公共服務電力與天然氣 (PEG) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Brandy and I am your event operator today. I would like to welcome everyone to today's conference, Public Service Enterprise Group's fourth-quarter earnings conference call and webcast.

(Operator Instructions)

As a reminder, this conference is being recorded today, February 20, 2015, and will be available for telephone replay beginning at 1 PM Eastern Time today until 11:30 PM Eastern Time on February 27, 2015. It will also be available as an audio webcast on PSEG's corporate website at www.pseg.com.

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

Thank you, Brandy. Good morning, everyone. Thank you for participating in our call today. As you are aware, we released our fourth-quarter and full-year 2014 earnings results earlier this morning. The release and attachments, as mentioned, are posted on our website www.pseg.com under the Investor section. We have also posted a series of slides that detail operating results by Company for the quarter.

Our 10-K for the period ended December 31, 2014, is expected to be filed shortly. I don't typically read the full disclaimer statement or the comments we have on the difference between operating earnings and GAAP results, but I do ask that you read those comments contained in our slides and on our website. The disclaimer regards forward-looking statements, detailing the number of risks and uncertainties that could cause actual results to differ materially from forward-looking statements made therein and although we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if our estimates change unless, of course, we are required to do so by applicable securities laws.

We also provide commentary with regard to the difference between operating earnings and net income reported in accordance with Generally Accepted accounting principles in the United States. We believe, PSEG believes, that the non-GAAP financial measure of operating earnings provides a consistent and comparable measure of performance to help shareholders understand trends.

I would now like to turn the call over to Ralph Izzo, Chairman, President and Chief Executive Officer of Public Service Enterprise Group. Joining Ralph on the call is Caroline Dorsa, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. Ralph?

Thanks, Kathleen, and thanks everyone for joining us today. This morning we reported operating earnings for the full year 2014. I'm pleased to report -- actually, I'm more than pleased to report that 2014 was a year in which we continued to make progress on our plans to deliver for our customers and shareholders.

Operating earnings for the fourth quarter were $0.49 per share, which equaled the $0.49 per share earned in 2013's fourth quarter, bringing results for the full year to $2.76 per share, or 7% greater than in 2013's operating earnings of $2.58 per share, and it was above our guidance of $2.60 to $2.75 per share.

Our results are benefiting from disciplined capital allocation. PSE&G, our utility, achieved double-digit growth and earnings, adding to our track record of five years of 18% compound annual growth.

As a result of an expanded capital program, earnings from our regulated Company grew to represent 52% of our consolidated operating earnings as PSE&G's investment in transmission has grown to represent 39% of its $11.4 billion rate base. PSEG Power's successful management of its operations, including its gas supply arrangements, supported earnings in excess of guidance for the full year and delivered substantial savings to PSE&G's customers.

In addition to being a successful year for delivering on earnings, we achieved success in many areas that will provide a lasting foundation for customer satisfaction and shareholder value. By way of a reminder, we received approval to invest $1.2 billion in Energy Strong, a program that will improve the resiliency of our electric and gas distribution systems.

We have begun work on replacing and modernizing 250 miles of gas pipe and have begun the engineering and scheduling associated with upgrading and enhancing our electric sub stations. The investments under the Energy Strong program, as you will recall, will take place over a period of three to five years.

We're also executing well on our transmission investment program. We completed construction of two 230-kilovolt transmission lines during the year, as well as the New Jersey portion of the 500 KV Susquehanna-Roseland line.

We expect the full Susquehanna-Roseland line to go into service this year when the Pennsylvania portion of S-R is completed. The investment in transmission will support the reliable service our customers have come to expect and provide an important boost to New Jersey's economy as it also adds to PSE&G's growth.

PSE&G once again was named the Mid Atlantic region's most reliable electric utility. This is the 13th consecutive year that PSE&G's capabilities have been recognized.

In addition to that, for the first time in its history, PSE&G received JD Power's award for highest customer satisfaction for both electric and gas business service among large utilities in the region. This recognition, while important in itself, we think recognizes that PSE&G always kept the needs of its customers upper most as we pursue our major growth initiatives.

But 2014 was not just a year of PSE&G accomplishment. PSEG Power's combined cycle fleet produced at record levels, as Power's fossil fleet achieved a safety performance in the top 10% of the industry.

We successfully grew PSEG solar sources portfolio. In 2014, we added projects in three states that expanded solar sources portfolio to 123 megawatts of clean, renewable energy.

We had a successful first year of operating the electric system of the Long Island Power Authority. I'm particularly pleased with the efforts of our PSEG Long Island team, where we are rewarded with a major improvement in customer satisfaction scores. But let me be clear, this is only the beginning of a multi-year journey for us on Long Island.

Our core strategy, focused on operational excellence, financial strength, and disciplined investments, is anticipated to yield a third year of growth in operating earnings over the coming year. For 2015, we are initiating operating earnings guidance of $2.75 to $2.95 per share. PSE&G's expanded investment in transmission is expected to support continued growth in operating earnings in 2015 as PSE&G's results for the full year are expected to represent more than 50% of consolidated earnings.

PSEG Power is expected to report operating earnings in line with its strong 2014 results. The investments made by PSEG Power are expected to enhance the competitiveness of its environmentally well positioned fleet. Capacity up rates at our gas-fired combined cycle fleet and in our nuclear units will increase the fleet's output as Power's investment in the PennEast pipeline enhances its already strong access to low-cost gas from the Marcellus region.

PSEG Power's fleet has the characteristics and vision by PJM's proposed standards for capacity performance. Its diversity and dispatch and fuel mix, as well as the alternate fuel capability, mitigates operating risk. Power's investment program will be focused on improving its reliability during periods of stress on the system.

We also look to expand the fleet when its financially attractive. We were disappointed that our bid to construct a new 475-megawatt combined cycle plant at our Bridgeport Harbor site in Connecticut didn't clear the New England ISOs recent capacity auction; however, we haven't abandoned this work and will invest when the markets support its development.

The strategy we implemented has yielded growth. We have a robust pipeline of investment opportunities that will support further expansion of our capital program over the next five years.

The program is expected to yield double-digit growth in PSE&G's rate base as we maintain the operating strength of Power's generating assets. We will update you on our capital spending plans on March 2.

Our financial position remains strong. An acknowledgment of our success and the strength of our platform going forward was the recent decision by our Board of Directors to meaningfully increase the common dividend by 5.4% to the indicative annual level of $1.56 per share.

We see the potential for consistent and sustainable growth in the dividend given our business mix. Our continued positive cash flow from our generation business and our strong financial position all support this dividend philosophy.

We've made significant strides in meeting our objectives for growth as we also satisfy customer requirements and we're not done. Of course none of this would be possible without the contribution made by PSEG's dedicated employees to our continued success.

I look forward to discussing our investment outlook in greater detail with you at our March 2 annual financial conference. I will now turn the call over to Carolyn for more details on our results and will be available to answer your questions after her remarks.

Thank you, Ralph, and good morning, everyone. As Ralph said, PSEG reported operating earnings for the fourth quarter of $0.49 per share, equal to operating earnings of $0.49 per share in last year's fourth quarter. Our earnings for the fourth quarter brought operating earnings for the full year to $2.76 per share, versus operating earnings for 2013 of $2.58 per share or, 7% growth.

On slide 4 we have provided you with a reconciliation of operating earnings to net income for the quarter. As you can see on slide 10, PSE&G provided the largest contribution to earnings for the quarter.

PSE&G reported operating earnings of $0.32 per share, compared to $0.29 per share last year. For the quarter, Power reported operating earnings of $0.18 per share, compared with $0.23 per share last year. Enterprise/other reported a small loss in operating earnings for the fourth quarter of $0.01 per share versus the operating loss of $0.03 per share reported in the fourth quarter of 2013.

We've provided you with water fall charts on slides 11 and 13 to take you through the net changes in quarter-over-quarter and year-over-year operating earnings by major business, so now, I will review each company in a bit more detail, starting with PSE&G. As I mentioned, PSE&G reported operating earnings for the fourth quarter of 2014 of $0.32 per share, compared with $0.29 per share for the fourth quarter of 2013, as we show on slide 15. PSE&G's full-year 2014 operating earnings were $725 million, or $1.43 per share, compared with operating earnings of $612 million, or $1.21 per share, for 2013, for growth of 18%.

PSE&G's earnings in the fourth quarter benefited from lower operating expenses, including pension, and a return on its expanded capital infrastructure program which more than offset the impact of mild weather on sales. PSE&G's investment in transmission infrastructure increased its quarter-over-quarter earnings by $0.02 per share. The earnings improvement related to the investment in transmission in the fourth quarter was less than the earnings increases you've seen during each of the first three quarters of the year and this reflects a reduction in PSE&G's rate base at year-end associated with the deferred tax impacts of the expansion of bonus depreciation.

PSE&G's tight control of its operating expenses, including lower pension expense, resulted in a quarter-over-quarter increase in earnings of $0.04 per share. The continued improvement in weather-normalized gas volume and demand, which improved quarter-over-quarter earnings by $0.01 per share, was offset by a similar decline in electric volume and demand. And although you wouldn't think it on a day like today, weather was actually mild relative to normal and relative to the prior year and that reduced earnings comparisons by about $0.01 per share.

Earnings comparisons were also affected by the absence of $0.02 per share and a tax related change which benefited earnings in the prior year. Economic conditions continued to exhibit signs of an improvement in the service area, which is good news. On a weather-normalized basis gas basis, gas deliveries are estimated to have increased 1% in the quarter and 3.1% for the year.

Demand continues to benefit from a decline in the cost of gas, which is passed on to our residential customers, and an improvement in economic growth. PSE&G announced earlier this month it would extend through March of 2015 the credits against gas bills that it had already provided its residential customers for the months of November, December and January. A typical residential customer with these credits would experience savings on their total bill over the five months of approximately 31%, or $210.

Electric sales on a weather-normalized basis are estimate to have declined 2.3% in the fourth quarter. The decline in the quarter reflects a number of winter storms at the end of 2013 that increased residential consumption that year as well as decreases in demand this quarter from some large industrial customers.

By the way, weather normalization is generally good for temperature but unfortunately, there's not really a good way to adjust for storms. Overall, there was a 0.3% increase in weather-normalized electric demand for the year, which we think is indicative of improving economic conditions, partially offset by continued customer conservation.

PSE&G implemented an increase in transmission revenue of $182 million, effective of January 1 of this year. The increase in revenue under PSE&G's transmission formula rate will provide PSE&G with recovery of, and a return on, its forecast of transmission-related capital expenditures through the year. PSE&G's investment in transmission grew to $4.5 billion at the end of 2014, or 39% of the Company's consolidated rate base of $11.4 billion, and transmission is forecast to be well over 40% of rate base as we go forward.

Let me just mention the impact of bonus depreciation. Expansion of bonus depreciation has the effect of reducing PSE&G's transmission-related rate base with an increase in deferred taxes. We estimate PSE&G's transmission-related rate base was reduced by approximately $150 million to $200 million from prior forecast levels and this is reflected in PSE&G's year-end rate base of $11.4 billion.

The impact of this change on 2015 revenues is not reflected in the formula rate increase that I just went through, as that filing took place prior to the enactment of the extension of bonus depreciation, but our guidance for PSE&G reflects the impact on revenue associated with the expansion of bonus depreciation and we estimate that impact to be approximately $21 million. As you know, this is really a timing related issue. We get the benefit of an increase in cash over the short term and see a decrease in the deferred tax balance over the long term.

PSE&G's operating earnings for 2015 are forecasted to grow to $735 million to $775 million. Our forecast for 2015 reflects the continued growth in PSE&G's transmission-related rate base and the expansion of PSE&G's investment in distribution through the Energy Strong program.

Earnings for the full year will also be affected by a forecast increase in pension expense that will affect O&M and I'll go into a little more detail on that shortly. We expect PSE&G's rate of earnings growth to improve beyond 2015 as the impact of bonus depreciation will annualize and pension expense is expected to be lower under long term return and interest rate assumptions.

PSE&G invested approximately $2.2 billion in 2014 on capital projects that improve the system's resilience and maintain its reliability. We currently forecast an increase in PSE&G's average capital spending for the next three years to about $2.4 billion per year.

PSE&G's investment in transmission will represent more than 50% of this new spending. We will be providing you with an updated forecast of PSE&G's capital expenditures by year for the five-year period ending 2019 at our annual financial conference on March 2 of this year and I can tell you that spending plan remains robust.

Now let's turn to PSEG Power. As shown on slide 19, Power reported operating earnings for the fourth quarter, as I mentioned, of $0.18 per share, compared with $0.23 per share a year ago. The results for the quarter brought Power's full-year operating earnings to $642 million, or $1.27 per share, compared to 2013's operating earnings of $710 million, or $1.40 per share.

The earnings release, as well as slides 11 and 13, provide you with detailed analysis of the impact on Power's operating earnings quarter over quarter and year over year from changes in revenue and costs. We've also provided you with more detail on generation in the quarter and for the year on slides 21 and 22.

Power's operating earnings for the fourth quarter were influenced by the known decline in capacity revenues that we've discussed in prior calls. Monetization of Power's gas supply position and a reduction in operating and maintenance expense helped mitigate the effects of lower market prices for energy.

As you recall, the average price for our PJM capacity declined to $166 per megawatt day from $244 per megawatt day on June 1 of 2014. The decline in price reduced Power's quarter-over-quarter earnings by $0.09 per share.

A decline in the average hedge price for energy that Power realized during the quarter relative to year-ago levels and lower market prices on Power's open position were more than offset by Power's ability to monetize its gas supply position. These items together lead to an improvement in quarter-over-quarter earnings of $0.01 per share.

A decline in Power's O&M expenditures during the quarter improved quarter-over-quarter earnings by $0.05 per share. The decline in expense for the quarter was greater than what we have been forecasting at the end of the third quarter. Power's management of maintenance outages at fossil stations, coupled with the absence of outage-related expenditures in the prior year, resulted in a better-than-forecast reduction in L&M expense for the forth quarter and lead overall to lower O&M expense in 2014 versus the full year of 2013.

Now let's turn to the operations. Power's output increased 3.1% in the quarter from year-ago levels. For the year, output increased 1.3% to 54.2 terawatt hours. The fleet's flexibility and response to volatile market conditions was demonstrated in the quarter and through out the year.

The level of production achieved by the fleet in 2014 represented the third-highest level of output in the fleets history as a merchant generator. The nuclear fleet produced 29.1 terawatt hours, or 54% of generation, operating at an average capacity factor of 89.3%.

Hope Creek experienced its second-best year, operating at a 97.9% annual capacity factor, which helped to offset the impact of the extended refueling outage at Salem 2 earlier in 2014. The market is clearly rewarding efficient combined cycle gas units and Power's combined cycle fleet set a generation record during the year.

The fleet produced 16.5 terawatt hours, or 30% of our generation, during the year, with record levels of output from the Bergen Station and Lyndon Unit 1. The coal fleet produced 7.4 terawatt hours, or 14% of generation, and the peeking fleets responsiveness to market conditions, particularly the abnormally cold weather experienced at the start of 2014, lead to full-year production of 1.2 terawatt hours.

Power's gas fired combined cycle fleet continues to benefit from its access to lower price gas supplies in the Marcellus Basin. For the year, gas from the Marcellus Utica region supplied approximately 60% of the PJM assets fuel requirements. This represents a larger percentage of the fleet's gas supply than was available in the past.

Power's ability to step up its acquisition of gas from the Western Marcellus and Utica Basin, in addition to the use of backhaul arrangements on existing pipe in the Eastern Marcellus, improved its access to this low-cost resource. This supply supports higher spark spreads than implied by market pricing and allowed Power to enjoy fuel cost savings similar to the levels it enjoyed in 2013, despite the decline in energy prices.

Overall, Power's gross margin per megawatt hour in the fourth quarter was $37.40, versus $45.90 last year, which was driven by the capacity price reset. For the year, gross margin amounted to $42.41 per megawatt hour versus $47.10 per megawatt hour last year and slide 24 provides detail on Power's gross margin for the quarter and the year.

Power's forecasting a further improvement in output in 2015 to 55 to 57 terawatt hours. The increase is primarily the result of investments we have made to expand the capacity of our nuclear and combined cycle fleet.

Following the completion of the basic generation service option in New Jersey earlier this month, Power has hedged 100% of its base load generation in 2015 and has hedged approximately 75% to 80% of anticipated total production for 2015 at an average price of $52 per megawatt hour, which compares favorably to the average hedge prices in 2014 of $48 per megawatt hour. Power has hedged approximately 50% to 55% of its forecast generation in 2016 estimated at 55 to 57 terawatt hours, also at an average price of $52 per megawatt hour.

And for 2017, power has hedged 25% to 30% of forecast production of 55 to 57 terawatt hours at an average price of $52 per megawatt hour. The hedge data for 2015 and 2016 assumes BGS volumes represent approximately 11.5 terawatt hours of deliveries, about comparable to the 11.5 we delivered in 2014 under BGS.

Based on our current hedge position for 2015, each $2 change in spark spreads would impact earnings by only $0.04 per share. This modest impact on earnings is the result of a higher percentage of output from our intermediate and peeking fleet that is hedged at this time, about 40% to 45% than we had hedged a year ago, when it was really about 35% to 40% of forecasted output of the intermediate and peeking fleet.

For 2016, a $1 change in natural gas pricing would impact earnings by $0.06 per share. Just for your reference, if we were fully open, the $1 change in natural gas pricing would impact earnings by about $0.24 per share.

The BGS option for PSE&G customers for the three-year period beginning June 1 of 2015 and ending on May 31 of 2018, was priced at $99.54 per megawatt hour. This contract for one-third of the load will replace the contract for $83.88 per megawatt hour, which expires on May 31 of this year.

This latest auction is based on an average price for energy at the PJM West hub of about $37 to $38 per megawatt hour, which is similar to the base price for energy seen in the last two auctions. The BGS auction continues to represent a key means for Power to hedge bases associated with base-load output.

Power's hedging strategy is consistent with what you've seen in the past. Power maintains open positions on a portion of its intermediate and load-following assets and this allows Power to capture any benefits associated with weather-related demand in the summer months and contain the risks associated with fuller requirements contracts like BGS.

Power took advantage of market strength earlier in 2014 that hedges output. And, given favorable pricing, Power's also committed to serve a larger percentage of load under the BGS contract in this latest auction, which of course will have its proportional impact across the upcoming three years.

Power's operating earnings for 2015 are forecast at $620 million to $680 million. We're very pleased that our anticipated results are essentially in line with 2014's operating results. Comparative results for the full year will be affected by a decline in capacity revenues, which will essentially be fully offset by an increase in the average price received on energy hedges and a modest increase in O&M.

Turning to enterprise and other, PSEG enterprise/other reported an operating earnings loss for the forth quarter of $4 million, or about $0.01 per share, which compares to a loss in operating earnings of $11 million, or $0.03 per share, for the fourth quarter of 2013.

The results of the fourth quarter brought full-year 2014 operating earnings to $33 million, or $0.06 per share, compared with 2013's operating loss of $13 million, or $0.03 per share. The difference in operating results quarter over quarter reflects primarily the absence of tax payments and other items which contributed $0.03 per share relative to the fourth quarter of 2013.

For 2015, operating earnings are forecasted to fall within the range of $40 million to $45 million and results will be influenced by the contractual payments associated with the operation of PSEG Long Island, income on the lease portfolio, including the benefit from the renegotiation and extension of our lease on the Grand Gulf nuclear generating facility.

Let me now just add a word about pension expense. Last year, as you recall, we saw total pension income of about $0.02 per share as the success of our investment strategy created that pension income. In 2015, our funding level remains greater than 90%, but a lower discount rate and changes to mortality tables offset the continued strong return regenerated on the trust, resulting in net pension expense of slightly less than $0.07 per share, which is split about evenly between PSE&G and Power. Keep in mind, these are non-cash charges and we anticipate a move back to pension income over the next two to three year period, given our solid funding and our long-term investment strategy.

These impacts that I just mentioned are embedded in our financial plan and our guidance for growth at PSE&G and consistent performance in 2015 at Power. We still see a low-single-digit growth in O&M across the Company over the three year horizon and we'll talk more about that in greater detail on March 2.

Lastly, just a word on our financial position. We're in great shape to finance our capital program. At the end of 2014, we had $402 million of cash on hand and debt represented about 42% of our consolidated capital position, with debt at Power approximating 31% of its capital base and no parent debt.

We'll be updating you on our capital program at our annual financial conference, but the message is the same. We can finance our robust long-term capital program and pursue a very healthy amount of growth opportunities without the need to issue equity, as we also provide our shareholders with a meaningful increase in the growth of the common dividend on a sustainable basis.

We're pleased to be guiding to another year of anticipated growth in earnings for 2015 of $2.75 to $2.95 per share. Our forecast continues to reflect the benefits from PSE&G's expanded capital program and the dynamics of Power's fleet and access to low-cost gas supplies. As you know, the common dividend was recently increased 5.4% to the indicative annual level of $1.56 per share and we believe we can provide shareholders with consistent and sustainable growth in the dividend going forward.

With that, Brandy, I'll turn it back to you and we're now ready for your questions.

(Operator Instructions)

Your first question comes from the line of Julien Dumoulin-Smith with UBS.

Hi. Good morning.

Good morning, Julien.

So first quick question, following the Bridgeport -- or back of clearing that asset, what's your thought about building at Power at present? Are we going to look towards clearing potentially new assets in different markets or what's your overall thought about capital deployment at this point in time in Power or back of public service utilities?

Julien, our thinking on this hasn't changed. Our power markets that we're interested are PJM, New York and New England. We look for asset acquisitions. We look for opportunities to re-power sites. We look for opportunities to expand or increase the output of our plants.

As you all know, we've been much more successful on the latter and not as successful on the former -- Peach Bottom uprate, advanced gas path improvements, a couple peakers here and there, have not been able to see the same price justification as others on asset acquisitions and a similar thing happened in New England. In general, we like the New England market from the point of view of new build because of seven year. That's a bigger hurdle to overcome in PJM because of the one-year price.

On the regular utility side, we'll give you more detail on March 2 but there's still very much a robust capital program we'll be showing you for the five years, not just in terms of transmission, which has been our number one, but as we've talked about in the past, opportunities to accelerate the replacement of our cast iron main system in the gas business as well as some of the components of the energy master plan that relates energy efficiency and renewables. You may recall its only been 10 months or so, so I'm not suggesting we're done by any means, but Energy Strong was a much bigger program than what was ultimately approved so there will be more of that, but it's a little bit longer term than in the next coming months.

There's no shortage of opportunities to deploy the capital. We are disappointed (inaudible) I'm not going to deny that, but we've got things we can do.

Great. And then perhaps moving onwards, what about the bidding inquiry? Any updates there? Can you elaborate by chance where we stand?

No, we aren't giving anymore detail on that than we have already, Julien. We don't have any new information to update our financials and we are actively involved with FERC. We meet with them on a regular basis in terms of their questions and giving them feedback, but right now we would rather make sure that FERC has all of the information before talking much more about that on an earnings call.

Great. And then if you will, just I noticed PJM East just generally or specifically public service zone saw a negative basis versus PJM West on a spot basis in the back half of the year. Could you talk about what dynamics you saw day-to-day in the markets that would drive that and what your expectations are for forward basis, East versus West? And hedging that specifically?

Julien, as we've said, the Power markets, at least for the foreseeable future, have been turned 180 degrees. The winter is where most of the volatility and earnings potential for Power is coming from and that hasn't changed since we started talking about that now almost two seasons ago. So when you look at basis for the year, that's a little bit of a misleading view of the world. it's a combination of moderate basis in the summer, a very strong basis in the winter and weak basis, in fact, negative basis in the shoulder periods but the flexibility of our fleet and the way in which we hedge it takes all that into account.

Over the longer term, I think what you're going to see is the market dynamic driven by significant infrastructure build of gas [pipes] from the Marcellus region to the Southeast and significant replacement of aging power plants that aren't able to meet environmental standards in the Southeast, with highly efficient natural gas combined cycles. We don't run the business saying we're smarter than the market, but to the extent the markets view doesn't extend to three- to that five-year time frame, we still have lots of reasons to feel pretty confident in the location and quality of our asset base.

Great, thank you all very much.

Your next question comes from the line of Dan Eggers with Credit Suisse.

Hey, good morning, guys. Just kind of on the Power side, or the outlook for Power, can you walk through or remind us all the hedging strategies you guys are using? Obviously you had a nice price up lift and you hedge percentages going from 100% hedged to 100% hedged, so can you remind us how you got that upside?

Oh, sure Dan. It's Carolyn. Sure, thanks. I cited the base load and the total, and keep in mind, that intermediate and peeking, right? So if you looked at what we told you on the third quarter call, we were still 100% hedged at the base load but the difference has really occurred as we've added hedges in that intermediate and peeking, which was 5% to10% for 2015 on the last call and it's now 40% to 45%. Of course, a piece of that would be BGS, but if you do the math on that you'd see that's a little less than half of the total on an estimated basis.

Really, what's going on, Dan, and if you look at the curves, just look at the forward price curves, you can see this. There were opportunities where the prices moved up during the last quarter before they came down right at the very end and spark spreads have been pretty robust, so we took advantage of those opportunities to layer on incremental hedges and by having that incremental flexibility and putting on a little bit more and capturing those pricing in sparks for opportunities, that's what's really increased the numbers.

Now, if you're asking about the change in the price of base load, you know that we actually give one consistent price across, so even though base load was 100% the average price of the entirety of the book, we put that across all the hedges, but we give you the granularity of where we're hedged between base load and intermediate in peeking. We like the impact that we had in the fourth quarter by adding on hedges. You know that BGS, of course, being full requirements also has some pass through costs, but even if you strip that out, you find that the hedges are really higher than they were from our last report.

Okay. Thank you for that answer. On the outlook for the utility this year, if you look at the bridge or think about a mental bridge from 2014 to 2015, maybe not as much of an increase year on year as we would have previously modeled. Can I think of it as basically there's going to be a drag of $0.035 or $0.04 because of pension year on year, maybe $0.05 because you had some gains in 2014, and then you could just step down from what you would have expected at transmission because of the bonus depreciation. Is that right way to think about the step year to year in simple terms?

That's exactly right Dan. You're exactly on the right math, because when you look at those key things which, of course, if you think about interest rate, actuarial tables and bonus depreciation really aren't in our control, but you've got your finger on the right things that take the utility growth rate perhaps lower than the expectation, but a nice growth rate nonetheless, because the things that we do control, the things we're doing to put capital to work obviously continue. As I said, when you think about going out beyond 2015, you'd see the annualization, right, of bonus depreciation in terms of a base versus a subsequent year effect and then pension, obviously, we think being more of a one-time and then going back to normal. You're exactly right in how you're thinking about it.

Last question. You talked about $2.4 billion of utility CapEx. Is that just for 2015 or are you guys thinking that's going to be the new repeated number kind of for the five-year plan?

We haven't given the five-year number but the three-year number, and you'll see this in our 10-K, then, when we file it, the three-year number averages about $2.4 billion per year in total for PSE&G, so I'm talking 2015, 2016 and 2017. When you do that, and you look at that, keep in mind that, as I said, transmission will be more than half of that, so you're going to see transmission really, really carrying the weight of that growth. We're really pleased to see that on average for the next three years and then we'll talk more about the five years on March 2.

Great, thank you guys.

Sure.

Your next question comes from the line of Ashar Khan with Visium.

Good morning and congratulations.

Thank you, Ashar. (Multiple speakers)

You know what? I've been kind of attacking this, I guess, Ralph, it's, year after year it's the best integrated company, and I hope you start getting the discernable premium this year as we go forward. But I wanted to go over a point that Carolyn raised is that because of the oil pension and that and the hefty CapEx that you've mentioned, if I heard correctly, Carolyn, you expect the utility to then go back to somewhat closer to a 9% or 10% growth rate going forward. If I do my math correctly, based on the CapEx and everything for the next couple of years, is that a fair thing which you will refer to a little bit in your remarks, because the growth got a little bit dampened this year from 2014 to 2015, from the pension and other things, but it should regrow at a faster rate coming out of the blocks, 2015 going forward, based on the CapEx and things which you have indicated. Am I on the right track?

Yes, Ashar, you are on the right track. I won't validate a particular number that you cited there, but yes. Think about one-time effects, right? When you have a year-on-year effect of something like bonus depreciation, which you remember was passed at the very, very end of 2014, that has its one-year effect and then it becomes part of the base.

Pension, same thing, right? Lower interest rate and that mortality table which, as you probably know, is a once in a ten-year effect.

Those things come in so we would expect utility growth to be higher as we go into -- on a 2015 2016 basis than on a 2014 2015 for exactly the reasons you cite, overlaid on the back drop of what I just mentioned, which is a continued robust investment program averaging a little bit more on an annual basis than we actually spent last year. The fundamentals are there to provide the driver for that opportunity and we've got these sort of one-year effects from the two items. That's the right way to think about it.

And then, if I can just, then, if I'm thinking through it on an investment proposition, so if now you totaled the earnings with the life of contract and all that make up like 55% of the earnings. Say this is my number, if you're growing at around 9% or 10% on the utility that would imply a consolidated growth rate of about 5% or so. And with the dividend now growing at 5%, I mean, I think we have a value proposition which is equal to any utility or even better than the rest of the group.

We certainly think we have a good value proposition, don't forget about that. Thank you for mentioning the dividend as well.

Obviously, we don't give guidance beyond the current year, as you know, because of Power, although I think we're pretty pleased with what we've been able to deliver and the guidance we're giving for Power for this year. Frankly, going forward, expect us to do the same things we've been doing with Power for the past few years and I think relatively successfully layering in hedging, taking advantage of opportunities when we see them and continuing to just take advantage of a well-positioned fleet. We do think we have a good value proposition.

I just mentioned, and I think you were just doing the math separately. As you know, PSEG Long Island and our operating arrangement on Long Island is not part of PSE&G's results. It's part of enterprise but you may have just been adding that back in your calculation.

Okay, and if I can just end up, Ralph, we're happy on the dividend, but do you have a pay-out goal in mind for the consolidated entity earnings or on the utility earnings? I just wanted to get a sense. If the Board has a pay out or no.

No, we don't, Ashar. You may recall a few years ago, maybe about five or so, we did have a number and we found it too limiting. The dividend is something that we discuss all the time with the Board, but we have a very robust conversation. We talk about where the earning's coming from, what is the cash being generated, where are we in the power price cycle, what are the cash needs of the business, what are our competitors doing, competitors for capital, that is.

It's a very fulsome discussion and not one that lends itself to simply saying X percent is the pay out ratio. We do try to guide you qualitatively, recognizing that the dividend decisions are the purview of the Board on a quarterly basis but the number we put forth this time, we believe, is consistent with that view that we can provide a sustainable growth in the dividend.

Thank you so much. Cracking results.

Your next question comes from the line of Paul Patterson with Glenrock Associates.

Good morning, guys.

Good morning, Paul.

Just really quick, I'm sorry if I missed it, the gas monetization in Q4, could you quantify that and is there any sort of outlook of what the opportunity might be for stuff like that going forward?

Yes, so I didn't quantify that specifically, Paul, in terms of a number on the quarter. What I did mention was that the gas monetization benefit was essentially similar to what we saw in 2013.

You may recall on 2013, so now I'm talking about this sliding basis, differential base in our supply. 2013 it was about $0.05 and in 2014 it was just about the same level. In terms of thinking about it going forward, obviously we don't control that differential but two things good to keep in mind.

If you look at forward curves, you still see that differential and so that's valuable and we model everything on the forward curve, including thinking about that differential. But what, of course, you can always think about for us that does sustain is that access, right?

We have the access this year, given what the team has been able to accomplish in terms of providing even more access to lining up Marcellus and Utica gas. We've been able to step up that percentage to a total of about 60%. So when you have the differential, and we've got this long term access that's going to stay with us, can't say exactly what percentage every year, but long term significant access, when that differential is there, you'd expect us to get it.

Okay. And then the polar vortex? It looks like we have some similar conditions out there to what we saw on January 7 of last year and the performance of plant seems to be better.

I'm wondering whether or not you think that might impact the capacity performance proceedings going on right now at FERC? Just in general, what do you guys see or what are you hearing out of FERC or anywhere else with respect to how that process is going in your expectations (inaudible)?

Paul, you're right. Temperatures have been averaging about 16 degrees below average the last few days and plants are operating better. I think, I know for us and I suspect for others, there were some operational changes we were able to make to reduce the amount of forced outages. Just in light of the forecast, we moved our coal piles around a little bit more so we made sure we didn't face them freezing up.

What hasn't changed for us, and I suspect for others, are the amount, is the amount of capital investment that's being made in the older units, which basically never run until you get six days averaging 16 degrees below zero. I think FERC is very cognizant of that. There's only so much you can get out of improved performance by doing some operational prep work and eventually the frictional forces of these temperatures overcome whatever you might do in terms of preparation and those capital improvements are needed.

I think FERC will be supportive. I don't want to predict any outcome. I don't want to guarantee an outcome but suffice to say that there's really two issues that are involved in making sure a power plant runs. It's what you physically have put into the asset and what you do to ready it.

In terms of physical preparation, it's not leaving coal piles exposed, putting buildings around them so that they are protected from the elements. That's a capital investment and you aren't going to do that unless you know that you're going get paid in the capacity market because those typically, in our case at least, aren't units that capture energy market. We're still cautiously optimistic about what FERC will do and we are very confident that whatever FERC does, we do have the type of fleet that will benefit from it.

Okay, great. I appreciate it.

Thank you.

Your next question comes from the line of Stephen Byrd with Morgan Stanley.

Good morning.

Good morning.

Wanted to start on the utility. For 2014 and, I guess, going into 2015, what was the earned ROE of the utility in 2014, and what's the assumption going into 2015 that defines the guidance?

We earned our allowed return, Stephen. Just, you may recall we have an 11.68% return at transmission and a blend of 10.3% at the utility for the most -- at the distribution level, a blend of 10.3% and some of the more recent programs are at 9.75%.

Okay so the actual results in 2015 were right at your earned level or were they in excess of the earned level?

They were right at the earned level.

Okay, and--

We were investing heavily in the utility to make sure that's the case.

Understood. What's the timing for the likely filing of the rate case?

November of 17.

Is when you would file?

Is when we would file for a test year. That is three months historic and nine years prospective. Typically, we may seek to push it out even further.

Okay, and then looking over in terms of gas infrastructure, major theme we've seen is more investment in pipelines and we saw your investment there at the Power side. Do you see other potential need for gas infrastructure that looks interesting for you in your service territories as you look at the growth of gas infrastructure?

No, not in service territory. It seems to me that most of the gas pipeline build that is being proposed nowadays for a variety of reasons is go from Marcellus and Utica to the Southeast and to the South. That's a much longer conversation that we can have, but there's some very good economic fundamental reasons why that's taking place. I think we're ready for the next question, operator.

Your next question comes from the line from Travis Miller from Morningstar.

Good morning, thank you.

Hi Travis.

Hi. Wonder if you could talk a little bit more about the incremental investments you've discussed here over the last few months about Energy Strong. What outstands, what filings might we see in the next three to six months, opportunities and incremental stuff that's not been approved for Energy Strong?

Sure, Travis. The pure Energy Strong filing, if you will, had multiple components to it. There were a series of sub stations, for example, that were a center piece of, I think, there 29 of them that have to be upgraded and there what we are is we are in the engineering and design phase of that work, so that work is probably going to be the longest-dated one and when we do file for additional help in that area, that's likely to not be off for at least another year.

Another big part of Energy Strong, though, was the $350 million program to replace some of the cast iron main system. I think we've done over 200 miles of that already.

That is one that is scheduled to pretty much wind down by the end of 2015. We'll talk more in detail about that on March 2, but that is a filing that we will be making in very, very short order to continue that program.

That's important for a whole host of reasons, not the least of which is number one, you don't want to keep mobilizing and then demobilizing the workforce to do that and as I said that's winding down at the end of the year. But probably equally, if not more important, is the fact we've been able to continued to be able to pass these gas credits on to our customers so this is the time to make the investment in the infrastructure while the supply part of the bill is actually coming down, because it's something that the customer can afford to do right now. We're always mindful of the burden that we're putting on the customers.

There are some other parts of Energy Strong that are smaller in magnitude, but those being the two biggest ones. Some of the other things we talked about in terms of potential investments we're still waiting to hear on are the utility 2.0 program out on Long Island. Candidly, we thought that would be resolved by now but that looks like it's going to go out a couple more quarters into this year.

We had thought we were the winner of the FERC 1,000 project at Artificial Island. As you know, PJM is reconsidering that and I don't know exactly when the decision would be forthcoming there. We thought it would be Q1, but Q1 is now half way gone and that decision isn't done.

The PennEast pipeline investment we've made is still under way. The energy efficiency filing that we've made is still having very constructed dialogue with the staff on that. There are things in all manor, all different stages, from disappointment, in terms of Bridgeport Harbor, optimism in terms of energy efficiency and a whole bunch of stuff in between.

How much of all those programs that either haven't been approved or are in the development process are included in that $2.4 billion?

Zero.

Okay so that's upside. Okay. Thank you very much.

Thanks, Travis.

Your next question comes from the line of Jonathan Arnold with Deutsche Bank.

Well, good morning, guys.

Morning, John.

Quick question on what you've said about the dividend, Ralph. You've been very clear you wanted to be, to grow consistently and sustainable. Does that mean we should anticipate similar percentage growth going forward to what you've just done or similar share growth? How consistent are we talking?

Let's just put it this way, Jonathan. About four years ago, I think it was about then, we put a big increase into the dividend. I think it was about an $0.08 or $0.10 increase in the dividend. $0.12, thanks for that.

We went out of our way to tell people that was a significant resetting of the dividend and not to be expected as an ongoing change in the dividend and we haven't used those words this time. I really don't want to be tied to a specific number, either from a cents-per-share or a percentage point of view, except to say that we think this dividend increases is supportable and sustainable.

You think you're growing roughly in line with how you expect the utility earnings to grow this year, is that kind of the [status] policy?

Yes. And again, that's a fair question, Jonathan. I did say earlier that we look to see where the earnings in the Company are coming from, because quite candidly, Power is more cyclical and the utilities are more steady. But we don't have a -- it's not [40 legs]. It's not [0.9] utility plus [0.1] Power or [1.1] utility plus [0.2] Power.

Clearly the fact that the utility will be well over 50% this year for the second year in a row -- it depends how you define well over. It'll be over 50% for the second year in a row. It gives us more confidence in the size of the increase and the sustainability of the increase.

But we absolutely know how important it is to the shareholders. We hear about it all the time.

And then on the credit metrics, I think we mentioned that Power's FFO-to-debt was [6.9]% at the end of the year. Is there anything about (inaudible) you're forecasting flattish earnings for 2015 in Power at the middle of the range. Is there any reason why FFO-to-debt wouldn't be similar in 2015 as in 2014?

No. Good question, Jonathan. If you look at, you're right, where we landed the year, Power is going to continue to be in very good shape so I think the way to think about it is FFO-to-debt will continue to be well in excess of our floor of 30%, just continuing to provide a lot of investment capacity of Power for the things that Ralph has just been talking about. And of course, as you know, we don't have any parent debt and so that provides us even more opportunity for regulated investments.

So yes, I continue to see Power very robust, and what I like about it is it allows us to have that conversation of where else we can make incremental investments because there's just a lot of room there and that's a nice way to start the conversation about extra capital investment, not talking about issuing equity.

And that [16] is going to step down very significantly. It seems like mathematically there's no way you can be sub 50% of the [14-16] average, which is, I think, what your (inaudible) slide showed. Am I on -- could those numbers be up by that much higher? Is that -- are we on the right track there?

Yes, so I won't do the specific numbers on the call, and we'll talk more about the long-term view of things on March 2, but I think the right take away is that balance sheet is in terrific shape and we look for, as Ralph said, lots of ways to deploy it. The numbers are in really, really good shape.

And did you come close on Bridgeport Harbor, or was it --

(Laughter) Nice try, Jonathan. We're not going to reveal close or not close because as soon as I give you a qualitative answer, you'll try to narrow it further.

Thank you.

Operator, Ralph is going to have closing remarks and then we'll complete the call, thank you.

Thanks, Kathleen. Something just a little bit out of character. As many of you know -- as all of you know, there's probably no bigger fan of our employees than yours truly here. There is one that I just want to make special mention of, that many of you probably have never met before, but after 40 years of service to the industry and 10 years with us, 8 years as our Chief Nuclear Officer, we did announce the retirement of Tom Joyce.

Tom is just a quintessential professional. Not only did he just create tremendous value for our customers and shareholders, but he did what's expected of every strong leader and that is he leaves behind an incredibly solid team and groomed a talented successor. I just can't thank Tom enough and I thanked him yesterday in front of employees, so I want to make sure I thank him today in front of our investors.

As to the rest of my comments, it's simply this. For those in the Northeast, I hope you stay warm. Hang in there. Our plants are running, our gas pressures on the system are good, if not only even Northeast but you're in our service territory, and I hope to see all of you a week from Monday at our Annual Meeting. I hope you're as pleased as we are with our results and the outlook for 2015 looks even stronger. See you soon. Thank you.

Thank you, operator.

Ladies and gentlemen that does conclude your conference call for today. You may now disconnect and thank you for your participation.