Pacific Gas & Electric (PCG)

First Mortgage Bonds

On March 23, 2004, the Utility closed a public offering of $6.7 billion of First Mortgage Bonds. The First Mortgage Bonds were offered in multiple tranches consisting of 3.60% First Mortgage Bonds due March 1, 2009 in the principal amount of $600 million, 4.20% First Mortgage Bonds due March 1, 2011 in the principal amount of $500 million, 4.80% First Mortgage Bonds due March 1, 2014 in the principal amount of $1 billion, 6.05% First Mortgage Bonds due March 1, 2034 in the principal amount of $3 billion, and Floating Rate First Mortgage Bonds due April 3, 2006 in the principal amount of $1.6 billion. The Utility received proceeds of $6.7 billion from the offering, net of a discount of $18 million. The interest rate for the Floating Rate First Mortgage Bonds is based on the three-month London Interbank Offered Rate, or LIBOR, plus 0.70%, which resets quarterly. The next reset date is April 3, 2005. For 2004, the average interest rate on the Floating Rate First Mortgage Bonds was 4.8%.

On October 3, 2004, the Utility partially redeemed Floating Rate First Mortgage Bonds due in 2006 in the aggregate principal amount of $500 million. On January 3, 2005, the Utility partially redeemed Floating Rate First Mortgage Bonds due in 2006 in the aggregate principal amount of $300 million. In addition, the Utility plans to use a portion of the energy recovery bond proceeds to defease $600 million of Floating Rate First Mortgage Bonds by the end of February 2005.

In addition, approximately $2.5 billion of additional First Mortgage Bonds have been issued as security to various banks and insurance companies under the following agreements (1) the Utility’s $620 million letters of credit backing pollution control bonds, (2) the Utility’s reimbursement obligation under an insurance policy relating to $200 million in pollution control bonds that were issued for the benefit of the Utility, (3) the Utility’s $345 million loan agreements with the California Pollution Control Financing Authority, or the CPCFA, (4) the Utility’s $454 million reimbursement agreements for pollution control bond bridge facilities, and (5) the Utility’s $850 million working capital facility.

First Mortgage Bonds

        On March 23, 2004, the Utility closed a public offering of $6.7 billion of First Mortgage Bonds. The First Mortgage Bonds were offered in multiple tranches consisting of 3.60% First Mortgage Bonds due March 1, 2009 in the principal amount of $600 million, 4.20% First Mortgage Bonds due March 1, 2011 in the principal amount of $500 million, 4.80% First Mortgage Bonds due March 1, 2014 in the principal amount of $1 billion, 6.05% First Mortgage Bonds due March 1, 2034 in the principal amount of $3 billion, and Floating Rate First Mortgage Bonds due April 3, 2006 in the principal amount of

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$1.6 billion. The Utility received proceeds of $6.7 billion from the offering, net of a discount of $18 million. The interest rate for the Floating Rate First Mortgage Bonds is based on the three-month London Interbank Offered Rate, or LIBOR, plus 0.70%, which resets quarterly. The next reset date is April 3, 2005. For 2004, the average interest rate on the Floating Rate First Mortgage Bonds was 4.8%.

        On October 3, 2004, the Utility partially redeemed Floating Rate First Mortgage Bonds due in 2006 in the aggregate principal amount of $500 million. On January 3, 2005, the Utility partially redeemed Floating Rate First Mortgage Bonds due in 2006 in the aggregate principal amount of $300 million. In addition, the Utility plans to use a portion of the energy recovery bond proceeds to defease $600 million of Floating Rate First Mortgage Bonds by the end of February 2005.

        In addition, approximately $2.5 billion of additional First Mortgage Bonds have been issued as security to various banks and insurance companies under the following agreements (1) the Utility's $620 million letters of credit backing pollution control bonds, (2) the Utility's reimbursement obligation under an insurance policy relating to $200 million in pollution control bonds that were issued for the benefit of the Utility, (3) the Utility's $345 million loan agreements with the California Pollution Control Financing Authority, or the CPCFA, (4) the Utility's $454 million reimbursement agreements for pollution control bond bridge facilities, and (5) the Utility's $850 million working capital facility.

        The First Mortgage Bonds are secured by a first lien, subject to permitted exceptions, on substantially all of the Utility's real property and certain tangible personal property related to the Utility's facilities. Subject to certain conditions, the Utility will be entitled to terminate the lien and eliminate all terms and conditions relating to collateral for the First Mortgage Bonds on the release date. In general, the release date will occur when the Utility provides written evidence to the trustee of the First Mortgage Bonds that the ratings on the Utility's long-term unsecured debt obligations following the release date would at least equal the (1) initial ratings assigned by Moody's and S&P on the First Mortgage Bonds, or (2) comparable ratings by any other nationally recognized rating agency or agencies selected by the Utility if either Moody's or S&P do not then rate the Utility's long-term unsecured debt obligations. The First Mortgage Bonds received initial investment grade credit ratings of Baa2 from Moody's and BBB from S&P.

        If the lien securing the First Mortgage Bonds is released, the indenture will limit the ability of the Utility and its significant subsidiaries to incur secured debt and enter into sale and leaseback transactions.