Aside from tax implications of its merchant unit’s Chapter 11 bankruptcy filing, PG&E Corp.’s CEO Robert Glynn Wednesday stressed for a Wall Street audience the substantial cash flow and shareholder value of his utility’s proposed omnibus settlement with the California Public Utilities Commission. Glynn spoke Wednesday as part of the second day of the three-day Lehman Brothers Energy/Power Conference in New York City.

Glynn called the still-contested settlement “a clear path to re-establish stability for the company,” noting that the PG&E utility is “financially and operationally solid as an integrated utility business.”

However, the California Office of Ratepayer Advocates (ORA) on Tuesday recommended that the CPUC reject the proposed bankruptcy settlement. The ORA is recommending an alternative that would keep current PG&E retail utility electric rates in place longer and use the excess revenues to pay off major creditors in the utility’s Chapter 11 bankruptcy proceeding. The ORA said its alternative would save consumers up to $4.9 billion. CPUC evidentiary hearings on the settlement begin Sept.10 (see Power Market Today, Sept. 3).

As a result of the proposed settlement, Pacific Gas and Electric Co.’s expected cash flows from operations would be “strong and expected to exceed capital expenditure requirements by a substantial margin,” said Glynn, adding that the cash flows will allow the utility’s equity structure to be strengthened consistent with the CPUC proposed settlement, and “pay dividends and/or allow us to buy back stock.”

“Another way of looking at these free cash flows is that the annual yields will be in excess of 11%,” said Glynn, and they will allow the utility to hit a 52% targeted equity ratio by mid-2005. Following that, the holding company will be in a position to resume a common stock dividend in late 2005.

With a captive, albeit somewhat skeptical, financial audience, Glynn stressed that the new utility focus of the PG&E organization, which is severing all ties with its troubled merchant unit, has allowed the company to gain financial strength and improve credit while remaining at a below market value price. He said PG&E common stock continued to trade at a “discount” compared to comparable companies in the market.

The CPUC settlement offers to bring a financial and credit upsurge that will increase PG&E’s shareholder value, said Glynn, while downplaying questions about legislative or consumer opposition to the proposed deal, which must be completed in the state regulatory process and federal bankruptcy court by year-end.

One of Glynn’s three stated objectives for the rest of the year is to “keep the proposed settlement on schedule,” along with operating the utility effectively and meeting earnings targets for the year. He expressed confidence that PG&E and the utility are “on track and on schedule to achieve these objectives.”

Regarding future power generation development in the state, Glynn hinted that a return to utility dominance may emerge, and his utility might be among those pushing for this option. Besides utilities re-entering the generation sector, California has only two other options, he said: (a) plants built by merchant energy companies, which he characterized as “unlikely;” and (b) plants built by the state power authority, which he said seems to want to concentrate peaking plant development. “Beyond that, generation is a business that we know very well.”

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