SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 14, 2001
Exact Name of
Commission Registrant State or other IRS Employer
File as specified Jurisdiction of Identification
Number in its charter Incorporation Number
---------- -------------- --------------- --------------
1-12609 PG&E Corporation California 94-3234914
1-2348 Pacific Gas and California 94-0742640
Electric Company
Pacific Gas and Electric Company PG&E Corporation
77 Beale Street, P.O. Box 770000 One Market, Spear Tower, Suite 2400
San Francisco, California 94177 San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Pacific Gas and Electric Company PG&E Corporation
(415) 973-7000 (415) 267-7000
(Registrant's telephone number, including area code)
Item 5. Other Events.
A. Assembly Bill 1X
As previously disclosed, the weakened financial condition of Pacific
Gas and Electric Company (Utility), the California subsidiary of PG&E
Corporation, caused by the California power crisis has hampered the
ability of the Utility to purchase power for its retail electric
customers. Since January 18, 2001, the California Department of Water
Resources (DWR) has been purchasing power on behalf of the Utility's
customers. On February 1, 2001, the California Governor signed Assembly
Bill No. 1 (AB 1X) which was passed by the California Legislature during
a special session to take effect immediately as an urgency statute. AB
1X authorizes the DWR (1) to enter into contracts for the purchase of
electric power for such periods and at such prices as the DWR deems
appropriate consistent with the objectives of AB 1X to have an overall
portfolio of contracts resulting in reliable service at the least cost,
and (2) to issue revenue bonds to finance electricity purchases. AB 1X
requires the DWR to sell power that it purchases directly to retail end
use customers, except as may be necessary to maintain system integrity.
The DWR also may sell power to the extent practicable to those local
publicly owned electric utilities (municipal utilities) requesting such
power but may not sell power to any such utility that is a net seller of
electricity; i.e., those that sell more power than they use. AB 1X
prohibits the DWR from entering into any contract after January 1, 2003.
AB 1X provides that the DWR will retain title to the power it
purchases and payment for any sale of power by the DWR is a direct
obligation of retail end use customers to the DWR. The DWR may contract
with the electric utilities for the electric utilities to transmit and
distribute the power purchased and sold by the DWR and to provide
billing, collection and other related services, as agent of the DWR, on
terms that reasonably compensate the utilities. At the request of the
DWR, the California Public Utilities Commission (CPUC) may order the
utilities to perform such services as agent for the DWR. However, AB 1X
does not authorize the DWR to take ownership of transmission,
generation, or distribution assets, of any electric utility.
AB 1X states it shall not be construed (1) to reduce or modify any
electrical corporation's obligation to serve, or (2) to obligate the DWR
for any procurement cost obligations of the utilities that existed
before January 31, 2001.
The DWR may not sell power for more than its acquisition costs,
including transmission, scheduling, and other related costs, plus debt
service on revenue bonds, repayment to the General Fund of
appropriations made to enable the DWR to purchase power pursuant to the
Governor's emergency proclamation dated January 17, 2001 and Senate Bill
7X (which authorized the DWR to purchase power through February 1,
2001), interest on funds advanced, and other related costs. AB 1X
appropriates approximately $500 million from California's General Fund
for the DWR to purchase electricity.
AB 1X authorizes the CPUC to determine the portion of each electric
utility's existing electric retail rate, the "California Procurement
Adjustment" or CPA, that is equal to the difference between the
generation related component of the utility's retail rate in effect on
January 5, 2001, and the sum of the costs of the utility's own
generation, qualifying facility (QF) contracts, existing bilateral
contracts, and ancillary services. The CPUC is then required to
determine the amount of the CPA that is allocable to the power sold by
the DWR. That amount is payable by each utility upon receipt from its
retail end use customers to the DWR. The utilities are required to hold
such sums in trust for the DWR until paid to the DWR.
AB 1X authorizes the CPUC to set rates to cover revenue requirements
of DWR's power purchasing program, but prohibits the CPUC from
increasing electric rates for residential customers who use less power
than 130 percent of their existing baseline quantities, until the DWR
has recovered the costs of power it has purchased for retail customers.
The DWR may issue revenue bonds in an amount up to four times the
annual revenues generated by the CPA.
The DWR has indicated that it intends to buy power only at reasonable
prices to meet the power needs of the retail electric customers that
cannot be met by utility-owned generation or power under contract to the
utilities; i.e., the utilities' net open position. If the DWR does not
purchase such power, then the ISO would be required to buy power to
maintain the reliability of the electric grid. The ISO may then attempt
to bill scheduling coordinators, including the utilities, for the ISO's
purchases. Several power suppliers have questioned the ISO's authority
to force them to sell power to the ISO in light of the weakened
financial condition of the utilities. A federal judge has issued a
temporary restraining order to require that these power suppliers
continue supplying power to the ISO through the date of a further
hearing on a preliminary injunction that is scheduled for February 16,
2001. It is uncertain whether and how long these power suppliers will
be required to continue selling power to the ISO. Without such power
supplies, the California power crisis will be exacerbated.
The Utility has filed a petition to modify the CPUC's interim
decision issued on January 31, 2001, which imposes liability on the
investor-owned utilities to pay any shortfall between the cost of the
power purchased by the DWR for retail end-use customers and the revenues
collected from customers by the utilities. The CPUC's decision, which
was issued to implement Senate Bill 7X, is inconsistent with AB 1X,
which provides that the obligation to pay for power purchased by the DWR
is a direct obligations of the retail end use customers with the
utilities acting as a collection agent for the DWR.
Further, AB 1X does not address whether or how the Utility will be
able to recover under-collected purchase power costs incurred through
December 31, 2001. PG&E Corporation and the Utility cannot predict what
legislative, regulatory or judicial actions may be taken with respect to
this issue.
B. Liquidity Impacts and Financial Condition
In a report dated February 5, 2001, Moody's Investor Service noted
that without legislative approval of a plan that clearly addresses the
utilities' under-collected position and forms the basis for a
comprehensive solution, the threat of bankruptcy still remains for the
utilities and their holding companies.
Pursuant to CPUC regulations, the Utility provides a PX energy
credit to those customers; i.e., direct access customers, who have
chosen to buy their electric energy from an energy service provider
(ESP) other than the Utility. As wholesale power prices began to
increase beginning in June 2000, the level of PX credits increased
correspondingly to the point where the credits exceeded the Utility's
distribution and transmission charges to direct access customers.
Although the Utility paid approximately $39 million in PX credits, the
Utility has ceased paying these credits to ESPs. The Utility believes
whether these credits are owed, and if so in what amount, may be
affected by the resolution of when the rate freeze ended (the Utility
believes its rate freeze ended as early as May 2000 depending on the
final valuation of the Utility's hydroelectric generating assets) and by
whether the Federal Energy Regulatory Commission (FERC) ultimately
orders refunds of wholesale prices which have been found by the FERC to
be unjust and unreasonable. As of February 12, 2001, the estimated
total of accumulated credits for direct access customers that have not
been paid by the Utility may be as high as $433 million. Two ESPs have
filed complaints against the Utility at the CPUC arguing that the
Utility violated CPUC orders and demanding payment. The large PX
credits have reduced revenues which, along with high PX costs, have
contributed to the under-collection in the Utility's Transition Revenue
Account. AB 1X provides that, at a time to be determined by the CPUC,
the right of retail customers to procure service from other ESPs will be
suspended until the DWR no longer supplies power for retail end use
customers. There may be further legislation to address direct access.
Due to downgrades in the Utility's credit ratings and the Utility's
alleged failure to post collateral for all market transactions, the PX
suspended the Utility's market trading privileges as of January 19,
2001, as previously reported. The PX suspended its day-ahead and day-of
markets as of January 31, 2001. The PX also has sought to liquidate the
Utility's block forward contracts for the purchase of power. On January
25, 2001, a California Superior Court judge granted the Utility's
application for a temporary restraining order, which thereby restrained
and enjoined the PX and its agents from liquidating the Utility's
contracts in the block forward market, pending hearing on a preliminary
injunction on February 5, 2001. Immediately before the hearing on the
preliminary injunction, California Governor Gray Davis, acting under
California's Emergency Services Act, commandeered the contracts for the
benefit of the State. Under the Act, the State must pay the Utility the
reasonable value of the contracts, although the PX may seek to recover
the monies that the Utility owes to the PX from any proceeds realized
from those contracts.
On February 6, 2001, a lawsuit against the Utility was filed in the
San Francisco Superior Court by three qualifying facility (QF)
generators. The QFs sued the Utility for having made a partial payment
for the facilities' December 2000 power deliveries and for having
notified the QFs it was unable to pay the full amount due under the
power purchase agreements. The complaint alleges causes of action for
breach of contract, anticipatory repudiation, and declaratory relief.
The plaintiffs seek $1.8 million actual damages and $100 million in
future damages. The Utility has not yet been served with the complaint.
Subject to certain qualifications, the banks under the Utility's $1
billion revolving credit agreement have agreed to forbear from
exercising any remedies with respect to the Utility's default under that
agreement until March 6, 2001. As of February 13, 2001, the Utility had
cash reserves of approximately $1 billion.
PG&E Corporation is examining the possible restructuring of its bank
loans and commercial paper. In the meantime, no assurance can be given
that principal and interest payments will be made, pending further
developments in the California power crisis.
C. Federal Lawsuit
As previously disclosed, both the Utility and Southern California Edison
(SCE) have sued the CPUC in federal district court asking the court to
declare that the federally-approved wholesale power costs the utilities
have incurred to serve their distribution customers are recoverable in
retail rates. On February 12, 2001, Judge Ronald Lew of the U.S.
District Court for the Central District of California denied SCE's
motion for a preliminary injunction against the CPUC. As requested by
SCE, the judge found that certain facts were without dispute, but that
issues related to whether SCE's power purchases were prudent and
reasonable were not without dispute. The judge also ordered that a
scheduling conference be held on March 5, 2001, at which he may set an
early trial date. The Utility's similar case against the CPUC was
transferred to the U.S. District Court for the Central District of
California and is also before Judge Lew.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
PG&E CORPORATION
By: CHRISTOPHER P. JOHNS
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CHRISTOPHER P. JOHNS
Vice President and Controller
PACIFIC GAS AND ELECTRIC COMPANY
By: DINYAR B. MISTRY
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DINYAR B. MISTRY
Vice President and Controller
Dated: February 14, 2001