-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U8hWmJ48jUiS5T2pUe/rLjr+7FXalp70p/6p5SRANX7XQgh9aeG3jiyxoRWtnCcl sIBfi2d/1p2UtHv8asycEA== 0001032210-99-000806.txt : 19990518 0001032210-99-000806.hdr.sgml : 19990518 ACCESSION NUMBER: 0001032210-99-000806 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PG&E GAS TRANSMISSION NORTHWEST CORP CENTRAL INDEX KEY: 0000075491 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 941512922 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25842 FILM NUMBER: 99626144 BUSINESS ADDRESS: STREET 1: 2100 SW RIVER PKWY CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 5038334000 MAIL ADDRESS: STREET 1: 2100 SW RIVER PARKWAY CITY: PORTLAND STATE: OR ZIP: 97201 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC GAS TRANSMISSION CO DATE OF NAME CHANGE: 19950411 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _______________ to ________________ COMMISSION FILE NO. 0-25842 PG&E GAS TRANSMISSION, NORTHWEST CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 94-1512922 (State or other jurisdiction of (I.R.S. employer Identification No.) incorporation or organization) 2100 SW RIVER PARKWAY, PORTLAND, OR 97201 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 833-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 1, 1999. 1,000 shares of common stock no par value. (All shares are owned by PG&E Gas Transmission Corporation.) REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H) (1) (A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT. TABLE OF CONTENTS - ----------------- PART I. FINANCIAL INFORMATION Page - ------------------------------ Item 1. Consolidated Financial Statements Statements of Consolidated Income 1 Consolidated Balance Sheets 2 Statements of Consolidated Common Stock Equity 4 Statements of Consolidated Cash Flows 5 Notes to Consolidated Financial Statements Note 1. Basis of Presentation 6 Note 2. Contingencies 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION - ----------------------------- Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 FINANCIAL INFORMATION - --------------------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS --------------------------------- STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES: Gas transportation $ 44,472 $ 47,818 Gas transportation for affiliates 13,021 12,944 Other 143 143 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING REVENUES 57,636 60,905 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Administrative and general 8,990 7,778 Operations and maintenance 4,404 3,559 Depreciation and amortization 10,160 9,792 Property and other taxes 2,851 3,085 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 26,405 24,214 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 31,231 36,691 OTHER INCOME AND (INCOME DEDUCTIONS): Allowance for equity funds used during construction 370 139 Interest income 50 93 Other - net (197) (106) - ---------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER INCOME AND (INCOME DEDUCTIONS) 223 126 - ---------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE: Interest on long-term debt 10,297 10,633 Allowance for borrowed funds used during construction (378) (138) Other interest charges 329 370 - ---------------------------------------------------------------------------------------------------------------------------- NET INTEREST EXPENSE 10,248 10,865 - ---------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 21,206 25,952 INCOME TAX EXPENSE 8,097 10,201 - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME 13,109 15,751 - ---------------------------------------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME, NET OF TAX - - - ---------------------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 13,109 $ 15,751 - ----------------------------------------------------------------------------------------------------------------------------
1
- ------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------------------------------------------------------ MARCH 31, DECEMBER 31, (IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ PROPERTY, PLANT, AND EQUIPMENT: Property, plant and equipment in service $ 1,501,465 $ 1,500,085 Accumulated depreciation and amortization (489,852) (479,824) - ------------------------------------------------------------------------------------------------------------------------ Net plant in service 1,011,613 1,020,261 Construction work in progress 46,037 37,772 - ------------------------------------------------------------------------------------------------------------------------ TOTAL PROPERTY, PLANT & EQUIPMENT - NET 1,057,650 1,058,033 - ------------------------------------------------------------------------------------------------------------------------ CURRENT ASSETS: Cash and cash equivalents 2,555 1,080 Accounts receivable - gas transportation 15,085 15,952 Accounts receivable - fuel balancing accounts and other 8,946 10,175 Inventories (at average cost) 9,126 7,950 Prepayments and other current assets 2,160 3,545 - ------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 37,872 38,702 - ------------------------------------------------------------------------------------------------------------------------ DEFERRED CHARGES: Income tax related regulatory asset 25,459 25,400 Deferred charge on reacquired debt 12,148 12,449 Unamortized debt expense 3,528 3,625 Regulatory assets 5,624 5,744 Other 117 1,105 - ------------------------------------------------------------------------------------------------------------------------ TOTAL DEFERRED CHARGES 46,876 48,323 - ------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 1,142,398 $ 1,145,058 - ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 2
- ---------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES MARCH 31, 1999 December 31, 1998 (IN THOUSANDS) - ---------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION: Common stock - no par value, 1,000 shares authorized, issued and outstanding $ 85,474 $ 85,474 Additional paid-in capital 192,717 192,717 Reinvested earnings 66,927 68,818 - ---------------------------------------------------------------------------------------------------------------------------- Total common stock equity 345,118 347,009 Long-term debt 578,674 587,979 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL CAPITALIZATION 923,792 934,988 - ---------------------------------------------------------------------------------------------------------------------------- CURRENT LIABILITIES: Long-term debt - current portion 464 456 Accounts payable 14,368 18,016 Accounts payable - affiliated companies 5,751 3,187 Accrued interest 10,158 4,095 Accrued liabilities 8,441 9,466 Accrued taxes 1,628 779 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 40,810 35,999 - ---------------------------------------------------------------------------------------------------------------------------- DEFERRED CREDITS: Deferred income taxes 167,694 163,846 Other 10,102 10,225 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL DEFERRED CREDITS 177,796 174,071 - ---------------------------------------------------------------------------------------------------------------------------- CONTINGENCIES (SEE NOTE 2) - - - ---------------------------------------------------------------------------------------------------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $ 1,142,398 $ 1,145,058 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 3
- ------------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY (UNAUDITED) THREE MONTHS ENDED MARCH 31, (In Thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT BEGINNING OF PERIOD $ 347,009 $ 431,727 Comprehensive income: Net income 13,109 15,751 Dividend paid to parent company (15,000) (110,000) - ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT END OF PERIOD $ 345,118 $ 337,478 - -------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4
- ------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,109 $ 15,751 Adjustments to reconcile net income to net cash provided by Operating activities: Depreciation and amortization 10,440 10,647 Deferred income taxes 3,848 3,939 Allowance for equity funds used during construction (370) (139) Changes in operating assets and liabilities: Accounts receivable 2,096 (312) Accounts payable and other accrued liabilities 1,390 (2,277) Accounts payable to affiliates 2,564 7,562 Accrued taxes 849 999 Other working capital 217 1,207 Other - net 1,468 570 - ------------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 35,611 37,947 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Construction expenditures (9,461) (3,742) Allowance for borrowed funds used during construction (378) (138) - ------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (9,839) (3,880) - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (9,297) (22,000) Long-term debt issued, net of issuance costs - 49,793 Dividend paid to parent (15,000) (110,000) - ------------------------------------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (24,297) (82,207) - ------------------------------------------------------------------------------------------------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 1,475 (48,140) CASH AND CASH EQUIVALENTS AT JANUARY 1 1,080 48,249 - ------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT MARCH 31 $ 2,555 $ 109 - ------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for (received from): Interest $ 3,759 $ 4,271 Income taxes $ - $ 550 - -------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 5 NOTE 1: BASIS OF PRESENTATION - ------------------------------ PG&E Gas Transmission, Northwest Corporation (PG&E GT-NW), incorporated in California in 1957, is affiliated with, but is not the same company as, Pacific Gas and Electric Company, the gas and electric company serving Northern and Central California. PG&E Corporation is the ultimate corporate parent for both PG&E GT-NW and Pacific Gas and Electric Company. The accompanying unaudited consolidated financial statements, which have been prepared in accordance with interim period reporting requirements, reflect the results for PG&E GT-NW and its wholly owned subsidiaries. PG&E GT-NW and its subsidiaries are collectively referred to herein as the "Company." This information should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, in the Company's Form 10-K for the fiscal year ended December 31, 1998. In the opinion of management, the accompanying statements reflect all adjustments necessary to present a fair statement of the financial position and results of operations for the interim periods. All material adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q. Subsidiary intercompany accounts and transactions have been eliminated. Prior year's amounts in the consolidated financial statements have been reclassified where necessary to conform to the 1999 presentation. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. NOTE 2: CONTINGENCIES - ---------------------- 1994 RATE CASE - In September 1996, the Federal Energy Regulatory Commission (FERC) approved, without modification, the proposed settlement of PG&E GT-NW's rate case. The rate case was initially filed on February 28, 1994, while the proposed settlement was filed with the FERC on March 21, 1996. In March and June 1998, the FERC denied requests by several shippers for rehearing and reaffirmed its approval of the settlement. In May 1998, three shippers petitioned for judicial review of the FERC Orders by the United States Court of Appeals for the District of Columbia Circuit. In the event the settlement were to be modified as a result of an appeal, PG&E GT-NW would be required to implement the results as ordered by the court or to seek review at the United States Supreme Court. 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS - --------------------- GENERAL - ------- The unaudited consolidated financial statements include PG&E Gas Transmission, Northwest Corporation (PG&E GT-NW) and its wholly owned subsidiaries. PG&E GT-NW and its subsidiaries are collectively referred to herein as the "Company." This information should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data in the Company's Form 10-K for the fiscal year ended December 31, 1998. The following discussion includes forward-looking statements that involve a number of risks, uncertainties, and assumptions. When used in Management's Discussion and Analysis of Financial Condition and Results of Operations, words such as "estimates," "expects," "intends," "anticipates," "plans," and similar expressions identify those statements which are forward-looking. Actual results may differ materially from those expressed in the forward-looking statements. The important factors that could cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to, the ongoing restructuring of the gas industry, changes in future rate- making, and the ability of the Company to expand its core pipeline business. PG&E GT-NW's transportation system provides access to natural gas from producing fields in western Canada and extends from the British Columbia-Idaho border to the Oregon-California border. PG&E GT-NW's transportation system also provides service to various delivery points in Idaho, Washington, and Oregon. PG&E GT-NW's natural gas transportation services are regulated by the Federal Energy Regulatory Commission (FERC or the Commission). Various safety issues are subject to the jurisdiction of the United States Department of Transportation. CHANGING REGULATORY ENVIRONMENT - ------------------------------- During 1997 and 1998, the FERC issued several orders to standardize communications and practices of pipelines. In April 1998, the FERC issued Order 587-G which sets standards for electronic communication, nomination, and imbalance procedures. In May 1998, many companies, including PG&E GT-NW, filed for rehearing of certain aspects of Order 587-G. The order proposes, among other items, that all business transactions be conducted on the public Internet. Pipeline companies need to develop connections using internet tools, directory services, and communication protocols to provide non-discriminatory access to all electronic information. In September 1998, the Commission issued an order on rehearing clarifying certain aspects of Order 587-G and deferring the date for processing transactions over the Internet from June 1999 to June 2000. The Commission also required pipeline companies to offer four opportunities to schedule gas within a gas day and to provide firm shippers priority over interruptible shippers for intra-day nominations. In July 1998, the FERC issued a Notice of Proposed Rulemaking (NOPR) to promote competition in the short-term market and a Notice of Inquiry (NOI) on long-term rates to mitigate pipeline market power. Features of the NOPR include removal of the price cap for short-term services, auctions and negotiated terms, and conditions of service. Comments on the NOPR were 7 due in April 1999, and a final rule is expected by mid-year. The NOI maintains the cost cap on long-term services and evaluates indexing and performance based rates. These regulatory initiatives are not expected to have a material impact on PG&E GT-NW's financial position, liquidity or results of operations in the foreseeable future. ACCOUNTING FOR THE EFFECTS OF REGULATION - ---------------------------------------- PG&E GT-NW 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, PG&E GT-NW has accumulated approximately $45.1 million of regulatory assets, net of related reserves, as of March 31, 1999. 8 RESULTS OF OPERATIONS - --------------------- Selected operating results and other data are as follows:
THREE MONTHS ENDED MARCH 31, 1999 1998 ---------- ------------ (In Millions) Operating revenues $ 57.6 $ 60.9 Operating expenses 26.4 24.2 ----------- ----------- Operating income 31.2 36.7 Other income and (income deductions) .2 .1 Net interest expense 10.2 10.9 ----------- ----------- Income before taxes 21.2 25.9 Income tax expense 8.1 10.2 ----------- ----------- Net Income 13.1 15.7 =========== ===========
NET INCOME - Income for the three months ended March 31, 1999, decreased $2.6 million compared to the same period in 1998. The decrease in the 1999 period was primarily the result of lower operating revenues and higher operating expenses, partially offset by lower interest expense. OPERATING REVENUES - Operating revenues for the three months ended March 31, 1999, decreased $3.3 million compared to the same period in 1998. The decrease was due to lower short-term firm and interruptible service, partially offset by revenues generated from the 1998 expansion, which went into service on November 1, 1998. OPERATING EXPENSES - The components of total operating expenses are as follows:
THREE MONTHS ENDED MARCH 31, 1999 1998 ----------- ----------- (In Millions) Administrative and general $ 9.0 $ 7.8 Operations and maintenance 4.4 3.5 Depreciation and amortization 10.2 9.8 Property and other taxes 2.8 3.1 ----------- ----------- Total operating expenses $ 26.4 $ 24.2 =========== ===========
For the three months ended March 31, 1999, compared with the same period in 1998, operating expenses increased $2.2 million. The increase reflects severance costs and higher maintenance of compressor units. INTEREST EXPENSE - Interest on PG&E GT-NW's long-term debt was approximately $10.2 million for the three month period ended March 31, 1999 and $10.6 million for the same period in 1998. For the three months ended March 31, 1999 and 1998, the average interest rate was approximately 7.2 percent and 7.3 percent, respectively, while the average balance of long-term debt outstanding was $578 million and $591 million, respectively. 9 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- SOURCES OF CAPITAL - The Company's capital requirements are funded from cash provided by operations and, to the extent necessary, external financing and capital contributions from its parent company. PG&E GT-NW pays dividends as part of a balanced approach to managing its capital structure, funding its operations and capital expenditures, and maintaining appropriate cash balances. NET CASH PROVIDED BY OPERATING ACTIVITIES - For the three months ended March 31, 1999, net cash provided by operating activities was $35.6 million, compared with $37.9 million for the same period in 1998. The $2.3 million decrease was primarily due to the decrease in net income. NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - For the three months ended March 31, 1999 compared to the same period in 1998, net cash used in investing activities increased $6.0 million. The increase primarily reflects higher construction expenditures in 1999. NET CASH USED IN FINANCING ACTIVITIES - For the three months ended March 31, 1999, cash used in financing activities was $24.3 million reflecting $15.0 million in dividends paid, and a $9.3 million net decrease in long-term debt. For the three months ended March 31, 1998, cash used in financing activities was $82.2 million resulting from a $110 million dividend offset by a net increase in debt of $27.8 million. YEAR 2000 READINESS - ------------------- The Year 2000 issue exists because many computer programs use only two digits to refer to a year, and were developed without considering the impact of the upcoming change in the century. If GT-NW's computer systems fail or function incorrectly due to not being made Year 2000 ready, they could directly and adversely affect the Company's ability to generate or deliver its products and services or could otherwise affect revenues, safety, or reliability for such a period of time as to lead to unrecoverable consequences. PG&E GT-NW's plan to address the Year 2000 issues focuses primarily on mission-critical systems whose components are categorized as in-house software, vendor software, embedded systems, and computer hardware. The four primary phases of our plan to address these systems are inventory and assessment, remediation, testing, and certification. Certification occurs when mission- critical systems are formally determined to be Year 2000 ready. PG&E GT-NW's Year 2000 project is generally proceeding on schedule. The following table indicates our Year 2000 progress as of May 3, 1999. Year 2000 Readiness of Mission-Critical Items
Remediation Testing Certification Completed Completed Completed - --------------------------------------------------------------------------------------------- In-house software 100% 100% 0% Vendor software 100% 100% 0% Embedded systems 96% 86% 50% Computer hardware 100% 100% 0%
10 Changes in company inventories, or issues uncovered in subsequent phases for an item previously reported as completed, may lead to downward adjustments in percentages from period to period. Also, the completion of these phases does not address external interdependencies that could affect the ability of the Company to be Year 2000 ready. Even after systems are certified, the Company is continuing various kinds of testing and quality assurance efforts, and may do so through the end of 1999. In addition to internal systems, PG&E GT-NW also depends upon external parties, including customers, suppliers, business partners, gas and electric system operators, government agencies, and financial institutions to support the functioning of its business. To the extent that any of these parties are considered mission-critical to the Company's business, and experience Year 2000 problems in their systems, the Company's mission-critical business functions may be adversely affected. To deal with this vulnerability, PG&E GT-NW has another phased approach. The primary phases for dealing with external parties are: (1) inventory, (2) action planning, (3) risk assessment, and (4) contingency planning. The Company has completed its inventory, action planning and risk assessment phases for mission-critical external parties. The Company expects to complete the contingency planning phase by July 1999. Although PG&E GT-NW expects its efforts and those of its external parties to be largely successful, the Company recognizes that with the complex interaction of today's computing and communications systems, it cannot be certain it will be completely successful. Therefore, contingency plans for Year 2000 readiness are being developed and tested throughout 1999 to address the Company's external dependencies as well as any significant schedule delays of mission-critical system work, should they occur. As of March 31, 1999, PG&E GT-NW estimates total costs to address Year 2000 problems to be $16.3 million. Included are systems replaced or enhanced for general business purposes and whose implementation schedules are critical to our Year 2000 readiness. Through March 1999, PG&E GT-NW spent approximately $11.9 million, of which $9.1 million was capitalized. Future costs to address Year 2000 issues are expected to be $4.4 million, of which $2.1 million will be capitalized. The Company does not believe that the projected cost of addressing Year 2000 issues will have a material impact on its financial position or results of operations. Based on PG&E GT-NW's current schedule for the completion of Year 2000 tasks, the Company expects to secure Year 2000 readiness of its mission-critical systems by the end of the third quarter of 1999. However, as our current schedule is partially dependent on the efforts of third parties, their delays and other factors which we are not able to predict, may cause our schedule to change. 11 The Company believes that the most reasonably likely worst case Year 2000 scenarios that could affect the Company include localized telephone problems due to congestion, interruption of electric power supply from the smaller utilities along the pipeline, and small isolated malfunctions in the Company's computer systems that would be immediately repaired. None of these reasonably likely scenarios are expected to have a material adverse impact on the Company's financial position, results of operations, or cash flow. Nevertheless, if we, or third parties with whom we have significant business relationships, fail to achieve Year 2000 readiness of mission-critical systems, there could be a material adverse impact on the Company's financial position, results of operations, and cash flows. NEW ACCOUNTING STANDARD - ----------------------- In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities." The Statement is required to be adopted in years beginning after June 15, 1999 but permits early adoption as of the beginning of any fiscal quarter. PG&E GT-NW expects to adopt the new Statement no later than January 1, 2000. The statement will require the recognition of all derivatives, as defined in the Statement, on the balance sheet at fair value. Derivatives, or any portion thereof, that are not effective hedges must be adjusted to fair value through income. If the derivative is an effective hedge, depending on the nature of the hedge, changes in the fair value of derivatives either will be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or will be recognized in other comprehensive income until the hedged item is recognized in earnings. PG&E GT-NW is currently evaluating the potential impact of Statement 133 but management does not anticipate that this pronouncement will have a material impact on the Company's earnings or financial position. 12 PART II: OTHER INFORMATION --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibit 27 - Financial Data Schedule for the three months ended March 31, 1999. (b) Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges. (c) Reports on Form 8-K during the quarter ended March 31, 1999 and through the date hereof: 1. February 24, 1999 Item 4: Changes in Registrant's Certifying Accountant Item 7: Financial Statements and Exhibits - Letter regarding change in certifying accountant 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PG&E GAS TRANSMISSION, NORTHWEST CORPORATION --------------------------------------------- (Registrant) May 17, 1999 By: /s/ STANLEY C. KARCZEWSKI ---------------------------------- Name: Stanley C. Karczewski Title: Vice President and Controller 14 EX-12 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 PG&E GAS TRANSMISSION, NORTHWEST CORPORATION SEC FILING - FORM 10-Q - 1Q 1999 EXHIBIT 12 - RATIO OF EARNINGS TO FIXED CHARGES
For the Three Months Ended Ratio of Earnings to Fixed Charges 1999 1998 - --------------------------------------------------------------------------------------------- Earnings Net Income $ 13.1 $ 15.8 Adjustments Income taxes 8.1 10.2 Fixed charges (as below) 10.6 11.0 --------------------------- Total adjusted earnings $ 31.8 $ 37.0 =========================== Fixed charges: (a) Net interest expense $ 10.2 $ 10.9 Adjustments: Interest component of rents - - AFUDC debt 0.4 0.1 --------------------------- Total fixed charges $ 10.6 $ 11.0 =========================== Ratio of earnings to fixed charges 3.0 3.4 ===========================
(a) There were no shares of preferred stock issued or outstanding during the three months ended March 31, 1999 or March 31, 1998, and therefore, there were no fixed charges related to preferred stock during these periods. EX-27 3 FINANCIAL DATA SCHEDULE
UT THIS SECTION OF THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 PER-BOOK 1,057,650 0 37,872 46,876 0 1,142,398 85,474 192,717 66,927 345,118 0 0 467,587 0 0 95,310 0 0 15,777 464 218,142 1,142,398 57,636 8,097 26,405 34,502 23,134 223 23,357 10,248 13,109 0 13,109 15,000 7,262 35,611 13,109 13,109
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