Among the short- and long-term items PG&E Corp is keeping on its plate are a soon-to-be-announced settlement of its 2007 general rate case, the possibility of pursuing development of a nuclear power plant outside of California and several nonutility electric and natural gas projects, PG&E CEO Peter Darbee said during a conference call with financial analysts last Wednesday in which second-quarter earnings were reported as down, but it was mostly attributable to nonrecurring costs.

While answering analysts questions, Darbee said he is not ruling out possible acquisitions in the future for the San Francisco-based utility holding company. While following a strategic mandate to transform its utility operations using smart metering and other technology improvements, Darbee also said that PG&E’s utility Pacific Gas and Electric Co. does not plan to push for renewed emphasis on retail customer choice.

When asked if the utility’s recently approved five-year, $1.4 billion switch to smart gas and electric metering systems is designed to deregulate the retail utility business, Darbee said the focus behind changing out nine million gas and power meters was to “really bring to an end the collection of data manually through 800 meter readers and then to dramatically improve the quality of service we provide our customers in terms of reliability and response times.

“To be candid, we have not tied in any way automated meter reading to opening up retail choice. We just haven’t seen that linkage or thought about it at all as part of our motivation, which is better service to our customers, faster and more cost-effectively.”

Consolidated second quarter net income in accordance with generally accepted accounting principles (GAAP) was $232 million, or 65 cents/share, compared with $267 million, or 70 cents/share, for the same period in 2005. (All the per-share numbers are on a diluted basis, the utility holding company said.) For the six months ended June 30, net income was $446 million, or $1.26/share, compared with $485 million, or $1.25/share, for the first half of 2005. Earnings guidance remained at $2.40-$2.50/share for all of this year, and $2.65.-$2.75/share next year, PG&E reported.

The utility reported net income of $227 million for the second quarter, compared with $272 million for the second quarter last year.

According to PG&E, the two main reasons for the earnings drop the first half of this year are: (1) a “carrying cost credit” for utility consumers related to the utility’s Chapter 11 bankruptcy settlement, and (2) the nuke plant’s planned refueling for which all the costs are absorbed in the second quarter, but their rate coverage is spread over the full year.”The timing difference between revenues and expenses will balance out over the year,” a PG&E spokesperson said.

PG&E is in settlement negotiations on its $682 million general rate increase request with the independent Division of Ratepayer Advocates (DRA) at the California Public Utilities Commission (CPUC) and expects a potential settlement conference Aug. 16 with a separate motion to approve the deal filed before the end of this month, according to PG&E’s senior executives. They said the utility still expects a CPUC decision by year-end.

In response to a question concerning the company’s previously announced interest in a new nuclear plant, Darbee pointed out that current law in California prevents nuclear power development until the state builds sufficient waste storage facilities for its existing plants, Canyon (PG&E) and San Onofre (Southern California Edison Co., et al.). However, nationally, he said the company thinks nuclear power must be one of the options for meeting the nation’s future power needs and addressing various environmental and logistical challenges.

“We believe among the solutions required to meet future energy needs, nuclear should be a part of that,” Darbee said. “We are evaluating other opportunities outside of California, as well as other things, such as increased supplies of liquefied natural gas (LNG). We have not ruled nuclear out, but we are in the very formative stages. We see nuclear as a source of fuel that does not create dependence on other countries and the supplies of natural gas and oil from them, and also one that is consistent in the efforts to reduce carbon in the environment (CO2).”

Regarding merger/acquisition possibilities, Darbee said the company will continue to consider opportunities in the marketplace, adding that part of the ongoing consideration involves tracking what he called “the difficulties and challenges other companies are having in trying to complete their deals.”

PG&E’s senior officials confirmed that the company is still pursuing a new interstate natural gas pipeline to the California-Oregon border from a proposed LNG receiving terminal along the Oregon coast at Coos Bay, OR, along with major western electric transmission line projects in south-central California and along the Pacific Coast from Vancouver, BC, in western Canada to a point just north of San Francisco. “There hasn’t been a whole lot of new activity on the project recently, however, said Christopher Johns, PG&E CFO.

Johns said that the general rate case CPUC hearings were completed early in July, and the confidential settlement talks with DRA are ongoing. He cautioned that there is no certainty that a settlement agreement will be reached, or will be approved by the CPUC, but under questioning he indicated they have the target dates later this month.

Within the rate case are $290 million in projected costs for the utility’s so-called “transformation” of its operations, including the initial smart metering work. Of those costs, a little more than half (55%) are slated to be offset by immediate benefits, said Johns, noting the benefits are the result of initiatives that have already been implemented or will be by the end of this year.

Noting that the base of PG&E’s utility strategy is to “really understand” customer needs by segment and satisfy those needs at a very high level, Darbee said that if the utility can pull this off it should result in “very pleased customers, which in turn will result in very satisfied regulators, and that will lead to well rewarded shareholders.” Customer feedback indicates that PG&E’s standing with its customers has gone from a low of barely one-third of them being satisfied to a current situation where about two-thirds of them are very satisfied.

PG&E has had what Darbee said is a “huge string of successes” of recent favorable decisions from the California Public Utilities Commission regarding its smart meter program and its taking over development of a partially built natural gas-fired power plant in the East San Francisco Bay area.

In terms of the company’s standing among consumer groups, some of which have built their reputations and support battling PG&E, they remain “skeptical,” Darbee acknowledged, noting the groups take the attitude that “talk is cheap, and we’ll recognize your performance when you deliver.”

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