Public Service Enterprise Group
American Gas Association Financial Forum
Orlando, FL
April 30, 2007
Forward-Looking Statement
The statements contained in this communication about our and our subsidiaries’ future performance, including, without limitation, 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 information currently available and on reasonable assumptions, we can give no assurance they will be achieved. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made herein. A discussion of some of these risks and uncertainties is contained in 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 (SEC), and available on our website: http://www.pseg.com 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 communication. 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.
1
PSEG’s family of businesses combine the right set of
assets …
Domestic Generation
Regulated Transmission &
Distribution
- Domestic / International
T&D and Generation
- Leveraged Leases
… providing opportunity for growth in their respective markets.
2
The current business environment …
Convergence of market forces and policy
creates the need to address:
Critical infrastructure requirements
Environmental requirements
Capacity requirements in constrained markets
… creates opportunities for PSEG’s long-term growth.
3
Carbon Reduction – A common focus …
International directives
- More support globally since adoption of Kyoto Agreement in 1997 for
reduction in greenhouse gas
On the national level
Multiple carbon legislative proposals are currently under
consideration by Congress
Legislation probable by 2008
Regional Greenhouse Gas Initiative (RGGI)
A nine state collaborative calling for a 10% reduction in carbon from
2000 – 2004 levels by 2019
In New Jersey, Governor Corzine has signed Executive Order
No. 54 and the Legislature has introduced multi-sector carbon
legislation with aggressive reduction targets.
… an issue we support and an opportunity for investment
4
NJ Energy Master Plan …
Identifies the same issues as those at the international and national
levels
Provides PSEG the opportunity to:
Meet environmental goals that we have long supported
Expand PSE&G through broader investment opportunities
Support growth in the State’s urban areas through investment in the “Smart
Growth Initiative” program
Expand Power through carbon-free generation
Shape the debate, find the solution and implement the plan
PSEG has pledged its full support to the effort launched by Governor
Corzine
PSEG expects to implement several proposals during 2007 to support
the Energy Master Plan, consistent with PSEG’s business interests
… an Intersection of Energy – the Environment – PSEG
5
PSE&G – A consistent, strong performer …
Continued top quartile/top decile performance
National ReliabilityOne Award winner – two years running
American Customer Satisfaction Index (ACSI) Customer Satisfaction
Survey
Regulatory agreements provide opportunity to earn reasonable
returns over 2007-2009
Energy Master Plan initiatives fuel long-term growth
New customer information system investment (2007 - 2009)
Advanced Metering technology investment (2008 - 2012)
Renewables and energy efficiency enhanced by utility
participation (2008 – 2020)
… providing stability and multiple platforms for growth.
6
PSEG Power – Solidly positioned …
Nuclear and fossil fleet operating at historically high
levels with opportunity for improvement
Near-term growth fueled by strong markets and roll-off
of below market contracts
Long-term growth influenced by
Tightening reserve margins
Expansion capability at existing sites
Carbon advantaged portfolio
Debate on energy policy will influence investment
Environmental compliance driving current investment
Meeting EMP objectives may require a look at new nuclear
investment
… to provide strong growth for PSEG.
7
PSEG Energy Holdings - Improving returns and reducing
risk …
Diverse asset base with improved stability
Stable Latin American distribution assets in stable economies
Gas-fired combined cycle generation in Texas
A source of capital
Asset sales have reduced risk and contributed to an improved
balance sheet at PSEG
A source of growth
Texas generating assets benefit from location, low cost
structure and opportunity for expansion
… to create opportunities to redeploy capital.
8
Growth opportunities …
Achieve Credit Targets
Sustainable and Growing Dividend Increases
Operational Excellence Builds Financial Strength
… Near-Term, Long-Term, with Manageable Risk.
Manageable Risk
Strong Earnings from Existing Assets and Base Capital Plan
Share Repurchases and New Investment
Annual Excess Cash $500M
~
~
9
Improving returns on existing investments
Texas assets benefit from location and cost
Reasonable regulated returns
New Customer System
Transmission & Distribution expansion
NJ Smart Growth Initiative
Strong energy markets and contract repricing
Implementing capacity market mechanisms
Nuclear uprates
Environmental improvements preserve availability of
NJ coal stations
“Growth Opportunities Near-Term” are contributing to
earnings improvements …
… resulting in expected increases of 37% in 2007 and 15% in
2008.
10
Opportunity to leverage Texas position for new
acquisition / build.
Redeploy capital to Enterprise
EMP initiatives (energy efficiency, advanced
metering, renewables)
Generation value improvement (upward pressure on
capacity prices / heat rate expansion / carbon)
Growing markets (PJM, NY, NEPOOL)
Expansion capability at existing sites
Preliminary consideration of nuclear expansion
“Growth Opportunities Long-Term” are available to the
PSEG Family of Companies …
… to address infrastructure, environmental, and capacity
requirements.
11
Reshaped portfolio through asset sales
Continuing to evaluate capital invested internationally
Solid regulatory relations
Appropriate regulatory incentives for EMP investments
Established markets and mechanisms
Hedging strategy adds stability
Capacity auctions increases visibility of earnings
“Growth Opportunities with Manageable Risk” …
… adds stability to strong earnings and cash flow.
12
Right set of assets…
Large, diverse mix of low-cost, base-load, load-following generating assets
Reliable electric and gas distribution and transmission systems
Stable portfolio of investments in domestic generation, international distribution and leases
Right markets…
Generation assets operate in tightly constrained and growing markets
Nuclear and coal base-load capacity operate in markets where the price for power is set by
gas
Transmission and distribution assets provide service in a modest growth market with
reasonable regulation
At the right time…
Mid-Atlantic, New England and Texas recognizing the value of capacity in constrained areas
A move to control carbon benefits our nuclear-based fleet
Power has opportunity for brownfield development at existing sites
Values are improving for international assets
T&D set to benefit from implementing state’s energy plan
PSEG – Excellent position for today …
… ready for tomorrow
13
PSE&G
Review and Outlook
Positioned for growth in 2007 and beyond
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive Market
Fundamentals
Growth
Opportunities…
with Manageable
Risk
At or approaching top decile
performance in key operating measures
Reasonable rate case outcome
Valued partner on State policy
Constructive State policies with reasonable
prices to customers
Baseline capital growth of 4-5% in near-term
with State energy policy providing potential
for longer-term growth
15
PSE&G is favorably located …
Attractive market (NJ is ranked 3rd
nationally in personal income per capita)
National ReliabilityOne Award winner -
two years running
Solid regulatory relationships on
traditional utility matters
Reasonable returns and strong cash flow
3,169 M Therms
43,678 GWh
Electric Sales and
Gas Sold and
Transported
1.4%
1.7 Million
Gas
1.2%
2.1 Million
Electric
Projected Annual
Load Growth
2007 - 2011
Customers
11,108
Billing Peak (MW)
1,408
Network Circuit Miles
1.1%
Projected Annual
Load Growth
2007 - 2011
Electric and Gas Distribution Statistics (12/31/06)
Transmission Statistics (12/31/06)
… and is the largest transmission operator in “classic” PJM and the 11th
largest electric and gas distribution company in the nation (by customers).
N
E
W
S
N
E
W
S
COMBINED ELECTRIC &
ELECTRIC TERRITORY
KEY
:
COMBINED ELECTRIC &
GAS TERRITORIES
ELECTRIC TERRITORY
GAS TERRITORY
KEY
:
16
Fair outcome on recent gas and electric cases will help
ensure …
Settlement agreement with BPU staff, Public Advocate, and other
parties within weeks of merger failure
Gas Base Rate case provides for $79M of gas margin:
- $40M increase in rate
- $39M decrease in non-cash expenses
Electric Distribution financial review provides $47M of additional
annual revenues
Base rates remain effective at least until November 2009
New Jersey regulatory climate providing a fair return to investors
Opportunity to earn a ROE of 10%
… our continued ability to provide safe, reliable service to
customers and fair returns to shareholders.
17
Regulated electric transmission, electric and gas distribution system
Characteristics
FERC regulation for electric transmission; NJ BPU regulation for electric
and gas distribution
Electric and Gas distribution rates frozen through November 2009
PSE&G’s base investment plan …
Gas
Distribution
36%
Electric
Transmission
14%
Electric
Distribution
50%
Gas
Distribution
35%
Electric
Transmission
11%
Electric
Distribution
54%
2006 Actual
Rate Base = $6.0 B
2011 Base Plan
Rate Base = $7.5 B
Equity Ratio ~ 48%
… coupled with fair regulatory treatment provides a solid base
for future earnings growth.
PSE&G Rate Base
18
PSE&G’s capital program is supported by internally
generated cash …
PSE&G Base Capital Requirements*
(2005 – 2011)
*Excludes impact of NJ Energy Master Plan; Reflects completion of infrastructure improvement projects by 2010. Base CapEx is consistent with 10-K but includes adjusted amounts for ICSP project.
**Excludes Securitization
… and supports a payout ratio of more than 75% in the forecasted
period.
$630
$673
$611
$568
$538
$572
$551
$0
$100
$200
$300
$400
$500
$600
$700
$800
2005
2006
2007
2008
2009
2010
2011
ICSP
RTEP
Dist Reinforcement
Transmission
Gas
Electric
Depreciation & Amortization**
19
Three areas of additional potential growth for PSE&G …
T&D Expansion
Opportunities
PJM backbone transmission
and RTEP projects
Distribution System
Reinforcements
PSEG EMP Strategies
Renewables/Emissions
Strategies
Solar initiative
Greenhouse Gas Offset
Demand-Side Strategies
Advanced Metering
Infrastructure
Residential Energy Efficiency
Commercial and Industrial
Energy Efficiency
PSE&G Facility and System
Efficiency
Integrated Customer
System Platform (ICSP)
Leveraging State of the Art
Technology – SAP CCS
Improving capabilities to
implement strategic
functionality
Enabling GPS technology to
improve dispatching
Creating new opportunities
through web-based
empowerment
Moving to a platform with full
AMI capability
… have preliminary annual earnings impacts in the $25M-$150M
range by 2015.
Potential Range of Capital Spending:
$150M - $1.5B
$140M - $150M
$500M - $1.5B
Aggregate $500M - $3.0B
20
PSE&G’s Solar Initiative Plan filed with BPU on 4/19/07…
PSE&G would invest $100M over 2008-2009 to help finance installation of 30MW
of solar photovoltaic systems on homes, businesses and municipal buildings.
The solar initiative is designed to fulfill 50% of the renewable portfolio standard
(RPS) requirements over this two year period.
Program will provide loans to developers to cover 40-50% of the cost of solar
installation project. The remaining cost of the project will be funded by an equity
partner (or host customer) who would also own the solar panels.
PSE&G will be repaid the principal plus interest over 15 year period in the form of
credits called Solar Renewable Energy Certificates (SREC’s) in cash. PSE&G will
allocate SRECS to Load Serving Entities (LSE) which will lower their renewable
portfolio compliance cost standards over time.
PSE&G would earn a return for the full cost of capital plus an incentive for
spurring the solar market.
… first step to meeting Energy Master Plan requirements
21
EMP and additional T&D investments …
$0
$200
$400
$600
$800
$1,000
$1,200
2005
2006
2007
2008
2009
2010
2011
Representative Potential EMP
Potential Incremental T&D
Base CapEx
Potential PSE&G Capital Requirements
(2005 – 2011)
… provide additional upside growth potential to our base plan.
22
In the near-term, rate relief and normal weather …
$0
$100
$200
$300
$400
2005 Operating
Earnings
2006 Operating
Earnings
Gas Rate Relief
Electric
Financial
Review
Weather/Other
2007
Guidance
2008
Expectations
$262M*
$30M - $40M
$20M - $25M
$340M
to
$360M
$28M - $33M
… provide opportunity to earn allowed returns.
*Excludes $3M and $1M of Merger costs in 2005 and 2006, respectively
ROE Range: 10.5% - 11.5%
Consistent
with 2007
Modest
Sales
Growth
Offset by
O&M
Increases
$347M*
23
Positioned for growth in 2007 and beyond …
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive Market
Fundamentals
Growth
Opportunities…
with Manageable
Risk
Approaching Top Decile Performance in Key Operating
Measures: CAIDI, SAIFI and Leak Response
National ReliabilityOne Award winner – two years
running
Rate Case result reasonable and received within weeks
of the merger failure
Attractive Market
Constructive state policies
Electricity and gas prices better than average of region
and less than 1990 levels on a “real” basis creating
superior value for customers.
Near Term Growth
RTEP
Distribution Reinforcement
ICSP
Long Term Growth
Incremental RTEP
Distribution Reinforcements
EMP and AMI
Manageable Risks
Regulatory Recovery at FERC and BPU
Competing Proposals in EMP
Proper Regulatory Incentives for EMP Investments
24
PSEG Power
Review and Outlook
Record production
Liquid markets structure and
stable NJ BGS model
Favorable energy and capacity
outlook
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive Market
Fundamentals
Growth
Opportunities…
with Manageable
Risk
Tightening reserve margin and site
expansion opportunities
Positioned for growth in 2007 and beyond …
26
Low-cost portfolio
Strong cash generator
Regional focus with demonstrated
BGS success
Assets favorably located
Many units east of PJM constraint
Southern NEPOOL/ Connecticut
constraint
Near customers/load centers
Integrated generation and portfolio
management optimizes asset-
based revenues
* After sale of Lawrenceburg
… which provides for risk mitigation and strong returns.
Power’s assets reflect a diverse blend of fuels and
technologies …
18%
47 %
8 %
26 %
Fuel Diversity – 2007*
Coal
Gas
Oil
Nuclear
Pumped
Storage
1%
Energy Produced - 2006
55%
27%
16%
Oil 1%
Pumped
Storage
1%
Nuclear
Coal
Gas
Total GWh: 53,617
Total MW: 13,600*
27
Operated by PSEG Nuclear
PSEG Ownership: 100%
Technology:
Boiling Water Reactor
Total Capacity: 1,061MW*
Owned Capacity: 1,061MW
License Expiration: 2026
Operated by PSEG Nuclear
Ownership: PSEG - 57%,
Exelon – 43%
Technology:
Pressurized Water Reactor
Total Capacity: 2,304MW
Owned Capacity: 1,323MW
License Expiration: 2016 and
2020
Operated by Exelon
PSEG Ownership: 50%
Technology:
Boiling Water Reactor
Total Capacity: 2,224MW
Owned Capacity: 1,112MW
License Expiration: 2033
and 2034
Hope Creek
Salem Units 1 and 2
Peach Bottom Units 2 and 3
Our five-unit nuclear fleet …
… is a critical element of Power’s success.
*Uprate of 125MW scheduled for fall 2007
28
82.3%
65.6%
92.0%
82.8%
92.6%
97.2%
50%
60%
70%
80%
90%
100%
Salem
Hope Creek
Capacity Factor
6.5%
20.2%
0.9%
7.6%
0.7%
0.4%
0%
6%
12%
18%
24%
Salem
Hope Creek
Forced Loss Rate
81.0
64.8
95.2
65.0
99.2
91.4
60
70
80
90
100
Salem
Hope Creek
INPO Index
80.2%
97.4%
84.7%
99.9%
99.8%
100.0%
50%
60%
70%
80%
90%
100%
Salem
Hope Creek
Summer Capacity Factor
… and corresponds directly with improved regulatory relations and
financial outcomes.
Improvement in nuclear performance can be seen in
numerous measures of operations ...
2004
2005
2006
29
0
5,000
10,000
15,000
20,000
25,000
2002
2003
2004
2005
2006
Coal
Combined Cycle
Peaking & Other
Total Fossil Output (GWh)
A Diverse 10,000 MW Fleet
2,400 MW coal
3,200 MW combined cycle
4,400 MW peaking and other
Strong Performance
Continued growth in output
Improved fleet performance
Achieved resolution regarding
Hudson / Mercer
… contribute to a low-cost fossil portfolio in which two-thirds of
fleet output is from coal facilities.
Strong Fossil operations …
30
-
1,000
2,000
3,000
4,000
5,000
6,000
2007
2008
2009
2010
Nuclear / Pumped Storage
Coal
CC
Steam / CT
Existing Load + Hedges + Future BGS
Existing Load + Hedges
Existing Hedges
2007
2008
2009
2010
… while preserving market growth opportunities.
Power’s hedging strategy aims to balance stable
earnings …
0 – 20%
35 – 50%
90 – 100%
~100%
Percent of Power’s coal and nuclear energy output
hedged (total portfolio)
2010
2009
2008
2007
PJM RTC (GWh)
31
-
10,000
20,000
30,000
40,000
50,000
2007
2008
2009
2010
Year
Coal
Uranium
Contracted sales
… is aligned with its low-cost generating output and our hedging
strategies.
Power has contracted for 100% of its nuclear uranium fuel through 2011 and
approximately 70% of its coal needs through 2009.
Coal and Nuclear Fuel
Power’s hedging of coal and nuclear fuel …
Gas supply secured
based on sales of output
Coal and Nuclear Output
-
10,000
20,000
30,000
40,000
50,000
2007
2008
2009
2010
Year
Nuclear and Coal output
Contracted sales
32
The New Jersey BGS auction successfully mitigates risk
for both suppliers and customers …
… and is a critical component to Power’s hedging strategy.
20,000
4,000
8,000
12,000
16,000
2002
2003
2004
2005
2006
2007
2008
2002 FP
Auction
1 Year
170
Tranches
2003 FP
Auction
10
months
104
Tranches
2003 FP Auction
34 months
51 Tranches
2004 FP
Auction - 1 Yr.
50 Tranches
2004 FP Auction - 3 Years
51 Tranches
2006 FP Auction Load
54 Tranches
2005 FP Auction Load
50 Tranches
2007 FP Auction Load
51 Tranches
New Jersey BGS - FP Auction
2009 2010
Note: 1 Tranche = ~100MW Peak
33
2003 Auction
2004 Auction
2005 Auction
2006 Auction
2007 Auction
Capacity
Load shape
Transmission
Congestion
Ancillary services
Risk premium
Full Requirements
Round the Clock
PJM West
Forward Energy
Price
$33 - $34
$36 - $37
$55
$55
$66
$44 - $46
~ $21
~ $18
~ $21
$102
$67 - $70
~ $32
Increase in Full Requirements Component Due to:
Increased Congestion (East/West Basis)
Increase in Capacity Markets/RPM
Volatility in Market Increases Risk Premium
$99
~ $41
$58-$60
Market Perspective – BGS Auction Results
… has enabled successful participation in each BGS auction.
Power’s fleet diversity and location ...
34
More structured, forward-
looking, transparent pricing
model
Gives prospective
investors in new
generating facilities more
clarity on future value of
capacity
Sends locational pricing
signal to encourage
expansion of capacity
where needed for future
market demands
… in which longer-term price signals are provided.
PJM’s Reliability Pricing Model (RPM) reflects a change
in market design …
$0
$20
$40
$60
2001
2002
2003
2004
2005
2006
2007
$80
2008
2009
Settled @ $72
’08 – ’09 Market
Trading
@ $40 -$45
’07 – ’08 Auction
Capacity Prices
$45/KW-yr = $123/MW-day
@ 50% load factor ~ $10/MWh
~
35
RPM Capacity Auction – April Results and Schedule
2007- 2008 Capacity Auction Results
($/ MW-day)
N/A
N/A
$40.80
Rest of
Pool
$48.38
$140.16
$188.54
Southwest
MAAC
$20.16
$177.51
$197.67
Eastern
MAAC
CTR
Value*
Load
Price
Unit
Price
PJM released results on April 13 from its
first capacity auction under the Reliability
Pricing Model (RPM) for the 2007-2008
delivery year.
Pricing in initial auction for Eastern MAAC
reflected “Cost of New Entry”: standard
simple cycle gas turbine adjusted for
location.
Future auction pricing could be influenced
by changes in demand and capacity
availability including transmission capability
between zones.
Market prices support our forecast year-
over-year improvement in capacity margin
of $125M - $175M in 2007 with further
improvement in 2008.
Auctions are scheduled throughout the
year to provide transition through the 2010-
2011 delivery year.
*CTR Value: Capacity Transfer Rights
Allocated to Load Serving Entities (LSE) in constrained zones to provide them with
access to supply from outside the zone.
May 2008
2011 – 2012
January 2008
2010 – 2011
Annual base auction in May of each subsequent year
October 2007
2009 – 2010
July 2007
2008 – 2009
Auction Date
Planning Year
(6/1 to 5/31)
Auction Schedule
36
… drive the increase in PSEG’s 2007 earnings guidance.
* Excludes Merger costs of $12M in 2005, Cumulative Effect of a Change in Accounting Principle of $16M in 2005 and Loss from Discontinued
Operations of $226M and $239M in 2005 and 2006, respectively
2005 Operating
Earnings
2006 Operating
Earnings
Energy
Capacity
Other
2007 Guidance
$515M*
$446M*
$825M to
$905M
$15M - $25M
$220M - $260M
$75M - $105M
Improvements across the portfolio …
37
2007 Guidance
Energy
Capacity
Other
2008
Expectations
2009
… drive PSEG’s earnings expectation for 2008 and beyond.
Drivers of 2009 Earnings
Recontracting
Operational excellence
Free cash flow
Growth opportunities
Further improvements at Power…
$825M to
$905M
38
Highest output ever from Nuclear
Highest output ever from Fossil
Balanced hedging strategy at ER&T
Strong, liquid markets
Sustainable BGS auction structure
Consent decree resolution
Rising energy prices
Favorable capacity market design
Diverse assets in constrained zones
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive Market
Fundamentals
Growth
Opportunities…
with Manageable
Risk
Near term – Hope Creek Uprate, RPM auctions
Longer term –
Tightening reserve margins
CO2 benefit to nuclear
Site expansion opportunities
Surrounding market opportunities
New nuclear investment potential
Manageable risk –
Enhanced operations
Balanced hedging strategy
Existing sites
Increasingly stable earnings base through
capacity market design
Positioned for growth in 2007 and beyond
39
PSEG Energy Holdings
Review and Outlook
Reducing risk in 2007 and beyond …
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive
Market
Fundamentals
Growth
Opportunities…
with
Manageable
Risk
Global
Resources
International Distribution
Domestic Generation
Improving valuations
and debt capacity could
present opportunity to
redeploy capital
Opportunities for:
Expansion, Hedging
and Debt capacity
Residual
value
upside
Stable F/X rates and
sovereign spreads
Tightening reserve
margins, gas-driven
market
Tax issues
monitored
closely
Reasonable rate case
outcomes
ERCOT – liquid and
transparent
Credit
ratings
Focus on Safety,
Reliability and line
losses
Forced outage
rates;
Heat rates
… opportunity for growth
41
Holdings’ Portfolio has …
Two businesses focused on maximizing value of existing investments
Represents 10% of PSEG’s total earnings
70% of earnings from Global (50% US Generation, 50% Chile & Peru Distribution)
30% from Resources
… a diverse asset base with improved stability.
PSEG
Resources
Chile & Peru
Distribution
Texas Merchant
Generation
(2,000 MW)
International
Generation
Other fully
contracted
US Generation
Two 1,000MW CCGT 7FA plants with record
2006 results in an attractive market
395MW owned primarily in California and
Hawaii fully contracted with utilities / state
agencies
1.9M customers served
by 3 company groups
Very modest
contributor in a sector
with decreased
investment
2006 Earnings Contribution
86% of the Resources
portfolio is in energy-related
leveraged leases
2007 Earnings Contribution
42
2006 benefited from open position
Open position sensitivity to market (Calendar 2008):
Natural Gas: +/- $1/MMBtu = +/- $13 M
Heat Rate: +/- 500 Btu/KWh = +/- $25 M
Potential growth opportunities:
Potential opportunity for reasonable return at appropriate valuations
Current debt levels offer additional leverage capacity
The Texas Market has shown significant improvement …
$100
~19
15%
6.90
2007
$130
19.42
16%
10.82
2006
$93
16.50
17%
6.34
2005
$48
11.97
25%
5.42
2004
EBITDA
($M)
Spark
Spread
Reserve
Margin
NYMEX
Gas Prices and reserve margins have driven spark spreads higher, generating strong results:
… and with strong demand growth and uncertain future capacity
additions, reserve margins may be pressured, presenting
opportunities.
NYMEX = Forward curve at year-end
Reserve margin c/o ERCOT (both
actuals and June 06 report for
projections)
Spark Spread and EBITDA = actual
amount achieved and projected
(including ancillary revenues, but
excluding MTM gains)
43
$41
$168
$104
$108
$57
$20
$(40)
$(35)
$(25)
Reshaped Portfolio - Improved risk profile by reducing
capital invested in non-strategic assets …
… while increasing returns and sharpening focus on G&A.
2004
2006
$2.6B
$2.0B
Chile &
Peru
US
Other
$900M
$400M
$1.3B
$150M
$500M
$1.4B
42%
16%
42%
15%
60%
25%
$296M**
48%
45%
2004
2006
2007
Projected
$202M**
$210M-$230M**
Composition of Global’s Pre-tax
Contribution by Region*
G&A
Chile &
Peru
US
Other
29%
51%
20%
8%
35%
57%
7%
Global’s Invested Capital
$500M
~$1 B
12/31/07
Projected
$1.6B
69%
31%
*Includes both consolidated and unconsolidated investments after project debt, before allocation of parent debt
**Excludes interest, taxes, G&A and other corporate items to arrive at Global’s Operating Earnings
44
Holdings has generated substantial operating cash
flow and monetized non-strategic assets …
… which has supported debt reduction and return of capital to
PSEG over the past three years.
36%
4.5x
$520
$609
$740
$159
2006
$1,423
$920
$1,617
$835
Total
$273
$403
Operating Cash
Flows
$435
$442
Asset Sale
Proceeds
41%
47%
Recourse
Debt / Capital
2.5x
3.4x
FFO/Interest
$412
$491
Dividends / Return
on Capital
-
$311
Net Recourse Debt
Reduction
2005
2004
Net after-tax gain of over
$50M on major asset sales
Improved returns on
recourse capital from 6% to
over 10% (using Operating
Earnings) from 2004 – 2006
Improved credit metrics
Improved risk profile of remaining portfolio - Global’s portfolio now comprised of:
$500M US generation companies in TX, CA and HI
$1.4B in distribution and generation companies in Chile & Peru
$150M in other international generation
45
PSEG Energy Holdings – 2007 Drivers
$0
$100
$200
$300
2005
Operating
Earnings
2006
Operating
Earnings
Texas
FIN 48 /
FSP 13-2
Taxes
Asset Sales
2007
Guidance
2008
Expectations
$227M*
$25M - $35M
$10M - $20M
$5M - $10M
$35M - $45M
*Excludes Loss on Sale of RGE of $178M in 2006 and Income from Discontinued Operations of $18M and $226M in 2005 and 2006, respectively
Underlying project results are stable, but Operating Earnings are lower driven by
absence of MTM gain on Texas contract and adoption of new accounting rule.
Consistent with
2007
Modest
increase due to
organic growth
at Distribution
Companies
$130M to
$145M
$196M*
46
Positioned for growth in 2007 and beyond
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive
Market
Fundamentals
Growth
Opportunities…
with
Manageable
Risk
Global
Resources
International Distribution
Domestic Generation
Improving valuations and
stable F/X allow opportunity
to monetize / refinance and
reallocate capital
Opportunity to leverage
position for acquisitions/
new build
Medium term hedges
Opportunity to relever
Upside to residual
value of leases –
particularly
merchant energy
sector.
Strong energy demand
growth
Improved and stable F/X
rates and sovereign spreads
Tightening reserve
margins, improved spark
spread
Tax issues
monitored closely
Reasonable rate case
outcomes
Successful supply auctions
(pass-through)
ERCOT – Continues to
become more liquid and
transparent
Improved lessee
credit ratings
Chilquinta & LDS – strong
reliability
SAESA – improved reliability,
improving line losses
Low Forced outage rates
Competitive heat rates in
TX
47
PSEG
Financial Review and Outlook
196
227
347
262
446
515
130-145
130-145
340-360
330-350
825-905
770-850
(71)
(66)
(50)-(40)
(60)-(50)
2005
2006
2007 (Initial)
2007 (Revised)
2008
$5.60 - $6.10
Strong earnings growth in 2007 resulting in …
… a 37% increase over 2006 and an additional 15% in 2008.
$3.77*
$3.71**
$4.60 - $5.00
$4.90 - $5.30
Holdings
PSE&G
Power
Parent
Operating Earnings by Subsidiary
37%
15%
68%
~ 0
~
*Excludes ($.14) Merger Costs, ($.07) Cumulative Effect of an Accounting Change and ($.85) Discontinued Operations
**Excludes ($.03) Merger Costs, ($.70) Loss on Sale of RGE and ($.05) Discontinued Operations
49
Holdings
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2005
2006
2007
2008
2005
2006
2007
2008
Strong earnings generate Cash from Operations…
…exceeding our capital requirements.
Holdings
PSE&G
Power
$1.0B
$1.3B
$1.3B
Capital Expenditures (2)
Cash from Operations (1)
$1.8B
$2.1B
$2.4B
Power
PSE&G
(1) Non-GAAP view: excludes revenues collected for securitization
principal payment & taxes associated with asset sales.
(2) Excludes nuclear fuel & includes cost of removal
$1.0B
$0.7B
50
($3.0)
($2.0)
($1.0)
$0.0
$1.0
$2.0
$3.0
2005
2006
2007
2008
Represents a Non-GAAP view excluding revenues
collected for securitization principal repayments
Excess
Cash
Available
Asset Sales/
Return of Capital
Excess
Cash
Ops
Cash from
Ops
Net Dividends
Investment
incl. Nuclear
Fuel
…beginning in mid-2008, expect annual excess cash of
approximately $500M to be available for new investments and/or
repurchasing shares.
We are currently using excess cash to reduce debt
and...
BGS
Securitization
Offshore
Cash
Repatriation
51
$2.20
$2.24
$2.28
$2.34 *
$2.00
$2.10
$2.20
$2.30
$2.40
$2.50
$2.60
2004
2005
2006
2007
2008
35
40
45
50
55
60
65
70
Improved earnings causes our dividend payout ratio to
quickly decline below 50% ...
… providing us the flexibility to raise our dividend at a rate
higher than prior increases.
Payout
Ratio
?
*Indicated annual dividend rate
52
… enabling excess cash to be used for share repurchases and/or
new investments beginning in mid-2008.
During 2007/2008, PSEG expects to achieve key target
credit measures …
2006
Target
Achieved
PSEG Consolidated
Total Debt / Total Capitalization
52%
~ 50%
~
2007
PSEG excl. EH
FFO/Total Debt
18%
Mid-20’s
2008
POWER
FFO/Total Debt
25%
Mid-30’s
2007
PSE&G
Debt/Total Capitalization
50%
~ 50%
~
Ö
HOLDINGS
FFO Coverage
4.5
3.0x - 4.0x
Ö
53
Growth opportunities …
Achieve Credit Targets
Sustainable and Growing Dividend Increases
Operational Excellence Builds Financial Strength
… Near-Term, Long-Term, with Manageable Risk.
Power
PSE&G
Holdings
Manageable Risk
Hedging strategy adds stablility and capacity auctions increases visibility of earnings
Solid regulatory relations and appropriate regulatory incentives for EMP investments
Reshaped portfolio and continuing to evaluate capital invested internationally
PSEG
Growing markets (PJM / NY / NEPOOL)
PSE&G
Holdings
Strong Earnings from Existing Assets and Base Capital Plan
Customer growth and network investment -->
Improving returns on existing investments and Texas assets benefit from low cost -->
Power
Attractive energy markets and recontracting
Generation value improvement (upward pressure on
capacity prices / heat rate expansion / carbon)
Guidance reflects strong growth
Implementing capacity market mechanisms
Annual Excess Cash ~ $500M
~
PSE&G
Holdings
Share Repurchases and New Investments
Power
Expansion capability at existing sites
Preliminary consideration of nuclear expansion
EMP Initiatives (new CIS, advanced metering, renewables)
Opportunity to leverage Texas position for new acquisition / build
54
Summary
Positioned for growth in 2007 and beyond
Strong
Operations
Constructive
Regulatory and
Business
Environment
Positive Market
Fundamentals
Growth
Opportunities…
with Manageable
Risk
PSE&G named America’s most reliable electric utility for second consecutive year
Generating fleet operating at record levels
NJ BPU approved rate changes providing
opportunity to earn authorized return
Natural gas setting price for generation
Capacity values recognized in tight markets
Potential for development at existing sites
Value for international assets improving
Free cash flow of $1.5B – $2.0B over
2007 – 2011 powers growth of incumbent
utility and generation businesses
56
Summary
Operating strength - foundation of our performance
Strong markets and improved regulated returns
propelling expected earnings growth of 15-20% per
year over 2005-2008
Financial targets for leverage and coverage ratios will
be met in 2008
Policy and market forces converging to provide
investment options across our asset base
An Intersection of Energy -- the Environment -- PSEG
57
Public Service Enterprise Group
APPENDIX
PSEG Overview
Electric Customers: 2.1M
Gas Customers: 1.7M
Nuclear Capacity: 3,500 MW
Total Capacity: 13,600 MW*
Traditional T&D
Leveraged
Leases
2007E Operating Earnings(4): $1,245M - $1,370M
2007 EPS Guidance(4) : $4.90 - $5.30
Assets (as of 12/31/06): $28.6B
Market Capitalization (as of 4/25/07): $22.8B
Domestic/Int’l
Energy
Regional
Wholesale Energy
Operating Earnings = Earnings Available and Excludes:
(1) Merger Costs of $1M
(2) Loss from Discontinued Operations of $239M
(3) Loss on Sale of RGE of $178M and Income from Discontinued Operations of $226M
Includes Operating Earnings from Global of $166M, Resources of $63M and Energy Holdings of ($2M)
(4) Includes the parent impact of $(50)M –$(40)M
*After sale of Lawrenceburg
2006 Operating Earnings: $262M(1) $515M(2) $227M(3)
2007 Guidance: $340M - $360M $825M - $905M $130M - $145M
60
-
10,000
20,000
30,000
40,000
50,000
2007
2008
2009
2010
A significant portion of Power’s low-cost coal and nuclear
output has been sold at increasingly attractive rates …
… with remaining output available to capture future market opportunities.
2007
$63-65/MWh
2008
$65-67/MWh
2009
$72-75/MWh
Power’s Generation Output
Other output
Contracted coal & nuclear output
Open coal & nuclear output
Contracted Prices
Estimated impact of $10/MWh
PJM West RTC price change*
$0.01 - $0.10
$0.45 - $0.80
*Assuming normal market dynamics
Includes roll off of 4 year,
500MW RTC contract ($100M+)
and other recontracting
61
0%
20%
40%
60%
80%
100%
2007
2008
2009
2010
Power will realize increasing margin improvement …
… through the repricing of capacity at market prices.
2007
$20-24/KW-yr
2008
$30-34/KW-yr
2009
$39-43/KW-yr
Total Capacity
Contracted Capacity
Open Capacity
Contracted Prices
Estimated impact of $10/KW-yr
capacity price change
$0.05 - $0.10
$0.10 - $0.20
62
$0
$10
$20
$30
$40
$50
$60
$70
2005
2006
2007 Est
2008 Est
2009 Est
… are expected to drive significant increases in Power’s gross
margin.
Operational improvements and recontracting in
current markets …
Realized Gross Margin ($/MWh)
Energy
Capacity
(Energy prices based on recent forward markets;
Illustrative capacity prices based on recent market for 2007/2008 in all years)
63
Energy Holdings’ Adjusted EBITDA
Adjusted EBITDA
2006
Global
465
$
Resources
147
Other
13
Total Energy Holdings
625
$
Debt Information
Holdings’ Senior Notes
1,149
$
Global Project Debt
1,034
Resources Project Debt
40
EGDC Project Debt
19
Holdings Total Debt
2,242
$
2006 Global EBITDA Detail
Adj EBITDA**
Project Debt
PSEG Share
PSEG Share
Texas *
174
$
375
$
SAESA
73
178
Electroandes
36
105
Prisma
14
3
Chilquinta
47
162
Luz del Sur
51
77
GWF - QF
33
0
GWF - Energy
19
72
Kalaeloa
28
62
Other, including G&A
(10)
-
Total Global
465
$
1,034
$
* Texas EBITDA includes mark to market gains of $44 million.
**EBITDA is adjusted for Global’s share of depreciation, interest and other items
so as to include those investments accounted for under the equity method.
64