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: August 9, 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
Valuation and Disposition of Pacific Gas and Electric Company's
Hydroelectric Generation Assets
On August 9, 2000, The Utility Reform Network (TURN), Pacific Gas and
Electric Company (Utility), Agricultural Energy Consumers Association
(AECA), the Coalition of California Utility Employees (CUE), California
Retailers Association, Sonoma County Water Agency, and Tuolumne Utility
District, filed an application with the California Public Utilities
Commission (CPUC) requesting that the CPUC approve a settlement agreement
reached by these parties in the Utility's proceeding to determine the
market value of its hydroelectric generating assets. (The Utility is a
subsidiary of PG&E Corporation.) In this proceeding, the Utility
previously had proposed to determine the market value of its hydroelectric
generating facilities and related assets through an open competitive
auction. As previously disclosed, the Utility indicated that, instead of
an auction, it was willing to accept a possible compromise within a
framework that would transfer the hydroelectric facilities at a fair value
to a non-utility affiliate subject to a revenue sharing agreement between
the affiliate and the Utility.
Under the proposed settlement:
-- The Utility would transfer its hydroelectric generating assets, at a
value of $2.8 billion, to an affiliate that would not be regulated by
the CPUC (referred to herein as PG&E CalHydro).
-- The Utility would credit its Transition Revenue Account (TRA) the amount
by which $2.8 billion exceeds the book value of the Utility's net
investment in hydroelectric generation assets, plus post-March 31, 1998
capital additions, and transaction costs. At June 30, 2000, the book
value of the Utility's net investment in hydroelectric generation assets
was approximately $0.7 billion. The TRA is a balancing account that is
credited with revenues collected from ratepayers through frozen rates.
These revenues provide for the recovery of authorized Utility costs,
including transmission and distribution service, public purpose
programs, nuclear decommissioning, rate reduction bond debt service, and
the cost of procuring electricity for the Utility's bundled service
customers. Remaining revenues, if any, are used to offset transition
costs. The credit to the TRA would be used first to offset deferred
costs with any balance remaining being used to offset transition costs.
Because the Utility would receive the $2.8 billion value as a credit to
the TRA and not in the form of cash proceeds, the Utility would incur a
material charge of approximately $2.1 billion (pre-tax) to write off
generation-related regulatory assets comprised of the TRA and transition
costs.
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-- The credit to the TRA would be made no later than the date the CPUC
order approving the settlement agreement and the revenue sharing
agreement (RSA) becomes final and non-appealable. If the CPUC order
does not become final and non-appealable by October 1, 2001, and if the
credit has not yet been made, then the settlement agreement and the RSA
would terminate. Alternatively, if the TRA credit has been made before
the CPUC order becomes final and non-appealable, and if the CPUC order
is reversed on appeal or otherwise modified in a manner unacceptable to
the Utility, then the settlement agreement and the RSA would terminate.
In either event, the CPUC would determine which of the remaining
valuation alternatives would be used to market value the hydroelectric
assets by December 31, 2001, as required by the California electric
industry restructuring law. If the Utility had made a credit to the
TRA, the difference between the TRA credit and the valuation ultimately
reached by the CPUC, if any, would be recovered from or credited to the
Utility's distribution customers.
-- The Utility and PG&E CalHydro would enter into a 40-year revenue sharing
agreement. Under the RSA, PG&E CalHydro would be allowed to recover an
authorized, inflation-indexed operations and maintenance allowance,
certain other expenses including an allowance for capital additions, and
a return on capital investment. The return on equity (ROE) would
initially be set at 12.50 percent and would be subject to an indexed
adjustment trigger. Under the RSA, 90 percent of the after-tax earnings
received in excess of the agreed-upon costs (including the target ROE)
would be returned to the Utility to be used as a credit against current
costs charged to the Utility's distribution ratepayers. If market
revenues were insufficient to recover the agreed-upon costs of operating
the hydroelectric facilities (including the target ROE) over a multi-
year period, 90 percent of the revenue shortfalls would be charged to
the Utility to be recovered from distribution customers. The RSA would
become effective on the date that the CPUC final order approving the
settlement and the RSA becomes final and non-appealable, subject to
termination by either the Utility or PG&E CalHydro in certain
circumstances.
-- During the first ten years of the RSA, PG&E CalHydro would not be
permitted to sell or otherwise dispose of any hydroelectric asset
(except for certain minority interests) unless the facility is rendered
uneconomic as a result of a regulatory or legal mandate or catastrophic
event, or unless divestiture is necessary to comply with market power
mitigation conditions. PG&E CalHydro also would be allowed to transfer
the hydroelectric assets to separate affiliated entities (such as
limited liability corporations), provided the transferee takes such
assets subject to the terms of the parties' agreement. After the first
ten years of the RSA, PG&E CalHydro would be allowed to sell any
hydroelectric asset at fair market value, but the amount of the sale
proceeds that exceed book value would be shared with ratepayers
consistent with the revenue sharing formula.
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-- Recognizing that the Utility will incur a material charge when the
generation-related regulatory assets are written off that would reduce
the Utility's equity ratio below its current CPUC-authorized equity
ratio of 48 percent, the agreement provides that the Utility would be
given one year from the date of the transfer to restore its capital
structure to its current CPUC-authorized equity ratio. During this
period, the CPUC would not adjust the Utility's revenues or rates to
reflect the interim capital structure.
-- The potential market power impacts of the post-transfer asset ownership
would be mitigated by an agreement between PG&E CalHydro and the
California Independent System Operator (ISO) to make 95 percent of the
hydroelectric power available for both energy and ancillary service and
to impose maximum price bids during specified peak hours (a "mitigation
agreement"). The mitigation agreement would provide that power from the
hydroelectric assets will not be bid into the energy market in a way
that can raise power prices. The mitigation agreement is subject to ISO
Board approval. In light of the mitigation agreement, the parties have
agreed to advocate and support approval of market-based pricing
authority for the hydroelectric assets by the Federal Energy Regulatory
Commission (FERC).
-- The hydroelectric assets would be operated by PG&E CalHydro in
accordance with all applicable terms and conditions of the FERC licenses
and other environmental, water, agricultural, and regulatory permits and
agreements.
-- PG&E CalHydro would agree to abide by the successor obligations that the
Utility is required to impose upon the acquiring affiliate under its
collective bargaining agreement, including extending job offers to
affected employees in all transferred departments and adopting the
existing labor contract, modified to reflect PG&E CalHydro as the new
employer.
-- PG&E Corporation would also donate conservation easements on, or donate
in fee, approximately 140,000 acres of lands associated with the
hydroelectric assets to one or more qualified public entities, state or
local agencies or land conservation organizations whose ownership would
be consistent with certain conservation objectives. Further, under the
agreement, a $70 million fund would be established to enhance
environmental quality, water quality, and recreational opportunities.
The costs of the fund would be part of PG&E CalHydro's agreed-upon costs
under the RSA.
A copy of the settlement agreement, including the RSA, is available on the
Utility's website at www.pge.com.
The CPUC may accept the settlement or reject it, suggest changes to it, or
adopt a different valuation approach. It is anticipated that the CPUC will
receive written comments on the proposed settlement, schedule evidentiary
hearings, establish a briefing schedule, and evaluate the proposed
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settlement as part of the ongoing review under the California Environmental
Quality Act (CEQA) before issuing a proposed decision in the proceeding.
In addition, the transfer of the assets from the Utility to PG&E Cal-Hydro
will require the approval of the FERC.
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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 KENT M. HARVEY
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KENT M. HARVEY
Senior Vice President, Treasurer, Chief
Financial Officer, and Controller
Dated: August 9, 2000
