Assignment of Proceeding
John A. Bohn is the assigned Commissioner and Michael J. Galvin is the assigned Administrative Law Judge in this proceeding.
1. PG&E requests authority to issue $4 billion of Debt Securities.
2. DRA filed a protest to the application and subsequently withdrew its protest.
3. PG&E and DRA were the only parties to this proceeding.
4. PG&E has a reasonable need to issue $4.0 billion of long-term debt and preferred stock during 2008 - 2011 to finance capital expenditures, replace maturing debt, and redeem debt and preferred stock.
5. PG&E requests authority under § 851 to issue First and refunding mortgage bonds and to use its accounts receivable to secure its debt.
6. PG&E requests authority to issue many different types of Debt Securities and preferred stock using a wide variety of means.
7. PG&E requests that credit enhancements not be counted against its authorized debt.
8. PG&E requests authority to use swaps and hedges to manage the risks associated with interest rate volatility. PG&E also requests that its use of these financial instruments not be counted against its authorized debt.
9. Resolution F-616 requires utilities to issue debt using competitive bids. The Resolution also provides for exemptions from the Competitive Bidding Rule for debt issues in excess of $200 million and debt that must be obtained on a negotiated basis such as variable-rate debt.
10. PG&E represents that granting the requested exemptions from the Competitive Bidding Rule will enable PG&E to obtain debt in a manner that is advantageous to PG&E and its ratepayers.
11. GO 24-B requires utilities to submit a monthly report to the Commission that contains, among other things: (i) the amount of debt and preferred stock issued by the utility during the previous month; (ii) the total amount of debt and preferred stock outstanding at the end of the prior month; (iii) the purposes for which the utility expended the proceeds realized from the issuance of debt and preferred stock during the prior month; and (iv) a monthly statement of the separate bank account that the utility is required to maintain for all receipts and disbursements of money obtained from the issuance of debt and preferred stock.
12. To minimize administrative costs, PG&E requests permission to report to the Commission on a quarterly basis all the information required by GO 24-B for any debt and preferred stock issued by PG&E pursuant to this Decision.
13. The Commission has routinely authorized utilities to report on a quarterly basis the information required by GO 24-B in order to reduce the utilities' administrative and compliance costs.
14. A.08-05-033 does not propose, and today's Decision does not authorize, any specific new construction or changes in use of existing assets and facilities.
15. The debt costs associated with the is decision may be subject to review in PG&E's cost of capital or other appropriate proceedings.
16. Notice of A.08-05-033 appeared in the Commission's Daily Calendar.
17. In Resolution ALJ 176-3215, issued on June 12, 2008, the Commission preliminarily determined that this proceeding should be categorized as ratesetting and that hearings would not be necessary.
1. This is a ratesetting proceeding.
2. There is no need for hearings.
3. The application should be granted as requested.
4. The authority granted by this Decision should not become effective until PG&E has paid the fees prescribed by §§ 1904(b) and 1904.1.
5. PG&E should not use the proceeds from the debt and preferred stock authorized by this Decision to fund capital projects until PG&E has obtained any required Commission approvals for the projects, including any required environmental review under CEQA.
6. The following Order should be effective immediately so that PG&E may issue as soon as needed the debt and preferred stock authorized herein.
IT IS ORDERED that:
1. Pacific Gas and Electric Company (PG&E) is authorized to issue $4.0 billion of new long-term debt and preferred stock to finance capital expenditures, replace maturing debt, and to redeem debt and preferred stock, as contemplated in Application 08-05-033.
2. PG&E may encumber utility property, including accounts receivables, to secure Debt Securities authorized by this order.
3. PG&E may guarantee the Debt Securities of regulated direct or indirect subsidiaries or affiliates of PG&E or of government entities that issue Debt Securities on behalf of PG&E.
4. Credit enhancements authorized by this Order shall not count against the amount of debt authorized by this Order so long as there is no possibility that such credit enhancements will ever increase the amount of PG&E's debt obligations.
5. PG&E may enter into interest-rate caps, collars, swaps, hedges, and other financial instruments to manage interest rate risks (collectively, "hedges") to the extent that PG&E complies with the conditions enumerated in the body of this Order.
6. The following types of debt issued by PG&E pursuant to this Order are exempt from the Competitive Bidding Rule set forth in Resolution F-616: debt with a principal amount greater than $200 million, variable-rate debt securities; notes sold through a placement agent on a reasonable efforts basis; trust preferred securities and hybrid securities; accounts receivable financings; overseas indebtedness; foreign currency securities; notes; tax-exempt securities; and, interest-rate hedges.
7. PG&E is authorized to do the following in those situations where the Competitive Bidding Rule remains applicable:
i. To shorten the time between the issuance of an invitation for bids and the receipt of bids to a period that is the shortest time reasonably required to obtain a sufficient number of bids from underwriters, purchasers, or groups thereof.
ii. To accelerate, postpone, or cancel the scheduled date and time for receipt of bids.
iii. To reject all bids submitted.
iv. To request the resubmission of bids.
v. To reschedule subsequent receipt of bids.
vi. To vary the amount, terms, and conditions of the Debt Securities submitted for bids.
vii. To waive the requirement for newspaper publication
of the above items.
8. PG&E shall provide compelling evidence to substantiate future exemption requests from the competitive bidding rule.
9. PG&E may report on a quarterly basis all the information required by General Order 24-B with respect to debt and preferred stock issued pursuant to this Order. PG&E shall report this information on a monthly basis if directed to do so by Commission staff.
10. PG&E shall pay a fee on $3,046,450,000 of its new $4.0 billion Debt securities ($4.0 billion less $953,550,000 earmarked to retire, refund or reissuance of securities previously issued.) If PG&E actually uses any of the $953,550,000 for purposes other than the retirement, refund or reissuance of securities previously issued, it shall notify the Commission in writing, pay the corresponding fee, and identify in its next Debt Securities report after issuance how it used the $953,550,000 of long-term debt earmarked to replace existing long-term debt.
11. PG&E shall remit to the Commission's Fiscal Office a check for $1,529,225 as required by § 1904(b) of the Public Utilities Code. The decision number of this Order shall appear on the face of the check.
12. The authority granted by this Order shall not become effective until PG&E remits $1,529,225 to the Commission's Fiscal Office.
13. PG&E shall comply with all applicable environmental laws and regulations when planning and implementing any capital expenditure programs that are financed, in whole or in part, with the proceeds from the debt and preferred stock authorized by this Order.
14. Application 08-05-003 is closed.
This order is effective today.
Dated October 2, 2008, at San Francisco, California.
MICHAEL R. PEEVEY
President
DIAN M. GRUENEICH
JOHN A. BOHN
RACHELLE B. CHONG
Commissioners
I will file a dissent.
/s/ TIMOTHY ALAN SIMON
Commissioner
Commissioner Timothy Alan Simon's Dissent to October 2, 2008 Public Agenda 3222, Agenda Items 25 [A08-05-033], 26 [A08-06-012], and 27 [A08-06-013].
I am dissenting on Agenda item 25 because I have some concerns about PG&E's Application10 , and about utility requests for exemptions on competitive bidding for debt securities and preferred stock securities offerings in general. My comments are therefore also applicable to Agenda items 26 and 27, respectively, which were filed by Southern California Edison.11 As a professor of law and securities regulation, I recognize that utilities clearly need access to capital to finance operating capital, facilities upgrades, and other critical infrastructure projects. In addition, I do not want to postpone judgment on these matters given the distressed and uncertain state of our financial markets. Nevertheless, my concerns with these Applications are threefold:
First, PG&E's request to issue $4.0 billion in long-term debt and preferred stock is based on a three-year projection of capital expenditure requirements. Locking in non-competitive financing terms for such a large offering request over a lengthy period of time may not be in the best interest of ratepayers when a better deal could be obtained if this large offering was submitted in pieces to take advantage of fluctuating and potentially better market conditions prior to 2011.
This brings me to my second concern. The exemptions granted under the Competitive Bidding Rule in Resolution F-616 require a "conclusive showing by a utility that an exemption would be in the best interest of ratepayers."12 In their Application, PG&E has not provided sufficient evidence to demonstrate that their negotiated deal is superior to competitive bidding. Rather, PG&E ostensibly assumes that competitive bidding may result in higher costs due to the fragmentation of the investment banking industry into competing syndicates that would face increased risk. While negotiated bids in extraordinary circumstances can be favorable, there is a competing school of thought that competitive bidding should result in the lowest, most efficient market prices and fees for these securities. Furthermore, many of PG&E's concerns with competitive bidding appear to be based not on record evidence or a showing of comparative market data, but on banking industry status quo assumptions that may or may not hold true.
Third, while I am pleased to see PG&E and our other regulated utilities make progress toward achieving our General Order 156 goals, I would like to challenge them to proactively continue to procure financial services from emerging firms, including, but not limited to, WMDVBE or otherwise. Many emerging firms are significant participants on Wall Street and should be given the opportunity to compete for California's regulated utility financial services. I look forward to working together with our regulated utilities to ensure that we rise to this challenge of creating business opportunities for these firms. This is a relevant and timely concern as we find our financial markets highly distressed, with entrenched banks and other major institutions failing or teetering on the edge of collapse. The status quo is clearly not working.
Finally, I understand that it has been Commission practice to routinely grant exemptions to the Competitive Bidding Rule since the adoption of Resolution F-616 on October 1, 1986. This practice calls into question whether this rule is effective or necessary. We have essentially granted one continuous boilerplate exemption since the adoption of this Resolution, which should be reexamined and updated to ensure the best financing terms for ratepayers going forward. We should revisit these issues in a rulemaking with an accompanying workshop before the Commission in order to lend additional clarity and transparency to this process.
Ratepayers deserve the same respect, transparency, and accountability as shareholders. These blanket exemptions without a time constraint or ceiling does not support efficiency in the market, which is driven by competitive pricing. Therefore, I will be filing a written dissent. However, I wish to be clear that my dissenting vote is not a prohibition to financing. Instead, it challenges the perpetual exemptions to the competitive bidding process.
/s/ TIMOTHY ALAN SIMON
Timothy Alan Simon
Commissioner
San Francisco, California
October 2, 2008
10 Application of Pacific Gas and Electric Company to issue, sell, and deliver one or more series of Debt Securities and to guarantee the obligations of others in respect of the issuance of Debt Securities, the total aggregate principal amount of such long-term indebtedness and guarantees not to exceed $4.0 billion; to execute and deliver one or more indentures; to sell, lease, assign, mortgage, or otherwise dispose of or encumber utility property; to issue, sell and deliver in one or more series, cumulative Preferred Stock -- $25 Par Value, Preferred Stock -- $100 Par Value, Preference Stock or any combination thereof; to utilize various debt enhancement features; enter into interest rate hedges; and for an exemption from the Commission's Competitive Bidding Rule (A.08-05-033), May 22, 2008.
11 See Application of Southern California Edison Company (U338-E), a corporation, for
modification of Decision No. 00-10-040, as previously modified by Decision Nos. 01-01-021, 02-01-061, 05-11-013 and 06-11-012 (A.08-06-012), June 10, 2008; Application of Southern California Edison Company for Modification of Decision No. 05-06-020 (A.08-06-013), June 10, 2008.
12 See Resolution No. F-616, Exhibit A: Report on the California Public Utilities Commission's Competitive Bidding Rule for Issuance of Securities, September 5, 1986, at 2.
