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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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
PG&E Gas Transmission, Northwest Corporation
(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
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 August 11 , 2000.
1,000 shares of common stock no par value. (All shares are owned by PG&E Gas
Transmission Corporation.)
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.
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TABLE OF CONTENTS
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PART I. Financial Information Page
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<S> <C>
Item 1. Consolidated Financial Statements
Statements of Consolidated Income 1
Consolidated Balance Sheets 2
Statements of Consolidated Common Stock Equity 4
Statements of Consolidated Cash Flows 5
Notes to Consolidated Financial Statements 6
Note 1. Basis of Presentation 6
Note 2. Commitments and Contingencies 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. Other Information
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Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
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PART I: FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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<TABLE>
<CAPTION>
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Statements of Consolidated Income
(Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
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(In Thousands) 2000 1999 2000 1999
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<S> <C> <C> <C> <C>
OPERATING REVENUES:
Gas transportation $ 43,398 $ 39,118 $ 87,270 $ 83,590
Gas transportation for affiliates 12,583 12,346 25,007 25,367
Other 358 138 748 281
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Total operating revenues 56,339 51,602 113,025 109,238
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OPERATING EXPENSES:
Administrative and general 7,371 4,023 14,769 13,013
Operations and maintenance 3,629 5,332 7,195 9,736
Depreciation and amortization 10,383 10,233 20,723 20,393
Property and other taxes 2,806 2,799 5,780 5,650
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Total operating expenses 24,189 22,387 48,467 48,792
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OPERATING INCOME 32,150 29,215 64,558 60,446
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OTHER INCOME AND (INCOME DEDUCTIONS):
Allowance for equity funds used during construction 93 322 274 692
Interest income 34 31 75 82
Other - net (119) (223) (152) (419)
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Total other income and (income deductions) 8 130 197 355
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INTEREST EXPENSE:
Interest on long-term debt 9,764 10,275 20,019 20,572
Allowance for borrowed funds used during construction (88) (323) (278) (701)
Other interest charges 316 324 638 653
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Net interest expense 9,992 10,276 20,379 20,524
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INCOME BEFORE INCOME TAXES 22,166 19,069 44,376 40,277
INCOME TAX EXPENSE 8,635 7,300 17,205 15,397
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NET INCOME $ 13,531 $ 11,769 $ 27,171 $ 24,880
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
1
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<TABLE>
<CAPTION>
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Consolidated Balance Sheets
(Unaudited)
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ASSETS
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June 30, December 31,
(In Thousands) 2000 1999
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<S> <C> <C>
PROPERTY, PLANT and EQUIPMENT:
Property, plant and equipment in service $ 1,541,653 $ 1,535,225
Accumulated depreciation and amortization (531,197) (513,234)
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Net plant in service 1,010,456 1,021,991
Construction work in progress 18,814 22,274
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Total property, plant and equipment - net 1,029,270 1,044,265
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CURRENT ASSETS:
Cash and cash equivalents 1,256 2,039
Accounts receivable - gas transportation 15,415 16,469
Accounts receivable - fuel balancing and other 1,523 10,355
Inventories (at average cost) 9,707 9,138
Prepayments and other current assets 452 3,557
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Total current assets 28,353 41,558
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DEFERRED CHARGES:
Income tax related regulatory assets 25,199 25,413
Deferred charge on reacquired debt 10,642 11,245
Unamortized debt expense 3,043 3,237
Other regulatory assets 4,748 5,035
Other 2,251 1,431
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Total deferred charges 45,883 46,361
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TOTAL ASSETS $ 1,103,506 $ 1,132,184
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
2
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<TABLE>
<CAPTION>
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Consolidated Balance Sheets
(Unaudited)
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CAPITALIZATION AND LIABILITIES
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June 30, December 31,
(In Thousands) 2000 1999
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<S> <C> <C>
CAPITALIZATION:
Common stock - no par value, 1,000 shares authorized,
issued and outstanding $ 85,474 $ 85,474
Additional paid-in capital 192,717 192,717
Reinvested earnings 77,452 50,281
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Total common stock equity 355,643 328,472
Long-term debt 491,532 550,845
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Total capitalization 847,175 879,317
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CURRENT LIABILITIES:
Long-term debt - current portion 31,522 31,498
Accounts payable 12,599 15,149
Accounts payable - affiliated companies 10,062 1,368
Accrued interest 4,008 4,101
Accrued liabilities 876 9,632
Accrued taxes 878 924
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Total current liabilities 59,945 62,672
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DEFERRED CREDITS:
Deferred income taxes 187,113 180,061
Other 9,273 10,134
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Total deferred credits 196,386 190,195
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COMMITMENTS and CONTINGENCIES (Note 2) - -
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TOTAL CAPITALIZATION AND LIABILITIES $ 1,103,506 $ 1,132,184
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
3
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<TABLE>
<CAPTION>
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Statements of Consolidated Common Stock Equity
(Unaudited)
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Six Months Ended
June 30,
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(In Thousands) 2000 1999
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<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 328,472 $ 347,009
Net income 27,171 24,880
Dividend paid to parent company - (30,000)
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BALANCE AT END OF PERIOD $ 355,643 $ 341,889
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
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<TABLE>
<CAPTION>
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Statements of Consolidated Cash Flows
(Unaudited)
Six Months
Ended
June 30,
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(In Thousands) 2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,171 $ 24,880
Adjustments to reconcile net income to net cash provided by
Operations:
Depreciation and amortization 22,477 22,048
Deferred income taxes 7,052 7,622
Allowance for equity funds used during construction (274) (692)
Changes in operating assets and liabilities:
Accounts receivable - gas transportation and other 9,886 2,831
Accounts payable and accrued liabilities (11,399) (4,578)
Net receivable/payable - affiliates 8,694 (1,393)
Accrued taxes (46) 1,891
Inventory (569) (1,300)
Other working capital 3,105 2,641
Regulatory accruals (820) 1,003
Other - net (861) 225
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Net cash provided by operating activities 64,416 55,178
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CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (5,175) (17,181)
Allowance for borrowed funds used during construction (278) (701)
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Net cash used in investing activities (5,453) (17,882)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (81,500) (59,098)
Long-term debt issued, net of issuance costs 21,754 50,771
Dividend paid to parent - (30,000)
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Net cash used in financing activities (59,746) (38,327)
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NET CHANGE IN CASH AND CASH EQUIVALENTS (783) (1,031)
CASH AND CASH EQUIVALENTS AT JANUARY 1 2,039 1,080
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CASH AND CASH EQUIVALENTS AT JUNE 30 $ 1,256 $ 49
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for (received from):
Interest $ 19,513 $ 22,778
Income taxes $ - $ 6,438
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</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
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Notes to Consolidated Financial Statements (Unaudited)
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Note 1: Basis of Presentation
-----------------------------
PG&E Gas Transmission, Northwest Corporation (GTN), incorporated in
California in 1957, is affiliated with, but is not the same company as, Pacific
Gas and Electric Company, the gas and electric company serving Northern and
Central California. PG&E Corporation is the ultimate corporate parent for both
GTN and Pacific Gas and Electric Company.
The accompanying unaudited consolidated financial statements, which have been
prepared in accordance with interim period reporting requirements, reflect the
results for GTN and its wholly owned subsidiaries, Pacific Gas Transmission
Company and Pacific Gas Transmission International, Inc.
GTN and its subsidiaries are collectively 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, 1999.
In the opinion of management, the accompanying statements reflect all
adjustments 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.
Subsidiary 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 2000 presentation. Results of operations for
interim periods are not necessarily indicative of results to be expected for a
full year.
Note 2: Commitments and Contingencies
--------------------------------------
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 either the Company's results
of operations, financial position, or cash flows.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GENERAL
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The unaudited consolidated financial statements include GTN and its wholly
owned subsidiaries.
GTN and its subsidiaries are collectively 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, 1999.
The following discussion includes forward-looking statements that involve a
number of risks, uncertainties, and assumptions. When used in Management's
Discussion and Analysis of Financial Condition and Results of Operations, words
such as "estimates," "expects," "intends," "anticipates," "plans," and similar
expressions identify those statements which are forward-looking. Actual results
may differ materially from those expressed in the forward-looking statements.
The important factors that could cause actual results to differ materially from
those expressed in the forward-looking statements include, but are not limited
to, the ongoing restructuring of the gas industry, changes in future rate-
making, increasing competition for natural gas supplies, and the ability of the
Company to expand its core pipeline business.
GTN'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. GTN's transportation system also provides service
to various delivery points in Idaho, Washington, and Oregon. GTN's natural gas
transportation services are regulated by the Federal Energy Regulatory
Commission (FERC or the Commission). Various safety issues are subject to the
jurisdiction of the United States Department of Transportation.
CHANGING REGULATORY ENVIRONMENT
-------------------------------
In February 2000, FERC issued Order 637 to promote competition in the short-
term transportation market. The order lifted the rate cap for short-term
capacity release transactions for a period of two years and established new
reporting requirements that would increase price transparency for short-term
capacity. The removal of the price cap only applies to capacity release
transactions and is unlikely to provide any material short-term benefits to GTN.
The Order also modified regulations related to certain pipeline system
operations, such as scheduling procedures, capacity segmentation and penalties.
GTN will be required to make minor changes to its system to implement the new
regulations. FERC also issued a Statement of Policy in September 1999
addressing certification of new interstate natural gas facilities. Among other
things, this Statement of Policy has modified on a prospective basis the
Commission's guidelines for evaluating the market need and pricing of new
pipeline capacity.
These regulatory initiatives are not expected to have a material impact on
GTN's financial position, liquidity or results of operations in the foreseeable
future.
7
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ACCOUNTING FOR THE EFFECTS OF REGULATION
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GTN currently accounts for the financial 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, GTN has accumulated approximately $41.9
million of regulatory assets and $4.7 million of regulatory liabilities as of
June 30, 2000.
8
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RESULTS OF OPERATIONS
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Selected operating results and other data are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Operating revenues $ 56.3 $ 51.6 $ 113.0 $ 109.2
Operating expenses 24.2 22.4 48.4 48.8
-------- -------- -------- --------
Operating income 32.1 29.2 64.6 60.4
Other income and (income deductions) - .2 .2 .4
Net interest expense 10.0 10.3 20.4 20.5
-------- -------- -------- --------
Income before taxes 22.1 19.1 44.4 40.3
Income tax expense 8.6 7.3 17.2 15.4
-------- -------- -------- --------
Net Income $ 13.5 $ 11.8 $ 27.2 $ 24.9
======== ======== ======== ========
</TABLE>
Net Income - Income for the three and six month periods ended June 30, 2000
increased $1.7 million and $2.3 million, respectively, compared to the same
periods in 1999. The increases in the 2000 periods were primarily the result of
higher operating revenues.
Operating Revenues - Operating revenues for the three and six month periods
ended June 30, 2000 increased $4.7 million and $3.8 million, respectively,
compared to the same periods in 1999. The increases in the three month and six
month periods ended June 2000 reflect a refund to customers of $3.9 million in
GRI surcharges in May 1999 as ordered by FERC, effectively reducing revenues in
the 1999 reporting periods. The additional increase in the three months ended
June 2000 was due to greater short-term firm and interruptible service revenues.
Operating Expenses - The components of total operating expenses are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Administrative and general $ 7.4 $ 4.0 $ 14.7 $ 13.0
Operations and maintenance 3.6 5.4 7.2 9.7
Depreciation and amortization 10.4 10.2 20.7 20.4
Property and other taxes 2.8 2.8 5.8 5.7
--------- -------- -------- --------
Total operating expenses $ 24.2 $ 22.4 $ 48.4 $ 48.8
========= ======== ======== ========
</TABLE>
For the three and six month periods ended June 30, 2000, compared with the
same periods in 1999, operating expenses increased $1.8 million and decreased
$0.4 million, respectively. The increase in the three-month period reflects
increased administrative and general expenses driven primarily by a credit of
$3.9 million for the Gas Research Institute refund in 1999, partially offset by
lower operations and maintenance expenses in 2000. Total operating expenses were
comparable in the six month periods ended June 30, 2000 and 1999 as additional
reorganization costs in 1999 partly offset the effect of the Gas Research
Institute refund.
9
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Interest Expense - Interest expense for the three and six month periods ended
June 30, 2000 decreased $0.3 million and $0.1 million, respectively, compared to
the same periods in 1999. The lower average debt balance was somewhat offset by
higher interest rates. For the three months ended June 30, 2000 and 1999, the
average interest rate was approximately 7.6 percent and 7.2 percent,
respectively, while the average balance of long-term debt (excluding capital
lease obligations) outstanding was $522 million and $570 million, respectively.
For the six months ended June 30, 2000 and 1999, the average interest rate was
approximately 7.5 percent and 7.2 percent, respectively, while the average
balance of long-term debt (excluding capital lease obligations) outstanding was
$538 million and $574 million, respectively.
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 its parent company. GTN has paid dividends as part of
a balanced approach to managing its capital structure, funding its operations
and capital expenditures, and maintaining appropriate cash balances.
Net Cash Provided by Operating Activities - For the six months ended June 30,
2000, net cash provided by operating activities was $64.4 million, compared with
$55.2 million for the same period in 1999. The $9.2 million increase was
primarily due to the timing of payment on affiliate balances and additional net
income.
Net Cash Used in Investing Activities - For the six months ended June 30,
2000, compared to the same period in 1999, net cash used in investing activities
decreased $12.4 million. The decrease primarily reflects lower construction
expenditures in 2000.
Net Cash Used in Financing Activities - For the six months ended June 30,
2000, cash used in financing activities was $59.7 million reflecting a net
decrease in long-term debt. For the six months ended June 30, 1999, cash used in
financing activities was $38.3 million resulting from a $30 million dividend and
from a net decrease in long-term debt of $8.3 million.
NEW ACCOUNTING STANDARD
-----------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
as amended by SFAS No. 138, will require the recognition of all derivatives, as
defined in the Statement, on the balance sheet at fair value. Derivatives, or
any portion thereof, that are not effective hedges must be adjusted to fair
value through income. If the derivative is an effective hedge, depending on the
nature of the hedge, changes in the fair value of derivatives either will be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or will be recognized in other comprehensive
income until the hedged item is recognized in earnings. GTN is currently
evaluating the potential impact of SFAS No. 133. GTN expects to adopt the new
Statement no later than January 1, 2001.
10
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PART II: OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule for the six months ended June 30,
2000.
(b) No reports on Form 8-K were issued during the quarter ended June 30, 2000
and through the date hereof.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PG&E GAS TRANSMISSION, NORTHWEST CORPORATION
---------------------------------------------
(Registrant)
August 11, 2000 By: /s/ STANLEY C. KARCZEWSKI
----------------------------------
Name: Stanley C. Karczewski
Title: Vice President and Controller
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