Public Service Enterprise Group Incorporated · NYSE:PEG
Public Service Enterprise — Lehman Brothers CEO Energy/Power Conference 2008
65 slides from Public Service Enterprise's conference presentation, Sep 4, 2008
Slide 1: Public Service Enterprise Group – Lehman Brothers CEO Energy/Power Conference
Public Service Enterprise Group Lehman Brothers CEO Energy/Power Conference September 4, 2008
Slide 2: Forward-Looking Statement
Forward-Looking Statement Readers are cautioned that statements contained in this presentation about our and our subsidiaries' future performance, including future revenues, earnings, strategies, prospects and all other statements that are not purely historical, are forward-looking statements for pu
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 Overview
PSEG Overview Ralph Izzo Chairman, President and Chief Executive Officer
Slide 5: Our platform …
Our platform … Stable electric and gas Redeployment of capital Major electric generation distribution and through the sale of company with 13,300 transmission company international assets. MW* of base-load, rated top quartile for Focused on managing intermediate and load reliability, providing lease
Slide 6: Our focus is to maximize benefits from existing assets
Our focus is to maximize benefits from existing assets … Regulatory and Operational Market Environment Growth with Excellence Manageable Risk Support Maintain Produce and competitive Meet strong deliver safe, market shareholder balance reliable, structures objectives for sheet to economic through gr
Slide 7: Major influences on business environment remain
Major influences on business environment remain: Infrastructure Climate Change Capacity Needs Requirements PSEG Power’s base-load nuclear assets well Significant new Capital investment in situated in carbon transmission capital coal fleet to meet constrained environment program to improve environmen
Slide 8: PSEG – 2008 Highlights
PSEG – 2008 Highlights Solid earnings growth: Maintaining guidance of $2.80 - $3.05 per share. Steady and consistently solid operations. Improved risk profile: SAESA sale closed. Lease reserves: Substantial book reserves recognized for tax risk. Litigation option preserved. Ratings outlook for PSEG,
Slide 9: Spending for the next four years …
Spending for the next four years … $10.0 Capital Expenditures $8.0 $ 7.3B $6.0 $ 4.5B $4.0 $2.0 $0.0 2007 Forecast* 2008 Forecast** (2008 – 2011) (2008 – 2011) PSEG Power PSE&G PSEG Energy Other Holdings … has increased primarily at PSE&G to support reliability. * As per 2006 10-K 9 ** As per 2007 1
Slide 10: At PSEG, we forecast $2.5B of discretionary cash
At PSEG, we forecast $2.5B of discretionary cash through 2011. Parent Sources and Uses (2008 – 2011 Forecast) $6.0 PSE&G Dividend Discretionary $4.0 $2.5B Cash* Power Dividend $2.0 Shareholder Dividend $0.0 Sources Uses Cash flow from Power is the primary driver of discretionary cash. * Forecast inc
Slide 11: PSEG's current stock price…
PSEG’s current stock price… PSE&G Energy Holdings 2008 Earnings Guidance $350M - $370M Indicative 2008 P/E Multiple 12.5x – 13.5x Book Equity Value/Share(1) $2.07 Resulting Value/Share $8.60 - $9.80/Share PSEG Power Stock Price as of 8/28/08 (per share) $41.69 Less Indicative Value of PSE&G, Energy
Slide 12: PSEG Power
PSEG Power Tom O’Flynn Executive Vice President and Chief Financial Officer
Slide 13: Right set of assets, right markets at the right time
Right set of assets, right markets at the right time … Low-cost portfolio Fuel Diversity – 2007 Total MW: 13,300 Strong cash generator Oil Nuclear Regional focus in competitive, 8% 26 % Pumped liquid markets Storage 47 % 18% 1% Assets favorably located Coal Gas Many units east of PJM constraints Sou
Slide 14: Power's fleet has a low carbon profile
Power’s fleet has a low carbon profile … … which is well positioned for virtually any form of carbon restrictions. Sources: Preliminary 2007 EIA 906920 (generation & emission); eGRID 2006 (PJM Interconnection Data); EIA 2006 (ownership) 14
Slide 15: Digesting power market volatility
Digesting power market volatility PJM market - slight tightening in reserve margins forecast over next 5 years Oil price volatility affecting price of natural gas and on- peak power prices Recent vacating of CAIR has depressed forward power prices, but a replacement rule is expected Power prices not
Slide 16: Coal and natural gas prices have driven LMPs
Coal and natural gas prices have driven LMPs … Central Appalachian Coal ($/Ton) Natural Gas Henry Hub ($/MMbtu) $130 $12.0 $120 $11.5 $110 $11.0 $10.5 $100 $10.0 $90 $9.5 $80 $9.0 $70 $8.5 $60 $8.0 $50 $7.5 $40 $7.0 2009 2010 2011 2009 2010 2011 Electric PJM Western Hub RTC Price ($/MWh) On Peak Hea
Slide 17: At Power, strong cash generation and declining capital expenditures
At Power, strong cash generation and declining capital expenditures … Power Cash Flow Power Sources and Uses Net Cash (2008 – 2011 Forecast) $2.0 Asset Cash Flow Sales from Ops Incremental debt $10.0 capacity while Net Dividends maintaining target $1.0 Financing to Parent credit measures $8.0 $0.0 $
Slide 18: Power's open EBITDA is approximately $2.6 - $2.8 billion
Power’s open EBITDA is approximately $2.6 - $2.8 billion … $3.0 EBITDA Assumption Sensitivity Impact $2.5 Capacity ~ $175 - $185/MW-day $10/KW-yr ~ $120M ~ $74 - $78/MWh Energy ~ $40M (PJM-West) $1/MWh $2.0 Fuel Gas ~$9.50 to $10.00/MB Coal ~ $4.50 to $5.50/MB O&M ~ $1.0B – $1.05B $1.5 2008 Forecast
Slide 19: PSE&G
PSE&G
Slide 20: PSE&G operates in an attractive market
PSE&G operates in an attractive market … KEY COMBINED ELECTRIC & NJ is ranked 2nd nationally in personal GAS TERRITORIES ELECTRIC TERRITORY GAS TERRITORY income per capita Mid-Atlantic ReliabilityOne Award winner six years running N Solid regulatory relationships on traditional W S E utility matters
Slide 21: PSE&G's capital program is focused on improving reliability
PSE&G’s capital program is focused on improving reliability. 2007 2008 2009 2010 2011 2012 2006 10-K 5-year capital program: $3.0B June 2007 10-Q 5-year capital program: $4.1B 2007 10-K 5-year capital program: $5.3B PSE&G Rate Base ($ millions) 2007 Actual 2012 Base Plan Transmission 830 2,240 Gas 2
Slide 22: PSE&G's capital program
PSE&G’s capital program Rate base growth supported by investment in new 500kV lines to improve reliability ($900M) and upgrade of sub- Transmission transmission system ($250M) Received FERC approval for CWIP in rate base and 125 bps adder to ROE on $600M - $650M Susquehanna line. Base ROE increased
Slide 23: At PSE&G, cash flow will be directed towards reinvestment opportunities
At PSE&G, cash flow will be primarily directed towards attractive reinvestment opportunities. PSE&G Cash Flow PSE&G Sources and Uses $1.5 Cash from (2008 – 2011 Forecast) Ops $6.0 Dividends Net Cash to Parent Flow Net Financing $0.5 $4.0 Cash from ($0.5) Ops Investments $2.0 Growing Investments ($1.
Slide 24: PSEG Energy Holdings
PSEG Energy Holdings
Slide 25: Holdings' portfolio has a diverse asset base
Holdings’ portfolio has a diverse asset base . . . Two businesses focused on maximizing value of existing investments $45M - $60M projected 2008 operating earnings contribution ~ 70% of earnings from Global, targeting no international exposure by 2009 ~ 30% of earnings from Resources 2007 Operating
Slide 26: Impact of Lease Reserves
Impact of Lease Reserves 2Q 2008 results include a charge of $490 million: $135 million after-tax increase to the interest reserve recorded in Income Tax Expense. $355 million after-tax charge reflecting a change in assumptions relating to the amount paid and timing of cash flow for certain leases i
Slide 27: At Holdings, asset sales remain a significant source of cash in 2008
At Holdings, asset sales remain a significant source of cash in 2008. Holdings Sources and Uses* (2008 – 2011 Forecast) $1.6 Net $1.4 Financing $1.2 LILO/SILO $1.0 Asset Sales $0.8 $0.6 Cash from Ops $0.4 Investments* $0.2 $0.0 Sources Uses Flexibility exists to finance potential Resources’ tax liab
Slide 28: PSEG
PSEG
Slide 29: Markets, assets and use of cash flow
Markets, assets and use of cash flow … + 8 - 9% $3.05 - $3.35 $2.80 - $3.05 $2.71 $1.73 2006 Operating 2007 Operating 2008 2009 2010E Earnings* Earnings* Guidance Guidance … should continue to drive annual earnings guidance growth of 8 - 9%. * See page 65 for Items excluded from Net Income to reconc
Slide 30: Our recent 10% dividend increase continues 100-year history
Our recent 10% dividend increase continues 100-year history of paying common dividends. $1.50 ? $1.29 * $1.25 $1.17 $1.14 $1.12 $1.00 2005 2006 2007 2008 2009E Payout Ratio 63% 66% 43% 44% 40 – 50% Payout objective of 40 – 50% provides opportunity for growth with earnings. * Indicated annual dividen
Slide 31: PSEG – Share Repurchase Authorized
PSEG – Share Repurchase Authorized Board authorized the repurchase of up to $750 million of common stock during an 18 month period. Improved risk profile: Sale of most of international assets completed. Recognition of substantial book reserves for leases. Credit ratings in line with objectives. Repr
Slide 32: Fitting the pieces together - PSEG value proposition
Fitting the pieces together - PSEG value proposition PSEG well positioned in current business environment Process improvement programs support efforts to: - maintain reliability - control costs - provide value to the customer Asset mix provides opportunities in attractive markets Strengthened balanc
Slide 33: APPENDIX
APPENDIX
Slide 34: PSEG Power
PSEG Power
Slide 35: Power's assets along the dispatch curve
Power’s assets along the dispatch curve … Nuclear National Park Coal Sewaren 6 Mercer 3 Combined Cycle Kearny 10-11 Steam Burlington 8-9-11 GT Peaking Edison 1-2-3 Essex 10-11-12 New Bergen 1 Haven Linden 5-8 / Essex 9 Burlington 12 / Kearny 12 Linden 1,2 Keystone Yards Sewaren 1-4 Peach Conemaugh B
Slide 36: Our five unit nuclear fleet
Our five unit nuclear fleet … Hope Creek Operated by PSEG Nuclear Salem Units 1 and 2 PSEG Ownership: 100% Operated by PSEG Nuclear Technology: Ownership: PSEG - 57%, Boiling Water Reactor Exelon – 43% Peach Bottom Units 2 and 3 Total Capacity: 1,061MW Technology: Owned Capacity: 1,061MW Pressurized
Slide 37: Fossil operations contribute to earnings
Fossil operations contribute to earnings … Total Fossil Output A Diverse 9,800 MW Fleet (MW) (GWh) Coal 2,350 30,000 Combined Cycle 3,150 25,000 Steam / Peaking 4,300 Right Assets – Right Location 20,000 • Fuel diversity 15,000 ` • Technical diversity • Near load centers 10,000 Operation of 2,000 MW
Slide 38: Through our ongoing focus on operational excellence
Through our ongoing focus on operational excellence … Total Power Output (GWh) 60,000 A Diverse 13,300 MW Fleet* 50,000 Nuclear 3,500 40,000 Coal 2,350 30,000 Combined Cycle 3,150 20,000 Peaking / Steam 4,300 10,000 Strong Performance 0 • Continued growth in output 2004 2005 2006 2007 Year • Improve
Slide 39: Power's eastern coal plants are in the right areas
Power’s eastern coal plants are in the right areas … System Interface Coal Units Capacity (MW) Bridgeport Harbor 3 Hudson 2 558 Mercer 1&2 648 Hudson 2 Bridgeport 372 Mercer 1&2 Total 1,578 Power’s New Jersey coal units are Power is also making considerable mid-merit, with capacity factors investmen
Slide 40: Current market dynamics
Current market dynamics … On-Peak Versus Gas Off-Peak Versus Coal $/MWh $/MB $/MWh $/MB $100 $20 $80 $8 $80 $15 $60 $6 $60 $10 $40 $4 $40 $20 $5 $20 $2 $0 $0 $0 $0 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 Est Est PJM Western Hub On-Peak Prices Gas $/MB PJM Western Hub Off-Peak Prices Coal $
Slide 41: Through the new capacity constructs, and repricing at market prices
Through the new capacity constructs, and repricing at market prices … Power’s capacity is located in three Northeast markets. NE NY Total Capacity 13,300MW* (~ 1,000 - 1,500 MW under RMR) PJM The RPM Auction to date has provided strong price signals in PJM. Delivery Year ($MW/Day) Zones 2007 / 2008
Slide 42: Implementation of carbon legislation and global warming
The implementation of carbon legislation is one means of addressing the critical issue of global warming … By Fuel Type Coal CTs CC Carbon tons/MWh 1.0 0.6 0.4 PSEG Power Generation by Fuel Price ($/MWh) @$10/ton $10.0 $6.0 $4.0 2007 Total GWh: 53,200* @$20/ton $20.0 $12.0 $8.0 Nuclear @$30/ton $30.
Slide 43: 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 Ancillary ser
Slide 44: Power's hedging program provides near-term stability
Power’s hedging program provides near-term stability from market volatility … Contracted Energy 100% $80 Power has Price contracted for a 75% $70 (right considerable scale) 50% % $60 percentage of its sold (left output over the scale) 25% $50 next three years at increasing 0% $40 prices. Estimated E
Slide 45: While nuclear fuel has recently been volatile…
While nuclear fuel has recently been volatile… Historical and Contracted Nuclear Fuel Cost $10 $8 $6 $4 $2 $0 2004 2005 2006 2007 2008 2009 2010 2011 Contracted … Power’s hedging strategy has mitigated market price increases, with 100% hedged through 2011. 45
Slide 46: Power has contracts for supply of its coal through 2010
Power has contracts for supply of its coal through 2010 … Coal Output 18,000 12,000 Total Output 6,000 Hedged Coal 0 2008 2009 2010 2011 Percent coal hedged as 85-95% 75-85% 55-65% 20-30% of August 15th , 2008 … and after installation of pollution control equipment, Power anticipates increasing flex
Slide 47: The Regional Greenhouse Gas Initiative (RGGI)
The Regional Greenhouse Gas Initiative (RGGI) … Cooperative effort by Northeast states to design a regional cap-and-trade program to reduce carbon dioxide (CO2) emissions Full participants – CT, MA, MD, ME, NH, VT, NY, RGGI NJ, RI, and DE Observers – PA, DC, eastern Canadian Provinces States ME and
Slide 48: The RGGI cap shows headroom
The RGGI cap shows headroom … Affected Sources Fossil-fired electric generating CO2 Emissions vs. RGGI Cap units with a capacity of 25MW and (Actuals through 2007) larger 200 Actual & RGGI Cap BAU Targets and Timing 190 Forecast CO2 Three-year compliance periods 180 with the first running from 2009-
Slide 49: RGGI's CO2 pricing projections
RGGI’s CO2 pricing projections … $10 $8 $6 $4 $2 $0 2009 2011 2013 2015 2017 2019 2021 2023 2025 RGGI - ICF Base RGGI - ICF Base (Rev. Oct-06) … reflect moderate prices, based on the headroom in the cap. 49
Slide 50: PSE&G
PSE&G
Slide 51: 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 (formula rates) NJ BPU regulation for electric and gas distribution Managing recovery lag on electric and gas distribution investments PSE&G
Slide 52: By 2018, NJ's load is expected to grow by 4,000 MW
By 2018, NJ’s load is expected to grow by 4,000 MW … Projects to NJ 2008-2018 NJ Summer Peak Projects to NY PSEG’s evaluation of Annual Growth Rate = 1.8% The Neptune HVDC project (685 the proposed backbone MW) connecting Sayreville to transmission projects: Long Island Northern 500kV The Linden VFT
Slide 53: Transmission opportunities will require substantial deployment of capital
Transmission opportunities will require substantial deployment of capital. Transmission Growth PJM approval was received for the $600-$650 million Susquehanna to Roseland line in October 2007 Siting and permitting process underway Jefferson Roseland FERC approved Incentive rate filing: Branchburg 12
Slide 54: RGGI enabling legislation was signed into law in January
RGGI enabling legislation was signed into law in January 2008. Solar Initiative $105 million pilot program to finance installation of PV Solar approximately 40% subscribed. AMI Pilot acknowledged as being consistent with Energy Master Plan. Stakeholder process developed to enroll key constituents in
Slide 55: Even with our planned investments, delivery prices to customers
Even with our planned investments, delivery prices to customers ... Electricity Gas 2007-2012 Growth = 0.7% 2007-2012 Growth = 1.4% 8.00 Inflation = 2.1% 0.60 Inflation = 2.1% 6.8 0.48 Transmission 0.45 5.5 0.42 5.1 0.40 4.00 Distribution 0.20 0.00 0.00 2007 2012 2007 2007 2012 2007 Regional Regiona
Slide 56: PSEG Energy Holdings
PSEG Energy Holdings
Slide 57: Texas assets are a driver of Global's results
Texas assets are a driver of Global’s results. Two 1,000MW combined cycle facilities - Two of the most efficient gas-fired plants in Texas, on-line in 2001 - Forced outage rate less than 2% Market Environment: Odessa Bilateral forward market Midland Day ahead balancing and ancillary services bid mar
Slide 58: Due to market uncertainty …
Due to market uncertainty … 100% Texas CCGT Generation Output 80% 2008 Hedged Spark Spread* 60% $19-22/MWh 40% 20% 0% 2008 2009 2010 2011 Key drivers behind decision to remain largely unhedged beyond 2008: Oversold market: Many generators seeking a hedge, limited appetite among hedge providers. Mark
Slide 59: As renewable opportunities emerge …
As renewable opportunities emerge … Emerging aggressive RPS National Renewable Portfolio Standards (RPS) targets in core PSEG markets create an opportunity PSEG is well positioned to participate Familiarity with infrastructure development, asset management, energy policy, project financing and power
Slide 60: Resources is focused on managing its current investment portfolio
Resources is focused on managing its current investment portfolio … Dealt with most of exposure related to cross border leases in 2nd quarter 2008. $355 million charge to reflect potential changes to timing of tax cash flow. $135 million increase to interest reserve. 60 PSEG Resources - Earnings Pro
Slide 61: PSEG Resources – Traditional lease investments
PSEG Resources – Traditional lease investments Lease 2008-2035 Pre-tax Book Investment Country Agreement Property Type Start Residual Cash Flow* as of 7/31/08 Termination ($ million) ($ million) USA Reliant Power Plant Aug-00 2026 & 2034 Y 423 302.6 USA Dynegy Power Plant May-01 2031 & 2035 Y 362.3
Slide 62: PSEG
PSEG
Slide 63: PSEG's generating portfolio is well positioned
PSEG’s generating portfolio is well positioned … PSEG Power PSEG Global PSEG 2007 Total Capacity 2007 Total Owned Capacity 2007 Total US Generation 13,300 MW 2,400 MW 15,700 MW Open Capacity NY CA NE NE = Texas + Other NY Other PJM PJM Texas PSEG Power PSEG Global PSEG 2007 Energy Produced 2007 Ener
Slide 64: PSEG's generation portfolio provides attractive cash
PSEG’s generation portfolio provides attractive cash … Combined fleet represents 15,700 MW of competitive generation Assets are positioned in four attractive merchant markets Growth opportunity available Existing assets positioned for incremental growth Site expansion capability PSEG Generation PSEG
Slide 65: Items Excluded from Net Income to Reconcile to Operating Earnings
Items Excluded from Net Income to Reconcile to Operating Earnings ($ millions) (EPS) Years Ended Dec. 31, Years Ended Dec. 31, 2007 2006 2007 2006 Merger related Costs: PSE&G $ - $ (1) $ - Enterprise - (7) (0.02) Total Merger related Costs $ - $ (8) $ - $ (0.02) Impact of Asset Sales: Loss on Sale o
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