Pacific Gas & Electric Co. · NYSE:PCG
Pacific Gas & Electric — PG&E — Investor Day (April 2007)
85 slides from Pacific Gas & Electric's investor day presentation, Apr 4, 2007
Slide 1: PG&E Corporation: Preparing For the Future Investor Conference
1 Exhibit 99 This presentation is not complete without the accompanying statements made by management on April 4, 2007. A replay is available on PG&E Corporation’s homepage at www.pge-corp.com. PG&E Corporation: Preparing For the Future Investor Conference April 4, 2007 New York, NY
Slide 2: Forward-looking statements
This presentation contains forward-looking statements regarding management’s guidance for PG&E Corporation’s 2007 and 2008 earnings per share from operations, targeted average annual growth rate for earnings per share from operations, projected cash available for dividends, anticipated dividend grow
Slide 3: Preparing For the Future
3 Preparing For the Future Peter Darbee Chairman, CEO and President PG&E Corporation
Slide 4: Key Takeaways From Today's Discussion
Key Takeaways From Today’s Discussion • PG&E’s strategy is positioned for success • We have a high-performance management team with a competitive mindset • PCG is a core utility holding that is delivering strong growth at low risk
Slide 5: Agenda For Today
Agenda For Today • Setting the stage for the future • Core and emerging growth strategies Q&A and Break • Operational excellence and investment • Providing attractive shareholder returns • Conclusion Q&A
Slide 6: PG&E Vision
We act with integrity and communicate honestly and openly. We are passionate about meeting our customers’ needs and delivering for our shareholders. We are accountable for all of our own actions: these include safety, protecting the environment, and supporting our communities. We work together as a
Slide 7: Our Business Strategy
Our Business Strategy • Competitive customer focus • Operational excellence • Regulatory alignment • Environmental leadership • Community involvement
Slide 8: Business Priorities For 2006 And 2007
Business Priorities For 2006 And 2007: • 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 indust
Slide 9: Delivering On Our Promises
P Transformation • Strategic sourcing • Resource Management Centers • PG&E Tomorrow P Infrastructure investment • Distribution and transmission infrastructure • SmartMeter TM project • GRC decision P Energy procurement • RPS contracts • New conventional resources P Improve reputation • NRDC Award •
Slide 10: A Diverse Leadership Team
Experienced leaders joined the team in 2006: Hyun Park SVP & General Counsel PG&E Corporation Jack Keenan SVP, Generation & Chief Nuclear Officer Pacific Gas and Electric Company Helen Burt SVP & Chief Customer Officer Pacific Gas and Electric Company Bill Morrow President & Chief Operating Officer
Slide 11: Core And Emerging Growth Strategies
11 Core And Emerging Growth Strategies Tom King Chief Executive Officer Pacific Gas and Electric Company
Slide 12: Well-Positioned For Growth
Well-Positioned For Growth • Constructive regulatory environment and a record of accomplishment • Strong core investment opportunities • Emerging growth strategies
Slide 13: Recent Regulatory Accomplishments
Recent Regulatory Accomplishments Positive results and foundation for growth: • 2007 General Rate Case • SmartMeter TM system approval • $1.3 billion of new utility-owned generation cap ex • PPAs for renewable and conventional resources • Electric transmission rate cases - TO8 & TO9 • Core gas hedgi
Slide 14: Strategy For Natural Gas Stability
• Strategic view of supply and long-term contracts • Long-term hedging for winter price protection • Additional gas transportation and storage capacity • Proposed Gas Accord IV for rate stability from 2008 to 2010 Strategy For Natural Gas Stability
Slide 15: Preferred Loading Order
Preferred Loading Order PG&E’s resource investment strategy is aligned with California’s Energy Action Plans: 1. Energy Efficiency 2. Demand Response 3. Renewable Resources 4. Distributed Generation 5. Conventional Resources
Slide 16: California's Success With Energy Efficiency
Over the past 30 years, California per capita energy use has remained relatively flat compared to the 50% increase in US per capita energy use. Source: California Energy Commission California’s Success With Energy Efficiency - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 US CA Western Europe
Slide 17: Keys To Energy Efficiency Success
Keys To Energy Efficiency Success • Decoupled revenue and sales • Commitment by and involvement of utilities, regulators, customers, and other stakeholders to improve the environment • Aggressive efficiency improvements in building codes and appliance standards • Manufacturers and distributors inclu
Slide 18: PG&E's Energy Efficiency Programs
• About half of expected load growth will be met by energy efficiency • PG&E’s budget and goals for 2006-2008: § Overall energy efficiency budget $975 million § PG&E filed goals 613 MW; 3,063 GWh; 47 MM therms GWh Savings: Historic and Target PG&E’s Energy Efficiency Programs
Slide 19: Demand Response Programs
MWs Demand response impacts expected to double from 2007 Actual and Projected Capacity Savings from Demand Response Programs Demand Response Programs
Slide 20: Renewable Resource Procurement
* 2008 to 2011 estimates are based on forecasted construction schedules and additional contracted resources Projected Deliveries Plus Contracts* 2006 deliveries comprised of: • Renewable Portfolio Standard target is 20% by 2010 Renewable Resource Procurement
Slide 21: Long-Term Electric Resources
*Over 20% of total retail sales expected to be eligible renewable resources coming from utility-owned, QFs, Irrigation Districts, and other sources. ** May include utility-owned resources. * Approximately 13% of total retail sales expected to be eligible renewable resources coming from utility-owned
Slide 22: New Generation Resources
PPAs Counterparty/Facility Size (MW) Target Operational Date Contract Term (years) Calpine Hayward EIF Firebaugh Starwood Firebaugh EIF Fresno Tierra Energy Hayward Total 1,430 Facility Size (MW) Status Target Operational Date Estimated Capital Costs Gateway broken ground $370 million Humboldt Bay p
Slide 23: 2006 Long-Term Procurement Plan
Date Action Phase Dec PG&E files Long-Term Procurement Plan Planning (1 year) CPUC decision approving plan TBD PG&E issues Long-Term Request for Offers (LTRFO) Procurement and Approval (1½ years) PG&E files selected contracts for CPUC approval CPUC approves contracts 2011-2014 Projects begin operati
Slide 24: Core Growth Opportunities
Core Growth Opportunities • Electric resource requirements • Pipelines to access gas supplies • Storage opportunities for emerging LNG supply sources • Electric transmission growth to reach renewable resources
Slide 25: Changing Legislative Environment for GHG
Changing Legislative Environment for GHG Recent greenhouse gas legislation: • California global warming legislation enacted in 2006 • Federal legislation expected in 2 to 4 years PG&E supports: • Mandatory market-based approach • Encouraging action before full regulatory implementation • Recognition
Slide 26: Relative Generation CO2 Emissions Rates
* Comparison companies selected by Innovest. Data include emissions of regulated and unregulated plants. 2004 is the most recent data available. 2004 CO 2 Emissions and Emission Rates* Source: Innovest Relative Generation CO 2 Emissions Rates
Slide 27: Emerging Growth Opportunities
Emerging Growth Opportunities PG&E is looking ahead to the future of utility services • Clean/renewable fuel technologies • Smart Energy Web • Plug-in anywhere technologies • Sustainable Energy Communities
Slide 28: New Utility Services: Personal, Portable, Clean
Home is : Downloading Personal PV : 5 kW Grid Choice : Green E Rate: 5 kW/hr $ Rate: $1.00/hr Backup : 100% (72 hours) Change Options? Car Sum. Mix Home New Utility Services: Personal, Portable, Clean
Slide 29: Focus On Growth
Focus On Growth • Maintain a constructive regulatory environment • Track record of delivery on commitments • Pursue growth opportunities
Slide 30: Operational Excellence
30 Operational Excellence Bill Morrow President and Chief Operating Officer Pacific Gas and Electric Company
Slide 31: Disciplined And Focused Approach To Excellence
Improve processes, capabilities, and systems that increase our agility and timeliness; and do it right the first time EASY RELIABLE VALUE ENVIRONMENT EXECUTION Easy to do business with PG&E as a preferred provider of energy services Ensure the reliability of our services to meet customer needs Reduc
Slide 32: Building From Transformation
• Industry-leading culture • Leadership skills • Management disciplines • Streamlined systems EASY RELIABLE VALUE ENVIRONMENT EXECUTION • Customer segmentation • Account management • Bill redesign • Payment channels and options • Product management and development • New gas-fired generation • Gas he
Slide 33: Operational Results Delivered
Operational Results Delivered • Customer satisfaction - J.D. Power Associates surveys § Electric Business Customer Satisfaction improved from 4 th quartile to 1 st quartile (2 nd in the nation) § Gas Business Customer Satisfaction improved from 4 th quartile to 1 st quartile (4 th in the nation) • E
Slide 34: 2007 Incentive Plan Metrics
Percentage weight Targets Earnings from Operations ($M) (Measurement of earnings from ongoing core operations) 50% See note 1 J.D. Power Customer Satisfaction Index (Composite of J. D. Power residential and business customer surveys) 20% Business Transformation Performance (Composite of various Tran
Slide 35: Providing Attractive Shareholder Returns
35 Providing Attractive Shareholder Returns Chris Johns Senior Vice President and CFO PG&E Corporation
Slide 36: Financial Objectives
Financial Objectives • First quartile EPS growth • Invest in needed infrastructure • Generate strong cash flow • Ensure adequate liquidity
Slide 37: Financial Drivers And Assumptions
Financial Drivers And Assumptions • Utility earns at least its 11.35% authorized return on equity; electric transmission earns at least 12% • Ratemaking capital structure is maintained at 52% equity • A “baseline” level of Transformation savings have been included in our projections • Resolution of
Slide 38: Capital Expenditure Outlook
Capital Expenditure Outlook
Slide 39: Rate Base Growth
* Projected 2007-2011 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 reduced by an amount equal to the deferred tax balance associated with the Energy Recovery Bonds regulatory asset, m
Slide 40: Business Transformation Progress
Year Gross Costs Gross Benefits Percentage $125 MM $20 MM 15% $265 MM $175 MM 65% • 2006 benefits result from initiatives that were implemented in 2005 and 2006 • Net benefits anticipated as early as 2008 and beyond Business Transformation Progress Benefits from Transformation are increasingly offse
Slide 41: Transformation Expense Savings
Net Cost Range Net Benefit Range Projected Transformation Net Expense Savings ($MM) Transformation Expense Savings
Slide 42: Transformation Capital Expenditure Savings
Net Cost Range Net Benefit Range Projected Transformation Net Capital Expenditure Savings ($MM) Transformation Capital Expenditure Savings
Slide 43: EPS Guidance
* Reg G reconciliation to GAAP for 2006 EPS from Operations and 2007 and 2008 EPS Guidance available in Appendix and at www.pge-corp.com EPS from Operations* EPS Guidance EPS from Operations*: 2007 guidance of $2.70-$2.80 per share 2008 guidance of $2.90-$3.00 per share 8%
Slide 44: EPS Growth - Comparator Group
Survey of analyst estimates of EPS growth: Source: Thomson IBIS long-term EPS Growth Consensus Estimate Median EPS Growth - Comparator Group EPS from operations annual growth targeted to average 8% for 2007 - 2011
Slide 45: Projected Cash Available for Dividends/Repurchases
Reg G reconciliation to GAAP for Cash Available for Dividends/Repurchases available in the Appendix and at www.pge-corp.com. Projected Cash Available for Dividends/Repurchases (after Cap Ex)
Slide 46: Dividend Policy
Dividend Policy • Objectives: § Flexibility § Sustainability § Comparability • Payout ratio range of 50% - 70% • Growth balanced with funding for additional investment opportunities • Dividend growth is expected to be generally in line with the growth in EPS from Operations
Slide 47: Summary
Summary • Approved infrastructure investment • Transformation upside • First quartile EPS growth
Slide 48: Conclusion
48 Conclusion Peter Darbee
Slide 49: The Future is Now
PG&E is raising the bar and setting aggressive goals to achieve its objective to be the leading utility in the United States with: • a business strategy positioned for success • a high performance team with a competitive mindset • strong growth at low risk The Future is Now
Slide 50: Speaker Biographies
50 Speaker Biographies
Slide 51: Speaker Biographies: Peter A. Darbee
Speaker Biographies PETER A. DARBEE Chairman of the Board, Chief Executive Officer and President PG&E Corporation Peter Darbee, a veteran of the energy, telecommunications, and investment banking industries, is Chairman of the Board, Chief Executive Officer, and President of PG&E Corporation. Based
Slide 52: Speaker Biographies: Thomas B. King
Speaker Biographies THOMAS B. KING Chief Executive Officer Pacific Gas and Electric Company Tom King is Chief Executive Officer of Pacific Gas and Electric Company. Before joining the utility in 2003, King served as Senior Vice President of PG&E Corporation, and as President of PG&E National Energy
Slide 53: Speaker Biographies: William T. Morrow
Speaker Biographies WILLIAM T. MORROW President and Chief Operating Officer Pacific Gas and Electric Company Bill Morrow is President and Chief Operating Officer of Pacific Gas and Electric Company. Morrow, 47, has more than 26 years of management experience in the telecommunications industry. Prior
Slide 54: Speaker Biographies: Christopher P. Johns
Speaker Biographies CHRISTOPHER P. JOHNS Senior Vice President, Chief Financial Officer and Treasurer PG&E Corporation and Pacific Gas and Electric Company Chris Johns is Senior Vice President, Chief Financial Officer and Treasurer for both PG&E Corporation and Pacific Gas and Electric Company. John
Slide 55: Additional Biographies: Thomas E. Bottorff
Additional Biographies THOMAS E. BOTTORFF Senior Vice President, Regulatory Relations Pacific Gas and Electric Company Tom Bottorff is Senior Vice President, Regulatory Relations, at Pacific Gas and Electric Company. He oversees the following areas: Energy Revenue Requirements, Operations Revenue Re
Slide 56: Helen A. Burt
HELEN A. BURT Senior Vice President and Chief Customer Officer Pacific Gas and Electric Company Helen Burt is Senior Vice President and Chief Customer Officer of Pacific Gas and Electric Company. Burt is responsible for all marketing and customer care functions at PG&E. Organizational responsibility
Slide 57: Roy Kuga
ROY KUGA Vice President, Energy Supply Pacific Gas and Electric Company Roy Kuga oversees the commercial transactions related to the procurement of gas and electricity commodities for PG&E's core gas and bundled electric service customers. Commercial transactions include short, medium and/or long-te
Slide 58: Hyun Park
HYUN PARK Senior Vice President and General Counsel PG&E Corporation Hyun Park is Senior Vice President and General Counsel for PG&E Corporation. Park is responsible for leading and directing the legal function for PG&E Corporation and its businesses, including its principal subsidiary, Pacific Gas
Slide 59: Additional Biographies: Gabriel B. Togneri
Additional Biographies GABRIEL B. TOGNERI Vice President, Investor Relations PG&E Corporation Gabe Togneri is Vice President, Investor Relations for PG&E Corporation. With more than 25 years of experience in energy and finance, Togneri is responsible for providing the investment community with infor
Slide 60: Appendix
60 Appendix Investor Conference April 4, 2007 New York, NY
Slide 61: Forward-looking statements
This presentation contains forward-looking statements regarding management’s guidance for PG&E Corporation’s 2007 and 2008 earnings per share from operations, targeted average annual growth rate for earnings per share from operations, projected cash available for dividends, anticipated dividend grow
Slide 62: Pacific Gas and Electric Company (PG&E)
Pacific Gas and Electric Company (PG&E) • Provides energy to nearly 1 in 20 people in the U.S. • 70,000 square-mile service territory • Four main operational units: § Electric and gas distribution § Electric transmission § Gas transmission § Electric generation
Slide 63: Electric And Gas Distribution
(1) Authorized revenues = operating costs + (rate of return x rate base) Rate base = net plant ± adjustments to approximate invested capital Electric And Gas Distribution Business Scope • Retail electricity and natural gas distribution service (construction, operations and maintenance) • Customer se
Slide 64: Electric Transmission
Existing 500 kV 18,640 circuit miles of electric transmission lines Electric Transmission Business Scope • Wholesale electric transmission services (construction, maintenance) • Operation by CA Independent System Operator Primary Assets • $2.3 billion of rate base (2006 wtd. avg.) Revenues/Margins •
Slide 65: Natural Gas Transmission
C C C C S C S C C C C C C C C C C C S S C C S S C C C C • 6,138 miles of backbone transportation import capacity of 2.0 BCF/day Canadian gas 1.1 BCF/day Southwest gas • Three storage facilities with 42.0 BCF cycle capacity Malin , OR Topock Burney Tionesta Gerber Delevan Bethany Panoche Kettleman Ke
Slide 66: Electric Procurement And Owned Generation
Helms Pumped Storage Humboldt Diablo Canyon Nuclear Plant Conventional Hydroelectric facilities Electric Procurement And Owned Generation Business Scope • Electricity and ancillary services from owned and controlled resources • Energy procurement program Primary Assets • Diablo Canyon nuclear power
Slide 67: 2006 Customer Profiles
Gas Customers (836 Bcf delivered) Electric Customers (84,310 GWh delivered) 2006 Customer Profiles - % by Sales
Slide 68: Electric Sales Outlook
Electric Sales Outlook Electric sales growth forecasted to average 1.1% during 2007 -
Slide 69: Gas Sales Outlook
Gas Sales Outlook Gas sales growth forecasted to average 1.4% during 2007-2011
Slide 70: PG&E: Existing Resource Mix
*Approximately 12% of total retail sales are supplied by eligible renewable resources coming from utility-owned, QF, Irrigation Districts, and other sources. PG&E: Existing Resource Mix Owned generation Type Net Capacity (MW) Percent § Diablo Canyon Nuclear 2,240 36% § Hydroelectric facilities Hydro
Slide 71: Comparative Energy Procurement Costs
Comparative Energy Procurement Costs
Slide 72: Key Regulatory Proceedings
Proceeding Docket No. Status General Rate Case A.05-12-002 • Final decision on March 15, 2007 Renewable Resources Solicitation (Renewable Portfolio Standards) R.06-05-027 D.07-02-011 • RPS solicitation approved • Expect contracts executed by 2007 year end Long-Term Procurement Plan (Electric resourc
Slide 73: 2007 General Rate Case Decision
2007 General Rate Case Decision • Increases 2007 revenues by $213 million (4.5% over 2006 authorized revenues) • Provides annual attrition increases of $125 million each year 2008 - 2010, and a one-time increase of $35 million in 2009 for second Diablo Canyon refueling • Supports forecasted infrastr
Slide 74: 2007 GRC: Revenue Requirement
4,714 4,927 5,052 5,212 5,302 * On August 24, 2006, the CPUC approved a waiver of the 2007 cost of capital filing, maintaining the authorized ROE at 11.35% and the authorized equity at 52% through at least 2007. 2007 GRC: Revenue Requirement
Slide 75: PG&E SmartMeter Program Investment
• July 2006 CPUC decision on full deployment issued with full recovery of projected costs • 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 $900 million in vendor contract
Slide 76: California Greenhouse Gas Reduction Act (AB 32)
Due Date Action Required 1/30/2007 Adopt list of discrete “early action” GHG emission reduction measures to go into effect 1/1/2010 1/1/2009 Adopt “scoping plan” on sources and categories of sources to meet 2020 statewide emissions “cap” 1/1/2011 GHG emission limits and measures go into effect 1/1/2
Slide 77: Carrying Cost Credit Impacts
Estimated Average Deferred Tax Balances and Carrying Cost Credit Impacts ($MM) Rate Reduction Bond and Energy Recovery Bond Average Deferred Tax Balance $854 $683 $542 $396 $243 $82 Estimated After-tax Carrying Cost Credit* $(50) $(40) $(32) $(23) $(14) $(5) * Rate Reduction Bonds are fully retired
Slide 78: ERB Amortization Schedule
($MM) Annual ERB Amortization $340 $354 $369 $386 $404 $423 End-of-year ERB balance $1,936 $1,582 $1,213 $827 $423 - ERB Amortization Schedule
Slide 79: Liquidity Availability and Targets
Utility Holding Company Credit Facility Size $2 billion $200 million Target Minimum Unused Borrowing Capacity $800 million $100 million Target Cash Balance $0 $40 million Liquidity Availability and Targets
Slide 80: 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 Utility Metrics (2007-2011)* § S&P Business Profile Rating: 5 § Total Debt to capitalization (EOY): 53.6% § Funds from Operations Cash Interest Cove
Slide 81: 2006 EPS - Reg G Reconciliation
* Earnings per share from operations is a non-GAAP measure. This non-GAAP measure is used because it allows investors to compare the core underlying financial performance from one period to another, exclusive of items that do not reflect the normal course of operations 2006 EPS - Reg G Reconciliatio
Slide 82: EPS Guidance - Reg G Reconciliation
EPS Guidance - Reg G Reconciliation Low High EPS Guidance on an Earnings from Operations Basis* $2.70 $2.80 Estimated Items Impacting Comparability 0.00 0.00 EPS Guidance on a GAAP Basis $2.70 $2.80 Low High EPS Guidance on an Earnings from Operations Basis* $2.90 $3.00 Estimated Items Impacting Com
Slide 83: Cash Available For Dividends/Repurchases - Reg G Reconciliation
Cash Available For Dividends/Repurchases (After Cap Ex) - Reg G Reconciliation 2007 Low High ($MM) Estimated Cash Available for Dividends/Repurchases* $ 400 $ 550 Estimated Net Cash Used in Investing Activities 3,220 3,020 Less: Estimated Change in Net Debt and Preferred, and Preferred Dividends 1,0
Slide 84: Cash Available For Dividends/Repurchases - Reg G Reconciliation
* Cash available for dividends/repurchases is a non-GAAP measure. This non-GAAP measure is used because it allows investors to consider the amount of cash generated by operations and available after investing activities and debt service to pay dividends, as well as fund stock repurchases, if any. Ca
Slide 85: Cash Available For Dividends/Repurchase - Reg G Reconciliation
Cash Available For Dividends/Repurchase (After Cap Ex) - Reg G Reconciliation 2011 Low High ($MM) Estimated Cash Available for Dividends/Repurchases* $ 800 $1,100 Estimated Net Cash Used in Investing Activities 2,440 2,100 Less: Estimated Change in Net Debt and Preferred, and Preferred Dividends 60