Without going into specifics, the CEO of PG&ampE Corp. confirmedhe is looking to sell some of its recently acquiredmulti-billion-dollar gas and electric assets in the U.S. andAustralia 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 yearsincluded the acquisition of “portfolios” of assets, and that someof them may be more valuable to other companies. Glynn said hisenergy holding company, with $10 billion revenue, now has thestrategic goal of becoming the nation’s “premier energy servicesprovider.”

Glynn, without giving specific statistics, also indicated thatsome of the gas assets in Texas are losing money, while other partsof those operations are profitable. “There is no question that itis a tougher market than what we had initially expected,” Glynnsaid.

On the electric side, later this year PG&ampE should be making adecision on future sales of nuclear and hydro-electric assets. Heexpects the utility will be filing with state regulators later thisyear to outline initial plans for these other generating plants.

“Overall, in the short term, we are going to spend most of ourtime digesting our new assets and blending them into our businessso we can deliver shareholder value from those assets,” Glynn said.”I’m not looking to repeat those very large acquisitions (in Texasand New England) from the past two years.” In a buying binge in1996-97, PG&ampE acquired extensive natural gas transmission,gathering and trading assets in Texas and a string of electricgenerating plants in New England.

With respect to the Texas gas assets, Glynn calls them groups ofassets, rather than specific ones of particular value to PG&ampE.So conceivably parts of the groupings “may be more valuable tosomeone else than to us,” Glynn said. “And we are interested inhaving discussions with interested buyers on those particularpieces. We feel the same way about our electric portfolio. We areconstantly looking for opportunities to either buy from someoneelse or sell to someone else, something they might see higher valuein. We consider that part of our core business.”

There is also the prospect in California of regulators requiringthe state’s investor-owned gas utilities to divest their storageand intra-state transmission assets as part of the statewide gasindustry restructuring expected to be completed by early next year.Glynn, however, isn’t sure this will be required, although heconcedes that this would have an impact on PG&ampE’s utilityoperations.

Regarding Australia, although Glynn stopped short of sayingcategorically that PG&ampE was getting out from Down Under, heacknowledged that the hiring of Credit Suisse First Boston to do ananalysis of the gas transmission pipeline assets and relatedfacilities bought and built since 1996 in Queensland is a clearindication the company is looking to sell its stakeinternationally.

In comparing Australia to the Texas purchases, Glynn said theforeign investments were doing what they were supposed to do, “butthey 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 energybusiness. “There are so many opportunities to deploy our resourceshere inside our national energy strategy that I don’t want todeploy them anywhere else right now.”

Without talking about specific amounts, however, Glynn admitsthat some red ink has been spilled already since the Texasacquisitions of Teco and Valero were completed in late 1996 andearly 1997. He is not convinced that the tightening of the pricedifference between West and East Texas gas supplies was the solecause for PG&ampE problems so far.

“.[T]here were a number of market parameters at play. The pricebasis was just one of those parameters. It makes it tough to meetour current financial targets but not our operating targets. Theoperations are fine and those businesses are running well.”

Glynn would not say whether overall the Texas operations areprofitable today, noting that PG&ampE now has “lots of different”operations in the Lone Star state. “We’re making money in some ofour operations and in others we’re not.”

The big question is whether PG&ampE stuck its neck out too farand paid a lot for assets well outside its core area based on riskymarket assumptions. (Most of the assets were purchased before Glynnassumed the top job at PG&ampE.)

“When we make acquisitions we always make a detailed marketforecast, and anything that has a forecast element in it is subjectto error,” Glynn said. “Sometimes the error is on the good side andsometimes it is not. And that’s how I answer that.”

Earlier in the week Glynn told shareholders at the company’sannual meeting PG&ampE sees its future as strongly tied to the $250million U.S. energy services market and held up its latest Texasdeal-an alliance with petroleum refiner/retailer Ultramar DiamondShamrock-as the model of the new opportunities in that market. Hecharacterized the deal as having a $2 billion value over sevenyears, with PG&ampE Energy Services assuming responsibility forUDS’s estimated $300 million annual energy bill for its refineriesand extensive chain of retail gasoline outlets.

“Just a few years ago, neither UDS nor any other customer couldhave outsourced its $300-million-a-year energy business,” saidGlynn, who became CEO in mid-1997 and assumed the chairman rolethis year. “There would have been no one to outsource to-theindustry simply didn’t exist. Today it does, and PG&ampE is it.

“This transaction with UDS, and more like it with other majorcompanies, represents exactly the kind of new business that willallow PG&ampE Corp. to grow earnings in the future.”

Glynn sees the unregulated operations becoming profitableoverall by the year 2000 and assuming 25% to 30% of the corporateearnings by 2003.

Richard Nemec, Los Angeles

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