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: June 24, 1997
Exact Name of
Commission Registrant State or other IRS Employer
File as specified Jurisdiction of Identification
Number in its charter Incorporation Number
- ----------- -------------- --------------- --------------
1-12609 PG&E Corporation California 94-3234914
1-2348 Pacific Gas and California 94-0742640
Electric Company
77 Beale Street, P.O. Box 770000, San Francisco, California 94177
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code:(415) 973-7000
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Item 5. Other Events
A. Electric Industry Restructuring
1. Competition Transition Charge Proceeding
As part of California's electric industry restructuring
legislation enacted in Assembly Bill 1890 (restructuring
legislation), utilities are authorized to recover transition
costs from all customers (with certain exceptions) through a
nonbypassable competition transition charge (CTC) included in
electric rates. Transition costs represent the costs of
utilities' generation-related assets and obligations which prove
to be uneconomic in the new competitive framework. These costs
include above-market plant costs, the above-market costs
associated with power purchase agreements such as qualifying
facilities contracts, and generation-related regulatory assets.
(In general, regulatory assets are expenses deferred in the
current period and allowed to be included in rates in subsequent
periods.)
The nonbypassable CTC will be charged to all customers, whether
such customers are purchasing fully bundled electric services
(generation, transmission and distribution services) from a
utility, procuring their own energy as direct access customers,
or departing the utilities' transmission and distribution systems
altogether as departing load customers. Under the restructuring
legislation, the California Public Utilities Commission (CPUC)
will determine the costs which are eligible for recovery as
transition costs. Most transition costs must be recovered by
December 31, 2001, although certain categories of transition
costs may be recovered after December 31, 2001. In addition, the
restructuring legislation provides for a rate freeze until the
earlier of March 31, 2002, or until PG&E has recovered its
transition costs.
On June 11, the CPUC issued a decision adopting CTC ratemaking
and accounting mechanisms to enable the utilities to measure
their transition costs and track the recovery of transition
costs. The eligibility of certain costs for transition cost
recovery, authorized returns on transition costs, and the market
valuation of generation-related assets will be determined by the
CPUC in later phases of the CTC proceeding. The decision
includes the following provisions:
- To comply with the rate freeze mandated by the restructuring
legislation, utilities must collect the CTC from customers on a
"residual" basis. Under this approach, revenues collected under
frozen electric rates will be applied to recover the current
costs of distribution, transmission and generation services
(excluding transition costs), and public purpose programs such as
energy efficiency and conservation activities. Any residual
revenue, after
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the recovery of these costs, will be applied to
recover transition costs.
- The above-market generation plant costs, including associated
taxes and a reduced rate of return, and most generation-related
regulatory assets will be amortized ratably over a 48-month
period. The reduced return will include a return on common
equity equal to 90 percent of PG&E's long term cost of debt.
- Utilities are authorized to defer the recovery of currently
incurred employee-related transition costs, electric industry
restructuring implementation costs (i.e, the costs of
implementing customer direct access to electric energy providers,
the Independent System Operator (ISO), and the Power Exchange
(PX) required by the restructuring legislation), and the cost of
irrigation district exemptions from the CTC. These costs may be
recovered from ratepayers through a separate CTC surcharge beyond
December 31, 2001, as follows: employee-related transition costs
may be collected until December 31, 2006; restructuring
implementation costs may be collected until fully recovered; and
after December 31, 2001, up to $50 million in costs for
irrigation district CTC exemptions may be collected until March
31, 2002. In addition, to the extent generation-related
transition cost recovery is displaced by the collection of
renewable resource program costs during the rate freeze period,
those displaced generation-related transition costs may be
collected in the period January 1, 2002, through March 31, 2002.
Any transition costs not recovered within the applicable period
will be absorbed by the utilities.
- The recovery of transition costs will be reviewed in an annual
CPUC proceeding. The annual proceeding will also be used to
review the utilities' approach used to accelerate recovery of
transition costs and to estimate the market values of their
generation-related assets.
- The decision adopts principles for developing departing load
customer tariffs, including penalties for departing load
customers who fail to provide adequate notice of departure or
fail to pay CTC, that will enable the utilities to enforce
collection of the nonbypassable CTC from departing load
customers.
2. Divestiture
On June 24, 1997, PG&E announced its plans, subject to CPUC
approval, to sell three of its California fossil-fueled power
plants located in San Francisco and Contra Costa counties
(Potrero, Contra Costa and Pittsburg), and its geothermal
facilities, The Geysers Power Plant.
In October 1996, PG&E announced it would divest four of its
California fossil-fueled power plants (Hunter's Point, Oakland,
Morro Bay, and Moss Landing). PG&E's proposal for the sale of
these plants is
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currently under consideration by the CPUC.
Together, the eight power plants represent 98 percent of PG&E's
fossil-fueled generating capacity.
The four additional plants identified for sale by PG&E, which
have a combined capacity of 4,289 megawatt (MW), generate approximately
eight percent of PG&E's total electric sales. The combined net
book value for the plants is approximately $750 million. PG&E
intends to propose that any loss incurred on the sale of these
plants would be recovered as a transition cost. Likewise, any
gain on the sale would offset other transition costs.
Plant County Location Type Capacity Net Book Value
Potrero San Francisco Steam 363 MW $37 million
Contra Costa Contra Costa Steam 680 MW $105 million
Pittsburg Contra Costa Steam 2,022 MW $223 million
The Geysers Sonoma and Lake Geothermal 1,224 MW $381 million
PG&E intends to file its plan for the sale of these power plants
with the CPUC later this year and will seek to sign sales
agreements with buyers by the end of 1998.
B. Gas Accord
On June 11, 1997, two CPUC commissioners issued an alternate
proposed decision (Alternate PD) which, if adopted by the full
CPUC, would approve the Gas Accord, a comprehensive proposed
settlement which was submitted in 1996 for CPUC approval. As
previously disclosed in PG&E Corporation's and PG&E's Current
Report on Form 8-K dated April 18, 1997, on March 24, 1997, a
CPUC administrative law judge (ALJ) issued a proposed decision
(ALJ PD) rejecting the Gas Accord. Neither the ALJ PD nor the
Alternate PD is a final decision of the CPUC. The CPUC's agenda
for its meeting on June 25, 1997, includes consideration of a
final decision in the Gas Accord, although the CPUC may decide
to hold the matter for consideration at a later date.
The Gas Accord would restructure PG&E's gas services and its role
in the gas market, establish gas transmission rates for the
period July 1997 through December 2002, and resolve various gas
regulatory issues, including the recovery of certain capital
costs associated with Line 401, PG&E's recently constructed
California segment of the PG&E/Pacific Gas Transmission Company
pipeline that extends from the Canadian border to Kern River
Station in Southern California. (The Gas Accord is more fully
described in PG&E Corporation's and PG&E's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.)
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Specific provisions of the Alternate PD include the following:
- The Alternate PD would sever from the Gas Accord the proposed
settlement of the issue of whether PG&E misled the CPUC in
violation of Rule 1, the CPUC's Code of Ethics, in connection
with responding to certain discovery requests in the CPUC
proceeding to determine whether the decision to construct Line
401 was reasonable. The Alternate PD would direct the CPUC's
Legal Division to initiate a proceeding to determine if PG&E
violated Rule 1, in which event PG&E could be subject to fines
and penalties.
- The Alternate PD states that PG&E has a conflict of interest
between shareholder and ratepayer interests in the marketing of
PG&E's Line 401 capacity, supplied by Canadian gas producers,
while also brokering capacity reserved by PG&E under gas
transportation contracts with interstate pipeline companies
primarily supplied by Southwest gas producers. The Alternate PD
would institute a rule-making proceeding in which the CPUC would
propose a discounting rule to mitigate the perceived conflict of
interest. The CPUC stated that the discounting rule it intended
to propose would require PG&E to offer a commensurate service
discount on its intrastate pipeline (Line 300) which connects
with interstate pipelines delivering Southwest gas, whenever PG&E
offers a service discount on its Northern California intrastate
pipelines (Lines 400 and 401) which connect with interstate
pipelines delivering primarily Canadian gas, but the CPUC noted
that PG&E or other parties may propose other options.
- The Alternate PD would approve the core procurement incentive
mechanisms (CPIM) proposed in the Gas Accord to replace the
traditional reasonableness review proceedings of PG&E's gas
procurement costs for the periods 1994-97 and 1998-2002.
- The Alternate PD would approve the Gas Accord's proposal that
PG&E forgo recovery of 100 percent and 50 percent of the
Interstate Transition Cost Surcharge (ITSC) amounts allocated for
collection from its core and noncore customers, respectively.
(ITCS costs are the difference between fixed demand charges PG&E
pays under gas transportation contracts with interstate pipeline
companies for the reservation of interstate pipeline capacity
that PG&E no longer uses to serve noncore customers, and the
revenues PG&E obtains from brokering that capacity.)
- The Alternate PD would accept the Gas Accord's proposal to set
rates for Line 401 based on total capital costs of $736 million.
- Finally, the Alternate PD states that approval of the Gas
Accord would not (i) affect the CPUC's authority to consider
conflict of interest, affiliate abuse, PG&E's gas procurement
practices, or other issues in other proceedings or in the CPUC's
proposed proceeding
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concerning PG&E's alleged Rule 1 violation;
(ii) affect the CPUC's plan to consider further unbundling or
separation of services in the natural gas industry to produce a
more competitive gas market; or (iii) prohibit the CPUC from
rescinding, altering or amending the terms of the Gas Accord in
the future.
As of March 31, 1997, approximately $529 million had been
reserved relating to these gas regulatory issues and capacity
commitments. As a result, PG&E Corporation believes that if
either the ALJ PD or the Alternate PD were adopted by the CPUC,
neither decision would have a material impact on PG&E
Corporation's financial position or results of operations.
C. Changes in Management
On June 18, 1997, the Board of Directors of PG&E approved a
reorganization of its five business units into three business
units, appointed several new officers, and approved a realignment
of executive assignments and responsibilities. The Board's
actions will be effective on July 1, 1997.
James K. Randolph, currently vice president and general manager
of the Power Generation Business Unit, will become senior vice
president and general manager of the new Distribution and
Customer Service Business Unit (currently the Customer Energy
Services Business Unit), responsible for all customer services
and operations, maintenance and community relations. E. James
Macias, currently vice president and general manager of the
Electric Transmission Business Unit, will become senior vice
president and general manager of the new Generation, Transmission
and Supply Business Unit (currently the Electric Transmission,
Gas Supply, and Power Generation Business Units), responsible for
all of PG&E's California non-nuclear power plants, gas and
electric transmission systems, as well as gas purchases and third
party electric purchases. (Gregory M. Rueger will continue in
his current position as senior vice president and general manager
of the Nuclear Power Generation Business Unit, the third business
unit, responsible for nuclear power plant operations.)
Kent M. Harvey, currently vice president and treasurer of PG&E,
will become senior vice president, treasurer and chief financial
officer of PG&E, responsible for all financial, and information
technology functions, as well as buildings, land and other
general services.
Daniel D. Richard Jr., currently vice president of governmental
relations of PG&E, will become senior vice president of
governmental and regulatory relations of PG&E. Mr. Richard will
be responsible for governmental and regulatory relations,
including general rate cases.
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On June 18, 1997, the Board of Directors of PG&E Corporation,
PG&E's parent company, also appointed Mr. Richard as vice
president of governmental relations for PG&E Corporation.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
PG&E CORPORATION
and
PACIFIC GAS AND ELECTRIC COMPANY
BRUCE R. WORTHINGTON
By ________________________________
BRUCE R. WORTHINGTON
Senior Vice President and
General Counsel
(PG&E Corporation)
Senior Vice President
and General Counsel
(Pacific Gas and Electric Company)
Dated: June 24, 1997
