Pacific Gas & Electric (PCG)

Operating Revenues and Expenses

PG&E Corporation’s revenues consist mainly of billings to its affiliates for services rendered, all of which are eliminated in consolidation. PG&E Corporation’s operating expenses consist mainly of employee compensation and payments to third parties for goods and services. Generally, PG&E Corporation’s operating expenses are allocated to affiliates. These allocations are made without mark-up. Operating expenses allocated to affiliates are eliminated in consolidation.

The increase in operating expenses was primarily due to the absence of entries in 2004 to eliminate the cost of natural gas and electricity expenses provided by NEGT to the Utility after PG&E Corporation’s deconsolidation of NEGT effective July 7, 2003. A reduction in general and administrative expenses in 2004 compared to 2003 partly offset this increase.

In 2003, the increase in operating expenses of approximately $43 million compared to the same period in 2002, was primarily attributable to increased employee compensation plan expenses, partly offset by a decrease in consulting services and outside attorney fees related to the Utility’s plan of reorganization.

Operating Revenues and Expenses

PG&E Corporation’s revenues consist mainly of billings to the Utility and its other affiliates for services rendered, all of which are eliminated in consolidation.  PG&E Corporation’s operating expenses consist mainly of employee compensation and payments to third parties for goods and services.  Generally, PG&E Corporation’s operating expenses are allocated to affiliates.  These allocations are made without mark-up.  Operating expenses allocated to affiliates are eliminated in consolidation.

The decrease in operating expenses of approximately $15 million was primarily due to the receipt of insurance proceeds for legal costs and a reduction in general and administrative expenses retained at PG&E Corporation in the first quarter 2005, compared to the same period in 2004.

Operating Revenues and Expenses

        PG&E Corporation's revenues consist mainly of billings to its affiliates for services rendered, all of which are eliminated in consolidation. PG&E Corporation's operating expenses consist mainly of employee compensation and payments to third parties for goods and services. Generally, PG&E Corporation's operating expenses are allocated to affiliates. These allocations are made without mark-up. Operating expenses allocated to affiliates are eliminated in consolidation.

        The increase in operating expenses was primarily due to the absence of entries in 2004 to eliminate the cost of natural gas and electricity expenses provided by NEGT to the Utility after PG&E Corporation's deconsolidation of NEGT effective July 7, 2003. A reduction in general and administrative expenses in 2004 compared to 2003 partly offset this increase.

        In 2003, the increase in operating expenses of approximately $43 million compared to the same period in 2002, was primarily attributable to increased employee compensation plan expenses, partly offset by a decrease in consulting services and outside attorney fees related to the Utility's plan of reorganization.