Questions from Senate Energy, Utilities and Communications Committee

Regarding Proposed PG&E Bankruptcy Settlement and CPUC Advocacy Staff Responses
for September 3, 2003 Hearing

1. Is the proposed settlement confirmable? Is PG&E’s original proposed Plan of Reorganization confirmable?
   
   Whether the Settlement Plan of Reorganization associated with the proposed settlement is confirmable is ultimately for the Bankruptcy Court to decide. Staff believes that the Bankruptcy Court will confirm the Settlement Plan of Reorganization. PG&E’s original Plan of Reorganization, which was last modified on February 24, 2003, is not confirmable because, among other things, the preemption sought in the plan is illegal and the plan itself is infeasible.
   
    
2. What is the amount of PG&E’s remaining bankruptcy claims, after cash on hand and headroom are applied? How are the funds currently in possession of the bankrupt Power Exchange being applied to claims against PG&E?
   
   The projected sources and uses of funds at emergence is as follows:
   
   

   Sources of Funds (In $Millions)	Uses of Funds (In $Millions)
   Available Cash $2,365	Estimated Allowed Claims $13,700
   New Long-Term Debt $7,681	Claims paid during the bankruptcy case pursuant to ($1,564) Court orders and other adjustments
   Short-Term Debt $500
   Reinstated Debt $1,160
   Reinstated Preferred Stock $430
   Total Sources of Funds $12,136	Total Uses of Funds $12,136

   To the extent that PG&E receives any of the funds currently in the possession of the PX as claim offsets, credits and/or refund, the net after-tax amount of the funds will be applied by PG&E to reduce the outstanding balance of the regulatory asset dollar for dollar (Settlement Agreement, Section 2(d)).
   
    
3. If PG&E receives net refunds equaling or exceeding the regulatory asset ($2.21 billion), does the settlement still work? How will any refunds exceeding the regulatory asset be treated?
   
   Yes, the settlement will still work. The Commission will determine the disposition of refunds in excess of the regulatory asset.
   
    
4. What is the total ratepayer cost of the regulatory asset over its life? What portion of this will be used to pay bankruptcy claims?
   
   The estimated nominal ratepayer cost of the regulatory asset, assuming no refunds, claims offsets or credits from generators and energy suppliers relating to PG&E’s Power Exchange, Independent System Operator, Qualifying Facility, or Energy Service Provider costs, is as follows:
   
   

   	Settlement Plan In $Millions
   Regulatory Asset	$2,210
   Return Component Grossed-Up for Taxes	$1,537
   Tax Component on Amortization	$1,520
   Nominal Cost of the Regulatory Asset	$5,267

   The regulatory asset provides PG&E with the cash flow necessary to repay its debts raised in order for PG&E to emerge from bankruptcy and return to financial health.
   
    
5. Why should PG&E receive an equity return, rather than actual interest on the debt, on the mechanism used to repay bankruptcy claims?
   
   The regulatory asset is made part of PG&E’s rate base in order to facilitate PG&E’s ability to raise the necessary debt while meeting the financial ratios indicative of an investment-grade company upon emergence from bankruptcy. The settlement contemplates PG&E receiving a return on the equity component supporting the regulatory asset as the Commission has allowed in prior cost of capital proceedings.
   
    
6. What is the total ratepayer cost of the proposed settlement, compared to PG&E’s Plan of Reorganization and the CPUC/OCC Plan of Reorganization? What is the estimated impact on rates of each of the three alternatives?
   
   Rate projections are as follows:
   
   

   Bundled c/kwh	2004	2005	2006	2007
   Settlement Plan	13.36	13.32	13.16	13.18
   CPUC/OCC Joint Plan as Filed	13.30	13.10	12.80	12.70
   PG&E Plan as Filed	13.39	13.36	13.17	13.20

7. Under the settlement, how and when will PG&E customers be credited for their share of the reduction in DWR’s 2003 revenue requirement? What is the source of the PG&E rate reduction anticipated in 2004?
   
   To the extent headroom in 2003 is higher than the $875 million cap provided for in the Settlement Agreement, which may in part be attributable to the reduction in DWR’s 2003 revenue requirement, the plan contemplates the Commission will take action in 2004 as is necessary to require PG&E to refund any excess headroom.
   
    
8. If PG&E recovers the minimum amount of 2003 headroom identified in the settlement ($775 million), what would be the closing balance in the Transition Costs Balancing Account (TCBA) as of December 31, 2003 under the CPUC’s adopted accounting rules?
   
   The eventual TCBA balance would be $775 million less unrecovered if PG&E recovers the minimum amount of headroom provided in the proposed settlement agreement.
   
   It would require a number of complex assumptions, including: PG&E’s revenues and expenses would be for the remainder of 2003 and the 2003 General Rate Case outcome, to come up with a forecast of the closing balance in the TCBA as of December 31, 2003 under the CPUC’s adopted accounting rules for which Staff lacks data at this time.
   
    
9. What is the estimated direct access customer share of the regulatory asset revenue requirement, in cents/kwh? What impact will this charge have on the size and duration of the under-collection of DWR costs if the 2.7-cent cap is maintained?
   
   The Settlement Agreement is silent on rate design. It will be for Tthe Commission to decide has not decided on what amount, if any, will be direct access customers share of will pay in connection with the regulatory asset revenue requirement.
   
    
10. Under the settlement, will PG&E be permitted to pay dividends after July 2004 on pre-July 2004 earnings?
    
    Yes, the settlement plan does not restrict the payment of dividends after July 2004 provided PG&E has sufficient cash flow to do so after repaying its debt and funding operations.
    
     
11. Why is the CPUC dismissing its investigation of past actions of PG&E’s holding company? What values has the CPUC assigned, for PG&E and its holding company, to this action?
    
    The CPUC has already dismissed PG&E’s holding company, PG&E Corp., from the CPUC holding company investigation, albeit without prejudice. The proposed settlement would make that dismissal permanent. Staff has not assigned a value to the holding company action.
    
     
12. Is the CPUC committing to a particular outcome of ORA’s challenge of the reasonableness of PG&E procurement?
    
    By adopting the settlement, the Yes. ThCommission would commit to a resolution of Phase 2 of PG&E’s Annual Transition Cost Proceeding, wherein ORA challenged the reasonableness of PG&E’s procurement, with no adverse impact on PG&E’s cost recovery as filed.
    
     
13. Why does the settlement award Lehman Brothers and UBS Warburg exclusive rights to financing work and assured recovery from PG&E customers without review? Is there an estimate of the cost of this work?
    
    The proposed settlement agreement does not assure recovery without review. The fees and commissions of Lehman Brothers and UBS will undergo customary reviews by contract parties. The Bankruptcy Court will also have oversight authority over Lehman Brothers and UBS expenditures.
    
    The settlement awarded Lehman Brothers and UBS exclusive rights to financing work in part as consideration for their agreement to limit their consummation and/or advisory fees to $20 million (in the case of Lehman Brothers, inclusive of advisory fees already paid by PG&E Corporation and further subject to crediting provisions contained in Lehman Brothers’ engagement letter, and, in the case of UBS, in lieu of the full consummation fee calculated pursuant to UBS engagement letter with the CPUC and OCC.) The amounts of consummation and/or advisory fees in the respective engagement letters would have otherwise cost ratepayers more.
    
    Staff estimates the total cost of financing to be approximately 1% of the amount to be issued (currently estimated at $8.9 billion, which would result in about $89 million of issuance costs.)
    
     
14. What is the amount of CPUC bankruptcy expenses for which it has received funding in the state budget that are now proposed to be recovered from ratepayers via the settlement?
    
    The amounts are as follows:
    
    

    Legal Fees/Expenses	Current as of June 30, 2003
    Paul, Weiss, Rifkind, Wharton & Garrison	$19.1 Million

    
    
    

    Financial Advisory Fees/Expenses	Current as of June 30, 2003
    UBS Investment Bank	$830 Thousand

    
    
    

    Financial Advisory Fees/Expenses	Current as of June 30, 2003
    Chanin Capital Partners	$3.5 Million

15. For PG&E lands placed in conservation easements or public ownership, who will be responsible for liabilities and ordinary operation and maintenance?
    
    The settlement agreement does not address who will be responsible for liabilities and ordinary operation and maintenance, which Staff expects will be subject to parcel-by-parcel determination.