Conclusions of Law

1. Evidentiary hearings are not necessary in the proceeding.

2. The Commission may authorize PG&E to execute interest rate hedges with the concurrence of the Commission's Financing Team.

3. PG&E should be allowed to enter into interest rate hedges to attempt to mitigate rising interest costs only with the approval of the Commission's bankruptcy Financing Team composed of the General Counsel and Energy Division Director, consistent with the authority granted in D.02-11-030 for the issuance of financial instruments to fund a bankruptcy POR.

4. We defer recovery of the costs for interest rate hedges to the post-bankruptcy true-up ordered in D.02-11-027 in A.02-05-022.

5. The following exemptions or allowances are reasonable, consistent with Commission precedent, and should be granted:

a. Authority to enter into (1) forward rate agreements, and (2) options and floors in addition to the specific financial instruments authorized in D.02-11-030.

b. The need for the exemptions from the Competitive Bidding Rules described in the body of this decision.

c. PG&E should comply with the record keeping and reporting requirements that were adopted by the Commission in D.93-06-082.

6. Consistent with D.02-11-030, PG&E should report to the Commission all the information required by GO 24-B for any interest rate hedges it enters into pursuant to this decision.

7. Consistent with D.02-11-030, except as specified in the following COL, PG&E should be authorized to report on a quarterly basis the information required by GO 24-B.

8. Consistent with D.02-11-030, Energy Division Staff should have authority to require PG&E to submit on a monthly basis the information required by GO 24-B.

ORDER

IT IS ORDERED that:

2. Pacific Gas and Electric Company (PG&E), with the concurrence of the Commission's Financing Team, may enter into forward rate agreements, options, and floors, as well as the previously authorized swaps, caps and collars (collectively, the "interest rate hedges") for debt to be issued to implement any Bankruptcy Court approved plan of reorganization.

3. With the concurrence of the Commission's Financing Team, PG&E may enter into interest rate hedges for up to $7.4 billion in notional value.

4. PG&E shall file an advice letter to establish a bankruptcy finance hedging memorandum account to record the costs of any interest rate hedges.

5. Pursuant to Pub. Util. Code § 701, PG&E is authorized to enter into interest-rate hedges as described in this decision. PG&E shall comply with all record keeping and reporting requirements pertaining to these financial instruments adopted in Decision (D.) 93-06-082. The interest-rate hedges authorized herein shall not be considered additional debt for the purpose of determining the amount of long-term debt issued by PG&E.

6. Exemptions are granted to PG&E from the Commission's Competitive Bidding Rules as described in the body of this decision.

7. PG&E shall report to the Commission all of the information required by General Order (GO) 24-B for any interest-rate hedges it issues pursuant to this decision. PG&E may report this information on a quarterly basis, unless directed

by Commission staff to submit some or all of the information required by GO 24-B on a monthly basis.

8. D.02-11-030 is modified as shown in Appendix A.

9. This proceeding is closed.

This order is effective today.

Dated September 4, 2003, at San Francisco, California.

MICHAEL R. PEEVEY

President

CARL W. WOOD

LORETTA M. LYNCH

GEOFFREY F. BROWN

SUSAN P. KENNEDY

Commissioners