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PG&E Sees 7.5% Earnings Growth; Regulatory, Emission Success

Riding a $17.4 billion utility rate base, San Francisco-based PG&E Corp.'s transformation and investment plans are "on track" to generate average annual earnings-per-share growth of 7.5% over the next five years, according to PG&E's CEO and CFO, who held a conference call for financial analysts Wednesday announcing flat first quarter results. A major 2007 general rate case and several emerging industry issues will have important impacts on the company's ability to realize the growth now envisioned, the senior officials said.

"We're quite positive about the outlook for 2006 and beyond," CEO Peter Darbee said. "Transformation and investment plans are on track, and we're focused on emerging issues in the industry and the company."

At the same time, Pacific Gas and Electric Co. will move into a crucial hearing phase later this month on its general rate case. Consumer organizations are trying to reduce its rate request by up to a $500 million dollars, although as PG&E CFO Christopher Johns said, this is still "the very early stages" of the rate case.

In this case, the Office of Ratepayer Advocates (ORA), the consumer arm of the California Public Utilities Commission (CPUC), has initially recommended that $450 million be shaved from the utility's requested rate changes, and The Utility Reform Network (TURN), a statewide consumer watchdog group, filed its recommendations at the end of last month calling for a $500 million reduction.

"We remain convinced that our general rate case request is consistent with the level of service and reliability that our customers desire," Johns said. The utility filed a $682 million general rate request to begin Jan. 1, 2007 last December.

On the growing movement to take aggressive steps against global climate change and emissions from electric generating plants, which are a major worldwide source of greenhouse gas (GHG) emissions, Darbee said he and others in the industry think PG&E is "well positioned to be a leader" on the issue, which has strong interest among California's political and regulatory leaders. "We think that reporting of [power plant and large industrial site emissions] is an essential prerequisite to establishing a voluntary cap-and-trade system for emissions," Darbee said.

PG&E already voluntarily reports the emissions from its utility-operated power plants to the California Climate Action Registry, a nonprofit voluntary organization.

With the largest private-sector hydroelectric system in the nation and a large nuclear plant at Diablo Canyon, PG&E's utility-owned generation emits very little GHG gases, Darbee said, emphasizing the company's support for a market-based emission-limiting system.

"In our view, limits on greenhouse gas emissions are inevitable at some point," Darbee said. "We think the limits are most appropriately implemented at the federal level, and if that is not possible, they should be activated at the regional level. If that is unworkable, we would support actions at the state level. At the same time, we also support an increased investment in energy efficiency and mandatory emission reporting."

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