102604EEIConference

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102604EEIConference

  1. 1. Public Service Enterprise Group EEI Annual Financial Conference October 24-27, 2004
  2. 2. 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 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 www.pseg.com/forward 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. 2
  3. 3. PSEG 2004 Guidance Guidance $750M - $800M* YTD 9/30 $638M** EPS $3.15 – $3.35* YTD 9/30 $2.68** ROE 13% - 14% Assets $28B Domestic/Int’l Leveraged Regional Wholesale Energy Traditional T&D Energy Leases Guidance $340M - $360M $300M - $350M $130M - $150M YTD 9/30 $278M $292M $92M * Includes the parent impact of $(40)M - $(45)M ** Income from continuing operations 3
  4. 4. PSEG 3rd Quarter 2004 Results $1.04 $0.91 Earnings per Share $0.55 $0.48 $0.39 $0.30 $0.17 $0.14 ($0.04) ($0.04) PSEG PSE&G Power Energy Holdings Parent 2003 2004 4
  5. 5. 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 5
  6. 6. PSE&G Overview • 10th largest electric o. ex C . ic Co Suss Passa distribution utility in U.S. – 2M customers n Co. Berge N Co. n War re W E Co. r is Mo r • 9th largest gas distribution S . x Co Esse Co. son utility in the U.S. – 1.6M Hud customers . . n Co n Co Unio terdo H un STATEN ISLAND • 2nd largest peak Co. t er se So m transmission utility in . Co lesex M idd traditional PJM – 1,411 circuit r Co. Mer ce miles . Co outh M onm KEY: COMBINED ELECTRIC & GAS TERRITORIES ELECTRIC TERRITORY GAS TERRITORY • 2,600-square-mile service 0 10ml 1 2 3 4 5 6 7 8 9 territory . n Co Co. Ocea ngto n Bu r li - 6 major cities . en Co - 300 communities Camd Co. ester G louc 6
  7. 7. 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 7
  8. 8. 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 will be driving increased transmission investment for at least 3 – 5 years 8
  9. 9. PSE&G 2005 Guidance $340M - $360M Key Assumptions $325M - 345M • Normal weather • Sales growth: – 1.5% Electric – 1.4% Gas • Transmission rates effective in June 2005 2004 Estimate Sales Depr. O&M, Int., 2005 Estimate Increases, Misc. Offset by Transmission Rate Case 9
  10. 10. PSE&G 2005-2009 Outlook and Drivers 1% -2% $340M - $360M $325M - $345M 2004 2005 2006 2007 2008 2009 Estimate Estimate + Electric and Gas sales growth + Rate relief + Infrastructure replacement and technology investments - Transmission rate reset 10
  11. 11. PSEG Power Overview • Low-cost portfolio The Super Region • Strong cash generator • Leading market player in PJM – Focus on “Super Region” – Demonstrated BGS success • Diverse asset mix mitigates risk and ISO New New York provides strong returns England – 15,000 MW of nuclear, coal, gas, oil and PJM hydro facilities ECAR • Assets favorably located – East of PJM constraint – Southern NEPOOL/Connecticut constraint VACAR – Near customers/load centers • Integrated generation and trading optimizes asset-based revenues Comprises 37% of • Expansion of PJM creates opportunities U.S. power consumption 11
  12. 12. PSEG Power Key Issues Issues 2004 2005 Long-Term NRC Letter Received NRC letter NRC Monitoring NRC Resolved NUCLEAR Organization CNO Transition Organizational Stability Operational Excellence O&M +$50 million +$50 million Mean/Top Quartile Capacity Factor 85% 91% 89-92% CapEx $150-$200 million $150-$175 million ~$100 million Forced Outage-Coal 11% 10% 7% FOSSIL O&M Efficiency Base $5 million $25 million Playbook Developed Implemented Realized CapEx $350-$400 million $150-$175 million ~$100 million Realize Higher Market Prices Market Prices Contracted ER&T Contract Diversification Diversification BGS Margins Increased Origination & Market Liquidity Trading Augment Staff 12
  13. 13. PSEG Power Business Objectives • Nuclear Operations – Operate safely – Improve capacity factor – Upgrade assets – Operate at industry mean O&M levels • Fossil Operations – Operate safely and predictably – Implement industry best practices – Reduce O&M • ER&T Operations – Realize value of diverse electric and gas asset portfolio 13
  14. 14. Nuclear Work Environment • NRC closed investigation • Two cross-cutting issues – Problem Identification and Resolution – Safety Conscious Work Environment • Issues being addressed – PSEG/Exelon employee exchange • NRC concurrence with approach • Monitor progress going forward 14
  15. 15. Hope Creek Status • Hope Creek was manually taken out of service on October 10 as a result of a steam pipe failure • Incremental replacement power costs and O&M estimated at $12M, or $0.05 per share, in 4Q04 • Unit will return to service after the fall refueling outage, originally scheduled to begin October 28 and conclude in mid-December • Earlier start of the refueling outage may provide an opportunity for an earlier return-to-service date 15
  16. 16. Value of Nuclear Improvements Nuclear has a strong plan for performance improvement, resulting in considerable financial upside to Power $45 M - $55 M O&M Uprates $35 M - $40 M Unit Performance $65 M - $80 M Pretax margin opportunity $ 145 M - $175 M 16
  17. 17. Value of Fossil Improvements $95 m • Enhance unit performance - $60-$70 million People • Capture O&M efficiencies in $75 m execution of planned maintenance - $15-$25 million Hardware Current Performance 36 Month Plan Gap Playbook Analysis Existing Fleet 2004 17
  18. 18. Role of ER&T PSEG Power’s portfolio optimization strategy provides incremental profit opportunities while mitigating risks PSEG Power LLC PSEG Energy Energy Other Energy & Resources & & Energy Capacity Capacity Trade (ER&T) $ Related $ Products Wholesale Gas $ and PSEG PSEG & Storage Services Fossil Nuclear Gas Contracts & Storage Wholesale Electric Energy Markets • BGS • Other firm contracts Gas • Spot market Markets • Wholesale gas customers • Retail gas customers 18
  19. 19. ER&T Portfolio Management - Net Position Power’s objective is to contract over 75% of its planned generation for the next 18-24 months Total Fleet Monthly RTC GWh Position 7,000 6,000 5,000 4,000 GWh 3,000 2,000 1,000 - 2004 2005 2006 2007 Nuclear Baseload Coal Intermediate Coal CC Steam / CT Contracted Load & Sales Contracted Load 19
  20. 20. ER&T Fuel Strategy - Coal Source of Supply Continuity of Supply 7 100% 90% 6 South 80% America Indonesia 5 70% 6% 24% 60% Million Tons 4 70% 50% 3 40% 30% 2 Domestic 20% 1 10% - 0% 2005 2006 2007 2008 Keystone Conemaugh Bridgeport Harbor Year Mercer Hudson Contracted 20
  21. 21. ER&T Historical Performance ER&T’s diverse portfolio has provided growth through varying market conditions, with an increasing reliance on lower risk products ER&T Margins ($ millions) 200 180 Asset Based Margins 160 - Greater predictability 140 120 100 80 60 Trading 40 -Reduced market making 20 opportunities 0 -Shift from fundamental 1997 1998 1999 2000 2001 2002 2003 2004 to financial players Est. Reduced market exposure at ER&T is aligned with shifting market conditions 21
  22. 22. Attractive Future Pricing Environment Replacement of existing contracts at current higher market prices could yield incremental earnings of $0.75 to $1.00 per share PJM Western Hub Round-The-Clock Forward Prices $60 $50 Current market prices Current market prices ~ $45/mwh Contracted prices ~ $37/mwh $40 Price delta $ 8/mwh $/MW h Generation volume 40,000 gwh Pre- tax margin $320 million $30 BGS After tax margin $190 million BGS Auction 3 EPS Impact $0.80 Auction 2 $20 BGS Auction 1 $10 0 1 2 3 4 Ja 0 Ja 1 Ja 2 Ja 3 Ap 0 Ap 1 Ap 2 Ap 3 Ap 4 Oc 0 1 Oc 2 3 4 r -0 r -0 r -0 r -0 r -0 t -0 t -0 t -0 t -0 0 0 0 0 0 l-0 l-0 l-0 l-0 l-0 n- n- n- n- n- Ju Ju Ju Ju Ju Oc Oc Ja 22
  23. 23. Attractive Capacity Pricing Prospects • Current overbuild situation begins to subside, reflecting tightening market conditions • Increase of $1/kw-yr translates into about $15M incremental margin for Power • Likelihood for locational capacity increasing in PJM and NEPOOL – Power’s assets well- positioned to benefit 23
  24. 24. Locational Capacity • PJM – Reliability pricing approach underway at PJM – Payment for capacity consistent with contribution to reliability objective • Location, unit flexibility • Target date of spring 2005 for implementation in 2006/2007 • NEPOOL – Locational installed capacity market planned for New England – Target date of January 2006 • Alternate Compensatory Arrangements – Pursuit of fair return on 1,100MW in PJM – “Reliability Must Run” payments in Connecticut 24
  25. 25. Power 2005 Guidance $335M - $385M $300M - $350M 2004 Estimate Replacement New MW O&M & Depr NDT 2005 Estimate Power & Branchburg 25
  26. 26. Power 2005-2009 Outlook and Drivers 10% - 14% $335M - $385M $300M - $350M 2004 2005 2006 2007 2008 2009 Estimate Estimate + Improved Nuclear / Fossil Performance + ER&T Contracts + Nuclear Uprates + Capacity Prices - New Combined Cycle Plants - Increased Fuel Costs - Potential Hudson Retirement 26
  27. 27. PSEG Energy Holdings Overview Total Assets $7.2 billion as of 9/30/04 • domestic and • primarily energy- international generation related financial and distribution investments • focusing on operations • focusing on credit quality • monetizing of assets selectively • monitoring tax issues 27
  28. 28. PSEG Global: Focus on Operations EBIT Contribution ($223M*) Invested Capital ($2.5B) (After non-recourse interest) (excluding non-recourse debt) YTD 9/30/04 At 9/30/04 Europe North America India Europe India & Oman Asia Asia North America Pacific Pacific 4% 9% 6% 16% 11% 8% 5% 37% 16% 31% 32% 25% Latin America Latin America Chile Chile (other than Chile) (other than Chile) • Capital investments going forward limited to maintenance of existing business • Emphasis on improved performance • Opportunistic monetization of assets *Includes Unallocated G&A ($22)M 28
  29. 29. PSEG Global: Recent Activities • MPC, China – – In October 2004, Global entered into a definitive purchase and sale agreement to sell its 50% equity interest to BTU Power for approximately $220 million; sale is expected to close by the year end and is expected to be earnings neutral • Texas Independent Energy, Texas – – Acquired for a nominal price the 50% of TIE (additional 1000 MWs) held by its former partner; transaction expected to be modestly accretive to PSEG's earnings • Rades, Tunisia – – Global sold its majority interest to BTU Power for approximately $43 million; agreement was approved by the lenders, Tunisian government and Marubeni Corp • Luz del Sur, Peru – – Global and Sempra jointly sold 12% of Luz del Sur stock in a tender offer bringing PSEG’s ownership from 44% to 38%; sale netted approximately $30M to Global 29
  30. 30. PSEG Resources: Focus on Credit • Key contributor of reliable Total Assets $3B earnings and steady cash 9/30/04 flow LBO & Limited • Most of the cash return is in Partnerships Real Estate, 1% Transportation the form of tax benefits Other 1% & Industrial Leases 13% • 68% of lessees investment grade 85% Energy Leases • Weighted average rating is A- /A3 98% Lease Related 30
  31. 31. PSEG Resources: Recent Activities • Collins Lease Termination – – In March 2004, Resources terminated its lease investment in the Collins generating facilities – Received $184M of cash (received net cash of $84M) – Original investment - $136M – Earned over 5% after tax vs. 8% proforma – Reduced Resources’ and PSEG’s overall risk exposure – Recorded loss of $17M • KKR – Sale of Borden and Amphenol – Resources received cash distributions totaling approximately $26M – Transactions resulted in a pretax gain of $1.7M – Remaining investment in KKR reduced to approximately $18M 31
  32. 32. PSEG Energy Holdings 2005 Guidance $130M - $150M $135M - $155M Key Assumptions • No new investments • Fairly stable F/X environment • Maintain current lease portfolio 2004 Estimate Resources Global Other 2005 Estimate 32
  33. 33. Holdings 2005-2009 Outlook and Drivers 2% - 3% $130M – $150M $135M – $155M 2004 2005 2006 2007 2008 2009 Estimate Estimate + TIE + Texas Market Recovery + Skawina & Elcho - Eagle Point - Bridgewater 33
  34. 34. PSEG Financial Review • Reducing Leverage – Mandatory Convert adds $460M equity in 2005 – Significant excess cash flow enables further delevering • Focusing on Credit Ratings – Addressing concerns and committed to maintaining and/or improving • Preserving Substantial Liquidity – $2B of liquidity available – Very modest maturity requirements • Strengthening Free Cash Flow – Improving cash from operations – Construction nearing completion 34
  35. 35. PSEG 2005 Guidance ($0.06) $0.17 ($0.01) ($0.07) $3.15 - $3.35 $3.15 - $3.35 + Improved - Transmission - Minor Items - Impact of Nuclear & Rate Case convertible Fossil securities - O&M Increases Operations - Other + Modest Improvements on Contract Renewals - NDT - O&M 2004 Estimate Power PSE&G Energy Other 2005 Estimate Holdings 35
  36. 36. Key Business Objectives & Approach 2005 2006 2007 2008 2009 • FERC Transmission Rate Case • Electric Distribution Rate Case • Continued Capital Investment for Safe, Reliable Service • Strengthen Nuclear and Fossil Operations • Reposition Power Contracts • Capitalize on Improving Market Fundamentals • Manage for Earnings and Cash Flow • Execute Plans To Selectively Monetize Assets • Use Cash to Retire Debt, Strengthen Credit • Secure and Potentially Increasing Dividends • Opportunity for Share Repurchase, Selective Asset Acquisition 36
  37. 37. PSEG 2005-2009 Outlook and Drivers 4% - 6% $3.15 - $3.35 $3.15 - $3.35 2004 2005 2006 2007 2008 2009 Estimate Estimate PSEG Power + Improved Nuclear / Fossil Performance + ER&T Contracts 10% - 14% + Nuclear Uprates + Capacity Prices - New CC Plants - Increased Fuel Costs - Potential Hudson Retirement PSE&G + Electric and Gas Sales Growth + Rate Relief 1% - 2% - Transmission Rate Reset PSEG Energy Holdings + Texas Market Recovery + TIE + Skawina & Elcho 2% - 3% - Eagle Point 37
  38. 38. Dividend Prospects • Long History of Dividend Payments – Uninterrupted annual dividend since 1907 – Modest increase in January, 2004 • Attractive Current Yield of 5% + • Ability to continue modest increases – Improved cash flow – Reasonable payout ratio – Important to shareholders – Subject to Board of Directors approval 38
  39. 39. Key Takeaways • Attractive portfolio balance between regulated and non-regulated businesses • Well-run utility with strong reliability record and predictable earnings and cash flow • Well-located generating fleet, positioned to benefit from improving market conditions and improved nuclear / fossil operations • Nuclear fleet positioned to benefit from high fossil fuel prices driven by worldwide demand • Improving earnings, cash flow create opportunities in the longer term for share repurchase or selective asset acquisition • Visible earnings growth drivers after 2005 • Attractive dividend yield with potential for modest increases 39

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