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PG&E Shows '99 Loss, Will Sell Services Unit

March 6, 2000
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PG&E Shows '99 Loss, Will Sell Services Unit

PG&E Corp. released negative financial results for 1999 caused by its ill-fated experience with Texas natural gas properties and signaled further retrenchment with the confirmation it is pursuing a buyer for its energy services operations, which showed growing losses last year.

While PG&E posted record total operating revenues of $20.8 billion, operating income was down 58% to $878 million in 1999 compared to $2.098 billion in 1998. The write-down on the sale of the Texas gas pipeline and liquids assets (See NGI, Feb. 7), and the prospective sale of the retail energy service operations collectively put the results into the minus column with a net loss of $73 million or $0.20/share.

In a Securities Exchange Commission (8-K) filing Feb. 23, PG&E made public the fact that it is putting the energy services business on the market, with a goal of closing a sale by the end of the second quarter, according to Greg Pruett, a PG&E vice president and corporate spokesperson. Pruett said the company leaders made the decision to sell that business at the end of last year.

"We are not trying to hide anything or low-key it; it is just an SEC filing," Pruett said. "We should have something to report in the near future because our expectation is that we will close by the end of the second quarter."

Although he cannot say how many prospective buyers there are, Pruett said the company "is very pleased with the level of interest." Speculation among energy observers in California is that Duke, Enron, AES/NewEnergy and Sempra Energy are among those showing interest. Pruett emphasized that the sale does not involve PG&E's trading operations, which have a natural gas component in Houston and power unit in Bethesda, MD, home of its power plant developer/operator, PG&E Generating (formerly US Generating).

The generating and Pacific Northwest-based interstate gas pipeline businesses continued to operate in the black last year, contributing a total of 44 cents/share profit; trading losses increased from a negative 2 cents/share to a negative 9 cents/share. Pruett said the trading operation is considered a key to PG&E's strategic goal of maximizing its results from the business of developing and operating merchant power plants nationally.

"Our focus is on reviewing the bids for the energy services unit, determining if any of them are attractive enough for us to divest that unit and then moving forward from there," Pruett said. "Our focus is on building our competitive generation unit from its current levels of 10,000 MW operating or under development to the 17,000 MW level by 2002.

"We're going to maximize the benefits we get out of generation assets through the trading operation. We see a very strong presence for trading in the future, as well as our Pacific Northwest gas assets."

PG&E no longer sees the same potential in the energy services business, according to Pruett, because of "the kinds of financial and human resource support needed to get a business off the ground." He noted that PG&E had made these commitments over the past three years with PG&E Energy Services with a "fair amount of success," and the company still feels the business "will go into the black" by the end of the year.

On average, PG&E Energy Services was beginning to require more than $100 million annually to operate, sources at the utility holding company indicated.

"We think energy services for the long term is a good business, but for the shorter and mid-term, we are going to concentrate on the generation business," Pruett said.

PG&E's fourth quarter results showed a loss of $1.49 per share, compared to $0.54 earnings per share in 4Q 1998. This was based on a decrease in operating revenues to $4.795 billion in 4Q 1999 from $5.364 billion in the same period in 1998 and increased expenses, resulting in an operating income loss of $579 million for 4Q 1999.

Richard Nemec

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