Despite continuing setbacks with Texas properties, PG&ECorp. officials this week expressed continued support for theirnational energy strategy, which when broken down is a largelyelectricity-based with key gas assets to enhance power assetvalues.

The company announced earlier in the month that it has hiredLehman Brothers to aide in the divestiture of all or parts ofPG&E’s Texas gas pipeline, processing and liquids assets, whichwere bought only three years ago from Valero and Teco. At the timeof the purchase the liquids markets were at a peak, and wide basisdifferentials blessed the west-east gas transportation market. Bothhave come crashing down over the past few years. PG&E has beenlosing money steadily in Texas, despite some recent reduction inthe amount of red ink. While admitting that the company has beenunsuccessful in operating the assets profitably, Thomas King,president of transmission operations, reiterated that theproperties are solid assets and strategically located in thenation’s natural gas gateway.

“With respect to the value of the assets, as hard assets in themiddle of the nation’s gas distribution and flow, they are greatassets,” said Greg Pruett, a PG&E vice president. He notedPG&E’s purchase price turned out to be too much given thedownturn in gas liquids markets. “But frankly a little more than60% of them are in gas liquids and that is just not a core businessthat we are going to be in in the future.”

Texas, however, is still a prime target for additional merchantpower plants and increased gas and electric trading, said Pruett.Underscoring its electric emphasis, PG&E on Dec. 8 filed withthe Securities Exchange Commission to create additional merchantpower plant corporate entities, Bluebonnet Power Corp. andBluebonnet Generating LLC, both wholly owned subsidiaries ofPG&E Generating (formerly U.S. Generating), a major nationalmerchant power plant developer/operator.

Pruett said PG&E would consider other acquisitions in Texasand other areas in which it has an interest in both the western andeastern U.S. “You won’t see us in the foreseeable future make apurchase of an interstate pipeline like El Paso or Columbia orsomeone like that,” he said. “On the other hand, if there arenatural gas assets that strategically lend themselves to leveraginghard assets – either through merchant plants or trading operationsin Texas – we would certainly be open to looking at them to see ifthey fit our portfolio.” PG&E historically has been principallyin the electricity business, and in the future it will be steppingup the projects by its merchant power plant developer, PG&EGenerating. Pruett noted that the company has 2,200 MW of powerunder construction or in advanced development and another 7,800 MWof power in various planning stages.

“Electric generation is a business we are bullish on, and we’regoing to grow it,” Pruett said. “With respect to trading, we remaincommitted to trading. We have had a fairly successful electrictrading operation, and we continue to try to improve the financialperformance of our gas trading. We see the logic of having a goodelectric and gas trading operation in place to help leverage thevalue of the hard generating and natural gas assets that we have.We remain very convinced that that is a sound part of ourstrategy.”

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