8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report: March 23, 2004

	Exact Name of
Commission	Registrant	State or other	IRS Employer
File	as specified in	Jurisdiction of	Identification
Number	its charter	Incorporation	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) (Zip Code)

Pacific Gas and Electric Company
(415) 973-7000 PG&E Corporation
(415) 267-7000

(Registrant’s telephone number, including area code)

Item 5. Other Events and Regulation FD Disclosure

     On March 23, 2004, Pacific Gas and Electric Company (Utility) closed its public offering of $6.7 billion in first mortgage bonds. The $6.7 billion in first mortgage bonds consisted of $600 million of 3.60% First Mortgage Bonds due 2009, $500 million of 4.20% First Mortgage Bonds due 2011, $1 billion of 4.80% First Mortgage Bonds due 2014, $3 billion of 6.05% First Mortgage Bonds due 2034, and $1.6 billion of Floating Rate First Mortgage Bonds due 2006. Proceeds of the offering, subject to the satisfaction of certain conditions to implementing the Utility’s confirmed plan of reorganization, are expected to be used to pay allowed creditor claims pursuant to the plan.

     In order to furnish certain exhibits for incorporation by reference into the Registration Statement on Form S-3 previously filed by the Utility with the Securities and Exchange Commission (SEC), as amended by Amendment No. 1 (File No. 333-109994) (Registration Statement), the Utility is filing the Underwriting Agreement, dated March 18, 2004, between Pacific Gas and Electric Company and Lehman Brothers Inc. and UBS Securities LLC as Exhibit 1.1 to the Registration Statement, the Indenture of Mortgage, dated as of March 11, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company as Exhibit 4.1 to the Registration Statement, the First Supplemental Indenture, dated as of March 23, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company as Exhibit 4.2 to the Registration Statement, the Escrow Deposit and Disbursement Agreement, dated as of March 23, 2004, among Pacific Gas and Electric Company and BNY Western Trust Company as escrow agent and trustee as Exhibit 4.3 to the Registration Statement, the Calculation Agency Agreement, dated as of March 23, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company as Exhibit 4.4 to the Registration Statement, and two opinions of Orrick, Herrington & Sutcliffe LLP, dated March 23, 2004, as Exhibits 5.1 and 5.2 to the Registration Statement.

     As a result of recent events, including but not limited to recent actions taken by Moody’s Investors Service and Standard & Poor’s with respect to the credit ratings for the Utility and the first mortgage bonds, and the California Public Utilities Commission’s (CPUC) denial of applications for rehearing of its December 18, 2003 decision approving the settlement agreement entered into among the Utility, PG&E Corporation and the CPUC to resolve the Utility’s Chapter 11 proceeding (Settlement Agreement), and the closing of the Utility’s public offering of $6.7 billion in first mortgage bonds, the Utility anticipates that it will meet the accounting criteria necessary to record certain regulatory assets at March 31, 2004. As discussed in Note 2 to the Utility’s December 31, 2003 consolidated financial statements, these regulatory assets include the approximate $2.21 billion after-tax regulatory asset ($3.7 billion pre-tax) provided for under the Settlement Agreement and a regulatory asset of approximately $800 million after-tax ($1.3 billion pre-tax) related to the Utility’s 2003 generation rate base which the CPUC found to be just and reasonable under the Settlement Agreement.

Item 7. Financial Statements and Exhibits

(c) Exhibits

Number	Description
1.1	Underwriting Agreement, dated March 18, 2004, between Pacific Gas and Electric Company and Lehman Brothers Inc. and UBS Securities LLC (annexes omitted).*
4.1	Indenture of Mortgage, dated as of March 11, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company.
4.2	First Supplemental Indenture, dated as of March 23, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company.
4.3	Escrow Deposit and Disbursement Agreement, dated as of March 23, 2004, among Pacific Gas and Electric Company and BNY Western Trust Company as escrow agent and trustee (Exhibit B omitted).*
4.4	Calculation Agency Agreement, dated as of March 23, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company.
5.1	Opinion of Orrick, Herrington & Sutcliffe LLP, dated March 23, 2004, regarding the First Mortgage Bonds.
5.2	Opinion of Orrick, Herrington & Sutcliffe LLP, dated March 23, 2004, regarding the unsold Senior Secured Bonds.
23.2	Consent of Orrick, Herrington & Sutcliffe LLP (included as part of their opinions filed herewith).

* The Utility agrees to provide a copy of each omitted annex or exhibit supplementally to the SEC upon request.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

	PG&E CORPORATION
	/s/ Linda Y.H. Cheng
	Linda Y.H. Cheng Corporate Secretary
	PACIFIC GAS AND ELECTRIC COMPANY
	/s/ Dinyar B. Mistry
	Dinyar B. Mistry Vice President and Controller
Dated: March 23, 2004

EXHIBIT INDEX

Number	Description
1.1	Underwriting Agreement, dated March 18, 2004, between Pacific Gas and Electric Company and Lehman Brothers Inc. and UBS Securities LLC (annexes omitted).
4.1	Indenture of Mortgage, dated as of March 11, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company.
4.2	First Supplemental Indenture, dated as of March 23, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company.
4.3	Escrow Deposit and Disbursement Agreement, dated as of March 23, 2004, among Pacific Gas and Electric Company and BNY Western Trust Company as escrow agent and trustee (Exhibit B omitted).
4.4	Calculation Agency Agreement, dated as of March 23, 2004, between Pacific Gas and Electric Company and BNY Western Trust Company.
5.1	Opinion of Orrick, Herrington & Sutcliffe LLP, dated March 23, 2004, regarding the First Mortgage Bonds.
5.2	Opinion of Orrick, Herrington & Sutcliffe LLP, dated March 23, 2004, regarding the unsold Senior Secured Bonds.
23.2	Consent of Orrick, Herrington & Sutcliffe LLP (included as part of their opinions filed herewith).

EX-1.1

                                                                     EXHIBIT 1.1

                                                                  EXECUTION COPY

                                 $6,700,000,000

                        PACIFIC GAS AND ELECTRIC COMPANY

                $600,000,000 3.60% FIRST MORTGAGE BONDS DUE 2009
                $500,000,000 4.20% FIRST MORTGAGE BONDS DUE 2011
               $1,000,000,000 4.80% FIRST MORTGAGE BONDS DUE 2014
               $3,000,000,000 6.05% FIRST MORTGAGE BONDS DUE 2034

           $1,600,000,000 FLOATING RATE FIRST MORTGAGE BONDS DUE 2006

                             UNDERWRITING AGREEMENT

                                                                  March 18, 2004

LEHMAN BROTHERS INC.
UBS SECURITIES LLC
  As Representatives of the Underwriters
  named in Schedule I hereto,
c/o Lehman Brothers Inc.
745 Seventh Ave.
New York, New York  10019

Dear Sirs:

                  Pacific Gas and Electric Company, a California corporation
(the "COMPANY"), proposes to issue and sell $600,000,000 aggregate principal
amount of its 3.60% First Mortgage Bonds due 2009 (the "3.60% BONDS DUE 2009"),
$500,000,000 aggregate principal amount of its 4.20% First Mortgage Bonds due
2011 (the "4.20% BONDS DUE 2011"), $1,000,000,000 aggregate principal amount of
its 4.80% First Mortgage Bonds due 2014 (the "4.80% BONDS DUE 2014"),
$3,000,000,000 aggregate principal amount of its 6.05% First Mortgage Bonds due
2034 (the "6.05% BONDS DUE 2034") and $1,600,000,000 aggregate principal amount
of its Floating Rate First Mortgage Bonds due 2006 (the "FLOATING RATE BONDS DUE
2006" and, together with the 3.60% Bonds due 2009, the 4.20% Bonds due 2011, the
4.80% Bonds due 2014 and the 6.05% Bonds due 2034, the "BONDS") to Lehman
Brothers Inc. and UBS Securities LLC (the "REPRESENTATIVES") and the other
underwriters named in Schedule I hereto (the "UNDERWRITERS"). The Bonds will be
issued pursuant to an Indenture of Mortgage, dated as of March 11, 2004, and the
First Supplemental Indenture thereto, dated as of March 23, 2004 (together, the
"INDENTURE"), between the Company and BNY Western Trust Company, as Trustee (the
"TRUSTEE"). This agreement (this "AGREEMENT") is to confirm the agreement
concerning the purchase of the Bonds from the Company by the Underwriters.



                  Until the Release Date (as defined in the Indenture), the
Bonds will be secured as to payment of principal and interest by a lien on the
Mortgaged Property (as defined in the Indenture) to the extent provided in the
Indenture. On and after the Release Date, the Bonds will cease to be secured by
the lien on the Mortgaged Property and will become unsecured obligations of the
Company.

                  As of the Closing Date (as defined below), the Company's Plan
of Reorganization, dated July 31, 2003, as modified by modifications dated
November 6, 2003 and December 19, 2003 and as modified by the Order dated
February 27, 2004 and the Order dated March 15, 2004, Approving Technical
Modification to Plan of Reorganization re: the Effective Date and Supplementing
Confirmation Order to Include Such Modification, and all exhibits and
supplements thereto (the "PLAN"), will not yet be effective. Therefore, on or
prior to the Closing Date, the Company and the Trustee will enter into an escrow
deposit and disbursement agreement (the "ESCROW AGREEMENT") with BNY Western
Trust Company, as escrow agent (the "ESCROW AGENT"), pursuant to which the
Company will deposit into an escrow account (i) cash in an amount equal to the
aggregate principal amount of the Bonds; (ii) cash in an amount equal to the
maximum interest that could accrue on the Bonds through the date of mandatory
redemption; and (iii) cash sufficient to pay the redemption premiums on the
Bonds. The Escrow Agent will release the escrowed proceeds upon satisfaction of
certain conditions. Upon release, all or substantially all the funds deposited
in the escrow account will be used to pay allowed claims under the Plan.

                  1.       Representations and Warranties. The Company
represents and warrants to, and agrees with, each Underwriter that:

                  (a)      The registration statement on Form S-3 (File No.
333-109994) with respect to the Bonds (i) has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and the rules and regulations (the "RULES AND REGULATIONS")
of the Securities and Exchange Commission (the "COMMISSION") thereunder, (ii)
has been filed with the Commission under the Securities Act, (iii) either has
become effective under the Securities Act and is not proposed to be amended or
is proposed to be amended by amendment or post effective amendment and (iv) no
stop order suspending the effectiveness of such registration statement or any
Rule 462(b) registration statement has been issued under the Securities Act and
no proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are contemplated by the Commission. If the Company
does not propose to amend such registration statement and if any post-effective
amendment to such registration statement has been filed with the Commission
prior to the execution and delivery of this Agreement, the most recent such
amendment has been declared effective by the Commission. Copies of such
registration statement as amended to date have been delivered by the Company to
you. For purposes of this Agreement, "EFFECTIVE TIME" means the most recent date
and the time as of which registration statement No. 333-109994, or the most
recent post-effective amendment thereto, if any, was declared effective by the
Commission; "EFFECTIVE DATE" means the date of the Effective Time; "PRELIMINARY
PROSPECTUS" means the prospectus included in such registration statement, or
amendments thereof, before such registration statement became effective under
the Securities Act and any prospectus filed with the Commission by the Company
that omitted information required by Rule 430A or 434 of the Rules and
Regulations or other information to be included upon pricing

                                       2


in a form of prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations ("RULE 424(b)"), that was used after such effectiveness
and prior to the execution and delivery of this Agreement; "REGISTRATION
STATEMENT" means such registration statement, as amended at the Effective Time,
including any documents incorporated by reference therein and, if the Effective
Date is on or before the date of this Agreement, all information contained in
the final prospectus filed with the Commission pursuant to Rule 424(b) in
accordance with Section 4(a) hereof and deemed to be a part thereof as of the
Effective Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; "PROSPECTUS" means the form of prospectus relating to the Bonds
(including the prospectus supplement), as first used to confirm sales of the
Bonds; and "DESCRIBED IN THE PROSPECTUS" or "DISCLOSED IN THE PROSPECTUS" means
described or disclosed, as applicable, in the Prospectus or any document
incorporated by reference therein. If it is contemplated, at the time this
Agreement is executed, that a registration statement will be filed pursuant to
Rule 462(b) under the Securities Act before the offering of the Bonds may
commence, the term "REGISTRATION STATEMENT" as used in this Agreement includes
such registration statement, as the same may be amended from time to time.
Reference made herein to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include any documents incorporated by reference therein
as of the date of such Preliminary Prospectus or Prospectus, as the case may be,
and any reference to any amendment or supplement to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include any documents filed
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
after the date of such Preliminary Prospectus or Prospectus, as the case may be,
and incorporated by reference in such Preliminary Prospectus or Prospectus. For
purposes of this Section l, all references to the Registration Statement, any
post-effective amendments thereto and the Prospectus shall be deemed to include,
without limitation, any electronically transmitted copies thereof, including,
without limitation, any copy filed with the Commission pursuant to its
Electronic Data Gathering, Analysis, and Retrieval system ("EDGAR"). The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus.

                  (b)      If the Effective Date is on or before the date of
this Agreement, (i) the Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or the
Prospectus will when they become effective or are first used to confirm sales of
the Bonds, as the case may be, conform to the requirements of the Securities Act
and the Rules and Regulations, (ii) the Registration Statement and any amendment
thereto does not and will not, as of the applicable effective date, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and (iii) the Prospectus and any amendment or supplement thereto will not, as of
the first date of its use to confirm sales of the Bonds, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Effective
Date is after the date of this Agreement, (i) the Registration Statement and the
Prospectus and any further amendments or supplements thereto will, when they
become effective or are first used to confirm sales of the Bonds, as the case
may be, conform to the requirements of the Securities Act and the Rules and
Regulations, (ii) the Registration Statement and any amendment thereto will not,
as of the applicable effective date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not

                                       3


misleading and (iii) the Prospectus and any amendment or supplement thereto will
not, as of the date on which the Prospectus and any amendment or supplement
thereto is first used to confirm sales of the Bonds, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, the Company makes no representation or warranty as to information
contained in or omitted from the Registration Statement or the Prospectus in
reliance upon, and in conformity with written information furnished to the
Company by the Representatives on behalf of the Underwriters, expressly for
inclusion therein. There is no contract or document required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement or to a document incorporated by reference into the
Registration Statement which is not described or filed as required.

                  (c)      Deloitte & Touche LLP, whose report is included or
incorporated by reference in the Prospectus, are independent certified public
accountants with respect to the Company and its subsidiaries (as defined in
Section 13 hereof), as required by the Securities Act and the Rules and
Regulations. The financial statements (including the related notes and
supporting schedules) included or incorporated by reference in the Registration
Statement, any Preliminary Prospectus and the Prospectus present fairly in all
material respects the financial condition, results of operations and cash flows
of the entities purported to be shown thereby at the dates and for the periods
indicated and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and conform in all material respects with the Rules and Regulations,
except as otherwise noted therein; and the supporting schedules included or
incorporated by reference in the Registration Statement present fairly in all
materials respects the information required to be stated therein.

                  (d)      The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, with full power and authority to own, lease and operate its
properties and conduct its business and to enter into and perform its
obligations under this Agreement, the Indenture, the Escrow Agreement and the
Bonds; and the Company is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the business conducted by it or
the location of the properties owned, leased or operated by it make such
qualification necessary, except where the failure to so qualify would not,
individually or in the aggregate, have a material adverse effect on (i) the
condition (financial or other), results of operations, business or properties of
the Company or (ii) the authority or the ability of the Company to enter into or
perform its obligations under this Agreement, the Indenture, the Escrow
Agreement or the Bonds ("MATERIAL ADVERSE EFFECT").

                  (e)      The Company does not have any direct or indirect
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X).

                  (f)      Except as described in or contemplated by the
Registration Statement and the Prospectus, there has not been any material
adverse change in, or adverse development which, individually or in the
aggregate, materially affects or may reasonably be expected to materially
affect, the condition (financial or other), results of operations, business or
properties of the Company from the respective dates as of which information is
given in the Prospectus.

                                       4


                  (g)      (i) The execution or delivery of this Agreement by
the Company, (ii) the consummation of the transactions contemplated hereby,
(iii) the execution and delivery of the Indenture, the Bonds and the Escrow
Agreement by the Company and (iv) the compliance by the Company with all of the
provisions of this Agreement, the Indenture, the Bonds and the Escrow Agreement,
(A) will not result in a breach or violation of the articles of incorporation,
by-laws, partnership agreement or other governing documents of the Company or
any of its subsidiaries, (B) will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
any agreement, indenture or other instrument to which the Company or any of its
subsidiaries is a party or by which it is bound, or to which any of its
properties is subject and (C) none of the actions set forth in clauses (i),
(ii), (iii) or (iv) above or the performance by the Company of its obligations
hereunder or under the Indenture, the Bonds or the Escrow Agreement will violate
any law, rule, administrative regulation or decree of any court, or any
governmental agency or body having jurisdiction over the Company, its
subsidiaries or any of their respective properties, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon any property or asset
of the Company or any of its subsidiaries (other than the lien of the
Indenture), except in the case of clause (B), as is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect and except for
such defaults that will be cured or waived as of the effective date of the Plan.
Except for permits, consents, approvals and similar authorizations required
under the securities or "Blue Sky" laws of certain jurisdictions, and except for
such permits, consents, approvals and authorizations which have been obtained or
as to which the failure to obtain is not reasonably likely to result in a
Material Adverse Effect, no permit, consent, approval, authorization or order of
any court, governmental agency or body or financial institution is required in
connection with the consummation of the transactions contemplated by this
Agreement.

                  (h)      This Agreement has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution and delivery
by the Underwriters, constitutes the valid and binding agreement of the Company,
and is enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors' rights or remedies generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and, as to rights of indemnification and contribution, by
federal and state securities laws and principles of public policy.

                  (i)      The Escrow Agreement has been duly authorized,
executed and delivered by the Company and constitutes the valid and binding
agreement of the Company, and is enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights or remedies generally
and by general equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law).

                  (j)      (i) Except for payment obligations (including
dividend and sinking fund obligations) in respect of the Company's outstanding
preferred stock, the Company is not in violation of its articles of
incorporation or by- laws or other governing documents, (ii) neither the Company
nor any of its subsidiaries is in default and no event has occurred which, with
notice or

                                       5


lapse of time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any agreement,
indenture or other instrument to which it is a party or by which it is bound or
to which any of its properties is subject, except for such defaults that will be
cured or waived as of the effective date of the Plan and any such defaults that
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect, or (iii) neither the Company nor any of its
subsidiaries is in violation of any law, ordinance, governmental rule,
regulation or court decree to which it or its property may be subject or has
failed to obtain any license, permit, certificate, franchise or other
governmental authorization or permit necessary to the ownership of its property
or to the conduct of its business, except for any such violations or failures
that would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.

                  (k)      The Indenture has been duly and validly authorized by
the Company and when executed and delivered by the Company, and assuming due
authorization, execution and delivery by the Trustee, will constitute a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by (i) bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium
or similar laws relating to or affecting creditors' rights or remedies
generally, (ii) general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law), (iii) the
matters described in the Prospectus under "Description of the Senior Secured
Bonds -- Certain Aspects of a Mortgage" and (iv) applicable regulatory
requirements (including the approval of the California Public Utilities
Commission (the "CPUC")). The Indenture (i) has been duly qualified under the
Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"), (ii)
complies as to form with the requirements of the Trust Indenture Act and (iii)
conforms in all material respects to the description thereof in the Registration
Statement and the Prospectus.

                  (l)      The Bonds have been duly and validly authorized by
the Company for issuance and sale to the Underwriters pursuant to this Agreement
and, when executed by the Company and authenticated by the Trustee in accordance
with the Indenture and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will have been validly issued and delivered,
free of any preemptive or similar rights to subscribe to or purchase the same
arising by operation of law or under the charter or by-laws of the Company or
otherwise, and will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable in accordance with
their terms, except as enforcement thereof may be limited by (i) bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights or remedies generally, (ii) general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law), (iii) the matters described in the Prospectus
under "Description of the Senior Secured Bonds -- Certain Aspects of a Mortgage"
and (iv) applicable regulatory requirements (including the approval of the
CPUC), and the Bonds conform, or will conform, to the description thereof in the
Registration Statement and the Prospectus. Neither the filing of the
Registration Statement nor the offering or sale of the Bonds as contemplated by
this Agreement gives rise to any rights, other than those which have been duly
waived or satisfied, for or relating to the registration of any securities of
the Company. The capitalization of the Company as of December 31, 2003 included
in the Prospectus is as set forth in the Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued and
are

                                       6


fully paid and non-assessable (except for director's qualifying shares, if any,
or as otherwise disclosed in the Prospectus) and are owned directly or
indirectly by PG&E Corporation, free and clear of all liens, encumbrances,
equities, claims or adverse interests other than as disclosed in the Prospectus.
The Company has all requisite corporate power and authority to issue, sell and
deliver the Bonds in accordance with and upon the terms and conditions set forth
in this Agreement and in the Registration Statement and Prospectus. All
corporate action required to be taken by the Company for the authorization,
issuance, sale and delivery of the Bonds to be sold by the Company hereunder has
been validly and sufficiently taken.

                  (m)      Except as set forth in the Prospectus, there is no
litigation or governmental proceeding to which the Company or any of its
subsidiaries is a party or to which any property of the Company or any of its
subsidiaries is subject or which is pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries that could reasonably
be expected to, individually or in the aggregate, result in a Material Adverse
Effect or which is required to be disclosed in the Prospectus and is not
disclosed.

                  (n)      The documents incorporated by reference into each
Preliminary Prospectus and the Prospectus, at the time they were or are filed
with the Commission, conform or will conform, as the case may be, with the
requirements of the Securities Act and the Rules and Regulations and the
Exchange Act and the rules and regulations adopted by the Commission thereunder,
and did not or will not, as the case may be, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

                  (o)      The Company has not taken and shall not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Bonds to facilitate the sale
or resale of the Bonds.

                  (p)      The conditions for the Company's use of Form S-3 for
filing the Registration Statement, as set out in the general instructions to
such form, have been satisfied.

                  (q)      The Company is not, nor after giving effect to the
offering and sale of the Bonds and the application of the proceeds therefrom as
described in the Prospectus will be, an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 ACT").

                  (r)      The Company is not subject to regulation under the
Public Utility Holding Company Act of 1935, as amended (the "PUHCA"), as a
"holding company," or as a "subsidiary company," "affiliate" or "associate
company" of a "registered holding company," within the meaning of PUHCA. The
issuance of the Bonds will not violate any provisions of PUHCA or any rule,
regulation or order thereunder.

                  (s)      The Company has good and valid title to all real
property and all personal property owned by it, in each case free and clear of
all liens, encumbrances, equities or claims except such as are described in the
Prospectus, are permitted by the Indenture or are not reasonably likely to,
individually or in the aggregate, materially interfere with the use made or to

                                       7


be made of such property by the Company or have a material adverse effect on (i)
the condition (financial or other), results of operations or business of the
Company or (ii) the authority or the ability of the Company to enter into or
perform its obligations under this Agreement, the Indenture, the Escrow
Agreement or the Bonds; and all real property and buildings held under material
leases by the Company are held by them under leases that will be valid,
enforceable and in good standing as of the effective date of the Plan, with no
exceptions that would materially interfere with the use made or to be made of
such property and buildings by the Company.

                  (t)      The Company has good and valid title to all real
property and all personal property subject to the liens of the Indenture, in
each case free and clear of all liens, encumbrances, equities or claims (i)
except for such liens, encumbrances, equities or claims as are described in the
Prospectus or are permitted by the Indenture and (ii) except for such defects in
title as are not reasonably likely to, individually or in the aggregate,
materially interfere with the use made or to be made of such property by the
Company, materially impair the liens of the Indenture or have a material adverse
effect on (x) the condition (financial or other), results of operations or
business of the Company or (y) the authority or the ability of the Company to
enter into or perform its obligations under this Agreement, the Indenture, the
Escrow Agreement or the Bonds; and all real property and buildings which are
leased by the Company and are subject to the liens of the Indenture are held by
it under leases that are valid, enforceable and in good standing as of the
effective date of the Plan, with no exceptions that would materially interfere
with the use made or to be made of such property and buildings by the Company.

                  (u)      Other than (i) the financing statements filed in
connection with the First and Refunding Mortgage, dated as of December 1, 1920,
between the Company and BNY Western Trust Company, as successor trustee, as
heretofore amended and supplemented and (ii) the financing statements filed or
to be filed on the Closing Date in favor of the Trustee (which financings
statements are identified on Schedule II hereto), no effective financing
statement, fixture filing or other instrument similar in effect under any
applicable law covering all or any part of the property subject to the liens of
the Indenture is on file in any filing or recording office except for financing
statements filed in connection with Permitted Liens (as defined in the
Indenture).

                  (v)      When executed and delivered to the Trustee on or
prior to the Closing Date, the Indenture will be effective to grant and create,
in favor of the Trustee, a valid and enforceable security interest in such of
the Mortgaged Property (as defined in the Indenture) in which a security
interest can be granted and created under Division 9 of the California
Commercial Code and upon the filing of the financing statements filed or to be
filed on the Closing Date and identified on Schedule II hereto, such security
interest will be perfected under the California Commercial Code in such of the
Mortgaged Property described in such financing statements in which a security
interest can be perfected by the filing of a financing statement under the
California Commercial Code.

                  (w)      The Company and its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their businesses and the value of their properties and as is
customary for companies engaged in similar businesses in similar industries. The
Company (i) has not received notice from any insurer or agent of such insurer
that substantial capital improvements or other material expenditures will have
to be made

                                       8


in order to continue such insurance and (ii) has no reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers at a cost
that is not reasonably likely to have a Material Adverse Effect.

                  (x)      Except as otherwise set forth in the Prospectus, the
Company has such permits, licenses, consents, exemptions, franchises,
authorizations and other approvals (each, an "AUTHORIZATION") of, and has made
all filings with and notices to, all governmental or regulatory authorities
(whether domestic or foreign) and self-regulatory organizations and all courts
and other tribunals, including without limitation, under any applicable
environmental law, ordinance, rule, regulation, order, judgment, decree or
permit, as are necessary to own, lease, license and operate its properties and
to conduct its business, except where the failure to have any such Authorization
or to make any such filing or notice is not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect (each such Authorization, a
"MATERIAL AUTHORIZATION"). Each Material Authorization is valid and in full
force and effect and the Company is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto, except where the
failure to be valid and in full force and effect or to be in such compliance is
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect. No event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Material Authorization or results or, after notice or
lapse of time or both, would result in any other impairment of the rights of the
holder of any such Material Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company, except where such revocation,
suspension, termination or other impairment or such restrictions, individually
or in the aggregate, are not reasonably likely to have a Material Adverse
Effect.

                  (y)      The Company owns or possesses adequate rights to use
all material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
licenses, inventions, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) (collectively, the "INTELLECTUAL PROPERTY") necessary for the
conduct of its business and has no reason to believe that the conduct of its
business will conflict with, and has not received any notice of any claim of
conflict with, any such rights of others with respect to any of such
Intellectual Property that, individually or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.

                  (z)      Except as otherwise set forth in the Prospectus, no
labor disturbance by the employees of the Company or any of its subsidiaries
exists or, to the knowledge of the Company, is imminent, that would reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect.

                  (aa)     The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "REPORTABLE EVENT" (as defined in
ERISA) has occurred with respect to any "PENSION PLAN" (as defined in

                                       9


ERISA) for which the Company has any liability; the Company has not incurred
and does not expect to incur liability under Title IV of ERISA with respect to
the termination of, or withdrawal from, any "pension plan;" the Company has not
incurred, and does not expect to incur, within the next five calendar years,
liability under Section 412 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "CODE");
the Company has not incurred and does not expect to incur liability under
Section 4971 of the Code; and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respects and nothing has occurred, whether
by action or by failure to act, which would cause the loss of such
qualification.

                  (bb)     The Company has filed (or has obtained extension for
filing) all material federal, state and local income and franchise tax returns
required to be filed through the date hereof and has paid all taxes due thereon,
other than those (i) currently payable without penalty or interest or (ii) being
contested in good faith and by appropriate proceedings and for which, in the
case of both (i) and (ii), adequate reserves have been established on the books
and records of the Company in accordance with generally accepted accounting
principles. Except as described in the Prospectus, no tax deficiency has been
determined adversely to the Company which has had (nor does the Company have any
knowledge of any tax deficiency which, if reasonably expected to be determined
adversely to the Company, would result in), individually or in the aggregate, a
Material Adverse Effect.

                  (cc)     The Company has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 and 15d-15 under
the Exchange Act) that (i) are designed to ensure that material information
relating to the Company, including its consolidated subsidiaries, is made known
to the Company's Chief Executive Officer and its Chief Financial Officer (or
persons performing similar functions) by others within these entities,
particularly during the periods in which the filings made by the Company with
the Commission which it may make under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act are being prepared, (ii) have been evaluated for effectiveness as
of a date within 90 days prior to the filing of the Company's most recent annual
or quarterly report filed with the Commission, and (iii) are effective in all
material respects to perform the functions for which they were established.

                  (dd)     The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

                  (ee)     Based on the evaluation of its disclosure controls
and procedures, the Company is not aware of (i) any significant deficiency in
the design or operation of internal controls which could adversely affect the
Company's ability to record, process, summarize and report financial data or any
material weaknesses in internal controls or (ii) any fraud, whether or

                                       10


not material, that involves management or other employees who have a significant
role in the Company's internal controls.

                  (ff)     The Company and its subsidiaries are (i) in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received and are in compliance
with all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses, and (iii) have not
received notice of any actual or potential liability for the investigation or
remediation of any disposal or release of hazardous or toxic substances or
wastes, pollutants or contaminants, except where such non-compliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals, or liability would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as set forth in or
contemplated in the Prospectus. Except as set forth in the Prospectus, the
Company has not been named as a "potentially responsible party" under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, except in such instances which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

                  (gg)     In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and its subsidiaries, in the course of
which it identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws, or any permit,
license or approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review, the
Company has reasonably concluded that such associated costs and liabilities
would not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect, whether or not arising from transactions in the ordinary course
of business, except as set forth in or contemplated in the Prospectus.

                  (hh)     The industry and market-related data and estimates
included in the Prospectus and the Registration Statement are based on or
derived from sources which the Company believes to be reliable and accurate in
all material respects or represent the Company's good faith estimates that are
made on the basis of data derived from such sources.

                  (ii)     The Settlement Agreement, dated December 19, 2003
(the "SETTLEMENT AGREEMENT"), among the Company, PG&E Corporation and the CPUC,
has been duly authorized, executed and delivered by the Company and PG&E
Corporation, is a valid and binding agreement of the Company and PG&E
Corporation, as applicable, and is enforceable against the Company and PG&E
Corporation, as applicable, in accordance with its terms except as enforcement
thereof may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
enforcement of creditors' rights or remedies generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Settlement Agreement conforms, or will
conform, in all material respects to the description thereof in the Registration
Statement and the Prospectus. The CPUC has authorized the Settlement Agreement.
The

                                       11


Settlement Agreement has not been modified in any material way since December
19, 2003 and remains in full force and effect. The CPUC has authorized the
issuance and sale by the Company of the Bonds, and such authorization is in full
force and effect and sufficient for the issuance and sale of the Bonds to the
Underwriters.

                  (jj)     Except as set forth in the Prospectus, the Company is
in compliance with all conditions set forth by the CPUC in any decisions of the
CPUC which impose requirements or conditions on the Company, except where the
failure to be in compliance would not, individually or in the aggregate, have a
Material Adverse Effect.

                  (kk)     The Plan has been duly authorized by the Company and
PG&E Corporation, and the description thereof in the Registration Statement and
the Prospectus is accurate in all material respects. The United States
Bankruptcy Court for the Northern District of California, San Francisco Division
(the "BANKRUPTCY COURT"), has issued an order confirming the Plan (the
"CONFIRMATION ORDER"). Except for the modification set forth in the Order of the
Bankruptcy Court dated February 27, 2004 and the Order dated March 15, 2004,
Approving Technical Modification to Plan of Reorganization re: the Effective
Date and Supplementing Confirmation Order to Include Such Modification (the
"FEBRUARY/MARCH BANKRUPTCY ORDERS"), the Plan has not been modified in any
material way or withdrawn since the date of its confirmation by the Bankruptcy
Court. All conditions to the effectiveness of the Plan will have been satisfied
or waived on the Closing Date, other than the conditions precedent set forth in
Sections 8.2(f) and 8.2(h) of the Plan.

                  2.       Purchase of the Bonds by the Underwriters. Subject to
the terms and conditions and upon the basis of the representations and
warranties herein set forth, the Company agrees to issue and sell to the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at a price equal to 99.903% of the principal amount
of 3.60% Bonds due 2009, 99.740% of the principal amount of 4.20% Bonds due
2011, 99.847% of the principal amount of 4.80% Bonds due 2014, 99.512% of the
principal amount of 6.05% Bonds due 2034 and 100% of the principal amount of the
Floating Rate Bonds due 2006, in each case plus accrued interest, if any, from
March 23, 2004, the principal amount of each series of the Bonds set forth
opposite such Underwriter's name in Schedule I hereto. The Company agrees to pay
to the Underwriters an underwriting fee of $43,475,000. The Underwriters propose
to offer the Bonds to the public as set forth in the Prospectus.

                  3.       Delivery of and Payment for Bonds. Delivery of the
Bonds shall be made at such place or places as mutually may be agreed upon by
the Company and the Underwriters, at 10:00 A.M., New York City time, on March
23, 2004 or on such later date not more than three Business Days after the
foregoing date as shall be determined by you and the Company (the "CLOSING
DATE").

                  Delivery of the Bonds shall be made to you by or on behalf of
the Company against payment of the purchase price therefor by wire transfer of
immediately available funds. Delivery of the Bonds shall be made through the
facilities of The Depository Trust Company unless you shall otherwise instruct.
Delivery of the Bonds at the time and place specified in this Agreement is a
further condition to the obligations of each Underwriter.

                                       12


                  4.       Covenants of the Company. The Company covenants and
agrees with each Underwriter that:

                  (a)      If the Effective Date is on or before the date of
this Agreement, the Company shall comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 424(b) not later than the
Commission's close of business on the second Business Day following the
execution and delivery of this Agreement or, if applicable, such earlier time as
may be required by Rule 430A(a)(3) of the Rules and Regulations. The Company
shall advise you, promptly after it receives notice thereof, of the time when,
if the Effective Date is on or before the date of this Agreement, any amendment
to the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed. The
Company shall notify you promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for additional information; the Company shall prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which, in your opinion, may be
necessary or advisable in connection with the distribution of the Bonds; and the
Company shall not file any amendment or supplement to the Registration Statement
or the Prospectus or file any document under the Exchange Act before the
termination of the offering of the Bonds by the Underwriters if such document
would be deemed to be incorporated by reference into the Prospectus, which
filing is not consented to by you after reasonable notice thereof, such consent
not to be unreasonably withheld or delayed; provided, however, that the Company
may file any such amendment, supplement or document without any such consent if
in the judgment of the Company and its counsel such filing is necessary to
comply with law and the Company gives notice to the Underwriters of such
amendment, supplement or filing promptly in advance of, or contemporaneous with,
making the amendment, supplement or filing. The Company shall advise you
promptly of the issuance by the Commission or any state or other regulatory body
of any stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any Preliminary
Prospectus or the Prospectus or suspending the qualification of the Bonds for
offering or sale in any jurisdiction, or of the institution of any proceedings
for any such purpose; and the Company shall use every reasonable effort to
prevent the issuance of any stop order or other such order and, should a stop
order or other such order be issued, to obtain as soon as possible the lifting
thereof.

                  (b)      The Company shall furnish to each of you and to
counsel for the Underwriters copies of the Registration Statement, as originally
filed and each amendment thereto (excluding exhibits other than this Agreement),
the Prospectus and all amendments and supplements to any of such documents
(including any document filed under the Exchange Act and deemed to be
incorporated by reference in the Preliminary Prospectus or Prospectus), in each
case as soon as available, within enough time to allow proper delivery of such
documents by the Underwriters, and in such quantities as you may from time to
time reasonably request.

                  (c)      Within the time during which the Prospectus relating
to the Bonds is required to be delivered under the Securities Act, the Company
shall comply with all requirements imposed upon it by the Securities Act, as now
and hereafter amended, and by the Rules and Regulations, as from time to time in
force, so far as is necessary to permit the continuance of sales of or dealings
in the Bonds as contemplated by the provisions hereof and by the Prospectus. If,
during such period, any event occurs as a result of which the Prospectus as

                                       13


then amended or supplemented would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances then existing, not misleading, or if during
such period it is necessary to amend the Registration Statement or supplement
the Prospectus or file any document to comply with the Securities Act, the
Company shall promptly notify you and shall, subject to Section 4(a) above,
amend the Registration Statement or supplement the Prospectus or file any
document (at the expense of the Company) so as to correct such statement or
omission or to effect such compliance.

                  (d)      Unless publicly available via EDGAR, as soon as
practicable, the Company shall make generally available to its security holders
(and shall deliver to the Representatives) an earnings statement satisfying the
requirements of Section 11(a) of the Securities Act and Rule 158 of the Rules
and Regulations.

                  (e)      Whether or not this Agreement becomes effective or is
terminated or the sale of the Bonds to the Underwriters is consummated, the
Company shall, subject to the terms of any applicable Bankruptcy Court order
(provided that, under no circumstances, shall the Underwriters be responsible
for the fees and expenses set forth in clauses (A) through (H) below), pay or
cause to be paid (A) all fees and expenses (including, without limitation, all
registration and filing fees and fees and expenses of the Company's accountants)
incurred in connection with the preparation, printing, filing, delivery,
recording and shipping, as applicable, of the Registration Statement (including
the financial statements therein and all amendments and exhibits thereto), each
Preliminary Prospectus, the Prospectus, the Indenture, the Statement of
Eligibility and Qualification of the Trustee on Form T-1 filed with the
Commission (the "Form T-1") and any amendments or supplements of the foregoing
and any documents incorporated by reference into any of the foregoing and the
copying, delivery and shipping of this Agreement and Blue Sky Memoranda, (B) all
fees and expenses incurred in connection with the preparation and delivery to
the Underwriters of the Bonds (including the cost of printing the Bonds), (C)
all filing fees and fees and disbursements of counsel to the Underwriters
incurred in connection with the qualification of the Bonds under state
securities or Blue Sky laws, (D) any fees required to be paid to rating agencies
incurred in connection with the rating of the Bonds, (E) any fees incurred in
connection with any review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Bonds, (F) the fees, costs and charges of
the Trustee, including the fees and disbursements of counsel for the Trustee,
(G) any fees in connection with filings required in order to perfect the
interests of the Trustee in the Mortgaged Property (as defined in the Indenture)
and (H) all other costs and expenses incident to the performance of its
obligations hereunder for which provision is not otherwise made in this Section.
If the sale of the Bonds provided for herein is not consummated by reason of
acts of the Company or changes in circumstances of the Company pursuant to
Section 8 hereof which prevent this Agreement from becoming effective, or by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed or because any other condition
of the Underwriters' obligations hereunder is not fulfilled or if the
Underwriters shall decline to purchase the Bonds for any reason permitted under
this Agreement (other than by reason of a default by any of the Underwriters
pursuant to Section 7 or if the Underwriters terminate this Agreement under
clause (iv), (v) or (vi) of Section 8(b) of this Agreement), the Company shall,
subject to the terms of any applicable Bankruptcy Court order, reimburse the
several Underwriters for all reasonable out-of-pocket disbursements (including
fees and disbursements of counsel) incurred by the Underwriters in connection
with any investigation or preparation

                                       14


made by them in respect of the marketing of the Bonds or in contemplation of the
performance by them of their obligations hereunder. In addition, the Company
shall, subject to the terms of any applicable Bankruptcy Court order, pay all
fees and disbursements of the Underwriters' counsel incurred in connection with
the transactions contemplated by this Agreement on and prior to February 2, 2004
and the first $1,000,000 of fees and disbursements of the Underwriters' counsel
incurred in connection with the transactions contemplated by this Agreement
after February 2, 2004. Thereafter, the Company shall pay 50% of all such fees
and disbursements of the Underwriters' counsel.

                  (f)      Unless publicly available via EDGAR, during the
period of one year from the Closing Date, the Company shall furnish to the
Underwriters copies of all reports or other communications furnished to
shareholders as a group and copies of any reports or financial statements
furnished to or filed with the Commission and the Company shall furnish to the
Underwriters copies of all reports and other communications furnished to the
Bond holders.

                  (g)      Until termination of the offering of the Bonds, the
Company shall timely file all documents and amendments to previously filed
documents required to be filed by it pursuant to Section 12, 13, 14 or 15(d) of
the Exchange Act.

                  (h)      The Company will apply the net proceeds from the sale
of the Bonds as set forth in the Escrow Agreement and the Prospectus.

                  (i)      The Company will, from the Closing Date to the
Release Date (as defined in the Indenture), maintain and preserve its title to
the Mortgaged Property (as defined in the Indenture) and the lien of the
Indenture, subject to the terms of the Indenture.

                  (j)      Promptly from time to time the Company will take such
action as the Representatives may reasonably request to qualify the Bonds for
offering and sale under the securities laws of such jurisdictions as the
Representatives may request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for so long as
may be necessary to complete the distribution of the Bonds; provided that in
connection therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction.

                  (k)      Until the 30th day following the Closing Date, the
Company will not, without the prior written consent of the Representatives,
directly or indirectly, issue, sell, offer to sell, grant any option for the
sale of or otherwise dispose of, any debt securities of the Company in the same
market as the Bonds.

                  5.       Conditions of Underwriters' Obligations. The
obligations of the Underwriters hereunder are subject to the accuracy, as of the
date hereof and the Closing Date (as if made at the Closing Date, unless another
date is specified in such representation or warranty), of the representations
and warranties of the Company contained herein, to the performance by the
Company of its obligations hereunder and to the following additional conditions:

                  (a)      The Prospectus shall have been filed with the
Commission in a timely fashion in accordance with Section 4(a) hereof, the
Registration Statement and all post-effective

                                       15


amendments to the Registration Statement shall have become effective, all
filings required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made and no such filings shall have been made without the consent of
the Representatives; no stop order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto or suspending the
qualification of the Bonds for offering or sale in any jurisdiction shall have
been issued; no proceedings for the issuance of any such order shall have been
initiated or threatened; and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been disclosed to you and complied with to your
satisfaction.

                  (b)      No Underwriter shall have been advised by the Company
or shall have discovered and disclosed to the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto, contains an
untrue statement of fact which in the opinion of the Representatives, or in the
opinion of counsel to the Underwriters, is material, or omits to state a fact
which, in the opinion of the Representatives, or in the opinion of counsel to
the Underwriters, is material and is required to be stated therein or is
necessary to make the statements therein not misleading.

                  (c)      On the Closing Date, you shall have received from
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, such
opinion or opinions with respect to the validity of the Bonds and other related
matters as you may reasonably request and such counsel shall have received such
documents and information as they may reasonably request to enable them to pass
upon such matters.

                  (d)      On the Closing Date there shall have been furnished
to you the opinion (addressed to the Underwriters) of Orrick, Herrington &
Sutcliffe LLP, counsel for PG&E Corporation, dated the Closing Date and in form
and substance satisfactory to the Underwriters, substantially in the form of
Annex I hereto.

                  (e)      On the Closing Date there shall have been furnished
to you the opinion (addressed to the Underwriters) of Dewey Ballantine LLP,
special bankruptcy counsel for PG&E Corporation, dated the Closing Date and in
form and substance satisfactory to the Underwriters, substantially in the form
of Annex II hereto.

                  (f)      On the Closing Date there shall have been furnished
to you the opinion (addressed to the Underwriters) of the Senior Vice President
and General Counsel of PG&E Corporation, dated the Closing Date and in form and
substance satisfactory to the Underwriters, substantially in the form of Annex
III hereto.

                  (g)      There shall have been furnished to you a certificate,
dated the Closing Date and addressed to you, signed by the Chairman of the Board
or the President or any Senior Vice President and by the Chief Financial Officer
of the Company to the effect that: (i) the representations and warranties of the
Company contained in this Agreement are true and correct, as if made at and as
of the Closing Date (unless such representation or warranty expressly refers to
another date), and the Company has complied with all the agreements and
satisfied all the conditions on its part to be complied with or satisfied at or
prior to the Closing Date; (ii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no

                                       16


proceeding for that purpose has been initiated or, to the best of their
knowledge, threatened; (iii) all filings required by Rule 424(b) and Rule 430A
of the Rules and Regulations have been made; (iv) the signers of said
certificate have carefully examined the Registration Statement and the
Prospectus, and any amendments or supplements thereto (including any documents
filed under the Exchange Act and deemed to be incorporated by reference into the
Prospectus), and, to their knowledge after reasonable investigation, such
documents do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; (v) since the Effective Date there has
occurred no event required to be set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not been so set forth and
there has been no document required to be filed under the Exchange Act and the
Rules and Regulations that upon such filing would be deemed to be incorporated
by reference into the Prospectus that has not been so filed and (vi) no event
contemplated by subsection (h) of this Section 5 has occurred.

                  (h)      Since the dates as of which information is given in
the Registration Statement (exclusive of any amendment thereto) and in the
Prospectus (exclusive of any supplement thereto filed subsequent to the date
hereof), neither the Company nor any of its subsidiaries shall have sustained
any loss by fire, flood, accident or other calamity, or shall have become a
party to or the subject of any litigation, which is materially adverse to the
Company and its subsidiaries taken as a whole, nor shall there have been a
material adverse change in the condition (financial or otherwise), results of
operations, business or prospects of the Company and its subsidiaries taken as a
whole, regardless of whether arising in the ordinary course of business, which
loss, litigation or change, in your judgment, shall render it impractical or
inadvisable to proceed with the payment for and delivery of the Bonds.

                  (i)      On the date hereof and the Closing Date you shall
have received letters from Deloitte & Touche LLP, dated respectively the date
hereof and the Closing Date and addressed to you, confirming that they are
independent certified public accountants within the meaning of the Securities
Act and the applicable published Rules and Regulations, and stating, as of the
date of such letter (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given or incorporated in the Prospectus as of a date not more
than five days prior to the date of such letter, provided that such date shall
be after the date of the Prospectus), the conclusions and findings of such firm
with respect to the financial information and other matters covered by its
letter delivered to you concurrently with the execution of this Agreement, and,
with respect to the letter delivered on the Closing Date, confirming the
conclusions and findings set forth in such prior letter.

                  (j)      You shall have been furnished by the Company such
additional documents and certificates as you or counsel for the Underwriters may
reasonably request.

                  (k)      At the time of the Closing, the Company shall have
received written confirmation from Moody's Investors Service and Standard &
Poor's Corporation, as applicable, that on or prior to the effective date of the
Plan, the Company's senior debt will have a rating of at least Baa3 by Moody's
Investors Service and BBB- by Standard & Poor's Corporation. Since the date
hereof, there shall not have occurred any downgrading with respect to any debt
securities of the Company by any "nationally recognized statistical rating
organization" as that term is defined by the Commission for purposes of Rule
436(g)(2) under the Securities Act or

                                       17


any public announcement that any such organization has under surveillance or
review its rating of any such debt securities (other than an announcement with
positive implications of a possible upgrading, and no implication of a possible
downgrading of such rating).

                  (l)      The Company shall have good and valid title to, or
valid leasehold interests in, all real property and all personal property
subject to the liens of the Indenture, in each case free and clear of all liens,
encumbrances, equities or claims (i) except for such liens, encumbrances,
equities or claims as are described in the Prospectus or are permitted by the
Indenture and (ii) except for such defects in title as are not reasonably likely
to, individually or in the aggregate, materially interfere with the use made or
to be made of such property by the Company, materially impair the liens of the
Indenture or have a material adverse effect on (x) the condition (financial or
other), results of operations or business of the Company or (y) the authority or
the ability of the Company to enter into or perform its obligations under this
Agreement, the Indenture, the Escrow Agreement or the Bonds.

                  (m)      Other than (i) the financing statements, fixture
filings or other instruments similar in effect under any applicable law filed in
connection with the First and Refunding Mortgage, dated as of December 1, 1920,
between the Company and BNY Western Trust Company, as successor trustee, as
heretofore amended and supplemented and (ii) the financing statements filed or
to be filed on the Closing Date in favor of the Trustee (which financings
statements are identified on Schedule II hereto), no effective financing
statement, fixture filing or other instrument similar in effect under any
applicable law covering all or any part of the property subject to the liens of
the Indenture shall be on file in any filing or recording office except for
financing statements, fixture filings or other instruments similar in effect
under any applicable law filed in connection with Permitted Liens (as defined in
the Indenture).

                  (n)      A first priority security interest, subject to
Permitted Liens (as defined in the Indenture) in the Mortgaged Property (as
defined in the Indenture) in favor of the Trustee shall have been perfected as
of the Closing Date.

                  (o)      The Settlement Agreement and Escrow Agreement shall
be in full force and effect.

                  (p)      The Bankruptcy Court shall not have withdrawn its
order confirming the Plan and, except as specified in the February/March
Bankruptcy Orders, the Plan shall not have been modified in any material way or
withdrawn since the date of its confirmation by the Bankruptcy Court. All
conditions to the effectiveness of the Plan shall have been satisfied or waived
except for the closing of the sale of the Bonds under this Agreement and the
conditions precedent set forth in Sections 8.2(f) and 8.2(h) of the Plan.

                  (q)      On or prior to the Closing Date, (i) no stay of the
Confirmation Order shall have been granted and (ii) no appeal of the Bankruptcy
Court's denial of a stay of the Confirmation Order or other legal or
governmental action challenging the Plan or the confirmation thereof or the
consummation of the transactions contemplated thereby or the offering of the
Bonds by the Underwriters shall have been filed on or after the date hereof, the
effect of which, in the reasonable judgment of the Representatives, makes it
inadvisable or

                                       18


impracticable to proceed with the offering or delivery of the Bonds on the terms
and in the manner contemplated in the Prospectus.

                  All such opinions, certificates, letters and documents shall
be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to the Representatives and to counsel for the
Underwriters. The Company shall furnish to the Representatives conformed copies
of such opinions, certificates, letters and other documents in such number as
the Representatives shall reasonably request. If any of the conditions specified
in this Section 5 shall not have been fulfilled when and as required by this
Agreement, this Agreement and all obligations of the Underwriters hereunder may
be canceled at, or at any time prior to, the Closing Date, by the
Representatives. Any such cancellation shall be without liability of the
Underwriters to the Company. Notice of such cancellation shall be given to the
Company in writing, or by facsimile or telephone and confirmed in writing.

                  6.       Indemnification and Contribution. (a) The Company
shall indemnify and hold harmless each Underwriter from and against any loss,
claim, damage or liability (or any action in respect thereof), joint or several,
to which such Underwriter may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in (A) the Registration
Statement, any Preliminary Prospectus, the Prospectus or the Registration
Statement or Prospectus as amended or supplemented or (B) any roadshow or
investor presentations made to investors by the Company (whether in person or
electronically) (the "MARKETING MATERIALS"), (ii) the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus, the
Prospectus or the Registration Statement or Prospectus as amended or
supplemented or in any Marketing Materials a material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any
act or failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Bonds or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (provided that the Company will not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); and shall reimburse each Underwriter promptly
after receipt of invoices from such Underwriter for any legal or other expenses
as reasonably incurred by such Underwriter in connection with investigating,
preparing to defend or defending against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case such payments shall be promptly refunded;
provided, however, that (I) the Company shall not be liable under this paragraph
6(a) in any such case to the extent, but only to the extent, that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives on behalf of the Underwriters expressly for use
in the preparation of the Registration Statement, any Preliminary Prospectus,
the Prospectus or the Registration Statement or Prospectus as amended or
supplemented and (II) with respect to any untrue statement or alleged untrue
statement in, or omission or alleged omission from, any

                                       19


Preliminary Prospectus, the foregoing indemnity agreement with respect to the
Preliminary Prospectus shall not inure to the benefit of an Underwriter (or its
directors, officers and employees and each person, if any, which controls such
Underwriter within the meaning of the Securities Act) from whom the person
asserting any such losses, claims, damages or liabilities purchased Bonds if (A)
other than as a result of noncompliance by the Company with Section 4(b) hereof,
a copy of the Prospectus was not sent or given by or on behalf of such
Underwriter to such person at or prior to the written confirmation of the sale
of the Bonds to such person and (B) the Prospectus would have cured the defect
giving rise to such losses, claims, damages or liabilities.

                  (b)      Each Underwriter severally, but not jointly, shall
indemnify and hold harmless the Company against any loss, claim, damage or
liability (or any action in respect thereof) to which the Company may become
subject, under the Securities Act or otherwise, insofar as such loss, claim,
damage or liability (or action in respect thereof) arises out of or is based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in (A) the Registration Statement, any Preliminary Prospectus, the
Prospectus or the Registration Statement or Prospectus as amended or
supplemented or (B) any Marketing Materials or (ii) the omission or alleged
omission to state in the Registration Statement, any Preliminary Prospectus, the
Prospectus or the Registration Statement or Prospectus as amended or
supplemented, or in any Marketing Materials, a material fact required to be
stated therein or necessary to make the statements therein not misleading and
shall reimburse the Company promptly after receipt of invoices from the Company
for any legal or other expenses reasonably incurred by the Company in connection
with investigating, preparing to defend or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action notwithstanding the possibility that payments for such expenses might
later be held to be improper, in which case such payments shall be promptly
refunded; provided, however, that such indemnification or reimbursement shall be
available in each such case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives by or on behalf
of that Underwriter expressly for use therein.

                  (c)      Promptly after receipt by any indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the indemnifying
party in writing of the claim or the commencement of that action; provided,
however, that the failure to so notify the indemnifying party shall not relieve
it from any liability which it may have under this Section 6 except to the
extent it has been prejudiced in any material respect by such failure or from
any liability which it may have to an indemnified party otherwise than under
this Section 6. If any such claim or action shall be brought against any
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under subsection
(a) or (b) above for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense

                                       20


thereof other than reasonable costs of investigation; except that the
Underwriters shall have the right to employ counsel to represent the
Underwriters who may be subject to liability arising out of any claim in respect
of which indemnity may be sought by the Underwriters against the Company under
such subsection if (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Underwriters shall have been advised by
counsel that there may be one or more legal defenses available to the
Underwriters which are different from or additional to those available to the
Company and in the reasonable judgment of such counsel it is advisable for the
Underwriters to employ separate counsel or (iii) the Company has failed to
assume the defense of such action and employ counsel reasonably satisfactory to
the Underwriters, in which event the fees and expenses of such separate counsel
shall be paid by the Company. In no event shall the indemnifying parties be
liable for the fees and expenses of more than one separate firm or attorney (in
addition to one local counsel) at any one time for all such indemnified parties
in connection with any one action or separate but substantially similar or
related action in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall (i) without the prior
written consent of the indemnified parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.

                  (d)      If the indemnification provided for in this Section 6
is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (a) or (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Bonds or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering of the Bonds (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue

                                       21


statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection (d) were to
be determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take into account the equitable considerations referred to in the first sentence
of this subsection (d). The amount paid by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to in the first sentence of this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating, preparing to defend or defending against
any action or claim which is the subject of this subsection (d). Notwithstanding
the provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Bonds underwritten by it and distributed to investors were offered to
investors exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint. Each party entitled to contribution agrees that upon
the service of a summons or other initial legal process upon it in any action
instituted against it in respect to which contribution may be sought, it shall
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought for any obligation it may have hereunder or otherwise (except as
specifically provided in subsection (c) above).

                  (e)      The obligations of the Company under this Section 6
shall be in addition to any liability that the Company may otherwise have, and
shall extend, upon the same terms and conditions set forth in this Section 6, to
the respective officers and directors of the Underwriters and each person, if
any, who controls any Underwriter within the meaning of the Securities Act; and
the obligations of the Underwriters under this Section 6 shall be in addition to
any liability that the respective Underwriters may otherwise have, and shall
extend, upon the same terms and conditions, to each director of the Company
(including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company), to each officer of the
Company who has signed the Registration Statement and to each person, if any,
who controls the Company within the meaning of the Securities Act.

                  7.       Substitution of Underwriters. If any Underwriter
defaults in its obligation to purchase the principal amount of the Bonds which
it has agreed to purchase under this Agreement, the non-defaulting Underwriters
shall be obligated to purchase (in the respective proportions which the
principal amount of the Bonds set forth opposite the name of each non-defaulting
Underwriter in Schedule I hereto bears to the total principal amount of the
Bonds less the principal amount of the Bonds the defaulting Underwriter agreed
to purchase set forth in Schedule I hereto) the principal amount of the Bonds
which the defaulting Underwriter agreed but failed to purchase; except that the
non-defaulting Underwriters shall not be obligated to purchase any of the Bonds
if the total principal amount of the Bonds which the defaulting Underwriter or
Underwriters agreed but failed to purchase exceed 10% of the total principal
amount of the Bonds, and any non-defaulting Underwriters shall not be obligated
to purchase

                                       22


more than 110% of the principal amount of the Bonds set forth opposite its name
in Schedule I hereto. If the foregoing maximums are exceeded, the non-defaulting
Underwriters, and any other underwriters satisfactory to you who so agree, shall
have the right, but shall not be obligated, to purchase (in such proportions as
may be agreed upon among them) all of the Bonds. If the non-defaulting
Underwriters or the other underwriters satisfactory to the Underwriters do not
elect to purchase the Bonds that the defaulting Underwriter or Underwriters
agreed but failed to purchase within 36 hours after such default, this Agreement
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company, except for the indemnity and contribution agreements of the
Company and the Underwriters contained in Section 6 hereof. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter pursuant to this Section 7.

                  Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have for damages caused by its default. If
the non defaulting Underwriters or the other underwriters satisfactory to you
are obligated or agree to purchase the Bonds of a defaulting Underwriter, either
you or the Company may postpone the Closing Date for up to seven full Business
Days in order to effect any changes that may be necessary in the Registration
Statement or the Prospectus or in any other document or agreement, and to file
promptly any amendments or any supplements to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary.

                  8.       Effective Date and Termination. (a) This Agreement
shall become effective (i) if the Effective Date is on or before the date of
this Agreement, at 11:00 A.M., New York City time, on the next Business Day
following the date hereof, (ii) if the Effective Date is after the date of this
Agreement, at 11:00 A.M., New York City time, on the first full Business Day (as
defined in Section 13 hereof) following the Effective Date or (iii) at such
earlier time after the Registration Statement becomes effective as you shall
first release the Bonds for sale to the public. You shall notify the Company
immediately after you have taken any action which causes this Agreement to
become effective. Until this Agreement is effective, it may be terminated by the
Company by giving notice as hereinafter provided to you, or by you by giving
notice as hereinafter provided to the Company except that the provisions of
Section 4(e) and Section 6 hereof shall at all times be effective. For purposes
of this Agreement, the release of the initial public offering of the Bonds for
sale to the public shall be deemed to have been made when you release, by
telegram or otherwise, firm offers of the Bonds to securities dealers or release
for publication a newspaper advertisement relating to the Bonds, whichever
occurs first.

                  (b)      Until the Closing Date, this Agreement may be
terminated by the Representatives by giving notice as hereinafter provided to
the Company if (i) the Company shall have failed, refused or been unable, at or
prior to the Closing Date, to perform any agreement on its part to be performed
hereunder, (ii) any other condition of the Underwriters' obligation hereunder is
not fulfilled, (iii) trading in the Preferred Stock of the Company shall have
been suspended by the Commission or the American Stock Exchange, (iv) trading in
securities generally on the New York Stock Exchange shall have been suspended or
minimum prices shall have been established on such exchange by the Commission or
such exchange or other regulatory body or governmental authority having
jurisdiction or there shall have been a material disruption in the settlement of
securities which, in the judgment of the Representatives, make it inadvisable or
impractical to proceed with the offering or delivery of the Bonds, or a banking

                                       23


moratorium is declared by either federal or New York State authorities, (v) the
United States becomes engaged in hostilities or there is an escalation of
hostilities involving the United States or there is a declaration of a national
emergency or war by the United States or an act of terrorism shall have occurred
which, in the judgment of the Representatives, make it inadvisable or
impracticable to proceed with the offering or delivery of the Bonds or (vi)
there shall have been such a material adverse change in general economic,
political or financial conditions, or the effect of international conditions on
the financial markets in the United States shall be such, as to, in the judgment
of the Representatives, make it inadvisable or impracticable to proceed with the
offering or delivery of the Bonds. Any termination of this Agreement pursuant to
this Section 8 shall be without liability on the part of the Company or any
Underwriter, except as otherwise provided in Sections 4(e) and 6 hereof.

                  Any notice referred to above may be given at the address
specified in Section 10 hereof in writing or by telegraph or telephone, and if
by telegraph or telephone, shall be immediately confirmed in writing.

                  9.       Survival of Certain Provisions. The agreements
contained in Section 6 hereof and the representations, warranties and agreements
of the Company contained in Sections 1 and 4 hereof shall survive the delivery
of the Bonds to the Underwriters hereunder and shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of any indemnified party.

                  10.      Notices. Except as otherwise provided in the
Agreement, (a) whenever notice is required by the provisions of this Agreement
to be given to the Company, such notice shall be in writing or by facsimile
addressed to the Company at One Market, Spear Tower, San Francisco, CA 94105,
Attention: General Counsel (fax number: 415-267-7257); (b) whenever notice is
required by the provisions of this Agreement to be given to the several
Underwriters, such notice shall be in writing or by telegraph addressed to you
in care of Lehman Brothers Inc., 745 Seventh Ave, New York, New York 10019,
Attention: Debt Capital Markets, Power Group (fax number: 212-526-0943), with a
copy to the General Counsel, and in care of UBS Securities LLC, 677 Washington
Blvd. Stamford, Connecticut 06901, Attention: Fixed Income Syndicate (fax
number: 203-719-0495), with a copy to the General Counsel.

                  11.      Information Furnished by Underwriters. The
Underwriters severally confirm that the information appearing in the list of
names of, and principal amount of Bonds to be purchased by, each of the
Underwriters, under the caption "Underwriting" in any Preliminary Prospectus and
in the Prospectus, and the second sentence contained in the sixth paragraph and
the statements contained in the third, seventh and eighth paragraphs under the
caption "Underwriting" in the Prospectus, constitute the only written
information furnished by or on behalf of any Underwriter referred to in
paragraph (b) of Section 1 hereof and in paragraphs (a) and (b) of Section 6
hereof.

                  12.      Parties. This Agreement shall inure to the benefit of
and be binding upon the several Underwriters, the Company and their respective
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (a) the representations, warranties,
indemnities and agreements of the Company contained in this Agreement shall also
be deemed to be for the benefit of the person or persons, if any, who

                                       24


control any Underwriter within the meaning of Section 15 of the Securities Act
and (b) the indemnity agreement of the Underwriters contained in Section 6
hereof shall be deemed to be for the benefit of directors of the Company,
officers of the Company who signed the Registration Statement and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement shall be construed to give any person, other than the
persons referred to in this paragraph, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.

                  13.      Definition of "Business Day" and "Subsidiary." For
purposes of this Agreement, (a) "Business Day" means any day on which the New
York Stock Exchange, Inc. is open for trading, other than any day on which
commercial banks are authorized or required to be closed in New York City, and
(b) "subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations and includes both partnerships and corporations.

                  14.      Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York without
regard to the conflicts of laws provisions thereof.

                  15.      Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.

                  16.      Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same agreement.

                  17.      Entire Agreement. This Agreement, including the
Schedules and Annexes attached hereto and the other agreements, documents and
certificates to be delivered at the Closing pursuant to this Agreement, contains
the entire understanding of the parties in respect of its subject matter and
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.

                                       25


                  Please confirm, by signing and returning to us two
counterparts of this Agreement, that you are acting on behalf of yourselves and
the several Underwriters and that the foregoing correctly sets forth the
Agreement between the Company and the several Underwriters.

                                          Very truly yours,

                                          PACIFIC GAS AND ELECTRIC COMPANY

                                          By: /s/ Kent M. Harvey
                                             -----------------------------------
                                          Name:  Kent M. Harvey
                                               ---------------------------------
                                          Title: Senior Vice President, Chief
                                                 Financial Officer and Treasurer
                                                --------------------------------

Confirmed and accepted as of
the date first above mentioned

LEHMAN BROTHERS INC.
UBS SECURITIES LLC

By:  LEHMAN BROTHERS INC.
     AS REPRESENTATIVE OF THE UNDERWRITERS

By:  /s/ James W. Merli
     --------------------------------------
     Name: James W. Merli
           --------------------------------
     Title: Managing Director
           --------------------------------

By:  UBS SECURITIES LLC
     AS REPRESENTATIVE OF THE UNDERWRITERS

By:  /s/ Kimberly Blue
     --------------------------------------
     Name: Kimberly Blue
           --------------------------------
     Title: Managing Director
            -------------------------------

By:  /s/ Scott D. Whitney
     --------------------------------------
     Name: Scott D. Whitney
           --------------------------------
     Title: Director
            -------------------------------



                     [Underwriting Agreement Signature Page]



                                       26


                                   SCHEDULE I

                   Underwriting Agreement dated March 18, 2004



                                        Principal      Principal                         Principal
                                        Amount of      Amount of        Principal         Amount of     Principal Amount
                                       3.60% Bonds    4.20% Bonds     Amount of 4.80%  6.05% Bonds due   of Floating Rate
                                     due 2009 to be  due 2011 to be   Bonds due 2014     2034 to be     Bonds due 2006 to
            Underwriter                Purchased       Purchased     to be Purchased      Purchased       be Purchased
- ------------------------------------ --------------  --------------  ----------------  ---------------  -----------------
                                                                                         
Lehman Brothers Inc................. $  234,825,000  $  195,687,000  $    391,374,000  $ 1,174,123,000  $     626,199,000
UBS Securities LLC.................. $  234,825,000  $  195,687,000  $    391,374,000  $ 1,174,123,000  $     626,199,000
Citigroup Global Markets Inc. ...... $   30,000,000  $   25,000,000  $     50,000,000  $   150,000,000  $      80,000,000
Banc One Capital Markets, Inc. ..... $   18,000,000  $   15,000,000  $     30,000,000  $    90,000,000  $      48,000,000
Credit Suisse First Boston LLC...... $   18,000,000  $   15,000,000  $     30,000,000  $    90,000,000  $      48,000,000
ABN AMRO Incorporated............... $   12,000,000  $   10,000,000  $     20,000,000  $    60,000,000  $      32,000,000
Barclays Capital Inc. .............. $   12,000,000  $   10,000,000  $     20,000,000  $    60,000,000  $      32,000,000
BNP Paribas Securities Corp. ....... $   12,000,000  $   10,000,000  $     20,000,000  $    60,000,000  $      32,000,000
Deutsche Bank Securities Inc. ...... $   12,000,000  $   10,000,000  $     20,000,000  $    60,000,000  $      32,000,000
BNY Capital Markets, Inc. .......... $    3,000,000  $    2,500,000  $      5,000,000  $    15,000,000  $       8,000,000
Blaylock & Partners, L.P. .......... $    6,675,000  $    5,563,000  $     11,126,000  $    33,377,000  $      17,801,000
Siebert Brandford Shank & Co. LLC... $    6,675,000  $    5,563,000  $     11,126,000  $    33,377,000  $      17,801,000

Total............................... $  600,000,000  $  500,000,000  $  1,000,000,000  $ 3,000,000,000  $   1,600,000,000
                                     ==============  ==============  ================  ===============  =================




                                   SCHEDULE II

         A UCC-1 financing statement naming the Company as debtor and the
Trustee as secured party and describing the Mortgaged Property as collateral, to
be filed with the California Secretary of State.

                                       28

EX-4.1

                                                                     EXHIBIT 4.1

TO BE RECORDED AND WHEN
RECORDED RETURN TO:

BNY Western Trust Company
550 Kearny Street, Suite 600
San Francisco, CA 94108
Attn: Ms. Josephine Libunao

            --------------------------------------------------------

                              INDENTURE OF MORTGAGE
                                   (MORTGAGE)
                           DATED AS OF MARCH 11, 2004

                    This is a Security Agreement as well as a
                   Mortgage of Real Estate and Other Property

                        PACIFIC GAS AND ELECTRIC COMPANY,
                               ISSUER (MORTGAGOR)

                                       AND

                           BNY WESTERN TRUST COMPANY,
                               TRUSTEE (MORTGAGEE)

                             -----------------------

            --------------------------------------------------------

           THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS



                        PACIFIC GAS AND ELECTRIC COMPANY

Reconciliation and Tie between Trust Indenture Act of 1939 and Indenture of
Mortgage, dated as of March 11, 2004.



Trust Indenture Act Section                              Indenture Section(s)
                                                   
Section 310       (a)(1)................................      11.09
                  (a)(2)................................      11.09
                  (a)(3)................................      11.14(B)
                  (a)(4)................................      Not Applicable
                  (b)...................................      11.08, 11.10
Section 311       (a)...................................      11.13
                  (b)...................................      11.13
                  (c)...................................      Not Applicable
Section 312       (a)...................................      12.01
                  (b)...................................      12.01
                  (c)...................................      12.01
Section 313       (a)...................................      12.02
                  (b)...................................      12.02
                  (c)...................................      12.02
                  (d)...................................      12.02
Section 314       (a)...................................      12.02
                  (b)...................................      7.08
                  (c)(1)................................      1.04
                  (c)(2)................................      1.04
                  (c)(3)................................      1.05
                  (d)...................................      5.02, 7.07(b), 8.03, 8.04, 8.08
                  (e)...................................      1.04
Section 315       (a)...................................      11.01, 11.03
                  (b)...................................      11.02
                  (c)...................................      11.01
                  (d)...................................      11.01
                  (e)...................................      10.18
Section 316       (a)...................................      10.16
                  (a)(1)(A).............................      10.16
                  (a)(1)(B).............................      10.17
                  (a)(2)................................      Not Applicable
                  (b)...................................      10.12
Section 317       (a)(1)................................      10.06
                  (a)(2)................................      10.09
                  (b)...................................      7.03
Section 318       (a)...................................      1.09
                  (e)...................................      1.09



                                TABLE OF CONTENTS



                                                                                                                      PAGE
                                                                                                                      ----
                                                                                                                   
ARTICLE I             DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.........................                  6
Section 1.01.         General Definitions.............................................................                  6
Section 1.02.         Funded Property; Funded Cash....................................................                 24
Section 1.03.         Property Additions; Cost........................................................                 25
Section 1.04.         Compliance Certificates and Opinions............................................                 28
Section 1.05.         Content and Form of Documents Delivered to Trustee..............................                 28
Section 1.06.         Acts of Holders.................................................................                 30
Section 1.07.         Notices, Etc. to Trustee and Company............................................                 32
Section 1.08.         Notice to Holders of Bonds; Waiver..............................................                 32
Section 1.09.         Conflict With Trust Indenture Act...............................................                 33
Section 1.10.         Effect of Headings and Table of Contents........................................                 33
Section 1.11.         Successors and Assigns..........................................................                 33
Section 1.12.         Separability Clause.............................................................                 33
Section 1.13.         Benefits of Indenture...........................................................                 33
Section 1.14.         Governing Law...................................................................                 34
Section 1.15.         Legal Holidays..................................................................                 34
Section 1.16.         Investment of Cash Held by Trustee..............................................                 34
ARTICLE II            BOND FORMS......................................................................                 35
Section 2.01.         Forms Generally.................................................................                 35
Section 2.02.         Form of Trustee's Certificate of Authentication.................................                 35
ARTICLE III           THE BONDS.......................................................................                 36
Section 3.01.         Amount Unlimited; Issuable in Series............................................                 36
Section 3.02.         Denominations...................................................................                 39
Section 3.03.         Execution, Dating, Certificate of Authentication................................                 40
Section 3.04.         Temporary Bonds.................................................................                 40
Section 3.05.         Registration, Registration of Transfer and Exchange.............................                 41
Section 3.06.         Mutilated, Destroyed, Lost and Stolen Bonds.....................................                 43
Section 3.07.         Payment of Interest; Interest Rights Preserved..................................                 44
Section 3.08.         Persons Deemed Owners...........................................................                 45
Section 3.09.         Cancellation by Bond Registrar..................................................                 45
Section 3.10.         Computation of Interest.........................................................                 45


                                      -i-



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                                      PAGE
                                                                                                                      ----
                                                                                                                   
Section 3.11.         Payment to Be in Proper Currency................................................                 46
Section 3.12.         CUSIP Numbers...................................................................                 46
Section 3.13.         Global Bonds....................................................................                 46
ARTICLE IV            BONDS OF THE INITIAL SERIES.....................................................                 47
ARTICLE V             ISSUANCE OF BONDS ..............................................................                 47
Section 5.01.         General.........................................................................                 47
Section 5.02.         Issuance of Bonds on the Basis of Property Additions............................                 52
Section 5.03.         Issuance of Bonds on the Basis of Retired Bonds.................................                 54
Section 5.04.         Issuance of Bonds on the Basis of Deposit of Cash...............................                 55
ARTICLE VI            REDEMPTION OF BONDS.............................................................                 56
Section 6.01.         Applicability of Article........................................................                 56
Section 6.02.         Election to Redeem; Notice to Trustee...........................................                 56
Section 6.03.         Selection of Bonds to Be Redeemed...............................................                 56
Section 6.04.         Notice of Redemption............................................................                 57
Section 6.05.         Bonds Payable on Redemption Date................................................                 58
Section 6.06.         Bonds Redeemed in Part..........................................................                 58
ARTICLE VII           COVENANTS.......................................................................                 59
Section 7.01.         Payment of Bonds; Lawful Possession; Maintenance of Lien........................                 59
Section 7.02.         Maintenance of Office or Agency.................................................                 59
Section 7.03.         Money for Bond Payments to Be Held in Trust.....................................                 59
Section 7.04.         Corporate Existence.............................................................                 61
Section 7.05.         Maintenance of Properties.......................................................                 61
Section 7.06.         Payment of Taxes; Liens and Discharge of Liens..................................                 61
Section 7.07.         Insurance.......................................................................                 62
Section 7.08.         Recording, Further Assurances...................................................                 65
Section 7.09.         Waiver of Certain Covenants.....................................................                 66
Section 7.10.         Annual Officer's Certificate as to Compliance...................................                 67
Section 7.11.         Limitation on Liens.............................................................                 67
Section 7.12.         Covenants Regarding Diablo Canyon Lease.........................................                 69
ARTICLE VIII          POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY...............................                 69
Section 8.01.         Quiet Enjoyment.................................................................                 69


                                      -ii-



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                                      PAGE
                                                                                                                      ----
                                                                                                                   
Section 8.02.         Dispositions Without Release....................................................                 69
Section 8.03.         Release of Funded Property......................................................                 70
Section 8.04.         Release of Property Constituting Unfunded Property..............................                 74
Section 8.05.         Release of Properties Within Annual Limits......................................                 75
Section 8.06.         Purchase Money Obligations......................................................                 76
Section 8.07.         Withdrawal or Other Application of Funded Cash..................................                 77
Section 8.08.         Release of Property Taken by Eminent Domain, etc................................                 79
Section 8.09.         Disclaimer or Quitclaim.........................................................                 79
Section 8.10.         Miscellaneous...................................................................                 80
Section 8.11.         Priority of Purchase Money Liens................................................                 81
Section 8.12.         Release Date....................................................................                 81
ARTICLE IX            SATISFACTION AND DISCHARGE......................................................                 82
Section 9.01.         Satisfaction and Discharge of Bonds.............................................                 82
Section 9.02.         Satisfaction and Discharge of Indenture.........................................                 85
Section 9.03.         Application of Trust Money......................................................                 85
ARTICLE X             EVENTS OF DEFAULT; REMEDIES.....................................................                 86
Section 10.01.        Events of Default...............................................................                 86
Section 10.02.        Acceleration of Maturity; Rescission and Annulment..............................                 87
Section 10.03.        Entry Upon Mortgaged Property...................................................                 88
Section 10.04.        Power of Sale; Suits for Enforcement............................................                 89
Section 10.05.        Incidents of Sale...............................................................                 89
Section 10.06.        Collection of Indebtedness and Suits for Enforcement by Trustee.................                 90
Section 10.07.        Application of Money Collected..................................................                 91
Section 10.08.        Receiver........................................................................                 92
Section 10.09.        Trustee May File Proofs of Claim................................................                 92
Section 10.10.        Trustee May Enforce Claims Without Possession of Bonds..........................                 92
Section 10.11.        Limitation on Suits.............................................................                 93
Section 10.12.        Unconditional Right of Holders to Receive Principal, Premium and Interest.......                 93
Section 10.13.        Restoration of Rights and Remedies..............................................                 94
Section 10.14.        Rights and Remedies Cumulative..................................................                 94


                                     -iii-



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                                      PAGE
                                                                                                                      ----
                                                                                                                   
Section 10.15.        Delay or Omission Not Waiver....................................................                  94
Section 10.16.        Control by Holders of Bonds.....................................................                  94
Section 10.17.        Waiver of Past Defaults.........................................................                  95
Section 10.18.        Undertaking for Costs...........................................................                  95
Section 10.19.        Waiver of Appraisement and Other Laws...........................................                  95
ARTICLE XI            THE TRUSTEE.....................................................................                  96
Section 11.01.        Certain Duties and Responsibilities.............................................                  96
Section 11.02.        Notice of Defaults..............................................................                  97
Section 11.03.        Certain Rights of Trustee.......................................................                  97
Section 11.04.        Not Responsible for Recitals or Issuance of Bonds or Application of Proceeds....                  98
Section 11.05.        May Hold Bonds..................................................................                  99
Section 11.06.        Money Held in Trust.............................................................                  99
Section 11.07.        Compensation and Reimbursement..................................................                  99
Section 11.08.        Disqualification; Conflicting Interests.........................................                 100
Section 11.09.        Corporate Trustee Required; Eligibility.........................................                 100
Section 11.10.        Resignation and Removal; Appointment of Successor...............................                 101
Section 11.11.        Acceptance of Appointment by Successor..........................................                 102
Section 11.12.        Merger, Conversion, Consolidation or Succession to Business.....................                 103
Section 11.13.        Preferential Collection of Claims Against Company...............................                 103
Section 11.14.        Co-Trustees and Separate Trustees...............................................                 103
Section 11.15.        Appointment of Authenticating Agent.............................................                 104
ARTICLE XII           LISTS OF HOLDERS; REPORTS BY TRUSTEE AND COMPANY................................                 106
Section 12.01.        Lists of Holders................................................................                 106
Section 12.02.        Reports by Trustee and Company..................................................                 106
ARTICLE XIII          CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER.............................                 107
Section 13.01.        Company May Consolidate, etc., Only on Certain Terms............................                 107
Section 13.02.        Successor Corporation Substituted...............................................                 109
Section 13.03.        Extent of Lien Hereof on Property of Successor Corporation......................                 109
Section 13.04.        Release of Company Upon Conveyance or Other Transfer............................                 110


                                      -iv-



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                                                      PAGE
                                                                                                                      ----
                                                                                                                   

Section 13.05.        Merger Into Company; Extent of Lien Hereof......................................                 110
ARTICLE XIV           SUPPLEMENTAL INDENTURES.........................................................                 110
Section 14.01.        Supplemental Indentures Without Consent of Holders..............................                 110
Section 14.02.        Supplemental Indentures With Consent of Holders.................................                 112
Section 14.03.        Execution of Supplemental Indentures............................................                 114
Section 14.04.        Effect of Supplemental Indentures...............................................                 114
Section 14.05.        Conformity With Trust Indenture Act.............................................                 114
Section 14.06.        Reference in Bonds to Supplemental Indentures...................................                 114
Section 14.07.        Modification Without Supplemental Indenture.....................................                 115
ARTICLE XV            MEETINGS OF HOLDERS; ACTION WITHOUT MEETING.....................................                 115
Section 15.01.        Purposes for Which Meetings May Be Called.......................................                 115
Section 15.02.        Call, Notice and Place of Meetings..............................................                 115
Section 15.03.        Persons Entitled to Vote at Meetings............................................                 116
Section 15.04.        Quorum; Action..................................................................                 116
Section 15.05.        Attendance at Meetings; Determination of Voting Rights; Conduct and
                      Adjournment of Meetings ........................................................                 117
Section 15.06.        Counting Votes and Recording Action of Meetings.................................                 118
Section 15.07.        Action Without Meeting..........................................................                 118
ARTICLE XVI           IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS.................                 119
Section 16.01.        Liability Solely Corporate......................................................                 119
SCHEDULE 1 FORM OF EXPERT'S CERTIFICATE UNDER SECTION 5.02............................................                S1-1
SCHEDULE 2 FORM OF EXPERT'S CERTIFICATE UNDER SECTION 8.03(c).........................................                S2-1
SCHEDULE 3 FORM OF OFFICER'S CERTIFICATE UNDER SECTION 8.03(d)........................................                S3-1
SCHEDULE 4 FORM OF EXPERT'S CERTIFICATE UNDER SECTION 8.04............................................                S4-1


                                      -v-



         INDENTURE OF MORTGAGE (this "Indenture"), dated as of March 11, 2004
between PACIFIC GAS AND ELECTRIC COMPANY, a corporation duly organized and
existing under the laws of the State of California (the "Company"), and BNY
WESTERN TRUST COMPANY, a California banking corporation, as Trustee (the
"Trustee").

                             RECITALS OF THE COMPANY

         The Company has duly authorized the execution and delivery of this
Indenture, as originally executed and delivered, to provide for the issuance
from time to time of its Bonds (as hereinafter defined) to be issued in one or
more series or Tranches (as hereinafter defined) as contemplated herein, and to
provide security for the payment of the principal of and premium, if any, and
interest, if any, on the Bonds.

         Prior to the Release Date (as hereinafter defined), the Bonds will be
secured by a lien on and security interest in the Mortgaged Property (as
hereinafter defined) to the extent provided herein.

         All acts necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been performed. For all purposes of
this Indenture, except as otherwise expressly provided herein or unless the
context otherwise requires, capitalized terms used herein shall have the
meanings assigned to them in Article I of this Indenture.

                                GRANTING CLAUSES

         NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, in consideration of
the premises and of the purchase of the Bonds by the Holders thereof, and in
order to secure the payment of the principal of and premium, if any, and
interest, if any, on all Bonds from time to time Outstanding and the performance
of the covenants therein and herein contained, and to declare the terms and
conditions on which such Bonds are secured, the Company hereby grants, bargains,
sells, conveys, assigns, transfers, mortgages, pledges, sets over and confirms
to the Trustee, and grants to the Trustee a security interest in and continuing
lien on, the following (subject, however, to the terms and conditions set forth
in this Indenture):

                              GRANTING CLAUSE FIRST

                  All right, title and interest of the Company, as of the
         Execution Date (as hereinafter defined), in and to all property, real,
         personal and mixed, located in the State of California, including
         without limitation all right, title and interest of the Company in and
         to the following property so located: (a) all real property owned in
         fee, easements and other interests in real property, including, without
         limitation, the leasehold estate of the Company created by the Diablo
         Canyon Lease (as hereinafter defined); (b) all licenses and permits to
         use the real property of others, franchises to use public roads,
         streets and other public properties, rights of way and other rights or
         interests relating to the occupancy or use of real property; (c) all
         facilities, machinery, equipment and fixtures for the generation,
         transmission and distribution of electric energy including, but not
         limited to, all plants, switchyards, towers, substations, transformers,
         poles, lines, cables, conduits, ducts, conductors, meters, regulators
         and all other property used or to be

                                      -1-



         used for any or all of such purposes; (d) all facilities, machinery,
         equipment and fixtures for the transmission and transportation, storage
         and distribution of gas including, but not limited to, gas works,
         stations and substations, transmission pipelines, storage facilities,
         holders, tanks, retorts, purifiers, odorizers, scrubbers, compressors,
         valves, regulators, pumps, mains, pipes, service pipes, conduits,
         ducts, fittings and connections, services, meters and any and all other
         property used or to be used for any or all of such purposes; (e) all
         buildings, offices, warehouses, structures or improvements in addition
         to those referred to or otherwise included in clauses (a), (c) and (d)
         above; (f) all computers, data processing, data storage, data
         transmission and/or telecommunications facilities, equipment and
         apparatus; and (g) all of the foregoing property in the process of
         construction;

                             GRANTING CLAUSE SECOND

                  All right, title and interest of the Company in, to and under
         all property, real, personal and mixed, located in the State of
         California which may be hereafter acquired by the Company, it being the
         intention of the Company that all such property acquired by the Company
         after the Execution Date shall be as fully embraced within and
         subjected to the lien hereof as if such property were owned by the
         Company as of the Execution Date;

                              GRANTING CLAUSE THIRD

                  All right, title and interest of the Company in, to and under
         any Excepted Property, which may, from time to time after the Execution
         Date, by delivery or by an instrument supplemental to this Indenture,
         be subjected to the lien hereof by the Company, the Trustee being
         hereby authorized to receive the same at any time as additional
         security hereunder; it being understood that any such subjection to the
         lien hereof of any Excepted Property as additional security may be made
         subject to such reservations, limitations or conditions respecting the
         use and disposition of such property or the proceeds thereof as shall
         be set forth in such instrument;

                             GRANTING CLAUSE FOURTH

                  All right, title and interest of the Company, whether now
         owned or hereafter acquired, in, to and under (i) all goods (as such
         term is defined in the California Commercial Code as in effect on the
         date hereof) located in the State of California, and (ii) all money,
         deposit accounts, instruments, investment property and other property
         (as such terms are defined in the California Commercial Code as in
         effect on the date hereof) paid or delivered to, deposited with, or
         held by the Trustee hereunder;

                              GRANTING CLAUSE FIFTH

                  All right, title and interest, whether now owned or hereafter
         acquired, of the Company in, to and under the rents, issues, profits,
         revenues and other income

                                      -2-



         and proceeds of the property expressly subjected or expressly required
         to be subjected to the lien of this Indenture, and all the estate,
         right, title and interest of every nature whatsoever of the Company in
         and to the same and every part thereof, and all other property of
         whatever kind and nature expressly subjected to the lien of this
         Indenture or stated to constitute Mortgaged Property by any of the
         terms and provisions hereof; and

                              GRANTING CLAUSE SIXTH

                  All proceeds (as such term is defined in the California
         Commercial Code as in effect on the date hereof) of the foregoing.

                                EXCEPTED PROPERTY

         Expressly excepting and excluding, however, from the lien of this
Indenture all right, title and interest of the Company in, to or under the
following property (other than such property as is described in Granting Clause
Third of this Indenture), whether now owned or hereafter acquired (the "Excepted
Property"):

                  (a)      all money, investment property and deposit accounts
         (as such terms are defined in the California Commercial Code as in
         effect on the date hereof), and all cash on hand or on deposit in banks
         or other financial institutions, shares of stock, interests in general
         or limited partnerships or limited liability companies, bonds, notes,
         other evidences of indebtedness and other securities, of whatever kind
         and nature, in each case to the extent not hereafter paid or delivered
         to, deposited with, or held by the Trustee hereunder;

                  (b)      all accounts, chattel paper, commercial tort claims,
         documents, general intangibles, instruments, letter-of-credit rights
         and letters of credit (as such terms are defined in the California
         Commercial Code as in effect on the date hereof), other than those
         specifically described in clause (b) of Granting Clause First of this
         Indenture; and all contracts, leases (except the Diablo Canyon Lease),
         operating agreements and other agreements of whatever kind and nature;
         all contract rights, bills and notes (except to the extent that any of
         the same constitute investment property, in which case they are
         separately excepted from the lien of this Indenture under clause (a)
         above); all revenues, income and earnings, all accounts receivable,
         rights to payment and unbilled revenues, all rents, tolls, issues,
         product and profits, claims, credits, demands and judgments, including
         any rights in or to rates, revenue components, charges, tariffs or
         amounts arising therefrom, or in any amounts that are accrued and
         recorded in a regulatory account for collections by the Company; all
         governmental and other licenses, permits, franchises, consents and
         allowances, including all emission allowances (or similar rights)
         created under any similar existing or future law relating to abatement
         or control of pollution of the atmosphere, water or soil, other than
         those specifically described in clause (b) of Granting Clause First of
         this Indenture; and all patents, patent licenses and other patent
         rights, patent applications, trade names, trademarks, copyrights and
         other intellectual property,

                                      -3-



         including computer software and software licenses; and all claims,
         credits, choses in action and other intangible property;

                  (c)      all automobiles, buses, trucks, truck cranes,
         tractors, trailers, motor vehicles and similar vehicles and movable
         equipment; all rolling stock, rail cars and other railroad equipment;
         all vessels, boats, barges and other marine equipment; all airplanes,
         helicopters, aircraft engines and other flight equipment; and all
         parts, accessories and supplies used in connection with any of the
         foregoing;

                  (d)      all goods, stock in trade, wares, merchandise and
         inventory held for the purpose of sale or lease in the ordinary course
         of business; all materials, supplies, inventory and other items of
         personal property which are consumable (otherwise than by ordinary wear
         and tear) in their use in the operation of the Mortgaged Property; all
         fuel, whether or not any such fuel is in a form consumable in the
         operation of the Mortgaged Property, including separate components of
         any fuel in the forms in which such components exist at any time
         before, during or after the period of the use thereof as fuel; all hand
         and other portable tools and equipment; and all furniture and
         furnishings;

                  (e)      all personal property the perfection of a security
         interest in which is not governed by the California Commercial Code;

                  (f)      all oil, gas and other minerals (as such terms are
         defined in the California Commercial Code as in effect on the date
         hereof); and all coal, ore, gas, oil and other minerals and all timber,
         and all rights and interests in any of the foregoing, whether or not
         such minerals or timber shall have been mined or extracted or otherwise
         separated from the land; and all electric energy and capacity, gas
         (natural or artificial), steam, water and other products generated,
         produced, manufactured, purchased or otherwise acquired by the Company;

                  (g)      all property which is the subject of a lease
         agreement designating the Company as lessee and all right, title and
         interest of the Company in and to such property and in, to and under
         such lease agreement, whether or not such lease agreement is intended
         as security; provided, however, that the Company's right, title and
         interest in and to the property which is the subject of the Diablo
         Canyon Lease, and in, to and under the Diablo Canyon Lease shall not be
         Excepted Property;

                  (h)      all property, real, personal and mixed, which
         subsequent to the Execution Date, has been released from the lien of
         this Indenture, and any improvements, extensions and additions to such
         properties and renewals, replacements and substitutions of or for any
         parts thereof;

                  (i)      all property, real, personal and mixed, that is
         stated in Sections 8.10(d), 13.03 or 13.05 of this Indenture to not be
         subject to the lien of this Indenture; and

                                      -4-



                  (j)      all proceeds (as such term is defined in the
         California Commercial Code as in effect on the date hereof) of the
         foregoing,

provided, however, that Excepted Property shall not include the identifiable
proceeds (as such term is defined in the California Commercial Code as in effect
on the date hereof) of any Mortgaged Property that the Company has disposed of
in violation of the terms of this Indenture; and provided, further, that subject
to the provisions of Section 13.03, if, at any time after the occurrence of an
Event of Default but prior to the Release Date, the Trustee, or any separate
trustee or co-trustee appointed under Section 11.14 or any receiver appointed
pursuant to Section 10.08 or otherwise, shall have entered into possession of
all or substantially all the Mortgaged Property, to the extent permitted by law,
all the Excepted Property described or referred to in the foregoing clauses (c)
and (d) then owned or held or thereafter acquired by the Company, to the extent
that the same is used in connection with, or otherwise relates or is
attributable to, the Mortgaged Property, shall immediately, and, in the case of
any Excepted Property described or referred to in clause (g), to the extent that
the same is used in connection with, or otherwise relates or is attributable to,
the Mortgaged Property, upon demand of the Trustee or such other trustee or
receiver, become subject to the lien of this Indenture, junior and subordinate
to any Liens at that time existing on such Excepted Property, and the Trustee or
such other trustee or receiver may, to the extent permitted by law or by the
terms of any such other Lien (and subject to the rights of the holders of all
such other Liens), at the same time likewise take possession thereof; provided,
however, that none of the Excepted Property described or referred to in the
foregoing clauses (c), (d) and (g) shall become subject to the lien of this
Indenture upon the occurrence of an Event of Default, if such Excepted Property
is (x) subject to an existing agreement that prohibits the imposition of further
Liens on such Excepted Property or (y) subject to an existing agreement
providing for the sale or other disposition of such Excepted Property; provided,
further, that whenever all Events of Default shall have been cured and the
possession of all or substantially all of the Mortgaged Property shall have been
restored to the Company, such Excepted Property shall again be excepted and
excluded from the lien hereof to the extent set forth above; it being understood
that the Company may, however, pursuant to Granting Clause Third, subject any
Excepted Property to the lien of this Indenture whereupon the same shall cease
to be Excepted Property;

         TO HAVE AND TO HOLD all such property, real, personal and mixed, unto
the Trustee, its successors in trust and their assigns forever;

         SUBJECT, HOWEVER, to Permitted Liens; and

         IN TRUST, NEVERTHELESS, for the equal and ratable benefit and security
of the Holders from time to time of all Outstanding Bonds without any priority
of any such Bond over any other such Bond;

         PROVIDED, HOWEVER, that the right, title and interest of the Trustee in
and to the Mortgaged Property shall cease, terminate and become void in
accordance with, and subject to the conditions set forth in, Article VIII or
Article IX hereof, and if, thereafter, the principal of and premium, if any, and
interest, if any, on the Bonds shall have been paid to the Holders thereof, or
shall have been paid to the Company pursuant to Section 7.03 hereof or to the
appropriate Governmental Authority pursuant to applicable law after the Maturity
thereof, then

                                      -5-



and in that case this Indenture shall terminate, and the Trustee shall execute
and deliver to the Company such instruments as the Company shall require to
evidence such termination; otherwise this Indenture, and the estate and rights
hereby granted, shall be and remain in full force and effect;

         IT IS HEREBY COVENANTED AND AGREED by and between the Company and the
Trustee that all the Bonds are to be authenticated and delivered, and that the
Mortgaged Property is to be held, subject to the further covenants, conditions
and trusts hereinafter set forth, and the Company hereby covenants and agrees to
and with the Trustee, for the equal and ratable benefit of all Holders of the
Bonds, as follows:

                                   ARTICLE I

             DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.01. GENERAL DEFINITIONS.

         For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

         (a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

         (b) reference to any gender shall include all other genders;

         (c) all terms used herein without definition which are defined in the
Trust Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

         (d) all terms used herein without definition which are defined in the
California Commercial Code shall have the meanings assigned to them therein;

         (e) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States; and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean, at the election of the Company from
time to time, such accounting principles as are generally accepted in the United
States at the date of such computation or at the Execution Date; provided,
however, that in determining generally accepted accounting principles applicable
to the Company, effect shall be given, to the extent required, to any order,
rule or regulation of any administrative agency, regulatory authority or other
governmental body having jurisdiction over the Company;

         (f) any reference to an "Article", a "Section" or any other subdivision
refers to an Article, a Section or other subdivision, as the case may be, of
this Indenture; and

         (g) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.

                                      -6-



         "ACCOUNTANT" means a Person engaged in the accounting profession or
otherwise qualified to pass on accounting matters (including, but not limited
to, a Person certified or licensed as a public accountant, whether or not then
engaged in the public accounting profession), which Person, unless required
under the terms hereof to be Independent, may be an employee, an Affiliate or an
employee of an Affiliate of the Company.

         "ACQUIRED FACILITY" means any property which, within six (6) months
prior to the date of its acquisition by the Company, has been used or operated
by a Person or Persons other than the Company in a business similar to that in
which such property has been or is to be used or operated by the Company.

         "ACT", when used with respect to any Holder of a Bond, has the meaning
specified in Section 1.06.

         "ADJUSTED FUNDED PROPERTY BASIS" means, with respect to any Funded
Property (including any Property Additions which have become Funded Property
under the terms of this Indenture), the Funded Property Basis of such Funded
Property after making deductions therefrom and additions thereto as contemplated
by Section 1.03(b).

         "ADJUSTED PROPERTY ADDITIONS BASIS" means, with respect to any Property
Additions which constitute Unfunded Property, the Property Additions Basis of
such Property Additions after making deductions therefrom and additions thereto
as contemplated by Section 1.03(b).

         "AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct generally the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

         "ANNUAL INTEREST REQUIREMENTS" has the meaning specified in Section
5.01(g).

         "ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction, including any period for which such
lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with generally
accepted accounting principles.

         "AUTHENTICATING AGENT" means any Person or Persons (other than the
Company or an Affiliate of the Company) authorized by the Trustee to act on
behalf of the Trustee to authenticate the Bonds of one or more series.

         "AUTHORIZED OFFICER" means the Chairman of the Board, the President,
the Chief Executive Officer, any Vice President, the Chief Financial Officer,
the Treasurer or any other duly authorized officer, agent or attorney-in-fact of
the Company named in an Officer's Certificate signed by any of such officers.

                                      -7-



         "AUTHORIZED PUBLICATION" means a newspaper or financial journal of
general circulation, printed in the English language and customarily published
on each Business Day, whether or not published on Saturdays, Sundays or
holidays; or, in the alternative, shall mean such form of communication as may
have come into general use for the dissemination of information of import
similar to that of the information specified to be published by the provisions
hereof. In the event that successive weekly publications in an Authorized
Publication are required hereunder they may be made (unless otherwise expressly
provided herein) on the same or different days of the week and in the same or in
different Authorized Publications. In case, by reason of the suspension of
publication of any Authorized Publication, or by reason of any other cause, it
shall be impractical without unreasonable expense to make publication of any
notice in an Authorized Publication as required by this Indenture, then such
method of publication or notification as shall be made with the approval of the
Trustee shall be deemed the equivalent of the required publication of such
notice in an Authorized Publication.

         "AUTHORIZED PURPOSES" means the authentication and delivery of Bonds,
the release of property and/or the withdrawal of cash under any of the
provisions of this Indenture.

         "BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 United
States Code Section 101 et seq., or any successor statute thereto.

         "BOARD OF DIRECTORS" means the board of directors of the Company, any
committee thereof duly authorized to act in respect of matters relating to this
Indenture or any other body fulfilling the function of a board of directors of a
corporation authorized to act in respect of matters relating to this Indenture.

         "BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company that has been duly adopted by
the Board of Directors, that is in full force and effect on the date of such
certification and that has been delivered to the Trustee.

         "BOND REGISTER" and "BOND REGISTRAR" have the respective meanings
specified in Section 3.05.

         "BONDS" means any securities, including any bonds, notes and other
evidences of indebtedness, authenticated and delivered under this Indenture.

         "BONDS OF THE INITIAL SERIES" has the meaning set forth in Article IV.

         "BUSINESS DAY" means any day, other than a Saturday or Sunday, which is
not a day on which banking institutions or trust companies in (i) any Place of
Payment or other location specified in the Bonds or this Indenture or (ii) the
location of the Company's principal place of business or the Corporate Trust
Office of the Trustee, are generally authorized or required by law, regulation
or executive order to remain closed, except as may be otherwise specified as
contemplated by Section 3.01.

         "CAPITAL LEASE OBLIGATION" means, at the time any determination is to
be made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
generally accepted accounting principles.

                                      -8-



         "CASH DEPOSIT AMOUNT" has the meaning specified in (i) Section 8.03,
when used in Section 8.03, or (ii) Section 8.05, when used in Section 8.05.

         "CASH DEPOSIT CREDIT ITEMS" has the meaning specified in Section 8.03.

         "COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
Execution Date, such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body, if any, performing
such duties at such time.

         "COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.

         "COMPANY ORDER" or "COMPANY REQUEST" means, respectively, a written
order or request signed in the name of the Company by an Authorized Officer and
delivered to the Trustee.

         "CORPORATE TRUST OFFICE" means the office of the Trustee, at which at
any particular time its corporate trust business shall be principally
administered, which office, at the Execution Date, is located at 550 Kearney
Street, Suite 600, San Francisco, California, 94108, Attention: Corporate Trust
Administration, fax number (415) 399-1647.

         "CORPORATION" means a corporation, partnership, limited liability
company, association, company, joint stock company or business trust, and
references to "corporate" and other derivations of "corporation" herein shall be
deemed to include appropriate derivations of such entities.

         "COST" has the meaning specified in Section 1.03.

         "CPI INDEX" means the United States Department of Labor, Bureau of
Labor Statistics Consumer Price Index for All Urban Consumers, U.S. City
Average, "All Items" (1982-84 = 100), or any successor index thereof as such
successor index may be appropriately adjusted to establish substantial
equivalence with the Consumer Price Index; provided that if the Consumer Price
Index ceases to be published and there is no successor thereto, such other index
as the Company and the Trustee shall agree upon in writing shall be substituted
for the Consumer Price Index.

         "DEBT" means any debt of the Company for money borrowed and guarantees
by the Company of debt for money borrowed but in each case excluding liabilities
in respect of Capital Lease Obligations or Swap Agreements.

         "DEDUCTIBLE LIMIT" means, with respect to any fire insurance policy
required to be maintained by the Company under Section 7.07, an amount equal to
the greater of (i) Twenty-Five Million Dollars ($25,000,000) with respect to any
such policy expiring in calendar year 2004; provided that, with respect to any
policy expiring in any subsequent calendar year, such amount shall be increased
by the same percentage increase in the CPI Index for the period commencing on
January 1, 2004 and ending on the commencement date of such policy, and (ii)

                                      -9-



three percent (3%) of the principal amount of the Bonds Outstanding on the
commencement date of any such policy, and (iii) any other dollar amount which is
applicable to fire insurance (x) on property of similar character maintained by
companies similarly situated and operating like property or (y) on property as
to which an equal primary fire insurance rate has been set by responsible
insurance companies.

         "DEFAULT" means any event that with the passage of time or the giving
of notice or both would be an Event of Default.

         "DEFAULTED INTEREST" has the meaning specified in Section 3.07.

         "DE MINIMIS AMOUNT" means, as of the calculation date, an amount which
is less than the greater of (i) Twenty-Five Thousand Dollars ($25,000) or (ii)
one percent (1%) of the aggregate principal amount of the Bonds Outstanding at
the time of calculation.

         "DEPOSITARY" means, with respect to the Bonds of any series, or Tranche
thereof, issuable or issued in whole or in part in the form of one or more
Global Bonds, the Person designated as Depositary by the Company pursuant to
Sections 3.01(q) and 3.13 until a successor Depositary shall have become such
pursuant to the applicable provisions of this Indenture, and, thereafter,
"Depositary" shall mean or include each Person who is then a Depositary
hereunder, and if at any time there is more than one such Person, "Depositary"
as used with respect to Bonds of any such series shall mean the Depositary with
respect to the Bonds of that series or Tranche.

         "DEPOSITED CASH" has the meaning specified in Section 5.04.

         "DIABLO CANYON LEASE" means that certain lease dated September 17,
1966, between Eureka Energy Company, as lessor, and the Company, as lessee,
which lease was originally entered into between Luigi Marre Land and Cattle
Company, a California corporation, as lessor, and San Luis Obispo Bay
Properties, Inc., a California corporation, as lessee, a memorandum of which
Lease was recorded September 21, 1966 in Volume 1410, Page 556, Official
Records, San Luis Obispo County, California, and any supplements, assignments
and modifications thereto.

         "DISCOUNT BOND" means any Bond which provides for an amount less than
the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 10.02. "Interest" with
respect to a Discount Bond means interest, if any, borne by such Bond at a
Stated Interest Rate.

         "DOLLAR" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.

         "EFFECTIVE DATE" has the meaning set forth in the Plan.

         "ELIGIBLE OBLIGATIONS" means:

                  (a)      with respect to Bonds denominated in Dollars,
         Government Obligations; or

                                      -10-



                  (b)      with respect to Bonds denominated in a currency other
         than Dollars or in a composite currency, such other obligations or
         instruments as shall be specified with respect to such Bonds as
         contemplated by Section 3.01.

         "EVENT OF DEFAULT" has the meaning specified in Section 10.01.

         "EXCEPTED PROPERTY" has the meaning specified in the Granting Clauses
of this Indenture.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "EXECUTION DATE" means the date on which the Bonds of the Initial
Series are first issued under this Indenture.

         "EXPERT" means a Person which is an engineer, appraiser, Accountant or
other expert and which, with respect to any certificate to be signed by such
Person and delivered to the Trustee, is qualified to pass upon the matters set
forth in such certificate. For purposes of this definition, (a) "engineer" means
a Person engaged in the engineering profession or otherwise qualified to pass
upon engineering matters (including, but not limited to, a Person licensed as a
professional engineer, whether or not then engaged in the engineering
profession) and (b) "appraiser" means a Person engaged in the business of
appraising property or otherwise qualified to pass upon the Fair Value or fair
market value of property.

         "EXPERT'S CERTIFICATE" means a certificate signed by an Authorized
Officer and by one or more Experts (which Expert(s) (a) shall be selected either
by the Board of Directors or by an Authorized Officer, the execution of such
certificate by such Authorized Officer to be conclusive evidence of such
selection, and (b) except as otherwise required under the terms hereof to be
Independent, may be an employee, an Affiliate or an employee of an Affiliate of
the Company duly authorized either by the Board of Directors or by an Authorized
Officer) and delivered to the Trustee. The amount stated in any Expert's
Certificate as to the Cost, Fair Value or fair market value of property shall be
conclusive and binding upon the Company, the Trustee and the Holders.

         "FAIR VALUE", with respect to property, means the fair value of such
property as may be determined by reference to (a) the amount which would be
likely to be obtained in an arm's-length transaction with respect to such
property between an informed and willing buyer and an informed and willing
seller, under no compulsion, respectively, to buy or sell, (b) the amount of
investment with respect to such property which, together with a reasonable
return thereon, would be likely to be recovered through ordinary business
operations or otherwise, (c) Cost or replacement or reproduction cost, in each
case less depreciation with respect to such property and/or (d) any other
relevant factors; provided, however, that (x) the Fair Value of property shall
be determined without deduction for any Senior Liens on such property, and (y)
the Fair Value to the Company of Property Additions shall not reflect any
reduction relating to the fact that such Property Additions may be of less value
to a Person which is not the owner or operator of the Mortgaged Property or any
portion thereof than to a Person which is such owner or operator. Fair Value of
any property may be determined, without physical inspection, by the use of

                                      -11-



accounting and engineering records and other data maintained by the Company
(including on the basis of the Cost of such property) or otherwise available to
the Expert certifying the same.

         "FUNDED CASH" has the meaning specified in Section 1.02.

         "FUNDED PROPERTY" has the meaning specified in Section 1.02.

         "FUNDED PROPERTY BASIS" means, with respect to any Funded Property
(including any Property Additions which have become Funded Property under the
terms of this Indenture), the Net Cost of such property or, if the Net Fair
Value to the Company of such property at the time the same became Funded
Property was certified to be an amount less than the Net Cost thereof, such Net
Fair Value, as so certified, in lieu of Net Cost.

         "FUNDED PROPERTY RETIRED" means, with respect to any Funded Property,
(a) any such property that has been abandoned, destroyed, sold, lost through
casualty or taken through the enforcement of the power of eminent domain or
similar right or otherwise disposed of or released from the lien of this
Indenture and (b) Miscellaneous Personalty. Such property shall thereupon cease
to be Funded Property under this Indenture but, as herein provided, may at any
time thereafter again become Funded Property. Notwithstanding the foregoing or
anything to the contrary contained herein, neither any reduction in the Cost or
book value of property recorded in the plant or other property account of the
Company (other than with respect to Miscellaneous Personalty), nor the transfer
of any amount appearing in such account to intangible and/or adjustment
accounts, otherwise than in connection with actual retirements of physical
property that has been disposed of as provided above and otherwise than in
connection with the removal of such property in its entirety from the plant or
property account, shall be deemed to constitute Funded Property Retired.

         "GLOBAL BOND" means a Bond representing all or part of a series of
Bonds, or Tranche thereof, issued to the Depositary for such series or Tranche
in accordance with Section 3.13, and bearing the legend prescribed in Section
3.13.

         "GOVERNMENTAL AUTHORITY" means the government of the United States or
of any state or territory thereof or of the District of Columbia or of any
county, municipality or other political subdivision of any thereof, or any
department, agency, authority or other instrumentality of any of the foregoing.

         "GOVERNMENT OBLIGATIONS" means securities which are (a) (i) direct
obligations of the United States where the payment or payments thereunder are
supported by the full faith and credit of the United States or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States where the timely payment or payments
thereunder are unconditionally guaranteed as a full faith and credit obligation
by the United States or (b) depository receipts issued by a bank (as defined in
Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of or other amount with respect to any such Government Obligation
held by such custodian for the account of the holder of a depository receipt;
provided, that, (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount

                                      -12-



received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of or other amount with respect to
the Government Obligation evidenced by such depository receipt.

         "HOLDER" means a Person in whose name a Bond is registered in the Bond
Register.

         "INDENTURE" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Indenture and any such supplemental indenture,
respectively. The term "Indenture" shall also include the provisions or terms of
particular series of Bonds established in any Officer's Certificate, Board
Resolution or Company Order delivered pursuant to Sections 2.01, 3.01 and 14.07.

         "INDEPENDENT", when applied to any Accountant, Expert or other
specified Person, means such a Person who (a) does not have any direct or
indirect material financial interest in the Company or in any other obligor upon
the Bonds or in any Affiliate of the Company or of such other obligor, (b) is
not connected with the Company, an Affiliate of the Company or such other
obligor as an officer, employee, promoter, underwriter, trustee, partner,
director or any person performing similar functions and (c) is appointed or
selected by the Company and approved by the Trustee in the exercise of
reasonable care.

         "INDEPENDENT EXPERT'S CERTIFICATE" means a certificate signed by an
Independent Expert and delivered to the Trustee.

         "INTEREST PAYMENT DATE", when used with respect to any Bond, means the
Stated Maturity of an installment of interest on such Bond.

         "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, or any successor federal statute.

         "INVESTMENT SECURITIES" means any of the following obligations or
investment property on which neither the Company, any other obligor on the Bonds
nor any Affiliate of either is the obligor: (a) Government Obligations; (b)
interest bearing deposit accounts (which may be represented by certificates of
deposit) in any national or state bank (which may include the Trustee or any
Paying Agent) or savings association which has outstanding securities rated by a
nationally recognized rating organization in either of the two (2) highest
rating categories (without regard to modifiers) for short-term securities or in
any of the three (3) highest rating categories (without regard to modifiers) for
long-term securities; (c) bankers' acceptances drawn on and accepted by any
commercial bank (which may include the Trustee or any Paying Agent) which has
outstanding securities rated by a nationally recognized rating organization in
either of the two (2) highest rating categories (without regard to modifiers)
for short-term securities or in any of the three (3) highest rating categories
(without regard to modifiers) for long-term securities; (d) direct obligations
of, or obligations the principal of and interest on which are unconditionally
guaranteed by, any state or territory of the United States or the District of
Columbia, or any political subdivision of any of the foregoing, which are rated
by a nationally

                                      -13-



recognized rating organization in either of the two (2) highest rating
categories (without regard to modifiers) for short-term securities or in any of
the three (3) highest rating categories (without regard to modifiers) for
long-term securities; (e) bonds or other obligations of any agency or
instrumentality of the United States; (f) corporate debt securities which are
rated by a nationally recognized rating organization in either of the two (2)
highest rating categories (without regard to modifiers) for short-term
securities or in any of the three (3) highest rating categories (without regard
to modifiers) for long-term securities; (g) repurchase agreements with respect
to any of the foregoing obligations or securities with any banking or financial
institution (which may include the Trustee or any Paying Agent) which has
outstanding securities rated by a nationally recognized rating organization in
either of the two (2) highest rating categories (without regard to modifiers)
for short-term securities or in any of the three (3) highest rating categories
(without regard to modifiers) for long-term securities; (h) securities issued by
any regulated investment company (including any investment company for which the
Trustee or any Paying Agent is the advisor), as defined in Section 851 of the
Internal Revenue Code or any such successor section of the Internal Revenue
Code, provided that the portfolio of such investment company is limited to
obligations or securities of the character and investment quality contemplated
in clauses (a) through (f) above and repurchase agreements which are fully
collateralized by any of such obligations or securities; and (i) any other
obligations or securities which may lawfully be purchased by the Trustee in its
capacity as such.

         "ISSUANCE DATE SECURED DEBT RATINGS" means the initial ratings on the
Bonds of the Initial Series assigned by Standard & Poor's Ratings Group and
Moody's Investors Service, Inc., respectively.

         "LIEN" means any mortgage, deed of trust, pledge, security interest,
encumbrance, easement, lease, reservation, restriction, servitude, charge or
similar right and any other lien of any kind, including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any defect, irregularity, exception or limitation in record title
or, when the context so requires, any lien, claim or interest arising from any
of the foregoing.

         "MAKE-UP AMOUNT" has the meaning specified in (i) Section
7.07(c)(ii)(C), when used in Section 7.07(c), or (ii) Section 8.04(c)(vii), when
used in Section 8.04.

         "MATURITY", when used with respect to any Bond, means the date on which
the principal of such Bond or an installment of principal or any sinking fund
payment becomes due and payable as provided in such Bond or in this Indenture,
whether at the Stated Maturity, by declaration of acceleration, upon call for
redemption or otherwise.

         "MINOR LOSS" means a particular loss by reason of fire damage with
respect to any Mortgaged Property in an amount which is less than the greater of
(i) as to any loss occurring in calendar year 2004, Fifty Million Dollars
($50,000,000); provided, that with respect to any loss occurring in any
subsequent calendar year, such amount shall be increased by the same percentage
increase in the CPI Index for the period commencing on January 1, 2004 and
ending on January 1 of the calendar year in which such loss occurs, and (ii)
three percent (3%) of the principal amount of Bonds Outstanding on the date of
such particular loss.

                                      -14-



         "MISCELLANEOUS PERSONALTY" means all of those personal property assets
that, pursuant to the Company's then current accounting methods, are retired or
removed from the Company's plant or other property account (in the absence of
actual physical abandonment, destruction, loss, sale or other disposition of
such personal property assets) on the basis of the "vintage" or age of such
personal property assets regardless of whether or not, subsequent to such
retirement or removal, such personal property assets actually remain in use by
the Company (referred to herein as "vintage retirement"). The types of personal
property assets constituting "Miscellaneous Personalty" may change from time to
time and will be determined solely by whether or not, under the Company's then
current accounting methods, such personal property assets are subject to vintage
retirement as described above.

         "MORTGAGED PROPERTY" means the property described in Granting Clause
First through Granting Clause Sixth of this Indenture, other than Excepted
Property.

         "NET COST" means, with respect to Funded Property and Unfunded
Property, as of the date of calculation thereof, the Cost of such property, less
the lesser of (i) the outstanding principal amount of any Senior Lien
Obligations as of the date of calculation of such Cost or (ii) the Cost of such
property.

         "NET EARNINGS CERTIFICATE" has the meaning specified in Section
5.01(g).

         "NET FAIR VALUE" means, with respect to Funded Property and Unfunded
Property, as of the date of calculation thereof, the Fair Value of such
property, less the lesser of (i) the outstanding principal amount of any Senior
Lien Obligations as of the date of calculation of such Fair Value or (ii) the
Fair Value of such property.

         "NET INCOME" has the meaning specified in Section 5.01(g).

         "NET TANGIBLE ASSETS" means the total amount of the Company's assets
determined on a consolidated basis in accordance with generally accepted
accounting principles as of a date determined pursuant to Section 7.11(b) or
8.12(b), less (a) the sum of the Company's consolidated current liabilities
determined in accordance with generally accepted accounting principles, and (b)
the amount of the Company's consolidated assets classified as intangible assets,
determined in accordance with generally accepted accounting principles,
including, but not limited to, such items as goodwill, trademarks, trade names,
patents, and unamortized debt discount and expense and regulatory assets carried
as an asset on the Company's consolidated balance sheet.

         "1920 MORTGAGE" means the First and Refunding Mortgage, dated as of
December 1, 1920, between the Company and BNY Western Trust Company, as
successor trustee, as heretofore amended and supplemented.

         "NON-RECURRING CHARGES" has the meaning specified in Section 5.01(g).

         "NOTICE OF DEFAULT" has the meaning specified in Sections 10.01(c) and
10.01(f).

         "OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Officer and delivered to the Trustee.

                                      -15-



         "OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company or other counsel acceptable to the Trustee and who may
be an employee, an Affiliate or an employee of an Affiliate of the Company.

         "OUTSTANDING", when used with respect to Bonds, means, as of the date
of determination, all Bonds theretofore authenticated and delivered under this
Indenture, except:

                  (a)      Bonds theretofore canceled or delivered to the Bond
         Registrar or the Trustee for cancellation;

                  (b)      Bonds deemed to have been paid for all purposes of
         this Indenture in accordance with Section 9.01 (whether or not the
         Company's indebtedness in respect thereof shall be satisfied and
         discharged for any other purpose); and

                  (c)      Bonds, the principal of, premium, if any, and
         interest, if any, on which have been fully paid pursuant to the third
         paragraph of Section 3.06 or in exchange for or in lieu of which other
         Bonds have been authenticated and delivered pursuant to this Indenture,
         other than any such Bonds in respect of which there shall have been
         presented to the Trustee proof satisfactory to it and the Company that
         such Bonds are held by a protected purchaser;

         provided, however, that in determining whether or not the Holders of
         the requisite principal amount of the Bonds Outstanding under this
         Indenture, or the Outstanding Bonds of any series or Tranche, have
         given any request, demand, authorization, direction, notice, consent or
         waiver hereunder or whether or not a quorum is present at a meeting of
         Holders of Bonds,

                  (x)      Bonds owned by the Company or any other obligor upon
         the Bonds or any Affiliate of the Company or of such other obligor
         (unless the Company, such obligor and/or such Affiliate owns all Bonds
         Outstanding under this Indenture, or all Outstanding Bonds of each such
         series and each such Tranche, as the case may be, determined without
         regard to this clause (x)) shall be disregarded and deemed not to be
         Outstanding, except that, in determining whether the Trustee shall be
         protected in relying upon any such request, demand, authorization,
         direction, notice, consent or waiver or upon any such determination as
         to the presence of a quorum, only Bonds which the Trustee actually
         knows to be so owned shall be so disregarded; provided, however, that
         Bonds so owned which have been pledged in good faith may be regarded as
         Outstanding if it is established to the reasonable satisfaction of the
         Trustee that the pledgee, and not the Company, any such other obligor
         or Affiliate of either thereof, has the right so to act with respect to
         such Bonds and that the pledgee is not the Company or any other obligor
         upon the Bonds or any Affiliate of the Company or of such other
         obligor; and provided, further, that in no event shall any Bond which
         shall have been delivered to evidence, enhance or secure, in whole or
         in part, the Company's obligations in respect of other indebtedness be
         deemed to be owned by the Company if the principal of such Bond is
         payable, whether at Stated Maturity or upon mandatory redemption, at
         the same time as the principal of such other indebtedness is payable,
         whether at Stated Maturity or upon mandatory redemption or

                                      -16-



         acceleration, but only to the extent of such portion of the principal
         amount of such Bond as does not exceed the principal amount of such
         other indebtedness; and

                  (y)      the principal amount of a Discount Bond that shall be
         deemed to be Outstanding for such purposes shall be the amount of the
         principal thereof that would be due and payable as of the date of such
         determination upon a declaration of acceleration of the Maturity
         thereof pursuant to Section 10.02; and

         provided, further, that, in the case of any Bond the principal of which
         is payable from time to time without presentment or surrender, the
         principal amount of such Bond that shall be deemed to be Outstanding at
         any time for all purposes of this Indenture shall be the original
         principal amount thereof less the aggregate amount of principal thereof
         theretofore paid, unless otherwise specified pursuant to Section 3.01.

         "PAYING AGENT" means any Person, including the Company, authorized by
the Company to pay the principal of and premium, if any, or interest, if any, on
any Bonds on behalf of the Company.

         "PERIODIC OFFERING" means an offering of Bonds of a series from time to
time any or all of the specific terms of which Bonds, including, without
limitation, the rate or rates of interest, if any, thereon, the Stated Maturity
or Maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Company or its agents from time to time
subsequent to the initial request for the authentication and delivery of such
Bonds by the Trustee, all as contemplated in Section 3.01 and Section 5.01(b).

         "PERMITTED LIENS" means, as of any particular time, any of the
following:

                  (a)      to the extent the Company consolidates with, or
         merges into, another entity, Liens on the assets of such entity in
         existence on the date of such consolidation or merger and securing debt
         of such entity, provided that such debt and Liens were not created or
         incurred in anticipation of such consolidation or merger and do not
         extend to any other Mortgaged Property of the Company in existence
         immediately prior to the consolidation or merger;

                  (b)      as to property acquired by the Company after the
         Execution Date, Liens existing or placed thereon at the time of the
         acquisition thereof, provided that such Liens do not extend to any
         other Mortgaged Property;

                  (c)      Liens for taxes, assessments and other governmental
         charges or requirements which are not delinquent or which are being
         contested in good faith by appropriate proceedings;

                  (d)      mechanics', workmen's, repairmen's, materialmen's,
         warehousemen's and carriers' Liens, other Liens incident to
         construction, Liens or privileges of any employees of the Company for
         salary or wages earned, but not yet payable, and other Liens,
         including, without limitation, Liens for workers' compensation awards,
         arising in the ordinary course of business for charges or requirements
         which are not delinquent or which are being contested in good faith and
         by appropriate proceedings;

                                      -17-



                  (e)      Liens in respect of attachments, judgments or awards
         arising out of judicial or administrative proceedings (i) in an amount
         not exceeding the greater of (A) Ten Million Dollars ($10,000,000) to
         the extent in existence in calendar year 2004; provided, that, with
         respect to any such Liens in existence in any subsequent calendar year,
         such amount shall be increased by the percentage increase in the CPI
         Index for the period commencing on January 1, 2004, and ending on
         January 1 of the applicable calendar year and (B) three percent (3%) of
         the principal amount of the Bonds then Outstanding or (ii) with respect
         to which the Company shall (A) in good faith be prosecuting an appeal
         or other proceeding for review and with respect to which the Company
         shall have secured a stay of execution pending such appeal or other
         proceeding or (B) have the right to prosecute an appeal or other
         proceeding for review;

                  (f)      easements, encumbrances, leases, reservations or
         other rights of others in, on, over and/or across, and laws,
         regulations and restrictions affecting, and defects, irregularities,
         exceptions and limitations in title to, the Mortgaged Property or any
         part thereof; provided, however, that such easements, encumbrances,
         leases, reservations, rights, laws, regulations, restrictions, defects,
         irregularities, exceptions and limitations do not, in the opinion of
         the Company, materially impair the use by the Company of the Mortgaged
         Property considered as a whole for the purposes for which it is held by
         the Company;

                  (g)      conservation easements in accordance with the Plan;

                  (h)      defects, irregularities, exceptions and limitations
         in title to real property subject to rights-of-way or other similar
         rights in favor of the Company or used or to be used by the Company
         primarily for right-of-way purposes or real property held under lease,
         easement, license or similar right; provided, however, that (i) the
         Company shall have obtained from the apparent owner or owners of such
         real property a sufficient right, by the terms of the instrument
         granting such right-of-way, lease, easement, license or similar right,
         to the use thereof for the purposes for which the Company acquired the
         same, (ii) the Company has power under eminent domain or similar
         statutes to remove such defects, irregularities, exceptions or
         limitations or (iii) such defects, irregularities, exceptions and
         limitations may be otherwise remedied without undue effort or expense;
         and defects, irregularities, exceptions and limitations in title to
         flood lands, flooding rights and/or water rights;

                  (i)      Liens securing indebtedness or other obligations
         neither created, assumed nor guaranteed by the Company nor on account
         of which it customarily pays interest upon real property or rights in
         or relating to real property for the purpose of the distribution of
         electricity or gas, for the purpose of telephonic, telegraphic, radio,
         wireless or other electronic communication or otherwise for the purpose
         of obtaining rights-of-way;

                  (j)      leases existing at the Execution Date, affecting
         Mortgaged Properties owned by the Company at said date and renewals and
         extensions thereof; and leases affecting such Mortgaged Properties
         entered into after the Execution Date or affecting Mortgaged Properties
         acquired by the Company after such date which, in either case, (i)

                                      -18-



         have respective terms of not more than ten (10) years (including
         extensions or renewals at the option of the tenant) or (ii) do not
         materially impair the use by the Company of such properties for the
         respective purposes for which they are held by the Company;

                  (k)      Liens vested in lessors, licensors, franchisors or
         permittors for rent or other amounts to become due or for other
         obligations or acts to be performed, the payment of which rent or other
         amounts or the performance of which other obligations or acts is
         required under leases, subleases, licenses, franchises or permits, so
         long as the payment of such rent or other amounts or the performance of
         such other obligations or acts is not delinquent or is being contested
         in good faith and by appropriate proceedings;

                  (l)      controls, restrictions, obligations, duties and/or
         other burdens imposed by federal, state, municipal or other law, or by
         rules, regulations or orders of Governmental Authorities upon the
         Mortgaged Property or any part thereof or the operation or use thereof
         or upon the Company with respect to the Mortgaged Property or any part
         thereof or the operation or use thereof or with respect to any
         franchise, grant, license, permit or public purpose requirement, or any
         rights reserved to or otherwise vested in Governmental Authorities to
         impose any such controls, restrictions, obligations, duties and/or
         other burdens;

                  (m)      rights which Governmental Authorities may have by
         virtue of franchises, grants, licenses, permits or contracts, or by
         virtue of law, to purchase, recapture or designate a purchaser of or
         order the sale of the Mortgaged Property or any part thereof, to
         terminate franchises, grants, licenses, permits, contracts or other
         rights or to regulate the property and business of the Company; and any
         and all obligations of the Company correlative to any such rights;

                  (n)      Liens required by law or governmental regulations (i)
         as a condition to the transaction of any business or the exercise of
         any privilege or license, (ii) to enable the Company to maintain
         self-insurance or to participate in any funds established to cover any
         insurance risks, (iii) in connection with workers' compensation,
         unemployment insurance, social security, any pension or welfare benefit
         plan or (iv) to share in the privileges or benefits required for
         companies participating in one or more of the arrangements described in
         clauses (ii) and (iii) above;

                  (o)      Liens on the Mortgaged Property or any part thereof
         which are granted by the Company to secure duties or public or
         statutory obligations or to secure, or serve in lieu of, surety, stay
         or appeal bonds;

                  (p)      rights reserved to or vested in others to take or
         receive any part of any coal, ore, gas, oil and other minerals, any
         timber and/or any electric capacity or energy, gas, water, steam and
         any other products, developed, produced, manufactured, generated,
         purchased or otherwise acquired by the Company or by others on property
         of the Company;

                  (q)      (i) rights and interests of Persons other than the
         Company arising out of contracts, agreements and other instruments to
         which the Company is a party and which

                                      -19-



         relate to the common ownership or joint use of property; and (ii) all
         Liens on the interests of Persons other than the Company in property
         owned in common by such Persons and the Company if and to the extent
         that the enforcement of such Liens would not adversely affect the
         interests of the Company in such property in any material respect;

                  (r)      any restrictions on assignment and/or requirements of
         any assignee to qualify as a permitted assignee and/or a public utility
         or public service corporation;

                  (s)      any Liens which have been bonded for the full amount
         in dispute or for the payment of which other adequate security
         arrangements have been made;

                  (t)      rights and interests granted pursuant to Section
         8.02(c);

                  (u)      Prepaid Liens;

                  (v)      Purchase Money Liens on Mortgaged Property, but only
         to the extent the Company requests the subordination of the lien of
         this Indenture pursuant to Section 8.11;

                  (w)      Liens contemplated by the Plan;

                  (x)      the lien of the 1920 Mortgage prior to the Effective
         Date;

                  (y)      any other Liens which are in existence on the
         Execution Date and do not exceed Twenty Million Dollars ($20,000,000);

                  (z)      any other Liens of whatever nature or kind which do
         not, in the aggregate, exceed Fifty Million Dollars ($50,000,000) to
         the extent in existence in calendar year 2004, provided that with
         respect to any such Liens in existence in any subsequent calendar year,
         such amount shall be increased by the percentage increase in the CPI
         Index for the period commencing on January 1, 2004 and ending on
         January 1 of the applicable calendar year; and

                  (aa)     the lien in favor of the Trustee pursuant to Section
         11.07.

         "PERSON" means any individual, corporation, limited liability
partnership, joint venture, trust or unincorporated organization, or any other
entity, whether or not a legal entity, or any Governmental Authority.

         "PLACE OF PAYMENT", when used with respect to Bonds of any series, or
any Tranche thereof, means the place or places, specified as contemplated by
Section 3.01, at which the principal of and premium, if any, and interest, if
any, on the Bonds of such series or Tranche are payable, subject, in either
case, to Section 7.02.

         "PLAN" means the Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code for Pacific Gas and Electric Company dated July 31, 2003, as
Modified by Modifications Dated November 6, 2003 and December 19, 2003 and as
modified by the Order dated February 27, 2004, Approving Technical Corrections
to Plan of Reorganization and Supplementing

                                      -20-



Confirmation Order to Incorporate such Corrections, and all exhibits,
supplements, appendices and schedules thereto, as the same may be altered,
amended or modified from time to time.

         "PLEDGED SECURITIES" means securities which are made the basis for the
authentication and delivery of Bonds under Section 5.02, the release of Funded
Property under Section 8.03 or the withdrawal of Funded Cash pursuant to Section
5.04 or Section 8.07.

         "PREDECESSOR BOND" of any particular Bond means every previous Bond
evidencing all or a portion of the same debt as that evidenced by such
particular Bond; and, for the purposes of this definition, any Bond
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Bond shall be deemed (to the extent lawful)
to evidence the same debt as the mutilated, destroyed, lost or stolen Bond.

         "PREPAID LIEN" means any Lien securing indebtedness for the payment,
prepayment or redemption of which there shall have been irrevocably deposited in
trust with the trustee or other holder of such Lien moneys and/or investment
property which (together with the interest reasonably expected to be earned from
the investment and reinvestment in investment property of the moneys and/or the
principal of and interest on the investment property so deposited) shall be
sufficient for such purpose; provided, however, that if such indebtedness is to
be redeemed or otherwise prepaid prior to the Stated Maturity thereof, any
notice requisite to such redemption or prepayment shall have been given in
accordance with the instrument creating such Lien or irrevocable instructions to
give such notice shall have been given to such trustee or other holder.

         "PRINCIPAL PROPERTY" means any property of the Company or any
Significant Subsidiary, as applicable, other than (i) property that prior to the
Release Date would have constituted Excepted Property, and (ii) property that
were it to belong to the Company would have constituted Excepted Property prior
to the Release Date.

         "PROPERTY ADDITIONS" has the meaning specified in Section 1.03.

         "PROPERTY ADDITIONS BASIS" means, with respect to any Property
Additions which constitute Unfunded Property, the lesser of the Net Cost or Net
Fair Value to the Company of any such Property Additions as of the date such
amount is certified to the Trustee.

         "PURCHASE MONEY LIEN" means, with respect to any property being
acquired or disposed of by the Company or being released from the lien of this
Indenture, a Lien on such property which:

                  (a)      is taken or retained by the transferor of such
         property to secure all or part of the purchase price thereof;

                  (b)      is granted to one or more Persons other than the
         transferor which, by making advances or incurring an obligation, give
         value to enable the grantor of such Lien to acquire rights in or the
         use of such property;

                  (c)      is granted to any other Person in connection with the
         release of such property from the lien of this Indenture on the basis
         of the deposit with the Trustee of

                                      -21-



         obligations secured by such Lien on such property (as well as any other
         property subject thereto);

                  (d)      is held by a trustee or agent for the benefit of one
         or more Persons described in clause (a), (b) and/or (c) above, provided
         that such Lien may be held, in addition, for the benefit of one or more
         other Persons which shall have theretofore given, or may thereafter
         give, value to or for the benefit or account of the grantor of such
         Lien for one or more other purposes; or

                  (e)      otherwise constitutes a purchase money mortgage or a
         purchase money security interest under applicable law;

and, without limiting the generality of the foregoing, for purposes of this
Indenture, the term Purchase Money Lien shall be deemed to include any Lien
described in clauses (a) through (e) above whether or not such Lien (x) shall
permit the issuance or other incurrence of additional indebtedness secured by
such Lien on such property, (y) shall permit the subjection to such Lien of
additional property and the issuance or other incurrence of additional
indebtedness on the basis thereof and/or (z) shall have been granted prior to
the acquisition, disposition or release of such property, shall attach to or
otherwise cover property other than the property being acquired, disposed of or
released and/or shall secure obligations issued prior and/or subsequent to the
issuance of the obligations delivered in connection with such acquisition,
disposition or release.

         "PURCHASE MONEY OBLIGATIONS" are those obligations secured by a
Purchase Money Lien.

         "REDEMPTION DATE", when used with respect to any Bond to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.

         "REDEMPTION PRICE", when used with respect to any Bond to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture which
price shall include principal of and premium, if any, payable on such Bond but
shall not include any accrued interest payable with respect to such Bond.

         "REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date on the Bonds of any series means the date specified for that purpose as
contemplated by Section 3.01.

         "RELEASE DATE" has the meaning specified in Section 8.12.

         "REQUIRED CURRENCY" has the meaning specified in Section 3.11.

         "RESPONSIBLE OFFICER", when used with respect to the Trustee, means any
officer of the Trustee with direct responsibility for the administration of this
Indenture and also means, with respect to a particular corporate trust matter,
any other officer of the Trustee to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.

         "RETIRED BONDS" means any Bonds authenticated and delivered under this
Indenture which (i) no longer remain Outstanding by reason of the applicability
of clause (a) or (b) in the

                                      -22-



definition of "Outstanding" (other than any Predecessor Bond of any Bond), (ii)
have not been made the basis under any of the provisions of this Indenture of
one or more Authorized Purposes and (iii) have not been paid, redeemed,
purchased or otherwise retired by the application thereto of Funded Cash.

         "SENIOR LIEN" means, with respect to all or any portion of the
Mortgaged Property, a Permitted Lien which is prior to the lien of this
Indenture.

         "SENIOR LIENHOLDER" means any trustee or other holder of a Senior Lien.

         "SENIOR LIEN OBLIGATIONS" means any Purchase Money Obligation secured
by a Purchase Money Lien that is a Senior Lien and any other indebtedness of the
Company for borrowed money secured by a Senior Lien.

         "SIGNIFICANT SUBSIDIARY" shall have the meaning specified in Rule
1-02(w) of Regulation S-X under the Securities Act of 1933, as amended; provided
that, Significant Subsidiary shall not include any Person, substantially all the
assets of which are, or prior to the Release Date would have constituted,
Excepted Property.

         "SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the
Bonds of any series means a date fixed by the Trustee pursuant to Section 3.07.

         "STATED INTEREST RATE" means a rate (whether fixed or variable) at
which an obligation by its terms is stated to bear simple interest. Any
calculation or other determination to be made under this Indenture by reference
to the Stated Interest Rate on an obligation shall be made (a) if the Company's
obligations in respect of any other indebtedness shall be evidenced, enhanced or
secured in whole or in part by such obligation, by reference to the lower of the
Stated Interest Rate on such obligation and the Stated Interest Rate on such
other indebtedness and (b) without regard to the effective interest cost to the
Company of such obligation or of any such other indebtedness.

         "STATED MATURITY", when used with respect to any obligation (including
any Bond of any series) or any installment of principal thereof or interest
thereon, means the date on which the principal of such obligation or such
installment of principal or interest is stated to be due and payable (without
regard to any provisions for redemption, prepayment, acceleration, purchase or
extension).

         "SUBSIDIARY" means (i) any corporation at least a majority of the
outstanding voting stock or interest of which is owned, directly or indirectly,
by the Company or by one or more Subsidiaries, or by the Company and one or more
Subsidiaries or (ii) any other Person (other than a corporation) of which the
Company and/or one or more Subsidiaries has at least a majority ownership and
power to direct the policies, management and affairs. For the purposes of this
definition, "voting stock" means stock having voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.

         "SUCCESSOR CORPORATION" has the meaning specified in Section 13.01.

                                      -23-



         "SUPPLEMENTAL INDENTURE" or "INDENTURE SUPPLEMENTAL HERETO" means an
instrument supplementing or amending this Indenture executed and delivered
pursuant to Article XIV.

         "SWAP AGREEMENT" means any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement involving, or
settled by reference to, one or more rates, currencies, commodities, equity or
debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions.

         "TRANCHE" means a group of Bonds which (a) are of the same series and
(b) have identical terms except as to principal amount and/or date of issuance.

         "TRUST INDENTURE ACT" means, as of any time, the Trust Indenture Act of
1939 or any successor statute, as in effect at such time.

         "TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean the Person which shall have become a successor trustee
pursuant to the applicable provisions of this Indenture, and, if at any time
there is more than one Person acting as trustee hereunder, "Trustee" shall mean
each such Person so acting.

         "UNFUNDED PROPERTY" means that portion of the Mortgaged Property which
does not constitute Funded Property or Funded Cash.

         "UNITED STATES" means the United States of America, its territories,
its possessions and other areas subject to its political jurisdiction.

         "UNSECURED DEBT RATINGS" means the ratings on the long-term unsecured
debt obligations of the Company assigned by Standard & Poor's Ratings Group and
Moody's Investors Service, Inc. or their successors and assigns or, if either or
both rating agencies shall not then rate the Company's long-term unsecured debt
obligations, comparable ratings by any other nationally recognized rating agency
or agencies selected by the Company.

SECTION 1.02. FUNDED PROPERTY; FUNDED CASH.

         "FUNDED PROPERTY" means that portion of the Mortgaged Property which
consists of:

         (a) all Property Additions to the extent that the same shall have been
made the basis of the authentication and delivery of Bonds under this Indenture
pursuant to Section 5.02;

         (b) all Property Additions to the extent that the same shall have been
made the basis of the release of property from the lien of this Indenture
pursuant to Section 8.03;

         (c) all Property Additions to the extent that the same shall have been
substituted for Funded Property Retired pursuant to Section 7.07 or 8.02;

                                      -24-



         (d) all Property Additions to the extent that the same shall have been
made the basis of the withdrawal of cash held by the Trustee pursuant to Section
5.04, 7.07(b) or 8.07; and

         (e) all Property Additions to the extent that the same shall have been
used as the basis of a credit against, or otherwise in satisfaction of, the
requirements of any sinking, improvement, maintenance, replacement or similar
fund or analogous provision established with respect to the Bonds of any series,
or any Tranche thereof, as contemplated by Section 3.01; provided, however, that
any such Property Additions shall cease to be Funded Property when all of the
Bonds of such series or Tranche shall cease to be Outstanding.

         In the event that in any certificate filed with the Trustee in
connection with any of the Property Additions referred to in clauses (a), (b),
(c), (d) and (e) of this Section, only a part of the Property Additions Basis of
the Property Additions described in such certificate shall be required for the
purposes of such certificate, then such Property Additions shall be deemed to be
Funded Property only to the extent so required for the purpose of such
certificate.

         The Company may make allocations, on a pro-rata or other reasonable
basis (including, but not limited to, the designation of specific properties or
the designation of all or a specified portion of the properties reflected in one
or more generic accounts or subaccounts in the Company's books of account), for
the purpose of determining the extent to which fungible properties, or other
properties not otherwise identified, reflected in the same generic account or
subaccount in the Company's books of account (collectively, "generic
properties") constitute Funded Property or Funded Property Retired. To the
extent that such generic properties within any such generic account or
subaccount constitute in part Funded Property and in part Unfunded Property, (i)
any disposition of such generic properties shall, unless otherwise specified by
the Company, be deemed to be a disposition of that portion of the generic
properties which constitutes Unfunded Property prior to any disposition of such
portion which constitutes Funded Property and (ii) any addition of property to
such generic account or subaccount shall, unless otherwise specified by the
Company, be deemed to be Unfunded Property.

         "FUNDED CASH" means that portion of the Mortgaged Property which
consists of:

         (a)      cash, held by the Trustee hereunder, to the extent that it
represents the proceeds of insurance on account of a loss on or with respect to
Funded Property (except as otherwise provided in Section 7.07), or cash
deposited in connection with the release of Funded Property pursuant to Article
VIII, or the payment of the principal of, or the proceeds of the release of,
Purchase Money Obligations delivered to the Trustee pursuant to Article VIII,
all subject, however, to the provisions of Section 7.07 and Section 8.07; and

         (b)      any Deposited Cash.

SECTION 1.03. PROPERTY ADDITIONS; COST.

         (a) "PROPERTY ADDITIONS" means, as of any particular time, any item,
unit or element of property which (i) at such time is owned by the Company, and
(ii) constitutes Mortgaged Property; provided, however, that Property Additions
shall not include:

                                      -25-



              (i)           goodwill, going concern value rights or intangible
     property except as provided in subsection (c) of this Section; or

              (ii)          any property the cost of acquisition or construction
     of which is, in accordance with generally accepted accounting principles,
     properly chargeable to an operating expense account of the Company at the
     time of such acquisition or construction.

         (b) When any Property Additions which constitute Unfunded Property are
certified to the Trustee as the basis of any Authorized Purpose (except as
otherwise provided in Section 8.03 and Section 8.07),

              (i)           there shall be deducted from the Property Additions
     Basis thereof an amount equal to the Funded Property Basis of all Funded
     Property Retired to the date of such certification (other than the Funded
     Property, if any, in connection with the application for the release of
     which such certificate is filed) and not theretofore deducted from the
     Property Additions Basis of Property Additions theretofore certified to the
     Trustee, and

              (ii)          there may, at the option of the Company, be added to
     such Property Additions Basis, the sum of

                  (A) the principal amount of any Purchase Money Obligations,
         not theretofore so added and which the Company then elects so to add,
         which shall theretofore have been delivered to the Trustee as the basis
         of the release of Funded Property Retired from the lien of this
         Indenture;

                  (B) one hundred fifty percent (150%) of the amount of any
         cash, not theretofore so added and which the Company then elects so to
         add, which shall theretofore have been delivered to the Trustee as the
         proceeds of insurance on Funded Property Retired (to the extent of the
         portion thereof deemed to be Funded Cash) or as the basis of the
         release of Funded Property Retired from the lien of this Indenture;

                  (C) one hundred fifty percent (150%) of the principal amount
         of any Bond or Bonds, or portion of such principal amount, not
         theretofore so added and which the Company then elects so to add, (I)
         which shall theretofore have been delivered to the Trustee as the basis
         of the release of Funded Property Retired or (II) the right to the
         authentication and delivery of which under the provisions of Section
         5.03 shall at any time theretofore have been waived under Section
         8.03(d)(ii)(C) as the basis of the release of Funded Property Retired;

                  (D) the Adjusted Funded Property Basis of any Property
         Additions, not theretofore so added and which the Company then elects
         so to add, which shall theretofore have been made the basis of the
         release of Funded Property Retired pursuant to Section 8.03; and

                  (E) the Net Cost to the Company of any Property Additions, not
         theretofore so added and which the Company then elects so to add, to
         the extent that the same shall have been substituted for Funded
         Property Retired;

                                      -26-



provided, however, that the aggregate of the amounts added under clause (ii)
above shall in no event exceed the amounts deducted under clause (i) above.

         (c) Except as otherwise provided in Section 8.03, the term "COST" with
respect to Property Additions shall mean the sum of (i) any cash delivered in
payment therefor or for the acquisition thereof, (ii) an amount equivalent to
the fair market value in cash (as of the date of delivery) of any securities or
other property delivered in payment therefor or for the acquisition thereof,
(iii) the principal amount of any obligations secured by a Lien upon such
Property Additions outstanding at the time of the acquisition thereof; (iv) the
principal amount of any other obligations incurred or assumed in connection with
the payment for such Property Additions or for the acquisition thereof, which
obligations are not otherwise secured by a Lien on such Property Additions, and
(v) any other amounts which, in accordance with generally accepted accounting
principles, are properly charged or chargeable to the plant or other property
accounts of the Company with respect to such Property Additions as part of the
cost of construction or acquisition thereof, including, but not limited to, any
allowance for funds used during construction or any similar or analogous amount,
and construction work in progress; provided, however, that, notwithstanding any
other provision of this Indenture,

                  (A) with respect to Property Additions owned by a Successor
         Corporation immediately prior to the time it shall have become such by
         consolidation or merger or acquired by a Successor Corporation in or as
         a result of a consolidation or merger (excluding, in any case, Property
         Additions owned by the Company immediately prior to such time), Cost
         shall mean the amount or amounts at which such Property Additions are
         recorded in the plant or other property accounts of such Successor
         Corporation, or the predecessor entity from which such Property
         Additions are acquired, as the case may be, immediately prior to such
         consolidation or merger;

                  (B) with respect to Property Additions which shall have been
         acquired (otherwise than by construction) by the Company without any
         consideration consisting of cash, securities or other property or the
         incurring or assumption of indebtedness, no determination of Cost shall
         be required, and, wherever in this Indenture provision is made for Cost
         or Fair Value, Cost with respect to such Property Additions shall mean
         an amount equal to the Fair Value to the Company thereof or, if
         greater, the aggregate amount reflected in the Company's books of
         account with respect thereto upon the acquisition thereof; and

                  (C) in no event shall the Cost of Property Additions be
         required to reflect (i) any depreciation or amortization in respect of
         such Property Additions, (ii) any adjustment to the amount or amounts
         at which such Property Additions are recorded in plant or other
         property accounts due to the non-recoverability of investment or
         otherwise, or (iii) at the election of the Company, reductions for
         contributions in aid of construction.

         If any Property Additions are shown by the Expert's Certificate
provided for in Section 5.02(b)(ii) to include Acquired Facilities, the Cost
thereof need not be reduced by any amount in respect of any goodwill, going
concern value rights and/or intangible property simultaneously acquired for
which no separate or distinct consideration shall have been paid or apportioned,
and

                                      -27-



in such case the term Property Additions as defined herein may include such
goodwill, going concern value rights and intangible property.

SECTION 1.04. COMPLIANCE CERTIFICATES AND OPINIONS.

         Except as otherwise expressly provided in this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, it being understood that
in the case of any such application or request as to which the furnishing of
such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.

         Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than the
certificates provided pursuant to Section 7.10) shall include:

         (a) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;

         (b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;

         (c) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable such Person
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

         (d) a statement as to whether, in the opinion of each such Person, such
condition or covenant has been complied with.

SECTION 1.05. CONTENT AND FORM OF DOCUMENTS DELIVERED TO TRUSTEE.

         Any Officer's Certificate may be based (without further examination or
investigation), insofar as it relates to or is dependent upon legal matters,
upon an opinion of, or representations by, counsel, and, insofar as it relates
to or is dependent upon matters which are subject to verification by
Accountants, upon a certificate or opinion of, or representations by, an
Accountant, and, insofar as it relates to or is dependent upon matters which are
required in this Indenture to be covered by a certificate or opinion of, or
representations by, an Expert, upon the certificate or opinion of, or
representations by, an Expert, unless, in any case, such officer has actual
knowledge that the certificate or opinion or representations with respect to the
matters upon which such Officer's Certificate may be based as aforesaid are
erroneous.

         Any Expert's Certificate may be based (without further examination or
investigation), insofar as it relates to or is dependent upon legal matters,
upon an opinion of, or representations by, counsel, and insofar as it relates to
or is dependent upon factual matters, information with respect to which is in
the possession of the Company and which are not subject to verification by

                                      -28-



Experts, upon a certificate or opinion of, or representations by, an officer or
officers of the Company, unless such Expert has actual knowledge that the
certificate or opinion or representations with respect to the matters upon which
his certificate or opinion may be based as aforesaid are erroneous.

         Any certificate of an Accountant may be based (without further
examination or investigation), insofar as it relates to or is dependent upon
legal matters, upon an opinion of, or representations by, counsel, and insofar
as it relates to or is dependent upon factual matters, information with respect
to which is in the possession of the Company and which are not subject to
verification by Accountants, upon a certificate of, or representations by, an
officer or officers of the Company, unless such Accountant has actual knowledge
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion may be based as aforesaid are erroneous.

         Any Opinion of Counsel may be based (without further examination or
investigation), insofar as it relates to or is dependent upon factual matters,
information with respect to which is in the possession of the Company, upon a
certificate of, or representations by, an officer or officers of the Company,
and, insofar as it relates to or is dependent upon matters which are subject to
verification by Accountants upon a certificate or opinion of, or representations
by, an Accountant, and, insofar as it relates to or is dependent upon matters
required in this Indenture to be covered by a certificate or opinion of, or
representations by, an Expert, upon the certificate or opinion of, or
representations by, an Expert, unless such counsel has actual knowledge that the
certificate or opinion or representations with respect to the matters upon which
his opinion may be based as aforesaid are erroneous. In addition, any Opinion of
Counsel may be based (without further examination or investigation), insofar as
it relates to or is dependent upon matters covered in an Opinion of Counsel
rendered by other counsel, upon such other Opinion of Counsel, unless such
counsel has actual knowledge that the Opinion of Counsel rendered by such other
counsel with respect to the matters upon which his Opinion of Counsel may be
based as aforesaid are erroneous. Further, any Opinion of Counsel with respect
to the status of title to or the sufficiency of descriptions of property, and/or
the existence, perfection or priority of Liens thereon, and/or the recording or
filing of documents, and/or any similar matters, may be based (without further
examination or investigation) upon (i) title insurance policies or commitments
and reports, lien search certificates and other similar documents or (ii)
certificates of, or representations by, officers, employees, agents and/or other
representatives of the Company or (iii) any combination of the documents
referred to in (i) and (ii), unless, in any case, such counsel has actual
knowledge that the document or documents with respect to the matters upon which
his opinion may be based as aforesaid are erroneous. If, in order to render any
Opinion of Counsel provided for herein, the signer thereof shall deem it
necessary that additional facts or matters be stated in any Officer's
Certificate, certificate of an Accountant or Expert's Certificate provided for
herein, then such certificate may state all such additional facts or matters as
the signer of such Opinion of Counsel may request.

         In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give

                                      -29-



an opinion as to such matters in one or several documents. Where any Person is
required to make, give or execute two or more applications, requests, consents,
certificates, statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.

         Whenever, subsequent to the receipt by the Trustee of any Board
Resolution, Officer's Certificate, Expert's Certificate, Opinion of Counsel or
other document or instrument, a clerical, typographical or other inadvertent or
unintentional error or omission shall be discovered therein, a new document or
instrument may be substituted therefor in corrected form with the same force and
effect as if originally filed in the corrected form and, irrespective of the
date or dates of the actual execution and/or delivery thereof, such substitute
document or instrument shall be deemed to have been executed and/or delivered as
of the date or dates required with respect to the document or instrument for
which it is substituted. Anything in this Indenture to the contrary
notwithstanding, if any such corrective document or instrument indicates that
action has been taken by or at the request of the Company which could not have
been taken had the original document or instrument not contained such error or
omission, the action so taken shall not be invalidated or otherwise rendered
ineffective but shall be and remain in full force and effect, except to the
extent that such action was a result of willful misconduct or bad faith. Without
limiting the generality of the foregoing, any Bonds issued under the authority
of such defective document or instrument shall nevertheless be the valid
obligations of the Company entitled to the benefit of the lien of this Indenture
equally and ratably with all other Outstanding Bonds, except as aforesaid.

SECTION 1.06. ACTS OF HOLDERS.

         (a) Any request, demand, authorization, direction, notice, consent,
election, waiver or other action provided by this Indenture to be made, given or
taken by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing or, alternatively, may be embodied in and evidenced by the
record of Holders voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders duly called and held in
accordance with the provisions of Article XV, or a combination of such
instruments and any such record. Except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments or record
or both are delivered to the Trustee and, where it is hereby expressly required,
to the Company. Such instrument or instruments and any such record (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Holders signing such instrument or instruments and so voting
at any such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Bond, shall be
sufficient for any purpose of this Indenture and (subject to Section 11.01)
conclusive in favor of the Trustee and the Company, if made in the manner
provided in this Section. The record of any meeting of Holders shall be proved
in the manner provided in Section 15.06.

         (b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof or may

                                      -30-



be proved in any other manner which the Trustee and the Company deem sufficient.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.

         (c) The ownership, principal amount (except as otherwise contemplated
in clause (y) of the first proviso to the definition of Outstanding) and serial
numbers of Bonds held by any Person, and the date of holding the same, shall be
proved by the Bond Register.

         (d) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of a Holder shall bind every future Holder of the
same Bond and the Holder of every Bond issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in reliance
thereon, whether or not notation of such action is made upon such Bond.

         (e) Until such time as written instruments shall have been delivered to
the Trustee with respect to the requisite percentage of principal amount of
Bonds for the action contemplated by such instruments, any such instrument
executed and delivered by or on behalf of a Holder may be revoked with respect
to any or all of such Bonds by written notice by such Holder or any subsequent
Holder, proven in the manner in which such instrument was proven.

         (f) Bonds of any series, or any Tranche thereof, authenticated and
delivered after any Act of Holders may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any action taken by such
Act of Holders. If the Company shall so determine, new Bonds of any series, or
any Tranche thereof, so modified as to conform, in the opinion of the Trustee
and the Company, to such action may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Bonds of
such series or Tranche.

         (g) The Company may, at its option, by Company Order, fix in advance a
record date for the determination of Holders entitled to give any request,
demand, authorization, direction, notice, consent, waiver or other Act solicited
by the Company, but the Company shall have no obligation to do so. In addition,
the Trustee may, at its option, fix in advance a record date for the
determination of Holders entitled to join in the giving or making of any Notice
of Default, any declaration of acceleration referred to in Section 10.02, any
request to institute proceedings referred to in Section 10.11 or any direction
referred to in Section 10.16. If any such record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act, or such
notice, declaration, request or direction, may be given before or after such
record date, but only the Holders of record at the close of business on the
record date shall be deemed to be Holders for the purposes of determining (i)
whether Holders of the requisite proportion of the Outstanding Bonds have
authorized or agreed or consented to such Act (and for that purpose the
Outstanding Bonds shall be computed as of the record date) and/or (ii) which
Holders may revoke any such Act (notwithstanding subsection (e) of this
Section); and any such Act, given as aforesaid, shall be effective whether or
not the Holders which authorized or agreed or consented to such Act remain
Holders after such record date and whether or not the Bonds held by such Holders
remain Outstanding after such record date.

                                      -31-



SECTION 1.07. NOTICES, ETC. TO TRUSTEE AND COMPANY.

         Except as otherwise provided herein, any request, demand,
authorization, direction, notice, consent, election, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made or served
upon, given or furnished to, or filed with, the Trustee by any Holder or by the
Company, or the Company by the Trustee or by any Holder, shall be sufficient for
every purpose hereunder (unless otherwise expressly provided herein) if the same
shall be in writing and delivered personally to the addressee (which delivery,
with respect to the Trustee, shall be made to its Corporate Trust Office and
addressed to the attention of the Corporate Trust Department), or transmitted by
facsimile transmission or other direct written electronic means to such
telephone number or other electronic communications address as the parties
hereto shall from time to time designate, or transmitted by registered or
certified mail, return receipt requested, or overnight courier guaranteeing next
day delivery, charges prepaid, to the applicable address set forth opposite such
party's name below or to such other address as either party hereto may from time
to time designate:

                           If to the Trustee, to:

                                    BNY Western Trust Company
                                    550 Kearny Street, Suite 600
                                    San Francisco, California 94108
                                    Attention: Corporate Trust Administration
                                    Fax: (415) 399-1647

                           If to the Company, to:

                                    Pacific Gas and Electric Company
                                    77 Beale Street (street address)
                                    P.O. Box 770000
                                    San Francisco, California 94177
                                    Attention: Treasurer and Assistant Treasurer
                                    Fax: (415) 267-7253/267-7265

         Any communication contemplated herein shall be deemed to have been
made, given, furnished and filed if personally delivered, on the date of
delivery, if transmitted by facsimile transmission or other direct written
electronic means, on the date of transmission, and if transmitted by registered
or certified mail or reputable overnight courier, on the date of receipt.

SECTION 1.08. NOTICE TO HOLDERS OF BONDS; WAIVER.

         Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given, and shall be deemed given, to Holders if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at the
address of such Holder as it appears in the Bond Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice.

                                      -32-



         In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice to
Holders by mail, then such notification as shall be made with the approval of
the Trustee shall constitute a sufficient notification for every purpose
hereunder. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders.

         Any notice required by this Indenture may be waived in writing by the
Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.

SECTION 1.09. CONFLICT WITH TRUST INDENTURE ACT.

         If any provision of this Indenture limits, qualifies or conflicts with
another provision hereof which is required or deemed to be included in this
Indenture by any provision of the Trust Indenture Act, the provision required or
deemed to be included by the Trust Indenture Act shall control; and if any
provision hereof otherwise conflicts with the Trust Indenture Act, or limits,
qualifies or conflicts with the duties imposed by Section 318(c) of the Trust
Indenture Act, the Trust Indenture Act, including the duties imposed by Section
318(c) of the Trust Indenture Act, shall control.

SECTION 1.10. EFFECT OF HEADINGS AND TABLE OF CONTENTS.

         The Article and Section headings in this Indenture and the Table of
Contents are for convenience only and shall not affect the construction hereof.

SECTION 1.11. SUCCESSORS AND ASSIGNS.

         All covenants and agreements in this Indenture by the Company and the
Trustee shall bind their respective successors and assigns, whether so expressed
or not.

SECTION 1.12. SEPARABILITY CLAUSE.

         In case any provision in this Indenture or the Bonds shall be held to
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

SECTION 1.13. BENEFITS OF INDENTURE.

         Nothing in this Indenture or the Bonds, express or implied, shall give
to any Person, other than the parties hereto, their successors hereunder and the
Holders, any benefit or any legal or equitable right, remedy or claim under this
Indenture.

                                      -33-



SECTION 1.14. GOVERNING LAW.

         This Indenture and the Bonds shall be governed by, and construed and
enforced in accordance with, the laws of the State of California without regard
to the principles of conflicts of laws thereunder, except to the extent that the
Trust Indenture Act shall be applicable.

SECTION 1.15. LEGAL HOLIDAYS.

         In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Bond shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of the Bonds other
than a provision in Bonds of any series, or any Tranche thereof, or in the
indenture supplemental hereto, Board Resolution or Officer's Certificate which
establishes the terms of the Bonds of such series or Tranche, which specifically
states that such provision shall apply in lieu of this Section) payment of
interest or principal and premium, if any, need not be made at such Place of
Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on the Interest
Payment Date or Redemption Date, or at the Stated Maturity, and, if such payment
is made or duly provided for on such Business Day, no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be, to such Business Day.

SECTION 1.16. INVESTMENT OF CASH HELD BY TRUSTEE.

         Any cash held by the Trustee or any Paying Agent under any provision of
this Indenture shall, except as otherwise provided in Section 8.06 or in Article
IX, at the request of the Company evidenced by Company Order, be invested or
reinvested in Investment Securities designated by the Company (such Company
Order to contain a representation to the effect that the securities designated
therein constitute Investment Securities), and any interest on such Investment
Securities shall be promptly paid over to the Company as received free and clear
of any Lien. Such Investment Securities shall be held subject to the same
provisions hereof as the cash used to purchase the same, but upon a like request
of the Company shall be sold, in whole or in designated part, and the proceeds
of such sale shall be held subject to the same provisions hereof as the cash
used to purchase the Investment Securities so sold. If such sale shall produce a
net sum less than the cost of the Investment Securities so sold, the Company
shall pay to the Trustee or any such Paying Agent, as the case may be, such
amount in cash as, together with the net proceeds from such sale, shall equal
the cost of the Investment Securities so sold, and if such sale shall produce a
net sum greater than the cost of the Investment Securities so sold, the Trustee
or any such Paying Agent, as the case may be, shall promptly pay over to the
Company an amount in cash equal to such excess, free and clear of any Lien. In
no event shall the Trustee be liable for any loss incurred in connection with
the sale of any Investment Security pursuant to this Section. In the absence of
a Company Order directing the Trustee to invest cash held by the Trustee
hereunder, the Company hereby directs the Trustee to invest such cash in
Government Obligations having maturities of less than one year until the Trustee
shall have received a Company Order directing the Trustee to invest such cash in
another Investment Security. The Trustee shall not be accountable or liable for
any losses resulting from the sale or depreciation in the market value of
investments made pursuant to this Indenture and Company Orders.

                                      -34-



Notwithstanding the foregoing, if an Event of Default shall have occurred and be
continuing, interest on Investment Securities and any gain upon the sale thereof
shall be held as part of the Mortgaged Property until such Event of Default
shall have been cured or waived, whereupon such interest and gain shall be
promptly paid over to the Company free and clear of any Lien.

                                   ARTICLE II

                                   BOND FORMS

SECTION 2.01. FORMS GENERALLY.

         The definitive Bonds of each series shall be in substantially the form
or forms established in the indenture supplemental hereto establishing such
series, or in a Board Resolution establishing such series, or in an Officer's
Certificate pursuant to such a supplemental indenture or Board Resolution, in
any case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Bonds, as evidenced by their execution of the Bonds. If
the form or forms of Bonds of any series are established in a Board Resolution
or in an Officer's Certificate pursuant to a supplemental indenture or a Board
Resolution, such Board Resolution and Officer's Certificate, if any, shall be
delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 5.01 for the authentication and delivery of such Bonds.

         The Bonds of each series shall be issuable in registered form without
coupons. The definitive Bonds shall be produced in such manner as shall be
determined by the officers executing such Bonds, as evidenced by their execution
thereof.

SECTION 2.02. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.

         The Trustee's certificate of authentication shall be in substantially
the form set forth below:

                  This is one of the Bonds of the series designated therein
         referred to in the within-mentioned Indenture.

                             [NAME OF TRUSTEE], as Trustee

                             By: _________________________________
                                      Authorized Signatory

                                      -35-



                                  ARTICLE III

                                    THE BONDS

SECTION 3.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES.

         Subject to the provisions of Article V, the aggregate principal amount
of Bonds which may be authenticated and delivered under this Indenture is
unlimited.

         The Bonds may be issued in one or more series. Subject to the
penultimate paragraph of this Section, prior to the authentication and delivery
of Bonds of any series there shall be established by specification in a
supplemental indenture or in a Board Resolution, or in an Officer's Certificate
pursuant to a supplemental indenture or a Board Resolution:

         (a) the title of the Bonds of such series (which shall distinguish the
Bonds of such series from Bonds of all other series);

         (b) any limit upon the aggregate principal amount of the Bonds of such
series which may be authenticated and delivered under this Indenture (except for
Bonds authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Bonds of such series pursuant to Section
3.04, 3.05, 3.06, 6.06 or 14.06 and except for any Bonds which, pursuant to
Section 3.03, are deemed never to have been authenticated and delivered
hereunder);

         (c) the Persons (without specific identification) to whom interest on
Bonds of such series, or any Tranche thereof, shall be payable on any Interest
Payment Date, if other than the Persons in whose names such Bonds (or one or
more Predecessor Bonds) are registered at the close of business on the Regular
Record Date for such interest;

         (d) the date or dates on which the principal of the Bonds of such
series, or any Tranche thereof, is payable or any formula or other method or
other means by which such date or dates shall be determined, by reference to an
index or other fact or event ascertainable outside of this Indenture or
otherwise (without regard to any provisions for redemption, prepayment,
acceleration, purchase or extension) and the right, if any, to extend the
Maturity of the Bonds of such series, or any Tranche thereof, and the duration
of any such extension;

         (e) the rate or rates (or method of determination thereof) at which any
Bonds of such series, or any Tranche thereof, shall bear interest, if any
(including the rate or rates at which overdue principal shall bear interest, if
different from the rate or rates at which such Bonds shall bear interest prior
to Maturity, and, if applicable, the rate or rates at which overdue premium or
interest shall bear interest, if any), or any formula or other method or other
means by which such rate or rates shall be determined, by reference to an index
or other fact or event ascertainable outside of this Indenture or otherwise; the
date or dates from which any such interest shall accrue (or method of
determination thereof); the Interest Payment Dates on which any such interest
shall be payable (or method of determination thereof) and the Regular Record
Date, if any (which, in either case or both, if so provided in or pursuant to
such Board Resolution or supplemental indenture, may be determined by the
Company from time to time and set forth in the Bonds of such series, or any
Tranche thereof, issued from time to time) for any such interest

                                      -36-



payable on any Interest Payment Date; the basis of computation of interest if
other than as provided in Section 3.10; and the right, if any, to extend the
interest payment periods and the duration of any such extension;

         (f) the place or places at which and/or the methods (if other than as
provided elsewhere in this Indenture) by which (i) the principal of and premium,
if any, and interest, if any, on Bonds of such series, or any Tranche thereof,
shall be payable, (ii) registration of transfer of Bonds of such series, or any
Tranche thereof, may be effected, (iii) exchanges of Bonds of such series, or
any Tranche thereof, may be effected and (iv) notices and demands to or upon the
Company in respect of the Bonds of such series, or any Tranche thereof, and this
Indenture may be made, given, furnished, filed or served, if other than as
provided in Section 1.07; the Bond Registrar and any Paying Agent or Agents for
such series or Tranche; and, if such is the case, that the principal of such
Bonds shall be payable without the presentment or surrender thereof;

         (g) if the time for the giving of redemption notices for such series of
Bonds, or any Tranche thereof, shall be other than as provided in Section 6.04,
such different time, and the period or periods within which or the date or dates
on which, the price or prices at which and the terms and conditions upon which
the Bonds of such series, or any Tranche thereof, may be redeemed, in whole or
in part, at the option of the Company (including, without limitation, any
provision for the payment of a "make-whole", yield-maintenance or similar
premium in connection with the redemption of Bonds of such series during a
"no-call" or other period during which such Bonds are generally not subject to
optional redemption by the Company) and any restrictions on such redemptions;

         (h) the obligation or obligations, if any, of the Company to redeem,
purchase or repay the Bonds of such series, or any Tranche thereof, pursuant to
any sinking fund or other mandatory redemption provisions or at the option of a
Holder thereof and the period or periods within which or the date or dates on
which, the price or prices at which and the terms and conditions upon which such
Bonds shall be redeemed, purchased or repaid, in whole or in part, pursuant to
such obligation, and applicable exceptions to the requirements of Section 6.04
in the case of mandatory redemption or redemption or repayment at the option of
the Holder;

         (i) the denominations in which Bonds of such series, or any Tranche
thereof, shall be issuable if other than denominations of One Thousand Dollars
($1,000) and any integral multiple thereof;

         (j) the currency or currencies, including composite currencies, in
which payment of the principal of and premium, if any, and interest, if any, on
the Bonds of such series, or any Tranche thereof, shall be payable (if other
than in Dollars); it being understood that, for purposes of calculations under
this Indenture (including calculations of principal amount under Article V), any
amounts denominated in a currency other than Dollars or in a composite currency
shall be converted to Dollar equivalents by calculating the amount of Dollars
which could have been purchased by the amount of such other currency based on
such quotations or methods of determination as shall be specified pursuant to
this clause (j);

         (k) if the principal of or premium, if any, or interest, if any, on the
Bonds of such series, or any Tranche thereof, are to be payable, at the election
of the Company or a Holder thereof, in

                                      -37-



a coin or currency other than that in which the Bonds are stated to be payable,
the coin or currency in which payment of any amount as to which such election is
made will be payable, the period or periods within which, and the terms and
conditions upon which, such election may be made; it being understood that, for
purposes of calculations under this Indenture (including calculations of
principal amount under Article V), any such election shall be required to be
taken into account, in the manner contemplated in clause (j) of this paragraph,
only after such election shall have been made;

         (l) if the principal of or premium, if any, or interest, if any, on the
Bonds of such series, or any Tranche thereof, are to be payable, or are to be
payable at the election of the Company or a Holder thereof, in securities or
other property, the type and amount of such securities or other property, or the
formula or other method or other means by which such amount shall be determined,
and the period or periods within which, and the terms and conditions upon which,
any such election may be made; it being understood that all calculations under
this Indenture (including calculations of principal amount under Article V)
shall be made on the basis of the fair market value of such securities or the
Fair Value of such other property, in either case determined as of the most
recent practicable date, except that, in the case of any amount of principal or
interest that may be so payable at the election of the Company or a Holder, if
such election shall not yet have been made, such calculations shall be made on
the basis of the amount of principal or interest, as the case may be, that would
be payable if no such election were made;

         (m) if the amount payable in respect of principal of or premium, if
any, or interest, if any, on the Bonds of such series, or any Tranche thereof,
may be determined with reference to an index, formula or other fact or event
ascertainable outside of this Indenture, the manner in which such amounts shall
be determined (to the extent not established pursuant to clause (e) of this
paragraph); it being understood that all calculations under this Indenture
(including calculations of principal amount under Article V) shall be made on
the basis of the amount that would be payable as principal if such principal
were due, or on the basis of the interest rates in effect, as the case may be,
on the date next preceding the date of such calculation;

         (n) if other than the entire principal amount thereof, the portion of
the principal amount of Bonds of such series, or any Tranche thereof, which
shall be payable upon declaration of acceleration of the Maturity thereof
pursuant to Section 10.02;

         (o) the terms, if any, pursuant to which the Bonds of such series, or
any Tranche thereof, may be converted into or exchanged for shares of capital
stock or other securities of the Company or any other Person;

         (p) the obligations or instruments, if any, which shall be considered
to be Eligible Obligations in respect of the Bonds of such series, or any
Tranche thereof, denominated in a currency other than Dollars or in a composite
currency, and any additional or alternative provisions for the reinstatement of
the Company's indebtedness in respect of such Bonds after the satisfaction and
discharge thereof as provided in Section 9.01;

         (q) (i) whether the Bonds of such series, or any Tranche thereof, are
to be issued as Global Bonds and if such Bonds are to be issued as Global Bonds,
the Depositary for such Global Bonds, (ii) any limitations on the rights of the
Holder or Holders of such Bonds to

                                      -38-



transfer or exchange the same or to obtain the registration of transfer thereof,
if other than as provided in Section 3.05, (iii) any limitations on the rights
of the Holder or Holders thereof to obtain certificates therefor in definitive
form in lieu of temporary form, and (iv) any and all other matters incidental to
such Bonds;

         (r) to the extent not established pursuant to clause (q) of this
paragraph, any limitations on the rights of the Holders of the Bonds of such
Series, or any Tranche thereof, to transfer or exchange such Bonds or to obtain
the registration of transfer thereof; and if a service charge will be made for
the registration of transfer or exchange of Bonds of such series, or any Tranche
thereof, the amount or terms thereof;

         (s) any exceptions to Section 1.15, or variation in the definition of
Business Day, with respect to the Bonds of such series, or any Tranche thereof;

         (t) if the principal of Bonds of such series is payable from time to
time without presentation or surrender, any method or manner of calculating the
principal amount of Bonds of such series that is Outstanding at any time for
purposes of this Indenture, if other than as specified in the last proviso of
the definition of "Outstanding";

         (u) provisions, if any, for the exchange of certificates representing
Bonds to reflect the release of the lien of this Indenture on the Release Date,
and changes, if any, to the title and CUSIP number of the Bonds or any other
changes necessary to reflect the release of the lien of this Indenture on the
Release Date; and

         (v) any other terms of the Bonds of such series, or any Tranche
thereof.

         With respect to Bonds of a series subject to a Periodic Offering, the
indenture supplemental hereto or the Board Resolution which establishes such
series, or the Officer's Certificate pursuant to such supplemental indenture or
Board Resolution, as the case may be, may provide general terms or parameters
for Bonds of such series and provide either that the specific terms of Bonds of
such series, or any Tranche thereof, shall be specified in a Company Order or
that such terms shall be determined by the Company or its agents in accordance
with procedures specified in a Company Order as contemplated by Section 5.01(b).

         Anything herein to the contrary notwithstanding, the Trustee shall be
under no obligation to authenticate and deliver Bonds of any series the terms of
which, established as contemplated by this Section, would adversely affect the
rights, duties, obligations, liabilities or immunities of the Trustee under this
Indenture or otherwise.

SECTION 3.02. DENOMINATIONS.

         Unless otherwise provided as contemplated by Section 3.01 with respect
to any series of Bonds, or any Tranche thereof, the Bonds of each series shall
be issuable in denominations of One Thousand Dollars ($1,000) and any integral
multiple thereof.

                                      -39-



SECTION 3.03. EXECUTION, DATING, CERTIFICATE OF AUTHENTICATION.

         Unless otherwise provided as contemplated by Section 3.01 with respect
to any series of Bonds, or any Tranche thereof, the Bonds shall be executed on
behalf of the Company by any two of the following: the President, the Chief
Executive Officer, any Vice President, the Chief Financial Officer, the
Treasurer or any Assistant Treasurer. The corporate seal of the Company may be
affixed thereto or reproduced thereon and attested by any Authorized Officer.
The signature of any or all of these officers on the Bonds may be manual or
facsimile.

         Bonds bearing the manual or facsimile signatures of individuals who
were at the time of execution the President, the Chief Executive Officer, a Vice
President, the Chief Financial Officer, the Treasurer or an Assistant Treasurer
of the Company shall bind the Company, notwithstanding that such individuals or
any of them have ceased to hold such offices prior to the authentication and
delivery of such Bonds or did not hold such offices at the date of such Bonds.

         Unless otherwise specified as contemplated by Section 3.01 with respect
to any series of Bonds, or any Tranche thereof, each Bond shall be dated the
date of its authentication.

         Unless otherwise specified as contemplated by Section 3.01 with respect
to any series of Bonds, or any Tranche thereof, no Bond shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose unless
there appears on such Bond a certificate of authentication substantially in the
form provided for herein executed by the Trustee or an Authenticating Agent by
manual signature of an authorized officer thereof, and such certificate upon any
Bond shall be conclusive evidence, and the only evidence, that such Bond has
been duly authenticated and delivered hereunder and is entitled to the benefits
of this Indenture. Notwithstanding the foregoing, if any Bond shall have been
authenticated and delivered hereunder to the Company, or any Person acting on
its behalf, but shall never have been issued and sold (or pledged) by the
Company, and (a) the Company shall deliver such Bond to the Bond Registrar for
cancellation or shall cancel such Bond and deliver evidence of such cancellation
to the Trustee, in each case as provided in Section 3.09, and (b) the Company,
at its election, shall deliver to the Trustee a written statement (which need
not comply with Section 1.04 and need not be accompanied by an Officer's
Certificate or an Opinion of Counsel) stating that such Bond has never been
issued and sold (or pledged) by the Company, then, for all purposes of this
Indenture, such Bond shall be deemed never to have been authenticated and
delivered hereunder and shall never be entitled to the benefits hereof.

SECTION 3.04. TEMPORARY BONDS.

         Pending the preparation of definitive Bonds of any series, or any
Tranche thereof, the Company may execute, and upon Company Order the Trustee
shall authenticate and deliver, temporary Bonds which are printed, lithographed,
typewritten, mimeographed, photocopied or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Bonds in lieu of
which they are issued, with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Bonds may
determine, as evidenced by their execution of such Bonds.

                                      -40-



         Except as otherwise specified as contemplated by Section 3.01 with
respect to the Bonds of any series, or any Tranche thereof, after the
preparation of definitive Bonds of such series or Tranche, the temporary Bonds
of such series or Tranche shall be exchangeable, without charge to the Holder
thereof, for definitive Bonds of such series or Tranche upon surrender of such
temporary Bonds at the office or agency of the Company maintained pursuant to
Section 7.02 in a Place of Payment for such Bonds. Upon such surrender of
temporary Bonds, the Company shall, except as otherwise specified as
contemplated by Section 3.01, execute and the Trustee shall authenticate and
deliver in exchange therefor definitive Bonds of the same series and Tranche, of
authorized denominations and of like tenor and aggregate principal amount.

         Until exchanged in full as hereinabove provided, temporary Bonds shall
in all respects be entitled to the same benefits under this Indenture as
definitive Bonds of the same series and Tranche and of like tenor authenticated
and delivered hereunder.

SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.

         The Company shall cause to be kept in one of the offices designated
pursuant to Section 7.02, with respect to the Bonds of each series, or any
Tranche thereof, a register (the "Bond Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Bonds of such series or Tranche and the registration of transfer
thereof. Pursuant to Section 3.01(f), the Company shall designate one Person to
maintain the Bond Register for the Bonds of each series, and such Person is
referred to herein, with respect to such series, as the "Bond Registrar."
Anything herein to the contrary notwithstanding, the Company may designate one
or more of its offices as an office in which a Bond Register with respect to the
Bonds of one or more series, or any Tranche or Tranches thereof, shall be
maintained, and the Company may designate itself the Bond Registrar with respect
to one or more of such series. The Bond Register(s) shall be open for inspection
by the Trustee and the Company at all reasonable times.

         Except as otherwise specified as contemplated by Section 3.01 with
respect to the Bonds of any series, or any Tranche thereof, and except as
provided below with respect to Global Bonds, upon surrender for registration of
transfer of any Bond of such series or Tranche at the office or agency of the
Company maintained pursuant to Section 7.02 in a Place of Payment for such
series or Tranche, the Company shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Bonds of the same series and Tranche, of authorized denominations and
of like tenor and aggregate principal amount.

         Except as otherwise specified as contemplated by Section 3.01 with
respect to the Bonds of any series, or any Tranche thereof, any Bond of such
series or Tranche may be exchanged at the option of the Holder, for one or more
new Bonds of the same series and Tranche, of authorized denominations and of
like tenor and aggregate principal amount, upon surrender of the Bonds to be
exchanged at any such office or agency. Whenever any Bonds are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Bonds which the Holder making the exchange is entitled to receive.

                                      -41-



         All Bonds delivered upon any registration of transfer or exchange of
Bonds shall be valid obligations of the Company, evidencing the same obligation,
and entitled to the same benefits under this Indenture, as the Bonds surrendered
upon such registration of transfer or exchange. Every Bond presented or
surrendered for registration of transfer shall be duly endorsed or shall be
accompanied by a written instrument of transfer in form satisfactory to the
Company, the Trustee or the Bond Registrar, as the case may be, duly executed by
the Holder thereof or his attorney duly authorized in writing. Every Bond
presented or surrendered for exchange shall (if so required by the Company, the
Trustee or the Bond Registrar) be duly endorsed or shall be accompanied by a
written instrument of transfer in form satisfactory to the Company, the Trustee
or the Bond Registrar, as the case may be, duly executed by the Holder thereof
or such Holder's attorney duly authorized in writing.

         Unless otherwise specified as contemplated by Section 3.01 with respect
to Bonds of any series, or any Tranche thereof, no service charge shall be made
for any registration of transfer or exchange of Bonds, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Bonds, other than exchanges pursuant to Section 3.04, 6.06 or 14.06
not involving any transfer.

         The Company shall not be required to execute or to provide for the
registration of transfer of or the exchange of (a) Bonds of any series, or any
Tranche thereof, during a period of fifteen (15) days immediately preceding the
date notice is to be given identifying the serial numbers of the Bonds of such
series or Tranche called for redemption or (b) any Bond so selected for
redemption in whole or in part, except the unredeemed portion of any Bond being
redeemed in part.

         Notwithstanding any other provision of this Section, unless and until
it is exchanged in whole or in part for Bonds in definitive form, a Global Bond
representing all or a portion of the Bonds of a series, or Tranche thereof, may
not be transferred except as a whole by the Depositary for such series or
Tranche to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor Depositary for such series, or Tranche thereof,
or a nominee of such successor Depositary.

         If at any time (i) the Depositary for the Bonds of a series, or a
Tranche thereof, notifies the Company that it is unwilling or unable to continue
as Depositary for the Bonds of such series or Tranche or that it is no longer
eligible under Section 3.13, and in any such case the Company has not appointed
a successor Depositary within 90 days after delivery of such notice, (ii) there
has occurred and is continuing an Event of Default, or (iii) the Company in its
sole discretion determines that the Bonds of any series, or any Tranche thereof,
issued in the form of one or more Global Bonds shall no longer be represented by
such Global Bond or Bonds, then in each such event the Company will execute, and
the Trustee, upon receipt of a Company Order for the authentication and delivery
of definitive Bonds of such series or Tranche, will authenticate and deliver,
Bonds of such series in definitive form and in an aggregate principal amount
equal to the principal amount of the Global Bond or Bonds representing such
series or Tranche in exchange for such Global Bond or Bonds.

                                      -42-



         In addition, if specified by the Company pursuant to Section 3.01 with
respect to a series of Bonds, or Tranche thereof, the Depositary for such series
of Bonds may surrender a Global Bond for such series or Tranche of Bonds in
exchange in whole or in part for Bonds of such series or Tranche in definitive
form on such terms as are acceptable to the Company and such Depositary.
Thereupon, the Company shall authenticate and deliver, without charge:

                  (i)      to each Person specified by such Depositary a new
         Bond or Bonds of the same series or Tranche, of any authorized
         denomination as requested by such Person in aggregate principal amount
         equal to and in exchange for such Person's beneficial interest in the
         Global Bonds; and

                  (ii)     to such Depositary a new Global Bond in a
         denomination equal to the difference, if any, between the principal
         amount of the surrendered Global Bond and the aggregate principal
         amount of Bonds delivered to Holders thereof.

         Bonds issued in exchange for a Global Bond pursuant to this Section
shall be registered in such names and in such authorized denominations as the
Depositary for such Global Bond, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Bonds to the Persons in whose names such Bonds are so
registered.

SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN BONDS.

         If any mutilated Bond is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Bond of the same series and Tranche, and of like tenor and principal amount
and bearing a number not contemporaneously outstanding.

         If there shall be delivered to the Company and the Trustee (a) evidence
to their satisfaction of the ownership of and the destruction, loss or theft of
any Bond and (b) such security or indemnity as may be reasonably required by
them to save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company or the Trustee that such Bond is held by a
protected purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen Bond, a
new Bond of the same series and Tranche, and of like tenor and principal amount
and bearing a number not contemporaneously outstanding.

         Notwithstanding the foregoing, in case any such mutilated, destroyed,
lost or stolen Bond has become or is about to become due and payable, the
Company in its discretion may, but subject to compliance with the foregoing
conditions, instead of issuing a new Bond, pay such Bond.

         Upon the issuance of any new Bond under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other reasonable expenses
(including the fees and expenses of the Trustee) connected therewith.

                                      -43-



         Every new Bond of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Bond shall constitute an additional contractual
obligation of the Company, whether or not the destroyed, lost or stolen Bond
shall be at any time enforceable by anyone other than the Holder of such new
Bond, and any such new Bond shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Bonds of such
series duly issued hereunder.

         The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Bonds.

SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.

         Unless otherwise specified as contemplated by Section 3.01 with respect
to the Bonds of any series, or any Tranche thereof, interest on any Bond which
is payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name that Bond (or one or more
Predecessor Bonds) is registered at the close of business on the Regular Record
Date for such interest, except that, unless otherwise provided in the Bonds of
such series, interest payable on the Stated Maturity of the principal of a Bond
shall be paid to the Person to whom principal is paid. The initial payment of
interest on any Bond of any series which is issued between a Regular Record Date
and the related Interest Payment Date shall be payable as provided in such Bond
or in a Board Resolution, Officer's Certificate or supplemental indenture
pursuant to Section 3.01 with respect to the related series of Bonds. Except in
the case of a Global Bond at the option of the Company, interest on any series
of Bonds may be paid by (i) check mailed to the address of the Person entitled
thereto as it shall appear on the Bond Register of such series or (ii) wire
transfer in immediately available funds at such place and to such account as
designated in writing by the Person entitled thereto as specified in the Bond
Register of such series.

         Any interest on any Bond of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the related Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (a) or (b) below:

         (a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Bonds of such series (or their respective
Predecessor Bonds) are registered at the close of business on a date (herein
called a "Special Record Date") for the payment of such Defaulted Interest,
which shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid on
each Bond of such series and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit on or prior
to the date of the proposed payment, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted Interest as in
this clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than thirty (30)
days and not less than ten (10) days

                                      -44-



prior to the date of the proposed payment and not less than twenty-five (25)
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall, not less than fifteen (15)
days prior to such Special Record Date, cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be given to each
Holder of Bonds of such series. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the Bonds of such
series (or their respective Predecessor Bonds) are registered at the close of
business on such Special Record Date.

         (b) The Company may make payment of any Defaulted Interest on the Bonds
of any series in any other lawful manner not inconsistent with the requirements
of any securities exchange on which such Bonds may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause, such
manner of payment shall be deemed practicable by the Trustee.

         Subject to the foregoing provisions of this Section and Section 3.05,
each Bond delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Bond shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Bond.

SECTION 3.08. PERSONS DEEMED OWNERS.

         The Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name any Bond is registered as the absolute owner
of such Bond for the purpose of receiving payment of principal of and premium,
if any, and (subject to Sections 3.05 and 3.07) interest, if any, on such Bond
and for all other purposes whatsoever, whether or not such Bond be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.

SECTION 3.09. CANCELLATION BY BOND REGISTRAR.

         All Bonds surrendered for payment, redemption, registration of transfer
or exchange shall, if surrendered to any Person other than the Bond Registrar,
be delivered to the Bond Registrar and, if not theretofore canceled, shall be
promptly canceled by the Bond Registrar. The Company may at any time deliver to
the Bond Registrar for cancellation any Bonds previously authenticated and
delivered hereunder which the Company may have acquired in any manner whatsoever
or which the Company shall not have issued and sold (or pledged), and all Bonds
so delivered shall be promptly canceled by the Bond Registrar. No Bonds shall be
authenticated in lieu of or in exchange for any Bonds canceled as provided in
this Section, except as expressly permitted by this Indenture. All canceled
Bonds held by the Bond Registrar shall be disposed of in accordance with the
Bond Registrar's then customary practice for disposing of securities, unless
otherwise directed by a Company Order.

SECTION 3.10. COMPUTATION OF INTEREST.

         Except as otherwise specified as contemplated by Section 3.01 for Bonds
of any series, or any Tranche thereof, interest on the Bonds of each series
shall be computed on the basis of a

                                      -45-



three hundred sixty (360) day year consisting of twelve (12) thirty (30) day
months and, with respect to any period less than a full calendar month, on the
basis of the actual number of days elapsed during such period.

SECTION 3.11. PAYMENT TO BE IN PROPER CURRENCY.

         In the case of the Bonds of any series, or any Tranche thereof,
denominated in any currency other than Dollars or in a composite currency (the
"Required Currency"), except as otherwise specified with respect to such Bonds
as contemplated by Section 3.01, the obligation of the Company to make any
payment of the principal thereof, or the premium, if any, or interest, if any,
thereon, shall not be discharged or satisfied by any tender by the Company, or
recovery by the Trustee, in any currency other than the Required Currency,
except to the extent that such tender or recovery shall result in the Trustee
timely holding the full amount of the Required Currency then due and payable. If
any such tender or recovery is in a currency other than the Required Currency,
the Trustee may take such actions as it considers appropriate to exchange such
currency for the Required Currency. The costs and risks of any such exchange,
including without limitation the risks of delay and exchange rate fluctuation,
shall be borne by the Company, the Company shall remain fully liable for any
shortfall or delinquency in the full amount of Required Currency then due and
payable, and in no circumstances shall the Trustee be liable therefor except in
the case of its negligence or willful misconduct.

SECTION 3.12. CUSIP NUMBERS.

         The Company, in issuing the Bonds, may use "CUSIP" or other similar
numbers (if then generally in use), and, if so, the Trustee or Bond Registrar
may use CUSIP or such other numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Bonds or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Bonds, in which case none of the
Company or, as the case may be, the Trustee or the Bond Registrar, or any agent
of any of them, shall have any liability in respect of any CUSIP number used on
any such notice, and any such redemption shall not be affected by any defect in
or omission of such numbers. The Company will promptly notify the Trustee of any
change in the CUSIP numbers.

SECTION 3.13. GLOBAL BONDS.

         If the Company shall establish pursuant to Section 3.01(q) that the
Bonds of a series, or a Tranche thereof, are to be issued in whole or in part in
the form of one or more Global Bonds, then the Company shall execute and the
Trustee shall, in accordance with this Section and the Company Order with
respect to such series or Tranche, authenticate and deliver one or more Global
Bonds in temporary or permanent form that (i) shall represent and shall be
denominated in an aggregate amount equal to the aggregate principal amount of
the Outstanding Bonds of such series or Tranche, to be represented by one or
more Global Bonds, (ii) shall be registered in the name of the Depositary for
such Global Bond or Bonds or the nominee of such Depositary, (iii) shall be
delivered by the Trustee to such Depositary or pursuant to such Depositary's
instruction or held by the Trustee as custodian for the Depositary, and (iv)
shall bear a legend substantially to the following effect: "Unless and until it
is exchanged in whole or in part for

                                      -46-



Bonds in definitive form, this Bond may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary."

         The Company may at any time designate another Person to act as
Depositary in place of the Person designated pursuant to Section 3.01(q). Each
Depositary designated pursuant to Section 3.01(q) or otherwise for a Global Bond
must, at the time of its designation and at all times while it serves as
Depositary, be a clearing agency registered under the Exchange Act and any other
applicable statute or regulation.

                                   ARTICLE IV

                           BONDS OF THE INITIAL SERIES

         There are hereby established five series of Bonds (herein sometimes
referred to as "Bonds of the First Series," "Bonds of the Second Series," "Bonds
of the Third Series," "Bonds of the Fourth Series" and "Bonds of the Fifth
Series" and collectively as "Bonds of the Initial Series"). The form,
designation and terms of the Bonds of the Initial Series and the establishment
of any additional series comprising Bonds of the Initial Series or the
elimination of any series comprising Bonds of the Initial Series established by
this Article but not issued shall be established in a supplemental indenture or
a Board Resolution, and/or in an Officer's Certificate pursuant to a
supplemental indenture or a Board Resolution in accordance with Section 3.01.

                                    ARTICLE V

                                ISSUANCE OF BONDS

SECTION 5.01. GENERAL.

         Prior to the Release Date and subject to the provisions of Section
5.02, 5.03 or 5.04, whichever may be applicable, the Trustee shall authenticate
and deliver Bonds of a series, for original issue, at one time or from time to
time in accordance with the Company Order referred to below, upon receipt by the
Trustee of:

         (a) the instrument or instruments establishing the form or forms and
terms of such series, as provided in Sections 2.01 and 3.01;

         (b) a Company Order requesting the authentication and delivery of such
Bonds and, to the extent that the terms of such Bonds shall not have been
established in an indenture supplemental hereto or in a Board Resolution, or in
an Officer's Certificate pursuant to a supplemental indenture or Board
Resolution, all as contemplated by Section 3.01, either (i) establishing such
terms or (ii) in the case of Bonds of a series subject to a Periodic Offering,
specifying procedures by which such terms are to be established (which
procedures may provide for authentication and delivery pursuant to oral or
electronic instructions from the Company or any agent or agents thereof, which
oral instructions are to be promptly confirmed electronically

                                      -47-



or in writing), in either case in accordance with the instrument or instruments
delivered pursuant to clause (a) above;

         (c) the Bonds of such series, executed on behalf of the Company by an
officer specified in Section 3.03;

         (d) an Opinion of Counsel to the effect that:

              (i)           the form or forms of such Bonds have been duly
     authorized by the Company and have been established in conformity with the
     provisions of this Indenture;

              (ii)          the terms of such Bonds have been duly authorized by
     the Company and have been established in conformity with the provisions of
     this Indenture; and

              (iii)         when such Bonds shall have been authenticated and
     delivered by the Trustee and issued and delivered by the Company in the
     manner and subject to any conditions specified in such Opinion of Counsel,
     such Bonds will constitute valid obligations of the Company, entitled to
     the benefit of the lien of this Indenture, equally and ratably with all
     other Outstanding Bonds without any priority of any one Bond over any other
     Bond;

provided, however, that, with respect to Bonds of a series subject to a Periodic
Offering, the Trustee shall be entitled to receive such Opinion of Counsel only
once at or prior to the time of the first authentication and delivery of such
Bonds (provided that such Opinion of Counsel addresses the authentication and
delivery of all such Bonds) and that, in lieu of the opinions described in
clauses (ii) and (iii) above, counsel may opine that:

                  (x)      when the terms of such Bonds shall have been
         established pursuant to a Company Order or Orders or pursuant to such
         procedures as may be specified from time to time by a Company Order or
         Orders, all as contemplated by and in accordance with the instrument or
         instruments delivered pursuant to clause (a) above, such terms will
         have been duly authorized by the Company and will have been established
         in conformity with the provisions of this Indenture; and

                  (y)      when such Bonds shall have been authenticated and
         delivered by the Trustee in accordance with this Indenture and the
         Company Order or Orders or the specified procedures referred to in
         paragraph (x) above and issued and delivered by the Company in the
         manner and subject to any conditions specified in such Opinion of
         Counsel, such Bonds will constitute valid obligations of the Company,
         entitled to the benefit of the lien of the Indenture, equally and
         ratably with all other Outstanding Bonds without any priority of any
         one Bond over any other Bond;

         (e) an Officer's Certificate to the effect that, to the knowledge of
the signer, no Event of Default has occurred and is continuing; provided,
however, that with respect to Bonds of a series subject to a Periodic Offering,
either (i) such an Officer's Certificate shall be delivered at the time of the
authentication and delivery of each Bond of such series or (ii) the Officer's
Certificate delivered at or prior to the time of the first authentication and
delivery of the Bonds of such series shall state that the statements therein
shall be deemed to be made at the time of each, or each subsequent,
authentication and delivery of Bonds of such series;

                                      -48-



         (f) such other Opinions of Counsel, certificates and other documents as
may be required under Section 5.02, 5.03 or 5.04, whichever may be applicable to
the authentication and delivery of the Bonds of such series; and

         (g) except with respect to the issuance of the Bonds of the Initial
Series, a Net Earnings Certificate showing the Net Income of the Company for the
period therein specified to have been not less than an amount equal to two (2)
times the Annual Interest Requirements therein specified; provided, however,
that the Trustee shall not be entitled to receive a Net Earnings Certificate
hereunder if the Bonds of such series are to have no Stated Interest Rate prior
to Maturity; and provided, further, that, with respect to Bonds of a series
subject to a Periodic Offering, other than Bonds theretofore authenticated and
delivered, (i) it shall be assumed in the Net Earnings Certificate delivered in
connection with the authentication and delivery of Bonds of such series that
none of the Bonds of such series not yet authenticated and delivered shall have
a Stated Interest Rate in excess of a maximum rate to be stated therein, and
thereafter no Bonds of such series which would have a Stated Interest Rate at
the time of the initial authentication and delivery thereof in excess of such
maximum rate shall be authenticated and delivered under the authority of such
Net Earnings Certificate but instead shall only be authenticated and delivered
under the authority of a new Net Earnings Certificate which complies with the
requirements of this clause (g), including the proviso relating to Bonds of a
series subject to a Periodic Offering, and (ii) so long as the Stated Interest
Rate that Bonds of a series subject to a Periodic Offering bear at the time of
the initial authentication and delivery thereof does not exceed the maximum rate
assumed in the most recent Net Earnings Certificate delivered with respect to
the Bonds of such series, the Trustee shall not be entitled to receive a new Net
Earnings Certificate at the time of any subsequent authentication and delivery
of the Bonds of such series (unless such Bonds are authenticated and delivered
on or after the date which is two (2) years after the most recent Net Earnings
Certificate with respect to such series was delivered pursuant to this clause
(g), in which case this subclause (ii) shall not apply).

         For purposes of clause (g), "Net Earnings Certificate" means a
certificate signed by an Authorized Officer and an Accountant stating:

         (1) the "Net Income" of the Company for a period of twelve (12)
consecutive calendar months within the eighteen (18) calendar months immediately
preceding the first day of the month in which the Company Order requesting the
authentication and delivery under this Indenture of Bonds is delivered to the
Trustee specifying:

                  (A) its operating revenues (which may include revenues of the
Company subject to possible refund at a future date);

                  (B) its expenses, excluding (i) expenses for taxes paid or
accrued on income or profits and other taxes measured by, or dependent on, net
income, (ii) provisions for reserves for renewals, replacements, depreciation,
amortization, depletion or retirement of property (or any expenditures
therefor), (iii) expenses or provisions for interest on any indebtedness of the
Company (including interest on Capital Lease Obligations), for the amortization
of debt discount, premium, expense or loss on reacquired debt, for the
amortization of payments made on Swap Agreements, for any maintenance and
replacement, improvement or sinking fund or other device for the retirement of
any indebtedness, or for other amortization, (iv) expenses,

                                      -49-



losses or provisions for any non-recurring or extraordinary charge to income or
to retained earnings of whatever kind or nature (including, without limitation,
the recognition of expense or impairment due to the non-recoverability of assets
or expense, charges for changes in accounting principles recorded in accordance
with generally accepted accounting principles and non-cash writedowns, book
losses or other charges) ("Non-Recurring Charges"), whether or not recorded as a
non-recurring or extraordinary charge in the Company's books of account, and (v)
provisions for any refund of revenues previously collected or accrued by the
Company subject to possible refund;

                  (C) the amount remaining after deducting the amount required
to be stated in such certificate by clause (B) above from the amount required to
be stated therein by clause (A) above;

                  (D) its other income, net of related expenses (excluding
Non-Recurring Charges, whether or not recorded as non-recurring or extraordinary
charges on the Company's books of account), including, but not limited to,
non-utility operating income, cash distributions received from subsidiaries of
the Company, any allowance for funds used during construction, and including any
portion of such allowance, or of any such analogous amounts, not included in
"other items" (or any analogous item) in the Company's books of account, and
other deferred costs (or any analogous amounts) in the Company's books of
account; and any amounts collected by others to be applied to debt service on
indebtedness of the Company, and not otherwise treated on the Company's books as
revenue; and

                  (E) the Net Income of the Company for such period of twelve
(12) consecutive calendar months (being the sum of the amounts required to be
stated in such certificate by clauses (C) and (D) above); and

         (2) the "Annual Interest Requirements," being the interest requirements
for one year, at the respective Stated Interest Rates, if any, borne prior to
Maturity, upon:

                  (A) all Bonds Outstanding hereunder at the date of such
certificate (excluding any Bonds that will be paid or redeemed through Bonds
described in (B) below); provided, however, that, if Outstanding Bonds of any
series or Tranche bear interest at a variable rate or rates, then the interest
requirement on the Bonds of such series or Tranche shall be determined by
reference to the rate or rates in effect on two (2) Business Days immediately
preceding the date of such certificate;

                  (B) all Bonds then applied for in pending applications for the
original issuance of Bonds, including the application in connection with which
such certificate is made; provided, however, that if Bonds of any series or
Tranche are to bear interest at a variable rate or rates, then the interest
requirement on the Bonds of such series or Tranche shall be determined by
reference to the rate or rates to be in effect at the time of the initial
authentication and delivery of such Bonds or, if such rate or rates are not
determinable at such time, then by reference to the Company's good faith
estimate of the rate or rates to be in effect at the time of the initial
authentication and delivery of such Bonds; and provided, further, that the
determination of the interest requirement on Bonds of a series subject to a
Periodic Offering shall be further subject to the other provisions of clause (g)
above; and

                                      -50-



                  (C) the principal amount of all other indebtedness secured by
a Senior Lien upon the Mortgaged Property or any part thereof (except (i)
indebtedness of the Company the repayment of which supports or is supported by
other indebtedness included in Annual Interest Requirements pursuant to one of
the other clauses of this definition and (ii) indebtedness outstanding on the
date of such certificate secured by a Prepaid Lien upon Mortgaged Property
outstanding on the date of such certificate and secured by a lien on a parity
with or prior to the lien of this Indenture upon Mortgaged Property), if such
indebtedness has been issued, assumed or guaranteed by the Company or if the
Company customarily pays the interest upon the principal thereof; provided,
however, that if any such indebtedness bears interest at a variable rate or
rates, then the interest requirement on such indebtedness shall be determined by
reference to the rate or rates in effect two (2) Business Days immediately
preceding the date of such certificate.

         If any of the property of the Company owned by it at the time of the
making of any Net Earnings Certificate (a) shall have been acquired during or
after any period for which Net Income of the Company are to be computed, (b)
shall not have been acquired in exchange or substitution for property the net
earnings of which have been included in the Net Income of the Company and (c)
had been operated as a separate unit and items of revenue and expense
attributable thereto are readily ascertainable by the Company, then the net
earnings of such property (computed in the manner that clause (g) above provides
for the computation of the Net Income of the Company) during such period or such
part of such period as shall have preceded the acquisition thereof, to the
extent that the same have not otherwise been included in the Net Income of the
Company, shall be so included.

         In any case where a Net Earnings Certificate is required as a condition
precedent to the authentication and delivery of Bonds, such certificate shall be
accompanied by a certificate signed by an Independent Accountant if the
aggregate principal amount of Bonds then applied for plus the aggregate
principal amount of Bonds authenticated and delivered hereunder since the
commencement of the then current calendar year (other than those with respect to
which a Net Earnings Certificate is not required, or with respect to which a Net
Earnings Certificate accompanied by a certificate signed by an Independent
Accountant has previously been furnished to the Trustee) is ten percent (10%) or
more of the sum of (a) the principal amount of the Bonds at the time
Outstanding, which certificate shall provide that such Independent Accountant
has reviewed the Net Earnings Certificate and that such Independent Accountant
has no knowledge that any statements in such Net Earnings Certificate are not
true; but no such certificate need be signed by an Independent Accountant, as to
dates or periods not covered by annual reports required to be filed by the
Company, with respect to conditions precedent which depend upon a state of facts
as of a date or dates or for a period or periods different from that required to
be covered by such annual reports.

         With respect to Bonds of a series subject to a Periodic Offering, the
Trustee may conclusively rely, as to the authorization by the Company of any of
such Bonds, the forms and terms thereof, the validity thereof and the compliance
of the authentication and delivery thereof with the terms and conditions of this
Indenture, upon the Opinion or Opinions of Counsel and the certificates and
other documents delivered pursuant to this Article V at or prior to the time of
the first authentication and delivery of Bonds of such series until (i) such
time as the Trustee has received written notice that any of such opinions,
certificates or other documents have been

                                      -51-



superseded or revoked or (ii) such opinions, certificates or other documents
expire by their terms. In connection with the authentication and delivery of
Bonds of a series subject to a Periodic Offering, the Trustee shall be entitled
to assume that the Company's instructions to authenticate and deliver such Bonds
do not violate any applicable law or any applicable rule, regulation or order of
any Governmental Authority having jurisdiction over the Company.

SECTION 5.02. ISSUANCE OF BONDS ON THE BASIS OF PROPERTY ADDITIONS.

         Prior to the Release Date,

         (a) Bonds of any one or more series may be authenticated and delivered
on the basis of Property Additions which, prior to the issuance of such Bonds,
constitute Unfunded Property, in a principal amount not exceeding sixty-six and
two-thirds percent (662/3%) of the Adjusted Property Additions Basis of such
Property Additions.

         (b) Bonds of any series shall be authenticated and delivered by the
Trustee on the basis of Property Additions which, prior to the issuance of such
Bonds, constitute Unfunded Property, upon receipt by the Trustee of:

              (i)           the documents with respect to the Bonds of such
     series specified in Section 5.01;

              (ii)          an Expert's Certificate dated as of a date not more
     than ninety (90) days prior to the date of the Company Order requesting the
     authentication and delivery of such Bonds, substantially in the form
     attached hereto as Schedule 1,

                  (A) describing all property constituting Property Additions
         and designated by the Company, in its discretion, to be made the basis
         of the authentication and delivery of such Bonds (such description of
         property to be made by reference, at the election of the Company,
         either to specified items, units and/or elements of property or
         portions thereof, on a percentage or Dollar basis, or to properties
         reflected in specified accounts or subaccounts in the Company's books
         of account or portions thereof, on a Dollar basis), and stating that
         all such property constitutes Property Additions and is not subject to
         any Lien thereon prior to the lien of this Indenture except Permitted
         Liens;

                  (B) stating (I) the Cost of such Property Additions, (II) to
         the extent such Property Additions are subject to a Senior Lien
         securing Senior Lien Obligations, the outstanding principal amount of
         such Senior Lien Obligations as of the date of such certificate, and
         (III) the Net Cost of such Property Additions;

                  (C) stating that such Property Additions are desirable for use
         in the conduct of the business, or one of the businesses, of the
         Company;

                  (D) stating that such Property Additions, to the extent of the
         Property Additions Basis thereof that is to be made the basis of the
         authentication and delivery of such Bonds, constitute, prior to the
         issuance of such Bonds, Unfunded Property;

                                      -52-



                  (E) stating, except as to such Property Additions acquired,
         made or constructed wholly through the delivery of securities or
         property other than cash, the amount of cash forming all or part of the
         Cost thereof;

                  (F) briefly describing, with respect to any Property Additions
         acquired, made or constructed in whole or in part through the delivery
         of securities or property other than cash, the securities or other
         property so delivered, stating the date of such delivery and stating,
         in the judgment of the signers, the fair market value in cash of such
         securities or other property at the time of delivery thereof in payment
         for the acquisition or construction of such Property Additions;

                  (G) stating what part, if any, of such Property Additions
         includes property which constitutes an Acquired Facility and stating
         whether or not, in the judgment of the signers, the Fair Value to the
         Company of any such Acquired Facility, as of the date of such
         certificate, is a De Minimis Amount;

                  (H) stating (I) in the judgment of the signers, the Fair Value
         to the Company, as of the date of such certificate, of such Property
         Additions, except any thereof with respect to the Fair Value to the
         Company of which a statement is to be made in an Independent Expert's
         Certificate pursuant to clause (iii) below, and (II) the Net Fair Value
         of such Property Additions;

                  (I) if any property included in such Property Additions is
         subject to a Lien of the character described (x) in clause (f) of the
         definition of Permitted Liens, stating that such Lien does not, in the
         judgment of the signers, materially impair the use by the Company of
         the Mortgaged Property considered as a whole for the purposes for which
         it is held by the Company, or (y) in clause (j)(ii) of the definition
         of Permitted Liens, stating that such Lien does not, in the judgment of
         the signers, materially impair the use by the Company of such Mortgaged
         Property for the purposes for which it is held by the Company or (z) in
         clause (q)(ii) of the definition of Permitted Liens, stating that the
         enforcement of such Lien would not, in the judgment of the signers,
         adversely affect the interests of the Company in such Mortgaged
         Property in any material respect;

                  (J) stating the amount required to be deducted under Section
         1.03(b)(i) and the amounts elected to be added under Section
         1.03(b)(ii) in respect of Funded Property Retired of the Company;

                  (K) stating the Adjusted Property Additions Basis of such
         Property Additions;

                  (L) stating the amount equal to sixty-six and two-thirds
         percent (662/3%) of the Adjusted Property Additions Basis stated
         pursuant to clause (K) above; and

                  (M) stating the aggregate principal amount of the Bonds to be
         authenticated and delivered on the basis of such Property Additions
         (such amount not to exceed the amount stated pursuant to clause (L)
         above);

              (iii)         if any Property Additions are shown by the Expert's
     Certificate provided for in clause (ii) above to include property which
     constitutes an Acquired Facility or Pledged

                                      -53-



     Securities and such certificate does not show the Fair Value thereof to the
     Company as of the date of such certificate to be a De Minimis Amount, an
     Independent Expert's Certificate stating, in the judgment of the signer,
     the Fair Value to the Company, as of the date of such Independent Expert's
     Certificate, of (X) such Property Additions which constitute an Acquired
     Facility and (at the option of the Company) as to any other Property
     Additions included in the Expert's Certificate provided for in clause (ii)
     above, (Y) such Pledged Securities, and (Z) in case such Independent
     Expert's Certificate is being delivered in connection with the
     authentication and delivery of Bonds, any other Acquired Facility or
     Pledged Securities which have been subjected to the lien of this Indenture
     since the commencement of the then current calendar year as the basis for
     the authentication and delivery of Bonds and as to which an Independent
     Expert's Certificate has not previously been furnished to the Trustee;

              (iv)          an Opinion of Counsel to the effect that:

                  (A) this Indenture creates, or upon the taking of actions
         specified in said opinion, will create a lien on all the Property
         Additions to be made the basis of the authentication and delivery of
         such Bonds, subject, to the knowledge of such counsel, to no Lien
         thereon prior to the lien of this Indenture, except Permitted Liens;
         and

                  (B) the Company has corporate authority to operate such
         Property Additions; and

              (v)           copies of the instruments of conveyance, assignment
     and transfer, if any, specified in the Opinion of Counsel provided for in
     clause (iv) above.

SECTION 5.03. ISSUANCE OF BONDS ON THE BASIS OF RETIRED BONDS.

         Prior to the Release Date:

         (a) Bonds of any one or more series may be authenticated and delivered
on the basis of, and in an aggregate principal amount not exceeding the
aggregate principal amount of, Retired Bonds.

         (b) Bonds of any series shall be authenticated and delivered by the
Trustee on the basis of Retired Bonds upon receipt by the Trustee of:

              (i)           the documents with respect to the Bonds of such
     series specified in Section 5.01; and

              (ii)          an Officer's Certificate stating that (1) Bonds,
     specified by series, in an aggregate principal amount not less than the
     aggregate principal amount of Bonds to be authenticated and delivered on
     the basis of Retired Bonds pursuant to this Section 5.03, have theretofore
     been authenticated and delivered, (2) such Bonds are the basis for the
     authentication and delivery of Bonds pursuant to this Section 5.03, and (3)
     such Bonds constitute Retired Bonds as of the date of such Officer's
     Certificate or concurrently with the authentication and delivery of the
     Bonds will constitute Retired Bonds.

                                      -54-



SECTION 5.04. ISSUANCE OF BONDS ON THE BASIS OF DEPOSIT OF CASH.

         Prior to the Release Date:

         (a) Bonds of any one or more series may be authenticated and delivered
on the basis of, and in an aggregate principal not exceeding the amount of, any
deposit with the Trustee of cash for such purpose.

         (b) Bonds of any series shall be authenticated and delivered by the
Trustee on the basis of the deposit of cash when the Trustee shall have
received, in addition to such deposit, the documents with respect to the Bonds
of such series specified in Section 5.01.

         (c) All cash deposited with the Trustee under the provisions of this
Section (herein referred to as "Deposited Cash") shall be held by the Trustee,
shall constitute Mortgaged Property and may be withdrawn from time to time by
the Company free and clear of any Lien, upon delivery of a Company Order to the
Trustee, in an amount equal to the aggregate principal amount of Bonds to the
authentication and delivery of which the Company shall be entitled under Section
5.02 or 5.03 hereof.

         In case such withdrawal of Deposited Cash is, in whole or in part,
based upon Property Additions which constitute Unfunded Property, the Company
shall comply with Section 5.02 as if such Property Additions were being made the
basis for the authentication and delivery of Bonds thereon equivalent in
principal amount to the amount of the Deposited Cash to be withdrawn on such
basis; or in case the withdrawal of Deposited Cash is, in whole or in part,
based upon the right to the authentication and delivery of Bonds based on the
delivery to the Trustee of Retired Bonds, the Company shall comply with Section
5.03 relating to such authentication and delivery, recognizing that, in each
such case, the action being taken is the withdrawal of Deposited Cash rather
than the authentication and delivery of Bonds; provided, however, that the
Company shall not in any event be required to deliver the documents specified in
Section 5.01 or the Accountant's Certificate specified in Section 5.02(b)(vi).

         Any withdrawal of Deposited Cash under this subsection (c) shall
operate as a waiver by the Company of its right to the authentication and
delivery of the Bonds on which such withdrawal is based and such Bonds may not
thereafter be authenticated and delivered hereunder. Any Property Additions
which have been made the basis of any such right to the authentication and
delivery of Bonds so waived shall be deemed to have been made the basis of the
withdrawal of such Deposited Cash and shall constitute Funded Property
hereunder; and any Retired Bonds which have been made the basis of any such
right to the authentication and delivery of Bonds so waived shall be deemed to
have been made the basis of the withdrawal of such Deposited Cash.

         (d) If at any time the Company shall so direct, any Deposited Cash may
be used or applied to the purchase, payment or redemption of Bonds in the manner
and subject to the conditions provided in clauses (d) and (e) of Section 8.07.

                                      -55-



                                   ARTICLE VI

                               REDEMPTION OF BONDS

SECTION 6.01. APPLICABILITY OF ARTICLE.

         Bonds of any series, or any Tranche thereof, which are redeemable
before their Stated Maturity shall be redeemable in accordance with their terms
and (except as otherwise specified as contemplated by Section 3.01 for Bonds of
such series or Tranche) in accordance with this Article.

SECTION 6.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE.

         The election of the Company to redeem any Bonds shall be evidenced by a
Board Resolution or an Officer's Certificate. The Company shall, at least
forty-five (45) days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee in
writing of such Redemption Date and of the principal amount of such Bonds to be
redeemed. In the case of any redemption of Bonds (a) prior to the expiration of
any restriction on such redemption provided in the terms of such Bonds or
elsewhere in this Indenture or (b) pursuant to an election of the Company which
is subject to a condition specified in the terms of such Bonds, the Company
shall furnish the Trustee with an Officer's Certificate evidencing compliance
with such restriction or condition.

SECTION 6.03. SELECTION OF BONDS TO BE REDEEMED.

         If less than all the Bonds of any series, or any Tranche thereof, are
to be redeemed, the particular Bonds to be redeemed shall be selected by the
Bond Registrar from the Outstanding Bonds of such series or Tranche not
previously called for redemption, by such method as shall be provided for any
particular series or Tranche, or, in the absence of any such provision, by such
method of random selection as the Bond Registrar shall deem fair and appropriate
and which may, in any case, provide for the selection for redemption of portions
(equal to the minimum authorized denomination for Bonds of such series or
Tranche or any integral multiple thereof) of the principal amount of Bonds of
such series or Tranche having a denomination larger than the minimum authorized
denomination for Bonds of such series or Tranche; provided, however, that if, as
indicated in an Officer's Certificate, the Company shall have offered to
purchase all or any principal amount of the Bonds then Outstanding of any
series, or any Tranche thereof, and less than all of such Bonds as to which such
offer was made shall have been tendered to the Company for such purchase, the
Bond Registrar, if so directed by Company Order, shall select for redemption all
or any principal amount of such Bonds which have not been so tendered.

         The Bond Registrar shall promptly notify the Company and the Trustee in
writing of the Bonds selected for redemption and, in the case of any Bonds
selected to be redeemed in part, the principal amount thereof to be redeemed.

         For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Bonds shall relate, in
the case of any Bonds redeemed or to be redeemed only in part, to the portion of
the principal amount of such Bonds which has been or is to be redeemed.

                                      -56-



SECTION 6.04. NOTICE OF REDEMPTION.

         Unless otherwise specified with respect to any series of Bonds, or any
Tranche thereof, in accordance with Section 3.01, notice of redemption shall be
given in the manner provided in Section 1.08 to the Holders of the Bonds to be
redeemed not less than thirty (30) nor more than sixty (60) days prior to the
Redemption Date.

         All notices of redemption shall state:

         (a) the Redemption Date,

         (b) the Redemption Price,

         (c) if less than all the Bonds of any series or Tranche are to be
redeemed, the identification of the particular Bonds to be redeemed and the
portion of the principal amount of any Bond to be redeemed in part,

         (d) that on the Redemption Date, the Redemption Price, together with
accrued interest, if any, to the Redemption Date, will become due and payable
upon each such Bond to be redeemed and, if applicable, that interest thereon
will cease to accrue on and after said date; provided, that if a conditional
notice shall be given, other appropriate language shall be inserted indicating
the conditional nature of the redemption,

         (e) the place or places where such Bonds are to be surrendered for
payment of the Redemption Price and accrued interest, if any, unless it shall
have been specified as contemplated by Section 3.01 with respect to such Bonds
that such surrender shall not be required,

         (f) that the redemption is for a sinking or other fund, if such is the
case, and

         (g) such other matters as the Company shall deem desirable or
appropriate.

         Unless otherwise specified with respect to any series of Bonds, or any
Tranche thereof, in accordance with Section 3.01, with respect to any redemption
of Bonds at the election of the Company or any redemption which is contingent on
the occurrence or nonoccurrence of an event or condition which cannot be
ascertained prior to the time a redemption notice is required to be given
hereunder, such notice may state that such redemption shall be conditional upon
receipt by the Trustee or the Paying Agent or Agents for such Bonds, on or prior
to the date fixed for such redemption, of money sufficient to pay the Redemption
Price of such Bonds and accrued interest, if any, thereon to the Redemption Date
(or direction from the Company to apply such money for the payment of such
Bonds, if such money shall have been deposited with the Trustee or Paying Agent
or Agents upon the condition that the Trustee or Paying Agent or Agents will
apply such money only at the direction of the Company) and that if such money
shall not have been so received (or if such money shall have been received but
the Trustee or the Paying Agent or Agents have been directed by the Company not
to apply such money to redeem such Bonds) such notice shall be of no force or
effect and the Company shall not be required to redeem such Bonds; provided,
however, that conditional notice shall not be given if upon the giving of
notice, such Bonds shall be deemed to have been paid in accordance with Section
9.01. In the event that

                                      -57-



such notice of redemption contains such a condition and such money is not so
received, or the Trustee or Paying Agent or Agents have been directed by the
Company not to apply such money to the redemption of such Bonds, the redemption
shall not be made, and within a reasonable time thereafter notice shall be
given, in the manner in which the notice of redemption was given, that such
money was not so received or that the Trustee or Paying Agent or Agents have
been directed by the Company not to redeem such Bonds and such redemption was
not required to be made, and the Trustee or Paying Agent or Agents for the Bonds
otherwise to have been redeemed shall promptly return to the Holders thereof any
of such Bonds which had been surrendered for payment upon such redemption.

         Notice of redemption of Bonds to be redeemed at the election of the
Company, and any notice of non-satisfaction of a condition for redemption as
aforesaid, shall be given by the Company or, at the Company's request, by the
Bond Registrar in the name and at the expense of the Company. Notice of
mandatory redemption of Bonds shall be given by the Bond Registrar in the name
and at the expense of the Company.

SECTION 6.05. BONDS PAYABLE ON REDEMPTION DATE.

         Notice of redemption having been given as aforesaid, and the
conditions, if any, set forth in such notice having been satisfied, the Bonds or
portions thereof so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless, in the case of an unconditional notice of redemption, the Company shall
default in the payment of the Redemption Price and accrued interest, if any)
such Bonds or portions thereof, if interest-bearing, shall cease to bear
interest. Upon surrender of any such Bond for redemption in accordance with such
notice, such Bond or portion thereof shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that no such surrender shall be a condition to such
payment if so specified as contemplated by Section 3.01 with respect to such
Bond; and provided, further, that, except as otherwise specified as contemplated
by Section 3.01 with respect to such Bond, any installment of interest on any
Bond the Stated Maturity of which installment is on or prior to the Redemption
Date shall be payable to the Holder of such Bond, or one or more Predecessor
Bonds, registered as such at the close of business on the related Regular Record
Date according to the terms of such Bond and subject to the provisions of
Section 3.07.

SECTION 6.06. BONDS REDEEMED IN PART.

         Upon the surrender of any Bond which is to be redeemed only in part at
a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Bond, without service charge, a
new Bond or Bonds of the same series and Tranche, of any authorized denomination
requested by such Holder and of like tenor and in aggregate principal amount
equal to and in exchange for the unredeemed portion of the principal of the Bond
so surrendered.

                                      -58-



                                   ARTICLE VII

                                    COVENANTS

SECTION 7.01. PAYMENT OF BONDS; LAWFUL POSSESSION; MAINTENANCE OF LIEN.

         (a) The Company shall pay the principal of and premium, if any, and
interest, if any, on the Bonds of each series in accordance with the terms of
such Bonds and this Indenture.

         (b) At the Execution Date, the Company is lawfully possessed of the
Mortgaged Property. Prior to the Release Date, the Company shall maintain and
preserve its title to the Mortgaged Property and the lien of this Indenture so
long as any Bonds shall remain Outstanding, subject, however, to the provisions
of Article VIII and Article XIV.

SECTION 7.02. MAINTENANCE OF OFFICE OR AGENCY.

         The Company shall maintain in each Place of Payment for the Bonds of
each series, or any Tranche thereof, an office or agency where payment of such
Bonds shall be made, and where the registration of transfer or exchange of such
Bonds may be effected and where notices and demands to or upon the Company in
respect of such Bonds and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of each such office or agency. If at any time the Company shall fail
to maintain any such required office or agency in respect of Bonds of any
series, or any Tranche thereof, or shall fail to furnish the Trustee with the
address thereof, payment of such Bonds shall be made, registration of transfer
or exchange thereof may be effected and notices and demands in respect thereof
may be served at the Corporate Trust Office of the Trustee, and the Company
hereby appoints the Trustee as its agent for all such purposes in any such
event.

         The Company may also from time to time designate one or more other
offices or agencies with respect to the Bonds of one or more series, or any
Tranche thereof, for any or all of the foregoing purposes and may from time to
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.

         Anything herein to the contrary notwithstanding, any office or agency
required by this Section may be maintained at an office of the Company, in which
event the Company shall perform all functions to be performed at such office or
agency.

SECTION 7.03. MONEY FOR BOND PAYMENTS TO BE HELD IN TRUST.

         If the Company shall at any time act as its own Paying Agent with
respect to the Bonds of any series, or any Tranche thereof, it shall, on or
before each due date of the principal of and premium, if any, and interest, if
any, on any of such Bonds, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal and premium or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided. The Company shall promptly notify the
Trustee of any failure by the

                                      -59-



Company (or any other obligor on such Bonds) to make any payment of principal of
or premium, if any, or interest, if any, on such Bonds.

         Whenever the Company shall have one or more Paying Agents for the Bonds
of any series, or any Tranche thereof, it shall, on or before each due date of
the principal of and premium, if any, and interest, if any, on such Bonds,
deposit with such Paying Agents sums sufficient (without duplication) to pay the
principal and premium or interest so becoming due, such sums to be held in trust
for the benefit of the Persons entitled to such principal, premium or interest,
and (unless such Paying Agent is the Trustee) the Company shall promptly notify
the Trustee of any failure by it so to act.

         Upon their appointment as Paying Agent, the Company shall cause each
Paying Agent for the Bonds of any series, or any Tranche thereof, other than the
Company or the Trustee, to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent shall:

         (a) hold all sums held by it for the payment of the principal of and
premium, if any, or interest, if any, on such Bonds in trust for the benefit of
the Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;

         (b) give the Trustee notice of any failure by the Company (or any other
obligor upon such Bonds) to make any payment of principal of or premium, if any,
or interest, if any, on such Bonds; and

         (c) at any time during the continuance of any such failure, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent and furnish to the Trustee such information as it
possesses regarding the names and addresses of the Persons entitled to such
sums.

         The Company may at any time pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by the Company or such Paying Agent and, if so
stated in a Company Order delivered to the Trustee, in accordance with the
provisions of Article IX; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.

         Unless otherwise prescribed by applicable law, any money deposited with
the Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of and premium, if any, or interest, if any, on any
Bond and remaining unclaimed for two years after such principal and premium, if
any, or interest, if any, has become due and payable shall be paid to the
Company on Company Request, or, if then held by the Company, shall be discharged
from such trust without further action by the Company, Trustee or any Paying
Agent; and, upon such payment or discharge, the Holder of such Bond shall, as an
unsecured general creditor and not as the Holder of an Outstanding Bond, look
only to the Company for payment of the amount so due and payable and remaining
unpaid, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon

                                      -60-



cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such payment to the Company, shall, upon receipt of a
Company Request and at the expense of the Company, cause to be mailed, on one
occasion only, notice to such Holder that such money remains unclaimed and that,
after a date specified therein, which shall not be less than thirty (30) days
from the date of such mailing, any unclaimed balance of such money then
remaining will be paid to the Company.

SECTION 7.04. CORPORATE EXISTENCE.

         Subject to the rights of the Company under Article XIII, the Company
shall do or cause to be done all things necessary to preserve and keep its
corporate existence in full force and effect.

SECTION 7.05. MAINTENANCE OF PROPERTIES.

         Until the Release Date, the Company shall cause (or, with respect to
property owned in common with others, make reasonable effort to cause) the
Mortgaged Property, considered as a whole, to be maintained and kept in good
condition, repair and working order and shall cause (or, with respect to
property owned in common with others, make reasonable effort to cause) to be
made such repairs, renewals, replacements, betterments and improvements thereof,
as, in the judgment of the Company, may be necessary in order that the operation
of the Mortgaged Property, considered as a whole, may be conducted in accordance
with common industry practice; provided, however, that nothing in this Section
shall prevent the Company from discontinuing, or causing the discontinuance of,
the operation and maintenance of any portion of the Mortgaged Property; and
provided, further, that nothing in this Section shall prevent the Company from
selling, transferring or otherwise disposing of, or causing the sale, transfer
or other disposition of, any portion of the Mortgaged Property so long as any
such sale, transfer or other disposition is permitted by, and conducted in
accordance with, the terms of this Indenture.

SECTION 7.06. PAYMENT OF TAXES; LIENS AND DISCHARGE OF LIENS.

         (a) Until the Release Date, the Company shall pay all taxes and
assessments and other governmental charges lawfully levied or assessed upon the
Mortgaged Property, or upon any part thereof, or upon the interest of the
Trustee in the Mortgaged Property, before the same shall become delinquent, and
shall make reasonable effort to observe and conform in all material respects to
all valid requirements of any Governmental Authority relative to any of the
Mortgaged Property and all covenants, terms and conditions upon or under which
any of the Mortgaged Property is held.

         (b) Until the Release Date, the Company shall not create nor suffer to
be created any Lien upon the Mortgaged Property, or any part thereof, prior to,
or pari passu with, the lien of this Indenture, other than Permitted Liens;
provided, however, that nothing herein shall be construed as a subordination of
the lien of this Indenture to any Permitted Liens encumbering any part of the
Mortgaged Property except to the extent that such subordination occurs or is
effected by operation of law or pursuant to the provisions of Section 8.11 or
Section 11.07. Nothing in this Indenture shall be construed as prohibiting the
creation or imposition of any Lien on the

                                      -61-



Mortgaged Property, so long as such Liens are subordinate in priority to the
lien of this Indenture.

         (c) Notwithstanding anything to the contrary contained in this Section,
the Company shall not be required (i) to observe or conform to any requirement
of a Governmental Authority or to cause to be paid or discharged, or to make
provision for, any such Lien, or to pay any such tax, assessment or governmental
charge so long as the validity thereof shall be contested in good faith and by
appropriate legal proceedings, (ii) to pay, discharge or make provisions for any
tax, assessment or other governmental charge, the validity of which shall not be
so contested if adequate security for the payment of such tax, assessment or
other governmental charge and for any penalties or interest which may reasonably
be anticipated from failure to pay the same shall be given to the Trustee or
(iii) to pay, discharge or make provisions for any Liens existing on the
Mortgaged Property on and as of the Execution Date; provided that the same
constitute Permitted Liens; and provided, further, that nothing in this Section
shall prohibit the issuance or other incurrence of additional indebtedness, or
the refunding of outstanding indebtedness, secured by any Lien prior to the lien
hereof which is permitted under this Section to continue to exist.
Notwithstanding the foregoing, the Company shall not increase the principal
amount of any Senior Lien Obligations secured by a Senior Lien on any Funded
Property.

SECTION 7.07. INSURANCE.

         (a) Subject to clause (e) below, the Company shall (i) keep or cause to
be kept all Mortgaged Property insured against loss by fire, to the extent that
property of similar character is usually so insured by companies similarly
situated and operating like properties, to a reasonable amount, by reputable
insurance companies, the proceeds of such insurance (except as to any Minor
Loss) to be made payable, subject to applicable law, to the Trustee as the
interest of the Trustee may appear, or to any holder of a Senior Lien securing
Senior Lien Obligations if the terms of the applicable Senior Lien require such
payment, or (ii) in lieu of or supplementing such insurance in whole or in part,
adopt some other method or plan of protection against loss by fire at least
equal in protection to the method or plan of protection against loss by fire of
companies similarly situated and operating properties subject to similar fire
hazards or properties on which an equal primary fire insurance rate has been set
by reputable insurance companies; and if the Company shall adopt such other
method or plan of protection, it shall, subject to applicable law (and except as
to any Minor Loss) pay to the Trustee on account of any loss covered by such
method or plan an amount in cash equal to the amount of such loss less any
amounts otherwise paid to the Trustee in respect of such loss or paid to any
holder of a Senior Lien securing Senior Lien Obligations in respect of such loss
if the terms of the applicable Senior Lien require such payment. Any cash so
required to be paid by the Company pursuant to any such method or plan shall for
the purposes of this Indenture be deemed to be proceeds of insurance. In case of
the adoption of such other method or plan of protection, the Company shall also
furnish to the Trustee a certificate of an actuary or other qualified Person
appointed by the Company with respect to the adequacy of such method or plan.

         Anything herein to the contrary notwithstanding, the Company may have
fire insurance policies with (i) a deductible provision in a dollar amount per
occurrence not exceeding the applicable Deductible Limit and/or (ii)
co-insurance or self insurance provisions with a dollar

                                      -62-



amount per occurrence not exceeding thirty percent (30%) of the loss proceeds
otherwise payable.

         (b) All moneys paid to the Trustee by the Company in accordance with
this Section or received by the Trustee as proceeds of any insurance, in either
case on account of a loss on or with respect to Funded Property, shall, subject
to the requirements of any Senior Lien upon such Funded Property, be held by the
Trustee, constitute Mortgaged Property, and, subject as aforesaid, shall be paid
by it to the Company free and clear of any Lien to reimburse the Company for an
equal amount expended or committed for expenditure in the rebuilding, renewal
and/or replacement of or substitution for the property destroyed, damaged or
otherwise lost (such property being referred to in this clause (b) as "lost
property"), upon receipt by the Trustee of:

              (i)           a Company Request requesting such payment;

              (ii)          an Expert's Certificate:

                  (A) describing the lost property;

                  (B) stating the Funded Property Basis of such lost property
         or, if such damage, destruction or loss shall have affected only a
         portion of such Funded Property, stating the allocable portion of such
         Funded Property Basis (such allocation to be made on any reasonable
         basis as may be determined by the Company);

                  (C) stating the amounts so expended or committed for
         expenditure in the rebuilding, renewal, replacement of and/or
         substitution for such lost property; and

                  (D) stating (I) the Fair Value to the Company of such lost
         property as rebuilt or renewed or as to be rebuilt or renewed and/or of
         the replacement or substituted property (such rebuilt, renewed,
         replaced or substituted property being referred to in this clause (b)
         as the "replaced property"); provided, that, if any portion of such
         replaced property is an Acquired Facility and the Fair Value to the
         Company of such Acquired Facility as set forth in such Expert's
         Certificate is not a De Minimis Amount, then an Independent Expert
         shall opine as to the Fair Value to the Company of such Acquired
         Facility, (II) to the extent such replaced property is subject to a
         Senior Lien securing Senior Lien Obligations, the outstanding principal
         amount of such Senior Lien Obligations as of the date of such
         certificate, and (III) the Net Fair Value of such replaced property;
         and

              (iii)         an Opinion of Counsel stating that, in the opinion
     of the signer, the Indenture creates, or upon taking of the actions
     specified in such opinion, the Indenture will create, a lien on the
     replaced property.

         Any such moneys not so applied within thirty-six (36) months after its
receipt by the Trustee, or in respect of which notice in writing of intention to
apply the same to the work of rebuilding, renewal, replacement or substitution
then in progress and uncompleted shall not have been given to the Trustee by the
Company within such thirty-six (36) months, or which the Company shall at any
time notify the Trustee is not to be so applied, shall thereafter be withdrawn,
used or applied in the manner, to the extent and for the purposes, and subject
to the conditions, provided in Section 8.07; provided, however, that (i) if the
amount of such moneys

                                      -63-



shall exceed sixty-six and two-thirds percent (66 2/3%) of the amount stated
pursuant to clause (B) in the Expert's Certificate referred to above, or (ii) if
any of such moneys remain after the Company shall have replaced the lost
property with replaced property and the Net Fair Value of the replaced property
is at least equal to the Funded Property Basis of the lost property, then in
each case, the amount of such excess shall not be deemed to be Funded Cash,
shall not be subject to Section 8.07 and shall be remitted to or upon the order
of the Company free and clear of any Lien. All replaced property, to the extent
that it has been built or acquired with the proceeds of Funded Cash pursuant to
this clause (b), shall constitute Mortgaged Property and Funded Property.

         Anything in this Indenture to the contrary notwithstanding, if
Mortgaged Property on or with respect to which a loss occurs constitutes Funded
Property in part only, the Company may, at its election, obtain the
reimbursement of insurance proceeds attributable to the part of such property
which constitutes Funded Property under this subsection (b) and obtain the
reimbursement of insurance proceeds attributable to the part of such property
which constitutes Unfunded Property under subsection (c) of this Section.

         (c) All moneys paid to the Trustee by the Company in accordance with
this Section or received by the Trustee as proceeds of any insurance, in either
case on account of a loss on or with respect to Unfunded Property shall, subject
to the requirements of any applicable Senior Lien securing Senior Lien
Obligations, be held by the Trustee, constitute Mortgaged Property, and, subject
as aforesaid, shall be paid by it to the Company free and clear of any Lien upon
receipt by the Trustee of:

              (i)           a Company Request requesting such payment;

              (ii)          an Expert's Certificate made and dated not more than
     ninety (90) days prior to the date of such Company Request, stating:

                  (A) that such moneys were paid to or received by the Trustee
         on account of a loss on or with respect to Unfunded Property;

                  (B) if true, (I) that the aggregate Adjusted Property
         Additions Basis of all Property Additions which constitute Unfunded
         Property (excluding, to the extent of such loss, the property on or
         with respect to which such loss was incurred), is not less than zero
         (0), or (II) that the amount of such loss does not exceed the aggregate
         Adjusted Property Additions Basis of all Property Additions acquired,
         made or constructed on or after the ninetieth (90th) day prior to the
         date of the Company Request requesting such payment; and

                  (C) if neither of the statements contemplated in subclause (B)
         above can be made, the amount by which zero (0) exceeds the amount
         referred to in subclause (B)(I) above (showing in reasonable detail the
         calculation thereof) (such amount being referred to in this clause (c)
         as the "Make-up Amount"); and

              (iii)         an amount in cash, to be held by the Trustee and to
     constitute Mortgaged Property, equal to sixty-six and two-thirds percent
     (66 2/3%) of the Make-up Amount if the

                                      -64-



Expert's Certificate required by clause (ii) above does not contain either of
the statements contemplated in clause (ii)(B) above.

         To the extent that the Company shall be entitled to withdraw proceeds
of insurance pursuant to this subsection (c), such proceeds shall be deemed not
to constitute Funded Cash.

         (d) Whenever under the provisions of this Section the Company is
required to deliver moneys to the Trustee and at the same time shall have
satisfied the conditions set forth herein for payment of moneys by the Trustee
to the Company, there shall be paid to or retained by the Trustee or paid to the
Company, as the case may be, only the amount net of any taxes or other
governmental charges, any administrative or other miscellaneous expenses of the
insurance provider and any amounts allowed by this Indenture to be deducted from
amounts payable to the Trustee.

         (e) Upon the occurrence of the Release Date, this Section 7.07 (other
than this clause (e)) shall, automatically and without the need for any further
action by any Person, cease to be in effect and the Trustee shall promptly pay
to the Company free and clear of any Lien all moneys held by the Trustee
pursuant to this Section.

SECTION 7.08. RECORDING, FURTHER ASSURANCES.

         (a) Until the Release Date, the Company shall cause this Indenture and
all indentures and instruments supplemental hereto (or notices, memoranda or
financing statements or amendments thereto as may be recorded or filed to place
third parties on notice thereof) to be promptly recorded and filed and
re-recorded and re-filed in such manner and in such places, as may be required
by law in order to fully preserve and protect the security of the Holders of the
Bonds and all rights of the Trustee, and shall furnish to the Trustee:

              (i)           promptly after the execution and delivery of this
     Indenture, as originally executed and delivered, and of each supplemental
     indenture, an Opinion of Counsel either stating that in the opinion of such
     counsel this Indenture or such supplemental indenture (or any other
     instrument, notice, memorandum or financing statement in connection
     therewith) has been properly recorded and filed so as to make effective the
     lien intended to be created hereby or thereby, and reciting the details of
     such action, or stating that in the opinion of such counsel no such action
     is necessary to make such lien effective. The Company shall be deemed to be
     in compliance with this subsection (i) if (x) the Opinion of Counsel herein
     required to be delivered to the Trustee shall state that this Indenture or
     such supplemental indenture (or any other instrument, notice, memorandum or
     financing statement in connection therewith) has been received for record
     or filing in each jurisdiction in which it is required to be recorded or
     filed and that, in the opinion of such counsel (if such is the case), such
     receipt for record or filing makes effective the lien intended to be
     created by this Indenture or such supplemental indenture, and (y) such
     opinion is delivered to the Trustee within such time, following the date of
     execution of this Indenture, as originally executed and delivered, or such
     supplemental indenture, as shall be practicable having due regard to the
     number and distance of the jurisdictions in which this Indenture or such
     supplemental indenture (or such other instrument, notice, memorandum or
     financing statement in connection therewith) is required to be recorded or
     filed; and

                                      -65-



              (ii)          on or before June 1 of each year, beginning June 1,
     2005, an Opinion of Counsel stating either (x) that in the opinion of such
     counsel such action has been taken, since the date of the most recent
     Opinion of Counsel furnished pursuant to this subsection (ii) or the first
     Opinion of Counsel furnished pursuant to clause (i) of this subsection (a),
     with respect to the recording, filing, re-recording, and re-filing of this
     Indenture and of each indenture supplemental to this Indenture (or any
     other instrument, notice, memorandum or financing statement or amendments
     thereto in connection therewith), as is necessary to maintain the lien
     hereof, and reciting the details of such action, or (y) that in the opinion
     of such counsel no such action is necessary to maintain such lien.

         (b) Until the Release Date, the Company shall authorize, execute and
deliver such supplemental indenture or indentures and such further instruments
and do such further acts as may be necessary or proper to carry out the purposes
of this Indenture and to make subject to the lien hereof any property hereafter
acquired, made or constructed and intended to be subject to the lien hereof, and
to transfer to any new trustee or trustees or co-trustee or co-trustees, the
estate, powers, instruments or funds held in trust hereunder.

         (c) The Company hereby authorizes, until the Release Date, the
recordation and filing by the Trustee of one or more financing statements and
amendments thereto or any continuation statements with respect thereto to
perfect the Trustee's security interest in any portion of the Mortgaged
Property.

SECTION 7.09. WAIVER OF CERTAIN COVENANTS.

         The Company may omit in any particular instance to comply with any
term, provision or condition set forth in

         (a) any covenant or restriction specified with respect to the Bonds of
any one or more series, or any one or more Tranches thereof, as contemplated by
Section 3.01 if before the time for such compliance the Holders of not less than
a majority in aggregate principal amount of the Outstanding Bonds of all series
and Tranches with respect to which compliance with such covenant or restriction
is to be omitted, considered as one class, shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
term, provision or condition; provided, however, that no such waiver shall be
effective as to any of the matters contemplated in clause (a), (b), (c) or (d)
in Section 14.02 without the consent of the Holders specified in such Section;
and

         (b) Section 7.04, 7.05, 7.06, 7.07 or 7.11 or Article XIII if, before
the time for such compliance, the Holders of not less than a majority in
principal amount of Bonds Outstanding under this Indenture shall, by Act of such
Holders, either waive such compliance in such instance or generally waive
compliance with such term, provision or condition;

but, in either case, no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect.

                                      -66-



SECTION 7.10. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.

         Not later than June 1 in each year, commencing June 1, 2005, the
Company shall deliver to the Trustee a certificate (which need not comply with
Section 1.04) executed by the principal executive officer, the principal
financial officer or the principal accounting officer of the Company, as to such
officer's knowledge of the Company's compliance with all conditions and
covenants under this Indenture, such compliance to be determined without regard
to any period of grace or requirement of notice under this Indenture.

SECTION 7.11. LIMITATION ON LIENS.

         (a) From and after the Release Date, the Company will not, nor will it
permit any Significant Subsidiary to, (1) issue, incur, assume or permit to
exist any Debt, if such Debt is secured by a Lien on any Principal Property
(whether such Principal Property is now owned or hereafter acquired), unless the
Company provides that Outstanding Bonds will be equally and ratably secured with
such secured Debt or (2) incur or permit to exist any Attributable Debt in
respect of Principal Property; provided, however, that the foregoing restriction
shall not apply to:

              (i)           to the extent the Company or any Significant
     Subsidiary consolidates with, or merges with or into, another entity, Liens
     on the property of such entity securing Debt in existence on the date of
     such consolidation or merger, provided that such Debt and Liens were not
     created or incurred in anticipation of such consolidation or merger and
     that such Liens do not extend to cover any Principal Property;

              (ii)          Liens existing on property hereafter acquired at the
     time of such acquisition, as long as the Lien was not created or incurred
     in anticipation thereof and does not extend to or cover any other Principal
     Property;

              (iii)         Liens of any kind, including purchase money Liens,
     conditional sales agreements or title retention agreements and similar
     agreements, upon any property acquired, constructed, developed or improved
     by the Company or any Significant Subsidiary (whether alone or in
     association with others) which do not exceed the cost or value of the
     property acquired, constructed, developed or improved and which are created
     prior to, at the time of, or within 12 months after such acquisition (or in
     the case of property constructed, developed or improved, within 12 months
     after the completion of such construction, development or improvement and
     commencement of full commercial operation of such property, whichever is
     later) to secure or provide for the payment of any part of the purchase
     price or cost thereof; provided that the Liens shall not extend to any
     Principal Property other than the property so acquired, constructed,
     developed or improved;

              (iv)          Liens in favor of the United States, any state or
     any foreign country or any department, agency or instrumentality or
     political subdivision of any such jurisdiction to secure payments pursuant
     to any contract or statute or to secure any indebtedness incurred for the
     purpose of financing all or any part of the purchase price or cost of
     constructing or improving the property subject to such Lien, including
     Liens related to governmental obligations the interest on which is
     tax-exempt under Section 103 of the Internal Revenue Code or any successor
     section of the Internal Revenue Code;

                                      -67-



              (v)           Liens in favor of the Company, one or more
     Significant Subsidiaries of the Company, one or more wholly-owned
     Subsidiaries of the Company or any of the foregoing combination; and

              (vi)          replacements, extensions or renewals (or successive
     replacements, extensions or renewals), in whole or in part, of any Lien, or
     of any agreement, referred to above in clauses (i) through (v) inclusive,
     or replacements, extensions or renewals of the Debt secured thereby (to the
     extent that the amount of Debt secured by any such Lien is not increased
     from the amount originally so secured, plus any premium, interest, fee or
     expenses payable in connection with any replacements, refundings,
     refinancings, remarketings, extensions or renewals); provided that such
     replacement, extension or renewal is limited to all or a part of the same
     property (plus improvements thereon or additions or accessions thereto)
     that secured the Lien replaced, extended or renewed.

         (b) Notwithstanding the restriction in subsection (a) of this Section
7.11, the Company or any Significant Subsidiary may, from and after the Release
Date, (1) issue, incur or assume Debt secured by a Lien not described in clauses
(i) through (vi) of subsection (a) above on any Principal Property now or
hereafter owned without providing that the Outstanding Bonds be equally and
ratably secured with such Debt and (2) issue or permit to exist Attributable
Debt in respect of Principal Property, in either case so long as the aggregate
amount of such secured Debt and Attributable Debt, together with the aggregate
amount of all other Debt secured by Liens not described in clauses (i) through
(vi) of subsection (a) above then outstanding and all other Attributable Debt,
does not exceed 10% of the Net Tangible Assets of the Company, as determined by
the Company as of a month end not more than 90 days prior to the closing or
consummation of the proposed transaction.

         (c) For purposes of determining compliance with this Section 7.11, in
the event that any Lien at any time meets the criteria of more than one of the
categories described in clauses (i) through (vi) above of Section 7.11(a), or is
entitled to be created pursuant to Section 7.11(b), the Company will be
permitted to classify (and later reclassify) in whole or in part in its sole
discretion such Lien in any manner that complies with this Section 7.11.

         (d) For purposes of determining compliance with any Dollar-denominated
restriction on the incurrence of Debt secured by Liens on Principal Property,
the Dollar-equivalent principal amount of Debt denominated in a foreign currency
will be calculated based on the relevant currency exchange rate in effect on the
date such Debt was incurred, in the case of term Debt, or first committed, in
the case of revolving credit Debt; provided that if such Debt is incurred to
refinance other Debt denominated in the same foreign currency, and such
refinancing would cause the applicable Dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in effect on the
date of such refinancing, the Dollar-denominated restriction will be deemed not
to have been exceeded so long as the principal amount of the refinancing Debt
does not exceed the principal amount of the Debt being refinanced.
Notwithstanding any other provision of this Section 7.11, the maximum amount of
Debt secured by Liens on Principal Property that the Company or any Significant
Subsidiary may incur pursuant to this covenant will not be deemed to be exceeded
solely as a result of fluctuations in the exchange rate of currencies.

                                      -68-


                  (e)      For purposes of this Section 7.11, "Debt" of a
Significant Subsidiary shall mean any debt of such Significant Subsidiary for
money borrowed and guarantees by such Significant Subsidiary of debt for money
borrowed but in each case excluding liabilities in respect of Capital Lease
Obligations or Swap Agreements.

SECTION 7.12. COVENANTS REGARDING DIABLO CANYON LEASE.

                  So long as the Diablo Canyon Lease constitutes Mortgaged
Property, the Company covenants and agrees that it will not: (i) voluntarily or
involuntarily, directly or indirectly, assign, transfer or convey the leasehold
estate created by the Diablo Canyon Lease, (ii) surrender, terminate or cancel
the Diablo Canyon Lease, (iii) consent to the subordination of the Diablo Canyon
Lease to any monetary lien on the fee estate of the lessor under the Diablo
Canyon Lease, (iv) without the prior written consent of the Trustee, fail to
exercise in a timely manner any renewal options contained in the Diablo Canyon
Lease and (v) without the prior written consent of the Trustee, modify, alter or
amend the Diablo Canyon Lease in a manner that has a material adverse effect on
the value of the Mortgaged Property as a whole.

                                  ARTICLE VIII

                POSSESSION, USE AND RELEASE OF MORTGAGED PROPERTY

SECTION 8.01. QUIET ENJOYMENT.

                  Unless one or more Events of Default shall have occurred and
be continuing, the Company shall be permitted to possess, use, manage, operate
and enjoy the Mortgaged Property (except, to the extent not herein otherwise
provided, such money, deposit accounts, instruments, investment property and
other property as are expressly required by this Indenture to be paid or
delivered to, deposited with, or held by, the Trustee hereunder) freely and
without any hindrance or interference on the part of the Trustee or of the
Holders of the Bonds.

SECTION 8.02. DISPOSITIONS WITHOUT RELEASE.

                  With respect to any Mortgaged Property or any interest
therein, unless an Event of Default shall have occurred and be continuing, the
Company may at any time and from time to time, without any release or consent
by, or report to, the Trustee:

                  (a)      sell or otherwise dispose of, free from the lien of
this Indenture, any machinery, equipment, apparatus, towers, transformers,
poles, lines, cables, conduits, ducts, conductors, meters, regulators, holders,
tanks, retorts, purifiers, odorizers, scrubbers, compressors, valves, pumps,
mains, pipes, service pipes, fittings, connections, services, tools, implements,
or any other fixtures or personalty, then subject to the lien hereof, which
shall have become old, inadequate, obsolete, worn out, unfit, unadapted,
unserviceable, undesirable or unnecessary for use in the operations of the
Company upon replacing the same by, or substituting for the same, similar or
analogous property, or other property performing a similar or analogous function
or otherwise obviating the need therefor (provided, that such similar, analogous
or other property constitutes Unfunded Property), having a Cost in the aggregate
to the Company at least equal to the Cost in the aggregate of the property sold
or otherwise disposed of and subject to the lien

                                      -69-



hereof, subject to no Liens prior hereto except Permitted Liens and any other
Liens to which the property sold or otherwise disposed of was subject;

                  (b)      cancel or make changes or alterations in or
substitutions for any and all easements, servitudes, rights-of-way and similar
rights and/or interests which are subject to the lien hereof; and

                  (c)      grant, free from the lien of this Indenture,
easements, ground leases or rights-of-way in, upon, over and/or across the
property or rights-of-way of the Company for the purpose of roads, pipe lines,
transmission lines, distribution lines, communication lines, railways, removal
of coal or other minerals or timber, and other like purposes, or for the joint
or common use of real property, rights-of-way, facilities and/or equipment;
provided, however, that such grant shall not materially impair the use of the
property or rights-of-way for the purposes for which such property or
rights-of-way are held by the Company.

                  The Trustee shall, from time to time, execute a written
instrument with respect to any particular action taken by the Company under this
Section in order to confirm, based solely on its receipt of the documents in
subclauses (i), (ii) and (iii) below of this clause (c), that such action does
not require any release or consent by, or report to, the Trustee, upon receipt
by the Trustee of (i) a Company Order requesting the same, (ii) an Officer's
Certificate stating that, to the knowledge of the signer, no Event of Default
has occurred and is continuing and stating further that said action was duly
taken by the Company in conformity with this Section, and (iii) an Opinion of
Counsel stating that said action was duly taken by the Company in conformity
with this Section.

SECTION 8.03. RELEASE OF FUNDED PROPERTY.

                  Unless an Event of Default shall have occurred and be
continuing, the Company may obtain the release of any part of the Mortgaged
Property, or any interest therein, which constitutes Funded Property, and the
Trustee shall release all its right, title and interest in and to the same from
the lien hereof, upon receipt by the Trustee of:

                  (a)      a Company Order requesting the release of such
property and transmitting therewith a form of instrument to effect such release;

                  (b)      an Officer's Certificate stating that, to the
knowledge of the signer, no Event of Default has occurred and is continuing;

                  (c)      an Expert's Certificate made and dated not more than
ninety (90) days prior to the date of such Company Order, substantially in the
form attached hereto as Schedule 2:

                           (i)      describing the property to be released;

                           (ii)     stating the Fair Value, in the judgment of
         the signers, of the property to be released;

                           (iii)    stating the Funded Property Basis of the
         property to be released; and

                                      -70-


                           (iv)     stating that, in the judgment of the
         signers, such release will not impair the security under this Indenture
         in contravention of the provisions hereof;

                  (d)      an Officer's Certificate, substantially in the form
attached hereto as Schedule 3, stating:

                           (i)      the amount in cash (the "Cash Deposit
         Amount"), if any, to be held by the Trustee and constituting Mortgaged
         Property (and which cash shall then constitute Funded Cash), which Cash
         Deposit Amount shall be equal to the difference between (A) the Funded
         Property Basis of the property to be released, less any taxes and
         expenses incidental to any sale, exchange, dedication or other
         disposition of the property to be released, and (B) the aggregate
         amount of the Cash Deposit Credit Items; and

                           (ii)     indicating one or more, or any combination,
         of the following property (collectively, the "Cash Deposit Credit
         Items"), if any, and the amounts thereof, which together with the Cash
         Deposit Amount, if any, to be deposited with the Trustee shall form the
         basis for the release of property requested in the Company Order
         referred to in clause (a) above of this Section:

                           (A) the aggregate principal amount of any Purchase
                  Money Obligations delivered to the Trustee, to be held by the
                  Trustee and constituting Mortgaged Property, which are secured
                  by Purchase Money Liens upon the property to be released;

                           (B) the Adjusted Property Additions Basis (or, as
                  provided below in this clause (ii)(B), the Property Additions
                  Basis), of any Property Additions which constitute Unfunded
                  Property described in an Expert's Certificate, dated not more
                  than ninety (90) days prior to the date of the Company Order
                  requesting such release and complying with clause (ii) and, to
                  the extent applicable, clause (iii) in Section 5.02(b),
                  delivered to the Trustee; provided, however, that for purposes
                  of the above, the Property Additions Basis shall be
                  substituted in lieu of the Adjusted Property Additions Basis
                  if such Property Additions were acquired, made or constructed
                  on or after the ninetieth (90th) day preceding the date of
                  such Company Order;

                           (C) an amount equal to one hundred fifty percent
                  (150%) of the aggregate principal amount of Bonds to the
                  authentication and delivery of which the Company shall be
                  entitled under the provisions of Section 5.03, by virtue of
                  compliance with all applicable provisions of Section 5.03
                  (except as hereinafter in this Section otherwise provided);
                  provided, however, that such release shall operate as a waiver
                  by the Company of the right to the authentication and delivery
                  of such Bonds and, to such extent, no such Bonds may
                  thereafter be authenticated and delivered under Section 5.03;
                  and any Bonds which were the basis of such right to the
                  authentication and delivery of Bonds so waived shall be deemed
                  to have been made the basis of such release of property; and

                           (D) an amount equal to one hundred fifty percent
                  (150%) of the aggregate principal amount of any Outstanding
                  Bonds delivered to the Trustee.

                  (e)      the Cash Deposit Amount and the Cash Deposit Credit
Items stated in such Officer's Certificate delivered to the Trustee pursuant to
clause (d) of this Section, which in the aggregate

                                      -71-


shall be at least equal to the Funded Property Basis of the property to be
released, less any taxes and expenses incidental to any sale, exchange,
dedication or other disposition of the property to be released;

                  (f)      if the release is on the basis of Property Additions
or on the basis of the right to the authentication and delivery of Bonds under
Section 5.03, all documents contemplated below in this Section; and

                  (g)      if the release is on the basis of the delivery to the
Trustee of Purchase Money Obligations, as described in clause (d)(ii)(A) in this
Section, all documents contemplated below in this Section, to the extent
required.

                  If and to the extent that the release of property is, in whole
or in part, based upon Property Additions (as described in clause (d)(ii)(B) in
this Section), the Company shall, subject to the provisions of said clause
(d)(ii)(B) and except as hereafter in this paragraph provided, comply with
clauses (ii) through (v) of Section 5.02(b) as if such Property Additions were
to be made the basis of the authentication and delivery of Bonds equal in
principal amount to sixty-six and two-thirds percent (662/3%) of the Funded
Property Basis of that portion of the property to be released, as shown by the
Expert's Certificate required by clause (c) in this Section, but recognizing
that the action to be taken is the release of property rather than the
authentication and delivery of Bonds; provided, however, that the Cost of any
Property Additions received or to be received by the Company in whole or in part
as consideration in exchange for the property to be released shall, for all
purposes of this Indenture, be deemed to be the Fair Value of the property to be
released as stated in the Expert's Certificate provided for in clause (c) of
this Section, (x) plus the amount of any cash and the fair market value of any
other consideration, further to be stated in such Expert's Certificate, paid
and/or delivered or to be paid and/or delivered by, and the amount of any
obligations assumed or to be assumed by, the Company in connection with such
exchange as additional consideration for such Property Additions and/or (y) less
the amount of any cash and the fair market value of any other consideration,
which shall also be stated in such Expert's Certificate, received or to be
received by the Company in connection with such exchange in addition to such
Property Additions. Notwithstanding the foregoing, in no event shall the Company
be required to deliver the documents specified in Section 5.01. Any Property
Additions which have become the basis for the release of Funded Property
pursuant to this Section shall constitute Funded Property.

                  If and to the extent that the release of property is, in whole
or in part, based upon the right to the authentication and delivery of Bonds
under Section 5.03 (as described in clause (d)(ii)(C) of this Section), the
Company shall, except as hereafter in this paragraph provided, comply with
Section 5.03(b) relating to such authentication and delivery, but recognizing
that the action to be taken is the release of property rather than the
authentication and delivery of Bonds. Notwithstanding the foregoing provisions
of this paragraph, in no event shall the Company be required to deliver the
documents specified in Section 5.01.

                  If the release of property is, in whole or in part, based upon
the delivery to the Trustee of Purchase Money Obligations (as described in
clause (d)(ii)(A) of this Section), the Company shall deliver to the Trustee:

                                      -72-



                  (a)      an Officer's Certificate (i) stating that no event
has occurred and is continuing which entitles the holder of the Purchase Money
Lien securing such Purchase Money Obligations to accelerate the maturity of the
Purchase Money Obligations, if any, outstanding thereunder, (ii) reciting the
aggregate principal amount of Purchase Money Obligations, if any, then
outstanding thereunder in addition to the Purchase Money Obligations then being
delivered in connection with the release of such property and the terms and
conditions, if any, on which additional Purchase Money Obligations are permitted
to be issued; and

                  (b)      an Opinion of Counsel stating that, in the opinion of
the signer, (i) such Purchase Money Obligations are valid obligations, (ii) such
Purchase Money Lien constitutes, or, upon the taking of the actions specified in
such opinion, will constitute, a Lien upon the property to be released, subject,
to the knowledge of such counsel, to no Lien prior thereto except Liens
generally of the character of Permitted Liens and such Liens, if any, as shall
have existed thereon immediately prior to such release as Liens prior to the
lien of this Indenture, (iii) if any Purchase Money Obligations in addition to
the Purchase Money Obligations being delivered in connection with such release
of property are then outstanding, or are permitted to be issued, under such
Purchase Money Lien, (A) that such Purchase Money Lien constitutes, or, upon the
taking of the actions specified in such opinion, will constitute, a Lien upon
all other property, if any, purporting to be subject thereto, subject, to the
knowledge of such counsel, to no Lien prior thereto except Liens generally of
the character of Permitted Liens and Liens permitted to exist or to be hereafter
created under Section 7.06 and (B) that the terms of such Purchase Money Lien,
as then in effect, do not permit the issuance of Purchase Money Obligations
thereunder except on the basis of property generally of the character of
Property Additions, the retirement or deposit of outstanding Purchase Money
Obligations, the deposit of prior Lien obligations or the deposit of cash.

                  If the Opinion of Counsel provided to the Trustee pursuant to
clause (b) above is conditioned upon the filing and/or recording of any
instruments of conveyance, assignment or transfer, the Company shall promptly
cause such instruments to be filed and/or recorded in the proper places and
manner and shall deliver to the Trustee evidence of such filing and/or recording
promptly upon receipt of such evidence by the Company.

                  Any Outstanding Bonds delivered to the Trustee pursuant to
clause (d)(ii)(D) of this Section shall forthwith be canceled by the Trustee.
Any cash and/or Purchase Money Obligations deposited with the Trustee pursuant
to clause (d)(ii)(A) of this Section, and the proceeds of any such Purchase
Money Obligations, shall be held by the Trustee and constitute Mortgaged
Property and shall be withdrawn, released, used or applied in the manner, to the
extent and for the purposes, and subject to the conditions, provided in Section
8.07.

                  Anything in this Indenture to the contrary notwithstanding, if
property to be released constitutes Funded Property in part only, the Company
shall obtain the release of the part of such property which constitutes Funded
Property under this Section and obtain the release of the part of such property
which constitutes Unfunded Property under Section 8.04; provided, that the
foregoing shall not preclude the release of such property under any other
applicable Section of this Article VIII. In such event, (i) the application of
Property Additions in the release under clause (d)(ii)(B) of this Section shall
be taken into account in clause (vi) or clause (vii), whichever may be
applicable, of the Expert's Certificate described in clause (c) in Section 8.04

                                      -73-


and (ii) the Trustee shall, at the election of the Company, execute and deliver
a separate instrument of release with respect to the property released under
each of such Sections or a consolidated instrument of release with respect to
the property released under both of such Sections considered as a whole. To the
extent that only a portion of any Funded Property is to be released under this
Section 8.03, the Company shall be entitled to make an allocation of the Funded
Property Basis between that portion of the Funded Property being released and
that portion of the Funded Property remaining subject to the lien of this
Indenture on any reasonable basis as may be determined by the Company.

SECTION 8.04. RELEASE OF PROPERTY CONSTITUTING UNFUNDED PROPERTY.

                  Unless an Event of Default shall have occurred and be
continuing, the Company may obtain the release of any part of the Mortgaged
Property, or any interest therein, which constitutes Unfunded Property, and the
Trustee shall release all its right, title and interest in and to the same from
the lien hereof, upon receipt by the Trustee of:

                  (a)      a Company Order requesting the release of such
property and transmitting therewith a form of instrument to effect such release;

                  (b)      an Officer's Certificate stating that, to the
knowledge of the signer, no Event of Default has occurred and is continuing;

                  (c)      an Expert's Certificate, made and dated not more than
ninety (90) days prior to the date of such Company Order, substantially in the
form attached hereto as Schedule 4:

                           (i)      describing the property to be released;

                           (ii)     stating (A) the Fair Value, in the judgment
         of the signers, of the property to be released, (B) to the extent such
         property to be released is subject to a Senior Lien securing Senior
         Lien Obligations, the outstanding principal amount of such Senior Lien
         Obligations as of the date of such certificate, and (C) the Net Fair
         Value of the property to be released;

                           (iii)    stating the Cost and Net Cost of the
         property to be released;

                           (iv)     stating the Property Additions Basis of the
         property to be released;

                           (v)      stating that the property to be released
         constitutes Unfunded Property;

                           (vi)     if true, stating (I) that the aggregate
         Adjusted Property Additions Basis of all Property Additions which
         constitute Unfunded Property (excluding the property to be released),
         is not less than zero (0), or (II) that the Adjusted Property Additions
         Basis of the property to be released does not exceed the aggregate
         Adjusted Property Additions Basis of all Property Additions acquired,
         made or constructed on or after the ninetieth (90th) day prior to the
         date of the Company Order requesting such release;

                           (vii)    if neither of the statements contemplated in
         subclause (vi) above cannot be made, stating (A) the amount by which
         zero (0) exceeds the amount referred to in subclause (vi)(I) above
         (showing in reasonable detail the calculation thereof) (such amount
         being

                                      -74-


         referred to in this Section as the "Make-up Amount") and (B) the amount
         in cash, if any, to be deposited by the Company, held by the Trustee,
         and constitute Mortgaged Property, calculated as described in clause
         (d) below of this Section; and

                           (viii)   stating that, in the judgment of the
         signers, such release will not impair the security under this Indenture
         in contravention of the provisions hereof;

                  (d)      if the Expert's Certificate required by clause (c)
above does not contain the statement contemplated in clause (c)(vi) above, an
amount in cash equal to sixty-six and two-thirds percent (66 2/3%) of the lower
of (i) the Property Additions Basis of the property to be released and (ii) the
Make-up Amount, less the aggregate of items of the character described in
clauses (d)(ii)(C) and (d)(ii)(D) of Section 8.03 then to be used as a credit
against cash required to be deposited under this clause (d) (subject, however,
to the same limitations and conditions with respect to such items as are set
forth in Section 8.03); and

                  (e)      items of the character described in clause (d) above
in this Section, if any, being used by the Company as a credit against cash
required to be deposited with the Trustee pursuant to clause (d) above in this
Section.

SECTION 8.05. RELEASE OF PROPERTIES WITHIN ANNUAL LIMITS.

                  (a)      Notwithstanding the provisions of Sections 8.03 and
8.04, unless an Event of Default shall have occurred and be continuing, the
Company may obtain the release from the lien hereof of any part of the Mortgaged
Property, or any interest therein, and the Trustee shall whenever from time to
time requested by the Company in a Company Order transmitting therewith a form
of instrument to effect such release, and without requiring compliance with any
of the provisions of Section 8.03 or 8.04, release from the lien hereof all the
right, title and interest of the Trustee in and to the same, provided that the
aggregate Fair Value of the property to be so released on any date in a given
calendar year, together with the Fair Value of all other property released
pursuant to this Section 8.05(a) in such calendar year, shall not exceed the
greater of (i) Ten Million Dollars ($10,000,000) for calendar year 2004;
provided, that with respect to any subsequent calendar year, such amount shall
be increased by the same percentage increase in the CPI Index for the period
commencing January 1, 2004 and ending on January 1 of the applicable calendar
year as set forth in an Officer's Certificate delivered to the Trustee and (ii)
three percent (3%) of the aggregate principal amount of Bonds then Outstanding.

                  (b)      Prior to the granting of any release under this
Section, there shall be delivered to the Trustee:

                           (i)      an Officer's Certificate stating that, to
         the knowledge of the signer, no Event of Default has occurred and is
         continuing, and

                           (ii)     an Expert's Certificate stating (A) in the
         judgment of the signers, the Fair Value of the property to be released
         and the aggregate Fair Value of all other property theretofore released
         pursuant to this Section in such calendar year, (B) as to Funded
         Property, the Funded Property Basis thereof, and (C) that, in the
         judgment of the signers, the release thereof will not impair the
         security under this Indenture in contravention of the provisions
         hereof.

                                      -75-


                  (c)      On or before December 31st of each calendar year, the
Company shall deposit with the Trustee an amount in cash equal to sixty-six and
two-thirds percent (66 2/3%) of the aggregate Funded Property Basis of the
properties constituting Funded Property so released during such year (the "Cash
Deposit Amount") and such Cash Deposit Amount shall constitute Mortgaged
Property; provided, however, that the Cash Deposit Amount may be reduced, at the
election of the Company, by any of, or any combination of, the Cash Deposit
Credit Items specified in clause (d)(ii) of Section 8.03, subject to all of the
limitations and conditions specified in such Section, to the same extent as if
such property were being released pursuant to Section 8.03.

                  Any cash deposited with the Trustee under this Section may
thereafter be withdrawn, used or applied in the manner, to the extent and for
the purposes, and subject to the conditions, provided in Section 8.07.

SECTION 8.06. PURCHASE MONEY OBLIGATIONS.

                  (a)      Any Purchase Money Obligations delivered to the
Trustee in consideration of the release of property from the lien of this
Indenture, together with any evidence of the applicable Purchase Money Lien held
by the Trustee, shall be released from the lien of this Indenture and delivered
to or upon the order of the Company upon payment by the Company to the Trustee
of an amount in cash equal to the aggregate principal amount of such Purchase
Money Obligations less the aggregate amount theretofore paid to the Trustee (by
the Company, the obligor or otherwise) in respect of the principal of such
Purchase Money Obligations, such cash to constitute Mortgaged Property.

                  (b)      The principal of and interest on any such Purchase
Money Obligations secured by a Purchase Money Lien held by the Trustee shall be
held by the Trustee as and when the same are received by the Trustee and shall
constitute Mortgaged Property. The interest received by the Trustee on any such
Purchase Money Obligations shall be deemed not to constitute Funded Cash and
shall be remitted to the Company free and clear of any Lien; provided, however,
that if an Event of Default shall have occurred and be continuing, such proceeds
shall constitute Mortgaged Property and shall be retained by the Trustee until
such Event of Default shall have been cured or waived.

                  (c)      The Trustee shall have and may exercise all the
rights and powers of any owner of such Purchase Money Obligations and of all
substitutions therefor and, without limiting the generality of the foregoing,
may collect and receive all insurance moneys payable to it under any of the
provisions thereof and apply the same in accordance with the provisions thereof,
may consent to extensions thereof at a higher or lower rate of interest, may
join in any plan or plans of voluntary or involuntary reorganization or
readjustment or rearrangement and may accept and hold hereunder new obligations,
stocks or other securities issued in exchange therefor under any such plan. Any
discretionary action which the Trustee may be entitled to take in connection
with any such Purchase Money Obligations or substitutions therefor shall be
taken, so long as no Event of Default shall have occurred and be continuing, in
accordance with a Company Order, and, during the continuance of an Event of
Default, in its own discretion.

                  (d)      Anything herein to the contrary notwithstanding, the
Company may irrevocably waive all right to the withdrawal pursuant to this
Section of, and any other rights with respect to,

                                      -76-


any Purchase Money Obligations held by the Trustee, and the proceeds of any such
Purchase Money Obligations, by delivery to the Trustee of a Company Order:

                           (i)      specifying such Purchase Money Obligations
         and stating that the Company thereby waives all rights to the
         withdrawal thereof and of the proceeds thereof pursuant to this
         Section, and any other rights with respect thereto; and

                           (ii)     directing that the principal of such
         Purchase Money Obligations be applied as provided in clause (e) of
         Section 8.07, specifying the Bonds to be paid or redeemed or for the
         payment or redemption of which payment is to be made.

                  Following any such waiver, the interest on any such Purchase
Money Obligations shall be applied to the payment of interest, if any, on the
Bonds to be paid or redeemed or for the payment or redemption of which provision
is to be made, as specified in the aforesaid Company Order, as and when such
interest shall become due from time to time, and any excess funds remaining from
time to time after such application shall be applied to the payment of interest
on any other Bonds as and when the same shall become due. Pending any such
application, the interest on such Purchase Money Obligations shall be invested
in Investment Securities specified in a Company Order. The principal of any such
Purchase Money Obligations shall be applied solely to the payment of principal
of the Bonds to be paid or redeemed or for the payment or redemption of which
provision is to be made, as specified in the aforesaid Company Order. Pending
such application, the principal of such Purchase Money Obligations shall be
invested in Eligible Obligations specified in a Company Order. The obligation of
the Company to pay the principal of such Bonds when the same shall become due at
Maturity, shall be offset and reduced by the amount of the proceeds of such
Purchase Money Obligations then held, and to be applied, by the Trustee in
accordance with this paragraph.

SECTION 8.07. WITHDRAWAL OR OTHER APPLICATION OF FUNDED CASH.

                  Subject to the provisions of Section 5.04 with respect to
Deposited Cash and except as hereafter in this Section provided, unless an Event
of Default shall have occurred and be continuing, any Funded Cash held by the
Trustee, and any other cash which is required to be withdrawn, used or applied
as provided in this Section,

                  (a)      may be withdrawn from time to time by the Company
free and clear of any Lien to the extent of the Adjusted Property Additions
Basis (or, as provided below in this clause (a), the Property Additions Basis)
of Property Additions constituting Unfunded Property, described in an Expert's
Certificate, dated not more than ninety (90) days prior to the date of the
Company Order requesting such withdrawal and complying with clause (ii) and, to
the extent applicable, clause (iii) in Section 5.02(b), delivered to the
Trustee; provided, however, that, for purposes of the above, the Property
Additions Basis shall be substituted in lieu of the Adjusted Property Additions
Basis if such Property Additions were acquired, made or constructed on or after
the ninetieth (90th) day preceding the date of such Company Order;

                  (b)      may be withdrawn from time to time by the Company
free and clear of any Lien in an amount equal to one hundred fifty percent
(150%) of the aggregate principal amount of Bonds to the authentication and
delivery of which the Company shall be entitled under the provisions of

                                      -77-



Section 5.03 hereof, by virtue of compliance with all applicable provisions of
Section 5.03 (except as hereinafter in this Section otherwise provided);
provided, however, that such withdrawal of cash shall operate as a waiver by the
Company of the right to the authentication and delivery of such Bonds and, to
such extent, no such Bonds may thereafter be authenticated and delivered
hereunder; and any such Bonds which were the basis of such right to the
authentication and delivery of Bonds so waived shall be deemed to have been made
the basis of such withdrawal of cash;

                  (c)      may be withdrawn from time to time by the Company
free and clear of any Lien in an amount equal to one hundred fifty percent
(150%) of the aggregate principal amount of any Outstanding Bonds delivered to
the Trustee;

                  (d)      may, upon delivery of a Company Request to the
Trustee, be used by the Trustee for the purchase of Bonds in the manner, at the
time or times, in the amount or amounts, at the price or prices (not exceeding
one hundred fifty percent (150%) of the principal amount thereof) and otherwise
as directed or approved by the Company, all subject to the limitations hereafter
in this Section set forth; or

                  (e)      may, upon delivery of a Company Request to the
Trustee, be applied by the Trustee to the payment (or provision therefor
pursuant to Article IX) at Stated Maturity of any Bonds or to the redemption (or
similar provision therefor) of any Bonds which are, by their terms, redeemable,
in each case of such series as may be designated by the Company, any such
redemption to be in the manner and as provided in Article VI, all subject to the
limitations hereafter in this Section set forth.

                  Such moneys shall, from time to time, be paid or used or
applied by the Trustee, as aforesaid, upon the request of the Company in a
Company Order, and upon receipt by the Trustee of an Officer's Certificate
stating that, to the knowledge of the signer, no Event of Default has occurred
and is continuing. If and to the extent that the withdrawal of cash is based
upon Property Additions (as permitted under the provisions of clause (a) above),
the Company shall, subject to the provisions of said clause (a) and except as
hereafter in this paragraph provided, comply with clauses (ii) through (v) of
Section 5.02(b) as if such Property Additions were made the basis for the
authentication and delivery of Bonds equal in principal amount to sixty-six and
two-thirds percent (66 2/3%) of the cash so to be withdrawn, but recognizing
that the action to be taken is the release of Funded Cash rather than the
authentication and delivery of Bonds. Any Property Additions which have become
the basis for the withdrawal of cash pursuant to this Section shall constitute
Funded Property. If and to the extent that the withdrawal of cash is based upon
the right to the authentication and delivery of Bonds (as permitted under the
provisions of clause (b) above), the Company shall, except as hereafter in this
paragraph provided, comply with Section 5.03(b) relating to such authentication
and delivery, but recognizing that the action to be taken is the release of
Funded Cash rather than the authentication and delivery of Bonds.
Notwithstanding the foregoing provisions of this paragraph, in no event shall
the Company be required to deliver the documents specified in Section 5.01.

                  Notwithstanding the generality of clauses (d) and (e) above,
no cash to be applied pursuant to such clauses shall be applied to the payment
of an amount in excess of the principal

                                      -78-


amount of any Bonds to be purchased, paid or redeemed except to the extent that
the aggregate principal amount of all Bonds theretofore, and of all Bonds then
to be, purchased, paid or redeemed pursuant to such clauses is not less than the
aggregate cost for principal of, premium, if any, and accrued interest, if any,
on and brokerage commissions, if any, with respect to, such Bonds.

                  Any Outstanding Bonds delivered to the Trustee pursuant to
clause (c) in this Section shall forthwith be canceled by the Trustee.

SECTION 8.08. RELEASE OF PROPERTY TAKEN BY EMINENT DOMAIN, ETC.

                  Should any of the Mortgaged Property, or any interest therein,
be taken by exercise of the power of eminent domain or be sold to an entity
possessing the power of eminent domain under a threat to exercise the same, and
should the Company elect not to obtain the release of such property pursuant to
other provisions of this Article, the Trustee shall, upon request of the Company
evidenced by a Company Order transmitting therewith a form of instrument to
effect such release, release from the lien hereof all its right, title and
interest in and to the property so taken or sold (or with respect to an interest
in property, subordinate the lien hereof to such interest), upon receiving (a)
an Opinion of Counsel to the effect that such property has been taken by
exercise of the power of eminent domain or has been sold to an entity possessing
the power of eminent domain under threat of an exercise of such power, (b) an
Officer's Certificate stating the amount of net proceeds received or to be
received for such property so taken or sold, and the amount so stated shall be
deemed to be the Fair Value of such property for the purpose of any notice to
the Holders of Bonds, (c) if any portion of such property constitutes Funded
Property, an Expert's Certificate stating the Funded Property Basis thereof and
(d) if any portion of such property constitutes Funded Property, a deposit by
the Company of an amount in cash equal to sixty-six and two-thirds percent
(66 2/3%) of the Funded Property Basis stated in the Expert's Certificate
delivered pursuant to clause (c) above, such deposit to constitute Mortgaged
Property; provided, however, that the amount required to be so deposited shall
not exceed the portion of the net proceeds received or to be received for such
property so taken or sold which is allocable on a pro-rata or other reasonable
basis to the portion of such property constituting Funded Property; and
provided, further, that the net proceeds of such taking or sale required to be
deposited pursuant to this Section shall be reduced by the amount of cash or
other consideration that has been delivered to or otherwise deposited with a
holder of a Senior Lien securing Senior Lien Obligations in accordance with the
provisions of such Senior Lien, all as stated in an Officer's Certificate
delivered to the Trustee (which shall also state that such cash or consideration
has not previously been applied by the Company as a credit against any other
deposit of cash required to be made by the Company under this Indenture). Any
cash deposited with the Trustee under this Section may thereafter be withdrawn,
used or applied in the manner, to the extent and for the purposes, and subject
to the conditions, provided in Section 8.07.

SECTION 8.09. DISCLAIMER OR QUITCLAIM.

                  In case the Company has sold, exchanged, dedicated, pledged,
assigned, transferred or otherwise disposed of, or has agreed or intends to
sell, exchange, dedicate, pledge, assign, transfer or otherwise dispose of, or a
Governmental Authority has ordered the Company to divest itself of, any Excepted
Property or any other property not subject to the lien hereof, or the

                                      -79-


Company desires to disclaim or quitclaim title to property to which the Company
does not purport to have title, the Trustee shall, from time to time, disclaim
or quitclaim such property and any interest it may have therein upon receipt by
the Trustee of the following:

                  (a)      a Company Order requesting such disclaimer or
quitclaim and transmitting therewith a form of instrument to effect such
disclaimer or quitclaim;

                  (b)      an Officer's Certificate describing the property to
be disclaimed or quitclaimed; and

                  (c)      an Opinion of Counsel stating the signer's opinion
that such property does not constitute Mortgaged Property.

SECTION 8.10. MISCELLANEOUS.

                  (a)      If the Fair Value of the property to be released from
the lien of this Indenture in accordance with any provision of this Article,
other than Section 8.12, plus the Fair Value of all other property released
since the commencement of the then current calendar year, as set forth in the
certificates required by this Indenture, is ten percent (10%) or more of the
aggregate principal amount of the Bonds at the time Outstanding, an Independent
Expert shall be required to make the certifications in the Expert's Certificate
required pursuant to this Article as to the Fair Value of the property to be
released and as to the nonimpairment of the security under this Indenture.
Notwithstanding the previous sentence, an Expert's Certificate shall not be
required to be made by an Independent Expert in the case of any release of
property if the Fair Value of such property to be released, as set forth in the
certificates required by this Indenture, is a De Minimis Amount. To the extent
that the Fair Value of any property to be released from the lien of this
Indenture shall be stated in an Independent Expert's Certificate, such Fair
Value shall not be required to be stated in any other Expert's Certificate
delivered in connection with such release.

                  (b)      No release of property from the lien of this
Indenture effected in accordance with the provisions, and in compliance with the
conditions, set forth in this Article and in Sections 1.04 and 1.05 shall be
deemed to impair the security of this Indenture in contravention of any
provision hereof.

                  (c)      If the Mortgaged Property shall be in the possession
of a receiver or trustee, lawfully appointed, the powers hereinbefore conferred
upon the Company with respect to the release of any part of the Mortgaged
Property or any interest therein or the withdrawal of cash may be exercised,
with the approval of the Trustee, by such receiver or trustee, notwithstanding
that an Event of Default may have occurred and be continuing, and any request,
certificate, appointment or approval made or signed by such receiver or trustee
for such purposes shall be as effective as if made by the Company or any of its
officers or appointees in the manner herein provided; and if the Trustee shall
be in possession of the Mortgaged Property under any provision of this
Indenture, then such powers may be exercised by the Trustee in its discretion
notwithstanding that an Event of Default may have occurred and be continuing.

                  (d)      If the Company shall retain any interest in any
property released from the lien of this Indenture as provided in Section 8.03,
8.04 or 8.05, this Indenture shall not become or be, or be required to become or
be, a Lien upon such property or such interest therein or any improvements,
extensions or additions to such property or renewals, replacements or

                                      -80-


substitutions of or for such property or any part or parts thereof or any
proceeds of any of the foregoing unless the Company shall execute and deliver to
the Trustee an indenture supplemental hereto, in recordable form, containing a
grant, conveyance, transfer and mortgage thereof. As used in this subsection,
the terms "improvements", "extensions" and "additions" shall be limited as set
forth in Section 13.01.

                  (e)      Notwithstanding the occurrence and continuance of an
Event of Default, the Trustee, in its discretion, may release from the lien
hereof any part of the Mortgaged Property or permit the withdrawal of cash, upon
compliance with the other conditions specified in this Article in respect
thereof.

                  (f)      No purchaser or grantee of property purporting to
have been released hereunder shall be bound to ascertain the authority of the
Trustee to execute the release, or to inquire as to any facts required by the
provisions hereof for the exercise of such authority; nor shall any purchaser or
grantee of any property or rights permitted by this Article to be sold, granted,
exchanged, dedicated or otherwise disposed of, be under obligation to ascertain
or inquire into the authority of the Company to make any such sale, grant,
exchange, dedication or other disposition.

SECTION 8.11. PRIORITY OF PURCHASE MONEY LIENS.

                  The Trustee hereby acknowledges and agrees to subordinate the
lien of this Indenture to any Purchase Money Lien or conservation easement upon
receipt by the Trustee of (i) a Company Request for any such subordination which
includes a description of the Purchase Money Lien or the conservation easement
to which this Indenture is being subordinated, (ii) an Officer's Certificate
stating that no Event of Default has occurred and is continuing to the knowledge
of the signer, that the mortgage or other instrument or agreement with respect
to which a subordination is being requested is a Purchase Money Lien or
conservation easement and stating that such Purchase Money Lien or conservation
easement does not encumber any Funded Property, and (iii) a form of instrument
appropriate and reasonably satisfactory to the Trustee to effect such
subordination. Upon receipt of the foregoing, the Trustee hereby agrees to
promptly execute, acknowledge and deliver the instrument described in clause
(iii) above or any other instrument that the Company may request in order to
evidence or effect the subordination as requested by the Company.
Notwithstanding the foregoing, nothing herein shall require the Trustee to, and
the Trustee shall not unless otherwise permitted under the terms of this
Indenture, subordinate the lien of this Indenture to any Purchase Money Lien or
conservation easement which encumbers Funded Property.

SECTION 8.12. RELEASE DATE.

                  The date upon which the lien of this Indenture shall be
discharged, canceled, terminated and satisfied and the Mortgaged Property shall
be released to the Company free and clear of any Lien (the "Release Date") shall
be the date chosen by the Company and specified in a Company Order delivered to
the Trustee, which date shall not be earlier than the date of delivery by the
Company to the Trustee of each of the following:

                  (a)      Written evidence that the Unsecured Debt Ratings,
immediately after the Release Date, shall be at least equal to the Issuance Date
Secured Debt Ratings;

                                      -81-


                  (b)      An Officer's Certificate stating that the aggregate
principal amount of Debt secured by a Lien on any Principal Property that will
be outstanding immediately after the Release Date (excluding secured Debt
permitted by Section 7.11(a)(i)-(vi)) will not exceed five percent (5%) of the
Company's Net Tangible Assets as determined by the Company as of a month end not
more than 90 days prior to the Release Date;

                  (c)      A Company Order requesting execution and delivery by
the Trustee of a supplemental indenture (which may amend and restate this
Indenture) and such instruments as the Company may deem necessary or desirable
to discharge, cancel, terminate or satisfy the lien of this Indenture; and

                  (d)      An Officer's Certificate stating that to the
knowledge of the signer, no Event of Default has occurred and is continuing.

                  Upon the occurrence of the Release Date, the Trustee shall
promptly (i) authorize, execute and deliver to the order of the Company the
documents and instruments necessary to discharge, cancel, terminate and satisfy
the lien of this Indenture, (ii) release, quitclaim and otherwise turn over to
the Company all Mortgaged Property (other than money and Eligible Obligations
held by the Trustee pursuant to Section 9.03), and (iii) execute and deliver to
the Company such deeds, termination statements and other documents and
instruments as, in the judgment of the Company, shall be necessary, desirable or
appropriate to effect or evidence such release, quitclaim and turnover.

                  Upon the occurrence of the Release Date and notwithstanding
any other provision of this Indenture or the Bonds, all Bonds, automatically and
without any further action by the Company, the Trustee, or any Holder, shall no
longer be secured by any collateral and shall constitute unsecured obligations
of the Company, all references in this Indenture to the lien of the Indenture or
the Mortgaged Property shall be of no further force or effect, and the
provisions of this Indenture and the Bonds shall be construed consistently with
the status of the Bonds as unsecured obligations of the Company.

                  The Company shall, as promptly as practicable after the
occurrence of the Release Date, give notice to all Holders of the occurrence of
the Release Date in the same manner as a notice of redemption and disseminate a
press release through a public medium as is customary for such a press release
announcing that the lien of the Indenture has been released as of the Release
Date.

                                   ARTICLE IX

                           SATISFACTION AND DISCHARGE

SECTION 9.01. SATISFACTION AND DISCHARGE OF BONDS.

                  Any Bond or Bonds, or any portion of the principal amount
thereof, shall be deemed to have been paid and no longer Outstanding for all
purposes of this Indenture, and the entire indebtedness of the Company in
respect thereof shall be satisfied and discharged, if there shall have been
irrevocably deposited with the Trustee or any Paying Agent (other than the
Company), in trust:

                                      -82-


                  (a)      money (including Funded Cash not otherwise applied
pursuant to Section 8.07) in an amount which shall be sufficient, or

                  (b)      in the case of a deposit made prior to the Maturity
of such Bonds or portions thereof, Eligible Obligations, which shall not contain
provisions permitting the redemption or other prepayment thereof at the option
of the issuer thereof, the principal of and the interest on which when due,
without any regard to reinvestment thereof, will provide moneys which, together
with the money, if any, deposited with or held by the Trustee or such Paying
Agent, shall be sufficient, or

                  (c)      a combination of (a) or (b) which shall be sufficient
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Bonds or portions thereof; provided, however, that in
the case of the provision for payment or redemption of less than all the Bonds
of any series or Tranche, such Bonds or portions thereof shall have been
selected by the Bond Registrar as provided herein and, in the case of a
redemption, the notice requisite to the validity of such redemption shall have
been given or irrevocable authority shall have been given by the Company to the
Trustee to give such notice, under arrangements satisfactory to the Trustee; and
provided, further, that the Company shall have delivered to the Trustee and such
Paying Agent:

                           (x)      if such deposit shall have been made prior
                  to the Maturity of such Bonds, a Company Order stating that
                  the money and Eligible Obligations deposited in accordance
                  with this Section shall be held in trust, as provided in
                  Section 9.03;

                           (y)      if Eligible Obligations shall have been
                  deposited, an Opinion of Counsel to the effect that such
                  obligations constitute Eligible Obligations and do not contain
                  provisions permitting the redemption or other prepayment
                  thereof at the option of the issuer thereof, and an opinion of
                  an Independent public Accountant of nationally recognized
                  standing, selected by the Company, to the effect that the
                  other requirements set forth in clause (b) above have been
                  satisfied; and

                           (z)      if such deposit shall have been made prior
                  to the Maturity of such Bonds, an Officer's Certificate
                  stating the Company's intention that, upon delivery of such
                  Officer's Certificate, its indebtedness in respect of such
                  Bonds or portions thereof will have been satisfied and
                  discharged as contemplated in this Section.

                  Upon the deposit of money or Eligible Obligations, or both, in
accordance with this Section, together with the documents required by clauses
(x), (y) and (z) above, the Trustee shall, upon Company Request, acknowledge in
writing that such Bonds or portions thereof are deemed to have been paid for all
purposes of this Indenture and that the entire indebtedness of the Company in
respect thereof has been satisfied and discharged as contemplated in this
Section. In the event that all of the conditions set forth in the preceding
paragraph shall have been satisfied in respect of any Bonds or portions thereof
except that, for any reason, the Officer's Certificate specified in clause (z)
(if otherwise required) shall not have been delivered, such Bonds or portions
thereof shall nevertheless be deemed to have been paid for all purposes of this
Indenture, and the Holders of such Bonds or portions thereof shall nevertheless
be no longer entitled to the benefit of the lien of this Indenture (other than
with respect to such deposit, which

                                      -83-


shall constitute Mortgaged Property) or of any of the covenants of the Company
under Article VII (except the covenants contained in Sections 7.02 and 7.03) or
any other covenants made in respect of such Bonds or portions thereof as
contemplated by Section 3.01, but the indebtedness of the Company in respect of
such Bonds or portions thereof shall not be deemed to have been satisfied and
discharged prior to Maturity for any other purpose; and, upon Company Request,
the Trustee shall acknowledge in writing that such Bonds or portions thereof are
deemed to have been paid for all purposes of this Indenture.

                  If payment at Stated Maturity of less than all of the Bonds of
any series, or any Tranche thereof, is to be provided for in the manner and with
the effect provided in this Section, the Bond Registrar shall select such Bonds,
or portions of principal amount thereof, in the manner specified by Section 6.03
for selection for redemption of less than all the Bonds of a series or Tranche.

                  In the event that Bonds which shall be deemed to have been
paid for purposes of this Indenture, and, if such is the case, in respect of
which the Company's indebtedness shall have been satisfied and discharged, all
as provided in this Section, do not mature and are not to be redeemed within the
sixty (60) day period commencing with the date of the deposit of moneys or
Eligible Obligations, as aforesaid, the Company shall, as promptly as
practicable, give a notice, in the same manner as a notice of redemption with
respect to such Bonds, to the Holders of such Bonds to the effect that such
deposit has been made and the effect thereof.

                  Notwithstanding that any Bonds shall be deemed to have been
paid for purposes of this Indenture, as aforesaid, the obligations of the
Company and the Trustee in respect of such Bonds under Sections 3.04, 3.05,
3.06, 6.04, 7.02, 7.03, 11.07 and 11.15 and this Article shall survive.

                  The Company shall pay, and shall indemnify the Trustee or any
Paying Agent with which Eligible Obligations shall have been deposited as
provided in this Section against, any tax, fee or other charge imposed on or
assessed against such Eligible Obligations or the principal or interest received
in respect of such Eligible Obligations, including, but not limited to, any such
tax payable by any entity deemed, for tax purposes, to have been created as a
result of such deposit.

                  Anything herein to the contrary notwithstanding, (a) if, at
any time after a Bond would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied and discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Eligible Obligations, or combination thereof, deposited with it as aforesaid to
the Company or its representative under any applicable federal or state
bankruptcy, insolvency or other similar law, such Bond shall thereupon be deemed
retroactively not to have been paid and any satisfaction and discharge of the
Company's indebtedness in respect thereof shall retroactively be deemed not to
have been effected, and such Bond shall be deemed to remain Outstanding and (b)
any satisfaction and discharge of the Company's indebtedness in respect of any
Bond shall be subject to the provisions of the last paragraph of Section 7.03.

                                      -84-


SECTION 9.02. SATISFACTION AND DISCHARGE OF INDENTURE.

                  This Indenture shall upon Company Request cease to be of
further effect (except as hereinafter expressly provided), and the Trustee, at
the expense of the Company, shall execute such instruments as the Company shall
reasonably request to evidence and acknowledge the satisfaction and discharge of
this Indenture, when:

                  (a)      no Bonds remain Outstanding hereunder;

                  (b)      the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and

                  (c)      the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this Indenture
have been complied with.

provided, however, that if, in accordance with the last paragraph of Section
9.01, any Bond, previously deemed to have been paid for purposes of this
Indenture, shall be deemed retroactively not to have been so paid, this
Indenture shall thereupon be deemed retroactively not to have been satisfied and
discharged, as aforesaid, and to remain in full force and effect, and the
Company shall execute and deliver such instruments as the Trustee shall
reasonably request to evidence and acknowledge the same.

         Notwithstanding the satisfaction and discharge of this Indenture as
aforesaid, the obligations of the Company and the Trustee under Sections 3.04,
3.05, 3.06, 6.04, 7.02, 7.03, 11.07 and 11.15 and this Article shall survive.

         Upon satisfaction and discharge of this Indenture as provided in this
Section, the Trustee shall, to the extent not already done so pursuant to
Section 8.12, release, quit claim and otherwise turn over to the Company the
Mortgaged Property (other than money and Eligible Obligations held by the
Trustee pursuant to Section 9.03) and shall execute and deliver to the Company
such deeds and other instruments as, in the judgment of the Company, shall be
necessary, desirable or appropriate to effect or evidence such release and
quitclaim and the satisfaction and discharge of this Indenture.

SECTION 9.03. APPLICATION OF TRUST MONEY.

                  Neither the Eligible Obligations nor the money deposited
pursuant to Section 9.01, nor the principal or interest payments on any such
Eligible Obligations, shall be withdrawn or used for any purpose other than, and
shall be held in trust for, the payment of the principal of and premium, if any,
and interest, if any, on the Bonds or portions of principal amount thereof in
respect of which such deposit was made, all subject, however, to the provisions
of Section 7.03; provided, however, that any cash received from such principal
or interest payments on such Eligible Obligations, if not then needed for such
purpose, shall, to the extent practicable and upon Company Request and delivery
to the Trustee of the documents referred to in subclause (y) of clause (c) in
Section 9.01, be invested pursuant to a Company Order in Eligible Obligations of
the type described in clause (b) in Section 9.01 maturing at such times and in
such amounts as shall be sufficient, together with any other moneys and the
proceeds of any other Eligible

                                      -85-


Obligations then held by the Trustee, to pay when due the principal of and
premium, if any, and interest, if any, due and to become due on such Bonds or
portions thereof on and prior to the Maturity thereof, and interest earned from
such reinvestment shall be paid over to the Company as received, free and clear
of the lien of this Indenture, except the lien provided by Section 11.07; and
provided, further, that any moneys held in accordance with this Section on the
Maturity of all such Bonds in excess of the amount required to pay the principal
of and premium, if any, and interest, if any, then due on such Bonds shall be
paid over to the Company free and clear of the lien of this Indenture, except
the lien provided by Section 11.07; and provided, further, that if an Event of
Default shall have occurred and be continuing, moneys to be paid over to the
Company pursuant to this Section shall be retained by the Trustee and constitute
Mortgaged Property until such Event of Default shall have been waived or cured.

                                   ARTICLE X

                           EVENTS OF DEFAULT; REMEDIES

SECTION 10.01. EVENTS OF DEFAULT.

                  "Event of Default", wherever used herein with respect to the
Bonds, means any of the following events which shall have occurred and be
continuing:

                  (a)      the failure to pay interest, if any, on any Bond
within thirty (30) days after the same becomes due and payable; or

                  (b)      the failure to pay the principal of or sinking fund
installment, if any, or premium, if any, on any Bond after the same becomes due
and payable; or (c) the failure to perform or breach of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a default in
the performance of which or breach of which is elsewhere in this Section
specifically dealt with) for a period of ninety (90) days after there has been
given, by registered or certified mail, return receipt requested, to the Company
by the Trustee, or to the Company and the Trustee by the Holders of at least
thirty-three percent (33%) in principal amount of the Bonds then Outstanding, a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder, unless the
Trustee, or the Trustee and the Holders of a principal amount of Bonds not less
than the principal amount of Bonds the Holders of which gave such notice, as the
case may be, shall agree in writing to an extension of such period prior to its
expiration; or

                  (d)      the entry by a court having jurisdiction in the
premises of (i) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree or order
adjudging the Company a bankrupt or insolvent, or approving as properly filed a
petition by one or more Persons other than the Company seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company under any
applicable federal or state bankruptcy, insolvency or other similar law, or
appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official for the Company or for any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and any such
decree or

                                      -86-


order for relief or any such other decree or order shall have remained unstayed
and in effect for a period of ninety (90) consecutive days; or

                  (e)      the commencement by the Company of a voluntary case
or proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by the Company to the entry
of a decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable federal or state bankruptcy, insolvency or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company, or the filing by the Company of a petition or
answer or consent seeking reorganization or relief under any applicable federal
or state bankruptcy, insolvency or other similar law, or the consent by the
Company to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Company or of any substantial part of its property,
or the making by the Company of a general assignment for the benefit of
creditors, or an admission in writing by the Company of its inability to pay its
debts generally as they become due; or

                  (f)      the occurrence of any event of default as defined in
any mortgage, indenture or instrument under which there may be issued, or by
which there may be secured or evidenced, any Debt of the Company, whether such
Debt exists on the Execution Date or shall thereafter be created, if such event
of default:

                                    (i)      is caused by a failure to pay
                           principal after final maturity of such Debt after the
                           expiration of the grace period provided in such Debt
                           (a "Payment Default"), or

                                    (ii)     results in the acceleration of such
                           Debt prior to its express maturity,

and in each case, the principal amount of any such Debt, together with the
principal amount of any other such Debt under which there has been a Payment
Default or the maturity of which has been so accelerated, aggregates
$100,000,000 or more; provided, however, that, anything in this Indenture to the
contrary notwithstanding, if prior to the Release Date, such event of default is
cured or waived or any such acceleration rescinded, or such Debt is repaid,
within a period of twenty (20) days from the continuation of such event of
default beyond the applicable grace period or the occurrence of such
acceleration, as the case may be, such Event of Default under this Indenture
shall be automatically cured; provided, further, that with respect to any
mortgage, indenture or instrument that exists on the Execution Date, this
Section 10.01(f) only applies to the extent that the obligations to pay amounts
thereunder are enforceable after the Effective Date.

                  For purposes of Section 10.01(f), the amount of $100,000,000
shall be increased in any calendar year subsequent to 2004 by the same
percentage increase in the CPI Index for the period commencing January 1, 2004
and ending on January 1 of the applicable calendar year.

SECTION 10.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.

                  If an Event of Default shall have occurred and be continuing,
then in every such case the Trustee or the Holders of not less than a majority
prior to the Release Date or 33% on or after the Release Date, in aggregate
principal amount of Bonds then Outstanding, considered as one class,

                                      -87-


may declare the principal amount (or, if any of the Bonds are Discount Bonds,
such portion of the principal amount of such Bonds as may be specified in the
terms thereof as contemplated by Section 3.01) of all Bonds then Outstanding to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon such declaration such principal
amount (or specified amount), together with premium, if any, and accrued
interest, if any, thereon, shall become immediately due and payable; provided,
however, that with respect to an Event of Default described in Section 10.01(d)
or (e), the principal amount (or, if any of the Bonds are Discount Bonds, such
portion of the principal amount of such Bonds as may be specified in the terms
thereof as contemplated by Section 3.01) of all Bonds then Outstanding shall be
due and payable immediately without further action by the Trustee or Holders.

                  At any time after such a declaration of acceleration of the
Maturity of the Bonds then Outstanding shall have been made, but before any sale
of any of the Mortgaged Property has been made and before a judgment or decree
for payment of the money due shall have been obtained by the Trustee as provided
in this Article, the Event or Events of Default giving rise to such declaration
of acceleration shall, without further act and notwithstanding anything to the
contrary in Section 316(a) of the Trust Indenture Act, be deemed to have been
waived, and such declaration and its consequences shall, without further act, be
deemed to have been rescinded and annulled, if

                  (a)      the Company shall have paid or deposited with the
Trustee a sum sufficient to pay

                           (i)      all overdue interest, if any, on all Bonds
         then Outstanding;

                           (ii)     the principal of and premium, if any, on any
         Bonds then Outstanding which have become due otherwise than by such
         declaration of acceleration and interest thereon at the rate or rates
         prescribed therefor in such Bonds; and

                           (iii)    all amounts due to the Trustee under Section
         11.07; and

                  (b)      any other Event or Events of Default, other than the
non-payment of the principal of Bonds which shall have become due solely by such
declaration of acceleration, shall have been cured or waived as provided in
Section 10.17.

                  No such rescission shall affect any subsequent Event of
Default or impair any right consequent thereon.

SECTION 10.03. ENTRY UPON MORTGAGED PROPERTY.

                  Prior to the Release Date, if an Event of Default shall have
occurred and be continuing, the Company, upon demand of the Trustee and if and
to the extent permitted by law, shall forthwith surrender to the Trustee the
actual possession of, and the Trustee, by such officers or agents as it may
appoint, may enter upon and take possession of, the Mortgaged Property; and the
Trustee may hold, operate and manage the Mortgaged Property and make all needful
repairs and such renewals, replacements, betterments and improvements as to the
Trustee shall seem prudent; and the Trustee may receive the rents, issues,
profits, revenues and other income of the Mortgaged Property, to the extent, if
any, that the same shall not then constitute Excepted Property; and, after
deducting the costs and expenses of entering, taking possession, holding,

                                      -88-


operating and managing the Mortgaged Property, as well as payments for insurance
and taxes and other proper charges upon the Mortgaged Property prior to the lien
of this Indenture and reasonable compensation to itself, its agents and counsel,
the Trustee may apply the same as provided in Section 10.07. Whenever all that
is then due in respect of the principal of and premium, if any, and interest, if
any, on the Bonds and under any of the terms of this Indenture shall have been
paid and all defaults hereunder shall have been cured or shall have been waived
as provided in Section 10.17, the Trustee shall surrender possession of the
Mortgaged Property to the Company.

SECTION 10.04. POWER OF SALE; SUITS FOR ENFORCEMENT.

                  If an Event of Default shall have occurred and be continuing,
the Trustee, by such officers or agents as it shall appoint, with or without
entry, in its discretion may, subject to the provisions of Section 10.16 and if
and to the extent permitted by law:

                  (a)      prior to the Release Date, sell, subject to any
mandatory requirements of applicable law, the Mortgaged Property as an entirety,
or in such parcels as the Holders of a majority in principal amount of the Bonds
then Outstanding shall in writing request, or in the absence of such request, as
the Trustee may determine, to the highest bidder at public auction at such place
and at such time (which sale may be adjourned by the Trustee from time to time
in its discretion by announcement at the time and place fixed for such sale,
without further notice) and upon such terms as the Trustee may fix and briefly
specify in a notice of sale to be published once in each week for four
successive weeks prior to such sale in an Authorized Publication in each Place
of Payment for the Bonds of each series; or

                  (b)      proceed to protect and enforce its rights and the
rights of the Holders of Bonds under this Indenture by sale pursuant to judicial
proceedings or by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Indenture or in aid of the execution of any power granted in this Indenture
or for the foreclosure of this Indenture or for the enforcement of any other
legal, equitable or other remedy, as the Trustee, being advised by counsel,
shall deem most effectual to protect and enforce any of the rights of the
Trustee or the Holders of Bonds.

SECTION 10.05. INCIDENTS OF SALE.

                  Upon any sale of any of the Mortgaged Property, whether made
under the power of sale hereby given or pursuant to judicial proceedings, to the
extent permitted by law:

                  (a)      the principal amount (or, if any of the Bonds are
Discount Bonds, such portion of the principal amount of such Bonds as may be
specified in the terms thereof as contemplated by Section 3.01) of all
Outstanding Bonds, if not previously due, shall at once become and be
immediately due and payable, together with premium, if any, and accrued
interest, if any, thereon;

                  (b)      any Holder or Holders of Bonds or the Trustee may bid
for and purchase the property offered for sale, and upon compliance with the
terms of sale may hold, retain and possess and dispose of such property, without
further accountability, and may, in paying the purchase money therefor, deliver
any Outstanding Bonds or claims for interest thereon in lieu of cash to the

                                      -89-


amount which shall, upon distribution of the net proceeds of such sale, be
payable thereon, and such Bonds, in case the amounts so payable thereon shall be
less than the amount due thereon, shall be returned to the Holders thereof after
being appropriately stamped to show partial payment;

                  (c)      the Trustee may make and deliver to the purchaser or
purchasers a good and sufficient deed, bill of sale and instrument of assignment
and transfer of the property sold;

                  (d)      the Trustee is hereby irrevocably appointed the true
and lawful attorney of the Company, in its name and stead, to make all necessary
deeds, bills of sale and instruments of assignment and transfer of the property
so sold; and for that purpose it may execute all necessary deeds, bills of sale
and instruments of assignment and transfer, and may substitute one or more
persons, firms or corporations with like power, the Company hereby ratifying and
confirming all that its said attorney or such substitute or substitutes shall
lawfully do by virtue hereof; but, if so requested by the Trustee or by any
purchaser, the Company shall ratify and confirm any such sale or transfer by
executing and delivering to the Trustee or to such purchaser or purchasers all
proper deeds, bills of sale, instruments of assignment and transfer and releases
as may be designated in any such request;

                  (e)      all right, title, interest, claim and demand
whatsoever, either at law or in equity or otherwise, of the Company of, in and
to the property so sold shall be divested and such sale shall be a perpetual bar
both at law and in equity against the Company, its successors and assigns, and
against any and all persons claiming or who may claim the property sold or any
part thereof from, through or under the Company; and

                  (f)      the receipt of the Trustee or of the officer making
such sale shall be a sufficient discharge to the purchaser or purchasers at such
sale for his or their purchase money and such purchaser or purchasers and his or
their assigns or personal representatives shall not, after paying such purchase
money and receiving such receipt, be obliged to see to the application of such
purchase money, or be in anywise answerable for any loss, misapplication or
non-application thereof.

SECTION 10.06. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.

                  If an Event of Default described in clause (a) or (b) of
Section 10.01 shall have occurred and be continuing, the Company shall, upon
demand of the Trustee, pay to it, for the benefit of the Holders of the Bonds
with respect to which such Event of Default shall have occurred, the whole
amount then due and payable on such Bonds for principal and premium, if any, and
interest, if any, and, in addition thereto, such further amount as shall be
sufficient to cover any amounts due to the Trustee under Section 11.07.

                  If the Company shall fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Bonds and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such Bonds,
wherever situated.

                                      -90-


                  The Trustee shall, to the extent permitted by law, be entitled
to sue and recover judgment as aforesaid either before, during or after the
pendency of any proceedings for the enforcement of the lien of this Indenture,
and in case of a sale of the Mortgaged Property or any part thereof and the
application of the proceeds of sale as aforesaid, the Trustee, in its own name
and as trustee of an express trust, shall be entitled to enforce payment of, and
to receive, all amounts then remaining due and unpaid upon the Bonds then
Outstanding for principal, premium, if any, and interest, if any, for the
benefit of the Holders thereof, and shall be entitled to recover judgment for
any portion of the same remaining unpaid, with interest as aforesaid. No
recovery of any such judgment by the Trustee and no levy of any execution upon
any such judgment upon any of the Mortgaged Property or any other property of
the Company shall affect or impair the lien of this Indenture upon the Mortgaged
Property or any part thereof or any rights, powers or remedies of the Trustee
hereunder, or any rights, powers or remedies of the Holders of the Bonds.

SECTION 10.07. APPLICATION OF MONEY COLLECTED.

                  Any money collected by the Trustee pursuant to this Article,
including any rents, issues, profits, revenues and other income collected
pursuant to Section 10.03 (after the deductions therein provided) and any
proceeds of any sale (after deducting the costs and expenses of such sale,
including a reasonable compensation to the Trustee, its agents and counsel, and
any taxes, assessments or Liens prior to the lien of this Indenture, except any
thereof subject to which such sale shall have been made), whether made under any
power of sale herein granted or pursuant to judicial proceedings, and any money
collected by the Trustee under Section 8.06, together with, in the case of an
entry or sale or as otherwise provided herein, any other sums then held by the
Trustee as part of the Mortgaged Property, shall be applied in the following
order, to the extent permitted by law, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal or
premium, if any, or interest, if any, upon presentation of the Bonds and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:

                           First: To the payment of all amounts due the Trustee
                  under Section 11.07;

                           Second: To the payment of the whole amount then due
                  and unpaid upon the Outstanding Bonds for principal and
                  premium, if any, and interest, if any, in respect of which or
                  for the benefit of which such money has been collected; and in
                  case such proceeds shall be insufficient to pay in full the
                  whole amount so due and unpaid upon such Bonds, then to the
                  payment of such principal and interest, if any, thereon
                  without any preference or priority, ratably according to the
                  aggregate amount so due and unpaid, with any balance then
                  remaining to the payment of premium, if any, and, if so
                  specified as contemplated by Section 3.01 with respect to the
                  Bonds of any series, or any Tranche thereof, interest, if any,
                  on overdue premium, if any, and overdue interest, if any,
                  ratably as aforesaid, all to the extent permitted by
                  applicable law; provided, however, that any money collected by
                  the Trustee pursuant to Section 8.06 in respect of interest or
                  pursuant to Section 10.03 shall first be applied to the
                  payment of interest accrued on the principal of Outstanding
                  Bonds; and

                                      -91-


                  Third: To the payment of the remainder, if any, to the Company
         or to whomsoever may be lawfully entitled to receive the same or as a
         court of competent jurisdiction may direct.

SECTION 10.08. RECEIVER.

                  If an Event of Default shall have occurred and, during the
continuance thereof, the Trustee shall have commenced judicial proceedings to
enforce any right under this Indenture, the Trustee shall, to the extent
permitted by law, be entitled, prior to the Release Date, as against the
Company, without notice or demand and without regard to the adequacy of the
security for the Bonds or the solvency of the Company, to the appointment of a
receiver of the Mortgaged Property.

SECTION 10.09. TRUSTEE MAY FILE PROOFS OF CLAIM.

                  In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Bonds or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Bonds shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,

                  (a)      to file and prove a claim for the whole amount of
principal, premium, if any, and interest, if any, owing and unpaid in respect of
the Bonds and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
amounts due to the Trustee under Section 11.07) and of the Holders allowed in
such judicial proceeding, and

                  (b)      to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amounts due it under Section 11.07.

                  Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Bonds or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.

SECTION 10.10. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF BONDS.

                  All rights of action and claims under this Indenture or on the
Bonds may be prosecuted and enforced by the Trustee without the possession of
any of the Bonds or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be

                                      -92-


brought in its own name as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders in respect of which such judgment has
been recovered.

SECTION 10.11. LIMITATION ON SUITS.

                  No Holder shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:

                  (a)      such Holder shall have previously given written
notice to the Trustee of a continuing Event of Default;

                  (b)      the Holders of at least thirty-three percent (33%) in
aggregate principal amount of the Bonds then Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default in its own name as Trustee hereunder;

                  (c)      such Holder or Holders shall have offered to the
Trustee reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;

                  (d)      the Trustee for sixty (60) days after its receipt of
such notice, request and offer of indemnity shall have failed to institute any
such proceeding; and

                  (e)      no direction inconsistent with such written request
shall have been given to the Trustee during such sixty (60) day period by the
Holders of at least a majority in aggregate principal amount of the Bonds then
Outstanding;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the lien of this Indenture or
the rights of any other of such Holders or to obtain or to seek to obtain
priority or preference over any other of such Holders or to enforce any right
under this Indenture, except in the manner herein provided and for the equal and
ratable benefit of all of such Holders.

SECTION 10.12. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM AND
                  INTEREST.

                  Notwithstanding any other provision in this Indenture, the
Holder of any Bond shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to Section
3.07) interest, if any, on such Bond on the Stated Maturity or Maturities
expressed in such Bond (or, in the case of redemption, on the Redemption Date)
and to institute suit for the enforcement of any such payment, and such rights
shall not be impaired without the consent of such Holder.

                                      -93-


SECTION 10.13. RESTORATION OF RIGHTS AND REMEDIES.

                  If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, the Trustee and such
Holder shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and such Holder
shall continue as though no such proceeding had been instituted.

SECTION 10.14. RIGHTS AND REMEDIES CUMULATIVE.

                  Except as otherwise provided in the last paragraph of Section
3.06, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.

                  Anything in this Article to the contrary notwithstanding, the
availability of the remedies set forth herein (on an individual or cumulative
basis) and the procedures set forth herein relating to the exercise thereof
shall be subject to (a) the law (including, for purposes of this paragraph,
general principles of equity) of any jurisdiction wherein the Mortgaged Property
or any part thereof is located to the extent that such law is mandatorily
applicable and (b) the rights of any Senior Lienholder and, if and to the extent
that any provision of this Article conflicts with any provision of such
applicable law and/or with the rights of such Senior Lienholder such provision
of law and/or the rights of such holder shall control.

SECTION 10.15. DELAY OR OMISSION NOT WAIVER.

                  No delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.

SECTION 10.16. CONTROL BY HOLDERS OF BONDS.

                  If an Event of Default shall have occurred and be continuing,
the Holders of not less than a majority in principal amount of the Bonds then
Outstanding shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee hereunder; provided, however, that

                  (a)      such direction shall not be in conflict with any rule
of law or with this Indenture, and could not involve the Trustee in personal
liability in circumstances where indemnity would not, in the Trustee's sole
discretion, be adequate, and

                                      -94-


                  (b)      the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such direction.

SECTION 10.17. WAIVER OF PAST DEFAULTS.

                  Before any sale of any of the Mortgaged Property and before a
judgment or decree for payment of the money due shall have been obtained by the
Trustee as in this Article provided, the Holders of not less than a majority in
principal amount of the Bonds then Outstanding may on behalf of the Holders of
all the Bonds then Outstanding waive any past default hereunder and its
consequences, except a default

                  (a)      in the payment of the principal of or premium, if
any, or interest, if any, on any Bond Outstanding, or

                  (b)      in respect of a covenant or provision hereof which
under Section 14.02 cannot be modified or amended without the consent of the
Holder of each Outstanding Bond of any series or Tranche affected.

                  Upon any such waiver, such default shall cease to exist, and
any and all Events of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.

SECTION 10.18. UNDERTAKING FOR COSTS.

                  The Company and the Trustee agree, and each Holder of Bonds by
its acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than ten percent
(10%) in aggregate principal amount of the Bonds then Outstanding, or to any
suit instituted by any Holder for the enforcement of the payment of the
principal of or premium, if any, or interest, if any, on any Bond on or after
the Stated Maturity or Maturities expressed in such Bond (or, in the case of
redemption, on or after the Redemption Date).

SECTION 10.19. WAIVER OF APPRAISEMENT AND OTHER LAWS.

                  The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension or redemption law, now or hereafter in effect, in
order to prevent or hinder the enforcement of this Indenture or the absolute
sale of the Mortgaged Property, or any part thereof, or the possession thereof,
or any part thereof, by any purchaser at any sale under this Article; and the
Company, for itself and all who may claim under it, so far as

                                      -95-


it or they now or hereafter may lawfully do so, hereby waives the benefit of all
such laws. The Company, for itself and all who may claim under it, waives, to
the extent that it may lawfully do so, all right to have the Mortgaged Property
marshalled upon any foreclosure of the lien hereof, and agrees that any court
having jurisdiction to foreclose the lien of this Indenture may order the sale
of the Mortgaged Property as an entirety.

                  In addition, and without limiting the generality of the
foregoing, the Company, for itself and all who may claim under it, waives, to
the extent that it may lawfully do so, the benefits and protections of Sections
2924, 2924b and 2924c of the California Civil Code and Section 726(a) of the
California Code of Civil Procedure, and any amendments thereto or replacements
thereof.

                                   ARTICLE XI

                                   THE TRUSTEE

SECTION 11.01. CERTAIN DUTIES AND RESPONSIBILITIES.

                  (a)      Except during the continuance of an Event of Default,

                           (i)      the Trustee undertakes to perform such
         duties and only such duties as are specifically set forth in this
         Indenture, and no implied covenants or obligations shall be read into
         this Indenture against the Trustee; and

                           (ii)     in the absence of bad faith on its part, the
         Trustee may conclusively rely, as to the truth of the statements and
         the correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements of
         this Indenture; but in the case of any such certificates or opinions
         which by any provisions hereof are specifically required to be
         furnished to the Trustee, the Trustee shall be under a duty to examine
         the same to determine whether or not they conform to the requirements
         of this Indenture.

                  (b)      In case an Event of Default shall have occurred and
be continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.

                  (c)      No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct or its own bad faith,
except that:

                           (i)      this subsection shall not be construed to
         limit the effect of subsection (a) of this Section;

                           (ii)     the Trustee shall not be liable for any
         error of judgment made in good faith by a Responsible Officer, unless
         it shall be proved that the Trustee was negligent in ascertaining the
         pertinent facts;

                                      -96-


                           (iii)    the Trustee shall not be liable with respect
         to any action taken or omitted to be taken by it in good faith in
         accordance with the direction of the Holders of a majority in principal
         amount of the Outstanding Bonds, as provided herein, relating to the
         time, method and place of conducting any proceeding for any remedy
         available to the Trustee, or exercising any trust or power conferred
         upon the Trustee, under this Indenture; and

                           (iv)     no provision of this Indenture shall require
         the Trustee to expend or risk its own funds or otherwise incur any
         financial liability in the performance of any of its duties hereunder,
         or in the exercise of any of its rights or powers, if it shall have
         reasonable grounds for believing that repayment of such funds or
         adequate indemnity against such risk or liability is not reasonably
         assured to it.

                  (d)      Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section.

SECTION 11.02. NOTICE OF DEFAULTS.

                  Within ninety (90) days after the occurrence of any default
hereunder, the Trustee shall transmit by mail to all Holders notice of such
default hereunder known to the Trustee, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of (or premium, if any) or interest, if any, on any
Bond, or in the payment of any sinking fund installment with respect to a Bond,
the Trustee shall be protected in withholding such notice if and so long as the
board of directors, executive committee or a trust committee of directors or a
Responsible Officer of the Trustee in good faith determine that the withholding
of such notice is in the interest of the Holders; provided, further, that, in
the case of any default of the character specified in Section 10.01(c), no such
notice to Holders shall be given until at least sixty (60) days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default.

                  The Trustee shall not be deemed to have knowledge of any
default specified in Section 10.01(c), 10.01(d) or 10.01(e) hereunder unless and
until a Responsible Officer shall have actual knowledge thereof, or shall have
received written notice thereof at its Corporate Trust Office. In the absence of
such actual knowledge or notice, the Trustee may conclusively assume that no
such default has occurred and is continuing under this Indenture. Except as
otherwise expressly provided herein, the Trustee shall not be bound to ascertain
or inquire as to the performance or observance of any of the terms, conditions,
covenants or agreements herein or of any of the documents executed in connection
with Bonds issued hereunder, or as to the existence of a default or Event of
Default hereunder.

SECTION 11.03. CERTAIN RIGHTS OF TRUSTEE.

                  Subject to the provisions of Section 11.01 and to the
applicable provisions of the Trust Indenture Act:

                  (a)      the Trustee may conclusively rely and shall be fully
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice,

                                      -97-


request, direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;

                  (b)      any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company Order, or
as otherwise expressly provided herein, and any resolution of the Board of
Directors may be sufficiently evidenced by a Board Resolution;

                  (c)      whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence is specifically prescribed herein) may, in the absence of bad faith on
its part, conclusively rely upon an Officer's Certificate;

                  (d)      the Trustee may consult with counsel and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;

                  (e)      the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request or
direction of any Holder pursuant to this Indenture, unless such Holder shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;

                  (f)      the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall (subject
to applicable legal requirements) be entitled to examine, during normal business
hours, the books, records and premises of the Company, personally or by agent or
attorney;

                  (g)      the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder;

                  (h)      the Trustee shall not be personally liable, in case
of entry by it upon the Mortgaged Property, for debts contracted or liabilities
or damages incurred in the prudent management or operation of the Mortgaged
Property.

SECTION 11.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF BONDS OR APPLICATION
                  OF PROCEEDS.

                  The recitals contained herein and in the Bonds (except the
Trustee's certificate of authentication on the Bonds) shall be taken as the
statements of the Company, and neither the Trustee nor any Authenticating Agent
assumes any responsibility for their correctness. The

                                      -98-


Trustee makes no representations as to the value or condition of the Mortgaged
Property or any part thereof, or as to the title of the Company thereto or as to
the security afforded thereby or hereby, or as to the validity or genuineness of
any securities at any time pledged and deposited with the Trustee hereunder, or
as to the validity or sufficiency of this Indenture or of the Bonds. The Trustee
shall not be accountable for the use or application by the Company of the Bonds
or the proceeds thereof or of any money paid to the Company or upon Company
Order under any provision hereof. Neither the Trustee nor any Authenticating
Agent shall be accountable for the use or application by the Company of Bonds or
the proceeds thereof. Except with respect to the filing and refiling of
financing statements and any continuation statements or amendments relating
thereto, as may be necessary to perfect or maintain the perfection of the lien
hereof on that portion of the Mortgaged Property which constitutes personal
property or fixtures, the Trustee shall have no responsibility to make or to see
to the making of any recording, filing or registration of any instrument or
notice (including any tax or securities form) (or any rerecording, refiling or
reregistration of any thereof) at any time in any public office or elsewhere for
the purpose of perfecting, maintaining the perfection of or otherwise making
effective the lien of this Indenture or for any other purpose and shall have no
responsibility for seeing to the insurance on the Mortgaged Property or for
paying any taxes relating to the Mortgaged Property or for otherwise maintaining
the Mortgaged Property, including, but not limited to, attending to any
environmental matters in respect thereof or disposing of any hazardous or other
wastes located thereon.

SECTION 11.05. MAY HOLD BONDS.

                  Each of the Trustee, any Authenticating Agent, any Paying
Agent, any Bond Registrar or any other agent of the Company or the Trustee, in
its individual or any other capacity, may become the owner or pledgee of Bonds
and, subject to Sections 11.08 and 11.13, may otherwise deal with the Company
with the same rights it would have if it were not such Trustee, Authenticating
Agent, Paying Agent, Bond Registrar or other agent.

SECTION 11.06. MONEY HELD IN TRUST.

                  Money held by the Trustee in trust hereunder need not be
segregated from other funds, except to the extent required by law or as
otherwise provided in the Indenture. The Trustee shall be under no liability for
interest on or investment of any money received by it hereunder (provided that
the Trustee has invested such money in accordance with a Company Order) except
as expressly provided herein or otherwise agreed with, and for the sole benefit
of, the Company.

SECTION 11.07. COMPENSATION AND REIMBURSEMENT.

                  The Company agrees

                  (a)      to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);

                  (b)      except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and

                                      -99-


the expenses and disbursements of its agents and counsel), except to the extent
that any such expense, disbursement or advance may be attributable to its
negligence, willful misconduct or bad faith; and

                  (c)      to indemnify the Trustee (which for purposes of this
Section shall include its officers, directors, employees and agents) and hold it
harmless from and against any loss, liability or expense reasonably incurred
without negligence, willful misconduct or bad faith on its part, arising out of
or in connection with the acceptance or administration of the trust or trusts
hereunder or the exercise or performance of its duties hereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or duties
hereunder.

                  Prior to the Release Date, as security for the performance of
the obligations of the Company under this Section 11.07, the Trustee shall have
a lien secured by this Indenture prior to the Bonds upon the Mortgaged Property
and upon all other property and funds held or collected by the Trustee as such,
other than property and funds held in trust (i) for the payment of principal,
premium, if any, and interest on the Bonds or (ii) under Section 9.03 (except
moneys payable to the Company as provided in Section 9.03). "Trustee" for
purposes of this Section shall include any predecessor Trustee; provided,
however, that the negligence, willful misconduct or bad faith of any Trustee
hereunder shall not affect the rights of any other Trustee hereunder.

                  In addition and without prejudice to the rights provided to
the Trustee under any of the provisions of this Indenture, when the Trustee
incurs expenses or renders services in connection with an Event of Default
specified in Section 10.01(d) or Section 10.01(e), the expenses (including the
reasonable charges and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
applicable federal or state bankruptcy, insolvency or other similar law.

                  The provisions of this Section shall survive the termination
of this Indenture and the resignation or removal of the Trustee.

SECTION 11.08. DISQUALIFICATION; CONFLICTING INTERESTS.

                  If the Trustee shall have or acquire any conflicting interest
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign to the extent, in the manner and with the effect,
and subject to the conditions, provided in the Trust Indenture Act and this
Indenture. For purposes of Section 310(b)(1) of the Trust Indenture Act and to
the extent permitted thereby, the Trustee, in its capacity as trustee in respect
of the Bonds of any series, shall not be deemed to have a conflicting interest
arising from its capacity as trustee in respect of the Bonds of any other
series.

SECTION 11.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.

                  There shall at all times be a Trustee hereunder which shall be

                           (i)      a corporation organized and doing business
         under the laws of the United States, any state or territory thereof or
         the District of Columbia, authorized under such laws

                                     -100-


         to exercise corporate trust powers, having a combined capital and
         surplus of at least Fifty Million Dollars ($50,000,000) and subject to
         supervision or examination by federal or state authority, or

                           (ii)     if and to the extent permitted by the
         Commission by rule, regulation or order upon application, a corporation
         or other Person organized and doing business under the laws of a
         foreign government, authorized under such laws to exercise corporate
         trust powers, having a combined capital and surplus of at least Fifty
         Million Dollars ($50,000,000) or the Dollar equivalent of the
         applicable foreign currency and subject to supervision or examination
         by authority of such foreign government or a political subdivision
         thereof substantially equivalent to supervision or examination
         applicable to United States institutional trustees,

and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.

SECTION 11.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.

                  (a)      No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 11.11.

                  (b)      The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 11.11 shall not have been delivered to the Trustee
within thirty (30) days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

                  (c)      The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Bonds then Outstanding
delivered to the Trustee and to the Company.

                  (d)      If at any time:

                           (i)      the Trustee shall fail to comply with
         Section 11.08 after written request therefor by the Company or by any
         Holder who has been a bona fide Holder for at least six months, or

                           (ii)     the Trustee shall cease to be eligible under
         Section 11.09 or Section 310(a) of the Trust Indenture Act and shall
         fail to resign after written request therefor by the Company or by any
         such Holder, or

                           (iii)    the Trustee shall become incapable of acting
         or shall be adjudged a bankrupt or insolvent or a receiver of the
         Trustee or of its property shall be appointed or any public

                                     -101-


         officer shall take charge or control of the Trustee or of its property
         or affairs for the purpose of rehabilitation, conservation or
         liquidation,

then, in any such case, (x) the Company by a Board Resolution may remove the
Trustee or (y) subject to Section 10.18, any Holder who has been a bona fide
Holder for at least six (6) months may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee or Trustees.

                  (e)      If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause (other than as contemplated in clause (y) in subsection (d) of this
Section), the Company, by a Board Resolution, shall take prompt steps to appoint
a successor Trustee or Trustees and shall comply with the applicable
requirements of Section 11.11. If, within one (1) year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
shall be appointed by Act of the Holders of a majority in principal amount of
the Bonds then Outstanding delivered to the Company and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 11.11,
become the successor Trustee and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner required by
Section 11.11, the Holders of at least 10% in aggregate principal amount of the
then Outstanding Bonds may petition any court of competent jurisdiction for the
appointment of a successor Trustee.

                  (f)      So long as no event which is, or after notice or
lapse of time, or both, would become, an Event of Default shall have occurred
and be continuing, if the Company shall have delivered to the Trustee (i) a
Board Resolution appointing a successor Trustee, effective as of a date
specified therein, and (ii) an instrument of acceptance of such appointment,
effective as of such date, by such successor Trustee in accordance with Section
11.11, the Trustee shall be deemed to have resigned as contemplated in
subsection (b) of this Section, the successor Trustee shall be deemed to have
been appointed pursuant to subsection (e) of this Section and such appointment
shall be deemed to have been accepted as contemplated in Section 11.11, all as
of such date, and all other provisions of this Section and Section 11.11 shall
be applicable to such resignation, appointment and acceptance except to the
extent inconsistent with this subsection (f).

                  (g)      The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee by
mailing written notice of such event by first-class mail, postage prepaid, to
all Holders as their names and addresses appear in the Bond Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.

SECTION 11.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.

                  (a)      In case of the appointment hereunder of a successor
Trustee, every such successor Trustee so appointed shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act,

                                     -102-


deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee. Such retiring Trustee shall execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien provided for in Section
11.07.

                  (b)      Upon request of any such successor Trustee, the
Company shall execute any instruments which fully vest in and confirm to such
successor Trustee all rights, powers and trusts referred to in subsection (a) of
this Section.

                  (c)      No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee shall be qualified
and eligible under this Article.

SECTION 11.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.

                  Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Bonds shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Bonds so authenticated with the same effect
as if such successor Trustee had itself authenticated such Bonds.

SECTION 11.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.

                  If the Trustee shall be or become a creditor of the Company or
any other obligor upon the Bonds (other than by reason of a relationship
described in Section 311(b) of the Trust Indenture Act), the Trustee shall be
subject to any and all applicable provisions of the Trust Indenture Act
regarding the collection of claims against the Company or such other obligor.

SECTION 11.14. CO-TRUSTEES AND SEPARATE TRUSTEES.

                  At any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Mortgaged Property may at
the time be located, the Company and the Trustee shall have power to appoint,
and, upon the written request of the Trustee or of the Holders of at least
thirty-three percent (33%) in principal amount of the Bonds then Outstanding,
the Company shall for such purpose join with the Trustee in the execution and
delivery of all instruments and agreements necessary or proper to appoint, one
or more Persons approved by the Trustee and, if no Event of Default shall have
occurred and be continuing, by the Company either to act as co-trustee, jointly
with the Trustee, of all or any part of the Mortgaged Property, or to act as
separate trustee of any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such Person or
Persons, in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. If the
Company does not join in such appointment within fifteen (15) days after the
receipt by it of a request so to do, or if an Event of

                                     -103-


Default shall have occurred and be continuing, the Trustee alone shall have
power to make such appointment.

                  Should any written instrument or instruments from the Company
be required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.

                  Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
conditions:

                           (i)      the Bonds shall be authenticated and
         delivered, and all rights, powers, duties and obligations hereunder in
         respect of the custody of securities, cash and other personal property
         held by, or required to be deposited or pledged with, the Trustee
         hereunder, shall be exercised solely, by the Trustee;

                           (ii)     the rights, powers, duties and obligations
         hereby conferred or imposed upon the Trustee in respect of any property
         covered by such appointment shall be conferred or imposed upon and
         exercised or performed either by the Trustee or by the Trustee and such
         co-trustee or separate trustee jointly, as shall be provided in the
         instrument appointing such co-trustee or separate trustee, except to
         the extent that under any law of any jurisdiction in which any
         particular act is to be performed, the Trustee shall be incompetent or
         unqualified to perform such act, in which event such rights, powers,
         duties and obligations shall be exercised and performed by such
         co-trustee or separate trustee;

                           (iii)    the Trustee at any time, by an instrument in
         writing executed by it, with the concurrence of the Company, may accept
         the resignation of or remove any co-trustee or separate trustee
         appointed under this Section, and, if an Event of Default shall have
         occurred and be continuing, the Trustee shall have power to accept the
         resignation of, or remove, any such co-trustee or separate trustee
         without the concurrence of the Company. Upon the written request of the
         Trustee, the Company shall join with the Trustee in the execution and
         delivery of all instruments and agreements necessary or proper to
         effectuate such resignation or removal. A successor to any co-trustee
         or separate trustee so resigned or removed may be appointed in the
         manner provided in this Section;

                           (iv)     neither the Trustee nor any co-trustee or
         separate trustee hereunder shall be personally liable by reason of any
         act or omission of any other trustee hereunder; and

                           (v)      any Act of Holders delivered to the Trustee
         shall be deemed to have been delivered to each such co-trustee and
         separate trustee.

         SECTION 11.15. APPOINTMENT OF AUTHENTICATING AGENT.

                  The Trustee may appoint an Authenticating Agent or Agents with
respect to the Bonds of one or more series, or any Tranche thereof, which shall
be authorized to act on behalf of the Trustee to authenticate Bonds of such
series or Tranche issued upon original issuance, exchange, registration of
transfer or partial redemption thereof or pursuant to Section 3.06, and Bonds so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory

                                     -104-


for all purposes as if authenticated by the Trustee hereunder. Wherever
reference is made in this Indenture to the authentication and delivery of Bonds
by the Trustee or the Trustee's certificate of authentication, such reference
shall be deemed to include authentication and delivery on behalf of the Trustee
by an Authenticating Agent and a certificate of authentication executed on
behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent
shall be acceptable to the Company and shall at all times be a corporation
organized and doing business under the laws of the United States, any state or
territory thereof or the District of Columbia or the Commonwealth of Puerto
Rico, authorized under such laws to act as Authenticating Agent, having a
combined capital and surplus of not less than Fifty Million Dollars
($50,000,000) and subject to supervision or examination by federal or state
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section, such Authenticating Agent shall
resign immediately in the manner and with the effect specified in this Section.

                  Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to all or
substantially all of the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such corporation shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.

                  An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.

                  The Company agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section.

                  The provisions of Sections 3.08, 11.04 and 11.05 shall be
applicable to each Authenticating Agent.

                  If an appointment with respect to the Bonds of one or more
series, or any Tranche thereof, shall be made pursuant to this Section, the
Bonds of such series or Tranche may have

                                     -105-


endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:

                  This is one of the Bonds of the series designated therein
referred to in the within-mentioned Indenture.

                                    ___________________________, as Trustee

                                    By
                                       _________________________________________
                                    As Authenticating Agent

                                    By
                                       _________________________________________
                                    Authorized Officer

                  If all of the Bonds of a series may not be originally issued
at one time, and if the Trustee does not have an office capable of
authenticating Bonds upon original issuance located in a Place of Payment where
the Company wishes to have Bonds of such series authenticated upon original
issuance, the Trustee, if so requested by the Company in writing (which writing
need not comply with Section 1.04 and need not be accompanied by an Opinion of
Counsel), shall appoint, in accordance with this Section and in accordance with
such procedures as shall be acceptable to the Trustee, an Authenticating Agent
having an office in a Place of Payment designated by the Company with respect to
such series of Bonds.

                                  ARTICLE XII

                LISTS OF HOLDERS; REPORTS BY TRUSTEE AND COMPANY

SECTION 12.01. LISTS OF HOLDERS.

         Semiannually, not less than 45 days nor more than 60 days after June 1
and December 1 in each year, commencing 2004, and at such other times as the
Trustee may request in writing, the Company shall furnish or cause to be
furnished to the Trustee, information as to the names and addresses of the
Holders as of a date no more than fifteen (15) days prior to the date such
information is so furnished, and the Trustee shall preserve such information and
similar information received by it in any other capacity and afford to the
Holders access to information so preserved by it, all to such extent, if any,
and in such manner as shall be required by the Trust Indenture Act; provided,
however, that no such list need be furnished so long as the Trustee shall be the
Bond Registrar.

SECTION 12.02. REPORTS BY TRUSTEE AND COMPANY.

                  Not later than July 15 in each year, commencing July 15, 2005,
the Trustee shall transmit to the Holders, the Commission and each securities
exchange upon which any Bonds are listed a report, dated as of the next
preceding May 15, with respect to any events and other matters

                                     -106-


described in Section 313(a) of the Trust Indenture Act, in such manner and to
the extent required by the Trust Indenture Act. The Trustee shall transmit to
the Holders, the Commission and each securities exchange upon which any Bonds
are listed, and the Company shall file with the Trustee (within thirty (30) days
after filing with the Commission in the case of reports which pursuant to the
Trust Indenture Act must be filed with the Commission and furnished to the
Trustee) and cause to be transmitted to the Holders, such other information,
reports and other documents, if any, at such times and in such manner, as shall
be required by the Trust Indenture Act. Delivery of such reports, information
and documents to the Trustee is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates). The Company shall notify the Trustee of the listing of any Bonds
on any securities exchange.

                                  ARTICLE XIII

               CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER

SECTION 13.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.

                  The Company shall not consolidate with or merge with or into
any other Person, or convey, or otherwise transfer, or lease, subject to the
lien of this Indenture, all or substantially all of the Mortgaged Property to
any Person, unless:

                  (a)      the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance or other
transfer, or which leases, all or substantially all of the Mortgaged Property
shall be a corporation, shall be organized and existing under the laws of the
United States, any state thereof or the District of Columbia (such corporation
being hereinafter sometimes called the "Successor Corporation") and shall
execute and deliver to the Trustee an indenture supplemental hereto, in form
recordable and reasonably satisfactory to the Trustee, which:

                           (i)      in the case of a consolidation, merger,
         conveyance or other transfer, or in the case of a lease if the term
         thereof extends beyond the last Stated Maturity of the Bonds then
         Outstanding, contains an assumption by the Successor Corporation of the
         due and punctual payment of the principal of and premium, if any, and
         interest, if any, on all the Bonds then Outstanding and the performance
         and observance of every covenant and condition of this Indenture to be
         performed or observed by the Company, and

                           (ii)     if prior to the Release Date, contains a
         grant, conveyance, transfer and mortgage by the Successor Corporation,
         of the same tenor of the Granting Clauses herein,

                                    (A) confirming the lien of this Indenture on
                  the Mortgaged Property (as constituted immediately prior to
                  the time such transaction became effective) and subjecting to
                  the lien of this Indenture all property (other than Excepted
                  Property), real, personal and mixed, thereafter acquired by
                  the Successor Corporation which shall constitute an
                  improvement, extension or addition to the Mortgaged Property
                  (as so

                                     -107-


                  constituted) or a renewal, replacement or substitution of or
                  for any part thereof, and, at the election of the Successor
                  Corporation,

                                    (B)      subjecting to the lien of this
                  Indenture such property, real, personal or mixed, in addition
                  to the property described in subclause (A) above, then owned
                  or thereafter acquired by the Successor Corporation as the
                  Successor Corporation shall, in its sole discretion, specify
                  or describe therein, and the lien confirmed or created by such
                  grant, conveyance, transfer and mortgage shall have force,
                  effect and standing similar to those which the lien of this
                  Indenture would have had if the Company had not been a party
                  to such consolidation, merger, conveyance or other transfer
                  and had itself, after the time such transaction became
                  effective, purchased, constructed or otherwise acquired the
                  property subject to such grant, conveyance, transfer and
                  mortgage;

                  (b)      in the case of a lease, such lease shall be made
expressly subject to termination by the Company or by the Trustee at any time
during the continuance of an Event of Default, and also by the purchaser of the
property so leased at any sale thereof hereunder, whether such sale be made
under the power of sale hereby conferred or pursuant to judicial proceedings;
and

                  (c)      immediately after giving effect to such transaction
and treating any indebtedness which becomes an obligation of the Company as a
result of such transaction as having been incurred by the Company at the time of
such transaction, no Default or Event of Default shall have occurred and be
continuing; and

                  (d)      the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that the merger,
consolidation, conveyance, lease or transfer, as the case may be, fully complies
with all provisions of this Indenture; provided, however, that the delivery of
such an Officer's Certificate and Opinion of Counsel shall not be required with
respect to any merger, consolidation, conveyance, transfer or lease between the
Company and any of its wholly-owned Subsidiaries.

                  Notwithstanding the foregoing, the Company may merge or
consolidate with or transfer all or substantially all of its assets to an
Affiliate that has no significant assets or liabilities and was formed solely
for the purpose of changing the jurisdiction of organization of the Company or
the form of organization of the Company or for the purpose of forming a holding
company; provided that the amount of indebtedness of the Company is not
increased thereby; and provided, further that the successor assumes all
obligations of the Company under this Indenture.

                  As used in this Article and in Section 8.10(d), the terms
"improvement", "extension" and "addition" shall be limited to (a) with respect
to real property subject to the lien of this Indenture, any item of personal
property which has been so affixed or attached to such real property as to be
regarded a part of such real property under applicable law and (b) with respect
to personal property subject to the lien of this Indenture, any improvement,
extension or addition to such personal property which (i) is made to maintain,
renew, repair or improve the function of such personal property and (ii) is
physically installed in or affixed to such personal property.

                  From and after the Release Date, the term Mortgaged Property
wherever used in this Section 13.0l shall mean Principal Property.

                                     -108-


SECTION 13.02. SUCCESSOR CORPORATION SUBSTITUTED.

                  Upon any consolidation or merger or any conveyance or other
transfer, subject to the Lien of this Indenture, of all or substantially all of
the Mortgaged Property in accordance with Section 13.01, the Successor
Corporation shall succeed to, and be substituted for, and may exercise every
power and right of, the Company under this Indenture with the same effect as if
such Successor Corporation had been named as the "Company" herein. Without
limiting the generality of the foregoing:

                  (a)      all property of the Successor Corporation then
subject to the lien of this Indenture, of the character described in Section
1.03, shall constitute Property Additions;

                  (b)      the Successor Corporation may execute and deliver to
the Trustee, and thereupon the Trustee shall, subject to the provisions of
Article V, authenticate and deliver, Bonds upon any basis provided in Article V;
and

                  (c)      the Successor Corporation may, subject to the
applicable provisions of this Indenture, cause Property Additions to be applied
to any other Authorized Purpose.

                  All Bonds so executed by the Successor Corporation, and
authenticated and delivered by the Trustee, shall in all respects be entitled to
the benefit of the lien of this Indenture equally and ratably with all Bonds
executed, authenticated and delivered prior to the time such consolidation,
merger, conveyance or other transfer became effective.

                  In case of any such consolidation, merger, sale, conveyance or
lease, changes in phraseology and form may be made in the Bonds thereafter to be
issued and the documentation thereafter to be delivered hereunder as may be
appropriate to reflect such occurrence.

                  From and after the Release Date, the term Mortgaged Property
in this Section 13.02 shall mean Principal Property.

SECTION 13.03. EXTENT OF LIEN HEREOF ON PROPERTY OF SUCCESSOR CORPORATION.

                  Unless, in the case of a consolidation, merger, conveyance or
other transfer contemplated by Section 13.01, the indenture supplemental hereto
contemplated in clause (b)(ii) in Section 13.01, or any other indenture,
contains a grant, conveyance, transfer and mortgage by the Successor Corporation
as described in subclause (B) thereof, neither this Indenture nor such
supplemental indenture shall become or be, or be required to become or be, a
Lien upon any of the properties:

                  (a)      owned by the Successor Corporation or any other party
to such transaction (other than the Company) immediately prior to the time of
effectiveness of such transaction or

                  (b)      acquired by the Successor Corporation at or after the
time of effectiveness of such transaction,

except, in either case, Mortgaged Property acquired from the Company in or as a
result of such transaction and, to the extent not constituting Excepted
Property, improvements, extensions and

                                      -109-


additions to such properties and renewals, replacements and substitutions of or
for any part or parts thereof.

SECTION 13.04. RELEASE OF COMPANY UPON CONVEYANCE OR OTHER TRANSFER.

                  In the case of a conveyance or other transfer to any Person or
Persons as contemplated in Section 13.01, upon the satisfaction of all the
conditions specified in Section 13.01, the Company (such term being used in this
Section without giving effect to such transaction) shall be released and
discharged from all obligations and covenants under this Indenture and on and
under all Bonds then Outstanding (unless the Company shall have delivered to the
Trustee an instrument in which it shall waive such release and discharge) and
the Trustee shall acknowledge in writing that the Company has been so released
and discharged.

SECTION 13.05. MERGER INTO COMPANY; EXTENT OF LIEN HEREOF.

                  (a)      Nothing in this Indenture shall be deemed to prevent
or restrict any consolidation or merger after the consummation of which the
Company would be the surviving or resulting company or any conveyance or other
transfer, or lease, subject to the lien of this Indenture (unless otherwise
expressly provided herein), of any part of the Mortgaged Property which does not
constitute the entirety, or substantially the entirety, thereof.

                  (b)      Unless, in the case of a consolidation or merger
described in subsection (a) of this Section, an indenture supplemental hereto
shall otherwise provide, this Indenture shall not become or be, or be required
to become or be, a Lien upon any of the properties acquired by the Company in or
as a result of such transaction or any improvements, extensions or additions to
such properties or any renewals, replacements or substitutions of or for any
part or parts thereof.

                  From and after the Release Date, the term Mortgaged Property
in this Section 13.05 shall mean Principal Property.

                                  ARTICLE XIV

                             SUPPLEMENTAL INDENTURES

SECTION 14.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.

                  Without the consent of any Holders, the Company and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form reasonably satisfactory to the Trustee,
for any of the following purposes:

                  (a)      to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the Company
herein and in the Bonds, all as provided in Article XIII; or

                  (b)      to add one or more covenants of the Company or other
provisions for the benefit of all Holders or for the benefit of the Holders of,
or to remain in effect only so long as there shall be Outstanding, Bonds of one
or more specified series, or one or more specified Tranches thereof; or to
surrender any right or power herein conferred upon the Company; or

                                     -110-


                  (c)      to correct or amplify the description of any property
at any time subject to the lien of this Indenture; or better to assure, convey
and confirm unto the Trustee any property subject or required to be subjected to
the lien of this Indenture; or to subject to the lien of this Indenture
additional property (including property of Persons other than the Company); or

                  (d)      to specify any additional Permitted Liens with
respect to such additional property and to modify Section 8.02 in order to
specify therein any additional items with respect to such additional property;
or

                  (e)      to change or eliminate any provision of this
Indenture or to add any new provision to this Indenture; provided, however, that
if such change, elimination or addition shall adversely affect the interests of
the Holders of Bonds of any series or Tranche in any material respect, such
change, elimination or addition shall become effective with respect to such
series or Tranche only when no Bond of such series or Tranche remains
Outstanding; or

                  (f)      to establish the form or terms of Bonds of any series
or Tranche as contemplated by Sections 2.01 and 3.01; or

                  (g)      to evidence and provide for the acceptance of
appointment hereunder by a separate or successor Trustee with respect to the
Bonds of one or more series and to add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, pursuant to the
requirements of Section 11.11(b); or

                  (h)      to provide for the procedures required to permit the
Company to issue, at its option, all or any series or Tranche of, the Bonds as
uncertificated securities; or

                  (i)      to change any place or places where (1) the principal
of and premium, if any, and interest, if any, on all or any series of Bonds, or
any Tranche thereof, shall be payable, (2) all or any series of Bonds, or any
Tranche thereof, may be surrendered for registration of transfer, (3) all or any
series of Bonds, or any Tranche thereof, may be surrendered for exchange and (4)
notices and demands to or upon the Company in respect of all or any series of
Bonds, or any Tranche thereof, and this Indenture may be served; or

                  (j)      to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any other provision
herein; or to make any other additions to, deletions from or other changes to
the provisions under this Indenture, provided that such additions, deletions
and/or other changes shall not materially adversely affect the interests of the
Holders of Bonds of any series or Tranche in any material respect; or

                  (k)      to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification of
this Indenture under the Trust Indenture Act, or under any similar federal
statute hereafter enacted, and to add to this Indenture such other provisions as
may be expressly permitted by the Trust Indenture Act, excluding, however the
provisions referred to in Section 316(a)(2) of the Trust Indenture Act as in
effect at the date as of which this instrument was executed or any corresponding
provision in any similar federal statute hereafter enacted; or

                                     -111-


                  (l)      in connection with the occurrence of the Release Date
under Section 8.12, to amend (including amend and restate) this Indenture to
eliminate any provisions related to Liens (other than Section 7.11), the lien of
this Indenture or the Mortgaged Property, including Articles V and VIII; or

                  (m)      to supplement any of the provisions of this Indenture
to such extent as shall be necessary to permit or facilitate the discharge of
any series of Bonds pursuant to Section 9.02; provided that any such action
shall not adversely affect the interests of the Holders of Bonds of such series
or any other series of Bonds in any material respect; or

                  (n)      to comply with the rules or regulations of any
securities exchange or automated quotation system on which any of the Bonds may
be listed or traded.

                  Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the Execution Date, or at any time thereafter
shall be amended and

                           (x) if any such amendment shall require one or more
                  changes to any provisions hereof or the inclusion herein of
                  any additional provisions, or shall by operation of law be
                  deemed to effect such changes or incorporate such provisions
                  by reference or otherwise, this Indenture shall be deemed to
                  have been amended so as to conform to such amendment to the
                  Trust Indenture Act, and the Company and the Trustee may,
                  without the consent of any Holders, enter into an indenture
                  supplemental hereto to evidence such amendment hereof; or

                           (y) if any such amendment shall permit one or more
                  changes to, or the elimination of, any provisions hereof
                  which, at the date of the execution and delivery hereof or at
                  any time thereafter, are required by the Trust Indenture Act
                  to be contained herein or are contained herein to reflect any
                  provisions of the Trust Indenture Act as in effect at such
                  date, this Indenture shall be deemed to have been amended to
                  effect such changes or elimination, and the Company and the
                  Trustee may, without the consent of any Holders, enter into an
                  indenture supplemental hereto to amend this Indenture to
                  effect such changes or elimination.

SECTION 14.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.

                  Subject to the provisions of Section 14.01, with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Bonds of all series then Outstanding under this Indenture, considered as one
class, by Act of said Holders delivered to the Company and the Trustee, the
Company and the Trustee may enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture; provided, however, that if
there shall be Bonds of more than one series Outstanding hereunder and if a
proposed supplemental indenture shall directly affect the rights of the Holders
of Bonds of one or more, but less than all, of such series, then the consent
only of the Holders of a majority in aggregate principal amount of the
Outstanding Bonds of all series so directly affected, considered as one class,
shall be required; and provided, further, that if the Bonds of any series shall
have been issued in more than one Tranche and if a proposed supplemental
indenture shall directly affect the rights of the Holders of Bonds of one or

                                     -112-



more, but less than all, of such Tranches, then the consent only of the Holders
of a majority in aggregate principal amount of the Outstanding Bonds of all
Tranches so directly affected, considered as one class, shall be required; and
provided, further, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Bond of each series or Tranche so
directly affected:

                  (a)      except as otherwise specified in the form or terms of
the Bonds of any series as permitted by Sections 2.01 and 3.01 with respect to
extending the Stated Maturity of any Bond of such series, change the Stated
Maturity of the principal of, or any installment of principal of or interest on,
any Bond, or reduce the principal amount thereof or the rate of interest thereon
(or the amount of any installment of interest thereon) or change the method of
calculating such rate or reduce any premium payable thereon, or reduce the
amount of the principal of any Discount Bond that would be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 10.02,
or change the coin or currency (or other property), in which any Bond or
premium, if any, or interest, if any, thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Maturity
of any Bond, without, in any such case, the consent of the Holder of such Bond;
or

                  (b)      prior to the Release Date, permit the creation of any
Lien (not otherwise permitted hereby) ranking prior to the lien of this
Indenture with respect to all or substantially all of the Mortgaged Property, or
(except as expressly permitted hereunder including pursuant to Section 8.12)
terminate the lien of this Indenture on all or substantially all of the
Mortgaged Property or deprive the Holders of the benefit of the lien of this
Indenture; or

                  (c)      reduce the percentage in principal amount of the
Outstanding Bonds of any series, or any Tranche thereof, the consent of the
Holders of which is required for any such supplemental indenture, or the consent
of the Holders of which is required for any waiver of compliance with any
provision of this Indenture or of any default hereunder and its consequences, or
reduce the requirements of Section 15.04 for quorum or voting; or

                  (d)      modify any of the provisions of this Section, Section
7.09 or Section 10.17 with respect to the Bonds of any series or any Tranche
thereof (except to increase the percentages in principal amount referred to in
this Section or such other Sections or to provide that other provisions of this
Indenture cannot be modified or waived without the consent of the Holders of all
Bonds of such series or Tranche) without, in any such case, the consent of the
Holder of each Outstanding Bond of such series or Tranche; provided, however,
that this clause shall not be deemed to require the consent of any Holder with
respect to changes in the references to "the Trustee" and concomitant changes in
this Section, or the deletion of this proviso, in accordance with the
requirements of Section 14.01(g).

                  A supplemental indenture which (x) changes or eliminates any
covenant or other provision of this Indenture which has expressly been included
solely for the benefit of the Holders of, or which is to remain in effect only
so long as there shall be Outstanding, Bonds of one or more specified series, or
one or more Tranches thereof, or (y) modifies the rights of the Holders of Bonds
of such series or Tranches with respect to such covenant or other provision,
shall be deemed not to affect the rights under this Indenture of the Holders of
Bonds of any other series or Tranche.

                                     -113-


                  It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.

                  Anything in this Indenture to the contrary notwithstanding, if
the Officer's Certificate, supplemental indenture or Board Resolution, as the
case may be, establishing the Bonds of any series or Tranche shall provide that
the Company may make certain specified additions, changes or eliminations to or
from the Indenture which shall be specified in such Officer's Certificate,
supplemental indenture or Board Resolution establishing such series or Tranche,
(a) the Holders of Bonds of such series or Tranche shall be deemed to have
consented to a supplemental indenture containing such additions, changes or
eliminations to or from the Indenture which shall be specified in such Officer's
Certificate, supplemental indenture or Board Resolution establishing such series
or Tranche, (b) no Act of such Holders shall be required to evidence such
consent and (c) such consent may be counted in the determination of whether or
not the Holders of the requisite principal amount of Bonds shall have consented
to such supplemental indenture.

SECTION 14.03. EXECUTION OF SUPPLEMENTAL INDENTURES.

                  In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 11.01) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties, immunities or liabilities under this
Indenture or otherwise.

SECTION 14.04. EFFECT OF SUPPLEMENTAL INDENTURES.

                  Upon the execution and delivery of any supplemental indenture
under this Article, this Indenture shall be modified in accordance therewith,
and such supplemental indenture shall form a part of this Indenture for all
purposes; and every Holder of Bonds theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby. Any supplemental indenture permitted
by this Article may restate this Indenture in its entirety, and, upon the
execution and delivery thereof, any such restatement shall supersede this
Indenture as theretofore in effect for all purposes.

SECTION 14.05. CONFORMITY WITH TRUST INDENTURE ACT.

                  Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.

SECTION 14.06. REFERENCE IN BONDS TO SUPPLEMENTAL INDENTURES.

                  Bonds of any series, or any Tranche thereof, authenticated and
delivered after the execution of any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Bonds of any series, or any

                                     -114-


Tranche thereof, so modified as to conform, in the opinion of the Trustee and
the Company, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Bonds of such series or Tranche.

SECTION 14.07. MODIFICATION WITHOUT SUPPLEMENTAL INDENTURE.

                  To the extent, if any, that the terms of any particular series
of Bonds shall have been established in or pursuant to a Board Resolution or an
Officer's Certificate pursuant to a supplemental indenture or a Board Resolution
as contemplated by Section 3.01, and not in a supplemental indenture, additions
to, changes in or the elimination of any of such terms may be effected by means
of a supplemental Board Resolution or a supplemental Officer's Certificate, as
the case may be, delivered to, and accepted by, the Trustee; provided, however,
that such supplemental Board Resolution or supplemental Officer's Certificate
shall not be accepted by the Trustee or otherwise be effective unless all
conditions set forth in this Indenture which would be required to be satisfied
if such additions, changes or elimination were contained in a supplemental
indenture shall have been appropriately satisfied. Upon the acceptance thereof
by the Trustee, any such supplemental Board Resolution or supplemental Officer's
Certificate shall be deemed to be a "supplemental indenture" for purposes of
Section 14.04 and 14.06 and a "supplemental indenture", "indenture supplemental"
to this Indenture or "instrument" supplemental to this Indenture for purposes of
Section 7.08.

                                   ARTICLE XV

                   MEETINGS OF HOLDERS; ACTION WITHOUT MEETING

SECTION 15.01. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.

                  A meeting of Holders of Bonds of one or more, or all, series,
or any Tranche or Tranches thereof, may be called at any time and from time to
time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Bonds of such series or
Tranches.

SECTION 15.02. CALL, NOTICE AND PLACE OF MEETINGS.

                  (a)      The Trustee may at any time call a meeting of Holders
of Bonds of one or more, or all, series, or any Tranche or Tranches thereof, for
any purpose specified in Section 15.01, to be held at such time and (except as
provided in subsection (b) of this Section) at such place as the Trustee shall
determine with the approval of the Company. Notice of every such meeting,
setting forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given, in the manner
provided in Section 1.08, not less than twenty-one (21) nor more than one
hundred eighty (180) days prior to the date fixed for the meeting.

                  (b)      The Trustee may be asked to call a meeting of the
Holders of Bonds of one or more, or all, series, or any Tranche or Tranches
thereof, by the Company or by the Holders of at least twenty-five percent (25%)
in aggregate principal amount of all of such series and Tranches,

                                     -115-


considered as one class, for any purpose specified in Section 15.01, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting. If the Trustee shall have been asked by the Company to call such a
meeting, the Company shall determine the time and place for such meeting and may
call such meeting by giving notice thereof in the manner provided in subsection
(a) of this Section, or shall direct the Trustee, in the name and at the expense
of the Company, to give such notice. If the Trustee shall have been asked to
call such a meeting by Holders in accordance with this subsection (b), and the
Trustee shall not have given the notice of such meeting within twenty-one (21)
days after receipt of such request or shall not thereafter proceed to cause the
meeting to be held as provided herein, then the Holders of Bonds of such series
and Tranches, in the principal amount above specified, may determine the time
and the place for such meeting, such place to be approved by the Company, and
may call such meeting for such purposes by giving notice thereof as provided in
subsection (a) of this Section.

                  (c)      Any meeting of Holders of Bonds of one or more, or
all, series, or any Tranche or Tranches thereof, shall be valid without notice
if the Holders of all Outstanding Bonds of such series or Tranches are present
in person or by proxy and if representatives of the Company and the Trustee are
present, or if notice is waived in writing before or after the meeting by the
Holders of all Outstanding Bonds of such series, or any Tranche or Tranches
thereof, or by such of them as are not present at the meeting in person or by
proxy, and by the Company and the Trustee.

SECTION 15.03. PERSONS ENTITLED TO VOTE AT MEETINGS.

                  To be entitled to vote at any meeting of Holders of Bonds of
one or more, or all, series, or any Tranche or Tranches thereof, a Person shall
be (a) a Holder of one or more Outstanding Bonds of such series or Tranches or
(b) a Person appointed by an instrument in writing as proxy for a Holder or
Holders of one or more Outstanding Bonds of such series or Tranches by such
Holder or Holders. The only Persons who shall be entitled to attend any meeting
of Holders of Bonds of any series or Tranche shall be the Persons entitled to
vote at such meeting and their counsel, any representatives of the Trustee and
its counsel and any representatives of the Company and its counsel.

SECTION 15.04. QUORUM; ACTION.

                  The Persons entitled to vote a majority in aggregate principal
amount of the Outstanding Bonds of the series and Tranches with respect to which
a meeting shall have been called as hereinbefore provided, considered as one
class, shall constitute a quorum for a meeting of Holders of Bonds of such
series and Tranches; provided, however, that if any action is to be taken at
such meeting which this Indenture expressly provides may be taken by the Holders
of a specified percentage, which is less than a majority, in principal amount of
the Outstanding Bonds of such series and Tranches, considered as one class, the
Persons entitled to vote such specified percentage in principal amount of the
Outstanding Bonds of such series and Tranches, considered as one class, shall
constitute a quorum. In the absence of a quorum within one hour of the time
appointed for any such meeting, the meeting shall, if convened at the request of
Holders of Bonds of such series and Tranches, be dissolved. In any other case
the meeting may be adjourned for such period as may be determined by the
chairman of the meeting prior to the adjournment of such meeting. In the absence
of a quorum at any such adjourned meeting, such

                                     -116-


adjourned meeting may be further adjourned for such period as may be determined
by the chairman of the meeting prior to the adjournment of such adjourned
meeting. Except as provided by Section 15.05(e), notice of the reconvening of
any meeting adjourned for more than thirty (30) days shall be given as provided
in Section 1.08 not less than ten (10) days prior to the date on which the
meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned
meeting shall state expressly the percentage, as provided above, of the
principal amount of the Outstanding Bonds of such series and Tranches which
shall constitute a quorum.

                  Except as limited by Section 14.02, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted only by the affirmative vote of the Holders of not
less than a majority in aggregate principal amount of the Outstanding Bonds of
the series and Tranches with respect to which such meeting shall have been
called, considered as one class; provided, however, that, except as so limited,
any resolution with respect to any action which this Indenture expressly
provides may be taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Bonds of such series and
Tranches, considered as one class, may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Bonds of such series and Tranches, considered as one class.

                  Any resolution passed or decision taken at any meeting of
Holders of Bonds duly held in accordance with this Section shall be binding on
all the Holders of Bonds of the series and Tranches with respect to which such
meeting shall have been held, whether or not present or represented at the
meeting.

SECTION 15.05. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS; CONDUCT
                  AND ADJOURNMENT OF MEETINGS.

                  (a)      Attendance at meetings of Holders of Bonds may be in
person or by proxy; and, to the extent permitted by law, any such proxy shall
remain in effect and be binding upon any future Holder of the Bonds with respect
to which it was given unless and until specifically revoked by the Holder or
future Holder (except as provided in Section 1.06(g)) of such Bonds before being
voted.

                  (b)      Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders of Bonds in regard to proof of the holding
of such Bonds and of the appointment of proxies and in regard to the appointment
and duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate. Except as
otherwise permitted or required by any such regulations and approved by the
Company, the holding of Bonds shall be proved in the manner specified in Section
1.06 and the appointment of any proxy shall be proved in the manner specified in
Section 1.06. Such regulations may provide that written instruments appointing
proxies, regular on their face, may be presumed valid and genuine without the
proof specified in Section 1.06 or other proof.

                                     -117-


                  (c)      The Trustee shall, by an instrument in writing,
appoint a temporary chairman of the meeting, unless the meeting shall have been
called by the Company or by Holders as provided in Section 15.02(b), in which
case the Company or the Holders of Bonds of the series and Tranches calling the
meeting, as the case may be, shall in like manner appoint a temporary chairman.
A permanent chairman and a permanent secretary of the meeting shall be elected
by vote of the Persons entitled to vote a majority in aggregate principal amount
of the Outstanding Bonds of all series and Tranches represented at the meeting,
considered as one class.

                  (d)      At any meeting each Holder or proxy shall be entitled
to one vote for each One Thousand Dollars ($1,000) principal amount of
Outstanding Bonds held or represented by such Holder; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Bond challenged
as not Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote, except as
a Holder of a Bond or proxy.

                  (e)      Any meeting duly called pursuant to Section 15.02 at
which a quorum is present may be adjourned from time to time by Persons entitled
to vote a majority in aggregate principal amount of the Outstanding Bonds of all
series and Tranches represented at the meeting, considered as one class; and the
meeting may be held as so adjourned without further notice.

SECTION 15.06. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.

                  The vote upon any resolution submitted to any meeting of
Holders shall be by written ballots on which shall be subscribed the signatures
of the Holders or of their representatives by proxy and the principal amounts
and serial numbers of the Outstanding Bonds, of the series and Tranches with
respect to which the meeting shall have been called, held or represented by
them. The permanent chairman of the meeting shall appoint two (2) inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting their
verified written reports of all votes cast at the meeting. A record in duplicate
of the proceedings of each meeting of Holders shall be prepared by the secretary
of the meeting and there shall be attached to such record the original reports
of the inspectors of votes on any vote by ballot taken thereat and affidavits by
one or more persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that such notice was given as provided in
Section 15.02 and, if applicable, Section 15.04. Each copy shall be signed and
verified by the affidavits of the permanent chairman and secretary of the
meeting and one such copy shall be delivered to the Company, and another to the
Trustee to be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting. Any record so signed and verified shall be
conclusive evidence of the matters therein stated.

SECTION 15.07. ACTION WITHOUT MEETING.

                  In lieu of a vote of Holders at a meeting as hereinbefore
contemplated in this Article, any request, demand, authorization, direction,
notice, consent, waiver or other action may be made, given or taken by Holders
by one or more written instruments as provided in Section 1.06.

                                     -118-


                                   ARTICLE XVI

                    IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                             OFFICERS AND DIRECTORS

SECTION 16.01. LIABILITY SOLELY CORPORATE.

                  No recourse shall be had for the payment of the principal of
or premium, if any, or interest, if any, on any Bonds, or any part thereof, or
for any claim based thereon or otherwise in respect thereof, or of the
indebtedness represented thereby, or upon any obligation, covenant or agreement
under this Indenture, against any incorporator, stockholder, officer or
director, as such, past, present or future, of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that this
Indenture and all the Bonds are solely corporate obligations and that no
personal liability whatsoever shall attach to, or be incurred by, any
incorporator, stockholder, member, officer or director, past, present or future,
of the Company or of any predecessor or successor corporation, either directly
or indirectly through the Company or any predecessor or successor corporation,
because of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in any
of the Bonds or to be implied herefrom or therefrom; and such personal
liability, if any, is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution and delivery of this
Indenture and the issuance of the Bonds.

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

                            [Signature Page Follows]

                                     -119-


                  IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the day and year first above written.

                                    PACIFIC GAS AND ELECTRIC COMPANY,
                                    as Issuer (Mortgagor)

                                    By: /s/ Kent M. Harvey
                                        ----------------------------------------
                                    Name: Kent M. Harvey
                                    Title: Senior Vice President,
                                           Chief Financial Officer and Treasurer

                                    BNY WESTERN TRUST COMPANY,
                                    as Trustee (Mortgagee)

                                    By: /s/ Josephine Libunao
                                    --------------------------------------------
                                    Name: Josephine Libunao
                                    Vice President

                                     -120-


                                   SCHEDULE 1

                 FORM OF EXPERT'S CERTIFICATE UNDER SECTION 5.02

                  EXPERT'S CERTIFICATE AS TO PROPERTY ADDITIONS

         This Expert's Certificate as to Property Additions ("Certificate") is
being executed and delivered by [NAME OF EXPERT], as [POSITION OR TITLE OF
EXPERT], and by [NAME OF AUTHORIZED OFFICER], as [TITLE OF AUTHORIZED OFFICER]
of Pacific Gas and Electric Company (the "Company"), in connection with the
proposed issuance of [DESCRIPTION OF PROPOSED BOND ISSUE] in the aggregate
principal amount of $____________ (the "New Bonds") under Section 5.02 of that
certain Indenture of Mortgage, dated as of ____________, 200__, by and between
the Company and ________________, as trustee (the "Indenture"). All capitalized
terms used herein, unless otherwise defined herein, shall have the respective
meanings assigned to such terms in the Indenture.

         The undersigned hereby certify as to each of the following items in
accordance with and as required pursuant to Section 5.02(b)(ii) of the
Indenture:

1.       The Property Additions designated by the Company to be made the basis
         for the authentication and delivery of the New Bonds are described as
         follows (the "Designated Property Additions"):

                  [DESCRIBE PROPERTY ADDITIONS]

2.       All Designated Property Additions constitute Property Additions and are
         not subject to any Lien thereon prior to the lien of the Indenture
         except Permitted Liens.

3.       The Cost of the Designated Property Additions is $__________________.

4.       [THE DESIGNATED PROPERTY ADDITIONS ARE SUBJECT TO A SENIOR LIEN
         SECURING SENIOR LIEN OBLIGATIONS. THE OUTSTANDING PRINCIPAL AMOUNT OF
         PURCHASE MONEY LIENS WHICH CONSTITUTE SENIOR LIEN OBLIGATIONS IS
         $____________ AS OF THE DATE OF THIS CERTIFICATE. THE OUTSTANDING
         PRINCIPAL AMOUNT OF ALL OTHER SENIOR LIEN OBLIGATIONS IS $_________ AS
         OF THE DATE OF THIS CERTIFICATE.]

5.       The Net Cost of the Designated Property Additions is $_______________.

6.       All Designated Property Additions are desirable for use in the conduct
         of the business, or one of the businesses, of the Company.

7.       All Designated Property Additions, to the extent of the Property
         Additions Basis thereof which is to be made the basis of the
         authentication and delivery of the New Bonds, constitute, prior to the
         issuance of the New Bonds, Unfunded Property.

8.       [NO PORTION OF THE DESIGNATED PROPERTY ADDITIONS WAS ACQUIRED, MADE OR
         CONSTRUCTED THROUGH THE DELIVERY OF SECURITIES OR PROPERTY OTHER THAN
         CASH; THE

                                    S1-1


         AMOUNT OF CASH FORMING ALL OR PART OF THE COST THEREOF WAS EQUAL TO OR
         MORE THAN $____________.] OR [A PORTION OR ALL OF THE DESIGNATED
         PROPERTY ADDITIONS WAS ACQUIRED, MADE OR CONSTRUCTED THROUGH THE
         DELIVERY OF SECURITIES OR PROPERTY OTHER THAN CASH (SUCH PORTION BEING
         REFERRED TO HEREIN AS THE "NON-CASH DESIGNATED PROPERTY ADDITIONS").
         THE AMOUNT OF CASH FORMING ALL OR PART OF THE COST OF DESIGNATED
         PROPERTY ADDITIONS OTHER THAN NON-CASH DESIGNATED PROPERTY ADDITIONS
         WAS EQUAL TO OR MORE THAN $____________. WITH RESPECT TO NON-CASH
         DESIGNATED PROPERTY ADDITIONS, THE FOLLOWING IS A BRIEF DESCRIPTION OF
         THE NON-CASH DESIGNATED PROPERTY ADDITIONS, THE SECURITIES OR OTHER
         PROPERTY DELIVERED IN PAYMENT FOR THE ACQUISITION OR CONSTRUCTION
         THEREOF, THE DATE OF SUCH DELIVERY AND, IN THE JUDGMENT OF THE
         UNDERSIGNED, THE FAIR MARKET VALUE IN CASH OF SUCH SECURITIES OR OTHER
         PROPERTY AT THE TIME OF DELIVERY THEREOF:

         NON-CASH DESIGNATED   SECURITIES OR                       FAIR MARKET
         PROPERTY ADDITIONS  PROPERTY DELIVERED:  DATE OF DELIVERY:  VALUE:]

9.       [NO PORTION OF THE DESIGNATED PROPERTY ADDITIONS INCLUDES PROPERTY
         WHICH CONSTITUTES AN ACQUIRED FACILITY.] OR [A PORTION OF THE
         DESIGNATED PROPERTY ADDITIONS INCLUDES PROPERTY WHICH CONSTITUTES AN
         ACQUIRED FACILITY AND IS DESCRIBED AS FOLLOWS (THE "ACQUIRED FACILITY
         PORTION"): [DESCRIBE THE ACQUIRED FACILITY PORTION]. IN THE JUDGMENT OF
         THE UNDERSIGNED, THE FAIR VALUE TO THE COMPANY OF THE ACQUIRED FACILITY
         PORTION AS OF THE DATE OF THIS CERTIFICATE [IS/IS NOT] A DE MINIMIS
         AMOUNT.]

10.      In the judgment of the undersigned, the Fair Value to the Company, as
         of the date of this Certificate, of the Designated Property Additions
         (except that portion of the Designated Property Additions with respect
         to the Fair Value to the Company of which a statement is being made in
         an Independent Expert's Certificate) is $_________________.

11.      The Net Fair Value to the Company, as of the date of this Certificate,
         of the Designated Property Additions is $___________________.

12.      The aggregate amount which shall be deducted under Section 1.03(b)(i)
         in respect of Funded Property Retired is equal to $_______________ and
         the aggregate amount which the Company has elected to be added under
         Section 1.03(b)(ii) in respect of Funded Property Retired is
         $_________________ (which amount to be added does not exceed the amount
         to be deducted above). Attached hereto as Annex 1 are the calculations
         which have been made by the Company pursuant to Section 1.03(b)(i) and
         (ii).

13.      The Adjusted Property Additions Basis of the Designated Property
         Additions is $_________________.

14.      Sixty-six and two-thirds percent (66 2/3%) of the Adjusted Property
         Additions Basis stated in Item 13 above is equal to $__________________

                                      S1-2


15.      The aggregate principal amount of New Bonds to be authenticated and
         delivered on the basis of the Designated Property Additions is equal to
         $____________ which amount does not exceed the amount stated in Item 14
         above.

                  [Name of Expert] hereby further certifies as follows:

(a)          I have read Section 5.02(b)(ii) of the Indenture and the related
         definitions of defined terms appearing in said Section 5.02(b)(ii).

(b)          The statements or opinions I have expressed herein are based upon
         my examination/investigation of [LIST OR DESCRIBE THE NATURE AND SCOPE
         OF THE EXAMINATION OR INVESTIGATION UPON WHICH THE STATEMENTS OR
         OPINIONS ARE BASED];

(c)          In my opinion, I have made such examination or investigation as is
         necessary to enable me to express an informed opinion as to whether or
         not the Company has complied with the requirements of Section
         5.02(b)(ii) of the Indenture.

(d)          In my opinion, the Company has complied with the requirements of
         Section 5.02(b)(ii) of the Indenture.

         Witness our hands this _____ day of _______, 2___.

                                               [Signature of Expert]

                                               ___________________________
                                               Name:
                                               Title:

                                               [Signature of Authorized Officer]

                                               ___________________________
                                               Name:
                                               Title:

                                      S1-3


                                     ANNEX 1

                    CALCULATIONS PURSUANT TO SECTION 1.03(B)

A.       Deductions under Section 1.03(b)(i):

         Funded Property Basis of all Funded Property Retired as described under
         Section 1.03(b)(i) of the Indenture: $_____________

B.       Additions under Section 1.03(b)(ii):

         (1)      Principal amount of Purchase Money Obligations described under
                  Section 1.03(b)(ii)(A) of the Indenture: $_____________

         (2)      150% of amount of cash described under Section 1.03(b)(ii)(B)
                  of the Indenture: $____________

         (3)      150% of the principal amount of any Bond or Bonds or portion
                  of such principal amount described under Section
                  1.03(b)(ii)(C) of the Indenture: $______________

         (4)      Adjusted Funded Property Basis of Property Additions described
                  under Section 1.03(b)(ii)(D) of the Indenture: $______________

         (5)      Cost to the Company of any Property Additions described under
                  Section 1.03(b)(ii)(E) of the Indenture: $___________________

C.       Total of all amounts under Item B. above: $_____________

D.       If amount in Item C. above is equal to or greater than the amount in
         Item A. above, then the net adjustment to be made to the Property
         Additions Basis under Section 1.03(b) shall be equal to zero (0). If
         the amount in Item C. above is less than the amount in Item A. above,
         then the net adjustment to be made to the Property Additions Basis
         under Section 1.03(b) shall be a reduction in an amount equal to the
         difference between the amount in Item A. above and the amount in Item
         C. above.

                                      S1-4


                                   SCHEDULE 2

               FORM OF EXPERT'S CERTIFICATE UNDER SECTION 8.03(c)

              EXPERT'S CERTIFICATE AS TO RELEASE OF FUNDED PROPERTY

         This Expert's Certificate as to Release of Funded Property
("Certificate") is being executed and delivered by [NAME OF EXPERT], as
[POSITION OR TITLE OF EXPERT], and by [NAME OF AUTHORIZED OFFICER], as [TITLE OF
AUTHORIZED OFFICER] of Pacific Gas and Electric Company (the "Company"), in
connection with certain Funded Property described below to be released pursuant
to Section 8.03 of that certain Indenture of Mortgage, dated as of ____________,
200__, by and between the Company and ________________, as trustee (the
"Indenture"). All capitalized terms used herein, unless otherwise defined
herein, shall have the respective meanings assigned to such terms in the
Indenture.

         The undersigned hereby certify as to each of the following items in
accordance with and as required pursuant to Section 8.03(c) of the Indenture:

1.       The Funded Property to be released from the lien of the Indenture is
         described as follows (the "Release Property"):

                  [DESCRIBE FUNDED PROPERTY]

2.       The Fair Value, in the judgment of the undersigned, of the Release
         Property, together with the Fair Value, in the judgment of the
         undersigned, of Unfunded Property, if any, being released concurrently
         with the Release Property is $___________.

3.       The Funded Property Basis of the Release Property is $___________.

4.       In the judgment of the undersigned, the release of the Release Property
         will not impair the security under the Indenture in contravention of
         the provisions thereof.

         [Name of Expert] hereby further certifies as follows:

         a.       I have read Section 8.03(c) of the Indenture and the related
                  definitions of defined terms appearing in said Section
                  8.03(c).

         b.       The statements or opinions I have expressed herein are based
                  upon my examination/investigation of [LIST OR DESCRIBE THE
                  NATURE AND SCOPE OF THE EXAMINATION OR INVESTIGATION UPON
                  WHICH THE STATEMENTS OR OPINIONS ARE BASED].

         c.       In my opinion, I have made such examination or investigation
                  as is necessary to enable me to express an informed opinion as
                  to whether or not the Company has complied with the
                  requirements of Section 8.03(c) of the Indenture.

         d.       In my opinion, the Company has complied with the requirements
                  of Section 8.03(c) of the Indenture.

                                      S2-1


         Witness our hands this _____ day of _______, 2___.

                                    [Signature of Expert]

                                    ____________________________________________
                                    Name:
                                    Title:

                                    [Signature of Authorized Officer]

                                    ____________________________________________
                                    Name:
                                    Title:

                                      S2-2


                                   SCHEDULE 3

               FORM OF OFFICER'S CERTIFICATE UNDER SECTION 8.03(d)

                OFFICER'S CERTIFICATE PURSUANT TO SECTION 8.03(d)

         This Officer's Certificate Pursuant to Section 8.03(d) ("Certificate")
is being executed and delivered by [NAME OF AUTHORIZED OFFICER], as [TITLE OF
AUTHORIZED OFFICER] of Pacific Gas and Electric Company (the "Company"), in
connection with the release of certain Funded Property described in that certain
Expert's Certificate as to Release of Funded Property dated [THE DATE HEREOF]
(the "Expert's Certificate") pursuant to Section 8.03 of that certain Indenture
of Mortgage, dated as of ____________, 200__, by and between the Company and
________________, as trustee (the "Indenture"). All capitalized terms used
herein, unless otherwise defined herein, shall have the respective meanings
assigned to such terms in the Indenture.

         The undersigned hereby certifies, as required pursuant to Section
8.03(d) of the Indenture, as follows:

1.       The amount of the Funded Property Basis of the Release Property is
         $_________________, as shown in the Expert's Certificate.

2.       The taxes and expenses incidental to the sale, exchange, dedication or
         other disposition of Release Property total
         $________________.

3.       The aggregate amount of the Cash Deposit Credit Items to be used as the
         basis for the release of the Release Property is $_____________, which
         amount has been calculated as follows:

         A.       $___________: Aggregate principal amount of Purchase Money
                  Obligations delivered to Trustee and secured by Purchase Money
                  Liens upon the Release Property;

         B.       $___________; [ADJUSTED PROPERTY ADDITIONS BASIS/PROPERTY
                  ADDITIONS BASIS] of Property Additions which constitute
                  Unfunded Property described in the attached Expert's
                  Certificate as to Property Additions [IF APPLICABLE, ATTACH
                  EXPERT'S CERTIFICATE BASED ON THE FORM ATTACHED AS SCHEDULE 1
                  TO THE INDENTURE];

         C.       $___________; 150% of aggregate principal amount of Bonds the
                  right to the authentication and delivery of which, under
                  Section 5.03, has been waived by the Company;

         D.       $___________; 150% of the aggregate amount of Outstanding
                  Bonds delivered to the Trustee.

                                      S3-1


4.       The Cash Deposit Amount to be delivered to the Trustee is $___________,
         which amount is equal to the Funded Property Basis stated in Item 1,
         less the amount stated in Item 2, and less the aggregate amount of the
         Cash Deposit Credit Items stated in Item 3.

         Witness my hand this _____ day of _______, 2___.

                                    [Signature of Authorized Officer]

                                    ____________________________________________
                                    Name:
                                    Title:

                                      S3-2


                                   SCHEDULE 4

                 FORM OF EXPERT'S CERTIFICATE UNDER SECTION 8.04

             EXPERT'S CERTIFICATE AS TO RELEASE OF UNFUNDED PROPERTY

         This Expert's Certificate as to Release of Unfunded Property
("Certificate") is being executed and delivered by [NAME OF EXPERT], as
[POSITION OR TITLE OF EXPERT], and by [NAME OF AUTHORIZED OFFICER], as [TITLE OF
AUTHORIZED OFFICER] of Pacific Gas and Electric Company (the "Company"), in
connection with certain Unfunded Property described below to be released
pursuant to Section 8.04 of that certain Indenture of Mortgage, dated as of
____________, 200__, by and between the Company and ________________, as trustee
(the "Indenture"). All capitalized terms used herein, unless otherwise defined
herein, shall have the respective meanings assigned to such terms in the
Indenture.

         The undersigned hereby certify as to each of the following items in
accordance with and as required pursuant to Section 8.04 of the Indenture:

1.       The Unfunded Property to be released from the lien of the Indenture is
         described as follows (the "Release Property"):

                  [DESCRIBE UNFUNDED PROPERTY]

2.       The Fair Value, in the judgment of the undersigned, of the Release
         Property, together with the Fair Value, in the judgment of the
         undersigned, of Funded Property, if any, being released concurrently
         with the Release Property is $______________.

3.       [THE RELEASE PROPERTY IS SUBJECT TO A SENIOR LIEN SECURING SENIOR LIEN
         OBLIGATIONS. THE OUTSTANDING PRINCIPAL AMOUNT OF PURCHASE MONEY LIENS
         WHICH CONSTITUTE SENIOR LIEN OBLIGATIONS IS $____________ AS OF THE
         DATE OF THIS CERTIFICATE. THE OUTSTANDING PRINCIPAL AMOUNT OF ALL OTHER
         SENIOR LIEN OBLIGATIONS IS $_________ AS OF THE DATE OF THIS
         CERTIFICATE.]

4.       The Net Fair Value of the Release Property is $___________.

5.       The Cost of the Release Property is $______________ and the Net Cost of
         the Release Property is $_____________.

6.       The Property Additions Basis of the Release Property is $_____________.

7.       The Release Property constitutes Unfunded Property.

8.       [THE AGGREGATE ADJUSTED PROPERTY ADDITIONS BASIS OF ALL PROPERTY
         ADDITIONS WHICH CONSTITUTE UNFUNDED PROPERTY (EXCLUDING THE RELEASE
         PROPERTY) IS NOT LESS THAN ZERO (0).] OR [THE AMOUNT BY WHICH ZERO (0)
         EXCEEDS THE AGGREGATE ADJUSTED PROPERTY ADDITIONS BASIS OF ALL PROPERTY
         ADDITIONS WHICH CONSTITUTE UNFUNDED PROPERTY (EXCLUDING THE RELEASE
         PROPERTY) IS EQUAL TO $____________ (THE "MAKE-UP AMOUNT") AND IS
         CALCULATED AS SET FORTH ON ANNEX 1 ATTACHED HERETO.]

                                      S4-1


9.       In the judgment of the undersigned, the release of the Release Property
         will not impair the security under the Indenture in contravention of
         the provisions thereof.

         [Name of Expert] hereby further certifies as follows:

         a.       I have read Section 8.04(c) of the Indenture and the related
                  definitions of defined terms appearing in said Section
                  8.04(c).

         b.       The statements or opinions I have expressed herein are based
                  upon my examination/investigation of [LIST OR DESCRIBE THE
                  NATURE AND SCOPE OF THE EXAMINATION OR INVESTIGATION UPON
                  WHICH THE STATEMENTS OR OPINIONS ARE BASED].

         c.       In my opinion, I have made such examination or investigation
                  as is necessary to enable me to express an informed opinion as
                  to whether or not the Company has complied with the
                  requirements of Section 8.04(c) of the Indenture.

         d.       In my opinion, the Company has complied with the requirements
                  of Section 8.04(c) of the Indenture.

         Witness our hands this _____ day of _______, 2___.

                                    [Signature of Expert]

                                    ____________________________________________
                                    Name:
                                    Title:

                                    [Signature of Authorized Officer]

                                    ____________________________________________
                                    Name:
                                    Title:

                                      S4-2


                                     ANNEX 1

                CALCULATION OF MAKE-UP AMOUNT UNDER SECTION 8.04

1.       Aggregate Property Additions Basis (lesser of Net Cost or Net Fair
         Value) of all Property Additions which constitute Unfunded Property:
         $________________

2.       Adjustments under Section 1.03(b): $________________

3.       Total Reduction to Property Additions Basis (Item 1 above) per the
         adjustments under Item 2 above: $____________

4.       Aggregate Adjusted Property Additions Basis (Item 1 less Item 3):
         $_______________

5.       Make-up Amount (amount by which zero (0) exceeds Item 4 above):
         $____________

                                      S4-3

EX-4.2

                                                                     EXHIBIT 4.2

TO BE RECORDED AND WHEN
RECORDED RETURN TO:

BNY Western Trust Company
550 Kearny Street, Suite 600
San Francisco, CA  94108
Attn:  Ms. Josephine Libunao

- --------------------------------------------------------------------------------

                          FIRST SUPPLEMENTAL INDENTURE

                           DATED AS OF MARCH 23, 2004

                       SUPPLEMENT TO INDENTURE OF MORTGAGE
                           DATED AS OF MARCH 11, 2004

                                 --------------

                        PACIFIC GAS AND ELECTRIC COMPANY
                               ISSUER (MORTGAGOR)

                                       AND

                            BNY WESTERN TRUST COMPANY
                               TRUSTEE (MORTGAGEE)

                                 --------------

- --------------------------------------------------------------------------------



                                TABLE OF CONTENTS



                                                                                                           PAGE
                                                                                                        
ARTICLE I         DEFINITIONS   ......................................................................       1
ARTICLE II        ESTABLISHMENT OF BONDS OF THE INITIAL SERIES........................................       5
         SECTION 201      Designation of Bonds of the Initial Series..................................       5
         SECTION 202      Form of Bonds of the Initial Series; Exchange of Certificates
                          Representing Bonds of the Initial Series....................................       5
         SECTION 203      Principal Amounts of the Bonds of the Initial Series........................       6
         SECTION 204      Interest Rates and Stated Maturity of the Bonds of the Initial Series.......       6
         SECTION 205      Global Securities; Appointment of Depositary for Global Securities..........       6
         SECTION 206      No Sinking Fund.............................................................       7
         SECTION 207      Deposit of Proceeds of the Bonds of the Initial Series into Escrow;
                          Release of Escrowed Funds...................................................       7
         SECTION 208      Paying Agent and Bond Registrar.............................................       7
         SECTION 209      Calculation Agent...........................................................       7
         SECTION 210      Other Terms of the Bonds of the Initial Series..............................       7
ARTICLE III       REDEMPTION BY THE COMPANY...........................................................       8
         SECTION 301      Special Mandatory Redemption................................................       8
         SECTION 302      Optional Redemption.........................................................       8
ARTICLE IV        MISCELLANEOUS.......................................................................      10
         SECTION 401      Additional Provisions.......................................................      10
         SECTION 402      Application of First Supplemental Indenture.................................      10
         SECTION 403      Effective Date of First Supplemental Indenture..............................      10
         SECTION 404      Counterparts................................................................      10
EXHIBIT A  FORM OF FIXED RATE FIRST MORTGAGE BOND

EXHIBIT B  FORM OF FLOATING RATE FIRST MORTGAGE BOND


                                       -i-


         FIRST SUPPLEMENTAL INDENTURE, dated as of March 23, 2004 (this "FIRST
SUPPLEMENTAL INDENTURE"), by and between PACIFIC GAS AND ELECTRIC COMPANY, a
California corporation (the "COMPANY"), and BNY WESTERN TRUST COMPANY, a
California banking corporation, as Trustee under the Indenture (as hereinafter
defined) (the "TRUSTEE").

                             RECITALS OF THE COMPANY

         A.       The Company and the Trustee are parties to that certain
Indenture of Mortgage, dated as of March 11, 2004 (together with all indentures
supplemental thereto, the "INDENTURE"), providing for the issuance by the
Company of Bonds (as defined in the Indenture) from time to time.

         B.       Under the Indenture, the Company is authorized to issue
unlimited series of Bonds and establish one or more series of Bonds at any time
in accordance with the provisions of the Indenture, and the terms of such series
of Bonds may be described by a supplemental indenture executed by the Company
and the Trustee.

         C.       Pursuant to Section 3.01 and Article IV of the Indenture, the
Company and the Trustee deem it advisable to enter into this First Supplemental
Indenture for the purposes of establishing the terms of the Bonds of the Initial
Series (as defined in the Indenture).

         D.       The execution and delivery of this First Supplemental
Indenture has been authorized by a Board Resolution (as defined in the
Indenture).

         E.       Concurrent with the execution hereof, the Company has caused
its counsel to deliver to the Trustee an Opinion of Counsel (as defined in the
Indenture) pursuant to Section 14.03 of the Indenture.

         F.       The Company has done all things necessary to make this First
Supplemental Indenture a valid agreement of the Company in accordance with its
terms.

         NOW, THEREFORE, the Company and the Trustee agree, for the benefit of
each other and the equal and proportionate benefit of all Holders of Bonds of
the Initial Series, as follows:

                                    ARTICLE I

                                   DEFINITIONS

         Unless the context otherwise requires, capitalized terms used but not
defined herein have the meaning set forth in the Indenture. The following
additional definitions are hereby established for purposes of this First
Supplemental Indenture and shall have the meanings set forth in this First
Supplemental Indenture only for purposes of this First Supplemental Indenture:

         "ADJUSTED TREASURY RATE" means, with respect to any Redemption Date on
which any Bonds of the Initial Series are being redeemed pursuant to Section 302
hereof:



                  (a)      the yield, under the heading which represents the
         average for the immediately preceding week, appearing in the most
         recently published statistical release designated "H.15(519) Selected
         Interest Rates" or any successor publication that is published weekly
         by the Board of Governors of the Federal Reserve System and that
         establishes yields on actively traded United States treasury securities
         adjusted to constant maturity under the caption "Treasury Constant
         Maturities" for the maturity corresponding to the Comparable Treasury
         Issue (if no maturity is within three months before or after the
         Remaining Life, yields for the two published maturities most closely
         corresponding to the Comparable Treasury issue will be determined and
         the Adjusted Treasury Rate will be interpolated or extrapolated from
         such yields on a straight line basis, rounding to the nearest month);
         or

                  (b)      if such release (or any successor publication) is not
         published during the week preceding the calculation date or does not
         contain such yields, the rate per annum equal to the semi-annual
         equivalent yield to maturity of the Comparable Treasury Issue
         (expressed as a percentage of its principal amount) equal to the
         Comparable Treasury Price for such Redemption Date.

         The Adjusted Treasury Rate will be calculated on the third Business Day
preceding the Redemption Date.

         "CALCULATION AGENCY AGREEMENT" means the Calculation Agency Agreement,
dated as of March 23, 2004, by and between the Calculation Agent and the
Company, as such agreement may be amended, modified or supplemented from time to
time.

         "CALCULATION AGENT" means BNY Western Trust Company or such other
Person as the Company shall from time to time designate in accordance with the
Calculation Agency Agreement.

         "COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the Remaining Life of the applicable series of Fixed Rate First Mortgage Bonds
to be redeemed pursuant to Section 302 that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the Remaining Life
of the applicable series of Fixed Rate First Mortgage Bonds to be redeemed
pursuant to Section 302.

         "COMPARABLE TREASURY PRICE" means, with respect to any Redemption Date
on which any series of Fixed Rate First Mortgage Bonds is being redeemed
pursuant to Section 302 hereof, (a) the average of five (5) Reference Treasury
Dealer Quotations for such Redemption Date, after excluding the highest and
lowest Reference Treasury Dealer Quotations, or (b) if the Independent
Investment Banker obtains fewer than five (5) such Reference Treasury Dealer
Quotations, the average of all quotations obtained.

         "DEALER" means a primary U.S. Government Securities dealer in the
United States.

         "ESCROW AGENT" means BNY Western Trust Company, as escrow agent under
the Escrow Agreement, and its successors and assigns.

                                       2


         "ESCROW AGREEMENT" means that certain Escrow Deposit and Disbursement
Agreement, dated as of March 23, 2004, by and among the Company, the Escrow
Agent and the Trustee.

         "ESCROW FUND" means the escrow account established pursuant to Section
3(a) of the Escrow Agreement.

         "FIXED RATE FIRST MORTGAGE BONDS" means, collectively, the 3.60% First
Mortgage Bonds due 2009, the 4.20% First Mortgage Bonds due 2011, the 4.80%
First Mortgage Bonds due 2014 and the 6.05% First Mortgage Bonds due 2034, in
each case issued by the Company pursuant to this First Supplemental Indenture.

         "FLOATING RATE FIRST MORTGAGE BONDS" means the Floating Rate First
Mortgage Bonds due 2006 issued by the Company pursuant to this First
Supplemental Indenture.

         "INDEPENDENT INVESTMENT BANKER" means a Dealer appointed by the
Company.

         "MANDATORY REDEMPTION DATE" means June 23, 2004.

         "ORIGINAL ISSUE DATE" means March 23, 2004.

         "REDEMPTION TRIGGER DATE" means June 21, 2004.

         "REFERENCE TREASURY DEALER" means Lehman Brothers Inc., UBS Securities
LLC, the Independent Investment Banker and Dealers acceptable to the Independent
Investment Banker and their respective successors; provided, however, that if
any of the foregoing shall cease to be a Dealer, the Company will select a
substitute Dealer. However, if the Company does not select a substitute Dealer
within a reasonable period of time, then the substitute Dealer will be selected
by the Trustee after consultation with the Company.

         "REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Independent Investment Banker, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Independent Investment Banker at 5:00
p.m., New York City time, on the third Business Day preceding such Redemption
Date.

         "REMAINING LIFE," as of any date of calculation, means the remaining
term of the applicable series of Fixed Rate First Mortgage Bonds.

         "REMAINING SCHEDULED PAYMENTS" means, with respect to each Fixed Rate
First Mortgage Bond that the Company is redeeming pursuant to Section 302, the
remaining scheduled payments of principal and interest that would be due after
the applicable Redemption Date if such Bond were not redeemed. However, if the
Redemption Date is not a scheduled Interest Payment Date with respect to that
Bond, the amount of the next succeeding scheduled interest payment on that Bond
will be reduced by the amount of interest accrued on such Bond to the Redemption
Date.

                                       3


         "SPECIAL REDEMPTION PREMIUM" means (a) in the case of the 3.60% First
Mortgage Bonds due 2009, 1.00%, (b) in the case of the 4.20% First Mortgage
Bonds due 2011, 2.00%, (c) in the case of the 4.80% First Mortgage Bonds due
2014, 2.00%, (d) in the case of the 6.05% First Mortgage Bonds due 2034, 3.00%,
and (e) in the case of the Floating Rate First Mortgage Bonds due 2006, 1.00%.

         "U.S. GOVERNMENT SECURITIES" means securities which are (a) direct
obligations of the United States of America for the payment on which its full
faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation of the United States of America, and which in the case of (a)
and (b) are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company as
custodian with respect to any such U.S. Government Security or a specific
payment of interest on or principal of any such U.S. Government Security held by
such custodian for the account of the holder of a depository receipt, provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the U.S. Government Security
evidenced by such depository receipt.

         The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this First Supplemental Indenture as a whole and not to any
particular Article, Section or other subdivision.

                                       4


                                   ARTICLE II

                  ESTABLISHMENT OF BONDS OF THE INITIAL SERIES

         SECTION 201 Designation of Bonds of the Initial Series.

         Pursuant to the terms hereof and Section 3.01 and Article IV of the
Indenture, the Company hereby designates the Bonds of the Initial Series as the
"3.60% First Mortgage Bonds due 2009" (the "3.60% FIRST MORTGAGE BONDS"), which
are established as the Bonds of the First Series in Article IV of the Indenture,
the "4.20% First Mortgage Bonds due 2011" (the "4.20% FIRST MORTGAGE BONDS"),
which are established as the Bonds of the Second Series in Article IV of the
Indenture, the "4.80% First Mortgage Bonds due 2014" (the "4.80% FIRST MORTGAGE
BONDS"), which are established as the Bonds of the Third Series in Article IV of
the Indenture, the "6.05% First Mortgage Bonds due 2034" (the "6.05% FIRST
MORTGAGE BONDS"), which are established as the Bonds of the Fourth Series in
Article IV of the Indenture, and the "Floating Rate First Mortgage Bonds due
2006" (the "FLOATING RATE FIRST MORTGAGE BONDS"), which are established as the
Bonds of the Fifth Series in Article IV of the Indenture. Any series of the
Bonds of the Initial Series may be reopened, from time to time, for issuances of
additional Bonds of such series, and any additional Bonds issued and comprising
Bonds of any series of the Bonds of the Initial Series shall have identical
terms as such series of Bonds of the Initial Series, except that the issue
price, issue date and, in some cases, the first Interest Payment Date may
differ.

         SECTION 202 Form of Bonds of the Initial Series; Exchange of
Certificates Representing Bonds of the Initial Series.

         The Fixed Rate First Mortgage Bonds shall be substantially in the form
attached as Exhibit A hereto, which exhibit is incorporated herein and made a
part hereof. The Floating Rate First Mortgage Bonds shall be substantially in
the form attached as Exhibit B hereto, which exhibit is incorporated herein and
made a part hereof.

         As soon as reasonably practicable after the Release Date, each Holder
of a Bond of the Initial Series that is a Global Bond shall surrender such Bond
to the Trustee and the Trustee shall simultaneously exchange the surrendered
Global Bond for a new Bond of the Initial Series identical in all respects to
the surrendered Global Bond except that the name of such Global Bond shall be
changed from "First Mortgage Bond" to "Senior Note," all references in such Bond
to "First Mortgage Bond," "Bonds" or "Bond" shall be changed to "Senior Note,"
"Notes" or "Note," respectively, and the bracketed language in the form of the
Bond attached hereto shall be deleted. From and after the Release Date, any Bond
of the Initial Series that is not a Global Bond and that is surrendered to the
Trustee for registration of transfer or exchange shall be issued with terms
identical in all respects to the surrendered Bond except that the name of such
Bond shall be changed from "First Mortgage Bond" to "Senior Note," all
references in such Bond to "First Mortgage Bond," "Bonds" or "Bond" shall be
changed to "Senior Note," "Notes" or "Note," respectively, and the bracketed
language in the form of such Bond attached hereto shall be deleted.

                                       5


         SECTION 203 Principal Amounts of the Bonds of the Initial Series.

         (a)      The 3.60% First Mortgage Bonds shall be issued in an initial
aggregate principal amount of $600,000,000.

         (b)      The 4.20% First Mortgage Bonds shall be issued in an initial
aggregate principal amount of $500,000,000.

         (c)      The 4.80% First Mortgage Bonds shall be issued in an initial
aggregate principal amount of $1,000,000,000.

         (d)      The 6.05% First Mortgage Bonds shall be issued in an initial
aggregate principal amount of $3,000,000,000.

         (e)      The Floating Rate First Mortgage Bonds shall be issued in an
initial aggregate principal amount of $1,600,000,000.

         SECTION 204 Interest Rates and Stated Maturity of the Bonds of the
Initial Series.

         (a)      The 3.60% First Mortgage Bonds shall bear interest at the rate
of 3.60% per annum and shall have a Stated Maturity of March 1, 2009.

         (b)      The 4.20% First Mortgage Bonds shall bear interest at the rate
of 4.20% per annum and shall have a Stated Maturity of March 1, 2011.

         (c)      The 4.80% First Mortgage Bonds shall bear interest at the rate
of 4.80% per annum and shall have a Stated Maturity of March 1, 2014.

         (d)      The 6.05% First Mortgage Bonds shall bear interest at the rate
of 6.05% per annum and shall have a Stated Maturity of March 1, 2034.

         (e)      The rate of interest on the Floating Rate First Mortgage Bonds
shall be calculated as set forth in the form of the Floating Rate First Mortgage
Bonds attached as Exhibit B hereto. The Stated Maturity of the Floating Rate
First Mortgage Bonds shall be April 3, 2006.

         SECTION  205 Global Securities; Appointment of Depositary for Global
Securities.

         The Bonds of the Initial Series shall be issued in the form of one or
more permanent Global Securities as provided in Section 3.13 of the Indenture
and deposited with, or on behalf of, the Depositary or with the Trustee, as
custodian for the Depositary, duly executed by the Company and authenticated by
the Trustee as hereinafter provided.

         The Company hereby initially appoints The Depository Trust Company
("DTC") to act as the Depositary with respect to all Bonds of the Initial
Series, and the Bonds of the Initial Series shall initially be registered in the
name of Cede & Co., as the nominee of DTC.

         The Trustee is hereby authorized and requested to execute and deliver a
Letter of Representations to DTC relating to the Bonds of the Initial Series
and, in connection with any

                                       6


successor nominee for DTC or any successor Depositary, enter into comparable
arrangements, and shall have the same rights with respect to its actions
thereunder as it has with respect to its actions under the Indenture.

         None of the Company, the Trustee, any Paying Agent or any Bond
Registrar will have any responsibility or liability for any aspect of Depositary
records relating to, or payments made on account of, beneficial ownership
interests in a Global Bond or for maintaining, supervising or reviewing any
Depositary records relating to such beneficial ownership interests, or for
transfers of beneficial interests in the Bonds or any transactions between the
Depositary and beneficial owners.

         SECTION 206 No Sinking Fund.

         No sinking fund is provided for any of the Bonds of the Initial Series.

         SECTION 207 Deposit of Proceeds of the Bonds of the Initial Series into
Escrow; Release of Escrowed Funds.

         Pursuant to Section 3(a) of the Escrow Agreement, the Company shall
deposit or cause to be deposited into the Escrow Fund cash in the amount of
$6,700,000,000, being the aggregate principal amount of the Bonds of the Initial
Series, together with cash in the amount of $217,425,888.89, being the aggregate
amount of interest accruing on the Bonds of the Initial Series from the Original
Issue Date to, but not including, the Mandatory Redemption Date and the
aggregate amount of Special Redemption Premiums payable on the Bonds of the
Initial Series as set forth in Section 301 hereof. If the Effective Date does
not occur on or before the Redemption Trigger Date, the amount on deposit in the
Escrow Fund shall be applied as set forth in Section 301 hereof. If the
Effective Date occurs on or before the Redemption Trigger Date, the amount on
deposit in the Escrow Fund shall be released to the Company on the Effective
Date in accordance with the Escrow Agreement.

         SECTION 208 Paying Agent and Bond Registrar.

         The Trustee is hereby appointed as initial Paying Agent and initial
Bond Registrar for the Bonds of the Initial Series.

         SECTION 209 Calculation Agent.

         BNY Western Trust Company is hereby appointed as the initial
Calculation Agent for the Floating Rate First Mortgage Bonds.

         SECTION 210 Other Terms of the Bonds of the Initial Series.

         The other terms of the Bonds of the Initial Series shall be as
expressly set forth in Article III, Exhibit A (with respect to the Fixed Rate
First Mortgage Bonds) and Exhibit B (with respect to the Floating Rate First
Mortgage Bonds).

                                       7


                                   ARTICLE III

                            REDEMPTION BY THE COMPANY

         SECTION 301 Special Mandatory Redemption.

         In the event the Effective Date has not occurred on or before the
Redemption Trigger Date, the Company shall apply the amounts in the Escrow Fund
to redeem all of the Bonds of the Initial Series on the Mandatory Redemption
Date, at a Redemption Price equal to the principal amount of the Bonds of the
Initial Series plus the applicable Special Redemption Premium on such principal
amount, and accrued and unpaid interest from the Original Issue Date to, but not
including, the Mandatory Redemption Date.

         Redemption of the Bonds of the Initial Series pursuant to this Section
301 shall be made in accordance with Article VI of the Indenture, except that
notice of such redemption shall be a conditional notice of redemption and will
be in writing and mailed first-class postage-prepaid not less than 7 days nor
more than 30 days prior to the Mandatory Redemption Date, but only if the
Effective Date has not occurred on or by such date of mailing, to each Holder of
Bonds of the Initial Series at the Holder's registered address.

         SECTION 302 Optional Redemption

                  (a)      Optional Redemption of 3.60% First Mortgage Bonds.
Subject to the terms and conditions of the Indenture, the 3.60% First Mortgage
Bonds are redeemable at the option of the Company, in whole or in part at any
time after the Effective Date and prior to Maturity, at a Redemption Price equal
to the greater of:

                           (i)      100% of the principal amount of the 3.60%
First Mortgage Bonds to be redeemed; or

                           (ii)     as determined by the Independent Investment
Banker, the sum of the present values of the Remaining Scheduled Payments on the
3.60% First Mortgage Bonds to be so redeemed (not including any portion of such
payments of interest accrued to the Redemption Date) discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus 0.15%,

plus, in either of the above cases, accrued and unpaid interest on the principal
amount of the 3.60% First Mortgage Bonds being redeemed to but not including the
Redemption Date.

                  (b)      Optional Redemption of 4.20% First Mortgage Bonds.
Subject to the terms and conditions of the Indenture, the 4.20% First Mortgage
Bonds are redeemable at the option of the Company, in whole or in part at any
time after the Effective Date and prior to Maturity, at a Redemption Price equal
to the greater of:

                           (i)      100% of the principal amount of the 4.20%
First Mortgage Bonds to be redeemed; or

                                       8


                           (ii)     as determined by the Independent Investment
Banker, the sum of the present values of the Remaining Scheduled Payments on the
4.20% First Mortgage Bonds to be so redeemed (not including any portion of such
payments of interest accrued to the Redemption Date) discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus 0.15%,

plus, in either of the above cases, accrued and unpaid interest on the principal
amount of the 4.20% First Mortgage Bonds being redeemed to but not including the
Redemption Date.

                  (c)      Optional Redemption of 4.80% First Mortgage Bonds.
Subject to the terms and conditions of the Indenture, the 4.80% First Mortgage
Bonds are redeemable at the option of the Company, in whole or in part at any
time after the Effective Date and prior to Maturity, at a Redemption Price equal
to the greater of:

                           (i)      100% of the principal amount of the 4.80%
First Mortgage Bonds to be redeemed; or

                           (ii)     as determined by the Independent Investment
Banker, the sum of the present values of the Remaining Scheduled Payments on the
4.80% First Mortgage Bonds to be so redeemed (not including any portion of such
payments of interest accrued to the Redemption Date) discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus 0.20%,

plus, in either of the above cases, accrued and unpaid interest on the principal
amount of the 4.80% First Mortgage Bonds being redeemed to but not including the
Redemption Date.

                  (d)      Optional Redemption of 6.05% First Mortgage Bonds.
Subject to the terms and conditions of the Indenture, the 6.05% First Mortgage
Bonds are redeemable at the option of the Company, in whole or in part at any
time after the Effective Date and prior to Maturity, at a Redemption Price equal
to the greater of:

                           (i)      100% of the principal amount of the 6.05%
First Mortgage Bonds to be redeemed; or

                           (ii)     as determined by the Independent Investment
Banker, the sum of the present values of the Remaining Scheduled Payments on the
6.05% First Mortgage Bonds to be so redeemed (not including any portion of such
payments of interest accrued to the Redemption Date) discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, plus 0.25%,

plus, in either of the above cases, accrued and unpaid interest on the principal
amount of the 6.05% First Mortgage Bonds being redeemed to but not including the
Redemption Date.

                  (e)      Optional Redemption of Floating Rate First Mortgage
Bonds. Subject to the terms and conditions of the Indenture, the Floating Rate
First Mortgage Bonds are redeemable at the option of the Company, in whole or in
part, on October 3, 2004 and any Interest Payment Date thereafter and prior to
Maturity, at a Redemption Price equal to 100% of the principal amount of the
Floating Rate First Mortgage Bonds being redeemed to the

                                       9


Redemption Date, plus accrued and unpaid interest thereon to but not including
the Redemption Date.

                  (f)      Redemption of each series of Bonds of the Initial
Series pursuant to this Section 302 shall be made in accordance with Article VI
of the Indenture.

                                   ARTICLE IV

                                  MISCELLANEOUS

         SECTION 401 Additional Provisions.

                  (a)      Notwithstanding Section 1.01 of the Indenture, with
respect to Bonds issued on or before the Effective Date, the term "Senior Lien
Obligations" shall not include obligations under the 1920 Mortgage.

                  (b)      If the Company designates the Release Date pursuant
to Section 8.12 of the Indenture, then in addition to the items the Company is
required to deliver to the Trustee pursuant to Section 8.12 of the Indenture,
the Company shall deliver to the Trustee on or before the Release Date a
replacement Global Bond referenced in Section 202 hereof duly executed by the
Company for authentication by the Trustee, and the Trustee shall cancel the
replaced Global Bond and, upon a Company Request, deliver to the Company a
certificate of cancellation with respect to such replaced Global Bond.

         SECTION 402 Application of First Supplemental Indenture.

         Each and every term and condition contained in this First Supplemental
Indenture that modifies, amends or supplements the terms and conditions of the
Indenture shall apply only to Bonds of the Initial Series established hereby and
not to any other series of Bonds established under the Indenture. Except as
specifically amended and supplemented by, or to the extent inconsistent with,
this First Supplemental Indenture, the Indenture shall remain in full force and
effect and is hereby ratified and confirmed.

         SECTION 403 Effective Date of First Supplemental Indenture.

         This First Supplemental Indenture shall be effective upon the execution
and delivery hereof by each of the parties hereto.

         SECTION 404 Counterparts.

         This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.

                                       10


         IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed by their respective officers hereunto
duly authorized, all as of the day and year first above written.

                            PACIFIC GAS AND ELECTRIC COMPANY,
                              as Issuer (Mortgagor)

                            By: /s/ Kent M. Harvey
                                ----------------------------------------------
                                Kent M. Harvey
                                Senior Vice President, Chief Financial Officer
                                    and Treasurer

                            BNY WESTERN TRUST COMPANY,
                               as Trustee (Mortgagee)

                            By: /s/ Josephine Libunao
                                ----------------------------------------------
                                Josephine Libunao
                                Vice President

                [Signature Page to First Supplemental Indenture]



                                    EXHIBIT A

                    [FORM OF FIXED RATE FIRST MORTGAGE BOND]

                             [FORM OF FACE OF BOND]

         THIS BOND IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. Unless and until it is exchanged in whole or in part for Bonds
in definitive form, this Bond may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.

         UNLESS THIS BOND CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY BOND CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

         [THE COMPANY MAY CAUSE this BOND TO BE entirely unsecured FROM AND
AFTER THE FIRST DATE ON WHICH (I) THE RATINGS ON THE COMPANY'S long-term
UNSECURED DEBT OBLIGATIONS SHALL BE AT LEAST EQUAL TO THE ISSUANCE DATE SECURED
DEBT RATINGS AND (II) the aggregate principal AMOUNT of all outstanding Debt
secured by a Lien on any Principal Property that will be outstanding immediately
after the Release Date (EXCLUDING secured debt permitted by section 7.11(a)(i)
through (vi), inclusive, of the indenture) will not exceed 5% of THE COMPANY'S
NET TANGIBLE ASSETS, PROVIDED THAT NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED
AND IS CONTINUING (THE "RELEASE DATE").]

         THE FOLLOWING SUMMARY OF TERMS IS SUBJECT TO THE INFORMATION SET FORTH
ON THE REVERSE HEREOF:

                                                                         
PRINCIPAL AMOUNT: $                      ORIGINAL ISSUE DATE:                  INTEREST RATE:

                                         March 23, 2004

MATURITY DATE:                           INTEREST PAYMENT DATES:               THIS BOND IS A:
                                                                               [X] Global Book-Entry Bond

March 1, _____                           March 1 and September 1 of each year  [ ] Certificated Bond

REGISTERED OWNER: Cede & Co., as
nominee of The Depository Trust Company



                                       A-1


                        PACIFIC GAS AND ELECTRIC COMPANY

                       ___% FIRST MORTGAGE BONDS DUE 20__
                                  (Fixed Rate)

No. ___________                                     Principal Amount: $_________
CUSIP No: ___________

         PACIFIC GAS AND ELECTRIC COMPANY, a corporation duly organized and
existing under the laws of the State of California (herein called the "Company,"
which term includes any successor Person pursuant to the applicable provisions
of the Indenture hereinafter referred to), for value received, hereby promises
to pay to Cede & Co., as nominee for The Depository Trust Company, or registered
assigns, the Principal Amount stated above on the Maturity Date stated above,
and to pay interest thereon from and including the Original Issue Date stated
above or, in the case of a __% First Mortgage Bond Due ____ issued upon the
registration of transfer or exchange, from and including the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semi-annually in arrears on the Interest Payment Dates set forth above and on
the Maturity Date stated above, commencing September 1, 2004, at the rate of
____% per annum until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this ___% First Mortgage Bond Due ____ (this "Bond") (or
one or more Predecessor Bonds) is registered at the close of business on the
Regular Record Date for such interest, which shall be the 15th day of the month
next preceding such Interest Payment Date; provided, however, that interest
payable at the Maturity Date or on a Redemption Date will be paid to the Person
to whom principal is payable. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Bond (or one
or more Predecessor Bonds) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Bonds of this series not
less than 10 days prior to such Special Record Date, or be paid at any time in
any other lawful manner not inconsistent with the requirements of the Indenture
and any securities exchange, if any, on which the Bonds of this series may be
listed, and upon such notice as may be required by any such exchange, all as
more fully provided in said Indenture.

         Payments of interest on this Bond will include interest accrued to but
excluding the respective Interest Payment Dates. Interest payments for this Bond
shall be computed and paid on the basis of the 360-day year of twelve 30-day
months and will accrue from March 23, 2004 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for. In the event
that any date on which interest is payable on this Bond (other than the Maturity
Date) is not a Business Day, then payment of the interest payable on such date
will be made on the next succeeding day that is a Business Day (and without any
interest or payment in respect of any such delay) with the same force and effect
as if made on the date the payment was originally

                                      A-2


payable. If the Maturity Date falls on a day that is not a Business Day, the
payment of principal, premium, if any, and interest may be made on the next
succeeding Business Day, and no interest on such payment shall accrue for the
period from and after maturity.

         Payment of principal of, premium, if any, and interest on the Bonds of
this series shall be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. Payments of principal of, premium, if any, and interest on the
Bonds of this series represented by a Global Bond shall be made by wire transfer
of immediately available funds to the Holder of such Global Bond, provided that,
in the case of payments of principal and premium, if any, such Global Bond is
first surrendered to the Paying Agent. If any of the Bonds of this series are no
longer represented by a Global Bond, (i) payments of principal, premium, if any,
and interest due on the Maturity Date or earlier redemption of such Bonds shall
be made at the office of the Paying Agent upon surrender of such Bonds to the
Paying Agent, and (ii) payments of interest shall be made, at the option of the
Company, subject to such surrender where applicable, (A) by check mailed to the
address of the Person entitled thereto as such address shall appear in the Bond
Register or (B) by wire transfer to registered Holders of at least $10,000,000
in principal amount of Bonds at such place and to such account at a banking
institution in the United States as such Holders may designate in writing to the
Trustee at least sixteen (16) days prior to the date for payment.

         REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS BOND SET
FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Bond
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

                                      A-3


         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

Dated: ________________

                                           PACIFIC GAS AND ELECTRIC COMPANY

                                           By __________________________________

                                           By __________________________________

                                      A-4


                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

         This is one of the Bonds of the series designated as Bonds of the ____
Series referred to in the within-mentioned Indenture.

                                           ____________________________________,
                                                       As Trustee

                                           By __________________________________
                                                   Authorized Signatory

                                      A-5


                            [FORM OF REVERSE OF BOND]

         This __% First Mortgage Bond due ____ is one of a duly authorized issue
of Bonds of the Company (the "Bonds"), issued and issuable in one or more series
under [and equally secured by] an Indenture of Mortgage, dated as of March 11,
2004 (such Indenture as originally executed and delivered and as supplemented or
amended from time to time thereafter, together with any constituent instruments
establishing the terms of particular Bonds, being herein called the
"Indenture"), between the Company and BNY Western Trust Company, as Trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture), and reference is hereby made to the Indenture for a description
of [the property mortgaged, pledged and held in trust, the nature and extent of
the security and] the respective rights, limitations of rights, duties and
immunities of the Company, the Trustee and the Holders of Bonds thereunder and
of the terms and conditions upon which Bonds are, and are to be, authenticated
and delivered. The acceptance of this Bond shall be deemed to constitute the
consent and agreement by the Holder hereof to all of the terms and provisions of
the Indenture.

         The Bonds of this series are subject to mandatory redemption
("Mandatory Redemption") in whole on June 23, 2004 (the "Mandatory Redemption
Date"), in the event the Effective Date has not occurred on or before June 21,
2004, at a redemption price equal to the principal amount of the Bonds of this
series plus a redemption premium of ___% on such principal amount, and accrued
and unpaid interest from March 23, 2004 to but not including the Mandatory
Redemption Date.

         Subject to the terms and conditions of the Indenture, the Bonds of this
series are also redeemable at the option of the Company ("Optional Redemption"),
in whole or in part, at any time after the Effective Date and prior to Maturity,
at a Redemption Price equal to the greater of:

                  (a) 100% of the principal amount of the Bonds of this series
         to be redeemed; or

                  (b) as determined by the Independent Investment Banker, the
         sum of the present values of the Remaining Scheduled Payments on the
         Bonds of this series to be so redeemed (not including any portion of
         such payments of interest accrued to the Redemption Date) discounted to
         the Redemption Date on a semi-annual basis (assuming a 360-day year
         consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus
         ___ %,

plus, in either of the above cases, accrued and unpaid interest on the principal
amount of the Bonds of this series being redeemed to but not including the
Redemption Date.

         Interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to Holders of such Bonds, or one or more
Predecessor Bonds, of record at the close of business on the relevant Record
Dates referred to on the face hereof, all as provided in the Indenture.

         In the case of a Mandatory Redemption, a conditional notice of
Mandatory Redemption will be in writing and mailed first-class postage-prepaid
not less than 7 days nor more than 30 days prior to the Mandatory Redemption
Date, but only if the Effective Date has not occurred on or by such date of
mailing, to each Holder of Bonds of this series at the Holder's registered

                                      A-6


address. If moneys are applied to effect a Mandatory Redemption on the Mandatory
Redemption Date therefor, immediately after such Mandatory Redemption Date
interest shall cease to accrue on such Bonds.

         In the case of an Optional Redemption, notice of redemption will be in
writing and mailed first-class postage-prepaid not less than 30 days nor more
than 60 days prior to the Redemption Date to each Holder of Bonds of this series
to be redeemed at the Holder's registered address. If money sufficient to pay
the Redemption Price of all Bonds of this series (or portions thereof) to be
redeemed on the Redemption Date is deposited with the Paying Agent or the
Trustee on or prior to the Redemption Date, from and after such Redemption Date
such Bonds or portions thereof shall cease to bear interest. Bonds of this
series in denominations larger than $1,000 in principal amount may be redeemed
in part but only in integral multiples of $1,000.

         In the event of redemption of this Bond in part only, a new Bond or
Bonds of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the surrender hereof.

         As provided in the Indenture and subject to certain limitations therein
set forth, this Bond or any portion of the principal amount hereof will be
deemed to have been paid for all purposes of the Indenture and to be no longer
Outstanding thereunder, and the Company's entire indebtedness in respect thereof
will be satisfied and discharged, if there has been irrevocably deposited with
the Trustee or any Paying Agent (other than the Company), in trust, money in an
amount which will be sufficient and/or Eligible Obligations, the principal of
and interest on which when due, without regard to any reinvestment thereof, will
provide moneys which, together with money, if any, deposited with or held by the
Trustee or such Paying Agent, will be sufficient to pay when due the principal
of and premium, if any, and interest on this Bond when due.

         If an Event of Default shall occur and be continuing, the Trustee or
the Holders of not less than a majority, prior to the Release Date, or 33%, on
or after the Release Date, in aggregate principal amount of the Outstanding
Bonds, considered as one class, may declare the principal amount of all Bonds
then Outstanding to be due and payable immediately by notice in writing to the
Company (and to the Trustee if given by Holders); provided, however, that with
respect to certain Events of Default relating to bankruptcy, insolvency and
similar events, the principal amount of all Bonds then Outstanding shall be due
and payable immediately without further action by the Trustee or the Holders.

         The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee to enter into one or more supplemental indentures for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Indenture with the consent of the
Holders of not less than a majority in aggregate principal amount of the Bonds
at the time Outstanding, considered as one class; provided, however, that if
there shall be Bonds of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Bonds of one or more, but less than all, of such series, then the
consent only of the Holders of a majority in aggregate principal amount of the
Outstanding Bonds of all series so directly affected, considered as one class,
shall be

                                      A-7


required; and provided, further, that if the Bonds of any series shall have been
issued in more than one Tranche and if a proposed supplemental indenture shall
directly affect the rights of the Holders of Bonds of one or more, but less than
all, of such Tranches, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding Bonds of all Tranches so directly
affected, considered as one class, shall be required; and provided, further,
that the Indenture permits the Company and the Trustee to enter into one or more
supplemental indentures for certain purposes without the consent of any Holders
of Bonds. The Indenture also contains provisions permitting the Holders of a
majority in aggregate principal amount of Bonds, on behalf of the Holders of all
such Bonds, to waive certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Bond shall be
conclusive and binding upon such Holder and upon all future Holders of this Bond
and of any Bond issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Bond.

         As provided in and subject to the provisions of the Indenture, the
Holder of this Bond shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of at least
33% in aggregate principal amount of the Bonds at the time Outstanding shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default as Trustee and offered the Trustee reasonable indemnity,
and the Trustee shall not have received from the Holders of at least a majority
in aggregate principal amount of Bonds at the time Outstanding a direction
inconsistent with such written request, and shall have failed to institute any
such proceeding for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Bond for the enforcement of any payment of principal hereof or any premium
or interest hereon on or after the respective due dates expressed herein.

         No reference herein to the Indenture and no provision of this Bond or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Bond at the times, place and rate, and in the coin or currency, herein
prescribed.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Bond is registrable in the Bond Register, upon
surrender of this Bond for registration of transfer at the office or agency of
the Company in any place where the principal of and any premium and interest on
this Bond are payable, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company, the Trustee or the Bond
Registrar, as the case may be, duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.

         The Bonds of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Bonds of this series are exchangeable for a like

                                      A-8


aggregate principal amount of Bonds of this series and of like tenor of a
different authorized denomination, as requested by the Holder surrendering the
same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.

         The Company shall not be required to execute or to provide for the
registration of the transfer of or the exchange of (A) any Bond of this series
during a period of 15 days immediately preceding the date notice is to be given
identifying the serial numbers of the Bonds of this series called for
redemption, or (B) any Bond of this series selected for redemption in whole or
in part, except the unredeemed portion of any Bond of this series being redeemed
in part.

         Prior to due presentment of this Bond for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Bond is registered as the owner hereof for all
purposes, whether or not this Bond is overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

         This Bond shall be governed by, and construed and enforced in
accordance with, the laws of the State of California without regard to the
principles of conflicts of laws thereunder, except to the extent that the Trust
Indenture Act shall be applicable.

         As provided in the Indenture, no recourse shall be had for the payment
of the principal of, premium, if any, or interest with respect to this Bond, or
any part thereof, or for any claim based hereon or otherwise in respect hereof,
or of the indebtedness represented hereby, or upon any obligation, covenant or
agreement under the Indenture, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture and all the Bonds are solely corporate obligations and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of the Indenture and the
issuance of this Bond.

         All terms used in this Bond which are not defined herein shall have the
meanings assigned to them in the Indenture.

                                      A-9


                                 ASSIGNMENT FORM

To assign this Bond, fill in the form below: (I) or (we) assign and transfer
this Bond to

________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Bond on the books of the Company. The agent may substitute
another to act for him.

Date: ___________

                                  Your signature:_______________________________
                                  (Sign exactly as your name appears on the face
                                  of this Bond)

                                  Tax Identification No.:

                                  SIGNATURE GUARANTEE:

                                  ______________________________________________

                                  Signatures must be guaranteed by an "eligible
                                  guarantor institution" meeting the
                                  requirements of the Bond Registrar, which
                                  requirements include membership or
                                  participation in the Security Transfer Agent
                                  Medallion Program ("STAMP") or such other
                                  "signature guarantee program" as may be
                                  determined by the Bond Registrar in addition
                                  to, or in substitution for, STAMP, all in
                                  accordance with the Securities Exchange Act of
                                  1934, as amended.

                                      A-10


                                    EXHIBIT B

                   [FORM OF FLOATING RATE FIRST MORTGAGE BOND]

                             [FORM OF FACE OF BOND]

         THIS BOND IS A GLOBAL BOND WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. Unless and until it is exchanged in whole or in part for Bonds
in definitive form, this Bond may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.

         UNLESS THIS BOND CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY BOND CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

         [THE COMPANY MAY CAUSE this BOND TO BE entirely unsecured FROM AND
AFTER THE FIRST DATE ON WHICH (I) THE RATINGS ON THE COMPANY'S long-term
UNSECURED DEBT OBLIGATIONS SHALL BE AT LEAST EQUAL TO THE ISSUANCE DATE SECURED
DEBT RATINGS AND (II) the aggregate principal AMOUNT of all outstanding Debt
secured by a Lien on any Principal Property that will be outstanding immediately
after the Release Date (EXCLUDING secured debt permitted by section 7.11(a)(i)
through (vi), inclusive, of the indenture) will not exceed 5% of THE COMPANY'S
NET TANGIBLE ASSETS, PROVIDED THAT NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED
AND IS CONTINUING (THE "RELEASE DATE").]

         THE FOLLOWING SUMMARY OF TERMS IS SUBJECT TO THE INFORMATION SET FORTH
ON THE REVERSE HEREOF:

                                                                          
PRINCIPAL AMOUNT: $                      ORIGINAL ISSUE DATE:                   INITIAL INTEREST RATE:

                                         March 23, 2004

MATURITY DATE:                           INTEREST RATE:  LIBOR PLUS 0.70% PER   THIS BOND IS A:
                                         ANNUM                                  [X] Global Book-Entry Bond

April 3, 2006                                                                   [ ] Certificated Bond

INTEREST PAYMENT DATES:

January 3, April 3, July 3 and October
3 of each year

REGISTERED OWNER:  Cede & Co., as
nominee of The Depository Trust Company



                                       B-1


                        PACIFIC GAS AND ELECTRIC COMPANY

                   FLOATING RATE FIRST MORTGAGE BONDS DUE 2006
                                 (Floating Rate)

No. ___________                                     Principal Amount: $_________
CUSIP No: __________________

         PACIFIC GAS AND ELECTRIC COMPANY, a corporation duly organized and
existing under the laws of the State of California (herein called the "Company,"
which term includes any successor Person pursuant to the applicable provisions
of the Indenture hereinafter referred to), for value received, hereby promises
to pay to Cede & Co., as nominee for The Depository Trust Company, or registered
assigns, the Principal Amount stated above on the Maturity Date stated above,
and to pay interest thereon from and including the Original Issue Date stated
above or, in the case of a Floating Rate First Mortgage Bond Due 2006 issued
upon the registration of transfer or exchange, from and including the most
recent Interest Payment Date to which interest has been paid or duly provided
for, quarterly in arrears on each Interest Payment Date as specified above,
commencing on July 3, 2004, and on the Maturity Date stated above, at a floating
rate of interest as determined below, computed and paid on the basis of a
360-day year and the actual number of days in each interest payment period,
until the principal hereof is paid or made available for payment. The interest
so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in such Indenture, be paid to the Person in whose name
this Floating Rate First Mortgage Bond Due 2006 (this "Bond") (or one or more
Predecessor Bonds) is registered at the close of business on the Regular Record
Date for such interest, which shall be the 15th day of the month next preceding
such Interest Payment Date; provided, however, that interest payable at the
Maturity Date or on a Redemption Date will be paid to the Person to whom
principal is payable. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Bond (or one or more
Predecessor Bonds) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Bonds of this series not less than
10 days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of the Indenture and any
securities exchange, if any, on which the Bonds of this series may be listed,
and upon such notice as may be required by any such exchange, all as more fully
provided in said Indenture.

         Payments of interest on this Bond will include interest accrued to but
excluding the respective Interest Payment Dates. In the event that any Interest
Payment Date is not a Business Day (other than an Interest Payment Date that
falls on the Maturity Date), then such Interest Payment Date will be postponed
to the next succeeding day that is a Business Day unless the Interest Payment
Date falls in the next succeeding calendar month in which case the Interest
Payment Date will be the immediately preceding Business Day. If the Maturity
Date falls on a day that is not a Business Day, the payment of principal,
premium, if any, and interest may be

                                      B-2


made on the next succeeding Business Day, and no interest on such payment shall
accrue for the period from and after maturity.

         Payment of principal of, premium, if any, and interest on the Bonds of
this series shall be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts. Payments of principal of, premium, if any, and interest on the
Bonds of this series represented by a Global Bond shall be made by wire transfer
of immediately available funds to the Holder of such Global Bond, provided that,
in the case of payments of principal and premium, if any, such Global Bond is
first surrendered to the Paying Agent. If any of the Bonds of this series are no
longer represented by a Global Bond, (i) payments of principal, premium, if any,
and interest due on the Maturity Date or earlier redemption of such Bonds shall
be made at the office of the Paying Agent upon surrender of such Bonds to the
Paying Agent, and (ii) payments of interest shall be made, at the option of the
Company, subject to such surrender where applicable, (A) by check mailed to the
address of the Person entitled thereto as such address shall appear in the Bond
Register or (B) by wire transfer to registered Holders of at least $10,000,000
in principal amount of Bonds at such place and to such account at a banking
institution in the United States as such Holders may designate in writing to the
Trustee at least sixteen (16) days prior to the date for payment.

         Reference is hereby made to the further provisions of this BOND set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

         Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof, directly or through an
Authenticating Agent, by manual signature of an authorized signatory, this Bond
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

                                      B-3


         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

Dated: ________________

                                         PACIFIC GAS AND ELECTRIC COMPANY

                                         By ____________________________________

                                         By ____________________________________

                                      B-4


                     TRUSTEE'S CERTIFICATE OF AUTHENTICATION

         This is one of the Bonds of the series designated as Bonds of the Fifth
Series referred to in the within-mentioned Indenture.

                                         ______________________________________,
                                                       As Trustee

                                         By_____________________________________
                                                  Authorized Signatory

                                      B-5


                            [FORM OF REVERSE OF BOND]

         This Floating Rate First Mortgage Bond due 2006 is one of a duly
authorized issue of Bonds of the Company (the "Bonds"), issued and issuable in
one or more series under [and equally secured by] an Indenture of Mortgage,
dated as of March 11, 2004 (such Indenture as originally executed and delivered
and as supplemented or amended from time to time thereafter, together with any
constituent instruments establishing the terms of particular Bonds, being herein
called the "Indenture"), between the Company and BNY Western Trust Company, as
Trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), and reference is hereby made to the Indenture for a
description of [the property mortgaged, pledged and held in trust, the nature
and extent of the security and] the respective rights, limitations of rights,
duties and immunities of the Company, the Trustee and the Holders of Bonds
thereunder and of the terms and conditions upon which Bonds are, and are to be,
authenticated and delivered. The acceptance of this Bond shall be deemed to
constitute the consent and agreement by the Holder hereof to all of the terms
and provisions of the Indenture.

         The interest rate on this Bond will be reset quarterly on each Interest
Payment Date (each an "Interest Reset Date"); provided, however, that the
interest rate in effect from the Original Issue Date stated above to July 3,
2004 will be the Initial Interest Rate specified on the face hereof. If any
Interest Reset Date would otherwise be a day that is not a Business Day, the
Interest Reset Date shall be postponed to the next day that is a Business Day
except that if such Business Day is in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding Business Day. Subject to
applicable provisions of law, on each Interest Reset Date, the rate of interest
on this Bond shall be determined in accordance with the following provisions:

         With respect to any Interest Determination Date (as defined below),
LIBOR will be the rate for deposits in U.S. Dollars having a maturity of three
months for a period commencing on the second London Business Day immediately
following such Interest Determination Date in amounts of not less than
$1,000,000, as that rate appears on the display on Moneyline Telerate Page 3750
as of 11:00 a.m., London time, on such Interest Determination Date. "Moneyline
Telerate Page 3750" means the display designated as page "3750" on Moneyline
Telerate (or such other page as may replace the 3750 page on any successor
service for the purpose of displaying London interbank rates of major banks for
U.S. dollar deposits).

         If no rate appears on Moneyline Telerate Page 3750 at approximately
11:00 a.m., London time on an Interest Determination Date, the Calculation Agent
will determine LIBOR in respect of such Interest Determination Date as follows:
the Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent (after consultation with the Company), to provide the
Calculation Agent with its offered quotation for deposits in U.S. Dollars for
the period of three months commencing on the second London Business Day
immediately following such Interest Determination Date to prime banks in the
London interbank market at approximately 11:00 a.m., London time, on such
Interest Determination Date and in a principal amount equal to an amount not
less than $1,000,000 that is representative of a single transaction in U.S.
Dollars in such market at such time, and (a) if at least two such quotations are
provided, LIBOR determined on such Interest Determination Date will be the
arithmetic mean (rounded, if necessary, to the

                                      B-6


nearest one-hundred-thousandth of a percentage point (0.000001%), with
five-millionths of a percentage point (0.0000005%) rounded upwards) of such
quotations, or (b) if fewer than two quotations are provided, LIBOR determined
on such Interest Determination Date will be the arithmetic mean (rounded, if
necessary, to the nearest one-hundred-thousandth of a percentage point
(0.000001%), with five-millionths of a percentage point (0.0000005%) rounded
upwards) of the rates quoted at approximately 11:00 a.m., in The City of New
York, on such Interest Determination Date, by three major banks in The City of
New York selected by the Calculation Agent (after consultation with the Company)
for loans in U.S. Dollars to leading European banks, having a maturity of three
months commencing on the second London Business Day immediately following such
Interest Determination Date and in a principal amount equal to an amount not
less than $1,000,000 that is representative for a single transaction in U.S.
Dollars in such market at such time; provided, however, that if the banks
selected by the Calculation Agent are not providing quotations in the manner
mentioned in this sentence, LIBOR will remain the LIBOR then in effect on such
Interest Determination Date.

         Interest will be payable on January 3, April 3, July 3 and October 3
(each an "Interest Payment Date"), commencing on July 3, 2004, and at Maturity.
If any Interest Payment Date would otherwise be a day that is not a Business
Day, the Interest Payment Date shall be postponed to the next day that is a
Business Day, except that if such Business Day is in the next succeeding
calendar month, such Interest Payment Date shall be the immediately preceding
Business Day. If the Maturity Date falls on a day that is not a Business Day,
the payment of principal and interest may be made on the next succeeding
Business Day, and no interest on such payment shall accrue for the period from
and after maturity.

         "Business Day" means with respect to any Bond, any London Business Day
except a Saturday, a Sunday or a legal holiday in The City of New York on which
banking institutions are authorized or required by law, regulation or executive
order to close. "London Business Day" means any day on which dealings in
deposits in U.S. Dollars are transacted or, with respect to any future date, are
expected to be transacted, in the London interbank market.

         The Interest Determination Date pertaining to an Interest Reset Date
will be the second London Business Day preceding such Interest Reset Date.

         Unless otherwise specified on the face hereof, interest payments, if
any, will be the amount of interest accrued from and including the last date in
respect of which interest has been paid or duly provided for (or from and
including the Original Issue Date stated above if no interest has been paid or
provided for with respect to this Bond) to but excluding the Interest Payment
Date or the date of Maturity. Accrued interest hereon from the Original Issue
Date stated above or from the last date to which interest hereon has been paid
is calculated by multiplying the face amount hereof by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day from the Original Issue Date stated above or from the
last date to which interest shall have been paid, to the date for which accrued
interest is being calculated. The interest factor for each day shall be computed
by dividing the interest rate applicable to such day by 360. All percentages
resulting from any calculation hereon will be rounded to the nearest one
hundred-thousandth of a percentage point, with five-one millionths of a
percentage point rounded upwards. For example, 9.876545% (or

                                      B-7


..09876545) would be rounded to 9.87655% (or .0987655). All dollar amounts used
in or resulting from any calculation hereon will be rounded to the nearest cent.

         The interest rate on this Bond will in no event be higher than the
maximum rate permitted by California law as the same may be modified by United
States law of general applicability.

         The Calculation Agent will, upon the request of the Holder of this
Bond, provide to such Holder the interest rate hereon then in effect and, if
different, the interest rate which will become effective as a result of a
determination made on the most recent Interest Determination Date.

         The Bonds of this series are subject to mandatory redemption
("Mandatory Redemption") in whole on June 23, 2004 (the "Mandatory Redemption
Date"), in the event the Effective Date has not occurred on or before June 21,
2004, at a redemption price equal to the principal amount of the Bonds of this
series plus a redemption premium of 1.00% on such principal amount, and accrued
and unpaid interest from March 23, 2004 to but not including the Mandatory
Redemption Date.

         Subject to the terms and conditions of the Indenture, the Bonds of this
series are also redeemable at the option of the Company ("Optional Redemption"),
in whole or in part, on October 3, 2004 and on any Interest Payment Date
thereafter and prior to Maturity, at a Redemption Price equal to 100% of the
principal amount of the Bonds of this series to be redeemed, plus accrued and
unpaid interest on the principal amount of the Bonds of this series being
redeemed to but not including the Redemption Date.

         Interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to Holders of such Bonds, or one or more
Predecessor Bonds, of record at the close of business on the relevant Record
Dates referred to on the face hereof, all as provided in the Indenture.

         In the case of a Mandatory Redemption, a conditional notice of
Mandatory Redemption will be in writing and mailed first-class postage-prepaid
not less than 7 days nor more than 30 days prior to the Mandatory Redemption
Date, but only if the Effective Date has not occurred on or by such date of
mailing, to each Holder of Bonds of this series at the Holder's registered
address. If moneys are applied to effect a Mandatory Redemption on the Mandatory
Redemption Date therefor, immediately after such Mandatory Redemption Date
interest shall cease to accrue on such Bonds.

         In the case of an Optional Redemption, notice of redemption will be in
writing and mailed first-class postage-prepaid not less than 30 days nor more
than 60 days prior to the Redemption Date to each Holder of Bonds of this series
to be redeemed at the Holder's registered address. If money sufficient to pay
the Redemption Price of all Bonds of this series (or portions thereof) to be
redeemed on the Redemption Date is deposited with the Paying Agent or the
Trustee on or prior to the Redemption Date, from and after such Redemption Date
such Bonds or portions thereof shall cease to bear interest. Bonds of this
series in denominations larger than $1,000 in principal amount may be redeemed
in part but only in integral multiples of $1,000.

                                      B-8


         In the event of redemption of this Bond in part only, a new Bond or
Bonds of this series and of like tenor for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the surrender hereof.

         As provided in the Indenture and subject to certain limitations therein
set forth, this Bond or any portion of the principal amount hereof will be
deemed to have been paid for all purposes of the Indenture and to be no longer
Outstanding thereunder, and the Company's entire indebtedness in respect thereof
will be satisfied and discharged, if there has been irrevocably deposited with
the Trustee or any Paying Agent (other than the Company), in trust, money in an
amount which will be sufficient and/or Eligible Obligations, the principal of
and interest on which when due, without regard to any reinvestment thereof, will
provide moneys which, together with money, if any, deposited with or held by the
Trustee or such Paying Agent, will be sufficient to pay when due the principal
of and premium, if any, and interest on this Bond when due.

         If an Event of Default shall occur and be continuing, the Trustee or
the Holders of not less than a majority, prior to the Release Date, or 33%, on
or after the Release Date, in aggregate principal amount of the Outstanding
Bonds, considered as one class, may declare the principal amount of all Bonds
then Outstanding to be due and payable immediately by notice in writing to the
Company (and to the Trustee if given by Holders); provided, however, that with
respect to certain Events of Default relating to bankruptcy, insolvency and
similar events, the principal amount of all Bonds then Outstanding shall be due
and payable immediately without further action by the Trustee or the Holders.

         The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee to enter into one or more supplemental indentures for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the Indenture with the consent of the
Holders of not less than a majority in aggregate principal amount of the Bonds
at the time Outstanding, considered as one class; provided, however, that if
there shall be Bonds of more than one series Outstanding under the Indenture and
if a proposed supplemental indenture shall directly affect the rights of the
Holders of Bonds of one or more, but less than all, of such series, then the
consent only of the Holders of a majority in aggregate principal amount of the
Outstanding Bonds of all series so directly affected, considered as one class,
shall be required; and provided, further, that if the Bonds of any series shall
have been issued in more than one Tranche and if a proposed supplemental
indenture shall directly affect the rights of the Holders of Bonds of one or
more, but less than all, of such Tranches, then the consent only of the Holders
of a majority in aggregate principal amount of the Outstanding Bonds of all
Tranches so directly affected, considered as one class, shall be required; and
provided, further, that the Indenture permits the Company and the Trustee to
enter into one or more supplemental indentures for certain purposes without the
consent of any Holders of Bonds. The Indenture also contains provisions
permitting the Holders of a majority in aggregate principal amount of Bonds, on
behalf of the Holders of all such Bonds, to waive certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Bond shall be conclusive and binding upon such Holder and upon all
future Holders of this Bond and of any Bond issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Bond.

                                      B-9


         As provided in and subject to the provisions of the Indenture, the
Holder of this Bond shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default, the Holders of at least
33% in aggregate principal amount of the Bonds at the time Outstanding shall
have made written request to the Trustee to institute proceedings in respect of
such Event of Default as Trustee and offered the Trustee reasonable indemnity,
and the Trustee shall not have received from the Holders of at least a majority
in aggregate principal amount of Bonds at the time Outstanding a direction
inconsistent with such written request, and shall have failed to institute any
such proceeding for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Bond for the enforcement of any payment of principal hereof or any premium
or interest hereon on or after the respective due dates expressed herein.

         No reference herein to the Indenture and no provision of this Bond or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Bond at the times, place and rate, and in the coin or currency, herein
prescribed.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Bond is registrable in the Bond Register, upon
surrender of this Bond for registration of transfer at the office or agency of
the Company in any place where the principal of and any premium and interest on
this Bond are payable, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company, the Trustee or the Bond
Registrar, as the case may be, duly executed by the Holder hereof or such
Holder's attorney duly authorized in writing, and thereupon one or more new
Bonds of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee or
transferees.

         The Bonds of this series are issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Bonds of this series are exchangeable for a like aggregate principal amount of
Bonds of this series and of like tenor of a different authorized denomination,
as requested by the Holder surrendering the same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.

         The Company shall not be required to execute or to provide for the
registration of the transfer of or the exchange of (A) any Bond of this series
during a period of 15 days immediately preceding the date notice is to be given
identifying the serial numbers of the Bonds of this series called for
redemption, or (B) any Bond of this series selected for redemption in whole or
in part, except the unredeemed portion of any Bond of this series being redeemed
in part.

         Prior to due presentment of this Bond for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this

                                      B-10


Bond is registered as the owner hereof for all purposes, whether or not this
Bond is overdue, and neither the Company, the Trustee nor any such agent shall
be affected by notice to the contrary.

         This Bond shall be governed by, and construed and enforced in
accordance with, the laws of the State of California without regard to the
principles of conflicts of laws thereunder, except to the extent that the Trust
Indenture Act shall be applicable.

         As provided in the Indenture, no recourse shall be had for the payment
of the principal of, premium, if any, or interest with respect to this Bond, or
any part thereof, or for any claim based hereon or otherwise in respect hereof,
or of the indebtedness represented hereby, or upon any obligation, covenant or
agreement under the Indenture, against any incorporator, shareholder, officer or
director, as such, past, present or future, of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that the
Indenture and all the Bonds are solely corporate obligations and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of the Indenture and the
issuance of this Bond.

         All terms used in this Bond which are not defined herein shall have the
meanings assigned to them in the Indenture.

                                      B-11


                                 ASSIGNMENT FORM

To assign this Bond, fill in the form below: (I) or (we) assign and transfer
this Bond to

________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________

________________________________________________________________________________
(Print or type assignee's name, address and zip code)

and irrevocably appoint_________________________________________________________
to transfer this Bond on the books of the Company. The agent may substitute
another to act for him.

Date: ___________

                                  Your signature:_______________________________
                                  (Sign exactly as your name appears on the face
                                  of this Bond)

                                  Tax Identification No.:

                                  SIGNATURE GUARANTEE:

                                  ______________________________________________

                                  Signatures must be guaranteed by an "eligible
                                  guarantor institution" meeting the
                                  requirements of the Bond Registrar, which
                                  requirements include membership or
                                  participation in the Security Transfer Agent
                                  Medallion Program ("STAMP") or such other
                                  "signature guarantee program" as may be
                                  determined by the Bond Registrar in addition
                                  to, or in substitution for, STAMP, all in
                                  accordance with the Securities Exchange Act of
                                  1934, as amended.

                                      B-12

EX-4.3

                                                                     EXHIBIT 4.3

                    ESCROW DEPOSIT AND DISBURSEMENT AGREEMENT

         This Escrow Deposit and Disbursement Agreement (this "Agreement") is
entered into as of March 23, 2004, by and among Pacific Gas and Electric
Company, a California corporation (the "Company"), and BNY Western Trust
Company, as escrow agent (in such capacity, the "Escrow Agent"), and as trustee
(in such capacity, the "Trustee") under that certain Indenture of Mortgage,
dated as of March 11, 2004, between the Company and the Trustee, as supplemented
(the "Indenture").

                                    RECITALS

                  WHEREAS, pursuant to the Indenture, the Company will issue its
3.60% First Mortgage Bonds due 2009, 4.20% First Mortgage Bonds due 2011, 4.80%
First Mortgage Bonds due 2014, 6.05% First Mortgage Bonds due 2034 and Floating
Rate First Mortgage Bonds due 2006, in an aggregate principal amount of $6.7
billion (such First Mortgage Bonds being herein collectively referred to as the
"Bonds" and the holders of the Bonds being herein collectively referred to as
the "Bondholders"); and

                  WHEREAS, the Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code for the Company dated July 31, 2003, as modified by
modifications dated November 6, 2003, December 19, 2003, February 19, 2004 and
March 10, 2004, and all exhibits, supplements, appendices and Schedules thereto,
as the same may be altered, amended or modified from time to time (the "Plan of
Reorganization"), contemplates the escrow of all proceeds from the issuance of
the Bonds until such time as such proceeds may be released from escrow in
accordance with the Plan of Reorganization and the terms of the Bonds;

                  NOW, THEREFORE, in consideration of the foregoing premises and
the mutual agreements hereinafter contained, the Company hereby agrees with the
Escrow Agent and the Trustee, for the benefit of the Bondholders, as follows:

                                    AGREEMENT

         1.       DEFINED TERMS. Capitalized terms used in this Agreement and
not otherwise defined shall have the meanings given them in the Indenture.

         2.       APPOINTMENT OF THE ESCROW AGENT. The Escrow Agent is hereby
designated and appointed to act as escrow agent in accordance with the terms and
conditions of this Agreement, and the Escrow Agent hereby accepts such
designation and appointment.

         3.       ESCROW FUND.

         (a)      On the issuance date of the Bonds (the "Issuance Date"), the
Company shall deposit or cause to be deposited with the Escrow Agent, by wire
transfer in immediately available funds, the amounts set forth immediately below
into an escrow fund titled "PG&E Escrow 2004" established hereby with the Escrow
Agent (the "Escrow Fund"):



                  (i)      cash in the amount of $6.7 billion, being the
aggregate principal amount of the Bonds (the "Principal Amount"); and

                  (ii)     cash in the amount of $217,425,888.89, being the
amount of interest accruing on the Bonds from the Issuance Date to, but not
including, June 23, 2004 (the "Mandatory Redemption Date"), and the redemption
premium payable on the Mandatory Redemption Date upon the mandatory redemption
of the Bonds pursuant to Section 301 of the First Supplemental Indenture.

         (b)      The Escrow Fund shall be held by the Escrow Agent in trust and
shall not be subject to any lien, attachment or any other judicial process of
any creditor of any party hereto. The Escrow Agent agrees to accept delivery of
the amounts set forth in clauses (i) and (ii) of this Section 3 and to hold such
amounts in trust subject to the terms and conditions of this Agreement.

         (c)      To the extent that the Company has any rights in the Escrow
Fund, the Company pledges and assigns to the Trustee, and grants to the Trustee
a security interest in, all of the Company's right, title and interest, whether
now owned or hereafter acquired, in, to and under the Escrow Fund and all money,
instruments, investment property, and other property on deposit in, credited to,
or carried in the Escrow Fund, to secure all of the Company's obligations under
the Indenture. The Escrow Agent hereby agrees to comply with entitlement orders
originated by the Trustee and instructions originated by the Trustee directing
disposition of the funds in the Escrow Fund, in each case without further
consent of the Company or any other person or entity.

         4.       INVESTMENT OF ESCROW FUND. The Escrow Agent shall, at the
written direction of the Company, invest amounts in the Escrow Fund in
institutional money market funds, U.S. Government money market funds and/or U.S.
Treasury money market funds, provided that any such fund is rated "AAAm" by
Standard & Poor's and "Aaa" by Moody's Investors Service, has a minimum asset
size of $1 billion, and conforms to Rule 2a-7 of the Investment Company Act of
1940.

                                       2


         If the Escrow Agent does not receive written instructions from any two
of the Treasurer, the Assistant Treasurer, the Manager of Cash Management and
the Cash Manager of the Company directing the investment or reinvestment of the
amounts in the Escrow Fund, the Escrow Agent shall automatically and forthwith
invest such funds in accordance with this Section 4 until the Escrow Agent has
received appropriate written instructions. The Escrow Agent shall have the right
to liquidate any investments held in the Escrow Fund in order to provide funds
necessary to make required payments under this Agreement. The Escrow Agent in
its capacity as escrow agent hereunder shall not have any liability for any loss
sustained as a result of any liquidation of any investment prior to its
maturity, if required pursuant to the preceding sentence.

         5.       ADMINISTRATION AND RELEASE OF ESCROW FUND. The Escrow Agent
shall administer the Escrow Fund as follows:

         (a)      The Escrow Agent shall hold and safeguard the Escrow Fund in
trust and shall hold and dispose of the Escrow Fund only in accordance with the
terms hereof.

         (b)      If the Escrow Agent receives an Instruction Certificate in the
form attached hereto as Exhibit A (the "Instruction Certificate"), executed by
the President, the Chief Executive Officer, the Controller, the Treasurer or the
Assistant Treasurer of the Company prior to or on the Redemption Trigger Date
(as defined below), then the Escrow Agent shall release and deliver all amounts
in the Escrow Fund in accordance with the Instruction Certificate. The Escrow
Agent shall confirm in writing to the Company that the amounts set forth in the
Instruction Certificate have been disbursed by it in accordance with the
Instruction Certificate, and shall include the Fed Reference Number for each
such distribution.

         (c)      If on or before 12:00 p.m. (Pacific Time) June 21, 2004 (the
"Redemption Trigger Date"), the Escrow Agent has not received the Instruction
Certificate executed by the Company stating that the Effective Date of the Plan
of Reorganization has occurred prior to or on the Redemption Trigger Date, then
the Escrow Agent shall deliver to the Trustee on or before 10:00 a.m. on the
Business Day immediately preceding the Mandatory Redemption Date amounts from
the Escrow Fund equal to the Principal Amount deposited pursuant to Section
3(a)(i) plus accrued interest to but not including the Mandatory Redemption Date
and the redemption premium on all of the Bonds, as instructed by the Trustee in
accordance with the Indenture. Any funds remaining in the Escrow Fund after
funds sufficient to pay for the redemption of the Bonds on the Mandatory
Redemption Date have been transferred to the Trustee shall, after the Mandatory
Redemption Date, be immediately released and delivered to the Company.

         6.       TERMINATION. Except as provided in Section 7(b) below, this
Agreement shall terminate at such time as all funds from the Escrow Fund have
been released or paid in accordance with the terms of this Agreement.

                                       3


         7.       CONCERNING THE ESCROW AGENT.

         (a)      The Company agrees to pay the Escrow Agent's fees and expenses
for all services rendered by it hereunder as set forth in Exhibit B and the
Escrow Agent's reasonable attorneys' fees incurred by it in connection with
carrying out its duties hereunder.

         (b)      The Company agrees to indemnify the Escrow Agent for, and to
hold it harmless against, any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Escrow Agent,
including the costs and expenses of defending itself against any claim of
liability. Anything in this Agreement to the contrary notwithstanding, in no
event shall the Escrow Agent be liable for special, indirect or consequential
losses or damages of any kind whatsoever (including but not limited to lost
profits). The parties hereto acknowledge that the foregoing indemnities shall
survive the resignation or removal of the Escrow Agent or the termination of
this Agreement. The Escrow Agent shall not have, and hereby waives, any lien,
security interest, right of set-off, or other encumbrance with respect to the
Escrow Fund or any money, instruments, investment property, or other property on
deposit in, credited to, or carried in the Escrow Fund, to secure its rights to
be paid any amounts owing under paragraphs (a) or (b) of this Section 7, and the
Escrow Agent agrees that it shall look solely to the Company, and not to the
Escrow Fund, for the payment of any such amounts.

         (c)      The Escrow Agent shall prepare and deliver to the Company
within ten (10) Business Days after the termination of this Agreement a written
account describing all transactions with respect to the Escrow Fund.

         (d)      The duties and responsibilities of the Escrow Agent hereunder
shall be determined solely by the express provisions of this Agreement, and no
other or further duties or responsibilities shall be implied.

         (e)      The Escrow Agent may act upon any instrument or other writing
provided by a duly authorized officer of the Company believed by it in good
faith to be genuine, and to be signed or presented by the proper person, and
shall not be liable in connection with the performance by it of its duties
pursuant to the provisions of this Agreement, except for its own willful
misconduct, bad faith or gross negligence. The Escrow Agent shall be under no
duty to inquire into or investigate the validity, accuracy or content of any
such instrument or other writing. The Escrow Agent shall have no duty to solicit
any payments which may be due hereunder.

         (f)      Any corporation or other entity into which the Escrow Agent in
its individual capacity may be merged or converted or with which it may be
consolidated, or any corporation or other entity resulting from any merger,
conversion or consolidation to which the Escrow Agent in its individual capacity
shall be a party, or any corporation or other entity to which substantially all
the corporate trust business of the Escrow Agent in its individual capacity may
be transferred, shall be the Escrow Agent under this Agreement without further
act.

         8.       RESIGNATION OF THE ESCROW AGENT; APPOINTMENT OF SUCCESSOR. The
Escrow Agent may at any time resign by giving sixty (60) days' prior written
notice of resignation to the

                                       4


Company. The Company may at any time remove the Escrow Agent by giving sixty
(60) days' prior written notice signed by the Company to the Escrow Agent. If
the Escrow Agent shall resign or be removed, a successor Escrow Agent, which
shall be a bank or trust company having assets in excess of $1,000,000,000 shall
be appointed by the Company and notice of such appointment shall be given to the
Escrow Agent, such successor Escrow Agent and the Trustee by written instrument
executed by the Company and, upon delivery of such notice, the resignation or
removal of the predecessor Escrow Agent shall become effective and such
successor Escrow Agent, without any further act, deed or conveyance, shall
become vested with all right, title and interest to all cash and property held
hereunder of such predecessor Escrow Agent, and such predecessor Escrow Agent
shall deliver to the successor Escrow Agent all property held by it hereunder.
Such predecessor Escrow Agent shall, on the written request of the Company, on
the one hand, or the successor Escrow Agent, on the other hand, execute and
deliver to such successor Escrow Agent an assignment of all rights hereunder of
such predecessor Escrow Agent. If no successor Escrow Agent shall have been
appointed within sixty (60) days of a notice of resignation by the Escrow Agent,
the Escrow Agent's sole responsibility shall thereafter be to hold the Escrow
Fund until the earlier of its receipt of designation of a successor Escrow
Agent, or a written instruction by the Company.

         9.       MISCELLANEOUS.

         (a)      AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with this
Section 9(a) shall be binding upon the parties and their respective successors
and assigns.

         (b)      SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

         (c)      GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without giving effect to the conflict of laws provisions thereof.

         (d)      COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

         (e)      TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

         (f)      NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted to be given or
delivered to any party hereunder shall be in writing and shall be deemed given
or delivered (i) if delivered to the party personally, at the time of such
delivery, (ii) if sent to the party by telecopy (followed by hard copy sent by

                                       5


registered or certified mail (return receipt requested)), upon receipt of
confirmation of "good" transmission, (iii) if sent to the party by registered or
certified mail (return receipt requested) with postage and registration or
certification fees thereon prepaid, two Business Days after mailing, or (iv) if
sent to the party by Federal Express or other express carrier with all fees
thereon prepaid, on the date on which delivery is guaranteed by such carrier,
addressed to the party at its address set forth below or at such other address
or addresses of which the respective party shall have notified the other party:

If to Company:

                  Pacific Gas and Electric Company
                  c/o PG&E Corporation
                  One Market
                  Spear Tower, Suite 2400
                  San Francisco, CA 94105
                  Telephone: (415) 267-7053
                  Fax: (415) 267-7265/7268
                  Attention: Assistant Treasurer

                  Pacific Gas and Electric Company
                  c/o PG&E Corporation
                  One Market
                  Spear Tower, Suite 2400
                  San Francisco, CA 94105
                  Telephone: (415) 817-8200
                  Fax:  (415) 817-8225
                  Attention: Chief Counsel, Corporate

If to the Escrow Agent:

                  BNY Western Trust Company
                  550 Kearny Street, Suite 600
                  San Francisco, California 94108
                  Telephone: (415) 263-2418
                  Fax: (415) 399-1647
                  Attention: Corporate Trust Department

         (g)      SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection, is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable to any extent whatsoever.

         (h)      ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter hereof. Any and
all other prior written or oral agreements existing between the parties hereto
regarding such subject matter are expressly canceled.

                                       6


         The parties have executed this Agreement as of the date first above
written.

                            PACIFIC GAS AND ELECTRIC COMPANY

                            By: /s/ Kent M. Harvey
                               -----------------------------------------------
                                Kent M. Harvey
                                Senior Vice President, Chief Financial Officer
                                    and Treasurer


                            BNY WESTERN TRUST COMPANY,
                            as Escrow Agent

                            By: /s/ Josephine Libunao
                               -----------------------------------------------
                                Josephine Libunao
                                Vice President


                            BNY WESTERN TRUST COMPANY,
                            as Trustee

                            By: /s/ Josephine Libunao
                               -----------------------------------------------
                                Josephine Libunao
                                Vice President



         [Signature Page to Escrow Deposit and Disbursement Agreement]


                                    EXHIBIT A

                             INSTRUCTION CERTIFICATE

                  The undersigned, __________, in his capacity as __________ of
Pacific Gas and Electric Company ("PG&E"), does hereby certify on behalf of
PG&E, in accordance with Section 5(b) of the Escrow Deposit and Disbursement
Agreement, dated March 17, 2004, by and among PG&E and BNY Western Trust
Company, as Escrow Agent and as Trustee (the "Escrow Agreement"), that:

                  (1)      he is authorized to execute this Instruction
                           Certificate on behalf of PG&E,

                  (2)      all of the conditions precedent to the effectiveness
                           of the Plan of Reorganization set forth in Section
                           8.2 thereof have been satisfied or waived;

                  (3)      the Effective Date of the Plan of Reorganization is
                           ____________ [the date hereof], which date is on or
                           prior to the Redemption Trigger Date; and

                  (4)      the amount in the Escrow Fund, together with PG&E's
                           cash on hand and cash available from other financings
                           or credit facilities on the Effective Date of the
                           Plan of Reorganization, are sufficient to make the
                           payments in respect of Allowed Claims and Equity
                           Interests and the deposits to escrow accounts for
                           Disputed Claims (each as defined in the Plan of
                           Reorganization) required by the Plan of
                           Reorganization and that the aggregate of the amounts
                           to be so paid or deposited do not substantially
                           exceed $12,263,000,000, the amount disclosed in the
                           Prospectus dated March 5, 2004 used, with the related
                           Prospectus Supplement dated March 18, 2004, in
                           connection with the offering of the Bonds.

                  The Escrow Agent is hereby directed to release and deliver all
amounts in the Escrow Fund to [insert transfer instructions to Mortgage Bond
Trustee (BNY), and other major creditors with balance to Company as Disbursing
Agent].

         Capitalized terms used herein and not otherwise defined have the
meanings set forth in the Escrow Agreement.

Dated: ___________, 2004

                                          PACIFIC GAS AND ELECTRIC COMPANY

                                          By:___________________________________
                                          Name:_________________________________
                                          Title:________________________________

EX-4.4

                                                                     EXHIBIT 4.4

                          CALCULATION AGENCY AGREEMENT
                                     BETWEEN
                        PACIFIC GAS AND ELECTRIC COMPANY
                                       AND
                            BNY WESTERN TRUST COMPANY

                   FLOATING RATE FIRST MORTGAGE BONDS DUE 2006

                  This Calculation Agency Agreement (this "Agreement") is made
as of March 23, 2004, between Pacific Gas and Electric Company, a California
corporation (the "Company"), and BNY Western Trust Company, a California banking
corporation (together with any successor, called the "Calculation Agent").

                               W I T N E S S E T H

                  WHEREAS, the Company proposes to issue and sell certain of its
securities designated as Floating Rate First Mortgage Bonds Due 2006 (the
"Floating Rate Bonds"). The Floating Rate Bonds will be offered and sold by the
Company to Lehman Brothers Inc. and UBS Securities LLC (the "Representatives")
and the other underwriters named in Schedule I to that certain Underwriting
Agreement dated March 18, 2004 by and among the Company and the Representatives.
The Floating Rate Bonds are to be issued under an Indenture of Mortgage dated as
of March 11, 2004 as supplemented, between the Company and BNY Western Trust
Company, as Trustee (the "Trustee").

                  For the purpose of appointing an agent to calculate the
interest rate based on LIBOR on the Floating Rate Bonds, the Company and the
Calculation Agent agree as follows:

         1.       Upon the terms and subject to the conditions contained herein,
the Company hereby appoints BNY Western Trust Company as its Calculation Agent
and BNY Western Trust Company hereby accepts such appointment as the Company's
agent for the purpose of calculating the applicable interest rates on the
Floating Rate Bonds in accordance with the provisions set forth in the Floating
Rate Bonds which provisions are incorporated by reference herein as if set forth
in full in this Agreement.

         2.       The Calculation Agent shall exercise due care to determine the
interest rates on the Floating Rate Bonds and shall communicate the same to the
Company, the Trustee, The Depository Trust Company and any paying agent
identified to it in writing as soon as practicable after each determination. The
Calculation Agent will, upon the request of the holder of any Floating Rate
Bond, provide the interest rate then in effect with respect to such Floating
Rate Bond and, if determined, the interest rate with respect



to such Floating Rate Bond which will become effective on the next Interest
Reset Date (as that term is defined in each Floating Rate Bond).

         3.       The Calculation Agent accepts its obligations set forth
herein, upon the terms and subject to the conditions hereof, including the
following, to all of which the Company agrees:

         (a)      The Calculation Agent shall be entitled to such compensation
as may be agreed upon with the Company for all services rendered by the
Calculation Agent, and the Company promises to pay such compensation and to
reimburse the Calculation Agent for the reasonable out-of-pocket expenses
(including attorneys' and other professionals' fees and expenses) incurred by it
in connection with the services rendered by it hereunder upon receipt of such
invoices as the Company shall reasonably require. The Company also agrees to
indemnify the Calculation Agent for, and to hold it harmless against, any and
all loss, liability, damage, claim or expense (including the costs and expenses
of defending against any claim (regardless of who asserts such claim) of
liability) incurred by the Calculation Agent that arises out of or in connection
with its accepting appointment as, or acting as, Calculation Agent hereunder,
except such as may result from the negligence, willful misconduct or bad faith
of the Calculation Agent or any of its agents or employees. The Calculation
Agent shall incur no liability and shall be indemnified and held harmless by the
Company for, or in respect of, any actions taken, omitted to be taken or
suffered to be taken in good faith by the Calculation Agent in reliance upon
written instructions from the Company. The provisions of this section shall
survive the termination of this Agreement.

         (b)      In acting under this Agreement, the Calculation Agent is
acting solely as agent of the Company and does not assume any obligations to or
relationship of agency or trust for or with any of the owners or holders of the
Floating Rate Bonds.

         (c)      The Calculation Agent shall be protected and shall incur no
liability for or in respect of any action taken or omitted to be taken or
anything suffered by it in reliance upon the terms of the Floating Rate Bonds,
any notice, direction, certificate, affidavit, statement or other paper,
document or communication reasonably believed by it to be genuine and to have
been approved or signed by the proper party or parties.

         (d)      The Calculation Agent, its officers, directors, employees and
shareholders may become the owners or pledgee of, or acquire any interest in,
any Floating Rate Bonds, with the same rights that it or they would have if it
were not the Calculation Agent, and may engage or be interested in any financial
or other transaction with the Company as freely as if it were not the
Calculation Agent.

         (e)      Neither the Calculation Agent nor its officers, directors,
employees, agents or attorneys shall be liable to the Company for any act or
omission hereunder, or for any

                                      - 2 -


error of judgment made in good faith by it or them, except in the case of its or
their negligence, willful misconduct or bad faith.

         (f)      The Calculation Agent may consult with counsel of its
selection appointed by it with due care and the advice of such counsel or any
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.

         (g)      The Calculation Agent shall be obligated to perform such
duties and only such duties as are herein specifically set forth, and no implied
duties or obligations shall be read into this Agreement against the Calculation
Agent.

         (h)      Unless herein otherwise specifically provided, any order,
certificate, notice, request, direction or other communication from the Company
made or given by it under any provision of this Agreement shall be sufficient if
signed by any officer of the Company.

         (i)      The Calculation Agent may perform any duties hereunder either
directly or by or through agents or attorneys, and the Calculation Agent shall
not be responsible for any misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder.

         (j)      The Company will not, without first obtaining the prior
written consent of the Calculation Agent, make any change to the Floating Rate
Bonds if such change would materially and adversely affect the Calculation
Agent's duties and obligations under this Agreement.

         4.       (a)      The Calculation Agent may at any time resign as
Calculation Agent by giving written notice to the Company of such intention on
its part, specifying the date on which its desired resignation shall become
effective; provided, however, that such date shall never be earlier than 60 days
after the receipt of such notice by the Company, unless the Company otherwise
agrees in writing. The Calculation Agent may be removed at any time by the
filing with it of any instrument in writing signed on behalf of the Company and
specifying such removal and the date when it is intended to become effective.
Such resignation or removal shall take effect upon the date of the appointment
by the Company, as hereinafter provided, of a successor Calculation Agent. If
within 30 days after notice of resignation or removal has been given, a
successor Calculation Agent has not been appointed, the Calculation Agent may,
at the expense of the Company, petition a court of competent jurisdiction to
appoint a successor Calculation Agent. A successor Calculation Agent shall be
appointed by the Company by an instrument in writing signed on behalf of the
Company and the successor Calculation Agent. Upon the appointment of a successor
Calculation Agent and acceptance by it of such appointment, the Calculation
Agent so succeeded shall cease to be such Calculation Agent hereunder. Upon its
resignation or removal, the Calculation Agent shall be entitled to the payment
by the

                                      - 3 -


Company of its compensation, if any is owed to it, for services rendered
hereunder and to the reimbursement of all reasonable out-of-pocket expenses
incurred in connection with the services rendered by it hereunder and to the
payment of all other amounts owed to it hereunder.

         (b)      Any successor Calculation Agent appointed hereunder shall
execute and deliver to its predecessor and to the Company an instrument
accepting such appointment hereunder, and thereupon such successor Calculation
Agent, without any further act, deed or conveyance, shall become vested with all
the authority, rights, powers, trusts, immunities, duties and obligations of
such predecessor with like effect as if originally named as such Calculation
Agent hereunder, and such predecessor, upon payment of its charges and
disbursements then unpaid, shall thereupon become obliged to transfer and
deliver, and such successor Calculation Agent shall be entitled to receive,
copies of any relevant records maintained by such predecessor Calculation Agent.

         (c)      Any corporation into which the Calculation Agent may be
merged, or any corporation with which the Calculation Agent may be consolidated,
or any corporation resulting from any merger or consolidation or to which the
Calculation Agent shall sell or otherwise transfer all or substantially all of
its corporate trust assets or business shall, to the extent permitted by
applicable law, be the successor Calculation Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto. Notice of any such merger, consolidation or sale shall
forthwith be given to the Company and the Trustee.

         5.       Any notice required to be given hereunder shall be delivered
in person, sent by letter or telecopy or communicated by telephone (subject, in
the case of communication by telephone, to confirmation dispatched within 24
hours by letter or by telecopy):

                           If to the Calculation Agent, to:

                                    BNY Western Trust Company
                                    550 Kearny Street, Suite 600
                                    San Francisco, California  94108
                                    Attention: Corporate Trust Department
                                    Telephone: (415) 263-2418
                                    Fax:  (415) 399-1647

                                     - 4 -


                           If to the Company, to:

                                   Pacific Gas and Electric Company
                                   77 Beale Street (street address)
                                   P.O. Box 770000
                                   San Francisco, California 94177
                                   Attention: Treasurer and Assistant Treasurer
                                   Telephone: (415) 267-7053
                                   Fax:  (415) 267-7253/267-7265

                                   Pacific Gas and Electric Company
                                   c/o PG&E Corporation
                                   One Market
                                   Spear Tower, Suite 2400
                                   San Francisco, California 94105
                                   Attention:  Chief Counsel, Corporate
                                   Telephone: (415) 817-8200
                                   Fax: (415) 817-8225

                           If to The Depository Trust Company, to:

                                   55 Water Street
                                   New York, NY 10041-0099
                                   Attention: Dividend Department, Announcements
                                   Telephone: (212) 855-4550
                                   Fax: (212) 855-4555

or to any other address of which any party shall have notified the others in
writing as herein provided. Any notice hereunder given by telephone, telecopy or
letter shall be deemed to be received when in the ordinary course of
transmission or post, as the case may be, it would be received.

         6.       This Agreement and the appointment as Calculation Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of California applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of laws principles, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.

         7.       This Agreement may be amended only by a writing duly executed
and delivered by the Company and the Calculation Agent.

                                      - 5 -


         8.       This Agreement may be executed by each of the parties hereto
in any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all such counterparts shall
together constitute one and the same agreement.

                                      - 6 -


                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.

                             PACIFIC GAS AND ELECTRIC COMPANY

                             By:  /s/ Kent M. Harvey
                                 -----------------------------------------------
                                  Kent Harvey
                                  Senior Vice President, Chief Financial Officer
                                      and Treasurer

                             BNY WESTERN TRUST COMPANY

                             By:   /s/ Josephine Libunao
                                  -----------------------------------
                                   Josephine Libunao
                                   Vice President


                [Signature Page to Calculation Agency Agreement]

EX-5.1

              [LETTERHEAD OF ORRICK, HERRINGTON & SUTCLIFFE LLP]



                                                                     EXHIBIT 5.1


March 23, 2004

Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA  94177

Re:   Pacific Gas and Electric Company
      Registration Statement (File No. 333-109994)

Ladies and Gentlemen:

With respect to $6,700,000,000 aggregate principal amount of First Mortgage
Bonds (the "Bonds") to be issued and sold by Pacific Gas and Electric Company
(the "Company") under the Registration Statement on Form S-3, File No.
333-109994, filed by the Company with the Securities and Exchange Commission
(the "Commission") on October 27, 2003, as amended by Amendment No. 1 thereto
filed with the Commission on March 2, 2004 (as amended, the "Registration
Statement"), and the related prospectus contained in the Registration Statement,
as supplemented by the Prospectus Supplement, dated March 18, 2004, filed with
the Commission under its Rule 424(b) (together, the "Prospectus"), we have
examined the Registration Statement, the Prospectus and the Indenture of
Mortgage (the "Indenture") between the Company and BNY Western Trust Company, as
trustee (the "Trustee"), dated as of March 11, 2004, as supplemented by the
First Supplemental Indenture (the "Supplement"), dated as of March 23, 2004,
pursuant to which the Bonds will be issued. The Indenture, the Supplement and
this opinion letter are being filed with the Commission with the Company's
Current Report on Form 8-K dated March 23, 2004 (the "Current Report").

We also have examined the originals, or copies identified to our satisfaction,
of such corporate records of the Company, certificates of public officials,
officers of the Company and other persons, and such other documents, agreements
and instruments as we have deemed relevant and necessary for the basis of the
opinions hereinafter expressed. In such examination, we have assumed the
following: (a) the authenticity of original documents and the genuineness of all
signatures; (b) the conformity to the originals of all documents submitted to us
as copies; and (c) the truth, accuracy and completeness of the information,
representations and warranties contained in the records, documents, instruments
and certificates we have reviewed.

Based on and subject to the foregoing, assuming that the Bonds are issued and
sold as contemplated by the Registration Statement and the Prospectus, we are of
the opinion that the Bonds will be legal and binding obligations of the Company.



Pacific Gas and Electric Company
March 23, 2004
Page 2

The opinion set forth above is subject to (a) bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting creditors' rights generally (including, without limitation, all laws
relating to fraudulent transfers or conveyances, preferences and equitable
subordination); (b) general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or injunctive relief (regardless
of whether enforcement is considered in a proceeding in equity or at law); and
(c) the matters relating to remedies available to the Trustee as mortgagee under
California law and the possible need for regulatory approvals for any sale or
other disposition upon foreclosure under the Indenture discussed under the
caption "Description of the Senior Secured Bonds -- Certain Aspects of a
Mortgage" in the Prospectus.

The opinion expressed herein is limited to the laws of the State of California
and the federal laws of the United States of America.

We hereby consent to the reference to our firm under the heading "Legal Matters"
in the Prospectus and to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement which incorporates the Current Report by reference. By
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 and the
rules and regulations promulgated thereunder.

Very truly yours,

/s/ Orrick, Herrington & Sutcliffe LLP

ORRICK, HERRINGTON & SUTCLIFFE LLP

EX-5.2

              [LETTERHEAD OF ORRICK, HERRINGTON & SUTCLIFFE LLP]


                                                                     EXHIBIT 5.2


March 23, 2004

Pacific Gas and Electric Company
77 Beale Street
San Francisco, CA  94177

Re:      Pacific Gas and Electric Company
         Registration Statement (File No. 333-109994)

Ladies and Gentlemen:

With respect to the remaining $2,700,000,000 aggregate principal amount of
Senior Secured Bonds (the "Bonds") covered by the Registration Statement on Form
S-3, File No. 333-109994, filed by Pacific Gas and Electric Company (the
"Company") with the Securities and Exchange Commission (the "Commission") on
October 27, 2003, as amended by Amendment No. 1 thereto filed with the
Commission on March 2, 2004 (as amended, the "Registration Statement"), we have
examined the Registration Statement, the prospectus contained in the
Registration Statement (the "Prospectus"), and the Indenture of Mortgage (the
"Indenture") between the Company and BNY Western Trust Company, as trustee (the
"Trustee"), dated as of March 11, 2004, pursuant to which the Bonds may be
issued. The Indenture and this opinion letter are being filed with the
Commission with the Company's Current Report on Form 8-K dated March 23, 2004
(the "Current Report").

We also have examined the originals, or copies identified to our satisfaction,
of such corporate records of the Company, certificates of public officials,
officers of the Company and other persons, and such other documents, agreements
and instruments as we have deemed relevant and necessary for the basis of the
opinions hereinafter expressed. In such examination, we have assumed the
following: (a) the authenticity of original documents and the genuineness of all
signatures; (b) the conformity to the originals of all documents submitted to us
as copies; and (c) the truth, accuracy and completeness of the information,
representations and warranties contained in the records, documents, instruments
and certificates we have reviewed.

Based on and subject to the foregoing, we are of the opinion that the Bonds will
be legal and binding obligations of the Company at such time as: (a) the forms
and the terms of the Bonds have been approved by appropriate action of the
Company, and the Bonds have been duly executed, authenticated and delivered in
accordance with the Indenture and any supplement thereto; (b) any additional
regulatory approval that may be required from the California Public Utilities
Commission has been obtained by the Company; and (c) the Bonds have been issued
and sold as contemplated by the Registration Statement, the Prospectus and any
prospectus supplement relating thereto.



Pacific Gas and Electric Company
March 23, 2004
Page 2

The opinion set forth above is subject to (a) bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws relating to or
affecting creditors' rights generally (including, without limitation, all laws
relating to fraudulent transfers or conveyances, preferences and equitable
subordination); (b) general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance or injunctive relief (regardless
of whether enforcement is considered in a proceeding in equity or at law); and
(c) the matters relating to remedies available to the Trustee as mortgagee under
California law and the possible need for regulatory approvals for any sale or
other disposition upon foreclosure under the Indenture discussed under the
caption "Description of the Senior Secured Bonds -- Certain Aspects of a
Mortgage" in the Prospectus.

The opinion expressed herein is limited to the laws of the State of California
and the federal laws of the United States of America.

We hereby consent to the reference to our firm under the heading "Legal Matters"
in the Prospectus and to the filing of this opinion letter as Exhibit 5.2 to the
Registration Statement which incorporates the Current Report by reference. By
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 and the
rules and regulations promulgated thereunder.

Very truly yours,

/s/ Orrick, Herrington & Sutcliffe LLP

ORRICK, HERRINGTON & SUTCLIFFE LLP