01—Abstract
Summary
Summary of the 10-K filed March 8, 2000. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation reported a 1999 net loss of $73 milliona, or $0.20 per share, compared with net income of $719 million, or $1.88 per share, in 1998.
The decline is principally attributed to an approximately $890 millionb after-tax write-down of its Texas natural gas business (PG&E Gas Transmission, Texas), which is being sold to El Paso Field Services Company, and a $58 million after-tax charge for the discontinued PG&E Energy Services operations. Partly offsetting these charges, the Utility's income rose to $763 million available for common stock from $702 million, primarily due to the February 17, 2000 final decision in the 1999 General Rate Case, which increased electric distribution revenues by $163 million and gas distribution revenues by $93 million retroactive to January 1, 1999 (a $153 million, or $0.42 per share, earnings benefit recorded in the fourth quarter). The central investor issue is the end of California's electric rate freeze and transition period.
The filing states that the Utility is at risk of recovering remaining generation costs through market-based revenues after the transition period, which ends by December 31, 2001 at the latest. Valuation of the Utility's hydroelectric assets through a proposed CPUC-approved auction, with a final CPUC decision on the proposal due by October 19, 2000, could either shorten the transition period or, if valued below book, produce a material charge to earnings. The CPUC also ordered Diablo Canyon to be priced at prevailing market rates after the transition period and required future benefit sharing with ratepayers.
The company's common stock dividend remained at $1.20c per share annualized, and the filing notes that certain hydroelectric valuation methods could necessitate a waiver of the CPUC's authorized capital structure to maintain that dividend. Total assets were $29.7 billion at December 31, 1999, and operating revenues were $20.8 billion.
The Utility generated $9.2 billiond in operating revenues. Management also disclosed pending litigation, including Aguayo chromium claims involving approximately 900 plaintiffs with a trial date of November 17, 2000, and Texas franchise fee litigation for which a $12.2 million class settlement was under negotiation, and it reported a $271 million accrued environmental remediation liability.
02—Key points
Key Highlights
- 1999 net loss of $73 million ($0.20 per share) versus 1998 net income of $719 million ($1.88 per share), driven by the PG&E GTT write-down of about $890 million after tax and a $58 million after-tax charge for discontinued PG&E Energy Services operations
- Utility income available for common stock rose to $763 million from $702 million, largely reflecting the 1999 General Rate Case decision that increased electric distribution revenues by $163 million and gas distribution revenues by $93 million
- Sale of PG&E Gas Transmission, Texas to El Paso Field Services Company agreed January 27, 2000, with $279 million in cash, assumption of $624 million of debt, and closing expected in the first half of 2000 subject to Hart Scott Rodino approval
- Electric rate freeze and transition period end by December 31, 2001 at the latest; after the transition period the Utility bears risk of recovering remaining generation costs through market-based revenues
- Proposed auction of the Utility's hydroelectric generation assets, with a final CPUC decision due by October 19, 2000, could produce a material charge to earnings if valued below book or sold to PG&E Gen
- Common stock dividend maintained at $1.20 per share annualized, though certain hydroelectric valuation methods could require a waiver of the CPUC authorized capital structure to continue current dividend levels
- Total assets of $29.7 billion and operating revenues of $20.8 billion at PG&E Corporation for 1999
03—Questions
Frequently Asked Questions
Why did PG&E Corporation report a net loss in 1999?
The net loss of $73 million, or $0.20 per share, was principally due to an approximately $890 million after-tax write-down of PG&E Gas Transmission, Texas assets to their fair market value, and a $58 million after-tax provision for the discontinued PG&E Energy Services operations. Utility earnings growth partly offset these charges.
What does the end of the rate freeze mean for the Utility?
The transition period ends the earlier of December 31, 2001, or when the Utility has recovered its eligible transition costs. After the rate freeze, the Utility must price Diablo Canyon at prevailing market rates and cannot collect electric costs incurred during the freeze but not recovered, and it is at risk to recover remaining generation costs through market-based revenues. The filing states it is unable to predict the amount of potential unrecoverable costs.
What is the status of the planned sale of the Texas gas business?
On January 27, 2000, the National Energy Group signed a definitive agreement with El Paso Field Services Company to sell the stock of PG&E Gas Transmission, Texas Corporation and PG&E Gas Transmission Teco, Inc. Consideration includes $279 million in cash subject to a working capital adjustment and assumption of $624 million in debt. Closing is expected in the first half of 2000 and is subject to Hart Scott Rodino approval.
How could the hydroelectric asset auction affect earnings?
The Utility's book value of net investment in hydroelectric assets is about $0.7 billion, plus about $0.5 billion reclassified as regulatory assets. Any market value above that would reduce transition costs. However, if market value is determined by a method other than a third-party sale, or if PG&E Gen wins the auction, a material charge to Utility earnings could result. The CPUC's final decision on the auction proposal is due by October 19, 2000.
Is the dividend at risk?
The filing states the quarterly common dividend is $.30 per share, or $1.20 annualized, and that the company believes the CPUC capital structure requirement will not affect its ability to pay common dividends. However, depending on the timing and outcome of hydroelectric asset valuation, certain methods could necessitate a waiver of the CPUC's authorized capital structure to continue paying dividends at the current level.
04—Continue