February 20, 2003

Media Contact: PUC Press Office, 415-703-1366, news@cpuc.ca.gov

S&P LETTER SHOWS PG&E'S CHAPTER 11 PLAN
IS NOT CONFIRMABLE

A letter issued by Standard & Poor's (S&P) today concerning an anticipated new Plan of Reorganization to be proposed by Pacific Gas and Electric Company (PG&E) validates what the California Public Utilities Commission (PUC) and other objectors have said all along: PG&E's Plan is not confirmable. The letter requires PG&E to significantly alter its current Plan. Specifically, the letter requires PG&E to change the treatment afforded creditors under its existing Plan through the substitution of secured debt instruments for unsecured notes. The letter also mandates that the financially troubled PG&E Corp. issue approximately $700 million in new equity, imposing upon PG&E's creditors the risk that such a stock sale may not succeed.

In addition, today's S&P letter states that the four entities to be disaggregated under PG&E's new Plan may receive an investment grade rating only if 37 specified conditions are met, some of which violate California law and others of which are incapable of being satisfied prior to implementation of the new Plan. The conditions contained in the S&P letter include, but are not limited, to the following:

· Neither PG&E Corp. nor any of its other subsidiaries or affiliates may infuse any additional capital into its ailing National Energy Group (NEG) subsidiary;

· Water levels in the State of California necessary to generate electricity from PG&E's hydroelectric power plants must remain at the levels forecasted by PG&E for the next 12 years;

· California ratepayers must pay for artificially high prices dictated under the proposed power sales agreement proposed under PG&E's Plan for that same 12-year period;

· The proposed Electric Generation Company (Gen) may not issue any debt above the amounts forecasted by PG&E without first obtaining S&P's consent; and

· The Bankruptcy Court must enjoin PG&E from ever assuming financial responsibility for the power supply contracts entered into by the California Department of Water Resources (DWR) when PG&E was unable to meet the full power needs of its customers.

"Today's S&P letter clearly demonstrates that PG&E's current plan is not confirmable. The plan modifications unilaterally bargained away by PG&E to obtain a lukewarm preliminary rating evaluation from S&P demonstrate that PG&E's disaggregation strategy not only violates California law, but does not provide sufficient funds to repay PG&E's creditors," said Gary Cohen, General Counsel of the PUC. "The significant changes to PG&E's plan, at a minimum, will cause further delay. The far simpler Joint Plan proposed by the PUC and the Creditor's Committee, by contrast, has the support of UBS Warburg and can be confirmed and implemented on a much shorter time frame. It remains the best possible outcome for PG&E, its creditors, and California ratepayers."

The PUC's Plan of Reorganization for PG&E and additional documents are available on the PUC's web site at www.cpuc.ca.gov.

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