While reporting increased earnings overall for both its utilityand unregulated businesses, PG&E Corp.’s first quarter resultsreleased yesterday (May 17) continue to show red ink for its Texasnatural gas operations, trading and energy services businesses.Results were net earnings of 42 cents-per-share, or 37 cents fullydiluted, compared to 36 cents-per-share for the first quarter of1998. Overall, the utility contributed all but three cents to theearnings, compared to 1998 first quarter when it provided 100percent of the earnings.

The Texas gas operations turned in the poorest performance dueto a combination of a 31% drop in revenues and a one-timerestructuring charge for a downsizing announced in the firstquarter. A San Francisco-based PG&E spokesperson pointed to”continuing bad market fundamentals in the Texas natural gasmarkets” as the primary reason for negative results in both itsoperating and trading functions involving gas.

“The loss would have been much greater had we not implemented areorganization and tightened up the management controls,” thespokesperson said. “We do believe that in the second, third andfourth quarters, we are going to see improvements because themarket fundamentals are turning around down there. And with ourreorganization, we are poised to take advantage of the shift inthese market fundamentals.” Nevertheless, in announcing thefirst-quarter results, PG&E pointed to “improved performancefrom its North American wholesale and retail businesses,” alongwith reduction of its outstanding shares through its 1999repurchase program, as the reason for its improved results overall.

But among the wholesale and retail businesses, the onlyprofitable lines continue to be its independent power generationunit, U.S. Generating Co., and its Pacific Northwest gastransmission unit. Everything else showed negative first quarterresults.

PG&E’s five non-utility wholesale and retail businesses(with first quarter earnings results) include: U.S. Gen (8cents/share earnings); Pacific Northwest transmission (4cents/share earnings); Texas gas operations (6 cents/share loss);PG&E Energy Trading (one-cent/share loss); and PG&E EnergyServices, the retail energy services provider (2 cents/share loss).

While PG&E Gas Transmission in the Pacific Northwestcontinued what the corporation calls “a strong performance,” inTexas narrow product margins and the restructuring took its toll,resulting in a net loss of two cents/share for the overall naturalgas operations in the first quarter of this year, compared to aloss of one cent/share in the first quarter of 1998.

The major problem in gas was attributed to the spread betweenthe price of natural gas liquids and natural gas averagingapproximately 6.5 cents-per-gallon, compared to approximately 8.5cents-per-gallon for the same period in 1998, according toPG&E. The spread across the Texas pipeline for natural gasaveraged approximately 5 cents/MMBtu, compared to almost 10cents/MMBtu in the first quarter of ’98. For trading, revenueswere up 48% in the first quarter, but again, the gas market wasweak, PG&E’s spokesperson said. “Our power trading continues todo pretty well, but we had some negative issues on the gas sideduring the last half of the first quarter. Nevertheless, we’restill confident that the trading unit is on course to show positiveearnings-per-share on the aggregate for the entire year.” On theretail side, PG&E said it expects losses to continue atPG&E Energy Services until late in the fourth quarter of thisyear.

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