Pacific Gas & Electric (PCG)

NOTE 4:  ENERGY RECOVERY BONDS

In connection with the Settlement Agreement, PG&E Corporation and the Utility agreed to seek to refinance the unamortized portion of the Settlement Regulatory Asset and associated federal and state income and franchise taxes, in an aggregate principal amount of up to $3.0 billion in two separate series up to one year apart, using a securitized financing supported by a dedicated rate component, or DRC.  On February 10, 2005, PERF issued $1.9 billion of ERBs.  The proceeds of the ERBs were used by PERF to purchase from the Utility the right, known as “recovery property,” to be paid a specified amount from a DRC.  DRC charges are authorized by the CPUC under state legislation and will be paid by the Utility’s electricity customers until the ERBs are fully retired.  Under the terms of a recovery property servicing agreement, DRC charges are collected by the Utility and remitted to PERF.

The aggregate principal amount of the first series of ERBs issued was approximately $1.9 billion.  They were issued in five classes, with scheduled maturities ranging from September 25, 2006 to December 25, 2012, and final legal maturities ranging from September 25, 2008 to December 25, 2014.  Interest rates on the five classes range from 3.32% for the earliest maturing class to 4.47% for the latest maturing class.  The proceeds of the first series of ERBs were paid by PERF to the Utility and were used by the Utility to refinance the remaining unamortized after-tax balance of the Settlement Regulatory Asset.  The proceeds of the second series of ERBs, anticipated to be issued in November 2005 in an aggregate amount of up to $1.1 billion, will be paid by PERF to the Utility to pre-fund the Utility’s recovery through rates of the tax payments that will be due as the Utility collects the DRC over the term of the first series of ERBs to pay principal.

The total principal amount of ERBs outstanding was $1.9 billion at March 31, 2005.  The scheduled principal payments on the ERBs for the years 2005 through 2009 are $140 million, $221 million, $230 million, $239 million, and $248 million, respectively.  While PERF is a wholly owned consolidated subsidiary of the Utility, PERF is legally separate from the Utility.  The assets of PERF (including the recovery property) are not available to creditors of PG&E Corporation or the Utility and the recovery property is not legally an asset of the Utility or PG&E Corporation.

Energy Recovery Bonds

In connection with the Settlement Agreement, PG&E Corporation and the Utility agreed to seek to refinance the remaining unamortized portion of the Settlement Regulatory Asset and associated federal and state income and franchise taxes, in an aggregate principal amount of up to $3.0 billion in two separate series up to one year apart, as expeditiously as practicable after the Effective Date using a securitized financing supported by a DRC provided that certain conditions were met. On February 10, 2005, PERF, a limited liability company wholly owned and consolidated by the Utility, issued $1.9 billion of ERBs. The proceeds of the ERBs were used by PERF to purchase from the Utility the right, known as “recovery property,” to be paid a specified amount from a DRC. DRC charges are authorized by the CPUC under state legislation and will be paid by the Utility’s electricity customers until the ERBs are fully retired. Under the terms of a recovery property servicing agreement, DRC charges are collected by the Utility and remitted to PERF.

The aggregate principal amount of the first series of ERBs issued is approximately $1.9 billion. They were issued in five classes, with scheduled maturities ranging from September 25, 2006 to December 25, 2012, and final legal maturities ranging from September 25, 2008 to December 25, 2014. Interest rates on the five classes range from 3.32% for the earliest maturing class to 4.47% for the latest maturing class.

While PERF is a wholly owned consolidated subsidiary of the Utility, PERF is legally separate from the Utility. The assets of PERF (including the recovery property) are not available to creditors of PG&E Corporation or the Utility and the recovery property is not legally an asset of the Utility or PG&E Corporation.

Energy Recovery Bonds

        In connection with the Settlement Agreement, PG&E Corporation and the Utility agreed to seek to refinance the remaining unamortized portion of the Settlement Regulatory Asset and associated federal and state income and franchise taxes, in an aggregate principal amount of up to $3.0 billion in two separate series up to one year apart, as expeditiously as practicable after the Effective Date using a securitized financing supported by a DRC provided that certain conditions were met. On February 10, 2005, PERF, a limited liability company wholly owned and consolidated by the Utility, issued $1.9 billion of ERBs. The proceeds of the ERBs were used by PERF to purchase from the Utility the right, known as "recovery property," to be paid a specified amount from a DRC. DRC charges are authorized by the CPUC under state legislation and will be paid by the Utility's electricity customers until the ERBs are fully retired. Under the terms of a recovery property servicing agreement, DRC charges are collected by the Utility and remitted to PERF.

        The aggregate principal amount of the first series of ERBs issued is approximately $1.9 billion. They were issued in five classes, with scheduled maturities ranging from September 25, 2006 to December 25, 2012, and final legal maturities ranging from September 25, 2008 to December 25, 2014. Interest rates on the five classes range from 3.32% for the earliest maturing class to 4.47% for the latest maturing class.

        While PERF is a wholly owned consolidated subsidiary of the Utility, PERF is legally separate from the Utility. The assets of PERF (including the recovery property) are not available to creditors of PG&E Corporation or the Utility and the recovery property is not legally an asset of the Utility or PG&E Corporation.