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Troubled Unit Drags Down PG&E Profit

November 14, 2002|Nancy Rivera Brooks | Times Staff Writer

PG&E Corp. said Wednesday that third-quarter net income fell 40% because of deterioration at its subsidiary that builds power plants and trades energy, which will begin defaulting on its debts today.

For the July-to-September period, PG&E reported net income of $466 million, or $1.19 a share, down from $771 million, or $2.12, a year earlier. Net income was affected by several charges, including $75 million in interest costs from the state's energy crisis and the bankruptcy of PG&E's utility, and $32 million for bankruptcy legal and financial advice.

Revenue grew 8.1% to $4 billion from $3.7 billion.

The San Francisco company said its Pacific Gas & Electric Co. utility, which filed for Bankruptcy Court protection in April 2001, turned in a strong performance during the quarter. But National Energy Group, its unregulated power-generation and trading unit, suffered a nearly 60% drop in profit due to the lower power prices and tighter credit that have hurt the entire energy merchant sector.

PG&E Chief Executive Robert D. Glynn Jr. said National Energy Group is talking with creditors to develop a "consensual restructuring plan" because the Bethesda, Md.-based unit can no longer pay its debts, beginning with a $431-million loan due today and an additional $52 million due Friday.

A PG&E spokesman said NEG, which laid off 178 people during the quarter, is working with creditors to avoid bankruptcy and may be forced to abandon or sell assets.

Moody's Investors Service responded by downgrading five types of National Energy Group debt, totaling $3.4 billion, by as many as four notches to as low as Ca. That translates into a "highly speculative" rating on the Moody's scale.

"PG&E Corp. had a number of important successes in the third quarter and some significant challenges," Glynn said in a morning conference call with investors and analysts.

PG&E's stock rose 23 cents to $11.60 on the New York Stock Exchange.

Analyst Michael S. Worms of Gerard Klauer Mattison said National Energy Group faces "potentially fairly large write-downs."

"Everything else was in line with expectations as much as it can be for a company with a utility in bankruptcy and NEG half a step away," Worms said.

Pacific Gas & Electric Co., which ran up huge power debts during the California energy crisis of 2000-2001, has been steadily shrinking those debts because the rates the utility collects from customers are now higher than the cost of power.

That excess collection, known as "headroom," totaled $376 million, or 95 cents a share, in the third quarter.

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