Public Service Enterprise Group Incorporated · NYSE:PEG
Public Service Enterprise — Non-Deal Roadshow (December 2008)
54 slides from Public Service Enterprise's roadshow presentation, Dec 10, 2008
Slide 1: New York Investor Meetings
Exhibit 99 Public Service Enterprise Group New York Investor Meetings New York, New York December 10, 2008
Slide 2: Forward-Looking Statement
Forward-Looking Statement Readers are cautioned that statements contained in this presentation about our and our subsidiaries’ future performance, including future revenues, earnings, strategies, prospects and all other statements that are not purely historical, are forward-looking statements for pu
Slide 3: GAAP Disclaimer
GAAP Disclaimer PSEG presents Operating Earnings in addition to its Net Income reported in accordance with accounting principles generally accepted in the United States (GAAP). Operating Earnings is a non-GAAP financial measure that differs from Net Income because it excludes the impact of the sale
Slide 4: PSEG Strategic Overview
PSEG Strategic Overview Ralph Izzo Chairman, President and Chief Executive Officer Tom O’Flynn Executive Vice President and Chief Financial Officer
Slide 5: PSEG's diverse asset mix, operational excellence and strong balance sheet
PSEG’s diverse asset mix, operational excellence and strong balance sheet … Major merchant Stable electric and gas Redeployment of capital generation company with distribution and electric through the sale of 13,487 MW* of base- transmission company international assets. load, intermediate and rated
Slide 6: Our strategic objective is to maximize the value of our existing assets
Our strategic objective is to maximize the value of our existing assets … Regulatory and Operational Market Environment Growth with Excellence Manageable Risk Support Maintain Meet Produce and competitive strong shareholder deliver safe, market balance expectations reliable, structures sheet to for
Slide 7: PSEG is well-positioned
PSEG is well-positioned … PSEG Power’s base-load nuclear assets well situated in carbon constrained environment RGGI auction provides guide for eventual Federal action Climate Change NJ releases Energy Master Plan (EMP) PSE&G pursuing investments in energy efficiency and renewables Significant new t
Slide 8: PSEG – 2008 Highlights
PSEG – 2008 Highlights Solid earnings Maintaining 2008 guidance of $2.80 - $3.05 per share performance Supporting lower half of 2009 earnings of $3.05 - $3.35 per share PSE&G honored as America’s Most Reliable Electric Utility Strong operating performance PSEG Power – Nuclear capacity factor at 93%
Slide 9: On track to meet 2008 earnings guidance
On track to meet 2008 earnings guidance… $3.05 - $3.35 $2.80 - $3.05 $2.71 9 Months YTD Operating Earnings: $2.43* 2007 Operating Earnings* 2008 Guidance 2009 Guidance … but, potential increases in coal prices and pension / financing costs may limit growth in 2009 to lower half of forecast range. *
Slide 10: PSEG Power – Business Drivers
PSEG Power – Business Drivers 2008E 2009E 2010E+ Operating Earnings 2007A: $949M* $1,010M - $1,110M Full year of RPM Recontracting Attractive liquid Recontracting improvements continue markets leveraged to Markets RGGI begins carbon Supply and Demand dynamic tightens Strong nuclear Full year of Inst
Slide 11: PSEG Power - right set of assets in right markets
PSEG Power - right set of assets in right markets … Fuel Diversity – 2008 Low-cost portfolio Total MW: 13,487* Strong cash generator Oil Nuclear 8% Regional focus in competitive, 27 % Pumped liquid markets Storage 18% 1% 46 % Assets favorably located Coal Gas Many units east of PJM constraints South
Slide 12: Power's hedging program provides near-term stability
Power’s hedging program provides near-term stability from market volatility … Contracted Energy 100% $80 Power has 75% % sold Price $70 contracted for a (left scale) (right scale) considerable 50% $60 percentage of its output over the 25% $50 next two years at attractive prices. Estimated EPS 0% $40
Slide 13: Natural gas spark spreads and dark spreads
Natural gas spark spreads are trading in line with rising historical averages. Western Hub Spark Spread (On-Peak Henry Hub * 7.5 Heat Rate) $40 $30 $20 $10 $0 ($10) Western Hub Dark Spread (RTC Central Appalachian Coal * 10 Heat Rate) $60 $50 $40 $30 $20 $10 Annual Average Historical Forecast Dark s
Slide 14: PSE&G – Business Drivers
PSE&G – Business Drivers 2008E 2009E 2010E+ Operating Earnings $350M - $370M 2007A: $376M* FERC rate order Rate of electric sales Responding to NJ effective 10/1/08 growth expected to EMP goals: energy supports formula rate decline efficiency, carbon Markets treatment on NJ BPU rate case to abatemen
Slide 15: Through its highly skilled workforce and disciplined capital investments
Through its highly skilled workforce and disciplined capital investments … 2008 National ReliabilityOne Award winner – Winner in three of the last four years Solid regulatory relationships on traditional utility matters NJ is ranked 2nd nationally in personal income per capita Transmission Statistic
Slide 16: PSE&G's investment plan and expected fair regulatory treatment
PSE&G’s investment plan and expected fair regulatory treatment … Regulated electric transmission, electric and gas distribution system Characteristics FERC regulation for electric transmission (formula rates) NJ BPU regulation for electric and gas distribution Managing recovery lag on electric and g
Slide 17: PSEG Energy Holdings – Business Drivers
PSEG Energy Holdings – Business Drivers 2008E 2009E 2010E+ Operating Earnings $75M - $90M 2007A: $115M* Global: 2,000MW of Anticipate more Plans to pursue combined cycle normal spark spreads development of renewable Markets capacity influenced versus strong 2008 resources by gas price and market Ant
Slide 18: With the sale of international assets, Holdings is now focused
With the sale of international assets, Holdings is now focused … 2007 Operating Earnings* 2008 Guidance - Operating Earnings $ 115M $ 75M - $90M Two 1,000 MW CCGTs 1 in Central Texas (South Zone) Texas 1 in West Texas Merchant PSEG Generation Resources PSEG 23% 15% Resources 47% Texas Chile & Peru O
Slide 19: PSEG – Business Drivers
PSEG – Business Drivers 2008E 2009E 2010E+ Operating Earnings $1,420M - $1,560M 2007A: $1,377M* • Hedging and • Market mechanisms • Responding to EMP recontracting at Power and recontracting goals and need for Markets provide stability in support liquidity transmission volatile markets • RGGI in pla
Slide 20: PSEG Liquidity as of October 31, 2008
PSEG Liquidity as of October 31, 2008 Expiration Total Primary Usage at Available Company Facility Date Facility Purpose 10/31/2008 10/31/2008 ($ millions) PSEG 5-year Credit Facility Dec-12 $1,000 1 CP Support/Funding/LCs $13 $987 Bilateral Credit Facility Jun-09 100 CP Support/Funding 0 100 Uncomm
Slide 21: PSEG's share repurchase program
PSEG’s share repurchase program is a means of returning cash to shareholders … $658 million remaining of $750 million program authorized by the Board to be executed over 18 month period effective August 1, 2008. Program halted in late September to preserve liquidity in the face of instability in the
Slide 22: Our recent 10% dividend increase continues 100-year history
Our recent 10% dividend increase continues 100-year history of paying common dividends. Dividends per Share $1.29 * ? $1.17 $1.14 $1.12 2005 2006 2007 2008 2009E Payout Ratio 63% 66% 43% 44% 40 – 50% A payout objective of 40 – 50% provides opportunity for growth with earnings. 22 * Indicated annual
Slide 23: PSEG Value Proposition
PSEG Value Proposition PSEG is well-positioned in current business environment Operational excellence efforts support: • maintaining reliability • controlling costs • providing value to the customer Asset mix provides opportunities in attractive markets Strengthened balance sheet supports capital in
Slide 24: PSEG Power
PSEG Power
Slide 25: Our five-unit nuclear fleet with recent uprates
Our five-unit nuclear fleet with recent uprates … Hope Creek Operated by PSEG Nuclear Salem Units 1 and 2 PSEG Ownership: 100% Operated by PSEG Nuclear Technology: Boiling Water Reactor Ownership: PSEG - 57%, Total Capacity: ~1,211MW Exelon – 43% Peach Bottom Units 2 and 3 Technology: Owned Capacity
Slide 26: The output of our generation fleet is increasing
The output of our generation fleet is increasing … Total Power Output (GWh) 60,000 A Diverse 13,487 MW Fleet* 50,000 Nuclear 3,669 40,000 Coal 2,348 30,000 Combined Cycle 3,156 Peaking / Steam 4,314 20,000 10,000 Strong Performance 0 • Continued growth in output 2004 2005 2006 2007 Year • Improved f
Slide 27: Power's eastern coal units are in attractive markets
Power’s eastern coal units are in attractive markets … System Interface Bridgeport Harbor 3 (372MW) Hudson 2 (558MW) Mercer 1&2 (648MW) Power’s New Jersey coal units are Power is also making considerable mid-merit, with capacity factors investments beyond the pollution averaging 50% to 60%. control
Slide 28: Understanding recent power market volatility
Understanding recent power market volatility … PJM market - slight tightening in reserve margins forecast over next 5 years; FERC remains supportive of RPM capacity mechanism. Financial market volatility has adversely affected liquidity in commodity markets, particularly in out years. – PSEG Power c
Slide 29: PJM Market Overview
PJM Market Overview PJM RTO Summer Peak Forecasted Reserve Margin 23 22 21 20 19 18 2008 2009 2010 2011 2012 • PJM forecasts tightening RTO-wide reserve margins • MAAC, and especially Eastern MAAC, have tighter reserve margins than RTO-wide • Current financial and economic crisis will impact both de
Slide 30: The impact of fossil fuels on energy prices
The impact of fossil fuels on energy prices … $/MWh $/mmbtu $80 $12 Natural Gas Henry Hub (right scale) $70 Electricity $9 $60 (left scale) Coal* $50 (right $6 scale) $40 $3 $30 $20 $0 2003 2004 2005 2006 2007 2008 2009 2010 ** ** * Central Appalachian Coal Fwd Fwd ** Forward prices as of November 2
Slide 31: Zonal prices in the eastern portions of PJM
Zonal prices in the eastern portions of PJM have historically been higher than the Western Hub… $90 $80 $70 $60 $50 $40 $30 $20 2003 2004 2005 2006 2007 2008 * 2009 2010 Fwd** Fwd** PS Zone Basis Historical spot basis Forward basis … allowing Power to realize higher prices due to its assets’ favorab
Slide 32: Through the new capacity constructs, and repricing at market prices
Through the new capacity constructs, and repricing at market prices … Power’s capacity is located in three Northeast markets. NE NY Total Capacity 13,487MW* (~ 1,000 MW under RMR) PJM The RPM Auction to date has provided strong price signals in PJM. Delivery Year ($/MW-Day) Zones 2007 / 2008 2008 /
Slide 33: Power's fleet diversity and location
Power’s fleet diversity and location ... Market Perspective – BGS Auction Results Increase in Full Requirements Component Due to: Full Requirements Increased Congestion (East/West Basis) Ancillary services Increase in Capacity Markets/RPM $111.50 Capacity Volatility in Market Increases Risk Premium
Slide 34: Power has contracts for supply of its coal
Power has contracts for supply of its coal … Coal Output 16,000 12,000 Total Output 8,000 Contracted Coal 4,000 0 2008 2009 2010 2011 95-100% 70-80% 50-60% 15-25% … and after installation of pollution control equipment, Power anticipates added flexibility in fuel choices. Note: Percent coal hedged a
Slide 35: Power's contracting strategy for nuclear fuel
Power’s contracting strategy for nuclear fuel has mitigated market price increases. Historical and Contracted Nuclear Fuel Cost $10 $8 $6 $4 $2 $0 2004 2005 2006 2007 2008 2009 2010 2011 Contracted 100% of PSEG Nuclear’s fuel needs are contracted through 2011. 35
Slide 36: The Regional Greenhouse Gas Initiative (RGGI)
The Regional Greenhouse Gas Initiative (RGGI) … Cooperative effort by Northeast states to design a regional cap-and- trade program to reduce carbon RGGI dioxide (CO2) emissions States ME Timeline VT NH First RGGI allowance auction NY September 2008 MA Clearing price of $3.07/ton on 12.57M CT allowan
Slide 37: The RGGI cap on CO2 emission shows that headroom exists
The RGGI cap on CO2 emission shows that headroom exists … Affected Sources Fossil-fired electric generating CO 2 Emissions vs. RGGI Cap (Actuals through 2007) units with a capacity of 25MW and larger 200 Actual & RGGI Cap Targets and Timing 190 Forecast CO 2 Three-year compliance periods 180 with th
Slide 38: The implementation of federal carbon legislation
The implementation of federal carbon legislation … By Fuel Type Coal CTs CC Carbon tons/MWh 1.0 0.6 0.4 PSEG Power Generation by Fuel Price ($/MWh) 2007 Total GWh: 53,200* @$10/ton $10.0 $6.0 $4.0 @$20/ton $20.0 $12.0 $8.0 Nuclear @$30/ton $30.0 $18.0 $12.0 54% Dispatch curve implication @ $20/ton**
Slide 39: Power Pricing Assumptions
Power Pricing Assumptions 2008 2009 2010 2011 Volume Forecast (GWh) 55 56 56 61 EBITDA Assumption Sensitivity Impact Capacity ~ $64 - $68/kW-yr $10/kW-yr ~ $120M ~ $60 - $63/MWh Energy ~ $40M (PJM-West) $1/MWh Fuel Gas ~$7.40 to $7.90/MB $1 spark ~ $12M Coal ~ $4.00 to $5.00/MB $1 dark ~ $15M* O&M ~
Slide 40: PSE&G
PSE&G
Slide 41: PSE&G's capital program is focused on reliability investments
PSE&G’s capital program is focused on reliability investments that can earn a fair return. 2008 2009 2010 2011 2007 10-K 4-year capital program: $4.1B Sept 2008 10-Q 2009 capital program reduced by $125M PSE&G Rate Base ($ millions) 2007 Actual 2011 Base Plan Transmission 796 2,323 Gas 2,213 2,549 E
Slide 42: PSE&G's investments and regulatory profiles
PSE&G’s investments and regulatory profiles: Rate base growth supported by investment in new 500kV lines and upgrade of sub-transmission system to improve reliability. Transmission Fully-forecasted formula rates beginning October 1, 2008. Allowed ROE of 11.68%. Received FERC approval for CWIP in rat
Slide 43: By 2018, NJ's load is expected to grow by 4,000MW
By 2018, NJ’s load is expected to grow by 4,000MW while net import capability decrease by 1,300MW … Projects to NJ Projects to NY 2008-2018 NJ Summer Peak PSEG’s evaluation of the The Neptune HVDC project (685 MW) proposed backbone Annual Growth Rate = 1.8% connecting Sayreville to Long Island trans
Slide 44: FERC's recent transmission formula rate order
FERC’s recent transmission formula rate order grants an 11.68% ROE and fully-forecasted cost of service … Transmission Growth Effective October 1, 2008, PSE&G is operating under fully forecasted transmission formula rates PJM approval was received for the Susquehanna to Roseland line in October 2007
Slide 45: The New Jersey Energy Master Plan
The New Jersey Energy Master Plan released on October 22, 2008 … 2020 Goals: 20% reduction in peak demand 20% reduction in energy consumption 30% of energy requirements supplied by renewables EMP, to help achieve its goals, calls for: Redesign and transition of the State’s current energy efficiency
Slide 46: PSE&G's customers pay delivery rates lower than the regional average
PSE&G’s customers pay delivery rates lower than the regional average and ... Electricity Gas 2007-2011 Growth = 1.5% 2007-2011 Growth = 1.3% 8.00 Inflation = 2.3% 0.60 Inflation = 2.3% 6.8 0.48 Transmission 0.44 5.4 0.42 5.1 0.40 4.00 Distribution 0.20 0.00 0.00 2007 2011 2007 2007 2011 2007 Regiona
Slide 47: PSEG Energy Holdings
PSEG Energy Holdings
Slide 48: The performance of the Texas assets drives PSEG Global's results
The performance of the Texas assets drives PSEG Global’s results. Two 1,000MW combined cycle facilities - Highly efficient gas-fired plants, on-line in 2001 - Forced outage rate less than 2% Market Characteristics: Odessa Bilateral forward market Midland Day ahead balancing and ancillary services bi
Slide 49: The Texas market has been very dynamic
The Texas market has been very dynamic. Market PSEG Nat. Gas Reserve Gross Capacity EBITDA* Henry Hub Spot Margin Margin ($M) Factors ($M) 2006 $6.74 16% $186 54.4% $130 2007 6.94 15% 162 48.7% 104 2008 8.90 14% 210 – 220 45 – 47% 135 – 145 2009 7.42 16% 150 – 160 30 – 40% 75 – 85 Strong 2008 perfor
Slide 50: As renewable opportunities emerge
As renewable opportunities emerge … Emerging aggressive RPS targets create an opportunity PSEG is well-positioned to participate – Familiarity with infrastructure development, asset management, energy policy, project financing and power markets – Experience with domestic and international renewable
Slide 51: PSEG Resources is managing its current investment portfolio
PSEG Resources is managing its current investment portfolio … Most of exposure related to cross border leases dealt with in 2nd quarter 2008. $355 million charge to reflect potential changes to timing of tax cash flow. $135 million increase to interest reserve. 80 PSEG Resources - Earnings Profile (
Slide 52: PSEG Resources – Traditional lease investments
PSEG Resources – Traditional lease investments Property Lease 2008-2035 Pre-tax Book Investment Agreement Start Residual Cash Flow* as of 10/31/08 Type Termination ($ million) ($ million) Reliant Power Plant Aug-00 2026 & 2034 Y 423 305.4 Dynegy Power Plant May-01 2031 & 2035 Y 362.3 264.2 EME 2 Pow
Slide 53: Impact of Lease Reserves
Impact of Lease Reserves 2008 results include a charge of $490 million: $135 million after-tax increase to the interest reserve recorded in Income Tax Expense during 2Q 2008. $355 million after-tax charge reflecting a change in assumptions relating to the amount paid and timing of cash flow for cert
Slide 54: Items Excluded from Net Income to Reconcile to Operating Earnings
Items Excluded from Net Income to Reconcile to Operating Earnings ($ millions) (EPS) Nine Months Nine Months Ended Year Ended Ended Year Ended September 30, December 31, September 30, December 31, 2008* 2007** 2008* 2007** Lease Transaction Reserves: $ (490) $ - $ (0.96) $ - Impact of Asset Sales: C
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