This excerpt taken from the PCG 8-K filed Oct 28, 2005.
As a result of the California energy crisis, the Utility filed a voluntary petition for relief under the provisions of Chapter 11 on April 6, 2001. The Utility retained control of its assets and was authorized to operate its business as a debtor-in-possession during its Chapter 11 proceeding. PG&E Corporation and the subsidiaries of the Utility, including PG&E Funding LLC, (which issued rate reduction bonds) and PG&E Holdings LLC (which holds stock of the Utility), were not included in the Utilitys Chapter 11 proceeding.
On April 12, 2004, the Utility emerged from Chapter 11 when its plan of reorganization became effective, or the Effective Date. The plan of reorganization incorporated the terms of the Settlement Agreement approved by the CPUC on December 18, 2003, and entered into among the CPUC, the Utility and PG&E Corporation on December 19, 2003, to resolve the Utilitys Chapter 11 proceeding. Although the Utilitys operations are no longer subject to the oversight of the bankruptcy court, the bankruptcy court retains jurisdiction to hear and determine disputes arising in connection with the interpretation, implementation or enforcement of (1) the Settlement Agreement, (2) the plan of reorganization, and (3) the bankruptcy courts December 22, 2003 order confirming the plan of reorganization. In addition, the bankruptcy court retains jurisdiction to resolve remaining disputed claims.
In light of the satisfaction of various conditions to the implementation of the plan of reorganization, the accounting probability standard required to be met under SFAS No. 71, in order for the Utility to recognize the regulatory assets provided under the Settlement Agreement was met as of March 31, 2004. Therefore, the Utility recorded the $2.2 billion, after-tax ($3.7 billion, pre-tax) Settlement Regulatory Asset, and $0.7 billion, after-tax ($1.2 billion, pre-tax), for the Utility retained generation regulatory assets. Refer to the 2004 Annual Report for further discussion of the Settlement Agreement. On February 10, 2005, the Utility refinanced the remaining unamortized after-tax portion of the Settlement Regulatory Asset as discussed in Note 4.
As of March 31, 2005, the Utility had accrued approximately $1.6 billion for remaining net disputed claims, consisting of approximately $2.1 billion of accounts payable-disputed claims primarily payable to the California Independent System Operator, or ISO, and the Power Exchange, or the PX, offset by an accounts receivable amount from the ISO and the PX of approximately $0.5 billion. The Utility held $1.6 billion in escrow for the payment of the remaining disputed claims as of March 31, 2005. Upon resolution of these claims and under the terms of the Settlement Agreement, any refunds, claims offsets or other credits that the Utility receives from energy suppliers will be returned to customers. With the approval of the bankruptcy court, the Utility has withdrawn certain amounts from the escrow in connection with settlements with certain ISO and PX sellers.
Petitions for review of the CPUCs order approving the Settlement Agreement and order denying rehearing of its approval order that had been filed by the City and County of San Francisco, or CCSF, and Aglet Consumer Alliance, or Aglet, are still pending at the California Court of Appeal. CCSF and Aglet allege that the Settlement Agreement violates California law, among other claims. CCSF requests that the appellate court hear and review the CPUCs decisions, approving the Settlement Agreement and Aglet requests that the CPUCs decisions be overturned. Three California state senators have filed a brief in support of the CCSF and Aglet petitions. The California Court of Appeal has not yet acted on the petitions.
In addition, two former CPUC commissioners who did not vote to approve the Settlement Agreement filed an appeal of the bankruptcy courts confirmation order with the U.S. District Court for the Northern District of California, or the District Court. On July 15, 2004, the District Court dismissed their appeal. The former commissioners have appealed the District Courts order with the U.S. Court of Appeals for the Ninth Circuit, or Ninth Circuit. After briefing is complete, the Ninth Circuit will consider arguments by the Utility and the CPUC to dismiss the appeal. On April 12, 2005, the District Court entered an order dismissing a second appeal of the confirmation order that had been filed by the City of Palo Alto, but which the City of Palo Alto subsequently had agreed to dismiss voluntarily.
PG&E Corporation and the Utility believe the petitions for review of the CPUC orders and the appeal of the confirmation order are without merit and will be rejected. If the bankruptcy courts confirmation order or the Settlement Agreement is overturned or modified on appeal, PG&E Corporations and the Utilitys financial condition and results of operations, and the Utilitys ability to pay dividends or otherwise make distributions to PG&E Corporation, could be materially adversely affected.