SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 21, 1996
PACIFIC GAS AND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
California 1-2348 94-0742640
(State or other juris- (Commission (IRS Employer
diction of incorporation) File Number) Identification Number)
77 Beale Street, P.O. Box 770000, San Francisco, California 94177
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(415) 973-7000
Item 5. Other Events
The following information includes forward-looking statements
that involve a number of risks, uncertainties and assumptions. A
number of factors, including the outcome of required regulatory
review and ongoing negotiations between various parties, could
cause actual results to differ materially from those indicated in
the forward-looking statements.
A. Gas Accord Settlement
On August 21, 1996, PG&E submitted to the CPUC for its approval a
Gas Accord Settlement (Accord). The Accord is the result of an
extensive negotiation process that was initiated by PG&E in 1995.
The Accord restructures PG&E's gas services and its role in the
gas market, and establishes rates for the period July 1997
through December 2002. Parties to the Accord represent a diverse
cross-section of interests in the Northern California gas market,
including representatives of residential, industrial and
commercial customers, municipal utilities, cogenerators,
marketers, California gas producers, core aggregators, interstate
pipelines and Canadian and Southwest shippers. The Accord must
be approved by the CPUC before it can be implemented.
The Accord consists of three broad initiatives:
- - The Accord separates, or "unbundles," PG&E's gas
transmission and storage services from its distribution services
and changes the terms of service and rate structure for gas
transportation so that customers' rates more accurately reflect
the cost of facilities used to serve them. Unbundling will offer
customers the opportunity to select from a menu of services
offered by PG&E and will enable them to pay only for the services
they use. PG&E will operate the unbundled transmission system
similar to an interstate pipeline. PG&E will be at risk for
variations in revenues resulting from differences between actual
and forecasted throughput. PG&E will also continue to provide
distribution service, much as it does today.
- - The Accord reduces PG&E's role in procuring gas supplies for
core customers in order to increase opportunities for such
customers to purchase gas from their supplier of choice. The
Accord also establishes principles for continuing negotiations
between PG&E and California gas producers for the mutual release
of supply contracts and the sale of gas gathering facilities.
PG&E will continue to purchase gas as a regulated utility
supplier for those customers that request it. PG&E has proposed
that traditional reasonableness proceedings relating to its gas
procurement costs be replaced by a core procurement incentive
mechanism (CPIM). The CPIM would allow PG&E to recover its gas
costs under a mechanism through which PG&E would receive benefits
or be penalized depending on whether its actual core procurement
costs were within, below or above a "tolerance band" constructed
around a market benchmark. The Accord contemplates that the CPIM
be implemented for the period from June 1, 1994 through 1997,
after which a revised incentive mechanism for the period 1998 to
2002, the terms of which are still to be negotiated, will be used
to determine recovery of PG&E's procurement costs.
- - The Accord resolves PG&E's major outstanding gas regulatory
issues including, among others, PG&E's Interstate Transition Cost
Surcharge (ITCS) recovery of costs relating to capacity
commitments with El Paso Natural Gas Company (El Paso) and
Pacific Gas Transmission Company (PGT) for capacity used to serve
PG&E's customers, certain capital costs associated with the PG&E
portion of the PGT/PG&E Pipeline Expansion Project (PG&E Pipeline
Expansion), recovery of costs related to PG&E's capacity
commitments with Transwestern Pipeline Company (Transwestern)
through 1997, and the disallowance ordered by the CPUC in
connection with PG&E's 1988-1990 gas reasonableness proceeding.
Under the Accord, PG&E would forego recovery of 100% and 50% of
the ITCS amounts allocated to its core and non-core customers,
respectively. In addition, PG&E would agree to set rates for the
PG&E Pipeline Expansion based on total capital costs which are
lower than those actually incurred. Overall, PG&E would make
financial concessions of almost $300 million, principally in
connection with the ITCS recovery and PG&E Pipeline Expansion
issues. With respect to Transwestern costs, the Accord provides
that PG&E would not recover costs associated with Transwestern
capacity used to serve core customers through the end of 1997.
After such time PG&E would have the opportunity to recover such
costs under the successor CPIM expected to be implemented as of
January 1, 1998. Also as part of the Accord, PG&E agrees to
forego recovery of the $90 million disallowance ordered in the
1988-1990 gas reasonableness proceeding, irrespective of the
outcome of PG&E's pending lawsuit challenging that disallowance.
If adopted by the CPUC, the Accord would result initially in
lower rates for most PG&E gas transportation service. If, as a
result of adoption of the Accord, PG&E determines that a portion
or all of its gas transportation business no longer qualifies for
accounting under Statement of Financial Accounting Standards
(SFAS) No. 71, such accounting would be discontinued and
applicable regulatory assets would be written off. Gas
transportation-related regulatory assets are currently estimated
to total $60 million.
The Company has previously provided reserves relating to the gas
regulatory issues addressed by the Accord, and will record
additional reserves of $81 million ($0.11 per share) in the third
quarter of 1996. After taking into account those reserves, the
Company believes the ultimate resolution with the CPUC of the
matters addressed by the Accord will not have a material adverse
impact on its financial position or results of operations.
PACIFIC GAS AND ELECTRIC COMPANY
CHRISTOPHER P. JOHNS
By ________________________________
CHRISTOPHER P. JOHNS
Vice President and Controller
Dated: August 21, 1996
