PG&E CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number	Exact Name of Registrant as specified in its charter	State of Incorporation	IRS Employer Identification Number

1-12609	PG&E CORPORATION	California	94-3234914
1-2348	PACIFIC GAS AND ELECTRIC COMPANY	California	94-0742640

Pacific Gas and Electric Company 77 Beale Street P.O. Box 770000 San Francisco, California (Address of principal executive offices) 94177 (Zip Code) (415) 973-7000 (Registrant’s telephone number, including area code)		PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California (Address of principal executive offices) 94105 (Zip Code) (415) 267-7000 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
PG&E Corporation
Common Stock, no par value Preferred Stock Purchase Rights		New York Stock Exchange and Pacific Exchange

Pacific Gas and Electric Company
First Preferred Stock, cumulative, par value $25 per share:		American Stock Exchange and Pacific Exchange
Redeemable: 7.04%, 5% Series A, 5%, 4.80%, 4.50%, 4.36%
Mandatorily Redeemable: 6.57%, 6.30%
Nonredeemable: 6%, 5.50%, 5%

7.90% Cumulative Quarterly Income Preferred Securities Series A, due 2025		American Stock Exchange and Pacific Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Aggregate market value of the voting common equity held by non-affiliates of the registrant as of February 1, 2002:

PG&E Corporation Common Stock

$8,074 million

Common Stock outstanding as of February 1 , 2002:

PG&E Corporation:

Pacific Gas and Electric Company:

387,922,052

Wholly owned by PG&E Corporation

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the documents listed below have been incorporated by reference into the indicated parts of this report, as specified in the responses to the item numbers involved.


(1) Designated portions of the combined Annual Report to Shareholders for the year ended December 31, 2001		Part I (Item 1), Part II (Items 5, 6, 7, 7A, and 8), Part IV (Item 14)

(2) Designated portions of the Joint Proxy Statement relating to the 2002 Annual Meeting of Shareholders		Part III (Items 10, 11, 12, and 13)

TABLE OF CONTENTS

		Page
	Glossary of Terms	iv

	PART I
Item 1.	Business	1

	GENERAL	1
	Corporate Structure and Business	1
	Competition and the Changing Regulatory Environment	5
	The Electric Industry	6
	The Natural Gas Industry	6
	Generation, Energy Marketing and Trading, and Natural Gas Transmission	7
	Regulation of PG&E Corporation	7
	Regulation of Pacific Gas and Electric Company	10
	Federal Regulation	10
	State Regulation	10
	Licenses and Permits	11
	Regulation of PG&E National Energy Group, Inc. Businesses	11
	Federal Regulation	11
	State and Other Regulations	12

	UTILITY OPERATIONS	13
	Ratemaking Mechanisms	13
	General Rate Case	13
	Cost of Capital	13
	Electric Ratemaking	14
	Rate Stabilization Plan Proceeding	14
	1999 General Rate Case	15
	2003 General Rate Case	15
	2001 Attrition Rate Adjustment Request	16
	Retained Generation Ratemaking Proceeding	16
	Revenue Adjustment Proceeding	16
	Annual Transition Cost Proceeding	17
	Electric Industry Restructuring Implementation Costs	17
	Electric Restructuring Costs Account (ERCA)	17
	Revenues from Must-Run Contracts	18
	FERC Transmission Owner Rate Case	18
	AB 1890 Electric Base Revenue Increase	18
	Electric Transmission Rates	19
	Post-Transition Period Ratemaking Proceeding	19
	Gas Ratemaking	19
	Gas Accord	19
	General Rate Case	19
	The Core Fixed Cost Account (CFCA)	19
	Gas Procurement Costs	20
	The Biennial Cost Allocation Proceeding (BCAP)	20
	Public Purpose Programs	20
	Electric Utility Operations	21
	California Electric Industry Restructuring	21
	Generation Divestiture and Market Valuation	21

				Page
		The Power Exchange, Independent System Operator, and the Buy/Sell Requirement		22
		The Rate Freeze and Transition Cost Recovery		24
		New California Legislation		26
		FERC Proceedings and Decisions		27
		Electric Operating Statistics		29
		Electric Resources		30
		Generating Capacity		30
		Hydroelectric Generation Assets		31
		Diablo Canyon Nuclear Power Plant		31
		Diablo Canyon Ratemaking		32
		Nuclear Fuel Supply and Disposal		32
		Insurance		33
		Decommissioning		33
		Other Electric Resources		34
		QF Generation and Other Power Purchase Contracts		34
		Bilateral Agreements		36
		Electric Transmission and Distribution		37
		Gas Utility Operations		38
		Gas Operating Statistics		40
		Natural Gas Supplies		41
		Gas Regulatory Framework		42
		Transportation Commitments		43
		PG&E NATIONAL ENERGY GROUP, INC.		43
		Natural Gas Transmission Business		43
		Gas Transmission-Northwest (GTN)		43
		Iroquois Pipeline		44
		North Baja Pipeline		44
		Integrated Energy and Marketing Business		45
		Independent Power Projects		46
		Merchant Power Plants		46
		Contractual Control of Generating Capacity		46
		Description of Generating Facilities in Operation and Construction		47
		Greenfield Development		48
		Equipment Procurement		48
		Turbine Technology		49
		Construction Issues		50
		Energy Marketing and Trading		50
		Electricity		50
		Natural Gas		50
		Coal, Oil and Emissions		51
		Fuel Supply, Transport and Electric Transmission Management		51
		Load Management or Full Requirements Arrangements		51
		ENVIRONMENTAL MATTERS		52
		Environmental Matters		52
		Environmental Protection Measures		52
		Air Quality		52
		Water Quality		54
		Hazardous Waste Compliance and Remediation		55
		Potential Recovery of Hazardous Waste Compliance and Remediation Costs		57
		Compressor Station Litigation		58

		Page
	Electric and Magnetic Fields	58
	Low Emission Vehicle Programs	59
Item 2.	Properties	60
Item 3.	Legal Proceedings	60
	Pacific Gas and Electric Company Bankruptcy	60
	Pacific Gas and Electric Company vs. California Public Utilities Commissioners	63
	Federal Securities Lawsuit	64
	In re: Natural Gas Royalties Qui Tam Litigation	64
	Baldwin Associates	65
	Wayne Roberts	65
	Moss Landing Power Plant	66
	Compressor Station Chromium Litigation	66
	California Energy Trading Litigation	68
	California Attorney General Complaint	68
	Complaint filed by the City and County of San Francisco, and the People of the State of California	69
	Sierra Pacific Industries v. Pacific Gas and Electric Company	69
	William Ahern v. Pacific Gas, and Electric Company	70
Item 4.	Submission of Matters to a Vote of Security Holders	70

	EXECUTIVE OFFICERS OF THE REGISTRANTS	71

	PART II
Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters	74
Item 6.	Selected Financial Data	74
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	74
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	74
Item 8.	Financial Statements and Supplementary Data	74
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75

	PART III
Item 10.	Directors and Executive Officers of the Registrant	75
Item 11.	Executive Compensation	75
Item 12.	Security Ownership of Certain Beneficial Owners and Management	75
Item 13.	Certain Relationships and Related Transactions	75

	PART IV
Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	76
	Signatures	83

iii

GLOSSARY OF TERMS

AB 1890		Assembly Bill 1890, the California electric industry restructuring legislation
AEAP		Annual Earnings Assessment Proceeding
Alstom		Alstom Power, Inc.
ATCP		Annual Transition Cost Proceeding
BACT		Best available control technology
BCAP		Biennial Cost Allocation Proceeding
bcf		billion cubic feet
Betz		Betz Chemical Company
BFM		block forward market
BTA		best technology available
Btu		British thermal unit
CARE		California Alternate Rates for Energy
CCAA		California Clean Air Act
CEC		California Energy Commission
Central Coast Board		Central Coast Regional Water Quality Control Board
CEQA		California Environmental Quality Act
CERCLA		Comprehensive Environmental Response, Compensation, and Liability Act
CFCA		Core Fixed Cost Account
CLF		Conservation Law Foundation
core customers		residential and smaller commercial gas customers
core subscription customers		noncore customers who choose bundled service
CPIM		core procurement incentive mechanism
CPUC		California Public Utilities Commission
CTC		competition transition charge
Diablo Canyon		Diablo Canyon Nuclear Power Plant
DOE		United States Department of Energy
DWR		California Department of Water Resources
EIR		environmental impact report
EMF		electric and magnetic fields
EPA		United States Environmental Protection Agency
ERCA		Electric Restructuring Costs Account
ESP		energy service provider
EWG		exempt wholesale generator
FERC		Federal Energy Regulatory Commission
GABA		Generation Asset Balancing Account
Gas Accord		Gas Accord Settlement
GRC		General Rate Case
Holding Company Act		Public Utility Holding Company Act of 1935
Humboldt Unit 3		Humboldt Bay Power Plant (Unit 3)
HWRC		hazardous waste remediation costs
ICIP		Incremental Cost Incentive Price
IPP		independent power producer
ISO		Independent System Operator
kV		kilovolts
kVa		kilovolt-amperes
kW		kilowatts
LEV		low emission vehicle
LIEE		Low-Income Energy Efficiency
Mcf		thousand cubic feet
MDt		thousand decatherms
MMcf		million cubic feet
MW		megawatts
MWh		megawatt-hour

GLOSSARY OF TERMS—(Continued)

NEES		New England Electric System
NEIL		Nuclear Electric Insurance Limited
NGL		natural gas liquids
NOI		Notice of Intent
noncore customers		industrial and larger commercial gas customers
NOx		oxides of nitrogen
NPDES		National Pollutant Discharge Elimination System
NRC		Nuclear Regulatory Commission
NTP&S		non-tariffed products and services
Nuclear Waste Act		Nuclear Waste Policy Act of 1982
ORA		Office of Ratepayer Advocates, a division of the California Public Utilities Commission
PBR		performance-based ratemaking
PECA		Purchased Electric Commodity Account
PGA		Purchased Gas Account
PG&E Energy		PG&E NEG’s integrated energy and marketing segment
PG&E ET		PG&E Energy Trading Holdings Corporation and its subsidiaries
PG&E Gen LLC		PG&E Generating Company, LLC and its affiliates
PG&E GTC		PG&E Gas Transmission Corporation and its subsidiaries
PG&E GTN		PG&E Gas Transmission, Northwest Corporation
PG&E NBP		PG&E North Baja Pipeline, LLC
PG&E NEG		PG&E National Energy Group, Inc.
PG&E Pipeline		PG&E NEG’s interstate pipeline operations
PPPs		public purpose programs
Price Act		Price Anderson Act
PRP		potentially responsible party
PTO		Participating Transmission Owner
PURPA		Public Utility Regulatory Policies Act of 1978
PX		California Power Exchange
PY		Program Year
QF		qualifying facility
RAP		Revenue Adjustment Proceeding
RCRA		Resource Conservation and Recovery Act
RMR		reliability must-run
ROE		return on common equity
ROR		rate of return
RSP		Rate Stabilization Plan
RTO		regional transmission organization
SEC		Securities and Exchange Commission
SCS		Scheduling Coordinator Services
SO2		sulfur dioxide
SRAC		short-run avoided costs
TAC		Transmission Access Charge
TCBA		Transition Cost Balancing Account
throughput		the amount of natural gas transported through a pipeline system
TRA		Transition Revenue Account
TRBA		Transition Revenue Balancing Account
Transwestern		Transwestern Pipeline Company
TURN		The Utility Reform Network
USGenNE		USGen New England, Inc.

PART I

ITEM 1. Business.

GENERAL

Corporate Structure and Business

PG&E Corporation is an energ