San Francisco, CA, April 6, 2001 Pacific Gas and Electric Company, the utility unit of PG&E Corporation (NYSE: PCG), today filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in San Francisco bankruptcy court.
The company said it is taking this action in light of its unreimbursed energy costs which are now increasing by more than $300 million per month, continuing CPUC decisions that economically disadvantage the company, and the now unmistakable fact that negotiations with Governor Gray Davis and his representatives are going nowhere.
Neither PG&E Corporation nor any of its other subsidiaries, including its National Energy Group, have filed for Chapter 11 reorganization or are affected by the utility’s filing.
“We chose to file for Chapter 11 reorganization affirmatively because we expect the court will provide the venue needed to reach a solution, which thus far the State and the State’s regulators have been unable to achieve,” said Robert D. Glynn, Jr., Chairman of Pacific Gas and Electric Company. “The regulatory and political processes have failed us, and now we are turning to the court.”
Glynn added, “Our objective is to move through the Chapter 11 reorganization process as quickly as possible, without disruption to our operations or inconvenience to our customers. Throughout this crisis, our 20,000 employees have been and remain committed to providing safe and reliable service to the 13 million Californians who depend on us to deliver their gas and electricity.”
Pacific Gas and Electric Company decided to file for the protection of Chapter 11 primarily due to:
* Failure by the state to assume the full procurement responsibility for Pacific Gas and Electric’s “net open position” as was provided under AB1X. This has the result of increasing financial exposure to unreimbursed wholesale energy procurement costs, which the utility estimates to be approximately $300 million or more per month.
* The impact of actions by the California Public Utilities Commission (CPUC) on March 27, 2001, and April 3, 2001, that created new payment obligations for the company and undermined its ability to return to financial viability.
* Lack of progress in negotiations with the state to provide recovery of $9 billion in wholesale power purchases made by the utility since June 2000, which have not been recoverable in frozen rates.
* The adoption by the CPUC of an illegal and retroactive accounting change that would appear to eliminate our true uncollected wholesale costs.
“In addition, despite Pacific Gas & Electric’s best efforts to work with the State of California to reach a consensual, responsible, fair and comprehensive solution to California’s energy crisis, no agreement has been reached with the Governor and the Governor’s representatives have dramatically slowed the pace and the progress of discussions over the past month.
“Furthermore since last fall, we have filed comprehensive plans for resolving this matter with the CPUC, but they have not acted affirmatively on them,” said Glynn.
On October 4, 2000, Pacific Gas and Electric sought emergency rate action by the CPUC. In November 2000, we filed our rate stabilization plan, which, if adopted, would have increased electric prices by an initial 25 percent, compared with the 46 percent recently adopted by the CPUC. Neither request was acted upon. Had the state acted at that time:
* Pacific Gas and Electric would have been kept creditworthy;
* Pacific Gas and Electric would have been able to enter into long-term power purchase contracts at prices lower than those announced by the state;
* The state would not have had to almost exhaust the state’s budget surplus by spending billions of dollars to purchase power for the utility’s customers;
* The state would not now need to issue billions of dollars in bonds to cover these power purchases; and
* The state would not now be advancing a proposal to spend billions of dollars to purchase the state’s three investor-owned utility’s electric transmission systems.
“This year, the state has spent more than $3 billion on power purchases and, with the CPUC, has arranged to be reimbursed for these expenses,” noted Glynn. “In contrast, since June Pacific Gas and Electric Company has spent $9 billion in excess of revenues to pay for power for its customers and exhausted its ability to continue borrowing, but there has been no progress on a plan to reimburse it for those expenditures as provided by law.
“Statements by the Governor and other public officials since last September gave us reason to believe that a solution could be reached outside the context of Chapter 11 that would restore the utility’s financial viability and enable it to meet its financial obligations equitably. However, these statements have not been followed up by constructive actions, and a reorganization in Chapter 11 is now the most feasible means of resolution.”
The utility will utilize existing resources to continue operating its business during bankruptcy, including paying vendors and suppliers in full for goods and services received after the filing. The utility will pay electric commodity suppliers as provided by law. The utility intends to continue normal electric and gas transmission and distribution functions during the Chapter 11 process. Employees will continue to be paid. Health care plans and other benefits for employees and most retirees will continue. The utility’s qualified retirement plans for retirees and vested employees are fully funded and protected by federal law.