SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: August 25, 1998
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, P.O. Box 770000 One Market, Spear Tower, Suite 2400
San Francisco, California 94177 San Francisco, California 94105
(Address of principal 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)
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Item 5. Other Events
The discussion below contains forward-looking statements that
involve risks and uncertainties. These statements are based on
the beliefs and assumptions of management and on information
currently available to management. Words such as "estimates,"
"expects," "anticipates," "plans," "believes," and similar
expressions identify forward-looking statements involving risks
and uncertainties. Actual results may differ materially from
those expressed in the forward-looking statements. Some of the
important factors that could affect future results and that could
cause actual results to differ materially from those expressed in
the forward-looking statements are discussed below.
A. Pacific Gas and Electric Company's 1999 Cost of Capital
Proceeding
On May 8, 1998, Pacific Gas and Electric Company, the California
utility subsidiary of PG&E Corporation, filed its 1999 Cost of
Capital application with the California Public Utilities
Commission (CPUC). Pacific Gas and Electric Company requested a
return on common equity (ROE) of 12.1 percent for both electric
and gas distribution operations (compared to the 1998 authorized
ROE of 11.20 percent for both electric and gas distribution
operations) and an overall return on rate base of 9.53 percent
for its gas and electric distribution operations (compared to the
1998 authorized overall rate of return of 9.17 percent). Various
parties have filed testimony in the cost of capital proceeding
recommending lower rates of return than requested by Pacific Gas
and Electric Company.
On August 10, 1998, the CPUC's Office of Ratepayer Advocates
(ORA) filed its testimony recommending a ROE of 8.64 percent for
electric distribution operations and a ROE of 9.32 percent for
gas distribution operations. ORA's recommended ROEs result in
recommended overall returns on rate base for electric and gas
distribution operations of 7.85 percent and 8.17 percent,
respectively. If adopted by the CPUC, ORA's recommendation would
result in decreases for 1999 electric and gas distribution
revenues of $162 million and $38 million, respectively, as
compared to revenues based upon ROE currently authorized by the
CPUC. These estimated revenue reductions were computed assuming
the CPUC adopts the 1999 rate bases for electric and gas
distribution assets proposed by Pacific Gas and Electric Company
in its 1999 Test Year General Rate Case (GRC) proceeding now
pending at the CPUC.
ORA's ROE recommendation for electric distribution operations is
due to its perception of the changing economic conditions in the
past year, and its perceived reduction in business risk for
electric distribution operations as compared to the formerly
integrated generation, transmission, and distribution operations.
ORA also believes that the CPUC's method of adjusting the cost of
capital annually based on incremental changes in economic factors
has lead to what ORA believes have been inflated authorized
returns in recent years.
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In addition, on August 10, 1998, The Utility Reform Network
(TURN) filed testimony in the cost of capital proceeding. For
reasons which are similar to ORA's, TURN recommends a ROE of 9.0
percent for electric distribution operations and a ROE of 9.1
percent for gas distribution operations. TURN's recommended ROEs
result in recommended overall returns on rate base for electric
and gas distribution operations of 8.04 percent and 8.09 percent,
respectively. If adopted by the CPUC, TURN's recommendations
would decrease electric and gas revenues by $139 million and $41
million, respectively, compared to revenues based upon ROE
currently authorized by the CPUC. These estimated revenue
reductions were computed assuming that the rate bases proposed by
Pacific Gas and Electric Company in the 1999 GRC proceeding are
adopted by the CPUC. In addition to ORA and TURN's
recommendations, other intervenors filed testimony recommending
ROE rates more consistent with those requested by Pacific Gas and
Electric Company.
To the extent the actual electric and gas rate bases adopted by
the CPUC in the GRC proceeding are less than the rate bases
proposed by Pacific Gas and Electric Company, the estimated 1999
revenue reductions from the lower ROEs recommended by ORA and
TURN in the cost of capital proceeding would be less. Pacific
Gas and Electric Company expects the CPUC to adopt a final
decision in the cost of capital proceeding in February 1999, and
a final decision in the GRC proceeding in March 1999.
B. Texas Franchise Fee Litigation
As previously disclosed in PG&E Corporation and Pacific Gas and
Electric Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, in connection with PG&E Corporation's
acquisition of Valero Energy Corporation (Valero), now known as
PG&E Gas Transmission, Texas Corporation (GTT), various PG&E
Corporation entities (formerly Valero entities) are defendants in
eight lawsuits pending in several Texas state courts involving
claims related to, among other things, the payment of franchise
fees or street use fees to Texas cities and municipalities and
the conduct of the defendants.
On June 15, 1998, a jury trial began in the 92nd State District
Court, Hidalgo County, Texas, in the case of the City of Edinburg
(City) v. Rio Grande Valley Gas Co., Valero Energy Corporation
(now known as GTT), Valero Transmission Company (now known as
PG&E Texas Pipeline Company), Valero Natural Gas Company (now
known as PG&E Texas Natural Gas Company), Reata Industrial Gas
Company (now known as Valero Gas Marketing Company), Valero
Transmission, L.P. (now known as PG&E Texas Pipeline, L.P.), and
Reata Industrial Gas, L.P. (now known as PG&E Reata Energy,
L.P.), and Southern Union Gas Company and certain affiliates. At
issue, among other things, in the case is the franchise agreement
entered into between Rio Grande Valley Gas Co. (RGVG), the local
gas distribution company, and the City of Edinburg on October 1,
1985, to permit RGVG to sell gas and construct, maintain, own,
and operate gas pipelines in city streets. At the time of
entering into the franchise agreement, RGVG was a wholly owned
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subsidiary of Valero. Valero sold RGVG to Southern Union Gas
Company (Southern Union) on September 30, 1993.
On August 14, 1998, a jury returned a verdict in favor of the
City and awarded damages in the approximate aggregate amount of
$9.8 million, plus attorneys' fees of approximately $3.5 million.
The jury found that RGVG committed fraud in connection with
entering into the franchise agreement and further found that RGVG
failed to comply with the franchise agreement with respect to
payments due under the agreement. The jury also found that RGVG
transferred the rights, privileges, and duties required to be
performed by RGVG under the agreement without the express written
consent of the City.
The jury refused to award punitive damages against the GTT
defendants. No judgment has yet been entered by the court in this
matter. If an adverse judgment is entered, GTT and its
affiliates intend to appeal the adverse judgment. It is
uncertain as to how the damages and attorneys' fees will be
apportioned among the parties.
There have been no material developments in the other cases
described in response to Item 3, Legal Proceedings, of the Annual
Report on Form 10-K under the caption Texas Franchise Fee
Litigation.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
PG&E CORPORATION
and
PACIFIC GAS AND ELECTRIC COMPANY
LESLIE H. EVERETT
By ________________________________
LESLIE H. EVERETT
Vice President and Corporate Secretary
(PG&E Corporation)
Vice President and Corporate Secretary
(Pacific Gas and Electric Company)
Dated: August 25, 1998
