do not use "Pacific Gas and Electric" or "PG&E"
when referring to PG&E Corporation or its National Energy Group.
The PG&E National Energy Group is not the same company as Pacific
Gas and Electric Company, the utility, and is not regulated by the
California Public Utilities Commission. Customers of Pacific Gas
and Electric Company do not have to buy products or services from
the National Energy Group in order to continue to receive quality
regulated services from Pacific Gas and Electric Company.
PG&E CORP. REPORTS THIRD QUARTER FINANCIAL RESULTS
- PG&E Corporation reported total net income of $1.19 per
share for the third quarter of 2002, compared with $2.12 per share
for the third quarter of 2001. (All "per share" amounts
in this release are presented on a diluted basis.)
- On an operating basis, earnings without "headroom"
were $0.69 per share, compared with $0.70 per share for the third
quarter of 2001. Including headroom, the Corporation's earnings
from operations were $1.64 per share for the third quarter this
year, compared with $2.45 per share for the third quarter of 2001.
- Pacific Gas and Electric Company's earnings from operations,
without headroom, rose slightly over operating earnings for the
same period a year ago, at $0.59 per share, compared with $0.53
per share for the third quarter of 2001.
- PG&E National Energy Group (PG&E NEG) reported earnings
from operations of $0.08 per share, compared with $0.21 per share
for the third quarter of 2001.
|Third Quarter Consolidated Income Statement
||Utility Operating Statistics
||PG&E NEG Operating Statistics
(San Francisco) -- PG&E Corporation (NYSE: PCG) earned $466
million, or $1.19 per share, in total net income for the third quarter
of 2002. The Corporation earned $771 million, or $2.12 per share,
for the same quarter in 2001.
On an operating basis, the Corporation reported earnings both excluding
and including $376 million, or $0.95 per share, of "headroom."
Excluding headroom, earnings from operations were $274 million,
or $0.69 per share for the quarter, compared with $256 million,
or $0.70 per share for the same quarter last year. Including headroom,
earnings from operations for the quarter were $650 million, or $1.64
per share, compared with $892 million, or $2.45 per share, for the
same quarter in 2001.
Headroom reflects the partial recovery of prior uncollected wholesale
power and transition costs which the company was required to write
off during the energy crisis.
"Our focus in the third quarter remained on solid fundamental
operating performance, advancing toward confirmation of Pacific
Gas and Electric Company's plan of reorganization, and working closely
with PG&E National Energy Group's lenders toward longer term
solutions to current financial challenges," said Robert D.
Glynn, Jr., Chairman, CEO and President of PG&E Corporation.
Total net income for the third quarter also reflected a number
of items impacting comparability with third quarter 2001 operating
results. The most significant items included incremental interest
costs of $75 million, or $0.18 per share, associated with the energy
crisis and the utility's Chapter 11 filing; $71 million, or $0.18
per share, of charges to reflect reductions in the value of goodwill;
$18 million, or $0.05 per share, for impairment losses associated
with certain equipment for the PG&E NEG's dispersed generation
program; $68 million, or $0.17 per share, of costs associated with
the $600 million term loan repaid to GE Capital in late August and
the related waiver obtained from the other Corporation lenders;
$11 million, or $0.03 per share, of restructuring costs at PG&E
NEG; and bankruptcy-related costs of $32 million, or $0.08 per share,
generally consisting of external legal and financial advisory fees.
These charges were offset partially by $42 million, or $0.11 per
share, in gains reflecting the change in the market value of PG&E
NEG warrants issued in connection with the Corporation's term loan
agreement; $6 million, or $0.02 per share, for a change in mark-to-market
accounting methodology at PG&E NEG; and $43 million, or $0.11
per share, in tax benefits related to PG&E NEG's synthetic fuel
investment tax credits.
The Corporation's quarterly report on Form 10Q, to be filed today
with the U.S. Securities and Exchange Commission, also discloses
the earnings impact of accounting for stock options if the company
were to record them as an expense. For the third quarter, accounting
for stock options as an expense would have reduced earnings by $0.02
PACIFIC GAS AND ELECTRIC COMPANY
Not including headroom, the Corporation's California utility business,
Pacific Gas and Electric Company, contributed $232 million, or $0.59
per share, to earnings from operations for the quarter, compared
with $192 million, or $0.53 per share, for the same period in 2001.
Third quarter 2002 results were higher primarily because they include
the continuing benefit of CPUC-authorized revenue adjustments granted
last year to cover the costs associated with growth in the utility's
rate base and inflation during 2001. Third quarter 2001 did not
include the adjustment because it occurred and was booked entirely
in the fourth quarter. This year, however, the benefit has been
partially offset by the fact that to date no adjustment has been
authorized to cover these costs for 2002.
Earnings from operations including headroom were $608 million,
or $1.54 per share, for the quarter, compared with $828 million,
or $2.28 per share, for the same quarter last year.
Operational performance at the utility remained strong in the third
quarter, as the utility continued to deliver safe, reliable electric
and gas service. The utility also received high marks from customers
responding to its customer service survey, with more than 90 percent
rating their service as good, very good or excellent.
"Our utility team continues to deliver more than just safe,
reliable electricity and natural gas service to our 14 million customers,"
said Glynn. "We're delivering nationally recognized award-winning
energy efficiency and conservation programs, environmental leadership
in such areas as greenhouse gases and federal clean air legislation,
programs to help customers who are economically at risk, an award-winning
equal opportunity purchasing program that helps thousands of small
businesses, and support for hundreds of local organizations and
programs in various communities. And we're doing this with the lowest
system-wide average electric rates among California's three largest
investor-owned utilities. This performance continues to provide
a solid foundation for us to move forward with the utility's plan
Progress on the plan of reorganization in the third quarter included
several significant milestones. The plan received the overwhelming
approval of nine out of 10 voting creditor classes, allowing the
plan to move forward into the confirmation process, which is scheduled
to begin November 18. Also important, the U.S. District Court ruled
in the company's favor affirming that the federal bankruptcy law
allows state law to be expressly preempted in order to confirm a
plan of reorganization. More recently, an administrative law judge
with the Federal Energy Regulatory Commission issued a preliminary
decision approving the long-term power contract proposed as part
of the utility's plan.
PG&E NATIONAL ENERGY GROUP
The Corporation's national wholesale energy business, PG&E
National Energy Group, reported earnings from operations of $33
million, or $0.08 per share, for the quarter, compared with earnings
from operations of $77 million, or $0.21 per share, for the third
quarter of last year.
PG&E NEG's third quarter earnings from operations included
a contribution of $0.04 per share from the unit's Integrated Energy
and Marketing segment, compared with $0.18 per share for the same
quarter last year. The difference primarily reflects lower power
prices in New England for the third quarter of 2002, a change in
the value of certain long-term contracts that is reflected in operating
results, and the absence of any portfolio management transactions
like the sale of the Otay Mesa power project which contributed income
to the third quarter of 2001.
Performance on the PG&E NEG's Northwest natural gas pipeline,
which operates almost entirely under long-term contracts, remained
solid for the third quarter. The Interstate Pipeline Operations
segment of the PG&E NEG contributed $0.05 per share for the
quarter, compared with $0.05 per share for the same quarter of 2001.
PG&E NEG moved forward in the third quarter with previously
announced plans to reduced its annual expenses through staff reductions
and other cost cutting steps. For example, PG&E NEG recently
announced its plans to shut down its Spencer Station Generating
facility in Texas by the end of 2002. These steps are expected to
achieve an annual reduction rate of $50 million in expenses from
2001 levels, exceeding the initial goal of achieving a $40 million
reduction. Third-quarter results include a pre-tax non-operating
charge of $19 million to reflect the costs of implementing these
In addition to expense reductions, PG&E NEG has continued to
seek opportunities for transactions to reduce debt and increase
liquidity. In the fourth quarter, PG&E NEG signed an agreement
in principal to sell one-half of its 50 percent interest in the
Hermiston Generating plant in Oregon.
PG&E NEG is continuing talks with several groups of lenders
and debt holders to reach a resolution to the financial challenges
associated with recent credit downgrades and weak wholesale power
market conditions. Because its finances are not sufficient to meet
its obligations to these parties, PG&E NEG is seeking to reach
agreement with the parties on a proposed comprehensive debt restructuring
plan. Elements of the restructuring may include abandoning, selling
or transferring certain assets and continuing to reduce the company's
energy trading activities.
Third quarter results also included $9 million, or $0.02 per share,
in earnings from operations at the holding company, reflecting consolidated
During the quarter, the Corporation worked with lenders under its
term loan agreement to eliminate credit ratings triggers associated
with PG&E NEG and provide for an additional $300 million in
loans. Those efforts led to a new credit agreement signed in October.
The new $300 million replaced a portion of the funds the Corporation
used to pay off a $600 million loan from GE Capital in August. The
Corporation expects that the new borrowings, combined with an existing
loan for $420 million, will provide the Corporation with ample financial
resources to fund its operations through 2006, when the loans are
"Given the recent climate in the energy industry and the challenges
many companies have faced, we strongly believe it is prudent to
take steps now to maintain increased financial flexibility until
we see a longer term stabilization and recovery in the marketplace,"
said Glynn. "The credit agreement our team negotiated with
the lenders achieves this goal."
The Corporation reaffirmed its prior projections for 2002 earnings
from operations excluding headroom, which are expected to be in
the range of $2.25-$2.35 per share for the year. For earnings from
operations including headroom, the Corporation reaffirmed its projection
of $4.75 per share for 2002. Through three quarters, earnings from
operations including headroom is $4.23 per share.
The Corporation is providing 2003 guidance only for the holding
company and utility operations, recognizing that accurate guidance
for PG&E NEG cannot be provided until further steps have been
taken to resolve the challenges in that business. Earnings from
operations for the Corporation and the utility are expected to be
in the range of $1.90-$2.00 per share, not including headroom. Among
other assumptions, the 2003 guidance estimate is based on the company's
expectation that the utility's plan of reorganization will be implemented
on or before May 30, 2003.
A conference call with the financial community will be
held today at 8:30 AM Pacific time to discuss the Corporation's
results for the quarter. The call will be open to the public on
a listen-only basis via webcast. Please visit our website www.pgecorp.com
for more information and instructions for accessing the webcast.
A replay of the conference call will be available toll-free by calling
(877) 690-2088, and also will be available on our website. International
callers will be able to access the replay by dialing (402) 220-0644.
* Terms Used in This Release Headroom - Headroom is generation-related
revenues in excess of power costs at Pacific Gas and Electric Company.
This press release contains forward-looking statements
regarding management's guidance for 2002 earnings per share (which
excludes any potential charges resulting from PG&E NEG's restructuring
efforts currently underway), and management's guidance for 2003
earnings per share (which excludes any earnings impact from PG&E
NEG operations or the restructuring efforts currently underway),
that are necessarily subject to various risks and uncertainties.
These statements are based on current expectations and assumptions
which management believes are reasonable and on information currently
available to management. Actual results could differ materially
from those contemplated by the forward-looking statements as a result
of many factors, including:
- whether the Utility can continue to record
"headroom" (the current recovery in the Utility's existing
electric rates of prior uncollected costs previously written off
according to accounting principles generally accepted in the United
States) and changes in the quarterly amount of such headroom;
- the pace and outcome of the Utility's bankruptcy
case; · whether the Utility is required to re-assume the
obligation to purchase power for its retail customers, or take
assignment of the Department of Water Resources' (DWR) contracts,
or both, under circumstances that threaten to undermine the Utility's
creditworthiness, financial condition, or results of operations;
- whether and the extent to which the CPUC disallows
any Utility costs associated with the administration of the DWR's
power contracts allocated to the Utility's customers;
- the effect of CPUC decisions implementing
recently enacted California Senate Bill 1976, which requires the
California investor-owned utilities resume procuring power for
their retail customers on January 1, 2003;
- the CPUC's determination of the end of the
rate freeze and the amount of under-collected power procurement
and transition costs the Utility is allowed to collect from its
customers after the end of the rate freeze;
- the Utility's ability to transition successfully
from its existing customer billing system to a new customer billing
system, currently undergoing implementation and testing, without
suffering significant business interruption loss;
- the outcome of PG&E NEG's negotiations
with its lenders to reach a global restructuring of PG&E NEG's
and its subsidiaries' debt, which would require PG&E NEG to
abandon, sell, or transfer certain of PG&E NEG's merchant
assets and reduce energy trading operations;
- the extent to which PG&E NEG incurs a
charge to earnings as a result of the abandonment, sale or transfer
of assets, whether such transactions occur in connection with
the implementation a global restructuring as may be agreed to
by the lenders or in an effort to meet current liquidity needs;
- the extent to which counterparties demand
collateral in connection with energy trading activities, and the
ability of PG&E NEG and its subsidiaries to meet the liquidity
calls that may be made;
- the volatility of commodity fuel and electricity
prices and the effectiveness of risk management policies and procedures;
- future sales levels;
- volatility in income resulting from mark-to-market
accounting, changes in mark-to-market methodologies, and the extent
to which the assumptions underlying mark-to-market accounting
and risk management programs are not realized;
- the ability of counterparties to satisfy their
financial commitments and the impact of counterparties' nonperformance
- the effect of compliance with existing and
future environmental laws, regulations, and policies, the cost
of which could be significant;
- the effect of new accounting pronouncements;
the outcome of pending regulatory proceedings, environmental matters,