Pacific Gas & Electric (PCG)

The Utility’s financial condition and results of operations could be materially adversely affected if it is unable to successfully manage the risks inherent in operating the Utility’s facilities.

The Utility owns and operates extensive electricity and natural gas facilities that are interconnected to the U.S. western electricity grid and numerous interstate and continental natural gas pipelines. The operation of the Utility’s facilities and the facilities of third parties on which it relies involves numerous risks, including:

•                  Operating limitations that may be imposed by environmental or other regulatory requirements;

•                  Imposition of operational performance standards by agencies with regulatory oversight of the Utility’s facilities;

•                  Environmental and personal injury liabilities;

•                  Fuel interruptions;

•                  Blackouts;

•                  Labor disputes;

•                  Weather, storms, earthquakes, fires, floods or other natural disasters; and

•                  Explosions, accidents, mechanical breakdowns and other events or hazards that affect demand, result in power outages, reduce generating output or cause damage to the Utility’s assets or operations or those of third parties on which it relies.

The occurrence of any of these events could result in lower revenues or increased expenses, or both, that may not be fully recovered through insurance, rates or other means in a timely manner or at all.

Electricity and natural gas markets are highly volatile and insufficient regulatory responsiveness to that volatility could cause events similar to those that led to the filing of the Utility’s Chapter 11 petition to occur.

In the recent past, the commodity markets for electricity and natural gas have been highly volatile and subject to substantial price fluctuations. A variety of factors may contribute to commodity market volatility, including:

•                  Weather;

•                  Supply and demand;

•                  The availability of competitively priced alternative energy sources;

•                  The level of production of natural gas;

•                  The availability of liquified natural gas, or LNG, supplies;

•                  The price of other fuels that are used to produce electricity, including crude oil and coal;

•                  The transparency, efficiency, integrity and liquidity of regional energy markets affecting California;

•                  Electricity transmission or natural gas transportation capacity constraints;

•                  Federal, state and local energy and environmental regulation and legislation; and

•                  Natural disasters, war, terrorism and other catastrophic events.

These factors are largely outside the Utility’s control. If wholesale electricity or natural gas prices increase significantly, public pressure or other regulatory or governmental influences or other factors could constrain the willingness or ability of the CPUC to authorize timely recovery of the Utility’s costs. Moreover, the volatility of commodity markets could cause the Utility to apply more frequently to the CPUC for authority to timely recover its costs in rates. If the Utility is unable to recover any material

        The Utility's financial condition and results of operations could be materially adversely affected if it is unable to successfully manage the risks inherent in operating the Utility's facilities.

        The Utility owns and operates extensive electricity and natural gas facilities that are interconnected to the U.S. western electricity grid and numerous interstate and continental natural gas pipelines. The operation of the Utility's facilities and the facilities of third parties on which it relies involves numerous risks, including:

•

Operating limitations that may be imposed by environmental or other regulatory requirements;



•

Imposition of operational performance standards by agencies with regulatory oversight of the Utility's facilities;



•

Environmental and personal injury liabilities;



•

Fuel interruptions;



•

Blackouts;



•

Labor disputes;



•

Weather, storms, earthquakes, fires, floods or other natural disasters; and



•

Explosions, accidents, mechanical breakdowns and other events or hazards that affect demand, result in power outages, reduce generating output or cause damage to the Utility's assets or operations or those of third parties on which it relies.

        The occurrence of any of these events could result in lower revenues or increased expenses, or both, that may not be fully recovered through insurance, rates or other means in a timely manner or at all.

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