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: February 28, 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 Regulatory Action
As previously disclosed, the California Public Utilities Commission
(CPUC) issued an interim decision on January 31, 2001, taking emergency
action to establish regulations to establish delivery and payment
mechanisms relating to the California Department of Water Resources'
(DWR) electric power purchases under Senate Bill 7X. Senate Bill 7X
authorized the DWR to purchase power through January 31, 2001. The
CPUC's decision, among other things, imposed an obligation on the
California-investor owned utilities (IOUs), including Pacific Gas and
Electric Company (Utility), to pay the shortfall between the cost of the
power purchased by DWR for the IOUs' customers and the revenues
collected from customers by the IOUs. In response to petitions to modify
filed by the IOUs, on February 22, 2001, the CPUC modified their earlier
decision to delete language imposing the obligation for the shortfall on
the IOUs.
The CPUC's January 31, 2001 interim decision also specified that the
DWR would receive a percentage of the amount each retail end-use
customer currently is charged for electric energy. The percentage or
ratio would be determined by dividing the (1) the amount of power
supplied by the DWR by (2) the sum of the amount of power generated or
purchased by the utility, including any real time energy purchased from
the California Independent System Operator (ISO) and the amount of power
supplied by the DWR. Under the decision, the DWR would receive payment
based on that ratio, regardless of the utilities' other commitments for
payments under contracts with qualifying facilities (QF) or other
bilateral contracts. Under this "ratio" approach, the DWR could
receive payments of some amounts of revenue received by the utilities
from retail end-use customers that otherwise would be available to pay
for the utilities' generation, and for amounts due under QF and
bilateral contracts.
On February 1, 2001, Assembly Bill No. 1 (AB 1X) became effective. AB
1X extended the authority of the DWR to purchase power. Public
Utilities Code Section 360.5, adopted in AB 1X, authorizes the CPUC to
determine the portion of each electric utility's existing electric
retail rate, the "California Procurement Adjustment" or CPA, that is
equal to 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, existing bilateral
contracts, and ancillary services. The CPUC is then required to
determine the amount of the CPA that is allocable to the power sold by
the DWR. That amount is payable to the DWR by each utility upon receipt
from its retail end use customers. The Utility believes AB 1X, and in
particular Public Utilities Code Section 360.5, require a "residual"
approach rather than a ratio approach. Section 360.5 does not entitle
the DWR to a pro rata share of the revenues allocated to recover costs
of the utilities' own generation, QF contracts, existing bilateral
contracts, and ancillary services.
Further, on February 20, 2001, a CPUC administrative law judge (ALJ)
issued a draft decision in the Utility's rate stabilization plan
proceeding to respond to a request from the DWR that the CPUC establish
an interim allocation of revenues as a source for funding the DWR's
power purchases under AB 1X. The draft decision would adopt the same
ratio approach on an interim basis, subject to adjustment and refund, as
adopted in the CPUC's January 31, 2001 interim decision regarding Senate
Bill 7X. On February 23, 2001, a CPUC commissioner issued an alternate
draft decision that, among other things, would make clear that under AB
1X the DWR is solely responsible for setting its revenue requirement
which the CPUC must pass through to ratepayers, and that the interim
allocation method would be determined at a later date following the
completion of hearings and briefs. The CPUC is scheduled to consider
this matter at its conference on March 7, 2001.
The Utility believes that the ratio approach is inconsistent with AB
1X and that the residual approach should apply to both Senate Bill 7X
and AB 1X. If adopted by the CPUC, the Utility may be unable to fully
recover the costs of its own generation or fully pay QFs and other power
suppliers under bilateral agreements, unless rates were raised in
accordance with AB 1X. If the ratio approach were adopted, the
Utility's financial condition and liquidity would be adversely affected
absent a rate increase in accordance with AB 1X.
B. Liquidity
The Utility has payments of $331 million due to qualifying facilities
(QFs) for January 2001 power deliveries and a payment due to the ISO for
December 2000 real-time energy purchases of $1,111 million. As
previously disclosed, the Utility has informed the ISO and QFs that, in
light of the Utility's current financial condition, the Utility is
unable to pay the full amounts due to the ISO and QFs and that the
Utility intends to make partial payments on a pro rata basis among QFs
and the ISO. Under this approach, the total payments to the QFs for
January 2001 deliveries, and to the ISO for December 2000 deliveries,
will be $51 million and $177 million, respectively.
C. Wilson vs. PG&E Corporation and Pacific Gas and Electric Company
On February 13, 2001, two complaints were filed against PG&E
Corporation and the Utility in the Superior Court of the State of
California, San Francisco County: Richard D. Wilson v. Pacific Gas and
Electric Company et al., ("Wilson I"), and Richard D. Wilson v. Pacific
Gas and Electric Company et al., ("Wilson II").
In Wilson I, the plaintiff alleges that in 1998 and 1999, PG&E
Corporation violated its fiduciary duties and California Business and
Professions Code Section 17200 by causing the Utility to repurchase
common shares of Pacific Gas and Electric Company common stock from PG&E
Corporation at an aggregate price of $2.326 billion. The complaint
alleges an unlawful business act or practice under Section 17200 because
these repurchases allegedly violated PG&E Corporation's fiduciary
duties, a first priority capital requirement allegedly imposed by the
CPUC's decision approving the formation of a holding company, and also
violated an implicit public trust imposed by Assembly Bill 1890, which
granted authority for the issuance of rate-reduction bonds. The
complaint seeks to enjoin the repurchase by the Utility of any more of
its common stock from PG&E Corporation or other entities or persons
unless good cause is shown, and seeks restitution from PG&E Corporation
of $2.326 billion, with interest, on behalf of the Utility. The
complaint also seeks an accounting, costs of suit, and attorney's fees.
In Wilson II, the plaintiff alleges that PG&E Corporation, the
Utility, and other subsidiaries have been parties to a tax-sharing
arrangement under which PG&E Corporation annually files consolidated
federal and state income tax returns for, and pays, the income taxes of
PG&E Corporation and participating subsidiaries. According to the
plaintiff, between 1997 and 1999, PG&E Corporation collected $2.957
billion from the Utility under this tax-sharing arrangement, but paid
only $2.294 billion (net of refunds) to all governments under the tax-
sharing arrangement. Plaintiff alleges that these monies were held
under an express and implied trust to be used by PG&E Corporation to pay
the Utility's share of income taxes under the tax-sharing arrangement.
Plaintiff alleges that PG&E Corporation overcharged the Utility $663
million under the tax-sharing arrangement and has declined voluntarily
to return these monies to the Utility, in violation of the alleged
trust, the alleged first priority capital condition, and of California
Business and Professions Code Section 17200. The complaint seeks to
enjoin PG&E Corporation from engaging in the activities alleged in the
complaint (including the tax-sharing arrangement), and seeks restitution
from PG&E Corporation of $663 million, with interest, on behalf of the
Utility. The complaint also seeks an accounting, costs of suit, and
attorney's fees.
PG&E Corporation's and the Utility's analysis of these complaints is
at a preliminary stage, but PG&E Corporation and the Utility believe
them to be without merit and intend to present a vigorous defense. PG&E
Corporation and the Utility are unable to predict whether the outcome of
this litigation will have a material adverse affect on their financial
condition or results of operation.
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 B. MISTRY
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DINYAR B. MISTRY
Vice President and Controller
Dated: February 28, 2001