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Today PG&E made a business decision to cut off serious negotiations to resolve the electricity crisis and instead sought formal bankruptcy protection. PG&E, as of April 4, 2001, possessed $2.3 billion in cash. It clearly chose to go to court rather than continue to seek a negotiated solution to the issues California faces.

I want to assure all Californians that PG&E's business decision to file for Chapter 11 reorganization does not in any way affect PG&E's obligations to continue to serve its customers throughout Northern California. The PUC's authority to require PG&E to continue to do its job of serving its customers and to pay the state back for the power it has purchased for PG&E's customers continues unabated. PG&E today recognized its obligations to continue to serve its customers.

PG&E attempts to blame the PUC and the Governor for its business choice. In fact, the financial problems that motivated PG&E's choice to file for bankruptcy were caused by the skyrocketing prices in California's wholesale electricity market and the failure of the Federal Energy Regulatory Commission (FERC) to follow the law and ensure just and reasonable wholesale electricity prices as required by the Federal Power Act. However, the state's wholesale market prices continue to threaten the utilities, their customers and California's economy. Oddly, PG&E's statements overlook this key fact. Neither the Commission nor the Governor has the power alone to change these prices because the FERC has authority over California's wholesale energy markets.

The PUC has acted quickly and dramatically in response to California's energy crisis, to the extent the State retains discretion to act. The Commission has granted rate increases to PG&E's customers of 4 cents/kw or almost 40% to ensure PG&E's continuing financial viability and the integrity of the state's energy infrastructure.

The state finds itself in this crisis largely as a result of AB 1890, legislation that PG&E and its parent company supported, benefited from and now attack. PG&E Corp. has protected itself and its unregulated subsidiaries from bankruptcy at the same time that it allowed its utility to seek bankruptcy protection.

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Two Attachments


October 4, 2000 PG&E files for rate increase of two cents/kilowatt hour

Average price of wholesale power $102 MWh

November 1, 2000 FERC issues draft decision on wholesale markets

December 21, 2000 PUC initiates action to analyze PG&E's rate increase

December 31, 2000 PG&E net undercollection totals $4.8 billion.

January 4, 2001 PUC grants one cent per kilowatt hour rate increase

January 30, 2001 PUC financial review confirms PG&E credit and cash

January 31, 2001 PUC orders PG&E to file plan for cost-based rates for

February-March 2001 PUC holds hearings to determine whether PG&E needs

March 27, 2001 PUC imposes on PG&E customers an additional three


PG&E claims the CPUC created "new payment obligations" on March 27, 2001 when it ordered PG&E to pay for QF power, forcing it into Chapter 11.

What PG&E is not saying: PG&E's current cash on hand totals $ 2.3 billion. The March 27 total rate increase would amount to $3 billion annually in increased revenue. PG&E has a contractual obligation to pay Qualifying Facilities (QFs) for power and those contractual obligations have existed for years. As of March 31, 2001, PG&E owed QFs $643 million in back payments for purchases of power that the QFs have supplied to PG&E's customers. QFs are projected to supply over $174 million dollars of power purchases for PG&E's customers in April.

PG&E claims it has $8.9 billion in uncovered wholesale power costs.

What PG&E is not saying: PG&E was both a buyer and seller of power. Subtracting the amount PG&E earned from its wholesale power sales, its net unrecovered costs total $6.8 billion (as of March 1, 2001).

PG&E claims at least $300 million per month in unreimbursed wholesale power costs.

What PG&E is not saying: PG&E has cash on hand of $2.3 billion and forward-looking power purchase liabilities substantially less than the revenues it receives.

PG&E claims bankruptcy is partly due to the failure of DWR to purchase full "net short" power supplies, alleging costs to PG&E of $300 million per month.

What PG&E is not saying: DWR has purchased power for many PG&E customers since January 19, actions that have relieved California's investor-owned utilities of over $4 billion in power purchase costs.

PG&E claims the CPUC has not acted on its requests for a two cent/kwh rate increase.

What PG&E is not saying: the CPUC order a one cent/kwh rate increase on PG&E's ratepayers on January 4, 2001 - 90 days after the request -- and an additional 3 cent/kwh rate increase on March 27, 2001, less than 90 days later.

PG&E claims that if it had received rate relief in October 2000, it would have been able to enter into long term power purchase contracts.

What PG&E is not saying: PG&E signed significant long term contracts in October without a rate increase. PG&E made its own business decisions about the need for more power. The PUC allowed PG&E to contract for up to its full net short on 8/3/2000, when the average wholesale price of power was $102 MWh.

PG&E claims that the Governor's failure to negotiate an acceptable agreement with it and the PUC's failure to provide rate relief are responsible for its financial problems.

What PG&E is not saying: Wholesale market prices have, on average, increased almost ten times over what they were in l999 and these prices are not related to generation costs. The FERC has found these prices are not just and reasonable." These unlawful wholesale prices are the source of PG&E's financial liabilities.


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