Pacific Gas & Electric (PCG)

Dividends

PG&E Corporation and the Utility did not declare or pay a dividend during the Utility’s Chapter 11 proceeding as the Utility was prohibited from paying any common or preferred stock dividends without bankruptcy court approval and certain covenants in PG&E Corporation’s Senior Secured Notes restricted the circumstances in which such a dividend could be declared or paid. With the Utility’s emergence from Chapter 11 on April 12, 2004, the Utility resumed the payment of preferred stock dividends.

On February 16, 2005, the Board of Directors of the Utility declared a cash dividend of $117 million on the Utility’s common stock for the first quarter of 2005. The dividend was paid to PG&E Corporation and PG&E Holdings LLC, a wholly owned subsidiary of the Utility that holds approximately 6% of the Utility’s common stock, on February 17, 2005. Also, on February 16, 2005, the Board of Directors of PG&E Corporation declared a cash dividend of $0.30 per share on PG&E Corporation’s common stock for the first quarter of 2005, payable on April 15, 2005, to shareholders of record on March 31, 2005. These actions are consistent with the dividend policy and target dividend payout ratio range (the proportion of earnings paid out as dividends) adopted by both Boards in October 2004. PG&E Corporation’s and the Utility’s dividend policies contemplate a target dividend payout ratio range of 50-70% and PG&E Corporation’s policy targets an initial annual cash dividend of $1.20 per share ($0.30 quarterly).

PG&E Corporation’s and the Utility’s dividend policies are designed to meet the following three objectives:

•                  Comparability: Pay a dividend competitive with the securities of comparable companies based on payout ratio and, with respect to PG&E Corporation, yield (i.e., dividend divided by share price);

•                  Flexibility: Allow sufficient cash to pay a dividend and to fund investments while avoiding the necessity to issue new equity unless PG&E Corporation’s or the Utility’s capital expenditure requirements are growing rapidly and PG&E Corporation or the Utility can issue equity at reasonable cost and terms; and

•                  Sustainability: Avoid reduction or suspension of the dividend despite fluctuations in financial performance except in extreme and unforeseen circumstances.

The target dividend payout ratio range was based on an analysis of dividend payout ratios of comparable companies. The initial dividend target was chosen in recognition of the Utility’s current credit rating and the potential capital investments that the Utility may make in the future to provide electricity resource adequacy in compliance with future regulatory requirements and an approved LTPP.

Dividends

On February 16, 2005, the Board of Directors of the Utility declared a dividend of $117 million that was paid on February 17, 2005, to PG&E Corporation and PG&E Holdings LLC, a wholly owned subsidiary of the Utility that held approximately 6% of the Utility’s common stock.

Also, on February 16, 2005, the Board of Directors of PG&E Corporation declared a quarterly common stock dividend of $0.30 per share to shareholders of record on March 31, 2005.  On April 15, 2005, PG&E Corporation paid this

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Dividends

        PG&E Corporation and the Utility did not declare or pay a dividend during the Utility's Chapter 11 proceeding as the Utility was prohibited from paying any common or preferred stock dividends without bankruptcy court approval and certain covenants in PG&E Corporation's Senior Secured Notes restricted the circumstances in which such a dividend could be declared or paid. With the Utility's emergence from Chapter 11 on April 12, 2004, the Utility resumed the payment of preferred stock dividends.

        On February 16, 2005, the Board of Directors of the Utility declared a cash dividend of $117 million on the Utility's common stock for the first quarter of 2005. The dividend was paid to PG&E Corporation and PG&E Holdings LLC, a wholly owned subsidiary of the Utility that holds

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approximately 6% of the Utility's common stock, on February 17, 2005. Also, on February 16, 2005, the Board of Directors of PG&E Corporation declared a cash dividend of $0.30 per share on PG&E Corporation's common stock for the first quarter of 2005, payable on April 15, 2005, to shareholders of record on March 31, 2005. These actions are consistent with the dividend policy and target dividend payout ratio range (the proportion of earnings paid out as dividends) adopted by both Boards in October 2004. PG&E Corporation's and the Utility's dividend policies contemplate a target dividend payout ratio range of 50-70% and PG&E Corporation's policy targets an initial annual cash dividend of $1.20 per share ($0.30 quarterly).

        PG&E Corporation's and the Utility's dividend policies are designed to meet the following three objectives:

•

Comparability: Pay a dividend competitive with the securities of comparable companies based on payout ratio and, with respect to PG&E Corporation, yield (i.e., dividend divided by share price);



•

Flexibility: Allow sufficient cash to pay a dividend and to fund investments while avoiding the necessity to issue new equity unless PG&E Corporation's or the Utility's capital expenditure requirements are growing rapidly and PG&E Corporation or the Utility can issue equity at reasonable cost and terms; and



•

Sustainability: Avoid reduction or suspension of the dividend despite fluctuations in financial performance except in extreme and unforeseen circumstances.

        The target dividend payout ratio range was based on an analysis of dividend payout ratios of comparable companies. The initial dividend target was chosen in recognition of the Utility's current credit rating and the potential capital investments that the Utility may make in the future to provide electricity resource adequacy in compliance with future regulatory requirements and an approved LTPP.

        Each Board of Directors retains authority to change its common stock dividend policy and its dividend payout ratio at any time, especially if unexpected events occur that would change the Board's views as to the prudent level of cash conservation.