Public Service Enterprise Group Inc (PEG) Q2 2019 Earnings Call Transcript

PEG earnings call for the period ending July 30, 2019.

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Public Service Enterprise Group Inc (NYSE:PEG)
Q2 2019 Earnings Call
Jul 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen thank you for standing by. My name is Maria [Phonetic], and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group Second Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions]. Later we will conduct a question-and-answer session for members of the financial community.

[Operator Instructions] As a reminder, this conference is being recorded today, July 30, 2019 and will be available for teleone replay beginning at 1:00 PM Eastern today until 11:30 PM Eastern on August 8, 2019. It will also be available as an audio webcast on PSEG's corporate website at www.pseg.com.

I would now like to turn the conference over to Carlotta Chan. Please go ahead.

Carlotta Chan -- Senior Director-Investor Relations

Thank you, Maria. Good morning and thank you for participating in our earnings call. PSEG's second quarter 2019 earnings release, attachments and slides detailing operating results by company are posted on our website at investor.pseg.com, and our 10-Q will be filed shortly. The earnings release and other matters discussed during today's call contain forward-looking statements and estimates that are subject to various risks and uncertainties.

We also discuss non-GAAP operating earnings and non-GAAP adjusted EBITDA, which differ from net income as reported in accordance with generally accepted accounting principles in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's earnings materials.

I will now turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of PSEG. Joining Ralph on today's call is Dan Cregg, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Thank you, Carlotta, and thank you all for joining us. PSEG reported non-GAAP operating earnings for the second quarter of 2019 of $0.58 per share versus $0.64 per share in last year's second quarter.

PSEG's GAAP results for the second quarter was $0.30 per share compared with $0.53 per share in last year's second quarter.

Our results for the second quarter bring non-GAAP operating earnings for the first half of 2019 to $1.66 per share. This is a 3.1% increase over non-GAAP operating earnings of $1.61 per share for the first half of 2018, and reflects the growing contribution from our regulated operations. Earnings at PSE&G reflects the benefits of our continued investment in New Jersey's energy infrastructure and rate relief from the 2018 settlement of our distribution rate review. Slide 6 and 7 summarized the results for the quarter in the first half of 2019. We had a constructive quarter with respect to several regulatory and policy matters that will advance our long-term strategy on several fronts. PSE&G has reached an agreement in principle with key parties in the Energy Strong II infrastructure filing that will enable the continuation of increasing the resiliency and improving the reliability of critical energy infrastructure in New Jersey.

PSE&G is working with the New Jersey, Board of Public Utilities staff, with Rate Counsel and other parties on finalizing a stipulation of settlement, which we will then submit to the New Jersey, Board of Public Utilities for approval in September.

The agreement provides for $842 million of investment of projects that commenced in the fourth quarter of this year, and which are expected to be completed by December of 2023, providing an annual level of spend that is comparable to that of Energy Strong I. PSE&G would be eligible to recover $692 million on an accelerated basis. With the remaining $150 million recovered in a future rate case. The program is split $741 million to electric which is approximately 0.5 of our requested amount, and $101 million to gas. PSE&G's original filing of the Energy Strong II infrastructure plan outlined $2.5 billion of capital spend through the end of 2024 with $1.5 billion for electric infrastructure and $1 billion for gas infrastructure.

The Energy Efficiency component of PSE&G's Clean Energy Future filing, different from Energy Strong II, remains pending before the New Jersey, Board of Public Utilities.

We have reached an agreement in principle that extends the matter into 2020, in anticipation of finalization of the state's Energy Master Plan that authorizes in the interim PSE&G to continue to work on four of its existing award winning energy efficiency programs for an additional year. The clean energy filing is designed to achieve the electricity and gas energy savings goals outlined in 2018's Clean Energy Act, which requires the state's utilities to implement energy efficiency programs to achieve annual savings of 2% and three quarters of a percent for electric and gas usage, respectively.

The agreement covering an extension of both the clean energy filing matter and the four existing energy efficiency programs will require New Jersey BPU approval. With these recent updates, PSE&G remains on track to invest $2.7 billion in electric and gas infrastructure upgrades to its transmission and distribution facilities during 2019, to improve reliability and increased resiliency. We continue to forecast over 90% of PSEG's planned capital investment will be directed to the utility over the 2019 to 2023 timeframe. Updating for the recent Energy Strong II agreement, PSE&G is narrowing its estimated capital spending range to $12 billion to $14.5 billion from what had been an estimate of $11 billion to $16 billion, which translates to a compound annual growth rate in rate base of 7.5% to 8.5% from a starting point of $19 billion at year-end 2018.

New Jersey continues to advance its clean energy agenda and recently issued a draft Energy Master Plan to reach 100% clean energy by 2050. The Board of Public Utilities announced the total of six stakeholder meetings through early September, and expect to finalize the draft Energy Master Plan in December. PSE&G believes our clean energy future filings are aligned with the broad goals of the Energy Master Plan and notes the master plan's recognition of the benefits of electrifying transportation, energy storage, and advanced metering infrastructure or smart meters. And they are important to providing customers and utilities with essential information to facilitate energy efficiency and outage restoration. This type of data will accelerate service restoration times for customers during storms such as those we experienced last week in New Jersey.

Another part of Governor Murphy's clean energy agenda includes the development of a robust offshore wind industry in the state. In June, the Board of Public Utilities awarded the first of three planned solicitation to Orsted's 1,100 megawatt Ocean Wind project. We expect to make a decision on our option to pursue an equity interest in the Ocean Wind project in the coming months.

At PSEG Power, the BPU awarded Zero Emission Certificates or ZECs, to Power's three New Jersey nuclear units on April 18th, to help preserve the state's largest source of zero carbon generation.

PSEG Power also completed its 1,800 megawatt combined cycle gas turbine construction program during the quarter with the commercial operation of the Bridgeport Harbor 5 generating station in early June.

In late June, PSEG Power announced the sale of its 776 megawatt interest in the Keystone and Conemaugh coal-fired generating units in Pennsylvania. The sale expected to close later this year subject to customary closing conditions and regulatory approvals, resulted in an after-tax impairment charge of $284 million that reduced net income in the second quarter. The transaction will allow us to dispose of a non-core asset, and move PSEG Power closer to eliminating coal from its fuel mix. This process will be complete by mid 2021 when the Bridgeport Harbor 3 coal-fired generating plant is scheduled to be retired.

The sale announcement is part of the 2,400 megawatts of total coal-fired generation that PSEG Power will have either retired early or sold between 2017 and 2021, and further reduces the intensity of our carbon dioxide emissions. This move is on top of the fact that PSEG already has one of the lowest carbon emission rates among large US power producers. PSEG Power's fleet has reduced its carbon emission intensity by more than 40% since 2005, and is about half the emission intensity compared to the country overall. This has been achieved by maintaining its nuclear units, investing in highly efficient gas-fired generation units and renewables, and exiting coal-fired generation assets. As outlined during our May 29th Investor Conference, just a few months ago, PSEG continues to advance its climate strategy.

Last week, we proactively established plans to reduce the carbon emissions at PSEG Power's generating fleet 80% by the year 2046 from 2005 levels with the vision of net zero emissions by 2050. In support of these carbon reduction goals, PSEG also announced that it has no plans to build or acquire new fossil fuel power plants. However, we do plan to operate existing assets through their useful lots. PSEG also committed to reporting annually on sustainability and climate using the Task Force on Climate-related Financial Disclosures framework starting in 2020, which is when we will also issue our first Climate Report.

We continue to wait on the final order from the Federal Energy Regulatory Commission, in their effort to reform the PJM capacity auction toward a just a reasonable construct. As I'm sure you know, on July 25th, the FERC issued an order directing PJM the delay it's August capacity auction until it can approve replacement auction rules.

Given our second quarter results, we are affirming the full-year forecast that PSEG's non-GAAP operating earnings at $3.15 per share to $3.35 per share. At the midpoint of our guidance. This represents over 4% growth in earnings over 2018's full year non-GAAP operating results of $3.12 per share. A higher percentage contribution from regulated earnings at PSE&G which is approximately 75%, is driving this increase and offsetting challenging market conditions in the power and natural gas markets.

And just as a reminder, our 2019 operating earnings guidance includes the benefits from a partial year of ZEC payments, covering all three of our New Jersey nuclear plants.

I'd like to thank our employees for their tireless efforts to restore service to our customers in New Jersey, who lost power as a result of severe storms last week. It's their commitment and ability to safely restore customers that continues to provide me with the confidence in our operating excellence model.

I'll now turn the call over to Dan for more details on our operating results and will be available for your questions after his remarks.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Great. Thank you, Ralph and good morning everyone. As Ralph said, PSEG reported non-GAAP operating earnings for the second quarter of 2019 of $0.58 per share versus $0.64 per share in last year's second quarter.

We provided you with information on Slide 11 regarding the contribution to non-GAAP operating earnings by business for the quarter. And Slide 12 contains a waterfall chart that takes you through the net changes quarter-over-quarter in non-GAAP operating earnings by major business.

And I'll now review each company in more detail starting with PSE&G. PSE&G, as shown on Slide 16, reported net income for the second quarter of 2019 of $0.45 per share, compared with $0.46 per share for the second quarter of 2018. For the first half of the year, net income was $1.24 per share, up 13.8% from the $1.09 per share earned in the first half of 2018.

PSE&G's results were driven by rate relief and investments in Transmission and Distribution offset by the reversal of the lower tax rate in the first quarter that resulted from the flow back to customers of excess deferred income taxes, and by unfavorable weather that resulted in lower electric demand. As a reminder, we mentioned on the first quarter call that a positive P&L impact of the effective tax rate reflected in the last quarter's earnings would largely reverse in this second quarter. PSE&G's growth in Transmission investment added $0.04 per share to quarter-over-quarter net income comparisons. Unfavorable weather lowered results by a $0.01 per share as a result of a mild spring and a cool early summer.

Gas margin improved quarter-over-quarter net income comparisons by $0.02, benefiting from the 2018 distribution rate case settlement as well as the remaining recovery of investments made under our first GSMP program.

Electric margin was flat compared to the year ago quarter as rate relief was offset by lower demand, higher O&M expense reduced net income by $0.01 per share, and in addition, higher depreciation and interest expense reflecting the utilities' expanded asset base each reduced net income by a $0.01 per share versus the second quarter of 2018.

Non-operating pension and OPEB added a $0.01 per share versus the second quarter of 2018. And the effect of flow through taxes in the second quarter of 2019 had a negative $0.04 per share impact on net income compared with last year's second quarter, reflecting the reversal of a benefit seen in the first quarter of this year, when the flowback of excess deferred taxes to customers had a larger impact on revenue and tax expense. Adjusting for this item, utility earnings for the second quarter would have been $0.49 per share, up 6.5% from last year's results of $0.46 per share in the second quarter.

Weather for the second quarter of this year was unfavorable compared with weather experienced during the last year's second quarter. Heating degree days were 23% lower, but due to the gas weather-normalization clause, weather did not impact gas results. Early summer weather was cooler causing lower electric demand, but on a trailing 12-month basis, which provides longer term trending data, weather-normalized electric and gas sales were both relatively flat. Residential electric and gas customer growth continues to trend higher at approximately 1% per year.

PSE&G is on track to invest $2.7 billion in electric and gas infrastructure upgrades to its transmission and distribution facilities during 2019, to maintain reliability and increase resiliency. We continue to forecast over 90% of PSEG's planned capital investment will be directed at the utility over the 2019 to 2023 timeframe. And updating for the recent Energy Strong II agreement, PSE&G is narrowing its estimated capital spend range to $12 billion to $14.5 billion from $11 billion to $16 billion, which translates to a compounded annual growth rate of 7.5% to 8.5% from the starting point of $19 billion at year-end 2018 rate base, and we are maintaining our forecast of PSE&G's net income for 2019 of $1.2 billion to $1,230 million.

Now moving to Power. Power reported non-GAAP operating earnings in the second quarter of $0.13 per share, and non-GAAP adjusted EBITDA of $211 million. This compares to non-GAAP operating earnings of $0.16 per share, and non-GAAP adjusted EBITDA of $210 million for the second quarter of 2018. Our non-GAAP adjusted EBITDA excludes the same items as our non-GAAP operating earnings measure as well as income tax expense, interest expense, depreciation, and amortization expense.

The earnings release and Slide 20, provide you with detailed analysis of the items, having an impact on PSEG Power's non-GAAP operating earnings relative to net income quarter-over-quarter. And we've also provided you with more detail on generation for the quarter and for the first half of 2019 on Slides 21 and 22. PSEG Power's results for the second quarter reflected the anticipated step down in capacity prices in both PJM and ISO-New England that lower results by a $0.01 per share compared with last year's second quarter.

Re-contracting and market impacts reduced results by $0.03 per share and this reflects an approximately $3 per megawatt hour decline in the average hedge price compared with the year ago quarter and lower realized margins. PSEG Power's three New Jersey nuclear plants were awarded Zero Emission Certificates starting on April 18th, which added $0.05 compared with the year ago quarter.

Volume increases versus the year ago quarter added a $0.01 per share. Gas operations were lower by $0.02 per share versus the year ago quarter. Reflecting the absence of a cold April 2018, and reduced off-system sales on lower gas prices. Higher depreciation and higher interest expense together lowered net income comparisons by $0.04 per share versus the year ago quarter.

And taxes and other were a $0.01 per share benefit over last year's second quarter. Gross margin in the second quarter declined to $33 per megawatt hour from $34 per megawatt hour in the year ago quarter. Power prices and natural gas prices were lower across PJM, New York and Maryland, reflecting unseasonably mild weather that also depressed load. Weather related weakness in demand pressured power prices lower and accelerated the price reduction compared with natural gas, which compressed spark spreads. As I mentioned capacity revenues for the first five months of 2019 were positive compared to the same period in 2018.

Starting June 1st, Power's average capacity prices declined as we move into a new energy year on June 1st. In PJM prices declined from $205 per megawatt day to $116 per megawatt day, and in ISO-New England prices declined from $314 per megawatt day to $231 per megawatt day. These lower average prices will continue through the first five months of 2020.

Bridgeport Harbor 5 began commercial operations in June, and started receiving capacity payments of $231 per megawatt day for the units 485 megawatts which is locked in on an escalating basis for seven years.

Now let's turn to PSEG Power's operations. Generation output increased by 0.8 terawatt hours to a total of 13.1 terawatt hours. Driven by the addition of a new combined cycle capacity compared with last year's second quarter. PSEG Power's combined cycle fleet produced 4.8 terawatt hours of output, up 36%, primarily from the benefit of a full quarter of production from Keys and Sewaren, and the addition of Bridgeport Harbor 5 late in the second quarter. Wholesale energy prices were affected by declines in the price of gas and weak demand given the mild temperatures in the spring and early summer.

Which also limited the dispatch of older, less efficient combined cycles in an increasingly efficient PJM market.

Lower spark spreads continue to pressure realized margins as infrastructure build-out in the Marcellus shale region continues to erode Power's gas cost advantage and power prices fell more than gas prices. Coal generated 1.2 terawatt hours slightly down as a result of lower market demand. And Power's nuclear fleet operated at an average capacity factor of 84.4% for the quarter, producing 7.1 terawatt hours and representing 54% of total generation. Salem 1 completed its 26th refueling outage and returned to service in mid-June after completing the reactor bolt replacements we discussed last quarter. During the one month outage extension, Power's nuclear team successfully replaced 272 of the unit's 832 reactor vessel bolts. Over the next few operating cycles PSEG Power plans to proactively address the remaining reactor vessel bolts identified for replacement at Salem 1 and Salem 2. That said, lower prices for power and natural gas as well as the expected sale of PSEG Power's interests in Keystone and Conemaugh have prompted a reduction in projected volumes for the remainder of 2019. As well as 2020 and 2021 from our previous 60 to 62 terawatt hours. The sale of Keystone and Conemaugh is expected to lower volumes by 1.2 terawatt hours in 2019, and by 5 terawatt hours in each of 2020 and 2021. And PSEG Power is now forecasting output for the remainder of 2019 of 30 terawatt hours to 32 terawatt hours. And it's hedged approximately 85% to 90% of production at an average price of $38 per megawatt hour. For 2020, Power has hedged 65% to 70% of forecast production of 52 terawatt hours to 54 terawatt hours at an average price of $38 per megawatt hour.

Power is also forecasting output of 2020-21 of 52 terawatt hours to 54 terawatt hours with approximately 25% to 30% of this output hedged at an average price of $39 per megawatt hour. The forecast for 2019 to 2021 volumes includes generation from recent additions of the three new combined cycle units, lower volumes from current market conditions, and the announced sale of Keystone and Conemaugh.

We continue to forecast Power's non-GAAP operating earnings for 2019 and non-GAAP adjusted EBITDA at $395 million to $460 million and $1,030 million to $1,130 million, respectively.

Now, let me briefly address operating results for Enterprise and Other. For the second quarter, we reported a net loss of $34 million or $0.07 per share compared to a net loss of $3 million or a $0.01 per share for the second quarter of 2018. Non-GAAP operating loss for the second quarter of 2019 was $2 million compared to the non-GAAP operating earnings of $11 million for the second quarter of 2018. During the second quarter of 2019, Energy Holdings completed its annual review of the estimated residual values embedded in its leveraged leases.

An impairment of $32 million, after tax, was recorded in net income as a result of the expected future adverse market conditions related to the residual value of the coal-fired Powerton unit lease. This compares with an impairment of $14 million, after-tax, related to liquidity challenges at NRG REMA in the year-ago quarter. Results of this quarter also reflect lower investment income in Energy Holdings related to the absence of a one-time gain last year. As well as higher interest expense at the parent versus the year-ago period.

For 2019, the forecast of PSEG Enterprise and other net income remains unchanged at $5 million to $10 million.

Our financial position remains strong. PSEG closed the quarter with $82 million of cash on the balance sheet. And with debt at the end of June, representing 52% of our consolidated capital and debt at PSEG Power representing 32% of its capital at the end of the quarter. During the quarter PSEG issued $750 million of five-year senior notes at favorable interest rates and repaid $350 million of a term loan that matured in June of 2019.

PSE&G issued a total of $750 million of 10-year secured medium term notes and 30-year secured medium term notes, at interest rates of 3.2% and 3.85%, respectively. And retired $250 million of maturing 1/8% percent medium term notes. We continue to expect to fully fund PSEG's updated five-year $13 billion to $15.5 billion capital investment program over the 2019 to 2023 period without the need to issue new equity. And as Ralph mentioned, we continue to forecast non-GAAP operating earnings for the full year of $3.15 to $3.35 per hare.

That concludes my remarks, and we are now ready to take your questions. Maria?


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Questions and Answers:

Operator

Thank you, ladies and gentlemen, we will now begin the question-and-answer session for members of the financial community.

[Operator Instructions].

Our first question is from Praful Mehta of Citigroup. Please proceed with your question.

Praful Mehta -- Citigroup -- Analyst

Thanks so much. Hi, guys.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Hi. Praful.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Hi.

Praful Mehta -- Citigroup -- Analyst

Hi. So I guess the big move between last quarter and this quarter has been power prices in your power markets. So I wanted to get a little bit more perspective on what do you think has been the big driver that's driving this drop in pricing? And do you see this as more structural or do you see this as more one-time or short-term in nature?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Praful, so hard to answer that question. Right? And we've heard everything that ranges from a move on the part of certain active participants in the market to fix a position issues that they had to the fact that there's no doubt that we are seeing limitations to the amount of infrastructure that can move gas to this region, and therefore the potential for an oversupply of natural gas prices, keeping prices low, which is a continuation of the pattern we've seen over the past few years. All Right. So, you have new construction, low gas prices, and that combines to yield low power prices in this market. And where we see a little bit of relief in terms of the construction of pipeline capacity outside of our immediate region, that of course could over the long-term, give some support to gas prices in the region, which will help our nuclear plants.

We still don't have the compliance filing from PJM on fast start that may help, but in theory, the forward price curve should have anticipated that already. I think given the level of candidly [Phonetic] slow movement at FERC on things that range from capacity markets to the operating reserve demand curve, the market probably isn't pricing a lot in for some of these reforms.

So, yes, so I think, our answer is, it's certainly not a temporary aberration. There are some, there are some developments taking place in the market. That are combination of low gas, highly efficient combined cycle gas turbines that are creating a lower new normal, whether or not $26 around the clock is the new normal, we're skeptical, but as is always the case, we run the Company in accordance with the markets predicting and not any other point of view.

Praful Mehta -- Citigroup -- Analyst

Got you. That's super helpful color. In that context, then does that change how you strategically look at the generation business in terms of like the whole spin off and separation that at one time was on the table. Does that change your view in any way or is that still kind of keep the businesses together is still the focus?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Well, no. So I think you can judge that question's answer by our actions. So you've seen us move on some quote non-core assets, so we're pruning ourselves at Keystone and Conemaugh. You've seen us make sure that to the extent that we operate fossil units, we have a heat rate that's competitive and now with the addition of these three units, we're at a heat rate of just over 7,000 BTUs per kWh, even though the marginal heat rate in the area is closer to 9,000 or 10,000.

And the nuclear plants are really going to continue to operate as long as the state values those attributes. They are not in the money assets from our current market design and it's only recognition of their carbon value that creates them as a viable market participant. So with all that said, 90% of our investment is going to the utility and the ability of power to generate a fairly healthy cash flow allows us to operate the combined entity without the need for any new equity. But however, you will see us continue to look at non-core assets to where we're looking at Keystone and Conemaugh.

Praful Mehta -- Citigroup -- Analyst

All right. Really appreciate the color. Thank you. I'll get back in queue.

Operator

Our next question comes from the line of Shahriar Pourreza of Guggenheim Partners.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Hi. Good morning guys.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Hi, Shahriar.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Hi, Shahriar.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

So just on the step down of ES II from sort of what you're asked was. Is there any sort of programs that were negotiated down, and I'm curious if anything was eliminated or simply pushed out? And you're right in your prepared remarks, the program is definitely comparable, but it seems like the prior program ES I supported more closer to the top end of your range, your prior range. So just trying to figure out what the delta is?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Yes. No sure it's a good question. So the headline number people are reporting is in light of what they expected, and I respect that. It certainly is the case. But as the several things you have to look at beyond the headline number. First of all, we thought the program would be a five-year program, and as we reported, this program is now scheduled to [Indecipherable] at the end of 2023. Secondly, the ask was for $1.5 billion in electric over the five-year period, and we were granted $740 of electric up until 2023. So that depending on how you want to look at things is at least 50% of the ask. The big difference was really some policy daylight between us at the staff, and I'm going to defend the staff and defend ourselves at the same time, at the risk of sounding hypocritical. We have seen, given the increased demand for natural gas in our region, electric generation is gas driven residential customers are seeking more natural gas that whenever, and where fortunately, but whenever there are issues with the interstate pipeline system, that we run into some operational challenges in terms of supplying natural gas to our customers, and candidly, there has been some fairly well organized opposition to further construction of interstate pipelines into our region. And so the new build that we're seeing in gas pipelines tends to be heading south of us much more than it is directly into the metropolitan New Jersey, New York region. So we proposed a fairly large program that would deal with that issue, so that we would have a highly resilient gas distribution system, and candidly, and we think that's a really good thing to do because even though we talk about lots of things around here, the number one thing, our customers expect from us time and time again is reliability, whether it's electric reliability or gas reliability, it's always reliability. And I think, we proposed a very good program to enhance the reliability of our gas distribution system in the face of limited new pipeline construction and the possibility of future operational challenges on the existing system. And in light of all that the BPU staff believes they have on their hands, in terms of demands on customer bills, not the least of which is our own Gas System Modernization program to replace an existing gas line system, and things like offshore wind and various other renewable targets that are included in the solar expectations, they just did not have the appetite at this time to pay for what they view more of an insurance program rather than a pressing operational correction such as Energy Strong II Electric or Gas System Modernization. So long-winded answer, short answer is, yes, there was a significant gas resiliency program that the staff simply did not want to do under clause type recovery at this time. And that's understandable. We don't agree, but it's understandable.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Right. And just one follow up Ralph is, one of the strongest attributes of the story has always been while Power shrinking but PSE&G is growing. Right? So our earnings mix is improving. We are getting more regulated. So as you sort of think about your current range, right -- at the utility, are there items that we should be thinking about that could be incremental to your growth, not items that can sort of extend the runway, but be incremental. But you're not ready to embedded it in your plan?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Well. Yes. Sort of, so, I feel like we're the only company who come out with a 7.5% to 8.5% CAGR -- we're growing fast, but I promised myself I wouldn't [Indecipherable] today, and

there I go, I'm going to catch it from this [Speech Overlap], no, look one of the things that I'm sure you're interested in is so we had predicted a third quarter resolution of the Clean Energy Future filing and that's not a third quarter resolution anymore. We basically have a continuation of our programs, which are over. So, but that's not what that filing is about, I mean, whatever it is $35 million year program is not what we're trying to achieve there. And that is really a healthy great conversation that we're having with people about where the state is heading, whether or not you put the cart before the horse. In this case, we think the cart is the Energy Master Plan, we were the horse, and the others think that the Energy Master Plan is the horse and our filings should be the cart. So, don't look past that. I know that the future is what matters, but that it is still a $3.5 billion filing. That is a drop in the bucket from an electric vehicle point of view and from an energy efficiency point of view in terms of the overall market need.

Then there are other things, Shahriar, that we think about all the time and talk about all the time that we're just not ready to discuss publicly. I'm not trying to create any false expectations there, but there are always other ideas that we have that would benefit the state of New Jersey and that relate to primarily electricity and the infrastructure needed to keep the state's economy and quality of life at an elevated level. The number one gating function is not ideas, it is impact on the customer's bill, which is why you see us looking at a different part of the customer's share of wallet and that's what's so important about the Clean Energy Future filing, is that we're going to ask customers to actually pay us less while we make more because we're going to be doing things that right now others do for them and that's an important consideration.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

[Indecipherable] Just if you think about the governor's agenda, everything he is trying to do from a clean energy perspective, there is an awful lot of things that are out there, that I think provide opportunities, but I also think it's a matter of working through all those things,

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Correct.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

and it's been a pretty heavy agenda to date, and I think that's going to continue, but part of that is what you're seeing with respect to letting the Energy Master Plan run its course through the balance of the year and working our way through the clean energy filing.

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Right. And I think that's one of the things that's being overlooked today. Thanks. Thanks guys.

Operator

Our next question comes from the line of Angie Storozynski of Macquarie.

Angie Storozynski -- Macquarie -- Analyst

Thank you. So I have a longer-term question. So you mentioned that you are planning to operate your other conventional power plants over their useful life, which I understand there's no plans to sell your gas plants. But the new gas plants are, actually existing ones as well, seem to be exposed to not on the oversupply of natural gas, but also offshore wind. You have this potential equity investment in offshore wind in New Jersey, but even without that it seems like the Northeast and New Jersey and Maryland as well likely will get additional offshore wind capacity. So how do you see that growth in offshore wind installations vis-a-vis your existing conventional gas plants?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

So Angie, I am so glad you asked that question, because that's an important clarification. I think if we have been more precise, we would have said that if we had retained our gas plants, then their natural evolution would have been an 80% reduction in carbon emissions by the year 2046. The only thing that is in our plans right now is to not acquire any new or build any new. We were not locking ourselves into the continued ownership of the gas plants by 2046 so that is a, that's a gap in our communication that I'm glad you exposed. So the main thesis that we're trying to achieve here is to get an important seat at the table on what constitutes a net zero conversation by 2050. And there are two things that we think are real important. Number one, that there is a technology gap to getting to net zero as of today and that technology gap needs to be fixed, and a way to fix that technology gap is by giving clear signals in the market that carbon matters, call that a national energy price, call that a PJM carbon price, call it what you want, but we think that the market has not unleashed it's fully creative forces in the absence of that price, and we've got this fairly inefficient mechanism where people have ZECs and RECs and every other alphabet soup you can apply going on a state by state basis.

The second thing we wanted to expose is that we're going to greatly improve our carbon emission rate when we sell Keystone, Conemaugh. Plant doesn't care that we sell Keystone, Conemaugh. This plant is still going to run, so this notion of what is our carbon intensity is not necessarily going to strike at the physical reality that needs to be achieved in terms of carbon emissions reductions. So all we were pointing out is if we were to continue to run our gas plants as planned, then we would be 80% lower by 2046 than we are today. That does not mean that we will, it doesn't mean that we won't, but it doesn't mean that we will retain all ownership of those plants before the. And Dan did you want to add to that?

Daniel Cregg -- Executive Vice President and Chief Financial Officer

No, I think that distinction is exactly right. It's not reflecting in early closure. It's reflecting running them through their useful life, but ownership certainly just like you can, certainly could change as we step through time.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

And despite.

Angie Storozynski -- Macquarie -- Analyst

[Speech Overlap] just one follow-up, so I understand, OK, that you're not trying to say that you will or won't retain the ownership, but I'm just thinking that does it play a role that decision on the future ownership of these assets into your decision on having an equity stake in that Orsted project in New Jersey?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

So the Orsted project in New Jersey, as you know, it came about as a result of us having an early role in a predecessor company of Orsted where we owned an offshore lease, and that was acquired by Orsted, and given the state's commitment to build offshore wind, I think somebody help me, is the contract price public? I think it is, is it not?

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Yes.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Yes. Yes, at $98.10 a share. Starting in 2024, installation per megawatt hour. We believe that's an economically viable project and want to participate in a way that matches our skill set. Having said that, I can't even begin to tell you what I would do to get a $98 per megawatt hour contract for our nuclear plants or our gas plants, I mean it's at least times above market and that's yes, a decision the state has made, and it will, as you're correct, it will factor into probably the earlier than normally planned retirement of some inefficient gas units, but the absence of storage technology, the absence of demand side, management controls to advanced metering infrastructure necessitates the need for ongoing natural gas dispatchable power, and to the extent that those units become marginal units and don't realize any value in the energy markets, then the capacity market design will be instrumental to the reliability of the grid. So these are challenges that we pay attention to everyday, and we try to have good conversations, and we do with PJM and with FERC, and with the state. But yes, 3500 megawatts of zero marginal cost highly subsidized offshore wind is going to have a negative effect on the less efficient gas plants. There is no question about that, and we will be mindful of that in making all of our investment decisions going forward.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

But ownership potential within the offshore wind opportunity is not premised on ownership or lack there of gas plants onshore.

Angie Storozynski -- Macquarie -- Analyst

Right. Thank you.

Operator

Our next question comes from the line of Christopher Turner of JP Morgan.

Christopher Turner -- JP Morgan -- Analyst

Good morning, Ralph and Dan. I was wondering if you guys can just give us any thoughts you might have on the next steps at FERC for PJM reform. I mean any constraints on the commission or the constraints that they might be thinking about that might make them want to act faster.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Chris, sometimes I wish that we could have a 20% of the Q&A reserve for us to ask you for this question, because there are some mysterious that we would love to see unshrouded [Phonetic] as well. I'm going to quote for you what I've heard, quote of Chairman Chatterjee that they are working on this every hour of everyday, everyday of the week. And they understand the importance of it, and they're not delaying the August auction. The August auction is already four month delayed from what should have been a May auction. There is a point of view, I think that is not unreasonable that says, OK, when you have four people there is a chance for two-two vote, when you have three, there is no such chance for a two-two vote. I guess there's a chance for one-one-one vote, I don't know, and that perhaps there is some philosophical logjam that can be broken now. I do believe there were comments quoted in the press, that was not the issue. So if it's resolved by the middle of September, then I suspect that that might have been the issue, if it takes longer than that, then I think it's this challenge that has been quoted coming out of the Chairman, that on the one hand, how do you protect States' right to choose and the other hand, how do you allow a regional market to operate efficiently. We're of the point of view that the market wasn't broken to begin with, but if you want to fix it, the best route that we've seen is the current PJM proposal, but that was a really long-winded way of saying, you have no clue what's going on there right now, other than what has publicly been revealed.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Yes, Chris. Maybe just to add to that, it has been a very long time since they have rule. They have had a proposal in front of them for a longtime and yet when you read the order there, the words and especially some of the consenting opinions reflected some urgency. And we haven't seen anything. So I think the potential breaking of a logjam, I mean having an odd number of commissioners may end up helping, and I think that from folks we've talked to, it seems like maybe something in September. If you marry up that urgency with the fact that nothing has happened to date, something has got to change and maybe just going through an odd number of commissioners will get us there, but I think there is more speculation than knowledge right now and we'll wait to see what happens.

Christopher Turner -- JP Morgan -- Analyst

Okay. I appreciate the commentary there in a difficult question. And then certainly, I think both of you have talked a lot about the Energy Master Plan and the potential settlement agreements around gas invest in what this all means for the future of the state, but just a little bit more tactically as the negotiations continue into a final version here. Do you have a sense of kind of where party stand and what direction that final version might head versus the draft?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Well, Chris, unfortunately those negotiations are confidential. I think, it's not a breach of confidentiality to realize that New Jersey is one of the few states that does not have decoupling on the electric side, and we recommended a mechanism to achieve that, and then this is a much, much bigger program literally in the order of magnitude bigger than anything we've done in the past. However, everything we've done in the past has been received with accolades and tremendous support, so I don't think I want to get into any more details on that. Given the importance of respecting the confidentiality of what's being discussed around the table.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

But on the EMP in particular, there is a series of six hearings that are scheduled related to the EMP and some of those are, I want to say, August 8, and another one into September, so there'll be two hearings on each of those days where you can at least get a sense as to where all the parties are coming out. But from a timing perspective, year-end for conclusion of that EMP is what's anticipated.

Christopher Turner -- JP Morgan -- Analyst

Okay. I guess kind of so far no major push back to speak of, when it comes to the anti gas direction that the EMP is going in?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

From a Clean Energy Future filing. I'm confused of, sorry, Chris I'm not grasping the full.

Christopher Turner -- JP Morgan -- Analyst

No, sir. I was referring more just to the Energy Master Plan and the finalization of that and kind of the direction that that's going to inverse the draft.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

No, one should not construe the decision on our Energy Strong II filing is having anything to do with whether or not natural gas pipelines into the state are problematic for a clean energy future. I think, if anything you could just look at GSMP II to realize that the importance of making sure that our current system is not leaking, and was in fact operating well as a recognition of the certainly the near-term, near-term being next few decades importance of natural gas.

Christopher Turner -- JP Morgan -- Analyst

Okay. That's helpful. Thank you.

Operator

Our next question comes from the line of Greg Gordon of Evercore ISI.

Greg Gordon -- Evercore ISI -- Analyst

Thanks guys, good morning. And most of my questions have been answered. But I was just hoping, maybe we could go back over the numbers on the proposed settlement on Energy Strong and be clear on sort of like on an apples-to-apples basis where that proposed settlement is versus what the initial ask was?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Sure Greg.

Greg Gordon -- Evercore ISI -- Analyst

And then also given the, when is it that we now think that more rational expectation is of getting a Clean Energy Future decision that now is going to, I guess, be sequenced behind the Energy Master Plan filing. So that was this your whole cart-horse, horse-cart question.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

That's right, Greg.

Greg Gordon -- Evercore ISI -- Analyst

And so how do we think about the timing of that and what milestones should we be looking at to get a sense of where we end up?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Okay, so let's do Energy Strong II first. So you recall, we filed a $2.5 billion program over five years. Typically these programs take about a year to resolve. So, we were close to that one year mark coming up, and that request was $1.5 billion on electric and $1 billion on natural gas. And what we received was a program that we expect to see approved in September of this year that will only run until December of '23. And of the $1.5 billion, in electric $741 million of that was approved, but importantly just about every program that was asked for was approved, just not the dollar amounts. So the the prudency of the programs, I think we feel really good about. Conversely on the natural gas component of the $1 billion that was requested, most of that, about $800 million that was for this notion of resiliency of the distribution system, basically more interconnections between our distribution pipes, and then there was about $200 million in reinforcing some of our measurement, our metering and regulating stations, and half of that smaller piece was approved, $100 million. So electric $740 million out of $1.5 billion, gas $1 billion at December '23 end date versus a five-year program. And that ends up yielding an annual run rate, that's about 10% less than the annual run rate of Energy Strong I.

Our Clean Energy Future, the Energy Master Plan is scheduled to be finalized this December at the end of the year and a draft was issued already, and the stakeholder hearings are already scheduled. So it should be no reason why the Board can't complete that work by the end of the year . And then you may recall that the Clean Energy Act of May of 2018 had a requirement that rules be promulgated on the energy efficiency programs within a year. So we're late there. That year lapsed three months ago. So we are understanding of the full range of issues on the BPU staff plate. So we're expecting resolution of our filing early in 2020.

Greg Gordon -- Evercore ISI -- Analyst

[Speech Overlap] That's prefect, very clear. Thank you.

Operator

Our next question comes from the line of Travis Miller of Morningstar.

Travis Miller -- Morningstar -- Analyst

Thank you. Hello.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Hi, Travis.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Hi, Travis.

Travis Miller -- Morningstar -- Analyst

If I could go back real quick to that whole net zero concept and the vision there. I was wondering, one does net zero mean zero such that by that and through that vision, you wouldn't have any fossil fuel in your fleet at least. And then two, and more of the visionary aspect, do those plants even exist. Even if you don't own them, do you think they exist in a market? We're in an environment where we see a lot of the region going to kind of this idea of zero by 2050.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Yes. So, Travis. I apologize for repeating perhaps I answered [Phonetic] before, one of the reasons why we made that commitment, is because we want to engage actively in the discussion around net zero. Because there is nobody who owns the definition on net zero. Typically, it refers to generation. And the reason why the word net is inserted, is that if you are still emitting carbon, but you then come up with a way to extract carbon from the atmosphere then your net effect is zero, so you're putting a ton of carbon into the air in a year, and you extract it by planting trees are coming up with some method to extract carbon dioxide and dissolving in the ocean or something of that sort. That's typically what people refer to.

We think that that is not what, it's not the full breadth of what matters to the planet, and you used a great example just a second ago. So if we won accolades for reducing our carbon footprint, but all we have done is sell the plant to somebody else, who is still running it, the planet doesn't care about that. By the same token, if we get approval of a multi-billion dollar Clean Energy filing and people use less energy, we don't get credit for that, and we think we should. If we electrify transportation, and we don't get credit for that, we think we should. So we're just trying to remind people that the subject is complicated and never lose sight of what problem that is you're trying to solve whenever you engage in these policy discussions, because sometimes we forget what problem we're trying to solve and we do crazy things like, put production tax credits in place that produce negative marginal cost and put pressure on nuclear plants to retire.

So there is no unique ownership of the term net zero, but typically speaking, nowadays it refers to both the simultaneous production and removal of carbon dioxide from the atmosphere.

Travis Miller -- Morningstar -- Analyst

Okay. Yes, that's clear. So you do think there is a place for fossil fuel in net zero or is this kind of zero wish concept?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

No, that's right. We do, I mean carbon capture and storage would allow for fossil fuels to continue to operate.

Travis Miller -- Morningstar -- Analyst

Great. Okay, thanks a lot.

Operator

Our next question comes from the line of Michael Lapides of Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Conemaugh sale, do you view that as accretive or dilutive or kind of neutral to EPS.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

I think you cut out there in the beginning, but I think your question was, is the Keystone Conemaugh sale accretive or dilutive. I think for '19 it doesn't really move the needle at all. And then as we step forward, we would see some mild benefit.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And just trying to kind of think through the puts and takes of that, how material is the O&M and kind of what's the book value that you had prior to the writedown, I'm just trying to think about backing out O&M and D&A, just to kind of think about the accretion impact of this.

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Yes, I don't think we've had a separate disclosure of the O&M, but the book value is on the order of about $400 million or so.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Prior to the write down. Okay. And then one last thing, when you think about any potential portfolio additions including offshore wind, do you look at it and say, hey, we'd like to have a controlling position or we'd like to have an operating position. Just given your history as a pretty strong operator of plants, are you willing to be a minority owner?

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Yes, we're definitely willing to be a minority owner in something that's new to us, where we don't have that operating experience.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Okay, thanks guys. Much appreciated.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Thanks Michael.

Operator

Mr. Izzo and Mr. Cregg, at this time, we do not have any time for [Phonetic] any further questions, I will turn the call back over to you for closing remarks.

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Thank you, Maria. So, thanks everyone for joining us today. I know that Dan and Carlotta and I have a bunch of plans to be on the road to visit with many of you, and we look forward to that, and we hope you enjoy the rest of the summer. Thanks for joining us.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Carlotta Chan -- Senior Director-Investor Relations

Ralph Izzo -- Chairman of the Board, President and Chief Executive Officer

Daniel Cregg -- Executive Vice President and Chief Financial Officer

Praful Mehta -- Citigroup -- Analyst

Shahriar Pourreza -- Guggenheim Partners -- Analyst

Angie Storozynski -- Macquarie -- Analyst

Christopher Turner -- JP Morgan -- Analyst

Greg Gordon -- Evercore ISI -- Analyst

Travis Miller -- Morningstar -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

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