Public Service Enterprise Group Q1 2024 Earnings Call Transcript

Hey, good morning Nick.

Yeah, Nick. So look, I think the bottom line here for us is that we kind of see this as just a continuation of us following the state's policy, not setting it. And I think the governor has been very clear about his desire to attract AI Jaff to New Jersey and the infrastructure in data centers and other IT assets or things that he's looking to have in place.

Now the timing of something like this, I think, is driven by a number of different factors, right? You've got some of the hyperscale data centers and their timing. So I don't want to -- I really don't want to talk for them. And I don't want to [Indecipherable] the governor on some things that he may or may not be working on. So we're here to support. And I think from a timing -- overall timing standpoint, I would just really follow the state's announcements and policy initiatives around this effort.

Yeah, Nick. No, I think those are really kind of a couple of different pieces there, right? So we'll roll forward later in the year as we roll forward every year. I think we start out with the capex and some other items at the end of the year and then our earnings beginning of next year. But the data center specific, we're not going to change our plan. Power is still a very small part of this company's earnings stream. It is all upside, so I understand the attention to it. But what we'll do is we'll roll in any PPAs, whether it be on data centers or hydrogen opportunities or anything else that we have done at the plant. We'll optimize it. And as soon as we agree on terms around something like that, we'll roll it in and be transparent about it. But right now, our plan, as we look forward, is to continue to project ourselves out based upon that PTC floor.

Thanks, Nick.

Good morning, Jeremy.

Yeah, Jeremy, I think it's really -- my advice is to keep a very close eye on the PJM RTEP process as they continue to reevaluate the topology of the transmission grid I think there'll be opportunities across the PJM footprint. You got to just take a look at what happened at -- with Talend as a very simple example. That power plant was connected to our Susquehanna-Roseland line. That power at least 100 megawatts or so of it won't be flowing out of the power plant into the grid. And so that will have an impact on the topology in a very simple term.

Then you've got data centers popping up in different locations. We have a number of requests that have come into our utility that we're processing, not of the magnitude of hyperscale, but smaller edge-type computing solutions. And so each one of those will have an impact and the place where it all comes together, and I would encourage you to take a look at is through that RTEP process. Offshore wind will be one of the generation solutions for it, but there will be need for additional modifications to the grid, and it's a TBD for all of us.

Yeah. So look, if it's a behind-the-meter solution, the way ratepayers will be held harmless on that is that there won't be any additional infrastructure charges, so they wouldn't be burdened with additional infrastructure other than if there's a new generation that comes on and we -- it has to be supplied into the grid and there's different paths, those interconnection agreements are the way that that's handled through cost allocations in the PGM market today. So I think there's a very fair and transparent way that that's taken care of. And I think each state has a different solution for in front of the meter data centers or loads that are popping up. And those state individual tariffs. And I guess every state will take a look at it from an economic development standpoint and determine how to want to handle it. But we haven't seen any changes in New Jersey to the tariff requirements for new business extensions.

Good morning.

Yeah. Durgesh, I wish I had a better answer for you, but we continue to wait for guidance to come out of treasury. I know that there's been a host of different approaches to treasury to try to spur some information to come out. But I know that you know that PTC began January 1. So we are in it. And I continue to think that the most important definition is, as we've all thought about it is the definition of gross receipts. And so that's what we're waiting for more than anything else. I think we're -- we're moving forward, we're finding out a little bit more about what '24 looks like every day that goes by in '24.

And we continue to do what we've been doing is trying to think about what different potential outcomes could come from treasury and try to position ourselves as ideally as we can against the backdrop of that uncertainty. And I think we're doing fine there, but we would prefer to have it. I don't have a date for you. I don't have an estimated date and I've not heard that one is forthcoming. So I think we're in the same boat here yes, I think we're just waiting.

Yeah. Yes, I think that's exactly right.

Yeah. And we've talked about it's going to come off of the FFO to debt. And I think that one of the things that when you did see that increase in capital that you referenced, there are different FFO to debt implications depending upon exactly what the capital is and kind of on the opposite ends of the spectrum, our energy efficiency program has a recoverable life, depreciable life, amortizable life whatever you want to call it, of closer to 10 to 12 years and our more infrastructure-oriented investments have a longer recoverable life.

And then -- so when you look at those particular investments, you're going to see much less of an impact on your FFO to debt because you're going to see a lot of cash coming back to you quicker to the extent that it's EE benefits. That's something that's more steel in the ground, whether it's on the transmission side or electric or gas side. And then to your other point, I totally agree with your comment that on the power side, it would be capital light, but it could be FFO positive in a fairly significant way.

So those are the elements that move around if we're in the mid-teens our current threshold for where we are is 13, 14, depending upon whether you're talking about Moody's and S&P. So we've got some room in there, but I think it's not a -- it's going to depend a little bit on the nature of the investment. And I think as you saw more of that increase coming from EE of late, it was more credit friendly for us to move in that direction.

[Indecipherable].

Hey, Constantin.

Yeah. Look, the grid -- I'll start go backwards on that. The grid dependence Constantine, I think, is -- it's not just data centers, right? We're seeing electrification across the board. And as policymakers continue to move in that direction, we have to be aware and make sure that the system is being built out correctly. I think it's being handled in multiple fronts. It's being handled at FERC. It will be handled by that each individual state.

But there's plenty of avenues for those conversations that take place and to keep the burden to customers to a minimum. So no offense on what's about that. On the scalable side, I'm going to give it to Dan because his team does a lot of work on the commercial front. I'll just tee up that there's -- there are different ways that you can look at it. And Dan's team is doing a great job of talking to multiple folks and looking at multiple solutions that he can give you some more detail about it.

Yeah. Constantine, it's a great question, but it -- if I try to think about exactly the nature of how you're asking, I think that by definition, if you're going to do something behind the meter, you're going to do it at scale. And so, I think that you wouldn't move into that situation with something that was not of scale and growth to scale other than the natural fact that I think you're not going to have a data center of scale appear immediately.

And then so it's more likely from what we have seen, you would see something that would be agreed to be of scale that would come in over time. And so, if you -- if that meets your definition of scalable, meaning it's going to grow as you step through time, I think that the answer would be yes, but I think you'd want to set that all up right at the job.

And Constantine, the only thing I'd add to what Dan said, just a reminder, where we sit geographically is a great spot. But I also point out to everyone, we're the only merchant site that has three units on it. So, the ability to scale there is a little bit different and the ability to back up the supply is also very different. So we're really excited about whatever those opportunities might be down the road because of that.

Yeah. I think if there's a change in how we are looking at things and what we are seeing, that is in place and locked for a period of time for us to be able to say something about it. I think that's a logical time for us to do something. Constantine, you've seen these markets for a long, long time. You know that they come up, they come down and they're cyclical. And so, in an instant, when they are higher our intention is to try to be more predictable and come out to investors and let them know what they can count on. And to the extent that there is some upside opportunities speak about it, but not have it be embedded until it is real. We're trying to just kind of keep things grounded. And so, my sense is that you will probably see that as you continue to go forward from us.

And just a reminder, Constantine, the highly visible and liquid PJM West top is not necessarily reflective of the entire PJM marketplace. So those numbers aren't dead on for everybody.

Thanks.

Yeah. It's -- Carly, it's a very small piece of the puzzle that's going on now. There's a lot of engineering work that's going on. There's work that's being done on -- we're doing a rewind on the generator that in part of this outage, we've got an upgrade that we're doing -- we're basically cleaning out some old insulation on the cooling tower, which provides us about 8 megawatts of additional capability there. I mean small, little pieces, but really helps us in some -- based upon weather conditions and the rates that are required. So lots of work to optimize the unit itself in anticipation of that fuel change that we're going to be making down the road. So it's -- the investments will be made at Hope Creek over the next couple of fuel cycles, and then we'll be ready for the for the ultimate change to the 24-month cycle.

Yeah. Carly, we may see it to move a little bit higher. It's funny. We talked a little bit about the weather in the earlier remarks, and it was a fairly mild winter, but it was a really wet winter, and we had some storms that were not exactly temperature driven as much as they were precipitation driven. And so some of that drove costs a little bit higher as did. Any time we have a Hope Creek outage, it's 100% owned. So there's a little bit of a bigger impact there. And so some years, we'll have that, some years we won't. So you'll see that come through on the power side. But really, the storms were one of the contributors to the first quarter's impact on O&M.

Thanks.

Hi, good morning.

Yeah, Andrew, I think, look, you can look at what happened at Talend as a placeholder for size of units at hyperscalers are thinking about. Just a reminder, our state plan kind of ends in May of '25, right? So we're -- I don't see a data center being built before May of '25 down at that site. We may be in discussions with folks and have something to say sooner than that. But I don't expect any power to be flowing to a data center before May of '25 when that program ends. And then we'll see what the rules say on the IRA and how the PTCs interact with any of these kinds of agreements that are reached.

Yeah. I think the entire portfolio could be available for long-term contracts. And again, I think that falls into a bunch of different scenarios.

Yeah, I don't think there's anything that's a restriction and we'll continue to work forward and keep you posted.

Yeah, Andrew, it's kind of simple as to why the dollar per megawatt saved goes up, right? I mean you're going from changing light bulbs, which was the first effort that we started way back when and thermostat changes to now you're upgrading HVAC units and moving into commercial and industrial operations. So that's very different just from a dollar per megawatt hour safe standpoint.

As far as the pushback, this was all part of the BPU's triennial. So a lot of what was submitted was based upon the needs identified by the Board of Public Utilities and really are not a surprise. The question will be just from a total spend standpoint, how far they would like to go. I don't think there'll be a lot of arguments about the cost per based upon on our historic performance, which has been really good. And then second, the type of work that we'll be doing going forward.

Yeah. Andrew, also within what the BPU did, I think to their credit, they try to take a philosophy in approaching this that they wanted to target things through this program that they viewed would not happen otherwise. And so the light bulbs is an example of that, given that incandescence are off the shelf. But in other examples, too, things that were going to happen anyway are not a great target for this kind of a program is to try to expand what would otherwise happen. And so that, I think, expands the reach a little bit, moves them to a better place, but may cost a little bit more to get it done.

Thanks, Andrew.

Hey, Steve.

No, Steve. So it's a great question. So the port is built. I mean they've done a ton of work down there, and that was the New Jersey Economic Development Authority has done a lot of work there. I don't know if we can pull a ship up there yet, but we're pretty darn close. So there's been a ton of activities completed. And they started to lease some space to some of the offshore wind developers. And so I think from a state standpoint, that's going pretty well.

Then there's additional land that's available, and you could put a data center there, you could put how big it is, is a question right? You've got to figure all of that out based upon each individual developers design criteria and what they might be considering and the size that they're looking for. You could put a hydrogen unit there, you might have an electrolyzer or something that makes some sense to go there? Or maybe it goes a little bit off property, right? And again, it all depends upon the rules that come out and what we finally see from the IRA implementation. So we're thinking about it as all of the above and an optimization strategy. Just to figure out what is the best way for us to use those -- that electricity that's coming off the units and doing in a way that's completely aligned with the state's policy.

So you could do it all. It's just a matter of what the policy is at the state and how big any one of those individual opportunities become.

An on the hydrogen front, Steve, as just a reminder, an upgrade there would meet both additionality and hourly matching to the extent that those limitations continue on hydrogen. So I do think we feel pretty good about what we have the ability to do down there and don't see limitations on having to pick one or the other.

Yeah. So Steve, that power flows a whole bunch of different ways, right, not just in New Jersey, but other states, right? So it's more of a PJM question as to that specific unit in those specific megawatts. But I will say this, and what we've set it in multiple settings, I apologize if it's a repeat, but that 2003 blackout gave us the opportunity to rebuild the transmission infrastructure and we did that. And as Sandy comes along when we rebuilt the switching stations and substations. So we're well prepared for this.

I think New Jersey is uniquely prepared and I've got my economic development hat on here for a second, but I think we're in a really good place and the margins aren't quite as tight as some others might have. So I think we're looking at this and trying to figure out what's the best solution for the state and we're doing it in a partnership that one-off of the states plans. So we feel pretty good.

Thanks. Don't pause for asking us a nuclear question. We choose to stand, so we will want the question.

Yeah, Ryan. I think the simple answer on the first question is if somebody is going to come in and build a data center that's going to be a very, very significant investment, and it's going to be around for a long time. So I don't have a specific number of years to give you, but I think long term is pretty comfortably thought about as being long term. And I think on the transmission side of things, Ralph, just really, I think, gave the right response as much as we have built out the transmission system given what we went through about 20 years ago and 10 years ago. I do think we're prepared for whatever flows need to happen within the region. So both of those, I think, are in pretty good shape.

Yeah. No. So I believe -- again, I'm going to put my other hat on, I believe the state has plenty of solutions for new businesses to move to New Jersey or to start up here. There is a number of different initiatives down at the EDA that could attract businesses. And I don't think anything that I've seen would require additional legislative changes. There may be some to speed things up or expand opportunities for folks, but I'm pretty confident that the state has the tools and tools just to reach out to the opportunity said it has.

Travis, I would simply tell you way too soon for us to be talking about anything like that. It's -- we're not -- we're not in a position to talk about any details of any discussions. I would say this to you, though, we've answered the question a bunch of times and I'll tie it back to the hydrogen opportunities. We don't want to get into the commodity risk -- commodity risk situation. So what we basically look at this as we put a meter at point A and folks can pick it up from there and figure out what they're going to do with the electricity. And I don't see data centers or electrolyzers or anything else that might happen in that in that space is different. And then Dan, I don't know if you want to add?

No. I mean the only thing I would say is just from a practical perspective, if you think about a three-unit site, you've got a lot of redundancy and the ability to deal with things like that. And so obviously, contractual Ts and Cs are going to be worked through across the entire breadth of whatever agreement you have come to. But I think we start from a position of strength there.

Yes. So Travis, I think there's two answers there. First, the PBI, the interest prebuild opportunity does not require that. It's basically very similar to what happened in the first solicitation where use an analogy. It's a [Indecipherable] for pipes coming -- or wires coming in from the offshore wind farms. So that piece really is not dependent. I think the size and scope of the next solicitation is clearly dependent upon what -- how big that offshore wind opportunity gets for the state as a whole. And that -- we have not seen a scope of what that might look like yet.

It would be a PJM process initiated by the state agreement approach from New Jersey. So, New Jersey would pick up the phone call PJM and ask them to run the process for -- on behalf of the state.

Thank you.

Hello, Paul.

Good.

No. I think -- look, there's five or six items that are there. We have some folks that are heavily involved in transmission in our wires organization, so many other ones. So we're staying abreast of it. I think FERC has remained balanced under the current share. And I don't expect some wild swings in the outcomes there, but we're monitoring it closely right now, Paul, and I wouldn't have much more to add than that.

Yeah. So some of that grid enhancing has really been focused. I think there was a New York Times article on it about the upgrades of some of the conductors that people have installed. And we've looked at some of that and piloted some of that. As we've talked about, we've done a lot of transmission upgrades. We've also built into our system, the ability to do some additional upgrades.

But I think that just becomes a cost benefit for the consumer based upon what additional capacity we would get out of it and whether or not we wouldn't want to front run the need. So it's something we'll monitor and it's something that PJM again, will have in their tool chest to make some determinations upon how they want to solve some of the gaps that might get created as we move forward here with electrification.

Thanks.

I just simply want to thank you all for your continued confidence and support, we welcome all these questions, and we really look forward to getting together with most of you at AGA later in May. So again, thank you to our employees, to our customers and to our investors. And we'll see you all in California. Take care.