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: November 22, 2000
Exact Name of
Commission Registrant State or other IRS Employer
File as specified Jurisdiction of Identification
Number in its charter Incorporation Number
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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)
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Item 5. Other Events
A. Valuation and Disposition of Pacific Gas and Electric Company's
Hydroelectric Generating Assets
On November 20, 2000, Pacific Gas and Electric Company (Utility), the
California subsidiary of PG&E Corporation, withdrew its support from a
settlement reached earlier this year with various parties in the Utility's
proceeding pending before the California Public Utilities Commission (CPUC)
to determine the market value of its hydroelectric generating assets. Under
the CPUC's settlement rules the applicant in a proceeding (here the
Utility) must be a party to any settlement that resolves a proceeding. The
effect of the Utility's withdrawal from the settlement thus is to eliminate
the settlement from consideration in the proceeding. Under the settlement,
the hydroelectric facilities were to be transferred to a California-based
affiliate of PG&E Corporation at a value of $2.8 billion, subject to a 40-
year revenue sharing agreement. The settlement had been proposed as an
alternative to the Utility's original proposal to auction the assets.
As previously reported, the CPUC issued a ruling re-opening the
hydroelectric valuation proceeding to obtain more information from parties
about market valuation in light of the different market conditions
experienced during the summer of 2000. That new testimony is to be
submitted on December 5, 2000 with further testimony and evidentiary
hearings to be scheduled for next year.
The Utility believes that under current market conditions in the California
wholesale electricity market the settlement value of $2.8 billion vastly
underestimates the market value of these assets. The Utility believes that
if the assets are sold at auction, or are appraised based on their current
value, the value would be far in excess of $2.8 billion.
Further, on November 20, 2000, the CPUC's draft environmental impact report
(EIR) in the hydroelectric valuation proceeding was issued. The draft EIR
analyzes the environmental impacts of the Utility's original proposal to
auction all of its hydroelectric facilities and 140,000 acres of surrounding
land, and l6 other alternatives to the auction, including the withdrawn
settlement discussed above. The draft EIR concludes that 9 of the 16
alternatives would be environmentally superior to an auction. It concludes
that the Utility's auction proposal would result in many significant adverse
environmental impacts, most ofwhich could be mitigated. The draft EIR also
concludes that continued retention of the facilities by the Utility under
CPUC regulation avoids all of the auction's significant adverse
environmental impacts.
Comments on the draft EIR are due on February 5, 2001.
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B. Recovery of Wholesale Power Purchase Costs
Under current CPUC decisions, the Utility's customers are responsible for
wholesale power purchase costs after the Utility has recovered its
transition costs. The Utility also believes that customers are responsible
for its uncollected wholesale power purchase costs recorded in the
Utility's transition revenue account (TRA) before the Utility completed its
transition cost recovery. As previously disclosed, the Utility is pursuing
judicial challenges to the CPUC's decisions which prohibit recovery of
under-collected wholesale power purchase costs recorded in the TRA before
the Utility completed its transition cost recovery. As previously
disclosed, the Utility believes it recovered its transition costs at the
very latest sometime during August 2000, based on a $2.1 billion credit the
Utility made as of August 31, 2000, to the Utility's account for tracking
the recovery of transition costs (the Transition Cost Balancing Account or
TCBA). (The amount of the credit equaled the amount by which $2.8 billion
exceeded the aggregate book value of the hydroelectric assets.) Under the
electric industry restructuring law, when the Utility has recovered its
eligible transition costs, the conditions for ending the transition period
and terminating the rate freeze will have been satisfied. There was a
balance of approximately $2.2 billion of under-collected wholesale power
purchase costs recorded in the TRA at the end of August 2000. If the final
valuation for hydroelectric assets is greater than $2.8 billion, as the
Utility expects, the Utility will have recovered its transition costs
earlier, and the under-collected TRA balance as of the end of the earlier
determined transition period will be lower at that point and could be
eliminated entirely.
As previously disclosed, The Utility Reform Network (TURN) has filed a
petition for modification of the accounting mechanisms for recovery of the
Utility's transition costs. TURN has proposed to transfer the under-
collected balance of the Utility's wholesale power purchase costs recorded
in the TRA to the TCBA. TURN's proposals would treat under-collected
electric procurement costs for accounting purposes as if such costs were
unrecovered transition costs, the likely effect of which would be to delay
the completion of transition cost recovery by the Utility as well as delay
the end of the rate freeze. If this proposal is adopted by the CPUC, the
Utility would have to write-off any unrecovered transition costs remaining in
the modified TCBA if such costs were not probable of recovery.
On November 9, 2000, the Utility filed a response opposing TURN's proposal
and submitted testimony in support of the Utility's positions and
requesting evidentiary hearings. On November 14, 2000, the CPUC's Office of
Ratepayer Advocates (ORA) filed a motion asking that the Utility's
testimony be stricken from the record. On November 15, 2000, the assigned
administrative law judge issued a ruling denying the Utility's request for
evidentiary hearings. Since no evidentiary hearings were to be held, the
ruling found that the Utility's testimony was premature and granted ORA's
request to strike the Utility's testimony from the record. On November 21,
2000, the Utility requested that the full CPUC reverse this ruling and
allow evidentiary hearings to be held promptly and allow its testimony to be
heard.
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C. Pacific Gas and Electric Company's Rate Stabilization Plan
On November 22, 2000, the Utility filed an application with the CPUC
seeking approval of a five-year rate stabilization plan (RSP) designed to
protect the Utility's customers from the high and volatile wholesale
electricity prices being charged in California, while increasing rates
effective January 1, 2001, to allow the Utility to begin recovery of the
Utility's past and ongoing wholesale power purchase costs. As of October
31, 2000, the balance of the under-collected wholesale power purchase costs
recorded in the TRA was approximately $3.4 billion. The Utility has
requested that its proposed RSP rates and tariffs be adopted by January 1,
2001, on an interim basis, subject to refund, and that the CPUC approve the
application by no later than March 31, 2001.
In compliance with the CPUC's post-transition period electric ratemaking
decisions, the Utility also filed its end-of-freeze tariffs on November 22,
2000. Assuming the transition period has ended, absent adoption of the
RSP, the Utility's end-of-freeze tariffs would go into effect within 30
days of filing, subject to the CPUC's Energy Division determining that the
tariffs are in compliance with the CPUC's decisions. The Utility
anticipates that there will be a lag between when the transition period
ends and when the new post-freeze rates become effective. CPUC decisions
provide for a true up, covering the period between the end of the
transition period and the effective date of the new rates.
To protect its customers from the volatility of current wholesale
electricity prices at the end of the current electric rate freeze, the
Utility has requested that its RSP rates and tariffs supersede the end-of-
freeze tariffs.
Under the proposed RSP, beginning on January 1, 2001, current wholesale
electric commodity costs would be recovered through a separate rate
component. For residential and small commercial customers the commodity
rate component would be initially capped at about 6.5 cents per kWh, but
subject to increases if under-collected costs exceed a pre-set, reasonable
level. Adjustments would be triggered if the under-collected wholesale
power purchase costs increased by $1 billion, or if the total under-
collected wholesale power purchase costs exceed a predetermined amount,
starting at $4.5 billion, and reducing over time. The initial rate of
about 6.5 cents per kWh is comparable to the wholesale rate cap adopted by
the California Legislature for customers of San Diego Gas & Electric
Company.
In addition to stabilizing rates, the Utility proposes that it be allowed
to recover any past deferred wholesale power purchase costs over five
years. Deferred wholesale power purchase costs would collect interest at
the 90-day commercial paper rate applicable to regulatory accounts. The
rate for recovery would be set at a rate designed to amortize the entire
amount over five years. The collection would continue until all amounts
are collected. If energy use differs from estimates, such that these costs
are collected sooner than anticipated, collection could end earlier.
Similarly, if energy use differs from estimates, such that these costs are
not collected within the five years, collection will continue until
complete.
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To reduce the immediate rate increase needed to finance the recovery of
these uncollected power purchase costs, the Utility would defer receiving a
portion of its share of profits from its retained generation facilities,
primarily from the Diablo Canyon nuclear power plant and its hydroelectric
plants, until a later time during the five-year period and allow those funds
instead to be used to offset uncollected power purchase costs. With respect to
deferred Diablo Canyon profits, starting in 2003, when electric prices are
expected to decrease, the allocation of revenues between ratepayers and
shareholders will be readjusted, such that, by the end of 2005, based on
performance by the plant, the total net revenues earned by Diablo Canyon over
the five year plan will be allocated equally between shareholders and
ratepayers according to existing CPUC decisions. The Utility has proposed a
similar schedule for recovery of deferred earnings from its hydroelectric
facilities.
The Utility has been required to finance the majority of its net power
purchase costs because the Utility's purchased power costs have greatly
exceeded revenues collected from customers through frozen rates and the
revenues from the Utility's sales to the California Power Exchange (PX) and
the California Independent System Operator (ISO). The Utility has fully
utilized its existing $1 billion revolving credit facility to support the
Utility's commercial paper program and other liquidity requirements. On
October 18, 2000, the Utility executed a credit agreement for an additional
$1 billion in revolving credit facilities to provide commercial paper
backup to support its higher purchased power costs and the associated
increases in the TRA. On November 1, 2000, the Utility issued $1 billion
of short-term floating rate notes and $680 million of five-year notes. On
November 22, 2000, the Utility issued an additional $240 million of short-
term floating rate notes. The increased revenues from customers which
would be collected under the RSP would improve the Utility's ability to pay
its net power purchase costs, however, these increased revenues would not
eliminate the Utility's need to continue to finance its ongoing net power
purchase costs.
D. Federal Energy Regulatory Commission (FERC) Order
On November 1, 2000, the FERC issued proposals acknowledging that the
wholesale electric market structure in California is seriously flawed, and
proposed a series of sweeping changes to reshape the state's markets and
help remedy the electricity pricing problems that have plagued California
this year. The FERC proposed several measures designed to restructure the
California electricity market to dampen extreme price volatility, provide a
stable environment for generation investment, and ensure just and
reasonable wholesale rates. The FERC proposals include a major overhaul of
the ISO and the PX market rules in order to provide more flexibility for
market participants to manage their risks and broaden their opportunities
to buy and sell power.
The FERC proposals identified the elimination of rules that prevent market
participants from managing risk as the single most important remedy that
the California markets need. The remedies proposed by FERC, some of which
will take up to 24 months to effectuate, include, among other things: (1)
eliminating the requirement that the three California investor-owned
utilities must sell all of their power into, and buy all of their power
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needs from, the PX, giving them more options in securing resources to meet
customer needs; (2) temporary modification of the single price auction so
that bids above $150 per MWh (15 cents per kWh) cannot set the market
clearing prices paid to all bidders; (3) establishing independent non-
stakeholder governing boards for the PX and ISO; (4) exploration of
alternatives to the single price auction by the ISO and PX; and (5)
development of market rules to ensure that sufficient supply is available
to meet load and reserve requirements. The FERC did not order any refunds
based on its findings, but announced its intent to retain the discretion to
order refunds for wholesale power purchase costs incurred from October 2000
through December 31, 2002.
The FERC also proposed price mitigation measures that will remain in effect
until December 31, 2002, and proposed that the ISO and PX establish new
independent governing boards. The FERC has indicated it intends to issue a
final order by the end of 2000.
E. Pacific Gas and Electric Company's Federal Complaint
On November 8, 2000, the Utility filed a lawsuit in federal district court
in San Francisco against the CPUC, asking the court to declare that the
federally-approved wholesale power costs the Utility has incurred to serve
its 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 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. The
Utility's complaint also alleges that to the extent that the Utility is
denied recovery of these mandated wholesale power costs by order of the
CPUC, such action constitutes an unlawful taking and confiscation of the
Utility's property. On November 13, 2000, Southern California Edison filed
a similar suit against the CPUC in federal district court in Los Angeles.
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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 MISTRY
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DINYAR MISTRY
Vice President and Controller
Dated: November 22, 2000
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