q30810q.htm

SEPARATION AGREEMENT

This Separation Agreement (this �Agreement�) is made and entered into by and between William T. Morrow (the �Executive�) and Pacific Gas and Electric Company (the �Company�) (collectively the �Parties�) and sets forth the terms and conditions of the Executive�s separation from employment with the Company. The �Effective Date� of this Agreement is defined in paragraph 18(a).

1. Resignation. Effective August 31, 2008 (the �Resignation Date�), the Executive hereby resigns from his positions as Chief Executive Officer and President and a member of the Board of Directors of the Company, and resigns from employment with the Company and from each other position he holds with any of its affiliates, including as a director of any such entity. Promptly after his Resignation Date, he will be paid all salary or wages and vacation accrued, unpaid and owed to him as of the Resignation Date, he will remain entitled to any other benefits to which he is otherwise entitled as of the Resignation Date under the provisions of the Company�s plans and programs, and he will receive notice of the right to continue his existing health-insurance coverage pursuant to COBRA. The Executive shall make a diligent search for, and deliver to the Company, by the Resignation Date (i) any document, materials, files or computer files, or copies, reproductions, duplicates, transcriptions or replicas thereof relating to the Company�s business or affairs or belonging to the Company or any of its affiliates, which are in his possession or control and (ii) all other Company property (including, without limitation, laptop computer, blackberry, identification cards, security access cards, etc.), which are in his possession or control.

The continuation of wages and other compensation set forth in paragraph 2 below is conditioned upon the Executive�s acceptance of this Agreement.

2. Continued pay and service credit. To induce the Executive to resign as of the Resignation Date and for other consideration set forth herein, the Company will provide to the Executive, or his estate, the following compensation benefits conditioned upon the occurrence of the Effective Date of this Agreement as set forth in paragraph 18(a) below:

a. Salary continuation and bonus payment. Subject to his compliance with the terms and conditions of this Agreement, from the Resignation Date and continuing until January 31, 2009, the Company shall continue to pay the Executive monthly payments equal to the same monthly base salary that it would have paid him had he continued to be employed through January 31, 2009, at the same time and on the same conditions as though he had continued to be employed by the Company. In addition, the Company will pay the Executive his target participation in PG&E Corporation�s Short-Term Incentive Plan (�STIP�) of $584,375 for 2008, multiplied by the final 2008 STIP rate as determined by the PG&E Corporation�s Compensation Committee of the Board of Directors, less applicable withholdings and deductions, payable in or about March 2009 in accordance with the Company�s current pay practices.

b. Continued Service Credit for Equity Awards. Subject to his

compliance with the terms and conditions of this Agreement, the Company shall provide the Executive service credit from the Resignation Date to January 31, 2009 for purposes of vesting in restricted stock grants and performance share grants provided to the Executive under PG&E Corporation�s 2006 Long-Term Incentive Plan (�LTIP�) (including, without limitation, the restricted stock grants vesting on January 2, 2009 and January 29, 2009) in accordance with the terms of the restricted stock agreements and performance share agreements relating to such grants, provided, however, that all restricted stock grants and performance share grants that would not have vested as of January 31, 2009 based upon the vesting schedules set forth in such restricted stock agreements and performance share agreements shall be forfeited effective as of the Effective Date. The Executive shall not be eligible to receive (i) any incentive compensation for any period after December 31, 2008 or (ii) any additional equity awards from and after the Resignation Date.

c. Other benefits. Any benefits accrued under the PG&E Corporation Supplemental Executive Retirement Plan (�SERP�) as of the Resignation Date shall be paid in accordance with the terms of such plan, and no additional benefits shall accrue under SERP after the Resignation Date. In accordance with the terms of the PG&E Corporation�s Executive Stock Ownership Program, the Executive will not be entitled to any Special Incentive Stock Ownership Premiums (�SISOPs�) and therefore will not be awarded any SISOPs. The Executive will be eligible for COBRA continuation coverage from the Resignation Date to the extent available to him at law. The Company will pay all COBRA premiums on behalf of the Executive and his family through January 31, 2009, provided that the Executive makes a COBRA election to continue said benefits on a timely basis. The Company further agrees to promptly reimburse the Executive for all out-of-pocket expenses incurred in the performance of his responsibilities as an officer or director of the Company pursuant to the Company�s reimbursement policies in effect as of the time of submission. The Executive shall not be eligible for any benefits under the PG&E Corporation Officer Severance Policy not otherwise specifically provided for herein.

d. Other employment or consulting. Provided that the Executive does not take a position with or perform services for a direct competitor of the Company prior to January 31, 2009, the Executive shall not lose any of the benefits set forth in this Agreement based on the fact that he provides consulting services or accepts a job with a different employer after the Resignation Date, but before January 31, 2009. This paragraph 2(d) shall not affect the Executive�s obligations under paragraph 7.

3. Defense and indemnification in third-party claims. The Company and/or its parent, affiliate, or subsidiary will provide the Executive with legal representation and indemnification protection in any legal proceeding in which he is a party or is threatened to be made a party by reason of the fact that he is or was an employee or officer of the Company and/or its parent, affiliate or subsidiary, in accordance with the terms of the resolution of the Board of Directors of the Company dated July 19, 1995, as well as otherwise required by law.

4. Cooperation.

a. The Executive will, upon reasonable notice, furnish information and proper assistance to the Company and/or its parent, affiliate or subsidiary (including truthful

testimony and document production) as may reasonably be required by them or any of them in connection with any legal, administrative or regulatory proceeding or investigation (internal or external) in which they or any of them is, or may become, a party, or in connection with any filing or similar obligation imposed by any taxing, administrative or regulatory authority having jurisdiction, provided, however, that the Company and/or its parent, affiliate or subsidiary will pay all reasonable out-of-pocket expenses incurred by the Executive in complying with this paragraph.

b. Until the Resignation Date, the Executive will, as requested by the Company or Chairman, Chief Executive Officer and President of PG&E Corporation, (i) continue to devote his best skill and perform his duties as Chief Executive Officer and President and a member of the board of directors of the Company (including, without limitation, in connection with fulfilling the Company�s reporting obligations to the Securities and Exchange Commission), (ii) cooperate and participate in employee meetings, and (iii) cooperate in communications with media, investment community, regulators, elected officials, other policymakers, government officials and other stakeholders.

5. Release of claims and covenant not to sue.

a. In consideration of the payments and other benefits the Company is providing under this Agreement, the Executive, on behalf of himself and his representatives, agents, heirs and assigns, waives, releases, discharges and promises never to assert any and all claims, liabilities or obligations of every kind and nature, whether known or unknown, suspected or unsuspected that he ever had, now has or might have as of the Effective Date against the Company or its predecessors, parent, affiliates, subsidiaries, shareholders, owners, directors, officers, employees, agents, attorneys, successors, or assigns. These released claims include, without limitation, any claims arising from or related to the Executive�s employment with the Company, its parent or any of its affiliates and subsidiaries, and the termination of that employment. These released claims also specifically include, but are not limited, any claims arising under any federal, state and local statutory or common law, such as (as amended and as applicable) Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Employee Retirement Income Security Act, the California Fair Employment and Housing Act, the California Labor Code, any other federal, state or local law governing the terms and conditions of employment or the termination of employment, and the law of contract and tort; and any claim for attorneys� fees.

b. The Executive acknowledges that there may exist facts or claims in addition to or different from those which are now known or believed by him to exist. Nonetheless, this Agreement extends to all claims of every nature and kind whatsoever, whether known or unknown, suspected or unsuspected, past or present, and the Executive specifically waives all rights under Section 1542 of the California Civil Code which provides that:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN TO HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR

HER SETTLEMENT WITH THE DEBTOR.

c. With respect to the claims released in the preceding paragraphs, the Executive will not initiate or maintain any legal or administrative action or proceeding of any kind against the Company or its predecessors, parent, affiliates, subsidiaries, shareholders, owners, directors, officers, employees, agents, attorneys, successors, or assigns, for the purpose of obtaining any personal relief, nor (except as otherwise required or expressly permitted by law) assist or participate in any such proceedings, including any proceedings brought by any third parties.

d. The Executive agrees to reconfirm the release and covenants set forth herein by executing and returning the attached Exhibit A within 30 days after the Resignation Date. The Company shall be under no obligation to pay any obligation to the Executive accruing after the Resignation Date absent the Executive�s signature and return of the Exhibit A to the Company, unless otherwise required by law. In the event the Executive should die or become legally incapacitated prior to executing and returning the attached Exhibit A, a release similar to that set forth in Exhibit A executed by the Executive�s estate or legal representative will be sufficient to obligate the Company to pay all remaining obligations or benefits.

6. Non-disclosure. The Executive will not use, disclose, publicize, or circulate any confidential, non-public or proprietary information concerning the Company or its subsidiaries or affiliates, which has come to his attention during his employment with the Company, unless doing so is expressly authorized in writing by the PG&E Corporation�s Chief Legal Officer, or is otherwise required or expressly permitted by law. Before making any legally-required disclosure, the Executive will give the Company notice at least ten (10) business days in advance.

7. No unfair competition.

a. The Executive will not engage in any unfair competition against the Company, its parent or any of its subsidiaries or affiliates.

b. For a period of one year after the Effective Date, the Executive will not, directly or indirectly, solicit or contact for the purpose of diverting or taking away or attempt to solicit or contact for the purpose of diverting or taking away:

(1)	any existing customer of the Company or its parent, affiliates or subsidiaries;

(2)

any prospective customer of the Company or its parent, affiliates or subsidiaries about whom the Executive acquired information as a result of any solicitation efforts by the Company or its parent, affiliates or subsidiaries, or by the prospective customer, during the Executive�s employment with the Company;

(3)	any existing vendor of the Company or its parent, affiliates or subsidiaries;

(4)

any prospective vendor of the Company or its parent, affiliates or subsidiaries, about whom the Executive acquired information as a result of any solicitation efforts by the Company or its parent, affiliates or subsidiaries, or by the prospective vendor, during the Executive�s employment with the Company;

(5)	any existing employee, agent or consultant of the Company or its parent, affiliates or subsidiaries, to terminate or otherwise alter, or interfere with, the person�s or entity�s employment, agency or consultant relationship with the Company or its parent, affiliates or subsidiaries; or

(6)	any existing employee, agent or consultant of the Company or its parent, affiliates or subsidiaries, to work in any capacity for or on behalf of any person, company or other business enterprise that is in competition with the Company or its parent, affiliates or subsidiaries.

8. Material breach by Employee. In the event that the Executive breaches any material provision of this Agreement, including but not necessarily limited to paragraphs 4, 5, 6, and/or 7, the Company may cease paying or providing any unpaid amounts or benefits (including, without limitation, continued salary payments and vesting of restricted stock grants and performance share grants) specified in this Agreement, except as otherwise required by law or subsequently determined to be due and owing pursuant to arbitration and a determination of an appropriate offset, if any, based on established liability and damages. Subject to the Company�s establishment of breach and proof of damages, the Company shall also be entitled to the return of any and all amounts or benefits (including, without limitation, continued salary payments and vesting of restricted stock grants and performance share grants) previously paid or provided to him under this Agreement not otherwise required by law. Despite any breach by the Executive, his other duties and obligations under this Agreement, including his waivers and releases, will remain in full force and effect. In the event of a breach or threatened breach by the Executive of any of the provisions in paragraphs 4, 5, 6, and/or 7, the Company will, in addition to any other remedies provided in this Agreement, be entitled to equitable and/or injunctive relief and, because the damages for such a breach or threatened breach will be difficult to determine and will not provide a full and adequate remedy, the Company will also be entitled to specific performance by the Executive of his obligations under paragraphs 4, 5, 6, and/or 7, without any requirement to post any bond, which is hereby expressly waived by the Executive.

9. Material breach by the Company. The Executive will be entitled to recover actual damages in the event of any material breach of this Agreement by the Company, including any unexcused late or non-payment of any amounts owed under this Agreement, or any unexcused failure to provide any other benefits specified in this Agreement. In the event of a breach or threatened breach by the Company of any of its material obligations to him under this Agreement, the Executive will be entitled to seek, in addition to any other remedies provided in this Agreement, specific performance of the Company�s obligations and any other applicable equitable or injunctive relief. Despite any breach by the Company, its other duties and

obligations under this Agreement will remain in full force and effect.

10. No admission of liability. This Agreement is not, and will not be considered, an admission of liability or a violation of any applicable contract, law, rule, regulation, or order of any kind.

11. Non-Disparagement. The Executive agrees to refrain from performing any act, engaging in any conduct or course of action or making or publishing any statements, claims, allegations or assertions, which have or may reasonably have the effect of demeaning the name or business reputation of PG&E Corporation or any of its subsidiaries or affiliates, or any of their respective employees, officers, directors, agents or advisors in their capacities as such or which adversely affects (or may reasonably be expected adversely to affect) the best interests (economic or otherwise) of any of them. The Company agrees to refrain from performing any act, engaging in any conduct or course of action or making or publishing any statements, claims, allegations or assertions in any print, electronic or television media or in investor conference calls or webcasts, which have or may reasonably have the effect of demeaning the name or business reputation of the Executive. The Company further agrees to instruct the members of the Company�s Board of Directors, Peter Darbee, and all of the Company�s Chief Executive Officers, Chief Operating Officers, Presidents, Senior Vice Presidents and Vice Presidents (in each case, while such person remains a Board member or employee of the Company) to comply with the Company�s obligations under this paragraph. In the event that Peter Darbee, or the Company�s Chief Legal Officer or Head of Human Resources acquires actual knowledge that a violation of the Company�s obligations under this paragraph 11 has occurred, the Company shall take reasonable action to reprimand and further discourage such behavior in violation of this paragraph 11. Each Party agrees that nothing in this paragraph 11 shall preclude the other Party from fulfilling any duty or obligation that he or it may have at law, from responding to any subpoena or official inquiry from any court or government agency, including providing truthful testimony, documents subpoenaed or requested or otherwise cooperating in good faith with any proceeding or investigation, or from taking any reasonable actions to enforce such party�s rights under this Agreement in accordance with the dispute resolution provisions specified in paragraph 14 hereof. Each Party shall continue to comply with its or his obligations under this Paragraph 11 regardless of any alleged breach by the other Party of its or his agreements contained in this paragraph 11 unless and until there has been a final determination by a court or an arbitration panel that the other Party has breached its or his obligations under this paragraph 11.

12. Complete agreement. This Agreement sets forth the entire agreement between the Parties pertaining to the subject matter of this Agreement and fully supersedes any prior or contemporaneous negotiations, representations, agreements, or understandings between the Parties with respect to any such matters, whether written or oral (including any that would have provided the Executive with any different benefits or payments). The Parties acknowledge that they have not relied on any promise, representation or warranty, express or implied, not contained in this Agreement. Parol evidence will be inadmissible to show agreement by and among the Parties to any term or condition contrary to or in addition to the terms and conditions contained in this Agreement.

13. Severability. If any provision of this Agreement is determined to be invalid,

void, or unenforceable, the remaining provisions will remain in full force and effect except that, should paragraphs 4, 5, 6, and/or 7 be held invalid, void or unenforceable, either jointly or separately, the Company will be entitled to rescind the Agreement and/or recover from the Executive any payments made and benefits provided to him under this Agreement.

14. Dispute Resolution. With the exception of any request for specific performance, injunctive or other equitable relief, any dispute or controversy of any kind arising out of or related to this Agreement, the Executive�s employment with the Company, the separation of the Executive from that employment and from his positions as an officer and/or director of the Company or any subsidiary or affiliate, or any claims for benefits, will be resolved exclusively by final and binding arbitration using a one-member arbitration panel selected by mutual agreement, or if the Parties fail to agree on an arbitrator, then in accordance with the Commercial Arbitration Rules of the American Arbitration Association currently in effect, provided, however, that the arbitrator will be limited to awarding the award requested by the Executive or the Company and shall not determine an alternative or compromise remedy. The only claims not covered by this paragraph are any non-waivable claims for benefits under workers� compensation or unemployment insurance laws, which will be resolved under those laws. Any arbitration pursuant to this paragraph will take place in San Francisco, California. The Parties may be represented by legal counsel at the arbitration but must bear their own fees for such representation in the first instance, subject to a claim for subsequent reimbursement under paragraph 17. The Parties will equally share the costs of the arbitration, including the arbitrator�s fees, administrative costs and filing fees, unless otherwise prohibited by law. To the extent properly split, said arbitration costs will be subject to a claim for subsequent reimbursement under paragraph 17. The Parties agree that the arbitrator will have the power to decide any motions brought by any party to the arbitration, including discovery motions, motions for summary judgment and/or adjudication and motions to dismiss and demurrers, prior to any arbitration hearing. The arbitrator will issue a written decision on the merits. The Parties specifically waive any right to a jury trial on any dispute or controversy covered by this paragraph. Judgment may be entered on the arbitrator�s award in any court of competent jurisdiction. Subject to the arbitration provisions of this paragraph, the sole jurisdiction and venue for any action for injunctive or declaratory relief related to the subject matter of this Agreement will be the California state and federal courts in the City and County of San Francisco, and both Parties hereby consent to the jurisdiction of such courts for any such action.

15. Governing law. This Agreement will be governed by and construed under the laws of the United States and, to the extent not preempted by such laws, by the laws of the State of California, without regard to their conflicts of laws provisions.

16. No waiver. The failure of either Party to exercise or enforce, at any time, or for any period of time, any of the provisions of this Agreement will not be construed as a waiver of that provision, or any portion of that provision, and will in no way affect that party�s right to exercise or enforce such provisions. No waiver or default of any provision of this Agreement will be deemed to be a waiver of any succeeding breach of the same or any other provisions of this Agreement.

17. Attorney�s Fees and Costs. The prevailing party in any dispute or controversy

over the terms of this Agreement will be entitled to recover, in addition to any other available remedies specified in this Agreement, (i) such party�s reasonable attorneys� fees, except as otherwise set forth herein and (ii) such party�s all other litigation expenses and costs incurred in litigation or arbitration, including any arbitrator, administrative or filing fees except to the extent that the recovery of such costs is prohibited or limited by law.

18. Acceptance of Agreement.

a. The Executive was provided up to 21 days to consider and accept the terms of this Agreement and was advised to consult with an attorney about the Agreement before signing it. After signing the Agreement, the Executive will have an additional seven (7) days in which to revoke in writing acceptance of this Agreement. To revoke, the Executive will submit a signed statement to that effect to PG&E Corporation�s Chief Legal Officer before the close of business on the seventh day. If the Executive does not submit a timely revocation, the Effective Date of this Agreement will be the eighth day after he has signed it.

b. The Executive acknowledges reading and understanding the contents of this Agreement, being afforded the opportunity to review carefully this Agreement with an attorney of his choice, not relying on any oral or written representation not contained in this Agreement, signing this Agreement knowingly and voluntarily, and, after the Effective Date of this Agreement, being bound by all of its provisions.

Dated: July 8, 2008 . PACIFIC GAS AND ELECTRIC COMPANY

By: JOHN R. SIMON

JOHN R. SIMON

Dated: July 8, 2008 William T. Morrow

3:00pm

WILLIAM T. MORROW

EXHIBIT A

EMPLOYMENT TERMINATION CERTIFICATE

I entered into a SEPARATION AGREEMENT (�Separation Agreement�) with Pacific Gas & Electric Company (�Company�) dated July __, 2008 (�Effective Date�). I hereby acknowledge that:

(1) A blank copy of this Employment Termination Certificate was attached as Exhibit A to the Separation Agreement when the Company gave it to me for review. I have been given sufficient and reasonable time to consider signing this Certificate. I have discussed the Separation Agreement and this Certificate with an attorney before executing either document.

(2) The benefits payable under paragraph 2(a)-(c) of the Separation Agreement are only payable to me if I sign this Certificate after the Resignation Date (as defined in the Separation Agreement).

(3) I executed the Separation Agreement prior to my last day of employment. In exchange for the remaining benefits provided for in paragraph 2(a)-(c) of the Separation Agreement, I hereby agree that this Certificate will be a part of my Separation Agreement such that the release of claims and the covenants that I provided under paragraph 5 of the Separation Agreement will, by my signature below, extend to and cover any other claims that arose after the Effective Date, up to and including the Resignation Date and the date this Certificate is signed, provided, however, by signing the Employment Termination Certificate I am not releasing any claim I have to receive any and all benefits otherwise due to me under the terms of the Separation Agreement, or otherwise required by law.

(4) Nothing in this Certificate alters, diminishes, or mitigates the scope and breadth of the releases and covenants that I previously provided to the Company under the Separation Agreement, which shall remain in full force and effect regardless of whether I sign this Certificate.

(5) By signing below, I hereby extend the release of claims and the covenants that I provided to the Company and other released parties under the Separation Agreement to cover any other claims (as more fully described in paragraph 5 of the Separation Agreement) that arose or may have arisen at any time after the Effective Date, up to and including the Resignation Date and the date this Certificate is signed. I knowingly and voluntarily waive any and all rights or benefits which I may have had, may now have or in the future may have under the terms of Section 1542 of the California Civil Code, which provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE WHICH, IF KNOWN BY HIM OR HER MUST

HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.

I understand that section 1542 gives me the right not to release existing claims of which I am not now aware, but I expressly and voluntarily choose to waive my rights under California Civil Code Section 1542, as well as under any other federal or state statute or common law principles of similar effect.

I UNDERSTAND THAT I HAVE A RIGHT TO CONSULT WITH AN ATTORNEY OF MY OWN CHOOSING AND TO HAVE THE TERMS OF THIS CERTIFICATE FULLY EXPLAINED TO ME PRIOR TO SIGNING, AND THAT I AM GIVING UP ANY LEGAL CLAIMS I HAVE AGAINST THE PARTIES RELEASED IN THE SEPARATION AGREEMENT BY SIGNING THIS CERTIFICATE. I AM SIGNING THIS CERTIFICATE KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE BENEFITS DESCRIBED IN THE SEPARATION AGREEMENT.

______________________________

William T. Morrow

Date: _______________________


UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 FORM 10-Q
(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008 OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission File Number _______________		Exact Name of Registrant as specified in its charter _______________			State or other Jurisdiction of Incorporation ______________			IRS Employer Identification Number ___________

1-12609		PG&E Corporation			California			94-3234914
1-2348		Pacific Gas and Electric Company			California			94-0742640

Pacific Gas and Electric Company 77 Beale Street P.O. Box 770000 San Francisco, California 94177 ________________________________________					PG&E Corporation One Market, Spear Tower Suite 2400 San Francisco, California 94105 ______________________________________
Address of principal executive offices, including zip code

Pacific Gas and Electric Company (415) 973-7000 ________________________________________					PG&E Corporation (415) 267-7000 ______________________________________
Registrant's telephone number, including area code

Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

PG&E Corporation:			[X] Large accelerated filer				[ ] Accelerated Filer
			[ ] Non-accelerated filer			[ ] Smaller reporting company
Pacific Gas and Electric Company:			[ ] Large accelerated filer				[ ] Accelerated Filer
			[X] Non-accelerated filer			[ ] Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
PG&E Corporation:				[ ] Yes [X] No

Pacific Gas and Electric Company:				[ ] Yes [X] No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock Outstanding as of October 31, 2008:

PG&E Corporation					360,983,933
Pacific Gas and Electric Company					264,374,809

PART I.	FINANCIAL INFORMATION			PAGE
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	PG&E Corporation
		Condensed Consolidated Statements of Income		3
		Condensed Consolidated Balance Sheets		4
		Condensed Consolidated Statements of Cash Flows		6
	Pacific Gas and Electric Company
		Condensed Consolidated Statements of Income		7
		Condensed Consolidated Balance Sheets		8
		Condensed Consolidated Statements of Cash Flows		10
	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	NOTE 1:		Organization and Basis of Presentation	11
	NOTE 2:		New and Significant Accounting Policies	12
	NOTE 3:		Regulatory Assets, Liabilities, and Balancing Accounts	14
	NOTE 4:		Debt	17
	NOTE 5:		Shareholders' Equity	19
	NOTE 6:		Earnings Per Common Share	20
	NOTE 7:		Derivatives and Hedging Activities	21
	NOTE 8:		Fair Value Measurements	22
	NOTE 9:		Related Party Agreements and Transactions	27
	NOTE 10:		Resolution of Remaining Chapter 11 Disputed Claims	28
	NOTE 11:		Commitments and Contingencies	29

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Overview			36
	Forward-Looking Statements			38
	Results of Operations			39
	Liquidity and Financial Resources			46
	Contractual Commitments			51
	Capital Expenditures			51
	Off-Balance Sheet Arrangements			53
	Contingencies			54
	Regulatory Matters			54
	Risk Management Activities			56
	Critical Accounting Policies			58
	New Accounting Policies			58
	Accounting Pronouncements Issued But Not Yet Adopted			60

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			61
ITEM 4.	CONTROLS AND PROCEDURES			61

PART II.	OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS			62
ITEM 1A.	RISK FACTORS			62
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			62
ITEM 5.	OTHER INFORMATION			62
ITEM 6.	EXHIBITS			63

PG&E CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
	(Unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in millions, except per share amounts)	2008			2007			2008			2007
Operating Revenues
Electric	$	2,880		$	2,574		$	8,039		$	7,107
Natural gas		794			705			2,946			2,714
Total operating revenues		3,674			3,279			10,985			9,821
Operating Expenses
Cost of electricity		1,282			998			3,406			2,606
Cost of natural gas		351			281			1,613			1,431
Operating and maintenance		983			953			3,010			2,794
Depreciation, amortization, and decommissioning		419			465			1,240			1,325
Total operating expenses		3,035			2,697			9,269			8,156
Operating Income		639			582			1,716			1,665
Interest income		23			36			82			125
Interest expense		(178	)		(196	)		(550	)		(571	)
Other income (expense), net		(17	)		7			(14	)		22
Income Before Income Taxes		467			429			1,234			1,241
Income tax provision		163			151			413			438
Net Income	$	304		$	278		$	821		$	803
Weighted Average Common Shares Outstanding, Basic		357			352			356			350
Weighted Average Common Shares Outstanding, Diluted		358			353			357			352
Net Earnings Per Common Share, Basic	$	0.83		$	0.77		$	2.25		$	2.23
Net Earnings Per Common Share, Diluted	$	0.83		$	0.77		$	2.24		$	2.22
Dividends Declared Per Common Share	$	0.39		$	0.36		$	1.17		$	1.08

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	Balance At
(in millions)	September 30, 2008			December 31, 2007
ASSETS
Current Assets
Cash and cash equivalents	$	251		$	345
Restricted cash		1,325			1,297
Accounts receivable:
Customers (net of allowance for doubtful accounts of $75 million in 2008 and $58 million in 2007)		2,530			2,349
Regulatory balancing accounts		1,117			771
Inventories:
Gas stored underground and fuel oil		333			205
Materials and supplies		172			166
Income taxes receivable		-			61
Prepaid expenses and other		580			255
Total current assets		6,308			5,449
Property, Plant, and Equipment
Electric		27,146			25,599
Gas		10,016			9,620
Construction work in progress		1,668			1,348
Other		16			17
Total property, plant, and equipment		38,846			36,584
Accumulated depreciation		(13,422	)		(12,928	)
Net property, plant, and equipment		25,424			23,656
Other Noncurrent Assets
Regulatory assets		4,233			4,459
Nuclear decommissioning funds		1,819			1,979
Other		1,094			1,089
Total other noncurrent assets		7,146			7,527
TOTAL ASSETS	$	38,878		$	36,632

See accompanying Notes to the Condensed Consolidated Financial Statements.

PG&E CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
	(Unaudited)
	Balance At
(in millions, except share amounts)	September 30, 2008		December 31, 2007
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings	$	1,335	$	519
Long-term debt, classified as current		600		-
Energy recovery bonds, classified as current		366		354
Accounts payable:
Trade creditors		962		1,067
Disputed claims and customer refunds		1,588		1,629
Regulatory balancing accounts		906		673
Other		385		394
Interest payable		708		697
Income taxes payable		116		-
Deferred income taxes		156		-
Other		1,375		1,374
Total current liabilities		8,497		6,707
Noncurrent Liabilities
Long-term debt		7,816		8,171
Energy recovery bonds		1,310		1,582
Regulatory liabilities		4,456		4,448
Asset retirement obligations		1,628		1,579
Income taxes payable		231		234
Deferred income taxes		3,383		3,053
Deferred tax credits		95		99
Other		2,071		1,954
Total noncurrent liabilities		20,990		21,120
Commitments and Contingencies
Preferred Stock of Subsidiaries		252		252
Preferred Stock
Preferred stock, no par value, authorized 80,000,000 shares, $100 par value, authorized 5,000,000 shares, none issued		-		-
Common Shareholders' Equity
Common stock, no par value, authorized 800,000,000 shares, issued 358,198,735 common and 1,315,818 restricted shares in 2008 and issued 378,385,151 common and 1,261,125 restricted shares in 2007		5,883		6,110
Common stock held by subsidiary, at cost, 24,665,500 shares in 2007		-		(718	)
Reinvested earnings		3,238		3,151
Accumulated other comprehensive income		18		10
Total common shareholders' equity		9,139		8,553
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	38,878	$	36,632

See accompanying Notes to the Condensed Consolidated Financial Statements.

	PG&E Corporation				Utility
	Three Months Ended September 30,				Three Months Ended September 30,
(in millions)	2008		2007		2008		2007
Stock options	$	1	$	2	$	-	$	1
Restricted stock		5		6		4		4
Performance shares		-		15		-		10
Total compensation expense (pre-tax)	$	6	$	23	$	4	$	15
Total compensation expense (after-tax)	$	4	$	14	$	2	$	9

	PG&E Corporation				Utility
	Nine Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2008		2007		2008		2007
Stock options	$	2	$	6	$	1	$	3
Restricted stock		19		19		13		12
Performance shares		8		15		5		9
Total compensation expense (pre-tax)	$	29	$	40	$	19	$	24
Total compensation expense (after-tax)	$	17	$	24	$	11	$	14

	Pension Benefits						Other Benefits
	Three Months Ended September 30,						Three Months Ended September 30,
(in millions)	2008			2007			2008			2007
Service cost for benefits earned	$	59		$	55		$	7		$	7
Interest cost		148			139			21			20
Expected return on plan assets		(173	)		(178	)		(22	)		(23	)
Amortization of transition obligation (1)		-			-			6			7
Amortization of prior service cost (1)		12			12			4			3
Amortization of unrecognized gain/(loss) (1)		1			1			(3	)		(1	)
Net periodic benefit cost	$	47		$	29		$	13		$	13


(1) In 2007, under SFAS No.158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS No. 158”), PG&E Corporation and the Utility recorded amounts related to pension and other benefits in other comprehensive income, net of related deferred taxes, except for a portion recorded as a regulatory liability in accordance with SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation,” as amended (“SFAS No. 71”).

	Total Price Risk Management Derivatives				Price Risk Management Derivatives Designated as Cash Flow Hedges
(in millions)	September 30, 2008(1)		December 31, 2007(2)		September 30, 2008(3)		December 31, 2007(4)
Current Assets – Prepaid expenses and other	$	120	$	55	$	8	$	(2	)(5)
Other Noncurrent Assets – Other		177		171		18		42
Current Liabilities – Other		88		67		36		12
Noncurrent Liabilities – Other		117		20		107		3


(1) Balances reflect the allocation of a $220 million cash collateral receivable balance to Current Assets-Prepaid expenses and other for $74 million, $72 million to Other Noncurrent Assets-Other, and $74 million to Current Liabilities-Other in accordance with FIN 39-1.
(2) Balances reflect the allocation of a $65 million cash collateral receivable balance to Current Assets-Prepaid expenses and other for $3 million, $46 million to Other Noncurrent Assets-Other, and $16 million to Current Liabilities-Other in accordance with FIN 39-1. This collateral was classified as Current Assets-Prepaid expenses and other in the 2007 Annual Report.
(3) Balances reflect the allocation of a $25 million cash collateral receivable balance to Current Assets-Prepaid expenses and other for $8 million, $7 million to Other Noncurrent Assets-Other, and $10 to Current Liabilities-Other in accordance with FIN 39-1.
(4) Balances reflect the allocation of a $16 million cash collateral receivable balance to Other Noncurrent Assets-Other for $9 million and $7 million to Current Liabilities-Other in accordance with FIN 39-1. This collateral was classified as Current Assets-Prepaid expenses and other in the 2007 Annual Report.
(5) $2 million of the cash flow hedges in a liability position at December 31, 2007 relate to counterparties for which the total net derivatives position is a current asset.

PG&E Corporation
Fair Value Measurements as of September 30, 2008
(in millions)	Level 1	Level 2	Level 3	Total
Assets:
Money market investments (held by PG&E Corporation)	$ 192	$ -	$ 62	$ 254
Nuclear decommissioning trusts(1)	1,609	308	7	1,924
Price risk management instruments(2)	54	4	34	92
Rabbi trusts(3)	78	-	-	78
Long-term disability trust	49	-	79	128
Assets Total	$ 1,982	$ 312	$ 182	$ 2,476
Liabilities:
Dividend participation rights	$ -	$ -	$ 49	$ 49
Other	-	-	5	5
Liabilities Total	$ -	$ -	$ 54	$ 54


(1) Excludes taxes on appreciation of investment value.
(2) Balances include the impact of netting adjustments in accordance with the requirements of FIN 39-1 of $41 million to Level 1, $26 million to Level 2, and $153 million to Level 3.
(3) Excludes life insurance policies.

PG&E Corporation
(in millions)	Money Market Investments	Price Risk Management Instruments	Nuclear Decommissioning Trusts (3)	Long-term Disability	Dividend Participation Rights	Other	Total
Asset (liability) Balance as of January 1, 2008	$ -	$ 115(1)	$ 8	$ 69	$ (68)(2)	$ (4)	$120
Realized and unrealized gains (losses):
Included in earnings	-	-	-	-	(2)	-	(2)
Included in regulatory assets and liabilities or balancing accounts	-	(81)	(1)	(12)	-	(1)	(95)
Purchases, issuances, and settlements	-	-	-	22	21	-	43
Transfers in (out) of Level 3	62	-	-	-	-	-	62
Asset (liability) Balance as of September 30, 2008	$ 62	$ 34	$ 7	$ 79	$ (49)	$ (5)	$ 128

Earnings for the period were impacted by a $2 million unrealized loss relating to assets or liabilities still held at September 30, 2008.


(1) Includes the impact of the $48 million retrospective adjustment related to the CRRs on January 1, 2008. Additionally, the balance includes the impact of netting adjustments of $6 million made in accordance with the requirements of FIN 39-1.
(2) The discount factor used to value these rights was adjusted on January 1, 2008 in order to comply with the provisions of SFAS No. 157, resulting in a $6 million expense to increase the value of the liability.
(3) Excludes taxes on appreciation of investment value.

(in millions)
2008	$	565
2009		2,384
2010		2,345
2011		2,309
2012		2,231
Thereafter		18,639
Total	$	28,473

(in millions)
202008	$	11
202009		50
202010		50
202011		50
202012		50
Thereafter		254
T Total fixed capacity payments	$	465
Less: Amount representing interest		(115	)
Present value of fixed capacity payments	$	350

·	After assumption, the Utility's issuer rating by Moody’s Investors Service (“Moody's”) will be no less than A2 and the Utility's long-term issuer credit rating by Standard and Poor’s Rating Service (“S&P”) will be no less than A. The Utility’s current issuer rating by Moody’s is A3 and the Utility’s long-term issuer credit rating by S&P is BBB+;

·	The CPUC first makes a finding that the DWR power purchase contracts to be assumed are just and reasonable; and

·	The CPUC has acted to ensure that the Utility will receive full and timely recovery in its retail electricity rates of all costs associated with the DWR power purchase contracts to be assumed without further review.

(in millions)
Balance at December 31, 2007	$	30
Additional severance accrued		17
Less: Payments		(18	)
Balance at September 30, 2008	$	29

·	Approximately $222 million for remediation at the Hinkley and Topock natural gas compressor sites;

·	Approximately $83 million related to remediation at divested generation facilities;

·	Approximately $221 million related to remediation costs for the Utility’s generation and other facilities, third-party disposal sites, and manufactured gas plant sites owned by the Utility or third parties (including those sites that are the subject of remediation orders by environmental agencies or claims by the current owners of the former manufactured gas plant sites); and

·	Approximately $49 million related to remediation costs for fossil decommissioning sites.

·	The Outcome of Regulatory Proceedings and the Impact of Ratemaking Mechanisms. The amount of the Utility’s revenues and the amount of costs that the Utility is authorized to recover from customers are primarily determined through regulatory proceedings. Most of the Utility’s revenue requirements are set based on its costs of service in proceedings such as the General Rate Case (“GRC”) filed with the CPUC and transmission owner (“TO”) rate cases filed with the FERC. Unlike the current GRC, which set revenue requirements for a four-year period (2007 through 2010), it is expected that the next GRC will set revenue requirements for the Utility’s electric and natural gas distribution operations and electric generation operations for a three-year period (2011 through 2013). From time to time, the Utility also files separate applications requesting the CPUC or the FERC to authorize additional revenue requirements for specific projects, such as new power plants, gas or electric transmission facilities, installation of an advanced metering infrastructure, and reliability improvements. The Utility’s revenues can also be affected by incentive ratemaking, such as the CPUC’s customer energy efficiency shareholder incentive mechanism. The amount of incentives the Utility may receive and the amount of any reimbursement obligations the Utility may incur will depend on the level of energy efficiency savings actually achieved over the three-year program cycles (2006-2008 and 2009-2011). (See “Regulatory Matters” below.) Finally, the outcome of regulatory proceedings may also be affected by volatility in the prices of natural gas and electricity as these costs are passed through to customers in the form of higher rates.

·	Capital Structure and Return on Common Equity. On May 29, 2008, the CPUC adopted a new three-year cost of capital mechanism to replace the CPUC’s annual cost of capital proceeding. The Utility’s current authorized capital structure, including a 52% common equity component, will be maintained through 2010. The Utility’s current authorized cost of capital, including a ROE of 11.35% on its electric and natural gas distribution and electric generation rate base, will be maintained through 2010, unless the annual automatic adjustment mechanism established by the CPUC is triggered. The Utility can apply for an adjustment to either the capital structure or cost of capital sooner based on extraordinary circumstances. (See “Regulatory Matters” below.)

·	The Ability of the Utility to Control Costs While Improving Reliability. The Utility’s revenue requirements are primarily set based on forecasted operating expenses and capital expenditures. The Utility’s revenue requirements are designed to allow the Utility to earn an ROE, as well as to recover depreciation, tax, and interest expense associated with authorized capital expenditures. Differences in the amount or timing of forecasted and actual operating expenses and capital expenditures can affect the Utility’s ability to earn its authorized rate of return and the amount of PG&E Corporation’s net income available for shareholders. The Utility anticipates that it will incur higher expenses than originally forecasted in the GRC to maintain the aging infrastructure of its electric and natural gas systems and to improve operating and maintenance processes. The Utility intends to continue its efforts to identify and implement initiatives to achieve operational efficiencies to create future sustainable cost-savings and to offset increased spending related to the natural gas system and the increasing cost of materials. (See “Results of Operations – Operating and Maintenance” below.) When capital is placed in service at a higher rate than forecasted, the Utility incurs associated depreciation, property tax, and interest expense. The Utility does not recover an ROE on the higher level of capital expenditures until added to rate base in future rate cases. The Utility’s financial condition and results of operations will be impacted by the amount of revenue requirements it is authorized to recover, the amount and timing of its capital expenditures, and whether the Utility is able to manage its operating costs and capital expenditures within authorized levels.

·	The Availability of Debt and Equity Financing. The Utility’s needs for additional financing during 2008 and future years will be affected by the amount and timing of capital expenditures, as well as by the amount and timing of interest payments related to the remaining disputed claims that were made by electricity suppliers in the Utility’s proceeding under Chapter 11 of the U.S. Bankruptcy Code (“Chapter 11”). (See Note 10 of the Notes to the Condensed Consolidated Financial Statements.) The Utility’s ability to make scheduled principal and interest payments, refinance debt, fund operations, deposit collateral in connection with its natural gas and electricity procurement hedging contracts, and make planned capital expenditures, depends on the levels of its operating cash flow and access to the capital markets. The recent financial distress experienced at major financial institutions has caused significant disruption in the capital markets. Although the Utility continues to have access to the commercial paper markets, short-term interest rates have increased significantly. Interest rates on long-term debt also have increased. For example, the Utility’s $600 million principal amount of 10-year senior notes issued on October 21, 2008 bear interest at 8.25% compared to the Utility’s $700 million principal amount of 10-year senior notes issued in December 2007 and March 3, 2008 that bears interest at 5.625%. The timing and amount of PG&E Corporation’s future equity contributions to the Utility will affect the timing and amount of any PG&E Corporation equity issuances and/or debt issuances which, in turn, will affect PG&E Corporation’s results of operations and financial condition. (See “Liquidity and Financial Resources” below.)

·	the Utility’s ability to manage capital expenditures and operating expenses within authorized levels and recover such costs through rates in a timely manner;

·	the outcome of regulatory proceedings, including pending and future ratemaking proceedings at the CPUC and the FERC;

·	the adequacy and price of electricity and natural gas supplies, and the ability of the Utility to manage and respond to the volatility of the electricity and natural gas markets;

·	the effect of weather, storms, earthquakes, fires, floods, disease, other natural disasters, explosions, accidents, mechanical breakdowns, acts of terrorism, and other events or hazards on the Utility’s facilities and operations, its customers, and third parties on which the Utility relies;

·	the potential impacts of climate change on the Utility’s electricity and natural gas businesses;

·	changes in customer demand for electricity and natural gas resulting from unanticipated population growth or decline, general economic and financial market conditions, changes in technology, including the development of alternative energy sources, or other reasons;

·	operating performance of Diablo Canyon, the occurrence of unplanned outages at Diablo Canyon, or the temporary or permanent cessation of operations at Diablo Canyon;

·	whether the Utility can maintain the cost savings it has recognized from operating efficiencies it has achieved and identify and successfully implement additional sustainable cost-saving measures;

·	whether the Utility incurs substantial unanticipated expense to improve the safety and reliability of its electric and natural gas systems;

·	whether the Utility achieves the CPUC’s energy efficiency targets and recognizes any incentives the Utility may earn in a timely manner;

·	the impact of changes in federal or state laws, or their interpretation, on energy policy and the regulation of utilities and their holding companies;

·	the impact of changing wholesale electric or gas market rules, including new rules of the California Independent System Operator (“CAISO”) to restructure the California wholesale electricity market;

·	how the CPUC administers the conditions imposed on PG&E Corporation when it became the Utility’s holding company;

·	the extent to which PG&E Corporation or the Utility incurs costs and liabilities in connection with litigation that are not recoverable through rates, from insurance, or from other third parties;

·	the ability of PG&E Corporation, the Utility, and counterparties, to access capital markets and other sources of credit in a timely manner on acceptable terms, especially given the recent deteriorating conditions in the economy and financial markets;

·	the impact of environmental laws and regulations and the costs of compliance and remediation;

·	the effect of municipalization, direct access, community choice aggregation, or other forms of bypass; and

·	the impact of changes in federal or state tax laws, policies, or regulations.

·	Electricity procurement costs passed through to customers increased by approximately $291 million in the three months ended September 30, 2008 and approximately $798 million in the nine months ended September 30, 2008, primarily due to an increase in the volume of power purchased by the Utility following the DWR’s termination of a power purchase contract in December 2007 and during the extended scheduled outage at Diablo Canyon earlier this year, and increases in purchased power prices. (See “Cost of Electricity” below.)

·	Electric operating revenues to fund public purpose and energy efficiency programs increased by approximately $36 million in the three months ended September 30, 2008 and approximately $175 million in the nine months ended September 30, 2008 primarily due to an increase in expenses for these programs. (See “Operating and Maintenance” below.)

·	Base revenue requirements increased by approximately $26 million in the three months ended September 30, 2008 and approximately $77 million in the nine months ended September 30, 2008, as a result of attrition adjustments as authorized in the 2007 GRC.

·	Electric transmission revenues increased by approximately $13 million in the three months ended September 30, 2008 and approximately $40 million in the nine months ended September 30, 2008, primarily due to an increase in rates as authorized in the current TO rate case.

·	Other electric operating revenues increased by approximately $22 million in the three months ended September 30, 2008 and approximately $70 million in the nine months ended September 30, 2008 primarily due to increases in revenues to recover costs related to the Diablo Canyon steam generator replacement project and revenues to fund the SmartMeterTM advanced metering project (see “Capital Expenditures” below for further discussion of SmartMeterTM).

·	Public purpose program and customer energy efficiency incentive program expenses increased by approximately $48 million and $187 million in the three and nine months ended September 30, 2008 primarily due to increased customer participation and increased marketing of new and existing programs, including the California Solar Initiative program and the Self-Generation Incentive Program. Of these changes, approximately $36 million and $175 million, respectively, were recovered in electric operating revenues and less than $1 million and $14 million, respectively, were recovered in natural gas operating revenues. Expenses related to public purpose programs and energy efficiency programs are generally fully recoverable and differences between costs and revenues in a particular period are due to timing differences.

·	Costs increased by approximately $38 million during the nine months ended September 30, 2008 for the repair and restoration of electric distribution systems and to respond to customer inquiries following the January 2008 winter storm. Of the approximately $38 million in costs, the Utility has requested that the CPUC permit the Utility to recover approximately $8 million from its customers. There was no similar storm in the same period in 2007.

·	Labor costs increased by approximately $12 million and $29 million in the three and nine months ended September 30, 2008, respectively, to conduct expanded natural gas leak surveys in parts of the Utility's service territory and to make related repairs in an effort to improve operating and maintenance processes in the Utility's natural gas system.

·	There was an increase in maintenance costs of approximately $10 million in the nine months ended September 30, 2008 compared to the same period in 2007 due to the longer duration of the planned outage of Diablo Canyon Unit 2 in 2008 compared to the Diablo Canyon Unit 1 outage in 2007.

·	Costs related to injuries and damages not specifically related to gas or electric lines of business decreased by approximately $7 million and $12 million in the three and nine months ended September 30, 2008, respectively, due to increases in reserves during 2007 for which there were no similar increases in 2008.

·	Costs decreased by approximately $12 million in the three months ended September 30, 2008 compared to the same period in 2007 due primarily to an initiative to implement operational efficiencies which occurred primarily during the third quarter of 2007. Costs increased by approximately $5 million in the nine months ended September 30, 2008 compared to the same period in 2007 due to primarily to an increase in costs related to software maintenance contracts.

·	Advertising decreased by approximately $9 million and $10 million in the three and nine months ended September 30, 2008 as compared to the same period in 2007.

·	Costs decreased by approximately $12 million for the three and nine months ended September 30, 2008 due to a CPUC decision ordering the Utility make a refund to ratepayers in 2007 related to billing practices for which there was no similar decision in 2008.

·	Costs decreased by approximately $12 million for the nine months ended September 30, 2008 due to a larger increase in accrual in 2007 than in 2008 related to compensation for employees’ missed meals. (See Note 11 of the Notes to the Condensed Consolidated Financial Statements for a discussion of California labor code issues.)

·	Costs decreased by approximately $9 million for the nine months ended September 30, 2008 due a larger increase in accrual in 2007 than in 2008 related to employee severance due to the elimination and consolidation of various employee positions.

·	Interest expense decreased by approximately $18 million in the three months ended September 30, 2008, and approximately $16 million in the nine months ended September 30, 2008, primarily due to lower FERC interest rates accrued on the liability for disputed claims.
·	Interest expense decreased by approximately $7 million in the three months ended September 30, 2008, and approximately $21 million in the nine months ended September 30, 2008, due to the reduction in the outstanding balance of ERBs and the maturity of the RRBs in December 2007.

·	Interest expense on pollution control bonds decreased by approximately $6 million in the three months ended September 30, 2008 and $13 million in the nine months ended September 30, 2008, due to the repurchase of auction rate pollution control bonds in March and April 2008 and a decrease in interest rates on outstanding variable rate pollution control bonds.

·	Interest expense decreased by approximately $16 million in the nine months ended September 30, 2008, primarily due to lower interest rates affecting various balancing accounts.

·	Other interest expense decreased by approximately $4 million in the three months ended September 30, 2008, primarily due to a lower balance of borrowings outstanding under the Utility’s $2 billion revolving credit facility and approximately $5 million in the nine months ended September 30, 2008, primarily due to lower commercial paper interest rates.

·	Liabilities for deferred income taxes and tax credits increased by approximately $470 million between December 31, 2007 and September 30, 2008, primarily due to an increase in balancing account revenues and an increase in deductible fixed asset-related book/tax differences based on the 2007 tax return filed in 2008, as well as an increase in balancing account revenues and an increase in deductible tax depreciation as authorized by the 2008 Economic Stimulus Act.

·	Income taxes receivable/payable increased by approximately $208 million between December 31, 2007 and September 30, 2008, primarily due to the accrual of income taxes payable for the first nine months of 2008.

·	Net collateral paid primarily related to price risk management activities increased by approximately $155 million between December 31, 2007 and September 30, 2008 as a result of changes in the Utility’s exposure to counterparties’ credit risk. Collateral payables and receivables are included in the Other changes in noncurrent assets and liabilities, Other current assets, and Other current liabilities in the table above.

·	Regulatory balancing accounts, net under-collection increased by approximately $94 million between December 31, 2007 and September 30, 2008, primarily due to an increase of approximately $454 million in under-collected electricity procurement costs. This increase was partially offset by an increase of $172 million in over-collected amounts due to the DWR. (See “Cost of Electricity” above.) The increase in the Regulatory balancing accounts, net under-collection also was partially offset by a refund of approximately $230 million the Utility received from the California Energy Commission (“CEC”). The funds from the CEC will be refunded to customers in 2009.

·	There were miscellaneous other changes in operating assets and liabilities due to timing differences and seasonality.

·	Accounts payable decreased by approximately $315 million primarily due to differences in the timing of purchases and payments of operating expenses.

·	Regulatory balancing accounts, net over-collection decreased by approximately $238 million between December 31, 2006 and September 30, 2007 primarily due to CPUC-authorized rate reductions designed to reduce the over-collection.

(in millions)	Gross Credit Exposure Before Credit Collateral(1)		Credit Collateral	Net Credit Exposure(2)		Number of Wholesale Customers or Counterparties >10%	Net Exposure to Wholesale Customers or Counterparties >10%
September 30, 2008	$	378	$ 98	$	281	2	$	159
December 31, 2007	$	311	$ 91	$	220	2	$	111


(1) Gross credit exposure equals mark-to-market value on financially settled contracts, notes receivable, and net receivables (payables) where netting is contractually allowed. Gross and net credit exposure amounts reported above do not include adjustments for time value or liquidity.
(2) Net credit exposure is the gross credit exposure minus credit collateral (cash deposits and letters of credit). For purposes of this table, parental guarantees are not included as part of the calculation.

·	regulatory assets and liabilities;

·	unbilled revenues;

·	environmental remediation liabilities;

·	asset retirement obligations;

·	income taxes; and

·	pension and other postretirement benefits.

	Value as of
(in millions)	September 30, 2008			January 1, 2008
Money market investments (held by PG&E Corporation)	$	62		$	-
Nuclear decommissioning trusts		7			8
Price risk management instruments		34			115
Long term disability trust		79			69
Dividend participation rights		(49	)		(68	)
Other		(5	)		(4	)
Total Level 3 Instruments	$	128		$	120

	Value (in millions)
Type of Instrument	September 30, 2008			January 1, 2008
Options (exchange-traded and OTC)	$	32		$	50
Congestion revenue rights, Firm transmission rights, and Demand response		69			61
Swaps and forwards		(221	)		(2	)
Netting and collateral		154			6
Total	$	34		$	115

4	Fourth Supplemental Indenture dated as of October 21, 2008 relating to the Utility’s issuance of $600,000,000 aggregate principal amount of its 8.25% Senior Notes due October 15, 2018 (incorporated by reference to Pacific Gas and Electric Company’s Current Report on Form 8-K dated October 21, 2008 (File No. 1-2348), Exhibit 4.1)

10*	Separation Agreement between William T. Morrow and Pacific Gas and Electric Company dated July 8, 2008

11	Computation of Earnings Per Common Share

12.1	Computation of Ratios of Earnings to Fixed Charges for Pacific Gas and Electric Company

12.2	Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends for Pacific Gas and Electric Company

31.1	Certifications of the Chief Executive Officer and the Chief Financial Officer of PG&E Corporation required by Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certifications of the Chief Executive Officer and the Chief Financial Officer of Pacific Gas and Electric Company required by Section 302 of the Sarbanes-Oxley Act of 2002

32.1**	Certifications of the Chief Executive Officer and the Chief Financial Officer of PG&E Corporation required by Section 906 of the Sarbanes-Oxley Act of 2002

32.2**	Certifications of the Chief Executive Officer and the Chief Financial Officer of Pacific Gas and Electric Company required by Section 906 of the Sarbanes-Oxley Act of 2002

* Management contract or compensatory agreement
**Pursuant to Item 601(b) (32) of SEC Regulation S-K, these Exhibits are furnished rather than filed with this report.

	Three Months Ended September 30,		Nine Months Ended September 30,		Year Ended December 31,
	2008		2008		2007		2006		2005		2004			2003
Earnings:
Net income	$	321	$	870	$	1,024	$	985	$	934	$	3,982		$	923
Adjustments for minority interest in losses of less than 100% owned affiliates and the Company's equity in undistributed income (losses) of less than 50% owned affiliates		-		-		-		-		-		-			-
Income taxes provision		167		421		571		602		574		2,561			528
Net fixed charges		209		650		889		801		589		671			964
Total Earnings	$	697	$	1,941	$	2,484	$	2,388	$	2,097	$	7,214		$	2,415
Fixed Charges:
Interest on short-term borrowings and long-term debt, net	$	194	$	605	$	834	$	770	$	573	$	682		$	947
Interest on capital leases		5		16		23		11		1		1			1
AFUDC debt		10		29		32		20		15		(12	)		16
Earnings required to cover the preferred stock dividend and preferred security distribution requirements of majority owned trust		-		-		-		-		-		-			-
Total Fixed Charges	$	209	$	650	$	889	$	801	$	589	$	671		$	964
Ratios of Earnings to Fixed Charges		3.33		2.99		2.79		2.98		3.56		10.75			2.51

	Three Months Ended September 30,		Six Months Ended September 30,		Year Ended December 31,
	2008		2008		2007		2006		2005		2004			2003
Earnings:
Net income	$	321	$	870	$	1,024	$	985	$	934	$	3,982		$	923
Adjustments for minority interest in losses of less than 100% owned affiliates and the Company's equity in undistributed income (losses) of less than 50% owned affiliates		-		-		-		-		-		-			-
Income taxes provision		167		421		571		602		574		2,561			528
Net fixed charges		209		650		889		801		589		671			964
Total Earnings	$	697	$	1,941	$	2,484	$	2,388	$	2,097	$	7,214		$	2,415

Fixed Charges:
Interest on short-term borrowings and long-term debt, net	$	194	$	605	$	834	$	770	$	573	$	682		$	947
Interest on capital leases		5		16		23		11		1		1			1
AFUDC debt		10		29		32		20		15		(12	)		16
Earnings required to cover the preferred stock dividend and preferred security distribution requirements of majority owned trust		-		-		-		-		-		-			-
Total Fixed Charges		209		650		889		801		589		671			964
Preferred Stock Dividends:
Tax deductible dividends		3		9		9		12		12		9			9
Pre-tax earnings required to cover non-tax deductible preferred stock dividend requirements		1		2		8		3		13		34			27
Total Preferred Stock Dividends		4		11		17		15		25		43			36

Total Combined Fixed Charges and Preferred Stock Dividends	$	213	$	661	$	906	$	816	$	614	$	714		$	1,000

Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends		3.27		2.94		2.74		2.93		3.42		10.10			2.42

Date: November 6, 2008	PETER A. DARBEE
	Peter A. Darbee
	Chairman, Chief Executive Officer, and President

Date: November 6, 2008	CHRISTOPHER P. JOHNS
	Christopher P. Johns
	Senior Vice President, Chief Financial Officer and Treasurer

Date: November 6, 2008	BARBARA L. BARCON
	Barbara L. Barcon
	Vice President, Finance and Chief Financial Officer

(1)	the Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of PG&E Corporation.