PG&E Corp. shuffled a couple of senior executives effective Aug. 1, but its CEO reiterated that the company's focus will remain unchanged, emphasizing renewables and infrastructure development. Along with this operating strategy, the utility holding company intends to remain an active participant in molding a new national energy policy, CEO Peter Darbee told a second quarter earnings conference call last Wednesday, announcing quarter-over-quarter increased profits.
While citing PG&E's strategic opportunities in greater renewable and power transmission related to the smart grid, Darbee reported earnings for the second quarter of $315 million, or 83 cents/share, on a non-GAAP (generally accepted accounting principles) basis, compared to $293 million (80 cents) for the same period in 2008.
Darbee said the recent elevation of Christopher Johns to president of the utility, Pacific Gas and Electric Co., from corporate CFO, and Kent Harvey to CFO from senior vice president in charge of risk management and audits, will allow him to focus more on the national and regional policymaking sector, where he sees an active push to revamp the energy industry in response to climate change. He said for the most part PG&E supports the new push coming out of Washington, DC.
In response to questions from analysts, both Darbee and Johns tried to assure that PG&E should be able to avoid any long-lasting negative fallout from California's continuing budget crisis. The two senior executives did not deny there are challenges, but they emphasized that the PG&E utility believes it will greatly increase its capital expenditures in the years ahead (2011-13), proposing to spend at the level of $2.7 billion/year. The utility will file a new general rate case in December, and it includes this level of capital spending, starting in 2011.
Darbee cited a recent decision by the California Public Utilities Commission (CPUC) on Southern California Edison Co.'s (SCE) general rate case that included a significant increase in annual capital expenditures at more than $2 billion/year. The CPUC approved SCE's increase in the midst of the current state and national economic malaise, and Darbee thinks the regulators are likely to do the same for PG&E.
By the end of next year, when the CPUC is scheduled to make a decision on the PG&E case, Darbee thinks the economy will be on the upswing again.
"The size of what we are proposing for capital expenditure increases are on a par with what Edison proposed, and you see they had a satisfactory resolution of the rate case from their perspective," Darbee said. "The timing for our rate case process will conclude at the end of 2010 and beginning of 2011, and our viewpoint is that the economy will have turned around by that point. We will have been through the [economic] trough, be on the improving side and will have come through a rate case satisfactorily.
"The CPUC and policymakers continue to see the need for us to invest in our infrastructure in California. There has been a lot of enthusiasm for the smart grid and staying a leader in that regard, and there is continued enthusiasm for renewables and energy efficiency. So, while we are cautious and sensitive to what is happening in the economy, I think people will take the long-term view of what is right."
In addition, Darbee thinks his utility has been "a beneficiary of reduced natural gas prices," so the need for rate increases going forward appears to be "very moderate."
In regard to the state's 2010 mandate for utilities to have deliveries and contracted supplies for renewables equating to 20% of utility portfolios, Johns said 14% of the power now being delivered by PG&E comes from renewables, and when contracted volumes are counted, the utility has more than 20% of its portfolio covered by green sources.
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