Public Service Enterprise Group Incorporated · NYSE:PEG
Public Service Enterprise — Merrill Lynch Power & Gas Leaders Conference 2007
53 slides from Public Service Enterprise's conference presentation, Sep 26, 2007
Slide 1: Public Service Enterprise Group – Merrill Lynch Power & Gas Leaders Conference
Public Service Enterprise Group Merrill Lynch Power & Gas Leaders Conference New York City September 25, 2007
Slide 2: Forward-Looking Statement
Forward-Looking Statement The statements contained in this communication about our and our subsidiaries’ future performance, including, without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, are forward-looking statements for pur
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 of the Board, President and Chief Executive Officer
Slide 5: PSEG Overview
PSEG Overview 2007E Operating Earnings(4) : $1,245M - $1,370M 2007 EPS Guidance(4) : $4.90 - $5.30 Assets (as of 06/30/07): $28.5B Market Capitalization (as of 9/18/07): $22.25B Traditional T&D Regional Wholesale Energy Electric Customers: 2.1M Nuclear Capacity: 3,500 MW Domestic/Int’l Leveraged Gas
Slide 6: PSEG over the past year
PSEG over the past year … Smooth transition in operations Management in place PSEG Power to resume independent operation of nuclear capacity by year-end PSE&G national ReliabilityOne Award winner, two years running Partnering with NJ to meet environmental objectives in cost effective manner Investin
Slide 7: The current business environment
The current business environment … Convergence of market forces and policy creates the need to address: Environmental challenges A carbon constrained future Critical infrastructure needs Reliability and aging plant Capacity requirements in constrained markets … creates opportunities for PSEG’s long-
Slide 8: Climate change is the preeminent issue of our time
Climate change is the preeminent issue of our time … The issue cuts across the PSEG group of companies Three critical strategies are required to meet carbon reduction goals: Conservation Renewables Clean, zero and low-carbon central station electric generating capacity … with our response defining t
Slide 9: Business as usual GHG emissions increase
Business as usual GHG emissions increase… U.S. GHG Emissions 2004 – 2030 9,000 8,000 34% Increase in CO2 emissions by 2030 7,000 Residential 6,000 Commercial The Energy Information Industrial 5,000 Administration projects a 34% Transportation increase in CO2 emissions from Electric Power 4,000 2004
Slide 10: EPRI has assessed reduction opportunities in the US Power sector
EPRI has assessed reduction opportunities in the US Power sector, … … carefully noting that a multifaceted approach is needed. Source: Electric Power Research Institute (EPRI): Electric Technology in a Carbon Constrained Future CCS: Carbon Capture and Sequestration PHEV: Plug-in Hybrid Electric Vehi
Slide 11: States are not waiting for federal action
States are not waiting for federal action … Western Regional Climate Action Initiative Powering the Plains Regional Greenhouse Gas Initiative RPS standards (plus California motor vehicle VT (goal), CO2 emissions MA, RI, CT, standards (plus States Climate NJ, DE, VT, MA, RI, CT, developing Action Pla
Slide 12: Twenty-two states have Renewable Portfolio Standards
Twenty-two states have Renewable Portfolio Standards … U.S. RPS Requirements by Region 2006 - 2015 Planned Renewable Generation Share of US power demand 5% 14 Northwest Waste Coal* Rockies 12 4% 0.6 Other 10 California Solar Southwest 3% 8 Water Midwest 6 0.5 Wind 2% Texas 10.7 Mid-Atlantic 4 0.9 0.
Slide 13: Regional Greenhouse Gas Initiative (RGGI) for the power sector is real
Regional Greenhouse Gas Initiative (RGGI) for the power sector is real … Agreement between 10 northeast states to cap CO2 emissions from power plants Emissions capped at 2000-2004 baseline levels in 2009 - NJ cap = 22.9 million tons Reduce CO2 emissions by a total of 10% during 2015 – 2018 Allowance
Slide 14: Allowance distribution methodology in Cap and Trade
A key element of any Cap and Trade approach is the allowance distribution methodology. Different approaches have been debated: Grandfathered (Historical) Updated Input Output Auction RGGI states are going down path of 100% auction The price of the credits, however, is independent of the allocation m
Slide 15: Leakage needs to be addressed
Leakage needs to be addressed … 6,000,000 (6,000,000) Leakage - Emissions Increases at Out of State Plants Caused by RGGI NJ Emissions Reduced Caused by RGGI 5,000,000 (5,000,000) 4,000,000 (4,000,000) 3,000,000 RGGI Will Result in (3,000,000) a Net Increase in CO2 Emissions 2,000,000 (2,000,000) 1,
Slide 16: New Jersey climate initiatives
New Jersey climate initiatives … Energy Master Plan – No explicit CO2 target, but: 20% energy efficiency by 2020 Calls for 20% renewables by 2020 NJ Global Warming Response Act: Stabilization of economy-wide greenhouse gas emissions at 1990 levels by 2020. Reduction of economy-wide greenhouse gas em
Slide 17: New Jersey emissions differ significantly from national norms
New Jersey emissions differ significantly from national norms… 250 Business as Usual 200 150 17.7% 1990 Level 100 15.1% Transportation 50 Residential Industrial Note: 2006 Emissions from transportation 80% Below 2006 Level sector, and electric power generation Commercial attributed to end user - 199
Slide 18: PSE&G has proposed a 3-pronged approach to help meet State targets
PSE&G has proposed a 3-pronged approach to help meet State targets … … with energy efficiency as the top priority. Source: Global Energy Partners, LLC 17
Slide 19: NJ greenhouse gas emissions and goals
NJ greenhouse gas emissions and goals … 200 Business as Usual 180 PSEG Reductions 160 Energy Master Plan Goal 140 NJ Global Warming Response Act 120 PSEG Conceptual Reductions (1990 levels by 2020) 185 BAU 100 180 Annual tons of CO2 Reductions in 2020 Energy Efficiency (4.75 MM tons) 175 13.3 80 Sol
Slide 20: Policymakers are looking to Cap and Trade for the power industry
Policymakers are looking to Cap and Trade for the power industry to reduce CO2 emissions. 2004 Emission Rate Ranking (24 largest Generating Companies in PJM) 2,500 2,000 1,500 1,000 500 0 PSEG’s generation carbon intensity is lower than many competitors and benefits from virtually any form of carbon
Slide 21: The potential impact of CO2 on PSEG Power
The potential impact of CO2 on PSEG Power… By Fuel Type Coal CTs CC Carbon tons/MWh 1.0 0.6 0.4 Price ($/MWh) @$5 $5.0 $3.0 $2.0 PSEG Power Generation by Fuel @$10 $10.0 $6.0 $4.0 Total GWh: 53,617 @$30 $30.0 $18.0 $12.0 Nuclear 55% Pumped Dispatch curve implication @ $10/ton* Storage On margin $/MW
Slide 22: PSE&G – Responding to environmental challenges
PSE&G – Responding to environmental challenges … Conservation through energy efficiency improvements and investment in hybrids, electric-drive bucket trucks and alternative fuels will cut carbon emissions by 140,000 tons over 10 years Proposed investing $100 million in solar initiative that would me
Slide 23: Summary
Summary States are not waiting for federal government to take action on climate issues Key policy focus on electric sector is: Energy efficiency Renewables New nuclear Carbon capture/storage PSEG is well positioned: Generating fleet less carbon intensive than many competitors Policymakers need utili
Slide 24: PSEG – Meeting commitments
PSEG – Meeting commitments Results on track to meet earnings guidance Meeting commitment to system reliability with major expansion of transmission system Addressing NJ’s clean energy commitments Solar initiative PSE&G to use more energy efficient equipment and vehicles Focus on core businesses Tran
Slide 25: Strong earnings growth in 2007 and 2008
Strong earnings growth in 2007 and 2008 … Operating Earnings by Subsidiary 15% 37% $5.60 - $6.10 $4.90 - $5.30 $3.77* $3.71** 840-920 Power 446 515 PSE&G 347 262 340-360 Holdings 227 196 120-135 Parent (71) (66) (55)-(45) 0 2005 2006 2007E 2008E … with reduced international risk. * 2005, as reported
Slide 26: Improved earnings cause dividend payout ratio to decline below 50%
Improved earnings causes our dividend payout ratio to decline below 50% ... $2.60 70 Payout $2.50 Ratio 65 ? 60 $2.40 * $2.34 55 $2.30 $2.28 $2.24 50 $2.20 $2.20 45 $2.10 40 $2.00 35 2004 2005 2006 2007 2008 *Indicated annual dividend rate … providing us the flexibility to raise our dividend above r
Slide 27: Creating shareholder value for the long-term
Creating shareholder value for the long-term … Total Comparative Returns (8/31/97 – 8/31/07) 500 400 300 200 100 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 PEG S&P Electrics … has been and will continue to be our focus. 26
Slide 28: Public Service Enterprise Group
Public Service Enterprise Group
Slide 29: Appendix
APPENDIX
Slide 30: PSEG Power – Solidly positioned
PSEG Power – Solidly positioned … Nuclear and fossil fleet operating at historically high levels with opportunity for incremental improvement Near-term growth fueled by strong markets and roll-off of below market contracts Long-term growth influenced by: Tightening reserve margins Expansion capabili
Slide 31: Power's assets reflect a diverse blend of fuels and technologies
Power’s assets reflect a diverse blend of fuels and technologies … Low-cost portfolio Fuel Diversity – 2007 Total MW: 13,600 Strong cash generator Oil Nuclear Regional focus with demonstrated 8% 26 % Pumped BGS success Storage 47 % 18% 1% Assets favorably located Coal Many units east of PJM constrai
Slide 32: Power's assets are located in attractive markets near load centers
Power’s assets are located in attractive markets near load centers … Current plant locations, site expansion capability Bethlehem Energy Center (Albany) System Interface New Haven Hudson Bridgeport Keystone Bergen Conemaugh Kearny Mercer Essex Linden Peach Bottom Sewaren Edison Hope Creek Salem Burl
Slide 33: Our environmental response
Our environmental response… Emissions Control Technology Projects Hudson Unit 2 (608 MW) Mercer (648 MW) – Units 1&2 - NOx control – SCR NOx control – SCR installation complete - SO2 control – Scrubber SO2 control – Scrubbers - Hg and particulate matter control - Hg and particulate matter control –
Slide 34: Long-term market prices
Long-term market prices … $/MWh $/mmbtu $70 $12 Natural Gas Henry Hub (right scale) $60 Electricity $9 (left scale) $50 $6 $40 Coal(1) (right scale) $3 $30 $20 $0 2002 2003 2004 2005 2006 2007 2008 2009 Est Fwd Fwd (1) (2) (2) (2) (2) Central Appalachian coal Forward prices as of August 20, 2007 … i
Slide 35: RPM Capacity Auction – Transparent Pricing Model
RPM Capacity Auction – Transparent Pricing Model PJM released results on July 13 from its second capacity auction under the Reliability Pricing Model (RPM) for the 2008-2009 delivery year. 2007- 2009 Capacity Auction Results Unit Price Load Price CTR Value* 2007/ 2008/ 2007/ 2008/ 2007/ 2008/ ($/MW-
Slide 36: Capacity Position
Capacity Position Only a portion of PSEG Power’s capacity was open to realize prices in the recent PJM-RPM auctions. Increasing amounts are open to realize prices in future years. A significant percent of Power’s capacity was contracted as part of New Jersey’s 3-year BGS* auction (Power currently se
Slide 37: Power's hedging strategy
Power’s hedging strategy aims to balance stable earnings … PJM RTC GWh 6,000 5,000 4,000 3,000 2,000 1,000 - 2007 2008 20072007 20072007 20072007 200720072007 20072007 20072008 200820082008 20082008 20082008 200820082008 20082009 200920092009 20092009 20092009 200920092009 2009 2010 20102010 2010201
Slide 38: Power's hedging of coal and nuclear fuel
Power’s hedging of coal and nuclear fuel … Coal and Nuclear Output Coal and Nuclear Fuel 50,000 50,000 40,000 40,000 30,000 30,000 20,000 20,000 10,000 10,000 - - 2007 2008 2009 2010 2007 2008 2009 2010 Year Year Nuclear and Coal output Contracted sales Coal Uranium Contracted sales Power has contra
Slide 39: Power's fleet diversity and location – BGS auction results
Power’s fleet diversity and location ... Market Perspective – BGS Auction Results Increase in Full Requirements Component Due to: $102 $99 Full Requirements Increased Congestion (East/West Basis) Increase in Capacity Markets/RPM Capacity Load shape Volatility in Market Increases Risk Premium ~ $32 ~
Slide 40: Operational improvements and recontracting in current markets
Operational improvements and recontracting in current markets … Realized Gross Margin ($/MWh) $70 $60 $50 $40 $30 $20 $10 $0 2005 2006 2007 Est 2008 Est 2009 Est Energy Capacity … are expected to drive significant increases in Power’s gross margin. *Presented at March 26, 2007 Financial Conference 3
Slide 41: PSE&G – A consistent, strong performer
PSE&G – A consistent, strong performer … Regulatory agreements provide opportunity to earn reasonable returns over 2007-2009 Investment in transmission fuels long-term growth Energy Master Plan (EMP) initiatives provide a secondary source of growth Continued top quartile/top decile performance Natio
Slide 42: PSE&G's base investment plan
PSE&G’s base investment plan … Regulated electric transmission, electric and gas distribution system Characteristics FERC regulation for electric transmission; NJ BPU regulation for electric and gas distribution Electric and Gas distribution rates frozen through November 2009 PSE&G Rate Base 2006 Ac
Slide 43: PSEG Energy Holdings - Reducing risk
PSEG Energy Holdings - Reducing risk … Diverse asset base with improved stability and growing markets Latin American distribution assets in stable economies Gas-fired combined cycle generation in Texas A source of capital Asset sales have reduced risk and contributed to an improved balance sheet at
Slide 44: Improved risk profile by reducing capital invested in non-strategic assets
Improved risk profile by reducing capital invested in non-strategic assets … Global’s Invested Capital Composition of Global’s Pre-tax $2.6B Contribution by Region* $317M** $13 4% $2.0B Other $900M 35% $1.9B $150M 7% $129 41% $150M 7% $195M** $180M-$200M** $1.6B $100M 7% Other $50 26% 63% Chile & $1
Slide 45: Strong operations and markets
Strong operations and markets … Six months ended June 30, $ Millions (except EPS) Operating Earnings Per Share 2007 2006 2007 2006 PSE&G $ 193 $ 111 $ 0.76 $ 0.44 PSEG Power 406 208 1.60 0.82 PSEG Energy Holdings 61 95 0.24 0.38 Enterprise (33) (32) (0.13) (0.12) PSEG $ 627 $ 382 $ 2.47 $ 1.52 … sup
Slide 46: The capital program has been expanded
The capital program has been expanded … 2007 2008 2009 2010 2011 TOTAL Capital Spending Update ($ Millions) PSE&G $616 $803 $765 $919 $971 $4,074 PSEG Power* 655 816 580 441 176 2,668 PSEG Energy Holdings 38 31 40 30 31 170 Parent 34 31 23 24 23 135 TOTAL $1,343 $1,681 $1,408 $1,414 $1,201 $7,047 Ch
Slide 47: Liquidity is available with favorable terms and conditions
Liquidity is available with favorable terms and conditions … Available Expiration Total Liquidity Company Facility Date Facility 6/30/07 ($ Millions) PSEG 5-year Credit Facility Dec-11 $ 1,000 $ 949 PSE&G 5-year Credit Facility Jun-11 600 330 Energy Holdings 5-year Credit Facility Jun-10 150 135 Pow
Slide 48: Our forecasted cash flows remain intact
Our forecasted cash flows remain intact… We remain comfortable with a forecast improvement in cash - Operating income in line with expectations - Electroandes sale to close in October - Planned rate mechanisms for transmission investments would provide cash recovery during construction Excess cash b
Slide 49: PSEG – Excellent position for today
PSEG – Excellent position for today … Right set of assets… Large, diverse mix of low-cost, base-load, load-following generating assets Reliable electric and gas distribution and transmission systems Stable portfolio of investments in domestic generation, international distribution and leases Right m
Slide 50: Public Service Enterprise Group dedicated to meeting commitments
Public Service Enterprise Group dedicated to … Meeting commitments Earnings on track to meet guidance System reliability enhanced with expansion of transmission system Turning challenges into opportunities Addressing NJ’s Clean Energy goals Solar initiative PSE&G to use more energy efficient equipme
Slide 51: Why invest in PSEG?
Why invest in PSEG? Growing and visible stream of earnings Hedging and RPM Regulated utility operations Earnings Per P/E Share* Strong balance sheet 2007E 2008E 2007E 2008E Yield % PSEG $5.10 $5.85 16.4 14.3 2.8% Cash available for growth Merrill Lynch Index** $3.03 $3.40 16.8 14.9 3.1% Competitive
Slide 52: New Officers
New Officers Izzo – PSEG - Chairman, President & CEO Levis – PSEG Power - LaRossa – PSE&G O’Flynn – PSEG - EVP/ Selover – PSEG Simpson – PSEG Svcs President, CNO, COO – President & COO CFO, PSEG Holdings - Svcs - EVP & Gen - President & COO President Counsel Joyce – SVP Byrd – SVP Finance, Operation
Slide 53: Items excluded from Net Income to reconcile to Operating Earnings
Items excluded from Net Income to reconcile to Operating Earnings Impact to PSEG EPS $ Millions (except EPS) Quarter Ended June 30, Six Months Ended June 30, Quarter Ended June 30, Six Months Ended June 30, 2007 2006 2007 2006 2007 2006 2007 2006 Merger related Costs: PSE&G $ - $ (1) $ - $ (1) Power
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