Pacific Gas & Electric (PCG)

Ratemaking Matters

•                  In the Settlement Agreement, the CPUC agreed to set the Utility’s capital structure and authorized return on equity in its annual cost of capital proceedings in its usual manner. However, from January 1, 2004 until Moody’s has issued an issuer rating for the Utility of not less than A3 or S&P has issued a long-term issuer credit rating for the Utility of not less than A-, the Utility’s authorized return on equity will be no less than 11.22% per year and its authorized equity ratio for ratemaking purposes will be no less than 52%. For 2004 and 2005, the Utility’s authorized equity ratio will be the greater of the proportion of equity approved in the Utility’s 2004 and 2005 cost of capital proceedings, or 48.6%. In December 2004, the CPUC issued the Utility’s cost of capital decision authorizing an equity ratio of 49.0% for 2004 and 52% for 2005.

•                  The CPUC also agreed to act promptly on certain of the Utility’s pending ratemaking proceedings. The outcome of these proceedings may result in the establishment of additional regulatory assets on the Utility’s Consolidated Balance Sheet.

Ratemaking Matters

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In the Settlement Agreement, the CPUC agreed to set the Utility's capital structure and authorized return on equity in its annual cost of capital proceedings in its usual manner. However, from January 1, 2004 until Moody's has issued an issuer rating for the Utility of not less than A3 or S&P has issued a long-term issuer credit rating for the Utility of not less than A-, the Utility's authorized return on equity will be no less than 11.22% per year and its authorized equity ratio for ratemaking purposes will be no less than 52%. For 2004 and 2005, the Utility's authorized equity ratio will be the greater of the proportion of equity approved in the Utility's 2004 and 2005 cost of capital proceedings, or 48.6%. In December 2004, the CPUC issued the Utility's cost of capital decision authorizing an equity ratio of 49.0% for 2004 and 52% for 2005.



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The CPUC also agreed to act promptly on certain of the Utility's pending ratemaking proceedings. The outcome of these proceedings may result in the establishment of additional regulatory assets on the Utility's Consolidated Balance Sheet.