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: April 18, 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) 973-700
Item 5. Other Events
A. Performance Incentive Plan - Year-to-Date Financial Results
The following information includes forward looking statements that
involve a number of risks, uncertainties, and assumptions, as
described in more detail below.
The Performance Incentive Plan (Plan) is an annual incentive
compensation plan applicable to all regular, nonbargaining unit
employees of Pacific Gas and Electric Company (PG&E) and designated
subsidiaries. The Plan provides for awards based on (1) PG&E's
success in meeting overall corporate financial performance objectives,
based on combined earnings per common share for PG&E's utility
operations (including Pacific Gas Transmission Company (PGT), a wholly
owned subsidiary of PG&E), Diablo Canyon Nuclear Power Plant (Diablo
Canyon) operations and PG&E's diversified operations, conducted
principally through PG&E Enterprises (Enterprises), a wholly owned
subsidiary of PG&E; and (2) the performance of the employee's
organizational unit in meeting its specific unit, team or individual
objectives. The organizational objectives may include such measures
as cost control, quality and reliability of service to customers,
public and employee safety, financial performance and operational
efficiency.
Under the Plan, the Nominating and Compensation Committee of the Board
(Committee) makes the final determination of awards based upon
achievement of the Plan objectives for officers. The Committee has
the discretion to modify or eliminate awards for officers. The final
determination of non-officer awards is made by the chief executive
officer, who also has the discretion to modify or eliminate non-
officer awards.
The performance measurement target for the 1996 Plan year was
disclosed in a Report on Form 8-K/A dated January 18, 1996, and was
based upon the corporate capital and operating budgets prepared for
1996.
The 1996 budgeted earnings per common share for the utility were
derived from, among other things, (i) budgeted revenues as authorized
by the California Public Utilities Commission (CPUC) for 1996 which
include the results of the 1996 General Rate Case (GRC), (ii) PG&E's
capital budget for 1996 of approximately $1.3 billion for utility
operations and (iii) budgeted utility operating expenses that are
approximately $250 million greater than the amount adopted by the CPUC
for recovery in the 1996 GRC. The higher expense level is primarily
attributable to several projects related to transmission and
distribution system reliability, and improved customer service and
public information systems. The utility budgeted earnings per common
share assumes contribution to earnings of $.11 per common share from
PGT.
The budgeted earnings per common share for Diablo Canyon were derived
from, among other things, (i) a reduction in the price of power
produced by Diablo Canyon from 11.0 cents per kWh in 1995 to 10.5
cents per kWh in 1996, consistent with the agreement to modify the
Diablo Canyon rate case settlement (Diablo Settlement) which was
approved by the CPUC in 1995, (ii) an operating capacity factor
(excluding refueling outages) of 94.0%, (iii) an overall annual
capacity factor of 88.8% and (iv) one 40-day refueling outage at Unit
2 during 1996. Budgeted operating expenses for 1996 relating to
Diablo Canyon are approximately equal to those budgeted for 1995.
Budgeted capital expenditures for Diablo Canyon are approximately $35
million for 1996, which is approximately 10% more than actual capital
expenditures in 1995.
The budgeted earnings per common share for diversified operations
assumes net income of $15 million from U.S. Generating Company, which
is offset by budgeted net losses of $28 million attributable primarily
to business activities involving international power generation and
distribution, and energy products and services in U.S. utility
markets. Actual results may vary significantly depending on the
availability of attractive investment or acquisition opportunities.
All of the 1996 budgeted earnings per common share amounts assume that
the average number of shares of common stock outstanding during 1996
is 406 million. The budgeted earnings per common share amounts assume
no significant gain or loss on the sale of assets.
On a quarterly basis, PG&E discloses year-to-date financial
performance relating to the three types of operations: utility, Diablo
Canyon and diversified operations. For the three months ended
March 31, 1996, selected financial information is shown below:
<TABLE>
(in thousands of dollars, except per share amounts)
Three Months Ended March 31, 1996
=================================================================
<CAPTION>
Actual <F1> Budget
(unaudited)
<S> <C> <C>
Operating Revenues:
Utility $ 1,777,436 $ 1,833,363
Diablo Canyon 439,977 <F2> 426,822
Diversified Operations 31,355 23,577
----------- -----------
Total Consolidated $ 2,248,768 $ 2,283,762
=========== ===========
Net Income (Loss):
Utility $ 127,384 <F3> $ 154,578
Diablo Canyon 129,129 <F2> 102,795
Diversified Operations 4,191 (1,478)
----------- -----------
Total Consolidated $ 260,704 255,895
=========== ===========
Earnings (Loss) Per
Common Share:
Utility $ 0.29 <F3> $ 0.36
Diablo Canyon 0.31 <F2> 0.24
Diversified Operations 0.01 0.00
----------- -----------
Total Consolidated $ 0.61 $ 0.60
=========== ===========
<FN>
<F1> In the opinion of management, the unaudited "actual" financial
information presented above reflects all adjustments to date which are
necessary to present a fair statement of operating revenues, net
income and earnings per common share for the year. All material
adjustments are of a normal recurring nature. This information should
be read in conjunction with the 1995 Consolidated Financial Statements
and Notes to Consolidated Financial Statements incorporated by
reference in PG&E's Annual Report on Form 10-K.
<F2> Diablo Canyon operated at an overall capacity factor of
96.7% compared to a budgeted overall capacity factor of 94.0% for the
three months ended March 31, 1996.
<F3> Utility maintenance and other operating expenses were higher than
budgeted due to higher expenses for certain distribution reliability
and customer service activities.
</FN>
</TABLE>
The budgeted corporate earnings per common share is a performance
target and is not a forecast of actual performance that will be
realized by PG&E. Actual performance during the year may differ
materially from the budgeted amount. The budgeted amount does not
reflect the resolution of various regulatory uncertainties or other
contingencies, including those disclosed in the Notes to PG&E's
Consolidated Financial Statements or in PG&E's Annual Report on Form
10-K, which could materially affect PG&E's performance during the
year. Among others these uncertainties include:
- - The outcome of the California electric industry
restructuring and the transition to a competitive
environment, including the extent to which PG&E will be able
to recover its stranded costs (costs which are above market
and could not be recovered under market-based pricing)
through a competition transition charge (CTC) or otherwise.
The restructuring may adversely impact PG&E's returns on its
investments in utility generating assets and its ability to
recover certain other costs, including qualifying facilities
(QF) power purchase obligations and generation-related
regulatory assets. In connection with the restructuring,
PG&E has filed a proposal with the CPUC seeking to modify
Diablo Canyon pricing and adopt a customer electric rate
freeze, effective January 1, 1997. Approval of this
proposal would significantly reduce the level of PG&E's CTC
by reducing PG&E's common equity return on its investment in
Diablo Canyon and accelerating the capital recovery of the
plant and other utility generation-related assets. While it
would not adversely affect PG&E's cash flow, PG&E's proposal
to modify Diablo Canyon pricing and effect a customer
electric rate freeze, and to accelerate recovery of utility
generation-related investments and regulatory assets, would
result in a significant reduction in annual earnings
beginning in 1997.
- - Changes in accounting due to changes in the regulatory or
competitive environment, including a change in the method or
lives used to depreciate plant and the possible discontinued
application of Statement of Financial Accounting Standards
No. 71.
- - The continued operation of Diablo Canyon at assumed
operating levels and under the rates and terms specified in
the existing Diablo Settlement. Under the prices for 1996,
each Diablo Canyon operating unit contributes approximately
$2.7 million in revenues per day. As noted above, PG&E has
proposed certain modifications to the Diablo Settlement,
which would be effective January 1, 1997.
- - The outcome of the Gas Accord negotiations and resolution of
existing regulatory issues. PG&E has proposed to settle
several outstanding gas regulatory issues that are currently
pending at the CPUC in separate proceedings, including
issues relating to PG&E's capacity commitments with
Transwestern Pipeline Company, the Interstate Transition
Cost Surcharge proceeding and the reasonableness proceeding
for the PG&E portion of the PGT/PG&E Pipeline Expansion.
B. Interim CTC Procedure
On April 10, 1996, the CPUC granted PG&E's emergency motion to
establish an interim Competition Transition Charge procedure that will
apply to electric retail customers with a monthly peak load over 500
kilowatts that terminate or reduce bundled electric services from PG&E
and transfer their purchases of electricity for that load to other
suppliers. The CPUC's order requires these departing customers to
pay an interim monthly charge based upon the departing customer's
current contribution in rates to PG&E's above-market generation costs.
Departing customers will also be required to execute a CTC agreement
in which they agree to pay the final amount of CTC as determined by
the CPUC. This rate procedure is interim in nature and will remain
effective until the CPUC adopts and implements a final CTC mechanism,
which is expected to be effective January 1, 1998. At that time,
amounts paid on an interim basis will be subject to true-up in order
to conform the interim CTC rates to those approved by the CPUC on a
final basis.
The CPUC directed interested parties to enter into an expedited
collaboration to attempt to set an interim CTC level consistent with
the principles set forth in the decision. Specifically, rather than
requiring departing customers to pay their full contribution to CTC
for the entire multi-year transition period (payable in a lump sum or
on a monthly basis over the transition period) as PG&E initially
proposed, PG&E was directed to develop a shorter term monthly charge
that would continue to collect current rate contributions to above-
market generation costs until replaced by a permanent CTC mechanism.
If no consensus is reached through the collaboration within three days
after discussions begin, the unresolved issues will be referred to an
administrative law judge to prepare a recommended decision for CPUC
approval.
PACIFIC GAS AND ELECTRIC COMPANY
GORDON R. SMITH
By ________________________________
GORDON R. SMITH
Senior Vice President and
Chief Financial Officer
Dated: April 18, 1996
