PRESS RELEASES 2000 RELEASE
FOR IMMEDIATE RELEASE
October 24, 2000
Listen to the conference call to the Financial Community
Contact: Greg S. Pruett
EDITORS: Please do not use "Pacific Gas and Electric" or "PG&E" when referring to PG&E Corporation or its National Energy Group. The PG&E National Energy Group is not the same company as Pacific Gas and Electric Company, the utility, and is not regulated by the California Public Utilities Commission. Customers of Pacific Gas and Electric Company do not have to buy products or services from the National Energy Group in order to continue to receive quality regulated services from Pacific Gas and Electric Company.

PG&E CORPORATION REPORTS THIRD QUARTER RESULTS

  • PG&E Corporation's third quarter diluted earnings from operations were $0.68 per share, or $248 million, compared with diluted earnings from operations in the same quarter last year of $0.50 per share, or $185 million. (Two important items affect comparability between the quarters: an $0.11 per share upward adjustment in utility earnings for the third quarter of 1999 to reflect the retroactive effect of the delayed 1999 General Rate Case, and a $0.05 per share upward adjustment in National Energy Group earnings for the third quarter of 1999 to offset losses recorded in the energy services and Texas natural gas operations, which are no longer part of continuing operations. Adjusted for these items, third quarter 1999 results would have been $0.66 per share on a diluted basis.)

  • Revenues for the period were $7.5 billion, compared with third quarter 1999 revenues of $6.2 billion.

  • National Energy Group contributions rose, with diluted earnings from operations of $0.10 per share, or $37 million, on revenues of $5 billion. Operating earnings for the NEG in the third quarter of 1999 were $0.01 per share. Adjusted for comparability to offset the loss of $0.05 per share associated with the now discontinued energy services and Texas natural gas operations, third quarter 1999 earnings for the NEG would have been $0.06 per share.

  • Pacific Gas and Electric Company diluted earnings from operations were $0.58 per share, or $211 million, on revenues of $2.5 billion. Adjusted for comparability, third quarter 1999 diluted earnings would have been $0.60 per share. (The adjustment reflects the fact that third quarter 1999 results did not include the increase in revenues associated with the delayed decision on the company's 1999 General Rate Case, which was resolved in February 2000 and was retroactive to January 1, 1999, and the effect of which was recorded in the fourth quarter of 1999.)

(San Francisco, CA) - PG&E Corporation (NYSE:PCG) today reported that it earned $0.68 per share on an operating and diluted basis, or $248 million, in the third quarter. The Corporation earned $0.50 per share on an operating and diluted basis, or $185 million, in the same quarter last year. However, it noted that the quarter-over-quarter change in earnings does not reflect several important items affecting comparability. Most notably, earnings reported in the third quarter of 1999 included $0.05 per share in losses in the Corporation's now discontinued energy services and Texas natural gas operations, and did not include $0.11 per share in earnings from the utility's General Rate Case, which were booked in the fourth quarter of 1999 for the entire year. With those items taken into account, on a comparable basis PG&E Corporation's third quarter 1999 earnings would have been $0.66 per share, resulting in a comparable quarter-over-quarter increase of 3 percent.

Pacific Gas and Electric Company

The Corporation's utility unit, Pacific Gas and Electric Company, earned $0.58 per share on an operating and diluted basis, or $211 million, on revenues of $2.5 billion for the quarter. The earnings reflect, in part, the final decision on the unit's 1999 General Rate Case, which accounts for approximately $0.11 per share this quarter.

Although earnings met targets for the quarter, since June the unit accumulated approximately $2.9 billion in uncollected costs to procure electricity for customers in California's wholesale market. Wholesale electric prices this summer skyrocketed to levels as much as five times higher than last year's prices. Rates for retail customers, however, have been frozen at levels far below wholesale prices. As a result, the utility has been unable to collect all of its energy procurement costs through customer rates as intended under the electric restructuring process in California.

The company reported the potential adverse impact of these growing costs in an 8-K filing with the Securities and Exchange Commission in September. At the same time, the company emphasized that it would focus on working collaboratively to resolve the crisis. Those efforts included asking the California Public Utilities Commission (CPUC) to reconsider a ruling that prohibited California utilities from recovering uncollected energy procurement costs after the end of the transition to a competitive market and the end of the customer rate freeze. In a ruling last week, the CPUC announced it will reopen its earlier decision.

The company remains focused on working with all parties to develop a fair and workable resolution that ensures the continued financial health of the utility and protects customers against sudden and dramatic rate increases like those seen in San Diego over the summer.

The uncollected power procurement costs do not immediately impact the utility's earnings because they are being tracked in an account for future recovery. In the meantime, the utility is using its borrowing capability to pay these costs on behalf of its customers.

PG&E National Energy Group

The PG&E National Energy Group (NEG) continued to make strong contributions to the Corporation's overall results, with earnings from operations of $0.10 per share for the quarter. The period was the unit's third consecutive quarter marked by solid performance and continued success in executing its strategy for growth. The results exclude a non-recurring charge of $0.01 per share associated with the consolidation of the NEG's business in Bethesda, Md., as well as a one-time charge of $0.05 per share reflecting a true-up following the close of NEG's sale of its energy services operations.

Performance in the NEG remained solid across the board. In the electric generation operations, the Corporation said the NEG's Northeast plants turned in strong results despite the cool summer, as the majority of its power in the region is sold under fixed contracts. The unit's gas transmission operations also performed well, with increased demand for capacity on the NEG's Northwest pipeline, which continues to operate at 100 percent of current capacity. Positive power and gas trading margins led to the favorable performance within the energy trading operation.

The Corporation said the sustained earnings performance has the NEG on track to meet its goal of delivering 30 percent of the Corporation's earnings by 2002.

The third quarter also saw the NEG continue to achieve important milestones in its strategy to grow its business, both in the power generation and natural gas transmission markets. In its efforts to expand its portfolio of controlled megawatts* (MW), the NEG moved forward with power plant development and construction projects, and it continued to secure additional capacity through strategic tolling agreements.*

Among the highlights for the quarter, the NEG contracted for 50 gas turbines representing 16,000 megawatts of capacity; announced a 10-year 160-megawatt tolling agreement with DTE Energy Services that gives the NEG its first asset in the Midwest; acquired a 500-megawatt merchant plant under construction in Mississippi; launched development on a new 1,000-megawatt facility near Las Vegas; and completed a successful open season process for the North Baja pipeline project, with expressions of interest for more than double the capacity of the pipeline.

"The results posted by the National Energy Group and Pacific Gas and Electric Company this quarter reflect continued solid execution and strong forward momentum," said Robert D. Glynn, Jr., PG&E Corporation Chairman, CEO, and President. "We remain on track to surpass by several percentage points our goal of growing operating earnings per share by 8 to 10 percent for 2000."

Actions to Date to Address Wholesale Electric Market Problems in California

In light of the wholesale electric market problems in the state, Glynn indicated that the company has taken a number of actions in recent weeks with the objective of reducing wholesale prices and managing the impact on utilities and their customers.

He noted that Pacific Gas and Electric Company made several filings at the Federal Energy Regulatory Commission (FERC) throughout the third quarter asking the commission to implement immediate relief in the form of price caps, initiate market mitigation measures, and immediately commence hearings to address the California market. The company also asked the FERC to consider refunds of wholesale power costs if FERC's investigation reveals that unjust and unreasonable rates were charged.

The utility also has taken action to mitigate future volatility in the price of electricity by expanding energy conservation and energy efficiency initiatives, and identifying substations where small generation units can be placed to provide additional power at critical times. In addition, after receiving regulatory authority in August to buy electricity outside of the Power Exchange, directly from other suppliers, the utility said it has entered into bilateral contracts for term power for a portion of its load to stabilize prices and hedge against price volatility. The company said it expects to pursue and enter into similar arrangements going forward.

The Corporation pointed to projects its NEG is undertaking to help resolve the power crunch and ensure reliability of California's electric supply. In the near term, the NEG plans to begin operation of a 49-megawatt peaker unit in San Diego County in time for the summer of 2001. Plans for additional capacity beyond next summer include the La Paloma plant now under construction near Bakersfield, Ca., as well as other new plants in development in the West.

The Corporation also applauded the steps by a number of other parties toward developing a workable solution to the challenge in California. It noted that the ISO is currently working on market mitigation efforts, including the approval of up to $255 million for peaking capacity contracts to meet next summer's demand; the FERC and the CPUC have opened investigations and have held hearings on the issue; and Governor Gray Davis has underscored the importance of addressing this issue to ensure the continued health of the state's economy, calling on FERC to further reduce price and bid caps on wholesale power sold in California.

"We believe the stakeholders in California understand the need for a fast solution to the problems in the wholesale electric market," said Glynn, "and we are confident that such a solution can be developed and implemented soon, especially in light of the positive steps now being taken to address the situation."

* Terms Used in This Release

Controlled Megawatts - Electric generating capacity which PG&E Corporation has the rights to sell in the wholesale marketplace, either through full or partial ownership of generating assets, or through contractual agreements.

Tolling Agreement - Contracts that provide PG&E Corporation with the rights to sell electricity generated by facilities owned and operated by another party. Under such arrangements, PG&E Corporation supplies the fuel to the power plant, and then sells the plant's output in the competitive market.

This press release contains forward-looking statements about the 2001 and 2002 earnings per share from operations that are necessarily subject to various risk and uncertainties. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. Although PG&E Corporation and the Utility are not able to predict all of the factors that may affect future results, some of the factors that could cause future results to differ materially include: the outcome of the Utility's regulatory proceedings; whether and to what extent the Utility is determined to be responsible for the Independent System Operator's charges billed to the Utility; the extent to which the California Department of Water Resources' revenue requirements is allocated to the Utility and the impact such allocation may have on the Utility's financial condition and results of operation; the pace of the Utility's Bankruptcy Court proceedings and the effect of the Utility's bankruptcy on PG&E Corporation and PG&E NEG; the regulatory, judicial, or legislative actions (including ballot initiatives) that may be taken to meet future power needs in California, mitigate the higher wholesale power prices, provide refunds for prior power costs, or address the Utility's financial condition; the extent to which the Utility's under-collected wholesale power purchase costs may be collected from customers; any changes in the amount of transition costs the Utility is allowed to collect from its customers, and the timing of the completion of the Utility's transition cost recovery; future market prices for electricity and future fuel prices, which in part, are influenced by future weather conditions, the availability of hydroelectric power, and the development of competitive markets; the timing and amount of valuation of the Utility's hydroelectric and other non-nuclear generation assets; future operating performance at the Diablo Canyon Nuclear Power Plant (Diablo Canyon), and the future ratemaking applicable to Diablo Canyon; legislative or regulatory changes, including the pace and extent of the ongoing restructuring of the electric and natural gas industries across the United States; future sales levels, general economic and financial market conditions; the extent to which the current or planned generation, pipeline, and storage capacity development projects of PG&E NEG are completed and the pace and cost of such completion including the extent to which commercial operations of these development projects are delayed or prevented because of various development and construction risks such as PG&E NEG's failure to obtain necessary permits or equipment, the failure of third-party contractors to perform their contractual obligations, the failure of equipment to perform as anticipated, or an inability to obtain equipment or labor on acceptable terms; the extent and timing of generating, pipeline, and storage capacity expansion and retirement by others; illiquidity in the commodity energy market and PG&E NEG's ability to provide the credit enhancements necessary to support its trading activities; the extent to which unfavorable conditions in the general economy, the energy markets or equity markets affect PG&E NEG's ability to obtain capital for its planned development projects and future acquisitions on acceptable terms while preserving PG&E NEG's credit quality; restrictions imposed upon PG&E NEG under certain term loans of PG&E Corporation; fluctuations in commodity gas, natural gas liquids, and electric prices and the ability to successfully manage such price fluctuations; the effect of compliance with existing and future environmental laws, regulations, and policies, the cost of which could be significant; and the outcome of pending litigation.

PG&E CORPORATION
CONDENSED STATEMENT OF CONSOLIDATED INCOME
(unaudited)

 

Three months ended September 30,
Nine months ended September 30,
 
(in millions, except per share amounts)
2000
1999
2000
1999
 
Operating Revenues
Pacific Gas and Electric Company
$
2,523
$
2,587
$
7,037
$
6,905
PG&E National Energy Group
PG&E Generating
290
275
883
818
PG&E Gas Transmission
– Texas
258
177
707
970
– Northwest
64
56
177
166
PG&E Energy Trading
4,777
3,490
10,493
8,145
Eliminations and Other
(408)
(368)
(1,147)
(979)
Total operating revenues
7,504
6,217
18,150
16,025
Operating Expenses
                     
Cost of energy for Pacific Gas and
2,234
864
4,187
2,183
Electric Company
                     
Cost of energy–PG&E National Energy
4,618
3,394
10,137
8,415
Group
                     
Deferred electric procurement costs
(2,176)
(2,789)
Operating expenses, including                      
depreciation
2,199
1,443
4,688
3,970
Total operating expenses
6,875
5,701
16,223
14,568
Operating Income
629
516
1,927
1,457
Interest expense and other
(146)
(170)
(484)
(502)
Income Before Income Taxes
483
346
1,443
955
Income taxes
239
149
671
395
Income before discontinued operations
and cumulative effect of a change in
       
accounting principle
244
197
772
560
Discontinued operations
Loss from operations of PG&E
Energy Services (net of applicable
income tax of $9 million and
       
$26 million, respectively)
(12)
(34)
Loss on disposal of PG&E Energy
Services (net of applicable income
       
taxes of $13 million)
(19)
(19)
 
Income before cumulative effect of
a change in accounting principle
225
185
753
526
Cumulative effect of a change in an
accounting principle (net of appli-
cable income taxes of $8 million)
12
Net income
$
225
$
185
$
753
$
538
Weighted Average Common Shares                      
Outstanding
362
367
361
369
Earnings Per Common Share, Basic
Income from continuing operations
$
0.67
$
0.53
$
2.14
$
1.52
Discontinued operations
(0.05)
(0.03)
(0.05)
(0.09)
Cumulative effect of change in
accounting principle
0.03
 
Net Income
$
0.62
$
0.50
$
2.09
$
1.46
Earnings Per Common Share, Diluted
Income from continuing operations
$
0.67
$
0.53
$
2.12
$
1.51
Discontinued operations
(0.05)
(0.03)
(0.05)
(0.09)
Cumulative effect of change in
accounting principle
0.03
 
Net Income
$
0.62
$
0.50
$
2.07
$
1.45
                     
Dividends Declared Per Common
$
0.30
$
0.30
$
0.90
$
0.90
Share
Earnings and earnings per share for PG&E Corporation's lines of business are as follows:
Earnings (millions)
Earnings (millions)
Three months ended September 30,
Nine months ended September 30,
2000
1999
2000
1999
Utility
Pacific Gas and Electric
$
211
$
179
$
655
$
498
Company (a)
                     
PG&E National Energy Group
PG&E Generating
16
21
70
77
PG&E Gas Transmission
– Texas
(7)
(33)
– Northwest
16
18
43
46
PG&E Energy Trading
5
(17)
27
(19)
PG&E Energy Services
 
(12)
(34)
Eliminations and Other
3
(10)
(3)
Subtotal - PG&E National Energy
                     
Group
37
6
130
34
             
Earnings from Operations
248
185
785
532
             
Items impacting comparability (b)
(23)
(32)
6
Reported Earnings
$
225
$
185
$
753
$
538
Earnings per Share (Diluted)
Earnings per Share (Diluted)
Three months ended September 30,
Nine months ended September 30,
2000
1999
2000
1999
Utility
Pacific Gas and Electric
$
0.58
$
0.49
$
1.80
$
1.35
Company (a)
                     
PG&E National Energy Group
PG&E Generating
0.04
0.05
0.19
0.21
PG&E Gas Transmission
– Texas
(0.02)
(0.10)
– Northwest
0.04
0.05
0.12
0.12
PG&E Energy Trading
0.02
(0.05)
0.08
(0.05)
PG&E Energy Services
 
(0.03)
(0.09)
Eliminations and Other
0.01
(0.03)
(0.01)
Subtotal - PG&E National Energy
                     
Group
0.10
0.01
0.36
0.08
             
Earnings from Operations
0.68
0.50
2.16
1.43
             
Items impacting comparability (b)
(0.06)
(0.09)
0.02
Reported Earnings
$
0.62
$
0.50
$
2.07
$
1.45

(a) 1999 results for Pacific Gas and Electric Company do not include the impacts associated with the delayed decision on the Company's 1999 General Rate Case (GRC), which was resolved in February 2000 and retroactive to January 1, 1999. The effects of the 1999 GRC were recorded in the fourth quarter of 1999 and would have increased 1999 third quarter and year-to-date earnings by $38 ($0.11 per share) and $115 ($0.32 per share).

(b) Items impacting comparability in 2000 include loss on disposal of assets, net of tax, of $19 million ($0.05 per share) resulting from a true-up following sale of the energy services operations and relocation and severance charges related to the restructuring of the PG&E National Energy Group of $4 million ($0.01 per share) in the third quarter and $13 million ($0.04 per share) in the nine months ended September 30, 2000. Items impacting comparability in the nine-month period ending September 30, 1999 include a restructuring charge of $6 million ($0.01 per share) incurred at PG&E Gas Transmission and income from a change in accounting principle at PG&E Generating of $12 million ($0.03 per share).


 

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