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Correlated Risk? Or Opportunity?

In my weekend research report I write for my clients, I shared a few thoughts on correlation. This is a timely topic-we may be entering a period of the market history where a lot of assets link together. This is a risk, as there’s always the risk of getting smacked in the face when (previously) non-correlated markets snap into lockstep, but there’s another side to this, as well. Correlated risk can drive exceptional performance, for those traders who understand the risks, can fully accept those risks, and manage them appropriately. Here’s the snippet I wrote over the weekend: (click to enlarge) Correlation is a concept that is often misunderstood and much-abused in thinking and writing about financial markets. This week, we need to devote a few words to the concept of correlated risk and how to manage these risks, but, first, a few thoughts on correlation and some potential issues with the measure: Think carefully Correlation is well-understood mathematical measure, but, as in so many cases, applications to financial markets can often encourage sloppy thinking. On one hand, perhaps too much attention is focused on correlation, and this is likely a side effect of correlation’s importance in constructing portfolios; expected future correlation of assets is one of the key inputs in portfolio models, and here we arrive at one of the first issues. Few people, outside of those who have done quantitative work and study on financial market data, appreciate how variable correlations can be. Stocks are put into portfolios with the idea that they are “high beta” or “low beta” (beta is a measure of the amount of a stock’s movement that is attributable to the broad market), but, depending on what time window we measure, a stock’s beta might fluctuation between 2.0 and -1.0 within the course of a few years. Even supposedly well-established rules of thumb, such as the Dollar’s correlation to other asset prices, stock markets’ volatility’s (inverse) correlation to price movements, are highly variable. Furthermore, correlation does not show what most casual market participants might expect. It is easy to look at two lines on the chart that go in roughly the same direction and say “they must be highly correlated.” Maybe, but maybe not. Correlation can be highly deceptive when extrapolated to other time periods; it is trivial, for instance, to construct two price series that are perfectly -1.0 inversely correlated, yet both “go up” over a longer time period. (See this blog post for an example.) Last, two points that will be familiar to readers with a mathematical background, but that bear repeating: correlation does not imply causation. Every statistics student learns this in the first class she takes, but we are all vulnerable to drawing unsupportable conclusions in the heat of battle; we cannot hear this reminder too often. Second, correlation measures linear relationships. In many cases, linear correlation has application to non-linear relationships, but just be aware that relationships between markets could potentially be much richer and more complex than could be captured in a measure of correlation. Correlated portfolio risk These points are interesting (and important), but the practical issue of correlated risk demands attention. Put very simply, we put on different positions in a trading book or portfolio with the idea that they are all independent bets-some may win, some may lose, but they will each “do their own thing.” Correlated risk is the risk that, for some reason, all of these positions move in the same direction at the same time. Why might this happen? It is well-established, through decades of market history, that correlations tend to move toward 1.0 in times of market stress . These are not rare events; they happen several times each decade when supposedly unconnected assets all move in the same direction, usually led by mini-crashes in stock prices. In retrospect, there’s always some “obvious” connection, but psychology is the driver. Market participants become scared and basically scramble for the exits all at the same time. However, risk is a double-edged sword, and one of those edges works for us. Risk is the companion of opportunity, and, in fact, we can reduce our job to taking on the right kinds of risk and managing them appropriately. Over a long period of time, many traders find that their returns tend to be concentrated in certain time periods; this is true both of discretionary traders and of trading systems in test and design. During these periods, risks tend to high and correlated, but there is an important lesson here. Accepting these correlated risks can lead to outsized returns. We may wish it were otherwise, but trading and investing are uncertain games of chance. We may wish for steady returns and a rising equity curve that looks like a straight line (or an exponential curve), but reality is messier. Reality is periods of feast and famine, and correlated risks typically are high in the rich periods. We should be aware of these risks and manage them, but we should see them for what they are-a real risk with real potential rewards and, potentially, a major driver of potential outperformance.

Public Service Enterprise Group (PEG) Ralph Izzo on Q4 2014 Results – Earnings Call Transcript

Public Service Enterprise Group, Inc. (NYSE: PEG ) Q4 2014 Earnings Call February 20, 2015 11:00 am ET Executives Kathleen A. Lally – Vice President-Investor Relations Ralph Izzo – Chairman, President & Chief Executive Officer Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Analysts Julien Dumoulin-Smith – UBS Securities LLC Dan L. Eggers – Credit Suisse Securities (NYSE: USA ) LLC (Broker) Paul Patterson – Glenrock Associates LLC Stephen Calder Byrd – Morgan Stanley & Co. LLC Travis Miller – Morningstar Research Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Operator Ladies and gentlemen, thank you for standing by. My name is Brandy, and I am your event operator today. I would like to welcome everyone to today’s conference, Public Service Enterprise Group Fourth Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session for members of the financial community. As a reminder, this conference is being recorded today, February 20, 2015, and will be available for telephone replay beginning at 1 PM Eastern Time today until 11:30 PM Eastern Time on February 27, 2015. It will also be available as an audio webcast on PSEG’s corporate website at www.pseg.com. I would now like to turn the conference over to Kathleen Lally. Please go ahead. Kathleen A. Lally – Vice President-Investor Relations Thank you, Brandy. Good morning, everyone. Thank you for participating in our call today. As you are aware, we released our fourth quarter and full year 2014 earnings results earlier this morning. The release and attachments, as mentioned, are posted on our website, www.pseg.com, under the Investors section. We have also posted a series of slides that detail operating results by company for the quarter. Our 10-K for the period ended December 31, 2014 is expected to be filed shortly. I don’t typically read the full disclaimer statement or the comments we have on the difference between operating earnings and GAAP results, but I do ask that you read those comments contained in our slides and on our website. The disclaimer regards forward-looking statements, detailing a number of risks and uncertainties that could cause the actual results to differ materially from forward-looking statements made therein. And although we may elect to update forward-looking statements from time-to-time, we specifically disclaim any obligation to do so, even if our estimates change unless, of course, we are required to do so by applicable securities laws. We also provide commentary with regard to the difference between operating earnings and net income reported in accordance with Generally Accepted Accounting Principles in the United States. PSEG believes that the non-GAAP financial measure of operating earnings provides a consistent and comparable measure of performance to help shareholders understand trends. But I would now like to turn the call over to Ralph Izzo, Chairman, President, and Chief Executive Officer of Public Service Enterprise Group. And joining Ralph on the call is Caroline Dorsa, Executive Vice President and Chief Financial Officer. At the conclusion of their remarks, there will be time for your questions. Ralph? Ralph Izzo – Chairman, President & Chief Executive Officer Thanks, Kathleen. And thanks, everyone, for joining us today. This morning, we reported operating earnings for the full year 2014. I’m pleased to report – actually I’m more than pleased to report that 2014 was a year in which we continued to make progress on our plans to deliver for our customers and shareholders. Operating earnings for the fourth quarter were $0.49 per share, which equaled the $0.49 per share earned in 2013’s fourth quarter, bringing results for the full year to $2.76 per share or 7% greater than 2013’s operating earnings of $2.58 per share. And it was above our guidance of $2.60 to $2.75 per share. Our results are benefiting from disciplined capital allocation. PSE&G, our utility, achieved double-digit growth in earnings, adding to our track record of five years of 18% compound annual growth. As a result of an expanded capital program, earnings from our regulated company grew to represent 52% of our consolidated operating earnings, as PSE&G’s investment in transmission has grown to represent 39% of its $11.4 billion rate base. PSEG Power’s successful management of its operations, including its gas supply arrangements, supported earnings in excess of guidance for the full year and delivered substantial savings to PSE&G’s customers. In addition to being a successful year for delivering on earnings, we achieved success in many areas that will provide a lasting foundation for customer satisfaction and shareholder value. By way of a reminder, we received approval to invest $1.2 billion in Energy Strong, a program that will improve the resiliency of our electric and gas distribution systems. We have begun the work on replacing and modernizing 250 miles of gas pipe and have begun the engineering and scheduling associated with upgrading and enhancing our electric substation. The investments under the Energy Strong program, as you’ll recall, will take place over a period of three years to five years. We’re also executing well on our transmission investment program. We completed construction of two 230 kilovolt transmission lines during the year, as well as the New Jersey portion of the 500 kV Susquehanna-Roseland line. We expect the full Susquehanna-Roseland line to go into service this year, when the Pennsylvania portion of S-R is completed. The investment in transmission will support the reliable service our customers have come to expect and provide an important boost to New Jersey’s economy, as it also adds to PSE&G’s growth. PSE&G once again was named the Mid-Atlantic regions’ Most Reliable Electric Utility. This is the 13th consecutive year that PSE&G’s capabilities have been recognized. In addition to that, for the first time in its history, PSE&G received J.D. Power’s award for highest customer satisfaction for both electric and gas business service among large utilities in the region. This recognition, while important in itself, we think recognizes that PSE&G has always kept the needs of its customers uppermost as we pursue our major growth initiatives. But 2014 was not just a year of PSE&G accomplishment. PSEG Power’s combined cycle fleet produced at record levels as Power’s fossil fleet achieved the safety performance in a tough 10% of the industry. We successfully grew PSEG solar sources portfolio. In 2014, we added projects in three states that expanded solar sources portfolio to 123 megawatts of clean renewable energy. And we had a successful first year of operating the electric system of the Long Island Power Authority. I’m particularly pleased with the efforts of our PSEG Long Island team. We’re rewarded with the major improvement in customer satisfaction scores. But let me be clear, this is only the beginning of a multiyear journey for us on Long Island. Our core strategy focused on operational excellence, financial strength, and disciplined investment is anticipated to yield a third year of growth in operating earnings over the coming year. For 2015, we are initiating operating earnings guidance of $2.75 to $2.95 per share. PSE&G’s expanded investment in transmission is expected to support continued growth in operating earnings in 2015, as PSE&G’s results for the full year are expected to represent more than 50% of consolidated earnings. PSEG Power is expected to report operating earnings in line with its strong 2014 results. The investments made by PSEG Power are expected to enhance the competitiveness of its environmentally well-positioned fleet, capacity upgrades at our gas-fired combined cycle fleet, and that our nuclear units will increase the fleets output as Power’s investment in the PennEast pipeline enhances its already strong access to low cost gas from the Marcellus region. PSEG Power fleet has the characteristics envisioned by PGM’s proposed standards for capacity performance. Its diversity in dispatch and fuel mix as well as the alternative fuel capability mitigates operating risk. Power’s investment program will be focused on improving its reliability during periods of stress on the system. We also look to expand the fleet when it’s financially attractive. We were disappointed that our bid to construct the new 475 megawatt combined-cycle plant at our Bridgeport Harbor site in Connecticut didn’t clear the New England ISO’s recent capacity auction. However, we haven’t abandoned this work and we’ll invest when the markets support its development. The strategy we implemented has yielded growth. We have a robust pipeline of investment opportunities that will support further expansion of our capital program over the next five years. The program is expected to yield double-digit growth in PSE&G’s rate base, as we maintain the operating strength of Power’s generating assets. We will update you on our capital spending plans on March 2. Our financial position remained strong. An acknowledgment of our success and the strength of our platform going forward was the recent decision by our board of directors to meaningfully increase the common dividend by 5.4% to the indicative annual level of $1.56 per share. We see the potential for consistent and sustainable growth in the dividend given our business mix. Our continued positive cash flow from our generation business and our strong financial position, all supports this dividend philosophy. We’ve made significant strides in meeting our objectives for growth, as we also satisfy customer requirements and we’re not done. Of course, none of this would be possible without the contribution made by PSEG’s dedicated employees to our continued success. I look forward to discussing our investment outlook in greater detail with you at our March 2 Annual Financial Conference. I will now turn the call over to Caroline for more details on our results and we’ll be available to answer your questions after her remarks. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Thank you, Ralph and good morning, everyone. As Ralph said, PSEG reported operating earnings for the fourth quarter of $0.49 per share equal to operating earnings of $0.49 per share in last year’s fourth quarter. Our earnings for the fourth quarter brought operating earnings for the full year to $2.76 per share versus operating earnings for 2013 of $2.58 per share, or 7% growth. On slide 4, we have provided you with a reconciliation of operating earnings to net income for the quarter. And as you can see on slide 10, PSE&G provided largest contribution to earnings for the quarter. PSE&G reported operated earnings of $0.32 per share compared to $0.29 per share last year. For the quarter, Power reported operating earnings of $0.18 per share, compared with $0.23 per share last year. Enterprise/Other reported a small loss in operating earnings for the fourth quarter of a penny per share versus the operating loss of $0.03 per share reported in the fourth quarter of 2013. We’ve provided you with waterfall charts on slides 11 and 13 to take you through the net changes in quarter-over-quarter and year-over-year operating earnings by major business. So now, I will review each company in a bit more detail, starting with PSE&G. As I mentioned, PSE&G reported operating earnings for the fourth quarter of 2014 of $0.32 per share, compared with $0.29 per share for the fourth quarter of 2013 as we show on slide 15. PSE&G’s full year 2014 operating earnings were $725 million or $1.43 per share, compared with operating earnings of $612 million or $1.21 per share for 2013 for growth of 18%. PSE&G’s earnings in the fourth quarter benefited from lower operating expenses including pension and a return on its expanded capital infrastructure program, which more than offset the impact of mild weather on sales. PSE&G’s investment in transmission infrastructure increased this quarter-over-quarter earnings by $0.02 per share. The earnings improvement related to the investment in transmission in the fourth quarter was less than the earnings increases you’ve seen during each of the first three quarters of the year, and this reflects a reduction in PSE&G’s rate base at year-end associated with the deferred tax impact of the expansion of bonus depreciation. PSE&G’s tight control of its operating expenses, including lower pension expense, resulted in a quarter-over-quarter increase in earnings of $0.04 per share. The continued improvement in weather normalized gas volume and demand, which improved quarter-over-quarter earnings by a penny per share, was offset by a similar decline in electric volume and demand. And although you wouldn’t think it on a day like today, weather was actually mild relative to normal and relative to the prior year on the net reduced earnings comparisons by about a penny per share. Earnings comparisons were also affected by the absence of $0.02 per share to tax related change which benefited earnings in the prior year. Economic conditions continued to exhibit signs of an improvement in the service area, which is good news. On a weather normalized basis, gas deliveries are estimated to have increased 1% in the quarter and 3.1% for the year. Demand continues to benefit from a decline in the cost of gas, which is passed on to our residential customers and an improvement in economic growth. PSE&G announced earlier this month that it would extend through March of 2015 the credits against gas bills that it had already provided to residential customers for the months of November, December and January. A typical residential customer with these credits would experience savings on their total bill over the five months of approximately 31% or $210. Electric sales on a weather normalized basis are estimated to have declined 2.3% in the fourth quarter. The decline in the quarter reflects a number of winter storms at the end of 2013, the increased residential consumption in that year, as well as decreases in demand this quarter from some large industrial customers. By the way, weather normalization is generally good for temperature, but unfortunately there is not really a good way to adjust for storms. Overall, there was a 0.3% increase in weather normalized electric demand for the year, which we think is indicative of improving economic conditions, partially offset by continued customer conservation. PSE&G implemented an increase in transmission revenue of $182 million effective on January 1 of this year. The increase in revenue under PSE&G’s transmission formula rate will provide PSE&G with recovery off and a return on its forecast of transmission-related capital expenditures through the year. PSE&G’s investment in transmission grew to $4.5 billion at the end of 2014 or 39% of the company’s consolidated rate base of $11.4 billion, and transmission is forecasted to be well over 40% of rate base as we go forward. Let me just mention the impact of bonus depreciation. The expansion of bonus depreciation has the effect of reducing PSE&G’s transmission-related rate base with an increase in deferred taxes. We estimate PSE&G’s transmission related rate base was reduced by approximately $150 million to $200 million from prior forecast levels, and this is reflected in PSE&G’s yearend rate base of $11.4 billon. The impact of this change on 2015 revenues is not reflected in the formula rate increase that I just went through, as that filing took place prior to the enactment of the extension of bonus depreciation. But our guidance for PSE&G reflects the impact on revenue associated with the extension of bonus depreciation and we estimate that impact to be approximately $21 million. As you know, this is really a timing related issue. We get the benefit of an increase in cash over the short-term and see a decrease in the deferred tax balance over the long term. PSE&G’s operating earnings for 2015 are forecasted to grow to $735 million to $775 million. Our forecast for 2015 reflects the continued growth in PSE&G’s transmission-related rate base and the expansion of PSE&G’s investment and distribution through the Energy Strong program. Earnings for the full year will also be affected by a forecast increase in pension expense that will affect O&M. And I’ll go into a little more detail on that shortly. We expect PSE&G’s rate of earnings growth to improve beyond 2015, as the impact of bonus depreciation will annualize and pension expense is expected to be lower under long-term return and interest rate assumptions. PSE&G invested approximately $2.2 billion in 2014 on capital projects that improve the systems’ resilience and maintenance its reliability. We currently forecast an increase in PSE&G’s average capital spending for the next three years to about $2.4 billion per year. PSE&G’s investment in transmission will represent more than 50% of this new spending. We will be providing you with an updated forecast of PSE&G’s capital expenditures by year for the five-year period ending 2019 at our Annual Financial Conference on March 2 of this year, and I can tell you that spending plan remains robust. Now let’s turn to PSEG Power. As shown on slide 19, Power reported operating earnings for the fourth quarter, as I mentioned, of $0.18 per share, compared with $0.23 per share a year ago. The results for the quarter brought Power’s full year operating earnings to $642 million or $1.27 per share, compared to 2013’s operating earnings of $710 million, or $1.40 per share. The earnings release as well as slides 11 and 13 provide you with detailed analysis of the impact on Power’s operating earnings quarter-over-quarter and year-over-year from changes in revenue and costs. We’ve also provided you with more detail on generation in the quarter and for the year on slides 21 and 22. Power’s operating earnings for the fourth quarter were influenced by the known declining capacity revenues that we’ve discussed in prior calls. The monetization of Power’s gas supply position, and a reduction in operating and maintenance expense helped mitigate the effects of lower market prices for energy. As you recall, the average price for our PJM capacity declined to $166 per megawatt day from $244 per megawatt day on June 1 of 2014. The decline in price reduced Power’s quarter-over-quarter earnings by $0.09 per share. A decline in the average hedge price for energy that Power realized during the quarter relative to year-ago levels and lower market prices on Power’s open position were more than offset by Power’s ability to monetize its gas supply position. These items together led to an improvement in quarter-over-quarter earnings of $0.01 per share. The decline in Power’s O&M expenditures during the quarter improved quarter-over-quarter earnings by $0.05 per share and the decline in expense for the quarter was greater than what we’ve been forecasting at the end of the third quarter. Power’s management of maintenance outages at fossil stations coupled with the absence of outage related expenditures in the prior year resulted in a better than forecast reduction in O&M expense for the fourth quarter and led overall to lower O&M expense in 2014 versus the full year of 2013. Now let’s turn to the operations. Power’s output increased 3.1% in the quarter from year ago levels. For the year, output increased 1.3% to 54.2 terawatt hours. The fleet’s flexibility in response to volatile market conditions was demonstrated in the quarter and throughout the year. The level of production achieved by the fleet in 2014 represented the third highest level of output in the fleet’s history as our merchant generator. The nuclear fleet produced 29.1 terawatt hours or 54% of generation, operating at an average capacity factor of 89.3%. Hope Creek experienced its second best year, operating at 97.9% annual capacity factor, which helped to offset the impact of the extending refueling outage at Salem 2 earlier in 2014. The market is clearly rewarding efficient combined-cycle gas units, and Power’s combined-cycle fleet set a generation record during the year. The fleet produced 16.5 terawatt hours or 30% of our generation during the year with record levels of output from the Bergen Station and Linden Unit 1. The coal fleet produces 7.4 terawatt hours or 14% of generation and the peaking fleet’s responsiveness to market conditions particularly the abnormally cold weather experienced at the start of 2014 led to full year production of 1.2 terawatt hours. Power’s gas-fired combined-cycle fleet continues to benefit from its access to lower price gas supplies in then Marcellus Basin. For the year, gas from the Marcellus Utica region supplied approximately 60% of the PJM assets fuel requirements. This represents the larger percentage of fleet’s gas supply than was available in the past. Power’s ability to step up its acquisition of gas from the Western Marcellus and Utica Basin in addition to the use of backhaul arrangements on existing pipe in the Eastern Marcellus improved its access to this low cost resource. This supply supports higher spark spreads than implied by market pricing and allowed Power to enjoy fuel cost savings similar to the levels it enjoyed in 2013 despite the decline in energy prices. Overall Power’s gross margin per megawatt hour in the fourth quarter was $37.40 versus $45.90 last year which was driven by the capacity price reset. For the year, gross margin amounted to $42.41 per megawatt hour versus $47.10 per megawatt hour last year. And slide 24 provides detail on Power’s gross margin for the quarter and the year. Power is forecasting a further improvement in output in 2015 to 55 terawatt hours to 57 terawatt hours. The increase is primarily the result of investments we have made to expand the capacity of our nuclear and combined cycle fleet. Following the completion of the Basic Generation Service auction in New Jersey earlier this month, Power has hedged 100% of its base flow generation in 2015 and has hedged approximately 75% to 80% of anticipated total production for 2015 at an average price $52 per megawatt hour which compares favorably to the average hedge prices in 2014 of $48 per megawatt hour. Power has hedged approximately 50% to 55% of its forecast generation in 2016 estimated at 55 terawatt hours to 57 terawatt hours also at an average price of $52 per megawatt hour. And for 2017 Power has hedged 25% to 30% of forecast production of 55 terawatt hours to 57 terawatt hours at an average price of $52 per megawatt hour. The hedge data for 2015 and 2016 assumes BGS volumes represent approximately 11.5 terawatt hours of deliveries, about comparable to the 11.5 terawatt hours we delivered in 2014 under BGS. Based on our current hedge position for 2015, each $2 change in spark spreads would impact earnings by only $0.04 per share. This modest impact on earnings is a result of a higher percentage of output from a intermediate and peaking fleet that is hedged at this time about 40% to 45% than we had hedged a year ago, when it was really about 35% to 40% of forecasted output for the intermediate and peaking fleet. For 2016, a $1 change in natural gas pricing would impact earnings by $0.06 per share. And just for your reference, if we were fully open, the $1 change in natural gas pricing would impact earnings by about $0.24 per share. The BGS auction for PSE&G customers for the three-year period beginning June 1 of 2015 and ending on May 31, 2018 was priced at $99.54 per megawatt hour. This contract for one third of the load will replace the contract for $83.88 per megawatt hour, which expires on May 31 of this year. This latest auction is based on an average price for energy at the PJM West Hub of about $37 per megawatt hour to $38 per megawatt hour, which is similar to the base price for energy seen in the last two auctions. The BGS auction continues to represent the key means for Power to hedge basis associated with baseload output. Power’s hedging strategy is consistent with what you’ve seen in the past. Power maintains open positions on a portion of its intermediate and load following assets and this allows Power to capture any benefits associated with weather-related demand in the summer months and contain the risks associated with fuller requirements contracts like BGS. Power took advantage of market strengths earlier in 2014 to hedge its output. And given favorable pricing, Power is also committed to serve a larger percentage of load under the BGS contract in this latest auction, which, of course, will have its proportional impact across the upcoming three years. Power’s operating earnings for 2015 are forecast at $620 million to $680 million. We’re very pleased that our anticipated results are essentially in line with 2014’s operating results. Comparative results for the full year will be affected by a decline in capacity revenues which will essentially be fully offset an increase in the average price received on energy hedges and a modest increase in O&M. Turning to Enterprise and Other, PSEG Enterprise/Other reported an operating earnings loss for the fourth quarter of $4 million or about $0.01 per share, which compares to a loss in operating earnings of $11 million or $0.03 per share for the fourth quarter of 2013. The results for the fourth quarter brought full-year 2014 operating earnings to $33 million or $0.06 per share, compared with 2013’s operating loss of $13 million or $0.03 per share. The difference in operating results quarter-over-quarter reflects primarily the absence of tax payments and other items which contributed $0.03 per share relative to the fourth quarter of 2013. For 2015, operating earnings are forecasted to fall within the range of $40 million to $45 million and results will be influenced by the contractual payments associated with the operation of PSEG Long Island, income on the lease portfolio including the benefit from the renegotiation and extension of our lease on the Grand Gulf Nuclear Generating facility. Let me now just add a word about pension expense. Last year, as you recall, we saw total pension income of about $0.02 per share as the success of our investments strategy created that pension income. In 2015, our funding level remains greater than 90%, but a lower discount rate and changes to mortality tables, offset the continued strong return we generated on the Trust resulting in net pension expense of slightly less than $0.07 per share, which is split about evenly between PSE&G and Power. Keep in mind, these are non-cash charges, and we anticipate to move back to pension income over the next two-year to three-year period given our solid funding on our long-term investment strategy. These impacts that I just mentioned are embedded in our financial plan and our guidance for growth at PSE&G and consistent performance in 2015 at Power. We still see a low-single digit growth in O&M across the company over the three-year horizon and we will talk more about that in greater detail on March 2. Lastly, just a word on our financial position. We’re in great shape to finance our capital program. At the end of 2014, we had $402 million of cash on hand and debt represented about 42% of our consolidated capital position, with debt at Power approximating 31% of its capital base and no parent debt. We’ll be updating you on our capital program at our annual financial conference but the message is the same. We can finance our robust long-term capital program and pursue a very healthy amount of growth opportunities without the need to issue equity, as we also provide our shareholders with a meaningful increase in the growth of the common dividend on sustainable basis. We’re pleased to be guiding to another year of anticipated growth in earnings for 2015 of $2.75 to $2.95 per share. Our forecast continues to reflect the benefits from PSE&G’s expanded capital program and the dynamics of Power’s fleet and access to low cost gas supplies. As you know, the common dividend was recently increased 5.4% to the indicative annual level of a $1.56 per share, and we believe we can provide shareholders with consistent and sustainable growth in the dividend going forward. With that, Brandy, I’ll turn it back to you and we’re now ready for your questions. Question-and-Answer Session Operator Ladies and gentlemen, we will now begin the question and answer session for members of the financial community. Your first question comes from the line of Julien Dumoulin-Smith with UBS. Julien Dumoulin-Smith – UBS Securities LLC Hi. Good morning. Ralph Izzo – Chairman, President & Chief Executive Officer Good morning, Julien. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Good morning, Julien. Julien Dumoulin-Smith – UBS Securities LLC Hey. First quick question. Following the Bridgeport sort of back of clearing that asset, what’s your thought about building out Power at present? I mean, are we going to look towards clearing potentially new assets in different markets or what’s your overall thought about capital deployment at this point in time in Power or back at Public Service Utility? Ralph Izzo – Chairman, President & Chief Executive Officer So, Julien, our thinking on this hasn’t changed. Our Power markets that we’re interested in are PJM, New York and New England. We look for asset acquisitions, we look for opportunities to repower sites, we look for opportunities to extend or increase the output of our plants. As you all know, we’ve been much more successful on the later and not as successful on the former. So Peach Bottom uprate, advanced gas path improvements, a couple of peakers here and there have not been able to see the same price justification as others on asset acquisitions and similar thing happened in New England. In general, we like the New England markets from the point of view of newbuild because of the seven year. That’s a bigger hurdle to overcome in PJM because of the one-year price. On the regulated utility side, we’ll give you more detail on March 2, but there is still very much a robust capital program that we’ll be showing you for the five years, and not just in terms of transmission which has been our number one. But as we’ve talked about in the past, opportunities to accelerate the replacement of our cast iron mains system in the gas business, as well as some of the components of the Energy Master Plan that relate to energy efficiency and renewables. You may recall, it’s only been 10 months or so. So, I’m not suggesting we’re done by any means but Energy Strong was a much bigger program than what was ultimately approved, so there will be more of that, but it’s a little bit longer term than the next coming months. So there is no shortage of opportunities to deploy the capital. We are disappointed at Bridgeport Harbor, I’m not going to deny that but we’ve reefed up things we can do. Julien Dumoulin-Smith – UBS Securities LLC Great. And then perhaps moving on with what about the bidding inquiry? Any update there you can elaborate by chance where we stand? Ralph Izzo – Chairman, President & Chief Executive Officer We’re not giving any more detail on that than we have already, Julien. We don’t have any new information to update our financials and we are actively involved which FERC. We meet with them on a regular basis in terms of their questions and giving them feedback. But right now we’d rather make sure that FERC has all the information before talking much more about that on our earnings call. Julien Dumoulin-Smith – UBS Securities LLC Great. And then, if you will, I noticed PJM East just generally or specifically Public Service Zone, saw sort of a negative basis versus PJM West on a spot basis in the back half of the year. Could you talk about what dynamics you saw day-to-day in the market that would drive that and what your expectations are for forward basis East versus West hedging that specifically? Ralph Izzo – Chairman, President & Chief Executive Officer Sure. So, Julien, as we said, the Power markets at least for the foreseeable future have been turned 180 degrees. The winter is where most of the volatility and earnings potential for Power is coming from and that hasn’t changed since we started talking about that now almost two seasons ago. So when you look at basis for the year, that’s a little bit of a misleading view of the world. It’s a combination of moderate basis in the summer, very strong basis in the winter and weak basis, in fact, negative basis in the shoulder periods. But the flexibility of our fleet and the way in which we hedge it takes all that into account. Over the longer term, I think what you are going to see is the market dynamic that’s going to driven by significant infrastructure build of gas pipes from the Marcellus region to the Southeast and significant replacement of aging power plants that aren’t able to meet environmental standards in the Southeast with highly efficient natural gas combined cycle. So we don’t run the business saying that we are smarter than the market but to the extent that the market is viewed as an extend to that three-year to five-year timeframe, we still have lots of reasons to feel pretty confident in the location and quality of our asset base. Julien Dumoulin-Smith – UBS Securities LLC Great. Thank you all very much. Kathleen A. Lally – Vice President-Investor Relations Next question. Operator Your next question comes from the line of Dan Eggers with Credit Suisse. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Hey, good morning, guys. Ralph Izzo – Chairman, President & Chief Executive Officer Good morning, Dan. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Just kind of on the Power side of the outlook for Power, can you just walk through or remind us all the hedging strategies you guys are using? Obviously, you got the nice price uplift in the hedge percentages going from 100% hedged to a 100% hedged. So can you just remind us how you got that upside? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Sure. Dan, it’s Caroline. Sure. Thanks. Yeah, I cited the baseload and the total and, keep in mind, that intermediate and peaking, right? So if you look at what we told you on the third quarter call, we were still a 100% hedged on the baseload. But the differences really occurred as we’ve added hedges in that intermediate and peaking which was 5% to 10% for 2015 on the last call and is now 40% to 45%. Now, of course, piece of that would be BGS, but if you do the math on that, you’d see that’s a little less than half of the total on an estimated basis. And really what’s going on, Dan, and if you look at the curves, just look at the forward price curve, you see this there were opportunities where the prices moved up during the last quarter before they came down right at the very end, and spark spreads have been pretty robust. And so, we took advantage of those opportunities to layer on incremental hedges. And by having that incremental flexibility and putting on a little bit more and capturing those price in spark spread opportunities, that’s what’s really increased the numbers. Now, if you are asking about the change in the price of baseload, you know that we actually give one consistent price across. So even though baseload was 100%, the average price of the entirety of the book, we put that across all the hedges, but we give you the granularity of where we’re hedged between baseload and intermediate and peaking. So we like the impact that we had in the fourth quarter by adding on hedges. You know that BGS, of course, being full requirements also has some pass-through costs. But even if you strip that out you’d find that the hedges are really higher than they were from our last report. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Okay. And then – thank you for that answer. On the outlook for the utility this year, kind of if you look at the bridge or you think about mental bridge from 2014 to 2015, maybe not as much of an increase year-on-year as we would have previously modeled. Can I think of it as basically there is going to be a drag of $0.035 or $0.04 because of pension year-on-year maybe in nickel because you had some gains in 2014. And then you get a step down from what you would have expected at transmission because of the bonus depreciation. Is that the right way to think about the step year-to-year in simple terms? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President That’s exactly right, Dan. So you’re exactly on the right math, because when you look at those key things which, of course, if you think about interest rate, actuarial tables and bonus depreciation really aren’t in our control. But you’ve got your finger on the right things that take the utility growth rate perhaps lower than the expectation, but a nice growth rate nonetheless because the things that we do control, the things we’re doing to put capital to work obviously continue. And as I said, when you think about going out beyond 2015, you’d see the annualization of bonus deprecation in terms of the base versus a subsequent year effect, and then pension obviously we think being more of a one-time and then going back to normal. So you’re exactly right on how you’re thinking about it. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) And I guess this is the last question. You talked about $2.4 billion of utility CapEx. Is that just for 2015? Or are you guys thinking that’s going to be the new repeated number kind of for the five-year plan? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President So we haven’t given the five-year number, but the three-year number and you’ll see this in our 10-K when we file it, the three-year number averages about $2.4 billion per year in total for PSE&G, so I’m talking 2015, 2016 and 2017. And when you do that and you look at that, keep in mind that, as I said, transmission will be more than half of that. So you’re going to see transmission really carrying the weight of that growth. So we’re really pleased to see that on average for the next three years, and then we’ll talk more about the five years on March 2. Dan L. Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Great. Thank you, guys. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Sure. Next question? Operator Your next question comes from the line of Ashar Khan (42:04) with Visium. Operator Good morning and congratulations. Ralph Izzo – Chairman, President & Chief Executive Officer Thank you, Ashar Khan (42:10). Good morning. Operator Well, I’ve been kind of attacking (42:14) this I guess, Ralph, it’s like – year-after-year it’s like the best integrated company, and I hope we start getting discernible premium this year as we go forward. Ralph Izzo – Chairman, President & Chief Executive Officer Thanks. Operator But I wanted to go over a point that Caroline graced is that because of the all pension and all that and the hefty CapEx that you’ve mentioned, if I heard correctly Caroline, you expect the utility to then go back to somewhat closer to a 9% or 10% growth rate going forward if I do my math correctly based on the CapEx and everything for the next couple of years. Is that a fair thing which you referred to a little bit in your remarks because the growth got a little bit dampened this year from 2014 to 2015 from the pension and other things. But it should re-grow at a faster rate coming out of the blocks 2015 going forward, based on the CapEx and things which you have indicated. Am I on the right track? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Yeah. So, Ashar Khan (43:20), you are on the right track. I won’t validate a particular number that you cited there. But, yes, think about one-time effects, when you have a year-on-year effect of something like bonus depreciation which you remember, was passed at the very, very end of 2014, that has its one-year effect and then it becomes part of the base. Pension same thing, right, lower interest rates and then mortality table, which as you probably know is once in about 10-year effect, those things come in. And so, we would expect utility growth to be higher as we go on a 2015 to 2016 basis and on a 2014 to 2015 basis for exactly the reasons you cite overlaid on the backdrop of what I just mentioned, which is a continued robust investment program averaging a little bit more on an annual basis than we actually spent last year. So the fundamentals are there to provide the driver for that opportunity and we’ve got these sort of one-year effects from the two items. That’s the right way to think about it. Operator And then, if I could just then if I’m thinking through it on an investment proposition, so it’s now utility earnings with the LIPA contract and all that makeup like 55% of the earnings. And say, this is my number, if we’re growing at around 9% or 10%, on the utility that would imply a consolidated growth rate of about 5% or so. And with the dividend now growing at 5%, I mean I think so we have a value proposition, which is equal to any utility or even better than the rest of the group. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President So we certainly think we have a good value proposition, no doubt about that – and thank you for mentioning the dividend as well. Obviously, we don’t give guidance beyond the current year, as you know, because of Power, although I think we’re pretty pleased with what we’ve been able to deliver and the guidance we’re giving for Power for this year. And frankly, going forward, expect us to do the same things we’ve been doing with Power for the past few years and I think relatively successfully layering in hedging, taking advantage of opportunities when we see them, and continuing to just take advantage of a well-positioned fleet. So we do think we have a good value proposition. I just mentioned and I think you were just doing the math separately. As you know, PSEG Long Island and our operating arrangement on Long Island is not part of PSE&G’s results. It’s part of the Enterprise, but you may have been just adding that back in your calculation. Operator Okay. And if I can just end up, Ralph, we’re happy on the dividend, but do you have a payout goal in mind for the consolidated entity earnings or on the utility earnings? I just wanted to get a sense. If not the board has a payout or no? Ralph Izzo – Chairman, President & Chief Executive Officer Sure. No, we don’t, Ashar (46:21). You may recall, a few years ago, maybe about five or so, we did have a number, and we found it too limiting. The dividend is something that we discuss all the time with the board, but we have a very robust conversation. We talk about where are the earnings coming from, what is the cash being generated, where are we in the power cycle – the power price cycle, what are the cash needs of the business, what are our competitors doing, competitors for capital, that is. So it’s a very fulsome discussion and not one that lends itself to simply saying x% is the payout ratio. But we do try to guide you qualitatively recognizing that the dividend decisions are the purview of the board on a quarterly basis. But the number we put forth this time we believe is consistent with that view that we can provide a sustainable growth in the dividend. Operator Thank you so much. Cracking results. Ralph Izzo – Chairman, President & Chief Executive Officer Okay. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Next question? Operator Your next question comes from the line of Paul Patterson with Glenrock Associates. Paul Patterson – Glenrock Associates LLC Good morning, guys. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Good morning. Ralph Izzo – Chairman, President & Chief Executive Officer Good morning, Paul. Paul Patterson – Glenrock Associates LLC Just really quick, I’m sorry if I missed it. The gas monetization in Q4, could you quantify that? And is there any sort of outlook of what the opportunity might be for stuff like that going forward? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Yeah. So I didn’t quantify that specifically, Paul, in terms of a number on the quarter. What I did mention was that the gas monetization benefit was essentially similar to what we saw in 2013. So you may recall in 2013 – and I’m talking about this (47:51) differential base in our supply. 2013, it was about $0.05 and in 2014 it was just about the same level. In terms of thinking about it going forward, obviously, we don’t control that differential, but two things good to keep in mind. If you look at forward curves, you still see that differential. And so that’s valuable and we model everything on the forward curve, including thinking about that differential. What, of course, you can always think about for us that does sustain is that access. Right? So we have the access this year, given what the team has been able to accomplish in terms of providing even more access to (48:33) Marcellus and Utica gas, we’ve been able to step-up that percentage to a total of about 60%. And so, when you have the differential and we’ve got this long-term access, that’s going to stay with us, can’t say exactly what percentage every year, but long-term significant access. When that differential is there, you’d expect us to get it. Paul Patterson – Glenrock Associates LLC Okay. And then the polar vortex? It looks like we have some similar conditions out there to what we saw on January 7 of last year and the performance of plant seems to be better. And I’m wondering whether or not you think that might impact the capacity performance proceedings going on right now at FERC? Or, just in general, what do you guys see or what are you hearing out of FERC or anywhere else with respect to how that process is going or your expectations with respect to it? Ralph Izzo – Chairman, President & Chief Executive Officer So Paul, you’re right. I mean, temperatures have been averaging about 16 degrees below average the last few days and plants are operating. But I think I know for us and I suspect for others, there were some operational changes we’re able to make to reduce the amount of forced outages. Just in light of the forecast, we moved our coal piles around a little bit more so that we make sure that we didn’t face them freezing up. But what hasn’t changed for us and I suspect for others, the amount of capital investment that’s being made in the older units, which basically never run until you get six days averaging 16 degrees below zero. And I think FERC is very cognizant of that. So there’s only so much you can get out of improved performance by doing some operational prep work and eventually frictional forces that these temperatures overcome, whatever you might do in terms of preparation and those capital improvements are needed. And so, I think FERC will be supportive. I don’t want to predict any outcome. I don’t want to guarantee an outcome. But suffice it to say that there’s really two issues that are involved in making sure a power plant runs. It’s what you physically have put into the asset and what you do to ready it. And in terms of physical preparation, it’s not leaving coal piles exposed, putting buildings around them, so that they are protected from the elements, that’s a capital investment and you’re not going to do that unless you know that you’re going to get paid in the capacity market, because those typically – in our case at least, aren’t units that capture energy margin. So we’re still cautiously optimistic about what FERC will do. And we are very confident that whatever FERC does, we do have the type of fleet that will benefit from it. Paul Patterson – Glenrock Associates LLC Okay, great. I appreciate it. Kathleen A. Lally – Vice President-Investor Relations Thank you. Next question? Operator Your next question comes from the line of Stephen Byrd with Morgan Stanley. Stephen Calder Byrd – Morgan Stanley & Co. LLC Good morning. Ralph Izzo – Chairman, President & Chief Executive Officer Good morning, Steve. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Good morning. Stephen Calder Byrd – Morgan Stanley & Co. LLC Wanted to start on the utility. For 2014 and I guess going into 2015, what was the earned ROE at the utility in 2014 and what’s the assumption going into 2015 that defines the guidance? Ralph Izzo – Chairman, President & Chief Executive Officer We earned our allowed returns, Stephen, just you may recall that we have 11.68% return at transmission, and a blend of 10.3% at the utility for the most – at the distribution level a blend of 10.3% and some of the more recent program are at 9.75%. Stephen Calder Byrd – Morgan Stanley & Co. LLC Okay. So the actual results of 2015 were right at your earned level or were they in excess of the earned level? Ralph Izzo – Chairman, President & Chief Executive Officer They were right at the earned level. Stephen Calder Byrd – Morgan Stanley & Co. LLC Okay. And… Ralph Izzo – Chairman, President & Chief Executive Officer We’re investing heavily in the utility to make sure that’s the case. Stephen Calder Byrd – Morgan Stanley & Co. LLC Okay. Understood. And what’s the timing for the likely filing of the rate case? Ralph Izzo – Chairman, President & Chief Executive Officer November of 2017. Stephen Calder Byrd – Morgan Stanley & Co. LLC Is when you would file? Ralph Izzo – Chairman, President & Chief Executive Officer Is when we would file for a test year that is three months to start and nine years prospective. Typically, we may seek to push it out even further. Stephen Calder Byrd – Morgan Stanley & Co. LLC Okay. And then, looking over in terms of gas infrastructure, major theme we’ve seen is more investment in pipelines and we saw your investment there at the Power side. Do you see other potential need for gas infrastructure that looks interesting for you in your service territories, as you look at the growth of gas infrastructure? Ralph Izzo – Chairman, President & Chief Executive Officer No, not in our service territory. It seems to me that most of the gas pipeline build that’s been proposed nowadays for a variety of reasons is going from Marcellus and Utica to the Southeast and to the South. That’s a much longer conversation that we can have. There is some very good economic fundamental reasons why that’s taking place. I think we’re ready for the next question, operator. Operator Your next question comes from the line from Travis Miller with the Morningstar. Travis Miller – Morningstar Research Good morning. Thank you. Ralph Izzo – Chairman, President & Chief Executive Officer Hi, Travis. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Hi, Travis. Travis Miller – Morningstar Research Hi. One of you could talk about a little more of the incremental investments that you’ve discussed here over the last few months about Energy Strong where that stands, what filings we might see in the next three to six months opportunities, the incremental stuff, that’s not been approved for Energy Strong? Ralph Izzo – Chairman, President & Chief Executive Officer Sure, Travis. The pure Energy Strong filing, if you will, had multiple components to it. There were a series of substations, for example, that were a center piece of, I think there were 29 of them that have to be upgraded and there where we are is we’re in the engineering and design phase of that work. So that work is probably going to be the longest dated one, and when we do file for additional help in that area that’s likely to not be off for at least another year. Another big part of Energy Strong though was the $350 million program to replace some of the cast iron main system. And I think we’ve done over 200 miles of that already and that is one that is scheduled to pretty much wind down by the end of 2015. So we’ll talk more in detail about that on March 2, but that is a filing that we will be making in very, very short order to continue that program. That’s important for a whole host of reasons, not the least of which is number one. You don’t want to keep mobilizing and then de-mobilizing your workforce to do that. And as I said that’s winding down at the end of the year. But probably equally if not more important is the fact that we’ve continued to be able to pass these gas credits on to our customers. So this is the time to make the investment in infrastructure while the supply part of the bill is actually coming down, because it’s something that the customer can afford to do right now. We’re always mindful of the burden that we are putting on the customers. But there are some other parts of Energy Strong that are smaller in magnitude, but those being the two biggest ones. Some of the other things we’ve talked about in terms of potential investments that we’re still waiting to here on are the Utility 2.0 program out on Long Island. Candidly we thought that would be resolved by now, but that looks like it’s going to go out a couple more quarters into this year. We had thought we were the winner of the FERC 1000 project at Artificial Island. As you know, PJM is reconsidering that, and I don’t know exactly when a decision will be forthcoming there. We thought it would be Q1. But Q1 is now halfway gone and that decision isn’t done. The PennEast Pipeline investment we’ve made is still underway. The energy efficiency filing that we made is still having very constructive dialogue with the staff on that. So, there are things in all manners, all different stages from disappointment in terms of Bridgeport Harbor, optimism in terms of energy efficiency and a whole bunch of stuff in between. Travis Miller – Morningstar Research Okay. How much of all those programs that either haven’t been approved or at development process are included in that $2.4 billion CapEx number? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President None. Ralph Izzo – Chairman, President & Chief Executive Officer Zero, zero. Travis Miller – Morningstar Research Okay. So that’s upside. Okay. Thank you very much. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Thanks, Travis. Next question? Operator Your next question comes from the line of Jonathan Arnold with Deutsche Bank. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Good morning guys. Ralph Izzo – Chairman, President & Chief Executive Officer Good morning, Jon. Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Good morning. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Quick question on what you’ve said about the dividend, Ralph. You’ve been very clear you wanted to be, to grow consistently and sustainably. Does that mean we should anticipate similar percentage growth going forward to what you’ve just done or similar kind of share growth or how consistent are we talking? Ralph Izzo – Chairman, President & Chief Executive Officer So, let’s just put it this way, Jonathan, about 40 years ago or maybe, I think it was about then, we put a big increase into the dividend, I think it was about an $0.08 or $0.10 increase in the dividend. $0.12. Thank you, Jon. And we went out of our way to tell people that that was a significant resetting of the dividend and not to be expected as an ongoing change in the dividend. And we haven’t used those words this time. So I really don’t want to be tied to a specific number either from a cents per share or a percentage point of view, except to say that, we think this dividend increase is supportable and sustainable. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. It seems you’re growing it roughly in line with how you expect the utility earnings to grow this year, I mean, is that kind of the status policy (57:40)? Ralph Izzo – Chairman, President & Chief Executive Officer Yeah. And again – that’s a fair question, Jonathan. And I did say earlier that we look to see where the earnings in the company are coming from because, quite candidly, Power is more cyclical and the utility is more steady. But we don’t have a – it’s not formulaic. It’s not 0.9 Utility plus 0.1 Power or 1.1 Utility plus 0.2 Power. It’s clearly the fact that the utility will be well over 50% this year for the second year in a row. It depends on how you define well over. It’ll be over 15% for the second year in a row, gives us more confidence in the size of the increase and the sustainability of the increase. But we absolutely know how important it is to the shareholders. We hear about it all the time. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Okay. And then on the credit metrics, I think you mentioned that Power’s FFO-to-debt was 59% (58:33) at the end of the year. Is there anything about (58:38) you’re forecasting flattish earnings for 2015 in Power at the middle of the range. Is there any reason why FFO-to-debt wouldn’t be similar in 2015 as in 2014? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President No. So, good question, Jonathan. If you look at, you’re right, where we landed the year. Power is going to continue to be in very good shape. So I think the way to think about it is FFO-to-debt will continue to be well in excess of our floor of 30% just continuing to provide a lot of investment capacity of Power for the things that Ralph has just been talking about and of course as you know we don’t have any parent debt and so that provides us even more opportunity for regulated investments. So yeah, I continue to see Power a very robust and what I like about is it allows us to have that conversation of where else can we make incremental investments, because there is just a lot of room there and that’s a nice way to start the conversation about extra capital investment, not talking about issuing equity. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. So unless 2016 (59:39) is going to step down very significantly, it seems like mathematically there’s no way you can be sub 50% for the 2014, 2015 average, which is I think what your EEI (59:52) slide showed. Could those numbers be up by that much higher? Is that — are we on the right track there? Caroline D. Dorsa – Chief Financial Officer & Executive Vice President Yeah. So, I won’t give the specific numbers now on the call and we’ll talk more about the long-term view of things on March 2, but I think the right takeaway is that balance sheet is in terrific shape and we look for as Ralph said lots of ways to deploy it. The numbers are in really, really good shape. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Did you come close on Bridgeport Harbor or was it…? Ralph Izzo – Chairman, President & Chief Executive Officer Nice try, Jon. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. All right. Ralph Izzo – Chairman, President & Chief Executive Officer We’re not going to reveal close or not close, because as soon as I give you a qualitative answer, you’ll try to narrow me further. Jonathan Philip Arnold – Deutsche Bank Securities, Inc. Thank you. Ralph Izzo – Chairman, President & Chief Executive Officer Thank you. Operator Ralph is going to have some closing remarks and then we’ll complete the call. Thank you. Ralph Izzo – Chairman, President & Chief Executive Officer Thanks, Kathleen. So something just a little bit out of character. As many of you know – as all of you know, there is probably no bigger fan of our employees than yours truly here. There is one that I just want to make special mention of that, many of you probably have never met before, but after 40 years of service in the industry and 10 years with us, eight years as our chief nuclear officer. We did announce the retirement of Tom Joyce. Tom is just the quintessential professional, not only did he just create tremendous value for our customers and our shareholders, but he did what’s expected of every strong leader and that is he leaves behind an incredibly solid team and groomed a talented successor. But I just can’t thank Tom enough. And I thanked him yesterday in front of employees. So I want to make sure, I thank him today in front of our investors. As for the rest of my comments, it’s simply this, for those of you in the Northeast, I hope you stay warm, hang in there. Our plants are running, our gas pressures on the system are good if not only even Northeast but you are in our service territory. And I hope to see all of you a week from Monday at our annual meeting. So I hope you’re as pleased as we are with that result, and the outlook for 2015 looks even stronger. See you soon. Thank you. Kathleen A. Lally – Vice President-Investor Relations Thank you, operator. Operator Ladies and gentlemen, that does conclude your conference call for today. You may now disconnect. And thank you for your participation.