Public Service Enterprise Group Incorporated (PEG)

PEG 
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Exchange: NYSE
Industry: Public Utilities
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Public Service Enterprise Group (PEG)

Q1 2013 Earnings Call

April 30, 2013 11:00 am ET

Executives

Kathleen A. Lally - Vice President of Investor Relations

Ralph Izzo - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of PSEG Power LLC, Chairman of Public Service Electric & Gas Company, Chief Executive Officer of PSEG Power LLC and Chief Executive Officer of Public Service Electric & Gas Company

Caroline D. Dorsa - Chief Financial Officer and Executive Vice President

Analysts

Paul B. Fremont - Jefferies & Company, Inc., Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Ashar Khan

Dan Eggers - Crédit Suisse AG, Research Division

Paul Patterson - Glenrock Associates LLC

Andrew Levi - Caris & Company, Inc., Research Division

Stephen Byrd - Morgan Stanley, Research Division

Travis Miller - Morningstar Inc., Research Division

Neel Mitra - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Greg Gordon - ISI Group Inc., Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by. My name would be Tamara, and I am your conference operator today. I would like to welcome everyone to today's conference call, Public Service Enterprise Group First Quarter 2013 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded today, April 30, 2013, and will be available for telephone replay beginning at 1 p.m. Eastern time today until 11:30 p.m. on May 8, 2013. It will also be available as an audio webcast on PSEG's corporate website at www.pseg.com.

I would now like to turn the conference over to Kathleen Lally. Please go ahead.

Kathleen A. Lally

Thank you, operator. Good morning. We appreciate your participation in our call this morning. As you are aware, we released our first quarter 2013 earnings statements earlier this morning. The release and attachments can be found on our website at www.pseg.com under the Investors section. We have also posted a series of slides that detail operating results by company for the quarter. Our 10-Q for the period ended March 31, 2013 is expected to be filed shortly.

As you know, the earnings release and other matters that we will discuss in today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties. And although we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so even if our estimate changes, unless we are required to do so.

Our release also contains adjusted non-GAAP operating earnings. Please refer to today's 8-K or our other filings for a discussion of the factors that may cause results to differ from management's projections, forecasts and expectations and for reconciliation of operating earnings to GAAP results.

I'm now going to turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Public Service Enterprise Group. And joining Ralph on the call is Caroline Dorsa, Executive Vice President and Chief Financial Officer.

At the conclusion of their remarks, there will be time for your questions.

Ralph Izzo

Thank you, Kathleen. Thank you, everyone, for joining us today. Earlier this morning, we reported operating earnings for the first quarter of 2013 of $0.85 per share, which equaled the operating earnings from 2012's first quarter. We are very pleased with our results -- the current quarter's results compared to operating earnings in the year ago period, which benefited from IRS tax settlements at PSEG Energy Holdings and PSE&G by contributing $0.13 per share to consolidated operating earnings. We also achieved these strong results despite a decline in the average price of our hedged energy.

The quarter's earnings demonstrate the locational value of PSEG Power's assets, which, along with the strong performance of PSEG Power's nuclear fleet and Power's open position on its intermediate and peaking generation, allowed us to take advantage of a favorable price environment in the energy marketplace, while managing downside risks through the hedges on our base load fleet.

Our results also reflect the steady increase in the earnings contribution from PSE&G's capital investment in transmission. Mostly, the quarter's results are an affirmation of our focus on operational excellence and disciplined investment through maintenance of a strong balance sheet to meet the core objectives of our customers and shareholders for reliability and growth.

The performance of Power's nuclear fleet was enhanced by record quarterly generation from the Salem station. An upgrade of the equipment and the design of the circulating water intake structure at Salem greatly aided its performance.

Power also worked tirelessly to restore critical generating stations to operation in the aftermath of the damage created by Super Storm Sandy. The Linden gas-fired generating station was returned to service on January 11 and was available to meet the increasing demand during the winter months. The Hudson coal facility was also returned to service in January. However, given the dual fuel flexibility at Hudson, this station was able to run on gas until higher gas prices and demand favored its dispatch on coal.

Regulatory recovery of PSE&G's investment in transmission under its FERC formula rates increased the earnings contribution from this critical enhancement to PSE&G's infrastructure. PSE&G's investment in transmission will help drive our forecast to double-digit growth in PSE&G's operating earnings in 2013.

PSE&G is expected to invest $3.4 billion in transmission from 2013 through 2015. This investment will increase transmission as a percent of PSE&G's rate base to approximately 40% and continues to drive our expectations for double-digit earnings growth at PSE&G over this multi-year period.

We benefited from excellent operating performance and an increase in our capital investment this quarter. But as focused as we are on meeting our short-term goals, we are equally committed to delivering on the long-term promise associated with our proposed 10-year $3.9 billion Energy Strong distribution investment program. This program, along with plans to invest $1.5 billion to harden our transmission system over the same period, is a natural extension of our strategy to maintain PSE&G as one of the nation's most reliable utilities. We are seeking approval from the New Jersey Board of Public Utilities for the initial 5-year distribution-related capital program associated with Energy Strong, which would occur during a period of time when some major changes on the customer electric bill are scheduled to expire.

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