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: August 18, 1999
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
Pacific Gas and Electric Company PG&E Corporation
77 Beale Street, P.O. Box 770000 One Market, Spear Tower,
San Francisco, California 94177 Suite 2400
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Pacific Gas and Electric Company PG&E Corporation
(415) 973-7000 (415) 267-7000
(Registrant's telephone number, including area code)
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Item 5. Other Events
On August 16, 1999, PG&E Corporation entered into an agreement with
various consumer groups, the International Brotherhood of Electrical
Workers (IBEW) and other parties, to propose legislation for adoption
by the California Legislature to resolve various issues regarding the
valuation and disposition of Pacific Gas and Electric Company's
hydroelectric generating assets. (Pacific Gas and Electric Company
(Utility) is the California utility subsidiary of PG&E Corporation.)
It is possible that legislation addressing these issues will be
adopted by the California Legislature before the current legislative
session adjourns on September 10, 1999. PG&E Corporation and the
Utility are unable to predict whether and to what extent the final
legislation will reflect the parties' proposal described below.
The parties agreed that it would be in the public interest for the
Utility to transfer its hydroelectric assets to a California
subsidiary of PG&E Corporation (PG&E Hydro), and they agreed to
support all legislative and regulatory approvals necessary to
implement the transfer. As with other non-utility generation in
California, the assets would be subject to regulation by the Federal
Energy Regulatory Commission (FERC) but no longer subject to rate or
other regulation by the California Public Utilities Commission
(CPUC).
Valuation and Effect on Transition Cost Recovery
Subject to FERC approval of market-based pricing for the
hydroelectric power as discussed below, the parties' legislative
proposal calls for $3.3 billion to be credited to the Utility's
transition cost recovery account to reflect the full value of the
hydroelectric assets, including the real property associated with the
hydroelectric facilities and the irrigation district power-purchase
contracts. As previously reported, if the market value of the
Utility's hydroelectric facilities is determined based upon any
method other than a sale of the facilities to a third party, a
material charge to Utility earnings could result. At June 30, 1999,
the book value of the Utility's net investment in hydroelectric
generation assets was approximately $0.8 billion, excluding
approximately $0.5 billion of net investment reclassified as
regulatory assets recoverable as transition costs. Assuming the $3.3
billion value of the hydroelectric assets proposed by the parties is
reflected in the final legislation and that the FERC approves market-
based pricing for the hydroelectric power, the excess of market value
over book value ($2.5 billion) would be used to reduce other
transition costs and a material charge to Utility earnings would
result in the approximate amount of $1.5 billion.
CPUC-Authorized Equity Ratio
In the proposal, the parties recognized that, as a result of the
material charge described above, the Utility would be temporarily out
of compliance with its CPUC-authorized equity ratio. The proposal
provides that the Utility would be given eight years to return to its
authorized equity ratio, that during this period the Utility's equity
ratio for ratemaking purposes would remain at 48 percent, and that
the CPUC would not adjust the Utility's revenues or rates to reflect
the transitional capital structure. Therefore, during this period,
the Utility would not be precluded by the CPUC from paying common
stock dividends to PG&E Corporation and would not
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incur a reduction in its rate of return on distribution rate base.
The parties have proposed that at the end of this period, the Utility's
permissible equity ratio would be authorized at a range of 45 percent to
48 percent. Thereafter, the parties have proposed that the Utility's
permissible equity ratio would be within a range authorized by the
CPUC.
Disposition of the Hydroelectric Assets
The parties have proposed that the credit to the Utility's transition
cost recovery account (and the resulting charge to earnings) would be
made when FERC approval is received to charge market-based prices for
the power produced by the hydroelectric assets. If FERC approval is
not obtained by June 30, 2000, the valuation of the hydroelectric
assets would be completed by some other method no later than December
31, 2001, in accordance with the current California electric industry
restructuring legislation. The parties agreed that any requirement
by the FERC in its order which conditions market-based pricing
authority on the divestiture of any of the hydroelectric assets would
be considered disapproval of market-based pricing authority.
Following FERC approval of market-based pricing and other regulatory
approvals, the parties propose that the Utility would transfer the
hydroelectric assets to PG&E Hydro. The hydroelectric assets would
be operated by PG&E Hydro in accordance with applicable terms and
conditions of the FERC licenses and other environmental and
regulatory permits and with agreements governing existing economic
uses of the hydroelectric assets.
Operational Agreements
The parties have proposed that the potential market power impacts of
the post-transfer asset ownership be mitigated by an agreement
between PG&E Corporation and the California Independent System
Operator (ISO) to make the hydroelectric power available for both
energy and ancillary service subject to maximum price bids during
specified peak hours. (The obligations under the mitigation
agreement would be assumed by PG&E Hydro upon the transfer of the
assets.) The parties have agreed to support the adoption by the ISO
Board of the mitigation agreement. The parties have also agreed to
support the FERC approval of the mitigation agreement in connection
with efforts to obtain the FERC's approval for market-based pricing
for the hydroelectric assets.
Other Agreements
Finally, the proposal calls for PG&E Hydro to assume the existing
bargaining unit agreements between the Utility and employees
represented by the IBEW, among other matters.
Cautionary Statement Regarding Forward-looking Statements
The discussion above contains forward-looking statements about the
proposed valuation and method of disposition of Pacific Gas and
Electric Company's hydroelectric assets, the resulting charge to
earnings, and the effect of the charge on the Utility's CPUC-
authorized equity ratio, among other forward-looking statements.
These statements are necessarily subject to various risks and
uncertainties and actual results may differ materially from those
currently expected or contemplated by management. Some of the
factors that will affect the outcome of the issues discussed above
include
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whether and the extent to which the California Legislature
accepts the parties' proposal, whether the legislation ultimately
adopted contains different provisions than those contemplated by the
parties, the course of legislative negotiations, the extent to which
the parties' proposal may be materially revised in response to
legislative negotiations, whether the California Governor signs
legislation reflecting the parties' proposal, whether the required
regulatory approvals are obtained, whether the ISO adopts the
proposed market power mitigation agreement, the California initiative
process, and other factors that PG&E Corporation and Pacific Gas and
Electric Company are unable to predict.
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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
By LESLIE H. EVERETT
---------------------
LESLIE H. EVERETT
Vice President and Secretary
(PG&E Corporation)
Vice President and Secretary
(Pacific Gas and Electric Company)
Dated: August 18, 1999
