Two CA Utilities Take Multi-Billion Dollar Write-Offs
The holding companies for California's two major utilities --- one in bankruptcy and the other on the brink --- belatedly last Tuesday reported multi-billion-dollar losses for 2000 after taking substantial after-tax charges in the fourth quarter because of uncollected wholesale power costs. Both indicated that California's continuing energy crisis will impact overall financial results this year, and first-quarter earnings will need to be reported by May 15 under Securities and Exchange Commission requirements.
San Francisco-based PG&E Corp., the holding company for Pacific Gas and Electric Co., reported a net loss for 2000 of $3.4 billion, following after-tax charges of $4.1 billion, while Rosemead, CA-based Edison International, parent of Southern California Edison Co., reported a loss of $1.9 billion, following an after-tax charges of $2.5 billion. Both said the charges could be reversed later, assuming the utilities eventually are allowed to recover the past power costs of more than $12 billion through a change of state regulatory policy or success in court proceedings or political negotiations.
PG&E Corp. CEO Robert Glynn said he was "very dissatisfied at having to report a loss," laying the blame with state regulators for failing to allow the utility to cover all of its costs in retail rates. He said the company's overall operating success was not able to shine through. But aside from possible future charges, he expects operating earnings to meet the previously estimated 8-10% target in 2001.
Edison International's CEO John Bryson said "as painful as it is" to take the financial charges, the reported losses are not as important as "whether Edison ultimately has a path to recover its costs," and he said the proposed memorandum of understanding (MOU) the company reached earlier this month with Gov. Gray Davis provides that path to allow the utility to avoid bankruptcy and restore its financial health.
Both companies' senior executives admitted under questioning from financial analysts, however, that they face a lot of uncertainty.
Although they had delayed reporting 2000 earnings hoping to avoid having to take the after-tax charges, the utilities' holding companies said they could no longer meet the accounting standards criteria for "probability" of being able to recover the uncollected charges.
Non-utility earnings for PG&E Corp. for 2000 as a whole were up substantially: PG&E's National Energy Group (NEG) came in at 45 cents/share, compared to one-cent/share in 1999, and company officials tried to assure analysts that NEG will be able to meet future earnings targets despite the utility's ongoing bankruptcy. Edison non-utility operations were less successful in 2000, with overall earnings of 32 cents/share, compared to 40 cents/share in 1999.
Edison officials said the downturn in non-utility earnings was partially caused by the state energy crisis and the deteriorated credit ratings of both the utility and the holding company, due to the fact that both had significantly higher levels of debt on their books. In a conference call, Edison CFO Ted Craver indicated there are still continuing risks of adverse financial performance this year from the continuing crisis.
"We certainly have higher interest expense, and there are a number of issues that aren't fully resolved before the California Public Utilities Commission; so I don't think we would want to leave investors with the impression that 2001 is kind of business as usual," Craver said.
PG&E noted that without the non-recurring charges for the uncollected power costs, the corporation had net income of $925 million, or $2.54/diluted share, compared with $886 million and $2.24/share in 1999. Without the after-tax charges, Edison's 2000 earnings would have been $578 million, compared with $623 million in 1999.
PG&E's NEG "turned in four consecutive solid quarters across the board in 2000," with earnings increasing in power plant, natural gas pipeline and energy trading operations. The company expects to meet its earnings targets and complete $1.2 billion in additional capital projects this year, despite the utility's bankruptcy proceedings, said Thomas Boren, the CEO of the NEG companies.
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