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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) May 29, 1997 (May 23, 1997)
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Pacific Enterprises
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(Exact name of registrant as specified in its charter)
California
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(State or other jurisdiction of incorporation
1-40 94-0743670
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Commission File Number (I.R.S. Employer Identification No.)
555 West Fifth Street, Los Angeles, California 90013-1011
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(Address of principal executive offices)
(Zip Code)
(213) 895-5000
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
The information set forth and incorporated by reference below supplements
the information contained in Pacific Enterprises' 1996 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis -
SoCalGas Operations - Factors Influencing Future Performance - Performance
Based Regulation," which has been incorporated by reference in Pacific
Enterprises' Annual Report on Form 10-K for the year December 31, 1996;
Pacific Enterprises' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 under the caption "Regulatory Factors Influencing Future
Performance;" and Pacific Enterprises' Current Report on Form 8-K dated
April 28, 1997.
On May 23, 1997, an Administrative Law Judge (ALJ) issued a revised proposed
decision (PD) on Southern California Gas Company's application to the
California Public Utilities Commission (CPUC) for performance based
regulation (PBR). The revised PD supersedes the first PD issued on April
21, 1997. Southern California Gas Company (SoCalGas) is Pacific
Enterprises' principal subsidiary.
A summary of the principal elements of SoCalGas' PBR application and the
ALJ's revised PD is set forth in a Reply to Media Inquiry to be used by
SoCalGas in responding to media and other inquiries concerning the revised
PD. The text of the Reply to Media Inquiry is attached to this Current
Report as Exhibit 99.1 and incorporated herein by reference.
Item 7. - Financial Statements and Exhibits.
(c) Exhibits
99.1 Reply to Media Inquiry of Southern California Gas
Company.
SIGNATURE
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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 ENTERPRISES
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(Registrant)
Ralph Todaro
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Ralph Todaro
Vice President and Controller
(Chief Accounting Officer and
duly authorized signatory)
Date: May 29, 1997
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For Reply to Media Inquiry
(A revised ALJ Proposed Decision on SoCalGas' "Performance Based Regulation"
application has been released. This revised decision is scheduled to be
taken up at the CPUC's regular meeting of June 11, 1997. The CPUC may
accept, reject or modify the revised proposed decision in rendering a final
decision on SoCalGas' application. The following statement may be used to
respond to inquiries concerning this revised Proposed Decision.)
* * * * * * * * *
SoCalGas is disappointed with the ALJ's revised Proposed Decision (PD)
on our PBR application. While some progress has been made in narrowing the
gap between SoCalGas' application and the first PD, the revised PD still
departs from our application in many respects.
Following are the principal differences between SoCalGas' plan and the
revised PD.
Indexing & Productivity Factor
SoCalGas' Proposal. Our proposal calls for rate indexing which will
ensure that base rates grow at less than the rate of inflation (inflation
minus a productivity factor). We are suggesting a "productivity factor"
that will reduce real rates (after adjusting for inflation) annually by 1%.
This is twice the industry average for productivity improvements by U.S. gas
distribution companies over the last 10 years. Base rates in 1995 would
have been 13% lower than actual rates had this type and level of indexing
been in place from 1985 to 1995.
Revised PD. Like the first PD, the revised PD still rejects rate
indexing in favor of revenue or margin indexing, but it leaves open the
possibility of implementing rate indexing on August 1, 1999, when provisions
of the Comprehensive Settlement expire. The ALJ has determined that certain
provisions in the Comprehensive Settlement are inconsistent with rate
indexing and therefore preclude its use under PBR.
The major difference in the two approaches is that margin indexing
removes the risk/reward potential for shareholders arising from higher or
lower gas throughput to core customers.
The original PD had proposed a complicated formula that would have
resulted in a productivity factor well above 2%, but included a positive
increment for customer growth. The revised PD recommends a more
straightforward productivity factor which starts at 1.6% in the first year,
and moves up incrementally each year to 2% in the fifth year. The precise
treatment of customer growth is unclear in the revised PD.
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Pricing Issues
SoCalGas' Proposal. We are requesting an increase in the customer
charge from roughly $5 to $12.50 -- the actual cost of serving residential
customers -- over the five-year period covered by PBR. We want to reduce
(volumetric) rates for gas, and narrow the rate increase paid when customers
exceed the monthly baseline amount from 35% to 10%. The net result: no
increase in the average residential customer bill. Finally, we're seeking
the flexibility for optional tariffs to provide customers with more pricing
choices for utility service.
Revised PD. The revised PD continues to claim that residential rate
design is inappropriate for consideration in a PBR application. The revised
PD defers action on residential rate design to a future Commission
proceeding, but it does make some concessions on pricing flexibility. The
revised PD allows SoCalGas to discount prices to core customers (residential
and small commercial), with the shortfall in revenue being borne by
shareholders, not other utility customers.
New Products and Services
SoCalGas' Proposal. Our proposal seeks authorization to offer on a
competitive basis products and services that we have not previously offered.
They would be offered entirely at shareholder risk, and would not be funded
by rates charged for utility services.
Revised PD. The revised PD continues to reject any decision on new
product and service flexibility and defers the issue to future regulatory
proceedings. However, the revised PD clarifies that SoCalGas will be
permitted to continue providing certain outside services, like billing and
meter reading, for other organizations.
Sharing Mechanism
SoCalGas' Proposal. SoCalGas proposes no earnings sharing, for either
profits or losses, since SoCalGas believes that absence of a sharing
mechanism is more compatible with the competitive environment the industry
is rapidly moving toward.
Revised PD. With some minor adjustments, the revised PD continues to
impose a "sharing mechanism" for earnings that exceed a specified rate of
return to ensure that some of the profits above certain levels be shared
with ratepayers rather than going solely to the Company. While the revised
PD adopts sharing on earnings above the authorized rate of return, it does
not propose any similar "downside" sharing.
Base Margin
SoCalGas' Proposal. SoCalGas' initial application reflected a base
margin reduction of $61.2 million as compared to its authorized 1995 level.
After reaching various stipulations with the Commission's staff, our final
position was a reduction of $110 million.
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Revised PD. Some progress has been made in this area. The first PD
adopted a starting base margin level that reflects a net reduction of $182
million. The revised PD narrows that gap to a net reduction of $163
million.
Implementation Date. The ALJ's revised Proposed Decision calls for the
base margin reduction to be implemented on July 1, 1997, and gives SoCalGas
the option of implementing all other PBR elements now, retroactive to
January 1, 1997, or on January 1, 1998. The first PD provided SoCalGas with
the option of implementing all PBR elements retroactive to January 1, 1997
or on January 1, 1998.
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