PG&E; Proposes Transfer of Hydroelectric System to Power-Plant Unit

PG&E; Corp., owner of California’s largest utility, filed a plan with state regulators Wednesday to transfer its hydroelectric system to the company’s power-plant unit at a cost of $2.8 billion, almost triple the book value.

The plan, agreed to by consumer groups, substitutes for a proposed auction of the 68 power plants. San Francisco-based PG&E; originally sought to transfer them to a unit and pay its utility $3.3 billion in a proposal shelved by state lawmakers a year ago.

California deregulated its $25-billion-a-year electricity industry to foster competition by giving consumers a choice of suppliers. State regulators gave utilities a 2002 deadline to establish a market value for their power plants, using proceeds from sales to pay down debt from construction.

To win the approval of consumer groups, PG&E; agreed to give 90% of its profit from the hydroelectric operations to PG&E;’s 4.3 million electric utility customers for 40 years. Consumer groups, such as the Utility Reform Network, say the agreement also prevents the system’s owners from manipulating prices during shortages.

“Preventing market abuse of these assets is key,” said Nettie Hoge of the reform network.

PG&E; shares fell 33 cents to close at $28.48 on the New York Stock Exchange.

The transfer plan needs approval of state and federal regulators. PG&E;’s hydroelectric system of dams, reservoirs and turbines can generate as much as 3,889 megawatts of electricity, enough to light about 3.8 million U.S. homes.

PG&E; wants to collect about $4.4 billion from customers for power-plant debt and other obligations by its March 2002 deadline. If the dam transfer wins regulatory approval next year, about $1.7 billion would go to paying down that debt.