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: December 19, 1997
Exact Name of
Commission Registrant State or other IRS Employer
File as specified Jurisdiction of Identification
Number in its charter Incorporation Number
- ----------- -------------- --------------- --------------
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
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Item 5. Other Events
The following information 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. Words such as "expects,"
"intends," "plans," and similar expressions identify those
statements which are forward-looking.
A. Electric Industry Restructuring
1. Rate Reduction Bonds
On December 8, 1997, a special purpose trust established by the
California Infrastructure and Economic Development Bank issued
$2.9 billion of rate reduction bonds on behalf of Pacific Gas and
Electric Company, a subsidiary of PG&E Corporation, in connection
with electric industry restructuring in California. The bonds
were issued in eight classes with maturities ranging from six
months to nine and a half years. These rate reduction bonds will
facilitate a 10 percent reduction in electric rates for
residential and small commercial customers, effective January 1,
1998.
Pacific Gas and Electric Company will collect a separate
nonbypassable tariff on behalf of the bondholders to recover
principal, interest, and related costs over the life of the bonds
from residential and small commercial customers. In exchange for
the bond proceeds, Pacific Gas and Electric Company has sold its
right to be paid the revenues from this separate tariff to an
affiliated entity. The bonds are secured by the future revenue
from the separate tariff and not by Pacific Gas and Electric
Company's assets. The bonds are reflected as debt on Pacific Gas
and Electric Company's balance sheet.
On December 4, 1997, the California Supreme Court denied a
petition, which had been filed by various public interest groups,
including The Utility Reform Network (TURN), for a writ of review
of the California Public Utilities Commission's (CPUC) September
3, 1997, decision approving the sale of the bonds.
2. Affiliate Transactions Proceeding
On December 16, 1997, the CPUC approved an administrative law
judge's proposed decision (with modifications) in the affiliate
transactions proceeding, which adopted rules governing
transactions between California's natural gas local distribution
and electric utility companies and their non-regulated affiliates
that provide energy or energy-related services within a utility's
service territory. This decision will permit non-regulated
affiliates of regulated utilities (such as PG&E Energy Services
Corporation, the non-regulated energy marketing subsidiary of
PG&E Corporation) to compete in the affiliated utility's service
territory, and will also permit non-regulated affiliates to use
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the same name and logo of their affiliated utility, provided the
affiliate includes certain designated disclaimer language which
emphasizes the separateness of the entities and that the
affiliate is not regulated by the CPUC.
In adopting the decision, the CPUC rejected an alternate proposal
that would have limited the electric utility's transactions with
any non-regulated affiliate offering direct access within the
utility's service territory so that the utility's affiliate would
not have a greater than 20 percent market share for each customer
class (based on volume) among those customers choosing direct
access. Another alternate proposal, which had proposed to ban
the non-regulated affiliate from offering direct access to
customers in the affiliated utility's service territory for at
least a two-year period and which had proposed to prohibit the
affiliate from using the utility's corporate name and logo, was
withdrawn.
The final CPUC decision adopts complex and detailed rules
requiring the separation of regulated utilities and their non-
regulated affiliates, through the maintenance of separate books
and records, physical separation of facilities, and the
separation of certain functions, such as computer information
systems and marketing, among others. The decision also contains
rules regarding disclosure and use of information among the
affiliates and prohibits the utility from engaging in certain
practices which would discriminate against energy service
providers which compete with the utility's non-regulated
affiliate.
Pacific Gas and Electric Company is required to file a plan
detailing how it plans to comply with the new affiliate
transactions rules with the CPUC by December 31, 1997.
B. CPUC Regulatory Proceedings
1. General Rate Case
On December 12, 1997, Pacific Gas and Electric Company filed its
Test Year 1999 General Rate Case (GRC) application with the CPUC,
requesting increases in electric and gas base revenues of $693
million and $501 million, respectively, over current authorized
base revenues to be effective January 1, 1999. The requested
increase in base revenues to begin January 1, 1999, reflects
increasing levels of electric and gas demand as well as customer
growth in the service territory, the costs of enhanced
maintenance activities, and increased capital expenditures.
During the GRC, which occurs every three years, the CPUC examines
Pacific Gas and Electric Company's costs and operations to
determine the amount of base revenues Pacific Gas and Electric
Company is authorized to collect from ratepayers. Base revenues
recover Pacific Gas and Electric Company's non-fuel-related
operating and maintenance costs, depreciation, taxes, and a
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return on invested capital. Pacific Gas and Electric Company's
last GRC adopted revenues based on a 1996 Test Year.
The requested increase of $693 million in electric base revenues
will not increase customer electric rates because these rates
will continue to be frozen at the 1996 levels (except that rates
for residential and small commercial customers will be reduced by
10 percent on January 1, 1998, and thereafter will be frozen at
the reduced level). The rate freeze, mandated by the California
electric industry restructuring legislation, will continue until
the earlier of March 31, 2002, or when Pacific Gas and Electric
Company recovers its transition costs. (In general, transition
costs represent the costs of utilities' generation-related assets
and obligations which prove to be uneconomic in the new
competitive framework.)
Under the frozen electric rates, only the portion of total
revenue which exceeds authorized base revenues and certain other
authorized revenue requirements is available, through collection
from ratepayers as the competition transition charge or CTC, to
recover transition costs. Therefore, increases in base revenues
will reduce the amount of revenue available for collection as CTC
to recover transition costs.
The GRC electric revenue request includes proposed funding for
system reliability and safety projects, including increased
distribution capacity (poles, wires, substations, etc.),
equipment inspection and maintenance, and a continuation of tree-
trimming programs; and enhanced customer service and information
technology systems. Since the Federal Energy Regulatory
Commission (FERC) will authorize the rates to be collected from
customers for electric transmission services, the GRC application
does not seek approval of revenues to recover the cost of
transmission services.
Gas customers would experience an increase in gas distribution
rates if the CPUC approves the requested gas revenue increase.
The GRC gas revenue request includes proposed funding for
distribution system safety and reliability improvements,
increased depreciation costs of the gas pipeline system, expanded
customer service, and expanded customer and other information
systems. The requested increase in gas base revenues will not
result in an increase in customer gas transmission and storage
rates, since gas transmission and storage rates for the period
from March 31, 1998, through December 2002 have already been
established by the Gas Accord Settlement, the multi-party
settlement agreement approved by the CPUC on August 1, 1997.
In the GRC application, Pacific Gas and Electric Company
estimated its 1999 weighted average rate base for electric
operations (excluding facilities for nuclear operations and FERC-
regulated transmission services) to be approximately $9.211
billion and for gas operations (excluding facilities for storage
and transmission services) to be approximately $2.249 billion.
The rate base is the amount of PG&E's net investment in
facilities, equipment, and other property (with the exceptions
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noted above) used to provide CPUC-regulated electric and gas
services. The authorized rate of return is calculated on rate
base.
It is expected that public hearings on the 1999 GRC will be
scheduled for early spring 1998 and that a final decision will be
issued by the CPUC in December 1998.
2. Cost of Capital
On December 16, 1997, the CPUC issued a decision in Pacific Gas
and Electric Company's 1998 Cost of Capital proceeding, which
reduces the return on common equity (ROE) from 11.6 percent to
11.2 percent and reduces the overall authorized return on utility
rate base from 9.45 percent to 9.17 percent in 1998. The CPUC
granted Pacific Gas and Electric Company's request to maintain
the company's current authorized capital structure of long-term
debt (46.2 percent), preferred stock (5.8 percent), and common
equity (48 percent).
The CPUC authorized the following cost of capital:
Ratio Cost Weighted Costs
Long-term debt 46.20% 7.36% 3.40%
Preferred stock 5.80% 6.65% 0.39%
Common stock equity 48.00% 11.20% 5.38%
Total 100.00% 9.17%
As compared to current levels, the decision will decrease Pacific
Gas and Electric Company's annual electric and gas authorized
revenues by approximately $25 million and $9 million,
respectively, effective January 1, 1998. These amounts reflect
only the reduced return on Pacific Gas and Electric Company's
electric and gas distribution assets. As previously disclosed,
on November 19, 1997, the CPUC reduced the authorized rate of
return on common equity for Pacific Gas and Electric Company's
non-nuclear electric generation-related assets, including
hydroelectric facilities, to 6.77 percent from the previously
authorized rate of 11.6 percent. In addition, the authorized
rate of return for electric transmission assets will be
determined by the FERC at a later date. Gas transmission and
storage rates have been set in the Gas Accord.
Pacific Gas and Electric Company's electric rates will not
reflect the decreased revenue requirement because rates will
continue to be frozen at their current levels after January 1,
1998 (except for rates for residential and small commercial
customers which will be reduced by 10 percent and thereafter
frozen at the reduced level). Therefore, the electric revenue
requirement decrease will result in an increase in the amount of
revenue available to Pacific Gas and Electric Company
(collectible from ratepayers as the competition transition charge
or CTC) for recovery of transition costs.
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C. Common Stock Repurchase Authorization
On December 17, 1997, the Board of Directors of PG&E Corporation
authorized the repurchase of PG&E Corporation common stock
through January 1, 2000, in the aggregate amount of $1 billion
plus approximately $750 million, the amount of the authorization
remaining under the repurchase program adopted by the Board of
Directors on March 19, 1997. Shares will be repurchased to
manage the overall balance of common stock in PG&E Corporation's
capital structure. Stock repurchases may be implemented through
a variety of methods, including open market share repurchases,
block transactions, privately negotiated share repurchases,
accelerated share repurchase programs, forward repurchase
agreements, or other similar facilities.
PG&E Corporation may also enter into various hedging transactions
in connection with its stock repurchase program.
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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
Vice President and Controller
(PG&E Corporation)
Vice President and Controller
(Pacific Gas and Electric Company)
Dated: December 19, 1997
