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PG&E Corporation Reports Results For 2000

04/16/2001
  • PG&E Corporation reported a net loss for 2000 of $3.4 billion, or $9.29 per share, following after-tax charges of $4.1 billion, or $11.36 per share, for uncollected wholesale power procurement and transition costs at Pacific Gas and Electric Company.

  • Before the charge and other non-recurring items, net income from operations* in 2000 was $2.54 per diluted share, or $925 million. Net income from operations for 1999 was $2.24 per share, or $826 million.

  • Pacific Gas and Electric Company posted net income from operations of $2.11 per diluted share*, or $769 million. For 1999, the utility reported net income from operations of $2.07 per share, or $763 million.

  • National Energy Group contributions rose significantly over 1999, with net income from operations of $0.45 per diluted share, or $162 million, for 2000. Net income from operations in 1999 was $0.17 per share.

(San Francisco, CA) - PG&E Corporation (NYSE:PCG) said today that the absence of certain regulatory treatment facing its California utility unit required the utility unit to record an after-tax accounting charge of $4.1 billion against its income for the year. It did so because it could no longer meet the accounting standards requiring probable recovery of more than $6 billion in wholesale costs incurred by Pacific Gas and Electric Company last year to buy power on behalf of its utility customers. As a result of the charge, PG&E Corporation reported a net loss for the year of $3.4 billion, or $9.29 per share. Also, the Corporation announced on April 6, 2001, that its utility unit has sought protection under Chapter 11 of the U.S. Bankruptcy Code, believing that the federal court will provide the best venue to resolve the financial challenges associated with the California energy crisis.

"While standard accounting rules required the utility to record a charge against earnings for unreimbursed wholesale and transition costs, taking this charge does not diminish our conviction that the utility is entitled under law to recover these costs, nor does it diminish our ongoing lawsuit in Federal District Court," said PG&E Corporation Chairman, CEO and President, Robert D. Glynn, Jr. Glynn added that, should these costs ultimately be deemed recoverable, the utility could reestablish these assets and recognize income in the future.

Excluding this charge and other non-recurring items, PG&E Corporation reported net income from operations for the year of $925 million, or $2.54 per diluted share, compared with net income from operations in 1999 of $826 million, or $2.24 per share, a 13 percent increase. On an operating basis, the company’s results exceeded its goal to grow operating earnings by 8 to 10 percent per year.

The increase in net income from operations primarily reflects the continued growth and strong performance of the corporation’s unregulated business unit, the National Energy Group, which grew its earnings from operations by 165 percent over 1999. Income contributions from Pacific Gas and Electric Company for 2000 rose approximately 2 percent over 1999 results.

"While overshadowed by the extraordinary impacts of the California energy crisis," said Glynn, "we demonstrated continued solid performance on an operating basis. We are proud of that accomplishment, even as we are deeply dissatisfied at reporting a substantial net loss due to the uncertainty around the recovery of our wholesale power and transition costs."

Pacific Gas and Electric Company

Operating revenues at Pacific Gas and Electric Company in 2000 were $9.6 billion, compared with $9.2 billion in 1999. The unit reported net income from operations of $769 million, or $2.11 per diluted share, compared with $763 million, or $2.07 per share, for last year. However, on an overall basis, the utility reported a net loss of $3.5 billion, reflecting two non-recurring charges. Most significantly, as noted, financial reporting standards required the unit to record an after-tax write-off of $4.1 billion in uncollected wholesale power and transition costs that no longer met the accounting standard requiring that they be probable of recovery. The utility’s net results also included a non-recurring charge of $79 million, or $0.22 per share, reflecting the utility’s inability to fully utilize tax benefits of losses in California.

The utility’s Diablo Canyon Nuclear Power Plant completed another year of outstanding operations in 2000 and was once again given high marks and superior ratings by the Nuclear Regulatory Commission and the Institute of Nuclear Power Operations. Other successes at the utility included continued implementation of cost-efficient measures as well as efforts to strengthen customer service programs. Last year, for example, Pacific Gas and Electric Company became one of the first utilities in the country to allow customers a full range of Internet-based service, from scheduling appointments to managing their accounts.

For much of 2000, however, the utility’s resources were focused intensively on managing the California energy crisis, taking whatever measures possible to ensure that it could continue purchasing and delivering electricity and natural gas 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. The NEG increased its profitability substantially over last year, earning net income from operations of $162 million, or $0.45 per diluted share, on revenues of $16.6 billion for 2000, compared with $63 million, or just $0.17 per share, on revenues of $11.6 billion in 1999.

The NEG’s net income from operations for 2000 excludes several non-recurring items. The unit incurred a charge of $40 million, or $0.11 per share, as an adjustment to the loss on its disposition of its retail energy services business. These charges were offset partially by a favorable actualization of $20 million, or $0.06 per share, on the sale of its Texas natural gas liquids and natural gas pipeline business, which closed in December 2000.

The NEG turned in four consecutive solid quarters across the board in 2000. In the electric generation operations, the company continued its aggressive development and construction efforts, and secured turbines that will enable it to bring 16,000 megawatts of new capacity on line. The NEG also continued to secure additional capacity through strategic tolling agreements.* In the NEG’s natural gas transmission operations, the unit experienced increased demand for capacity on the NEG’s Northwest pipeline, and it moved forward with development of the North Baja pipeline project. Positive power and gas trading margins in all regions led to the favorable performance within the energy trading operation, with the majority of its contribution coming from the Northeast.

Continuing Efforts to Resolve the Energy Crisis

PG&E Corporation and its California utility continue to pursue multiple avenues for managing and resolving the California energy crisis, including legal actions through the courts, negotiations with regulators and elected officials, and dialogue with lenders and creditors while the utility works to achieve a solution to the crisis.

"We are committed, on behalf of our creditors, our shareholders and our customers, to successfully guiding our utility unit through the Chapter 11 reorganization process while maintaining our strong dedication to operating our utility business with a focus on providing safe and reliable service," said Glynn. "We also intend to continue to execute our strategy for growth in our NEG business, building on the accomplishments of 2000 and continuing to build that unit’s contribution to shareholder value."

PG&E CORPORATION CONDENSED STATEMENT OF CONSOLIDATED INCOME (unaudited)
Three months ended December 31,   Twelve months ended December 31,
 
(in millions, except per share amounts) 2000 1999 2000 1999
 
Operating Revenues
Pacific Gas and Electric Company $ 2,600 $ 2,323 $ 9,637 $ 9,228
PG&E National Energy Group
PG&E Generating 328 304 1,211 1,122
PG&E Gas Transmission
– Texas 166 178 873 1,148
– Northwest 62 58 239 224
PG&E Energy Trading 5,561 2,376 16,054 10,521
Eliminations and Other (635) (444) (1,782) (1,423)
Total operating revenues 8,082 4,795 26,232 20,820
Operating Expenses
                     
Cost of energy for Pacific Gas and
Electric Company   3,979 966 8,166 3,149
Cost of energy–PG&E National
Energy Group   5,083 2,172 15,220 10,587
Operating expenses, including                      
depreciation 2,491 2,236 7,179 6,206
Deferred electric procurement                      
costs (3,676) (6,465)
Provision for loss on generation-                      
related regulatory assets                      
and power costs 6,939 6,939
Total operating expenses 14,816 5,374 31,039 19,942
Operating Income (Loss) (6,734) (579) (4,807) 878
Interest expense and other (61) (115) (545) (617)
Income (Loss) Before Income
Taxes (6,795) (694) (5,352) 261
Income tax expense (benefit) (2,699) (147) (2,028) 248
Income (Loss) from continuing
operations (4,096) (547) (3,324) 13
Discontinued operations
Loss from operations of        
PG&E Energy Services (net of applicable income taxes of $9 million and $36 million, respectively) (6) (40)
Loss on disposal of PG&E        
Energy Service (net of applicable income taxes of $23 million and $36 million, respectively) (21) (58) (40) (58)
Net loss before cumulative        
effect of a change in accounting principle (4,117) (611) (3,364) (85)
Cumulative effect of a        
change in an accounting principle (net of applicable income taxes of $8 million) 12
Net loss $ (4,117) $ (611) $ (3,364) $ (73)
Weighted Average Common                      
Shares Outstanding 363 366 362 368
Earnings (Loss) Per Common Share, Basic and Diluted(a)
Income (Loss) from                      
continuing operations $ (11.28) $ (1.49) $ (9.18) $ 0.04
Discontinued operations (0.06) (0.18) (0.11) (0.27)
Cumulative effect of change
in accounting principle 0.03
Net earnings (loss) $ (11.34) $ (1.67) $ (9.29) $ (0.20)
                     
Dividends Declared Per $ 0.30 $ 0.30 $ 1.20 $ 1.20
Common Share
Earnings and earnings per share for PG&E Corporation's lines of business are as follows:
Earnings (millions) Earnings (millions)
Three months ended December 31, Twelve months ended December 31,
2000 1999 2000 1999
Utility
Pacific Gas and Electric $ 114 $ 265 $ 769 $ 763
Company (a)                      
National Energy Group
PG&E Generating 14 20 84 97
PG&E Gas Transmission
– Texas (4) (37)
– Northwest 15 22 58 68
PG&E Energy Trading 13 (15) 40 (34)
PG&E Energy Services   (6) (40)
Eliminations and Other (10) 12 (20) 9
Subtotal - National                      
Energy Group 32 29 162 63
             
Other Enterprises (6) (6)
Earnings from Operations (b) 140 294 925 826
             
Items impacting
comparability (c) (4,257) (905) (4,289) (899)
Reported Earnings $ (4,117) $ (611) $ (3,364) $ (73)
Earnings per Share (Diluted) Earnings per Share (Diluted)
Three months ended December 31, Twelve months ended December 31,
2000 1999 2000 1999
Utility
Pacific Gas and Electric $ 0.31 $ 0.72 $ 2.11 $ 2.07
Company (a)                      
National Energy Group
PG&E Generating 0.04 0.06 0.23 0.26
PG&E Gas Transmission
– Texas (0.01) (0.10)
– Northwest 0.04 0.06 0.16 0.18
PG&E Energy Trading 0.04 (0.04) 0.11 (0.09)
PG&E Energy Services   (0.02) (0.11)
Eliminations and Other (0.03) 0.03 (0.05) 0.03
Subtotal - National Energy                      
Group 0.09 0.08 0.45 0.17
             
Other Enterprises   (0.02) (0.02)
Earnings from Operations (b) 0.38 0.80 2.54 2.24
             
Items impacting comparability (c) (11.72) (2.47) (11.83) (2.44)
Reported Earnings $ (11.34) $ (1.67) $ (9.29) $ (0.20)

(a) The diluted shares for the year 2000 exclude 2 million in incremental shares due to the antidilution      effects of the loss from continuing operations.

(b) Earnings from operations exclude items impacting comparability and should not be considered an      alternative to net income or an indicator of a Companies' operating performance.

(c) Items impacting comparability in the year 2000 include the write-off of regulatory assets at the Utility of      $4,111 million ($11.36 per share); impact of inability to fully utilize tax benefits of losses in California of      $79 million ($0.22 per share); adjustments to the estimated loss on disposal of the retail energy      services unit of $40 million ($0.11 per share); a favorable actualization of $20 million ($0.06 per share)      on the sale of the Texas natural gas liquids and natural gas pipeline business unit, which closed on      December 22, 2000; an $83 million charge ($0.23 per share) related to an adjustment to legal reserves      at the Utility; $4 million ($0.01 per share) of other items, and $0.02 per share of dilution. Items      impacting comparability in the year 1999 include the following: write-down of assets related to sale of      the Texas natural gas liquids and natural gas pipeline business of $890 million ($2.42 per share);      provision for loss on sale of retail energy services unit of $58 million ($.16 per share); favorable      adjustment of litigation liability of $35 million ($.10 per share); income from change in accounting      principle of $12 million ($.03 per share); and other items of $2 million ($.01 per share).

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