UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 10, 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
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PART I. Financial Information
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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 Nine Months Ended
September 30, September 30,
- -----------------------------------------------------------------------------------------------------------------------
(In Thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES:
Gas transportation $ 42,279 $ 45,471 $ 125,869 $ 138,048
Gas transportation for affiliates 13,291 12,712 38,658 37,924
Other 139 220 420 539
- -----------------------------------------------------------------------------------------------------------------------
Total operating revenues 55,709 58,403 164,947 176,511
- -----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Administrative and general 8,165 8,621 21,178 22,679
Operations and maintenance 4,403 3,881 14,139 11,527
Depreciation and amortization 10,346 9,741 30,739 29,355
Property and other taxes 2,844 2,825 8,494 8,759
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 25,758 25,068 74,550 72,320
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 29,951 33,335 90,397 104,191
- -----------------------------------------------------------------------------------------------------------------------
OTHER INCOME AND (INCOME DEDUCTIONS):
Allowance for equity funds used during construction 235 417 927 730
Interest income 59 43 140 180
Other - net 6,170 1,065 5,750 866
- -----------------------------------------------------------------------------------------------------------------------
Total other income and (income deductions) 6,464 1,525 6,817 1,776
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on long-term debt 10,447 10,704 30,979 31,907
Allowance for borrowed funds used during construction (240) (432) (942) (753)
Other interest charges 326 346 1,019 1,079
- -----------------------------------------------------------------------------------------------------------------------
Net interest expense 10,533 10,618 31,056 32,233
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INCOME BEFORE INCOME TAXES 25,882 24,242 66,158 73,734
INCOME TAX EXPENSE 9,940 8,511 25,337 27,805
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NET INCOME 15,942 15,731 40,821 45,929
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OTHER COMPREHENSIVE INCOME, NET OF TAX:
- -----------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 15,942 $ 15,731 $ 40,821 $ 45,929
- -----------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
1
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
September 30, December 31,
(In Thousands) 1999 1998
- ----------------------------------------------------------------------------------
PROPERTY, PLANT, and EQUIPMENT:
Property, plant and equipment in service $ 1,528,441 $ 1,500,085
Accumulated depreciation (507,065) (479,824)
- ----------------------------------------------------------------------------------
Net plant in service 1,021,376 1,020,261
Construction work in progress 27,232 37,772
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Total property, plant & equipment - net 1,048,608 1,058,033
- ----------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents 2,457 1,080
Accounts receivable - gas transportation 20,320 15,480
Accounts receivable - fuel balancing and other 9,814 10,647
Inventories (at average cost) 8,703 7,950
Prepayments and other current assets 539 3,545
- ----------------------------------------------------------------------------------
Total current assets 41,833 38,702
- ----------------------------------------------------------------------------------
DEFERRED CHARGES:
Income tax related 25,471 25,400
Deferred charge on reacquired debt 11,546 12,449
Unamortized debt expense 3,334 3,625
Other regulatory assets 5,385 5,744
Other 1,148 1,105
- ----------------------------------------------------------------------------------
Total deferred charges 46,884 48,323
- ----------------------------------------------------------------------------------
TOTAL ASSETS $ 1,137,325 $ 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
- --------------------------------------------------------------------------------
September 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 64,639 68,818
- ---------------------------------------------------------------------------------------------
Total common stock equity 342,830 347,009
Long-term debt 569,350 587,979
- ---------------------------------------------------------------------------------------------
Total capitalization 912,180 934,988
- ---------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Long-term debt - current portion 486 456
Accounts payable 11,907 18,016
Accounts payable - affiliated companies 5,746 3,187
Accrued interest 10,211 4,095
Accrued liabilities 8,207 9,466
Accrued taxes 3,191 779
- ---------------------------------------------------------------------------------------------
Total current liabilities 39,748 35,999
- ---------------------------------------------------------------------------------------------
DEFERRED CREDITS:
Deferred income taxes 175,116 163,846
Other 10,281 10,225
- ---------------------------------------------------------------------------------------------
Total deferred credits 185,397 174,071
- ---------------------------------------------------------------------------------------------
CONTINGENCIES (see Note 2) - -
- ---------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $ 1,137,325 $ 1,145,058
- ---------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
3
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Statements of Consolidated Common Stock Equity
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF PERIOD $ 347,009 $ 431,727
Comprehensive income
Net income 40,821 45,929
Other comprehensive income - -
- ---------------------------------------------------------------------------------------------------------------------
Dividend paid to parent company (45,000) (130,000)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ 342,830 $ 347,656
- ---------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
4
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Statements of Consolidated Cash Flows
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30,
- ------------------------------------------------------------------------------------------------------------------------
(In Thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 40,821 $ 45,929
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 33,409 31,662
Deferred income taxes 11,270 12,278
Allowance for equity funds used during construction (927) (730)
Changes in operating assets and liabilities:
Accounts receivable (4,840) 1,490
Accounts receivable/payable - affiliated companies 2,559 266
Accounts receivable - fuel balancing and other 833 (2,840)
Accounts payable and other accrued liabilities (1,252) 574
Accrued taxes 2,412 2,534
Other working capital 2,253 3,756
Other - net 302 (677)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 86,840 94,242
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (21,042) (32,870)
Allowance for borrowed funds used during construction (942) (753)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,984) (33,623)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Issuance (Repayment) of long-term debt (18,479) 23,946
Dividend paid to parent (45,000) (130,000)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (63,479) (106,054)
- ------------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,377 (45,435)
CASH AND CASH EQUIVALENTS AT JANUARY 1 1,080 48,249
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 2,457 $ 2,814
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for (received from):
Interest $ 23,646 $ 24,578
Income taxes $ 9,881 $ 17,513
- ------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
Notes to Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------
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. 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.
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. The NOI maintains the cost cap on long-term services
and evaluates indexing and performance based rates. The Commission subsequently
has received numerous industry comments and has held hearings, including
regional hearings on gas demand, but has not taken further action. FERC also
issued a Statement of Policy in September 1999 addressing certification of new
interstate natural gas facilities. Among other things, this Statement of Policy
has modified on a prospective basis the Commission's guidelines for evaluating
the market need and pricing of new pipeline capacity.
These regulatory initiatives are not expected to have a material impact on
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 $44.0 million of regulatory assets net of related reserves as of
September 30, 1999.
RESULTS OF OPERATIONS
- ---------------------
Selected operating results and other data are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---------- ----------- ---------- -----------
(In Millions) (In Millions)
Operating revenues $ 55.7 $ 58.4 $ 164.9 $ 176.5
Operating expenses 25.8 25.1 74.5 72.4
--------- ----------- ---------- -----------
Operating income 29.9 33.3 90.4 104.1
Other income and (income deductions) 6.5 1.5 6.8 1.8
Net interest expense 10.5 10.6 31.1 32.2
--------- ----------- ---------- -----------
Income before taxes 25.9 24.2 66.1 73.7
Income tax expense 9.9 8.5 25.3 27.8
--------- ----------- ---------- -----------
Net Income 16.0 15.7 40.8 45.9
========= =========== ========== ===========
Net Income - Income for the three and nine-month periods ended September
30, 1999, increased $0.3 million and decreased $5.1 million, respectively,
compared to the same periods in 1998. The decrease in the nine-month period was
primarily the result of lower Operating Revenues and higher Operating Expenses
reflecting severance costs partially offset by higher Other Income.
Operating Revenues - Operating revenues for the three and nine-month
periods ended September 30, 1999 decreased $2.7 million and $11.6 million,
respectively, compared to the same periods in 1998. The decreases were primarily
due to lower short-term firm and interruptible service revenues, partially
offset by revenues generated from the 1998 expansion, which went into service on
November 1, 1998. Additionally, for the nine months ended
8
September 30, 1999, the decrease reflected lower Gas Research Institute (GRI)
surcharges collected from transportation customers under FERC-approved tariffs
and a refund of $3.9 million of GRI surcharges to customers as ordered by the
FERC in May 1999. This decrease was 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ------------ ------------- -----------
(In Millions) (In Millions)
Administrative and general $ 8.2 $ 8.6 $ 21.2 $ 22.7
Operations and maintenance 4.5 3.9 14.1 11.5
Depreciation and amortization 10.3 9.8 30.7 29.4
Property and other taxes 2.8 2.8 8.5 8.8
----------- ------------ ----------- -----------
Total operating expenses $ 25.8 $ 25.1 $ 74.5 $ 72.4
=========== ============ =========== ===========
For the three and nine-month periods ended September 30, 1999, compared
with the same periods in 1998, operating expenses increased $0.7 million and
$2.1 million, respectively. The increase in the three-month period reflects
increased year 2000 related costs, decreased capitalized labor costs and
increased depreciation expense. The increase in the nine-month period reflects
severance costs and higher maintenance costs of compressor units, partially
offset by a decrease in GRI costs for which there is a corresponding decrease in
transportation revenue.
Other Income and (Income Deductions) - Other income and income deductions
increased by $5.0 million for the three and nine-month periods. The increases
are primarily the result of favorable negotiations regarding a transportation
contract and other related issues completed in the third quarter.
Interest Expense - Interest expense for the three and nine-month periods
ended September 30, 1999, decreased $0.1 million and $1.1 million, respectively,
compared to the same periods in 1998. For the three months ended September 30,
1999 and 1998, the average interest rate was approximately 7.3 percent and 7.3
percent, respectively, while the average balance of long-term debt (excluding
capital lease obligations) outstanding was $570 million and $578 million,
respectively. For the nine months ended September 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 $583 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 nine months ended
September 30, 1999, net cash provided by operating activities was $86.8 million,
compared with $94.2 million for the same period in 1998. The $7.4 million
decrease was primarily due to the decrease in net income.
9
Net Cash Used in Investing Activities - For the nine months ended September
30, 1999 compared to the same period in 1998, net cash used in investing
activities decreased by $11.6 million. The decrease primarily reflects lower
construction expenditures in 1999.
Net Cash Used in Financing Activities - For the nine months ended September
30, 1999, cash used in financing activities was $63.5 million including $45.0
million in dividends paid, and an $18.5 million net decrease in long-term debt.
For the nine months ended September 30, 1998, cash used in financing activities
was $106.1 million including a $130 million dividend payment offset by a net
increase in debt of $23.9 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.
As reflected in the table below, the Company's mission-critical items have
been certified as Year 2000 ready with very few exceptions. These exceptions
will be resolved in November by the replacement of non Y2K-ready systems at a
compressor station. Contingency plans are in place to address any unlikely
delays or problems.
Year 2000 Readiness of Mission-Critical Items as of November 2, 1999
Remediation Testing Certification
Completed Completed Completed
-------------------------------------------------------------------------------------------
In-house software 100% 100% 100%
Vendor software 100% 100% 100%
Embedded systems 99% 99% 99%
Computer hardware 100% 100% 100%
"Clean management" practices have been implemented to prevent systems from
becoming compromised. 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 to minimize the risk of any significant disruption.
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)
10
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 have been incorporated into its emergency
plans and include measures such as emergency back-up and recovery procedures,
augmenting automated applications with manual processes, and identification of
alternate suppliers. The plans were tested in various drills throughout 1999,
and were updated as necessary.
As of September 30, 1999, PG&E GT-NW estimates total costs to address Year
2000 problems to be $16.0 million. Included are systems replaced or enhanced
for general business purposes and whose implementation schedules are critical to
the Company's Year 2000 readiness.
Through September 1999, PG&E GT-NW spent approximately $14.2 million, of
which $9.7 million was capitalized. Future costs to address Year 2000 issues are
expected to be $1.8 million, of which $1.0 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.
Although PG&E GT-NW expects its efforts and those of its external parties
to be 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.
11
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 10.1 - Sublease between PG&E Gas Transmission, Northwest
Corporation and Enron Communications, Inc., dated as of August 11, 1999, to
the Lease Agreement dated as of April 15, 1994, between Pacific Gas
Transmission Company (now PG&E Gas Transmission, Northwest Corporation) and
GIC Development 94-I, L.L.C.
Exhibit 10.2 - Amended and Restated Credit Agreement dated as of
May 24, 1999, among PG&E Gas Transmission, Northwest Corporation and certain
commercial institutions.
Exhibit 10.3 - 364-Day Credit Agreement dated as of May 24, 1999,
among PG&E Gas Transmission, Northwest Corporation and certain commercial
institutions.
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27 - Financial Data Schedule for the nine months ended
September 30, 1999.
(b) No reports on Form 8-K were issued during the quarter ended September 30,
1999 and through the date hereof.
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)
November 12, 1999 By: /s/ STANLEY C. KARCZEWSKI
--------------------------------
Name: Stanley C. Karczewski
Title: Vice President and Controller
14
EXHIBIT INDEX
Exhibit No.: Description of Exhibit
10.1 Sublease between PG&E Gas Transmission, Northwest Corporation and Enron
Communications, Inc., dated as of August 11, 1999, to the Lease Agreement
dated as of April 15, 1994, between Pacific Gas Transmission Company (now
PG&E Gas Transmission, Northwest Corporation) and GIC Development 94-I,
L.L.C.
10.2 Amended and Restated Credit Agreement dated as of May 24, 1999, among
PG&E Gas Transmission, Northwest Corporation and certain commercial
institutions
10.3 364-Day Credit Agreement dated as of May 24, 1999, among PG&E Gas
Transmission, Northwest Corporation and certain commercial institutions
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule for the nine months ended September 30, 1999.
15