proceeds On the organic side, because we've seen some pretty healthy transactions on the asset side with PE, so curious there.
Yes. It's a great question, Shar. And we've said throughout the year and even Before, if you take a look at the capital program that we have in front of us for 'twenty one to 'twenty five that we could fund that without the need for incremental equity. So take that as it is and For use of proceeds. And so there's debt at the power level.
And if you think about working your way through Some of the terms of that debt, you'll see that some of the conditions they're in is reliant upon some of the assets that are being sold. So I think pay down of debt at the power level is an obvious first use of proceeds. We would anticipate excess proceeds beyond that, at which point You start to take a look at how we have described the business. And how we've described the business is continuing to grow the utility. It has a fairly voracious appetite.
The existing capital plan can be done without additional equity. But as we step through As we've always said, if you take a look at the 5 year capital plan, there are additional things that end up coming to bear during those 4 or 5 year periods and towards the back end of that plan that are not known at the beginning. So there certainly ends up being opportunity at the utility. We've had a lot of Discussion about offshore wind, we've talked about investing in ocean wind and that we would not intend to do ocean wind as a one off project, so we would either So I think there's another opportunity to deploy capital there. And then there is always the opportunity to return some Capital to shareholders.
To your point, we have said very often that To the extent that we look at some of the transactions that are going on and people are paying more than one times rate base to get The ability to earn on a dollar of rate base, that's a challenging economic situation for us. So we Have a look and we'll continue to look at those opportunities. But to date, they have kind of fallen below the optimal things that we can do with our capital.
Got it. Got it. And then just a transmission ROE question. How active, Ralph And then are your discussions on returns now that some of the other agenda items have been taken off the BP plate? And this is in light of the headlines from the FERC ALJs on pretty draconian views for ROEs and cash structures, which obviously sent a message Investors, how qualitative do you think the BPU is in regard to target ROEs, both on the transmission and state level side in light of
I think the conversations remain very constructive. And the issue, As you correctly pointed out, Shahar, it's been a combination of how busy the Board was Given what we wanted to do, but that's only part of it. I mean, the Board is in the middle of a second round solicitation on offshore wind for 2.4 gigawatts. They're in the middle of an FRRR proceeding. They regulate water companies, other electric and gas companies.
And then COVID does introduce An element of inefficiency in terms of how and when and when it needs. So there's been No indication in the conversations that anyone is any less motivated to find a Common ground then when we started and then I know I realize it's over a year ago we started that. I'd hard to believe it's taken that amount of time, but that's just a And again, the motivation for us is to get a fair outcome that removes any uncertainty on the part of our investors And as well as to provide some level of rate relief for customers and the motivation for The Board staff is to achieve that team replay, but to do it now instead of getting immersed into a FERC proceeding that might resolve itself in many years
The next question comes from the line of Dhegash Chappie with Evercore ISI.
Hey, good morning. Thanks for taking my question. Maybe just clarification On the FERC discussion we were just having, have you quantified what the 50 basis points elimination does in terms of an earnings impact to you guys?
Yes, I think we did, gosh, it said it would be about $0.06 a share on an annual basis.
Perfect, thank you. And then just maybe get your thoughts directionally how you're thinking about the PJM here, the capacity Auction year next month, maybe you can just talk about it directly, where do you see prices going? And then how does that impact your sort of Process of selling the fossil assets?
Yes, I guess, so that we have had a long and And story history of not trying to predict in public where things are going. I think we've done a decent job internally of having our own views, but ultimately, as a participant there, don't tend to share too many. I mean, the only thing I would say is that If you take a look overall at the parameters that have been put forth for this auction, there There is more of a bearish tilt than a bullish tint if I think back compared to some prior auctions. We'll get the results June 2 and see where things go. But on balance, we see just as a comparison to prior auctions, we see a little bit more bearish than bullet signals coming out of this one just from the inputs that we've gotten so far.
That's super helpful. And just I mean is that just any color on sort of your discussions with active interested in those assets? What are you seeing there?
So I think it will play
a little bit of a role. If I Think about the assets that we're selling to guests. They are assets with they're very efficient, great capacity factors, and so they're getting Significant sparse spreads that ultimately drive their value. Capacity has some of the value, obviously. But given how much they run, I think the energy margins are going to be critical to that determination.
And this auction is going to be 1 year. And what And the parameters as you step through time. So I think that the capacity auctions of the past have not been A wonderful fore bearer of what could happen in future auctions. So obviously, each participant is going to take a look at that and see what they're going to do with it from a bid perspective. But it's not as big of an impact to look at a historical capacity auction as some other things.
Next question comes from the line of Steve Fleishman with Wolfe Research.
Hey, good morning. Thanks. I think most of my questions were answered. But just On the fossil sale just discussed, based on the initial bids you've had and different scenarios for the How confident are you that you will complete a sale out of this And get somewhere in the range you were expecting.
Steve, I think we have had a robust process. I think that we've had a lot of interest. I The assets themselves deserve and have drawn a lot of interest. So I guess I'd echo what Ralph said a couple of minutes ago. Think about that things have gone as expected, I think that's a relative positive for continued progress here, and we would anticipate Coming to a good
conclusion. Okay. And then on the offshore wind, both the commitment you've made so far and potential Future Wands, when will we get a little more kind of insight into The amount of the investment you're going to make and timing of that,
So that happens in increments, Steve, right? So good news at Avon that the The environmental impact statement will be done and I think that's a 2022 event. We've talked about making some capital decisions in the second half of this year, what's called our pre FID decision. And as I said that I forgot what FID stands for financial investment decision. And then I think there's another major decision a year later than that.
But so It's multiple steps in the process. We're pleased with how things are going right now. There are some tax flow changes that are being Bandied about that needs to be sorted through in terms of our original premise of being a tax equity partner. And I think right now I can be honest with you that that team is more focused on execution and a little bit more attention being paid to the Ongoing solicitations to create even further opportunities.
Yes. See, the dynamic The environment that we've had from a credit perspective in Washington does tend to shift things around. And as Ralph said, we're the tax equity and the social wind projects. So It remains a little bit of flux exactly what it will look like because the tax equity is going to be influenced by the ultimate Tax rules where they sit. So we've had some changes over time with respect to, I guess, last December, you saw Between the equalization, if you will, between PTC and ITC and with all of the, I guess, I'd say actual legislation before we know a final answer there.
So those will tend to influence ultimately Some of the cash flows in the initial years too.
Okay. And this question kind of got asked, but I'll just ask it a little differently. Given the FERC Noper that came out, just how are you how is that, if at all, impacting your ability to settle The New Jersey transmission ROE, is that tying into it at all or are you feeling okay?
It's of Part of the background environment in which we're talking, it's sort of ironic. 6 months ago, we were having this conversation. I think you would have phrased that as how does the
The other way.
Framing the conversation. And of course, our colleagues at the regulatory team were saying, I need another 50 basis points. We need to have it lower and Our response is already on the best not guaranteed, and it turned out we were right. And now we're tempted to say, well, with the our TOA are being taken away, then our The settlement number needs to be higher and I guess what they're saying, well, there's no guarantee that's going to happen. So it's part of the background.
The negotiation has always been around
Next question comes from the line of Paul Patterson with Glenrock Associates.
Just
quickly on the market for offer cap, as you're aware, there There was a filing by P3 sort of seeming somewhat concerned about Whether or not there is going to be a safe harbor that had been that they perceived to be Well, that they whether that was going to be continuing for this upcoming auction. And I was wondering, I didn't see Really anybody other than them raised this issue and obviously counter filings and what have you. But Any sense as to whether or not that's a significant issue or could impact you guys in any significant way?
Not to my knowledge, Paul. Dan and I are looking at each other right now saying we haven't joined
Okay, great. And then just with the MOPR and the FRR, Given where the Moper is and these things that are happening at PJM plus what we're happening at FERC, Is there what are the chances that there will be any significant action until The MOPR issue is resolved with respect to the FRR.
I think what the state will do is continue to make progress on What an FRR should look like if the MOPR doesn't resolve the duplicative payment? I've not I don't want to conjecture whether the state would proceed with the FRR if the duplication in the capacity We're eliminated. The state might choose to continue anyway just to start its independence and to not have to worry about A future FERC going back in the other direction, right? So New Jersey is clearly in it's for the long haul in terms of securing carbon free energy. And we've had some sizable changes in direction as for whether it's the MOPR or whether it's the RTOL add or And I could see the states just saying, okay, I can't live that way.
Let me chart my own course. Having said that, Dave, I need to say, I don't need to chart that course for a little while because the offshore wind that's coming into play 2020 for energy year, we'll no longer have this penalty imposed upon it. So it does give the state some Optionality is the mover is fixed.
Okay, great. Thank you.
And if resolved quick enough, perhaps gets Before anything gets finalized on the FRR, that would, I think, be the ideal situation that the state would have all the information to be able to
That makes sense. Thank you.
Your next question comes from the line of David O'Kara with Morgan Stanley.
Yes. So one of the landing points is a switching station of ours And that doesn't give us a hard and fast advantage except we know the area, we know The right of ways we know the transmission flows. We understand how to engineer multiple Solutions to bring that power on land without creating any other reliability issues. I don't have we given a scale, I mean, of the magnitude of the opportunity? I don't think we have, right, because it's an RFP.
So if we start throwing numbers out there, then it gives our competitors a fair amount of information about what But it is a consequential number. I mean it's something that would be a sizable project and a good
Okay, great. Yes, thanks. That's helpful. And I guess I was just curious with the recent cable issues that they ran into, just wondering if that's something that needs a reevaluation or changes economics in any way for the Ocean Wind project?
So I don't want to I tend to be an expert on that. I think the economic impact is more on having to go back and fix as opposed to designing In advance to avoid. But that would be a better question to Ask of the folks at Orsted, we will of course see all of that included in the project financial analysis During the pre FIT stage, but I don't have a more specific answer for you than that. I know what's
Your next question comes from the line of Michael Lapides with Goldman Sachs.
Hey guys, thanks for taking my question. Real quick, first of all offshore wind, are you thinking that Your interest is primarily owning or co owning or owning stakes in projects that primarily serve New Jersey. Are you looking to be more broad, more diverse across the Eastern seaboard and with more venture partners besides just the one you're doing on Ocean Wind?
So yes, we would accept broader opportunities. As you probably know, Michael, our Garden State Offshore Energy site that we call with has ready access to Maryland and it's actually been used for something called the Skipjack project which serves Maryland. You could also reach into Delaware And can reach New Jersey, it's at the southern tip of New Jersey. So that has a reach take reach. Arrangement with Orsted is in a certain part of the Mid Atlantic region.
So we're free to work with others outside this region. But as you're well aware, most of the participants in offshore wind are seeking partnerships, If at all with local utilities for a variety of regulatory and Planning transmission planning reasons. So while we would be open to it, I think that it's safe to conclude that our primary focus and emphasis is with this In this Mid Atlantic region.
Got it. Michael, a pretty opportunity rich area as well. I mean, have said that we wouldn't expect to be going to the Philippines to be doing any projects there. But if you think about what is closer to home, It is a pretty opportunity, Rich.
Got it. And then just one last one. On Ocean Wind or on other New Jersey ones, Can you remind me once the PPA is signed, who warehouses construction cost risk?
Is that the project developers? Is it
the customer? Like How does that work?
That's the project developer, right? So the PPA, the forward order, has a Energy price and then an escalator for 20, 25 years, I forget. And Anything that's any costs or issues that were not anticipated
Your final question comes from the line of Jonathan Arnold with Vertical Research Partners.
Just a quick one on the offshore again. Can you remind us, Ralph, if you have any With Ocean Wind 2 at this stage and or there's kind of an opportunity to have one.
So Jonathan, you broke up. I think the chance that Dan heard you better than I did or maybe you just need to repeat that. He'll repeat the question,
Now my question was whether you have just if you could remind us what your involvement or potential involvement with Ocean Wind 2 Might be the project that was bid in to the current solicitation.
Yes. So basically that's Orsted's project. And if they want to partner with someone, we have the right of first refusal in doing that.
Great. Thank you for that. And then just one just to clean up issue on the Howard, on the balance sheet, and Dan, I heard you mentioned your comments about Yes, use of proceeds. Is there an amount of debt that you indicated you would continue to carry on power? Just trying to sort of gauge how we should think about some of these Thanks for the coming up.
And what does the go forward balance sheet might look like?
There's not a number that we put out, Jonathan. I think the way To think about it is that there's cash flows that come off of power, and certainly those cash flows are financeable to the extent that There's a, for instance, a longer term solution for nuclear, then you've got a longer term understanding as to what that could be, and it could carry an incremental amount of debt for a longer period of time depending Where all that lands and separate and apart, than solar power, but the offshore wind proposal, as Ralph talked about, it escalates 20 years and that price is fixed. So yes, the construction risk is on the developer, but what you see from a revenue stream standpoint is not Market oriented, you get paid the OREC and then you provide back the market revenues that would come from that. So there's some stability there as well. So I've put a number on But there is a financeable cash flow stream in both of those instances.
So your comments before were not sort of pointing to a kind of a debt free power there?
Right. Not necessarily. Certainly, It would not it would probably not be the same issuances that would be there, but it could carry some debt on the other side of that.
Okay. And then just maybe similar vein, any plans to turn out the parent maturity It's coming up in November, or is that one
you're just going to retire?
It'll be based upon everything else that happens between now and then, which includes The status of what's going on from a sales perspective.
Okay, great. Thank you, guys.
Thanks, John. Thanks, caller. We're going to wrap up at this point. Thank you all for joining us. And I know we've been on the phone for about an hour, but The message I hope you heard is a fairly simple one.
That is that we're executing on our plan and doing the things that we said we would do To reinforce and create a primarily ESG leading utility. So Thank you again for spending time with us, and I hope to see you all soon in person. Have a great day, folks. Thank you.
Ladies and gentlemen, that does conclude your conference call for today. You may disconnect, and thank you for participating.