Public Service Enterprise Group Incorporated · NYSE:PEG
Public Service Enterprise — Investor Presentation (February 2008)
45 slides from Public Service Enterprise's investor presentation, Feb 14, 2008
Slide 1: Boston Investor Meeting
Public Service Enterprise Group Boston Investor Meeting Boston, MA February 13, 2008
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, President and Chief Executive Officer Tom O’Flynn Executive Vice President and Chief Financial Officer President – PSEG Energy Holdings
Slide 5: PSEG Overview
PSEG Overview 2008E Operating Earnings: $1,420M - - $1,560M 2008 EPS Guidance: $2.80 - $3.05 Assets (as of 09/30/07): $28.9B Market Capitalization (as of 2/6/08): $23.6B Traditional T&D Regional Wholesale Energy Electric Customers: 2.1M Nuclear Capacity: 3,500 MW Domestic/Int’l Leveraged Gas Custome
Slide 6: PSEG – 2007: A Defining Year
PSEG – 2007: A Defining Year Solidified operations Resumed independent operation of Nuclear Top decile reliability standards maintained at PSE&G Successful re-staffing of organization Meeting commitment to system reliability Transmission investment announced New investment in peaking generation anno
Slide 7: Earnings – A Year of Strong Results… … to be followed by growth.
Earnings – A Year of Strong Results… $4.00 $2.80 – $3.05 $3.00 $2.71 $2.00 $1.73 2007 Guidance: $2.58 - $2.73 $1.00 $0.00 2006 Operating 2007 Operating 2008 Guidance* Earnings* Earnings* … to be followed by growth. * Reflects 2:1 stock split, effective February 5, 2008. See page 44 for Items exclude
Slide 8: The current business environment… … creates opportunities for long-term growth
The current business environment… Environmental position Regional Greenhouse Gas Initiative (RGGI) enacted in NJ – PSE&G part A carbon constrained future of the solution Well operating nuclear fleet with growth potential Back-end technology on Hudson and Mercer ($1B - $1.2B) Solar initiative propose
Slide 9: 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 th
Slide 10: Climate initiatives… … present numerous opportunities
Climate initiatives… Regional Greenhouse Gas Initiative (RGGI) effective January 1, 2009 Energy Master Plan – No explicit CO2 target, but: 20% energy efficiency by 2020 Calls for 20% renewables by 2020 Draft Plan expected in Spring 2008 NJ Global Warming Response Act: Stabilization of economy-wide g
Slide 11: 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 2006 Emissions Rate Ranking (Companies in PJM) 3,000 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 restrictions. *
Slide 12: PSEG – Excellent position for today… … ready for tomorrow.
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 and leases Right markets… Generation assets ope
Slide 13: Dividends – Returning cash to shareholders
Dividends – Returning cash to shareholders $1.40 PSEG Annual Dividend Rate* 5-year rate of growth: 4.1% 10-year rate of growth: 2% $1.29 $1.20 $1.17 $1.14 $1.12 $1.10 $1.08 $1.08 $1.08 $1.08 $1.08 $1.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E Payout 69% 59% 59% 111% 62% 70% 65% 85% 45% 44
Slide 14: Creating shareholder value for the long-term…
Creating shareholder value for the long-term… Total Comparative Returns 450 (12/31/97 – 12/31/07) 400 350 300 250 200 150 100 50 0 1997 2007 -50 PEG S&P Electrics … has been and will continue to be our focus. 13
Slide 15: PSEG Power
PSEG Power
Slide 16: Positioned for growth in 2008 and beyond – PSEG Power
Positioned for growth in 2008 and beyond – PSEG Power Continued focus on strong performance of Strong nuclear fleet Operations Resumed independent operations at year-end Increased output from entire fleet NJ BGS model represents deep, liquid market Constructive providing opportunity to contract outp
Slide 17: Hedging program provides near-term stability from market volatility…
Hedging program provides near-term stability from market volatility… Power’s Generation Output 100% Other output 80% 60% Contracted Output & Prices Nuclear and 40% Coal Output 20% 2008 2009 2010 $66-68/MWh $72-75/MWh $76-79/MWh 0% 2008 2009 2010 Estimated impact of $0.01 - $0.02 $0.04 - $0.10 $0.15
Slide 18: Power expects to realize increasing margin improvement…
Power expects to realize increasing margin improvement… Power’s capacity is located in three Northeast markets NY NE Open Capacity PJM Total Capacity 13,300MW (~ 1,000 - 1,500MW under RMR) The RPM Auction to date has provided strong price signals in PJM Delivery Year ($MW/Day) 2008 Zones 2007 / 2008
Slide 19: Power’s fleet diversity and location...
Power’s fleet diversity and location... Market Perspective – BGS Auction Results Increase in Full Requirements Component Due to: Increased Congestion (East/West Basis) Full Requirements Increase in Capacity Markets/RPM $111.50 Volatility in Market Increases Risk Premium $102.51 $98.88 Capacity Load
Slide 20: Operational improvements and recontracting in current markets…
Operational improvements and recontracting in current markets… $70 Realized Gross Margin $60 $50 $40 $30 $20 $10 $0 2005 2006 2007 2008 Est 2009 Est Energy Capacity … are expected to drive significant increases in Power’s gross margin. 19
Slide 21: Power’s open EBITDA is approximately $2.4 - $2.6 billion…
Power’s open EBITDA is approximately $2.4 - $2.6 billion… Impact Assumption Sensitivity EBITDA Capacity ~ $60 - $65/KW-yr $10/KW-yr ~ $120M (~ $165 - $178/MW-day) Energy ~ $64 - 68/MWh $1/MWh ~ $40M (PJM-West) O&M ~ $1.0 – 1.05B … which will vary depending upon market drivers. Note: 2007 EBITDA $1.8
Slide 22: PSE&G
PSE&G
Slide 23: Positioned for growth – PSE&G
Positioned for growth – PSE&G Mid-Atlantic ReliabilityOne award – six years Strong running Operations O&M growth less than inflation Rate agreement provides opportunity to earn Constructive authorized return Regulatory, RGGI provides PSE&G with opportunity for a Business and strong role in meeting t
Slide 24: 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 2007 Ac
Slide 25: New transmission investment
New transmission investment Transmission investment in 500Kv programs designed to improve reliability Proceeding with necessary permits to support PSE&G investment in 500Kv Susquehanna to Roseland line Filed with FERC for incentives on $600 - $650 million investment in this project PSE&G seeking 150
Slide 26: Regional Greenhouse Gas Initiative (RGGI)
Regional Greenhouse Gas Initiative (RGGI) NJ Department of Environmental Protection (DEP) authorized to sell, exchange, retire or auction greenhouse gas allowances RGGI to transition to national program that is comparable in scope Greenhouse Gas Emission Portfolio Standard (EPS) to be implemented by
Slide 27: PSEG Energy Holdings
PSEG Energy Holdings
Slide 28: A re-positioning of assets at PSEG Energy Holdings
A re-positioning of assets at PSEG Energy Holdings Texas gas-fired assets – continued strong performance Strong Other US generation – predictable strong Operations performance from contracted base-load and peaking assets Resources – focus on lessee credit ratings Strong economic fundamentals and Con
Slide 29: Energy Holdings has substantially decapitalized its balance sheet…
During the past three years, Energy Holdings has substantially decapitalized its balance sheet… PSEG Energy Holdings Sources and Uses 2005 – Feb 2008 $3,000 SAESA N.R. Financing $2.7 B $2.7 B IRS Deposit Cash on Cash on $2,500 hand hand Cash From $2,000 Recourse Ops Bond Redemptions $1,500 $1,000 As
Slide 30: PSEG
PSEG
Slide 31: Full year operating earnings by subsidiary
Full year operating earnings by subsidiary For the years ended December 31, $ Millions (except EPS) Operating Earnings Per Share 2007 2006 2007 2006 PSEG Power $ 949 $ 515 $ 1.87 $ 1.02 PSE&G 376 262 0.74 0.52 PSEG Energy Holdings 115 161 0.23 0.32 Enterprise (63) (66) (0.13) (0.13) PSEG $ 1,377 $ 8
Slide 32: Strong earnings growth in 2007 and projected for 2008
Strong earnings growth in 2007 and projected for 2008 Operating Earnings by Subsidiary $2.80 - $3.05 $2.71* $1.73* 949 1,040-1,140 Power 515 PSE&G 262 376 350-370 Holdings 161 115 45-60 Parent (66) (63) (15)-(10) 2006 2007 2008 * Historical amounts have been adjusted to reflect the effects of the 2:
Slide 33: Excess cash between $2.0B and $2.5B expected to be available through 2011…
Excess cash between $2.0B and $2.5B expected to be available through 2011… PSEG Sources and Uses 2007 - 2011 Financing $15.0 $2.0 – $2.5 Asset Share Repurchases / $12.0 Sales New Investments* Net Shareholder $9.0 Dividend Cash $6.0 from Ops Investment $3.0 $0.0 Sources Uses … which could translate i
Slide 34: Public Service Enterprise Group dedicated to…
Public Service Enterprise Group dedicated to… Meeting commitments 2007 earnings at top of guidance System reliability enhanced with expansion of transmission system New investment in peaking generation Turning challenges into opportunities Addressing NJ’s Clean Energy goals Solar initiative and ener
Slide 35: Operational excellence is our foundation for success…
Operational excellence is our foundation for success… Operational Excellence Disciplined Financial Investment Strength … and this will yield financial strength that will be deployed through disciplined investment.
Slide 36: Public Service Enterprise Group
Public Service Enterprise Group
Slide 37: APPENDIX
APPENDIX
Slide 38: PSEG EPS Reconciliation – Q4 2006 versus Q4 2007
PSEG EPS Reconciliation – Q4 2006 versus Q4 2007 0.60 $0.06 $0.55 $0.02 $0.20 0.45 Global Weather .03 Texas – MTM .03 & operations .01 Rate relief .02 Effective tax rate .02 0.30 $0.27 Volume & demand .01 Interest expense .01 O&M (.03) Other operations (.01) Recontracting & strong markets .16 Other
Slide 39: PSEG EPS Reconciliation – Full Year 2006 versus Full Year 2007
PSEG EPS Reconciliation – Full Year 2006 versus Full Year 2007 3.00 $0.22 ($0.09) $2.71 $0.85 Rate relief Texas – MTM (.03) & .13 operations (.03) Weather .07 Italy (.04) 2.00 $1.72 Volume & Other .03 demand .04 Resources (.02) Recontracting & Transmission strong markets .74 & appliance services .02
Slide 40: The potential impact of CO2 on PSEG Power…
The potential impact of CO2 on PSEG Power… By Fuel Type Coal CTs CC Carbon tons/MWh 1.0 0.6 0.4 Price ($/MWh) @$5 $5.0 $3.0 $2.0 PSEG Power Generation by Fuel @$10 $10.0 $6.0 $4.0 Total GWh: 53,196 @$30 $30.0 $18.0 $12.0 Nuclear 53% Pumped Dispatch curve implication @ $10/ton* Storage On margin $/MW
Slide 41: 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 – 2008 Total MW: 13,300 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 constrain
Slide 42: 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 Burli
Slide 43: 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 44: Long-term market prices…
Long-term market prices… $/MWh $/mmbtu $80 Natural Gas Henry Hub $12 Electricity (right scale) (left scale) $70 $9 $60 $50 $6 Coal(1) (right $40 scale) $3 $30 $20 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fwd Fwd Fwd Fwd Fwd (2) (2) (2) (2) (2) … influenced by market dynamics. (1) Central
Slide 45: 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) Quarters Ended Dec. 31, Years Ended Dec. 31, Quarters Ended Dec. 31, Years Ended Dec. 31, 2007 2006 2007 2006 2007 2006 2007 2006 Merger related Costs: PSE&G $ - $ - $ - $ (1) Enterprise - (1
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