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: May 22, 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
<PAGE>
Item 5. Other Events
A. Electric Industry Restructuring
1. Diablo Canyon Ratemaking
As previously disclosed, in 1996, Pacific Gas and Electric
Company (PG&E) filed with the California Public Utilities
Commission (CPUC) a proposal for pricing electric generation from
PG&E's Diablo Canyon Nuclear Power Plant (Diablo Canyon) at
market prices and completing recovery of the investment in Diablo
Canyon by the end of 2001. Under its proposal, PG&E would
replace the existing Diablo Canyon performance based ratemaking
mechanism with: (1) a sunk cost revenue requirement to recover
net investment in plant, including a return on this net
investment, and (2) a performance-based Incremental Cost
Incentive Price (ICIP) mechanism to recover the facility's
variable and other operating costs and capital addition costs.
As proposed by PG&E, the sunk cost revenue requirement would be
set to accelerate recovery of Diablo Canyon sunk costs from a
twenty-year period ending in 2016 to a five-year period beginning
in 1997 and ending in 2001. The related return on common equity
associated with Diablo Canyon sunk costs would be reduced to 90
percent of PG&E's long-term cost of debt. PG&E's proposed ICIP
mechanism would establish a rate per kilowatt-hour (kWh)
generated by the facility. This rate would be based upon a fixed
forecast of on-going costs, capital additions, and capacity
factors for the period 1997 through 2001.
On May 21, 1997, the CPUC voted (by a vote of three commissioners
with two commissioners dissenting) to issue a decision on PG&E's
proposal with an effective date of January 1, 1997. Based on
information available at the May 21, 1997 CPUC meeting, it
appears that, with significant exceptions, the CPUC decision
generally adopts the overall ratemaking structure proposed by
PG&E:
1. PG&E's sunk costs would be recovered through a sunk cost
revenue requirement, at a reduced return on common equity equal
to 90 percent of PG&E's embedded cost of debt, or 6.77% in
1996; and
2. ongoing operating costs and capital additions would be
recovered through the ICIP mechanism.
However, as described below, the CPUC decision substantially
reduces the level of PG&E's proposed ICIP pricing, imposes a
disallowance of about $70 million, and excludes certain inventory
items from the sunk cost revenue requirement. In addition, the
decision fails to clarify Diablo Canyon's "must take" status
during the transition period under California electric industry
restructuring.
<PAGE>
ICIP Pricing:
- -------------
The CPUC decision adopts a fixed forecast of ICIP for 1997-2001,
as shown below. The prices are based on an assumed capacity
factor of 83.6 percent and an escalation factor of 1.5 percent.
Incremental Cost Incentive Prices and Estimated
Total Revenue Requirement
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICIP (cents per kWh) 3.26 3.31 3.37 3.43 3.49
Estimated Total Revenue Requirement
($ in millions)
Sunk Cost Recovery $1,385 $1,322 $1,259 $1,197 $1,135
ICIP Revenues 515 523 532 542 552
- -----------------------------------------------------------------
Total Revenue
Requirement $1,900 $1,845 $1,791 $1,739 $1,687
</TABLE>
Sunk Cost Recovery:
- -------------------
The CPUC decision excludes several items totaling $160 million
from the sunk cost revenue requirement, including out-of-core
fuel inventory, materials and supplies inventory, and prepaid
insurance expenses. The CPUC decision requires that the costs of
materials, supplies and nuclear fuel be recovered through the
ICIP mechanism as these items are used.
In addition, the CPUC decision finds that PG&E's proposed
modified Diablo Canyon ratemaking is a form of traditional
ratemaking subject to a state statute requiring a prudence review
of the plant's construction costs and requiring a disallowance of
any such costs exceeding $50 million which result from an
unreasonable construction error or omission. The decision then
finds that PG&E admitted to an error in the design and
construction of the plant of $100 million and accordingly adopts
a prudence disallowance of approximately $70 million for the
undepreciated portion of such costs attributable to the error.
In adopting the CPUC final decision, the CPUC rejected an
alternate proposed decision supported by two commissioners which
represented a compromise between PG&E's proposal and the adopted
decision. Because the final CPUC decision is significantly
inconsistent from PG&E's proposal and prior CPUC decisions on
electric industry restructuring, PG&E intends to seek rehearing
before the CPUC.
<PAGE>
B. Changes in Management
On May 21, 1997, the Board of Directors of PG&E Corporation
appointed Robert D. Glynn, currently president and chief
operating officer, as chief executive officer of PG&E Corporation
effective June 1, 1997, succeeding Stanley T. Skinner. Mr.
Skinner will continue as chairman of the board of PG&E
Corporation and its largest subsidiary, PG&E, until December 31,
1997, at which time he will retire. Upon Mr. Skinner's
retirement, Mr. Glynn will become chairman, president and chief
executive officer of PG&E Corporation, and Chairman of PG&E. In
addition, Gordon R. Smith, currently chief financial officer of
PG&E Corporation and senior vice president and chief financial
officer of PG&E, will relinquish those positions and become
president and chief executive officer of PG&E, and a member of
PG&E's board of directors, effective June 1, 1997.
<PAGE>
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
General Counsel
(PG&E Corporation)
Senior Vice President and
General Counsel
(Pacific Gas and Electric Company)
Dated: May 22, 1997
