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Pacific Gas And Electric Company Files Breach Of Contract Claim Against The State Of California

01/17/2002

SAN FRANCISCO - Pacific Gas and Electric Company today filed a claim with the State Victim Compensation and Government Claims Board for damages resulting from the State of California breaching its contractual obligations under AB 1890 by not allowing the utility to sell its retained generation in the market under federal jurisdiction. In the claim, PG&E notes that the State's actions denied the company certain rights that have a value of not less than $4.1 billion.

Under AB 1890, which was enacted into law in 1996, California's utility companies sold off a majority of their generating facilities, turned operating control of their transmission system over to the California Independent System Operator, opened their transmission and distribution lines to competition from third party providers, and agreed to limit their recovery of stranded investment costs.

In exchange for the utilities' actions, AB 1890 required that their remaining generation assets be market valued by December 31, 2001, allowing the utilities to credit that amount to their stranded costs and sell the power from their facilities under federal regulation.

One year ago today, on January 17, 2001, the state Legislature passed AB X6, which nullified the provision of AB 1890 requiring that the output of the utilities' generating facilities become federally regulated.

This legislation broke the State's agreement with PG&E established in AB 1890 by denying the utility's ability to sell the power from its generating facilities at rates determined by the Federal Energy Regulatory Commission.

"PG&E has worked diligently to uphold its end of the regulatory agreement, but the State violated that agreement when it changed the rules late in the game," said Roger J. Peters, senior vice president and general counsel for Pacific Gas and Electric Company. "By ignoring and altering the principles of AB 1890 after the fact, the State breached its obligations and prevented the company from recovering billions of dollars of value from the generating facilities.

"PG&E has followed the rules established under AB 1890 including, selling a majority of its power plants and opening its system to use and competition by others. By passing AB X6, the State failed to uphold its end of the bargain when it prevented the company from selling the power from its generating facilities under FERC regulation as required by AB 1890."

The State Victim Compensation and Government Claims Board has 45 days to review and act on the claim.

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