The less-than-sensational first quarter earnings reported byPacific Enterprises, holding company of Southern California Gas,were reflective of the thinner margins that have so farcharacterized the transition to restructured energy markets fornatural gas and electricity. In brief, the regulated utility isproducing all of the earnings; the unregulated businesses are stillproducing only red ink.

And in the case of SoCalGas, earnings, while good, were lessthan in the first quarter of 1997, and they were only as good asthey were ($47 million for the first quarter-vs. $58 in firstquarter ’97) because of continued belt-tightening, including morelayoffs, because of the state’s new performance-based ratemakingmechanism (PBR) established last July and fully operational thisyear.

While increasing its throughput by 23 Bcf in the first quarter,topping off at 268 Bcf for the first three months this year,SoCalGas lowered its overall cost of gas distribution by $54million.

“In first quarter, we had solid results led by SoCalGas, whichperformed at levels slightly higher than the authorized returnallowed by state regulators,” said Willis B. (Bill) Wood Jr., PE’schairman/CEO who is set to retire when the company merges withEnova this summer. “However, earnings were lower than last year dueto a reduction in SoCalGas’ authorized base margin resulting fromthe California Public Utilities Commission’s mid-1997 decision on (PBR).”

All of the unregulated activities continued to lose money and ata greater pace than the first quarter of ’97: PE International,with projects in Mexico and Argentina, reported a net loss for thequarter of $2 million, compared to what PE called “break-even”results in the first quarter of last year. The domestic energyservices companies reported a net loss of $3 million for the firstquarter, compared to a net loss of $2 million for the same periodin ’97. Sempra Energy Trading, which PE and Enova jointly purchasedlast year to focus on wholesale marketing/trading of power, gas andoil nationally, had what PE called a “small net gain from tradingmargins.” However, after reflecting all of the costs of buying thecompany, the new unit showed a net $4 million loss, which is PE’sportion of the red ink. (It averaged about 3.7 Bcf/d of natural gastrades in the first quarter.)

As part of the first quarter report, PE also noted its resultsincluded $1 million, after tax, or 1-cent/share, of expenses forthe merger with Enova. Similar expenses in the first quarter of1997 were $3 million, after tax, or 4 cents/share.

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