Public Service Enterprise Group Incorporated · NYSE:PEG
Public Service Enterprise — Deutsche Bank Clean Tech, Utilities & Power Conference 2012
57 slides from Public Service Enterprise's conference presentation, May 14, 2012
Slide 1: Deutsche Bank Clean Tech, Utilities & Power Conference
PSEG Public Service Enterprise Group Deutsche Bank - Clean Tech, Utilities & Power Conference New York, NY May 14, 2012
Slide 2: Forward-Looking Statement
Forward-Looking Statement Readers are cautioned that statements contained in this presentation about our future performance, including future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical, are forward-looking statements for purposes o
Slide 3: GAAP Disclaimer
GAAP Disclaimer PSEG presents Operating Earnings in addition to its Net Income reported in accordance with generally accepted accounting principles in the United States (GAAP). Operating Earnings is a non-GAAP financial measure that differs from Net Income because it excludes gains or losses associa
Slide 4: PSEG – The Business of PSEG
PSEG – The Business of PSEG Caroline Dorsa Executive Vice President and Chief Financial Officer
Slide 5: Growing an operationally excellent, integrated generation, transmission and distribution business
Growing an operationally excellent, integrated generation, transmission and distribution business Electric & Gas Delivery and Transmission Regional Wholesale Energy Renewable Investments PSE&G PSE&G positioned positioned PSEG PSEG Power’s Power’s to to meet meet NJ’s NJ’s low-cost, low-cost, base ba
Slide 6: 2011 – A year of significant accomplishment despite challenging markets
2011 – A year of significant accomplishment despite challenging markets •• NJBPU NJBPU approved approved •• 25 25 MW MW Solar Solar project project capital capital spending spending with with •• License License extensions extensions in in Arizona Arizona supportive supportive recovery recovery obtai
Slide 7: Focused program improved operating efficiency and directed capital investment to PSE&G
Focused program which improved operating efficiency and directed capital investment to PSE&G reduced the impact of lower energy prices on operating earnings 2008 PSEG Focus 2011 ($ millions, except as noted) $2.91 Operating Earnings Per Share $2.74 $69.85 PJM West RTC ($/MWh) $43.57 • 2.4% (planned)
Slide 8: Business mix has changed with PSE&G growing from 20% to 38% of operating earnings
Our business mix has changed with PSE&G growing from 20% to 38% of operating earnings Operating Earnings by Subsidiary* $3.09 $3.12 $2.74 Other $0.11 $0.12 $0.04 $2.15 $1.67 Power $2.35 $1.03 $0.85 PSE&G $0.63 2009 2010 2011 *See page A for Items excluded from Income from Continuing Operations to re
Slide 9: 2011 PSEG cash flows and free cash flow
In 2011, PSEG executed its capital program and had over $2B of free cash flow supporting the dividend and strengthening the balance sheet $4.5 PSEG 2011 Cash Flows Asset Sales & other net PSE&G cash flow Capital $3.5 Investment PSE&G Cash from Ops (1,2) Power Free Cash ($ in Billions) $2.5 Capital I
Slide 10: 2012 earnings guidance influenced by lower energy prices and PSE&G investment
Our 2012 earnings guidance is influenced by a decline in energy prices and increased investment at PSE&G 2012 Operating Earnings Forecast $2.74 $2.25 to $2.50E Earnings Per Share 2011 Operating Earnings* 2012 Guidance 10 *See page A for Items excluded from Income from Continuing Operations to reconc
Slide 11: Q1 2012 Operating Earnings by Subsidiary
Q1 2012 Operating Earnings by Subsidiary Quarter ended March 31 Operating Earnings Earnings per Share $ millions (except EPS) 2012 2011 2012 2011 PSEG Power $ 196 $ 267 $ 0.39 $ 0.53 PSE&G 197 163 0.39 0.32 PSEG Energy Holdings/Enterprise 39 1 0.07 0.00 Operating Earnings* $ 432 $ 431 $ 0.85 $ 0.85
Slide 12: PSEG EPS Reconciliation – Q1 2012 versus Q1 2011
PSEG EPS Reconciliation – Q1 2012 versus Q1 2011 1.00 $0.85 (.14) .07 $0.85 .07 0.75 Taxes .08 Lower Pricing and Transmission Formula Lower Lease Rates .03 Income (.01) Lower Volume (.10) Other Investments .01 Lower Capacity (.07) $ / share 0.50 Weather (.02) Migration (.04) D&A (.01) O&M .04 O&M (.
Slide 13: 2012 earnings guidance of $2.25 to $2.50
PSEG’s 2012 earnings guidance of $2.25 to $2.50 reflects continued improvement at PSE&G and a decline in margins at Power PSE&G Earnings Per Share Guidance 2012 Assumptions $1.20 $1.10 $1.00 $1.05 PSE&G $0.80 Growth in investments that provide $0.60 contemporaneous returns $0.40 ― Transmission $0.
Slide 14: Long-term outlook and segment EPS drivers
PSEG’s long-term outlook is influenced by Power’s hedge position and increased investment at PSE&G Segment EPS Drivers 2013 2014 Each $1/mcf Change in Natural Gas $0.04 - $0.07 $0.14 - $0.17 Each $2/Mwh Change in Spark Spread $0.04 $0.04 Each $2/Mwh Change in Dark Spread $0.01 $0.02 Each 1% Change i
Slide 15: Focus on business drivers supports overall cost control
Focus on business drivers supports overall cost control PSEG Consolidated O&M (1) $2,500 CAGR (’11-’14) = 2.9% 2012 – 2014: Cyclical maintenance $2,250 expenses at Power $2,000 Growth in transmission & $ Millions appliance service $1,750 Headcount relatively flat $1,500 Total fringe costs de
Slide 16: Investments focused on growth to meet customer requirements
Investments focused on growth to meet customer requirements PSEG 2012-2014E Capital Spending PSEG 2012-2014E Capital Spending $6.7 Billion $6.7 Billion Growth / Environmental / Maintenance by Subsidiary Holdings Growth $0.1B 1% Environmental $0.2B 3% PSE&G Maintenance PSE&G $5.4B $1.3B Growth 80% 20
Slide 17: A solid financial strategy – balance sheet strength
A solid financial strategy – balance sheet strength to direct investments to the areas of greatest growth and value potential PSEG Power PSEG Funds from Operations / Total Debt Debt as Percent of Capital 55% 55% 50% 50% 45% 45% 40% 40% 35% 35% 30% 30% 2012E 2013E 2014E 2012E 2013E 2014E • Credit met
Slide 18: Options to enhance shareholder value
PSEG has a variety of options to enhance shareholder value New Reliability Based Transmission Solar 4 All Extension Energy Efficiency Gas Infrastructure Investments at Power Holdings Solar Future Dividend Growth 18
Slide 19: 2012-2014E PSEG Sources & Uses
PSEG’s strong credit profile provides the financial flexibility for a range of ~$750M to >$1B of capital allocation options depending upon business mix and return profile 2012-2014E PSEG Sources & Uses Cash Shareholder Dividend Debt Issuances Debt Redeemed Holdings & Other Net Cash Flow PSE&G Cash P
Slide 20: Returning cash to investors through common dividends
The business of PSEG: Returning cash to investors through common dividends and preserving flexibility to invest for future growth PSEG Annual Dividend Rate 5-year Rate of Growth 3.95% 10-year Rate of Growth 2.78% $1.42 $1.37 $1.37 $1.33 $1.29 $1.17 $1.14 $1.12 $1.10 $1.08 $1.08 2002 2003 2004 2005 2
Slide 21: PSEG Value Proposition
PSEG Value Proposition Operating •Clean, low cost Nuclear, CCGT, and Coal generating fleet Excellence •Large, reliable electric and gas distribution operations •Energy markets in midst of transformational change Regulatory/ – Environmental compliance costs and low natural gas prices to force retirem
Slide 22: The Business of PSE&G
«> PSEG The Business of PSE &G
Slide 23: PSE&G is the largest electric and gas utility in New Jersey
PSE&G is the largest electric and gas distribution and transmission utility company in New Jersey providing renewable and energy efficiency solutions Electric Gas Customers 2.2 Million 1.8 Million Growth (2007 – 2011) 0.7% 0.7% Electric Sales and Gas Sold and Transported 42,506 GWh 3,527 M Therms Pr
Slide 24: Major transmission projects and FERC/PJM support
FERC and PJM support for transmission investment has created substantial opportunities for PSE&G to improve reliability while earning contemporaneous returns Major Transmission Projects 100% Total Hopatcong Inclusion of Roseland Approved Recovery of Estimated CWIP in W Orange Bergen ROE Costs Due to
Slide 25: Replacing aging distribution infrastructure
PSE&G is replacing aging distribution infrastructure to improve reliability at a reasonable return Capital Expenditures 1,000 750 ($ Millions) Dist. Capital Infrastructure 500 Programs Distribution New Business 250 Distribution Base 0 2009 2010 2011 2012E 2013E 2014E • Capital Infrastructure Program
Slide 26: Solutions to New Jersey's energy and economic development goals
Providing solutions to New Jersey’s energy and economic development goals Capital Expenditures 400 300 ($ Millions) Energy Efficiency 200 Renewables 100 0 2009 2010 2011 2012E 2013E 2014E Total Spending Remaining ($ Millions) Approval Date Amount Thru 2011 Spending Renewables April 2008/ Solar Loan
Slide 27: PSE&G projected rate base growth
PSE&G’s investment program provides opportunity for ~13% annualized growth in rate base from 2011* PSE&G Projected Rate Base 12,000 10,000 8,000 ($ Millions) 6,000 4,000 2,000 0 2009 2010 2011 2012 2013 2014 Gas Distribution Electric Distribution Transmission Solar/Energy Efficiency 27 *Starting fro
Slide 28: The Business of PSEG Power
«> PSEG The Business of PSEG Power
Slide 29: Asset diversity enables fleet optimization
Asset diversity enables fleet optimization in response to changing market dynamics Fuel Diversity Energy Produced* Energy Market Served Total8% MW: 13,060 Total GWh: 53,980 Total MW: 13,060 Oil Nuclear Baseload Nuclear 56% 9% Peaking 28% 34% Pumped 23% Storage Gas 44% 18% 1% 15% 28% 43% Coal Coal Ga
Slide 30: A well positioned fleet
A well positioned fleet RPM Zones $50 2011 RTC LMPs PSEG North PSEG Zone $48 Current plant locations Eastern MAAC $46 Bethlehem Energy Center (Albany) $44 $/MWh $42 New Haven $40 Hudson WESTERN HUB PPL RECO METED PECO JCPL PEPCO AECO DPL PSEG BGE Keystone Yards Creek Bridgeport Bergen 2011 Basis to
Slide 31: Major environmental spend positions Power for CSAPR and MATS
Conclusion of major environmental spend places Power in good position to meet CSAPR and MATS Current Regulations and Compliance Measures Keystone `Bridgeport Conemaugh Description Hudson (NJ) Mercer (NJ) (PA) (CT) (PA) Status Low Nox SCR NOx SCR SCR SCR Burners 2014 Ultra-low Power is well SO2 Scrub
Slide 32: Active gas management strategy
An active gas management strategy providing economic value to customers and our fleet • Large portfolio of gas transportation & storage assets • Manage gas supply needs of PSE&G and PSEG Power • Responsible for over 400 bcf of gas supply in 2011 • 126 bcf consumed by Power’s gas fired assets in 2011
Slide 33: Managing fleet in a volatile commodity market
Actively managing our fleet in a volatile commodity market, with an asset profile that provides diverse opportunities for value creation 2013 Forward Prices & Dark Spread* 2014 Forward Prices & Dark Spread* • Steep natural gas decline has had a major impact on US power prices and Dark Spreads • Coal
Slide 34: Managing fleet to capitalize on volatility
Managing our fleet to capitalize on volatility 2013 and 2014 RTC Henry Hub Gas Forwards* Forward Prices & Spark Spread* Spark Spread $/MWh 4 3 $/MWh $/MB 2 1 0 2013 2014 2015 • Low power prices are not a good environment for any merchant generator, although Power is more of a hybrid with long-term c
Slide 35: PJM assets well positioned along the dispatch curve
PJM assets are well positioned along the dispatch curve and maintain fuel optionality while also reducing the risk of serving full requirements contracts National Park Dispatch Cost ($/MWh) Sewaren 6 Mercer 3 Kearny 10-11 Salem 3 Burlington 8-9-11 Bergen 3 Nuclear Edison 1-2-3 Essex 10-11-12 Coal Se
Slide 36: Maximizing dispatch of coal and gas fleet
Maximizing the dispatch of our coal and gas fleet to maintain unit margins % PSEG’s PJM Coal/Gas Generation % PSEG’s PJM Coal/Gas Energy Margin 100% 100% 28% 75% 50% 55% 53% 59% 75% 66% 64% 70% 50% 50% 72% 25% 50% 45% 47% 41% 25% 34% 36% 30% 0% 0% 2008 2009 2010 2011 2008 2009 2010 2011 Coal Gas Coa
Slide 37: Managing ancillary revenue stream
Managing our ancillary revenue stream, which contributes $100M in annual margin for Power, with potential to expand services as dependence on intermittent resources grows Sync/Non-sync Reactive Regulation Black Start Reserves Nuclear √ Coal √ √ √ Combined Cycle √ √ √ CT √ √ √ √ 37
Slide 38: EPA Clean Air Act rules will impact supply
The EPA is in the process of implementing Clean Air Act rules which will impact supply Region Total Capacity Total Coal Capacity Unscrubbed Announced Coal Announced Coal (GW) (GW) Capacity Retirements Retirements (GW) (GW) (as % of total) PJM 180 79 30 14 8% NY ISO 37 2.6 0.6 0.8 2% ISO-NE 32 2.8 2.
Slide 39: HEDD emission limits require modifications of peaking units
HEDD emission limits require environmental modifications of peaking units in the state New Jersey HEDD Capacity PSEG Power HEDD Capacity ICAP MW* MW* 2,437 576 1,998 Uncontrolled; Others 404 Retire by May 1,482 453 2015** 407 Potential conversion to Gas PSEG 2,437 1,408 Water-injection, 1,187 under
Slide 40: Positioned to benefit from environmental leadership
Positioned to benefit from environmental leadership Market uplift expected as a result of environmental rules (due to retirements, derates, higher VO&M costs or higher emission allowances prices) Estimated energy impact of CSAPR and MATS: $2-$5/MWh, not fully reflected in current forward prices
Slide 41: Reliability Pricing Model recognizes locational value of fleet
The Reliability Pricing Model has recognized the locational value of Power’s generating fleet with sites in the eastern part of PJM $/MW-day 2011 / 2012 2012 / 2013 2013 / 2014 2014 / 2015 Power’s $110 $153 $244 $162 Average Prices Rest of Pool $110 $16 $28 $126 Prices Latest and upcoming auction in
Slide 42: Hedging through participation in BGS auctions
Favorably hedging our generation at customer/load centers through Power’s participation in each of the BGS auctions Market Perspective – BGS Auction Results Full Requirements Component Capacity Markets/RPM Growing Renewable Energy Requirements Component for Market Risk $111.50 $102.51 $103.72 $98.88
Slide 43: Longer term hedges provide medium term financial stability
Contracting longer term hedges and other products provides medium term financial stability Contracted Energy* Apr-Dec 2012 2013 2014 Volume TWh 25 34 34 Base Load % Hedged 100% 85-90% 35-40% (Nuclear and Base Load Coal) Price $/MWh $59 $53 $55 Volume TWh 15-16 18-20 19-21 Intermediate Coal, Combined
Slide 44: The Business of PSEG Holdings
The Business of PSEG Holdings
Slide 45: Holdings reduced its portfolio and will monetize legacy assets
Holdings has significantly reduced its portfolio and will continue to monetize legacy assets Holdings Investment $4.9B Regulated Portfolio Energy Leases & Other Texas Texas Transfer & Merchant Energy Sale ~$600M Leases LILO/SILO Lease Terminations ~$1.2B LILO/SILO Leases International & Other
Slide 46: Finding opportunities to extend operational excellence: LIPA
The business of PSEG: Finding opportunities to extend and profit from our operational excellence LIPA, a New York State agency, owns T&D and generation assets (formerly LILCO) – 1.1 million electric customers – Public / private business model: • T&D owned by LIPA • Privately operated – Sound T&D ope
Slide 47: PSEG Resources Leveraged Lease Portfolio
PSEG Resources Leveraged Lease Portfolio 3/31/12 S&P Invested Credit Lessee Equipment ($ millions) Rating* REMA (GenOn) Keystone, Conemaugh & Shawville (PA) 334 B- 3 coal fired plants (1,162 equity MW) Dynegy Holdings Danskammer & Roseton Generating Station (NY) - - 370 MW coal fired and 1,200 MW oi
Slide 48: Appendix
«> PSEG A ppendix
Slide 49: 2012 Operating Earnings Guidance - By Subsidiary
PSEG 2012 Operating Earnings Guidance - By Subsidiary $ millions (except EPS) 2012E 2011 PSEG Power $575 – $665 $ 845 PSE&G $530 – $560 $ 521 PSEG Energy Holdings/Parent $35 – $45 $ 23 Operating Earnings* $1,140 – $1,270 $ 1,389 Earnings per Share $ 2.25 – $ 2.50 $2.74 49 * See page A for Items excl
Slide 50: PSEG Consolidated Debt / Capitalization
PSEG Consolidated Debt / Capitalization $18 $16 $14 Debt (1) $12 $ Billions $10 $8 $6 Equity $4 $2 $0 (in $Millions) 12/31/2010 12/31/2011 3/31/2012 Debt 7,812 7,060 7,023 Common Shareholders Equity 9,633 10,270 10,624 Debt plus Equity 17,445 17,330 17,647 Debt Ratio 44.8% 40.7% 39.8% 50 (1) Include
Slide 51: PSEG Consolidated Debt / Capitalization
PSEG Consolidated Debt / Capitalization PSEG Consolidated ($Millions) December 31, 2010 December 31, 2011 March 31, 2012 PSE&G Short-term Debt $ - $ - $ 29 PSEG Money Pool Short-term Debt 64 - - Total Short-term Debt 64 - 29 (1) Long-term Debt : (2) Power 3,455 2,751 2,685 PSE&G 4,283 4,270 4,271 Ho
Slide 52: Power and Parent available liquidity of approximately $4.3 billion
Power and Parent available liquidity totaled approximately $4.3 billion at March 31, 2012 Company Facility Date Facility Usage Liquidity ($Millions) PSE&G 5-year Credit Facility Apr-16 $600 $29 $571 PSEG / 5-Year Credit Facility (Power) Mar-17 $1,600 $78 $1,522 Power 5-Year Credit Facility (Power) A
Slide 53: Five unit nuclear fleet is critical to Power's success
Our five unit nuclear fleet is a critical element of Power’s success Hope Creek Operated by PSEG Nuclear Salem Units 1 and 2 PSEG Ownership: 100% Operated by PSEG Nuclear Technology: Boiling Water Reactor Peach Bottom Units 2 and 3 PSEG Ownership: 57%, Total Capacity: 1,173 MW Exelon – 4
Slide 54: Nuclear fuel needs hedged through 2014
Nuclear fuel needs have been hedged through 2014 Anticipated Nuclear Fuel Cost $10 ($/MWh) $5 $0 2012 2013 2014 Hedged 54
Slide 55: Strong balance sheet positions company for new opportunities
Our focus on building a strong balance sheet places us in an advantageous position to capitalize on selected new opportunities PSEG Power 80% Funds from Operations / Total Debt 70% 60% 50% 40% Power’s free cash flow produces solid credit 30% measures despite low 20% natural gas prices 10% 0% 2009 20
Slide 56: Tax Update
Tax Update Definitive agreement reached with the IRS that settles the tax treatment for challenged lease transactions (LILO/SILO) for all tax years Settlement reached with the IRS for all federal audit issues for tax years 1997-2006 Expected net refund of ~$170M 56
Slide 57: Items Excluded from Income from Continuing Operations to Reconcile to Operating Earnings
Items Excluded from Income from Continuing Operations to Reconcile to Operating Earnings Attachment 10 PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED Reconciling Items Excluded from Continuing Operations to Compute Operating Earnings (Unaudited) For the Three Months Ended For the Year Ended Pro-forma
Public Service Enterprise Group — Deutsche Bank Clean Tech, Utilities & Power Conference 2012 on 6ix