PG&E reports 40 percent drop in third-quarter profit

By Michael Liedtke The Associated Press
Thursday November 14, 2002

SAN FRANCISCO — PG&E Corp. on Wednesday reported a 40 percent drop in its third-quarter profit, dragged down by the bankruptcy costs of its utility and deepening troubles at the company’s unregulated energy trading division. 

The San Francisco-based company earned $466 million, or $1.19 per share, for the three months ended Sept. 30, down from $771 million, or $2.12 per share, from the same time last year. Revenue totaled $4 billion, an 8 percent increase from last year. 

Despite the plunge in its reported net income, PG&E said its operating profit rose slightly from a year ago. 

After stripping out accounting charges and the extra revenue that PG&E’s utility is allowed to collect to cover its past costs, the company said it made $274 million in this year’s quarter compared with $256 million last year. 

The third-quarter operating profit translated into 69 cents per share, topping the consensus estimate of 60 cents per share among analysts polled by Thomson First Call. 

PG&E’s shares gained 23 cents to close at $11.60 Wednesday on the New York Stock Exchange. 

The third-quarter results included $107 million in charges tied to California’s past energy woes and the 19-month-old bankruptcy of the company’s biggest business, utility Pacific Gas and Electric. PG&E hopes to extract the utility from bankruptcy proceedings by May 30 next year. 

PG&E will lose $20 million per quarter if the utility remains stuck in bankruptcy beyond May 30, company executives told investors during a conference call Wednesday. 

The deteriorating finances of PG&E’s National Energy Group, a formerly thriving power wholesaler, is emerging as a bigger problem for the company. 

The parent company warned National Energy will begin defaulting on its outstanding debt Thursday when the division will miss a deadline on a scheduled $431 million payment. All told, National Energy could default on nearly $1.5 billion in obligations during the next six months, PG&E executives said Wednesday. 

Seeking to avoid bankruptcy, National Energy is trying to negotiate new deals with its lenders and bondholders. The alternatives could require National Energy to relinquish power plants. 

“This is a complex and challenging undertaking,” Peter Darbee, PG&E’s chief financial officer, said during Wednesday’s conference call. “We very much believe there is a path to resolution that can work for all parties involved.” 

The solutions will probably force PG&E to absorb substantial charges either in this year’s final quarter or next year, executives said. Writing off all of National Energy’s assets would result in a $1 billion loss, PG&E management said. 

The parent company absorbed $97 million in third-quarter charges to account for cutbacks and other financial adjustments that the company has made to cushion the blow from National Energy’s downfall.