Starting with a $15 billion rate base on which to earn an 11.22% return, Pacific Gas and Electric Co., which recently emerged from bankruptcy, now faces the second half of the year with bullish optimism, knowing that even small percentage growth can reap some big bucks. That is why the utility’s executives Tuesday predicted solid earnings and a restoration of a dividend early next year for the first time in four years.

During a report of substantial growth in profit for the second quarter, the utility’s leaders noted during a conference call with analysts that some of their plans are contingent on being able to sell about $1.8 billion of special securitized bonds to cut bankruptcy recovery costs, and to obtain state regulatory approval for plans to build about 2,200 MW of new generation — half owned by the utility — in the 2006-08 period.

This was the first quarterly financial report since PG&E Corp.’s utility subsidiary emerged from three years in Chapter 11 bankruptcy. The parent company reported sharply increased second quarter earnings of $372 million, or 88 cents/share, compared with profits of $227 million, or 55 cents/share, for the same period in 2003.

The benefits of a rate case decision for Pacific Gas and Electric Co. last May was one of the primary reasons given for the substantially improved results. PG&E Corp. CEO Robert Glynn said plans to resume a dividend have been moved up to the first half of 2005, and earnings projections for next year overall have been reaffirmed at $2.10 to $2.20/share.

Cash is abundant and growing. Although more than half of it is restricted by disputed claims and a legal fight over past tax benefits with its former merchant energy unit, PG&E Corp. and the utility overall had about $4 billion in cash at the end of the second quarter, according to Peter Darbee, PG&E’s CFO.

Even more favorable cash flows are anticipated in the future, Glynn indicated, from the state legislation passed last quarter allowing the PG&E utility to issue so-called “energy recovery bonds” to refinance its $2.21 billion regulatory asset as part of its bankruptcy settlement, bidding to save the retail utility electricity customers up to $1 billion on the long-term costs of the Chapter 11 recovery. PG&E said those bonds should be sold in January.

“With the refinancing of the utility’s regulatory asset, we would aspire to pay a dividend in the first half of 2005,” Glynn said.

For the next five years, the utility’s rate base is expected to grow an average of $200-300 million annually, and that will be boosted by another $500-600 million in new generation plant investment in the 2006-08 period, assuming the California Public Utilities Commission approves the utility’s long-term, 10-year resource plan submitted last month. A final CPUC decision for PG&E and the state’s other two major private-sector utilities is expected by the end of the year.

If events work out as planned, Darbee said the utility should be able to pass $1.2 billion in dividends in the first half of 2005 on to the parent company, which will use the proceeds to pay a common stock dividend and buy back outstanding shares.

In total, the utility earnings for the quarter more than doubled ($307 million, or 72 cents/share, compared to $130 million, or 32 cents/share, for the second quarter in 2003).

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