Pacific Gas & Electric (PCG)

Regulatory Liabilities

Regulatory liabilities comprise the following:

The Utility’s regulatory liabilities related to costs of removal represent revenues collected for asset removal costs that the Utility expects to incur in the future. The Utility’s regulatory liabilities related to employee benefit plan expenses represent the cumulative differences between expenses recognized for financial accounting purposes and expenses recognized for ratemaking purposes. These balances will be charged against expense to the extent that future financial accounting expenses exceed amounts recoverable for regulatory purposes. The regulatory liability associated with over-recovery of asset retirement costs represents timing differences between the recognition of nuclear decommissioning obligations in accordance with GAAP applicable to non-regulated entities under SFAS No. 143, and the amounts recognized for ratemaking purposes. The Utility’s regulatory liability related to public purpose programs represents revenues designated for public purpose program costs that are expected to be incurred in the future. The Utility’s regulatory liability for rate reduction bonds represents the deferral of over-collected revenue associated with the rate reduction bonds that the Utility expects to return to customers in the future. For electricity distribution and generation, the Utility collected electricity revenue and surcharges subject to refund under the frozen rate structure in 2003. The surcharge liability represents the amount of electricity revenue to be refunded.

Regulatory Liabilities

        Regulatory liabilities comprise the following:

        The Utility's regulatory liabilities related to costs of removal represent revenues collected for asset removal costs that the Utility expects to incur in the future. The Utility's regulatory liabilities related to employee benefit plan expenses represent the cumulative differences between expenses recognized for financial accounting purposes and expenses recognized for ratemaking purposes. These balances will be charged against expense to the extent that future financial accounting expenses exceed amounts recoverable for regulatory purposes. The regulatory liability associated with over-recovery of asset retirement costs represents timing differences between the recognition of nuclear decommissioning obligations in accordance with GAAP applicable to non-regulated entities under SFAS No. 143, and the amounts recognized for ratemaking purposes. The Utility's regulatory liability related to public purpose programs represents revenues designated for public purpose program costs that are expected to be incurred in the future. The Utility's regulatory liability for rate reduction bonds represents the deferral of over-collected revenue associated with the rate reduction bonds that the Utility expects to return to customers in the future. For electricity distribution and generation, the Utility collected electricity

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revenue and surcharges subject to refund under the frozen rate structure in 2003. The surcharge liability represents the amount of electricity revenue to be refunded.