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PG&E Corporation Reports Third Quarter Results

10/24/2000
  • PG&E Corporation's third quarter diluted earnings from operations were $0.68 per share, or $248 million, compared with diluted earnings from operations in the same quarter last year of $0.50 per share, or $185 million. (Two important items affect comparability between the quarters: an $0.11 per share upward adjustment in utility earnings for the third quarter of 1999 to reflect the retroactive effect of the delayed 1999 General Rate Case, and a $0.05 per share upward adjustment in National Energy Group earnings for the third quarter of 1999 to offset losses recorded in the energy services and Texas natural gas operations, which are no longer part of continuing operations. Adjusted for these items, third quarter 1999 results would have been $0.66 per share on a diluted basis.)

  • Revenues for the period were $7.5 billion, compared with third quarter 1999 revenues of $6.2 billion.

  • National Energy Group contributions rose, with diluted earnings from operations of $0.10 per share, or $37 million, on revenues of $5 billion. Operating earnings for the NEG in the third quarter of 1999 were $0.01 per share. Adjusted for comparability to offset the loss of $0.05 per share associated with the now discontinued energy services and Texas natural gas operations, third quarter 1999 earnings for the NEG would have been $0.06 per share.

  • Pacific Gas and Electric Company diluted earnings from operations were $0.58 per share, or $211 million, on revenues of $2.5 billion. Adjusted for comparability, third quarter 1999 diluted earnings would have been $0.60 per share. (The adjustment reflects the fact that third quarter 1999 results did not include the increase in revenues associated with the delayed decision on the company's 1999 General Rate Case, which was resolved in February 2000 and was retroactive to January 1, 1999, and the effect of which was recorded in the fourth quarter of 1999.)

(San Francisco, CA) - PG&E Corporation (NYSE:PCG) today reported that it earned $0.68 per share on an operating and diluted basis, or $248 million, in the third quarter. The Corporation earned $0.50 per share on an operating and diluted basis, or $185 million, in the same quarter last year. However, it noted that the quarter-over-quarter change in earnings does not reflect several important items affecting comparability. Most notably, earnings reported in the third quarter of 1999 included $0.05 per share in losses in the Corporation's now discontinued energy services and Texas natural gas operations, and did not include $0.11 per share in earnings from the utility's General Rate Case, which were booked in the fourth quarter of 1999 for the entire year. With those items taken into account, on a comparable basis PG&E Corporation's third quarter 1999 earnings would have been $0.66 per share, resulting in a comparable quarter-over-quarter increase of 3 percent.

Pacific Gas and Electric Company

The Corporation's utility unit, Pacific Gas and Electric Company, earned $0.58 per share on an operating and diluted basis, or $211 million, on revenues of $2.5 billion for the quarter. The earnings reflect, in part, the final decision on the unit's 1999 General Rate Case, which accounts for approximately $0.11 per share this quarter.

Although earnings met targets for the quarter, since June the unit accumulated approximately $2.9 billion in uncollected costs to procure electricity for customers in California's wholesale market. Wholesale electric prices this summer skyrocketed to levels as much as five times higher than last year's prices. Rates for retail customers, however, have been frozen at levels far below wholesale prices. As a result, the utility has been unable to collect all of its energy procurement costs through customer rates as intended under the electric restructuring process in California.

The company reported the potential adverse impact of these growing costs in an 8-K filing with the Securities and Exchange Commission in September. At the same time, the company emphasized that it would focus on working collaboratively to resolve the crisis. Those efforts included asking the California Public Utilities Commission (CPUC) to reconsider a ruling that prohibited California utilities from recovering uncollected energy procurement costs after the end of the transition to a competitive market and the end of the customer rate freeze. In a ruling last week, the CPUC announced it will reopen its earlier decision.

The company remains focused on working with all parties to develop a fair and workable resolution that ensures the continued financial health of the utility and protects customers against sudden and dramatic rate increases like those seen in San Diego over the summer.

The uncollected power procurement costs do not immediately impact the utility's earnings because they are being tracked in an account for future recovery. In the meantime, the utility is using its borrowing capability to pay these costs on behalf of its customers.

PG&E National Energy Group

The PG&E National Energy Group (NEG) continued to make strong contributions to the Corporation's overall results, with earnings from operations of $0.10 per share for the quarter. The period was the unit's third consecutive quarter marked by solid performance and continued success in executing its strategy for growth. The results exclude a non-recurring charge of $0.01 per share associated with the consolidation of the NEG's business in Bethesda, Md., as well as a one-time charge of $0.05 per share reflecting a true-up following the close of NEG's sale of its energy services operations.

Performance in the NEG remained solid across the board. In the electric generation operations, the Corporation said the NEG's Northeast plants turned in strong results despite the cool summer, as the majority of its power in the region is sold under fixed contracts. The unit's gas transmission operations also performed well, with increased demand for capacity on the NEG's Northwest pipeline, which continues to operate at 100 percent of current capacity. Positive power and gas trading margins led to the favorable performance within the energy trading operation.

The Corporation said the sustained earnings performance has the NEG on track to meet its goal of delivering 30 percent of the Corporation's earnings by 2002.

The third quarter also saw the NEG continue to achieve important milestones in its strategy to grow its business, both in the power generation and natural gas transmission markets. In its efforts to expand its portfolio of controlled megawatts* (MW), the NEG moved forward with power plant development and construction projects, and it continued to secure additional capacity through strategic tolling agreements.*

Among the highlights for the quarter, the NEG contracted for 50 gas turbines representing 16,000 megawatts of capacity; announced a 10-year 160-megawatt tolling agreement with DTE Energy Services that gives the NEG its first asset in the Midwest; acquired a 500-megawatt merchant plant under construction in Mississippi; launched development on a new 1,000-megawatt facility near Las Vegas; and completed a successful open season process for the North Baja pipeline project, with expressions of interest for more than double the capacity of the pipeline.

"The results posted by the National Energy Group and Pacific Gas and Electric Company this quarter reflect continued solid execution and strong forward momentum," said Robert D. Glynn, Jr., PG&E Corporation Chairman, CEO, and President. "We remain on track to surpass by several percentage points our goal of growing operating earnings per share by 8 to 10 percent for 2000."

Actions to Date to Address Wholesale Electric Market Problems in California

In light of the wholesale electric market problems in the state, Glynn indicated that the company has taken a number of actions in recent weeks with the objective of reducing wholesale prices and managing the impact on utilities and their customers.

He noted that Pacific Gas and Electric Company made several filings at the Federal Energy Regulatory Commission (FERC) throughout the third quarter asking the commission to implement immediate relief in the form of price caps, initiate market mitigation measures, and immediately commence hearings to address the California market. The company also asked the FERC to consider refunds of wholesale power costs if FERC's investigation reveals that unjust and unreasonable rates were charged.

The utility also has taken action to mitigate future volatility in the price of electricity by expanding energy conservation and energy efficiency initiatives, and identifying substations where small generation units can be placed to provide additional power at critical times. In addition, after receiving regulatory authority in August to buy electricity outside of the Power Exchange, directly from other suppliers, the utility said it has entered into bilateral contracts for term power for a portion of its load to stabilize prices and hedge against price volatility. The company said it expects to pursue and enter into similar arrangements going forward.

The Corporation pointed to projects its NEG is undertaking to help resolve the power crunch and ensure reliability of California's electric supply. In the near term, the NEG plans to begin operation of a 49-megawatt peaker unit in San Diego County in time for the summer of 2001. Plans for additional capacity beyond next summer include the La Paloma plant now under construction near Bakersfield, Ca., as well as other new plants in development in the West.

The Corporation also applauded the steps by a number of other parties toward developing a workable solution to the challenge in California. It noted that the ISO is currently working on market mitigation efforts, including the approval of up to $255 million for peaking capacity contracts to meet next summer's demand; the FERC and the CPUC have opened investigations and have held hearings on the issue; and Governor Gray Davis has underscored the importance of addressing this issue to ensure the continued health of the state's economy, calling on FERC to further reduce price and bid caps on wholesale power sold in California.

"We believe the stakeholders in California understand the need for a fast solution to the problems in the wholesale electric market," said Glynn, "and we are confident that such a solution can be developed and implemented soon, especially in light of the positive steps now being taken to address the situation."

* Terms Used in This Release

Controlled Megawatts - Electric generating capacity which PG&E Corporation has the rights to sell in the wholesale marketplace, either through full or partial ownership of generating assets, or through contractual agreements.

Tolling Agreement - Contracts that provide PG&E Corporation with the rights to sell electricity generated by facilities owned and operated by another party. Under such arrangements, PG&E Corporation supplies the fuel to the power plant, and then sells the plant's output in the competitive market.


PG&E CORPORATION
CONDENSED STATEMENT OF CONSOLIDATED INCOME
(unaudited)

 

Three months ended September 30, Nine months ended September 30,
 
(in millions, except per share amounts) 2000 1999 2000 1999
 
Operating Revenues
Pacific Gas and Electric Company $ 2,523 $ 2,587 $ 7,037 $ 6,905
PG&E National Energy Group
PG&E Generating 290 275 883 818
PG&E Gas Transmission
– Texas 258 177 707 970
– Northwest 64 56 177 166
PG&E Energy Trading 4,777 3,490 10,493 8,145
Eliminations and Other (408) (368) (1,147) (979)
Total operating revenues 7,504 6,217 18,150 16,025
Operating Expenses
                     
Cost of energy for Pacific Gas and 2,234 864 4,187 2,183
Electric Company                      
Cost of energy–PG&E National Energy 4,618 3,394 10,137 8,415
Group                      
Deferred electric procurement costs (2,176) (2,789)
Operating expenses, including                      
depreciation 2,199 1,443 4,688 3,970
Total operating expenses 6,875 5,701 16,223 14,568
Operating Income 629 516 1,927 1,457
Interest expense and other (146) (170) (484) (502)
Income Before Income Taxes 483 346 1,443 955
Income taxes 239 149 671 395
Income before discontinued operations
and cumulative effect of a change in        
accounting principle 244 197 772 560
Discontinued operations
Loss from operations of PG&E
Energy Services (net of applicable
income tax of $9 million and        
$26 million, respectively) (12) (34)
Loss on disposal of PG&E Energy
Services (net of applicable income        
taxes of $13 million) (19) (19)
 
Income before cumulative effect of
a change in accounting principle 225 185 753 526
Cumulative effect of a change in an
accounting principle (net of appli-
cable income taxes of $8 million) 12
Net income $ 225 $ 185 $ 753 $ 538
Weighted Average Common Shares                      
Outstanding 362 367 361 369
Earnings Per Common Share, Basic
Income from continuing operations $ 0.67 $ 0.53 $ 2.14 $ 1.52
Discontinued operations (0.05) (0.03) (0.05) (0.09)
Cumulative effect of change in
accounting principle 0.03
 
Net Income $ 0.62 $ 0.50 $ 2.09 $ 1.46
Earnings Per Common Share, Diluted
Income from continuing operations $ 0.67 $ 0.53 $ 2.12 $ 1.51
Discontinued operations (0.05) (0.03) (0.05) (0.09)
Cumulative effect of change in
accounting principle 0.03
 
Net Income $ 0.62 $ 0.50 $ 2.07 $ 1.45
                     
Dividends Declared Per Common $ 0.30 $ 0.30 $ 0.90 $ 0.90
Share
Earnings and earnings per share for PG&E Corporation's lines of business are as follows:
Earnings (millions) Earnings (millions)
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
Utility
Pacific Gas and Electric $ 211 $ 179 $ 655 $ 498
Company (a)                      
PG&E National Energy Group
PG&E Generating 16 21 70 77
PG&E Gas Transmission
– Texas (7) (33)
– Northwest 16 18 43 46
PG&E Energy Trading 5 (17) 27 (19)
PG&E Energy Services   (12) (34)
Eliminations and Other 3 (10) (3)
Subtotal - PG&E National Energy                      
Group 37 6 130 34
             
Earnings from Operations 248 185 785 532
             
Items impacting comparability (b) (23) (32) 6
Reported Earnings $ 225 $ 185 $ 753 $ 538
Earnings per Share (Diluted) Earnings per Share (Diluted)
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
Utility
Pacific Gas and Electric $ 0.58 $ 0.49 $ 1.80 $ 1.35
Company (a)                      
PG&E National Energy Group
PG&E Generating 0.04 0.05 0.19 0.21
PG&E Gas Transmission
– Texas (0.02) (0.10)
– Northwest 0.04 0.05 0.12 0.12
PG&E Energy Trading 0.02 (0.05) 0.08 (0.05)
PG&E Energy Services   (0.03) (0.09)
Eliminations and Other 0.01 (0.03) (0.01)
Subtotal - PG&E National Energy                      
Group 0.10 0.01 0.36 0.08
             
Earnings from Operations 0.68 0.50 2.16 1.43
             
Items impacting comparability (b) (0.06) (0.09) 0.02
Reported Earnings $ 0.62 $ 0.50 $ 2.07 $ 1.45

(a) 1999 results for Pacific Gas and Electric Company do not include the impacts associated with the delayed decision on the Company's 1999 General Rate Case (GRC), which was resolved in February 2000 and retroactive to January 1, 1999. The effects of the 1999 GRC were recorded in the fourth quarter of 1999 and would have increased 1999 third quarter and year-to-date earnings by $38 ($0.11 per share) and $115 ($0.32 per share).

(b) Items impacting comparability in 2000 include loss on disposal of assets, net of tax, of $19 million ($0.05 per share) resulting from a true-up following sale of the energy services operations and relocation and severance charges related to the restructuring of the PG&E National Energy Group of $4 million ($0.01 per share) in the third quarter and $13 million ($0.04 per share) in the nine months ended September 30, 2000. Items impacting comparability in the nine-month period ending September 30, 1999 include a restructuring charge of $6 million ($0.01 per share) incurred at PG&E Gas Transmission and income from a change in accounting principle at PG&E Generating of $12 million ($0.03 per share).

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