Pacific Gas & Electric Corporation

founded: 1905 variant name: pg&e

Contact Information:

headquarters: one market st., spear tower, suite 2400
san francisco , ca 94105 phone: (415)267-7000 fax: (415)267-7262 toll free: (888)263-3269 url: http://www.pgecorp.com

OVERVIEW

The PG&E Corporation is an energy-based holding company with headquarters in San Francisco, California. PG&E has a number of subsidiaries, including Pacific Gas and Electric Company, PG&E National Energy Group, Inc., PG&E Energy Trading, PG&E Gas Transmission Corporation, a gas pipeline manufacturer, and PG&E Generating Company, LLC, which builds and manages power plants. The firm's gas and electric utility subsidiary, Pacific Gas and Electric Company, delivers electric service to approximately 4.8 million customers and natural gas service to approximately 3.7 million gas customers in an area of California that reaches from Bakersfield in the south to Eureka in the north, and from the Sierra Nevada in the east to the Pacific Ocean in the west. The company operates 131,000 miles of electric lines and 43,000 miles of natural gas pipelines. The utility subsidiary filed for bankruptcy following the California energy crisis of the early 2000s.

During the latter half of the 1990s the PG&E Corporation began diversifying its core utility business in California to business in national and international energy markets. PG&E Energy Trading buys and sells energy in various markets in North America. It also owns and operates California's Diablo Canyon Nuclear Power Plant. The PG&E National Energy Group provides a broad range of energy products and services in various North American markets. Among its activities are power generation, transmission of natural gas, and energy trading. It is based in Bethesda, Maryland.

COMPANY FINANCES

Through its various subsidiaries PG&E Corporation sells energy, in the form of gas and electricity, to residential and commercial customers in the Untied States and Canada. It also buys and sells energy and related financial instruments. PG&E Corporation had $22.96 billion in revenues in 2001, down from $26.23 billion in 2000, but up from $20.82 billion in 1999, and $9.61 billion in 1996. Conversely, the company's income fell steadily between 1996 and 2000. The company reported $1.9 billion in 1996, $878 million in 1999, and a loss of $4.81 billion in 2000. A significant portion of the loss was attributable to the skyrocketing cost of energy during the California energy crisis. It only picked up again in 2001 when it reached $2.74 billion. Much of the 2001 profit was attributable to the PG&E utility company in California that was allowed to raise rates in the wake of the state's energy crisis. PG&E Corporation's stock price ranged from a high of $20.94 in 2001 to a low of $6.50. Down from a range of $31.81 to $17.00, the share price clearly reflected the impact of the energy crisis and PG&E Corporation's unsuccessful attempt to spin off its utility subsidiary.

The firm's California utility subsidiary, PG&E Company, sells gas and electricity throughout most of central and northern California. Forty-nine percent of its electricity customers are residential, 41 percent commercial, 7 percent industrial; 75 percent of its gas customers are residential, 24 percent commercial and 1 percent industrial. The firm's largest customer for gas and electricity is the petroleum refining industry. PG&E Company generates an ever declining share of its parent's revenue base. In 1997 the utility's revenues made up fully 67 percent of PG&E Corporation's; by 2000 the reported revenues had shrunk by almost half, to 37 percent. PG&E Company's 2000 loss of $5.2 billion was single-handedly responsible for the loss its parent reported that year.

ANALYSTS' OPINIONS

As a result of its descent into bankruptcy court, there has been tremendous uncertainty about PG&E utility's future and how it would impact the fortunes of its parent, PG&E Corporation. PG&E Corp. attempted unsuccessfully to spin the subsidiary off, and there were cries from the California press and consumer groups that the government of the state of California should take over the strapped utility. Further complicating PG&E Corporation's position, the California attorney general brought suit against PG&E Corporation, claiming that it had illegally siphoned money from the utility. These factors and others combined to create an unstable climate for investment in PG&E Corporation. A report from Value Line stated that an extensive reorganization plan proposed by PG&E Corporation would, if approved by the Federal Regulatory Commission, go a long way towards rehabilitating the company's credit. "But the timing is unpredictable, and some revisions in the plan are likely," Value Line wrote. "Major changes could have an important impact on the company's future. Because of the uncertainties here, the stock is best-suited for risk-tolerant investors."

HISTORY

PG&E's first half-century is the history of small gas, electric, and water companies, being founded, competing, and eventually consolidating. The San Francisco Gas Company, the city's first, was founded by Peter Donahue in 1854. It merged with the City Gas Company in 1873 to form the San Francisco Gas Light Company. Meanwhile electric companies were also being formed. In 1879 George Roe opened California Electric Light Company, which built the first power plant in the nation to offer central station electric service to the public, beating Thomas Edison's plant in New York by several years. Around 1890, Roe's company merged with the Edison General Electric Company, which had spread west, to form the Edison Light and Power Company. Realizing it was more efficient to combine their operations, Edison Light and Power merged with San Francisco Gas Light Company in 1892 to form the San Francisco Gas and Electric Company. By the end of the century, hydro-electric companies, built to capitalize on the water resources of the Sierra Nevada, were transmitting power to Sacramento and other California cities. In 1905 a number of these smaller companies formed California Gas and Electric Company, which in 1905 merged with the San Francisco Gas and Electric Company and formed the Pacific Gas and Electric Company.

By 1920 there were three major gas and electricity companies serving central and northern California: the Great Western Power Company, San Joaquin Light and Power, and PG&E. In 1924 Great Western acquired San Joaquin; it was then itself acquired by the North American Company. In March 1930 PG&E acquired a controlling interest in San Joaquin and Great Western North American in exchange for $114 million in PG&E stock. As a result of the deal PG&E won control of nearly all gas and electric service in central and northern California. In the 1930s, the company began developing its reserves of natural gas in California; in later decades it sought and developed natural gas deposits in other states. In the 1950s the company pioneered the commercial use of atomic power, with the world's first privately owned atomic power plant in 1957. In 1980 PG&E put the Diablo Canyon nuclear plant into operation despite protests from environmental groups who were concerned about its location, which was dangerously close to an earthquake fault.

By the late 1980s PG&E was losing many of its industrial customers, leading the company to eliminate thousands of jobs in 1987. In 1993 residents of the California town of Hinkley sued PG&E claiming the utility had released cancer-causing chromium into their ground-water. The company paid $333 million in an out-of-court settlement. The case was later the basis of the 2000 film Erin Brockovich. PG&E was the target of similar environmental suits later in the 1990s.

By the mid-1990s, a serious movement was underway—led by power companies in large part—to deregulate the utility industry. By 1996, when it experienced a major power outage, PG&E had already begun diversifying into smaller, unregulated companies, such as U.S. Generating and PG&E Energy Services. PG&E Corporation was established in 1997 as a holding company with Pacific Gas & Electric and other companies as its subsidiaries. Billions in debt after the California energy crisis of 2000, the PG&E utility initiated bankruptcy proceedings, and PG&E Corporation began looking for a reorganization plan that could restore the company's credit and satisfy state regulatory bodies. Despite its utility's bankruptcy, PG&E Corporation reported record profits in 2001 and proposed $17.5 million in bonuses for company executives. This drew criticism from shareholders and in 2002 the California attorney general sued PG&E Corporation for fraudulent management of the utility's money.

FAST FACTS: About Pacific Gas & Electric Corporation

Ownership: PG&E Corporation is a public company traded on the New York Stock, Pacific, and Swiss Exchanges.

Ticker Symbol: PCG

Officers: Robert D. Glynn, Jr., Chmn., CEO, and President, 59, 2001 salary $2,081,700; Thomas G. Boren, EVP, 50, 2001 salary $1,369,478; Peter A. Darbee, SVP and CFO, 49, 2001 salary $783,578

Employees: 21,000

Principal Subsidiary Companies: PG&E Corporation is an energy-based holding company. It markets energy services throughout North America through business groups, PG&E National Energy Group and Pacific Gas and Electric Company.

Chief Competitors: PG&E competes with a variety of energy providers throughout the United States. Among its most significant competitors are Duke Energy, Dynegy, Reliant Energy, Mirant, TXU, Exelon Corporation, Sempra Energy, American Electric Power, and Calpine Corporation.

STRATEGY

PG&E Corporation is lowering its profile as a California utility and expanding its activities in the national wholesale energy market. This strategy is being realized primarily through its subsidiary, the PG&E National Energy Group, which is an energy broker, a builder of power plants and an owner and operator of pipelines for the transmission of natural gas. PG&E Corporation sold most of the fossil-fuel power plants that formerly supplied its California grid when the electric market there was deregulated in the late 1990s.

INFLUENCES

Deregulation of energy markets on both the state and federal levels had profound impacts—both positive and negative—on PG&E Corporation as well as other energy companies. No longer a regulated monopoly, PG&E had to compete on the open market—to sell to retail consumers in California who were now free to choose to get their electricity from alternate power companies. Ultimately PG&E will be able to buy power at the lowest price it can find and will no longer have to charge prices fixed by utility regulators. For its part in California utility deregulation, PG&E agreed to a temporary price cap for consumer energy prices at the same time it was selling off most of its power plants. The consequences of these two decisions were momentous. When wholesale energy costs skyrocketed in 2000, PG&E could neither raise its rates nor produce cheap energy on its own. It was forced to purchase energy on the open market from unregulated outside suppliers at grossly inflated rates. As a result, California was plunged into an energy crisis and the utility PG&E, billions in debt, filed for bankruptcy in 2001. PG&E Corporation devised a reorganization plan that would have spun off some holdings and provided a basis for credit, however in early 2002 a federal judge rejected the plan. PG&E was still making its case in bankruptcy court in mid-2002.

CURRENT TRENDS

Construction on new PG&E energy plants slowed down due to a general decline in projected wholesale energy prices and the general economic slowdown that hit the United States. The outlook for several stalled projects was uncertain, although PG&E maintained it intends to complete the projects regardless of the economic climate.

As a result of the California energy crisis and the apparent bankruptcy of the PG&E utility, PG&E Corporation has developed a reorganization plan that would spin off assets such as the utility to help restore PG&E Corporation's credit rating. While welcomed by the investment world, critics claimed the plan was a device to protect PG&E Corporation's assets from the utility's creditors. The plan was rejected by a federal court. An alternative was put forth by the California Public Utilities Commission, but as of mid-2002 no agreement with PG&E had been reached.

PRODUCTS

PG&E Corporation offers products in two broad ranges. The Pacific Gas and Electric Company, based in San Francisco, California, delivers electricity and natural gas to retail customers, both residential and commercial, in California. The PG&E National Energy Group, based in Washington D.C., builds and operates power plants and natural gas pipelines, as well as trading energy on a wholesale basis on the national market.

CHRONOLOGY: Key Dates for PG&E

1852:

San Francisco Gas Company is founded

1879:

California Electric Light Company is founded

1905:

California Electric and SFG&E merge to form Pacific Gas and Electric

1957:

Vallecitos atomic power plant is opened

1960:

PG&E constructs North America's first geothermal plant

1980:

Diablo Canyon atomic power plant begins operations

1987:

PG&E founds U.S. Generating, an independent producer of electricity

1993:

PG&E settles a lawsuit for polluting groundwater with residents of Hinkley, California, for $333 million, a case later dramatized in the movie Erin Brockovich

1995:

PG&E Energy Services is founded

1997:

PG&E Corporation founded with Pacific Gas and Electric its subsidiary

2001:

Pacific Gas & Electric utility seeks bankruptcy relief

GLOBAL PRESENCE

In 2000 PG&E Corporation's National Energy group began building a natural gas pipeline from Ehrenburg, Arizona to Tijuana, Mexico with the Mexican firm, Prûxima Gas, S.A. de C.V., and Sempra Energy International. PG&E planned to have the pipeline in operation by 2003. PG&E Corporation subsidiaries purchase natural gas from suppliers in Canada and pump it to the United States via company owned pipelines. PG&E Company is interconnected with power systems in western Canada and Mexico.

ERIN BROCKOVICH

In early 2000, as the California energy crisis was just starting to rock PG&E's corporate reputation, along came the movie Erin Brockovich. It could hardly have been worse for the firm's image. Erin Brockovich told the true story of Hinkley, California's struggle to win damages from a company (PG&E) that had polluted the town's ground water with cancer—causing chromium, a fight the town eventually won. The film made Brockovich, the woman who led the fight, into a national celebrity, and shattered PG&E's image as a firm concerned about the environment. So apprehensive was PG&E about the film's possible repercussions that, according to the San Francisco Chronicle, it considered paying the producers to change the name of the bad-guy company in the movie. With Julia Roberts in the lead role, the film was a blockbuster hit.

CORPORATE CITIZENSHIP

PG&E's corporate policy is to promote environmental justice in all its activities. To this end it endeavors to comply with both the letter and the spirit of all environmental laws and to maintain high standards for limiting environmental impacts; to make environmental considerations an essential consideration when building or purchasing new facilities; to work with communities on environmental issues; and to accept responsibility for corporate actions. PG&E Corporation is also committed to maintaining a culturally and ethnically diverse work-force.

SOURCES OF INFORMATION

Bibliography

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"california attorney general sues pg&e corp. for unfair business practices," transmission & distribution world, february 2002.

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"consumer advocacy group blasts pg&e's reorganization plan." foster electric report, 30 january 2002.

"cpuc pushes alternate bankruptcy reorganization plan for pg&e foster natural gas report, 21 february 2002.

davis, kathleen. "pg&e to gov. davis: we're busted." electric light & power, may 2001.

glantz, aaron. "no power for the people." in these times, march 5, 2001.

hamilton, martha m. "pg&e plans to move its headquarters to d.c." washington post, 13 march 2000.

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"pg&e corporation." hoover's company profiles, 2002. available at http://www.hoovers.com.

lazarus, david. "pg&e cast as villain in new true-story' movie." san francisco chronicle, 16 march 2000.

——. "pg&e's eco-friendly image falls on its face—company's nonanswers fail to satisfy shareholders." san francisco chronicle, 20 april 2000.

mitchell, russell. "pg&e: one step ahead of future shock." business week, 14 november 1994.

reason, tim. "ring around the subsidiary." cfo the magazine for senior financial executives, october 2001.

"uncharted territory is the only consensus so far on pg&e bankruptcy." electric utility week, 16 april 2001.

For an annual report:

on the internet at: http://www.pgecorp.comor write: investor relations pg&e corporation, po box 193722, san francisco, ca 94119-3722

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. pacific gas & electric corporation's primary sics are:

4923 gas transmission and distribution

4931 electric and other services combined

4932 gas and other services combined

6719 holding companies, not elsewhere classified

also investigate companies by their north american industrial classification system codes, also known as naics codes. pacific gas & electric corporation's primary naics codes are:

221119 other electric power generation

221121 electric bulk power transmission and control

221122 electric power distribution

221210 natural gas distribution