Pacific Gas & Electric (PCG)

Financial Summary of the Settlement Agreement

In light of the satisfaction of various conditions to the implementation of the plan of reorganization, including the consummation of the public offering of the First Mortgage Bonds, the receipt of investment grade credit ratings, and final CPUC approval of the Settlement Agreement, the accounting probability standard required to be met under SFAS No. 71, in order for the Utility to recognize the regulatory assets provided under the Settlement Agreement (as described below), was met as of March 31, 2004. Therefore, the Utility recorded the $2.2 billion, after-tax ($3.7 billion, pre-tax) Settlement Regulatory Asset, and $0.7 billion, after-tax ($1.2 billion, pre-tax), for the Utility retained generation regulatory assets, as summarized in the table below and discussed further in the paragraphs below:

Financial Summary of the Settlement Agreement

        In light of the satisfaction of various conditions to the implementation of the plan of reorganization, including the consummation of the public offering of the First Mortgage Bonds, the

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receipt of investment grade credit ratings, and final CPUC approval of the Settlement Agreement, the accounting probability standard required to be met under SFAS No. 71, in order for the Utility to recognize the regulatory assets provided under the Settlement Agreement (as described below), was met as of March 31, 2004. Therefore, the Utility recorded the $2.2 billion, after-tax ($3.7 billion, pre-tax) Settlement Regulatory Asset, and $0.7 billion, after-tax ($1.2 billion, pre-tax), for the Utility retained generation regulatory assets, as summarized in the table below and discussed further in the paragraphs below: