01—Abstract
Summary
Summary of the 10-K/A filed March 6, 2003. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and Pacific Gas and Electric Company filed Amendment No. 1 on Form 10-K/A for fiscal 2002 to correct typographical and tabulation errors in Item 1, Item 7, Item 8 and Notes 1, 3, 11, 12, 15 and 16, with an amended Exhibit 13 (the 2002 Annual Report sections).
The companies state the changes are not material to financial condition, results of operations or cash flows, and that no other disclosures were updated since the original February 27, 2003 filing. The filing's central story is financial distress. The Utility has been a debtor-in-possession under Chapter 11 since April 6, 2001.
Two competing reorganization plans are before the Bankruptcy Court: the Utility Plan, which PG&E backs and which would pay allowed creditor claims in full with interest, and the CPUC/OCC Plan, which PG&E says is neither credible nor confirmable. PG&E NEG is in default on recourse debt and guaranteed equity commitments of about $2.9 billiona, with another $2.5 billion of non-recourse subsidiary debt in default. PG&E NEG recorded pre-tax charges of about $3.9 billion in 2002 and expects further substantial charges in 2003.
The filing states that PG&E Corporation does not expect PG&E NEG's liquidity constraints to affect its own financial condition or the Utility's. The filing also covers significant contingent exposures, including pending CPUC and FERC proceedings on undercollected power costs, the Attorney General and San Francisco lawsuits over holding-company conditions, the chromium litigation, and the Federal Filed Rate Case against the CPUC Commissioners. Management says it cannot predict the outcome of most of these matters.
02—Key points
Key Highlights
- PG&E NEG is in default on recourse debt and guaranteed equity commitments of about $2.9 billion, plus about $2.5 billion of non-recourse subsidiary debt, and pre-tax charges to earnings of about $3.9 billion were recorded in 2002.
- The Utility remains in Chapter 11 as a debtor-in-possession (filed April 6, 2001). The Utility Plan would pay allowed creditor claims in full with interest; the competing CPUC/OCC Plan is described by management as not credible or confirmable.
- The Utility Plan would place roughly 70% of the Utility's book value in a reorganized distribution company, with about $8.5 billion of new securities that S&P said could achieve investment grade ratings of at least BBB-.
- The filing reports 2002 net loss of $874 million for PG&E Corporation versus net income of $1,099 million in 2001, and a Utility net income of $1,819 million in 2002.
- The Utility's undercollected power procurement and transition costs were reduced to about $2.2 billion (after-tax) at December 31, 2002, from $3.6 billion a year earlier, and remain subject to CPUC and court decisions.
- Management believes the CPUC's 2003 general rate case, the FERC refund proceedings (up to $8.9 billion sought by California) and the Ninth Circuit appeals could materially affect results, but outcomes cannot be predicted.
- The filing states that PG&E NEG's liquidity constraints are not expected to affect PG&E Corporation or the Utility, and that the Utility believes cash on hand of $3.3 billion and operations provide liquidity through 2003.
03—Questions
Frequently Asked Questions
Why is the company in bankruptcy, and what happens next?
The Utility filed for Chapter 11 on April 6, 2001, after wholesale power costs during the California energy crisis exceeded what frozen retail rates could recover, and after credit rating downgrades cut off its access to capital. Confirmation hearings on the Utility Plan and the CPUC/OCC Plan began in late 2002 and were scheduled through March 2003. The filing says the Bankruptcy Court has not yet decided which plan, if either, it will confirm.
Is the parent company exposed to PG&E NEG's defaults?
The filing says PG&E NEG and certain subsidiaries may be forced into bankruptcy if restructuring talks with lenders fail. PG&E Corporation states it does not expect that PG&E NEG's liquidity constraints will affect its own financial condition or the Utility's. It also notes that PG&E Corporation's credit agreement limits how much cash it can provide to PG&E NEG, and that PG&E Corporation guaranteed certain Utility surety obligations.
What is the status of the Utility's undercollected power costs?
The Utility's undercollected power procurement and transition costs, originally about $4.1 billion after-tax, stood at about $2.2 billion at December 31, 2002, after surcharge revenues and other recoveries. Recovery depends on future CPUC and judicial decisions, including the federal filed rate doctrine lawsuit against the CPUC Commissioners, and the CPUC has not yet determined when the AB 1890 rate freeze ended.
What are the main pending legal and regulatory risks?
Key risks include California Attorney General and City and County of San Francisco lawsuits alleging violations of holding-company conditions (the Attorney General seeks penalties of at least $500 million), chromium contamination claims from about 1,200 plaintiffs, a $2.5 billion natural gas royalties claim in the Utility's bankruptcy, and FERC proceedings on refunds for California wholesale power. Management says it cannot predict the outcome of most of these matters.
04—Continue