Pacific Gas & Electric (PCG)

In the recent past, the commodity markets for electricity and natural gas have been highly volatile and subject to substantial price fluctuations. A variety of factors may contribute to commodity market volatility, including:

•                  Weather;

•                  Supply and demand;

•                  The availability of competitively priced alternative energy sources;

•                  The level of production of natural gas;

•                  The availability of liquified natural gas, or LNG, supplies;

•                  The price of other fuels that are used to produce electricity, including crude oil and coal;

•                  The transparency, efficiency, integrity and liquidity of regional energy markets affecting California;

•                  Electricity transmission or natural gas transportation capacity constraints;

•                  Federal, state and local energy and environmental regulation and legislation; and

•                  Natural disasters, war, terrorism and other catastrophic events.

These factors are largely outside the Utility’s control. If wholesale electricity or natural gas prices increase significantly, public pressure or other regulatory or governmental influences or other factors could constrain the willingness or ability of the CPUC to authorize timely recovery of the Utility’s costs. Moreover, the volatility of commodity markets could cause the Utility to apply more frequently to the CPUC for authority to timely recover its costs in rates. If the Utility is unable to recover any material

        Electricity and natural gas markets are highly volatile and insufficient regulatory responsiveness to that volatility could cause events similar to those that led to the filing of the Utility's Chapter 11 petition to occur.

        In the recent past, the commodity markets for electricity and natural gas have been highly volatile and subject to substantial price fluctuations. A variety of factors may contribute to commodity market volatility, including:

•

Weather;



•

Supply and demand;



•

The availability of competitively priced alternative energy sources;



•

The level of production of natural gas;



•

The availability of liquified natural gas, or LNG, supplies;



•

The price of other fuels that are used to produce electricity, including crude oil and coal;



•

The transparency, efficiency, integrity and liquidity of regional energy markets affecting California;



•

Electricity transmission or natural gas transportation capacity constraints;



•

Federal, state and local energy and environmental regulation and legislation; and



•

Natural disasters, war, terrorism and other catastrophic events.

        These factors are largely outside the Utility's control. If wholesale electricity or natural gas prices increase significantly, public pressure or other regulatory or governmental influences or other factors could constrain the willingness or ability of the CPUC to authorize timely recovery of the Utility's costs. Moreover, the volatility of commodity markets could cause the Utility to apply more frequently to the CPUC for authority to timely recover its costs in rates. If the Utility is unable to recover any material amount of its costs in its rates in a timely manner, PG&E Corporation's and the Utility's financial condition and results of operations would be materially adversely affected.