Here's Pacific Gas & Electric's Y2K statement from their latest 10-Q filing with the SEC.

In summary, they started "sometime" in 1997, in the period from then until 9/1998 they spent $80 Million. But $60 million of that $80 million was for computer upgrades that they were aleady planning and simply accelerated because of Y2K. They do not mention whether or not thee new systems are Y2K compliant. Are we supposed to assume they are?

So they've really only spent $20 million on Y2K inventory, assessment and repair in the last year or so and yet they have repaired 40% of their 1000 critical systems. Huh? According to my math that works out to an average of $50K per system. $50K only buys you 3 months of one engineer's time at loaded labor rates. I don't buy it.

Next we learn that they plan to spend $180 million between now and the end of 1999. $50 million of that $180 million is for planned computer upgrades and will be capitalized. So in fact they're only spending $130 million on Y2K repair.

So, they've spent $20 million in two years but they are going to spend $130 million in the next 14 months. That first $20 million seems to have repaired roughly 25% of their systems (40% of inhouse systems and 10% of vendor supplied systems and assuming roughly 50/50 for inhouse vs vendor). So why do they need to spend $130 million to repair the remaining 75%?

There really isn't enough information provided to draw any hard conclusions, the above is really just conjecture. However, it does seem fairly evident that one of the nation's largest and most critical electric and gas utilities is only just now getting rolling. What that means to me is that their Q2 1999 filing will show that the amount of money required will almost have doubled to $300 million and they will acknowledge that they won't have enough time left to fix all critical systems and they will be engaging in massive contingency planning.

I think I better buy a few more candles. :-(

--AJ

PG&E YEAR 2000:

The Year 2000 issue exists for the Corporation because many software and embedded systems use only two digits to identify a year in a date field, and were developed without considering the impact of the upcoming change in the century. Some of these systems are critical to our operations and business processes and might fail or function incorrectly if not repaired or replaced with Year 2000 ready products. By "ready", we mean that the system is remediated so that it will perform its essential functions. We define "software" as both computer programming that has been developed by the Corporation for its own purposes ("in-house software") and that purchased from vendors ("vendor software"). "Embedded systems" refers to both computing hardware and other electronic monitoring, communications, and control systems that have microprocessors within them.

Our Year 2000 project focuses on those systems that are critical to our business. By "critical" we mean those systems the failure of which would directly and adversely affect our ability to generate or deliver our products and services or otherwise affect revenues, safety, or reliability for such a period of time as to lead to unrecoverable consequences. For these critical systems, we have adopted a phased approach to address Year 2000 issues. The primary phases include: (1) an enterprise-wide inventory, in which systems critical to our business are identified; (2) assessment, in which critical systems are evaluated as to their readiness to operate after December 31, 1999; (3) remediation, in which critical systems that are not Year 2000 ready are made so, either through modifications or replacement; (4) testing, in which remediation is validated by checking the ability of the critical system to operate within the Year 2000 time frame; and (5) certification, in which systems are formally acknowledged to be Year 2000 ready, and acceptable for production or operation.

Our Year 2000 project is proceeding generally on schedule. For in-house and vendor software, we have completed the inventory phase and have identified approximately 1,000 critical systems. Additional software that requires Year 2000 remediation may be discovered as we continue with the assessment, remediation, and testing phases. We estimate that roughly 40 percent of identified, critical, in-house software has been remediated, with completion of remediation of remaining in-house software scheduled for the end of 1998. We estimate that roughly 10 percent of critical vendor software has been remediated and received. Our corporate milestone for receipt of all remediated vendor software is March 1999. We plan to finish testing remediated in-house and vendor software by May 1999 and expect to complete the certification phase for software by July 1999.

We also have completed the inventory of all embedded systems, although additional embedded items that require Year 2000 repair or replacement may be discovered as we continue with the assessment, remediation, and testing phases. Remediation of all critical embedded systems is planned to be completed by April 1999. We expect to finish testing of these remediated systems by August 1999, and plan to complete the certification phase for embedded systems by October 1999.

We are testing remediated software and embedded systems both for ability to handle Year 2000 dates, including appropriate leap year calculations, and to assure that code repair has not affected the base functionality of the code. Software and embedded systems are tested individually and where judged appropriate will be tested in an integrated manner with other systems, with dates and data advanced and aged to simulate Year 2000 operations. Testing, by its nature, however, cannot comprehensively address all future combinations of dates and events. Therefore, some uncertainty will remain after testing is completed as to the ability of code to process future dates, as well as the ability of remediated systems to work in an integrated fashion with other systems.

We also depend upon external parties, including customers, suppliers, business partners, gas and electric system operators, government agencies, and financial institutions, to reliably deliver their products and services. To the extent that any of these parties experience Year 2000 problems in their systems, the demand for and the reliability of our services may be adversely affected. The primary phases we have undertaken to deal with external parties are: (1) inventory, in which critical business relationships are identified; (2) action planning, in which we develop a series of actions and a time frame for monitoring expected external party compliance status; (3) assessment, in which the likelihood of external party Year 2000 readiness is periodically evaluated; and (4) contingency planning, in which appropriate plans are made to be ready to deal with the potential failure of an external party to be Year 2000 ready.

We have completed our inventory of external contacts and have identified more than 1,000 critical relationships. We soon will complete the action- planning phase for each of these entities. Additional critical relationships may be entered into or discovered as we continue. Assessment of Year 2000 readiness of these external parties will continue through 1999. We expect to complete contingency plans for each of these critical business relationships by July 1999.

We plan to develop contingency plans for our critical software or embedded systems for which we determine Year 2000 repair or replacement is substantially at risk. For example, if the schedule for repairing or replacing a non-compliant system lags and cannot be re-scheduled to meet certain milestones, then we expect to begin an appropriate contingency planning process. These contingency plans would be implemented as necessary, if a remediated system does not become available by the date it is needed. In addition, as described above, we plan to develop contingency plans for the potential failure of critical external parties to fully address their Year 2000 issues.

We also recognize that, given the complex interaction of today's computing and communication systems, we cannot be certain that all of our efforts to have all critical systems Year 2000 ready will be successful. Therefore, irrespective of the progress of the Year 2000 project, we are preparing contingency plans for each subsidiary and essential business function. These plans will take into account the possibility of multiple system failures, both internal and external, due to Year 2000 effects.

These subsidiary and essential business function contingency plans will build on existing emergency and business restoration plans. Although no definitive list of scenarios for this planning has yet been developed, the events that we considered for planning purposes include increased frequency and duration of interruptions of the power, computing, financial, and communications infrastructure. We expect to complete first drafts of these subsidiary and essential business function contingency plans by the beginning of 1999. We anticipate testing and revision of these plans throughout 1999.

Due to the speculative nature of contingency planning, it is uncertain whether our contingency plans to address failure of external parties or internal systems will be sufficient to reduce the risk of material impacts on our operations due to Year 2000 problems.

The Corporation currently is revising and refining its procedures for tracking and reporting costs associated with its Year 2000 effort. From 1997 through September 1998, we have spent approximately $80 million to assess and remediate Year 2000 problems. About $60 million of this cost was for software systems that we replaced for business purposes generally unrelated to addressing Year 2000 readiness, but whose schedule we advanced to meet Year 2000 requirements. The replacement costs for these accelerated systems were capitalized.

We estimate that our future costs to address Year 2000 issues will be approximately $180 million. About $50 million of these remaining Year 2000 costs will be capitalized because they relate to the purchase and installation of systems for general business purposes and the remaining $130 million will be expensed. As we continue to assess our systems and as the remediation, testing, and certification phases of our compliance effort progress, our estimated costs may change. Further, we expect to incur costs in the year 2000 and beyond to remediate and replace less critical software and embedded systems. We do not believe that the incremental cost of addressing Year 2000 issues will have a material impact on the Corporation's or the Utility's financial position or results of operation.

The Corporation's current schedule is subject to change, depending on developments that may arise through further assessment of our systems, and through the remediation and testing phases of our compliance effort. Further, our current schedule is partially dependent on the efforts of third parties, including vendors, suppliers, and customers. Delays by third parties may cause our schedule to change. There also are risks associated with loss of or inability to locate critical personnel to remediate and return to service the identified critical systems. We may fail to locate all systems critical to our business processes that require remediation. A combination of businesses and government entities may fail to be Year 2000 ready, which may lead to a substantial reduction in a demand for our energy services.

Based on our current schedule for the completion of Year 2000 tasks, we believe our plan is adequate to secure Year 2000 readiness of our critical systems. We expect our remediation efforts and those of external parties to be largely successful. Nevertheless, achieving Year 2000 readiness is subject to various risks and uncertainties, many of which are noted above. We are not able to predict all the factors that could cause actual results to differ materially from our current expectations as to our Year 2000

readiness. If we, or third parties with whom we have significant business relationships, fail to achieve Year 2000 readiness with respect to critical systems, there could be a material adverse impact on the Utility's and the Corporation's financial position, results of operations, and cash flows.

-- Anonymous, November 12, 1998