PACIFIC GAS ELECTRIC
Moderator: Don Hall
13-09-05/1:45 pm EST
Confirmation #771159
Page 1
PACIFIC GAS ELECTRIC – UTILITIES
Electric and Gas Energy Update
Moderator: Don Hall
September 13, 2005
1:45 pm EST
Operator: Good day ladies and gentlemen and welcome to the Electric and Gas Energy Update conference call. At this time all participants are on a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. And at any time during the conference if you wish to submit a question via the web please type your question in the text box on the left-hand side of your screen and click on the submit button. If anyone should require assistance during the conference please press star zero on your touchtone telephone. As a reminder ladies and gentlemen this conference is being recorded.
I would now like to introduce your host for today’s conference Mr. Don Hall. Sir you may begin.
Don Hall: Well thank you and welcome to PG&E’s webcast. As indicated we’ll be providing an electric and gas energy update today. We certainly appreciate you taking time and hope you find our presentation useful. Just a couple of additional logistical comments, you are able to enlarge your viewing screen by selecting the tab enlarge slides at the top of your computer screen. And I also wanted to mention that we will be providing a survey immediately following the webcast that will allow you to provide comments, some input and hopefully some suggestions on how we can continue to communicate with you in the future. As indicated, we will be giving you an opportunity to provide questions throughout the webcast. We do have approximately 200 participants that were scheduled for the line today. Realizing that, we may not be able to get to all questions but we will do our best and in follow-up we will answer all questions through e-mail over the next few days.
We do have a number of customers who are still registering and being connected to the line so I’d like to start with a few general comments on PG&E while others are fully connected. First off, I want to mention that my name again is Don Hall I’m the--PG&E’s Manager of Corporate Account Services, I’ll be hosting our call today. We’re conducting this at our corporate headquarters in San Francisco. We have customers participating throughout PG&E’s service territory and many customers that are participating from offices throughout the United States. We also have a number of PG&E offices hosting customers throughout our territory. Our other primary speakers today will be Shawn Halvorson [ph] and Dan Pease [ph] who will be serving as our gas and electric rate experts.
So for a few general comments on PG&E I want you to be aware that we’re celebrating our 100th year as a company. As we begin our next 100 years, we are committing to be recognized as a national leader in the energy industry. California continues to grow, energy demands and customer expectations also continue to grow and PG&E wants to grow with you. Our commitment is to lead the utility industry in the safe delivery of cost competitive gas and electric services to our customers. To ensure that we can accomplish this, PG&E has initiated a comprehensive transformation effort involving all of our business functions. The key elements of our transformation include first, operating more efficiently. Throughout our organization we are evaluating and streamlining work processes often using technology to operate more efficiently. Our recent proposal to install an advanced metering infrastructure and meters to all customers is an example of this effort. The benefits of these improvements should reduce our future operating expenses and lead us towards more cost competitive pricing.
Second, we’re finding clean and flexible energy sources for our customers. We are integrating energy efficiency, demand response and renewable generation into our procurement portfolio along with competitive bidding for other supply sources. We also continue to be supportive of customer choice through direct access and a new option community choice aggregation.
Our third key element of our transformation is in providing reliable service. PG&E recognizes that keeping the lights on and the gas flowing is critical to all our customers. We are committing to accelerate investment in the replacement and upgrading of our gas and electric system infrastructure to fully meet this expectation. And our fourth element is in innovating in the delivery of customer service and communications. We constantly are identifying ways to effectively communicate with our customers. This webcast is an example of how we are looking to provide valuable and timely information.
Ladies and gentlemen at the present time we’re having some trouble pushing the presentation, advancing it to you, so we’re going to take a minute and just try to solve our technical difficulties. And in any event we’ll begin again in a few minutes with the continuation of our presentation. We’re on the line to our Genesys folks that are helping us.
U/K Male: Sayed?
Operator: Yes sir.
U/K Male: Will you mute everybody for the time being?
Operator: All right sir.
U/K Male: We are not able to see the webcast (audio cut off).
Don Hall: Okay do it again.
Operator: Pardon me you have been connected back to your conference.
Don Hall: Great thank you. We have addressed our brief technical problem and are now ready to move on with the main portion of our presentation. I wanted to take an opportunity to acknowledge those who have just joined our presentation. My name is Don Hall I’m the Manager of Corporate Account Services, will be hosting our call today, and we are ready to begin with our first main presenter. Our first presenter will be Shawn Halvorson. As a brief introduction to Shawn, she has over 20 years of professional experience, initially working as a certified public accountant before joining PG&E Gas Transmission in 1991. In 1999 she began serving in her current role as Manager of Gas Rates. Shawn will be providing an overview of our gas system and gas rate expectations. Shawn.
Shawn Halvorson: Thanks Don. Good morning. Let’s turn to slide five the gas overview. Today I’m going to be talking to you about PG&E’s service territory, what comprises your gas bill, a little bit about gas supply and prices and about 2006 rate expectations. Go ahead and start with slide six PG&E’s gas service territory. In front of you, hopefully, is a map of California and this is – the PG&E’s gas territory is in the orange section of the map and the large black line running through California is PG&E’s gas backbone transmission system. PG&E is uniquely situated to access gas from several supply basins both to the North and Canada and to the Rocky Mountain Region and in the Southwest. As a result, PG&E is able to access the lowest cost gas to manage your gas bills. PG&E also uses storage to manage gas costs and as a hedging tool. PG&E serves about 20 percent of its winter demand through storage.
Let’s turn to slide 7. What comprises your gas bill today? PG&E provides two types of services for its gas customers. For core customers it provides a bundled service that includes delivered gas from the wellhead to PG&E’s local transmission system. In addition, PG&E provides a transportation only service to customers who wish to obtain gas through third party providers. The graph at the top shows PG&E’s different classes of service, small commercial, large commercial, industrial and electric generation and cogeneration service and the relative procurement costs, public purpose charge and transportation cost in a typical bill. Procurement costs are the largest most predominant color on this graph, hopefully red for you, and that cost is now about 70 to 80 percent of your bill. It used to be – about 10 years ago it used to be about a third of the typical bill for residential small commercial customers. Procurement includes the cost to purchase gas and deliver that gas, transport it through all of the interstate pipelines and deliver it into PG&E’s local transmission system. It also includes storage costs for PG&E customers.
The second line is PG&E’s public purpose program costs which are applicable to most classes of service except for wholesale, electric generation and cogeneration customers. These are costs of energy efficiency, demand [site] management, research development, demonstration and other low income programs. And then the last line on there, the blue line, is PG&E’s transportation costs and that is the gas transportation through the local transmission system, through the distribution system and to your burner tip. And this cost – this portion also includes other P&C and state mandated costs such as environmental and social programs.
Let’s turn to slide – to slide 8. This is PG&E’s average monthly large commercial gas rate over the last six years and this – this graph shows that gas prices forecasted for 2006 are actually creeping back up to the levels that were in effect during the energy crisis of the winter 2000/2001 period. It also shows that PG&E is forecasting somewhere above 80 percent of your procurement – of your delivered bill to be your procurement cost. PG – for its core bundled customers, PG&E changes rates monthly to reflect the new cost of gas and does not mark-up that cost of gas. This graph also shows that relative to the widely swinging procurement rates, PG&E’s transportation costs have remained relatively stable.
Let’s move on to slide 9. Slide 9 shows for an average small commercial customer the breakdown between PG&E’s present small commercial rate and the forecasted rate for 2006. Once again, transportation costs are remaining relatively stable but the total rate is expected to increase approximately 36 percent from $1.08 per therm to $1.47 per therm primarily due to the rising gas prices. This is – incidentally this forecast 2006 includes an annual average forecast of PG&E’s gas cost of about $8.85 an MMBtu or 88 cents a therm and that’s more of an annual average rate relative – which would allow you to compare a budget for your gas cost this year or 2005 versus 2006. But month to month as we saw in the graph on slide 8, gas prices tend to be higher in the winter months and lower in the summer months.
Turn to slide 10, gas supply and prices. As we’ve seen from the last couple of slides, the gas prices have fluctuated pretty wildly over the last few years and looking forward the gas market is likely to stay tight due to national supply shortages, a strong economy and high world oil prices. We’ve seen the price of crude and all other energies linked generally. So – so as crude oil has been going up and other oils have been going up natural gas has followed. In addition, the record high temperatures have reduced storage injections in the East Coast. PG&E’s storage I might add is right on track and actually we’re a little head – ahead this year regarding storage injection but gas prices are set nationally so this – anything that’s going on in a national level will affect the price that PG&E pays and that you ultimately pay for gas. As of this week, we’re right in the middle of our tropical storm season and we’ve already seen some pretty significant effects of the last few storms including the most significant one from Hurricane Katrina. And so there’s – this is causing a lot of uncertainty in the market. The damage reports from Hurricane Katrina are still pending, but that area in the Gulf is responsible for such a significant portion of the total gas production in the U.S. that there’s a lot of concern that this may be a repeat or even a worse situation than the 2004 Hurricane Ivan.
As of yesterday of the about 10 or so, 10 to 12 BCF’s per day of gas that’s produced in the Gulf of Mexico, approximately 3.8 BCF is still shut in where the production facilities are unable to produce the gas according to the Mineral Management Service. This is putting an upward pressure on price. It looks like as of yesterday gas prices are still about 84 cents per Decatherm higher than they were prior to Hurricane Katrina and the prices for winter gas are looking to be really high. Last year we were looking at about a $5 per Decatherm or $5 per MMBtu price of gas and this summer it was looking to be about $10 and now it’s actually looking to be more in the $11 to $12 range for gas. So bottom line, Hurricane Katrina has disrupted the supply and demand balance even further and at this point there’s just a lot of general uncertainty as to where winter prices are going to go. They were heading up before the hurricane occurred and now there’s – this is even creating more uncertainty in the marketplace.
Let’s turn to slide 11. Slide 11 is a graph of the NYMEX forward curve and this just shows how gas prices are linked all around the nation. The highest curved place is the NYMEX which is set in the Henry Hub which is in South Louisiana. And then the lower three lines are the price of gas at – in Canada, at Diago [ph] and PG&E Citigate which is delivered into its local transmission system and the Southwest San Juan net forward price. All prices are correlated. Prices are set nationally. And PG&E actually is part of a Western market so we actually have a separate supply and demand balance. But as the prices are – as demand grows and the prices of all energies are linked and so we’re bearing the brunt of these price increases on a national level.
Let’s turn to slide 12 and get right down to what is – what are our expectations for 2006 gas rates and what is driving the increases? Generally the story for your gas bills next year are going to be wrapped into your gas price, that’s the biggest driver for PG&E’s bundled service. We’re expecting about a 29 percent increase in small commercial rates and 35 percent increase in large commercial rates which is shown on the bottom of this page. And then I’ve gone ahead and broken down – and these are expectations at this point yet, these are in no way final we’re still a few months away – but I’ve broken down at this point PG&E’s best estimates for where we think these – these rates will be for next year. And the majority is of course in your gas procurement costs. In addition we’re seeing some small increases due to public purpose programs and social and environmental costs and PG&E’s distribution system. For non-core transportation only customers where PG&E provides the transportation only service and they purchase their gas from third party providers, there is – the biggest driver in your rates for next year is a large rate credit that’s in rates in 2005 that will be coming out in 2006. So as a result of removing this credit the rates are going up about – on a net basis we’re expecting about a 25 percent increase but the majority of that is just simply the removal of these credits that were in effect for 2005. In addition, for non-electric generation cogen customers we’re expecting increases in public purpose program costs, social and environmental costs and self-generation incentive program costs.