Download - public serviceenterprise group 10/08/04-1-33
Public Service Enterprise Group
Strategic Presentation to the Financial Community
October 8, 2004Short Hills, NJ
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Agenda• PSEG Strategic Overview Jim Ferland• PSE&G Ralph Izzo• PSEG Power Frank Cassidy
– PSEG Nuclear Chris Bakken– PSEG Fossil Mike Thomson– PSEG ER&T Steve Teitelman
Break• PSEG Energy Holdings Bob Dougherty• PSEG Financial Review Tom O’Flynn• Summary Jim Ferland• Final Q&A All
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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 purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance they will be achieved. The results or events predicted in these statements may differ materially from actual results or events. For further information, please refer to our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission.
Go to http://media.corporate-ir.net/media files/nys/peg/reports/peg_10kp84.pdf for a full text of our Forward-Looking Statement. These documents address in further detail our business, industry issues and other factors that could cause actual results to differ materially from those indicated in this presentation. In addition, any forward-looking statements included herein represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if our estimates change, unless otherwise required by applicable securities laws.
Forward-Looking Statement
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PSEG 2004 Guidance
Leveraged Leases
Earnings $750M - $800M*EPS $3.15 – $3.35*ROE 13% - 14%Assets $28B
Earnings $340M - $360M Earnings $300M - $350M Earnings $130M - $150M
Domestic/Int’l Energy
Regional Wholesale Energy
Traditional T&D
* Includes the parent impact of $(40)M - $(45)M
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Developments in 2004• Significant fuel price increases
– Natural Gas (Henry Hub) + 39%– Oil (#6 Resid) + 30%– Coal (NJ) + 48%
• Higher electric energy prices– PJM (PS Zone) + 24%
• Key competitive pressures– Lower BGS and long-term contract margins– Flat ER&T profits as opposed to continued growth
• Higher nuclear and fossil replacement power and operating costs
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$10
$20
$30
$40
$50
$60
Jan-00
Apr-00
Jul-0
0Oct-
00Ja
n-01Apr
-01Ju
l-01
Oct-01
Jan-02
Apr-02
Jul-0
2Oct-
02Ja
n-03Apr
-03Ju
l-03
Oct-03
Jan-04
Apr-04
Jul-0
4
$/M
Wh
BGS Auction 1
BGS Auction 2BGS Auction 3
PJM Western HubRound-The-Clock Forward Prices
Higher Energy Prices
2000 2001 2002 2003 2004
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BGS and Long-term Contracts
PSEG Power Term Contracts
100
90
80
70
60
50
40
30
20
10
% o
f Pow
er G
ener
atio
n
2003 BGS (34 Month)
United Illuminating
2003
BG
S (1
0 M
onth
)
2004 BGS (36 Month)
2004 BGS (12 Month)
Other term energy contracts
Generation output not under contract
20082007200620052004
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~$0~$0$1.2M$2M$3.2MMargin per Tranche*
~$0
$54.73
$3
$55.60
~$0$5$8Margin to Forwards
$55.15$53.86$51.12Price (PSE&G)
20,000
4,000
8,000
12,000
16,000
2002 2003 2004 2005 2006 2007 2008
1 Year
170 Tranches
10 months
104 Tranches
34 months
51 Tranches
1 Year
50 Tranches
3 Years
51 Tranches
2006 FP Auction Load (projected)
2005 FP Auction Load (projected)
2007 FP Auction Load (projected)
Tota
l NJ
BG
S Lo
ad (M
W)
NJ BGS Auction Structure
* Annualized margin to forward curve on date of BGS auction
Key Competitive Pressure: BGS Auction Results
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Key Competitive Pressure: ER&T Results
$0$50
$100$150
$200$250$300
1997
1998
1999
2000
2001
2002
2003
2004
Plan20
04 Fo
recas
tM
illio
ns
$240M -$260M $170M -
$190M
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2004 Plan Power PSE&G EnergyHoldings
Parent 2004 Estimate
($0.45)
($0.08)
PSEG 2004 Earnings Drivers
$3.60 - $3.80
$3.15 - $3.35$0.08 N/C
- Competitive Pressures
- BGS Margin
- Trading
+ Weather
+ Improved economy
- Interest
- Nuclear & Fossil O&M / Operations
+ Other O&M+ NDT
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2004 Estimate Power PSE&G EnergyHoldings
Other 2005 Estimate
PSEG 2005 Guidance
+ Improved Nuclear & Fossil Operations
+ Modest Improvements on Contract Renewals
- NDT
- O&M
- Transmission Rate Case
- O&M Increases
$3.15 - $3.35$0.17 ($0.06) ($0.01) ($0.07)
$3.15 - $3.35
- Minor Items - Impact of convertible securities
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PSEG Business Drivers
ST: Stable, improving earningsLT: Improved value, opportunities for
asset monetization
Moderate growth, improving fundamentals
International Economies
ST: Fair resolution of transmission and distribution rate cases
LT: Acceptable rate treatment
Continuance of sound regulatory relations at state and federal level
Regulatory Relations
ST: Higher O&M costsLT: Greater output; O&M trending lower
Plans in place to improve overall performance
Nuclear / Fossil Operations
ST: Contract position dampens near-term benefit
LT: Better pricing as contracts renew
Higher prices near term, slow downward drift as fuel costs moderate
Energy Prices
ST: Reduced profitabilityLT: Benefits all units, especially load-
following and peaking units
Low prices for next two to three years, recovering as supply / demand come into balance
Capacity Prices / Recovery Mechanisms
ST: Increases costs to serve full-requirements contracts
LT: Improves earnings of nuclear fleet
High and volatile prices will moderate, but remain above historic levels
Fuel Prices
EffectViewIssue
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2004 2005 2006 2007 2008 2009
Reduce Debt to Improve Credit
Improve Nuclear & Fossil Performance and Capability
Improve Profitability as Contracts Renew
Continue Modest Rate Base Growth at PSE&G
Continue to Monetize PSEG Energy Holdings Assets
Apply Improved Cash Flows to Share Buyback, Selective Asset Acquisition
Outlook for Market Fundamentals (Capacity Pricing, Energy Margins)
Weak / Depressed Improving
Business Strategy
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2004Estimate
2005Estimate
2006 2007 2008 2009
2005-2009 Earnings Outlook
4% - 6%
$3.15 - $3.35
$3.15 - $3.35
PSE&G Strategic Direction
Ralph Izzo President and COO
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• 10th largest electric distribution utility in U.S. –2M customers
• 9th largest gas distribution utility in the U.S. – 1.6M customers
• 2nd largest peak transmission utility in traditional PJM – 1,411 circuit miles
• 2,600-square-mile service territory
- 6 major cities
- 300 communities
PSE&G Overview
0 10ml1 2 3 4 5 6 7 8 9
Warren Co.
Hunterdon Co.
Morr is Co.
Bergen Co.
Essex Co.
Hudson Co.
Union Co.
Middlesex Co.
Mercer Co.
Monmouth Co.
Ocean Co.
Bur lington Co.
Camden Co.
Sussex Co.
Passaic Co.
Somerset Co.
STATEN ISLAND
Gloucester Co.
COMBINED ELECTRIC & GAS TERRITORIES
ELECTRIC TERRITORY
GAS TERRITORY
KEY:
N
EW
S
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Provide safe, reliable, low-cost service
Manage the regulatory agenda
Invest in technology to benefit customers and investors
PSE&G Business Strategy
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People Safe,Motivated, Productive
Customer Care
OperationsReliable, Low Cost
Financial Fair Return
•OSHA•Lost Time Rate•Total Availability•MVA Rate
•Overtime•Staffing
• SAIFI• MAIFI• Gas Leaks/Mile• Leak Response Rate• Transmission Availability
Index
• Perception Survey• Moment of Truth Survey• BPU Inquiry Ratio• Fix It Right• First Call Resolution• CAIDI
•Total Capital Expenditures•Return on assets•Accountability O&M•Non-Traditional Revenue
Strategy Focuses on Performance
Safe Top 10% Nationally
ReliableTop 25% Regionally
Low CostTop 25% Regionally
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SafeTop Decile Nationally
ReliableTop Quartile
Regionally
Low CostTop Quartile
Regionally
Operations
Customer
Financial
People
Measuring Performance Against Strategy
OSHA IndexOSHA Severity Rate Motor Vehicle AccidentsTotal Availability
OvertimeStaffing/100k Cust
SAIFIMAIFILeak Response RateGas Leaks per MileTrans Avail Index
Cap Ex (Total per Deca-therm / Mwh)O&M (Total per Deca-therm / Mwh)Non-Traditional Revenues
Return on Assets
Perception (ACSI)DBMOTBPU Inquiry Ratio# BPU/Exec. InquiriesFix It RightFirst Contact Resolution CAIDI
2003 2004 2003 2004
2003 2004
Gas2003 2004
Worse than Mean Better than Mean Top Decile/Quartile
Electric 2003 2004
N/A
N/A
N/A
N/A
TBD
Total Utility2003 2004
N/A
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Measuring Performance – Electric
Source: PA Consulting and PSE&G Peer Panel
Electric Delivery Peer Panel Trends
People (Top Decile National Basis)OSHA Incident RateLost Time Severity RateVehicle Accident RateAbsenteeism
Operations (Top Quartile Regional Basis)SAIFI (Excluding Major Storms)MAIFI (Excluding Major Storms)Transmission Availability
Customers (Top Quartile Regional Basis)CAIDI (Excluding Major Storms)
O&M Productivity (Top Quartile Regional Basis)O&M Expenditures per CustomerO&M Expenditures per MWh Sold
Capital Productivity (Top Quartile Regional Basis)T&D CapEx per Customer T&D CapEx per MWh Sold
Total Expenditures (Top Quartile Regional Basis)T&D Expenditures per CustomerExpenditures per MWh Sold
Below Mean Above Mean Above StrategyN/A
2000 2001 2002 2003 2004 Forecast
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Measuring Performance - Gas
Below Mean Above Mean Above StrategyN/A
Source: PA Consulting and PSE&G Peer Panel
Gas Delivery Peer Panel Trends2000 2001 2002 2003People (Top Decile National Basis)
OSHA Incident RateVehicle Accident RateAbsenteeism
Operations (Top Quartile Regional Basis)CI Breaks Repaired / Mile of CI Main3rd Party Damages / Miles of Main & ServiceLeak Response / Within 1 Hour
Customers (Top Quartile Regional Basis)Regulatory Complaint Rate
O&M Productivity (Top Quartile Regional Basis)O&M$/CustomerO&M$/Mile of Mains & ServicesO&M$/DKtm
Capital Productivity (Top Quartile Regional Basis)CapEx$/CustomerCapEx$ /Mile of Mains & ServicesCapEx$/DThm
Total Expenditures (Top Quartile Regional Basis)Total Expenditures per CustomerTotal Expenditures per Mile of Mains & ServicesTotal Expenditures per DKtm
O&M is sum of FERC gas distribution O&M for operation and maintenance of mains & services
CapEx is sum of direct capital costs for new and replacement mains & services
2004 Forecast
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-1.75%$/kWh ’99-’03
0.75%$/kWh ’90-’99
Annual Usage
6,960 kWh
$844Annual Cost
Residential Bill
PSE&G RatesR
esid
entia
l Rat
e ($
/kW
h)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003$0.00$0.02$0.04$0.06$0.08$0.10$0.12$0.14
Res
iden
tial R
ate
($/th
erm
)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
9.7%$/therm ’99-’03
1.8%$/therm’90–’99
Annual Usage
1,252 therms
$1,401Annual Cost
Residential Bill
Electric
Gas
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Provide safe, reliable, low-cost service
Manage the regulatory agenda
Invest in technology to benefit customers and investors
PSE&G Business Strategy
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NJ Regulatory Structure
Board of Public Utilities (BPU) Term ExpirationJeanne Fox, Board President 2008Jack Alter 2005 Fred Butler 2009Connie Hughes 2007Vacant*
*Carol Murphy resigned effective 9/2004, remainder of term to be filled with appointee
NJ BPU is rated “A2” (Average) by Regulatory Research Associates
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New Jersey Regulatory Agenda
• Restructuring, completed in 2003, continues to work well
• No commodity risk - - gas and electric
• Upcoming events– Legislation on Performance and Quality of Service Standards– BGS Auction - - February 2005– Elimination of $64 million electric revenue credit
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FERC Electric Transmission Rate Filing
• FERC order issued in January 2004, with PSE&G filing scheduled early 2005
• New rates expected to be effective in June 2005
• Formula rates for both existing and new facilities
• New rates will likely place downward pressure on earnings in near term
Socio-political, regulatory, economic and environmental pressures willbe driving increased transmission investment for at least 3 – 5 years
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Provide safe, reliable, low-cost service
Manage the regulatory agenda
Invest in technology to benefit customers and investors
PSE&G Business Strategy
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Investing in Electric Transmission• Replace assets that have increasing maintenance costs
or are approaching end-of-life cycle
• Replace aging systems with state-of-the-art technology to reduce outage duration/occurrences
• Minimize risk and exposure associated with customer outages
• $350M investment over next five years
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Two-Way Customer Communications• Pilot program
• Initial scope involves 3,500-4,000 residential customers
• Duration: 12-18 months
• Launch date: Q1, 2005
• Market research will help determine program’s future
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Two-Way Customer Communication Benefits
• Customers– Elimination of estimated bills– Demand control– Competitive supply pricing
• Third-Party Suppliers– Risk management– Flexible pricing
• Utility– More efficient outage reporting, restoration and back office
operations – Curtailment of meter tampering– Growth of rate base
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PSE&G 2005 Guidance
2004 Estimate SalesIncreases,Offset by
TransmissionRate Case
Depr. O&M, Int.,Misc.
2005 Estimate
Key Assumptions• Normal weather
• Sales growth:
– 1.5% Electric
– 1.4% Gas
• Transmission rates effective in June 2005
$340M - $360M$325M - 345M
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2004Estimate
2005 2006 2007 2008 2009
2005-2009 Earnings Outlook and Drivers
$340M - $360M
+ Electric and Gas sales growth+ Rate relief
+ Infrastructure replacement and technology investments
- Transmission rate reset
$325M - $345M
1% -2%
Estimate
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Key Takeaways• Operational excellence
• Positive regulatory relationships
• Technology investment
• Solid returns and predictable cash flow into the future