PG&E CEO Sees 'Clear Path' to Full Utility Financial Recovery

Despite unanswered questions about whether the holding company will be dragged into some part of its former merchant unit's Chapter 11 bankruptcy and the timely completion of its utility company's bankruptcy emergence, San Francisco-based PG&E Corp.'s CEO told an industry financial audience in Orlando, FL, last Tuesday that his utility company is on a "clear path" to clearing the final hurdles with state regulators and the federal bankruptcy court.

"While continuing with the severing of the relationship with the former PG&E National Energy Group, and the financial issues that surround it, you will see an investment-grade public profile and a path to resume paying dividends (in late 2005), and finally you'll see a stock that currently trades at a discount relative to our peers in the industry," said Robert Glynn, the PG&E holding company CEO, who noted that longer term he would anticipate returning to utility investment in new generation in a more certain regulatory environment.

Glynn reiterated for the Edison Electric Institute Financial Conference audience that the key to Pacific Gas and Electric Co.'s full recovery beginning early next year is timely approval of the proposed settlement between his company and the California Public Utilities Commission. He repeated again that the settlement means an investment grade credit rating (albeit low) on "Day One after emerging from bankruptcy."

In response to specific questions, Glynn said he doesn't anticipate any "conflicts" between the company and the governor-elect over his expected energy policies. Regarding Gov.-Elect Arnold Schwarzenegger's preference for direct access, Glynn said some "public attitude" issues may need to be overcome.

The PG&E top executive's underlying theme was that the CPUC and bankruptcy court processes "are on track" to produce a first quarter 2004 exit from Chapter 11 for the utility. Part of the proposed settlement is that the PG&E utility must be rated triple-B (BBB-) and Baa3 by Standard & Poor's Ratings Services and Moody's Investor Services, respectively. And earnings will have a minimum authorized return-on-equity (ROE) of 11.22%, and an equity ratio of 52%.

"There is a 'forcing function' in effect in the settlement for a continually improving credit rating, and there is the addition to the utility's traditional rate base of a $2.2 billion regulatory asset," said Glynn, adding that the terms of the proposed settlement would be enforceable through the federal bankruptcy court through the nine-year life of the deal.

Citing a recently filed 2003 general rate case settlement at the CPUC, Glynn stressed that the past uncertainty of state regulation is being greatly reduced, making him more confident of what he called "solid, stable earnings growth" at the utility in the years ahead.

Noting the governor-elect's energy policy as it has now emerged "doesn't conflict with any of the PG&E objectives," Glynn said he didn't think energy would be one of the "very first issues" the new governor will try to tackle. Regarding Schwarzenegger's apparent support for a return to more direct access, Glynn said he would favor what he called a "well constructed direct access program;" however, direct access "for some folks in California doesn't have a very friendly ring to it and that set of issues will have to be sorted out -- and probably will be sorted out -- as we move forward."

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