[Federal Register Volume 67, Number 204 (Tuesday, October 22, 2002)]
[Notices]
[Pages 64933-64936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-26825]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27578]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

October 16, 2002.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by November 12, 2002, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After November 12, 2002, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

PG&E Corporation, et al. (70-10047)

    PG&E Corporation (``PG&E Corp.''), a holding company claiming 
exemption from registration under section 3(a)(1) of the Act by rule 2, 
One Market, Spear

[[Page 64934]]

Tower, Suite 400, San Francisco, California 94105, Pacific Gas and 
Electric Company (``PG&E''), a direct public-utility company subsidiary 
of PG&E Corp., Newco Energy Corporation (``Newco''), a direct 
nonutility subsidiary of PG&E, Electric Generation LLC (``Gen''), a 
direct nonutility subsidiary of Newco, all at 77 Beale Street, San 
Francisco, California 94177, have filed an application with the 
Commission under sections 9(a)(2) and 10 of the Act.
    On April 6, 2001, PG&E filed a petition under chapter 11 of the 
U.S. Bankruptcy Code. On September 20, 2001, PG&E Corp. and PG&E 
(collectively, ``Proponents'') jointly submitted to the United States 
Bankruptcy Court for the Northern District of California (``Bankruptcy 
Court'') a plan of reorganization for PG&E. The Proponents subsequently 
amended that plan (as amended, ``Plan''). PG&E is a debtor-in-
possession, and continues to provide all of the electric generation, 
electric transmission, gas transmission, and gas and electric local 
distribution services that it did before, except that it is not able to 
purchase power to supply its net open position and is only able to make 
infrastructure investments. PG&E Corp., Newco, and Gen (collectively, 
``Applicants'') request authority to effect certain transactions, 
described below, as set forth in the Plan.\1\
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    \1\ To date, the Bankruptcy Court has not approved the Plan or 
any other proposed plan to reorganize PG&E, including the plan 
submitted by the California Public Utilities Commission (``CPUC'').
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I. Description of the Applicants

    PG&E Corp., a California corporation, became the holding company of 
PG&E on January 1, 1997. Through other subsidiaries, PG&E Corp. is 
engaged in a number of nonutility businesses.\2\ PG&E Corp.'s common 
stock and related preferred stock purchase rights are publicly traded 
on the New York Stock Exchange.
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    \2\ These nonutility subsidiaries are organized under its wholly 
owned direct subsidiary, PG&E National Energy Group LLC (``PG&E 
NEG'').
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    Newco was incorporated under the laws of the State of California on 
October 19, 2001. It is a wholly owned, direct subsidiary of PG&E. 
Newco is the sole member of three limited liability companies: ETrans 
LLC (``ETrans''); Gen; and GTrans LLC (``GTrans''). Currently, Gen is 
an inactive nonutility subsidiary that owns all of the outstanding 
ownership interests of twenty-seven limited liability companies 
(collectively, ``GenSub LLCs'').\3\ The GenSub LLCs are California 
limited liability companies formed on October 30, 2001.
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    \3\ The GenSub LLCs are: Diablo Canyon LLC; Mokelumne River 
Project LLC; Rock Creek-Cresta Project LLC; Haas-Kings River Project 
LLC; Crane Valley Project LLC; Pit 1 Project LLC; Hat Creek 1 and 2 
Project LLC; Poe Project LLC; Pit 3, 4 and 5 Project LLC; Upper NF 
Feather River Project LLC; Spring Gap-Stanislaus Project LLC; Kern 
Canyon Project LLC; Kilarc-Cow Creek Project LLC; Chili Bar Project 
LLC; Desabla-Centerville Project LLC; McCloud-Pit Project LLC; Drum-
Spaulding Project LLC; Merced Falls Project LLC; Bucks Creek Project 
LLC; Potter Valley Project LLC; Phoenix Project LLC; Kerckhoff 1 and 
2 Project LLC; Narrows Project LLC; Balch 1 and 2 Project LLC; Helms 
Project LLC; Battle Creek Project LLC; and Tule River Project LLC.
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    PG&E, a California corporation, is a public-utility company engaged 
principally in the business of providing regulated electricity and 
natural gas distribution and transmission services throughout most of 
northern and central California. Currently, all of the outstanding 
shares of common stock of PG&E are held directly or indirectly by PG&E 
Corp.\4\ In addition, PG&E has a number of series of publicly held 
preferred stock outstanding. The company's service territory covers 
approximately 70,000 square miles, and includes all or a portion of 
forty-eight of California's fifty-eight counties. As of December 31, 
2001, PG&E employed approximately 19,000 people. PG&E's generation 
facilities consist primarily of hydroelectric and nuclear generating 
plants, and have an aggregate net operating capacity of approximately 
6,649 megawatts (``MW''). As of December 31, 2000, PG&E owned 
approximately 18,648 miles of interconnected transmission lines of 60 
kilovolts (``kV'') to 500 kV and transmission substations having a 
capacity of approximately 7,091 megavolt-amperes (``MVa''). PG&E 
distributes electricity to its customers through approximately 116,460 
circuit miles of distribution system and distribution substations 
having a capacity of approximately 24,894 MVa. PG&E relinquished 
operational control, but not ownership, of its electric transmission 
facilities to the California Independent System Operator (``Cal-
ISO'').\5\ PG&E also owns and operates a gas transmission, storage and 
distribution system in California. As of December 31, 2001, PG&E's gas 
system consisted of approximately 6,254 miles of transmission 
pipelines, three gas storage facilities, and 38,410 miles of gas 
distribution lines. PG&E's peak send-out of gas on its integrated 
system in California during the year ended December 31, 2001, was 3,793 
million cubic feet (``MMcf''). The total volume of gas throughput 
during 2001 was approximately 916,635 MMcf of which 270,556 MMcf was 
sold to direct end-use or resale customers and 646,079 MMcf was 
transported as customer-owned gas. As of December 31, 2001, PG&E served 
approximately 3.9 million gas customers.
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    \4\ PG&E Corp. holds approximately ninety-four percent of PG&E's 
common stock directly and approximately six percent indirectly 
through PG&E Holdings LLC (``PG&E Holdings''), a wholly-owned 
subsidiary of PG&E.
    \5\ The Cal-ISO controls the operation of the California 
transmission system, is responsible for assuring the reliability of 
the electric system, provides open access transmission service on a 
nondiscriminatory basis, has responsibility for meeting applicable 
reliability criteria, planning transmission additions and assuring 
the maintenance of adequate reserves, and is subject to tariffs 
filed with the FERC.
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    Currently, the Federal Energy Regulatory Commission (``FERC'') 
regulates PG&E's electric transmission rates and access, 
interconnections, operation of the Cal-ISO, and terms and rates of 
wholesale electric power sales. In addition, most of PG&E's 
hydroelectric facilities operate in accordance with licenses issued by 
FERC. The Nuclear Regulatory Commission (``NRC'') oversees the 
licensing, construction, operation and decommissioning of nuclear 
facilities, including PG&E's Diablo Canyon Power Plant (``DCPP'') and 
the retired Humboldt Bay Power Plant Unit 3. The CPUC has jurisdiction 
to set retail rates and conditions of service for PG&E's electric 
distribution, gas distribution and gas transmission services in 
California. The CPUC also has jurisdiction over PG&E's sales of 
securities, dispositions of utility property, energy procurement on 
behalf of its electric and gas retail customers, and certain aspects of 
PG&E's siting and operation of its electric and gas transmission and 
distribution systems. In addition, the California Energy Commission has 
jurisdiction over the siting and construction of new thermal electric 
generating facilities fifty MW and greater in size.

II. The Plan

    As of November 30, 2001, the total allowed claims against PG&E was 
$13.135 billion. The Plan provides that PG&E pay its creditors $3.92 
billion in cash that it currently has on hand and, as discussed below, 
finance the remaining $9.215 billion through asset sales, issuances of 
new securities and replacement mortgage bonds, and continuations of 
existing debt.

A. Asset Sales

    Under the Plan, PG&E's four distinct lines of business--electric 
transmission; electric generation; gas transmission;

[[Page 64935]]

and gas and electric distribution--would be structurally separated by 
dividing PG&E's assets and liabilities. PG&E would transfer, among 
other things, its electric transmission assets to ETrans in exchange 
for approximately $400 million in cash \6\ and approximately $650 
million in long-term notes issued to PG&E for transfer to its 
creditors.\7\
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    \6\ Applicants state that ETrans would raise this cash by 
selling long-term notes to the public or to third parties in private 
offerings.
    \7\ Applicants state that the allocation between cash and notes 
may change based on market conditions and other factors.
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    In exchange for approximately $850 million in cash \8\ and 
approximately $1,550 million in long-term notes issued to PG&E for 
transfer to its creditors,\9\ PG&E would transfer, among other things, 
most of its electric generation assets to the GenSub LLCs.
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    \8\ Applicants state that Gen, the parent of the GenSub LLCs, 
would raise this cash by selling long-term notes to the public or to 
third parties in private offerings.
    \9\ See above, at n. 7.
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    PG&E would transfer, among other things, certain gas transmission 
assets, to GTrans in exchange for $400 million in cash \10\ and $500 
million in long-term notes issued to PG&E for transfer to its 
creditors.\11\
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    \10\ Applicants state that GTrans would raise this cash by 
selling long-term notes to the public or to third parties in private 
offerings.
    \11\ See above, at n. 7.
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B. Other Financing

    1. Under the Plan, PG&E would issue approximately $3,706 million in 
new long-term notes to the public or to third parties in private 
offerings. PG&E would also issue new mortgage bonds to replace existing 
mortgage bonds. In addition, certain existing debts of PG&E would 
remain in place, for which PG&E would be responsible.

C. Asset and Debt Allocation

    The Plan provides that: ETrans acquire 8.9% of PG&E's assets and 
assume 11.4% of its debt; Gen acquire 29.7% of PG&E's assets and assume 
twenty-six percent of its debt; and GTrans acquire 7.8% of PG&E's 
assets and assume 9.8% of its debt. Correspondingly, PG&E would retain 
53.5% of its assets and be responsible for 52.8% of its debt.

III. The Reorganization

    After its electric generation, electric transmission, and gas 
transmission assets are transferred, PG&E would dividend to PG&E Corp. 
all of its stock in Newco, and PG&E Corp. would dividend to its 
shareholders all of the common stock of PG&E (collectively, 
``Reorganization'').\12\ After the Reorganization, PG&E (``Reorganized 
PG&E'') would no longer be an associate company with respect to ETrans, 
Gen, or GTrans. Applicants project, on a pro forma basis, that the 
common equity of PG&E Corp., as a percentage of its total 
capitalization, would be 21.1% as of December 31, 2002.
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    \12\ PG&E Holdings LLC would retain its ownership of 
approximately six percent of PG&E's outstanding common shares.
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    In accordance with lease agreements between the GenSub LLCs and 
their parent company, Gen would operate its subsidiaries' 
facilities.\13\ Consequently, upon receipt by the GenSub LLCs of PG&E's 
utility assets, Gen would be a public-utility company within the 
meaning of the Act by virtue of its operation of those assets. Under 
the Plan, Gen and PG&E would enter into a Master Power Purchase and 
Sales Agreement (``PSA''). The PSA provides that, for twelve years, Gen 
sell and Reorganized PG&E purchase the capacity, energy and other 
electrical products from Gen's facilities and procured by Gen under its 
certain contracts. Applicants state that they are seeking approval from 
the FERC for the proposed market-based rates provided for by the PSA. 
Under the PSA, Reorganized PG&E would have the right to dispatch (i.e., 
direct the timing and level of operation) the facilities within legal 
and contractual constraints so that the output is delivered primarily 
when Reorganized PG&E needs it to serve its customers. The GenSub LLCs 
may also be public-utility companies by virtue of their direct 
ownership of generating facilities,\14\ in which case Gen would also be 
a ``holding company'' as a result of its ownership of all the 
outstanding ownership interests in the GenSub LLCs.\15\ Applicants also 
state that Gen would claim exemption by rule 2 from registration under 
section 3(a)(1) of the Act. Applicants state that, after the 
Reorganization, the FERC would have license and operating jurisdiction 
over most of the hydroelectric facilities and rate jurisdiction over 
the sale of the output of Gen and its subsidiaries, and the NRC would 
continue its jurisdiction over the operations of the Diablo Canyon 
Power Plant. Applicants project, on a pro forma basis, that the common 
equity of Gen, as a percentage of its total capitalization, would be -
97.2% as of December 31, 2002.
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    \13\ The term of each lease is for as long as each GenSub LLC 
holds a license issued by the FERC to operate (or by the NRC to 
possess, use or operate) its facility.
    \14\ Applicants argue that the GenSub LLCs would not be 
``public-utility companies'' within the meaning of the Act but, 
alternatively, request authority for Gen to acquire them directly 
and Newco and PG&E Corp. to acquire them indirectly.
    \15\ See supra, at n. 8.
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    ETrans would be a public-utility company as a result of its 
ownership and operation of transmission assets. Applicants state that 
the FERC would continue to have jurisdiction over the rates, terms and 
conditions for all transmission and transmission-related services 
provided by ETrans. They also state that the FERC would have 
jurisdiction over ETrans' participation in the Cal-ISO or any future 
FERC-approved Western regional transmission organizations that would 
have operating control over ETrans' transmission assets under FERC 
tariffs. Applicants project, on a pro forma basis, that the common 
equity of ETrans, as a percentage of its total capitalization, would be 
33.8% as of December 31, 2002.
    PG&E Corp. and Newco would also be ``holding companies,'' within 
the meaning of the Act, as a result of holding ownership interests in 
ETrans, Gen, the GenSub LLCs and, in the case of PG&E Corp., Newco. 
Applicants state that PG&E Corp. would continue to claim exemption,\16\ 
and Newco would claim exemption, from registration by rule 2 under 
section 3(a)(1) of the Act. Applicants state that, with the exception 
of GTrans,\17\ PG&E Corp. would continue to own its existing nonutility 
businesses through PG&E NEG.
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    \16\ On July 5, 2001, the California Attorney General filed a 
petition requesting that the Commission terminate PG&E Corp.'s 
claimed exemption and require that PG&E Corp. register under section 
5 of the Act or modify the company's exemption to ensure compliance 
with California law.
    \17\ GTrans would not be a public-utility company within the 
meaning of the Act because, according to Applicants, it would 
provide only gas transmission services.
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    Reorganized PG&E would continue to provide gas and electric 
distribution services using assets that it currently owns. PG&E's 
preferred stock would remain in place as the preferred stock of 
Reorganized PG&E. Applicants state that the CPUC would continue to have 
jurisdiction over Reorganized PG&E's retail electric and gas 
distribution assets, rates, and services. Applicants project, on a pro 
forma basis, that the common equity of Reorganized PG&E, as a 
percentage of its total capitalization, would be 44.4% as of December 
31, 2002.

IV. Summary of Proposed Transactions

    Applicants request authority for: (1) Gen to acquire directly the 
GenSub LLCs; (2) Newco to acquire directly Gen and ETrans, and to 
acquire indirectly the GenSub LLCs; and (3) PG&E Corp. to acquire 
directly Newco, and acquire indirectly Gen, and the GenSub LLCs

[[Page 64936]]

indirectly.\18\ If necessary, Applicants also request authority for 
PG&E to acquire ETrans and Gen on an interim basis, between the time 
that utility assets are transferred to ETrans and Gen and the 
Reorganization is completed.\19\
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    \18\ See supra, at n.8.
    \19\ Applicants also state that, if necessary, PG&E will claim 
exemption from registration by rule 2 under the Act for the interim 
period during which it will hold all of the ownership interests in 
Newco.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-26825 Filed 10-21-02; 8:45 am]
BILLING CODE 8010-01-P