Company Forecasts 2005 Earnings from Operations to Be $2.10 to $2.20 per Share

• PG&E Corporation earned $0.88 per share in consolidated net income in the second quarter of 2004, compared with $0.55 per share in the same quarter of 2003. (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 for the quarter were $0.70 per share, compared with $0.31 per share in the same quarter of 2003.
• Pacific Gas and Electric Company's second quarter earnings from operations were $0.72 per share, compared with $0.32 per share for the same quarter of 2003.

(San Francisco) -- PG&E Corporation (NYSE: PCG) reported $372 million, or $0.88 per share, in consolidated net income in the second quarter of 2004, compared with $227 million, or $0.55 per share, in the second quarter of 2003. Quarter-over-quarter consolidated net income rose primarily because the 2003 and 2004 financial effects of Pacific Gas and Electric Company's 2003 General Rate Case (GRC) were booked cumulatively in the second quarter, after the California Public Utilities Commission (CPUC) reached a final decision in the case on May 27, 2004.

On an earnings-from-operations basis, PG&E Corporation and Pacific Gas and Electric Company earned $298 million, or $0.70 per share in the second quarter, compared with $127 million, or $0.31 per share in the second quarter last year.

"Pacific Gas and Electric Company delivered solid earnings from operations and reached important regulatory and legislative milestones last quarter," said Robert D. Glynn, Jr., PG&E Corporation Chairman, CEO and President. "The results reaffirm our positive outlook for the full year 2004 and 2005, which includes meeting our $2.00 to $2.10 per share target range for 2004 earnings from operations, and a target of $2.10 to $2.20 for 2005," said Glynn.

In addition to earnings growth, the Corporation's outlook includes substantial cash flows in 2005 through 2008, providing a basis for common stock dividends and share repurchases, as well as the potential to make additional investments in its core utility business.

A significant portion of the projected cash flows would be accelerated if, as approved last quarter by the state legislature, Pacific Gas and Electric Company issues Energy Recovery Bonds to refinance a $2.21 billion after-tax regulatory asset. The bonds would save customers approximately $1 billion over the next nine years. The utility is targeting January 2005 to issue the first series of bonds.

"Our previous projected cash flows provide a clear basis for the Corporation's aspiration to pay a dividend in the second half of 2005," said Glynn. "With the refinancing of the utility's regulatory asset, we would aspire to pay a dividend in the first half of 2005."

PG&E Corporation's second quarter earnings from operations exclude certain non-operating income and expenses. These items are included in the line "Items Impacting Comparability" on the attached financial tables, which reconcile earnings from operations with consolidated net income as reported in accordance with generally accepted accounting principles (GAAP). Also excluded from earnings from operations are the prior-year results from National Energy & Gas Transmission, Inc. (NEGT).

For the second quarter, items impacting comparability at the Corporation and Pacific Gas and Electric Company primarily included a net $90 million, or $0.21 per share, for the recognition of certain net regulatory assets; and $30 million, or $0.07 per share, of gas distribution revenue increases authorized retroactively for 2003. Additional items impacting comparability included incremental interest costs of $20 million, or $0.04 per share; Chapter 11 costs of $6 million, or $0.02 per share, generally consisting of external legal fees, financial advisory fees and other related costs; and $20 million, or $0.04 per share, reflecting the estimated change in the market value of dividend participation rights associated with the Corporation's convertible notes.

As disclosed in the Corporation's quarterly report on Form 10-Q for the quarter, accounting for stock options as an expense in the quarter would have reduced earnings by $0.01 per share.

PACIFIC GAS AND ELECTRIC COMPANY

Pacific Gas and Electric Company contributed $307 million, or $0.72 per share, to earnings from operations in the second quarter, compared with $130 million, or $0.32 per share, in the second quarter of last year.

With the approval of the 2003 GRC in May, the utility received final authorization from the CPUC for gas and electric base revenue increases and certain minimum future revenue adjustments through 2006 to cover the cost of new investment in energy infrastructure and inflation. The quarter-over-quarter difference in utility earnings from operations primarily reflects the year-to-date effects of GRC- and attrition-related revenue increases, totaling $0.30 per share, all of which is reflected in second quarter 2004 results.

Additionally, second quarter 2004 earnings from operations include approximately $0.07 per share of equity return on the regulatory asset established under the settlement agreement resolving Pacific Gas and Electric Company's Chapter 11 case. The remaining difference was primarily due to higher electric and gas transmission revenues offset by the costs associated with rate base growth and inflation.

EARNINGS GUIDANCE

PG&E Corporation is estimating that 2005 earnings from operations for the holding company and Pacific Gas and Electric Company will be in the range of $2.10 to $2.20 per share. Among the assumptions underlying the 2005 estimates are the utility earning its authorized return on equity of 11.22 percent; the issuance of the first series of Energy Recovery Bonds by January 2005; and the utility's achievement of the CPUC-authorized capital structure.

Reaffirming its previously issued earnings guidance, the Corporation expects 2004 earnings from operations for PG&E Corporation and Pacific Gas and Electric Company to be in the range of $2.00-$2.10 per share.

Guidance estimates reflect forecasted results for PG&E Corporation and Pacific Gas and Electric Company; guidance does not include NEGT, since the Corporation will retain no ownership interest once NEGT's Chapter 11 case is completed.

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 consolidated net income presented in accordance with GAAP.

The attachment to this news release reconciles 2004 and 2005 estimated earnings per share from operations with estimated consolidated net income per share in accordance with GAAP.

A conference call with the financial community will be held today at 9:00 a.m. Eastern Standard Time to discuss PG&E Corporation's results for the second quarter of 2004. The call will be open to the public on a listen-only basis via webcast. Please visit our website at www.pgecorp.com for more information and instructions for accessing the conference call webcast. The call will be archived at www.pgecorp.com. Alternatively, a toll-free replay of the conference call may be accessed shortly after the live call through 9:00 p.m. EDT, August 10, 2004, by dialing
(877) 470-0867. International callers may dial (402)-220-0642.

This press release and the attachment contain forward-looking statements regarding estimated earnings for 2004 and 2005 and management's outlook for substantial cash flows in 2005 through 2008. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management but are necessarily subject to various risks and uncertainties. Actual results could differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause future results to differ materially include:

• The timing and resolution of the petitions for review that were filed in the California Court of Appeal seeking review of the CPUC's December 18, 2003 decision approving the Settlement Agreement and the CPUC's March 16, 2004 denial of applications for rehearing of the December 18, 2003 decision;
• The timing and resolution of the pending appeals of the bankruptcy court's order confirming the Utility's Plan of Reorganization,
• Whether the conditions to securitizing the $2.21 billion after-tax regulatory asset established under the Settlement Agreement are met, and if so, the timing and amount of the securitization,
• Whether the CPUC approves the Utility's long-term electricity resource plan and adopts the Utility's related ratemaking proposals, whether the assumptions and forecasts underlying the long-term resource plan prove to be accurate, and the terms and conditions of the long-term resource commitments the Utility enters into in connection with its long-term resource plan;
• Unanticipated changes in operating expenses or capital expenditures affecting the Utility's ability to earn its authorized rate of return;
• The level and volatility of wholesale electricity and natural gas prices and supplies, the Utility's ability to manage and respond to the levels and volatility successfully, and the extent to which the Utility is able to timely recover increased costs related to such volatility;
• The extent to which the Utility's residual net open position (i.e., that portion of the Utility's electricity customers' demand not satisfied by electricity that the Utility generates or has under contract, or by electricity provided under the California Department of Water Resources electricity contracts allocated to the Utility's customers) increases or decreases;
• The operation of the Utility's Diablo Canyon nuclear power plant which exposes the Utility to potentially significant environmental and capital expenditure outlays and, to the extent the Utility is unable to increase its spent fuel storage capacity by 2007 or find an alternative depository, the risk that the Utility may be required to close the Diablo Canyon power plant and purchase electricity from more expensive sources;
• The impact of current and future ratemaking actions of the CPUC, including the risk of material differences between forecasted costs used to determine rates and actual costs incurred;
• The extent to which the CPUC or the FERC delays or denies recovery of the Utility's costs from customers due to a regulatory determination that such costs were not reasonable or prudent or for other reasons resulting in write-offs of regulatory balancing accounts;
• How the CPUC administers the capital structure, stand-alone dividend and first priority conditions of the CPUC's decisions permitting the establishment of holding companies for California investor-owned electric utilities;
• The impact of future legislative or regulatory actions or policies;
• Increased competition;
• The outcome of pending litigation; and
• Other factors discussed in PG&E Corporation's and Pacific Gas and Electric Company's SEC reports.