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: August 23, 2002



Commission File Number	Exact Name of Registrant as specified in its charter	State or other Jurisdiction of Incorporation	IRS Employer Identification Number
_____________	_____________	_____________	_____________
1-12609 1-2348	PG&E Corporation Pacific Gas and Electric Company	California California	94-3234914 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

The sections of this current report on Form 8-K discussing PG&E National Energy Group, Inc. (PG&E NEG) include forward-looking statements, including projections, that are necessarily subject to various risks and uncertainties. These statements are based on current expectations and assumptions which management believes are reasonable and on information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements. These statements should be read in conjunction with the forward-looking statement factors set forth in the "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Financial Resources" in PG&E Corporation's most recent Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2002 (Form 10-Q/A).

A. PG&E Corporation Credit Agreement Waiver Revision

General Electric Capital Corporation and certain other lenders (collectively, the GE Lenders) under PG&E Corporation's $1.02 billion Amended and Restated Credit Agreement dated as of June 25, 2002 (Credit Agreement) have waived, until August 30, 2002, the requirement that PG&E Corporation's subsidiary, PG&E NEG, continue to maintain investment grade ratings with either Standard & Poor's (S&P) or Moody's Investor Services, Inc. (Moody's). This waiver, which had previously been extended until October 21, 2002 was revised in light of amendments made on August 22, 2002 to PG&E NEG's $1.25 billion credit agreement dated August 22, 2001 (PG&E NEG Credit Agreement), which resulted in early termination of the prior waiver and which are described more fully below. The current waiver is subject to earlier termination if, among other events, PG&E NEG fails to maintain certain levels of credit availability under the PG&E NEG Credit Agreement.

The current waiver agreement has been amended to require that, during the term of the waiver agreement, at least $267 million remain available to PG&E NEG under the Tranche A facility (reduced from $400 million) and that at least $431 million remain available to PG&E NEG under the Tranche B facility. As previously disclosed, in addition to requiring the maintenance of certain levels of availability under the PG&E NEG Credit Agreement, the GE Lenders may also terminate the waiver if (1) the holders of indebtedness of PG&E NEG under the PG&E NEG Credit Agreement become entitled to accelerate the repayment of such indebtedness before its stated maturity date, or (2) PG&E Corporation fails to perform any term or covenant of the waiver agreement. In addition, as provided in the prior waiver, during the term of the waiver PG&E Corporation may not make any investment, capital expenditure, or other payment to any of its subsidiaries, in an amount that in the aggregate exceeds $15 million, except as may be required under applicable law or by conditions established by the California Public Utilities Commission (CPUC) in decisions approving the formation of PG&E Corporation to hold the stock of Pacific Gas and Electric Company (Utility). A copy of the revised waiver agreement is filed as Exhibit 99.1 hereto.

During the term of the waiver, PG&E Corporation has agreed not to allow PG&E NEG to sell any of its material assets, except for certain sales in the ordinary course of business, or to incur additional debt, except for (i) draws under PG&E NEG's current credit facilities, (ii) hedging and guarantees of hedging in the ordinary course of business, and (iii) other indebtedness incurred in the ordinary course of business up to an aggregate amount of $75 million, without obtaining prior consent from the GE Lenders. The terms of the revised waiver agreement further require PG&E Corporation to maintain an amount of cash held in two interest reserve accounts under the Credit Agreement equal to 15 percent of the now outstanding principal amount of the $1.02 billion in term loans. Specifically, $153 million will be maintained in the two interest accounts, which represents an increase from the previous waiver's requirement that two years' worth of interest, or approximately $117 million, be maintained in the interest reserve accounts.

As previously disclosed, subject to their respective rights as set forth in the Intercreditor and Subordination Agreement, dated as of June 25, 2002, by and between the GE Lenders and certain other parties thereto, the GE Lenders would, upon expiration of the waiver, have the right to declare all amounts outstanding under the Credit Agreement to be immediately due and payable. The failure of PG&E Corporation to repay this accelerated indebtedness would entitle the GE Lenders, subject to the Intercreditor Agreement, to exercise certain remedies, including their rights as secured parties with respect to their collateral, i.e., the pledged interests of PG&E Corporation in PG&E National Energy Group, LLC (NEG, LLC), NEG LLC's pledged interests in PG&E NEG, and a pledged interest in an interest reserve account, which will increase from approximately $117 million to $153 million as a result of the current waiver agreement.

As previously disclosed, with respect to the $280 million aggregate principal amount of 7.5% Convertible Subordinated Notes issued by PG&E Corporation pursuant to an Indenture dated as of June 25, 2002 by and between PG&E Corporation and U.S. Bank, N.A., as trustee (Notes), if the obligations under the Credit Agreement were accelerated and PG&E Corporation failed to pay such accelerated obligations as described above and such failure continues for 30 days after receipt of written notice from the trustee or holders of at least 25 percent of the aggregate principal amount of outstanding Notes, the Notes would also be in default. Thereupon, and subject to the subordination provisions of the Indenture, the trustee or the Note holders would have the right to accelerate the Notes. A similar cross-default situation could develop if creditors of PG&E Corporation's significant subsidiaries, including PG&E NEG, accelerated $150 million or more in aggregate principal amount of indebtedness.

During the term of the current waiver by the GE Lenders, PG&E Corporation intends to negotiate with the GE Lenders for a further extension of the waiver and for the elimination of the credit rating maintenance covenant from the Credit Agreement or for such other amendments as may be needed to avoid a default of these obligations; however, PG&E Corporation cannot predict whether, or to what extent, it would be successful in such efforts. Current PG&E Corporation cash balances are insufficient to repay the full amount of its outstanding debt.

B. Extension of PG&E National Energy Group Credit Facility Expiration Date

As previously disclosed, the PG&E NEG Credit Agreement currently consists of a Tranche A facility which expires on August 22, 2003 and a Tranche B facility which was due to expire on August 22, 2002. On August 22, 2002, PG&E NEG and the lenders under the PG&E NEG Credit Agreement entered into an amendment to the PG&E NEG Credit Agreement that extended the expiration and renewal date of the Tranche B facility to October 21, 2002, and reduced the commitments under the Tranche B facility to $500 million from $750 million. In addition, over the extension term, the amendment (i) reduced the amount available to borrow under the Tranche B facility to $431 million (the amount outstanding under the Tranche B facility as of August 22, 2002) from $750 million and (ii) reduced the amount available to borrow under the Tranche A facility to $279 million (the amount outstanding under the Tranche A facility as of August 22, 2002) from $500 million. Draws above these amounts are available with 100 percent lender approval. PG&E NEG believes that these restrictions will not prevent it from meeting its liquidity commitments during the extension period.

C. PG&E NEG Projected Cash Management--Potential Sources and Uses of Cash Table

As previously disclosed, PG&E Corporation's Form 10-Q/A included a table which provided an estimate of PG&E NEG's potential sources and uses of cash for the next 12 months based upon assumptions regarding exposure and negotiations with and payments to counterparties, and calls on PG&E NEG's liquidity. (See section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Financial Resources" in PG&E Corporation's Form 10-Q/A.) As a result of the changes to the PG&E NEG Credit Agreement described above and PG&E NEG's ongoing review of its potential sources and uses of cash, PG&E NEG has revised certain of its projections. Although the potential sources and uses of cash in this table represented an estimate for an entire year, PG&E NEG expects to undertake a significant debt restructuring effort over the next 60 days. Since PG&E Corporation and PG&E NEG are unable to predict the outcome of such debt restructuring efforts, the table set forth below covers only the period from August 21, 2002 through October 31, 2002. These projections are calculated as if the 364-day Tranche B revolving credit facility does not expire prior to October 31, 2002, and do not include any changes resulting from the implementation of any debt restructuring, or other sales or reorganization of existing operations.

These projections represent sources and uses of cash at various PG&E NEG and subsidiary entities. While these entities are subject to certain restrictions with respect to distributions of cash, in the aggregate the sources described are expected to be available for the expected uses in compliance with these restrictions.

PG&E National Energy Group
Projected Cash Management — Potential Sources and Uses of Cash
August 21, 2002 through October 31, 2002

	($ millions)
Sources of Cash
Unrestricted cash on hand at PG&E NEG and various subsidiaries at August 20, 2002	557
Estimated distributions and dividends from PG&E NEG subsidiaries through October 31, 2002	117
Available capacity under $500 million two-year revolver expiring August 23, 2003 (1)	-
Available capacity under $500 million 364-day revolver expiring October 21, 2002 (2)	-
Available capacity under USGen New England $100 million credit facility	13
Available capacity under PG&E Gas Transmission, Northwest Corporation (PG&E GTN) $125 million facility	125
Available capacity under other credit facilities with $120 million capacity	12
Total Potential Sources of Cash	824

Total Potential Sources of Cash excluding PG&E GTN (3)	699

Uses of Cash
Operating and debt service costs	49
Capital requirements for current construction program	272
Scheduled principal payment under equipment revolver	16
Collateral requirements to cover current exposure in trading and asset businesses (4)	203
Equity funding requirement on La Paloma project due to ratings downgrades	23
Total Potential Uses	563

Net Liquidity Position	262

Net Liquidity Position excluding PG&E GTN (3)	137

(1)	The two-year revolver facility is currently limited to a total outstanding amount of $278.7 million unless additional letters of credit are approved by 100 percent of the lenders.
(2)	The 364-day revolver facility was extended for 60 days on August 22, 2002. The amount currently outstanding under this facility is $431 million. No additional draws are permitted without 100 percent lender approval.
(3)	PG&E GTN debt capacity is separately identified because recent Federal Energy Regulatory Commission (FERC) proposed rule changes and certain ring-fencing restrictions may limit availability to affiliates.
(4)	Covers pipeline transport, gas storage, and power pool collateral requirements and exposure for all trading agreements having financial covenants for below investment grade entities, net of collateral provided from July 31, 2002 through August 20, 2002 ($196 million). This estimate will change with changes in the prices of the underlying commodities.

From July 31, 2002 through August 20, 2002, PG&E NEG posted collateral in the form of cash or letters of credit totaling approximately $196 million to cover exposure under guarantees which were triggered as a result of the ratings actions taken by S&P and Moody's on July 31, 2002 and August 5, 2002, respectively. This amount has reduced the potential use of cash for collateral requirements from the amount previously disclosed of $399 million. As identified above, PG&E NEG estimates its remaining exposure to be approximately $203 million.

The actual calls on PG&E NEG's liquidity will depend largely upon counterparties' reactions to the ratings downgrades, the continued performance of PG&E NEG companies under the underlying agreements and the counterparties' other commercial considerations. In the past, PG&E NEG has been able to negotiate acceptable arrangements and reduce its overall exposure to counterparties when PG&E NEG or its counterparties have faced similar situations. However, PG&E NEG cannot quantify with any certainty the actual future calls on its liquidity and there can be no assurance that PG&E NEG could negotiate acceptable arrangements in the current circumstances.

On August 8, 2002, PG&E NEG replaced the ratings triggers contained in $545 million of guarantees for the performance of the contractors building the Harquahala and Covert power projects with financial covenants that are consistent with those contained in PG&E NEG's revolving credit and other loan facilities. These covenants include requirements to exceed a specified cash flow to fixed charges ratio and a specified net worth as well as to maintain less than a specified total debt to total capitalization ratio and are set forth in PG&E NEG's revolving credit agreement filed as Exhibit 10.21 to PG&E NEG's 2001 Annual Report on Form 10-K. PG&E NEG is currently in compliance with these covenants.

By letter dated August 7, 2002, Liberty Electric Power, LLC (Liberty) provided notice to PG&E Energy Trading - Power, L.P. (PGET) that the downgrade of PG&E NEG constituted a material adverse change under the tolling agreement between PGET and Liberty and that PGET was required to post replacement security or an event of default under the tolling agreement would arise within 10 business days. PGET has not posted replacement security. This notice by Liberty is not expected to impact other agreements of PG&E NEG. PGET had previously provided guarantees from PG&E NEG and PG&E GTN each in the amount of $150 million. Under the terms of the tolling agreement, Liberty may issue a termination notice and immediately cease performance and/or withhold any payments. If the agreement is terminated, Liberty must in good faith calculate the gains, losses, and costs resulting from the termination and must provide this determination to PGET. If PGET disputes the determination, it may submit the matter to arbitration. PGET has submitted to Liberty a proposal to replace the guarantees' ratings triggers with a covenant package similar to that implemented for PG&E NEG's debt facilities. To date, Liberty has neither accepted the proposal nor sent a notice of termination.

PG&E NEG is continuing to explore options to raise equity, lower debt, and reduce ongoing guarantee and working capital requirements. These options include, but are not limited to, sales of assets and businesses, debt restructuring, and reorganization of existing operations. The implementation of most of these options would be subject to obtaining necessary lender approvals and would require compliance with PG&E NEG's other agreements and applicable laws and regulations.

D. Pacific Gas and Electric Company Bankruptcy

On August 22, 2002, the California Public Utilities Commission (CPUC) announced that it has entered into an agreement with the Official Committee of Unsecured Creditors (OCC) regarding modifications to its current plan of reorganization for Pacific Gas and Electric Company (Utility). Under the terms of the agreement, the CPUC and the OCC will seek permission from the U.S. Bankruptcy Court for the Northern District of California (Bankruptcy Court) to amend the CPUC’s plan of reorganization and to reopen the creditor voting period, which ended on August 12, 2002. The agreement also states that the OCC will become a co-proponent of the CPUC’s amended plan and will recommend that creditors vote in favor of the CPUC’s modified plan and state a preference for it.

Among other modifications, the CPUC is now proposing to issue preferred stock in lieu of the common stock previously proposed and to provide for a “reorganization agreement” under which the CPUC will establish retail electric rates sufficient for the Utility to facilitate achieving and maintaining investment grade credit ratings and to recover in rates (i) the interest and dividends payable on, and the amortization and redemption of, the securities to be issued in connection with the CPUC’s modified plan and (ii) certain recoverable costs.

Neither the Utility nor PG&E Corporation can predict whether the Bankruptcy Court will approve the CPUC’s modified plan of reorganization, or whether it will affect the current confirmation proceeding scheduled to commence on November 12, 2002.

Item 7.		Financial Statements, Pro Forma Financial Information, and Exhibits

Exhibit No.		Description of Exhibit

99.1		Waiver and Amendment Agreement, dated August 22, 2002, by and among PG&E Corporation, PG&E National Energy Group, LLC, Lehman Commercial Paper Inc. as administrative agent, and the lenders party to the Amended and Restated Credit Agreement dated as of June 25, 2002

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
	By: /s/ CHRISTOPHER P. JOHNS

	CHRISTOPHER P. JOHNS Senior Vice President and Controller

	PACIFIC GAS AND ELECTRIC COMPANY
	By: /s/ DINYAR B. MISTRY

	DINYAR B. MISTRY Vice President and Controller

Dated: August 23, 2002

EXHIBIT INDEX

Exhibit No.		Description of Exhibit

99.1		Waiver and Amendment Agreement, dated August 22, 2002, by and among PG&E Corporation, PG&E National Energy Group, LLC, Lehman Commercial Paper Inc. as administrative agent, and the lenders party to the Amended and Restated Credit Agreement dated as of June 25, 2002

PG&E Corporation

One Market Street, Spear Tower, Suite 2400
San Francisco, CA 94105

AMENDED AND RESTATED WAIVER AND AMENDMENT AGREEMENT

August 22, 2002

Lehman Commercial Paper Inc.,

as Administrative Agent

745 Seventh Avenue, 25^th Floor,

New York, NY 10019

The Lenders listed on Annex A hereto

Re: Amended and Restated Credit Agreement dated as of June 25, 2002, by and among PG&E Corporation, as borrower, the lenders party thereto, Lehman Commercial Paper Inc., as administrative agent, and Lehman Brothers Inc., as lead arranger and book manager (as amended, the "Credit Agreement") and the Tranche A Interest Reserve Account Control Agreement and the Tranche B Interest Reserve Account Control Agreement

Ladies and Gentlemen:

This Amended and Restated Waiver and Amendment Agreement ("Waiver and Amendment Agreement") amends and restates the waiver letter agreement, dated August 16, 2002, among the parties thereto.

Reference is made to the Credit Agreement. Capitalized terms used herein but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. Pursuant to Section 6.14 of the Credit Agreement, NEG, Inc. is required to maintain a rating of at least BBB- by Standard & Poor's ("S&P") or Baa3 by Moody's on its long-term unsecured debt obligations (the "Debt Obligations"). On July 31, 2002, S&P announced that the Debt Obligations had been downgraded below the level required by Section 6.14 and on August 5, 2002, Moody's announced that the Debt Obligations had been downgraded below the level required by Section 6.14 (the "Downgrades").

Pursuant to the terms of certain waiver letter agreements, dated August 1, 2002 and August 16, 2002, among the Borrower and the Lenders signatories thereto, the Lenders agreed to waive any Default or Event of Default under Section 6.14 arising from the Downgrades which waiver shall apply until, and only until, the Waiver Expiration Date (as defined in the August 16, 2002 waiver letter agreement). The Borrower hereby requests that the Lenders agree to extend the waiver of any such Default or Event of Default under Section 6.14 from August 22, 2002 until and only until the earliest of the following dates (the "Waiver Expiration Date"): (a) August 30, 2002; (b) the date of a reduction or termination of, or a reduction or termination in the availability of, the aggregate of all lenders' Tranche A Aggregate Exposure (as defined in the NEG Credit Agreement as in effect on August 16, 2002) to an amount less than $267,000,000 or a reduction or termination of, or a reduction or termination in the availability of, the aggregate of all lenders' Tranche B Aggregate Exposure (as defined in the NEG Credit Agreement as in effect on August 16, 2002) to an amount less than $431,000,000, under the $1,250,000,000 Amended and Restated Credit Agreement, dated as of August 22, 2001, among PG&E National Energy Group, Inc. and the issuing bank, lenders and agents parties thereto (the "NEG Credit Agreement"); (c) the date a default or an event of default shall have occurred with respect to the Indebtedness of NEG, Inc. under the NEG Credit Agreement or any other event or condition shall have occurred, the effect of which event or condition is to cause, or permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or (d) the failure by the Borrower to perform or observe any term, covenant or agreement set forth in this Waiver and Amendment Agreement.

The parties to this Waiver and Amendment Agreement hereby agree that none of the restrictions and other provisions of this Waiver and Amendment Agreement shall be binding upon them with respect to any discussions concerning any future proposed waivers related to the Credit Agreement or to any future proposed amendment to the Credit Agreement or any of the related documents unless any such discussion is specifically agreed to in writing.

In consideration of the foregoing, (I) the Borrower agrees and covenants as follows for the period from the date hereof to the Waiver Expiration Date:

(a) notwithstanding anything provided to the contrary in the Credit Agreement, the reinvestment of any proceeds of any event described in Sections 3.2(b), 3.2(c), 3.2(e), and 3.2(f) may only be made to the extent specified in Part II of the Business Plan for expenditures in the Scheduled Projects;

(b) notwithstanding anything provided to the contrary in the Credit Agreement, from August 16, 2002 and until the Waiver Expiration Date, the Borrower shall not make any Investment or Capital Expenditure or make any other payment to any of its subsidiaries, except that so long as no Default or Event of Default shall have occurred and be continuing, the Borrower may make such Investment or Capital Expenditure, or payment to its subsidiaries, in an amount not to exceed $15,000,000 in the aggregate (taking into account any amount as may be used by the Borrower in any such transaction to the extent permitted by clause (A) of the proviso of Section 3.2(b) of the Credit Agreement), provided that (i) the amount of any cash Dividend actually received by the Borrower after the date hereof may be added to such amount for purposes of determining whether the Borrower is in compliance with this clause (b) and (ii) nothing herein shall restrict the ability of the Borrower to make such Investment or Capital Expenditure in PGE Utility or payment to PGE Utility, in each case, as reasonably determined by the Borrower that such transaction is required by applicable Law or the Holding Company Conditions, and the Borrower hereby advises the Lenders that it believes such $15,000,000 should be sufficient to discharge any of its obligations during the period between August 16, 2002 and the Waiver Expiration Date;

(c) the Borrower shall deliver an Officer's Certificate from the Chief Executive Officer, Chief Financial Officer, or Treasurer of the Borrower, dated the date hereof, certifying and stating, after due inquiry, the amount of cash and Cash Equivalents, then held by the Borrower (the "Available Cash Amount") on the date hereof;

(d) the Borrower shall pay or reimburse the Administrative Agent and each Lender for all of its reasonable out-of-pocket costs and expenses in connection with the preparation, negotiation and execution of this Waiver and Amendment Agreement, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and counsel to GECC, as a Lender, and counsel to the Tranche B Lenders;

(e) the Borrower shall, as promptly as practicable after the date hereof, file a form 8-K disclosing the material terms and conditions of this Waiver and Amendment Agreement and attaching thereto a copy of this Waiver and Amendment Agreement;

(f) on or prior to August 26, 2002, 3:00 p.m. (EDT), the Borrower shall have deposited such amount as may be necessary into the Tranche A Interest Reserve Account and the Tranche B Interest Reserve Account, respectively, such that the aggregate amount of cash and Cash Equivalents held in each of the Tranche A Interest Reserve Account and the Tranche B Interest Reserve Account shall be in an amount equal to $90,000,000 in the case of the Tranche A Interest Reserve Account and $ 63,000,000 in the case of the Tranche B Interest Reserve Account;

(g) The Borrower will not permit the LLC or any of LLC's subsidiaries to take any of the actions prohibited under Sections 7.1, 7.2, 7.4, 7A.1, 7A.2 and 7A.4 of the Credit Agreement provided that: (i) except for asset sales by any NEG Subsidiary in the ordinary course of business in an aggregate amount not to exceed $5,000,000 for all NEG Subsidiaries, clause (vii) of Section 7.2 and Section 7A.2 shall not be applicable as exceptions to such covenants for all purposes of the Credit Agreement and this clause (I)(g), and (ii) except for (x) draws and other credit advances under current credit facilities and other current loan documents of any NEG Subsidiary to the extent such credit facilities and such other loan documents are permitted under clause (vii) of Section 7.4 and Section 7A.4 on the date hereof, (y) Hedging Agreements of any NEG Subsidiary and Contingent Obligations of NEG, Inc. or any NEG Subsidiary with respect to Hedging Agreements of any NEG Subsidiary, in each case in the ordinary course of business and (z) other Indebtedness incurred by any NEG Subsidiary in the ordinary course of business in an aggregate amount not to exceed $75,000,000 for all NEG Subsidiaries, clauses (vii) and (ix) of Section 7.4 and Section 7A.4 shall not be applicable as exceptions to such covenants for all purposes of the Credit Agreement and this clause (I)(g); and

(h) notwithstanding anything provided to the contrary in the Credit Agreement, no NEG Equity Transaction shall be permitted; and

(II) the parties hereto agree to amend the Credit Agreement as follows:

(a) Section 7.14 (b) is hereby amended by (i) deleting in clause (i) thereof the words "the amount of interest payable on the Tranche A Loan during the two-year period following such Interest Payment Date" and substituting the words "$90,000,000" and (ii) deleting in clause (ii) the words "the amount of interest payable on the Tranche B Loan during the two-year period following such Interest Payment Date" and substituting the words "$63,000,000; provided that on and after March 2, 2004 such amount may be reduced on the last Business Day of each month so that it shall not be required to exceed (x) in the case of the Tranche A Interest Reserve Account, the amount of interest to be payable on the Tranche A Loan from such date to the then effective maturity date of the Tranche A Loan and (y) in the case of the Tranche B Interest Reserve Account, the amount of interest to be payable on the Tranche B Loan from such date to the Tranche B Maturity Date";

(b) Section 7A.14 is hereby amended by deleting the words "the amount of interest on the Tranche B Loan during the two-year period following such Interest Payment Date" and substituting the words "$63,000,000; provided that on and after March 2, 2004 such amount may be reduced on the last Business Day of each month so that it shall not be required to exceed the amount of interest to be payable on the Tranche B Loan from such date to the Tranche B Maturity Date";

(c) Section 8A.1(c)(iv) is hereby amended by replacing the words "and the amount on deposit in the Tranche B Interest Reserve Account is equal to or less than the amount of interest estimated, in the manner described in Section 7A.14 to be payable on the Tranche B Loan for the next nine-month period" with the words "or the amount on deposit in the Tranche B Interest Reserve Account is less than the amount required under Section 7A.14";

(d) Section 9.11(b)(v) is hereby amended by inserting the words "in an amount less than $50,000,000" after the words "any such participation" in such Section 9.11(b)(v); and

(e) Section 10.3 is amended by adding the words "or any Lender" after the words "Administrative Agent" each time such words appear in such Section 10.3.

The Collateral Agent agrees that not later than five (5) Business Days after receipt of such amounts required to be deposited pursuant to Section (I)(f) above, the Collateral Agent shall deliver written notice of the receipt of such amounts to the Tranche A Lender and the Tranche B Lenders.

For purposes of this Waiver and Amendment Agreement, "subsidiary" shall mean, with respect to any Person, any corporation, partnership or other entity of which any of the securities or other ownership interests are directly or indirectly owned or controlled by such Person or one or more subsidiaries of such Person or by such Person and one or more subsidiaries of such Person.

Each of the parties hereto by its execution and delivery of this Waiver and Amendment Agreement consent to the amendments as set forth herein in accordance with Section 9.10 of the Credit Agreement.

The Borrower and LLC acknowledge and agree that none of the signatories to this Waiver and Amendment Agreement is waiving any other Default or Event of Default or any other provision in the Credit Agreement and except as expressly provided herein, nothing in this Waiver and Amendment Agreement shall constitute a course of dealing between the parties, or constitute a modification or amendment of any other provision of the Credit Agreement and the provisions of the Credit Agreement and the other Financing Documents are and shall remain in full force and effect.

The Borrower and LLC hereby unconditionally and irrevocably acquit and fully forever release and discharge the undersigned Lenders, their participants, and the Lenders' and their participants' respective subsidiaries, affiliates, members, partners, officers, employees, representatives, agents, managers, counsel, directors, successors and assigns, both present and former, from any and all actions, cause of action, claims, demands, remedies, suits, damages and liabilities of whatever kind or nature, in law or in equity, now known or unknown, suspected or unsuspected to the extent that any of the foregoing arises from any action or failure to act on or prior to the date hereof and relates to or arises out of this Waiver and Amendment Agreement, the Credit Agreement or any other Financing Documents or the transactions contemplated hereby or thereby ("Released Claims"). The Borrower covenants and agrees that neither it nor any of the Covered Parties shall commence, and in any way, prosecute or cause to be commenced or prosecuted against any of the Persons mentioned above any action or other proceeding based upon any of the Released Claims.

The Borrower also acknowledges, ratifies and affirms the validity and enforceability of the Credit Agreement and all liens and security interests granted thereunder or under any of the Security Documents to the Lenders as collateral security for its obligations and indebtedness owing under the Loan Documents (the "Obligations") and acknowledges that all such liens and security interests and all collateral pledged as security for the Obligations continue to be and remain collateral for the Obligations from and after the date hereof.

In furtherance to the rights of the Lenders under Section 6.2 of the Credit Agreement, the Borrower shall, and shall cause NEG, Inc. and other members of the NEG Group to be available, at the request of any of the Lenders, to discuss with the Lenders, at any time and from time to time, the affairs, finances and accounts of the Borrower, NEG, Inc. and other members of the NEG Group (including, without limitation, any guarantee or financial support with respect to the operation or business of NEG, Inc. or any other member of the NEG Group and any action or proposed action of the Borrower, NEG, Inc. or any member of the NEG Group with respect thereto in connection with the Downgrades).

This Waiver and Amendment Agreement hereby amends Section 7 of the Tranche A Interest Reserve Account Control Agreement and the Tranche B Interest Reserve Account Control Agreement by adding the following sentence at the end thereof: "The Collateral Agent agrees that it shall not amend or consent to any amendment to any terms or provisions of (a) the Tranche A Interest Reserve Account Control Agreement without the consent of the required Tranche A Lenders or (b) the Tranche B Interest Reserve Account Control Agreement without the consent of the required Tranche B Lenders."

This Waiver and Amendment Agreement shall be governed by, and construed in accordance with, the law of the State of New York without regard to the conflict of law rules thereof (other than Section 5-1401 of the New York General Obligations Law). This Waiver and Amendment Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered by facsimile or otherwise shall be an original, but all of which shall together constitute one and the same instrument.

This Waiver and Amendment Agreement shall become effective as of the date hereof when the Borrower, LLC, the Tranche A Lender and the required Tranche B Lenders shall have executed and delivered this Waiver and Amendment Agreement, and received a fully executed counterpart copy, by facsimile or otherwise, of this Waiver and Amendment Agreement, and Officer's Certificate of the Borrower described above.

		Very truly yours,

		PG&E CORPORATION

			LEROY BARNES
		Name:	Leroy Barnes
		Title:	Vice President & Treasurer



		PG&E NATIONAL ENERGY GROUP, LLC

			JOHN R. COOPER
		Name:	John R. Cooper
		Title:	Senior Vice President

Agreed and Accepted:

Administrative Agent:

LEHMAN COMMERCIAL PAPER INC.

	JAMES P. SEERY, JR.
Name:	James P. Seery, Jr.
Title:	Authorized Signatory
Date:

Lenders:

LEHMAN COMMERCIAL PAPER INC.

	JAMES P. SEERY, JR.
Name:	James P. Seery, Jr.
Title:	Authorized Signatory
Date:

GENERAL ELECTRIC CAPITAL CORPORATION

	KEVIN P. WALSH
Name:	Kevin P. Walsh
Title:	Managing Director
Date:	August 22, 2002

WILMINGTON TRUST COMPANY


	BRUCE L. BISSON
Name:	Bruce L. Bisson
Title:	Vice President
Date:	August 22, 2002

WATERSHED CAPITAL INSTITUTIONAL PARTNERS, L.P.
WATERSHED CAPITAL PARTNERS (OFFSHORE), LTD.
WATERSHED CAPITAL PARTNERS, L.P.

by WATERSHED ASSET MANAGEMENT, L.L.C. as its Investment Manager

	MERIDEE A. MOORE
Name:	Meridee A. Moore
Title:	Senior Managing Member
Date:


Collateral Agent:

DEUTSCHE BANK TRUST COMPANY AMERICAS, in its capacity as Collateral Agent under the Tranche A Interest Reserve Account Control Agreement and the Tranche B Interest Reserve Account Control Agreement


	TARA J. COFFEY
Name:	Tara J. Coffey
Title:	Vice President
Date:	8/23/02

ANNEX A

Lenders

DK Acquisition Partners, L.P.
General Electric Capital Corporation
HBK Master Fund L.P.
Lehman Commercial Paper Inc.
Oak Hill Securities Fund, L.P.
Oak Hill Securities Fund II, L.P.

Wilmington Trust Company
Watershed Capital Institutional Partners, L.P.
Watershed Capital Partners (Offshore), Ltd.
Watershed Capital Partners, L.P