Three years after its emergence from Chapter 11 bankruptcy protection and a historic settlement with state regulators, Pacific Gas and Electric Co. operates in full transformation mode, with a new, diverse senior management team that is motivated to aggressively go after growth opportunities tied to the core utility business, CEO Peter Darbee told Wall Street analysts in New York City Wednesday. Darbee and his fellow senior executives at PG&E Corp. gave an annual update to the financial community.

Repeatedly during the morning meeting, Darbee stressed the complete turnaround that PG&E has had in its relations with the California Public Utilities Commission (CPUC), which he characterized as moving in the last six years from being the "worst in the state to among the best." He and his colleagues at the San Francisco-based utility expect this to help gain regulatory support longer term for added growth opportunities.

While Darbee has stressed that PG&E is not looking at merger/acquisition activities, he told analysts he has asked CFO Chris Johns and the finance team to look at what he called "all opportunities," adding that coming out of Chapter 11 in April 2004, "we were pretty conservative because we had been through a tough period and we undertook a very aggressive program with respect to operational change, and all that had risks associated with it.

"Now, what we are seeing is that we are developing a tremendous momentum going forward -- we're having success with [total organizational] transformation, we had tremendous success with regulators, and therefore our risk profile is moving down from both a regulatory and operational standpoint. So, we will have to reassess if we can take more risks on the financial leveraging side."

Darbee and the CEO of PG&E utility operations, Tom King, stressed that they have evolved into a role of mutual respect with the CPUC, which is headed by Michael Peevey who formerly was a successful senior executive in both the private-sector utility business with Southern California Edison Co., and as a founder/CEO of a start-up energy services company that eventually was purchased by Arlington, VA-based AES Corp.

PG&E did a lot of listening to the regulators before it went in to make a proposal for a $1.4 billion total switch to smart gas and electric metering systems, to adopt a new natural gas hedging program, both of which the regulatory commission had not historically favored.

"We don't approach the CPUC in a traditional [adversarial, lawyer-driven] way, but instead I would characterize our relation now as more like that of an investment banker dealing with an important client," said Darbee, himself, a one-time Wall Street investment banker who was born in New York.

"We reoriented our relationships with the CPUC much more in the direction of a banker and client. We listen carefully to the regulators to understand what their expectations are and what they are looking for from us. Then, we respond to their requests in a timely manner, with data, and with well-supported analytical briefs. Advanced metering is a good example of the new approach.

"We started from the standpoint of developing an analysis of what advanced metering could offer both the CPUC and our customers. And as a result, we were the first utility in California to propose an advanced metering program, and the reason was that we convinced the commission that this was something that was right for the customer, supporting our arguments with good data and analytical support. That is how we have transformed the relationship -- dramatically."

Along with seeking to be a leader in environmental and internal operating transformations, PG&E is continually focused on how it can grow its core business, Darbee said. "We're going to look at organic growth opportunities," he said. "We're going to look at every opportunity to extend off of our core business. There are great return opportunities, plus it is a lower risk proposition, compared to mergers and acquisitions."

At the same time, as a third focus, PG&E will continue to assess what is happening in consolidations in the industry to see if there are what Darbee called "good opportunities under a low-risk environment to grow the business, but that is a tertiary priority for us."

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