Public Service Enterprise Group Incorporated (PEG) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for joining us this morning, and welcome to PSEG's 2023 Investor Conference. It's so good to see everyone in-person here, and welcome to everyone on the webcast. We have a full morning plan for you today with the executive management of Public Service Enterprise Group. And I'm going to briefly go through the agenda. Many of you have met our new Chair, President and CEO, Ralph LaRossa, and Ralph is going to provide us with an update and an overview of the company. And then next, we'll bring up Kim Hanemann, President of PSE&G and our Chief Operating Officer. Joining Kim this morning is Dave Johnson, our VP of Customer Care and our Chief Customer Officer. Also joining Kim will be Scott Jennings, our Senior Vice President, Finance, Planning and Strategy. After the PSE&G presentations, Kim is going to conduct a utility-specific Q&A session for our in-room audience. And then we'll take a 15-minute conference break. Following the break, we are going to have Eric Carr, our President and Chief Nuclear Officer, join us for an update and overview of PSEG Power and Other. And joining Eric will be Charles McFeaters, our SVP of Nuclear Operations; as well as Lathrop Craig, our Senior Vice President and Chief Commercial Officer. [Batting] cleanup this morning is Dan Cregg. He's our Executive VP and Chief Financial Officer. And after Dan's remarks, Ralph, Kim and Eric will join Dan on stage, and they will do a general Q&A, and that will be our final Q&A for the morning. So just a reminder, all of the materials today are posted on our website at investor.pseg.com. And I know that you have come to hear us make forward-looking statements this morning, so I'm going to refer you to our safe harbor language as well as to our GAAP disclaimer that you can see on the screen behind me. It's in your materials, and it's also on our website. So let's start today. I'm going to share with you a short video and at the conclusion of that video, Ralph is going to join us on stage and start the conference. So if we can dim the lights. Here we go. [Presentation]

All right. Thank you, Carlotta, for kicking us off. Appreciate that. What you just saw was a video that's part of our brand refresh that we're going through. You'll see it in a number of places around here, but it's more than a video about our brand refresh. What we really wanted to talk to you about was some of the key themes that come out of that. And I'll tell you, the first one that strikes me when I look at that video is a straight talk. So we're going to kick off with some straight talk right out of the box here and that's about our strategic clarity. We -- I guess, a couple of months ago, we came out, we talked to you a little bit about our exit from offshore wind generation, and that was one of the strategic questions that were out there that you all had. We answered that straight on with some straight talk. Well, I'm also here today to tell you that we're answering you straight on. We intend to keep our nuclear business straight up. There's no question about that in our minds at this point. We'll talk about it a little bit more I'm sure as we get into the Q&A, but we wanted to hit that straight up. The other thing we wanted to do to just talk to you a little bit about 4 real key themes that we want you to take away from today's presentation. One is predictability. The second is growth. We think we have a great growth story. We've talked about predictability quite a bit. We think we got a great financial base. It's been set for us over the years. We'll talk to you a little bit about that, and we'll talk to you about the team that we have. The team that you see up here that we're going to be -- we'll be talking to you later today, but also the team that we have out in the field every single day. We're very proud of that group, and we'll talk to you a little bit about that. So 4 key themes for you to take away as we go forward. We also, in that video, talk about our vision of the future. We know, as a utility, we have to continue to evolve. I was cracking up as I looked at the video. It's 120 years we've been as a company, and I thought that was pretty daunting until I realized that I've been there for about 1/3 of it, 40 -- almost 40 years. Not quite, but it's pretty telling. But we have to change and we have to continue to move on, and we introduced a few years back, our power and progress vision. And we think it's a simple vision of what a utility needs to be going forward. It's a utility that provides less energy to customers the ability to do that in a manner that provides safer, more reliable and with access to clean energy than ever before. That's our vision. That's where we're going to be going forward. But we haven't forgotten about what got us here, and what got us here are these 3 focus areas that are in front of you. Our operational excellence, we put ourselves up against anyone; our financial strength, again, the work that was done over those 120 years to put us in the position that we're in today; and a disciplined investment, disciplined investment that has gone on over time and will continue as we go forward. So let me take a little moment to talk about each one of those single areas that -- the 4 areas that I want you to take away. Let's start with predictability. If you look at our merchant business over time, the first thing we did to add predictability was, we exited our fossil generation business. We exited that fossil generation business because we reduced our commodity risk. It was a very straightforward play that we made. The second thing that we did was, we exited the offshore wind generation business. The reason we left the offshore wind generation business was to reduce our project risk. We'll talk a little bit more about that as we go forward. And then the last thing is, we brought what we believe is a lot of stability to the nuclear industry, not because of the PTCs, but I would argue that the work that we did in New Jersey, partnering with the New Jersey administration has set the ZEC process up set the stage that the nation then followed. So we take a lot of pride in that work that we did. And I think that that's going to play benefits for not just us, but for the nation as we go forward. We had a blip last year from a pension standpoint. Some great work done by our regulatory team to address that in partnership with the New Jersey BPU to again bring predictability to our earnings. And one area that we don't talk about a lot is our utility predictability. We are a single state utility. That is unique. But what's also unique is that we have 2 regulators that we answer to. Our FERC regulator, where our transmission rates are covered -- about 50% of our rate base is covered by that formula rate that we go in every year to the FERC for. The other 50% is covered by New Jersey BPU, but it's decoupled as a result of the SIP program that we put in place a few years back that decoupling is there. It really reduces the usage and economic risk that we have. So again, more predictable earnings. We'll talk about our robust capital program, very predictable. We've delivered on that year after year. We'll show you a great pathway to what we see as a large growth rate in our utility and that great balance sheet that we have. You put that all together, that's a very compelling story for utility in this day and age. So let's talk about the growth plans that we have. So I've been up here before and talked to you in the past, 2003, the lights go out in the Northeast. We stepped up and worked with policymakers to build out our transmission system. We did that as a result of federal initiatives, but also initiatives that came out of the core design administration. So we answered the call to action. 2013, we had Super Storm Sandy, and once again, we answered the call to action, that time from the Christie administration. And now we're answering the call to action by the Murphy administration to be ready for clean energy and electrification of the homes throughout New Jersey. Great opportunity for us to grow and to really invest in that last mile. The -- any of your customers here? A few. Don't tell you neighbors, but we wait for the polls to fall down. We did not have a replacement program in the past, right? So now we're going to be out there proactively doing that because if you're going to electrify your home, if you're going to count on us for your vehicles, you need that reliability. And this alignment with the policy of the state will enable us to grow the business. We talk about some assets that we have, and we talk a lot about the utility. 85% to 90% of our non-GAAP earnings is going to come from that utility. We also -- so we've talked about them for a great time. We think it's a great utility. We're a very solid asset there. Our nuclear business, another very solid asset. Why are we keeping our nuclear business? It's pretty simple. It provides cash to fund that utility operation. We believe those assets with us are better used in that manner. Plain and simple, providing that cash to the utility. But it also has some growth opportunities. You're going to hear that from Eric and his team as they come up, and we're very excited about that as well. They also have great operations, and you're going to see that from Eric in his presentation as we go forward. But the part that I really want to hit on this slide is our people, and it starts with the team that I have in front of me here today. You know Dan. I want to introduce Dan. You're going to hear from Kim Hanemann, who runs our utility. I have to say one thing about Kim. We've been together since 1985. Maybe not 40 years, but she's getting close as well to be 1/3 of the time with the company. Eric Carr runs our nuclear business. You're going to hear from him. He's another one of the members of our team. My team, my direct reports. Zeeshan, if you could just stand up and say, hello. He's our CIO. He makes sure that our computers stay on every once in a while, not every day. [Rodney Dickens], who I've worked with for over 30 years as a special adviser to me and is keeping an eye on Long Island. Rick Thigpen, he's our Head of Government Affairs, External Affairs. He does a lot of things. He make sure everybody is happy on the outside. And then my right hand, Sheila Rostiac, who is our Chief Human Resource Officer, make sure everybody is happy on the inside of the company. So we have a fantastic team and that translates into a fantastic organization all the way down through the people it serve, view the customers that we have. The financial strength, we summarized the 3 ways for you here. We have a long-term growth plan. It's pretty straightforward. We're proud of it. We've got a robust capital plan. Kim's actually going to give you some visibility into 10 years, not just 5. So that's new for us, but something that show our confidence is what we can deliver. And we got that solid balance sheet that has been put in place for time and time again. I also want to take one split second to stop and talk about our dividend. Some people have conversations about that. We are very confident in our dividend, and we're even confident that over the planning horizon, there will be an ability for us to grow that going forward. Now let me just show you a little bit about how we show up for a customer. This is one of our -- how we show up for an electric customers. This is one of the measures that we have, which is our reliability, our safety measure. That's basically how long the lights go out for an average customer in a year, and we do very well on this measure. We don't really do well from a measure of how long the lights go out, but if you look to the bottom part of the chart, it shows you the cost that it takes on an O&M basis for us to deliver that high-quality service. There is not a peer that we have when you weigh up those 2 measures. Our gas customers, we show up for the gas customers. Again, very cheap. We'll see some numbers out of Dave Johnson and a few others are going to show you later that we're very proud of the rate. So we have. But this chart also shows you there's a need for our GSMP program. We do have a lot of leaks, but once again, our team manages that cast iron system, those low-pressure leaks -- not high pressure, those low-pressure leaks better than anybody. I put them up against any group in the country. So they do a great job managing those leaks and Kim will show you that because our open leak totals continue to remain low. And our customers believe us. They believe in us. So I know there's a few folks that keep a look on J.D. Power scores every year. Well, this chart projects our J.D. Power scores against those costs that I laid out. I'll tee this up a little bit. Dave is going to talk to you about our results of our J.D. Power scores. We've won the East region for both the electric and the gas side this year. Just great, great performance by our teams and again, at a low cost. And what our customers don't see is what happens behind the scenes, and that's our A&G costs. And if you look at us against our peers in the same type of labor market that we're in, we performed better than anyone else. So that's how we show up for customers, but we have more than our customer base that we have to be worried about. It's also the communities that we serve as a whole, and we show up in those communities multiple ways. Let's talk a little bit about our spend in those communities. We focus on the businesses that are our customer base. We spend in those communities that we serve. We not only spend in those communities we serve, but we also make sure that we do so in a way that supports the diverse enterprises that exist within our service territories. We show up in a philanthropic way. Our foundation deploys about $8 million a year. It's a different charity organizations throughout our service territory. And then we show up as volunteers. We show up for different organizations that we participate in, the one that I'll be -- I'll talk to you about just for a second, it's one that I'm very proud of. I chair the New Jersey -- Choose New Jersey organization, which is the Governor's Economic Development Group. We work together with them to place the wind port down in South Jersey, lease some land from our nuclear business, wanted to build in a wind port that we think is going to create a tremendous amount of jobs in an underserved part of our of New Jersey, the Southwest corner. That doesn't happen without our participation, our volunteerism and our engagement within the economic development community. And about our people, we've heard a lot over the last number of years about people to silent quitters, the folks that are departing, the turnover rates. Over the last 3 years, our turnover rate -- voluntary turnover rate has been less than 3%. I'll let that sink in for a second. Our employees like to work for us. They like the work they do. 3% voluntary turnover rate in this environment, very, very proud about that. And again, it starts with the team that we have in front of you. That team is turning over, though. We have some retirements. It's not because people are leaving just to leave because we do have some retirements taking place, and we're starting to backfill that organization. And we're backfilling that organization in a very thoughtful way. We're hiring people that look, act, feel and think the way our customer base does. And as a result of that, you can see all of the awards that we've been able to receive from a DEI standpoint and the great work that Sheila and her team. This slide is all about the work that our human resources team does. A lot of talk over the years, the last year about ESG. Well, let me just address a little bit about our view from an ESG standpoint. We have done a lot for the environment. We will continue to do a lot for the environment. We show up in this space by putting our money where our mouth is. We've -- over half of our capital deployment is in the area of environmental to improve the environment. The things that you've heard about in the past are carbon-free commitments, our energy efficiency programs, but the one area that I don't think gets enough credit is the work that we've done on our gas modernization program. Back in 2016, when I chaired the American Gas Association, we made a commitment, we stepped up and worked with the EPA to say, we'll accept the methane challenge. And as a result of that and the work that we've done, and Kim's team and a number of folks in our organization have done, we have been able to reduce methane emissions from our system by 22%. We're not talking about what we're going to do for the environment, those are things that we've actually done. From the rest of the EGS standpoint, again, I'm not going to get into a discussion about this data or the other thing. We think it's part of showing up. It's who we are. We hold our employees to a very high safety standard, and we hold ourselves as a management team to a very high standard. I'm not going to argue about whether or not we make more money or less money because we're an ESG company or not. We believe that this is fundamental to who we are and who we have to be as a utility in the service territories that we serve. It's that plain and simple. You look at the recognition that we've gotten, and it shows up exactly there. We are who we say we're going to be. So I'm going to bring this together, wrap it up for you with this. A very secure, very predictable earnings growth rate of 5% to 7%. We've talked about that. We'll continue to reduce that, and you'll get even more confidence as you hear from others in the organization. You combine that 5% to 7% growth rate with a dividend yield of 3 to 4, and it will imply for you a shareholder return of 8% to 11%, considerably derisked from who we were just 12 months ago. That valuation that you see at the top, we'll continue to improve on that. You'll continue to see that gap close to both our average peers as well as to the premium peers in the organization. We will deliver on what we have in front of us. So I'm going to invite Kim and her team up. As I do that, I want to thank you for coming out. I know it's easy to go on a webcast or not. I really appreciate you all showing up in the room today, and I really look forward to the question-and-answer session that we're going to have going forward. Thanks for listening.

Thank you. So good morning, everyone. Nice to be here to see you in-person today. So I'm going to give you -- I'll let my team get seated here. I'm going to give you a quick overview of the utility section of the presentation. Dave Johnson, our Chief Customer Officer. He's going to go through our strong operational performance, talk to you about our focus on affordability and then what our customers think about us. Next, I'll get back up here and talk about our capital plan and some opportunities we see for future investment. And then lastly, Scott Jennings is going to talk to you about our rate base growth and our regulatory framework. So to reinforce what Ralph highlighted earlier, we continue to have a very predictable business mix. This year, we will be executing almost a $3.5 billion capital program. So just like we've done for the past 15 years that I have been in charge of capital program execution for this company, we have the team with the skills, the capabilities to deliver this program on time and on budget as well as the ability to flex up to do more. We also see some additional opportunities that are aligned with the state and federal energy policy. Just a reminder, our transmission formula rate, it provides contemporaneous recovery of those investments. And for distribution with our SIP program, our clause programs like GSMP and Energy Strong as well as our transmission investments, about 95% of our margins are not dependent on sales volume. So just a quick reminder of who we are. We are the state's largest utility. We have [ 2.3 million ] electric customers, 1.9 million gas customers. The map on the right shows our service territory. We run from Philadelphia to New York. We hug each side of the New Jersey Turnpike. We serve the state's largest cities. And as Ralph has said over the years, we power the pizza areas, the nail salons and the diners you saw in the video, but we also power the data centers that run the financial district, the state's largest universities and the Statute of Liberty. So the pie chart in the middle represents our rate base. At the end of 2022, we had a little over $26 billion in rate base. Little less than half is transmission. Remember, that's regulated by FERC. A little more than half is distribution, electric and gas. And then the remaining piece of the pie there are our clean energy investments. So next, I would like to turn it over to Dave Johnson, our Chief Customer Officer. I am really excited to have Dave join my team last year. He brings great experience and expertise, and he continues to be the voice of the customer in everything we do.

Thank you, Kim. I really appreciate it, and thank you for giving me the opportunity to be a member of your senior leadership team, and Ralph, to you as well. Thank you for that. I'll tell you what, since I've been here, it hasn't taken me long to realize that I've joined a top-notch senior leadership team, which is absolutely outstanding. One of the observations that I've made since I've been on Board is that everything starts and stops with safety here at this organization, which is a beautiful thing. If you look at the chart above to your left, you can see we're performing in a top decile safety manner, which is outstanding. Additional things that I've noticed since I've been on Board over the last 9 months is that there's an extreme focus on operational excellence. In addition to operational excellence, there's a focus on affordability for our customers. As you look at the slide above me and look at our SAIDI results, you can see we continuously perform at an extremely high level at a top-decile level in the area of reliability. Now as Ralph mentioned earlier, we measure reliability based upon the number of minutes that our customers are out annually, and we're at below actually 50 minutes per year. And when you compare ourselves against our national peers, we perform exceptionally well in this space. One of the unique challenges that we have at PS is in the area of our gas leaks. We have more cast iron Maine. Our levels of cast iron is higher than most in the country. However, even with that challenge, we performed very, very well in terms of managing our gas infrastructure and our gas system. We've made significant progress over the last several years with our GSMP program since 2017, but there's a tremendous amount of work that we still have yet to do. One of the things that our customers continue to tell us over and over and over again is the importance of keeping their bills down, keeping the bills affordable. We recognize, based upon the region that we're in, in the country that we may not have the lowest bills. However, when we compare ourselves to our regional peers, we're extremely competitive. As you look here on the chart on the left-hand side, our monthly electric bills are below the regional average, which we're extremely proud of, but more importantly, we're exceptionally proud of the fact that our gas bills are the lowest in our region. Not only are they the lowest in the region, they're $65 below the median average within our peer group within the region. So some of the things that we do and that we'll continue to do to help our customers keep their bills low, we'll continue to connect them to energy efficiency solutions, and you'll hear Kim talk more about that in a little bit. Secondly, we are successfully deploying AMI throughout our service territory, and we're going to be able to leverage that tool in partnership with our customers to help them to manage their monthly bills. We are exceptionally conscious and that's one of the things that I'm really pleased about being on this team about is our consciousness about our customers' affordability and the percentage of wallet share that we have of our customers. As you can see over the past 13 to 14 years, we've seen a 40% improvement in affordability for our customers. Some of the things that we've done even during this period of time, we've continued to strategically invest in our infrastructure. Number two, as you heard Ralph talk about, we continue with extreme cost control measures to make sure that we're operating as efficiently as possible, and our customers during the same time frame have benefited and enjoyed lower gas prices. Another factor here as you look at this chart that we have to be mindful in our service territory is the fact that we have some vulnerable customers, those that are low income or moderate income customers. We continue to be advocates, and we continue to support that part of our population. And one of the things that we're extremely proud of is over the last couple of years, the eligibility requirements for customers that are low and moderate income to participate in energy assistance programs, those eligibility requirements have been expanded, and that's due to our advocacy as well as others with the state and federal government to open up those requirements. By doing that, more of our customers are eligible now to participate in those programs to help them with their bills. And finally, Ralph said, he was going to tee it up for me, but I think he stole my thunder. One of the things that we're exceptionally proud of here at our company is, in 2022, we were awarded the J.D. Power Award for highest in customer satisfaction for the East large region. And not only did we win it for the residential electric sector, we also want it for residential gas. Now let me tell you why that's so important. Because we're coming off the heels of the pandemic and COVID and you know the challenges that it put forth for our customers there. And so to have won this award, 2 of them coming out of the pandemic, is something exceptionally special. The other thing that's special about this is that there's only a few companies since the inception of J.D. Power that have won both of these awards in the same year, and now Public Services is a member of that's a very distinct group. Another customer satisfaction award that we've received is from Escalent, and it's a representation of our residential and business customers. They've told us that we're one of the most trusted brands in our region. The third award that you see here on the far right-hand side is an award that we've received from PA Consulting. Now not only did we receive it in 2022, we've received it for the past 21 years. So we have a high level of success with reliability. You heard me mention on my initial slide that we have top-decile performance there, and we'll continue with our strategic investments and keep our foot on the accelerator to provide great reliability to our customers. And the final award, last but not least, that I'd like to share with this group today is the Edison EEI Award. We received -- excuse me, the EEI Edison Award, let me say it a little bit differently. We received that award in 2022, and we are the only utility that received it last year. It's -- there's one distinct utility that receives that each and every year. And why did we receive that? It was based upon our significant effort that we put in to rebuild, strengthen and protect our infrastructure from extreme weather. Many of you are familiar, as Ralph mentioned, in 2013, Hurricane Sandy create a lot of devastation in this region. And post-Sandy, we really stepped it up, and we continue to invest and rebuild our infrastructure to a point whereas when Hurricane Ida came through just recently, our infrastructure stood up and performed exceptionally well. So we're really proud of that, and EEI has acknowledged that we set the new benchmark within the industry for modernizing utility infrastructure. So we're exceptionally excited about that. It puts us in a very, very small club, and we'll continue to work hard to keep our -- keep the lights on, continue to work hard to keep the heat on and do it in a safe and reliable manner. So at this particular point, I'm going to hand it back over to Kim so that she can talk more about how we're going to achieve our strategic initiatives.

Excellent. Thank you, Dave. So here's a chart that all of you are familiar with. It's our 5-year capital plan, ranges from $15.5 billion, up into $18 billion. The low end of the plan is having our GSMP programs at the current run rate plus inflation. The high-end plan includes additional investments in EE and last mile as well as acceleration of our GSMP program. All of these investments are aligned with our energy policy. So next, let's take a quick look at the capital plan. So this is the first time we're showing you the 10-year plan. This plan ranges between $34 billion and $40 billion. Once again, the ranges are framed the same way as our 5-year plan, but taken out over the 10 years. It's broken out, about 1/3 electric, 1/3 gas distribution and the remaining 1/3 is split between transmission and energy -- clean energy investments. This is clearly not our entire universe of investments. We also see an opportunity for additional investments that are aligned with the governor's energy policy that he and the 4 executive orders he introduced last month. And now I'll dive into each one of the areas -- the capital areas in a bit more detail. So first up is transmission. We'll be investing about $6 billion over the 10-year plan. At the bottom, you see the box that breaks out the capital investment in each category by first 5 years and second 5 years. Our portfolio of transmission investments have now transitioned from those big end-of-life projects that we had been talking about in the past. It is now focused on our sub-transmission to transmission expansion program with the associated substations. Great part about that program, it allows us to replace aging infrastructure and provide additional capacity into the future for electrification. We also see that generation retirements and interconnection of renewables will provide additional opportunities in the future for transmission. We'll keep an eye on the DOE study, the PJM Fast Track process to see if that will also produce any additional opportunities. Second area is electric distribution. We anticipate between $12 billion and $14 billion over the 10-year plan. This is the area with the greatest opportunity for continued investment growth. As Ralph mentioned, in the past, we've typically run these assets to failure. That was our replacement strategy. But now people expect and demand that same level of reliability in their neighborhoods at their homes that they enjoy in their business centers. We are going to continue the work we started with the IAP program, and in our last-mile upgrades, we're going to be modernizing the wires, the poles, the transformers, the underground cables that run through the neighborhoods. Over the 10-year plan, we will be upgrading about 70 substations. So just like we've done with Transmission and Energy Strong, we know how to site and build these substations in our communities. So the picture in the bottom left there, that is actually one of our new substations in Hudson County. Our substations are not the eye sore of neighborhoods, and in this case, it's actually a focal point of the community. And as we modernize our system, we will incorporate new technologies that will give us better information to control and monitor our system as well. So the third area of our capital investment program is gas distribution. We'll invest between $12 billion and $13 billion over the 10 years, but these investments are focused on replacing cast iron and unprotected steel mains, thereby reducing methane emissions. We currently have over 3,000 miles of cast iron still in our inventory. We are actually the largest cast iron operator -- single operator in the entire United States. Cast iron only represents about 20% of our main inventory, but 70% of our leaks. So last week, we filed our GSMP II -- actually, GSMP III program. It's the next step in continuing to improve our system integrity and reduce methane emissions. It includes about 1,100 miles of cast iron and unprotected steel replacements, the services and about 200 regulators -- district regulators. It also allows for the continuation of those jobs that were created under GSMP II as well as some additional jobs into the future. And we've also incorporated 2 pilot projects into that filing, a hydrogen project and a renewable natural gas project that will blend low-carbon fuel into our distribution system. The graph on the left just shows the great progress we've made in reducing methane emissions as we've reduced our cast iron inventory. Okay. Fourth and final area of our capital program is our clean energy program. It's a lot on the slide because there's a lot going on in this area. We expect between $4 billion and $7 billion in investments over the 10-year plan. Just a reminder, in New Jersey, an investment in EE is like an investment in pipes and wires. It becomes part of our rate base. So -- but these investments are really focused on delivering benefits to our customers in terms of reduced energy usage and reduce costs on their bills. So the picture at the bottom is the smart house. If you see on the right-hand side of the house, you see the AMI meter. It's really foundational. The customers being able to get that granular information of their energy usage. If you look up above, we are well into deployment of our smart meters, our $700 million AMI program to deploy the smart meters. We are -- we have about 650 meters, 1,000 meters installed a day. We're on track for on-time, on-budget delivery and completion of the program by the end of '24. On the left, you see our $1 billion award-winning energy efficiency program. Once again, the program is on track. Actually, a little ahead of plan in terms of investments and our energy savings targets. We right now have a 9-month filing in front of the BPU for an extension and that will align us with the other utilities in the state, and we'll all be going in for EE2 filing at the end of this year. And on the right is our electric vehicle program. This is focused on the make-ready charger work, about 1,500 fast chargers. This program is now picking up momentum with enrollment, especially with the supply chain improvements. We also expect later this year, we will be filing a medium, heavy-duty vehicle program that really aligns to the governor's executive order on acceleration of transportation electrification. So as Ralph mentioned earlier, 4 executive orders that the governor introduced last month, they're listed there on the left. We see these orders as actually opportunities for us to make additional investments in our system. We see in the area, it's very early. We're early in our analysis, but in the range of $3 billion to $7 billion more in the plan. They're clean energy investments, additional last-mile investments, acceleration of transportation and what they will require in terms of our system and even our own fleet. So next, I would like to introduce Scott Jennings. He has been my key partner in crime over the past many, many years as we continue to develop and implement our business plans. So Scott?

Thanks, Kim. Good morning, everyone. Great to see everyone today. Kim talked about our investment program. I just want to emphasize how broad it is, touching each part of the utility and how long a runway it is for all of those investments that we really see for years to come and you saw it in the 10-year and beyond plan there. But whether it's accelerating our gas system modernization program, a lot of work to do there to replace pipes to reduce methane emissions. EV make ready infrastructure work to support the electrification and transportation. And then all the work on the transmission side and the last-mile reliability side to continue to improve reliability when, as Kim talked about, customers need it depend on the now more than ever, especially as electrify transportation and think of other sources. And lastly, on the clean energy side, to help decarbonize the economy. So we have, whether it's the solar programs we're doing or energy efficiency to help customers use less and have less emissions and will help lower their bills, all of those things together, that's gonna help -- continue to help us deliver best-in-class reliability and customer service that Dave talked about and all of those are aligned with state policies. So we're excited to get after it. And those investments, they translate into the rate base growth, which drives the earnings growth that we're talking about today. So the first thing I'd note on this slide is, we are reaffirming our 5-year capital -- our 5-year rate base growth rate of 6% to 7.5%. We're very confident in delivering on that. What I'd also show is building off of the 10-year capital plan and the opportunities from the governor's executive orders that Kim talked about. We're providing a projection for 2032 as well, and we think that, that pipeline of opportunities will enable us to continue that pace of growth over this full period. While we're investing in this system, we're also very conscious in managing our O&M costs. Earlier this morning, Ralph showed a few charts that compared us to peers that we compare very favorably to, but we just continuously work at this. And you see over the last 5 years, we've maintained about a 1% compound annual growth rate of our O&M costs even in this inflationary environment. We do that for 2 reasons or achieves 2 things for us: one, it helps preserve our returns; and second, it helps keep customer bills well. So -- and as Dave mentioned that we're very focused on affordability and very mindful of is where you have some of these substantial capital investment programs in front of us. Also looking ahead, we have a number of productivity initiatives that we have planned that will help us continue to manage these O&M costs going forward such as implementing AMI, which will help reduce certain costs as we try to mitigate inflationary impacts across the entire business. And last, I'll turn to our cost recovery. So as Ralph and Kim mentioned, just a reminder that while we're a single-state utility, we have 2 jurisdictions: FERC regulates our transmission business, and of course, New Jersey for our distribution business. On the transmission side, we have a formula rate that provides contemporaneous recovery for our capital investments and our costs on a forward-looking basis that we true up each and every year. So it's a highly predictable mechanism. You see on the chart we talked about that covers almost half of our rate base. On the New Jersey side, we have 3 -- we have several different recovery mechanisms. First, we note for our clean energy programs, EE and Solar, they too have contemporaneous recovery mechanisms. Our large infrastructure investment programs, such as GSMP, Energy Strong, the Infrastructure Advancement Program that we do for last mile reliability, all of those have periodic rate roll-ins for the majority of their capital, roughly every 6 to 12 months or so. And the last category for investments that are beyond our current levels covered by depreciation or beyond new business, those are covered through a rate case. On the rate case front, those programs, GSMP II and Energy Strong, they require us to file a rate case within 5 years of those programs. So we have a check in then that time is at the end of this year. The main event of that rate case will be recovering that incremental capital, whether it's the portion of those infrastructure programs that aren't already that were approved by the, BPU but aren't already in rates. So GSMP, Energy Strong, a portion of AMI and EV. Those programs that were previously approved by the BPU will be recovered as well as other traditional electric and gas investments. We feel very comfortable with those. When you think about other factors that could be in the rate case, we talked about O&M earlier. That's been controlled very well. So whether it's that, our pension and OPEB cost we project for that time, our cost of debt or the costs that we've deferred, they're all roughly comparable to what they were in the last rate case. So we do not expect any significant rate impact from those matters. So putting that together, the main purpose of the rate case to recover that capital. We feel very comfortable with this prudency and just feel good about going into the rate case for those recovery. I'll turn it back to Kim.

Okay. Thanks, Scott. So just like Ralph had 4 key takeaways, I have 4 key takeaways I'd like you to have for the utility. We continue to deliver that top-tier operational results. We are keenly focused on our cost control and our customer affordability. We have proven track record to deliver, execute that capital program on time and on budget with the ability to flex up and do more. And lastly, we see additional investment opportunities that aligns with the Governor's executive order. And I think I'm going back to -- we're going to open it up for the utility focused Q&A, right?

That's right. So Kim, Dave and Scott are going to be available to take your utility-related questions. Brian and I are going to be in the aisles. If you have a question, please raise your hand, we'll bring the microphone to you. And if you could, please say your name and your affiliation before your question. Thank you.

Jeremy Tonet, JPMorgan. I was just wondering about the 10-year plan. If you could provide a little bit more detail, I guess, with what typical electrification assumptions are kind of built in? Or any way to kind of frame that, and how that, I guess, informs the plan developing over time? And what could be the drivers of the high end versus the low end of that plan?

So I'll start off, and then Scott, if you want to jump into. So if you look at -- we have assumptions in the plan, looking at various studies like Brattle on electrification of vehicles. As I've said, our low end of the plan incorporates the current run rate of our GSMP program and our energy efficiency program. The high end considers additional investments to support electrification. So remember, I talked about [ 70 ] substations. So we've done projections around what things will look like and what areas we need to upgrade. If things happen faster or there's more incentives for additional medium, heavy-duty vehicles as a prime example, then there are more upside opportunities. And I don't know if you have anything else to add?

Sure. Just more broadly about the range that you mentioned, the low to high range or so, for GSMP as an example. The run rate of our last program was $375 million a year. Our current -- we've concluded that program early actually this past month in terms of the work that was under it. And Kim's team has just done a great job of managing -- demonstrating that they can manage a larger program cost effectively. So they've got a great cost per mile that they've maintained with a bigger program. Right now, we're running it in this plan. In the appendix, there is close to $500 million. And the filing that we made in the last week is -- comes out to about 800 million a year pace. So that spread would be one of the factors of a low/high range. On the electrification, the other thing that I would add is, we do assume some EV penetration that grows over time. So that is included in that 10-year plan. Anything on the electrification for the home side is really largely beyond the plan included in those -- the incremental capital associated with the governor's executive orders.

That's very helpful. And then pivoting to the natural gas side, just wondering if you could provide a little bit more color on the RNG. I guess, the timeline of when that could actually be implemented come in service? And what could the scope of that look like over the 10-year period?

So it's actually working with one of the County Utility Associations on that, and the project is actually taking renewable natural gas, going through the processes of cleaning that up in order to make it pipeline ready and blend it into our system then. So we've come to a memorandum of agreement with that, and we will be working jointly. But our part of the work will be around cleaning up that gas and making it pipeline ready is the scope of the project. So.

And what type of time line, I guess, could this start to come?

I'm trying to remember. It's within the 10 years. Yes, absolutely. It's -- I can't remember the top of my head what year it is. But.

Is the next.

Yes, it's small. It's like $120 million. So.

Paul Fremont with Ladenburg. I guess my first question is, you give a growth rate on rate base through '27. Can you talk a little bit about the sort of the expected growth rate in rate base for that second 5-year period?

You want to do that one?

Sure. Yes. So what we included in the rate base slide that we had up there showed a projection in 2032, which included our 10-year plan as well as a portion of the investment opportunities that we see from the government executive order. So it would stay -- we expect that, that will stay at pace in that range for this full 10-year period. So we think that, that is -- can be sustained.

And then on the GSMP and Energy Strong, I assume whatever you're recovering, underwriters will reset with this upcoming rate case so that the contemporaneous return would only apply to whatever is approved beyond the rate case period.

So let me make sure I get your question right and Scott jump in. So we have roll-ins for both Energy Strong and GSMP, and each of those programs have a portion of stipulated base as we call. And that stipulated base we will recover as part of our rate case. So that will continue on. We're on track for all of our roll-ins and achieving our roll-ins.

Right. But I'm just looking at the contemporaneous return component of it. So in other words, once it rolls into your regular rate base, it's no longer -- the historical program numbers are not recovered under a writer, right?

That's correct.

It'll all be part of base rates.

Right.

Okay. And then finally, my last question. I guess my understanding is that the legacy meter costs are going -- historical costs are going to be an issue in the upcoming rate filing. What would be the book value of sort of the legacy meters?

Yes. So one thing I'll point out, so we had our AMI program, our Energy Cloud program approved by the BPU about 2 years ago. And so as part of that agreement, there was a recognition of stranded costs associated with those meters there as well as the recovery of it. So that program was authorized, including the stranded cost recovery under it.

I thought that the stranded cost recovery was going to be determined as part of the rate case. Is that -- that's incorrect? In other words, you're actually collecting a rate to recover stranded cost right now?

No, it is not in rate today. So the way that, that program -- the agreement that we worked on is the cost of that program as well as stranded costs associated will be recovered as part of this rate case. So there was an agreement reached 2 years ago, where we're able to defer all of the costs associated with the program and then that will be rolled into rates as part of this upcoming rate case.

Dave Arcaro with Morgan Stanley. Looking at the transmission side of the business, it's a big piece of the rate base now. It's got attractive ROEs, higher equity ratio, but it does get less of the capital allocation over time. I'm just wondering, is that a structural -- just characteristic of that now going forward? Or is there any opportunity for a resurgence or refocusing on accelerating transformation rate base growth from here?

So I'll kind of go back to what Ralph highlighted is, post-2003 blackout, we made tremendous investment in our transmission system. And I talked about those large end-of-life projects than actually I had the ability to run for the business. So we have completed those for the most part, and I talked about the change in the portfolio going from subtransmission to transmission. I think the other part that our future opportunities is as additional generation retires, fossil generation retires in this state as additional renewables are interconnected to the grid, that will produce additional transmission investment opportunities. So what we've showed you right now is clearly what we see right now, especially focused on that subtransmission to transmission conversion.

Got it. That's helpful. And then I was curious on the gas side of the business. Just with the future of natural gas stakeholder process, could you speak to how your plan might consider the targets for the state? And what you think the key initiatives and focus areas are going to be? How you weave that into the plan for rate base growth and emissions lowering over time?

So we will participate as well as the other LDCs in that process. We have 1.9 million gas customers in the state who depend on us for safe and reliable service. and for their gas heat. Our program is focused on getting that cast iron and bare steel out of the system to be able to continue to provide that safe and reliable service and reduce methane emissions. We think it's absolutely aligned. We think the EE programs around energy efficiency and gas appliances is also aligned as well. So we just -- we think it's a key part of the solution in the longer term. So.

Ryan Levine with Citi. A couple of follow-up questions. In terms of the GSMP III, as the commentary seems to be focused more on absolute methane reduction, can you speak more broadly around the impact to the community as you continue to replace existing lines in terms of the customer and overall impact to the community from a risk reduction standpoint?

So as we've talked about a couple of times here is, we showed the charts that show our number of leaks and it going down. We say, we manage those leaks well, but the impact to the communities was that's safe and reliable. So as we get that cast iron and bare steel, we improve our system integrity as well as improving the methane emissions as well. In terms of -- we've done this for quite a long time and the impact in the community in terms of working with communities on our installation practices and our notification, I think we've got that down pretty well. So I don't know, anything else.

I'm trying to get a sense of if you're targeting individual, maybe higher impact.

Okay. I'm sorry. So yes, actually, our program is -- we do risk profile regarding our segments that we do for replacement. So it looks at a grid segment in terms of its history in leaks, its age and things like that, and we target replacements and then that is prioritized. So we've been working down that inventory and that's how we prioritize what we do. So the highest risk areas are done the earliest, but that's how we're doing it across our state and across our service territory.

And then there's also -- a number of those communities are an overburden to communities, which is also another aspect there. So the priority is, as Kim just described, of course, on the risk hazard. The way that, that works out is there is also a focus on the number of cities that are recognized as overburdened communities.

Yes.

And then outside of the EV penetration question from earlier, can you provide some color around the biggest buckets around upside to your capital program as you go into the next year?

Yes. So many of them are intertwined, especially when we talk about those last-mile upgrades. So we think about as homes move to electrification, as people get more EVs, that grid -- that local grid has to be upgraded to support that. So there's multiple drivers that do that. And as I said, we've looked out to and looking at the loads on our substation. And once again, that subtransmission to transmission conversion as well. We're also looking at our own facilities for electrification of our headquarters in our district sites, and the electrification of our own fleet as well and what that will require. The medium, heavy-duty vehicles, those are by far the biggest loads in terms of in specific areas. Those are the big buckets.

Okay. We'll take one last question for the Utility group and [ Ken ] mic over.

Paul Zimbardo, Bank of America. Just on the -- following up a little on the future of gas proceeding. Do you view that as a net opportunity as you electrify more even if gas capital moderates a bit? Do you view that as net positive for potential capital needs? Or do you think that could ultimately lead to a moderation out in the future?

Well, I'll let Scott jump in on top of what I say. Being a combination utility, we see our natural gas business being very important in at least -- I don't know how many years, but also the opportunities on our electric side, too. So we view it as net positive for us. We have an obligation to serve and safe and reliable, and then we see positive upside absolutely in the electrification area in our system.

Yes. I would just add. The main focus of our gas program now is on accelerating the replacement of our gas mains, and we just see that as a real priority for ourselves, for the state, for the communities and a reduction there. So we're optimistic that, that's -- this proceeding, we understand it, but it's not going to get in the way of that important work. So I don't want to front run the study too much. It's going to be an 18 months. I'm sure a healthy dialogue there, [indiscernible] both electric and gas and see a lot of opportunity on that front, whether it's the last mile or work within the home. We have a significant and growing EE program. We think that will present opportunities in the home to the extent that there are conversions in the future. So we do see significant opportunities with the overall direction.

Yes. And just one other point you made me think about is, we have an appliance service business as well, and they do HVAC installation. So as people make that conversion, that is also a growth opportunity for us as well. That part of our business.

Okay. And then last one for me. I know you got the accounting order for the pension and you talk about opportunities to further reduce volatility. Is that via the regulatory avenue? Is that about the lift out? Is that just asset allocation? If you could just comment what you mean by reduce the volatility.

Sure. So -- and Dan may address some of this later from an overall enterprise perspective. But for the utility itself, I think the order that we have, there's -- I'm not going to take people through pension accounting, but there's a number of different complied -- like it too much. There's a number of different cost components to pension. This order that we got address is one of them, so -- which is the loss between what we project and what actually -- or the gain the loss that we project and what actually occurs. And that is being deferred and amortized over a longer period of time to help smooth out and have less volatility, which we think is good for both customers and us. So we'd address that one and only one component. We will look as part of this rate case or upcoming things, things to do that more broadly. So the same theme covering other aspects of the pension costs. And Dan will hit the lift out later on.

Okay. Great. We are going to wrap up our utility session and take a 15-minute conference break, and we will be back. We invite you to come and speak with us in the other room. And thank you. [Break]

Okay, everyone. You can turn the handheld mic on. If everyone can find their seats. We're going to kick off the second half of our conference this morning. Okay. We are going to start the second half of the conference. All right. Thank you. Welcome back, everyone. Thanks again for joining us this morning. We're going to kick off the second half of the conference with Eric Carr, who's our President and Chief Nuclear Officer. But before Eric and his team take the stage, we're going to show you another quick video, and then when we're done, Eric will come back on stage. [Presentation]

Okay. Good morning. Let my guys get seated here. So I'm Eric Carr, I'm the Chief Nuclear Officer and President of PSEG Nuclear. Happy to be here today to talk a little bit about our nuclear operations. I'm joined by Later Craig, who's our Chief Commercial Officer. When you say power and other with a big other later runs most of those businesses, so he'll give us an overview of the other section. And Charles McFeaters is the Senior Vice President of Nuclear Operations, so he works directly for me and he's responsible for the day-to-day operations of the facilities. And he's going to give you some information as well. We're going to structure the discussion around primarily on nuclear today because that's the biggest part of Power and other. I'll give you an overview of our operations, how we're performing. We have an excellent team down there, and we're doing great things. Charles is going to talk about our opportunities to grow our business with a couple of specific projects, and there's a few behind that are smaller. -- and later is going to talk about our gas operations and our other business, including some investment opportunities that are now afforded to us as well. And again, how we fit in the big picture, Ralph talked about it in the beginning, but we generate significant free cash flow for the business to fund a lot of the projects that Kim discussed earlier. So more predictability, well positioned for the future. We've made 3 strategic decisions in the last 12 to 18 months that have really set our business up to be positioned in the future for power and other exited merchant generation, significant risk reduction from market exposure, exited offshore wind, significant risk reduction for large project exposure. And then lastly, the decision to retain our nuclear assets. So Ralph started with that. It was one of the key decisions we want to make sure it was very clear today. But the PTC has provided excellent downside protection for us. And positioned us to have this business well into the future now. With much more predictable time line. So the decision of retaining assets all underpinned by the IRA. The PTC is a game changer for us. So it provides us excellent opportunities. We have an excellent facility down there with a unique asset class. These plants run 24/7, 365, providing clean energy to the state of New Jersey, and we are a big part of New Jersey's Energy Master Plan. I'll talk about that a little bit later, but very much well positioned with the state and great operations. For financial drivers, PTC gives us downside protection. It allows us an opportunity to capture anything on the upside if the market is performing that way. And it enables some investment opportunities that we'll talk about that also have additional incentives for new energy created by Green Energy, called technology neutral in the bill, but it provides us an opportunity to potentially get more megawatts out of our plants and be rewarded for that. And then this is all underpinned by excellent operations. We have an excellent leadership team down there that has a strong safety focus and an excellent track record, and I'll show you some indications that show you how we perform and rank with the rest of the industry, and you'll see that's very impressive. An overview of our fleet. So PSEG Nuclear has all -- or partial ownership of fiber actors. We operate the ones on the left. So Hope Creek is a BWR, boiling water reactor. The sale units are both pressurized water reactors. They're all co-located in South Jersey and Salem County. On the right-hand side, you see Peach Bottom Unit 2 and 3, those are large bulling water reactors operated by Constellation -- we're 50% owners of those reactors. As a footnote in a previous life, I was actually licensed to operate at the Peach Bottom units, so I can tell you they're very good machines and very well run. For some key facts on this slide, you'll see 92.2% capacity factor last year. That's a very strong number in the industry. If you did the simple math, just backed that refueling outage, as you would see, there's not much besides a refueling outage in that number. These plants run 24/7, 365. We have very few exceptions. The other thing I'd mention, 2 other points on this is, they're all big reactors. If you look at the industry, there are basically 3, my terminology, size reactors around 600 to 650 for some of the earlier generations, around 900 to 950 for some of the ones after that. And anything over 1,100 basically deemed like a large reactor. All 5 of these are large reactors above 1,100 megawatt reactors. So it provides -- it really helps with the economics of them. Last thing I'll note on this slide, the Peach Bottom units are on 2-year cycles. All of our units are on 18-month cycles. So we have some opportunities to move that capacity factor even further up by potentially moving those refueling cycles out to 18 months. Charles is going to talk about that as well. So a few minutes on performance. And if you've been to -- I want to talk about the 2 indicators why I'm showing you these 2 indicators. On the left-hand side, you'll see the INPO Performance Indicator Index. If you've been to one of these with another nuclear operator, they probably showed you this indicator. This is kind of the gold standard for indicators in the industry. It's an indicator that's made up of 10 different sub indicators. It's revised and updated every 5 years, and it's aligned upon by all the Chief Nuclear Officers, which are my peers the other 20 peers that do my job in the industry as well as INPO, the Institute for nuclear power operators. Those 10 indicators that feed into this range from safety all the way through production and output. So it really is a comprehensive look at how are the plants run and how is the fleet running. You'll see our score for PSEG nuclear is at 100. So this is not a snapshot score that we had a good month in December. Every indicator that feeds into this is a rolling 18 or 36-month indicator. So this is an indication of sustained performance. So we are among the [top] 3. We didn't highlight exactly what it was because they're just an alphabetical order basically. So we would have been third when we were actually tied for first. So we feel like we better show it that way, but just really strong performance. On the right-hand side, the INPO Equipment Performance Index. So this is a similar indicator, but it just focuses on equipment reliability. And if you look across the industry, equipment reliability, it really is the major deviation across the industry. When you see how this factors into the left-hand side, equipment performance is the biggest factor of that. So on the right-hand side, this equipment performance index is made up of multiple indicators that look at issues with equipment that can cause output issues and also how is your safety systems performing because safety systems don't make megawatts, but you can't make megawatts without. So those are very important as well to the public and to production. So you can see here that we are a top quartile for equipment reliability, and we have been consistently top quartile on equipment liability for a few years now. And that didn't happen on accident, we have made major investments in the plant to make sure that they run reliably. We have derisked the plant, all of the plants. We have done studies to look at vulnerabilities in the plant, and we have made them more robust and harden the systems so that they're more reliable. I want to talk a minute about the -- how critical nuclear is to the energy transition. So you hear up a clean energy. It's a priority for us. Ralph -- it's one of the first things Ralph talked about as well. It's a priority for the State of New Jersey, and these plants are very important to the State of New Jersey. So we generate 40% of New Jersey's energy and 85% of the clean energy in New Jersey. We are very much aligned with the State New Jersey's Energy Master Plan. Their Energy Master Plan in the state of New Jersey has these plants in existence through 2050 as they transition to more clean sources. Between now and then a lot of that natural gas part of 49% or about half the generation, you'll see that replaced with wind. But you will always see in the Energy Master Plan about 40% coming from us because that's the plan for New Jersey, and we're aligned with that. We're also very important. The other key point from a Jersey standpoint, we are vital to South Jersey's economy. We are the economic engine for pretty much most of South Jersey. We're the biggest employer in Salem County and Southern New Jersey. We employ about 1,600 full-time people and about 70% of those live in New Jersey. And we bring in about 1,000 contractors every 6 months to help us with our refueling outages, supplement the workforce so we can keep those outages as short as possible, keep our capacity factor as high as possible. And lastly, before I turn it over to Charles, I'll talk a little bit about fuel costs. So you've seen things about fuel costs and about supply chain issues and threats because of potential instability with Russia. So we want to take a minute to talk about this. You'll see our fuel costs have been consistent for the last 5 years, still under $6. Including this year, we expect to be less than $6. We're able to do that because we have long-term contracts in place, and we have, for instance, 100% coverage through 2027. We have long-term contracts for all of our fuel, and all that fuel is not sourced from Russia. There's 4 different supply chains that kind of happen in series to get fuel out of the ground and then ultimately, put it in your reactor to use. None of those for us are coming from Russia. So we have a lower risk profile there, and we've had very stable prices. We expect those prices to escalate less than $1 through the 2027 period that we're talking about today. So with that, I'm going to talk -- I'm going to turn it over to Charles, who's going to talk about some opportunities for us to grow the business. But I do want to make one footnote is that he's going to talk about 2 or 3 of the bigger projects that are in front of us. We've had a number of other smaller projects that are kind of sitting on the shelf because our future was not assured, and on this, PTC has really shored that up for us. We pulled these projects off the shelf. We're going after them aggressively, and we have other ones that were smaller that just had a little bit longer payback period that we couldn't justify at the time or now the PTC enables us to do. Charles?

Thanks, Eric. As Eric mentioned, we think we have significant growth opportunities in nuclear. So I'm going to talk about operating our Salem stations, increasing the fuel cycle duration of Hope Creek and then second license extensions for all 3 of our nuclear plants. Our first opportunity is to increase the generating capacity of the Salem stations. As you can see from the slide, we have the opportunity to use the existing operating margin in the reactor plant to generate more thermal power. What that means is, we generate more steam and more electrical power for the unit. So changes in reactor plant will pretty much be in the analysis space. We do anticipate in the secondary plant that we will have to change some equipment out to accommodate the increased steam flow and power generation. This will require some initial capital investment, but it won't increase our incremental operating costs for the units. So what that means is, we'll be able to reduce our overall megawatt production cost for the life of the plant. We also anticipate that this uprate will qualify for the incremental $27 per megawatt production credit. As Eric mentioned, most PWRs in the industry operate on 24-month cycles. So this creates a very clear path for us to take Hope Creek from 18 months to 24 months. What that means to us is, we reduced a number of outages in the associated costs over the life of the plant. So more generating days, lower cost is another great opportunity for us to reduce our overall megawatt production cost at Hope Creek. Now for the Salem stations and similar PWRs, we're currently restrained by fuel limitations. But there are some vendors looking at new fuel designs, and we're looking at that closely following that to see if that's a future opportunity to operate -- I'm sorry, to increase the Salem fuel cycles. So that's something for the future. We're also looking at second license extensions for all 3 of the units. What that means is, we'll be able to generate nuclear power through 2066. Now this will require some initial investment to start the process, and eventually, we will probably need to replace some aging equipment as we get closer to that extension period. But the real takeaway here is, for a relatively low capital investment, we can generate power for 20 more years. Now we have scoping studies underway right now to look at the feasibility of these projects, determine the final cost and what type of implementation schedule. But the big takeaway for us is, when we look at this, we see tremendous growth opportunities for nuclear power, and we are very excited about that. Next slides, Lathrop to talk about some generation opportunities and nuclear hydrogen production. Lathrop?

Thanks, Charles, and good morning, everyone. As Charles said, I'm going to cover 2 things. First of all, some opportunities in clean hydrogen production that we're very excited about as sort of a complement to the growth opportunities, Charles has covered, is another way for us to enhance and grow the value, we believe, of our nuclear output. And then I'll also talk a little bit about some of those other businesses that we've kind of clustered under this power and other categories. So just to give a little peak under the hood there. But starting with hydrogen, you've heard Ralph earlier this morning and Eric just now talk about the value of the production tax credit for nuclear. Out of that same legislation came a number of tax credits that are available for clean hydrogen production, which, as I said, we're very excited about that as an opportunity to supply with the clean nuclear power that we have. In addition to that legislation, there's a legislation that has enabled the Department of Energy to make matching grants for matching funding available for hydrogen projects participating in a number of regional clean hydrogen hubs. And these are particularly interesting opportunities that are really designed to sort of kickstart the clean hydrogen economy by creating these relatively coherent regional hydrogen ecosystems that will span everything from production of clean hydrogen, distribution and storage of that hydrogen and then ultimately, end use consumption of the hydrogen. And that's something that we believe we're very well positioned to participate in, both because we think we have opportunities across that value chain by supplying our clean carbon-free nuclear energy to production facilities that will generate clean hydrogen, potentially investing in owning and operating some of those clean hydrogen production facilities ourselves. And then finally, as a distributor and end user of clean hydrogen by blending that hydrogen into the utilities, PSE&G's natural gas distribution system as a way to decarbonize that delivered natural gas product over time. So something that we think we can play in a number of different roles in. We're also, we believe, very well positioned to participate in this DOE funding opportunity because we have assets and particularly, site locations that are available for development of clean hydrogen infrastructure both in the northern part of New Jersey, which is very well situated to participate in the Northeast hydrogen grid, and in the southern part of New Jersey, additional assets that are available. And again, very geographically well located to participate in 1 of the 2 mid-Atlantic hydrogen grid. So a number of different ways that we believe we can participate in that development of the clean hydrogen economy, all it's really tied back to the use of our clean nuclear power output. With that, I will turn to discussing what do we mean by Power and Other? What's the other part? Well, that's a number of different businesses that we've been in for quite a while. I'll start with the largest of those, what we call, gas operations. Gas operations in the way we describe it is separate and distinct from the utility's natural gas distribution system. And what it is at its core is a portfolio of contracts that PSEG Power has entered into, that give us access to natural gas pipeline capacity and storage capacity, which in turn gives us access to very low-cost natural gas coming from outside the state. We use that portfolio of contracts to serve the Basic Gas Supply Service, or BGSS, default customers that the PSE&G utility has. And because we have to size the capacity of those pipeline contracts to serve all of PSE&G's customers on a peak winter day, but that only happens once -- twice a year or this year never. We have a lot of time where a lot of that capacity is available to be resold to other participants in the market. And we've been very successful over the years at extracting value through what we call those off-system sales to create a lot of additional revenue and most of that is credited back to the customers, and that is a big part of what helps us be the low-cost gas supplier, as you saw earlier in the presentation. In addition to the gas operations business, we have a series of contracts with the Long Island Power Authority. The probably best known, most visible of those is an operating services agreement that we have for operating the electric transmission and distribution systems of LIPA owners on Long Island. A little less well known, but we also serve as the fuel and energy manager for about 5,000 megawatts of contracted electric generation supply on the Island, where we purchase and deliver all the fuel to those stations and then manage the energy output on LIPA's behalf. And then I'll close up just on Offshore Wind. As you heard a couple of times, Ralph and then Eric, just now has mentioned that we've -- we announced earlier this year that we are going to be selling back the 25% interest that we had in the Ocean Wind 1 project, which is New Jersey's first Offshore Wind project to our partner, Ørsted. We will additionally be exploring opportunities to sell the remaining interest that we have and what would have been Offshore Wind generation projects, which is and interest in the Garden State Offshore Energy lease area to fully exit the offshore wind generation space. But I do want to make clear, we do remain, as a company, committed to New Jersey's ambitions to grow offshore wind into a significant clean energy supply for the state of New Jersey. And in particular, we are continuing to explore options to develop and ultimately build an offshore transmission backbone network that would allow for the most reliable delivery of that critical offshore wind generation resource to the customers [ onshore ]. And with that, I'll turn it back over to Eric.

All right. So that pretty much wraps it up for our section. Key takeaways, again, derisk the business by exiting offshore wind by exiting fossil merchant generation, a lot of risk to put out of the business there. PTC provides a lot of stability and assurance for prices and a lot of opportunities. You heard a lot of these opportunities. We're going to be driving those in the most efficient manner possible to get those into production. And then lastly, that's all underpinned by just a really excellent record for operations. We're doing a great job managing those plants and the statistics show it. With that, I will turn it over to, batting cleanup, Dan Cregg, our Chief Financial Officer.

All right. Good morning, everybody. I am batting cleanup. All right. Great to see everybody here. Great to see everybody in-person. And thanks, everybody, for coming. Thanks, everybody that's on the line. And a lot of what we're telling you today, there's some new elements that we're providing, a little bit of a longer-term view on capital, a little bit more detail about some of the growth opportunities that we have on nuclear. But I think the story basically is still intact and is reinforced and frankly, I think more than anything else has probably strengthened. And so I think if you take a look at the business and piece together, some of the things that you've heard today and pull them all together, I think you can look at us a little bit in a new light, and the sale of PSEG Fossil reducing that merchant risk. That was not news this week or last week, but had a big, big impact on bringing the risk of the business down. I think exiting offshore wind generation, similarly, we've talked about the big project risk coming out of the business and an opportunity to monetize some of the acreage that we hold through GSOE off the coast of New Jersey and Maryland. And then we've talked a lot today about the PTC. We've talked a lot leading up to it about needing a longer-term solution, longer-term certainty for nuclear. And that PTC does provide that visibility, and it runs out to 2032. So into the next decade, a long look. So another risk-reducing element that has come about to help the business, and frankly, is a big part of us moving into our decision to retain nuclear. We talked about the BPU approving the pension settlement. And so Scott got a question earlier about that and what that does, and we can talk some more about that in Q&A, but we're continuing to explore other things that we can do to help mitigate that volatility. Certainly, that's helped on the utility side, but we've talked a little bit about a lift out. We talked about some more potential things that we could do in the rate case, and I think moderating that volatility overall is a good answer for us. It's a good answer for customers, a good answer for investors. The transmission formula rate, it's always a good reminder to remember that we do still have a dual jurisdictional company, even though we're a single-state utility. And that's a significant part, almost half of our rate base. And then importantly, the EE investments, when we got a large energy efficiency investment about $1 billion that as we invest goes to rate base. One of the key elements there was to not provide a disincentive to the company to invest in EE by virtue of those volumes coming down, and that's when the conservation investment program came into play. So our revenues at the distribution company are de-linked from the volumes that we sell. A pretty important element for the EE program, but a pretty important element -- it's not just about that program, it's for the company as a whole. So I think that also takes some volatility out of the business. The capital program, Kim gave you a lot of details about that. Just I feel super comfortable with what the team has done and will continue to do and what still lies ahead from a growth potential standpoint and we will fund that 5-year capital program without equity. That financial strength is super important. So Ralph said right up front all that, and I totally agree. I really think about that as a compelling risk-adjusted return opportunity. He talked about the total shareholder return, take your 5% to 7% earnings growth, take your dividend. I think a pretty attractive position for a company that has seen all these things come through over time to bring some of that risk down. And so I think as much as anything else from today, if you think about some of the things we're talking about, and just aggregating these things, seeing them together, can let you see us a little bit in a new light and a lot of those strategic issues that we've had have come off the table and we provided some clarity. So with respect to the 5% to 7% growth that we talked about, that's really underpinning some of that value. This is the same slide that Ralph showed from the standpoint of the numbers, but one thing I will point out, our 2023 guidance we gave in November and we had a $0.20 range around it. We said we would narrow that as we came into this year. And so we turned that $0.20 range into a $0.10 range, gotten beyond the variability that comes at 12/31 with a pension. But I also think that's an element of confidence in the business about some of the risk that we have taken out. So bringing that down to a $0.10 range, I think, is reflective of what I just talked about on the last slide. This growth clearly driven by the utilities capital program, but also supplemented by nuclear, and inherent within this growth rate is Eric's business that he's going to continue to operate among the best in the country, only receiving the PTC threshold, right? So any market increases that are above and beyond that would be above and beyond this. So we've only counted on that threshold amount with respect to getting to that 5% to 7%. And then continued cost control that you heard from all the folks, that really is part of the drumbeat every single day that we work with, and we feel good about where we'll be on that front. The contribution from the utility really comes from that capital program, and it's visible and it's growing. And our objective today was to try to provide a little bit more detail with respect to what underlies all of those different areas, all of those components within that capital program of $15.5 billion to $18 billion. Importantly, it is aligned with policy, and I think Ralph had a slide right upfront that talked about what's driving those investments. And I think the electrification aspect that the governor recently talked about will drive more investment. I think the gas system, having the largest cast iron system in the country, will continue to drive investment there and more and more on the clean energy side. So I think that alignment with policy and the recovery mechanisms that we have and the execution that Kim is going to do, 15 years of knocking it out of the park on time, on budget with some pretty daunting tasks. I remember Kim telling a story once that I think we hired every -- what was the -- snake handler. Every snake handler on New Jersey when we had to hire for one of our projects and some of those more complicated projects, we've worked our way through. I didn't know there were snake people in New Jersey. Moving on to Power and Other. We wanted to provide a little bit more color on these components. And so what we've done here is broken down into a couple of pieces starting on top illustrative drivers for those results, all right? So if you take a look at nuclear, we generate about 31 terawatt hours a year. Starting in 2024, which is when the PTC comes into play, what we try to do is just take that volume, apply it by that PTC threshold amount, back out some O&M and drive what an illustrative EBITDA number is going to look like for nuclear. We've also assumed inherent within the legislation that, that PTC will escalate through time. We've taken a 3% escalation over time. Based on those elements, we'll derive a $500 million EBITDA that will grow to $600 million by 2027. So just trying to frame out what that block looks like from the standpoint of ultimate EBITDA coming off of those facilities, $500 million grown to $600 million. Lathrop also talked about some of the other elements, the gas operations Long Island, and then there are some other very, very small components within the business. Those aggregate to about $225 million of EBITDA. We net against that, the depreciation predominantly at nuclear and also interest expense. And so interest has gotten a lot of attention of late. Interest rates have gone up, as everybody knows. We've tried to just forecast what our interest expense is going to look like as we run out through that same '24 to '27 period. These numbers obviously will move as the interest rate environment moves. But just looking at forward interest prices, interest rates, I should say, refinancing our existing maturities at a higher rate and financing the balance of the business, and I'll talk a little bit about that on the next slide. We have interest expense that we see about $250 million growing to about $325 million over that same period. So again, just trying to give you a framework of what some of the components look like, and that nuclear piece at that PTC threshold really is -- that stability really is a driver in the decision to retain the nuclear facilities. If I take those inputs and I look at them from a sources and uses component and I run across the 5 years, I layer in the nuclear, I layer in the gas ops and the other. We also will see within this period cash coming back to us for 2 other reasons. Lathrop talked a little bit about disposing of Ocean Wind 1. We are disposing that in exchange for the capital we have put into that to date, and we also have the lease acreage that we will monetize. If we're not going to be in the offshore wind generation business, those assets are going to be monetized. And so some of that will come back to us during this period. We have also seen a heightened amount of collateral, right? So energy prices have come up. We had historical hedges that we're on. As those prices go up, we post collateral. At year-end, we were about $1.5 billion. Most of that will come back to us. We will have some run rate collateral, a couple of hundred million dollars as we step through time, but most of that will come back during this period as we deliver on those hedges and the speed of that could be impacted by as prices move, but that will come back. From a use perspective, we'll invest about $150 million of capital per year in the business, and then the interest, taxes, other items, will leave us with significant free cash flow coming off of that business. Understanding full well that some of that is onetime, the return of collateral is not going to happen every year, the offshore and proceeds, but it will still leave us significant free cash flow coming off of that business. If I take that and incorporate into a broader sources and users view, you have what you see in front of you here. And so on the far left-hand side, those 2 columns are sources and users for the utility. As much as we talk about nuclear and the cash flow, the utility remains the largest cash flow generator within Enterprise. And so that's shown within the orange bar on the far left-hand side. But it is still -- the robust capital program will still be in excess of the utilities own cash flow. Utility will continue to raise debt. We'll continue to manage its cap structure based upon its regulatory cap structure, 54%, 55% equity and will provide some dividend to the parent, which will move me to the center of the page, which is Power and Other inclusive of the parent. You see that dividend coming up from PSE&G. Just above that, I spoke to the free cash flow from Power and Other. And then you have some funding on both sides that you see. We will take in that collateral and a use of cash will be to pay down the short-term debt we took in to fund the collateral. And then as we step through time, we will put on some incremental debt at the parent to enable the utility to retain cash to retain its own cap structure. The far right side really is just the accumulation of all that you saw in those first 2 areas. If I take all of that and I push it through what it means from the standpoint of FFO to debt, the left-hand side shows, we will remain in the mid-teens. We have a threshold, 13%, 14% FFO to debt. So even at our existing levels and we have -- I believe we have a much more -- a better business mix, a less risky business mix. But at our existing levels of 13% to 14%, we have excess debt capacity, you can see on the right-hand side, around $2 billion. And so deployed within the regulated business, we can match that with debt, using that as equity, which can derive about $4 billion of investment. So the balance sheet remains strong. Lastly, our dividends. This gives a good indication of the history of where we have been over the last decade from a dividend perspective. You can see in the front end of the slide, increasing $0.08 per share per year, and then there's a kink. So a couple of years ago, as we made the decision to sell PSEG Fossil, as we saw some of these other elements coming around, as we saw that risk reducing in the business, it gave us the confidence to lift that amount to an increase of $0.12 per share per year. And so I think on the earlier side of this slide, our payout ratio was lower. I think that was probably appropriate when you saw the riskier side of the business still being in the business. And as we stepped through time, that payout ratio being higher, I think, also is sensible for where we are right now as a business. And Ralph said earlier, we will continue to have consistent sustainable growth in the dividend. So that takes us to key takeaway slide. And I guess I'll -- maybe I'll just finish here where Ralph started. I think, hopefully, you'll take away from this a more predictable business, good growth opportunities, financial strength, to be able to finance that with a strong balance sheet with no equity for the 5-year plan, and the management team that you saw today that's going to get it all done. And I would agree with Ralph, second to none in my view. So I'm going to ask some of them to come up and join for some Q&A, and we'll take the broader Q&A now.

I'm going to be passing around the mic. And again, please raise your hand if you have a question, and state your name and affiliation.

Andrew Weisel from Scotiabank. My first question is on O&M. You've done a great job in the last several years, and I see the slides. You kind of show flat, maybe down a little in 2023. What's embedded in your longer-term assumptions now? It's obviously a very moving target, but how do you think about the utility O&M as well as the overall company?

Yes. So Andrew, I think we have exhibited some real good cost control throughout the time, and I think we expect to see that going forward. I know there's been a lot of conversations about -- especially in the power side of the business, hey, there might be some incremental. Well, we use union workers everywhere throughout our workforce, and so we are -- we're not faced with some of the challenges that others are from a, hey, are you going to qualify for the PTC. You're paying prevailing wages, so on and so forth. So we do pay a union workforce, and we always have. We don't see that as a challenge that's out there. In [ Kim's shop ], they have continuous improvement activities that are going on, on an ongoing basis. So while we don't really talk about what those numbers are incrementally as we go forward, you can figure that we always are 1% to 2% less than what inflation rates are. So we're -- cost of -- so I think we -- I think we've proven that, and I think you'll see that going forward.

I think technology is going to be a part of that, too, Andrew. We don't have AMI right now. We are doing that now, and that's going to be able to help moderate. It's a good example of technology helping us.

Makes sense. Second question is the utility ROE. Obviously, with the rate case coming up, that will be discussed, debated, whatever. Given the protections you have primarily from CIP and the pension, what might be some drivers to the earned ROE relative to the allowed? In other words, is there any reason there should be much of a deviation either positive or negative?

Yes. We don't expect a big deviation. If you think about over time, as interest rates came down, the ROEs were a little bit behind that. Usually, there's a correlation that exists, and so we didn't -- it didn't quite -- so as interest rates are going up, I don't quite expect the ROEs to shoot up at the same level. So I think it will moderate over time, but we don't expect any big dramatic changes there.

[indiscernible]

Say that again. We don't talk about the current ROE versus our...

Yes. But I mean I think you can think about that pretty confidently. I think one of the things that Scott talked about is, he laid out a couple of things embedded within the numbers where we were last rate case, where we are going into this rate case. And to your point, within your question, I do think that the CIP is helpful to maintain that as well.

Next question?

Just a quick question on your nuclear assets. Does it make sense to combine your nuclear plants with others in terms of both efficiencies and also in terms of potentially trading value?

We always look at strategic options that are out there, and we always don't discuss those strategic options that are out there. So that won't change. I think what you did see today and what you've seen from a cost control standpoint would lead you to believe, though, that we are about as good an operator as there is and about as good a cost control operator as there is.

Paul Zimbardo, Bank of America, again. First, on the upper end of the rate base CAGR, I think, 7.5%. If you're able to get to that level, can you confirm you still would not need equity at that elevated CapEx?

Correct.

Okay. Great. Easy. And then the second, I think using the 2023 guidance and you said that utilities about 85% to 90% of the consolidated earnings. Is that a good way to think about towards the later end of the plan and like the 2027 at that PTC you embed?

Yes. And again, some of those PTC rules are going to come out. We'll learn more about that. And you can make assumptions about where the market is going to be from a power standpoint, but just based upon where the PTC floor is, that's a good assumption, the way to think about it.

Any other questions? Okay.

[indiscernible]

Yes. For those that are on -- might be on the webcast, Jeremy was asking about the pension lift out and how we can think about that.

Yes, I'll take that, Jeremy. I appreciate the question. I think the -- how we think about it is maybe the place to start. So if in the aggregate, we have seen some volatility coming from the pension in full, a smaller pension is going to have less variability. And so that's the -- that's how we are thinking about it, and that's one of the drivers to it. I think mechanically, it's most simply thought about as taking a piece of the obligation, taking a piece of the assets, packaging them and lifting them out and ultimately, being left with a smaller pension. And so there have been a series of those transactions that have happened. This isn't not breaking any ground by this thought process, but we're still pursuing that. There was a question, I think, on the fourth quarter call about timing, and I would think, the thing about it as this calendar year is the way to think about it. And we're still just doing our diligence on that, but I think at its core, it's something that could make some sense for us. So work continues on that.

That's helpful. And then just as it relates to hydrogen, just wondering if you could walk us through, I guess, the timeline of when this could be real? When they could be actual dollar spend or any other color you could provide there?

So not tomorrow. It's going to depend a little bit on how quickly the government makes some of those determinations and then how quickly companies on the other side can move. I think that it will probably start small. If you think about -- there's a question earlier on RNG as well. Embedded within our Gas System Modernization Program, there is very small pilot type dollars involved. I think second half of this decade is when you can start to see some real impacts, but there's a lot of daylight between now and then it needs to be worked through, establishing the hubs, trying to figure out exactly what infrastructure is going to make the most sense and how to work this. So it's a newer area. It's not something that is all that front of mind from coming into results quickly. But I think over the longer term, there is some promise that's there.

Yes, just I would just add to that, Jeremy. I think we maybe won't be the best positioned, but we're going to be up there. When you look at New Jersey for an opportunity, not only because of where Eric's plants are located, the need for some additional industry down there, but some industries that need the product on a back end that are co-located geographically in the South Jersey, Delaware area and Philadelphia. And then up north, as we bring clean energy in from the water, we'll have that opportunity as well to create hydrogen using in our system, but also there's a lot of off-takers there as well, if you look at the refineries that are in the north. I also -- I can't help myself. I got to talk about RNG. This is something I just -- I'm amazed at this conversation to some aspects. We did this for 30 years. We used to take gas. If any of you fly into New York Airport, the landfills that you see in the Meadowlands there, we took gas from those facilities for decades. We actually stopped it because there was a push to use gas for vehicles, and so the quality of the gas needed to be at a certain level. So we wound up passing that up, and now we're back doing it again, just following policy back to how we grow our business. So RNG is not really anything new for us, it's something that's been out there and something that we did for years and years.

It's Raymond Leung, Scotiabank. Maybe more question. Thanks for the comprehensive update today, but question is probably more for Dan. You mentioned you were looking at taking on [ hoco ] debt. Can you talk a little bit about what your parameters are there? And then talk a little bit about as you recapitalize PSEG Power, what's sort of the right metrics that you're looking at to fill out the other side of the financial equation given the strong free cash. You have a lot of flexibility, it sounds like.

Yes. Yes. So right now, at Power, there's [ $1.25 billion ] of debt there. And I think that as you step up into a PTC threshold world, there would be some incremental capacity there. And so you could see some incremental debt there, but I don't imagine there's going to be a sizable increase there. I think overall, we'll continue to monitor FFO to debt. Obviously, we'll continue to monitor the percentage of parent debt that we have in total, obviously. And stay within bounds that makes sense against those metrics. I think that probably, as the sources and uses show, we'll see a decline coming off as that collateral comes in to short-term loans get paid down. And in a modest amount, I think at the parent, you could see incremental come through as your FFO to debt comes up across the business as well. All those investments that Kim is making continues to grow that part of the business. And so I think there'll be some incremental debt, which will kind of mirror about where we are now. Understanding now we have a little bit of a hump from collateral, bring that off and see that come back up.

My first question -- I don't know if you can help us. I'm trying to a little bit get understanding on the rate case. So can you just remind us how much of kind of a rate base will you be there when you file the rate case? And what is that compared to the last rate case filing? I'm just trying to think about some way to calculate the revenue requirement that will be filed at the end of the year.

There's a lot of moving parts there. So let me just -- I don't remember what it was last time, but we've talked a lot, and it's been in a lot of our materials. It's about $3 billion worth of stipulated base that we'll be rolling in, in this rate case. There are some COVID deferrals that we'll be looking to put in, but there's also some offsetting. So we always remind everybody about Superstorm Sandy in 2013. We are still collecting on the recovery of Superstorm Sandy because we deferred some of that recovery. So there's a lot of moving parts in there for you to make that calculation, and we have not given that level of detail.

No, the only thing I'd give you, though qualitatively, Ashar, is that, think about a lot of the investments that we've made that have been through clauses. And so that's not an amount of dollars that are going to need to see recovery in this case, those are dollars that have rolled in as we've stepped through time. So that, that sets some gradualization to rates, which I think from a regulatory standpoint, makes a lot of sense.

Okay. But just going back to what Ralph said, there is an incremental $3 billion, right, of rate base that you're going to be asking for, which is not earning, right? Is that correct?

That's correct. That's all be stipulated base that we have already agreed with the regulator was required as part of the programs that we've submitted previously.

Okay, okay. And then can I just go back to that illustrative slide that you had on the PTC. So the numbers are pretty there. So that is just giving us, right? We can use that to come up with Powers and Others earnings per share for that year. I mean there should be from reality because it's based on the PTC, right? So the PTC, you know the number, right? So that should be the Power's earning base for 2024 from a margin point of view.

Yes. I would repeat what I said earlier that the math is pretty simple as to what it is.

And then I didn't understand, and if you can just help me. You said that it increases from 500 to 600 over 3 years. So that's nearly like an increase of 20%. That can't be inflation, right? Inflation can't be -- unless you're talking about a 6% inflation rate, but you said, you're using a 3% inflation rate, if I'm correct. So I just wanted to understand how it goes to like a 20% increase over 3 years. Could you just explain that?

Yes. So very simply, if you take a look at -- the PTC begins in 2024, and it begins at a stated number of [ 43:75 ]. That's essentially when the phase out of the PTC and the price at which it phases out. And so then if you go through the process and you go through and you do it just a 3% escalation every year, using the way that they do the calculation is a little bit quirky. It has step functions. It's not perfectly linear. And so until you hit a certain amount, you won't see an increase. And then when you do see amount, you will see an increase. If you do that math and you run your way through 3 years, in 2027, you would have a PTC threshold of [ 48:88 ]. And so that's what was used within that calculation.

Anyone have any additional questions? Sure, Andrew.

Andrew gets two.

Andrew Weisel, again. I know you've been asked this a few times over the years, but I'll try again. You have rate base growth of 6% to 7.5%. No equity needs, strong ROEs and growth at Power and Other. What's the delta between that and the 5% to 7% EPS CAGR? I know it's conservatism, but is there anything more specific you can point to?

No. I mean I think -- so think about what Ralph said about what's growing into the rate case. So there will be some imperfection within the contemporaneous returns, right? So there'll be some lag that we'll go through there. Between rate cases to the extent that you have any O&M growth as moderate as it is, you can see those kind of things come through. Those are the things that I would point you to.

Yes. The lag is the biggest piece of that, that you have in there. And I wouldn't say it's conservatism as much as its certainty. So if there's -- oh, you got one more.

Shelby Tucker with RBC. A couple of questions. One, you mentioned in your -- one of the slides that your few requirements were contracted to 2027. What happens after 2027? Or can you maybe describe where you stand there for the nuclear fuel? My second question is on the Nuclear PTC. How does that change your hedging strategy going forward for PSEG Power?

So Eric will answer the fuel piece and then Dan has the hedging group.

For fuel pieces, there -- we have contracts in place beyond '27. So it doesn't go to 0, but it goes to some number less than 0. Since we're focused on 2027 for this discussion, we wanted to make a point to say, now through then it's 100% covered. That drops off moderately as you go out in time, and every year, we continue to extend those. So that's about as far out as we stay 100% covered. And as I mentioned, there's 4 different pieces to that, and each of those are covered kind of differently. But we have good coverage out through 2027, and it comes down a little bit after that.

And Shelby, on the hedging piece, it's a great question, and it's probably ideally answered soon, but not today. What I mean by that is that embedded within the PTC calculation, there is a definition of gross revenue. So essentially what are you getting from the market and then what comes in as a PTC above and beyond that. And so that definition from the market is one of the things that the treasury regs will address. I'll give you some extremes. They could determine that, that -- what you're getting from the market is real-time price every 5 minutes at that point in time or what most folks will do is hedge over a period of time. They could look back to your actual hedges or they could presume that there's been some kind of hedging over some period of time based upon some kind of an index price. If your objective is to ensure that you were to earn at that PTC threshold, you would want to adopt and align with what treasury comes out because otherwise, you're going to create deviations from that. And so not wanting to see that daylight, I anticipate we'll move towards what treasury comes out with when they come out with something, but that is still TBD. There's still a lot that's got to come out from the IRA in total. And so we don't have a date for when treasury will be putting out those rigs. I wish we did. But once we get those and interpret those, we'll probably be able to answer a little bit better.

Dan and I keep laughing because we were convinced that those regulations were going to be published last night, and we were going to have to answer that question in much more detail.

So if there are no other questions, I'm going to turn the mic back to you, Ralph, for some closing comments.

So yes -- no, I appreciate that, Carlotta. Look, the investors have asked for clarity, we have clarity. We've got predictability. We've talked about that in a bunch of different ways, increased predictability from where we were 12 months ago. We talked about growth, very transparent growth opportunities that we've talked about and discussed in a lot of detail. We've got a great financial house that's been set up for us along the way, but continues because of the cost control, the decisions that we make on disciplined investment and the cash that we're going to [ be adding ]. We are unique in the fact that we are not going to have to issue equity to have that kind of capital program, and we're not going to have to sell down assets. Neither one of those things are required to achieve the results that we've put forth for you. But I said something in the beginning that I just want to end with, which is, I said [ Sheila ] my right hand. And the reason that I said that is because I believe in the people that we have. None of that stuff that I just talked about is without the team, right? Whether it's the experience that Dan has over time, the fact that I was able to attract Rodney Dickens back to help us out in some specific areas after he was the President of Allegheny Power, and was willing to come back and work with us again. The fact that Kim has been with by my side since 1985, and we actually worked in -- we both grew up working in trenches back then. And then, oh, by the way, we've got a CNO, who used to be a licensed operator at the plants that we're responsible for. That's why Sheila has to be and will continue to be my right hand. It's because of the people and the team that we have, and that extends beyond this group and all the way through our organization. So I appreciate you being here. I hope we left you with a lot of confidence. We have it, and I hope that you have it as well. Thanks for listening.