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SAN FRANCISCO – PG&E Corp. disclosed deepening financial troubles Thursday that threaten to push its once-prosperous energy trading business into bankruptcy court alongside its utility, Pacific Gas and Electric Co. 

The challenges facing PG&E’s National Energy Group emerged during a management conference call held to discuss the company’s disappointing second-quarter results and a potentially debilitating downgrade of National Energy’s credit rating. 

National Energy’s headaches contributed to a 71 percent decline in PG&E’s second-quarter profit. The San Francisco-based company earned $218 million, or 59 cents per share — down from $750 million, or $2.07 per share, at the same time last year. 

The results included a $21 million operating loss at National Energy and a $159 million charge to pay for cutbacks in National Energy’s ambitious expansion plans. Another charge is expected in the third quarter to cover additional cost-cutting moves. 

The bad news began late Wednesday when Standard & Poor’s dumped National Energy’s credit rating into junk territory late Wednesday. 

The downgrade could force National Energy immediately to repay or restructure about $1.7 billion in loans from creditors that demand an investment-grade rating, management said Thursday. 

PG&E will fall into technical default on an additional $1.3 billion in debt if another major credit rating agency, Moody’s Investor Service, follows S&P’s lead and slaps the junk label on National Energy. 

“There is no question in my mind that bankruptcy is a real concern now,” said industry analyst Paul Fremont of Jefferies & Co. “Management has no control over the situation now. It is in the hands of the creditors.” 

The specter of another bankruptcy just as Pacific Gas and Electric regains its financial footing spooked investors. 

PG&E’s shares plummeted $4.14, or 30 percent, to close at $9.76 Thursday on the New York Stock Exchange. Earlier in the day, PG&E’s shares traded for as little as $8 — a new 52-week low. 

“Unless things unravel really quickly, this is probably an overreaction,” said industry analyst Mike Worms of Gerard Klauer Mattison. “But bankruptcy is a definite possibility (for National Energy). In a market like this, people just don’t want to deal with uncertainty like that.” 

PG&E believes it has enough financial leeway to cope with the ratings setback and the bleak market conditions expected to weaken National Energy in the months ahead. 

As a cushion, National Energy can fall back on $732 million in cash and several credit lines, management told investors Thursday. The parent company had about $600 million in cash as of June 30. 

“The credit rating action is a challenge,” said PG&E Chairman Robert Glynn said during the conference call. “We prepared a contingency plan and we are implementing it.” 

S&P’s downgrade stems in part from a more conservative approach taken toward energy trading operations since last fall’s collapse of Enron, once the industry leader. 

The concerns also reflect a dramatic reversal in the nation’s power supply. With an energy shortage driving up prices in 2000 and 2001, wholesalers opened more plants, creating a glut. 

That about-face has grounded formerly high-flying power merchants, including National Energy – considered the most promising part of PG&E’s business a year ago. 

Even as its embattled utility limped into bankruptcy court in April 2001, National Energy thrived, posting an operating profit of $71 million during last year’s second quarter. National Energy earned $162 million in 2000 — a year in which its parent company lost $3.4 billion. 

PG&E had such high hopes for National Energy that management insulated the subsidiary from the utility’s downfall through a series of financial maneuvers known as “ring-fencing.” Ironically, the move was designed to preserve National Energy’s credit rating. 

Now, that National Energy is flirting with bankruptcy, the ring-fencing may end up shielding the utility from the fallout. 

PG&E warned National Energy’s woes will cause this year’s earnings to fall $75 million to $100 million — 20 cents to 25 cents per share — below management’s previous projections. The change represents an 8 percent to 10 percent reduction in the company’s anticipated earnings. 

Meanwhile, the utility has emerged as the healthiest part of PG&E, earning $567 million in the second quarter, a 74 percent increase from a $325 million profit at the same time last year. 

Through the first half of this year, PG&E earned $849 million, or $22.9 per share, on revenue of $10.5 billion. At the same juncture last year, the company had lost $201 million, or 55 cents per share, on revenue of $11.7 billion.