Pacific Gas & Electric (PCG)

Interest Income

In accordance with SOP 90-7, the Utility reports reorganization interest income separately on its Consolidated Statements of Operations. Reorganization interest income mainly includes interest earned on cash accumulated during the Utility’s Chapter 11 proceedings. Interest income, including reorganization interest income, decreased by approximately $3 million, or 6%, in 2004 from 2003 and approximately $21 million, or 28%, in 2003 from 2002. Both decreases were mainly due to lower average interest rates earned on the Utility’s short-term investments.

Interest Income

In the three months ended March 31, 2005, interest income, including reorganization interest income, increased by approximately $9 million, or 82%, compared to the same period in 2004, primarily due to interest earned on the $1.7 billion disputed escrow cash account in the three months ended March 31, 2005, and higher average interest rates on the Utility’s short-term investments in the three months ended March 31, 2005, compared to the same period in 2004.  The Utility discontinued reporting in accordance with SOP 90-7 upon its emergence from Chapter 11 on April 12, 2004.  Prior to that date, the Utility reported reorganization interest income separately on its Consolidated Statements of Income.  Reorganization interest income reported in 2004 mainly included interest earned on cash accumulated during the Utility’s Chapter 11 proceedings.

Interest Income

        In accordance with SOP 90-7, the Utility reports reorganization interest income separately on its Consolidated Statements of Operations. Reorganization interest income mainly includes interest earned on cash accumulated during the Utility's Chapter 11 proceedings. Interest income, including reorganization interest income, decreased by approximately $3 million, or 6%, in 2004 from 2003 and approximately $21 million, or 28%, in 2003 from 2002. Both decreases were mainly due to lower average interest rates earned on the Utility's short-term investments.

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Interest Expense

        In 2004, the Utility's interest expense decreased by approximately $286 million, or 30%, compared to 2003 mainly due to a lower average amount of unpaid debt accruing interest and a lower weighted average interest rate on debt outstanding during 2004 compared to 2003. As a result of this interest savings, the CPUC reduced the Utility's authorized cost of capital revenue requirement in 2004 (see the "Regulatory Matters" section of this MD&A).

        In 2003, the Utility's interest expense decreased by approximately $35 million, or 4%, compared to 2002 mainly due to the reduction in the amount of rate reduction bonds outstanding, reflecting the declining principal balance of the rate reduction bonds and a lower amount of unpaid debts accruing interest. See Note 3 of the Notes to the Consolidated Financial Statements for further discussion. This decrease was partially offset by the accrual of $38 million in interest payable to the DWR in 2003.