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December 8, 2003 Hearing Information

Informational Hearing

 

Review Of Proposed Decisions Regarding
The Pacific Gas and Electric Company Bankruptcy

 

California Public Utilities Commission
505 Van Ness Avenue, San Francisco

 

December 8, 2003
10:00 a.m. to 2:00 p.m.

 

Audio of hearing
Transcripts

  1. Opening Comments
  • Senator Debra Bowen, Chairwoman
    Senate Energy, Utilities, & Communications Committee

 

  1. Overview of Proposed Decisions

 

  1. Settlement Parties
  • Paul Clanon
    Staff of the California Public Utilities Commission
     
  • Robert D. Glynn, Jr., Chairman of the Board, Chief Executive Officer & President
    PG&E Corporation

 

  1. Interested Parties
  • Itzel Berrío
    The Greenlining Institute
     
  • Stephen Wald
    California Hydropower Reform Coalition
     
  • Chris King
    California Consumer Empowerment Alliance
     
  • Art Carter
    Coalition of Utility Employees
     
  • Hunter Stern
    IBEW Local 1245
     
  • Truman Burns and Robert Cagen
    Office of Ratepayer Advocates
     
  • Edward O’Neill
    The Utility Reform Network (TURN)
     
  • David Campos
    City and County of San Francisco
     
  • Earl Bouse
    California Large Energy Consumers Association
     
  • Henry Goode
    PPG Industries
     
  • Scott Rafferty
    Peninsula Ratepayers Association
     
  • Larry Engel
    City of Palo Alto
     
  • Susie Berlin
    Northern California Power Agency
     
  • Ann Trowbridge
    Merced Irrigation District

 

  1. Additional Public Comment


 

Review of Proposed Decisions Regarding the
Pacific Gas & Electric Company Bankruptcy

 

Background


On June 19, 2003, Pacific Gas & Electric Company (PG&E) and the staff of the California Public Utilities Commission (CPUC) announced a proposed settlement of their competing plans of reorganization in the PG&E bankruptcy proceeding.

Like both the PG&E and CPUC plans, the proposed settlement anticipates that all approved creditor claims will be paid. The proposed settlement commits approximately $4 billion in accumulated cash from excess rates collected by PG&E through 2003 to partially pay off the bankruptcy claims. New debt will be issued to pay off the remaining bankruptcy claims and expenses, with the cost collected in rates until 2013.

The key financial feature of the proposed settlement is the addition of $2.21 billion to PG&E’s rate base in the form of a new "regulatory asset." According to the proposed settlement, the regulatory asset will be amortized between 2004 and 2013 and will earn no less than PG&E’s current equity return of 11.22%. The regulatory asset effectively obligates PG&E customers to borrow $2.21 billion and pay it back with the equity return, plus taxes and amortization. The total ratepayer cost of the regulatory asset over its nine-year amortization is estimated at $5.27 billion. The revenues generated by the regulatory asset will support the issuance of new debt by PG&E. The after-tax amount of any refunds from generators or other energy suppliers will offset the regulatory asset.

The proposed settlement also contains several regulatory commitments, which purport to bind the CPUC for the nine-year term of the proposed settlement. For example:

  1. The CPUC agrees to act to facilitate and maintain investment grade credit ratings for PG&E.
  2. The CPUC is required to maintain at least an 11.22% return on equity on the regulatory asset for its life, as well as on PG&E’s entire rate base until PG&E obtains an "A-" (S&P) or "A3" (Moody’s) credit rating.
  3. The CPUC agrees to maintain current rates through 2003.
  4. The CPUC is prohibited from restricting the payment of dividends.

The proposed settlement provides for conservation of PG&E’s watershed lands (144,000 acres) and the Carizzo Plains parcel (655 acres) in San Luis Obispo County. These lands will be placed in conservation easements or donated to public agencies or conservation organizations, subject to a plan to be developed and implemented by an ad hoc "Environmental Enhancement" corporation, in conjunction with PG&E and the CPUC. PG&E ratepayers are to provide $7 million per year for 10 years to fund administration and environmental enhancements undertaken by the corporation.

In order to be effective, the proposed settlement must be approved formally by the CPUC and confirmed by the bankruptcy court. The proposed settlement is also not effective until the CPUC issues final, unappealable orders approving all rates, tariffs, and agreements necessary for implementation and PG&E is rated investment grade by S&P and Moody’s. The proposed settlement has been reviewed by the CPUC in Investigation 02-04-026.

Following a series of hearings and briefs in the fall, the CPUC has published six different proposed decisions, with adoption of a final decision scheduled for December 18.

 

Administrative Law Judge Barnett’s Proposed Decision

 

This decision would approve a modified version of the proposed settlement. The financial terms of the proposed settlement are preserved. The proposed settlement is modified so it doesn’t bind the CPUC for the proposed settlement’s nine-year term, doesn’t cede CPUC jurisdiction to the bankruptcy court, and doesn’t guarantee PG&E investment grade credit and dividends for nine years. The decision adds an additional $30 million ratepayer contribution to create environmental opportunities for urban youth, and doubles PG&E’s $15 million contribution for clean energy technologies.

 

President Peevey’s Proposed Alternate Decision #1

 

This decision would approve the proposed settlement without substantive change.

 

President Peevey’s Proposed Alternate Decision #2

 

This decision would approve a modified version of the proposed settlement. The financial terms of the proposed settlement are preserved. The proposed settlement is modified so it doesn’t guarantee PG&E dividends for nine years. The decision adds an additional $30 million ratepayer contribution to create environmental opportunities for urban youth, and doubles PG&E’s $15 million contribution for clean energy technologies.

 

Commissioner Brown’s Proposed Alternate Decision

 

This decision would approve a modified version of the proposed settlement, consistent with President Peevey’s Proposed Alternate Decision #2, except that the $2.21 billion regulatory asset would be amortized over five years, rather than nine. According to the decision, total ratepayer cost to retire the regulatory asset would be reduced from $5.27 billion to $4.53 billion. In addition, this decision disallows the following charges to PG&E customers mandated in the proposed settlement: $217 million for PG&E Corporation litigation costs, $96 million related to termination of gas hedging contracts, and up to $100 million excess revenues from 2003. This decision also removes some of the proposed settlement’s restrictions on the regulatory authority of the CPUC.

 

Commissioner Lynch’s Proposed Alternate Decision

 

The decision would reject the proposed settlement and adopt an alternative method to repay PG&E’s bankruptcy claims favored by the Office of Ratepayer Advocates and similar to the CPUC’s settlement with Southern California Edison. Rather than establish a regulatory asset, this decision would maintain electric rates at current levels and permit PG&E to apply excess revenues and earnings until its net under-collection is eliminated. The decision would provide for the collection of an additional $2.1 billion from PG&E customers. This decision excludes the proposed settlement’s restrictions on the regulatory authority of the CPUC.

 

Commissioner Wood’s Proposed Alternate Decision

 

This decision would approve a modified version of the proposed settlement, consistent with President Peevey’s Proposed Alternate Decision #2, except that the $2.21 billion regulatory asset would be reduced to $1.2 billion and amortized over four years, rather than nine. According to the decision, total ratepayer cost to retire the regulatory asset would be reduced from $5.27 billion to $2.34 billion. In addition, this decision would not permit PG&E to charge its bankruptcy litigation costs to its customers, nor would it provide a release of outstanding claims against PG&E Corporation. In consideration of the CPUC’s commitment to maintain PG&E’s credit rating, and in recognition of the negative impact of other PG&E Corporation ventures on the utility’s credit rating, this decision requires PG&E to agree that the CPUC can compel divestiture of the utility from the holding company if necessary to protect the utility’s credit.