Pacific Gas & Electric (PCG)

Chapter 11 Claims

The following table summarizes the disposition of the net creditor claims made in the Utility’s Chapter 11 proceeding, the amount of funds held in escrow for the resolution of disputed claims and the disputed claims accrued by the Utility at December 31, 2004:

(1)           The Utility has analyzed these claims and has recorded reserves for such claims that are included in the Utility’s undiscounted environmental remediation liability of approximately $327 million at December 31, 2004 and the Utility’s provision for legal matters of approximately $200 million at December 31, 2004, as discussed below in Note 12.

(2)           The Utility also made payments of approximately $0.2 billion for interest and bank premiums upon the effectiveness of the plan of reorganization.

As of December 31, 2004, the Utility had accrued approximately $1.6 billion for remaining net disputed claims, consisting of approximately $2.1 billion of accounts payable-disputed claims primarily payable to the ISO and the Power Exchange, or the PX, offset by an accounts receivable amount from the ISO and the PX of approximately $0.5 billion. As disclosed in the table above, the Utility held $1.7 billion in escrow for the payment of remaining disputed claims as of December 31, 2004. Although the Utility was required to hold $1.7 billion in escrow, the Utility does not believe it is probable that it will be found liable for approximately $0.1 billion of the $1.7 billion of the disputed claims and, therefore, in accordance with SFAS No. 5, “Accounting for Contingencies,” or SFAS No. 5, the Utility has not recorded a liability in its financial

Chapter 11 Claims

        The following table summarizes the disposition of the net creditor claims made in the Utility's Chapter 11 proceeding, the amount of funds held in escrow for the resolution of disputed claims and the disputed claims accrued by the Utility at December 31, 2004:

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The Utility has analyzed these claims and has recorded reserves for such claims that are included in the Utility's undiscounted environmental remediation liability of approximately $327 million at

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December 31, 2004 and the Utility's provision for legal matters of approximately $200 million at December 31, 2004, as discussed below in Note 12.

⁽²⁾

The Utility also made payments of approximately $0.2 billion for interest and bank premiums upon the effectiveness of the plan of reorganization.

        As of December 31, 2004, the Utility had accrued approximately $1.6 billion for remaining net disputed claims, consisting of approximately $2.1 billion of accounts payable-disputed claims primarily payable to the ISO and the Power Exchange, or the PX, offset by an accounts receivable amount from the ISO and the PX of approximately $0.5 billion. As disclosed in the table above, the Utility held $1.7 billion in escrow for the payment of remaining disputed claims as of December 31, 2004. Although the Utility was required to hold $1.7 billion in escrow, the Utility does not believe it is probable that it will be found liable for approximately $0.1 billion of the $1.7 billion of the disputed claims and, therefore, in accordance with SFAS No. 5, "Accounting for Contingencies," or SFAS No. 5, the Utility has not recorded a liability in its financial statements for this amount. Upon resolution of these claims and under the terms of the Settlement Agreement, any refunds, claims offsets or other credits that the Utility receives from energy suppliers will be returned to customers.

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