Proposed Settlement with CPUC Staff is Fair, Reasonable, and in the Public Interest; Will Close a Difficult Chapter in the State's Energy History

SAN FRANCISCO - Gordon R. Smith, Pacific Gas and Electric Company's president and chief executive officer, today urged the California Public Utilities Commission (CPUC) to approve "without change" the proposed settlement agreement reached between PG&E and the CPUC staff.

"The proposed settlement agreement represents the only consensual means of putting the disputes related to the energy crisis behind us and moving to a more secure future for our customers, employees and investors alike," said Smith. "The proposed settlement presents a unique opportunity to close a difficult chapter in California's energy history.

"It is only a slight exaggeration to say that the entire financial world is watching us today, and will be watching which road you choose to take. The financial markets hope and expect you to continue restoring the credibility of California regulation."

In remarks at this morning's CPUC hearing on the recent proposed decisions in the utility's Chapter 11 proceeding, Smith highlighted some of the important benefits of the proposed settlement agreement reached with the CPUC staff in June 2003, including:

• A rate decrease for customers: Beginning on January 1, 2004, customers will have their electricity rates reduced by more than $600 million with the opportunity for additional rate reductions in the future. (In their proposed decisions, both Commission President Michael Peevey and the CPUC administrative law judge noted that the rate reduction provisions of the proposed settlement are fair, reasonable and in the public interest.)
• Environmental benefits, including the protection of the 140,000 acres of sensitive watershed lands surrounding the company's hydroelectric facilities. (A number of organizations have announced their support for the environmental agreement, including the California Hydropower Reform Coalition, the California Farm Bureau, and the State Water Resources Control Board.)
• Restoration of PG&E's financial health and investment grade credit rating to allow the company to access the capital markets in order to finance, at historically low interest rates, the infrastructure improvements and long-term procurement of natural gas and electricity needed to support California's economy.

Pending the Commission's vote and the confirmation of the associated plan of reorganization by the federal bankruptcy court expected this month, the company has targeted the end of the first quarter of 2004 for its exit from Chapter 11. Emerging as an investment grade utility would allow the company to take advantage of historically low interest rates as it finances the new debt, which experts have projected will save customers over $2.1 billion in lower interest costs over the next 10 years alone.

In addition to the endorsement of the Official Committee of Unsecured Creditors, the proposed settlement agreement received the support of more than 97 percent of the voting creditors.

"Rejection of the settlement, or a substantive modification, would be a return to prolonged litigation over the past, and represent a devastating blow to California's efforts to restore its credibility in financial markets," added Smith. "We are not prepared to support any settlement except the proposed settlement agreement we negotiated with your staff under the supervision of Judge Newsome.

"Today, we have a chance to put the energy crisis behind us, and to put PG&E back on track toward achieving the goals we mutually set for ourselves 'to ensure safe and reliable service to customers at reasonable rates' and under a system of public utility regulation that is balanced, stable and respected across the country and the world," concluded Smith.

On December 8, PG&E along with the other parties will file comments on the proposed decisions and the full Commission is scheduled to take up the proposed settlement at its December 18th meeting. The Bankruptcy Court confirmation trial concluded last Monday, three weeks earlier than expected, and the Court has indicated it intends to issue a decision before December 18.

The statements in this release regarding management's beliefs and expectations with respect to Pacific Gas and Electric Company's future financial health and exit from Chapter 11 are forward-looking statements that are subject to a number of risks and assumptions. Actual results could differ materially depending on many factors, including whether the proposed settlement agreement in the utility's Chapter 11 case is approved by the CPUC, whether the plan of reorganization embodying the terms of the proposed settlement agreement is confirmed by the Bankruptcy Court and timely implemented, whether the assumptions underlying the company's financial projections furnished to the Securities and Exchange Commission (SEC) on a Form 8-K dated October 14, 2003 are realized, the outcome of various regulatory proceedings, and other factors discussed in PG&E Corporation's and Pacific Gas and Electric Company's reports provided to the SEC.