Is the Utility likely to emerge from bankruptcy, and under which plan?

The filing does not predict the outcome. Nine of ten voting classes approved the Utility Plan, while one of eight classes approved the CPUC plan. The Bankruptcy Court had not yet ruled, and PG&E Corporation and the Utility state they cannot predict which plan, if any, will be confirmed. The Utility Plan must also satisfy conditions such as regulatory approvals, investment-grade ratings and an effective date no later than May 30, 2003.

Will PG&E NEG's problems affect PG&E Corporation or the Utility?

The filing states that management does not expect the liquidity constraints at PG&E NEG and its subsidiaries to affect the financial condition of PG&E Corporation or the Utility. However, PG&E Corporation has guaranteed or committed to certain PG&E NEG obligations, including a $355 million GenHoldings equity commitment, and it is limited in how much cash it can provide to PG&E NEG under its credit agreement.

What are the largest contingent liabilities mentioned?

The filing cites several: the California Attorney General's petition and related suits against PG&E Corporation, with the Attorney General seeking a penalty of not less than $500 million; a relator's natural gas royalties claim of $2.48 billion filed in the bankruptcy; environmental remediation liabilities of $331 million accrued, with a possible upper limit of $444 million; and chromium litigation with about 1,200 plaintiffs, against which the Utility recorded a $160 million reserve.

What is the status of the Utility's electricity procurement costs and surcharges?

The Utility had undercollected approximately $2.2 billion (after tax) of power procurement and transition costs at December 31, 2002. Recovery depends on CPUC and judicial decisions, including the determination of when the rate freeze ended. The CPUC is reviewing the reasonableness of 2000–2001 wholesale purchases, and the filing says a disallowance is possible. Surcharge revenues could be subject to refund if CPUC decisions require it.

PG&E 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 27, 2003. Cited figures are marked; the original filing is the authoritative source.

PG&E Corporation and Pacific Gas and Electric Company filed a combined annual report on Form 10-K for fiscal year 2002.

The report is dominated by the Utility's Chapter 11 bankruptcy, filed April 6, 2001, and by a severe liquidity crisis at PG&E National Energy Group, Inc. (PG&E NEG). The Utility Plan proposes restructuring the Utility into a retail distribution company, with generation, electric transmission and gas transmission moved to three new LLCs, and claims would be paid in full with interest. A competing CPUC/OCC Plan would keep all operations under CPUC regulation.

The Bankruptcy Court's confirmation hearings were scheduled through March 2003, and the filing states that it cannot predict which plan, if any, will be confirmed. PG&E NEG is in default under recourse debt and guaranteed equity commitments of approximately $2.9 billion^a, and other subsidiaries are in default on approximately $2.5 billion of non-recourse debt. For 2002, PG&E Corporation reported a net loss of $874 million, compared with net income of $1,099 million in 2001.

The company recorded pre-tax charges of approximately $3.9 billion^b at PG&E NEG, including impairments and a $1.1 billion loss on the planned sale of USGen New England. The filing states that PG&E NEG may be forced into bankruptcy and that PG&E Corporation does not expect these liquidity constraints to affect its own financial condition or the Utility's. The filing's auditor, Deloitte & Touche LLP, includes a going-concern explanatory paragraph for both PG&E Corporation and the Utility, citing the Utility's bankruptcy and PG&E NEG's defaults.

The Utility also faces significant contingent exposures, including FERC refund proceedings in which the State of California seeks up to $8.9 billion^c, a pending CPUC review of procurement costs, and numerous lawsuits. The Utility reported $3.3 billion in cash and cash equivalents at December 31, 2002.

02—Key points

Key Highlights

PG&E Corporation reported a 2002 net loss of $874 million, compared with net income of $1,099 million in 2001 and a net loss of $3,364 million in 2000.
PG&E NEG recorded approximately $3.9 billion in pre-tax charges in 2002, including $2.8 billion of impairments, write-offs and other charges and a $1.1 billion pre-tax loss on the proposed sale of USGen New England.
PG&E NEG is in default on recourse debt and guaranteed equity commitments of about $2.9 billion, and other subsidiaries are in default on about $2.5 billion of non-recourse debt.
The Utility has been in Chapter 11 since April 6, 2001. Its plan of reorganization would pay allowed creditor claims in full with interest, and the Bankruptcy Court's confirmation hearings were scheduled through March 2003.
The Utility Plan would split the Utility into a retail distribution company (Reorganized Utility) and three LLCs for generation, electric transmission and gas transportation. The filing states the retail business represents about 70% of the Utility's book value of assets.
The filing states that S&P re-affirmed a preliminary evaluation that about $8.5 billion of securities under the Utility Plan could achieve investment-grade ratings of at least BBB-, subject to conditions.
Deloitte & Touche's audit report includes a going-concern explanatory paragraph for both PG&E Corporation and the Utility.

03—Questions

Frequently Asked Questions

Is the Utility likely to emerge from bankruptcy, and under which plan?
The filing does not predict the outcome. Nine of ten voting classes approved the Utility Plan, while one of eight classes approved the CPUC plan. The Bankruptcy Court had not yet ruled, and PG&E Corporation and the Utility state they cannot predict which plan, if any, will be confirmed. The Utility Plan must also satisfy conditions such as regulatory approvals, investment-grade ratings and an effective date no later than May 30, 2003.
Will PG&E NEG's problems affect PG&E Corporation or the Utility?
The filing states that management does not expect the liquidity constraints at PG&E NEG and its subsidiaries to affect the financial condition of PG&E Corporation or the Utility. However, PG&E Corporation has guaranteed or committed to certain PG&E NEG obligations, including a $355 million GenHoldings equity commitment, and it is limited in how much cash it can provide to PG&E NEG under its credit agreement.
What are the largest contingent liabilities mentioned?
The filing cites several: the California Attorney General's petition and related suits against PG&E Corporation, with the Attorney General seeking a penalty of not less than $500 million; a relator's natural gas royalties claim of $2.48 billion filed in the bankruptcy; environmental remediation liabilities of $331 million accrued, with a possible upper limit of $444 million; and chromium litigation with about 1,200 plaintiffs, against which the Utility recorded a $160 million reserve.
What is the status of the Utility's electricity procurement costs and surcharges?
The Utility had undercollected approximately $2.2 billion (after tax) of power procurement and transition costs at December 31, 2002. Recovery depends on CPUC and judicial decisions, including the determination of when the rate freeze ended. The CPUC is reviewing the reasonableness of 2000–2001 wholesale purchases, and the filing says a disallowance is possible. Surcharge revenues could be subject to refund if CPUC decisions require it.

04—Continue

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