Public Service Enterprise Group's Management Presents at 2013 Wolfe Research Power and Gas Leaders Conference (Transcript)

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Public Service Enterprise Group Inc. (NYSE:PEG)

2013 Wolfe Research Power and Gas Leaders Conference Call

September 24, 2013, 10:15 AM ET


Caroline Dorsa - Executive Vice President and Chief Financial Officer


Steve Fleishman - Wolfe Research

Steve Fleishman - Wolfe Research

So I think this will be a really interesting panel, at least this is a question, I titled the question I think about a lot, can the integrated model work. So, we'll see the answer to that question, but I think it's one of the issues we've been wrestling with a lot over the last year.

We're going to start off with Public Service Enterprise Group, better known as PEGI with Caroline Dorsa, who is the Chief Financial Officer.

Caroline Dorsa

Thank you, Steve, good morning everyone. I look forward to talking a little bit now about PSEG, and then we'll have our conversation and I guess try to answer that question that we haven't answered yet, right. So, I'll start-off by also citing the [goals] (ph) consistent with the theme, what's consistent across our presentations, good forward-looking statements.

So I encourage you, of course to reference ours and of course our materials and our 10-K filings as well and also our GAAP disclaimer, since we will be discussing GAAP and non-GAAP numbers as we typically do when we cite our earnings.

So, starting with our strategy, and I think those of you who are familiar with PSEG, you're familiar with this page, but I think it's always worth repeating. We really look at our business and manage our entire business whether it is the power business or the utility business under three key principles; disciplined investment, rigorous review of our investment opportunities to ensure that they create not only value for our customers, but value for our shareholders; operational excellence in everything we do, a very rigorous metric assessment for everything that we engage in to ensure that we are always pushing toward top quartile performance,; and then financial strength.

As you know, we have a very strong balance sheet, and I'll talk a little bit about how that positions us well for our growth in the utility as we go forward as a result of our filing for Energy Strong, and of course, an engaged workforce is what makes this all happen.

So that's -- those have been the tenants of our strategy, our financial business, and operational strategy. They have been consistent for quite a number of years, and we think they do provide the best opportunity for value, for our customers, reliability for our customers and regulators, and results for our shareholders.

In terms of our company and businesses, we are an integrated as are the other companies here this morning. You know our three businesses, but let me just review briefly for you, under the PSEG umbrella, its PSE&G, our regulated gas and electric utility, all situated in New Jersey, assets of just over $19 billion at last year's year end and you can see the operating earnings for last year as well.

We are, we think a premier utility in the state of New Jersey and positioned well for additional investment opportunities, which I'll talk a little bit more about in a moment or two, but they are both on the transmission side as well as on the distribution side in a contemporaneous return framework on the distribution side and in a formulary framework on the transmission side, so good opportunities and I think a lot more for us there, which I'll talk about.

PSEG Power, our wholesale energy generation company, about $11 billion in assets, and you can see last year's operating earnings there as well. We think we operate a low-cost, environmentally-friendly, and diverse fleet and that has some advantages based on its location and also the diversity of its fleet.

And then Energy Holdings, a smaller business for us, assets of about $1.5 billion, you can see the earnings there, and in that business we are really focused on growing our renewable profile with solar investments that we have made there. Other things that we used to have there, for example international investments are now totally gone, and so while we're cleaning up some of the rest of that portfolio, the focus is really growing that renewable business all with PPAs, so not merchant exposure.

So just a moment on PSE&G in terms of our footprint. So the map of New Jersey, as you can see the light blue is the gas territory and the shaded area is the electric territory. A little more or little less than 2 million customers depending on whether electric or gas, I'm counting each customer for each business once, in each column.

You can see that in terms of our mix. We are highly commercial relative to residential on the electric side and very light on industrial, not a lot of manufacture in the state of New Jersey. That flips around of course when you get to the gas business, which is predominantly residential and then flips around to commercial there.

We have an approved ROE from our last distribution rate case in 2010 of 10.3%, on a 51.2% equity ratio, and we are earning that authorize return. On the transmission side, we have a formula rate of 11.68% on our base formula rate, and then we have some incentives on some programs, Susquehanna-Roseland as Bill mentioned for us is 12.93% ROE again under the formula rate basis.

We have no current plans to go back in for a rate case. We don't need to do so in the near-term, and as we talk about incremental utility investments, they come on top of and with incremental clause recovery on top of our base distribution rates, and I'll talk more about those in a moment.

In terms of some of the things that we have gotten approval for in addition to our base distribution rates, you can see some of the initiatives we have made under the state's Energy Master Plan in terms of solar. We have a pretty significant program as you can see by the number of megawatts for the total program, both a loan program to incent third parties but also a Solar for All program wherein we own the actual solar assets.. and then you can see a pretty significant amount of total megawatts for those programs.

And then some energy efficiency programs, which we've also undertaken to improve the efficiency of energy utilization for our customers. All of these programs have been done with incremental rate making mechanisms sitting on top of our distribution, so contemporaneous clause recoveries, no regulatory lag.

So, we support some of the state’s social goals in terms of promoting renewables and promoting energy efficiency in ways that we think work for our customers, but also don't cause any regulatory lag for our shareholders and have all been approved with essentially the 10.3% return post our rate case everything that was approved there, our most recent solar program was approved with 10.0%.

In terms of the power business, we do like our power profile, and you can see the location of our units here on the map. Most of our units are in New Jersey, as you know, but we do have units in Pennsylvania, in Connecticut, and in New York. The things that we think characterize this portfolio well is fuel flexibility, so we are about to 57% nuclear if you look at actual generation.

And then the next biggest piece is gas and then coal, and of course gas has been running more than coal. So, we have fuel flexibility across all the fuel types. Our two major New Jersey coal plants actually also run on gas, so we had inherent fuel flexibility even in our largest coal plants in the state of New Jersey. So, a lot of opportunity we think to take advantage of the best fuel mix for our profitability.

Our assets are obviously located near load centers, and we have a diversity that is base load, intermediate, and peaking , so we're able to serve full requirements contracts like BGS. We will retain that diversity and efficiency, in 2016. We have already announced, and I know many of you are familiar with some of the deactivations HEDD related units, but we still retain a full fleet all the way up through peaking, and have some opportunities for expansion.

So we like the reliability of this fleet. We like its cost profile. It does not need significant capital investments. All of our coal plants already have the investments needed to meet the match rules, and the only significant spend that we have is for the Peach Bottom site which we co-own with Exelon and they manage for actual upgrade, so an NPV positive transaction.

So we think a nicely situated fleet of assets near load with nice diversity and flexibility, and also some of you have been asking us recently with nice access to low cost Marcellus gas. So, we do access Marcellus gas for some of our fleet, in addition to Henry Hub gas and you can see the statistics there, give us the opportunity to utilize that low cost gas both to benefit our customers in terms of utility, but also -- and their gas supply but also our power plants.

In terms of where we are going, going-forward, this is a nice picture of some key metrics, if you look at from 2008 to 2012 and then from 2012 to 2015, what we've been able to accomplish, good control on actual O&M growth from 2008 to 2012 versus the planned O&M of 2.4, but the actual is less than a percentage point. Our current forecast is about 2.2 on a CAGR basis going forward.

In terms of rate base, I think a really good story there. You can see how much money we have put into our rate base growth from where we were in 2008 to where we are at the end of 2012, and where we expect to be in 2015. And again, that transmission and Energy Master Plan growth is all contemporaneous or formula rate and then we have new filings underway for Energy Strong, which I'll talk about in a moment that can give us even incremental rate base growth.

On power, you can see the statistics there in terms of what we have been able to do in terms of generating incremental terawatt hours and managing key metrics like our E4D rate. Solar you see how we've grown this from really nothing in 2008 in holdings and then LIPA , something many of you are aware of we start in 2014 under our current existing contract should add about $0.03 a share.

In terms of our guidance, our guidance we're maintaining at $2.25 to $2.50 a share this year, but we did note at the end of the second quarter that with normal weather and normal operating performance, we expect to be at the upper end of that guidance driven by power being at the upper end of its guidance.

In terms of the mix of our businesses, so you can see over time as the rate base has grown for PSE&G, PSE&G is becoming close to 50% of our operating earnings versus where it had been just a few years ago more like a quarter of our operating earnings, and we do anticipate double-digit growth in PSE&G’s operating earnings through 2015 based on already approved programs and the opportunity to grow our rate base both on the transmission side as well as the new approvals for things like solar as well.

In terms of the two businesses and contributions in the integrated models, what we're able to do in terms of our balance sheet, if you look at this chart, which is 2012 actual data, you can see that both of our businesses are actually significant cash flow generators in terms of looking in cash from ops, or sort of the cash flow statement kind of view.

Both businesses, significant cash flow generators. We also ended the year with net cash on the balance sheet. The net debt issuances are all utility net debt issuance to support the growth in our rate base, but you can see going to the uses side that it is PSE&G that has the majority of the capital investment, and again that's consistent with growing our rate base.

As a result of this picture and if you were to roll this picture forward, we have the opportunity to support everything we are looking to do at PSE&G both approved and filed for Energy Strong without the need to do any equity issuance at all, because both businesses are significant cash flow from operations generators.

In terms of capital investment opportunity, here you can see the capital investments based on approved programs between now and 2015. A $6.3 billion at the utility, you can see the growth is $4.2 billion out of that $6.3 million, so the majority of our capital is growth and the majority of our capital is utility growth with that contemporaneous or formula rate type treatment.

We have the opportunity for new transmission investments over the same period of time beyond that base amount based on additional hardening of the system that we identified post-Sandy.

And then new distribution of $1 billion represents the 3 year period for Energy Strong, the filing that we have made with the BPU for as much as $3.9 billion over a 10 year period for, which we've asked for $2.6 billion over the first 60 months or 5 year period, all with contemporaneous return as well, that would give us some even greater opportunity to grow the PSE&G growth investments from $4.2 billion to over $5 billion over this period. So we think a lot of opportunity there for even better rate base growth at the utility, again serving our customer's needs for reliability.

In terms of our balance sheet, given the strength that we start with and the opportunity to make these investments, we're just keeping the utilities debt structure at 51.2% equity. There is opportunity for us to do that without any need for equity issuance because we ended last year with almost 60% equity in our capital structure.

And then in terms of dividend, also to focus on that for a moment where you can see the growth in our dividend over the past few year period, you can also see with the growth anticipated in PSE&G, you can see that PSE&G becomes a very significant contributor if you just took it's at income and looked at its income relative to our dividend, it would be about in the 80s in terms of the percentage sourcing of our dividend if you looked at adjustment PSE&G's earnings. So good safety and security from the dividend, but of course in terms of price that we're putting money back to work, it is PSE&G, because we have those good contemporaneous returns.

So overall we think our value proposition is straight forward, strong, good reasonable risk adjusted rates of return, contemporaneous in nature, opportunity to grow the utility by double-digit based on approved programs with opportunities for upside based on our Energy Strong program, continuing to manage our cost that power and running a lean low cost fleet that is a net access cash flow generator without significant capital investments, gives us the opportunity to make those investments at the utility without having any dilution or equity issuance need and support a solid dividend with the opportunity for future dividend growth.

So with that, I'll stop and turn it over to Steve.

Question-and-Answer Session

Steve Fleishman - Wolfe Research

Great, thanks, Caroline. So may be just to kick off with initial question. I am sure you guys have all and actually I guess Entergy, actually tried to do some kind of review of separation scenarios of the company and at this point none of you have actually done it. Maybe you could give us a little sense of when you have looked at it, what are some of the pros and cons that you've seen through that analysis and why are you kind of where you are today? Bill, do you want to take?

Unidentified Company Representative

Sure, I'll just go ahead. So I think whenever you talk about a separation in today's environment looking at the utility business standalone and the supply business for example standalone, I think on the pros side, the opportunity for kind of pure-play multiples probably is one of the stronger and more compelling reasons why you might want to consider some type of separation between the two businesses.

I think there are benefits to perhaps on the supply side if you believe in critical math and the need to grow the competitive generation fleet to a size in a low commodity market condition like we've seen now and spreading some of your overhead costs that's going to be a significant driver to some synergies perhaps you can get. So bigger probably in this case might be better in the current environment. It's not always the case, but perhaps now it is I think that's probably a pro.

On the con side, I think sometimes unraveling the supply business from what in many of our cases were formerly integrated utility companies had some challenges, so there are some internal cost structural challenges with that. You have to be careful when you unwind that that, if you don't want to leave the utility holding company, let's say with some stranded cost, that's potentially you have to look out for.

I think how you finance the two companies is a key consideration too and again whatever you're left with depending on the business mix you start with could be a factor. And then there is some -- there could be some tax complexities to it as well depending on what kind of tax basis you have in the legacy utility company and how you choose to kind of separate. So those are just kind of some preliminary thoughts on some of the pros and cons.

Unidentified Company Representative

Obviously, we think it's a good idea if we separated them, good to try to do that. For us it's a little bit different than either of my co-panelist and that it's a couple of thousand miles of geography between the majority of our merchant fleet and our utilities. They do not grow up together. They are function of the acquisitions that we made.

They were geared towards operational improvements around nuclear plants that were underperforming for the most part, and so we were able to turn around those operations. But just because at any point and move or bend, our two nuclear plants does not make commercial fleet and fully integrated utility, anything alike as far as business goes.

So for us it's a little bit easier to make that distinction because we didn't grow up with those being in the same place. So all the pros are around starting with just two different businesses, they have two different value propositions, they have two different skill sets in terms of the commercial viability of them, even though the assets that you operate are identical. And so there is a myriad of benefits that I won't really go into, mostly they are commercial and local financial, et cetera but that business is really in our case don't belong together.

The two cons that I would mention that are I guess philosophical not specific to us is; one, the operations are coming to scale the operation for 11, 12 units versus five or six. So I think that that is, we try to actually arrest that through how we're going to operate the fleets, when we're going to look at the spin, but that is certainly something that has been with while for us as we've grown the fleet of nuclear plants to be able to operate across a much larger fleet from an operational standpoint and commercially the business are not the same. And I guess the other con is that we weren't able to do it.

Caroline Dorsa

I'll add really echoing what Bill said, I think there are the potential for some of the dissynergies of causes. You have to recreate to support service organizations. So that's a little bit of a challenge. We do like the integrated model in terms of the kinds of efficiency that gives us in terms of capital redeployment.

Let's not just say, investors come do on their own separated, but we do think it's very efficient for us to be able to put money into the regulated utility during times of power price, really being lower than they have been before when the power company doesn't need the capital investment. We do like the ability to have kind of a cross pollination of our people in terms of training and development, we do think that makes a lot of sense.

So we do like the model and I think everything as Bill said I would echo. There can be tax issues and also some other things, but we do think our ability to look at each business and think about what's the best opportunities to growth in one that might be at a different time if there is growth and another gives us nice opportunities.

Steve Fleishman - Wolfe Research

One other related question, none of you mentioned the rating agency I guess specifically. And I guess in theory it would be very hard to have a generation business on its own that's investment grade. So maybe you give that up, but you also than have a pure distribution business or pure utility that maybe it's a lot easier requirements to me. So maybe just give some perspective on it? Will there be a lot of embedded capital freed up separate because of that than the requirements you have to meet today to keep your solid investment grade. Any perspective on that?

Unidentified Company Representative

Sure. Well, in PPL's case with the lower gas prices and some of the challenges we face in the capacity markets, we really pair back a lot on the capital that goes towards generation fleet. And with the size of PPL today versus where we were with 85% of our earnings coming from the regulated side of the business, the allocation of capital issue isn't probably as significant as it would be maybe in other cases.

So we really are not deploying that much capital in towards the generation business at this time and most of that big capital needs that we had for compliance type activities on the EPA front are behind us. So we don't face a significant level of new capital that needs to be deployed through that business. So it's really not a terribly important issue for us at this time.

So I think it's a good question because it does, I think you point out a good issue there around the rating agencies and the finance ability of pure merchant company with the sub-investment grade. I mean that's the nature of the business. And sitting inside at holding company like we have it, may not be on its surface the most ideal, but there are some benefits as Caroline mentioned as well. So it's again, it's a bit of some pros and cons.

Caroline Dorsa

I would say, similarly to Bill, I mean clearly there could be some pros and cons similarly to what Bill mentioned, we don't have a lot of investment in merchant business as I mentioned other than things that positive NPV. We do like frankly, at the end of the day, we like the strategic flexibility that having an investment grade solid investment grade rating as we do as you know on our power company gives us in terms of opportunities to use the balance sheet if there are opportunities that present themselves.

If we were separated, obviously it would be very, very different, but we do think that financial strength gives us options as we can look at more opportunities to grow either company because we start with a balance sheet that has room and we like that.

Steve Fleishman - Wolfe Research

I will take one more question and then we'll open it up for the audience. Just on the, one more question I guess on the unregulated businesses. Just your perspectives on potential for power recovery and just I think all of these to some degree think, things will get better. Is that a view on, your views on natural gas? Is that a view on just basic supply demand in your regions? What are your point of view thoughts there or do you just not have a point of view and you are just going to kind of leak it out?

Unidentified Company Representative

Again, I guess from our perspective we do think things are going to get better. It's a combination factors. We do think that we're going to see some constructive room to the gas market. That's going to be driven I think a little bit what we we're seeing in some areas. In our utility business for example lot of economic growth and the economic development opportunities. We see our demand related factors, doesn't mean that we believe that gas is going to get back to where it was in 2007 and '08, but we do think that there is some reasons that gas will recover somewhat from where it is today.

We also, to comment on what we talked about as today we also see that there is some things that just structurally are in the power markets where our units are that underplay heat rate in the forward market. And so we think that new power prices themselves given the lack of liquidity, power in longer-term versus gas, you see what is an implied heat rate that is not necessarily what we see when things become determine.

And we are diligently working to help the capacity markets as much as we can to actually perform the way they are supposed to, to both compensate people for the capacity that they currently own, but also to be in a position where they themselves letting the market run as opposed to some other formal fashion of capacity, where it will actually encourage new capacity shelf in the market way, most of them work today that are difficult to see how long that's going to happen just in the purely competitive nature of the capacity market itself as opposed to trends that come around, proliferate in some sort of special deal.

Unidentified Company Representative

In PJM, I think from a PPL perspective we see some, maybe what I would say is improving, I wouldn't say it's a trend, but some improving signals that we are getting from PJM management that suggest that they are going to be with couple of things hopefully before the next capacity auction in early next year and those things are import limitations. There was I think a surprise in the last auction with how much capacity was allowed into the auction from imports.

I think they are going to deal with that. I think there were some issues around individual minimum offer price requirements, some more exceptions if you will. I think they are going to deal with that. There were some concerns about the level of demand response. I think there are some things underway with that.

And then finally, there is this issue of the incremental capacity auction and the potential for people to gain that with maybe not enough penalties in that structure. So I think to Leo's point around market design, I think the ISOs are trying to address some of that concerns that they see coming down the pipe to make sure that they maintain enough capacity in the system to meet all the reliability requirements and we think that's a good thing. And obviously with the last incremental auction that just went off last week came in at a $111. That's a very significant number, that's higher than any other incremental auction in the history of these incremental auctions. So that's a positive?

On the energy side, I think to answer your question specifically, I'd see it more on the supply and demand fundamental, Steve, than I do on improving gas prices, I think you put gas prices will improve somewhat, but I think it's t power recovery is going to be driven more by demand and retirements, more retirements than or perhaps in this system and for prices today. And maybe the cost of compliance particularly with maths may not be fully embedded in the forward prices.

Caroline Dorsa

I'd say, Steve, on the capacity side for us for the last three years given where we are in Eastern PJM our capacity price results have actually been pretty steady in that $160 per megawatt day range. So that's been pretty consistent given the constraints that where we are.

We do very much support on the PJM front, the design issues getting the rules right, things that Bill mentioned, things like demand response. Having to have the right rules around what it can bid and it's going to be paid by the generator being more treated in terms of having to show up like a generator and demonstrate its liability like a generator. We support those things. We do support things that assist and think in carefully about the amount of imports and Mopar, and having a stronger kind of Mopar message there.

On the energy side, we do observe that there does appear to be less liquidity in the forward curve than there had been before. And you've seen some announcements of institutions indicate exit there, which obviously does have an issues for liquidity in the out years. That being said, very important for us always internally that we run the business and we plan the business on the forward curve.

So in terms of how we think about our O&M, in terms of how we think about capital deployment between the businesses, in terms of how we look at opportunities in the power markets, we always look at the forward curve as opposed to assume it's wrong, because while it probably won't be exactly where prices turn out to be in a few years.

We don't think it makes sense to bet against that and pay money upfront for that. So well there may be some liquidity pressures there, we're assessing that. We still run the business and certainly plan on costs and expenditures on the assumption of forward curve.

Steve Fleishman - Wolfe Research

Let me open it up to the audience for any questions? We've got Steven in the back there and there is Rob.

Unidentified Analyst

With other coal to gas switching that's going on, we hear a lot about how power flows have changed substantially on the grid maybe in different ways than they have been planned for 10 years ago say. I just sort of wondering what kind of opportunities does that give you for transmission investments, new constraints, something to come up in the system? And how did those opportunities maybe compared to lost power sales from your generation business and how much maybe this one side offset the other?

Caroline Dorsa

So I'll kick it off. For us, in terms of transmission investments, our investments are reliability driven by identify things in PJM in terms of reliability issue. So not transfer capacity type of issues, but really more reliability issues. And we have multibillion dollar program underway there.

About the PSENG, under the formula rate, obviously the opportunity for more investments under Energy Strong are something else that we're looking at up to 1.5 billion over 10 years. So opportunities there really present themselves, because of the reliability issues that have been identified by PJM. We're not really in the business of looking at large scales of energy transfer type transmission investment opportunities.

Unidentified Company Representative

I'd probably echo what Caroline just said on the PPL side. And I think with the large transmission projects they take so long to put into the planning process, that by the time you get there those anomalies if you will or those opportunities to arbitrage between gas and coal units may have gone away. So I don't think we probably take that risk on that type of project in light of how fickle some of these markets can be.

Unidentified Analyst

The Marcellus shale by 2020 is expected to basically fully supply the Northeast gas demand. If the Utica is developed there will be even more gas in the Northeast, we've already seen pretty significant big differential. If you assume like an $0.80 or $1 base differential to Henry Hub, how will this effect power markets in your territories and how do you plan the business around this kind of scenario?

Unidentified Company Representative

Such a tough one, I think Leo should answer that.

Unidentified Company Representative

Well, I mean there is a significant number of scenarios out there in terms of where gas markets may go and where power markets may go. I think the short answer to that is that as we're looking at where things are, we've got to run a lot of scenarios around where they might be. To the extent that some of those things show up and we said that we start to see actual reductions in gas prices versus what we are today. What we see real, I mean I hate to say, how the Henry Hub to Northeast bases crash like it hasn't already.

But in fact the matter is that, as those things continue it's going to make it tough for those with us who have assets that are driven by some other fuel like nuclear power. That phenomena was a major driver in the decision to close Vermont Yankee, was the fact that gas prices are now much lower than they were before, and the power markets we are in. There is not a lot of coal to gas to gas switching in the Northeast, where we are because now are coal, mostly gas [indiscernible] whether the gas was oil.

So the fact of the matter is that's just the kind of thing that we need to make sure that we keep our eye on, we keep on top of. And to the extent that you're running the coal plant and nuclear plant and things get worse before they get better. That just means you got to keep an eye on your cost structure. You got to keep an eye on investment profile. You got to make some tough calls like what we already did with Vermont Yankee, where it's actually a better economic decision not to run the plant than to continue to run the plant. Some of that is gas driven, some of that is cost driven and some of that is market design driven.

But in fact the matter is, when you say how do you plan your business around that, well we already do plan our business around that as a potential outcome of where things are today. And just like what Caroline said, everything we do marks our plan to mark because as we all know particularly if you've ever been around the competitive trading side of the business, particularly as it was developed in days of the 90s and the early part of the 2000s, that's what the price is. If you want to sell something in 2015 today, there is a price for it and that's the price, just because I think it should be higher or I believe it will go higher, it doesn't change that.

Now, the decision I make might be informed by whether I think it's going to go higher or lower and we make those bets all the time. We normally make those bets as it relates to merchant fleet, we make those bets as it relates to the integrated utility fleet as well, when we decide to build the gas plant versus the nuclear plant versus the coal plant versus some other technology, we're making a bet on the cost from all the commodities that go into that, whether it's copper, whether it's natural gas, whether it's coal, whether it's uranium. And we're making a regulatory bet on what's going to happen, whether it's environmental control or consumer costs or whatever. We have to make those all the time.

So how do we look at it is, we kind of do think of an analysis that's spreading, what those potential outcomes might be, and while we mark the plan to market and we're going to make our decisions based on how do we think that's going to turn out. One way to look at it is where we'll say well the market's here, we believe it's going to be higher, you would make one decision based on that. If you could hit the market here and things going to be lower, you make a different decision while you had the opportunity, even to hedge it out, so they wouldn't hurt you, if they were to make some sort of call so far and I'm going to close the plant now or something like that.

Caroline Dorsa

I think one thing I'd add, when you think about that question, like you're taking one variable, albeit an important and albeit one that seems to be in a sort of key change from where it was. But as we think about planning the business, right, we have to think about the multiple variables. We have to think about what's going on there. What might be happening with the actual implementation of EPA regulations, what's going to be happening what the CO2 related regulations, what's going happen to load growth, what's going happen to renewables, what will be the government's policy around all of those things, where might there be new bills, where might there be plant closures.

So a single shot variable albeit a really important one, right, how does it find its way into power prices, what's going to happen in different regions. We look at all of those together and so we can't isolate one out and say, if this happens, what will be the result, because then you'd say, what happened to the other 20 things, and then how far actually you're planning for that. And that's kind of where we try to look at them on an integrated basis, what are the interactions from one or the other, right, and then how do we think about what that means for what we commit to putting the ground versus how we were and what we wanted today and things like that. So it's a little hard to disaggregate one and say on that factor it would be this. You really just don't build the business model that way.

Steve Fleishman - Wolfe Research

Question upfront.

Unidentified Analyst

Leo, one of the drivers that you didn't mention is the political one. And I wonder particularly, in Texas, if you could comment at all on the appointment of the new commissioner. The commissioner sort of is impossible to act on anything, the way it was structured for the last year or so. And we now have a third commissioner, which is hopefully going to do something. Do you have any insight at all on her and where she might be going, where she is closer to Chairman Nelson or not, et cetera?

Unidentified Company Representative

Our view is that she is going to be a very solid commissioner. She's going to do a good job. Certainly she is got to come up a learning curve on a variety of issues in Texas, and it's somewhat complicated by the Texas' structure versus ERCOT versus non-ERCOT. And so I think there is a learning curve there that she will be more than capable of getting at.

And I think that she is going to be constructive in lot of ways, since she's coming out of the governor's office that she has and the kind of things she's been involved in. And I think that it will just add to the commission and it has probably been difficult for the just two commissioners to work their way through that process more than anything else, and to understand the implications of what happens when they don't agree more or so than when they don't or where when they do agree.

So I think it will be helpful, it will be a new source of ideas coming with a different perspective. She certainly has a good background. Our view is that she's going to be very constructive. She's very intelligent. All of the things that you like to see in a commissioner and that they should probably all three work well together.

And my guess is that I wouldn't say that any commissioner aligns with other commissioner on any. I think that they all are really well-versed in the issues. They all get up to speed on themselves and make their own calls in really informed way. And I don't that she is going to be any different. I think she's going to do a real good job.

Steve Fleishman - Wolfe Research

Great. Well, I think we've ran out of time. Thank you very much for the panel.

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