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 1, 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. Wholesale Power Payments
As previously disclosed, the financial condition of Pacific Gas and
Electric Company (Utility), the California subsidiary of PG&E
Corporation, deteriorates as the California power crisis continues. Due
to the high wholesale power costs experienced since June 2000, the
Utility has been unable to recover its procurement costs incurred on
behalf of its retail electric customers from revenues collected through
frozen rates, resulting in a $6.6 billion under-collection at December
31, 2000.
The Utility has payments of $437 million due to qualifying generators
(QFs) for December 2000 deliveries (slightly higher than the previously
disclosed estimate of $420 million). In addition, as previously
disclosed, the Utility has a net payment due to the California Power
Exchange (PX) on February 1, 2001, for California Independent System
Operator (ISO) November 2000 real-time energy purchases of $611 million.
That amount is based on actual invoices and replaces the previously
disclosed estimate of $583 million. (The payments due to the ISO and the
PX are based on market price assumptions that are subject to change
until the Utility receives the bill from the ISO and PX. These estimates
are net of the Utility's expected generation revenues from deliveries of
the Utility's generation to the ISO and the PX.) The Utility has
notified QFs, the ISO, and the PX that, in light of the Utility's
current financial situation, the Utility is unable to pay the full
payments due and instead intends to make partial payments on a pro rata
basis among QFs and the ISO based on the electric commodity portion of
revenues collected through frozen rates. Under this approach, the total
payments to the QFs for December 2000 deliveries and to the ISO for
November 2000 deliveries will be $161 million.
B. Liquidity Impacts and Financial Condition
As of January 31, 2001, the Utility's cash reserves are $828 million.
After the January 17, 2001, downgrade of the Utility's ratings below
investment grade, the banks terminated their outstanding commitments
under the Utility's two credit facilities: a five year $1 billion
facility and a $850 million 364-day facility. Although there were no
borrowings under the $850 million agreement, the facility was fully
utilized as back-up for the Utility's outstanding commercial paper. At
the time of termination, January 23, 2001, the Utility had $938 million
of borrowings under its $1 billion facility and $873 million in
aggregate principal amount of commercial paper outstanding. Through
February 1, 2001, the Utility has defaulted on $437 million of maturing
commercial paper. Through February 28, 2001, an additional $294 million
in commercial paper will come due and an additional $142 million of
commercial paper will come due by March 30, 2001, which is the latest
maturity date. Absent change in the current situation, the Utility
expects to be unable to make principal payments on its maturing
commercial paper.
As of January 31, 2001, PG&E Corporation's cash reserves are $347
million. After the downgrade of PG&E Corporation's credit ratings below
investment grade, the banks terminated their outstanding commitments
under PG&E Corporation's two credit facilities: a $436 million short-
term facility and a $500 million long-term revolving credit facility.
Although there were no borrowings under the $436 million facility, the
facility was fully utilized to back up PG&E Corporation's commercial
paper program. At the time of termination, January 17, 2001, there was
approximately $434 million of debt outstanding under the $500 million
facility and $501 million in aggregate principal amount of commercial
paper outstanding. Through February 1, 2001, PG&E Corporation has
defaulted on $289 million of maturing commercial paper. Through
February 28, 2001, an additional $164 million in commercial paper will
come due and an additional $48 million of commercial paper will come due
by March 30, 2001, which is the latest maturity date. Absent change in
the current situation, the Corporation expects to be unable to make
principal payments on its maturing commercial paper.
In addition, following the default by PG&E Corporation on certain of its
commercial paper obligations, lenders under certain project financings
for various projects of the PG&E National Energy Group, Inc., provided
notice to PG&E Corporation of their right to make a demand for payment
of its capital commitments in the aggregate amount of up to
approximately $500 million. If the lenders decide to exercise this
right, PG&E Corporation may be unable to meet such capital commitments,
resulting in a default under these agreements.
On January 19, 2001, Standard & Poor's further downgraded the ratings on
PG&E Corporation's and the Utility's commercial paper programs to D from
C to reflect the companies' failure to pay maturing commercial paper
that came due on January 17, 2001. As a result of the defaults, the
companies' long- and short-term corporate credit ratings were also
downgraded to D/D from CC/C.
Subject to the continuing uncertainties of the current situation, the
Utility's intent is to pay its ongoing costs of doing business while
seeking resolution of the wholesale power crisis, including making
regular interest payments, when due for its floating rate notes ($1.24
billion outstanding), 7.375 percent senior notes ($680 million
outstanding), medium-term notes ($287 million outstanding), mortgage
bonds ($3.37 billion outstanding), pollution control bonds ($1.61
billion outstanding), and bank debt ($938 million outstanding). An
event of default has occurred under the indentures for the floating rate
notes and senior notes entitling the indenture trustees to accelerate
the repayment of the debt. With respect to the medium-term notes, the
trustee is entitled to accelerate the notes, after providing a 30-day
notice period, if an acceleration of other debt exceeding $10 million
has occurred. The Utility's non-payment of commercial paper exceeding
$100 million is an event of default under various underlying agreements
under which certain providers of credit support for the pollution
control bonds are entitled to request that the trustees under the
related indentures accelerate repayment of the bonds. With respect to
the Utility's commercial paper, the Utility intends, subject to the
continuing uncertainties, to accrue interest on the suspended commercial
paper beyond the original maturity date, with the goal of eventually
paying principal plus interest through the date of payment.
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, the Utility has filed a lawsuit in the U.S.
District Court for the Northern District of California in San Francisco
against the California Public Utilities Commission (CPUC), asking the
court to declare that the federally-approved wholesale power costs the
Utility has incurred to serve its distribution customers are recoverable
in retail rates. The action states that the wholesale power costs which
the Utility has prudently incurred are included in filed rates which the
Federal Energy Regulatory Commission (FERC) has authorized and approved,
and that under the United States Constitution and numerous federal and
state court decisions, such costs cannot be disallowed by state
regulators. Southern California Edison (SCE) has filed a similar suit
against the CPUC which is pending in the U.S. District Court for the
Central District of California. On January 8, 2001, the judge in SCE's
case issued a ruling which denied the CPUC's motion to dismiss the
complaint, finding that the claims asserted by SCE were ripe for federal
judicial action and that postponing judicial action would have a ruinous
effect in light of the CPUC's previous rulings. The judge also heard
argument on SCE's motion for summary judgment in which SCE argued that
the filed rate doctrine pre-empted the CPUC's rulings prohibiting SCE's
recovery of its reasonably incurred power procurement costs. Although
the judge denied SCE's motion for summary judgment finding that a trial
is needed on the question of whether SCE's power purchases were prudent,
the judge favorably decided key merit issues relating to the filed rate
doctrine that are also relevant to the Utility's lawsuit.
On January 29, 2001, an order was entered to transfer the Utility's
lawsuit to the U.S. District Court for the Central District of
California where SCE's lawsuit is pending. A judge of the U.S. District
Court for the Northern District of California found that the two cases
involve similar issues that can be adjudicated more quickly in the
Central District, that transfer would give the Central District court
the opportunity to consolidate the two cases, that transfer would avoid
the risk of inconsistent rulings from different courts, and that
convenience of the parties and witnesses weighed in favor of the
transfer. The court also denied a motion filed by the Utility for a
temporary restraining order (TRO), without prejudice to the Utility's
right to bring a further application for a TRO at a later time. The
Utility had filed the motion for a TRO on January 25, 2001, seeking an
order allowing the Utility to commence recovering its going-forward
wholesale procurement costs immediately. The Utility had asked in the
alternative for the case to be transferred to the Central District of
California. The court also ordered that The Utility Reform Network's
(TURN) motion to intervene, the CPUC's motion to dismiss, and the
Utility's motion for partial summary judgement, be dismissed without
prejudice to the parties' refiling them to be heard in the Central
District court.
D. Rate Stabilization Plan Proceeding
The Utility has filed an application for rehearing of the CPUC's January
4, 2001 decision denying the Utility's emergency request for a rate
increase, as provided in the Utility's rate stabilization plan. Instead
of the requested relief, the CPUC approved a 90-day temporary rate
increase that is grossly insufficient to recover ongoing wholesale power
costs or to enable the Utility to borrow money to pay for these costs.
On January 26, 2001, an assigned CPUC commissioner's ruling was issued
in the Utility's rate stabilization plan proceeding. The ruling stated
that in phase one of the case, the scope of the proceeding will include
(1) reviewing the independent audits of the utilities accounts to
determine whether there is a financial necessity for additional relief
for the utilities, (2) reviewing TURN's accounting proposal to transfer
the under-collected balances in the utilities' Transition Revenue
Accounts to their respective Transition Cost Balancing Accounts and
reviewing the generation memorandum accounts, and (3) considering
whether the rate freeze has ended only on a prospective basis. The
Utility had recommended that the issue of whether the rate freeze had
ended at an earlier date, as the Utility previously has argued, should
be addressed in phase one rather than reserved for a future phase of the
proceeding.
The order also stated that the CPUC will address the issue of whether
the utilities' electric procurement costs were reasonable and prudent in
a later phase of the proceeding.
The procedural schedule for phase one sets hearings for February 15-21,
2001, with an anticipated final CPUC decision to be issued on March 27,
2001.
E. Consulting Report
On January 31, 2001, the CPUC released the consultant's report, prepared
pursuant to the CPUC's January 4, 2001 order, of the overall financial
position of the Utility, PG&E Corporation, its other affiliates, and the
flow of funds between these entities and the Utility. The report covers
credit and default relationships, power purchases and cash flows, cash
conservation activities, accounting mechanisms to track stranded cost
recovery, inter-company cash flows, affiliate earnings in the California
energy market, and other matters.
On January 30, 2001, the CPUC released its agenda for its meeting on
February 8, 2001. The agenda indicates that the CPUC may consider
opening an investigation and/or an order to show cause whether the
California investor-owned utilities, including the Utility, have
complied with past CPUC decisions authorizing their holding company
formations and/or governing affiliate transactions, as well as
applicable statues, and whether additional rules or changes are needed
to address changing circumstances. The agenda item notes that if a
proceeding is commenced, and if the CPUC determines that there has been
noncompliance, it may order appropriate remedies, including but not
limited to penalties and/or modifications or additions to the
conditions, or otherwise, of the relevant decisions and that the CPUC
may also impose other prospective rules, conditions, or other remedies,
as appropriate, that may result from this inquiry. Neither the Utility
nor PG&E Corporation can predict whether the CPUC will commence such a
proceeding or what the outcome will be.
F. CPUC Emergency Action
On January 31, 2001, the CPUC issued an interim decision taking
emergency action to establish regulations to establish delivery and
payment mechanisms relating to the California Department of Water
Resources' (DWR) electric power purchases. The CPUC found that the DWR
should sell power directly to retail end-use customers as opposed to
making direct or indirect sales to the ISO or public utilities. The
order requires the California investor-owned utilities (IOUs) to deliver
the power purchased by DWR to retail end-use customers. The CPUC's
decision establishes DWR's right to receive certain payments from retail
end-use customers entitling DWR to receive a percentage of the amount
each retail end-use customer currently is charged for electric energy.
The decision establishes a method by which the IOUs shall collect such
portion which is to be held in trust for DWR. If a shortfall exists
between the cost of the power purchased by DWR for the IOUs' customers
and the revenues collected from customers by the IOUs, the IOUs shall be
obligated to pay the shortfall. The IOUs are required to file advice
letters within 60 days to implement this provision in a manner that does
not jeopardize the IOUs' financial stability. The Utility does not
expect to be able to implement this provision in such a manner. The
interim decision also requires the IOUs to file advice letters within 30
days to establish cost-based rates for their retained generation.
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
-----------------------------
CHRISTOPHER P. JOHNS
Vice President and Controller
PACIFIC GAS AND ELECTRIC COMPANY
By: DINYAR B. MISTRY
-----------------------------
DINYAR B. MISTRY
Vice President and Controller
Dated: February 1, 2001