FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
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
Pacific Gas and Electric Company PG&E Corporation
77 Beale Street One Market, Spear Tower
P.O. Box 770000 Suite 2400
San Francisco, California 94177 San Francisco, California 94105
- ----------------------------------------------------------------------
(Address of principal (Address of principal
executive offices) (Zip Code) executive offices) (Zip Code)
Pacific Gas and Electric Company PG&E Corporation
(415) 973-7000 (415) 267-7000
- ----------------------------------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or for such
shorter period that the registrant was required to file such reports),
and (2) have been subject to such filing requirements for the past 90
days.
Yes X No
---------- -----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock Outstanding April 30, 1998:
PG&E Corporation 381,473,556 shares
Pacific Gas and Electric Company Wholly owned by PG&E Corporation
<PAGE>
PG&E CORPORATION AND
PACIFIC GAS AND ELECTRIC COMPANY
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PG&E CORPORATION
STATEMENT OF CONSOLIDATED INCOME........................1
CONDENSED BALANCE SHEET.................................2
STATEMENT OF CASH FLOWS ................................3
PACIFIC GAS AND ELECTRIC COMPANY
STATEMENT OF CONSOLIDATED INCOME........................4
CONDENSED BALANCE SHEET.................................5
STATEMENT OF CASH FLOWS.................................6
NOTE 1: GENERAL...........................................7
NOTE 2: THE ELECTRIC BUSINESS.............................9
NOTE 3: UTILITY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF TRUST HOLDING
SOLELY UTILITY SUBORDINATED DEBENTURES...........13
NOTE 4: COMMITMENTS AND CONTINGENCIES....................13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.............16
RESULTS OF OPERATIONS.....................................18
Common Stock Dividend..................................18
Earnings Per Common Share..............................19
Utility Results........................................19
Unregulated Business Results...........................19
FINANCIAL CONDITION.......................................20
COMPETITION AND CHANGING REGULATORY ENVIRONMENT...........20
THE ELECTRIC BUSINESS.....................................20
Electric Transition Plan...............................21
Rate Freeze and Rate Reduction.........................21
Transition Cost Recovery...............................21
Generation Divestiture.................................23
Customer Impacts of Transition Plan....................24
Voter Initiative.......................................25
THE GAS BUSINESS..........................................25
ACQUISITIONS AND SALES....................................26
YEAR 2000 COMPLIANCE....................................26
LIQUIDITY AND CAPITAL RESOURCES
Sources of Capital.....................................27
Utility Cost of Capital................................29
1999 General Rate Case.............................29
Environmental Matters..................................30
Legal Matters..........................................30
Risk Management Activities.............................30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.........................................31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.........................................32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......32
ITEM 5. OTHER INFORMATION.........................................36
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..........................36
SIGNATURE..........................................................38
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
PG&E CORPORATION
STATEMENT OF CONSOLIDATED INCOME
(in millions, except per share amounts)
<CAPTION>
Three months ended March 31,
1998 1997
--------- ---------
<S> <C> <C>
Operating Revenues
Utility $ 2,025 $ 2,274
Energy commodities and services 2,328 1,091
-------- --------
Total operating revenues 4,353 3,365
Operating Expenses
Cost of energy for utility 666 725
Cost of energy commodities and services 2,153 1,017
Operating and maintenance, net 508 700
Depreciation and decommissioning 561 459
-------- --------
Total operating expenses 3,888 2,901
-------- --------
Operating Income 465 464
Interest expense, net 203 160
Other income and expense (18) (20)
-------- --------
Income Before Income Taxes 280 324
Income taxes 141 151
-------- --------
Net Income $ 139 $ 173
======== ========
Weighted Average Common Shares
Outstanding 381 409
Earnings Per Common Share, Basic and Diluted $ .36 $ .42
Dividends Declared Per Common Share $ .30 $ .30
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
<PAGE>
<TABLE>
PG&E CORPORATION
CONDENSED BALANCE SHEET (in millions)
<CAPTION>
Balance at March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 214 $ 237
Short-term investments 49 1,160
Accounts receivable
Customers, net 1,428 1,514
Regulatory balancing accounts 782 658
Energy marketing 897 830
Inventories and prepayments 600 626
-------- --------
Total current assets 3,970 5,025
Property, Plant, and Equipment
Utility 33,294 32,972
Gas transmission 3,454 3,484
Other 217 57
-------- --------
Total property, plant, and equipment (at original cost) 36,965 36,513
Accumulated depreciation and decommissioning (16,648) (16,041)
-------- --------
Net property, plant, and equipment 20,317 20,472
Other Noncurrent Assets
Regulatory assets 2,218 2,337
Nuclear decommissioning funds 1,074 1,024
Other 1,757 1,699
-------- --------
Total noncurrent assets 5,049 5,060
-------- --------
TOTAL ASSETS $ 29,336 $ 30,557
======== ========
LIABILITIES AND EQUITY
Current Liabilities
Short-term borrowings $ 135 $ 103
Current portion of long-term debt 579 659
Current portion of rate reduction bonds 106 125
Accounts payable
Trade creditors 752 754
Other 469 466
Energy marketing 777 758
Accrued taxes 482 226
Other 684 893
-------- --------
Total current liabilities 3,984 3,984
Noncurrent Liabilities
Long-term debt 7,531 7,659
Rate reduction bonds 2,776 2,776
Deferred income taxes 4,067 4,029
Deferred tax credits 328 339
Other 2,017 2,034
-------- --------
Total noncurrent liabilities 16,719 16,837
Preferred Stock of Subsidiary With Mandatory Redemption Provisions 194 137
Utility Obligated Mandatorily Redeemable Preferred Securities of
Trust Holding Solely Utility Subordinated Debentures 300 300
Stockholders' Equity
Preferred stock of subsidiary without mandatory redemption provisions
Nonredeemable 145 145
Redeemable 183 257
Common stock 5,819 6,366
Reinvested earnings 1,992 2,531
-------- --------
Total stockholders' equity 8,139 9,299
Commitments and Contingencies (Notes 2 and 4) - -
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 29,336 $ 30,557
======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
<PAGE>
<TABLE>
PG&E CORPORATION
STATEMENT OF CASH FLOWS
(in millions)
<CAPTION>
For the three months ended March 31, 1998 1997
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 139 $ 173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, decommissioning, and amortization 587 493
Deferred income taxes and tax credits-net (105) (44)
Other deferred charges and noncurrent liabilities (304) 29
Net effect of changes in operating assets
and liabilities:
Accounts receivable 19 107
Regulatory balancing accounts receivable 296 (52)
Inventories 78 27
Accounts payable 20 (34)
Accrued taxes 257 220
Other working capital (147) 9
Other-net 12 41
--------- ---------
Net cash provided by operating activities 852 969
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (506) (328)
Investments in unregulated projects (7) (31)
Acquisitions - (41)
Other-net (3) (16)
--------- ---------
Net cash used by investing activities (516) (416)
--------- ---------
Cash Flows From Financing Activities
Net increase (decrease) in short-term borrowings 32 122
Long-term debt issued 158 -
Long-term debt matured, redeemed, or repurchased-net (400) (257)
Preferred stock redeemed or repurchased (7) -
Common stock issued 17 14
Common stock repurchased (1,122) (320)
Dividends paid (134) (131)
Other-net (14) (4)
--------- ---------
Net cash used by financing activities (1,470) (576)
--------- ---------
Net Change in Cash and Cash Equivalents (1,134) (23)
Cash and Cash Equivalents at January 1 1,397 144
--------- ---------
Cash and Cash Equivalents at March 31 $ 263 $ 121
========= =========
Supplemental disclosures of cash flow information
Cash paid for:
Interest (net of amounts capitalized) $ 141 $ 67
Income taxes 1 26
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
<PAGE>
<TABLE>
PACIFIC GAS AND ELECTRIC COMPANY
STATEMENT OF CONSOLIDATED INCOME
(in millions)
<CAPTION>
Three months ended March 31,
1998 1997
--------- ---------
<S> <C> <C>
Electric utility $ 1,562 $ 1,722
Gas utility 463 552
-------- --------
Total operating revenues 2,025 2,274
Operating Expenses
Cost of electric energy 488 510
Cost of gas 178 215
Operating and maintenance, net 726 661
Depreciation and decommissioning 529 443
Provision for regulatory adjustment mechanisms (322) -
-------- --------
Total operating expenses 1,599 1,829
-------- --------
Operating Income 426 445
Interest expense, net 131 136
Other income and expense (4) (1)
-------- --------
Income Before Income Taxes 299 310
Income taxes 144 138
-------- --------
Net Income 155 172
Preferred dividend requirement and
redemption premium 7 8
-------- --------
Income Available for Common Stock $ 148 $ 164
======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
<PAGE>
<TABLE>
PACIFIC GAS AND ELECTRIC COMPANY
CONDENSED BALANCE SHEET (in millions)
<CAPTION>
Balance at
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 89 $ 80
Short-term investments 24 1,143
Accounts receivable
Customers, net 1,066 1,204
Regulatory balancing accounts 782 658
Related parties accounts receivable 851 459
Inventories and prepayments 475 523
--------- ---------
Total current assets 3,287 4,067
Property, Plant, and Equipment
Electric 26,330 26,033
Gas 6,964 6,939
--------- ---------
Total property, plant, and equipment (at original cost) 33,294 32,972
Accumulated depreciation and decommissioning (16,129) (15,558)
--------- ---------
Net property, plant, and equipment 17,165 17,414
Other Noncurrent Assets
Regulatory assets 2,177 2,283
Nuclear decommissioning funds 1,074 1,024
Other 351 359
-------- --------
Total noncurrent assets 3,602 3,666
-------- --------
TOTAL ASSETS $ 24,054 $ 25,147
======== ========
LIABILITIES AND EQUITY
Current Liabilities
Current portion of long-term debt $ 503 $ 580
Current portion of rate reduction bonds 106 125
Accounts payable
Trade creditors 440 441
Related parties 125 134
Other 426 424
Accrued taxes 506 229
Deferred income taxes 32 149
Other 472 527
-------- -------
Total current liabilities 2,610 2,609
Noncurrent Liabilities
Long-term debt 5,945 6,218
Rate reduction bonds 2,776 2,776
Deferred income taxes 3,333 3,304
Deferred tax credits 327 338
Other 1,791 1,810
-------- -------
Total noncurrent liabilities 14,172 14,446
Preferred Stock of Subsidiary With Mandatory Redemption Provisions 137 137
Company Obligated Mandatorily Redeemable Preferred Securities of
Trust Holding Solely Utility Subordinated Debentures 300 300
Stockholders' Equity
Preferred stock without mandatory redemption provisions
Nonredeemable 145 145
Redeemable 183 257
Common stock 4,132 4,582
Reinvested earnings 2,375 2,671
-------- --------
Total stockholders' equity 6,835 7,655
Commitments and Contingencies (Notes 2 and 4) - -
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,054 $ 25,147
======== ========
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
<PAGE>
<TABLE>
PACIFIC GAS AND ELECTRIC COMPANY
STATEMENT OF CASH FLOWS
(in millions)
<CAPTION>
For the three months ended March 31, 1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 155 $ 173
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, decommissioning, and amortization 557 476
Deferred income taxes and tax credits-net (114) (62)
Other deferred charges and noncurrent liabilities 18 55
Provision for regulatory adjustment mechanisms (322) -
Net effect of changes in operating assets
and liabilities:
Accounts receivable (255) 68
Regulatory balancing accounts receivable 296 (52)
Inventories 42 28
Accounts payable 18 (145)
Accrued taxes 272 218
Other working capital (61) (16)
Other-net 7 7
--------- ---------
Net cash provided by operating activities 613 750
--------- ---------
Cash Flows From Investing Activities
Capital expenditures (331) (321)
Other-net (9) (98)
--------- ---------
Net cash used by investing activities (340) (419)
--------- ---------
Cash Flows From Financing Activities
Net increase (decrease) in short-term borrowings - (74)
Long-term debt matured, redeemed, or repurchased-net (389) (223)
Preferred stock redeemed or repurchased (65) -
Common stock repurchased (800) -
Dividends paid (123) (131)
Other-net (6) (6)
--------- ---------
Net cash used by financing activities (1,383) (434)
--------- ---------
Net Change in Cash and Cash Equivalents (1,110) (103)
Cash and Cash Equivalents at January 1 1,223 144
--------- ---------
Cash and Cash Equivalents at March 31 $ 113 $ 41
========= =========
Supplemental disclosures of cash flow information
Cash paid for:
Interest (net of amounts capitalized) $ 96 $ 65
Income taxes - 26
<FN>
The accompanying Notes to the Consolidated Financial Statements are an integral part of this
statement.
</TABLE>
<PAGE>
PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
Basis of Presentation:
- ----------------------
This Quarterly Report on Form 10-Q is a combined report of PG&E Corporation
and Pacific Gas and Electric Company (the Utility), a regulated subsidiary
of PG&E Corporation. The Notes to Consolidated Financial Statements apply
to both PG&E Corporation and the Utility. PG&E Corporation's consolidated
financial statements include the accounts of PG&E Corporation and its wholly
owned and controlled subsidiaries, including the Utility (collectively, the
Corporation). The Utility's consolidated financial statements include its
accounts as well as those of its wholly owned and controlled subsidiaries.
The Utility's financial position and results of operations are the
principal factors affecting the Corporation's consolidated financial
position and results of operations. This quarterly report should be read in
conjunction with the Corporation's and the Utility's Consolidated Financial
Statements and Notes to Consolidated Financial Statements incorporated by
reference in their combined 1997 Annual Report on Form 10-K.
PG&E Corporation believes that the accompanying statements reflect all
adjustments that are necessary to present a fair statement of the
consolidated financial position and results of operations for the interim
periods. All material adjustments are of a normal recurring nature unless
otherwise disclosed in this Form 10-Q. All significant intercompany
transactions have been eliminated from the consolidated financial
statements. Certain amounts in the prior year's consolidated financial
statements have been reclassified to conform to the 1998 presentation.
Results of operations for interim periods are not necessarily indicative of
results to be expected for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
revenues, expenses, assets, and liabilities and the disclosure of
contingencies. Actual results could differ from these estimates.
Acquisitions and Sales:
- -----------------------
In August 1997, the Corporation announced that its subsidiary, U.S.
Generating Company (USGen), had agreed to buy a portfolio of electric
generating assets and power supply contracts from the New England Electric
System (NEES) for $1.59 billion, plus $85 million for early retirement and
severance costs previously committed to by NEES. Including fuel and other
inventories and transaction costs, financing requirements are expected to
total approximately $1.75 billion, of which approximately $1.25 billion will
be funded through debt borrowed by USGen. In addition, approximately $500
million of equity will be contributed. The assets to be acquired contain a
balance of hydro, coal, oil, and natural gas generation facilities. The
acquisition is expected to be completed in the second half of 1998. The
acquisition is subject to regulatory approvals.
In addition, as discussed below in Generation Divestiture, as part of
electric industry restructuring, the Utility has informed the California
Public Utilities Commission (CPUC) that it does not intend to retain any of
its non-nuclear generation facilities.
<PAGE>
Accounting for Risk Management Activities:
- ------------------------------------------
The Corporation, through its subsidiaries, engages in price risk management
activities for both non-hedging and hedging purposes. The Corporation
conducts non-hedging activities principally through its unregulated
subsidiary, PG&E Energy Trading. Derivative and other financial instruments
associated with the Corporation's electric power, natural gas, and related
non-hedging activities are accounted for using the mark-to-market method of
accounting.
Additionally, the Corporation may engage in hedging activities using
futures, options, and swaps to hedge the impact of market fluctuations on
energy commodity prices, interest rates, and foreign currencies. Hedge
transactions are accounted for under the deferral method with gains and
losses on these transactions initially deferred and classified as
inventories and prepayments and other liabilities in the Consolidated
Balance Sheet and then recognized in cost of energy commodities and services
when the hedged transaction occurs.
The Utility manages price risk independently from the activities in the
Corporation's unregulated businesses. In the first quarter of 1998, the
CPUC granted approval for the Utility to use financial instruments to manage
price volatility of gas purchased for the Utility's electric generation
portfolio. The approval limits the Utility's outstanding financial
instruments to $200 million, with downward adjustments occurring as fossil-
fueled generation plants are divested. (See Generation Divestiture, below.)
Authority to use these risk management instruments ceases upon the full
divestiture of fossil-fueled generation plants or at the end of the current
electric rate freeze (see Rate Freeze and Rate Reduction, below), whichever
comes first.
As stated above, the Corporation utilizes the mark-to-market method of
accounting for its non-hedging commodity trading and price risk management
activities. In accordance with the mark-to-market method of accounting, the
Corporation's electric power, natural gas and related non-hedging contracts,
including both physical and financial instruments, are recorded at market
value, net of future servicing costs and reserves, and recognized in the
income statement as revenue or expense in the period of contract execution.
The market prices used to value these transactions reflect management's best
estimates considering various factors including market quotes, time value,
and volatility factors of the underlying commitments. The values are
adjusted to reflect the potential impact of liquidating a position in an
orderly manner over a reasonable period of time under present market
conditions.
Changes in the market value (determined by reference to recent
transactions) of these contract portfolios, resulting primarily from newly
originated transactions and the impact of commodity price and interest rate
movements, are recognized in operating revenue in the period of change. The
resultant unrealized gains and losses and related reserves are recorded as
inventories and prepayments and other liabilities.
The Corporation's net gains and losses associated with price risk
management activities for the quarter ended March 31, 1998, were not
material.
<PAGE>
NOTE 2: The Electric Business
On March 31, 1998, California became one of the first states in the country
to allow open competition in the electric generation business. In
developing state legislation to implement a competitive market, it was
recognized that the Utility's market-based revenues would not be sufficient
to recover (that is, to collect from customers) all generation costs
resulting from past CPUC decisions. To recover these uneconomic costs,
called transition costs, and to ensure a smooth transition to the
competitive environment, the Utility, in conjunction with other California
electric utilities, the CPUC, state legislators, consumer advocates, and
others, developed a transition plan, in the form of state legislation, to
position California for the new market environment.
There are three principal elements to this transition plan: (1) an
electric rate freeze and rate reduction, (2) recovery of transition costs,
and (3) economic divestiture of Utility-owned generation facilities. Each
one of these three elements, and the impact of the transition plan on the
Utility's customers are discussed below. The transition plan will remain in
effect until the earlier of March 31, 2002, or when the Utility has
recovered its authorized transition costs as determined by the CPUC. This
period is referred to as the transition period. At the conclusion of the
transition period, the Utility will be at risk to recover any of its
remaining generation costs through market-based revenues.
Rate Freeze and Rate Reduction:
- -------------------------------
The first element of the transition plan is an electric rate freeze and an
electric rate reduction. During 1997, electric rates for the Utility's
customers were held at 1996 levels. Effective January 1, 1998, the Utility
reduced electric rates for its residential and small commercial customers by
10 percent and will hold their rates at that level. All other electric
customers' rates remained frozen at 1996 levels. The rate freeze will
continue until the end of the transition period. During the first quarter
of 1998, the electric rate reduction reduced operating revenue by
approximately $94 million.
To pay for the 10 percent rate reduction, the Utility financed $2.9
billion of its transition costs with rate reduction bonds. The bonds defer
recovery of a portion of the transition costs until after the transition
period. The transition costs associated with the rate reduction bonds are
expected to be recovered over the term of the bonds.
Transition Cost Recovery:
- ------------------------
The second element of the transition plan is recovery of transition costs.
Transition costs are costs which are unavoidable and which are not expected
to be recovered through market-based revenues. These costs include: (1) the
above-market cost of Utility-owned generation facilities, (2) costs
associated with the Utility's long-term contracts to purchase power at
above-market prices from Qualifying Facilities (QFs) and other power
suppliers, and (3) generation-related regulatory assets and obligations.
(In general, regulatory assets are expenses deferred in the current or prior
periods to be included in rates in subsequent periods.)
The costs of Utility-owned generation facilities are currently included
in the Utility customers' rates. Above-market facility costs are those
facilities whose values recorded on the Utility's balance sheet (book value)
are expected to be in excess of their market values. Conversely, below-
market facility costs are those whose market values are expected to be in
excess of their book values. In general, the total amount of generation
<PAGE>
facility costs to be included as transition costs will be based on the
aggregate of above-market and below-market values. The above-market portion
of these costs is eligible for recovery as a transition cost. The below-
market portion of these costs will reduce other unrecovered transition
costs. A valuation of a Utility-owned generation facility where the market
value exceeds the book value could result in a material charge if the
valuation of the facility is determined based upon any method other than a
sale of the facility to a third party. This is because any excess of market
value over book value would be used to reduce other transition costs without
being collected in rates.
The Utility will not be able to determine the exact amount of generation
facility costs that will be recoverable as transition costs until a market
valuation process (appraisal, spin, or sale) is completed for each of the
Utility's generation facilities. This market valuation process is expected
to occur prior to the conclusion of the transition period. The first of
these valuations occurred in 1997 when the Utility agreed to sell three
Utility-owned electric generation plants for $501 million. The sale is
scheduled to close during 1998. (See Generation Divestiture, below.) At
March 31, 1998, the Utility's net investment in Diablo Canyon Nuclear Power
Plant (Diablo Canyon) and non-nuclear generation facilities was $3.5 billion
and $2.6 billion, respectively, including the plants to be sold in 1998.
Costs associated with the Utility's long-term contracts to purchase power
at above-market prices from QFs and other power suppliers are also eligible
to be recovered as transition costs. The Utility has agreed to purchase
electric power from these suppliers under long-term contracts expiring on
various dates through 2028. Over the life of these contracts, the Utility
estimates that it will purchase approximately 360 million megawatt-hours at
an aggregate average price of 6.3 cents per kilowatt-hour. To the extent
that this price is above the market price, the Utility is authorized to
collect the difference between the contract price and the market price from
customers, as a transition cost, over the term of the contract.
Generation-related regulatory assets, net of regulatory obligations, are
also eligible for transition cost recovery. As of March 31, 1998, the
Utility has accumulated approximately $1.8 billion of these assets net of
obligations.
Under the transition plan, most transition costs must be recovered by
March 31, 2002. This recovery period is significantly shorter than the
recovery period of the related assets prior to restructuring. Effective
January 1, 1998, in accordance with the transition plan, the Utility is
recording depreciation of certain generating plants determined to be
uneconomic in proceedings before the CPUC and amortization of most
generation related regulatory assets over the transition period. The CPUC
believes that the shortened recovery period reduces risks associated with
recovery of all the Utility's generation assets, including Diablo Canyon and
hydroelectric facilities. Accordingly, the Utility is receiving a reduced
return for all of its Utility-owned generation facilities. In 1998, the
reduced return on common equity is 6.77 percent.
Although most transition costs must be recovered by March 31, 2002,
certain transition costs can be included in customers' electric rates after
the transition period. These costs include: (1) certain employee-related
transition costs, (2) above-market payments under existing QF and power-
purchase contracts discussed above, and (3) unrecovered electric industry
restructuring implementation costs. In addition, transition costs financed
by the issuance of rate reduction bonds are expected to be recovered over
the term of the bonds. Further, the Utility's nuclear decommissioning costs
are being recovered through a CPUC-authorized charge, which will extend
until sufficient funds exist to decommission the facility. During the rate
freeze, this charge will not increase the Utility customers' electric rates.
<PAGE>
Excluding these exceptions, the Utility will write-off any transition costs
not recovered during the transition period.
The CPUC has the ultimate authority to determine the recoverable amount of
transition costs. Reviews by the CPUC to determine the reasonableness of
transition costs are being conducted and will continue to be conducted
throughout the transition period. In addition, the CPUC is conducting a
financial verification audit of the Utility's Diablo Canyon accounts at
December 31, 1996. Diablo Canyon accounts include sunk costs at December
31, 1996 of $3.3 billion which reflects total construction costs of $7.1
billion. (Sunk costs are costs associated with Utility-owned generating
facilities that are fixed and unavoidable and currently included in the
Utility customers' electric rates.) The CPUC will hold a proceeding to
review the results of the audit, including any proposed adjustments to the
recovery of Diablo Canyon costs in rates, following the completion of the
audit. Transition costs that are disallowed by the CPUC for collection from
Utility customers will be written off and may result in a material charge.
At this time, the amount of disallowance of transition costs, if any, cannot
be predicted.
Effective January 1, 1998, the Utility is collecting eligible transition
costs through a CPUC-authorized nonbypassable charge. The amount of revenue
collected for transition costs recovery is subject to seasonal fluctuations
in the Utility's sales volumes. The first quarter amortization and
depreciation of transition costs exceeded revenue associated with transition
costs recovery by $322 million. In accordance with CPUC rate treatment of
transition costs, the Utility deferred this excess.
The Utility's ability to recover its transition costs during the
transition period will be dependent on several factors. These factors
include: (1) the continued application of the regulatory framework
established by the CPUC and state legislation, (2) the amount of transition
costs ultimately approved for recovery by the CPUC, (3) the market value of
the Utility-owned generation facilities, (4) future Utility sales levels,
(5) future Utility fuel and operating costs, (6) the extent to which the
Utility's authorized revenues to recover distribution costs are increased or
decreased, and (7) the market price of electricity. Given the Utility's
current evaluation of these factors, the Utility believes that it will
recover its transition costs. Also, the Utility believes that its
regulatory assets and Utility-owned generation facilities are not impaired.
However, a change in one or more of these factors could affect the
probability of recovery of transition costs and result in a material charge.
Generation Divestiture:
- -----------------------
The third element of the transition plan is the economic divestiture of
Utility-owned generation facilities. To alleviate market power concerns of
the CPUC, the Utility has agreed to sell its fossil-fueled generation
facilities.
In 1997, the Utility agreed to sell three electric Utility-owned fossil-
fueled generating plants to Duke Energy Power Services Inc. (Duke) through a
competitive auction process. The aggregate bid accepted for these plants
was $501 million. These three fossil-fueled plants have a combined book
value at March 31, 1998, of approximately $370 million and a combined
capacity of 2,645 megawatts (MW). The three power plants are located at
Morro Bay, Moss Landing, and Oakland.
The sales have been approved by the CPUC. However, they are still
subject to various regulatory approvals including the approval of the
transfer of various permits and licenses, and the Federal Energy Regulatory
Commission's acceptance for filing of Duke's requested regulatory treatment.
<PAGE>
Additionally, the Utility will retain liability for required environmental
remediation of any pre-closing soil or groundwater contamination at these
plants. Although the Utility is retaining such environmental remediation
liability, the Utility does not expect any material impact on its or PG&E
Corporation's financial position or results of operations. The sale of
these three plants is scheduled to close in 1998.
The Utility began an auction of four of its remaining fossil-fueled
plants and its geothermal facilities in April 1998. These additional plants
have a combined generating capacity of 4,718 MW and a combined book value at
March 31, 1998, of approximately $720 million.
During the transition period, the proceeds from the sale of the Utility-
owned fossil-fueled and geothermal plants will be used to offset other
transition costs. As a result, the Utility does not believe the sales will
have a material impact on its results of operations.
The Corporation has also informed the CPUC that it does not intend to
retain the Utility's remaining 2,672 MW of fossil-fueled and hydroelectric
facilities as part of the Utility. These remaining facilities have a
combined book value at March 31, 1998, of approximately $1.7 billion. The
Utility expects to announce a plan for disposition of these facilities by
the third quarter of 1998. As previously mentioned, any plan for
disposition of assets other than through sale to a third party could result
in a material charge to the extent that the market value, as determined by
the CPUC, is in excess of book value.
Voter Initiative:
- -----------------
Various consumer groups filed a voter initiative with the California
Attorney General which would (1) require the Utility to provide an
additional 10 percent rate reduction to its residential and small commercial
customers; (2) eliminate transition cost recovery for nuclear investments
(other than reasonable decommissioning costs); (3) restrict transition cost
recovery for non-nuclear investments (other than costs associated with QFs),
unless the CPUC finds that the Utility would be deprived of the opportunity
to earn a fair rate of return; and (4) prohibit the collection of any
customer charges for rate reduction bonds, or alternatively, require the
Utility to offset such charges with an equal credit to customers. If the
sponsors of the initiative obtain sufficient signatures to qualify the
initiative for the November 1998, statewide ballot, and if the initiative
were voted into law, a material charge would result to the extent that
regulated rates would no longer be adequate to recover transition costs. In
this event, we expect that legal challenges by the Utility and others would
ensue.
NOTE 3: UTILITY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
TRUST HOLDING SOLELY UTILITY SUBORDINATED DEBENTURES
The Utility, through its wholly owned subsidiary, PG&E Capital I (Trust),
has outstanding 12 million shares of 7.90 percent cumulative quarterly
income preferred securities (QUIPS), with an aggregate liquidation value of
$300 million. Concurrent with the issuance of the QUIPS, the Trust issued
to the Utility 371,135 shares of common securities with an aggregate
liquidation value of approximately $9 million. The only assets of the Trust
are deferrable interest subordinated debentures issued by the Utility with a
face value of approximately $309 million, an interest rate of 7.90 percent,
and a maturity date of 2025.
<PAGE>
NOTE 4: COMMITMENTS AND CONTINGENCIES
Nuclear Insurance:
- ------------------
The Utility has insurance coverage for property damage and business
interruption losses as a member of Nuclear Electric Insurance Limited
(NEIL). Under these policies, if a nuclear generating facility suffers a
loss due to a prolonged accidental outage, the Utility may be subject to
maximum retrospective assessments of $18 million (property damage) and $6
million (business interruption), in each case per policy period, in the
event losses exceed the resources of NEIL.
The Utility has purchased primary insurance of $200 million for public
liability claims resulting from a nuclear incident. An additional $8.7
billion of coverage is provided by secondary financial protection which is
mandated by federal legislation and provides for loss sharing among
utilities owning nuclear generating facilities if a costly incident occurs.
If a nuclear incident results in claims in excess of $200 million, the
Utility may be assessed up to $159 million per incident, with payments in
each year limited to a maximum of $20 million per incident.
Environmental Remediation:
- --------------------------
The Utility may be required to pay for environmental remediation at sites
where the Utility has been or may be a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) or the California Hazardous Substance Account Act. These sites
include former manufactured gas plant sites, power plant sites, and sites
used by the Utility for the storage or disposal of potentially hazardous
materials. Under CERCLA, the Utility may be responsible for remediation of
hazardous substances, even if the Utility did not deposit those substances
on the site.
The Utility records a liability when site assessments indicate
remediation is probable and a range of reasonably likely cleanup costs can
be estimated. The Utility reviews its remediation liability quarterly for
each identified site. The liability is an estimate of costs for site
investigations, remediation, operations and maintenance, monitoring, and
site closure. The remediation costs also reflect (1) technology, (2)
enacted laws and regulations, (3) experience gained at similar sites, and
(4) the probable level of involvement and financial condition of other
potentially responsible parties. Unless there is a better estimate within
this range of possible costs, the Utility records the lower end of this
range.
The cost of the hazardous substance remediation ultimately to be
undertaken by the Utility is difficult to estimate. It is reasonably
possible that a change in the estimate will occur in the near term due to
uncertainty concerning the Utility's responsibility, the complexity of
environmental laws and regulations, and the selection of compliance
alternatives. The Utility had an accrued liability at March 31, 1998, of
$246 million for hazardous waste remediation costs at identified sites,
including fossil-fueled power plants. Environmental remediation at
identified sites may be as much as $420 million if, among other things,
other potentially responsible parties are not financially able to
contribute to these costs or further investigation indicates that the
extent of contamination or necessary remediation is greater than
anticipated. This upper limit of the range of costs was estimated using
assumptions least favorable to the Utility, based upon a range of
reasonably possible outcomes. Costs may be higher if the Utility is found
to be responsible for cleanup costs at additional sites or identifiable
possible outcomes change.
<PAGE>
Of the $246 million liability, discussed above, the Utility has recovered
$68 million and expects to recover $153 million in future rates.
Additionally, the Utility is seeking recovery of its costs from insurance
carriers and from other third parties as appropriate.
Further, as discussed in Generation Divestiture above, the Utility will
retain the pre-closing remediation liability associated with divested
generation facilities.
The Corporation believes the ultimate outcome of these matters will not
have a material impact on its or the Utility's financial position or results
of operations.
Helms Pumped Storage Plant (Helms):
- ----------------------------------
Helms is a three-unit hydroelectric combined generating and pumped storage
plant. At March 31, 1998, the Utility's net investment was $688 million.
This net investment is comprised of the pumped storage facility (including
regulatory assets of $48 million), common plant, and dedicated transmission
plant. As part of the 1996 General Rate Case decision in December 1995,
the CPUC directed the Utility to perform a cost-effectiveness study of
Helms. In July 1996, the Utility submitted its study, which concluded that
the continued operation of Helms is cost effective. The Utility
recommended that the CPUC take no action and address Helms along with other
generating plants in the context of electric industry restructuring.
Under electric industry restructuring, the uneconomic, above-market
portion of Helms is eligible for recovery as a transition cost. Ongoing
operating costs of the facility are at risk for recovery through the newly
restructured electric generation market.
Because the CPUC has not specifically addressed the cost-effectiveness
study, the Utility is currently unable to predict whether there will be
further changes in rate recovery. The Corporation believes that the
ultimate outcome of this matter will not have a material impact on its or
the Utility's financial position or results of operations.
The Corporation has also informed the CPUC that it does not intend to
retain Helms as part of the Utility. See Generation Divestiture above.
Stock Repurchase Program:
- -------------------------
In January 1998, the Corporation repurchased in a specific transaction 37
million shares of PG&E Corporation common stock at $30.3125 per share. In
connection with this transaction, the Corporation has entered into a forward
contract with an investment institution. The Corporation will retain the
risk of increases and the benefit of decreases in the price of the common
shares purchased through the forward contract. This obligation will not be
terminated until the investment institution has replaced the shares sold to
the Corporation through purchases on the open market or through privately
negotiated transactions. The contract is anticipated to expire by December
31, 1998. This additional obligation may be settled in either shares of
stock or cash and is not expected to have a material impact on the
Corporation's financial position or results of operations.
<PAGE>
Legal Matters:
- --------------
Chromium Litigation:
In 1994 through 1997, several civil suits were filed against the Utility on
behalf of approximately 3,000 individuals. During the first quarter of
1998, claims on behalf of 240 of these individuals were dismissed, subject
to possible appeal. The suits seek an unspecified amount of compensatory
and punitive damages for alleged personal injuries and, in some cases,
property damage, resulting from alleged exposure to chromium in the vicinity
of the Utility's gas compressor stations at Hinkley, Kettleman, and Topock.
The Utility is responding to the suits and asserting affirmative
defenses. The Utility will pursue appropriate legal defenses, including
statute of limitations or exclusivity of workers' compensation laws, and
factual defenses including lack of exposure to chromium and the inability of
chromium to cause certain of the illnesses alleged.
The Corporation believes that the ultimate outcome of this matter will
not have a material impact on its or the Utility's financial position or
results of operations.
Texas Franchise Fee Litigation:
In connection with PG&E Corporation's acquisition of Valero Energy
Corporation in July 1997, now known as PG&E Gas Transmission, Texas
Corporation (GTT), GTT succeeded to the litigation described below.
GTT and various of its affiliates are defendants in at least two class
action suits and six separate suits filed by various Texas cities. The
class action suits involve plaintiffs that serve as class representatives
for classes consisting of every municipality in Texas (excluding certain
cities which filed separate suits) in which any of the defendants engaged in
business activities related to natural gas or natural gas liquids or sold or
supplied gas or used public rights-of-way. Generally, these cities allege,
among other things, that (1) the defendants that own or operate pipelines
have occupied city property and conducted pipeline operations without the
cities' consent and without compensating the cities, and (2) the defendants
that are gas marketers have failed to pay the cities for accessing and
utilizing the pipelines located in the cities to flow gas under city
streets. Plaintiffs also allege various other claims against the defendants
for failure to secure the cities' consent. Damages are not quantified.
The Corporation believes that the ultimate outcome of these matters will
not have a material impact on its financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
San Francisco-based PG&E Corporation provides integrated energy services.
PG&E Corporation's consolidated financial statements include the accounts of
PG&E Corporation and its various business lines:
- -Pacific Gas and Electric Company (Utility)
- -Unregulated Business Operations consisting of:
- Gas Transmission: through PG&E Gas Transmission
- Electric Generation: through U.S. Generating Company (USGen)
- Energy Commodities and Services: through PG&E Energy Trading
and PG&E Energy Services
<PAGE>
Overview:
- ---------
This is a combined Quarterly Report on Form 10-Q of PG&E Corporation and
Pacific Gas and Electric Company. Therefore, our Management's Discussion
and Analysis of Consolidated Results of Operations and Financial Condition
(MD&A) apply to both PG&E Corporation and the Utility. PG&E Corporation's
consolidated financial statements include the accounts of PG&E Corporation
and its wholly owned and controlled subsidiaries, including the Utility
(collectively, the Corporation). Our Utility's consolidated financial
statements include its accounts as well as those of its wholly owned and
controlled subsidiaries. This MD&A should be read in conjunction with the
consolidated financial statements included herein. Further, this quarterly
report should be read in conjunction with the Corporation's and the
Utility's Consolidated Financial Statements and Notes to Consolidated
Financial Statements incorporated by reference in their combined 1997 Annual
Report on Form 10-K.
In this MD&A, we explain the results of operations for the three months
ended March 31, 1998, as compared to the corresponding period in 1997 and
discuss our financial condition. Our discussion of financial condition
includes:
- - changes in the energy industry and how we expect these changes to
influence future results of operations,
- - liquidity and capital resources, including discussions of capital
financing activities, and uncertainties that could affect future results,
and
- - risk management activities.
This Quarterly Report on Form 10-Q, including our discussion of results
of operations and financial condition below, contains forward-looking
statements that involve risks and uncertainties. Words such as "estimates,"
"expects," "anticipates," "plans," "believes," and similar expressions
identify forward-looking statements involving risks and uncertainties.
These risks and uncertainties include, but are not limited to, the
ongoing restructuring of the electric and gas industries in California and
nationally, the continued application of the regulatory framework
established by the California Public Utilities Commission (CPUC) and state
legislation, the outcome of the regulatory proceedings related to those
restructurings, our Utility's ability to collect revenues sufficient to
recover transition costs in accordance with its transition cost recovery
plan, the planned sale of the electric Utility-owned fossil-fueled
generating plants and the retention of the environmental remediation
liability for these plants, as discussed in the Competition and the Changing
Regulatory Environment section below. Risks and uncertainties also include
the impact of our planned acquisition as discussed in the Acquisitions and
Sales section below, the approval of our Utility's 1999 General Rate Case
application resulting in the Utility's ability to earn its authorized rate
of return as discussed in the Liquidity and Capital Resources section below,
and our ability to successfully compete outside our traditional regulated
markets. The ultimate impacts on future results of increased competition,
the changing regulatory environment, our expansion into new businesses and
markets, and the CPUC decision on the 1999 General Rate Case application are
uncertain, but all are expected to fundamentally change how we conduct our
business. The outcome of these changes and other matters discussed below
may cause future results to differ materially from historic results, or from
results or outcomes currently expected or sought by PG&E Corporation.
<PAGE>
RESULTS OF OPERATIONS
In this section, we provide the components of our earnings for the three
months ended March 31, 1998 and 1997. We then explain why operating
revenues and expenses for 1998 and 1997 were different between the years.
The following table shows our results of operations for the three months
ended March 31, 1998 and 1997, and total assets at March 31, 1998 and 1997.
The results of operations for PG&E Corporation on a stand-alone basis and
intercompany eliminations have been shown as Corporate and Other.
<TABLE>
(in millions)
<CAPTION>
Unregulated Corporate
Business and
Utility Operations Other Total
-------- ------------ --------- -------
<S> <C> <C> <C> <C>
For the three months ended
March 31,
1998
Operating revenues $ 2,025 $ 2,341 $ (13) $ 4,353
Operating expenses 1,599 2,302 (13) 3,888
------- ------- ------ -------
Operating income
before income taxes 426 39 - 465
Income available for
common stock 148 6 (15) 139
Total assets at March 31 $24,054 $ 6,555 $(1,273) $29,336
1997
Operating revenues $ 2,274 $ 1,104 $ (13) $ 3,365
Operating expenses 1,829 1,085 (13) 2,901
------- ------- ------- -------
Operating income
before income taxes 445 19 - 464
Income available for
common stock 164 11 (2) 173
Total assets at March 31 $23,456 $ 3,357 $ (176) $26,637
</TABLE>
Common Stock Dividend:
- ----------------------
Our common stock dividend is based on a number of financial considerations,
including sustainability, financial flexibility, and competitiveness with
investment opportunities of similar risk. Our current quarterly common
stock dividend is $.30 per common share, which corresponds to an annualized
dividend of $1.20 per common share.
The CPUC set a number of conditions when PG&E Corporation was formed as a
holding company. One of these conditions requires our Utility to maintain,
on average, its CPUC-authorized capital structure, potentially limiting the
amount of dividends our Utility may pay PG&E Corporation. At March 31,
1998, our Utility was in compliance with its CPUC-authorized capital
structure. We believe that our Utility will continue to meet this condition
in the future without affecting our ability to pay common stock dividends to
common shareholders.
Earnings Per Common Share:
- --------------------------
Earnings per common share for the three months ended March 31, 1998,
decreased $.06 as compared to the same period in 1997. Earnings per common
share were affected by the activity discussed below.
<PAGE>
Utility Results:
- ----------------
Our Utility operating revenues for the three month period ended March 31,
1998, decreased $249 million as compared to the same period in 1997.
Operating revenues declined because of the 10 percent electric rate
reduction provided to residential and small commercial customers and due to
changes in regulatory adjustment mechanisms resulting from electric industry
restructuring. During the first quarter of 1998, the electric rate
reduction decreased operating revenues by approximately $94 million.
Electric rates for all our other customers have been held at 1996 levels.
In connection with electric industry restructuring, our volumetric (ERAM)
and energy cost (ECAC) revenue balancing accounts were terminated.
Balancing account revenues related to ERAM and ECAC totaled approximately
$166 million in the three month period ended March 31, 1997. The ERAM and
ECAC balancing accounts have been replaced with regulatory adjustment
mechanisms which impact expenses instead of revenues as discussed in
Transition Cost Recovery, below.
Utility operating expenses decreased $230 million for the three month
period ended March 31, 1998, as compared to the same period in 1997.
Operating expenses declined primarily as a result of lower gas prices and
expense deferrals related to electric industry restructuring, which were
partially offset by system reliability, storm response costs, and costs
associated with a refueling and maintenance outage at Diablo Canyon Nuclear
Power Plant (Diablo Canyon) from February 14, 1998 through March 28, 1998.
As previously indicated, electric industry restructuring provides for
recovery of certain costs in future periods. Some costs will be recovered
as electric sales volumes increase during the summer months. Others relate
to transition costs which will be recovered after the conclusion of the
transition period.
Utility operations contributed $16 million less to net income in the
three month period ended March 31, 1998, than in the same period in 1997
primarily due to the lower authorized rate of return on equity of 6.77
percent applicable to all of our Utility-owned electric generation-related
assets.
Unregulated Business Results:
- -----------------------------
Our unregulated business operations includes those business activities that
are not directly regulated by the CPUC. Unregulated business operating
revenues for the three month period ended March 31, 1998, increased $1.2
billion while operating expenses also increased $1.2 billion as compared to
the same period in 1997, due to the acquisitions of Teco Pipeline Company in
January 1997 and the natural gas operations of Valero Energy Corporation in
July 1997, and due to operations associated with our energy commodities and
services activities. Unregulated business operations contributed $5 million
less in net income in the three month period ended March 31, 1998, than was
contributed in the same period in 1997, primarily due to start up costs
associated with the energy service business, which was partially offset by
income generated from independent power projects managed by USGen.
FINANCIAL CONDITION
We begin this section by discussing the energy industry. We also discuss
how we are responding to restructuring on a national level, including a
planned acquisition. We then discuss liquidity and capital resources and
our risk management activities.
<PAGE>
COMPETITION AND CHANGING REGULATORY ENVIRONMENT:
Energy Industry:
The Electric Business:
On March 31, 1998, California became one of the first states in the country
to allow open competition in the electric generation business. Today,
Californians can choose who provides their electric generation power.
Customers within our Utility's service territory can purchase electricity
(1) from our Utility, (2) from retail electricity providers (for example,
marketers including our energy service subsidiary, brokers, and
aggregators), or (3) directly from unregulated power generators. Our
Utility will continue to provide distribution services to substantially all
electric consumers within its service territory.
To create this competitive generation market, California has established
a Power Exchange (PX) and an Independent Systems Operator (ISO). The PX is
an open electric marketplace where electricity prices are set. The ISO
oversees California's electric transmission grid making sure that all
generators have comparable access. California utilities, while retaining
ownership of utility transmission facilities, have relinquished operating
control to the ISO. Starting March 31, 1998, the ISO schedules the delivery
or regulatory "must-take" resources such as Qualifying Facilities (QFs) and
Diablo Canyon. After scheduling must-take resources, the ISO satisfies the
remaining aggregate demand from the PX. To meet the demand, the PX accepts
the lowest bids from competing electric providers and establishes a market
price. Customers choosing to buy power directly from non-regulated
generators or retailers will pay for that generation based upon negotiated
contracts.
CPUC regulation requires our Utility to purchase all electric power for
its retail customers from the PX or from must-take resources. And,
excluding must-take resources, we must sell all of our Utility-generated
electric power to the PX. In future periods, the Cost of Energy for
Utility, reflected on the Statement of Consolidated Income, will be
comprised of the cost of PX purchases and the cost of Utility generation net
of sales to the PX.
Generation revenues currently make up approximately 30 percent of our
total Utility revenues. After the transition period, discussed below,
generation revenues will be determined principally by an open electric
commodity market. Over the past several years, we have been taking steps to
prepare for competition in the electric generation business. We have been
working with the CPUC to ensure a smooth transition into the competitive
market environment. And, we have made strategic investments throughout the
nation that will further position us as a national energy provider. The
following sections discuss the transition plan.
Electric Transition Plan:
- -------------------------
In developing state legislation to implement a competitive market, it was
anticipated that our Utility's market-based revenues would not be sufficient
to recover (that is, to collect from customers) all generation costs
resulting from past CPUC decisions. To recover these uneconomic costs,
called transition costs, and to ensure a smooth transition to the
competitive environment, our Utility in conjunction with other California
electric utilities, the CPUC, state legislators, consumer advocates, and
others, developed a transition plan, in the form of state legislation, to
position California for the new market environment.
<PAGE>
There are three principal elements to this transition plan: (1) an
electric rate freeze and rate reduction, (2) recovery of transition costs,
and (3) economic divestiture of Utility-owned generation facilities. Each
one of these three elements, and the impact of the transition plan on our
Utility's customers are discussed below. The transition plan will remain in
effect until the earlier of March 31, 2002, or when we have recovered our
authorized transition costs as determined by the CPUC. This period is
referred to as the transition period. At the conclusion of the transition
period, we will be at risk to recover any of our Utility's remaining
generation costs through market-based revenues.
Rate Freeze and Rate Reduction:
- -------------------------------
The first element of the transition plan is an electric rate freeze and an
electric rate reduction. During 1997, electric rates for our Utility's
customers were held at 1996 levels. Effective January 1, 1998, we reduced
electric rates for our Utility's residential and small commercial customers
by 10 percent and will hold their rates at that level. All other electric
customers' rates remained frozen at 1996 levels. The rate freeze will
continue until the end of the transition period. During the first
quarter of 1998, the rate reduction reduced operating revenue by
approximately $94 million.
To pay for the 10 percent rate reduction, we financed $2.9 billion of our
transition costs with rate reduction bonds. The bonds defer recovery of a
portion of the transition costs until after the transition period. The
transition costs associated with the rate reduction bonds are expected to be
recovered over the term of the bonds.
Transition Cost Recovery:
- -------------------------
The second element of the transition plan is recovery of transition costs.
Transition costs are costs which are unavoidable and which are not expected
to be recovered through market-based revenues. These costs include: (1) the
above-market cost of Utility-owned generation facilities, (2) costs
associated with the Utility's long-term contracts to purchase power at
above-market prices from QFs and other power suppliers, and (3) generation-
related regulatory assets and obligations. (In general, regulatory assets
are expenses deferred in the current or prior periods to be included in
rates in subsequent periods.)
The costs of Utility-owned generation facilities are currently included
in our Utility customers' rates. Above-market facility costs are those
facilities whose values recorded on our balance sheet (book value) are
expected to be in excess of their market values. Conversely, below-market
facility costs are those whose market values are expected to be in excess of
their book values. In general, the total amount of generation facility
costs to be included as transition costs will be based on the aggregate of
above-market and below-market values. The above-market portion of these
costs is eligible for recovery as a transition cost. The below-market
portion of these costs will reduce other unrecovered transition costs. A
valuation of a Utility-owned generation facility where the market value
exceeds the book value could result in a material charge if the valuation of
the facility is determined based upon any method other than a sale of the
facility to a third party. This is because any excess of market value over
book value would be used to reduce other transition costs without being
collected in rates.
We will not be able to determine the exact amount of generation facility
costs that will be recoverable as transition costs until a market valuation
process (appraisal, spin, or sale) is completed for each of our Utility's
<PAGE>
generation facilities. This market valuation process is expected to occur
prior to the conclusion of the transition period. The first of these
valuations occurred in 1997 when we agreed to sell three Utility-owned
electric generation plants for $501 million. The sale is scheduled to close
during 1998 (See Generation Divestiture, below). At March 31, 1998, our
Utility's net investment in Diablo Canyon and Utility-owned non-nuclear
generation facilities was $3.5 billion and $2.6 billion, respectively,
including the plants to be sold in 1998.
Costs associated with the Utility's long-term contracts to purchase power
at above-market prices from QFs and other power suppliers are also eligible
to be recovered as transition costs. Our Utility has agreed to purchase
electric power from these suppliers under long-term contracts expiring on
various dates through 2028. Over the life of these contracts, the Utility
estimates that it will purchase approximately 360 million megawatt-hours at
an aggregate average price of 6.3 cents per kilowatt-hour. To the extent
that this price is above the market price, our Utility expects to collect
the difference between the contract price and the market price from
customers, as a transition cost, over the term of the contract.
Generation-related regulatory assets, net of regulatory obligations, are
also eligible for transition cost recovery. As of March 31, 1998, we have
accumulated approximately $1.8 billion of these assets net of obligations.
Under the transition plan, most transition costs must be recovered by
March 31, 2002. This recovery period is significantly shorter than the
recovery period of the related assets prior to restructuring. Effective
January 1, 1998, in accordance with the transition plan, the Utility is
recording depreciation of certain generating plants determined to be
uneconomic in proceedings before the CPUC and amortization of most
generation related regulatory assets over the transition period. The CPUC
believes that the shortened recovery period reduces risks associated with
recovery of all the Utility's generation assets, including Diablo Canyon and
hydroelectric facilities. Accordingly, we are receiving a reduced return
for all of our Utility-owned generation facilities. In 1998, the reduced
return on common equity is 6.77 percent.
Although most transition costs must be recovered by March 31, 2002,
certain transition costs can be included in customers' electric rates after
the transition period. These costs include: (1) certain employee-related
transition costs, (2) above-market payments under existing QF and power-
purchase contracts discussed above, and (3) unrecovered electric industry
restructuring implementation costs. In addition, transition costs financed
by the issuance of rate reduction bonds are expected to be recovered over
the term of the bonds. Further, the Utility's nuclear decommissioning costs
are being recovered through a CPUC-authorized charge, which will extend
until sufficient funds exist to decommission the facility. During the rate
freeze, this charge will not increase the Utility customers' electric rates.
Excluding these exceptions, the Utility will write-off any transition costs
not recovered during the transition period.
The CPUC has the ultimate authority to determine the recoverable amount
transition costs. Reviews by the CPUC to determine the reasonableness of
transition costs are being conducted and will continue to be conducted
throughout the transition period. In addition, the CPUC is conducting a
financial verification audit of the Utility's Diablo Canyon accounts at
December 31, 1996. Diablo Canyon accounts include sunk costs at December
31, 1996 of $3.3 billion which reflects total construction costs of $7.1
billion. (Sunk costs are costs associated with Utility-owned generating
facilities that are fixed and unavoidable and currently included in the
Utility customers' electric rates.) The CPUC will hold a proceeding to
review the results of the audit, including any proposed adjustments to the
recovery of Diablo Canyon costs in rates, following the completion of the
<PAGE>
audit. Transition costs that are disallowed by the CPUC for collection from
Utility customers will be written off and may result in a material charge.
At this time, the amount of disallowance of transition costs, if any, cannot
be predicted.
Effective January 1, 1998, the Utility is collecting eligible transition
costs through a CPUC-authorized nonbypassable charge. The amount of revenue
collected for transition costs recovery is subject to seasonal fluctuations
in the Utility's sales volumes. The first quarter amortization and
depreciation of transition costs exceeded revenue associated with transition
costs recovery by $322 million. In accordance with CPUC rate treatment of
transition costs, the Utility deferred this excess.
Our Utility's ability to recover its transition costs during the
transition period will be dependent on several factors. These factors
include: (1) the continued application of the regulatory framework
established by the CPUC and state legislation, (2) the amount of transition
costs ultimately approved for recovery by the CPUC, (3) the market value of
our Utility-owned generation facilities, (4) future Utility sales levels,
(5) future Utility fuel and operating costs, (6) the extent to which our
Utility's authorized revenues to recover distribution costs are increased or
decreased, and (7) the market price of electricity. Given our current
evaluation of these factors, we believe that we will recover our transition
costs. Also, we believe that our regulatory assets and Utility-owned
generation facilities are not impaired. However, a change in one or more of
these factors could affect the probability of recovery of transition costs
and result in a material charge.
Generation Divestiture:
- -----------------------
The third element of the transition plan is the economic divestiture of
Utility-owned generation facilities. To alleviate market power concerns of
the CPUC, we have agreed to sell our fossil-fueled generation facilities.
In 1997, we agreed to sell three electric Utility-owned fossil-fueled
generating plants to Duke Energy Power Services, Inc. (Duke) through a
competitive auction process. The aggregate bid accepted for these plants
was $501 million. These three fossil-fueled plants have a combined book
value at March 31, 1998, of approximately $370 million and a combined
capacity of 2,645 megawatts (MW). The three power plants are located at
Morro Bay, Moss Landing, and Oakland.
The sales have been approved by the CPUC. However, they are still
subject to various regulatory approvals, including the approval of the
transfer of various permits and licenses, and Federal Energy Regulatory
Commission's (FERC) acceptance for filing of Duke's requested regulatory
treatment. Additionally, the Utility will retain liability for required
environmental remediation of any pre-closing soil or groundwater
contamination at these plants. Although we are retaining such environmental
remediation liability, we do not expect any material impact on the Utility's
or our financial position or results of operations. The sale of these three
plants is scheduled to close in 1998.
We began an auction of four of our remaining Utility-owned fossil-fueled
plants and our Utility-owned geothermal facilities in April 1998. These
additional plants have a combined generating capacity of 4,718 MW and a
combined book value at March 31, 1998, of approximately $720 million.
We have also informed the CPUC that we do not intend to retain our
remaining 2,672 MW of Utility-owned fossil-fueled and hydroelectric
facilities as part of the Utility. These remaining facilities have a
combined book value at March 31, 1998, of approximately $1.7 billion. Our
<PAGE>
Utility expects to announce a plan for the disposition of the facilities by
the third quarter of 1998. As previously mentioned, any plan for
disposition of assets other than through sale to a third party could result
in a material charge to the extent that the market value, as determined by
the CPUC, is in excess of book value.
During the transition period, the proceeds from the sale of our Utility-
owned fossil-fueled and geothermal plants will be used to offset other
transition costs. As a result, we do not believe the sales will have a
material impact on our results of operations. However, a material charge
may occur if the fair values of generation facilities, which are disposed by
the Utility but retained by the Corporation, are determined to be in excess
of the facilities' book values. This is because the excess would be used to
reduce other transition costs without being collected in rates.
Customer Impacts of Transition Plan:
- ------------------------------------
Effective March 31, 1998, all Californians may choose their electric
commodity provider. As of March 31, 1998, our Utility had accepted
approximately 30,000 requests to switch their electric commodity supplier
from the Utility to another electric commodity provider.
Regardless of the customer's choice of electric commodity provider,
during the transition period, all customers will be billed for electricity
used, for transmission and distribution services, for public purpose
programs, and for recovery of transition costs. Customers who choose to
purchase their electricity from non-Utility energy providers will see a
change in their total bill only to the extent that their contracted electric
commodity price differs from the PX price. Transition costs are being
recovered from all Utility distribution customers through a nonbypassable
charge regardless of their choice in commodity provider. We do not believe
that the availability of choice to our customers will have a material impact
on our ability to recover transition costs.
In addition to supplying commodity electric power, commodity electric
providers can choose the method of billing their customers and whether to
provide their customers with metering services. We are tracking cost
savings that result when billing, metering, and related services within our
Utility's service territory are provided by another entity. Once these cost
savings, or credits, are approved by the CPUC and the customer's energy
provider is performing billing and metering services, we will reduce the
customer's bill by the savings. The electric provider will then charge
their customers for these services. To the extent that these credits equate
to our actual cost savings from reduced billing, metering, and related
services, we do not expect a material impact on the Utility's or our
financial condition or results of operations.
Voter Initiative:
- -----------------
Various consumer groups filed a voter initiative with the California
Attorney General which would (1) require the Utility to provide an
additional 10 percent rate reduction to its residential and small commercial
customers; (2) eliminate transition cost recovery for nuclear investments
(other than reasonable decommissioning costs); (3) restrict transition cost
recovery for non-nuclear investments (other than costs associated with QFs),
unless the CPUC finds that the Utility would be deprived of the opportunity
to earn a fair rate of return; and (4) prohibit the collection of any
customer charges for rate reduction bonds, or alternatively, require the
Utility to offset such charges with an equal credit to customers. If the
sponsors of the initiative obtain sufficient signatures to qualify the
initiative for the November 1998, statewide ballot, and if the initiative
<PAGE>
were voted into law, a material charge would result to the extent that
regulated rates would no longer be adequate to recover transition costs. In
this event, we expect that legal challenges by the Utility and others would
ensue.
The Gas Business:
In March 1998, our Utility implemented the Gas Accord Settlement (Accord).
The Accord is an agreement with a broad coalition of customer groups and
industry participants that has restructured our Utility's natural gas
business. Upon implementation, our Utility's gas business experienced five
key changes:
1. The Accord separated (or unbundled) our Utility's gas transmission
and storage services from its distribution services.
2. The Accord increased the opportunity for our Utility's residential
and small commercial (core)customers to purchase gas from competing
suppliers.
3. The Accord established a new method, based on market indices, to
measure the reasonableness of our Utility's gas purchases to serve its core
customers.
4. The Accord established gas transmission and storage rates for the
period from March 1998 through December 2002.
5. The Accord eliminated regulatory protection for transmission revenues
from our Utility's industrial and large commercial (noncore) customers.
As a result, we are subject to an increased risk for variations in revenues
arising from fluctuations in noncore transmission throughput. These
differences were previously deferred in balancing accounts. We do not
however expect these variations to have a material impact on the Utility's
or the Corporation's financial position or results of operations.
In January 1998, the CPUC opened a rule-making proceeding to further
expand market-oriented policies in California's gas industry. Policies
under consideration include the additional unbundling of services,
streamlining regulation for noncompetitive services, mitigating the
potential for anti-competitive behavior, and establishing appropriate
consumer protections. The CPUC is currently studying various new
alternative market structures with the goal of encouraging competition and
customer choice, while maintaining a high standard of consumer protection.
At this point, we cannot predict the outcome of these proceedings and their
impact on our financial position and results of operations.
ACQUISITIONS AND SALES:
In 1997, PG&E Corporation announced that it had agreed to acquire, through
its subsidiary USGen, a portfolio of electric generating assets and power
supply contracts from the New England Electric System (NEES) for $1.59
billion, plus $85 million for early retirement and severance costs
previously committed to by NEES. Including fuel and other inventories and
transaction costs, financing requirements are expected to total
approximately $1.75 billion, of which approximately $1.25 billion will be
funded through debt borrowed by USGen. In addition, approximately $500
million of equity will be contributed. The assets contain a balance of
hydro, coal, oil, and natural gas generation facilities. The acquisition is
subject to regulatory approvals. The acquisition is expected to be
completed in the second half of 1998.
In addition, as discussed above in Generation Divestiture, as part of
electric industry restructuring, our Utility has informed the CPUC that it
does not intend to retain any of its non-nuclear generation facilities.
<PAGE>
YEAR 2000 COMPLIANCE
In 1995, we began and presently continue to review and assess our computer
and information systems in anticipation of Year 2000 issues. The Year 2000
issue exists because many software products use only two digits to identify
a year in the date field and were developed without considering the impact
of the upcoming change in the century. Some of these software products are
critical to our operations and business processes and might fail or function
incorrectly if not repaired or replaced with Year 2000 compliant products.
In addition, many electronic monitoring and control systems have two-digit
date coding embedded within their circuitry and may also be susceptible to
failure or incorrect operation unless corrected or replaced with Year 2000
compliant products.
PG&E Corporation expects to complete critical software modifications by
the end of 1998 and to complete validation of these systems in 1999. We
are compiling an inventory of all systems with embedded electronic
components and assessing the degree of Year 2000 compliance. During 1999,
we also expect to have completed validation of all critical vendor-supplied
embedded electronic systems or replacement of those systems found not to be
Year 2000 compliant.
Our various lines of business are also dependent upon external parties
including customers, suppliers, business partners, government agencies, and
financial institutions for the reliable delivery of our products and
services. To the extent that any of these parties experience Year 2000
problems in their systems, our service reliability may be adversely
affected. We plan to assess the degree to which each of these external
parties has adequate plans to address Year 2000 problems in its systems. If
judged necessary and if possible, we will develop contingency plans to
reduce the risk of material impacts on our operations through external Year
2000 problems.
We believe our plans of action are adequate to secure Year 2000
compliance of our critical systems and to reduce the risk of external
impacts to our operations. Therefore, we do not currently anticipate any
material impact on the Utility's or PG&E Corporation's financial position or
results of operations as a result of the Year 2000 issue. Nevertheless,
achieving Year 2000 compliance is subject to the risks and uncertainties
described above. If our internal systems, or the internal systems of
external parties, fail to achieve Year 2000 compliance, business or results
of operations of the Utility or PG&E Corporation could be adversely
affected.
LIQUIDITY AND CAPITAL RESOURCES:
Sources of Capital:
- ------------------
The Corporation's capital requirements are funded from cash provided by
operations and, to the extent necessary, external financing. The
Corporation's policy is to finance its assets with a capital structure that
minimizes financing costs, maintains financial flexibility, and, with
regard to the Utility, complies with regulatory guidelines. Based on cash
provided from operations and the Corporation's capital requirements, the
Corporation may repurchase equity and long-term debt in order to manage the
overall balance of its capital structure.
During the three months ended March 31, 1998, PG&E Corporation issued
$18 million of common stock, generally through the Dividend Reinvestment
Plan and the Stock Option Plan. Also during the three months ended March
31, 1998, PG&E Corporation paid dividends of $126 million and declared
<PAGE>
dividends of $114 million. The Utility paid dividends of $115 million and
declared dividends of $100 million to PG&E Corporation during the three
months ended March 31, 1998. The Utility began a program of buying back
its stock from PG&E Corporation in the first quarter of 1998.
As of December 31, 1997, the Board of Directors had authorized us to
repurchase up to $1.7 billion of our common stock on the open market or in
negotiated transactions. As part of this authorization, in January 1998,
the Corporation repurchased in a specific transaction 37 million shares of
common stock at $30.3125 per share. In connection with this transaction,
the Corporation has entered into a forward contract with an investment
institution. The Corporation will retain the risk of increases and the
benefit of decreases in the price of the common shares purchased through the
forward contract. This obligation will not be terminated until the
investment institution has replaced the shares sold to the Corporation
through purchases on the open market or through privately negotiated
transactions. The contract is anticipated to expire by December 31, 1998.
This additional obligation may be settled in either shares of stock or cash
and is not expected to have a material impact on the Corporation's financial
position or results of operations.
The Corporation maintains a $500 million revolving credit facility, and
in August 1997, we entered into an additional $500 million temporary credit
facility. Both of these credit facilities are to be used for general
corporate purposes. There were no borrowings under the credit facilities at
March 31, 1998.
At March 31, 1998, the Corporation, primarily through an unregulated
business subsidiary, had $135 million of outstanding short-term bank
borrowings related to separate short-term credit facilities. The borrowings
are unrestricted as to use. The carrying amount of short-term borrowings
approximates fair value.
In April 1998, the Utility repurchased $800 million of its common stock
from PG&E Corporation with proceeds from the rate reduction bonds issued in
December 1997, to reduce equity.
The Utility's long-term debt matured, redeemed, or repurchased during the
three months ended March 31, 1998, amounted to $357 million. Of this
amount, $249 million related to the Utility's redemption of its 8 percent
mortgage bonds due October 1, 2025, and $94 million related to Utility's
repurchase of its other mortgage bonds. The remaining $14 million related
primarily to the scheduled maturity of long-term debt.
In January 1998, the Utility redeemed its Series 7.44 percent preferred
stock with a face value of $65 million.
The Utility maintains a $1 billion revolving credit facility which
expires in 2002. The facility may be extended annually for additional one-
year periods upon mutual agreement between the Utility and the banks. There
were no borrowings under this credit facility at March 31, 1998.
The table below provides information on PG&E Corporation's debt
obligations at March 31, 1998:
<PAGE>
Expected Maturity Date 1998 1999 2000 2001 2002 Thereafter Total(1)
- ---------------------- ---- ---- ---- ---- ---- ---------- -------
Long-term debt
Fixed rate $566 $294 $460 $330 $515 $4,597 $6,762
Average interest rate 5.8% 6.3% 6.0% 7.8% 7.7% 7.2% 6.9%
Variable rate - - - - - $1,348 $1,348
Rate reduction bonds $106 $265 $280 $300 $290 $1,641 $2,882
Average interest rate 5.9% 6.0% 6.2% 6.2% 6.3% 6.4% 6.3%
(1) The fair value of the long-term debt and rate reduction bonds is the
same as the book value.
Utility Cost of Capital:
- ------------------------
The CPUC authorized a return on rate base for the Utility's gas and electric
distribution assets for 1998 of 9.17 percent. The authorized 1998 cost of
common equity is 11.20 percent which is lower than the 11.60 percent
authorized for 1997.
On May 8, 1998, the Utility filed its Cost of Capital Application with the
CPUC. The filing requests a return on common equity of 12.1 percent and an
overall return on rate base of 9.53 percent for its gas and electric
distribution operations. The Utility did not request a change in its
currently authorized capital structure of 46.2 percent debt, 5.8 percent
preferred equity and 48 percent common equity. A final CPUC decision is
expected in December 1998, to be effective January 1, 1999.
The Utility did not request a 1999 rate of return for its gas transmission,
storage, or gas gathering operations because the CPUC has approved the Gas
Accord which sets the rates and revenue requirements for these lines of
business until 2002. Also, no request was included for electric transmission
operations since under direct access the transmission network is regulated by
the FERC.
As discussed above, in Transition Cost Recovery, the CPUC separately
reduced the authorized return on common equity on our Utility's hydroelectric
and geothermal generation assets to 6.77 percent, or 90 percent of the
Utility's 1997 adopted cost of debt. The Utility believes that this reduction
is inappropriate and has sought a rehearing of this decision. The Utility
will file a separate application if the rehearing request is granted.
1999 General Rate Case (GRC):
- -----------------------------
In December 1997, we filed our 1999 GRC application with the CPUC. During
the GRC process, the CPUC examines our Utility's non-fuel related costs to
determine the amount we can charge customers. In our application, we
requested an increase in our Utility's authorized revenues, effective
January 1, 1999. The requested increase, as updated in April 1998, consists
of an increase of $572 million in electric utility revenues and an increase
of $460 million in gas utility revenues over authorized 1998 revenues.
In April 1998, a CPUC commissioner issued a ruling which delays the
projected date for a final CPUC decision in the GRC until January 1999,
with a proposed decision scheduled to be issued in December 1998. This
schedule delays the proceedings by approximately one month compared to
previous expectations. The revised schedule reflects the desire by
intervenor parties, including the CPUC's Office of Ratepayer Advocates, for
more time to prepare analysis and testimony. To accommodate the
delayed schedule, the ruling permits us to submit a plan for establishing
interim rates, effective on January 1, 1999, to cover the period between
that date and the date a final CPUC decision is issued. A decision on
<PAGE>
interim rates is scheduled to be issued in November 1998.
The 1999 GRC will not affect the authorized revenues for electric and gas
transmission services or for gas storage services. The authorized revenues
for each of these services are determined in other proceedings.
Utility electric transmission revenues are authorized by the FERC. In
March 1998, we filed an application with the FERC requesting 1998 Utility
electric retail transmission revenues of $331 million. The requested
revenue is consistent with Utility electric transmission revenues in CPUC-
authorized 1997 electric rates. In the application, we requested to place
the new rates in effect, subject to refund, on March 31, 1998, consistent
with the ISO and PX operational date. The new rates will supersede the
previously requested revenues of $305 million currently in effect, subject
to refund.
Also, revenues associated with gas transmission and storage services
were authorized as part of the Gas Accord. See the Gas Business section,
above, for a discussion of the Gas Accord.
Environmental Matters:
- ---------------------
We are subject to laws and regulations established to both improve and
maintain the quality of the environment. Where our properties contain
hazardous substances, these laws and regulations require us to remove or
remedy the effect on the environment.
At March 31, 1998, the Utility expects to spend $246 million for clean-up
costs at identified sites over the next 30 years. If other responsible
parties fail to pay or identified outcomes change, then these costs may be
as much as $420 million. Of the $246 million, the Utility has recovered $68
million and expects to recover $153 million in future rates. Additionally,
the Utility is seeking recovery of its costs from insurance carriers and
from other third parties. Further, as discussed above, the Utility will
retain the pre-closing remediation liability associated with divested
generation facilities. (See Note 4 of Notes to Consolidated Financial
Statements.)
Legal Matters:
- --------------
In the normal course of business, both the Utility and the Corporation are
named as parties in a number of claims and lawsuits. Substantially all of
these have been litigated or settled with no material impact on the
Utility's or the Corporation's results of operations or financial position.
See Part II, Item 1, Legal Proceedings and Note 4 to the Consolidated
Financial Statements for further discussion of significant pending legal
matters.
Risk Management Activities:
- ---------------------------
In the first quarter of 1998, the CPUC granted approval for the Utility to
use financial instruments to manage price volatility of gas purchased for
our Utility electric generation portfolio. The approval limits the
Utility's outstanding financial instruments to $200 million, with downward
adjustments occurring as fossil-fueled generation plants are divested (See
Generation Divestiture, above). Authority to use these risk management
instruments ceases upon the full divestiture of fossil-fueled generation
plants or at the end of the current electric rate freeze (See Rate Freeze
and Rate Reduction, above), whichever comes first.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information concerning PG&E Corporation's and Pacific Gas and Electric
Company's market risk is included in the table providing information about
debt obligations in the above section Sources of Capital, and also in the
above section Risk Management Activities.
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
A. Compressor Station Chromium Litigation
As previously disclosed in PG&E Corporation's and Pacific Gas and
Electric Company's Form 10-K for the fiscal year ended December
31, 1997, claims against Pacific Gas and Electric Company on
behalf of approximately 2,800 plaintiffs were pending in eight
civil actions filed in California courts (known collectively as
the "Aguayo Litigation"). Two of these actions also name PG&E
Corporation as a defendant; Little and Mustafa v Pacific Gas and
Electric Company and PG&E Corporation, and Whipple, et al v.
Pacific Gas and Electric Company and PG&E Corporation, both
pending in San Bernardino Superior Court. Plaintiffs in both
actions have agreed to dismiss PG&E Corporation as a defendant.
Each of the complaints in the Aguayo Litigation, except Little
and Mustafa v. Pacific Gas and Electric Company, alleges personal
injuries and seeks compensatory and punitive damages in an
unspecified amount arising out of alleged exposure to chromium
contamination in the vicinity of Pacific Gas and Electric
Company's gas compressor stations located in Hinkley, Kettleman
and Topock, California. The plaintiffs in the Aguayo Litigation
include current and former Pacific Gas and Electric Company
employees, residents in the vicinity of the compressor stations,
and persons who visited the compressor stations, alleging
exposure to chromium at or near the compressor stations. The
plaintiffs also include spouses of these plaintiffs who claim
loss of consortium or children of these plaintiffs who claim
injury through the alleged exposure of their parents.
On March 30, 1998, a Los Angeles Superior Court judge dismissed
the claims of 240 plaintiffs in Aguayo v. Pacific Gas and
Electric Company who were neither personally exposed to chromium
nor yet conceived at the time of their parents' alleged exposure.
The judge found that current California law precludes these types
of preconception claims. It is expected that plaintiffs will
appeal this ruling.
The Corporation believes the ultimate outcome of the Aguayo
Litigation will not have a material adverse impact on its or
Pacific Gas and Electric Company's financial position or results
of operation.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
PG&E Corporation:
On April 15, 1998, PG&E Corporation held its annual meeting of
shareholders. At that meeting, the following matters were voted
as indicated:
1. Election of the following directors to serve until the next
annual meeting of shareholders or until their successors
shall be elected and qualified:
For Withheld
---------- ----------
Richard A. Clarke 277,313,530 6,999,929
Harry M. Conger 278,179,795 6,133,664
David A. Coulter 275,721,980 8,591,479
<PAGE>
Lee Cox 278,165,313 6,148,146
William S. Davila 278,194,826 6,118,633
Robert D. Glynn, Jr. 278,236,860 6,076,599
David M. Lawrence, MD 277,866,616 6,446,843
Richard B. Madden 278,145,725 6,167,734
Mary S. Metz 278,089,765 6,223,694
Rebecca Q. Morgan 275,597,117 8,716,342
Carl E. Reichardt 277,990,791 6,322,668
John C. Sawhill 278,166,923 6,146,536
Alan Seelenfreund 278,142,639 6,170,820
Barry Lawson Williams 278,077,940 6,235,519
2. Ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year 1998:
For: 279,482,833
Against: 2,005,818
Abstain: 2,824,808
The proposal was approved by a majority of the shares present and
voting (including abstentions) which shares voting affirmatively
also constituted a majority of the required quorum.
Each of the shareholder proposals listed below was defeated as
the number of shares voting affirmatively on each proposal
constituted less than a majority of the shares voting and present
(including abstentions) with respect to each proposal.
3. Consideration of a shareholder proposal to appoint
independent directors to key Board committees:
For: 72,457,935
Against: 158,238,439
Abstain: 9,002,693
Broker non-votes:(1) 44,614,392
4. Consideration of a shareholder proposal regarding super
majority voting:
For: 96,676,182
Against: 134,458,016
Abstain: 8,564,869
Broker non-votes:(1) 44,614,392
5. Consideration of a shareholder proposal regarding cumulative
voting:
For: 60,562,835
Against: 165,694,235
Abstain: 13,441,997
Broker non-votes:(1) 44,614,392
- --------------------
(1) A non-vote occurs when a broker or other nominee holding
shares for a beneficial owner votes on one proposal, but does not
vote on another proposal because the broker or other nominee does
not have discretionary voting power and has not received
instructions from the beneficial owner.
<PAGE>
6. Consideration of a shareholder proposal regarding director
compensation:
For: 20,512,623
Against: 208,057,428
Abstain: 11,129,016
Broker non-votes:(1) 44,614,392
Pacific Gas and Electric Company:
On April 15, 1998, Pacific Gas and Electric Company held its
annual meeting of shareholders. Shares of capital stock of
Pacific Gas and Electric Company consist of shares of common
stock and shares of first preferred stock. PG&E Corporation, as
owner of all of the 409,120,387 outstanding shares of common
stock, holds approximately 95% of the combined voting power of
the outstanding capital stock of Pacific Gas and Electric
Company. PG&E Corporation voted all of its shares of common
stock for the nominees named in the joint proxy statement, for
the ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year 1998, and for the
management proposal to decrease the minimum number of directors.
The balance of the votes shown below were cast by holders of
shares of first preferred stock. At the annual meeting, the
following matters were voted as indicated:
1. Election of the following directors to serve until the next
annual meeting of shareholders or until their successors
shall be elected and qualified:
For Withheld
----------- -----------
Richard A. Clarke 423,365,574 269,854
Harry M. Conger 423,368,303 267,125
David A. Coulter 423,366,425 269,003
C. Lee Cox 423,370,269 265,159
William S. Davila 423,372,395 263,033
Robert D. Glynn, Jr. 423,374,990 260,438
David M. Lawrence, MD 423,366,246 269,182
Richard B. Madden 423,370,055 265,373
Mary S. Metz 423,361,953 273,475
Rebecca Q. Morgan 423,358,458 276,970
Carl E. Reichardt 423,362,050 273,378
John C. Sawhill 423,360,841 274,587
Alan Seelenfreund 423,365,942 269,486
Gordon R. Smith 423,374,019 261,409
Barry Lawson Williams 423,362,357 273,071
2. Ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year 1998:
For: 423,229,793
Against: 138,185
Abstain: 267,450
- --------------------
(1) A non-vote occurs when a broker or other nominee holding
shares for a beneficial owner votes on one proposal, but does not
vote on another proposal because the broker or other nominee does
not have discretionary voting power and has not received
instructions from the beneficial owner.
<PAGE>
3. Management proposal regarding decrease in the minimum number
of directors (Item 7 in the joint proxy statement):
For: 423,002,572
Against: 249,621
Abstain: 383,235
Item 5. Other Information
-----------------
A. Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
Pacific Gas and Electric Company's earnings to fixed charges
ratio for the three months ended March 31, 1998 was 2.66.
Pacific Gas and Electric Company's earnings to combined fixed
charges and preferred stock dividends ratio for the three months
ended March 31, 1998 was 2.50. The statement of the foregoing
ratios, together with the statements of the computation of the
foregoing ratios filed as Exhibits 12.1 and 12.2 hereto, are
included herein for the purpose of incorporating such information
and exhibits into Registration Statement Nos. 33-62488, 33-64136,
33-50707 and 33-61959, relating to Pacific Gas and Electric
Company's various classes of debt and first preferred stock
outstanding.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 3.1 Restated Articles of Incorporation of Pacific Gas
and Electric Company effective as of May 6, 1998
Exhibit 3.2 Bylaws of Pacific Gas and Electric Company, dated
May 6, 1998
Exhibit 10.1 PG&E Corporation Director Grantor Trust Agreement
dated April 1, 1998
Exhibit 10.2 PG&E Corporation Officer Grantor Trust Agreement
dated April 1, 1998
Exhibit 11 Computation of Earnings Per Common Share
Exhibit 12.1 Computation of Ratios of Earnings to Fixed
Charges for Pacific Gas and Electric Company
Exhibit 12.2 Computation of Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends for
Pacific Gas and Electric Company
Exhibit 27.1 Financial Data Schedule for the quarter ended
March 31, 1998 for PG&E Corporation
Exhibit 27.2 Financial Data Schedule for the quarter ended
March 31, 1998 for Pacific Gas and Electric
Company
(b) Reports on Form 8-K during the first quarter of 1998 and
through the date hereof (2):
1. January 22, 1998 (as amended by Form 8-K/A dated February 5, 1998)
Item 5. Other Events
A. Performance Incentive Plan - Year-to-date Financial
Results
B. 1997 Consolidated Earnings (unaudited)
C. Accelerated Share Repurchase Program
2. April 16, 1998
Item 5. Other Events
A. First Quarter 1998 Consolidated Earnings (unaudited)
B. Pacific Gas and Electric Company's General Rate Case
Proceeding
- --------------------
(2) Unless otherwise noted, all Reports on Form 8-K were filed
under both Commission File Number 1-12609 (PG&E Corporation) and
Commission File Number 1-2348 (Pacific Gas and Electric Company)
<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
CHRISTOPHER P. JOHNS
May 15, 1998 By______________________________
CHRISTOPHER P. JOHNS
Controller
(PG&E Corporation)
Vice President and Controller
(Pacific Gas and Electric Company)
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit
3.1 Restated Articles of Incorporation of Pacific Gas
and Electric Company effective as of May 6, 1998
3.2 Bylaws of Pacific Gas and Electric Company, dated
May 6, 1998
10.1 PG&E Corporation Director Grantor Trust Agreement
dated April 1, 1998
10.2 PG&E Corporation Officer Grantor Trust Agreement
dated April 1, 1998
11 Computation of Earnings Per Common Share
12.1 Computation of Ratio of Earnings to Fixed Charges
for Pacific Gas and Electric Company
12.2 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends for
Pacific Gas and Electric Company
27.1 Financial Data Schedule for the quarter ended
March 31, 1998 for PG&E Corporation
27.2 Financial Data Schedule for the quarter ended
March 31, 1998 for Pacific Gas and Electric
Company
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
A. Compressor Station Chromium Litigation
As previously disclosed in PG&E Corporation's and Pacific Gas and
Electric Company's Form 10-K for the fiscal year ended December
31, 1997, claims against Pacific Gas and Electric Company on
behalf of approximately 2,800 plaintiffs were pending in eight
civil actions filed in California courts (known collectively as
the "Aguayo Litigation"). Two of these actions also name PG&E
Corporation as a defendant; Little and Mustafa v Pacific Gas and
Electric Company and PG&E Corporation, and Whipple, et al v.
Pacific Gas and Electric Company and PG&E Corporation, both
pending in San Bernardino Superior Court. Plaintiffs in both
actions have agreed to dismiss PG&E Corporation as a defendant.
Each of the complaints in the Aguayo Litigation, except Little
and Mustafa v. Pacific Gas and Electric Company, alleges personal
injuries and seeks compensatory and punitive damages in an
unspecified amount arising out of alleged exposure to chromium
contamination in the vicinity of Pacific Gas and Electric
Company's gas compressor stations located in Hinkley, Kettleman
and Topock, California. The plaintiffs in the Aguayo Litigation
include current and former Pacific Gas and Electric Company
employees, residents in the vicinity of the compressor stations,
and persons who visited the compressor stations, alleging
exposure to chromium at or near the compressor stations. The
plaintiffs also include spouses of these plaintiffs who claim
loss of consortium or children of these plaintiffs who claim
injury through the alleged exposure of their parents.
On March 30, 1998, a Los Angeles Superior Court judge dismissed
the claims of 240 plaintiffs in Aguayo v. Pacific Gas and
Electric Company who were neither personally exposed to chromium
nor yet conceived at the time of their parents' alleged exposure.
The judge found that current California law precludes these types
of preconception claims. It is expected that plaintiffs will
appeal this ruling.
The Corporation believes the ultimate outcome of the Aguayo
Litigation will not have a material adverse impact on its or
Pacific Gas and Electric Company's financial position or results
of operation.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
PG&E Corporation:
On April 15, 1998, PG&E Corporation held its annual meeting of
shareholders. At that meeting, the following matters were voted
as indicated:
1. Election of the following directors to serve until the next
annual meeting of shareholders or until their successors
shall be elected and qualified:
For Withheld
---------- ----------
Richard A. Clarke 277,313,530 6,999,929
Harry M. Conger 278,179,795 6,133,664
David A. Coulter 275,721,980 8,591,479
<PAGE>
Lee Cox 278,165,313 6,148,146
William S. Davila 278,194,826 6,118,633
Robert D. Glynn, Jr. 278,236,860 6,076,599
David M. Lawrence, MD 277,866,616 6,446,843
Richard B. Madden 278,145,725 6,167,734
Mary S. Metz 278,089,765 6,223,694
Rebecca Q. Morgan 275,597,117 8,716,342
Carl E. Reichardt 277,990,791 6,322,668
John C. Sawhill 278,166,923 6,146,536
Alan Seelenfreund 278,142,639 6,170,820
Barry Lawson Williams 278,077,940 6,235,519
2. Ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year 1998:
For: 279,482,833
Against: 2,005,818
Abstain: 2,824,808
The proposal was approved by a majority of the shares present and
voting (including abstentions) which shares voting affirmatively
also constituted a majority of the required quorum.
Each of the shareholder proposals listed below was defeated as
the number of shares voting affirmatively on each proposal
constituted less than a majority of the shares voting and present
(including abstentions) with respect to each proposal.
3. Consideration of a shareholder proposal to appoint
independent directors to key Board committees:
For: 72,457,935
Against: 158,238,439
Abstain: 9,002,693
Broker non-votes:(1) 44,614,392
4. Consideration of a shareholder proposal regarding super
majority voting:
For: 96,676,182
Against: 134,458,016
Abstain: 8,564,869
Broker non-votes:(1) 44,614,392
5. Consideration of a shareholder proposal regarding cumulative
voting:
For: 60,562,835
Against: 165,694,235
Abstain: 13,441,997
Broker non-votes:(1) 44,614,392
- --------------------
(1) A non-vote occurs when a broker or other nominee holding
shares for a beneficial owner votes on one proposal, but does not
vote on another proposal because the broker or other nominee does
not have discretionary voting power and has not received
instructions from the beneficial owner.
<PAGE>
6. Consideration of a shareholder proposal regarding director
compensation:
For: 20,512,623
Against: 208,057,428
Abstain: 11,129,016
Broker non-votes:(1) 44,614,392
Pacific Gas and Electric Company:
On April 15, 1998, Pacific Gas and Electric Company held its
annual meeting of shareholders. Shares of capital stock of
Pacific Gas and Electric Company consist of shares of common
stock and shares of first preferred stock. PG&E Corporation, as
owner of all of the 409,120,387 outstanding shares of common
stock, holds approximately 95% of the combined voting power of
the outstanding capital stock of Pacific Gas and Electric
Company. PG&E Corporation voted all of its shares of common
stock for the nominees named in the joint proxy statement, for
the ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year 1998, and for the
management proposal to decrease the minimum number of directors.
The balance of the votes shown below were cast by holders of
shares of first preferred stock. At the annual meeting, the
following matters were voted as indicated:
1. Election of the following directors to serve until the next
annual meeting of shareholders or until their successors
shall be elected and qualified:
For Withheld
----------- -----------
Richard A. Clarke 423,365,574 269,854
Harry M. Conger 423,368,303 267,125
David A. Coulter 423,366,425 269,003
C. Lee Cox 423,370,269 265,159
William S. Davila 423,372,395 263,033
Robert D. Glynn, Jr. 423,374,990 260,438
David M. Lawrence, MD 423,366,246 269,182
Richard B. Madden 423,370,055 265,373
Mary S. Metz 423,361,953 273,475
Rebecca Q. Morgan 423,358,458 276,970
Carl E. Reichardt 423,362,050 273,378
John C. Sawhill 423,360,841 274,587
Alan Seelenfreund 423,365,942 269,486
Gordon R. Smith 423,374,019 261,409
Barry Lawson Williams 423,362,357 273,071
2. Ratification of the appointment of Arthur Andersen LLP as
independent public accountants for the year 1998:
For: 423,229,793
Against: 138,185
Abstain: 267,450
- --------------------
(1) A non-vote occurs when a broker or other nominee holding
shares for a beneficial owner votes on one proposal, but does not
vote on another proposal because the broker or other nominee does
not have discretionary voting power and has not received
instructions from the beneficial owner.
<PAGE>
3. Management proposal regarding decrease in the minimum number
of directors (Item 7 in the joint proxy statement):
For: 423,002,572
Against: 249,621
Abstain: 383,235
Item 5. Other Information
-----------------
A. Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends
Pacific Gas and Electric Company's earnings to fixed charges
ratio for the three months ended March 31, 1998 was 2.66.
Pacific Gas and Electric Company's earnings to combined fixed
charges and preferred stock dividends ratio for the three months
ended March 31, 1998 was 2.50. The statement of the foregoing
ratios, together with the statements of the computation of the
foregoing ratios filed as Exhibits 12.1 and 12.2 hereto, are
included herein for the purpose of incorporating such information
and exhibits into Registration Statement Nos. 33-62488, 33-64136,
33-50707 and 33-61959, relating to Pacific Gas and Electric
Company's various classes of debt and first preferred stock
outstanding.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 3.1 Restated Articles of Incorporation of Pacific Gas
and Electric Company effective as of May 6, 1998
Exhibit 3.2 Bylaws of Pacific Gas and Electric Company, dated
May 6, 1998
Exhibit 10.1 PG&E Corporation Director Grantor Trust Agreement
dated April 1, 1998
Exhibit 10.2 PG&E Corporation Officer Grantor Trust Agreement
dated April 1, 1998
Exhibit 11 Computation of Earnings Per Common Share
Exhibit 12.1 Computation of Ratios of Earnings to Fixed
Charges for Pacific Gas and Electric Company
Exhibit 12.2 Computation of Ratios of Earnings to Combined
Fixed Charges and Preferred Stock Dividends for
Pacific Gas and Electric Company
Exhibit 27.1 Financial Data Schedule for the quarter ended
March 31, 1998 for PG&E Corporation
Exhibit 27.2 Financial Data Schedule for the quarter ended
March 31, 1998 for Pacific Gas and Electric
Company
(b) Reports on Form 8-K during the first quarter of 1998 and
through the date hereof (2):
1. January 22, 1998 (as amended by Form 8-K/A dated February 5, 1998)
Item 5. Other Events
A. Performance Incentive Plan - Year-to-date Financial
Results
B. 1997 Consolidated Earnings (unaudited)
C. Accelerated Share Repurchase Program
2. April 16, 1998
Item 5. Other Events
A. First Quarter 1998 Consolidated Earnings (unaudited)
B. Pacific Gas and Electric Company's General Rate Case
Proceeding
- --------------------
(2) Unless otherwise noted, all Reports on Form 8-K were filed
under both Commission File Number 1-12609 (PG&E Corporation) and
Commission File Number 1-2348 (Pacific Gas and Electric Company)
<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
CHRISTOPHER P. JOHNS
May 15, 1998 By______________________________
CHRISTOPHER P. JOHNS
Controller
(PG&E Corporation)
Vice President and Controller
(Pacific Gas and Electric Company)
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit
3.1 Restated Articles of Incorporation of Pacific Gas
and Electric Company effective as of May 6, 1998
3.2 Bylaws of Pacific Gas and Electric Company, dated
May 6, 1998
10.1 PG&E Corporation Director Grantor Trust Agreement
dated April 1, 1998
10.2 PG&E Corporation Officer Grantor Trust Agreement
dated April 1, 1998
11 Computation of Earnings Per Common Share
12.1 Computation of Ratio of Earnings to Fixed Charges
for Pacific Gas and Electric Company
12.2 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends for
Pacific Gas and Electric Company
27.1 Financial Data Schedule for the quarter ended
March 31, 1998 for PG&E Corporation
27.2 Financial Data Schedule for the quarter ended
March 31, 1998 for Pacific Gas and Electric
Company
<PAGE>
RESTATED ARTICLES OF INCORPORATION OF
PACIFIC GAS AND ELECTRIC COMPANY
ROBERT D. GLYNN, JR. and LESLIE H. EVERETT certify that:
1. They are the Chairman of the Board, and the Vice President
and Corporate Secretary, respectively, of Pacific Gas and
Electric Company, a California corporation (the "Company").
2. The Articles of Incorporation of the corporation, as amended
to the date of the filing of this certificate, including the
amendments set forth herein but not separately filed (and
with the omissions required by Section 910 of the
Corporations Code) are amended and restated as follows:
FIRST: That the name of said corporation shall be
PACIFIC GAS AND ELECTRIC COMPANY.
SECOND: The purpose of the corporation is to engage in any
lawful act or activity for which a corporation may be organized under
the General Corporation Law of California other than the banking
business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code.
The right is reserved to this corporation to amend the whole
or any part of these Articles of Incorporation in any respect not
prohibited by law.
THIRD: That this corporation shall have perpetual
existence.
FOURTH: The corporation elects to be governed by all of the
provisions of the General Corporation Law (as added to the California
Corporations Code effective January 1, 1977, and as subsequently
amended) not otherwise applicable to this corporation under Chapter 23
of said General Corporation Law.
FIFTH: The Board of Directors by a vote of two-thirds of
the whole Board may appoint from the Directors an Executive Committee,
<PAGE>
which Committee may exercise such powers as may lawfully be conferred
upon it by the Bylaws of the Corporation. Such Committee may prescribe
rules for its own government and its meetings may be held at such
places within or without California as said Committee may determine or
authorize.
SIXTH: The liability of the directors of the corporation
for monetary damages shall be eliminated to the fullest extent
permissible under California law.
SEVENTH: The corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaws, resolutions, agreements with
agents, vote of shareholders or disinterested directors, or otherwise,
in excess of the indemnification otherwise permitted by Section 317 of
the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code.
EIGHTH: The total number of shares which this corporation
is authorized to issue is eight hundred eighty-five million
(885,000,000) of the aggregate par value of six billion eight hundred
seventy-five million dollars ($6,875,000,000). All of these shares
shall have full voting rights.
Said eight hundred eighty-five million (885,000,000) shares
shall be divided into three classes, designated as common stock, first
preferred stock and $100 first preferred stock. Eight hundred million
(800,000,000) of said shares shall be common stock, of the par value
of $5 per share, seventy-five million (75,000,000) of said shares
shall be first preferred stock, of the par value of $25 per share, and
ten million(10,000,000) of said shares shall be $100 first preferred
stock, of the par value of $100 per share.
FIRST PREFERRED STOCK
AND $100 FIRST PREFERRED STOCK
The first preferred stock and $100 first preferred stock
each shall be divided into series. The first series of first
preferred stock shall consist of four million two hundred eleven
thousand six hundred sixty-two (4,211,662) shares and be designated as
Six Per Cent First Preferred Stock. The second series of first
preferred stock shall consist of one million one hundred seventy-three
thousand one hundred sixty-three (1,173,163) shares and be designated
as Five and One-Half Per Cent First Preferred Stock. The third series
<PAGE>
of first preferred stock shall consist of four hundred thousand
(400,000) shares and be designated as Five Per Cent First Preferred
Stock. The remainder of said first preferred stock, viz., 69,215,175
shares, and all of the $100 first preferred stock may be issued in one
or more additional series, as determined from time to time by the
Board of Directors. Except as provided herein, the Board of Directors
is hereby authorized to determine and alter the rights, preferences,
privileges and restrictions granted to or imposed upon the first
preferred stock or $100 first preferred stock or any series thereof
with respect to any wholly unissued series of first preferred stock or
$100 first preferred stock, and to fix the number of shares of any
series of first preferred stock or $100 first preferred stock and the
designation of any such series of first preferred stock or $100 first
preferred stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
The owners and holders of shares of said first preferred
stock and $100 first preferred stock, when issued as fully paid, are
and shall be entitled to receive, from the date of issue of such
shares, out of funds legally available therefor, cumulative
preferential dividends, when and as declared by the Board of
Directors, at the following rates upon the par value of their
respective shares, and not more, viz.: Six per cent (6%) per year upon
Six Per Cent First Preferred Stock; five and one-half per cent
(5-l/2%) per year upon Five and One-Half Per Cent First Preferred
Stock; five per cent (5%) per year upon Five Per Cent First Preferred
Stock; and upon the shares of each additional series of said first
preferred stock and of each series of $100 first preferred stock the
dividend rate fixed therefor; and such dividends on both classes of
first preferred stock and $100 first preferred stock shall be declared
and shall be either paid or set apart for payment before any dividend
upon the shares of common stock shall be either declared or paid.
Upon the liquidation or dissolution of this corporation at
any time and in any manner, the owners and holders of shares of said
first preferred stock and $100 first preferred stock issued as fully
paid will be entitled to receive an amount equal to the par value of
such shares plus an amount equal to all accumulated and unpaid
dividends thereon to and including the date fixed for such
distribution or payment before any amount shall be paid to the holders
of said common stock.
<PAGE>
If any share or shares of first preferred stock and $100
first preferred stock shall at any time be issued as only partly paid,
the owners and holders of such partly paid share or shares shall have
the right to receive dividends and to share in the assets of this
corporation upon its liquidation or dissolution in all respects like
the owners and holders of fully paid shares of first preferred stock
and $100 first preferred stock, except that such right shall be only
in proportion to the amount paid on account of the subscription price
for which such partly paid share or shares shall have been issued.
The unissued shares of said first preferred stock and $100
first preferred stock may be offered for subscription or sale or in
exchange for property and be issued from time to time upon such terms
and conditions as said Board of Directors shall prescribe.
The first three series of said first preferred stock,
namely, the Six Per Cent First Preferred Stock, the Five and One-Half
Per Cent First Preferred Stock, and the Five Per Cent First Preferred
Stock, are not subject to redemption.
Any or all shares of each series of said first preferred
stock and $100 first preferred stock other than said first three
series of first preferred stock may be redeemed at the option of this
corporation, at any time or from time to time, at the redemption price
fixed for such series together with accumulated and unpaid dividends
at the rate fixed therefor to and including the date fixed for
redemption. If less than all the outstanding shares of any such
series are to be redeemed, the shares to be redeemed shall be
determined pro rata or by lot in such manner as the Board of Directors
may determine.
Unless the certificate of determination for any series of
the first preferred stock or the $100 first preferred stock shall
otherwise provide, notice of every such redemption shall be published
in a newspaper of general circulation in the City and County of San
Francisco, State of California, and in a newspaper of general
circulation in the Borough of Manhattan, City and State of New York,
at least once in each of two (2) successive weeks, commencing not
earlier than sixty (60) nor later than thirty (30) days before the
date fixed for redemption; successive publications need not be made in
the same newspaper. A copy of such notice shall be mailed within the
same period of time to each holder of record, as of the record date,
<PAGE>
of the shares to be redeemed, but the failure to mail such notice to
any shareholder shall not invalidate the redemption of such shares.
From and after the date fixed for redemption, unless default
be made by this corporation in paying the amount due upon redemption,
dividends on the shares called for redemption shall cease to accrue,
and such shares shall be deemed to be redeemed and shall be no longer
outstanding, and the holders thereof shall cease to be shareholders
with respect to such shares and shall have no rights with respect
thereto except the right to receive from this corporation upon
surrender of their certificates the amount payable upon redemption
without interest. Or, if this corporation shall deposit, on or prior
to the date fixed for redemption, with any bank or trust company in
the City and County of San Francisco, having capital, surplus and
undivided profits aggregating at least five million dollars
($5,000,000), as a trust fund, a sum sufficient to redeem the shares
called for redemption, with irrevocable instructions and authority to
such bank or trust company to publish or complete the publication of
the notice of redemption (if this corporation shall not have
theretofore completed publication of such notice), and to pay, on and
after the date fixed for redemption, or on and after such earlier date
as the Board of Directors may determine, the amount payable upon
redemption of such shares, then from and after the date of such
deposit (although prior to the date fixed for redemption) such shares
shall be deemed to be redeemed; and dividends on such shares shall
cease to accrue after the date fixed for redemption. The said deposit
shall be deemed to constitute full payment of the shares to their
respective holders and from and after the date of such deposit the
shares shall be no longer outstanding, and the holders thereof shall
cease to be shareholders with respect to such shares and shall have no
rights with respect thereto except the right to receive from said bank
or trust company the amount payable upon redemption of such shares,
without interest, upon surrender of their certificates therefor, and
except, also, any right which such shareholders may then have to
exchange or convert such shares prior to the date fixed for
redemption. Any part of the funds so deposited which shall not be
required for redemption payments because of such exchange or
conversion shall be repaid to this corporation forthwith. The
balance, if any, of the funds so deposited which shall be unclaimed at
the end of six (6) years from the date fixed for redemption shall be
repaid to this corporation together with any interest which shall have
been allowed thereon; and thereafter the unpaid holders of shares so
called for redemption shall have no claim for payment except as
against this corporation.
<PAGE>
All shares of the first preferred stock and $100 first
preferred stock shall rank equally with regard to preference in
dividend and liquidation rights, except that shares of different
classes or different series thereof may differ as to the amounts of
dividends or liquidation payments to which they are entitled, as
herein set forth.
COMMON STOCK
When all accrued dividends upon all of the issued and
outstanding shares of the first preferred stock and $100 first
preferred stock of this corporation shall have been declared and shall
have been paid or set apart for payment, but not before, dividends may
be declared and paid, out of funds legally available therefor, upon
all of the issued and outstanding shares of said common stock.
Upon the liquidation or dissolution of this corporation,
after the owners and holders of such first preferred stock and $100
first preferred stock shall have been paid the full amount to which
they shall have been entitled under the provisions of these Articles
of Incorporation, the owners and holders of such common stock shall be
entitled to receive and to have paid to them the entire residue of the
assets of this corporation in proportion to the number of shares of
said common stock held by them respectively.
If any share or shares of common stock shall at any time be
issued as only partly paid, the owners and holders of such partly paid
share or shares shall have the right to receive dividends and to share
in the assets of this corporation upon its liquidation or dissolution
in all respects like the owners and holders of fully paid shares of
common stock, except that such right shall be only in proportion to
the amount paid on account of the subscription price for which such
partly paid share or shares shall have been issued.
The unissued shares of said common stock may be offered for
subscription or sale or in exchange for property and be issued from
time to time upon such terms and conditions as said Board of Directors
may prescribe.
PROHIBITION AGAINST ASSESSMENTS
Shares of such stock, whether first preferred, $100 first
preferred stock or common stock, the subscription price of which shall
<PAGE>
have been paid in full, whether such price be par or more or less than
par, shall be issued as fully paid shares and shall never be subject
to any call or assessment for any purpose whatever. Shares of such
stock, whether first preferred, $100 first preferred stock or common
stock, a part only of the subscription price of which shall have been
paid, shall be subject to calls for the unpaid balance of the
subscription price thereof. But no call made on partly paid first
preferred stock, partly paid $100 first preferred stock or partly paid
common stock shall be recoverable by action or be enforceable
otherwise than by sale or forfeiture of delinquent stock in accordance
with the applicable provisions of the Corporations Code of California.
If at any time, whether by virtue of any amendment of these
Articles of Incorporation or any amendment or change of the law of the
State of California relating to corporations or otherwise, any
assessment shall, in any event whatever, be levied and collected on
any subscribed and issued shares of said first preferred stock or $100
first preferred stock after the subscription price thereof shall have
been paid in full, the rights of the owners and holders thereof to
receive dividends and their rights to share in the assets upon the
liquidation or dissolution of this corporation shall, immediately upon
the payment of such assessment and by virtue thereof, be increased in
the same ratio as the total amount of the assessment or assessments so
levied and collected shall bear to the par value of such shares of
first preferred stock or $100 first preferred stock.
RESERVES
The Board of Directors of this corporation shall,
notwithstanding the foregoing provisions of these Articles of
Incorporation, have authority from time to time to set aside, out of
the profits arising from the business of this corporation, such
reasonable sums as may in their judgment be necessary and proper for
working capital and for usual reserves and surplus.
NINTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE
5% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination
of Preferences of the 5% Redeemable First Preferred Stock which is
attached hereto as Exhibit 1 is hereby incorporated by reference as
Article NINTH of these Articles of Incorporation.
<PAGE>
TENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE
5% REDEEMABLE FIRST PREFERRED STOCK, SERIES A: The Certificate of
Determination of Preferences of the 5% Redeemable First Preferred
Stock, Series A, which is attached hereto as Exhibit 2 is hereby
incorporated by reference as Article TENTH of these Articles of
Incorporation.
ELEVENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF
THE 4.80% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 4.80% Redeemable First Preferred
Stock which is attached hereto as Exhibit 3 is hereby incorporated by
reference as Article ELEVENTH of these Articles of Incorporation.
TWELFTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE
4.50% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 4.50% Redeemable First Preferred
Stock which is attached hereto as Exhibit 4 is hereby incorporated by
reference as Article TWELFTH of these Articles of Incorporation.
THIRTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF
THE 4.36% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 4.36% Redeemable First Preferred
Stock which is attached hereto as Exhibit 5 is hereby incorporated by
reference as Article THIRTEENTH of these Articles of Incorporation.
FOURTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF
THE 6.57% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 6.57% Redeemable First Preferred
Stock which is attached hereto as Exhibit 6 is hereby incorporated by
reference as Article FOURTEENTH of these Articles of Incorporation.
FIFTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF
THE 7.04% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 7.04% Redeemable First Preferred
Stock which is attached hereto as Exhibit 7 is hereby incorporated by
reference as Article FIFTEENTH of these Articles of Incorporation.
<PAGE>
SIXTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF
THE 6-7/8% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 6-7/8% Redeemable First Preferred
Stock which is attached hereto as Exhibit 8 is hereby incorporated by
reference as Article SIXTEENTH of these Articles of Incorporation.
SEVENTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF
THE 6.30% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of
Determination of Preferences of the 6.30% Redeemable First Preferred
Stock which is attached hereto as Exhibit 9 is hereby incorporated by
reference as Article SEVENTEENTH of these Articles of Incorporation.
3. The foregoing amendments and restatement of the Articles of
Incorporation of this corporation have been duly approved by
the Board of Directors.
4. The foregoing amendments and restatement of the Articles of
Incorporation were adopted (i) to delete the first paragraph
of Article Fifth, which previously required that the Board
of Directors of this corporation consist of not less than
fourteen nor more than seventeen directors; (ii) to
eliminate Article Fourteenth, which previously set forth the
Certificate of Determination of Preferences of the 7.44%
Redeemable First Preferred Stock, to reflect the reduction
in the authorized number of shares of that series to zero
which occurred upon filing the Certificate of Decrease with
respect to such series immediately preceding the filing of
these Restated Articles, pursuant to California Corporations
Code Section 401(c), and the elimination of that series as
an authorized series of the corporation pursuant to
California Corporations Code Section 401(f); and (iii) to
renumber the remaining Articles to reflect the deletion of
Article Fourteenth.
5. The amendment to Article Fifth to delete the first paragraph
thereof regarding the authorized number of directors has
been approved by the required vote of the corporation's
shareholders in accordance with California Corporations Code
Section 902. There were 409,120,387 shares of common stock,
and 18,979,056 shares of first preferred stock, entitled to
vote with respect to the amendment to Article Fifth. The
number of shares of common stock and first preferred stock
<PAGE>
voting in favor of the amendment exceeded the vote required
for approval. Approval of the amendment required the
affirmative vote of the majority of the outstanding shares
of common stock and first preferred stock voting together
6. Pursuant to California Corporations Code Sections 202(e)(3),
203.5(b), 401(c) and 401(f), amendments to the Articles of
Incorporation for the purpose of eliminating the 7.44%
Redeemable First Preferred Stock series need not be approved
by the affirmative vote of the majority of the outstanding
shares; accordingly, such amendments and restatement may be
adopted with approval of the Board of Directors alone.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: April 30, 1998
ROBERT D. GLYNN, JR.
---------------------
ROBERT D. GLYNN, JR.
Chairman of the Board
LESLIE H. EVERETT
----------------------
LESLIE H. EVERETT
Vice President and
Corporate Secretary
<PAGE>
EXHIBIT 1
PACIFIC GAS AND ELECTRIC COMPANY
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 5% REDEEMABLE FIRST PREFERRED STOCK
WHEREAS, the Articles of Incorporation of this corporation
provide for a class of stock known as First Preferred Stock, issuable
from time to time in one or more series, of which a series of such
class of stock was issued as the 5% Redeemable First Preferred Stock,
$25 par value (herein called the "5% Series"); and
WHEREAS, this corporation has elected to redeem, purchase, or
otherwise acquire 1,082,805 shares of the 5% Series from time to time;
and
WHEREAS, pursuant to California Corporations Code Section 401(c),
this corporation filed a Certificate of Decrease in Number of Shares
of Certain Series of First Preferred Stock on March 23, 1994, which
amended the Articles of Incorporation to decrease the number of shares
constituting the 5% Series from 2,860,977 to 1,778,172 shares; and
WHEREAS, pursuant to California Corporations Code Section
202(e)(3), the 1,082,805 shares constituting the decrease in the 5%
Series resumed the status of authorized and unissued shares of First
Preferred Stock, $25 par value; and
WHEREAS, it is in the best interest of this corporation to
restate the four existing Certificates of Determination of Preferences
of the 5% Series to (i) reflect the reduction in the authorized number
of shares of the 5% Series, (ii) consolidate such existing
Certificates of Determination of Preferences into a single Certificate
of Determination of Preferences of the 5% Series, and (iii) eliminate
the portions of the officers' certificates and verifications which do
not set forth any of the rights, preferences, privileges, or
restrictions of the 5% Series
<PAGE>
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificates of Determination of Preferences of the 5% Series is
hereby approved; and
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 5% Series is hereby approved and adopted as
restated in its entirety as follows:
1,778,172 shares of this corporation's unissued redeemable
First Preferred Stock shall constitute a series designated "5%
Redeemable First Preferred Stock"; the dividend rate of such
shares shall be five per cent per year; such shares shall have no
conversion rights; and the redemption price of such shares shall
be
$28.25 per share if redeemed on or before July 31, 1953,
$27.75 per share if redeemed thereafter and on or before
July 31, 1958,
$27.25 per share if redeemed thereafter and on or before
July 31, 1963, and
$26.75 per share if redeemed thereafter.
<PAGE>
EXHIBIT 2
PACIFIC GAS AND ELECTRIC COMPANY
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 5% REDEEMABLE FIRST PREFERRED STOCK,
SERIES A
WHEREAS, the Articles of Incorporation of this corporation
provide for a class of stock known as First Preferred Stock, issuable
from time to time in one or more series, of which a series of such
class of stock was issued as the 5% Redeemable First Preferred Stock,
Series A, $25 par value (herein called the "5% Series A"); and
WHEREAS, this corporation has elected to redeem, purchase, or
otherwise acquire 815,678 shares of the 5% Series A from time to time;
and
WHEREAS, pursuant to California Corporations Code Section 401(c),
this corporation filed a Certificate of Decrease in Number of Shares
of Certain Series of First Preferred Stock on March 23, 1994, which
amended the Articles of Incorporation to decrease the number of shares
constituting the 5% Series A from 1,750,000 to 934,322 shares; and
WHEREAS, pursuant to California Corporations Code Section
202(e)(3), the 815,678 shares constituting the decrease in the 5%
Series A resumed the status of authorized and unissued shares of First
Preferred Stock, $25 par value; and
WHEREAS, it is in the best interest of this corporation to
restate the two existing Certificates of Determination of Preferences
of the 5% Series A to (i) reflect the reduction in the authorized
number of shares of the 5% Series A, (ii) consolidate such existing
Certificates of Determination of Preferences into a single Certificate
of Determination of Preferences of the 5% Series A, and
(iii) eliminate the portions of the officers' certificates and
verifications which do not set forth any of the rights, preferences,
privileges, or restrictions of the 5% Series A.
<PAGE>
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificates of Determination of Preferences of the 5% Series A is
hereby approved; and
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 5% Series A is hereby approved and adopted as
restated in its entirety as follows:
934,322 shares of this corporation's unissued redeemable
First Preferred Stock shall constitute a series designated "5%
Redeemable First Preferred Stock, Series A"; the dividend rate
of such shares shall be five per cent per year; such shares shall
have no conversion rights; and the redemption price of such
shares shall be
$28.25 per share if redeemed on or before July 31, 1953,
$27.75 per share if redeemed thereafter and on or before
July 31, 1958,
$27.25 per share if redeemed thereafter and on or before
July 31, 1963, and
$26.75 per share if redeemed thereafter.
<PAGE>
EXHIBIT 3
PACIFIC GAS AND ELECTRIC COMPANY
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 4.80% REDEEMABLE FIRST PREFERRED STOCK
WHEREAS, the Articles of Incorporation of this corporation
provide for a class of stock known as First Preferred Stock, issuable
from time to time in one or more series, of which a series of such
class of stock was issued as the 4.80% Redeemable First Preferred
Stock, $25 par value (herein called the "4.80% Series"); and
WHEREAS, this corporation has elected to redeem, purchase, or
otherwise acquire 724,344 shares of the 4.80% Series from time to
time; and
WHEREAS, pursuant to California Corporations Code Section 401(c),
this corporation filed a Certificate of Decrease in Number of Shares
of Certain Series of First Preferred Stock on March 23, 1994, which
amended the Articles of Incorporation to decrease the number of shares
constituting the 4.80% Series from 1,517,375 to 793,031 shares; and
WHEREAS, pursuant to California Corporations Code Section
202(e)(3), the 724,344 shares constituting the decrease in the 4.80%
Series resumed the status of authorized and unissued shares of First
Preferred Stock, $25 par value; and
WHEREAS, it is in the best interest of this corporation to
restate the two existing Certificates of Determination of Preferences
of the 4.80% Series to (i) reflect the reduction in the authorized
number of shares of the 4.80% Series, (ii) consolidate such existing
Certificates of Determination of Preferences into a single Certificate
of Determination of Preferences of the 4.80% Series, and
(iii) eliminate the portions of the officers' certificates and
verifications which do not set forth any of the rights, preferences,
privileges, or restrictions of the 4.80% Series.
<PAGE>
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificates of Determination of Preferences of the 4.80% Series
is hereby approved; and
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 4.80% Series is hereby approved and adopted as
restated in its entirety as follows:
793,031 shares of this corporation's unissued redeemable
First Preferred Stock shall constitute a series designated "4.80%
Redeemable First Preferred Stock"; the dividend rate of such
shares shall be 4.80% per year; such shares shall have no
conversion rights; and the redemption price for such shares shall
be
$28.75 per share if redeemed on or before January 31, 1955;
$28.25 per share if redeemed thereafter and on or before
January 31, 1960;
$27.75 per share if redeemed thereafter and on or before
January 31, 1965; and
$27.25 per share if redeemed thereafter.
<PAGE>
EXHIBIT 4
PACIFIC GAS AND ELECTRIC COMPANY
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 4.50% REDEEMABLE FIRST PREFERRED STOCK
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of stock known as First Preferred Stock, issuable from time
to time in one or more series, of which a series of such class of stock
was issued as the 4.50% Redeemable First Preferred Stock, $25 par value
(herein called the "4.50% Series"); and
WHEREAS, this corporation has elected to redeem, purchase, or
otherwise acquire 516,284 shares of the 4.50% Series from time to time;
and
WHEREAS, pursuant to California Corporations Code Section 401(c),
this corporation filed a Certificate of Decrease in Number of Shares of
Certain Series of First Preferred Stock on March 23, 1994, which amended
the Articles of Incorporation to decrease the number of shares
constituting the 4.50% Series from 1,127,426 to 611,142 shares; and
WHEREAS, pursuant to California Corporations Code Section
202(e)(3), the 516,284 shares constituting the decrease in the 4.50%
Series resumed the status of authorized and unissued shares of First
Preferred Stock, $25 par value; and
WHEREAS, it is in the best interest of this corporation to restate
the two existing Certificates of Determination of Preferences of the
4.50% Series to (i) reflect the reduction in the authorized number of
shares of the 4.50% Series, (ii) consolidate such existing Certificates
of Determination of Preferences into a single Certificate of
Determination of Preferences of the 4.50% Series, and (iii) eliminate
the portions of the officers' certificates and verifications which do
not set forth any of the rights, preferences, privileges, or
restrictions of the 4.50% Series.
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificates of Determination of Preferences of the 4.50% Series is
hereby approved; and
<PAGE>
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 4.50% Series is hereby approved and adopted as
restated in its entirety as follows:
611,142 shares of this corporation's unissued redeemable
first preferred stock shall constitute a series designated "4.50%
Redeemable First Preferred Stock"; the dividend rate of such
shares shall be 4.50% per year; such shares shall have no
conversion rights; and the redemption price of such shares shall
be
$27.25 per share if redeemed on or before July 31, 1959;
$26.75 per share if redeemed thereafter and on or before July
31, 1964;
$26.25 per share if redeemed thereafter and on or before July
31, 1969; and
$26.00 per share if redeemed thereafter.
<PAGE>
EXHIBIT 5
PACIFIC GAS AND ELECTRIC COMPANY
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 4.36% REDEEMABLE FIRST PREFERRED STOCK
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of stock known as First Preferred Stock, issuable from time
to time in one or more series, of which a series of such class of stock
was issued as the 4.36% Redeemable First Preferred Stock, $25 par value
(herein called the "4.36% Series"); and
WHEREAS, this corporation has elected to redeem, purchase or
otherwise acquire 581,709 shares of the 4.36% Series from time to time;
and
WHEREAS, pursuant to California Corporations Code Section 401(c),
this corporation filed a Certificate of Decrease in Number of Shares of
Certain Series of First Preferred Stock on March 23, 1994, which amended
the Articles of Incorporation to decrease the number of shares
constituting the 4.36% Series from 1,000,000 to 418,291 shares; and
WHEREAS, pursuant to California Corporations Code Section
202(e)(3), the 581,709 shares constituting the decrease in the 4.36%
Series resumed the status of authorized and unissued shares of First
Preferred Stock, $25 par value; and
WHEREAS, it is in the best interest of this corporation to restate
the Certificate of Determination of Preferences of the 4.36% Series to
(i) reflect the reduction in the authorized number of shares of the
4.36% Series and (ii) eliminate the portions of the officers'
certificate and verification which do not set forth any of the rights,
preferences, privileges, or restrictions of the 4.36% Series.
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificate of Determination of Preferences of the 4.36% Series is
hereby approved; and
<PAGE>
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 4.36% Series is hereby approved and adopted as
restated in its entirety as follows:
418,291 shares of this corporation's unissued Redeemable
First Preferred Stock shall constitute a series designated "4.36%
Redeemable First Preferred Stock"; the dividend rate of such
shares shall be 4.36% per year; such shares shall have no
conversion rights; and the redemption price of such shares shall
be
$26.75 per share if redeemed on or before October 31, 1960;
$26.50 per share if redeemed thereafter and on or before
October 31, 1965;
$26.25 per share if redeemed thereafter and on or before
October 31, 1970;
$26.00 per share if redeemed thereafter and on or before
October 31, 1975; and
$25.75 per share if redeemed thereafter
<PAGE>
EXHIBIT 6
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 6.57% REDEEMABLE FIRST PREFERRED STOCK OF
PACIFIC GAS AND ELECTRIC COMPANY
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of stock known as First Preferred Stock, issuable from time
to time in one or more series, of which a series of such class of stock
was issued as the 6.57% Redeemable First Preferred Stock, $25 par value
(herein called the "6.57% Series"); and
WHEREAS, it is in the best interest of this corporation to restate
the Certificate of Determination of Preferences of the 6.57% Series to
eliminate the portions of the officers' certificate and verification
which do not set forth any of the rights, preferences, privileges, or
restrictions of the 6.57% Series.
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificate of Determination of Preferences of the 6.57% Series is
hereby approved; and
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 6.57% Series is hereby approved and adopted as
restated in its entirety as follows:
3,000,000 shares of this corporation's unissued First
Preferred Stock, $25 par value, shall constitute a series
designated "6.57% Redeemable First Preferred Stock" (hereinafter
referred to as the "6.57% Series").
The terms of the 6.57% Series are hereby fixed as
follows:
(a) The holders of shares of the 6.57% Series shall be
entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of 6.57 percent of par value
thereof per annum, and no more. Such dividends shall be
cumulative with respect to each share from the date of
issuance thereof.
(b) No dividend shall be declared or paid on any shares of
the 6.57% Series or on any shares of any other series or
<PAGE>
class of preferred stock unless a ratable dividend on the
6.57% Series and such other series or class of preferred
stock, in proportion to the full preferential amounts to
which each series or class is entitled, is declared and is
paid or set apart for payment. As used herein, the term
"preferred stock" shall mean all series of the first
preferred stock, $25 par value per share, and first preferred
stock, $100 par value per share, and any other class of stock
ranking equally with the preferred stock as to preference in
dividends and liquidation rights, notwithstanding that shares
of such series and classes may differ as to the amounts of
dividends or liquidation payments to which they are entitled.
(c) No junior shares or shares of preferred stock shall be
purchased, redeemed or otherwise acquired by the corporation,
and no moneys shall be paid to or set aside or made available
for a sinking fund for the purchase or redemption of junior
shares or shares of preferred stock, unless full cumulative
dividends upon all series and classes of preferred stock then
outstanding to the end of the dividend period next preceding
the date fixed for such redemption (and for the current
dividend period if the date fixed for such redemption is a
dividend payment date) shall have been declared and shall
have been paid or set aside for payment. As used herein, the
term "junior shares" shall mean common shares or any other
shares ranking junior to the preferred stock either as to
dividends or upon liquidation, dissolution, or winding up.
(d) The shares of the 6.57% Series shall not be subject to
redemption by this corporation prior to July 31, 2002. On or
after July 31, 2002, the redemption price shall be $25.00 per
share, together with an amount equal to all accumulated and
unpaid dividends thereon to and including the date of
redemption.
(e) Shares of the 6.57% Series shall also be subject to
redemption through the operation of a sinking fund (herein
called the "Sinking Fund") at the redemption price (the
"Sinking Fund Redemption Price") of $25.00 per share plus an
amount equal to the accumulated and unpaid dividends thereon
to and including the redemption date, whether or not earned
<PAGE>
or declared. For the purposes of the Sinking Fund, out of
any funds of the corporation legally available therefor
remaining after full cumulative dividends upon all series and
classes of preferred stock then outstanding to the end of the
dividend period next preceding the date fixed for such
redemption (and for the current dividend period if the date
fixed for such redemption is a dividend payment date) shall
have been declared and shall have been paid or set apart for
payment, the corporation shall redeem 150,000 shares of the
6.57% Series annually on each July 31, from 2002 through
2006, inclusive, and 2,250,000 shares on July 31, 2007, at
the Sinking Fund Redemption Price. The Sinking Fund shall be
cumulative so that if on any such July 31 the funds of the
corporation legally available therefor shall be insufficient
to permit the required redemption in full, or if for any
other reason such redemption shall not have been made in
full, the remaining shares of the 6.57% Series so required to
be redeemed shall be redeemed before any cash dividend shall
be paid or declared, or any distribution made, on any junior
shares or before any junior shares or any shares of preferred
stock shall be purchased, redeemed or otherwise acquired by
the corporation, or any monies shall be paid to or set aside
or made available for a sinking fund for the purchase or
redemption or any junior shares or any shares of preferred
stock; provided, however, that, notwithstanding the existence
of any such deficiency, the corporation may make any required
sinking fund redemption on any other series or class of
preferred stock if the number of shares of such other series
or class of preferred stock being so redeemed bears (as
nearly as practicable) the same ratio to the aggregate number
of shares of such other series or class then due to be
redeemed as the number of shares of the 6.57% Series being
redeemed bears to the aggregate number of shares of the 6.57%
Series then due to be redeemed.
(f) Shares of the 6.57% Series redeemed otherwise than as
required by section (e) or purchased or otherwise acquired by
the corporation may, at the option of the corporation, be
applied as a credit against any Sinking Fund redemption
required by section (e). Moneys available for the Sinking
Fund shall be applied on each such July 31 to the redemption
of shares of the 6.57% Series.
<PAGE>
(g) Any shares of the 6.57% Series which have been
redeemed, purchased, or otherwise acquired by the corporation
shall become authorized and unissued shares of the First
Preferred Stock, $25 par value, but shall not be reissued as
shares of the 6.57% Series.
(h) Upon liquidation, dissolution, or winding up of the
corporation, the holders of shares of the 6.57% Series shall
be entitled to receive the liquidation value per share, which
is hereby fixed at $25.00 per share, plus an amount equal to
all accumulated and unpaid dividends thereon at such time,
whether or not earned or declared.
(i) Dividends shall be computed on a basis of a 360-day
year of twelve 30-day months.
(j) If the date for payment of any dividend or the date
fixed for redemption of any share of the 6.57% Series shall
not be on a business day, then payment of the dividend or
applicable redemption price need not be made on such date,
but may be made on the next succeeding business day with the
same force and effect as if made on the date for payment of
such dividend or date fixed for redemption.
<PAGE>
EXHIBIT 7
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 7.04% REDEEMABLE FIRST PREFERRED STOCK OF
PACIFIC GAS AND ELECTRIC COMPANY
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of stock known as First Preferred Stock, issuable from time
to time in one or more series, of which a series of such class of stock
was issued as the 7.04% Redeemable First Preferred Stock, $25 par value
(herein called the "7.04% Series"); and
WHEREAS, it is in the best interest of this corporation to restate
the Certificate of Determination of Preferences of the 7.04% Series to
eliminate the portions of the officers' certificate and verification
which do not set forth any of the rights, preferences, privileges, or
restrictions of the 7.04% Series.
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificate of Determination of Preferences of the 7.04% Series is
hereby approved; and
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 7.04% Series is hereby approved and adopted as
restated in its entirety as follows:
3,000,000 shares of this corporation's unissued First
Preferred Stock, $25 par value, shall constitute a series
designated "7.04% Redeemable First Preferred Stock" (hereinafter
referred to as the "7.04% Series").
The terms of the 7.04% Series are hereby fixed as
follows:
(a) The holders of shares of the 7.04% Series shall be
entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of 7.04 percent of par value
thereof per annum, and no more. Such dividends shall be
cumulative with respect to each share from the date of
issuance thereof.
(b) No dividend shall be declared or paid on any shares of
the 7.04% Series or on any shares of any other series or
<PAGE>
class of preferred stock unless a ratable dividend on the
7.04% Series and such other series or class of preferred
stock, in proportion to the full preferential amounts to
which each series or class is entitled, is declared and is
paid or set apart for payment. As used herein, the term
"preferred stock" shall mean all series of the first
preferred stock, $25 par value per share, and first preferred
stock, $100 par value per share, and any other class of stock
ranking equally with the preferred stock as to preference in
dividends and liquidation rights, notwithstanding that shares
of such series and classes may differ as to amounts of
dividends or liquidation payments to which they are entitled.
(c) No junior shares or shares of preferred stock shall be
purchased, redeemed, or otherwise acquired by the
corporation, and no moneys shall be paid to or set aside or
made available for a sinking fund for the purchase or
redemption of junior shares or shares of preferred stock,
unless full cumulative dividends upon all series and classes
of preferred stock then outstanding to the end of the
dividend period next preceding the date fixed for such
redemption (and for the current dividend period if the date
fixed for such redemption is a dividend payment date) shall
have been declared and shall have been paid or set aside for
payment. As used herein, the term "junior shares" shall mean
common shares or any other shares ranking junior to the
preferred stock either as to dividends or upon liquidation,
dissolution, or winding up.
(d) The shares of the 7.04% Series shall not be subject to
redemption by this corporation prior to January 31, 2003. On
and after January 31, 2003, the redemption price shall be as
follows:
If redeemed during the 12 months' period beginning
January 31,
2003 $25.88 2008 $25.44
2004 $25.79 2009 $25.35
2005 $25.70 2010 $25.26
2006 $25.62 2011 $25.18
2007 $25.53 2012 $25.09
<PAGE>
and at $25.00 per share on and after January 31, 2013,
together in each case with an amount equal to all accumulated
and unpaid dividends thereon to and including the date of
redemption. For the purpose of redeeming any shares of the
7.04% Series, payment of the redemption price shall be out of
any funds of the corporation legally available therefor
remaining after: (i) full cumulative dividends upon all
series and classes of preferred stock then outstanding to the
end of the dividend period next preceding the date fixed for
such redemption (and for the current dividend period if the
date fixed for such redemption is a dividend payment date)
shall have been declared and shall have been paid or set
apart for payment, and (ii) all money shall have been paid to
or set aside or made available for any sinking fund for the
purchase or redemption of all series of and classes of
preferred stock as may be required by the terms of such
preferred stock.
(e) Any shares of the 7.04% Series which have been
redeemed, purchased, or otherwise acquired by the corporation
shall become authorized and unissued shares of the First
Preferred Stock, $25 par value, but shall not be reissued as
shares of the 7.04% Series.
(f) Upon liquidation, dissolution, or winding up of the
corporation, the holders of shares of the 7.04% Series shall
be entitled to receive the liquidation value per share, which
is hereby fixed at $25.00 per share, plus an amount equal to
all accumulated and unpaid dividends thereon at such time,
whether or not earned or declared.
(g) Dividends shall be computed on a basis of a 360-day
year of twelve 30-day months.
(h) If the date for payment of any dividend or the date
fixed for redemption of any share of the 7.04% Series shall
not be a business day, then payment of the dividend or
applicable redemption price need not be made on such date,
but may be made on the next succeeding business day with the
same force and effect as if made on the date for payment of
such dividend or date fixed for redemption.
<PAGE>
EXHIBIT 8
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 6-7/8% REDEEMABLE FIRST PREFERRED STOCK OF
PACIFIC GAS AND ELECTRIC COMPANY
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of stock known as First Preferred Stock, issuable from time
to time in one or more series, of which a series of such class of stock
was issued as the 6-7/8% Redeemable First Preferred Stock, $25 par value
(herein called the "6-7/8% Series"); and
WHEREAS, it is in the best interest of this corporation to restate
the Certificate of Determination of Preferences of the 6-7/8% Series to
eliminate the portions of the officers' certificate and verification
which do not set forth any of the rights, preferences, privileges, or
restrictions of the 6-7/8% Series.
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificate of Determination of Preferences of the 6-7/8% Series is
hereby approved; and
BE IT FURTHER RESOLVED that the Certificate of Determination of
Preferences of the 6-7/8% Series is hereby approved and adopted as
restated in its entirety as follows:
5,000,000 shares of this corporation's unissued Redeemable
First Preferred Stock, $25 par value, shall constitute a series
designated "6-7/8% Redeemable First Preferred Stock" (hereinafter
referred to as the "6-7/8% Series").
The terms of the 6-7/8% Series are hereby fixed as
follows:
(a) The holders of shares of the 6-7/8% Series shall be
entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of 6-7/8 percent of par
value thereof per annum, and no more. Such dividends shall
be cumulative with respect to each share from the date of
issuance thereof.
(b) No dividend shall be declared or paid on any shares of
the 6-7/8% Series or on any shares of any other series or
<PAGE>
class of preferred stock unless a ratable dividend on the 6-
7/8% Series and such other series or class of preferred
stock, in proportion to the full preferential amounts to
which each series or class is entitled, is declared and is
paid or set apart for payment. As used herein, the term
"preferred stock" shall mean all series of the first
preferred stock, $25 par value per share, and first preferred
stock, $100 par value per share, and any other class of stock
ranking equally with the preferred stock as to preference in
dividends and liquidation rights, notwithstanding that shares
of such series and classes may differ as to amounts of
dividends or liquidation payments to which they are entitled.
(c) No junior shares or shares of preferred stock shall be
purchased, redeemed, or otherwise acquired by the
corporation, and no moneys shall be paid to or set aside or
made available for a sinking fund for the purchase or
redemption of junior shares or shares of preferred stock,
unless full cumulative dividends upon all series and classes
of preferred stock then outstanding to the end of the
dividend period next preceding the date fixed for such
redemption (and for the current dividend period if the date
fixed for such redemption is a dividend payment date) shall
have been declared and shall have been paid or set aside for
payment. As used herein, the term "junior shares" shall mean
common shares or any other shares ranking junior to the
preferred stock either as to dividends or upon liquidation,
dissolution, or winding up.
(d) The shares of the 6-7/8% Series shall not be subject to
redemption by this corporation prior to July 31, 1998. On
and after July 31, 1998, the redemption price shall be $25.00
per share, together with an amount equal to all accumulated
and unpaid dividends thereon to and including the date of
redemption. For the purpose of redeeming any shares of the
6-7/8% Series, payment of the redemption price shall be out
of any funds of the corporation legally available therefor
remaining after: (i) full cumulative dividends upon all
series and classes of preferred stock then outstanding to the
end of the dividend period next preceding the date fixed for
such redemption (and for the current dividend period if the
date fixed for such redemption is a dividend payment date)
<PAGE>
shall have been declared and shall have been paid or set
apart for payment, and (ii) all money shall have been paid to
or set aside or made available for any sinking fund for the
purchase or redemption of all series of and classes of
preferred stock as may be required by the terms of such
preferred stock.
(e) Any shares of the 6-7/8% Series which have been
redeemed, purchased, or otherwise acquired by the corporation
shall become authorized and unissued shares of the First
Preferred Stock, $25 par value, but shall not be reissued as
shares of the 6-7/8% Series.
(f) Upon liquidation, dissolution, or winding up of the
corporation, the holders of shares of the 6-7/8% Series shall
be entitled to receive the liquidation value per share, which
is hereby fixed at $25.00 per share, plus an amount equal to
all accumulated and unpaid dividends thereon at such time,
whether or not earned or declared.
(g) Dividends shall be computed on a basis of a 360-day
year of twelve 30-day months.
(h) If the date for payment of any dividend or the date
fixed for redemption of any share of the 6-7/8% Series shall
not be a business day, then payment of the dividend or
applicable redemption price need not be made on such date,
but may be made on the next succeeding business day with the
same force and effect as if made on the date for payment of
such dividend or date fixed for redemption.
<PAGE>
EXHIBIT 9
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF 6.30% REDEEMABLE FIRST PREFERRED STOCK OF
PACIFIC GAS AND ELECTRIC COMPANY
WHEREAS, the Articles of Incorporation of this corporation provide
for a class of stock known as First Preferred Stock, issuable from time
to time in one or more series, of which a series of such class of stock
was issued as the 6.30% Redeemable First Preferred Stock, $25 par value
(herein called the "6.30% Series"); and
WHEREAS, it is in the best interest of this corporation to restate
the Certificate of Determination of Preferences of the 6.30% Series to
eliminate the portions of the officers' certificate and verification
which do not set forth any of the rights, preferences, privileges, or
restrictions of the 6.30% Series.
NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of
the Certificate of Determination of Preferences of the 6.30% Series is
hereby approved; and
BE IT FURTHER RESOLVED, that the Certificate of Determination of
Preferences of the 6.30% Series is hereby approved and adopted as
restated in its entirety as follows:
2,500,000 shares of this corporation's unissued Redeemable
First Preferred Stock, $25 par value, shall constitute a series
designated "6.30% Redeemable First Preferred Stock" (hereinafter
referred to as the "6.30% Series").
The terms of the 6.30% Series are hereby fixed as follows:
(a) The holders of shares of the 6.30% Series shall be
entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of 6.30 percent of par value
thereof per annum, and no more. Such dividends shall be
cumulative with respect to each share from the date of
issuance thereof
<PAGE>
(b) No dividend shall be declared or paid on any
shares of the 6.30% Series or on any shares of any other
series or class of preferred stock unless a ratable dividend
on the 6.30% Series and such other series or class of
preferred stock, in proportion to the full preferential
amounts to which each series or class is entitled, is
declared and is paid or set apart for payment. As used
herein, the term "preferred stock" shall mean all series of
the first preferred stock, $25 par value per share, and first
preferred stock, $100 par value per share, and any other
class of stock ranking equally with the preferred stock as to
preference in dividends and liquidation rights,
notwithstanding that shares of such series and classes may
differ as to amounts of dividends or liquidation payments to
which they are entitled.
(c) No junior shares or shares of preferred stock shall be
purchased, redeemed, or otherwise acquired by the
corporation, and no moneys shall be paid to or set aside or
made available for a sinking fund for the purchase or
redemption of junior shares or shares of preferred stock,
unless full cumulative dividends upon all series and classes
of preferred stock then outstanding to the end of the
dividend period next preceding the date fixed for such
redemption (and for the current dividend period if the date
fixed for such redemption is a dividend payment date) shall
have been declared and shall have been paid or set aside for
payment. As used herein, the term "junior shares" shall mean
common shares or any other shares ranking junior to the
preferred stock either as to dividends or upon liquidation,
dissolution, or winding up.
(d) The shares of the 6.30% Series shall not be subject to
redemption by this corporation prior to January 31, 2004. On
and after January 31, 2004, the redemption price shall be
$25.00 per share, together with an amount equal to all
accumulated and unpaid dividends thereon to and including the
date of redemption. For the purpose of redeeming any shares
of the 6.30% Series, payment of the redemption price shall be
out of any funds of the corporation legally available
therefor remaining after: (i) full cumulative dividends upon
all series and classes of preferred stock then outstanding to
the end of the dividend period next preceding the date fixed
for such redemption (and for the current dividend period if
<PAGE>
the date fixed for such redemption is a dividend payment
date) shall have been declared and shall have been paid or
set apart for payment, and (ii) all money shall have been
paid to or set aside or made available for any sinking fund
for the purchase or redemption of all series of and classes
of preferred stock as may be required by the terms of such
preferred stock.
(e) Shares of the 6.30% Series shall also be subject to
redemption through the operation of a sinking fund (herein
called the "Sinking Fund") at the redemption price (the
"Sinking Fund Redemption Price") of $25.00 per share plus an
amount equal to the accumulated and unpaid dividends thereon
to and including the redemption date, whether or not earned
or declared. For the purposes of the Sinking Fund, out of
any funds of the corporation legally available therefor
remaining after full cumulative dividends upon all series and
classes of preferred stock then outstanding to the end of the
dividend period next preceding the date fixed for such
redemption (and for the current dividend period if the date
fixed for such redemption is a dividend payment date) shall
have been declared and shall have been paid or set apart for
payment, the corporation shall redeem 125,000 shares of the
6.30% Series annually on each January 31, from 2004 through
2008, inclusive, and 1,875,000 shares on January 31, 2009, at
the Sinking Fund Redemption Price. The Sinking Fund shall be
cumulative so that if on any such January 31 the funds of the
corporation legally available therefor shall be insufficient
to permit the required redemption in full, or if for any
other reason such redemption shall not have been made in
full, the remaining shares of the 6.30% Series so required to
be redeemed shall be redeemed before any cash dividend shall
be paid or declared, or any distribution made, on any junior
shares or before any junior shares or any shares of preferred
stock shall be purchased, redeemed or otherwise acquired by
the corporation, or any moneys shall be paid to or set aside
or made available for a sinking fund for the purchase or
redemption of any junior shares or any shares of preferred
stock; provided, however, that, notwithstanding the existence
of any such deficiency, the corporation may make any required
sinking fund redemption on any other series or class of
preferred stock if the number of shares of such other series or
<PAGE>
class of preferred stock being so redeemed bears (as nearly
as practicable) the same ratio to the aggregate number of
shares of such other series or class then due to be redeemed
as the number of shares of the 6.30% Series being redeemed
bears to the aggregate number of shares of the 6.30% Series
then due to be redeemed.
(f) Shares of the 6.30% Series redeemed otherwise than as
required by section (e) or purchased or otherwise acquired by
the corporation may, at the option of the corporation, be
applied as a credit against any Sinking Fund redemption
required by section (e). Moneys available for the Sinking
Fund shall be applied on each such January 31 to the
redemption of shares of the 6.30% Series.
(g) Any shares of the 6.30% Series which have been
redeemed, purchased, or otherwise acquired by the corporation
shall become authorized and unissued shares of the First
Preferred Stock, $25 par value, but shall not be reissued as
shares of the 6.30% Series.
(h) Upon liquidation, dissolution, or winding up of the
corporation, the holders of shares of the 6.30% Series shall
be entitled to receive the liquidation value per share, which
is hereby fixed at $25.00 per share, plus an amount equal to
all accumulated and unpaid dividends thereon at such time,
whether or not earned or declared.
(i) Dividends shall be computed on a basis of a 360-day
year of twelve 30-day months.
(j) If the date for payment of any dividend or the date
fixed for redemption of any share of the 6.30% Series shall
not be a business day, then payment of the dividend or
applicable redemption price need not be made on such date,
but may be made on the next succeeding business day with the
same force and effect as if made on the date for payment of
such dividend or date fixed for redemption.
<PAGE>
Bylaws
of
Pacific Gas and Electric Company
amended as of May 6, 1998
Article I.
SHAREHOLDERS.
1. Place of Meeting. All meetings of the shareholders shall be
held at the office of the Corporation in the City and County of San
Francisco, State of California, or at such other place within the
State of California as may be designated by the Board of Directors.
2. Annual Meetings. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the Board of
Directors.
Written notice of the annual meeting shall be given not less than
ten (or, if sent by third-class mail, thirty) nor more than sixty days
prior to the date of the meeting to each shareholder entitled to vote
thereat. The notice shall state the place, day, and hour of such
meeting, and those matters which the Board, at the time of mailing,
intends to present for action by the shareholders.
Notice of any meeting of the shareholders shall be given by mail
or telegraphic or other written communication, postage prepaid, to
each holder of record of the stock entitled to vote thereat, at his
address, as it appears on the books of the Corporation.
3. Special Meetings. Special meetings of the shareholders
shall be called by the Secretary or an Assistant Secretary at any time
on order of the Board of Directors, the Chairman of the Board, the
Vice Chairman of the Board, the Chairman of the Executive Committee,
or the President. Special meetings of the shareholders shall also be
called by the Secretary or an Assistant Secretary upon the written
request of holders of shares entitled to cast not less than ten
percent of the votes at the meeting. Such request shall state the
purposes of the meeting, and shall be delivered to the Chairman of the
Board, the Vice Chairman of the Board, the Chairman of the Executive
Committee, the President or the Secretary.
<PAGE>
A special meeting so requested shall be held on the date
requested, but not less than thirty-five nor more than sixty days
after the date of the original request. Written notice of each
special meeting of shareholders, stating the place, day, and hour of
such meeting and the business proposed to be transacted thereat, shall
be given in the manner stipulated in Article I, Section 2, Paragraph 3
of these Bylaws within twenty days after receipt of the written
request.
4. Attendance at Meetings. At any meeting of the shareholders,
each holder of record of stock entitled to vote thereat may attend in
person or may designate an agent or a reasonable number of agents, not
to exceed three to attend the meeting and cast votes for his shares.
The authority of agents must be evidenced by a written proxy signed by
the shareholder designating the agents authorized to attend the
meeting and be delivered to the Secretary of the Corporation prior to
the commencement of the meeting.
5. No Cumulative Voting. No shareholder of the Corporation
shall be entitled to cumulate his or her voting power.
Article II.
DIRECTORS.
1. Number. The Board of Directors of this corporation shall
consist of such number of directors, not less than nine (9) nor more
than seventeen (17), and the exact number of directors shall be
fifteen (15) until changed, within the limits specified above, by an
amendment to this Bylaw duly adopted by the Board of Directors or the
shareholders.
2. Powers. The Board of Directors shall exercise all the
powers of the Corporation except those which are by law, or by the
Articles of Incorporation of this Corporation, or by the Bylaws
conferred upon or reserved to the shareholders.
3. Executive Committee. There shall be an Executive Committee
of the Board of Directors consisting of the Chairman of the Committee,
the Chairman of the Board, if these offices be filled, the President,
and four Directors who are not officers of the Corporation. The
members of the Committee shall be elected, and may at any time be
removed, by a two-thirds vote of the whole Board.
The Executive Committee, subject to the provisions of law, may
exercise any of the powers and perform any of the duties of the Board
of Directors; but the Board may by an affirmative vote of a majority
of its members withdraw or limit any of the powers of the Executive
Committee.
The Executive Committee, by a vote of a majority of its members,
shall fix its own time and place of meeting, and shall prescribe its
<PAGE>
own rules of procedure. A quorum of the Committee for the transaction
of business shall consist of three members.
4. Time and Place of Directors' Meetings. Regular meetings of
the Board of Directors shall be held on such days and at such times
and at such locations as shall be fixed by resolution of the Board, or
designated by the Chairman of the Board or, in his absence, the Vice
Chairman of the Board, or the President of the Corporation and
contained in the notice of any such meeting. Notice of meetings shall
be delivered personally or sent by mail or telegram at least seven
days in advance.
5. Special Meetings. The Chairman of the Board, the Vice
Chairman of the Board, the Chairman of the Executive Committee, the
President, or any five directors may call a special meeting of the
Board of Directors at any time. Notice of the time and place of
special meetings shall be given to each Director by the Secretary.
Such notice shall be delivered personally or by telephone to each
Director at least four hours in advance of such meeting, or sent by
first-class mail or telegram, postage prepaid, at least two days in
advance of such meeting.
6. Quorum. A quorum for the transaction of business at any
meeting of the Board of Directors shall consist of six members.
7. Action by Consent. Any action required or permitted to be
taken by the Board of Directors may be taken without a meeting if all
Directors individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Directors.
8. Meetings by Conference Telephone. Any meeting, regular or
special, of the Board of Directors or of any committee of the Board of
Directors, may be held by conference telephone or similar
communication equipment, provided that all Directors participating in
the meeting can hear one another.
Article III.
OFFICERS.
1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Vice Chairman of the Board, a Chairman of the
Executive Committee (whenever the Board of Directors in its discretion
fills these offices), a President, one or more Vice Presidents, a
Secretary and one or more Assistant Secretaries, a Treasurer and one
or more Assistant Treasurers, a General Counsel, a General Attorney
(whenever the Board of Directors in its discretion fills this office),
and a Controller, all of whom shall be elected by the Board of
Directors. The Chairman of the Board, the Vice Chairman of the Board,
the Chairman of the Executive Committee, and the President shall be
members of the Board of Directors.
<PAGE>
2. Chairman of the Board. The Chairman of the Board, if that
office be filled, shall preside at all meetings of the shareholders,
of the Directors, and of the Executive Committee in the absence of the
Chairman of that Committee. He shall be the chief executive officer
of the Corporation if so designated by the Board of Directors. He
shall have such duties and responsibilities as may be prescribed by
the Board of Directors or the Bylaws. The Chairman of the Board shall
have authority to sign on behalf of the Corporation agreements and
instruments of every character, and in the absence or disability of
the President, shall exercise his duties and responsibilities.
3. Vice Chairman of the Board. The Vice Chairman of the Board,
if that office be filled, shall have such duties and responsibilities
as may be prescribed by the Board of Directors, the Chairman of the
Board, or the Bylaws. He shall be the chief executive officer of the
Corporation if so designated by the Board of Directors. In the
absence of the Chairman of the Board, he shall preside at all meetings
of the Board of Directors and of the shareholders; and, in the absence
of the Chairman of the Executive Committee and the Chairman of the
Board, he shall preside at all meetings of the Executive Committee.
The Vice Chairman of the Board shall have authority to sign on behalf
of the Corporation agreements and instruments of every character.
4. Chairman of the Executive Committee. The Chairman of the
Executive Committee, if that office be filled, shall preside at all
meetings of the Executive Committee. He shall aid and assist the
other officers in the performance of their duties and shall have such
other duties as may be prescribed by the Board of Directors or the
Bylaws.
5. President. The President shall have such duties and
responsibilities as may be prescribed by the Board of Directors, the
Chairman of the Board, or the Bylaws. He shall be the chief executive
officer of the Corporation if so designated by the Board of Directors.
If there be no Chairman of the Board, the President shall also
exercise the duties and responsibilities of that office. The
President shall have authority to sign on behalf of the Corporation
agreements and instruments of every character.
6. Vice Presidents. Each Vice President shall have such duties
and responsibilities as may be prescribed by the Board of Directors,
the Chairman of the Board, the Vice Chairman of the Board, the
President, or the Bylaws. Each Vice President's authority to sign
agreements and instruments on behalf of the Corporation shall be as
prescribed by the Board of Directors. The Board of Directors, the
Chairman of the Board, the Vice Chairman of the Board, or the
President may confer a special title upon any Vice President.
7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and the Executive Committee, and all meetings of
the shareholders, and he shall record the minutes of all proceedings
in books to be kept for that purpose. He shall be responsible for
maintaining a proper share register and stock transfer books for all
<PAGE>
classes of shares issued by the Corporation. He shall give, or cause
to be given, all notices required either by law or the Bylaws. He
shall keep the seal of the Corporation in safe custody, and shall
affix the seal of the Corporation to any instrument requiring it and
shall attest the same by his signature.
The Secretary shall have such other duties as may be prescribed by
the Board of Directors, the Chairman of the Board, the Vice Chairman
of the Board, the President, or the Bylaws.
The Assistant Secretaries shall perform such duties as may be
assigned from time to time by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board, the President, or the
Secretary. In the absence or disability of the Secretary, his duties
shall be performed by an Assistant Secretary.
8. Treasurer. The Treasurer shall have custody of all moneys
and funds of the Corporation, and shall cause to be kept full and
accurate records of receipts and disbursements of the Corporation. He
shall deposit all moneys and other valuables of the Corporation in the
name and to the credit of the Corporation in such depositaries as may
be designated by the Board of Directors or any employee of the
Corporation designated by the Board of Directors. He shall disburse
such funds of the Corporation as have been duly approved for
disbursement.
The Treasurer shall perform such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President, or the Bylaws.
The Assistant Treasurer shall perform such duties as may be
assigned from time to time by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board, the President, or the
Treasurer. In the absence or disability of the Treasurer, his duties
shall be performed by an Assistant Treasurer.
9. General Counsel. The General Counsel shall be responsible
for handling on behalf of the Corporation all proceedings and matters
of a legal nature. He shall render advice and legal counsel to the
Board of Directors, officers, and employees of the Corporation, as
necessary to the proper conduct of the business. He shall keep the
management of the Corporation informed of all significant developments
of a legal nature affecting the interests of the Corporation.
The General Counsel shall have such other duties as may from time
to time be prescribed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President, or the Bylaws.
10. Controller. The Controller shall be responsible for
maintaining the accounting records of the Corporation and for
preparing necessary financial reports and statements, and he shall
properly account for all moneys and obligations due the Corporation
and all properties, assets, and liabilities of the Corporation. He
shall render to the officers such periodic reports covering the result
<PAGE>
of operations of the Corporation as may be required by them or any one
of them.
The Controller shall have such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President, or the Bylaws.
He shall be the principal accounting officer of the Corporation,
unless another individual shall be so designated by the Board of
Directors.
Article IV.
MISCELLANEOUS.
1. Record Date. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders
entitled to notice of and to vote at any meeting of shareholders, or
entitled to receive any dividend or distribution, or allotment of
rights, or to exercise rights in respect to any change, conversion, or
exchange of shares. The record date so fixed shall be not more than
sixty nor less than ten days prior to the date of such meeting nor
more than sixty days prior to any other action for the purposes for
which it is so fixed. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to
vote at the meeting, or entitled to receive any dividend or
distribution, or allotment of rights, or to exercise the rights, as
the case may be.
2. Transfers of Stock. Upon surrender to the Secretary or
Transfer Agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment,
or authority to transfer, and payment of transfer taxes, the
Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction upon
its books. Subject to the foregoing, the Board of Directors shall
have power and authority to make such rules and regulations as it
shall deem necessary or appropriate concerning the issue, transfer,
and registration of certificates for shares of stock of the
Corporation, and to appoint and remove Transfer Agents and Registrars
of transfers.
3. Lost Certificates. Any person claiming a certificate of
stock to be lost, stolen, mislaid, or destroyed shall make an
affidavit or affirmation of that fact and verify the same in such
manner as the Board of Directors may require, and shall, if the Board
of Directors so requires, give the Corporation, its Transfer Agents,
Registrars, and/or other agents a bond of indemnity in form approved
by counsel, and in amount and with such sureties as may be
satisfactory to the Secretary of the Corporation, before a new
certificate may be issued of the same tenor and for the same number of
shares as the one alleged to have been lost, stolen, mislaid, or
destroyed.
<PAGE>
Article V.
AMENDMENTS.
1. Amendment by Shareholders. Except as otherwise provided by
law, these Bylaws, or any of them, may be amended or repealed or new
Bylaws adopted by the affirmative vote of a majority of the
outstanding shares entitled to vote at any regular or special meeting
of the shareholders.
2. Amendment by Directors. To the extent provided by law,
these Bylaws, or any of them, may be amended or repealed or new Bylaws
adopted by resolution adopted by a majority of the members of the
Board of Directors.
<PAGE>
PG&E CORPORATION
DIRECTOR GRANTOR TRUST AGREEMENT
This Director Grantor Trust Agreement (the "Trust
Agreement") is made this 1st day of April 1998, by and
between PG&E CORPORATION ("the Company") and WACHOVIA BANK,
N.A. ("the Trustee").
Recitals
- --------
(a) WHEREAS, the Company has adopted the nonqualified
deferred compensation Plans and Agreements (the
"Arrangements") as listed in Attachment I;
(b) WHEREAS, the Company has incurred or expects to incur
liability under the terms of such Arrangements with
respect to the individuals participating in such
Arrangements (the "Participants and Beneficiaries");
(c) WHEREAS, the Company hereby establishes a Trust (the
"Trust") and shall contribute to the Trust assets that
shall be held therein, subject to the claims of the
Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to
Participants and their Beneficiaries in such manner and
at such times as specified in the Arrangements and in
this Trust Agreement;
(d) WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and
shall not affect the status of the Arrangements as an
unfunded plan maintained for the purpose of providing
deferred compensation for a select group of management
or highly compensated employees for purposes of Title I
of the Employee Retirement Income Security Act of 1974;
and
(e) WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a
source of funds (the "Fund") to assist it in satisfying
its Liabilities under the Arrangements.
NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and
disposed of as follows:
Section 1. Establishment of The Trust
--------------------------
(a) The Trust is intended to be a Grantor Trust, of which
the Company is the Grantor, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A
of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
<PAGE>
(b) The Company shall be considered a Grantor for the
purposes of the Trust.
(c) The Trust hereby established shall be irrevocable.
(d) The Company hereby deposits with the Trustee in the
Trust One Thousand Dollars and Zero Cents ($1,000.00)
which shall become the principal of the Trust to be
held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(e) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of
the Company and shall be used exclusively for the uses
and purposes of Participants and general creditors as
herein set forth. Participants and their Beneficiaries
shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any
rights created under the Arrangements and this Trust
Agreement shall be unsecured contractual rights of
Participants and their Beneficiaries against the
Company. Any assets held by the Trust will be subject
to the claims of the general creditors of the Company
under federal and state law in the event the Company is
Insolvent, as defined in Section 3(a) herein.
(f) The Company, in its sole discretion, may at any time,
or from time to time, make additional deposits of cash
or other property acceptable to the Trustee in the
Trust to augment the principal to be held, administered
and disposed of by the Trustee as provided in this
Trust Agreement. Prior to a Change of Control, neither
the Trustee nor any Participant or Beneficiary shall
have any right to compel additional deposits.
(g) Upon a Change of Control, the Company shall, as soon as
possible, but in no event longer than thirty (30) days
following the occurrence of a Change of Control, as
defined herein, make an irrevocable contribution to the
Trust in an amount that is sufficient to fund the Trust
in an amount equal to no less than 100% but no more
than 120% of the amount necessary to pay each
Participant or Beneficiary the benefits to which
Participants or their Beneficiaries would be entitled
pursuant to the terms of the Arrangements as of the
date on which the Change of Control occurred. The
Company shall also fund an expense reserve for the
Trustee in the amount of $225,000.00.
Section 2. Payments Participants and Their Beneficiaries
---------------------------------------------
(a) Prior to a Change of Control, distributions from the
Trust shall be made by the Trustee to Participants and
Beneficiaries at the direction of the Company. The
entitlement of a Participant or his or her
Beneficiaries to benefits under the Arrangements shall
be determined by the Company or such party or
<PAGE>
professional administrator as it shall designate under
the Arrangements as the Company's agent, and any claim
for such benefits shall be considered and reviewed
under the procedures set out in the Arrangements.
(b) The Company may make payment of benefits directly to
Participants or their Beneficiaries as they become due
under the terms of the Arrangements. The Company shall
notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable
to Participants or their Beneficiaries. In addition, if
the principal of the Trust, and any earnings thereon,
are not sufficient to make payments of benefits in
accordance with the terms of the Arrangements, the
Company shall make the balance of each such payment as
it falls due in accordance with the Arrangements. The
Trustee shall notify the Company where principal and
earnings are not sufficient. Nothing in this Agreement
shall relieve the Company of its liabilities to pay
benefits due under the Arrangements except to the
extent such liabilities are met by application of
assets of the Trust.
(c) After a Change of Control, the Company shall continue
to make the determination of benefits due to
Participants or their Beneficiaries and shall provide
the Trustee with a schedule of benefits due. The
Trustee shall pay benefits due in accordance with such
schedule; provided however, a Participant or their
Beneficiaries may make application to the Trustee for
an independent decision as to the amount or form of
their benefits due under the Arrangements. In making
any determination required or permitted to be made by
the Trustee under this Section, the Trustee shall, in
each such case, reach its own independent
determination, in its absolute and sole discretion, as
to the Participant's or Beneficiary's entitlement to a
payment hereunder. In making its determination, the
Trustee may consult with and make such inquiries of
such persons, including the Participant or Beneficiary,
the Company, legal counsel, actuaries or other persons,
as the Trustee may reasonably deem necessary. Any
reasonable costs incurred by the Trustee in arriving at
its determination shall be reimbursed by the Company
and, to the extent not paid by the Company within a
reasonable time, shall be charged to the Trust. The
Company waives any right to contest any amount paid
over by the Trustee hereunder pursuant to a good faith
determination made by the Trustee notwithstanding any
claim by or on behalf of the Company (absent a manifest
abuse of discretion by the Trustee) that such payments
should not be made.
(d) The Trustee agrees that it will not itself institute
any action at law or at equity, whether in the nature
of an accounting, interpleading action, request for a
declaratory judgment or otherwise, requesting a court
<PAGE>
or administrative or quasi-judicial body to make the
determination required to be made by the Trustee under
this Section 2 in the place and stead of the Trustee.
The Trustee may institute an action to collect a
contribution due the Trust following a Change of
Control or in the event that the Trust should ever
experience a short-fall in the amount of assets
necessary to make payments pursuant to the terms of the
Arrangements.
(e) In the event any Participant or his or her Beneficiary
is determined to be subject to federal income tax on
any amount to the credit of his or her account under
any Arrangement prior to the time of payment hereunder,
whether or not due to the establishment of or
contributions to this Trust, a portion of such taxable
amount equal to the federal, state and local taxes
(excluding any interest or penalties) owed on such
taxable amount, shall be distributed by the Trustee as
soon thereafter as practicable to such Participant or
Beneficiary. The Company shall promptly reimburse the
Trust for any such distribution in an amount certified
by the Trustee to be needed for the Participant's
benefits. For these purposes, a Participant or
Beneficiary shall be deemed to pay state and local
taxes at the highest marginal rate of taxation in the
state in which the Participant resides or is employed
(or both) where a tax is imposed and federal income
taxes at the highest marginal rate of taxation, net of
the maximum reduction in federal income taxes which
could be obtained from deduction of such state and
local taxes. Such distributions shall be at the
direction of the Company or the Trustee, or upon proper
application of the Participant or Beneficiary; provided
that the actual amount of the distribution shall be
determined by the Company prior to a Change of Control
and the Trustee following a Change of Control. An
amount to the credit of a Participant's Account shall
be determined to be subject to federal income tax upon
the earliest of: (a) a final determination by the
United States Internal Revenue Service addressed to the
Participant or his Beneficiary which is not appealed to
the courts; (b) a final determination by the United
States Tax Court or any other federal court affirming
any such determination by the Internal Revenue Service;
or (c) an opinion by the Company's tax counsel,
addressed to the Company and the Trustee, to the effect
that by reason of Treasury Regulations, amendments to
the Internal Revenue Code, published Internal Revenue
Service rulings, court decisions or other substantial
precedent, amounts to the credit of Participants
hereunder are subject to federal income tax prior to
payment. The Company may undertake at its sole expense
to defend any tax claims described herein which are
asserted by the Internal Revenue Service against any
Participant or Beneficiary, including attorney fees and
cost of appeal, and shall have the sole authority to
determine whether or not to appeal any determination
made by the Service or by a lower court. The Company
also agrees to reimburse any Participant or Beneficiary
for any interest or penalties in respect of tax claims
<PAGE>
hereunder upon receipt of documentation of same. Any
distributions from the Fund to a Participant or
Beneficiary under this Section 2(e) shall be applied in
accordance with the provisions of the Arrangement to
reduce the Company liabilities to such Participant
and/or Beneficiary under the Arrangement with such
reductions to be made on a pro-rata basis over the term
of benefit payments under the Arrangement; provided,
however, that in no event shall any Participant,
Beneficiary or estate of any Participant or Beneficiary
have any obligation to return all or any part of such
distribution to the Company if such distribution
exceeds benefits payable under an Arrangement. Any
reduction in accordance with the foregoing sentence and
the Arrangements shall be determined by the Company
prior to a Change of Control. Following a Change of
Control, the Company shall continue to make such
determination subject to the right of a Participant to
petition the Trustee under Section 2(c).
Section 3. Trustee Responsibility Regarding Payments To The
Trust Beneficiary When The Company Is Insolvent
------------------------------------------------
(a) The Trustee shall cease payment of benefits to
Participants and their Beneficiaries if the Company is
Insolvent. The Company shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to
claims of general creditors of the Company under
federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to
inform the Trustee in writing that the Company is
Insolvent. If a person claiming to be a creditor
of the Company alleges in writing to the Trustee
that the Company has become Insolvent, the Trustee
shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall
discontinue payment of benefits to Participants or
their Beneficiaries.
(2) Unless the Trustee has actual knowledge that the
Company is Insolvent, or has received notice from
the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all
events rely on such evidence concerning the
Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a
<PAGE>
reasonable basis for making a determination
concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall
discontinue payments to Participants or their
Beneficiaries and shall hold the assets of the
Trust for the benefit of the Company's general
creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Participants or
their Beneficiaries to pursue their rights as
general creditors of the Company with respect to
benefits due under the Arrangements or otherwise.
(4) The Trustee shall resume the payment of benefits
to Participants or their Beneficiaries in
accordance with Section 2 of this Trust Agreement
only after the Trustee has determined that the
Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the
Trustee discontinues the payment of benefits from the
Trust pursuant to Section 3(b) hereof and subsequently
resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of
all payments due to Participants or their Beneficiaries
under the terms of the Arrangements for the period of
such discontinuance, less the aggregate amount of any
payments made to Participants or their Beneficiaries by
the Company in lieu of the payments provided for
hereunder curing any such period of discontinuance.
Section 4. Payments if a Short-Fall of The Trust Assets
Occurs
---------------------------------------------
(a) If there are not sufficient assets for the payment of
benefits pursuant to Section 2 or Section 3(c) hereof
and the Company does not otherwise make such payments
within a reasonable time after demand from the Trustee,
the Trustee shall make payment of benefits from the
Trust to the Participants or their Beneficiaries in the
following order of priority:
(1) retired Participants and their Beneficiaries;
(2) vested Participants over the age of 55 who were
terminated within two years following a Change of
Control and their Beneficiaries;
(3) vested active Participants over the age of 55 and
their Beneficiaries;
(4) any other vested active Participants and their
<PAGE>
Beneficiaries;
(5) vested former Participants and their Beneficiaries;
and
(6) non-vested Participants and their Beneficiaries
(b) Within each category set forth under Section 4(a),
payments shall be prioritized in the following order:
(c) Upon receipt of a contribution from the Company
necessary to make up for a short-fall in the payments
due, the Trustee shall resume payments to all the
Participants and Beneficiaries under the Arrangements.
Following a Change of Control, the Trustee shall have
the right to compel a contribution to the Trust from
the Company to make-up for any short-fall.
Section 5. Payments to the Company
-----------------------
Except as provided in Sections 3, 8, and 14 hereof, the
Company shall have no right or power to direct the Trustee
to return to the Company or to divert to others any of the
Trust assets before all payment of benefits have been made
to Participants and their Beneficiaries pursuant to the
terms of the Arrangements.
Section 6. Investment Authority
--------------------
(a) The Trustee shall not be liable in discharging its
duties hereunder, including without limitation its duty
to invest and reinvest the Fund, if it acts for the
exclusive benefit of the Participants and their
Beneficiaries, in good faith and as a prudent person
would act in accomplishing a similar task and in
accordance with the terms of this Trust Agreement and
any applicable federal or state laws, rules or
regulations.
(b) Subject to investment guidelines agreed to in writing
from time to time by the Company and the Trustee prior
to a Change of Control, the Trustee shall have the
power in investing and reinvesting the Fund in its sole
discretion:
(1) To invest and reinvest in any readily marketable
common and preferred stocks, bonds, notes,
debentures (including convertible stocks and
securities but not including any stock or security
of other than a de minimus amount held in a
collective or mutual fund), certificates of
deposit or demand or time deposits (including any
such deposits with the Trustee) and shares of
investment companies and mutual funds, without
being limited to the classes or property in which
the Trustees are authorized to invest by any law
<PAGE>
or any rule of court of any state and without
regard to the proportion any such property may
bear to the entire amount of the Fund;
(2) To commingle for investment purposes all or any
portion of the Fund with assets of any other
similar trust or trusts established by the Company
with the Trustee for the purpose of safeguarding
deferred compensation or retirement income
benefits of its employees and/or directors;
(3) To retain any property at any time received by the
Trustee;
(4) To sell or exchange any property held by it at
public or private sale, for cash or on credit, to
grant and exercise options for the purchase or
exchange thereof, to exercise all conversion or
subscription rights pertaining to any such
property and to enter into any covenant or
agreement to purchase any property in the future;
(5) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or
other similar plan relating to property held by it
and to consent to or oppose any such plan or any
action thereunder or any contract, lease,
mortgage, purchase, sale or other action by any
person;
(6) To deposit any property held by it with any
protective, reorganization or similar committee,
to delegate discretionary power thereto, and to
pay part of the expenses and compensation thereof
any assessments levied with respect to any such
property to deposited;
(7) To extend the time of payment of any obligation
held by it;
(8) To hold uninvested any moneys received by it,
without liability for interest thereon, but only
in anticipation of payments due for investments,
reinvestments, expenses or disbursements;
(9) To exercise all voting or other rights with
respect to any property held by it and to grant
proxies, discretionary or otherwise;
(10) For the purposes of the Trust, to borrow money
from others, to issue its promissory note or notes
therefor, and to secure the repayment thereof by
pledging any property held by it;
<PAGE>
(11) To employ suitable contractors and counsel, who
may be counsel to the Company or to the Trustee,
and to pay their reasonable expenses and
compensation from the Fund to the extent not paid
by the Company;
(12) To register investments in its own name or in the
name of a nominee; to hold any investment in
bearer form; and to combine certificates
representing securities with certificates of the
same issue held by it in other fiduciary
capacities or to deposit or to arrange for the
deposit of such securities with any depository,
even though, when so deposited, such securities
may be held in the name of the nominee of such
depository with other securities deposited
therewith by other persons, or to deposit or to
arrange for the deposit of any securities issued
or guaranteed by the United States government, or
any agency or instrumentality thereof, including
securities evidenced by book entries rather than
by certificates, with the United States Department
of the Treasury or a Federal Reserve Bank, even
though, when so deposited, such securities may not
be held separate from securities deposited therein
by other persons; provided, however, that no
securities held in the Fund shall be deposited
with the United States Department of the Treasury
or a Federal Reserve Bank or other depository in
the same account as any individual property of the
Trustee, and provided, further, that the books and
records of the Trustee shall at all times show
that all such securities are part of the Trust
Fund;
(13) To settle, compromise or submit to arbitration any
claims, debts or damages due or owing to or from
the Trust, respectively, to commence or defend
suits or legal proceedings to protect any interest
of the Trust, and to represent the Trust in all
suits or legal proceedings in any court or before
any other body or tribunal; provided, however,
that the Trustee shall not be required to take any
such action unless it shall have been indemnified
by the Company to its reasonable satisfaction
against liability or expenses it might incur
therefrom;
(14) To hold and retain policies of life insurance,
annuity contracts, and other property of any kind
which policies are contributed to the Trust by the
Company or any subsidiary of the Company or are
purchased by the Trustee;
(15) To hold any other class of assets which may be
contributed by the Company and that is deemed
reasonable by the Trustee, unless expressly
prohibited herein;
<PAGE>
(16) To loan any securities at any time held by it to
brokers or dealers upon such security as may be
deemed advisable, and during the terms of any such
loan to permit the loaned securities to be
transferred into the name of and voted by the
borrower or others; and
(17) Generally, to do all acts, whether or not
expressly authorized, that the Trustee may deem
necessary or desirable for the protection of the
Fund.
(c) Prior to a Change of Control, the Company shall have
the right, subject to this Section to direct the
Trustee with respect to investments.
(1) The Company may at any time direct the Trustee to
segregate all or a portion of the Fund in a
separate investment account or accounts and may
appoint one or more investment managers and/or an
Investment Committee established by the Company as
described in Section 6(d) hereof to direct the
investment and reinvestment of each such
investment account or accounts. In such event, the
Company shall notify the Trustee of the
appointment of each such investment manager and/or
Investment Committee. No such investment manager
shall be related, directly or indirectly, to the
Company, but members of the Investment Committee
may be employees of the Company.
(2) Thereafter, the Trustee shall make every sale or
investment with respect to such investment account
as directed in writing by the investment manager
or Investment Committee. It shall be the duty of
the Trustee to act strictly in accordance with
each direction. The Trustee shall be under no duty
to question any such direction of the investment
manager or Investment Committee, to review any
securities or other property held in such
investment account or accounts acquired by it
pursuant to such directions or to make any
recommendations to the investment managers or
Investment Committee with respect to such
securities or other property.
(3) Notwithstanding the foregoing, the Trustee,
without obtaining prior approval or direction from
an investment manager or Investment Committee,
shall invest cash balances held by it from time to
time in short term cash equivalents including, but
not limited to, through the medium of any short
term common, collective or commingled trust fund
established and maintained by the Trustee subject
to the instrument establishing such trust fund,
U.S. Treasury Bills, commercial paper (including
such forms of commercial paper as may be available
through the Trustee's Trust Department),
<PAGE>
certificates of deposit (including certificates
issued by the Trustee in its separate corporate
capacity), and similar type securities, with a
maturity not to exceed one year; and, furthermore,
sell such short term investments as may be
necessary to carry out the instructions of an
investment manager or Investment Committee
regarding more permanent type investment and
directed distributions.
(4) The Trustee shall neither be liable nor
responsible for any loss resulting to the Fund by
reason of any sale or purchase of an investment
directed by an investment manager or Investment
Committee nor by reason of the failure to take any
action with respect to any investment which was
acquired pursuant to any such direction in the
absence of further directions of such investment
manager or Investment Committee.
(5) Notwithstanding anything in this Agreement to the
contrary, the Trustee shall be indemnified and saved
harmless by the Company from and against any and all
personal liability to which the Trustee may be subjected by
carrying out any directions of an investment manager or
Investment Committee issued pursuant hereto or for failure
to act in the absence of directions of the investment
manager or Investment Committee including all expenses
reasonably incurred in its defense in the event the Company
fails to provide such defense; provided, however, the
Trustee shall not be so indemnified if it participates
knowingly in, or knowingly undertakes to conceal, an act or
omission of an investment manager or Investment Committee,
having actual knowledge that such act or omission is a
breach of a fiduciary duty; provided further, however, that
the Trustee shall not be deemed to have knowingly
participated in or knowingly undertaken to conceal an act or
omission of an investment manager or Investment Committee
with knowledge that such act or omission was a breach of
fiduciary duty by merely complying with directions of an
investment manager or Investment Committee or for failure to
act in the absence of directions of an investment manager or
Investment Committee. The Trustee may rely upon any order,
certificate, notice, direction or other documentary
confirmation purporting to have been issued by the
investment manager or Investment Committee which the Trustee
believes to be genuine and to have been issued by the
investment manager or Investment Committee. The Trustee
shall not be charged with knowledge of the termination of
the appointment of any investment manager or Investment
Committee until it receives written notice thereof from the
Company.
<PAGE>
(d) Prior to a Change of Control, the Board of Directors of
the Company may appoint an Investment Committee to
direct the investment of the Fund. The Investment
Committee may exercise any powers relating to the
investment of Trust assets as described in Sections 6
and 7 hereof. The Investment Committee shall exercise
its authority by an affirmative action of a majority of
members constituting the Investment Committee,
expressed from time to time by a vote at a meeting of
the Investment Committee, or in an action in writing
signed by all members without a meeting. Prior to a
Change of Control, the Board of Directors of the
Company shall have the right to remove and to replace
any member of the Investment Committee at any time by
notice in writing to that member. Following a Change
of Control, the Company shall have no authority to
remove or replace members of the Investment Committee,
and any vacancy in the membership of the Investment
Committee, created by resignation, disability, death or
otherwise, shall be filled by the vote of a majority of
the members of the Investment Committee then in office.
Following a Change of Control, the Investment Committee
may, on its own initiative, acquire fiduciary insurance
for the benefit of its members at the Company's
expense. If for any reason, the Company does not pay
the premiums for such insurance, the Trustee shall pay
such premiums out of the Trust assets and seek
reimbursement from the Company.
(e) Following a Change of Control, unless there is then in
existence an Investment Committee as described in
Section 6(d) above, the Trustee shall have the sole and
absolute discretion in the management of the Trust
assets and shall have all the powers set forth under
Section 6(b). In investing the Trust assets, the
Trustee shall consider:
(1) the needs of the Arrangements;
(2) the need for matching of the Trust assets with the
liabilities of the Arrangements; and
(3) the duty of the Trustee to act solely in the best
interests of the Participants and their
Beneficiaries.
(f) The Trustee shall have the right, in its sole
discretion, to delegate its investment responsibility
to an investment manager who may be an affiliate the
Trustee. In the event the Trustee shall exercise this
right, the Trustee shall remain, at all times
responsible for the acts of an investment manager. The
Trustee shall have the right to purchase an insurance
policy or an annuity to fund the benefits of the
Arrangements.
(g) The Company shall have the right at any time, and from
time to time in its sole discretion, to substitute
assets of equal fair market value for any asset held by
<PAGE>
the Trust. This right is exercisable by the Company in
a nonfiduciary capacity without the approval or consent
of any person in a fiduciary capacity.
Section 7. Insurance Contracts
-------------------
(a) To the extent that the Trustee is directed by the
Company prior to a Change of Control or by the
Investment Committee after a Change of Control to
invest part or all of the Trust Fund in insurance
contracts, the type and amount thereof shall be
specified by the Company. The Trustee shall be under no
duty to make inquiry as to the propriety of the type or
amount so specified.
(b) Each insurance contract issued shall provide that the
Trustee shall be the owner thereof with the power to
exercise all rights, privileges, options and elections
granted by or permitted under such contract or under
the rules of the insurer. The exercise by the Trustee
of any incidents of ownership under any contract shall,
prior to a Change of Control, be subject to the
direction of the Company. After a Change of Control,
the Trustee shall have all such rights to the extent an
Investment Committee had not been established.
(c) The Trustee shall have no power to name a beneficiary
of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or
to loan to any person the proceeds of any borrowing
against an insurance policy held in the Trust Fund.
(d) No insurer shall be deemed to be a party to the Trust
and an insurer's obligations shall be measured and
determined solely by the terms of contracts and other
agreements executed by the insurer.
Section 8. Disposition of Income
---------------------
(a) Prior to a Change of Control, all income received by
the Trust, net of expenses and taxes, may be returned
to the Company or accumulated and reinvested within the
Trust at the direction of the Company. In addition,
if, at any time prior to a Change of Control, the value
of assets held in the Trust exceeds 100 percent of the
amount necessary to pay each Participant or Beneficiary
the benefits to which Participants or their
Beneficiaries would be entitled pursuant to the terms
of the Arrangements as of the date on which the
determination is made, the Trustee shall return the
excess to the Company at the Company's written request.
<PAGE>
(b) Following a Change of Control, all income received by
the Trust, net of expenses and taxes, shall be
accumulated and reinvested within the Trust.
Section 9. Accounting by The Trustee
-------------------------
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other
transactions required to be made, including such specific
records as shall be agreed upon in writing between the
Company and the Trustee within forty-five (45) days
following the close of each calendar year and within
forty-five (45) days after the removal or resignation of the
Trustee. The Trustee shall deliver to the Company a written
account of its administration of the Trust during such year
or during the period from the close of the last preceding
year to the date of such removal or resignation setting
forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all
securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the
end of such year or as of the date of such removal or
resignation, as the case may be. The Company may approve
such account by an instrument in writing delivered to the
Trustee. In the absence of the Company's filing with the
Trustee objections to any such account within ninety (90)
days after its receipt, the Company shall be deemed to have
so approved such account. In such case, or upon the written
approval by the Company of any such account, the Trustee
shall, to the extent permitted by law, be discharged from
all liability to the Company for its acts or failures to act
described by such account. The foregoing, however, shall not
preclude the Trustee from having its accounting settled by a
court of competent jurisdiction. The Trustee shall be
entitled to hold and to commingle the assets of the Trust in
one Fund for investment purposes but at the direction of the
Company prior to a Change of Control, the Trustee shall
create one or more sub-accounts.
Section 10. Responsibility of The Trustee
-----------------------------
(a) The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing
that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims,
provided, however, that the Trustee shall incur no
liability to any person for any action taken pursuant
to a direction, request or approval given by the
Company which is contemplated by, and in conformity
with, the terms of the Arrangements or this Trust and
is given in writing by the Company. In the event of a
dispute between the Company and a party, the Trustee
<PAGE>
may apply to a court of competent jurisdiction to
resolve the dispute, subject, however to Section 2(d)
hereof.
(b) The Company hereby indemnifies the Trustee against
losses, liabilities, claims, costs and expenses in
connection with the administration of the Trust, unless
resulting from the negligence or misconduct of Trustee.
To the extent the Company fails to make any payment on
account of an indemnity provided in this paragraph
10(b), in a reasonably timely manner, the Trustee may
obtain payment from the Trust. If the Trustee
undertakes or defends any litigation arising in
connection with this Trust or to protect a
Participant's or Beneficiary's rights under the
Arrangements, the Company agrees to indemnify the
Trustee against the Trustee's costs, reasonable
expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating
thereto and to be primarily liable for such payments.
If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee
may obtain payment from the Trust.
(c) Prior to a Change of Control, the Trustee may consult
with legal counsel (who may also be counsel for the
Company generally) with respect to any of its duties or
obligations hereunder. Following a Change of Control
the Trustee shall select independent legal counsel and
may consult with counsel or other persons with respect
to its duties and with respect to the rights of
Participants or their Beneficiaries under the
Arrangements.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its
duties or obligations hereunder and may rely on any
determinations made by such agents and information
provided to it by the Company.
(e) The Trustee shall have, without exclusion, all powers
conferred on the Trustee by applicable law, unless
expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or to applicable law,
the Trustee shall not have any power that could give
this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of
section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Internal
Revenue Code.
Section 11. Compensation and Expenses of The Trustee
----------------------------------------
The Trustee's compensation shall be as agreed in writing
from time to time by the Company and the Trustee. The
<PAGE>
Company shall pay all administrative expenses and the
Trustee's fees and shall promptly reimburse the Trustee for
any fees and expenses of its agents. If not so paid, the
fees and expenses shall be paid from the Trust.
Section 12. Resignation and Removal of The Trustee
--------------------------------------
(a) Prior to a Change of Control, the Trustee may resign at
any time by written notice to the Company, which shall
be effective sixty (60) days after receipt of such
notice unless the Company and the Trustee agree
otherwise. Following a Change of Control, the Trustee
may resign only after the appointment of a successor
Trustee.
(b) The Trustee may be removed by the Company on sixty days
(60) days notice or upon shorter notice accepted by the
Trustee prior to a Change of Control. Subsequent to a
Change of Control, the Trustee may only be removed by
the Company with the consent of a majority of the
Participants.
(c) If the Trustee resigns within two years after a Change
of Control, as defined herein, the Company, or if the
Company fails to act within a reasonable period of time
following such resignation, the Trustee shall apply to
a court of competent jurisdiction for the appointment
of a successor trustee or for instructions.
(d) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall
subsequently be transferred to the successor Trustee.
The transfer shall be completed within sixty (60) days
after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall
be appointed by the Company, in accordance with Section
13 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section.
If no such appointment has been made, the Trustee may
apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All
expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses
of the Trust.
Section l3. Appointment of Successor
------------------------
(a) If the Trustee resigns or is removed in accordance with
Section 12 hereof, the Company may appoint, subject to
Section 12, any third party national banking
association with a market capitalization exceeding
$100,000,000 to replace the Trustee upon resignation or
<PAGE>
removal. The successor Trustee shall have all of the
rights and powers of the former Trustee, including
ownership rights in the Trust. The former Trustee shall
execute any instrument necessary or reasonably
requested by the Company or the successor Trustee to
evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of
existing Trust assets, subject to Section 8 and 9
hereof. The successor Trustee shall not be responsible
for and the Company shall indemnify and defend the
successor Trustee from any claim or liability resulting
from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at
the time it becomes successor Trustee.
Section 14. Amendment or Termination
------------------------
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company.
Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Arrangements or shall
make the Trust revocable after it has become
irrevocable in accordance with Section 1 hereof.
(b) The Trust shall not terminate until the date on which
Participants and their Beneficiaries have received all
of the benefits due to them under the terms and
conditions of the Arrangements. Upon termination of
the Trust, the Trust assets shall be returned to the
Company.
(c) Upon written approval of all Participants or
Beneficiaries entitled to payment of benefits pursuant
to the terms of the Arrangements, the Company may
terminate this Trust prior to the time all benefit
payments under the Arrangements have been made. All
assets in the Trust at termination shall be returned to
the Company.
(d) This Trust Agreement may not be amended or terminated
by the Company for two (2) years following a Change of
Control without the written consent of a majority of
the Participants.
Section 15. Change of Control
-----------------
(a) A "Change of Control" shall be deemed to have occurred if:
(1) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, but
excluding any benefit plan for employees or any trustee,
agent or other fiduciary for any such plan acting in such
person's capacity as such fiduciary), directly or
<PAGE>
indirectly, becomes the beneficial owner of securities of
the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding
securities;
(2) during any two consecutive years, individuals who at
the beginning of such a period constitute the Board of
Directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors of the
Company, unless the election, or the nomination for election
by the shareholders of the Company, of each new Director was
approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who were Directors at the
beginning of the period; or
(3) the Company has executed and delivered a definitive
agreement which would require the consummation of (i) any
consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant
to which shares of common stock are converted into cash,
securities or other property, other than a merger of the
Company in which the holders of the common stock immediately
prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after
the merger, (ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets of the Company, or
(iii) any plan or proposal for the liquidation or
dissolution of the Company.
(4) the shareholders of the Company shall have approved
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or
pursuant to which shares of common stock are converted into
cash, securities or other property, other than a merger of
the Company in which the holders of the common stock
immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger, (ii) any sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of
the Company, or (iii) any plan or proposal for the
liquidation or dissolution of the Company.
Notwithstanding the foregoing, the phrase "Change of
Control" shall not apply to any reorganization or
merger initiated voluntarily by the Company in which
the Company is the continuing surviving entity.
<PAGE>
For purposes of this Section 15(a), the Board of Directors
of the Company, by a majority vote, shall have the power to
determine on the basis of information known to them (a) the
number of shares beneficially owned by any person, entity or
group; (b) whether there exists an agreement, arrangement or
understanding with another as to matters referred to in this
Section 15(a); and (c) such other matters with respect to
which a determination is necessary under this Section 15(a).
(b) The General Counsel of the Company shall have the
specific authority to determine whether a Change of
Control has transpired under the guidance of this
Section 15(a) and shall be required to give the Trustee
notice of a Change of Control. The Trustee shall be
entitled to rely upon such notice, but if the Trustee
receives notice of a Change of Control from another
source, the Trustee shall make its own independent
determination.
Section 16. Miscellaneous
-------------
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such
prohibition, without invalidating the remaining
provisions hereof.
(b) The Company hereby represents and warrants that all of
the Arrangements have been established, maintained and
administered in accordance with all applicable laws,
including without limitation, ERISA. The Company hereby
indemnifies and agrees to hold the Trustee harmless
from all liabilities, including attorney's fees,
relating to or arising out of the establishment,
maintenance and administration of the Arrangements. To
the extent the Company does not pay any of such
liabilities in a reasonably timely manner, the Trustee
may obtain payment from the Trust.
(c) Benefits payable to Participants and their
Beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal
or equitable process.
(d) This Trust Agreement shall be governed by and construed
in accordance with the laws of North Carolina.
<PAGE>
IN WITNESS WHEREOF, this Grantor Trust Agreement has been
executed on behalf of the parties hereto on the day and year
first above written.
PG&E CORPORATION WACHOVIA BANK, N.A.
BRUCE R. WORTHINGTON JOE O. LONG
--------------------------- -----------------------
By: BRUCE R. WORTHINGTON By: JOE O. LONG
Name: Bruce R. Worthington Name: Joe O. Long
Its: Senior Vice President and Its: Senior Vice President
General Counsel
Chairperson, Employee Benefit Committee
ATTEST: ATTEST:
By: LINDA Y.H. CHENG By: JOHN N. SMITH
------------------ --------------------
Name: Linda Y.H. Cheng Name: John N. Smith
Its: Assistant Corporate Its: Assistant Secretary
Secretary
<PAGE>
Attachment I
------------
PG&E CORPORATION DIRECTOR GRANTOR TRUST AGREEMENT
NONQUALIFIED BENEFIT PLANS COVERED
- PG&E Corporation Retirement Plan for Non-Employee
Directors
- PG&E Corporation Deferred Compensation Plan
for Non-Employee Directors
<PAGE>
PG&E CORPORATION
OFFICER GRANTOR TRUST AGREEMENT
This Officer Grantor Trust Agreement (the "Trust Agreement")
is made this 1st day of April 1998, by and between PG&E
CORPORATION ("the Company") and WACHOVIA BANK, N.A. ("the
Trustee").
Recitals
- ---------
(a) WHEREAS, the Company has adopted the nonqualified
deferred compensation Plans and Agreements (the
"Arrangements") as listed in Attachment I;
(b) WHEREAS, the Company has incurred or expects to incur
liability under the terms of such Arrangements with
respect to the individuals participating in such
Arrangements (the "Participants and Beneficiaries");
(c) WHEREAS, the Company hereby establishes a Trust (the
"Trust") and shall contribute to the Trust assets that
shall be held therein, subject to the claims of the
Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to
Participants and their Beneficiaries in such manner and
at such times as specified in the Arrangements and in
this Trust Agreement;
(d) WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and
shall not affect the status of the Arrangements as an
unfunded plan maintained for the purpose of providing
deferred compensation for a select group of management
or highly compensated employees for purposes of Title I
of the Employee Retirement Income Security Act of 1974;
and
(e) WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a
source of funds (the "Fund") to assist it in satisfying
its Liabilities under the Arrangements.
NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and
disposed of as follows:
Section 1. Establishment of The Trust
--------------------------
(a) The Trust is intended to be a Grantor Trust, of which
the Company is the Grantor, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A
of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
<PAGE>
(b) The Company shall be considered a Grantor for the
purposes of the Trust.
(c) The Trust hereby established shall be irrevocable.
(d) The Company hereby deposits with the Trustee in the
Trust One Thousand Dollars and Zero Cents ($1,000.00)
which shall become the principal of the Trust to be
held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(e) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of
the Company and shall be used exclusively for the uses
and purposes of Participants and general creditors as
herein set forth. Participants and their Beneficiaries
shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any
rights created under the Arrangements and this Trust
Agreement shall be unsecured contractual rights of
Participants and their Beneficiaries against the
Company. Any assets held by the Trust will be subject
to the claims of the general creditors of the Company
under federal and state law in the event the Company is
Insolvent, as defined in Section 3(a) herein.
(f) The Company, in its sole discretion, may at any time,
or from time to time, make additional deposits of cash
or other property acceptable to the Trustee in the
Trust to augment the principal to be held, administered
and disposed of by the Trustee as provided in this
Trust Agreement. Prior to a Change of Control, neither
the Trustee nor any Participant or Beneficiary shall
have any right to compel additional deposits.
(g) Upon a Change of Control, the Company shall, as soon as
possible, but in no event longer than thirty (30) days
following the occurrence of a Change of Control, as
defined herein, make an irrevocable contribution to the
Trust in an amount that is sufficient to fund the Trust
in an amount equal to no less than 100% but no more
than 120% of the amount necessary to pay each
Participant or Beneficiary the benefits to which
Participants or their Beneficiaries would be entitled
pursuant to the terms of the Arrangements as of the
date on which the Change of Control occurred. The
Company shall also fund an expense reserve for the
Trustee in the amount of $225,000.00.
Section 2. Payments Participants and Their Beneficiaries
---------------------------------------------
(a) Prior to a Change of Control, distributions from the
Trust shall be made by the Trustee to Participants and
Beneficiaries at the direction of the Company. The
<PAGE>
entitlement of a Participant or his or her
Beneficiaries to benefits under the Arrangements shall
be determined by the Company or such party or
professional administrator as it shall designate under
the Arrangements as the Company's agent, and any claim
for such benefits shall be considered and reviewed
under the procedures set out in the Arrangements.
(b) The Company may make payment of benefits directly to
Participants or their Beneficiaries as they become due
under the terms of the Arrangements. The Company shall
notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable
to Participants or their Beneficiaries. In addition, if
the principal of the Trust, and any earnings thereon,
are not sufficient to make payments of benefits in
accordance with the terms of the Arrangements, the
Company shall make the balance of each such payment as
it falls due in accordance with the Arrangements. The
Trustee shall notify the Company where principal and
earnings are not sufficient. Nothing in this Agreement
shall relieve the Company of its liabilities to pay
benefits due under the Arrangements except to the
extent such liabilities are met by application of
assets of the Trust.
(c) After a Change of Control, the Company shall continue
to make the determination of benefits due to
Participants or their Beneficiaries and shall provide
the Trustee with a schedule of benefits due. The
Trustee shall pay benefits due in accordance with such
schedule; provided however, a Participant or their
Beneficiaries may make application to the Trustee for
an independent decision as to the amount or form of
their benefits due under the Arrangements. In making
any determination required or permitted to be made by
the Trustee under this Section, the Trustee shall, in
each such case, reach its own independent
determination, in its absolute and sole discretion, as
to the Participant's or Beneficiary's entitlement to a
payment hereunder. In making its determination, the
Trustee may consult with and make such inquiries of
such persons, including the Participant or Beneficiary,
the Company, legal counsel, actuaries or other persons,
as the Trustee may reasonably deem necessary. Any
reasonable costs incurred by the Trustee in arriving at
its determination shall be reimbursed by the Company
and, to the extent not paid by the Company within a
reasonable time, shall be charged to the Trust. The
Company waives any right to contest any amount paid
over by the Trustee hereunder pursuant to a good faith
determination made by the Trustee notwithstanding any
claim by or on behalf of the Company (absent a manifest
abuse of discretion by the Trustee) that such payments
should not be made.
(d) The Trustee agrees that it will not itself institute
any action at law or at equity, whether in the nature
<PAGE>
of an accounting, interpleading action, request for a
declaratory judgment or otherwise, requesting a court
or administrative or quasi-judicial body to make the
determination required to be made by the Trustee under
this Section 2 in the place and stead of the Trustee.
The Trustee may institute an action to collect a
contribution due the Trust following a Change of
Control or in the event that the Trust should ever
experience a short-fall in the amount of assets
necessary to make payments pursuant to the terms of the
Arrangements.
(e) In the event any Participant or his or her Beneficiary
is determined to be subject to federal income tax on
any amount to the credit of his or her account under
any Arrangement prior to the time of payment hereunder,
whether or not due to the establishment of or
contributions to this Trust, a portion of such taxable
amount equal to the federal, state and local taxes
(excluding any interest or penalties) owed on such
taxable amount, shall be distributed by the Trustee as
soon thereafter as practicable to such Participant or
Beneficiary. The Company shall promptly reimburse the
Trust for any such distribution in an amount certified
by the Trustee to be needed for the Participant's
benefits. For these purposes, a Participant or
Beneficiary shall be deemed to pay state and local
taxes at the highest marginal rate of taxation in the
state in which the Participant resides or is employed
(or both) where a tax is imposed and federal income
taxes at the highest marginal rate of taxation, net of
the maximum reduction in federal income taxes which
could be obtained from deduction of such state and
local taxes. Such distributions shall be at the
direction of the Company or the Trustee, or upon proper
application of the Participant or Beneficiary; provided
that the actual amount of the distribution shall be
determined by the Company prior to a Change of Control
and the Trustee following a Change of Control. An
amount to the credit of a Participant's Account shall
be determined to be subject to federal income tax upon
the earliest of: (a) a final determination by the
United States Internal Revenue Service addressed to the
Participant or his Beneficiary which is not appealed to
the courts; (b) a final determination by the United
States Tax Court or any other federal court affirming
any such determination by the Internal Revenue Service;
or (c) an opinion by the Company's tax counsel,
addressed to the Company and the Trustee, to the effect
that by reason of Treasury Regulations, amendments to
the Internal Revenue Code, published Internal Revenue
Service rulings, court decisions or other substantial
precedent, amounts to the credit of Participants
hereunder are subject to federal income tax prior to
payment. The Company may undertake at its sole expense
to defend any tax claims described herein which are
asserted by the Internal Revenue Service against any
Participant or Beneficiary, including attorney fees and
cost of appeal, and shall have the sole authority to
determine whether or not to appeal any determination
made by the Service or by a lower court. The Company
<PAGE>
also agrees to reimburse any Participant or Beneficiary
for any interest or penalties in respect of tax claims
hereunder upon receipt of documentation of same. Any
distributions from the Fund to a Participant or
Beneficiary under this Section 2(e) shall be applied in
accordance with the provisions of the Arrangement to
reduce the Company liabilities to such Participant
and/or Beneficiary under the Arrangement with such
reductions to be made on a pro-rata basis over the term
of benefit payments under the Arrangement; provided,
however, that in no event shall any Participant,
Beneficiary or estate of any Participant or Beneficiary
have any obligation to return all or any part of such
distribution to the Company if such distribution
exceeds benefits payable under an Arrangement. Any
reduction in accordance with the foregoing sentence and
the Arrangements shall be determined by the Company
prior to a Change of Control. Following a Change of
Control, the Company shall continue to make such
determination subject to the right of a Participant to
petition the Trustee under Section 2(c).
Section 3. Trustee Responsibility Regarding
Payments To The Trust Beneficiary When The
Company Is Insolvent
-------------------------------------------
(a) The Trustee shall cease payment of benefits to
Participants and their Beneficiaries if the Company is
Insolvent. The Company shall be considered "Insolvent"
for purposes of this Trust Agreement if (i) the Company
is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, the
principal and income of the Trust shall be subject to
claims of general creditors of the Company under
federal and state law as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to
inform the Trustee in writing that the Company is
Insolvent. If a person claiming to be a creditor
of the Company alleges in writing to the Trustee
that the Company has become Insolvent, the Trustee
shall determine whether the Company is Insolvent
and, pending such determination, the Trustee shall
discontinue payment of benefits to Participants or
their Beneficiaries.
(2) Unless the Trustee has actual knowledge that the
Company is Insolvent, or has received notice from
the Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the
Company is Insolvent. The Trustee may in all
<PAGE>
events rely on such evidence concerning the
Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a
reasonable basis for making a determination
concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall
discontinue payments to Participants or their
Beneficiaries and shall hold the assets of the
Trust for the benefit of the Company's general
creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Participants or
their Beneficiaries to pursue their rights as
general creditors of the Company with respect to
benefits due under the Arrangements or otherwise.
(4) The Trustee shall resume the payment of benefits
to Participants or their Beneficiaries in
accordance with Section 2 of this Trust Agreement
only after the Trustee has determined that the
Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the
Trustee discontinues the payment of benefits from the
Trust pursuant to Section 3(b) hereof and subsequently
resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of
all payments due to Participants or their Beneficiaries
under the terms of the Arrangements for the period of
such discontinuance, less the aggregate amount of any
payments made to Participants or their Beneficiaries by
the Company in lieu of the payments provided for
hereunder curing any such period of discontinuance.
Section 4. Payments if a Short-Fall of The Trust
Assets Occurs
---------------------------------------------
(a) If there are not sufficient assets for the payment of
benefits pursuant to Section 2 or Section 3(c) hereof
and the Company does not otherwise make such payments
within a reasonable time after demand from the Trustee,
the Trustee shall make payment of benefits from the
Trust to the Participants or their Beneficiaries in the
following order of priority:
(1) retired Participants and their Beneficiaries;
(2) vested Participants over the age of 55 who were
terminated within two years following a Change of
Control and their Beneficiaries;
<PAGE>
(3) vested active Participants over the age of 55 and
their Beneficiaries;
(4) any other vested active Participants and their
Beneficiaries;
(5) vested former Participants and their
Beneficiaries; and
(6) non-vested Participants and their Beneficiaries
(b) Within each category set forth under Section 4(a),
payments shall be prioritized in the following order:
(c) Upon receipt of a contribution from the Company
necessary to make up for a short-fall in the payments
due, the Trustee shall resume payments to all the
Participants and Beneficiaries under the Arrangements.
Following a Change of Control, the Trustee shall have
the right to compel a contribution to the Trust from
the Company to make-up for any short-fall.
Section 5. Payments to the Company
-----------------------
Except as provided in Sections 3, 8, and 14 hereof, the
Company shall have no right or power to direct the Trustee
to return to the Company or to divert to others any of the
Trust assets before all payment of benefits have been made
to Participants and their Beneficiaries pursuant to the
terms of the Arrangements.
Section 6. Investment Authority
--------------------
(a) The Trustee shall not be liable in discharging its
duties hereunder, including without limitation its duty
to invest and reinvest the Fund, if it acts for the
exclusive benefit of the Participants and their
Beneficiaries, in good faith and as a prudent person
would act in accomplishing a similar task and in
accordance with the terms of this Trust Agreement and
any applicable federal or state laws, rules or
regulations.
(b) Subject to investment guidelines agreed to in writing
from time to time by the Company and the Trustee prior
to a Change of Control, the Trustee shall have the
power in investing and reinvesting the Fund in its sole
discretion:
(1) To invest and reinvest in any readily marketable
common and preferred stocks, bonds, notes,
debentures (including convertible stocks and
securities but not including any stock or security
of other than a de minimus amount held in a
collective or mutual fund), certificates of
deposit or demand or time deposits (including any
<PAGE>
such deposits with the Trustee) and shares of
investment companies and mutual funds, without
being limited to the classes or property in which
the Trustees are authorized to invest by any law
or any rule of court of any state and without
regard to the proportion any such property may
bear to the entire amount of the Fund;
(2) To commingle for investment purposes all or any
portion of the Fund with assets of any other
similar trust or trusts established by the Company
with the Trustee for the purpose of safeguarding
deferred compensation or retirement income
benefits of its employees and/or directors;
(3) To retain any property at any time received by the
Trustee;
(4) To sell or exchange any property held by it at
public or private sale, for cash or on credit, to
grant and exercise options for the purchase or
exchange thereof, to exercise all conversion or
subscription rights pertaining to any such
property and to enter into any covenant or
agreement to purchase any property in the future;
(5) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or
other similar plan relating to property held by it
and to consent to or oppose any such plan or any
action thereunder or any contract, lease,
mortgage, purchase, sale or other action by any
person;
(6) To deposit any property held by it with any
protective, reorganization or similar committee,
to delegate discretionary power thereto, and to
pay part of the expenses and compensation thereof
any assessments levied with respect to any such
property to deposited;
(7) To extend the time of payment of any obligation
held by it;
(8) To hold uninvested any moneys received by it,
without liability for interest thereon, but only
in anticipation of payments due for investments,
reinvestments, expenses or disbursements;
(9) To exercise all voting or other rights with
respect to any property held by it and to grant
proxies, discretionary or otherwise;
(10) For the purposes of the Trust, to borrow money
from others, to issue its promissory note or notes
<PAGE>
therefor, and to secure the repayment thereof by
pledging any property held by it;
(11) To employ suitable contractors and counsel, who
may be counsel to the Company or to the Trustee,
and to pay their reasonable expenses and
compensation from the Fund to the extent not paid
by the Company;
(12) To register investments in its own name or in the
name of a nominee; to hold any investment in
bearer form; and to combine certificates
representing securities with certificates of the
same issue held by it in other fiduciary
capacities or to deposit or to arrange for the
deposit of such securities with any depository,
even though, when so deposited, such securities
may be held in the name of the nominee of such
depository with other securities deposited
therewith by other persons, or to deposit or to
arrange for the deposit of any securities issued
or guaranteed by the United States government, or
any agency or instrumentality thereof, including
securities evidenced by book entries rather than
by certificates, with the United States Department
of the Treasury or a Federal Reserve Bank, even
though, when so deposited, such securities may not
be held separate from securities deposited therein
by other persons; provided, however, that no
securities held in the Fund shall be deposited
with the United States Department of the Treasury
or a Federal Reserve Bank or other depository in
the same account as any individual property of the
Trustee, and provided, further, that the books and
records of the Trustee shall at all times show
that all such securities are part of the Trust
Fund;
(13) To settle, compromise or submit to arbitration any
claims, debts or damages due or owing to or from
the Trust, respectively, to commence or defend
suits or legal proceedings to protect any interest
of the Trust, and to represent the Trust in all
suits or legal proceedings in any court or before
any other body or tribunal; provided, however,
that the Trustee shall not be required to take any
such action unless it shall have been indemnified
by the Company to its reasonable satisfaction
against liability or expenses it might incur
therefrom;
(14) To hold and retain policies of life insurance,
annuity contracts, and other property of any kind
which policies are contributed to the Trust by the
Company or any subsidiary of the Company or are
purchased by the Trustee;
<PAGE>
(15) To hold any other class of assets which may be
contributed by the Company and that is deemed
reasonable by the Trustee, unless expressly
prohibited herein;
(16) To loan any securities at any time held by it to
brokers or dealers upon such security as may be
deemed advisable, and during the terms of any such
loan to permit the loaned securities to be
transferred into the name of and voted by the
borrower or others; and
(17) Generally, to do all acts, whether or not
expressly authorized, that the Trustee may deem
necessary or desirable for the protection of the
Fund.
(c) Prior to a Change of Control, the Company shall have
the right, subject to this Section to direct the
Trustee with respect to investments.
(1) The Company may at any time direct the Trustee to
segregate all or a portion of the Fund in a
separate investment account or accounts and may
appoint one or more investment managers and/or an
Investment Committee established by the Company as
described in Section 6(d) hereof to direct the
investment and reinvestment of each such
investment account or accounts. In such event, the
Company shall notify the Trustee of the
appointment of each such investment manager and/or
Investment Committee. No such investment manager
shall be related, directly or indirectly, to the
Company, but members of the Investment Committee
may be employees of the Company.
(2) Thereafter, the Trustee shall make every sale or
investment with respect to such investment account
as directed in writing by the investment manager
or Investment Committee. It shall be the duty of
the Trustee to act strictly in accordance with
each direction. The Trustee shall be under no duty
to question any such direction of the investment
manager or Investment Committee, to review any
securities or other property held in such
investment account or accounts acquired by it
pursuant to such directions or to make any
recommendations to the investment managers or
Investment Committee with respect to such
securities or other property.
(3) Notwithstanding the foregoing, the Trustee,
without obtaining prior approval or direction from
an investment manager or Investment Committee,
shall invest cash balances held by it from time to
time in short term cash equivalents including, but
not limited to, through the medium of any short
term common, collective or commingled trust fund
<PAGE>
established and maintained by the Trustee subject
to the instrument establishing such trust fund,
U.S. Treasury Bills, commercial paper (including
such forms of commercial paper as may be available
through the Trustee's Trust Department),
certificates of deposit (including certificates
issued by the Trustee in its separate corporate
capacity), and similar type securities, with a
maturity not to exceed one year; and, furthermore,
sell such short term investments as may be
necessary to carry out the instructions of an
investment manager or Investment Committee
regarding more permanent type investment and
directed distributions.
(4) The Trustee shall neither be liable nor
responsible for any loss resulting to the Fund by
reason of any sale or purchase of an investment
directed by an investment manager or Investment
Committee nor by reason of the failure to take any
action with respect to any investment which was
acquired pursuant to any such direction in the
absence of further directions of such investment
manager or Investment Committee.
(5) Notwithstanding anything in this Agreement to the
contrary, the Trustee shall be indemnified and saved
harmless by the Company from and against any and all
personal liability to which the Trustee may be subjected by
carrying out any directions of an investment manager or
Investment Committee issued pursuant hereto or for failure
to act in the absence of directions of the investment
manager or Investment Committee including all expenses
reasonably incurred in its defense in the event the Company
fails to provide such defense; provided, however, the
Trustee shall not be so indemnified if it participates
knowingly in, or knowingly undertakes to conceal, an act or
omission of an investment manager or Investment Committee,
having actual knowledge that such act or omission is a
breach of a fiduciary duty; provided further, however, that
the Trustee shall not be deemed to have knowingly
participated in or knowingly undertaken to conceal an act or
omission of an investment manager or Investment Committee
with knowledge that such act or omission was a breach of
fiduciary duty by merely complying with directions of an
investment manager or Investment Committee or for failure to
act in the absence of directions of an investment manager or
Investment Committee. The Trustee may rely upon any order,
certificate, notice, direction or other documentary
confirmation purporting to have been issued by the
investment manager or Investment Committee which the Trustee
believes to be genuine and to have been issued by the
investment manager or Investment Committee. The Trustee
shall not be charged with knowledge of the termination of
<PAGE>
the appointment of any investment manager or Investment
Committee until it receives written notice thereof from the
Company.
(d) Prior to a Change of Control, the Board of Directors of
the Company may appoint an Investment Committee to
direct the investment of the Fund. The Investment
Committee may exercise any powers relating to the
investment of Trust assets as described in Sections 6
and 7 hereof. The Investment Committee shall exercise
its authority by an affirmative action of a majority of
members constituting the Investment Committee,
expressed from time to time by a vote at a meeting of
the Investment Committee, or in an action in writing
signed by all members without a meeting. Prior to a
Change of Control, the Board of Directors of the
Company shall have the right to remove and to replace
any member of the Investment Committee at any time by
notice in writing to that member. Following a Change
of Control, the Company shall have no authority to
remove or replace members of the Investment Committee,
and any vacancy in the membership of the Investment
Committee, created by resignation, disability, death or
otherwise, shall be filled by the vote of a majority of
the members of the Investment Committee then in office.
Following a Change of Control, the Investment Committee
may, on its own initiative, acquire fiduciary insurance
for the benefit of its members at the Company's
expense. If for any reason, the Company does not pay
the premiums for such insurance, the Trustee shall pay
such premiums out of the Trust assets and seek
reimbursement from the Company.
(e) Following a Change of Control, unless there is then in
existence an Investment Committee as described in
Section 6(d) above, the Trustee shall have the sole and
absolute discretion in the management of the Trust
assets and shall have all the powers set forth under
Section 6(b). In investing the Trust assets, the
Trustee shall consider:
(1) the needs of the Arrangements;
(2) the need for matching of the Trust assets with the
liabilities of the Arrangements; and
(3) the duty of the Trustee to act solely in the best
interests of the Participants and their
Beneficiaries.
(f) The Trustee shall have the right, in its sole
discretion, to delegate its investment responsibility
to an investment manager who may be an affiliate the
Trustee. In the event the Trustee shall exercise this
right, the Trustee shall remain, at all times
responsible for the acts of an investment manager. The
Trustee shall have the right to purchase an insurance
policy or an annuity to fund the benefits of the
Arrangements.
<PAGE>
(g) The Company shall have the right at any time, and from
time to time in its sole discretion, to substitute
assets of equal fair market value for any asset held by
the Trust. This right is exercisable by the Company in
a nonfiduciary capacity without the approval or consent
of any person in a fiduciary capacity.
Section 7. Insurance Contracts
-------------------
(a) To the extent that the Trustee is directed by the
Company prior to a Change of Control or by the
Investment Committee after a Change of Control to
invest part or all of the Trust Fund in insurance
contracts, the type and amount thereof shall be
specified by the Company. The Trustee shall be under no
duty to make inquiry as to the propriety of the type or
amount so specified.
(b) Each insurance contract issued shall provide that the
Trustee shall be the owner thereof with the power to
exercise all rights, privileges, options and elections
granted by or permitted under such contract or under
the rules of the insurer. The exercise by the Trustee
of any incidents of ownership under any contract shall,
prior to a Change of Control, be subject to the
direction of the Company. After a Change of Control,
the Trustee shall have all such rights to the extent an
Investment Committee had not been established.
(c) The Trustee shall have no power to name a beneficiary
of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or
to loan to any person the proceeds of any borrowing
against an insurance policy held in the Trust Fund.
(d) No insurer shall be deemed to be a party to the Trust
and an insurer's obligations shall be measured and
determined solely by the terms of contracts and other
agreements executed by the insurer.
Section 8. Disposition of Income
---------------------
(a) Prior to a Change of Control, all income received by
the Trust, net of expenses and taxes, may be returned
to the Company or accumulated and reinvested within the
Trust at the direction of the Company. In addition,
if, at any time prior to a Change of Control, the value
of assets held in the Trust exceeds 100 percent of the
amount necessary to pay each Participant or Beneficiary
the benefits to which Participants or their
Beneficiaries would be entitled pursuant to the terms
of the Arrangements as of the date on which the
<PAGE>
determination is made, the Trustee shall return the
excess to the Company at the Company's written request.
(b) Following a Change of Control, all income received by
the Trust, net of expenses and taxes, shall be
accumulated and reinvested within the Trust.
Section 9. Accounting by The Trustee
-------------------------
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other
transactions required to be made, including such specific
records as shall be agreed upon in writing between the
Company and the Trustee within forty-five (45) days
following the close of each calendar year and within
forty-five (45) days after the removal or resignation of the
Trustee. The Trustee shall deliver to the Company a written
account of its administration of the Trust during such year
or during the period from the close of the last preceding
year to the date of such removal or resignation setting
forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all
securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest
paid or receivable being shown separately), and showing all
cash, securities and other property held in the Trust at the
end of such year or as of the date of such removal or
resignation, as the case may be. The Company may approve
such account by an instrument in writing delivered to the
Trustee. In the absence of the Company's filing with the
Trustee objections to any such account within ninety (90)
days after its receipt, the Company shall be deemed to have
so approved such account. In such case, or upon the written
approval by the Company of any such account, the Trustee
shall, to the extent permitted by law, be discharged from
all liability to the Company for its acts or failures to act
described by such account. The foregoing, however, shall not
preclude the Trustee from having its accounting settled by a
court of competent jurisdiction. The Trustee shall be
entitled to hold and to commingle the assets of the Trust in
one Fund for investment purposes but at the direction of the
Company prior to a Change of Control, the Trustee shall
create one or more sub-accounts.
Section 10. Responsibility of The Trustee
-----------------------------
(a) The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing
that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims,
provided, however, that the Trustee shall incur no
liability to any person for any action taken pursuant
to a direction, request or approval given by the
Company which is contemplated by, and in conformity
<PAGE>
with, the terms of the Arrangements or this Trust and
is given in writing by the Company. In the event of a
dispute between the Company and a party, the Trustee
may apply to a court of competent jurisdiction to
resolve the dispute, subject, however to Section 2(d)
hereof.
(b) The Company hereby indemnifies the Trustee against
losses, liabilities, claims, costs and expenses in
connection with the administration of the Trust, unless
resulting from the negligence or misconduct of Trustee.
To the extent the Company fails to make any payment on
account of an indemnity provided in this paragraph
10(b), in a reasonably timely manner, the Trustee may
obtain payment from the Trust. If the Trustee
undertakes or defends any litigation arising in
connection with this Trust or to protect a
Participant's or Beneficiary's rights under the
Arrangements, the Company agrees to indemnify the
Trustee against the Trustee's costs, reasonable
expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating
thereto and to be primarily liable for such payments.
If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee
may obtain payment from the Trust.
(c) Prior to a Change of Control, the Trustee may consult
with legal counsel (who may also be counsel for the
Company generally) with respect to any of its duties or
obligations hereunder. Following a Change of Control
the Trustee shall select independent legal counsel and
may consult with counsel or other persons with respect
to its duties and with respect to the rights of
Participants or their Beneficiaries under the
Arrangements.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its
duties or obligations hereunder and may rely on any
determinations made by such agents and information
provided to it by the Company.
(e) The Trustee shall have, without exclusion, all powers
conferred on the Trustee by applicable law, unless
expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee
pursuant to this Trust Agreement or to applicable law,
the Trustee shall not have any power that could give
this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of
section 301.7701-2 of the Procedure and Administrative
Regulations promulgated pursuant to the Internal
Revenue Code.
Section 11. Compensation and Expenses of The Trustee
----------------------------------------
<PAGE>
The Trustee's compensation shall be as agreed in writing
from time to time by the Company and the Trustee. The
Company shall pay all administrative expenses and the
Trustee's fees and shall promptly reimburse the Trustee for
any fees and expenses of its agents. If not so paid, the
fees and expenses shall be paid from the Trust.
Section 12. Resignation and Removal of The Trustee
--------------------------------------
(a) Prior to a Change of Control, the Trustee may resign at
any time by written notice to the Company, which shall
be effective sixty (60) days after receipt of such
notice unless the Company and the Trustee agree
otherwise. Following a Change of Control, the Trustee
may resign only after the appointment of a successor
Trustee.
(b) The Trustee may be removed by the Company on sixty days
(60) days notice or upon shorter notice accepted by the
Trustee prior to a Change of Control. Subsequent to a
Change of Control, the Trustee may only be removed by
the Company with the consent of a majority of the
Participants.
(c) If the Trustee resigns within two years after a Change
of Control, as defined herein, the Company, or if the
Company fails to act within a reasonable period of time
following such resignation, the Trustee shall apply to
a court of competent jurisdiction for the appointment
of a successor trustee or for instructions.
(d) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall
subsequently be transferred to the successor Trustee.
The transfer shall be completed within sixty (60) days
after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall
be appointed by the Company, in accordance with Section
13 hereof, by the effective date of resignation or
removal under paragraph(s) (a) or (b) of this section.
If no such appointment has been made, the Trustee may
apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All
expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses
of the Trust.
Section l3. Appointment of Successor
------------------------
(a) If the Trustee resigns or is removed in accordance with
Section 12 hereof, the Company may appoint, subject to
Section 12, any third party national banking
<PAGE>
association with a market capitalization exceeding
$100,000,000 to replace the Trustee upon resignation or
removal. The successor Trustee shall have all of the
rights and powers of the former Trustee, including
ownership rights in the Trust. The former Trustee shall
execute any instrument necessary or reasonably
requested by the Company or the successor Trustee to
evidence the transfer.
(b) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of
existing Trust assets, subject to Section 8 and 9
hereof. The successor Trustee shall not be responsible
for and the Company shall indemnify and defend the
successor Trustee from any claim or liability resulting
from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at
the time it becomes successor Trustee.
Section 14. Amendment or Termination
------------------------
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company.
Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Arrangements or shall
make the Trust revocable after it has become
irrevocable in accordance with Section 1 hereof.
(b) The Trust shall not terminate until the date on which
Participants and their Beneficiaries have received all
of the benefits due to them under the terms and
conditions of the Arrangements. Upon termination of
the Trust, the Trust assets shall be returned to the
Company.
(c) Upon written approval of all Participants or
Beneficiaries entitled to payment of benefits pursuant
to the terms of the Arrangements, the Company may
terminate this Trust prior to the time all benefit
payments under the Arrangements have been made. All
assets in the Trust at termination shall be returned to
the Company.
(d) This Trust Agreement may not be amended or terminated
by the Company for two (2) years following a Change of
Control without the written consent of a majority of
the Participants.
Section 15. Change of Control
-----------------
(a) A "Change of Control" shall be deemed to have occurred
if:
(1) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, but
excluding any benefit plan for employees or any trustee,
agent or other fiduciary for any such plan acting in such
<PAGE>
person's capacity as such fiduciary), directly or
indirectly, becomes the beneficial owner of securities of
the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding
securities;
(2) during any two consecutive years, individuals who at
the beginning of such a period constitute the Board of
Directors of the Company cease for any reason to constitute
at least a majority of the Board of Directors of the
Company, unless the election, or the nomination for election
by the shareholders of the Company, of each new Director was
approved by a vote of at least two-thirds (2/3) of the
Directors then still in office who were Directors at the
beginning of the period; or
(3) the Company has executed and delivered a definitive
agreement which would require the consummation of (i) any
consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant
to which shares of common stock are converted into cash,
securities or other property, other than a merger of the
Company in which the holders of the common stock immediately
prior to the merger have the same proportionate ownership of
common stock of the surviving corporation immediately after
the merger, (ii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets of the Company, or
(iii) any plan or proposal for the liquidation or
dissolution of the Company.
(4) the shareholders of the Company shall have approved
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or
pursuant to which shares of common stock are converted into
cash, securities or other property, other than a merger of
the Company in which the holders of the common stock
immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation
immediately after the merger, (ii) any sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of
the Company, or (iii) any plan or proposal for the
liquidation or dissolution of the Company.
Notwithstanding the foregoing, the phrase "Change of
Control" shall not apply to any reorganization or
merger initiated voluntarily by the Company in which
the Company is the continuing surviving entity.
<PAGE>
For purposes of this Section 15(a), the Board of Directors
of the Company, by a majority vote, shall have the power to
determine on the basis of information known to them (a) the
number of shares beneficially owned by any person, entity or
group; (b) whether there exists an agreement, arrangement or
understanding with another as to matters referred to in this
Section 15(a); and (c) such other matters with respect to
which a determination is necessary under this Section 15(a).
(b) The General Counsel of the Company shall have the
specific authority to determine whether a Change of
Control has transpired under the guidance of this
Section 15(a) and shall be required to give the Trustee
notice of a Change of Control. The Trustee shall be
entitled to rely upon such notice, but if the Trustee
receives notice of a Change of Control from another
source, the Trustee shall make its own independent
determination.
Section 16. Miscellaneous
-------------
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such
prohibition, without invalidating the remaining
provisions hereof.
(b) The Company hereby represents and warrants that all of
the Arrangements have been established, maintained and
administered in accordance with all applicable laws,
including without limitation, ERISA. The Company hereby
indemnifies and agrees to hold the Trustee harmless
from all liabilities, including attorney's fees,
relating to or arising out of the establishment,
maintenance and administration of the Arrangements. To
the extent the Company does not pay any of such
liabilities in a reasonably timely manner, the Trustee
may obtain payment from the Trust.
(c) Benefits payable to Participants and their
Beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal
or equitable process.
(d) This Trust Agreement shall be governed by and construed
in accordance with the laws of North Carolina.
<PAGE>
IN WITNESS WHEREOF, this Grantor Trust Agreement has been
executed on behalf of the parties hereto on the day and year
first above written.
PG&E CORPORATION WACHOVIA BANK, N.A.
Bruce R. Worthington Joe O. Long
-------------------- ---------------
By: Bruce R. Worthington By: Joe O. Long
Name: Bruce R. Worthington Name: Joe O. Long
Its: Senior Vice President and Its: Senior Vice President
General Counsel
Chairperson, Employee Benefit Committee
ATTEST: ATTEST:
Linda Y. H. Cheng John N. Smith
------------------- ------------------
By: Linda Y. H. Cheng By: John N. Smith
Its: Assistant Corporate Its: Assistant Secretary
Secretary
<PAGE>
Attachment I
------------
PG&E CORPORATION OFFICER GRANTOR TRUST AGREEMENT
NONQUALIFIED BENEFIT PLANS COVERED
- Pacific Gas and Electric Company Supplemental
Executive Retirement Plan (SERP)
- Pacific Gas and Electric Company Retirement Excess
Benefit Plan
- PG&E Corporation Deferred Compensation Plan for
Officers
<PAGE>
<TABLE>
EXHIBIT 11
PG&E CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
- -----------------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------------
(in millions, except per share amounts) 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
EARNINGS PER COMMON SHARE (EPS) AS SHOWN
IN THE STATEMENT OF CONSOLIDATED INCOME
Earnings available for common stock $ 139 $ 173
======== ========
Average common shares outstanding 381 409
======== ========
Basic EPS $ .36 $ .42
======== ========
DILUTED EPS (1)
Earnings available for common stock $ 139 $ 173
======== ========
Average common shares outstanding 381 409
Add exercise of options, reduced by the
number of shares that could have been
purchased with the proceeds from
such exercise (at average market price) 1 -
-------- --------
Average common shares outstanding as
adjusted 382 409
======== ========
Diluted EPS $ .36 $ .42
======== ========
- -----------------------------------------------------------------------------------------
<FN>
(1) This presentation is submitted in accordance with Statement of Financial Accounting
Standards No. 128.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.1
PACIFIC GAS AND ELECTRIC COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Three Months Year ended December 31,
ended -------------------------------------------------------
(dollars in millions) March 31, 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $ 155 $ 768 $ 755 $ 1,339 $ 1,007 $ 1,065
Adjustments for minority
interests in losses of
less than 100% owned
affiliates and the
Company's equity in
undistributed losses
(income) of less than
50% owned affiliates - - 3 4 (3) 7
Income tax expense 144 609 555 895 837 902
Net fixed charges 180 628 683 716 729 775
-------- -------- -------- -------- -------- --------
Total Earnings $ 479 $ 2,005 $ 1,996 $ 2,954 $ 2,570 $ 2,749
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest on long-
term debt, net $ 156 $ 485 $ 574 $ 616 $ 639 $ 652
Interest on short-
term borrowings 14 101 75 83 77 88
Interest on capital leases - 2 3 3 2 2
Capitalized Interest - 1 1 - 2 46
AFUDC Debt 4 16 7 11 11 33
Earnings required to
cover the preferred stock
dividend and preferred
security distribution
requirements of majority
owned trust 6 24 24 3 - -
-------- -------- -------- -------- -------- --------
Total Fixed Charges $ 180 $ 629 $ 684 $ 716 $ 731 $ 821
======== ======== ======== ======== ======== ========
Ratios of Earnings to
Fixed Charges 2.66 3.19 2.92 4.13 3.52 3.35
- ----------------------------------------------------------------------------------------------------
<FN>
Note: For the purpose of computing Pacific Gas and Electric Company's ratios of earnings to
fixed charges, "earnings" represent net income adjusted for the minority interest in
losses of less than 100% owned affiliates, cash distributions from and equity in
undistributed income or loss of Pacific Gas and Electric Company's less than 50% owned
affiliates, income taxes and fixed charges (excluding capitalized interest). "Fixed
charges" include interest on long-term debt and short-term borrowings (including a
representative portion of rental expense), amortization of bond premium, discount and
expense, interest of subordinated debentures held by trust, interest on capital leases,
and earnings required to cover the preferred stock dividend requirements.
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12.2
PACIFIC GAS AND ELECTRIC COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Three Months Year ended December 31,
ended -------------------------------------------------------
(dollars in millions) March 31, 1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net income $ 155 $ 768 $ 755 $ 1,339 $ 1,007 $ 1,065
Adjustments for minority
interests in losses of
less than 100% owned
affiliates and the
Company's equity in
undistributed losses
(income) of less than
50% owned affiliates - - 3 4 (3) 7
Income tax expense 144 609 555 895 837 902
Net fixed charges 180 628 683 716 729 775
-------- -------- -------- -------- -------- --------
Total Earnings $ 479 $ 2,005 $ 1,996 $ 2,954 $ 2,570 $ 2,749
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest on long-
term debt, net $ 156 $ 485 $ 574 $ 616 $ 639 $ 652
Interest on short-
term borrowings 14 101 75 83 77 88
Interest on capital leases - 2 3 3 2 2
Capitalized Interest - 1 1 - 2 46
AFUDC Debt 4 16 7 11 11 33
Earnings required to
cover the preferred stock
dividend and preferred
security distribution
requirements of majority
owned trust 6 24 24 3 - -
-------- -------- -------- -------- -------- --------
Total Fixed Charges $ 180 $ 629 $ 684 $ 716 $ 731 $ 821
-------- -------- -------- -------- -------- --------
Preferred Stock Dividends:
Tax deductible dividends $ 3 $ 10 $ 10 $ 11 $ 5 $ 5
Pretax earnings required
to cover non-tax
deductible preferred
stock dividend
requirements 8 39 39 100 96 109
-------- -------- -------- -------- -------- --------
Total Preferred
Stock Dividends $ 11 $ 49 $ 49 $ 111 $ 101 $ 114
-------- -------- -------- -------- -------- --------
Total Combined Fixed
Charges and Preferred
Stock Dividends $ 191 $ 678 $ 733 $ 827 $ 832 $ 935
======== ======== ======== ======== ======== ========
Ratios of Earnings to
Combined Fixed Charges and
Preferred Stock Dividends 2.50 2.96 2.72 3.57 3.09 2.94
- ---------------------------------------------------------------------------------------------------
<FN>
Note: For the purpose of computing Pacific Gas and Electric Company's ratios of earnings to
combined fixed charges and preferred stock dividends, "earnings" represent net income
adjusted for the minority interest in losses of less than 100% owned affiliates, cash
distributions from and equity in undistributed income or loss of Pacific Gas and Electric
Company's less than 50% owned affiliates, income taxes and fixed charges(excluding
capitalized interest). "Fixed charges" include interest on long-term debt and short-term
borrowings (including a representative portion of rental expense), amortization of bond
premium, discount and expense, interest on capital leases, interest of subordinated
debentures held by trust, and earnings required to cover the preferred stock dividend
requirements of majority owned subsidiaries. "Preferred stock dividends" represent pretax
earnings which would be required to cover such dividend requirements.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from PG&E
Corporation and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 20,317
<OTHER-PROPERTY-AND-INVEST> 652
<TOTAL-CURRENT-ASSETS> 3,970
<TOTAL-DEFERRED-CHARGES> 2,752
<OTHER-ASSETS> 1,645
<TOTAL-ASSETS> 29,336
<COMMON> 5,819
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,992
<TOTAL-COMMON-STOCKHOLDERS-EQ> 7,811
494
328
<LONG-TERM-DEBT-NET> 7,423
<SHORT-TERM-NOTES> 135
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 108
<LONG-TERM-DEBT-CURRENT-PORT> 579
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 12,458
<TOT-CAPITALIZATION-AND-LIAB> 29,336
<GROSS-OPERATING-REVENUE> 4,353
<INCOME-TAX-EXPENSE> 141
<OTHER-OPERATING-EXPENSES> 3,888
<TOTAL-OPERATING-EXPENSES> 3,888
<OPERATING-INCOME-LOSS> 465
<OTHER-INCOME-NET> 18
<INCOME-BEFORE-INTEREST-EXPEN> 483
<TOTAL-INTEREST-EXPENSE> 203
<NET-INCOME> 139
0
<EARNINGS-AVAILABLE-FOR-COMM> 139
<COMMON-STOCK-DIVIDENDS> 114
<TOTAL-INTEREST-ON-BONDS> 90
<CASH-FLOW-OPERATIONS> 852
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Pacific Gas
and Electric Company and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<SUBSIDIARY>
<NUMBER> 1
<NAME> PACIFIC GAS AND ELECTRIC COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,165
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 3,287
<TOTAL-DEFERRED-CHARGES> 2,544
<OTHER-ASSETS> 1,058
<TOTAL-ASSETS> 24,054
<COMMON> 1,865
<CAPITAL-SURPLUS-PAID-IN> 2,267
<RETAINED-EARNINGS> 2,375
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,507
437
328
<LONG-TERM-DEBT-NET> 5,945
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 503
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,334
<TOT-CAPITALIZATION-AND-LIAB> 24,054
<GROSS-OPERATING-REVENUE> 2,025
<INCOME-TAX-EXPENSE> 144
<OTHER-OPERATING-EXPENSES> 1,599
<TOTAL-OPERATING-EXPENSES> 1,599
<OPERATING-INCOME-LOSS> 426
<OTHER-INCOME-NET> 4
<INCOME-BEFORE-INTEREST-EXPEN> 430
<TOTAL-INTEREST-EXPENSE> 131
<NET-INCOME> 155
7
<EARNINGS-AVAILABLE-FOR-COMM> 148
<COMMON-STOCK-DIVIDENDS> 100
<TOTAL-INTEREST-ON-BONDS> 90
<CASH-FLOW-OPERATIONS> 613
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
<PAGE>
</TABLE>