PG&E; Income Leaps Threefold
PG&E; Corp., whose utility arm has operated for the last seven months under bankruptcy law protection, said Monday that net income more than tripled, primarily because it is collecting more from customers than it needs to supply them with electricity.
The San Francisco-based company also got a profit boost from its unregulated energy trading and power generation business.
Pacific Gas & Electric and Edison International unit Southern California Edison became technically insolvent early this year after months of absorbing sky-high wholesale electricity costs. Under the state’s deregulation law, rates for most customers were frozen and the utilities were not allowed to pass along the higher power costs.
PG&E;'s income leap was telegraphed two weeks ago when Southern California Edison reported a threefold increase in operating earnings. The profit was made possible by two events: In March, state regulators approved a record retail rate increase; in July, wholesale electricity prices started to plummet.
That combination caused PG&E;'s net income to jump to $771million, or $2.12 per share, from $225 million, or 62 cents, in the third quarter of last year.
The corporation posted a mere 3.2% increase in operating income for the quarter to $256 million, or 70 cents per share, from $248 million, or 68 cents per share. The increase is relatively small because even though the utility collected $687 million more from customers than it spent on electricity between July and September, PG&E; chose not to recognize that “headroom” as operating income.
PG&E; reported several extraordinary items, including $25million in bankruptcy costs.
Analysts had expected PG&E; to report operating earnings of 78 cents per share, based on the average of five analysts surveyed by Thomson Financial/First Call. PG&E;'s stock rose 43cents to close at $18.36 on the New York Stock Exchange.
“We had a good quarter based on earnings from operations and an even better one when headroom ... is factored in,” said Robert D. Glynn Jr., PG&E; chairman and chief executive.
The corporation’s utility arm, Pacific Gas & Electric Co., filed for bankruptcy law protection April 6 after it became frustrated with the pace of state efforts to rescue the utility from its $9 billion in accumulated electricity debts. PG&E; wrote off those costs in the fourth quarter of last year and the first quarter of this year, leading to losses.
SCE plans to pay off its debts under a settlement with the California Public Utilities Commission that would maintain current utility rates until the debts are erased. Glynn said Monday that PG&E; is uninterested in such an arrangement, preferring to pursue its reorganization plan in U.S. Bankruptcy Court to spin off the utility after transferring its generation assets to an unregulated PG&E; Corp. subsidiary.
PG&E;'s unregulated National Energy Group, which builds power plants and is a wholesale energy trader, increased its income from operations 108% to $77 million, or 21 cents per share, from $37million, or 10 cents per share. The subsidiary recorded an after-tax gain of $12 million, or 4 cents a share, from the sale of a San Diego power plant project.
Consumer activist Nettie Hoge said National Energy Group’s healthy earnings underscore why PG&E; wants to restructure the corporation through Bankruptcy Court. “‘Headroom’ is just a euphemism for gouging,” said Hoge, executive director of the Utility Reform Network.
The earnings reflect why PG&E; is seeking to move assets from a regulated to an unregulated subsidiary, she said, “because they’re so much more profitable that way.”