6. Pub. Util. Code Section 311
Section 311(g)(1) requires the Administrative Law Judge's (ALJ's) draft decision in this proceeding to be (i) served on all parties, and (ii) subject to at least 30 days of public review and comment prior to a vote of the Commission. Section 311(g)(2) allows the 30-day period to be reduced or waived upon the stipulation of all parties.
The draft decision of ALJ Kenney was mailed to the parties in accordance with § 311(g)(1) and Rule 77.7. On December 8, 2000, PG&E, the only party to this proceeding, submitted a written request to reduce the 30-day period for public review and comment so that this decision could be considered by the Commission at its meeting of December 21, 2000.
PG&E filed comments regarding the draft decision on _______________. These comments have been reflected, as appropriate, in the final decision adopted by the Commission.
1. In A.00-10-029, PG&E requests authority to issue $2 billion of additional long-term debt for the following purposes: (i) to finance a large and growing undercollection in its TRA; and (ii) for any purpose identified in § 817 (except the purpose of buying PG&E stock).
2. The price of wholesale power has increased significantly in recent months. PG&E has been unable to recover in rates the increased cost of wholesale power due to the rate freeze established by § 368(a) and D.96-12-077.
3. Since June 2000, PG&E's costs for wholesale power have exceeded amounts included in rates by more than $2.8 billion. The excess of PG&E's costs over its rates is recorded as an undercollection in PG&E's TRA.
4. PG&E must finance the difference between what it pays for wholesale electric power and what it recovers in rates from its retail customers.
5. On November 1, 2000, PG&E issued $680 million in long-term notes to finance its TRA undercollection. The issuance of these notes caused PG&E to temporarily exhaust its current authority to issue long-term debt.
6. PG&E will retire $287 million of long-term debt during the year 2001. This debt can be re-issued and the proceeds used for § 817 purposes.
7. PG&E paid approximately $300 million during the year 2000 to purchase its stock. This stock can be re-issued and the proceeds used for § 817 purposes.
8. PG&E will no longer have a need to finance its TRA undercollection once the undercollection is paid off.
9. Once PG&E's TRA undercollection is paid off, the $680 million of long-term debt issued by PG&E on November 1, 2000, to finance the undercollection can likewise be paid off and then re-issued for other § 817 purposes.
10. PG&E estimates that at least 75% of the $2 billion of additional long-term debt for which it requests authority in A.00-10-029 will be used initially to finance the TRA undercollection. Once the need to finance the TRA undercollection has ended, PG&E intends to use the entire $2 billion for § 817 purposes on an as-needed basis.
11. PG&E currently needs $500 million or less in new long-term debt for § 817 purposes. PG&E did not state if and when it will need for § 817 purposes the entire $2 billion of additional long-term debt requested by PG&E in A.00-10-029.
12. A.00-10-029, Appendix C, indicates that PG&E will issue $370 million of long-term debt during 2001 for purposes other than financing its TRA undercollection.
13. Capital structure consists of long-term debt, preferred stock, and common equity. D.00-06-040 authorized the following capital structure for PG&E: (i) 46.2% long-term debt, (ii) 5.8% preferred stock, and (iii) 48.0% common equity.
14. The issuance of $2 billion of additional long-term debt by PG&E for § 817 purposes would increase the proportion of long-term debt in PG&E's capital structure to 51.7%, which is higher than 46.2% authorized by D.00-06-040.
15. The higher the debt-to-equity ratio, the greater the financial risk. Authorizing PG&E to issue $2 billion of additional long-term debt would increase PG&E's debt-to-equity ratio and financial risk.
16. PG&E requests authority to use for general corporate purposes the accrued interest obtained from the issuance of $2 billion of additional long-term debt.
17. There was no showing in A.00-10-029 that accrued interest is reasonably required by PG&E for general corporate purposes, or that such purposes are not reasonably chargeable to operating expenses or income.
18. PG&E currently has a greater need to use accrued interest to finance its TRA undercollection than to use accrued interest for general corporate purposes.
19. PG&E requests that the carrying cost for the portion of its TRA undercollection that is financed with long-term debt be based on the lower of (i) the 3-month commercial paper rate, or (ii) the actual cost of long-term debt issued by PG&E to finance the undercollection. The Commission granted a similar request in D.87-09-050, OP 3.
20. PG&E requests that any long-term debt used to finance its TRA undercollection be excluded from the determination of PG&E's authorized capital structure.
21. PG&E requests authority to use the following debt instruments for the purpose of financing its TRA undercollection and other § 817 purposes: (i) bonds secured by a mortgage on PG&E's assets; (ii) notes and warrants; (iii) debt securities denominated in a foreign currency; (iv) loans from banks, insurance companies, and other financial institutions; (v) tax-exempt debt; (vi) letters of credit; and (vii) DIS securities. The Commission granted similar requests in D.96-03-015 and D.95-09-023.
22. PG&E recommends that ratepayers should: (i) not be responsible for tax penalties or interest on penalties associated with DIS securities; and (ii) be responsible for back taxes on DIS securities to the extent ratepayers received tax benefits from the DIS securities, plus interest on the back taxes based on the 3-month commercial paper rate. The Commission adopted similar recommendations in D.95-09-023 and D.95-04-024.
23. PG&E requests authority under § 701.5(a) to guarantee DIS securities issued by affiliated SPVs. The Commission granted similar requests in D.95-09-023 and D.95-04-024.
24. PG&E requests authority under § 701 to enter into interest-rate swaps, caps, and collars for long-term debt issued pursuant to this decision. The Commission granted similar authority in D.95-09-023, D.93-06-082, D.92-06-031, and D.88-04-063.
25. In D.93-06-082, the Commission adopted record keeping and reporting requirements pertaining to interest-rate swaps, caps, and collars.
26. PG&E requests authority to exclude interest-rate swaps from the determination of the amount of debt authorization used. The Commission granted similar requests in D.96-03-015, D.95-09-023, D.93-06-082, D.92-06-031, D.91-12-021, and D.90-12-094.
27. In D.93-06-082, the Commission restricted interest-rate swaps to 20% of PG&E's outstanding long-term debt. PG&E requests authority to exempt from the 20% limit any interest-rate swaps used to finance its TRA undercollection.
28. Utilities are required to issue debt in accordance with the Competitive Bidding Rules set forth in D.38614, as amended by D.49941, D.75556, D.81908, and Resolution F-616.
29. PG&E requests an exemption from GO 24-B so that PG&E can submit on a quarterly basis the information required by GO 24-B for (i) medium-term securities, and (ii) interest-rate swaps, caps, and collars. The Commission granted similar exemptions in one or more of the following decisions: D.95-09-023, D.93-06-082, D.92-06-031, D.91-12-021, D.90-12-094, D.88-04-063, and D.87-12-002.
30. PG&E requests several exemptions from the Competitive Bidding Rules. The requested exemptions are identified in the body of this decision. The Commission granted similar exemptions in D.95-09-023, D.93-06-082, D.92-06-031, D.91-12-021, D.90-12-094, D.88-04-063, and D.87-12-002.
31. PG&E represents that granting the requested exemptions from the Competitive Bidding Rules will help PG&E obtain debt on terms that are favorable to PG&E and its ratepayers.
32. PG&E requests two exemptions from GO 24-B that are identified in the body of this decision. The Commission granted similar exemptions in D.95-09-023, D.93-06-082, D.92-06-031, D.91-12-021, and D.87-12-002.
33. There were no protests or responses to A.00-10-029.
34. In Resolution ALJ 176-3050, dated November 2, 2000, the Commission preliminarily categorized this proceeding as ratesetting, and preliminarily determined that a hearing is not necessary.
1. An evidentiary hearing is not necessary.
2. This is a ratemaking proceeding.
3. Pursuant to § 817(c) and § 818, the Commission may authorize PG&E to issue long-term debt to finance the large and growing undercollection in its TRA.
4. PG&E's request for authority to issue $2 billion of additional long-term debt to finance its TRA undercollection is reasonable and should be granted. This authority should expire after the undercollection has been extinguished.
5. Except as specified in the following Conclusion of Law (COL), PG&E's request for authority to issue $2 billion of additional long-term debt for § 817 purposes should be denied for the following reasons: (i) PG&E currently needs $500 million or less for § 817 purposes; (ii) PG&E failed to show if or when it will need the entire $2 billion for § 817 purposes, (iii) PG&E has near-term access to other sources of capital for § 817 purposes; (iv) $2 billion of additional long-term debt would increase PG&E's debt-to-equity ratio and financial risk; and (v) $2 billion of additional long-term debt would increase the proportion of long-term debt in PG&E's capital structure beyond that authorized by D.00-06-040.
6. With one exception specified in the following COL, PG&E should be authorized to issue $370 million of additional long-term debt for any of the purposes listed in § 817. This authority should expire when the TRA undercollection has been extinguished.
7. PG&E should not use any part of the $370 million of additional long-term debt described in the previous COL to purchase PG&E stock.
8. Accrued interest derived from the issuance of long-term debt is part of the proceeds from the long-term debt, and thus subject to § 816 et seq.
9. Accrued interest derived from the issuance of long-term debt may only be used for the purposes listed in § 817. The listed purposes do not include "general corporate purposes."
10. Under § 818, accrued interest may be used for general corporate purposes (GCPs) only if (i) such use is authorized by § 817; (ii) the accrued interest is reasonably required for GCPs, and (iii) GCPs are not reasonably chargeable to operating expenses or income.
11. PG&E's request to use accrued interest for GCPs should be denied for the following reasons: (i) it is not authorized by § 817, (ii) PG&E did not show that it meets the requirements of § 818, and (iii) PG&E currently has a greater need to use accrued interest to finance its TRA undercollection than for GCPs.
12. PG&E should use any accrued interest derived from the issuance of long-term debt authorized by this decision to finance its TRA undercollection.
13. The following requests by PG&E are reasonable, consistent with Commission precedent, and should be granted:
i. PG&E's request to determine the carrying cost for that portion of its TRA undercollection that is financed with long-term debt based on the lower of (a) the 3-month commercial paper rate, or (b) the actual cost of long-term debt issued by PG&E to finance the TRA undercollection.
ii. PG&E's request to exclude from its authorized capital structure any long-term debt used to finance its TRA undercollection.
iii. PG&E's request to issue the types of long-term debt identified in the body of this decision.
iv. PG&E's request to (a) shield ratepayers from tax penalties or interest on penalties associated with DIS securities; and (ii) make ratepayers responsible for (a) back taxes on DIS securities to the extent they received tax benefits associated with the securities, and (b) interest on these back taxes based on the 3-month commercial paper rate.
v. PG&E's request for authority under § 701 to enter into interest-rate swaps, caps, and collars for long-term debt issued pursuant to this decision.
vi. PG&E's request to exclude interest-rate swaps from the determination of the amount of debt authorization used.
vii. PG&E's request to exempt interest-rate swaps used to finance its TRA undercollection from the restriction adopted in D.93-06-082 that limits interest-rate swaps to 20% of PG&E's outstanding long-term debt.
viii. PG&E's request for the exemptions from the Competitive Bidding Rules described in the body of this decision.
14. Section 701.5 prohibits a utility from issuing debt or pledging its credit for or on behalf of an affiliate. Section § 701.5(a) authorizes the Commission to grant exemptions from § 701.5 if (i) the affiliate's revenues and expenses are used by the Commission to set rates, and (ii) the Commission finds that the proposed financing will benefit the utility and its ratepayers.
15. PG&E's request for authority to guarantee DIS securities issued by affiliated SPVs for the purposes authorized by this decision is reasonable, consistent with Commission precedent, satisfies the requirements of § 701.5(a), and should be granted.
16. Any interest-rate swaps, caps, or collars used by PG&E pursuant to the authority granted by this decision should be used for ratemaking purposes only if the swap, cap, or collar provides demonstrable benefits to ratepayers.
17. PG&E should comply with the record keeping and reporting requirements pertaining to interest-rate swaps, caps, and collars that were adopted by the Commission in D.93-06-082.
18. PG&E's request to report to the Commission the information identified in the body of this decision regarding MTNs, interest-rate swaps, and letters of credit, in lieu of the information required by GO 24-B, should be denied.
19. PG&E should report to the Commission all the information required by GO 24-B for any debt issued by PG&E pursuant to this decision.
20. Except as specified in the following COL, PG&E should be authorized to report on a quarterly basis the information required by GO 24-B for MTNs, interest-rate swaps, and letters of credit.
21. Commission Staff should have authority to require PG&E to submit on a monthly basis the information required by GO 24-B.
22. This decision makes no findings regarding the reasonableness of the terms and conditions of any transaction that is directly or indirectly related to the authority granted to PG&E by this decision, including, but not limited to, transactions involving the issuance of debt, the purchase of wholesale power, or expenditures of money for the purposes listed in § 817.
23. PG&E is required by § 1904(b) to pay a fee of $1,006,000 for authority to issue an additional $2 billion in long-term debt.
24. The following order should be effective immediately so that its provisions may be implemented expeditiously.
IT IS ORDERED that:
1. Pursuant Pub. Util. Code § 816 et seq., Pacific Gas and Electric Company (PG&E) is authorized to issue $2 billion of additional long-term debt to finance the undercollection in its Transition Revenue Account (TRA).
2. With one exception, PG&E may use $370 million of the $2 billion of long-term debt authorized by Ordering Paragraph (OP) 1 for any purposes listed in § 817 ("§ 817 purposes"). The one exception is the purchase of PG&E stock.
3. PG&E may issue $370 million of additional long-term debt for § 817 purposes only to the extent the $370 million, or any portion thereof, is not needed to finance PG&E's TRA undercollection.
4. The authority granted to PG&E by OPs 1 and 2 shall expire six months after the undercollection in PG&E's TRA is extinguished.
5. Any debt issued by PG&E pursuant to OPs 1 and 2 must be retired no later than six months after the undercollection in PG&E's TRA is extinguished.
6. Pursuant to Pub. Util. Code § 816 et seq., PG&E is authorized to issue the types of long-term debt identified in the body of this decision for the purposes authorized by OPs 1 and 2.
7. Pursuant to Pub. Util. Code § 701.5(a), PG&E may guarantee or otherwise secure debt issued by an affiliate for the purposes authorized by OPs 1 and 2.
8. Except as authorized by OP 2, PG&E's request to issue $2 billion of additional long-term debt for § 817 purposes is denied without prejudice.
9. PG&E's request to use accrued interest received from the issuance of long-term debt authorized by this decision for general corporate purposes is denied. Any accrued interest received by PG&E from the issuance of debt authorized by this decision shall be used by PG&E to finance its TRA undercollection.
10. For regulatory purposes, the interest on that portion of PG&E's TRA undercollection that is financed with long-term debt shall be based on the lower of (i) the interest rate for prime three-month commercial paper published in Federal Reserve Statistical Release, G-13 ("3-month commercial paper rate"), or (ii) the actual cost of long-term debt used by PG&E to finance the TRA undercollection.
11. PG&E's request to exclude from its authorized capital structure any long-term debt used to finance its TRA undercollection is granted.
12. Ratepayers shall not be responsible for tax penalties or interest on penalties associated with deferrable interest securities (DIS securities).
13. Ratepayers shall be responsible for (i) back taxes on DIS securities to the extent that the benefits of reduced taxes from the DIS securities were previously flowed through to ratepayers, and (ii) interest on these back taxes based on the 3-month commercial paper rate.
14. Pursuant to Pub. Util. Code § 701, PG&E is authorized to enter into interest-rate swaps, caps, and collars for debt issued pursuant to this decision. PG&E shall comply with all record keeping and reporting requirements pertaining to these financial instruments that were adopted by the Commission in Decision (D.) 93-06-082. The interest-rate swaps authorized herein shall not be considered as additional debt for the purpose of determining the amount of long-term debt issued by PG&E. Any swaps associated with long-term debt issued by PG&E to finance its TRA undercollection shall be exempt from the restriction adopted by D.93-06-082 that limits interest-rate swaps to 20% of PG&E's total outstanding long-term debt.
15. The interest-rate swaps, caps, and collars used by PG&E to finance its TRA undercollection may be used for ratemaking purposes only if these financial instruments result in a carrying cost for the TRA undercollection that is less than the 3-month commercial paper rate. Similarly, the interest-rate swaps, caps, and collars associated with long-term debt issued by PG&E for § 817 purposes may be used for ratemaking purposes only if these financial instrument result in a lower cost of capital.
16. PG&E's request for the exemptions from the Commission's Competitive Bidding Rules described in the body of this decision is granted.
17. PG&E shall report to the Commission all of the information required by General Order (GO) 24-B for any debt issued by PG&E pursuant to this decision. PG&E may report this information on a quarterly basis, unless directed by Commission staff to submit some or all of the information required by GO 24-B on a monthly basis.
18. Application (A.) 00-10-029 is granted and denied to the extent set forth in the previous OPs.
19. Pursuant to Pub. Util. Code § 1904(b), PG&E shall pay a fee of $1,006,000 to the Commission's Fiscal Office no later than five business days after the effective date of this order. Failure by PG&E to remit the fee shall render void all authority granted herein.
20. A.00-10-029 is closed.
This order is effective today.
Dated , at San Francisco, California.
