PG&E’s Earnings Off 71% in Quarter

PG&E; Corp. said Thursday that its once-shining subsidiary that builds power plants and trades energy is losing money, resulting in a 71% plunge in net income for the second quarter.

PG&E;’s stock price fell nearly 30%, or $4.14 a share, to close at $9.76 on the New York Stock Exchange on news of the lower earnings and a credit downgrade to “junk” late Wednesday of the troubled subsidiary, National Energy Group, by Standard & Poor’s Corp.

San Francisco-based PG&E; said its utility, Pacific Gas & Electric Co., is operating profitably in U.S. Bankruptcy Court. The utility, which provides power to much of Northern and Central California, is not expected to suffer immediate problems as a result of the parent company’s earnings performance.

PG&E; Corp. reported second-quarter net income of $218 million, or 59 cents a share, compared with $750 million, or $2.07, a year earlier. Several charges contributed to the earnings reduction, including a $159-million write-down of turbines and power plant projects by National Energy Group, which is slashing its plant building program. Revenue rose to $5.8 billion from $5 billion.

PG&E; said it faced $1.6 billion in new collateral demands from creditors because of the two-notch downgrade of National Energy Group to BB+, and it could face an additional $1 billion in collateral requirements if Moody’s Investors Service Inc. also downgraded the unit’s credit rating to junk status.

Executives of the parent firm said in a conference call with analysts that the company had enough cash and credit if it had to pay the $1.6 billion but would need to renegotiate its credit agreements if Moody’s were to issue a downgrade.

PG&E; Corp. Chairman and Chief Executive Robert D. Glynn Jr. said the company was confident it would be able to reach agreement with its lenders on additional security requirements for loans triggered by the downgrades.

“NEG and others in the sector are facing difficult wholesale power conditions,” Glynn said. “The credit rating situation is a challenge. We have prepared a contingency plan for the downgrade, and we are implementing that plan.”

PG&E;’s shares fell in part because investors are worried that the company might have difficulty negotiating with creditors, said Paul Fremont, an analyst with Jefferies & Co. who has a “hold” rating on the stock. PG&E; executives “are optimistic, but they’re not in the driver’s seat,” he said.

Separately, Calpine Corp., an independent power plant builder and trader based in San Jose, posted a nearly 33% decline in net income because of sharply lower power and natural gas prices in the last year and the collapse of the wholesale energy market after the fall of Enron Corp. in December. Calpine’s stock fell 77 cents, or more than 15%, to close at $4.20 on the NYSE.

Calpine said second-quarter net income dropped to $72.5 million, or 19 cents a share, from $107.7 million, or 32 cents, in the year-earlier period. In the first quarter, Calpine lost $74.3 million.

Second-quarter revenue rose 20% to $16.3 billion.

PG&E;’s National Energy Group has suffered from the same market problems as Calpine, and it reported an operating loss of $21 million, or 6 cents a share, compared with earnings from operations of $71 million, or 19 cents, a year earlier.

Pacific Gas & Electric, which filed for Chapter 11 bankruptcy protection in April 2001, contributed second-quarter operating income of $201 million, or 54 cents a share, compared with $175 million, or 48 cents, a year earlier.

The parent corporation’s woes began in 2000 when power prices soared beyond what its largest subsidiary, Pacific Gas & Electric, could charge customers in rates. In the last year, power prices have dropped significantly and the utility is collecting much more from its customers than it needs. That so-called headroom totaled $366 million in the second quarter.

When operating income for the quarter is measured with headroom included, PG&E; Corp. had a healthier quarter, earning $552 million, or $1.49 a share, compared with $393 million, or $1.08, in the year-earlier quarter. Headroom, which reflects power costs that were written off during the energy crisis, is not included in net income because of remaining uncertainty surrounding the bankruptcy case.

PG&E; lowered its predictions of how much it expects to earn this year to $2.25 to $2.35 a share, excluding headroom, from previous estimates of $2.50 to $2.55.