=================================================================== PACIFIC GAS BANKRUPTCY NEWS Issue Number 1 ------------------------------------------------------------------- Copyright 2001 (ISSN XXXX-XXXX) April 7, 2001 ------------------------------------------------------------------- Bankruptcy Creditors' Service, Inc., 609-392-0900 FAX 609-392-0040 ------------------------------------------------------------------- PACIFIC GAS BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 24 Perdicaris Place, Trenton, New Jersey 08618, On an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtor's chapter 11 cases. Each issue is prepared by Peter A. Chapman, Editor. Subscription rate is US$45 per issue. Reproduction or e-mail redistribution of PACIFIC GAS BANKRUPTCY NEWS is prohibited without permission. =================================================================== IN THIS ISSUE ------------- [00000] HOW TO ORDER A SUBSCRIPTION TO PACIFIC GAS BANKRUPTCY NEWS [00001] DESCRIPTION & OVERVIEW OF PACIFIC GAS & ELECTRIC COMPANY [00002] CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING [00004] DEBTOR'S CHAPTER 11 DATABASE [00005] LISTING OF THE DEBTOR'S 20 LARGEST UNSECURED CREDITORS [00006] DEBTOR'S MOTION TO HONOR WAGE & SALARY OBLIGATIONS [00007] DEBTOR'S MOTION TO CONTINUE USING CURRENT BUSINESS FORMS [00008] DEBTOR'S MOTION TO CONTINUE USING EXISTING BANK ACCOUNTS [00009] WHO'S JUDGE MONTALI AND HOW DOES HIS COURTROOM WORK? KEY DATE CALENDAR ----------------- 04/06/01 Voluntary Petition Date 04/21/01 Deadline for filing Schedules of Assets and Liabilities 04/21/01 Deadline for filing Statement of Financial Affairs 04/21/01 Deadline for filing Lists of Leases and Contracts 04/26/01 Deadline to provide Utilities with adequate assurance 06/05/01 Deadline to make decisions about lease dispositions 07/05/01 Deadline to removal actions pursuant to F.R.B.P. 9027 08/04/01 Expiration of Debtor's Exclusive Plan Proposal Period 10/30/01 Expiration of Debtor's Exclusive Solicitation Period 04/06/03 Deadline for Debtor's Commencement of Avoidance Actions Organizational Meeting with UST to form Committees Bar Date for filing Proofs of Claim First Meeting of Creditors pursuant to 11 USC Sec. 341 ------------------------------------------------------------------- [00000] HOW TO ORDER A SUBSCRIPTION TO PACIFIC GAS BANKRUPTCY NEWS ------------------------------------------------------------------- PACIFIC GAS BANKRUPTCY NEWS is distributed to paying subscribers by electronic mail. 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Name: ---------------------------------------------- Firm: ---------------------------------------------- Address: ---------------------------------------------- ---------------------------------------------- Phone: ---------------------------------------------- Fax: ---------------------------------------------- E-Mail: ---------------------------------------------- ------------------------------------------------------------------- [00001] DESCRIPTION & OVERVIEW OF PACIFIC GAS & ELECTRIC COMPANY ------------------------------------------------------------------- Pacific Gas and Electric Company 77 Beale Street P.O. Box 7442 San Francisco, CA 94120 Telephone (415) 973-7000 http://www.pge.com Pacific Gas and Electric Company, a wholly-owned subsidiary of PG&E Corporation (NYSE:PCG), is one of the largest combination natural gas and electric utilities in the United States. Nearly 20,000 employees carry out PG&E's primary business -- the transmission and delivery of energy. PG&E provides natural gas and electric service to approximately 12 million people in Northern and Central California -- about one in every 20 Americans. The utility's service area covers 70,000 square miles, stretching from Eureka in the north to Bakersfield in the south, and from the Pacific Ocean in the west to the Sierra Nevada in the east Last year, PG&E obtained power from five sources: 35% from conventional hydroelectric powerhouses; 28% from Diablo Canyon, a nuclear power plant; 16% from the Helms Pumped Storage Powerhouse; 14% purchased from independent producers and other utilities; 7% from fossil-fueled plants. delivered that power to: 4,500,000 electric customer accounts and 3,700,000 gas customer accounts using: 131,000 circuit miles of electric lines; and 43,000 miles of natural gas pipelines. * * * Electrical Services in the Pre-Deregulation Era Prior to 1998, PG&E provided integrated electric services, consisting of generating, transmitting and distributing electricity to its retail customers. Specifically, PG&E generated electricity by means of natural gas-fueled, hydroelectric and nuclear power plants that it built and operated; it purchased electricity from third-party producers or re-sellers; it transmitted such generated and purchased electricity via transmission grids, portions of which it owned; and it distributed that electricity to end-use customers through power lines located throughout its local markets. These integrated or "bundled" electric services were regulated by the California Public Utilities Commission (the "CPUC"). During this period, PG&E built and operated power plants with the expectation that it could recover those generation-related investment costs over many years (together with a fair rate of return) in rates it charged to its customers, pursuant to the fundamental regulatory compact between the State and utility shareholders. Hence, retail rates during this period included a component for recovery of PG&E's generation-related investments. The Implementation of Deregulation In 1996, the California Legislature enacted Assembly Bill 1890, ("AB 1890") which restructured the state electric industry by mandating that electric services be unbundled, and by mandating that wholesale markets be opened up to competition by January 1, 1998. AB 1890 generally codified a market structure prescribed by the CPUC in its December 1995 Preferred Policy Decision (the "1995 Policy Decision"). In its 1995 Policy Decision, the CPUC provided PG&E strong financial disincentives for remaining in the power generation business. Pursuant to those disincentives, and after CPUC approval, PG&E divested many of its electric generation power plants over time. The Wholesale Power Market: The ISO and the PX Under the restructuring brought about by AB 1890 and the 1995 Policy Decision, PG&E was no longer permitted to provide power directly to its bundled service customers. Instead, PG&E was required to sell its power into the wholesale electric power market at market prices (e.g., power that it either generated or obtained under power purchase agreements that it had entered into with third parties prior to the industry restructuring (so-called pre-existing power purchase agreements, or "PPAs")), and then purchase from the electric wholesale market the power that it needed to serve its bundled customers. The wholesale electric power market is regulated by the Federal Energy Regulatory Commission ("FERC"), and therefore is subject to federal, not state, jurisdiction. These wholesale transactions took place through two newly-created entities brought about by AB 1890 and the 1995 Policy Decision, both of which are regulated by FERC: the California Power Exchange ("PX"), which was charged with responsibility for creating a central market for the purchase and sale of wholesale electricity, and the Independent System Operator ("ISO"), which was charged with responsibility for managing the State's electricity transmission grid. (The PX filed for bankruptcy on March 9, 2001 due in significant part to the current financial pressures facing the utilities, and is no longer an active participant in the California wholesale electricity markets.) Pursuant to AB 1890 and the 1995 Policy Decision, PG&E was required each day to sell electricity it generated that day (or obtained through its pre-existing PPAs), at FERC-authorized market rates, through daily auctions for wholesale electricity conducted by the PX, and through the real-time energy market managed by the ISO. And PG&E was required each day to purchase the electricity it needed to serve its bundled customers (again, at FERC-authorized market rates), through daily auctions for wholesale electricity conducted by the PX, and through the real-time energy market managed by the ISO. It was required to make those electricity purchases through the PX and ISO at the wholesale prices established by the PX and the ISO, without modification, and regardless of price. The PX and the ISO set their respective prices under FERC- authorized, market-based price-setting mechanisms for wholesale power. The PX billed PG&E for the costs of electricity PG&E purchased from the PX. The PX also billed PG&E for the amounts that the ISO billed the PX for electricity that the ISO procured on a real-time basis to meet the needs of the PX. In general, since the outset of the electric industry restructuring, PG&E has been a net purchaser of power from the wholesale markets; in other words, has been purchasing more wholesale power than it supplies. Furthermore, as it has divested significant amounts of its power generation assets over time, that net has increased. Among the entities with whom PG&E has pre-existing power purchase agreements, or "PPAs," are so-called Qualifying Facility ("QF") generators. For the most part, the amounts that PG&E is required to pay to QFs under pre-existing agreements for energy deliveries are based upon prices that are tied to volatile natural gas or spot wholesale electric market indices. The Rate Freeze and Transition Costs The architects of the electricity industry restructuring recognized that some of the utilities' past generation-related investments might not be recoverable in market prices in a competitive market. Therefore, at the same time that it created a framework to encourage greater competition among wholesale electricity suppliers, AB 1890 also created a statutorily-defined "transition period" during which time retail rates would remain frozen at levels thought to be sufficient to enable utilities an opportunity to recover these historic costs (so-called "transition costs"), over and above their operating costs and a reasonable rate of return. At the time that AB 1890 was enacted, PG&E had billions in unrecovered historic or "transition" costs, which included costs such as investments to construct power generating facilities, payments owed to third party suppliers under PPAs, pension benefits, and other expenses associated with the transition period. AB 1890 "froze" PG&E's electric retail rates, regardless of the wholesale price of electricity. It did so for residential and small commercial customers at a level 10 percent below those in effect on June 10, 1996 (which reduction was financed through rate reduction bonds), and for other customers at the level in effect on that date. At the time that AB 1890 was enacted, however, it was widely expected that the utilities' wholesale power costs would decline, and that the difference between their operating costs and the frozen rates would contribute to the utilities' collection of their transition costs. The foregoing frozen rates remained in effect until January 4, 2001, when the CPUC raised electric retail rates by 1 cent per kilowatt hour. On March 27, 2001, the CPUC stated it would raise electric retail rates by, on average, an additional 3 cents per kilowatt hour, but it has not yet implemented that rate increase, and is not expected to do so before June 1, 2001. Despite these recent rate increases, however, the CPUC also determined, and continues to hold, that the AB 1890 rate freeze remains in effect. The Wholesale Electricity Crisis In the summer of 2000, a combination of market conditions beyond PG&E's control created sharp increases in the wholesale prices PG&E was being charged by the PX, and indirectly by the ISO, for its electric power purchases. Prices have never returned to their previous levels and have remained substantially above their pre- summer 2000 levels ever since. On one single day, December 13, 2000, the total cost incurred for energy procured within California exceeded the total cost incurred during several entire months in 1999. In December 2000, procurement costs for wholesale electricity escalated to an average of approximately $330 per megawatt hour, a level approximately eight times higher than that in December 1999. The average spot market price of wholesale electricity has remained over $250 per megawatt hour for most of the period January 2001 through March 2001. The impact on PG&E of these increases in the PX and ISO "spot markets" was magnified by regulations, described above, that the CPUC had adopted following the passage of AB 1890 requiring PG&E to purchase most of its electricity from the PX's highly volatile spot market at market clearing prices, or indirectly from the ISO's real time market. Initially, those regulations gave PG&E no latitude to enter into long-term bilateral contracts, a mechanism that would have enabled PG&E to hedge against the volatility in the PX and ISO spot markets. In late 1999, the CPUC authorized PG&E to enter into a limited volume of hedging contracts through the PX (so-called "block- forward" contracts), but PG&E's ability to take advantage of that was constrained by a lack of liquidity in such contracts, as well as by constraints the CPUC placed on their use. Months later, in August 2000, after prices on the spot markets had continued to rise dramatically, the CPUC granted PG&E authority to enter into long- term bilateral agreements. But that step afforded PG&E little relief, in part because the CPUC did not articulate any substantive guidance or standards for what it considered to be reasonable terms, leaving PG&E to guess at what costs the CPUC might later determine to be recoverable. The CPUC also has never authorized PG&E to use financial instruments to hedge against wholesale electric price volatility. In short, the CPUC provided PG&E with an inadequate ability to hedge against the dramatic price increases in the wholesale spot markets, which persist to this date. To give some indication of the magnitude of the revenue shortfalls facing PG&E, at the beginning of 2001 the rate that PG&E was permitted to charge its retail customers for the electrical energy component of retail rates was approximately $54 per megawatt hour, based upon the rate freeze imposed by AB 1890. ($10 per megawatt hour is the equivalent of 1 cent per kilowatt hour.) On January 4, 2001, the CPUC approved an interim rate of 1 cent per kilowatt hour, which increased the electrical energy component of PG&E's retail rates to $64 per megawatt hour. At the same time, the average December 2000 "spot market" price was more than five times that level, $330 dollars per megawatt hour. On March 27, 2001, the CPUC approved an additional average increase of 3 cents per kilowatt hour, but also indicated that it does not anticipate implementing this increase until June 2001, at the earliest. Once implemented, this 3-cent increase would bring the electrical energy component of PG&E's retail rates to $94 per megawatt hour. Although the CPUC has granted these recent increases, it has refused to establish or implement rates that would allow PG&E to recover its ongoing costs of providing service to its customers. As a result of the substantial ongoing shortfall (which began in June 2000) between PG&E's ongoing electricity procurement costs, on the one hand, and the rates that it has been authorized to charge its customers, on the other, PG&E has been unable to borrow money to finance its operating deficit. Moreover, most wholesale electric providers have not only refused to agree to sell power directly to PG&E, but also have refused-unless compelled by court order-to sell power to the ISO and others who might resell power to PG&E, and whose ability to pay for the power may be contingent upon receiving payment from PG&E. The State of California, through the California Department of Water Resources ("CDWR"), has begun to purchase wholesale electric power to be provided directly to electric customers in PG&E's service territory. (Southern California Edison Company ("SCE") faces much the same circumstances as PG&E, and CDWR is also purchasing power to be provided to electric customers in SCE's service territory. Although the circumstances surrounding San Diego Gas and Electric Company's ("SDG&E") rates are somewhat different, CDWR is purchasing power to be provided to electric customers in SDG&E's service territory, as well.) These CDWR activities were first authorized in the Governor's Emergency Proclamation issued by Governor Davis on January 17, 2001, then for a very limited period of time through enactment of Senate Bill 7 ("SB 7x") adopted in the First 2001-2002 Extraordinary Session of the California Legislature, and finally on an ongoing basis through enactment of AB 1x, adopted by the California Legislature on February 1, 2001. PG&E's "net short position" is the difference between the amount of electric power PG&E can provide through the generation facilities it owns and the PPAs it holds, on the one hand, and the amount of electric power demanded by PG&E's bundled service customers, on the other. Although CDWR has acknowledged that AB 1x authorizes it to purchase sufficient electricity to meet PG&E's net short position, and PG&E believes that AB 1x requires CDWR to do so, to date CDWR has not made it a practice to purchase sufficient electricity to meet PG&E's net short position. For the most part, the ISO has been purchasing the remaining wholesale electric power necessary to meet PG&E's net short position. PG&E does not know what representations the ISO is making to suppliers as to how they will be paid for this power. On occasion, the ISO has not purchased sufficient electricity to cover the net short position, resulting in blackouts in PG&E's service territory, as was the case on March 19-20, 2001 and January 17-18, 2001. On February 14, 2001, FERC issued an order stating that the ISO cannot exempt PG&E from the ISO's requirements that those obtaining electric power through the ISO must be "creditworthy." PG&E does not meet the ISO's definition of creditworthy. It is PG&E's position that the ISO cannot purchase wholesale electric power on PG&E's behalf, to be paid for by PG&E. The ISO has informed PG&E that it will continue to bill PG&E for these amounts. Therefore, there has been significant disagreement over who is ultimately responsible for paying for the wholesale power the ISO is purchasing to meet the remainder of PG&E's net short position not being met by direct CDWR purchases. Under CPUC decisions interpreting the legislation authorizing CDWR to purchase power to meet PG&E's net open position, PG&E is currently obligated to forward to CDWR, on a daily basis, a proportion of the revenues PG&E receives from the generation component of its retail electric rates. There is a lag between the day on which CDWR purchases power and customers consume that power, and the time that PG&E receives payment for the consumed power. The CPUC's adopted approach requires PG&E to forward amounts to CDWR for power supplied by CDWR approximately when PG&E receives the revenues, which is several weeks after CDWR provides the power. The proportion of PG&E's generation-related revenues that PG&E is required to forward to CDWR is the proportion of the power supplied by CDWR as compared to the total power consumed by PG&E's bundled service customers. The Resulting Liquidity Crisis The disparity between PG&E's wholesale power costs and the frozen retail rates has resulted in a staggering financial shortfall. As of the end of December, 2000, PG&E had accumulated over $6.6 billion in costs for which no provision has been made for recovery from PG&E's electric customers through retail rates. Of this unrecovered amount, more than $4 billion was paid or is still payable to third party wholesale electric providers. The unrecovered amount, or "shortfall," has continued to grow. PG&E has taken all possible steps to preserve its ability to purchase electricity and has borrowed almost $3 billion to finance its operating deficit. In addition to such borrowing, PG&E has accrued obligations to the PX, ISO, CDWR, QFs and Energy Service Providers (entities which sell retail electric power to end-users of electricity in PG&E's service territory), among others, totaling more than $4.4 billion to date. Of these accrued liabilities to energy trade creditors, PG&E has already defaulted on approximately $2..7 billion. As described below, PG&E has also defaulted on payments to commercial banks and commercial paper holders totaling $1.8 billion, resulting in total defaults to date of $4.5 billion. Further, PG&E's financial condition continues to deteriorate. Its generation-related revenues are approximately $410 million per month, and will rise to approximately $600 million per month if the CPUC institutes the 3 cent per kilowatt hour rate increase it decided to adopt on March 27, 2001. Under the CPUC's current requirements, PG&E estimates it is obligated to make payments of approximately $200 million per month to its QFs, and approximately $145 million per month to CDWR. The amount per kilowatt hour to be paid to CDWR is scheduled to increase by 3 cents on May 12, 2001, regardless of whether the CPUC has implemented the 3 cent increase in retail rates by that time, increasing the amount that would paid to CDWR to approximately $210 million per month. PG&E's ongoing operating costs for its own generation facilities and non-QF PPAs are approximately $110 million per month. Further, the ISO has stated it intends to continue to bill PG&E for purchases it is making. ISO bills to PG&E for the first quarter of 2001 are estimated to exceed $1.1 billion, and are expected to average approximately $200 million for the remainder of 2001. Thus, PG&E's obligations for generation-related costs are very likely to continue to exceed its revenues from the generation-related component of its electric retail rates. PG&E is party to two revolving unsecured credit facilities, with a combined borrowing capacity of $1.85 billion. In January of 2001, the lenders terminated their commitment under both facilities. By that time, the Company already had borrowed $938 million under one of the facilities to fund payoffs of maturing commercial paper (which $938 million remains outstanding). The effect of the credit facility termination was to deprive PG&E of an additional $912 million in borrowing capacity. As a consequence of the termination of the revolving credit facilities, PG&E defaulted on $873 million in commercial paper obligations that matured earlier this year. At March 29, 2001, cash reserves were $2.6 billion. If the Company were current with all payments to its creditors (including the $938 million balance of its bank loans), its cash position would be negative $1.8 billion. Through April 30, 2001, the Company expects to have an aggregate of approximately $1.5 billion of additional claimed obligations that will become due and payable, including an estimated (1) $550 million to the ISO, (2) $340 million to QFs, and (3) $470 million to suppliers of natural gas. Through December 2001 an additional $1.4 billion of the Company's outstanding debt will mature. In sum, PG&E does not have the cash on hand to pay its obligations, it cannot borrow the cash to do so, and it anticipates that the obligations it continues to incur will grow faster than the revenues it anticipates it will receive. ------------------------------------------------------------------- [00002] CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 ------------------------------------------------------------------- PACIFIC GAS AND ELECTRIC COMPANY CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2000 ASSETS Current assets Cash and cash equivalents $ 68,000,000 Short-term investments 242,000,000 Accounts receivable, net 1,327,000,000 Inventories 283,000,000 Prepayments 56,000,000 Income tax receivable 295,000,000 ----------------- Total current assets 2,271,000,000 Property, plant, and equipment Electric 15,718,000,000 Gas 7,483,000,000 Construction work in progress 228,000,000 ----------------- Total property, plant, and equipment (at original cost) 23,429,000,000 Accumulated depreciation and decommissioning (10,616,000,000) ----------------- Property, plant, and equipment, net 12,813,000,000 Other noncurrent assets Regulatory assets 6,650,000,000 Nuclear decommissioning funds 1,385,000,000 Other 1,064,000,000 ---------------- Total noncurrent assets 9,099,000,000 ---------------- TOTAL ASSETS $ 24,183,000,000 ================ LIABILITIES AND EQUITY Current liabilities Short-term borrowings $ 917,000,000 Current portion of long-term debt 399,000,000 Current portion of rate reduction bonds 290,000,000 Accounts payable Trade creditors 1,859,000,000 Related parties 27,000,000 Regulatory balancing accounts 24,000,000 Other 347,000,000 Deferred income taxes 10,000,000 Other 644,000,000 ---------------- Total current liabilities 4,517,000,000 Noncurrent liabilities Long-term debt 4,866,000,000 Rate reduction bonds 1,817,000,000 Deferred income taxes 2,991,000,000 Deferred tax credits 161,000,000 Other 3,606,000,000 --------------- Total noncurrent liabilities 13,441,000,000 Preferred stock with mandatory redemption Provisions 6.30% and 6.57%, outstanding 5,500,000 shares, due 2002-2009 137,000,000 Company obligated mandatorily redeemable preferred securities of trust holding solely utility subordinated debentures 7.90%, 12,000,000 shares due 2025 300,000,000 Stockholders' equity Preferred stock without mandatory redemption provisions Nonredeemable - 5% to 6%, outstanding 5,784,825 shares 145,000,000 Redeemable - 4.36% to 7.04%, outstanding 5,973,456 shares 142,000,000 Common stock, $5 par value, authorized 800,000,000 shares, issued 321,314,760 shares 1,606,000,000 Common stock held by subsidiary, at cost, 19,481,213 shares (475,000,000) Additional paid in capital 1,971,000,000 Reinvested earnings 2,399,000,000 ---------------- Total stockholders' equity 5,788,000,000 ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,183,000,000 ================ ------------------------------------------------------------------- [00003] COMPANY'S PRESS RELEASE CONCERNING CHAPTER 11 FILING ------------------------------------------------------------------- SAN FRANCISCO, California -- April 6, 2001 -- Pacific Gas and Electric Company, the utility unit of PG&E Corporation (NYSE: PCG), today filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in San Francisco bankruptcy court. The company said it is taking this action in light of its unreimbursed energy costs which are now increasing by more than $300 million per month, continuing CPUC decisions that economically disadvantage the company, and the now unmistakable fact that negotiations with Governor Gray Davis and his representatives are going nowhere. Neither PG&E Corporation nor any of its other subsidiaries, including its National Energy Group, have filed for Chapter 11 reorganization or are affected by the utility's filing. "We chose to file for Chapter 11 reorganization affirmatively because we expect the court will provide the venue needed to reach a solution, which thus far the State and the State's regulators have been unable to achieve," said Robert D. Glynn, Jr., Chairman of Pacific Gas and Electric Company. "The regulatory and political processes have failed us, and now we are turning to the court." Glynn added, "Our objective is to move through the Chapter 11 reorganization process as quickly as possible, without disruption to our operations or inconvenience to our customers. Throughout this crisis, our 20,000 employees have been and remain committed to providing safe and reliable service to the 13 million Californians who depend on us to deliver their gas and electricity." Pacific Gas and Electric Company decided to file for the protection of Chapter 11 primarily due to: -- Failure by the state to assume the full procurement responsibility for Pacific Gas and Electric's "net open position" as was provided under AB1X. This has the result of increasing financial exposure to unreimbursed wholesale energy procurement costs, which the utility estimates to be approximately $300 million or more per month. -- The impact of actions by the California Public Utilities Commission (CPUC) on March 27, 2001, and April 3, 2001, that created new payment obligations for the company and undermined its ability to return to financial viability. -- Lack of progress in negotiations with the state to provide recovery of $9 billion in wholesale power purchases made by the utility since June 2000, which have not been recoverable in frozen rates. -- The adoption by the CPUC of an illegal and retroactive accounting change that would appear to eliminate our true uncollected wholesale costs. "In addition, despite Pacific Gas & Electric's best efforts to work with the State of California to reach a consensual, responsible, fair and comprehensive solution to California's energy crisis, no agreement has been reached with the Governor and the Governor's representatives have dramatically slowed the pace and the progress of discussions over the past month. "Furthermore since last fall, we have filed comprehensive plans for resolving this matter with the CPUC, but they have not acted affirmatively on them," said Glynn. On October 4, 2000, Pacific Gas and Electric sought emergency rate action by the CPUC. In November 2000, we filed our rate stabilization plan, which, if adopted, would have increased electric prices by an initial 25 percent, compared with the 46 percent recently adopted by the CPUC. Neither request was acted upon. Had the state acted at that time: -- Pacific Gas and Electric would have been kept creditworthy; -- Pacific Gas and Electric would have been able to enter into long-term power purchase contracts at prices lower than those announced by the state; -- The state would not have had to almost exhaust the state's budget surplus by spending billions of dollars to purchase power for the utility's customers; -- The state would not now need to issue billions of dollars in bonds to cover these power purchases; and -- The state would not now be advancing a proposal to spend billions of dollars to purchase the state's three investor-owned utility's electric transmission systems. "This year, the state has spent more than $3 billion on power purchases and, with the CPUC, has arranged to be reimbursed for these expenses," noted Glynn. "In contrast, since June Pacific Gas and Electric Company has spent $9 billion in excess of revenues to pay for power for its customers and exhausted its ability to continue borrowing, but there has been no progress on a plan to reimburse it for those expenditures as provided by law. "Statements by the Governor and other public officials since last September gave us reason to believe that a solution could be reached outside the context of Chapter 11 that would restore the utility's financial viability and enable it to meet its financial obligations equitably. However, these statements have not been followed up by constructive actions, and a reorganization in Chapter 11 is now the most feasible means of resolution." The utility will utilize existing resources to continue operating its business during bankruptcy, including paying vendors and suppliers in full for goods and services received after the filing. The utility will pay electric commodity suppliers as provided by law. The utility intends to continue normal electric and gas transmission and distribution functions during the Chapter 11 process. Employees will continue to be paid. Health care plans and other benefits for employees and most retirees will continue. The utility's qualified retirement plans for retirees and vested employees are fully funded and protected by federal law. ------------------------------------------------------------------- [00004] DEBTOR'S CHAPTER 11 DATABASE ------------------------------------------------------------------- Debtor: Pacific Gas and Electric Company Bankruptcy Case No.: 01-30923-DM Voluntary Chapter 11 Petition Date: April 6, 2001 Court: United States Bankruptcy Court Northern District of California San Francisco Division 235 Pine Street, 19th Floor San Francisco, CA, 94014 Telephone (415) 268-2375 Judge: The Honorable Dennis Montali Circuit: Ninth Debtor's Counsel: James L. Lopes, Esq. William J. Lafferty, Esq. Jeffrey L. Schaffer, Esq. Janet A. Nexon, Esq. Jerome B. Falk, Jr., Esq. Gary M. Kaplan, Esq. Steven E. Schon, Esq. Clara J. Shin, Esq. Amy E. Margolin, Esq. Peter J. Drobac, Esq. Sarah M. King, Esq. Howard, Rice, Nemerovski, Canady, Falk & Rabkin 7th Floor, Three Embarcadero Center San Francisco, California 94111 Telephone (415) 434-1600 Fax (415) 217-5910 Debtor's Financial Advisor: Martin Nachimson Managing Director E&Y Capital Advisors LLC 1133 Avenue of the Americas New York, NY 10036 and Eric Carlson Managing Director E&Y Capital Advisors LLC 1451 California Avenue Palo Alto, CA 94304 Noticing Agent: Robert L. Berger & Associates, Inc. 17525 Ventura Boulevard, Ste. 200 Encino, California 91316 U.S. Trustee: Office of the United States Trustee for Region 17 250 Montgomery Street Suite 1010 San Francisco, CA 94104-3410 (415) 705-3300 ------------------------------------------------------------------- [00005] LISTING OF THE DEBTOR'S 20 LARGEST UNSECURED CREDITORS ------------------------------------------------------------------- Entity Nature Of Claim Claim Amount ------ --------------- ------------ The Bank of New York, as Floating Rate $ 2,207,250,000 Indenture Trustee Notes Due 2001 101 Barclay St. - 21W New York, NY 10286 Senior Notes Tel:(212)815-5763 Due 2005 Fax:(212)815-5917 Medium Term Notes, Series B, C & D California Power Exchange Power Purchases $ 1,966,000,000 100 E. Freemont Ave. Bldg. A9 Alhambra, CA 91803-4737 Tel:(626)537-3144 Fax:(626)537-3191 Bankers Trust Co., as Refunding Revenue $ 1,302,100,000 Indenture Trustee bonds 4 Albany St. 4th Floor 1997 Series A-C, New York, NY 10006 1996 Series A-F Tel:(212)250-6378 Fax:(212)250-6727 California Independent Power Purchases $ 1,228,800,000 System Operator and Grid Fees P.O. Box 639024 Folsom, CA 95630-9017 Tel:(916)351-4450 Fax:(916)351-3350 Bank of America, N.A. Unsecured $ 938,461,000 555 California St. 12th Flr. Revolver San Francisco, CA 54104-1502 Tel:(415)622-3456 Fax:(415)622-6632 U.S. Bank, as Pollution Control $ 310,000,000 Indenture Trustee Bonds, P.O. Box 64111 1992 Series B, Saint Paul, MN 55164-0111 1993 Series A-B Tel:(651)244-8311 Fax:(651)244-1433 Calpine Gilroy Power Purchases $ 57,928,385 Cogeneration, L.P. San Jose, CA 94586 Tel:(925)600-2005 Fax:(925)600-8924 Calpine Greanleaf, Inc. Power Purchases $ 49,452,611 465 California St. #600 San Francisco, CA 94104 Tel:(925)445-8000 Fax:(925)500-8924 Crocket Cogen, a Georgia Power Purchases $ 48,400,572 Limited Partnership 195 S. LaSalle St. Chicago, IL 60603 Fax:(619)615-7663 Calpine King City Cogen LLC Power Purchases $ 45,706,378 San Jose, CA 94568 Tel:(925)600-2005 Fax:(925)600-8924 El Paso Merchant Energy Gas Power Purchases $ 40,147,245 2500 City West Blvd. Ste.1400 Houston, TX 77042 Tel:(713)420-4985 Fax:(713)420-2108 GMF Power Systems, L.P. Power Purchases $ 40,122,073 Tel:(925)427-1041 Fax:(925)427-0414 Geysers Power Company, LLC Power Purchases $ 32,867,878 Tel:(925)600-2061 Fax:(925)600-8924 BP Energy Company Gas Purchases $ 29,523,530 Houston, TX 77079 Tel:(281)366-6277 Fax:(281)366-5925 Enron Canada Corporation Gas Purchases $ 28,210,551 Tel:(403)974-6931 Fax:(403)974-6795 Chevron U.S.A. Production Co. Gas Purchases $ 24,718,334 P.O. Box 840659 Dallas, TX 75284-0659 Tel:(972)702-0019 Fax:(461)392-2990 Sempra Energy Trading Corp. Gas Purchases $ 23,849,455 Stamford, CT 06902 Tel:(203)355-5607 Fax:(203)355-5001 Calpine Pittsburgh Power Purchases $ 22,576,506 Power Plant 50 W San Francisco St. San Jose, CA 95113 Tel:(408)995-5115 Fax:(408)995-0505 Wheelabrator Shasta Energy Power Purchases $ 21,506,087 Co., Inc. Anderson, CA 96007 Tel:(530)365-9172 Fax:(530)365-2035 Sierra Pacific Industries Power Purchases $ 19,800,248 Anderson, CA 96007 Tel:(530)378-8000 Fax:(530)378-8242 ------------------------------------------------------------------- [00006] DEBTOR'S MOTION TO HONOR WAGE & SALARY OBLIGATIONS ------------------------------------------------------------------- The Debtor's 19,978 Employees are vital to daily operations, maintaining positive employee morale is important, and the reorganization effort will fail if PG&E loses its valuable employees, Russell M. Jackson, Vice President of Human Resources for Pacific Gas and Electric Company, tells the Court. A loss of personnel due to an interruption in the payment of employee wages and benefits will jeopardize the Debtor's operation and reorganization efforts, the steady supply of energy, and public health and safety, PG&E says. In fact, the Company continues, in this particular chapter 11 case, the loss of key personnel due to sagging employee morale may also result in irreparable harm to public health and safety. Each blackout carries with it the possibility of such tragedies as fires due to overturned candles or collisions due to the loss of traffic lights, in addition to the inevitable disruption in the economy. A reduction in the number of experienced linemen dedicated to preventing and repairing gas leaks could lead to disastrous results, as well. The public interest, accordingly, requires that the Debtor be allowed to pay pre- petition compensation and benefits to aid employee retention and hasten the Debtor's recovery. Faced with the need to issue payroll checks immediately for wage and salary obligations incurred during the latest two-week period and because certain employees don't promptly cash each paycheck they receive, the Debtor sought and obtained an emergency order from Judge Montali authorizing the Company to (A) issue payroll checks on account of accrued pre-petition wage and salary obligations and (B) move money between their bank accounts as necessary to fund those paychecks. Additionally, Judge Montali directs each Bank on which a payroll check is drawn to honor all payroll checks. Specifically, the Debtor sought and obtained permission to honor these pre-petition wage, salary and benefit obligations owed to their Employees: Number of Type of Employee Obligation Amount Owed Employees --------------------------- ----------- --------- PRE-PETITION EMPLOYEE COMPENSATION International Brotherhood of Electrical Workers, Local 1245 and International Union of Security Officers Members $36,111,700 12,300 Administrative & Technical 695,100 415 Engineering & Scientists Union 4,335,700 1,530 Diablo Canyon Workers (included in IBEW amount) 468,800 210 Management 8,809,600 5,500 Officers 134,700 23 ----------- ------ $50,555,600 19,978 EMPLOYER TAXES $3,870,497 EMPLOYEE BENEFIT OBLIGATIONS Medical insurance $19,627,584 Dental insurance 2,000,000 Vision insurance 605,800 Reimbursement accounts 229,059 Group life insurance 2,675,857 Short-term disability and Workers' compensation 3,341,956 Long-term disability 440,000 Savings Fund Plan and Retirement Savings Plan 1,851,019 Vacation payout 1,500,000 Employee assistance program 89,000 Adoption reimbursement 2,083 Child care 134,000 Tuition Refund Program 478,741 Business expense reimbursements 1,400,000 ----------- $34,375,099 ----------- TOTAL $88,301,196 =========== James L. Lopes, Esq., at Howard, Rice, Nemerovski, Canady, Falk & Rabkin, advised Judge Montali at the First Day Hearing that, on average, no single employee is owed more than the $4,300 priority accorded to employee compensation claims under 11 U.S.C. Sec. 507. PG&E does not seek to liquidate its operations, Mr. Lopes told Judge Montali Friday afternoon. "Rather, the Debtor seeks to avail itself of the protection and flexibility provided by the bankruptcy laws to weather the current regulatory impasse. In order to keep the lights on, however, the Debtor must retain its current work force. The Debtor therefore seeks this Court's permission to honor its pre-petition obligations to its employees in order to prevent employee defection and to implement a seamless transition." Nothing in this request, the Debtor makes clear and Judge Montali confirms, contemplates an assumption nor precludes a rejection of any agreement or policy that may be considered an executory contract. ----------------------------------------------------------------- [00007] DEBTOR'S MOTION TO CONTINUE USING CURRENT BUSINESS FORMS ----------------------------------------------------------------- At the Debtor's behest, Judge Montali granted PG&E authority to continue using their existing supplies of business forms (including, but not limited to, letterhead, purchase orders, invoices, contracts and checks), without the need to follow the United States Trustee's operating guideline that all business forms used by a chapter 11 debtor bear a "debtor-in-possession" legend. Parties doing business with the Debtor undoubtedly will be aware, Judge Montali observed, as a result of the size and notoriety of the Debtor and this case, of PG&E's status as a chapter 11 debtor-in-possession. Changing Business Forms immediately would be expensive and burdensome to the Debtor's estate and extremely disruptive to daily business operations. Accordingly, until existing stock is depleted, the Debtor may continue using their prepetition business forms. ----------------------------------------------------------------- [00008] DEBTOR'S MOTION TO CONTINUE USING EXISTING BANK ACCOUNTS ----------------------------------------------------------------- PG&E reminds the Court that the Office of the United States Trustee has established certain operating guidelines for debtors- in-possession in order to supervise the administration of chapter 11 cases. These guidelines require chapter 11 debtors to, among other things: (a) close all existing bank accounts and open new debtor-in-possession bank accounts; (b) establish one debtor-in- possession account for all estate monies required for the payment of taxes, including payroll taxes; and (c) maintain a separate debtor-in-possession account for cash collateral. Kent M. Harvey, PG&E's Senior Vice President-Chief Financial Officer, Controller and Treasurer, tells the Court that the U.S. Trustee's guidelines won't work in this chapter 11 case. PG&E uses 35 bank accounts through which the company manages cash receipts, disbursements, investments for their corporate enterprise. The Debtor routinely deposits, withdraws and otherwise transfers funds to, from and between such accounts by various methods including check, wire transfer, automated clearing house transfer and electronic funds transfer. In addition, the Debtor generates thousands of accounts payable and payroll checks per month from the Bank Accounts, along with various wire transfers. The Debtor seeks a waiver of the United States Trustee's requirement that the Bank Accounts be closed and that new postpetition bank accounts be opened. If the Guidelines were enforced in this case, these requirements would cause enormous and unnecessary disruption in the Debtor's businesses and would significantly impair their efforts to reorganize. Mr. Harvey explains that the Debtor's Bank Accounts are part of a carefully constructed and highly automated Cash Management System that ensures the Debtor's ability to efficiently monitor and control all of their cash receipts and disbursements. Consequently, closing the existing Bank Accounts and opening new accounts inevitably would result in delays in payments to administrative creditors and employees, severely impeding the Debtor's ability to ensure as smooth a transition into chapter 11 as possible and, in turn, jeopardizing the Debtor's efforts to successfully confirm a reorganization plan. Additionally, requiring the Debtor to replace its Bank Accounts would impose a daunting administrative burden. Finally, because the Debtor's disbursement systems are integrated with their banks to allow for automatic bank reconciliations, replacing the Bank Accounts would require systemic changes which would be difficult to implement. Accordingly, the Debtor requests that its pre-petition Bank Accounts be deemed to be debtor-in-possession accounts, and that the Company be permitted to maintain and continue use, in the same manner and with the same account numbers, styles and document forms as those employed prepetition, be authorized, subject to a prohibition against honoring prepetition checks without specific authorization from this Court. Recognizing the need for relief from the U.S. Trustee's Guidelines in a billion-dollar chapter 11 case, and noting that in other cases of this size, courts have routinely recognized that the strict enforcement of bank account closing requirements does not serve the rehabilitative purposes of chapter 11, Judge Montali granted the Debtor's Motion in all respects. To the extent that any funds in any PG&E Bank Account are subject to a valid right of set-off by any Bank, Judge Montali directs, that Bank will be granted an administrative priority in an amount equal to the extent the Debtor uses those funds. Additionally, Judge Montali held at the First Day Hearing, all rights of these Banks to assert an entitlement to a replacement lien to the extent any funds are used are fully preserved. ------------------------------------------------------------------- [00009] WHO'S JUDGE MONTALI AND HOW DOES HIS COURTROOM WORK? ------------------------------------------------------------------- Bankruptcy Judge Dennis Montali was appointed a bankruptcy judge to the Northern District of California on April 23, 1993. Prior to his appointment he worked as an associate, then partner, at Rothschild, Phelan & Montali in San Francisco (1968-80); a partner, in the law firm of Dinkelspiel, Pelavin, Steefel & Levitt (1980); and a partner at Pillsbury, Madison & Sutro (1981-93). Judge Montali earned his B.A. from the University of Notre Dame in 1961 and was awarded a J.D. from the University of California at Berkeley in 1968. Judge Montali was on active duty in the United States Naval Reserve from 1961-65; served in various officer positions in two United States Navy destroyers; and voluntarily returned to active duty from June to August 1966 to serve as an instructor at the United States Navy Reserve Officers Candidate School in Newport, Rhode Island. Judge Montali is a member of the Editorial Advisory Board, American Bankruptcy Law Journal; former member, National Bankruptcy Conference; fellow, American College of Bankruptcy; former chair, San Francisco Bar Association, Commercial Law and Bankruptcy Section; former member, Bankruptcy Advisory Committee, Northern District of California; former member, Debtor/Creditor and Bankruptcy Subcommittee, Business Law Section, State Bar of California; and Judicial Conference Committee on the Administration of the Bankruptcy System. Judge Montali enforces certain Courtroom Decorum rules: 1. Recording devices and cameras of any kind are not allowed in the courtroom or in the hallways surrounding the courtroom. 2. Cell phones and pagers must remain off at all times. Anyone whose cell phone or pager rings or who uses his or her cell phone while in the courtroom or hallways surrounding the courtroom will be escorted from the premises. 3. Laptops may be used but all sound must be turned off. 4. No talking is allowed while court is in session. 5. No gum, food or drink is allowed in the courtroom. 6. Due to restrictions imposed by the codes of judicial conduct, neither judges nor court staff are allowed to discuss the merits or substance of the case outside the context of the hearing. No member of the media or the public shall direct any queries to the judge, court staff or the parties while court is in session. * * * Hearings for the week of April 9th will be held at 235 Pine Street, 22nd floor, San Francisco, CA. Attorneys planning to appear must pre-register as soon as practicable by e-mailing your name, your firm and the party you represent to Hearings@canb.uscourts.gov. Emergency registration will be available one hour prior to the hearing. Due to the large number of attorneys expected, it will be essential that all attorneys pre-register. To accommodate an anticipated influx of interested media and public, seating, which is limited, will be available on a pre- registration, first come-first served basis. Anyone interested in attending the hearing should pre-register by e-mailing your name, organization, phone and fax number to Hearings@canb.uscourts.gov or you may register the day of the hearing beginning one hour prior to the hearing. *** End of Issue No. 1 *** ------------------------------------------------------------------------- Peter A. Chapman peter@bankrupt.com http://bankrupt.com ------------------------------------------------------------------------- Recommended Reading: "Debtors and Creditors in America: Insolvency, Imprisonment for Debt, and Bankruptcy, 1607 - 1900." You'll learn things about bankruptcy you never knew. Order your copy of this title today at http://www.amazon.com/exec/obidos/ASIN/189312214X/internetbankrupt -------------------------------------------------------------------------