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 2, 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 which could cause actual results to differ
materially from those indicated in the forward-looking statements
are described in more detail below.
A. Electric Industry Restructuring - Sunk Cost Filing
Pursuant to the California Public Utilities Commission's (CPUC)
December 1995 Electric Industry Restructuring order, on August 1,
1996, PG&E submitted an application to the CPUC which identifies
and, to the extent possible at this time, values non-nuclear
generation-related sunk costs that will be eligible for recovery
in the Competition Transition Charge (CTC) to be implemented on
January 1, 1998. Sunk costs are just one component of the
stranded costs eligible for recovery through the CTC; others
include the net present value of above-market revenue
requirements associated with PG&E's Diablo Canyon Nuclear Power
Plant (Diablo Canyon) and power purchase contracts. For purposes
of the application, sunk costs are non-nuclear generation-related
costs that are fixed and unavoidable. Sunk costs include costs
incurred in the past that are currently included in rates, such
as the original cost of generation facilities, less depreciation,
and regulatory assets which represent costs incurred in the past
that have not yet been fully recovered in rates. PG&E indicates
that the net book value of these costs as of December 31, 1995,
was $4.4 billion. The other category of sunk costs identified in
PG&E's filing are fixed generation-related costs that will be
incurred in the future, such as fossil decommissioning costs.
The future value of these costs is estimated to be $1.8 billion,
resulting in total estimated sunk costs of $6.2 billion. Other
CTC-eligible costs related to employee transition are identified
but not valued in this filing.
In its filing, PG&E notes that certain future generation costs
have been excluded from these estimates consistent with PG&E's
Restructuring Rate Settlement (Restructuring Agreement). The
Restructuring Agreement was executed by PG&E and a broad spectrum
of agricultural, commercial, industrial, union, independent power
and consumer groups endorsing PG&E's earlier proposal to modify
the Diablo Canyon Rate Case Settlement and implement a customer
electric rate freeze. PG&E agreed to exclude from the CTC
certain future generation costs if the Restructuring Agreement is
accepted by the CPUC. If costs PG&E has agreed to exclude were
included in PG&E's sunk cost estimates, PG&E's aggregate sunk
costs would increase to $6.8 billion.
B. California Legislative Conference Committee on Electric
Industry Restructuring - Response to Data Request Regarding
Stranded Costs
On July 25, 1996, PG&E provided a partial and qualified response
to a data request issued July 17, 1996, by the California
Legislative Conference Committee on Electric Industry
Restructuring. Among other things, the data request asked for an
estimate of the total stranded costs expected to be recovered
through a CTC under the CPUC's restructuring plan.
In its response, PG&E noted that any forecast of the CTC is
inextricably tied to the assumptions made at the time of the
analysis. The forecast provided in response to the data request
differs from the information filed with the CPUC in December 1994
by PG&E, which assumed both higher market prices (which lower the
CTC estimate) and higher expected revenues (net present value)
for Diablo Canyon power. PG&E's latest response put these two
forecasts on a comparable basis, showing that had PG&E used lower
market price forecasts in December 1994, the CTC estimate at that
time would have been about $4 billion higher than the current
estimate, which reflects the Restructuring Agreement. The
differential is in large part a reflection of the revised
ratemaking treatment for Diablo Canyon under the Restructuring
Agreement.
Comparison of Old and New CTC Forecasts
Dec. 1994 Filing PG&E's Proposal
Dec. 1994 at New Market (Restructuring
Filing Prices Agreement)
--------- ----------------- ----------------
Assumption 4.5 to 6.7 2.5 to 3.5 2.5 to 3.5
for 1998 Market cents/kWh cents/kWh cents/kWh
Price Range
Resultant CTC 3.5 to 11 14.5 to 17.5 10.5 to 14
range ($ billion)
Any estimate of stranded costs depends on, among other things,
(i) forecasts of future market prices, (ii) estimates of the
amount and categories of sunk costs eligible for stranded cost
recovery and (iii) future market valuations of PG&E's generation
assets that exceed book value and decommissioning costs. It is
highly uncertain what market prices will result from the proposed
power exchange structure. In preparing its estimates of the CTC,
PG&E has used a range for the market price which reflects recent
assumptions in its own and other parties' studies. Market prices
could differ materially from those assumed in the estimates.
Factors that could impact future market prices include not only
the operation of the proposed power exchange market structure,
but also changes in gas prices, changes in inflation rates,
levels of new technology costs and the potential oversupply of
generation within the market. The costs which will be eligible
for recovery under the CTC mechanism will be determined by the
CPUC, based on PG&E's July 31, 1996, sunk cost application and
its August 30, 1996, CTC application.
PACIFIC GAS AND ELECTRIC COMPANY
GORDON R. SMITH
By ________________________________
GORDON R. SMITH
Senior Vice President and
Chief Financial Officer
Dated: August 2, 1996
