PG&E Corp. released negative financial results for 1999caused by its ill-fated experience with Texas natural gasproperties and signaled further retrenchment with the confirmationit is pursuing a buyer for its energy services operations, whichshowed growing losses last year.

While PG&E posted record total operating revenues of $20.8 billion, operating income was down 58% to $878 million in 1999 compared to $2.098 billion in 1998. The write-down on the sale of the Texas gas pipeline and liquids assets (See NGI, Feb. 7), and the prospective sale of the retail energy service operations collectively put the results into the minus column with a net loss of $73 million or $0.20/share.

In a Securities Exchange Commission (8-K) filing Feb. 23,PG&E made public the fact that it is putting the energyservices business on the market, with a goal of closing a sale bythe end of the second quarter, according to Greg Pruett, a PG&Evice president and corporate spokesperson. Pruett said the companyleaders made the decision to sell that business at the end of lastyear.

“We are not trying to hide anything or low-key it; it is just anSEC filing,” Pruett said. “We should have something to report inthe near future because our expectation is that we will close bythe end of the second quarter.”

Although he cannot say how many prospective buyers there are,Pruett said the company “is very pleased with the level ofinterest.” Speculation among energy observers in California is thatDuke, Enron, AES/NewEnergy and Sempra Energy are among thoseshowing interest. Pruett emphasized that the sale does not involvePG&E’s trading operations, which have a natural gas componentin Houston and power unit in Bethesda, MD, home of its power plantdeveloper/operator, PG&E Generating (formerly US Generating).

The generating and Pacific Northwest-based interstate gaspipeline businesses continued to operate in the black last year,contributing a total of 44 cents/share profit; trading lossesincreased from a negative 2 cents/share to a negative 9cents/share. Pruett said the trading operation is considered a keyto PG&E’s strategic goal of maximizing its results from thebusiness of developing and operating merchant power plantsnationally.

“Our focus is on reviewing the bids for the energy servicesunit, determining if any of them are attractive enough for us todivest that unit and then moving forward from there,” Pruett said.”Our focus is on building our competitive generation unit from itscurrent levels of 10,000 MW operating or under development to the17,000 MW level by 2002.

“We’re going to maximize the benefits we get out of generationassets through the trading operation. We see a very strong presencefor trading in the future, as well as our Pacific Northwest gasassets.”

PG&E no longer sees the same potential in the energyservices business, according to Pruett, because of “the kinds offinancial and human resource support needed to get a business offthe ground.” He noted that PG&E had made these commitments overthe past three years with PG&E Energy Services with a “fairamount of success,” and the company still feels the business “willgo into the black” by the end of the year.

On average, PG&E Energy Services was beginning to requiremore than $100 million annually to operate, sources at the utilityholding company indicated.

“We think energy services for the long term is a good business,but for the shorter and mid-term, we are going to concentrate onthe generation business,” Pruett said.

PG&E’s fourth quarter results showed a loss of $1.49 pershare, compared to $0.54 earnings per share in 4Q 1998. This wasbased on a decrease in operating revenues to $4.795 billion in 4Q1999 from $5.364 billion in the same period in 1998 and increasedexpenses, resulting in an operating income loss of $579 million for4Q 1999.

Richard Nemec

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