RECITALS

1. CSD is the office of the California Public Utilities Commission ("Commission" or "CPUC") responsible for enforcing compliance with Commission orders, rules, and laws.

2. PG&E is an investor-owned public utility in the State of California and is subject to the jurisdiction of CPUC with respect to providing electric service to its CPUC jurisdictional retail customers.

3. Adams and Weil are customers of PG&E.

4. On September 3, 1998, the Commission issued an Order Instituting Investigation
("OII") (I.98-09-007) into PG&E's compliance with Public Utilities Code section 451, General Order 95, and other tree-line clearance provisions ("Investigation on the Commission's Own Motion into the operations and practices of the Pacific Gas and Electric Company in Connection with Compliance with Public Utilities Code Section 451, General Order 95, and Other Applicable Standards Governing Tree-Line Clearances").

5. CSD conducted a year-long investigation into PG&E's vegetation management practices. Special Agent Mark Clairmont ("Clairmont") headed CSD's investigation, which began in September 1997. On August 28, 1998, CSD issued an Investigative Report prepared by Clairmont. In the Investigative Report, CSD raised allegations of violations of tree-line and pole clearance provisions. CSD based its allegations on a review of internal PG&E documents along with joint inspections conducted by CSD and the California Department of Forestry ("CDF") as well as inspections conducted by Captain Kenneth Hale of CDF. The OII references the Investigative Report.

6. CSD filed a Statement of the Case and Summary of Allegations on September 3, 1998.

7. On October 7, 1998, Assigned Commissioners Henry M. Duque and Josiah L. Neeper issued the Scoping Memo for the proceeding ("Assigned Commissioners' Ruling Applying Article 2.5, SB 960 Rules and Procedures, and Denying PG&E Motion to Modify Schedule and Deny Intervention"). The Scoping Memo set forth the issues to be addressed in the proceeding as follows:

(1) Has PG&E violated Public Utilities Code § 451 by not complying with General Order 95 and other lawful requirements, including but not limited to provisions of the Public Resources Code, for tree line clearance and/or vegetation control?

(a) If so, what was the extent of the violations?

(b) If there were such violations, what sanctions, if any, should the Commission impose under Public Utilities Code §§ 2107 and 2108?

(2) What utility practices led to the alleged tree-line clearance and vegetation control problems?

(3) What is the current state of PG&E's tree-line clearance and vegetation control program?

(4) What enforcement measures, if any, should the Commission establish to ensure PG&E will comply with applicable tree-line clearance and vegetation control standards in the future?

(5) Did PG&E violate Public Utilities Code § 702 by failing to comply with the Commission's Decision 96-12-077 requirement to record monthly, by Uniform System of Accounts subaccounts, expenditures of special vegetation control and/or tree-trimming funds made available under AB 1890?

(a) If there were such violations, what sanctions, if any, should the Commission impose under Public Utilities Code §§ 2107 and/or 2108?

The Scoping Memo also set forth the schedule for the proceeding. On January 20, 1999, ALJ McVicar entered an order modifying the schedule ("Administrative Law Judge's Ruling Granting Extension of Time and Accepting Supplemental Testimony").

8. Intervenors Adams and Weil entered appearances at the Prehearing Conference, which was held September 28, 1998. On November 30, 1998, Adams and Weil served their prepared direct testimony. Intervenors' testimony set forth issues concerning PG&E's handling of customer refusals to allow tree trimming, inspection practices, the use of tree wire and rubber line hose, and also raised concerns about climbable trees. Adams and Weil served supplemental direct testimony on January 5, 1999.

9. At the Commission's direction, CSD served a Supplemental Report Regarding Violations ("Supplemental Report") on November 9, 1998. In its Supplemental Report, CSD alleged violations of Public Utilities Code section 451, predicated on alleged violations of General Order 95, Rule 35 and Public Resources Code sections 4292 and 4293 during the period 1994-1998, and also alleged one violation of Commission Decision 97-01-044. CSD also raised allegations regarding General Order 95, Rule 61.6B and Rule 31.6.

10. PG&E served its prepared responsive testimony on February 5, 1999.

11. CSD served its prepared rebuttal testimony on March 1, 1999.

12. Intervenors served their prepared rebuttal testimony on March 1, 1999.

13. Evidentiary hearings before ALJ McVicar began on March 16, 1999, and were suspended on March 22, 1999.

III. AGREEMENT

A. SETTLEMENT TERMS

The Parties acknowledge and agree:

(1) This settlement resolves all differences among the Parties. It does not constitute an admission of any liability or fault by any Party.

(2) PG&E shall enact vegetation-related public safety programs and activities subject to the following:

(a) The programs and activities shall expire at the end of five years following March 22, 1999, or at such earlier time as PG&E and CSD mutually agree that those programs, or any one of them, have fully realized the goals intended;

(b) PG&E commits to expend on these Section 2 programs over the course of the five years
a total of $5 million over and above that amount allowed in the 1999 GRC for these Section 2 programs; the $5 million shall not be recorded as an operating expense for ratemaking and shall be funded by shareholders;

(c) The specific elements of the programs and activities require further definition. The Parties agree to use best efforts to mutually agree within 60 days upon those elements, with the goal that all programs and activities should reduce the incidence of tree and vegetation power line clearance problems and promote public safety. One program shall be an electronic data base to monitor customer refusals, the specific elements of which require further definition;

(d) Reporting and auditing shall be covered by Section 3 that follows; and

(e) The programs and activities shall be adopted in consultation with CSD.

(3) PG&E and CSD shall conduct quality assurance and auditing programs as follows:

(a) PG&E is refining a vegetation management quality assurance program (PG&E Program). During the initial three-year period beginning 30 days after the date that a Commission decision adopting this Settlement becomes final, the following portion of the funding for the PG&E Program shall be funded by shareholders:

(1) Year 1 - $500,000

(2) Year 2 - $700,000

(3) Year 3 - $700,000

Unspent shareholder funds devoted to the PG&E Program shall be recorded in a one-way, interest-bearing balancing account. PG&E shall debit to the balancing account each month all actual PG&E Program costs. PG&E shall credit to the balancing account each month one-twelfth of the amount allowed in the 1999 GRC for vegetation management quality assurance programs plus one-twelfth of the annual shareholder funding amount listed above, plus monthly accrued interest at the 3-month commercial paper rate. PG&E shall file an advice letter at the end of each year to determine the disposition of any credit account balance in a way that benefits ratepayers.

PG&E may record as an annual operating expense for the purpose of determining base rates through whatever mechanism may be operative at the time all recorded PG&E Program costs up to the amount allowed in the 1999 GRC for vegetation management quality assurance programs, plus any amounts exceeding the sum of the amount allowed in the 1999 GRC for vegetation management quality assurance programs plus the annual shareholder funding amount.

(b) PG&E shall fund a CSD-managed independent audit (Audit Program) of the PG&E Program, which shall monitor (1) PG&E's vegetation control performance in the field (including the electronic data base referenced in Section (2)(c) above); (2) PG&E's vegetation control management; and (3) PG&E's recorded vegetation control costs. CSD shall continue this Audit Program for a period not to exceed five years beginning 30 days after the date that a Commission decision adopting this Settlement becomes final. Following the third year, PG&E and CSD agree to examine the Audit Program to determine whether it should cease at that time or continue for the entire five years. If the Parties seek any change to the Audit Program, they will seek approval from the Commission. CSD shall work with PG&E to develop a Request For Proposal (RFP) for the Audit Program and thereafter shall only seek bids from and contract with independent and experienced auditing firms. PG&E shall reimburse the funding for the Audit Program as follows: (1) Year 1 - $500,000, (2) Years 2-5 - $300,000 (for each year). Provided however, that in the event CSD cannot secure bids in years 2-5 at or below $300,000, PG&E and CSD shall revisit the RFP and make good faith efforts to agree upon a reasonable funding level.

(4) PG&E shall provide CSD with monthly summary information, and non-privileged details as requested, of all tree trimming calls, and the resolution of the same, that are made by PG&E employees to PG&E's internal Compliance and Ethics Helpline.

(5) PG&E shareholders shall reimburse CSD for its reasonable costs of external consultants incurred in connection with this proceeding, in an amount not to exceed $100,000.

(6) PG&E shall expend on a tree removal/replacement program over a three year period beginning March 22, 1999, a total of $14 million over and above that amount allowed in the 1999 GRC for a tree removal/replacement program; the $14 million shall not be recorded as an operating expense for ratemaking and shall be funded by shareholders.

(7) Within 30 days after the date that a Commission decision adopting this Settlement becomes final, PG&E shareholders shall make a contribution to the California General Fund of $6 million.

(8) The OII and violations alleged by CSD pertain to past events. CSD is optimistic that PG&E has developed a vegetation management program that, if properly maintained and consistently implemented, should allow it to fully comply with all applicable state standards. CSD recognizes the development of this program involved a major commitment from PG&E, and CSD supports GRC funding appropriate to maintain and implement that program into the future.

(9) PG&E and CSD will abide by the following inspection and compliance protocols:

(a) For purposes of reporting nonconforming conditions under 9b(1) and (2) (under applicable state requirements), PG&E will operate a 7 days per week, 24 hours per day phone line (Phone Line) for use by designated CPUC Safety personnel who have received joint CPUC/PG&E tree inspection training. For purposes of reporting nonconforming conditions under 9b(3), PG&E will develop a reporting protocol to provide for reporting to the PG&E Vegetation Management Department.

(b) PG&E will correct all CPUC reported nonconformances as follows:

(1) Situations which are reported to present an immediate safety hazard - PG&E shall inspect the situation on an emergency basis and shall resolve the situation as necessary to remove the immediate hazard within a reasonable time in light of the circumstances.

(2) Situations where evidence of contact between vegetation and a high voltage power lines is reported, but there is no report of immediate hazard - PG&E shall inspect the situation within 24 hours, and shall trim the vegetation as necessary to clear the contact within a reasonable time in light of the circumstances. In any circumstance, the trimming shall be completed in 14 days.

(3) Situations where other nonconformance with clearance regulations is reported - PG&E shall inspect the situation within 7 days and shall resolve any noncompliance with clearance regulations within 30 days.

(c) CSD will not initiate or pursue any enforcement action regarding individual violations identified under the categories in Section 9 herein, unless PG&E fails to inspect or
correct reported violations within the time periods set forth above. CSD reserves the right to pursue any remedy regarding violations if PG&E fails to inspect or correct reported violations within those time periods. To the extent CSD identifies a pattern of non-conformance, it reserves the right to request that the Commission initiate an investigation. CSD shall first discuss with PG&E its concerns. The Parties shall not construe any provision of this Agreement to enlarge or diminish the Commission's authority or jurisdiction under the law.

(d) CSD has confirmed with the Commission's Energy Division that Energy Division is the compliance arm of the Commission and plays no role in initiating or prosecuting tree trimming enforcement actions; and that Energy Division finds the protocol in Section 9(b) of this Settlement appropriate.

(e) Force Majeure. If a large number of conditions, which would normally each constitute a nonconforming condition, exists as the result of force majeure, or by an "Act of God," the Parties contemplate that PG&E shall have a reasonable time beyond the limitations set forth herein to correct the nonconforming conditions.

(f) The Parties recognize that PG&E may be unable to correct nonconforming conditions due to circumstances beyond PG&E's control, such as when a landowner or local agency prevents or delays a PG&E work crew from performing a task. In such an event, PG&E shall notify the CSD of the circumstances. If, despite PG&E's reasonable efforts, a task still cannot be performed within the applicable time period, then CSD will not hold PG&E responsible for failure to meet the agreed-upon time frame to correct such a nonconforming condition.

(10) The Parties agree that the presiding officer shall mark for identification testimony and exhibits served in this proceeding or marked for identification during hearings. Exhibits will be received into evidence subject to future cross-examination, future objections to admissibility, and resolution of motions to strike.

B. ACCEPTANCE OF ENTIRE SETTLEMENT

The Parties agree to recommend that the Commission approve and adopt this Settlement in its entirety without change as a complete and full resolution of all issues of which they are aware and arising from Investigation 98-09-007. If the Commission fails to adopt the Settlement in its entirety, without change or modification as proposed herein, the Parties shall convene a settlement conference within 15 days after Commission action on this Settlement to discuss whether they can resolve issues raised by the Commission's actions. If the Parties cannot mutually agree to resolve the issues posed by the Commission orders, the Settlement shall be terminated and the Parties shall be released from their obligation to support this Settlement and may pursue any action they deem appropriate; provided, however, the Parties agree to cooperate to establish a procedural schedule.

C. GENERAL TERMS

(1) Obligation to Promote Approval

The Parties agree to use their best efforts to propose, support, and advocate adoption of this Settlement without change by the Commission. No Party to this Settlement will contest any aspect of this Settlement in this proceeding or any other forum, by contact or communication, whether written or oral in any other manner before the Commission until the Commission has acted on this Settlement. Moreover, the Parties agree to actively and mutually defend this Settlement if the adoption is opposed by any other party to the proceeding.

(2) Commission Jurisdiction

The Parties agree that the Commission shall have exclusive jurisdiction over any issues related to the interpretation of this Settlement and that no other court, regulatory agency, or other governing body shall have jurisdiction over any issue related to the interpretation of this Settlement, the enforcement of the Settlement, or the rights of the Parties to the Settlement, except for judicial review of any Commission decision in this proceeding. All rights and remedies are limited to those available before the Commission or for judicial review.

The Parties further agree that no signatory to this Settlement, nor any member of the Staff of the Commission, assumes any personal liability as a result of this Settlement.

(3) Governing Law

This Settlement shall be governed by the laws of the State of California as to all matters, including, but not limited to, matters of validity, construction, effect, performance and remedies.

(4) Headings: Interpretation

The section headings contained in this Settlement are solely for the purpose of reference, are not part of the agreement of the Parties, and shall not in any way affect the meaning or interpretation of this Settlement. All references in this Settlement to Sections are to Sections of this Settlement, unless otherwise indicated. Each of the Parties hereto and their respective counsel have contributed to the preparation of this Settlement. Accordingly, no provision of this Settlement shall be construed against any Party because that Party or its counsel drafted the provision.

(5) No Waiver

It is understood and agreed that no failure or delay by any Party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or future exercise thereof or the exercise of any other right, power or privilege.

(6) Entire Agreement

This Settlement sets forth the entire understanding and agreement between the parties with reference to the subject matter hereof and this Settlement may not be modified or terminated except in accordance with its terms or by an instrument in writing signed by all Parties hereto. This Settlement supersedes all prior agreements, negotiations, and understandings among the parties, both oral and written related to this matter.

(7) Counterparts

This Settlement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(8) Miscellaneous

The Parties acknowledge and agree that time is of the essence to this Settlement. The Parties acknowledge, agree, and request that the Commission find that the Settlement is reasonable in light of the whole record, consistent with the law, and in the public interest, and issue an order approving and adopting the Settlement without change .

(9) Executions

In witness whereof, intending to be legally bound, the parties listed here duly execute this Settlement on behalf of the parties they represent.

Dated as of this 1^st day of April, 1999

Pacific Gas and Electric Company

_________/s/___________________

By: ___Roger J. Peters___________

Title: _________________________

California Public Utilities Commission,
Consumer Services Division

_________/s/___________________

By: _William R. Schulte__________

Title: Director, Consumer Services Division

_________/s/___________________

By: William Adams

_________/s/___________________

By: James Weil

(END OF APPENDIX A)

APPENDIX B

LIST OF APPEARANCES

J. Michael Reidenbach, Attorney at Law, and Stephen C. Neal, Attorney at Law, for Pacific Gas & Electric Company, respondent.

Traci A. Grundon, Attorney at Law, and Theresa Meuller, Attorney at Law, for City and County of San Francisco.

Karen Norene Mills, Attorney at Law, for California Farm Bureau Federation.

Beth A. Fox, Attorney at Law, for Southern California Edison Company.

Paul Stein, Attorney at Law, for The Utility Reform Network.

Catherine A. Johnson, Attorney at Law, and Travis Foss, Attorney at Law, for Consumer Services Division of the Commission.

William P. Adams and James Weil, for themselves.

(END OF APPENDIX B)