SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: March 3, 1997
Exact Name of
Commission Registrant State or other IRS Employer
File as specified Jurisdiction of Identification
Number in its charter Incorporation Number
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1-12609 PG&E Corporation California 94-3234914
1-2348 Pacific Gas and California 94-0742640
Electric Company
77 Beale Street, P.O. Box 770000, San Francisco, California 94177
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code:(415) 973-7000
Item 5. Other Events
The following information contains includes forward-looking
statements that involve a number of risks, uncertainties and
assumptions. A number of factors which could cause actual
results to differ materially from those indicated in the forward-
looking statements are described in more detail below.
A. Proposed Decision on Diablo Canyon Ratemaking Proposal
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On February 28, 1997, an administrative law judge of the
California Public Utilities Commission (CPUC) issued a Proposed
Decision (PD) regarding the ratemaking proposal for Diablo Canyon
filed by Pacific Gas and Electric Company (PG&E) on March 29,
1996. With significant exceptions, the PD adopts the overall
ratemaking structure proposed by PG&E, which is comparable to the
ratemaking treatment for the San Onofre Nuclear Generating
Station (SONGS): (1) PG&E's Diablo Canyon's sunk costs would be
recovered through a Sunk Cost Revenue Requirement, at a reduced
return on equity equal to 90 percent of PG&E's embedded cost of
debt (6.77 percent), and (2) ongoing operating costs and capital
additions would be recovered through a performance-based
Incremental Cost Incentive Price (ICIP) mechanism.
However, as described below, the PD would substantially alter the
ICIP mechanism and would exclude certain items from the sunk cost
revenue requirement.
ICIP Pricing
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- - Instead of adopting the fixed forecast of ICIP prices for the
1997-2001 period proposed by PG&E, the PD adopts an alternative
"cost of service" approach, which would establish an initial
forecast of ICIP prices which will be adjusted annually through
2001 to reflect a new forecast incorporating Diablo Canyon's
actual operating costs and capacity factor.
- - For the initial forecast of ICIP prices, the PD would base
1997 ICIP prices on actual 1995 recorded expenses, escalated
generally at 1.5 percent per year, compared to PG&E's proposal
based on 1993-1995 average expenses, escalated generally at 3.1
percent per year. The assumed capacity factor would be 83.6
percent, compared to PG&E's proposal of 80 percent and the Office
of Ratepayer Advocates (ORA) proposal of 85 percent.
Sunk Cost Recovery
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- - The PD excludes several items totaling $160 million from the
sunk cost revenue requirement, including out-of-core fuel
inventory, materials and supplies inventory, and prepaid
insurance expenses. The PD requires that out-of-core fuel
inventory and materials and supplies inventory be recovered in
ICIP prices.
- - The PD adopts a "prudence" disallowance based on the finding
that PG&E admitted in pre-1988 Diablo testimony that a design
error cost $100 million. The disallowance would be equal to $100
million times the ratio of depreciated value of the original
plant to undepreciated value of the original plant (estimated by
PG&E to be approximately $60-70 million).
- - The PD rejects The Utility Reform Network's (TURN) proposal
that approximately $2 billion of estimated "excess revenues"
earned by PG&E under the original Diablo Canyon settlement be
credited against sunk cost recovery.
- - The PD requires an independent financial verification audit of
Diablo Canyon sunk costs, to be completed within six months.
Diablo Canyon sunk cost recovery would be adjusted to reflect the
results of this audit.
Other
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- - The PD rejects the ORA's proposal that PG&E be required to
grant a 10 percent rate reduction to residential and small
commercial customers in addition to the 10 percent reduction
required by AB1890, finding that ORA's proposal would result in
cost shifting, benefiting small customers at the expense of other
customer classes.
- - The PD terminates, rather than modifies as proposed by PG&E,
the existing Diablo Canyon ratemaking settlement on the date the
PD is adopted by the CPUC. PG&E intends to seek clarification
from the CPUC that the termination of the settlement would not
affect Diablo Canyons must take status during the transition
period under California industry restructuring.
- - The PD also rejects the County of San Luis Obispo's request
for property tax relief as part of Diablo Canyon ratemaking.
The PD establishes the overall methodology for calculating PG&E's
sunk cost revenues and ICIP price, but does not include
calculations of these numbers. The PD asks that parties file
computations of ICIP prices and the sunk cost revenue requirement
in their comments to the PD.
Based on a very preliminary review and interpretation of the PD
and assuming that the modified rates are effective January 1,
1997, PG&E Corporation estimates that the impact on 1997 earnings
could be approximately five cents per share negative compared to
PG&E Corporation's 1997 budget. This estimate is subject to
change, and the actual impact of the PD on PG&E Corporation's
financial results will depend upon several factors, including
clarification of several ambiguities in the PD. In addition,
there could be a further negative impact compared to PG&E
Corporation's 1997 budgeted results if the modified rates are
effective on the date the CPUC adopts the final decision, given
the timing of recovery of Diablo Canyon transition costs.
The PD is not a final decision of the CPUC, and is subject to
change prior to a vote of the full CPUC. The PD currently is
scheduled for consideration by the full CPUC at its April 9,
1997 decision conference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
PG&E CORPORATION
and
PACIFIC GAS AND ELECTRIC COMPANY
CHRISTOPHER P. JOHNS
By ________________________________
CHRISTOPHER P. JOHNS
Controller
Dated: March 3, 1997
