Pacific Gas & Electric (PCG)

Factors That May Affect Future Results of Operation and Financial Condition

In addition to future CPUC and FERC decisions that will affect the rates that the Utility can charge for its services and that will determine the amount of costs the Utility can recover through rates, the following significant factors are expected to affect the Utility’s future results of operations and financial condition:

•                  The issuance of energy recovery bonds in the aggregate amount of up to $3.0 billion;

•                  The amount and cost of the long-term electricity resource commitments the Utility is required to make in connection with its long-term electricity procurement plan which may involve substantial capital expenditures in new generation resources;

•                  The level of operating expenses;

•                  The performance of distribution, generation, transmission and natural gas transportation operating assets; and

•                  The success of the Utility’s strategy to achieve cost efficiencies and operational excellence and to invest in needed infrastructure to serve the Utility’s customers, resulting in improved customer service, rate base growth and future earnings under cost-of-service ratemaking.

Factors That May Affect Future Results of Operation and Financial Condition

        In addition to future CPUC and FERC decisions that will affect the rates that the Utility can charge for its services and that will determine the amount of costs the Utility can recover through rates, the following significant factors are expected to affect the Utility's future results of operations and financial condition:

•

The issuance of energy recovery bonds in the aggregate amount of up to $3.0 billion;



•

The amount and cost of the long-term electricity resource commitments the Utility is required to make in connection with its long-term electricity procurement plan which may involve substantial capital expenditures in new generation resources;



•

The level of operating expenses;



•

The performance of distribution, generation, transmission and natural gas transportation operating assets; and



•

The success of the Utility's strategy to achieve cost efficiencies and operational excellence and to invest in needed infrastructure to serve the Utility's customers, resulting in improved customer service, rate base growth and future earnings under cost-of-service ratemaking.