PCG

PG&E Corp and Pacific Gas and Electric Company: 8-K Summary

Business Context and Reporting Period

This Form 8-K, dated April 27, 2004, discloses unaudited pro forma condensed consolidated financial information for PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (the Utility). The filing supports a proposed exchange offer and reflects the financial position as of December 31, 2003, and operations for the year ended December 31, 2003, assuming the Utility's exit from Chapter 11 bankruptcy and related transactions occurred on January 1, 2003. Key events include the implementation of a rate design settlement approved by the California Public Utilities Commission (CPUC) on February 26, 2004.

Key Financial Metrics (Pro Forma)

The following metrics represent the pro forma adjusted results for the year ended December 31, 2003, incorporating the effects of the reorganization plan and rate reductions.

Note: Total Liabilities calculated as Total Assets minus Shareholders' Equity based on pro forma adjusted columns.

Material Changes and Adjustments

The pro forma adjustments significantly alter the reported financials to reflect the post-bankruptcy capital structure and regulatory environment:

• Debt Restructuring: The Utility issued $6.7 billion in new first mortgage bonds. Proceeds, along with cash on hand and borrowings from credit facilities, were used to repay approximately $9.9 billion (PG&E Corp) to $10.1 billion (Utility) in claims, including financing debt subject to compromise and trade creditor debt.
• Interest Expense Reduction: Pro forma interest expense decreased by approximately $420 million due to the reduction in outstanding debt and a lower weighted average interest rate (approx. 4% pro forma vs. 8% as reported).
• Revenue Reduction: Operating revenues were reduced by approximately $799 million to reflect the CPUC-approved rate design settlement, which eliminated frozen rates and surcharges effective January 1, 2004 (modeled as Jan 1, 2003).
• Regulatory Assets: A one-time increase in accumulated earnings of approximately $2.9 billion resulted from the recognition of regulatory assets (approx. $3.7 billion pre-tax) created by the settlement agreement.
• Expense Elimination: Reorganization professional fees and expenses of $160 million were eliminated, as they would not have been incurred had the reorganization occurred on January 1, 2003.

Outlook, Risks, and Contingencies

Management states that the pro forma information is for illustrative purposes only and is not indicative of future operating results. Key contingencies and risks include:

• Disputed Claims: Approximately $3.1 billion of trade creditor debt subject to compromise was not repaid on the effective date. Of this, $1.8 billion was deposited into escrow for disputed claims pending resolution by the bankruptcy court.
• Regulatory Asset Adjustments: The recognized $2.21 billion after-tax regulatory asset must be reduced for any generator refunds, claim offsets, or other credits actually received by the Utility.
• Environmental Commitments: The Utility committed to environmental enhancement measures resulting in a $110 million liability accrual, with $28 million expensed in Q1 2004.
• Rate Reductions: Future revenues are constrained by the rate reduction settlement approved by the CPUC.

Investor Verification Checklist

• Verify the status of the $1.8 billion in escrowed funds for disputed trade creditor claims.
• Confirm the final amount of the regulatory asset after accounting for any generator refunds or claim offsets received post-filing.
• Review the specific terms of the $6.7 billion first mortgage bond issuance and the associated interest rate environment.
• Monitor the resolution of the $3.1 billion in trade creditor debt not yet satisfied as of the effective date.
• Assess the impact of the $799 million annual revenue reduction on future cash flow projections.