Glynn Sees PG&E Trimming Assets at Home and Abroad
Without going into specifics, the CEO of PG&E Corp. confirmed he is looking to sell some of its recently acquired multi-billion-dollar gas and electric assets in the U.S. and Australia later this year.
During a wide-ranging 45-minute interview Friday, Robert D. Glynn, Jr., said the $4 billion in purchases in the past two years included the acquisition of "portfolios" of assets, and that some of them may be more valuable to other companies. Glynn said his energy holding company, with $10 billion revenue, now has the strategic goal of becoming the nation's "premier energy services provider."
Glynn, without giving specific statistics, also indicated that some of the gas assets in Texas are losing money, while other parts of those operations are profitable. "There is no question that it is a tougher market than what we had initially expected," Glynn said.
On the electric side, later this year PG&E should be making a decision on future sales of nuclear and hydro-electric assets. He expects the utility will be filing with state regulators later this year to outline initial plans for these other generating plants.
"Overall, in the short term, we are going to spend most of our time digesting our new assets and blending them into our business so we can deliver shareholder value from those assets," Glynn said. "I'm not looking to repeat those very large acquisitions (in Texas and New England) from the past two years." In a buying binge in 1996-97, PG&E acquired extensive natural gas transmission, gathering and trading assets in Texas and a string of electric generating plants in New England.
With respect to the Texas gas assets, Glynn calls them groups of assets, rather than specific ones of particular value to PG&E. So conceivably parts of the groupings "may be more valuable to someone else than to us," Glynn said. "And we are interested in having discussions with interested buyers on those particular pieces. We feel the same way about our electric portfolio. We are constantly looking for opportunities to either buy from someone else or sell to someone else, something they might see higher value in. We consider that part of our core business."
There is also the prospect in California of regulators requiring the state's investor-owned gas utilities to divest their storage and intra-state transmission assets as part of the statewide gas industry restructuring expected to be completed by early next year. Glynn, however, isn't sure this will be required, although he concedes that this would have an impact on PG&E's utility operations.
Regarding Australia, although Glynn stopped short of saying categorically that PG&E was getting out from Down Under, he acknowledged that the hiring of Credit Suisse First Boston to do an analysis of the gas transmission pipeline assets and related facilities bought and built since 1996 in Queensland is a clear indication the company is looking to sell its stake internationally.
In comparing Australia to the Texas purchases, Glynn said the foreign investments were doing what they were supposed to do, "but they are simply not strategic (assets) for us today."
On the other hand, Texas and pretty much the rest of the U.S. are what Glynn calls "a strategic part of our national energy business. "There are so many opportunities to deploy our resources here inside our national energy strategy that I don't want to deploy them anywhere else right now."
Without talking about specific amounts, however, Glynn admits that some red ink has been spilled already since the Texas acquisitions of Teco and Valero were completed in late 1996 and early 1997. He is not convinced that the tightening of the price difference between West and East Texas gas supplies was the sole cause for PG&E problems so far.
".[T]here were a number of market parameters at play. The price basis was just one of those parameters. It makes it tough to meet our current financial targets but not our operating targets. The operations are fine and those businesses are running well."
Glynn would not say whether overall the Texas operations are profitable today, noting that PG&E now has "lots of different" operations in the Lone Star state. "We're making money in some of our operations and in others we're not."
The big question is whether PG&E stuck its neck out too far and paid a lot for assets well outside its core area based on risky market assumptions. (Most of the assets were purchased before Glynn assumed the top job at PG&E.)
"When we make acquisitions we always make a detailed market forecast, and anything that has a forecast element in it is subject to error," Glynn said. "Sometimes the error is on the good side and sometimes it is not. And that's how I answer that."
Earlier in the week Glynn told shareholders at the company's annual meeting PG&E sees its future as strongly tied to the $250 million U.S. energy services market and held up its latest Texas deal-an alliance with petroleum refiner/retailer Ultramar Diamond Shamrock-as the model of the new opportunities in that market. He characterized the deal as having a $2 billion value over seven years, with PG&E Energy Services assuming responsibility for UDS's estimated $300 million annual energy bill for its refineries and extensive chain of retail gasoline outlets.
"Just a few years ago, neither UDS nor any other customer could have outsourced its $300-million-a-year energy business," said Glynn, who became CEO in mid-1997 and assumed the chairman role this year. "There would have been no one to outsource to-the industry simply didn't exist. Today it does, and PG&E is it.
"This transaction with UDS, and more like it with other major companies, represents exactly the kind of new business that will allow PG&E Corp. to grow earnings in the future."
Glynn sees the unregulated operations becoming profitable overall by the year 2000 and assuming 25% to 30% of the corporate earnings by 2003.
Richard Nemec, Los Angeles
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