<SUBMISSION>
<ACCESSION-NUMBER>0001004980-03-000126
<TYPE>8-K
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20030619
<ITEMS>5
<ITEMS>7
<FILING-DATE>20030620
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>PG&E CORP
<CIK>0001004980
<ASSIGNED-SIC>4931
<IRS-NUMBER>943234914
<STATE-OF-INCORPORATION>CA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>8-K
<ACT>34
<FILE-NUMBER>001-12609
<FILM-NUMBER>03750831
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>ONE MARKET SPEAR TOWER
<STREET2>SUITE 2400
<CITY>SAN FRANCISCO
<STATE>CA
<ZIP>94105
<PHONE>4152677000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>ONE MARKET SPEAR TOWER
<STREET2>SUITE 2400
<CITY>SAN FRANCISCO
<STATE>CA
<ZIP>94105
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>PG&E PARENT CO INC
<DATE-CHANGED>19951214
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>final061903.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<html>
<head>
<title></title>
</head>
<body link="blue" vlink="purple">
<div>
<table border="0" cellspacing="0" cellpadding="0" width="644">
<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">SECURITIES
AND EXCHANGE COMMISSION</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">Washington,
D.C.&nbsp; 20549</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">FORM
8-K</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">CURRENT
REPORT</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">Date of
Report: June 19, 2003</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p align="center"><font size="3" face="Times New Roman"><br />
 Commission<br />
 File<br />
 Number</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face="Times New Roman">Exact Name
of<br />
 Registrant<br />
 as specified in<br />
 its charter</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face="Times New Roman"><br />
 State or other<br />
 Jurisdiction of<br />
 Incorporation</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face="Times New Roman"><br />
 IRS Employer<br />
 &nbsp; Identification<br />
 Number</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">_____________</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">_____________</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">_____________</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">_____________</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">1-12609</font></p>

<p align="center"><font size="3" face=
"Times New Roman">1-2348</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face="Times New Roman">PG&amp;E
Corporation</font></p>

<p align="center"><font size="3" face="Times New Roman">Pacific Gas
and<br />
 Electric Company</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">California</font></p>

<p align="center"><font size="3" face=
"Times New Roman">California</font></p>
</td>
<td valign="top">
<p align="center"><font size="3" face=
"Times New Roman">94-3234914</font></p>

<p align="center"><font size="3" face=
"Times New Roman">94-0742640</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top"></td>
<td valign="top"></td>
<td valign="top"></td>
</tr>

<tr>
<td colspan="2" valign="top">
<p align="center"><font size="3" face="Times New Roman">Pacific Gas
and Electric Company<br />
 77 Beale Street, P. O. Box 770000<br />
 San Francisco, California&nbsp;&nbsp;94177</font></p>
</td>
<td colspan="2" valign="top">
<p align="center"><font size="3" face="Times New Roman">PG&amp;E
Corporation<br />
 One Market, Spear Tower, Suite 2400<br />
 San Francisco, California&nbsp;&nbsp;94105</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face="Times New Roman">(Address of
principal executive offices) (Zip Code)</font></p>
</td>
</tr>

<tr>
<td valign="top"></td>
<td valign="top"></td>
<td valign="top"></td>
<td valign="top"></td>
</tr>

<tr>
<td colspan="2" valign="top">
<p align="center"><font size="3" face="Times New Roman">Pacific Gas
and Electric Company<br />
 (415) 973-7000</font></p>
</td>
<td colspan="2" valign="top">
<p align="center"><font size="3" face="Times New Roman">PG&amp;E
Corporation<br />
 (415) 267-7000</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
</tr>

<tr>
<td colspan="4" valign="top">
<p align="center"><font size="3" face=
"Times New Roman">(Registrant's telephone number, including area
code)</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top"></td>
<td valign="top"></td>
<td valign="top"></td>
</tr>
</table>

<div align="center"><font size="3" face="Times New Roman"></font>
<hr size="2" width="100%" align="center" />
</div>

<p><font size="3" face="Times New Roman">Item 5. Other
Events</font></p>

<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June 19, 2003,
PG&amp;E Corporation and its subsidiary, Pacific Gas and Electric
Company (Utility) and the staff of the California Public Utilities
Commission (CPUC) announced a proposed settlement agreement
regarding the competing plans of reorganization submitted in the
Utility&rsquo;s proceeding under Chapter 11 of the U.S. Bankruptcy
Code pending in the U.S. Bankruptcy Court for the Northern District
of California (Bankruptcy Court).&nbsp; The proposed settlement
agreement, which the CPUC staff will recommend to the CPUC and to
the Bankruptcy Court, follows judicially supervised settlement
discussions before Judge Randall Newsome.&nbsp; Under the proposed
settlement agreement, the parties would agree to jointly support a
proposed plan of reorganization (Settlement Plan) that embodies the
terms and conditions contained in the settlement agreement.&nbsp;
PG&amp;E Corporation and the Utility would agree that they would no
longer propose to disaggregate the historic businesses of the
Utility as provided for in PG&amp;E Corporation&rsquo;s and the
Utility&rsquo;s proposed plan of reorganization (PG&amp;E
Plan).&nbsp; Instead the Utility would remain a vertically
integrated utility subject to the CPUC&rsquo;s jurisdiction.&nbsp;
In the proposed settlement agreement, the CPUC would acknowledge
that it is fair and in the public interest to allow the Utility to
recover, over a reasonable time, prior uncollected costs and to
provide the opportunity for the Utility&rsquo;s shareholders to
earn a reasonable rate of return on the Utility&rsquo;s
business.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The settlement
agreement is subject to the approval of the Boards of Directors of
PG&amp;E Corporation and the Utility, and the CPUC and execution of
the settlement agreement on or before December 31, 2003.&nbsp; The
CPUC will conduct a public hearing process before deciding whether
or not to approve the settlement agreement.&nbsp; A copy of the
proposed settlement agreement is filed with this report as an
exhibit.</font></p>

<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The settlement
agreement is expressly conditioned on the preparation and approval
by the Bankruptcy Court of the Settlement Plan, the disclosure
statement for the Settlement Plan, and the Bankruptcy Court&rsquo;s
order confirming the Settlement Plan, each in form and substance
reasonably satisfactory to each party.&nbsp; The proposed
settlement agreement provides, among other conditions, that the
Settlement Plan would not become effective (Effective Date) until
(1) Standard &amp; Poor&rsquo;s (S&amp;P) and Moody&rsquo;s
Investors Service (Moody&rsquo;s) have issued credit ratings for
the Utility of not less than BBB- and Baa3, respectively, and (2)
the CPUC has given final, nonappealable approval for all rates,
tariffs, and agreements necessary to implement the Settlement Plan,
although PG&amp;E Corporation and the Utility would have the right
to waive the finality provision.&nbsp;</font></p>

<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></b> Among
other terms, the settlement agreement provides that:</p>

<p><font size="3" face="Times New Roman">&nbsp;<u>Regulatory
Asset</u></font></p>

<p><font size="3" face="Times New Roman">The CPUC would establish
an after-tax regulatory asset of $2.21 billion (Regulatory Asset)
as a new, separate and additional part of the Utility&rsquo;s rate
base. The Regulatory Asset would be amortized on a mortgage-style
basis over nine years beginning January 1, 2004.&nbsp; The details
and mechanics of the amortization are set forth on Appendix A to
the settlement agreement.</font></p>

<p><font size="3" face="Times New Roman">The net after-tax amount
of any refunds, claim offsets or other credits from generators or
other energy suppliers relating to the Utility&rsquo;s power
procurement costs that the Utility actually realizes in cash or by
offset of creditor claims in its bankruptcy case would be applied
to reduce the outstanding balance and the remaining amortization of
the Regulatory Asset.&nbsp; Amounts received in cash by the Utility
from the master settlement agreement resolving an&nbsp; El Paso
Natural Gas Company matter pending before the Federal Energy
Regulatory Commission (FERC) and related civil litigation may also
effect such a reduction, if consistent with CPUC rules or
orders.&nbsp;</font></p>

<p><font size="3" face="Times New Roman">The Regulatory Asset would
earn a return on equity (ROE) of at least 11.22 percent for the
life of the Regulatory Asset and after the equity component of the
Utility&rsquo;s capital structure reaches 52 percent, the
authorized equity component of the Regulatory Asset would be no
less than 52 percent for the life of the Regulatory
Asset.&nbsp;</font></p>

<p><font size="3" face="Times New Roman">Balances in the
Utility&rsquo;s Transition Cost Balancing Account (which tracks the
amount of the Utility&rsquo;s undercollected transition and
electricity procurement costs) as of the Effective Date would have
no further impact on the Utility&rsquo;s retail electric rates and
would not be subject to further CPUC review except for verification
of recorded balances.</font></p>

<p><font size="3" face="Times New Roman">The Utility&rsquo;s rate
base for its retained generation (URG) already established by the
CPUC would be deemed just and reasonable and would not be subject
to modification, adjustment or reduction, except as necessary to
reflect capital expenditures and any change in authorized
depreciation; provided that the CPUC would not be precluded from
determining the reasonableness of any capital expenditures made on
URG after the Effective Date.&nbsp; The CPUC would commit that it
would not reduce or impair the value of the Regulatory Asset or the
URG rate base by taking the Regulatory Asset or the URG rate base,
their amortization or earnings into account when setting other
Utility revenue requirements and resulting rates.&nbsp; The CPUC
would not take the settlement agreement or the Regulatory Asset
into account in establishing the Utility&rsquo;s authorized ROE or
capital structure.&nbsp;</font></p>

<p><font size="3" face="Times New Roman">The CPUC would timely act
upon the Utility&rsquo;s applications to collect in rates prudently
incurred costs (including return of and return on) of any new,
reasonable investment in utility plant and assets. The CPUC would
promptly adjust the Utility&rsquo;s rates consistent with Assembly
Bill 57 and Senate Bill 1976 and the CPUC-California Department of
Water Resources (DWR) Rate Agreement to ensure that the Utility
collection of the following is not impaired:&nbsp; (1) Fixed
Transition Amounts to service existing Rate Reduction Bonds; (2)
Regulatory Asset amortization and return; and (3) base revenue
requirements (<i>e.g.,</i> electric and gas distribution, URG, gas
commodity procurement, existing QF contract costs and associated
return).&nbsp; The CPUC would not discriminate against the Utility
by reason of the Utility&rsquo;s bankruptcy, the Utility&rsquo;s
pending federal lawsuit against the CPUC Commissioners to recover
its previously incurred costs of providing electric service from
ratepayers under the federal filed rate doctrine (the &ldquo;Filed
Rate Case&rdquo;), the settlement agreement, the Regulatory Asset,
or any other matters addressed or resolved by the proposed
settlement agreement.</font></p>

<p><u><font size="3" face="Times New Roman">Ratemaking
Matters</font></u></p>

<p><font size="3" face="Times New Roman">The CPUC would maintain
the Utility&rsquo;s retail electric rates at current levels through
December 31, 2003.&nbsp; As of January 1, 2004, the CPUC may adjust
the Utility&rsquo;s retail electric rates prospectively consistent
with the settlement agreement, Settlement Plan, the confirmation
order and California law.&nbsp; The proposed settlement agreement
contemplates that retail electric rates will be reduced in January
2004, with future reductions thereafter.&nbsp;</font></p>

<p><font size="3" face="Times New Roman">The CPUC would set the
Utility&rsquo;s capital structure and authorized ROE in the
Utility&rsquo;s annual cost of capital proceedings in its usual
manner; provided that, from January 1, 2004 until either S&amp;P
confers on the Utility a company credit rating of at least
&ldquo;A-&rdquo; or Moody&rsquo;s confers on the Utility a company
credit rating of at least &ldquo;A3,&rdquo; the authorized ROE
would be no less than 11.22 percent per year and the authorized
equity ratio for ratemaking purposes would be no less than 52
percent, except that for 2004 and 2005, the authorized equity ratio
would equal the greater of the forecast average equity ratio in the
cost of capital proceeding and 48.6 percent.&nbsp;</font></p>

<p><u><font size="3" face="Times New Roman">Implementation of
Ratemaking.</font></u>&nbsp;&nbsp; As soon as practicable after the
CPUC decision approving the settlement agreement, the Utility would
be required to file an advice letter to implement all the rate and
tariff changes necessary to implement the Settlement Plan. The CPUC
would act promptly on the advice filing and revised rates and
tariffs and to review and issue a decision promptly on the merits
of any application for rehearing of the approval of the advice
filing.&nbsp; The CPUC also would act promptly on certain of the
Utility&rsquo;s pending ratemaking proceedings, including the
Utility&rsquo;s pending 2003 General Rate Case.</p>

<p><u><font size="3" face="Times New Roman">Dividend Payments and
Stock Repurchases.</font></u>&nbsp;&nbsp; There would be no
restrictions on the ability of the Boards of Directors of the
Utility or PG&amp;E Corporation to declare and pay dividends or
repurchase common stock, other than the capital structure and
stand-alone dividend conditions contained in prior CPUC decisions
authorizing the formation of the holding company.&nbsp; Further,
the Utility would agree that it would not pay any dividend on its
common stock before July 1, 2004.</p>

<p><u><font size="3" face="Times New Roman">DWR
Contracts.</font></u>&nbsp; The CPUC could require the Utility to
accept assignment of or assume legal and financial responsibility
for the DWR contracts only if the following conditions were
met:&nbsp; (1) the company credit rating for the Utility following
such assumption&nbsp; would be no less than &ldquo;A&rdquo; from
S&amp;P and &ldquo;A2&rdquo; from Moody&rsquo;s, (2) the CPUC first
made a finding that the contracts are just and reasonable, and (3)
the CPUC had acted to ensure full and timely recovery in retail
electric rates of all contract costs without further review.&nbsp;
The CPUC would retain the right to review administration and
dispatch of the DWR contracts consistent with applicable law.</p>

<p><u><font size="3" face="Times New Roman">Headroom
Revenues.</font></u>&nbsp;&nbsp; The CPUC would agree that the
&ldquo;headroom&rdquo;, surcharge and base revenues accrued or
collected by the Utility through and including December 31, 2003
are property of the Utility&rsquo;s Chapter 11 estate, have been or
will be used for utility purposes, including to pay claims in the
Chapter 11 case, have been included in the Utility&rsquo;s retail
electric rates consistent with state and federal law, and are not
subject to refund. For this purpose, &ldquo;headroom&rdquo; means
the Utility&rsquo;s total net after-tax income reported under GAAP,
less earnings from operations, plus after-tax amounts accrued for
bankruptcy-related administration and bankruptcy-related interest
costs, all multiplied by 1.67, provided that the calculation will
reflect the outcome of the Utility&rsquo;s 2003 General Rate
Case.&nbsp; The settlement agreement provides that if
&ldquo;headroom&rdquo; revenues accrued by the Utility during 2003
are greater than $875 million, the Utility will refund the excess
to ratepayers and if &ldquo;headroom&rdquo; revenues are less than
$775 million, the CPUC would allow the Utility to collect the
shortfall.</p>

<p><font size="3" face="Times New Roman">&nbsp;<u>Dismissal of
Filed Rate Case, Other Litigation and
Proceedings</u>.&nbsp;&nbsp;</font></p>

<p><font size="3" face="Times New Roman">On or as soon as
practicable after the later of the Effective Date or the date the
CPUC decision approving the settlement agreement is final and
nonappealable, the Utility would dismiss with prejudice the Filed
Rate Case and withdraw the PG&amp;E Plan.&nbsp; In exchange, on or
before January 1, 2004, the CPUC would establish and authorize the
collection of the Regulatory Asset and the URG rate base, and, as
soon as practicable after the Effective Date, resolve the pending
Annual Transition Cost Proceeding in which the CPUC is reviewing
the reasonableness of the Utility&rsquo;s procurement costs
incurred during the energy crisis with no adverse impact on the
Utility&rsquo;s cost recovery as filed.&nbsp;&nbsp;</font></p>

<p><font size="3" face="Times New Roman">On or as soon as
practicable after the later of the Effective Date or the date the
CPUC decision approving the settlement agreement is final and
nonappealable, the Utility, PG&amp;E Corporation, on the one hand,
and the CPUC, on the other, will execute full mutual releases and
dismissals with prejudice of certain claims, actions or regulatory
proceedings, as specified in the settlement agreement, arising out
of or related in any way to the energy crisis or the implementation
of AB 1890, including the CPUC&rsquo;s investigation into past
holding company actions during the energy crisis (but only as to
past actions, not prospective matters).</font></p>

<p><u><font size="3" face="Times New Roman">Withdrawal of
Applications in Connection with PG&amp;E
Plan.</font></u>&nbsp;&nbsp; The Utility and PG&amp;E Corporation
would agree that upon execution of the settlement agreement, they
will request a stay of all proceedings before the FERC, the Nuclear
Regulatory Commission (NRC), the Securities and Exchange Commission
(SEC), and other regulatory agencies relating to approvals sought
to implement the PG&amp;E Plan.&nbsp; On the Effective Date or as
soon thereafter as practicable, the Utility and PG&amp;E
Corporation would withdraw or abandon all applications for such
regulatory approvals.</p>

<p><u><font size="3" face="Times New Roman">Treatment of
Creditors.</font></u>&nbsp; The treatment of creditors under the
proposed Settlement Plan would be consistent with that provided in
the PG&amp;E Plan, except that those creditors that were to receive
long-term notes to be issued by the limited liability companies
contemplated under the PG&amp;E Plan or a combination of cash and
such long-term notes would be paid entirely in cash.&nbsp; It is
anticipated that all of the Utility&rsquo;s existing trade and
financial debt, except for certain pollution control bond-related
obligations, would be paid in cash under the Settlement Plan.&nbsp;
It is further anticipated that these certain obligations and the
Utility&rsquo;s preferred stock would be reinstated under the
Settlement Plan. The Settlement Plan would provide for necessary
financing including interest rate hedging and would specify
creditor treatment. It is anticipated that the Utility would issue
approximately $8 billion in debt securities under the Settlement
Plan.</p>

<p><u><font size="3" face="Times New Roman">Environmental
Measures</font></u>.&nbsp;&nbsp; The Utility would implement three
environmental enhancement measures:&nbsp;</p>

<p><font size="3" face="Times New Roman">the Utility would encumber
with conservation easements or donate approximately 140,000 acres
of land to public agencies or non-profit conservation
organizations,</font></p>

<p><font size="3" face="Times New Roman">environmental enhancements
associated with these lands funded over 10 years with $70 million
of ratepayer funding,</font></p>

<p><font size="3" face="Times New Roman">the creation of a
non-profit corporation funded by shareholders with $15 million over
five years dedicated to support research and investment in clean
energy technology, primarily in the Utility&rsquo;s service
territory.</font></p>

<p><font size="3" face="Times New Roman"><br />
<u>Waiver of Sovereign Immunity.</u>&nbsp; In connection with any
action or proceeding concerning the enforcement of the settlement
agreement, the Settlement Plan or the confirmation order or other
determination of the parties&rsquo; rights under the settlement
agreement, the Settlement Plan or the confirmation order, the CPUC
would agree to waive all existing and future rights of sovereign
immunity, and all other similar immunities, as a defense. The CPUC
would agree to consent to the jurisdiction of any court or other
tribunal or forum for such actions or proceedings including, but
not limited to, the Bankruptcy Court.</font></p>

<p><u><font size="3" face="Times New Roman">Term and
Enforceability.</font></u> The settlement agreement would generally
terminate nine years after the Effective Date. The parties would
agree that the Bankruptcy Court will have jurisdiction over the
parties for all purposes relating to enforcement of the settlement
agreement, the Settlement Plan, and the confirmation order.&nbsp;
The parties also would agree that the settlement agreement, the
Settlement Plan or any order entered by the Bankruptcy Court
contemplated or required to implement the settlement agreement or
the Settlement Plan would be enforceable under federal law,
notwithstanding any contrary state law or future decisions or
orders of the CPUC.</p>

<p><font size="3" face="Times New Roman">Item 7. Financial
Statements, Pro Forma Financial Information, and
Exhibits</font></p>

<p><font size="3" face="Times New Roman">Exhibit 99 &ndash;
Proposed Settlement Agreement among PG&amp;E Corporation, Pacific
Gas and Electric Company, and the California Public Utilities
Commission</font></p>

<p align="center"><u><font size="3" face=
"Times New Roman">Cautionary Statement</font></u></p>

<p><font size="3" face="Times New Roman">Although PG&amp;E
Corporation and the Utility are unable to predict whether or when
the settlement agreement and Settlement Plan will become effective,
it is anticipated that both the CPUC and the Bankruptcy Court
approvals to implement the settlement could occur by the end of the
year, enabling the financing and repayment of the creditors to
occur in the first quarter of 2004.&nbsp; This statement and other
statements in this report about the anticipated implementation of
the settlement agreement and the Settlement Plan are
forward-looking statements. Actual results may differ materially
from the outcomes contemplated in the forward-looking
statements.&nbsp; Whether or when the settlement agreement and the
Settlement Plan become effective and to what extent PG&amp;E
Corporation and the Utility are able to achieve the anticipated
benefits of the Settlement Plan are subject to many risks and
uncertainties, including:</font></p>

<p><font size="3" face="Times New Roman">The outcome and the timing
of the CPUC&rsquo;s proceeding to approve the settlement agreement
and the resulting retail electric rates,</font></p>

<p><font size="3" face="Times New Roman">The outcome and the timing
of the Bankruptcy Court&rsquo;s proceeding to confirm the
Settlement Plan,</font></p>

<p><font size="3" face="Times New Roman">Whether the required
credit ratings to implement the Settlement Plan are
obtained,</font></p>

<p><font size="3" face="Times New Roman">The outcome of any
litigation that may arise to challenge the settlement agreement or
the Settlement Plan, including the prosecution of any appeals
related to the CPUC order approving the settlement agreement or the
Bankruptcy Court&rsquo;s confirmation order and the affect any
pending appeals may have on the ability of the Utility to complete
the financing contemplated under the Settlement Plan,</font></p>

<p><font size="3" face="Times New Roman">The outcome of the case
pending before the California Supreme Court to consider the
CPUC&rsquo;s authority to enter into a settlement agreement with
Southern California Edison,</font></p>

<p><font size="3" face="Times New Roman">The impact of future
ratemaking actions of the CPUC,</font></p>

<p><font size="3" face="Times New Roman">Changes that may be made
to California's electric industry restructuring legislation and to
other applicable regulations, including for example, legislation
that would repeal major portions of the electric industry
restructuring law or that would extend the CPUC's jurisdiction to
regulate certain activities of the parent companies of the
California investor-owned electric and gas utilities,</font></p>

<p><font size="3" face="Times New Roman">Future equity or debt
market conditions, future interest rates, future credit ratings,
and other factors that may affect the ability to implement the
Settlement Plan or affect the terms, amount, and value of the debt
securities proposed to be issued under the Settlement
Plan.</font></p>

<p><font size="3" face="Times New Roman"><br clear="all" />
</font></p>

<table border="0" cellspacing="0" cellpadding="0">
<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">SIGNATURE</font></p>
</td>
</tr>
</table>

<p><font size="3" face="Times New Roman">Pursuant to the
requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their
behalf by the undersigned thereunto duly authorized.</font></p>

<table border="0" cellspacing="0" cellpadding="0">
<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">PG&amp;E
CORPORATION</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top"></td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">By:
&nbsp;&nbsp;&nbsp;BRUCE R. WORTHINGTON</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;BRUCE
R. WORTHINGTON<br />
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Senior Vice
President and General Counsel</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top"></td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">PACIFIC GAS AND ELECTRIC
COMPANY</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top"></td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">By:&nbsp;&nbsp;&nbsp;&nbsp;ROGER J.
PETERS</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ROGER
J. PETERS<br />
 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Senior Vice President
and General Counsel</font></p>
</td>
</tr>
</table>

<p><font size="3" face="Times New Roman">Dated:&nbsp; June 19,
2003</font></p>
</div>
</body>
</html>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>3
<FILENAME>settlementagreement.htm
<DESCRIPTION>SETTLEMENT AGREEMENT
<TEXT>
<html>
<head>
<title>SETTLEMENT TERM SHEET</title>
</head>
<body>
<div>
<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
SETTLEMENT AGREEMENT</u></font></b></p>

<p><font size="3" face="Times New Roman">This Settlement Agreement
(&ldquo;Agreement&rdquo;) is made and entered into by Pacific Gas
and Electric Company (&ldquo;PG&amp;E&rdquo;), PG&amp;E Corporation
(the &ldquo;Parent&rdquo; or &ldquo;PG&amp;E Corporation&rdquo;)
(PG&amp;E and PG&amp;E Corporation are collectively referred to as
the &ldquo;PG&amp;E Proponents&rdquo;), and the Public Utilities
Commission of the State of California, as of ___________, 2003
(each of which is individually referred to as a
&ldquo;Party,&rdquo; and collectively as the
&ldquo;Parties&rdquo;)</font></p>

<p align="center"><b><u><font size="3" face=
"Times New Roman">Recitals</font></u></b></p>

<p><font size="3" face=
"Times New Roman">A.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On
April&nbsp;6, 2001, PG&amp;E filed a voluntary case under Chapter
11 of the United States Bankruptcy Code, Case No. 01-30923 DM (the
&ldquo;Chapter 11 Case&rdquo;), pending in the United States
Bankruptcy Court for the Northern District of California (the
&ldquo;Court&rdquo;).</font></p>

<p><font size="3" face=
"Times New Roman">B.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The PG&amp;E Proponents filed a Plan of Reorganization under
Chapter 11 of the Bankruptcy Code for Pacific Gas and Electric
Company, dated April 19, 2002, as Modified by Modifications Dated
July 9, 2002, October 18, 2002, December 13, 2002, December 26,
2002, February 21, 2003, February 24, 2003, and May 22, 2003 (the
&ldquo;PG&amp;E Plan&rdquo;).</font></p>

<p><font size="3" face=
"Times New Roman">C.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On
April&nbsp;15, 2002, the Commission filed its original plan of
reorganization for PG&amp;E.&nbsp; Subsequently, the Commission and
the Official Committee of Unsecured Creditors (the
&ldquo;OCC&rdquo;) appointed in the Chapter 11 Case filed a Second
Amended Plan of Reorganization under Chapter 11 of the Bankruptcy
Code for Pacific Gas and Electric Company, dated November&nbsp;6,
2002.&nbsp; Then, on December&nbsp;5, 2002, the Commission and the
OCC filed their Third Amended Plan of Reorganization under
Chapter&nbsp;11 of the Bankruptcy Code for Pacific Gas and Electric
Company (the &ldquo;Commission Plan&rdquo;).</font></p>

<p><font size="3" face=
"Times New Roman">D.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Court began trial on the competing plans of reorganization on
November&nbsp;18, 2002.&nbsp; During the trial on the PG&amp;E
Plan, the Court entered an order staying further confirmation and
related proceedings for 60 days to facilitate a mandatory
settlement process before the Honorable Randall&nbsp;J. Newsome,
Bankruptcy Judge.&nbsp; On April&nbsp;23, 2003, at the request of
Judge Newsome, the Court issued an order staying further
confirmation and related proceedings for an additional 30
days.&nbsp; On June 9, 2003, the Court issued an order staying
further confirmation and related proceedings for an additional four
days, with a status conference scheduled for June&nbsp;20,
2003.</font></p>

<p><font size="3" face=
"Times New Roman">E.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Neither PG&amp;E nor PG&amp;E Corporation has declared or paid any
dividends to holders of their common stock since October 2000, and
are agreeing in this Agreement not to do so before July 1,
2004.&nbsp; As a result, PG&amp;E&rsquo;s and PG&amp;E
Corporation&rsquo;s shareholders have foregone and will forego
dividends of approximately $1.7 billion.</font></p>

<p><font size="3" face=
"Times New Roman">F.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Parties desire to settle their differences with respect to the
competing plans of reorganization and the other matters specified
herein, and to jointly support a plan of reorganization for
PG&amp;E (the &ldquo;Settlement Plan&rdquo;), all as set forth more
specifically below.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">G.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
the exercise of its police and regulatory powers, the Commission is
entering into this Agreement and shall adopt such decisions and
orders as necessary to implement and carry out the provisions of
this Agreement, including but not limited to, establishing Retail
Electric Rates to provide for payment in full of the Securities and
the Regulatory Asset (each as defined below) in accordance with
their respective terms.</font></p>

<p align="center"><b><u><font size="3" face=
"Times New Roman">Statement of Intent</font></u></b></p>

<p><font size="3" face=
"Times New Roman">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Parties recognize that reliable electric and gas service is of the
utmost importance to the safety, health, and welfare of
California&rsquo;s citizenry and economy.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Parties expect that under the Settlement Plan, Retail Electric
Rates (as defined below) will be reduced on January 1, 2004, with
further reductions expected thereafter.</font></p>

<p><font size="3" face=
"Times New Roman">(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As
part of this Agreement, the PG&amp;E Proponents will withdraw the
PG&amp;E Plan and no longer propose to disaggregate the historic
businesses of PG&amp;E.&nbsp; Instead, PG&amp;E will remain a
vertically-integrated utility subject to the Commission&rsquo;s
jurisdiction to regulate in the public interest.&nbsp; Subject to
the provisions of this Agreement, the Settlement Plan, and the
Confirmation Order (as defined below), PG&amp;E shall continue to
be regulated by the Commission in accordance with the
Commission&rsquo;s policies and practices and the laws and
regulations applicable to similarly situated investor-owned
utilities in the State of California.</font></p>

<p><font size="3" face=
"Times New Roman">(4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Parties enter into this settlement to enable PG&amp;E to emerge
from Chapter&nbsp;11 and fully resume its traditional role of
providing safe and reliable electric and gas service at just and
reasonable rates, subject to Commission regulation.</font></p>

<p><font size="3" face=
"Times New Roman">(5)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; It
is in the public interest to restore PG&amp;E to financial health
and to maintain and improve PG&amp;E&rsquo;s financial health in
the future to ensure that PG&amp;E is able to provide safe and
reliable electric and gas service to its customers at just and
reasonable rates.&nbsp; The Parties intend that PG&amp;E emerge
from Chapter&nbsp;11 as soon as possible with a company credit
rating of Investment Grade and that PG&amp;E&rsquo;s company credit
rating will improve over time.&nbsp; Investment Grade credit
ratings are necessary for PG&amp;E to emerge from Chapter 11 and
will directly benefit PG&amp;E&rsquo;s ratepayers by reducing the
cost of the financings (i) required for emergence and (ii) required
to fund future operations and capital expenditures.&nbsp; In order
to help accomplish these goals, it is fair and in the public
interest to allow PG&amp;E to recover, over a reasonable time,
prior uncollected costs and to provide the opportunity for
PG&amp;E&rsquo;s shareholders to earn a reasonable rate of return
on PG&amp;E&rsquo;s utility business, all as described
herein.</font></p>

<p><font size="3" face=
"Times New Roman">(6)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Among other things, as part of this Agreement, PG&amp;E will
release claims against the Commission that would have been retained
by PG&amp;E or its Parent under the PG&amp;E Plan.&nbsp; In lieu of
those claims and the value that PG&amp;E&rsquo;s shareholders would
have received from the transactions provided for under the PG&amp;E
Plan, PG&amp;E&rsquo;s shareholders will receive value over nine
years through this Agreement, the Settlement Plan and the
Confirmation Order (as defined below), including amortization of
the Regulatory Asset as provided for herein.</font></p>

<p><font size="3" face=
"Times New Roman">(7)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Commission acknowledges and agrees that the benefit of this
Agreement to PG&amp;E&rsquo;s shareholders requires that the
Commission provide timely and full recovery of PG&amp;E&rsquo;s
reasonable costs of providing utility service, including return of
and return on investment in utility plant and recovery of operating
expenses, including power procurement costs, over the full
nine-year amortization period of the Regulatory Asset.&nbsp; The
Commission intends to provide PG&amp;E with the opportunity to
recover all of its prudently incurred costs as well as a return of
and return on its investment in utility plant.&nbsp; The Commission
also intends that any operational mandate it imposes that requires
PG&amp;E to expend funds or incur costs, including demand reduction
or energy conservation programs, include a timely rate recovery
mechanism for the costs of such mandate.&nbsp;</font></p>

<p align="center"><b><u><font size="3" face=
"Times New Roman">Agreement</font></u></b></p>

<p><font size="3" face="Times New Roman">In consideration of the
respective covenants and agreements contained in this Agreement <a
name="_DV_C6">and for other good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged<b>,</b></a> the Parties agree as follows:</font></p>

<p><b><font size="3" face=
"Times New Roman">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Definitions</u>.&nbsp;</font></b> When used in this Agreement,
the following terms shall have the following meanings:</p>

<p><a name="OLE_LINK1"><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;96C Bonds&rdquo;</font></a> <a name="OLE_LINK2">means those
certain Pollution Control Refunding Revenue Bonds (Pacific Gas and
Electric) 1996 Series C issued by the California Pollution Control
Financing Authority in the aggregate principal amount of
$200,000,000.</a></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;96E Bonds&rdquo; means those certain Pollution Control
Refunding Revenue Bonds (Pacific Gas and Electric) 1996 Series E
issued by the California Pollution Control Financing Authority in
the aggregate principal amount of $165,000,000.</font></p>

<p><font size="3" face=
"Times New Roman">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;96F Bonds&rdquo; means those certain Pollution Control
Refunding Revenue Bonds (Pacific Gas and Electric) 1996 Series F
issued by the California Pollution Control Financing Authority in
the aggregate principal amount of $100,000,000.</font></p>

<p><font size="3" face=
"Times New Roman">d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;97B Bonds&rdquo; means those certain Pollution Control
Refunding Revenue Bonds (Pacific Gas and Electric) 1997 Series B
issued by the California Pollution Control Financing Authority in
the aggregate principal amount of $148,550,000.</font></p>

<p><font size="3" face=
"Times New Roman">e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Administrative Expense Claim&rdquo; means a Claim against
PG&amp;E constituting a cost or expense of administration of the
Chapter 11 Case under sections 503(b) and 507(a)(1) of the
Bankruptcy Code, and any fees or charges assessed against the
estate of PG&amp;E under section 1930 of chapter 123 of title 28 of
the United States Code.</font></p>

<p><font size="3" face=
"Times New Roman">f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Agreement&rdquo; has the meaning set forth in the
introduction.</font></p>

<p><font size="3" face=
"Times New Roman">g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;ATCP Application&rdquo; means PG&amp;E&rsquo;s Annual
Transition Cost Proceeding, Application No. 01-09-003, presently
pending before the Commission.</font></p>

<p><font size="3" face=
"Times New Roman">h.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Business Day&rdquo; means any day other than a Saturday, a
Sunday or any other day on which commercial banks in San Francisco,
California, or New York, New York, are required or authorized to
close by law or executive order.</font></p>

<p><font size="3" face=
"Times New Roman">i.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Carizzo Plains&rdquo; has the meaning set forth in Paragraph
17.</font></p>

<p><font size="3" face=
"Times New Roman">j.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Cash&rdquo; means legal tender of the United
States.</font></p>

<p><font size="3" face=
"Times New Roman">k.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Cause of Action&rdquo; means, without limitation, any and
all actions, causes of action, liabilities, obligations, rights,
suits, damages, judgments, claims and demands whatsoever, whether
known or unknown, existing or hereafter arising, in law, equity or
otherwise, based in whole or in part upon any act or omission or
other event occurring prior to April 6, 2001 or during the course
of the Chapter 11 Case, including through the Effective
Date.</font></p>

<p><font size="3" face=
"Times New Roman">l.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Chapter 11 Case&rdquo; has the meaning set forth in Recital
A.</font></p>

<p><font size="3" face=
"Times New Roman">m.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Commission&rdquo; means the California Public Utilities
Commission, or any successor agency, and the commissioners thereof
in their official capacities and their respective
successors.</font></p>

<p><font size="3" face=
"Times New Roman">n.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Commission-DWR Rate Agreement&rdquo; means the agreement
dated March 8, 2002, between the Commission and DWR relating to the
establishment of DWR&rsquo;s revenue requirements and charges in
connection with power sold by DWR under Division 27, commencing
with section 80000, of the California Water Code.</font></p>

<p><font size="3" face=
"Times New Roman">o.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Commission Plan&rdquo; has the meaning set forth in Recital
C.</font></p>

<p><font size="3" face=
"Times New Roman">p.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Confirmation Order&rdquo; means the order of the Court
confirming the Settlement Plan pursuant to section 1129 of the
Bankruptcy Code.</font></p>

<p><font size="3" face=
"Times New Roman">q.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Court&rdquo; has the meaning set forth in Recital
A.</font></p>

<p><font size="3" face=
"Times New Roman">r.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;DWR&rdquo; means the California Department of Water
Resources.</font></p>

<p><font size="3" face=
"Times New Roman">s.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;DWR Contracts&rdquo; means the contracts entered into by DWR
for the purchase of electric power and associated goods and
services pursuant to California Assembly Bill No. 1X, signed into
law by the Governor on February 1, 2001.</font></p>

<p><font size="3" face=
"Times New Roman">t.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Effective Date&rdquo; means the date designated in the
Settlement Plan as the Effective Date.</font></p>

<p><font size="3" face=
"Times New Roman">u.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;ESP&rdquo; means energy service provider.</font></p>

<p><font size="3" face=
"Times New Roman">v.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;FERC&rdquo; means the United States Federal Energy
Regulatory Commission.</font></p>

<p><font size="3" face=
"Times New Roman">w.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Fixed Transition Amount&rdquo; has the meaning set forth in
section 840(d) of the Public Utilities Code.</font></p>

<p><font size="3" face=
"Times New Roman">x.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Forecast Average Equity Ratio&rdquo; means the proportion of
equity in the forecast of PG&amp;E&rsquo;s average capital
structure for calendar year 2004 and 2005 to be filed by PG&amp;E
in its 2003 cost of capital proceeding, Application No. 02-05-022,
and its 2005 cost of capital proceeding, respectively, or such
other CPUC proceedings as may be appropriate.</font></p>

<p><font size="3" face=
"Times New Roman">y.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Headroom&rdquo; means PG&amp;E&rsquo;s total net after-tax
income reported under Generally Accepted Accounting Principles,
less earnings from operations, plus after-tax amounts accrued for
bankruptcy-related administration and bankruptcy-related interest
costs, all multiplied by 1.67, provided that the calculation will
reflect the outcome of PG&amp;E&rsquo;s 2003 general rate case
(A.02-09-005 and A.02-11-067).</font></p>

<p><font size="3" face=
"Times New Roman">z.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Investment Grade&rdquo; means credit ratings from both
S&amp;P of BBB- or better and Moody&rsquo;s of Baa3 or
better.</font></p>

<p><font size="3" face=
"Times New Roman">aa.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Land Conservation Commitment&rdquo; has the meaning set
forth in Paragraph 17a.</font></p>

<p><font size="3" face=
"Times New Roman">bb.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Letter of Credit Backed PC Bonds&rdquo; means, collectively,
any series of 96C Bonds, 96E Bonds, 96F Bonds and/or 97B Bonds that
are outstanding as of the Effective Date.</font></p>

<p><font size="3" face=
"Times New Roman">cc.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Long-Term Notes&rdquo; means the long-term notes proposed to
be issued to creditors pursuant to the PG&amp;E Plan.</font></p>

<p><font size="3" face=
"Times New Roman">dd.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;MBIA Insured PC Bonds&rdquo; means those certain Pollution
Control Refunding Revenue Bonds (Pacific Gas and Electric Company)
1996 Series A issued by the California Pollution Control Financing
Authority in the aggregate principal amount of
$200,000,000.</font></p>

<p><font size="3" face=
"Times New Roman">ee.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Moody&rsquo;s&rdquo; means Moody&rsquo;s Investor&rsquo;s
Service Inc.</font></p>

<p><font size="3" face=
"Times New Roman">ff.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;NRC&rdquo; means the United States Nuclear Regulatory
Commission.</font></p>

<p><font size="3" face=
"Times New Roman">gg.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;OCC&rdquo; has the meaning set forth in Recital
C.</font></p>

<p><font size="3" face=
"Times New Roman">hh.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Parent&rdquo; has the meaning set forth in the
introduction.</font></p>

<p><font size="3" face=
"Times New Roman">ii.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Person&rdquo; has the meaning set forth in section 101(41)
of the Bankruptcy Code.</font></p>

<p><font size="3" face=
"Times New Roman">jj.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;PG&amp;E Plan&rdquo; has the meaning set forth in Recital
B.</font></p>

<p><font size="3" face=
"Times New Roman">kk.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Preferred Stock&rdquo; means the issued and outstanding
shares of PG&amp;E&rsquo;s First Preferred Stock, par value $25.00
per share.&nbsp; PG&amp;E&rsquo;s First Preferred Stock
comprises:&nbsp; (a) 6% Non-Redeemable First Preferred; (b) 5.5%
Non-Redeemable First Preferred; (c) 5% Non-Redeemable First
Preferred; (d) 5% Redeemable First Preferred Series D; (e) 5%
Redeemable First Preferred Series E; (f) 4.80% Redeemable First
Preferred; (g) 4.50% Redeemable First Preferred; (h) 4.36%
Redeemable First Preferred; (i) 6.57% Redeemable First Preferred;
(j) 7.04% Redeemable First Preferred; and (k) 6.30% Redeemable
First Preferred.</font></p>

<p><font size="3" face=
"Times New Roman">ll.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;QFs&rdquo; means qualifying facilities operating pursuant to
the Public Utility Regulatory Policies Act of 1978 and related
regulations enacted thereunder.</font></p>

<p><font size="3" face=
"Times New Roman">mm.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &ldquo;Rate
Recovery Litigation&rdquo; means <i>Pacific Gas &amp; Electric
Company, Plaintiff, v. Loretta M. Lynch, et al., Defendants</i>,
Case No. C-01-3023-VRW, filed in the United States District Court
for the Northern District of California, and all appellate
proceedings arising therefrom.</font></p>

<p><font size="3" face=
"Times New Roman">nn.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Rate Reduction Bonds&rdquo; has the meaning set forth in
section 840(e) of the Public Utilities Code.</font></p>

<p><font size="3" face=
"Times New Roman">oo.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Regulatory Asset&rdquo; has the meaning set forth in
Paragraph 2.</font></p>

<p><font size="3" face=
"Times New Roman">pp.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Retail Electric Rates&rdquo; means any and all charges
authorized by the Commission to be collected from PG&amp;E&rsquo;s
retail electric customers.</font></p>

<p><font size="3" face=
"Times New Roman">qq.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;ROE&rdquo; has the meaning set forth in Paragraph
2b.</font></p>

<p><font size="3" face=
"Times New Roman">rr.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;S&amp;P&rdquo; means Standard &amp; Poor&rsquo;s, a division
of The McGraw-Hill Companies, Inc.</font></p>

<p><font size="3" face=
"Times New Roman">ss.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;SEC&rdquo; means the United States Securities and Exchange
Commission.</font></p>

<p><font size="3" face=
"Times New Roman">tt.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Securities&rdquo; means the debt and Preferred Stock to be
issued or reinstated by PG&amp;E, as the case may be, in accordance
with the Settlement Plan, from time to time, including any and all
interest thereon or associated costs as provided under such debt or
Preferred Stock instruments, agreements or certificates.</font></p>

<p><font size="3" face=
"Times New Roman">uu.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Settlement Plan&rdquo; has the meaning set forth in Recital
E.</font></p>

<p><font size="3" face=
"Times New Roman">vv.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;State&rdquo; means the State of California.</font></p>

<p><font size="3" face=
"Times New Roman">ww.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &ldquo;Tax
Tracking Account&rdquo; has the meaning set forth in Paragraph
2c.</font></p>

<p><font size="3" face=
"Times New Roman">xx.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;TCBA&rdquo; means Transition Cost Balancing
Account.</font></p>

<p><font size="3" face=
"Times New Roman">yy.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;URG&rdquo; means utility retained generation.</font></p>

<p><font size="3" face=
"Times New Roman">zz.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;URG Rate Base&rdquo; means the rate base amounts set forth
in PG&amp;E Advice Letter 2233-E implementing Commission Decision
(D.) No. 02-04-016.</font></p>

<p><font size="3" face=
"Times New Roman">aaa.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&ldquo;Watershed Lands&rdquo; has the meaning set forth in
Paragraph 17.</font></p>

<p><b><font size="3" face=
"Times New Roman">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Regulatory Asset</u>.</font></b>&nbsp; The Commission shall
establish a regulatory asset of Two Billion Two Hundred and Ten
Million Dollars ($2,210,000,000) as a new, separate and additional
part of PG&amp;E&rsquo;s rate base (the &ldquo;Regulatory
Asset&rdquo;).&nbsp;&nbsp;</p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Regulatory Asset shall be amortized in PG&amp;E&rsquo;s Retail
Electric Rates on a &ldquo;mortgage-style&rdquo; basis over nine
years starting on January 1, 2004.&nbsp; The details and mechanics
of the amortization and earnings of the Regulatory Asset shall be
as set forth in Appendix A, Technical Appendix, jointly prepared by
the Commission and PG&amp;E.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Regulatory Asset shall earn PG&amp;E&rsquo;s authorized return
on equity (&ldquo;ROE&rdquo;) on the equity component of
PG&amp;E&rsquo;s capital structure as set in PG&amp;E&rsquo;s
annual cost of capital proceedings, <u>provided that</u> the ROE on
the Regulatory Asset shall be no less than 11.22 percent per year
for the life of the Regulatory Asset and that, once the equity
component of PG&amp;E&rsquo;s capital structure reaches 52 percent,
the authorized equity component for the Regulatory Asset shall be
no less than 52 percent for the life of the Regulatory
Asset.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission will use its usual methodology for tax-effecting the
ROE component for purposes of setting PG&amp;E&rsquo;s revenue
requirements associated with the unamortized portion of the
Regulatory Asset.&nbsp; The Commission will apply the same method
of tax-effecting to the scheduled amortization of the Regulatory
Asset.&nbsp; The Commission shall authorize PG&amp;E to establish a
Tax Tracking Account to be used as follows:&nbsp; In the event that
it is finally determined that PG&amp;E is required to pay income
taxes on the Regulatory Asset any earlier than the Regulatory Asset
is amortized pursuant to Paragraph 2a, PG&amp;E shall record in the
Tax Tracking Account the difference between (1) the taxes incurred
on account of the Regulatory Asset plus any interest imposed by the
federal or state taxing authorities with respect to such earlier
recognition of taxable income and (2) the taxes that would have
been incurred on account of the Regulatory Asset had it been
subject to tax as it was amortized pursuant to Paragraph 2a.&nbsp;
The Tax Tracking Account shall earn PG&amp;E&rsquo;s authorized
rate of return in accordance with the provisions of Paragraph
2b.&nbsp; PG&amp;E shall amortize the Tax Tracking Account in
Retail Electric rates over the greater of the remaining life of the
Regulatory Asset or five years.</font></p>

<p><font size="3" face=
"Times New Roman">d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
PG&amp;E shall continue to cooperate with the Commission and the
State in seeking refunds from generators and other energy
suppliers.&nbsp; The net after-tax amount of any refunds, claim
offsets or other credits from generators or other energy suppliers
relating to PG&amp;E&rsquo;s PX, ISO, QF or ESP costs that PG&amp;E
actually realizes in Cash or by offset of creditor claims in the
Chapter 11 Case shall be applied by PG&amp;E to reduce the
outstanding balance of the Regulatory Asset dollar for
dollar.&nbsp; To the extent that any consideration actually
received by PG&amp;E in Cash under the Master Settlement Agreement
that resolves the litigation in <i>Public Utilities Commission of
California v. El Paso Natural Gas Co., et al.,</i> FERC Docket No.
RP00-241-000, <i>et al.</i>, and related litigation in state and
federal courts, is in settlement of damages claimed by PG&amp;E
that caused PG&amp;E to incur high costs of electricity from March
1, 2000 to date, PG&amp;E shall apply the net after-tax amount of
such consideration to reduce the outstanding balance of the
Regulatory Asset dollar for dollar, provided that such a reduction
is consistent with the rules or orders adopted by the Commission
concerning the consideration paid by El Paso under the Master
Settlement Agreement.&nbsp; These reductions shall reduce the
remaining amortization of the Regulatory Asset, as set forth in
Appendix A, Technical Appendix.</font></p>

<p><font size="3" face=
"Times New Roman">e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Balances in PG&amp;E&rsquo;s TCBA, determined in accordance with
Commission Decision No. 01-03-082,&nbsp; as of January 1, 2004
shall have no further impact on PG&amp;E&rsquo;s Retail Electric
Rates and shall be subject to no further review by the Commission
except for verification of recorded balances, and PG&amp;E&rsquo;s
current Retail Electric Rates will be replaced by the Retail
Electric Rates resulting from this Agreement, the Settlement Plan
and the Confirmation Order as of January 1, 2004.&nbsp; This is not
intended to affect PG&amp;E&rsquo;s pending application
(Application No. 00-07-013) to recover electric restructuring costs
booked into the Electric Restructuring Cost Account pursuant to
Public Utilities Code section 376 or to otherwise affect recovery
of QF and other nonbypassable costs going forward.</font></p>

<p><font size="3" face=
"Times New Roman">f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission agrees that PG&amp;E should receive the benefit of
this Agreement over the entire life of the Regulatory Asset.&nbsp;
To ensure this, the Commission agrees that the URG Rate Base for
PG&amp;E already established by the Commission in D.02-04-016 shall
be deemed just and reasonable and not subject to modification,
adjustment or reduction, except as necessary to reflect capital
expenditures and any change in authorized depreciation.&nbsp; (This
shall not preclude the Commission from determining the
reasonableness of any capital expenditures made on URG after the
Effective Date.)&nbsp; The Commission further agrees that it shall
not in any way reduce or impair the value of the Regulatory Asset
or the URG Rate Base by taking the Regulatory Asset or the URG Rate
Base, their amortization or earnings into account when setting
other revenue requirements and resulting rates for PG&amp;E.&nbsp;
Nor shall the Commission take this Agreement or the Regulatory
Asset into account in establishing PG&amp;E&rsquo;s authorized ROE
or capital structure.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">g.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission recognizes that the establishment, maintenance and
improvement of Investment Grade company credit ratings is vital for
PG&amp;E to be able to continue to provide safe and reliable
service to its customers.&nbsp; The Commission further recognizes
that the establishment, maintenance and improvement of
PG&amp;E&rsquo;s Investment Grade company credit ratings directly
benefits PG&amp;E&rsquo;s ratepayers by reducing PG&amp;E&rsquo;s
immediate and future borrowing costs, which, in turn, will allow
PG&amp;E to finance its operations and make capital expenditures on
its distribution, transmission, and generation assets at lower cost
to its ratepayers.&nbsp; In furtherance of these objectives, the
Commission agrees to act to facilitate and maintain Investment
Grade company credit ratings for PG&amp;E.</font></p>

<p><font size="3" face=
"Times New Roman">h.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As part of ensuring that PG&amp;E has the opportunity to recover
all its prudently incurred costs of providing service, including
return of and return on utility investment, the Commission agrees
that it shall timely act upon PG&amp;E&rsquo;s applications to
collect in rates its prudently incurred costs (including return of
and return on) of any new, reasonable investment in utility plant
and assets.</font></p>

<p><font size="3" face=
"Times New Roman">i.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission shall promptly adjust PG&amp;E&rsquo;s rates
consistent with AB 57/SB 1976 and the Commission-DWR Rate Agreement
to ensure that PG&amp;E&rsquo;s collection of the following is not
impaired:&nbsp; (1) Fixed Transition Amount to service existing
Rate Reduction Bonds; (2) Regulatory Asset amortization and return;
and (3) base revenue requirements (<i>e.g.,</i> electric and gas
distribution, URG, gas commodity procurement, existing QF contract
costs and associated return).&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">j.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission agrees that, in the absence of compelling evidence
to the contrary, PG&amp;E&rsquo;s expected regulatory outcomes and
financial performance should be similar to those of the other
investor-owned energy utilities in California under similar
circumstances.&nbsp; In furtherance of the foregoing, the
Commission shall not discriminate against PG&amp;E by reason of the
Chapter 11 Case, the Rate Recovery Litigation, this Agreement, the
Regulatory Asset or any other matters addressed or resolved
herein.</font></p>

<p><b><font size="3" face=
"Times New Roman">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Ratemaking Matters</u>.&nbsp;</font></b></p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission agrees to maintain PG&amp;E&rsquo;s Retail Electric
Rates at current levels through December 31, 2003.&nbsp; As of
January 1, 2004, the Commission may adjust PG&amp;E&rsquo;s Retail
Electric Rates prospectively consistent with this Agreement, the
Settlement Plan, the Confirmation Order and California
law.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission shall set PG&amp;E&rsquo;s capital structure and
authorized ROE in PG&amp;E&rsquo;s annual cost of capital
proceedings in its usual manner; <u>&eth;provided that</u>, from
January 1, 2004 until either S&amp;P confers on PG&amp;E a company
credit rating of at least &ldquo;A-&rdquo; or Moody&rsquo;s confers
on PG&amp;E a company credit rating of at least &ldquo;A3,&rdquo;
the authorized ROE shall be no less than 11.22 percent per year and
the authorized equity ratio for ratemaking purposes shall be no
less than 52 percent, except for a transition period as provided
below.&nbsp; The Commission recognizes that, at the Effective Date,
PG&amp;E&rsquo;s capital structure will likely not contain 52
percent equity.&nbsp; Accordingly, for 2004 and 2005, the
authorized equity ratio shall equal the Forecast Average Equity
Ratio, but in no event shall it be less than 48.6 percent.&nbsp;
Notwithstanding the provisions of Paragraph 6, PG&amp;E agrees not
to pay any dividend on common stock before July 1,
2004.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Nothing in this Agreement shall be construed to create a rate
freeze or rate cap for PG&amp;E&rsquo;s electric or gas
business.</font></p>

<p><b><font size="3" face=
"Times New Roman">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Implementation of Ratemaking</u>.</font></b>&nbsp; To ensure
that all conditions to the Effective Date are met as soon as
possible following issuance of the Confirmation Order, as soon as
practicable after the Commission decision approving this Agreement,
PG&amp;E shall file an advice letter to implement all the rate and
tariff changes necessary to implement the Settlement Plan.&nbsp;
The Commission shall act promptly on the advice filing and revised
rates and tariffs.&nbsp; The Commission shall also review and issue
a decision promptly on the merits of any application for rehearing
of the approval of the advice filing.&nbsp;</p>

<p><b><font size="3" face=
"Times New Roman">5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Timely Decisions on Ratemaking Matters</u>.</font></b>&nbsp; The
Commission and PG&amp;E agree that timely applications by PG&amp;E
and timely action by the Commission on such applications are
essential to the achievement of the objectives of this
settlement.&nbsp; The Commission agrees that it will promptly act
on the pending PG&amp;E ratemaking proceedings listed in Appendix B
hereto.</p>

<p><b><font size="3" face=
"Times New Roman">6.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Dividend Payments and Stock Repurchases</u>.</b>&nbsp; The
Parties acknowledge that, for the Parent, as PG&amp;E&rsquo;s
shareholder, to receive the benefit of this Agreement, both
PG&amp;E and its Parent must be able to pay dividends and
repurchase common stock when appropriate.&nbsp; Accordingly, the
Parties agree that, other than the capital structure and
stand-alone dividend conditions contained in the PG&amp;E holding
company decisions (D.96-11-017 and D.99-04-068), the Commission
shall not restrict the ability of the boards of directors of either
PG&amp;E or PG&amp;E Corporation to declare and pay dividends or
repurchase common stock.</p>

<p><b><font size="3" face=
"Times New Roman">7.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>DWR Contracts</u>.&nbsp;</b> If the Commission desires it,
PG&amp;E agrees to accept an assignment of or to assume legal and
financial responsibility for the DWR Contracts, <u>provided
that</u> (a) PG&amp;E&rsquo;s company credit rating, after giving
effect to such assignment or assumption, shall be no less than
&ldquo;A&rdquo; from S&amp;P and &ldquo;A2&rdquo; from
Moody&rsquo;s; (b) the Commission shall first have made a finding
that, for purposes of assignment or assumption, the DWR Contracts
to be assigned or assumed are just and reasonable; and (c) the
Commission shall have acted to ensure that PG&amp;E will receive
full and timely recovery in its Retail Electric Rates of all costs
of such DWR Contracts over their life without further review.&nbsp;
The Commission agrees not to require PG&amp;E to assume or accept
an assignment of legal or financial responsibility for the DWR
Contracts unless conditions (a), (b) and (c) are all met.&nbsp;
Nothing in this paragraph shall be construed to limit the
discretion of the Commission to review the prudence of
PG&amp;E&rsquo;s administration and dispatch of the DWR Contracts,
consistent with applicable law.</p>

<p><b><font size="3" face=
"Times New Roman">8.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Headroom Revenues</u>.&nbsp;</b></p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission acknowledges and agrees that the Headroom,
surcharge, and base revenues accrued or collected by PG&amp;E
through and including December 31, 2003 are property of
PG&amp;E&rsquo;s Chapter 11 estate, have been or will be used for
utility purposes, including to pay creditors in the Chapter 11
Case, have been included in PG&amp;E&rsquo;s Retail Electric Rates
consistent with state and federal law, and are not subject to
refund.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Headroom revenues accrued by PG&amp;E during calendar year 2003
shall not exceed $875 million and shall not be less than $775
million, both on a pre-tax basis.&nbsp; If the amount of Headroom
PG&amp;E accrues in 2003 is greater or less than these amounts, the
Commission shall take such action in 2004 as is necessary to
require PG&amp;E to refund any Headroom accrued in excess of $875
million or, if the accrued Headroom is less than $775 million, to
allow PG&amp;E to collect in rates the difference between the
Headroom accrued and $775 million.</font></p>

<p><b><font size="3" face=
"Times New Roman">9.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Dismissal of the Rate Recovery and Other
Litigation</u>.</b>&nbsp; On or as soon as practicable after the
later of the Effective Date or the date on which the Commission
approval of this Agreement is no longer subject to appeal, PG&amp;E
shall dismiss with prejudice the Rate Recovery Litigation,
foregoing any recovery from ratepayers of costs sought in such
litigation not otherwise provided for in this Agreement and the
Settlement Plan; withdraw the PG&amp;E Plan; dismiss other pending
proceedings, as specified herein; and provide the other
consideration described herein.&nbsp; In exchange, on or before
January 1, 2004, the Commission shall establish and authorize the
collection of the Regulatory Asset and the URG Rate Base, and on or
as soon as practicable after the Effective Date, the Commission
shall resolve Phase 2 of the presently pending ATCP Application
with no adverse impact on PG&amp;E&rsquo;s cost recovery as filed,
and provide the other consideration described herein.&nbsp;
PG&amp;E&rsquo;s motion to dismiss the Rate Recovery Litigation
shall be in form and substance satisfactory to the
Commission.&nbsp;</p>

<p><b><font size="3" face=
"Times New Roman">10.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Dismissal of Other Proceedings</u>.</b>&nbsp; On or as soon
as practicable after the later of the Effective Date or the date on
which the Commission approval of this Agreement is no longer
subject to appeal, PG&amp;E and PG&amp;E Corporation, on the one
hand, and the Commission, on the other, will execute full mutual
releases and dismissals with prejudice of all claims, actions or
regulatory proceedings arising out of or related in any way to the
energy crisis or the implementation of A.B. 1890 listed on Appendix
C hereto.&nbsp; All such releases and dismissals with prejudice
shall be in form and substance satisfactory to PG&amp;E, PG&amp;E
Corporation and the Commission.&nbsp;</p>

<p><b><font size="3" face=
"Times New Roman">11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Withdrawal of Certain Applications</u>.</font></b>&nbsp;</p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Promptly upon the Effective Date, PG&amp;E shall withdraw all of
its applications previously filed with the FERC, the NRC, the SEC
and elsewhere in connection with the PG&amp;E Plan.&nbsp; A full
and complete list of such applications is set forth in
Appendix&nbsp;D hereto.&nbsp; Upon execution of this Agreement,
PG&amp;E and PG&amp;E Corporation shall move to obtain or otherwise
request a stay of all actions before the FERC, NRC, SEC or a
similar agency initiated by PG&amp;E and/or PG&amp;E Corporation to
implement the PG&amp;E Plan.&nbsp; In addition, upon execution of
this Agreement by all Parties, PG&amp;E and PG&amp;E Corporation
shall suspend all actions to obtain or transfer licenses, permits
and franchises to implement the PG&amp;E Plan.&nbsp; On the
Effective Date or as soon thereafter as practicable, PG&amp;E and
PG&amp;E Corporation shall withdraw or abandon all such
applications for licenses, permits and franchises.</font></p>

<p><font size="3" face="Times New Roman">b.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to
withdrawing its pending applications at FERC, PG&amp;E and PG&amp;E
Corporation agree that, for the life of the Regulatory Asset,
neither they nor any of their affiliates or subsidiaries will make
any filing under Sections 4, 5 or 7 of the Natural Gas Act to
transfer ownership of or ratemaking jurisdiction over
PG&amp;E&rsquo;s intrastate natural gas pipeline and storage
facilities, and to keep such natural gas pipeline and storage
facilities subject to the regulation of the Commission.&nbsp; In
addition, PG&amp;E and PG&amp;E Corporation agree that the
Commission has jurisdiction under existing Public Utilities Code
section 851 to review and approve any proposal by PG&amp;E to
dispose of property necessary or useful in the performance of
PG&amp;E&rsquo;s duties to the public.</font></p>

<p><b><font size="3" face=
"Times New Roman">12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Interest Rate Hedging</u>.&nbsp;</font></b> In order to take
advantage of the current favorable interest-rate climate, the
Commission agrees that the actual reasonable cost of
PG&amp;E&rsquo;s interest rate hedging activities with respect to
the financing necessary for the Settlement Plan shall be reflected
and recoverable in PG&amp;E&rsquo;s retail gas and electric rates
without further review.</p>

<p><b><font size="3" face=
"Times New Roman">13.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Financing</u>.</b>&nbsp;</p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
It is anticipated that all of PG&amp;E&rsquo;s existing trade and
financial debt, except for the MBIA Insured PC Bonds and the Letter
of Credit Backed PC Bonds, shall be paid in Cash under the
Settlement Plan.&nbsp; It is further anticipated that the MBIA
Insured PC Bonds, the Letter of Credit Backed PC Bonds and the
Preferred Stock shall be reinstated under the Settlement
Plan.&nbsp; The Settlement Plan will detail the proposed financing
and creditor treatment.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The financing of the Settlement Plan shall not include any new
preferred or common stock.&nbsp;</font></p>

<p><font size="3" face=
"Times New Roman">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All financing shall be arranged and placed by a financing team led
by PG&amp;E that includes representatives of the Commission and
PG&amp;E and shall be duly authorized by the Commission and subject
to the authority and duty of the boards of directors of PG&amp;E
and PG&amp;E Corporation to approve such financing.&nbsp; The
financing shall be designed and accomplished so as to minimize the
cost to ratepayers consistent with achieving an appropriate and
financially flexible capital structure.</font></p>

<p><font size="3" face=
"Times New Roman">d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In consideration for the agreement by UBS Warburg LLC and Lehman
Brothers each to (i) limit its consummation and/or advisory fee to
$20 million (in the case of Lehman Brothers inclusive of advisory
fees already paid by PG&amp;E Corporation and further subject to
the crediting provisions contained in Lehman Brothers&rsquo;
engagement letter, and, in the case of UBS Warburg LLC, in lieu of
the full consummation fee calculated pursuant to section 2(d) of
UBS Warburg LLC&rsquo;s engagement letter with the Commission and
the OCC), which shall be payable on the Effective Date, and (ii)
jointly provide the bank facilities determined by PG&amp;E to be
necessary under the Settlement Plan (subject to negotiation of
satisfactory terms and conditions), PG&amp;E agrees to name UBS
Warburg LLC and Lehman Brothers as exclusive book runners, lead
managers and hedging providers of all financings pursuant to the
Settlement Plan with equal economics for 80 percent of the
aggregate of total fees and commissions payable on such financings,
and otherwise on customary terms as agreed among them.&nbsp; To the
extent that PG&amp;E adds co-managers, the Commission shall have
the right to appoint one additional co-manager at the highest level
of economics available to co-managers.</font></p>

<p><font size="3" face=
"Times New Roman">e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All documents used or prepared by PG&amp;E in connection with the
financing, including prospectuses, indentures and notes, shall be
in form and substance reasonably satisfactory to the
Commission.</font></p>

<p><font size="3" face=
"Times New Roman">f.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The cost of the financing, including principal, interest, any fees
or discounts payable to investment bankers, capital markets
arrangers or book runners, including the fees to be paid to UBS
Warburg LLC and Lehman Brothers pursuant to Paragraph 13d, as well
as any past or future call premiums on reacquired debt, shall be
fully recoverable as part of the cost of debt to be collected in
PG&amp;E&rsquo;s retail gas and electric rates without further
review.&nbsp;</font></p>

<p><b><font size="3" face=
"Times New Roman">14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Treatment of Creditors</u>.&nbsp;</font></b> The treatment of
creditors under the Settlement Plan will be consistent with that
provided in the PG&amp;E Plan, except that those creditors that
were to receive Long-Term Notes or a combination of Cash and
Long-Term Notes will be paid entirely in Cash.</p>

<p><b><font size="3" face=
"Times New Roman">15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Fees and Expenses</u>.&nbsp;</font></b> As of the Confirmation
Date, and pursuant to the Settlement Plan and the Confirmation
Order, PG&amp;E shall reimburse PG&amp;E Corporation and the
Commission for all of their respective professional fees and
expenses incurred in connection with the Chapter&nbsp;11 Case (such
fees and expenses of the Commission to include those of Paul,
Weiss, Rifkind, Wharton &amp; Garrison LLP, UBS Warburg LLC and
Chanin Capital Partners), without the need for any application
under Section&nbsp;330 or 503(b) of the Bankruptcy Code.&nbsp; If
it is determined by court order that such an application is
required for all or any part of such fees and expenses, then the
Parties shall support such application in a written pleading to be
filed with the Court and such fees and expenses shall be allowed
and treated as an Administrative Expense Claim under the Settlement
Plan in the amount approved by the Court.&nbsp; The Commission
shall authorize PG&amp;E to recover the amounts so paid or
reimbursed to the Commission in retail rates over a reasonable
period of time, not to exceed four years.&nbsp; PG&amp;E shall not
recover any portion of the amounts so paid or reimbursed to
PG&amp;E Corporation in retail rates; rather, such costs shall be
borne solely by shareholders through a reduction in retained
earnings.</p>

<p><b><font size="3" face=
"Times New Roman">16.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Conditions Precedent to Effective Date</u>.&nbsp;</b> Among
other conditions to be contained in the Settlement Plan, the
following shall be conditions precedent to the Effective Date:</p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
S&amp;P and Moody&rsquo;s shall have issued Investment Grade
company credit ratings for PG&amp;E.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Commission shall have given final, nonappealable approval for
all rates, tariffs and agreements necessary to implement the
Settlement Plan.&nbsp; The PG&amp;E Proponents shall have the right
to waive this provision with respect to any appeal from the
Commission&rsquo;s approvals.</font></p>

<p><b><font size="3" face=
"Times New Roman">17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Preservation and Environmental Enhancement of PG&amp;E
Land</u>.&nbsp;</font></b> PG&amp;E owns approximately 140,000
acres of watershed lands (&ldquo;Watershed Lands&rdquo;) associated
with its hydroelectric generating system and the approximately 655
acre Carizzo Plains property in San Luis Obispo County
(&ldquo;Carizzo Plains&rdquo;).&nbsp; Of the Watershed Lands,
approximately 95,000 acres are lands that are either included in
the project boundaries, contain essential project elements related
to the operations of the hydro facilities, or are part of legal
parcels that contain major FERC project facilities. The remaining
44,000 acres are lands completely outside the FERC project
boundaries and do not contain FERC project features.&nbsp; The
Watershed Lands and Carizzo Plains are worth an estimated $300
million.&nbsp;</p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
PG&amp;E agrees to the Land Conservation Commitment set forth in
Appendix E hereto, by which the Watershed Lands and Carizzo Plains
will be subject to conservation easements or donated in fee simple
to public agencies or non-profit conservation
organizations.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On the Effective Date or as soon thereafter as practicable,
PG&amp;E shall establish PG&amp;E Environmental Enhancement
Corporation, a California non-profit corporation, to oversee the
Land Conservation Commitment and to carry out environmental
enhancement activities.&nbsp; The governing board of PG&amp;E
Environmental Enhancement Corporation will consist of one
representative each from PG&amp;E, the Commission, the California
Department of Fish and Game, the State Water Resources Control
Board, the California Farm Bureau Federation, and three public
members to be named by the Commission.</font></p>

<p><font size="3" face=
"Times New Roman">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
PG&amp;E shall fund PG&amp;E Environmental Enhancement Corporation
with $70 million in Cash to cover administrative expenses and the
costs of environmental enhancements to the Watershed Lands and
Carizzo Plains, <u>provided</u> that no such enhancement may at any
time interfere with PG&amp;E&rsquo;s hydroelectric operations,
maintenance or capital improvements.&nbsp; The funds will be paid
in equal installments over ten years on the Effective Date and on
January 2 of each year thereafter.&nbsp; The Commission shall
authorize PG&amp;E to recover these payments in retail rates
without further review.</font></p>

<p><b><font size="3" face=
"Times New Roman">18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Clean Energy Technology Commitment</u>.&nbsp;</font></b></p>

<p><font size="3" face=
"Times New Roman">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On the Effective Date or as soon thereafter as practicable,
PG&amp;E shall establish a new, California non-profit corporation
dedicated to supporting research and investment in clean energy
technologies primarily in PG&amp;E&rsquo;s service territory.&nbsp;
The non-profit corporation will be governed by a board consisting
of nine members, three each appointed by the Commission and
PG&amp;E, and the remaining three to be selected jointly by the
Commission appointees and the PG&amp;E appointees.</font></p>

<p><font size="3" face=
"Times New Roman">b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
PG&amp;E shall fund the non-profit corporation with $15 million in
Cash paid over five years, as follows:&nbsp; $1 million in the
first year, $2 million in the second year, $3 million in the third
year, $4 million in the fourth year, and $5 million in the fifth
year, each amount payable on January 2 of each year after the
Effective Date.&nbsp; The Commission shall not include any portion
of this funding in PG&amp;E&rsquo;s retail rates.</font></p>

<p><font size="3" face=
"Times New Roman">c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
PG&amp;E and the Commission shall work together to attract
additional funding for the non-profit
corporation.&nbsp;&nbsp;&nbsp;</font></p>

<p><b><font size="3" face=
"Times New Roman">19.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Cooperation</u>.</b>&nbsp;&nbsp;&nbsp; The Parties will
cooperate fully and in good faith to obtain timely confirmation of
the Settlement Plan and to effectuate the transactions contemplated
by this Agreement and the Settlement Plan.&nbsp; The Parties will
support this Agreement, the Settlement Plan, and the Confirmation
Order in all judicial, administrative and legislative forums.&nbsp;
PG&amp;E, PG&amp;E Corporation and the Commission will cooperate in
all presentations to credit rating agencies in connection with the
consummation of the Settlement Plan.</p>

<p><b><font size="3" face=
"Times New Roman">20.</font></b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<b><u>Waiver of Sovereign Immunity</u>.</b>&nbsp; In connection
with any action or proceeding concerning the enforcement of this
Agreement, the Settlement Plan or the Confirmation Order or other
determination of the Parties&rsquo; rights under this Agreement,
the Settlement Plan or the Confirmation Order, the Commission
hereby knowingly and expressly waives all existing and future
rights of sovereign immunity, and all other similar immunities, as
a defense.&nbsp; Accordingly, the Commission hereby consents to the
jurisdiction of any court or other tribunal or forum for such
actions or proceedings including, but not limited to, the
Court.&nbsp; This waiver is irrevocable and applies to the
jurisdiction of any court, legal process, suit, judgment,
attachment in aid of execution of a judgment, attachment prior to
judgment, set-off or any other legal process with respect to the
enforcement of this Agreement, the Settlement Plan or the
Confirmation Order or other determination of the Parties&rsquo;
rights under this Agreement, the Settlement Plan or Confirmation
Order.&nbsp; It is the intention of this Agreement that neither the
Commission nor any other California entity acting on the
Commission&rsquo;s behalf may assert immunity in an action or
proceeding, as discussed herein, concerning the Parties&rsquo;
rights under this Agreement, the Settlement Plan or the
Confirmation Order.</p>

<p><b><font size="3" face=
"Times New Roman">21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Validity and Binding Effect</u>.&nbsp;</font></b> The Parties
agree not to contest the validity and enforceability of this
Agreement, the Settlement Plan or any order entered by the Court
contemplated by or required to implement this Agreement and the
Settlement Plan.&nbsp; This Agreement, the Settlement Plan and any
such orders are intended to be enforceable under federal law,
notwithstanding any contrary state law.&nbsp; This Agreement and
the Settlement Plan, upon becoming effective, and the orders to be
entered by the Court as contemplated hereby and under the
Settlement Plan, shall be irrevocable and binding upon the Parties
and their successors and assigns, notwithstanding any future
decisions and orders of the Commission.</p>

<p><b><font size="3" face=
"Times New Roman">22.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Enforcement</u>.&nbsp;</font></b> The Parties agree that the
Court shall retain jurisdiction over the Parties for all purposes
relating to enforcement of this Agreement, the Settlement Plan and
the Confirmation Order.</p>

<p><b><font size="3" face=
"Times New Roman">23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Specific Performance</u>.</font></b>&nbsp; It is understood and
agreed by each of the Parties hereto that money damages would not
be a sufficient remedy for any material breach of any provision of
this Agreement by any Party, and each non-breaching Party shall be
entitled to specific performance and injunctive or other equitable
relief as a remedy for any such breach, without the necessity of
securing or posting a bond or other security in connection with
such remedy.</p>

<p><b><font size="3" face=
"Times New Roman">24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Releases</u>.&nbsp;</font></b> The &ldquo;Releases by
Debtor&rdquo; provided for in the Settlement Plan shall include
PG&amp;E Corporation, its present and former officers, directors,
management, and professionals; the present or former members of the
OCC, the present or former officers and directors and management of
any present or former member of the OCC; and the Commission, its
present and former commissioners and employees, as well as the
advisors, consultants and professionals of or to the OCC, the
members of the OCC, and the Commission, in each case in their
respective capacities as such.</p>

<p><b><font size="3" face=
"Times New Roman">25.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Counterparts</u>.</font></b>&nbsp; This Agreement may be
executed in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same instrument.</p>

<p><b><font size="3" face=
"Times New Roman">26.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Captions and Paragraph Headings</u>.</font></b>&nbsp; Captions
and paragraph headings used herein are for convenience only and are
not a part of this Agreement and shall not be used in construing
it.</p>

<p><b><font size="3" face=
"Times New Roman">27.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Entire Agreement</u>.&nbsp;</font></b> This Agreement, together
with the Settlement Plan and the Confirmation Order, contains the
entire understanding of the Parties concerning the subject matter
of this Agreement and, except as expressly provided for herein,
supersedes all prior understandings and agreements, whether oral or
written, among them with respect to the subject matter hereof and
thereof.&nbsp; There are no representations, warranties,
agreements, arrangements or understandings, oral or written,
between the Parties hereto relating to the subject matter of this
Agreement and such other documents and instruments which are not
fully expressed herein or therein.&nbsp; This Agreement may be
amended or modified only by an agreement in writing signed by each
of the Parties hereto which is filed with and, if necessary,
approved by, the Court.</p>

<p><b><font size="3" face=
"Times New Roman">28.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Time of Essence</u>.</font></b>&nbsp; Time is hereby expressly
made of the essence with respect to each and every term and
provision of this Agreement upon its effectiveness.&nbsp; The
Parties acknowledge that each will be relying upon the timely
performance by the others of their obligations hereunder as a
material inducement to each Party&rsquo;s execution and approval of
this Agreement.</p>

<p><b><font size="3" face=
"Times New Roman">29.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>No Third Party Beneficiaries</u>.</font></b>&nbsp; Except as may
be specifically set forth in this Agreement or the Settlement Plan,
nothing in this Agreement, whether express or implied, is intended
to confer any rights or remedies under or by reason of this
Agreement on any Persons other than the Parties and their
respective permitted successors and assigns, nor is anything in
this Agreement intended to relieve or discharge the obligation or
liability of any third Persons to any Party, nor give any third
Persons any right of subrogation or action against any Party.</p>

<p><b><font size="3" face=
"Times New Roman">30.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Authority; Enforceability</u>.</font></b>&nbsp; Each Party
represents and warrants to the others that this Agreement has been
duly authorized by all action required of such Party to be bound
thereby, and that this Agreement, when effective, constitutes
valid, binding and enforceable obligations of such Party.</p>

<p><b><font size="3" face=
"Times New Roman">31.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Waiver of Compliance</u>.</font></b>&nbsp; To the extent
permitted by applicable law, any failure of any of the Parties to
comply with any obligation, covenant, agreement or condition set
forth herein may be waived by the Party entitled to the benefit
thereof only by a written instrument signed by such Party, but any
such waiver shall not operate as a waiver of, or estoppel with
respect to, any prior or subsequent failure to comply
therewith.&nbsp; The failure of a Party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not
constitute a waiver of such rights.</p>

<p><b><font size="3" face=
"Times New Roman">32.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>California Law</u>.&nbsp;</font></b> This Agreement shall be
governed by, and shall be construed and enforced in accordance
with, the laws of the State of California, without giving effect to
the conflict of law principles thereof, except that this Agreement,
the Settlement Plan and any orders of the Court (including the
Confirmation Order) are intended to be enforceable under federal
law, notwithstanding any contrary state law.</p>

<p><b><font size="3" face=
"Times New Roman">33.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Admissions</u>.</font></b>&nbsp; This Agreement is a compromise
believed by the Parties to be in the best interests of all
concerned parties.&nbsp; Nothing in this Agreement shall be
construed or deemed to be an admission by any of the Parties of any
liability or any material fact in connection with any other
litigation or proceeding.</p>

<p><b><font size="3" face=
"Times New Roman">34.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Confirmation Order</u>.</font></b>&nbsp; The Confirmation Order
shall, among other things, order the Parties to perform under and
in accordance with this Agreement and the Settlement Plan.&nbsp;
The Confirmation Order shall be in form and substance satisfactory
to each of the Parties.</p>

<p><b><font size="3" face=
"Times New Roman">35.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Plan Documents</u>.</font></b>&nbsp; This Agreement is expressly
conditioned on the preparation and approval by the Court of the
Settlement Plan, the disclosure statement for the Settlement Plan,
and the Confirmation Order, each of which shall be in form and
substance reasonably satisfactory to each of the Parties.</p>

<p><b><font size="3" face=
"Times New Roman">36.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Termination</u>.</font></b>&nbsp; This Agreement shall terminate
at the end of nine (9) years from the Effective Date, <u>provided
that</u> all rights of the Parties under this Agreement that vest
on or prior to such termination, including any rights arising from
any default under this Agreement, shall survive such termination
for the purpose of enforcing such vested rights.</p>

<p><b><font size="3" face=
"Times New Roman">37.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Conditions Precedent to Effectiveness</u>.</font></b>&nbsp; This
Agreement shall only be binding upon the Parties and their
respective successors and assigns and enforceable in accordance
with its terms upon:&nbsp; (1)&nbsp;approval by the boards of
directors of PG&amp;E and PG&amp;E Corporation, (2)&nbsp;approval
by the Commission, and (3) execution of this Agreement by all
Parties on or before December 31, 2003.&nbsp;</p>

<table border="0" cellspacing="0" cellpadding="0">
<tr>
<td valign="top">
<p><font size="3" face="Times New Roman">__________________,
2003</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">CALIFORNIA PUBLIC
UTILITIES COMMISSION</font></p>

<p><font size="3" face=
"Times New Roman">By_________________________________________</font></p>

<p><font size="3" face=
"Times New Roman">Its_________________________________________</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face="Times New Roman">__________________,
2003</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">PACIFIC GAS AND ELECTRIC
COMPANY</font></p>

<p><font size="3" face=
"Times New Roman">By_________________________________________</font></p>

<p><font size="3" face=
"Times New Roman">Its_________________________________________</font></p>
</td>
</tr>

<tr>
<td valign="top">
<p><font size="3" face="Times New Roman">_________________,
2003</font></p>
</td>
<td valign="top">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td valign="top">
<p><font size="3" face="Times New Roman">PG&amp;E
CORPORATION</font></p>

<p><font size="3" face=
"Times New Roman">By_________________________________________</font></p>

<p><font size="3" face=
"Times New Roman">Its_________________________________________</font></p>
</td>
</tr>
</table>

<p><b><font size="3" face="Times New Roman"><br clear="all" />
</font></b></p>

<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;APPENDIX
A<br />
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
TECHNICAL APPENDIX</u></font></b></p>

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<p><font size="3" face="Times New Roman">Appendix A: Technical
Appendix</font></p>
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<p><font size="3" face="Times New Roman">A. Methodology for
Calculating Regulatory Asset Amortization</font></p>
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<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
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<p><font size="3" face="Times New Roman">The amount of the
amortization of the Regulatory Asset principal to be included
annually in PG&amp;E's</font></p>
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<p><font size="3" face="Times New Roman">revenue requirement shall
be calculated each year according to the following
formula:</font></p>
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<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
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<td rowspan="3">
<p align="center"><font size="3" face="Times New Roman">Annual
Principal Amortization =</font></p>
</td>
<td nowrap rowspan="3" valign="bottom">
<p align="center"><font size="6" face=
"Times New Roman">[</font></p>
</td>
<td nowrap colspan="3" valign="bottom">
<p align="center"><u><font size="3" face="Times New Roman">P *
r</font></u></p>
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<td nowrap rowspan="3" valign="bottom">
<p align="center"><font size="6" face=
"Times New Roman">]</font></p>
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<p align="center"><font size="3" face="Times New Roman">[ 1
-</font></p>
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<p align="center"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;1&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap rowspan="2">
<p align="center"><font size="3" face=
"Times New Roman">]</font></p>
</td>
<td nowrap>
<p align="center"><font size="3" face=
"Times New Roman">-</font></p>
</td>
<td nowrap>
<p><font size="3" face="Times New Roman">(P<sub>a</sub> *
r)</font></p>
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<p align="center"><font size="3" face="Times New Roman">(1 +
r)<sup>n</sup></font></p>
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<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
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<p><font size="3" face="Times New Roman">where:</font></p>
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<p><font size="3" face="Times New Roman">"P" is defined as the
total Regulatory Asset principal, as specified in the Settlement
Agreement;</font></p>
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<p><font size="3" face="Times New Roman">"r" is defined as the
estimated tax-effected return on rate base, as more fully described
below;</font></p>
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<p><font size="3" face="Times New Roman">"n" is defined as the
period of amortization in years, as specified in the Settlement
Agreement;</font></p>
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<td nowrap colspan="14" valign="bottom">
<p><font size="3" face="Times New Roman">and "P<sub>a</sub>" is
defined as the principal remaining at the beginning of the year
under consideration.</font></p>
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<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
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<td nowrap colspan="9" valign="bottom">
<p><font size="3" face="Times New Roman">B. Estimated Tax-Effected
Return on Rate Base</font></p>
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<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
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<td nowrap colspan="14" valign="bottom">
<p><font size="3" face="Times New Roman">The tax-effected return on
rate base used in the above formula shall reflect an estimate of
the</font></p>
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<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="18" valign="bottom">
<p><font size="3" face="Times New Roman">cost of PG&amp;E's capital
structure. The following example uses its approximate assumed
capital ratios over the life of</font></p>
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<tr>
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<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">the regulatory asset, as
detailed below:</font></p>
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<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
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<p align="center"><font size="3" face=
"Times New Roman">Capital</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="2" valign="bottom">
<p align="center"><font size="3" face="Times New Roman">Nominal
Cost</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="center"><font size="3" face=
"Times New Roman">Tax-Effected</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="center"><font size="3" face=
"Times New Roman">Weighted</font></p>
</td>
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</tr>

<tr>
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<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="center"><u><font size="3" face="Times New Roman">Ratio
(%)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="2" valign="bottom">
<p align="center"><u><font size="3" face=
"Times New Roman">(%)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="center"><u><font size="3" face="Times New Roman">Cost (%)
<sup>1</sup></font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="center"><u><font size="3" face="Times New Roman">Cost
(%)</font></u></p>
</td>
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<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">Common Equity</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">52.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">11.220</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">18.937</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">9.847</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="2" valign="bottom">
<p><font size="3" face="Times New Roman">Preferred
Securities</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">6.500</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">10.970</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.219</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><u><font size="3" face="Times New Roman">Debt</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">46.0</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">6.616</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">6.616</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">3.043</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><u><font size="3" face="Times New Roman">Tax-Effected Return on
Rate Base</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">13.110</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">NOTE</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="10" valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;
1&nbsp;&nbsp;&nbsp;&nbsp; Assumes total state and federal income
tax rate of 40.75%.</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="18" valign="bottom">
<p><font size="3" face="Times New Roman">The actual authorized
pre-tax cost of capital shall be used to determine the annual
return and amortization components</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="16" valign="bottom">
<p><font size="3" face="Times New Roman">of the regulatory asset,
subject to the requirements set forth in paragraph 2(b) of the
Settlement Agreement.</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap colspan="11" valign="bottom">
<p><font size="3" face="Times New Roman">C. Example Amortization
Schedule for Regulatory Asset</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="14" valign="bottom">
<p><font size="3" face="Times New Roman">Applying the foregoing
formula to the Regulatory Asset of $2,210 million, to be amortized
over</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="16" valign="bottom">
<p><font size="3" face="Times New Roman">nine years, as initially
specified in the Settlement Agreement, the schedule for principal
amortization</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">is as follows:</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face="Times New Roman">P
=</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="2" valign="bottom">
<p><font size="3" face="Times New Roman">2,210.0 million</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face="Times New Roman">r
=</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">13.110%</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face="Times New Roman">n
=</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">9 years</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><i><font size="3" face="Times New Roman">(Figures in millions of
dollars)</font></i></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2004</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2005</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2006</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2007</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2008</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2009</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2010</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2011</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2012</font></b></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">Principal Balance,
Beginning of Period</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2,210.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2,067.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,905.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,723.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,516.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,283.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,019.1</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">720.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">382.3</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><font size="3" face="Times New Roman">(Principal
Amortization)</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(142.7)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(161.4)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(182.6)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(206.5)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(233.6)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(264.2)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(298.8)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(338.0)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(382.3)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">Principal Balance, End of
Period</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2,067.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,905.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,723.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,516.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,283.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,019.1</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">720.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">382.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">(0.0)</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap colspan="9" valign="bottom">
<p><font size="3" face="Times New Roman">D. Effect of a Reduction
in the Regulatory Asset</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="12" valign="bottom">
<p><font size="3" face="Times New Roman">If, pursuant to the
Settlement Agreement, the outstanding balance of the
Regulatory</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="11" valign="bottom">
<p><font size="3" face="Times New Roman">Asset is reduced, then the
amortization schedule for the remainder of the</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="14" valign="bottom">
<p><font size="3" face="Times New Roman">Regulatory Asset shall be
recalculated for the current year and each of the successive
years</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="14" valign="bottom">
<p><font size="3" face="Times New Roman">using the method described
in Sections A through C above.&nbsp; For purposes of the formula
in</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="12" valign="bottom">
<p><font size="3" face="Times New Roman">Section A above, the term
"n" shall refer to the number of remaining years of</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="12" valign="bottom">
<p><font size="3" face="Times New Roman">amortization and the term
"P" shall refer to the outstanding balance of the
Regulatory</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="12" valign="bottom">
<p><font size="3" face="Times New Roman">Asset at the beginning of
the current year after giving effect to the reduction.</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="14" valign="bottom">
<p><font size="3" face="Times New Roman">For example, if in 2006
the outstanding balance of the Regulatory Asset were to be reduced
by</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="15" valign="bottom">
<p><font size="3" face="Times New Roman">$500 million (after tax),
then the principal amortization for 2006 and all successive years
would be</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="16" valign="bottom">
<p><font size="3" face="Times New Roman">recalculated on the basis
of the reduced remaining outstanding balance of $1,407.4 million,
the same&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="16" valign="bottom">
<p><font size="3" face="Times New Roman">estimated tax-effected
return on rate base of 13.110% as specified in Section B above, and
a seven</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="8" valign="bottom">
<p><font size="3" face="Times New Roman">year remaining
amortization period, as shown below:</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><i><font size="3" face="Times New Roman">(Figures in millions of
dollars)</font></i></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2004</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2005</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2006</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2007</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2008</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2009</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2010</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2011</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2012</font></b></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">Principal Balance,
Beginning of Period</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2,210.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2,067.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,905.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,271.2</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,118.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">946.6</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">751.8</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">531.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">282.0</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><font size="3" face="Times New Roman">(Reduction in
Principal)</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">(500.0)</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">0.0</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><font size="3" face="Times New Roman">(Principal
Amortization)</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(142.7)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(161.4)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(134.7)</font></u></p>
</td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;</font></p>
</td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(152.3)</font></u></p>
</td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;</font></p>
</td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(172.3)</font></u></p>
</td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;</font></p>
</td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(194.9)</font></u></p>
</td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;</font></p>
</td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(220.4)</font></u></p>
</td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;</font></p>
</td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(249.3)</font></u></p>
</td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">&nbsp;</font></p>
</td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">(282.0)</font></u></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">Principal Balance, End of
Period</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">2,067.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,905.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,271.2</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">1,118.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">946.6</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">751.8</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">531.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">282.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">(0.0)</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap colspan="11" valign="bottom">
<p><font size="3" face="Times New Roman">E. Example of Calculation
of Total Revenue Requirement</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="25" valign="bottom">
<p><font size="3" face="Times New Roman">The total revenue
requirement for the Regulatory Asset will include return, taxes on
return, amortization, and taxes on amortization. The Company shall
include its</font></p>
</td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="25" valign="bottom">
<p><font size="3" face="Times New Roman">authorized factor for
franchise fees and uncollectibles.&nbsp; Any property taxes
attributable to the Regulatory asset shall also be included in the
revenue requirement.</font></p>
</td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="20" valign="bottom">
<p><font size="3" face="Times New Roman">Changes in the annual
revenue requirement shall be implemented by advice filing, subject
to review by the CPUC Energy Division.</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><i><font size="3" face="Times New Roman">(Figures in millions of
dollars)</font></i></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2004</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2005</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2006</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2007</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2008</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2009</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2010</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2011</font></b></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><b><font size="3" face=
"Times New Roman">2012</font></b></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">Return and Taxes on
Average Balance</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">280.4</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">260.4</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">237.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">212.4</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">183.5</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">150.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">114.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">72.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">25.1</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p><font size="3" face="Times New Roman">Amortization</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">142.7</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">161.4</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">182.6</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">206.5</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">233.6</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">264.2</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">298.8</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">338.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">382.3</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><font size="3" face="Times New Roman">Taxes On
Amortization</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">98.1</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">111.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">125.6</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">142.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">160.6</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">181.7</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">205.5</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">232.5</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">262.9</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="4" valign="bottom">
<p><font size="3" face="Times New Roman">Property Taxes (not
estimated in example)</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><font size="3" face="Times New Roman">F&amp;U (not estimated in
example)</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><u><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></u></p>
</td>
<td nowrap valign="bottom"></td>
</tr>

<tr>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap colspan="3" valign="bottom">
<p><font size="3" face="Times New Roman">Total Revenue
Requirement</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">521.2</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">532.8</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">546.0</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">560.9</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">577.7</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">596.8</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">618.3</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">642.7</font></p>
</td>
<td nowrap valign="bottom"></td>
<td nowrap valign="bottom">
<p align="right"><font size="3" face=
"Times New Roman">670.3</font></p>
</td>
<td nowrap valign="bottom"></td>
</tr>
</table>

<p><font size="3" face="Times New Roman"><br clear="all" />
</font></p>

<p align="center"><b><font size="3" face="Times New Roman">APPENDIX
B</font></b></p>

<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
LIST OF PROCEEDINGS</u></font></b></p>

<p><font size="3" face="Times New Roman">A.00-05-002, -003, -004;
-005; A.01-05-003, -009, -017, -018; A.02-05-002, -003, -005, -007,
Annual Earnings Assessment Proceeding (AEAP)
applications.</font></p>

<p><font size="3" face="Times New Roman">A.01-09-003, PG&amp;E 2001
Annual Transition Cost Proceeding, Phase 1 cost recovery
issues.</font></p>

<p><font size="3" face="Times New Roman">A.02-06-019,
PG&amp;E&rsquo;s 2002 Attrition Proceeding.</font></p>

<p><font size="3" face="Times New Roman">A.99-03-039, Public
Utilities Code Section 368(e) proceeding.</font></p>

<p><font size="3" face="Times New Roman">A.00-07-013, PG&amp;E
Electric Restructuring Cost Account application.</font></p>

<p><font size="3" face="Times New Roman">A.02-11-017 and
A.02-09-005, PG&amp;E 2003 General Rate Case
applications.</font></p>

<p><font size="3" face="Times New Roman"><br clear="all" />
</font></p>

<p align="center"><b><font size="3" face="Times New Roman">APPENDIX
C<br />
<u>OTHER PROCEEDINGS TO BE DISMISSED</u></font></b></p>

<p><font size="3" face="Times New Roman">Various market valuation
applications under AB 1890, Public Utilities Code Section 367(b) in
Docket Nos. A.99-09-053, A.00-05-029, -030, -031, -032, -033, -034,
-035.</font></p>

<p><font size="3" face="Times New Roman">A.00-06-046, PG&amp;E
application to implement benefit sharing ratemaking for Diablo
Canyon pursuant to CPUC Diablo Canyon restructuring decisions.
(Probably superseded by D.02-04-016, URG decision.)</font></p>

<p><font size="3" face="Times New Roman">I.01-04-002, CPUC
investigation into past holding company actions during energy
crisis (but only as to past actions, not prospective
matters).</font></p>

<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;APPENDIX
D<br />
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
CERTAIN APPLICATIONS</u></font></b></p>

<p><font size="3" face=
"Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Applications to Transfer Regulatory Assets filed with the FERC in
Docket Nos. EC02-3 1, EL02-36, ES02-17, ER02-456, and
ER02-455</font></p>

<p><font size="3" face=
"Times New Roman">(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Applications to Transfer Hydro Assets filed with FERC in Project
Nos. 77-116, 96-031, 137-031, 175-018, 178-015, 233-082, 606-020,
619-095, 803-055, 1061-056, 1121-058, 1333-037, 1354-029, 1403-042,
1962-039, 1988-030, 2105-087, 2106-039, 2107-012, 2130-030,
2155-022, 2310-120, 2467-016, 2661-016, 2687-022, 2735-071,
2118-006, 2281-005, 2479-003, 2678-001, 2781-004, 2784-001,
4851-004, 5536-001, 5828-003, 7009-004, and 10821-002.</font></p>

<p><font size="3" face=
"Times New Roman">(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Applications for Certificates of Public Convenience and Necessity
filed with FERC in Docket Nos. CP02-38, CP02-39, CP02-40, CP02-41,
and CP02-42.</font></p>

<p><font size="3" face=
"Times New Roman">(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
License Transfer Application filed with the NRC in Docket
Nos.&nbsp;50-275-LT, and 50-323-LT.</font></p>

<p><font size="3" face=
"Times New Roman">(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Filing with the SEC for Approval under the Public Utilities Holding
Company Act of 1935 to create Electric Generation LLC, ETrans LLC,
and GTrans LLC.</font></p>

<p><font size="3" face="Times New Roman"><br clear="all" />
</font></p>

<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;APPENDIX
E<br />
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
LAND CONSERVATION COMMITMENT</u></font></b></p>

<p><b><font size="3" face="Times New Roman"><br />
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
STATEMENT OF PURPOSE</u></font></b></p>

<p><font size="3" face="Times New Roman">PG&amp;E shall ensure that
the Watershed Lands it owns and Carizzo Plains are conserved for a
broad range of beneficial public values, including the protection
of the natural habitat of fish, wildlife and plants, the
preservation of open space, outdoor recreation by the general
public, sustainable forestry, agricultural uses, and historic
values.&nbsp; PG&amp;E will protect these beneficial public values
associated with the Watershed Lands and Carizzo Plains from uses
that would conflict with their conservation.&nbsp; PG&amp;E
recognizes that such lands are important to maintaining the quality
of life of local communities and all the people of California in
many ways, and it is PG&amp;E&rsquo;s intention to protect and
preserve the beneficial public values of these lands under the
terms of any agreements concerning their future ownership or
management.</font></p>

<p><font size="3" face="Times New Roman">PG&amp;E Environmental
Enhancement Corporation will develop a plan for protection of these
lands for the benefit of the citizens of California.&nbsp;
Protecting such lands will&nbsp; be accomplished through either (1)
PG&amp;E&rsquo;s donation of conservation easements to one or more
public agencies or qualified conservation organizations consistent
with these objectives, or (2) PG&amp;E&rsquo;s donation of lands in
fee to one or more public entities or qualified conservation
organizations, whose ownership would be consistent with these
conservation objectives.&nbsp;</font></p>

<p><b><font size="3" face=
"Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<u>
COMMITMENTS</u></font></b></p>

<p><font size="3" face=
"Times New Roman">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>PG&amp;E Shall Place Permanent Conservation Easements on or
Donate Watershed Lands</u>:&nbsp; The Watershed Lands and Carizzo
Plains shall (1) be subject to permanent conservation easements
restricting development of the lands so as to protect and preserve
their beneficial public values, and/or (2) be donated in fee simple
to one or more public entities or qualified non-profit conservation
organizations, whose ownership will ensure the protection of these
beneficial public values.&nbsp; PG&amp;E will not be expected to
make fee simple donations of Watershed Lands that contain
PG&amp;E&rsquo;s hydroelectric project features.&nbsp; In instances
where PG&amp;E has donated land in fee, some may be sold to private
entities subject to conservation easements and others, without
significant public interest value, may be sold to private entities
with few or no restrictions.</font></p>

<p><font size="3" face="Times New Roman">The conservation easements
shall provide for the preservation of land areas for the protection
of the natural habitat of fish, wildlife and plants, the
preservation of open space, outdoor recreation by the general
public, sustainable forestry, agricultural uses, and historic
values and, shall prevent any other uses that will significantly
impair or interfere with those values.&nbsp; Conservation easements
on the Watershed Lands will include an express reservation of a
right for continued operation and maintenance of hydroelectric
facilities and associated water delivery facilities, including
project replacements and improvements required to meet existing and
future water delivery requirements for power generation and
consumptive water use by existing users, compliance with any FERC
license, FERC license renewal or other regulatory requirements. In
addition, easements will honor existing agreements for economic
uses, including consumptive water deliveries.&nbsp; The
conservation easements shall be donated to and managed by one or
more non-profit conservation trustees, qualified conservation
organizations or public agencies with the experience and expertise
to fully and strictly implement the conservation
easements.</font></p>

<p><font size="3" face=
"Times New Roman">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Process For Development of the Conservation Easements and Land
Donation Plan</u>: PG&amp;E will work with PG&amp;E Environmental
Enhancement Corporation and the Commission in the development and
implementation of the conservation easements and land donation
plan.&nbsp; PG&amp;E Environmental Enhancement Corporation will
recommend to PG&amp;E (1)&nbsp;conservation objectives for the
properties, including identification of conservation values,
(2)&nbsp;criteria for ultimate disposition of the properties,
(3)&nbsp;conservation easements guidelines, and (4) land
disposition plans.</font></p>

<p><font size="3" face=
"Times New Roman">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<u>Reporting Responsibilities</u>:&nbsp; PG&amp;E Environmental
Enhancement Corporation will prepare a report to the Commission
within 18 months of the Effective Date describing the status of the
conservation easement and land disposition plan.&nbsp; PG&amp;E
Environmental Enhancement Corporation will make the report
available to the public upon request.&nbsp; Every two years
following the first report, PG&amp;E Environmental Enhancement
Corporation will prepare a report to the Commission on the
implementation of the conservation easement and land disposition
plan.</font></p>
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