Restructuring

Although its $2 billion acquisition of Portland General Electric is in doubt, Reno-based Sierra Pacific Resources likes the law passed last Wednesday by the Nevada legislature because it promises to protect Sierra’s two electric utilities from the soaring western wholesale electricity prices that have eroded the finances of California’s two largest utilities.

Although its $2 billion acquisition of Portland General Electric is in doubt, Reno-based Sierra Pacific Resources likes the law passed late Wednesday by the Nevada legislature because it promises to protect Sierra’s two electric utilities from the soaring western wholesale electricity prices that have eroded the finances of California’s two largest utilities.

Electric restructuring in Ohio took a bite out of FirstEnergy Corp. earnings. The company reported net income for the first quarter was $106.2 million, or 49 cents per share, compared with $140.9 million, or 63 cents per share in 1Q2000. After adoption of new accounting standards for derivative transactions, net income was $97.7 million, or 45 cents per share of common stock. The Akron-based company said results are on track with annual earnings projections, which reflect higher amortization of transition costs during the first quarter as a result of the company’s rate plan under Ohio’s new deregulation law. For the year, total transition cost amortization is expected to be lower than last year’s accelerated cost amortization under the former regulatory rate plans for the company’s operating subsidiaries. Consolidated generation kilowatt-hour sales increased 13.1% for the quarter. Regulated distribution deliveries to residential customers rose 8.1%, and industrial sales gained 3.6%, while commercial sales were off 1.3%. Revenues were $2 billion, compared with $1.6 billion for the year-earlier quarter. FirstEnergy made significant progress in obtaining regulatory approvals of its proposed $4.5 billion merger with Morristown, NJ-based GPU, Inc. The merger still requires approvals from the Pennsylvania Public Utility Commission, the New Jersey Board of Public Utilities and the Securities and Exchange Commission. The transaction is expected to be immediately accretive to cash flow and earnings and produce other benefits, including cost savings of at least $150 million annually from the combination of operations. Upon completion, FirstEnergy will be the fourth largest investor-owned electric system in the nation, based on serving 4.3 million customers within 37,000 square miles of Ohio, Pennsylvania and New Jersey.

The Nevada legislature this week is expected to pass a new comprehensive energy law that delays for at least two years state efforts to restructure the electricity industry and to provide assurances that the state’s two major power utilities can recover all of their future costs. The governor is expected to sign the bill (AB 369), effectively freezing any more deregulation efforts, including the utilities’ divestiture of nine power plants (see Daily GPI, April 9).

After completing its merger with The Coastal Corp., El PasoEnergy Corp. announced that it has completed restructuring andterminated 1,650 employees from the combined company’s approximate16,500 employee work force. Of the employees let go, 585 willremain with the company until their current assignment iscompleted, but none later than June 30. El Paso also announced thatadditional employees left voluntarily, and 1,635 workers opted forthe early retirement package. Employees that were not retained areeligible for full severance benefits, including a cash paymentbased on term of service. El Paso said that staff reductions tookplace everywhere the company does business. High employeeconcentration areas such as Colorado Springs, Detroit, El Paso andHouston were hardest hit by the cutbacks. Reductions ocurred in allbusiness units at all levels of the company, El Paso said.

KeySpan Corp. said yesterday it anticipates its 2000 earnings,excluding the impact of any transaction or restructuring charges,will be $2.40 per share, significantly ahead of the current FirstCall consensus estimates of $2.28 per share. Strong earnings areexpected to result from solid performances across all businesssegments, especially from the electric, exploration, and productionsegments. In addition, the energy-services business should reportits first annual profit in 2000. “We expect to be able to increaseour earnings in 2001 by 10%, ranging from $2.60 to $2.65 per share,well ahead of the current First Call consensus of $2.48 per share,”said CEO Robert B. Catell. KeySpan has had a record level of gascustomer conversions from oil to natural gas, primarily on LongIsland. In addition, more than 1 MMcf of mainline gas distributionpipe is expected to be installed this year as the system isexpanded to serve new areas. In New England, the company intends toachieve its growth targets resulting from the acquisition ofEastern Enterprises and EnergyNorth. Currently, the companyestimates that the special charges resulting from acquiring EasternEnterprises and EnergyNorth in November will amount to $75 million,which will be reported in the fourth quarter. Including thesecharges, earnings per share for fiscal year 2000 are expected torange from $2.05 to $2.10. KeySpan is the largest gas distributorin the Northeast, with 2.4 million gas customers and more than13,000 employees. KeySpan also is the largest investor-ownedelectric generator in New York State and operates Long Island’selectric system.

The legislative architect of California’s 1996 precedent-settingelectric industry restructuring law Monday proposed a $2 billionreserve be carved out of the state’s next fiscal budget to fund astate effort to buy or build new generation plants. Theannouncement came at the same time the state energy commission,which approves all new power plants of 50 MW or larger, released alegislatively mandated report that concludes the state’s generationresources are adequate, and temporary peaking plants are not neededfor the upcoming summer.

The Ohio Public Utility Commission approved Monongahela Power’selectric transition plan on the one year anniversary of the dayOhio’s electric restructuring bill took effect.

In the wake of a summer-long lamenting of the dysfunction, ifnot outright death, of California’s attempt at creating competitiveretail electricity markets, the state’s small remaining band ofnonutility retailers, or “energy service providers” (ESPs), isweighing in with state officials and utilities trying to breathenew life into the state’s once-optimistic drive for moremarket-based energy solutions.