Despite continued expansion of revenues in energy trading andservices, PG&E Corp. reported last week continued depressedearnings results in those two areas, along with red ink in itsTexas operations. Its traditional Pacific Northwest interstatepipeline, combination utility and merchant power plant businessesall continue to be its money-makers, although down or about thesame compared to similar three-month and nine-month results lastyear.

For the three-month period ending Sept. 30, PG&E had $6.3billion in revenues and earnings equivalent to 50 cents-per-share,compared to $5.3 billion and 55 cents-per-share for the same periodin 1998. For the first nine months of this year, the totals were$16.4 billion and $1.41-per-share, compared to $14.4 billion and$1.37-per-share for the same period last year. Earnings basicallymatched expectations in the financial community, according toPG&E officials, who said the consensus estimate was only apenny-per-share higher (51 cents) on Wall Street.

Overall, PG&E Chairman, CEO and President Robert Glynn, Jr.,called the consolidated earnings, “solid,” while acknowledgingthere are still problem areas, particularly in the natural gastrading area in the third quarter. Glynn called the newly formed”national energy group” at PG&E comprising all of itsnontutility businesses the “primary engine for our future earningsgrowth.” In August, a former Southern Company of Atlanta seniorexecutive, Thomas Boren, was named to head all of the nonutilityoperations, which continue to make relatively small profitscollectively, but only because of merchant generation operationsand gas transmission in the Pacific Northwest, both of which havebeen in the black for a number of years. Losses in Texas naturalgas operations and energy services continued in the most recentquarter, albeit smaller than in the period a year earlier. Tradingwent from breaking even last year in the third quarter to a lossequivalent to five cents-per-share.

“We are being very candid about the fact that our electrictrading operations were profitable (in the third quarter), it isthe gas trading where we incurred the losses,” said Greg Pruett, aPG&E Corp. vice president and spokesperson. “Commoditiestrading is a volatile business and you take positions. Sometimesthose positions pay off and other times they don’t. In this case,the U.S. and Canadian positions in gas did not impact earningsfavorably, but the electric positions did.” Given the continuingstruggle to make the newer nonutility businesses profitable andwith the new national consolidation of these operations, PG&Eis nevertheless not looking to expand through acquisition ordevelopment of new markets, Pruett said.

Instead, the giant San Francisco-based utility holding companyintends to continue to get its arms around its existing assets andmarkets to operate more efficiently and profitably.

“The national group was formed to integrate all of nationalbusinesses and make sure we maximize the value that exists in eachof the separate businesses,” said Pruett, noting that “energyservices are going in the right direction” (cutting losses for thethird quarter to a negative three cents-per-share from four centsthe same quarter last year) and still expects to be in the blacknext year. In the Texas gas operations, the amount of loss droppedfrom a negative-six cents to negative two cents/share in the mostrecent quarter.

“We expect to see positive performance from all of these areasin the national energy group, and we’re confident our nationalstrategy will get us there. We’re absolutely committed to it. Thereis a lot of confidence in Tom Boren heading this national group,and we’re confident that the brackets (for losses) are going to beeliminated around those numbers.”

The Pacific Northwest gas transmission part of PG&E’sbusiness, which showed improvement to 5 cent-per-share earningscontribution in the most recent quarter, is eyeing expansion tiedto the proposed spike of gas-fired merchant power plants on thedrawing board in the region, according to announcements made inWashington, DC, earlier this month (See NGI of Oct. 11). Assumingthe stigma of some recent energy pipeline accidents in the regioncan be overcome, and the power plants become reality, PG&E seesreal growth potential from this part of its nonutility operations.

Richard Nemec, Los Angeles

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