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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
----------------
PACIFIC GAS AND ELECTRIC COMPANY
(NAME OF ISSUER AND PERSON FILING STATEMENT)
7.44% REDEEMABLE FIRST PREFERRED STOCK, $25 PAR VALUE
7.04% REDEEMABLE FIRST PREFERRED STOCK, $25 PAR VALUE
6 7/8% REDEEMABLE FIRST PREFERRED STOCK, $25 PAR VALUE
(TITLE OF EACH CLASS OF SECURITIES)
694308719 (7.44% PREFERRED STOCK)
694308685 (7.04% PREFERRED STOCK)
694308677 (6 7/8% PREFERRED STOCK)
(CUSIP NUMBER OF EACH CLASS OF SECURITIES)
GARY P. ENCINAS, ESQ.
77 BEALE STREET
P.O. BOX 770000
SAN FRANCISCO, CALIFORNIA 94177
(415) 973-2784
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
OCTOBER 23, 1995
(DATE TENDER OFFER FIRST PUBLISHED, SENT OR GIVEN TO SECURITY HOLDERS)
CALCULATION OF FILING FEE
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Transaction Valuation Amount of Filing Fee
$325,823,000 $65,165
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* Pursuant to Section 13(e)(3) of the Securities Exchange Act of 1934, as
amended, and Rule 0-11(b)(1) thereunder, the transaction value was
calculated by multiplying 4,850,000 shares of 7.44% Preferred Stock,
2,910,000 shares of 7.04% Preferred Stock and 4,850,000 shares of 6 7/8%
Preferred Stock of Pacific Gas and Electric Company by $25.85, $26.80 and
$25.25, the respective per share purchase prices.
[_]CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM
OR SCHEDULE AND THE DATE OF ITS FILING.
Amount Previously Paid: ___________ Filing Party: _________________
Form or Registration No.: _________ Date Filed: ___________________
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<PAGE>
EXPLANATORY NOTE
Copies of the Offer to Purchase and the Letter of Transmittal, among other
documents, have been filed by Pacific Gas and Electric Company (the "Company")
as Exhibits to this Issuer Tender Offer Statement on Schedule 13E-4 (the
"Statement"). Unless otherwise indicated, all material incorporated by
reference in this Statement in response to items or sub-items of this
Statement is incorporated by reference to the corresponding caption in the
Offer to Purchase, including the information stated under such captions as
being incorporated in response thereto.
ITEM 1. SECURITY AND ISSUER.
(a) See "Certain Information Concerning the Company."
(b) See "Introduction," "Terms of the Offer--Number of Shares, Purchase
Price, Expiration Date; Receipt of Dividend" and "Transactions and Agreements
Concerning the Shares."
(c) See "Price Range of Shares; Dividends."
(d) Not applicable.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) See "Source and Amount of Funds."
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
See "Purpose of the Offer; Certain Effects of the Offer" and "Certain
Information Concerning the Company--Recent Developments."
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
See "Transactions and Agreements Concerning the Shares."
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
See "Transactions and Agreements Concerning the Shares."
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
See "Fees and Expenses."
ITEM 7. FINANCIAL INFORMATION.
(a) See "Summary" and Exhibits (g)(1)-(g)(6).
(b) Not applicable.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable.
2
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(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) See Exhibits (a)(1) and (a)(2).
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<C> <S>
(a)(1) Offer to Purchase, dated October 23, 1995.
(a)(2) Form of Letter of Transmittal to holders of 7.44% Redeemable First
Preferred Stock, $25 par value, 7.04% Redeemable First Preferred
Stock, $25 par value, and 6 7/8% Redeemable First Preferred
Stock, $25 par value.
(a)(3) Notice of Guaranteed Delivery of Shares of 7.44% Redeemable First
Preferred Stock, $25 par value, 7.04% Redeemable First Preferred
Stock, $25 par value, and 6 7/8% Redeemable First Preferred
Stock, $25 par value.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
other Nominees.
(a)(5) Letter to Clients of Brokers, Dealers, Commercial Banks, Trust
Companies and other Nominees.
(a)(6) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
(a)(7) Summary Advertisement of the Company.
(a)(8) Letter to Shareholders, dated October 23, 1995.
(a)(9) Press Release, dated October 20, 1995.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g)(1) Computations of Earnings Per Common Share.
(g)(2) Restated Computation of Ratios of Earnings to Fixed Charges.
(g)(3) Restated Computation of Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
(g)(4) Computations of Book Value Per Share.
(g)(5) 1994 Annual Report to Shareholders (portions of the 1994 Annual
Report to Shareholders under the headings "Selected Financial
Data," "Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition," "Report of
Independent Public Accountants," "Statement of Consolidated
Income," "Consolidated Balance Sheet," "Statement of Consolidated
Cash Flows," "Statement of Consolidated Common Stock Equity and
Preferred Stock," "Statement of Consolidated Capitalization,"
"Schedule of Consolidated Segment Information," "Notes to
Consolidated Financial Statements," and "Quarterly Consolidated
Financial Data" included only) (except for the foregoing
portions, such 1994 Annual Report to Shareholders is furnished
for the information of the Commission and is not deemed to be
"filed" herein).
(g)(6) Quarterly Report on form 10-Q for the quarter ended June 30, 1995.
</TABLE>
3
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: October 20, 1995
Pacific Gas and Electric Company
By: Gabriel Togneri
-----------------------------
Name: Gabriel B. Togneri
Title:Assistant Treasurer
4
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EXHIBIT (a)(1)
[LOGO OF PACIFIC GAS AND ELECTRIC COMPANY APPEARS HERE]
PACIFIC GAS AND ELECTRIC COMPANY
OFFER TO PURCHASE FOR CASH
4,850,000 SHARES OF ITS 7.44% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) AT A PURCHASE PRICE OF $25.85 PER SHARE
2,910,000 SHARES OF ITS 7.04% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) AT A PURCHASE PRICE OF $26.80 PER SHARE
4,850,000 SHARES OF ITS 6 7/8% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) AT A PURCHASE PRICE OF $25.25 PER SHARE
- - --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 20, 1995 UNLESS THE OFFER
IS EXTENDED.
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Pacific Gas and Electric Company, a California corporation (the "Company"),
invites the holders of 7.44% Redeemable First Preferred Stock ($25 par value)
(the "7.44% Preferred") to tender their shares of such stock (the "7.44%
Shares") at a price of $25.85 per 7.44% Share, the holders of 7.04% Redeemable
First Preferred Stock ($25 par value) (the "7.04% Preferred") to tender their
shares of such stock (the "7.04% Shares") at $26.80 per 7.04% Share and the
holders of 6 7/8% Redeemable First Preferred Stock ($25 par value) (the "6
7/8% Preferred") to tender their shares of such stock (the "6 7/8% Shares") at
a price of $25.25 per 6 7/8% Share (together, the "Shares") (the 7.44%
Preferred, the 7.04% Preferred and the 6 7/8% Preferred, each a "Series of
Preferred"), net to the seller in cash, upon the terms and subject to the
conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer"). The Company will purchase all Shares validly
tendered and not withdrawn up to the 4,850,000 Shares sought of the 7.44%
Preferred, the 2,910,000 Shares sought of the 7.04% Preferred and the
4,850,000 Shares sought of the 6 7/8% Preferred (each, the "Amount Sought"),
upon the terms and subject to the conditions of the Offer, including the
provisions relating to proration described herein. Shares not purchased
because of proration will be returned.
----------------
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING TENDERED.
The Offer is, however, subject to other conditions. See "Terms of the
Offer--Certain Conditions of the Offer."
----------------
IMPORTANT
Any shareholder desiring to tender all or any portion of his or her Shares
should either (1) complete and sign the Letter of Transmittal or a facsimile
thereof in accordance with the instructions in the Letter of Transmittal, mail
or deliver it and any other required documents to the Depositary, and either
deliver the certificates for Shares to the Depositary along with the Letter of
Transmittal or deliver such Shares pursuant to the procedure for book-entry
transfer set forth in "Terms of the Offer--Procedure for Tendering Shares"
herein or (2) request his or her broker, dealer, commercial bank, trust
company or nominee to effect the transaction for him or her. A shareholder
whose Shares are registered in the name of a broker, dealer, commercial bank,
trust company or nominee must contact such broker, dealer, commercial bank,
trust company or nominee if he or she desires to tender such Shares. Any
shareholder who desires to tender Shares and whose certificates for such
Shares are not immediately available, or who cannot comply in a timely manner
with the procedure for book-entry transfer, should tender such Shares by
following the procedures for guaranteed delivery set forth in "Terms of the
Offer--Procedure for Tendering Shares" herein. Subject to the receipt of
properly completed and duly executed Notices of Solicited Tenders as described
herein, the Company will pay to any Soliciting Dealer a solicitation fee of
$0.375 per Share for any Shares tendered and accepted for payment pursuant to
the Offer.
----------------
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY
SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH SHAREHOLDER MUST
MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW
MANY SHARES TO TENDER.
----------------
The Shares are listed and traded on the American and Pacific Stock
Exchanges. On October 20, 1995, the last trading day prior to the commencement
of the Offer, the last reported sale price of the Shares on the American Stock
Exchange was $25 1/8 per 7.44% Share, $25 1/8 per 7.04% Share and $23 3/8 per
6 7/8% Share. Shareholders are urged to obtain current market quotations for
the Shares.
Questions or requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent or the Dealer Managers at their respective
addresses and telephone numbers set forth on the back cover of this Offer to
Purchase.
----------------
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC.
----------------
The date of this Offer to Purchase is October 23, 1995.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER SHARES PURSUANT TO THE OFFER.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THOSE CONTAINED HEREIN
OR IN THE LETTER OF TRANSMITTAL. IF GIVEN OR MADE, SUCH RECOMMENDATION AND
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TERMS OF THE OFFER......................................................... 2
Number of Shares; Purchase Price; Expiration Date; Receipt of Dividend... 2
Proration................................................................ 2
Procedure for Tendering Shares........................................... 3
Withdrawal Rights........................................................ 5
Acceptance for Payment of Shares and Payment of Purchase Price........... 6
Certain Conditions of the Offer.......................................... 7
Extension of Tender Period; Termination; Amendments...................... 8
PRICE RANGE OF SHARES; DIVIDENDS........................................... 9
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER......................... 12
SOURCE AND AMOUNT OF FUNDS................................................. 13
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES.......................... 13
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 14
FEES AND EXPENSES.......................................................... 17
CERTAIN INFORMATION CONCERNING THE COMPANY................................. 18
ADDITIONAL INFORMATION..................................................... 19
MISCELLANEOUS.............................................................. 19
</TABLE>
i
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SUMMARY
This general summary is provided solely for the convenience of holders of
Shares and is qualified in its entirety by reference to the full text and more
specific details contained in this Offer to Purchase and the related Letter of
Transmittal and any amendments hereto and thereto.
The Company.............. Pacific Gas and Electric Company
The Shares............... Shares of 7.44% Redeemable First Preferred Stock
($25 par value), shares of 7.04% Redeemable First
Preferred Stock ($25 par value) and shares of 6 7/8%
Redeemable First Preferred Stock ($25 par value).
Number of Shares
Sought................... 4,850,000 (97%) out of the 5,000,000 7.44% Shares
outstanding; 2,910,000 (97%) out of the 3,000,000
7.04% Shares outstanding; 4,850,000 (97%) out of the
5,000,000 6 7/8% Shares outstanding.
Purchase Price........... $25.85 per 7.44% Share; $26.80 per 7.04% Share;
$25.25 per 6 7/8% Share, in each case net to the
seller in cash. See "Price Range of Shares;
Dividends."
Expiration Date of
Offer.................... Monday, November 20, 1995 at 12:00 Midnight, New
York City time, unless extended.
How to Tender Shares..... See "Terms of the Offer -- Procedure for Tendering
Shares." For further information, call the
Information Agent or the Dealer Managers or consult
your broker for assistance.
Withdrawal Rights........ Tendered Shares of any Series of Preferred may be
withdrawn at any time until the Expiration Date of
the Offer with respect to such Series of Preferred
and, unless purchased before that date, may be
withdrawn after Tuesday, December 19, 1995. See
"Terms of the Offer -- Withdrawal Rights."
Purpose of Offer......... The Company is making the Offer because it believes
that the purchase of Shares is economically
attractive to the Company. In addition, the Offer
gives shareholders the opportunity to sell their
Shares at a price greater than the market price
prevailing prior to the announcement of the Offer
and without the usual transaction costs associated
with a market sale. See "Purpose of the Offer;
Certain Effects of the Offer."
Market Price of Shares... On October 20, 1995, the closing price per 7.44%
Share on the American Stock Exchange was $25 1/8;
the closing price per 7.04% Share on the American
Stock Exchange was $25 1/8; and the closing price
per 6 7/8% Share on the American Stock Exchange was
$23 3/8. Shareholders are urged to obtain a current
market quotation for the Shares. According to data
published by Bloomberg L.P., a financial information
service, the closing market price of the Shares on
October 20, 1995 reflects approximately $0.04 per
7.44% Share, $0.04 per 7.04% Share and $0.04 per 6
7/8% Share of amounts which have accreted in respect
of the February Quarterly Dividend (as defined
below). See "Price Range of Shares; Dividends."
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Dividends................ The Company has declared the regular quarterly
dividend of $0.465 per 7.44% Share, $0.44 per 7.04%
Share and $0.429688 per 6 7/8% Share, which are to
be paid on November 15, 1995 to holders of record of
Shares as of the close of business on October 16,
1995 (the "November Quarterly Dividend"). A tender
of Shares pursuant to the Offer will not deprive any
shareholder of his or her right to receive such
dividend, regardless of when such tender is made.
Holders of Shares tendered into and purchased
pursuant to the Offer will not be entitled to any
dividends in respect of any later dividend periods.
The Company expects to pay the next regular
quarterly dividend for each of the 7.44% Shares, the
7.04% Shares and the 6 7/8% Shares on February 15,
1996 to holders of record of Shares as of the close
of business on the date determined by the Board of
Directors (the "February Quarterly Dividend"). See
"Price Range of Shares; Dividends."
Brokerage Commissions.... Not payable by shareholders. The Company will pay a
$0.375 per Share soliciting fee to the broker,
dealer, commercial bank or trust company, if any,
designated by the holder tendering such Share.
Stock Transfer Tax....... None, except as provided in Instruction 6 of the
Letter of Transmittal.
Payment Date............. As soon as practicable after the Expiration Date of
the Offer.
Further Information...... Additional copies of this Offer to Purchase and the
Letter of Transmittal may be obtained by contacting
D.F. King & Co., Inc., 77 Water Street, New York,
New York 10005, telephone (800) 549-6650 (toll free)
or (212) 269-5550 (collect). Questions about the
Offer should be directed to Goldman, Sachs & Co. at
(800) 828-3162 or to Dean Witter Reynolds Inc. at
(800) 255-3665.
CONSOLIDATED FINANCIAL INFORMATION
(DOLLAR AMOUNT IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------------------------------------- JUNE 30,
1990 1991 1992 1993 1994 1995
---------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $9,470,092 $9,778,119 $10,296,088 $10,582,408 $10,447,351 $4,755,081
Net Income.............. $ 987,170 $1,026,392 $ 1,170,581 $ 1,065,495 $ 1,007,450 $ 734,207
Ratios of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends.............. 2.68x 2.85x 3.03x 2.85x 3.08x 3.97x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
(UNAUDITED)
----------------------
AMOUNT PERCENTAGE
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<S> <C> <C>
Common Stock Equity...................................... $ 8,729,259 48.9%
Preferred Stock Without Mandatory Redemption(1).......... 732,995 4.1
Preferred Stock With Mandatory Redemption................ 137,500 0.8
Long-term Debt........................................... 8,250,722 46.2
----------- -----
Total Capitalization................................. $17,850,476 100.0%
=========== =====
Current Liabilities:
Long-term Debt......................................... $ 416,939
Short-term Borrowings.................................. $ 210,000
</TABLE>
- - --------
(1) On September 1, 1995, the Company redeemed $150,000,000 of its Preferred
Stock Without Mandatory Redemption.
iii
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To the Holders of 7.44% Redeemable First Preferred Stock,
7.04% Redeemable First Preferred Stock and
6 7/8% Redeemable First Preferred Stock of
Pacific Gas and Electric Company:
Pacific Gas and Electric Company, a California corporation (the "Company"),
invites the holders of 7.44% Redeemable First Preferred Stock ($25 par value)
(the "7.44% Preferred") to tender their shares of such stock (the "7.44%
Shares") at a price of $25.85 per 7.44% Share, the holders of 7.04% Redeemable
First Preferred Stock ($25 par value) (the "7.04% Preferred") to tender their
shares of such stock (the "7.04% Shares") at a price of $26.80 per 7.04% Share
and the holders of 6 7/8% Redeemable First Preferred Stock ($25 par value)
(the "6 7/8% Preferred") to tender their shares of such stock (the "6 7/8%
Shares") at a price of $25.25 per 6 7/8% Share (together, the "Shares") (the
7.44% Preferred, the 7.04% Preferred and the 6 7/8% Preferred each a "Series
of Preferred"), net to the seller in cash, upon the terms and subject to the
conditions set forth herein and in the related Letter of Transmittal (which
together constitute the "Offer"). The Company will purchase all Shares validly
tendered and not withdrawn up to the 4,850,000 Shares sought of the 7.44%
Preferred, the 2,910,000 Shares sought of the 7.04% Preferred and the
4,850,000 Shares sought of the 6 7/8% Preferred (each, the "Amount Sought"),
upon the terms and subject to the conditions of the Offer, including the
provisions relating to proration described herein. Shares not purchased
because of proration will be returned.
The November Quarterly Dividend of $0.465 per 7.44% Share, $0.44 per 7.04%
Share and $0.429688 per 6 7/8% Share has been declared and is to be paid on
November 15, 1995 to holders of record of Shares as of the close of business
on October 16, 1995. A tender of Shares pursuant to the Offer will not deprive
any shareholder of his or her right to receive such dividend, regardless of
when such tender is made. Holders of Shares tendered into and purchased
pursuant to the Offer will not be entitled to any dividends in respect of any
later dividend periods.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
"TERMS OF THE OFFER--CERTAIN CONDITIONS OF THE OFFER."
Tendering shareholders will not be obligated to pay brokerage commissions,
solicitation fees or, subject to the Instructions to the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Company.
The Company will pay all charges and expenses of Goldman, Sachs & Co. and Dean
Witter Reynolds Inc. (the "Dealer Managers"), First Chicago Trust Company of
New York (the "Depositary") and D.F. King & Co., Inc. (the "Information
Agent") incurred in connection with the Offer. In addition, the Company will
pay a $0.375 per Share soliciting fee to the Soliciting Dealer, if any,
designated by the holder tendering such Share. See "Fees and Expenses." ANY
TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE AND SIGN THE
SUBSTITUTE FORM W-9 THAT IS INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO A REQUIRED FEDERAL INCOME TAX BACKUP WITHHOLDING OF 31% OF THE
GROSS PROCEEDS PAYABLE TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE
OFFER. See "Terms of the Offer--Procedure for Tendering Shares" and "Certain
Federal Income Tax Consequences."
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH SHAREHOLDER
MUST MAKE HIS OR HER OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO,
HOW MANY SHARES TO TENDER.
As of October 20, 1995, there were issued and outstanding 5,000,000 7.44%
Shares, 3,000,000 7.04% Shares and 5,000,000 6 7/8% Shares. The 4,850,000
7.44% Shares that the Company is offering
1
<PAGE>
to purchase represent 97% of the 7.44% Shares which are outstanding; the
2,910,000 7.04% Shares that the Company is offering to purchase represent 97%
of the 7.04% Shares which are outstanding; and the 4,850,000 6 7/8% Shares
that the Company is offering to purchase represent 97% of the 6 7/8% Shares
which are outstanding.
The 7.44% Shares are listed and traded on the American and Pacific Stock
Exchanges under the symbol "PCG PrQ"; the 7.04% Shares are listed and traded
on the American and Pacific Stock Exchanges under the symbol "PCG PrU"; and
the 6 7/8% Shares are listed and traded on the American and Pacific Stock
Exchanges under the symbol "PCG PrX". See "Price Range of Shares; Dividends."
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
Copies of this Offer to Purchase and the Letter of Transmittal are being
mailed to record holders of Shares and will be furnished to brokers, banks and
similar persons whose names, or the names of whose nominees, appear on the
Company's shareholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
TERMS OF THE OFFER
NUMBER OF SHARES; PURCHASE PRICE; EXPIRATION DATE; RECEIPT OF DIVIDEND
Upon the terms and subject to the conditions described herein and in the
Letter of Transmittal, the Company will purchase up to the Amount Sought that
are validly tendered on or prior to the Expiration Date with respect to that
Series of Preferred (and not properly withdrawn in accordance with "Terms of
the Offer--Withdrawal Rights") at a price of $25.85 per 7.44% Share, $26.80
per 7.04% Share and $25.25 per 6 7/8% Share. The later of 12:00 midnight, New
York City time, on November 20, 1995, or the latest time and date to which the
Offer is extended with respect to any Series of Preferred, is referred to
herein as the "Expiration Date." If the Offer is oversubscribed with respect
to any Series of Preferred, only Shares tendered on or prior to the Expiration
Date with respect to that Series of Preferred shall be eligible for proration.
The Offer is not conditioned on any minimum number of Shares being tendered.
The Offer is, however, subject to certain other conditions. See "Terms of the
Offer--Certain Conditions of the Offer."
The November Quarterly Dividend of $0.465 per 7.44% Share, $0.44 per 7.04%
Share and $0.429688 per 6 7/8% Share has been declared and is to be paid on
November 15, 1995 to holders of record of Shares as of the close of business
on October 16, 1995. A tender of Shares pursuant to the Offer will not deprive
any shareholder of his or her right to receive such dividend, regardless of
when such tender is made. Holders of Shares tendered into and purchased
pursuant to the Offer will not be entitled to any dividends in respect of any
later dividend periods.
The Company expressly reserves the right, in its sole discretion, at any
time or from time to time, to extend the period of time during which the Offer
is open with respect to a Series of Preferred by giving oral or written notice
of such extension to the Depositary. See "Terms of the Offer--Extension of
Tender Period; Termination; Amendments." There can be no assurance, however,
that the Company will exercise its right to extend the Offer with respect to
any Series of Preferred.
No alternative, conditional or contingent tenders will be accepted.
PRORATION
Upon the terms and subject to the conditions of the Offer, if the Amount
Sought of a Series of Preferred or fewer Shares of that Series of Preferred
have been validly tendered and not withdrawn
2
<PAGE>
on or prior to the Expiration Date with respect to that Series of Preferred,
the Company will purchase all such Shares. Upon the terms and subject to the
conditions of the Offer, if more Shares than the Amount Sought of a Series of
Preferred (or, if decreased as described herein, such lesser number as the
Company may elect to purchase pursuant to the Offer) have been validly
tendered and not withdrawn on or prior to the Expiration Date with respect to
that Series of Preferred, the Company will purchase Shares of that Series of
Preferred from each tendering holder on a pro rata basis, subject to
adjustment to avoid the purchase of fractional Shares.
If the Company decreases the Amount Sought of a Series of Preferred, and the
Offer is scheduled to expire less than ten business days from and including
the date that notice of such decrease is first published, sent or given in the
manner specified in "Terms of the Offer--Extension of Tender Period;
Termination; Amendments," then the Offer with respect to that Series of
Preferred will be extended for ten business days from and including the date
of such notice. For purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or federal holiday and consists of the time
period from 12:01 a.m through 12:00 midnight, New York City time.
All Shares not purchased pursuant to the Offer, including Shares not
purchased because of proration, will be returned to the tendering shareholders
at the Company's expense as promptly as practicable following the applicable
Expiration Date.
If proration of tendered Shares of a Series of Preferred is required,
because of the difficulty in determining the number of Shares validly tendered
(including Shares tendered by the guaranteed delivery procedure described in
"Terms of the Offer--Procedure for Tendering Shares"), the Company does not
expect that it would be able to announce the final proration factor or to
commence payment for any Shares of such Series of Preferred purchased pursuant
to the Offer until approximately seven business days after the applicable
Expiration Date. Preliminary results of proration will be announced by press
release as promptly as practicable after such Expiration Date. Holders of
Shares may obtain such preliminary information from the Dealer Managers or the
Information Agent and may also be able to obtain such information from their
brokers.
PROCEDURE FOR TENDERING SHARES
To tender Shares validly pursuant to the Offer, the tendering holder of
Shares must either:
(a) send to the Depositary (at one of its addresses set forth on the back
cover of this Offer to Purchase) a properly completed and duly executed
Letter of Transmittal or facsimile thereof, together with any required
signature guarantees and any other documents required by the Letter of
Transmittal, and either (i) cause certificates for the Shares to be
tendered to be received by the Depositary, at one of such addresses or (ii)
cause such Shares to be delivered pursuant to the procedures for book-entry
transfer described below (and a confirmation of such delivery received by
the Depositary), in each case on or prior to the applicable Expiration
Date; or
(b) comply with the guaranteed delivery procedure described under
"Guaranteed Delivery Procedure" below.
The Depositary will establish an account with respect to the Shares at The
Depository Trust Company, Midwest Securities Trust Company and Philadelphia
Depositary Trust Company (collectively referred to as the "Book-Entry Transfer
Facilities") for purposes of the Offer within two business days after the date
of this Offer to Purchase, and any financial institution that is a participant
in the system of any Book-Entry Transfer Facility may make delivery of Shares
by causing such Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account in accordance with the procedures of such Book-Entry
Transfer Facility. Although delivery of Shares may be effected through book-
entry transfer, a properly completed and duly executed Letter of Transmittal
or facsimile thereof, together with any required signature guarantees and any
other required documents, must, in any case, be
3
<PAGE>
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase on or prior to the applicable Expiration Date, or
the tendering holder of Shares must comply with the guaranteed delivery
procedure described below. Delivery of the Letter of Transmittal and any other
required documents to a Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
Except as otherwise provided below, all signatures on a Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc., or by a commercial bank or trust company having an office or
correspondent in the United States which is a participant in an approved
Signature Guarantee Medallion Program (each of the foregoing being referred to
as an "Eligible Institution"). Signatures on a Letter of Transmittal need not
be guaranteed if (a) the Letter of Transmittal is signed by the registered
holder of the Shares tendered therewith and such holder has not completed the
box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (b) such Shares are
tendered for the account of an Eligible Institution. See Instructions 1 and 5
of the Letter of Transmittal.
Guaranteed Delivery Procedure. If a shareholder desires to tender Shares
pursuant to the Offer and cannot deliver certificates for such Shares and all
other required documents to the Depositary on or prior to the applicable
Expiration Date, or the procedure for book-entry transfer cannot be complied
with in a timely manner, such Shares may nevertheless be tendered if all of
the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery
in the form provided by the Company (with any required signature
guarantees) is received by the Depositary as provided below on or prior to
the applicable Expiration Date; and
(iii) the certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the Book-
Entry Transfer Facilities), together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) and any other
documents required by the Letter of Transmittal, are received by the
Depositary no later than 5:00 p.m., New York City time, on the third
American Stock Exchange trading day after the date of execution of the
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
facsimile transmittal or mail to the Depositary and must include a guarantee
by an Eligible Institution in the form set forth in such Notice.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING SHAREHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
TO AVOID FEDERAL INCOME TAX BACKUP WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE PURSUANT TO THE OFFER, EACH SHAREHOLDER MUST NOTIFY THE
DEPOSITARY OF SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND
PROVIDE CERTAIN OTHER INFORMATION BY PROPERLY COMPLETING THE SUBSTITUTE FORM
W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. FOREIGN SHAREHOLDERS (AS DEFINED
UNDER "CERTAIN FEDERAL INCOME TAX CONSEQUENCES") MUST SUBMIT A PROPERLY
COMPLETED FORM W-8 IN ORDER TO AVOID THE APPLICABLE BACKUP WITHHOLDING;
PROVIDED, HOWEVER, THAT BACKUP WITHHOLDING WILL NOT APPLY TO FOREIGN
SHAREHOLDERS SUBJECT TO 30% (OR LOWER TREATY RATE) WITHHOLDING ON GROSS
PAYMENTS RECEIVED PURSUANT TO THE OFFER (AS DISCUSSED UNDER "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES"). For a discussion of certain federal income tax
consequences to tendering shareholders, see "Certain Federal Income Tax
Consequences." EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR.
4
<PAGE>
It is a violation of Rule 14e-4 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), for a person to tender Shares
for his or her own account unless the person so tendering (i) has a net long
position equal to or greater than the amount of Shares tendered or other
securities immediately convertible into, or exercisable or exchangeable for,
the amount of Shares tendered, and will acquire such Shares for tender by
conversion, exercise or exchange of such other securities and (ii) will cause
such Shares to be delivered in accordance with the terms of the Offer. Rule
14e-4 provides a similar restriction applicable to the tender or guarantee of
a tender on behalf of another person. The tender of Shares pursuant to any one
of the procedures described above will constitute the tendering shareholder's
representation and warranty that (a) such shareholder has a net long position
in the Shares being tendered within the meaning of Rule 14e-4, and (b) the
tender of such Shares complies with Rule 14e-4. The Company's acceptance for
payment of Shares tendered pursuant to the Offer will constitute a binding
agreement between the tendering shareholder and the Company upon the terms and
subject to the conditions of the Offer.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Company, in its sole discretion, and its
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of Shares that (i) it determines are not in
proper form or (ii) the acceptance for payment of or payment for which may, in
the opinion of the Company's counsel, be unlawful. The Company also reserves
the absolute right to waive any defect or irregularity in any tender of
Shares. None of the Company, the Dealer Managers, the Depositary, the
Information Agent or any other person will be under any duty to give notice of
any defect or irregularity in tenders, nor shall any of them incur any
liability for failure to give any such notice.
The Company will pay a solicitation fee of $0.375 per Share for any Shares
tendered and accepted for payment and paid for pursuant to the Offer, covered
by a Letter of Transmittal which designates, as having solicited and obtained
the tender, the name of (i) any broker or dealer in securities, including the
Dealer Managers in their capacity as a broker or dealer, who is a member of
any national securities exchange or of the National Association of Securities
Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for
membership in the NASD which agrees to conform to the NASD's Rules of Fair
Practice in soliciting tenders outside the United States to the same extent as
though it were an NASD member, or (iii) any bank or trust company (each of
which is referred to herein as a "Soliciting Dealer"). No such fee shall be
payable to a Soliciting Dealer if such Soliciting Dealer is required for any
reason to transfer the amount of such fee to a depositing holder (other than
itself). No broker, dealer, bank, trust company or fiduciary shall be deemed
to be an agent of the Company, the Depositary, the Information Agent or the
Dealer Managers for the purposes of the Offer.
WITHDRAWAL RIGHTS
Tenders of Shares of a Series of Preferred made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date with respect to such Series
of Preferred. Thereafter, such tenders are irrevocable, except that they may
be withdrawn after Tuesday, December 19, 1995 unless theretofore accepted for
payment as provided in this Offer to Purchase. If, with respect to any Series
of Preferred, the Company extends the period of time during which the Offer is
open, is delayed in accepting for payment or paying for Shares of that Series
of Preferred or is unable to accept for payment or pay for Shares pursuant to
the Offer for any reason, then, without prejudice to the Company's rights
under the Offer, the Depositary may, on behalf of the Company, retain all
Shares of that Series of Preferred tendered, and such Shares may not be
withdrawn except as otherwise provided in this "Terms of the Offer--Withdrawal
Rights," subject to Rule 13e-4(f) (5) under the Exchange Act, which provides
that an issuer making a tender offer shall either pay the consideration
offered, or return the tendered securities, promptly after the termination or
withdrawal of the tender offer.
5
<PAGE>
To be effective, a written or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses or facsimile
numbers set forth on the back cover of this Offer to Purchase and must specify
the name of the person who tendered the Shares to be withdrawn and the number
of Shares to be withdrawn. If the Shares to be withdrawn have been delivered
to the Depositary, a signed notice of withdrawal with signatures guaranteed by
an Eligible Institution (except in the case of Shares tendered by an Eligible
Institution) must be submitted prior to the release of such Shares. In
addition, such notice must specify, in the case of Shares tendered by delivery
of certificates, the name of the registered holder (if different from that of
the tendering shareholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at one of
the Book-Entry Transfer Facilities to be credited with the withdrawn Shares
and the name of the registered holder (if different from the name of such
account). Withdrawals may not be rescinded, and Shares withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn Shares may be retendered by again following one of the procedures
described in "Terms of the Offer--Procedure for Tendering Shares" at any time
prior to the applicable Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Company in its sole discretion,
and its determination shall be final and binding. None of the Company, the
Dealer Managers, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defect or irregularity in
any notice of withdrawal or incur any liability for failure to give any such
notification.
ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer (including the
proration provisions) and as promptly as practicable after the Expiration Date
with respect to a Series of Preferred, the Company will accept for payment and
pay for Shares of that Series of Preferred validly tendered. See "Terms of the
Offer--Number of Shares; Purchase Price; Expiration Date; Receipt of
Dividends," "Terms of the Offer--Proration" and "Terms of the Offer--Certain
Conditions of the Offer." Thereafter, payment for all Shares of that Series of
Preferred validly tendered on or prior to the applicable Expiration Date and
accepted for payment pursuant to the Offer will be made by the Depositary by
check as promptly as practicable. In all cases, payment for Shares accepted
for payment pursuant to the Offer will be made only after timely receipt by
the Depositary of certificates for Shares (or of a confirmation of a book-
entry transfer of such Shares into the Depositary's account at one of the
Book-Entry Transfer Facilities), a properly completed and duly executed Letter
of Transmittal or facsimile thereof, and any other required documents.
For purposes of the Offer, the Company will be deemed to have accepted for
payment (and thereby purchased) Shares that are validly tendered and not
withdrawn as, if and when it gives oral or written notice to the Depositary of
its acceptance for payment of such Shares. The Company will pay for Shares
that it has purchased pursuant to the Offer by depositing the purchase price
therefor with the Depositary. The Depositary will act as agent for tendering
shareholders for the purpose of receiving payment from the Company and
transmitting payment to tendering shareholders. Under no circumstances will
interest be paid on amounts to be paid to tendering shareholders, regardless
of any delay in making such payment.
Certificates for all Shares not purchased will be returned (or, in the case
of Shares tendered by book-entry transfer, such Shares will be credited to an
account maintained with a Book-Entry Transfer Facility) as promptly as
practicable, without expense to the tendering shareholder.
Payment for Shares may be delayed in the event of difficulty in determining
the number of Shares properly tendered or if proration is required. See "Terms
of the Offer--Proration." In addition, if certain events occur, the Company
may not be obligated to purchase Shares pursuant to the Offer. See "Terms of
the Offer--Certain Conditions of the Offer."
6
<PAGE>
The Company will pay or cause to be paid any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder, or if tendered Shares are registered
in the name of any person other than the person signing the Letter of
Transmittal, the amount of any stock transfer taxes (whether imposed on the
registered holder, such other person or otherwise) payable on account of the
transfer to such person will be deducted from the purchase price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Instruction 6 to the Letter of Transmittal.
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, the Company will not be
required to accept for payment or pay for any Shares of a Series of Preferred
tendered, and may terminate or amend the Offer with respect thereto, and may
postpone (subject to the requirements of the Exchange Act for prompt payment
for or return of Shares) the acceptance for payment of or payment for Shares
of a Series of Preferred tendered, if at any time after October 23, 1995 and
at or before acceptance for payment of or payment for any Shares of a Series
of Preferred, any of the following shall have occurred:
(a) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency, authority or tribunal or any other person, domestic or foreign, or
before any court, authority, agency or tribunal that (i) challenges the
acquisition of Shares of that Series of Preferred pursuant to the Offer or
otherwise in any manner relates to or affects the Offer or (ii) in the sole
judgment of the Company, could materially and adversely affect the
business, condition (financial or other), income, operations or prospects
of the Company and its subsidiaries taken as a whole, or otherwise
materially impair in any way the contemplated future conduct of the
business of the Company or any of its subsidiaries or materially impair the
Offer's contemplated benefits to the Company;
(b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered,
amended, enforced or deemed to be applicable to the Offer or the Company or
any of its subsidiaries, by any legislative body, court, authority, agency
or tribunal which, in the Company's sole judgment, would or might directly
or indirectly (i) make the acceptance for payment of, or payment for, some
or all of the Shares of that Series of Preferred illegal or otherwise
restricts or prohibits consummation of the Offer, (ii) delay or restrict
the ability of the Company, or renders the Company unable, to accept for
payment or pay for some or all of the Shares of that Series of Preferred,
(iii) materially impair the contemplated benefits of the Offer to the
Company or (iv) materially affect the business, condition (financial or
other), income, operations or prospects of the Company and its subsidiaries
taken as a whole, or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or any of its
subsidiaries;
(c) it shall have been publicly disclosed or the Company shall have
learned that (i) any person or "group" (within the meaning of Section 13
(d) (3) of the Exchange Act) has acquired or proposes to acquire beneficial
ownership of more than 5% of the outstanding common stock of the Company
whether through the acquisition of stock, the formation of a group, the
grant of any option or right, or otherwise (other than as disclosed in a
Schedule 13D or 13G on file with the Securities and Exchange Commission
(the "Commission") on October 20, 1995), or (ii) any such person or group
that on or prior to October 20, 1995 had filed such a Schedule with the
Commission thereafter shall have acquired or shall propose to acquire
whether through the acquisition of stock, the formation of a group, the
grant of any option or right, or otherwise, beneficial ownership of
additional shares of common stock of the Company representing 2% or more of
the outstanding common stock of the Company;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market, (ii) any
7
<PAGE>
significant decline in the market price of the Shares of that Series of
Preferred, (iii) any change in the general political, market, economic or
financial condition in the United States or abroad that could have a
material adverse effect on the Company's business, operations, prospects or
ability to obtain financing generally or the trading in the Shares of that
Series of Preferred or other equity securities of the Company, (iv) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or any limitation on, or any event
which, in the Company's sole judgment, might affect the extension of credit
by lending institutions in the United States, (v) the commencement of a
war, armed hostilities or other international or national calamity directly
or indirectly involving the United States or (vi) in the case of any of the
foregoing existing at the time of the commencement of the Offer, in the
Company's sole judgment, a material acceleration or worsening thereof;
(e) a tender or exchange offer with respect to some or all of the Shares
of that Series of Preferred or other equity securities of the Company, or a
merger, acquisition or other business combination proposal for the Company,
shall have been proposed, announced or made by another person;
(f) there shall have occurred any event or events that have resulted, or
may in the sole judgment of the Company result, in an actual or threatened
change in the business, condition (financial or other), income, operations,
stock ownership or prospects of the Company and its subsidiaries; or
(g) there shall have occurred any decline in the Standard & Poor's
Composite 500 Stock Index (587.5 at the close of business on October 20,
1995) by an amount in excess of 15% measured from the close of business on
October 20, 1995;
and, in the sole judgment of the Company, such event or events make it
undesirable or inadvisable to proceed with the Offer with respect to such
Series of Preferred or with such acceptance for payment or payment. The
consummation of the Offer for any Series of Preferred is not conditioned on
the consummation of the Offer for all Series of Preferred.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action
or inaction by the Company) giving rise to any such condition, and any such
condition may be waived by the Company, in whole or in part, at any time and
from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time. Any determination by the
Company concerning the events described above will be final and binding on all
parties.
EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion and at any
time or from time to time, to extend the period of time during which the Offer
is open with respect to any Series of Preferred by giving oral or written
notice of such extension to the Depositary. There can be no assurance,
however, that the Company will exercise such right to extend the Offer. During
any such extension, all Shares of that Series of Preferred previously tendered
will remain subject to the Offer, except to the extent that such Shares may be
withdrawn as set forth in "Terms of the Offer--Withdrawal Rights." The Company
also expressly reserves the right, with respect to any Series of Preferred, in
its sole discretion, (i) to, among other things, terminate the Offer and not
accept for payment or pay for any Shares tendered or, subject to Rule 13e-
4(f)(5) under the Exchange Act, which requires the Company either to pay the
consideration offered or to return the Shares tendered promptly after the
termination or withdrawal of the Offer, to postpone acceptance for payment of
or payment for Shares upon the occurrence of any of the conditions specified
in "Terms of the Offer--Certain Conditions of the Offer" by, in the case of
any termination, giving oral or written notice of such termination to the
Depositary and making a public announcement thereof and (ii) at any time or
from time to time to amend the Offer
8
<PAGE>
in any respect. Amendments to the Offer may be effected by public
announcement. Without limiting the manner in which the Company may choose to
make public announcement of any termination or amendment, the Company shall
have no obligation (except as otherwise required by applicable law) to
publish, advertise or otherwise communicate any such public announcement,
other than by making a release to the Dow Jones News Service, except in the
case of an announcement of an extension of the Offer with respect to any
Series of Preferred, in which case the Company shall have no obligation to
publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice shall be issued no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date with respect to that Series of Preferred. Material changes to information
previously provided to holders of the Shares in this Offer or in documents
furnished subsequent thereto will be disseminated to holders of Shares in
compliance with Rule 13e-4(e)(2) promulgated by the Commission under the
Exchange Act.
If the Company materially changes the terms of the Offer or the information
concerning the Offer, or if it waives a material condition of the Offer, the
Company will extend the Offer to the extent required by Rules 13e-4(d)(2) and
13e-4(e)(2) under the Exchange Act. Those rules require that the minimum
period during which an offer must remain open following material changes in
the terms of the offer or information concerning the offer (other than a
change in price, change in dealer's soliciting fee or change in percentage of
securities sought) will depend on the facts and circumstances, including the
relative materiality of such terms or information. In a published release, the
Commission has stated that, in its view, an offer should remain open for a
minimum of five business days from the date that a notice of such a material
change is first published, sent or given. The Offer with respect to any Series
of Preferred will continue to be extended for at least ten business days from
the time the Company publishes, sends or gives to holders of Shares of that
Series of Preferred a notice that it will (a) increase or decrease the price
it will pay for Shares of that Series of Preferred or the amount of the
dealer's soliciting fee or (b) increase or decrease the percentage of Shares
in that Series of Preferred it seeks (except that the acceptance for payment
of additional Shares of a Series of Preferred not to exceed 2% of the
outstanding Shares in that Series of Preferred shall not be deemed to be an
increase).
PRICE RANGE OF SHARES; DIVIDENDS
7.44% SHARES
The 7.44% Shares are listed and traded on the American and Pacific Stock
Exchanges. The following table sets forth the high and low sales prices of the
7.44% Shares on the American Stock Exchange and the cash dividends per 7.44%
Share for the fiscal quarters indicated.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
<C> <S> <C> <C> <C>
1992: 3rd Quarter (from August 18, 1992)............. 26 3/8 25 1/8 --
4th Quarter.................................... 26 3/8 24 5/8 0.40300
1993: 1st Quarter.................................... 26 3/8 24 1/2 0.46500
2nd Quarter.................................... 26 5/8 25 1/4 0.46500
3rd Quarter.................................... 26 5/8 25 5/8 0.46500
4th Quarter.................................... 26 3/4 25 0.46500
1994: 1st Quarter.................................... 26 3/8 23 1/2 0.46500
2nd Quarter.................................... 24 3/4 22 1/2 0.46500
3rd Quarter.................................... 23 5/8 21 7/8 0.46500
4th Quarter.................................... 22 5/8 20 1/8 0.46500
1995: 1st Quarter.................................... 23 7/8 21 3/8 0.46500
2nd Quarter.................................... 25 1/8 22 5/8 0.46500
3rd Quarter.................................... 25 5/8 24 0.46500
4th Quarter (through October 20, 1995) ........ 25 5/8 24 3/4
</TABLE>
9
<PAGE>
On October 20, 1995, the last full American Stock Exchange trading day prior
to the commencement of the Offer, the last reported sale price of the 7.44%
Shares on the American Stock Exchange was $25 1/8 per 7.44% Share. According
to data published by Bloomberg L.P., a financial information service, the
closing market price of the 7.44% Shares on October 20, 1995 reflects
approximately $.04 per 7.44% Share of amounts which have accreted in respect
of the February Quarterly Dividend.
The November Quarterly Dividend of $0.465 per 7.44% Share has been declared
and is to be paid on November 15, 1995 to holders of record of 7.44% Shares as
of the close of business on October 16, 1995. A tender of 7.44% Shares
pursuant to the Offer will not deprive any shareholder of his or her right to
receive such Dividend, regardless of when such tender is made. Holders of
7.44% Shares tendered into and purchased pursuant to the Offer will not be
entitled to any dividends in respect of any later dividend periods.
7.04% SHARES
The 7.04% Shares are listed and traded on the American and Pacific Stock
Exchanges. The following table sets forth the high and low sales prices of the
7.04% Shares on the American Stock Exchange and the cash dividends per 7.04%
Share for the fiscal quarters indicated.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
<C> <S> <C> <C> <C>
1993: 1st Quarter (from March 26, 1993).............. 24 3/4 24 5/8 --
2nd Quarter.................................... 25 3/4 24 3/8 0.15156
3rd Quarter.................................... 26 5/8 25 1/4 0.44000
4th Quarter.................................... 26 7/8 25 1/4 0.44000
1994: 1st Quarter.................................... 26 1/8 23 1/2 0.44000
2nd Quarter.................................... 23 3/4 21 7/8 0.44000
3rd Quarter.................................... 22 7/8 21 0.44000
4th Quarter.................................... 21 1/2 19 3/4 0.44000
1995: 1st Quarter.................................... 22 7/8 20 3/8 0.44000
2nd Quarter.................................... 24 5/8 21 1/2 0.44000
3rd Quarter.................................... 25 3/4 23 1/2 0.44000
4th Quarter (through October 20, 1995) ........ 25 7/8 25
</TABLE>
On October 20, 1995, the last full American Stock Exchange trading day prior
to the commencement of the Offer, the last reported sale price of the 7.04%
Shares on the American Stock Exchange was $25 1/8 per 7.04% Share. According
to data published by Bloomberg L.P., a financial information service, the
closing market price of the 7.04% Shares on October 20, 1995 reflects
approximately $.04 per 7.04% Share of amounts which have accreted in respect
of the February Quarterly Dividend.
The November Quarterly Dividend of $0.44 per 7.04% Share has been declared
and is to be paid on November 15, 1995 to holders of record of 7.04% Shares as
of the close of business on October 16, 1995. A tender of 7.04% Shares
pursuant to the Offer will not deprive any shareholder of his or her right to
receive such Dividend, regardless of when such tender is made. Holders of
7.04% Shares tendered into and purchased pursuant to the Offer will not be
entitled to any dividends in respect of any later dividend periods.
10
<PAGE>
6 7/8% SHARES
The 6 7/8% Shares are listed and traded on the American and Pacific Stock
Exchanges. The following table sets forth the high and low sales prices of the
6 7/8% Shares on the American Stock Exchange and the cash dividends per 6 7/8%
Share for the fiscal quarters indicated.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW PER SHARE
------ ------ ---------
<C> <S> <C> <C> <C>
1993: 3rd Quarter (from July 29, 1993)............... 25 5/8 24 3/8 --
4th Quarter.................................... 25 3/8 24 1/4 0.439236
1994: 1st Quarter.................................... 25 5/8 22 3/4 0.429688
2nd Quarter.................................... 23 20 1/2 0.429688
3rd Quarter.................................... 22 19 5/8 0.429688
4th Quarter.................................... 20 1/2 18 3/8 0.429688
1995: 1st Quarter.................................... 22 1/8 19 3/8 0.429688
2nd Quarter.................................... 23 5/8 20 3/4 0.429688
3rd Quarter.................................... 24 7/8 22 1/8 0.429688
4th Quarter (through October 20, 1995) ........ 24 1/8 23 3/8
</TABLE>
On October 20, 1995, the last full American Stock Exchange trading day prior
to the commencement of the Offer, the last reported sale price of the 6 7/8%
Shares on the American Stock Exchange was $23 3/8 per 6 7/8% Share. According
to data published by Bloomberg L.P., a financial information service, the
closing market price of the 6 7/8% Shares on October 20, 1995 reflects
approximately $.04 per 6 7/8% Share of amounts which have accreted in respect
of the February Quarterly Dividend.
The November Quarterly Dividend of $0.429688 per 6 7/8% Share has been
declared and is to be paid on November 15, 1995 to holders of record of 6 7/8%
Shares as of the close of business on October 16, 1995. A tender of Shares
pursuant to the Offer will not deprive any shareholder of his or her right to
receive such Dividend, regardless of when such tender is made. Holders of
Shares tendered into and purchased pursuant to the Offer will not be entitled
to any dividends in respect of any later dividend periods.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
11
<PAGE>
PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
The Company believes that the purchase of its Shares at this time represents
an attractive opportunity that will benefit the Company and its shareholders.
In addition, the Offer gives shareholders the opportunity to sell their Shares
at a price greater than the market price prevailing prior to the announcement
of the Offer and without the usual transaction costs associated with a market
sale.
As of October 20, 1995, there were issued and outstanding 5,000,000 7.44%
Shares, 3,000,000 7.04% Shares and 5,000,000 6 7/8% Shares. The 4,850,000
7.44% Shares that the Company is offering to purchase represent 97% of the
7.44% Shares which are outstanding; the 2,910,000 7.04% Shares that the
Company is offering to purchase represent 97% of the 7.04% Shares which are
outstanding; and the 4,850,000 6 7/8% Shares that the Company is offering to
purchase represent 97% of the 6 7/8% Shares which are outstanding.
Shares that the Company purchases pursuant to the Offer will be retired and
cancelled.
After the consummation of the Offer, the Company may determine to purchase
additional Shares on the open market, in privately negotiated transactions,
through one or more tender offers or otherwise. Any such purchases may be on
the same terms as, or on terms which are more or less favorable to holders of
Shares than, the terms of the Offer. However, Rule 13e-4 under the Exchange
Act prohibits the Company and its affiliates from purchasing any Shares of a
Series of Preferred, other than pursuant to the Offer, until at least ten
business days after the Expiration Date with respect to that Series of
Preferred. Any future purchases of Shares by the Company would depend on many
factors, including the market price of the Shares, the Company's business and
financial position, restrictions on the Company's ability to purchase Shares
imposed by law or American or Pacific Stock Exchange listing requirements and
general economic and market conditions.
The 7.44% Shares are not redeemable by the Company until August 1, 1997; the
7.04% Shares are not redeemable by the Company until January 31, 2003; and the
6 7/8% Shares are not redeemable by the Company until July 31, 1998. The Offer
does not constitute a notice of redemption of the Shares of any Series of
Preferred pursuant to the Company's Articles of Incorporation, and owners of
Shares are not under any obligation to accept the Offer or to remit their
Shares to the Company pursuant to the Offer. From the time the Shares of any
Series of Preferred become redeemable in accordance with the Company's
Articles of Incorporation, the Company may redeem Shares of such Series of
Preferred not purchased pursuant to the Offer at any time or from time to time
at the applicable stated redemption price, plus an amount equal to accrued and
unpaid dividends to the date of redemption. The Company reserves the right to
redeem the Shares of any Series of Preferred at any time after they become
redeemable. The Shares have no preemptive or conversion rights and are not
entitled to any sinking fund or similar fund. Upon liquidation or dissolution
of the Company, holders of the Shares are entitled to receive an amount equal
to the par value per Share ($25) plus all accrued and unpaid dividends thereon
to and including the date of payment, prior to the payment of any amounts to
the holders of the Company's common stock.
The Offer will reduce the number of Shares that might otherwise trade
publicly and will reduce the number of holders of Shares, which could
adversely affect the liquidity and market value of the Shares not purchased in
the Offer. The Company anticipates that there will be a sufficient number of
Shares of each Series of Preferred outstanding and publicly traded following
the consummation of the Offer to ensure a continued trading market in the
Shares of such Series of Preferred. Based on the published guidelines of the
American Stock Exchange, the Company does not believe that its purchase of the
Amount Sought of any Series of Preferred pursuant to the Offer will cause the
remaining Shares of that Series of Preferred to be delisted from the American
Stock Exchange.
The Shares are registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to its shareholders
and to the Commission and comply with the Commission's proxy rules in
connection with meetings of the Company's shareholders. The Company does not
believe that its purchase of the Amount Sought of any Series of Preferred
pursuant to the
12
<PAGE>
Offer will result in the Shares of that Series of Preferred becoming eligible
for deregistration under the Exchange Act. See "Terms of the Offer--
Proration."
As described under "Certain Information Concerning the Company" and "Source
and Amount of Funds," the Company has filed a registration statement with the
Commission with respect to the proposed offering from time to time of
Quarterly Income Preferred Securities (as defined below) by special purpose
trusts controlled by the Company. The Company intends to effect one or more
public offerings of Quarterly Income Preferred Securities, the proceeds of
which may be used to repay, repurchase, redeem or retire outstanding
indebtedness or preferred stock.
Except as disclosed in this Offer to Purchase under "Certain Information
Concerning the Company", the Company has no plans or proposals which relate to
or would result in: (a) the acquisition by any Person of additional securities
of the Company or the disposition of securities of the Company; (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries; (c) a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries; (d) any change in the present Board of Directors or management
of the Company; (e) any material change in the present dividend rate or
policy, or indebtedness or capitalization of the Company; (f) any other
material change in the Company's corporate structure or business; (g) any
change in the Company's Articles of Incorporation or By-Laws or any actions
which may impede the acquisition of control of the Company by any person; (h)
a class of equity securities of the Company being delisted from a national
securities exchange; (i) a class of equity securities of the Company becoming
eligible for termination of registration pursuant to Section 12(g) (4) of the
Exchange Act; or (j) the suspension of the Company's obligation to file
reports pursuant to Section 15(d) of the Exchange Act.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. EACH SHAREHOLDER
MUST MAKE HIS OR HER OWN DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW
MANY SHARES TO TENDER.
SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 4,850,000 7.44% Shares pursuant to the
Offer at a price of $25.85 per 7.44% Share, 2,910,000 7.04% Shares pursuant to
the Offer at $26.80 per 7.04% Share, and 4,850,000 6 7/8% Shares pursuant to
the Offer at $25.25 per 6 7/8% Share, the total amount required by the Company
to purchase such Shares will be $325,823,000, exclusive of fees and other
expenses. The Company intends to use internally available funds to purchase
Shares pursuant to the Offer.
As described under "Certain Information Concerning the Company," the Company
has filed a registration statement with the Commission with respect to the
offering from time to time of Quarterly Income Preferred Securities of PG&E
Capital I, PG&E Capital II, PG&E Capital III and PG&E Capital IV, each a
special purpose trust controlled by the Company, the proceeds of which will be
invested in Deferrable Interest Subordinated Debentures issued by the Company.
The Offer is not conditioned upon the receipt of proceeds from any offering of
Preferred Securities.
TRANSACTIONS AND AGREEMENTS CONCERNING THE SHARES
The Company has been advised by its directors and executive officers that no
directors or executive officers of the Company own any Shares.
Based upon the Company's records and upon information provided to the
Company by its directors and executive officers, neither the Company nor, to
the Company's knowledge, any of its associates, subsidiaries, directors,
executive officers or any associate of any such director or executive officer
has engaged in any transactions involving Shares during the 40 business days
preceding the date hereof. Neither the Company nor, to the Company's
knowledge, any of its directors or executive officers is a party to any
contract, arrangement, understanding or relationship relating directly or
indirectly to the Offer with any other person with respect to any securities
of the Company.
13
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In General. The following summary describes certain United States federal
income tax consequences relating to the Offer. The summary deals only with
Shares held as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code") and does not address
tax consequences that may be relevant to investors in special tax situations,
such as certain financial institutions, tax-exempt organizations, life
insurance companies, dealers in securities or currencies, or shareholders
holding the Shares as part of a conversion transaction, as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes. Each
shareholder should consult its own tax advisor with regard to the Offer and
the application of United States federal income tax laws, as well as the laws
of any state, local or foreign taxing jurisdiction, to its particular
situation.
Characterization of the Sale. A sale of Shares by a shareholder of the
Company pursuant to the Offer will be a taxable transaction for United States
federal income tax purposes. Under Section 302 of the Code, a sale of Shares
by a shareholder to the Company pursuant to the Offer will be treated as a
"sale or exchange" of such Shares for United States federal income tax
purposes (rather than as a distribution by the Company with respect to the
Shares held by the tendering shareholder) if the receipt of cash upon such
sale (i) results in a "complete redemption" of the Shares and any other stock
in the Company owned by the shareholder, or (ii) is "not essentially
equivalent to a dividend" with respect to the shareholder (each as described
below).
If either of the above tests is satisfied, and the sale of the Shares is
therefore treated as a "sale or exchange" of such Shares for United States
federal income tax purposes, the tendering shareholder will recognize gain or
loss equal to the difference between the amount of cash received by the
shareholder pursuant to the Offer and the shareholder's tax basis in the
Shares sold pursuant to the Offer. Any such gain or loss will be capital gain
or loss, and will be long-term capital gain or loss if the Shares have been
held for more than one year. If a tendering shareholder does not own, either
directly or indirectly under the attribution rules described below, any common
stock of the Company, a sale of Shares by such shareholder to the Company
pursuant to the Offer should be treated as a sale or exchange of such Shares
for United States federal income tax purposes. See "Section 302 Tests" and
"Attribution" below.
If neither of the above tests is satisfied, the tendering shareholder would
be treated as having received a dividend to the extent of the shareholder's
allocable portion of the Company's earnings and profits for federal income tax
purposes. The cash amount of such dividend would be includible in gross income
as an ordinary item in its entirety (without reduction for the tax basis of
the Shares sold pursuant to the Offer), no loss would be recognized, and the
tendering shareholder's basis in the Shares sold pursuant to the Offer would
be added to such shareholder's basis in its remaining Shares or other stock
that it owns in the Company, if any. If neither of the above tests is
satisfied, to the extent the amount of cash received by the shareholder
pursuant to the Offer exceeds such shareholder's allocable portion of the
Company's earnings and profits, such shareholder's basis will be reduced by
the amount of such excess.
14
<PAGE>
Section 302 Tests. The receipt of cash by a shareholder will be a "complete
redemption" of all the Shares owned by the shareholder if either (i) all of
the Shares and any other stock of the Company actually and constructively
owned by the shareholder are sold pursuant to the Offer, or (ii) all of the
Shares and any other stock of the Company actually owned by the shareholder
are sold pursuant to the Offer and, with respect to Shares and other stock of
the Company constructively owned by the shareholder which are not sold
pursuant to the Offer, the shareholder waives constructive ownership of all
such Shares under procedures described in Section 302(c) of the Code.
Shareholders expecting to waive constructive ownership should consult their
own tax advisors regarding eligibility and procedural rules applicable to
their particular situations.
The receipt of cash by a shareholder will be "not essentially equivalent to
a dividend" if the shareholder's sale of Shares pursuant to the Offer results
in a "meaningful reduction" in the shareholder's interest in the Company. The
sale of Shares to the Company by a tendering shareholder that does not own,
either directly or indirectly under the attribution rules, any common stock of
the Company should qualify as "not essentially equivalent to a dividend"
regardless of proration in the Offer. Also, a shareholder who owns only a
small amount of common stock of the Company should probably satisfy the "not
essentially equivalent to a dividend" test. Shareholders expecting to rely
upon the "not essentially equivalent to a dividend" test should consult their
own tax advisors as to its application in their particular situations.
Attribution. In determining whether any of the tests under Section 302 of
the Code are satisfied, shareholders must take into account not only the
Shares which are actually owned by the shareholder, but also Shares which are
constructively owned by the shareholder under Section 318 of the Code. Under
Section 318 of the Code, a shareholder may constructively own Shares actually
owned, and in some cases constructively owned, by certain related individuals
or entities and Shares which the shareholder has the right to acquire by
exercise of an option or by conversion. Contemporaneous dispositions or
acquisitions of Shares by a shareholder or related individuals or entities may
be deemed to be part of a single integrated transaction which will be taken
into account in determining whether any of the tests under Section 302 of the
Code has been satisfied.
Each shareholder should be aware that because proration may occur in the
Offer, even if all the Shares actually and constructively owned by a
shareholder are tendered pursuant to the Offer, fewer than all of such Shares
may be purchased by the Company. Thus, proration may affect whether a sale by
a shareholder pursuant to the Offer will meet any of the tests under Section
302 of the Code.
Corporate Shareholder Dividend Treatment. If a sale of Shares by a corporate
shareholder is treated as a dividend, the corporate shareholder may be
entitled to claim a deduction equal to 70% of the dividend under Section 243
of the Code, subject to applicable limitations. Corporate shareholders should,
however, consider the effect of Section 246(c) of the Code which disallows the
70% dividends-received deduction with respect to stock that is held for 45
days or less. For this purpose, the length of time a taxpayer is deemed to
have held stock may be reduced by periods during which the taxpayer's risk of
loss with respect to the stock is diminished by reason of the existence of
certain options or other transactions. Moreover, under Section 246A of the
Code, if a corporate shareholder has incurred indebtedness directly
attributable to an investment in Shares, the 70% dividends-received deduction
may be reduced by a percentage generally computed based on the amount of such
indebtedness and the total adjusted tax basis in the Shares.
Any amount received by a corporate shareholder pursuant to the Offer that is
treated as a dividend would likely constitute an "extraordinary dividend"
under Section 1059 of the Code. For this purpose, all dividends received by a
shareholder within, and having their ex-dividend date within, an 85-day period
(expanded to a 365-day period in the case of dividends received in such period
that in the
15
<PAGE>
aggregate exceed 20% of the shareholder's adjusted tax basis in the Shares)
are aggregated and also treated as extraordinary dividends. Accordingly, a
corporate shareholder would be required under Section 1059(a) of the Code to
reduce its basis (but not below zero) in its Shares by the non-taxed portion
of the aggregate dividend (i.e., the portion of the dividend for which a
deduction is allowed). If such portion exceeds the shareholder's tax basis for
its Shares (and its tax basis in any other stock of the Company that it owns),
the shareholder would be required to treat the excess as gain from the sale of
its remaining Shares or other stock that it owns in the Company. Corporate
shareholders should consult their own tax advisors as to the application of
Section 1059 of the Code to the Offer.
Foreign Shareholders. The Company will withhold United States federal income
tax at a rate of 30% from gross proceeds paid pursuant to the Offer to a
foreign shareholder or his agent, unless the Company determines that a reduced
rate of withholding is applicable pursuant to a tax treaty or that an
exemption from withholding is applicable because such gross proceeds are
effectively connected with the conduct of a trade or business by the foreign
shareholder within the United States. For this purpose, a foreign shareholder
is any shareholder that is not (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States, or (iii) any estate or trust the income
of which is subject to United States federal income taxation regardless of its
source. Without definite knowledge to the contrary, the Company will determine
whether a shareholder is a foreign shareholder by reference to the
shareholder's address. A foreign shareholder may be eligible to file for a
refund of such tax or a portion of such tax if such shareholder (i) meets the
"complete redemption" or "not essentially equivalent to a dividend" tests
described above, (ii) is entitled to a reduced rate of withholding pursuant to
a treaty and the Company withheld at a higher rate, or (iii) is otherwise able
to establish that no tax or a reduced amount of tax was due. In order to claim
an exemption from withholding on the ground that gross proceeds paid pursuant
to the Offer are effectively connected with the conduct of a trade or business
by a foreign shareholder within the United States or that the foreign
shareholder is entitled to the benefits of a tax treaty, the foreign
shareholder must deliver to the Depositary (or other person who is otherwise
required to withhold United States tax) a properly executed statement claiming
such exemption or benefits. Such statements may be obtained from the
Depositary. Foreign shareholders are urged to consult their own tax advisors
regarding the application of United States federal income tax withholding,
including eligibility for a withholding tax reduction or exemption and the
refund procedures.
Backup Withholding. See "Terms of the Offer--Procedure for Tendering Shares"
with respect to the application of the United States federal income tax backup
withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE TAX CONSEQUENCES OF A SALE PURSUANT TO THE OFFER MAY VARY DEPENDING UPON,
AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE TENDERING STOCKHOLDER.
NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL OR FOREIGN TAX
CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER. SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF SALES MADE BY THEM PURSUANT TO
THE OFFER AND THE EFFECT OF THE STOCK OWNERSHIP ATTRIBUTION RULES MENTIONED
ABOVE.
16
<PAGE>
FEES AND EXPENSES
Goldman, Sachs & Co. and Dean Witter Reynolds Inc. will act as Dealer
Managers for the Company in connection with the Offer. The Company has agreed
to pay the Dealer Managers, upon acceptance for payment of Shares pursuant to
the Offer, an aggregate fee of $0.125 per Share purchased in the Offer. The
Dealer Managers will also be reimbursed by the Company for their reasonable
out-of-pocket expenses, including attorneys' fees, and will be indemnified
against certain liabilities, including liabilities under the federal
securities laws, in connection with the Offer. The Dealer Managers have
rendered, are currently rendering and are expected to continue to render
various investment banking and other advisory services to the Company. The
Dealer Managers have received, and will continue to receive, customary
compensation from the Company for such services.
The Company will pay a solicitation fee of $0.375 per Share for any Shares
tendered and accepted for payment and paid for pursuant to the Offer, covered
by a Letter of Transmittal which designates, as having solicited and obtained
the tender, the name of (i) any broker or dealer in securities, including the
Dealer Managers in their capacity as a broker or dealer, who is a member of
any national securities exchange or of the National Association of Securities
Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for
membership in the NASD which agrees to conform to the NASD's Rules of Fair
Practice in soliciting tenders outside the United States to the same extent as
though it were an NASD member, or (iii) any bank or trust company (each of
which is referred to herein as a "Soliciting Dealer"). No such fee shall be
payable to a Soliciting Dealer if such Soliciting Dealer is required for any
reason to transfer the amount of such fee to a depositing holder (other than
itself). No broker, dealer, bank, trust company or fiduciary shall be deemed
to be an agent of the Company, the Depositary, the Information Agent or the
Dealer Managers for the purposes of the Offer.
The Company has retained First Chicago Trust Company of New York as
Depositary and D.F. King & Co., Inc. as Information Agent in connection with
the Offer. The Information Agent may contact shareholders by mail, telephone,
telex, telegraph and personal interviews, and may request brokers, dealers and
other nominee shareholders to forward materials relating to the Offer to
beneficial owners. The Depositary and the Information Agent will receive
reasonable and customary compensation for their services and will also be
reimbursed for certain out-of-pocket expenses. The Company has agreed to
indemnify the Depositary and the Information Agent against certain
liabilities, including certain liabilities under the federal securities laws,
in connection with the Offer. Neither the Information Agent nor the Depositary
has been retained to make solicitations or recommendations in connection with
the Offer.
Other than as described above, the Company will not pay any solicitation
fees to any broker, dealer, bank, trust company or other person for any Shares
purchased in connection with the Offer. The Company will reimburse such
persons for customary handling and mailing expenses incurred in connection
with the Offer.
The Company will pay all stock transfer taxes, if any, payable on account of
the acquisition of the Shares by the Company pursuant to the Offer, except in
certain circumstances where special payment or delivery procedures are
utilized pursuant to Instruction 6 of the Letter of Transmittal.
17
<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY
Pacific Gas and Electric Company is an operating public utility engaged
principally in the business of supplying electric and natural gas service
throughout most of northern and central California. The Company was
incorporated in California in 1905. Its principal executive office is located
at 77 Beale Street, P.O. Box 770000, San Francisco, California 94177, and its
telephone number is (415) 973-7000.
Recent Developments
Holding Company Formation. The Board of Directors of the Company has
authorized management to seek appropriate regulatory approvals for the
formation of a holding company structure. Under such structure the holders of
common stock of the Company would become the holders of common stock of a new
holding company which, in turn, would own all the common stock of the Company.
The debt and preferred stock of the Company would remain outstanding at the
Company level and would not become obligations or securities of the holding
company.
This transaction would not result in any change in the Company's ownership
of California utility operations, which currently represent substantially all
of the assets, revenues and earnings of the Company. It is intended that the
Company's ownership interests in Pacific Gas Transmission Company ("PGT") and
PG&E Enterprises, two of the Company's wholly owned subsidiaries, would be
transferred to the holding company and released from the Company's First and
Refunding Mortgage. PGT is a gas pipeline company with operations in the
Pacific Northwest and PG&E Enterprises is an entity with interests in various
unregulated activities, including independent power development and
production. Together, those subsidiaries represent approximately 10 percent of
the Company's consolidated assets and 5 percent of the Company's consolidated
revenues and earnings at year end 1994.
The Company believes that the formation of a holding company will help the
Company to respond more effectively and efficiently to competitive changes
taking place in the utility industry and to new business opportunities that
may arise from those changes. In this respect it is believed that this
structure will provide greater financing flexibility and will enhance the
financial separation of regulated and unregulated businesses.
The Company will be seeking approval of the transaction from the California
Public Utilities Commission, the Federal Energy Regulatory Commission and the
Nuclear Regulatory Commission. The Company's shareholders will be asked to
approve the transaction at the Company's next annual meeting in April 1996.
The Company does not expect to complete the process of forming a holding
company structure before mid-1996.
Registration Statement. The Company and PG&E Capital I, PG&E Capital II,
PG&E Capital III and PG&E Capital IV, each a statutory business trust formed
under the laws of the State of Delaware, have submitted a registration
statement (the "Registration Statement") for filing with the Commission with
respect to the proposed offering from time to time of up to $335,000,000
aggregate liquidation preference of Quarterly Income Preferred Securities,
guaranteed by the Company to the extent set forth in the Registration
Statement (the "Quarterly Income Preferred Securities"). Following the
announcement of the Offer, and subject to market and other conditions, the
Company intends that such trusts will effect one or more public offerings of
Quarterly Income Preferred Securities. Any such offering would be made only by
means of a prospectus which is included in the Registration Statement. As set
forth in "Source and Amount of Funds" above, the Company intends to finance
the Offer with internally available funds.
18
<PAGE>
Preferred Redemption. On September 1, 1995, the Company redeemed $50 million
of 8.20% Redeemable First Preferred Stock ($25 par value), $50 million of 8%
Redeemable First Preferred Stock ($25 par value) and $50 million of 7.84%
Redeemable First Preferred Stock ($25 par value).
Third Quarter Results. On October 18, 1995, the Company announced unaudited
operating revenues and net income of $2,645,223,000 and $377,593,000,
respectively, for the three months ended September 30, 1995, as compared with
$2,855,221,000 and $425,633,000, respectively, for the corresponding period in
1994.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. The Company has also filed an Issuer Tender
Offer Statement on Schedule 13E-4 with the Commission which includes certain
additional information relating to the Offer.
Such material can be inspected and copied at the public reference room of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C., and the
public reference facilities in the Commission's Regional Offices located at
Seven World Trade Center, 7th Floor, New York, New York, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of such
material can be obtained at prescribed rates by writing to the Commission,
Public Reference Section, Washington, D.C. 20549. Copies of such material can
also be inspected at the offices of the New York, American and Pacific Stock
Exchanges. The Company's Schedule 13E-4 will not be available at the
Commission's Regional Offices.
Interested shareholders may obtain copies of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 and the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 from the Company's Transfer
Agent, Shareholder Services, at 77 Beale Street, Room 2600, San Francisco,
California 94177; telephone: (800) 367-7731. Interested shareholders may also
obtain copies of such reports in the manner described in the immediately
preceding paragraph.
MISCELLANEOUS
The Offer is not being made to, nor will the Company accept tenders from,
owners of Shares in any jurisdiction in which the Offer or its acceptance
would not be in compliance with the laws of such jurisdiction. The Company is
not aware of any jurisdiction where the making of the Offer or the tender of
Shares would not be in compliance with applicable law. If the Company becomes
aware of any jurisdiction where the making of the Offer or the tender of
Shares is not in compliance with any applicable law, the Company will make a
good faith effort to comply with such law. If, after such good faith effort,
the Company cannot comply with such law, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) the holders of Shares residing
in such jurisdiction. In any jurisdiction in which the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer will be deemed to be made on the Company's behalf by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
19
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates for Shares should be sent or delivered by each
tendering shareholder of the Company or his or her broker, dealer, bank or
trust company to the Depositary at one of its addresses set forth below.
The Depositary:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By Mail: Facsimile Transmission: By Hand or By Overnight Courier:
Tenders & Exchanges (201) 222-4720 Tenders & Exchanges
P.O. Box 2559--Suite 4660 or 14 Wall Street, Suite 4680
Jersey City, New Jersey (201) 222-4721 8th Floor
07303-2559 New York, New York 10005
Confirm by Telephone:
(201) 222-4707
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at the respective telephone numbers and addresses
listed below. Requests for additional copies of this Offer to Purchase, the
Letter of Transmittal or other tender offer materials may be directed to the
Information Agent or the Dealer Managers, and such copies will be furnished
promptly at the Company's expense. Shareholders may also contact their local
broker, dealer, commercial bank or trust company for assistance concerning the
Offer.
The Information Agent:
[LOGO OF D.F. KING & CO., INC. APPEARS HERE]
77 Water Street
New York, New York 10005
(800) 549-6650 (Toll-Free)
Banks and Brokers Call: (212) 269-5550 (Collect)
The Dealer Managers:
GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC.
85 Broad Street Two World Trade Center
New York, New York 10004 New York, New York 10048
(800) 828-3162 (800) 255-3665
20
<PAGE>
EXHIBIT (a)(2)
LETTER OF TRANSMITTAL
TO ACCOMPANY
SHARES OF 7.44% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE)
SHARES OF 7.04% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE)
SHARES OF 6 7/8% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE)
OF
PACIFIC GAS AND ELECTRIC COMPANY
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED OCTOBER 23, 1995
- - --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY,
NOVEMBER 20, 1995, UNLESS THE OFFER IS EXTENDED.
- - --------------------------------------------------------------------------------
To: FIRST CHICAGO TRUST COMPANY OF NEW YORK, Depositary
By Mail: By Hand or By Overnight Courier:
Tenders & Exchanges Tenders & Exchanges
P.O. Box 2559-Suite 4660 14 Wall Street-Suite 4680-8th Floor
Jersey City, New Jersey 07303-2559 New York, New York 10005
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- - ---------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN EXACTLY AS NAME(S) APPEAR(S) SHARES TENDERED
ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- - ---------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
REPRESENTED NUMBER
SERIES OF CERTIFICATE BY OF SHARES
PREFERRED NUMBER(S)* CERTIFICATE(S)* TENDERED**
---------------------------------------------------------------
<S> <C> <C> <C>
7.44%
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL 7.44% SHARES
---------------------------------------------------------------
7.04%
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL 7.04% SHARES
---------------------------------------------------------------
6 7/8%
---------------------------------------------------------------
---------------------------------------------------------------
TOTAL 6 7/8% SHARES
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares
represented by any certificates delivered to the Depositary are
being tendered. See instruction 4.
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
DO NOT SEND ANY CERTIFICATES TO GOLDMAN, SACHS & CO., TO DEAN WITTER REYNOLDS
INC. OR TO PACIFIC GAS AND ELECTRIC COMPANY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used if certificates are to be forwarded
herewith or if delivery of Shares (as defined below) is to be made by book-
entry transfer to the Depositary's account at The Depository Trust Company
("DTC"), Midwest Securities Trust Company ("MSTC") or Philadelphia Depositary
Trust Company ("PDTC") (hereinafter collectively referred to as the "Book-
Entry Transfer Facilities") pursuant to the procedures set forth under "Terms
of the Offer--Procedure for Tendering Shares" in the Offer to Purchase (as
defined below).
Shareholders who cannot deliver their Shares and all other documents
required hereby to the Depositary by the Expiration Date (as defined in the
Offer to Purchase) must tender their Shares pursuant to the guaranteed
delivery procedure set forth under "Terms of the Offer--Procedure for
Tendering Shares" in the Offer to Purchase. See Instruction 2. Delivery of
documents to the Company or to a Book-Entry Transfer Facility does not
constitute a valid delivery.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of tendering institution ______________________________________________
Check applicable box:
[_] DTC
[_] MSTC
[_] PDTC
Account No. ________________________________________________________________
Transaction Code No. _______________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of tendering shareholder(s) ________________________________________
Date of execution of Notice of Guaranteed Delivery _________________________
Name of institution that guaranteed delivery _______________________________
If delivery is by book-entry transfer: Name of tendering institution _______
Account no._______ at
[_] DTC
[_] MSTC
[_] PDTC
Transaction Code No. _______________________________________________________
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Pacific Gas and Electric Company, a
California corporation (the "Company"), the above-described shares (together,
the "Shares") pursuant to the Company's offer to purchase up to 4,850,000
shares (the "7.44% Shares") of the 7.44% Redeemable First Preferred Stock ($25
par value) (the "7.44% Preferred") at a price of $25.85 per 7.44% Share,
2,910,000 shares (the "7.04% Shares") of the 7.04% Redeemable First Preferred
Stock ($25 par value) (the "7.04% Preferred") at a price of $26.80 per 7.04%
Share and 4,850,000 shares (the "6 7/8% Shares") of the 6 7/8% Redeemable
First Preferred Stock ($25 par value) (the "6 7/8% Preferred," the 7.44%
Preferred and the 7.04% Preferred, each a "Series of Preferred") at a price of
$25.25 per 6 7/8% Share, net to the seller in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated October 23, 1995
(the "Offer to Purchase"), receipt of which is hereby acknowledged, and in
this Letter of Transmittal (which together constitute the "Offer").
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended with
respect to any Series of Preferred, the terms and conditions of any such
extension or amendment), the undersigned hereby sells, assigns and transfers
to, or upon the order of, the Company all right, title and interest in and to
all the Shares that are being tendered hereby (and any and all other Shares or
other securities issued or issuable in respect thereof on or after October 23,
1995 (collectively, "Distributions")) and constitutes and appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares and all Distributions, with full power of
substitution (such power of attorney being an irrevocable power coupled with
an interest), to (a) deliver certificates for such Shares and all
Distributions, or transfer ownership of such Shares and all Distributions on
the account books maintained by any of the Book-Entry Transfer Facilities,
together, in any such case, with all accompanying evidences of transfer and
authenticity, to or upon the order of the Company, (b) present such Shares and
all Distributions for registration and transfer on the books of the Company
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares and all Distributions, all in accordance with the
terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver
any additional documents deemed by the Depositary or the Company to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all Distributions.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligations of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described under "Terms of the Offer--Procedure for Tendering
Shares" in the Offer to Purchase and in the instructions hereto will
constitute the undersigned's acceptance of the terms and conditions of the
Offer, including the undersigned's representation and warranty that (i) the
undersigned has a net long position in the Shares being tendered within the
meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934,
as amended, and (ii) the tender of such Shares complies with Rule 14e-4. The
Company's acceptance for payment of Shares tendered pursuant to the Offer will
constitute a binding agreement between the undersigned and the Company upon
the terms and subject to the conditions of the Offer.
<PAGE>
The undersigned recognizes that, under certain circumstances set forth in
the Offer, the Company may terminate or amend the Offer with respect to a
Series of Preferred or may not be required to purchase any of the Shares
tendered hereby or may accept for payment pro rata with Shares of a Series of
Preferred tendered by other shareholders fewer than all of the Shares tendered
hereby. In either event, the undersigned understands that certificate(s) for
any Shares not tendered or not purchased will be returned to the undersigned.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of any Shares purchased, and/or return
any Shares not tendered or not purchased, in the name(s) of the undersigned
(and, in the case of Shares tendered by book-entry transfer, by credit to the
account at the Book-Entry Transfer Facility designated above). Similarly,
unless otherwise indicated under "Special Delivery Instructions," please mail
the check for the purchase price of any Shares purchased and/or any
certificates for Shares not tendered or not purchased (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned signature(s). In the event that both "Special Payment
Instructions" and "Special Delivery Instructions" are completed, please issue
the check for the purchase price of any Shares purchased and/or return any
Shares not tendered or not purchased in the name(s) of, and mail said check
and/or any certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation, pursuant to the "Special
Payment Instructions," to transfer any Shares from the name of the registered
holder(s) thereof if the Company does not accept for payment any of the Shares
so tendered.
<PAGE>
- - ------------------------------------- -------------------------------------
SPECIAL PAYMENT INSTRUCTIONS (SEE SPECIAL DELIVERY INSTRUCTIONS
INSTRUCTIONS 4, 6 AND 7) (SEE INSTRUCTIONS 4, 6 AND 7)
To be completed ONLY if the check To be completed ONLY if the check
for the purchase price of Shares for the purchase price of Shares
purchased and/or certificates for purchased and/or certificates for
Shares not tendered or not Shares not tendered or not
purchased are to be issued in the purchased are to be mailed to
name of someone other than the someone other than the
undersigned. undersigned or to the undersigned
at an address other than that
shown below the undersigned's
signature(s).
Issue [_] check
and/or [_] certificate(s) to:
Name _____________________________ Mail [_] check
(PLEASE PRINT) and/or [_] certificate(s) to:
Address __________________________ Name______________________________
(PLEASE PRINT)
__________________________________ Address __________________________
(INCLUDE ZIP CODE)
__________________________________ __________________________________
(TAXPAYER IDENTIFICATION OR (INCLUDE ZIP CODE)
SOCIAL SECURITY NO.)
- - ------------------------------------- -------------------------------------
- - -------------------------------------------------------------------------------
SOLICITED TENDERS
(SEE INSTRUCTION 10)
The Company will pay to any Soliciting Dealer, as defined in Instruction
10, a solicitation fee of $0.375 per Share for each Share tendered and
purchased pursuant to the Offer.
The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm: ______________________________________________________________
(PLEASE PRINT)
Name of Individual Broker or Financial Consultant: _________________________
Identification Number (if known): __________________________________________
Address: ___________________________________________________________________
(INCLUDE ZIP CODE)
The following to be completed ONLY if customer's Shares held in nominee
name are tendered.
NAME OF BENEFICIAL OWNER NUMBER OF SHARES TENDERED
(ATTACH ADDITIONAL LIST IF NECESSARY)
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
The acceptance of compensation by such Soliciting Dealer will constitute
a representation by it that: (i) it has complied with the applicable
requirements of the Securities Exchange Act of 1934, as amended, and the
applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such
solicitation under the terms and conditions of the Offer to Purchase; (iii)
in soliciting tenders of Shares, it has used no soliciting materials other
than those furnished by the Company; and (iv) if it is a foreign broker or
dealer not eligible for membership in the National Association of
Securities Dealers, Inc. (the "NASD"), it has agreed to conform to the
NASD's Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer's returning a Notice of Solicited Tenders to the
Depositary.
<PAGE>
----------------------------------------------------
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
\ /
- - ------- .................................................... --------
/ \
\ /
- - ------- .................................................... --------
/ SIGNATURE(S) OF OWNER(S) \
Dated ........................................, 1995
Name(s).............................................
.............................................
(PLEASE PRINT)
Capacity (full title)...............................
Address.............................................
.............................................
(INCLUDE ZIP CODE)
Area Code and Telephone No..........................
(Must be signed by the registered holder(s) exactly
as name(s) appear(s) on the stock certificate(s) or
on a security position listing or by person(s)
authorized to become registered holder(s) by
certificates and documents transmitted herewith. If
signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary
or representative capacity, please set forth full
title and see Instruction 5.)
GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5)
Name of Firm........................................ /
--------
Authorized Signature................................ \
Dated ........................................, 1995
----------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is
a member of a registered national securities exchange or the National
Association of Securities Dealers, Inc., or by a commercial bank or trust
company having an office or correspondent in the United States which is a
participant in an approved Signature Guarantee Medallion Program (an "Eligible
Institution"). Signatures on this Letter of Transmittal need not be guaranteed
(a) if this Letter of Transmittal is signed by the registered holder(s) of the
Shares (which term, for purposes of this document, shall include any
participant in one of the Book-Entry Transfer Facilities whose name appears on
a security position listing as the owner of Shares) tendered herewith and such
holder(s) has not completed the box entitled "Special Payment Instructions" or
the box entitled "Special Delivery Instructions" on this Letter of Transmittal
or (b) if such Shares are tendered for the account of an Eligible Institution.
See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or if
delivery of Shares is to be made by book-entry transfer pursuant to the
procedures set forth under "Terms of the Offer--Procedure for Tendering
Shares" in the Offer to Purchase. Certificates for all physically delivered
Shares, or a confirmation of a book-entry transfer into the Depositary's
account at one of the Book-Entry Transfer Facilities of all Shares delivered
electronically, as well as a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on the front page of this Letter of Transmittal on or
prior to the Expiration Date (as defined in the Offer to Purchase) with
respect to a Series of Preferred. Shareholders who cannot deliver their Shares
and all other required documents to the Depositary on or prior to the
applicable Expiration Date must tender their Shares pursuant to the guaranteed
delivery procedure set forth under "Terms of the Offer--Procedure for
Tendering Shares" in the Offer to Purchase. Pursuant to such procedure: (a)
such tender must be made by or through an Eligible Institution, (b) a properly
completed and duly executed Notice of Guaranteed Delivery in the form provided
by the Company (with any required signature guarantees) must be received by
the Depositary on or prior to the applicable Expiration Date and (c) the
certificates for all physically delivered Shares, or a confirmation of a book-
entry transfer into the Depositary's account at one of the Book-Entry Transfer
Facilities of all Shares delivered electronically, as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
any other documents required by this Letter of Transmittal must be received by
the Depositary within three American Stock Exchange trading days after the
date of execution of such Notice of Guaranteed Delivery, all as provided under
"Terms of the Offer--Procedure for Tendering Shares" in the Offer to Purchase.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING SHAREHOLDER. IF CERTIFICATES FOR SHARES ARE
SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
No alternative, conditional or contingent tenders will be accepted. See
"Terms of the Offer--Number of Shares; Purchase Price; Expiration Date;
Receipt of Dividend" in the Offer to Purchase. By executing this Letter of
Transmittal (or facsimile thereof), the tendering stockholder waives any right
to receive any notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate
delivered to the Depositary are to be tendered, fill in the number of Shares
that are to be tendered in the box entitled "Number of Shares Tendered." In
such case, a new certificate for the remainder of the Shares represented by
the old certificate will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the "Special Payment Instructions"
or "Special Delivery Instructions" boxes on this Letter of Transmittal, as
promptly as practicable following the expiration or termination of the Offer.
All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the certificates without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby is held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby is registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock
powers are required unless payment of the purchase price is to be made to, or
Shares not tendered or not purchased are to be registered in the name of, any
person other than the registered holder(s). Signatures on any such
certificates or stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, certificates must be
endorsed or accompanied by appropriate stock powers, in either case, signed
exactly as the name(s) of the registered holder(s) appear(s) on the
certificates for such Shares. Signature(s) on any such certificates or stock
powers must be guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to the Company of the authority of such person so to act must be submitted.
6. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or
its order pursuant to the Offer. If, however, payment of the purchase price is
to be made to, or Shares not tendered or not purchased are to be registered in
the name of, any person other than the registered holder(s), or if tendered
Shares are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder(s), such other person or otherwise)
payable on account of the transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted. See "Terms of the Offer--Acceptance for
Payment of Shares and Payment of Purchase Price" in the Offer to Purchase.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY TO AFFIX
TRANSFER TAX STAMPS TO THE CERTIFICATES REPRESENTING SHARES TENDERED HEREBY.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase
price of any Shares purchased is to be issued in the name of, and/or any
Shares not tendered or not purchased are to be returned to, a person other
than the person(s) signing this Letter of Transmittal or if the check and/or
any certificate for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown above in the box captioned "Description of
Shares Tendered," then the boxes captioned "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained
by such shareholder at the Book-Entry Transfer Facility from which such
transfer was made.
8. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required
to provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or a properly completed Form W-8. Failure to provide the
information on either Substitute Form W-9 or Form W-8 may subject the
tendering shareholder to 31% federal income tax backup withholding on the
payment of the purchase price. The box in Part 2 of Substitute Form W-9 may be
checked if the tendering stockholder has not been issued a TIN and has applied
for a number or intends to apply for a number in the near future. If the box
in Part 2 is checked and the Depositary is not provided with a TIN by the time
of payment, the Depositary will withhold 31% on all payments of the purchase
price thereafter until a TIN is provided to the Depositary.
<PAGE>
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests
for assistance may be directed to the Information Agent or the Dealer Managers
at their respective telephone numbers and addresses listed below. Requests for
additional copies of the Offer to Purchase, this Letter of Transmittal or
other tender offer materials may be directed to the Information Agent or the
Dealer Managers and such copies will be furnished promptly at the Company's
expense. Shareholders may also contact their local broker, dealer, commercial
bank or trust company for assistance concerning the Offer.
10. SOLICITED TENDERS. The Company will pay a solicitation fee of $0.375 per
Share for any Shares tendered and accepted for payment and paid for pursuant
to the Offer, covered by the Letter of Transmittal which designates, in the
box captioned "Solicited Tenders," as having solicited and obtained the
tender, the name of (i) any broker or dealer in securities, including a Dealer
Manager in its capacity as a dealer or broker, which is a member of any
national securities exchange or of the National Association of Securities
Dealers, Inc. (the "NASD"), (ii) any foreign broker or dealer not eligible for
membership in the NASD which agrees to conform to the NASD's Rules of Fair
Practice in soliciting tenders outside the United States to the same extent as
though it were an NASD member, or (iii) any bank or trust company (each of
which is referred to herein as a "Soliciting Dealer"). No such fee shall be
payable to a Soliciting Dealer with respect to the tender of Shares by a
holder unless the Letter of Transmittal accompanying such tender designates
such Soliciting Dealer. No such fee shall be payable to a Soliciting Dealer in
respect of Shares registered in the name of such Soliciting Dealer unless such
Shares are held by such Soliciting Dealer as nominee and such Shares are being
tendered for the benefit of one or more beneficial owners identified on the
Letter of Transmittal or on the Notice of Solicited Tenders (included in the
materials provided to brokers and dealers). No such fee shall be payable to a
Soliciting Dealer with respect to the tender of Shares by the holder of
record, for the benefit of the beneficial owner, unless the beneficial owner
has designated such Soliciting Dealer. If tendered Shares are being delivered
by book-entry transfer, the Soliciting Dealer must return a Notice of
Solicited Tenders to the Depositary within three business days after
expiration of the Offer to receive a solicitation fee. No such fee shall be
payable to a Soliciting Dealer if such Soliciting Dealer is required for any
reason to transfer the amount of such fee to a depositing holder (other than
itself). No broker, dealer, bank, trust company or fiduciary shall be deemed
to be the agent of the Company, the Depositary, the Information Agent or the
Dealer Managers for purposes of the Offer.
11. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time of receipt) and acceptance of any tender
of Shares will be determined by the Company, in its sole discretion, and its
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of Shares that it determines are not in
proper form or the acceptance for payment of or payment for Shares that may,
in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any of the conditions to the Offer or any
defect or irregularity in any tender of Shares and the Company's
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as
the Company shall determine. None of the Company, the Dealer Managers, the
Depositary, the Information Agent or any other person shall be under any duty
to give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured
or waived.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF), DULY
EXECUTED, TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR
TO THE APPLICABLE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a shareholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such shareholder's correct TIN on Substitute Form W-9 below or a
properly completed Form W-8. If such shareholder is an individual, the TIN is
his or her social security number. For businesses and other entities, the
number is the employer identification number. If the Depositary is not
provided with the correct TIN or properly completed Form W-8, the shareholder
may be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, payments that are made to such shareholder with respect to Shares
purchased pursuant to the Offer may be subject to backup withholding. The Form
W-8 can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If federal income tax backup withholding applies, the Depositary is required
to withhold 31% of any payments made to the shareholder. Backup withholding is
not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of the tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the shareholder is required
to notify the Depositary of his or her correct TIN by completing the
Substitute Form W-9 attached hereto certifying that the TIN provided on
Substitute Form W-9 is correct and that (1) the shareholder has not been
notified by the Internal Revenue Service that he or she is subject to federal
income tax backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified the shareholder
that he or she is no longer subject to federal income tax backup withholding.
Foreign stockholders must submit a properly completed Form W-8 in order to
avoid the applicable backup withholding; provided, however, that backup
withholding will not apply to foreign shareholders subject to 30% (or lower
treaty rate) withholding on gross payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the registered owner of the
Shares. If the Shares are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
<PAGE>
PAYER'S NAME:
- - --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR Social security number OR
TIN IN THE BOX AT RIGHT AND Employee Identification
CERTIFY BY SIGNING AND Number
DATING BELOW. TIN _______________________
SUBSTITUTE ----------------------------------------------------------
PART 2
FORM W-9 Name (Please Print) _________________
Awaiting TIN [_]
DEPARTMENT OF THE Address _____________________________
TREASURY INTERNAL
REVENUE SERVICE City _________ State ____ Zip Code ______
----------------------------------------------------------
PART 3--CERTIFICATION--UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT:
PAYER'S REQUEST FOR (1) the number shown on this form is my correct tax-
TAXPAYER IDENTIFI- payer identification number (or a TIN has not been
CATION NUMBER (TIN) issued to me but I have mailed or delivered an ap-
AND CERTIFICATION plication to receive a TIN or intend to do so in
the near future).
(2) I am not subject to backup withholding either be-
cause I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to re-
port all interest or dividends or the IRS has no-
tified me that I am no longer subject to backup
withholding, and
(3) all other information provided on this form is
true, correct and complete.
----------------------------------------------------------
SIGNATURE: ___________________________ DATE: __________
You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to
backup withholding because of underreporting interest
or dividends on your tax return.
- - --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU
MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2
OF THE SUBSTITUTE FORM W-9.
- - --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all payments of the purchase price made to me will be
withheld until I provide a number.
Signature _______________________________________________ Date __________, 1995
- - --------------------------------------------------------------------------------
THE INFORMATION AGENT:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(800) 549-6650 (Toll-Free)
Banks and Brokers Call: (212) 269-5550 (Collect)
THE DEALER MANAGERS:
GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC.
85 Broad Street Two World Trade Center
New York, New York 10004 New York, New York 10048
(800) 828-3162 (800) 255-3665
<PAGE>
EXHIBIT (a)(3)
PACIFIC GAS AND ELECTRIC COMPANY
NOTICE OF GUARANTEED DELIVERY OF SHARES OF 7.44%
REDEEMABLE FIRST PREFERRED STOCK ($25 PAR VALUE),
SHARES OF 7.04% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) AND SHARES OF 6 7/8% REDEEMABLE
FIRST PREFERRED STOCK ($25 PAR VALUE)
This form, or a form substantially equivalent to this form, must be used to
accept the Offer (as defined below) if certificates for the Shares of 7.44%
Redeemable First Preferred Stock ($25 par value), Shares of 7.04% Redeemable
First Preferred Stock ($25 par value) or Shares of 6 7/8% Redeemable First
Preferred Stock ($25 par value) (together, the "Shares") are not immediately
available, if the procedure for book-entry transfer cannot be completed on a
timely basis, or if time will not permit all other documents required by the
Letter of Transmittal to be delivered to the Depositary on or prior to the
Expiration Date (as defined in the Offer to Purchase referred to below). Such
form may be delivered by hand or transmitted by mail, or by facsimile
transmission, to the Depositary. See "Terms of the Offer--Procedure for
Tendering Shares" in the Offer to Purchase. THE ELIGIBLE INSTITUTION WHICH
COMPLETES THIS FORM MUST COMMUNICATE THE GUARANTEE TO THE DEPOSITARY AND MUST
DELIVER THE LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES TO THE
DEPOSITARY WITHIN THE TIME SHOWN HEREIN. Failure to do so could result in a
financial loss to such Eligible Institution.
To: FIRST CHICAGO TRUST COMPANY OF NEW YORK, Depositary
By Mail: Facsimile Transmission: By Hand or By Overnight
Tenders & Exchanges (201) 222-4720 Courier:
P.O. Box 2559-Suite 4660 or Tenders & Exchange
Jersey City, New Jersey (201) 222-4721 14 Wall Street Suite
07303-2559 4680-8th Floor
Confirm by Telephone: New York, New York 10005
(201) 222-4707
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FOURTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Pacific Gas and Electric Company, a
California corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated October 23, 1995 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "Offer"), receipt of which is hereby acknowledged, the number
of Shares of the Company listed below, pursuant to the guaranteed delivery
procedure set forth in "Terms of the Offer--Procedure for Tendering Shares" in
the Offer to Purchase.
- - --------------------------------------------------------------------------------
Number of 7.44% Shares: Number of 7.04% Shares:
------------------------------------ ------------------------------------
Certificate Nos. (if available): Certificate Nos. (if available):
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
If shares will be tendered by book- If shares will be tendered by book-
entry transfer: Name of Tendering entry transfer: Name of Tendering
Institution: Institution:
------------------------------------ ------------------------------------
Account No. at (check one) Account No. at (check
[_] The Depository Trust Company one)
[_] Midwest Securities Trust [_] The Depository Trust Company
Company [_] Midwest Securities Trust Company
[_] Philadelphia Depository Trust [_] Philadelphia Depository Trust
Company Company
Number of 6 7/8% Shares:
------------------------------------ ------------------------------------
Signature(s)
Certificate Nos. (if available):
------------------------------------ ------------------------------------
Name(s) of Record Holders(s)
(Please Print)
------------------------------------ ------------------------------------
If shares will be tendered by book-
entry transfer: Name of Tendering ------------------------------------
Institution: Address
- - -------------------------------------
------------------------------------
Account No. at (check one)
[_] The Depository Trust Company
[_] Midwest Securities Trust
Company
[_] Philadelphia Depository Trust ------------------------------------
Company Area Code and Telephone Number
- - --------------------------------------------------------------------------------
<PAGE>
GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or
correspondent in the United States, guarantees (a) that the above-named
person(s) has a net long position in the Shares being tendered within the
meaning of Rule 14e-4 promulgated under the Securities Exchange Act of
1934, as amended, (b) that such tender of Shares complies with Rule 14e-4
and (c) to deliver to the Depositary at one of its addresses set forth
above certificate(s) for the Shares tendered hereby, in proper form for
transfer, or a confirmation of the book-entry transfer of the Shares
tendered hereby into the Depositary's account at The Depository Trust
Company, Midwest Securities Trust Company or Philadelphia Depository Trust
Company, in each case together with (a) properly completed and duly
executed Letter(s) of Transmittal (or facsimile(s) thereof), with any
required signature guarantee(s) and any other required documents, all
within three American Stock Exchange trading days after the date hereof.
----------------------------------- -----------------------------------
Name of Firm Authorized Signature
----------------------------------- -----------------------------------
Address Name
----------------------------------- -----------------------------------
City, State, Zip Code Title
-----------------------------------
Area Code and
Telephone Number
Dated:_________ , 1995
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM. YOUR STOCK CERTIFICATES
MUST BE SENT WITH THE LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT (a)(4)
GOLDMAN, SACHS & CO. DEAN WITTER REYNOLDS INC.
85 Broad Street Two World Trade Center
New York, New York 10004 New York, New York 10048
PACIFIC GAS AND ELECTRIC COMPANY
OFFER TO PURCHASE FOR CASH
UP TO
4,850,000 SHARES OF 7.44% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) CUSIP NO. 694308719
2,910,000 SHARES OF 7.04% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) CUSIP NO. 694308685
4,850,000 SHARES OF 6 7/8% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE) CUSIP NO. 694308677
-------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY,
NOVEMBER 20, 1995, UNLESS THE OFFER IS EXTENDED.
-------------------------------------------------------------------------------
October 23, 1995
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
In our capacity as Dealer Managers, we are enclosing the material listed
below relating to the offer by Pacific Gas and Electric Company, a California
corporation (the "Company"), to purchase up to 4,850,000 shares of its 7.44%
Redeemable First Preferred Stock ($25 par value) (the "7.44% Shares") at a
price of $25.85 per 7.44% Share, up to 2,910,000 shares of its 7.04%
Redeemable First Preferred Stock ($25 par value) (the "7.04% Shares") at a
price of $26.80 per 7.04% Share and up to 4,850,000 shares of its 6 7/8%
Redeemable First Preferred Stock ($25 par value) (the "6 7/8% Shares") at a
price of $25.25 per 6 7/8% Share (together, the "Shares"), net to the seller
in cash, upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated October 23, 1995 (the "Offer to Purchase"), and in the
related Letter of Transmittal (which together constitute the "Offer"). The
Company will purchase all Shares validly tendered and not withdrawn, upon the
terms and subject to the conditions of the Offer, including the provisions
thereof relating to proration (as described in the Offer to Purchase).
The purchase price will be paid in cash, net to the seller, with respect to
all Shares purchased. Shares not purchased because of proration will be
returned.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. The Offer is, however, subject to other conditions. See "Terms of
the Offer--Certain Conditions of the Offer" in the Offer to Purchase.
We are asking you to contact your clients for whom you hold Shares
registered in your name (or in the name of your nominee) or who hold Shares
registered in their own names. Please bring the Offer to their attention as
promptly as possible.
The Company will pay a solicitation fee of $0.375 per Share for any Shares
tendered and accepted for payment pursuant to the Offer covered by a Letter of
Transmittal which designates, as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Managers
in their capacity as a broker or dealer, which is a member of any national
securities exchange or of the National Association of Securities Dealers, Inc.
(the "NASD"), (ii) any foreign broker or dealer not eligible for membership in
the NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as
<PAGE>
though it were an NASD member, or (iii) any bank or trust company (each of
which is referred to herein as a "Soliciting Dealer"). No such fee shall be
payable to a Soliciting Dealer with respect to the tender of Shares by a
holder unless the Letter of Transmittal accompanying such tender designates
such Soliciting Dealer. No such fee shall be payable to a Soliciting Dealer if
such Soliciting Dealer is required for any reason to transfer the amount of
such fee to a depositing holder (other than itself). No broker, dealer, bank,
trust company or fiduciary shall be deemed to be the agent of the Company, the
Depositary (as defined below), the Dealer Managers or the Information Agent
for purposes of the Offer.
The Company will also, upon request, reimburse Soliciting Dealers for
reasonable and customary handling and mailing expenses incurred by them in
forwarding materials relating to the Offer to their customers. The Company
will pay all stock transfer taxes applicable to its purchase of Shares
pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal.
In order for a Soliciting Dealer to receive a solicitation fee, First
Chicago Trust Company of New York, as Depositary (the "Depositary") must have
received from such Soliciting Dealer a properly completed and duly executed
Notice of Solicited Tenders in the form attached hereto (or facsimile thereof)
within three business days after the expiration of the Offer.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. The Offer to Purchase.
2. The Letter of Transmittal for your use and for the information of your
clients.
3. A letter to shareholders of the Company from the Senior Vice President
and Chief Financial Officer of the Company.
4. The Notice of Guaranteed Delivery to be used to accept the Offer if the
Shares and all other required documents cannot be delivered to the Depositary
by the Expiration Date (as defined in the Offer to Purchase).
5. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space for
obtaining such clients' instructions with regard to the Offer.
6. Guidelines of the Internal Revenue Service for Certification of Taxpayer
Identification Number on Substitute Form W-9, providing information relating
to backup federal income tax withholding.
7. A return envelope addressed to First Chicago Trust Company of New York,
the Depositary.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 20, 1995, UNLESS THE OFFER
IS EXTENDED.
As described in the Offer to Purchase, if more than 4,850,000 7.44% Shares,
2,910,000 7.04% Shares, or 4,850,000 6 7/8% Shares (or, if the Amount Sought
of a Series of Preferred (as defined in the Offer to Purchase) is decreased,
such lesser amount) have been validly tendered and not withdrawn on or prior
to the Expiration Date, as defined in the Offer to Purchase, the Company will
purchase Shares of that Series of Preferred from all tendering holders on a
pro rata basis.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. SHAREHOLDERS MUST
MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER.
<PAGE>
Any questions or requests for assistance or additional copies of the
enclosed materials may be directed to D.F. King & Co., Inc., the Information
Agent, or to us, as Dealer Managers, at the respective addresses and telephone
numbers set forth on the back cover of the enclosed Offer to Purchase.
Very truly yours,
Goldman, Sachs & Co.
Dean Witter Reynolds Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF THE COMPANY, THE DEALER MANAGERS, THE INFORMATION AGENT OR THE
DEPOSITARY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE
ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN
THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
NOTICE OF SOLICITED TENDERS
List below the number of Shares tendered by each beneficial owner whose
tender you have solicited. All Shares in a Series of Preferred beneficially
owned by a beneficial owner, whether in one account or several, and in however
many capacities, must be aggregated for purposes of completing the table
below. Any questions as to what constitutes beneficial ownership should be
directed to the Depositary. If the space below is inadequate, list the Shares
in a separate signed schedule and affix the list to this Notice of Solicited
Tenders. Please do not complete the sections of the table headed "TO BE
COMPLETED ONLY BY DEPOSITARY."
ALL NOTICES OF SOLICITED TENDERS SHOULD BE RETURNED TO, AND ALL QUESTIONS
CONCERNING THE NOTICES OF SOLICITED TENDERS SHOULD BE DIRECTED TO, THE
DEPOSITARY. ALL NOTICES OF SOLICITED TENDERS MUST BE RECEIVED BY THE
DEPOSITARY WITHIN THREE AMERICAN STOCK EXCHANGE TRADING DAYS AFTER THE
EXPIRATION DATE.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
TO BE COMPLETED BY TO BE COMPLETED TO BE COMPLETED
THE SOLICITING DEALER ONLY BY DEPOSITARY ONLY BY DEPOSITARY
- - --------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES FEE
BENEFICIAL OWNERS TENDERED ACCEPTED ($0.375 PER SHARE)
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Beneficial Owner
No. 1
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 2
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 3
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 4
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 5
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 6
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 7
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 8
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 9
- - --------------------------------------------------------------------------------
Beneficial Owner
No. 10
- - --------------------------------------------------------------------------------
Total
- - --------------------------------------------------------------------------------
</TABLE>
All questions as to the validity, form and eligibility (including time of
receipt) of Notices of Solicited Tenders will be determined by the Depositary,
in its sole discretion, which determination will be final and binding. Neither
the Depositary nor any other person will be under any duty to give
notification of any defects or irregularities in any Notice of Solicited
Tenders or incur any liability for failure to give such notification.
<PAGE>
The undersigned hereby confirms that: (i) it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the applicable rules and regulations thereunder, in connection with such
solicitation; (ii) it is entitled to such compensation for such solicitation
under the terms and conditions of the Offer to Purchase; (iii) in soliciting
tenders of Shares, it has used no soliciting materials other than those
furnished by the Company; and (iv) if it is a foreign broker or dealer not
eligible for membership in the NASD, it has agreed to conform to the NASD's
Rules of Fair Practice in making solicitations.
_____________________________________ _____________________________________
Printed Firm Name Address (Including Zip Code)
_____________________________________ _____________________________________
Authorized Signature Area Code and Telephone Number
_____________________________________
Name and Title
<PAGE>
EXHIBIT (a)(5)
PACIFIC GAS AND ELECTRIC COMPANY
OFFER TO PURCHASE FOR CASH
SHARES OF ITS 7.44% REDEEMABLE FIRST PREFERRED STOCK
($25 PAR VALUE), SHARES OF ITS 7.04% REDEEMABLE FIRST
PREFERRED STOCK ($25 PAR VALUE) AND SHARES OF ITS
6 7/8% REDEEMABLE FIRST PREFERRED STOCK ($25 PAR VALUE)
-------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, NOVEMBER 20, 1995
UNLESS THE OFFER IS EXTENDED.
- - --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated October 23,
1995 (the "Offer to Purchase"), and the related Letter of Transmittal (which
together constitute the "Offer") setting forth an offer by Pacific Gas and
Electric Company, a California corporation (the "Company"), to purchase up to
4,850,000 shares (the "7.44% Shares") of its 7.44% Redeemable First Preferred
Stock ($25 par value) (the "7.44% Preferred"), 2,910,000 shares (the "7.04%
Shares") of its 7.04% Redeemable First Preferred Stock ($25 par value) (the
"7.04% Preferred") and 4,850,000 shares (the "6 7/8% Shares") of its 6 7/8%
Redeemable First Preferred Stock ($25 par value) (the "6 7/8% Preferred," the
7.44% Preferred and the 7.04% Preferred, each a "Series of Preferred")
(together, the "Shares"), at prices of $25.85 per 7.44% Share, $26.80 per
7.04% Share and $25.25 per 6 7/8% Share net to the seller in cash, upon the
terms and subject to the conditions of the Offer. The Company will purchase
all Shares validly tendered and not withdrawn, up to the amount sought, upon
the terms and subject to the conditions of the Offer, including the provisions
thereof relating to proration (as described in the Offer to Purchase).
We are the holder of record of Shares held for your account. A tender of
such Shares can be made only by us as the holder of record and pursuant to
your instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR
YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer to Purchase and the Letter of Transmittal.
Your attention is invited to the following:
(1) The Offer is for up to 4,850,000 7.44% Shares, constituting 97% of
the total 7.44% Shares outstanding as of October 20, 1995, 2,910,000 7.04%
Shares, constituting 97% of the total 7.04% Shares outstanding as of
October 20, 1995 and 4,850,000 6 7/8% Shares, constituting 97% of the total
6 7/8% Shares outstanding as of October 20, 1995. The Offer is not
conditioned upon any minimum number of Shares being tendered but is subject
to certain other conditions.
(2) The Offer, proration period and withdrawal rights will expire at
12:00 midnight, New York City time, on Monday, November 20, 1995, unless
the Offer is extended with respect to a Series of Preferred. Your
instructions to us should be forwarded to us in ample time to permit us to
submit a tender on your behalf. If you would like to withdraw your Shares
that we have tendered, you can withdraw them so long as the Offer remains
open or at any time after the expiration of forty business days from the
commencement of the Offer if they have not been accepted for payment.
(3) As described in the Offer to Purchase, if more than 4,850,000 7.44%
Shares, more than 2,910,000 7.04% Shares or more than 4,850,000 6 7/8%
Shares (or, if decreased as provided in
<PAGE>
the Offer, such lesser amount as the Company may elect to purchase) have
been validly tendered and not withdrawn on or prior to the applicable
Expiration Date (as defined in the Offer to Purchase), the Company will
purchase 7.44% Shares, 7.04% Shares or 6 7/8% Shares, as applicable, from
all tendering holders on a pro rata basis, subject to adjustment to avoid
the purchase of fractional Shares.
(4) Any stock transfer taxes applicable to the sale of Shares to the
Company pursuant to the Offer will be paid by the Company, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO TENDER ALL OR ANY SHARES. SHAREHOLDERS MUST
MAKE THEIR OWN DECISION AS TO WHETHER TO TENDER SHARES AND, IF SO, HOW MANY
SHARES TO TENDER.
If you wish to have us tender any or all of your Shares held by us for your
account upon the terms and subject to the conditions set forth in the Offer,
please so instruct us by completing, executing, detaching and returning to us
the instruction form on the detachable part hereof. An envelope to return your
instructions to us is enclosed. If you authorize tender of your Shares, all
such Shares will be tendered unless otherwise specified on the detachable part
hereof. Your instructions should be forwarded to us in ample time to permit us
to submit a tender on your behalf by the expiration of the Offer.
The Offer is being made to all holders of Shares. The Company is not aware
of any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to a valid state statute. If the Company becomes
aware of any valid state statute prohibiting the making of the Offer, the
Company will make a good faith effort to comply with such statute. If, after
such good faith effort, the Company cannot comply with such statute, the Offer
will not be made to, nor will tenders be accepted from or on behalf of,
holders of Shares in such state. In those jurisdictions who securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the Company by the Dealer
Managers or one or more registered brokers or dealers licensed under the laws
of such jurisdictions.
2
<PAGE>
Instructions
With Respect to Offer to Purchase for Cash
Up to 4,850,000 Shares of 7.44% Redeemable First Preferred Stock ($25 par
value),
2,910,000 Shares of 7.04% Redeemable First Preferred Stock ($25 par value) and
4,850,000 Shares of 6 7/8% Redeemable First Preferred Stock ($25 par value)
of
Pacific Gas and Electric Company
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated October 23, 1995, and the related Letter of Transmittal
(which together constitute the "Offer") in connection with the Offer by
Pacific Gas and Electric Company (the "Company") to purchase up to 4,850,000
shares of 7.44% Redeemable First Preferred Stock ($25 par value) (the "7.44%
Shares") at a price of $25.85 per 7.44% Share, 2,910,000 shares of 7.04%
Redeemable First Preferred Stock ($25 par value) (the "7.04% Shares") at a
price of $26.80 per 7.04% Share, and 4,850,000 shares of 6 7/8% Redeemable
First Preferred Stock ($25 par value) (the "6 7/8% Shares") at a price of
$25.25 per 6 7/8% Share (together, the "Shares"), net to the undersigned in
cash.
This will instruct you to tender to the Company the number of Shares
indicated below (or, if no number is indicated below, all Shares) which are
held by you for the account of the undersigned, upon the terms and subject to
the conditions of the Offer.
- - --------------------------------------------------------------------------------
Number of 7.44% Shares to be Tendered:___________________________ Shares*
Number of 7.04% Shares to be Tendered:___________________________ Shares*
Number of 6 7/8% Shares to be Tendered:__________________________ Shares*
Dated:___________________________ , 1995
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SIGN HERE
Signature(s): _____________________________________________________________
Name(s): __________________________________________________________________
Address: __________________________________________________________________
Social Security or Taxpayer ID No.: _______________________________________
- - --------------------------------------------------------------------------------
- - --------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
3
<PAGE>
EXHIBIT (a)(6)
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
PURPOSE OF FORM.--A person who is required to file an information return with
the IRS must obtain your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an IRA. Use Form W-9 to furnish
your correct TIN to the requester (the person asking you to furnish your TIN)
and, when applicable, (1) to certify that the TIN you are furnishing is
correct (or that you are waiting for a number to be issued), (2) to certify
that you are not subject to backup withholding, and (3) to claim exemption
from backup withholding if you are an exempt payee. Furnishing your correct
TIN and making the appropriate certifications will prevent certain payments
from being subject to backup withholding.
Note: If a requester gives you a form other than a W-9 to request your TIN,
you must use the requester's form.
HOW TO OBTAIN A TIN.--If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Card (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
To complete Form W-9 if you do not have a TIN, write "Applied for" in the
space for the TIN in Part I (or check box 2 of Substitute Form W-9), sign and
date the form, and give it to the requester. Generally, you must obtain a TIN
and furnish it to the requester by the time of payment. If the requester does
not receive your TIN by the time of payment, backup withholding, if
applicable, will begin and continue until you furnish your TIN to the
requester.
Note: Writing "Applied for" (or checking box 2 of the Substitute Form W-9) on
the form means that you have already applied for a TIN OR that you intend to
apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your TIN,
sign and date the form, and give it to the requester.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you after
1992 are required to withhold and pay to the IRS 31% of such payments under
certain conditions. This is called "backup withholding". Payments that could
be subject to backup withholding include interest, dividends, broker
and barter exchange transactions, rents, royalties, nonemployee compensation,
and certain payments from fishing boat operators, but do not include real
estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN, or
3. You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax
return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts
opened after 1983 only), or
5. You do not certify your TIN. This applies only to reportable interest,
dividend, broker, or barter exchange accounts opened after 1983, or bro-
ker accounts considered inactive in 1983.
Except as explained in 5 above, other reportable payments are subject to
backup withholding only if 1 or 2 above applies. Certain payees and payments
are exempt from backup withholding and information reporting. See Payees and
Payments Exempt From Backup Withholding, below, and Example Payees and
Payments under Specific Instructions, below, if you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING.--The following is a list
of payees exempt from backup withholding and for which no information
reporting is required. For interest and dividends, all listed payees are
exempt except item (9). For broker transactions, payees listed in (1) through
(13) and a person registered under the Investment Advisers Act of 1940 who
regularly acts as a broker are exempt. Payments subject to reporting under
sections 6041 and 6041A are generally exempt from backup withholding only if
made to payees described in items (1) through (7), except a corporation that
provides medical and health care services or bills and collects payments for
such services is not exempt from backup withholding or information reporting.
Only payees described in items (2) through (6) are exempt from backup
withholding for barter exchange transactions, patronage dividends, and
payments by certain fishing boat operations.
(1) A corporation. (2) An organization exempt from tax under section 501(a),
or an IRA, or a custodial account under section 403(b)(7). (3) The United
States
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
or any of its agencies or instrumentalities. (4) A state, the District of
Columbia, a possession of the United States, or any of their political
subdivisions or instrumentalities. (5) A foreign government or any of its
political subdivisions, agencies, or instrumentalities. (6) An international
organization or any of its agencies or instrumentalities. (7) A foreign
central bank of issue. (8) A dealer in securities or commodities required to
register in the United States or a possession of the United States. (9) A
futures commission merchant registered with the Commodity Futures Trading
Commission. (10) A real estate investment trust. (11) An entity registered at
all times during the tax year under the Investment Company Act of 1940. (12) A
common trust fund operated by a bank under section 584(a). (13) A financial
institution. (14) A middleman known in the investment community as a nominee
or listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section
664 or described in section 4947.
Payments of dividend and patronage dividends generally not subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your correct TIN to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends un-
der section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payment on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a
requester, you will be subject to a penalty of $50 for each such failure
unless your failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make
a false statements with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.--If the requester discloses or uses TINs in violation of
Federal law, the requester may be subject to civil and criminal penalties.
SPECIAL INSTRUCTIONS
NAME.--If you are an individual, you must generally provide the name shown on
your Social Security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security
Administration of the name change, please enter your first name, the last name
shown on your Social Security card, and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either the SSN or EIN. You may also enter your business name or "doing
business as" name on the business name line. Enter your name(s) as shown on
your Social Security card and/or as it was used to apply for your EIN on Form
SS-4.
SIGNING THE CERTIFICATION.
1. INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE
1984 AND BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You are required
to furnish your correct TIN, but you are not required to sign the certi-
fication.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign
the certification or backup withholding will apply. If you are subject
to backup withholding and you are merely providing your correct TIN to
the requester, you must cross out item 2 in the certification before
signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may cross
out item 2 of the certification.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
4. OTHER PAYMENTS. You are required to furnish your correct TIN, but you
are not required to sign the certification unless you have been notified
of an incorrect TIN. Other payments include payments made in the course
of the requester's trade or business for rents, royalties, goods (other
than bills for merchandise), medical and health care services, payments
to a nonemployee for services (including attorney and accounting fees),
and payments to certain fishing boat crew members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. You are required to furnish your correct
TIN, but you are not required to sign the certification.
6. EXEMPT PAYEES AND PAYMENTS. If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup with-
holding. Enter your correct TIN in Part 1, write "EXEMPT" in the block
in Part II, and sign and date the form. If you are a nonresident alien
or foreign entity not subject to backup withholding, give the requester
a complete Form W-8, Certificate of Foreign Status.
7. TIN "APPLIED FOR." Follow the instructions under How To Obtain a TIN on
page 1, and sign and date this form.
SIGNATURE.--For a joint account, only the person whose TIN is shown in Part I
should sign.
PRIVACY ACT NOTICE.--Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid,
the acquisition or abandonment of secured property, or contributions yo made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or
not you are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a TIN to a payer. Certain penalties may also apply.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<CAPTION>
- - ------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF:
- - ------------------------------------------------------
<S> <C>
1. Individual The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4. a. The usual revocable The grantor-trustee(1)
savings trust (grantor is
also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under state
law
5. Sole proprietorship The owner(3)
<CAPTION>
- - ------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
- - ------------------------------------------------------
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other tax-
exempt organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a state or
local government, school
district or prison) that
receives agriculture
program payments
</TABLE>
- - -------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) Show your individual name. You may also enter your business name. You may
use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the TIN of the personal representative or trustee
unless the legal entity itself is not designated in the account title).
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
EXHIBIT (a)(7)
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares. The Offer is made solely by the Offer to Purchase dated October
23, 1995, and the related Letter of Transmittal. The Offer is being made to all
holders of Shares; provided, that the Offer is not being made to, nor will
tenders be accepted from or on behalf of, holders of Shares in any jurisdiction
in which making or accepting the Offer would violate that jurisdiction's laws.
In those jurisdictions whose securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Company by Goldman, Sachs & Co. or Dean Witter Reynolds
Inc. or one or more registered brokers or dealers licensed under the laws of
such jurisdictions.
$ 315,250,000
Notice of Offer to Purchase for Cash
by
Pacific Gas and Electric Company
4,850,000 Shares of its 7.44% Redeemable First Preferred Stock
($25 Par Value) at a Purchase Price of $25.85 Per Share
CUSIP NO. 694308719
2,910,000 Shares of its 7.04% Redeemable First Preferred Stock
($25 Par Value) at a Purchase Price of $26.80 Per Share
CUPSIP NO. 694308685
4,850,000 Shares of its 6 7/8% Redeemable First Preferred Stock
($25 Par Value) at a Purchase Price of $25.25 Per Share
CUPSIP NO. 694308677
Pacific Gas and Electric Company, a California corporation (the "Company"),
invites the holders of 7.44% Redeemable First Preferred Stock ($25 par value)
(the "7.44% Preferred") to tender their shares of such stock (the "7.44%
Shares") at a price of $25.85 per 7.44% Share, the holders of 7.04% Redeemable
First Preferred Stock ($25 par value) (the "7.04% Preferred") to tender their
shares of such stock (the "7.04% Shares") at $26.80 per 7.04% Share and the
holders of 6 7/8% Redeemable First Preferred Stock ($25 par value) (the "6
7/8% Preferred") to tender their shares of such stock (the "6 7/8% Shares") at
a price of $25.25 per 6 7/8% Share (together, the "Shares") (the 7.44%
Preferred, the 7.04% Preferred and the 6 7/8% Preferred, each a "Series of
Preferred"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase and in the related Letter of
Transmittal (which together constitute the "Offer"). The Company will
purchase all Shares validly tendered and not withdrawn up to the 4,850,000
Shares sought of the 7.44% Preferred, the 2,910,000 Shares sought of the 7.04%
Preferred and the 4,850,000 Shares sought of the 6 7/8% Preferred (each, the
"Amount Sought"), upon the terms and subject to the conditions of the Offer,
including the provisions relating to proration described in the Offer to
Purchase. Shares not purchased because of proration will be returned.
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, subject to other conditions. See "Terms of
the Offer - Certain Conditions of the Offer" in the Offer to Purchase.
- - --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, NOVEMBER 20, 1995 UNLESS THE OFFER IS EXTENDED.
- - --------------------------------------------------------------------------------
The Company will purchase all Shares validly tendered and not withdrawn,
upon the terms and subject to the conditions of the Offer, including the
provisions relating to proration. The Purchase Price will be paid in cash, net
to the seller, with respect to all Shares purchased. Shares not purchased
because of proration will be returned.
Upon the terms and subject to the conditions of the Offer, if more Shares
than the Amount Sought of a Series of Preferred (or, if decreased as described
in the Offer to Purchase, such lesser number as the Company may elect to
purchase pursuant to the Offer) have been validly tendered and not withdrawn
on or prior to the Expiration Date with respect to that Series of Preferred,
the Company will purchase Shares of that Series of Preferred from each
tendering holder on a pro rata basis, subject to adjustment to avoid the
purchase of fractional Shares.
The Company believes that the purchase of Shares is economically attractive
to the Company. In addition, the Offer gives shareholders the opportunity to
sell their Shares at a price greater than the market price prevailing prior to
the announcement of the Offer and without the usual transaction costs
associated with a market sale.
Neither the Company nor its Board of Directors makes any recommendation to
any holder of Shares as to whether to tender all or any Shares. Each
shareholder must make his or her own decision as to whether to tender Shares
and, if so, how many Shares to tender.
The Company reserves the right, at any time or from time to time, to extend
the period of time during which the Offer is open with respect to a Series of
Preferred by giving oral or written notice of such extension to the
Depositary.
The Company will pay a $0.375 per Share soliciting fee to the broker,
dealer, commercial bank or trust company, if any, designated by the holder
tendering such Share subject to the conditions set forth in the Offer to
Purchase.
Tenders of Shares of a Series of Preferred made pursuant to the Offer may
be withdrawn at any time prior to the Expiration Date with respect to such
Series of Preferred. Thereafter, such tenders are irrevocable, except that
they may be withdrawn after Tuesday, December 19, 1995 unless theretofore
accepted for payment by the Company as provided in the Offer to Purchase. For
a withdrawal to be effective, a written or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of the addresses
or facsimile numbers set forth on the back cover of the Offer to Purchase and
must specify the name of the person who tendered the Shares to be withdrawn
and the number of Shares to be withdrawn. If the Shares to be withdrawn have
been delivered to the Depositary, a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution (as defined in the Offer to
Purchase) (except in the case of Shares tendered by an Eligible Institution)
must be submitted prior to the release of such Shares. In addition, such
notice must specify, in the case of Shares tendered by delivery of
certificates, the name of the registered holder (if different from that of the
tendering shareholder) and the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn or, in the case of Shares
tendered by book-entry transfer, the name and number of the account at one of
the Book-Entry Transfer Facilities (as defined in the Offer to Purchase) to be
credited with the withdrawn Shares and the name of the registered holder (if
different from the name of such account). Withdrawals may not be rescinded,
and Shares withdrawn will thereafter be deemed not validly tendered for
purposes of the Offer. However, withdrawn Shares may be retendered by again
following one of the procedures described under "Terms of the Offer -
Procedure for Tendering Shares" in the Offer to Purchase at any time prior to
the applicable Expiration Date.
The Company will be deemed to have purchased tendered Shares as, if and
when it gives oral or written notice to the Depositary of its acceptance for
payment of Shares.
The information required to be disclosed by Rule 13e-4(d)(1) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended,
is contained in the Offer to Purchase and is incorporated herein by reference.
Copies of the Offer to Purchase and the related Letter of Transmittal are
being mailed to record holders of Shares and will be furnished to brokers,
banks and similar persons whose names, or the names of whose nominees, appear
on the Company's shareholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read before any decision is made with
respect to the Offer.
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective telephone numbers and
addresses listed below. Requests for additional copies of the Offer to
Purchase, the Letter of Transmittal or other tender offer materials may be
directed to the Information Agent or the Dealer Managers, and such copies will
be furnished promptly at the Company's expense.
Holders of Shares may also contact their local broker, dealer, commercial
bank or trust company for assistance concerning the Offer.
Information on the Offer is available from "MCM Corporate Watch Services"
on Telerate page 41993.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect:
(212) 269-5550
All Others Call Toll Free:
(800) 549-6650
The Dealer Managers for the Offer are:
Goldman, Sachs & Co. Dean Witter Reynolds Inc.
Liability Management Group Two World Trade Center
85 Broad Street New York, New York 10048
New York, New York 10004 (800) 255-3665
(800) 828-3162
October 23, 1995
<PAGE>
EXHIBIT (a)(8)
[LOGO OF PG&E]
October 23, 1995
Dear Shareholder:
Pacific Gas and Electric Company is offering to purchase up to
4,850,000 shares of its 7.44% Redeemable First Preferred Stock ($25 par
value) (the "7.44% Shares") at a price of $25.85 per 7.44% Share,
2,910,000 shares of its 7.04% Redeemable First Preferred Stock ($25 par
value) (the "7.04% Shares") at a price of $26.80 per 7.04% Share and
4,850,000 shares of its 6 7/8% Redeemable First Preferred Stock ($25 par
value) (the "6 7/8% Shares") at a price of $25.25 per 6 7/8% Share
(together, the "Shares").
All of the Shares that are properly tendered (and are not withdrawn)
will, subject to the terms and conditions set forth in the enclosed
Offer to Purchase (including the proration provisions therein), be
purchased at that price net to the selling shareholder in cash. All
other Shares that have been tendered and not purchased will be returned
to the shareholder.
If you do not wish to participate in the Offer, you do not need to
take any action.
The Offer is explained in detail in the enclosed Offer to Purchase and
Letter of Transmittal. If you want to tender your Shares, the
instructions on how to tender Shares are also explained in detail in the
enclosed materials. I encourage you to read carefully these materials
before making any decision with respect to the Offer.
The Offer gives shareholders the opportunity to sell their Shares at a
price greater than the market price prevailing prior to the announcement
of the Offer and without the usual transaction costs associated with a
market sale.
Neither the Company nor its Board of Directors makes any
recommendation to any shareholder whether to tender any or all Shares.
Sincerely,
/s/ Gordon R. Smith
<PAGE>
Exhibit (a)(9)
October 20, 1995
PG&E ANNOUNCES TENDER OFFER FOR PREFERRED STOCK
- - -----------------------------------------------
San Francisco -- Pacific Gas and Electric Company today announced its
offer to purchase up to 12,610,000 shares of its preferred stock for cash. The
tender offer will commence on October 23 and is scheduled to expire on November
20, unless extended. The offer is not conditioned upon any minimum number of
shares being tendered.
PG&E is offering to purchase shares of three series of its preferred stock
traded on the American and Pacific stock exchanges. The Company will offer to
purchase up to 4,850,000 shares (97 percent of the shares outstanding) of its
7.44 percent Redeemable First Preferred Stock for $25.85 per share, up to
2,910,000 shares (97 percent of the shares outstanding) of its 7.04 percent
Redeemable First Preferred Stock for $26.80 per share and up to 4,850,000 shares
(97 percent of the shares outstanding) of its 6 7/8 percent Redeemable First
Preferred Stock for $25.25 per share.
Accrued dividends on each series of stock for the period August 1 through
October 31 will be paid on November 15 to holders of record on October 16.
Dealer managers for the tender offer are Goldman, Sachs & Co. and Dean
Witter Reynolds Inc. D. F. King & Co., Inc. is acting as information agent.
<PAGE>
EXHIBIT (g)(1)
PACIFIC GAS AND ELECTRIC COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
Year ended December 31,
------------------------------------
(in thousands, except per share amounts) 1994 1993 1992
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE (EPS) AS SHOWN
IN THE STATEMENT OF CONSOLIDATED INCOME
Net income $1,007,450 $1,065,495 $1,170,581
Less preferred dividends 57,603 63,812 78,887
---------- ---------- ----------
Net income for calculating EPS for
Statement of Consolidated Income $ 949,847 $1,001,683 $1,091,694
========== ========== ==========
Average common shares outstanding 429,846 430,625 422,714
========== ========== ==========
EPS as shown in the Statement of
Consolidated Income $ 2.21 $ 2.33 $ 2.58
========== ========== ==========
PRIMARY EPS (1)
Net income $1,007,450 $1,065,495 $1,170,581
Less preferred dividends 57,603 63,812 78,887
---------- ---------- ----------
Net income for calculating primary EPS $ 949,847 $1,001,683 $1,091,694
========== ========== ==========
Average common shares outstanding 429,846 430,625 422,714
Add exercise of options, reduced by the
number of shares that could have been
purchased with the proceeds from
such exercise (at average market price) 538 1,619 707
---------- ---------- ----------
Average common shares outstanding as
adjusted 430,384 432,244 423,421
========== ========== ==========
Primary EPS $2.21 $2.32 $2.58
========== ========== ==========
FULLY DILUTED EPS (1)
Net income $1,007,450 $1,065,495 $1,170,581
Less preferred dividends 57,603 63,812 78,887
---------- ---------- ----------
Net income for calculating fully diluted EPS $ 949,847 $1,001,683 $1,091,694
========== ========== ==========
Average common shares outstanding 429,846 430,625 422,714
Add exercise of options, reduced by the
number of shares that could have been
purchased with the proceeds from such
exercise (at the greater of average or
ending market price) 538 1,895 1,134
---------- ---------- ----------
Average common shares outstanding as
adjusted 430,384 432,520 423,848
========== ========== ==========
Fully diluted EPS $ 2.21 $ 2.32 $ 2.58
========== ========== ==========
</TABLE>
- - -----------------------
(1) This presentation is submitted in accordance with Item 601(b)(11) of
Regulation S-K. This presentation is not required by APB Opinion No. 15,
because it results in dilution of less than 3%.
<PAGE>
EXHIBIT (g)(1)
PACIFIC GAS AND ELECTRIC COMPANY
COMPUTATION OF EARNINGS PER COMMON SHARE
(unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
(in thousands, except per share amounts) 1995 1994 1995 1994
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE (EPS) AS SHOWN
IN THE STATEMENT OF CONSOLIDATED INCOME
Net income $405,520 $241,365 $734,207 $478,317
Less preferred dividends 14,494 14,362 28,988 28,820
Net income for calculating EPS for -------- -------- -------- --------
Statement of Consolidated Income $391,026 $227,003 $705,219 $449,497
======== ======== ======== ========
Average common shares outstanding 426,621 429,762 428,344 429,150
======== ======== ======== ========
EPS as shown in the Statement of
Consolidated Income $ .92 $ .53 $ 1.65 $ 1.05
======== ======== ======== ========
PRIMARY EPS (1)
Net income $405,520 $241,365 $734,207 $478,317
Less: preferred dividends 14,494 14,362 28,988 28,820
amortization of premium on preferred
stock redemption 1,167 1,167
-------- -------- -------- --------
Net income for calculating primary EPS $389,859 $227,003 $704,052 $449,497
======== ======== ======== ========
Average common shares outstanding 426,621 429,762 428,344 429,150
Add exercise of options, reduced by the
number of shares that could have been
purchased with the proceeds from
such exercise (at average market price) 133 520 88 626
-------- -------- -------- --------
Average common shares outstanding as
adjusted 426,754 430,282 428,432 429,776
======== ======== ======== ========
Primary EPS $ .91 $ .53 $ 1.64 $ 1.05
======== ======== ======== ========
FULLY DILUTED EPS (1)
Net income $405,520 $241,365 $734,207 $478,317
Less: preferred dividends 14,494 14,362 28,988 28,820
amortization of premium preferred
stock redemption 1,167 1,167
-------- -------- -------- --------
Net income for calculating fully diluted EPS $389,859 $227,003 $704,052 $449,497
======== ======== ======== ========
Average common shares outstanding 426,621 429,762 428,344 429,150
Add exercise of options, reduced by the
number of shares that could have been
purchased with the proceeds from such
exercise (at the greater of average or
ending market price) 184 520 184 626
-------- -------- -------- --------
Average common shares outstanding as
adjusted 426,805 430,282 428,528 429,776
======== ======== ======== ========
Fully diluted EPS $ .91 $ .53 $ 1.64 $ 1.05
======== ======== ======== ========
- - --------------------------------------------------------------------------------------------
</TABLE>
(1) This presentation is submitted in accordance with Item 601(b)(11) of
Regulation S-K. This presentation is not required by APB Opinion No. 15,
because it results in dilution of less than 3%.
<PAGE>
EXHIBIT (g)(2)
PACIFIC GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
RESTATED COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $1,007,450 $1,065,495 $1,170,581 $1,026,392 $ 987,170
Adjustments for losses of
consolidated less than
100% owned affiliates and
the Company's equity in
undistributed loss
(earnings) of
unconsolidated affiliates (2,764) 6,895 (3,349) 26,671 (2,799)
Income tax expense 836,767 901,890 895,126 851,534 881,647
Net fixed charges 730,965 821,166 802,198 776,682 812,568
---------- ---------- ---------- ---------- ----------
Total Earnings $2,572,418 $2,795,446 $2,864,556 $2,681,279 $2,678,586
========== ========== ========== ========== ==========
Fixed Charges:
Interest on long-term debt $ 651,912 $ 731,610 $ 739,279 $ 697,185 $ 699,849
Interest on short-term debt 77,295 87,819 61,182 77,760 110,982
Interest on capital leases 1,758 1,737 1,737 1,737 1,737
Capitalized Interest 2,660 46,055 6,511 6,107 7,214
---------- ---------- ---------- ---------- ----------
Total Fixed Charges $ 733,625 $ 867,221 $ 808,709 $ 782,789 $ 819,782
========== ========== ========== ========== ==========
Ratios of Earnings to
Fixed Charges 3.51 3.22 3.54 3.43 3.27
- - -------------------------------------------------------------------------------------------------
</TABLE>
Note: For the purpose of computing the Company's ratios of earnings to fixed
charges, "earnings" represent net income adjusted for losses of
consolidated less than 100% owned affiliates, the Company's equity in
undistributed earnings or loss of unconsolidated affiliates, income taxes
and fixed charges (excluding capitalized interest). "Fixed charges"
consist of interest on short-term and long-term debt (including amounts
capitalized and amortization of bond premium, discount and expense; and
excluding interest on decommissioning trust funds [for which an equal
amount of interest income is recorded]) and interest on capital leases.
<PAGE>
EXHIBIT (g)(2)
PACIFIC GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Six Months Year ended December 31,
Ended ---------------------------------------------------------
(dollars in thousands) June 30, 1995 1994 1993 1992 1991 1990
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $ 734,207 $1,007,450 $1,065,495 $1,170,581 $1,026,392 $ 987,170
Adjustments for minority
interests in losses of
less than 100% owned
affiliates and the
Company's equity in
undistributed losses
(income) of less than
50% owned affiliates (2,447) (2,764) 6,895 (3,349) 26,671 (2,799)
Income tax expense 510,831 836,767 901,890 895,126 851,534 881,647
Net fixed charges 357,334 730,965 821,166 802,198 776,682 812,568
---------- ---------- ---------- ---------- ---------- ----------
Total Earnings $1,599,925 $2,572,418 $2,795,446 $2,864,556 $2,681,279 $2,678,586
========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest on long-term
debt $ 324,572 $ 651,912 $ 731,610 $ 739,279 $ 697,185 $ 699,849
Interest on short-term
borrowings 31,536 77,295 87,819 61,182 77,760 110,982
Interest on capital
leases 1,056 1,758 1,737 1,737 1,737 1,737
Capitalized Interest 173 2,660 46,055 6,511 6,107 7,214
Pretax earnings required to
cover the preferred stock
dividend requirements of
majority owned subsidiaries 288 - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total Fixed
Charges $ 357,625 $ 733,625 $ 867,221 $ 808,709 $ 782,789 $ 819,782
========== ========== ========== ========== ========== ==========
Ratios of Earnings to
Fixed Charges 4.47 3.51 3.22 3.54 3.43 3.27
- - --------------------------------------------------------------------------------------------------------
</TABLE>
Note: For the purpose of computing the Company's ratios of earnings to fixed
charges, "earnings" represent net income adjusted for the minority
interest in losses of less than 100% owned affiliates, the Company's
equity in undistributed income or loss of less than 50% owned affiliates,
income taxes and fixed charges (excluding capitalized interest). "Fixed
charges" include interest on long-term debt, short-term borrowings
(including a representative portion of rental expense), amortization of
bond premium, discount and expense, interest on capital leases and the
pretax earnings required to cover the preferred stock dividend
requirements of majority owned subsidiaries.
<PAGE>
EXHIBIT (g)(3)
PACIFIC GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
RESTATED COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
Year ended December 31,
----------------------------------------------------------------
(dollars in thousands) 1994 1993 1992 1991 1990
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $1,007,450 $1,065,495 $1,170,581 $1,026,392 $ 987,170
Adjustments for losses of
consolidated less than
100% owned affiliates and
the Company's equity
in undistributed loss
(earnings) of
unconsolidated affiliates (2,764) 6,895 (3,349) 26,671 (2,799)
Income tax expense 836,767 901,890 895,126 851,534 881,647
Net fixed charges 730,965 821,166 802,198 776,682 812,568
---------- ---------- ---------- ---------- ----------
Total Earnings $2,572,418 $2,795,446 $2,864,556 $2,681,279 $2,678,586
========== ========== ========== ========== ==========
Fixed Charges:
Interest on long-term debt $ 651,912 $ 731,610 $ 739,279 $ 697,185 $ 699,849
Interest on short-term debt 77,295 87,819 61,182 77,760 110,982
Interest on capital leases 1,758 1,737 1,737 1,737 1,737
Capitalized Interest 2,660 46,055 6,511 6,107 7,214
---------- ---------- ---------- ---------- ----------
Total Fixed Charges 733,625 867,221 808,709 782,789 819,782
---------- ---------- ---------- ---------- ----------
Preferred Stock Dividends:
Tax deductible dividends 4,672 4,814 5,136 5,136 5,136
Pretax earnings required
to cover non-tax
deductible preferred
stock dividend requirements 96,039 108,937 130,147 154,404 175,881
---------- ---------- ---------- ---------- ----------
Total Preferred
Stock Dividends 100,711 113,751 135,283 159,540 181,017
---------- ---------- ---------- ---------- ----------
Total Combined Fixed
Charges and Preferred
Stock Dividends $ 834,336 $ 980,972 $ 943,992 $ 942,329 $1,000,799
========== ========== ========== ========== ==========
Ratios of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends 3.08 2.85 3.03 2.85 2.68
- - -------------------------------------------------------------------------------------------------
</TABLE>
Note: For the purpose of computing the Company's ratios of earnings to combined
fixed charges and preferred stock dividends, "earnings" represent net
income adjusted for losses of consolidated less than 100% owned
affiliates, the Company's equity in undistributed earnings or loss of
unconsolidated affiliates, income taxes and fixed charges (excluding
capitalized interest). "Fixed charges" consist of interest on short-term
and long-term debt (including amounts capitalized and amortization of
bond premium, discount and expense; and excluding interest on
decommissioning trust funds [for which an equal amount of interest income
is recorded]) and interest on capital leases. "Preferred stock dividends"
represent the sum of requirements for preferred stock dividends that are
deductible for federal income tax purposes and requirements for preferred
stock dividends that are not deductible for federal income tax purposes
increased to an amount representing pretax earnings which would be
required to cover such dividend requirements.
<PAGE>
EXHIBIT (g)(3)
PACIFIC GAS AND ELECTRIC COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
Six Months Year ended December 31,
Ended ----------------------------------------------------------
(dollars in thousands) June 30, 1995 1994 1993 1992 1991 1990
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $ 734,207 $1,007,450 $1,065,495 $1,170,581 $1,026,392 $ 987,170
Adjustments for minority
interests in losses of
less than 100% owned
affiliates and the
Company's equity in
undistributed losses
(income) of less than
50% owned affiliates (2,447) (2,764) 6,895 (3,349) 26,671 (2,799)
Income tax expense 510,831 836,767 901,890 895,126 851,534 881,647
Net fixed charges 357,334 730,965 821,166 802,198 776,682 812,568
---------- ---------- ---------- ---------- ---------- ----------
Total Earnings $1,599,925 $2,572,418 $2,795,446 $2,864,556 $2,681,279 $2,678,586
========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest on long-
term debt $ 324,572 $ 651,912 $ 731,610 $ 739,279 $ 697,185 $ 699,849
Interest on short-
term borrowings 31,536 77,295 87,819 61,182 77,760 110,982
Interest on capital
leases 1,056 1,758 1,737 1,737 1,737 1,737
Capitalized Interest 173 2,660 46,055 6,511 6,107 7,214
Pretax earnings required to
cover the preferred stock
dividend requirements of
majority owned
subsidiaries 288 - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total Fixed Charges 357,625 733,625 867,221 808,709 782,789 819,782
---------- ---------- ---------- ---------- ---------- ----------
Preferred Stock Dividends:
Tax deductible dividends 5,841 4,672 4,814 5,136 5,136 5,136
Pretax earnings required
to cover non-tax
deductible preferred
stock dividend
requirements 39,252 96,039 108,937 130,147 154,404 175,881
---------- ---------- ---------- ---------- ---------- ----------
Total Preferred
Stock Dividends 45,093 100,711 113,751 135,283 159,540 181,017
---------- ---------- ---------- ---------- ---------- ----------
Total Combined Fixed
Charges and
Preferred Stock
Dividends $ 402,718 $ 834,336 $ 980,972 $ 943,992 $ 942,329 $1,000,799
========== ========== ========== ========== ========== ==========
Ratios of Earnings to
Combined Fixed
Charges and Preferred
Stock Dividends 3.97 3.08 2.85 3.03 2.85 2.68
- - ---------------------------------------------------------------------------------------------------
</TABLE>
Note: For the purpose of computing the Company's ratios of earnings to combined
fixed charges and preferred stock dividends, "earnings" represent net
income adjusted for the minority interest in losses of less than 100%
owned affiliates, the Company's equity in undistributed income or loss of
less than 50% owned affiliates, income taxes and fixed charges (excluding
capitalized interest). "Fixed charges" include interest on long-term
debt, short-term borrowings (including a representative portion of rental
expense), amortization of bond premium, discount and expense, interest on
capital leases and the pretax earnings required to cover the preferred
stock dividend requirements of majority owned subsidiaries. "Preferred
stock dividends" represent the sum of requirements for preferred stock
dividends that are deductible for federal income tax purposes and
requirements for preferred stock dividends that are not deductible for
federal income tax purposes increased to an amount representing pretax
earnings which would be required to cover such dividend requirements.
<PAGE>
EXHIBIT (g)(4)
Book value per common share at December 31, 1994 $20.07
Book value per common share at June 30, 1995 $20.60
<PAGE>
EXHIBIT (g)(5)
Pacific Gas and Electric Company
SELECTED FINANCIAL DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Operating revenues $10,447,351 $10,582,408 $10,296,088 $ 9,778,119 $ 9,470,092
Operating income 1,633,359 1,762,930 1,833,441 1,713,079 1,706,136
Net income 1,007,450 1,065,495 1,170,581 1,026,392 987,170
Earnings per common share 2.21 2.33 2.58 2.24 2.10
Dividends declared per common
share 1.96 1.88 1.76 1.64 1.52
AT YEAR END
Book value per common share $20.07 $19.77 $19.41 $18.40 $17.86
Common stock price per share 24.38 35.13 33.13 32.63 25.00
Total assets 27,809,133 27,162,526 24,188,159 22,900,670 21,958,397
Long-term debt and preferred stock
with mandatory redemption
provision (excluding current
portions) 8,812,591 9,367,100 8,525,948 8,341,310 7,902,409
</TABLE>
Matters relating to certain data above are discussed in Management's Discussion
and Analysis of Consolidated Results of Operations and Financial Condition and
in Notes to Consolidated Financial Statements.
12
<PAGE>
Pacific Gas and Electric Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Pacific Gas and Electric Company (PG&E) and its wholly owned and majority-owned
subsidiaries (collectively, the Company) have three types of operations:
utility, Diablo Canyon Nuclear Power Plant (Diablo Canyon) and nonregulated
through PG&E Enterprises (Enterprises). The Company is engaged principally in
the business of supplying electric and natural gas service throughout most of
Northern and Central California. The Company's operations are regulated by the
California Public Utilities Commission (CPUC) and the Federal Energy Regulatory
Commission (FERC), among others.
Competition and Changing Regulatory Environment:
Recent changes in both the gas and electric industries have allowed competition
to develop in the gas supply and electric generation segments of the Company's
business. A number of reforms at both the federal and state level have been
proposed. These reforms are designed to restructure regulation in the energy
supply industry and promote competition by providing electric and gas customers
with purchasing options.
As a result of the restructuring of the natural gas industry, the Company no
longer provides combined purchase and transportation services to many of its
industrial and large commercial gas customers. Instead, most of these customers
now procure their gas supplies from a source other than the Company while
purchasing transportation service from the Company. These customers can also
use alternative transportation services available within the Company's service
territory.
In November 1994, the FERC approved the expansion of a competing company's
natural gas pipeline into the Company's service territory. This pipeline could
compete directly for transportation service to several of the Company's large
customers as soon as January 1, 1996, and may result in the loss of sales on
the Company's gas transportation system.
While the restructuring of the electric industry is still evolving,
proposals being considered are expected to bring increased competition into the
electric generation business. At the federal level, the National Energy Policy
Act of 1992 (Energy Act) reduces various restrictions on the operation and
ownership of independent power producers and provides them and other wholesale
suppliers and purchasers with increased access to electric transmission lines
throughout the United States.
At the state level, in April 1994, the CPUC issued a proposal on electric
industry restructuring which seeks to lower energy prices and provide customers
with a choice of electric generation suppliers (known as direct access). This
proposal involves two key strategies: One, phase in direct access to electric
generation for all customers over a six-year period beginning in 1996; two,
where competition does not exist, replace traditional cost-of-service
regulation with performance-based regulation (PBR). To ensure a transition that
maintains the financial integrity of the utilities, the CPUC proposed that
uneconomic costs of utility generating assets resulting from its proposal be
recovered through a "competition transition charge." However, the CPUC
proposal did not specify which costs might be recovered through such a
transition charge or how such a charge would be allocated to and collected from
customers.
The Company has filed a response to the CPUC proposal embracing the
objective of lower prices and supporting increased competition, but
recommending a longer phase-in period to direct access to permit an orderly
transition. Based on market prices of $.048 and $.032 per kilowatthour (kWh),
the Company estimated that its uneconomic generating assets and obligations are
approximately $3 billion and $11 billion, respectively, resulting from the
restructuring as proposed by the CPUC. The Company identified three categories
of uneconomic assets: utility-owned generation assets and power purchase
commitments, power purchase obligations relating to qualifying facilities (QFs)
and generation-related regulatory assets. The estimates of uneconomic assets
were determined by comparing the future revenue requirements of generation
assets and power purchase obligations over a twenty-year and thirty-year
period, respectively, with revenues computed at the assumed market price.
Diablo Canyon was included in the revenue requirement calculation using the
proposed pricing modifications to the Diablo Canyon settlement. (See Operating
Revenues.) The revenue requirement for Diablo Canyon and all Company-owned
generation assets included a return on investment. The actual amount of
uneconomic assets and obligations will depend upon the final regulation and the
actual market price of electricity. The Company intends to seek recovery of its
uneconomic assets and obligations through the competition transition charge.
(See Note 2 of Notes to Consolidated Financial Statements.)
In addition to working with the CPUC on this proposal, the Company has made
several proposals to modify existing regulatory processes and to provide
additional pricing flexibility to those customers with the most competitive
options. The Company has proposed instituting PBR for determining nonfuel
revenues, under which electric and natural gas
13
<PAGE>
revenues would be determined annually by formula rather than through general
rate cases (GRCs), attrition rate adjustments and cost of capital proceedings.
The Company has also proposed a gas procurement incentive mechanism that would
replace after-the-fact reasonableness reviews of certain costs. This proposed
mechanism would measure the Company's gas procurement costs against market
benchmarks and would provide for the sharing, between ratepayers and
shareholders, of variances from a preset range around the market benchmark.
The shifting of utility regulation from traditional cost-of-service based
concepts to concepts based upon market competition and benchmarks will place
greater emphasis on the Company's ability to provide valued products and
services at competitive prices. The Company has announced a five-year goal of
reducing its system-wide average electric rates. In addition, the Company has
taken several significant actions to position itself to effectively compete in
the restructured electric and gas industries. Specifically, the Company has:
- Extended through 1995 its electric rate freeze which began in 1993.
- Proposed a modification of the Diablo Canyon settlement to reduce the
price paid for electricity generated at Diablo Canyon over the next five
years.
- Reduced electric rates for certain of its largest industrial customers
through an economic stimulus rate that will extend through the end of
1995.
- Planned reductions in annual spending in 1995 of approximately $600
million from 1993 spending levels.
- Refinanced debt and preferred stock over the last three years resulting
in annual savings of approximately $97 million in financing costs.
The Company cannot predict the ultimate outcome of the ongoing changes that
are taking place in the utility industry. However, management believes the end
result will involve a fundamental change in the way the Company conducts its
business. These changes may impact financial operating trends and add
volatility to the Company's earnings. Management is actively seeking regulatory
and operational changes that will allow the Company to provide energy services
in a safe, reliable and competitive manner while achieving strong financial
performance.
Accounting for the Effects of Regulation:
The transition to a competitive market environment may affect the Company's
future revenues and cash flows. In the event that recovery of the Company's
costs and investments becomes unlikely or uncertain due to competitive
pressures or regulatory changes, it could cause the Company to write off
applicable portions of its regulatory assets. The final CPUC determination of
uneconomic costs and the method of recovery could adversely affect the Company's
returns on its investments in electric generation assets. If future electric
generation revenues are insufficient to recover the Company's investments and
QF obligations, the Company would recognize a loss.
The Company currently accounts for the economic effects of regulation in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." As
a result of applying the provisions of SFAS No. 71, the Company has accumulated
approximately $3.7 billion of regulatory assets, including balancing accounts,
at December 31, 1994. As discussed further in Note 2 of Notes to Consolidated
Financial Statements, if the CPUC's electric industry restructuring proposal is
adopted as proposed or the Company determines that future electric generation
rates will no longer be based on cost-of-service, the Company will discontinue
application of SFAS No. 71 for the electric generation portion of its
operations. If such discontinuance should occur, the Company would write off
all applicable electric generation-related regulatory assets to the extent that
transition cost recovery is not assured. The regulatory assets attributable to
electric generation, excluding balancing accounts of approximately $700 million
which are expected to be recovered in the near term, are estimated to be $1.6
billion at December 31, 1994.
The final determination of the financial impact will depend on the form of
regulation, including transition mechanisms, if any, adopted by the CPUC and
the groups of customers affected. Currently, the Company is unable to predict
the ultimate outcome of the electric industry restructuring or predict whether
such outcome will have a significant impact on its financial position or
results of operations.
Proposed Accounting Standard:
The Financial Accounting Standards Board (FASB) has proposed a new accounting
standard, "Accounting for the Impairment of Long-Lived Assets," which is
expected to be issued in early 1995. The Company would be required to adopt the
new standard beginning January 1, 1996, but may elect to adopt it earlier.
If issued by the FASB as proposed, the new standard would require, among
other things, that regulatory assets recorded as a result of SFAS No. 71
continue to be probable of recovery in
14
<PAGE>
rates at all times, rather than only at the time the regulatory asset is
recorded. As such, regulatory assets currently recorded may require adjustment
in the future if recovery is no longer probable. Under the current ratemaking,
the Company does not believe there would be any immediate significant impact of
adopting the standard, as proposed.
Results of Operations
The Company's results of operations for the three years ended December 31,
1994, are reflected in the following table and discussed below.
<TABLE>
<CAPTION>
Diablo
(in millions, except per share amounts) Utility Canyon (1) Enterprises Total
<S> <C> <C> <C> <C>
1994
Operating revenues $ 8,329 $1,870 $ 248 $10,447
Operating expenses 7,281 1,252 281 8,814
------- ------ ------ -------
Operating income (loss) $ 1,048 $ 618 $ (33) $ 1,633
======= ====== ====== =======
Net income $ 541 $ 461 $ 5 $ 1,007
======= ====== ====== =======
Earnings per common share $ 1.16 $ 1.04 $ .01 $ 2.21
======= ====== ====== =======
Total assets at year end $20,303 $5,978 $1,528 $27,809
======= ====== ====== =======
1993
Operating revenues $ 8,398 $1,933 $ 251 $10,582
Operating expenses 7,335 1,225 259 8,819
------- ------ ------ -------
Operating income (loss) $ 1,063 $ 708 $ (8) $ 1,763
======= ====== ====== =======
Net income $ 552 $ 496 $ 17 $ 1,065
======= ====== ====== =======
Earnings per common share $ 1.18 $ 1.11 $ .04 $ 2.33
======= ====== ====== =======
Total assets at year end $19,870 $6,250 $1,043 $27,163
======= ====== ====== =======
1992
Operating revenues $ 8,306 $1,781 $ 209 $10,296
Operating expenses 7,125 1,118 220 8,463
------- ------ ------ -------
Operating income (loss) $ 1,181 $ 663 $ (11) $ 1,833
======= ====== ====== =======
Net income (loss) $ 738 $ 443 $ (10) $ 1,171
======= ====== ====== =======
Earnings (loss) per common share $ 1.61 $ .99 $ (.02) $ 2.58
======= ====== ====== =======
Total assets at year end $17,759 $5,494 $ 935 $24,188
======= ====== ====== =======
</TABLE>
(1) See Note 4 of Notes to Consolidated Financial Statements for discussion
of allocations.
Earnings Per Common Share:
Earnings per common share were $2.21, $2.33 and $2.58 for 1994, 1993 and 1992,
respectively. Earnings per common share for 1994 were lower than for 1993
primarily due to the refueling of both units of Diablo Canyon in 1994 compared
to only one unit in 1993. In 1994, the Company recorded special charges for
workforce reductions, gas reasonableness matters, contingencies related to gas
transportation commitments and an increase in litigation reserves which in the
aggregate totaled approximately $434 million. Special charges in 1993 totaled
approximately $410 million and included charges for workforce reductions, gas
decontracting, gas reasonableness matters, contingencies related to gas
transportation commitments and the impact of increasing the federal income
tax rate to 35 percent.
Earnings per common share for 1993 were lower than for 1992 due to charges
against earnings discussed above. These charges were partially offset by higher
Diablo Canyon revenues due to the annual increase in the price per kWh as
provided in the Diablo Canyon settlement.
Since the Diablo Canyon settlement in 1988, Diablo Canyon has made an
increasing contribution to the Company's total earnings per share. For the year
ended December 31, 1994, Diablo Canyon contributed $1.04 (47 percent) to the
total earnings per share of $2.21. The proposed modification of the price for
power produced by Diablo Canyon, discussed below, will likely cause a decrease
in the Diablo Canyon earnings per share contribution.
On a consolidated basis, the Company earned an 11.1 percent, 11.9 percent
and 13.7 percent return on average common stock equity for the years ended
December 31, 1994, 1993 and 1992, respectively. For 1995, the CPUC has
authorized a return on average common stock equity of 12.1 percent for the
Company's utility operations.
Common Stock Dividend:
In January 1995, the Board of Directors (Board) declared a quarterly dividend
of $.49 per share which corresponds to an annualized dividend of $1.96 per
share. The Company's common stock dividend is based on a number of financial
considerations, including sustainability, financial flexibility and
competitiveness with investment opportunities of similar risk. The Company has
a long-term objective of reducing its dividend payout ratio (dividends declared
divided by earnings available for common stock) to reflect the increased
business risk in the utility industry.
At this time, the Company is unable to determine the impact, if any, the
restructuring of the electric industry will have on the Company's ability to
increase its dividends in the future.
15
<PAGE>
Operating Revenues:
Electric revenues increased $162 million, $119 million and $378 million in
1994, 1993 and 1992, respectively, compared to the preceding year. Despite the
rate freeze, electric revenues increased due to higher energy costs in 1994
reflected in the electric energy cost balancing account. The higher revenues
from the energy cost balancing account were offset by the decrease in revenues
from Diablo Canyon resulting from the refueling of both units of the nuclear
power plant in 1994 as compared with only one unit in 1993. The Company will
continue through the end of 1995 its freeze on electric rates which began in
1993.
The increase in 1993 electric revenues was due to rate increases associated
with general increases in operating expenses and a higher electric rate base on
which PG&E is allowed to earn a return. This increase was offset by a decrease
in revenues resulting from a decrease in the cost of electric energy. In
addition, Diablo Canyon revenues, which are included in the electric revenues
discussed above, increased due to the annual increase in the price per kWh as
provided in the Diablo Canyon settlement.
The 1992 increase in electric revenues was primarily due to one scheduled
refueling outage at Diablo Canyon as compared with two scheduled refueling
outages in 1991, and the annual increase in the price per kWh as provided in
the Diablo Canyon settlement.
The Diablo Canyon settlement, which became effective July 1988, bases
revenues for the plant primarily on the amount of electricity generated, rather
than on traditional cost-based ratemaking. Under this "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.
As discussed further in Note 4 of Notes to Consolidated Financial
Statements, in December 1994, the Company, a consumer advocacy branch of the
CPUC staff (the Division of Ratepayer Advocates (DRA)), the California Attorney
General and several other parties representing energy consumers have agreed to
modify the pricing provisions of the Diablo Canyon settlement, subject to CPUC
approval. Under the proposed modification, the price for power produced by
Diablo Canyon would be reduced from what it would have been under the original
terms of the Diablo Canyon settlement.
The Diablo Canyon capacity factors for 1994, 1993 and 1992 were 81 percent,
89 percent and 88 percent, respectively, reflecting the scheduled refueling
outages for Units 1 and 2 in 1994, Unit 2 in 1993 and Unit 1 in 1992. The 1994
capacity factors were also impacted by 24 days of extended unscheduled outages.
There were no extended unscheduled outages in 1993 or 1992. Through December
31, 1994, the lifetime capacity factor for Diablo Canyon was 79 percent. The
Company will report significantly lower revenues for Diablo Canyon during any
extended outages, including refueling outages. Refueling outages, the length of
which depend on the scope of the work, typically occur for each unit every
eighteen months. The next refueling outages for Unit 1 and Unit 2 are scheduled
to begin in September 1995 and March 1996, respectively, and each is planned to
last about six weeks.
Under the proposed modification to the prices prescribed in the Diablo
Canyon settlement, each Diablo Canyon unit will contribute approximately $2.9
million in revenues per day at full operating power in 1995. The daily revenues
could decline each year for the next five years.
Gas revenues decreased $297 million in 1994 compared to the preceding year
primarily due to a decrease in revenues received from our industrial and large
commercial customers, who are now arranging for the purchase of their own gas
supplies, with the Company providing only transportation service partially
offset by revenues generated from the natural gas transmission expansion
project. (See Regulatory Matters.)
Gas revenues increased $168 million and $140 million in 1993 and 1992,
respectively, compared to the preceding year. The 1993 increase was primarily
due to rate increases associated with general increases in operating expenses
and a higher gas rate base on which PG&E is allowed to earn a return, as well
as increased revenues from Enterprises reflecting increases in the price and
production of gas.
The 1992 increase in gas revenues was primarily due to revenues resulting
from the December 1991 acquisition of Tex/Con Oil & Gas Company by DALEN
Resources Corp. (DALEN), a wholly owned subsidiary of Enterprises.
16
<PAGE>
Operating Expenses:
Operating expenses in 1994 remained constant as compared to 1993. The 1994
operating expenses include a charge against earnings of $249 million related to
the workforce reductions that commenced in 1994. In comparison, the Company
expensed $190 million related to the 1993 workforce reductions. As a result of
the 1993 workforce reductions, administrative and general expense was less in
1994 as compared to 1993. The cost of electric energy was $312 million greater
in 1994 as compared to 1993 primarily due to less favorable hydro conditions
and an increase in the cost per kWh of purchased power. These unfavorable
variances were offset by a favorable variance of $365 million in the cost of
gas as a result of the Company no longer procuring gas for certain customers.
Income tax expense has declined due to lower operating income in 1994.
In 1993 and 1992, the Company's operating expenses increased $357 million
and $398 million, respectively, over the preceding year. The 1993 increase was
due to the charge related to the Company's 1993 workforce reductions and
increases in administrative and general expense, income tax expense, and
depreciation and decommissioning expense, partially offset by a decrease in the
cost of electric energy. Most of the $114 million increase in administrative
and general expense was due to an increase in litigation costs and an increase
in employee benefit costs upon adoption of SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." The $100 million increase in
income tax expense was primarily due to the increase in the federal income tax
rate to 35 percent. The $166 million decrease in the cost of electric energy
was a result of improved hydro conditions and reflects a decline in the cost
per kWh for purchased power.
The 1992 increase in operating expenses was primarily due to increases in
the cost of gas, the cost of electric energy, and depreciation and
decommissioning expense.
Other Income and (Income Deductions):
Other--net includes charges in 1994 and 1993 related to gas issues. The 1994
charges consist of accruals for gas reasonableness matters, including proposed
settlement agreements and contingencies related to transportation capacity
commitments. (See Note 3 of Notes to Consolidated Financial Statements.) The
1993 charges include accruals for gas reasonableness matters and contingencies
related to transportation capacity commitments as well as charges associated
with restructuring the Company's Canadian gas supply arrangements.
Regulatory Matters:
In addition to the CPUC electric industry restructuring proposal, discussed
further in Note 2 of Notes to Consolidated Financial Statements, during 1994
the Company received CPUC decisions in proceedings on revenues and energy costs
and filed applications which will impact rates in 1995 and beyond. The most
significant of these are discussed below.
The CPUC has approved the Company's request to freeze retail electric rates
through the end of 1995. In order to accomplish the rate freeze, rate increases
attributable to energy costs and the increase in the authorized rate of return
were offset by base revenue reductions. The Company is implementing base cost
reductions which are reflected in the decreased base revenues.
Gas rates for commodity, transportation and base costs have increased as a
result of two decisions during 1994. In July, the CPUC approved a $162 million
increase for recovery of previously deferred gas and transportation costs. In
December, a $100 million increase in revenue was approved reflecting an
increase in the cost of capital, balancing accounts adjustments and
inflationary increases in costs.
In addition, the Company filed an application with the CPUC requesting a gas
rate increase of approximately $173 million annually for the two-year period
beginning in October 1, 1995. The Company's request reflects an increase in gas
and transportation costs and the collection of amounts previously deferred in
balancing accounts. If the Company's request is adopted, rates would be
effective September 15, 1995.
In January 1995, the Company updated its 1996 GRC application to reflect
CPUC decisions that went into effect on January 1, 1995. In the GRC, the
Company is seeking a $162 million decrease for electric revenues and a $92
million decrease for gas revenues, compared to rates in effect in 1994.
(Compared to rates in effect in 1995, there would be no change for electric
revenues and a $162 million decrease for gas revenues.) Revenues to be
collected from customers in 1996 may also be affected by future requests
related to energy costs and cost of capital.
In November 1993, the Company placed in service an expansion of its natural
gas transmission system from the Canadian border into California. The pipeline
provides
17
<PAGE>
additional firm capacity to the Pacific Northwest and to Northern and
Southern California. The total cost of construction is approximately $1.7
billion. The Company has filed applications with the FERC (for the interstate
portion) and the CPUC (for the portion within California) requesting that
capital and operating costs be found reasonable. Revenues are currently being
collected under rates approved by the FERC and the CPUC, subject to refund. The
Company believes the final decisions on these applications will not have a
significant impact on its financial position or results of operations.
In accordance with mechanisms established by the CPUC, the Company
accumulates the difference between actual costs of generating electricity and
the revenues designed to recover such costs. To the extent costs exceed
revenues, the undercollection accumulates in the electric energy cost balancing
account. Over the past few years, the Company has experienced a significant
increase in the level of balancing account undercollection related to its
electric energy costs. The increase primarily results from Diablo Canyon's
generation exceeding that forecasted in the annual electric energy cost
proceeding, increased fuel costs, the use of higher-cost energy sources to
compensate for less than normal hydro conditions and the deferred recovery of
undercollected balances. At December 31, 1994, the electric energy cost
balancing account undercollection was approximately $716 million.
In order to accomplish its freeze on retail electric rates, the Company will
be deferring the recovery of $444 million of the electric energy cost
undercollection beyond 1995 and will also forgo collection of interest on these
deferred costs. Recovery of these deferred costs will depend on a number of
factors. However, the Company currently believes that the amount deferred will
be collected through rates over the near term. The modification of the price
for Diablo Canyon power will assist in reducing the undercollected energy cost
balance.
Nonregulated Operations:
The Company, through its wholly owned subsidiary, Enterprises, has taken steps
to position itself to compete in the nonregulated energy business. Enterprises
contributed $.01, $.04 and $(.02) per share to the Company's total earnings per
share for the years ended December 31, 1994, 1993 and 1992, respectively.
Enterprises makes the majority of its investments in nonregulated energy
projects through a joint venture, U.S. Generating. Enterprises in partnership
with Bechtel Enterprises, Inc. is in the process of forming a company to
develop, build, own and operate international nonutility generation projects.
In August 1994, Enterprises and Bechtel Enterprises, Inc. completed their
acquisition of J. Makowski Co., Inc. (JMC), a Boston-based company engaged in
the development of natural gas-fueled power generation projects and natural gas
distribution, supply and underground storage projects. The final purchase price
was approximately $250 million. Enterprises' effective ownership share of JMC
is approximately 80 percent.
In July 1994, the Company's Board approved a plan for the disposition of
DALEN, formerly PG&E Resources Company, through an initial public offering of
DALEN's common stock, as DALEN no longer fits Enterprises' business strategy.
The disposition, if completed, is not anticipated to have a significant impact
on the Company's financial position or results of operations.
Liquidity and Capital Resources
Sources of Capital:
The Company's capital requirements are funded from cash provided by operations
and, to the extent necessary, external financing. The Company's capital
structure provides financial flexibility and access to capital markets at
reasonable rates, ensuring the Company's ability to meet all of its capital
requirements. Proceeds from the issuance of securities are used for capital
expenditures, refundings and other general corporate purposes.
Debt: In 1994, the Company issued $30 million of medium-term notes and
redeemed or repurchased $135 million of mortgage bonds, medium-term notes and
Eurobonds. In 1993, the Company issued $4.0 billion of mortgage bonds,
pollution control revenue bonds and medium-term notes. Substantially all these
proceeds were used to redeem or repurchase higher-cost mortgage bonds to
accomplish a reduction in financing costs.
In January 1995, the Board authorized the Company to redeem or repurchase up
to $153 million of mortgage bonds. In addition, $85 million remains from a
previous authorization to repurchase medium-term notes.
The Company issues short-term debt (principally commercial paper) to fund
fuel oil, nuclear fuel and gas inventories, unrecovered balances in balancing
accounts and cyclical fluctuations in daily cash flows. At December 31, 1994
and 1993, the Company had $525 million and $764
18
<PAGE>
million, respectively, of commercial paper outstanding. In addition, the
Company has a $1 billion short-term credit facility to support the sale of
commercial paper and other corporate purposes. There were no borrowings under
this facility in 1994, 1993 or 1992.
Equity: In 1994 and 1993, the Company received $274 million and $264 million,
respectively, in proceeds from the sale of common stock under the employee
Savings Fund Plan, the Dividend Reinvestment Plan and the employee Long-term
Incentive Program. Proceeds were used for capital expenditures and other
general corporate purposes.
In July 1993, the Board authorized the Company to reinstate its common stock
repurchase program and repurchase up to $1 billion of common stock on the open
market or in negotiated transactions. This program is funded by internally
generated funds. Shares will be repurchased to manage the overall balance of
common stock in the Company's capital structure. Through December 31, 1994, the
Company had repurchased approximately $435 million of its common stock under
this program.
In 1994, the Company issued $63 million of preferred stock with a mandatory
redemption provision and redeemed $75 million of the Company's higher-cost
preferred stock.
In 1993, the Company issued $200 million of redeemable preferred stock.
Proceeds were used to finance a portion of the redemption of $267 million of
the Company's higher-cost preferred stock.
Capital Requirements:
The Company's estimated capital requirements for the next three years are shown
below:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
(in millions) 1995 1996 1997
<S> <C> <C> <C>
Utility $1,212 $1,276 $1,237
Diablo Canyon 47 50 52
Enterprises 285 142 284
------ ------ ------
Total capital expenditures 1,544 1,468 1,573
Maturing debt and sinking funds 477 373 369
------ ------ ------
Total capital requirements $2,021 $1,841 $1,942
====== ====== ======
</TABLE>
Utility and Diablo Canyon expenditures will be primarily for improvements to
the Company's facilities to maintain their efficiency and reliability, to
extend their useful lives and to comply with environmental laws and
regulations.
Enterprises' estimated expenditures include oil and gas exploration and
development activities by DALEN of approximately $120 million for 1995, project
development expenditures for power and real-estate projects and equity
commitments associated with generating facility projects.
In addition to these capital requirements, the Company has other commitments
as discussed in Notes 3 and 12 of Notes to Consolidated Financial Statements.
Risk Management:
The Company uses a number of techniques to mitigate its financial risk
including the purchase of commercial insurance, the maintenance of systems of
internal control and the selected use of financial instruments. The extent to
which these techniques are used depends on the risk of loss and the cost to
employ such techniques. These techniques do not eliminate financial risk to the
Company.
The majority of the Company's financing is done on a fixed-term basis
thereby eliminating the financial risk associated with fluctuating interest
rates. The Company has used financial instruments to eliminate the effects of
fluctuations in interest rates and foreign currency exchange rates on certain
of its debt. At December 31, 1994, the Company, through a series of interest
rate swap transactions, had converted $639 million of a subsidiary's debt from
a floating rate to a fixed rate through July 31, 1999. The Company, through
foreign exchange contracts, has agreed to pay fixed interest and principal
payments in U.S. dollars on $67 million of Swiss Franc debentures.
In addition, DALEN periodically enters into crude oil and natural gas
hedging transactions to minimize the risk of price fluctuations. The net gains
and losses associated with these transactions have not been material.
Environmental Matters:
The Company's projected expenditures for environmental protection are subject
to periodic review and revision to reflect changing technology and evolving
regulatory requirements. Capital expenditures for environmental protection are
currently estimated to be approximately $39 million, $93 million and $85
million for 1995, 1996 and 1997, respectively, and are included in the
19
<PAGE>
Company's three-year table in the Capital Requirements section above.
Expenditures during these years will be primarily for nitrogen oxide (NOx)
emission reduction projects for the Company's fossil fuel fired generating
plants and natural gas compressor stations. Pursuant to federal and state
legislation, local air districts have adopted rules that require reductions in
NOx emissions from company facilities. Final rules have yet to be adopted in
all local air districts in which the Company operates and these rules continue
to be modified. The Company currently estimates that compliance with NOx rules
likely to be in place could require capital expenditures of up to $355 million
over the next ten years.
The Company assesses, on an ongoing basis, measures that may need to be
taken to comply with laws and regulations related to hazardous materials and
hazardous waste compliance and remediation activities. Although the ultimate
amount of costs that will be incurred by the Company in connection with its
compliance and remediation activities is difficult to estimate, the Company has
an accrued liability at December 31, 1994, of $95 million for hazardous waste
remediation costs. The costs could be as much as $235 million, due to
uncertainty concerning the Company's responsibility and the extent of
contamination, the complexity of environmental laws and regulations and the
selection of compliance alternatives. (See Note 13 of Notes to Consolidated
Financial Statements.)
Legal Matters:
In the normal course of business, the Company is named as a party in a number
of claims and lawsuits. Substantially all of these are litigated or settled
with no significant impact on either the Company's results of operations or
financial position.
There are several significant litigation cases which are discussed in Note
13 of Notes to Consolidated Financial Statements. These cases include claims
for personal injury and property damage, as well as punitive damages, allegedly
suffered as a result of exposure to chromium near the Company's Hinkley
Compressor Station, antitrust claims for damages as a result of Canadian
natural gas purchases by one of the Company's wholly owned subsidiaries and two
claims that the Company underpaid franchise fees.
Accounting for Decommissioning Expense:
The staff of the Securities and Exchange Commission has questioned certain
current accounting practices of the electric utility industry, regarding the
recognition, measurement and classification of decommissioning costs for
nuclear generating stations. In response to these questions, the FASB has
agreed to review the accounting for removal costs, including decommissioning.
If current electric utility industry accounting practices for such
decommissioning are changed: (1) Annual expense for decommissioning could
increase and (2) The estimated total cost for decommissioning could be recorded
as a liability rather than accrued over time as accumulated depreciation. The
Company does not believe that such changes, if required, would have an adverse
effect on its results of operations due to its current ability to recover
decommissioning costs through rates.
20
<PAGE>
Pacific Gas and Electric Company
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
- - ----------------------------------------
(in thousands, except per share amounts) 1994 1993 1992
<S> <C> <C> <C>
OPERATING REVENUES
Electric $ 8,027,976 $ 7,866,043 $ 7,747,492
Gas 2,419,375 2,716,365 2,548,596
----------- ----------- -----------
Total operating revenues 10,447,351 10,582,408 10,296,088
----------- ----------- -----------
OPERATING EXPENSES
Cost of electric energy 2,561,778 2,250,209 2,416,554
Cost of gas 574,894 939,572 907,945
Distribution 229,640 226,975 219,082
Transmission 293,995 319,022 339,099
Customer accounts and services 433,603 403,560 421,990
Maintenance 456,889 442,939 484,751
Depreciation and decommissioning 1,397,470 1,315,524 1,221,490
Administrative and general 973,302 1,041,453 927,316
Workforce reduction costs 249,097 190,200 -
Income taxes 924,620 1,006,774 906,845
Property and other taxes 296,911 297,495 295,164
Other 421,793 385,755 322,411
----------- ----------- -----------
Total operating expenses 8,813,992 8,819,478 8,462,647
----------- ----------- -----------
OPERATING INCOME 1,633,359 1,762,930 1,833,441
----------- ----------- -----------
OTHER INCOME AND (INCOME DEDUCTIONS)
Interest income 108,092 85,642 87,244
Allowance for equity funds used during
construction 19,046 41,531 39,368
Other--net (8,344) (53,524) (3,006)
----------- ----------- -----------
Total other income and (income deductions) 118,794 73,649 123,606
----------- ----------- -----------
INCOME BEFORE INTEREST EXPENSE 1,752,153 1,836,579 1,957,047
----------- ----------- -----------
INTEREST EXPENSE
Interest on long-term debt 651,912 731,610 739,279
Other interest charges 105,744 118,100 91,404
Allowance for borrowed funds used during
construction (12,953) (78,626) (44,217)
----------- ----------- -----------
Total interest expense 744,703 771,084 786,466
----------- ----------- -----------
NET INCOME 1,007,450 1,065,495 1,170,581
Preferred dividend requirement 57,603 63,812 78,887
----------- ----------- -----------
EARNINGS AVAILABLE FOR COMMON STOCK $ 949,847 $ 1,001,683 $ 1,091,694
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 429,846 430,625 422,714
EARNINGS PER COMMON SHARE $2.21 $2.33 $2.58
DIVIDENDS DECLARED PER COMMON SHARE $1.96 $1.88 $1.76
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
21
<PAGE>
Pacific Gas and Electric Company
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------------
(in thousands) 1994 1993
<S> <C> <C>
ASSETS
PLANT IN SERVICE
Electric
Nonnuclear $ 17,045,247 $ 16,633,772
Diablo Canyon 6,647,162 6,518,413
Gas 7,447,879 7,146,741
------------ ------------
Total plant in service (at original cost) 31,140,288 30,298,926
Accumulated depreciation and decommissioning (12,269,377) (11,235,519)
------------ ------------
Net plant in service 18,870,911 19,063,407
------------ ------------
CONSTRUCTION WORK IN PROGRESS 527,867 620,187
OTHER NONCURRENT ASSETS
Oil and gas properties 437,352 573,523
Nuclear decommissioning funds 616,637 536,544
Investment in nonregulated projects 761,355 304,223
Other assets 137,325 193,466
------------ ------------
Total other noncurrent assets 1,952,669 1,607,756
------------ ------------
CURRENT ASSETS
Cash and cash equivalents 136,900 61,066
Accounts receivable
Customers 1,413,185 1,264,907
Other 98,035 123,255
Allowance for uncollectible accounts (29,769) (23,647)
Regulatory balancing accounts receivable 1,345,669 992,477
Inventories
Materials and supplies 197,394 239,856
Gas stored underground 136,326 170,345
Fuel oil 67,707 109,615
Nuclear fuel 140,357 134,411
Prepayments 33,251 56,062
------------ ------------
Total current assets 3,539,055 3,128,347
------------ ------------
DEFERRED CHARGES
Income tax-related deferred charges 1,155,421 1,276,532
Diablo Canyon costs 401,110 419,775
Unamortized loss net of gain on reacquired debt 382,862 395,659
Workers' compensation and disability claims recoverable 247,209 192,203
Other 732,029 458,660
------------ ------------
Total deferred charges 2,918,631 2,742,829
------------ ------------
TOTAL ASSETS $ 27,809,133 $ 27,162,526
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
22
<PAGE>
Pacific Gas and Electric Company
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------------
(in thousands) 1994 1993
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock $ 2,151,213 $ 2,136,095
Additional paid-in capital 3,806,508 3,666,455
Reinvested earnings 2,677,304 2,643,487
----------- -----------
Total common stock equity 8,635,025 8,446,037
Preferred stock without mandatory redemption provisions 732,995 807,995
Preferred stock with mandatory redemption provisions 137,500 75,000
Long-term debt 8,675,091 9,292,100
----------- -----------
Total capitalization 18,180,611 18,621,132
----------- -----------
OTHER NONCURRENT LIABILITIES
Customer advances for construction 152,384 152,872
Workers' compensation and disability claims 221,200 157,000
Other 644,233 246,950
----------- -----------
Total other noncurrent liabilities 1,017,817 556,822
----------- -----------
CURRENT LIABILITIES
Short-term borrowings 524,685 764,163
Long-term debt 477,047 221,416
Accounts payable
Trade creditors 414,291 472,985
Other 337,726 389,065
Accrued taxes 436,467 303,575
Deferred income taxes 432,026 315,584
Interest payable 84,805 82,105
Dividends payable 210,903 203,923
Other 643,779 487,809
----------- -----------
Total current liabilities 3,561,729 3,240,625
----------- -----------
DEFERRED CREDITS
Deferred income taxes 3,902,645 3,978,950
Deferred investment tax credits 391,455 410,969
Noncurrent balancing account liabilities 226,844 112,533
Other 528,032 241,495
----------- -----------
Total deferred credits 5,048,976 4,743,947
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 2, 3, 12 and 13)
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $27,809,133 $27,162,526
=========== ===========
</TABLE>
23
<PAGE>
Pacific Gas and Electric Company
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,007,450 $ 1,065,495 $ 1,170,581
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and decommissioning 1,397,470 1,315,524 1,221,490
Amortization 49,671 135,808 121,795
Gain on sale of investment in Alberta Natural
Gas Company Ltd - - (48,722)
Deferred income taxes and investment tax
credits--net 15,312 319,198 164,457
Allowance for equity funds used during
construction (19,046) (41,531) (39,368)
Other deferred charges 32,740 (158,725) 8,147
Other noncurrent liabilities 301,842 50,279 31,374
Other deferred credits 105,262 110,145 73,259
Net effect of changes in operating assets
and liabilities
Accounts receivable (116,936) 64,790 39,922
Regulatory balancing accounts receivable (353,192) (218,553) (215,195)
Inventories 112,443 23,097 (7,161)
Accounts payable (110,033) (39,422) (102,559)
Accrued taxes 132,892 44,638 128,243
Other working capital 181,481 108,873 (36,117)
Other--net 210,331 13,184 49,891
----------- ----------- -----------
Net cash provided by operating activities 2,947,687 2,792,800 2,560,037
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (1,094,495) (1,763,024) (2,307,318)
Allowance for borrowed funds used during
construction (12,953) (78,626) (44,217)
Nonregulated expenditures (328,266) (234,221) (148,226)
Proceeds from sale of investment in Alberta
Natural Gas Company Ltd - - 97,251
Other--net (29,914) 9,992 82,352
---------- ----------- -----------
Net cash used by investing activities (1,465,628) (2,065,879) (2,320,158)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued 274,269 264,489 296,653
Common stock repurchased (181,558) (257,780) (5,410)
Preferred stock issued 62,312 200,001 195,451
Preferred stock redeemed (83,275) (302,640) (276,806)
Long-term debt issued 60,907 4,584,548 1,676,513
Long-term debt matured or reacquired (436,673) (4,002,704) (1,409,337)
Short-term debt issued (redeemed)--net (239,478) (366,961) 121,213
Dividends paid (891,850) (857,515) (809,108)
Other--net 29,121 (24,885) (28,736)
---------- ----------- -----------
Net cash used by financing activities (1,406,225) (763,447) (239,567)
---------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 75,834 (36,526) 312
CASH AND CASH EQUIVALENTS AT JANUARY 1 61,066 97,592 97,280
---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 $ 136,900 $ 61,066 $ 97,592
========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid for
Interest (net of amounts capitalized) $ 674,758 $ 642,712 $ 694,512
Income taxes 712,777 542,827 682,809
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
24
<PAGE>
Pacific Gas and Electric Company
STATEMENT OF CONSOLIDATED COMMON STOCK EQUITY AND PREFERRED STOCK
<TABLE>
<CAPTION>
Preferred Preferred
Stock Stock
Total Without With
Additional Common Mandatory Mandatory
(dollars in thousands) Common Paid-in Reinvested Stock Redemption Redemption
Stock Capital Earnings Equity Provisions Provisions(1)
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1991 $2,087,859 $3,287,313 $2,306,152 $7,681,324 $ 894,897 $104,632
---------- ---------- ---------- ---------- --------- --------
Net income--1992 1,170,581 1,170,581
Common stock issued
(9,453,353 shares) 47,267 249,386 296,653
Common stock repurchased
(179,610 shares) (898) (2,450) (2,062) (5,410)
Preferred stock issued
(8,000,000 shares) (4,549) (4,549) 125,000 75,000
Preferred stock redeemed
(9,365,449 shares) (12,638) (14,940) (27,578) (229,106) (20,122)
Cash dividends declared
Preferred stock (81,393) (81,393)
Common stock (744,277) (744,277)
Other (2,214) (2,214)
---------- ---------- ---------- ---------- --------- --------
Net change 46,369 229,749 325,695 601,813 (104,106) 54,878
---------- ---------- ---------- ---------- --------- --------
BALANCE DECEMBER 31, 1992 2,134,228 3,517,062 2,631,847 8,283,137 790,791 159,510
---------- ---------- ---------- ---------- --------- --------
Net income--1993 1,065,495 1,065,495
Common stock issued
(7,708,512 shares) 38,541 225,948 264,489
Common stock repurchased
(7,334,876 shares) (36,674) (63,180) (157,926) (257,780)
Preferred stock issued
(8,000,000 shares) 200,001
Preferred stock redeemed
(8,156,968 shares) (13,375) (21,958) (35,333) (182,797) (84,510)
Cash dividends declared
Preferred stock (62,521) (62,521)
Common stock (811,196) (811,196)
Other (254) (254)
---------- ---------- ---------- ---------- --------- --------
Net change 1,867 149,393 11,640 162,900 17,204 (84,510)
---------- ---------- ---------- ---------- --------- --------
BALANCE DECEMBER 31, 1993 2,136,095 3,666,455 2,643,487 8,446,037 807,995 75,000
---------- ---------- ---------- ---------- --------- --------
Net income--1994 1,007,450 1,007,450
Common stock issued
(10,508,483 shares) 52,543 221,726 274,269
Common stock repurchased
(7,485,001 shares) (37,425) (66,334) (77,799) (181,558)
Preferred stock issued
(2,500,000 shares) (188) (188) 62,500
Preferred stock redeemed
(3,000,000 shares) (5,331) (2,544) (7,875) (75,000)
Cash dividends declared
Preferred stock (58,203) (58,203)
Common stock (840,627) (840,627)
Other (9,820) 5,540 (4,280)
---------- ---------- ---------- ---------- --------- --------
Net change 15,118 140,053 33,817 188,988 (75,000) 62,500
---------- ---------- ---------- ---------- --------- --------
BALANCE DECEMBER 31, 1994 $2,151,213 $3,806,508 $2,677,304 $8,635,025 $ 732,995 $137,500
========== ========== ========== ========== ========= ========
</TABLE>
(1) Includes current portion.
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
25
<PAGE>
Pacific Gas and Electric Company
STATEMENT OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
----------------------------
(dollars in thousands, except per share amounts) 1994 1993
<S> <C> <C>
COMMON STOCK EQUITY
Common stock, par value $5 per share
(authorized 800,000,000 shares, issued and
outstanding 430,242,687 and 427,219,205 $ 2,151,213 $ 2,136,095
Additional paid-in capital 3,806,508 3,666,455
Reinvested earnings 2,677,304 2,643,487
----------- -----------
Common stock equity 8,635,025 8,446,037
----------- -----------
PREFERRED STOCK
Preferred stock without mandatory redemption provision
Par value $25 per share (1)
Nonredeemable
5% to 6%--5,784,825 shares outstanding 144,621 144,621
Redeemable
4.36% to 8.2%--23,534,958 and 26,534,958 shares outstanding 588,374 663,374
----------- -----------
Total preferred stock without mandatory redemption
provision 732,995 807,995
----------- -----------
Preferred stock with mandatory redemption provision
Par value $25 per share (1)
6.30%--2,500,000 and none outstanding 62,500 -
6.57%--3,000,000 shares outstanding 75,000 75,000
Par value $100 per share (authorized 10,000,000 shares) - -
----------- -----------
Total preferred stock with mandatory redemption
provision 137,500 75,000
----------- -----------
Preferred stock 870,495 882,995
----------- -----------
LONG-TERM DEBT
PG&E long-term debt
First and refunding mortgage bonds
Maturity Interest rates
1994-1999 4.25% to 6.875% 714,074 724,610
2000-2005 5.875% to 8.75% 1,658,749 1,739,649
2006-2012 6.25% to 8.875% 477,870 477,870
2013-2019 7.5% to 12.75% 136,030 140,900
2020-2026 5.85% to 9.30% 2,902,945 2,947,428
----------- -----------
Principal amounts outstanding 5,889,668 6,030,457
Unamortized discount net of premium (66,198) (71,817)
----------- -----------
Total mortgage bonds 5,823,470 5,958,640
Unsecured debentures, 10.81% to 12%, due 1994-2000 124,939 221,523
Pollution control loan agreements, variable rates,
due 2008-2016 925,000 925,000
Unsecured medium-term notes, 4.13% to 10.10% due 1994-2014 1,443,800 1,542,625
Unamortized discount related to unsecured medium-term notes (2,428) (3,459)
Other long-term debt 22,209 24,127
----------- -----------
Total PG&E long-term debt 8,336,990 8,668,456
Long-term debt of subsidiaries 815,148 845,060
----------- -----------
Total long-term debt of PG&E and subsidiaries 9,152,138 9,513,516
Less long-term debt--current portion 477,047 221,416
----------- -----------
Long-term debt 8,675,091 9,292,100
----------- -----------
TOTAL CAPITALIZATION $18,180,611 $18,621,132
=========== ===========
</TABLE>
(1) Authorized 75,000,000 shares in total (both with and without mandatory
redemption provisions).
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
26
<PAGE>
Pacific Gas and Electric Company
SCHEDULE OF CONSOLIDATED SEGMENT INFORMATION
<TABLE>
<CAPTION>
Diversified
Operations Intersegment
(in thousands) Electric Gas (4) Eliminations Total
<S> <C> <C> <C> <C> <C>
1994
Operating revenues $ 8,006,157 $2,194,870 $ 246,324 $ - $10,447,351
Intersegment revenues (1) 12,852 85,341 1,695 (99,888) -
----------- ---------- ---------- --------- -----------
Total operating revenues $ 8,019,009 $2,280,211 $ 248,019 $ (99,888) $10,447,351
=========== ========== ========== ========= ===========
Depreciation and
decommissioning $ 982,859 $ 295,979 $ 118,632 $ - $ 1,397,470
Operating income before
income taxes (2) 2,213,518 381,078 (33,390) (3,227) 2,557,979
Construction
expenditures (3) 834,494 292,000 - - 1,126,494
Identifiable assets (3) $19,471,121 $6,433,984 $1,436,128 $ - $27,341,233
Corporate assets 467,900
-----------
Total assets at end of year $27,809,133
===========
1993
Operating revenues $ 7,866,043 $2,466,788 $ 249,577 $ - $10,582,408
Intersegment revenues (1) 15,369 223,443 5,079 (243,891) -
----------- ---------- ---------- --------- -----------
Total operating revenues $ 7,881,412 $2,690,231 $ 254,656 $(243,891) $10,582,408
=========== ========== ========== ========= ===========
Depreciation and
decommissioning $ 925,673 $ 251,490 $ 138,361 $ - $ 1,315,524
Operating income before
income taxes (2) 2,344,796 440,323 (7,375) (8,040) 2,769,704
Construction
expenditures (3) 929,065 954,116 - - 1,883,181
Identifiable assets (3) $19,125,555 $6,467,424 $1,053,027 $ - $26,646,006
Corporate assets 516,520
-----------
Total assets at end of year $27,162,526
===========
1992
Operating revenues $ 7,747,492 $2,342,202 $ 206,394 $ - $10,296,088
Intersegment revenues (1) 15,150 410,014 28,191 (453,355) -
----------- ---------- ---------- --------- -----------
Total operating revenues $ 7,762,642 $2,752,216 $ 234,585 $(453,355) $10,296,088
=========== ========== ========== ========= ===========
Depreciation and
decommissioning $ 856,124 $ 231,443 $ 133,923 $ - $ 1,221,490
Operating income before
income taxes (2) 2,308,828 441,612 (9,808) (346) 2,740,286
Construction
expenditures (3) 1,124,368 1,266,535 - - 2,390,903
Identifiable assets (3) $17,658,656 $5,068,213 $ 996,860 $ - $23,723,729
Corporate assets 464,430
-----------
Total assets at end of year $24,188,159
===========
</TABLE>
(1) Intersegment electric and gas revenues are accounted for at tariff rates
prescribed by the CPUC.
(2) Income taxes and general corporate expenses are allocated in accordance
with the FERC Uniform System of Accounts and requirements of the CPUC.
Operating income in the Statement of Consolidated Income is net of utility
income taxes.
(3) Includes an allocation of common plant in service and allowance for funds
used during construction.
(4) Includes the nonregulated operations of wholly owned subsidiaries, including
PG&E Enterprises, Mission Trail Insurance Ltd. (liability insurance),
Pacific Gas Properties Company (real estate development) and Pacific
Conservation Services Company (conservation loans).
The accompanying Notes to Consolidated Financial Statements are an integral
part of this statement.
27
<PAGE>
Pacific Gas and Electric Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Regulation:
Pacific Gas and Electric Company (PG&E) is regulated by the California Public
Utilities Commission (CPUC) and the Federal Energy Regulatory Commission
(FERC). PG&E's consolidated financial statements reflect the ratemaking
policies of these commissions in conformity with generally accepted accounting
principles for rate-regulated enterprises. In the Notes to Consolidated
Financial Statements, regulated operations other than the Diablo Canyon Nuclear
Power Plant (Diablo Canyon) are referred to as the utility.
Principles of Consolidation:
The consolidated financial statements include PG&E and its wholly owned and
majority-owned subsidiaries (collectively, the Company). All significant
intercompany transactions have been eliminated.
Major subsidiaries, all of which are wholly owned, are: Pacific Gas
Transmission Company (PGT)--transports natural gas from the U.S./Canadian
border to the California border; Alberta and Southern Gas Co. Ltd. (A&S)--
prior to November 1, 1993, bought gas in Canada and arranged its transport to
the U.S. border (see Note 3 for discussion of the restructuring of A&S's
operations); Pacific Energy Fuels Company--finances the purchase of nuclear
fuel through issuance of its commercial paper; PG&E Enterprises (Enterprises)--
the parent company for nonregulated subsidiaries, including DALEN Resources
Corp. (DALEN), formerly PG&E Resources Company, which engages in exploration,
development and production of oil and natural gas, and PG&E Generating Company
which through a joint venture (U.S. Generating) develops, builds, owns and
operates independent power projects.
Alberta Natural Gas Company Ltd (ANG), a 49.98% owned affiliate of PGT which
transports natural gas, was sold in June 1992. Prior to the sale of ANG, the
Company's investment in ANG was accounted for by the equity method of
accounting.
Revenues:
Revenues are recorded primarily for delivery of gas and electric energy to
customers. These revenues give rise to receivables from a diversified base of
customers including residential, commercial and industrial customers primarily
in Northern and Central California.
The CPUC has established mechanisms known as balancing accounts which help
stabilize the Company's earnings. Specifically, sales balancing accounts
accumulate differences between authorized and actual base revenues. Energy cost
balancing accounts accumulate differences between the actual cost of gas and
electric energy and the revenues designated for recovery of such costs.
Recovery of gas and electric energy costs through these balancing accounts is
subject to a reasonableness review by the CPUC. (See Note 3 for further
discussion of gas costs.)
Plant in Service:
The cost of plant additions and replacements is capitalized. Cost includes
labor, materials, construction overhead and an allowance for funds used during
construction (AFUDC). AFUDC is the cost of debt and equity funds used to
finance the construction of new facilities. Financing costs of capital
additions for Diablo Canyon, the California portion of the PGT-PG&E Pipeline
Expansion Project (Pipeline Expansion), and other nonregulated projects are
calculated under Statement of Financial Accounting Standards (SFAS) No. 34,
"Capitalization of Interest Cost." The original cost of retired plant plus
removal costs less salvage value are charged to accumulated depreciation.
Maintenance, repairs and minor replacements and additions are charged to
maintenance expense.
Depreciation and Nuclear Decommissioning Costs:
Depreciation of plant in service is computed using a straight-line
remaining-life method.
The estimated cost of decommissioning the Company's nuclear power facilities
is recovered in base rates through an annual allowance. For the years ended
December 31, 1994, 1993 and 1992, the amount recovered in rates for
decommissioning costs was $54 million each year. The estimated total obligation
for nuclear decommissioning costs is approximately $1.1 billion in 1994 dollars
(or $4.5 billion in future dollars); this obligation is being recognized
ratably over the facilities' lives. This estimate considers the total cost
(including labor, materials and other costs) of decommissioning and dismantling
plant systems and structures and includes a contingency factor for possible
changes in regulatory requirements and waste disposal cost increases.
The decommissioning method selected for Diablo Canyon anticipates that the
equipment, structures, and portions of the facility and site containing
radioactive contaminants will be removed or decontaminated to a level that
permits the property to be released for unrestricted use. Humboldt Bay Power
Plant is being decommissioned under a method that consists of placing and
maintaining the facility in protective storage until some future time when
dismantling can be initiated. The average annualized escalation rate and the
assumed return on qualified trust assets used to calculate the decommissioning
obligation and annual expense are approximately 5.5 percent and 5.25 percent
(6.25 percent on
28
<PAGE>
nonqualified trust assets), respectively. (See Note 8 for
further discussion of nuclear decommissioning funds.)
As required by federal law, the U.S. Department of Energy (DOE) is
responsible for the future storage and disposal of spent nuclear fuel. No
permanent storage site has been identified and the DOE has indicated that the
storage site will not be available until after 2010. The Company pays a
one-tenth of one cent fee on each nuclear kilowatthour (kWh) sold to fund DOE
storage and disposal activities.
Income Taxes:
The Company files a consolidated federal income tax return that includes
domestic subsidiaries in which its ownership is 80 percent or more. Income tax
expense includes current and deferred income taxes resulting from operations
during the year. Investment tax credits are deferred and amortized to income
over the life of the related property.
Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes," which established new financial accounting standards for income
taxes. SFAS No. 109 prohibits net-of-tax accounting, requires that deferred tax
liabilities and assets be adjusted for enacted changes in the income tax rates
and requires the use of the liability method of accounting for income taxes.
Under the liability method, the deferred tax liability represents the tax
effect of temporary differences between the financial statement and income tax
bases of assets and liabilities at current income tax rates.
The effect of the adoption of SFAS No. 109, as of January 1, 1993, was an
increase of $1.8 billion in consolidated liabilities as a result of recording
additional deferred taxes; consolidated assets also increased $1.8 billion,
consisting of a $1.5 billion increase in deferred charges (income tax-related
deferred charges and Diablo Canyon costs) and a $300 million increase in net
plant in service. These adjustments relate to temporary differences, which
prior to adoption of SFAS No. 109 were not recorded as deferred taxes,
consistent with the ratemaking process. Due to regulatory treatment, the
adoption of SFAS No. 109 did not have a significant impact on the Company's
results of operations.
Debt Premium, Discount and Related Expenses:
Long-term debt premium, discount and related expenses are amortized over the
life of each issue. Gains and losses on reacquired debt allocated to the
utility are amortized over the remaining original lives of the debt reacquired,
consistent with ratemaking; gains and losses on debt allocated to Diablo Canyon
and the California portion of the Pipeline Expansion are recognized in income,
and if material as an extraordinary item, at the time such debt is reacquired.
Occasionally, the Company uses interest rate swap agreements and foreign
currency contracts to hedge fluctuations in interest rates and foreign currency
exchange rates. The Company defers any gains or losses on these transactions
and records interest expense adjusted for the effects of the agreements.
Oil and Gas Properties:
DALEN uses the successful-efforts method of accounting for oil and gas
properties.
Inventories:
Nuclear fuel inventory is stated at the lower of average cost or market.
Amortization of fuel in the reactor is based on the amount of energy output.
Other inventories are valued at average cost except for fuel oil, which is
valued by the last-in-first-out method.
Statement of Consolidated Cash Flows:
Cash and cash equivalents (valued at cost which approximates market) include
special deposits, working funds and short-term investments with original
maturities of three months or less.
Reclassifications:
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the 1994 presentation.
Note 2: COMPETITION AND REGULATION
In April 1994, the CPUC issued an order instituting a rulemaking and an
investigation (OIR/OII) on electric industry restructuring. The proposal, which
is subject to comment and modification, involves two major changes in electric
industry regulation in California.
The first would move electric utilities from traditional ratemaking to
performance-based ratemaking. The second would unbundle electric services and
provide electric utility retail customers with the option to choose from a
range of electric generation providers, including utilities (direct access).
Direct access would be phased in over a six-year period beginning in 1996.
Utilities would still be obligated to provide transmission and distribution
services to all customers.
To ensure an orderly transition that maintains the financial integrity of
the utilities, the CPUC proposed that uneconomic costs of utility generating
assets be recovered through a "competition transition charge" (CTC). However,
the OIR/OII did not specify which costs might be recovered through such a
transition charge or how such a charge would be allocated to and collected from
customers.
In June 1994, the Company filed its initial comments on the CPUC's proposal.
The Company's response proposed an implementation schedule for direct access
beginning in
29
<PAGE>
1996, with direct access service available to all customers by
2008. For direct access customers, the Company proposed that it be given the
pricing flexibility to compete and sell unbundled electric power while assuming
the market risk of competitive pricing.
In November 1994, the Company filed testimony with the CPUC on its plan for
recovering uneconomic assets and obligations which would result from the
restructuring of the electric industry as proposed by the CPUC. The Company's
testimony, among other things, identifies and defines the costs proposed to be
included in the CTC, provides preliminary estimates of the transition costs and
discusses options for allocating and recovering those costs. Based on market
prices of $.048 and $.032 per kWh, the Company estimated that its uneconomic
generating assets and obligations are approximately $3 billion and $11 billion,
respectively, resulting from the restructuring as proposed by the CPUC. The
Company identified three categories of uneconomic assets: utility-owned
generation assets and power purchase commitments, power purchase obligations
relating to Qualifying Facilities (QFs), and generation-related regulatory
assets. The estimates of uneconomic assets were determined by comparing future
revenue requirements of generation assets and power purchase obligations, over
a twenty-year and thirty-year period, respectively, with revenues computed at
assumed market prices. Diablo Canyon was included in the revenue requirement
calculation using the proposed pricing modification to the Diablo Canyon
settlement. (See Note 4.) The revenue requirement for Diablo Canyon and all
Company-owned generation assets included a return on investment. The actual
amount of uneconomic assets and obligations will depend on the final regulation
and the actual market price of electricity.
Under the Company's proposal for a longer phase-in period to direct access,
the Company would not seek recovery of the transition costs associated with its
own generation assets and power purchase commitments, except for commitments to
purchase power from QFs. Based on this assumption and the market price
assumptions referred to above, the uneconomic assets and obligations are
approximately $3 billion and $5 billion, respectively. If the CPUC adopts a
shorter phase-in period, the Company indicated that it would seek recovery of
all uneconomic assets and obligations resulting from the restructuring through
the CTC.
In December 1994, the CPUC issued an interim decision in the OIR/OII. The
decision sets a schedule under which the CPUC will propose a policy decision in
March 1995, with a final policy decision to be effective no earlier than
September 1995. The CPUC's proposed policy statement will be subject to
hearings and state legislative review before it can be implemented. The CPUC
also established a public working group to comment on unbundling and transition
cost recovery, social programs and resource procurement, under several
different models for restructuring which include direct access and a supply
pool for use by wholesale and/or retail purchasers of electricity.
Financial Impact of the Electric Industry Restructuring Proposal:
Based on the regulatory framework in which it operates, the Company currently
accounts for the economic effects of regulation in accordance with the
provisions of SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation." As a result of applying the provisions of SFAS No. 71, the Company
has accumulated approximately $3.7 billion of regulatory assets, including
balancing accounts, at December 31, 1994.
In the event that recovery of specific costs through rates becomes unlikely
or uncertain for all or a portion of the Company's utility operations, whether
resulting from the expanding effects of competition or specific regulatory
actions, it could cause the Company to write off applicable portions of its
regulatory assets.
If the OIR/OII is adopted as proposed, or the Company determines that future
electric generation rates will no longer be based on cost-of-service, the
Company will discontinue application of SFAS No. 71 for the electric generation
portion of its operations. The Company continues to evaluate the current
regulatory and competitive environment to determine whether and when such a
discontinuance would be appropriate. If such discontinuance should occur, the
Company would write off all applicable generation-related regulatory assets to
the extent that transition cost recovery is not assured. The regulatory assets
attributable to electric generation, excluding balancing accounts of
approximately $700 million which are expected to be recovered in the near term,
were approximately $1.6 billion at December 31, 1994. This amount could vary
depending on the allocation methods used.
The final CPUC determination of uneconomic costs and the method of recovery
could adversely affect the Company's returns on its investments in electric
generation assets. If future electric generation revenues are insufficient to
recover the Company's investments and QF obligations, the Company would
recognize a loss.
The final determination of the financial impact will depend on the form of
regulation, including transition mechanisms, if any, adopted by the CPUC and
the groups of customers affected. Currently, the Company is unable to predict
the ultimate outcome of the electric industry restructuring or predict whether
such outcome will have a significant impact on its financial position or
results of operations.
30
<PAGE>
Note 3: Natural Gas Matters
Regulatory Restructuring:
Beginning August 1, 1993, PG&E implemented the CPUC's capacity brokering
program which requires PG&E to make available for brokering all interstate gas
pipeline capacity which is not held for its residential and smaller commercial
(core) customers, and industrial and large commercial customers who choose
bundled gas services (core subscription customers). PG&E's industrial and large
commercial (noncore) customers, producers, aggregators, marketers and the
Company's electric department can bid for such capacity.
In addition, beginning November 1, 1993, PGT implemented the FERC's Order No.
636, which requires interstate pipelines to restructure their services. This
order unbundled sales, transportation and storage services, instituted capacity
release programs and provided for recovery of transition costs related to the
restructuring of services.
The Company's compliance with these regulatory changes allowed more of the
Company's noncore customers to arrange for the purchase and transportation of
their own gas supplies. As a result, the Company's gas purchase requirements
and related need for firm transportation capacity for its gas purchases
decreased, contributing to the Company's need to restructure its gas supply
arrangements.
Decontracting Plan:
Until November 1993, PG&E purchased Canadian natural gas from PGT which in turn
purchased such gas from A&S. A&S had commitments to purchase natural gas from
approximately 190 Canadian gas producers under various long-term contracts,
most of which extended through 2005. As a result of the regulatory
restructuring discussed above, A&S, PGT, PG&E and approximately 190 Canadian
gas producers entered into agreements (collectively, the Decontracting Plan)
which terminated A&S's contracts with these Canadian gas producers effective
November 1, 1993.
Under the Decontracting Plan, producers released A&S, PGT and PG&E from any
claims they may have had that resulted from the termination of the former
arrangements as well as any prior claims related to these contracts. The total
amount of settlement payments paid to producers was approximately $210 million.
As part of the overall decontracting process, A&S's operations have been
significantly reduced. A&S permanently assigned significant portions of its
commitments for transportation capacity with NOVA Corporation of Alberta (NOVA)
through October 2001 and ANG through October 2005 to third parties. In
addition, A&S assigned approximately 600 million cubic feet per day (MMcf/d) of
capacity on each of these pipelines to PG&E for use in the servicing of PG&E's
core and core subscription customers. With the permanent assignments of its
capacity made through the end of 1994, A&S holds remaining capacity of
approximately 300 MMcf/d on each of the pipelines with total annual demand
charges of approximately $15 million for which it is continuing its efforts to
assign or broker. A&S believes it will be able to permanently assign
substantially all of its remaining capacity by the end of 1995. To the extent
others do not take this capacity, A&S will remain obligated to pay for the
related demand charges.
The FERC approved a transition cost recovery mechanism for PGT under which
most costs incurred to restructure, reform or terminate the sales arrangements
between A&S and PGT and the underlying A&S gas supply contracts, or to resolve
claims by gas suppliers related to past or future liabilities or obligations of
PGT or A&S arising out of the former contracts, are treated as transition
costs. Twenty-five percent of the transition costs was absorbed by PGT.
Twenty-five percent of the transition costs was recovered by PGT through direct
bills (substantially all to PG&E as PGT's principal customer). The final fifty
percent of the transition costs is being recovered by PGT through volumetric
surcharges over a three-year period. Costs associated with A&S's commitments
for Canadian pipeline capacity do not qualify as transition costs recoverable
under this mechanism.
Financial Impact of Decontracting Plan:
The Company incurred transition costs of $228 million in 1993, consisting of
settlement payments made to producers in connection with the implementation of
the Decontracting Plan and amounts incurred by A&S in reducing certain
administrative and general functions resulting from the restructuring. Of these
costs, the Company deferred $143 million for future rate recovery. In addition,
the Company recorded a charge of $31 million in 1993 related to A&S's remaining
commitments for Canadian transportation capacity. Accordingly, the Company
expensed $93 million in 1993 and a total of $23 million in prior years.
Transportation Commitments:
The Company has gas transportation service agreements with various Canadian and
interstate pipeline companies. These agreements include provisions for fixed
demand charges for reserving firm capacity on the pipelines. The total demand
charges that the Company will pay each year may change due to changes in tariff
rates and may be offset to the extent the Company can broker or permanently
assign any unused capacity. In addition to demand charges, the Company is
required to pay transportation charges for actual quantities shipped. The
Company's total demand and transportation charges paid under these agreements
(excluding agreements with PGT) were approximately $225 million in 1994, $280
million in 1993 and $300 million in 1992.
31
<PAGE>
The following table summarizes the approximate capacity held by the Company
on various pipelines and the related annual demand charges as of December 31,
1994:
<TABLE>
<CAPTION>
Total
Firm Capacity Annual Demand
Pipeline Held Charges Contract
Company (MMcf/d) (in millions) Expiration
- - ------------------------- ------------- ------------- ----------
<S> <C> <C> <C>
El Paso 1,140 $130 December 1997
Transwestern 200 $ 30 March 2007
NOVA 870 $ 25 October 2001
ANG 890 $ 15 October 2005
</TABLE>
Regulatory changes have resulted in a decrease in the Company's need for
firm transportation capacity for its own gas purchases. PG&E holds
approximately 600 MMcf/d of firm capacity on each of the pipelines owned by El
Paso Natural Gas Company (El Paso), NOVA and ANG, and 150 MMcf/d on the
pipeline owned by Transwestern Pipeline Company (Transwestern) to service its
core and core subscription customers. In addition, PG&E holds for its electric
department approximately 50 MMcf/d on Transwestern. The Company is continuing
its efforts to broker or assign any remaining unused capacity including certain
amounts of that held for its core and core subscription customers when such
capacity is not being used.
Based on the current demand for Canadian pipeline capacity, the Company
believes it will be able to broker or assign substantially all of its unused
capacity on NOVA and ANG; however, due to lower demand for Southwest pipeline
capacity, the Company cannot predict the volume or price of the capacity on El
Paso and Transwestern that will be brokered or assigned. Substantially all
demand charges incurred by the Company for pipeline capacity, including charges
for capacity that is not brokered or brokered at a discount, are eligible for
rate recovery subject to a reasonableness review.
The Division of Ratepayer Advocates (DRA), a consumer advocacy branch of the
CPUC staff, and others have challenged recovery of all demand charges for the
Company's Transwestern capacity and of certain other demand charges for
capacity not brokered or brokered at a discount. In November 1994, the CPUC
approved an interim increase in gas rates, subject to refund, designed to
collect approximately one-half of the demand charges for unbrokered or
discounted El Paso and PGT capacity. The decision set hearings on the issue,
and acknowledged that significant reasonable costs continue to accrue. The
Company believes that the ultimate resolution of these matters will not have a
significant adverse impact on its financial position or results of operations.
Gas Reasonableness Proceedings:
Recovery of energy costs through the Company's regulatory balancing account
mechanisms is subject to a CPUC determination that such costs were incurred
reasonably. Under the current regulatory framework, annual reasonableness
proceedings are conducted by the CPUC on a historic calendar year basis.
In March 1994, the CPUC issued decisions covering the years 1988 through
1990, ordering disallowances of $90 million of gas costs, plus accrued interest
of approximately $25 million through 1993 for the Company's Canadian gas
procurement activities, and $8 million for gas inventory operations. The
Company has filed a lawsuit in a federal district court challenging the CPUC
decision on Canadian gas costs.
The CPUC decision on the Company's Canadian gas procurement activities found
that the Company could have saved its customers money if it had bargained more
aggressively with its then-existing Canadian suppliers or bought lower-priced
gas from other Canadian sources. The CPUC concluded that it was appropriate for
the Company to take a substantial portion of its Canadian gas (up to 700
MMcf/d) at the actual price charged under its then-existing Canadian gas supply
contracts, but that the Company could have met the remainder of its Canadian
gas requirement with lower-priced gas, either under those same contracts or
with purchases from other Canadian natural gas sources.
A number of other reasonableness issues related to the Company's gas
procurement practices, transportation capacity commitments and supply
operations for periods dating from 1988 to 1994 are still under review by the
CPUC. The DRA recommended disallowances of $142 million and a penalty of $50
million and indicated that it was considering additional recommendations for
pending issues. The Company and the DRA have signed settlement agreements to
resolve most of these issues for a $68 million disallowance.
Significant issues covered by the settlement agreements include (1) the
Company's purchases of Canadian, Southwest and California gas for its electric
department in 1991 and 1992 and its core customers from 1991 through May 1994;
(2) the investigation by the DRA of A&S and proposed investigation of ANG for
the period 1988 through May 1994; (3) the effects of Canadian gas prices on
amounts paid by the Company for Northwest power purchases for 1988 through 1992
and power from QFs and geothermal producers for 1991 and 1992; (4) the
Company's gas storage operations for 1991 and 1992; (5) the Company's
Southwest gas procurement activities for 1988 through 1990; and (6) Canadian
gas restructuring transition costs billed to PG&E by PGT.
Agreements with the DRA do not constitute a CPUC decision and are subject to
modification by the CPUC in its final decisions.
32
<PAGE>
Financial Impact of Reasonableness Proceedings:
The Company accrued approximately $135 million and $61 million in 1994 and
1993, respectively, for gas reasonableness matters including the CPUC decisions
for the years 1988 through 1990 and issues covered by the settlement
agreements. The Company believes the ultimate outcome of these matters will not
have a significant impact on its financial position or results of operations.
Note 4: Diablo Canyon
Rate Case Settlement:
The 1988 Diablo Canyon rate case settlement (Diablo Canyon settlement) bases
revenues primarily on the amount of electricity generated by the plant, rather
than on traditional cost-based ratemaking. In approving the settlement, the
CPUC explicitly affirmed that Diablo Canyon costs and operations should no
longer be subject to CPUC reasonableness reviews.
The Diablo Canyon settlement provides that only certain Diablo Canyon costs
be recovered through base rates over the term of the Diablo Canyon settlement,
including a full return on such costs. The related revenues to recover these
costs are included in Diablo Canyon operating revenues for reporting purposes.
Other than these and decommissioning costs, Diablo Canyon no longer meets the
criteria for application of SFAS No. 71. Consequently, application of this
statement was discontinued for Diablo Canyon effective July 1988.
Pricing:
In December 1994, the Company, the DRA, the California Attorney
General and several other parties representing energy consumers agreed to
modify the pricing provisions of the Diablo Canyon settlement. The
modification, which is subject to CPUC approval, calls for a reduction in the
price paid for electricity generated by Diablo Canyon over the next five years.
Under the Diablo Canyon settlement, the price per kWh of electricity
generated by Diablo Canyon consists of a fixed and an escalating component. The
total prices for 1994, 1993 and 1992 were 11.89 cents, 11.16 cents and 10.34
cents per kWh, respectively. Under the proposed modification, the price for
power produced by Diablo Canyon would be reduced from the current level as
shown in the following table. Under the proposed pricing, at full operating
power each Diablo Canyon unit would contribute approximately $2.9 million in
revenues per day in 1995.
<TABLE>
<CAPTION>
Diablo Canyon Price (cents) per kWh
-----------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Original Settlement Price* 12.15 12.42 12.70 12.98 13.28
Proposed Price 11.00 10.50 10.00 9.50 9.00
</TABLE>
- - ----------------
* assumes 3.5% inflation
After December 31, 1999, the escalating portion of the Diablo Canyon price
would increase using the same formula specified in the original Diablo Canyon
settlement. The proposed modification provides the Company with the right to
reduce the price below the amount specified.
The parties to the proposed modification have agreed that the difference
between the Company's revenue requirement under the original Diablo Canyon
settlement prices and the proposed prices would be applied to the energy cost
balancing account until the undercollection in that account is fully amortized.
Financial Information:
Selected financial information for Diablo Canyon is shown below:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Operating revenues $1,870 $1,933 $1,781
Operating income 618 708 663
Net income 461 496 443
</TABLE>
In determining operating results of Diablo Canyon, operating revenues were
specifically identified pursuant to the Diablo Canyon settlement. The majority
of operating expenses were also specifically identified, including income tax
expense. Administrative and general expense, principally labor costs, is
allocated based on a study of labor costs. Interest is charged to Diablo Canyon
based on an allocation of corporate debt.
Note 5: Preferred Stock
Nonredeemable preferred stock ($25 par value) consists of 5%, 5.5% and 6%
series, which have rights to annual dividends per share of $1.25, $1.375 and
$1.50, respectively.
Redeemable preferred stock without mandatory redemption provisions (4.36
percent to 8.2 percent, $25 par value) is subject to redemption at the
Company's option, in whole or in part, if the Company pays the specified
redemption price plus accumulated and unpaid dividends through the redemption
date. Annual dividends and redemption prices per share range from $1.09 to
$2.05, and from $25.75 to $28.125, respectively.
The 6.30% (due 2004 to 2009) and the 6.57% (due 2002 to 2007) series of
preferred stock are subject to mandatory redemption provisions and are entitled
to sinking funds providing for the retirement of stock outstanding, beginning
on January 31, 2004, and July 31, 2002, respectively, at par value plus
accumulated and unpaid dividends through the redemption date. In addition, the
6.30% and 6.57% series may be redeemed at the Company's option at par value
plus
33
<PAGE>
accumulated and unpaid dividends on or after January 31, 2004, and July
31, 2002, respectively. The estimated fair value of the Company's preferred
stock with mandatory redemption provisions at December 31, 1994 and 1993, was
approximately $117 million and $81 million, respectively, based primarily on
matrix pricing models.
During 1994, the Company issued $63 million of 6.30% redeemable preferred
stock and redeemed the 8.16% redeemable preferred stock with a par value of $75
million.
During 1993, the Company issued $125 million of 6 7/8% redeemable preferred
stock and $75 million of 7.04% redeemable preferred stock. Proceeds were used
to finance a portion of the 1993 redemption of the Company's 9.00%, 9.30%,
9.48% and 10.17% redeemable preferred stock with an aggregate par value of $267
million.
Dividends on preferred stock are cumulative. All shares of preferred stock
have voting rights and equal preference in dividend and liquidation rights.
Upon liquidation or dissolution of the Company, holders of the preferred stock
would be entitled to the par value of such shares plus all accumulated and
unpaid dividends, as specified for the class and series.
Note 6: Long-term Debt
Mortgage Bonds:
The Company's First and Refunding Mortgage Bonds are issued in series, and at
December 31, 1994, bear annual interest rates ranging from 4.25 percent to
12.75 percent and mature from 1995 to 2026. The Company had $5.9 billion and
$6.0 billion of mortgage bonds outstanding at December 31, 1994 and 1993,
respectively. Additional bonds may be issued, subject to CPUC approval, up to a
maximum total amount outstanding of $10 billion, assuming compliance with
indenture covenants for earnings coverage and property available as security.
The Board of Directors (Board) may increase the amount authorized, subject to
CPUC approval. The indenture requires that net earnings excluding depreciation
and interest be equal to or greater than 1.75 times the annual interest charges
on the Company's mortgage bonds outstanding. All real properties and
substantially all personal properties of PG&E are subject to the lien of the
indenture.
The Company is required by the indenture to make semi-annual sinking fund
payments on February 1 and August 1 of each year for the retirement of the
bonds. These payments equal .5 percent of the aggregate bonded indebtedness
outstanding on the preceding November 30 and May 31, respectively. Bonds of any
series, with certain exceptions, may be used to satisfy this requirement. In
addition, holders of series 84D bonds maturing in 2017 have an option to
redeem their bonds in 1995.
In conjunction with the Company's focus on reducing the levels of
higher-cost debt, the Company redeemed or repurchased $80 million and $3,536
million of higher-cost mortgage bonds in 1994 and 1993, respectively. Interest
rates on the bonds redeemed or repurchased ranged from 7.50 percent to 12.75
percent. In January 1995, the Board authorized the Company to redeem or
repurchase up to $153 million of mortgage bonds.
Included in the total of outstanding mortgage bonds are First and Refunding
Mortgage Bonds issued by the Company to finance air and water pollution control
and sewage and solid waste disposal facilities. These mortgage bonds are held
in trust for the California Pollution Control Financing Authority (CPCFA), who
arranged these financings, and are in addition to the Pollution Control Loan
Agreements discussed below. At December 31, 1994 and 1993, the Company had
outstanding $768 million of mortgage bonds held in trust for the CPCFA with
interest rates ranging from 5.85 percent to 8.875 percent and maturity dates
from 2007 to 2023.
Pollution Control Loan Agreements:
In addition to the pollution control loans secured by the Company's mortgage
bonds (described above), the Company had loans totaling $925 million at
December 31, 1994 and 1993, from the CPCFA to finance air and water pollution
control and sewage and solid waste disposal facilities. Interest rates on the
loans vary depending upon whether the loans are in a daily, weekly, commercial
paper or fixed rate mode. Conversions from one mode to another take place at
the Company's option. Average annual interest rates on these loans for 1994
ranged from 2.79 percent to 2.98 percent. These loans are subject to redemption
on demand by the holder under certain circumstances and are secured by
irrevocable letters of credit which mature as early as 1997.
Medium-term Notes:
The Company had $1,444 million of unsecured medium-term notes outstanding at
December 31, 1994 with interest rates ranging from 4.13 percent to 9.90 percent
and maturities from 1995 to 2014. At December 31, 1994, the Company has
remaining $85 million on a previous authorization to repurchase medium-term
notes. Holders of Series B medium-term notes maturing in 2004 have an option to
redeem their notes in 1995.
34
<PAGE>
Long-term Debt of Subsidiaries:
PGT obtained long-term debt financing from a consortium of banks pursuant to a
loan agreement dated April 30, 1993. Under the loan agreement, PGT borrowed
$673 million to finance the pipeline expansion and its existing pipeline
system. The debt is initially guaranteed by PG&E. The weighted average rate of
interest on this loan during 1994 was 6.4 percent.
The interest rate on the PGT debt (which ranged from 4.0 percent to 8.1
percent in 1994) is a floating rate subject to periodic determination in
accordance with the terms of the loan agreement and may vary depending on the
nature and the length of the borrowings, but is generally tied to the banks'
base rate, domestic certificate of deposit rates, or the applicable London
Interbank Offered Rates (LIBOR) for maturities ranging from one to twelve
months. In 1994, PGT executed a series of interest rate swap transactions
which converted $639 million of the floating rate debt to a fixed rate through
July 31, 1999. The interest rate on the remaining debt outstanding, which is
due in 1995, was fixed by utilizing options available to PGT under the loan
agreement.
At December 31, 1994, PGT had outstanding ten interest rate swap agreements
with commercial banks with a total notional principal amount of $639 million.
These swap agreements effectively change PGT's interest rate on its floating
rate debt to a fixed rate of 8.4 percent. The interest rate swap agreements
mature in July 1999. At December 31, 1994, the fair market value of these swap
agreements represented an unrealized gain of $25.7 million.
DALEN has a two-year revolving loan agreement expiring February 1997 which
provides for maximum borrowings of $200 million at a variable interest rate.
The revolving loan may be extended annually by consent of the banks and may be
converted to a five-year term loan at DALEN's option. At December 31, 1994,
approximately $115 million was outstanding at an effective interest rate of
approximately 7 percent. The loan is secured by DALEN's oil and gas
investments.
Repayment Schedule:
At December 31, 1994, the Company's combined aggregate amount of maturing
long-term debt and sinking fund requirements, for the years 1995 through 1999,
are $477 million, $373 million, $369 million, $715 million and $317 million,
respectively.
Fair Value:
The estimated fair value of the Company's total long-term debt of $9.2 billion
and $9.5 billion at December 31, 1994 and 1993, respectively, was approximately
$8.6 billion (including the $25.7 million unrealized gain attributable to the
PGT interest rate swap agreements) and $9.9 billion, respectively. The
estimated fair value of long-term debt was determined based on quoted market
prices, where available. Where quoted market prices were not available, the
estimated fair value was determined using other valuation techniques (e.g.,
matrix pricing models or the present value of future cash flows).
Note 7: Short-term Borrowings
Short-term borrowings consist of commercial paper with a weighted average
interest rate of 6.18 percent at December 31, 1994. The usual maturity for
commercial paper is one to ninety days. Commercial paper outstanding at
December 31, 1994 and 1993, was $525 million and $764 million, respectively.
The carrying amount of short-term borrowings approximates fair value.
The Company has a $1 billion revolving credit facility with various banks to
support the sale of commercial paper and for other corporate purposes. There
were no borrowings under this facility in 1994, 1993 or 1992. This credit
facility expires in November 1999; however, it may be extended annually for
additional one-year periods upon mutual agreement between the Company and the
banks.
Note 8: Investments in Debt and Equity Securities
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which established new
financial accounting and reporting standards for investments in debt and equity
securities. All of the Company's investments in debt and equity securities are
included in Nuclear Decommissioning Funds and are classified as
available-for-sale. These securities are held in external trust funds to be
used for the decommissioning of the Company's nuclear facilities and are
reported at fair value. Unrealized gains and losses are recorded to Accumulated
Depreciation and Decommissioning, net of tax. Funds may not be released from
the external trust funds until authorized by the CPUC.
The proceeds received during 1994 from the sale of securities held as
available-for-sale were approximately $1 billion. During 1994, the gross
realized gains and losses on sales of securities held as available-for-sale
were $9.9 million and $11.9 million, respectively. The cost of equity
securities sold is determined by specific identification. The cost of debt
securities sold is based on a first-in-first-out method.
35
<PAGE>
The following table provides a summary of amortized cost and fair value by
major security type:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
(in thousands) December 31, 1994
- - ------------------------------------------------------------------------------------------------
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Debt of U.S. Treasury and
other federal entities $290,511 $ 20 $ (7,972) $282,559
State and local obligations 94,899 1,268 (2,485) 93,682
Equity Securities 184,954 18,556 (9,261) 194,249
Other 46,398 24 (275) 46,147
-------- ------- -------- --------
Total investments in securities $616,762 $19,868 $(19,993) $616,637
======== ======= ======== ========
</TABLE>
Investments in debt securities maturing within ten years totaled $293
million, and investments in debt securities with maturities in excess of ten
years totaled $114 million.
At December 31, 1993, the cost and estimated fair value of the
decommissioning funds was $537 million and $576 million, respectively.
Note 9: Employee Benefit Plans
Retirement Plan:
The Company provides a noncontributory defined benefit pension plan covering
substantially all employees. The retirement benefits are based on years of
service and the employee's base salary. The Company's funding policy is to
contribute each year not more than the maximum amount deductible for federal
income tax purposes and not less than the minimum contribution required under
the Employee Retirement Income Security Act of 1974.
At December 31, 1994, plan assets exceeded the projected benefit obligation
by $517 million. The plan's funded status was:
<TABLE>
<CAPTION>
December 31,
-------------------------
(in thousands) 1994 1993
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits $(3,079,045) $(3,203,408)
Nonvested benefits ( 131,489) (154,349)
----------- -----------
Accumulated benefit obligation (3,210,534) (3,357,757)
Effect of projected future compensation increases ( 441,951) (577,926)
----------- -----------
Projected benefit obligation (3,652,485) (3,935,683)
Plan assets at market value 4,169,516 4,376,110
----------- -----------
Plan assets in excess of projected benefit obligation 517,031 440,427
Unrecognized prior service cost 93,425 117,312
Unrecognized net gain (908,485) (759,690)
Unrecognized net transition obligation 108,800 120,253
----------- -----------
Accrued pension liability $ (189,229) $ (81,698)
=========== ===========
</TABLE>
Plan assets consist substantially of common stocks and fixed-income
securities. The unrecognized prior service cost is amortized over approximately
16 years. The unrecognized net transition obligation is amortized over
approximately 18 years, beginning in 1987.
The vested benefit obligation is the actuarial present value of vested
benefits to which employees are currently entitled based on their expected
termination dates.
Assumptions used to calculate the projected benefit obligation to determine
the plan's funded status were:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
<S> <C> <C>
Weighted average discount rate 8% 7%
Average rate of projected future compensation increases 5% 5%
</TABLE>
The cost of this plan is charged to expense and to plant in service through
construction work in progress. Net pension cost, using the projected unit
credit actuarial cost method, was:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost for benefits earned $ 109,132 $ 129,166 $ 127,388
Interest cost 272,932 268,698 248,674
Actual loss (return) on plan assets 20,358 (511,526) (204,576)
Net amortization and deferral (412,547) 177,597 (78,560)
--------- --------- ---------
Net pension (income) cost $ (10,125) $ 63,935 $ 92,926
========= ========= =========
</TABLE>
The decrease in net pension cost in 1994 compared to 1993 was primarily due
to changes in the assumed rates of projected compensation increases and
turnover to better reflect actual and expected rates. The decrease in net
pension cost in 1993 compared to 1992 was primarily due to a change in the
expected long-term rate of return on plan assets to better reflect actual and
expected earnings on the funds invested.
The expected long-term rate of return on plan assets used to calculate
pension cost was nine percent for 1994 and 1993 and eight percent for 1992.
Net pension cost is calculated using expected return on plan assets. The
difference between actual and expected return on plan assets is included in net
amortization and deferral and is considered in the determination of future
pension cost. In 1994, the plan experienced a negative rather
36
<PAGE>
than an expected positive investment return on plan assets, due to weak
performance in domestic equities and bonds. In 1993, actual return on plan
assets exceeded expected return whereas, in 1992, actual return on plan
assets was less than expected.
In conformity with accounting for rate-regulated enterprises, regulatory
adjustments have been recorded in the income statement and balance sheet for
the difference between utility pension cost determined for accounting purposes
and that for ratemaking, which is based on a contribution approach.
Savings Fund Plan:
The Company sponsors a defined contribution pension plan to which employees
with at least one year of service may make contributions. Employees may
contribute up to 15 percent of their covered compensation on a pretax or
after-tax basis. These contributions, up to a maximum of six percent of covered
compensation, are eligible for matching Company contributions at specified
rates. The cost of Company contributions was charged to expense and to plant in
service through construction work in progress and totaled $35 million, $36
million and $35 million for 1994, 1993 and 1992, respectively.
Long-term Incentive Program:
The Company implemented a Long-term Incentive Program (Program) in 1992. The
Program allows eligible participants to be granted stock options with or
without associated stock appreciation rights, dividend equivalents and/or
performance-based units. The Program incorporates those shares previously
authorized under the Company's 1986 Stock Option Plan.
A total of 14.5 million shares of common stock have been authorized for
award under the Program and the 1986 Stock Option Plan. Costs associated with
the Program, which have not been significant, are not recoverable in rates.
At December 31, 1994, stock options on 2,496,356 shares, granted at option
prices ranging from $16.75 to $34.25, were outstanding. During 1994, 597,000
options were granted at an option price of $34.25, which was the market price
per share on the date of grant.
Outstanding stock options expire ten years and one day after the date of
grant and become exercisable on a cumulative basis at one-third each year
commencing two years from the date of grant. Stock options also become
exercisable within certain time limitations upon the optionee's termination due
to retirement, disability or death, and upon certain changes in control of the
Company.
In 1994, 1993 and 1992, stock options on 52,143, 174,387 and 157,446 shares,
respectively, were exercised at option prices ranging from $24.75 to $32.13,
$16.75 to $33.13 and $16.75 to $26.63, respectively. At December 31, 1994,
stock options on 940,076 shares were exercisable.
Postretirement Benefits Other Than Pensions:
The Company provides a contributory defined benefit medical plan for retired
employees and their eligible dependents and a noncontributory defined benefit
life insurance plan for retired employees. Substantially all employees retiring
at or after age 55 are eligible for these benefits. The medical benefits are
provided through plans administered by an insurance carrier or a health
maintenance organization. Certain retirees are responsible for a portion of the
cost based on past claims experience of the Company's retirees.
In 1993, the Company implemented a plan change that will limit the amount it
will contribute toward postretirement medical benefits. This limitation will
take effect for all retirees beginning in 2001.
The Company's funding policy for the medical and life insurance benefits is
to contribute each year the amount provided for in rates. Life insurance
benefits which are not funded are provided through an insurance company at a
cost based on total current claims paid plus administrative fees. The cost of
these plans is charged to expense and to plant in service through construction
work in progress.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," which requires
accrual of the expected cost of these benefits during the employees' years of
service. The assumptions and calculations involved in determining the accrual
closely parallel pension accounting requirements. The Company previously
recognized these costs as benefits were paid and funded, which was consistent
with ratemaking.
In December 1992, the CPUC issued a decision on the ratemaking treatment for
these benefits in 1993 and beyond. The decision authorized recovery of these
benefits, within certain guidelines, at a level equal to the lesser of the
annual SFAS No. 106 cost, based on amortization of the transition obligation
over 20 years, or the amount which can be contributed annually on a
tax-deductible basis to appropriate trusts. Due to this regulatory treatment,
adoption of SFAS No. 106 did not have a significant impact on the Company's
financial position or results of operations.
37
<PAGE>
At December 31, 1994, the accumulated postretirement benefit obligation
exceeded plan assets by $427 million, principally due to recent adoption of
SFAS No. 106. The medical and life insurance plans' funded status was:
<TABLE>
<CAPTION>
(in thousands) December 31,
-------------------------------
1994 1993
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $(497,889) $(384,706)
Other fully eligible participants (104,865) (148,018)
Other active plan participants (219,639) (365,786)
--------- ---------
Total accumulated postretirement benefit obligation (822,393) (898,510)
Plan assets at market value 394,939 345,938
--------- ---------
Accumulated postretirement benefit obligation
in excess of plan assets (427,454) (552,572)
Unrecognized prior service cost 25,377 -
Unrecognized net (gain) loss (115,249) 21,481
Unrecognized transition obligation 462,082 543,939
--------- ---------
(Accrued) prepaid postretirement benefit liability $ (55,244) $ 12,848
========= =========
</TABLE>
The unrecognized prior service cost in 1994 reflects a plan amendment which
provides an increase in benefits to certain retirees. It is amortized over
approximately 18 years.
Plan assets consist substantially of common stocks and fixed-income
securities. In accordance with SFAS No. 106, the Company elected to amortize
the actuarially-determined transition obligation over 20 years beginning in
1993. The plan change implemented in 1993 that will limit the Company's
contributions toward postretirement medical benefits reduced the accumulated
postretirement benefit obligation at July 1, 1993 by approximately $450
million.
The assumptions used to calculate the benefit obligations included a
weighted average discount rate of eight percent for 1994 and seven percent for
1993, and an average rate of projected future compensation increases of five
percent for 1994 and 1993. The assumed health care cost trend rate for 1995 is
approximately 11 percent, grading down to an ultimate rate in 2005 of
approximately six percent. The effect of a one-percentage-point increase in the
assumed health care cost trend rate for each future year would increase the
accumulated postretirement benefit obligation at December 31, 1994, by
approximately $110 million and the 1994 aggregate service and interest costs by
approximately $13 million.
Net postretirement medical and life insurance cost, using the projected unit
credit actuarial cost method, was:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
(in thousands) 1994 1993
<S> <C> <C>
Service cost for benefits earned $ 23,617 $ 38,496
Interest cost 64,872 73,502
Actual return on plan assets (1,232) (23,999)
Amortization of unrecognized prior service cost 1,711 -
Amortization of transition obligation 28,913 39,620
Net amortization and deferral (29,804) (3,390)
-------- --------
Net postretirement benefit cost $ 88,077 $124,229
======== ========
</TABLE>
The decrease in net postretirement benefit cost in 1994 compared to 1993 was
primarily due to the plan change implemented July 1, 1993 that will limit the
Company's contributions toward postretirement medical benefits.
The expected long-term rate of return on plan assets used to calculate
postretirement medical and life insurance benefit costs was nine percent for
1994 and 1993.
Net postretirement benefit cost is calculated using expected return on plan
assets. The difference between actual and expected return on plan assets is
included in net amortization and deferral and is considered in the
determination of future postretirement benefit cost. In 1994 and 1993, actual
return on plan assets was less than expected return.
For 1992, the cost of postretirement medical and life insurance benefits was
based on benefits paid and funded and totaled $98 million.
Workforce Reductions:
The effects of workforce reductions announced by the Company in 1994 and 1993
are reflected in the pension and postretirement benefits funded status tables
above and the costs are discussed in Note 10.
Postemployment Benefits:
Effective January 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits," which requires employers to adopt
accrual accounting for benefits provided to former or inactive employees and
their beneficiaries and covered dependents, after employment but before
retirement. For the Company, such benefits consist primarily of long-term
disability, workers' compensation, and continuation of medical and life
insurance coverage. Due to current regulatory treatment, adoption of SFAS No.
112 did not have a significant impact on the Company's financial position or
results of operations. Adoption of SFAS No. 112 resulted in an increase of
approximately $90 million in noncurrent liabilities and deferred charges as of
January 1, 1994.
38
<PAGE>
Note 10: Workforce Reductions
In 1994, the Company announced workforce reductions which when combined with
the 3,000 positions eliminated in 1993 will result in the elimination of
approximately 6,000 positions by the end of 1995. The majority of the
reductions have occurred through voluntary retirement incentives (VRI) for
employees 50 years of age with at least 15 years of service. Remaining
reductions will be accomplished by severances and attrition in 1995.
In December 1994, the Company expensed the total cost of the 1994 workforce
reductions of $249 million and recorded a corresponding liability for benefits
to be funded or paid. This amount consists of $136 million for additional
pension benefits and $52 million for other postretirement benefits extended in
connection with the VRI, and $61 million of estimated severance costs for
approximately 1,500 severances. Most of these severances will be in the
Customer Energy Services and Electric Supply business units, in functions that
the Company has determined to be not absolutely necessary for safe, reliable
and responsive service, including construction and certain staff and support
services. The Company does not plan to seek rate recovery for the cost of the
1994 workforce reductions as it did with the 1993 workforce reductions.
The total cost of the 1993 workforce reductions was $264 million, net of a
curtailment gain relating to pension benefits. Included in this amount was $151
million for additional pension benefits and $22 million for other
postretirement benefits extended in connection with the VRI. As a result of a
freeze on electric rates, the Company expensed $190 million of workforce
reduction costs relating to electric operations. The amount relating to gas
operations was deferred for future rate recovery and is being amortized as
savings are realized. At December 31, 1994, $31 million remained to be
amortized.
The Company recorded the costs and savings incurred in connection with the
1993 workforce reductions in a memorandum account authorized by the CPUC, with
the recovery of such costs subject to a CPUC reasonableness review.
Note 11: Income Taxes
The current and deferred components of income tax expense were:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
(in thousands) 1994 1993 1992
<S> <C> <C> <C>
Current
Federal $ 606,885 $ 417,558 $536,774
State 214,570 165,134 193,895
--------- ---------- --------
Total current 821,455 582,692 730,669
--------- ---------- --------
Deferred (substantially all federal)
Depreciation 174,600 207,690 165,944
Regulatory balancing accounts 96,881 77,515 85,210
Workforce reduction (102,975) 24,765 -
Gas reasonableness (47,952) (25,037) -
(Gain) loss on reacquired debt (6,374) 42,405 15,959
Other--net (79,523) 12,270 (78,783)
--------- ---------- --------
Total deferred 34,657 339,608 188,330
--------- ---------- --------
Investment tax credits--net (19,345) (20,410) (23,873)
--------- ---------- --------
Total income tax expense $ 836,767 $ 901,890 $895,126
========= ========== ========
Classification of income tax expense:
Included in operating expenses $ 924,620 $1,006,774 $906,845
Included in other--net (87,853) (104,884) (11,719)
--------- ---------- --------
Total income tax expense $ 836,767 $ 901,890 $895,126
========= ========== ========
</TABLE>
The significant components of net deferred income tax liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
(in thousands) 1994 1993
- - -----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income taxes assets:
Deferred income taxes--current $ 173,357 $ 160,177
Deferred income taxes--noncurrent 959,459 647,018
---------- ----------
Total deferred income tax assets 1,132,816 807,195
========== ==========
Deferred income tax liabilities:
Deferred income taxes--current
Regulatory balancing accounts 559,750 449,216
Other 45,633 26,545
---------- ----------
Total deferred income taxes--current 605,383 475,761
---------- ----------
Deferred income taxes-noncurrent
Plant in service 3,627,294 3,386,122
Income tax-related deferred charges (1) 474,242 523,953
Other 760,568 715,893
---------- ----------
Total deferred income taxes--noncurrent 4,862,104 4,625,968
---------- ----------
Total deferred income tax liabilities 5,467,487 5,101,729
========== ==========
Total net deferred income taxes $4,334,671 $4,294,534
========== ==========
Classification of net deferred income taxes:
Included in current liabilities $ 432,026 $ 315,584
Included in deferred credits 3,902,645 3,978,950
---------- ----------
Total net deferred income taxes $4,334,671 $4,294,534
========== ==========
</TABLE>
(1) Represents the portion of the deferred income tax liability related to the
revenues required to recover future income taxes.
39
<PAGE>
The differences between income taxes and amounts determined by applying the
federal statutory rate to income before income tax expense were:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1994 1993 1992
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 34.0%
Increase (decrease) in income tax rate
resulting from
State income tax (net of federal benefit) 8.3 6.5 6.7
Effect of regulatory treatment of
depreciation differences 3.7 4.5 5.0
Investment tax credits (1.1) (1.0) (1.2)
Other--net (.5) .8 (1.2)
---- ---- ----
Effective tax rate 45.4% 45.8% 43.3%
==== ==== ====
</TABLE>
Note 12: Commitments
Capital Projects:
Capital expenditures for 1995 are estimated to be approximately $1,544 million,
consisting of $1,212 million for utility expenditures, $47 million for Diablo
Canyon expenditures and $285 million for nonregulated expenditures. At December
31, 1994, Enterprises had firm commitments totaling $214 million to make
capital contributions for its equity share of generating facility projects. The
contributions, payable upon commercial operation of the projects, are estimated
to be $100 million in 1995 and $114 million in 1996.
QFs:
Under the Public Utility Regulatory Policies Act of 1978, the Company is
required to purchase electric energy and capacity produced by QFs. The CPUC
established a series of power purchase agreements which set the applicable
terms, conditions and price options. QFs must meet certain performance
obligations, depending on the contract, prior to receiving capacity payments.
The total cost of both energy and capacity payments to QFs is recoverable in
rates. The Company's contracts with QFs expire on various dates from 1995 to
2026. Under these contracts, the Company is required to make payments only when
energy is supplied or when capacity commitments are met. Payments to QFs are
expected to vary in future years.
In 1994, the Company negotiated early termination or suspension of certain
QF contracts at a cost of $155 million to be paid over a six-year period
beginning in 1994. This amount was deferred and is expected to be recovered in
future rates.
QF deliveries in the aggregate account for approximately 21 percent of the
Company's 1994 electric energy requirements and no single contract accounted
for more than five percent of the Company's energy needs. QF deliveries in 1994
represented approximately 86 percent of the QFs' plant output, in the
aggregate. The amount of energy received from QFs and the total energy and
capacity payments made under these agreements were:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
(in millions) 1994 1993 1992
<S> <C> <C> <C>
Kilowatthours received 21,699 21,242 21,173
Energy payments $ 1,196 $ 1,099 $ 1,084
Capacity payments $ 518 $ 503 $ 489
</TABLE>
Irrigation Districts and Water Agencies:
The Company has contracts with various irrigation districts and water agencies
to purchase hydroelectric power. The contracts expire on various dates from
2004 to 2031. Under these contracts, the Company must make specified
semi-annual minimum payments whether or not any energy is supplied, subject to
the provider's retention of the FERC's authorization. Additional variable
payments for operation and maintenance costs incurred by the providers are also
required to be made under the contracts. The total cost of these payments is
recoverable in rates. At December 31, 1994, the future minimum payments under
these contracts are $34 million for each of the years 1995 through 1999 and a
total of $451 million for periods thereafter. Total payments under these
contracts were $49 million, $45 million and $54 million in 1994, 1993 and 1992,
respectively.
Note 13: Contingencies
Helms Pumped Storage Plant (Helms):
Helms, a three-unit hydroelectric combined generating and pumped storage
facility, completion of which was delayed due to a water conduit rupture in
1982 and various start-up problems related to the plant's generators, became
commercially operable in 1984. As a result of the damage caused by the rupture
and the delay in the operational date, the Company incurred additional costs
which are currently excluded from rate base and lost revenues during the period
while the plant was under repair.
In October 1994, the Company signed a settlement with the DRA regarding the
recovery of Helms costs not currently in rate base and prior-year revenue
requirements related to these costs. The settlement provides for recovery of
substantially all of the remaining net unrecovered costs (after adjustment for
depreciation) and revenues. The settlement has been submitted to the CPUC for
approval.
40
<PAGE>
The Company cannot predict whether the settlement will be approved by the
CPUC. However, the Company does not believe the ultimate outcome of the matter
will have a significant impact on its financial position or results of
operations.
Nuclear Insurance:
The Company is a member of Nuclear Mutual Limited (NML) and Nuclear Electric
Insurance Limited (NEIL). Under these policies, if the nuclear plant of a
member utility is damaged or the member incurs costs beyond those covered by
insurance for business interruption due to a prolonged accidental outage, the
Company may be subject to maximum assessments of $28 million (property damage)
and $7 million (business interruption), in each case per policy period, in the
event losses exceed the resources of NML or NEIL.
The federal government has enacted laws that require all utilities with
nuclear generating facilities to share in payment for claims resulting from a
nuclear incident. The Price-Anderson Act limits industry liability for
third-party claims resulting from any nuclear incident to $8.9 billion per
incident. Coverage of the first $200 million is provided by a pool of
commercial insurers. If a nuclear incident results in public liability claims
in excess of $200 million, the Company may be assessed up to $159 million per
incident, with payments in each year limited to a maximum of $20 million per
incident.
Environmental Remediation:
The Company assesses, on an ongoing basis, measures that may need to be taken
to comply with laws and regulations related to hazardous materials and
hazardous waste compliance and remediation activities. The Company may be
required to pay for remedial action at sites where the Company has been or may
be a potentially responsible party under the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA; federal Superfund law) or
the California Hazardous Substance Account Act (California Superfund law).
These sites include former manufactured gas plant sites and sites used by the
Company for the storage or disposal of materials which may be determined to
present a significant threat to human health or the environment because of an
actual or potential release of hazardous substances. Under CERCLA, the
Company's financial responsibilities may include remediation of hazardous
wastes, even if the Company did not deposit those wastes on the site.
The overall costs of the hazardous materials and hazardous waste compliance
and remediation activities ultimately undertaken by the Company are difficult
to estimate due to uncertainty concerning the Company's responsibility, the
complexity of environmental laws and regulations, and the selection of
compliance alternatives. The Company has an accrued liability at December 31,
1994, of $95 million for hazardous waste remediation costs. The costs may be as
much as $235 million if, among other things, the Company is held responsible
for cleanup at additional sites, other potentially responsible parties are not
financially able to contribute to these costs, or further investigation
indicates that the extent of contamination or necessary remediation is greater
than anticipated at sites for which the Company is responsible.
The Company will seek recovery of prudently incurred hazardous waste
compliance and remediation costs through ratemaking procedures approved by the
CPUC. The Company believes the ultimate outcome of these matters will not have
a significant adverse impact on its financial position or results of
operations.
Legal Matters:
Stanislaus Litigation: In 1993, a lawsuit was filed on behalf of the County of
Stanislaus, California and a residential customer of the Company and
purportedly as a class action on behalf of all natural gas customers of the
Company during the period of February 1988 through October 1993. The lawsuit
alleged that the purchase of natural gas in Canada by A&S was accomplished in
violation of various antitrust laws resulting in increased prices of natural
gas for PG&E's customers. Damages to the class members were estimated as
potentially exceeding $800 million. The complaint indicated that the damages
to the class could include over $150 million paid by the Company to terminate
the contracts with the Canadian gas producers in November 1993.
In August 1994, a federal district court granted the Company's motion to
dismiss the federal and state antitrust claims and the state unfair practices
claims against the Company and PGT. The court also granted the plaintiffs'
motion seeking class certification.
In September 1994, the plaintiffs filed an amended complaint in which A&S
has been added as a defendant. The amended complaint restates the claims in the
original complaint and alleges that the defendants, through anticompetitive
practices, precluded certain customers of the Company access to alternative
sources of gas in Canada over the PGT pipeline. A new motion to dismiss was
filed by the Company in early November 1994. The Company believes that the
ultimate outcome of this matter will not have a significant adverse impact on
its financial position.
41
<PAGE>
Hinkley Litigation: In 1993, a complaint was filed in a state superior court on
behalf of individuals seeking recovery of an unspecified amount of damages for
personal injuries and property damage allegedly suffered as a result of
exposure to chromium near the Company's Hinkley Compressor Station, as well as
punitive damages. The original complaint has been amended, and additional
complaints have been filed, to include additional plaintiffs.
The plaintiffs contend that the Company discharged chromium-contaminated
wastewater into unlined ponds, which led to chromium percolating into the
groundwater of surrounding property. The plaintiffs further allege that the
Company discharged the chromium into those ponds to avoid costly alternatives.
The Company has reached an agreement with plaintiffs pursuant to which those
plaintiffs' actions will be submitted to binding arbitration for resolution of
issues concerning the cause and extent of any damages suffered by plaintiffs as
a result of the alleged chromium contamination. Under the terms of the
agreement, the Company will pay an aggregate amount of no more than $400
million in settlement of such plaintiffs' claims, including $50 million paid to
escrow to date. In turn, those plaintiffs, and their attorneys, agree to
indemnify the Company against any additional losses the Company may incur with
respect to related claims pursued by the identified plaintiffs who do not agree
to this settlement or by other third parties who may be sued by the plaintiffs
in connection with the alleged chromium contamination.
At December 31, 1994, the Company has a remaining reserve of $50 million
against any future potential liability in this case. The Company believes the
ultimate outcome of this matter will not have a significant adverse impact on
its financial position or results of operations.
County Franchise Fees Litigation: In March 1994, Santa Clara and Alameda
counties filed a class action suit in a state superior court against the
Company on behalf of themselves and 45 other counties in the Company's service
area. This lawsuit alleges that the Company underpaid franchise fees to the
counties for the right to use or occupy public streets or roads as a result of
incorrectly computing these payments. Should the counties prevail, the amount
of damages for alleged underpayments for the years 1987 through 1994 could be
as high as $145 million, including interest, at Decmeber 31, 1994. The Company
believes that the ultimate outcome of this matter will not have a significant
adverse impact on its financial position or results of operations.
City Franchise Fees Litigation: In May 1994, the City of Santa Cruz filed a
class action suit in a state superior court against the Company on behalf of
itself and 106 other cities in the Company's service area. The complaint
alleges that the Company has underpaid electric franchise fees to the cities by
calculating fees at different rates from other cities. Should the cities
prevail, the amount of damages for alleged underpayments for the years 1987
through 1994 could be as high as $137 million, including interest, at December
31, 1994. The Company believes that the ultimate outcome of this matter will
not have a significant adverse impact on its financial position or results of
operations.
42
<PAGE>
Pacific Gas and Electric Company
Quarterly Consolidated Financial Data (Unaudited)
Quarterly Financial Data:
Due to the seasonal nature of the utility business and the scheduled refueling
outages for Diablo Canyon, operating revenues, operating income and net income
are not generated evenly by quarter during the year.
In the first quarter of 1994, the Company took a charge against earnings of
approximately $90 million as a result of the CPUC disallowances in the gas
reasonableness proceedings for 1988 through 1990 and the Company's assessment
of open reasonableness issues. In the second quarter of 1994, the Company
increased its litigation reserves by $50 million. In the fourth quarter of
1994, the Company took a charge against earnings of $249 million related to
1994 workforce reductions.
In the second quarter of 1993, the Company took a charge against earnings of
$141 million related to the workforce reductions for management employees. In
the third quarter of 1993, the Company's earnings reflected charges of $144
million resulting from the Company's workforce reductions, termination of
Canadian gas contracts and an increase in the federal income tax rate. The
fourth quarter of 1993 reflected charges against earnings of $126 million for
Canadian gas costs incurred by the Company for 1988 through 1990 and for
commitments for gas transportation capacity.
The Company's common stock is traded on the New York, Pacific, London,
Amsterdam, Basel and Zurich stock exchanges. There were approximately 230,000
common shareholders of record at December 31, 1994. Dividends are paid on a
quarterly basis, and there are no significant restrictions on the present
ability of the Company to pay dividends.
<TABLE>
<CAPTION>
Quarter ended
----------------------------------------------------
(in thousands, except per share amounts) December 31 September 30 June 30 March 31
<S> <C> <C> <C> <C>
1994
Operating revenues $2,638,179 $2,855,221 $2,439,680 $2,514,271
Operating income 238,286 584,694 395,705 414,674
Net income 103,500 425,633 241,365 236,952
Earnings per common share (1) .21 .96 .53 .52
Dividends declared per common share .49 .49 .49 .49
Common stock price per share
High 25.25 25.13 29.75 35.00
Low 21.38 22.00 22.50 28.50
1993
Operating revenues $2,707,171 $2,947,294 $2,464,125 $2,463,818
Operating income 428,914 525,981 387,707 420,328
Net income 208,382 356,099 245,350 255,664
Earnings per common share (1) .45 .79 .53 .56
Dividends declared per common share .47 .47 .47 .47
Common stock price per share
High 36.75 36.63 35.38 35.75
Low 33.50 33.13 31.75 31.75
</TABLE>
(1) Includes Diablo Canyon scheduled refueling outages which impacted earnings
per common share for all quarters in 1994 and for the first and second
quarters of 1993. In addition, Diablo Canyon experienced unscheduled
outages in the second quarter of 1994.
43
<PAGE>
Pacific Gas and Electric Company
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of Pacific Gas and Electric
Company:
We have audited the accompanying consolidated balance sheet and the statement
of consolidated capitalization of Pacific Gas and Electric Company (a
California corporation) and subsidiaries as of December 31, 1994 and 1993, and
the related statements of consolidated income, cash flows, common stock equity
and preferred stock, and the schedule of consolidated segment information for
each of the three years in the period ended December 31, 1994. These financial
statements and schedule of consolidated segment information are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements and schedule of
consolidated segment information referred to above present fairly, in all
material respects, the financial position of Pacific Gas and Electric Company
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 2 of Notes to Consolidated Financial Statements, in
1994, the California Public Utilities Commission (CPUC) issued a proposal to
restructure the electric industry in California which could significantly alter
the ratemaking applied to the Company. If this proposal is adopted or if
electric generation rates are no longer based on cost of service, the Company
would discontinue the application of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation" for a portion of its operations. The CPUC's proposal could also
impact the recovery of certain costs, including power purchase obligations and
investments in related electric generation assets. Currently, the Company is
unable to predict the ultimate outcome of the electric industry restructuring
or predict whether such outcome will have a significant impact on its financial
position or results of operations.
As explained in Notes 1 and 9 of Notes to Consolidated Financial Statements,
effective January 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions and for income taxes.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Francisco, California
February 6, 1995
44
<PAGE>
Pacific Gas and Electric Company
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The responsibility for the integrity of the financial information included in
this report rests with management. Such information has been prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances, and is based on the Company's best estimates and judgments after
giving consideration to materiality.
The Company maintains systems of internal controls supported by formal
policies and procedures which are communicated throughout the Company. These
controls are adequate to provide reasonable assurance that assets are
safeguarded from material loss or unauthorized use and to produce the records
necessary for the preparation of financial information. There are limits
inherent in all systems of internal controls, based on the recognition that the
costs of such systems should not exceed the benefits to be derived. The
Company believes its systems provide this appropriate balance. In addition,
the Company's internal auditors perform audits and evaluate the adequacy of and
the adherence to these controls, policies and procedures.
Arthur Andersen LLP, the Company's independent public accountants,
considered the Company's systems of internal accounting controls and have
conducted other tests as they deemed necessary to support their opinion on the
consolidated financial statements. Their auditors' report contains an
independent informed judgment as to the fairness, in all material respects, of
the Company's reported results of operations and financial position.
The financial data contained in this report have been reviewed by the Audit
Committee of the Board of Directors. The Audit Committee is composed of six
outside directors who meet regularly with management, the corporate internal
auditors and Arthur Andersen LLP, jointly and separately, to review internal
accounting controls and auditing and financial reporting matters.
The Company maintains high standards in selecting, training and developing
personnel to ensure that management's objectives of maintaining strong,
effective internal controls and unbiased, uniform reporting standards are
attained. The Company believes its policies and procedures provide reasonable
assurance that operations are conducted in conformity with applicable laws and
with its commitment to a high standard of business conduct.
45
<PAGE>
EXHIBIT (g)(6)
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ------------
Commission File No. 1-2348
PACIFIC GAS AND ELECTRIC COMPANY
-------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-0742640
- - ---------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
--------------- ------------------------------
Common Stock, $5 par value 424,390,650 shares
<PAGE>
Form 10-Q
---------
TABLE OF CONTENTS
-----------------
PART I. FINANCIAL INFORMATION Page
- - ------------------------------- ----
Item 1. Consolidated Financial Statements and Notes
Statement of Consolidated Income................... 1
Consolidated Balance Sheet......................... 2
Statement of Consolidated Cash Flows............... 4
Note 1: General
Basis of Presentation................... 5
Workforce Reductions.................... 5
Note 2: Electric Industry Restructuring........... 6
Note 3: Natural Gas Matters
Gas Reasonableness Proceedings.......... 11
Gas Accord Negotiations................. 12
Note 4: Diablo Canyon............................. 12
Note 5: Contingencies
Nuclear Insurance....................... 13
Environmental Remediation............... 13
Legal Matters........................... 14
Item 2. Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition
Competition and Changing Regulatory Environment.... 17
Results of Operations
Earnings Per Common Share........................ 20
Common Stock Dividend............................ 20
Operating Revenues............................... 21
Operating Expenses............................... 21
Other Income and (Income Deductions)............. 21
Regulatory Matters............................... 22
Nonregulated Operations.......................... 24
Liquidity and Capital Resources
Sources of Capital............................... 24
Risk Management.................................. 25
Investing and Financing Activity................. 25
Environmental Remediation........................ 25
Legal Matters.................................... 26
Other Matters
New Accounting Standard.......................... 26
Accounting for Decommissioning Expense........... 27
PART II. OTHER INFORMATION
- - ---------------------------
Item 1. Legal Proceedings.................................... 28
Time-of-Use Meter Litigation/Customer
Notification Litigation.......................... 28
Norcen Litigation.................................. 29
Item 5. Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.............. 29
Item 6. Exhibits and Reports on Form 8-K..................... 30
SIGNATURE...................................................... 31
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Consolidated Financial Statements
---------------------------------
PACIFIC GAS AND ELECTRIC COMPANY
STATEMENT OF CONSOLIDATED INCOME
(unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
(in thousands, -------------------------- -------------------------
except per share amounts) 1995 1994 1995 1994
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Electric $1,894,108 $1,904,231 $3,590,352 $3,720,208
Gas 506,198 482,140 1,049,939 1,126,328
Other 47,424 53,309 114,790 107,415
---------- ---------- ---------- ----------
Total operating revenues 2,447,730 2,439,680 4,755,081 4,953,951
---------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of electric energy 550,439 695,328 989,284 1,286,480
Cost of gas 83,349 73,378 186,912 334,764
Distribution 44,338 55,917 85,856 112,980
Transmission 58,720 64,354 125,475 137,046
Customer accounts and services 103,190 96,440 203,684 186,554
Maintenance 91,831 115,498 183,871 229,154
Depreciation and decommissioning 344,293 345,310 696,476 693,743
Administrative and general 214,592 267,819 475,713 462,988
Workforce reduction adjustment - - (18,195) -
Income taxes 304,649 210,883 570,147 460,593
Property and other taxes 76,103 75,424 149,972 156,239
Other 52,256 43,624 117,049 83,031
---------- ---------- ---------- ----------
Total operating expenses 1,923,760 2,043,975 3,766,244 4,143,572
---------- ---------- ---------- ----------
OPERATING INCOME 523,970 395,705 988,837 810,379
---------- ---------- ---------- ----------
OTHER INCOME AND (INCOME DEDUCTIONS)
Interest income 17,619 11,148 32,945 21,922
Allowance for equity funds
used during construction 6,462 5,058 12,100 9,737
Other--net 30,246 4,597 47,151 (3,766)
---------- ---------- ---------- ----------
Total other income and
(income deductions) 54,327 20,803 92,196 27,893
---------- ---------- ---------- ----------
INCOME BEFORE INTEREST EXPENSE 578,297 416,508 1,081,033 838,272
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on long-term debt 162,423 167,468 324,572 323,192
Other interest charges 13,561 11,462 28,337 44,537
Allowance for borrowed funds
used during construction (3,207) (3,787) (6,083) (7,774)
---------- ---------- ---------- ----------
Net interest expense 172,777 175,143 346,826 359,955
---------- ---------- ---------- ----------
NET INCOME 405,520 241,365 734,207 478,317
Preferred dividend requirement 14,494 14,362 28,988 28,820
---------- ---------- ---------- ----------
EARNINGS AVAILABLE FOR
COMMON STOCK $ 391,026 $ 227,003 $ 705,219 $ 449,497
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 426,621 429,762 428,344 429,150
EARNINGS PER COMMON SHARE $.92 $.53 $1.65 $1.05
DIVIDENDS DECLARED PER COMMON SHARE $.49 $.49 $ .98 $ .98
- - --------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
June 30, December 31,
(in thousands) 1995 1994
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
PLANT IN SERVICE
Electric
Nonnuclear $17,260,836 $17,045,247
Diablo Canyon 6,669,054 6,647,162
Gas 7,609,391 7,447,879
----------- -----------
Total plant in service (at original cost) 31,539,281 31,140,288
Accumulated depreciation and decommissioning (12,942,814) (12,269,377)
----------- -----------
Net plant in service 18,596,467 18,870,911
----------- -----------
CONSTRUCTION WORK IN PROGRESS 510,060 527,867
OTHER NONCURRENT ASSETS
Oil and gas properties - 437,352
Nuclear decommissioning funds 697,561 616,637
Investment in nonregulated projects 782,136 761,355
Other assets 157,980 137,325
----------- -----------
Total other noncurrent assets 1,637,677 1,952,669
----------- -----------
CURRENT ASSETS
Cash and cash equivalents 416,277 136,900
Accounts receivable
Customers 1,252,579 1,413,185
Other 77,785 98,035
Allowance for uncollectible accounts (34,165) (29,769)
Regulatory balancing accounts receivable 1,105,479 1,345,669
Inventories
Materials and supplies 188,171 197,394
Gas stored underground 134,899 136,326
Fuel oil 46,619 67,707
Nuclear fuel 151,443 140,357
Prepayments 43,995 33,251
----------- -----------
Total current assets 3,383,082 3,539,055
----------- -----------
DEFERRED CHARGES
Income tax-related deferred charges 1,133,735 1,155,421
Diablo Canyon costs 392,095 401,110
Unamortized loss net of gain on reacquired debt 390,336 382,862
Workers' compensation and disability claims recoverable 247,065 247,209
Other 660,400 732,029
----------- -----------
Total deferred charges 2,823,631 2,918,631
----------- -----------
TOTAL ASSETS $26,950,917 $27,809,133
=========== ===========
- - --------------------------------------------------------------------------------------------
</TABLE>
(continued on next page)
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
June 30, December 31,
(in thousands) 1995 1994
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock $ 2,119,100 $ 2,151,213
Additional paid-in capital 3,789,881 3,806,508
Reinvested earnings 2,820,278 2,677,304
----------- -----------
Total common stock equity 8,729,259 8,635,025
Preferred stock without mandatory redemption provision 732,995 732,995
Preferred stock with mandatory redemption provision 137,500 137,500
Long-term debt 8,250,722 8,675,091
----------- -----------
Total capitalization 17,850,476 18,180,611
----------- -----------
OTHER NONCURRENT LIABILITIES
Customer advances for construction 149,018 152,384
Workers' compensation and disability claims 221,200 221,200
Other 784,460 644,233
----------- -----------
Total other noncurrent liabilities 1,154,678 1,017,817
----------- -----------
CURRENT LIABILITIES
Short-term borrowings 210,000 524,685
Long-term debt 416,939 477,047
Accounts payable
Trade creditors 321,140 414,291
Other 345,443 337,726
Accrued taxes 626,235 436,467
Deferred income taxes 311,674 432,026
Interest payable 78,915 84,805
Dividends payable 224,431 210,903
Other 427,630 643,779
----------- -----------
Total current liabilities 2,962,407 3,561,729
----------- -----------
DEFERRED CREDITS
Deferred income taxes 3,872,473 3,902,645
Deferred investment tax credits 382,443 391,455
Noncurrrent balancing account liabilities 173,222 226,844
Other 555,218 528,032
----------- -----------
Total deferred credits 4,983,356 5,048,976
CONTINGENCIES (Notes 2, 3 and 5) - -
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $26,950,917 $27,809,133
=========== ===========
- - --------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
STATEMENT OF CONSOLIDATED CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Six months ended June 30,
-----------------------------
(in thousands) 1995 1994
- - --------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 734,207 $ 478,317
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and decommissioning 696,476 693,743
Amortization 69,189 54,691
Gain on sale of DALEN (13,107) -
Deferred income taxes and investment tax credits--net (134,184) 26,893
Allowance for equity funds used during construction (12,100) (9,737)
Other deferred charges 40,427 (14,770)
Other noncurrent liabilities 151,165 50,534
Noncurrent balancing account liabilities and
other deferred credits (26,436) 167,850
Net effect of changes in operating assets
and liabilities
Accounts receivable 185,252 (50,091)
Regulatory balancing accounts receivable 240,190 (166,513)
Inventories 31,738 13,861
Accounts payable (85,434) (54,588)
Accrued taxes 189,768 156,633
Other working capital (232,434) (36,849)
Other--net 33,851 13,876
---------- ----------
Net cash provided by operating activities 1,868,568 1,323,850
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures (399,033) (458,909)
Allowance for borrowed funds used during construction (6,083) (7,774)
Nonregulated expenditures (59,767) (163,968)
Proceeds from sale of DALEN 340,000 -
Other--net (78,053) 16,931
---------- ----------
Net cash used by investing activities (202,936) (613,720)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued 92,315 138,768
Common stock repurchased (267,799) (60,320)
Preferred stock issued - 62,312
Preferred stock redeemed - (82,995)
Long-term debt issued 567,160 55,000
Long-term debt matured or reacquired (957,583) (230,245)
Short-term debt--net (314,685) (129,151)
Dividends paid (451,082) (441,277)
Other--net (54,581) 15,380
---------- ----------
Net cash used by financing activities (1,386,255) (672,528)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 279,377 37,602
CASH AND CASH EQUIVALENTS AT JANUARY 1 136,900 61,066
---------- ----------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 416,277 $ 98,668
========== ==========
Supplemental disclosures of cash flow information
Cash paid for
Interest (net of amounts capitalized) $ 330,640 $ 338,144
Income taxes 459,028 232,519
- - --------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of this statement.
<PAGE>
PACIFIC GAS AND ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: GENERAL
- - ----------------
Basis of Presentation:
- - ---------------------
The accompanying unaudited consolidated financial statements of
Pacific Gas and Electric Company (PG&E) and its wholly owned and
majority-owned subsidiaries (collectively, the Company) have been
prepared in accordance with interim period reporting requirements.
This information should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements
incorporated by reference in the 1994 Annual Report on Form 10-K.
In the opinion of management, the accompanying statements reflect all
adjustments which are necessary to present a fair statement of the
financial position and results of operations for the interim periods.
All material adjustments are of a normal recurring nature unless
otherwise disclosed in this Form 10-Q. Prior year's amounts in the
consolidated financial statements have been reclassified where
necessary to conform to the 1995 presentation. Results of operations
for interim periods are not necessarily indicative of results to be
expected for a full year.
Workforce Reductions:
- - --------------------
In 1994, the Company accrued $249 million in connection with its 1994-
1995 workforce reduction program consisting of both a voluntary
retirement incentive and severances. The majority of the severances
are in generation and transmission functions.
In April 1995, the Company canceled approximately 800 of the 3,000
planned 1994-1995 reductions in order to accelerate maintenance on its
system in light of the severity of the damage caused by storms in the
winter of 1995 and the identification of certain facilities that would
benefit from a more extensive and accelerated maintenance program. As
a result, the estimated severance costs accrued and expensed in 1994
were reduced by $18.2 million in March 1995.
At June 30, 1995, a severance reserve of approximately $17.7 million
remained. Charges against the reserve will be made for the
approximately 100 severances remaining to be accomplished and the
remaining payments to previously severed employees when paid.
The Company will not seek rate recovery for the cost of the 1994-1995
workforce reductions.
<PAGE>
NOTE 2: Electric Industry Restructuring
- - ----------------------------------------
In May 1995, the California Public Utilities Commission (CPUC) released
two proposed policy decisions, both the result of testimony, hearings
and comments on its order instituting rulemaking and investigation
(OIR/OII) on electric industry restructuring issued in April 1994. The
proposals request comments on and set schedules to restructure the
California electric utility industry. Three commissioners supported a
policy decision which would require the establishment of a wholesale
pool for power. All utility generators would be required to sell power
into the pool and distribution companies on behalf of their customers
would, with few exceptions, purchase all of their electric generation
needs from the pool. This proposal, which would go into effect in
1997, contemplates a possible transition to direct access beginning as
early as 1999 if certain implementation issues are resolved. The CPUC
would use performance-based ratemaking (PBR) for any service not
subject to competition. One commissioner offered an alternative policy
decision which proposes immediate conversion to direct access in 1998.
Under this proposal, all consumers would have the option to enter
directly into individual agreements for the purchase of power from
power producers.
Both proposals provide utilities reasonable assurance that they will
recover substantially all past investments and commitments made in
reliance on the traditional utility regulatory compact. Uneconomic
assets and obligations (costs which are above market and could not be
recovered under market-based pricing) are to be recovered through a
competition transition charge (CTC). Neither proposal indicates
precisely how the CTC is to be recovered.
Majority Proposal: Under the majority proposal, the Company, Southern
California Edison Company and San Diego Gas and Electric Company would
seek approval from the Federal Energy Regulatory Commission (FERC) to
establish an independent system operator, who would be responsible for
transmission scheduling and economic dispatch of generation.
Participants in the pool would transfer operating control, but not
ownership, of their transmission assets to that operator. All other
power suppliers including municipal utilities, power marketing
agencies, independent power producers and out-of-state generators would
be invited to participate through sales or purchases to and from the
pool and would be given nondiscriminatory access to transmission
services.
Under the wholesale pool concept, the price of electricity provided by
the generators is determined by an auction conducted by the independent
system operator in real time and revealed to the market each day.
Under real time pricing, the price of electricity provided by the
generators is set hourly or at some other time interval as determined
by the independent system operator, reflecting changes in the cost of
generation. Customers would be given the choice of a rate scheme which
reflects real time pricing of generation or one which averages the cost
of electricity by monthly consumption. Customers could also choose to
lock in energy prices through financial contracts, referred to as
contracts for differences. Real time price meters would be phased in
for all customers who want them by 2003. Customers would be
individually responsible for the cost of the meter.
<PAGE>
The majority proposal would require the disaggregation of generation,
transmission and distribution functions. In order to address possible
market domination, the CPUC intends to consider the impacts of
structural separation and whether divestiture of a portion or all of
utility nonnuclear and nonhydro generation assets to independent
generation firms is required. The proposal also intends to address
potential remedies for abuses resulting from market domination.
Under the majority proposal, investor-owned utilities would retain
ownership of their existing nuclear and hydro facilities. The CPUC
hopes that the average bundled rate of nuclear and hydro facilities
would be competitive with the prices expected to result from the pool,
thereby minimizing or eliminating the need for further CTC recovery for
these resources. However, based on the current pricing of the
Company's hydro facilities and the Company's Diablo Canyon Nuclear
Power Plant (Diablo Canyon), the Company expects that although
significantly reduced, there may still be a need for CTC recovery for
Diablo Canyon.
The majority proposal would leave intact the Diablo Canyon rate case
settlement (Diablo Settlement) and contracts with existing qualifying
facilities (QFs).
The majority proposal notes that other utility generating assets should
also be able to compete without CTC recovery. Nonetheless, some CTC
recovery would still be provided for nonnuclear, nonhydro plants which
a utility retained. The CTC for these plants is defined as the
difference between book and market value. Market value for retained
plants would be determined administratively using a combination of a
forecast of market prices for power with an annual true-up to pool
prices. For these retained plants, the return on rate base would be
limited by a floor and ceiling of 150 basis points below or above the
utility's allowable overall return on rate base. Revenues collected in
excess of the ceiling would be used to reduce the CTC.
If a utility divests itself of its generating assets, the CTC would be
calculated by netting the total price received with the total book
value for the plants divested.
All existing QF contracts would continue to be honored by the remaining
electric distribution utility. However, the QF contract costs would be
passed along to customers by imputing only the pool price as the price
for QF power, with the remaining portion of the QF contract price
collected as part of the CTC.
<PAGE>
As an incentive for QF buyouts, the utility would be allowed to keep 20
percent of any savings from renegotiated QF contract capacity payments.
In addition, the CPUC eventually intends to revise the "avoided cost"
calculation for QF energy payments in a manner based on the pool price.
Finally, the CPUC proposes to allocate 50 percent of future benefits
associated with declining QF contract expenses to finance the
acceleration of CTC recovery for uneconomic QF contracts.
The majority proposal indicates that regulatory assets which are
specifically attributable to utility generation should get full CTC
protection. The CPUC has asked for comments on which specific
regulatory assets should be allowed as transition costs.
The time period for collection of the CTC is not specified in the
majority proposal, but would be consistent with the current level of
rates, while also allowing ratepayers the opportunity to reap the
benefits of lower generation costs from the pool.
Alternative Proposal: The alternative policy decision proposes to
streamline regulation and grant consumer choice through direct access
by relying on direct purchase/sales arrangements between buyers and
sellers of electricity. This proposal seeks to allow direct access for
all customers commencing January 1, 1998.
Consistent with the majority proposal, the alternative proposal would
separate generation assets from transmission, distribution and other
assets. This could occur through either a sale of assets or spin-off
of generation facilities to shareholders, leaving the utility owning
only transmission and distribution facilities (i.e., an Electric
Distribution Company, or EDC). A neutral operating company would also
be established for generation dispatch and transmission operation to
ensure reliability of the grid.
Similar to the majority proposal, under the alternative proposal, the
EDC would be regulated under a PBR approach. In addition, the EDC
would be obligated to procure electric supplies for those customers who
choose to remain with the utility.
Transition costs would be levied as a monthly charge on all customers,
whether they are utility or direct access customers. The CTC would be
recovered over a period of time to ensure that rates do not rise above
current levels. Three types of transition costs are identified in the
alternative proposal: utility generation assets, QF contracts and
regulatory balancing accounts.
<PAGE>
For utility generating assets, the CTC would be 90 percent of the
difference between aggregate book value and aggregate sale price (or
stock price in the event of a spin-off). Diablo Canyon would be sold
or spun off, but the EDC would retain the obligation to purchase Diablo
Canyon power at settlement prices through January 2008. After January
2008, Diablo Canyon would compete on price. The CTC for Diablo Canyon
would be computed in the same manner as for QF contracts, but Diablo
Canyon would be exempt from the 90/10 split applicable to other utility
generating assets provided the revised Diablo Canyon Settlement prices
approved by the CPUC in May 1995, represent a rate reduction
"commensurate" with the 90/10 split.
Under the alternative proposal, the EDC would retain the obligation to
purchase QF power under QF contracts and would receive full recovery of
all QF costs, including the uneconomic portion which would be part of
the CTC. However, utilities would be allowed to retain 50 percent of
any demonstrable savings resulting from renegotiated QF contracts.
The alternative proposal also allows full recovery of outstanding
regulatory asset balances other than nuclear decommissioning costs,
subject to CPUC approval of specific accounts in the implementation
phase. For nuclear decommissioning costs, two options are proposed:
ultimate sale of the plants with the new owner taking responsibility
for decommissioning, or including the continued trust fund requirements
in the CTC.
Company Response: In July 1995, the Company filed its response on the
CPUC proposals for restructuring the electric industry. In its
response, the Company reaffirmed its commitment to achieving direct
access. However, if a wholesale pool under the majority proposal
remains the preferred approach by the CPUC, the Company indicated that
it is prepared to work towards a pool structure keeping the direct
access vision in mind. Although it supports the direct access concept
in the alternative proposal, the Company believes that the plan to
simultaneously implement that structure for all customers raises
significant technological and practical obstacles. In addition, the
Company does not support the alternative proposal's requirement for
immediate and complete divestiture of utility generating assets or the
mandated shareholder absorption of 10 percent of the transition costs.
Under the majority proposal, the Company concluded that the transition
cost mechanism is acceptable in concept, although the mechanics of its
application to fossil generation assets needs further attention, and
more particularly, better integration with PBR concepts.
<PAGE>
The Company also strongly supports the majority proposal's procedure to
periodically recalibrate transition costs. Under this procedure,
reestimation of the CTC would occur yearly and would be reconciled and
tracked using a balancing account procedure which would ensure that
neither ratepayers nor the utility assume a disproportionate risk of
CTC forecast error. The Company also indicated that the appropriate
carrying cost for any outstanding generating asset CTC should be the
authorized rate of return for the utility.
In its comments, the Company noted that apart from whether a CPUC
ordered divestiture of generation assets as mandated under the
alternative proposal can legally be required, the actual process of
divesting, either through auction or spin-off, is itself an immensely
complex, lengthy and costly undertaking. It is unlikely that this
could be managed between now and when direct access is proposed to
commence. In addition, the divestiture approach will likely increase
CTC costs.
The CPUC has scheduled full panel hearings in August and September 1995
to assist in development of its final policy decision. The CPUC
indicated that it will work with the California State Legislature
(Legislature), the Governor, other western jurisdictions and the FERC
to facilitate restructuring of the California electric industry. The
Company intends to participate in all these proceedings.
Financial Impact of the Electric Industry Restructuring Proposal:
Based on the regulatory framework in which it operates, the Company
currently accounts for the economic effects of regulation in accordance
with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." As a result of applying the provisions of SFAS No. 71,
the Company has accumulated approximately $3.5 billion of regulatory
assets, including balancing accounts, at June 30, 1995.
If either proposal is adopted, or the Company determines that future
electric generation rates will no longer be based on cost-of-service,
the Company will discontinue application of SFAS No. 71 for the
electric generation portion of its operations. The Company continues
to evaluate the current regulatory and competitive environment to
determine whether and when such a discontinuance would be appropriate.
If such discontinuance should occur, the Company would write off all
applicable generation-related regulatory assets to the extent that
transition cost recovery is not assured. The regulatory assets
attributable to electric generation, excluding balancing accounts of
$513 million which are expected to be recovered in the near term, were
approximately $1.5 billion at June 30, 1995. This amount could vary
depending on the allocation methods used.
<PAGE>
The electric industry restructuring and transition to a competitive
environment may also adversely impact the Company's returns on its
investments in utility generation assets and its ability to recover
certain other costs, including QF power purchase obligations. In the
event that recovery of these costs and investments, through the CTC or
otherwise, becomes unlikely, the Company would write off applicable
portions of the generation assets and record a charge to earnings
related to the recovery of other costs. The net book value of the
Company's generation assets, excluding Diablo Canyon, was approximately
$2.7 billion at June 30, 1995. The net book value of the Company's
investment in Diablo Canyon was approximately $5.0 billion at June 30,
1995.
Based on the nature of the CTC recovery for uneconomic generation
assets, obligations related to QF facilities and generation-related
regulatory assets proposed in the majority and alternative proposals,
the Company currently does not anticipate a material impairment due to
the impending electric industry restructuring. However, should the
CPUC or the Legislature modify these proposals, an impairment loss
could ultimately occur.
Currently, the Company is unable to predict the final outcome of the
electric industry restructuring or predict whether such outcome will
have a significant impact on its financial position or results of
operations.
NOTE 3: Natural Gas Matters
- - ----------------------------
Gas Reasonableness Proceedings:
- - ------------------------------
Recovery of energy costs through the Company's regulatory balancing
account mechanisms is subject to a CPUC determination that such costs
were reasonable. Under the current regulatory framework, annual
reasonableness proceedings are conducted by the CPUC on a historic
calendar year basis.
<PAGE>
In March 1994, the CPUC issued decisions covering the years 1988
through 1990, ordering disallowances of approximately $90 million of
gas costs, plus accrued interest of approximately $25 million through
1993 for the Company's Canadian gas procurement activities, and $8
million for gas inventory operations. The Company has filed a lawsuit
in a federal district court challenging the CPUC decision on Canadian
gas costs. In February 1995, the CPUC filed a motion to dismiss the
lawsuit. A federal ruling on the CPUC's motion is expected later in
1995.
In March 1995, the CPUC approved a $.5 million settlement agreement
between the Division of Ratepayer Advocates (DRA) and the Company which
resolves $11.4 million of disallowances recommended by the DRA relating
to non-Canadian gas issues arising from the 1991 record period.
A number of other reasonableness issues related to the Company's gas
procurement practices, transportation capacity commitments and supply
operations for periods dating from 1988 to 1994 are still under review
by the CPUC. The DRA had recommended disallowances of $131 million and
a penalty of $50 million and indicated that it was considering
additional recommendations for pending issues. The Company and the DRA
have signed settlement agreements to resolve most of these issues for a
$68 million disallowance.
Significant issues covered by the settlement agreements include (1) the
Company's purchases of Canadian gas in 1991 and 1992 for its electric
department and its core customers from 1991 through May 1994; (2) the
Company's purchase of Southwest and California gas for its core
customers from 1992 through May 1994; (3) the investigation by the DRA
of Alberta and Southern Gas Co. Ltd. (A&S) and proposed investigation
of Alberta Natural Gas Company Ltd. for the period 1988 through May
1994; (4) the effects of Canadian gas prices on amounts paid by the
Company for Northwest power purchases for 1988 through 1992 and power
from QFs and geothermal producers for 1991 and 1992; (5) the Company's
gas storage operations for 1992; (6) the Company's unresolved Southwest
gas procurement activities for 1988 through 1990; and (7) Canadian gas
restructuring transition costs billed to PG&E by Pacific Gas
Transmission Company (PGT).
Agreements with the DRA do not constitute a CPUC decision and are
subject to modification by the CPUC in its final decisions.
The Company has accrued approximately $196 million for gas
reasonableness matters, of which $90 million was recorded in the first
quarter of 1994. Such accruals include the CPUC decisions for the
years 1988 through 1990 and issues covered by the settlement agreements
described above. The Company believes the ultimate outcome of these
matters will not have a significant impact on its financial position or
results of operations.
<PAGE>
Gas Accord Negotiations:
- - -----------------------
In July 1995, a CPUC Administration Law Judge approved a request by the
Company to suspend hearings on the market impacts of the PG&E portion
of the PGT/PG&E Pipeline Expansion Project. The Company sought
suspension of such hearings to enable parties to engage in meaningful
settlement negotiations encompassing both a restructuring of PG&E's gas
transmission operations and a broad range of gas related issues arising
from various proceedings. All other individual gas proceedings are
continuing while the gas accord negotiations are being conducted.
Specific issues to be covered by the proposed gas accord will be
determined as negotiations continue.
Negotiations are expected to begin in August or September 1995. In
November 1995, a proposed gas accord or a status report will be
submitted to the CPUC.
The Company believes the ultimate outcome of the gas accord
negotiations will not have a significant impact on its financial
position or results of operation.
NOTE 4: Diablo Canyon
- - ----------------------
On May 24, 1995, the CPUC issued its decision approving an agreement
providing for a modification to the pricing provisions of the Diablo
Settlement. The agreement was executed in December 1994 by the
Company, the DRA, the California Attorney General and several other
parties representing energy consumers.
Under the modification approved by the CPUC, the price for power
produced by Diablo Canyon is reduced from the level set in the Diablo
Settlement as originally adopted in 1988; all other terms and
conditions of the Diablo Settlement remain unchanged. The new prices
are shown in the table below. Based on Diablo Canyon's current
operating performance, the modification will result in approximately
$2.1 billion less revenue through 1999, compared to the original
pricing provisions of the Diablo Settlement.
Diablo Canyon Price (cents) per kilowatt-hour
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Original Settlement Agreement Price* 12.15 12.42 12.70 12.98 13.28
Modified Price 11.00 10.50 10.00 9.50 9.00
- - --------------
* Assumes 3.5% inflation
<PAGE>
After December 31, 1999, the escalating portion of the Diablo Canyon
price will increase using the same formula specified in the Diablo
Settlement. The modification provides the Company with the right to
reduce the price below the amount specified if it so chooses.
The CPUC decision approving the modification adopts the parties'
proposal that the difference between the Company's revenue requirement
under the original Diablo Settlement prices and the proposed prices be
applied to the Company's energy cost balancing account until the
undercollection in that account as of December 31, 1995, is fully
amortized.
NOTE 5: Contingencies
- - ----------------------
Nuclear Insurance:
- - -----------------
The Company is a member of Nuclear Mutual Limited (NML) and Nuclear
Electric Insurance Limited (NEIL). Under these policies, if the
nuclear plant of a member utility is damaged or the member incurs
costs beyond those covered by insurance for business interruption due
to a prolonged accidental outage, the Company may be subject to
maximum assessments of $28 million (property damage) and $7 million
(business interruption), in each case per policy period, in the event
losses exceed the resources of NML or NEIL.
The federal government has enacted laws that require all utilities
with nuclear generating facilities to share in payment for claims
resulting from a nuclear incident. The Price-Anderson Act limits
industry liability for third-party claims resulting from any nuclear
incident to $8.9 billion per incident. Coverage of the first $200
million is provided by a pool of commercial insurers. If a nuclear
incident results in public liability claims in excess of $200
million, the Company may be assessed up to $159 million per incident,
with payments in each year limited to a maximum of $20 million per
incident.
Environmental Remediation:
- - -------------------------
The Company assesses, on an ongoing basis, measures that may need to
be taken to comply with laws and regulations related to hazardous
materials and hazardous waste compliance and remediation activities.
The Company may be required to pay for remedial action at sites where
the Company has been or may be a potentially responsible party under
the Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA; federal Superfund law) or the California Hazardous
Substance Account Act (California Superfund law). These sites
include former manufactured gas plant sites and sites used by the
Company for the storage or disposal of materials which may be
determined to present a threat to human health or the environment
because of an actual or potential release of hazardous substances.
Under CERCLA, the Company's financial responsibilities may include
remediation of hazardous wastes, even if the Company did not deposit
those wastes on the site.
<PAGE>
The overall cost of the hazardous materials and hazardous waste
compliance and remediation activities ultimately undertaken by the
Company are difficult to estimate due to uncertainty concerning the
Company's responsibility, the complexity of environmental laws and
regulations, and the selection of compliance alternatives. The
Company has an accrued liability at June 30, 1995, of $100 million
for hazardous waste remediation costs. The costs may be as much as
$245 million if, among other things, the Company is held responsible
for cleanup at additional sites, other potentially responsible
parties are not financially able to contribute to these costs, or
further investigation indicates that the extent of contamination or
necessary remediation is greater than anticipated at sites for which
the Company is responsible.
The Company will seek recovery of prudently incurred hazardous waste
compliance and remediation costs through ratemaking procedures
approved by the CPUC. The Company believes the ultimate outcome of
these matters will not have a significant adverse impact on its
financial position or results of operations.
Legal Matters:
- - -------------
Stanislaus Litigation: A lawsuit was filed by the County of
Stanislaus, California, and a residential customer of the Company and
purportedly as a class action on behalf of all natural gas customers
of the Company during the period of February 1988 through October
1993. The lawsuit alleged that the purchase of natural gas in Canada
by A&S was accomplished in violation of various antitrust laws
resulting in increased prices of natural gas for PG&E's customers.
Damages to the class members were estimated as potentially exceeding
$800 million. The complaint indicated that the damages to the class
could include over $150 million paid by the Company to terminate the
contracts with the Canadian gas producers in November 1993. The
court has granted the plaintiffs' motion seeking class certification.
<PAGE>
A federal district court has granted the Company's motion to dismiss
the federal and state antitrust claims and the state unfair practices
claims against the Company and PGT. The plaintiffs have filed an
amended complaint in which A&S has been added as a defendant. The
amended complaint restates the claims in the original complaint and
alleges that the defendants, through anticompetitive practices,
precluded certain customers of the Company access to alternative
sources of gas in Canada over the PGT pipeline. A new motion to
dismiss was filed by the Company in November 1994. The Company
believes that the ultimate outcome of this matter will not have a
significant adverse impact on its financial position.
Hinkley Litigation: In 1993, a complaint was filed in a state
superior court on behalf of individuals seeking recovery of an
unspecified amount of damages for personal injuries and property
damage allegedly suffered as a result of exposure to chromium near
the Company's Hinkley Compressor Station, as well as punitive
damages. The original complaint has been amended, and additional
complaints have been filed to include additional plaintiffs.
The plaintiffs contend that the Company discharged chromium-
contaminated wastewater into unlined ponds, which led to chromium
percolating into the groundwater of surrounding property. The
plaintiffs further allege that the Company discharged the chromium
into those ponds to avoid costly alternatives.
The Company has reached an agreement with plaintiffs pursuant to
which those plaintiffs' actions will be submitted to binding
arbitration for resolution of issues concerning the cause and extent
of any damages suffered by plaintiffs as a result of the alleged
chromium contamination. Under the terms of the agreement, the
Company will pay an aggregate amount of no more than $400 million in
settlement of such plaintiffs' claims. In turn, those plaintiffs,
and their attorneys, agree to indemnify the Company against any
additional losses the Company may incur with respect to related
claims pursued by the identified plaintiffs who do not agree to this
settlement or by other third parties who may be sued by the
plaintiffs in connection with the alleged chromium contamination.
As of June 30, 1995, the Company has paid $50 million to escrow and
reserved an additional $100 million against any future potential
liability in this case. The Company believes the ultimate outcome of
this matter will not have a significant adverse impact on its
financial position or results of operations.
Cities Franchise Fees Litigation: In May 1994, the City of Santa
Cruz filed a complaint in Superior Court against the Company on
behalf of itself and purportedly as a class action on behalf of 106
other cities with which the Company has certain electric franchise
contracts. The complaint alleges that, since at least 1987, the
Company has intentionally underpaid its franchise fees to the cities
in an unspecified amount.
The complaint alleges that the Company has asked for and accepted
electric franchises from the cities included in the purported class,
which provide for lower franchise payments than required by
franchises granted by other cities in the Company's service
territory. The complaint also alleges that the transfer of these
franchises to the Company by its predecessor companies was not
approved by the CPUC as required, and therefore, all such franchise
contracts are void.
The Court has certified the class of 107 cities in this action and
approved the City of Santa Cruz as the class representative. The
Company has filed a motion for summary judgment in this case and a
motion to decertify the class. The case is set for trial in October
1995.
Should the cities prevail on the issue of franchise fee calculation
methodology, the Company's annual systemwide city electric franchise
fees could increase by approximately $17 million. Damages for
alleged underpayments in prior years could be as much as $114 million
(exclusive of interest, estimated to be $27 million as of June 30,
1995).
The Company believes that the ultimate outcome of this matter will
not have a significant adverse impact on its financial position or
results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Consolidated
----------------------------------------------------
Results of Operations and Financial Condition
---------------------------------------------
Pacific Gas and Electric Company (PG&E) and its wholly owned and
majority-owned subsidiaries (collectively, the Company) have three
types of operations: utility, Diablo Canyon Nuclear Power Plant
(Diablo Canyon) and nonregulated through PG&E Enterprises
(Enterprises). The Company is engaged principally in the business of
supplying electric and natural gas services throughout most of Northern
and Central California. The Company's operations are regulated by the
California Public Utilities Commission (CPUC) and the Federal Energy
Regulatory Commission (FERC), among others.
Competition and Changing Regulatory Environment:
- - -----------------------------------------------
The energy utility industry continues to move toward a more competitive
environment. The Company is faced with many challenges and has taken
several significant actions to position itself to compete effectively
in a restructured utility industry. However, there have been delays in
instituting the regulatory reforms necessary to open markets to
competition.
In May 1995, following more than one year of testimony, comments and
hearings on the CPUC's order instituting rulemaking and investigation
on the restructuring of the California electric utility industry, the
CPUC issued two proposed policy decisions. The proposal by the
majority of the commissioners supports the concept of a wholesale power
pool. This proposal, which would go into effect in 1997, contemplates
a possible transition to direct access beginning no earlier than 1999
if certain implementation issues are resolved. Under this proposal,
all generators would be required to sell power generated into the pool
and distribution companies, on behalf of their customers would, with
few exceptions, purchase all of their electric generation needs from
the pool. Under the wholesale pool proposal, performance-based
ratemaking would be used for any services not subject to competition.
One commissioner offered an alternative proposal which supports
immediate conversion to direct access for all customers beginning in
1998. Both proposals call for the separation of generation,
transmission and distribution functions and the possibility of
mandatory divestiture of generation assets. The proposals also support
transition cost recovery of uneconomic assets and obligations (i.e.,
costs which are above market and could not be recovered under market-
based pricing) through a competition transition charge (CTC).
In July 1995, the Company filed its response on the CPUC proposals for
restructuring the electric industry. In its response, the Company
reaffirmed its commitment to achieving direct access. However, if a
wholesale pool as contemplated under the majority proposal remains the
preferred approach by the CPUC, the Company indicated that it is
prepared to work towards a pool structure keeping the direct access
vision in mind. Under either proposal, the Company believes that
significant technological, regulatory (state and federal) and practical
obstacles will have to be overcome. In addition, the Company does not
support immediate and complete divestiture of utility generating assets
or the mandated shareholder absorption of a portion of transition costs
associated with generating plants. The Company does believe that the
transition recovery for qualifying facilities and regulatory assets is
equitable.
The proposed policy decisions are subject to hearings and state
legislative review before either could be implemented. (See Note 2 of
Notes to Consolidated Financial Statements for further discussion.)
In addition to working closely with the CPUC on the electric industry
restructuring, the Company has made several proposals to modify
existing regulatory processes and to provide additional pricing
flexibility to those customers with the most competitive options.
In June 1995, the FERC accepted, subject to refund and the outcome of
the FERC Notice of Proposed Rulemaking (NOPR) on open access, the
Company's proposed open access wholesale electric transmission tariffs,
effective July 1, 1995. These tariffs conform to the guidelines laid
out in the FERC NOPR on open access wholesale transmission with very
few modifications. The NOPR requires that all utilities offer open
access wholesale transmission service under tariffs that are comparable
to the wholesale transmission service that utilities provide
themselves. The Company's open access filing proposes to enhance the
existing wholesale market and is a step towards the goal of promoting
eventual competition in electric generation for all customers.
<PAGE>
In August 1995, the Company filed comments with the FERC on the NOPR.
In its comments, the Company indicated that it strongly supports the
direction of the FERC reflected in the NOPR. The Company also believes
that it is essential that the FERC afford the utilities the opportunity
to propose in the future new innovative transmission models that would
respond more efficiently to changing market demands once open access is
widespread. This flexibility will become increasingly important as the
volume of transactions on the system increases and retail wheeling
emerges as an option for customers.
The Company supports the FERC's recognition that full transition cost
recovery is appropriate, that the states have the primary role in
determining and levying transition cost surcharges for retail
customers, and that transition cost recovery at the FERC is appropriate
for former retail customers which municipalize or in other ways become
wholesale entities. The Company also encourages the FERC to clarify
that its jurisdictional demarcation between transmission and
distribution facilities cannot be circumvented by retail customers
attempting to evade state transition cost charges. A final rule on the
NOPR is not expected to be issued before mid-1996.
The Company is also actively pursuing changes in its gas business. In
July 1995, the Company proposed that parties in pending gas proceedings
before the CPUC (See Regulatory Matters) negotiate a wide-ranging
settlement of such proceedings as part of a restructuring of its gas
transmission business.
The Company cannot predict the ultimate outcome of the ongoing changes
that are taking place in the utility industry. However, the Company
believes the end result will involve a fundamental change in the way it
conducts business. These changes may impact financial operating trends
and make the Company's earnings more volatile. The Company is actively
seeking regulatory and operational changes that will allow it to
provide energy services in a safe, reliable and competitive manner
while achieving strong financial performance.
<PAGE>
Results of Operations:
- - ---------------------
The Company's results of operations for the three-month and six-month
periods ended June 30, 1995, and 1994, are reflected in the following
table:
THREE MONTHS ENDED
JUNE 30
<TABLE>
<CAPTION>
Diablo
(in millions, except per share amounts) Utility Canyon Enterprises Total
<S> <C> <C> <C> <C>
1995
Operating revenues $ 1,856 $ 545 $ 47 $ 2,448
Operating expenses 1,540 323 61 1,924
------- ------ ------ -------
Operating income (loss) $ 316 $ 222 $ (14) $ 524
======= ====== ====== =======
Net income $ 213 $ 183 $ 10 $ 406
======= ====== ====== =======
Earnings per common share $ .48 $ .42 $ .02 $ .92
======= ====== ====== =======
1994
Operating revenues $ 1,989 $ 398 $ 53 $ 2,440
Operating expenses 1,709 279 56 2,044
------- ------ ------ -------
Operating income (loss) $ 280 $ 119 $ (3) $ 396
======= ====== ====== =======
Net income (loss) $ 174 $ 80 $ (13) $ 241
======= ====== ====== =======
Earnings (loss) per common share $ .38 $ .18 $ (.03) $ .53
======= ====== ====== =======
<CAPTION>
SIX MONTHS ENDED
JUNE 30
Diablo
(in millions, except per share amounts) Utility Canyon Enterprises Total
<S> <C> <C> <C> <C>
1995
Operating revenues $ 3,631 $1,009 $ 115 $ 4,755
Operating expenses 3,015 609 142 3,766
------- ------ ------ -------
Operating income (loss) $ 616 $ 400 $ (27) $ 989
======= ====== ====== =======
Net income $ 405 $ 322 $ 7 $ 734
======= ====== ====== =======
Earnings per common share $ .89 $ .74 $ .02 $ 1.65
======= ====== ====== =======
Total assets at June 30 $19,696 $5,854 $1,401 $26,951
======= ====== ====== =======
1994
Operating revenues $ 4,014 $ 833 $ 107 $ 4,954
Operating expenses 3,450 582 112 4,144
------- ------ ------ -------
Operating income (loss) $ 564 $ 251 $ (5) $ 810
======= ====== ====== =======
Net income (loss) $ 315 $ 176 $ (13) $ 478
======= ====== ====== =======
Earnings (loss) per common share $ .69 $ .39 $ (.03) $ 1.05
======= ====== ====== =======
Total assets at June 30 $19,926 $6,131 $1,165 $27,222
======= ====== ====== =======
</TABLE>
<PAGE>
Earnings Per Common Share:
- - -------------------------
The Company earnings per common share for both the three-month and six-
month periods ended June 1995, were greater than for the same periods
in the previous year. As discussed below, each of the Company's
operations reported higher earnings per common share in 1995.
Utility earnings per common share for the three-month period ended June
30, 1995, were higher than for the comparable period in 1994,
reflecting a charge in 1994 for litigation reserves. Utility earnings
per common share for the six-month period ended June 30, 1995, were
higher than for the comparable period in 1994, reflecting charges in
the first quarter of 1994 related to the CPUC disallowances in the gas
reasonableness proceedings for 1988 through 1990 and a reserve for
other gas matters.
Earnings per common share for Diablo Canyon for the three-month and
six-month periods ended June 30, 1995, increased as compared with the
same periods in 1994 due to fewer scheduled refueling days and
unscheduled outages in 1995, partially offset by the impact of the
modified price for power produced by Diablo Canyon. The next refueling
is scheduled to begin September 30, 1995 (Unit 1).
In June 1995, Enterprises completed its sale of DALEN Resources Corp.
(DALEN). The transaction resulted in an after tax gain of $.03 per
common share. (See Nonregulated Operations section for further
discussion.) In June 1994, Enterprises entered into multiple contracts
to sell certain of its oil and gas properties. As a result, the
Company's earnings per common share for the three-month and six-month
periods ended June 30, 1994, included a writedown of $.03 per common
share for certain oil and gas properties held for sale.
Common Stock Dividend:
- - ---------------------
In May 1995, the Board of Directors declared a quarterly dividend of
$.49 per common share which corresponds to an annualized dividend of
$1.96 per common share. The Company's common stock dividend is based
on a number of financial considerations, including sustainability,
financial flexibility and competitiveness with investment opportunities
of similar risk. The Company has a long-term objective of reducing its
dividend payout ratio (dividends declared divided by earnings available
for common stock) to reflect the increased business risk in the utility
industry.
At this time, the Company is unable to determine the impact, if any,
the restructuring of the electric industry will have on the Company's
ability to increase its dividends in the future.
Operating Revenues:
- - ------------------
Electric revenues for the six-month period ending June 30, 1995,
decreased $130 million, compared to the same period in 1994, primarily
due to a decrease in balancing account revenues resulting from lower
electric energy costs caused by favorable hydro conditions and lower
natural gas prices. This decrease was offset by favorable operating
revenues from Diablo Canyon resulting from fewer scheduled refueling
days and unscheduled outages in 1995. These results were partially
offset by a decrease in the price per kilowatt-hour (kWh) as provided
in the modified pricing provisions of the Diablo Canyon rate case
settlement (Diablo Canyon Settlement). Based on Diablo Canyon's
current operating performance, the modification will result in
approximately $2.1 billion less revenue through 1999, compared to the
original pricing provisions of the Diablo Canyon Settlement. After
December 31, 1999, the escalating portion of the Diablo Canyon price
will increase using the same formula specified in the Diablo Canyon
Settlement. (See Note 4 of Notes to Consolidated Financial
Statements.)
Gas revenues for the six-month period ended June 30, 1995, decreased
$76 million compared to the same period in 1994 primarily due to a
decrease in balancing account revenues resulting from a decline in the
volume and price of gas purchased.
Operating Expenses:
- - ------------------
Operating expenses for the three-month and six-month periods ended June
30, 1995, decreased $120 million and $377 million, respectively,
compared to the same periods in 1994, primarily due to the lower cost
of electric energy. The cost of electric energy was $145 million and
$297 million less in the three-month and six-month periods ended June
30, 1995, respectively, compared to the same periods in 1994. The
reduction in costs was primarily due to favorable hydro conditions.
Most of the cost of gas decrease of $148 million in the six-month
period ended June 30, 1995, compared to the same period in 1994, was
due to higher prices paid during the first three months of 1994.
Administrative and general expense was $53 million less in the three-
month period ended June 30, 1995, compared to the same period in 1994,
primarily due to an increase in litigation reserves recorded in 1994.
Partially offsetting these operating expense decreases was an increase
in income tax expense. Income tax expense increased as a result of
higher income in 1995.
<PAGE>
Other Income and (Income Deductions):
- - ------------------------------------
Other -- net for the six-month period ended June 30, 1994, included
accruals related to the CPUC gas reasonableness proceedings. There
were no charges recorded in the same period in 1995 related to gas
reasonableness proceedings. (See Note 3 of Notes to Consolidated
Financial Statements.)
Regulatory Matters:
- - ------------------
In addition to the CPUC electric industry restructuring proposal
(discussed further in Note 2 of Notes to Consolidated Financial
Statements) and related proposals, there are other ongoing regulatory
matters with respect to revenues and costs which will impact the
Company's rates in 1995 and beyond. In applications related to
electric rates, the Company has proposed to extend through 1996 its
rate freeze which began in 1993. The freeze has been approved by the
CPUC through the end of 1995. Overall, the Company has requested
decreases in its gas rates compared to rates in effect for 1995. The
more significant of these pending applications are discussed below.
Hearings in the revenue requirements phase of the Company's 1996
General Rate Case (GRC) application for base rates effective January 1,
1996, were completed in June 1995. As a result of updated information,
the Company has revised its request and is currently seeking an $87
million decrease in electric revenues and a $191 million decrease in
gas revenues, compared to 1995 rates. During the hearing process, the
Division of Ratepayer Advocates (DRA), a consumer advocacy branch of
the CPUC, revised its position to recommend a $331 million decrease in
electric revenues and a $291 million decrease in gas revenues, compared
to 1995 rates. A significant portion of the difference between the
revenue change requested by the Company and that recommended by the DRA
relates to administrative and general expenses and the level of wages
and benefits. Other intervenors have made proposals to lower electric
revenues by approximately $100 million and gas revenues by
approximately $40 million, above the DRA recommendations. A final
decision on the revenue requirements phase of the application is
expected in December 1995. The Company believes that 1996 revenues
ultimately adopted by the CPUC may be significantly less than that
requested by the Company and to the extent the Company is unable to
identify additional cost reductions to offset revenue reductions,
earnings in 1996 would decrease.
In June 1995, the Company updated its April 1995 energy cost
application with the CPUC which seeks to continue the Company's retail
electric rate freeze through the end of 1996. In order to maintain the
freeze, the Company proposed deferring the recovery of an estimated $85
million of the electric balancing account undercollection beyond 1996.
Based on the consolidation of the outstanding electric cases that would
become effective January 1, 1996, including the energy cost and the GRC
proceedings, it is currently expected that the deferral of the electric
balancing account undercollection will not be required.
In August 1995, the DRA updated its report in the Company's 1996 energy
cost proceeding recommending a reduction of approximately $62 million
in the energy cost revenue requirement requested by the Company in the
Energy Cost proceedings primarily due to lower gas cost and purchased
power expenses.
In April 1995, the Company's application with the CPUC requesting a gas
rate increase of approximately $170 million annually for the two-year
period beginning October 1, 1995, was updated and revised, lowering the
increase to $25 million. The Company's request reflects a decrease in
gas costs, an increase in transportation costs and the collection of
amounts previously deferred in balancing accounts. If the Company's
request is adopted, rates will be effective January 1, 1996, concurrent
with the implementation of the GRC.
In May 1995, the Company filed an application with the CPUC requesting
the following cost of capital for 1996:
<TABLE>
<CAPTION>
Capital Weighted
Ratio Cost/Return Cost/Return
------- ----------- -----------
<S> <C> <C> <C>
Common equity 48.00% 12.07% 5.79%
Long-term debt 46.50% 7.64% 3.55%
Preferred stock 5.50% 8.13% 0.45%
-----
Total return on
average utility rate base 9.79%
=====
</TABLE>
<PAGE>
If approved, the Company's request will not result in a rate increase.
In July 1995, the DRA filed its 1996 cost of capital proposal
recommending for the Company (excluding PG&E's portion of the PGT/PG&E
Pipeline Expansion Project) a return on common equity of 11.15 percent
and an overall return on utility rate base of 9.35 percent. The DRA
recommended a utility capital structure that was consistent with that
proposed by the Company. The DRA's proposal would result in annual
revenue requirement decreases of $72 million for electric rates and $23
million for gas rates effective January 1, 1996. A final CPUC decision
is expected in the fourth quarter of 1995.
In November 1993, the Company placed in service an expansion of its
natural gas transmission system from the Canadian border into
California. The PGT/PG&E Pipeline Expansion Project (Pipeline
Expansion) provides additional firm transportation capacity to Northern
and Southern California and the Pacific Northwest. The total cost of
construction was approximately $1.7 billion. The Company has filed
applications with the FERC (for the Pacific Gas Transmission Company
(PGT) or interstate portion) and the CPUC (for the PG&E or California
portion) requesting that capital and operating costs be found
reasonable. Revenues are currently being collected under rates
approved by the FERC and the CPUC, subject to adjustment. As part of
the Company's cost of capital application, the Company has requested a
separate capital structure, a return on equity of 13.00 percent and an
overall rate of return of 9.41 percent for the PG&E portion of the
Pipeline Expansion (the PG&E Pipeline Expansion). The DRA has
recommended that the Company be allowed a return on equity of 12.15
percent and an overall rate of return of 9.13 percent on the PG&E
Pipeline Expansion.
In June 1995, a CPUC administrative law judge (ALJ) issued an order
setting hearings to consider the market impacts of the PG&E Pipeline
Expansion. The ALJ's order also re-opened the proceeding in which the
CPUC had approved the PG&E Pipeline Expansion, in order to consider
alleged discovery violations committed by the Company in that
proceeding.
In July 1995, the ALJ approved a request by the Company to suspend on
the market impacts hearings in the PG&E Pipeline Expansion proceeding.
The Company sought a suspension of such hearings to enable parties to
engage in meaningful settlement negotiations encompassing both a
restructuring of PG&E's gas transmission operations and a broad range
of gas-related issues arising from various proceedings. (See Note 3 of
Notes to Consolidated Financial Statements for further discussion.)
Settlement negotiations are expected to begin in August or September
1995. Any gas accord proposal arising from such negotiations would be
subject to CPUC approval. The Company believes the ultimate outcome of
the gas accord negotiations will not have a significant impact on its
financial position or results of operations.
Nonregulated Operations:
- - -----------------------
The Company, through its wholly owned subsidiary, Enterprises, has
taken steps to position itself to compete in the nonregulated energy
business. Enterprises makes the majority of its investments in
nonregulated energy projects through a joint venture, U.S. Generating
Company, which invests, owns and operates plants in the United States.
Enterprises, in partnership with Bechtel Enterprises, Inc., has formed
a company named International Generating Co., Ltd. (InterGen) to
develop, build, own and operate international electric generation
projects.
In August 1994, Enterprises and Bechtel Enterprises, Inc., completed
the acquisition of J. Makowski Co., Inc. (JMC), a Boston-based company
engaged in the development of natural gas-fueled power generation
projects and natural gas distribution, supply and underground storage
projects. The final purchase price was approximately $250 million.
Enterprises' effective ownership share of JMC is approximately 90
percent.
In June 1995, the Company completed its sale of DALEN. The sales price
was $455 million, including $340 million cash and assumption of $115
million of existing debt. The sale resulted in an after tax gain of
approximately $13 million.
Liquidity and Capital Resources
- - -------------------------------
Sources of Capital:
- - ------------------
The Company's capital requirements are funded from cash provided by
operations and, to the extent necessary, external financing. The
Company's policy is to finance its assets with a capital structure that
minimizes financing costs, maintains financial flexibility, and
complies with regulatory guidelines. This policy ensures that the
Company can raise capital to meet its utility obligation to serve and
its other investment objectives. During the six-month period ended
June 30, 1995, the Company issued $92 million of common stock,
primarily through its Dividend Reinvestment Program and Savings Fund
Plan. The Company purchased on the open market $268 million of common
stock during the six-month period ended June 30, 1995.
<PAGE>
Risk Management:
- - ---------------
The Company uses a number of techniques to mitigate its financial risk,
including the purchase of commercial insurance, the maintenance of
systems of internal control and the selected use of financial
instruments. The extent to which these techniques are used depends on
the risk of loss and the cost to employ such techniques. These
techniques do not eliminate financial risk to the Company.
The majority of the Company's financing is done on a fixed-term basis,
thereby substantially reducing the financial risk associated with
variable interest rate borrowings. The Company has used financial
instruments to eliminate the effects of fluctuations in interest rates
and foreign currency exchange rates on certain of its debt.
Investing and Financing Activity:
- - --------------------------------
During the six-month period ended June 30, 1995, the Company's capital
expenditures were $399 million. This represents a $60 million decrease
from the same period in the preceding year.
During the six-month period ended June 30, 1995, the Company redeemed
or repurchased approximately $114 million of mortgage bonds. Also, the
Company plans to redeem $150 million of perpetual, redeemable preferred
stock on September 1, 1995.
During the six-month period ended June 30, 1995, PGT, a wholly owned
subsidiary of PG&E, completed the sale of $400 million of debt
securities through a shelf offering filed with the Securities and
Exchange Commission. Additionally, PGT issued commercial paper, $170
million of which was outstanding at June 30, 1995. The commercial
paper is supported by a five-year $200 million bank revolving credit
agreement. The commercial paper outstanding at June 30, 1995, is
classified as long-term since PGT intends to renew or replace it with
long-term borrowings. Substantially all of the proceeds from the debt
offering and sale of commercial paper were used to refinance
outstanding debt of PGT.
Environmental Remediation:
- - -------------------------
The Company assesses, on an ongoing basis, measures that may need to be
taken to comply with laws and regulations related to hazardous
materials and hazardous waste compliance and remediation activities.
Although the ultimate cost that will be incurred by the Company in
connection with its compliance and remediation activities is difficult
to estimate, the Company has an accrued liability at June 30, 1995, of
$100 million for hazardous waste remediation costs. The costs could be
as much as $245 million, due to uncertainty concerning the Company's
responsibility and the extent of contamination, the complexity of
environmental laws and regulations and the selection of compliance
alternatives. (See Note 5 of Notes to Consolidated Financial
Statements.)
Legal Matters:
- - -------------
In the normal course of business, the Company is named as a party in a
number of claims and lawsuits. Substantially all of these have been
litigated or settled with no significant impact on either the Company's
results of operations or financial position.
There are three significant litigation cases which are discussed in
Note 5 of Notes to Consolidated Financial Statements. These cases
involve claims for personal injury and property damage, as well as
punitive damages, allegedly suffered as a result of exposure to
chromium near the Company's Hinkley Compressor Station, antitrust
claims for damages as a result of Canadian natural gas purchases by one
of the Company's wholly owned subsidiaries and a claim that the Company
underpaid franchise fees.
Other Matters
- - -------------
New Accounting Standard:
- - -----------------------
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The Company must adopt SFAS No. 121 by January 1, 1996,
but may elect to adopt it earlier.
The general provisions of SFAS No. 121 require, among other things,
that the existence of an impairment be evaluated whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be fully recoverable, and prescribe standards for the
recognition and measurement of impairment losses. In addition, SFAS
No. 121 requires that regulatory assets continue to be probable of
recovery in rates, rather than only at the time the regulatory asset is
recorded. Regulatory assets currently recorded may be written off if
recovery is no longer probable.
<PAGE>
Based on the nature of CTC recovery for generation-related regulatory
assets proposed in the majority and alternative electric industry
restructuring proposals discussed in Note 2 of Notes to Consolidated
Financial Statements, the Company currently does not anticipate a
material impairment of its regulatory assets due to the impending
electric industry restructuring.
However, should the CPUC or the California State Legislature modify
these proposals, an impairment loss related to regulatory assets
attributable to electric generation and other investments in utility
generation assets could ultimately result.
Accounting for Decommissioning Expense:
- - --------------------------------------
The staff of the Securities and Exchange Commission has questioned
current accounting practices of the electric utility industry,
regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations. In response to
these questions, the FASB has agreed to review the accounting for
removal costs, including decommissioning. If current electric utility
industry accounting practices for such decommissioning are changed: (1)
annual expense for decommissioning could increase and (2) the estimated
total cost for decommissioning could be recorded as a liability rather
than accrued over time as accumulated depreciation. The Company does
not believe that such changes, if required, would have an adverse
effect on its results of operations or liquidity due to its current
ability to recover decommissioning costs through rates.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
A. Time-Of-Use Meter/Customer Notification Litigation
As previously reported in the Company's Form 10-K for the fiscal year
ended December 31, 1994, in July 1994 five individuals filed a
complaint in the Stanislaus County Superior Court against the Company
on behalf of themselves and purportedly as a class action on behalf
of all of the Company's customers, for "refund of unlawfully charged
fees." The alleged class was later broadened to include customers of
the Turlock Irrigation District (TID), which purchases power from the
Company. The complaint alleged that the Company improperly failed to
notify its customers of the most favorable rates available to each
particular customer (focusing, in particular, on the "time-of-use"
billing option) and sought damages estimated to be in excess of $16
billion.
In April 1995, the Court granted portions of the Company's demurrer
in this case, holding that two of the individual plaintiffs did not
have standing to sue. The claims relating to those individuals and
the customers of TID have been dropped.
On June 8, 1995, the three remaining plaintiffs filed an amended
complaint which alleges that (a) under certain circumstances the
Company has a duty to notify a particular customer of the most
favorable rate for that customer and (b) the Company has
systematically failed to reasonably advise new and existing customers
of available advantageous rate structures, including the time-of-use
billing option. The amended complaint estimates class wide damages
related to time-of-use rates to be in excess of $16 billion and that
the damages relating to other programs and rate structures is at
least an additional $10 billion. The amended complaint also seeks
$100 billion in exemplary damages relating to the Company's alleged
willful failure to provide required notice to customers of rate
options.
On July 11, 1995, the Company filed (i) a motion to strike the class
and leave only the claims of the three individual plaintiffs, (ii) a
motion for summary judgment against one of the three plaintiffs and
(iii) a demurrer asserting that the California Public Utilities
Commission (CPUC) has exclusive jurisdiction and that the Superior
Court should dismiss the entire action. These motions are scheduled
to be heard later in 1995.
The Company believes that the ultimate outcome of this matter will
not have a significant adverse impact on its financial position or
results of operations.
<PAGE>
B. Norcen Litigation
As previously reported in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, in March 1994, Norcen
Energy Resources Limited (Norcen Energy) and Norcen Marketing
Incorporated (Norcen Marketing) filed a complaint in the U.S.
District Court, Northern District of California, against the Company
and Pacific Gas Transmission Company (PGT), a wholly owned subsidiary
of the Company. Norcen Marketing has a 30-year gas transportation
contract with PGT, which is guaranteed by Norcen Energy. The
complaint alleged that PGT and the Company wrongfully induced Norcen
Energy and Norcen Marketing to enter into the 30-year contract by
concealing legal action taken by the Company before the CPUC
(requesting clarification that gas shipped on the PGT portion of the
Pipeline Expansion should pay the Company's incremental Expansion
rates for in-state service) two days before Norcen Marketing's
contract became binding. The complaint also alleged breach of
representations to plaintiffs that the Company would not
"unreasonably" build its Pipeline Expansion with less than
"sufficient" firm subscription and a breach of an agreement between
PGT and a Norcen predecessor relating to the installation of
additional capacity. In addition to state law contract claims, the
complaint also alleged a series of federal and state antitrust claims
related to the construction of the Pipeline Expansion and the
Company's alleged refusals to allow access to the original PGT and
California transmission systems. Those antitrust claims were
dismissed by the Court in September 1994, and subsequently reasserted
in part by plaintiffs in an amended complaint filed in October 1994.
On July 27, 1995, the District Court issued an order on the Company's
motion to dismiss the amended complaint. The order dismisses all of
plaintiffs' federal and state antitrust claims, but does not dismiss
various state law contract claims, including claims based on
fraudulent inducement and breach of contract. In addition to
recission of their gas transportation contract, the plaintiffs are
seeking an unspecified amount of contract damages. Based on
available information, plaintiffs' out-of-pocket contract damages
appear to be less than $10 million. The plaintiffs are also seeking
punitive damages in connection with the remaining state law claims.
The Company believes that the ultimate outcome of this matter will
not have a significant adverse impact on its financial position or
results of operations.
Item 5. Other Information
-----------------
Ratios of Earnings to Fixed Charges and Ratios of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
The Company's earnings to fixed charges ratio for the six months
ended June 30, 1995 was 4.47. The Company's earnings to combined
fixed charges and preferred stock dividends ratio for the six months
ended June 30, 1995 was 3.97. Statements setting forth the
computation of the foregoing ratios are filed herewith as Exhibits
12.1 and 12.2 to Registration Statement Nos. 33-62488, 33-64136 and
33-50707.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) Exhibits:
Exhibit 3 By-Laws as amended June 1, 1995
Exhibit 11 Computation of Earnings Per Common Share
Exhibit 12.1 Computation of Ratios of Earnings to Fixed
Charges
Exhibit 12.2 Computation of Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K during the second quarter of 1995 and
through the date hereof:
1. April 20, 1995
Item 5. Other Events
A. Performance Incentive Plan - Year-to-Date Financial
Results
B. Electric Open Access NOPR
C. California Public Utilities Proceedings
- Electric Fuel and Sales Balancing Accounts -
ECAC/ERAM
- Biennial Cost Allocation Proceeding (BCAP)
D. Sale of DALEN Resources Corp.
2. May 17, 1995
Item 5. Other Events
A. California Public Utilities Commission Proceedings
- Diablo Canyon Rate Case Settlement
3. May 23, 1995
Item 5. Other Events
A. Potential Acquisition of United Energy Limited
4. May 26, 1995
Item 5. Other Events
A. California Public Utilities Commission Proceedings
- Electric Industry Restructuring
- Diablo Canyon Rate Case Settlement
- Biennial Cost Allocation Proceeding
- Experimental Procurement Service for Customer-
Identified Electric Supply
B. Common Stock Repurchase Program
5. July 14, 1995
Item 5. Other Events
A. Gas Restructuring and Settlement Proposal
6. July 20, 1995
Item 5. Other Events
A. Performance Incentive Plan - Year-to-Date Financial
Results
<PAGE>
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
August 11, 1995 /s/ GORDON R. SMITH
By________________________________
GORDON R. SMITH
Senior Vice President and Chief
Financial Officer
