Investor Presentation 2/15/07 PPT

Investor Presentation

Energy Procurement and Energy

Efficiency

February 15, 2007

This presentation contains forward-looking statements regarding anticipated electric resources and funding for and savings from energy efficiency and demand response

programs. These statements are based on current expectations and various assumptions which management believes are reasonable. These statements and
assumptions are necessarily subject to various risks and uncertainties the realization or resolution of which are outside of management's control. Actual results may differ
materially. Factors that could cause actual results to differ materially include:

•

The Utility’s ability to timely recover costs through rates;

•

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

•

Changes in demand for electricity and natural gas;

•

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

markets;

•

The effect of weather, storms, earthquakes, fires, floods, disease, other natural disasters, explosions, accidents, mechanical breakdowns, acts of terrorism, and other

events or hazards on the Utility’s facilities and operations, its customers and third parties on which the Utility relies;

•

The general economic climate and population growth or decline in Northern and Central California;

•

The potential impacts of climate change on the Utility’s electricity and natural gas operations;

•

Unanticipated population growth or decline, general economic and financial market conditions, and changes in technology including the development of alternative

energy sources, all of which may affect customer demand for natural gas or electricity;

•

The performance and the occurrence of unplanned outages at the Utility’s Diablo Canyon nuclear generating facilities, or the temporary or permanent cessation of

operations at Diablo Canyon;

•

The ability of the Utility to recognize benefits from its initiatives to improve its business processes and customer service;

•

The ability of the Utility to timely complete its planned capital investment projects;

•

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

•

The impact of changing wholesale electric or gas market rules, including the California Independent System Operator’s, or CAISO’s, new rules to restructure the

California wholesale electricity market;

•

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

•

The extent to which PG&E Corporation or the Utility incurs costs in connection with pending litigation that are not recoverable through rates, from third parties, or

through insurance recoveries;

•

The ability of PG&E Corporation and/or the Utility to access capital markets and other sources of credit;

•

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

•

The effect of municipalization or other forms of bypass; and

•

Other factors discussed in PG&E Corporation's and Pacific Gas and Electric Company’s SEC reports.

Cautionary Statement Regarding Forward-Looking

Information

Agenda

•

Overview of procurement objectives and current

portfolio

•

PG&E’s procurement activities:

Energy efficiency

Demand reduction

Renewable resources

Distributed generation

Conventional resources

•

Long-term procurement plan

•

Impact of climate change legislation

PG&E’s Energy Procurement Objective

•

PG&E’s objective in our electric procurement

activities is to strike a balance among:

Customer price impact

A portfolio of reliable and operationally flexible

resources

The development of environmentally preferred

resources

Long-term Energy Procurement Challenges

•

Changing policy and market environment

Greenhouse gas policy

Retail competition

Wholesale market reform

•

Maintaining system reliability with uncertain

resource development

•

Achieving 20% renewables target

Energy supply costs

represent approximately
60% of PG&E’s total
bundled revenue
requirement.

$10.5 Billion

Distribution - $2.9 B

Public Purpose - $470 MM

DWR - $1.8 B

Utility Owned – $ 1.3 B

Reliability Services- $ 200 MM

QF - $2 B

Wholesale – $740 MM

Transmission - $590 MM

Restructuring Costs $ 540

As of June 1, 2006

PG&E 2006 Bundled Revenue Requirement

PG&E Sources of Supply in 2005

PG&E’s cost of generating electricity

and purchasing from others

	Supply	Cost	Average Price per kWh
Utility, Irrigation Districts and Other Wholesale	51%	35%	4.2¢
QFs	22%	30%	8.2¢
DWR	27%	35%	7.5¢

*Approximately 12% of total retail sales are supplied by eligible

renewable resources coming from utility-owned, QF, Irrigation
District, and other sources.

Eligible renewable resources are approximately 7.0 cents per kWh.

California Preferred Loading Order

•

California’s Energy Action Plan established a preferred

“loading order” for resource procurement

•

The loading order prioritizes the types of resources

utilities and other load serving entities must secure:

1. Energy Efficiency

2. Demand Reduction

3. Renewable Resources

4. Distributed Generation

5. Conventional Resources

California’s Success with Energy Efficiency

Chart courtesy of Art Rosenfeld, California Energy Commission

Over the past 30 years, California per capita energy use has remained relatively flat

compared to the overall US per capita energy use which has increased by about 50%.

2005 Energy Efficiency Budget & Savings

•

Energy Efficiency

1,165 GWH saved

229 MW of load reduced

26 million therms of natural gas saved

$255 million spent in 2005 for electric and gas energy

efficiency

PG&E’s energy efficiency program is among the

largest and most successful in the United States

Includes Actuals Plus Commitments*

Actuals Only

Energy Efficiency Savings Past and Future

PG&E’s Budget and Goals for 2006-2008:

•

Overall budget $975 million

•

Customer Incentives budget $416 million

•

PG&E goals 613 MW, 3,063 GWH, 47 MM therms

MW Savings: Historic & Target

* Prior to 2006, projects that customers had committed to but not yet installed or paid

for were counted towards energy efficiency targets.

Keys To Energy Efficiency Success in California

•

Revenue/sales decoupling mechanisms paired with annual

attrition rate adjustment mechanism

•

Sustained, deep commitment by regulators, state

lawmakers, utilities and other stakeholders

•

Growing interest and commitment by the public to improve

the environment and mitigate climate change

•

General agreement that utilities are a key player in

delivering energy efficiency programs and savings to
customers

PG&E Demand Response Budget & Savings

•

PG&E’s DR programs fall into two general categories:

Reliability (activated by CAISO day-of emergency alerts)

Price response (activated by day-ahead forecasts of high CAISO

peak demand, high temperature, or high prices)

•

Current programs focus on large industrial and

commercial customers

•

PG&E’s DR programs provide over 600MW towards

resource adequacy

•

PG&E’s SmartMeter^TM program (AMI) for small

residential and commercial customers will enable mass
market DR

AMI should provide an additional 400 MW in DR by 2011

•

CPUC has initiated a proceeding to address long term

demand response goals

•

Renewable Portfolio Standard target is 20% by 2010

•

PG&E is currently at 12% RPS deliveries, or if signed contracts are included, then

16-18%

•

1% of load = 730 GWH

PG&E’s Renewable Resource Procurement

Distributed Generation and CA Solar Initiative

PG&E’s Distributed Generation Program

•

2005 program

25.9 MW of new installed DG projects in 2005 of which 52% was

renewables

$61.0 million spent in 2005 of which 82% was for renewables

•

2006: an additional $300 million added to statewide budget for solar

rebates ($132 million for PG&E)

California Solar Initiative (CSI) for 2007-2016:

•

Goal is 3,000 MW of solar energy systems installed statewide by 2016,

with almost 60% of the installations expected in the last three years
of the program

•

Budget for the investor-owned utilities is $2.165 billion in new rebates

for solar installations of which PG&E’s share is 44%

Existing

Committed

Existing and Committed Supply-Side Resources

Utility Retained Generation (URG)

nuclear (Diablo Canyon)

fossil (Humboldt Bay)

hydroelectric (includes RPS-eligible

resources)

▲

PG&E-owned

▲

Irrigation districts & water

agencies

Expected Utility-Owned Generation

2004 LT RFO ownership

▲

Wartsila Humboldt (163 MW)

▲

Colusa (657 MW)

Gateway (530 MW)

Qualifying Facilities (includes

RPS-eligible resources)

DWR Contracts

Other Existing Bilateral Contracts

Puget Sound Power & Light Exchange

Contract

Mirant & Duke contracts

Calpine (2007 RA capacity)

Other RPS-eligible Contracts

(Etiwanda; contracts signed
2002-2006, including 2004 & 2005
RPS solicitations)

2004 LT RFO PPAs

5 counterparties (1,430 MW)

Date	Action	Phase
Dec 2006	PG&E prepares Long-term Procurement Plan	Planning (1 year)
2007	CPUC decision approving plan
TBD	PG&E issues Long-term Request for Offers (LTRFO)	Procurement (1½ years)
	PG&E determines short-list
	PG&E signs contracts and files for CPUC approval
	CPUC approves contracts
TBD	Project development begins	Development and Construction (2½ to 3½ years)
2011-2014	Projects begin operation

PG&E requested authorization in its LTPP filing to procure up to 2,300

MW of new dispatchable and operationally flexible generation resources
to come online starting in 2011 to ensure continued reliability in northern
California.

Long-Term Planning, Procurement and

Development

•

Lowest GHG

emission rate of any
California utility¹

•

Among the lowest

GHG emissions of
any major utility in the
U.S.²

Bio-energy 5%

Small Hydro 4%

Geothermal 2%

Wind 1%

Large Hydro 19%

Nuclear 23%

Fossil 46%

19%

54%

23%

46%

Carbon

Free and/or

Renewable

Delivery Mix³

Carbon Free

Estimating Carbon Dioxide Emissions

Factors for the California Electric Power

Sector, C. Marnay, et al; August 2002;

Lawrence Berkeley National Laboratory

Benchmarking Air Emissions of the 100

Largest Electric Power Producers in the

United States –2004; April 2006,

Natural Resources Defense Council

Delivery mix includes all PG&E

generation plus all PG&E power

purchases

PG&E’s 2005 Electric

PG&E Portfolio Among the Lowest GHG

Emissions

Impact of GHG Regulation on Procurement

•

2006 legislation regarding GHG regulation:

SB 1368 - limitation on long-term contracts from high carbon

emitting power plants

AB 32 - California Global Warming Solutions Act - “1990 levels by

2020”

PG&E supported both bills

•

PG&E currently has some small QF contracts consisting

of about 3% of energy load which may be affected by
SB1368

•

PG&E will be an active participant in AB 32

implementation discussions

•

PG&E supports and prefers national regulatory action

based on market mechanisms

Key Elements of PG&E’s Energy Procurement Plans

•

PG&E will meet the current energy efficiency quantity targets

adopted by the CPUC

•

PG&E will meet the 5% demand response goals adopted by the

CPUC

•

PG&E will actively support and implement the California Solar

Initiative; level of success depends on marketplace response

•

PG&E will procure renewable resources to achieve a higher than

20% RPS percentage

•

PG&E will procure up to 2,300 MW of dispatchable and operationally

flexible resources