Morning Report for April 13, 2004

Headquarters Daily Report

• REGION IV

REGION IV

PACIFIC GAS & ELECTRIC COMPANY EXITS FROM CHAPTER 11 BANKRUPTCY

Licensee/Facility: PACIFIC GAS & ELECTRIC CO. Diablo Canyon 1, Diablo Canyon 2 AVILA BEACH, California Dockets: 05000275, 05000323 [1] W-4-LP, [2] W-4-LP License No:

Notification: MR Number: 4-2004-0003 Date: 04/12/2004 E-MAIL from RI

Discussion:

DISCUSSION: On April 12, 2004, Pacific Gas & Electric Company (PG&E) initiated their reorganization plan and exited Chapter 11 bankruptcy protection. PG&E entered Chapter 11 protection on April 6, 2001, due to its inability to pay creditors for the costs of generating, transmitting, and distributing electricity in the California deregulated market.

PG&E's reorganization plan arose from a settlement agreement between PG&E and the California Public Utilities Commission (CPUC). The settlement agreement essentially called for the establishment of rates such that PG&E is able to recover the costs of current and future operations. Ratemaking for PG&E is based on costs of operations plus a profit margin. In addition, PG&E has offered up to $9.4 billion of debt securities for sale. The proceeds of the sales, available cash resources, and other debt financing will be used to pay creditor claims. PG&E will remain a vertically integrated utility that is subject to CPUC regulation, just as it was prior to entering bankruptcy.

The reorganization plan was approved by the CPUC and the U.S. Bankruptcy Court for the Northern District of California in December 2003. Two of five CPUC commissioners filed an appeal to the bankruptcy court's approval of the plan, and the hearing for the appeal is scheduled for June 3. The two commissioners requested a stay to the PG&E reorganization plan until the hearing was completed, but both the U.S. Bankruptcy Court and the District Court for the Northern District of California denied the motion.

Since PG&E entered Chapter 11 protection in April 2001, Region IV has been monitoring various aspects of Diablo Canyon Power Plant performance to determine if the financial standing of PG&E affected nuclear safety. Region IV has monitored grid performance, corrective action program statistics, maintenance backlogs, employee concerns, and organizational structure. During the time that PG&E was under Chapter 11 protection, Region IV did not identify any impacts to nuclear safety as a result of PG&E's financial condition.

There has been press interest in PG&E's exit from Bankruptcy Protection.

REGIONAL ACTION: Continue to perform the inspection program consistent with the Reactor Oversight Process.

Accession Numbers:

Accession No	Accession Date
ML041040608	04/12/2004

Contacts:

Name	Office Abbrev	Phone No	E-Mail
STEARNS, DONALD L	R4	(817) 860-8176	DLS6@nrc.gov