-----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, HrwcWSiK3PHBeLB4ntvVtT/cWRvspUOuXVBJU97D8R1ajlRs1h9doJV4XoE6CJtS FTYwiD41M2th/dOJCOWb0w== 0001032210-99-001247.txt : 19990817 0001032210-99-001247.hdr.sgml : 19990817 ACCESSION NUMBER: 0001032210-99-001247 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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: 99691660 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 JUNE 30, 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 June 30, 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 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Exchange on Which Registered - -------------------------------- ------------------------------------ 7.10% Senior Notes Due 2005 New York Stock Exchange 7.80% Senior Debentures Due 2025 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of August 13, 1999. 1000 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 6 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
PART I: FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Statements of Consolidated Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30 (In Thousands) 1999 1998 1999 1998 - -------------- ------------------------------------------------------------ OPERATING REVENUES: Gas transportation $ 39,118 $ 44,759 $ 83,590 $ 92,577 Gas transportation for affiliates 12,346 12,268 25,367 25,212 Other 138 176 281 319 ------------------------------------------------------------ Total operating revenues 51,602 57,203 109,238 118,108 ------------------------------------------------------------ OPERATING EXPENSES: Administrative and general 4,023 6,280 13,013 14,058 Operations and maintenance 5,332 4,087 9,736 7,646 Depreciation and amortization 10,233 9,822 20,393 19,614 Property and other taxes 2,799 2,849 5,650 5,934 ------------------------------------------------------------ Total operating expenses 22,387 23,038 48,792 47,252 ------------------------------------------------------------ OPERATING INCOME 29,215 34,165 60,446 70,856 ------------------------------------------------------------ OTHER INCOME AND (INCOME DEDUCTIONS): Allowance for equity funds used during construction 322 174 692 313 Interest income 31 44 82 137 Other net (223) (93) (419) (199) ------------------------------------------------------------ Total other income and (income deductions) 130 125 355 251 ------------------------------------------------------------ INTEREST EXPENSE: Interest on long-term debt 10,275 10,570 20,572 21,203 Allowance for borrowed funds used during construction (323) (183) (701) (321) Other interest charges 324 363 653 733 ------------------------------------------------------------ Net interest expense 10,276 10,750 20,524 21,615 ------------------------------------------------------------ INCOME BEFORE INCOME TAXES 19,069 23,540 40,277 49,492 INCOME TAX EXPENSE 7,300 9,093 15,397 19,294 ------------------------------------------------------------ NET INCOME 11,769 14,447 24,880 30,198 ------------------------------------------------------------ OTHER COMPREHENSIVE INCOME, NET OF TAX: ------------------------------------------------------------ COMPREHENSIVE INCOME $ 11,769 $ 14,447 $ 24,880 $ 30,198 ------------------------------------------------------------ The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Consolidated Balance Sheets (Unaudited) ASSETS June 30, December 31, (In Thousands) 1999 1998 - -------------- -------------------------------------- PROPERTY, PLANT, and EQUIPMENT: Property, plant and equipment in service $ 1,526,234 $ 1,500,085 Accumulated depreciation (499,783) (479,824) -------------------------------------- Net plant in service 1,026,451 1,020,261 Construction work in progress 29,050 37,772 -------------------------------------- Total property, plant & equipment - net 1,055,501 1,058,033 -------------------------------------- CURRENT ASSETS: Cash and cash equivalents 49 1,080 Accounts receivable - gas transportation 14,244 15,952 Accounts receivable - fuel balancing accounts and other 9,052 10,175 Inventories (at average cost) 9,250 7,950 Prepayments and other current assets 904 3,545 -------------------------------------- Total current assets 33,499 38,702 -------------------------------------- DEFERRED CHARGES: Income tax related 25,492 25,400 Deferred charge on reacquired debt 11,847 12,449 Unamortized debt expense 3,431 3,625 Other regulatory assets 5,504 5,744 Other 250 1,105 -------------------------------------- Total deferred charges 46,524 48,323 -------------------------------------- TOTAL ASSETS $ 1,135,524 $ 1,145,058 -------------------------------------- The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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Consolidated Balance Sheets (Unaudited) CAPITALIZATION AND LIABILITIES June 30, December 31, (In Thousands) 1999 1998 - -------------- -------------------------------- 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 63,698 68,818 ---------------------------- Total common stock equity 341,889 347,009 Long-term debt 579,779 587,979 ---------------------------- Total capitalization 921,668 934,988 ---------------------------- CURRENT LIABILITIES: Long-term debt current portion 475 456 Accounts payable 14,336 18,016 Accounts payable - affiliated companies 1,794 3,187 Accrued interest 3,961 4,095 Accrued liabilities 8,702 9,466 Accrued taxes 2,670 779 ---------------------------- Total current liabilities 31,938 35,999 ---------------------------- DEFERRED CREDITS: Deferred income taxes 171,468 163,846 Other 10,450 10,225 ---------------------------- Total deferred credits 181,918 174,071 ---------------------------- CONTINGENCIES (see Note 2) - - ---------------------------- TOTAL CAPITALIZATION AND LIABILITIES $ 1,135,524 $ 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) - -------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, - ------------------------------------------------------------------------------------------------------------------------------- (In Thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT BEGINNING OF PERIOD $ 347,009 $ 431,727 Comprehensive income Net income 24,880 30,198 Other comprehensive income -- -- Dividend paid to parent company (30,000) (115,000) - ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT END OF PERIOD $ 341,889 $ 346,925 - -------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 4
Statements of Consolidated Cash Flows (Unaudited) Six Month Ended June 30, (In Thousands) 1999 1998 - -------------- ------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 24,880 $ 30,198 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,048 21,338 Discontinued operations - - Deferred income taxes 7,622 7,785 Allowance for equity funds used during construction (692) (313) Changes in operating assets and liabilities: Accounts receivable 2,831 1,309 Accounts payable affiliated companies (1,393) 1,323 Accounts payable and other accrued liabilities (4,578) (4,350) Accrued taxes 1,891 56 Other working capital 1,341 317 Other net 1,228 419 ------------------- Net cash provided by operating activities 55,178 58,082 ------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment expenditures - - Construction expenditures (17,181) (22,065) Allowance for borrowed funds used during construction (701) (321) ------------------- Net cash used in investing activities (17,882) (22,386) ------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net Issuance (Repayment) of long-term debt (8,327) 32,866 Dividend paid to parent (30,000) (115,000) ------------------- Net cash used in financing activities (38,327) (82,134) ------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (1,031) (46,438) CASH AND CASH EQUIVALENTS AT JANUARY 1 1,080 48,249 ------------------- CASH AND CASH EQUIVALENTS AT JUNE 30 $ 49 $ 1,811 ------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for (received from): Interest $ 22,778 $ 20,797 Income taxes $ 6,438 $ 11,409 --------------------- 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. 7 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 due in April 1999, and the Commission has taken no action to date. 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 $45.4 million of regulatory assets net of related reserves as of June 30, 1999. 8 RESULTS OF OPERATIONS Selected operating results and other data are as follows:
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ----------- ----------- ---------- ----------- (In Millions) (In Millions) Operating revenues $ 51.6 $ 57.2 $ 109.2 $ 118.1 Operating expenses 22.4 23.0 48.8 47.3 ----------- ----------- ---------- ----------- Operating income 29.2 34.2 60.4 70.8 Other income and (income deductions) .2 .1 .4 .3 Net interest expense 10.3 10.8 20.5 21.6 ----------- ----------- ---------- ----------- Income before taxes 19.1 23.5 40.3 49.5 Income tax expense 7.3 9.1 15.4 19.3 ----------- ----------- Net Income 11.8 14.4 24.9 30.2 =========== =========== ========== ===========
Net Income - Income for the three and six month periods ended June 30, 1999, decreased $2.6 million and $5.3 million, respectively, compared to the same periods in 1998. The decreases in the 1999 periods were primarily the result of lower operating revenues. Operating Revenues - Operating revenues for the three and six month periods ended June 30, 1999, decreased $5.6 million and $8.9 million, respectively, compared to the same periods in 1998. The decreases were 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. Additionally, the decreases reflected lower Gas Research Institute (GRI) surcharges resulting from a refund of $3.9 million in May 1999. This decrease is offset by a corresponding decrease in Administrative and General Expenses for GRI costs. Operating Expenses - The components of total operating expenses are as follows:
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ----------- ----------- ---------- ----------- (In Millions) (In Millions) Administrative and general $ 4.0 $ 6.3 $ 13.0 $ 14.1 Operations and maintenance 5.4 4.1 9.7 7.7 Depreciation and amortization 10.2 9.8 20.4 19.6 Property and other taxes 2.8 2.8 5.7 5.9 ----------- ----------- ---------- ----------- Total operating expenses $ 22.4 $ 23.0 $ 48.8 $ 47.3 =========== =========== ========== ===========
For the three and six month periods ended June 30, 1999, compared with the same periods in 1998, operating expenses decreased $0.6 million and increased $1.5 million, respectively. The decrease in the three-month period reflects decreased Gas Research Institute surcharges, for which there is a corresponding decrease in Transportation Revenue, somewhat offset by higher maintenance of compressor units. The increase in the six month period reflects severance costs and higher maintenance of compressor units. 9 Interest Expense - Interest expense for the three and six month periods ended June 30, 1999, decreased $0.5 million and $1.1 million, respectively, compared to the same periods in 1998. For the three months ended June 30, 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 (excluding capital lease obligations) outstanding was $570 million and $581 million, respectively. For the six months ended June 30, 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 (excluding capital lease obligations) outstanding was $574 million and $586 million, respectively. LIQUIDITY AND CAPITAL RESOURCES Sources of Capital - The Company's capital requirements are funded from cash provided by operations and, to the extent necessary, external financing and capital contributions from its parent company. 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 six months ended June 30, 1999, net cash provided by operating activities was $55.2 million, compared with $58.1 million for the same period in 1998. The $2.9 million decrease was primarily due to the decrease in net income. Net Cash Used in Investing Activities - For the six months ended June 30, 1999 compared to the same period in 1998, net cash used in investing activities decreased $4.5 million. The decrease primarily reflects lower construction expenditures in 1999. Net Cash Used in Financing Activities - For the six months ended June 30, 1999, cash used in financing activities was $38.3 million reflecting $30.0 million in dividends paid, and an $8.3 million net decrease in long-term debt. For the six months ended June 30, 1998, cash used in financing activities was $82.1 million resulting from a $115 million dividend offset by a net increase in debt of $32.9 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 PG&E 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 the Company's 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. Year 2000 ready means that a system is suitable for continued use into the year 2000. Once Year 2000 ready, additional standards and processes are imposed to prevent systems from being compromised. PG&E GT-NW's Year 2000 project is generally proceeding on schedule. The following table indicates the Company's Year 2000 progress as of August 9, 1999. 10 Year 2000 Readiness of Mission-Critical Items
Remediation Testing Certification Completed Completed Completed ----------------------------------------------------------------- In-house software 100% 100% 100% Vendor software 100% 100% 100% Embedded systems 96% 94% 53% Computer hardware 100% 100% 100%
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. Even after systems are certified, the Company is continuing various types of validation and quality assurance efforts, and may do so into the year 2000. The completion of these phases does not address external interdependencies that could affect the ability of the Company to be Year 20000 ready. 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 address this vulnerability, PG&E GT-NW has a four phased approach for dealing with external parties: (1) inventory, (2) action planning, (3) risk assessment, and (4) contingency planning. The contingency planning process also addresses exposures that could result from failures in the Company's own essential business systems. The Company's contingency plans are being incorporated into its emergency plans and may include measures such as emergency back-up and recovery procedures, augmenting automated applications with manual processes, and identification of alternate suppliers. The plans will be tested in various drills throughout 1999, and updated as necessary. As of June 30, 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 June 1999, PG&E GT-NW spent approximately $13.4 million, of which $9.6 million was capitalized. Future costs to address Year 2000 issues are expected to be $2.9 million, of which $1.6 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. 11 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 the Company's current schedule is partially dependent on the efforts of third parties, their delays and other factors, which the Company is not able to predict, may cause the schedule to change. 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. Accordingly, the Company has considered the most reasonably likely worst case Year 2000 scenarios that could affect the Company, and believes that they mainly involve 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 the Company, or third parties with whom it has 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 ("FASB") issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued Statement No. 137 "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.133", which postponed the implementation of Statement No. 133. Statement No. 137 is required to be adopted in years beginning after June 15, 2000 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, 2001. 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. 12 PART II: OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 3 - By-laws as amended June 1, 1999. Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges. Exhibit 27 - Financial Data Schedule for the six months ended June 30, 1999. (b) Reports on Form 8-K during the quarter ended June 30, 1999 and through the date hereof: 1. June 11, 1999 (Form 8-K/A) 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) August 16, 1999 By: /s/ STANLEY C. KARCZEWSKI ---------------------------------- Name: Stanley C. Karczewski Title: Vice President and Controller 14 EX-3 2 BY-LAWS AS AMENDED JUNE 1, 1999 Exhibit 3 "PG&E Gas Transmission, Northwest Corporation SEC Filing - Form 10-Q - 2nd Qtr. 1999 Exhibit 3 - Bylaws as amended June 1, 1999" ARTICLE I. SHAREHOLDERS 1. Place of Meeting. All meetings of the shareholders shall be held at any place within or outside the State of California as may be designated by the Board of Directors. 2. Annual Meetings. The annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. Any proper business pertaining to the affairs of the Corporation may be transacted at the annual meeting. Written notice of the annual meeting shall be given not less than ten nor more than sixty days prior to the date of the meeting to each shareholder entitled to vote thereat. The notice shall state the place, day and hour of such meeting, and those matters which the Board, at the time of mailing, intends to present for action by the shareholders. Notice of any meeting of the shareholders shall be given either personally or by mail or telegraphic or other written communication, postage prepaid, to each holder of record of the stock entitled to vote thereat, at his address, as it appears on the books of the Corporation. 3. Special Meetings. Special meetings of the shareholders shall be called by the Secretary or an Assistant Secretary at any time on order of the Board of Directors, the Chairman of the Board, the Chairman of the Executive Committee, or the President. Special meetings of the shareholders shall also be called by the Secretary or an Assistant Secretary upon the written request of holders of shares entitled to cast not less than ten percent of the votes at the meeting. Such request shall state the purposes of the meeting, and shall be delivered to the Chairman of the Board, the Chairman of the Executive Committee, the President, or the Secretary. A special meeting so requested shall be held on the date requested, but not less than thirty-five nor more than sixty days after the date of receipt of the original request. Written notice of each special meeting of shareholders, stating the place, day and hour of such meeting and the business proposed to be transacted thereat, shall be given in the manner stipulated in Article I, Section 2, Paragraph 3 of these Bylaws within twenty days after receipt of the written request. 4. Attendance at meetings. At any meeting of the shareholders, each holder of record of stock entitled to vote thereat may attend in person or may designate an agent or a reasonable number of agents, not to exceed three, to attend the meeting and cast votes for his shares. The authority of agents must be evidenced by a written proxy signed by the shareholder designating the agents authorized to attend the meeting and be delivered to the Secretary of the Corporation prior to the commencement of the meeting. ARTICLE II. DIRECTORS 1. Number. The Board of Directors shall consist of three (3) to five (5) Directors. 2. Powers. The Board of Directors shall exercise all the powers of the Corporation except those which are by law, or by the Articles of Incorporation of this Corporation, or by the Bylaws conferred upon or reserved to the shareholders. 3. Executive Committee. The Board of Directors, by a two-thirds vote of the whole Board, shall elect from their number an Executive Committee. Such Executive Committee shall consist of the Chairman of the Board and such other number of Directors as the Board of Directors deems appropriate. The members of the Executive Committee shall hold office and serve at the pleasure of the Board of Directors, and may be removed at any time by an affirmative vote of two- thirds of the whole Board. The Executive Committee, subject to the provisions of law, may exercise any of the powers and perform any of the duties of the Board of Directors; but the Board may by an affirmative vote of a majority of its members withdraw or limit any of the powers of the Executive Committee. The Executive Committee, by a vote of a majority of its members, shall fix its own time and place of meeting and shall prescribe its own rules of procedure. A quorum of the Committee for the transaction of business shall consist of two members. 4. Other Committees. The Board of Directors may, subject to the provisions of law, by resolution passed by two-thirds of the whole Board, designate one or more other committees, each such committee to consist of one or more Directors of the Corporation. The Board may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 5. Time and Place of Directors' Meetings. Regular meetings of the Board of Directors shall be held on such days and at such times and at such locations as shall be fixed by resolution of the Board, or designated by the Chairman of the Board or, in his absence, the President of the Corporation and contained in the notice of any such meeting. Notice of regular meetings shall be delivered personally or sent by mail or telegram at least seven days in advance. A meeting of the Board of Directors shall also be held immediately after each annual meeting of the shareholders. -2- 5. Special Meetings. The Chairman of the Board, the Chairman of the Executive Committee, the President, or any one Director may call a special meeting of the Board of Directors at any time. Notice of the time and place of special meetings shall be given to each Director by the Secretary. Such notice shall be delivered personally or by telephone to each Director at least four hours in advance of such meeting, or sent by first class mail or telegram, postage prepaid, at least two days in advance of such meeting. 6. Quorum. A quorum for the transaction of business at any meeting of the Board of Directors shall consist of a majority of the Directors then in office. 7. Action by Consent. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all Directors individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors. 8. Method of Meeting. Any meeting, regular or special, of the Board of Directors or any committee of the Board, including the Executive Committee, may be held by conference telephone or similar communication equipment as long as all Directors participating in the meeting can hear one another. Directors participating in any meeting in this fashion shall be deemed to be present in person at such meeting. 9. Election and Term of Office. The Directors shall be elected at each annual meeting of shareholders; but, if any such annual meeting is not held or the Directors are not elected thereat, the Directors may be elected at any special meeting of shareholders held for that purpose. Notwithstanding the foregoing provision of this paragraph, all Directors shall hold office until their respective successors are duly elected and qualified. 10. Vacancies. Vacancies on the Board of Directors, except vacancies created by removal of a Director, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until a successor is elected at an annual or a special meeting of the shareholders. ARTICLE III. OFFICERS 1. Officers. The officers of the Corporation shall be a Chairman of the Board, a Chairman of the Executive Committee (whenever the Board of Directors in its discretion fills these offices), a President, one or more Vice Presidents, a Secretary and one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers, a Controller, all of whom shall be elected by the Board of Directors; and, if the Board elects, a General Counsel. Any two or more offices, except those of President and Secretary, may be held by the same person. -3- 2. Chairman of the Board. The Chairman of the Board, if that office be filled, shall preside at all meetings of the shareholders, of the Directors, and of the Executive Committee in the absence of the Chairman of that Committee. He shall be the Chief Executive Officer of the Corporation if so designated by the Board of Directors. He shall have such duties and responsibilities as may be prescribed by the Board of Directors or the Bylaws. The Chairman of the Board shall have authority to sign on behalf of the Corporation agreements and instruments of every character, and in the absence or disability of the President, shall exercise his duties and responsibilities. 3. Chairman of the Executive Committee. The Chairman of the Executive Committee, if that office be filled, shall preside at all meetings of the Executive Committee, and in the absence of the Chairman of the Board, shall preside at all meetings of the Board of Directors and of the shareholders. The Chairman of the Executive Committee, in the absence or disability of the Chairman of the Board and the President, shall exercise their duties and responsibilities. He shall aid and assist the other officers in the performance of their duties and shall have such other duties as may be prescribed by the Board of Directors or the Bylaws. 4. President. The President, if that office be filled, shall have such duties and responsibilities as may be prescribed by the Board of Directors, the Chairman of the Board or the Bylaws. He shall be the Chief Executive Officer of the Corporation if so designated by the Board of Directors. If there be no Chairman of the Board and no Chairman of the Executive Committee available and able to act, the President shall also exercise the duties and responsibilities of both those offices. The President shall have authority to sign on behalf of the Corporation agreements and instruments of every character. 5. Chief Executive Officer. The Chief Executive Officer, if that office be filled, shall have such duties as may be prescribed by the Board of Directors, the Chairman of the Board or the Bylaws. 6. Vice Presidents. Each Vice President shall have such duties and responsibilities as may be prescribed by the Board of Directors, the Chairman of the Board, the President or the Bylaws. Each Vice President's authority to sign agreements and instruments on behalf of the Corporation shall be as prescribed by the Board of Directors. The Board of Directors, the Chairman of the Board or the President may confer a special title upon any Vice President. 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and the Executive Committee, and all meetings of the shareholders, and he shall record the minutes of all proceedings in books to be kept for that purpose. He shall be responsible for maintaining a proper share register and stock transfer books for all classes of shares issued by the Corporation. He shall give, or cause to be given, all notices required either by law or the Bylaws. He shall keep the seal of the Corporation in safe custody, and shall affix the seal of the Corporation to any instrument requiring it and shall attest the same by his signature. The Secretary shall have such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the President, or the Bylaws. -4- The Assistant Secretaries shall perform such duties as may be assigned from time to time by the Board of Directors, the Chairman of the Board, the President, or the Secretary. In the absence or disability of the Secretary, his duties shall be performed by an Assistant Secretary. 8. Treasurer. The Treasurer shall have custody of all moneys and funds of the Corporation, and shall cause to be kept full and accurate records of receipts and disbursements of the Corporation. He shall deposit all moneys and other valuables of the Corporation in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse such funds of the Corporation as have been duly approved for disbursement. The Treasurer shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, or the Bylaws. The Assistant Treasurers shall perform such duties as may be assigned from time to time by the Board of Directors, the Chairman of the Board, the President, or the Treasurer. In the absence or disability of the Treasurer, his duties shall be performed by an Assistant Treasurer. 9. General Counsel. The General Counsel, if that office be filled, shall be responsible for handling on behalf of the Corporation all proceedings and matters of a legal nature. He shall render advice and legal counsel to the Board of Directors, officers and employees of the Corporation, as necessary to the proper conduct of the business. He shall keep the management of the Corporation informed of all significant developments of a legal nature affecting the interests of the Corporation. The General Counsel shall have such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, or the Bylaws. 10. Controller. The Controller shall be responsible for maintaining the accounting records of the Corporation and for preparing necessary financial reports and statements, and he shall properly account for all moneys and obligations due the Corporation and all properties, assets and liabilities of the Corporation. He shall render to the Chairman of the Board, the Chairman of the Executive Committee, and the President such periodic reports covering the results of operations of the Corporation as may be required by them or any one of them. The Controller shall have such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, the President, or the Bylaws. -5- ARTICLE IV. GENERAL CORPORATE MATTERS 1. Record Date. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders, or entitled to receive any dividend or distribution, or allotment of rights, or to exercise rights in respect to any change, conversions or exchange of shares. The record date so fixed shall be not more than sixty nor less than ten days prior to the date of such meeting nor more than sixty days prior to any other action for the purposes for which it is fixed. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting, or entitled to receive any dividend or distribution, or allotment of rights, or to exercise the rights, as the case may be. 2. Transfer of Stock. Upon surrender to the Secretary or Transfer Agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, and payment of transfer taxes, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Subject to the foregoing, the Board of Directors shall have power and authority to make such rules and regulations as it shall deem necessary or appropriate concerning the issue, transfer and registration of certificates for shares of stock of the Corporation, and to appoint and remove Transfer Agents and Registrars of transfers. 3. Lost Certificates. Any person claiming a certificate of stock to be lost, stolen, mislaid or destroyed shall make an affidavit or affirmation of that fact and verify the same in such manner as the Board of Directors may require, and shall, if the Board of Directors so requires, give the Corporation, its Transfer Agents, Registrars and/or other agents a bond of indemnity in form approved by counsel, and in amount and with such sureties as may be satisfactory to the Secretary of the Corporation, before a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to have been lost, stolen, mislaid or destroyed. 4. Annual Report to Shareholders. For so long as this Corporation has fewer than 100 shareholders, the annual report to shareholders referred to in Section 1501 of the California General Corporation Law is expressly dispensed with, but nothing herein shall be interpreted as prohibiting the Board of Directors from issuing annual or other periodic reports to the shareholders of the corporation as they consider proper. 5. Corporate Contracts and Instruments. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors or within the agency power of an officer, and except as provided in these Bylaws, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. -6- 6. Construction and Definitions. Unless the contract requires otherwise, the general provisions, rules of construction, and definitions in the California General Corporation Law shall govern the construction of these Bylaws. 7. Shares of Other Corporations: How Voted. Shares of other corporations standing in the name of this Corporation shall be voted by one of the following persons, listed in order of preference: (1) the Chairman of the Board, or person designated by the Chairman of the Board; (2) the President, or person designated by the President; (3) the Secretary, or person designated by the Secretary; (4) any other person designated by the Board of Directors. The authority to vote share granted by this section includes the authority to execute a proxy in the name of this Corporation for purposes of voting the shares. ARTICLE V. AMENDMENTS 1. Amendment by Shareholders. Except as otherwise provided by law, these Bylaws, or any of them, may be amended or repealed or new Bylaws adopted by the affirmative vote of a majority of the outstanding shares entitled to vote at any regular or special meeting of the shareholders. 2. Amendment by Directors. To the extent provided by law, these Bylaws, or any of them, may be amended or repealed or new Bylaws adopted by resolution adopted by a majority of the members of the Board of Directors. -7- EX-12 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 PG&E GAS TRANSMISSION, NORTHWEST CORPORATION SEC FILING - FORM 10-Q - 2ND QTR 1999 EXHIBIT 12 - RATIO OF EARNINGS TO FIXED CHARGES
For the Three Months Ended For the Six Months Ended ------------------------------------- ------------------------------------- Ratio of earnings to Fixed Charges 1999 1998 1999 1998 ------------- ------------ ------------ ------------- Earnings Net income 11.8 14.4 24.9 30.2 Adjustments: Income taxes 7.3 9.1 15.4 19.3 Fixed charges (as below) 10.6 10.9 21.2 21.9 ------------- ------------ ------------ ------------- Total adjusted earnings 29.7 34.4 61.5 71.4 ============= ============ ============ ============= Fixed charges: (a) Net interest expense 10.3 10.7 20.5 21.6 Adjustments: Interest component of rents 0.0 0.0 0.0 0.0 AFUDC debt 0.3 0.2 0.7 0.3 ------------- ------------ ------------ ------------- Total fixed charges 10.6 10.9 21.2 21.9 ============= ============ ============ ============= Ratio of earnings to fixed charges 2.8 3.2 2.9 3.3 ============= ============ ============ =============
EX-27 4 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 6-MOS DEC-31-1999 JUN-30-1999 PER-BOOK 1,055,501 0 33,499 46,524 0 1,135,524 85,474 192,717 63,698 341,889 0 0 467,452 0 0 96,675 0 0 15,652 475 213,381 1,135,524 109,238 15,397 48,792 64,189 45,049 355 45,404 20,524 24,880 0 24,880 30,000 14,611 55,178 24,880 24,880
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