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      Remarks By: Robert D. Glynn, Jr.
      April 20, 2005

      PG&E Corporation and
      Pacific Gas and Electric Company

      Peter A. Darbee
      President and Chief Executive Officer
      PG&E Corporation

      Gordon R. Smith

      Senior Vice President, PG&E Corporation
      President and Chief Executive Officer
      Pacific Gas and Electric Company

      Christopher P. Johns
      Senior Vice President, Chief Financial Officer and Controller
      PG&E Corporation

      Occurrence:   Annual Shareholders Meeting
        San Ramon, California
          Click here to view video archive of presentation      

      These remarks and related materials may contain forward-looking statements. Actual results could differ materially from those expressed or implied by the forward-looking statements.

      Remarks Before the 2005 Annual Shareholders Meeting


      Good morning.

      Welcome to the annual shareholders meeting for PG&E Corporation and Pacific Gas and Electric Company. Thank you for joining us here this morning.

      I'm Bob Glynn, Chairman of both companies.

      Joining me for our presentation today are:

      • Peter Darbee. Peter became PG&E Corporation's President and CEO on January 1, 2005. Let's all congratulate Peter.
      • Gordon Smith, Pacific Gas and Electric Company's President and CEO
      • Chris Johns, PG&E Corporation's Senior Vice President, Chief Financial Officer, and Controller
      • Tom King, Pacific Gas and Electric Company's Executive Vice President and Chief of Utility Operations
      • Bruce Worthington, PG&E Corporation's Senior Vice President and General Counsel
      • And Linda Cheng, Vice President and Corporate Secretary of both companies.

      Also, Joseph Thatcher from Mellon Investor Services, the independent Inspector of Election, is present.

      In the audience are members of our Boards of Directors. We'll introduce them now and ask them to stand and remain standing until they are all introduced.

      • David Andrews
      • Les Biller
      • David Coulter
      • Lee Cox
      • Mary Metz
      • Barbara Rambo
      • And Barry Williams.

      We welcome them all here this morning.

      Our director, David Lawrence has chosen to leave our Boards at the end of this meeting, after 10 years of service. David couldn't be with us this morning, but we're grateful for his counsel and contributions during the past decade. And on behalf of all shareholders, we thank him and wish him well in the future. Thank you, David.

      We also thank the officers of PG&E Corporation and Pacific Gas and Electric Company for being with us this morning.

      And now, the meeting is turned over to Peter Darbee, PG&E Corporation's President and CEO, who will chair the remainder of the meeting.


      Thank you, Bob.

      Good morning. And welcome. It's an honor to be here addressing this audience for the first time as President and Chief Executive Officer of PG&E Corporation.

      Four months ago, I had the privilege of speaking to our 20,000 employees, the morning after being named to this job.

      I shared a vision with them for PG&E's future-- to be the leading utility in the United States.

      In the months since then, I've had the chance to speak with thousands of our employees about the future of our company and the direction we've chosen.

      Their enthusiasm, their pride.and their commitment to our company and our customers make me more confident than ever that we will reach our goal.

      Ladies and gentlemen, the future of this company looks every bit as bright as its proud history.

      Today, we're going to talk about that vision and why we're in a strong position to take this journey. We'll talk about what we're doing to reach that goal, and why it's important for our employees, our customers and for you, our shareholders.

      First, let's look at PG&E's strong position today.

      PG&E is stronger now than at any time in the past decade.

      Our core business-- Pacific Gas and Electric Company-- is financially revitalized.

      The balance sheet is solid. Cash flows are healthy. And our credit is sound.

      These major achievements represent the success, of a three-year mission to put Pacific Gas and Electric Company back on firm financial footing.

      The energy crisis presented our company with an extraordinary challenge.

      We responded by creating an extraordinary solution through a long-term settlement agreement with the California Public Utilities Commission.

      This provides a series of unprecedented financial and regulatory assurances.

      I want to recognize Bob Glynn for achieving this result. It took skill, perseverance, and above all, leadership. Very few people could have accomplished this.

      The legacy, is more than just a company that's financially healthy today in 2005. It is also a clear and stable outlook for many years to come.

      We have the opportunity to earn a solid return on our investments through the year 2012.

      Our base utility rates are set through the end of 2006.

      And we have a labor contract in place through 2007. So as we look at the business, we know what our revenues will be, and we know what a major component of our cost will be.

      That puts us in a unique position relative to nearly every other company.

      Last year, these agreements enabled us to do the following:

      1. restore Pacific Gas and Electric Company's investment-grade credit rating,
      2. refinance its balance sheet at historically low interest rates,
      3. resolve all creditor claims in full, and
      4. lower customer rates by about $800 million in the year 2004 alone.

      Going forward, these agreements mean the company can generate substantial cash flow.

      We intend to use that cash to pay dividends, repurchase common shares and make new investments in the business to better serve our customers.

      In 2004, shareholders benefited from a 20 percent increase in the value of PG&E's shares.

      That's a solid total return on your investment.

      Last fall, we announced our plan to increase your total return, by once again paying a regular common stock dividend. And we have now delivered on that promise. We are paying a quarterly common stock dividend of 30 cents per share, which on an annual basis is $1.20 per share.

      We know how important dividends are to you. And I know I can speak for the entire company when I say that we're delighted to be paying you a dividend again.

      We intend to maintain a dividend payout ratio between 50 percent and 70 percent. So as operating earnings per share go up, you can expect generally that our dividends will go up as well--not in lock step--but somewhat proportionately.

      It's important to emphasize that financial health, clarity and stability also have important benefits for our customers.

      It assures customers that PG&E has the financial wherewithal to access the capital and credit markets. That means they can count on us to buy power, and fund critical infrastructure investments.

      So, after a time of extraordinary challenges, we're now operating from a platform of extraordinary stability and strength.

      Thank you, Bob Glynn. And thanks to all of our PG&E team members who worked tirelessly to create this outstanding platform for the company.

      This strength and stability represents a tremendous opportunity.

      It has allowed us to focus our resources and attention on an ambitious vision-- to be the leading utility in the United States.

      We also face the competitive need to meet this goal.

      The bar for providing customers with value and good service has never been higher. And, looking forward, it will continue to be raised.

      Customers and regulators are measuring our performance against others in the industry, and they're expecting us to stay ahead of the curve.

      We've made the decision that not only do we want to be ahead of the curve, but we in fact want to be an industry leader.

      Over the past year, our team has become energized around this vision.

      We've launched an intensive, multi-year effort to transform our operations and our culture to achieve it.

      Our goal is to use our strong platform to identify and implement changes in order to deliver better, faster and more cost-effective service.

      In real terms, this is what customers will see from us:

      • We will simplify our work processes, from the way we hook up new service, to the way we manage our supply chain.
      • We're going to embrace new information technologies that will allow us to provide faster and more responsive service.
      • We will give our employees new tools and knowledge to solve problems more quickly.
      • We will invest in our infrastructure to improve reliability.
      • And last, we will hire and train the best people to ensure that the next generation of our employees is even stronger and more customer focused.

      To drive these efforts, we're looking at the best practices in the industry. We're looking at the way we deliver service so we can improve it. We're involving thousands of our employees who know what works, what doesn't work, and what needs to be changed.

      Also, we're backing this effort with a strong, enthusiastic commitment from senior leaders within the company, who are rolling up their sleeves to participate.

      In February, I helped lead nine all-day transformation meetings for front-line managers, supervisors and superintendents.

      I met with thousands of employees from San Francisco, to Stockton, Fresno, Sacramento, San Luis Obispo and points in between. They all are excited about the future.

      They're excited because they understand that this is about doing the best job we can to serve our customers.

      And if there's one thing I've come to understand better through my conversations with employees, it's how deeply ingrained and how strong their desire is to provide the best service to our customers.

      In some areas this undertaking will be about building on our strengths. For example, customers rate the service at PG&E's call centers to be among the best in the business. In other areas, it will mean acknowledging that we can do better.

      By taking this on, we've assigned ourselves a major task for the next three to five years. In fact, it's among the hardest tasks a company can tackle. But it's also a critical one. And now is the right time to begin the journey.

      When we succeed--and let me assure you, we will succeed--the result for our employees will be a fulfilling environment that allows them to do their jobs and serve customers to their fullest potential.

      The result for our customers will be better, faster and more cost effective service--which translates into strong customer satisfaction.

      And for our shareholders, the result will be a solid return on your investment. Regulators will look at our performance, see our satisfied customers, and recognize that we are running the business as a leader in the industry.

      As we are undertaking transformation, we also must ensure that our financial and operational performance remains strong.

      Now, PG&E Corporation's Chief Financial Officer, Chris Johns, will provide an overview of the company's financial performance and outlook.

      Then, Pacific Gas and Electric Company President and CEO Gordon Smith will discuss our operational performance and some of the areas where we're working to strengthen and grow operations.

      First, Chris Johns...


      Thank you, Peter.

      This morning I'll discuss our results for 2004, our outlook for 2005 through 2009, and the implications for future dividends.

      PG&E Corporation delivered excellent financial performance last year.

      Our 2004 earnings--as reported in accordance with generally accepted accounting principles, or GAAP--were $10.57 per share. This included two significant one-time, non-cash items that totaled $8.52 per share.

      The first item was related to the regulatory assets recorded as part of the successful resolution of Pacific Gas and Electric Company's Chapter 11 case. The second was related to the Corporation's exit from its national energy business.

      Absent these and other items that aren't part of our on-going operations, our non-GAAP earnings per share from operations were a solid $2.12 per share.

      This represented a 43 percent increase over 2003 earnings from operations.

      Our Annual Report provides a detailed explanation of the difference between our non-GAAP earnings from operations and our GAAP earnings.

      We expect this excellent performance to continue.

      When we look forward for the next five years, we see solid and stable earnings growth in the range of 4 to 6 percent per year. Our specific earnings guidance for 2005 is $2.15 to $2.25 per share. And our guidance for 2006 is $2.30 to $2.40 per share. (Click here for Reg G Reconciliation)

      These earnings guidance forecasts are based on important assumptions, including 1) that the utility earns its authorized rate of return during that period of time, 2) that we complete two regulatory asset refinancings and related accelerated share repurchase programs in 2005, and 3) that we pay three dividends in 2005 and four dividends in 2006.

      The cash from the regulatory asset refinancings that I just mentioned, combined with solid utility operations provide us with a strong cash position. We plan on utilizing that cash to pay our dividends, fund our base capital investments, and repurchase PG&E Corporation common stock.

      One important way for us to deliver value to shareholders is through dividends and share repurchases. In total, we expect to utilize $2 billion of cash in 2005 to pay dividends and repurchase stock. That's value we are returning directly to you, our shareholders.

      Another important way for us to deliver value to our customers and shareholders is through reinvestment of cash in the capital infrastructure of the Utility.

      Our total base capital investments are expected to average $2 billion per year for the next five years, about half of which is related to our distribution business. These investments in Utility infrastructure will increase the effectiveness of our service to our customers.

      In addition we have opportunities to make incremental investments above and beyond those base investments.

      These incremental projects offer considerable benefits to our customers in terms of better, faster and more cost-effective service. As a result, we believe they should be attractive to our regulators, whose approval we need in order to move forward.

      The potential incremental investments total up to $2 billion over the next five years.

      Gordon Smith will discuss these opportunities in a little bit more detail in just a minute.

      These investments grow our rate base, which is the amount on which our authorized rate of return is calculated. We are currently authorized to earn 11.22 percent on the equity portion of our rate base, which is 52 percent of the total.

      We expect our rate base will grow at a very solid 4.5 percent to 6.5 percent from 2005 to 2009.

      The result of all these factors is that we expect to grow earnings per share from operations by 4 percent to 6 percent per year over that same period.

      As Peter mentioned, we are thrilled to be paying a dividend again, and we're excited about the opportunity to grow those dividends in the future.

      Last fall, we adopted a dividend policy that has three objectives.

      First, is to provide the flexibility to balance our dividend payments with the incremental investment opportunities I just mentioned.

      Second, is to keep the dividend sustainable as earnings fluctuate.

      And third, is to make sure that the dividend yield and pay out ratio range are comparable to what other companies in our sector are delivering.

      Our policy has resulted in a target payout ratio range of 50 percent to 70 percent of earnings per share from operations.

      Our current dividend level--$0.30 a share for the quarter and $1.20 on an annual basis--puts us in that range, with room to grow.

      Although we do not have a targeted dividend growth rate at this time, we do intend to stay within our payout ratio as earnings increase over the next five years.

      In summary, you can see that the events and results of 2004 provide a sound basis for the value opportunity that PG&E offers its shareholders.

      We see solid growth in earnings.

      We have substantial cash flows available for dividends and share repurchases in order to deliver value back to our shareholders.

      And we see opportunities to make continued capital investments that will deliver value to both customers and shareholders alike.

      Thank you.

      And now I'd like to turn it over to Gordon Smith.


      Thank you, Chris, and good morning to you all.

      Pacific Gas and Electric Company's financial health is tied directly to its operational health.

      I'd like to cover some of the areas we're investing in to keep operational performance strong, and support the platform for transformation.

      Our first priority is making sure our customers have a sufficient energy supply.

      During the last couple of years, we've had healthy power reserves in Northern California, and we expect that will be the case this summer as well.

      However--longer term--our customers' power needs are growing, and we're preparing to meet that challenge through a number of ways.

      First, we try to help our customers save energy, through Energy Efficiency Programs. PG&E is a national leader in this area, and we've helped Californians become the nation's most efficient consumers of electricity. Our goal is to save almost 10,000 gigawatt hours, over the next 10 years. That's a reduction of about 50 percent from what our load growth would otherwise be over this timeframe.

      The second approach is programs that encourage big customers to reduce their energy use at peak times. Here, the goal is to lower peak energy usage by about 5 percent going forward.

      Third is, Renewable Resources, like wind power and solar energy. California requires that we meet 20 percent of our retail sales with power from renewable resources by the year 2017. We think we can actually get there faster, maybe by 2010. Right now, we are at 13 percent, and we're actively looking for additional renewable resources.

      The last way we meet growing needs is through new electric generation--either new contracts to buy power, or new power plants that we would own.

      PG&E customers are going to need about 2200 megawatts of new generation in the 2008 to 2010 timeframe--that's equal to the power generated by two large power plants. We've requested bids for both power contracts, as well as utility-owned generation developed by third parties.

      We believe the best outcome for California customers would be a hybrid, in which both utilities and merchant generators have the opportunity to invest in plants.

      What's most important, however, is that both we and the California Public Utilities Commission monitor the progress in building new generation, and make adjustments if necessary, to ensure that we have ample supplies and stable prices.

      One project that will help us with that is right here in Contra Costa County. We now have a settlement with Mirant, an independent power producer, resolving claims related to their actions during the energy crisis. One result is that they've agreed to give us ownership of a partially built, 530-megawatt power plant, which is enough power for about half a million homes. Assuming that we get approval from the California PUC, our plan is to complete it and start operation in the late 2010 timeframe.

      In addition to having enough power, it's critical for power to be able to flow efficiently and reliably, so we're also investing in our Electric Transmission System.

      For example, we are making a major investment to enhance the flow of power on the San Francisco peninsula, and we'll be looking at additional investments like those we made recently in a major transmission corridor between Northern and Southern California to reduce bottlenecks and improve the flow of power.

      We're also investing in our Gas Transmission Business to enhance safety and reliability, and accommodate new growth.

      Now let's focus on the Distribution Business.

      We connect about 80,000 new electric customers on an annual basis, and an additional 70,000 new gas customers. This represents a very significant part of our investment each year together with our maintenance programs.

      However, we're nearing a time when replacing infrastructure will become a larger part of our overall investments, and here are two examples of steps we're taking to manage that challenge.

      First, in the next 5 to 10 years we are going to more than double our spending to replace transformers at our substations.

      Second, we're going to dramatically increase our investment to replace underground electric cable. A significant amount of our 20 thousand miles of underground electric cable will be due for replacement in the next 10 years.

      We intend to increase our spending on this program by three or four times, from about $25 million per year to between 75 and $100 million.

      As Peter said earlier, we're also investing in new technology, in order to improve both operations, and service.

      The biggest example is a $1 billion investment in AMI--our Advanced Metering Initiative.

      We expect to install about 9 million new high-tech gas and electric meters over the next five years.

      These meters send data back and forth between PG&E and the customer, so we can read meters remotely, gather information, or send data to customers that helps them manage their energy use.

      We think this technology is important--and tremendously valuable to customers, because it gives us the ability to provide better, faster and more cost-effective service, and to provide higher reliability.

      For example, it lets us know more quickly when there's an outage and the extent of that outage--which means we can get trucks rolling more rapidly and we can get the right equipment on location to repair the damage and restore power as quickly as possible.

      AMI also enables us to manage customer demand more rapidly and more effectively.

      During peak usage times, we can send real-time price signals to customers who want them, and they can curtail their peak demand if they so choose.

      By doing this, we could potentially eliminate the need for at least one generating plant, if not more, over time.

      Governor Schwarzenegger and California PUC President Peevey have indicated their strong support for this technology, and in mid-2005, we'll ask the PUC to approve this program, and we hope to begin installing the meters in early 2006.

      So, to summarize:

      In parallel with our transformation, we're keeping a sharp focus on our operations.

      We're making substantial investments in new resources.

      We're upgrading and modernizing equipment.

      And we're leveraging new technologies to deliver better service.

      Thank you and let me now turn it back over to Peter Darbee.


      Thank you, Gordon.

      You've heard now about the substantial plans we have for growing financial performance and investing in our operations.

      There's one more component that's critical to our success, and that's our culture.

      As part of the transformation effort we're looking deeper than just the work processes and the systems we use.

      We're taking stock of our culture.

      We're asking what aspects of our culture do we want to preserve or change. Preserve or change in order to deliver better, faster and more cost-effective service.

      I'll give you a small but meaningful example. Regulated companies often refer to people who buy their services as "rate payers". At PG&E I've asked that we stop using that term, but instead use the term customers.

      A "rate payer" is the captive of a regulated monopoly. A "customer" is someone whose admiration and business we have to go out every day and win, by delivering great service.

      Now, there's much about our culture that is good, and we want to retain. Our goal now, is to strengthen the areas where we want to be better, while still preserving the elements that are fundamental to our success.

      Rather than telling you what we believe these elements are, we want you to hear about them from the people who live them. Here are a few:


      When you hear from PG&E employees like the ones you just met, you recognize that although we're embarking on a major transformation effort, there's a tremendous foundation already in place.

      It's fitting that this undertaking coincides with the celebration of PG&E's 100th anniversary.

      PG&E has accomplished phenomenal feats in the past 100 years.

      From historic engineering and construction marvels to overcoming natural disasters, our 100th anniversary is an inspiring reminder that our employees have the grit and dedication to set ambitious goals and achieve them.

      We're going to prove that again in the next three to five years.

      We're energized about our vision. We're focused on doing what it takes to achieve it. And we're looking forward to sharing our successes with you as we continue on this journey.

      I want to thank our entire employee team for their enthusiasm and their dedication.

      This morning we've invited the presidents of our Employee Associations to be here to represent our large and diverse workforce.

      Will you all please stand to be recognized. Let's hold our applause until they've all been introduced.

      With us are:

      • Dan Barber--Dan is President of the Pride Network,
      • Bryan Bowers-- Bryan is the Director of the Pacific Service Employees Association,
      • Wayland Chan--Wayland is the President of the Asian Employees Association,
      • Tony Estrada--Tony is President of the Filipino Employees Association,
      • Kathy Hart--Kathy is President of the Women's Network Employee Association,
      • Claudia Mendoza--Claudia is President of the Hispanic Employees Association,
      • and Al Thomas--Al is President of the Black Employees Association.

      I've had the pleasure of meeting these folks personally. They're a great group of leaders.

      On behalf of the thousands of employees you represent, thank you for your enthusiasm and commitment to PG&E.

      You've heard a lot about service today, and how much that's ingrained in the people of PG&E. But, there's one group of our team members who take service to a whole different level--they're our team members who also serve in the National Guard and Reserve. Forty-four men and women from the PG&E team have been deployed on active duty in the service of our country. Twenty-seven of them have returned from active duty, and 17 are serving currently. All of them, and more, are subject to being activated in the future.

      With us are a group of PG&E reservists. We would like to recognize them and their colleagues who could not be here today. Will those here please stand and be recognized as your names are called. Please hold your applause until after they are all introduced.

      They are:

      • Commander Mary Adamson, U.S. Naval Reserve
      • Information System Technician, 3rd Class Alex Chan, U.S. Naval Reserve
      • Colonel Phil Donnelly, U.S. Army Reserve
      • Commander Frank Eich, U.S. Naval Reserve
      • Staff Sergeant Jesse Jennings, Nevada Air National Guard
      • Petty Officer 1st Class Steven Palesch, U.S. Naval Reserve
      • and Technical Sergeant Brian Rutherford, U.S. Air Force Reserve.

      Let's all stand and express our gratitude to them now.

      Thank you, and thanks to all of our reservists.

      And thank you all for joining us today. This meeting is adjourned.


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