Pacific Gas & Electric (PCG)

Item 1.01 – Entry into a Material Definitive Agreement

Consistent with PG&E Corporation’s past practice of granting equity incentives on the first business day of the year, on January 3, 2006, PG&E Corporation granted restricted stock and performance shares under the PG&E Corporation 2006 Long-Term Incentive Plan (LTIP) to key employees and executive officers of PG&E Corporation and its subsidiary, Pacific Gas and Electric Company (Utility).  PG&E Corporation’s and the Utility’s Current Report on Form 8-K dated December 21, 2005 describes the terms of the restricted stock and performance shares which description is hereby incorporated by reference.  The 2006 LTIP has previously been filed with the Securities and Exchange Commission.  The forms of the restricted stock award and performance share agreements are attached hereto as Exhibits 99.1 and 99.2, respectively. 

Item 1.01 – Entry into a Material Definitive Agreement

       A.   Amendment to the PG&E Corporation Supplemental Executive Retirement Plan

              On December 21, 2005, the PG&E Corporation Board of Directors amended the PG&E Corporation Supplemental Executive Retirement Plan (SERP).  The SERP is a non-tax-qualified defined benefit pension plan that provides officers and key employees of PG&E Corporation and its subsidiaries, including Pacific Gas and Electric Company (Utility) with a pension benefit based on a combination of base pay and payments under the Short-Term Incentive Plan.  The amendment reflects recently released Internal Revenue Service guidelines governing annuity payments under the American Jobs Creation Act of 2004 (Act). The amendment clarifies that under the SERP: (i) a participant’s termination or retirement date will be the annuity start date where such termination or retirement is the payment event; (ii) the first six months’ annuity payments will be made in the seventh month; (iii) subsequent annuity payments will be made as scheduled; and (iv) annuity payments deferred during the six-month period required by the Act, when actually paid, will include interest calculated at a rate to reflect PG&E Corporation’s marginal cost of funds.  The amendment does not increase the amount of the benefits payable to the participants or the cost of the benefits to PG&E Corporation.

       B.   2006 Short-Term Incentive Plan

              On December 21, 2005, the Nominating, Compensation, and Governance Committee (Committee) of the PG&E Corporation Board of Directors approved the 2006 Short-Term Incentive Plan (STIP) structure for officers of PG&E Corporation and the Utility. Recommendations as to the specific performance scales for each STIP award component will be presented for the Committee’s action at its February 2006 meeting.   The 2006 officer STIP structure primarily focuses the annual incentive opportunity on returns to shareholders by emphasizing financial objectives such as earnings from operations.  The structure also recognizes the importance of key strategic objectives and operating and service measures aimed at the achievement of operational excellence and improved customer service. Corporate financial performance, as measured by corporate earnings from operations, will account for 70 percent of the award and Utility operational performance, as measured by eleven  financial, operating, and service measures, will account for 30 percent of the award.  The Chief Executive Officer of PG&E Corporation has the discretion to recommend to the Committee an additional performance rating for an individual officer which may be based on  such officer’s efforts to manage his or her organization’s respective financial budget.  This additional performance rating can modify (up or down) an individual officer’s final STIP award by no more than 15 percent.  The Committee will continue to retain full discretion as to the determination of final officer STIP awards.

        C.   2006 Officer Compensation

              At its meeting on December 21, 2005, the Committee (and with respect to Peter A. Darbee and Thomas B. King, the independent members of the Board of Directors of PG&E Corporation and the Utility, respectively) approved 2006 base salaries and the 2006 STIP award targets (based on a percentage of base salary) for the following executive officers:

              The Committee (and with respect to Peter A. Darbee and Thomas B. King, the independent members of the Board of Directors of PG&E Corporation and the Utility, respectively) also approved the 2006 perquisite amount for each officer ranging from $20,000 to $35,000.
 

              The Committee (and with respect to Peter A. Darbee and Thomas B. King, the independent members of the Board of Directors of PG&E Corporation and the Utility, respectively) also approved the total value of equity awards to be made under the 2006 Long-Term Incentive Plan (LTIP) (awards will be made on the first business day of January 2006 after the LTIP becomes effective on January 1, 2006) to the following executive officers:

              The equity awards will be divided equally between restricted stock and performance shares based on a per share price of PG&E Corporation common stock of $35.929, the average closing price of PG&E Corporation common stock on the New York Stock Exchange for the month of November 2005. 

              The Committee also approved the terms of the restricted stock and performance shares to be awarded under the LTIP to all participants, including officers.  Restricted stock will vest over a five-year period in increments of 20 percent on the first, second, and third anniversaries of the date of grant. The vesting of the remaining 40 percent of the restricted stock will lapse early on the third anniversary of the date of grant if PG&E Corporation’s total shareholder return (TSR) for the prior three-year period is in the top quartile relative to PG&E Corporation’s comparator group.  If PG&E Corporation’s TSR for that period is not in the top quartile, the restrictions will continue and will not lapse until the fifth anniversary of the date of grant. 

              Performance shares will vest, if at all, at the end of a three-year period depending on PG&E Corporation’s TSR for the period.  The payment for performance shares will be calculated by multiplying the number of vested performance shares by the average closing price of PG&E Corporation common stock over the last 30 calendar days of the year preceding the vesting date.  There will be no payout for TSR performance below the 25th percentile of the comparator group; there will be a 25 percent payout if TSR is at or above the 25th percentile; there will be a 100 percent payout if TSR is at or above the 75th percentile; and there will be a 200 percent payout if PG&E Corporation’s TSR ranks first in the comparator group.  If PG&E Corporation’s TSR is between the 25th percentile and the 75th percentile, or above the 75th percentile, award payouts will be determined by straight-line interpolation, adjusted to round numbers (i.e., the nearest multiple of five).  

              Restricted stock and performance shares accrue dividends.  However, the payment of all dividends that may be accrued with respect to such awards will be subject to the same restrictions, including the requirement to satisfy any performance goal, if applicable, as the shares to which they relate. 

Item 1.01 – Entry Into a Material Definitive Agreement

Amendment to Pacific Gas and Electric Company Credit Agreement

               On November 30, 2005, Pacific Gas and Electric Company (Utility), a subsidiary of PG&E Corporation, entered into an amendment to its $1 billion revolving credit facility with Citicorp North America, Inc., as administrative agent and a lender, JPMorgan Chase Bank, N.A., as syndication agent and a lender, Barclays Bank PLC and BNP Paribas as documentation agents and lenders, Deutsche Bank Securities Inc., as documentation agent, and the following other lenders: Deutsche Bank AG New York Branch, ABN Amro Bank N.V., Lehman Brothers Bank, FSB, Mellon Bank, N.A., Royal Bank of Canada, The Bank of New York, UBS Loan Finance LLC, Union Bank of California, N.A., KBC Bank, N.V., Morgan Stanley Bank and William Street Commitment Corporation.  The amended credit facility will be used for working capital purposes. 

               The amendment increases the amount of the Utility’s revolving credit facility by $350 million to a total of $1.35 billion.  The amendment also increases the existing $600 million sublimit for the issuance of letters of credit by $350 million to $950 million but does not change the existing $100 million sublimit for swingline loans, i.e., loans made available on a same day basis and repayable in full within 30 days.  Under the amended credit facility, the Utility will pay reduced fees and interest rate spreads, which will vary depending on the Utility's unsecured debt rating by Standard & Poor’s Ratings Services (S&P) and Moody’s Investors Service (Moody’s).  If the Utility's debt ratings from S&P and Moody's are at different levels, the higher rating applies.  A facility fee is based on the total amount of the working capital facility (regardless of the usage) and a utilization fee is based on the average daily amount outstanding under the working capital facility.  The utilization fee is payable during any quarter in which the average daily amount outstanding under the working capital facility is in excess of 50% of the aggregate amount of the facility.  At the Utility's option, any loan under the working capital facility (other than swingline loans) bears interest at a rate equal to the "applicable margin" plus one of the following indexes: (i) LIBOR (London Interbank Overnight Rate) or (ii) the base rate (the higher of (a) the administrative agent's base rate and (b) the Federal Funds rate plus 0.50%).  

                The amended credit facility amends and restates the pricing grid as follows:

                The lenders and agents under the amendment to the Utility’s credit agreement and their affiliates have in the past provided, and may in the future provide, investment banking, underwriting, lending, commercial banking and other advisory services to the Utility and PG&E Corporation.  These parties have received, and may in the future receive, customary compensation from the Utility and PG&E Corporation for such services. 

Item 1.01 – Entry Into a Material Definitive Agreement

Accelerated Share Repurchase Transaction

               In accordance with its previously announced expectation, on November 16, 2005, PG&E Corporation entered into an accelerated share repurchase arrangement with Goldman, Sachs & Co. (GS&Co.) under which PG&E Corporation has repurchased 31,650,300 shares of its outstanding common stock at an initial price of $34.75 per share and an aggregate price of approximately $1.1 billion (in each case exclusive of commissions).  The repurchase will be funded from available cash on hand.  The repurchased shares will be retired.  This additional repurchase of PG&E Corporation common stock will not materially affect the weighted average number of shares outstanding for purposes of calculating 2005 earnings per share. 

                Under the terms of the arrangement, certain additional payments are required by both PG&E Corporation and GS&Co.  Most significantly, PG&E Corporation may receive from, or be required to pay, GS&Co. a price adjustment based on the daily volume weighted average market price (VWAP) of PG&E Corporation common stock over a period of approximately seven months. Any additional payments can be satisfied, at PG&E Corporation’s option, in cash, in shares of PG&E Corporation’s common stock, or a combination of the two.

                GS&Co. may terminate the transaction (i) in the event of a default by PG&E Corporation under the accelerated share repurchase arrangement (which would include the acceleration of certain other PG&E Corporation indebtedness in a principal amount in excess of $100 million), (ii) on the day before any ex-dividend date of a PG&E Corporation dividend that occurs after December 31, 2005, and (iii) in certain other circumstances.  In the event of termination in connection with an ex-dividend date, PG&E Corporation and GS&Co. may elect to enter into a new agreement to complete the original transaction although the price adjustment based on the to-date VWAP and certain other amounts would become payable.  Upon an early termination (other than when a new agreement is executed to complete the original transaction), PG&E Corporation would be required to compensate GS&Co. for losses it incurred in connection with the accelerated share repurchase transaction.

                Any shares that PG&E Corporation issues in the future in connection with an early termination of the transaction or to compensate GS&Co. for any additional amounts due under the accelerated share repurchase arrangement would increase the number of shares outstanding at the time of issuance.  In addition, until the transaction is completed or terminated, generally accepted accounting principles require PG&E Corporation to assume that it will issue shares to settle any obligation to GS&Co.  PG&E Corporation must calculate the number of shares that would be required to satisfy the obligation upon completion of the transaction based on the market price of PG&E Corporation common stock at the end of a quarterly or year-end reporting period.  The number of shares PG&E Corporation must treat as having been issued to settle such obligation would be included in the number of shares outstanding for purposes of calculatingPG&E Corporation’s fully diluted earnings per share for that reporting period.

                GS&Co. and certain of its affiliates have engaged, and may in the future engage, in financial advisory, investment banking and other services for PG&E Corporation and its affiliates, including entering into previous accelerated share repurchase arrangements and acting as a lender under PG&E Corporation’s credit agreement.

A.  2006 Officer Compensation Program

                On October 19, 2005, the Nominating, Compensation and Governance Committee of the PG&E Corporation Board of Directors (Committee) approved portions of the 2006 Officer Compensation Program, including (i) an annual salary increase budget of 3.5 percent for base pay adjustments, mid-year discretionary increases, and lump-sum payments, and (ii) target participation rates for cash awards under the PG&E Corporation Short-Term Incentive Plan (STIP) ranging from 30% to 100% of base salary depending on officer level, with a maximum payout of 200% of base salary.  Actual STIP awards are determined by the Committee based on the extent to which certain pre-established performance criteria are met. 

                The Committee’s actions were based on data from the new comparator group of 26 companies that the Committee previously approved for use in setting officer compensation and the Committee consulted its independent compensation consultant.

B.  Officer Appointment  

                In addition, on October 19, 2005, PG&E Corporation’s Board of Directors elected Rand L. Rosenberg, 52, as Senior Vice President, Corporate Strategy and Development, effective November 1, 2005.  Mr. Rosenberg has 12 years’ experience (1987 through 1999) as an investment banker at several major investment banking firms (Lehman Brothers, Goldman Sachs &Co., Salomon Brothers, and Montgomery Securities) where he led various investment banking groups that focused on the media and telecommunications industry.  In 2000, Mr. Rosenberg was employed by Infospace, a company engaged in the wireless internet business, as Executive Vice President and Chief Financial Officer.  Mr. Rosenberg also led that company’s corporate development efforts.  PG&E Corporation has agreed to pay Mr. Rosenberg an annual base salary of $475,000.  Mr. Rosenberg also will be eligible to participate in the STIP with a target participation rate equal to 55% of his annual base salary, or $261,250.  Mr. Rosenberg’s STIP award for 2005 will be prorated.  On November 1, 2005, Mr. Rosenberg will receive an award of restricted stock under the current PG&E Corporation Long-Term Incentive Program having a value of $400,000; such restricted stock will have annual time-based vesting over four calendar years on the first business days of January 2006, 2007, 2008, and 2009.  He also will be eligible to receive equity awards under the PG&E Corporation 2006 Long-Term Incentive Program (2006 LTIP), which becomes effective on January 1, 2006, having a value of $800,000.  (The 2006 LTIP has been previously filed with the Securities and Exchange Commission.)   Mr. Rosenberg also is entitled to receive a perquisite allowance and other benefits generally provided to PG&E Corporation employees.  Mr. Rosenberg does not have any relationship or related transaction with PG&E Corporation or its subsidiary, Pacific Gas and Electric Company (Utility) that would require disclosure pursuant to Item 404(a) of Securities and Exchange Commission Regulation S-K.

Item 1.01 – Entry Into a Material Definitive Agreement

Accelerated Share Repurchase Transaction

               As reported below, on June 15, 2005, the Board of Directors of PG&E Corporation declared a cash dividend on PG&E Corporation common stock for the second quarter of 2005.  Under the share forward component of PG&E Corporation’s arrangement with Goldman, Sachs & Co. (GS&Co.), under which PG&E Corporation repurchased approximately 29.5 million shares of its outstanding common stock on March 4, 2005, the declaration of such a dividend results in a termination event one day prior to the ex-dividend date of June 28, 2005.  On June 15, 2005, PG&E Corporation provided GS&Co. the required notice that the termination event would occur on June 27, 2005.  The occurrence of the terminating event does not affect the retirement of the approximately 29.5 million shares previously repurchased but, as described below, affects the timing and amount of payments between the parties with respect to the share forward component of the arrangement.

               Under the March 4, 2005 arrangement, certain payments are required by both PG&E Corporation and GS&Co. upon termination of the arrangement.  Most significantly, PG&E Corporation is to receive from, or be required to pay to, GS&Co. a price adjustment with respect to the approximately 29.5 million repurchased shares based on the difference between the amount PG&E Corporation paid for the repurchased shares, which was $35.60 per share, exclusive of commissions, and the daily volume weighted average price (VWAP) of PG&E Corporation common stock over an approximately 6-month intended period.  Upon an early termination, PG&E Corporation is required to compensate GS&Co. for its losses in connection with the arrangement unless the termination event results from the declaration of a dividend and a new arrangement is executed to complete the March 4, 2005 arrangement. 

               On June 16, 2005, PG&E Corporation entered into such a new share forward transaction with GS&Co. based on 11,430,000 shares to complete the balance of the March 4, 2005 arrangement.  As a result, the March 4, 2005 arrangement only requires PG&E Corporation and GS&Co. to settle the price adjustment with respect to 18,059,400 shares based on the VWAP between March 7, 2005 and June 27, 2005.  The aggregate amounts of the payments required of each of the parties under the arrangement, including the amount of the price adjustment based on the VWAP, cannot be determined until June 27, 2005.  All amounts are to be paid in cash on June 30, 2005. 

               The June 16, 2005 arrangement is substantially identical to the March 4, 2005 arrangement, requiring certain payments by both PG&E Corporation and GS&Co.  As with the March 4, 2005 arrangement, the most significant of these payments is the price adjustment with respect to the 11,430,000 shares based on the difference between the $35.60 purchase price per share and the VWAP over a period expected to extend to early September 2005.  Any payments that PG&E Corporation may make under the June 16, 2005 arrangement can be settled, at PG&E Corporation’s option, in cash, in shares of its common stock, or a combination of the two.

               GS&Co. may terminate the June 16, 2005 arrangement (i) in the event of a default by PG&E Corporation under the June 16, 2005 arrangement (which would include the acceleration of certain other PG&E Corporation indebtedness in a principal amount in excess of $100 million), (ii) on the day before any ex-dividend date of a PG&E Corporation dividend that occurs after July 15, 2005, and (iii) in certain other circumstances.  In the event of termination in connection with an ex-dividend date, PG&E Corporation and GS&Co. may elect to enter into a further arrangement to complete the June 16, 2005 arrangement, although the price adjustment based on the VWAP between June 28, 2005 and the day before the ex-dividend date and certain other amounts would become payable.  Upon an early termination (other than when the termination event results from the declaration of a dividend and a further arrangement is executed), PG&E Corporation would be required to compensate GS&Co. for losses it incurred in connection with the June 16, 2005 arrangement. 

               Any shares that PG&E Corporation issues in the future in connection with an early termination of the June 16, 2005 arrangement or a further arrangement, or to compensate GS&Co. for any additional amounts due, would increase the number of shares outstanding at the time of issuance.  In addition, until the transaction is completed or terminated, generally accepted accounting principles require PG&E Corporation to assume that it will issue shares to settle any remaining obligation to GS&Co.  PG&E Corporation must calculate the number of shares that would be required to satisfy the obligation upon completion of the transaction based on the market price of PG&E Corporation common stock at the end of a quarterly or year-end reporting period.  The number of shares PG&E Corporation must treat as having been issued to settle such obligation would be included in the number of shares outstanding for purposes of calculating PG&E Corporation’s fully diluted earnings per share for that reporting period.

               GS&Co. and certain of its affiliates have engaged, and may in the future engage, in financial advisory, investment banking, and other services for PG&E Corporation and its affiliates, including entering into previous accelerated share repurchase arrangements and acting as a lender under PG&E Corporation’s credit agreement.

Item 1.01 – Entry Into a Material Definitive Agreement

PG&E Corporation 2006 Long-Term Incentive Plan

            At the annual shareholders meeting held on April 20, 2005, PG&E Corporation’s shareholders approved the PG&E Corporation 2006 Long -Term Incentive Plan (2006 LTIP). The 2006 LTIP will replace the current PG&E Corporation Long-Term Incentive Program, which will expire on December 31, 2005.  No more than 500,000 shares of PG&E Corporation common stock will be granted under the current PG&E Corporation Long-Term Incentive Program during the period April 20, 2005, through December 31, 2005.  The 2006 LTIP will become effective as of January 1, 2006, and will terminate on December 31, 2015, unless it is terminated sooner according to the terms of the 2006 LTIP. 

            The purpose of the 2006 LTIP is to advance the interests of PG&E Corporation and its shareholders by providing key management employees, non-employee directors, and other eligible participants with stock-based financial incentives to align participants’ interests with the interests of PG&E Corporation’s shareholders in the long-term success of PG&E Corporation. All officers and employees of PG&E Corporation, its subsidiaries, and affiliates are eligible to participate in the 2006 LTIP.  Non-employee directors of PG&E Corporation are eligible to receive formula-based awards. Under certain circumstances, prospective employees and consultants are also eligible for awards.

              The 2006 LTIP permits the award of various forms of incentive awards, including stock options, stock appreciation rights (SARs), restricted stock awards, restricted stock units, performance shares, performance units, deferred compensation awards, and other stock-based awards. The PG&E Corporation Board of Directors has delegated to the Nominating, Compensation and Governance Committee (Committee) the authority to determine the type of incentive award, as well as the terms and conditions of the award, to be granted to officers of PG&E Corporation and its subsidiaries.  The Board of Directors also has delegated to the Chief Executive Officer of PG&E Corporation the authority to make awards to certain other eligible participants within the guidelines adopted by the Committee.  Non-employee directors of PG&E Corporation are eligible to receive non-discretionary formula-based incentive awards as set forth in the 2006 LTIP.  Specific awards will be reflected in an agreement between PG&E Corporation and the participant.

            A maximum of 12,000,000 shares of PG&E Corporation common stock (subject to adjustment for changes in capital structure, stock dividends, or other similar events) will be reserved for use under the 2006 LTIP.  Shares of PG&E Corporation’s common stock covered by incentive awards previously granted under the 2006 LTIP may be reused or added back to the 2006 LTIP under certain circumstances and to the extent permitted by applicable law.  In addition, if a participant uses shares to pay all or part of the exercise price when exercising a stock option, or if a participant uses the net exercise method, only the net number of shares will be considered to have been issued.  The 2006 LTIP also contains other limits with respect to the terms of different types of incentive awards and with respect to the number of shares subject to awards that can be granted to an employee during any fiscal year. 

            The 2006 LTIP is described in detail in PG&E Corporation’s and Pacific Gas and Electric Company’s 2005 joint proxy statement filed with the Securities and Exchange Commission in connection with the joint annual meeting of shareholders held on April 20, 2005.  The 2006 LTIP also is attached to this report as Exhibit 99. 

Bond Indenture

            On April 22, 2005, the indenture governing Pacific Gas and Electric Company’s (Utility) First Mortgage Bonds was amended and restated as described under Item 8.01, Other Events—First Mortgage Bonds.

 Item 1.01 – Entry Into a Material Definitive Agreement

 Amendment to PG&E Corporation Credit Agreement

           On April 12, 2005, PG&E Corporation entered into an amendment to its unsecured $200 million revolving credit agreement with BNP Paribas, as administrative agent and a lender, Deutsche Bank Securities, Inc., as syndication agent and a lender, ABN Amro Bank, N.V., Goldman Sachs Credit Partners L.P., and Union Bank of California, N.A., as documentation agents and lenders, and the following other lenders: Barclays Bank PLC, Citicorp USA, Inc., Deutsche Bank AG New York Branch, JP Morgan Chase Bank, N.A., Lehman Brothers Bank, FSB, Morgan Stanley Bank, Royal Bank of Canada, The Bank of Nova Scotia, KBC Bank N.V., and The Bank of New York.  The credit facility will be used for working capital purposes.  PG&E Corporation has not made any borrowings or issued any letters of credit under the credit facility.  

            The amendment extends the term of the credit facility from three years to five years, with all amounts due and payable on December 10, 2009.  The amendment also adds a new level to the credit facility pricing grid, providing that the applicable margin for Eurodollar loans will be 0.50%, the applicable margin for base rate loans will be 0.00%, and the facility fee rate will be 0.15%, if PG&E Corporation’s subsidiary, Pacific Gas and Electric Company (“Utility”), is rated at least BBB+ by Standard & Poor’s Ratings Services and Baa1 by Moody’s Investors Services.  The substantial majority of changes were made to conform the covenants, representations and events of default of the credit agreement to those in the Utility’s $1 billion revolving credit agreement entered into on April 8, 2005 (the “New Credit Agreement”).  PG&E Corporation paid an amendment fee of $150,000 in connection with these changes.

            The lenders and agents under the amendment to PG&E Corporation’s $200 million credit agreement and the New Credit Agreement and their affiliates have in the past provided, and may in the future provide, investment banking, underwriting, lending, commercial banking and other advisory services to the Utility and PG&E Corporation.  These parties have received, and may in the future receive, customary compensation from the Utility and PG&E Corporation for such services.

 Item 1.01 – Entry Into a Material Definitive Agreement

Pacific Gas and Electric Company (Utility) Credit Agreement

            On April 8, 2005, the Utility entered into a $1 billion revolving credit facility (the “New Credit Agreement”) with Citicorp North America, Inc., as administrative agent and a lender, JPMorgan Chase Bank, N.A., as syndication agent and a lender, Barclays Bank PLC, BNP Paribas and Deutsche Bank Securities Inc., as documentation agents and lenders, ABN Amro Bank N.V., Lehman Brothers Bank, FSB, Mellon Bank, N.A., Royal Bank of Canada, The Bank of New York, The Bank of Nova Scotia, UBS Loan Finance LLC, and Union Bank of California, N.A., as senior managing agents, and KBC Bank, NV, Morgan Stanley Bank and William Street Commitment Corporation, as lenders.

            The New Credit Agreement replaces the $850 million credit agreement that the Utility entered into on March 5, 2004, shortly before the Utility’s plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code became effective.  The New Credit Agreement includes a $600 million sublimit for the issuance of letters of credit and a $100 million sublimit for “swing line” loans; i.e., loans made available on a same day basis and repayable in full within thirty days.   Loans under the New Credit Agreement will be used to cover operating expenses and seasonal fluctuations in cash flows and may also be used for bridge financing in connection with the reissuance of tax-exempt pollution control bonds.  Letters of credit under the New Credit Agreement will be used primarily to provide credit enhancements to counterparties for natural gas and electricity procurement transactions. 

            Subject to obtaining any required regulatory approvals and commitments from existing or new lenders and satisfaction of other specified conditions, the Utility may obtain an increase in the aggregate lenders’ commitments under the New Credit Agreement of up to $500 million or, in the event that the Utility’s $650 million accounts receivable facility is terminated or expires, of up to $850 million, in the aggregate for all such increases.

            The New Credit Agreement will have a term of five years and all amounts will be due and payable on April 8, 2010.  At the Utility’s request and at the sole discretion of each lender, the facility may be extended for additional periods.  The Utility has the right to replace any lender who does not agree to an extension. 

            The Utility’s obligations under the New Credit Agreement have been secured with a first mortgage bond issued under the indenture dated as of March 11, 2004, between the Utility and The Bank of New York Trust Company, N.A., the successor to BNY Western Trust Company, as trustee (the “Indenture”).  The bond will be returned to the Utility when the lien of the mortgage is released rendering the credit facility unsecured.  The Utility is currently taking the required actions to release the lien.  It is expected that the lien will be released by the end of April 2005.

          The New Credit Agreement includes usual and customary covenants for credit facilities of this type, including covenants limiting liens to those permitted under the Indenture, mergers, sales of all or substantially all of the Utility’s assets and other fundamental changes.  In addition, the New Credit Agreement also requires that the Utility maintain a ratio of total consolidated debt to total consolidated capitalization of not more than 0.65 to 1.00 as of the end of each fiscal quarter.

            In the event of a default by the Utility under the New Credit Agreement, including cross-defaults relating to specified other debt of the Utility or any of its significant subsidiaries in excess of $100 million, the lenders may terminate the commitments under the New Credit Agreement and declare the amounts outstanding, including all accrued interest and unpaid fees, payable immediately.  In addition, the lenders may enforce any and all rights and remedies created under applicable law, including set-off rights, the New Credit Agreement and, prior to the release of the mortgage, the Indenture.  For events of default relating to insolvency, bankruptcy or receivership, the commitments are automatically terminated and the amounts outstanding become payable immediately.

            The fees and interest rates the Utility will pay under the New Credit Agreement will vary depending on the Utility’s senior secured debt rating (or, at any time following the release of the lien of the first mortgage bonds), the Utility’s senior unsecured debt ratings by Standard & Poor’s Ratings Services (“S&P”) and Moody’s Investors Services (“Moody’s”).    The Utility is required to pay a “facility fee” on the amount of the New Credit Agreement (regardless of the usage of the commitments) and a “utilization fee” for each day on which the aggregate outstanding credit extensions under the New Credit Agreement are greater than 50% of the aggregate commitments under the New Credit Agreement calculated by multiplying the applicable percentage by the outstanding credit extensions. At the Utility’s option, any loan under the New Credit Agreement (other than swing line loans) will bear interest at a rate equal to the “applicable margin” plus one of the following indexes: (i) LIBOR (London Interbank Overnight Rate) or (ii) the base rate (the higher of (a) the administrative agent’s base rate and (b) the Federal Funds rate plus 0.50%).  Each swing line loan will bear interest at the applicable margin plus the base rate. The facility fee, the utilization fee and the applicable margin will be determined in accordance with the following table:

           If the Utility's debt ratings from S&P and Moody's are at different levels, the higher rating applies.  In addition, the Utility will pay a fee for each letter of credit outstanding under the New Credit Agreement equal to the applicable margin for LIBOR loans to be shared by the lenders.  The Utility will also pay a fronting fee of 0.125% to the individual issuer of a letter of credit.

            The lenders and agents under the New Credit Agreement and their affiliates have in the past provided, and may in the future provide, investment banking, underwriting, lending, commercial banking and other advisory services to the Utility and PG&E Corporation.  These parties have received, and may in the future receive, customary compensation from the Utility and PG&E Corporation for such services.

Item 1.01 – Entry Into a Material Definitive Agreement

Accelerated Share Repurchase Transaction

In accordance with its previously announced expectation, on March 4, 2005, PG&E Corporation entered into accelerated share repurchase arrangements with Goldman, Sachs & Co. (GS&Co.) under which PG&E Corporation has repurchased approximately 29.5 million shares of its outstanding common stock at an initial price of $35.60 per share and an aggregate price of approximately $1.050 billion (in each case exclusive of commissions).  The repurchase will be funded from available cash on hand.  The repurchased shares will be retired. 

Under the terms of the arrangements, certain additional payments are required by both PG&E Corporation and GS&Co.  Most significantly, PG&E Corporation may receive from, or be required to pay, GS&Co. a price adjustment based on the daily volume weighted average market price (VWAP) of PG&E Corporation common stock over a period of approximately six months.  Any additional payments that PG&E Corporation must make can be settled, at PG&E Corporation’s option, in cash, in shares of its common stock, or a combination of the two.

GS&Co. may terminate the transaction (i) in the event of a default by PG&E Corporation under the accelerated share repurchase arrangements (which would include the acceleration of certain other PG&E Corporation indebtedness in a principal amount in excess of $75 million), (ii) on the day before any ex-dividend date of a PG&E Corporation dividend that occurs after April 15, 2005, and (iii) in certain other circumstances.  In the event of termination in connection with an ex-dividend date, PG&E Corporation and GS&Co. may elect to enter into a new agreement to complete the original transaction although the price adjustment based on the to-date VWAP and certain other amounts would become payable.  Upon an early termination (other than when a new agreement is executed to complete the original transaction), PG&E Corporation would be required to compensate GS&Co. for losses it incurred in connection with the accelerated share repurchase transaction.

Any shares that PG&E Corporation issues in the future in connection with an early termination of the transaction or to compensate GS&Co. for any additional amounts due under the accelerated share repurchase arrangements would increase the number of shares outstanding at the time of issuance.  In addition, until the transaction is completed or terminated, generally accepted accounting principles require PG&E Corporation to assume that it will issue shares to settle any obligation to GS&Co.   PG&E Corporation must calculate the number of shares that would be required to satisfy the obligation upon completion of the transaction based on the market price of PG&E Corporation common stock at the end of a quarterly or year-end reporting period.  The number of shares PG&E Corporation must treat as having been issued to settle such obligation would be included in the number of shares outstanding for purposes of calculating PG&E Corporation’s fully diluted earnings per share for that reporting period.

GS&Co. and certain of its affiliates have engaged, and may in the future engage, in financial advisory, investment banking and other services for PG&E Corporation and its affiliates, including entering into previous accelerated share repurchase arrangements and acting as a lender under PG&E Corporation’s credit agreement.