Public Service Enterprise Group Incorporated · NYSE:PEG
Public Service Enterprise — Investor Day (March 2012)
135 slides from Public Service Enterprise's investor day presentation, Mar 9, 2012
Slide 1: Presentation to the Financial Community
PSEG Public Service Enterprise Group Presentation to the Financial Community New York, New York March 9, 2012
Slide 2: Forward-Looking Statement
Forward-Looking Statement Readers are cautioned that statements contained in this presentation about our future performance, including future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical, are forward-looking statements for purposes o
Slide 3: GAAP Disclaimer
GAAP Disclaimer PSEG presents Operating Earnings in addition to its Net Income reported in accordance with generally accepted accounting principles in the United States (GAAP). Operating Earnings is a non-GAAP financial measure that differs from Net Income because it excludes gains or losses associa
Slide 4: Agenda
Agenda Presentation Presenter Welcome/Introduction Kathleen Lally The Business of PSEG Ralph Izzo The Business of PSE&G Ralph LaRossa BREAK The Business of PSEG Power William Levis The Business of Power ER&T Shahid Malik Q&A PSEG Financial Review & Outlook Caroline Dorsa Summary Ralph Izzo Q&A 4
Slide 5: PSEG – The Business of PSEG
PSEG – The Business of PSEG Ralph Izzo Chairman, President and Chief Executive Officer
Slide 6: The business of PSEG: A focus on excellence
The business of PSEG: A focus on excellence and a commitment to enhancing shareholder value Reliability Political / Regulatory Environment Sustainable Operational Financial Excellence Highly Valued / Performance Engaged Employees Growth / Value Creation Strategy 6
Slide 7: Growing an operationally excellent, integrated generation, transmission and distribution business
Growing an operationally excellent, integrated generation, transmission and distribution business Electric & Gas Delivery and Transmission Regional Wholesale Energy Renewable Investments PSE&G PSE&G positioned positioned PSEG PSEG Power’s Power’s to to meet meet NJ’s NJ’s low-cost, low-cost, base ba
Slide 8: 2011 – A year of significant accomplishment despite challenging markets
2011 – A year of significant accomplishment despite challenging markets •• NJBPU NJBPU approved approved •• 25 25 MW MW Solar Solar project project capital capital spending spending with with •• License License extensions extensions in in Arizona Arizona supportive supportive recovery recovery obtai
Slide 9: Consistently achieving earnings objectives
Consistently achieving earnings objectives Guidance $2.80-$3.05 $3.00-$3.25 $3.00-$3.25 $2.50-$2.75 $3.09 $3.12 $2.91 $2.74 Earnings per share* 2008 2009 2010 2011 * Operating earnings; See page A for Items excluded from Income from Continuing Operations to reconcile to Operating Earnings. 9 *Texas
Slide 10: Focused program improved operating efficiency and directed capital to PSE&G
Focused program which improved operating efficiency and directed capital investment to PSE&G reduced the impact of lower energy prices on operating earnings 2008 PSEG Focus 2011 ($ millions, except as noted) $2.91 Operating Earnings Per Share $2.74 $69.85 PJM West RTC ($/MWh) $43.57 • 2.4% (planned)
Slide 11: Returning cash to investors through common dividends
Returning cash to investors through common dividends and preserving flexibility to invest for future growth PSEG Annual Dividend Rate $1.37 $1.37 $1.33 Dividend Per Share $1.29 $1.17 2007 2008 2009 2010 2011 11
Slide 12: Executing on strategy that fits today's market
Executing on strategy that fits today’s market: solid, sustainable, value-creating Market Environment PSEG Strategy •Improving •Improving efficiency efficiency •Supporting rules that improve •Low natural natural gas gas price price outlook outlook market transparency and and slow recovery in demand
Slide 13: Operating efficiently in response to low commodity prices
Operating efficiently in response to low commodity prices 2011 – 2014 CAGR PSEG O&M Total O&M 2.9% 2.5 2.0 1.5 $ Billions 1.0 0.5 0.0 2011 2012E 2013E 2014E O&M Pension 13
Slide 14: Supporting a competitive market place
Supporting a competitive market place Long Term Capacity Agreement Pilot Program (LCAPP) FERC Federal Court • Minimum offer price rule (MOPR) limits • Pending challenge to constitutionality ability of subsidized generation to distort of LCAPP Act capacity markets • Summary judgment motions pending •
Slide 15: Positioned to benefit from environmental leadership
Positioned to benefit from environmental leadership Market uplift expected as a result of environmental rules (due to retirements, derates, higher VO&M costs or higher emission allowances prices) Estimated energy impact of CSAPR and MATS: $2-$5/MWh, not fully reflected in current forward prices
Slide 16: Investments focused on growth to meet customer requirements
Investments focused on growth to meet customer requirements PSEG 2012-2014E Capital Spending PSEG 2012-2014E Capital Spending $6.7 Billion $6.7 Billion Growth / Environmental / Maintenance by Subsidiary Holdings Growth $0.1B 1% Environmental $0.2B 3% PSE&G Maintenance PSE&G $5.4B $1.3B Growth 80% 20
Slide 17: A solid financial strategy – balance sheet strength
A solid financial strategy – balance sheet strength to direct investments to the areas of greatest growth and value potential PSEG Power PSEG Funds from Operations / Total Debt Debt as Percent of Capital 55% 55% 50% 50% 45% 45% 40% 40% 35% 35% 30% 30% 2012E 2013E 2014E 2012E 2013E 2014E • Credit met
Slide 18: 2012 earnings guidance influenced by lower energy prices and PSE&G investment
Our 2012 earnings guidance is influenced by a decline in energy prices and increased investment at PSE&G 2012 Operating Earnings Forecast Opportunities beyond $2.74 2012 to create long-term value include: $2.25 to $2.50E New Reliability Based Earnings Per Share Transmission Solar 4 All Extension Ene
Slide 19: Our earnings mix has changed
Our earnings mix has changed Operating Earnings Contribution by Subsidiary* Operating EPS $3.12 $2.74 $2.25-$2.50E Other Power 69% 61% ~50% 27% 38% ~45% PSE&G 2010 2011 2012E *See page A for Items excluded from Income from Continuing Operations to reconcile to Operating Earnings; All periods reflect
Slide 20: Dividend growth based on stable, regulated business
Dividend growth based on greater and increasing earnings contribution from stable, regulated business $1.50 $1.42E $1.37 Modest and Sustainable Dividend Growth Consistent With Stable Regulated Growth and $1.00 Cash Generation Outlook at PSEG Power $0.50 $0.00 2011 Dividend 2012 Dividend 20 *See page
Slide 21: The events of 2011 illustrate what our strategy means
The business of PSEG: The events of 2011 illustrate what our strategy means for employees, customers and the communities we serve People providing Safe, Reliable, Economic and Green energy 21
Slide 22: PSEG Value Proposition
PSEG Value Proposition Operating •Clean, low cost Nuclear, CCGT, and Coal generating fleet Excellence •Large, reliable electric and gas distribution operations •Energy markets in midst of transformational change Regulatory/ – Environmental compliance costs and low natural gas prices to force retirem
Slide 23: The Business of PSE&G
The Business of PSE&G Ralph LaRossa President and Chief Operating Officer, PSE&G
Slide 24: The business of PSE&G: A focus on excellence
The business of PSE&G: A focus on excellence and a commitment to enhancing shareholder value Reliability Political/ Regulatory Operational Environment Excellence Sustainable Financial Performance Highly Growth/ Valued/Engaged Value Creation Employees Strategy 24
Slide 25: PSE&G is the largest electric and gas utility in New Jersey
PSE&G is the largest electric and gas distribution and transmission utility company in New Jersey providing renewable and energy efficiency solutions Electric Gas Customers 2.2 Million 1.8 Million Growth (2007 – 2011) 0.7% 0.7% Electric Sales and Gas Sold and Transported 42,506 GWh 3,527 M Therms Pr
Slide 26: PSE&G's investment program balances key objectives
PSE&G’s investment program is a balance of key objectives to realize sustainable growth State Goal PSE&G Actions Maintain reliability • Capital investments in transmission • Maintain superior distribution system reliability • Capital infrastructure programs 70% of state electric • Solar 4 All progra
Slide 27: PSE&G is meeting objectives for customers and shareholders
PSE&G is meeting objectives by providing reliable service to customers and reasonable returns to shareholders • Earned authorized return on equity • Ensuring customer satisfaction with focus on service – ReliabilityOne Mid-Atlantic Region 10th consecutive year – Storm response • Established regulato
Slide 28: Achieving our allowed ROE
Combination of regulatory agreements and cost containment have enabled us to achieve our allowed ROE PSE&G Combined ROE* 12.0% 11.1% 9.9%** 8.3% 8.0% 4.0% 0.0% 2009 2010 2011 28 * Includes Transmission, Distribution and Renewables/Energy Efficiency. ** 2010 excludes impact of MTC write-off.
Slide 29: PSE&G has managed its O&M
PSE&G has managed its O&M by streamlining the organization and increasing productivity PSE&G O&M* 1,200 1,000 2009 – 2011 800 CAGR: (4.1%) ($ Millions) 600 400 200 0 2009 2010 2011 O&M Pension 29 * Excludes Regulatory Clauses.
Slide 30: High reliability at below average cost
PSE&G provides high reliability at below average cost which creates superior value to customers SAIDI VS. O&M $12.00 $9.00 O&M/MWhr $6.00 PSE&G $3.00 $0.00 0 30 60 90 120 150 180 210 240 Median SAIDI 30 SAIDI = System Average Interruption Duration Index, a measure of average outage duration for all
Slide 31: PSE&G prioritizes public safety while maintaining value
PSE&G prioritizes public safety while maintaining value to customers Gas Leak Response Rate VS. O&M Per Dkth $1.00 $0.75 O&M/Dkth $0.50 $0.25 PSE&G $- 96.0 98.0 100.0 Median Gas Leak Response Rate (% ) 31 Leak Response Rate = Percentage of Utility responses to reported leaks within one hour.
Slide 32: Execution of capital programs
PSE&G is focused on execution of capital programs to improve reliability and meet State energy policy goals PSE&G Capital Expenditures 2,000 1,500 Renewables and Energy Efficiency ($ Millions) Transmission 1,000 Distribution Capital Infrastructure Clauses 500 Distribution 0 2009 2010 2011 2012E 2013
Slide 33: Investment in Transmission ensures reliability
Investment in Transmission ensures customer reliability at a reasonable risk adjusted return for investors Capital Expenditures 1,500 1,250 1,000 Major Transmission Projects ($ Millions) Other RTEP 750 69kV Transmission 500 Other Transmission 250 0 2009 2010 2011 2012E 2013E 2014E • Transmission rep
Slide 34: FERC and PJM support for transmission investment
FERC and PJM support for transmission investment has created substantial opportunities for PSE&G to improve reliability while earning contemporaneous returns Major Transmission Projects 100% Total Hopatcong Inclusion of Roseland Approved Recovery of Estimated CWIP in W Orange Bergen ROE Costs Due to
Slide 35: Major Project: Susquehanna-Roseland
Major Project: Susquehanna-Roseland Project Description: Susquehanna-Roseland consists of constructing 150 miles of 500kV circuit (46 miles in NJ) with two new 500kV GIS switching stations at Roseland and Hopatcong • PJM RTEP project b0489 • ROE of 12.93% (including 1.25% incentive) Hopatcong • 100%
Slide 36: Major Project: Northeast Grid Reliability
Major Project: Northeast Grid Reliability Project Description: Northeast Grid Reliability consists of upgrading approximately 50 overhead circuit miles of 138kV transmission line to 230kV, constructing approximately 18 miles of new underground 230kV lines, and converting twelve existing stations to
Slide 37: Major Project: North Central Reliability
Major Project: North Central Reliability Project Description: North Central Reliability consists of upgrading 55 circuit miles of 138kV transmission line to 230kV, and converting six existing stations to 230kV operation • PJM RTEP project b1154 • ROE of 11.68% Roseland • 100% CWIP in rate base durin
Slide 38: Major Project: Burlington-Camden 230kV
Major Project: Burlington-Camden 230kV Project Description: Burlington-Camden 230kV consists of upgrading 37 circuit miles (30 miles of overhead and 7 miles of underground) of 138kV transmission line to 230kV, converting the existing stations to 230kV operation • PJM RTEP project b1156 • ROE of 11.6
Slide 39: Major Project: Mickleton-Gloucester-Camden 230kV
Major Project: Mickleton-Gloucester-Camden 230kV Project Description: Mickleton-Gloucester-Camden 230kV consists of upgrading 12 overhead circuit miles of 138kV transmission to 230kV, installing approximately 20 circuit miles of new 230kV underground, installing 10 circuit miles of new 230kV overhea
Slide 40: Replacing aging distribution infrastructure
PSE&G is replacing aging distribution infrastructure to improve reliability at a reasonable return Capital Expenditures 1,000 750 ($ Millions) Dist. Capital Infrastructure 500 Programs Distribution New Business 250 Distribution Base 0 2009 2010 2011 2012E 2013E 2014E • Capital Infrastructure Program
Slide 41: Solutions to New Jersey's energy and economic development goals
Providing solutions to New Jersey’s energy and economic development goals Capital Expenditures 400 300 ($ Millions) Energy Efficiency 200 Renewables 100 0 2009 2010 2011 2012E 2013E 2014E Total Spending Remaining ($ Millions) Approval Date Amount Thru 2011 Spending Renewables April 2008/ Solar Loan
Slide 42: Contemporaneous recovery mechanisms of capital spending
Contemporaneous recovery mechanisms represent approximately $4.1 billion of the total $5.4 billion capital spending forecast PSE&G Capital Expenditures 2,000 1,800 1,600 Capital Infrastructure 1,400 Programs (CIP I & II) Solar 1,200 ($ Millions) 1,000 Energy Efficiency 800 Transmission 600 Distribut
Slide 43: ~13% annualized rate base growth
PSE&G’s investment program provides opportunity for ~13% annualized growth in rate base from 2011* PSE&G Projected Rate Base 12,000 10,000 8,000 ($ Millions) 6,000 4,000 2,000 0 2009 2010 2011 2012 2013 2014 Gas Distribution Electric Distribution Transmission Solar/Energy Efficiency 43 *Starting fro
Slide 44: Additional investments will stimulate NJ economy
Additional investments by PSE&G will stimulate NJ economy by creating jobs, while improving reliability to customers Typical Annual Bill Combined Electric and Gas Residential Customer $3,000 Impact of Renewable $2,500 and Distribution Delivery and Delivery and investment $2,000 Clauses Clauses Impac
Slide 45: PSE&G operating earnings growth
PSE&G’s operating earnings growth has been achieved with a focus on cost control and execution of capital programs PSE&G Operating Earnings* 600 $530-$560 Earnings $521 Guidance 500 $430 400 $321 ($ Millions) 300 200 100 0 2009 2010 2011 2012 Guidance 45 * See page A for Items excluded from Income f
Slide 46: Delivering value by meeting needs of customers and shareholders
The business of PSE&G: Delivering value by meeting the needs of our customers and shareholders Meeting Ready for Commitments the Future • Achievement of allowed ROE • Significant investments with • Focus on cost control while contemporaneous recovery maintaining operational excellence • Transmission
Slide 47: The Business of PSEG Long Island
The Business of PSEG Long Island Ralph LaRossa President and Chief Operating Officer, PSE&G
Slide 48: Finding opportunities to extend operational excellence
The business of PSEG: Finding opportunities to extend and profit from our operational excellence LIPA, a New York State agency, owns T&D and generation assets (formerly LILCO) – 1.1 million electric customers – Public / private business model: • T&D owned by LIPA • Privately operated – Sound T&D ope
Slide 49: Conference Break
«> PSEG Conference Break
Slide 50: The Business of PSEG Power
The Business of PSEG Power William Levis President & Chief Operating Officer, PSEG Power
Slide 51: The business of PSEG Power: A focus on operating excellence
The business of PSEG Power: A focus on operating excellence and a commitment to enhancing shareholder value Political/ Regulatory Reliability Environment Operational Sustainable Excellence Financial Performance Highly Growth/ Valued/Engaged Value Creation Employees Strategy 51
Slide 52: 2011 accomplishments support low-cost, clean energy supply
2011 accomplishments support availability of low-cost, clean energy supply Strong safety performance, O&M control, Operating Excellence reduced environmental footprint Reliability Improvement in forced loss rate & EFORd Meeting EPA requirements, nuclear license Regulatory Environment renewal, prepar
Slide 53: Asset diversity enables fleet optimization
Asset diversity enables fleet optimization in response to changing market dynamics Fuel Diversity Energy Produced* Energy Market Served Total8% MW: 13,060 Total GWh: 53,980 Total MW: 13,060 Oil Nuclear Baseload Nuclear 56% 9% Peaking 28% 34% Pumped 23% Storage Gas 44% 18% 1% 15% 28% 43% Coal Coal Ga
Slide 54: A well positioned fleet
A well positioned fleet RPM Zones $50 2011 RTC LMPs PSEG North PSEG Zone $48 Current plant locations Eastern MAAC $46 Bethlehem Energy Center (Albany) $44 $/MWh $42 New Haven $40 Hudson WESTERN HUB PPL RECO METED PECO JCPL PEPCO AECO DPL PSEG BGE Keystone Yards Creek Bridgeport Bergen 2011 Basis to
Slide 55: Operating excellence within a safety-oriented culture
A focus on operating excellence within a safety- oriented culture to maximize the value of our assets • Benchmark performance • Safety improvements • Strengthened nuclear fundamentals • Improve performance based on gaps identified and refueling outage excellence • Improved fossil outage planning and
Slide 56: Superior nuclear performance
Continued focus on superior nuclear performance as we maintain our drive for excellence Nuclear Generation Output* (000’s GWh) Forced Loss Rate () 30.3 30.1 30.1 (%) 29.3 29.6 28.4 3.0 2.1 1.4 1.0 0.9 0.6 0.6 0.6 0.7 0.7 0.7 2007 2008 2009 2010 2011 2012 P 2007 2008 2009 2010 2011 2012 P NJ Units 1
Slide 57: Combined cycle fleet operating enhancements
Emphasizing combined cycle fleet operating enhancements and continuing to respond to market dynamics Combined Cycle Output Forced Outage Rate () (000’s GWh) (% EFORD) 16 15 15 13 12 10 2.5 1.6 1.5 1.2 1.1 0.8 2007 2008 2009 2 0 10 2 0 11 2 0 12 P 2007 2008 2009 2 0 10 2 0 11 2 0 12 P Period Heat Ra
Slide 58: A coal fleet ready for stronger markets
A coal fleet ready for stronger markets as investment in back-end technology prepared fleet for EPA rules Coal Output Forced Outage Rate () (000’s GWh) (% EFORD) 13 13 11 9 8 6 7.9 8.4 6.6 4.8 4.2 4.0 2007 2008 2009 2 0 10 2 0 11 2 0 12 P 2 0 07 2 0 08 2 00 9 2 010 2 0 11 20 12 P SO2 and NOx Rates
Slide 59: Peaking fleet meets load during high demand
Backed by a peaking fleet which provides the ability to meet load during high demand periods % Start Success () Forced Outage Rate () 97.0 98.9 99.3 98.3 97.4 97.4 (% EFORD) 19 14 15 13 10 10 2007 2008 2009 2 0 10 2 0 11 2 0 12 P 20 0 7 2 0 08 2 00 9 2 010 2 011 2 012 Equivalent Availability () (
Slide 60: Improved operations added $150M in after-tax value
Improved operations added $150M in after-tax value in 2011, with improvement in environmental profile 2004 2011 Today • 3,445 MW • Nuclear capacity • 3,632 MW • 81% • Nuclear equivalent availability • 93% • 24.7 TWhrs • Nuclear generation • 30.1 TWhrs • 45.0 TWhrs • Total generation • 54.0 TWhrs • 1
Slide 61: Action plan in response to NRC review of Fukushima
Developing action plan in response to NRC staff review of Fukushima event Action taken consistent with industry guidance Short Term • Conducted initial walk-downs of severe accident management procedures and equipment – No issues identified Long Term • Additional resources required (people / equipme
Slide 62: Cost control programs have contained O&M growth
Cost control programs have contained growth in O&M as production has increased P ower's O& M $1,500 O&M cost control programs $1,500 have contained the growth in expense $ Millions $1,000 $1,000 CAGR 2.9% for 2009 - 2011 $500 $500 $0 2009 2010 2011* O&M Pension 62 * Includes cancellation and ren
Slide 63: Success managing large capital projects
Demonstrated success in managing large capital projects, achieving/exceeding desired results In Service Date In Service Bridgeport Harbor 3 baghouse 2007 Salem steam generator 2008 Hope Creek uprate 2008 Mercer baghouse 2008 Hudson balance of plant 2008 $2.1 Billion Keystone scrubber 200
Slide 64: Power positioned to meet CSAPR and MATS
Conclusion of major environmental spend places Power in good position to meet CSAPR and MATS Current Regulations and Compliance Measures Keystone `Bridgeport Conemaugh Description Hudson (NJ) Mercer (NJ) (PA) (CT) (PA) Status Low Nox SCR NOx SCR SCR SCR Burners 2014 Ultra-low Power is well SO2 Scrub
Slide 65: HEDD emission limits require modifications to peaking units
HEDD emission limits require environmental modifications of peaking units in the state New Jersey HEDD Capacity PSEG Power HEDD Capacity ICAP MW* MW* 2,437 576 1,998 Uncontrolled; Others 404 Retire by May 1,482 453 2015** 407 Potential conversion to Gas PSEG 2,437 1,408 Water-injection, 1,187 under
Slide 66: Completion of major environmental upgrades reduces capital requirements
Completion of major environmental capital upgrades reduces future capital requirements PSEG Power Capital Expenditures $900 2006-2014E 800 600 $600 580 580 570 ($ Millions) 520 370 340 290 $300 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E Growth Environmental Maintenance 66 E=Estimate.
Slide 67: Assessing existing sites for gas-fired development
Assessing the viability of existing sites for gas-fired development: Sewaren and Essex appear to be the most promising locations Potential sites include: Considerations include: Bergen Interconnection Capacity Essex Space Kearny Fuel Hudson Permitting Linden Sewaren Bridgep
Slide 68: Investing in our workforce
Strong emphasis on investing in our workforce to drive operational excellence • Improved performance with investments in people – Moved training center onsite at PSEG Nuclear – Developed mobile training trailers for Fossil on-the-job training • Conducted leadership training / rotations through succe
Slide 69: PSEG Power: Delivering Value
The business of PSEG Power: Delivering Value Delivered Positioned to on Promises Deliver Value • Nuclear up-rates and • Improved operating improvements provide performance of generation additional, low cost generation fleet • Combined Cycle fleet able to • Met environmental take advantage of gas pri
Slide 70: The Business of Power ER&T
The Business of Power ER&T Shahid Malik President, PSEG Energy Resources & Trade
Slide 71: Strategic direction emphasizes optimizing Power's assets
The business of PSEG Power: Our strategic direction emphasizes optimizing the financial performance of Power’s assets Flexible Portfolio Locational Advantage Commodity Environmental Markets Rules Hedging Strategy Regulatory 71
Slide 72: Managing fleet in a volatile commodity market
Actively managing our fleet in a volatile commodity market, with an asset profile that provides diverse opportunities for value creation 2012 Forward Prices & Dark Spread 2014 Forward Prices & Dark Spread 100 50 100 50 80 40 80 40 Dark Spread ($/MWh) Dark Spread ($/MWh) 60 30 60 30 $/MWh $/MWh 40 20
Slide 73: Coal hedging
Coal hedging reflects 2012 supply matched with 2012 sales, with further optimization of our coal position in the global market Contracted Coal % Hedged (left scale) • We actively manage coal supply and $/MWh 100% (right scale) $50 transportation needs based on our generation needs and market view 80
Slide 74: Managing our fleet to capitalize on volatility
Managing our fleet to capitalize on volatility 2013 and 2014 RTC Henry Hub Gas Forwards Forward Prices & Spark Spread 80 40 4 Spark Spread $/MWh 60 30 3 $/MWh $/MB 2 40 20 1 20 10 0 0 - Jan-10 Jul-10 Jan-11 Jul-11 2012 2013 2014 2015 Western Hub RTC Forward 2014 Western Hub RTC Forward 2013 2014 Spa
Slide 75: Active gas management strategy
An active gas management strategy providing economic value to customers and our fleet • Large portfolio of gas transportation & storage assets • Manage gas supply needs of PSE&G and PSEG Power • Responsible for over 400 bcf of gas supply in 2011 • 126 bcf consumed by Power’s gas fired assets in 2011
Slide 76: PJM assets well positioned along the dispatch curve
PJM assets are well positioned along the dispatch curve and maintain fuel optionality while also reducing the risk of serving full requirements contracts National Park Dispatch Cost ($/MWh) Sewaren 6 Mercer 3 Kearny 10-11 Salem 3 Burlington 8-9-11 Bergen 3 Nuclear Edison 1-2-3 Essex 10-11-12 Coal Se
Slide 77: Maximizing dispatch of coal and gas fleet
Maximizing the dispatch of our coal and gas fleet to maintain unit margins % PSEG’s PJM Coal/Gas Generation % PSEG’s PJM Coal/Gas Energy Margin 100% 100% 28% 75% 50% 55% 53% 59% 75% 66% 64% 70% 50% 50% 72% 25% 50% 45% 47% 41% 25% 34% 36% 30% 0% 0% 2008 2009 2010 2011 2008 2009 2010 2011 Coal Gas Coa
Slide 78: Markets undergoing change
Operating within transparent markets undergoing change in response to economic and regulatory signals Generation Retirement Notifications since 11/2011 PJM Deactivation Requests (MW) as of: 1/1/11 11/1/11 3/1/12 1,542 2,579 7,985 Lower Reserve Margin Regulatory—environmental retirements Economic—loa
Slide 79: Reliability Pricing Model recognizes locational value
The Reliability Pricing Model has recognized the locational value of Power’s generating fleet with sites in the eastern part of PJM $/MW-day 2011 / 2012 2012 / 2013 2013 / 2014 2014 / 2015 Power’s $110 $153 $244 $162 Average Prices Rest of Pool $110 $16 $28 $126 Prices Latest and upcoming auction in
Slide 80: Hedging generation through BGS auctions
Favorably hedging our generation at customer/load centers through Power’s participation in each of the BGS auctions Market Perspective – BGS Auction Results Full Requirements Component Capacity Markets/RPM Growing Renewable Energy Requirements Component for Market Risk $111.50 $102.51 $103.72 $98.88
Slide 81: Managing the portfolio in a volatile basis environment
Managing the portfolio in a volatile basis environment with market conditions continuing to provide opportunity ON PEAK PS ZONE BASIS TO WEST HUB MARKET DRIVERS • Extreme weather • Higher loads • Higher fuel prices • Transmission constraints • Fuel constraints • Milder weather • Lower loads • Lower
Slide 82: Managing ancillary revenue stream
Managing our ancillary revenue stream, which contributes $100M in annual margin for Power, with potential to expand services as dependence on intermittent resources grows Sync/Non-sync Reactive Regulation Black Start Reserves Nuclear √ Coal √ √ √ Combined Cycle √ √ √ CT √ √ √ √ 82
Slide 83: Gross margin per MWh remained robust
In the midst of a declining price environment, PSEG Power’s gross margin per MWh has remained robust Average Monthly PS Zone RTC LMP PSEG Power Gross Margin* ($/MWh) ($/MWh) $75 $60 $55 $54 $52 $50 $25 $0 2008 2009 2010 2011 83 *Gross margin reflects energy and capacity pricing.
Slide 84: EPA Clean Air Act rules will impact supply
The EPA is in the process of implementing Clean Air Act rules which will impact supply Region Total Capacity Total Coal Capacity Unscrubbed Announced Coal Announced Coal (GW) (GW) Capacity Retirements Retirements (GW) (GW) (as % of total) PJM 180 79 30 14 8% NY ISO 37 2.6 0.6 0.3 1% ISO-NE 32 2.8 2.
Slide 85: EPA's clean air rules will impact electricity markets
EPA’s clean air rules will impact electricity markets, and Power is well prepared for environmental regulations Capacity Energy Cumulative Retirements Announced CSAPR Impact on NOx and SO2 Allowance Prices GW (GW) 45 Technology Est. Price Impact 40 MATS finalized ($/MWh) 35 36 30 CSAPR finalized Nat
Slide 86: Active participant in regulatory stakeholder processes
Power is an active participant in regulatory stakeholder processes in support of competitive markets ISSUE/POLICY HOW ADDRESSED? MOPR Sufficiency/Exceptions under regulatory review • PJM RPM rules for capacity markets FERC settlement/hearing • PJM Energy/Ancillary Services Market Rules CONE process
Slide 87: Contracting longer term hedges
Contracting longer term hedges and other products provides medium term financial stability Contracted Energy * 2012 2013 2014 Volume TWh 34 34 34 Base Load % Hedged 100% 85-90% 30-35% (Nuclear and Base Load Coal) Price $/MWh $59 $53 $57 Volume TWh 19 18 20 Intermediate Coal, Combined % Hedged 35-40%
Slide 88: PSEG Power: Successfully executed its strategy
The business of PSEG Power: Successfully executed its strategy, delivered value today, and is well positioned for tomorrow’s challenges Delivered on Positioned to Promises Deliver Value • Achieved consistent gross • Utilize assets across the dispatch margin per MWh results curve to be able to take a
Slide 89: Q&A
«> PSEG QA
Slide 90: PSEG – Financial Review & Outlook
PSEG – Financial Review & Outlook Caroline Dorsa Executive Vice President and Chief Financial Officer
Slide 91: Execution of financial program supports long-term shareholder value
PSEG’s execution of its financial program supports sustainable, long-term shareholder value Delivered on Positioned to Promises Deliver Value • Expect to deliver value over the • Earnings guidance achieved long term as regulated company • Execution of capital earnings increase as a percent of progra
Slide 92: Business mix has changed
Our business mix has changed with PSE&G growing from 20% to 38% of operating earnings Operating Earnings by Subsidiary* $3.09 $3.12 $2.74 Other $0.11 $0.12 $0.04 $2.15 $1.67 Power $2.35 $1.03 $0.85 PSE&G $0.63 2009 2010 2011 *See page A for Items excluded from Income from Continuing Operations to re
Slide 93: 2011 performance at top end of guidance
Our strong 2011 subsidiary performance enabled PSEG to deliver at the top end of our guidance Realized Operating Earnings versus Guidance Ranges $550 $1,400 $900 $MM $MM $MM $500 $800 $1,300 $450 $700 $1,200 2011 2011 2011 PSE&G Power PSEG *See page A for Items excluded from Income from Continuing O
Slide 94: PSE&G 2011 cash flows
In 2011, PSE&G funded its capital program with internal cash flow, and paid a meaningful dividend to PSEG $2.0 PSE&G 2011 Cash Flows $1.5 $1.0 Capital ($ in billions) Investment Cash from Ops (1) $0.5 Reduced Cash on Hand Dividend to $0.0 Parent LTD LTD Issued Redeemed ($0.5) 94 (1) PSE&G Cash from
Slide 95: Power 2011 free cash flow
In 2011, Power had $1.7B of free cash flow, which was used to support the shareholder dividend and strengthen its balance sheet Power 2011 Cash Flows $2.5 Texas Sale Capital Investment $2.0 Free Cash Flow: $1.7B Dividend $1.5 ($ in billions) to Parent Cash from Ops (1) $1.0 LTD Redemption $0.5 LTD C
Slide 96: PSEG 2011 cash flows
In 2011, PSEG executed its capital program and had over $2B of free cash flow supporting the dividend and strengthening the balance sheet $4.5 PSEG 2011 Cash Flows Asset Sales & other net PSE&G cash flow Capital $3.5 Investment PSE&G Cash from Ops (1) Power Free Cash ($ in billions) $2.5 Capital Inv
Slide 97: Focus on business drivers supports cost control
Focus on business drivers supports overall cost control PSEG Consolidated O&M (1) $2,500 CAGR (’11-’14) = 2.9% 2012 – 2014: Cyclical maintenance $2,250 expenses at Power $2,000 Growth in transmission & $ Millions appliance service $1,750 Headcount relatively flat $1,500 Total fringe costs de
Slide 98: Pension contributions will significantly decline
Pension contributions will significantly decline as our pension plan approaches being fully funded Pension Plan Funded Status and Company Contributions Amended $500 Benefit 100% Plans $400 Contributions in $Millions PBO Funded Ratio (%) 90% $300 $200 80% $100 $0 70% 2009 2010 2011 2012E 2013E 2014E
Slide 99: Consolidated capital spending focused on growth
PSEG’s consolidated capital spending is focused on growth, with minimal environmental spending PSEG 2012-2014E Capital Spending PSEG 2012-2014E Capital Spending $6.7 Billion $6.7 Billion Growth / Environmental / Maintenance by Subsidiary Holdings Growth $0.1B 1% Environmental $0.2B 3% PSE&G Maintena
Slide 100: 2012 dividend increase reflects a reset
The 2012 dividend increase reflects a reset to the dividend and a revision to our payout policy PSEG Annual Common Dividend Per Share $1.42 Modest and Sustainable Dividend Growth Consistent $1.37 $1.37 With Stable Regulated Growth and Cash Generation $1.33 Outlook at PSEG Power 2009 2010 2011 2012E
Slide 101: Strong balance sheet position
Our focus on building a strong balance sheet places us in an advantageous position to capitalize on selected new opportunities PSEG Power 80% Funds from Operations / Total Debt 70% 60% 50% 40% Power’s free cash flow produces solid credit 30% measures despite low 20% natural gas prices 10% 0% 2009 20
Slide 102: Credit profile provides capital allocation flexibility
PSEG’s strong credit profile provides the financial flexibility for a range of ~$750M to >$1B of capital allocation options depending upon business mix and return profile 2012-2014E PSEG Sources & Uses Cash Shareholder Dividend Debt Issuances Debt Redeemed Holdings & Other Net Cash Flow PSE&G Cash P
Slide 103: Options to enhance shareholder value
PSEG has a variety of options to enhance shareholder value New Reliability Based Transmission Solar 4 All Extension Energy Efficiency Gas Infrastructure New Build at Power Holdings Solar Future Dividend Growth 103
Slide 104: 2012 earnings guidance of $2.25 to $2.50
PSEG’s 2012 earnings guidance of $2.25 to $2.50 reflects continued improvement at PSE&G and a decline in margins at Power PSE&G Earnings Per Share Guidance 2012 Assumptions $1.20 $1.10 $1.00 $1.05 PSE&G $0.80 Growth in investments that provide $0.60 contemporaneous returns $0.40 ― Transmission $0.
Slide 105: Long-term outlook and EPS drivers
PSEG’s long-term outlook is influenced by Power’s hedge position and increased investment at PSE&G Segment EPS Drivers 2013 2014 Each $1/mcf Change in Natural Gas $0.04 - $0.07 $0.14 - $0.17 Each $2/Mwh Change in Spark Spread $0.04 $0.04 Each $2/Mwh Change in Dark Spread $0.01 $0.02 Each 1% Change i
Slide 106: Growing earnings contribution from regulated operations
A growing earnings contribution from our regulated operations better positions us to grow cash returns to shareholders % of Earnings 2009 - 2011 2012 - 2014E 28% ~ 47% ~ 53% 72% PSE&G Rest of PSEG 106 E = Estimate
Slide 107: Holdings has significantly reduced its portfolio
Holdings has significantly reduced its portfolio and will continue to monetize legacy assets Holdings Investment $4.9B Regulated Portfolio Energy Leases & Other Texas Texas Transfer & Merchant Energy Sale ~$600M Leases LILO/SILO Lease Terminations ~$1.2B LILO/SILO Leases International & Other
Slide 108: Tax Update
Tax Update Final LILO/SILO settlement executed Closing agreement establishes certainty for cross border lease tax treatment for all years Settlement Agreement, closing tax years 1997 through 2003, was also executed Immaterial earnings impact and expected net refund of ~$100M 108
Slide 109: PSEG Value Proposition
PSEG Value Proposition Operating •Clean, low cost Nuclear, CCGT, and Coal generating fleet Excellence •Large, reliable electric and gas distribution operations •Energy markets in midst of transformational change Regulatory/ – Environmental compliance costs and low natural gas prices to force retirem
Slide 110: PSEG – Summary
PSEG – Summary Ralph Izzo Chairman, President and Chief Executive Officer
Slide 111: Q&A
«> PSEG QA
Slide 112: Executive Profiles
«> PSEG Executive Profiles
Slide 113: Ralph Izzo
Ralph Izzo Chairman, President and Chief Executive Officer Public Service Enterprise Group Incorporated Ralph Izzo was elected chairman and chief executive officer of Public Service Enterprise Group Incorporated (PSEG), in April 2007. He was named as the company’s president and chief operating offic
Slide 114: J.A. "Lon" Bouknight, Jr.
J.A. “Lon” Bouknight, Jr. Executive Vice President and General Counsel Public Service Enterprise Group Incorporated Public Service Electric and Gas Company PSEG Services Corporation J.A. Bouknight, Jr. (“Lon”) was named executive vice president and general counsel in January, 2010. He had been Execu
Slide 115: Caroline Dorsa
Caroline Dorsa Executive Vice President and Chief Financial Officer Public Service Enterprise Group Incorporated Public Service Electric and Gas Company PSEG Services Corporation Caroline Dorsa was named executive vice president and chief financial officer for Public Service Enterprise Group Incorpo
Slide 116: Anne E. Hoskins
Anne E. Hoskins Senior Vice President – Public Affairs & Sustainability PSEG Services Corporation Anne E. Hoskins serves as senior vice president – public affairs and sustainability of PSEG Services Corporation. In this position, she is responsible for PSEG’s federal and state governmental affairs;
Slide 117: Thomas P. Joyce
Thomas P. Joyce President and Chief Nuclear Officer PSEG Nuclear Thomas P. Joyce was named president and chief nuclear officer of PSEG Nuclear (Nuclear), in October 2008. He had been senior vice president – operations of Salem/Hope Creek for Nuclear, since June 2007. Mr. Joyce was also vice presiden
Slide 118: Ralph A. LaRossa
Ralph A. LaRossa President and Chief Operating Officer Public Service Electric and Gas Company Ralph A. LaRossa was named president and chief operating officer of Public Service Electric and Gas Company (PSE&G), in October 2006. Prior to this position he was vice president - electric delivery for PS
Slide 119: William Levis
William Levis President and Chief Operating Officer PSEG Power William Levis is president and chief operating officer of PSEG Power, a position he’s held since June 2007. PSEG Power is a major, unregulated independent power producer in the U.S. with three main subsidiaries: PSEG Nuclear, PSEG Fossil
Slide 120: Shahid Malik
Shahid Malik President PSEG Energy Resources & Trade Shahid Malik was elected President of PSEG Energy Resources & Trade (ER&T) in December, 2011. PSEG operates one of the most balanced portfolios in the country, both in terms of fuel mix and market segment (base load units, load following units and
Slide 121: Randall E. Mehrberg
Randall E. Mehrberg Executive Vice President, Strategy & Development PSEG Services Corporation President PSEG Energy Holdings Randall E. Mehrberg is president of PSEG Energy Holdings. PSEG Energy Holdings develops, manages and owns renewable energy solutions. PSEG Energy Holdings also owns power pla
Slide 122: Margaret M. Pego, SPHR
Margaret M. Pego, SPHR Senior Vice President – Human Resources and Chief Human Resources Officer PSEG Services Corporation Margaret M. Pego was named senior vice president – human resources and chief human resources officer of PSEG Services Corporation, in December 2006. Prior, she had been vice pre
Slide 123: Appendix
«> PSEG A ppendix
Slide 124: PSEG 2012 Operating Earnings Guidance - By Subsidiary
PSEG 2012 Operating Earnings Guidance - By Subsidiary $ millions (except EPS) 2012E 2011 PSEG Power $575 – $665 $ 845 PSE&G $530 – $560 $ 521 PSEG Energy Holdings/Parent $35 – $45 $ 23 Operating Earnings* $1,140 – $1,270 $ 1,389 Earnings per Share $ 2.25 – $ 2.50 $2.74 124 * See page A for Items exc
Slide 125: PSEG Consolidated Debt / Capitalization
PSEG Consolidated Debt / Capitalization $18 $16 $14 $12 Debt (1) $ billion $10 Preferred Stock $8 $6 $4 Equity $2 $0 (in $Millions) 2009 2010 2011 Debt 7,311 7,812 7,060 Preferred Stock 80 0 0 Common Shareholders Equity 8,788 9,633 10,270 Debt plus Equity 16,179 17,445 17,330 Debt Ratio 45.2% 44.8%
Slide 126: PSEG Consolidated Debt / Capitalization
PSEG Consolidated Debt / Capitalization PSEG Consolidated ($Millions) December 31, 2009 December 31, 2010 December 31, 2011 PSE&G Short-term Debt $ - $ - $ - PSEG Money Pool Short-term Debt 530 64 - Total Short-term Debt 530 64 - (1) Long-term Debt : (2) Power 3,121 3,455 2,751 PSE&G 3,571 4,283 4,2
Slide 127: Power and Parent available liquidity totaled approximately $4.1 billion
At the end of 2011, Power and Parent available liquidity totaled approximately $4.1 billion Expiration Total Available Company Facility Date Facility Usage Liquidity ($Millions) PSE&G 5-year Credit Facility Apr-16 $600 $0 $600 PSEG / 5-Year Credit Facility (Power) Dec-12 $1,525 1 $75 $1,450 Power 5-
Slide 128: PSEG Resources Leveraged Lease Portfolio
PSEG Resources Leveraged Lease Portfolio 12/31/11* S&P Invested Credit Lessee Equipment ($ millions) Rating** REMA (GenOn) Keystone, Conemaugh & Shawville (PA) 332 B 3 coal fired plants (1,162 equity MW) Dynegy Holdings Danskammer & Roseton Generating Station (NY) 0 NA 370 MW coal fired and 1,200 MW
Slide 129: Our five unit nuclear fleet is critical to Power's success
Our five unit nuclear fleet is a critical element of Power’s success Hope Creek Operated by PSEG Nuclear Salem Units 1 and 2 PSEG Ownership: 100% Operated by PSEG Nuclear Technology: Boiling Water Reactor Peach Bottom Units 2 and 3 Ownership: PSEG -- 57%, Total Capacity: 1,173MW Exelon –
Slide 130: Nuclear fuel needs have been hedged through 2014
Nuclear fuel needs have been hedged through 2014 Anticipated Nuclear Fuel Cost $10 ($/MWh) $5 $0 2012 2013 2014 Hedged 130
Slide 131: BGS rate recognizes forward PJM capacity market price
The full requirements BGS rate recognizes the forward PJM capacity market price Capacity Price per RPM Auction for PSEG Zone Capacity Price per BGS Tranche 2012-2013 $ 155 Three Year Average ($/MW-day) $ 188 2013-2014 $ 245 MW per Tranch (varies by EDC) ~115 2014-2015 $ 164 Days per Year 365 Three Y
Slide 132: Slow economic recovery in NJ is constraining growth
Slow economic recovery in NJ is constraining growth in all market sectors 2012 - 2014 Projected Sales* Growth - Gas • Modest residential growth limited by housing market inactivity and the slow economic recovery 0.3% 0.1% 0.1% • Consumer spending is trending with the slow economic recovery Residenti
Slide 133: Key economic indicators forecast renewed growth
Key economic indicators forecast renewed growth over the 2011 to 2014 timeframe NJ Real Gross State Product • The New Jersey economy increased by 2.0% $500,000 (Millions) $480,000 $460,000 annually from 2009 to 2011 and is anticipated to $440,000 $420,000 grow 2.3% per year from 2011 to 2014 $400,00
Slide 134: New Jersey Board of Public Utilities (BPU)
New Jersey Board of Public Utilities (BPU) The Board of Public Utilities consists of five commissioners appointed by the Governor. These appointees are confirmed by the NJ Senate for six-year, staggered terms. The Governor appoints one of the five to serve as Commission President. Currently, the f
Slide 135: Items Excluded from Income from Continuing Operations to Reconcile to Operating Earnings
Items Excluded from Income from Continuing Operations to Reconcile to Operating Earnings Reconciling Items Excluded from Continuing Operations to Compute Operating Earnings (Unaudited) For the Year Ended Pro-forma Adjustments, net of tax December 31, 2011 2010 2009 2008 Earnings Impact ($ Millions)
Public Service Enterprise Group — Investor Day (March 2012) on 6ix