A year past the initial stigma of its utility affiliate’s Chapter 11 bankruptcy, PG&E National Energy Group (NEG) is focused on streamlining its portfolio of new energy projects and hanging on to its investment-grade credit ratings, a senior PG&E executive said last week in a conference call with the financial community. On an operating basis both the NEG nonutility businesses and Pacific Gas and Electric Co. utility showed lower earnings than the same period in 2001.

“We are continuing to maintain very close communications with the rating agencies to make sure we adhere to what could only be described as evolving rating criteria,” said Tom Boren, NEG’s CEO. “We worked very hard to attain that investment grade last year, and we are very committed to maintaining that. We will continue to build on those half-dozen projects that we currently have under way.”

Boren said the NEG operations are lowering their exposure to ratings triggers, and did so during last year. At present, the PG&E officials said NEG’s level of exposure is about $144 million of total exposure in the event of a ratings downgrade, which they describe as “well within our liquidity or our available cash alone.”

Without being specific, however, PG&E officials said the NEG earnings are expected to be down this year, compared to 2001, in making a forecast for overall earnings in the $2.50 to $3/share range for this year. “We still standby the $3/share guidance, and in fact, will exceed that, but we are adding the clarification that an estimated 50 cents/share for headroom will be included in that $3 projection,” said PG&E’s CFO Peter Darbee. (The $2.50 to $2.55/share estimate is without headroom.)

While PG&E officials declined to say anything about the court-ordered mediation process among the company and state regulators because of strict confidentiality agreements by each of the parties, they did respond to questions about the prospect for some sort of settlement of the competing bankruptcy reorganization plans, noting that the court process will go forward and the utility’s plan is “more attractive” to creditors because it provides for “investment-grade credit ratings right out of the chute.”

The major unanswered question about the competing reorganization plan from the California Public Utilities Commission is whether it has “an unyielding commitment to investment-grade ratings,” according to Bob Glynn, PG&E Corp. CEO. “It is very difficult if that kind of binding commitment isn’t made to see the kind of future that is needed. We think we have a plan that is not only legal and fair, but is extremely attractive to creditors, and we certainly think it is confirmable (by the court).”

When pressed by analysts, Glynn continued to express confidence that the company can meet its end-of-2002 goal for emergence from bankruptcy.

“This is an ambitious time schedule, but every milestone we have set since the filing has been ambitious, and we have met all of them,” Glynn said. “We believe this is an achievable schedule, and we are doing everything in our control to secure its occurrence. To date, the bankruptcy court has made sure that the issues regarding plan confirmation — the competing plans alike — are moving on parallel paths.

“As always, the risks are that there will be delays in the hearing process and delays from subsequent appeals, but looking at the fundamental schedule we have set, it remains as I have stated [targeted to conclude the end of this year].”

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