Public Service Enterprise Group Inc. (PEG)
March 01, 2013 8:00 am ET
Kathleen A. Lally - Vice President of Investor Relations
Ralph Izzo - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of PSEG Power LLC, Chairman of Public Service Electric & Gas Company, Chief Executive Officer of PSEG Power LLC and Chief Executive Officer of Public Service Electric & Gas Company
Ralph A. LaRossa - President of Pse&G and Chief Operating Officer of Pse&G
Randall E. Mehrberg - Executive Vice President of Strategy & Development, Chief Operating Officer of Pseg Energy Holdings Llc and President of Pseg Energy Holdings
Caroline D. Dorsa - Chief Financial Officer and Executive Vice President
William Levis - President, Chief Operating Officer and Director
Shahid Malik - President
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Gregg Orrill - Barclays Capital, Research Division
Kathleen A. Lally
Good morning. We're going to get started in a minute. Good morning. I know it's a very busy season, and we appreciate you all being here with us this morning, both at the Waldorf Astoria and on the webcast. I'm Kathleen Lally, Vice President of Investor Relations for Public Service Enterprise Group. We have a very full morning for you. We tend to do a very thorough review of our businesses and provide you with an outlook for growth over the next several years, particularly in terms of the utilities capital program, take you out longer than we normally have in the past and provide a very thorough review of the financial picture of how our -- and the corporation as a whole. So we hope you stay with us.
So we're going to start with Ralph Izzo, Chairman, President and CEO. Ralph is going to -- we're going to hold questions for Ralph until the end of the morning. Ralph Izzo will be followed by the President of PSE&G, Ralph LaRossa; and then Randy Mehrberg of PSEG Energy Holdings. They will take questions at the end of their -- at the end of Randy's comments. After that concludes, we'll have a short break for about 15 minutes, and we will then proceed to discuss PSEG Power's business, Bill Levis, President and Chief Operating Officer of Power will do a review of his business; and he'll be joined by Shahid Malik, President of Energy Resources & Trade. They will take Q&A jointly at the end of Shahid's comments. And then shortly after the Q&A, Caroline Dorsa, Executive Vice President and Chief Financial Officer, will provide a review of the company's earnings and cash picture for 2013 and into 2015. Caroline will be followed by a short summary from Ralph Izzo, and they will take Q&A together at the end of the day. Again, a very thorough review of the PSEG, which we hope you will find informative.
I'm now going to turn the program over to Ralph Izzo.
I saw my General Counsel gagging because we didn't refer to the forward-looking statement and the GAAP discussion. So good morning, everyone. It's great to be here with you again for our Annual Meeting. And it is a fascinating phenomena to watch, whether it was at the church or an employee meeting how the front row is always empty and you eventually do fill in. So please, welcome to come on up and spend some time with us.
As Kathleen pointed out, we have lots to talk about today, and I think we're going to be giving you some information that is new. It's not necessarily news, but it is more detail over the -- as it pertains to longer-term outlook for the company and the Utility, in particular. And we'll create a context for you in terms of the Utility capital program with respect to the overall company financial picture that will provide a level of detail and fulsomeness that we haven't provided in the past. And I think you'll walk away feeling quite good about it. I certainly feel quite good about it, and I'm eager to get started in that regard.
So a little bit about our philosophy at the company, if I may, and then we'll get into some of the numbers. It all begins at PSEG with our employees, without question, and we are beyond fortunate to have the cast of employees that we do have. And it is often said that while we still have not crossed the bridge, whereby the first 2 words out of our mouth when we meet with employees is anything other than good morning or good afternoon. But certainly the third and fourth words when we meet with employees are operational excellence. And as a matter of fact, some people accuse me maybe of the first 2 words being operational excellence and the third and fourth being good morning.
But we -- in present of our employees, where there's the 91.1% capacity factor at our nuclear plants or the 1.7% forced outage rate at our combined cycles or the 58-minute Kd results or the quality of our proxy statement or the accuracy of our press releases that throughout the company, operational excellence is first and foremost on our minds.
And I think you'll see some numbers later on from Ralph and from Bill and from Randy and Shahid that point out that we've delivered our net promise, and that's resulted in a level of financial performance that we're quite proud of in light of the business environment we face. We've hit our earnings target. We've created a very strong balance sheet. And really the theme today is about how we're going to deploy that balance sheet into some very disciplined investments. Investments that we believe strongly are what our customers need and are demanding today. A little bit more about that in a few minutes.
I just shut it off. I told you to cover that button, and I hit it anyway. Now right about now my wife would say, "And you run nuclear plants?" But we'll leave it there for a second. So last year, 2012, I won't read you the numbers, you could see the assets and the operating earnings by company. Starting on the left side of the screen, the Utility, the usual list of accolades about its reliability, its performance, its customer satisfaction. I cannot say enough about that. But the story looking ahead is the capital program to reinvent the grids to a certain extent, and I will spend quite a bit of time focusing on that later on.
Power, the story is one we've started to shine a light on. The flexibility of the fleet, the fuel flexibility, the technology flexibility, the consistent favorable physical location, the consistent favorable environmental position of the fleet is standing as well in a very, very challenging wholesale power market. And in holdings, not only a fabulous job of derisking the balance sheet, but now it's starting to grow some fledgling businesses that are performing quite well for us, some very attractive unregulated solar energy projects.
What you can't see on this thing is that the forward button is like half the size of the device and the shut the power off is a tiny piece, but somehow my thumb seems to keep going to it. So if you'll indulge me for a moment, as I look backward, prior to looking forward. 2012, a year of significant accomplishments. For the 6th year in a row, we've hit our earnings guidance. I don't know that we didn't do it in the 7th year, but for very selfish reasons, I've only been counting 6. PSE&G now over 40% of the consolidated operating earnings of the company. Record output from our combined cycle gas turbine units, as gas has become in favor on the dispatch curve. The Utility recognizes a variety of places, fifth time in the last 8 years is the most reliable electric utility in the nation, 11th time in a row in the mid-Atlantic and a bunch of awards for its outstanding response to a myriad of storms that we've experienced in the past 15 months. And a 2-week period that was a defining event in our history, namely Superstorm Sandy, which we will have much more to say about later on.
And then a very quiet thing that we did, which I don't think we often talk about and we should. Namely that we, without event, extended the contracts of 5 of our 6 labor unions, all of the major ones, we have one major one that we didn't get to, but that doesn't come due until '14, at very, very fair and reasonable terms. And I will submit to you that one of our competitive advantages is the progressive enlightened nature of our union leadership. We are quite fortunate to share our company with them, to share an operating experience and very often a cup of coffee with these men and women who are just outstanding and true partners in running the company successfully.
Lastly on the investment front, we had some key regulatory approvals, in particular related to our transmission programs. We are expecting a decision from the Board of Public Utilities on our solar filings made last July. We're expecting to hear something by May 1 on that. We did get 400 megawatts of peakers in service ready to operate and they did operate in New Haven and in Kearny for the summer peak demand and holdings -- added to its fleet of unregulated solar projects supported by long-term PPAs.
That takes us to '13, where we are reaffirming our earnings guidance of $2.25 to $2.50 a share following last year's operating earnings of $2.44 per share. So what's different about '13 if in fact the guidance is exactly what you heard us offer in '12? Here what we've tried to show is the percentage of earnings and where they are coming from, and we've taken you back to 2009 albeit just a year after the gas price spike, which drove the commodity earnings potential of PSEG Power, where it was essentially almost 4x to 1x larger than the Utility to this year, where if you take the midpoint of the operating earnings guidance for each company, which we've publicized, you can see the Utility is half of the company and slightly larger than power.
But the story does not end in '13, and that's what today is about. We've heard you loud and clear saying, "Gee, what happens after the next 3 years?" We thought you'd get the message when we've answered that question well, for each of the past 5 years, about the next 3 years not being the end of time. But nonetheless, we'll give you a little bit more visibility out to 5 and 6 -- I think we're just going up to 5 years today.
Yes, I did it again. Thank you. So if I take a look back to where we were in 2008 and where we are in 2012, no one, no one likes to show operating numbers that have a negative first derivative. There's just no if, ands or buts, there's no way to put a happy face on that. But if you look at that $2.91 going to $2.44 in the context of $70 of PJM West around-the-clock prices compared to the $34 that we have today, I believe our strategy of making sure we get the most out of those power assets while growing the Utility has at least offset a fair amount of what would have been an otherwise very, very challenging picture. We've outperformed even our own expectations in terms of O&M growth. We have nearly tripled the transmission rate base. We took Utility distribution spending from 0 to $955 million that gets contemporaneous returns. We opened up a quasi-new line of business in terms of solar and energy efficiency to the tune of $900 million in contemporaneous return. We've maintained consistent solid performance at our combined cycle units. We reached out a few more terawatt hours of power from our nuclear plants, both in terms of running the assets better and expanding the output of Hope Creek, and we've started to grow this unregulated solar business. So a pretty good run from '08 to '12.
But the event of '12 that once again defines us, and I know I'm repeating that expression but it can't be overstated, was Superstorm Sandy. I'm not going to read the statistics to you. But I am going to ask you to indulge me for about 3 minutes as I show you a video slideshow that we plan to share with our shareholders, as well as our employees about what Sandy meant to us. Do I have to do anything, Carol or Kathleen? No? Thank heaven. Thank you. If we can show the slideshow.
So a couple of observations on that point. First of all, I cannot over emphasize how much personal sacrifice employees experience to make sure that customers came back. And while all eyes of policymakers and immediately were on customers, one thing that no one noticed, and just a huge acknowledgment here that we need to make, was that every time a circuit was restored, there was a power plant able to deliver electricity through those wires. The folks at PSEG Power were every bit as responsible for the successful and safe restoration of electricity to 2.1 million customers. There was no problem with the grid when we watched load collapsed by 80% and there was no problem with the grid, the high-voltage grid, when Power was there to respond, as customers returned back on. And that meant successfully closing Salem during some pretty nasty conditions in the Delaware River, successfully bringing back our combined cycle gas turbines, successfully bringing back our peaking units, with people working in the dark, in the cold around-the-clock. And it was just an amazing thing to watch. It was equally fun to answer personally quite a few e-mails from customers. And I will tell you, it was actually rather heartwarming, customers would write, and it's interesting to see what panics people. In some cases, it was the absence of access to life-saving equipment. In others, it was the looming early decision deadline for college applications in the absence of computer access. And whenever I would respond in every case, the response back from the customer was, "Thank you so much. I know you're hard at work."
Except one customer wrote back, "Thank you so very much for responding. But you are still, without a doubt, the worst CEO in the worst run company." Suffice to say, I did not respond the second time in that e-mail, but that was the 2-week period. So it was quite an experience. And it was something that made us think hard. And in a couple of slides, we'll talk about what that thinking led to.
Here you see a set of numbers that are business as usual. By that, I mean, what we have discussed with our colleagues at the BPU, what has been approved, what we discussed with our colleagues at PJM, what they have approved and put in the RTEP. And that's a capital program in the next 3 years that calls for a little over $6 billion in investment, 70% of which is aimed at growth; and 80% of all the investment at the Utility, the lion's share of the growth taking place at the Utility; and once again, the centerpiece of that investment being in the transmission arena. This is already approved, in the works, engineers at the headquarters working on the work packages and getting that out to the field.
Now we've talked about our $3.9 billion 10-year Energy Strong Program. And in addition to that, the $1.5 billion transmission program that we believe are essential for meeting what we're calling a new normal for our customers. And we'll give a little more detail on that in the next slide. If all of that were to occur over that multiyear period, here's what it means for the next 3 years. Okay, so I'm not forecasting 10 years. I'm just giving you out to '15. Caroline will give you a little bit more information out to '17 later on. And what you see is the 70% growth becomes 80% growth investments, and the Utility consumes 85% of that capital, and the $6.1 billion becomes $7.6 billion over the next 3-year period.
Now let me pull back a second and ask a question that I've often asked in the past of this group, but nonetheless, I want to repeat now. How many of you are our customers? Okay, fair chunk. I remember that in the past.
So I'm going to speak to those of you who are our customers, both as investors and analysts and as our customers today. So I will often congratulate Ralph LaRossa and his team at the Utility because they deserve it, people like John Latka, our division managers. I would argue there are none in the industry who are better at restoring customers once they are out. And in fact, throughout the Sandy and post-Sandy era, people would come to me in my community, "You must be tired, you must be exhausted having to deal with what you've had to deal with." And I say, 'Yes, I am tired. But rest assured, my most important job is making sure that Ralph LaRossa's coffee cup was filled so he could do the real work of getting customers back." And the last person you want in managing the emergency response and it was Izzo, and you wanted it to be LaRossa and he did an outstanding job. But I think Ralph would be the first person to tell you that outside of the Sandy-type events, where everybody loses power, but on the day-to-day events, which are the ones that earn us the Most Reliable Electric Utility in the Nation awards, it is not the current set of management team that are responsible for the outstanding performance of this company. It was the foresight and the thinking of teams of engineers and network designers decades ago that realized a very simple fact, that you will do better by customers if they're being fed in more than one direction. Because our network is designed in many parts, not throughout the territory, to feed customers in a different way if their primary route of getting electricity is down. So we have the switching capability and the network design that achieves better levels -- lower levels of customer interruptions in most utilities. Even with a predominantly overhead system.
After Irene, after the Halloween snow storm, after Sandy, after getting those kinds of e-mails that say, "Thank you for your message but you are the worst CEO in the business," we said, "Wait a minute. Something is going on here." Everyone is focused on demand growth slowing down, why are customers absolutely insane when they lose their power? I mean, think about that we did as a nation during Sandy. We were shipping in military transport utility trucks from across the nation to restore customers. Think of the marginal cost to restore that last customer when we were doing things like that. So while demand is growing more slowly, what's ever, ever clearer is that our lives are much more centered around the use of electricity. Call it what you want, a digital economy, a digitized society. People cannot live without the electricity in their home for a variety of reasons beyond a finite period of time. And for some people that finite period of time is measured in hours. In others, its days. But for no one is it measured in weeks.
So number one, was the massive change in our lifestyles since the forethought -- foresight that was demonstrated by the engineers of PSEG decades ago. Number 2, I happen to be a believer in climate change. I'm not saying the last 15 months is positive that we've had climate change. But I'll be darned if I'm going to be the one standing here for the next Sandy, the next Irene and if someone asks, "What have you done about that?" And my answer is nothing. So the severity of the weathers that we've experienced, weather patterns that we've experienced, the types of storms that we've experienced are clearly happening with increased frequency, whether it's climate change and due to man-made impacts or whether it's a cycle in the natural ecosystem, we're in it and its happening, and there's something that needs to be done.
So to U.S. customers, we said, "What can our customers afford and what's the maximum value we can produce for them?" And we have 2 -- we have a few opportunities here. We have a low interest rate environment. We have highly available labor. We have a declining forward price as compared to where BGS was. And equally, if not more importantly, we have a couple of components of the bill that are coming to an end. That would result in lower rates, if we just let time take its toll, and these have to do with the deregulation of the industry back in year 2000.
But if we capture the moment of all of those forces, we can literally implement this program and hold bills flat. So we've been criticized by some people and say, "Oh, you have to believe in fairy dust to think that you could spend $3.9 billion and not get paid for it." That is nonsense. Of course, we're going to get paid for it. But the customer won't be paying more than they're paying today. We've had extensive conversations with policymakers, both in the administration and in the legislates. We've talked to senior staff of the Board of Public Utilities. I'm not suggesting we've dotted I's and crossed T's by any stretch of the imagination. But I am delighted by the fact that the consistent foresight and progressive thinking at our Board of Public Utilities and in our state government realizes that this is the time to do something of this nature, and we will now spend the coming months deciding whether or not the $1.7 billion for the 40 utility substations or the $454 million to finish out our SCADA systems, et cetera, et cetera, are exactly right. I have confidence in our team that we have to take the things that are exactly right, and at the same time creating almost 6,000 jobs for the economy of New Jersey. Ralph will go through a little bit more detail on this in his presentation.
So let's talk a little bit about Power. The middle -- the left pie chart and the right pie -- the right-side pie chart are things that should be familiar to you. The middle chart keeps changing. The flexibility of our fleet is constantly in play, constantly being tested and constantly rising to the challenge. It wasn't that long ago where that nuclear piece was 50%. Now you see it growing at 57% as we get more and more out of our nuclear plants. The orange and the dark blue, you tell me what the spark spread is, you tell me what the dark spread is, I'll tell you what that piece of the pie is. But whatever that piece of the pie should be, will be what the market determines, and we're ready to deliver on that set of numbers. It wasn't that long ago where that 32% for natural gas was, I think, 15% and 11% for coal was 35%. And I believe in those numbers, and that 11% slice of the pie for coal, some of those coal plants were running on gas. So we not only have the ability to switch from one plant to another, we have the ability to switch within a plant from 1 fuel to another, and Bill will tell you more about that as well as Shahid.
So I've talked already about where -- what we've done in going from '08 to '12, now let's talk about what we will do to get from here to '15. So in '13, we've given you the $2.25 to $2.50 a share guidance. From '13 to '15, we expect O&M to grow by 2.2%. And rest assured, we are always, always tackling those numbers. Our rate base will grow by 40%. Our transmission alone will double. Our E&G distribution, if we get the Energy Strong Program, will increase by nearly 16%. You'll see another 16% growth in our solar investments, in our energy efficiency investments. We'll further improve upon our strong performance in our forced outage rate and our combined cycle units. The Peach Bottom upgrade will materially increase the output from our nuclear generation. We'll look for additional projects in holdings, and we will have LIPA as of January 1, 2014, contributing to the bottom line.
And how are we going to do that? With the balance sheet that our finance team and every member of the company has steadfastly protected. You could see what we've done to that balance sheet from 2009 to 2012, strongly, strongly delevering PSEG Power.
Okay, so what are we going to do with that balance sheet from today to tomorrow? We will be able to make these investments with room to spare. With investment capacity left over, without one red cent of equity needs from outside the business. Kathleen tells me she keeps getting calls on this. Let's put that to bed. We will grow this business. We will support the dividend and have room for modest and sustainable growth, and we will do that and end up with a balance sheet that you see on this side of the equation, the room for additional investment capacity. Because we are darn proud of that 100-year history of paying dividends on an annual basis and the 3% growth that we've seen over the past 10 years. And this management team isn't going to be to want to do anything but continue that pattern over the future.
So with that, I think you're understanding that our value proposition going forward is, once again, operational excellence, getting the most out of the tremendous asset base we have in PSEG Power, the fuel flexibility, the technology flexibility, continuing the outstanding track record of PSE&G and designing that system for a completely different future than the one we've operated than the operating environment we've had in the prior century.
And I will be back later on after Carol finishes her remarks. But for now, I will turn it over to Ralph LaRossa to talk to you more about the Utility.
Ralph A. LaRossa
My goal is to only make the lights go out here once, and then Bill will do it no times because he runs a nuclear plant. Utility guys can make a mistake every once in a while.
Good morning, everybody. Just my goal here today is to kind of leave you with 3 things. Just to remind of who we are, how we operate, hopefully show you a little bit about our history and what I believe is some really good work that we've done. And so that you believe in us a little bit more and then set a clear path for you as to where we're going in the future.
So without anymore ado, Ralph put this slide up, and he talked about our people. It's 1,000% true. Everything that I'm going to show you and explain to you about our response to Superstorm Sandy starts exactly with that, it's with the people that we have here. Ralph mentioned the fact that we have good relationships with our labor leaders. I have to tell you, during that storm, there was never 1 phone call that came in from any of our union leaders that asked the question about, "Hey, how come you're treating people this way?" How come -- the only question they ever came back to us was with was, "How can we help you more?" It's just a great, great organization to be part of, and I can't say enough about those folks.
But we build that base. And then what we try to do is we try to align our interest with the interest of the policymakers, whether those are policymakers in the State of New Jersey or policymakers of FERC. So it's all about aligning our initiatives with public policy and using that base that we've talked about and that Ralph explained earlier about making those investments and put those 2 pieces together in being able to grow our business. Each one of the initiatives that I've talked about that we've completed and each one of the ones that I'll be talking about are all focused on exactly that.
So just a reminder, if there's anyone new in the room, I know there's a lot of customers. Our service territory, take a straight line from the George Washington Bridge, go down at Ben Franklin Bridge, 30 miles on both sides, grab -- slam in 2.2 million customers in the middle and try to keep the lights on and the gas flowing for each of those customers. That's our service territory.
What I want you to take away from this slide, though, are really 3 things. One, at the top of the slide, you can see that the growth rate of customers in that service territory has been rather slow. It's less than 1%. So you look at that and you ask the question, "How can you grow a business?" Well, it's all about the replacement and reinforcement of the infrastructure, as well as the growth in our solar and energy efficiency businesses. So I'll explain each one of those as we go.
The second thing I'd like you to take away is the section on the approved ROEs. That to me has always been a clear signal from the regulators as to where they would like to see investment. So it was 10 years ago now that a tree fell in Ohio. And when that tree fell in Ohio -- it's actually been 10 years. I can't believe it, it's been 10 years. It feels like yesterday we were in the control room, Ralph. But -- and we kept Ralph away from the buttons back then, too. But when that tree fell, FERC stood up and said, "We're going to set policy and we're going to put rates of return in place, so that we can incent investment." And they've done that. And we responded as a company by aligning our investments and our plans with those -- with that desire from the regulator.
Same thing has happened in New Jersey where they've said from an energy master plan standpoint, we'd like to move ahead with solar, we'd like to move ahead with energy efficiency. So we aligned our investments the same way. And that's what you see at the bottom part of the page, which is our -- how we've actually executed on the plans that we were given approval for already on a solar loan, our Solar4All and our energy efficiency programs. So a real good example of where we've intersected the public policy and our business initiatives.
So that's who we are. Let me tell you a little bit about how we run the place. We thought 2012 was a challenge. 2011 was a challenge. And we had -- I sat up here in front of you and did what Ralph did earlier, which was ask you how many of you are customers? By the way, how many of you are Long Island customers? LIPA? Only a few. Okay, so next year, hopefully, you won't be too mad at us, and we'll explain that at the tail end. So most of you are New Jersey customers, we'll still be talking. But we're very proud of the results that we've given to all of you who are New Jersey customers. And if you look at the slide that's up here, we were recognized by a number of different entities for our reliability and for our response to Hurricane Irene and to the snowstorm that came through in October of last year. So we felt very good about our response, about how we've been recognized. It was from entities like PA Consulting which gave us the #1 utility and reliability in the nation; the folks from EEI. And we've also been getting awards on our customer service side of our business, as well as our gas side of the business, specifically in the area of safety, which is so important these days in that area.
So we were sitting there thinking that we've done pretty well, maybe we'll get a little breather and along came Sandy. Now I put this slide up here and I'm going to spend a few minutes on it. So it's rather important to take a look at each one of those pictures that you see. I'll start in the top right-hand corner, which is what everybody recognizes when they were driving around, that's the overhead damage that we experienced. So if you take our 1.9 million customers, about 1.1 million of our customers were impacted due to the damage that the wind caused in our system. You saw the video, you saw how the hurricane came in, and a lot of that high winds that run in north side of the eye all came in to the top part of our service territory that did quite a bit of damage.
So when you look at what we've aligned ourselves with in our Superstorm Sandy filing, Sandy response, it's all about aligning our investments with the damage and the types of things that we saw. So folks ask -- Leslie asked before we started, can you really spend this? Is this really -- is everything that we have in our filing is completely aligned directly with the damage that we experienced during Sandy? So the top right-hand side is the overhead damage. So what are we doing on that front? You'll see us -- in our filing, if you look at the details and Ralph had a little bit put up there, we're going to respond by making some of those loop systems that our predecessors put in place. They come back in. They feed our customers. About 1,000 customers are in each one of our circuits, loop it together, so if a tree falls on one of those circuits, we don't impact everyone. We impact only about 250 customers because they're split up into 4 segments.
What we've started to do and we'll continue to do is further segment those circuits. So instead of having 4-circuit segments, we'll have 8. And at some places, we even put 12 in place. So we use a smart grid technology, we were able to reduce the amount of impact that any one damage has, directly responsive to the storm.
We're talking about undergrounding some of our system. We've identified about 20 miles of circuitry that we want to put underground, as well as some transformers and other assets that we had that were flooded out that are in our outside plant, and we're going to underground those facilities.
But in there, if you look at the filing, it's about $60 million for the 20 miles. So as we've said and many people in the industry have said, $3 million a mile. Quite expensive. So you really have to have focused efforts on that.
So there's a few other things that we have in that area, but really what we've tried to do is again, align our interests and our investments directly with a response to the storm, as policymakers in New Jersey have said.
The picture on the bottom right, I won't give anybody $1 if you can figure out what that is. But that's a control that cause all of you to getting gas lines. That is a control that was in our Sewaren switch that impacted many of the refineries and the tank forms that pump gasoline out of -- in New Jersey. So that particular control, there's literally hundreds of them in our Sewaren switch was underwater. Halfway up that picture, if you look, is the water line.
So when -- we saw the video that talked about the black water, that's the result of what the black water does when it comes into your controls. We literally had to go in, by hand, with a toothbrush and clean out every one of those contacts. So when we get back to that foundation that we talked about and the work the people do and then you have an engaged workforce, just think about all the people that were working 24 hours a day to clean that up so we can restore power. Same thing was happening in Bill's part of the business. Same thing was happening in many other areas across the state in many of the utilities.
So when you look at our filing for Superstorm Sandy, it's all focused on how we can try to improve things in our substation -- switching stations that are in low-lying areas. So 4 things that we're talking about in that area, one is to build some walls, some temporary walls; and secondarily, some permanent walls, so we can protect those assets, pump the water out from behind them if they get -- if it gets in place. Third thing we're doing around those stations is actually lifting them. So we'll raise some of the assets so that we get above the floodplain that Governor Christie has come out with from a theme of flood maps, where they've said they want to rebuild to. So we're going to strengthen New Jersey rebuild, again align with policymakers. We'll lift those assets up.
And finally, we'll build some redundancy into the system. So we can feed the circuits, and those areas, from other circuits and from other switching stations. So those tank forms have a redundant source of power coming into them. So multiple ways that we're trying to address the bottom right-hand side of the picture. The bottom left, our customer service centers, that's where all of you -- we're trying to get information. When is my power going to go back on? What's going on? Has a crew been dispatched? We, also, in this filing, have identified a couple hundred million dollars of investments that we want to make in our IT infrastructure, so that your mobile devices get information that's meaningful to you. Right now, we still give information that's generic to the utility, timeframe that lights will come back on, about how many customers we have out. At the end of the day, in this society, as Ralph was saying earlier, everybody is just, how does it impact me? So when will the lights come back at 1 Main Street. And we're going to put some technology in place, tie it to that overhead, work that I've mentioned, which will give us better information so we can communicate better with customers. And then in the top left, that's our untold story from Superstorm Sandy. 41,000 customers were without gas service. We had to go into 41,000 individual homes, clean out the meters. Because there was water infiltration. And then, after we cleaned out the meters, go up into each one of the premises and re-light the appliances. So what you see there is 1 picture of 1 apartment building in Hoboken, and the amount of work that was needed. So what have we done in our Energy Strong filing? We have identified many of our gas mains that are low-pressure, so the water can get into them if it gets too high. Not high pressure mains, but low pressure mains that are cast iron. We have identified those, we're going to replace those mains, bring in high pressure, insert them with plastic and you'll have that problem resolved in the future. So, what I ask you to think about is, every one of those pieces in the puzzle, in that $3.9 billion filing we made with the state of New Jersey and the $1.5 billion that we're going to be making through our FERC regulatory process, are all aligned with solving issues that you see in this slide. We also think we did a halfway decent job from a logistic standpoint, during the storm, but what I, all, ask you to take a focus on is the bottom left-hand part of this slide. And that is what you should all be telling your kids to do, as Ralph mentioned, become a linesman. We did bring in 1,000 folks in advance of the storm. And we felt we were well-prepared. Not only did we bring people in, but we did put up sandbags around some of our substations that we had traditionally seen flooding, we did all sorts of preparation work with our workforce. But at the end of the day, that top right-hand picture that I mentioned, where you had the overhead damage, is all about hand-to-hand combat and putting people up in the air to get the lights back on. So what you see there is a trend line of actually being personnel in. And there's 2 big bumps in that line that I'll just point out. One is about halfway through the chart, and that's when the power was restored in Delmarva Peninsula. So we started to get workforce that came up and helped us. The second big bump, at the right-hand side of the chart, is when the nor'easter passed the Boston area, and the crews were released from the Boston area. So in no time during the storm were we or any other utility in this area not asking for help. We had identified, right upfront, once that storm hit, and the severity of it, that we wanted additional personnel. But they just were not available from the industry standpoint. We were flying people from California. That's how hard it was. So if your kids are wondering what they want to be with when they grow up? There's a lot of opportunity to be in a -- to work in a line workforce. The logistics that we had, to pull together 4,000 folks, the just gets right down to the hard work that's done by all of our employees in our "back offices." Ralph said he fills my coffee cup, I fill a lot more coffee cups, because there's a lot of great people who do work there. Dave Daly, Kim Hanemann, folks that work day in and day out, really pull together, and that we're able to put 4,000 people in beds. Making sure that they had work every day when they woke up, so that they could be out there and being productive. And finally, with all of that gasoline line -- all those gasoline lines that were out there, we're able to fuel those trucks and get them on the road. We never had crews waiting, at all, during the entire storm, for gasoline to be pumped into their trucks. It was always done the night before and it was all preplanned. So just great work by a number of folks. Which resulted in -- when you look, again, we always want to get better, but if you compare us against a lot of the other utilities in this -- in the region, we did a pretty darn good job. I almost had 1.8 million of our customers back by the end of the 7th day. You can see the growth that took place here. And just comparing, the orange being the response that we had to Superstorm Sandy. And Irene, which we thought was a really big storm, in blue, is just shown below that. And the amount of the damage that was -- the difference in the damage and the difference in the customer impact is pretty dramatic. So, again, just to focus on what the employees were able to do and the work that the team pulled together. So we don't just run a good operation, we've done a pretty decent job of growing the earnings in the Utility and executing on the plans that we've identified. You can see, back from 2008, we've had about a 10% growth rate in our earnings. And I just point out to you that if you took 2012, and you added back in the impacts of O&M for Sandy, that add back in about $0.04, and the impact of the reduced revenues should be another $0.01. So that number would have been about $1.08, and $1.09, depending upon how you want to take a look at it. So that growth plan has been put in place and it's been executed on by the folks in the Utility. And it's been done 2 ways. The first has been the through the growth in the rate base. Now, you can see here, that rate base has grown about 7%. Our electric distribution, while it's gone down as a percentage of our total rate base, has stayed a little bit flat, a little bit of growth from our capital investment programs, which we've executed on, and I'll show you in a second. Our gas distribution, it's about the same story there, pretty flat, a little bit of growth. But the big area of growth has been the 2 "new areas of focus," that regulators and policymakers have indicated to us, the investment should be made in. First is on the transmission side, where we've grown that rate base from 13% of it to 28%. And the last piece being our renewables and energy efficiency programs. A little more detail on the transmission side of our business. You can see here, 2009 and '10, a little bit below our plan. And we've really ramped up and executed in '11 and '12. What's been the difference? We are a learning organization, we try to implement the lessons that we've learned. It's a big change in our understanding, in our execution on the permitting process. Last year, I stood up here and talked to you about Susquehanna-Roseland and some of the challenges we had in the National Park Service, that's not the reason for that, but we had other smaller projects that were very similar, and getting local approvals. And as we've learned the process, we've been really able to ramp up and execute on that transmission plan. The transmission piece, again, are aligned with the FERC regulators and their policy. What was aligned in the state of New Jersey? Renewables, our Solar 4 All program, our Solar Loan Program. Again, executed on. We've got a little bit left to do in spending on those 2 programs. Our energy efficiency programs, again, good execution across-the-board there. The last one that was approved, in July of 2011, that $81 million of spend, there'll be about $40 million in this year and about $41 million next year in '14. So a little bit left on that program but that was the original schedule that we had laid out. And then the investment in our core electric distribution and gas distribution businesses was completed on the plan. A little bit that's left in electric, the $20 million is electrical and that was pushed out a little bit it because of Sandy and our response to Sandy, so we didn't get that completed. But the regulator understood that and gave us an extension into the first quarter of this year. So that's the first piece, we've grown the capital. The second piece is we've kept our O&M flat -- flattish. We’ve gone from -- in 2008 to 2013, we'll have a compound annual growth rate of 1.4%. So investment being executed on, and a good job by the folks running the core business day in and day out, to keep their expenses down throughout the entire length of that growth program that we've executed on. So where are we going? This is, as Ralph mentioned, our first time that we've talked about giving you a picture out 5 years. You can see what we've done through '12. That's the piece that I just spoke about. And I'm going to be a little bit of a view into '13 and beyond. '13, a good plan in place, very little of it associated with proposed filings, at all, that are in that '13 plan. Most of it is actually right on our existing approved programs. And then as we get out into '14 and beyond, it's all about our capital spend that's associated with the filings that we've discussed. Our solar filings, which we expect to hear in May. Our Energy Strong filing, which has just been put out last week. And you've all read about it, and again, we think very well-aligned with what the policy folks in the state of New Jersey are looking for. And then our energy efficiency filing that we expect to make in the upcoming months. So additional energy efficiency focus on the same type of programs that we've executed on in the past. This is a little more detail about those. So you can see where we take the Utility from $6.9 billion to $10.6 billion in -- after all those proposed filings are executed on. And you can see the business mix, where we were very focused on transmission during this last time frame. But as we rebuild New Jersey, as we rebuild the infrastructure, we start to focus a little more on the distribution going forward. Again, that alignment with the policy. Here's just a little bit more on each one of those programs broken down. But what I really want to focus on is the type of return that we get in this area. If you think about the way PSE&G and many utilities in the past were setup, a lot of the returns were traditional rate-making. You go in, you spend the money and then you go back and have the true regulatory lag. FERC, again, to incent the investment, came out with a program that we've aligned with, which is a formula rate Program. So we've made those investments in transmission, and as a result, we get contemporaneous return on those investments. The state of New Jersey was also trying to incent investment in the solar area, in the energy efficiency area, and in those core 4 distribution assets, as there was a lull in the workforce and they wanted to put some people to work. And they gave us that same type of alignment. That's why we've asked for the same type of treatment on the Energy Strong filing, because it's completely aligned with the policy to try to rebuild New Jersey better than it was when Sandy hit. So I'm going to take a second to go into a little more detail about transmission. I promise I won't bore you too much. But I think it's important to give you a little bit about each one of the major transmission projects that we've undertaken, and where we stand. We have our Susquehanna-Roseland line, which is the biggest line that's had the most visibility. That's the line that comes from Pennsylvania into Northern New Jersey. Our Northeast Grid Reliability, which builds up our system in the northeast. Just like I said, is up by the George Washington Bridge area. North Central Reliability is in the center part of our state. Brings some power up into northern New Jersey. And then the reinforcements that we have down in the southern area that are all done outside of Philadelphia. So we'll start with the Susquehanna-Roseland. Last year, I sat here and told you about some of the challenges with the permitting. Well I'll tell you what our 2 major challenges are this year. The first one was a line workforce, back to where your kids should be when they grow up. A lot of the folks that were working on our Susquehanna-Roseland line went off and were assisting us and other utilities during Superstorm Sandy. We got to get those folks back, get them back on schedule. When you look at our total schedule, we're within 1 week. We've brought that all back in, we lost a little bit of time during Sandy, but we're within 1 week of our planned schedule. That's one issue. Our second big issue, and another thing you should have your kids think about, there are snakes. Yesterday, we removed 57 copperhead snakes from the project. We take those snakes out, we bring them to snake rehab. We let them relax a little bit. After we're done with our work, we release them back into the right-of-ways. 57 snakes, yesterday, were taken away out of the area. We have quoted the market on everybody who handles snakes in New Jersey, they were working on this project. But -- that's a real tower that's going up on the line today. No more pictures about what may be, no more artist rendering. That's an actual tower that's been built. Our Northeast Grid Reliability project, this is the only 1 of those by 5 major projects where all permitting is not completed at this point. We have 2 towns left to get our permits through, West Caldwell and North Caldwell. We've continued to have conversations there, but we've started work in the areas that we can. So what you see here is a picture of some of our underground transmission work that was completed in the Jersey City area. So, again, execution has started. A little bit left on the permitting side, at the local level, but well on our way to move forward. Our North Central Reliability project, any of you that are down by the Livingston Mall area, Short Hills Mall area, you can see the project being built there along Route 280. It's going up. These are actual towers on the right-of-way. Some real things that have helped us in this. We had low rainfall, last year in the fall. A lot of the swampy areas that this right-of-way goes through were down, so we're able to get in there very quickly and to start to build the line. Those are -- that is, actually, the first 3 towers that you see there, are the new monopoles that are up. If you can look in the distance you can see some of the lattice towers that we are taking down. We're executing on it. Just a little bit of a tidbit for anybody that lives in the area, if you can see, the wires are on the inside of the poles. That's because we're making sure that the electric magnetic fields are dissipated as much as possible as they get to the edge of the right-of-ways. So we stick those lines together, they cancel each other out and they're inside the poles. So, again, good execution. Well on our way on the North Central Reliability project. Burlington-Camden. Under the radar screen, to a great extent. Not a lot of people talk about this project. That's our Burlington yard that you see there. Completely taken down. The transmission's being rebuilt already. Back in there, we've installed a lot of our transformers. All the permitting is completed. Everything that we need to do to site this project has been in place. And we're, again, executing on the installations. And finally, our Mickelton-Gloucester to Camden line, this is the -- this one has not moved ahead, from a construction standpoint, yet. Just because we are that early in the process. But I'd point at to you, if you looked, the major permitting and siting has all been completed. The biggest challenge for this line, and the reason we show this picture, it's built over railroads. So we're going to have to work with New Jersey Transit and Amtrak to get -- to schedule those times where we can actually be in there and working, and we'll have to work through their train schedules and be a little bit of disruption there. But that's the only real challenge that we have left on this project, is scheduling those outages so we can get in there. So things have continued and Amtrak and New Jersey Transit worked with us which is why we have those permitting and siting hurdles behind us. So, a good story on transmission. A lot of execution completed. A lot of the permitting behind us, and now I'll move into some of the things that we're looking forward to, on the state front. As I mentioned to you earlier, and we've said a bunch of time today, the world changed for us in October. With Sandy came through, we had to stop and rethink everything that we were doing. The first thing we're waited on, to get some clear signals from the Board of Public Utilities, was there order on some of the storm best practices that they wanted to see put out across the entire state. So I think they came out with about 108 recommendations or so, that are needed. We're completely aligned with those, there's really nothing in there that is going to cause us a major change from an expense standpoint. Only challenge that's out there is our IT infrastructure, to upgrade that. And that's for all the utilities, we're looking for some more information, some more transparency for all of you, as our customers, so you can see exactly where those outages are. Other than that, a lot of those best practices actually came from our company, and will continue to be implemented as we go forward. So that was the first hurdle we had. The second one was how are we going to deal with the cost associated with our storm. As we've expressed, the storm itself, to restore the power, to get us back up and running, was about $295 million. The way that we've worked with the Board on that is that those cost have been deferred until into a future time. We did that -- that came out in December of 2012, so that order was released. And then just on February 20, just last month, the Board has identified that they're going to have a generic proceeding to look at all of the cost for all the utilities, and determine how they're going to deal with them going forward. So that's a real good sign from my standpoint. Because, again, we think we were very prudent in what we did. A lot of the spend that we had was pretty low compared to some of the -- of our peers. And not only that, but the fact that we're going to have that conversation now is a good indication rather than kicking the can too far down the road. So all good signs, from my perspective, on how we're working together with the Board, on the response to the storm. But that was just getting us done with what happened up to the date of the restoration. Where we responded is the slide that I spent all the time on, which was our Energy Strong filing. So you can see in there that we've got, again, $3.9 billion of spend focused on those 4 core areas. And in addition to that, $1.5 billion in the transmission side. Because that Sewaren switch, as an example, has both transmission assets in it, and distribution assets. So when we raise those, when we deal with them, they both -- both sides of the house have to be dealt with, to do it effectively. A great example of what happens when you don't do it at the same time, when you don’t move forward is our Bayonne switch. Bayonne area was upgraded. Our switching station was upgraded in Bayonne prior to Superstorm Sandy coming through. So our transmission assets, the work was completed. And as a result, that -- those assets never lost power. We had energy at the switching station. But the substation that fed Bayonne, was not raised yet. The work was not completed on those distribution assets, and as a result, they were flooded out. So we do them at the same time. Again, aligned with the policy of what we're trying to do. We'll get everything completed, which is why you've got both the transmission and distribution needs in each one of these stations. And let's not forget, everything that we've got from the Energy Master Plan. So we've got our Solar 4 All extension, which we filed in July. We've got our Solar Loan III program which we filed, again, last July. Ralph mentioned we'll have those -- we expect to have some answers on those by the May timeframe, and we do expect to invest additional dollars in our energy efficiency programs. We've identified about $470 million worth of programs that we'll be talking to the Board of Public Utilities about shortly. So put those pieces together, got alignment with federal regulators, alignment with the policy of the state regulators, but we got to worry about my mom and dad, who are customers of the utility. So we can't just keep layering on. As Ralph mentioned, we've got to look at the total bill. So, when my mom and dad get their bill, they don’t want to be caught -- I want to listen to them. The first thing when we filed the $3.9 billion, my father called me up and said what's going to happen to my bill. Well, this is what's going to happen to the bill. It's going to stay flat. As we mentioned, the market transition charges, the NuG charges that are in our current bills for customers, are going be to rolling off over the next 3 to 5 years. As those prices roll off, we feather-in the infrastructure. We keep bills flat for the consumers. The reaction, so far, has been relatively positive to that concept, as we do that. And we've been able to, we think, have good positive conversations with Board as we move forward with it. So putting all those projects on the table, not going to put a tremendous burden on the customers. If you look back to 2008 and its impact from the commodity prices, we've gone well down compared to the CPI. That line you see at the top is the CPI. So, buy a gallon of milk, buy an electron, much flatter -- actually a decrease in the cost of that electron and an increase of cost in that gallon of milk. So that's the story I tell my mom and dad, hopefully it stands up with all of you as we go through the conversation. We put those pieces together. As we mentioned, this is the range that we have for our operating earnings at 2013, growing from $528 million in 2012 to the range of $580 million to $635 million in '13, all about executing on our approved programs. So that's the end of the New Jersey side of the river. I'll touch just a little bit on LIPA, and what we have on the front there. If you recall, back in December of 2011, LIPA chose us to manage the T&D system, going forward, starting on 1/1/14. The big takeaway for everyone here, the transition is on schedule. The teams continue to work towards that end. We all have been reading in the newspaper, just like you have, about some of the thoughts that Governor Cuomo has about privatization. Some of the thoughts others have about municipalization, some of the thoughts others have about continuing the contract to go forward. The clear signal that we've received, from the regulators and the policymakers in New York, has been to move ahead, to continue with the contract, to be ready to transition on 1/1/14. Just like we talked about, everything at the federal level and at the New Jersey level, we will align our business with what the needs and the policy of the state of New York is. So they remove that, we will align and we're not going to get into a battle with folks over each one of these things. We're moving ahead, we think that the transition is going to provide better service to the customers on Long Island, we've identified 3, 4, 5 things that we think we can do tomorrow, to start to improve things. Just starting with the way we operate the system, the way we trim the trees, the way we communicate with customers. Those things are easy for us to implement, quick hits for us. We think will show big improvement. And those are the big areas that, again, the policymakers in New York have identified as needs for their consumers. So all -- the whole story starts with and ends with an alignment of our interest with the policy that the state and the regulators put together. With that, let me turn it over to Randy.
Randall E. Mehrberg
Good morning. I'm going to speak with you about Energy Holdings this morning. We've made a lot of progress, at Energy Holdings, over the last several years. Most of the large problems or large issues are behind us. Holdings is much simpler today than it was a few years ago, and my goal this morning is to make this very clear and transparent for you. Our focus, today, as we continue to move forward in Holdings, is to continue to de-risk the portfolio, to exit the non-core investments and maximize the value that we realize from those investments, to build our contracted renewable solar projects and to pursue other growth opportunities. So Ralph just spoke about LIPA. LIPA will reside in Holdings because obviously LIPA cannot reside in PSE&G. Although the Utility folks and the Utility experts will run it, structurally, it'll be in Energy Holdings. So this chart depicts what holdings look like a few years ago and then what's left today. Everything on here is depicted in book value, so you can take a look at it from that perspective. If you look on the left side of the chart, on the top, the LILO/SILOs, we've exited all of those. They're completely done. The international investments, we've exited all of those as well. Scott Jennings did a terrific job last year, in exiting the last investment in Venezuela, which was a little bit of a challenge. With regard to our domestic power plants, we have only 1 operating plant left. That's a combined cycle in Hawaii. It's a good plant, it runs well. We like the plant. So it's something that we may decide not to sell.
Randall E. Mehrberg
Thank you, Ralph. Ralph is not. He's a little -- well, I won't comment any further. And most of the real estate assets have been sold as well. We sold the Qwest Tower in Denver about a year ago. There is some miscellaneous real estate, some more office complexes. We have the Renaissance, a couple of -- 2 towers of the Renaissance Center in Detroit left; and some other facilities, about 28 Wal-Marts, I think it was 29 yesterday. So what have we done with the proceeds? We've paid 100% of the Holdings level debt. Back in 2005, that was almost $1.8 million in debt. That is all paid in full. We've paid the Internal Revenue Service in full, with interest, on the LILO/SILO claims. Indeed, we'll be getting a refund in connection with that. We've invested in the 6 solar projects. And we've returned almost $1 billion to the Public Service parent. No new money has been invested or sent to Holdings since about 2002. So, since that time, all the money from Holdings has come to Public Service, to the parent, as opposed to the other way around. So what do we have left? It's $1.2 billion in book value assets. The box to the far right lays out what they are. Solar Source, on a book value basis, has about $159 million in solar assets. We invested about $240 million, but because of the ITC, the Investment Tax Credit, a lot of that money comes back to us very quickly. We have the merchant energy leases, with GenOn and Edison Mission. Regulated energy leases, that's our 11% interest in Entergy's Grand Gulf Nuclear plant. We have a reservoir, things like that. And then we have the remaining real estate that I mentioned, things like a couple of office, parks, shopping centers, strip malls, the Renaissance Center Towers, things like that. The generating legacy assets, that's just the Hawaii plant plus we're in the process of winding down a California plant, so there's a little bit in there, that'll be pretty much completed this year, and then some miscellaneous assets. Some of these assets are challenged, most particularly the Edison Mission merchant leases. And then some of these assets are very nice, like the Grand Gulf plant which is on leveraged lease, which will end in 2015, there'll be no debt when that lease ends. Like the plant in Hawaii, like the Renaissance Center and the reservoir. So a couple of challenges and some opportunities as well. So where do we go from here? We think we've demonstrated a good track record of de-risking and moving forward. We are confident that we can continue along those lines. I can't control the timing of some bad things that may happen. For instance, the Edison bankruptcy. But as you look at the portfolio go forward, we've had as many or more good things in the portfolio as bad, and we expect that to continue in the future. And then, at the same time, we're investing in things like our solar facilities and our LIPA agreement -- our LIPA management. These are our solar projects to date. We're very, very proud of this portfolio. All of our projects were completed on time or better. All of our projects were completed on budget or better. All of these projects have long-term power purchase agreements with the creditworthy counter-parties, and all of these projects are performing well. The bottom right is our Badger project. We expect that to come online near the end of this year. And we continue to look to develop additional projects. By the way, the slides that Ralph showed you earlier, and slides that Caroline will show you later, do not have any assumptions, go forward, with regard to solar. So anything we're able to do in the future will just be a positive. But we didn't bake -- we did not bake, into the plan, additional solar projects simply because we don't know when we would secure them, when they would come forward. So we're conservative and they're not baked into our plan. With regard to what they're producing for us. This is the EBITDA with regard to the solar projects we have in place. This year, we project about $12 million in EBITDA. But on an annualized basis, if you looked at this on an annualized basis, it would be about $16 million because the Badger project comes on very late in the year. So what this means is, irrespective of any new projects, this is the level of EBITDA that is in these solar project, and these projects have a minimum of 20-year contracts, have contracts as long as 30 years. And this, of course, is also irrespective of the Investment Tax Credit. So I know, in the call last week, some people asked about the impact of the Investment Tax Credit. That's on top of what's here. Again, that's lumpy as you do a new project, but that's not reflected here. So if we were to stop doing solar tomorrow and not have a team anymore, this -- which is not what we're not going to do, this EBITDA will continue on a go-forward basis. And that's pretty much it. I hope I was able to make this Holdings story simple and clear. I think we've reduced and bounded the risk, and I think our future will be nice but modest growth through things like additional solar projects, the LIPA contract and other growth opportunities that we think makes sense for us. So Ralph and I are happy to entertain questions.
Randall E. Mehrberg
Thank you. Ralph, I'm curious it seems like the estimate of the costs, the storm, and obviously your restoration efforts were fantastic, and we give thanks for all the detail on that. But the cost estimate is coming from what the numbers were initially being discussed to then where they kind of shook out, seemed to move quite a bit. I'm just wondering what caused that. What caused the kind of incremental expense over kind of the extrapolated type of numbers you may have had initially?
So you're referring to the rebuild cost that go out to $3.9 billion?
No, more the actual cost of restoration.
I think we came out -- I think we were pretty much within in the range that we had identified. Right in the beginning, we talked between $250 million and $350 million, and we came it at $295 million. So, on a per customer basis, you look at that from a prudency standpoint, that's why I think it's all. But my recollection is, we, right from the beginning, were between $250 million and $300 million.
Okay, that was a misperception on my part. Thank you.
Going over to the Holdings side of the question. Just when you think about the cash flows over the next few years, is it a net outflow back to the Public Service parent, sort of pre-ITC and post-IPC? How much cash can we expect to contribute?
Randall E. Mehrberg
It really depends on a host of factors. How many assets we sell. We have a signed purchase and sale agreement for a medium-sized office park right now. So that would be an inflow of cash. If the Edison Mission plants -- if Edison Mission rejects the leases, that would likely trigger a tax liability. So that would be a cash outflow. And then you have the recurring income that we get from things -- right now, we have a lease arrangement with Entergy, on Grand Gulf, so we get a nice payment for that every year. When the leverage lease expires, we can either renew the lease or sell the interest to them or somebody else. So there are a whole bunch of variables. But on a net-net basis, what we've experienced is that there were at least as many positives, from Holdings, as they were negatives. And we've been able to manage all of the obligations through Holdings. And I would expect something similar to that in the future, but again, I can't control the timing. I don't know that -- for instance, if we sold our Grand Gulf interest, I don't know that, that would coincide with a potential problem at the Edison Mission bankruptcy.
And then maybe a follow-up there, just in terms of the earnings trajectory. Sort of net of all these factors, what do you think over the next few years if you think about it?
Randall E. Mehrberg
Right. So, Caroline gave you a number last week, for Holdings and Enterprise, for this year. And I think the range was $25 million to $35 million. That's a good number. And again, that's subject to certain things. If we sell certain assets, we won't have the continuing income, but we'll have the money from the sale. But we have enough good assets, such that the number that Caroline gave you is a good number.
Caroline D. Dorsa
Ralph, could you talk about your load growth expectation, 0.7% at electric, 0.2% is gas, and why is that above the historical actual growth expectation. So are you forecasting a pickup in low growth?
So, just a couple of things there. If you look at the total customers that have been coming in, we've been at about 0.6%, right? So we get a little bit more growth on the electric side, on a per household basis or customer basis. So that's just a little bit of a tick there. You actually lose ground compared to the amount of customers you add on the gas side because you have that energy -- basically, every time you upgrade a furnace in a home, it's got a higher efficiency. So we're really not adding any products on the gas side of the business. The electric side, we still got the iPods and the new TVs and the new things that are plugging in everyday. So a little bit of a tick there, but it's really driven by the customer growth levels.
And on FERC ROEs. Could you talk about that and all that, especially going on at FERC, about base ROEs?
So, sure. We're monitoring what's going on at FERC. I stick by what I said in the beginning, which is FERC has sent a clear message to folks, they'd like to invest. We'll see what comes out of New England. When? I guess that's in the September timeframe. There'll be some conversation there, we'll be monitoring it. If there's a single sent that, going forward, there should be a change in what our investment pattern should do. We'll take a look at it. But right now we're just -- all those programs are approved and we all have those our ROEs for us. So there's no big project that we're waiting to go into FERC and to get approval on.
11.18, and then we got a 50 basis point adder for being in the RTO, which gets us 11.68 and then any adders for -- like we did for Susquehanna-Roseland based on the complexity of the project.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Ralph, Michael Lapides, Goldman Sachs. How are you thinking about rate case timelines when you come back in and file? That's question one. And question two, are you expecting pushback from intervenors or the commission itself about filing the Energy Strong Program under a rider or a tracker mechanism versus just the traditional take? A lot of this work is on gas main replacement, a lot of this work is stuff that some folks might feel as core. Why don't you just find it as part of typical rate base growth of the distribution utility?
So first piece on the rate case, our current plans do not have anything in there in the near term for a rate case. The way we've been managing the O&M has allowed us to stay out of that type of situation. Because we have some growth from our other -- some parts of our business, so our client service business, which we really don’t talk about a lot, has also been growing and offsets some of the expenses that we get. So if you just look at our electric and gas distribution, we're right at -- we've been earning our allowed rate of return. So we don't have any more detail there, it's right about where we need to be. For the intervenor status, as we go forward -- and one other piece, if you go back to the rate case. We've been managing our base capital spend at depreciation level. So you put the 2 pieces together, your expenses staying flat and you've got your capital at depreciation levels, we been trying to manage the business right at that lateral ROE word. Just flipping over to the intervenors and what -- I absolutely expect people will pushback. I mean, that's what happens in all these processes. And then at the end of the day, we'll find a place that makes sense for the policymakers. If you look again at the history that we've had on the solar, there was pushback there. There was pushback on the energy efficiency. There was pushback on the CIP, the capital investment program. All of those though good conversation that we have, but the policy is what drove the day. And I believe that Governor Christie has been very clear about that need to rebuild New Jersey better than it was and to rebuild it in such a way that it matched against those scheme of flood maps, and that's exactly what we've put on the table.
Michael J. Lapides - Goldman Sachs Group Inc., Research Division
Would you do a -- quick follow up. Would you do the same size and scale of a program if you didn't get the tracker?
I think we'd take a hard look at that. I'm not sure we would be making an investment of that magnitude without a tracker at all. I mean, there's just -- if policymakers want us to do it, this is the way we do it, and this is the way investors will want to see us do it, if there's no tracker, it's not going to put that type of money at risk for a future rate case proceeding, which is -- doesn't make sense to us. Because again if you want to leave the reliability where it is, that's fine. But if you want to raise it, and to be able to deal with the storms that we've had and to meet the desires of the policymakers, then we need the certainty from the contemporaneous return.
Kathleen A. Lally
Ralph, I just want to mention, I think what you're doing is exactly what is needed because I think that the infrastructure over here in the U.S. is really poor. And the European utilities see us. As they come, they laugh at the U.S. infrastructure. And I think those people should be paraded to the Governor as well as to the regulators, especially in New Jersey, that how they view the U.S. as being such an inferior infrastructure. So I'm very, very happy that you've taken the stand. And from a shareholder perspective, also, if the regulators don't give it to us, then they shouldn't complain. Because investment is needed to improve the service, and we lose so much time and everything, especially this last hurricane. It was an eye-opener. And it's an eye-opener, and if the regulators don't answer and the governor doesn't support us, then as the governor says, they should shut up.
Can I just add 2 things to that? No, no, no, they're all positive. Just from an infrastructure standpoint, I do know some people look at our infrastructure and say, why does the poles fall down and everything else? We have to remember those poles are built right along the roadways, so, yes, there may be better ways to build concrete and steel, but our -- the way our planners and our city planners laid things out long time ago, they were constructing nearby, so you have to -- you can't make steel poles and concrete poles show up next to roadways. So I do understand some of the things that elders say, but there's some good reasons for why the infrastructure is built the way it was. I'm sticking up for my predecessor, Ralph. And then the only thing I'll say, look, Governor Christie has been very good, very supportive of the state. He has been very clear in what he said about rebuilding the shoreline. He didn't want anybody to rebuild their home, to raise it without certainty that they were going to have funding to go back to. That was a statement that was clearly made when they talked about changing the standards. That's exactly why I think the policy is aligned to what we're trying to do.
Ralph A. LaRossa
I'm proud of New Jersey, so it won't be right.
Gregg Orrill - Barclays Capital, Research Division
Gregg Orrill, Barclay. As you thought about the proposal for the Energy Strong Program and you came to $3.9 billion, what was kind of the -- what you could have proposed? I assume there was a much bigger number.
So everything that we proposed in that $3.9 billion was based upon those 4 pictures that we showed you. The overhead, we could go higher because you could rebuild loop systems and you could continue to deploy smart grid. So that's where there's greater opportunity. We've identified and what we think we need to do immediately are in those substations and switching stations. But long, long term and they continue to grow, you could quadruple the numbers that you've got on the overhead side.
Kathleen A. Lally
Any other questions?
Ralph, just a follow-up on the FERC issue. Have you spoken to BPU if they're giving any indication about what they think is a fair return? Because they're participating on a 206 against ACE, so I'm just curious if they're going to kind of go after holding ROE in the state?
I -- we have conversations, but that specific one hasn't come up. We haven't had conversations with the BPU about that. I think that if you read through that, the 206, there were some other things in there about transparency in the process. We've gone through that. We've been very transparent. We have our meetings all the time, so I think we've been holding good productive conversations all along.
Kathleen A. Lally
Anything else? With that, we're going to move to a 15-minute break, and we'll be back here for Bill Levis and Shahid Malik. Thank you.
Kathleen A. Lally
I am going to ask that you find your seats. We're going to begin in just a few seconds. We're going to resume in a few seconds, I should say. Thanks. You've got enough -- do you have enough water up here? Can I ask that you take your seats? Thank you. Good. Great. We're going to resume the presentation. Bill Levis, President and Chief Operating Officer of PSEG Power; and Shahid Malik, President of Energy Resources & Trade, will provide you a very thorough update on Power's operations and financials, and outlook for the market. Turn it over to Bill now.
Well, thank you, Kathleen, and good morning, everybody. I am not here to announce the $3.9 billion building program with Power. What I am going to talk about though is a number of the competitive forces and challenges in our business, and let you know that we're not afraid of one of them. And in fact, we believe in competition. We think competitive business are a good thing, and I think we're in pretty good shape to face whatever those headwinds may be ahead of us.
Now why are we on the wrong slide here? So I want to amplify more about what Ralph talked about in his slide, but -- so the simple Power strategy and focus is to ensure that we get the most out of the assets that we have and resources under our control, and those include the power plants that we operate and also the people that work for us, and do so in a safe, reliable, economic and environmentally responsible fashion. And I'll show during the course of the discussion this morning that we have made progress in all of those fronts.
So what do we do in PSEG Power and how do we add value and create value? Two points I will make up top there, is relative to regulations, we try to ensure that we have a seat at the table and can influence and shape regulations going forward. We talked an awful lot about being a deregulated business, but that couldn't be further from the truth relative to all the help we get and the various regulatory agencies. And rules matter. Rules are important, and we want to make sure we have an active voice in helping shaping those move forward.
The second point I'd like to make is, we don't try to predict markets. And we position ourselves, so that we can take advantage of what the market presents. We position ourselves to make sure we manage the downside and lever ourselves to the upside. Because I haven't found anybody here that can predict the future, and our industry has a long history of being wrong. And -- so it's not about looking forward and taking a stake, it's about managing everything that could possibly happen to us. And we truly do practice in all of the above strategy. Folks talk about it. We do it. We do it every day, and that's about adding value in each of those pieces. We recognize in order to have that seat at the table, in order to be an active player, it starts with safety. It starts with strong regulatory performance because that's the only way you can be credible with the public and with the regulator if you're not running a safe operation. The fleet diversity that Ralph mentioned before, we have assets up and down the dispatch curve, and most of those assets can run on dual fuel. And whatever the market presents to us is the way that we'll operate our plants. A couple of small notes here is we do add incremental megawatts along the way. On the nuclear side, Peach Bottom completed its steam patch retrofit in the last year. That was a 28-megawatt effort altogether. 14 of those last year. 14 of those the year before. The combined cycle fleet that Ralph referred to before, record generation last year, that was with our Linden plant unavailable for 2 months of the year. Even in that case, it was an 8% increase in generation year-on-year, and just steady increase in production over the years. 400 megawatts of new peaking added. And in fact, those megawatts were added on essentially some of those units 1 year ahead of schedule and on budget. The first day that they were offered to the marketplace, they were taken. And in fact, those units at Kearney operated at greater than 12% capacity factor last year.
I'm going to talk a little bit going forward about how we've delivered on the O&M side, to manage the business and what opportunities are available for expansion going forward. So I push this, and there we go. So if I stood in front of you last year and talked about our business plan, which if you've seen our business plan, it has a lot of normal stuff in it. We assumed normal weather. We assumed normal operations with our power plant transmission build and the like. But if I told you that we would have no winter, that we'd have significant transmission outages and build, that we're going to challenge spaces, that we're going to have 6 weeks of steaming hot summer, followed by a storm that took out half of our generation, and we were still going to meet the upper end of our earnings guidance, you'd probably thought I needed to be replaced. But in fact, that's what happened, and that's what we did. And we did that by essentially acting everyday to what was presented to us. So and when we saw there was going to be no winter, we essentially enhanced our seasonal dispatch model that we added earlier in place for our coal plants. And as we looked at our coal plants, we know what maintenance is needed to be done for reliability purposes and efficiency purposes, which is condition based and time based, and we're able to pull the levers and the triggers to defer what didn't need to be done based on what we predict then would be the run rate of our coal plants. We're also able to take our people, so we need about half the people to run our plants on gas that we do with coal and dispatch those to other sites to displace contractors or combined cycle outages and also support of our nuclear plants. All told, those effort in our fossil area saved us $50 million during the course of the year.
Our Hudson plant ran on gas 2/3 of the time last year, 1/3 of the time on coal. Our Mercer plant ran 2/3 of time on coal, 1/3 of the time on gas. As you see, availability numbers increased -- improved, and they improved when it mattered the most, that's when the prices were the best. And in little things like we saw with no winter, then we keep oil for winter operations primarily because sometimes there's shortages of gas and we have that alternate fuel capability. We're able to monetize some oil sales, balance our coal sales. We have a favorable contractor sales and one that requires some delivery. So between the 2 of them, they would offset one another, so there was essentially no impact on coal last year with some minor benefit in oil sales. And I'll talk a little bit about the storm recovery in a couple of slides.
So our assets come -- exist in 3 competitive markets. We happen to be believer in competitive markets, and we think there are real benefits to competitive markets. And so just a little bit about the assets here. So essentially 1/3 of our units are baseload units. That's our nuclear plants. You see it in the south of New Jersey and also Eastern Pennsylvania with Peach Bottom, and also Keystone Conemaugh plant, of which we're about 23% owners. Our mid-merit plants are 42% that we have available. That is essentially Linden, Bergen, Bethlehem Energy Center, Mercer and Hudson, a combination of combined cycle and coal plants, both -- all of which are dual fuel. And then up in New England, we have Bridgeport Harbor, which is a coal plant that many folks thought was a bad thing to have because we were the only coal plant in Connecticut. And we predicted for some why that would be a good thing at some point, and it certainly showed that in the last couple of months where there were some challenges with gas supply and the like, and that little coal plant that allowed to keep the lights on or up in the particular area. I just wanted to highlight 2 little things, and these aren't big dollars but it's a reflection of what the organization has been able to do. Our New Haven plant up in Connecticut is essentially a 455-megawatt oil-fired plant. 2 years ago, we were able to convert that also to a gas-fired plant, so it has the opportunity to run in gas at about 200 megawatts. And last year that was called to run 61 times, 61 times we met the bell as that unit successfully started in on line. Our Sewaren plant is an old steam plant, in fact, 65 years old, and gas-fired end or oil fired. And last year, it was called to run 62x, and it met the bell 62x. And in fact our Sewaren plant has a string now of 248 consecutive successful starts. And I'll talk a little bit more about that plant and the storm recovery, but our organizations sure wants to make that 249. And I'll show later on that we did put up notices that ATDD units would not be available after the 2015, '16 time period, and you actually see how those -- the heat rates improved from our organization as a result of that.
So at the heart and the foundation of what we do is our nuclear operations. It's core to our business, and a predictable and a reliable source of a generation. This allows Shahid and his group at energy trading and resources then to have that as an important part of our hedging profile going forward. This predictability piece is essential for that to work correctly. We've had 8 consecutive years of greater than 90% capacity factor, and top quartile performance in the cost -- in generating cost arena. And certainly, we recognize the challenges and economic pressures in this particular area, and we know the particular challenges some units face. But I would tell you, large capital spend for these units is behind us, absent some regulatory risk potentially moving forward. And these are large units located in the right place, with the licenses that have been extended, so we think we're fairly well positioned for the nuclear future here. These units have 3 outages per year: 1 in the spring, 2 in the fall. So it really does form the basis from our planning, from our cost standpoint, and also Shahid will talk about our hedging profile.
So the -- essentially, I would say the risks that we manage going forward are associated with our operations and made a lot of progress be top quartile in many of the areas that matter here in the nuclear business. And going forward, it's a function of how well we manage our regulatory risk with some impending regulations. And I think we're in pretty good position to do that. The bottom bullet that I'll expand on a little later is we are active and have a seat at the table where it matters. And I think we're making a real difference in how these rules shape up. Going forward, we do have an investment. In fact, our biggest investment is in the Peach Bottom uprate, 130 megawatts, as you see, in service 2015 and 2016. That project is progressing on schedule at this point.
On the fossil side, so the headline there is steady improvement. And I think a lot of what we do just shows that we're continuing to make that steady improvement. And these are just 2 indicators that I highlight. EFORd is effective forced outage rate, and you'll see over the -- since 2008 to '12. And frankly the reason we highlight '08 to '12 is because of the changes that have happened during this period of time. When we went from a predominantly nuclear coal little combined cycle to nuclear combined cycle and a little bit of coal, and how we were able to change as the business changed. So that's 200 megawatts of additional capacity just by improvements in forced outage rate. And as we talk about energy efficiency in our business, the most efficient plant is the one that doesn't have to be built. And so we will continue to look for those opportunities in our power plant, and I will tell you the day we find another one.
The bottom slide is something we refer to as EFORp. You may or may not be familiar with that, but we look at that. This is essentially your forced outage rate during peak periods. And this -- and it's measured at specific times in the summer and the winter. And this is a 0 sum game, so to the extent that you do better than everybody else, you get a payment. And to the extent that you don't, you pay. And so we have made steady progress in this area in 4 consecutive years now, and we have been paid because we've done better than our competitors in this particular area at having our plants online when it matters the most. And you can see last year, this number was 0.46%. So this is -- having that -- understanding what you think the market's going to need, having close coordination and cooperation with our trading and fossil organization, so that if there's an outage needed, you do it at the right time. But most importantly, do you have your unit available when it's needed the most?
In the combined cycle area, it certainly has been a keen area of focus for us lately, given the amount that our units have been running and what we see where the sparks spread in particular. So this represents an operating heat rate, and so before you look at that number in the far right and say, wait a minute, I know units out there that are 6,800 or so, that would be full load heat rate. That's not what this represents. This is an operating heat rate, which represents how the unit is run and dispatched every day. I would tell you from a full load heat rate, we improved that number almost 150 BTUs per kilowatt hour last week, but the unit doesn't always run at full power and, in fact, usually runs many times of the year someplace in the middle. So we had a significant work done last year to improve the operation in this particular area. And what we balance there is margin we get from an energy perspective versus margin we can get from other ancillary services such as area regulation. I think this is an area Shahid will touch on, where we saw the rules changing in this area. We saw competition from things like batteries, flywheels and whatnot. So we made some modifications to our combined cycle units, so they could be faster responding and follow the demand curve much closer. And we were able to take advantage of that opportunity when the rules changed in the October timeframe. Just for an item reference, the 1% improvement in heat rate's worth about $5 million. And so you see this period of time, 3.2% is about $16 million of just opportunity for us. So that talks about the heat rate program. We have also brought a lot of people in our organization, so the training program is important of how we train people to do rounds, how to monitor equipment, respond to alarms and the likes, so that we can take quick and timely action to ensure our power plants are reliable.
I put unit testing initiative on there. We have to do environmental -- about 200 or so environmental tests on our units every year. And finding the time to do them is -- creates a challenge and opportunity for us. If you do this testing, when you're out of the money, you actually have the potential to lose money while doing this testing. So we have made considerable progress with cooperation and coordination between the trading organization and the fossil organization to minimize the number of tests that had we do to, so we're able to combine some, to shorten the time, become more efficient in doing them, and then doing them at the right time. And over the last number of years, this has been $6 million or so plus of advantage for us of other cost that we didn't have to incur. And from an outage standpoint, we know what the top quartile and benchmark numbers are. We beat those and -- due to considerable work to improve the efficiency of essentially turbines and condensers, which are a lot of the heat rate opportunities.
So let me talk a little bit about Sandy, and we had a pretty simple goal when Sandy occurred. We knew Ralph and his crew were going to do a terrific job of getting power back, but we want to make sure the power plants were there to support it. I also did not want the opportunity to have to appear on television to why there weren't available. So I was going to let Ralph and Ralph handle all the press. Our simple strategy is stay off the radar screen and let's get these power plants back. So if I back up just a little bit to -- we have a little over 10,000 megawatts available in the New Jersey area. We had some outages on plants ongoing at that time, namely our Salem 2 units. So as part of our preparation, we had to do essentially significant work to be able to get that plant and the place where it was a good time to stop, staff up that organization. It was essentially to shifts of folks that would be available around the clock, and then send 1,000-plus people home and hoping that many of them would come back. And I thought the organization did just a terrific job of being able to prep for that. And when the storm came, there, and in fact, was a significant wave and surge of water that impacted the intake structure that caused number 1 Salem Unit to trip.
On the fossil side, we did significant prep work also. We thought that we had learned quite a bit from Irene the year before because we did experience some flooding in our sites. But I would tell you, we were not ready for the 4 to 6-foot wave of water that engulfed our sites. And we have many, many pictures to show how high that water level came up, but essentially basements were flooded, plants were flooded, and so it's a significant challenge on our hands now how are we going to recover. So you see on 31 October, we lost 4,500 megawatts of generation. And now that was a matter of what we're going to get back? How are we going to get it back, so that, as Ralph restored the system, we had the right plants in the right location there to be able to supply load to the customers? So fortunately, this wasn't the first time that we had to deal with outage readiness. We've been well versed in doing outages before, doing scope evaluations, work evaluations, planning works. So our outage command centers at both fossil and nuclear were meant to be able to do quick assessments, to have an understanding of the extent of damage. And remember this extent of damage is being done where there is no power, no heat and then no light at night. And then so we developed a strategy of what we were going to recover and when. And during the course of that, we were able to get plants back in sufficient time to meet the needs of customers and the grid in our area. So you can see how Salem 1 came back first. There was a just some minor impact at the intake structure that needed to be repaired. But some of that was we needed to get the divers to be able to go do those repairs for us. And our supplier organization, I'll tell you, did tremendous work to go find the things that we needed, whether it was divers, generators, lights, spare parts, motors. I think the government could take a lesson from our supply folks on how to get stuff towards Eden and get it there quickly. But Salem came back, followed by some of our Linden peakers and our Kearny peakers. Kearny 13 and 14, in fact, were the new peakers that we just put in service that June. And they were both on higher ground, so we saw an opportunity to get them back sooner. And then the other Linden units, we finished the outage on Bergen 1, Salem 2 then came back. So I talked about having to send all those people away. Now we had to bring them back. So we had to recover Salem 1 and get that outage back on track. And there were some impact of the outage, but I'll tell you when all is said and done, that refueling outage at Salem, as measured against everybody else, still ends up in the second quartile. Not so bad when you got a storm that impacts you right in the middle of it.
Now we also thought that Linden would be available on November 30, and in fact, had both units spinning the turbine, getting to sync it. We had essentially a bow and a rudder. So we had to take that machine apart, ship the rotor off, get it straightened out, and we got essentially that back and the Linden unit back in service in early January, just before the cold weather hit. Our Hudson unit was in outage that time. Another place that took 5 feet of water on site. And recognize when this water comes on site, this isn't the most pleasant stuff to be deal with. There's various health concerns and the like that have to be fixed before you can actually send the folks working in a safe fashion. But Hudson plant, we got back on gas by the end of the year. We just got it back on coal within the last 2 weeks. So you can see what it is that's recovered at this point. I will tell you there is still work to do to get essentially these units back to what we would call pre-storm conditions, because we have some systems working but they're not working as well as essentially ancillary systems and the like as we would like. The spend that got us to this point was $85 million. And if you saw, we have $19 million in insurance recovery, so that was a net spend last year of $66 million. We have a similar spend profile this year. Obviously, I'm not going to estimate what the recovery is, and Caroline will talk a little bit more about that, and what we expect operating earnings to look like in '13. But essentially our challenge at this point is to essentially get the level of spend commensurate with insurance recovery, and then make some decisions relative to some units that are not repaired yet. And if you look up there, you can see 2 sites, in particular, our Essex sites, units 11 and 12, and our Sewaren sites, that we are making progress restoring although that progress is basically supplementing the detail work and analysis about what's the work that needs to be done and then the insurance claim that follows it. So we have a number of options going forward, because there's a way to manage spend $85 million, get $85 million more, and that's not what you said your insurance claim was. And we're going to follow this process all along, try to manage spend commensurate with recovery, and then we have some decisions to make. And some of those decisions are depending on insurance recoveries. And there are various options. Insurance recovery may offer us a cash-out value, we just don't know how much that would be. Insurance may say you have to repair. So if we repair, you might ask me, why would you repair unit that's going to retire in 2015 anyway? Well, I might do that because the salvage value is worth more. Or maybe that unit, those get picked up for a black-start RFP that's out there. Or maybe that money had to be invested in something new. New could be an upgrade of existing units. New could be some other kind of power plant. We just don't know all those rules yet, and we're going to follow that process along. And like all decisions we make, we'll do it in a disciplined fashion. And so managing the storm recovery is still a big item on our plate this year. And our folks are keenly attuned to any reliability challenges that might present, too, because we made some repairs. And as Ralph talked about, using toothbrushes and the like to clean out contents. We did a lot of those same sorts of things. And in the long-term, maybe it is better to just replace the device and wouldn't be making those decisions as we go once again commensurate with insurance recovery. We're also using this opportunity, quite frankly, to look at other practices and reshape the business. How do we do warehousing? Was our previous practice in how we warehouse materials the best, because in that number that I quoted was about an $18 million impact on inventory? So as we recover that, where do you want that? How do we want to do it? How can we get more efficient in that process? Likewise, damage to machine shops. So it gives us a chance to look at how many do we need? Where do we need them? And what's the best way to do that business going forward also?
This is a slide I like to show to many audience because it shows how you can invest in generation and produce more and emit less. And in fact, that's what the company has a history of doing, and this particular one shows sulfur dioxide and nitrous oxide. And there's a note on the bottom about mercury. If you look at just our plants, the PS-owned and operated in New Jersey, that would be greater than 95% removal for mercury. The outstanding item there, which is driving that number right now, is the Conemaugh site that has an SCR project underway due to be installed in the 2014 time period. We're well positioned perhaps. And don't know when that regulation will get in place or know how it will be challenged in the court systems, sooner is obviously better for us, but we're ready for it whenever it comes.
So just a little bit on our O&M and essentially how we've been able to control and manage costs.
So a couple of items, the asterisk up in the right, since this is with storm cost. So if you look at 2012 in particular, we were able to absorb $66 million of storm cost, because we have saved $50 million-plus in fossil with nearly a tick up in our total O&M spend. In 2013, also includes storm cost. So some of the things we've done throughout the year -- and you just think throughout the years, we were essentially -- we transitioned from coal operations to combined cycle operations, so how are we able to do that? Is on we did, obviously, assessments of both technologies: understanding the basis for the corrective maintenance program, have an asset management plan, and knew what components need to be replaced and when, which needed to be replaced on a time basis, which one needs to be replaced on a condition basis. And so when those conditions change, we are able to alter the investments and spend from our coal plants to our combined cycle plants. There are lots and lots who talk about negotiations that helps us, obviously, considerably going forward. And we know what the -- our labor costs are going to be.
On the material side, you may or may not recall, we talked last year about changing our approach in the maintenance of our combined cycle units, where we had a CSA, an agreement with General Electric to do maintenance in our plants, where they also own the parts. We changed that process so that we own the parts now and we do the maintenance. And we're seeing some near-term benefits in -- of that particular approach. As our people do more and more work, also gains a better understanding of how the machine operates, which helps us. And as we're doing outages on these machines now, we're doing additional expansions that will extend the life of this combined cycles for the next maintenance period. We're looking to do that same effort with our LM6000 this year, to transition from the CSA to a PSA, a parts and services agreement.
On the nuclear side, we completed the productivity study, remember 2 years ago. And this was essentially an effort to armor supervisors and managers with the tool to make sure that the folks working for them are the most productive, so there's specific measures in place that tell how well their crews are doing and we can compare one to another. This year, there's a refilling initiative underway. And if you look at refilling performance, it's in the top quartile but we recognized this is -- obviously one of the big drivers to things like capacity factor and O&M costs, and the industry, as a whole, has seen in a number of days increase and we're going to turn that around. And so we have focused attention and help from some key players to continue to improve performance in the -- for refilling outage area.
So relative to opportunities going forward, we just try to keep as many options open as we can. And so we have done site studies at all our locations to know which sites are available for expansion, whether that expansion is just on operated existing units or whether that expansion would include a new unit. We are going to continue our heat rate improvements on our machines. We did an efficiency study completed last year on this. We have realized 2/3 of the benefit at our Bergen plant, half of the benefit at Linden. We're going to realize the rest of that this year and take that to our existing combined cycles and then our coal plants also, because we realize there some synergies there, too. So heat rate improvements will continue, we have basically the headroom to do that as there's additional megawatts come out of that, reviewing opportunities to operate our units. And then just keeping alive what would it take to build and looking for those right market conditions or whether -- or whatever those might be to keep that option on the table for us.
So just a before and after of our fleet from today until the 2016 time period. 2016 just represents one of our HEDD units will be retired. And you can see a couple of things. One is fuel diversity is maintained. Two, our ability to manage full-service requirements is maintained, so up and down the dispatch curve. The fleets heat rate -- and this includes nuclear improves by 6%, if you break out just fossil, that improvement is 9%. And it's about heat rate and efficiency that gets you the opportunity to generate more also. And if you look to the right, you'll see that borne out in the fact is that there will be no reduction in output from our units from an energy production standpoint.
So I talked before about helping to shape the rules in our business, and I would tell you we do have a seat at the table at the right places, and are recognized as a leader in our business. These first couple of areas: INPO, the Institute of Nuclear Power Operations; NEI, Nuclear Energy Institute, EPRI, Electric Power Research Institute; BWR Owners Group, they're primarily nuclear areas, where essentially the basis for rules and how they're implemented and then -- and standards of excellence are established. So fundamental to potential cost drivers in our business and we're actively involved in each of those, from Board of Director positions to some very important ones that may be off your radar screen, but we pay attention to. If you look at the Chair of the Emergency Preparedness Working Group, if you look at the Security Working Group, and some of the near-term drivers of cost in nuclear business are in security and emergency planning. So we want to make sure those rules get right, so that in the near-term, there's not a potential impact that there could be if those rules don't get established of where they could or should be. And obviously the Fukushima part, a lot to play out there yet. There's a lot of activity going on. We filtered them on when they'd be required, will they not be required. I believe what you'll see there is a more measured approach in that grown area and something like rule-making will happen, and which will allow us more time to give input from most stakeholders so that the right actions are required going forward. That said, when we look at some of the design features of our site, I think we're fairly well-situated for some of the profound changes that could come this way. But obviously, a lot of work to be done. We just followed our Tier 1 responses yesterday that were due, and we'll see how this issue plays out in the week -- in months ahead.
The U.S.A. Alliance is an alliance of single-site nuclear operators that keeps the benefit of fleet operations without the additional overhead. And so we're very, very active in there, in fact, chair it. So these are nuclear plants all over the country that share best practices, indicators and the likes. So we have a good understanding of where we are and where the improvement opportunities are. Not up here but also in the fossil area, we're key players and things like the 3 16 de-argument with [indiscernible] with leadership positions there. And Shahid will talk a little bit more about what we do with PJM, New York and New England, ISOs and the like to get the market rules right, so that we can be successful in those environments.
But you can't be a leader in this business without having the credibility of solid operations. So we always go back to, you got to pay attention to business each and every day, so that you can have a chance to have a seat at the table. So what does this mean is we look to add value every day in what we do. And gone are the days when we just needed to show up so you can make money. You make money now by being a leader in the business. And I think the numbers up here show that we do that, and everyone of these things are opportunities for us. And at the end of the day we're looking for every megawatt, every dollar, every day in a safe, reliable and economic responsible fashion.
And with that, I will stop and let Shahid talk about how we take these assets that I've talked about to market and even get additional opportunities from those.
Thank you, Bill. Good morning, everyone. I'd like to add my very warm welcome to you, and thank you for joining us today, and thank you for sticking around for my piece. So I wanted to share our view of the world today and describe some of the key areas that we focus on to add value, and to manage our risk as we go to market. A year ago, we talked about some of the forces that are reshaping our industry and our business. And these forces, as you know, continue to shape and change our industry. Change is good. As Bill talked about, we cope pretty well considering all that has occurred over the last year. And as you know, power’s earnings last year were lower than in 2011, due primarily to much lower commodity prices, so started their descent 3 years ago. However, as I was outside in the hallway talking to our Controller, Derek Di Risio, early on, he reminded me that 2012 did actually start with some pretty good news. The Giants did win the Super Bowl and Linsanity became a cool new word for us in this region. But of course, the rest of the year was more challenging. Despite that, we've persevered. And ended up having a pretty good year financially, with earnings in line with our expectations, and as Bill said, we recovered pretty low from the storm.
So I'm going to spend the next 30 minutes describing how we've dealt with all these events in the past year, and more importantly, how we're repositioning ourselves for the future. PSEG's wholesale strategy in a volatile commodity market is pretty simple: We optimize the value of our fleet. We provide an outstanding service to our customers and we prudently manage our risk.
So I'm going to spread the talk into 3 sections. First, I'd like to describe how we've managed our portfolio of power and gas assets in this market. I'll talk about how we managed risks and create additional upside for our company with our trading group. And I will also give you a flavor of what we expect to see happening in the marketplace, and what some folks in the industry are seeing in that future trend. And thirdly, I'd like to touch on the regulatory scene and one of the key issues are that we're working on here at PSEG and the wholesale business.
So our wholesale strategy is built around a strong asset portfolio. And so what do I mean by having diversified and flexible assets? Bill described how we become in top quartile in running our generation fleet, and our commercial group adds significantly to that by aggressively managing its dispatch in each of the 3 areas that we operate in. And the key value driver here, that we've actually improved on over the past 24 months, is our ability to switch between coal, oil and gas at many of our plants, whenever the economic dictates. By trading around the switching optionality, we increase not just the run times of our plants, but we also add income to our bottom line by using that optionality.
So how do we manage risk and create value? So those of you on the Wall Street don't like companies like ours to trade speculatively and we don't. What we do, do though is to trade to optimize our portfolio. And we're cautious on how we do it, and we have a robust system of control. We have an experienced trading team and a well-defined hedging strategy that I'll talk about in just a minute. But a goal that's equally important to us in managing risks is to create value by monetizing the option value of our fleet and of our positions. We do that by selling out the money coals, by being long the volatility, by buying fuel and storing it when it's cheap, by making a judgment call on which products and when to hedge, and I also talk a little bit -- more about that in just a second.
Now as Ralph and Bill mentioned, we try not to outguess the overall market direction. We know that we're not smart enough to do that. But we definitely do have a point of view on the price of all the commodities that we trade: on power, on oil, on coal, on gas, on ancillary services, Solar x, on capacity. You name it, we have a point of view. And each of our buy-sell decisions is influenced by our opinion on the marketplace and we actively manage our short term portfolio according to that market view.
And the third platform in here is regulatory advocacy. This is about getting the rules right, the rules that promote a competitive wholesale market. Somebody asked me once what keeps me awake at night, to which I replied, "I sleep pretty well, but my biggest nightmare would be a regulatory decision that completely changes the landscape overnight." And we try very, very hard, as Bill described, to have a seat at the table when the regulators are making decisions that affect our business. So I'll talk about some of the key issues that's impacting us right now and how we're positioning ourselves on the regulatory front as well.
So I'm going to quickly walk you through our assets. Bill talked about them. But they bring us great diversity from a geographic-, fuel-type and also in economic-dispatch-wise basis. First, as Bill mentioned, our nuclear unit performed exceptionally well, with an over 90% capacity felt to last year. Now knowing that, they gives us tremendous confidence to sell against them. Having them all the time being available, gives us that confidence. And in Southern New Jersey also give us an opportunity to arbitrage that base of south into the great pockets of Washington, D.C. and also into the giant load pocket, that is New York City.
Second, our share of 2 coastlines in Western Pennsylvania run on cheap local Appalachian coal and give us access to sales and marketing opportunities in Western PJM, such as in FirstEnergy's territory and also into [indiscernible] and Light's territory. These shared stations are well run. And Conemaugh has been upgraded with [indiscernible], as Bill described. And both Keystone and Conemaugh will have full environmental controls by the end of next year.
Thirdly, our combined cycle fleet, which happens to be one of the largest in the Northeast has replaced a lot of the margin from our coal plants in New Jersey, they just don't run as much anymore. Furthermore, we've invested in fine tuners units, so they run more often. And also we're able to capture more ancillary service revenue as a result of that.
Fourth thing, we have 1,200 megawatts of dual fuel, coal or gas fired generation, as well as peak units. They are predominantly in the Eastern part of PJM and close to New York. So they can take advantage of the gas and power volatility, which, by the way, has been exceptionally strong, as I think you've noticed this winter.
And last but not least, we have a very experienced group of employees, that manage the commercial bidding, fuel management, they just takes in the trading. And one of the things I've been really impressed with is the close communication between our operating plant management and our commercial management. Actually we have shared goals, and our common objective is to operate safely and to maximize value. And I think that working relationship, frankly, is as good as any of us have seen in the industry.
So as the market has evolved so is the capability of our fossil plants and the management of them. And moving anti-clockwise from the top left chart and I'll give you 4 examples. Bill described what we do with combined cycle, so I won't dwell on it too much, but as this started running more, we raise the heat rate performance, the additional tune-ups that a management practices, and as a result, we see an increase in our performance by over 3%. And work is ongoing on the other combined cycles as well. And this has been very valuable as our units are now running at record rates of throughput, with almost a 60% capacity factor last year.
Secondly, in our 3 full year into coal plants, we're trying to balance a need for proactive maintenance with the knowledge that they're just not generating the same kind of revenue that they were before. So as a result, our generation team has dramatically lowered O&M by making better choices with our maintenance dollars and by replacing fixed overhead with variable cost. Primarily, by utilizing our fixed labor much more effectively. Also at our coal plant in New England, we change our work practices there to improve its start-up success rate, and this has been especially helpful to us this winter to meet the high electricity demand we have experienced over the last couple of months.
Thirdly, as a result of being at the table, the bottom right chart, will show you that the ancillary services market -- we had a really good idea what the new rules would be for the ancillary services market in PJM. Now particularly, in the area of regulation market. Bill described that we've actively made investments to the governance in our combined cycle fleet to improve their ability to provide AR service to PJM. And as a result, we've raised the rate by 25 megawatts per unit at Linden and by 10 megawatts per unit at Bergen. And that's allowed us to increase our share of the AR market in PJM. I won't tell you how much money we made, but I will tell you that our margin from AR service in 2012 was very meaningful as a result of being proactive, with understanding the new market, working with the regulators -- the regulatory authorities at PJM and also upgrading our units and making those investments.
Lastly on the trading desk, we're acutely aware of changes in commodity prices and the relative economics of our plants. As a result, our plant managers have responded and they have changed the way in which they prepare the plant at night, so they can switch fuels and restart quicker than ever before. So whether it's switching to more economic fuel, cycling the units at night so we don't lose our rights in the dispatch stack or by taking a chance in self-scheduling our units, we're changing the way in which we dispatch the fleet, which has all helped our bottom line.
So how has the market evolved over the last 2 months -- 12 months? One cautionary of cost has been in the economics for the industry's coal plants. In 2012, we continue to see the spots spread outperformed the dark spread. Now although the gap did narrow at the end of the year as gas prices rose with the onset of real winter demand. That dark spread is the key indicator, as you know, of profitability. And there are many coal fleets out there that are struggling to make enough money in today's price environment.
The chart on the left shows us the 3 year relationship between the dark spread, essentially the economics of burning coal for electricity, represented by the orange line. This is the spark spread or burning gas for electricity which is represented by the blue line. And as you know, gas prices fell much faster than coal prices last year, causing merchants plants to become uneconomic relative to gas plants, so you saw widening in that spread for -- during the year, and which was narrowing as we got towards the end of the year as gas prices rose. Now those lines, by the way, represent PSEG's delivered cost last year, that's why the dark spread shows us being negative because it includes all our cost, including our BOM cost.
Now the chart on the right will show you how PSEG has responded to this change in the relative economic. The shaded area reflect the average minimum and maximum gas burns for the last 7 years for our fleet. The blue lines denote where our actual gas burn was for 2012 only. And as you can see, it was as high as it’s ever been in our history. Our burn did taper-off post-Sandy, as our Linden unit was temporarily taken out by the storm. But in general, our combined cycles are running well. Now although our combined cycles don't produce as much electricity or as much margin as our previously base-loaded coal plants, we love the flexibility of the combined cycles and we love their ramping capability. Now furthermore, we're advantaged by the different ancillary service markets that we can penetrate as a result of them, and we'll see as our gas requirement as a short position to manage our fleet around.
So the market clearly has changed for coal, but what about for other commodities. So in general, we don't forecast prices. There are plenty of first class companies that do just that for a living. What we do, do though there of course, is we're doing our own analysis and we have our own forecast. We have our own models. And as a result, we're simply not just price-taker for all our business. Our base load energy is hedged on a consistent monthly basis, as long as it's profitable. But our remaining fleet, our gas position, our ancillary services, our load following business depends on us having a point of view and acting on that point of view. And I'm sure you've seen leading consultants forecast of forward energy prices. On the gas side, this forecast, you'll see a range of gas prices that are mostly higher than the forward curve based on higher demand, higher production economics for natural gas, and eventually exports of LNG.
On the power side, similarly, they're seeing power prices above the forward curve. And even our friends at Morgan Stanley, I read Stephen Byrd's article a couple of weeks back, which mentioned that he felt that prices were undervalued by between $4 to $7 per megawatt hour. We're not going to make those predictions. We will work within the forward curve. But such scenario, of course, would help our nuclear fleet profitability, much more so than any potential squeeze in the spark spread if gas prices rise. And by the way, every $1 rise in the gas price, with all other things being equal, does raise our profitability by between $0.03 to $0.06 per share in 2014, as I think Caroline mentioned at the earnings call. So to sum it up, we transact around and within the forward curve. We do have a point of view in the market for our unhedged fleet. And as a result, we are ready to manage the portfolio for the downside, as we'll as leverage it when we apply it to the upside.
So turning now to how we protect our company from risk and create value at the same time. We receive a ton of questions from the analyst community about the BGS sales and how significant is it to our profitability and to our hedging practice. Let me say upfront that we like BGS sales at the right price, but we're not wedded to it at any price. Now in general, we like BGS for 4 reasons: Firstly, the load obligation is well correlated to our units output. Secondly, it does provide us an opportunity to hedge some forward basis exposure. The sure position can be dynamically managed as part of our overall portfolio and we do that. And lastly, we can use it to lean long or short depending on our short-term market view. Now, as I think you know that every year we sell a decent amount into this 4- or 3-year option. Last month, we took part again in the annual procurement by the New Jersey Utilities. The most interesting thing to note from this slide is at the first -- for the first time since 2009, prices did start to edge up, reflecting higher energy prices slightly, but more importantly high-transmission, high-capacity and high-renewables prices. We're going to pay that BGS prices have bottomed now. New Jersey law prevents me from sharing with you the volumes we saw, but I can tell you that we are satisfied with the results. Having said that, we were fully prepared not do anything as unacceptable margins.
Lastly, while I continue to see positive headroom here for third-party of retailers, it is shrinking now into single-digit, and we expect that trend to continue. At some point, depending on headroom becomes a very small, we expect migration to decelerate or even stop. And some of you have asked us as well, how have BGS importance -- has the relative importance of it changed over the years, and these 3 pie charts try to show you what that percentages now look like. So as you can see 5 years ago in 2008, BGS sales made up about half of our hedged quantities. They fell modestly to 44% in 2010 and last year accounted for 35%. This was not necessarily a bad thing for us, frankly, as the financial value of BGS has dropped. Without question though, the BGS continues to be useful sales force to make, as it thus help us look in that basis risk and self-worth for up to 3 years. But in the market, if the absolute price should rise -- and we're not being overly aggressive on BGS sales, in fact, we've been supplementing BGS sales with shorter duration, full requirement sales and other markets which are also very well correlated to our assets. One other thing that we're doing, we are selling more into the retail market indirectly through the retailers and capturing some of that retail rent what our competitors talk about all the time. We have no plans to directly enter the retail electric or gas market as salesmen.
Let me switch gears and talk about hedging. We fine-tune our hedging strategy this year with a more consistent monthly hedging program. Whereby which we try to lock up about 2/3 of our base load plants output for the next 3 years. In numbers, that's about 2/3 of 4,400 megawatts per hour for 3 years. By the way, this table only reflects energy hedges, but of course, PJM's capacity market does allow us to forward hedge up to 3 years in capacity as well, which is a very important part of our hedging activity.
Let me make a couple of additional points on our hedging strategy. First, we focus on capturing value and in protecting the gross margin long-term. We do not hedge at a loss. And will find you on the hedging depending on relative economics. For example, for much of the last year, we did not sell off-peak power in PJM until the price got to a level that we will come fluid. When the pricing eventually have reached our targets, we sold into it and we'd be balanced in our portfolio. Dan Eggers and his team at Credit Suisse wrote a really interesting article last year on the impact of blindly hedging. My words, not his, where companies are hedging, come what may, driven by cash flow and debt coverage needs rather than by profitability. And he also spoke about the impact of retail companies, whose forward buying, ensures that prices remain depressed for some of those companies with in-house retail businesses. Dan, I found this to be a very hopeful piece and I hope that you circulate it to all of our competitors, with some remedial homework on their part. And by the way, when I read this, it's a great title, Adventures in Power Market Expectations, sounds like a Mills & Boon romance novel, I was very excited when I read it.
But joking aside, we're also have a trading activity that we call, dynamic hedging. This is the way we manage our closed hedge positions for operational reasons. In addition, we actively manage our open positions dependent on our view of the short-term marketplace. We created many tens of millions of dollars in value head by monetizing the option value of our fleet.
So in summary, we have a solid risk management practice. But in a consistent, monthly manner, attempts to lock up 2/3 of our base load energy margin for 3 years. This is supplemented with short-term, profitable trading tactics that adjust our position based on operational and price opportunities.
Moving on now, I'd like to talk a little bit about locational value. When we talk about the locational value of our assets, we're referring to some of that value as being the positive basis that's inherent in our location, basis reflect the premium that our assets receive relative to the PJM West price, where most companies in this region place their financial hedges. Forward basis, by the way, through 2015, is currently trading in a $2 to $4 per megawatt hour range. On the right-hand side, you can see that our assets are located on the eastern edge of PJM, right next to the giant load pocket, that is New York City. On the left-hand side, you can see how monthly basis relative to the PJM West hub has varied. As you can see, it's very volatile. And it's built, alluded to, it was very negative last spring, and it's also been very positive this past winter. Our assets and our open position are generally able to take advantage of that positive volatility, which we do on a regular basis. No pun intended, sorry. Basis is impacted by the absolute level of prices, by the amount of load in the region, by the way, in which units are dispatched according to relative fuel economics and crucially, by the amount of electric and gas transmission capability into our region. As you know, each of these elements have changed over the past few years, sometimes quite dramatically, and we also expect changes heading into the future. For example, PSE&G and others have been building their electrical and gas transmission into the Eastern PJM region. As a result, we expect that forward basis will continue to be pressured. However, basis will remain very volatile in prompt periods driven by other factors such as weather, operation energies, and some of the other things I mentioned, which has relative fuel economic.
In addition to locational advantage from electric basis, we also have locational advantage on the gas side. Particularly, at the top of that green region, that's an area that we affectionately called, PS North. This is a very constrained and a congestive region. Here, we can switch between coal, oil and gas at our units, from base load to intermediate to peaking. And our company derives great value from this flexibility. Both on the electric, as well as actually on the fuel side.
And so talking of fuel, we have a very strong natural gas position in the Northeast. In fact, PSEG, as I said before, has one of the largest gas transportation storage and procurement operations in the country. In 2012, we bought over 350 Bcf of gas, over 1 Bcf a day for our power generation as oil for our New Jersey customers. Being short in the market that's flooded with cheap Marcellus gas really gives us great leverage when we go to buy gas and also gives us great insight into the market. As a result of all that, we're able to add significant value by purchasing gas below the market indices. Again, in 2012, we are very proud that the service we give our customers allows them to have the lowest consumer gas price in the state of New Jersey.
Now this winter, as you know, we've seen an enormous volatility in the gas price due to extreme weather conditions in the Northeast and very strong New England markets, that it pulled up electric prices in the New York and PJM service. Despite this, we've maintained gas supply to our customers for heating, and we've been able to buy additional gas for our power plant to sell in to these high electric prices and capture value. So you can see that when we talk about locational advantage we don't just mean having a terrific electric position in a world-class artier. But we also have a terrific cash position right next the world-class gas field, the Marcellus. Now, put in other way, we're a long electricity in a short market, and with short gas in the long market. That's a nice position to have.
Another leg in our hedging strategy is the capacity market, which is present in all of the 3 markets that we operate in actually in PJM, New York and also in New England. Now we believe that the capacity concert in PJM is pretty good, actually. Here we are in substantial revenues and we actively manage our plant investment in order to earn an acceptable return on our assets. We're not just a price-taker, we're involved in all stages of the process. We have a seat on the table when rules are being debated. We assess the load growth. We'll analyze planned retirements and new builds. And we'll make investments in our plant when justified so they can continue to clear the market. And then, of course, we'll place our bids. As you know, the PJM capacity market continues to evolve and we've received updated parameters in February for the upcoming 2016, 2017 auction, which for PSEG, we believe, was fairly constructive.
In addition, as you know, there are several key issues being debated and mitigated right now that we hope will eventually improve clarity around the PJM capacity market. First, we are hopeful for a positive settlement in the Maryland and New Jersey court cases surrounding the outer market circuit contracts. And we expect a ruling on that this summer. The court case has start in the month of March. Second, we do expect that FERC will allow PJM to adopt a robust and move or construct in order to prevent future wrecking of the capacity market. Although there is a good chance that won't come into forth until the subsequent auction in 2014. Third, we believe that demand response will eventually be prevented from financially gaining the capacity market, maybe not in this auction, but certainly, in subsequent ones. And fourth and most important, we've predict that some of the coal plants that had been hanging on for their life, will start shutting down post-2016 and tighten the supply-demand balance, leading to more stable capacity prices.
So when we think about retirement, not mine, which is still quite a few years, happily. I wanted to show this chart from PJM on the left. PJM has received the activation notices from -- for nearly 13 gigawatts of capacity, shutting down by 2016 as environmental rules kick in. An additional 4 gigawatts has been announced by their plant owners. And this week, AEP actually announced another 2 gigawatts of retirement. We all know this will predict that the final number would be over 20 gigawatts, we're up to 19 right now. Driven actually more by economics of negative cash flow for coal plants and not just negative MPVs of environmental investment.
And at that right-hand chart from PJM, predicts the reserve margins fall into 18% within 3 years. These are their numbers, not ours, despite weak low growth. We think that reserve margin might even go lower due to some of those economic retirements I just mentioned. And as you know, often replacement generation that's promised often comes in slower than predicted.
I would also like to mention here that the forecast reserve margin for the Midwest ISO, right nextdoor to PJM, is also headed downward. With 11 gigawatts of net retirements by 2016, which will lead to a 14.2% reserve margins by 2016 for the Midwest ISO. All that will set up the market for stable capacity pricing with potential strength in some LDA's leading to additional generation of investment towards the end of the decade, and the market will work. And in any event PSEG has a strong asset base that will participate in all future RPM options and will again be positioned with new generation available to the market, if prices warrant the investment.
So last but not least, I do need to touch on some of the regulatory changes in our market and what we're doing to protect and defend those deregulated markets. The most important point is that, as a respected and strong player in the market, we have a seat at the table when decisions involve those deregulated markets. We are in favor of constructive market regulation and change. And we believe that if markets evolve, the regulation should also evolve to keep in step. We proactively express our views, we share our data and we share our analysis. And then we promote positions that benefit the competitive market as a whole.
Now as you all know, although we operate in competitive markets, we are still very much under the purview of numerous government agencies and regulators. And on this slide, I have listed a few of the things that we're working on that are important to us. Now regulators in our industry, are doing whatever they can to make electricity cheaper, cleaner and more reliable. That's a direct quote from Connecticut's master energy plan that came out last month. Of course they're aware that companies need to earn a reasonable rate of return on investment and not just enough to cover operating costs, which will be a sure path to value destruction.
And I've touched, and Bill has touched on some of these regulatory issues before, as has Ralph. But I would like to highlight 3 areas that we think we'll see meaningful movement and impact this year. First, capacity markets are gaining ground. It provides great support and credence to formalized capacity markets when the Texas and California ISOs are considering moving to a capacity market construct, just like in PJM. Second, environmental issues will probably take a higher priority, we believe, now that President Obama's government has been reelected. As Bill described, we believe our fleet is very well-positioned and will continue to promote reasonable positions to advocate for a clearer environment. And third, gas to electric coordination must improve as the events in New England this winter is bearing out.
Last week, the New York Times had their front-page article that highlighted the fragile nature of gas infrastructure out there. And the solution to our minds is not a "one size fits all" approach but an approach that measures all the requirements of a particular region or a particular ISO. For example, we don’t agree that generators must sign up for long-term firm pipeline capacity for the less than 1% of time that gas is not available. Fuel diversity is an important part of the solution here and should be considered first. And as Jay Apt, from the Carnegie Mellon University said in an article, and I'll quote, "It's certainly true that a region like New England that relies on a single fuel source like natural gas for the bulk of its power thus leave itself open for more disruptions than a region with more diverse fuel mixes. It's not a knock against natural gas, it's a knock against a single fuel source." Very well put.
So with that, I'd like to wrap up now with some closing comments. As I hope Bill and I have been able to demonstrate PSEG has a very strong, well-performing power and gas assets, and very constructive markets, particularly in PJM. We're very active in the wholesale markets in order to optimize the value of our fleet which still have, and we still predict will have, a strong locational advantage. We're not just price takers. We absolutely do have a view on the market direction as to when we hedge our non-base load fleet and when to extract the option value of our assets.
We are comforted by the opinion of industry consultants who think prices might be higher in the future but we're not counting on them. We're counting on our own abilities and our own assets to grow our earnings. We expect that BGS will continue to be a significant part of our future, but we'll not be as dependent on it as we have been in the past. We think that ford electric and gas basis will decline, but prompt volatility at certain times of the year will allow us to extract tremendous financial value. And finally, we know that the markets are evolving and we are participating in those changes, whether it's developing new products, investing in new equipment or advocating for competitive markets.
So with that, I want to thank you very much for your attention. That concludes my formal remarks, and I believe that Bill and I are ready now to take your questions. I'll turn the podium over to Kathleen to be our moderator
So perhaps going back to the earlier part of the discussion on the Fukushima impact, if we could just talk for a second about filtered vent expectations and what that might potentially cost you as well as timing expectations from here?
I'm very hesitant to say what it might cost because it's not clear what the rules might be. For example, I would argue that I have a filtered vent right now, or I could make an argument for a 0 cost. However, there's something additional required that might meet some set of standards, then I just don’t want to speculate where that could go, which is why I think rule-making is the most prudent course of action here so we can get some good discussion from most stakeholders involved. And I think that's the course of action that will occur here and I think that'll occur over the course of years and not months.
Great. And then secondly, on the head units, quickly. You talked about some latitude about insurance proceeds, et cetera. As you think about making a decision on the state of some of those units, how could that impact your capital spending and also, specifically, your earnings in this period between 2013 and 2015, either positively or negatively?
I would -- obviously, any investments will -- we make, we'll make sure we meet the threshold and hurdles we have in place for those. In that period of time that you refer to where there could be some positive impact on earnings if we took some of that insurance proceeds and used it to operate our unit. We think we can do that in that period of time. Other than that, most of those scenarios are outside of the planning period.
I have a question about your head peakers. You made a statement that many of them didn't clear the last auction. So what do you plan to do with those assets? And also, should we expect that you're going to be actually bidding in either expansion of those assets or upgrades of those assets in the upcoming auction? And also could you give us some sense how big of an EPS impact or roughly you got in 2012 from your coal plant in New England and how this impact looks so far this year?
Let me see if I can get all those questions here in a second. I probably need to be reminded because I'll probably skip on. Relative to our high electric demand day units, I would say we expect that those units will retire in the 2015-'16 time period. That's the requirement of the state currently and obviously, we have every intent on meeting that. What we will do in its place depends on a wide variety of factors. Some of it I know depends on insurance proceeds. Other things depend on what does the capacity auction and market look like, and what are the rules going forward there. And that's why we'll continue to monitor our efforts underway and make sure we play an active role to get things like a MOPR right and those sorts of things, so that there's a level playing field for all entrants. And I'm sure that answers your question on HEDD. Now there was a question about our coal plant in Connecticut, I'm not sure. If you could repeat that for me, please?
I suppose if you're trying to figure out the -- we saw this major spike in New England power prices on the back of the natural gas constraints and you must have run your coal plant much more. We've seen pretty strong results from PSE&G Power in 2012. The guidance of 2013 is also relatively strong and I'm trying figure out how big of an impact the coal plant in New England is playing in those numbers?
I'm sorry, is that impact from last year or the impact going forward?
When we look at that coal plant, we don't just look at the coal plant, we actually look it as a fleet of plants. So when we report on a particular area, we don't say whether this one plant is profitable or not. We say, "Is New England profitable?" And I would say we're not going to stay in a business that's not profitable. And so we're in that business and doing everything we can to make sure that it is profitable for us going forward, recognizing that there will be ups and downs in the market. What I didn't say when I talked about Bridgeport Harbor before is we looked at O&M cost there. We look at staffing levels there and we made some adjustments. And if you look at how we operate those plants, we operate nearly one as a virtual plant. New Haven and Bridgeport Harbor are not that far from each other. But essentially, we have 1 management team that operates both of those sites and including the new peakers that were put in. And we had recognized some of the challenges that might exist in New England. Remember, New England hasn't had a summer or winter in years. This reliance on any one fuel source, we don't think is a good thing. And so we believe that this plant will move -- be very, very profitable when those conditions exist. We saw some of that the last couple of months. So we don't bet on any one fuel source. Like I said, we do practice all of the above. And I think it played out for us in New England within the last couple of months.
I just have a couple of questions. First of all, I notice you didn't talk much about your coal hedging strategy in the deck. How much flexibility do you have under your contracts now? And how does that impact your bidding strategies? Or is there still a lot of take-or-pay obligations and how far out do they go? You said that this year, 1/3 and 2/3 of Hudson and Mercer were running on coal. I was just wondering why, with gas in the 2s, the 3s, they would be dispatching on coal. You can answer that first.
So thanks for the question on coal. Firstly, we do have contracts on coal that basically ran out at the end of 2012. We have committed to extend them for a little bit further to ensure that we met the full contractual obligation of that load -- of that amount that we've signed up for. Since we weren't be able to fulfill the full amount of it in 2012. But the amounts are relatively small and we haven't seen the need to go out and frankly contract for any more since we have enough on our coal pile right now. So does that answer your question? We have a lot of flexibility, basically. We have a small commitments well within the range of reasonable. That's well within the range of being able to put them on our sites.
So running those units on coal, you're allowed to sort of bake in to your bid price some contract breakage cost or something that would allow you to bid.
The way that we bid our fuel into the PJM market is basically on a replacement cost basis. So we make the decision as to whether we want to bid it at that price, and we compare it, on an economic standpoint with the other fuels, whether it's oil or gas, and we'll make that decision. Now the other thing that we will decide to do is, it may be better for us to burn the coal rather than take the penalty hit from not meeting our contractual obligations. So you saw some of that in 2012 when we decided that it's better for us to burn the coal and lose less money than if we had taken a contract hit to our coal suppliers. But in general, I would tell you that when we look -- in general, we run coal when it's in the money. So most of the time it's running last year was in the money.
Okay, thanks. And then on the HEDD stuff, I noticed, beginning of this year, you filed deactivation request in PJM for about a gigawatt of capacity. I think that was at Essex and Edison. First question is, were those deactivation requests factored into PJM's parameters that they released on February 1?
Yes, yes, they were. They were 1,700 megawatts.
For all our HEDD units.
I was talking about the new deactivation payments. And then the second question, how much did those units run last year? And is there going to be a significant reliability issue when all of that comes offline in 2015?
They ran very little last year, less than 1%. So we don't expect that to be a reliability issue as a result of those units not being there. We have other assets close by that can handle the load from those assets.
Okay, and then one last one. You mentioned, as part of your hedging strategy, you're seeing more opportunities to sell to competitive retailers. How does that work? I mean is that full requirements to those guys? And are they short load and they're coming to you, or you going to them?
Yes, that's a good the question. Firstly, do we go to them, or do they come to us? It's both. So they come to us, we're an natural supplier to cover full requirements loads in eastern PJM by virtue of our assets. So they see us as a natural seller and we see them as a potential natural outlet. Then in terms of which pieces of the loads do they want us to cover, typically they are more interested in us covering the peaking aspects of it, and the capacity and the green, as opposed to baseload energy price which they can buy by hedging at PJM West. So generally, they're looking for the hard-to-get stuff. And of course we charge them a premium for that.
Thank you very much, Shahid.
Yes, just a big picture question about the broader PJM market. We're seeing development occur, meaning people-built combined cycles, outside of the plants that receive the LCAPP or the Maryland contracts. Meaning, I can think of 1 or 2 already that are permitted and financed. I can name 1 or 2 more that are actively seeking permits and starting at the very ground stages of seeking financing. What's your company's view about whether newbuild is combined cycle, especially in the eastern portions of PJM, Eastern Pennsylvania and New Jersey, et cetera? Whether that's economic.
Well, we have a chance every year to bid in the RPM auction, and we get the opportunity to ask ourselves that question. And what I will tell you is we exercise discipline in that process and we're not going to build unless it's economic. And we'll control the things that we can control. Developers develop and so that might give them a different view on -- and a set of assumptions on the prospects for newbuild. And so there's no perfect marketplace. There may be a lack of discipline by others and we're going to make sure we stay disciplined. And for those who are undisciplined, frankly, that creates an opportunity for us later because of economics rule. And if they're not making the right decisions that's something we can pick up later.
Kathleen A. Lally
I'm going to ask that we hold any other questions for Bill and Shahid until the conclusion. And we're going to turn now to Caroline Dorsa to give you a financial overview of the operations.
Caroline D. Dorsa
Good morning, everyone. You know, I have the numbers to go through, I feel like my job is easy following my colleagues with such a strong operational story to tell, whether it's the Sandy-related results or the ongoing operations of the business. They are really what allows the numbers to be what I hope you will appreciate when I show you are very, very strong. It comes from the ability of the plants and all the people in Power and Utility to make these numbers work.
So, let me just do a brief reminder of our strong financial position, what we come into this opportunity for us an incremental investments with. Then I'll do a brief review of 2012 and '13 guidance, and then do a little bit of a build going forward. So you've heard some nice comments about capital investment opportunities, I want to show you what that means for rate base, for potential for earnings, and also the work that we continue to do on O&M control, take that out a few years as well, and then show you what it all means when it all wraps together.
So I'll start with a little bit about our financial position as we get started. So as you know, we achieved our earnings guidance for 2012. We have a stable dividend, growing again this year with opportunity for continued dividend growth, as you know, based on the earnings at the Utility and the cash flow generation at Power. We have a strong balance sheet which we've talked about for a long time, and we'll show you some more statistics about that. That gives us the terrific platform to do the things that we've identified as potential opportunities while continuing to not put anything like financial risk with the operational investments that we have. That regulated growth opportunity, therefore, can be achieved without equity issuance. I think Ralph said that twice. I'm probably going to say it 4x before I'm done. And importantly, because we're showing a base level of investment but we're also showing a potential upside level of investment, that statement is true anywhere along that spectrum, and I'll show you the outside bounds of that as we go.
On solid credit ratings, which are very important to us and we had every intention of keeping, well-controlled going in, which I think you've seen from both Ralph and Bill, we've demonstrated and also intend to keep. As well as a well-funded pension, something that has been a focus for many in our industry for the last few years. I think we're in a good position there as well, and I'll show you a little bit of that at the end. What isn't on this sheet but is just as important is everything that I'll show you relative to thinking about the future, thinking about the credit metrics, the balance sheet. All of that assumes nothing other than the forward curve in all of our financial forecast and projections. As Shahid said, we have a ratable hedging program, we don't take long-term market views against the market, and so everything I'm showing here assumes nothing about anything other than a forward curve that you can read on your own screens as well.
So in terms of guidance. Our 2013 guidance is in fact, the same range as 2012, 2 25 to 2 50, but you can see something different as I'm sure you all know when looking at our numbers relative to what we've talked about for the last few years, and that is the changing position between PSE&G and PEG Power relative to their contribution to our earnings. So with our current guidance in 2013, you now see the Utility being about 50% of our earnings, and you can see using last year's actual numbers against either side of the utilities, 5 80 to 6 35, a double-digit operating earnings growth opportunity in our guidance. So strong Utility earnings growth, opportunity. Obviously, power coming down for reasons that you know, related to pricing, but also a changing picture in terms of the position of PSE&G. And of course, because we just filed our new programs, it goes without saying, that there's nothing material assumed in any of these numbers relative to Utility and new programs because those new programs have obviously just been filed.
So this picture I don’t need to spend a whole lot of time on, as you well know. And as Ralph alluded to, that changing picture has occurred over the last few years, for 2 reasons. Obviously, the growth in the Utility as our investment programs' transmission, as well as the infrastructure programs have borne fruit. And of course the changing mix is in part, a large part also driven by power and the pricing effects that has happened at power. But what has continued throughout this period, and I think really does make a difference when you think about where we landed in '12 and how we think about going forward is the cash position. The significant sources of cash that we have that enables us to have that strong balance sheet and execute.
So this picture, in the traditional way that we've shown it to you, is our 2012 sources and uses. We did have significantly, again, cash from operations, and both of our businesses were very significant from contributors. Power continued to deliver the highest amount of cash from operations. You take the PSE&G cash and take off securitization as we always do. So Power did contribute the larger share of cash from operations, but the Utility is becoming a significant cash flow generator. In terms of the debt issuance for the year, that's a net debt issuance for PSE&G that, in fact, reflects net debt reduction at Power, as you probably saw from looking at the 10-K, offset by incremental issuance at PSE&G. So that picture is right along with our spend profile as PSE&G has grown, it issued debt consistent with its capital structure. Power, once again, because of its strong cash flow position, had the opportunity to reduce its debt and improve its credit ratios.
Of course, on the usage side, the PSE&G capital investment, obviously, very significant event, as you know, almost $2 billion. Power's capital investments relatively modest as we've been talking about all along. And as I go forward and talk about future investments will split out between growth and maintenance, but I think the key thing to keep in mind here is you got 2 businesses, both delivering significant cash and the growth investments are dominating where that cash is going.
We did end the year, by the way, with almost $400 million in cash. The cash I show here on the left bar is actually the net cash applied to an investment, but it was still net cash on hand at the end of the year. And many of you are also always interested in how does this cash flow picture become affected by bonus depreciation, because that's been something we have talked about for a number of years. Actually in 2012, if you look at bonus depreciation on a net basis -- and I think that's a good way to think about it now that we have bonus depreciation for a number of years. And what I mean by net is the gross amount of bonus depreciation, net of the amount that you have from bonus depreciation effectively reversing, right? You get it early, that means you don't get it later. So if you look at the net amount of bonus depreciation that's embedded in these numbers, it's about $200 million because remember, in prior periods, we got very significant amounts of gross bonus depreciation of about 7 50 last year. And so you start to see that net reversal. But it's still a positive contributor to our cash flow in 2012.
Actually in this current 2012 picture, a little more for Power than the Utility because, you may recall, as Bill said, we had peakers come online and things like that. So a good contributor, but not something that was critical to helping us have significantly strong cash flow generation in both of our businesses. So I think a nice picture in terms of how it sets us up for going into the future.
So this next slide, the picture that sort of lays out on a year-by-year -- 3-year basis, 2013 to 2015, our base approved program capital spend and so, of course, the approved program is really referring to the Utility and then the power and other spend at the bottom on the orange. But then, looking at how big that spend might be if all of our programs are approved, just during the 3-year period, '13, '14 and '15. And so, if I just draw your attention to the total, you can see $6 billion in total spend is our forecast from approved programs, sort of base level, if you will, for '13, '14, and '15 in the aggregate, of which PSE&G's growth spend is $4 billion. So $4 billion is consistent with the numbers we have given you before in terms of the base programs as carry out for an additional year. There's about $900 million in PSE&G maintenance, and about $1.1 billion in other. So rounded, about $6 billion. But there is more opportunity based on the things that Ralph told you from the Harding programs, as well as the incremental transmission investments. And you can see that, that could be as big as a total capital spend over that 3-year change, 3-year period, '13, '14, and '15, of as much as $7.6 billion with the potential for 400 more being from the energy master plan programs, 200 from transmission, and as much as $1 billion from the incremental distribution programs. So if you put that together, all of that increment is PSE&G growth. So the total spend could be as much as $7.6 billion with PSE&G growth being as much as $5.6 billion, and out of that, transmission is about $3.6 million. So there's a lot of investment opportunity based on things that we think really are good for our customers based on our experience recently with Sandy. And of course, that base level of reliability-base transmission baked in these numbers were already of $3.4 billion. So a lot of opportunity, I think, for growth, based on the things that Ralph earlier outlined.
So as Ralph likes to always say, how about the checkbook? So here's effectively the checkbook. If you look at these pictures, they're the normal sources and uses pictures that we've looked at before going forward, and as I've said before, I usually like graphs with the y-axis but this one doesn't, that's kind of on purpose, but I think you'll get the idea. The left set of bars are sources and uses based on the approved programs. So the left set of bars are based on the numbers that I just mentioned on the left side of the last chart at the $6 billion, you can see PSE&G's cash from operations in the aggregate over that 3-year period, now exceeds power's cash from operations. You would expect that as the Utility continues to grow and it's growing with programs like transmission that have formula rate returns, many of which have flip and rate base so that means cash, as well as the other programs that it has underway. Power continues to generate significant cash from operations and probably most important in that picture is the right side, when you look at Power’s capital investments because over that 3-year period, they're very modest. So when you look at power, it continues to be a significant excess cash generator, as mentioned earlier, with so much of our environmental, for example, our back-end technology are all behind us, Power’s excess cash flow becomes significant contributor in dividend-ing up to the parent. PSE&G, of course, continues the strong investment program and finances as part of that with debt. In this base assumption on the approved program side, again, that net debt issuance reflects incremental issuance by the utility and some incremental debt reduction by power. So we continue to have a very trim balance sheet supporting all of our base level of growth. So why does that matter? It matters because when you flip to the right and you look at that incremental investment, that $7.6 billion total, you see that now the net debt issuances are obviously bigger because the Utility is investing a whole lot more. And what's really going on in those dynamics is Utility debt goes up consistent with its capital structure, and if we were to have all of the opportunity to invest at the proposed program levels, you see Power’s debt go up a little bit rather than go down. We're still well within credit metrics, and I'll show you what that looks like a little bit later. But also, I think an important piece to note in the orange portion on the right side in terms of PSE&G's cash from operations, that's higher as well, because the nature of our investment programs as we talked about in terms of how we filed them is contemporaneous return, so you start to get cash back as you make the investments. So the picture squares in terms of setting us up in a way that we can handle even the highest level of capital investment that we've spoken about with keeping Power’s credit metrics strong, with keeping the Utility in a nice position and having that excess cash flow at power that continues to provide opportunity for the shareholder dividend. So either way, and everywhere in between, obviously, the missing piece on the picture is the new equity because it simply doesn't need to be there. So in terms of what things mean for rate base, right, because we always talk about when look at the utility and you wrap it all together, show us that rate base picture, what does it look like? So here's the rate base picture from the approved program all the way out through the potential new investments. Again, sales, exactly the same way over that 3-year timeframe. So you see the rate base from 2012 to 2015, just using the approved programs, has a CAGR of 7.8%, and if we have all of the potential new programs, the ones we've been talking about, you can see the rate base increase up to $12.6 billion by the end of '15 versus the $11.2 with the rate base CAGR now double-digit of 12%. Now when I was preparing these slides, I said to Kathleen, we have a 7.8% 3-year rate base CAGR, and on a later slide that I have coming up in a moment, I talked about the double-digit earnings growth opportunity, not just '12 to '13, as I already mentioned, but '12 through '15, CAGR is double-digit on the earnings as well. And I said to her, maybe somebody will ask about the 7.8% relative to a double-digit earnings opportunity. I've already have that question about 9x since the first break. So let me just say that's right, the 7.8% rate base CAGR still supports a double-digit operating earnings or bottom-line earnings growth for the Utility over that time same timeframe, and let me just mention 2 things that I think will help square that for you as you think that through and then ultimately model it. So remember in the rate base growth, when we look at rate base growth, we're looking at the growth in the investments in that plant, offset by the growth in primarily deferred taxes. So you do have some higher level of growth rate in deferred taxes than you have in plant additions, partially driven by bonus depreciation and partially driven by normal makers. So that puts your rate base growth a little lower than your net plant growth. But when you think about the earnings growth or the Utility over the same time frame, I just encourage you to keep 2 things in mind. First, the impact of the Sandy, Superstardom Sandy, on the utilities starting earnings level in 2012 was affected on an absolute basis, as we've talked about, by $0.05 a share for Sandy. It was $0.04 year-over-year, but from a starting basis, it's absolute $0.05 a share, which has one impact on the -- lowering the base and therefore higher growth opportunity. And the other is to keep in mind that part of our investments in transmission don't go in service, of course -- don't go into rate base until they go in service, the ones that don't have equipment rate base and they are earning on a bottom-line EPS basis, AFUDC, and that's a significant growth over the period as well. So those 2 things make the earnings growth a little bit different from the rate base growth, and the rate base growth is a little bit less than the gross plant because of the deferred taxes. And if you run that out and you look at the different places that we are investing, particularly transmission, you'll see all of that clears. And of course, as we go out to a 12% CAGR for rate base if we have all of the approved programs, the same map obviously applies. It's still double-digit. You can't say more than that, obviously, it doesn't get bigger than that, because it becomes triple digit but it stays double digit all the way out, whether you have the base amount or whether you have that higher amount for approved programs.
So what are the credit metrics that go along with this? Can we demonstrate that we still have that investment flexibility? And the answer is yes. As you know, Power’s cash from operations has been very strong, and you can look at it in the 10-K. You can see that power has significant cash from operations in 2012, and of course, with Power’s credit metrics as Power’s debt level coming down slightly, you see that the FFO-to-debt continues to be very strong at the end of 2012 at over 60%. Remember some of the higher numbers in 2011 were partially affected by bonus depreciation, the tax receivable and tax cash that went along with that. So they're just a little bit different from what you'd see in an ongoing run rate. But if you look at the 2013 to 2015 average again, cycling from the approved programs all the way out to the approved plus the new programs, you still see the FFO-to-debt metrics stay comfortably in the 40s because remember as I said, in the approved program scenario, you'd be seeing some of the debt levels come down, in the higher scenario you'd be seeing a little bit of incremental debt, but you still have a very strong opportunity to keep our credit metrics well above the floor that we always set for ourselves, which, as you know is 35% FFO-to-debt. So it doesn't mean that this is capped out to no longer have the ability to consider opportunities or to be so close to be -- just to be problematic. So we're very comfortable with our ability to say that we can finance all of what we have the potential and hope to have the opportunity to do.
This picture has really repeated what Ralph already showed, so you can see the total capitalization, the debt and equity split of 2012 to 2015. And you can see that even as we go out through 2015, the total debt of 44% relative to the equity, you're still looking at Power debt-to-cap still comfortably in that 30% or so range that we talked about before, so not even a push relative to our ability to handle the opportunities. So in terms of handling the opportunities, Ralph also mentioned the issue of the customer bill and the ability of the customer bill to handle what we're looking at doing with stability given things that are rolling off. So I thought I would just show you, because I know many of you track the numbers and try to reconcile between some of the things that's hit the GAAP numbers and the number that we gave you on an op-earnings basis, this picture is just really just a reminder for you of the fact that there are significant things that will roll off the customer bill, and to the 2 biggest ones that we talked about previously, certainly securitization maybe not as much as the non-utility generators, but if you look at the PSE&G securitization and NUG impacts, I'll show you here just how they hit the P&L geography, obviously, they are not P&L impacts to the bottom line because they are revenues to offset the cost of the expenses, so they 0 out. But the revenue requirement in order to 0 that out on the P&L is what hits the customer bill and when these roll off, securitization, as I'm sure many of you are aware of, because we've talked about it before, finishing by the end of the 2015, the NUGs by the end of 2016, if you simply took those 2 and put them together and compared them as a proportion of today's customer bill, it's the fair way to do it, it's about 8.7%. So overtime, regardless of what happens on the energy side, these are absolutes will be rolling off, and they provide that kind of headroom in the customer bill to be replaced by the things that we do think are very good for our customers and allow for bill stability.
So let me turn now very briefly to O&M and talk a little bit about our O&M and our pension. Modest O&M growth, something that we've talked about pretty consistently and as Ralph and Bill showed you, we've really been able to deliver over a very long-term time horizon, and we anticipate still being able to do that. So starting with 2013 and the guidance that we've given you already for 2013, if you look out from 2013 to 2015, what's in the next 2 years of our O&M growth look like, obviously, we haven't given you the earnings growth of the company but we like to give you the O&M picture, we see continued modest O&M growth of about 2.2% CAGR for the total company from '13 to '15. You can see that transmission actually relatively modest growth. Transmission, a little more growth this year over last, but that's all recovered in our formula rates. So transmission, about half a percentage point on a CAGR basis. Again, all of that recovered in our formula rates that allow us to get the 11 6 to as high as 12 9, so think of that as coming in to our spend and then coming out as we get the formula rate recovery. Distribution, relatively modest. Slightly higher growth rate at power, and as Bill shown you, a very modest growth rate over the long-term historical period. Rolling that altogether at 2.2%. Last year, we showed you about a 2.9% for a different period, '11 to '14, this is now '13 to '15, I can tell you we're hitting that target and now, we're talking about a more modest target as we go out from '13 to '15. In prior slides as I've shown you on this in prior years, we've broken pension out separately. We didn't do that this time and I'll show you pension on the next chart, but I can tell you that our pension expense is moderating. In fact, our assumptions this year, and you know we set these based on the numbers at the end of the 2012, is that pension expense will be slightly lower this year than last year to better position than we've been in a while since pension has been a little bit volatile. So we didn't break it out here because it's actually really not a driver of the thinking about the impacts for O&M on a go-forward basis as it has been in the past. If you look at our pension contributions, it goes right along with, obviously, a moderating pension expense. As you know, we've talked about making significant contributions to our pension plan. We've made over $1 billion in contributions in the last few years. We have a pension plan that's funded, it's about the mid-80s, 83% of 2012, and our expectations are more modest contributions this year, and as you can see, very much more modest than the out years based on our assumptions. But I think our assumptions are actually reasonable assumptions. We took down our discount rate, probably everybody did this year, right? So we had 5% discount rate in the past, we now have a 4.2% rate. You would normally think that would lead to significantly higher pension expense in the current year but in addition to our contributions, we had a double-digit teens return in our pension trust. And so, we you net that all together, you have a basically flat slightly in fact, down, pension expense in '13 over '12. And our rate of return assumption, by the way, is 8%, which it has -- this is the second year it's been 8%. So we think a nice picture relative to our pension trust, we really do look at this to ensure that we have long-term -- a well-funded pension trust and we think we're in good shape there.
Just coming back very quickly to the earnings numbers, and as we usually give you just some general sensitivity, as you think about '14 and '15, you wouldn't be surprised, I think, by any of these numbers. Remember, as we think about 2014 and 2015, '15 is less hedged than '14, as you know, and so, you'd have a bigger impact based on natural gas price changes, so they're impacts to power prices for '14 and bigger again for '15 because it's being more open. Changes in spark spread, similar in both years. Keep in mind that, that intermediate portion right where the combined cycles are, is not hedged in '14 or '15. So you see that same kind of impact. And of course, dark spread impacts, lower than they have been before just given the changing dynamics of coal and gas as Shahid talked about that and then capacity factor for nuclear. On the Utility, I think you recognize these and the map here is relatively straightforward, right, the incremental investments, think about the portion that's debt and the portion that's equity and multiplied by our ROE. Changes in sales, you can see also a relatively modest O&M, everything is $0.01, but if you run off the math, you'll see that all of clears in pretty straightforward math. So of course, as we've talked about before, the more volatile are the things that are in the left hedge as we look at the power prices and the gas prices, but you'd expect us -- you expect to see us, as we go through the year, continue to do that ratable hedging, which, obviously, would bring down the volatility in those out years on the first line as we go through the year on a regular basis.
And then lastly, how it all comes together. Putting that all together and looking at what we've been able to do on the dividend, I think you can see in something that I know many of you look at and track, is the proportion of the dividend that is able to be financed by Utility earnings. Keep in mind that our Utility growth program, right, the Utility is keeping a lot of its earnings for its reinvestment in the growth. But in terms of the stability and dividend support, if you looked at the portion that could be financed by the Utility, you can see as we come into this year with the dividend based on the increased we just recently announced to $1.44 on indicated per share, that the Utility earnings in its whole range is about -- is in the 80s in terms of being able to actually support that dividend. So as the Utility earnings are growing, they have an opportunity to support that greater amount of dividend. But again, as I said, both businesses have significant cash from operations, which gives us great confidence in that dividend. And our opportunity to grow it, as we've always said, is based on Utility earnings and cash generation opportunity at power, the former, I think, we've talked about in terms of earnings growth expectations. The latter, we don't forecast, but I think as you can see from the bar charts, there's still significant cash flow generation at power, and power’s capital needs continue to be very modest.
So summarizing all of that up. In terms of our operating earnings guidance, $2.25 to $2.50, same as last year with a greater regulated mix. Double-digit operating earnings growth opportunity in '13 and continuing through '15 based on our approved programs. And then continued focus by power on operational excellence, all the things that Bill and Shahid spoke to you about, our significant market expertise and continued financial strength, we don't do anything to compromise Power’s financial strength with our investment program. So we have all of that opportunity without the need for issuing equity. And then, of course, our very strong commitment to returning cash to the shareholder continues to be fundamental to our investment and our financial picture.
So with that, I thank you for your time, and I'll take a seat here and invite Ralph up to join, and we'll be happy to take your questions.
Perhaps going back to your discussion there on O&M growth just to kind of touch on it for a second. On the power side, if you could just provide a little bit more of an elaboration as to what's happening there? Specifically, I think you alluded to earlier some potential alleviation with contract renegotiation on the peaker side, could we actually see that come down at all?
Caroline D. Dorsa
Contract negotiation -- I'm sorry.
You mentioned, I believe, in a prior presentation about renegotiating peakers.
Right, services agreement. Is that a meaningful move or in any sense, just overall, what are the key drivers there?
Caroline D. Dorsa
We're both live.
Caroline D. Dorsa
So if you look at the numbers relative to power, bigger driver in power on the fossil side than the nuclear side, there's growth there. I think Bill may have mentioned earlier, outage work as we continue to have the gas plants running more, those are things that become a bit of a driver there. But when you look at that over that period, with the things that Bill has under way, 2.9% we're pretty comfortable with. This is kind of similar to last year's guidance for the overall company. The renegotiated union contract agreements are already baked and embedded in that guidance. So it's already factored in because they happened before the business planning cycle for last year.
All right, great. And then sort of a second question going back to the Utility cash flows you've talked about. First, looks like not material pension contributions on a go-forward basis. What kind of -- relative to your expense, what kind of cash flow line item should we be looking for there in terms of a benefit, I would imagine, relative to the line item, what's baked into your O&M or pension?
Caroline D. Dorsa
For pension expense?
Right, relative to your contribution.
Caroline D. Dorsa
Right. So if you think about our pension expense for this year, it was about $110 million. So you're looking at something relatively similar, so slightly lower but relatively similar to last year, in terms of how it fits within the 2 businesses, the Utility, if you looked at the size, 87, Utility picks up more than half but the Utility capitalizes a good portion. So when you look at the net amount that hits the O&M on pension, it's actually pretty similar half and half between Utility and power net to the O&M, not gross to size 87 but net to the O&M.
And then how much are you focusing on the reversals of some of the bonus DNA benefits in the outer years? I'm thinking '15 or something. What kind of an impact does that have?
Caroline D. Dorsa
Yes. So it's a very modest, as I said, the net effects this year are very modest but still positive. Starts to come sort of neutral and slightly negative as you go out in the further years. But nothing dramatic. So if you think about wrapping these 3 years together and kind of think of '13, '14, '15 as a little bit sort of close to neutral relative to net bonus and reversal relative to what makers would have been. So you get a big piece when you do that. You do the upfront and then it kind of trails out all the time. So we're neither dependent or really penalized, right, for bonus depreciation over the period, which means that the cash flow generation you see in the businesses, you should think of them as more fundamentally driven in that 3-year period than driven by something bumpy.
Right. And maybe last, more strategic. Just in terms of timing of these approvals, it looks like there's a lot out there waiting to be approved. What months -- what are the key data points here that we should be focused on?
So the energy efficiency -- I'm sorry, the Solar filings that are from the BPU we've agreed with the BPU to extend the approval of the decision date to May 1. The clock should have run out on that, but given what Sandy did, it was only fair for both party's to extend the date because we probably weren't as prompt as we should have been in some of those responses with the discovery questions. On the energy strong, there is no timetable. The risk of getting into with -- the solar filing we've done under what we call the Reggie bill, the energy strong are not done under any particular enabling legislation it gives the BPU date certain. Having said that, the whole theme around Governor Christie's administration this year, as Ralph earlier has said has been to rebuild but we've been asking for an accelerated hearing schedule and the ability to announce something on the 4th of July, on Memorial Day, for its symbolic purposes but we really -- I can't be more specific than that other than everybody want to get this type of stuff done underway as soon as possible
Okay. Those are the 2 good data points.
Kathleen A. Lally
You have a question?
A couple of things. Strategically maybe on power, it looks like your plan is showing the application of some of the free cash to help support the infrastructure. But can you talk about what your thoughts are on given that there are quite a bit of power assets possibly out here for sale. How do you think about that in terms of using that free cash or that balance sheet strength for power? And longer-term, how should we think about the mix between regulated and nonregulated as your longer-term strategy is going forward. It looks like you're projecting to be more regulated, and if that's the trend, what's sort of a good range in terms of what you folks are thinking?
So there's no specific number, but clearly, one of the things we've tried to signal to is that the very healthy balance sheet we have is being directed to the Utility. So Caroline gave you the 12% CAGR from now until '17. We've talked about a 10-year plan, that is above and beyond the CapEx, which matches depreciation at the Utility so you will continue to see growth and rate base beyond even in the 5-year numbers. We've not articulated a specific number. Power is looking at 2 opportunities for growth: Organic and acquisitive. And we have not had success on the acquisitive aspects of it. People have a different point of view than we do about what assets are worth. We've had tremendous success, albeit much smaller scale on the organic growth. Bill talked about those Carney peakers one year ahead of schedule, on time, one has -- one part of that project was on time, the other part was a year ahead of schedule, both of them able to meet the load this past summer. The Hope Creek operate, on budget, on schedule. The Peach Bottom operate, right now, looking like on budget and on schedule. We're constantly looking at opportunities to expand the operate from our existing units. We do look at whether or not to build a new unit. Bill will give you the right answer when asked that question directly before. So in general, we appear to have more luck when we do things organically and in our disciplined fashion. But in terms of a magic number, there isn't one, but for the foreseeable future, if you define 5 years as long-term, which I think is just as fair as any, really the emphasis is on the regulated side.
Caroline, just on the power credit metrics slide where you showed the FFO-to-debt, there's an average of '13 to '15, and it looks like the average is sort of north of 40%. Can you -- how far above the floor do you stay in any given year given the kind of hedge roll off profile?
Caroline D. Dorsa
Right, sure. So you're right, it's in the 40s level, right, both user in the 40s level, approved and approved plus. It's pretty steady, Jonathan. There aren't any bumps in the road here where you have to say, gee, this average is not representative of the year-on-year and therefore there could be challenges if something happens. It's actually staying well above. Since 35% is the 40%, we actually have a lot of room there and we're pretty comfortable all the way through.
So it's not like it declines below that average of any...
Caroline D. Dorsa
No, we don't fall below that average and come back up, no.
Just a little bit wrapping up the way I understood, I just want to get my math straight. So it's double-digit growth without the -- with the approved projects at the Utility. So that could be like $0.22 to $0.24, '13 to '15, if I do it. And then you're saying $1.6 billion of extra -- if all the things get approved, and based on your sensitivity slide, that's equal to about $0.16, if I do my math correct from the sensitive -- so that could be like $0.40 and then if you get that LIPA contract, you pick up another couple of cents from that, and then, I guess, I have my generation down, but I still see that helping us overall if we get everything approved in the process of increasing earnings from where we are currently from the midpoint. Am I missing something?
So, Shahid, you did these tiers last year. Very good, trying to get us the multiple years earnings growth. And we practiced this, so don't get nervous, Carol.
Caroline D. Dorsa
What I will tell you is the main theme of today is that 2013 is between $2.25 and $2.50 a share, and stop worrying about the opportunity for investment in the Utility after 24 months post the 1 year refresh. That's the main message today. That we have to achieve a new standard of service level on behalf of our customers and there's a lot of work to do and there appears to be some tremendous empathy for doing that work, both among the customers and the policymakers and there are the financial tools to get it done. So we're not going to get it to $0.30 or $0.40, but stop worrying about the end of time happening 24 months from now. I did better than last year, I think, Carol.
Kathleen A. Lally
Ralph, from an environmental theme point, your company is extremely well-positioned. I mean, I think, we all recognize that. How do you think through, and this is more thinking about the industry not just PSEG, how do you think through the next 5 or 7 years or so in terms of things like 316b, things like coal ash, even on the outer edge carbon? About which one of those likely happen, do they happen or are there some that like maybe 316b that could be significantly watered down than others that could have a bigger impact than people think? Just curious your views on timelines, outcomes and likely -- I guess, expectations versus likely reality?
Sure. So no pun intended on watering down 316b, I hope, but just looking at the EPA public schedule and then kind of giving a little bit of a history as a teacher what might happen to that. The first of those 3 would be 316b, I think, it's a July timeframe decision that we would expect to get from EPA. And I think the reality is given the magnitude of the impact of 316b and what it would mean for variety, not just of nuclear plants, but many fossil plants, we've seen some very constructive conversations and results coming out of the EPA. And given what -- who most people expect to be the 1 or 2 candidates likely to lead EPA, being internal candidate, I would expect that continuity would be the operative word there. So I would expect while there will be some expectations for improved performance in terms of the ones through cooling and its effects on the ambient environment, nonetheless, it will be rational decision-making processing with EPA. I'm a little less able to speak about coal combustion residuals only because our shop is so clean in that regard, and we're so well taken care of. I haven't focused on that as much but that can keeps getting kicked down the road so I put that in the #2 position behind 316b. And in terms of carbon notwithstanding the agency, and I think it's going to be all at the agency, I don't see any legislative activity, notwithstanding the agencies earnest desire to do something, would simply take you back to the Clean Air Act commandments of 1990 and how clear they were with respect to traditional pollutants and how it's taken 2 decades to get anywhere. And notwithstanding the Supreme Court's decision on endangerment fining as it pertains to carbon, I think even those of us who have proponents of doing something have to admit that the Clean Air Act is not as precise and as clear in that regard. So the likelihood of the agency being able to implement as opposed to propose regulations that then has an effect, a meaningful effect on the power markets is one that I would not expect to happen over the near term.
Just a quick clarification on Slide 127, in the appendix. There's the nuclear fuel anticipated cost. Is this intended to be where the cost is hedged at? I'm not sure if I'm just seeing the colors right or wrong. So I make sure I understand.
The colors don't match.
Caroline D. Dorsa
Yes. The colors aren't quite...
They're one and the same there, Brian. There's no -- that is what's contracted. We posted...
Caroline D. Dorsa
Sorry about that.
Yes. The bars should be what the legend is or what it should be with the bars.
I just have one quick clarification. I think you said that power debt under the approved scenario will be going down but under the expanded scenario will be going up. Am I correct to assume that you're leading on the power balance sheet in that case just sort of divvying up to the parent to invest in the regulated utility? And if so, what is the total amount that you plan to raise at power?
Caroline D. Dorsa
Yes, sure. So I didn't, obviously, give out that number because what I'm trying to signal is direction here because we propose programs, right? We propose what we think should be spent but they're not approved yet so we don't get into specific forecasting. Actually, the way I think it's appropriate to think about it, John, is in the current approved program scenario, over the forecast horizon, you start to see the Utility with its cash from operations be able to contribute some dividend in the incremental investment approach, you see the Utility be keeping pretty much all of its cash. So less the case, actually, that the Utility needs net investment because remember, those programs are contemporaneous return and more that the Utility will be keeping all the cash flow. So it's not leaning on power's balance sheet going in, it's more that instead of power's debt going slightly down, goes slightly up, significant cash generator supporting the shareholder dividend, Utility just keeps on reinvest. So nice picture that clears without really looking at what you might otherwise consider subsidy.
Okay. And then just on the rate base math again. So we're at $9 billion now. I think the total approved programs, maintenance and growth, about $4.3 billion CapEx? So of the $2.2 billion of growth under the approved scenario, how much is deferred taxes and quick having an impact on the rate base number? If you can give a number, that would be great for both of those.
Caroline D. Dorsa
Yes, I can't give the number from memory, I'm sorry. But I think if you can go back, you can go back and look at our 10-K and you can pull out, right, the amount of deferred taxes that's there right now, right? So it's a multibillion dollar number, right? So you think about deferred taxes is growing faster than the net -- than the plant additions because there's a little bit of bonus for this year and then there's the normal makers, which would normally pull down that growth. But I can't give you the deferred tax forecast as we go out. But that's what's affecting the rate base piece and that's why I wanted to signal it because otherwise, you'd take the capital, you subtract the depreciation and so you actually get a higher number but don't forget the deferred taxes.
Just a quick question on credit metrics slide. Does the FFO here, do you add back the nuclear fuel amortization to this number? In other words, net income plus nuclear fuel amort or -- because I know there's -- the rating agencies treat that a little bit differently so I was wondering which one you're showing us.
Caroline D. Dorsa
Right. We treat the nuclear fuel as capital.
Okay, so thank you for being here today. Just a couple of closing comments just to acknowledge some folks. Obviously, there are many, many components to the kind of success that we've been able to realize, and that I expected us to realize going forward. One, meet that fair regulation and fair regulated and I think we have that in New Jersey in our Board of Public Utilities. We need to have open-minded and accessible policy makers and we clearly have that in the Christie administration. It's a tremendous advantage to have enlightened union leadership and we have that at PSEG, And I'm not sure if that is as ubiquitous as perhaps some of the other items I've mentioned. I never can tell you enough good things about our dedicated and talented employees. But there's probably one area where I don't spend enough time congratulating folks and that's in the leadership team that you saw here today. Actually LaRossa's first name is not Ralph, I asked him to change it so I can get credit for many of the things he does, and I enjoy that tremendously. And enough good things may have been said about him today, I don't know that it's ever possible to say those things. I will tell you, in the next 12 months, my exclusive focus with Ralph is not on energy strong, it's on making sure that everybody knows that we are not responsible for keeping the lights on the Super Bowl. We have the 26 KV lines that go to that switchyard and then the Sports & Exposition authority is responsible for the operations and maintenance for that switch port. I would sleep a lot better if I knew Ralph was in charge of that. I can't say enough good things about Randy. What he has done to derisk the holdings portfolio is just phenomenal. And at the same time, to grow the solar business, obviously, with the enormous leadership of Diana Drysdale. And then when he's not standing on one foot and balancing a rotating dish with his right hand, he's running our communications team and our strategy group. About a year or so ago, Kathleen and Caroline took me down to meet a former large shareholder who shall go nameless. And he looked me in the eye and said, okay, I like your company in the past, I'm interested in getting back in if you promise me that you will never ever again invest in communication satellite. I didn't know what the heck he was talking about. So when we came back to the office and we checked and we had invested in communication satellite. I assure you that we would not be investing in communication satellites, but Randy let's me sleep at night by derisking that portfolio. I have no doubt that 10 years from now, some CEO will be sitting here and saying and she will say, I can't believe what it is I did, but it won't be communications satellite. That, you can count on. Bill Levis. Let me just tell you a little bit about the nuclear industry, if you're not aware of it. There are no perennial losers in the nuclear industry. There are very few perennial winners in the nuclear industry. If I were to ask you to seize upon one line that Bill mentioned, it was 8 years of above 90% capacity factors in our nuclear plant. What the nuclear industry has lacked to its history has been consistency. And what Bill and Tom Joyce and the team have brought there since 2004 has been phenomenal outstanding performance, consistently improving performance. About a month or so ago, we presented our 5-year plan to the Board of Directors and as they should, they challenged me on the fact that earning guidance was going to be the same as it was the prior 5 years. And they said to me, are you sure there's enough stretch in that plant? And I responded with 2 words. I responded with Bill Levis. The man doesn't know the meaning of anything less than stretch whether it's at nuclear or fossil or ER&T. Shahid, I sleep at night like a baby. No guessing, no betting, he talked about his point of view. I use different words about our point of view. First of all, that point of view is in the dynamic hedging program. And it's founded on our deep, deep knowledge about the transmission system and the gas system in the PJM region, and how we can take advantage of temporary short-term dislocations that do occur in any highly efficient markets, such as ours. They still occur, and that's what Shahid brings to that table. Caroline, I finally realized, her initials are CD but she changed her name, too. Her original name was capital discipline. And then she took the initials and adopted Caroline Dorsa, and you would just love to see the change in discussion that's taken place over the last 3 years at our offices. 3 years ago, people would come to us with projects and Caroline, in her professional, and an understated way would say, the NPV is negative, you're not saving shareholder value, no. And then they would do a bunch of arm weighing and talked about strategic value and how this is critical, absolutely critical to the future of the company. She would patiently listen and say, but no, there's no shareholder value being created, I don't think we should do this. I don't have those conversations anymore. Nobody even comes to me with those projects anymore because of the capital discipline she's brought to the business. Caroline has an army of documents here, I have an army of people here, but day in and day out, I believe I'm confident that your questions are answered without that army of people behind her, by Kathleen Lally and Collada. And I can't say enough about them in terms of pulling together this presentation together today and answering your questions day in day out. So far too many people to name throughout the company, some of them are here today, some of them are not. But I will tell you that we are quite, quite optimistic about our future. We thank you for following us. We hope you share that confidence to the extent that you do. I thank you. That is a bright future and we invite you to join us in that future as we march forward together. Have a great day and I think there may be some food outside still left. See you next year.
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