Slide 1: Customer Focused, Value Driven
® PG&E Corporation: Customer Focused, Value Driven Investor Meetings June 23 – July 7, 2006
Slide 2: Forward-looking statements
This presentation contains forward-looking statements regarding management's guidance for PG&E Corporation's 2006 and 2007 earnings per share rom operations, capital expenditures, Pacific Gas and Electric Company’s (Utility) rate base and rate base growth, anticipated costs and benefits from Transfo
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 furure 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 100 th 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 customers MM electric 4.2 MM gas Electric transmission circuits 18,616 miles Gas transmissi
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: values, strategies, goals, vision
Our values Our strategies Our goals Our vision Strategic Direction 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
Slide 8: Our Vision: The Virtuous Circle
OUR VISION The leading utility in the United States The Virtuous Circle Satisfied Regulators Rewarded Shareholders Delighted Customers
Slide 9: Transformation Vision
• Standardization prevails • Relentless focus on efficiency • Responsive to customer expectations • Deliver new products and services • Use of technology to drive operational excellence • Innovation to lower cost and satisfy customers Transformation Vision Operational Excellence Understand the Custo
Slide 10: Transformation Phases
Implementation & Operational Handover Build/ Test Detailed Design Preliminary Design & Analysis Strategy/ Roadmap Planned deployment of initiatives: • 2005: 20 initiatives were fully or partially deployed • 2006: 33 other initiatives will be fully or partially deployed Transformation Phases
Slide 11: Transformation Enhancing Performance - Examples
Today (Manual) Future (Automated) New Residential Service – Developer completes paper application for new service – Multiple groups record and track project – Local estimation of project Outage Management – Customer notifies the utility of a problem – Troubleman assesses scope of outage – Customized
Slide 12: Anticipated Transformation Net Costs and Benefits
Anticipated Transformation Net Costs and Benefits Net Cost Range Net Benefit Range
Slide 13: Transformation metrics: targets and actuals
2005 EOY Actual 2006 Q1 Actual 2006 Q1 Target 2006 EOY Target Overall customer satisfaction surveys) 94.0 94.5 94.0 96.0 Timely bills (% billed within 35 days) 99.38% 99.53% 99.53% 99.51% Estimate of outage restoration time accuracy (% accurate) 47% 64% 50% 50% System Average Interruption Duration I
Slide 14: Operating EPS Assumptions and Guidance
* Reg G reconciliation to GAAP for 2005 EPS from Operations and 2006 and 2007 EPS Guidance available in Appendix and at www.pge-corp.com Operating EPS Assumptions ($MM) 2006 2007 Rate Base $15,900 $17,400 Equity Ratio 52% 52% Authorized ROE 11.35% 11.35% Carrying Cost Credit ($66) ($52) Holding Comp
Slide 15: EPS Growth
Source: Zacks Investment Research, Inc. survey of analyst estimates (June 20, 2006) EPS Growth • EPS from operations growth targeted to average approximately 7.5% annually 2006-2010 • Actual growth rate will depend on infrastructure investments
Slide 16: Long Term Stock Price Performance and YTD 2006
PG&E Corporation has consistently outperformed S&P 500 and Dow Jones Utility Indices Long Term Stock Price Performance and YTD 2006
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
Slide 18: Capital Expenditure Outlook
Capital expenditures average $2.5B for years 2006-2010: ($BN) 2.5 2.8 2.6 2.4 2.2 Capital Expenditure Outlook Distribution Electric Transmission Gas Transmission Common Plant Generation CC8 SmartMeter ™ (AMI)
Slide 19: Rate Base Growth
* 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 reduced by an amount equal to the deferred tax balance associated with the regulatory asset, multiplied by the utility's equit
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
The parties’ material obligations under these agreements are conditioned upon CPUC approval of the agreements and applicable ratemaking mechanisms. The agreement related to the Calpine Hayward project is a letter of intent to execute a Power Purchase Agreement (PPA). The execution of the PPA is subj
Slide 23: Long-Term Electric Resources
* Approximately 20% of total retail sales expected to be eligible renewable resources coming from utility-owned, QF, Irrigation District, and other sources. ** Includes 150MW Humboldt Bay repowering and utility-owned renewables. *** May include utility-owned resources. * Approximately 12% of total r
Slide 24: Effective Communications
Effective Communications • Strengthening communications with our stakeholders: – Employees – Customers – Policymakers – Investors
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
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
* 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. 2005 EPS - Reg G Reconciliati
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 $2.75 Estimated Items Imp
Slide 30: Cost of Operations - Reg G Reconciliation
* Total expense per customer is a non-GAAP measure. This non-GAAP measure is used because it is an indicator of overall efficiency and productivity in delivering energy to PG&E customers. Cost of Operations - Reg G Reconciliation The reconciliation of non-GAAP cost of operations to Operating and Mai
Slide 31: Carrying Cost Credit Impacts
Estimated Average Deferred Tax Balances and Carrying Cost Credit Impacts ($MM) * Rate Reduction Bonds are fully retired at the end of 2007. Estimated carrying cost credits assume a utility equity ratio of 52% and ROE at 11.35%. 2006 2007 2008 2009 2010 2011 2012 Rate Reduction Bond and Energy Recove
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
(1) Authorized revenues = operating costs + (rate of return x rate base) Rate base = net plant ± adjustments to approximate invested capital Electric & Gas Distribution Business Scope • Retail electricity and natural gas distribution service (construction, operations & maintenance) • Customer servic
Slide 35: Electric Transmission
Existing 500 kV 18,616 circuit miles of electric transmission lines Electric Transmission Business Scope • Wholesale electric transmission services (construction, maintenance) • Operation by CA Independent System Operator Primary Assets • $2.0 billion of rate base (2005 wtd. avg.) Revenues/Margins •
Slide 36: Natural Gas Transmission
• 6,128 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 Natural Gas Transmission Gas Transmission Business Scope • Natural Gas transportation, storage, parking and lending services • Custo
Slide 37: 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 38: Customer Profiles by Usage
Gas Customers: 4.2MM Electric Customers: 5MM Customer Profiles by Usage
Slide 39: Electric Sales Outlook
Electric Sales Outlook Electric sales growth forecasted to average 1.2% during 2006-2010
Slide 40: Gas Sales Outlook
Gas Sales Outlook Gas sales growth forecasted to average 1.1% during 2006-2010
Slide 41: PG&E: Existing Resource Mix
* Approximately 12% of total retail sales are supplied by eligible renewable resources coming from utility-owned, QF, Irrigation District, and other sources. PG&E: Existing Resource Mix • Owned generation Type Net Capacity (MW) – Diablo Canyon Nuclear 2,174 – Hydroelectric facilities Hydro 3,896 – H
Slide 42: Comparative Energy Procurement Costs
Comparative Energy Procurement Costs
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 exist
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