Pacific Gas & Electric Co. · NYSE:PCG
Pacific Gas & Electric — PG&E — Non-Deal Roadshow (July 2006)
46 slides from Pacific Gas & Electric's roadshow presentation, Jul 7, 2006
Slide 1: PG&E Corporation: Customer Focused, Value Driven
® PG&E Corporation: Customer Focused, Value Driven Investor Meetings June 23 – July 7, 2006
Slide 2: Cautionary Statement Regarding Forward-Looking Information
Cautionary Statement Regarding Forward-Looking Information This presentation contains forward-looking statements regarding management’s guidance for PG&E Corporation’s 2006 and 2007 earnings per share from operations, capital expenditures, Pacific Gas and Electric Company’s (Utility) rate base and r
Slide 3: Objectives for Today's Discussion
Objectives for Today’s Discussion • Update PG&E's long-term business prospects, opportunities, and risks, within the context of our long-term business priorities • Provide an understanding of our Transformation effort and its impact in defining the future of PG&E • Articulate how PG&E's investment o
Slide 4: PG&E Corporation: A Value Opportunity
PG&E Corporation: A Value Opportunity • A wholly regulated utility offering a stable platform for growth Stability: • minimum authorized equity ratio: 52% • minimum authorized ROE: 11.22% • pass-through for procurement costs • balancing account for sales variability Regulated growth: • utility infra
Slide 5: Pacific Gas and Electric Company (PG&E)
Pacific Gas and Electric Company (PG&E) • 2005 marked the 100th anniversary of PG&E • Provides energy to nearly 1 in 20 people in the U.S. • 70,000 square-mile service territory Electric and gas distribution 5 MM electric customers 4.2 MM gas Electric transmission circuits 18,616 miles Gas transmiss
Slide 6: Business Priorities 2006-2010
Business Priorities 2006-2010 1. Advance business transformation 2. Provide attractive shareholder returns 3. Increase investment in utility infrastructure 4. Implement an effective energy procurement plan 5. Improve reputation through more effective communications 6. Evaluate the evolving industry
Slide 7: Strategic Direction
Strategic Direction The leading Our vision utility in the United States Delighted Energized Rewarded Our goals customers employees shareholders Operational excellence Our strategies Transformation We act with integrity and communicate honestly and openly. We are passionate about meeting our customer
Slide 8: The Virtuous Circle
The Virtuous Circle Delighted Customers OUR VISION The leading utility in the United States Rewarded Satisfied Shareholders Regulators ® 8
Slide 9: Transformation Vision
Transformation Vision • Responsive to customer expectations Understand the • Deliver new products and services Customer Operational Technology/ Excellence Innovation • Standardization prevails • Use of technology to drive operational excellence • Relentless focus on efficiency • Innovation to lower
Slide 10: Transformation Phases
Transformation Phases Preliminary Implementation Strategy/ Detailed Build/ Design & Operational Roadmap Design Test & Analysis Handover Planned deployment of initiatives: • 2005: 20 initiatives were fully or partially deployed • 2006: 33 other initiatives will be fully or partially deployed ® 10
Slide 11: Transformation Enhancing Performance - Examples
Transformation Enhancing Performance - Examples Today (Manual) Future (Automated) New Residential Service New Residential Service – Developer completes paper application for new service • Improve – Developer prepares electronic application for new service – Multiple groups record and track project i
Slide 12: Anticipated Transformation Net Costs and Benefits
Anticipated Transformation Net Costs and Benefits Revenue Requirements ($MM) $400 $200 $0 ($200) ($400) ($600) 2006 2007 2008 2009 2010 Net Cost Range Net Benefit Range ® 12
Slide 13: Operational Performance Metrics
Operational Performance Metrics 2005 EOY Actual 2006 Q1 Actual 2006 Q1 Target 2006 EOY Target Overall customer satisfaction 94.0 94.5 94.0 96.0 (composite of J. D. Power residential and business customer surveys) Timely bills 99.38% 99.53% 99.53% 99.51% (% billed within 35 days) Estimate of outage r
Slide 14: EPS Guidance
EPS Guidance • EPS from Operations*: 2006 guidance of $2.40-$2.50 per share 2007 guidance of $2.65-$2.75 per share EPS from Operations * $2.80 Guidance Range $2.60 $2.40 Operating EPS Assumptions ($MM) $2.20 2006 2007 Rate Base $15,900 $17,400 $2.00 Equity Ratio 52% 52% Authorized ROE 11.35% 11.35%
Slide 15: EPS Growth
EPS Growth • EPS from operations growth targeted to average approximately 7.5% annually 2006-2010 • Actual growth rate will depend on infrastructure investments Zacks Five-Year Estimated Earnings Growth 10% 8% 6% 4% 2% 0% PCG AEE AEP CNP ED ETR FPL NI PNW PGN SO TE XEL Source: Zacks Investment Resea
Slide 16: Stock Price Performance
Stock Price Performance PG&E Corporation has consistently outperformed S&P 500 and Dow Jones Utility Indices Long Term and YTD 2006 100.0% 10.0% 7.5% 75.0% 5.0% 2.5% 50.0% 0.0% 25.0% -2.5% -5.0% 0.0% -7.5% -25.0% -10.0% Jan- Feb- Mar- Apr- May- Jun- 03 04 05 06 04 05 06 Fe 3 Fe 4 Fe 5 06 06 06 06 06
Slide 17: Dividend Policy
Dividend Policy • Objectives – Flexibility – Sustainability – Comparability • Dividend payout ratio range of 50-70%. Current payout in the low 50s and expected to grow roughly in line with EPS growth rate • Growth balanced with funding for additional investment opportunities ® 17
Slide 18: Capital Expenditure Outlook
Capital Expenditure Outlook Capital expenditures average $2.5B for years 2006-2010: Capital Expenditure Outlook ($BN) 3 2.5 2.8 2.6 2.4 2.2 ($BN) 2 1 0 2006 2007 2008 2009 2010 Electric Gas SmartMeter™ Distribution Generation Transmission Transmission CC8 (AMI) Common Plant ® 18
Slide 19: Rate Base Growth
Rate Base Growth Average Annual Rate Base ($B)* $22 19.9 20.7 $20 18.6 17.4 $18 15.9 $16 $14 $12 2006 2007 2008 2009 2010 * 2006-2010 rate base is not adjusted for the impact of the carrying cost credit that primarily results from the second series of the Energy Recovery Bonds. Earnings will be redu
Slide 20: Potential Additional Capital Expenditures
Potential Additional Capital Expenditures Potential additional capital expenditures related to the following possible projects are not included in the capital expenditure projections: • 657 MW utility-owned generation submitted to the CPUC for approval as part of the long-term procurement plan • Ele
Slide 21: Energy Procurement Overview
Energy Procurement Overview • Procurement plan intended to meet customer need for reliable energy in an environmentally-responsible and cost-effective manner • Energy efficiency and renewables are highest priority in California “loading order” • Offers solicited for short, intermediate and long-term
Slide 22: Executed Agreements Pursuant to Long-Term RFO
Executed Agreements Pursuant to Long-Term RFO Counterparty/ Facility Size(MW) Contract Type Operational Date Plant Type Term Long-Term Need: Calpine Hayward 601 Power Purchase Agmt 2010 Combined cycle 10 EIF Firebaugh 399 Power Purchase Agmt 2009 Combustion turbine 20 EIF Fresno 196 Power Purchase A
Slide 23: Long-Term Electric Resources
Long-Term Electric Resources 2005 Sources of Energy * 2010 Projected Sources of Energy * 79,900 GWH 88,600 GWH New Irrigation Other All-Source CC8 Districts 6% New DG Resources 3% 5% 2% 12% New CEE Existing Utility 3% Owned ** 34% Utility Owned New Customer QFs 40% Choice 22% 4% New Renewables *** 7
Slide 24: Effective Communications
Effective Communications • Strengthening communications with our stakeholders: – Employees – Customers – Policymakers – Investors ® 24
Slide 25: Evaluating the Evolving Industry
Evaluating the Evolving Industry • Trends: – Recent industry consolidation – PUHCA reform – Restructuring – Renewed M&A dialogue • Monitoring M&A and investment activity • Primary focus is on developing good momentum in Transformation ® 25
Slide 26: Conclusion
Conclusion • PCG: a value opportunity with stability and solid growth prospects – $12.5B of capital expenditures through 2010 – Rate base more than $20B by 2010 – Strong cash flow • A focus on operational excellence – Transforming operations to provide better, faster and more cost effective service
Slide 27: Appendix
Appendix • Reg G Reconciliation / Financial Profile • Company Overview and Definitions
Slide 28: 2005 EPS - Reg G Reconciliation
2005 EPS - Reg G Reconciliation 2005 EPS on an Earnings from Operations Basis $2.34 Items Impacting Comparability: Incremental interest costs related to generator disputed claims from Chapter 11 proceedings (0.01) Prior year’s portion of the gain associated with AEAP settlement 0.24 Costs of chromiu
Slide 29: EPS Guidance - Reg G Reconciliation
EPS Guidance - Reg G Reconciliation 2006 Low High EPS Guidance on an Earnings from Operations Basis* $2.40 $2.50 Estimated Items Impacting Comparability 0.00 0.00 EPS Guidance on a GAAP Basis $2.40 $2.50 2007 Low High EPS Guidance on an Earnings from Operations Basis* $2.65 $2.75 Estimated Items Imp
Slide 30: Cost of Operations - Reg G Reconciliation
Cost of Operations - Reg G Reconciliation The reconciliation of non-GAAP cost of operations to Operating and Maintenance Expense is: (in millions) 2005 2006 2006 2006 EOY Actual 3/31 Actual 3/31 Target EOY Target External GAAP Operating and Maintenance Expense $3,399 $862 $871 $3,552 Public Purpose
Slide 31: Carrying Cost Credit Impacts
Carrying Cost Credit Impacts Estimated Average Deferred Tax Balances and Carrying Cost Credit Impacts ($MM) 2006 2007 2008 2009 2010 2011 2012 Rate Reduction Bond and $1,125 $878 $683 $542 $396 $242 $82 Energy Recovery Bond Average Deferred Tax Balance Estimated Carrying Cost Credit * ($66) ($52) ($
Slide 32: Credit Profile
Credit Profile • Current Ratings – Utility issuer rating: BBB (S&P) and Baa1 (Moody’s) – Utility unsecured debt: BBB (S&P) and Baa1 (Moody’s) • Average Metrics (2006-2010)* – S&P Business Profile Rating: 5 – Total Debt to capitalization (EOY): 53.5% – Funds from Operations Cash Interest Coverage: 5.
Slide 33: Pacific Gas and Electric Company (PG&E)
Pacific Gas and Electric Company (PG&E) • Authorized rate of return: 11.35% • Projected 2006 rate base: $15.9B • Adjustment mechanisms for sales levels and procurement cost differences from revenue requirements – Balancing accounts to track over- and under-collections • 2005 rate base levels: – Elec
Slide 34: 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 4.2 million gas customer accounts • Service territory covers 70,000 square
Slide 35: Electric Transmission
Electric Transmission Business Scope • Wholesale electric transmission services (construction, maintenance) Malin Round Mt • Operation by CA Independent System Operator Existing Primary Assets Vaca Dixon 500 kV • $2.0 billion of rate base (2005 wtd. avg.) Moss Landing Tesla Los Banos Revenues/Margin
Slide 36: Natural Gas Transmission
Natural Gas Transmission Gas Transmission Business Scope • Natural Gas transportation, storage, parking and Malin, OR lending services C Tionesta C Burney • Customers: PG&E’s natural gas distribution and C Gerber electric generation businesses, industrial customers, C Delevan California electric gen
Slide 37: Electric Procurement and Owned Generation
Electric Procurement and Owned Generation Business Scope • Electricity and ancillary services from owned and controlled Humboldt resources Conventional Hydroelectric • Energy procurement program facilities Primary Assets • Diablo Canyon nuclear power plant ( 2,174 MW) Helms Pumped Storage • Largest
Slide 38: Customer Profiles by Usage
Customer Profiles by Usage Electric Customers: 5MM Gas Customers: 4.2MM Agricultural & Other Commercial 6% 9% Industrial 18% Commercial Residential 40% 23% Industrial 68% Residential 36% ® 38
Slide 39: Electric Sales Outlook
Electric Sales Outlook Electric sales growth forecasted to average 1.2% during 2006-2010 Electric Sales (GWh) 88,000 86,000 84,000 82,000 80,000 2006 2007 2008 2009 2010 ® 39
Slide 40: Gas Sales Outlook
Gas Sales Outlook Gas sales growth forecasted to average 1.1% during 2006-2010 Gas Sales (MDTh) 740,000 730,000 720,000 710,000 700,000 690,000 2006 2007 2008 2009 2010 ® 40
Slide 41: PG&E: Existing Resource Mix
PG&E: Existing Resource Mix • Owned generation Type Net Capacity (MW) – Diablo Canyon Nuclear 2,174 – Hydroelectric facilities Hydro 3,896 – Humboldt Fossil 350 – Total 6,420 Other Power Irrigation Purchases • 2005 sources of electric energy* Districts 6% 5% QFs/ Utility Owned Renewables 40% 22% * A
Slide 42: Comparative Energy Procurement Costs
Comparative Energy Procurement Costs New Build Energy Procurement Cost ($/MWh) Renewables Energy Efficiency Combustion Turbine Combined Cycle 0 20 40 60 80 100 120 140 160 ® 42
Slide 43: Current Ratemaking
Current Ratemaking • Distribution – Next General Rate Case (GRC) applies to 2007- 2009 • Electric Transmission – Rates set at FERC through Transmission Owner cases • Gas Transmission and Storage – Rates set through Gas Accord framework through 2007 • Generation – Cost-of-service ratemaking with exis
Slide 44: Key Pending Regulatory Proceedings
Key Pending Regulatory Proceedings • Pending approval – PG&E SmartMeter™ (AMI) Decision expected 7/06 – Cost of Capital Waiver Application Decision expected Q3 2006 – 2007 GRC Decision expected 12/06 – Generation LT RFO & Humboldt Bay PP Decision expected end of 2006 • Pending investigation – Billin
Slide 45: Definitions of Transformation Metrics
Definitions of Transformation Metrics Overall Customer Satisfaction. PG&E measures residential and business customer satisfaction with annual industry wide surveys conducted by J.D. Power and Associates, as well as with proprietary studies using the same survey in intervening quarters. For this over
Slide 46: Definitions of Transformation Metrics (continued)
Definitions of Transformation Metrics (continued) Telephone Service Level. TSL measures the percent of customer calls to the contact centers that are answered within a specified number of seconds and is a measure of the responsiveness to customer calls. Expense per Customer. The average annual cost