PG&ampE Energy Services signed a $5 million contract withPepsi-Cola General Bottlers Inc. to supply gas, energy management,and billing services to all of its Midwest manufacturing anddistribution centers.

The multi-year agreement is expected to save Pepsi’s bottlingfacilities more than $250,000 and calls for PG&ampE Energy Servicesto supply gas to 67 manufacturing and distribution centers inIllinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Missouri,Ohio, Virginia, West Virginia, and Wisconsin. PG&ampE EnergyServices also will provide billing management services, includingaggregation and summary of bills for each facility with usagepatterns highlighted.

“When a large portion of your operating budget must go toenergy-related expenses, it is essential to find a national companywith the expertise and resources to fine-tune your efficiency andreduce operating costs,” said Gary Kowaleski energy manager forPepsi-Cola General Bottlers.

“Our agreement with Pepsi-Cola General Bottlers reinforces ourpresence in Chicago and the Midwest,” said Jim Davis PG&ampE EnergyServices’ senior vice president of integrated services.

Chicago-based Pepsi-Cola General Bottlers is the principaloperating company of Whitman Corp. and the nation’s largestindependently franchised Pepsi bottler not majority-owned byPepsiCo. The company operates in 12 central U.S. states, as well asPoland, Russia, Latvia, Lithuania, and Estonia.

PG&ampE Energy Services has more than $2 billion in long-termcontracts. The company has agreements with McDonald’s and Carl’sJr. restaurants, Safeway, Vons and Lucky grocery stores, Rite Aidand Sav-on drug stores, Neiman Marcus, ARCO gas stations andconvenience stores, Blockbuster video and music stores, IBM,Smucker’s, and others. PG&ampE Energy Services said it plans tocompete in the Illinois electricity market when it opens tocompetition next October.

Forms New Alliance Team

The unregulated energy services and trading division of PG&ampECorp. announced late last week the formation of a new energyalliance team that will focus on marketing, structuring, andmanaging the company’s strategic energy alliances with majorindustrial customers and utilities. “We believe that creating theenergy alliance team and allying the marketing organizations forboth power and gas allows us to take full advantage of thesynergies across the organizations and to best serve ourcustomers,” said Lyn Maddox, CEO of PG&ampE Energy Trading. Theteam will be led by senior vice president Chris Sauer.

Sauer said the team intends to look for large national,process-intensive industrial partners in businesses like refining,chemicals, petrochemicals, pulp and paper, industrial gasprocessing, mining and metals. “We’re focused on these industriesbecause they typically have many facilities around the country.What we’re looking at are customers that have very diverse needsincluding electricity, gas, steam, potentially capital improvementsthat reduce energy costs and consumption,” said Sauer.

Good examples of the alliances PG&ampE wants to form are itscurrent relationships with ARCO Chemicals, Ultramar DiamondShamrock and Orange and Rockland Utilities. “There are some reallypremier industrial companies that have facilities throughout NorthAmerica that are really very interested in our approach,” he said,adding a new alliance should be announced soon, possibly in thenext few months.

PG&ampE Earnings Drop on Australian Sale

Despite great performance from its unregulated energy marketingand services arm, particularly its $1.9 billion increase inoperating revenues, PG&ampE Corp. said second quarter earningssuffered. Costs associated with electric restructuring and its $120million sale of Australian assets to Duke Energy caused the setback, said CEO Robert Glynn.

A lower rate of exchange between the Australian and U.S. dollarresulted in a six-cent charge ($23 million loss) taken during thesecond quarter. The company reported earnings of $174 million (46cents per share), compared with $193 million (49 cents per share)in 2Q97. Excluding one-time gains and charges in both 1998 and1997, the operating earnings of the company’s unregulatedbusinesses were 4 cents per share in the second quarter, up from 1cent per share in the second quarter of 1997. In net earnings pershare, the unregulated business unit lost 0.02 cents/share,compared to a 0.19 cent/share gain in 2Q97.

Nevertheless, Glynn praised the performance of the company’smarketing division. “We are pleased with the strong aggregateperformance of our unregulated businesses in the second quarter,particularly in spite of exceptionally weak market fundamentals intransportation of natural gas and natural gas liquids for ourPG&ampE Gas Transmission-Texas gas operations,” noted Glynn. “I amparticularly pleased at the performance of our Houston-based energycommodities trading affiliate, PG&ampE Energy Trading, whichmanaged its operations effectively during recent turbulent electricmarket activity in the Midwest.”

Joe Fisher, Houston; Rocco Canonica

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