PG&E Corp. reports first quarter financial results

SAN FRANCISCO, May 1, 2002 — PG&E Corp. earned $631 million, or $1.71 per share, in the first quarter of 2002, compared with a loss of $951 million, or $2.62 per share, for the same quarter last year, which included energy crisis-related write-offs and other charges of $1.2 billion, or $3.32 per share, at Pacific Gas and Electric Company.

Earnings from operations for the first quarter were $220 million, or $0.60 per share, compared with $255 million, or $0.70 per share, in the first quarter of 2001.

“Our businesses continue to perform well in 2002,” said Robert D. Glynn, Jr., Chairman, CEO and President of PG&E Corporation. “Financial and operational results for the first quarter are in keeping with our outlook for 2002 as a transition year with regard to resolving the utility’s Chapter 11 case, and managing the challenging market conditions for our national business. We continue to make progress on both fronts.”

Earnings from operations for the quarter consisted of $0.44 per share from Pacific Gas and Electric Company, $0.10 per share from the PG&E National Energy Group (PG&E NEG), and $0.06 per share at the Corporation.

The Corporation also reported income of $176 million, or $0.48 per share, from “headroom” at Pacific Gas and Electric Company for the first quarter of 2002. Headroom is income which reflects the recovery of prior uncollected costs previously written off for GAAP accounting purposes, but which are now being recovered in existing electric rates.

Prior to the energy crisis, and in accordance with California Public Utilities Commission requirements, any such headroom was used to amortize utility costs associated with electric restructuring.

However, for much of 2000 and part of 2001, no such revenues were available as wholesale power prices far exceeded retail rates, and the unrecovered balance of these costs was written off. Subsequently, increases in the utility’s retail rates resulted in headroom once again being available for cost recovery.

Beginning with the first quarter of 2002, in order to provide for greater clarity, the Corporation’s income statement shows earnings from operations both including and excluding headroom. Including headroom, earnings from operations for the first quarter were $396 million, or $1.08 per share. There was no headroom in the first quarter of 2001.

The results for the first quarter also included several items impacting comparability with the prior year’s results. These items are not included in earnings from operations. The company reversed some prior charges previously recorded to cover wholesale energy purchases made last year by the California Independent System Operator (ISO). In March 2002, federal regulators reaffirmed a prior decision barring the ISO from billing non-creditworthy entities for power purchases. The resulting net gain was $352 million, or $0.95 per share. Other items impacting comparability included energy crisis- related and bankruptcy-related costs that, in aggregate, were $117 million, or $0.32 per share.

Pacific Gas and Electric Co.
Earnings from operations at Pacific Gas and Electric Company were $160 million, or $0.44 per share, compared with $203 million, or $0.56 per share, for the same quarter last year. The quarter-over-quarter change reflects comparatively higher operational expenses this year, due primarily to the fact that in the first quarter of 2001 expenditures were curtailed substantially through cash conservation measures at the height of the energy crisis. As expected, the 2002 results also reflect a reduction in contributions from the utility’s California gas transmission operations.

Pacific Gas and Electric Co. continued solid operational performance in the first quarter, consistently delivering safe, reliable and responsive service to its 13 million customers in Northern and Central California. Specific accomplishments included completing contracts to connect 3,100 megawatts of new electric generation to the grid; completing two major transmission line upgrades to improve service and reliability to San Francisco residents; and initiating nine economic development projects designed to foster business growth in the state.

The utility also continued its successful energy efficiency programs during the first quarter. In addition to educating consumers through its toll-free Smarter Energy Line, the utility participated in 62 events and presentations to promote energy efficiency strategies and solutions; helped install energy efficient traffic signals in 117 cities; and completed an $850,000 grant to 13 food banks in its service area for the purchase of energy efficient refrigerators.

PG&E National Energy Group
At the PG&E National Energy Group, earnings from operations were $37 million, or $0.10 per share, for the quarter, compared with $54 million, or $0.15 per share, in 2001. The results included $0.07 per share from the PG&E NEG’s Integrated Energy and Marketing segment, compared with $0.10 per share in 2001, and $0.05 per share from its Interstate Pipeline Operations, compared with $0.05 per share in 2001. First quarter 2002 results also included $0.02 per share in eliminations and other costs.

The results from the PG&E NEG’s Integrated Energy and Marketing segment primarily reflected the continuing low wholesale power prices and the mild winter weather in the Northeast.

PG&E NEG accomplishments for the first quarter included beginning commercial operations at two of the three generating units at the Lake Road Generating Plant in Connecticut; launching construction on the North Baja natural gas pipeline project in Arizona and Southern California; continuing construction on the Gas Transmission Northwest pipeline expansion project, which is scheduled to be complete later this year; and positioning the Plains End power plant in Colorado to begin commercial operation in May. The PG&E NEG also worked intensively during the quarter to expand its construction financing facility, closing the arrangement on April 5 with 17 banks participating for $1.5 billion.

2002 Guidance and Conclusion
The Corporation previously provided 2002 earnings guidance in the range of $3.00 per share for earnings from operations including income from headroom. Today the Corporation provided a separate estimate for earnings from operations without headroom income. Specifically, earnings from operations excluding income from headroom are expected to be in the range of $2.50 to $2.55 per share for 2002.

On a quarterly basis, the amount of income from headroom is expected to fluctuate materially due to many factors, including the outcome of regulatory proceedings and other regulatory actions, changes in estimates of previously incurred energy procurement costs, sales volatility, the level of direct access sales, and the impact of the end of the rate freeze period. The Corporation emphasized that headroom represents cash earnings and has a positive impact on the company’s balance sheet.

“Thanks to the focus and commitment of our team throughout the company,” said Glynn, “our first quarter performance continues to provide a strong platform on which we are moving ahead with Pacific Gas and Electric Company’s plan of reorganization in the bankruptcy court, and on which we can continue strengthening our PG&E National Energy Group business.”

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