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PG&E Non-Utility Operations Lag in 1Q99

PG&E Non-Utility Operations Lag in 1Q99

While reporting increased earnings overall for both its utility and unregulated businesses, PG&E Corp.'s first quarter results released yesterday (May 17) continue to show red ink for its Texas natural gas operations, trading and energy services businesses. Results were net earnings of 42 cents-per-share, or 37 cents fully diluted, compared to 36 cents-per-share for the first quarter of 1998. Overall, the utility contributed all but three cents to the earnings, compared to 1998 first quarter when it provided 100 percent of the earnings.

The Texas gas operations turned in the poorest performance due to a combination of a 31% drop in revenues and a one-time restructuring charge for a downsizing announced in the first quarter. A San Francisco-based PG&E spokesperson pointed to "continuing bad market fundamentals in the Texas natural gas markets" as the primary reason for negative results in both its operating and trading functions involving gas.

"The loss would have been much greater had we not implemented a reorganization and tightened up the management controls," the spokesperson said. "We do believe that in the second, third and fourth quarters, we are going to see improvements because the market fundamentals are turning around down there. And with our reorganization, we are poised to take advantage of the shift in these market fundamentals." Nevertheless, in announcing the first-quarter results, PG&E pointed to "improved performance from its North American wholesale and retail businesses," along with reduction of its outstanding shares through its 1999 repurchase program, as the reason for its improved results overall.

But among the wholesale and retail businesses, the only profitable lines continue to be its independent power generation unit, U.S. Generating Co., and its Pacific Northwest gas transmission unit. Everything else showed negative first quarter results.

PG&E's five non-utility wholesale and retail businesses (with first quarter earnings results) include: U.S. Gen (8 cents/share earnings); Pacific Northwest transmission (4 cents/share earnings); Texas gas operations (6 cents/share loss); PG&E Energy Trading (one-cent/share loss); and PG&E Energy Services, the retail energy services provider (2 cents/share loss).

While PG&E Gas Transmission in the Pacific Northwest continued what the corporation calls "a strong performance," in Texas narrow product margins and the restructuring took its toll, resulting in a net loss of two cents/share for the overall natural gas operations in the first quarter of this year, compared to a loss of one cent/share in the first quarter of 1998.

The major problem in gas was attributed to the spread between the price of natural gas liquids and natural gas averaging approximately 6.5 cents-per-gallon, compared to approximately 8.5 cents-per-gallon for the same period in 1998, according to PG&E. The spread across the Texas pipeline for natural gas averaged approximately 5 cents/MMBtu, compared to almost 10 cents/MMBtu in the first quarter of '98. For trading, revenues were up 48% in the first quarter, but again, the gas market was weak, PG&E's spokesperson said. "Our power trading continues to do pretty well, but we had some negative issues on the gas side during the last half of the first quarter. Nevertheless, we're still confident that the trading unit is on course to show positive earnings-per-share on the aggregate for the entire year." On the retail side, PG&E said it expects losses to continue at PG&E Energy Services until late in the fourth quarter of this year.

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