<PAGE>
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 September 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)
<TABLE>
<S> <C>
California 94-1512922
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
1400 SW Fifth Avenue, Suite 900, 97201
Portland, OR (Zip code)
(Address of principal executive offices)
</TABLE>
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 November 9, 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.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
PART I: Financial Information
------------------------------
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
--------------------------------
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART I: FINANCIAL INFORMATION
--------------------------------
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
--------------------------------------------------------------------------------
Statements of Consolidated Income
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------------------------------------
(In Thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Gas transportation $ 48,756 $ 42,279 $ 136,026 $ 125,869
Gas transportation for affiliates 13,049 13,291 38,056 38,658
Other 341 139 1,089 420
-------------------------------------------------------------------------------------------------------------------------
Total operating revenues 62,146 55,709 175,171 164,947
-------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Administrative and general 7,174 8,165 21,943 21,178
Operations and maintenance 5,582 4,403 12,776 14,139
Depreciation and amortization 10,373 10,346 31,095 30,739
Property and other taxes 2,838 2,844 8,619 8,494
-------------------------------------------------------------------------------------------------------------------------
Total operating expenses 25,967 25,758 74,433 74,550
-------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 36,179 29,951 100,738 90,397
-------------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND (INCOME DEDUCTIONS):
Allowance for equity funds used during construction 104 235 377 927
Interest income 32 59 107 140
Other - net (201) 6,170 (352) 5,750
-------------------------------------------------------------------------------------------------------------------------
Total other income and (income deductions) (65) 6,464 132 6,817
-------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on long-term debt 9,470 10,447 29,489 30,979
Allowance for borrowed funds used during construction (90) (240) (367) (942)
Other interest charges 399 326 1,037 1,019
-------------------------------------------------------------------------------------------------------------------------
Net interest expense 9,779 10,533 30,159 31,056
-------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 26,335 25,882 70,711 66,158
INCOME TAX EXPENSE 10,198 9,940 27,403 25,337
-------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 16,137 $ 15,942 $ 43,308 $ 40,821
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
1
<PAGE>
--------------------------------------------------------------------------------
Consolidated Balance Sheets
(Unaudited)
--------------------------------------------------------------------------------
ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
(In Thousands) 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT and EQUIPMENT:
Property, plant and equipment in service $ 1,543,333 $ 1,535,225
Accumulated depreciation and amortization (541,657) (513,234)
----------------------------------------------------------------------------------------------
Net plant in service 1,001,676 1,021,991
Construction work in progress 21,324 22,274
----------------------------------------------------------------------------------------------
Total property, plant and equipment - net 1,023,000 1,044,265
----------------------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents 899 2,039
Accounts receivable - gas transportation 17,820 16,469
Accounts receivable - fuel balancing and other 4,046 10,355
Accounts receivable - affiliated companies 4,298 4,159
Inventories (at average cost) 8,728 9,138
Prepayments and other current assets 683 3,557
----------------------------------------------------------------------------------------------
Total current assets 36,474 45,717
----------------------------------------------------------------------------------------------
DEFERRED CHARGES:
Income tax related regulatory assets 25,079 25,413
Deferred charge on reacquired debt 10,341 11,245
Unamortized debt expense 2,946 3,237
Other regulatory assets 3,639 5,035
Other 3,193 1,431
----------------------------------------------------------------------------------------------
Total deferred charges 45,198 46,361
----------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,104,672 $ 1,136,343
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
2
<PAGE>
--------------------------------------------------------------------------------
Consolidated Balance Sheets
(Unaudited)
--------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
(In Thousands) 2000 1999
----------------------------------------------------------------------------------------------------
<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 93,589 50,281
----------------------------------------------------------------------------------------------------
Total common stock equity 371,780 328,472
Long-term debt 480,616 550,845
----------------------------------------------------------------------------------------------------
Total capitalization 852,396 879,317
----------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Long-term debt - current portion 533 31,498
Accounts payable 14,980 15,149
Accounts payable - affiliated companies 22,152 5,527
Accrued interest 10,066 4,101
Accrued liabilities 2,711 9,632
Accrued taxes 3,393 924
----------------------------------------------------------------------------------------------------
Total current liabilities 53,835 66,831
----------------------------------------------------------------------------------------------------
DEFERRED CREDITS:
Deferred income taxes 190,389 180,061
Other 8,052 10,134
----------------------------------------------------------------------------------------------------
Total deferred credits 198,441 190,195
----------------------------------------------------------------------------------------------------
COMMITMENTS and CONTINGENCIES (Note 2) - -
----------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,104,672 $ 1,136,343
----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
<PAGE>
-------------------------------------------------------------------------
Statements of Consolidated Common Stock Equity
(Unaudited)
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------------------------------------
(In Thousands) 2000 1999
-------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT BEGINNING OF PERIOD $ 328,472 $ 347,009
Net income 43,308 40,821
Dividend paid to parent company - (45,000)
-------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ 371,780 $ 342,830
-------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<PAGE>
--------------------------------------------------------------------------------
Statements of Consolidated Cash Flows
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------------------------------------------------------------------
(In Thousands) 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43,308 $ 40,821
Adjustments to reconcile net income to net cash provided by
Operations:
Depreciation and amortization 32,959 33,409
Deferred income taxes 10,328 11,270
Allowance for equity funds used during construction (377) (927)
Changes in operating assets and liabilities:
Accounts receivable - gas transportation and other 4,958 (4,840)
Accounts payable and accrued liabilities (1,125) (1,252)
Net receivable/payable - affiliates 16,486 2,559
Accrued taxes 2,469 2,412
Inventory 410 938
Other working capital 2,874 2,253
Regulatory accruals (2,448) (105)
Other - net 333 302
-------------------------------------------------------------------------------------------------
Net cash provided by operating activities 110,175 86,840
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (9,244) (21,042)
Allowance for borrowed funds used during construction (367) (942)
-------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,611) (21,984)
-------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (158,335) (97,138)
Long-term debt issued, net of issuance costs 56,631 78,659
Dividend paid to parent - (45,000)
-------------------------------------------------------------------------------------------------
Net cash used in financing activities (101,704) (63,479)
-------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,140) 1,377
CASH AND CASH EQUIVALENTS AT JANUARY 1 2,039 1,080
-------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 899 $ 2,457
-------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for (received from):
Interest $ 22,743 $ 23,646
Income taxes $ - $ 9,881
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
------------------------------------------------------
Note 1: Basis of Presentation
------------------------------
PG&E Gas Transmission, Northwest Corporation (GTN), originally incorporated
in California in 1957 under the name Pacific Gas Transmission Company, 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
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
GENERAL
-------
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, cash flows or results of operations in the
foreseeable future.
7
<PAGE>
FUTURE EXPANSION AND BUSINESS DEVELOPMENT
-----------------------------------------
GTN regularly solicits expressions of interest for additional pipeline
capacity, and it stands ready to develop additional firm transportation capacity
when sufficient demand is demonstrated. In addition to mainline expansion and
extensions from its mainline system, GTN is considering opportunities to expand
its business into activities related to its existing pipeline facilities. A
Limited Liability Company was established which holds an investment in a gas
storage project currently in the preliminary stages of development. GTN owns a
50 percent share in the LLC which is reflected as an equity investment on GTN's
Consolidated Balance Sheet at September 30, 2000 as a component of Other
Deferred Charges.
ACCOUNTING FOR THE EFFECTS OF REGULATION
----------------------------------------
GTN 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 $42.9
million of regulatory assets and $5.9 million of regulatory liabilities as of
September 30, 2000.
RESULTS OF OPERATIONS
---------------------
Selected operating results and other data are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ---------- -----------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Operating revenues $ 62.1 $ 55.7 $ 175.2 $ 164.9
Operating expenses 26.0 25.8 74.4 74.5
----------- ----------- ---------- -----------
Operating income 36.1 29.9 100.8 90.4
Other income and (income deductions) - 6.4 .1 6.8
Net interest expense 9.8 10.5 30.2 31.1
----------- ----------- ---------- -----------
Income before taxes 26.3 25.8 70.7 66.1
Income tax expense 10.2 9.9 27.4 25.3
----------- ----------- ---------- -----------
Net Income $ 16.1 $ 15.9 $ 43.3 $ 40.8
=========== =========== ========== ===========
</TABLE>
Net Income - Income for the three and nine month periods ended September
30, 2000 increased $0.2 million and $2.5 million, respectively, compared to the
same periods in 1999. The increases in the 2000 periods were primarily the
result of higher operating revenues offset by lower Other Income.
Operating Revenues - Operating revenues for the three and nine month
periods ended September 30, 2000 increased $6.4 million and $10.3 million,
respectively, compared to the same periods in 1999. The increases in the three
month and nine month periods ended September 2000 reflect greater short-term
firm and interruptible service revenues which are largely attributable to
increased demand for gas from California power generators during the summer
months. The additional increase in the nine months ended September 2000 was due
to a refund to customers of $3.9 million in Gas Research Institute (GRI)
surcharges in May 1999 as ordered by FERC, effectively reducing both revenues
and operating expenses in the 1999 reporting period.
8
<PAGE>
Operating Expenses - The components of total operating expenses are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ------------ ---------- ----------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Administrative and general $ 7.2 $ 8.2 $ 21.9 $ 21.2
Operations and maintenance 5.6 4.4 12.8 14.1
Depreciation and amortization 10.4 10.4 31.1 30.7
Property and other taxes 2.8 2.8 8.6 8.5
----------- ------------ ---------- ----------
Total operating expenses $ 26.0 $ 25.8 $ 74.4 $ 74.5
=========== ============ ========== ==========
</TABLE>
For the three and nine month periods ended September 30, 2000, compared
with the same periods in 1999, operating expenses increased $0.2 million and
decreased $0.1 million, respectively. The increase in the three month period
reflects increased operations and maintenance expenses partially offset by lower
administrative and general expenses in 2000. Total operating expenses were
comparable in the nine month periods ended September 30, 2000 and 1999 as
increases in Administrative and general expenses and Depreciation and
amortization were offset by reductions in Operations and maintenance costs. The
nine month Administrative and general expenses are up $0.7 million due to the
$3.9 million credit for GRI surcharges refunded in 1999, partially offset by
reduced Y2K and benefit costs in 2000.
Interest Expense - Interest expense for the three and nine month periods
ended September 30, 2000 decreased $0.7 million and $0.9 million, respectively,
compared to the same periods in 1999. The lower average debt balance was
somewhat offset by higher interest rates and lower credits for Allowance for
Funds Used During Construction interest in the current year. For the three
months ended September 30, 2000 and 1999, the average interest rate was
approximately 7.6 percent and 7.3 percent, respectively, while the average
balance of long-term debt (excluding capital lease obligations) outstanding was
$491 million and $570 million, respectively. For the nine months ended September
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 $522 million and $574
million, respectively.
9
<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 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 nine months ended
September 30, 2000, net cash provided by operating activities was $110.2
million, compared with $86.8 million for the same period in 1999. The $23.4
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 nine months ended September
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 nine months ended September
30, 2000, cash used in financing activities was $101.7 million reflecting a net
decrease in long-term debt. For the nine months ended September 30, 1999, cash
used in financing activities was $63.5 million resulting from a $45.0 million
dividend and from a net decrease in long-term debt of $18.5 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 and expects to adopt
the new Statement no later than January 1, 2001.
10
<PAGE>
PART II: OTHER INFORMATION
---------------------------
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 nine months ended
September 30, 2000.
(b) No reports on Form 8-K were issued during the quarter ended September
30, 2000 and through the date hereof.
11
<PAGE>
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)
November 9, 2000 By: /s/ JOHN R. COOPER
---------------------------
Name: John R. Cooper
Title: Chief Financial Officer and Treasurer
12
