Pacific Gas & Electric (PCG)

Strategy to Achieve Cost Efficiencies and Operational Excellence and to Invest in Needed Utility Infrastructure

With its exit from Chapter 11 and the return to cost-of-service ratemaking for electric distribution and generation operations, the Utility aims to earn no less than its authorized rate of return, generate strong cash flow, ensure adequate liquidity, and strengthen its credit rating. To achieve these goals, the Utility’s strategy is to:

•                  Achieve operational excellence and improved customer service;

•                  Generate cost and operating efficiencies; and

•                  Invest in transmission and distribution infrastructure needed to serve its customers (i.e., to extend the life of existing infrastructure, to replace existing infrastructure, and to add new infrastructure to meet load growth) as well as to invest in needed new generation resources, as authorized by the CPUC.

It is expected that the Utility would use cash in excess of amounts needed for operations, debt service and base capital expenditures, to pay regular quarterly dividends, to make incremental capital expenditures needed to serve its customers, and to

Strategy to Achieve Cost Efficiencies and Operational Excellence and to Invest in Needed Utility Infrastructure

        With its exit from Chapter 11 and the return to cost-of-service ratemaking for electric distribution and generation operations, the Utility aims to earn no less than its authorized rate of return, generate strong cash flow, ensure adequate liquidity, and strengthen its credit rating. To achieve these goals, the Utility's strategy is to:

•

Achieve operational excellence and improved customer service;



•

Generate cost and operating efficiencies; and



•

Invest in transmission and distribution infrastructure needed to serve its customers (i.e., to extend the life of existing infrastructure, to replace existing infrastructure, and to add new infrastructure to meet load growth) as well as to invest in needed new generation resources, as authorized by the CPUC.

        It is expected that the Utility would use cash in excess of amounts needed for operations, debt service and base capital expenditures, to pay regular quarterly dividends, to make incremental capital expenditures needed to serve its customers, and to repurchase its common stock. In turn, it is expected that PG&E Corporation would use the cash received from the Utility in the form of dividends or share repurchases to pay regular dividends to, or repurchase common stock from, its shareholders.

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