http://www.capitolalert.com/news/capalert01_20010417.html

Energy crisis sends PG&E Corp. reeling

By Dale Kasler, Bee Staff Write

(Published April 17, 2001)

Detailing the full effect of the financial chaos that eventually plunged Pacific Gas and Electric Co. into bankruptcy, the utility's corporate parent PG&E Corp. Monday reported a $3.36 billion loss for 2000.

Reporting to shareholders 10 days after putting its utility subsidiary under bankruptcy protection, PG&E said it absorbed a $4.12 billion loss in the last three months of the year, turning what had been a profitable year into a complete nightmare.

The dismal report stood in stark contrast to the robust report posted by one of the utility's many electricity suppliers, Houston-based Reliant Energy Inc., which said profits doubled in the first quarter of this year thanks in large part to sales to California. Consumer advocates and Gov. Gray Davis seized on Reliant's earnings as further evidence that regulators must crack down on power generators and the prices they charge utilities.

Those rising wholesale prices, coupled with a freeze on retail rates, turned PG&E from a powerful energy conglomerate into a financial basket case in just a few months. PG&E had delayed the release of its fourth-quarter earnings for months as it tried to get its hands around its rapidly deteriorating condition.

But the final numbers were hardly a matter of suspense, given the publicity surrounding PG&E's troubles and the company's declaration in March that it would take a $6.9 billion charge against earnings -- or $4.1 billion after taxes -- to reflect the staggering losses it piled up in the quarter.

"It looks pretty much in line (with expectations)," said analyst Douglas Christopher of Crowell, Weedon & Co. in Los Angeles. The $4.1 billion charge represented a formal declaration, required by accounting standards, that PG&E doesn't expect to recover the bulk of the money it spent buying power from wholesale generators.

But the company remained adamant that it will pursue a lawsuit pending in U.S. District Court that attempts to force state regulators into a rate hike far beyond what regulators have approved. "Taking this charge does not diminish our conviction that the utility is entitled under law to recover these costs," PG&E Chairman Robert D. Glynn Jr. said in a prepared statement. The fourth-quarter loss amounted to $11.34 a share; the full-year loss was $9.29 a share.

Edison International, the parent of California's other troubled utility, Southern California Edison, is scheduled to release its long-awaited fourth-quarter earnings today, and the results are expected to be grim as well. Edison has predicted it will take a $2.7 billion post-tax charge against earnings. Edison's board Monday voted to defer dividend payments on preferred stock.

Edison has agreed to sell its transmission lines to the state as a means of generating enough cash to avoid bankruptcy. PG&E, in a separate filing Monday with the Securities and Exchange Commission, said its financial troubles were costly to two top executives.

Glynn didn't receive the $1.2 million bonus he'd gotten in 1999, although his base salary was raised to $900,000 from $800,000. Gordon Smith, the chief executive of the utility company, lost out on the $460,000 bonus he'd gotten the year before but got a raise in base salary to $630,000 from $550,000.

PG&E's earnings were released after the stock market closed. PG&E shares climbed 19 cents to $8.84, while Edison's fell 15 cents to $11.85.

Meanwhile, Reliant Energy, one of a handful of out-of-state generators and energy traders that have profited handsomely at PG&E and Edison's expense, reported a doubling of first-quarter profits, to $274 million from $134 million a year earlier.

"Our outstanding quarter was due mostly to improved performance in our wholesale energy business," Reliant Chief Executive Steve Letbetter said in a conference call with analysts. The results beat Wall Street analysts' projections -- sending Reliant shares up $1.46 to $47 -- and provided fresh fodder for critics of the power generators.

The Utility Reform Network repeated its calls for a windfall profits tax on power generators, while Davis blasted the generators and the Federal Energy Regulatory Commission, which has declined his requests to cap wholesale prices.

"Energy companies in general have taken price-gouging and manipulation to exorbitant levels," said Davis spokesman Steve Maviglio. "FERC commissioners ... should resign in shame. "Although it won't cap prices, FERC has ordered generators to make refunds totaling $134 million for prices it called excessive. California's power grid manager, the Independent System Operator, has said it has documented excessive prices totalling $6.2 billion since last spring.

The power generators acknowledge they might not be able to collect everything they've earned in California. On Monday Reliant took a $38 million "reserve" for potentially uncollectible debts. A reserve is an accounting step that depresses earnings.

Reliant had taken an additional $39 million reserve three months ago. Atlanta-based Mirant Corp. has said it is prepared to take a $295 million reserve, reflecting about three-quarters of the debt it's owed by PG&E and Edison. Separately, Enron Corp. said it is owed $570 million by PG&E, according to papers filed in U.S. Bankruptcy Court.

The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com.

-- Swissrose (cellier3@mindspring.com), April 17, 2001

Answers

As bad as it has been, it looks to me like the horrible story of California energy is just beginning to unfold. I look for many many rolling blackouts there this summer when the temps rise into the high 90's and low 100's.

-- Uncle Fred (dogboy45@bigfoot.com), April 17, 2001.

Biggest question here is: Which is the most hopeless basket case: PG & E, or Southern Cal. Ed?

-- Wellesley (wellesley@freeport.net), April 17, 2001.