Message-ID: <21486056.1075860391536.JavaMail.evans@thyme> Date: Wed, 7 Mar 2001 13:31:00 -0800 (PST) From: mary.hain@enron.com To: james.steffes@enron.com, richard.sanders@enron.com Subject: PG&E Corp. Receives $1 Billion To Partially Pay Off Debts Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Mary Hain X-To: James D Steffes, Richard Sanders X-cc: X-bcc: X-Folder: \Mary_Hain_Aug2000_Jul2001\Notes Folders\Discussion threads X-Origin: Hain-M X-FileName: mary-hain.nsf In case you haven't seen this. ---------------------- Forwarded by Mary Hain/HOU/ECT on 03/07/2001 09:38 PM --------------------------- Enron Capital & Trade Resources Corp. From: "SCIENTECH IssueAlert" 03/05/2001 05:01 AM To: cc: Subject: PG&E Corp. Receives $1 Billion To Partially Pay Off Debts Today's IssueAlert Sponsors: [IMAGE] The CIS Conferencec provides utility management personnel unequaled insight and current information on Customer Relationship Management (CRM), E-Commerce, Technologies and Marketing. Fifty-four sessions conducted by utility industry representatives will focus on issues facing the industry. Over 100 companies will exhibit the latest technologies and services. Former President George Bush is our Honored Keynote Speaker www.cisconference.org Identify and discuss current issues confronting the energy and telecommunications industries at the Center for Public Utilities' annual spring conference. How should these problems be resolved? What tradeoffs are made with each solution? Join panel discussions led by utility executives and PUC commissioners in Santa Fe, NM, March 25-28th, at "Current Issues Challenging the Utility Industry." To register, or for more information, contact Jeanette Walter, Associate Director, at 505-646-3242. The Center for Public Utilities is part of New Mexico State University, presenting programs sanctioned by the National Association of Regulatory Commissioners (NARUC). Miss last week? Catch up on the latest developments in the energy industry with SCIENTECH's IssuesWatch For advertising information, email Nancy Spring, or call (505)244-7613. [IMAGE] IssueAlert for March 5, 2001 PGOCorp. Receives $1 Billion To Partially Pay Off Debts by Will McNamara Director, Electric Industry Analysis PGOCorp., parent of nearly bankrupt utility PGOCo., announced that it has closed a $1 billion loan agreement that will allow it to pay various debts including its defaulted fourth quarter dividend to shareholders. The loans, provided by GE Capital Structured Finance Group and Lehman Brothers, will be secured by the company's equity interest in PGONational Energy Group LLC. Analysis: Although this may seem like a positive step for the troubled utility, PGOCo.'s partial payment pales in comparison to its outstanding debt. Making matters even worse for the company is a new wave of lawsuits seeking restitution in the amount of $3 billion. The loans, which PGOCorp. was able to secure due to the strong performance of its National Energy Group subsidiary, have enabled the corporation to "pay its outstanding debt obligations on which it has defaulted or would default in the near future." The obligations that have been paid include: $501 million in payments to commercial paper holders, $434 million in borrowings under a revolving credit agreement, and $116 million owned to PGOCorporation common shareholders for the defaulted 4Q 2000 dividend. The loan, which has a term of two years, includes an option that, "depending on certain factors," would give the lenders between 2 and 3 percent of the shares in National Energy Group. In addition, the loan agreement prohibits PGOfrom declaring or paying future common stock dividends until the loans are repaid. In an effort to conserve cash and stave off bankruptcy, on Jan. 10 PGOCorp. halted payment of its fourth quarter dividend, which had been declared on Oct. 18, 2000, and was due to be payable on Jan. 15. Soon after that, the company announced that it would not be able to make certain payments on commercial paper obligations. Citing that the risk of bankruptcy played a factor in assuming the loan, PGOCorp. CEO and President Robert Glynn said that the financing would be repaid with PGOCorp. shareholder dollars only. In other words, Glynn reassured customers of the utility that rates would not be increased as a mechanism to repay this loan. However, PGOcontinues its negotiations with Calif. Gov. Gray Davis to increase rates for at least a substantial part of losses already accrued due to skyrocketing prices in the wholesale market. Reportedly, as of Dec. 31, PGOhad racked up more than $6 billion in undercollected costs. In its 8K filing with the Securities and Exchange Commission, PGOCorp. acknowledged that it would be damaged further if the California Public Utilities Commission adopts current power payment proposals without an electric rate increase. Meanwhile, a pending deal between PGOand Gov. Davis is expected to include the sale of the utility's transmission assets to the state of California, much like PG&E's counterpart Southern California Edison (SCE) has already done. The bottom line of the loans is that PGOis "removed from being in default on its credit agreements," according to Greg Pruett, vice president of corporate communications in an interview with CBS.MarketWatch.com. Pruett also said that the loans amounted to "one less item of significance" that the holding company has to attend to ensure it doesn't find itself "in a situation where it could have creditors seeking to force it into bankruptcy." However, as noted, just as PGOCorp. received this loan, the parent company and the utility announced that they have been hit with two lawsuits seeking a total of nearly $3 billion in restitution. PGOCorp. and PGOCo., on the basis of the newly secured loan, say that they can only make partial payments of $1 billion. Both lawsuits were filed with the Securities Exchange Commission on Feb. 13. According to CBSMarketWatch.com, one lawsuit alleges that PGOCorp. violated its fiduciary duties by repurchasing common share of its PGOCo. unit at a price of $2.3 billion. The second lawsuit claims that PGOCorp. collected nearly $2.96 billion from PGOCo. under a tax-sharing arrangement, but paid only $2.29 billion to all governments under the arrangement. The plaintiff in both suits is identified only as Richard D. Wilson, who seeks to enjoin any more such buybacks unless "good cause" is shown, and also seeks restitution of $2.3 billion, with interest, from PGOCorp. The parent company and utility have discounted the validity of the lawsuits, although they said they were unable to predict any outcome or how it might their financial conditions. In its most recent filing with the SEC, PGOalso disclosed that the utility unit owes $1.1 billion to the California Independent System Operator for December energy purchases, and another $331 million to a group of unidentified power generators for January deliveries. At that time, which was only a few days before PGOCorp. secured the loans, the company said it could only make partial payments of these debts on a pro rata basis. As a result, PGOCorp said it could only pay the California ISO about $177 million, and make payments of $51 million to the power suppliers. It appears that PGOCorp. has not used any of the funds secured in its loans to make additional payments to the California ISO or power suppliers. As noted, PG&E's subsidiary National Energy Group played a prominent role in its parent's loans. The loans will be secured by the company's equity interest in National Energy Group, and the lenders could potentially gain a 2 or 3 percent interest in the subsidiary. National Energy Group is PGOCorp.'s unregulated power producer that sells energy on the East Coast, primarily in New England. PGOCorp. has previously claimed that its goal is for National Energy Group to be in a position to contribute 30 percent of earnings for the parent company by 2002. While the regulated PGOCo. continues to struggle in debt, National Energy Group has been quite successful. In fact, much of PGOCorp.'s earnings over 2000 came directly from National Energy Group, which gained a 233-percent profit increase in 2Q 2000 and an 22-percent profit increase in 3Q 2000. Clearly, PGOCorp. has benefited greatly from National Energy Group's ability, as an unregulated subsidiary, to sell power outside in deregulated markets outside of California. Thus, it is no wonder that, although PGOCorp. still considers California to be an attractive market, the core driver of its strategy is NEG, which is able to operate in all lucrative markets as they become deregulated. Just last month, PGOCorp. gained approval to implement a shrewd restructuring of its business units that protects National Energy Group (and other high-profit subsidiaries) from any impact that the bankruptcy of the regulated utility or parent company might cause. In other words, if PGOCorp. and PGOCo. ultimately declare bankruptcy, subsidiaries such as National Energy Group would not bear any foreseeable impact, protecting some of PG&E's most profitable business units from financial insolvency. Ironically, however, through this loan there is now a tie between the unregulated business of National Energy Group and the regulated PGOCo., although the ramifications of this connection are not completely clear at this time. Moreover, while the loan that PGOhas secured certainly helps, it by no means brings an end to the utility's financial problems. Through the loan, PGOhas been enabled to pay outstanding debt obligations on which it has already defaulted or may default on in the near future. However, the payments made in the amount of $1 billion only reflect a small percentage of PG&E's reported $6 billion of total debt. Thus, bankruptcy is still a strong possibility for the company unless some other new major development occurs. Most likely, this development will be the sale of its transmission system to the state. PGOmay have to lower its expectations of what it believes its system to be worth (reportedly $1 billion). However, just as SCE has now been apparently protected from bankruptcy filing due to the sale of its own transmission system, PGOmay also find that an asset sale is its only recourse at this juncture. An archive list of previous IssueAlerts is available at www.ConsultRCI.com The most comprehensive, up-to-date map of the North American Power System by RDI/FT Energy is now available from SCIENTECH. The Wall Map measures 42" x 72"; the Executive Map Set consists of 18 11" x 17" maps. Visit our website at www.ConsultRCI.com for a detailed description of these valuable maps and complete ordering instructions. Reach thousands of utility analysts and decision makers every day. Your company can schedule a sponsorship of IssueAlert by contacting Nancy Spring via e-mail or calling (505)244-7613. Advertising opportunities are also available on our website. SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly on our site. If you no longer wish to receive this daily email, send a message to IssueAlert, and include the word "delete" in the subject line. SCIENTECH's IssueAlerts(SM) are compiled based on the independent analysis of SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed, or to be the basis for investment decisions of any kind. SCIENTECH's sole purpose in publishing its IssueAlerts is to offer an independent perspective regarding the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy issues. Copyright 2001. SCIENTECH, Inc. All rights reserved.