• PG&E Corporation's consolidated net income for the second quarter of 2003 was $0.56 per share, compared with $0.59 per share for the same quarter last year. (All "per share" amounts in this release are presented on a diluted basis.)
• Consolidated earnings from operations for PG&E Corporation and Pacific Gas and Electric Company were $0.31 per share, compared with $0.56 per share for the same quarter last year.
• Pacific Gas and Electric Company's earnings from operations, without headroom, were $0.32 per share, compared with $0.54 per share for the same quarter last year.
• PG&E National Energy Group recorded a total net loss of $0.25 per share compared with a total net loss of $0.65 per share for the same quarter last year.
• Guidance for 2003 earnings from operations is reaffirmed at $1.90-$2.00 per share, for the Corporation and Pacific Gas and Electric Company. Guidance for 2004 earnings from operations is initiated at $2.00 - $2.10 per share.

(San Francisco) -- PG&E Corporation (NYSE: PCG) earned $227 million, or $0.56 per share, in consolidated net income for the second quarter of 2003, compared with consolidated net income of $218 million, or $0.59 per share, for the second quarter of 2002.

Second-quarter 2003 consolidated earnings from operations for PG&E Corporation and its California utility business, Pacific Gas and Electric Company, were $127 million, or $0.31 per share, compared with $207 million, or $0.56 per share for the second quarter last year.

"PG&E Corporation delivered earnings from operations in line with the company's expectations for the second quarter," said Robert D. Glynn, Jr., PG&E Corporation Chairman of the Board, CEO and President. "The Corporation's objectives for the remainder of 2003 are to continue operating the Pacific Gas and Electric business well, to deliver earnings from operations in line with our reaffirmed 2003 guidance, and to keep the proposed settlement agreement on schedule. PG&E Corporation is on track and on schedule to achieve these objectives."

PG&E Corporation's consolidated earnings from operations do not include results from NEG. Also excluded from earnings from operations are headroom at Pacific Gas and Electric Company, as well as certain non-operating income and expenses that are listed as "Items Impacting Comparability" on the attached supplemental financial table.

Income from headroom (the difference between generation-related costs and generation-related revenues) was a positive $321 million, or $0.78 per share, for the quarter compared with $366 million, or $0.99 per share, in the second quarter of 2002. Total headroom for the first two quarters of 2003 was a positive $140 million, or $0.37 per share, in line with the company's expectations.

Items impacting comparability at the Corporation and Pacific Gas and Electric Company included incremental interest costs of $73 million, or $0.18 per share; Chapter 11 costs and costs related to the California energy crisis of $31 million, or $0.07 per share, generally consisting of external legal and financial advisory fees; and charges of $14 million, or $0.03 per share, associated with prior year impacts of a revised decision related to the utility's 1999 General Rate Case.

The Corporation's quarterly report on Form 10-Q will disclose the earnings impact of accounting for stock options if the company were to record them as an expense. For the second quarter of 2003, accounting for stock options as an expense would have reduced earnings by $0.01 per share.

PACIFIC GAS AND ELECTRIC COMPANY

Pacific Gas and Electric Company, contributed $130 million, or $0.32 per share, to earnings from operations for the quarter, compared with $201 million, or $0.54 per share, for the same quarter last year.

As expected, the difference between second quarter 2003 and second quarter 2002 operating earnings per share at Pacific Gas and Electric Company reflected the following: the absence of a 2003 General Rate Case revenue increase to offset additional expenses associated with rate base growth, inflation, benefits and other costs; lower gas transmission revenues, as increased hydroelectric production reduced the demand for some gas-fired generation; and an increase in the average number of common shares outstanding. A final 2003 GRC decision is expected early next year. Revenues from the GRC will be retroactive for 2003.

Operational performance in Pacific Gas and Electric Company's businesses remained solid. The utility continued to receive high marks from customers responding to service surveys, with nine out of 10 respondents rating the quality of the service they received as good, very good or excellent.

During the quarter, Pacific Gas and Electric Company was also among the joint recipients of the 2003 ENERGY STAR® award for Regional, State and Community Leadership in Energy Efficiency, and the 2003 ENERGY STAR® Partner of the Year for New Homes award. The awards were given by the U.S. Environmental Protection Agency and the U.S. Department of Energy in recognition of the utility's strong contributions to California's efforts to reduce energy use.

PG&E NATIONAL ENERGY GROUP

PG&E Corporation's national wholesale energy business, PG&E National Energy Group, recorded a total net loss of $103 million, or $0.25 per share, after intercompany eliminations, for the second quarter of this year, compared with net loss of $241 million, or $0.65 per share, for the same quarter last year.

As previously reported, NEG has been reviewing its second quarter presentation methods for netting certain trading and hedging revenues and expenses. NEG has adopted a net presentation approach for such transactions and has reflected this change in its second quarter results. For prior periods, the NEG continues to review this matter, which generally arises as the result of changes made in 2002 to the presentation of trading and hedging revenues and expenses to reflect the netting of certain trading activities and the reclassification of discontinued operations. Any changes that may result from this continued review are not expected to affect the Corporation's operating income, net income, balance sheets or cash flow statements.

NEG and certain of its subsidiaries have filed for Chapter 11 protection in federal bankruptcy court. NEG filed a proposed plan of reorganization with the court that, if implemented would eliminate PG&E Corporation's equity interest in NEG.

For the period after July 8, 2003—the date of NEG's Chapter 11 filing—PG&E Corporation will no longer report NEG results on a consolidated basis and will use the cost method of accounting for its investment in NEG, in accordance with accounting rules.

PROPOSED SETTLEMENT AGREEMENT

On June 19, 2003, Pacific Gas and Electric Company and PG&E Corporation announced a proposed settlement agreement with the staff of the California Public Utilities Commission (CPUC) to resolve Pacific Gas and Electric Company's Chapter 11 case. The proposed settlement agreement was developed through a judicially supervised settlement conference with the CPUC staff and would resolve the differences between the competing plans of reorganization put forth by the company and the CPUC. The proposed settlement agreement calls for a new plan of reorganization under which Pacific Gas and Electric Company would aim to pay creditors and emerge from Chapter 11 by the end of the first quarter of 2004.

The new plan of reorganization, based on the terms of the proposed settlement agreement, has the support of the Official Committee of Unsecured Creditors. On August 15, 2003, the plan and disclosure statement were sent to creditors entitled to vote on the new plan. A proceeding is also under way at the CPUC to consider the proposed settlement agreement and allow for public comment. It is currently expected that the CPUC will vote on the proposed settlement agreement on December 18, 2003.

"PG&E Corporation believes the proposed settlement agreement and new plan provide the quickest way to resolve Pacific Gas and Electric Company's Chapter 11 case in a manner that is fair to our customers and our company," said Glynn. "The agreement's approval and implementation of the new plan will allow Pacific Gas and Electric Company to emerge from Chapter 11 as an investment grade utility, pay in full or otherwise fully satisfy all valid creditor claims, and do so while providing for a reduction in customers' rates."

GUIDANCE FOR 2003 AND 2004 EARNINGS FROM OPERATIONS

Reaffirming its previously issued earnings guidance, the Corporation expects 2003 earnings from operations for PG&E Corporation and Pacific Gas and Electric Company will be in the range of $1.90-$2.00 per share, not including headroom. For 2004, earnings from operations is expected to be in the range of $2.00 to $2.10 per share.

Guidance estimates reflect forecasted consolidated results for PG&E Corporation and Pacific Gas and Electric Company; guidance does not include NEG. Among the assumptions on which current guidance is based is the expectation that Pacific Gas and Electric Company receives a timely decision on its 2003 General Rate Case, and that the GRC decision is sufficient to allow the utility to recover increased costs due to inflation, customer growth and ratebase growth. (A discussion of the basis for guidance will be included in today's earnings conference call.)

PG&E Corporation bases guidance on "earnings from operations" in order to provide a measure that allows investors to compare the underlying financial performance of the business from one period to another, exclusive of items that management believes do not reflect the normal course of operations. Earnings from operations are not a substitute or alternative for total net income presented in accordance with generally accepted accounting principles.

The estimated range for 2003 earnings on a GAAP or "reported" basis for PG&E Corporation and Pacific Gas and Electric Company is $1.26-$2.18 per share. For 2004, the estimated ranges for reported earnings for PG&E Corporation and Pacific Gas and Electric Company is $1.78-$1.93 per share. The attachment to this news release reconciles estimated earnings from operations with estimated total net income.

A conference call with the financial community will be held today at 8:30 a.m. Pacific time to discuss PG&E Corporations 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) 690-2091, and also will be available on our website. International callers will be able to access the replay by dialing (402) 220-0646.

This press release and the attachment contain forward-looking statements regarding estimated earnings for 2003 and 2004, and the outcome of the Utility's Chapter 11 proceeding. These statements are based on current expectations and assumptions which management believes are reasonable, but these statements are necessarily subject to various risks and uncertainties. Some of the factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: