Bankruptcy

PG&E filed for bankruptcy protection in April 2001. The bankruptcy resulted not from the company's distribution operations, but from the fact that frozen retail electric rates were insufficient to recover the cost of electric

commodity purchases in the unregulated power markets. The California Department of Water Resources has now largely taken over the electric commodity purchasing function. ORA says there is very little evidence in this record regarding the impact that the bankruptcy is likely to have on PG&E's spending in 2001 on either the expense side or the capital side. However, the Commission itself has noted that cost cutting efforts are a potential solution to the company's cash flow problems. (D.01-01-018, p. 18.) Furthermore, upon the filing of the bankruptcy PG&E was relieved from immediate payment of all capital cost and expense obligations that were incurred in 2001 and unpaid as of the date of the bankruptcy. To the extent these bills go unpaid, it will reduce costs in 2001.

Aglet argues that in times of utility liquidity problems and financial distress, it is reasonable to anticipate that PG&E will not expand its electric distribution costs but will seek opportunities to reduce its capital-related and operations and maintenance expenditures. As the Commission has stated, the current situation "is decidedly not business as usual and the utilities need to realize that ratepayers are not the only answer to their dilemma." (D.01-01-018, at 160.) Aglet maintains that PG&E will likely reduce distribution expenditures in the near term, and therefore recommends that the attrition increases authorized in D.00-02-046 should be rescinded or, suspended. Aglet's primary recommendation is for the Commission to deny any attrition relief for 2001, because approval of an electric attrition adjustment in 2001 would not improve service quality but would be a subsidy to shareholders. ORA agrees with this analysis and supports denial of attrition for the reasons stated.

PG&E argues that its bankruptcy filing has had no effect on its need for attrition relief. It says that the positions of ORA and Aglet are based on supposition, not facts. PG&E contends that there is no record evidence that

PG&E's expenses in 2001 will decrease, let alone decrease enough to make this ARA application unnecessary. PG&E says that its revenue requirements are determined by operating expense and capital-related items including taxes, depreciation, and return on weighted average rate base. Two-thirds of PG&E's ARA request is due to capital-related items. Its weighted average rate base is growing. The year 2000 end-of-year rate base is larger than 2000 weighted average rate base, and 2001 weighted average rate base will be larger still. PG&E's 2001 capital additions would have to be cut by 94% in order to produce a weighted average rate base equal to its 2000 weighted average rate base.

In regard to reduced expenses in 2001, PG&E points out that D.01-03-029 ordered PG&E to reinstate certain programs and rescind layoffs that might have resulted from those programs. Since that decision was issued, PG&E has filed compliance reports with the Commission, which document how PG&E has complied with D.01-03-029 by restoring staffing levels in meter reading, call centers, and other operations areas.

PG&E testified it has the ability to: (1) fully staff its customer call centers; (2) read meters on a monthly basis for all customers; (3) timely respond to service calls and outages; and (4) connect new customers. PG&E has started to restore various cash conservation measures, including: work required by others (WRO); Electric Rule 20A projects; gas pipeline replacement projects coincident with electric Rule 20A; pole replacement program; and records and literature fulfillment. PG&E has restored deferred merit increases for PG&E's approximately 6,000 non-union employees (in January, union employees received pay increases for 2001 in accordance with PG&E's union agreements), and the payment of the component of the management performance incentive associated with year 2000 operating objectives.

The evidence shows that PG&E has not reduced electric distribution operating expenses because of its bankruptcy filing. In response to D.01-03-029, PG&E has reinstated programs to assure adequate service. There is no evidence that the bankruptcy filing has had any appreciable affect on PG&E's distribution expenses. The record is less clear regarding the impact of PG&E's financial condition on its capital-related costs.