Pacific Gas & Electric (PCG)

Variable Rate and 5.35% Pollution Control Loan Agreements

Under pollution control loan agreements, the Utility is obligated to reimburse the CPCFA for funds received by the Utility from the issuance of the CPCFA’s pollution control bonds for the benefit of the Utility. The principal amount of these loan obligations totaled $814 million at December 31, 2004. Interest rates on $614 million of $814 million of the obligations are variable. For 2004, the average variable interest rates ranged from 1.19% to 1.21%. The interest rate on the remaining $200 million of the obligations is fixed at 5.35%.

The CPCFA pollution control bonds in the principal amount of $200 million are backed by bond insurance. The CPCFA pollution control bonds in the principal amount of $614 million are backed by letters of credit of $620 million. The Utility’s reimbursement obligations are supported by $820 million in First Mortgage Bonds that have been issued to the bond insurer and letter of credit banks. These bank agreements supplying the letters of credit include a covenant requiring the Utility to maintain, as of the end of each fiscal quarter ending after the Effective Date, a debt to capitalization ratio of at most 65%.

Variable Rate and 5.35% Pollution Control Loan Agreements

        Under pollution control loan agreements, the Utility is obligated to reimburse the CPCFA for funds received by the Utility from the issuance of the CPCFA's pollution control bonds for the benefit of the Utility. The principal amount of these loan obligations totaled $814 million at December 31, 2004. Interest rates on $614 million of $814 million of the obligations are variable. For 2004, the average variable interest rates ranged from 1.19% to 1.21%. The interest rate on the remaining $200 million of the obligations is fixed at 5.35%.

        The CPCFA pollution control bonds in the principal amount of $200 million are backed by bond insurance. The CPCFA pollution control bonds in the principal amount of $614 million are backed by letters of credit of $620 million. The Utility's reimbursement obligations are supported by $820 million in First Mortgage Bonds that have been issued to the bond insurer and letter of credit banks. These bank agreements supplying the letters of credit include a covenant requiring the Utility to maintain, as of the end of each fiscal quarter ending after the Effective Date, a debt to capitalization ratio of at most 65%.

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        Drawings for interest due under the loan agreements are made under these letters of credit on each scheduled interest payment date, which is the first business day of each month. On the same day, the Utility pays the amount of the draw to the letter of credit banks per the terms of the reimbursements agreements. The letters of credit are then reinstated to the full amount of their initial commitments.