2017 q2 fixed income investor call - puget energy€¦ · puget energy and puget sound energy 2017...
Post on 04-Jun-2018
222 Views
Preview:
TRANSCRIPT
Puget Energy and Puget Sound Energy 2017 Q2 Fixed Income Investor Call
September 20, 2017
Puget Energy Team Introduction
Dan Doyle
Senior Vice President and
Chief Financial Officer
Dan.Doyle@pse.com
(425) 462-3193
Roger Garratt
Director, Strategic Initiatives
President, Puget LNG LLC
Roger.Garratt@pse.com
(425) 462-3470
2
Kendall Cammermeyer
Director, Assistant General Counsel
Kendall.Cammermeyer@pse.com
(425) 462-3372
Cindy Song
Treasury Consulting Financial Analyst
Cindy.Song@pse.com
(425) 462-3639
Forward-Looking Statements
Statements in this presentation that relate to future plans, objectives, expectations, performance, events and the like may
constitute “forward-looking statements” with the meaning of the Private Securities Litigation Reform Act of 1995, Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements include statements regarding earnings guidance, statements regarding future load, hydro
conditions and operating and maintenance costs; statements concerning implementation of the Company’s 5-year Plan and
related future capital expenditures; statements regarding the outcome of any legal or regulatory proceeding; as well as other
statements containing words such as “anticipates,” “believes,” “intends,” “estimates,” “promises,” “expects,” “should,” and
similar expressions. Investors are cautioned that any such forward-looking statements are subject to risks and uncertainties,
including – but not limited to – the costs of compliance with regulatory and environmental laws, changes in capital market
conditions, reduction in demand, low wholesale prices, operational risks, hydro and wind conditions, disruption in fuel
supply, and unscheduled power outages, which may result in unanticipated operating, maintenance, and repair costs.
As a result, actual results may differ materially from those projected in the forward-looking statements. All forward-looking
statements included in this presentation are based on information available to the Company on the date hereof and such
statements speak only as of the date hereof. The Company assumes no obligation to update any such forward-looking
statement. Prospective investors should also review the risks and uncertainties listed in the Company’s most recent Annual
Report Form 10-K and the Company’s reports on Forms 8-K and 10-Q filed with the United States Securities and Exchange
Commission.
Cautionary Statement
Information Current as of August 2, 2017
Except as expressly noted, the information in this presentation is current as of August 2, 2017– the date on which PE filed
its Quarterly Report on Form 10-Q for the quarter ended June 30, 2017– and should not be relied upon as being current as
of any subsequent date. PE undertakes no duty to update the presentation, except as may be required by law.
3
I. Current Events
1) 2017 General Rate Case Update
2) Tacoma Liquefied Natural Gas Project Overview
- Environmental, Social & Reputational Risk Mitigation
3) Greenwood Update
4) Corporate Finance Update
II. 2017 YTD Financial Performance Overview
III. Appendix
1) Big Picture
2) Business Overview
3) CAPEX Plan
4) Strategic Capital Projects Details
5) Financial Policy
4
5
7
16
17
18
20
24
28
41
46
60
Page
2017 General Rate Case Update
5
Key elements of settlement
Cost of capital: 9.5% ROE/48.5% equity
Colstrip units 1&2: $18.5M annual depreciation expense, offset unrecovered plant balance with PTCs in 2022
Colstrip units 3&4: Set depreciable life to 2027
Hydro Treasury grants: Reserved for units 1&2 decommissioning and remediation costs
Production tax credits: Set aside in flexible fund as monetized for Community (Colstrip) Transition Plan, unrecovered plant balances and decommissioning and remediation costs
Colstrip community transition: $10M funding ($5M PTCs, $5M shareholder contribution)
Expedited Rate Filing: End-of-period rate base (vs. AMA rate base) with full test year depreciation update
Contested issues: ECRM, decoupling, earnings sharing, rate design/spread and gas revenue requirements
2017 General Rate Case Update
6
Reduced/eliminated regulatory risk
- Avoided as much as $200M in proposed write-offs
- Set aside $450M for Colstrip end of life costs
- Allows full recovery of/return on Colstrip plant balances
- Protected storm mechanism
- Secured process for 2018 ERF filing
2017 General Rate Case remaining process (filed in Jan 2017)
- August 30: hearings on contested issues
- September 29: settlement hearings
- October 4: reply briefs due
- Early-December: Commission issue order
- Mid-December: Rates in effect
Tacoma LNG Project Overview
7
32 miles southwest of Seattle
Mid-sized urban port city on the Puget Sound
Second-largest city in the Puget Sound area with a
population of ~200,000
Center of business activity for the South Sound
region
- Industrial and manufacturing history
- Port of Tacoma, established in 1918, is
Washington State’s largest port
Tacoma, Washington
Tacoma LNG Project Overview
8
Puget Sound Energy is constructing a $310 million liquefied natural gas (“LNG”) storage
facility on a 33-acre brownfield site at the Port of Tacoma
The project benefits local residents and businesses by providing natural gas supply to utility
customers on the coldest days of the year
It also provides local companies like TOTE Maritime with clean energy to power ships
traveling between Tacoma and Alaska
- In the future, we expect to serve the transportation/long-haul trucking industry by
supplying LNG as a cleaner burning alternative to diesel fuel
The Tacoma LNG facility is not an export facility
What is the Tacoma LNG facility?
Tacoma LNG Project Overview
9
Tacoma LNG at the Port of Tacoma
The LNG facility is located on a brownfield site in the 100-year-old industrial port
- The project will significantly improve the visual and environmental characteristics of
the site
Before After (photo simulation)
- 8 million gallon storage tank
- 250K gallon per day production
Tacoma LNG Project Overview
10
We’re building 4 miles of new distribution pipeline to serve the LNG facility
- Similar to many other pipelines in PSE’s system
- Pipeline route primarily follows existing roadways in commercial and industrial
areas
- Not on tribal lands – on property leased from the Port of Tacoma
- Pipeline construction is expected to be complete in September 2017
Natural gas pipeline to serve LNG facility
Tacoma LNG Project Overview
11
LNG is safe and reliable
LNG is natural gas cooled into a
liquid, making it easier and safer
to store and transport
In its liquid state, it is not
explosive or flammable
If warmed above -260ºF, LNG
turns back into the natural gas
used in homes and businesses,
dissipating quickly in an
unconfined space
In the very unlikely event of a
vapor escape or fire, the facility is
designed to contain all potential
hazards on the 33-acre site (per
federal regulation)
Tacoma LNG Project Overview
12
City of Tacoma WA State Dept. of Ecology
Port of Tacoma WA State Dept. of Fish and Wildlife
City of Fife US Coast Guard
Puget Sound Clean Air Agency US Army Corps of Engineers
Pierce County US Dept. of Transportation
WA Utilities and Transportation Commission (WUTC) US Environmental Protection Agency (EPA)
WA State Dept. of Transportation (WSDOT) US Fish and Wildlife Service
WA State Dept. of Archaeology and Historic
Preservation
National Oceanic and Atmospheric Administration
(NOAA)
In 2012, PSE began discussions with various permitting agencies and the City of Tacoma
regarding project viability
A Final Environmental Impact Statement (EIS) was issued for the project in late 2015
- The EIS was a year-long process through the City of Tacoma, which included opportunities
for community input
- In addition to an extensive safety review, potential impacts to protected species, habitats and
cultural heritage have been thoroughly reviewed as part of the EIS and by several other
agencies
The LNG facility received Washington Utilities and Transportation Commission (UTC) approval in
late 2016
Listed below are 16 local, state and federal agencies that have issued or will issue permits for the
LNG project
LNG is regulated and reviewed
Tacoma LNG Project Overview
13
We’ve obtained all major
siting permits
Remaining permits are
primarily building or right-
of-way permits, which will
be issued as long as the
permit submittal meets
code requirements
Details on the permitting
status can be found on the
City of Tacoma website:
http://www.cityoftacoma.or
g/government/city_depart
ments/planning_and_deve
lopment_services/planning
_services/pse_proposed_t
ideflats_lng_facility/permit
_status/
Permitting Status
Tacoma LNG Project Overview
14
Construction progress
LNG facility
- Construction started in late 2016 and is expected to be complete in summer 2019
16-inch natural gas pipeline
- Construction started in May 2017 and is expected to be complete in September 2017
- Night and weekend work to minimize traffic impacts in the area
- Using installation techniques that minimize disruption to the surrounding neighborhood
Construction of special isolators on the tank’s foundation will
allow the tank to move with and “ride out” an earthquake. There
will be a total of 88 isolators installed.
Recent night work on the pipeline in Fife, Wash.
Tacoma LNG Project Overview
15
Demonstrations and activism
- A small group of local project opponents have recently been joined by out-of-area activists seeking venues to share their anti-fossil fuel message
- We’re responding by:
• Amplifying key benefit messages – specifically emphasizing the environmental and economic benefits of the Tacoma LNG project
• Continuing to ensure the safety of the activists, the public and our crews around our facilities, in coordination with tribal and local law enforcement
Litigation
- Shoreline permit appeal
• On August 16, 2016, the Puyallup Tribe appealed a July 18, 2016 Shoreline Hearings Board (SHB) decision to affirm PSE’s permit
• PSE’s request that appeal be heard by State Appeals Court was granted and a court date is expected to be set in fall 2017
- Department of Ecology Water Quality Certification (WQC) and Coastal Zone Management (CZM) appeal
• The Tribe appealed WQC and CZM to the Pollutions Control Hearings Board (PCHB)
• A hearing is scheduled for October 2017
o PSE filed a summary judgment motion in August 2017
Opposition groups
Environmental, Social & Reputational Risk Mitigation
16
Overview of PSE’s ESRM best practices
Overall environmental and social (E&S) policy and disclosure
Organizational capacity and competency
Stakeholder engagement and Indigenous Peoples
- Public outreach and education
- Service-area-wide tribal engagement efforts
Pipeline safety corporate risk management
Gas leak detection and mitigation
Natural gas emergency response
Spill prevention and management
Occupational Health and Safety (OHS) management program
Contractor OHS program
Human rights
Greenwood Update
17
Greenwood Update
On March 28, 2017 pipeline safety regulators and PSE
reached a settlement concerning the complaint for
violation of state commission rules. As part of the
agreement, PSE agreed to pay a penalty of $2.8
million, of which $1.3 million was suspended on
condition that PSE complete a comprehensive
inspection and remediation program
On June 19, 2017 the Washington Commission
approved settlement without conditions
PSE has received numerous claims and two lawsuits
are pending in state court
PSE partnered with UTC pipeline safety staff to
develop a comprehensive inspection and remediation
program and are now implementing the program
according to the terms of the agreement
PSE employees were on-hand during the
Greenwood response to answer
questions from the public
Over the next three years, PSE will be
inspecting certain deactivated service
lines as part of the Greenwood UTC
settlement
Corporate Finance Update
Fitch Ratings added in June 2017
Credit Facility
- PE credit facility expires in April 2018
- PSE credit facility expires in April 2019
18
I. Current Events
1) 2017 General Rate Case Update
2) Tacoma Liquefied Natural Gas Project Overview
- Environmental, Social & Reputational Risk Mitigation
3) Greenwood Update
4) Corporate Finance Update
II. 2017 YTD Financial Performance Overview
III. Appendix
1) Big Picture
2) Business Overview
3) CAPEX Plan
4) Strategic Capital Projects Details
5) Financial Policy
19
5
7
16
17
18
20
24
28
41
46
60
Page
PSE June 2017 YTD Snapshot
20
Decoupling revenue resulted in
an additional $8M of revenue
for the 6 months ended June
30, 2017 due to lower
volumetric sales from weather
and conservation.
Historical Financial Performance
EBITDA
Return on Regulatory Equity
21
3,358 3,3293,122
3,3193,215
3,187
3,116 3,093 3,1653,331
818864
908
1,023 1,1031,156 1,146
1,2221,255 1,284
0
350
700
1,050
1,400
0
1,000
2,000
3,000
4,000
Revenue$ in mm
Revenue (LHS) EBITDA (RHS)
EBITDA
CAGR: 5.1%
Revenue
CAGR: -0.1% EBITDA
$ in mm
2008 2009 2010 2011 2012 2013 2014 2015
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2010 2011 2012 2013 2014 2015 2016 2017 Jun
Authorized ROE Actual ROE EBITDA
PSE's Authorized and Actual ROE $ MillionsROE PSE's Authorized and Actual ROE $ Millions
(Left Scale)
PSE's Authorized and Actual ROE $ MillionsPSE's Authorized and Actual ROE $ Millions
(Left Scale) (Right Scale)
- Between 2008 and last twelve
months ended June 2017, Puget
Energy experienced compound
annual EBITDA growth of 5.1%,
despite flat revenue growth largely
due to operating efficiencies & lower
commodity prices
- Prior to implementing the ‘global
settlement’ regulatory mechanisms in
July 2013, the utility rate-making
process resulted in regulatory lag
- PSE narrowed the gap between
Authorized and Actual ROE from 6.0%
in 2010, to 0.7% in June 2017
2016 2017 Jun (1)
(1) For the twelve months ended Jun 30, 2017.
(1)
Upcoming Events
22
Preliminary timeline for upcoming investor events in
2017 & 2018
- Nov 2017: EEI
- Apr 2018 East Coast non-deal road show
o Apr 16-17 New York (preliminary)
o Apr 18-19 Boston (preliminary)
- Sep 2018: 2018 Q2 earnings call
- Nov 2018: EEI
More information can be found on the new investor relations page at:
http://pugetenergy.com/pages/InvestorRelations.html
I. Current Events
1) 2017 General Rate Case Update
2) Tacoma Liquefied Natural Gas Project Overview
- Environmental, Social & Reputational Risk Mitigation
3) Greenwood Update
4) Corporate Finance Update
II. 2017 YTD Financial Performance Overview
III. Appendix
1) Big Picture
2) Business Overview
3) CAPEX Plan
4) Strategic Capital Projects Details
5) Financial Policy
23
5
7
16
17
18
20
24
28
41
46
60
Page
Appendix
24
Big Picture
- Mission: Safe, Dependable and Efficient
- Strategy: Integrated Strategic Plan
- Puget Sound is a major commercial and population center in the Pacific Northwest
- A center of high population growth, mostly as a result of economic stability and diversity of job
opportunities
- Dec 2016 King County unemployment rate (not seasonally adjusted) 3.4% vs 4.5% for the U.S.
- Recovery from 2007-2008 economic downturn, load and customer growth patterns significantly
different from the past due to energy efficiency
- Latest published load forecast can be found in 2015 IRP, filed with WUTC on Nov 30, 2015
2015 IRP Link: http://pse.com/aboutpse/EnergySupply/Pages/Resource-Planning.aspx
- In 2015 IRP, PSE’s 20-year average growth rate projections are:
Electric Load: 0.8%; Electric Customer Count: 1.5%
Gas Load: 1.2%; Gas Customer Count: 1.9%
Big Picture
25
3. Weather Patterns & Load Growth
2. Vibrant Local Economy
1. Clear Direction
- 2013 Global Rate Settlement
• Expedited Rate Filing (“ERF”): one-time rate adjustment to establish baseline for decoupling
• Decoupling: allowed revenue recovery on T&D assets based on number of customers served
• Rate Plan: annual rate increase of 3% on electric & 2.2% on gas delivery revenue (Jan 1, 2014-17)
• 3-year stay out period, next general rate case filing postponed to January 2017
- 2015 favorable ROE remand order upheld 9.8% ROE
- 2015 PCA settlement: update PCA sharing band & include fixed production costs in decoupling
- GRC filed in Jan 2017, details in “Current Events & Initiatives” section
- Power Cost Adjustment (“PCA”) substantially protects PSE from power price volatility
- Purchased Gas Adjustment (“PGA”) facilitates PSE’s timely recovery of gas supply costs
- Other Trackers & Riders
Big Picture
26
5. Low Commodity Price Risk
4. Regulatory Environment
- Tacoma Liquefied Natural Gas project
- Strategic capital projects focused on customers, core operations, and system reliability
- Capex details in “Capex Plan” section
- From 2007-2016, Puget Energy experienced compounded annual EBITDA growth of 5.1%
- PSE markedly narrowed the gap between Authorized ROE and Actual Return on AMA
Regulatory Equity
• 2010: Authorized 10.1%; Actual 4.1%; Gap 6.0%
• 2016: Authorized 9.8%; Actual 8.9%; Gap 0.9%
- Fitch ratings added in June 2017, see “Current Events & Initiatives” section for a summary of
credit ratings among the three rating agencies
Big Picture
27
6. Consistent and Improving Financial and Credit Metric Performance
7. Growth from Strategic Investment
Appendix
28
Business Overview
29
Alberta
Investment
Management Co.
(AIMCo)
Macquarie(1)
Canada Pension
Plan Investment
Board
(CPPIB)
British Columbia
Investment
Management Co.
(bcIMC)
Puget Energy
Puget
Sound
Energy
FSS
Infrastructure
Trust(2)
Ownership Structure
(1) Interest in Puget Energy is held through Macquarie Infrastructure Partners I, Macquarie Infrastructure Partners II. entities indirectly managed within the Macquarie
Infrastructure and Real Assets division of Macquarie Group Limited.
(2) FSS Infrastructure Trust formerly a part of the Macquarie Group Limited, now managed by IFM Global. FSS ownership interest carries no voting interest
Puget Equico
Puget Intermediate Holdings
Puget Holdings
Puget LNG
Puget
Western
Through their support of the Company’s ongoing mission and strategy, Puget Energy’s owners
are committed to the long term success and financial viability of the business.
Investment portfolio of approximately $70 billion
Manages capital for 28 pension, endowment and
government funds in the Province of Alberta
$465 billion of assets under management
Invests on behalf of the Canada Pension Plan and is the
largest single-purpose pension fund in Canada
Approximately $102.8 billion of assets under administration
Oversees funds for clients that include public sector pension
plans, the Province of British Columbia, publicly administered
trust funds and public bodies
$103.4 billion of assets under management across
25 countries
Leading global alternative asset manager
specializing in infrastructure funds, other real asset
funds and customized accounts
Alberta Investment Management Corporation
7.1% of Capital Contribution
British Columbia Investment Management
15.8% of Capital Contribution
Canada Pension Plan Investment Board
31.6% of Capital Contribution
Macquarie Infrastructure and Real Assets(1)
41.8% of Capital Contribution
First State Super Infrastructure Trust(2)
3.7% of Capital Contribution
$46 billion of assets under management, more than
775,000 members
Australia’s largest non-profit superannuation fund
Seasoned Equity Consortium
(1) Interest in Puget Energy is held through Macquarie Infrastructure Partners I, Macquarie Infrastructure Partners II, entities indirectly managed within the Macquarie
Infrastructure and Real Assets division of Macquarie Group Limited.
(2) FSS Infrastructure Trust, formerly a part of the Macquarie Group Limited. FSS ownership stake carries no voting interest.
30
31
Mission & Goals
Washington state’s oldest local
energy company
100% regulated, engaged in
business of electric generation,
transmission, distribution and natural
gas distribution
6,000 square mile service area in
Puget Sound region of Western
Washington
- 1.1 million electric customers
- 814,593 gas customers
PSE Service Territory
(1)
Combined electric and natural gas service
Electric service
Natural gas service
Public Utility Districts
32 (1) Puget Energy Annual Report on Form 10-K filed for 2016.
(1)
(1)
g
Residential 52.8%Commercial
40.5%
Industrial 5.3%
Others 1.4%
33
Customer Base
PSE primarily serves residential and commercial customers with limited
industrial exposure
- 2016 Electric Retail Revenue by
customer class
Total = $2.2B
- 2016 Gas Retail Revenue by
customer class
Total = $855M
Residential 67.7%
Commercial 27.6%
Industrial 2.3% Other 2.4%
(1) (1)
(1) Puget Energy Annual Report on Form 10-K filed for 2016.
Electric/Gas Resource Needs
34
Latest Integrated Resource Plan filed on Nov 30, 2015. Next IRP to be
filed in 2017
Electric
PSE has effectively met its resource needs until 2021
Gas
PSE has effectively met its resource needs until 2016-17
The capacity need presented in PSE’s 2015 IRP shows an increasing resource shortfall over time:
2016 2017 2018 2019 2020 2021 2022 2023 2024
Capacity Need/(Surplus) (in MW) (160) (28) (43) (44) (71) 275 316 358 400
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Deficit/(Surplus)
(MDth/day) 25 52 73 87 103 119 135 151
Purchased Power 25.4%
Natural Gas 39.4%
Wind 16.0%
Coal 14.0%
Hydro 5.2%
Power Portfolio
2016 Peak Power Resource Capacity (MW)
2016 Energy Production Sources (GWh)
PSE is committed to providing safe
and reliable electric service to
customers in its territory while being a
steward of clean energy.
Puget has a diverse portfolio of
resources to meet customer needs:
- Natural Gas
- Wind
- Hydroelectric
- Coal (low % relative to other
utilities)
- Purchased Power Agreements
As a national leader in wind power,
PSE has 773 MW of wind resources
and has met its Renewable Portfolio
Standard mandates through 2021.
Total = 24,607 GWh
35
PSE owns and manages a diverse power generation portfolio
Total = 4,844 MW
Purchased Power 52.9%
Coal 18.4%
Natural Gas 16.9%
Wind 8.0%Hydro 3.8%
PSE’s Generation Resource Footprint
36
Ferndale
PSE’s generating resources cover 16 Washington counties and 2 states
British Columbia
60%
United States 24%
Alberta 16%
Gas Supply
2016 Peak Firm Natural Gas Supply (Dth/day)
2016 Peak Purchased Gas Supply Diversity PSE holds firm transportation capacity on
pipelines owned by Northwest Pipeline, Gas
Transmission Northwest, Nova Gas
Transmission, Foothills Pipe Lines, and
Westcoast Energy.
- Firm direct connect pipeline capacity provides
reliable gas supplies during peak times
- Upstream pipeline capacity for direct access to gas
production areas
- Provides firm access to several natural gas supply
basins which enables PSE to achieve savings from
price spreads
Storage facilities in Washington and Utah
provide supply reliability and reduce portfolio
costs through off-peak injection for peak winter
heating season withdrawal.
37
PSE has a diverse portfolio of gas resources including direct-connect
pipelines, storage, and peak supply
Purchased Natural Gas Supply 482,300
Purchased Storage Capacity 112,500
Owned Storage Capacity 351,200
Peak Firm Natural Gas Supply 946,000
Other Commitments and Third Parties (5,700)
Net Peak Firm Natural Gas Supply 940,300
Pacific Northwest Gas Supply
38
PSE is perfectly situated near two
plentiful natural gas-producing
regions: the Western Canadian
Sedimentary Basin (WCSB) and the
US Rockies.
This close proximity benefits both PSE
gas customers and power customers
due to the increasing demand for
natural gas to generate electricity.
Puget co-owns and operates the
Northwest’s largest natural gas storage
reservoir, Jackson Prairie.
In addition to Jackson Prairie, PSE
stores up to 12.9 billion cubic feet of
natural gas in Questar’s Clay Basin
storage facility in Utah.
Current Electric Rate Recovery Mechanisms at PSE
39 * Numbers are based on 2017 GRC Test Year Financials as of Sep 30, 2016 and are rounded to the nearest 5%.
Current Gas Rate Recovery Mechanisms at PSE
40 * Numbers are based on 2017 GRC Test Year Financials as of Sep 30, 2016 and are rounded to the nearest 5%.
Appendix
41
CAPEX Plan
Capex is focused on customers, core operations, and system reliability
42
$ in
mill
ion
s
($ in millions) 2017 2018 2019 2017 - 2019
2016 Plan CAPEX Spend (PSE & Puget LNG) $816 $665 $626 $2,107
Plus: Net Incremental Spending $276 $307 $183 $766
2017 Plan CAPEX Spend (PSE & Puget LNG) $1,092 $972 $809 $2,873
$92 $79 $87
$99 $55 $60
$271 $253 $257
$631
$585
$404
$0
$200
$400
$600
$800
$1,000
$1,200
2017 2018 2019
2017-2019 CAPEX Spend (PSE & Puget LNG)
Strategic & RiskMitigation Initiatives
T&D OperationalPrograms
Generation OperationalPrograms
IT / Corporate SharedServices / Environmental
48% of the requested capex funds our core operations
43
$53 $51 $45
$6 $10 $17 $32 $18 $26
$99
$55 $60
$271
$253 $257
$0
$100
$200
$300
$400
$500
2017 2018 2019
2017-2019 Core Operations CAPEX
T&D Operational
GenerationOperational Programs
Corporate SharedServices
Environmental
IT
$ in
mill
ion
s
($ in millions) 2017 2018 2019 2017 - 2019
T&D Operational Programs $271 $253 $257 $781
Generation Operational Programs $99 $55 $60 $214
Corporate Shared Services $32 $18 $26 $75
Environmental $6 $10 $17 $33
IT $53 $51 $45 $150
Core Operations CAPEX $461 $388 $405 $1,253
New Capex plan funds our strategic agenda and risk mitigation initiatives
44
($ in millions) 2017 2018 2019 2017 - 2019
Strategic and Risk Mitigation Initiatives (PSE & Puget LNG) $631 $585 $404 $1,620
$57 $57 $57
$20 $21 $21
$85 $126
$86
$14
$12
$11 $4
$36
$31
$40 $11
$77 $61
$36
$78 $85
$92
$62 $73
$67
$165 $100
$27
$0
$100
$200
$300
$400
$500
$600
$700
2017 2018 2019
2017-2019 Strategic Initiatives CAPEX (PSE & Puget LNG)
LNG (includesdistribution upgrades)AMI
Electric CRM
GTZ
New Data Center *
FTIP
Lower Baker *
New Products
Major System Projects
Reliability Roadmap
Pipeline Integrity - CRM
$ in
mill
ion
s
* Risk mitigation initiative
Capex spend is in line with peers
45
(A) (B) (C) (D)
Puget Capex vs Peer Median Proxy Peer Group (excl. PSE)
1 Implied Capex (based on Proxy Peer Group Median) 1,004$ Minimum 16%
2 PSE 2017 Capex 1,092$ Median 43%
3 Average 44%
4 Maximum 78%
Proxy Peer Group (including Puget)
Book
Depreciation &
Amortization
Book Depr. &
Amort. as a
Percentage of
Capex
5 Vectren 94$ 78%
6 Portland General Electric 344$ 58%
7 Great Plains Energy 369$ 54%
8 Pinnacle West Capital 568$ 53%
9 Wisconsin Energy 442$ 51%
10 Eversource Energy (Northeast Utilities) 622$ 43%
11 Avista 165$ 43%
12 Alliant Energy 394$ 42%
13 Puget (2017 Plan) 435$ 40%
14 NiSource 270$ 36%
15 Integrys Energy Group* 115$ 35%
16 SCANA 340$ 34%
17 Pepco Holdings* 321$ 28%
18 MDU Resources Group 56$ 16%
Note: Source: SNL: FY2015 unless otherwise noted
* FY2014 used as FY2015 represented abnormal level of Depreciation & Amortization and/or Capex
1,009$
1,139$
350$
1,436$
381$
940$
1,092$
749$
326$
Capex
120$
595$
683$
1,078$
871$
Note: CAPEX on this page includes capital expenditures at both PSE & Puget LNG.
Appendix
46
Strategic Capital Projects Details
Major Strategic Capital Projects
47
Get-to-Zero
Enable customers with self-service options & reduce customer calls
Automated Meter Infrastructure
Current meter reading technology is becoming obsolete, replace by 2023
Improve operational capabilities
Electric Reliability Program (Electric CRM)
Replace old cables & worst performing circuits
Improve reliability & reduce outage
Energize Eastside
Upgrade 18 miles of existing electric transmission lines to serve homes/business
Improve Customer
Experience
New Data Center
Mitigate seismic risk & disaster recovery risk
Lower Baker Dam
Grouting & crest improvement to reduce leakage rate & foundation erosion
Address FERC compliance requirements
Risk Mitigation
Tacoma Liquefied Natural Gas Project
WUTC order approving regulatory structure in Nov 2016: 43% regulated at PSE;
57% unregulated at Puget LNG
Unregulated capacity: 50% TOTE & 50% open
Growth
Tacoma Liquefied Natural Gas (“LNG”)
LNG Project serves two purposes
- 43% regulated at PSE: natural gas peaking
facility to meet peak demand
- 57% unregulated at Puget LNG (subsidiary
under PE): transportation fuel for TOTE and
other maritime end-users
WUTC order on October 31, 2016 approving
regulatory structure
Construction started in Q4 2016, completion
expected in late 2019
Quarterly update can be found on the new
investor relations website:
http://pugetenergy.com/pages/lngUpdate.html
48
Tacoma LNG Facility in Tacoma, Washington
New Data Center
49
Why we are doing this project
- PSE’s ability to recover IT systems in the event of a disaster is a risk to
the company
- Two primary risk factors:
Data Center Facilities
Single point of failure
2 outages
Seismic risk
Leased office space
Investment need to keep
operational
Disaster Recovery
134 IT applications categorized
as critical
27 critical IT applications have
disaster recovery gaps
- $13M to remediate
New Data Center
50
Project details
- To mitigate risks we are investing in two new Data Centers facilities
- Mitigates both risks and improves capabilities to recover in the event of a
disaster
Modular Data Centers
High Availability
Always on
Geographic diversity (seismic)
Eastern/Western WA state
Facility resiliency
Eliminate single point of failure
Disaster Recovery
End-to-end recovery validation
All critical IT applications always on
Business impact analysis
Validate critical IT applications
Update disaster recovery plans for all
759 IT applications
Lower Baker Dam Background
Lower Baker Dam is 90 years old – built
in 1925
285-foot-high concrete structure and
regulates the 7-mile long Lake Shannon
reservoir
115 megawatts of power-generating
capacity
51
Lower Baker Dam Risk Mitigation Project Overview
52
Objectives
Reduces leakage rate
Mitigates foundation erosion (rock abutments)
Reduces risk of uncontrolled release of reservoir water
Addresses FERC compliance requirements
Addresses aging infrastructure
Program Consists of Two Interrelated Projects
Addresses abutment leakage and foundation erosion
Raises the left and right abutments and directs flood waters
over the center of the dam
Addresses required infrastructure upgrade and modernization
Improve flood passage and reduce spillway blockage by
debris
Lower Baker Dam
Grouting Project
Lower Baker Dam
Crest Improvements
Project
Get-to-Zero
53
Future State:
Get-to-Zero will
dramatically transform
the way we operate so
we can improve the
customer and
employee experience.
Our goal is that PSE
will become so good
at what we do that our
customers won’t have
a reason to call.
Current State:
4 million customer
calls each year:
• 2 million are cleared
through our
Interactive Voice
Response Unit
• 2 million calls are
handled by a live
agent
Transformation
Identify Root Causes
Top 5 (SUPER 5) Reasons Customers Call:
Explain My Bill 33%
Service Event 33%
Pay My Bill 10%
Financial Assistance 9%
Service Interruption 11%
Fix the Problem
Guiding Principles:
Know our customers and anticipate their needs
Provide easy self-service
Provide proactive information through preferred channels
Follow-through on commitments
Provide accurate and consistent information
5% call reduction
achieved in 2016
(96,000 calls saved)
Get-to-Zero
54
Enter Text Here
Project Overview
Automated Start/Stop/Transfer
Enhancement to the Interactive Voice Response (IVR)
Customer Interface
Automated Start/Stop/Transfer
Billing, Payment & Credit
Email notification to customers that bill is due within 5 days
Internal behavioral scoring & risk segmentation dunning tool
Bill enhancements
Data Quality
Deliver customer analytics to provide better visibility as to why customers call
Integrated Work Management
Develop long term strategic plan to inform the overall GTZ program plan
Automated Meter Infrastructure (“AMI”)
55
PSE’s Automated Meter Reading (“AMR”) platform was installed between
1998-2001 and was designed for a 15-year life. PSE needs to replace existing
technology with newer technology (“AMI”) over the next 5-10 years to address
the following:
~300,000 gas modules are projected to have expiring batteries in
2016-2020, based on a 10-year battery life. Conversion to AMI
minimizes AMR battery and other maintenance costs
Industry is moving to AMI. Equipment and support providers for
PSE’s AMR platform are limited
AMR is nearing end-of-life and has increasing reliability issues
with the communication network and meter modules which may
result in billing impact to customers
Billing Performance
To efficiently meet requirements of a billing performance
standard that took effect on March 25, 2016, PSE will need to be
able to remotely disconnect meters when customer “move-outs”
occur in order to avoid unauthorized energy usage
Maintenance
Obsolescence
Performance
AMI Benefits
56
Advanced outage reporting and functionality
Real time accurate outage notification and status reporting Helps address outage calls - GTZ call rank #5
Prepayment
Enables budget and energy management for multiple
customer types. Provides options for traditional deposits and
prior obligation Helps address collection payment calls - GTZ call rank #1
Billing exception reduction
Reduces estimated and retroactive bills Helps address billing calls - GTZ call rank #3.
Remote disconnect and reconnect
Scheduled disconnects and near-instantaneous
reconnection upon payment Helps address collection payments, start/stop service, and
disconnect calls - GTZ call ranks #1, 2, and 7
Improved operational capabilities • Increase energy conservation through conservation voltage reduction
• Facilitate the integration of distributed generation
• Increase reliability through distribution automation
• Enable remote diagnosis of power quality problems
• Reduce energy theft and meter tampering safety concerns through
energy diversion notifications
The transition from AMR to AMI will lay the foundation for improved
operational and customer capabilities
Electric Reliability Program (Electric CRM)
Why we are doing this project
Electric Reliability Program is designed to improve reliability to customers
served from PSE’s worst performing circuits and underground distribution
cable through implementation of location-specific projects that reduce the
number and length of power outages. An Electric Cost Recovery
Mechanism will align regulatory strategy with this reliability priority.
Project Details
The mechanism will be modeled after the gas CRM and consists of two
parts:
- Reliability Program Plan, and
- Cost Recovery Mechanism (“CRM”)
57
Electric Reliability Program Details
58
The plan will consist of a portfolio of specific projects that will deliver
the greatest reliability benefits for the dollar to customers served from
worst performing circuits/assets
Cable Replacement
Target the replacement of 1970s vintage high-molecular-weight
underground distribution cable
There are 2300 miles of cable in the target population and
approximately 120-180 miles will be replaced each year
Replacement is prioritized based on failure trend of the cable
Worst Performing Circuits
Improvement targets circuits that are in the 3rd and 4th quartile of
IEEE benchmark for multiple years
Annual work will improve performance on 20-30 circuits per year
Improvement is prioritized based on number and length of outage
CRM process would recover the return on the prior year’s plan
investment and recover depreciation expense through annual rate
increases
Reliability Program
Plan
Cost Recovery
Mechanism
+
Energize Eastside
Build a new electric substation and upgrade
approximately 18 miles of existing
transmission lines from Redmond to Renton
Combined with continued electric
conservation, Energize Eastside will keep
the lights on for homes and businesses in
our Eastside communities for years to come
The project is in environmental review
stage. Construction is expected to begin
after the environmental review and
permitting process are complete, currently
planned for early 2018
59
Existing Conditions
Conceptual Project
Appendix
60
Financial Policy
Credit Ratings
Credit Ratings
- On December 3, 2013, Standard & Poor’s raised its corporate rating on
PE to ‘BBB-’ from ‘BB+’ and affirmed PSE ‘BBB’ corporate rating
- On January 30, 2014, Moody’s raised its corporate rating on PSE to
‘Baa1’ from ‘Baa2’ and PE to ‘Baa3’ from ‘Ba1’
- Standard & Poor’s, Moody’s and Fitch affirmed the ‘stable’ outlook for
PSE & PE
- Fitch ratings added in June 2017
61
Liquidity
Liquidity - Strong liquidity position, manageable debt profile & access to capital
62
Puget Energy Consolidated 10-year Maturity Profile(1) Puget Energy Consolidated Liquidity Profile(1)
$66
$1,800$1,734
0
500
1,000
1,500
2,000
2,500
PE & PSE LiquidityFacilities
Drawn Amount Available Liquidity
$ millions
PSE PE
(1) Puget Energy Annual Report on Form 10-Q, filed for June 30, 2017.
as of Jun 30 2017
$200$300
$450 $500 $450 $400
0
200
400
600
800
1,000
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
$ millions
PSE PE
$17 at PSE
Dividends
63
- Extraordinary items
Treasury Grants
(2013&2014)
JPUD (2013& 2014)
Bonus Depreciation
- Dividends from PSE to PE
include interest on $1.8B in
debt at PE (i.e. Holdco)
Dividend Policy Considerations
- Maintain equity ratio to authorized capital structure, currently proposed 48.5% equity ratio in
2017 GRC
- Comply with dividend restrictions and covenants
Annual Dividend Breakdown
$104 $117 $89 $171
$223 $263
$149
$82 $95
$87
$105 $100
$109
$108
$51
$135
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
2010 2011 2012 2013 2014 2015 2016 Jun-2017
Annual Dividend Breakdown
PE Dividends Paid PE Debt Service
PE Revolver Paydown PE 4-yr moving average
top related