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PG&E Reports Inflated 4Q Profits Due to One-Time Windfall

As previewed earlier in the month, PG&E Corp. reported fourth quarter earnings that soared to $871 million, or $2.04/share, due to a one-time, noncash item of $684 million, or $1.60/share, tied to the utility holding company severing its relationship with its previous merchant energy unit. These results compared to consolidated net income of $37 million, or 9 cents/share, for the fourth quarter of 2003.

Greatly increased utility results during its post-Chapter 11 bankruptcy period and the one-time accounting benefits from divesting its nonutility operations left PG&E in a very favorable position at the end of 2004.

On a nongenerally-accepted-accounting-principles (GAAP) basis, PG&E's earnings from operations were $186 million, or 44 cents/share, in the fourth quarter of 2004, compared with $139 million, or 33 cents/share, for the same period the previous year.

The Pacific Gas and Electric Co. utility operations increased in the fourth quarter over the same period in 2003 ($191 million, or 45 cents/share, in the last period of 2004, compared with $141 million, or 34 cents/share, for the same period in 2003), due mostly to the delayed 2003 general rate case decision that took away the equivalent of 11 cents/share of earnings in the 2003 period, PG&E reported.

Significantly increased utility results and other factors allowed the parent company to resume a dividend for the first time since late 2000, and the corporation will now buy back $1.05 billion in stock next month, increasing the amount from a previous $975 million target.

Full-year 2004 results were also given on a GAAP and nonGAAP basis, with the former's one-time windfalls greatly boosting earnings. GAAP-based results were $4.5 billion in net income, or $10.57/share, with $8.52/share coming from what PG&E called "two one-time noncash items relating to the PG&E utility's Chapter 11 exit and the elimination of the corporation's equity interest in its former National Energy Group (NEG) unit." In 2003, total consolidated net income was $420 million, or $1.02/share.

An indication of the one-time accounting procedures' collective impact on year-end 2004 results is found in the comparison of the accounting impact this past year, compared with 2003, for the discontinued merchant energy operations. For 2004 the severing of those activities resulted in a positive $684 million one-time charge, compared with a negative $365 million charge in 2003 results, representing a swing of more than $1 billion positively for PG&E at this time.

On the nonGAAP basis, 2004 overall earnings from operations were $901 million, or $2.12/share, compared with $611 million, or $1.48/share, in 2003. Significantly, the PG&E utility, which just emerged from Chapter 11 bankruptcy last April, contributed $931 million, or $2.19/share, to overall 2004 profits, compared with $616 million, or $1.49/share, in 2003.

"Last year's financial, regulatory and operational accomplishments drove solid earnings performance," said Peter Darbee, president/CEO. He went on to assure that the now bankruptcy-cleared utility has "a strong balance sheet, healthy cash flows and investment grade credit ratings," noting that along with reestablishing the dividend and buying back stock, the parent intends to "make new investments in the core utility business."

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