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 10, 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)
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Item 5. Other Events.
California Power Crisis
A. Current Financial Condition
As of December 31, 2000, there was an under-collected balance in the
Utility's Transition Revenue Account (TRA), a regulatory balancing
account in which the Utility's under-collected power purchase costs are
recorded, of $6.6 billion, more than 100% of its total stockholders'
equity. Wholesale power prices in December 2000, spiked to over $400
per megawatt hour, 1000% higher than a year ago. As of December 31,
2000, there was a credit balance in the Utility's Transition Cost
Balancing Account (TCBA), a regulatory balancing account used to track
recovery of the Utility's transition costs, of $1.9 billion. As of
January 10, 2001, the Utility has cash reserves of approximately $500
million. As previously disclosed, the Utility (1) has a payment due to
the California Independent System Operator (ISO) on February 1, 2001 for
real-time energy purchases of $583 million, (2) an estimated payment to
the California Power Exchange (PX), due on February 15, 2001 for day-
ahead energy purchases, of $431 million, (3) an estimated payment to the
ISO for energy purchases in December 2000, due on March 2, 2001, of $1.2
billion. In addition, the Utility's monthly gas procurement
disbursements are more than $200 million.
The recent rate increase approved by the California Public Utilities
Commission (CPUC) on January 4, 2001, will raise approximately $70
million in cash per month for three months. Even if all this cash were
made available to the Utility immediately, $210 million represents
approximately one week's worth of net power purchases at current prices.
Thus, the rate increase does not raise enough cash for the Utility to
pay its ongoing procurement bills or make further borrowing possible.
Either a further ratings downgrade to below investment grade or a
default in the payment of certain obligations of $100 million or more
would create an immediate default under certain Utility and PG&E
Corporation credit and other financial agreements, entitling financial
creditors to accelerate repayment of loans.
The Utility currently is unable to borrow more money, and is foreclosed
from the capital markets because of its financial condition. Absent
immediate regulatory, legislative or judicial relief, the Utility will
default on its payment obligations and faces the risk of being forced
into bankruptcy. The public health and safety would be jeopardized if as
a result of bankruptcy the Utility could not continue to maintain its
transmission lines, distribution lines, power plants, gas distribution
facilities, and other facilities. Moreover, regardless of bankruptcy,
the Utility must purchase electricity and gas from others, to provide to
its customers, but it is unclear how or whether any such suppliers would
continue to sell to the Utility given the Utility's financial condition.
B. Impending Natural Gas Shortage Emergency
The Utility's deteriorating credit situation is causing many of its gas
suppliers to decline to sell the Utility any more gas, even under
existing gas contracts, in the absence of accelerated payments.
Specifically, some gas suppliers (1) have made demands that the Utility
provide prepayment, cash on delivery, or other forms of payment
assurance for gas supplies, which the Utility is unable to meet given
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its current cash reserves; and (2) have refused to sell gas to the
Utility for future periods commencing as early as January 12, 2001.
The Utility believes that a gas supply emergency exists, and that if
accelerated payments to suppliers are required, the Utility will be
unable to pay for gas for heating and other essential uses for its
residential and small commercial customers (core customers). If the
Utility's suppliers stopped delivering gas, the Utility would be
required to increase withdrawals from gas storage. Lower than normal
temperatures or further reductions in gas supplies would require the
Utility to divert gas from large commercial and industrial customers
(non-core customers), including electric generators, for delivery to
core customers. Approximately two-thirds of the divertible gas on the
Utility's gas system currently is consumed by electric generators. Any
diversions of non-core gas will decrease the level of electric
generation in the Utility's service territory and lead to worsening
outages on the electric system. For this reason, diversions of non-core
gas supplies in order to avoid shortages to core customers will only
aggravate the combined gas and electric supply crisis. If a significant
number of gas suppliers terminate their gas contracts and refuse to sell
gas to the Utility, the Utility would exhaust all storage gas by the
second week of February and there would be sustained curtailments of
major portions of the Utility's gas system.
On January 9, 2001, the Utility sent a letter to the California Governor
informing the Governor that the Utility faces an imminent shortage of
natural gas for its core customers due to the Utility's worsening credit
situation. The Utility suggested that the Governor use his emergency
powers to permit the State to provide temporary financial assistance
sufficient to meet the demands of gas suppliers, such as by functioning
as an interim purchaser or otherwise provide credit.
The Utility also is exploring with the Department of Energy the extent
to which any emergency federal powers can be brought to bear on this
emergency.
C. ISO's Requested Tariff Amendment to Creditworthiness Standards
On January 5, 2001, the ISO filed a tariff amendment with the FERC
seeking approval of the modification of the ISO tariff setting forth
creditworthiness standards for distribution utilities such as the
Utility. Under the current ISO tariff, the Utility must maintain an
"Approved Credit Rating" or provide the ISO other security, such as a
letter of credit, guarantee, or other form of security. As previously
reported, Standard & Poor's 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. Also,
as previously reported, Moody's Investor Services, Inc. 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. These new ratings fall below the "Approved Credit Ratings" set
forth in the ISO tariff. Under the current ISO tariff, if the Utility
were unable to provide adequate security, the Utility would be unable to
schedule its transactions through the ISO for its customers. The ISO's
tariff amendment would provide a temporary exemption extended on a day
to day basis until March 3, 2001. The ISO requested that the FERC
permit the amendment to be effective as of January 4, 2001, before the
ratings downgrades were made. The ISO has already begun to implement
its tariff amendment by continuing to accept the Utility's scheduled
transactions.
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On January 8, 2001, a power generator filed a motion with the FERC
opposing the ISO's amendment and arguing that the FERC should order the
ISO to enforce its creditworthiness provisions and to take other actions
such as the adoption of stricter credit requirements, expedited payment
provisions, enforcement of set off provisions, and assurances that
sellers will have recourse against defaulting buyers. Absent such
assurances that they be paid, the motion argues that generators who have
agreement with the ISO should be relieved of their obligation to supply
the ISO markets.
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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 BRUCE R. WORTHINGTON
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BRUCE R. WORTHINGTON
Senior Vice President and General Counsel
PACIFIC GAS AND ELECTRIC COMPANY
By: ROGER J. PETERS
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ROGER J. PETERS
Senior Vice President and General Counsel
Dated: January 10, 2001
