One On One With Peter Darbee, Chairman and CEO of PG&E.
Wednesday, March 01, 2006
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SUSIE GHARIB: Investors liked what they heard from PG&E today. The stock jumped a percent after California`s largest utility told an analyst conference in New York that it expects earnings to grow 7.5 percent annually over the next four years. PG&E reaffirmed its forecast of earnings per share of up to $2.75 and up to $2.75 for 2007. Joining us now, PG&E Chairman and CEO Peter Darbee. Mr. Darbee, welcome back to NIGHTLY BUSINESS REPORT.
PETER DARBEE, CEO, PG&E: Thank you, Susie. It`s good to be back.
GHARIB: Well, what was the key message that you delivered to analysts today?
DARBEE: If I had to identify one message, it was, it`s all about the customer. You know, utilities haven`t always done the best job of taking care of the customer and we`re really focusing on the customer, understanding their needs better, aligning our operations to meet those needs and we`re sure that that approach will have benefits for the shareholders.
GHARIB: Now, you told analysts today that you`re expecting earnings growth of 7.5 percent annually over the next couple of years. What`s driving that growth and what makes you so confident that the company can deliver on that target year after year?
DARBEE: Well, the thing that`s driving that will be very substantial investment that we`re making in our company and in the infrastructure in California. We historically have been investing about $1.8 billion a year and we`re planning to step up that level of investment to $2.5 billion a year, per year on average for the next five years. And we believe that policymakers in California, as across the entire United States, have come to believe that we need to invest more in our infrastructure, whether it`s in energy or otherwise.
GHARIB: Well, beyond the investments, just in terms of the overall marketplace, there are some factors that are unpredictable. Take natural gas prices. They were as high as $15 a few months ago, now they`re at $6. How can you manage PG&E with this unpredictability?
DARBEE: Well, what we requested of our regulators at that time, Susie, is that we be given the opportunity to hedge and to buy forward positions on a regular basis so that we would smooth out the costs to our customers. And that program has worked very well.
GHARIB: What is your outlook on natural gas prices? Do they go higher or lower from here?
DARBEE: Well, we`re probably no more expert than anyone else is, Susie, when it comes to predicting natural gas prices. But what we`ve seen is that the forward curve, the three-year forward curve in natural gas predicts that over time natural gas prices will work down. In contrast to the forward market, the cash market in the west particularly is pretty soft right now so the spot market in gas is softer than we`ve seen in a number of months.
GHARIB: When you became CEO a little more than a year ago, you told me that it was premature to be considering mergers and acquisitions. How about now? Are you ready to make some acquisitions?
DARBEE: Well, we`ve been focused on improving our core business and we will continue to do that. But given the rapid acceleration with respect to consolidation the energy industry, we`ve turned on our forward sweeping radar and are evaluating opportunities. So if a good opportunity arises, we`ll be prepared to analyze that and then make a decision as to whether we should buy or not.
GHARIB: Are you as willing to be a buyer as a seller?
DARBEE: We`ve really set our sights and our vision on being the leading utility in the United States, Susie, and so we see ourselves primarily as an acquirer rather than an acquiree.
GHARIB: Real quickly about your stock. It made a nice move today, but it`s been relatively flat over the last couple of months. What do you think is going to make the stock price go higher from where it is today?
DARBEE: I think more and more investors are recognizing that California now represents a secure opportunity for investing in the utilities. And so as people come to appreciate that more and more, they`ll understand that PG&E isn`t exposed to the commodity risk the way some other utilities are and that we represent a very good return with a controlled level of risk.
GHARIB: OK. We`re going to have to leave it there, Mr. Darbee, thank you so much. We appreciate your time.
DARBEE: Thank you, Susie.
GHARIB: We`ve been speaking with Peter Darbee, Chairman and CEO of PG&E.
