PG&E Corporation: 
     Preparing For the Future
Investor Meetings
May 15-16, 2007
 
 
 
This presentation contains forward-looking statements regarding management’s guidance for PG&E Corporation’s 2007 and 2008 earnings per share from operations,targeted average annual growth rate for earnings per share from operations, anticipated dividend growth, as well as management’s projections regarding Pacific Gas and Electric Company’s (Utility) capital expenditures, rate base and rate base growth, future electricity resources, and energy efficiency funding levels. These statements are based on current expectations and various assumptions which management believes are reasonable, including that substantial capital investments are made in Utility business over the 2007-2011 period, Utility rate base averages $17 billion in 2007 and $18.7 billion in 2008, that the Utility earns at least its authorized rate of return on equity, and that the Utility’s ratemaking capital structure is maintained at 52 percent equity. These statements and assumptions are necessarily subject to various risks and uncertainties, the realization or resolution of which are outside of management's control. Actual results may differ materially. Factors that could cause actual results to differ materially include: 
•
Utility’s ability to timely recover costs through rates;
•
the outcome of regulatory proceedings, including ratemaking proceedings pending at the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission;
•
the adequacy and price of electricity and natural gas supplies, and the ability of the Utility to manage and respond to the volatility of the electricity and natural gas markets;
•
the effect of weather, storms, earthquakes, fires, floods, disease, other natural disasters, explosions, accidents, mechanical breakdowns, acts of terrorism, and other events or hazards that could affect the Utility’s facilities and operations, its customers, and third parties on which the Utility relies;
•
the potential impacts of climate change on the Utility’s electricity and natural gas business;
•
changes in customer demand for electricity and natural gas resulting from unanticipated population growth or decline, general economic and financial market conditions,
changes in technology including the development of alternative energy sources, or other reasons;
•
operating performance of the Utility’s Diablo Canyon nuclear generating facilities (Diablo Canyon), the occurrence of unplanned outages at Diablo Canyon, or the temporary or permanent cessation of operations at Diablo Canyon;
•
the ability of the Utility to recognize benefits from its initiatives to improve its business processes and customer service;
•
the ability of the Utility to timely complete its planned capital investment projects;
•
the impact of changes in federal or state laws, or their interpretation, on energy policy and the regulation of utilities and their holding companies;
•
the impact of changing wholesale electric or gas market rules, including the California Independent System Operator’s new rules to restructure the California wholesale electricity market;
•
how the CPUC administers the conditions imposed on PG&E Corporation when it became the Utility’s holding company;
•
the extent to which PG&E Corporation or the Utility incur costs and liabilities in connection with pending litigation that are not recoverable through rates, from third parties, or through insurance recoveries;
•
the ability of PG&E Corporation and/or the Utility to access capital markets and other sources of credit;
•
the impact of environmental laws and regulations and the costs of compliance and remediation;
•
the effect of municipalization, direct access, community choice aggregation, or other forms of bypass, and
•
other risks and factors disclosed in PG&E Corporation’s and Pacific Gas and Electric Company’s SEC reports.   
Cautionary Statement Regarding Forward-Looking Information
 
2
 
Key Takeaways From Today’s Discussion
•
PCG is a core utility holding, delivering strong investment opportunities and low regulatory risk.
•
Potential earnings “upsides” in 2008 and beyond are not included in guidance.
•
Emerging growth strategies present additional business opportunities.
 
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We act with integrity and communicate honestly and openly.
We are passionate about meeting our customers’ needs
and delivering for our shareholders.  We are accountable for all of
our own actions: these include safety, protecting the
environment, and supporting our communities. We work together
as a team and are committed to excellence and innovation.
 We respect each other and celebrate our diversity.
The
Leading
utility in the
United States
  Delighted   Energized   Rewarded
customers  employees  shareholders
Our values
Operational excellence
Transformation
Our strategies
Our goals
Our vision
PG&E Vision
 
4
 
Our Business Strategy
•
Competitive customer focus
•
Operational excellence
•
Regulatory alignment
•
Environmental leadership
•
Community involvement
 
5
 
Core Business Growth Opportunities
•
Electric and gas distribution
•
Electric transmission
­
System reliability
         _
­
         _
Growth to reach renewable resources
•
Natural gas transmission and storage
•
Electric resource requirements
­
         _
Energy efficiency
­
         _
Renewables
­
Conventional generation
         _
 
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2007
2008
2009
2010
2011
Capital Expenditures ($MM)
0
1,000
2,000
3,000
2007
2008
2009
2010
2011
$3,200
$3,200
$2,500
$3,100
$2,200
Common Plant
Electric Trans.
Generation
Distribution
Chart Key
Gas Trans.
Capital Expenditure Outlook
 
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*
Projected 2007-2011 rate base is not adjusted for the impact of the carrying cost credit that primarily results from the second series of the Energy Recovery Bonds.   Earnings will be reduced by an amount equal to the deferred tax balance associated with the Energy Recovery Bonds regulatory asset, multiplied by the utility's equity ratio and by its equity return.  The carrying cost credit declines to zero when the taxes are fully paid in 2012.
Rate Base Growth
 
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*
Reg G reconciliation to GAAP for 2006 EPS from Operations and 2007 and 2008 EPS Guidance available in Appendix and at www.pge-corp.com
EPS from Operations*
EPS Guidance
EPS from Operations*:    2007 guidance of $2.70-$2.80 per share
2008 guidance of $2.90-$3.00 per share
 
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Survey of analyst estimates of EPS growth:
Source:  Thomson IBIS long-term EPS Growth Consensus Estimate Median May 8, 2007
EPS Growth – Comparator Group
EPS from operations annual growth targeted to average 8%
for 2007 – 2011
 
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Potential Earnings Upsides
•
Transformation benefits
•
Energy efficiency incentives
•
Additional transmission and generation investments
 
11
 
California Energy Policy
PG&E’s resource investment strategy is aligned with California’s Energy Action Plan “preferred loading order”:
1.
 Energy Efficiency
2.
 Demand Response
3.
 Renewable Resources
4.
 Distributed Generation
5.
 Conventional Resources
 
12
 
Over the past 30 years, California per capita energy use has remained relatively flat compared to the 50% increase in US per capita energy use.
Source: California Energy Commission
California’s Success With Energy Efficiency
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1960
1965
1970
1975
1980
1985
1990
1995
2000
US
CA
Western Europe
 
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•
About half of expected load growth will be met by energy efficiency
•
PG&E’s budget and goals for 2006-2008:
              
- Overall energy efficiency budget:         $975 million
- PG&E filed goals:                                   3,063 GWh; 47 MM therms 
GWh Savings:  Historic and Target
PG&E’s Energy Efficiency Programs
 
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MWs
Demand response impacts expected to double from 2007
Actual and Projected Capacity Savings from Demand Response Programs
Demand Response Programs
 
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*
2008 to 2011 estimates are based on forecasted construction schedules and additional contracted resources
Projected Deliveries Plus Contracts*
2006 deliveries comprised of:
Renewable Portfolio Standard target is 20% by 2010
Renewable Resource Procurement
 
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PPAs
Counterparty/Facility
Size (MW)
Target Operational Date
Contract Term (years)
Calpine Hayward
601
2010
10
EIF Firebaugh
399
2009
20
Starwood Firebaugh
118
2009
15
EIF Fresno
196
2009
20
Tierra Energy Hayward
116
2009
20
Total 
1,430
    

Facility
Size (MW)
Status
Target Operational Date
Estimated Capital Costs
Gateway
530
broken ground
2009
$370 million
Humboldt Bay
163
permitting
2009
$239 million
Colusa
657
permitting
2010
$673 million
Total 
1,350
    
$1,282 million
New Generation Resources: Utility-Owned & Conventional Power Purchase Agreements
 
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*
Over  20% of total retail sales expected to be eligible renewable resources coming from utility-owned, QFs, Irrigation Districts, and other sources.
**
May include utility-owned resources.
*
Approximately 13% of total retail sales expected to be eligible renewable resources coming from utility-owned, QFs, Irrigation Districts and other sources.
2007 Projected Sources of Energy
85,500 GWh
2012 Projected Sources of Energy
89,900 GWh
•
Energy efficiency expected to meet half of future load growth
•
Growth in renewable resources and resources with operating flexibility
•
Growth in utility ownership
Long-Term Electric Resources
 
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Changing Legislative Environment for GHG
Recent greenhouse gas legislation:
•
California global warming legislation enacted in 2006
•
Federal legislation expected in 2 to 4 years
PG&E supports:
•
Mandatory market-based approach
•
Encouraging early action toward goals before full regulatory implementation
•
Recognition of prior actions
•
Pursuit of all cost-effective reductions in greenhouse gases
•
International cooperation
 
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*
Comparison companies selected by Innovest.  Data include emissions of regulated and unregulated plants. 2004 is the most recent data available.
2004 CO2Emissions and Emission Rates*
Source:  Innovest
Relative CO2 Emissions Rates - Generation
 
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Emerging Growth Opportunities
PG&E is looking ahead to the future of utility services
•
Clean/renewable fuel technologies
•
Smart Energy Web
•
Plug-in anywhere technologies
•
Sustainable Energy Communities
 
21
 
PCG Investment Opportunity Summary
•
First quartile EPS growth
­
- Approved infrastructure investment
•
Potential upsides
­
- Transformation benefits
­
- Energy efficiency incentives
­
- Additional transmission and generation investment
 
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Appendix
Investor Meetings
May 15-16, 2007
 
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Business Unit
2006 Rate Base ($B)
Regulation
Electric and gas distribution
$10.3
CPUC
Electric generation
$1.8
CPUC
Gas transmission
$1.5
CPUC
Electric transmission
$2.3
FERC
           PCG Total Business
$15.9
85% CPUC/15% FERC
Pacific Gas and Electric Company (PG&E)
•
$12.5 B in Revenues
•
$34.8 B in Assets
•
5.1 MM electric/4.2 MM gas customers
•
$18 B+ of Market Capitalization
 
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Balancing
Accounts           =
•
Cost of procuring energy
•
Sales volume
•
Selected other elements of operating costs such as energy conservation programs
   
Ratemaking        =
Projected Test Year
w/ Attrition adjustments
Rate Base          =
Net Plant (in service)
-
 deferred taxes from accelerated depreciation
+/-  net working capital
(may exclude many balance sheet assets or liabilities)
Ratemaking Summary
 
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Credit Profile
•
Current Ratings
­
- Utility issuer rating:  BBB (S&P) and Baa1 (Moody’s)
­
- Utility unsecured debt:  BBB (S&P) and Baa1 (Moody’s)
•
Average Utility Metrics (2007-2011)*
­
- S&P Business Profile Rating:  5
­
- Total Debt to capitalization (EOY):  53.6%
­
- Funds from Operations Cash Interest Coverage:  5.1x
­
- Funds from Operations to Average Total Debt:  22%
*     Metrics include debt equivalents for long-term power purchase contracts
 
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Dividend Policy
•
Objectives:
­
- Flexibility
­
- Sustainability
­
- Comparability
•
Payout ratio range of 50% - 70%
•
Growth balanced with funding for additional investment opportunities
•
Dividend growth is expected to be generally in line with the growth in EPS from Operations
 
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*
Earnings per share from operations is a non-GAAP measure.  This non-GAAP measure is used because it allows investors to compare the core underlying financial performance from one period to another, exclusive of items that do not reflect the normal course of operations
2006
2006 EPS - Reg G Reconciliation

EPS on an Earnings from Operations Basis*
  
$
2.57
  
Items Impacting Comparability:
        
Scheduling Coordinator Cost Recovery
    
0.21
  
Environmental Remediation Liability
    
(0.05
)
Recovery of Interest on PX Liability
    
0.08
  
Severance Costs
    
(0.05
)
         
EPS on a GAAP Basis
  
$
2.76
  
 
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EPS Guidance - Reg G Reconciliation
 
2007
  
Low
  
High
  
EPS Guidance on an Earnings from Operations Basis*
  
$
2.70
  
$
2.80
  
Estimated Items Impacting Comparability
    
0.00
    
0.00
  
EPS Guidance on a GAAP Basis
  
$
2.70
  
$
2.80
  
 
 
 
 
2008
  
Low
  
High
  
EPS Guidance on an Earnings from Operations Basis*
  
$
2.90
  
$
3.00
  
Estimated Items Impacting Comparability
   
0.00
    
0.00
  
EPS Guidance on a GAAP Basis
  
$
2.90
  
$
3.00
  
*
Earnings per share from operations is a non-GAAP measure.  This non-GAAP measure is used because it allows investors to compare the core underlying financial performance from one period to another, exclusive of items that
do not reflect the normal course of operations.
 
 
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