• PG&E Corporation reported total net income of $0.59 per share for the second quarter of 2002, compared with $2.07 per share for the second quarter of 2001. (All "per share" amounts in this release are presented on diluted basis.)

• On an operating basis, earnings without "headroom" were $0.50 per share, compared with $0.67 per share for the second quarter of 2001. Including "headroom," the Corporation's earnings from operations were $1.49 per share for the second quarter this year, compared with $1.08 per share for the second quarter of 2001.

• Pacific Gas and Electric Company's earnings from operations, without headroom, rose 13 percent over operating earnings for the same period a year ago, at $0.54 per share, compared with $0.48 per share for the second quarter of 2001.

• PG&E National Energy Group (PG&E NEG) reported an operating loss of $0.06 per share, compared with earnings from operations of $0.19 per share for the second quarter of 2001.

• PG&E NEG recorded a non-operating, after-tax charge of $159 million, or $0.43 per share, to reflect the write down of certain power plant development projects and related combustion turbine equipment.

• Credit ratings for PG&E NEG and its major subsidiaries were downgraded by Standard & Poor's yesterday, reflecting in part revised rating methodologies that S&P is applying across the board to the sector.

(SAN FRANCISCO, CA) PG&E Corporation (NYSE: PCG) reported today that it earned $218 million, or $0.59 per share, in total net income for the second quarter of 2002. The Corporation earned $750 million, or $2.07 per share, for the same quarter in 2001.

On an operating basis, the Corporation reported earnings both excluding and including $366 million, or $0.99 per share, of "headroom." Excluding headroom, earnings from operations were $186 million, or $0.50 per share for the quarter, compared with $243 million, or $0.67 per share for the same quarter last year. Including headroom, earnings from operations for the quarter were $552 million, or $1.49 per share, compared with $393 million, or $1.08 per share, for the same quarter in 2001.

Headroom reflects the partial recovery of prior uncollected wholesale power and transition costs that the company was required to write off during the energy crisis. Notwithstanding the amounts recovered in recent quarters, the utility's total uncollected costs remained at $4.7 billion on a pre-tax basis at the end of the second quarter.

"We continue to focus on the fundamentals critical to the long-term value of our businesses," said Robert D. Glynn, Jr., Chairman, CEO and President of PG&E Corporation. "At PG&E NEG, we're working to manage the impact of yesterday's rating action, weather the current market conditions and position our business for the recovery of wholesale power markets. At Pacific Gas and Electric Company, we're focused on operating our business well from top to bottom while resolving the company's Chapter 11 case."

Total net income for the second quarter also reflected several items impacting comparability with second quarter 2001 results, including a $159 million, or $0.43 per share, write down of certain power plant development projects and related combustion turbine equipment at the PG&E NEG (discussed later in this release). Additional significant items impacting comparability included the cumulative effect of an accounting change resulting in a charge of $61 million, or $0.16 per share, at the PG&E NEG, which in April 2002 adopted a requirement to mark certain power sales and fuel contracts to market in compliance with an interpretation issued by the Financial Accounting Standards Board. Other items included incremental interest costs of $90 million, or $0.24 per share, associated with the energy crisis and the utility's Chapter 11 filing, and bankruptcy-related costs of $21 million, or $0.06 per share, generally consisting of external legal and financial advisory fees.

The Corporation's quarterly report (Form 10Q), to be filed today with the Securities and Exchange Commission (SEC), also includes the earnings impact of accounting for stock options if the company were to record them as an expense. For the second quarter, accounting for stock options as an expense would have reduced earnings by $0.02 per share. The Corporation includes this information in its annual report to the SEC. The Corporation's future Form 10Q disclosures will continue to include the impact of accounting for stock options as an expense in order to provide greater transparency for investors.

PG&E National Energy Group

The Corporation's national wholesale energy business, PG&E National Energy Group, reported an operating loss of $21 million, or $0.06 per share, for the quarter, compared with earnings from operations of $71 million, or $0.19 per share, for the second quarter of last year.

PG&E NEG's operating loss for the second quarter reflected the impact of unfavorable wholesale market conditions on the unit's Integrated Energy and Marketing segment, which recorded an operating loss of $0.08 per share, compared with earnings from operations of $0.14 per share for the same quarter last year. Mild weather, the slow economy and the over-supply of new generation in most market regions have led to the persistence of lower-than-expected spark spreads through the second quarter.

Performance on the PG&E NEG's Northwest natural gas pipeline, which operates almost entirely under long-term contracts, remained solid for the second quarter. The Interstate Pipeline Operations segment of the PG&E NEG contributed $0.04 per share for the quarter, compared with $0.05 per share for the same quarter of 2001.

Write-Down for Power Plant Development Projects

In response to the oversupply of generation in most regional markets and the resulting compressed spark spreads, the PG&E NEG is writing down the value of 3,000 megawatts of power plant development projects and 10,000 megawatts of combustion turbines and related equipment. The total write-down after tax is $159 million, or $0.43 per share.

In addition to these actions, PG&E NEG continues to focus on reducing expenditures, maintaining liquidity and strengthening its balance sheet. Steps already taken have included cuts in new power plant construction and the initiation of a program to reduce administrative, general and other operating costs, with a minimum target annual expense reduction of $40 million. The reductions are expected to occur in the power plant development area and the functions that support it, as well as other operating expense areas. Third-quarter results are expected to include a pre-tax non-operating charge to reflect the costs of this effort.

Standard & Poor's Credit Rating Downgrade

Yesterday, Standard & Poor's Rating Services lowered the credit ratings of the PG&E NEG and its energy trading and New England generating operating units to below investment grade, and placed each of these companies on CreditWatch with negative implications. S&P lowered PG&E NEG's Northwest gas transmission unit by one notch, still leaving it investment grade at BBB+. S&P stated that its action in part was based on revised rating methodologies that are being applied across the board to the energy sector.

Although PG&E NEG has successfully removed ratings triggers from many of its financial arrangements in recent months, the action impacts certain other guarantees and financial arrangements that require PG&E NEG to maintain investment grade credit ratings from the rating agencies.

Last year, we worked very successfully with our counterparties when it became necessary to address similar credit-related challenges following the loss of PG&E Corporation's investment grade credit rating, which had provided much of the credit support to the PG&E NEG," said Glynn. "While the downgrades are a significant challenge, we have a contingency plan in place that is designed to address this challenge, and we are implementing that plan."

Pacific Gas And Electric Company

Not including headroom, the Corporation's California utility business, Pacific Gas and Electric Company, contributed $201 million, or $0.54 per share, to earnings from operations for the quarter, compared with $175 million, or $0.48 per share, for the same period in 2001. Earnings from operations including headroom were $567 million, or $1.53 per share, for the quarter, compared with $325 million, or $0.89 per share, for the same quarter last year.

The quarter-over-quarter change is attributable primarily to two factors: the refueling outage at Diablo Canyon Nuclear Power Plant, which had an adverse impact on first quarter 2001 results under the incentive-based rates in place last year; and the CPUC-authorized attrition rate adjustment for 2001. These factors were partially offset by the lack of a 2002 attrition rate adjustment, as well as the return to historical volumes on the utility's California gas transmission operations.

Electric sales were $2.2 billion, compared with $1.5 billion for the same quarter last year. Natural gas transport sales on the utility's pipeline were $521 million, compared with $812 million for the second quarter last year. The decline in natural gas transport volumes reflects a return to historical levels, compared with unusually high volumes during 2001.

Operational performance at the utility remained strong in the second quarter, as the utility continued to deliver safe, reliable electric and gas service. Diablo Canyon achieved a capacity factor of 80 percent, reflecting a successful 30-day refueling outage. The utility also received high marks from customers responding to its customer service survey, with 90 percent rating their service as good, very good or excellent-the highest scores since the third quarter of 2000.

Accomplishments in the second quarter also included significant milestones in the utility's Chapter 11 case. The utility's Plan of Reorganization was sent to creditors for a vote, along with the alternative plan proposed by the California Public Utilities Commission. Votes on the plans are due August 12.

"In the 482 days since Pacific Gas and Electric Company filed Chapter 11, our utility team has run its operations exceptionally well," said Glynn. "The underpinning of everything that has gone in that time has been the outstanding work of the men and women of Pacific Gas and Electric Company delivering natural gas and electricity to approximately 14 million Californians, delivering it with increasing reliability; with greater customer satisfaction with their interactions with our front-line team members; with the lowest system average electric price of any of California's three large investor-owned utilities; with a safety record that gets better and better; with continued care of the environment while getting the job done; with the best-ever performance results in our equal opportunity purchasing program; and also delivering to our communities a base level of continued financial contribution aimed primarily at those in our society who are most economically at-risk. This is the foundation on which our company can advocate its plan of reorganization, a plan that appropriately includes the issue of shareholder equity. This is the solid foundation provided by the 24 by 365 performance from Pacific Gas and Electric Company's entire team."

Earning Guidance

The Corporation is adjusting its earnings guidance for 2002 to reflect the lower-than-expected second quarter wholesale prices and the absence of signs pointing to an imminent recovery in the wholesale power markets, as well as the dilution associated with the Corporation's refinancing of its loan agreement with GE Capital and Lehman Brothers, as disclosed in an SEC filing on June 26, 2002. Excluding headroom, earnings from operations are expected to be in the range of $2.25-$2.35 per share for the year, revised from previous estimates of $2.50-$2.55. The Corporation projects earnings from operations for 2002, including headroom, will exceed $4.75 per share.

"The company's second quarter financial results and the change in our 2002 earnings outlook are a disappointment to this management team," said Glynn. "Our investors expect results that create a strong basis for growing value, regardless of market conditions. We are focused on delivering that through the actions we've already taken this year and those we intend to take over the remainder of 2002."

A conference call with the financial community will be held today at 5:30 AM Pacific time to discuss the Corporation's results for the quarter. The call will be open to the public on a listen-only basis via webcast. Please visit our website www.pgecorp.com for more information and instructions for accessing the webcast. A replay of the conference call will be available toll-free by calling (877) 690-2090, and also will be available on our website. International callers will be able to access the replay by dialing (402) 220-0651.

* Terms Used in This Release

Headroom - Headroom is generation-related revenues in excess of power costs at Pacific Gas and Electric Company.

Spark Spread - The differential between wholesale electric prices and the cost of converting natural gas to electricity.

Tolling Agreement - Contracts that provide the holder with the rights to sell electricity generated by facilities owned and operated by another party. Under such arrangements, the holder supplies the fuel to the power plant, and then sells the plant's output in the competitive market.

This press release contains forward-looking statements regarding management's guidance regarding 2002 earnings per share and PG&E NEG expenses that are necessarily subject to various risks and uncertainties. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of many factors, including:

• the extent to which the outcome of regulatory proceedings and other regulatory actions affect the quarterly amount of "headroom" (the current recovery in the Utility's existing electric rates of prior uncollected costs previously written off for accounting principles generally accepted in the United States) recognized by the Utility;
• the pace and outcome of the Utility's bankruptcy case;
• the circumstances under which the Utility is required to re-assume the obligation to purchase power for its retail customers after January 1, 2003 when the California Department of Water Resources (DWR) will no longer be authorized to purchase power and the extent to which the Utility will be required to accept assignment of the DWR's existing power contracts;
• the outcome of pending regulatory proceedings, environmental matters, and litigation;
• the volatility of commodity fuel and electricity prices and the effectiveness of PG&E NEG's and the Utility's risk management policies and procedures;
• the extent to which the ability of PG&E Corporation or PG&E NEG to obtain financing or capital on reasonable terms is affected by conditions in the general economy, the energy or capital markets, by restrictions imposed on PG&E Corporation or PG&E NEG under their respective credit facilities, by changes in PG&E NEG's credit ratings, and by the interpretation of the CPUC's holding company conditions;
• the extent to which PG&E NEG's current or planned construction of generation, pipeline, and storage facilities is completed and the pace and cost of that completion and the potential loss of permits or other rights in connection with PG&E NEG's decision to delay or deter construction;
• various development and construction risks, including the extent to which PG&E NEG's development plans and strategies are affected by changes in the national energy markets and by the timing of generating, pipeline, and storage capacity expansion and retirements by others;
• restrictions imposed upon PG&E Corporation and PG&E NEG under certain term loans of PG&E Corporation, including requirements for PG&E Corporation to comply with debt covenants regarding cash reserves, loan to value ratios, and investment grade credit ratings, among others;
• future sales levels;
• volatility in income resulting from mark-to-market accounting, changes in mark-to-market methodologies, and the extent to which the assumptions underlying PG&E NEG's and the Utility's mark-to-market accounting and risk management programs are not realized;
• the effect of compliance with existing and future environmental laws, regulations, and policies, the cost of which could be significant; and
• the impact of the recent or future downgrades in credit ratings of PG&E NEG and other subsidiaries on PG&E NEG's and PG&E Corporation's financial condition.