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: March 23, 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. Recent Legislative and Regulatory Actions
Recently, there have been legislative efforts to amend California
Assembly Bill 1X (AB 1X), adopted as an urgency statute on February 1,
2001. AB 1X authorized the California Department Of Water (DWR) to (1)
purchase power to meet the power needs of the California investor-owned
utilities' customers that cannot be met by the utilities' own generation
and power purchased by the utilities under contracts with qualifying
facilities (QFs) and other generators (i.e., the utilities' net open
position), and (2) issue revenue bonds to pay for its power purchases.
Pacific Gas and Electric Company (Utility) believes that the intent of
AB 1X was to assign to the DWR the responsibility to purchase the power
to fill the utilities' net open position as the utilities were
financially unable to do so. The DWR has stated it is willing to
purchase only reasonably priced power, a position that has forced the
California Independent System Operator (ISO) to purchase emergency power
on the high-priced spot market to meet system reliability requirements
and the net open position. The ISO may attempt to charge the Utility a
proportionate share of the ISO's purchases. The Utility believes that
under the current circumstances and applicable tariffs it is not
responsible for such ISO charges.
In addition, the California Governor and the President of the California
Public Utilities Commission (CPUC) have made recent public statements
that the California investor-owned utilities should pay the QFs for
power deliveries in full on a going forward basis to ensure their
continued operation and help avoid rolling outages like those that
occurred on March 19 and March 20, 2001. The Utility earlier had
offered, under certain conditions, to pay the QFs in advance of delivery
of their power to help these facilities remain operational.
On March 21, 2001, a CPUC commissioner issued a proposed decision which,
if adopted by the CPUC, would require the Utility and the other
California investor-owned utilities to pay QFs for energy deliveries
made on and after the date of the decision, within 15 days of delivery,
at the rate of $79 per megawatt hour, consistent with pricing formulas
in the decision. Failure to make a required payment within 15 days of
delivery would result in a fine in the amount owed to the QF. The
proposed decision also would require the utilities to offer QFs long-
term pricing options at $79 per megawatt hour for a five-year contract
or $69 per megawatt hour for a ten-year contract. The proposed decision
is on the agenda for the CPUC's meeting on March 27, 2001. The prices
in the proposed decision would be lower than previously existing
contract prices but would exceed, on a per kilowatt hour (kWh) basis,
the generation-related portion of the Utility's current frozen rates
(approximately 6.4 cents per kWh).
On March 14, 2001, the DWR sent a letter to the CPUC indicating that
under the DWR's interpretation of AB 1X, the DWR is entitled to receive
the generation-related component of the utilities' retail rate in effect
on January 5, 2001, for each kWh made available by the DWR to retail
customers. This contrasts with AB 1X language that entitles the DWR only
to an allocated portion of the California Procurement Adjustment (CPA).
Under AB 1X the CPA is defined as 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, QF
contracts, bilateral contracts existing on February 1, 2001, and
ancillary services. Proposed AB 8X would amend AB 1X to reflect the
DWR's proposal for allocating revenues and authorize the CPUC to
establish the price to be paid by the utilities to a QF for power.
Several QFs with natural gas fired facilities have indicated that the
prices in the CPUC commissioner's proposed decision would be inadequate
for them to generate power given the current cost of natural gas. In
light of this reaction, further legislative efforts are underway to
revise the proposed legislation to permit the QF prices to be paid by
utilities to be adjusted to recover the price of the QFs' natural gas
supplies.
If AB 1X is amended in the manner contemplated by proposed AB 8X to
entitle the DWR to the Utility's generation-related component of retail
rates for each kWh sold by the DWR, and if the CPUC requires the Utility
to pay in excess of 7.9 cents per kWh to the QF suppliers, there would
be insufficient revenues for the Utility to recover the cost of its own
generation and to pay counterparties under bilateral power purchase
contracts even assuming the DWR were to purchase power to cover the
full net open position. The Utility believes that any requirement that
the Utility pay more than it collects in rates for its generation-
related costs, thereby leaving inadequate revenues to cover the
Utility's costs, would be an illegal taking of its property and that
such requirement would unfairly discriminate against its energy
suppliers, vendors, and lenders. The Utility would challenge any such
requirement in the appropriate legal forum.
B. Accounting Treatment
The accounting treatment of the Utility's undercollected balance in its
regulatory balancing accounts will significantly impact the Utility's
and PG&E Corporation's financial results. The undercollections can be
recorded as a regulatory asset on the balance sheet rather than being
charged against earnings if it is probable that the undercollections
will be recovered through the ratemaking process, as provided in
Statement of Financial Accounting Standards No. 71 (FAS 71), "Accounting
for the Effects of Certain Types of Regulation." "Probable" in FAS 71
means that a future event is likely to occur and is a higher level of
certainty than "reasonably possible." If it is determined that all or a
portion of the existing undercollections are no longer probable of
recovery through regulatory proceedings and mechanisms, the
undercollections or a portion thereof must be charged against earnings.
Thereafter, any further undercollections that are not probable of
recovery under FAS 71 also would be charged against earnings. Under FAS
71, if a rate mechanism were subsequently established that made recovery
probable as to all or a portion of the undercollection that was
previously charged against earnings, the regulatory asset would be
correspondingly reinstated with a corresponding increase in earnings.
At the time that PG&E Corporation and the Utility must release their
financial results for the fourth quarter and year-end 2000, if they
cannot conclude that the status of regulatory proceedings at the CPUC
and any other developments that impact ratemaking processes and rates
(including any agreements with Governor Davis and his representatives or
legislative enactments) are such that recovery of all the
undercollections through rates is probable, PG&E Corporation's and the
Utility's financial statements for the fourth quarter and year-end 2000
would show a substantial charge to earnings. The amount of the charge,
if any, cannot be estimated at this time due to the uncertainties
discussed above, but on an after-tax basis the amount could be as much
as $ 4.1 billion (reflecting a charge of the entire regulatory balancing
accounts as of December 31, 2000, on an after-tax basis). Some or all of
the charge could later be reversed, as described above.
C. Bank Forbearance Agreement
As previously disclosed, the banks under the Utility's $1 billion
revolving credit agreement had agreed to forbear from exercising any
remedies with respect to the Utility's default under that agreement
until March 6, 2001. The Utility's banks have extended the forbearance
agreement to April 13, 2001.
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: March 23, 2001
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