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

Welcome to the 2023 Annual Meeting of Stockholders of Public Service Enterprise Group, Inc. Please note that this meeting is being recorded. However, participants are not permitted to use any recording device. The polls are open. To vote, please follow the instructions provided in the meeting access e-mail you received prior to this meeting. At this time, I would now like to introduce PSEG's Chair, President and Chief Executive Officer, Ralph LaRossa, to begin the meeting.

Thank you, Justin. Good afternoon, and welcome to PSEG's 2023 Annual Meeting of Stockholders. It is my pleasure to be conducting my first Annual Meeting of Stockholders. We appreciate your attendance and, most importantly, your support. I now call this meeting to order. I'd like to acknowledge that all of our directors nominated for election at this meeting are attending virtually. I would also like to take a moment to express my deepest gratitude to David Lilley, who is not standing for re-election at this meeting today in light of our retirement policy. Since joining the Board over 14 years ago, Mr. Lilley has contributed significantly to our company, all of its stakeholders and New Jersey, and I thank him for his leadership and years of dedicated service. Thank you, David. I would also like to thank our former Chair, President and CEO, Ralph Izzo, for his 30 years of service and 15 years of leadership at PSEG. Now I'd like to introduce, in alphabetical order, our executive team. Joining me today are Eric Carr, President and Chief Operating Officer of PSEG Power LLC, and President and Chief Nuclear Officer at PSEG Nuclear LLC; Dan Craig, Executive Vice President and Chief Financial Officer; Rodney Dickens, Executive Advisor; Kim Hanemann, President and Chief Operating Officer of Public Service Electric and Gas Company; Tammy Linde, Executive Vice President and General Counsel; Sheila Rostiac, Senior Vice President of Human Resources, Chief Human Resource Officer and Chief Diversity Officer; Zeeshan Sheikh, Senior Vice President and Chief Information and Digital Officer; and Rick Thigpen, Senior Vice President of Corporate Citizenship. This meeting will be conducted in accordance with the rules of conduct that are posted on the right-hand side of your screen. Stockholders may submit questions electronically during the meeting by typing the questions in the Q&A box on the upper right side of the webcast screen. These questions will not be visible to other participants. We will address questions at the end of this webcast. The inspector who will count the votes for this meeting has already taken her oath. She is Tracie Balach of EQ Shareholder Services. The oath of the inspector will be included in the meeting records. I will now ask the secretary to report on a meeting notice and other requirements.

The Board of Directors has fixed the close of business on February 17, 2023, as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting. The inspector has reported that a quorum is present. A certified list of stockholders is available for viewing. Please refer to the instructions included in the meeting portal you used to enter this webcast.

There are 5 principal items of business at this meeting. For the first item, members of the Board of Directors will be elected to a 1-year term that will expire at the Annual Meeting of Stockholders in 2024. The Secretary will now read the names of the 10 nominees for election to the Board of Directors.

As set forth in the proxy statement for this meeting, the nominees for election to the Board of Directors with a term expiring at the Annual Meeting of Stockholders in 2024 are Ralph LaRossa, Chair of the Board, President and CEO of PSEG; Susan Tomasky, our Independent Lead Director and Retired President, AEP Transmission of American Electric Power Corporation; Willie Deese, Retired Executive Vice President of Merck & Company, Inc. and President, Merck Manufacturing Division; Jamie Gentoso, President of Holcim Building Envelope and Global Head of Solutions and Products Business Unit of Holcim; Barry Ostrowsky, Retired President and CEO of RWJBarnabus Health; Valerie Smith, President of Swarthmore College; Scott Stephenson, Retired Chairman of the Board, President and CEO of Verisk Analytics, Inc.; Laura Sugg, Retired President of the Australasia Division of ConocoPhillips Corporation; John Surma, Retired Chairman and CEO of United States Steel Corporation; and Alfred Zollar, Executive Adviser, Siris Capital Group, LLC and Retired General Manager, Tivoli Software Division of IBM Corporation.

The next item of business is the advisory vote on executive compensation. This is sometimes referred to as say on pay. We intend to review the voting results and consider them when making future decisions regarding executive compensation. The Secretary will now read the resolution.

Resolved, that the stockholders hereby approve, on an advisory basis, the compensation of the named executive officers as disclosed in the company's proxy statement for the 2023 Annual Meeting of Stockholders pursuant to the applicable rules of the SEC, including the compensation discussion and analysis, compensation tables and narrative discussion.

The next item of business is the advisory vote on the frequency of say on pay votes. You may vote for the frequency of this poll to be every year, every 2 years or every 3 years. We recommend a vote for 1 year. The Secretary will now read the resolution.

Resolved, that the stockholders hereby recommend, on an advisory basis, that the advisory vote on executive compensation be held every year.

The next item of business are proposed amendments to our Certificate of Incorporation and bylaws to eliminate supermajority voting requirements for certain actions. We are presenting 3 resolutions to accomplish this action. The Secretary will now read the 3 resolutions on this matter.

Resolved, that the stockholders hereby approve the proposed amendments to Article 7 of our Certificate of Incorporation to eliminate the supermajority voting requirements for certain business combinations and change provisions applicable to certain business combinations. Resolved, that the stockholders hereby approve the proposed amendments to Article 8 of our Certificate of Incorporation and Article 1, Section 1(d) of our bylaws to eliminate the supermajority voting requirements to remove a director without cause and change provisions applicable to Board-related matters. Resolved, that the stockholders hereby approve the proposed amendments to Article 9 of our Certificate of Incorporation to eliminate the supermajority voting requirement to make certain amendments to our bylaws and change provisions applicable to bylaw amendments.

The final item of business is to ratify the appointment of the independent auditor. The Board of Directors appointed Deloitte & Touche LLP, independent registered public accounts as independent auditor for 2023 and subject to stockholder ratification. Christine LaCroix, Lead Client Service Partner from Deloitte is participating today. Deloitte audits the financial statements of PSEG and its major subsidiaries and performs other limited services as well. The Secretary will now read the resolution.

Resolved, that the stockholders of Public Service Enterprise Group, Inc. hereby ratify the appointment of Deloitte & Touche LLP, independent registered public accountants of Morristown, New Jersey, as independent auditor to make the annual audit of the books of accounts and supporting records of this corporation for the year 2023.

We are now ready to vote. If you have sent in a proxy, you do not need to vote unless you wish to change your vote. The polls are now open and the inspector is prepared to receive the votes. I'll pause for a moment now. [Voting]

This concludes the review of the matters to be voted on. The polls are closed. The inspector of election will collect and tabulate all of the proxies and ballots.

Mr. Chair, subject to final tabulation, we report the following preliminary results. All of the persons named in the proxy statement as nominees for election as directors have been elected for a 1-year term. The company's executive compensation program, as described in the proxy statement, has been approved on an advisory basis. The frequency on pay has been approved for 1 year on an advisory basis. The proposed amendments to the Certificate of Incorporation to eliminate supermajority voting requirements for certain business combinations has not been approved. The proposed amendments to the Certificate of Incorporation and bylaws to eliminate supermajority voting requirements to remove a director without cause has not been approved. The proposed amendments to the Certificate of Incorporation to eliminate the supermajority voting requirements to make certain amendments to our bylaws has not been approved, and the appointment of Deloitte & Touche LLP as independent auditor for the year 2023 has been ratified.

Thank you, Ms. Balach. The certificate of the inspector will be filed with the meeting records. Thank you for your vote of confidence in directors and management of your corporation. All items of business have now been completed, and the meeting is now adjourned. Nonetheless, I will take a few additional minutes to report to you on the condition of your company. Before we dig into the details of our business update, please review the next 2 slides. This slide discusses our forward-looking statements as well as our GAAP disclaimer on the next slide. Now let's move into our business update. Last year, PSEG unveiled our Powering Progress Vision, the power of future where people use less energy, and it's cleaner, safer and delivered more reliably than ever. This vision builds on our company's 120-year legacy and is critical as we strive to meet the expectations of today's customers. As we move forward with this vision, we are focused on 4 key areas that we feel improve the stability of our business in 2022. They are predictability, financial strength, growth, and our team. Let's first look at predictability. Predictability is central to how PSEG conducts business for our customers, investors, communities and employees. Our focus on predictability means that even as global challenges, including inflation and supply chain disruptions created economic impacts in 2022, PSEG successfully adopted and was able to achieve management's guidance for non-GAAP operating earnings for the full year of $3.47 per share. This performance marked the 18th consecutive year that PSEG delivered results within or above our original operating guidance range. We also made 3 strategic business decisions over the last year aimed at minimizing risk and volatility of our business, including completing the sale of our 6,750-megawatt fossil generation portfolio; selling our equity stake in the Ocean Wind 1 generation project; and deciding to retain our carbon-free baseload nuclear generating assets. In terms of our overall financial strength, we achieved solid operating and financial results in 2022 with our regulated utility, PSE&G, contributing approximately 90% of our consolidated non-GAAP earnings. This positions us to continue supporting growth in our dividend. In February 2023, we raised our indicative annual dividend rate to $2.28 per share, up from $2.16 per share in 2022, an increase of 5.6%. This is the 116th consecutive year our company has paid a dividend to shareholders and the 19th dividend increase in the last 20 years. We also see significant opportunity to invest in New Jersey's energy infrastructure as the state prioritizes the electrification of transportation and other decarbonization pathways. While these opportunities exist primarily at PSE&G, the financial support provided by the Federal Nuclear Production Tax Credit will also incentivize expanded investment at our New Jersey nuclear units. PSE&G's 2023 to 2027 planned capital spending program of $15.5 billion to $18 billion drives a 6% to 7.5% compound annual growth rate in rate base over the 5-year period. And the financial strength we just mentioned enables us to fund our capital investment program through 2027 without the need to issue new equity or sell parts of our company in order to grow. The funding of PSE&G's investment in infrastructure modernization and decarbonization will be complemented by our decision to retain our 3766-megawatt nuclear fleet following the passage of the Inflation Reduction Act and the establishment of the Nuclear Production Tax Credit that is expected to stabilize nuclear economics well into the next decade. We recently discussed the growth opportunities of our business at PSEG's March 10 investor conference, which is available to view on our corporate website. These opportunities drive our long-term outlook for non-GAAP earnings growth of 5% to 7% over the 2023 to 2027 period. Diving a bit deeper into the opportunities. PSE&G continues to support the New Jersey economy with our infrastructure modernization programs that maintain and create thousands of essential good-paying jobs while also helping our customers to pursue a broad set of clean energy options, including energy efficiency, behind the charger infrastructure for electric vehicles, high-efficiency appliances and the potential for future fuels such as renewable natural gas and hydrogen. In June of 2022, the New Jersey Board of Public Utilities approved PSE&G's Infrastructure Advancement Program, which will help modernize our distribution systems to provide customers with improved reliability, including during extreme weather while preparing to move towards increased electrification. In early 2023, we filed with the BPU for a new phase of our gas system monetization program that updates cast iron mains and increases efficiency. This effort will reduce methane leaks and carbon emissions, which is important as we work to expand our clean energy. Speaking of clean energy. We also see significant growth opportunities in clean energy investments, particularly at the state and national energy conversation shifts to decarbonization and electrification. In February of 2023, the state of New Jersey unveiled an accelerated target of 100% clean energy by 2035 and an accelerated electric vehicle plan. These areas closely align with PSEG's interest and assets. Currently, PSEG's nuclear energy portfolio accounts for approximately 85% of New Jersey's carbon-free energy, making an important source of energy that supports the state's clean energy goals with reliable baseload generation. We're also investing in electrification of transportation in the state, which is the #1 source of national greenhouse gas emissions and we're recently recognized by EVgo for our efforts in this area. Our people are also a big part of our company's stability. I'm proud to have been at PSEG for over 35 years. We have a fantastic team and organization, from our managers and supervisors to our field crews, technicians and nuclear engineers and everyone who shows up each and every day. And we are not only proud of our employees, they are proud to be part of our team. Over the last 3 years, our voluntary employee turnover rate has been approximately 3%, excluding retirements. This is just amazing at a time of the Great Resignation. Another important workforce update to note is our recent agreement with all 5 of our New Jersey unions, which will provide us with labor cost stability over the next 4 years. Thanks to the hard work of the team, I just mentioned, PSEG can continue to strive for customer reliability and operational excellence. In 2022, PSE&G was recognized for reliability. And that acknowledgement includes being ranked first in customer satisfaction for both residential electric and natural gas service in the east among our large utilities by J.D. Power. We also received the 2022 Edison Award from the Edison Electric Institute. While we haven't [indiscernible], we continue to hire and to best position our company for the future, we need a diverse team of talented and dedicated people who can leverage their unique backgrounds, experiences and skills to help solve our customers' problems. As part of our aim to further attract talent and build the workforce of the future, PSE&G has partnered with the New Jersey Department of Labor and Workforce Development, the sponsor to Clean Energy Jobs Program, an initiative designed to place up to 2,000 people from underrepresented communities into clean energy jobs, and we're more than halfway to our goal. For this and all our DEI efforts, we were recognized by Forbes as one of America's best employers for diversity in 2022. Public service is in our name and what we stand for. So we work to show for the communities that we serve. In April 2022, the PSEG Foundation announced its new strategic pillars of environmental sustainability, social justice, equity and economic empowerment. As a result, in 2022, over $8 million was awarded to organizations in alignment with the PSEG Foundation's strategic given priorities. I also want to acknowledge the PSEG employees who volunteer to further support our communities. We also believe that doing our part extends protecting our environment. We continue to pursue our ambitious goal of net zero greenhouse gas emissions by 2030. And we continue our commitments to the UN-backed Race to Zero and Business Ambition for 1.5 Degree Centigrade campaigns. We signed these in late 2021. Our environmental efforts have led to recognition, including PSEG being named to the Dow Jones Sustainability North America Index for 15 consecutive years. Now even though we've been around since 1903, we haven't been afraid to shape things up when necessary. You may have noticed in our annual report that we recently have begun to roll out a new look for PSEG. A lot is staying familiar, including our logo, but this new branding also reflects who we are today, a future-focused company aiming to reliably and safely deliver the services our customers count on. This is a fresh take, but people will be able to recognize us and the reputation we have built since our company was founded 120 years ago. Every day, our employees keep the lights on and heat on and move us toward our Power and Progress vision. I thank them for their loyalty and dedication. I also thank you, our shareholders, for your loyalty and support. We will continue working hard to maintain your confidence and trust. I'll now turn the meeting back over to Justin to start our question-and-answer session.

Thank you, Ralph. As noted at the beginning of this meeting, questions may be submitted by typing in the Q&A box located on the right side of the webcast screen. We will address questions that are, in our reasonable judgment, appropriate for this meeting in accordance with the Rules of Conduct. [Operator Instructions]. Okay, Ralph. Our first question comes from James and he wants to know are you seeing inflationary pressures starting to recede?

Thanks for the question, James. We remain in an inflationary environment and the magnitude varies depending on what area of the business or products you look at. I did mention earlier, though, our labor costs remain in a reasonable place, and we just extended our union contract for 4 years.

Thank you, Ralph. Next question also from James. Can we expect to see future dividend increases at $0.12 per share?

We certainly expect consistent and sustainable growth in our dividend, but the actual amount of our dividends is ultimately approved quarterly by our Board of Directors.

Thank you, Ralph. Next question is from Jonathan. As more and more retirement funds divest from oil, gas and electricity, how will PSEG market itself to stay competitive as a stock interest in these plants?

We're focused on this every day. PSEG continues to be an attractive investment opportunity. It provides an essential service to customers throughout the state and in a responsible way that provides investors with a competitive dividend and a forecasted earnings growth of 5% to 7% through 2027.

Thank you, Ralph. We received a couple of questions on nuclear, so I'll combine them, one from Mark, one from Thomas. First, is there a path to safe and efficient nuclear energy? And what are our future plans for nuclear power?

I think there is a path. I think we're on it. Nuclear already provides approximately 85% of New Jersey's carbon-free electricity. And as we mentioned earlier, we've announced that we're going to maintain our nuclear fleet. And we'll also say that people are talking about SMRs. And while we don't want to invest in SMRs directly, we're more than willing to support SMRs at our site if someone else was able to make that investment.

Thank you, Ralph. Thomas and Kevin also have some interest in solar and wind power and our plans for those.

As I mentioned earlier, we are not a direct investor in offshore wind generation. We continue to support the state's policy objective on offshore wind industry and it included helping to build a port in South Jersey. On the solar front, we certainly have an opportunity to continue to invest in solar based on New Jersey policy, but that will be within our regulated utility PSE&G.

Thank you, Ralph. Thomas would also like to know is the Board committed to ESG?

Yes. No, it's no doubt, and you can see that in the way we're compensated as a management team. The Board is absolutely committed to ESG. It's critical for our mission, our vision and the Board plays a proactive role in understanding how each business area incorporates it into our business strategy. I said at our investor meeting and I meant that ESG is just part of the price of plan poker, and we want to show up, we show up in an ESG way.

Thank you, Ralph. Last question from Thomas. Are there government restrictions on the expansion of natural gas?

It's a hot topic these days, and there are currently no restrictions on natural gas here in New Jersey. As it undertakes and that being New Jersey undertakes its effort to meet its clean energy goals, New Jersey will continue to analyze over the next year or so how natural gas best fits within that mix. I also wanted to mention that just yesterday, the federal appeals court struck down a Berkeley, California ordinance that prohibits the installation of natural gas piping within newly constructed businesses. So this is a hot topic and will continue to evolve.

Thank you, Ralph. The next question comes from Monte. Do you think that employees working remote will continue? And is it more productive than having employees in the office?

We'd like to say our employees work where their jobs require them to be. And for most of our employees, over 60%, that's meant being on-site throughout the pandemic and that continues today. We've achieved excellent operating performance, our J.D. Power scores that I mentioned earlier are best-in-class. And we also value from the benefit and access to a retention of our underserved populations with this flexible culture. We expect this model to continue as we go forward.

Thank you, Ralph. The next question is from [ Rayden. ] PSEG is a leader when it comes to nondiscrimination and support for LGBTQ staff and community groups. Please share your efforts to assist all employees as well as community support groups.

Thank you for the recognition. It means a lot to us. Our DEI program, Inclusion for All is comprised of programs and education to support all dimensions of diversity, including age, race, gender, disability, LGBTQ+ and all of the traits and characteristics that make each of us the person we are. Externally, the PSEG Foundation supports over a dozen nonprofit organizations, such as Garden State Equality which advocates for creating inclusive environments for schools and communities.

Thank you, Ralph. The next question comes from Joseph. I understand that PSEG wants to build out EV charging stations. But what is the plan to maintain them?

We've given that a lot of thought here. And I think where we are at right now is that we believe that the model for electric charging stations should follow the streetlight model that we have here in the state where we install, operate and maintain those lights for folks. We don't necessarily have to be in the retail business, but actually operating and maintaining those lights would be the safest thing that was done within us -- with us in the utility.

Thank you, Ralph. And our last question comes from Joe. How is economic growth in your service area?

I think we benefit from being in a very positive growth area because we always look every single day at affordability of our product for our customers. And we have some targeted metrics in that area where we try to make sure that we're not taking up too much of the wallet share for any individual person. And we've been able to achieve that because the economy in and around New York has been more stable than it has been in other parts of the country.

Thank you. And we did ask for some clarification -- or we received an ask for clarification from Thomas. Are we expanding our natural gas business?

Still today, we're not having -- building new pipelines from a transmission standpoint. But within our franchise rights, we still have not completely delivered -- gone forth with delivering gas to every single home, so I would say we're still expanding within our franchise rights, but we have no plans at this point to build new pipelines into other areas.

Thank you, Ralph. That concludes our question and answers.

Well, thank you, Justin, and thank you all for your attendance and interest in PSEG. This concludes today's webcast.