UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of Report: November 28, 2006
(Date
of
earliest event reported)
PG&E
CORPORATION
(Exact
Name of Registrant as specified in Charter)
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California
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1-12609
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94-3234914
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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One
Market, Spear Tower, Suite 2400, San Francisco, California
94105
(Address
of principal executive offices, zip code)
415-267-7000
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former
Name or Former Address, if Changed Since Last Report)
PACIFIC
GAS AND ELECTRIC COMPANY
(Exact
Name of Registrant as specified in Charter)
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California
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1-2348
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94-0742640
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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77
Beale Street, P. O. Box 770000, San Francisco, California
94177
(Address
of principal executive offices, zip code)
(415)
973-7000
(Registrant’s
Telephone Number, Including Area Code)
N/A
(Former
Name or Former Address, if Changed Since Last Report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
Material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
8.01 - Other Events
Pacific
Gas and Electric Company (Utility) Acquires Contra Costa Unit 8
Assets
On
November 28, 2006, the Utility completed its acquisition of the 530-megawatt
(MW) Contra Costa Unit 8 electric generation facility from Mirant Corporation
and certain of its subsidiaries (Mirant). The partially constructed plant
will
be renamed the Gateway Generating Station (Gateway) and is located in Antioch,
California. As previously disclosed, in June 2006, the California Public
Utilities Commission (CPUC) approved the Utility’s application to acquire the
facility,
to complete construction at a cost of approximately $300 million, and to
operate
the facility. In order to reduce the environmental impact of the facility
and as
a result of changes to Gateway’s environmental permits, on November 8, 2006, the
Utility requested the CPUC to authorize recovery of approximately $75 million
of
additional expenditures that are necessary to convert the plant from fresh
water
cooling to dry cooling. The Utility anticipates that the CPUC will issue
its
decision on this request in the first quarter of 2007. The Utility also plans
to
file a request with the California Energy Commission (CEC) (the
state
agency that is responsible for licensing of all thermal power plants over
50 MW
in California)
to amend
the facility’s current permit to remove Mirant from being a responsible party
under the permit, and to authorize the conversion to dry cooling. The Utility
expects
that the
CEC will issue a decision in the second quarter of 2007. Subject to obtaining
these permit amendments from the CEC
and
the completion of final development activities, the
Utility estimates that it will
complete
construction of the facility and commence operations in 2009.
CPUC
Approves New Long-Term Generation Resource Commitments
On
November 30, 2006,
the CPUC
approved
seven
agreements that the Utility submitted to the CPUC and that would provide
2,250
MW of new long-term electricity generation resources in northern California
in
accordance with
the
Utility’s
2004 long-term electricity procurement plan. The CPUC also authorized the
Utility to recover certain costs associated with these long-term generation
resource commitments as described below. None of the agreements approved
by the
CPUC will become enforceable and binding agreements until after the CPUC
decision becomes final and non-appealable. The decision will become final
and
non-appealable on December 30, 2006, unless a petition for rehearing is filed
at
the CPUC before such date.
Utility-Owned
Projects. Two
of
the
approved agreements provide for
third
parties to construct generation facilities to be owned and operated by the
Utility. One
of
these two contracts calls for the construction of a 657-MW power plant to
be
located in Colusa County, California. The other contract calls for the
construction of a 163-MW power plant at the Utility’s Humboldt Bay facility to
re-power the existing power plant at Humboldt Bay, which is at the end of
its
useful life.
As
to the
Colusa project, the CPUC adopted an initial capital cost equal to the sum
of the
fixed contract costs plus the Utility’s estimated owner’s costs and a
contingency amount
to
account for the risk and uncertainty in the estimation of owner’s costs.
(Owner’s costs include the Utility’s expenses for legal, engineering, and
consulting services as well as the costs for internal personnel and overhead
related to the project.) As
to the
Humboldt Bay project, the CPUC adopted an initial capital cost equal to the
sum
of the fixed contract costs plus the Utility’s estimated owner’s costs, but
limited the contingency amount for owner’s costs to 5 percent of the fixed
contract cost and estimated owner’s costs. The CPUC also authorized the Utility
to adjust the initial capital cost for each project to reflect any actual
incentive payments made to, or liquidated damages received from, the contractors
through notification to the CPUC but without a reasonableness review.
The
CPUC
directed the Utility to true up the projects’ forecasted initial capital costs
to reflect actual initial capital costs in the Utility’s next General
Rate Case (GRC) proceeding following
the commencement of operation of the projects. (It is anticipated that the
Humboldt
Bay and Colusa projects will commence operations in May 2009 and May 2010,
respectively, and, assuming the proposed settlement of the Utility’s 2007 GRC is
approved by the CPUC, that the next GRC will occur in 2011.) For the Colusa
project, the true-up will adjust the amount of initial capital costs recoverable
in rates to reflect
50 percent of any actual cost savings. For the Humboldt Bay project,
the
true-up will adjust the amount of initial capital costs recoverable in rates
to
reflect any
actual cost savings.
The
Utility is authorized to seek recovery of additional capital costs incurred
in
connection with either project that are attributable to operational
enhancements, but the request will be subject to the CPUC’s review.
The CPUC decision states that the Utility may not seek to recover any other
additional capital costs incurred in connection with the Colusa project.
The
Utility is permitted to seek recovery of additional capital costs incurred
in
connection with the Humboldt Bay project, but such requests will be subject
to a
reasonableness review.
The
CPUC
also authorized the Utility to collect a non-bypassable charge from departing
customers for 10 years to recover the above-market costs of the Colusa and
Humboldt Bay projects. The Utility had originally proposed a 30-year recovery
period. At the end of this 10-year period, the Utility will still be able
to
collect any above-market costs from its current full-service customers (known
as
“bundled” customers), but will no longer be able to charge departing customers
for these costs.
The
CPUC
also adopted the Utility’s estimates of non-fuel operations and maintenance
costs for the purpose of establishing an initial revenue requirement for
the
Colusa and Humboldt Bay projects. The CPUC authorized the Utility to recover
additional expenses it may incur as a result of (1) increased staffing levels
due to permitting requirements, or (2) a change in the commercial operation
date.
The
CPUC
noted that the revenue requirement to recover the initial capital costs for
the
Colusa project will begin to accrue in the Utility Generation Balancing Account
(UGBA) as of the date the completed plant is transferred to the Utility,
and
would be included in rates on January 1 of the following year. The initial
revenue requirement for the Humboldt Bay project would begin to accrue in
the
UGBA as of its commercial operation date, and would be included in rates
on
January 1 of the following year.
Finally,
the CPUC noted that any environmental review of the Colusa and Humboldt Bay
projects required by the California Environmental Quality Act (CEQA) would
be
conducted by the CEC.
Applications
for permits to construct the two projects have been filed with the CEC. As
part
of the CEC’s permitting process, the CEC will conduct a CEQA review of each
project.
Power
Purchase Agreements. The
CPUC
also approved five power purchase agreements. The Utility has executed four
of
these agreements that would provide approximately 800 MW of capacity with
terms
ranging from 15 to 20 years. The
new
generation facilities
contemplated by these four power purchase agreements are anticipated to begin
delivering power to the grid in 2009.
The
Utility also has entered into a letter of intent with an affiliate of Calpine
Corporation in which the parties agreed to execute the fifth power purchase
agreement to provide 601 MW of capacity over a 10-year term beginning in
2010.
The parties are targeting to execute this fifth power purchase agreement
by the
end of the year.
The
CPUC
decision
authorizes the Utility to recover the fixed and variable costs of the power
purchase agreements, along with fuel costs, through the Energy Resource Recovery
Account, a balancing account designed
to track and allow recovery of the difference between the authorized revenue
requirement and actual costs incurred under the Utility's authorized procurement
plans, for the terms of the agreements. Although a
July
2006
CPUC decision requires utilities to elect one of two cost allocation methods
to
recover any “net capacity costs” incurred under the power purchase agreements
(i.e.,
contract
price less energy revenues)
at the
time they request approval of a power purchase agreement, the CPUC noted
that
the Utility had submitted its application in April 2006 before the decision
was
issued. In its November 30, 2006 decision, the CPUC permitted the Utility
to
defer its election of a cost allocation method for these agreements until
after
the CPUC takes further action or provides further direction with respect
to the
cost allocation method that calls for an “energy rights auction” (as described
in PG&E Corporation’s and the Utility’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2006).
The
completion and the commencement of commercial operations of the generation
facilities supporting the Utility’s long-term generation resources, including
the Colusa and Humboldt Bay projects, are subject to construction and
development risks, including those risks related to obtaining required permits
and meeting construction schedules and operational performance requirements.
In
addition, the Utility may incur costs at the Humboldt Bay and Colusa projects
that are not recoverable from customers.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrants
have
duly caused this report to be signed on their behalf by the undersigned hereunto
duly authorized.
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PG&E
CORPORATION
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Dated:
December 4, 2006
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By:
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G.
ROBERT POWELL
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G.
ROBERT POWELL
Vice
President and Controller
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PACIFIC
GAS AND ELECTRIC COMPANY
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Dated:
December 4, 2006
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By:
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G.
ROBERT POWELL
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G.
ROBERT POWELL
Vice
President and Controller
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