SAN FRANCISCO - Pacific Gas and Electric Company has reached a significant milestone in its Chapter 11 case, with the conclusion of the public evidentiary hearings on the proposed settlement agreement between PG&E and the California Public Utilities Commission (CPUC) staff. The CPUC hearings were completed on Friday, September 26, 2003, on the schedule established by Administrative Law Judge (ALJ) Robert Barnett.

On Thursday, PG&E and a number of organizations representing federal, state and local governments, environmental groups, resource conservation, agricultural and water organizations entered into a comprehensive stipulation, which resolves most, if not all, of the environmental issues pertaining to the proposed settlement agreement.

During the nine days of hearings, the witnesses presented by PG&E and the CPUC staff testified extensively about the structure, benefits and financing aspects of the proposed settlement agreement.

PG&E completed extensive cross-examination of the TURN witnesses who were suggesting an alternative plan involving a designated rate component. PG&E maintains that the proposed alternative is not feasible as a practical matter, will not generate savings for ratepayers commensurate with the added cost of delay and risk of non-execution, and cannot be done in any case without specific statutory authorization. The company feels its position on this matter was borne out in the hearings.

In response to comments by ALJ Barnett at the close of the hearings that he did not believe the CPUC can bind future Commissions and that it should not subject itself to Bankruptcy Court on-going jurisdiction - two elements of the settlement agreement - the company believes that this legal issue already has been resolved by the CPUC and the Bankruptcy Court in previous decisions.

Significantly, the CPUC has previously asserted, in filings and sworn testimony in federal Bankruptcy Court, that the Commission could and would bind itself to any agreement implementing a plan of reorganization. Bankruptcy Judge Dennis Montali agreed with the Commission's position on this issue in a ruling last November. The California Supreme Court recently affirmed that the CPUC has authority under state law to enter into a binding settlement agreement, in the Southern California Edison case.

In addition, during the just-concluded evidentiary hearings, the CPUC staff and TURN witnesses testified that the CPUC does have the legal authority to bind itself and future commissions to implement a plan of reorganization.

Finally, inasmuch as this issue is fundamental to the CPUC's ability to propose any plan of reorganization, PG&E believes the Commission will resolve this issue favorably.

The CPUC approval process is expected to proceed on schedule, with briefs due on October 10, a proposed decision by the ALJ on November 18, 2003 and a final Commission decision in late December 2003.