It’s the “market volatility,” stupid!
For California’s three holding companies for the state’s majorinvestor-owned utilities, this slogan could best summarize theiracross-the-board improved earnings for the third quarter,ironically coming in the wake of the summer wholesale power andnatural gas markets’ going haywire. Collectively, earnings for thequarter jumped up by $170 million for the three companies,principally due to nonutility businesses that benefit from marketvolatility.
Sempra Energy, parent company for San Diego Gas and Electric Co.and Southern California Gas Co., reported unaudited consolidatednet income of $110 million, or 55 cents/diluted share of commonstock for the quarter, compared to $108 million, or 45cents/diluted share for the same period last year-a 22% increase inearnings-per-share; PG&E reported earnings of $248 million, or68 cents/diluted share, compared to $185 million, or 50cents/diluted share last year for the third quarter (36% epsincrease); and Edison International reported quarterly earnings of$360 million, or $1.11/share, compared to $255 million, or 74cents/share for the period in 1999 (42% eps increase).
Each of the California-based companies reported substantialimprovements in the financial results for their nonutilityoperations, led by Edison International whose Edison Mission Energysubsidiary for the first time contributed more than half of thecompany’s earnings-per-share (59 cents of the $1.11/share netprofits in the quarter).
Sempra’s trading operation contributed significantly toearnings, shooting up to $45 million, compared to $5 million forthe quarter in 1999, and its CEO Steve Baum attributed a lot of thesuccess to the extreme volatility of the energymarkets-particularly the California wholesale electricity market.He referred to the nonutility businesses being the “hidden value”in Sempra’s stock.
All of the companies are being questioned by the financialcommunity regarding possible spinning off of the nonutilitybusinesses through IPOs, something both Baum and PG&E RobertGlynn acknowledged they are looking at as part of ongoing strategicassessments.
Edison made its earnings announcement Oct. 20; PG&E releasedits earnings on Tuesday; and Sempra made its earnings announcementyesterday.
All three CEOs stressed the need on the utility side of theirbusiness for the federal and state regulators to help re-stabilizeCalifornia’s electricity markets and the state’s teetering industryrestructuring. The bulk of their cash, if not profits, continue tobe generated by their natural gas and electricity utilities thatcollectively cover most of the state’s population.
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