<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period-----------to-----------
COMMISSION FILE NO. 0-25842
Pacific Gas Transmission Company
(Exact name of registrant as specified in its charter)
California 94-1512922
(State or other jurisdiction of (I.R.S. Employer
Identification No.) incorporation or organization)
2100 SW River Parkway, Portland, OR 97201
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (503) 833-4000
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No
Par Value
Indicate by check mark whether the registrant (1) has 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) has 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 last practicable date.
Class Outstanding at November 14, 1996
Common Stock 1,000 Shares
Registrant meets the conditions set forth in General Instruction (H) (1) (a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
<PAGE>
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Consolidated Financial Statements
Statements of Consolidated Income
Consolidated Balance Sheets
Statements of Consolidated Cash Flows
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation
Note 2. Contingencies
Note 3. Acquisition of State Gas Pipeline
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signature
<PAGE>
PART I: FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
OPERATING REVENUES:
Gas transportation $50,366 $42,565 $143,080 $131,441
Gas transportation for PG&E 8,739 10,625 26,572 32,449
Gas supply restructuring cost
recovery from PG&E 3,229 2,615 17,847 23,723
Gas supply restructuring cost
recovery 3,525 3,308 14,104 11,475
Other 399 131 766 405
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Total operating revenues 66,258 59,244 202,369 199,493
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OPERATING EXPENSES:
Gas supply restructuring costs 6,754 5,923 31,951 35,188
Operations 13,157 11,258 36,264 37,888
Maintenance 217 891 2,220 2,669
Depreciation and amortization 10,127 10,664 28,479 30,085
Property and other taxes 3,019 3,428 8,917 10,199
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Total operating expenses 33,274 32,164 107,831 116,029
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OPERATING INCOME 32,984 27,080 94,538 83,464
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OTHER INCOME AND (INCOME DEDUCTIONS):
Allowance for equity funds
used during construction 93 506 289 1,099
Interest income 860 1,098 2,043 5,056
Other - net (2,427) (506) (3,586) (1,081)
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Total other income and
(income deductions) (1,474) 1,098 (1,254) 5,074
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INTEREST EXPENSE:
Interest on long-term debt 11,798 10,623 32,125 34,813
Allowance for borrowed funds
used during construction (69) (397) (223) (949)
Other interest charges 1,047 682 3,077 1,337
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Net interest expense 12,776 10,908 34,979 35,201
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INCOME BEFORE INCOME TAXES 18,734 17,270 58,305 53,337
<PAGE>
<S> <C> <C> <C> <C>
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INCOME TAX EXPENSE 7,274 6,320 22,905 20,457
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NET INCOME $11,460 $10,950 $35,400 $32,880
===============================================================================
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
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ASSETS
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<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(In Thousands) 1996 1995
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(UNAUDITED)
<S> <C> <C>
PROPERTY, PLANT, & EQUIPMENT:
Property, plant & equipment in service $1,585,481 $1,418,044
Accumulated depreciation (409,660) (380,585)
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Net plant in service 1,175,821 1,037,459
Construction work in progress 12,616 14,515
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Total property, plant, & equipment - net 1,188,437 1,051,974
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CURRENT ASSETS:
Cash and cash equivalents 19,382 9,839
Accounts receivable from PG&E 4,304 7,021
Accounts receivable - other 21,356 27,697
Gas supply restructuring costs recoverable 487 30,531
Deferred income taxes 13,849 -
Inventories (at average cost) 5,213 7,687
Other 11,079 10,216
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Total current assets 75,670 92,991
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DEFERRED CHARGES:
Income tax related 26,700 26,740
Deferred charge on reacquired debt 16,015 16,064
Unamortized debt expense 4,502 4,754
Other 11,900 13,682
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Total deferred charges 59,117 61,240
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TOTAL ASSETS $1,323,224 $1,206,205
===============================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
Consolidated Balance Sheets
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CAPITALIZATION AND LIABILITIES
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<TABLE>
<CAPTION>
(In Thousands) SEPTEMBER 30, DECEMBER 31,
1996 1995
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(Unaudited)
<S>
CAPITALIZATION: <C> <C>
Common stock - no par value; 1,000 shares
authorized, issued and outstanding $85,474 $85,474
Additional paid-in capital 192,000 182,000
Foreign currency translation adjustment 417 -
Reinvested earnings 175,466 150,066
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Total common stock equity 453,357 417,540
Long-term debt 643,464 592,471
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Total capitalization 1,096,821 1,010,011
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CURRENT LIABILITIES:
Long-term debt - current portion 376 355
Payable to PG&E 18,634 8,003
Accounts payable and accrued liabilities 25,730 27,527
Accrued taxes 8,878 8,646
Deferred income taxes - 1,716
Reserve for pending regulatory issues 34,728 23,201
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Total current liabilities 88,346 69,448
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DEFERRED CREDITS:
Deferred income taxes 126,916 117,353
Other 11,141 9,393
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Total deferred credits 138,057 126,746
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TOTAL CAPITALIZATION AND LIABILITIES $1,323,224 $1,206,205
==============================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
</TABLE>
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
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(UNAUDITED)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
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<S> <C> <C>
(In Thousands) 1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $35,400 $32,880
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 29,415 31,746
Deferred income taxes (5,962) 1,806
Gas supply restructuring costs 30,044 31,753
Allowance for equity funds used
during construction (289) (1,098)
Changes in operating assets and liabilities:
Accounts receivable 9,058 (1,061)
Accounts payable and accrued liabilities(1,797) 1,744
Payable to PG&E 10,631 1,413
Accrued taxes 232 4,700
Regulatory accruals 11,527 15,128
Other working capital (1,569) (846)
Other - net 3,447 (3,401)
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Cash provided by operating activities 120,137 114,764
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of State Gas Pipeline (136,227) -
Construction expenditures (25,252) (50,287)
Allowance for borrowed funds used
during construction (223) (949)
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Cash used in investing activities (161,702) (51,236)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (40,728) (781,611)
Long-term debt proceeds for acquisition
of State Gas Pipeline 91,742 -
Long-term debt issued - 666,915
Long-term debt issuance costs (323) (5,342)
Construction financing - 9,559
Payments for swap termination - (3,898)
Equity Contribution from PG&E 10,000 -
Dividend paid to PG&E (10,000) -
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Net cash provided by (used in)
financing activities 50,691 (114,377)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 417 -
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NET CHANGE IN CASH AND CASH EQUIVALENTS 9,543 (50,849)
CASH AND CASH EQUIVALENTS AT JANUARY 1 9,839 74,664
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CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $19,382 $23,815
===============================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
<PAGE>
<S> <C> <C>
Interest $23,407 $34,837
Income taxes 22,673 18,240
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The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------
Note 1: Basis of Presentation
- ---------------------------------
The accompanying unaudited consolidated financial statements, which have
been prepared in accordance with interim period reporting requirements, reflect
the results for the following entities:
Pacific Gas Transmission Company (PGT)
PGT's wholly owned subsidiaries:
PGT Australia Pty Limited (PGT Australia)
Pacific Gas Transmission International, Inc. (PGT International)
PGT Queensland Pty Limited (PGT Queensland)
PGT and its subsidiaries are referred to herein as the "Company." This
information should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included in Item 8:
Financial Statements and Supplementary Data in the Company's Form 10-K for the
fiscal year ended December 31, 1995.
In the opinion of management, the accompanying statements reflect all
adjustments which are necessary to present a fair statement of the 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. Intercompany accounts and transactions have been eliminated. Prior
year's amounts in the consolidated financial statements have been reclassified
where necessary to conform to the 1996 presentation. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
Note 2: Contingencies
- -----------------------
Regulatory Matters
-------------------
Pipeline Expansion - On November 1, 1993, PGT placed in service a major
expansion of its natural gas transmission system in Idaho, Washington and
Oregon. The new facilities, which were authorized by the Federal Energy
Regulatory Commission (FERC or Commission) on August 1, 1991, run parallel to
and connect with the existing system and provide additional firm transportation
service capacity of 150,000 Decatherms per day (Dt/d) to the Pacific Northwest
and 766,000 Dt/d to California. Similarly, the California Public Utilities
Commission (CPUC) authorized Pacific Gas and Electric Company (PG&E), PGT's
parent, to expand its gas pipeline facilities in California to connect with
the PGT expansion at the California-Oregon border. PGT's total cost of the
1993 expansion is currently estimated to be approximately $852 million.
In its August 1, 1991, order, the FERC found that transportation
arrangements for PG&E's facilities were discriminatory and initially declined to
authorize the start of construction. In particular, the FERC found that the
CPUC-imposed restraints on access by PGT's 1993 expansion shippers to PG&E's
pre-expansion facilities were discriminatory. However, on October 24, 1991, the
FERC permitted PGT to commence construction, while the CPUC re-examined the
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------
features of its rate design for PG&E, but imposed a lower penalty return on
equity, 10.13 percent, instead of the previously prescribed 12.5 percent on the
1993 expansion, until such time that PGT demonstrated that neither its rates nor
its transportation policies nor PG&E's CPUC-approved rates and policies resulted
in unduly discriminatory restraints. PGT requested a rehearing of this feature
of the FERC's certificate. In October 1992, the CPUC reaffirmed its policies
which resulted in renewed petitions to the FERC requesting, among other things,
revocation of PGT's authorization to operate the 1993 expansion facilities.
On March 16, 1993, the FERC issued an order addressing the various
petitions for rehearing of its prior decisions related to the interstate portion
of the 1993 expansion. In the order, the FERC upheld its decision to authorize
the construction and operation of the 1993 expansion and raised PGT's authorized
return to 12.75 percent, but reaffirmed the 10.13 percent penalty return on
equity for PGT's 1993 expansion facilities. The FERC denied a request for
rehearing of the March 16, 1993 order. PGT appealed the 10.13 percent penalty
return to the United States Court of Appeals.
In addition to PGT's appeal to the United States Court of Appeals, a number
of parties also sought rehearing of all of these FERC orders and have petitioned
for judicial review in the same court. On June 4, 1993, the Court of Appeals
consolidated the cases for processing. The consolidated cases were argued on
November 14, 1995, with a group of petitioners requesting the court to direct
the FERC to provide for compensation to shippers for alleged damages they
suffered as a result of the discriminatory conditions discussed above.
Petitioners did not specify the extent of the alleged damages or a basis for
computing such damages.
On August 23, 1996, the Court of Appeals found that the FERC had exceeded
its jurisdiction in imposing the penalty return and therefore granted PGT's
appeal and denied the appeals of the adverse petitioners. The effect of the
Court's decision is that PGT would be entitled to apply the 12.75 percent rate
of return, that questions concerning the FERC's certification of the expansion
have been removed, and that the FERC is not required to consider questions of
compensation to shippers. With respect to the application of the 12.75 percent
rate of return, it should be noted that in the settlement of the 1994 rate case
(see "1994 Rate Case" below), PGT agreed not to retroactively bill its customers
for the period from November 1, 1993 through August 31, 1994, for a rate higher
than the 10.13 percent penalty return previously approved by the FERC. The
court denied the petition for rehearing and the suggestion for rehearing en banc
filed by certain of the adverse petitioners. The settlement rates related to
the 1994 rate case were effective starting on September 1, 1994.
1994 Rate Case - On September 11, 1996, the FERC approved, without
modification, the proposed settlement of PGT's rate case, which was initially
filed in February 1994. The major issue in this proceeding was whether PGT's
mainline transportation rates should be equalized through the use of rolled-in
cost allocation, as PGT proposed, or whether they should continue to reflect the
current use of incremental cost allocation to determine the rates to be paid by
firm shippers. The settlement provides for rolled-in rates to become effective
on November 1, 1996. To mitigate the impact of the higher rolled-in rates on
shippers who were paying lower rates under contracts executed prior to PGT's
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------
1993 expansion (pre-1993 expansion shippers), most of the firm shippers who
took service prior to the 1993 expansion will receive a reduction from the
rolled-in rate for a six year period, while the firm 1993 expansion shippers
will pay a surcharge in addition to the rolled-in rates to offset the effect of
the mitigation.
Although the implementation of rolled-in rates by itself will not change
PGT's total revenue requirement, the settlement provides for, among other
things, a lower total cost of service of $206 million, lower depreciation rates,
and a return on equity of 12.2 percent from September 1, 1994, the effective
date of the rates in this case. In addition, under the settlement,
approximately three percent of PGT's firm transportation service capacity has
been relinquished effective November 1, 1996, to be subscribed to other
shippers who may desire the capacity. Approximately $7.5 million of costs were
also allocated to short-term firm and interruptible services.
The overall effect of the settlement on rates, including mitigation
measures and agreed upon lower cost of service, will be to decrease PGT's
current 100 percent load factor transportation rates for the full distance of
the pipeline (from the Canadian-U.S. border to the Oregon-California border)
from $0.48 per Decatherm (Dt) to $0.33 per Dt for the 1993 expansion shippers,
and to increase the transportation rate for most of the pre-1993 expansion
shippers from $0.16 per Dt to either $0.20 or $0.24 per Dt, depending upon the
level of mitigation applicable to each shipper. The rolled-in rate for the full
distance would be $.26 per Dt.
Although the FERC approved the settlement without modification, several
shippers have sought rehearing of the FERC's order. PGT does not expect the
FERC to modify the settlement as a result of these requests. Parties that have
sought rehearing may petition the court of appeals if the FERC does not grant
their rehearing requests. In the event the FERC does modify the settlement,
however, the settlement permits PGT to terminate the settlement and reinstate
the rates contained in its rate case proposal and proceed to a FERC decision
based upon the evidence in the case.
PGT has recorded a reserve for revenues subject to refund and related
interest of $34.7 million as of September 30, 1996.
Gas Supply Restructuring (GSR) Costs - Through September 30, 1996, PGT has
incurred total Gas Supply Restructuring (GSR) costs of $239.7 million. Pursuant
to the Transition Cost Recovery Mechanism (TCRM), the FERC has approved the
recovery of $168.5 million of such GSR costs, of which $56.2 million was
recovered through direct bills principally to PG&E and $112.3 million, plus
carrying costs, on a monthly basis through no later than November 14, 1996, via
a surcharge applicable to volumes transported under certain of PGT's rate
schedules.
On January 25, 1996, the CPUC sought judicial review of the FERC's approval
of approximately $10.9 million of GSR costs. However, as part of the
settlement of PGT's 1994 rate case discussed above, the CPUC has filed a motion
to withdraw its petition for judicial review in consideration of PGT's
agreement to refund $3.2 million of the GSR costs direct billed to PG&E.
Accordingly, PGT has recorded a reserve of $3.2 million, which is included in
Reserve for Pending Regulatory Issues on the Consolidated Balance Sheet.
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------
Legal Matters
--------------
Norcen Litigation: On March 17, 1994, Norcen Energy Resources Limited
(Norcen Energy) and Norcen Marketing Incorporated (Norcen Marketing) filed a
complaint in the U.S. District Court, Northern District of California, against
PG&E and PGT. In April 1991, Norcen Marketing signed a 30-year firm service
agreement with PGT for transportation of approximately 47,000 Dt/d on the PGT
1993 expansion. The annual demand charges under the contract are approximately
$5.5 million based upon the settlement of the 1994 rate case. Norcen Energy is
a guarantor of the 30-year transportation contract between PGT and Norcen
Marketing.
The complaint alleged that PGT and PG&E wrongfully induced Norcen Energy
and Norcen Marketing to enter into the 30-year contract by concealing legal
action taken by PG&E before the CPUC (requesting clarification that gas shipped
on the PGT expansion should pay PG&E's incremental expansion rates for
intrastate service) two days before Norcen Marketing's contract became binding.
The complaint further alleged breach of representations to plaintiffs that PG&E
would not "unreasonably" build its expansion with less than "sufficient" firm
subscription. The complaint also alleged breach of an agreement between PGT and
a Norcen predecessor relating to the installation of additional capacity.
The complaint also alleged various federal and state antitrust, contractual
and other claims against the defendants and seeks rescission, restitution and
recovery of unspecified damages. In a pleading filed in June 1994, the
plaintiffs indicated a claim for $140 million (before trebling) based on
defendants' allegedly exclusionary business behavior, as well as an unspecified
amount of contract damages.
On September 19, 1994, the U.S. District Court, Northern District of
California, granted PGT's and PG&E's motion to dismiss all federal antitrust
claims in the complaint originally filed in this case, and dismissed the
remaining state law claims for lack of jurisdiction.
On October 18, 1994, plaintiffs filed an amended complaint. The amended
complaint reasserted part of the original complaint's antitrust claims, asserted
new antitrust claims based upon the same facts, and specifically alleged
diversity jurisdiction for the state law contract claims. On July 27, 1995, the
District Court issued an order on PGT's and PG&E's motions to dismiss the
amended complaint. The order dismissed all of the plaintiffs' federal and state
antitrust claims with prejudice, but did not dismiss various state law contract
claims, including claims based on fraudulent inducement and breach of contract.
Plaintiffs have the right to appeal the dismissal of the antitrust claims to the
Court of Appeals. Plaintiffs still seek rescission of their gas transportation
contracts and compensatory and punitive damages in connection with their
remaining state law claims. The Company believes plaintiffs in this action
might seek contract damages of approximately $50 million in connection with such
claims.
The Company is unable to predict the ultimate outcome of this matter, but
such outcome could have a material adverse impact on the Company's results of
operations in a future reporting period. The Company believes that the ultimate
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------
outcome of this matter will not have a material adverse impact on its financial
position or liquidity.
Note 3. Acquisition of State Gas Pipeline
- -------------------------------------------
On July 1, 1996, the PGT Queensland Unit Trust (PGT Trust), a unit trust
created under the laws of Australia, purchased all of the assets comprising the
Queensland State Gas Pipeline from the Government of the State of Queensland,
Australia. The purchase was effected by PGT Australia Pty Limited (PGT
Australia), as Trustee of the PGT Trust. PGT Australia is an Australian
corporation which is a wholly owned subsidiary of PGT.
The record owners of all of the issued and outstanding units of the PGT
Trust, who as such own all of the beneficial interest in the PGT Trust, are
Pacific Gas Transmission International, Inc. (PGT International), a California
corporation which is a wholly owned subsidiary of PGT, and PGT Queensland Pty
Limited (PGT Queensland), an Australian corporation which is also a wholly owned
subsidiary of PGT.
The pipeline is an approximately 389-mile 12-inch pipeline constructed in
1990 which extends from Wallumbilla to Gladstone and Rockhampton in Queensland,
Australia. The pipeline was operated by the Government of the State of
Queensland, Australia to provide natural gas transportation service to customers
in the vicinity of the pipeline. The PGT Trust intends to continue such
operations and has named the pipeline, as an operating unit, the PGT Queensland
Gas Pipeline (PGTQ Pipeline).
The purchase price, including related stamp duty taxes, for the PGTQ
Pipeline was approximately US$133 million. Additional incurred and projected
acquisition costs, including financing costs and working capital, were
approximately US$6 million. The purchase price for the assets comprising the
PGTQ Pipeline was established through negotiations with the Government of
Queensland following a bidding process in which PGT was the winning bidder.
The purchase method of accounting was applied to this acquisition.
The acquisition of the PGTQ Pipeline by the PGT Trust was financed through
a combination of equity contributions from PGT and aggregate loan proceeds of
US$91 million drawn under a recourse loan agreement and a non-recourse loan
agreement. The non-recourse loan agreement between PGT Australia, in its
capacity as trustee of the PGT Trust, and a group of lenders provided for loans
denominated in both United States and Australian Dollars totaling approximately
US$60 million. Repayment of amounts outstanding under the non-recourse
agreement is secured by a first mortgage and first security interest in
substantially all of the assets owned by the PGT Trust (with certain limited
exceptions), but is otherwise non-recourse to PGT Australia, PGT International,
PGT Queensland and PGT.
PGT Australia, in its capacity as trustee of the PGT Trust, also entered
into a recourse loan agreement with a group of lenders providing for loans in
United States Dollars in the amount of US$40 million. Repayments of amounts
outstanding under the recourse agreement are not secured by mortgage or security
interests in the assets of the PGT Trust.
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
- -------------------------------------------------------
In connection with this financing, PG&E, the parent of PGT, entered into a
Capital Infusion Agreement with PGT (Capital Infusion Agreement), under which
PG&E has agreed to make additional capital contributions to PGT, under certain
circumstances, in an aggregate amount not exceeding US$40 million; PGT has
assigned its rights under the Capital Infusion Agreement to the Facility Agent
as agent for and on behalf of the lenders under the Recourse Facility Agreement.
Independent of the Capital Infusion Agreement, PG&E made an equity contribution
of $10 million to PGT during July, 1996.
In the event of a default by the PGT Trust in its obligations under the
Recourse Facility Agreement, the Facility Agent may cause PG&E to pay directly
to the Facility Agent, as agent for and on behalf of the lenders under the
Recourse Facility Agreement, all amounts due thereunder up to PG&E's maximum
obligation under the Capital Infusion Agreement. In certain circumstances, an
unconditional guaranty by PGT may be substituted for the Capital Infusion
Agreement as credit support for the PGT Trust's obligations under the recourse
agreement. In addition, PGT has issued a guarantee in favor of the Facility
Agent with respect to all interest, fees, expenses and other obligations under
the recourse agreement, other than principal, in an aggregate amount not to
exceed US$2 million. PGT International has guaranteed the repayment in full by
the PGT Trust of all amounts payable under the recourse agreement.
In connection with the financing associated with PGT's acquisition of the
PGTQ Pipeline, PGT Australia, to hedge its exposure to interest rate movement,
entered into interest rate swap agreements with domestic and international
banks, under which floating rate interest payment obligations denominated in
United States Dollars (US$) and Australian Dollars (A$) were swapped for fixed
rate interest payment obligations (see Part I, Item 2, "Liquidity and Capital
Resources"). PGT Australia's payment obligations under the swap agreements
relating to the recourse debt (see Part I, Item 2, "Liquidity and Capital
Resources") are guaranteed by PGT up to an amount not exceeding US$9 million.
The operating results of the PGTQ Pipeline are included in the Company's
consolidated results of operations from the date of acquisition. The following
pro forma summary combines the consolidated results of operations of PGT with
the PGTQ Pipeline as if the acquisition had occurred at the beginning of 1995.
This information is presented for informational purposes only and is not
necessarily indicative of the operating results that would have occurred had the
acquisition been consummated as of the beginning of 1995, nor are they
necessarily indicative of future operating results.
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------------- ------------------
(in millions) (in millions)
Total Operating Revenues $66.3 $63.5 $211.5 $212.0
Operating Income 33.0 29.9 100.5 91.5
Net Income 11.5 11.4 36.4 33.9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated unaudited financial statements include:
Pacific Gas Transmission Company (PGT)
PGT's wholly owned businesses:
PGT Australia Pty Limited (PGT Australia)
Pacific Gas Transmission International, Inc. (PGT International)
PGT Queensland Pty Limited (PGT Queensland)
PGT and its subsidiaries are referred to herein as the "Company".
The following discussion includes some forward-looking statements that
involve a number of risks and uncertainties. Importantly, the ultimate impact
of increased competition and the changing regulatory environment on future
results is uncertain, but is expected to cause changes in the way Pacific Gas
Transmission Company conducts its business and to cause earnings to be more
volatile. This outcome, and other matters discussed below, including the
outcome of certain litigation with a firm shipper of PGT, may cause future
results to differ materially from historical results or from results or outcomes
currently expected or sought by the Company.
General
--------
PGT is an interstate natural gas pipeline company and a wholly owned
subsidiary of Pacific Gas and Electric Company (PG&E). PGT's transportation
system provides access to natural gas from producing fields in western Canada
and extends from the British Columbia-Idaho border to the Oregon-California
border. PGT's transportation system also provides service to various delivery
points in Idaho, Washington and Oregon. PGT's natural gas transportation
services are regulated by the United States Department of Energy, in particular
the Federal Energy Regulatory Commission (FERC). Various safety issues are
subject to the jurisdiction of the United States Department of Transportation.
New PGT Subsidiaries
---------------------
In connection with its acquisition of the State Gas Pipeline in July 1996,
PGT established the PGT Queensland Unit Trust (PGT Trust), created under the
laws of Australia, to purchase all of the assets comprising the Queensland State
Gas Pipeline from the Government of the State of Queensland, Australia. Upon
acquisition, as an operating rather than legal entity, the pipeline was renamed
the PGT Queensland Gas Pipeline (PGTQ Pipeline). The PGT Trust is owned by two
wholly owned subsidiaries of PGT - Pacific Gas Transmission International, Inc.,
a California corporation, and PGT Queensland Pty Limited (PGT Queensland), an
Australian corporation. In addition, PGT also established another wholly owned
subsidiary, PGT Australia, to pursue new business development opportunities in
Australia. PGT Australia also serves as trustee of the PGT Trust.
<PAGE>
Holding Company Proposal
------------------------
The PG&E Board of Directors has authorized, and shareholders, the CPUC and
the FERC have approved, and the Nuclear Regulatory Commission has conditionally
approved a plan to restructure the corporate organization of PG&E and its
subsidiaries. The result of the change in corporate structure will be to have
PG&E become a separate subsidiary of a parent holding company (ParentCo) with
the present holders of PG&E common stock becoming holders of ParentCo common
stock. As part of the change in structure, it is contemplated that PG&E will
transfer its ownership interests in its two principal subsidiaries, PGT and PG&E
Enterprises, to ParentCo, so that PGT and PG&E Enterprises will become
subsidiaries of ParentCo. The debt and preferred stock of PG&E would remain
outstanding at the PG&E level and would not become obligations or securities of
ParentCo. PG&E intends to form the holding company on or about January 1, 1997
subject to Board approvals of certain matters.
Changing Regulatory Environment
-------------------------------
Prior to November 1, 1993, PGT's business was primarily to provide bundled
natural gas sales and transportation services to PG&E, firm transportation
service to Pacific Interstate Transmission Company and to Northwest Pipeline,
and open-access interruptible transportation service to various other customers.
In 1992, the FERC issued Order 636, which required open-access pipelines to
provide firm and interruptible transportation services on an equal basis for all
gas supplies, whether purchased from the pipeline or from another gas supplier,
and required the termination of all pipeline bundled sales and transportation
service. PGT implemented the provisions of Order 636 effective November 1,
1993, pursuant to the FERC orders dated July 12, 1993 and October 1, 1993.
Effective November 1, 1993, PG&E terminated its gas purchases from PGT and PG&E
began receiving an equivalent amount of firm transportation service from PGT
under a long-term contract.
Order 636 authorized PGT to adopt the straight fixed-variable (SFV) rate
design method for all rate schedules, which it did effective November 1, 1993.
Under the SFV rate design, a pipeline company's fixed costs, including return on
equity and related taxes, associated with firm transportation service are
collected through the reservation charge component of the pipeline company's
firm transportation service rates.
The Company believes that SFV rate design is likely to continue as the
basis for ratemaking for PGT over the near term, which tends to minimize the
effect of fluctuating levels of throughput on PGT's system. A departure from
SFV rate design (whereby a portion of fixed costs would be assigned to the
commodity or delivery component of rates) could cause PGT's operating results to
be affected by fluctuations in the volumes of gas transported on its system.
Similarly, the extent to which PGT's cost of service is recovered under long-
term contracts also affects the impact that variations in PGT's throughput would
have on its operating results. As a result of the settlement of PGT's 1994 rate
case, three percent of PGT's capacity is at risk for subscription. In
addition, see "Legal Matters - Norcen Litigation" in Note 2 of the Notes to
Consolidated Financial Statements contained in Part I, Item 1, above, for a
discussion of litigation filed against PGT by one of its long-term firm
transportation service customers which is seeking a recision of that contract.
<PAGE>
As discussed more fully in "Regulatory Matters - 1994 Rate Case" in Note 2
of the Notes to Consolidated Financial Statements contained in Item 1, above, on
September 11, 1996, the FERC approved, without modification, the proposed
settlement of PGT's rate case, which was filed in 1994. This settlement,
among other things, provides for the adoption of rolled-in rates. Although the
implementation of rolled-in rates by itself does not change PGT's total revenue
requirement, the settlement provides for, among other things, a lower total cost
of service of $206 million, lower depreciation rates, and a return on equity of
12.2 percent. In addition, approximately three percent of PGT's firm
transportation service capacity will be turned back to PGT for subscription to
other shippers. To mitigate the impact of the higher rates, most of the firm
pre-1993 expansion shippers will be receiving a reduction from the rolled-in
rates for six years, while the 1993 expansion shippers will pay a surcharge in
addition to the rolled-in rates to offset the effect of the mitigation on PGT's
total revenue requirement. Several parties have sought a rehearing of the FERC
order.
On January 31, 1996, the FERC issued a policy statement on alternative
methods for setting rates. The policy statement provides guidelines the FERC
will use in evaluating market-based incentive rate proposals and negotiated rate
proposals by pipeline companies. Of particular note is the negotiated/recourse
rate program which provides a framework to allow negotiated terms and/or
conditions for individual shippers, with the traditional cost of service rates
and tariffs made available to all shippers as a default or recourse. The FERC
is currently requesting comments on the policy statement. The statement is not
expected to have a material impact on PGT's financial position, liquidity or
results of operations in the foreseeable future.
On July 17, 1996, the FERC adopted a new rule which standardizes
technology and operating procedures for pipelines in order to promote greater
integration of the national gas grid. On July 31, 1996, the FERC issued a
Notice of Proposed Rulemaking (NOPR) to improve the efficiency of capacity
release procedures and to allow rates above the cost-based rate cap in markets
where pipelines can demonstrate they lack market power.
Competition
-----------
Competition to provide natural gas transportation services has intensified
in recent years. Regulatory changes, such as Order 636, have significantly
increased customers' flexibility, choices and responsibility to directly manage
their gas supplies.
PGT has in the past, and will in the future, actively compete with other
pipeline companies for transportation customers on the basis of transportation
rates, access to competitively priced gas supply basins, and quality and
reliability of transportation services. In the current open access environment,
the competitiveness of the pipeline's transportation services in the market it
serves is determined generally on the basis of delivered natural gas prices, of
which transportation cost is a portion of the total delivered price. Because 97
percent of PGT's firm transportation service capacity is currently subscribed
under long-term contracts, and because of the current SFV rate design, there are
no material financial effects due to fluctuating levels of throughput on its
system because of changes in market conditions with respect to this capacity.
As a result of the settlement of PGT's 1994 rate case (see "1994 Rate Case" in
Note 2 of the Notes to Consolidated Financial Statements contained in Part I,
Item I, above), PGT is at risk for the subscription of three percent of its
<PAGE>
firm transportation service capacity. PGT also has the need to recover
approximately $7.5 million of costs allocated to short-term firm and
interruptible services. On July 16, 1996, the United States Court of Appeals
for the District of Columbia Circuit affirmed the FERC's adoption of the SFV
rate design for all natural gas pipelines under FERC's jurisdiction. In light
of the Court's decision, it appears unlikely that FERC will mandate
any industry-wide departure from the SFV rate design in the near future.
Future Expansions and Business Development
------------------------------------------
PGT has received preliminary expressions of interest in providing firm
transportation service to parties who cannot be accommodated with PGT's existing
available firm transportation service capacity and whose needs may not be met
through the release of capacity by PGT's current firm transportation service
customers. PGT intends to continue to solicit such expressions of interest, and
will consider adding additional firm transportation service capacity to its
mainline system in the future if sufficient demand develops.
In addition to mainline expansions, PGT is also considering opportunities
to expand its core pipeline business through other means, such as through
extensions off its mainline system or the acquisition of gas storage and other
gas-related properties. Such opportunities may be located outside the Pacific
Northwest and California, and outside the United States.
Consistent with this strategy, on July 1, 1996, a wholly owned subsidiary
of PGT acquired a 389-mile natural gas pipeline in northeastern Australia, from
the state of Queensland, Australia. (See Note 3, "Acquisition of State Gas
Pipeline" in the Notes to Consolidated Financial Statements in Part I, Item 1,
Consolidated Financial Statements.) In addition, PGT established an investment
development office in Australia on July 1, 1996 to pursue new business
development opportunities in connection with its strategy to expand its core
pipeline business.
Accounting for the Effects of Regulation
----------------------------------------
PGT currently accounts for the economic effects of regulation in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation." As a result of
applying the provisions of SFAS No. 71, PGT has accumulated approximately $58.4
million of regulatory assets as of September 30, 1996. Management expects to
recover all of these costs through rates charged to customers.
<PAGE>
Results of Operations
- ---------------------
The following tables summarize the results of operations for PGT
and its subsidiaries:
INCOME STATEMENT DATA -
- -----------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
------ ------ ------ ------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Operating revenues $66.3 $59.3 $202.4 $199.5
Operating expenses 33.3 32.2 107.8 116.0
------- ------- ------- ------
Operating income 33.0 27.1 94.6 83.5
Other income and
(income deductions) (1.5) 1.1 (1.3) 5.1
Net interest expense (12.8) (10.9) (35.0) (35.2)
------- ------- ------- ------
Income before income taxes 18.7 17.3 58.3 53.4
Income tax expense 7.2 6.3 22.9 20.5
------- ------- ------- -------
Net Income $11.5 $11.0 $35.4 $32.9
====== ======= ======= =======
BALANCE SHEET DATA -
- ------------------
At September 30, 1996 At December 31, 1995
----------------------- --------------------
(in millions) (in millions)
PGT - Domestic Utility Assets $ 1,182.5 $ 1,206.2
PGT - Australian Assets 140.7 -
--------------- -------------
Total Assets $ 1,323.2 $ 1,206.2
=============== =============
</TABLE>
Net Income
----------
Net income for the three months ended September 30, 1996 was $11.5
million compared with $11.0 million for the three months ended September
30, 1995. The $0.5 million, or five percent, increase primarily resulted
from higher transportation revenues. For the nine months ended September
30, 1996, net income was $35.4 million, or eight percent, higher than net
income of $32.9 million for the nine months ended September 30, 1995. This
increase was primarily the result of higher gas transportation revenues,
lower operations and maintenance expenses, and lower property taxes.
The effects of these items were offset, in part, by reduced interest income.
<PAGE>
Operating Revenues - The components of total operating revenues are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
----- ----- ----- ------
(in millions) (in millions)
<S> <C> <C> <C> <C>
Gas transportation -
PGT domestic utility $56.3 $53.2 $166.8 $163.9
Gas transportation -
PGT Australian operations 2.8 - 2.8 -
Gas supply restructuring (GSR) cost 6.8 5.9 32.0 35.2
Other 0.4 0.2 0.8 0.4
------ ------ ------- -------
Total Operating Revenues $66.3 $59.3 $202.4 $199.5
======= ====== ====== =======
</TABLE>
During the three months ended September 30, 1996, compared to the third
quarter of 1995, gas transportation revenues for PGT's domestic utility
operations increased $3.1 million, or six percent. This increase includes
$1.4 million in higher FERC and Gas Research Institute surcharges which are
substantially offset by related accrued expenses. PGT's Australian operations
added $2.8 million in additional revenues.
GSR cost recovery revenues reflect the collection from customers through
volumetric surcharges and direct bills of deferred GSR costs over a three-year
period, beginning November 15, 1993, as permitted by the transition cost
recovery mechanism (TCRM) approved by the FERC. These revenues have no effect
on income as they are fully offset by the amortization of like amounts of
deferred GSR costs. The decrease for the nine month period ended September
30, 1996, compared to the same period in 1995, resulted primarily from a
direct billing of $4.7 million of GSR costs to PG&E in March 1995, pursuant
to the January 1995 GSR filing approved by the FERC.
Operating Expenses-The components of total operating expenses are as following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------
1996 1995 1996 1995
----- ----- ----- -----
(in millions) (in millions)
<S> <C> <C> <C> <C>
PGT - Domestic Utility Operations:
- ----------------------------------
Gas supply restructuring (GSR) costs $6.8 $5.9 $32.0 $35.2
Operations and maintenance 12.7 12.2 37.8 40.5
Depreciation and amortization 9.3 10.7 27.6 30.1
Property and other taxes 3.0 3.4 8.9 10.2
----- ----- ------ -----
Domestic Operating Expenses 31.8 32.2 106.3 116.0
----- ----- ------ -----
<PAGE>
<S> <C> <C> <C> <C>
PGT - Australian Operations
Operations and maintenance 0.7 - 0.7 -
Depreciation and amortization 0.8 - 0.8 -
----- ----- ------ -----
Australian Operating Expenses 1.5 - 1.5 -
----- ----- ------ -----
Total Operating Expenses $33.3 $32.2 $107.8 $116.0
====== ====== ====== ======
</TABLE>
<PAGE>
GSR costs for the nine-month periods ended September 30, 1996 and 1995, include
the amortization of the deferred GSR costs which were billed to customers
during the same period.
PGT's domestic operations and maintenance expenses for the three months
ended September 30, 1996, increased by $0.5 million, or four percent. The
results for the nine months ended September 30, 1996 decreased $2.7 million, or
seven percent, compared to the same period in 1995 due to decreased regulatory
expenses, lower general expenses, and reduced rent expense. In connection with
its relocation to Portland, Oregon, PGT entered into a capital lease on its new
office building which resulted in a decline in rent expense which was offset by
the combination of additional depreciation expense and interest expense
associated with the lease. Due to lower depreciation rates applied since
December 1995, in anticipation of FERC approval of lower depreciation rates
included in the settlement of PGT's 1994 rate case, total depreciation and
amortization expense declined for the three and nine months ended September 30,
1996, compared to the same periods in 1995. The impact of the lower
depreciation rates are also reflected in revenues. Property and other taxes for
the three and nine months ended September 30, 1996, decreased by $0.4 million
and $1.3 million, respectively, compared to the same periods in 1995, due to
lower property taxes for PGT's facilities in Oregon.
Other Income and (Income Deductions) - Other income for the three and nine
months ended September 30, 1996, decreased $2.6 million and $6.4 million,
respectively, compared to the same periods in 1995, primarily due to a
reduction in equity AFUDC, reflecting the completion of extensions in Oregon on
November 1, 1995, and to a decrease in interest income resulting from the
combination of lower invested cash balances in 1996 and reduced unrecovered GSR
balances, which earn interest. In addition, PGT established an investment
development office in Australia on July 1, 1996 which has incurred start-up and
operating expenses amounting to $0.9 million. This office was established in
support of PGT's strategy to expand its core pipeline business.
Interest Expense - Interest expense related to PGT's domestic operations,
excluding AFUDC debt, for the three and nine months ended September 30, 1996,
decreased $0.2 million and $2.7 million, respectively, compared to the same
periods in 1995, primarily due to lower long-term debt interest offset, in part,
by an increase in interest associated with the capital lease of PGT's corporate
office, which was effective July 1995. Interest on long-term debt decreased
because of a reduction in the average interest rate from 7.8 percent in the nine
months ended September 30, 1995, compared to 7.4 percent during the same period
in 1996. In addition, the average balance of long-term debt outstanding during
the nine months ended September 30, 1995 was $594 million compared to $549
million during the same period in 1996.
Interest expense related to PGT's Australian operations was $1.7 million.
The average effective interest rate since July 1, 1996, the date of acquisition
of State Gas Pipeline, was 7.3 percent, based upon an average long-term debt
balance of $91.7 million.
AFUDC related to debt for the three and nine months ended September 30,
1996, decreased $0.3 million and $0.7 million, respectively, compared to the
same periods in 1995 due to completion of the construction of pipeline
extensions in Oregon, which were placed in service on November 1, 1995.
<PAGE>
Liquidity and Capital Resources
-------------------------------
Sources of Capital - The Company's capital requirements are funded from
cash provided by operations and, to the extent necessary, external financing and
capital contributions from PG&E. PGT pays dividends to PG&E as part of a
balanced approach for managing its capital structure, funding its operations and
capital expenditures and maintaining appropriate cash balances. In connection
with the acquisition of State Gas Pipeline, PG&E made a capital contribution of
$10.0 million to PGT during the third quarter of 1996.
Cash Flows from Operating Activities - For the nine months ended September
30, 1996, net cash provided by operating activities was $120.1 million, as
compared with net cash provided by operating activities of $114.8 million for
the same period in 1995.
Cash Flows from Investing Activities - For the nine months ended September
30, 1996, and 1995, cash used for investing activities was $161.7 million and
$51.2 million, respectively and included expenditures for property, plant and
equipment (including the allowance for borrowed funds used during construction),
and $136.2 million for the acquisition of State Gas Pipeline. The increased
construction activity in 1995 was associated with PGT's Oregon extensions.
Cash Flows from Financing Activities - For the nine months ended September
30, 1996, cash provided by financing activities amounted to $50.7 million,
which, consisted of financing related to the acquisition of State Gas Pipeline,
partially offset by a reduction in long-term debt. Also, a $10.0 million
dividend paid to PG&E during the first quarter of 1996 was offset by a capital
contribution from PG&E during the third quarter of 1996 which was associated
with the acquisition of State Gas Pipeline. For the nine months ended September
30, 1995, cash used in financing activities amounted to $114.4 million and
included a net $114.7 million reflecting PGT's April 1995 refinancing and a
reduction in long-term debt.
Financing for New Acquisition - The acquisition of the State Gas Pipeline
was financed through a combination of equity contributions from PGT and bank
loans. PGT Australia, in its capacity as trustee of the PGT Trust, entered into
non-recourse and recourse agreements with domestic and international banks
providing loans to the PGT Trust in connection with the acquisition and
operation of the pipeline denominated in both United States Dollars and
Australian Dollars totaling approximately US$100 million of which approximately
US$91 million was used for the acquisition. The loans were issued for a five-
year term with interest rates based upon the LIBOR or the Australian Bank Bill
rate plus a margin dependent upon a rating level, for the United States dollar
and Australian dollar components, respectively. PGT has guaranteed interest,
fees, expenses, and other obligations under the recourse agreement, other than
principal, in an aggregate amount not to exceed US$2 million.
In connection with this financing, PGT Australia, entered into interest
rate swap agreements with domestic and international banks, under which the
underlying LIBOR or Australian Bank Bill components of the floating rate
interest payment obligations were swapped for fixed rate interest payment
obligations as described below:
<PAGE>
Fixed
Swap
Effective Date Period of Time Amount Rate Type of Debt
- -------------- --------------- ------- ----- ---------------
(In Millions)
July 3, 1996 5 years US$22 6.684% Recourse
July 3, 1996 2 years US$4 6.70% Non-Recourse
July 3, 1996 5 years US$41 6.70% Non-Recourse
July 2, 1996 2 years A$1 8.7175% Non-Recourse
July 2, 1996 5 years A$12 8.7175% Non-Recourse
PGT Australia's payment obligations for the swap agreements related to the
recourse debt are guaranteed by PGT up to an amount not exceeding US$9 million.
Legal Matters
-------------
In the normal course of business, the Company is named as a party in a
number of claims and lawsuits. In the past, substantially all of these have
been litigated or settled with no significant impact on the Company's financial
position, liquidity, or results of operations.
There is one litigation case discussed in the "Legal Matters" section of
Note 2 "Contingencies" in the Notes to Consolidated Financial Statements
contained in Part I, Item 1, Consolidated Financial Statements, above. This
case involves fraud and state law contract claims for damages related to a 30-
year contract with a transportation customer. The Company is unable to predict
the ultimate outcome of this matter, but it could have a material adverse impact
on the Company's results of operations in a future reporting period. The
Company believes that the ultimate outcome of this matter will not have a
material adverse impact on its financial position or liquidity.
New Accounting Standard
-----------------------
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS No. 121). The Company adopted SFAS No. 121 effective
January 1, 1996.
The general provisions of SFAS No. 121 require, among other things, that
the existence of an impairment be evaluated whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable, and prescribes standards for the recognition and measurement of
impairment losses. PGT currently accounts for the economic effects of
regulation in accordance with the provisions of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," which allows PGT to capitalize certain
costs, that would otherwise be expensed, as regulatory assets. SFAS No. 121
requires that regulatory assets continue to be probable of recovery in rates,
rather than only at the time the regulatory asset is recorded. Any regulatory
asset currently recorded would be written off if recovery is no longer probable.
There was no material impact of adopting SFAS No. 121 on PGT's financial
position, liquidity or results of operations.
<PAGE>
PART II: OTHER INFORMATION
- ----------------------------
ITEM 1. LEGAL PROCEEDINGS
------------------
Information responding to this Item is included in the "Legal Matters"
section of Note 2 "Contingencies" in the Notes to Consolidated Financial
Statements in Part I, Item 1, Consolidated Financial Statements, above, which
information is hereby incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
The following reports on Form 8-K were filed during the third quarter of
1996:
July 15, 1996
Item 2. Acquisition or Disposition of Assets - acquisition of an
Australian natural gas pipeline from the state of Queensland.
August 13, 1996
Item 7. Financial Statements and Exhibits - pro forma financial
information and consent of independent public accountants regarding the
acquisition of an Australian natural gas pipeline from the state of
Queensland.
September 27, 1996
Item 5. Other Events - Federal Energy Regulatory Commission approval of
the proposed settlement of Pacific Gas Transmission's rate case, which was
initially filed in February 1994.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, PGT
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PACIFIC GAS TRANSMISSION COMPANY
(Registrant)
November 14, 1996 By: /s/ STANLEY C. KARCZEWSKI
Name: Stanley C. Karczewski
Title: Vice President of Finance and
Controller and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000075491
<NAME> PGT
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1052513
<OTHER-PROPERTY-AND-INVEST> 135924
<TOTAL-CURRENT-ASSETS> 75670
<TOTAL-DEFERRED-CHARGES> 59117
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1323224
<COMMON> 85474
<CAPITAL-SURPLUS-PAID-IN> 192000
<RETAINED-EARNINGS> 175883
<TOTAL-COMMON-STOCKHOLDERS-EQ> 453357
0
0
<LONG-TERM-DEBT-NET> 559058
<SHORT-TERM-NOTES> 0
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<COMMERCIAL-PAPER-OBLIGATIONS> 67535
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<CAPITAL-LEASE-OBLIGATIONS> 16871
<LEASES-CURRENT> 376
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<TOTAL-OPERATING-EXPENSES> 130736
<OPERATING-INCOME-LOSS> 71633
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<INCOME-BEFORE-INTEREST-EXPEN> 70379
<TOTAL-INTEREST-EXPENSE> 34979
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0
<EARNINGS-AVAILABLE-FOR-COMM> 35400
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</TABLE>
