Pacific Gas & Electric (PCG)

Operating and Maintenance

Operating and maintenance expenses consist mainly of the Utility’s costs to operate and maintain its electricity and natural gas facilities, customer accounts and service expenses, public purpose program expenses, and administrative and general expenses.

During 2004, the Utility’s operating and maintenance expenses decreased by approximately $93 million, or 3%, compared to 2003. This decrease is primarily due to the establishment of a regulatory asset of approximately $50 million in 2004 related to distribution-related electric industry restructuring costs incurred during the period from 1999 through 2002 that were previously not considered probable of recovery. During 2004, the CPUC adopted a proposed settlement agreement that permits recovery of a portion of these costs (see the “Regulatory Matters” section of this MD&A).

In 2003, the Utility’s operating and maintenance expenses increased by approximately $118 million, or 4%, compared to 2002 mainly due to a reversal of a liability of approximately $65 million for surcharge revenues in excess of ongoing procurement costs and surcharge revenue collections at the end of 2002. The remainder of the increase was mainly due to wage increases in 2003 and increases in employee benefit plan-related expenses due to a 15% decrease in returns on plan investments and a decrease in the discount rates used to calculate the present value of the Utility’s benefit obligations from 6.75% to 6.25%.

Operating and Maintenance

Operating and maintenance expenses consist mainly of the Utility’s costs to operate and maintain its electricity and natural gas facilities, customer accounts and service expenses, public purpose program expenses, and administrative and general expenses.

During the three months ended March 31, 2005, the Utility’s operating and maintenance expenses decreased by approximately $35 million, or 4%, compared to the same period in 2004, mainly due to the following factors:

Operating and Maintenance

        Operating and maintenance expenses consist mainly of the Utility's costs to operate and maintain its electricity and natural gas facilities, customer accounts and service expenses, public purpose program expenses, and administrative and general expenses.

        During 2004, the Utility's operating and maintenance expenses decreased by approximately $93 million, or 3%, compared to 2003. This decrease is primarily due to the establishment of a regulatory asset of approximately $50 million in 2004 related to distribution-related electric industry restructuring costs incurred during the period from 1999 through 2002 that were previously not considered probable of recovery. During 2004, the CPUC adopted a proposed settlement agreement that permits recovery of a portion of these costs (see the "Regulatory Matters" section of this MD&A).

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        In 2003, the Utility's operating and maintenance expenses increased by approximately $118 million, or 4%, compared to 2002 mainly due to a reversal of a liability of approximately $65 million for surcharge revenues in excess of ongoing procurement costs and surcharge revenue collections at the end of 2002. The remainder of the increase was mainly due to wage increases in 2003 and increases in employee benefit plan-related expenses due to a 15% decrease in returns on plan investments and a decrease in the discount rates used to calculate the present value of the Utility's benefit obligations from 6.75% to 6.25%.