Pacific Gas & Electric Co. · NYSE:PCG
Pacific Gas & Electric — PG&E — Investor Day (February 2005)
70 slides from Pacific Gas & Electric's investor day presentation, Feb 25, 2005
Slide 1: PG&E Corporation: A Value Opportunity
PG&E Corporation: A Value Opportunity Investor Conference February 25, 2005 New York City
Slide 2: Agenda
Agenda • Welcome 8:00 – 8:10 Gabe Togneri, VP of Investor Relations PG&E Corporation • Strategic Overview 8:10 – 8:40 Peter Darbee, President & CEO PG&E Corporation • Economic and Regulatory Climate 8:40 – 9:00 Gordon Smith, President & CEO Pacific Gas and Electric Company • Operational Review - 9:0
Slide 3: Cautionary Statement Regarding Forward-Looking Information
Cautionary Statement Regarding Forward-Looking Information This presentation contains forward-looking statements regarding projected earnings, cash flows, capital expenditures, rate base and rate base growth, stock repurchases, and dividends for the 2005 - 2009 period based on assumptions, including
Slide 4: Strategic Overview
Strategic Overview Peter Darbee President and CEO PG&E Corporation
Slide 5: PG&E Corporation: A Value Opportunity
PG&E Corporation: A Value Opportunity • A pure-play utility offering a stable platform and regulated growth Stability: • minimum equity ratio and ROE • predictable revenue through 2006 • union agreements through 2007 • pass-through for procurement costs • balancing account for sales variability Regu
Slide 6: Delivering for Shareholders
Delivering for Shareholders • 2004 EPS from operations of $2.12 * • Declared 30¢ quarterly common dividend for April payment • Completed share repurchases initiated EOY 2004, $1.6B targeted for 2005 • Total shareholder return twelve months ending February** – PCG: 28.6% – S&P 500: 5.6% * See appendi
Slide 7: Near-term Priorities
Near-term Priorities • Complete financial restoration • Transform the way we do business • Address electric procurement and owned generation • Enhance communications • Invest in utility infrastructure 7 7
Slide 8: Financial Restoration
Financial Restoration • Authorized utility equity ratio of 52% achieved • Restored common dividend • $1.9B of energy recovery bonds (ERBs) issued February 10 • Up to $1.1B of additional ERBs expected to be issued in November 2005, net of generator refunds • Approximately $1B of customer savings over
Slide 9: Transforming the Way We Do Business
Transforming the Way We Do Business • A reinvention of how we deliver energy • Enterprise-wide effort to focus on the customer – Meeting customers’ increasing expectations – Providing employees with the right tools and business processes – Capturing cost efficiencies for customers Targeting better,
Slide 10: Transforming the Way We Do Business
Transforming the Way We Do Business • Culture and values – Leading indicators of long-term success – Drive relations with customers, employees and investors – Culture founded on integrity Aligning culture and values with our vision 10 10
Slide 11: Electric Procurement and Owned Generation
Electric Procurement and Owned Generation • Priority is to meet customer demand cost effectively • Near-term stability – Adequate resources to meet forecast demand – Cost recovery in place • Long-term focus – Implementation of procurement plan – Mirant settlement provides additional capacity and inv
Slide 12: Communications
Communications • Strengthening communications with our stakeholders: – Employees – Customers – Policymakers – Investors Effective communications are key to achieving our priorities 12 12
Slide 13: Investments
Investments • Base capital expenditures average $2.0B through 2009 • Assessing additional investment opportunities driven by regulatory mandates and utility needs for: – New generation – Electric transmission – Advanced metering – Reliability and technology-driven service enhancements Average annual
Slide 14: Looking Forward
Looking Forward • A focus on regulated businesses • Operational excellence benefits all stakeholders – Improves customer satisfaction levels – Attracts, retains and motivates employees – Enhances relationships with policymakers – Supports earning full authorized return for shareholders 14 14
Slide 15: Economic and Regulatory Climate
Economic and Regulatory Climate Gordon Smith President and CEO Pacific Gas and Electric Company
Slide 16: Pacific Gas and Electric Company (PG&E)
Pacific Gas and Electric Company (PG&E) • 2005 marks the 100th anniversary of PG&E • Provides energy to nearly 1 in 20 people in the U.S. • 70,000 square-mile service territory • Four main operational units: – Electric and gas distribution – Electric transmission – Gas transmission – Electric genera
Slide 17: Economic Environment
Economic Environment • Forecast for PG&E’s service territory is steady growth PG&E Service Territory PG&E Service Territory Gross Product Contribution to CA ($B) Population w/in CA (000) 40,000 $1,600 30,000 $1,200 $800 20,000 $400 10,000 $0 0 2003 2004 2005 2006 2007 2008 2003 2004 2005 2006 2007 2
Slide 18: Regulatory Environment
Regulatory Environment • Regulators and policymakers support return to stable energy policies – Utility creditworthiness • Constructive relationships with CPUC, FERC and other policy makers – Chapter 11 and General Rate Case (GRC) resolved – First series of ERBs implemented – Long-term procurement p
Slide 19: California Policymakers
California Policymakers • CPUC – Two new members in 2005 – Commissioner Peevey’s term runs through 2008; remains president • 2005 California legislative session – Activity focused on Budget, Governor’s reform agenda – Energy policy will continue to be debated 19 19
Slide 20: Current Ratemaking
Current Ratemaking • Distribution - GRC settled and approved through 2006; next GRC applies to 2007-2009 • Electric Transmission rates set at FERC through Transmission Owner (TO) cases • Gas Transmission and Storage rates set through Gas Accord framework • Generation – Return to cost of service rate
Slide 21: A Period of Stability
A Period of Stability • Focus on operational excellence • Looking forward to the next 100 years 21 21
Slide 22: Operational Review: Distribution and Transmission
Operational Review Distribution and Transmission Tom King EVP and Chief of Utility Operations Pacific Gas and Electric Company
Slide 23: Transforming Service and Operations
Transforming Service and Operations • Focus on improving customer service and achieving operational excellence • Areas of immediate focus – Electric and Gas Delivery (T&D assets) – Customer Management (e.g., call centers, field services, metering, billing) – Supply Chain (materials, procurement, log
Slide 24: Our Vision
Our Vision Satisfied Customers OUR VISION: Lead the industry Dedicated by delivering the vital People services to energize California, one of the world’s largest economies. Cost-Efficient Service 24 24
Slide 25: Realizing Through Transformation
Realizing Through Transformation Overall Approach – Integrated View What UtilityStrategy StrategyDefinition Definition We Utility Are Balancing Balancing Infrastructureand Infrastructure and Operational Operational High HighPerformance Performance How CustomerService Customer Service Excellence Exce
Slide 26: New Business Connect Example
New Business Connect Example 1, 3 Start Here Integration Points: Service 1, 2, 3 Resource Initiation 1, 2, 3 1 – Energy delivery /Asset mgmt Forecasting & Planning Schedule 2 – Supply chain Commitments 3 – Customer management 1, 2, 3 Work Close-out/ Design/ Account Reserve Management Materials/ 1, 2
Slide 27: Transformation Timeline
Transformation Timeline We Achieve and Are Deliver Here Accelerate Implementation 2007 Forward Plan, Design and Implement 2006 Strategize • Implement design • Realize immediate opportunities • Mission & Vision 2005 • Current State • Benchmarking/Field Visits • End state of vision • Opportunities def
Slide 28: Stakeholder Benefits
Stakeholder Benefits New infrastructure with less Operational rate pressure Excellence Improved service & customer satisfaction Additional process improvements Better tools & processes for employees Revenue requirement expense dollar for dollar trade-off Additional Constructive relationships Infrast
Slide 29: Distribution and Transmission
Distribution and Transmission • Investment Drivers – Load growth – Replacement of aging infrastructure – Reliability and technology-driven service enhancements Distribution and Transmission 2005-2009 Capital Expenditure Outlook ($MM) E&G Electric Gas Distribution Transmission Transmission Total Base
Slide 30: Distribution Profile
Distribution Profile • Peak load growth forecast at ~2% per year for electric* and 1.2% per year for gas • New connects average 80,000 per year for electric customers and 70,000 per year for gas customers • Aging infrastructure requires life extension or replacement – Potential additional expenditur
Slide 31: Distribution – Technology driven enhancements
Distribution – Technology driven enhancements • Advanced Metering – Nine million meters – Proven technology (one-way vs. two-way, RF vs. PLC*) – Benefits to customers: improved demand response, lower meter- reading cost, improved outage management process – Regulatory process and timing: • 1Q 2005 –
Slide 32: Distribution Capital Expenditures
Distribution Capital Expenditures • Base capital expenditures total $5.3B from 2005-2009 • Potential incremental capital expenditures of up to $1.5B (2005-2009) depending on utility infrastructure needs and advanced metering • Weighted average distribution rate base grows from $10.0B to potentially
Slide 33: Electric Transmission Profile
Electric Transmission Profile • Fastest growing operating unit • Investment driven by: – System expansions as approved by CAISO – Interconnections and upgrades triggered by new generation – Life extension and equipment replacement – Reduction of grid congestion and RMR (reliability must run) contrac
Slide 34: Electric Transmission Capital Expenditures
Electric Transmission Capital Expenditures • Base capital expenditures total $1.9B from 2005-2009 • Potential incremental capital expenditures of up to $185MM (2005-2009) depending on utility infrastructure needs • Weighted average electric transmission rate base grows from $2.1B to potentially $3.2
Slide 35: Gas Transmission Profile
Gas Transmission Profile • Investment driven by: – Public safety, reliability and service enhancements • Storage development • Access to new gas supplies – Load growth • Local transmission expansion to meet residential growth • Interconnections and expansion to serve new electric generation – Replac
Slide 36: Gas Transmission Capital Expenditures
Gas Transmission Capital Expenditures • Base capital expenditures total $640MM from 2005-2009 • Potential incremental capital spending to accommodate new gas sources in 2009 and beyond • Weighted average gas transportation rate base grows from $1.5B to $1.6B during 2005-2009 period 36 36
Slide 37: Electric Procurement and Owned Generation
Electric Procurement and Owned Generation Kent Harvey SVP, CFO and Treasurer Pacific Gas and Electric Company
Slide 38: Electric Procurement – Where We Are Today
Electric Procurement – Where We Are Today • Timely cost recovery mechanisms are in place – AB 57 established Energy Resource Recovery Account (ERRA) – Disallowance cap in place for dispatch of DWR contracts • Adequate supply to meet demand in Northern and Central California 38 38
Slide 39: Electric Procurement – Looking Forward
Electric Procurement – Looking Forward • Provide reliable electricity services to customers • Fulfill state resource adequacy requirements • Recover costs on a timely basis • Mitigate price spikes • Manage rate impacts 39 39
Slide 40: State Energy Action Plan
State Energy Action Plan • PG&E plans to meet its resource needs under the preferred loading order: – Energy efficiency programs – Demand response programs – Renewable energy – Conventional resources • Portfolio of short, mid and long-term contracts • New utility-owned generation 40 40
Slide 41: Existing Resource Mix
Existing Resource Mix • Owned generation Type Net Capacity (MW) – Diablo Canyon Nuclear 2,174 – Hydroelectric facilities Hydro 3,896 – Hunters Pt. and Humboldt Fossil 350 – Total 6,420 Other Purchased • 2004 sources of electric energy Power Irrigation 14% Owned Districts Generation 5% 33% QFs/ Renew
Slide 42: Long-term Procurement Plan Decision
Long-term Procurement Plan Decision • CPUC approved plan December 2004 • Authority to procure on rolling 10-year basis; short, mid and long- term contracts • 2,200 MW of new peaking and shaping generation to be added 2008-2010 • Power purchase agreements to be evaluated with a 20% debt equivalence f
Slide 43: Long-term Procurement Plan Implementation
Long-term Procurement Plan Implementation • RFO process for new generation – Power purchase agreements and utility owned generation – Initial bids due 2Q 2005 – 3Q/4Q 2005 target to file contracts with CPUC for approval – Potential rate base additions by 2008 • Expected transfer of Contra Costa Unit
Slide 44: Capital Expenditures – Owned Generation
Capital Expenditures – Owned Generation • Base capital expenditures total $2.0B from 2005-2009 – Diablo Canyon steam generator replacement project – Hydro maintenance-related capital and relicensing – Contra Costa 8 project in 2009 • Potential incremental capital expenditures of approximately $300MM
Slide 45: Financial Outlook
Financial Outlook Chris Johns SVP, CFO and Controller PG&E Corporation
Slide 46: Financial Objectives
Financial Objectives • Earn the full authorized return on equity – Invest in needed infrastructure • Generate strong cash flow • Ensure adequate liquidity • Strengthen credit profile 46 46
Slide 47: EPS Guidance
EPS Guidance • EPS from operations*: 2005 guidance of $2.15-$2.25 per share 2006 guidance of $2.30-$2.40 per share EPS from Operations Operating EPS Assumptions $2.50 ($ in millions) 2005 2006 $2.30 Rate base $15,350 $16,000 Equity ratio 52% 52% Auth. ROE 11.22% 11.22% $2.10 Carrying cost credits ($
Slide 48: Capital Expenditure Outlook
Capital Expenditure Outlook • Base capital expenditure plan averages $2.0B from 2005-2009 Total Base Capital Expenditure Outlook ($MM) $2,500 $2,000 $1,500 $1,000 $500 2005 2006 2007 2008 2009 Generation $300 $340 $300 $380 $700 Gas Transmission $140 $130 $135 $110 $125 Elec Transmission $525 $425 $
Slide 49: Additional Investment Opportunities
Additional Investment Opportunities • Potential incremental capital expenditures of up to $2.0B over 2005-2009 period depending on utility infrastructure needs $3,000 $2,000 $1,000 $0 2005 2006 2007 2008 2009 Distribution $35 $270 $425 $345 $410 Transmission $5 $30 $45 $80 $45 Generation - - - $300
Slide 50: Rate Base Growth
Rate Base Growth • Average annual rate base growth ranges from 4.5%-6.5% 2005-2009 depending on utility infrastructure needs Average Annual Rate Base ($B)* $20.0 $17.5 $15.0 $12.5 2005 2006 2007 2008 2009 Base Potential Incremental * 2006-2009 rate base is not adjusted for the impact of the carrying
Slide 51: EPS Growth
EPS Growth • EPS growth from operations of 4%-6% from 2005-2009 based on mid-point of 2005 guidance and depending on infrastructure needs $2.75 4%-6% growth $2.50 $2.15-$2.25 $2.25 $2.00 2005E 2006 2007 2008 2009 * See appendix for Reg G reconciliation for 2005 EPS Guidance from Operations to GAAP 5
Slide 52: Dividend Policy
Dividend Policy • Objectives – Flexibility – Sustainability – Comparability • Payout ratio range of 50%-70% • Growth balanced with funding for additional investment opportunities 52 52
Slide 53: Cash Flow and Liquidity
Cash Flow and Liquidity • Strong Cash Flow – Approximately $350MM for dividends and $1.6B targeted for repurchases in 2005 • 2005 liquidity targets – Utility: $300MM cash, $300MM undrawn credit – Holding Company: $100MM cash, $200MM credit – Evaluate as credit profile and other factors warrant 53 53
Slide 54: Credit Profile
Credit Profile • Current Ratings – Utility issuer rating: BBB (S&P) and Baa3 (Moody’s) – Utility secured debt: BBB (S&P) and Baa2 (Moody’s) • Metrics * – Business profile rating: 6 – Total debt to capitalization (EOY): 51% – Funds from operations coverage: 4.4x – Funds from operations to avg. total
Slide 55: Summary
Summary • PCG: A Value Opportunity – EPS growth of 4%-6% from 2005-2009 – Strong cash flow – Share repurchases of approximately $1.6B in 2005 55 55
Slide 56: Conclusion and Q&A
Conclusion and Q&A Peter Darbee President and CEO PG&E Corporation
Slide 57: Conclusion
Conclusion • PCG: a value opportunity with stability and solid growth prospects • A focus on the utility – Transforming operations to provide better, faster and more cost effective service – Achieving operational excellence for the benefit of all stakeholders 57 57
Slide 58: Appendix
Appendix • Reg G Reconciliation • Carrying Cost Credit Impacts • PG&E Lines of Business • Speaker Biographies
Slide 59: Reg G Reconciliation
Reg G Reconciliation 2004 2004 EPS on an Earnings from Operations Basis $2.12 Estimated Items Impacting Comparability Gain resulting from prior year impact and recongnition of reg. asset from 2003 GRC approval $0.28 Recovery of previously incurred costs related to electric industry restructuring imp
Slide 60: Reg G Reconciliation
Reg G Reconciliation 2005 Low-end High-end Year 2005 Year 2005 EPS Guidance on an Earnings from Operations Basis $2.15 $2.25 Estimated Items Impacting Comparability * Incremental interest expense ($0.08) ($0.05) EPS Guidance on a GAAP Basis $2.07 $2.20 2006 Low-end High-end Year 2006 Year 2006 EPS G
Slide 61: Carrying Cost Credit Impacts
Carrying Cost Credit Impacts Estimated Average Deferred Tax Balances for Carrying Cost Credit Impacts ($MM) 2005 2006 2007 2008 2009 2010 2011 2012 Rate Reduction and Energy Recovery Bonds * $295 $1,200 $945 $740 $590 $430 $265 $90 * Rate Reduction Bonds assumed to be fully retired at the end of 200
Slide 62: Electric & Gas Distribution
Electric & Gas Distribution Business Scope • Retail electricity and natural gas distribution service (construction, operations & maintenance) • Customer services (call centers, meter reading, billing) • 5 million electric and 4 million gas customers accounts • Service territory covers 70,000 square
Slide 63: Electric Transmission
Electric Transmission Business Scope • Wholesale electric transmission services (construction, maintenance) Malin 94% of volumes delivered for PG&E’s customers; Round Mt • 6% for other wholesale customers Existing • Operation by CA ISO Vaca Dixon 500 kV Primary Assets Moss Landing Tesla Los Banos •
Slide 64: Natural Gas Transmission
Natural Gas Transmission Business Scope • Natural Gas transportation, storage, parking and lending services • Customers: PG&E’s natural gas distribution and electric generation businesses, and California’s electric generators, industrial customers, and marketers Malin, OR Primary Assets C Tionesta $
Slide 65: Electric Procurement and Owned Generation
Electric Procurement and Owned Generation Business Scope • Electricity and ancillary services from owned and controlled Humboldt resources Conventional Hydroelectric • Energy procurement program facilities Primary Assets Hunters Point • Diablo Canyon nuclear power plant ( 2,174 MW) Helms Pumped Larg
Slide 66: Speaker Biographies
Speaker Biographies PETER A. DARBEE President and Chief Executive Officer PG&E Corporation Peter A. Darbee, a veteran of the energy, telecommunications and investment banking industries, is President and Chief Executive Officer of PG&E Corporation. Based in San Francisco, PG&E Corporation is a $30 b
Slide 67: Speaker Biographies
Speaker Biographies GORDON R. SMITH Senior Vice President PG&E Corporation President and Chief Executive Officer Pacific Gas and Electric Company Gordon R. Smith, 56, who joined Pacific Gas and Electric Company after graduation from college more than 30 years ago, is President and Chief Executive Of
Slide 68: Speaker Biographies
Speaker Biographies THOMAS B. KING Executive Vice President and Chief of Utility Operations Pacific Gas and Electric Company Thomas B. King is executive vice president and chief of utility operations of Pacific Gas and Electric Company. In that capacity, he directs the utility’s operations for gas a
Slide 69: Speaker Biographies
Speaker Biographies Christopher P. Johns Senior Vice President, Chief Financial Officer and Controller PG&E Corporation Christopher P. Johns, 44, is Senior Vice President, Chief Financial Officer and Controller of PG&E Corporation. Johns, 44, is responsible for the financial activities of the $30 bi
Slide 70: Speaker Biographies
Speaker Biographies KENT M. HARVEY Senior Vice President – Treasurer and Chief Financial Officer Pacific Gas and Electric Company Kent M. Harvey, 46, is senior vice president, chief financial officer and treasurer of Pacific Gas and Electric Company. Harvey began his career at Pacific Gas and Electr