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: July 25, 1994
PACIFIC GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
California 1-2348 94-0742640
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification Number)
77 Beale Street, P.O.Box 770000, San Francisco, California 94177
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(415) 973-7000
Item 5. Other Events
A. Performance Incentive Plan - Year-to-Date Financial Results
The Performance Incentive Plan (Plan) is an annual incentive
compensation plan applicable to all regular non-bargaining unit
employees of the Company and designated subsidiaries. The Plan
provides for awards based on (1) the Company's success in meeting
overall corporate financial performance objectives, based on
earnings per share for the Company; and (2) the performance of
the employee's organizational unit in meeting its individual
objectives. The corporate and organizational objectives include
quality and reliability of service to customers, financial
performance, cost control and operational efficiency.
Under the Plan, the Nominating and Compensation Committee of the
Board (Committee) makes the final determination of awards based
upon achievement of the Plan objectives. The Committee has the
discretion to modify or eliminate awards.
The performance measurement target for the 1994 Plan year was
disclosed in a Report on Form 8-K dated January 10, 1994, and
was based upon the corporate capital and operating budgets
prepared for 1994. The Company's overall earnings per share are
comprised of earnings per share for the Company's three types of
operations: utility, Diablo Canyon nuclear power plant (Diablo
Canyon) and nonregulated through PG&E Enterprises, a wholly owned
subsidiary.
The 1994 budgeted earnings per share for the utility were derived
from, among other things, (i) budgeted revenues as authorized by
the CPUC for 1994 which includes the impact of the Company's
economic stimulus rate, the electric rate freeze and the
corporate reorganization and workforce reduction program
announced in early 1993, (ii) the Company's capital budget for
1994 of approximately $1.4 billion for utility operations and
(iii) budgeted operating expenses for utility operations that are
approximately 5% less than budgeted for 1993. The utility
budgeted earnings per share assumes contribution to earnings of
$.10 per share from Pacific Gas Transmission Company (PGT), a
wholly owned subsidiary of the Company, of which $.09 per share
relates to the interstate portion of the PGT-PG&E pipeline
expansion project. The budgeted earnings per share for utility
assumes no earnings for the California portion of the expansion
project. As previously disclosed, shippers on the California
portion of the PGT-PG&E pipeline expansion project have only
executed long-term firm transportation contracts for approximately
40% of the intrastate capacity, and the Company continues
negotiations for the remaining capacity.
The budgeted earnings per share for Diablo Canyon were derived
from, among other things, (i) an operating capacity factor
(excluding refueling outages) of 91%, (ii) an overall annual
capacity factor of 75.3% and (iii) one 64-day refueling outage at
Unit 1 and one 62-day refueling outage at Unit 2 during 1994.
Budgeted operating expenses for 1994 relating to Diablo Canyon
are approximately 13% more than budgeted for 1993. Budgeted
capital expenditures for Diablo Canyon are approximately $105
million for 1994.
The budgeted earnings per share for the period ending June 30,
1994, assume 427 million shares outstanding. The budgeted earnings
per share amounts assume no significant gain or loss on the sale of
assets. Actual performance during the year may differ materially
from the budgeted amounts.
On a quarterly basis, the Company discloses the year-to-date
financial performance of the Company relating to the three types
of operations: utility, Diablo Canyon and PG&E Enterprises. For
the six months ended June 30, 1994, selected financial
information is shown below:
(in thousands, except per share amounts)
Six Months Ended June 30, 1994
=================================================================
Actual (1) Budget (2)
Operating Revenues: (unaudited)
Utility $ 4,013,615 $ 4,029,567
Diablo Canyon 832,921 (3) 828,071
PG&E Enterprises 107,415 112,795
----------- -----------
Total Consolidated $ 4,953,951 $ 4,970,433
=========== ===========
Net Income (Loss):
Utility $ 315,075 (4) $ 400,988
Diablo Canyon 176,132 (3) 166,824
PG&E Enterprises (12,890)(5) 1,581
----------- -----------
Total Consolidated $ 478,317 $ 569,393
=========== ===========
Earnings (Loss) Per Common
Share:
Utility $ 0.69 (4) $ 0.89
Diablo Canyon 0.39 (3) 0.37
PG&E Enterprises (0.03)(5) 0.00
---------- -----------
Total Consolidated $ 1.05 $ 1.26
========== ===========
(1) In the opinion of management, the unaudited "actual"
financial information presented above reflects all adjustments to
date which are necessary to present a fair statement of operating
revenues, net income and earnings per common share for the
interim period. All material adjustments are of a normal
recurring nature, except as noted below. The actual results above
are not necessarily indicative of the results to be obtained in the
full fiscal year. This information should be read in conjunction
with the 1993 Consolidated Financial Statements and Notes to
Consolidated Financial Statements incorporated by reference in the
Company's Annual Report on Form 10-K, and the Consolidated
Financial Statements and Notes to Consolidated Financial Statements
in the Quarterly Report on Form 10-Q for the quarter ended
March 31, 1994.
(2) The budgeted amounts are performance targets and not
forecasts of actual performance that is expected or will be
realized by the Company. The budgeted amounts do not reflect the
resolution of various regulatory uncertainties or other
contingencies, including those disclosed in the Company's Notes
to Consolidated Financial Statements, which could affect the
Company's performance during the year.
(3) Diablo Canyon operated at an overall capacity factor of
75.3% compared to a budgeted overall capacity factor of 75.0% for
the six months ended June 30, 1994.
(4) In the six-month period ended June 30, 1994 the Company
incurred expenses of $153 million ($.21 per share) resulting from
two California Public Utilities Commission (CPUC) decisions on the
reasonableness of the Company's gas costs for the period 1988
through 1990, reserves for the Company's 1991 through 1993 Canadian
gas costs based on the CPUC reasoning in the aforementioned
decisions, contingencies relating to commitments for gas
transportation capacity, and an increase in litigation reserves.
(5) In April 1994, the Company announced that it has deferred its
plan to divest PG&E Resources Company (Resources), a wholly owned
indirect subsidiary of PG&E Enterprises. In June 1994, Resources
entered into multiple contracts to sell certain oil and gas
properties, with all sales anticipated to be completed in the third
quarter of 1994. The Company recorded a $19 million pretax loss
($.03 per share) during the three-month period ended June 30, 1994,
for those properties to be sold which have a carrying value in
excess of their market value. Gains to be realized in the third
quarter from the sale of remaining properties should substantially
offset these losses.
B. California Public Utilities Commission Proceedings - Electric
Fuel and Sales Balancing Accounts - ECAC/ERAM
In June 1994, the Company updated its application in the Company's
1994 Energy Cost Adjustment Clause (ECAC) proceeding to reflect
changes in its electric generation forecast based on recent hydro
conditions. The Company also withdrew its earlier request that the
CPUC eliminate the Annual Energy Rate (AER) mechanism that had been
reinstated in 1994, since it now appears that alternative incentive
mechanisms will not be in place before 1995.
The Company's ECAC application (which also includes revenue
adjustments resulting from the Electric Revenue Adjustment
Mechanism (ERAM)) requests a two percent increase in electric
revenues over rates in effect in 1994. If adopted, the Company's
requested rate increase would result in an estimated net electric
revenue requirement increase of $158 million, effective January 1,
1995. The Company's proposal limits the requested increase to two
percent by, among other things, including only partial recovery of
the projected balance of the ECAC undercollection of $537 million
at December 31, 1994, and deferring cost recovery of approximately
$368 million of ECAC undercollection beyond 1995, with no interest
accrual on the amount deferred.
On July 15, 1994, the CPUC's Division of Ratepayer Advocates (DRA)
released its report on the Company's ECAC/ERAM filing. The DRA's
revenue requirement proposal is approximately $110 million lower
than the Company's proposal due primarily to the DRA's lower gas
cost estimates and Diablo Canyon price assumption as discussed
below. The DRA also recommends that the Company's rates remain
frozen at the 1994 level through 1995 and that the Company's ECAC
undercollection be deferred, without interest, beyond 1995.
The DRA also recommends that, notwithstanding the terms of the
Diablo Canyon rate case settlement (Diablo Settlement), the 1995
price paid for electricity generated by the Company's Diablo Canyon
Nuclear Power Plant (Diablo Canyon) should not be implemented as
specified under the Diablo Settlement and instead the price should
be frozen at the 1994 price of 11.9 cents per kilowatthour pending
a CPUC decision as to whether it will reconsider a petition by a
consumer group to reopen the Diablo Settlement which the CPUC
previously had denied. (See item C. below.) The Company's ECAC
filing includes an increase in the price paid for Diablo Canyon
generation to 12.1 cents per kilowatthour in 1995, using the
pricing formula set forth in the Diablo Settlement. The DRA
estimates that holding the price at the 1994 level will result in
a reduction of $34.5 million in revenue requirements for the
Company in 1995.
C. Diablo Canyon Nuclear Power Plant - Diablo Canyon Rate Case
Settlement
In its report on the Company's 1994 ECAC/ERAM filing (see item B.
above), the DRA recommends that the CPUC reconsider a petition
originally filed in September 1992 by a consumer advocacy group and
reopen the Diablo Settlement for the express purpose of modifying
the payment methodology for Diablo Canyon generation. The CPUC had
previously denied the earlier petition, finding that there had been
no failure in the underlying assumptions of the settlement, entered
into in 1988 by the California Attorney General, the DRA and the
Company, and that reopening the settlement would be contrary to the
public policy in favor of settlements.
The Diablo Settlement adopts alternative ratemaking for Diablo
Canyon by basing revenues primarily on the amount of electricity
generated by the plant, rather than on traditional cost-based
ratemaking. Under the "performance-based" approach, the Company
assumes a significant portion of the operating risk of the plant
because the extent and timing of the recovery of actual operating
costs, depreciation and a return on the investment in the plant
primarily depend on the amount of power produced and the level of
costs incurred.
The DRA cites several factors in arguing that the CPUC should
reconsider its decision adopting the Diablo Settlement. The DRA
alleges that the revenues sought by the Company for Diablo Canyon
in 1995 are over $600 million more than what the Company would
receive under traditional ratemaking. The DRA also cites (i) the
high price for Diablo Canyon generation relative to that charged by
other California utilities for generation from their nuclear
facility, (ii) the higher rate of return on equity earned on Diablo
Canyon compared to that earned by the other utilities on their
nuclear facility, and (iii) high costs and increases in the
Company's rates allegedly caused by the Diablo Settlement. Pending
a CPUC decision on the DRA's recommendation, the DRA proposes that
the 1995 price for Diablo Canyon generation not be implemented and
instead the Diablo price be frozen at the 1994 level (see Item B.
above).
The Company intends to move to strike the DRA testimony on the
grounds that it is contrary to previous CPUC decisions upholding
the Diablo Settlement, is factually incorrect, and violates the
CPUC's policy in favor of comprehensive settlements.
The 1988 CPUC decision adopting the Diablo Settlement stated that
(i) to the extent permitted by law, the CPUC intended that this
decision be binding upon future Commissions, based upon a
determination that, taken as a whole, the settlement produced a
just and reasonable result, and (ii) the settlement had been
approved based on the reasonable reliance of the parties and the
CPUC that all of the terms and conditions will remain in effect for
the full term of the settlement, ending in 2016. However, the
decision stated that the CPUC cannot bind future Commissions in
fixing just and reasonable rates for Diablo Canyon. Moreover, in
March 1994, the CPUC President indicated that while he concurred in
the decision denying the petition filed in 1993 seeking to modify
the Diablo Settlement, he would consider reopening the settlement
if the Company did not reduce its rates within a year.
The DRA is a consumer branch of the CPUC and the DRA's
recommendations do not constitute a CPUC decision. The CPUC can
accept all, part or none of the DRA's recommendations.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PACIFIC GAS AND ELECTRIC COMPANY
THOMAS C. LONG
By ________________________________
THOMAS C. LONG
Controller
Dated: July 25, 1994
