Pacific Gas & Electric Co. · NYSE:PCG
Pacific Gas & Electric — Investor Day (March 2006)
92 slides from Pacific Gas & Electric's investor day presentation, Mar 1, 2006
Slide 1: PG&E Corporation: Customer Focused, Value Driven
PG&E Corporation: Customer Focused, Value Driven Investor Conference March 4, 2006 New York, NY
Slide 2: Cautionary Statement Regarding Forward-Looking Information
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Slide 3: Objectives for Today's Discussion
Objectives for Today’s Discussion + Updete PG&E's longterm 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 op
Slide 4: Your Top Discussion Items
Your Top 10 Discussion Items + Plan for 2006 and beyond + Prospects for continued stable CPUC relations + Progress on transormetion + Growth of rate base + Maintaining resource adequacy in the future + Updates on our key regulatory proceesings + EPS guidance + Prospects for increasing dividends + Ou
Slide 5: Agenda for Today
Agenda for Today + Plan for 2006 and Beyond + Advancing Business Transformation QeAs + Increasing Investment in Utility Infrastructure Break + Implementing the Energy Procurement Plan + Providing Attractive Shareholder Returns + Evaluating the Evolving Energy Industry QeAs
Slide 6: Plan for 2006 and Beyond
— bk Plan for 2006 and Beyond
Slide 7: Financial Restoration
Financial Restoration Y Authorized equity ratio Achieved 82% in January 2005 ¥ Common Dividend Resumed at $1.20 pershare annually Increased to $1.32 pershare in Q4 2005 Y Energy Recovery Bonds $1.98 issued in February 2005 $850 issued in November 2005 y¥ Share Repurchases $1,058 ASR executed in Marc
Slide 8: Strategic vision, goals and strategies
Strategic ourvsion Ourgoals Ourstrateies an deter eur sarelers ourvaues ht, pcg te nine, and supporig or communes eons gemerasateam andar commited» exaence and nna. we mspeceaenoerand cera ur ty
Slide 9: A Diverse Leadership Team
A Diverse Leadership Team Over just the past 2 years, experienced leaders have joined the PGE oficer team: Past Epeience Ophelia Basgal, Chic Parmership and Conmantyinizives Area CountyHousng Authority Helen But, Chief Cusorer Ofer TU Bob Hovard, Gee Tansrison and Osten as Transrisson Norwest Jack K
Slide 10: The Value in Transformation
The Value in Transformation = 2 ba bid eerroerereenece sy 2 a ns : : athe Yat Fano ‘Thompson Fan
Slide 11: Business Priorities 2006-2010
Business Priot 1 2 3 4 5 6 ies 2006-2010 Advance business transformation Provide attractive shareholder returns: Increase investment in utility infrastructure Implement an effective energy procurement plan Improve reputation through more effective communications Evaluate the evolving industry and re
Slide 12: Regulatory Environment
Regulatory Environment + Regulators and policymakers continue to support a return to stable energy policies + Regulators understand and appreciate the critical role of capital markets + Regulatory strategy focused on: — Emphasizing the importance of the customer — Communicating constantly ~ Listenin
Slide 13: Advancing Business Transformation
Advancing Business Transformation
Slide 14: Transformation Vision
Transformation Vision Fesponsiveto outer expetations * Deernewprotucs ar senies Operational Excellence Technology! Innovation + Stanarizatin prevails + Use oftectnologyt dive operational exalence + Reenless focus on eflency * Inmavatonts loner cat and stisycstomes
Slide 15: Transforming the Customer Experience
Transforming the Customer Experience
Slide 16: The Customer Experience Lifecycle
Slide 17: The Transformation Phases
The Transformation Phases Planned deployment of initiatives: + 2005: 20 initiatives were fuly or partial deployed + 2006; 27 other intiatives wil he fuly ar pataly deployed
Slide 18: Transformation Enhancing Performance - Examples
Slide 19: Transformation Metrics
Transformation Metrics
Slide 20: Video: PG&E's Transformation Journey
Video: PG&E's Transformation Journey
Slide 21: 2007 GRC: Savings Proposals
2007 GRC: Savings Proposals Estimated net savings reduce cost increases in 2008 and 2009 GRC Attrition Revenue Request ($MM) net Increase DNet Savings
Slide 22: 2007 GRC: Proposed Sharing Mechanism
2007 GRC: Proposed Sharing Mechanism + Sharing mechanism to ensure customers and shareholders share in transformation benefits and risks during 2007-2009 1435% 1335% 1235% 135% 1035% 935% 835% t —_ 0:4cusomer (ae 1455%) 50 snaeoluncucomer(adov 1.9539 100% saat (56a at belo lowes 1.85%) 050 sharenoer
Slide 23: Anticipated Transformation Costs and Benefits
Anticipated Transformation Costs and Benefits Expense (SMM) one = 2007082008 Bes [pests Net CostfBenet) Range
Slide 24: 2007 GRC: Proposed Performance Incentive Mechanism
2007 GRC: Proposed Performance Incentive Mechanism + Intended to reward (or penalize) PG &E for exceeding (fang below) 6 measures: = Generation avalilty eosin = Telybils = Telephone serdce lve evaporate Sytem Avera rtemupton Duration Iex Toe ~ Sete Average Intemuton Frequencylndex ~ cunoyo ung reoro
Slide 25: Transformation Q&A
— bk Transformation Q&A Yaa
Slide 26: Increasing Investment in Utility Infrastructure
Increasing Investment in Utility Infrastructure
Slide 27: Overview
Overview 2006-2010 capital program determined by: = 2007 GRC tor distribution and existing generation operations Advanced Metering Infrastructure (AMI) deployment Diablo Canyon steain generator replacement Electric Transmission Owner rate cases (FERC regulated) Gas Transmission safety and reliabilit
Slide 28: Distribution Investment Profile
Distribution Investment Profile + Investment drivers: = Connections of new customers and demand growth — Replacement of aging assets ~ Service levels to customers a + Major components: — Replacement and refurbishing of electric distribution facilities — New gas and electric facilities in developing
Slide 29: AMI Investment Profile
AMI Investment Profile Roughly 10 million meters planned to be installed by the end of 2011 Proven technology to lower meter reading costs, improve outage management, improve demand response Over $800 million in vendor contracts signed + Design, planning, and small-scale testing underway On track fo
Slide 30: Electric Transmission Investment Profile
Electric Transmission Investment Profile + Fastest-growing area of the business + Investment driven by: — System expansions as approved by the California ISO — Interconnections/upgrades to support new generation — Replacements, upgrades, and other Ife extension programs to maintain line capacity = R
Slide 31: Gas Transmission Investment Profile
Gas Transmission Investment Profile Investment driven by: ~ Safely, reliability, and service enhancements * Storage development = Core load growth and new customer loads — Access to new gas supplies + Pipelines to new sources (euch as LNG) — Replacement of aging infrastruclure + Stations + Pipelines
Slide 32: Owned Generation Investment Profile
Owned Generation Investment Profile + Investments driven by: — Repacemenishingrades to nuclear facies — Hythoelectic retabity improvements, relicensing compliance, and cam safety and security requirements + Major components: ~ Diablo Ganyon steam generator replacement Hyco maintenance-related captal
Slide 33: Capital Expenditure Outlook
Capital Expenditure Outlook Capital expenditures average $2.58 for years 2006-2010: Capital Exporeitue Outlook ($4)
Slide 34: Rate Base Growth
Rate Base Growth ‘Average Annual Rate Base ($B) 822 er $20 Ta tts - $18 rE 162 $16 rE $14 rE $12 2006 «2007 20082003010 + 2106200 mk ee natn engage ttyimsh eal fom henondasiaotte Beg Fete na Ener se iby amie sf shed trains mec hfe oe el Sh cbtvegibetoanltyincqiprdim eambyciatzctanest mn ser heen we
Slide 35: Short Break
— bk Short Break Ya
Slide 36: Implementing the Energy Procurement Plan
Implementing the Energy Procurement Plan
Slide 37: Overview
Overview Procurement plan intended to meet customer need for reliable energy in an erwironmentally-responsible and cost-effective manner Energy efficiency and renewables are highest priority in Califomia “loading order’ Solicited offers for short, intermediate and long-term resources Procurement cos
Slide 38: Electric Procurement Issues
Electric Procurement Issues Califomia’s preferred loading order Growth of energy efficiency and demand response programs Development of renewable energy Efficient generetion resources for the future Reliable energy in an environmentally-responsible and cost-effective manner
Slide 39: Long-Term Electric Resources
Long-Term Electric Resources 2005 Sources of Energy * 2010 Projected Sources of Energy* 79,300 GWH 88,600 Gu
Slide 40: Energy Efficiency and Renewables
Energy Efficiency and Renewables Enon firey Funsing (BM) Femewabl is Under Contact (Guat)
Slide 41: Long-Term RFO (All Source)
Long-Term RFO (All Source) + CPUC has approved the acquisition or contracting of 2200 MW to meet long term needs + Long-Term RFO is 95% complete + Expect to execute contracts and file with CPUC by end of March + Currently under negotiation: * 4 Pawer Purchase Agreemens of 1300 Mil + 2.Ulity Ownershi
Slide 42: Gas Procurement
Gas Procurement + Current sources: Southwest U.S. and Canada + CPIM mechanism remains intact + Received permission to undertake a winter hedging program. + Taking a more longterm view of portfolio management
Slide 43: Providing Attractive Shareholder Returns
Providing Attractive Shareholder Retums
Slide 44: Financial Objectives
Financial Objectives + Eam the full authorized retum on equity + Invest in needed infrastructure + Generate strong cash flow + Ensure adequate liquidity
Slide 45: EPS Guidance
EPS Guidance EPS from Operations®. 2006 guidance of $2.40-§2.50 per share 2007 guidance of $2652.75 per share EPS from Operations * GAOT auitance Range no 2H = Opa EFS numba) 0 206 287 voi ie POR $1.90 Comin oetonat 18) (82) 20058 2006 Doo7E «| impr ntee(e) fi + hag 6 mcondlson to GAH 0205 EPS tom p
Slide 46: EPS Growth
EPS Growth + EPStrom operations growth targeted to average approximately 7.6%annually 2006-2010 + Plaves PGE near the top of comparable companies + Actual growth rate will depend on infrastructure investments Fes-vearetinled earnings Growth Suc: acs sme Rese, sre f nals Fea 16,2008)
Slide 47: Liquidity targets for 2006
ty Liquidity targets for 2006: = Utility: Target of zero cash balance in December with $2 billion credit facilties retained to handle contingencies = Holding Company: Cash to be reduced to a minimum hold of $40 rllion with $100 million of revolver to be available at all times
Slide 48: Cash Available for Dividends and Stock Repurchases
Cash Available for Dividends and Stock Repurchases Shut 41,200 1,000 4 300 4 = ste co i 200 = 0 2006 = 2007-2008» 2008-2010 eg reac w GAN cae aber ents Ste Rapunzel append and at wpa com
Slide 49: Dividend Policy
Dividend Policy Objectives: ~ Flexibility ~ Sustainability = Comparability Payout ratio range of 50% - 70% Growth balanced with funding for additional investment opportunities
Slide 50: Outlook for Electric Rates
Outlook for Electric Rates + Retail electric rates expected to increase on average at about the rate of inflation after 2005 ~ Infrastructure investments — Procurement costs + Other pressures on electric rates: — High natural gas prices — Increasing public purpose program expenses = California solar
Slide 51: Summary
Summary + Eamings per Share from Operations targeted to grow approximately 7.5% annually from 2006-2010, based on assumed ROE of 11.35% + Transformation savings and performance incentive earnings would be accretive + Dividend growth to be balanced by funding needs for additional investments + No net
Slide 52: Evaluating the Evolving Industry
PGSE Evaluating the Evolving Industry
Slide 53: Summary
Summary + Trends: — Recent incustry consolidation = PUHCA reform ~ Restructuring — Renewed M&A dialogue + Monitoring M&A and investment activity + Primary focus is on developing good momentum in transformation
Slide 54: Conclusion
— bk Conclusion Ya
Slide 55: Strategic vision, goals and strategies
Strategic ourvsion Ourgoals Ourstrateies an deter eur sarelers ourvaues ht, pcg te nine, and supporig or communes eons gemerasateam andar commited» exaence and nna. we mspeceaenoerand cera ur ty
Slide 56: Final Q&A
— bk Final Q&A Ya
Slide 57: PG&E Corporation: Customer Focused, Value Driven
PG&E Corporation: Customer Focused, Value Driven Investor Conference March 4, 2006 New York, NY
Slide 58: Appendix
wr Pus Appendix Wo
Slide 59: Pacific Gas and Electric Company (PG&E)
Pacific Gas and Electric Company (PG&E) 2006 marked the 100t anniversary of PG&E Provides energy to nearly 1 in 20 people in the U.S. m7 70,000 square-mile service territory Four main operational units: ~ Electric and gas distribution = Electric transmission ~ Gas transmission ~ Electric generation
Slide 60: Electric & Gas Distribution
Electric & Gas Distribution Business Soope Retail electricity and natural gas dstioution service (construction, operations & maintenance) Customer services (call centers, meter reading, bling) 5 milion electric and 4 milion gas customer accounts ve | Service tertitary covers 70,000 square miles and
Slide 61: Electric Transmission
Electric Transmission Business Scope Wholesale electic transmission services onstruction, maintenance) Operation by CA independent System Onerator Primary Assets $2.0bilion of rate base 2006 wtd. avy) Revenues Margins Cast of service ratemaking under FERG Siriticant growth in ate base Revenues vary
Slide 62: Natural Gas Transmission
Natural Gas Transmission Gas Transmission Business Scope Natural Gas transpottation, storage, parking and lending services Customers: PG&E's natural gas distribution and electric generation businesses, industrial custorners, California electric generators, and marketers Primary Assets $1.5 billion o
Slide 63: Electric Procurement and Owned Generation
Electric Procurement and Owned Generation Business Scope + Blectricty and ancillary services from ownedland cortralled resources + Energy procurement program Primary assets + Diatio Caryn ructeer pawer plant (2,174 Ra) + Laryest privately ned nyt system @,896 MI) + $1 Thilion rate hase 2005 wid avg)
Slide 64: Customer Profiles by Usage
Customer Profiles by Usage Electric Customers Gas Customers ated
Slide 65: Electric Sales Outlook
Electric Sales Outlook Electric sales growth forecasted to average 1.5% during 2006-2010 Ekectric Sales (6) 22.000 26,000 24,000 22,000 20,000 2006 2007 2008 2009 2010
Slide 66: Gas Sales Outlook
Gas Sales Outlook Gas sales growth forecasted to average 0.7 % during 2008-2010 Gas Sales (MUTh) 74000 730,900 7000 7000 700.900 2006 2007 2008 2009 2010
Slide 67: PG&E: Existing Resource Mix
PG&E: Existing Resource Mix + Ouned generation Type Net Capacty a) = Diablo Canyen Nidear atte ~ Hydroelecttic facilities Hydto 3,896 Hunters Pt. and Humboldt Fossil 350 = Tota oer + 2006 sources ofelectricenergy* ate MP Ey,
Slide 68: Comparative Energy Procurement Costs
Comparative Energy Procurement Costs New Build Energy Procurement Cost (SIMWh) Renewables Energy Efficiency Combustion Turbine Combined Cycle
Slide 69: Current Ratemaking
Current Ratemaking Distribution — Next 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 existing generation covered thro
Slide 70: Key Pending Regulatory Proceedings
Key Pending Regulatory Proceedings + Pending approval = Completion of Cos Decision expected 92 2006 — Advanced Metering Infrastructure Decision expected 7106 = 2007 GRC Decision expected 12106 = Electric Transmission Owner & Decision expected 92 2006 + Pending investigation ~ Biling and Collection o
Slide 71: Expected 2007 GRC Timeline
Expected 2007 GRC Timeline File Application Filed on December 2, 2005 Prehearing Conference Held on January 23, 2006 Intervener testimony Apiil 28 Evidentiary hearings May 31 ~ duly7 Briefs and reply briefs uly 27 — August 10 ALI proposed decision Novernber 14 Final commission order December 14 Prop
Slide 72: Definitions of Transformation Metrics
Definitions of Transformation Metrics Over Custoner Satisfaction. PG2E measures residential and business customer sateen wih annul indushy ide surveys conducted by JD. Power and hesocates, a wel asia proprearyshides us fe Same sneylninervenng quarters. Forth overall cuser aston measur the four resen
Slide 73: Definitions of Transformation Metrics (continued)
Definitions of Transformation Metrics (continued) Telephone Serie Level. TSLreasures the percent of customer also the contact centers at are ansvered vith a spectiedmurer of seconds and isa measure ofthe resporeheness to castor cl Expense perGustomer. Te average annual cost operator pr custo incaesa
Slide 74: 2005 EPS - Reg G Reconciliation
2005 EPS - Reg G Reconci 20085 EPSon an Eamings trom Operations Basis 92.34 tems inpactng Comparability: Ineerenal invest cotstelated to generator pte chirasfra Chapter‘ proceedings. (001) Por years poon ofthe yin associated with REAP seterent 024 Costs of cromianitigatonselement and acaualsfor unre
Slide 75: EPS Guidance - Reg G Reconciliation
EPS Gi lance - Reg G Recon: 2006 Low igh EPS Guidance on an Earnings from Operations Basis* $2.40 $2.50 Estimated Items impacting Comparability 0.00 0.00 EPS Guidance ona GAAP Basis $2.40 $250 2007 Low igh EPS Guidance on an Earnings from Operations Basis* $265 $275 Estimated Items impacting Compara
Slide 76: Carrying Cost Credit Impacts
Carrying Cost Credit Impacts Estimated Average Deferred Tax Balances and Garrying Cost Grett Impacts (6M M) 705 207 me Om OH OH OD. Fate Reduion Bor and $1125 $78 es He GB LE fee Enemy RecoveryBond AveraneDetered TaxBalance Peer owe wo + i Ratu nde dat 20 nek doen oatoesteaunes i eq mF? ud REA TIE%
Slide 77: Cash Available for Dividends and Stock Repurchases
Cash Available for Dividends and Stock Repurchases Reg G Reconciliation 2006 Low High hihi) Estimated Cash Avalable for Dividends and Stock Repurchasest i775 Estimated Net Cash Used in hvesting Aetvties 2540240 Less: Estimated Change in Net Debt and Preferred and Prefered Dividends 04m) _t640 Estima
Slide 78: Cash Available for Dividends and Stock Repurchases
Cash Available for Dividends and Stock Repurchases Reg G Reconciliation me Low High _ (hihi) Estimated Cash Avalable for Dividends and Stock Repurchasest on a0 Estimated Net Cash Used in hvesting Aetvties 2a00 2.580 Less: Estimated Change in Net Debt and Preferred and Prefered Dividends 50) (150) Es
Slide 79: Cash Available for Dividends and Stock Repurchases
Cash Available for Dividends and Stock Repurchases Reg G Reconciliation m0 Low High _ (hihi) Estimated Cash Avalable for Dividends and Stock Repurchasest ‘04,050 Estimated Net Cash Used in hvesting Aetvties 2340 2.000 Less: Estimated Change in Net Debt and Preferred and Prefered Dividends 30350 Esti
Slide 80: Credit Profile
Credit Profile + Current Ratings = Ulilty issuer rating: BBB (S&P) and Baal (Moody’s) ~ Ulilty unsecured debt: BBB (S&P) and Baal (Moody's) + Average Metrics (2006-2010)" — S&P Business Profile Rating. 6 ~ Total Debt to capitalization (EOY): 53.5% — Funds from Operations Cash Interest Coverage: 5.1x
Slide 81: Speaker Biographies
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Slide 84: Additional Biographies
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Slide 92: Additional Biographies