-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, BpBKa/xFp87zSIXXQ/w857gMJE9tSofy3LxCcRogtmlbbeDCgBVzasgYQ2vgS0r2 UH657projozZqR8fUcUWhg== 0000075488-94-000024.txt : 19940816 0000075488-94-000024.hdr.sgml : 19940816 ACCESSION NUMBER: 0000075488-94-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFIC GAS & ELECTRIC CO CENTRAL INDEX KEY: 0000075488 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 940742640 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02348 FILM NUMBER: 94543900 BUSINESS ADDRESS: STREET 1: 77 BEALE ST STREET 2: P O BOX 770000 MAIL CODE B7C CITY: SAN FRANCISCO STATE: CA ZIP: 94177 BUSINESS PHONE: 4159737000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 --------------------------- (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, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------- ------------ Commission File No. 1-2348 PACIFIC GAS AND ELECTRIC COMPANY ------------------------------------------- (Exact name of registrant as specified in its charter) California 94-0742640 - ---------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 77 Beale Street, P.O. Box 770000, San Francisco, California 94177 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(415) 973-7000 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 latest practicable date. Class Outstanding at July 29, 1994 --------------- ------------------------------ Common Stock, $5 par value 432,042,842 shares Form 10-Q --------- TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION Page - ------------------------------ ---- Item 1. Consolidated Financial Statements and Notes Statement of Consolidated Income........................ 1 Consolidated Balance Sheet.............................. 2 Statement of Consolidated Cash Flows.................... 4 Note 1: General Basis of Presentation........................ 5 Nuclear Decommissioning Costs................ 5 Note 2: Electric Industry Restructuring................ 6 Note 3: Reasonableness Proceedings..................... 7 Note 4: Contingencies Helms Pumped Storage Plant................... 10 Nuclear Insurance............................ 10 Environmental Remediation.................... 10 Legal Matters................................ 11 Item 2. Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Results of Operations Earnings Per Common Share............................. 14 Common Stock Dividend................................. 15 Operating Revenues.................................... 15 Operating Expenses.................................... 16 Diablo Canyon......................................... 16 Changing Competitive and Regulatory Environment....... 16 Rate Matters.......................................... 23 Reasonableness Proceedings............................ 27 Legal Matters......................................... 27 Liquidity and Capital Resources Sources of Capital.................................... 30 Environmental Remediation............................. 30 Sales and Acquisition ................................ 31 PART II. OTHER INFORMATION - ---------------------------- Item 1. Legal Proceedings QF Transmission Constrained Area Litigation........... 33 Time-of-Use Meter Litigation.......................... 33 Item 5. Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends....................................... 33 Item 6. Exhibits and Reports on Form 8-K........................ 34 SIGNATURE.......................................................... 36 PART I. FINANCIAL INFORMATION ------------------------------ Item 1. Consolidated Financial Statements --------------------------------- PACIFIC GAS AND ELECTRIC COMPANY STATEMENT OF CONSOLIDATED INCOME (unaudited)
- -------------------------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, (in thousands, -------------------------- ------------------------- except per share amounts) 1994 1993 1994 1993 - -------------------------------------------------------------------------------------------- OPERATING REVENUES Electric $1,904,231 $1,830,055 $3,720,208 $3,552,344 Gas 535,449 634,070 1,233,743 1,375,599 ---------- ---------- ---------- ---------- Total operating revenues 2,439,680 2,464,125 4,953,951 4,927,943 ---------- ---------- ---------- ---------- OPERATING EXPENSES Cost of electric energy 648,627 474,786 1,195,588 910,249 Cost of gas 73,378 180,237 334,764 484,084 Distribution 55,917 53,991 112,980 109,223 Transmission 64,354 88,056 137,046 179,685 Customer accounts and services 96,440 93,965 186,554 182,451 Maintenance 115,498 118,788 229,154 236,954 Depreciation and decommissioning 345,310 321,542 693,743 639,996 Administrative and general 267,819 233,248 462,988 497,840 Workforce reduction costs - 141,200 - 141,200 Income taxes 210,883 191,487 460,593 389,300 Property and other taxes 75,424 74,658 156,239 157,705 Other 90,325 104,460 173,923 191,220 ---------- ---------- ---------- ---------- Total operating expenses 2,043,975 2,076,418 4,143,572 4,119,907 ---------- ---------- ---------- ---------- OPERATING INCOME 395,705 387,707 810,379 808,036 ---------- ---------- ---------- ---------- OTHER INCOME AND (INCOME DEDUCTIONS) Interest income 17,129 18,555 36,570 42,020 Allowance for equity funds used during construction 5,058 11,758 9,737 21,461 Other--net 4,598 18,986 (3,766) 8,145 ---------- ---------- ---------- ---------- Total other income and (income deductions) 26,785 49,299 42,541 71,626 ---------- ---------- ---------- ---------- INCOME BEFORE INTEREST EXPENSE 422,490 437,006 852,920 879,662 ---------- ---------- ---------- ---------- INTEREST EXPENSE Interest on long-term debt 167,468 175,447 323,192 350,733 Other interest charges 17,444 23,466 59,185 50,174 Allowance for borrowed funds used during construction (3,787) (7,257) (7,774) (22,259) ---------- ---------- ---------- ---------- Net interest expense 181,125 191,656 374,603 378,648 ---------- ---------- ---------- ---------- NET INCOME 241,365 245,350 478,317 501,014 Preferred dividend requirement 14,362 16,633 28,820 33,393 ---------- ---------- ---------- ---------- EARNINGS AVAILABLE FOR COMMON STOCK $ 227,003 $ 228,717 $ 449,497 $ 467,621 ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 429,762 430,639 429,150 429,539 EARNINGS PER COMMON SHARE $.53 $.53 $1.05 $1.09 DIVIDENDS DECLARED PER COMMON SHARE $.49 $.47 $ .98 $ .94 - -------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
PACIFIC GAS AND ELECTRIC COMPANY CONSOLIDATED BALANCE SHEET (unaudited)
- -------------------------------------------------------------------------------------------- June 30, December 31, (in thousands) 1994 1993 - -------------------------------------------------------------------------------------------- ASSETS PLANT IN SERVICE Electric Nonnuclear $ 16,925,479 $ 16,633,772 Diablo Canyon 6,569,590 6,518,413 Gas 7,311,386 7,146,741 ------------ ------------ Total plant in service (at original cost) 30,806,455 30,298,926 Accumulated depreciation and decommissioning (11,849,371) (11,235,519) ------------ ------------ Net plant in service 18,957,084 19,063,407 ------------ ------------ CONSTRUCTION WORK IN PROGRESS 529,828 620,187 OTHER NONCURRENT ASSETS Oil and gas properties 505,982 573,523 Nuclear decommissioning funds 587,445 536,544 Other assets 663,084 497,689 ------------ ------------ Total other noncurrent assets 1,756,511 1,607,756 ------------ ------------ CURRENT ASSETS Cash and cash equivalents 98,668 61,066 Accounts receivable Customers 1,310,845 1,264,907 Other 130,541 123,255 Allowance for uncollectible accounts (26,780) (23,647) Regulatory balancing accounts receivable 1,158,990 992,477 Inventories Materials and supplies 234,351 239,856 Gas stored underground 145,293 170,345 Fuel oil 94,331 109,615 Nuclear fuel 145,230 134,411 Prepayments 39,779 56,062 ------------ ----------- Total current assets 3,331,248 3,128,347 ------------ ------------ DEFERRED CHARGES Income tax-related deferred charges 1,085,260 1,246,890 Diablo Canyon costs 410,760 419,775 Unamortized loss net of gain on reacquired debt 391,798 395,659 Workers' compensation and disability claims recoverable 282,417 192,203 Other 476,756 488,302 ------------ ------------ Total deferred charges 2,646,991 2,742,829 ------------ ------------ TOTAL ASSETS $ 27,221,662 $ 27,162,526 ============ ============ - -------------------------------------------------------------------------------------------- (continued on next page)
PACIFIC GAS AND ELECTRIC COMPANY CONSOLIDATED BALANCE SHEET (unaudited)
- -------------------------------------------------------------------------------------------- June 30, December 31, (in thousands) 1994 1993 - -------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock $ 2,147,814 $ 2,136,095 Additional paid-in capital 3,745,986 3,666,455 Reinvested earnings 2,632,273 2,643,487 ----------- ----------- Total common stock equity 8,526,073 8,446,037 Preferred stock without mandatory redemption provision 732,995 807,995 Preferred stock with mandatory redemption provision 137,500 75,000 Long-term debt 9,018,531 9,292,100 ----------- ----------- Total capitalization 18,415,099 18,621,132 ----------- ----------- OTHER NONCURRENT LIABILITIES Customer advances for construction 151,289 152,872 Workers' compensation and disability claims 249,000 157,000 Other 367,023 246,950 ----------- ----------- Total other noncurrent liabilities 767,312 556,822 ----------- ----------- CURRENT LIABILITIES Short-term borrowings 635,012 764,163 Long-term debt 303,994 221,416 Accounts payable Trade creditors 370,885 472,985 Other 436,577 389,065 Accrued taxes 449,529 303,575 Deferred income taxes 368,253 315,584 Interest payable 93,160 82,105 Dividends payable 227,059 203,923 Other 423,378 487,809 ----------- ----------- Total current liabilities 3,307,847 3,240,625 ----------- ----------- DEFERRED CREDITS Deferred income taxes 3,809,524 3,978,950 Deferred investment tax credits 402,778 410,969 Other 519,102 354,028 ----------- ----------- Total deferred credits 4,731,404 4,743,947 CONTINGENCIES (Notes 2, 3 and 4) - - ----------- ----------- TOTAL CAPITALIZATION AND LIABILITIES $27,221,662 $27,162,526 =========== =========== - -------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
PACIFIC GAS AND ELECTRIC COMPANY STATEMENT OF CONSOLIDATED CASH FLOWS (unaudited)
- -------------------------------------------------------------------------------------------- Six months ended June 30, --------------------------- (in thousands) 1994 1993 - -------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 478,317 $ 501,014 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and decommissioning 693,743 639,996 Amortization 33,530 36,854 Deferred income taxes and investment tax credits--net 26,893 (43,742) Allowance for equity funds used during construction (9,737) (21,461) Net effect of changes in operating assets and liabilities Accounts receivable (50,091) 33,769 Regulatory balancing accounts receivable (166,513) 103,766 Inventories 35,022 12,152 Accounts payable (54,588) 9,773 Accrued taxes 156,633 110,018 Other working capital (36,849) 153,097 Other deferred charges (14,770) (57,628) Other noncurrent liabilities 50,534 (35,007) Other deferred credits 167,850 27,048 Other--net 13,876 (10,074) ---------- ---------- Net cash provided by operating activities 1,323,850 1,459,575 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Construction expenditures (458,909) (954,928) Allowance for borrowed funds used during construction (7,774) (22,259) Nonregulated expenditures (163,968) (57,614) Other--net 16,931 (4,688) ---------- ---------- Net cash used by investing activities (613,720) (1,039,489) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Common stock issued 138,768 151,008 Common stock repurchased (60,320) (4,541) Preferred stock issued 62,312 75,000 Preferred stock redeemed (82,995) (132,784) Long-term debt issued 55,000 1,159,650 Long-term debt matured or reacquired (230,245) (938,815) Short-term debt redeemed--net (129,151) (281,427) Dividends paid (441,277) (422,820) Other--net 15,380 (11,282) ---------- ---------- Net cash used by financing activities (672,528) (406,011) ---------- ---------- NET CHANGE IN CASH AND CASH EQUIVALENTS 37,602 14,075 CASH AND CASH EQUIVALENTS AT JANUARY 1 61,066 97,592 --------- ---------- CASH AND CASH EQUIVALENTS AT JUNE 30 $ 98,668 $ 111,667 ========== ========== Supplemental disclosures of cash flow information Cash paid for Interest (net of amounts capitalized) $ 338,144 $ 338,124 Income taxes 232,519 312,005 - -------------------------------------------------------------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of this statement.
PACIFIC GAS AND ELECTRIC COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1: GENERAL - ---------------- Basis of Presentation: - --------------------- The accompanying unaudited consolidated financial statements of Pacific Gas and Electric Company (PG&E) and its wholly owned and majority-owned subsidiaries (collectively, the Company) have been prepared in accordance with the interim period reporting requirements of Form 10-Q. This information should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements incorporated by reference in the 1993 Annual Report on Form 10-K. 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. Prior year's amounts in the consolidated financial statements have been reclassified where necessary to conform to the 1994 presentation. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Nuclear Decommissioning Costs: - ----------------------------- The estimated total obligation for nuclear decommissioning costs is approximately $1.1 billion in 1994 dollars (or $4.5 billion in escalated dollars); this obligation is being recognized ratably over the facilities' lives. This estimate considers the total cost (including labor, materials and other costs) of decommissioning and dismantling plant systems and structures and includes a contingency factor for possible changes in regulatory requirements and waste disposal cost increases. The decommissioning method selected for Diablo Canyon anticipates the equipment, structures, and portions of the facility and site containing radioactive contaminants will be removed or decontaminated to a level that permits the property to be released for unrestricted use shortly after cessation of operations. Humboldt Bay Power Plant is being decommissioned under a method that consists of placing and maintaining the facility in protective storage until some future time when dismantling can be initiated. As of June 30, 1994, the Company had accumulated in external trust funds $587 million (at fair value) to be used for the decommissioning of its nuclear facilities. The average annualized escalation rate and the assumed return on qualified trust assets used to calculate the decommissioning obligation are approximately 5.5 percent and 5.25 percent (6.25 percent on nonqualified trust assets), respectively. NOTE 2: ELECTRIC INDUSTRY RESTRUCTURING - ---------------------------------------- California Public Utilities Commission (CPUC) Electric Industry Restructuring Proposal: In April 1994, the CPUC issued an order instituting a rulemaking and an investigation (OIR/OII) on electric industry restructuring. The proposal, which is subject to comment and modification, involves two major changes in electric industry regulation. The first would move electric utilities from traditional cost-of-service regulation to performance-based ratemaking. The second would unbundle electric services and provide electric utility retail customers the option to choose from a range of electric generation providers, including utilities (direct access). Direct access would be phased in over a six-year period from 1996 to 2002. The utility would still be obligated to provide transmission and distribution services to all customers. To ensure an orderly transition that maintains the financial integrity of the utilities, the CPUC proposed that stranded costs of utility generating assets be recovered through a "competition transition charge." However, the OIR/OII did not specify which costs might be recovered through such a transition charge nor how such a charge would be allocated to and collected from customers. In June 1994, the Company filed its initial comments on the CPUC's proposal. The Company's response proposed an implementation schedule for direct access beginning in 1996, with direct access service available to all customers by 2008. If the Company's proposed implementation schedule is adopted, it will request recovery of certain incurred and committed costs through the transition charge, but will not request recovery of transition costs associated with its electric generation facilities. For direct access customers, the Company proposed that it be given the pricing flexibility to compete and sell unbundled electric power while assuming the market risk of competitive pricing. The Company indicated that its proposed schedule, coupled with pricing flexibility, will permit the Company sufficient time to reduce its generation costs and recover its investments in facilities. The CPUC has indicated that it anticipates adopting a final policy statement no earlier than October 1994. However, this policy statement will be subject to state legislative review before it can be implemented by the CPUC. (See Changing Competitive and Regulatory Environment in Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition for further discussion.) Financial Impact of the Electric Industry Restructuring Proposal: Based on the regulatory framework in which it operates, the Company 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, the Company has accumulated approximately $3.5 billion of regulatory assets, including balancing accounts, as of June 30, 1994. In the event that recovery of specific costs through rates becomes unlikely or uncertain for all or a portion of the Company's utility operations, whether resulting from the expanding effects of competition or specific regulatory actions which move the Company away from cost- of-service ratemaking, SFAS No. 71 would no longer apply. Discontinuation of SFAS No. 71 would cause the write-off of applicable portions of regulatory assets, which could have a significant adverse impact on the Company's financial position or results of operations. If the OIR/OII is adopted it would impact the future application of SFAS No. 71 for the electric generation portion of the Company's operations. The regulatory assets attributable to electric generation, excluding balancing accounts which under existing conditions would be expected to be recovered over the next few years, are estimated to be $1.2 billion at June 30, 1994. This amount is based on the Company's estimate of the allocation of these assets; the actual amount could vary depending on the allocation methods adopted by the CPUC. The amount of regulatory assets to be written off upon adoption of the OIR/OII proposal could be substantially reduced depending on the specific recovery provided during the transition to direct access. Under the Company's OIR/OII proposal for the transition to direct access, the Company indicated that it would increase Diablo Canyon's depreciation expense by as much as $200 million annually. This increase reflects the uncertainty about the economic life of Diablo Canyon as a result of the OIR/OII. This change will not have an impact on rates. The CPUC's OIR/OII could impact the Company's recovery of its costs and investments in electric utility assets, the Diablo Canyon rate case settlement and continued application of SFAS No. 71. The final determination of the impact will be dependent upon the form of regulation, including transition mechanisms, if any, ultimately adopted by the CPUC, and the effects of competition. The Company is unable to predict the ultimate effect of the OIR/OII on its financial position or results of operations. The Company has been advised by its independent public accountants that, if this matter has not been resolved prior to the completion of their audit of the Company's financial statements for the year ending December 31, 1994, their auditors' report on those financial statements will include an explanatory paragraph relating to this contingency. NOTE 3: REASONABLENESS PROCEEDINGS - ----------------------------------- Recovery of energy costs through the Company's regulatory balancing account mechanisms is subject to a CPUC determination that such costs were incurred reasonably. During reasonableness proceedings, the Division of Ratepayer Advocates (DRA), a consumer advocacy branch of the CPUC staff, as well as other groups (intervenors) may make recommendations to the CPUC. An Administrative Law Judge (ALJ) will review testimony and issue a proposed decision. Neither the DRA's recommendations nor the ALJ's proposed decision constitutes a CPUC decision. The CPUC can accept all, part or none of the recommendations or the ALJ's proposed decision in its final decision. Under the current regulatory framework, annual reasonableness proceedings are conducted by the CPUC on a historic calendar year basis. 1988-1990: In March 1994, the CPUC issued decisions covering the years 1988 through 1990, ordering a disallowance of $90 million of gas costs, plus accrued interest of approximately $25 million for the Company's Canadian gas procurement activities, and $8 million for gas inventory operations. The Company intends to contest the Canadian gas cost disallowance and has filed an application for rehearing of that decision. The decision on the Company's Canadian gas procurement activities found that the Company could have saved its customers money if it had bargained more aggressively with its then-existing Canadian suppliers or bought lower-priced gas from other Canadian sources. The CPUC concluded that it was appropriate for the Company to take about 70 percent of its daily customer gas demand at the actual price charged under its then-existing Canadian gas supply contracts, but that the Company could have met the remainder of its daily demand with lower- priced gas, either under those same contracts or with purchases from other Canadian natural gas sources. In its decision to disallow $8 million for gas inventory operations, the CPUC found the Company's gas inventory operations during 1988 through 1990 to be reasonable except that the Company should have withdrawn more gas from storage during December 1990 for use by the Company's electric department. CPUC consideration of other issues which relate to purchased electric energy and certain contracts with Southwestern gas producers has been deferred. With respect to purchased electric energy costs, the DRA recommended a disallowance of $18 million for the Company's expenses for purchased power from the Pacific Northwest. The Company purchased electric energy when it was cheaper than its incremental fossil fuel generation costs. The DRA argues that if cheaper Canadian gas supplies had been used, the Company's incremental fossil fuel generation costs would have been lower than the purchased power costs. The DRA also indicated that it will be filing recommendations for the effects of any imprudently incurred Canadian gas costs on the prices paid by the Company for energy purchased from qualifying facilities (QFs) and geothermal steam sources. The DRA has not yet addressed issues related to certain contracts with Southwestern gas producers. 1991: The DRA issued a report on the reasonableness of the Company's gas procurement and operating activities for 1991, which was modified following the CPUC's decision on the 1988-1990 period. As modified in June 1994, the DRA's report recommends that the Company refund $52 million related to Canadian gas purchases and $11 million related to gas inventory operations and Southwestern gas procurement issues. A final CPUC decision in this proceeding is expected later in 1994 or early in 1995. 1992: The DRA issued a report on the reasonableness of the Company's gas procurement and operating activities for 1992, which was modified in June 1994, recommending a disallowance of $61 million. The recommended disallowance includes $30 million related to Canadian gas purchases and $8 million related to gas inventory operations. Also included are disallowances totaling $23 million related to Southwest gas transportation and procurement issues. It is possible that similar issues will be raised regarding the Company's Canadian gas procurement activities during 1993. However, because the market price of natural gas increased in 1993, the Company estimates the disallowance that the DRA may recommend for 1993 should be significantly lower than those for prior years. Affiliate Audit: In connection with the reasonableness proceeding for 1991, the DRA initiated an investigation of the operations of Alberta and Southern Gas Co. Ltd. (A&S), a wholly owned gas purchasing subsidiary of the Company, for 1988 through 1991. The DRA reviewed certain nongas costs, primarily Canadian pipeline charges and A&S overhead costs, and recommended a penalty of $50 million. The recommended penalty is primarily related to the Company's alleged failure to properly oversee its subsidiary's activities. A final CPUC decision is not expected until later in 1994 or early 1995. Recommendations related to 1992 activities may be made in a subsequent report. In addition, the DRA has indicated that it will be issuing a supplemental report addressing matters relating to the Company's former affiliate, Alberta Natural Gas Company (ANG) and the implications, if any, of ANG's status as an affiliate of the Company. The DRA has noted that a substantial portion of ANG's profits were derived from the operation of the Cochrane liquids extraction plant and that the plant's profitability contributed to the Company's pretax profit of $49 million from the sale of its ANG shares in 1992. Financial Impact of Reasonableness Proceedings: The Company believes that its gas procurement activities, transportation arrangements and operations were prudent and will vigorously contest any disallowance or penalty recommended by the DRA or other parties. The Company accrued $61 million in the fourth quarter of 1993 and approximately $90 million in the first quarter of 1994 as a result of the CPUC's disallowances in the gas reasonableness proceedings for 1988 through 1990 and the Company's assessment of how the CPUC's decisions may impact the open reasonableness issues. However, the Company intends to contest the CPUC's decision on the Canadian gas disallowance for 1988 through 1990 and has filed an application for rehearing of that decision. The Company currently is unable to estimate the ultimate outcome of the gas reasonableness proceedings, including the affiliate audit, or predict whether such outcome will have a significant adverse impact on its results of operations. NOTE 4: CONTINGENCIES - ---------------------- Helms Pumped Storage Plant (Helms): - ---------------------------------- The Company has filed an application for rate recovery of the remaining unrecovered Helms costs, the associated revenue requirement on such costs since 1984 and lost revenues during the time the generators were being repaired. The remaining net unrecovered costs (after adjustment for depreciation) and revenues totaled $105 million at June 30, 1994. The Company has held discussions of possible settlement of these issues with the DRA, but has not reached any conclusion. The Company is uncertain whether, and to what extent any of the remaining costs and revenues will be recovered through the ratemaking process. Nuclear Insurance: - ----------------- The Company is a member of Nuclear Mutual Limited (NML) and Nuclear Electric Insurance Limited (NEIL I and II). If the nuclear plant of a member utility is damaged or increased costs for business interruption are incurred due to a prolonged accidental outage, the Company may be subject to maximum assessments of $18 million (property damage) or $7 million (business interruption), in each case per policy period, if losses exceed premiums, reserves and other resources of NML, NEIL I or NEIL II. The federal government has enacted laws that require all utilities with nuclear generating facilities to share in payment for claims resulting from a nuclear incident. The Price-Anderson Act limits industry liability for third-party claims resulting from any nuclear incident to $9.2 billion per incident. Coverage of the first $200 million is provided by a pool of commercial insurers. If a nuclear incident results in public liability claims in excess of $200 million, the Company may be assessed up to $159 million per incident, with payments in each year limited to a maximum of $20 million per incident. Environmental Remediation: - ------------------------- The Company assesses, on an ongoing basis, measures that may need to be taken to comply with laws and regulations related to hazardous materials and hazardous waste compliance and remediation activities. The Company may be required to pay for remedial action at sites where the Company has been or may be a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA; federal Superfund law) or the California Hazardous Substance Account Act (California Superfund law). These sites include former manufactured gas plant sites or sites used by the Company for the storage or disposal of materials which may be determined to present a significant threat to human health or the environment because of an actual or potential release of hazardous substances. Under CERCLA, the Company's financial responsibilities may include remediation of hazardous wastes, even if the Company did not deposit those wastes on the site. The overall costs of the hazardous materials and hazardous waste compliance and remediation activities ultimately undertaken by the Company are difficult to estimate due to uncertainty concerning the Company's responsibility, the complexity of environmental laws and regulations, and the selection of compliance alternatives. However, based on the information currently available, the Company has an accrued liability as of June 30, 1994, of $62 million for hazardous waste remediation costs. The ultimate amount of such costs may be significantly higher if, among other things, the Company is held responsible for cleanup at additional sites, other potentially responsible parties are not financially able to contribute to these costs, or further investigation indicates that the extent of contamination and affected natural resources is greater than anticipated at sites for which the Company is responsible. The Company believes that the ultimate outcome of these matters will not have a significant adverse impact on its financial position or results of operations. Legal Matters: - ------------- Stanislaus Litigation: In December 1993, the County of Stanislaus, California, and a residential customer of PG&E, filed a complaint against PG&E and Pacific Gas Transmission Company, a subsidiary of the Company, on behalf of themselves and purportedly as a class action on behalf of all natural gas customers of PG&E, for the period of February 1988 through October 1993. The complaint alleges that the purchase of natural gas in Canada by A&S was accomplished in violation of various antitrust laws which resulted in increased prices of natural gas for PG&E's customers. The complaint alleges that the Company could have purchased as much as 50 percent of its Canadian gas on the spot market instead of relying on long-term contracts and that the damage to the class members is at least as much as the price differential multiplied by the replacement volume of gas, an amount estimated in the complaint as potentially exceeding $800 million. The complaint indicates that the damages to the class could include over $150 million paid by the Company to terminate the contracts with the Canadian gas producers in November 1993. The complaint also seeks recovery of three times the amount of the actual damages pursuant to antitrust laws. The Company believes the case is without merit and has filed a motion to dismiss the complaint. The Company believes that the ultimate outcome will not have a significant adverse impact on its financial position. Hinkley Litigation: In 1993, a complaint was filed in San Bernardino County Superior Court on behalf of individuals seeking recovery of an unspecified amount of damages for personal injuries and property damage allegedly suffered as a result of exposure to chromium near the Company's Hinkley Compressor Station, as well as punitive damages. The original complaint has been amended, and additional complaints have been filed, to include additional plaintiffs. The plaintiffs contend that the Company discharged chromium- contaminated wastewater into unlined ponds, which led to chromium percolating into the groundwater of surrounding property. The plaintiffs further allege that the Company discharged the chromium into those ponds to avoid costly alternatives. In 1987, the Company undertook an extensive project to remediate potential groundwater chromium contamination. The Company has incurred substantially all of the costs it currently deems necessary to clean up the affected groundwater contamination. In accordance with the remediation plan approved by the regional water quality control board, the Company will continue to monitor the affected area and periodically perform environmental assessments. In November 1993, the parties engaged in private mediation sessions. Since then, plaintiffs' counsel has offered to compromise and settle plaintiffs' claims against the Company for $265 million. However, that amount related to the claims of only approximately two- thirds of the presently known plaintiffs. There have been subsequent mediation sessions but no resolution has been reached and discussions continue. The Company is unable to estimate the ultimate outcome of this matter, but such outcome could have a significant adverse impact on the Company's results of operations. The Company believes that the ultimate outcome of this matter will not have a significant adverse impact on its financial position. QF Transmission Constrained Area Litigation: In July 1994, the Company settled a lawsuit resulting from the termination of a power purchase agreement. The settlement did not have a significant impact on the Company's financial position or results of operations. County Franchise Fees Litigation: In March 1994, Santa Clara and Alameda counties filed a class action suit against the Company on behalf of themselves and 45 other counties in the Company's service area. This lawsuit alleges that the Company underpaid franchise fees to the counties for the right to use or occupy public streets or roads as a result of incorrectly computing these payments. Should the counties prevail, the amount of damages for alleged underpayments for the years 1987 through 1993 could be as high as $127 million, including interest, as of June 30, 1994. The Company believes that the ultimate outcome will not have a significant adverse impact on its financial position or results of operations. City Franchise Fees Litigation: In May 1994, the City of Santa Cruz filed a class action suit against the Company on behalf of itself and 106 other cities in the Company's service area. The complaint alleges that the Company has improperly underpaid electric franchise fees to the cities by calculating fees at different rates from other cities. Should the cities prevail, the amount of damages for alleged underpayments for the years 1987 through 1993 could be as high as $117 million, including interest, as of June 30, 1994. The Company believes that the ultimate outcome will not have a significant adverse impact on its financial position or results of operations. Item 2. Management's Discussion and Analysis of Consolidated ---------------------------------------------------- Results of Operations and Financial Condition --------------------------------------------- RESULTS OF OPERATIONS - --------------------- Pacific Gas and Electric Company (PG&E) and its wholly owned and majority-owned subsidiaries (collectively, the Company) have three types of operations: utility, Diablo Canyon Nuclear Power Plant (Diablo Canyon) and nonregulated through PG&E Enterprises (Enterprises). For the six months ended June 30, 1994 and 1993, selected financial information for the three types of operations is shown below:
- ---------------------------------------------------------------------------------------------------- Utility Diablo Canyon Enterprises Total (in millions, except -------------- ------------- ------------ -------------- per share amounts) 1994 1993 1994 1993 1994 1993 1994 1993 - ---------------------------------------------------------------------------------------------------- THREE MONTHS ENDED JUNE 30 Operating revenues Electric $ 1,506 $ 1,376 $ 398 $ 454 $ - $ - $ 1,904 $ 1,830 Gas 483 570 - - 53 64 536 634 ------- ------- ------ ------ ----- ----- ------- ------- Total operating revenues 1,989 1,946 398 454 53 64 2,440 2,464 Operating expenses 1,709 1,716 279 294 56 66 2,044 2,076 ------- ------- ------ ------ ----- ----- ------- ------- Operating income (loss) $ 280 $ 230 $ 119 $ 160 $ (3) $ (2) $ 396 $ 388 ======= ======= ====== ====== ===== ===== ======= ======= Net income (loss) $ 174 $ 125 $ 80 $ 111 $ (13) $ 9 $ 241 $ 245 Earnings (loss) per common share $ .38 $ .26 $ .18 $ .25 $(.03) $ .02 $ .53 $ .53 SIX MONTHS ENDED JUNE 30 Operating revenues Electric $ 2,887 $ 2,716 $ 833 $ 836 $ - $ - $ 3,720 $ 3,552 Gas 1,127 1,254 - - 107 122 1,234 1,376 ------- ------- ------ ------ ----- ----- ------- ------- Total operating revenues 4,014 3,970 833 836 107 122 4,954 4,928 Operating expenses 3,450 3,447 582 553 112 120 4,144 4,120 ------- ------- ------ ------ ----- ----- ------- ------- Operating income (loss) $ 564 $ 523 $ 251 $ 283 $ (5) $ 2 $ 810 $ 808 ======= ======= ====== ====== ===== ===== ======= ======= Net income (loss) $ 315 $ 299 $ 176 $ 185 $ (13) $ 17 $ 478 $ 501 Earnings (loss) per common share $ .69 $ .64 $ .39 $ .41 $(.03) $ .04 $ 1.05 $ 1.09 Total assets at June 30 $19,926 $19,021 $6,131 $6,327 $1,165 $1,005 $27,222 $26,353 - ----------------------------------------------------------------------------------------------------
Earnings Per Common Share: - ------------------------- The Company's earnings per common share for the three months ended June 30, 1994, remained unchanged from the comparable period of 1993, resulting from lower costs in 1994 as a result of the Company's workforce reduction program implemented in 1993, that were partially offset by an increase in litigation reserves and a loss associated with Enterprises' sale of several oil and gas properties as discussed in the Sales and Acquisition section below. The Company's earnings per share for 1993 reflected proceeds received by Enterprises resulting from the termination of a power sales agreement. In addition, Diablo Canyon operated at a lower capacity factor in the second quarter of 1994 due to both scheduled and unscheduled outages. The Company's earnings per common share for the six months ended June 30, 1994, were lower than for the comparable period of 1993 primarily due to higher expenses related to gas matters, an increase in litigation reserves and a loss associated with Enterprises' sale of several oil and gas properties. These higher expenses were offset by lower costs resulting from the workforce reduction program implemented in 1993. As discussed above, the Company's earnings per common share for 1993 reflected proceeds received by Enterprises. As discussed below, Diablo Canyon operated at a lower capacity factor for the six months ended June 30, 1994. Common Stock Dividend: - --------------------- The Company's common stock dividend is based on a number of financial considerations, including sustainability, financial flexibility and competitiveness with investment opportunities of similar risk. Over time, the Company plans to reduce its dividend payout ratio (dividends declared divided by earnings available for common stock) to between 50 and 65 percent (based on earnings exclusive of nonrecurring adjustments) to reflect the increased business risk in the utility industry and the earnings volatility associated with the Diablo Canyon rate case settlement. At this time, the Company is unable to determine the impact, if any, the proposed restructuring of the electric industry in California will have on the Company's ability to increase its dividends in the future . The ultimate impact will depend on the final form of the restructuring when it is implemented. Operating Revenues: - ------------------ Electric revenues for the three and six months ended June 30, 1994, increased compared with the same periods of 1993 primarily due to an increase in revenues related to electric energy costs in 1994 which was partially offset by a decrease in Diablo Canyon revenues as discussed above. Gas revenues for the three and six months ended June 30, 1994, decreased compared with the same periods of 1993, primarily due to a decrease in revenues received from noncore customers. Beginning in the latter half of 1993, the implementation of regulatory changes has allowed many of the Company's noncore customers to arrange for the purchase of their own gas supplies, with the Company providing transportation service for these noncore customers. Operating Expenses: - ------------------ The changes in operating expenses for the three and six months ended June 30, 1994, compared with the same periods of 1993, were due to lower expenses related to the Company's 1993 workforce reduction program and a decrease in the cost of gas due to the Company no longer procuring gas for noncore customers, as discussed above. This decrease was offset by an increase in the cost of electric energy as a result of less favorable hydroelectric conditions. This increase in the cost of electric energy also reflects an increase in the cost per kilowatthour (kWh) for purchased power and an increase in the volume of gas used to provide electric energy. Diablo Canyon: - ------------- The Diablo Canyon plant capacity factors for the six months ended June 30, 1994 and 1993, were 75 percent and 80 percent, respectively, reflecting the scheduled refueling outage for Unit 1 in 1994 and for Unit 2 in 1993. The 1994 capacity factors were also impacted by approximately 24 days of extended unscheduled outages during the six months ended June 30, 1994, due to two minor nonnuclear problems. There were no extended unscheduled outages during the six months ended June 30, 1993. Through June 30, 1994, the lifetime capacity factor for the plant was 79 percent. The Diablo Canyon rate case settlement bases revenues primarily on the amount of electricity generated by the plant, rather than on traditional cost-based ratemaking. Each Diablo Canyon unit will contribute approximately $3.1 million in revenues per day at full operating power in 1994. Changing Competitive and Regulatory Environment: - ----------------------------------------------- Competitive and regulatory changes in the Company's gas and electric businesses are occurring at an ever increasing rate. In particular, there is increasing pressure on the Company to provide its largest electric and gas customers with competitive prices. In April 1994, the California Public Utilities Commission (CPUC) issued a proposal on electric industry restructuring which seeks to put downward pressure on prices, and enhance California's competitiveness by changing from traditional cost-based ratemaking to performance-based ratemaking, unbundling electric service and phasing-in retail wheeling over a six- year period beginning in 1996. Meanwhile, the Company has made several proposals to modify regulatory processes and to provide additional pricing flexibility to those customers with the most competitive options. These proposals are discussed below under the CPUC Electric Industry Restructuring Proposal, Regulatory Reform Initiative (RRI) and Long-Term Noncore Gas Transportation Prices sections. CPUC Electric Industry Restructuring Proposal: In April 1994, the CPUC issued an order instituting a rulemaking and an investigation (OIR/OII) on electric industry restructuring. The OIR/OII follows a report issued by the CPUC's Division of Strategic Planning in February 1993, which concluded that the current regulatory approach is incompatible with the emerging industry structure resulting from technological change, increasing competitive pressure and new market forces. The CPUC's proposal, which is subject to comment and modification, involves two major changes in electric industry regulation. The first would move electric utilities from traditional cost-of-service rate cases to performance-based ratemaking (PBR) in order to provide stronger incentives for efficient utility operations, management and investment. The CPUC indicated that the ongoing energy utility PBR application proceedings, including the Company's RRI, would be used to develop programs which may vary in detail among the utilities. The second major change proposed in the OIR/OII would unbundle electric services and require the phase-in of direct access by electric utility retail customers to a range of electric generation providers, including utilities, over a six-year period from 1996 to 2002. After the unbundling of electric services, the utility serving a given territory would still be obligated to provide transmission and distribution services on a nondiscriminatory basis to customers choosing direct access service from another provider. This concept is commonly referred to as retail wheeling. Coinciding with these changes, the CPUC foresees development of a competitive spot market for electric generation and an increasing need for inter-regional coordination of the electric grid. Existing resource planning and procurement approaches would be abolished. In addition, the Electric Revenue Adjustment Mechanism (ERAM) and other balancing account mechanisms would be discontinued for direct access customers. Under the CPUC's proposal, direct access to generation for the Company's industrial customers, representing 16 percent of total retail electric revenue, would be phased in over a three-year period beginning in January 1996. Commercial customers, representing 39 percent of total retail electric revenue, would have direct access beginning in January 1999. All remaining customers (primarily residential), representing 45 percent of total retail electric revenue, would have direct access beginning in January 2002. With respect to electric services, the CPUC would open at least two investigation proceedings to examine (1) the potential for and cost allocations of any uneconomic utility generating assets, and (2) unbundling and pricing of utility services for direct access. Under the CPUC's proposal, the utility would remain the provider of last resort for all customers. Direct access customers who purchase electricity from another source would continue to secure services from utilities, including distribution, transmission, system control and coordination, and other required services. Utilities would be given the pricing flexibility to compete effectively for direct access customers. Prices negotiated between the utility and direct access customers could not exceed the tariffed rate or fall below the utility's marginal cost of providing the service. The CPUC proposed that discounts given to direct access customers would be absorbed by the utility's shareholders. To ensure an orderly transition that maintains the financial integrity of the utilities, the CPUC proposed that stranded costs of utility generating assets be recovered through a "competition transition charge." All consumers, including direct access consumers, would contribute to recovery of these transition costs. To the extent that uneconomic costs are passed on to all ratepayers through a transition mechanism, the CPUC proposed not to allow any customer class' overall allocation of generation costs or amortization schedules to exceed current levels, in order to avoid a shift of those costs among customer classes or across generations of customers. The OIR/OII stated that utilities would not be at risk for recovery of the uneconomic portion of the utilities' generating assets. The CPUC's investigation into uneconomic generating assets will include consideration of any costs relating to existing utility obligations under certain electric purchase contracts as well as long-term fuel contracts. The Diablo Canyon rate case settlement is not specifically addressed in the OIR/OII. In June 1994, the Company filed its initial comments on the CPUC's proposal. In its comments, the Company indicated that it shares the CPUC's goal of effecting the transition to a more competitive world in a manner which would: (1) achieve competitive electric prices for consumers; (2) maintain utilities' financial integrity; (3) sustain an electric supply system which provides reliable service for all Californians; (4) avoid shifting of costs from one group of customers to another (in particular, to residential customers); and (5) allow continuation of California's environmental and social benefit programs. The Company noted that to achieve these objectives, the CPUC must resolve fundamental legal, jurisdictional and public policy issues and obtain the approval of the Federal Energy Regulatory Commission and the California State Legislature (Legislature). The Company's proposal in response to the CPUC OIR/OII includes the following key elements: (1) Implementation Schedule: The Company proposed an implementation schedule that would allow all electric power consumers access to a retail electric power marketplace by January 1, 2008. Direct access would commence as proposed by the CPUC on January 1, 1996, but for a more limited set of large customers receiving service at transmission voltage levels. Each year, additional groups of customers would be included in the direct access category. Industrial and large commercial customers which would be eligible in the period 1996 through 2002 represent approximately 23 percent of total retail electric revenue. The remaining nonresidential customers, which would be eligible in the period 2003 through 2006, represent approximately 38 percent of total retail electric revenue. Residential customers would be eligible in 2007 and 2008 and represent approximately 39 percent of total retail electric revenue. If the Company's proposed implementation schedule is adopted, it will request recovery of certain incurred and committed costs through the transition charge, but will not request recovery of transition costs associated with its electric generation facilities. The Company indicated that its proposed schedule, coupled with pricing flexibility, will permit the Company sufficient time to reduce its generation costs and recover its investments in facilities. (2) Transition Costs: The Company identified three main categories of potential transition costs described below. The Company's proposal dealt with these costs in two ways: by allowing sufficient time to reduce the amount of transition costs, and by imposing transition charges which must be paid by all customers. (i) Ongoing costs associated with utility-owned generation facilities: If the Company's proposals are adopted in their entirety, the Company would accept the full market risk of recovery of the ongoing costs of its generation facilities, including Diablo Canyon under the pricing formula in the rate case settlement, whether due to discounted prices or lost sales. Under the Company's OIR/OII proposal for the transition to direct access, the Company indicated that it would increase Diablo Canyon's depreciation expense by as much as $200 million annually. This increase reflects the uncertainty about the economic life of Diablo Canyon as a result of the OIR/OII. This change will not have an impact on rates. (ii) Ongoing costs associated with above-market payments under qualifying facilities (QFs) power purchase agreements: The Company purchases approximately 20 percent of its generation from QFs under long-term agreements mandated or approved by the CPUC, some of which result in payments above current market levels. The Company indicated that the uneconomic portion of the energy and capacity payments provided under these agreements should be included in a transition charge borne by all customers interconnected to the system. The Company estimates that in 1994 it will pay approximately $800 million over current market levels for these purchases. The Company is attempting to buyout or restructure certain fixed-price QF contracts in order to reduce purchased power costs. (iii) Costs and obligations incurred in the past under traditional cost-of-service regulation: The Company proposed transition cost recovery for existing regulatory assets and certain other costs and obligations arising out of historic utility activities related to electric generation. These assets and costs include the unamortized balancing accounts related to the Energy Cost Adjustment Clause (ECAC) and the ERAM, the unamortized premium on reacquired debt, utility deferred taxes, workers' compensation and disability claims, pension costs, environmental mitigation costs associated with existing and retired electric plants, and post-retirement benefits other than pensions. (3) Pricing Flexibility and Market Risk for Utility Electric Power Sales: The Company would continue to provide full retail service at regulated rates to full-service customers. For direct access customers, the Company proposed that it be able to compete to sell them unbundled electric power, in a way that insulates full-service customers from any lost contribution to margin, whether due to reduced prices or lost sales. When direct access to generation is available to all customers, the Company should be free to use its generation resources, including power purchase arrangements, in the competitive marketplace as it sees fit. (4) Environmental and Social Programs: The Company proposed that none of the existing environmental and social programs should be discontinued because of a move to direct access. Unless and until a policy decision is made to discontinue a program, costs should be allocated to all electric customers, including those who elect direct access. (5) Obligation to Serve: For the foreseeable future, the Company proposed to retain an ongoing obligation to provide electric power for residential customers, but proposed that the utility should be obligated to provide electric supply only on a best-efforts basis to nonresidential direct access customers that decide to return to the Company for their power supply. Currently, the CPUC is conducting hearings to receive parties' comments on its proposal. The CPUC has indicated that it anticipates adopting a final policy statement no earlier than October 1994. The two companion investigations described above are scheduled to be completed by June 1995 so that eligible customers may commence direct access service in January 1996. The CPUC will open a further investigation in July 1996 to assess the direct access program and to determine whether and how to expand eligibility to other customers. In addition, it appears likely that the Legislature will pass a resolution in August 1994 requesting that the CPUC not take any action to implement electric utility restructuring until it has first reported to the Legislature the details of that restructuring. The report would be due no later than January 31, 1995. RRI: In March 1994, the Company filed an application with the CPUC requesting that it adopt the Company's proposed RRI and approve 1995 electric and gas base revenue requirements. The Company's proposal is the result of discussions with the CPUC, customers and other interested parties concerning various reforms to the current regulatory approach to setting rates. While the guiding principles behind the Company's RRI proposal are not affected by the OIR/OII, many of the specifics would change. Once the CPUC's electric industry restructuring plan is firm enough to allow it, the Company proposes to revise its RRI filing to reflect direct access, which would be effective January 1, 1996. As filed, the Company's RRI has three components: (1) PBR for determining base revenues; (2) establishment of a large electric manufacturing class (LEMC) of customers; and (3) use of market benchmarks to evaluate gas procurement costs. Specific proposals regarding the third component were not included in the Company's March 1994 filing but are expected to be filed at a later date. As part of its response to the OIR/OII, the Company proposed that a set of competitive pricing options be established for large electric customers. These options would replace the proposal for the LEMC, since these customers would be permitted direct access in the initial years upon implementation of the OIR/OII. Accordingly, the Company intends to eliminate its LEMC proposal when it refiles the RRI. Under the Company's PBR proposal, electric and natural gas base revenues would be determined annually by formula rather than through General Rate Cases, Attrition Rate Adjustments (ARAs) and Cost of Capital proceedings. Base revenues are intended to recover the Company's nonfuel costs and provide a return on invested capital. The PBR mechanism would not apply to the base revenue associated with Diablo Canyon, including Diablo Canyon decommissioning costs, which would continue to be determined pursuant to the Diablo Canyon rate case settlement. Revenues to offset fuel and fuel-related costs would still be determined in the ECAC proceeding for electric operations and the Biennial Cost Allocation Proceeding (BCAP) for gas operations. The Company's proposed PBR mechanism would determine the base revenues by multiplying the base revenues authorized for the prior year by an index consisting of inflation plus customer growth less a productivity factor. Those revenues would be adjusted up or down depending on the Company's achievement relative to four performance standards: Customer Energy Efficiency (CEE) programs, Energy Bills, Customer Satisfaction and Electric Service Reliability. The adjustments related to the Company's performance in these four areas would be one-time modifications to that year's base revenues. The adjustments for CEE incentives would be determined under existing ratemaking procedures. The maximum adjustment that the Company could earn or lose related to Energy Bills and Customer Satisfaction is $25 million per year for each, and the maximum for Electric Service Reliability is $19 million per year. Under PBR, the Company could also apply for an adjustment to base revenues due to the occurrence of certain extraordinary events outside the Company's control. The PBR proposal provides for the sharing between ratepayers and shareholders of earnings above or below a target utility return on equity (ROE) that would be computed annually. To the extent actual ROE varies more than 200 basis points above or below the target ROE, the difference would be shared equally between ratepayers and shareholders through a reduction or increase in the next year's base revenue. If actual ROE were more than 500 basis points above or below the target ROE, then the Company and the CPUC would each have the option to initiate a proceeding to reexamine the PBR formula. As filed, the Company proposed that PBR base revenue indexing begin in 1995. However, this requested implementation date has been superseded by the Company's proposed 1995 Electric Rate Stabilization program, described below in the Rate Matters section. Currently, it is not anticipated that rates set by PBR will be effective until January 1997. In its filing, the Company proposed that PBR remain in place indefinitely. The Company recommended that after five years the CPUC review the PBR mechanism and make any necessary adjustments, but not return to the use of traditional rate cases to set rates. Long-Term Noncore Gas Transportation Prices: In June 1994, the Company filed a petition with the CPUC to modify the decision that established the Expedited Application Docket (EAD), the existing competitive gas transportation contract procedure. The petition requested authorization to implement an optional long-term noncore gas transportation price which would be offered to the Company's largest industrial and cogeneration gas transport customers under a ten-year service agreement. The proposed prices are intended to enable the Company to more effectively meet intensified competition by allowing it to offer a long-term competitive price without having to obtain CPUC approval on a contract-by-contract basis as is currently required under the EAD procedure. The proposed prices are within the range of prices negotiated under existing EAD contracts and would exceed the marginal cost of serving the customers eligible for the new prices. The Company's shareholders would bear the risk of any revenue shortfalls attributable to differences between the long-term price option and the customer's otherwise applicable standard price. If approved, the prices would be offered to existing qualifying customers over a two-month subscription period commencing on the date designated by the CPUC. A CPUC decision is expected later this year. Financial Impact of the Changing Competitive and Regulatory Environment: Based on the regulatory framework in which it operates, the Company 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, the Company has accumulated approximately $3.5 billion of regulatory assets, including balancing accounts, as of June 30, 1994. In the event that recovery of specific costs through rates becomes unlikely or uncertain for all or a portion of the Company's utility operations, whether resulting from the expanding effects of competition or specific regulatory actions which move the Company away from cost- of-service ratemaking, SFAS No. 71 would no longer apply. Discontinuation of SFAS No. 71 would cause the write off of applicable portions of regulatory assets, which could have a significant adverse impact on the Company's financial position or results of operations. If the OIR/OII is adopted it would impact the future application of SFAS No. 71 for the electric generation portion of the Company's operations. The regulatory assets attributable to electric generation, excluding balancing accounts which under existing conditions would be expected to be recovered over the next few years, are estimated to be $1.2 billion at June 30, 1994. This amount is based on the Company's estimate of the allocation of these assets; the actual amount could vary depending on the allocation methods adopted by the CPUC. The amount of regulatory assets to be written off upon adoption of the OIR/OII proposal could be substantially reduced depending on the specific recovery provided during the transition to direct access. Under the Company's OIR/OII proposal for the transition to direct access, the Company indicated that it would increase Diablo Canyon's depreciation expense by as much as $200 million annually. This increase reflects the uncertainty about the economic life of Diablo Canyon as a result of the OIR/OII. This change will not have an impact on rates. The CPUC's OIR/OII could impact the Company's recovery of its costs and investments in electric utility assets, the Diablo Canyon rate case settlement and continued application of SFAS No. 71. The final determination of the impact will be dependent upon the form of regulation, including transition mechanisms, if any, ultimately adopted by the CPUC, and the effects of competition. The Company is unable to predict the ultimate effect of the OIR/OII on its financial position or results of operations. It is anticipated that as proposed, the PBR component of the RRI will act as a surrogate for traditional cost-of-service ratemaking. As such, the Company expects it would continue to apply SFAS No. 71 to the majority of its electric and gas operations. However, the Company may be subject to additional write-offs attributable to those regulatory mechanisms proposed to be discontinued as part of the RRI. If the long-term noncore gas transportation pricing is adopted as proposed, it would deviate from cost-of-service ratemaking and the Company would discontinue application of SFAS No. 71 for customers receiving the new rates. The resulting write-off upon discontinuation of SFAS No. 71 for these customers is currently estimated at $25 million pretax. The estimated amount related to the affected gas customers is based on the base revenue allocation currently used in setting rates; the actual amount could vary depending on the allocation method adopted by the CPUC. The Company may be subject to additional write-offs even though SFAS No. 71 continues to apply to remaining portions of the Company's operations. Additional write-offs could result from regulatory actions affecting recovery of specific regulatory assets. Rate Matters: - ------------ In addition to the RRI and the long-term noncore gas transportation price proposals discussed above, the following are other rate-related matters. 1995 Electric Rate Stabilization: In August 1994, the Company announced that it will extend its freeze on retail electric rates through the end of 1995. The electric rate freeze extension is dependent upon the CPUC's adoption of certain rate changes requested by the Company for 1995. As previously disclosed, in April 1993, the Company had adopted a freeze on electric rates through the end of 1994. The Company also will continue its annual $70 million economic stimulus rate reduction through 1995 for its largest business customers. The reduction, begun in July 1993, was developed to help attract and retain major employers in Northern and Central California. The electric rate freeze extension and the continuation of the economic stimulus rate represent further steps in the Company's efforts to improve its ability to succeed in the face of greater competition. The Company also announced that when it files its 1996 General Rate Case (GRC) later this year, it will not seek an increase in 1996 electric base revenues from 1994 levels attributable to its expenses other than fuel, purchased power and Diablo Canyon costs. To accomplish the electric rate freeze extension, the Company anticipates that it will forgo electric rate increases that otherwise would occur on January 1, 1995, under the ARA mechanism. These increases had previously been authorized by the CPUC in the Company's 1993 GRC. If the CPUC adopts the Company's requests in the ECAC and 1995 Cost of Capital proceedings (see the ECAC and Cost of Capital discussions below), combined net electric revenue requirement would increase by an estimated $289 million, effective January 1, 1995. To the extent that the CPUC grants these electric revenue requirement increases, the Company anticipates that it will request a corresponding decrease in base revenues under the ARA mechanism, such that electric rates will not increase through the end of 1995. The Company intends to offset any such required decrease in base revenues through cost reductions. To the extent that these cost reductions are not achieved, there may be a negative impact on the Company's 1995 or 1996 results of operations. ECAC: In the 1993 ECAC decision, the CPUC approved the Company's request to defer beyond 1994 $255 million of estimated undercollections in the ECAC/ERAM balancing accounts. The actual ECAC/ERAM net undercollection at December 31, 1993, was $525 million. With the stated objective of providing additional incentives for cost containment, the CPUC refused to allow the Company to collect interest on the revenue requirement deferral and ordered the reinstatement of the Annual Energy Rate (AER) mechanism. The reinstatement of the AER places the Company at risk for nine percent of the variations between actual and forecasted energy expenses. The Company's current ECAC application requests a two percent increase ($158 million) in electric revenues over rates in effect in 1994. The Company's proposal limits the requested recovery of the projected December 31, 1994, ECAC undercollection of $537 million by deferring recovery of $368 million beyond 1995. The filing also proposes to forgo collection of interest on the ECAC deferral. In July 1994, the Division of Ratepayer Advocates (DRA), a consumer advocacy branch of the CPUC staff, issued a report on the Company's filing. The DRA's revenue requirement proposal is approximately $110 million lower than the Company's request due primarily to the DRA's lower gas cost estimates and Diablo Canyon price assumptions. The DRA also recommends that the Company's rates remain frozen at the 1994 level through 1995 and that the ECAC undercollection be deferred, without interest, beyond 1995. In its report, the DRA asserted that the Company has failed to take actions in response to concerns about the Company's high electricity rates. The DRA proposed that the CPUC reconsider a consumer advocacy group's 1992 petition and reopen the Diablo Canyon rate case settlement (settlement) for the express purpose of modifying the payment methodology for Diablo Canyon generation. The CPUC had previously denied this petition finding that there had been no failure in the underlying assumptions of the settlement and that reopening it would be contrary to the public policy in favor of settlements. In addition, the DRA recommended that in the interim, while the payment methodology is being reconsidered, the price paid for electricity generated by Diablo Canyon be frozen at the 1994 price level of 11.89 cents per kWh which would result in a $35 million reduction in the Company's 1995 revenue requirement request. The Company's filing included an increase in the price paid for Diablo Canyon generation to 12.10 cents per kWh in 1995, using the pricing formula set forth in the settlement. Based on its claim that the Company has failed to propose methods or take action to reduce rates, the DRA urged the CPUC to consider the possibility of eliminating or reducing the ratepayers' obligation to pay for deferred ECAC costs at some future date. If the CPUC acts on this aspect of the DRA's request, the Company may be precluded from recording additional ECAC costs and may also be required to write off portions of the existing ECAC balance. However, the Company believes that under existing conditions, it will recover the ECAC undercollection over the next few years. In July 1994, the Company filed a motion requesting the CPUC to remove the Diablo Canyon testimony from the DRA's report on the basis that it is contrary to previous CPUC decisions which uphold the settlement, is factually incorrect, and violates the CPUC's policy in favor of comprehensive settlements. In August, the Company filed rebuttal testimony in the ECAC proceeding, reiterating that the DRA's report violates the public policy in favor of settlements. The Company also pointed out that, contrary to the DRA's report, under the ratemaking methodology employed by the DRA in the proceeding in which the settlement was established, the Company in fact has recovered $2.5 billion less than it would have under traditional ratemaking. The Company also noted that the risk of future performance of the plant remains with the Company. A decision is expected in December 1994. BCAP: In July 1994, the CPUC approved the Company's request for an increase of $162 million (9.3 percent) in core (residential and smaller commercial customers) rates effective July 15, 1994. During the first half of the current BCAP period, actual gas costs were higher than the forecasted costs used to adopt rates and actual gas sales were less than expected, leading to unrecovered gas and related fixed costs. The $162 million BCAP increase is expected to recover such costs by July 1995. Cost of Capital: In May 1994, the Company filed an application with the CPUC in the 1995 Cost of Capital proceeding requesting the following: Utility Capital Weighted Structure Cost/Return Cost Common equity 48.00% 12.50% 6.00% Preferred stock 5.50 8.12 .45 Long-term debt 46.50 7.53 3.50 ----- ----- ---- Total requested return on average utility rate base 9.95% ==== The requested return on common equity and common equity ratio is an increase from the 11.00 percent and 47.50 percent, respectively, authorized in 1994. These increases reflect higher interest rates and increased regulatory and competitive risks. An additional 75 basis points was included in the Company's requested return on common equity in order to address, in particular, the added risks associated with the CPUC's proposed OIR/OII on electric industry restructuring. If adopted, the Company's request would result in annual revenue requirement increases of $131 million for electric rates and $41 million for gas rates, effective January 1995. In August 1994, the DRA issued its report on the Company's 1995 Cost of Capital proceeding recommending a return on common equity of 11.25 percent and an overall return on utility rate base of 9.36 percent. The DRA also recommended a utility capital structure of 48.00 percent common equity, 5.50 percent preferred stock and 46.50 percent long-term debt. If adopted, the DRA's recommendation would result in annual revenue requirement increases of $28 million for electric rates and $9 million for gas rates, effective January 1995. A final CPUC decision is expected in the fourth quarter of 1994. 1996 GRC: Although the Company's RRI filing and the CPUC's OIR/OII on electric industry restructuring may eliminate the need for hearings on the 1996 GRC, the Company is continuing its preparation of the 1996 GRC with the expectation that the RRI and OIR/OII will run parallel with its 1996 GRC. The Company intends to file its 1996 GRC application before the end of 1994, for rates effective January 1, 1996. As currently contemplated, there would be no increase in 1996 electric base revenues from 1994 levels attributable to expenses other than fuel, purchased power and Diablo Canyon costs, and a minimal decrease from current gas base revenues. Reasonableness Proceedings: - -------------------------- The CPUC reviews the reasonableness of the Company's energy costs on an annual basis. As part of this review, recommendations may be made by the DRA as well as intervenors. An Administrative Law Judge (ALJ) of the CPUC will review testimony and issue a proposed decision. The CPUC can accept all, part or none of the recommendations or the ALJ's proposed decision in its final decision. In March 1994, the CPUC issued decisions covering the years 1988 through 1990, ordering a disallowance of $90 million of gas costs, plus accrued interest of approximately $25 million for the Company's Canadian gas procurement activities and $8 million for gas inventory operations. The Company intends to contest the Canadian gas cost disallowance and has filed an application for rehearing of that decision. As discussed in Note 3 of Notes to Consolidated Financial Statements, a number of reasonableness issues are still under review by the CPUC, including an audit of the Company's affiliates. The DRA has recommended disallowances and a penalty totaling at least $192 million for various issues covering 1988 through 1992 and has indicated it may be submitting additional recommendations for these years. The Company believes that its gas procurement activities, transportation arrangements and operations were prudent and will vigorously contest any disallowance or penalty recommended by the DRA or other parties. The Company accrued $61 million in the fourth quarter of 1993 and approximately $90 million in the first quarter of 1994 as a result of the CPUC's disallowances in the gas reasonableness proceedings for 1988 through 1990 and the Company's assessment of how the CPUC's decisions may impact the open reasonableness issues. However, as discussed above, the Company intends to contest the CPUC's decision on the Canadian gas disallowance for 1988 through 1990. The Company currently is unable to estimate the ultimate outcome of the gas reasonableness proceedings, including the affiliate audit, or predict whether such outcome will have a significant adverse impact on its results of operations. Legal Matters: - ------------- Stanislaus Litigation: In December 1993, the County of Stanislaus, California and a residential customer of PG&E, filed a complaint against PG&E and Pacific Gas Transmission Company, a subsidiary of the Company, on behalf of themselves and purportedly as a class action on behalf of all natural gas customers of PG&E for the period of February 1988 through October 1993. The complaint alleges that the purchase of natural gas in Canada by A&S was accomplished in violation of various antitrust laws which resulted in increased prices of natural gas for PG&E's customers. The complaint alleges that the Company could have purchased as much as 50 percent of its Canadian gas on the spot market instead of relying on long-term contracts and that the damage to the class members is at least as much as the price differential multiplied by the replacement volume of gas, an amount estimated in the complaint as potentially exceeding $800 million. The complaint indicates that the damages to the class could include over $150 million paid by the Company to terminate the contracts with the Canadian gas producers in November 1993. The complaint also seeks recovery of three times the amount of the actual damages pursuant to antitrust laws. The Company believes the case is without merit and has filed a motion to dismiss the complaint. The Company believes that the ultimate outcome will not have a significant adverse impact on its financial position. Hinkley Litigation: In 1993, a complaint was filed on behalf of individuals seeking recovery of an unspecified amount of damages for personal injuries and property damage allegedly suffered as a result of exposure to chromium near the Company's Hinkley Compressor Station, as well as punitive damages. The original complaint has been amended, and additional complaints have been filed, to include additional plaintiffs. In 1987, the Company undertook an extensive project to remediate potential groundwater chromium contamination. The Company has incurred substantially all of the costs it currently deems necessary to clean up the affected groundwater contamination. In accordance with the remediation plan approved by the regional water quality control board, the Company will continue to monitor the affected area and perform environmental assessments. In November 1993, the parties engaged in private mediation sessions. Since then, plaintiffs' counsel has offered to compromise and settle plaintiffs' claims against the Company for $265 million. However, that amount related to the claims of only approximately two- thirds of the presently known plaintiffs. There have been subsequent mediation sessions but no resolution has been reached and discussions continue. The Company is unable to estimate the ultimate outcome of this matter, but such outcome could have a significant adverse impact on the Company's results of operations. The Company believes that the ultimate outcome of this matter will not have a significant adverse impact on its financial position. (See Note 4 of Notes to Consolidated Financial statements for further discussion.) County Franchise Fees Litigation: In March 1994, Santa Clara and Alameda counties filed a class action suit against the Company on behalf of themselves and 45 other counties in the Company's service area. This lawsuit alleges that the Company underpaid franchise fees to the counties for the right to use or occupy public streets or roads as a result of incorrectly computing these payments. Should plaintiffs prevail, the Company currently estimates that its annual system-wide county franchise fees could increase by approximately $15 million. In addition, the amount of damages for alleged underpayments for the years 1987 through 1993 could be as high as $127 million, including interest, as of June 30, 1994. The Company believes that the ultimate outcome will not have a significant adverse impact on its financial position or results of operations. City Franchise Fees Litigation: In May 1994, the City of Santa Cruz filed a class action suit against the Company on behalf of itself and 106 other cities in the Company's service area. The complaint alleges that the Company has improperly underpaid electric franchise fees to the cities by calculating fees at different rates from other cities. Should plaintiffs prevail, the Company currently estimates that its annual system-wide city franchise fees could increase by approximately $17 million. In addition, the amount of damages for alleged underpayments for the years 1987 through 1993 could be as high as $117 million, including interest, as of June 30, 1994. The Company believes that the ultimate outcome will not have a significant adverse impact on its financial position or results of operations. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Sources of Capital: - ------------------ The following debt and equity securities were issued, reacquired or redeemed from January 1 through June 30, 1994: (in thousands) Debt: Issued Interest Rates Amount - ------ -------------- ------------- Medium-term notes 6.50% to 7.88% $30,000 Redeemed - -------- Mortgage bonds 7.50% 79,900 Medium-term notes 10.05% and 10.10% 40,000 Eurobonds 12.00% 15,334 Equity: Issued Dividend Rates Amount - ------ -------------- -------------- Preferred stock 6.30% $62,500 Common stock Savings Fund Plan N/A 91,322 Dividend Reinvestment Plan N/A 46,649 Long-term Incentive Plan N/A 797 Redeemed/Reacquired - ------------------- Preferred stock 8.16% 75,000 Common stock N/A 60,320 Proceeds from the issuance of securities were used for capital expenditures, refundings and other general corporate purposes. Environmental Remediation: - ------------------------- The Company assesses, on an ongoing basis, measures that may need to be taken to comply with laws and regulations related to hazardous materials and hazardous waste compliance and remediation activities. Although the ultimate amount of costs that will be incurred by the Company in connection with its compliance and remediation activities is difficult to estimate due to uncertainty concerning the Company's responsibility and the extent of contamination, the complexity of environmental laws and regulations and the selection of compliance alternatives, the Company has an accrued liability as of June 30, 1994, of $62 million for hazardous waste remediation costs. (See further discussion of the accrued liability for hazardous waste remediation costs in Note 4 of Notes to Consolidated Financial Statements.) Sales and Acquisition: - --------------------- Sales: In April 1994, the Company announced that it has deferred its plan to divest PG&E Resources Company (Resources), a wholly owned indirect subsidiary of Enterprises. Resources, which is engaged in oil and gas exploration, is headquartered in Dallas, Texas. In June 1994, Resources entered into multiple contracts to sell several of its oil and gas properties. The Company recorded a $19 million pretax loss during the second quarter for those properties to be sold which have a carrying value in excess of their market value. Gains to be realized in the third quarter from the sale of the remaining properties held for sale are expected to offset these losses. The Company anticipates that all sales will be completed in the third quarter of 1994. Acquisition: In July 1994, the Company announced that Enterprises and Bechtel Enterprises have concluded an agreement for the purchase of 100 percent of J. Makowski Co., Inc., a national company engaged in the development of natural gas-fueled power generation projects and natural gas distribution, supply and underground storage projects. Enterprises expects to have a majority interest in the Company. The total purchase price is approximately $250 to $300 million and the transaction is expected to be completed during the third quarter of 1994. PART II. OTHER INFORMATION --------------------------- Item 1. Legal Proceedings ----------------- A. QF Transmission Constrained Area Litigation On July 20, 1994, the Company settled the lawsuit brought against it by Pacific Oroville Power, Inc. (POPI). The lawsuit was previously disclosed in the Company's Form 10-K for the fiscal year ended December 31, 1993. The settlement was reached following an eight-month jury trial, at the conclusion of which the jury indicated they were deadlocked and unable to reach a verdict. The settlement did not have a significant adverse impact on the Company's financial position or results of operations. B. Time-Of-Use Meter Litigation On July 21, 1994, Milton L. Grinstead, Michael Davis, Joan A. Williamson, Frank H. Lacy, and Matthew Doerksen filed a complaint in the Stanislaus County Superior Court against the Company on behalf of themselves and purportedly as a class action on behalf of all of the Company's customers, for "refund of unlawfully charged fees." The complaint alleges that the Company improperly failed to notify its customers of the most favorable rates available to each particular customer. The complaint focuses on the "time-of- use" billing option, which allows customers to save money by shifting their electricity use to off-peak hours when electricity is cheaper. Plaintiffs contend that all customers could have saved an average of $50-$75 per month per customer had they been placed on time-of-use rates. The complaint seeks damages estimated to be in excess of $16 billion. The Company believes that the ultimate outcome of this matter will not have a significant adverse impact on its financial position or results of operations. Item 5. Other Information ----------------- Ratios of Earnings to Fixed Charges and Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends The Company's earnings to fixed charges ratio for the six months ended June 30, 1994 was 3.48. The Company's earnings to combined fixed charges and preferred stock dividends ratio for the six months ended June 30, 1994 was 3.04. Statements setting forth the computation of the foregoing ratios are filed herewith as Exhibits 12.1 and 12.2 to Registration Statement Nos. 33-62488, 33-64136 and 33-50707. Item 6. Exhibits and Reports on Form 8-K --------------------------------- (a) Exhibits: Exhibit 3.1 Restated Articles of Incorporation of the Company effective as of July 26, 1994 Exhibit 10 Contract Between Pacific Gas and Electric Co. and Jerry R. McLeod Exhibit 11 Computation of Earnings Per Common Share Exhibit 12.1 Computation of Ratios of Earnings to Fixed Charges Exhibit 12.2 Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends (b) Reports on Form 8-K during the second quarter of 1994 and through the date hereof: 1. April 2l, 1994 Item 5. Other Events A. Performance Incentive Plan - Year-to-Date Financial Results B. California Public Utilities Commission Proceedings - Electric Fuel and Sales Balancing Accounts - ECAC/ERAM - Biennial Cost Allocation Proceeding (BCAP) - Electric Industry Restructuring C. Franchise Fees Litigation 2. June 7, 1994 Item 5. Other Events A. California Public Utilities Commission Proceedings - Electric Industry Restructuring B. Restructuring of Canadian Gas Supply Arrangmenets C. Cities Franchise Fees Litigation D. Management Changes 3. July 6, 1994 Item 5. Other Events A. Restructuring of Gas Supply Arrangements - Recovery of Interstate Transportation Demand Charges B. Diablo Canyon Nuclear Power Plant - Nuclear Fuel Supply and Disposal C. Acquisition by PG&E Enterprises/Bechtel Enterprise 4. July 25, 1994 Item 5. Other Events A. Performance Incentive Plan - Year-to-Date Financial Results B. California Public Utilities Commission Proceedings - Electric Fuel and Sales Balancing Accounts - ECAC/ERAM C. Diablo Canyon Nuclear Power Plant - Diablo Canyon Rate Case Settlement 5. August 3, 1994 Item 5. Other Events A. California Public Utilities Commission Proceedings - 1995 Electric Rate Stablization SIGNATURE 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. PACIFIC GAS AND ELECTRIC COMPANY GORDON R. SMITH August 12, 1994 By______________________________ GORDON R. SMITH Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number Exhibit - ------- --------------------------------- 3.1 Restated Articles of Incorporation of the Company effective as of July 26, 1994 10 Contract Between Pacific Gas and Electric Company and Jerry R. McLeod 11 Computation of Earnings Per Common Share 12.1 Computation of Ratios of Earnings to Fixed Charges 12.2 Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends EX-3.1 2 Exhibit 3.1 RESTATED ARTICLES OF INCORPORATION OF PACIFIC GAS AND ELECTRIC COMPANY Dated July 25, 1994 STANLEY T. SKINNER and LESLIE H. EVERETT certify that: 1. They are the President and Chief Executive Officer, and the Corporate Secretary, respectively, of Pacific Gas and Electric Company, a California corporation (the "Company"). 2. The Articles of Incorporation of the corporation, as amended to the date of the filing of this certificate, including the amendments set forth herein but not separately filed (and with the omissions required by Section 910 of the Corporations Code) are amended and restated as follows: FIRST: That the name of said corporation shall be PACIFIC GAS AND ELECTRIC COMPANY. SECOND: The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. The right is reserved to this corporation to amend the whole or any part of these Articles of Incorporation in any respect not prohibited by law. THIRD: That this corporation shall have perpetual existence. FOURTH: The corporation elects to be governed by all of the provisions of the General Corporation Law (as added to the California Corporations Code effective January 1, 1977, and as subsequently amended) not otherwise applicable to this corporation under Chapter 23 of said General Corporation Law. FIFTH: That the Board of Directors of this corporation shall consist of such number of directors, not less than fourteen (14) nor more than seventeen (17), as shall be prescribed in the Bylaws. The Board of Directors by a vote of two-thirds of the whole Board may appoint from the Directors an Executive Committee, which Committee may exercise such powers as may lawfully be conferred upon it by the Bylaws of the Corporation. Such Committee may prescribe rules for its own government and its meetings may be held at such places within or without California as said Committee may determine or authorize. SIXTH: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. SEVENTH: The corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaws, resolutions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code. EIGHTH: The total number of shares which this corporation is authorized to issue is eight hundred eighty-five million (885,000,000) of the aggregate par value of six billion eight hundred seventy-five million dollars ($6,875,000,000). Allof these shares shall have full voting rights. Said eight hundred eighty-five million (885,000,000) shares shall be divided into three classes, designated as common stock, first preferred stock and $100 first preferred stock. Eight hundred million (800,000,000) of said shares shall be common stock, of the par value of $5 per share, seventy-five million (75,000,000) of said shares shall be first preferred stock, of the par value of $25 per share, and ten million (10,000,000) of said shares shall be $100 first preferred stock, of the par value of $100 per share. FIRST PREFERRED STOCK AND $100 FIRST PREFERRED STOCK The first preferred stock and $100 first preferred stock each shall be divided into series. The first series of first preferred stock shall consist of four million two hundred eleven thousand six hundred sixty-two (4,211,662) shares and be designated as Six Per Cent First Preferred Stock. The second series of first preferred stock shall consist of one million one hundred seventy-three thousand one hundred sixty-three (1,173,163) shares and be designated as Five and One-Half Per Cent First Preferred Stock. The third series of first preferred stock shall consist of four hundred thousand (400,000) shares and be designated as Five Per Cent First Preferred Stock. The remainder of said first preferred stock, viz., 69,215,175 shares, and all of the $100 first preferred stock may be issued in one or more additional series, as determined from time to time by the Board of Directors. Except as provided herein, the Board of Directors is hereby authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon the first preferred stock or $100 first preferred stock or any series thereof with respect to any wholly unissued series of first preferred stock or $100 first preferred stock, and to fix the number of shares of any series of first preferred stock or $100 first preferred stock and the designation of any such series of first preferred stock or $100 first preferred stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The owners and holders of shares of said first preferred stock and $100 first preferred stock, when issued as fully paid, are and shall be entitled to receive, from the date of issue of such shares, out of funds legally available therefor, cumulative preferential dividends, when and as declared by the Board of Directors, at the following rates upon the par value of their respective shares, and not more, viz.: Six per cent (6%) per year upon Six Per Cent First Preferred Stock; five and one-half per cent (5-l/2%) per year upon Five and One-Half Per Cent First Preferred Stock; five per cent (5%) per year upon Five Per Cent First Preferred Stock; and upon the shares of each additional series of said first preferred stock and of each series of $100 first preferred stock the dividend rate fixed therefor; and such dividends on both classes of first preferred stock and $100 first preferred stock shall be declared and shall be either paid or set apart for payment before any dividend upon the shares of common stock shall be either declared or paid. Upon the liquidation or dissolution of this corporation at any time and in any manner, the owners and holders of shares of said first preferred stock and $100 first preferred stock issued as fully paid will be entitled to receive an amount equal to the par value of such shares plus an amount equal to all accumulated and unpaid dividends thereon to and including the date fixed for such distribution or payment before any amount shall be paid to the holders of said common stock. If any share or shares of first preferred stock and $100 first preferred stock shall at any time be issued as only partly paid, the owners and holders of such partly paid share or shares shall have the right to receive dividends and to share in the assets of this corporation upon its liquidation or dissolution in all respects like the owners and holders of fully paid shares of first preferred stock and $100 first preferred stock, except that such right shall be only in proportion to the amount paid on account of the subscription price for which such partly paid share or shares shall have been issued. The unissued shares of said first preferred stock and $100 first preferred stock may be offered for subscription or sale or in exchange for property and be issued from time to time upon such terms and conditions as said Board of Directors shall prescribe. The first three series of said first preferred stock, namely, the Six Per Cent First Preferred Stock, the Five and One-Half Per Cent First Preferred Stock, and the Five Per Cent First Preferred Stock, are not subject to redemption. Any or all shares of each series of said first preferred stock and $100 first preferred stock other than said first three series of first preferred stock may be redeemed at the option of this corporation, at any time or from time to time, at the redemption price fixed for such series together with accumulated and unpaid dividends at the rate fixed therefor to and including the date fixed for redemption. If less than all the outstanding shares of any such series are to be redeemed, the shares to be redeemed shall be determined pro rata or by lot in such manner as the Board of Directors may determine. Unless the certificate of determination for any series of the first preferred stock or the $100 first preferred stock shall otherwise provide, notice of every such redemption shall be published in a newspaper of general circulation in the City and County of San Francisco, State of California, and in a newspaper of general circulation in the Borough of Manhattan, City and State of New York, at least once in each of two (2) successive weeks, commencing not earlier than sixty (60) nor later than thirty (30) days before the date fixed for redemption; successive publications need not be made in the same newspaper. A copy of such notice shall be mailed within the same period of time to each holder of record, as of the record date, of the shares to be redeemed, but the failure to mail such notice to any shareholder shall not invalidate the redemption of such shares. From and after the date fixed for redemption, unless default be made by this corporation in paying the amount due upon redemption, dividends on the shares called for redemption shall cease to accrue, and such shares shall be deemed to be redeemed and shall be no longer outstanding, and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from this corporation upon surrender of their certificates the amount payable upon redemption without interest. Or, if this corporation shall deposit, on or prior to the date fixed for redemption, with any bank or trust company in the City and County of San Francisco, having capital, surplus and undivided profits aggregating at least five million dollars ($5,000,000), as a trust fund, a sum sufficient to redeem the shares called for redemption, with irrevocable instructions and authority to such bank or trust company to publish or complete the publication of the notice of redemption (if this corporation shall not have theretofore completed publication of such notice), and to pay, on and after the date fixed for redemption, or on and after such earlier date as the Board of Directors may determine, the amount payable upon redemption of such shares, then from and after the date of such deposit (although prior to the date fixed for redemption) such shares shall be deemed to be redeemed; and dividends on such shares shall cease to accrue after the date fixed for redemption. The said deposit shall be deemed to constitute full payment of the shares to their respective holders and from and after the date of such deposit the shares shall be no longer outstanding, and the holders thereof shall cease to be shareholders with respect to such shares and shall have no rights with respect thereto except the right to receive from said bank or trust company the amount payable upon redemption of such shares, without interest, upon surrender of their certificates therefor, and except, also, any right which such shareholders may then have to exchange or convert such shares prior to the date fixed for redemption. Any part of the funds so deposited which shall not be required for redemption payments because of such exchange or conversion shall be repaid to this corporation forthwith. The balance, if any, of the funds so deposited which shall be unclaimed at the end of six (6) years from the date fixed for redemption shall be repaid to this corporation together with any interest which shall have been allowed thereon; and thereafter the unpaid holders of shares so called for redemption shall have no claim for payment except as against this corporation. All shares of the first preferred stock and $100 first preferred stock shall rank equally with regard to preference in dividend and liquidation rights, except that shares of different classes or different series thereof may differ as to the amounts of dividends or liquidation payments to which they are entitled, as herein set forth. COMMON STOCK When all accrued dividends upon all of the issued and outstanding shares of the first preferred stock and $100 first preferred stock of this corporation shall have been declared and shall have been paid or set apart for payment, but not before, dividends may be declared and paid, out of funds legally available therefor, upon all of the issued and outstanding shares of said common stock. Upon the liquidation or dissolution of this corporation, after the owners and holders of such first preferred stock and $100 first preferred stock shall have been paid the full amount to which they shall have been entitled under the provisions of these Articles of Incorporation, the owners and holders of such common stock shall be entitled to receive and to have paid to them the entire residue of the assets of this corporation in proportion to the number of shares of said common stock held by them respectively. If any share or shares of common stock shall at any time be issued as only partly paid, the owners and holders of such partly paid share or shares shall have the right to receive dividends and to share in the assets of this corporation upon its liquidation or dissolution in all respects like the owners and holders of fully paid shares of common stock, except that such right shall be only in proportion to the amount paid on account of the subscription price for which such partly paid share or shares shall have been issued. The unissued shares of said common stock may be offered for subscription or sale or in exchange for property and be issued from time to time upon such terms and conditions as said Board of Directors may prescribe. PROHIBITION AGAINST ASSESSMENTS Shares of such stock, whether first preferred, $100 first preferred stock or common stock, the subscription price of which shall have been paid in full, whether such price be par or more or less than par, shall be issued as fully paid shares and shall never be subject to any call or assessment for any purpose whatever. Shares of such stock, whether first preferred, $100 first preferred stock or common stock, a part only of the subscription price of which shall have been paid, shall be subject to calls for the unpaid balance of the subscription price thereof. But no call made on partly paid first preferred stock, partly paid $100 first preferred stock or partly paid common stock shall be recoverable by action or be enforceable otherwise than by sale or forfeiture of delinquent stock in accordance with the applicable provisions of the Corporations Code of California. If at any time, whether by virtue of any amendment of these Articles of Incorporation or any amendment or change of the law of the State of California relating to corporations or otherwise, any assessment shall, in any event whatever, be levied and collected on any subscribed and issued shares of said first preferred stock or $100 first preferred stock after the subscription price thereof shall have been paid in full, the rights of the owners and holders thereof to receive dividends and their rights to share in the assets upon the liquidation or dissolution of this corporation shall, immediately upon the payment of such assessment and by virtue thereof, be increased in the same ratio as the total amount of the assessment or assessments so levied and collected shall bear to the par value of such shares of first preferred stock or $100 first preferred stock. RESERVES The Board of Directors of this corporation shall, notwithstanding the foregoing provisions of these Articles of Incorporation, have authority from time to time to set aside, out of the profits arising from the business of this corporation, such reasonable sums as may in their judgment be necessary and proper for working capital and for usual reserves and surplus. NINTH: I. The affirmative vote of the holders of not less than seventy-five percent (75%) of the outstanding shares of "Voting Stock" (as hereinafter defined) shall be required to implement or effect any "Business Combination" (as hereinafter defined) involving the Company or any "Subsidiary" (as hereinafter defined) of the Company and any "Related Person" (as hereinafter defined), or any "Affiliate" or "Associate" (as hereinafter defined) of a Related Person, notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law, in any agreement with any national securities exchange or otherwise; provided, however, that the seventy-five percent (75%) voting requirement shall not be applicable and such Business Combination shall require only such affirmative vote as is required by law, any agreement with any national securities exchange or otherwise if: (1) The Business Combination shall have been approved by the Board of Directors without counting the vote of any director who is not a "Disinterested Director" (as hereinafter defined); or (2) All of the following conditions are met: (i) The cash or "Fair Market Value" (as of the Business Combination (the "Combination Date") of the property, securities or other consideration to be received per share by holders of a particular class or series of capital stock, as the case may be, of this Company in the Business Combination is not less than the highest of: (a) the highest per share price (including brokerage commissions, transfer taxes and soliciting dealers' fees) paid by or on behalf of the Related Person in acquiring beneficial ownership of any of its holdings of such class or series of capital stock of this Company (A) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (B) in the transaction or series of transactions in which the Related Person became a Related Person, whichever is higher; or (b) the highest Fair Market Value per share of the shares of capital stock being acquired in the Business Combination as of any date within the one-year period preceding: (A) the Announcement Date or (B) the date on which the Related Person became a Related Person, whichever is higher; or (c) in the case of common stock, the highest per share book value of the common stock as reported at the end of the three fiscal quarters which preceded the Announcement Date, and in the case of first preferred stock or $100 first preferred stock, the highest preferential amount per share to which the holders of shares of such class or series of first preferred stock or $100 first preferred stock would be entitled as of the Combination Date in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, regardless of whether the Business Combination to be consummated constitutes such an event. The provisions of this paragraph I(2)(i) shall be required to be met with respect to every class or series of outstanding capital stock, whether or not the Related Person has previously acquired any shares of a particular class or series of capital stock. In all of the above instances, appropriate adjustments shall be made for recapitalizations and for stock dividends, stock splits and like distributions; and (ii) The consideration to be received by holders of a particular class or series of capital stock shall be in cash or in the same form as previously has been paid by or on behalf of the Related Person in connection with its direct or indirect acquisition of beneficial ownership of shares of such class or series of stock. If the consideration so paid for any such share varied as to form, the form of consideration for such shares shall be either cash or the form used to acquire beneficial ownership of the largest number of shares of such class or series of capital stock previously acquired by the Related Person; and (iii) After such Related Person has become a Related Person and prior to the consummation of such Business Combination: (a) except as approved by the Board of Directors without counting the vote of any director who is not a Disinterested Director, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on the outstanding first preferred stock or $100 first preferred stock; (b) there shall have been (A) no reduction in the annual rate of dividends paid on the common stock (except as necessary to reflect any subdivision of the common stock) except as approved by the Board of Directors without counting the vote of any director who is not a Disinterested Director, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the common stock, unless the failure so to increase such annual rate is approved by the Board of Directors without counting the vote of any director who is not a Disinterested Director; and (c) such Related Person shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Related Person becoming a Related Person; and (iv) After such Related Person has become a Related Person, the Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise; and (v) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any provisions subsequently replacing such Act, rules or regulations) shall be mailed to public shareholders of the Company at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). II. For purpose of this Article NINTH: (1) The term "Business Combination" shall mean any (i) merger or consolidation of the Company or a Subsidiary with a Related Person or any other person which is or after such merger or consolidation would be an Affiliate or Associate of a Related Person; (ii) sale, lease, exchange, mortgage, pledge, transfer or other disposition or guarantee (in one transaction or a series of transactions) to or with or for the benefit of any Related Person or any Affiliate or Associate of any Related Person, of any assets of the Company or of a Subsidiary having an aggregate Fair Market Value of $100 million or more; (iii) sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), to the Company or a Subsidiary of any assets of a Related Person or any Affiliate or Associate of any Related Person having an aggregate Fair Market Value of $100 million or more; (iv) issuance, pledge or transfer of securities of the Company or a Subsidiary (in one transaction or a series of transactions) to or with a Related Person or any Affiliate or Associate of any Related Person in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $100 million or more; (v) reclassification of securities (including any reverse stock split) or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction that would have the effect, either directly or indirectly, of increasing the voting power or the proportionate share of any class of equity or convertible securities of the Company or any Subsidiary which is directly or indirectly beneficially owned by any Related Person or any Affiliate or Associate of any Related Person; and (vi) any merger or consolidation of the Company with any of its Subsidiaries after which the provisions of this Article NINTH of the Articles of Incorporation shall not be contained in the Articles of Incorporation of the surviving entity. (2) The term "person" shall mean any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Voting Stock of the Company. (3) The term "Related Person" shall mean any person (other than the Company, or any Subsidiary and other than any dividend reinvestment plan or profit-sharing, employee stock ownership or other employee benefit or savings plan of the Company or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who or which: (i) is the beneficial owner (as hereinafter defined) of five percent (5%) or more of the Voting Stock; (ii) is an Affiliate or Associate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner of five percent (5%) or more of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to the beneficial ownership of any shares of Voting Stock which were at any time within the two-year period immediately prior to such time beneficially owned by any Related Person, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of Securities Act of 1933. (4) A person shall be a "beneficial owner" of any Voting Stock: (i) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (ii) which such person or any of its Affiliates or Associates has, directly or indirectly, (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (5) For the purposes of determining whether a person is a Related Person pursuant to subparagraph (3) of this paragraph II, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of subparagraph (4) of this paragraph II but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (6) The term "Affiliate," used to indicate a relationship with a specified person, shall mean a person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such specified person. The term "Associate," used to indicate a relationship with a specified person, shall mean (i) any person (other than the Company or a Subsidiary) of which such specified person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of equity securities, (ii) any trust or other estate in which such specified person has a substantial beneficial interest or as to which such specified person serves as trustee or in a similar fiduciary capacity, (iii) any relative or spouse of such specified person or any relative of such spouse, who has the same home as such specified person or who is a director or officer of the Company or any Subsidiary, and (iv) any person who is a director or officer of such specified person or any of its parents or subsidiaries (other than the Company or a Subsidiary). (7) The term "Subsidiary" means any corporation of which a majority of any class of equity securities is owned, directly or indirectly, by the Company; provided, however, that for the purposes of the definition of Related Person set forth in subparagraph (3) of this paragraph II, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity securities is owned, directly or indirectly, by the Company. (8) The term "Disinterested Director" means any member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Affiliate, Associate or a representative of the Related Person involved in a proposed Business Combination and was a member of the Board of Directors immediately prior to the time that the Related Person became a Related Person, and any successor of a Disinterested Director, while such successor is a member of the Board of Directors, who is not an Affiliate, Associate or a representative of the Related Person and is recommended or elected to succeed a Disinterested Director by the Board of Directors without counting the vote of any director who is not a Disinterested Director. (9) For the purposes of paragraph I(2)(i) of this Article NINTH, the term "other consideration to be received" shall include, without limitation, capital stock retained by the shareholders. (10) The term "Voting Stock" shall mean all of the outstanding shares of capital stock of the Company entitled to vote generally in the election of directors, and each reference to a proportion of shares of Voting Stock shall refer to such proportion of the votes entitled to be cast by such shares voting together as one class. (11) The term "Fair Market Value" means: (i) in case of capital stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for the New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such stock exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any successor system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined in good faith by the Board of Directors without counting the vote of any director who is not a Disinterested Director; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by the Board of Directors without counting the vote of any director who is not a Disinterested Director. (12) A Related Person shall be deemed to have acquired a share of Voting Stock at the time when such Related Person became the beneficial owner thereof. If the Board of Directors without counting the vote of any director who is not a Disinterested Director is not able to determine the price at which a Related Person has acquired a share of Voting Stock, such price shall be deemed to be the Fair Market Value of the shares in question at the time when the Related Person becomes the beneficial owner thereof. With respect to shares owned by Affiliates or other persons whose ownership is attributed to a Related Person under the foregoing definition of Related Person, the price deemed to be paid therefor by such Related Person shall be the price paid upon the acquisition thereof by such Affiliate, Associate or other person, or, if such price is not determinable by the Board of Directors without counting the vote of any director who is not a Disinterested Director, the Fair Market Value of the shares in question at the time when the Affiliate, Associate, or other such person became the beneficial owner thereof. III. The fact that any Business Combination complies with the provisions of paragraph I(2) of this Article NINTH shall not be construed to impose any fiduciary duty, obligation or responsibility on the Board of Directors, or any member thereof, to approve such Business Combination or recommend its adoption or approval to the shareholders of the Company, nor shall such compliance limit, prohibit or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such Business Combination. IV. The Board of Directors of the Company shall have the power and duty to determine for the purposes of this Article NINTH, on the basis of information known to them after reasonable inquiry and in accordance with the terms of this Article NINTH, whether a person is a Related Person and whether a director is a Disinterested Director. Once the Board of Directors has made a determination pursuant to the preceding sentence that a person is a Related Person, the Board of Directors of the Company, without counting the vote of any director who is not a Disinterested Director with respect to such Related Person, shall have the power and duty to interpret all of the terms and provisions of this Article NINTH and to determine on the basis of the information known to them after reasonable inquiry all facts necessary to ascertain compliance with this Article NINTH including, without limitation, (1) the number of shares of Voting Stock beneficially owned by any person, (2) whether a person is an Affiliate or Associate of another, (3) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Company or any Subsidiary of the Company in any Business Combination has, an aggregate Fair Market Value of $100 million or more, and (4) whether all of the applicable conditions set forth in paragraph I(2) of this Article NINTH have been met with respect to any Business Combination. Any determination pursuant to this Article NINTH made in good faith shall be binding and conclusive on all parties. V. The Directors of the Company, when evaluating any proposal or offer which would involve a Business Combination or the merger or consolidation of the Company or any of its Subsidiaries with another corporation, the sale of all or substantially all of the assets of the Company or any of its Subsidiaries, a tender offer or exchange offer for any capital stock of the Company or any of its Subsidiaries or any similar transaction shall give due consideration to all factors they may consider relevant. Such factors may include, without limitation, (a) the adequacy, both in amount and form, of the consideration offered in relation not only to the current market price of the Company's outstanding securities, but also the current value of the Company in a freely negotiated transaction with other potential acquirers and the Board's estimate of the Company's future value (including the unrealized value of its properties, assets and prospects) as an independent going concern, (b) the financial and managerial resources and future prospects of the acquirer, and (c) the legal, economic, environmental, regulatory and social effects of the proposed transaction on the Company's and its Subsidiaries' employees, customers, suppliers and other affected persons and entities and on the communities and geographic areas to which the Company and its subsidiaries provide utility service or are located, and in particular, the effect on the Company's ability to safely and reliably meet its public utility obligations at reasonable rates. VI. Nothing herein shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. VII. Notwithstanding any other provisions of these Articles of Incorporation or the Bylaws of the Company (and notwithstanding the fact that a lesser percentage may otherwise be specified by law, these Articles of Incorporation or the Bylaws), the affirmative vote of not less than seventy-five percent (75%) of the total voting power of all outstanding Voting Stock voting as a class shall be required to alter, amend or repeal or adopt any provisions inconsistent with the provisions set forth in this Article NINTH, provided, however, that this Article NINTH or any provision hereof may be altered, amended or repealed, or any inconsistent provision may be adopted, upon the affirmative vote of the holders of not less than a majority of the total voting power of all outstanding Voting Stock voting as a class, if such alteration, amendment or repeal, or if such adoption of any inconsistent provision, shall first have been approved and recommended by the Board of Directors without counting the vote of any director who is not a Disinterested Director. TENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 5% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 5% Redeemable First Preferred Stock which is attached hereto as Exhibit 1 is hereby incorporated by reference as Article TENTH of these Articles of Incorporation. ELEVENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 5% REDEEMABLE FIRST PREFERRED STOCK, SERIES A: The Certificate of Determination of Preferences of the 5% Redeemable First Preferred Stock, Series A, which is attached hereto as Exhibit 2 is hereby incorporated by reference as Article ELEVENTH of these Articles of Incorporation. TWELFTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 4.80% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 4.80% Redeemable First Preferred Stock which is attached hereto as Exhibit 3 is hereby incorporated by reference as Article TWELFTH of these Articles of Incorporation. THIRTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 4.50% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 4.50% Redeemable First Preferred Stock which is attached hereto as Exhibit 4 is hereby incorporated by reference as Article THIRTEENTH of these Articles of Incorporation. FOURTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 4.36% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 4.36% Redeemable First Preferred Stock which is attached hereto as Exhibit 5 is hereby incorporated by reference as Article FOURTEENTH of these Articles of Incorporation. FIFTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 7.84% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 7.84% Redeemable First Preferred Stock which is attached hereto as Exhibit 6 is hereby incorporated by reference as Article FIFTEENTH of these Articles of Incorporation. SIXTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 8% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 8% Redeemable First Preferred Stock which is attached hereto as Exhibit 7 is hereby incorporated by reference as Article SIXTEENTH of these Articles of Incorporation. SEVENTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 8.20% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 8.20% Redeemable First Preferred Stock which is attached hereto as Exhibit 8 is hereby incorporated by reference as Article SEVENTEENTH of these Articles of Incorporation. EIGHTEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 7.44% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 7.44% Redeemable First Preferred Stock which is attached hereto as Exhibit 9 is hereby incorporated by reference as Article EIGHTEENTH of these Articles of Incorporation. NINETEENTH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 6.57% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 6.57% Redeemable First Preferred Stock which is attached hereto as Exhibit 10 is hereby incorporated by reference as Article NINETEENTH of these Articles of Incorporation. TWENTIETH: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 7.04% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 7.04% Redeemable First Preferred Stock which is attached hereto as Exhibit 11 is hereby incorporated by reference as Article TWENTIETH of these Articles of Incorporation. TWENTY-FIRST: CERTIFICATE OF DETERMINATION OF PREFERENCES OF THE 6-7/8% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 6-7/8% Redeemable First Preferred Stock which is attached hereto as Exhibit 12 is hereby incorporated by reference as Article TWENTY- FIRST of these Articles of Incorporation. TWENTY-SECOND: CERTIFICATE OF DETERMINATION OF PREFER- ENCES OF THE 6.30% REDEEMABLE FIRST PREFERRED STOCK: The Certificate of Determination of Preferences of the 6.30% Redeemable First Preferred Stock which is attached hereto as Exhibit 13 is hereby incorporated by reference as Article TWENTY- SECOND of these Articles of Incorporation. 3. The foregoing amendments and restatement of the Articles of Incorporation of this corporation have been duly approved by the Executive Committee of the Board of Directors. 4. The foregoing amendments and restatement of the Articles of Incorporation were adopted to (i) eliminate Article Twenty-Sixth and Article Thirtieth which previously set forth the Certificates of Determination of Preferences of the 9% Redeemable $100 First Preferred Stock and the 10.17% Redeemable $100 First Preferred Stock, respectively, both of which were acquired in their entirety by this corporation on May 1, 1993 and August 15, 1993, respectively, and which cannot be reissued, as permitted by California Corporations Code Sections 202(e)(3) and 203.5(b); (ii) restate Article Tenth (attached hereto as Exhibit 1), Article Eleventh (attached hereto as Exhibit 2), Article Twelfth (attached hereto as Exhibit 3), Article Thirteenth (attached hereto as Exhibit 4), and Article Fourteenth (attached hereto as Exhibit 5) which set forth the Certificates of Determination of Preferences of the 5% Redeemable First Preferred Stock, the 5% Redeemable First Preferred Stock, Series A, the 4.80% Redeemable First Preferred Stock, the 4.50% Redeemable First Preferred Stock, and the 4.36% Redeemable First Preferred Stock, respectively, solely to (A) reflect the reduction in the authorized number of shares of each of those series upon filing of the Certificate of Decrease in Number of Shares of Certain Series of First Preferred Stock (the "Certificate of Decrease") on March 23, 1994 pursuant to California Corporations Code Section 401(c), (B) consolidate the existing Certificates of Determination of Preferences of each of the first four of those series into a single Certificate of Determination of Preferences of such series, and (C) eliminate from the respective Certificates of Determination of Preferences of all five of those series the portions of the officers' certificates and verifications which do not set forth any of the rights, preferences, privileges, or restrictions of such series; and (iii) eliminate Article Fifteenth, Article Sixteenth, Article Seventeenth, Article Twenty-First, Article Twenty- Second, Article Twenty-Third, Article Twenty-Fourth, Article Twenty-Fifth, Article Twenty-Seventh, Article Twenty-Eighth, and Article Twenty-Ninth which previ- ously set forth the Certificates of Determination of Preferences of the 9.28% Redeemable First Preferred Stock, 8.16% Redeemable First Preferred Stock, 9% Redeemable First Preferred Stock, 9.48% Redeemable First Preferred Stock, 10.46% Redeemable First Preferred Stock, 10.18% Redeemable First Preferred Stock, 9.30% Redeemable First Preferred Stock, 10.28% Redeemable First Preferred Stock, 12.80% Redeemable First Preferred Stock, 16.24% Redeemable First Preferred Stock, and 17.38% Redeemable First Preferred Stock, respectively, to reflect the reduction in the authorized number of shares of each of those series to zero upon filing of the Certificate of Decrease on March 23, 1994 pursuant to California Corporations Code Section 401(c) and the elimination of each of those series as an authorized series of the corporation pursuant to California Corporations Code Section 401(f); and (iv) restate Article Eighteenth (now renumbered as Article Fifteenth), Article Nineteenth (now renumbered as Article Sixteenth), Article Twentieth (now renumbered as Article Seventeenth), Article Thirty-First (now renumbered as Article Eighteenth), Article Thirty-Second (now renumbered as Article Nineteenth), the Certificate of Determination of Preferences of 7.04% Redeemable First Preferred Stock (now included as Article Twentieth), the Certificate of Determination of Preferences of 6-7/8% Redeemable First Preferred Stock (now included as Article Twenty-First), and the Certificate of Determination of Preferences of 6.30% Redeemable First Preferred Stock (now included as Article Twenty-Second) solely to eliminate from the respective Certificates of Determination of Preferences set forth in such Articles the portions of the officers' certificates and verifications which do not set forth any of the rights, preferences, privileges, or restrictions of the series of stock covered thereby. 5. Pursuant to California Corporations Code Sections 202(e)(3), 203.5(b), 401(c) and 401(f), amendments to the Articles of Incorporation for the foregoing purposes need not be approved by the affirmative vote of the majority of the outstanding shares; accordingly, the foregoing amendments and restatement may be adopted with approval of the Board of Directors alone. Pursuant to the Bylaws of this corporation, the Executive Committee of the Board of Directors, subject to the provisions of law, may exercise any of the powers and perform any of the duties of the Board of Directors; accordingly, the foregoing amendments and restatement may be adopted with approval of the Executive Committee of the Board of Directors alone. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: July 25, 1994 STANLEY T. SKINNER ------------------------------ STANLEY T. SKINNER President and Chief Executive Officer LESLIE H. EVERETT ------------------------------ LESLIE H. EVERETT Corporate Secretary EXHIBIT 1 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 5% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 5% Redeemable First Preferred Stock, $25 par value (herein called the "5% Series"); and WHEREAS, this corporation has elected to redeem, purchase, or otherwise acquire 1,082,805 shares of the 5% Series from time to time; and WHEREAS, pursuant to California Corporations Code Section 401(c), this corporation filed a Certificate of Decrease in Number of Shares of Certain Series of First Preferred Stock on March 23, 1994, which amended the Articles of Incorporation to decrease the number of shares constituting the 5% Series from 2,860,977 to 1,778,172 shares; and WHEREAS, pursuant to California Corporations Code Section 202(e)(3), the 1,082,805 shares constituting the decrease in the 5% Series resumed the status of authorized and unissued shares of First Preferred Stock, $25 par value; and WHEREAS, it is in the best interest of this corporation to restate the four existing Certificates of Determination of Preferences of the 5% Series to (i) reflect the reduction in the authorized number of shares of the 5% Series, (ii) consolidate such existing Certificates of Determination of Preferences into a single Certificate of Determination of Preferences of the 5% Series, and (iii) eliminate the portions of the officers' certificates and verifications which do not set forth any of the rights, preferences, privileges, or restrictions of the 5% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificates of Determination of Preferences of the 5% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 5% Series is hereby approved and adopted as restated in its entirety as follows: 1,778,172 shares of this corporation's unissued redeemable First Preferred Stock shall constitute a series designated "5% Redeemable First Preferred Stock"; the dividend rate of such shares shall be five per cent per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $28.25 per share if redeemed on or before July 31, 1953, $27.75 per share if redeemed thereafter and on or before July 31, 1958, $27.25 per share if redeemed thereafter and on or before July 31, 1963, and $26.75 per share if redeemed thereafter. EXHIBIT 2 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 5% REDEEMABLE FIRST PREFERRED STOCK, SERIES A WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 5% Redeemable First Preferred Stock, Series A, $25 par value (herein called the "5% Series A"); and WHEREAS, this corporation has elected to redeem, purchase, or otherwise acquire 815,678 shares of the 5% Series A from time to time; and WHEREAS, pursuant to California Corporations Code Section 401(c), this corporation filed a Certificate of Decrease in Number of Shares of Certain Series of First Preferred Stock on March 23, 1994, which amended the Articles of Incorporation to decrease the number of shares constituting the 5% Series A from 1,750,000 to 934,322 shares; and WHEREAS, pursuant to California Corporations Code Section 202(e)(3), the 815,678 shares constituting the decrease in the 5% Series A resumed the status of authorized and unissued shares of First Preferred Stock, $25 par value; and WHEREAS, it is in the best interest of this corporation to restate the two existing Certificates of Determination of Preferences of the 5% Series A to (i) reflect the reduction in the authorized number of shares of the 5% Series A, (ii) consolidate such existing Certificates of Determination of Preferences into a single Certificate of Determination of Preferences of the 5% Series A, and (iii) eliminate the portions of the officers'certificates and verifications which do not set forth any of the rights, preferences, privileges, or restrictions of the 5% Series A. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificates of Determination of Preferences of the 5% Series A is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 5% Series A is hereby approved and adopted as restated in its entirety as follows: 934,322 shares of this corporation's unissued redeemable First Preferred Stock shall constitute a series designated "5% Redeemable First Preferred Stock, Series A"; the dividend rate of such shares shall be five per cent per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $28.25 per share if redeemed on or before July 31, 1953, $27.75 per share if redeemed thereafter and on or before July 31, 1958, $27.25 per share if redeemed thereafter and on or before July 31, 1963, and $26.75 per share if redeemed thereafter. EXHIBIT 3 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 4.80% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 4.80% Redeemable First Preferred Stock, $25 par value (herein called the "4.80% Series"); and WHEREAS, this corporation has elected to redeem, purchase, or otherwise acquire 724,344 shares of the 4.80% Series from time to time; and WHEREAS, pursuant to California Corporations Code Section 401(c), this corporation filed a Certificate of Decrease in Number of Shares of Certain Series of First Preferred Stock on March 23, 1994, which amended the Articles of Incorporation to decrease the number of shares constituting the 4.80% Series from 1,517,375 to 793,031 shares; and WHEREAS, pursuant to California Corporations Code Section 202(e)(3), the 724,344 shares constituting the decrease in the 4.80% Series resumed the status of authorized and unissued shares of First Preferred Stock, $25 par value; and WHEREAS, it is in the best interest of this corporation to restate the two existing Certificates of Determination of Preferences of the 4.80% Series to (i) reflect the reduction in the authorized number of shares of the 4.80% Series, (ii) consolidate such existing Certificates of Determination of Preferences into a single Certificate of Determination of Preferences of the 4.80% Series, and (iii) eliminate the portions of the officers' certificates and verifications which do not set forth any of the rights, preferences, privileges, or restrictions of the 4.80% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificates of Determination of Preferences of the 4.80% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 4.80% Series is hereby approved and adopted as restated in its entirety as follows: 793,031 shares of this corporation's unissued redeemable First Preferred Stock shall constitute a series designated "4.80% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 4.80% per year; such shares shall have no conversion rights; and the redemption price for such shares shall be $28.75 per share if redeemed on or before January 31, 1955; $28.25 per share if redeemed thereafter and on or before January 31, 1960; $27.75 per share if redeemed thereafter and on or before January 31, 1965; and $27.25 per share if redeemed thereafter. EXHIBIT 4 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 4.50% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 4.50% Redeemable First Preferred Stock, $25 par value (herein called the "4.50% Series"); and WHEREAS, this corporation has elected to redeem, purchase, or otherwise acquire 516,284 shares of the 4.50% Series from time to time; and WHEREAS, pursuant to California Corporations Code Section 401(c), this corporation filed a Certificate of Decrease in Number of Shares of Certain Series of First Preferred Stock on March 23, 1994, which amended the Articles of Incorporation to decrease the number of shares constituting the 4.50% Series from 1,127,426 to 611,142 shares; and WHEREAS, pursuant to California Corporations Code Section 202(e)(3), the 516,284 shares constituting the decrease in the 4.50% Series resumed the status of authorized and unissued shares of First Preferred Stock, $25 par value; and WHEREAS, it is in the best interest of this corporation to restate the two existing Certificates of Determination of Preferences of the 4.50% Series to (i) reflect the reduction in the authorized number of shares of the 4.50% Series, (ii) consolidate such existing Certificates of Determination of Preferences into a single Certificate of Determination of Preferences of the 4.50% Series, and (iii) eliminate the portions of the officers' certificates and verifications which do not set forth any of the rights, preferences, privileges, or restrictions of the 4.50% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificates of Determination of Preferences of the 4.50% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 4.50% Series is hereby approved and adopted as restated in its entirety as follows: 611,142 shares of this corporation's unissued redeemable first preferred stock shall constitute a series designated "4.50% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 4.50% per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $27.25 per share if redeemed on or before July 31, 1959; $26.75 per share if redeemed thereafter and on or before July 31, 1964; $26.25 per share if redeemed thereafter and on or before July 31, 1969; and $26.00 per share if redeemed thereafter. EXHIBIT 5 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 4.36% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 4.36% Redeemable First Preferred Stock, $25 par value (herein called the "4.36% Series"); and WHEREAS, this corporation has elected to redeem, purchase or otherwise acquire 581,709 shares of the 4.36% Series from time to time; and WHEREAS, pursuant to California Corporations Code Section 401(c), this corporation filed a Certificate of Decrease in Number of Shares of Certain Series of First Preferred Stock on March 23, 1994, which amended the Articles of Incorporation to decrease the number of shares constituting the 4.36% Series from 1,000,000 to 418,291 shares; and WHEREAS, pursuant to California Corporations Code Section 202(e)(3), the 581,709 shares constituting the decrease in the 4.36% Series resumed the status of authorized and unissued shares of First Preferred Stock, $25 par value; and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 4.36% Series to (i) reflect the reduction in the authorized number of shares of the 4.36% Series and (ii) eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 4.36% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 4.36% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 4.36% Series is hereby approved and adopted as restated in its entirety as follows: 418,291 shares of this corporation's unissued Redeemable First Preferred Stock shall constitute a series designated "4.36% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 4.36% per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $26.75 per share if redeemed on or before October 31, 1960; $26.50 per share if redeemed thereafter and on or before October 31, 1965; $26.25 per share if redeemed thereafter and on or before October 31, 1970; $26.00 per share if redeemed thereafter and on or before October 31, 1975; and $25.75 per share if redeemed thereafter. EXHIBIT 6 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 7.84% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 7.84% Redeemable First Preferred Stock, $25 par value (herein called the "7.84% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 7.84% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 7.84% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 7.84% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 7.84% Series is hereby approved and adopted as restated in its entirety as follows: 2,000,000 shares of this corporation's unissued Redeemable First Preferred Stock shall constitute a series designated "7.84% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 7.84% of the par value per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $29.50 per share if redeemed on or before April 30, 1977; $29.00 per share if redeemed thereafter and on or before April 30, 1982; $28.40 per share if redeemed thereafter and on or before April 30, 1987; and $27.80 per share if redeemed thereafter; provided, that none of such shares shall be redeemed prior to May 1, 1977 for the purpose or in anticipation of refunding any such shares through the issuance of common stock or through the use of borrowed funds or of proceeds raised from the issue of any other security if the effective cost of money to the Company of such borrowing or other security issue (computed in accordance with generally accepted financial practice) is below 7.26% per annum. EXHIBIT 7 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 8% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 8% Redeemable First Preferred Stock, $25 par value (herein called the "8% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 8% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 8% series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 8% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 8% Series is hereby approved and adopted as restated in its entirety as follows: 2,000,000 shares of this corporation's unissued Redeemable First Preferred Stock shall constitute a series designated "8% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 8% of the par value per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $30.00 per share if redeemed on or before January 31, 1978; $29.375 per share if redeemed thereafter and on or before January 31, 1983; $28.75 per share if redeemed thereafter and on or before January 31, 1988; and $28.125 per share if redeemed thereafter; provided, that none of such shares shall be redeemed prior to February 1, 1978 for the purpose or in anticipation of refunding any such shares through the issuance of common stock or through the use of borrowed funds or of proceeds raised from the issue of any other security if the effective cost of money to the Company of such borrowing or other security issue (computed in accordance with generally accepted financial practice) is below 7.311% per annum. EXHIBIT 8 PACIFIC GAS AND ELECTRIC COMPANY CERTIFICATE OF DETERMINATION OF PREFERENCES OF 8.20% REDEEMABLE FIRST PREFERRED STOCK WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 8.20% Redeemable First Preferred Stock, $25 par value (herein called the "8.20% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 8.20% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 8.20% Series. NOW, THEREFORE BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 8.20% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 8.20% Series is hereby approved and adopted as restated in its entirety as follows: 2,000,000 shares of this corporation's unissued Redeemable First Preferred Stock shall constitute a series designated "8.20% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 8.20% of the par value per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $30.00 per share if redeemed on or before October 31, 1978; $29.375 per share if redeemed thereafter and on or before October 31, 1983; $28.75 per share if redeemed thereafter and on or before October 31, 1988; and $28.125 per share if redeemed thereafter; provided, that none of such shares shall be redeemed prior to November 1, 1978 for the purpose or in anticipation of refunding any such shares through the issuance of common stock or through the use of borrowed funds or of proceeds raised from the issue of any other security if the effective cost of money to the Company of such borrowing or other security issue (computed in accordance with generally accepted financial practice) is below 7.494% per annum. EXHIBIT 9 CERTIFICATE OF DETERMINATION OF PREFERENCES OF 7.44% REDEEMABLE FIRST PREFERRED STOCK OF PACIFIC GAS AND ELECTRIC COMPANY WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 7.44% Redeemable First Preferred Stock, $25 par value (herein called the "7.44% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 7.44% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 7.44% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 7.44% Series is hereby approved; and BE IT FURTHER RESOLVED, that the Certificate of Determination of Preferences of the 7.44% Series is hereby approved and adopted as restated in its entirety as follows: 5,000,000 shares of this corporation's unissued First Preferred Stock, $25 par value, shall constitute a series designated "7.44% Redeemable First Preferred Stock"; the dividend rate of such shares shall be 7.44% of the par value per year; such shares shall have no conversion rights; and the redemption price of such shares shall be $25.00, provided that none of such shares shall be redeemed prior to August 1, 1997, for any purpose. EXHIBIT 10 CERTIFICATE OF DETERMINATION OF PREFERENCES OF 6.57% REDEEMABLE FIRST PREFERRED STOCK OF PACIFIC GAS AND ELECTRIC COMPANY WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 6.57% Redeemable First Preferred Stock, $25 par value (herein called the "6.57% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 6.57% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 6.57% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 6.57% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 6.57% Series is hereby approved and adopted as restated in its entirety as follows: 3,000,000 shares of this corporation's unissued First Preferred Stock, $25 par value, shall constitute a series designated "6.57% Redeemable First Preferred Stock" (hereinafter referred to as the "6.57% Series"). The terms of the 6.57% Series are hereby fixed as follows: (a) The holders of shares of the 6.57% Series shall be entitled to receive, when and as declared by the Board of Directors, dividends at the rate of 6.57 percent of par value thereof per annum, and no more. Such dividends shall be cumulative with respect to each share from the date of issuance thereof. (b) No dividend shall be declared or paid on any shares of the 6.57% Series or on any shares of any other series or class of preferred stock unless a ratable dividend on the 6.57% Series and such other series or class of preferred stock, in proportion to the full preferential amounts to which each series or class is entitled, is declared and is paid or set apart for payment. As used herein, the term "preferred stock" shall mean all series of the first preferred stock, $25 par value per share, and first preferred stock, $100 par value per share, and any other class of stock ranking equally with the preferred stock as to preference in dividends and liquidation rights, notwithstanding that shares of such series and classes may differ as to the amounts of dividends or liquidation payments to which they are entitled. (c) No junior shares or shares of preferred stock shall be purchased, redeemed or otherwise acquired by the corporation, and no moneys shall be paid to or set aside or made available for a sinking fund for the purchase or redemption of junior shares or shares of preferred stock, unless full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set aside for payment. As used herein, the term "junior shares" shall mean common shares or any other shares ranking junior to the preferred stock either as to dividends or upon liquidation, dissolution, or winding up. (d) The shares of the 6.57% Series shall not be subject to redemption by this corporation prior to July 31, 2002. On or after July 31, 2002, the redemption price shall be $25.00 per share, together with an amount equal to all accumulated and unpaid dividends thereon to and including the date of redemption. (e) Shares of the 6.57% Series shall also be subject to redemption through the operation of a sinking fund (herein called the "Sinking Fund") at the redemption price (the "Sinking Fund Redemption Price") of $25.00 per share plus an amount equal to the accumulated and unpaid dividends thereon to and including the redemption date, whether or not earned or declared. For the purposes of the Sinking Fund, out of any funds of the corporation legally available therefor remaining after full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set apart for payment, the corporation shall redeem 150,000 shares of the 6.57% Series annually on each July 31, from 2002 through 2006, inclusive, and 2,250,000 shares on July 31, 2007, at the Sinking Fund Redemption Price. The Sinking Fund shall be cumulative so that if on any such July 31 the funds of the corporation legally available therefor shall be insufficient to permit the required redemption in full, or if for any other reason such redemption shall not have been made in full, the remaining shares of the 6.57% Series so required to be redeemed shall be redeemed before any cash dividend shall be paid or declared, or any distribution made, on any junior shares or before any junior shares or any shares of preferred stock shall be purchased, redeemed or otherwise acquired by the corporation, or any monies shall be paid to or set aside or made available for a sinking fund for the purchase or redemption or any junior shares or any shares of preferred stock; provided, however, that, notwithstanding the existence of any such deficiency, the corporation may make any required sinking fund redemption on any other series or class of preferred stock if the number of shares of such other series or class of preferred stock being so redeemed bears (as nearly as practicable) the same ratio to the aggregate number of shares of such other series or class then due to be redeemed as the number of shares of the 6.57% Series being redeemed bears to the aggregate number of shares of the 6.57% Series then due to be redeemed. (f) Shares of the 6.57% Series redeemed otherwise than as required by section (e) or purchased or otherwise acquired by the corporation may, at the option of the corporation, be applied as a credit against any Sinking Fund redemption required by section (e). Moneys available for the Sinking Fund shall be applied on each such July 31 to the redemption of shares of the 6.57% Series. (g) Any shares of the 6.57% Series which have been redeemed, purchased, or otherwise acquired by the corporation shall become authorized and unissued shares of the First Preferred Stock, $25 par value, but shall not be reissued as shares of the 6.57% Series. (h) Upon liquidation, dissolution, or winding up of the corporation, the holders of shares of the 6.57% Series shall be entitled to receive the liquidation value per share, which is hereby fixed at $25.00 per share, plus an amount equal to all accumulated and unpaid dividends thereon at such time, whether or not earned or declared. (i) Dividends shall be computed on a basis of a 360-day year of twelve 30-day months. (j) If the date for payment of any dividend or the date fixed for redemption of any share of the 6.57% Series shall not be on a business day, then payment of the dividend or applicable redemption price need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if made on the date for payment of such dividend or date fixed for redemption. EXHIBIT 11 CERTIFICATE OF DETERMINATION OF PREFERENCES OF 7.04% REDEEMABLE FIRST PREFERRED STOCK OF PACIFIC GAS AND ELECTRIC COMPANY WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 7.04% Redeemable First Preferred Stock, $25 par value (herein called the "7.04% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 7.04% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 7.04% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 7.04% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 7.04% Series is hereby approved and adopted as restated in its entirety as follows: 3,000,000 shares of this corporation's unissued First Preferred Stock, $25 par value, shall constitute a series designated "7.04% Redeemable First Preferred Stock" (hereinafter referred to as the "7.04% Series"). The terms of the 7.04% Series are hereby fixed as follows: (a) The holders of shares of the 7.04% Series shall be entitled to receive, when and as declared by the Board of Directors, dividends at the rate of 7.04 percent of par value thereof per annum, and no more. Such dividends shall be cumulative with respect to each share from the date of issuance thereof. (b) No dividend shall be declared or paid on any shares of the 7.04% Series or on any shares of any other series or class of preferred stock unless a ratable dividend on the 7.04% Series and such other series or class of preferred stock, in proportion to the full preferential amounts to which each series or class is entitled, is declared and is paid or set apart for payment. As used herein, the term "preferred stock" shall mean all series of the first preferred stock, $25 par value per share, and first preferred stock, $100 par value per share, and any other class of stock ranking equally with the preferred stock as to preference in dividends and liquidation rights, notwithstanding that shares of such series and classes may differ as to amounts of dividends or liquidation payments to which they are entitled. (c) No junior shares or shares of preferred stock shall be purchased, redeemed, or otherwise acquired by the corporation, and no moneys shall be paid to or set aside or made available for a sinking fund for the purchase or redemption of junior shares or shares of preferred stock, unless full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set aside for payment. As used herein, the term "junior shares" shall mean common shares or any other shares ranking junior to the preferred stock either as to dividends or upon liquidation, dissolution, or winding up. (d) The shares of the 7.04% Series shall not be subject to redemption by this corporation prior to January 31, 2003. On and after January 31, 2003, the redemption price shall be as follows: If redeemed during the 12 months' period beginning January 31, 2003 $25.88 2008 $25.44 2004 $25.79 2009 $25.35 2005 $25.70 2010 $25.26 2006 $25.62 2011 $25.18 2007 $25.53 2012 $25.09 and at $25.00 per share on and after January 31, 2013, together in each case with an amount equal to all accumulated and unpaid dividends thereon to and in- cluding the date of redemption. For the purpose of redeeming any shares of the 7.04% Series, payment of the redemption price shall be out of any funds of the corporation legally available therefor remaining after: (i) full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set apart for payment, and (ii) all money shall have been paid to or set aside or made available for any sinking fund for the purchase or redemption of all series of and classes of preferred stock as may be required by the terms of such preferred stock. (e) Any shares of the 7.04% Series which have been redeemed, purchased, or otherwise acquired by the corporation shall become authorized and unissued shares of the First Preferred Stock, $25 par value, but shall not be reissued as shares of the 7.04% Series. (f) Upon liquidation, dissolution, or winding up of the corporation, the holders of shares of the 7.04% Series shall be entitled to receive the liquidation value per share, which is hereby fixed at $25.00 per share, plus an amount equal to all accumulated and unpaid dividends thereon at such time, whether or not earned or declared. (g) Dividends shall be computed on a basis of a 360-day year of twelve 30-day months. (h) If the date for payment of any dividend or the date fixed for redemption of any share of the 7.04% Series shall not be a business day, then payment of the dividend or applicable redemption price need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if made on the date for payment of such dividend or date fixed for redemption. EXHIBIT 12 CERTIFICATE OF DETERMINATION OF PREFERENCES OF 6-7/8% REDEEMABLE FIRST PREFERRED STOCK OF PACIFIC GAS AND ELECTRIC COMPANY WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 6-7/8% Redeemable First Preferred Stock, $25 par value (herein called the "6-7/8% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 6- 7/8% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 6-7/8% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 6-7/8% Series is hereby approved; and BE IT FURTHER RESOLVED that the Certificate of Determination of Preferences of the 6-7/8% Series is hereby approved and adopted as restated in its entirety as follows: 5,000,000 shares of this corporation's unissued Redeemable First Preferred Stock, $25 par value, shall constitute a series designated "6-7/8% Redeemable First Preferred Stock" (hereinafter referred to as the "6-7/8% Series"). The terms of the 6-7/8% Series are hereby fixed as follows: (a) The holders of shares of the 6-7/8% Series shall be entitled to receive, when and as declared by the Board of Directors, dividends at the rate of 6-7/8 percent of par value thereof per annum, and no more. Such dividends shall be cumulative with respect to each share from the date of issuance thereof. (b) No dividend shall be declared or paid on any shares of the 6-7/8% Series or on any shares of any other series or class of preferred stock unless a ratable dividend on the 6-7/8% Series and such other series or class of preferred stock, in proportion to the full preferential amounts to which each series or class is entitled, is declared and is paid or set apart for payment. As used herein, the term "preferred stock" shall mean all series of the first preferred stock, $25 par value per share, and first preferred stock, $100 par value per share, and any other class of stock ranking equally with the preferred stock as to preference in dividends and liquidation rights, notwithstanding that shares of such series and classes may differ as to amounts of dividends or liquidation payments to which they are entitled. (c) No junior shares or shares of preferred stock shall be purchased, redeemed, or otherwise acquired by the corporation, and no moneys shall be paid to or set aside or made available for a sinking fund for the purchase or redemption of junior shares or shares of preferred stock, unless full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set aside for payment. As used herein, the term "junior shares" shall mean common shares or any other shares ranking junior to the preferred stock either as to dividends or upon liquidation, dissolution, or winding up. (d) The shares of the 6-7/8% Series shall not be subject to redemption by this corporation prior to July 31, 1998. On and after July 31, 1998, the redemption price shall be $25.00 per share, together with an amount equal to all accumulated and unpaid dividends thereon to and including the date of redemption. For the purpose of redeeming any shares of the 6-7/8% Series, payment of the redemption price shall be out of any funds of the corporation legally available therefor remaining after: (i) full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set apart for payment, and (ii) all money shall have been paid to or set aside or made available for any sinking fund for the purchase or redemption of all series of and classes of preferred stock as may be required by the terms of such preferred stock. (e) Any shares of the 6-7/8% Series which have been redeemed, purchased, or otherwise acquired by the corporation shall become authorized and unissued shares of the First Preferred Stock, $25 par value, but shall not be reissued as shares of the 6-7/8% Series. (f) Upon liquidation, dissolution, or winding up of the corporation, the holders of shares of the 6-7/8% Series shall be entitled to receive the liquidation value per share, which is hereby fixed at $25.00 per share, plus an amount equal to all accumulated and unpaid dividends thereon at such time, whether or not earned or declared. (g) Dividends shall be computed on a basis of a 360-day year of twelve 30-day months. (h) If the date for payment of any dividend or the date fixed for redemption of any share of the 6-7/8% Series shall not be a business day, then payment of the dividend or applicable redemption price need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if made on the date for payment of such dividend or date fixed for redemption. EXHIBIT 13 CERTIFICATE OF DETERMINATION OF PREFERENCES OF 6.30% REDEEMABLE FIRST PREFERRED STOCK OF PACIFIC GAS AND ELECTRIC COMPANY WHEREAS, the Articles of Incorporation of this corporation provide for a class of stock known as First Preferred Stock, issuable from time to time in one or more series, of which a series of such class of stock was issued as the 6.30% Redeemable First Preferred Stock, $25 par value (herein called the "6.30% Series"); and WHEREAS, it is in the best interest of this corporation to restate the Certificate of Determination of Preferences of the 6.30% Series to eliminate the portions of the officers' certificate and verification which do not set forth any of the rights, preferences, privileges, or restrictions of the 6.30% Series. NOW, THEREFORE, BE IT RESOLVED that the foregoing restatement of the Certificate of Determination of Preferences of the 6.30% Series is hereby approved; and BE IT FURTHER RESOLVED, that the Certificate of Determination of Preferences of the 6.30% Series is hereby approved and adopted as restated in its entirety as follows: 2,500,000 shares of this corporation's unissued Redeemable First Preferred Stock, $25 par value, shall constitute a series designated "6.30% Redeemable First Preferred Stock" (hereinafter referred to as the "6.30% Series"). The terms of the 6.30% Series are hereby fixed as follows: (a) The holders of shares of the 6.30% Series shall be entitled to receive, when and as declared by the Board of Directors, dividends at the rate of 6.30 percent of par value thereof per annum, and no more. Such dividends shall be cumulative with respect to each share from the date of issuance thereof. (b) No dividend shall be declared or paid on any shares of the 6.30% Series or on any shares of any other series or class of preferred stock unless a ratable dividend on the 6.30% Series and such other series or class of preferred stock, in proportion to the full preferential amounts to which each series or class is entitled, is declared and is paid or set apart for payment. As used herein, the term "preferred stock" shall mean all series of the first preferred stock, $25 par value per share, and first preferred stock, $100 par value per share, and any other class of stock ranking equally with the preferred stock as to preference in dividends and liquidation rights, notwithstanding that shares of such series and classes may differ as to amounts of dividends or liquidation payments to which they are entitled. (c) No junior shares or shares of preferred stock shall be purchased, redeemed, or otherwise acquired by the corporation, and no moneys shall be paid to or set aside or made available for a sinking fund for the purchase or redemption of junior shares or shares of preferred stock, unless full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set aside for payment. As used herein, the term "junior shares" shall mean common shares or any other shares ranking junior to the preferred stock either as to dividends or upon liquidation, dissolution, or winding up. (d) The shares of the 6.30% Series shall not be subject to redemption by this corporation prior to January 31, 2004. On and after January 31, 2004, the redemption price shall be $25.00 per share, together with an amount equal to all accumulated and unpaid dividends thereon to and including the date of redemption. For the purpose of redeeming any shares of the 6.30% Series, payment of the redemption price shall be out of any funds of the corporation legally available therefor remaining after: (i) full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set apart for payment, and (ii) all money shall have been paid to or set aside or made available for any sinking fund for the purchase or redemption of all series of and classes of preferred stock as may be required by the terms of such preferred stock. (e) Shares of the 6.30% Series shall also be subject to redemption through the operation of a sinking fund (herein called the "Sinking Fund") at the redemption price (the "Sinking Fund Redemption Price") of $25.00 per share plus an amount equal to the accumulated and unpaid dividends thereon to and including the redemption date, whether or not earned or declared. For the purposes of the Sinking Fund, out of any funds of the corporation legally available therefor remaining after full cumulative dividends upon all series and classes of preferred stock then outstanding to the end of the dividend period next preceding the date fixed for such redemption (and for the current dividend period if the date fixed for such redemption is a dividend payment date) shall have been declared and shall have been paid or set apart for payment, the corporation shall redeem 125,000 shares of the 6.30% Series annually on each January 31, from 2004 through 2008, inclusive, and 1,875,000 shares on January 31, 2009, at the Sinking Fund Redemption Price. The Sinking Fund shall be cumulative so that if on any such January 31 the funds of the corporation legally available therefor shall be insufficient to permit the required redemption in full, or if for any other reason such redemption shall not have been made in full, the remaining shares of the 6.30% Series so required to be redeemed shall be redeemed before any cash dividend shall be paid or declared, or any distribution made, on any junior shares or before any junior shares or any shares of preferred stock shall be purchased, redeemed or otherwise acquired by the corporation, or any moneys shall be paid to or set aside or made available for a sinking fund for the purchase or redemption of any junior shares or any shares of preferred stock; provided, however, that, notwithstanding the existence of any such deficiency, the corporation may make any required sinking fund redemption on any other series or class of preferred stock if the number of shares of such other series or class of preferred stock being so redeemed bears (as nearly as practicable) the same ratio to the aggregate number of shares of such other series or class then due to be redeemed as the number of shares of the 6.30% Series being redeemed bears to the aggregate number of shares of the 6.30% Series then due to be redeemed. (f) Shares of the 6.30% Series redeemed otherwise than as required by section (e) or purchased or otherwise acquired by the corporation may, at the option of the corporation, be applied as a credit against any Sinking Fund redemption required by section (e). Moneys available for the Sinking Fund shall be applied on each such January 31 to the redemption of shares of the 6.30% Series. (g) Any shares of the 6.30% Series which have been redeemed, purchased, or otherwise acquired by the corporation shall become authorized and unissued shares of the First Preferred Stock, $25 par value, but shall not be reissued as shares of the 6.30% Series. (h) Upon liquidation, dissolution, or winding up of the corporation, the holders of shares of the 6.30% Series shall be entitled to receive the liquidation value per share, which is hereby fixed at $25.00 per share, plus an amount equal to all accumulated and unpaid dividends thereon at such time, whether or not earned or declared. (i) Dividends shall be computed on a basis of a 360-day year of twelve 30-day months. (j) If the date for payment of any dividend or the date fixed for redemption of any share of the 6.30% Series shall not be a business day, then payment of the dividend or applicable redemption price need not be made on such date, but may be made on the next succeeding business day with the same force and effect as if made on the date for payment of such dividend or date fixed for redemption. EX-10 3 Exhibit 10 AGREEMENT AND RELEASE This Agreement and Release is made and entered into between JERRY R. McLEOD (Mr. McLeod) and the PACIFIC GAS AND ELECTRIC COMPANY (PG&E). Mr. McLeod and PG&E (collectively referred to as "the parties"), in their wish to compromise, resolve, settle, and terminate any dispute or claim between them with respect to Mr. McLeod's employment with PG&E, his position as an officer of PG&E, and his positions as officer and director of any of PG&E's subsidiaries and affiliated companies; and his resignation from those positions, have agreed as follows: 1. Effective close of business, June 30, 1994, Mr. McLeod shall voluntarily resign from his employment with PG&E; his position as Executive Vice President of PG&E; and his officer and director positions with all of PG&E's subsidiaries and affiliated companies. 2. PG&E shall provide Mr. McLeod executive outplacement services through one of the firms providing such services under contract with PG&E. To access outplacement services, Mr. McLeod shall contact PG&E's Vice President - Human Resources. Mr. McLeod agrees that he must access the services provided him under this paragraph within one year from the effective date of this Agreement and Release and that his failure to do so within the one-year period terminates PG&E's obligation to provide the specified services. 3. PG&E shall pay Mr. McLeod the amount of One Million Ninety- Seven Thousand Dollars ($1,097,000.00), less applicable deductions, in the following manner: a. in three installments; the first to be made on July 8, 1994, the second to be made on January 13, 1995, and the third to be made on January 12, 1996; b. the amount of each of the three installments shall be designated in writing by Mr. McLeod on or before the effective date of this Agreement and Release; and c. until paid, the amount PG&E owes to Mr. McLeod under this paragraph shall accrue interest at the Moody's AA Utility Bond rate applicable to PG&E Officers Deferred Compensation Program, compounded on a quarterly basis. The payment which PG&E shall make to Mr. McLeod under this Agreement and Release shall not be considered covered compensation under any compensation, incentive pay, retirement, or other benefit plan in which Mr. McLeod is a participant. 4. All performance unit and stock option grants which Mr. McLeod has received under PG&E's Performance Unit Plan and PG&E's Stock Option Plan shall be governed by, and exercised in accordance with, the general provisions of the respective plans. 5. The parties understand and agree that Mr. McLeod shall not participate in PG&E's 1994 Performance Incentive Plan. 6. Mr. McLeod shall be entitled to an additional 17 years and 6 months of credited service for pension benefits, provided, however, that any increased pension benefit entitlement attributable to said 17 years and 6 months shall be paid and payable only from the Supplemental Executive Retirement Plan. 7. a. PG&E shall continue to provide Mr. McLeod the legal services and indemnification protection to which he is currently entitled as an officer on all pending legal proceedings in which he is a party and all future legal proceedings in which he is sued for conduct in which he engaged as a PG&E officer under the same terms and conditions pertaining to legal services and indemnification protection provided to PG&E officers. b. Mr. McLeod shall make himself reasonably available to assist PG&E on any pending or future legal proceeding involving issues on which he worked or acquired relevant information as a PG&E officer. 8. This Agreement and Release shall not affect, and the payment and other consideration due Mr. McLeod under this Agreement and Release are in addition to any compensation or benefits to which Mr. McLeod may be otherwise entitled under PG&E's employee programs, including vacation, perquisites, deferred compensation, retirement, health care insurance, and post- retirement life insurance plans. 9. In consideration for the benefits which PG&E shall provide to Mr. McLeod under this Agreement and Release and which exceed Mr. McLeod's entitlement under PG&E's employee benefit programs, Mr. McLeod, in behalf of himself, his heirs, estate, executors, administrators, successors, and assigns, releases and agrees to hold harmless PG&E, its officers, directors, attorneys, agents, employees, assigns, subsidiaries, affiliated companies, and successors, from all actions, causes of action, claims, disputes, judgments, obligations, damages, liabilities of whatsoever kind and character, relating to Mr. McLeod's employment with PG&E, including his employment severance and any action which led to the severance. In particular, Mr. McLeod understands and agrees that the actions, causes of action, claims, disputes, judgments, obligations, damages, and liabilities covered by the preceding sentence include, but are not limited to, those arising under any federal, state, or local law, regulation, or order relating to civil rights (including employment discrimination on the basis of race, color, religion, age, sex, national origin, ancestry, physical handicap, medical condition, veteran status, marital status, and sexual orientation), wage and hour, labor, contract, or tort. 10. Mr. McLeod understands and agrees that this Agreement and Release extends to all claims of every nature and kind whatsoever, known or unknown, suspected or unsuspected, past or present, and all rights under Section 1542 of the California Civil Code are hereby expressly waived. Such section reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known to him must have materially affected his settlement with the debtor. 11. Mr. McLeod agrees not to sue PG&E or its subsidiaries or affiliated companies, or to participate or aid in any way in any suit or proceeding (or to execute, seek to impose, collect or recover upon, or otherwise enforce or accept by judgment, decision, award, warrant, or attachment) upon any claim released by him under paragraphs 9 and 10, unless compelled by law or by an order of a court of competent jurisdiction. 12. Mr. McLeod agrees not to disclose, publicize, or circulate information concerning the terms and conditions of this Agreement and Release unless required by law, by court or government agency order, or by his bona fide need to obtain legal and/or financial consulting services. Notwithstanding the preceding sentence, Mr. McLeod may disclose the terms and conditions of this Agreement and Release to his immediate family members, provided that Mr. McLeod instructs each affected family member that he or she may not make any other disclosure of the terms and conditions of this Agreement and Release. Mr. McLeod further agrees that his material violation of this paragraph shall constitute a material breach of this Agreement and Release. 13. Mr. McLeod agrees not to use, disclose, publicize, or circulate after his June 30, 1994, resignation, any confidential or proprietary information concerning PG&E or its subsidiaries or affiliated companies, which has come to his attention during his employment with PG&E, unless authorized in writing by PG&E, or unless required by law. Before making any legally-required disclosure, Mr. McLeod shall give PG&E as much advance notice as possible. Mr. McLeod further agrees that his material violation of this paragraph shall constitute a material breach of this Agreement and Release. 14. Mr. McLeod agrees not to engage in unfair competition with PG&E or its subsidiaries or affiliated companies. For purposes of this Agreement and Release, unfair competition shall include, but not be limited to, all judicially recognized post employment restrictions consistent with section 16600 of the Business and Professions Code. In particular, Mr. McLeod acknowledges that his use, disclosure, publication, or circulation of confidential or propriety information concerning PG&E, or its subsidiaries or affiliated companies, either directly or indirectly, in self-employment, or in employment or consulting with any entity, shall constitute unfair competition. In addition, Mr. McLeod agrees that this paragraph shall in no way modify the post employment obligations of Mr. McLeod, as set forth in Standard Practice 753-1 and its supplement. Standard Practice 753-1 and its supplement are attached to this Agreement and Release as Exhibit A and are incorporated by reference herein. Mr. McLeod further agrees that his violation of this paragraph shall constitute a material breach of this Agreement and Release. 15. Mr. McLeod agrees that, if he engages in a material breach of this Agreement and Release, he shall repay to PG&E the payment he received under this Agreement and Release and all monetary benefits he gained as a result of the additional credited service he received under this Agreement and Release within seven (7) calendar days upon written demand by PG&E. Also, Mr. McLeod agrees, in the event of a material breach by him, his pension benefit entitlement shall be re-computed without the additional credited service he received under this Agreement and Release. Mr. McLeod further agrees that, if he disavows this Agreement and Release and if this Agreement and Release is ordered to be unenforceable by a tribunal of competent jurisdiction, he shall repay to PG&E the payment he received under this Agreement and Release and all monetary benefits he gained as a result of the additional credited service he received under this Agreement and Release within seven (7) calendar days from the entry of the final order. Mr. McLeod further understands and agrees that, if a tribunal of competent jurisdiction rejects his attempt to disavow this Agreement and Release, he shall pay to PG&E within seven (7) calendar days from the entry of the final order any loss, cost, damage, or expense, including, without limitation, attorney's fees PG&E incurred in enforcing the Agreement and Release. 16. This Agreement and Release shall not be considered an admission of liability or of a violation of any applicable contract, law, rule, regulation, or order of any kind. 17. Mr. McLeod understands and agrees that all claims arising under the Age Discrimination in Employment Act he may have up to the date of this Agreement and Release are covered by paragraphs 9 and 10 of this Agreement and Release and that his waiver of those age discrimination claims is an integral and material part of the release aspect of this agreement. Therefore, consistent with the Older Workers Benefit Protection Act, Mr. McLeod states that he was given this Agreement and Release on May 12, 1994, and understands that he has up to 21 calendar days from May 12, 1994 (until June 2, 1994), to consider this Agreement and Release. Further, Mr. McLeod understands that, if he signs this Agreement and Release, he may revoke it within seven (7) calendar days of the agreement's execution. To revoke this Agreement and Release, Mr. McLeod must submit to Stanley T. Skinner, President and Chief Operating Officer of PG&E a signed statement to that effect by close of business of the seventh (7th) day. Mr. McLeod understands and agrees that this Agreement and Release is not effective under the expiration of the seven-day revocation period. 18. This Agreement and Release sets forth the entire agreement among the parties and fully supersedes any and all prior agreements or understandings among the parties pertaining to the subject matter of this Agreement and Release. 19. If any provision of this Agreement and Release is determined to be invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement and Release and all other provisions shall remain in full force and effect. 20. The parties understand and agree that any controversy or claim arising out of or relating to this Agreement and Release, including its breach, termination or validity shall be settled in accordance with the Dispute Resolution procedures contained in Exhibit B to this Agreement and Release and incorporated by reference herein. 21. Mr. McLeod states that he has read and understands the contents of this Agreement and Release, that he has been afforded the opportunity to review this Agreement and Release with an attorney or other personal advisor of his choice, that he has not relied on any other oral or written representation not contained in this Agreement and Release, that he has signed it voluntarily, and that he understands that after signing this Agreement and Release he is bound by all of its provisions. PLEASE READ CAREFULLY. THIS AGREEMENT AND RELEASE INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. STANLEY T. SKINNER 5-18-94 PACIFIC GAS AND ELECTRIC COMPANY DATE JERRY R. McLEOD 5/18/94 JERRY R. McLEOD DATE EX-11 4 EXHIBIT 11 PACIFIC GAS AND ELECTRIC COMPANY COMPUTATION OF EARNINGS PER COMMON SHARE (unaudited)
- -------------------------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, -------------------- -------------------- (in thousands, except per share amounts) 1994 1993 1994 1993 - -------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE (EPS) AS SHOWN IN THE STATEMENT OF CONSOLIDATED INCOME Net income $241,365 $245,350 $478,317 $501,014 Less preferred dividends 14,362 16,633 28,820 33,393 Net income for calculating EPS for -------- -------- -------- -------- Statement of Consolidated Income $227,003 $228,717 $449,497 $467,621 ======== ======== ======== ======== Average common shares outstanding 429,762 430,639 429,150 429,539 ======== ======== ======== ======== EPS as shown in the Statement of Consolidated Income $ .53 $ .53 $ 1.05 $ 1.09 ======== ======== ======== ======== PRIMARY EPS (1) Net income $241,365 $245,350 $478,317 $501,014 Less preferred dividends 14,362 16,633 28,820 33,393 -------- -------- -------- -------- Net income for calculating primary EPS $227,003 $228,717 $449,497 $467,621 ======== ======== ======== ======== Average common shares outstanding 429,762 430,639 429,150 429,539 Add exercise of options, reduced by the number of shares that could have been purchased with the proceeds from such exercise (at average market price) 520 1,318 626 1,361 -------- -------- -------- -------- Average common shares outstanding as adjusted 430,282 431,957 429,776 430,900 ======== ======== ======== ======== Primary EPS $ .53 $ .53 $ 1.05 $ 1.09 ======== ======== ======== ======== FULLY DILUTED EPS (1) Net income $241,365 $245,350 $478,317 $501,014 Less preferred dividends 14,362 16,633 28,820 33,393 -------- -------- -------- -------- Net income for calculating fully diluted EPS $227,003 $228,717 $449,497 $467,621 ======== ======== ======== ======== Average common shares outstanding 429,762 430,639 429,150 429,539 Add exercise of options, reduced by the number of shares that could have been purchased with the proceeds from such exercise (at the greater of average or ending market price) 520 1,318 626 1,361 -------- -------- -------- -------- Average common shares outstanding as adjusted 430,282 431,957 429,776 430,900 ======== ======== ======== ======== Fully diluted EPS $ .53 $ .53 $ 1.05 $ 1.09 ======== ======== ======== ======== - -------------------------------------------------------------------------------------------- (1) This presentation is submitted in accordance with Item 601(b)(11) of Regulation S-K. This presentation is not required by APB Opinion No. 15, because it results in dilution of less than 3%.
EX-12.1 5 EXHIBIT 12.1 PACIFIC GAS AND ELECTRIC COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
- --------------------------------------------------------------------------------------------------- Six Months Year ended December 31, Ended ---------------------------------------------------------- (dollars in thousands) June 30, 1994 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------- Earnings: Net income $ 478,317 $1,065,495 $1,170,581 $1,026,392 $ 987,170 $ 900,628 Company's equity in undistributed loss (earnings) of unconsolidated affiliates - - (3,349) 26,671 (2,799) (4,352) Income tax expense 404,879 901,890 895,126 851,534 881,647 669,885 Net fixed charges 355,690 730,708 758,333 760,957 788,889 821,982 -------- ---------- ---------- ---------- ---------- ---------- Total Earnings $1,238,886 $2,698,093 $2,820,691 $2,665,554 $2,654,907 $2,388,143 ========== ========== ========== ========== ========== ========== Fixed Charges: Interest on long- term debt $ 310,891 $ 642,408 $ 696,765 $ 682,811 $ 677,476 $ 712,607 Interest on short- term debt 44,537 87,819 61,182 77,760 110,982 108,869 Interest on capital leases 868 1,737 1,737 1,737 1,737 1,737 ---------- ---------- ---------- ---------- ---------- ---------- Total Fixed Charges $ 356,296 $ 731,964 $ 759,684 $ 762,308 $ 790,195 823,213 ========== ========== ========== ========== ========== ========== Ratios of Earnings to Fixed Charges 3.48 3.69 3.71 3.50 3.36 2.90 - --------------------------------------------------------------------------------------------------- Note: For the purpose of computing the Company's ratios of earnings to fixed charges, "earnings" represent net income adjusted for the Company's equity in undistributed earnings or loss of unconsolidated affiliates, income taxes and fixed charges (excluding capitalized interest). "Fixed charges" consist of interest on short-term and long-term debt (including amortization of bond premium, discount and expense; and excluding interest on decommissioning trust funds [for which an equal amount of interest income is recorded] and amortization of the gain or loss on reacquired debt securities) and interest on capital leases (including capitalized interest).
EX-12.2 6 EXHIBIT 12.2 PACIFIC GAS AND ELECTRIC COMPANY AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
- --------------------------------------------------------------------------------------------------- Six Months Year ended December 31, Ended ---------------------------------------------------------- (dollars in thousands) June 30, 1994 1993 1992 1991 1990 1989 - --------------------------------------------------------------------------------------------------- Earnings: Net income $ 478,317 $1,065,495 $1,170,581 $1,026,392 $ 987,170 $ 900,628 Company's equity in undistributed loss (earnings) of unconsolidated affiliates - - (3,349) 26,671 (2,799) (4,352) Income tax expense 404,879 901,890 895,126 851,534 881,647 669,885 Net fixed charges 355,690 730,708 758,333 760,957 788,889 821,982 -------- ---------- ---------- ---------- ---------- ---------- Total Earnings $1,238,886 $2,698,093 $2,820,691 $2,665,554 $2,654,907 $2,388,143 ========== ========== ========== ========== ========== ========== Fixed Charges: Interest on long- term debt $ 310,891 $ 642,408 $ 696,765 $ 682,811 $ 677,476 $ 712,607 Interest on short- term debt 44,537 87,819 61,182 77,760 110,982 108,869 Interest on capital leases 868 1,737 1,737 1,737 1,737 1,737 ---------- ---------- ---------- ---------- ---------- ---------- Total Fixed Charges 356,296 731,964 759,684 762,308 790,195 823,213 ---------- ---------- ---------- ---------- ---------- ---------- Preferred Stock Dividends: Tax deductible dividends 2,336 4,814 5,136 5,136 5,136 5,136 Pretax earnings required to cover non-tax deductible preferred stock dividend requirements 48,902 108,937 130,147 154,404 175,881 167,440 ---------- ---------- ---------- ---------- ---------- ---------- Total Preferred Stock Dividends 51,238 113,751 135,283 159,540 181,017 172,576 ---------- ---------- ---------- ---------- ---------- ---------- Total Combined Fixed Charges and Preferred Stock Dividends $ 407,534 $ 845,715 $ 894,967 $ 921,848 $ 971,212 $ 995,789 ========== ========== ========== ========== ========== ========== Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends 3.04 3.19 3.15 2.89 2.73 2.40 - --------------------------------------------------------------------------------------------------- Note: For the purpose of computing the Company's ratios of earnings to combined fixed charges and preferred stock dividends, "earnings" represent net income adjusted for the Company's equity in undistributed earnings or loss of unconsolidated affiliates, income taxes and fixed charges (excluding capitalized interest). "Fixed charges" consist of interest on short-term and long-term debt (including amortization of bond premium, discount and expense; and excluding interest on decommissioning trust funds [for which an equal amount of interest income is recorded] and amortization of the gain or loss on reacquired debt securities) and interest on capital leases (including capitalized interest). "Preferred stock dividends" represent the sum of requirements for preferred stock dividends that are deductible for federal income tax purposes and requirements for preferred stock dividends that are not deductible for federal income tax purposes increased to an amount representing pretax earnings which would be required to cover such dividend requirements.
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