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: January 22, 1998
Exact Name of
Commission Registrant State or other IRS Employer
File as specified Jurisdiction of Identification
Number in its charter Incorporation Number
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1-12609 PG&E Corporation California 94-3234914
1-2348 Pacific Gas and California 94-0742640
Electric Company
77 Beale Street, P.O. Box 770000, San Francisco, California 94177
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code:(415) 973-7000
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Item 5. Other Events
A. Performance Incentive Plan - Year-to-Date Financial Results
The Performance Incentive Plan (Plan) is an annual incentive
compensation plan applicable to all regular, nonbargaining unit
employees of Pacific Gas and Electric Company (PG&E), a
subsidiary of PG&E Corporation. The Plan provides for awards
based on (1) PG&E Corporation's success in meeting overall
corporate financial performance objectives, and (2) the
performance of the employee's organizational unit in meeting its
specific unit, team, or individual objectives. The organization
objectives may include such measures as cost control, quality and
reliability of service to customers, public and employee safety,
financial performance, and operational efficiency.
Under the Plan, the Nominating and Compensation Committee of the
PG&E Corporation Board of Directors (Committee) makes the final
determination of awards for officers based upon achievement of
the Plan objectives. The Committee has the discretion to modify
or eliminate awards for officers. The final determination of non-
officer awards is made by the chief executive officer of PG&E,
who also has the discretion to modify or eliminate non-officer
awards.
The performance measurement target for the 1997 Plan year was
disclosed in a Report on Form 8-K dated December 20, 1996, and
was based on the corporate operating and capital budgets prepared
for 1997, as approved by the PG&E Corporation Board of Directors
in December 1996, which resulted in a budgeted corporate earnings
per common share of $1.87.
The 1997 corporate budget represented the first year of a
transition period as PG&E moves from a traditional utility
business profile to one more reflective of the restructuring of
California's electric and gas utility industries. The 1997
budget reflected reduced earnings from utility operations, based
in part on the assumption that Diablo Canyon ratemaking would be
modified substantially consistent with an application filed with
the California Public Utilities Commission (CPUC) by PG&E in
March 1996. PG&E proposed that current ratemaking be replaced
with a ratemaking methodology that includes (i) recovery of sunk
costs through a sunk cost revenue requirement recovered primarily
without regard to performance and based on a reduced return on
common equity of 6.77 percent, and accelerated recovery of
depreciation over a five-year period, and (ii) a performance-
based Incremental Cost Incentive Price (ICIP) for recovery of
variable costs and future capital additions. Based on this
proposal, the 1997 budget reflected reduced earnings from Diablo
Canyon as a result of increased depreciation expense and a
reduced return on equity for Diablo Canyon under the new
ratemaking methodology relative to the ratemaking in effect
before 1997. The 1997 budget assumed that Diablo Canyon would
contribute less than a quarter of PG&E Corporation's earnings in
1997, a reduction from the 40 percent contribution to budgeted
earnings represented by Diablo Canyon's budgeted earnings in
recent years.
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As discussed in more detail in PG&E Corporation and PG&E's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, the final decision issued by the CPUC generally adopted the
overall ratemaking structure proposed by PG&E for Diablo Canyon,
but with significant exceptions. Among other things, the CPUC
decision substantially reduced the level of PG&E's proposed ICIP,
imposed a disallowance of about $70 million, and excluded certain
inventory items from the sunk cost revenue requirement.
The 1997 budget also reflected continuation of PG&E's major
programs to improve electric and gas system maintenance and
customer service. PG&E's utility capital budget for 1997 was
approximately $1.7 billion, which is $.4 billion more than
budgeted in 1996, primarily reflecting investments in electric
distribution system reliability and customer information system
improvements.
With respect to operations at PG&E Corporation's other business
lines, the 1997 budgeted earnings per common share assumed
contribution to earnings of $0.12 per common share from business
activities comprising PG&E Gas Transmission, and $0.02 per common
share from other business lines (Other).
The 1997 budgeted earnings per common share amounts assumed that
the average number of shares of common stock outstanding during
1997 would be 392 million. The budgeted earnings per common
share amounts assumed no significant gain or loss on the sale of
assets, nor did the 1997 budget include any major acquisitions,
other than the acquisition of Teco Pipeline Company, which
occurred in January 1997.
On a quarterly basis, PG&E Corporation has disclosed year-to-date
financial performance relating to its principal business lines.
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For the twelve months ended December 31, 1997, selected financial
information is shown below:
Twelve Months Ended December 31, 1997
=================================================================
Actual (1) Budget
(unaudited)
Earnings (Loss) Per
Common Share:
PG&E (Utility) $ 1.79(2) $1.73
PG&E Gas Transmission 0.04 0.12
Other (0.08)(3) 0.02
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PG&E Corporation $ 1.75 $ 1.87
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(1) In the opinion of management, the unaudited "actual"
financial information presented above reflects all adjustments to
date which are necessary to present a fair statement of earnings
per common share for the period. This information should be read
in conjunction with the 1996 Consolidated Financial Statements
and Notes to Consolidated Financial Statements incorporated by
reference in the Annual Report on Form 10-K for PG&E Corporation
and PG&E, and the PG&E Corporation Consolidated Financial
Statements, PG&E Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in the Quarterly
Reports on Form 10-Q for the periods ended September 30, 1997,
June 30, 1997, and March 31, 1997, for PG&E Corporation and PG&E.
(2) Includes a one-time gain of $.11 per share associated with
the termination of a gas transportation contract, recognized in
the fourth quarter. Reflecting the terms of the May 1997 CPUC
decision regarding Diablo Canyon ratemaking effective January 1,
1997, earnings from Diablo Canyon in 1997 were lower than budget
by $.07 per share. Also, earnings reflect the CPUC's November
1997 decision reducing the authorized rate of return on common
equity to 90% of the embedded cost of debt for all of PG&E's non-
nuclear generation-related assets, including hydroelectric
facilities, retroactive to July 28, 1997. The CPUC reduced the
rate of return on common equity to 6.77% as compared to the
previously authorized rate of 11.6%.
(3) Includes a gain on the sale of International Generating
Company, Ltd. of $0.30 per share, offset by write-offs of
investments in certain non-regulated projects of $.13 per share,
and a write-down of certain real estate properties of $.06 per
share.
The 1997 budgeted corporate earnings per common share was a
performance target and not a forecast of actual performance that
was expected to be realized by PG&E Corporation. The budgeted
amount does not reflect the resolution of various regulatory
uncertainties or other contingencies, including those disclosed
in the Notes to PG&E Corporation's and PG&E's Consolidated
Financial Statements or in PG&E
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Corporation and PG&E's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q.
In addition, the 1997 budget did not reflect the dilutive effect
of the issuance of approximately 31 million shares of PG&E
Corporation common stock in connection with the acquisition of
Valero Energy Corporation in July 1997. The impact of this
issuance resulted in a weighted average number of shares
outstanding at year end of approximately 410 million shares, as
compared to the budgeted amount of 392 million shares.
B. 1997 Consolidated Earnings (unaudited)
Attached hereto as an appendix is a copy of the unaudited
Condensed Statement of Consolidated Income for PG&E Corporation
for the three months and year ended December 31, 1997 and 1996.
PG&E Corporation reported earnings per common share of $1.75 for
the year ended December 31, 1997.
C. Accelerated Share Repurchase Program
As previously announced, on December 17, 1997, the Board of
Directors of PG&E Corporation has increased the amounts
authorized for the repurchase of PG&E Corporation common stock to
approximately $1.75 billion. Pursuant to this authorization, on
January 2, 1998, PG&E Corporation entered into an accelerated
share repurchase agreement with an investment institution
(Seller) under which PG&E Corporation purchased 37 million shares
of its common stock for a purchase price of approximately $1.1
billion. PG&E Corporation will retain the risk of increases and
the benefit of decreases in the price of the common shares
purchased through a forward contract until the Seller has
replaced the shares sold to PG&E Corporation through purchases on
the open market or through privately negotiated transactions.
PG&E Corporation may elect to settle its obligations under such
arrangement with either cash or shares of its common stock.
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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
CHRISTOPHER P. JOHNS
By ________________________________
CHRISTOPHER P. JOHNS
Vice President and Controller
(PG&E Corporation)
Vice President and Controller
(Pacific Gas and Electric Company)
Dated: January 22, 1998
