01—Abstract
Summary
Summary of the 10-K filed February 19, 2004. Cited figures are marked; the original filing is the authoritative source.
PG&E Corporation and Pacific Gas and Electric Company filed a combined Form 10-K for fiscal year 2003 on February 19, 2004.
The Utility remains in Chapter 11 (filed April 6, 2001). On December 19, 2003 the CPUC, PG&E Corporation and the Utility entered a Settlement Agreement, and on December 22, 2003 the bankruptcy court confirmed a Plan of Reorganization incorporating it. The Plan provides for payment in full of allowed creditor claims (about $12.3 billiona at December 31, 2003), funded by a planned public offering of about $7.4 billion of long-term debt, cash on hand and credit facility draws, with the Utility targeting an April 2004 debt sale and emergence as an investment grade entity.
Key settlement economics include a $2.21 billionb after-tax regulatory asset, a further roughly $800 million after-tax regulatory asset tied to generation rate base, a minimum 11.22% authorized return on equity, and an authorized equity ratio of no less than 52% after 2005. Recognition of these assets is expected to add about $3.0 billion to net income in the year recorded, but the Utility has not yet met the accounting probability standard and there is no assurance the settlement or plan will become effective.
PG&E Corporation reported 2003 net income of $420 millionc (EPS $1.06 diluted) versus a net loss of $874 million in 2002, with NEGT now accounted for as discontinued operations under the cost method after its July 2003 Chapter 11 filing. Pending risks include CPUC rehearing applications, appeals of the confirmation order to the District Court, a proposed electricity rate reduction of $799 million, and litigation including a NEGT tax-sharing complaint seeking at least $414 million and California Attorney General and City and County of San Francisco claims seeking restitution of about $5 billion.
02—Key points
Key Highlights
- Utility Chapter 11 plan confirmed December 22, 2003; allowed creditor claims of approximately $12.3 billion to be paid in full, with the Utility targeting an April 2004 public debt offering of about $7.4 billion
- Settlement Agreement creates a $2.21 billion after-tax regulatory asset, plus an approximately $800 million after-tax regulatory asset tied to generation rate base; the Utility has not yet recorded them because the accounting probability standard is not met
- Minimum authorized return on equity of 11.22% and minimum authorized equity ratio of 52% (48.6% for 2004 and 2005) under the Settlement Agreement
- PG&E Corporation 2003 net income of $420 million ($1.06 diluted EPS) versus a net loss of $874 million in 2002; continuing operations income of $791 million
- NEGT filed Chapter 11 on July 8, 2003 and is deconsolidated; PG&E Corporation carries a net negative investment of about $1.2 billion and expects a material non-cash gain if NEGT's equity is eliminated
- Electricity operating revenues fell to $7.58 billion in 2003 from $8.18 billion, and the proposed rate reduction would cut current electricity revenues by about $799 million
- Pending risks include CPUC rehearing applications, District Court appeals of the confirmation order, and litigation including NEGT's tax-sharing claims (at least $414 million) and claims by the California Attorney General and San Francisco
03—Questions
Frequently Asked Questions
What must happen before the Utility emerges from Chapter 11?
The Plan of Reorganization requires, among other conditions, the effective date on or before March 31, 2004, completion of the planned public debt offering, investment grade credit ratings (Moody's Baa3 and S&P BBB- for the Utility and the debt), and final CPUC approval of the Settlement Agreement. The Utility may waive certain conditions other than the ratings-related ones, and the Plan takes effect 11 business days after conditions are satisfied.
How large are the regulatory assets created by the Settlement Agreement, and when will they be recognized?
The Settlement Agreement establishes a $2.21 billion after-tax regulatory asset (about $3.7 billion pre-tax) and allows recognition of an approximately $800 million after-tax regulatory asset (about $1.3 billion pre-tax) tied to generation rate base. Recognition would add about $5.0 billion to total assets and produce a one-time non-cash gain of about $3.0 billion, but the Utility will record them only once it determines they meet the SFAS No. 71 probability standard, which it has not yet concluded.
What is the status of the CPUC and court challenges to the Settlement Agreement?
Several parties applied to the CPUC on January 20, 2004 for rehearing; if the CPUC does not act within 60 days, an application may be deemed denied for judicial review. Two CPUC Commissioners and a municipality appealed the confirmation order to the U.S. District Court. The bankruptcy court denied a stay of the Plan on January 5, 2004. The filing states that there can be no assurance the Settlement Agreement will not be modified on rehearing or appeal or that the Plan will become effective.
How did NEGT's Chapter 11 filing affect PG&E Corporation's financial results?
Effective July 8, 2003, NEGT is no longer consolidated. Its operations through July 7, 2003 and prior years are presented as discontinued operations, which reduced 2003 net income by $365 million in discontinued operations. PG&E Corporation records a liability of about $1.2 billion representing losses in excess of its investment in NEGT. NEGT's proposed plan would eliminate PG&E Corporation's equity interest, which would trigger a material one-time non-cash gain.
04—Continue