Notes

Outline

Pacific Gas & Electric Company Alternative Plan of Reorganization February  2003

Overview of Pacific Gas and Electric

Overview of Relevant Parties

Situation Overview

OCC/CPUC Plan

OCC/CPUC Plan (continued)

Commitment to Credit Quality

Proposed Capital Structure $7.3 billion in senior secured securities, tranched as follows: $1.5 billion senior secured term loan tranche which is structured to amortize over five years remainder of senior debt is first mortgage bonds split evenly into 5, 10 and 30 year maturities $1.5 billion in junior securities to be backed by UBS's commitment letter pending bankruptcy court approval $1.0 billion in Senior Unsecured debt $500 million in preferred securities $1.9 billion in unfunded senior secured revolving credit facilities $500 million 364-day senior secured tranche $500 million 3-year senior secured tranche $900 million receivables securitization tranche

Summary OCC/CPUC Plan Sources & Uses

Treatment of Creditors

Reorganization Agreement Guarantees that the CPUC will deem prudent and recoverable all financing costs associated with the OCC/CPUC Plan Creates a $1.75 billion regulatory asset to be amortized over 10 years Requires CPUC to establish rates sufficient to pay interest and principal on securities issued under the OCC/CPUC plan pay prudently incurred operating and capital costs amortize Regulatory Asset achieve and maintain investment-grade credit ratings Expressly waives CPUC’s sovereign immunity, allowing the Bankruptcy Court to enforce the Reorganization Agreement Reorganization Agreement will bind future commissions

November 25th Ruling Ruling decided, among other matters, that as a matter of law, the Reorganization Agreement is binding and enforceable

November 25th Ruling (continued) Ruling also decided that the OCC and CPUC had made a prima facie case for the financial feasibility of the OCC/CPUC Plan

Other Important Developments OCC/CPUC Plan has received initial credit assessments from S&P and Fitch S&P found that the $7.85 billion of senior secured debt exhibits “indicia of marginal investment grade credit quality” click here for full text of S&P letter Fitch found the creditworthiness of PG&E under the OCC/CPUC Plan to be “in the general category of BBB” click here for full text of Fitch letter OCC/CPUC Plan has the financial support of UBS Warburg UBS issued a Highly-Confident letter stating that "we are confident of our ability to arrange an aggregate of $10.7 billion of financing in the form of the Credit Facilities and the Securities" underlying the OCC/CPUC Plan click here for full text of UBS letter Submitted for Bankruptcy Court approval a $1.5 billion Bridge Facility proposal, in which UBS commits to backstop the issuance of the $1.5 billion in proposed senior unsecured and preferred stock under the OCC/CPUC Plan click here for full text of Bridge Facility Application

Confirmation Process Bankruptcy Judge Dennis Montali will hold separate trials to determine the confirmability of each of the competing plans trial on the OCC/CPUC Plan substantially complete trial on the PG&E Plan is ongoing; PG&E amended its Plan on February 24, 2003; trial dates to continue through Spring 2003 Judge Dennis Montali will determine whether one, both or neither of the competing Plans is confirmable If Judge Montali determines that both plans are confirmable, he will rule on which plan is preferable, and, therefore, should be confirmed creditor preference is one of many factors Judge Montali will consider in determining which plan is preferable Judge Montali will determine creditor preference at the conclusion of the confirmation trial

Confirmation Process (continued) Other factors to be considered by the Court in making the preference determination may include: the public policy implications of PG&E's disaggregation's plan, the effect of PG&E's Plan on ratepayers, the possible effects of PG&E's Plan on the environment and the structure of the energy market, the relative timing for implementation under each plan, the stability of the reorganized debtor under each plan, and treatment of creditors and equity security holders under each plan

Comparative Appellate Risk Whereas the PG&E Plan contains provisions that violate numerous California and local laws and, therefore, relies upon the preemption of these laws, the OCC/CPUC Plan successfully reorganizes PG&E in accordance with such laws PG&E Plan subject to ongoing litigation regarding ability of bankruptcy law to preempt state regulatory law CPUC and California Attorney General have committed to fight preemption to the U.S. Supreme Court, if necessary the United States, by the Department of Justice, has filed a brief urging the United States Court of Appeals for the Ninth Circuit to reject PG&E’s theory of express preemption PG&E Plan violates the sovereign immunity of the CPUC and the State of California