EDITORS: Please 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.
CORP. REPORTS SECOND QUARTER FINANCIAL RESULTS
Company Addresses Impact
of Standard & Poor's Credit Downgrade for PG&E NEG
PG&E Corporation reported
total net income of $0.59 per share for the second quarter of
2002, compared with $2.07 per share for the second quarter of
2001. (All "per share" amounts in this release are presented
on diluted basis.)
On an operating basis,
earnings without "headroom" were $0.50 per share, compared with
$0.67 per share for the second quarter of 2001. Including "headroom,"
the Corporation's earnings from operations were $1.49 per share
for the second quarter this year, compared with $1.08 per share
for the second quarter of 2001.
Pacific Gas and Electric
Company's earnings from operations, without headroom, rose 13
percent over operating earnings for the same period a year ago,
at $0.54 per share, compared with $0.48 per share for the second
quarter of 2001.
PG&E National Energy
Group (PG&E NEG) reported an operating loss of $0.06 per share,
compared with earnings from operations of $0.19 per share for
the second quarter of 2001.
PG&E NEG recorded a
non-operating, after-tax charge of $159 million, or $0.43 per
share, to reflect the write down of certain power plant development
projects and related combustion turbine equipment.
Credit ratings for PG&E
NEG and its major subsidiaries were downgraded by Standard &
Poor's yesterday, reflecting in part revised rating methodologies
that S&P is applying across the board to the sector.
Quarter Consolidated Income Statement
NEG Operating Statistics
(SAN FRANCISCO, CA) PG&E
Corporation (NYSE: PCG) reported today that it earned $218 million,
or $0.59 per share, in total net income for the second quarter of
2002. The Corporation earned $750 million, or $2.07 per share, for
the same quarter in 2001.
On an operating basis, the
Corporation reported earnings both excluding and including $366
million, or $0.99 per share, of "headroom." Excluding headroom,
earnings from operations were $186 million, or $0.50 per share for
the quarter, compared with $243 million, or $0.67 per share for
the same quarter last year. Including headroom, earnings from operations
for the quarter were $552 million, or $1.49 per share, compared
with $393 million, or $1.08 per share, for the same quarter in 2001.
Headroom reflects the partial
recovery of prior uncollected wholesale power and transition costs
that the company was required to write off during the energy crisis.
Notwithstanding the amounts recovered in recent quarters, the utility's
total uncollected costs remained at $4.7 billion on a pre-tax basis
at the end of the second quarter.
"We continue to focus on
the fundamentals critical to the long-term value of our businesses,"
said Robert D. Glynn, Jr., Chairman, CEO and President of PG&E Corporation.
"At PG&E NEG, we're working to manage the impact of yesterday's
rating action, weather the current market conditions and position
our business for the recovery of wholesale power markets. At Pacific
Gas and Electric Company, we're focused on operating our business
well from top to bottom while resolving the company's Chapter 11
Total net income for the
second quarter also reflected several items impacting comparability
with second quarter 2001 results, including a $159 million, or $0.43
per share, write down of certain power plant development projects
and related combustion turbine equipment at the PG&E NEG (discussed
later in this release). Additional significant items impacting comparability
included the cumulative effect of an accounting change resulting
in a charge of $61 million, or $0.16 per share, at the PG&E NEG,
which in April 2002 adopted a requirement to mark certain power
sales and fuel contracts to market in compliance with an interpretation
issued by the Financial Accounting Standards Board. Other items
included incremental interest costs of $90 million, or $0.24 per
share, associated with the energy crisis and the utility's Chapter
11 filing, and bankruptcy-related costs of $21 million, or $0.06
per share, generally consisting of external legal and financial
The Corporation's quarterly
report (Form 10Q), to be filed today with the Securities and Exchange
Commission (SEC), also includes the earnings impact of accounting
for stock options if the company were to record them as an expense.
For the second quarter, accounting for stock options as an expense
would have reduced earnings by $0.02 per share. The Corporation
includes this information in its annual report to the SEC. The Corporation's
future Form 10Q disclosures will continue to include the impact
of accounting for stock options as an expense in order to provide
greater transparency for investors.
PG&E National Energy Group
The Corporation's national
wholesale energy business, PG&E National Energy Group, reported
an operating loss of $21 million, or $0.06 per share, for the quarter,
compared with earnings from operations of $71 million, or $0.19
per share, for the second quarter of last year.
PG&E NEG's operating loss
for the second quarter reflected the impact of unfavorable wholesale
market conditions on the unit's Integrated Energy and Marketing
segment, which recorded an operating loss of $0.08 per share, compared
with earnings from operations of $0.14 per share for the same quarter
last year. Mild weather, the slow economy and the over-supply of
new generation in most market regions have led to the persistence
of lower-than-expected spark spreads through the second quarter.
Performance on the PG&E
NEG's Northwest natural gas pipeline, which operates almost entirely
under long-term contracts, remained solid for the second quarter.
The Interstate Pipeline Operations segment of the PG&E NEG contributed
$0.04 per share for the quarter, compared with $0.05 per share for
the same quarter of 2001.
Write-Down for Power Plant
In response to the oversupply
of generation in most regional markets and the resulting compressed
spark spreads, the PG&E NEG is writing down the value of 3,000 megawatts
of power plant development projects and 10,000 megawatts of combustion
turbines and related equipment. The total write-down after tax is
$159 million, or $0.43 per share.
In addition to these actions,
PG&E NEG continues to focus on reducing expenditures, maintaining
liquidity and strengthening its balance sheet. Steps already taken
have included cuts in new power plant construction and the initiation
of a program to reduce administrative, general and other operating
costs, with a minimum target annual expense reduction of $40 million.
The reductions are expected to occur in the power plant development
area and the functions that support it, as well as other operating
expense areas. Third-quarter results are expected to include a pre-tax
non-operating charge to reflect the costs of this effort.
Standard & Poor's Credit
Yesterday, Standard & Poor's
Rating Services lowered the credit ratings of the PG&E NEG and its
energy trading and New England generating operating units to below
investment grade, and placed each of these companies on CreditWatch
with negative implications. S&P lowered PG&E NEG's Northwest gas
transmission unit by one notch, still leaving it investment grade
at BBB+. S&P stated that its action in part was based on revised
rating methodologies that are being applied across the board to
the energy sector.
Although PG&E NEG has successfully
removed ratings triggers from many of its financial arrangements
in recent months, the action impacts certain other guarantees and
financial arrangements that require PG&E NEG to maintain investment
grade credit ratings from the rating agencies.
Last year, we worked very
successfully with our counterparties when it became necessary to
address similar credit-related challenges following the loss of
PG&E Corporation's investment grade credit rating, which had provided
much of the credit support to the PG&E NEG," said Glynn. "While
the downgrades are a significant challenge, we have a contingency
plan in place that is designed to address this challenge, and we
are implementing that plan."
Pacific Gas And Electric
Not including headroom,
the Corporation's California utility business, Pacific Gas and Electric
Company, contributed $201 million, or $0.54 per share, to earnings
from operations for the quarter, compared with $175 million, or
$0.48 per share, for the same period in 2001. Earnings from operations
including headroom were $567 million, or $1.53 per share, for the
quarter, compared with $325 million, or $0.89 per share, for the
same quarter last year.
change is attributable primarily to two factors: the refueling outage
at Diablo Canyon Nuclear Power Plant, which had an adverse impact
on first quarter 2001 results under the incentive-based rates in
place last year; and the CPUC-authorized attrition rate adjustment
for 2001. These factors were partially offset by the lack of a 2002
attrition rate adjustment, as well as the return to historical volumes
on the utility's California gas transmission operations.
Electric sales were $2.2
billion, compared with $1.5 billion for the same quarter last year.
Natural gas transport sales on the utility's pipeline were $521
million, compared with $812 million for the second quarter last
year. The decline in natural gas transport volumes reflects a return
to historical levels, compared with unusually high volumes during
at the utility remained strong in the second quarter, as the utility
continued to deliver safe, reliable electric and gas service. Diablo
Canyon achieved a capacity factor of 80 percent, reflecting a successful
30-day refueling outage. The utility also received high marks from
customers responding to its customer service survey, with 90 percent
rating their service as good, very good or excellent-the highest
scores since the third quarter of 2000.
Accomplishments in the second
quarter also included significant milestones in the utility's Chapter
11 case. The utility's Plan of Reorganization was sent to creditors
for a vote, along with the alternative plan proposed by the California
Public Utilities Commission. Votes on the plans are due August 12.
"In the 482 days since Pacific
Gas and Electric Company filed Chapter 11, our utility team has
run its operations exceptionally well," said Glynn. "The underpinning
of everything that has gone in that time has been the outstanding
work of the men and women of Pacific Gas and Electric Company delivering
natural gas and electricity to approximately 14 million Californians,
delivering it with increasing reliability; with greater customer
satisfaction with their interactions with our front-line team members;
with the lowest system average electric price of any of California's
three large investor-owned utilities; with a safety record that
gets better and better; with continued care of the environment while
getting the job done; with the best-ever performance results in
our equal opportunity purchasing program; and also delivering to
our communities a base level of continued financial contribution
aimed primarily at those in our society who are most economically
at-risk. This is the foundation on which our company can advocate
its plan of reorganization, a plan that appropriately includes the
issue of shareholder equity. This is the solid foundation provided
by the 24 by 365 performance from Pacific Gas and Electric Company's
The Corporation is adjusting
its earnings guidance for 2002 to reflect the lower-than-expected
second quarter wholesale prices and the absence of signs pointing
to an imminent recovery in the wholesale power markets, as well
as the dilution associated with the Corporation's refinancing of
its loan agreement with GE Capital and Lehman Brothers, as disclosed
in an SEC filing on June 26, 2002. Excluding headroom, earnings
from operations are expected to be in the range of $2.25-$2.35 per
share for the year, revised from previous estimates of $2.50-$2.55.
The Corporation projects earnings from operations for 2002, including
headroom, will exceed $4.75 per share.
"The company's second quarter
financial results and the change in our 2002 earnings outlook are
a disappointment to this management team," said Glynn. "Our investors
expect results that create a strong basis for growing value, regardless
of market conditions. We are focused on delivering that through
the actions we've already taken this year and those we intend to
take over the remainder of 2002."
A conference call with
the financial community will be held today at 5:30 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) 690-2090, and also will
be available on our website. International callers will be able
to access the replay by dialing (402) 220-0651.
* Terms Used in This Release
Headroom - Headroom is generation-related
revenues in excess of power costs at Pacific Gas and Electric Company.
Spark Spread - The differential
between wholesale electric prices and the cost of converting natural
gas to electricity.
Tolling Agreement - Contracts
that provide the holder with the rights to sell electricity generated
by facilities owned and operated by another party. Under such arrangements,
the holder supplies the fuel to the power plant, and then sells
the plant's output in the competitive market.
This press release contains
forward-looking statements regarding management's guidance regarding
2002 earnings per share and PG&E NEG expenses 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:
- the extent to which the outcome of
regulatory proceedings and other regulatory actions affect the
quarterly amount of "headroom" (the current recovery in the
Utility's existing electric rates of prior uncollected costs
previously written off for accounting principles generally accepted
in the United States) recognized by the Utility;
- the pace and outcome of the Utility's
- the circumstances under which the
Utility is required to re-assume the obligation to purchase
power for its retail customers after January 1, 2003 when the
California Department of Water Resources (DWR) will no longer
be authorized to purchase power and the extent to which the
Utility will be required to accept assignment of the DWR's existing
- the outcome of pending regulatory
proceedings, environmental matters, and litigation;
- the volatility of commodity fuel and
electricity prices and the effectiveness of PG&E NEG's and the
Utility's risk management policies and procedures;
- the extent to which the ability of
PG&E Corporation or PG&E NEG to obtain financing or capital
on reasonable terms is affected by conditions in the general
economy, the energy or capital markets, by restrictions imposed
on PG&E Corporation or PG&E NEG under their respective credit
facilities, by changes in PG&E NEG's credit ratings, and by
the interpretation of the CPUC's holding company conditions;
- the extent to which PG&E NEG's current
or planned construction of generation, pipeline, and storage
facilities is completed and the pace and cost of that completion
and the potential loss of permits or other rights in connection
with PG&E NEG's decision to delay or deter construction;
- various development and construction
risks, including the extent to which PG&E NEG's development
plans and strategies are affected by changes in the national
energy markets and by the timing of generating, pipeline, and
storage capacity expansion and retirements by others;
- restrictions imposed upon PG&E Corporation
and PG&E NEG under certain term loans of PG&E Corporation, including
requirements for PG&E Corporation to comply with debt covenants
regarding cash reserves, loan to value ratios, and investment
grade credit ratings, among others;
- 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 PG&E NEG's
and the Utility's mark-to-market accounting and risk management
programs are not realized;
- the effect of compliance with existing
and future environmental laws, regulations, and policies, the
cost of which could be significant; and
- the impact of the recent or future
downgrades in credit ratings of PG&E NEG and other subsidiaries
on PG&E NEG's and PG&E Corporation's financial condition.