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: January 5, 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.
California Energy Crisis
A. California Public Utilities Commission Decision Issued
On January 4, 2001, the California Public Utilities Commission (CPUC)
issued an emergency interim decision permitting Pacific Gas and Electric
Company (Utility) to establish an interim surcharge applied to electric
rates on an equal-cents-per-kilowatt-hour (kWh) basis of one cent per
kWh, subject to refund and adjustment. The surcharge is to remain in
effect for 90 days from the effective date of the decision, January 4,
2001. The surcharge is expected to result in rate increases of
approximately 9% for residential customers, 7% for small business
customers, 12% for medium commercial customers, and 15% for large
commercial customers. The Utility is required to establish a balancing
account with customer class-specific sub-accounts to track the revenue
provided by the surcharge and to apply these revenues to ongoing power
procurement costs.
The CPUC noted that the 90-day period will allow the independent
auditors engaged by the CPUC sufficient time to perform a comprehensive
review of the overall financial position of the Utility. The auditor's
report also is expected to include a review and analysis of the
financial position of PG&E Corporation, the holding company of the
Utility, its other affiliates, and the flow of funds between these
entities and the Utility.
The decision states that the CPUC is considering modifying the
transition cost recovery accounting mechanisms by requiring the Utility
to credit the year-end excess revenues accrued in its generation
memorandum accounts to the Transition Revenue Account (TRA) rather than
to the Transition Cost Balancing Account (TCBA). The CPUC stated that
it wishes to preserve its ability to take this action in the future
after considering additional testimony and evidence on the implications
of that approach. (The TRA is a regulatory balancing account in which
the Utility's under-collected power purchases are recorded, and the TCBA
is a regulatory balancing account used to track recovery of transition
costs.) However, the decision states that to the extent the Utility has
credited the net amounts in its generation memorandum accounts as of
December 31, 2000, to the TCBA, the Utility is required to reverse and
adjust all necessary accounting entries. The Utility is required to
separately identify and segregate the funds within the generation
memorandum account for potential later action by the CPUC.
The CPUC stated that in the next phase of the proceedings it will
address such issues as (1) the proposal by The Utility Reform Network
(TURN) to net the TRA and TCBA; (2) the necessary ratemaking to ensure
that power produced from retained generation assets is dedicated to
serve the Utility's customers; (3) the Utility's cost-cutting efforts;
(4) the Utility's efforts to pursue remedies at the Federal Energy
Regulatory Commission (FERC) or courts reviewing the FERC, and lawsuits
against generators or marketers of electricity and natural gas; (5)
whether and how holding company assets or guarantees should be applied
to Utility power procurement requirements; (6) conservation and rate
design issues; (7) additional discounts and program improvements for
low-income customers; (8) how to approach consumer education; (9)
condemnation efforts to ensure generation availability; and (10)
mechanisms and options to securitize existing liabilities, in order to
report to the Governor and the Legislature regarding those options
during the interim period.
The CPUC has set a prehearing conference for January 10, 2001, to begin
to consider the issues and to establish a timetable to consider the
reports of the independent auditors.
B. Ratings Downgrade
On January 4, 2001, Standard & Poor's (S&P) rating agency reduced PG&E
Corporation's and the Utility's corporate credit ratings to BBB- from A,
The commercial paper of PG&E Corporation and the Utility also was
downgraded to A-3 from A-1.
On January 5, 2001, Moody's Investor Service (Moody's) lowered the
issuer ratings of PG&E Corporation to Baa3 from A3 and the ratings on
the Utility's senior secured debt to Baa2 from A1. The commercial paper
of PG&E Corporation and the Utility were also reduced from Prime-1 to
Prime-3. The ratings remain under review for further downgrade.
Under the Utility's $850 million revolving credit facility, this
downgrade will trigger a 90-day cure period during which the Utility
must achieve an improved rating or be in default under the agreement.
Although there are currently no borrowings under the agreement, such a
default would entitle the lenders to accelerate any debt outstanding
under this facility. Commercial paper ratings of A-3 and Prime-3 make
it extremely doubtful that either entity will be able to issue
commercial paper, and instead will be required to continue to rely on
bank facilities for daily borrowing needs. The ratings downgrades could
also adversely affect other PG&E Corporation and Utility outstanding
debt securities, financial obligations and relationships. PG&E
Corporation and the Utility cannot predict whether the ratings
downgrades will preclude the ability of PG&E Corporation and the Utility
to issue other financial instruments.
S&P concluded "that while lower ratings may soon result, they are
premature at this juncture because the California Legislature is in
special session and is endeavoring to craft a timely solution to the
financial crisis at the state's utilities." S&P noted that "[i]t is
precisely the potential dire consequences of inaction that leads
Standard & Poor's to conclude that there is a reasonable chance that
action is forthcoming." S&P also stated that it "recognizes the risk
that existing commercial paper bank backup facilities might be withdrawn
once a ratings downgrade constitutes an event of default in the bank
facility. Although a ratings-related withdrawal of the bank facilities
could precipitate a liquidity crisis, such eventualities have not been
factored into the current rating action."
The current S&P credit ratings, compared to the prior ratings, are as
follows:
PG&E Corporation:
Corporate credit rating: BBB-/A-3 from A/A-1
Commercial paper: A-3 from A-1
Pacific Gas and Electric Company
Corporate credit rating: BBB-/A-3 from A+/A-1
Commercial paper: A-3 from A-1
Senior secured debt: BBB from AA-
Senior unsecured debt: BBB- from AA-
Preferred stock: BB from A-
Each of the above ratings is listed on S&P's CreditWatch with negative
implications, reflecting the potential for the ratings to be further
downgraded if the Utility's financial condition is permitted to continue
to deteriorate. S&P also downgraded the credit ratings of other PG&E
Corporation entities (except for PG&E Gas Transmission Northwest
Corporation) to reflect (1) the likelihood that the Utility's eroded
financial performance will impair the financial strength of PG&E
Corporation and its related companies and (2) the potential for
consolidation of related companies with the Utility and PG&E Corporation
in bankruptcy, if the Utility becomes insolvent.
Moody's stated that the ratings of PG&E Corporation and the Utility
could decline below investment grade "unless legislative, state, or
federal actions help to establish a near-term liquidity plan that will
strengthen and extend the utility's financial viability." Moody's will
also monitor the outcome of pending litigation against the Federal
Energy Regulatory Commission and against the CPUC. Moody's indicated
that the outcome would provide little benefit towards the liquidity
issue, but could strengthen the Utility's intermediate term position
concerning the wholesale marketplace and its ability to recover
wholesale power costs.
Although it is not engaged by PG&E Corporation or the Utility to rate
their securities, on January 4, 2001, Fitch, another ratings agency,
also lowered their ratings for the Utility's mortgage bonds to B- and
its senior unsecured debt to CCC, its preferred stock to CC, and its
commercial paper to C. Fitch does not rate PG&E Corporation.
C. Concurring Opinion of the Chairman of the Federal Energy Regulatory
Commission (FERC)
On January 4, 2001, James J. Hoecker, the Chairman of the FERC, issued
his concurring opinion in connection with the FERC's December 15, 2000
order regarding the California energy crisis. The Chairman outlined a
suggested "work-out plan" for California. In his opinion, the Chairman
noted that he could support price caps if they were used as a method of
affording a short "time out" within which parties could negotiate better
ways to make the market work for consumers, such as bilateral forward
contracts, demand response programs, or equitable relief. In addition,
the Chairman noted that no one to date has offered a price cap proposal
in the context of a comprehensive settlement of the issues and requested
that the Secretary of Energy and top economic officials convene the
California parties in an effort to map out the parameters of a
comprehensive solution to the market and financial crises in California.
Media reports indicate that such a meeting is scheduled for January 9,
2001, and expected at the meeting are California Governor Davis, Mr.
Hoecker, Energy Secretary Richardson, Treasury Secretary Summers and Mr.
Sperling, director of the National Economic Council.
The Chairman also noted that regional solutions are indispensable and
recommended that the FERC mandate a West-wide regional transmission
organization which could address the issues of operational
compatibility, pricing, and reliability. The Chairman also urged the
FERC to develop a substantial market power mitigation plan, articulate
how it will determine what are "just and reasonable" market-based rates
under the standards of the Federal Power Act, and how the FERC will use
its police powers to craft equitable remedies to address the impacts of
illegal market manipulation if the FERC finds that such unlawful
manipulation occurred.
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 BRUCE R. WORTHINGTON
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BRUCE R. WORTHINGTON
Senior Vice President and General Counsel
PACIFIC GAS AND ELECTRIC COMPANY
By: DINYAR B. MISTRY
------------------------------
DINYAR B. MISTRY
Vice President and Controller
Dated: January 5, 2001
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