ML022540781

Notice of Filing of California Public Utilities Commissions & Official Committee of Unsecured Creditors Firs Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for Pacific Gas & Electric Co

ML022540781
Person / Time
Site:	Diablo Canyon
Issue date:	08/30/2002
From:	Aronzon P, Cohen G Milbank, Tweed, Hadley & McCloy, LLP, Official Committee of Unsecured Creditors
To:	Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
01-30923 DM, 94-0742640
Download: ML022540781 (129)

Text

{{#Wiki_filter:1 2 3 DD6 7 9 10 II 12 13 14 15 16 17 18 20 21 22 23 24 25 26 27 28 GARY M COIIEN. SBN 117215 AROCI ES AGUILAR. SBN 94753 MICIIAEL M EDSON. SIN 177858 CALIFORNIA PULILIC U11T RIIES COMMISSION 505 Van Ness Avenue San Francisco. California 9411`1 Telephone (415) 703-2015 Facsimile (415) 703-2262 ALAN W KORN6IERII BRIAN S IIFRMANN PAUl, WEISS. RIFKrND, WHARTON & GARRISON 1285 Avenue of the Americas

• 041 New York. New York 10019 6064 Telephone (212) 373-3000 Facsimile (212)757.3990 Attorneys for Californla Public Utillties Commllslou PAULS ARONZON I

ROBERTJAY MOORE MILBANK, TWEED, HADLEY & McCLOY LIP 601 South Figueroa Street, Suite 3000 Los Angeles, California 90017 Telephone (213) 892 4000 Facsimile (213) 629-5063 Attorneys for Official Committee of Unsecured Creditors UNITED STATES 1ANKRLUPTCY COURT NORTIHFRN DISI RICT OF CALIFORNIA Inre 1/4 SAN FRANCISCO DIVISION In re' CaseNo 01-30923 DM PACIFIC GAS AND ELECTRIC COMPANY. Chapter I I Case a Cairornia corporation, NOTICE OF FILING OF CALIFORNIA Debtor. PUBLIC UTILITIES COMMISSION'S AND OFFICIAL COMMITTEE OF UNSECURED CREDITORS' FIRST AMENDED PLAN OF Federal I D No 94 0742640 REORGANIZATION UNDER CIIAPTER I I OFTIIE BANKRUPTCY CODE FOR PACIFIC GAS AND ELECTRIC COMPANY PLEASE TAKE NOTICE thai today the California Public Utilities Commission and Official Committee of Unsecured Creditors filed with the Bankruptcy Courl clean and blaclclined versions of the California Public Utilities Commission's and the Official Committee of Unsecured Creditors' First Amended Plan of Reorgani*ation Under Chapter I I of the D.. Pd W*l l.i CASE No 01 10923 DM 13 14 IS 16 17 II 19 20 21 22 23 24 25 26 27 21 Respectfully subsnled. n GARY M. COHEN AROCLES AOUILAR MICHAEL M EDSON CALIFOR.A PUBLIC UTIL r'COMMISSION By-'Z CAR U -and. ALAN W. KORNBERo BRIAN S. HERMANN PAUI WEISS, RISKIND, WHARTON & GARRISON Attormeys for the Califorula Puble Utilles Commissiou PAUL S. ARONZON ROBERT JAY MOORE MILBANK. TWEED. HADLEY & McCLOY LLP Bly PAUL 8 ARONZON Afto /eys for the Official Cammlie, of Unsecured Credlltr (2) CASE ft 01.s392) M TOTra P.P ~c4\\ Milbank T"weed LA 0/30/02 12.,10 PAGE 3/3 RIghtFAX 2 Bankr'uptcy Code for Pacific Gas & EIectric Company. dated August 30,2002 (the "Amended PlA1")' The blacklined version Is markte to reflect ehanle to the Califorsia Public Utilite* ch3e Utltes Commission's jisol-t plan. dated May I7, 2002. Copies of the cnached verslons of the Amended Plan ar available through te "PaIFle Gas & Eiectric Compaýy Chijpte I I Came" link available through the ptisite maintained by the 7 Bank*ptcy Court at L.LMW -Iila - The black*ilned version of the Amended Pla I. also attached as Exhibit D to the jolit M otion of te Callfoesa Public Utilties Commission and the Official Committee of Unsemured Creditors For an Order. Int#r el., SAuthorlzing the Resolitation of Votes and Preferences for Movants' Amended Plan of' iI Reorganizatlon For the Debeor. dated August 30. 2002. 12 Daled-August 30. 2002 "i+ I I I I-kyj me -1

2 3 4 5 6 7 9 to II 12 13 14 Is 16 17 Ig 19 20 21 22 23 24 25 26 27 28 Dated August 30,2002 Respectfully submitted, GARY M COHEN AROCLES AGUILAR MICiHAELM EDSON ,CALIFORNIA PUBLIC UTILITIES COMMISSION By GARY M COHEN

• and-ALAN W. KORNBERG BRIAN S. HERMANN PAUL, WEISS. R!FKIND. WHIARTON & GARRISON Attorneys for the California Public Utilities Commission PAUL S ARONZON ROBERT JAY MOORE MILBANK. TWEED. HADLEY & McCLOY LLP PAUL S ARONZON L

Attorneys for the Offlilal Committee of Unsecured Creditors (2) CASE No OI 10951 M Bankruptcy Code for Pac*fic Gas & Electric Company. dated August 30. 2002 (the "Amended PhAn") The blacklined version is marked to reflect changes to the Califotia Public Utilities Commission's original plan, dated May 17, 2002. Copies of the attached versions of the Amended Plan arc Available through the "Pacific Gas & Electric Company-Chapt:r I I Case" link available through the websitc maintained by the Bankruptcy Coun at htto //www cenb ucourls soy The blacklined version oftho iieded Plan is also attached As Exhibit 1 to the Joint Motion of the California Public Utiliies Commnission and the Official Committee of Unsecured Creditors For an Order, enter alia, Authorizing the Resolicttation of Votes and Preferences for Movants' Amended Plan of Reorganization For the Debtor. dated August 30.2002 I 2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 i8 19 20 21 22 23 24 25 26 27 28 Gary M Cohen Arocles Aguilar Michael M Edson, CALIFORNIA PUBLIC UTII ITIES COMMISSION SOS Van Ness Avenue San Francisco. California 941 11 (415) 703.2782 Alan W Komberg Brian S Hernann Marc FlSkapof _ PAUL. WEISS. RIFKIND, WHARTON & GARRISON 1285 Avenue of the Amencas New York, New York 10019 6064 (212) 373 3000 time Nyi 191414 Counsel for the Official Committee of Unsecured Creditors 'Paul S Aronzon Robert I Moore MILBANK. TWEED. HADLEY & MeCLOY LIP 601 South Figueroa Street, Suite 3000 Los Angeles, California 90017 (213)892 4000 / In re Case No 01-30923 DM PACIFIC GAS AND ELECTRIC COMPANY. Chapter I I Case a Cali fomia corporation. Debtor [No Hearing Requested) Federal I D No 94 0742640 CALIFORNIA PUBLIC UTILITIES COMMISSION'S AND OFFICIAL COMMITTEE OF UNSECURED CREDITORS' FIRST AMENDED PLAN OF REORGANIZATION UNDER CIIAPTER I I OF TIlE BANKRUPTCY CODE FOR PACIFIC GAS AND ELECTRIC COMPANY (Dated August 30. 2002), 1 ", D.. S6 N. 2fl I UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION Counsel for the California Public Utilities Conunision

rt TAIIlE F mnJ ARTICLE I DEFINITIONS AND CONSTRUCTION OF TERMS........ P 3 3 I I Definitions. I 1,2 Interpretation. Application of Definitions and Rules of Constniction .27 4 4 ARTICLE II TREATMENT OF'ADMINISTRATIVE EXPENSE CLAIMS, 5 5 PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS. AND PRIORITY TAX CLAIMS. 23 6 6 2 I Administrative Expense Claims.28 22 Professional Compensation and Reimbursement Claims 2...... 2 7 7 2 3 Pnonty Tax Claims 29 8 8 ARTICLE III CLASSIFICATION OF CI.AIMS AND EQUITY INTERESTS.... .29 9 9 ARTICLE IV TREATMENT OF CLAIMS AND EQUITY INTERESTS......... 31 10 ~~~10 41I Payment of Interest 3 42............ t........................ 3

42.

Timing of Payments and Distributions...... ... 32 II 4 3 Class I -Other Prionty Claims.................-.. .. 33 11 44 Class 2 - Other Secured Claims. .34 12 4 5 Class 3 - Secured Claims Relating to First and Refunding Mortgage Bonds 34 124 6 Class 4a - Mortgage Backed PC Bond Claims: 34 II 13 4.7 Class 4b - MBIA Insured PC Bond Claims........................ 35 14 48 Class 4c - MBIA Claims ......... :, I 36 4 9 Class 4d - Lester of Credit Backed PC Bond Claims ................... 36 14 4 10 Class 4e-Letef of Credit Bank Claims..................... .37 I5 IS 4,11 Class 4f. Prior Bond Claims 45 4.12 Class 4g -Treasury PC Bond Claims.......... :............. 46 16 16 4 13 Class 5 - General Unsecured Claims .. 47 "16 4 14 Class 6 - ISO. PX and Generator Claims........ 47 17 17 4 15 Class 7-ESP Caims 47 17 17 416 Class 8 - Environmental, Fire Suppression. Pending Litigation. Tort and FEPC License Claims............... 41:7 Itntentionally Left Bank 4,18 Clas 10-Convenience Claims............ SI 19 419 Class I I - QUIDS Claims........... 1 20 20 420 Class 12-Workers' Compensation Claims....... I 421 Class 13 - Preferred Stock Equity Interests........................ 52 21 21 42 Cls14-CmoStcEqiyntet............2 2 14 22 Class 14.- Common Stock Equity Interests. ......... 52 22 22 ARTICLE V PROVISIONS REGARDING VOTING AND DISTRIBUTIONf UNDER THE PLAN AND TREATMENT OF DISPUTED,,' 23 23 CONTINGENT AND UNLIQUIDATED ADMINISTRATIVE EXPENSE CLAIMS. CLAIMS AND EQUITY INTERESTS:........... 3 24 S I Voting of Claims and Equity Interests.................................... 53 24 52 Elimination or Vacant Classes........................... .................. 53 25 5 3 Nonconsensual Confirmation.......................... ..S3 25 54 Method ofDistnbutions Under the Plan......... 53 26 5.3 Objections to 0nd Resolution of Administrative Expense Claims and 26 Claims................ 57 27 27 56 Payment ofthe Tnrstees', Issuer's and Certain Bank Fees............. 57 5 7 Cancellation of Existing Securities and Agreements 58 28 28 Dws NY6 1t1454 Oo.0 NYC 1"1417 I

( 4, Ih I ARTICLE VI EXECUTORY CONTRACTS AND UNEXPIRED LEASES....... 58 2 621 Assumption and Rejection of Executory Contracts and Unexpired Leases.... 58 62 Schedules of Rejected Executory Contracts and Unexpired Lease.s; SInclusivenes .60 63 Approval of Assumption or Rejection of Executory Contracts and Unexpired Leases.............. 60.......... .....60 4 64 Curcof Defaults . 61 65 Bar Date for Filing Proofs of Claim Relating to Executory Contracts and Unexpired Leases Rejected Pursuant to. or Omitted from. the Plan............... 61 6 666 Assumed Indemntfication Obligations 61 67 Compensation and Benefit Programs.............................. 61 7 638 Retiree Benefits 62 69 Settlement and Stanislaus Corrmnitmenttesatural Gas................. .63 ARTICLE VII IMPLEMENTATION OF THE PLAN............. 64 9 7.1 Issuance of Securitics.............. 7 2 Reorganization Agreement....................... 65 10 73 Settlement of Litigation......... .......... -.... I...................... 65 "7 4 New Tax Sharing Agreement 11 7.5 Corporate Governance..... 66 76 Regulatory Approvals.. 6 12 7.7 Working Capital Facility...... . 67 78 Regulatory Issues............... 67 ARTICLE VIII CONFIRMATION AND EFFECTIVENESS OF THE PLAN........... 67 14 8 I Conditions Precedent to Confirmation'...... J...... .... 67 8 2 Conditions Precedent to Effectiveneu 67 IS 33 Effect of Failure ofConditiont...... 69 3 g4 "*Waiver of Conditions..... 69" a16av rofC n iin 69 16 ARTICLE IX EFFECT OF CONFIRMATION OF PLAN.... ........ 69 17 91 Term of Banknupicj, Injunction or Stays........................... 69 92 ' Revestingof Assets 70 is 93 Operations Following Effective Date. .. 70 94 Claims Extinguished............. .70 19 95 Discharge of Debtor 70 20 96 Injunction..... 70 21 ARTICLE X-RETENTION OF JURISDICTION....................... 71 22 ARTICI E XI MISCELLANEOUS PROVISIONS 73.......... 73 II I Effectuating Documents and Further Transactions 73 23 II 2 Corporate Action.......... 73 113 Exemption from Transfer Taxes 73 24 11.4 Releases by Debtor.... 74 74 II S Limited Release by Releasecs.. 74 25 1 6 -Exculpation.................. 1. 75 7II, Termination ofCommitee..:.," 75 26 11.8 Fees and Expenses. 76 I 19 Payment of Statutory Fees. - 76 27 11 10 Amendment or Modificationof he Plan 76 11.11 Severbl,77........................... 28 I 1.12 Revocation or Withdrawal of the Plan.. 7 11 13 Binding Effect 77 11 14 Notices 77 I ll5 Governing Law "..7 D-9# NY6 1t43 4 EM I I 16 Withholding and Reporting Requirements...... 79 11 1 7 Proponents'PlanSupplement 79 ii iI Exhibits/Schedules so 11 19 Subrogation Rights .80 t0.ci NY6 iV91414 2 3 4 5 6 7 8 9 I0 II 12 13 14 16 17 is 19 20 21 22 23 24 25 26 27 28 .1.

2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 Ig 19 20 21 22 "23 24 25 26 27 28 The California Puhhic Utilities Commission (the nCo.snjpoi") and the Committee (as defined below) (collectively, the -pjoPon!rnjf'I propose the follohwing first amended plan of reorganilation for Pacific (ha2 and rlectric Company, a California corporation (the "-DVboi"). pursuant to section 1121 of title I l'of thi United States Code. II 1 S C. J§ 101 ce seq (as amended from time to time, the "*la nrup.y Co"f), and the Bankruptcy Court's Orders terminating the Debtor's exclusive Fight to rile a plan, dated March 1 1,'2002 with respect to the Commission, and July 9, 2002. with respect to the Committee ARTICIEI DEFINITIONS AND CONSTRUCTION OF TERMS 1.1, Definition As used herein, the following tn'rms have the respective meanings specified below 92A Bond means those certain California Pollution Control Financing Authority, 6 518% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1992 Series A issued by the Issuer in the aggregate principal amount of $33.000,000 92B*.n. means those certain California Pollution Control Financing Authority, 6 35% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1992 Senes B issued by the Issuer in the aggregate pnncipal amount of $50,000,000 I 'ýu 93ABPnd means those certain Cali'forma Pollution Control Financing Authority, S7181% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1993 Series A issued by the Issuer in the aggregate principal amount of $60,000,000 938 Bond means those certain California Pollution Control Financing Authority, 5 85% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1993 Series B issued by the Issuer in the aggregate principal amount of 3200.000,000 in submitting this Plan *nd its accomp'anyig Disclosure Statement, the Commission does no waive any objections or derenses that the Commission or the State of Califomia (as defined below) may have to this Court's jurisdiction over the Commission or the State of Californim based upon the Eleventh Amendment to the United States Constitution or related principles of sovereign immunity or otherwise, all of which are hereby reserved 2 3 4 5 6 .7 9 10 11 12 13 14 is S 16 17 IS 19 20 21 S22 23 24 25 26 21 28 Duel NYS *iSi4? Duea NY$ 1991453 L 4, ( '-I 9613 Bond means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series D issued by the Issuer in the aggregate principal amount of$160,000,000 96C Bond means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series C issued by the Issuer in the aggregate principal amount of $200.000,000 960 ond means those certain California Pollution Control Financing Authority. Poliution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series D issued by the Is;uer in the aggregate principal amount of 100.000,000 KE0_dA means those certain Calfromia Pollution Control Financing Authonty. Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series E issued by the Issuer in the aggregate principal amount of $165,000,000 o means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series F issued by the Issuer in the aggregate principal amount of $100,000.000 9* 6 Bonds means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series G issued by the Issuer in the aggregate principal amount of 362.870,000. 22&bnis means those certain California Pollution Control Financing Authority, Pollutioh Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series A issued by the lssu'er in the aggregate principal amount of $45,000,000 9 d means those cerlsin California Pollution ControlFinancing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series B Issued by the Issuer'in the aggregate principal amount of$ 145,550.000 2C neans those certain California Pollution Control Financing Authority. Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series C issued by the Issuer in the aggregate principal amount of$ 148.550,000 .2. I I I

1 2 3 4 5 6 7 8 9

• l0 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 S26 27 28 Affilialc has the meaning set forth tn section 101 (2) of the Bankrunptcy Code "W means, with reference to any Claim against or Equily Interest in the Debtor, (a) any Claim'whuch has been listed by the Debtor in the Debtor's Bankruptcy Schedules, as such Schedules may be amended by the Debtor from lime to time in accordance with Bankruptcy Rule 1009, as liquidated in amount and not disputed or contingent and for which no contrary proof of claim or objection to claim hasl been filed. (b) any Claim or Equity Interest allowed hereunder, (c) any Claim or Equity Interest which is not Disputed, (d) any Clam or Equity Interest that is compromised. settled or otherwise resolved pursuant to a Final Order of the Bankruptcy Court or under the Plan, or (e) any Claim or Equity Interest which. if Disputed, has been Allowed by'Final Order, provide.. h diae Claims allowed solely for the purpose of voting to accept or reject this Plan or PG&E's Plan pursuant to an order of the Bankruptcy Court shall not be considered "Alowe Alimi" hereunder Unless otherwise specified herein oi by order of de Bankruptcy Court, "Allowed Administrative Expense Claim" or "Alwd Claim" shall ni,. for any Iurpose under the Plan, include interest on such Administrative Expense Claim or Claim. as the case may be. from and after the Petition Date D-NY6 1"914537 2ML ands means those certain Call ornia Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series D issued by the Issuer in the aggregate principal amount of $17,900.000 Administrative Exoense Claims means all Claims against the Debtor constituting a cost or expense of administration of the Chapter I I Case under sections 503(b) and 507(aXI) of the Bankruptcy Code. includinIg without limittion. all actual and necessary costsiand expenses of preserving the Debtor's estate, all actual and necessary costs and expenses of operating the business of the Debtor-in-Posscsaion. any indebtedness or obligations incurred or assumed by the Debtor in Possession in connection with the conduct of its business, all cure amounts owed in respect of executory contricts and unexpired leases assumed by the Debtor-in Possession. all Professional Compensation and Reimbursement Claims, and any fees or charges assessed against the Debtor's estate under section 1930 ofchapter 123 ortitle 28 of the United States Code 6

7 8 9 I0 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 29 I.- Assumed Comorate Indm.nitiel means all obligations of the Debtor, pursuans to 2 the Debtor's articles of incorporation or bylaws, applicable state law or specific agreement, or any combination of the foregoing. to defend or indemnify, or to ritmburse or limit the liability of. its present and any former officers, directors and/or employees who were officers, directors and/or employees, respectively, on or after the Petition Date. solely in their' c-opacities as officers directors and/or employees of the Debtor. against or with respect to any claims or obligations Assumed Indenificalion Claims mean all Claims. if any. as to which the claimant asserts rights based only upon the Assumed Corporate Indemnities DIM means the form distributed to each holder of an Impaired Claim or Equity Interest on which such holder shall indicate, among other things, acceptance or rejection of the Plan and such holder's preference as between this Plan and PG&E's Plan means, with respect to each Reimbursement Agreement. those certain banking or other financial institutions that are signatories thereto (other than the Letter of Credit Issuing Bar*) and their respective successors and issigns DplknolcvCo, has the meaning set forth in the introduction to the Plan znkotcConr means the Und" States Banlkruptcy Court'or the Norther Distnct ofCalifornia having jurisdiction over the Chapter I I Case bk.niUcpyjuj means the Federal RuIesof BalnkrPtcy rocdu're as promulgaied by the United Ssiles Supreme Court under*section 2075 oittole 28 of the United States Code and any Local Rules of the Bankruptcy Court Pqpdm Lomn means, with respect to etch'serics of PC Bonds, theiloan of the proceeds from the sale of such series of PC Bonds made by the Issuer to the Debtor pursuant to the terms ofthe respective Loan Agreemenit D.ndT.usi means, with respect to the'PC Bonds. Bankers Trust Company. a State banking corporation oiganized under the laws o;f t& State of New York. as trustee, or US Bank Trust National Association. as trustee, under the Indenture pursuant to which such PC Bonds were issued, as applicable, and their successors and assigns o* any successor trustee under such hidenitures appointed in accordance with the terms thereof ,i*e NYs 1599455 a ,1 .J.

I .. 2 3 4 6 7 8 9 10 II 12 13 i4 Is 19 20 2 1 22 23 24 25 26 27 28 P-liUSS-DLSY means any day other thin a Saturday. Sunday or any other (lay on which commercial banks in San Frzncisco, Cahfomia or New York, New York are required or authonred to close by law or executive order Cash means legal tender of the United States of America Cp, tUUo_q5 i means, without limitation, any-and all actions, causes or action, liabilities, obligations, rights, suits, damages, judgments, claims and demands whatsoever. whether known or unknown, existing or hereafter ansing, in law, equity or otherwise, based in %hole or in part upon any act or ormission or other event occurring prior to the Petition Date or during the course or the Chapter I I Case, including through the Effective Date ChbaInrllCai means the case under chapter I I of the Bankruptcy Code coninenced by the Debtor in the Bankruptcy Court on Apn16. 2001 and filed under Chapter II. Case No 01-30923 DM LhomiiLn means Causes of Action against the Debtor relating to alleged chromium contamination, including, but not limited to, the following sixteen (16) civil actions pending in California courts (i) AusVo v, PacificGas and Electn& Company filed March 15, 1995 in Los Angeles County Superior Court. (ill Ag*uhr ý, pAifikGa' aný Flcri .Pr n_.y. filed October 4, 1996 in Ios Angeles County Superior Court, (iii) co.ta. c.L a, v Betz Laboratories. Inc. et al., filed November 27, 1996 in Los Angeles County Supinor Court, (iv) &~day_, v Ea~sf s ,_y, filed July 25, 2000 in Los Angeles County Superior Court, (v) 1Idonid v Pacific Gas and Electric Com.pany, filed October 25, 2000 in Los Angeles Superior Court, (vi) 91k v Pacific Gas and Efrmic Company, filed January 30, 2001 in Los Angeles County Superior Court, (vii) onic v Pacific Gas & Electric-r.nPiany, filed March 15, 2001 in San Bernardino County Superior Court, (viii) Fordy v _.*i.as & Electric Comoiany. filed March 16, 2001 In San Bemardino County Superior Court, (ix) E v Pacific Gas & Electric Comp nv, file March 30, 2001 in Los Angeles County Superior Court, (x) Alderson. et t., v'LQ Cororation. Pacific Gas and Electric Company. BePt Chem.icgalCr&o an._ tfiled April II, 2001 in Los Angeles County Superior Court, (mi) Bowers et al v Pacific Gas and Electric Moet NY6 199145 s -6. 2 3 4 S 5 6 7 8 9 10 II 12 "13 14 IS S16 2 17 '19 20 21 22 23 24 25 26 27 28 Compn eal.. filed April 20, 2001 in Los Angeles County Superior Court, (xit) 13o5det al v acific Gtas and Electr lic Co i-eLII, filed May 2. 2001 in Los Angeles County Superior CouA. (xii) Maiiszs*].al v, aific Gas and E fan_ riled June 29. 2001 in Los Angeles County Superior Court, (xiv) KsM v. PEnific G *I psJ_ rlCompany, filed November IS. 2001 in Los Angeles County Superior Court, (xv) Mlv ri an Elevtne Compsany, filed November 21, 2001 in Los Angeles County Superior Court, and (xvi) Lylk'v PaciicGs and Electric C ._2y, filed March 22. 2002 in Yolo County Sulperor Couit Chromium Litigation Claims means all Claims against the Debtor arising from thb Chromium Litigation for damages or other obligations, including Punitive Damages; pIoyi.do, bwtvff, that Chromium Litigation Claims shall not include (a) any Claims, settled, liquidated or determined by Final Order or a binding award, agreement or settlement prior to the Petition Date for amounts payable by the Debtor for damages or other obligations in a fixed dollar amount payable in a lump sum or by a senes of payments (which Claims are classified as General Unsecured Claims), (b) Environmental Claims, (c) Fire Suppression Claims, (d) PeIding Litigation Claims, or (e) FERC License Claims CWM has the meaning set forth in section 101(5) of the Bankruptcy Code. r ._i

howev, that any claim based on allocations under Commission Electric Rule 20, Secti6n A, ielairng to andegrl'ounding ofelectrie distribution facilities, saltll not be a Claim for purposes of this Plan and shall pass through the Plan unaffected Clas meant a category ofi holders of Claims against or Equity Interests in the Debtor as set forth in AticleslII and IV of the Plan.

"" meani the Clerk of the Bankruptcy Court. CgolsicJ mWeans any property or interest in property of the estate of the Debtor subject to a Lieh to secure the pa'yment or performance of a Claim, which Lien is not subject to avoidance ;r otherwise invalid under the Bankruptcy Code or applicable state law. Commercial Ps means short-term promissory notes ofthe Debtor bearing various interest rates based on die three (3) month London InterBank Offered Rate and issued 11 D 4X NY 4 199 14 5 _7

1 2 3 44 6 7 to 9 Ill II 12 13 14 Is 16 17 18 19 20 21 '22 23 24 25 26 27 28 share Common Stock Eaullv Interests means any nght relating to the three hundred twenty-six million, nine hundred twenty-six thousand, stx hundred sixty-seven (326,926,667) issued and outstaitding shares of Common Stock as of the date hereof, all ofwluch ar held directly or indirectly by the Parent Co.j5nn16ionD&at means the date on which the Clerk of the Bankruptcy Court enters the Confirmation Order on the Bankruptcy Court's docket - Confirmation Hearing means the heanng held by the Bankruptcy Court t, consider confirmation oif he Plan pursuant to section 1128 ofthe Bankruptcy Code, as such hearing may be adjourned or continued from time to time .7. under commercial paper dcaier Agreements between the Debtor and (i) Goldman Sachs & Co, dated May 30, 1997, (in) Bank of America, N A., dated February 7, 1985, (mt) Salomon Smith Barney, Inc,dated November 10, 2000, and (iv) Memll Lynch, Pierce, Fenner & Srith Incorporated (oral agreenieni) "C.o..mmercal Psr Clsim means all Claims against the Debtor arising from Commercial Paper Cmmiiion has the meaning set forth In the introduction to the Plan ConiQiiitie means the official Commince of Unsecured Creditors appointed in the Chapter I I Case by the United States Trustee pursuant to section 1102 of the Bankruptcy Code. as reconstituted fom time to lime As of the date hereof, the Committee is comprised of Reliant Energy, Inc., Dynegy Power Marketing, Inc. P-E Berkeley, Inc, GWF Power Systen~s Company,. Inc. Bank of Amernca, N A.Morgan Guaranty, Meml Lynch, Pierce. Fenner & Smith, Incorporated, Davey Tiee Expert Co. the City of Palo Alto, California, the State of Tennessecean Pacific Investment Management Company LLC. Committee Sunport Aurcement means that certain Support Agreement, dated September 19. 2001, entered into by and among the Committee, the Debtor and the Parent, as amended from time to time means shares of the Debtor's common stock, par value $5 00 per 1 2 '3 4 6 7 8 9 l0 II 12 , 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 28 Co~nfirmaionOrder means the order of the Bankruptcy Court confirming the Plan Pursuant to section 1129 of'the Bankruptcy Code. which order shall be in form and substance reasonably satisfactory to the Proponents Convenience Claim means all Claims against the Debtor held by a vendor, supplier or service provider or ansing from the rejection ofexeýutory contracts or unexplred leases under section 365 ofdthe Bankruptcy Code (a) in the Allowed amount ofS 100,000 or less. or (b) consensually reduced to an Allowed amount o"$ 100,000 by the holder of the Claim CPU.Co means the California Public Utilities Code tDdWo has the meaning set forth in the introduction to the Plan 1t means the Debtor in hiiipapacity as debtor-m-pouession in the Chapter I I Case pursuant to sections 101, 1107() and*i 18 of the Bankrptcy Code Debtor's Aticles of tncoroolstio means'the Debtor's Restated Articles of Incorporation, effctive as of May6, 1998 Debtor's Bankruptcy Schedules means the schedules of assets and liabilities, schedule of current income and expenditures, schedule of executory contracts and unexpired leases, and statement of financial affairs filed in this Chapter Ii Case by the Debtor pursuant to section 521 of the Bankruptcy Code and Banku'ptcy Rule 1007, asamended from lime to time Dehtor's Bylaws means the Debtor's Bylaws, as amended as of Febnasry 21. 2001 DiPbursinm Agen means any Entity in its capacity as a disbursing agent under Section 54ofthe Plan PDisclosure Shtemenl means the Diaclosure St;temenl for the Commission's Plan ofrReorganization under Chapter II or the Banruptcy Code ior the Dcbtor, dated May 17. 2002 including, without limitation. all exhibits and schediules thereto, as approved by the Bankruptcy Court pursuant to the Disclosure Statemnenl Order. and as Amended, modified and/or supplemented from time to time Dislosure Statemenl Order means the order(s) of the Bankruptcy Court ntered pursuant to section I 12S of the Bankruptcy Code approving the Disclosure Statement Dooa NY6 1"104_7 -8 b KY6 1"145_7/

.9 10 12 13 14 15 16 17 19 20 ,,21 22 23 24 25 26 27 23 IisouP_ ted__hilns means, (a) with reference to any Claim against the Debtor. proof 2 or which~was timely and pmroerly riled, or in the case of an Administrative Expense Claim, any Claim or Administrative Expense Claim. as the case may be, which is disputed under the Plan or as to which the Debtor has interp*sed timely objection and/or request for estimation in accordance with section 502(c) of the Eamiikrujicy Code and/or Bankruptcy Rule 3018, which objection and/or request for estimatio; has not been withdrawn or determined by a Final Order, and (b) any Claim against the Debtor, proof of which was required to be filed hy order of the Bankruptcy Court or pursuant to applicable law, but as to which a proofo claim was not timely or properly filed A Claim that is Disputed by the Debtor as to its amount only shall be deemed Allowed In the amount the Debtor admits owirg, if any, and Diqputed as to the excess Disuted Claim Amount meant the disputed portion of the amount set forth in the proof of claim relating to a Disputed Claim or, if an amount is estimated in respect of a Disputed Claim in accordance with section 502(c) of the Bankruptcy Code and/or Bankrsptcy Rule 3018, the amount so estimated pursuant to an order of the llankruptcy Court 'T V*linbylo Bn c D1at; means the close of buiness tývo (2) Business Days prior to the Effective Date .e Effective Date means the second (2*d) Business Day afler the date on which the conditions specified in Section 8 2 hereof have been satisfied'or wiived Essif ha the meaning set foroh in section 101(15I) of the Bankruptcy Code Environmental. Fire Supry Miq._n.dmt Litleation. Tort and FERC lici* Oat j means all Environmental Claims. Fire Sui~pression Claims, Pending L.itigstion Claims, Tort Claims and FERC License Claims I Environmental C laiml means all Claims against the Debtor arising 'from any accusation, allegation. notice of violation, action, claim, eiviro6rental Lien, demand, abatement or other order, restriction or direction (conditional or otherwise,)by any Governmental Entity or ainy other Person for personal injury (including, but not limited to. sickness, disease or death), tangible or intangible property damage, Punitive Damages. damage to the environment, nuisance, pollution, contamination or other adverse effect on the environment or costs (to the 1 2 3 4 5 6 7 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 23 extent recoverable under applicable non-bankruptcy law) of any Governmental Entity related thereto, in each case resulting rrom or based upon (a) the existence,'or the continuatilonofthe existence, ofe release of (including, but not limited to, sudden or non-sudden accidental or non accidental releases), or exposure to, any hazardous or deleterious matenal, substance. waste, pollutant or contaminant, odor or audible noise in, into or onto the environment (including. but not limited to. the air, soil, surface water or groundwater) at. in, by. from or related to'any property (including any vessels or facilities of the Debtor) presently or formerly owned. operated or leased by the Debtor or any activities or operations thereon, (b) the transportation, storage, treatment or disposal of any hazardous or deleterious material, substance, waste, oll'utant or contaminant in connection with any property presently or formerly owned, operated or leased by - I 1 ,,4_16 the Debtor or its operations or facilities, or (c) the violation or alleged violation, of any environmental law, order or *environmental permit or license oror from any Governmental Entity relating to environmental mattselr connected with any property presently or formerly owned, operated or leased by the Debtor, Lr~o~'id, howýver that Environmental Claims shall not include (i) any Claims fully settled, liquidated or determined by a Final Order or a binding award, agreement or settlement prior to the Petition Date for amounts payable by the Debtor for damages or other obligations in a fixed dollar amount payable in i lump sum or by a series or payments (which Claima are classified as General Unsecured Claims). (if) Tort Claims, (iii) Fire Suppression Claims, (iv) Pending Litigation Claims, or (w) FERC License Claims "Environmental Ordff has the meaning set ronh in Section 4 16(b) hereof, Eovjtixnimggi means any share of Common Stock. Preferred Stock or otherf;* instrument evidencing an ownership interest In the Debtor, whether or not transferable, and any option, warrant or other right, contractual or otherwise, to acquire any such interest Flj means the Employee Retirement Income Security Act of 1974, as amended. means energy serivice provider. ESPClaim means all Claims against the Debtor arising from PX energy credits payable by the Debtor to ESPs OiIr HY6 1t914*_7 I-I , J Cloes NY6 1"1'*45_7 .9. I0.

1 2 3 4 6 17 9 I0 II 12 13 14 16 17 Is 19 20 21 22 21 24 23 26 27 28 Existtna Tax Shnna AUreeMns! means that Agreement. dated u of January I, 1997, for the allocation ofincome tax liability between the Debtor and the Parent SEn has the meaning set forth in Section 7 6 hereof FEderaJudMent R it, means the intereii rale allowed pursuant to section 961 o title 28 of the United States Code, as tmended. ai publised by the Board'of Governors of the Federal Reserve System for the calendar week that preceded the Petition Date Fed Ruls Cry pro, meani the Federal Rules of Civil Procedure. Smeans the Federal Energy Rigulatory Commission FERC License Claims meauia all Claims'against the Debtor held by a Governmental Entity arising from or underFERC licenses, including, but.ot limited to. Belden FERC License 2015 (including fish sit eking requirements set forth therein) ""EmtrOrdc means an order oridecre of the Banuptcy Court, or any other court of competent jurisdiction. as to which'thi time'tr appeal, petition for certonrai, or move for reargument or rehearing has expired and as to which noappeal, petition for certiorari, or other proceedings for reargument or rehearing shall then be pending or as to which any rght to appeal, petition for certiorari, reargue. or rehear shall have been waived in writing in form and substance satisfactory to the Debtor and the Proponents or, in the event that an appeal, writ ofcertiorar, or reargument or rehearing thereof has been sought, such order or decree of the Bankrupt cy Court or other court of competent jurisdAction shall have been detenmined by the highest court to which such order or decree was appealed, or certiorari. reargument or rehearing shall have been denied and the time to take any further appeal, petition fir certiorari or move for reargumtent or rehearing shall have expired. lzmoi~u. howeve. that the possibility that a motion under Rule 59 or Rule 60 ofthe Fed Rules Civ Pro or any analogous rule under the Bankruptcy Rules or applicable state court riles ofcivil procedure, may be filed with respect to such order or decre shall not prevent such order or decree from being a Final Order Fire Su*pr*ssion Claim means all Claims against the Debtor by any Governmental Entity for damages and costs resulting from a fire that may be recovered under either state or federal law, including, but not limited to, Claims for damages to property, the cost DtO, KY6 1"9145_r.1i. 2 3 4 5 6 7 8 9 10 II 12 13 14 16 17 Is 19 20 21 22 23 24 25 26 27 28 [.-. N Y C 1" 145iaI 7 ofrcstoring all property damaged As A result of the tire. the cost of compensating all other losses resulting from damage to property arising from a fire, and costs incurred in fighting a fire. including all investigative. administrative, accounting, collection, and other costs, DEovided e that the foregoing "including, but not limited to" descnption ofthe types ofndamages and costs that are included in this definition are for illustrative purposes only and do not constitute an acknowledgment or admission by the Debtor that any such damages orcorts are in fact recoverable under state or federal law. First and Refundwna Mort&ase Bonds means (i) 6 250% First and Refunding Mortgage Bonds Series 93C due August 1. 2003, (ii) 6 25% First and Refunding Mortgage Bonds Series 93G due March 1, 2004, (mit) 5 875% First and Refunding Mortgage Bonds Series 93E due October 1, 2005, (iv) variable rate First and Refunding Mortgage Bonds Series SIB due August 1. 2011. (v) 8 R00% First and Refunding Mortgage Bonds Senes 91A due May 1, 2024, (vi) 8 375% First and Refunding Mortgage Bonds Series 92B due May 1, 202$. (vii) 1250% First and Refunding Mortgage Bonds Series 92D due November 1. 2022. (viii) 7 25% First and Refunding Mortgage Bonds Senes 93A due March 1. 2026, (ix) 7 250% Firs and Refunding Mortgage Bonds Series 930 due August 1. 2026. (a) 6 750% First and Refunding Mortgage Bonds Series 93F due October 1, 2023, and (xl) 7 501@ First and Refunding Mortgsgi Bonds Sines 9311 due March I. 2024, each issued by the Debtor under the Mortgage. together with any Matured and Unpresented First and Refunding Mortgage Bonds, _rJov*e, that the Debtor is not waiving any nghts or claims it may have under applicable non-bankruptcy law igainis any holder of any Matured and Unpresented First and Refunding Mortgage Bond or any other party with respect thereto First and Refunding MortetAie Bond Documents means with respect to each series of First and Refunding Mortgage Bonds, the Mortgage. and all ofthe other documnents,. instruments, agreements and certitficates evidencing, secunng, governing or otherwise pertaining to the respective Monrgage Loan or the respective series o'Ftirst and Refunding Mortgag; Bonds or otherwise executed and delivered by or on behalfof'the Debtor in connection with any oftthe It "T"!,,.

I 2 3 4 5 6 7 g 9 I0

• I1 12
• 13 14 16 17 19 20 21 22 23 24 25 26 27 28 foregoing, together;with all anendments, modifications, renewals, substitutions and replacenents of o fto any of the foregoing

' " qiin* Rate Note Claims means all Claims arising from the Floating Rate Notes E!Qatineý Rt*tul means the Floatng Rate Notes due October 31. 2001. issued by the Dehbtor inoder an indenture by and between the Debtor and Wilmington Trust Company, as successor in interist to The Bank of New York, dated September I, 1987. together with all amendments, modifications. renewals.,substitutions and replacements thereof Fiuffi nsi d an t o L has the meaning set forth in Section 4 10(bXiv) hereof " Genatl Uni red Cais!m means (a) Revolving Line of Credit Claims., (b) Medium Term Note Claims, (c) Senior Note Claims. (d) Floating Rate Note Claims. (e) Southein San Joaquin Valley Power Authority Bond Claims. (f) Claims against the Debtor ansing from the rejection of executory contracts and unexpired leases under section 365 ofthe Bankruptcy Code, (g) Claims against the Debtor relating to pre petition litigation (other than Pending Litigatton Claims.'as defined above in this Section I I, which ate classified as Class 8 Claii6s)t(1 Claimns against the Debtor by the Debtor's vendors, suppliers and service providers. (t) Cl*;rns agoinst the Debtor relating to intercompainy obigatlins to Amliates and 0), Commercial Paper Claims; v . h*wver, that General Unsecured Claims will not include any unsecured Claims includid itn any other Cluss Governmental Entity has the meaning set forth for a governmental unit in section 101(27) or the Bankriptcy Code Impair means anydClass ofCiaims against o; Equity Interests in the Debtor that is impaired within the meaning of section 1124 of the Banmruptcy Code, Indentue means, with respect to each series of'PC Bonds, that certain indenture of trust between the Issuer and the Bond Trustee pursuant to which 'such series of PC Bonds were issued, as originally executed, together with all amendments, modifications, renewals, substitutions and replacements thereof 1 2 3 4 5 6 7 g 9 10 II 12 13 14 Is 16 17 18 19 20 21 22 23 24 2i 26 27 21 Docs NY6 1991457 -I). .14. D-a0 NY 19914_S Initial Calculation Date means (i) February 28, 2002 with respect to holders of Allowed Claims in Class S for Senior Indebtedness, holders of Allowed Southern San Joaquin Valley Power Authority Bond Claims and holders or Allowed Claims in Classes 4e, 4f. 4 g and II, and (ii) June 30.2002 with respect to the remaining holders of Allowed Claims in Class 5 and the holders of Allowed Claims in Classes 1. 2.6, 7 and 10 Interest Period means the penod commencing on any interest payment date specified herein and ending on the day preceding the next succeeding interest payment date; except in respect of the first interest period which extends to June 30,2002, where the Interest Period shall commence on the earlier of the Petition Date or the date specified on Exhibit., hereto and shall end on June 30, 2002 and the second interest period shall commence on July 1, 2002. Io epLe nz means credit ratings from S&P of BBB. or better and Moody's of Bun3 or better MS means the United States Internal Revenue Service IQ means the Cali fomia Independent System Operator. ISO. PX and Geneator Claims means all Claims against the Debtor arising from amounts due to the ISO, PX and various power generators based on purchases of electricity or ancillary services by the Debtor in markets operated by the PX and the ISO Ium means the California Pollution Control Financing Authority. a public Instrumnentality and political subdivision ofthe State of Califomia, organized and existing under the California Pollution Control Financing Authority Act. being Division 27 (commencing at: Section 44500) of the Califomri Health and Sarety Code, aI supplemented and amended -!4 LC Bank Agreement has the meaning set forth in Section 4 10(bXili) hereof LetefrofCredit means, with respect to each series of Letter of Credit Backed PC Bonds, that certain irrevocable direct pay letter of credit issued by the Letter of Credit Issuing Bank for the account of the Debtor to the Bond Trustee and delivered to the Bond Trustee In accordance with the terms of the respective Indenture, securing, among other things, thepaytnent

14 of the pnncipal of. and interest on, the respective series of Letter of Credit Backed PC Bonds. Z together with all amendments, modifications, renewals, substitutions and replacements thereof 3 I eiter of Credit Backed PC Bond Claims means all Claims against the Debtor by 4 the Issuer. Bond Trustee and the holders of LUtter of Credit Backed PC Bonds for all amounts 5 due and owing by the Debtor under the Loan Ag4eements ad each ofthe other PC Bond & Documents executed by the Dibtor in connection with the issuance of each series of Letter of 7 Credit Backed PC Bonds Letter of Credit Backed PC Bond means collectively, any tenes of 96C Bonds. ? 96E Bonds. 96F Bonds andlor 97B Bs*nds that aie outstanding as ofthe Voting Record Date or 0 the Effective Date, as applicable' I Letter ofCredit lssuing Bank means, with respect to each senes of Letter of 2 Credit Backed PC Bonds. the issuer of the Letter of Credit 3 Letter of Credit Bank Claim; means all Claims against the Debtor relating to 4 (a) the contingent Claims of each Letter of Credit Issuing Bank and the applicable Banks, if any. 5 with respect to paiments which may become due by the Debtor under their respective 6 Reimbursement Agreements (as modified by the LC Bank Agreement), Including. without "7 limitation, any and all amounts due by the Debtor as reimbursement of amounts paid by a Letter 1 of Credit Issuing Bank tnder its Letter of Credit to the Bond Trustee for the payment of interest on the related Letter of Credt Backed PC Bonds and any and all interest and feea due thereunder D and (b) the Claims of the Letter of Credit Issuing Banks and the applicable Banks, if any, for any I and all accrued and unpaid amounts due by the Debtor under their respective Reimbursement 2 Agreements (a modified by the'lC Bank Agreement). including amounts due as reimlturacment 3 ofamounts paid by each Letter of Credit Issuing Bank under its respective Letter of Credit to the 4 Bond Trustee for thepayment of interest on the related series of Letter of Credit Backed PC S Bonds and "ny and all fees'dic thereunder. SLIBR means, with respect to each Interest Period, the rate per annum appearing I on Bloomberg Professional page BIAM I (or any successor page) as the London mnterbank I offered rate for deposits in U S dollars having the index matunty designated by the Debtor at D.8 NY6 199145_? 15. 2 3 4 5 6 7 8 9 to II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 28 ik'. NY6 ifs)141 i16 approximately II 00 a m (London time) on the LIBOR Interest Determination Date If no rate appears on Bloomberg Professional page BBAM I, LIBOR shall mean the rate per annum appemarng on Bridge Telerate Inc page 3750 (or any successor page) as the London interbank offered rate for deposits in U S dollars having the index matunty designated by the Debtor at approximalely I I 00 a m (London time) on the LIBOR Interest Determination Date Ifno rate appears on Bridge Telerate page 3750, the Debtor will request the principal London offices of each of four (4) major reference banks in the London interbank market, as selected by the Debtor, to provide the Debtor with its offered quotation for deposits in U S dollars having the index maturity designated by the Debtor to prime banks in the London inierbank market at approximately I 100 a m (London time) on such LIBOR Interest Determination Date and in a prncipal amount that is representative of a single transaction in U S dollars in such mnarket at such time LIBOR determined will be the antlunetic mean of the offered quotations If fewer than two (2) quotations are provided. LIBOR determined on such LIIBOR Interest Delerminaton Date will be the arithmetic mean of the rates quoted at approximately II 00 a m in New York City on such LIBOR Interest Determination Date. by three (3) major banks in New York City selected by the Debtor for luins in U S dollars to leading European banks, having the index maturity designated by the Debtor that is representative for a single transaction in U S dollars in such niarket at su.h time If the banks so selected are not quoting as menti6ned above, LIBOR will remain LBOR ii effect on such LIBOR Interest Determination Dati" LINER Interst DcHfrmlnahoae2 means, for an Interest Penod, the second (2 W) London [Jusiness Day immediately preceding the first day of that Interest Period, except that in the period prior to the Initial Calculation Date. the LIBOR Interest Determination Dates for (a) Allowed Claims under Intemational Swap Dealers Association ("ISDA") Agreements shall be the Petition Date and each Anniversary thereof prior tothe Idisial Calculation Date. and (b) Allowed Claims for power generators shall be determined between the Debtor and each such power generator, notwithstanding the fact that none of such dates is an interest payment date LLo has the meaning set forth in section 101(37) of the Bankruptcy Code

I 3 '4 6 7 9 10 II 12 13 14 '15 17 S I8 19 20 21 22 23 24 25 26 27 28 Losnjgr*n*mn means. with respect to each senes of PC Bonds, that certain loan agreement by and betwe*n the Isiuer and the Debtor with respect tor such series of PC Bonds, as originally executed. togethee with all amendments. modifications, renew als, substitutions and replacements'thereor M!3igL"ltlJil means the Ballot I; be comnpleted by Nominees of beneficial owners of bonds: notes, debentures or shares of stock of the Debtor Matuilred Vrs prkim~ffiri and Rsfndi4~ MorlgagiP n d~ means. collectively, that portion of the Debior's (a) First and Refunding Mortgage Bonds. Seriea It. 4 23%. (b) First and Rcfrundin Mortgage Bonds, Senes JJ. 4 i%, (c) Frst and Refunding Mortgage Bonds, Seres I L. 4 625%, (d) First and Refunding Mortgage Bonds'. Sendes MM. 5 3751%, (e) First and Refunding Mortgage Bonds. Series'NN. 5 75%: (f) First and Refunding Mortgage Bonds. Series 00, S 0%. and (g) First and Refunding Mortgage Bonds, 8% Series 92C. to the extent that (i) such matured bonds have not been presented for payment by the holders thereof, and (it) the Debtor is obligated to paylthe princiý;l of, and intereat on. such bonds in accodance with the terms thereof under ipplicable law, provided that the Debtor is not wativng any rights or claims it may have under applicable non banknuptcy law against any holder of any such bond or any otheriparty with respe&~i'lherettc means MBIA Insurance Corporation MBIA Claims means all Claims against the Debtor relating to (a) the contingent Claims or MBIA with respect to payments vhilch may become due by the Debtor under the terms or the MBIA Reimbursement Agreement as reimbursement for paym)ents made by M0BIA under the PC Bond Insurance Policy. and (b) the Claims of MBIA for any nr'd all accrued and unpaid amounts due by the Debtor under the MBIA Reimbursiement Agreement. including any and all amounts due by the Debtor as reimbursement of amounts paid by MBIA under the PC Bond Insurance Policy to the Bond. Trustee for the payment of intlerest on the MBIA Insured PC Bonds MBIA Insured PC Bond Clasim means all Claims against the Debtor by the Issuer, Bond Trustee and the holders of the MBIA Insured PC Bonds for all amounts due and 2 3 4 6 7 I 9 10 II 12 13 14 16 17 I2 21 22 23 24 25 26 27 28 owing by the Debtor under the Loan Agreements and each of lhe other PC Bornd Documents executed by the Debtor in connection with the issuance of each series ofMBIA Insured PC Bonds I I MBLA Insured PC Bonds means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1 996 Series A issued by the Issuer in the aggregate principal amount of $200,000,00 MBIA Redinbursement Areemren means that certain Reimbursement and Indemnity Agreement, dated as of May 1. 2000. by and between the Debtor and MBIA, pursuant to which MBIA has issued the PC Bond Insurance Policy, together with all amendments,* modifications, and renewals thereof Medium Term Note Claims means all Claims against the Debtor arising fIom the Medium Term Notes. M*dtum Term qet means those certain notes bearsng ;arious interest rates from 5 8 0% t4 due through October 7,2013. other then the Senior Notes and the Floating Rate Notes, issued by the Debtor under an indenture by and between the Debtor and Wilmington Trust fCompany, s successoe'in-interest to the Bank of New York. dated September I. 1987. together with all amendments, modifications, renewals, substitutions and replacements thereof Mooy' means Moody's Investors Service Inc. or its successor. Montag.L means that certlain First and Refunding Mortgage, dated December I, 1920, made by the Debtor. under which BNY Western Trust Company was trustee on the. Petition Dale, together with Ill amendments, modifications, renewals, substitutions and replacements thereol. Mortasae Backed PC Bondi means collectively, the 92A Bonds, the 92B Bonds, the 93A Bonds and the93B Bonds. Mortitte Backed PC 1390d Meimi means all Claims against the Debtor by the Issuer, Bond Trustee and the holders of the Mortgage Backed PC Bonds for all amounts due and owing by the Debtor under the Loan Agreement and each of the other PC Bond Documents D*oe NY6 114117 -II. Do"l h"Y6 1"91457 .17-

2 3 4 6 7 9 10 II 12 13 14 Is 16 17 18 19 20 21 22 S23 24 21 26 27 28 Orisinal Letter ofCredit F6i has the meaning set forth in Section 4 10(bXiv) hereof Mthn Puonty Chinl means all Claims against the Debtor, other than Administrative Expense Claims or Prionty Tax Claidis. entitled to priority in right ofpayment under section 507(a) of the Bankruptcy Code Other Secured Claims means All Claims against the Debtor relating to mechanics' and materialmen's liens and secured tax Claims, as well as Secured Claims, other than Secured Claims Relating to First and Refunding Mortgage Bonds and Mortgage Backed PC Bond Claims Eurni means PG&E Corporation, the Debtor's parent company C Bmeans, with respect to each series of PC Bonds, the Loan Agreement, Indenture.asid all of the other documents, Instruments, agreements and certificates evidencing, securing, governing or otherwise pertaining to the respective Bond Loan or the respective senes of PC Bonds or otherwise executed and delivered by or on behalf of the Debtor executed by the Debtor in connection with the issuance of each senes of Mortgage Backed PC Bonds Motsaitegond! means, with respect to each series of Mortgage Backed PC Bonds, those certain firs and refunding mortage b60s maide by the Debtor in favor of the l3ond Trustee pursuant to and secured by the Mortgage, in an aggregate principal amount equal to the related series of Mortgage Backed PC Bonds MofluuJLonM means, with respect to each seres ofdFirst and Refunding Mortgage Bonds, the loans made by the holders thereofto the Debtor. - New Tax SharinirAAlreement meant the agreement to be entered into between the Parent and the Reorganized Debtor for the allocation ofincome tax liability. substantially in the form of Exhibit A to the Plan "N omin means any brokerage flrni or bank, or the saentof such firm or bank, holdingthe securities of a beneficial ownter of bonds, notes, debentures or shares of stock of the Debtor 2 3 4 S 6 7 9 10 II 12 13 14 16 17 Is 19 20 21 22 23 24 25 26 27 28 Due0 NY6 199145_7 It. in connection with any of the foregoing, together with afi amendments, modifications., renewals, substitutions and replacements of or to any of the foregoing PC Bond Insurace Policy means that certain Financial Guaranty Insurance Polic) issued by MBIA with respect to the MBIA Insured PC Bonds, together with all amendments, modifications, renewals, substitutions and replacements thereof PCoi means collecuvely, the Letter of Credit Backed PC Bonds, the MBIA Insured PC Bonds, the Mortgage Backed PC Bonds, the Prior Bonds and the Treasury PC Bonds Pending Lit, jdnnams means all Claims against the Debtor that are asserted litigation pending against the Debtor and that are listed in ass amendment to PG&E's Plan Supplement, P.vid. ).2WIy that Pending Litigation Claims shall not include (a) any Claims aettled, liquidated or determined by a Final Order or a binding award, agreement or settlement prior to the Petition Date for amounts payable by the Debtor for damages or other obligations in a fixed dollar amount payable in a lump sum or by a series of paymentst (which Claims are, classified as General Unsecured Claims). (b) Envirotusental Claims, (c) Fire Suppressioni Claims. (d) Ton Claims, or (e) FERC License Claims ram has the mcanimg set forth in section 101(41) of the Bankruptcy Code PeJitiona means April 6, 2001, the date on which the Debtor commenced the Chapter I I Case PG& l means that certain Plan of Reorganizanion'under Chapter 1I1 ofithc Bankruptcy Code for Pacific Gas and Electric Company proposed by the Debtor and the Parent, dated April 19. 2002. including, without limitation, PG&E's Plan Supplement and all exhibits, supplements, appendices and schedules thereto, either in its present fomt or as the same may be altered, amended or modified from time to time PQ E's Plan Sp mt;W means the documents, schedules and other instruments filed with the Bankruptcy Court in accordance with Section 11 19 of PG&E's Plan, as imýnded, modified or supplemented nicans this plan of reorganization, as amended, modified or supplemented Euftsa Iilkg=i has the meaning set forth in Section 4 I hereof It.t tD-$ NY6 19914S 1 tO.

.2 3 4 5 6 7 8 9 A Pirf~i4.512k means the issued and outstanding shares of the Debtor's First PreFerred Stock,'pat value $25 O0 per share The Debtor's outstanding First Preferred Stock is comprised of (a) 6% Non-Redeemable First Preferred, (b) 5 5% Non-Redeemable rirst Prefrnred, (c) 5% Non-Pedeemable First Prererred, (d) 5% Redeemable First Preferred Series D, (e) 5% Redeemable First Preferred Series E, (f) 4 g0% Redeemable First Preferred, (g) 4 50% Redeemable First Preferred. (ih) 4 36% Redeemable First Preferred, (i) 6 57% Redeemable First Preferred, (0) 7 04% Redeemable First Preferred, and (k) 6 30% Redeemable First Preferred A Frtfrt x*to_.k.uijyJjqffe.. meant any right relating to the Debtor's Preferred Stock A A A .I 2 2 2 2 2 2 2( 2* 0flor Bond Clsiti means all Claims against the Debtor by the Prior Letter of II Credit Issuing Banks for any and all accrued'and unpaid amounts due by the Debtor under their 12 respective Prior Reimbursement Agreements, including amounts due as reimbursement of 13 amounts paid by each Prior Letter of Credit Issuing Bank under its respective Prior Letter of 14 Credit to the Bond Trustee for the payment orthe redemption price ofih' related series of Prior 15 Bonds A... A A A 16 iorBond means, collecttvely, the 96B Bonds, the 96D Bonds. the 97A Bonds 1 7 a n d t h e 9 7 C B o n d s,, 4AAA" A A EPrior Lettcr 9f Credit means, with resect to each senes of Prior Bonds, that 9 certiin irrevocable direct pay letter of credit issued by the Prior Letter of Credit Issuing Bank for 0 the account of the Debtor to the Bond Trustee and delivered to the Bond Trustee in accordance I with the terms of the respective Indenture which secured, among other things, the payment of the 2 principal of, and interest on, the respecttve series of Prior Bonds, together with all ameidments, 3 modifications, renewals, substitutions and replacements thereof M4 A A PriorLettetofCredil ssuin Dan means with respct to each series of Prior 5 Bonds. the Issuer of the Prior Letter of Credit 6 Prior Reimbursement Axeement means, with respect to each series of Prior 7 Bonds, that certain reimbursement or other agreement between the Debtor and the Prior Letter of 8 Credit Issuing Bank providing for, among other things, the issuance orthe related Prior Letter of ID.0 NK6 1"141_? 7 t2-A I 2 3 4 S 6 7 9 10 II 12 14 15 16 Is 19 20 21 22 23 24 25 26 27 29 w S N Y $ it i nl i s91 4 Credit and the reimbursement of the Prior Letter of Credit Issuing Bank for draws made thereunder, together with all amendments, modifications, renewals, substitutions and replacements thereof,,, , I I m means all Claims against the Debtor for taxes entitled to priority in payment under section 507(aXg) of the Bankruptcy Code, I ftmdures rda means the Order of the Bankruptcy Court approving, among other things, voting solicitation procedures, the form of voting ballots, the solicitation period and the voting tabulation procedures regarding this Plan and PG&E's Plan. as amended, modified, and/or supplemented from time to time rEpfxnJ.jonal Compensation and Reimbursement Claims means all Administrative Expense Claims for the compensation ofprofessionals and reimbursement of expenses incurred by such professionals, the Commission, the Committee and members of the Committee pursuant to sections 330(s) or 503(bX2), 303(b)(3). 503(bX4) and 503(b)(5) of the Bankruptcy Code Proponent means the Commission and the Committee EProoonenls' Plan Supolemnent means the documents. schedules and other instruments to be filed with the Bankruptey Court in accordance with section I 1.17 of the Plan, as amended, modified or supplemented from time to time PUnhiv Damarig means punitive, exemplary or similar damages, or fines, penaltiea or similar charges that anse in connection with Environmental Claims, Fire Suolpression Claims, Pending Litigation Claims, Tort Claims or FERC Ucense Claims EX means the Califomia Power Exchange Qb means qualifying facilities operating pursuant to the Public Utility Regulatory Policies Act of 1973 and the related regulations enacted thereunder ' OUIDS means the 7.90% Deferrable Interest Sub<ordinated Debentures. Series A. Due December 31, 2025 issued by the Debtor under the QUIDS Indenture, together with all amendments, modifications, renewals, substitutions and replacements thereof QUIDS Claim means all Claims arising firom the QUIDS .22.

O11 d f means the Indenture by and between the Debtor and National City Bank of Indiana, as successor-tas-interest to Bank One Trust Company, N A. as succeasar. in-intcrest to The First National Bank of Chicago, dated November 28, 1995, as supplemented b) the First Supplemental Indenture dated November 28, 1995, as supplemi.ted by the Second Supplemental Indenture dated March 25, 1996 1 2 3 4 S 6 7 a 9 l0 II 12 13 14 1 5 16 17 Is 19 20 21 22 23 24 25 26 27 29 Rate Recovery I itaiation means Pacifc Gas & Electric Company Plaintifs, vs Loretto M. Lynch. et al. Defendants Case No C-01-3023.VRW, presently pending in the United States District Court for the Northern Distrct of Califomia Reimbursem'ent Agreement means, with respect to each series of Letter of Credit Backed PC Bonds, that certain reimbursement or other agreFment between the Debtor and the Letter of Credit Issuing Bank and certain other Banks. if any, that are s'ignatones thereto providing for, among other things, the issuance of he related Letter of Credit and the reimbursement of the Letter of Credit Issuing Bank and certain other Banks, if any. that are signatories thereto for draws-made under such Letter of Credit, together with all amendments, modificatioU, renewals,- substitutions and replacements thereof Reimbursement Obligation meals, with rtspoct to each series of Prior Bonds. that portion of the reimbursement obligation of the Debtor usndýr the Prior Reimbursement Agreement arising with respect to the portion of the final drawing made under the related Pnor Letter of Credit for the payment of the pnncipal portion of the redemption pnee of the related series of Prior Bonds Bgkutu means all Persons who (i) are present or former officers and directors of the Debtor who were directors and/or officers on or after the Petition Date, (it) serve or served as members of management of the Debtor on or after the Petition Date. (mi) are present or former members of the Committee. (iv) are present or former officers and directors and other Persons who serve or served as members'of the management of any present or former member of the Committee, or (v) are advisors, consultants or professionals of or to the Debtor, the Committee and the mcembers of the Committee, but in each case only to the extent such Persons are or were acting ina*nj of the capacities set forth in (i) th rough (v) above Di NY6 1"19945_7 .2). Rcoranized Debtrg means the Debtor, or any successor thereto by merger, consolidation or otherwise, on and after the Effective Dale Rmoranization A sM has the meaning set forth in Section 7 2 hereof Reortanized Debtor New Money Notes has the meaning set forth is Section 1 2 3 4 S 6 7 a 9 10 II 12 13 14 I1 16 17 Is 19 20 21 22 23 24 25 26 27 28 Reoreanized Debtor New PUetacd a(oe has the meaning set forth in Section Rclireenil Pln means the Pacific Gas and Electric Company Retirement Plan, a tax qualified defined benefit pension plan covered by Title IV of ERISA, as amended, 29 U S C If 1301 fldM (1994 & Supp v 2000) Rcyolvina Line of Credit means the Amensded and Restated Credit Agreement, dated as of December 1. 1997, as amended, as to which Bank of America. N A was the Administrative Agent on the Petition Date, together with all amendments, modifications. renewals, substitutions and replacements thereof Revol MgnL ofCredil.sC.ai means all Claims against the Debtor ansing from the Revolving Line of Credit Secured Claim means all Claims against the Debtor, to the extent reflected in the Debtor's Bankruptcy Schedules or a proof of claim as a Secured Claim, which are secured by a Lien on Collateral but only to the extent of the value of such Collateral. as'dctcimnned in accordance with section 506(a) of the Bankruptcy Code. and, in the event that such Claim is subject io a permissible setoff under section 553 of the BankruptcyCode. to the extent of such permissible scToff I I I I Secured Claims Relalane to First and Refunding Mortsave Bonds means all Claims against the Debtor ansing from the First and Refunding Mortgage Bonds Se.L4or kndeledegsn means, collectively, Commercial Paper Claims, Ftoating Rate Note Claims. Medium Term Note Claims, Senior Note Claims and Revolving Line of Credit Claims Li, NY 6 19 s145 7? 7 1(a) hereof

7.

1 (b) hereof 24-

5eni Note Clsuts., means all Claims against the Debtor ansing frnm the Senior Notes 3 S 6 .7 8 9 II 12 13 14 16 17 18 19 20 21 22 23 24 23 26 27 28 SSenio.r Not means the 7 375-% Senior Notes due November 1. 2005, issued by the Debtor under an indenture by and between the Debtor aid Wilmington Trust Company, as successor in interest to The Bank of New York. dated September 1. 1987, together with all amendments. modifications, renewals, substitutions and replacements thereof SI Settlement n j l Aeemg~nt means that cersis Amended and Restated Settlement and Support Agreement dated as of March 27. 2002, by and among the Debtor, the Parent and certain holders of Senior Indebtedness who are parties thereto Settlement Order means the Order of the Bankruptcy Court dated March 27, 2002 entitled "Order on Motion by Pacific Gas and Flectric Company for Order (A) Approving Settlement and Support Agreement By and Among Plan Proponents and Senior Debtholders, (13) Authorizing Payment or Pre-and Post Petition Interest to Hlolders of Undisputed Claims in Certain Classes, (C) Authorizing Payment of Fees and Expenses or Indenture Trustees an* Psying A gen's and (D) Authorzing Debtor to Enter into Stmilat'Agreements - - Soutlher. Son Josquin Valley Po mtans the Agreement between vle-Debtor and the Southern San Joaquin Vallej Power Authority dated as ofrJuly I, 1997, and related Indenture of Trust dated as of November I, 1991, between the Southern San Joaquin Valley Power Authority and Bank of America N A. as Trustee in respect of amnounta payable on certain bonds issued by Southern San Joaquin Power Authority maturing in 2001 through January 1, 2013. together with all amendments, modifications, renewals, substitutions and replacements thereof, Soutbhern St Iniouln Valley Power Authority Bond Claims means all laims against the Debtor se'isinZ from the Southern San Joaquwin Valley Power Authority Agreement S&H means Standard & Poor's, a division of The McGraw Hill Companies. Inc, or its successor 2 3 4 5 6 '7 9 to II 12 13 14 15 16 17 is 19 20 21 22 23 24 25 26 27 28 Dfc-NY ttt.? 1"4. -2. 26. Stale or SLte oflCalifofnia means the State of California and all orits entities departments, boards. offees. commissions, agencies, bureaus, divisions, instrumentalities. officers, commissioners and employees Stated Amount means, with respect to each Letter of Credit, the aggregate amount available to be drawn thereunder,'from time to time, in accordance with the terms thereof zt&od; means the United States Internal Revenue Code or 1986. as amended, and the Treasury Regulations thereunder Tot Clim means (i) the Chromium Litigation Claims and all other Claims againil the Debtor arising from any accusation, allegation, notice, action, claim, demand or othet,;ise roe personal injury, tangible or intangible property damage, products liability or discrimination. or based on employment, including Punitive Damages; and (iH) any claim for indemnification or contribution (whether based on contract. statute or common law) against the Debtor by any third-party, where such indemnification or contribution claim of such third-party is based on a claim against such third paity that if asserted directly against the Debtor would be a claim included within the immediately preceding clause (i). provided. howvc, that Tort Claims sh0ll not include ia) any Claims settled, liquidated or determined by a Final Order or a binding award, agriement or settlement priori to the Petition Date for amounts payable by the Debtor rot danages or other'obllgations in a fixed dollar amount payable in a lump sum or by a series or payments (wh;ich Claims are classified as General Ilnsecured Claims), (b) Environmental Claims. (c) Fire Suppression Claims, (d) FERC License Claims, or (e) Pending Litigation Claims Treasury PC Bond Claims means the Claims against the Debtor by the Issuer, Bond Trustee and holders of Tre sury PC Bonds for all amounts due and owing by the Debtor under the Loan Agreements and each of the other PC Bond Documents executed by the Debtor in connection with the issuance of each series of Treasury PC Bonds Treasury PC Bonds means, collectively, the 96G Bonds and the 97D Bonds inltsd means any Class of Claims or Equity Interests which is not Impaired Vt.ngir means May 21, 2002 Dw my$ tmo45_

1 2 3 4 5 6 7 3 9 t0 II 12 13 14 Is I? 18 Is 19 20 21 22 23 24 2S 26 27 28 Workers' Compensatson Claims means all Claims against the Debtor by employees ofthe Debtor for the payment of workers' compensation benefits under applicable law Workers' Compensation Indemnity Asreements means (a) the Indemnity Agreement by PG&E Corporation, dated Apnl 7.2000, to indemnify American Home Assurances Company in connection with issuance of Surety Bond No 00-207-724 issued on behalf of the Debtor for Workers' Compensation, (b) &e Indemnity Agreement by POG& Corporation, dated Apnl 7, 2000. to indemnify CAN Insurance Companies in connection with issuance of Surety Bond No 159267372 issued on behalf of the Debtor for Workers' Compensation, (c) the lndenity Agreement by PG&E Corporation, dated April 7,2000. to indemnify Kenper Insurance Companies in connection with issuance of Surety Bond No 953006 issued on behalf of the Debtor for Workers' Compensation. (d) the Indemnity Agreemen by PG&E Corporation, dated April 7, 2000: to Indemnify Travelers Insurance. as suce'ssor to Reliance Insurance Company, in connection with issuance of Surety Bond No B1686191 issued on behalf of the Debtor for Workers' Compensation, and (e) the Indemnity Agreement by PG&E Corporation, dated April 7. 2000. to indemnify Firemen's Fund Insurance Company in connection with issuance of Surely Bond No 11133362811 issued on behalf of the Debtor for Workers' Compensation 1 2 In rtanonlto fDi ons and Rules of Conslructito Wherever from the context it appears appropriaite, each term stated in either the sisgulator the plural shall include both the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter Unless otherwise specified, all section, article, schedule or exhibit icfecrences in the Plan are to the respective Section in. Article of. Schedule to. or Exhibit to, the Plan The words "herem," "hereof." "hereto." "hereunder" and other words of similar import refer to the Plan as a whole and not to any particular section, subsection or clause contained u% the Plan The rules of construction contained in section 102 of the Bankruptcy Code shall apply to the construction of the Plan A term used herein that is not defined herein, but that is used in the Bankruptcy Code. shall have Doe Y6 1"1943_ I.lI 2 3 4 5 6 7 8 9 10 II 12 13 14 I5 16 17 Is 19 20 21 22 23 24 25 26 27 28 11 the meaning ascribed to that term in the Bankruptcy Code The headings in the Plan are for convenience of reference only and shall not limit or otherwise affect the provisions of the Plan ARTICLE II z TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS, PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS, AND PRIORITY TAX CLAIMS 2 I Administrative Expense Claims Except to the extent that any entity entitled to payment of any Allowed Administrative Expense Claim agrees to a less favorable treatment, each holder of sn Allowed Administrative Expense Climu shall receive Cash in an amount equal to such Allowed Administrative Expense Claim on the later ofthe Effective Date and the date such Administrative Expense Claim becomes an Allowed Admtnistrative Expense Claim, or as soon thereafter as is practicable, or on such other dale as may ýeýordered by the Bankruptcy Court, provide. h , that Allow*d Administrative Expense Claims representing liabilities incurred in the ordinary course of business bythe Debtor-in-Poaaession (including. but not limited to, real and personal piropenry iues and franchise fees) or liabilities arising under loans or advances to or other obligations incurred by the liebtor.in Possession shao be paid in full and performed by the Debtor in the ordinary course of business in accordance with the terms and subject to the conditions of any agreements governing. instruments evidencing or other documents relating to such transactions Except as provided under applicable non. bankruptcy law or cenain agreements with the Debtor approved by the Bankruptcy Court and which are incorporated into and made a part of the Plan. Post-Petition Interest wall not be paid on Allowed Administrative Expense Claims 22 ofcssiosLClmpnanntLonldReittmbursement Clalms Theholdersof Professional Compensation and Reimbursemrent Claims shallffile thet respective final" applications for allowances ofcompensation for services rendered and reimbursement of expenses incurred through the Confirmation Date by no later than the date thai is ninety (90) days after the Confirmation Date, or such'oiher date as may be fixed by the Bankruptcy Court I granted by the Bankruptcy Coor,. such awad shall be paid in full in such amounts as are Allowed by the Bnkruptcy Court either (a) on the date such Professional Compensution and [kxs NY6 tit5.7 .-21

2 3 4 5 6 7 S 9 10 II 12 13 14 k5 16 17 IS 19 20 21 22 23 24 25 26 27 25 Dos NY6 1914S_7 -29. Reimbursement Claim becomes an Allowed Professional Compensation and Reimbursement Claim, or assoor thereafter as is practicable. or (b) upon such other'tlerms as may be mutually agreed upon between such holde of an Allowed Professional Compensation and Reimbursemeii Claim and the Debtor Except as provided under applicable non banknptcy law, Post Petition Interest will not be paid on Professional Compensation and Reimbursement Claims 1--. 2 3

• =gJlxy.im Except to the extent a holder ofan Allowed'Pnonty Tax Claim has been paid by the Debtor prior to the Effective Date or agrees to a different treatment, each holder of an Allowed Prionty Tax Claim shall receive, in full and complete settlement, satisfaction and discharge of its Allowed Prionly Tax Claimincluding Post-Petilion Interest, Cash in on amount equal to such Allowed Pnorlty Tax Claim plus accrued and unpaid Post-Petitlon Interest thereon on the later of the Effecttve Date and the date such Priority Tax Claim becomes an Allowed Prionty Tax Claim, or as soon as practicable th.ereafter ARTICIE III.

CLASSIFICATION OF CLAIMS AND FQUITY INTERESTS Claims against and Equity Interests in the Debtor, other than Administrative Expense Claims, Professional Compensation and Reimbursement Claims and Prionty Taý Claims, are classified for all purposes, including voting, confirmation and distnbution pursuant to the Plan, as follows Class Clatm/lnterest Status I Other Prionty Claims Unimpaired 2 Other Secured Claims Unimpaired 3, Secured Claims Relating to First and Refunding Mortgage Bonds Impaired 4 N Morgage Backed PC Bond Claims Unimpaired 4b" MIBIA Insured PC Bond Claims ,,Unimpaired 4c IMBIA Claims Impaired 4d Letter of Credit Backed PC Bond Claims Unimpaired 4e Letter of Credit Bank Claims' Impaired 2 3 4 S 6 7 9 10 'I 12 13 14 15 16 S17 Is 19 20 21 '22

23 24 2i 26 27 2J CIa 4f 4g 5

6 7 S 9 10 II. 12, 13 14 1 C ClaIrmln Prior Bo Treasury General ISO. PX ESP Cla Envirorn Litigatio - lntentio Conveni QUIDSI Workers Preferred Common

u.

- Whale the Propon.-nts believe that Class 13 Is'unimliaired by the Plan, certain holders of Preferred Stock Equity Interests may believe that Class 13 is impaired by the Plan To avoid ,delaying the voting process, holders of Preferred Stock Equity Interests will be solicited to vote on the Plan as a precautionary measure so tI-at the voting results will be available if it is deemnmined by the Bankruptcy Court that such Class is impaired Allowing the holders of Preferred Stock Equity lnterests to vote shall be without prejudice to the Proponents' contention that this Class Is unimpaired, and the Proponents reserve the right to contest any "objection to the unimpaired status of this Class, DeSa NY6 1991451 -300-II.+ alertst ftt nd Claims Ui~impaired PC Bond Claims Unimpaired Unsecured Claims I' mpair."d and Generator Claims Impairid ins,,. Impaired isental. Fire Suppression. Pending Unimpaired in, Tort and FERC License Claims nally Left Blank)' [Intentionally Left Bhan] ence Claims Unimpaired Claims Impaired Compenistion Claims Unimpaired Stock Equity Interests, Unimpaired2 n Stock Equity interests Unimpaired

ARTICLE IV TREATMENT OF CLAIMS AND EQUITY INTERESTS' 4 I hyrnenoI Allowed Claims shall include amounts owed with respect to the penod pnor to the Petition Date and applicable interest accrued and unpaid during such pcnod Except as otherwise provided herein, holders of Allowed Claims shall also be paid in Cash accrued and unpaid interest on such Allowed Claims fromthe Petition Date through the Effective Date ("Post-Petition Interest") Except as otherwise provided herein, including Exhibit I attached hereto, any Post Pettiton Interest shall be calculated and paid at the lowest non-default rate and in accordance with the terms specified in the applicable statute, indenture or instrument governing such Allowed Claim or. if no such instrument exists, or if the applicable instrument does not specify a non-default rate ofinterest. Post Petition Interest shall be calculated and paid During the Chapter I I Case. the Debtor has entered into a number of settlemeritl with various creditors regarding the allowance and treatment of such creditors' Claims under PG&E's Plan With the exception ofrthoe settlement provisions that are unique to the allowance and treatment of such creditors' Claims under PG&E's Plan and are not relevant here. the provisions governing allowance and treatment of creditor Claims; set forth in the creditor settlements are (i) incorporated into and made pat of the Plan. and (ii) to be assumed and performed by the Debtor or Reorganized Debtor. as the case may be. under the Plan By way of example, the Plan incorporates the principal terms of the following such settlements the Committee Support Agreement, the Settlement and Support Agreement. the agreements between the Debtor and various of the drawn and undrawn Letter of Credit Banks, the agreements between the Debtor and certain QFs. the agreements between the Debtor and vainous representatives of mortgage. pollution control and other bonds Issued by the Debtor or insurance relating to such bonds, the sgreemenits between the Debtor Aild vainous generators, the PX and ISO. the Settlement and Stanislaus Commitments stipulation by and between the Debtor. the NCPA and the City of Palo Alto, the stipulation and settlement between the Debtor and the Unofficial Committee of Mortgage Bondholders, and any other such similar agreements, whether or not the terms of such settleinents are specifically referenced in the Proponents' Plan In particular, there is ircotjorated into and made par of the Proponents' Plan and will be assumed and perfortmed by the Debtor or the Reorganized Debtor. as the case may be. under the Proponents' Plan, the provisions of the Settlement and Support Agreement, with the exception of the "placement fee" provision. "step-up'" interest rate provision in section 2(aXii) thereof, the provisions relating to the payment of Cliss 5 Claims in notes and the provisions requiring support for the PG&E Plan Specifically, and subject to the foregoing, the Proponents' Plan incorporates and makes part of its Plan the provisions in the Settlement and Support Agreement contained in paragraphs I. 2(a*i), 3,4, 5(a). (c), 12, 13, 14 (only as it relates to the Proponents' Plan and its implementation). 15, 24 and 26 thereof 2 3 4 5 6 7 9 9 10 II 12 13 14 Is 16 17 is 19 20 21 22 23 24 25 26 27 28 on such Allowed Claim at the Federal Judgment Rate Except as provided under applicable ton. bankruptcy law or certain agreements with the Debtor approved by the Bankruptcy Court and which are incorporated into and made a pan of the Plan, Post-Pctition Interest will not be paid or the following Allowed Claims: Allowed Administrative Expense Claims. Professional Compensation and Reimbursement Claims, Environmental, Fire Suppressionn Pending Litigation, Tom and FERC License Claims and Workers' Compensation Claims 4 2 Timiny of Paients and Distributions (a) Pursuant to an Order entered by the Bankruptcy Court on April 9. 2001 authoniing the Debtor's interim use of cash collateral, the Debtor has paid and will continue to pay Post-Petition Interest to holders of Allowed Claims in Classes 3 and 4a In addition, the Debtor will make payments of Post Petition Interest that has accrued and is unpaid on amd after the Initial Calculation Date through the last day ofthe last calendar quarter ending pnor to the Effective Date. in arrears, in quarterly installments (or in the case of the first'quarter following the Initial Calculation Due. for holders of Allowed Claims for which February 28. 2002 is the Initial Calculation Date, the four month period from March 1. 2002 to June 30. 2002) as follows (x) on the first Blusiness Day of the next calendar quaner' to the holders ofAllowed Claims in Class S for Senior Indebtedness, the holders of Allowed Southern San Joaquin Power Authority Bond Claims and the holders of Allowed Claims in Classes 4c. 4r '4g and I I; and (y) within thirty (30) days following the end of the calendar quarter, to the 'icmnitrirn'ghldrs *of Allowed Class I Claims and the holders of Allowed Claims in Classes 1. 2,6, 7 and 10 Any Post-Petition Interest that accrues during the period comme`ncing on the first day of the calendar quarter in which the Effective Date occurs and ending on the Effective Date will be paid on the Effective Date (b) , Pursuant to an Order entered by the Bankruptcy Court on April 9, 2002 approving the Debtor's execution and performance under an agreement with the Letter of Credit Issuing Banks entitled "Summary of Terms with Respect to Forbearance and Proposed Revised Treatment of Letter of Credii Bank Claims in the Plan of Reorganization" and pursuant to an Order entered by the Bankruptcy Court on June 17, 2002 approving the Debtor's execution D-a NY 19t11457 .31. is - -al rNTO l'140_7

I 2 3 4 S .7 8 9 10 II 12 13 !4 1 6 17 Is 19 20 21 22 23 24 25 26 27 28 and performance under the LC Bank Agreement (as defined in Sm Iion 4 l0(b)(iv)), the Debtor has made and will continue to make certain payments to the Letter ofCredit Issuing Banks and to the holders of Allowed Claims in Class 4e pnor to the Fffective Date, as set forth in Such agreements and in Section 4 10 hereof" "(c) Pursuant to the Settlement Order and Settlement and Support Agreement, the accrual and payment ofPost Petition Interest shall terminate tf(i) the Debtor is determined by a Final Order of the Bankruptcy Court to be insolvent (on a balance sheet basis) with such interest accrual termination effective as of the dati'of insolency, as determined by the Bankruptcy Court. (it) upon conversion of the Chapter I I Case to a case under chapter 7, proyidd tthat there is not a subsequent determination orthe Bankruptcy Cout that there are assets of suficies'rt value to pay Post-Petilion Interest on the applicable Allowed Claias In circunstiqnces where the accrual and payment of Post Petttion lMterestierminates, any payments of Post Petition Interest maybe recharactenzed and treated as a partfal payment of the principal amount of ti-e applicable Allowed Claims (d), Except as set forth idi Sections 4 2()Y and 4 2(b) above and except to the extent a holder of an Allowed Claim or Eqiity Interest has oiherwisi beernpaid all or a ,portion of such holder's Allowed Claim or Equity Interest prior to the Effectle Dale. each of the distinbutions specified in this Article IV with respect to each Allowed Claim or Equitiy Interest shall (i) occur on the later of the Effective Date and the date such Allowed Claim or Equily Interest becomes an Allowed Claim or Equity Interest, or as soon as practicable thereafter, and (it) be in full and complete settlement. satisfaction and discharge of su~ch Allowed Claim 6r Equity Interest S.3., CL I -Otb r~fikfl y, afi. (a) 1Disibutons Each holder of an Allowed Other Priority Claim, if any. shall be paid Cash in an amount equal to such Allowed Claim I (b) lhaoirment and Voting Class I Is unimpaired by the Plan' Each holder of an Allowed Other Priority Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 2 3 4 6 7 "8 9 10 I! 12 13 14 IS 15 16 17 IS 19 20 21 22 23 24 25 26 27 28 Do1a NY$ 1"9145_7 .-a. -34. Dwc NY6 199145.7 4 4 Class 2.Ol grgj (a) .D_*tnhutions/Reilst, mI The Claims of each holder of an Allowed Other Secured Clatm shall, at the option of the Debtor. (i) be reinstated and rendered unimpaired in accordance with section 1124(2) of the Bankruptcy Code or (it) be paid Cash in an amount equal to such Allowed Other Secured Claim. i'ncluding any interest on such Allowed Other Secured Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code. (b) Imrirrol ad Voting Class 2 is unimpaired by the Plan Each holder of an Allowed Other Secured Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 5 Class 3 -Stssse4djajmtgitLAl IQ First and Refundinm Modtplg Bonds (a) Allowanc The Secured Claims Relating to First and Refunding Mortgage Bonds shall be deemed Allowed Secured Claims Relating to First and Refunding Mortgage Bonds in the amount of $2,699,000.000', plus accrued and unpaid pee-petion interet on such armourt, plus Alhdwed Claims in the amount of ali unpaid fees and expenses of the related mortgage bond trustee accrued through the Petition Date under the terms of the Mrtgage (b) Digltibmuimsi Each holder of an Allowed Secured Claim Relating to First and Refundirg Mortgage Bonds shall be paid Cash in an amount equal to such Allowed Claim "(c) Jmysinmegn* Voti_ na Class 3 is impaired by the Plan. Each holder of an Allowed Secured Claim Relating to First and Refunding Mortgage Bonds is entlitl to vote to accept or reject the Plan. 46 CIua$uJ-pMorge Backed PC Bond Claims (a) jllogm The Mortgage Backed PC Bond Claims shail be deemed Allowed Secured Claims in the amount of $345,000,000. plus accrued and unpaid pre This amount is net of the approximately S277 million of First and Refunding Mortgage Bonds held by the Debtor in treasury

petition interest on such amount, plus Allowed Claims in the amount ofall unpaid fees and expenses of the Mortgage Bond trustee accrued through the Petition Date under the terms of the Mortgage (b) Reinstatement of Claims Each series of Mortgage Backed PC Bonds, and each of the PC Bond Documents, shall remain outstanding and be reinstated in accordance with section 1124(2) ofthe Banklrpt-y Code Each holder of a M'orgage Backed PC Bond shall be paid Cash in as amount equal to any and all accrued and unpaid interest owed to such holder in respect of such Mortgage Backed PC Bond in accordance with the terms thereunder to and including the last scheduled Interest payment date preceding the Effective Date All unpaid fees and expenses of the Issuer and Bond Trustee due and owing under the applicable Loan Agreements shall also be paid'in Cash (c) ' mnairmnenýtndVoting Class 4a is unimpaired by the Plan Each holder ofan Allowed Mortgage Backed PC Bond Claim is conclusively presumed to have accepted the Plan and as not entitled to vote to accept oir reject the Plan 47 Class 4b-MB!A Insured PC Bond Claims (a) Allo.wan The MBOA Insured PC Bond Claims shall be deemed Allowed MBIA Insured PC Bond Claims in the amount of$200,000,000, plus accrued and unpaid pre-petition interest on such amount, pus Allowed Claims in the amount of all unpaid fees and expenses of the related Issuer and Bond Trustee accrued through the Petition Date under the terms of the applicable PC Bond Documents (b) Reinstatement of Claims The MBIA Insured PC Bonds. and each of the PC Bond Documents, shall rimam outstanding and be reinstated in accordance with section 1124(2) of the Bankruptcy Code Each holder ofa MBIA Insured PC Bond shial be paid Cash in an amount equal to any and all accrued and unpaid interest owed to such holder in respect of such MBIA Insured PC Bond in accordance with the terms of the respective MBIA Insured PC Bond. to and including the last scheduled interest payment date preceding the Effective Date ili unpaid fees and expenses of the Issuer and Bond Trustee due and owing under the applicable Loan Agreement shall also be paid in Cash Do0. NY& 199145 7. 2 3 4 5 6 7 a 9 10 I1 12 13 14 Is 16 ,17 19 20 21 22 23 24 25 26 27 28 (c) Impairmentand Votns Class 4b is unimpaired by the Plan Each holder of an Allowed MBIA Insured PC Bond Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 48 Class 4c - MBIA Claims (a) Allowanc The Claims of MBIA with respect to payments which may become due by the Debtor under the terms of the MBIA Reimibursement Agreement as reimbursement for payments made by MBIA under the PC Bond Insurance Policy shall be deemed contingent Claims, and the Claims ofMBIA for any and all other accrued and unpaid amounts due by the Debtor under the MBIA Reimbursement Agreement. including any and all amounts due by the Debtor as reimbursement of amounts paid by MBIA under the PC Bond Insurance Policy to the Bond Trustee for the payment of interest on the MBLA Insured PC Bonds, shall be deemed Allowed MBIA Claims (b), -Each holder of an Allowed MBIA Claim shall be paid Cash equal to its pro rats share of the aggregate amount paid by MBIA to the Bond Trustee with respect to the payment of interest on the MBIA Insured PC Bonds dunng the penod from the Petition Date to and including the last scheduled interest payment date pr6ceding thei Effective Date, together with its pro rats share of all other amounts due and owing to MBIA under the terms of the MBIA Reimbursement Agreement through the Effective Date, including any accrued and unpaid intercst due on such amounts to the extent provided in the MIlA Reimbursement Agreement at the noss-default rate (c) Imnlirment and Voting Class 4c is impaired by the Plan Each holder of sn Allowed MBIA Claim is entitled to vote to accept or reject the Plan 49 Class 4d.*.rLetter Creditj Backed PC Bond Claims (a) Iq1 The Letter of Credit Backed PC Bond Claims shall be deemed Allowed Letter of Credit Backed PC Bond Claims in the amount of $613.550.000, plus accrued and unpaid pre petition interest on such amount, plus Allowed Claims in the sinount of all unpaid fees and expenses of the related Issuer and Bond Trustee accrued through the Petition Date under the terms uf the applicable PC Bond Documents tJkk NY6 1"141.1 16

.2 3 4 '6 .7 9 10 II 12 "13 " 14 16 17 18 19 20 21 22 23 24 .25 26 27 28 (b) FRniateent ofClam*t Each series aLt.eater of Credit Backed PC Bonds, and each of the PC Bond Documents, shall remain outstanding and be reinstated in accordance with section I t24(2) of the Bankruptcy Code Each holder of a Letter of Credit Backed PC Bond will be paid Cash in an amount equal to any and all accrued and unpaid interesi owed to such holder in respect of such Letter of (Credit Backed PC Bond in accordance with the terms thereof to and including the list scheduled interest payment date preceding the Fffective Date 'All un paid fees and expenses of the Issuer and Bond Trustee due and owing under the applicable Loan Agieemcnt shall also be paid iný'Cash (c) I r.Jpat1esisd Votsrg Class 4d is unimpaired by the Plan Each holder of an Allowed Letter of Credit Backed PC Bond Claim is conclusively presumed to have accepted the Plan and Is not entitled to vote to accept or reject the Plan 4 l0 Class 4e -Letter of Credit Bank Claims Allowarnc The Letter of Credit Bank Claims consist of (i) Allowed Letter of Credit Bank Claims in the amount ciftany'and all accrued and unpaid amountl due by tbe Debtor under each of the Reimburse'ment Agreements (as mtodfied by the IC Bank Agreedient), including, without limitation iný and all amounts due by the Debtor as reimbursement of amounts paid by'a Letter of Cred;t issuing Bank under its Letter of Credit to the Bond Trustee for the payment ofinterest on the related Letter of Credit Backed PC Bonds and any and all interest and fees due thereunder and (ii) with respect to payments'that may become due by the Debtor under thi terms of each of the Reimbursement Agreements (as modified by the LC Bank Agreement), including, without limitation', as reimbursement for amounts drawn under the Letters of Credit as well as for interest and fees due thereunder, contingent Claims in an amount equal to any and all such oattstariding amounts (b) Disrnbutions (i) Commencing on June 27. 2002 and continuing with respect to each Letter of Credit Issuing Bank until the rarier of(s) the Effective Date, (it) the '1 2 3 4 5 6 7 8 9 10 II 12 13 14 IS 116 17 18 19 20 21 22 23 24 25 26 27 28 V a rY6 tstit9? .3.Y date the respective Letter of Credit is terminated or the stated amount thereof Is permanently reduced, or (iii) the date that any orthe related series of Letter of Credit Backed PC Bonds are redeemed, to the extent that the Debtor has not reimbursed the asspltcable Letter of Credit Issuing Bank and the applicable Banks. if any. for drawings made on the related Letter of Credtt with respect to the payment of interest on the related ieries of t etter of Credit Backed PC Bonds to the extent provided in the respective Reimbursement Agreement. each holder of an Allowed Letter of Credit Bank Claim will be paid Cash in a" mount equal to its pro rats share tfthe aggregate amount paid by the respective Letter'of Credit Issuing Bank to the respective Bond Trustee under the terms of the applicable Letter of Credit with respect to the payment of the interest on the Letter of Credit Backed PC Bonds to which such Letter ofCredit Bank Claim relates during the period from the Petition Date to and including the last scheduled interest payment date on such Letter of Credit Becked PC Bonds preieding the EfTectivi Date ' Each holder of an Allowed Letter of Credit Bank Claim will also be paid Cash in an amount equal to its pro rate share of all other amounts then due and owing to the respective LeWer ofCredit Issuing Bank and the applheable Banks. if any. under the terms of the respective Reimbursement Agreement (other than for reimbursement ofdrawings on the respective Letter of Credit) through the Effective Date. Including. without limitation, interest at the interest rate due on much amounts to the extent provided in the respective Reimbursement Agreements and any due and owing Forbearance. Extension and Letter of Credit Fees (as hereinafter defined) through the Effective Date. and tfe reasonable fees and expenses of unrelated third-party professionals retained by the Letter of Credit Issuing Banks. to the extent Incurred subsequent to the Petition Date In the Chapter I I Case (iI) On the Effective Date one of the following shall occur with respect to each series of Letter of Credit Backed PC Bonds and its respective Letter of DýA MY6 199141 7 .)I.

2 3 4 6 7 ,8 9 10 II 12 13 14 15 16 17 Is 18 19 20 21 22 23 24 25 26 27 28 Credit, at the option of the Debtor separately for each series of Letter of Credit Backed PC Bonds (A) Ejjd1ULQM The respectve sriesofLeterofCredil Backed PC Bonds shill be called for mandatory tender in accordance with the terms ofthc respective Indenture and shall be purchased by the respective Bond Trustee through It draw on the related Letter of Credit and. at the option of the respective Letter of Credit Issuing Bank, shall either be registered tn the name of the respective Letter of Credit Iassing Bank or in the name of the Debtor subject to a first lien security interest in favor of the respective Letter of Credit Issuing Bank to additionally secure the obligations of the Debtor under the related Reimbursement Agreement On the Effective Date. to the extent that the Letter of Credit Issuing Bank and the Banks have not been reimbursed therefor, the Letter ofCredit Issuing Bank will receive Cash in an amount equal to the sum of(t) the interest portion of the puiihase price ofthe tendered Letter of Credit Backed PC Bonds paid out of&a draw on the respective Letterof Credit. and (id) the aggregate amount paid by the respective Letter of Credit Issuing Bank to the respective Bond Trustee under the trims of the applicable Letter of Credit with respect to the payment of the interest on the respective Letter of Credit Backed PC Bonds duri;g the period from and after June 27, 2002 to and ticluding the last scheduled interestipayment date on such LEtter of Credit Backed PC Bonds preceding the Effective Date. together with interest at the non default rate due on such amounts to the extent provided in the iespective Reimbursement Agreement On the Effective Date, the Letter of Credit Issuing Bank shill transfer the related Letter of Credit Backed PC Bonds in the aggregate onginal principal amount a set forth on Exhibit 2 attached hereto to the Debtor or its assignee free and clear of all liens On the Effectiv Date, the Letter of Credit Issuing Bank will receive (i) Cash tn-an amount equal to the principal portion of the purchase pace of the tendered Letter of Credit Backed PC Bonds paid out'of a Do-8 NY6 1"9141_ 2 3 4 S 6 7 a 9 10 II 12 13 14 Is 16 17 It 19 20 21 22 23 24 25 26 27 28 draw on the respective Letter of Credit. and (it) a fee (the "Purchase Option Incentive Fee') in an amount equal to 0 4% of the principal portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit (B) BsMUkzinLQ wm The respective series of Letter of Credit Bacied PC Bond. shall be called for mandatory tender in accordance with the terms of th4 respective Indenture and shall be purchased by the respective Bond Trustee through a draw on the related Letter of Credit The Debtor will then either (i) provide or cause to be provided to the respective Bond Trustee in alternative 'Credit Facility" pursuant to the terms of the respective Indenture in licu of the existing Letter of Credit. or (ii) obtain the consent of the Issuer to remarket the respective series of Letter of Crtdit Backed PC Bonds without credit enhancement in accordance with the terms of the applicable Indenture In eithcr evert the respective aeries of Letter of Credit Backed PC Bonds'shall be rema'rketd, at par, in accordasnce with the terms of the Indenture and the other PC Bond Documents In such event, on the Effective Date, the Lette of Credit Issuing Bank'will receive, to the extent that the Letter of Credit Btnk has not been reimbursed therefor (i) from the Debtor, Cash in an amount equal to the sum of(A) the interest portion of the purchase pnce of the tendered Letter of Credit Backed PC Bonds paid out of& draw on the respective Letter otCredil, and (B) the aggregate amount paid by the respective I cir of Credit Issuing Bank to the respective Bond Trustee under the terms of the applicable Letter of Credit with respect to the payment of the interest on the respective Lettet of Credit Backed PC Bonds duning the penod froom and after June 27, 2002 to and including the last scheduled interest payment date on such Letter of Credit Backed PC Bonds preceding the Effective Date, together with interest at the non-default rate due on such ansounts to the extent provided in the respective Reimbursement Agreement, (ii) fron the Debtor, a fee (the "Remarketing Option Incentive Fee") in an amount equal to either (1) 0 5¶. ofthre aggregate D*i Ni6 1"t14i11 40 0.IS

1 2 4 6 7 8 9 I0 II 12 13 14 ,16 ' 17 Is 19 20 21 22 23 24 25 26 27

• 28 (C) + N 0o Bonds Ootio9 With respect t, each Lettir o464redt, ssuing Bank and the related Banks, if any, in the event that neither the Purchase Option nor the Remarketi~g Option. as applicable, can be consummated or the respective senes or Letter'of Credtt Backed PC Bonds are redeemed on or prior to the Effective Date as the result ofthe expiration of the respective Letter of Credit or otherwise, then at the option of she Debtor separately for each Letter of Credit Bank Claim and Reimbursement Agreement eitherý (I)

On the Effective Date, the'Letter or Credit Issuing Bank will receive Cash in an amount equal to the sum or(A) the prin.,ipai I portion of the redemption price of the redeemed Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit (the "Princinaj Reimbursement") and (B) any and all acc'ued and unpaid interest owing to the Letter of Credit Issuing Bank in respect or such Princpal pnncipal amount of the reipective I eiret of( redif Backed PC Bionds remarketed on the Fffective Date the payment of the pnncipal or and interest on '%.hlLh are secured by either a replacement I ltetr of Credil, m ith I lerm of not less then one year from the Efeetie I Date, delivered to the Tnistee in accordance with the lenns of the respective Indenture upon terms acceptable to the Debtor or an extension of the existing I etter of Credil delivered to the Trustee in accordance with the terms of the respective Indenture upon terms acceptable to the Debtor. or (2) 0 4% of the aggregate principal amount of the respective Letter of Credit Backed PC Bonds remarketed on the E ffective Date the payment of the pnncipal of and interest on which are not secured by such a Letter of Credit. and (mii) from the Bond Trustee, an amount equal to the prncipal portion of the purchase pince of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, which amount shall be paid from the, remarketing proceeds of the respective Letter of Credit Backed PC bonds in accordance with the lerms of the respective Indenture Daie NYG Iit41S .4t. .42. Doa NY6 1991457 ,-jIV, 2 3 4 5 7 8 9 10 II 12 13 14 16 Is 19 20 21 22 23 24 25 26 27 28 1.-0 I I I I , I I Reimburseinent. at a nuctuating rate of interest, in accordance with the terms of the applicable Reimbursemnst' Agreem eni: or (2) On the Effective Date, the Letter of Credit Issuing Bank shall sell, transfer and assign to the Debtor or its assignee, withoul recourse, ali of the Letter of Credit Issuing Bank's and the related Banks' rights, title and interest in the applicable Letter of Credit Bank Claim and Reimbursement Agreement. including, but not limited to. the right to receive repayment of the Pnncipal Reimbursement in the aggregate principal anmount as set forth on Exhibit 2 attached hereto, together with the right to receive paymssent of inte'e'st thereon as set rorth in the amended Reimbursement Agreement, free and clear of all liens. On the EfTectivi Date, the Debtor or its assignee shall purchase from the Letter of Credit Issuing Bank and the related Banks. if any. all of their rights, title and interest In the applicable Letter ofrCredit BaMk Claim and Reimbursement Agreement for a purchase price in Cash in an amount equal to the sum of(A) the respective Principal Reimbursement and (B) any and all accrued and unpaid interest owing to the Letter of Cred,t Issuing Bank in respect of such Principal ReimbUrsement, at a fluctuating rate of Interest, in accordance with the terms of the applicable Reimbursement Agreement In addition to the foregoing with respect to the No Bond Option, if (i) the Letter of Credit Issuing Bank mainltain6s its Letter of Credit outstanding in the stated amount set forth on Exhibit 2 attached hereto through the Effective Date and does not provide :: the Trustee with notice ofdefautt under its Reimbr sement Agreement or non-reinslateinent oi its Letter of Credit or take any other action which would result in the redemption, either in whole or in part, of the outitanding Lettei of Credit Backed PC Bonds without the prior written consent of the Debtor, and (di) the Letter of'Credit Issuing Bank and each ofthe related Banks, irany, take all action reasonably required by the Debtor to keep the Letter or Credit Backed PC Bonds

outstanding and to facilitate either the Purchase Option or the Remarketing Option. as applicable including, without limitation, giving direction to the Trustee, providing commercially reasonably indemni fication to the Issuer and Trustee. and using their best efforts to consummate the proposed amendments to the terms of the Letter of Crodit Backed PC Bonds as set forth in the LC Bank Agreement (as hereinafter defined) and to consummate either the Purchase Option or the Remarketing Option as applicable, so as to maintain for the Debtor the benefits of the tax exempt financing provided by the related series of Letter of Credit Backed PC Bonds, then, on the Effective Date (A) in the event that the Letter of Credit Backed PC Bonds were redeemed prior to the Effective Date for reasons beyond the control of the Letter of Credit Issuing Bank, the Leger of Credit Issuing Bank will receive from the Debtor, a fee in an amount equal to 0 05% ofthe principal portion ofrthe redemption price ofbthe redeemed Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, and (B) in the event that thi Letter o Credit Backed PC Bonds are redeemed on the Effective Date for reassons beyond the control of the Letter ofCredil Issuing Bank, the. Letter of Credit Issuing Bank will receive from the Debtor, a fee (the "No Bonds notion Fee") in an amount equal toO 100% of the principal portion ofthe redemption price of the redeemed Letter ofCredit Bicked PC Bonds paid out of a draw on the respective Letter of Credit (III) Pursuant to the terms of an Agreement among the Debtor and each ofrthe Letter of Credit Issuing Banks (the "L. mnk Aireement") that was approved by order of the Bankruptcy Court entered on June 17, 2002, the Letter of Credit Istuint Banks have agreed, among other things and subject to certain conditions, to (A) maintain each ol the Letters of Credit outstanding in the stated amounts set forth on Exhibit 2 attached hereto, (B) not provide the Trustee with notice of any default under any of the Reimbursement Agreements or non-reinstatement of any of the Letters of Credit or take any other action which would result M-11 NYG 1"145_7 2 3 4 S 6 7 8 9 10 -II -12 13 14 Is 16 17 Is "19 20 21 22 23 24 25 26 28 in the mandatory tender or redemption, either in whole or in par, of any of the outstanding Lette of'Credit Backed PC Bonds without the pror written consent of the Debtor. and (C) extend the expiration date of each of the Letteru of Credit to the first business day subsequent tn the one (I) year anniversary of the expiration date of each Letter ofCredii existing as of the Petition Date. p.ovids, however that each Letter of'Credit Issuig Bank is only obligated to undertake or refrain from undertaking those actions set forth in clauses (A) and (B) immediately above until the earlier of(i) the last interest payment date on the related series of Letter of Credit Backed PC Bonds immediately preceding the expiration date of such Letter of Credit. as such eapiration dait shall be extended in accordance with the terms of the LC Bank Agreement. or (ii) the occurrence of a "Termination Event" (as such term is defined in the LC Bank Agreement) In consideration for such forbearance and other actions by the Letter of Credit Issuing Bank, the Debtor shall. subject to certain terms and conditions as set forth in the LC Bank Agreement, pay to each Letter of Credit Issuing Bank, (I) during the period from and after June 17, 2002 and continuing until July I. 2002.'quaterly, in anrears, the Letter of(Credit fee as set forth in the respective Reimbursement Agreement (the "Orietnal Le ter of Credit Fee"), together with an amount equal to the positive difference. if any. of an amount per annum equal to two percent (2%) ofthe Stster Amount of the Letter of Credit, less the Onginal Letier of Credit Fee, which total fes accrues from and after December 1, 2001 and until July I, 2002. and has been payable on the same dates as are set forth for payment of I titer of Credit Fees in the applicable Retmbursemnent Agreement and (2) during the period from and after July I. 2002 ind continuing until the Effective Date, quarterly. in arrears. the Original Letter ofCredit Fee, together with an amount equal to the positive difference, if any. of an amount per ianum equal to tWree percent (3%) of the Stated Amount ofrthe l eiter of Credit, less the Original Letter of Credit Fee, which total fee accrues from said after July 1. 2002 until the Effective Date, and shall be payable on the same'dates as are set forth fur payment of Letter of Credit Fees in the applicable Reimbursement Agreement D-oc1 NYs 1145. -44. i, .41.

I. 0 4? (the Original Letter of Credit Fee together with such additional sums being hereinafler referred 1( collectively as the' F9stearancc EXLenpopaInj Lpyt!.flc1eT..) Additionally. pursuant to the terms of the LC Bank Agreement, the Debtor has agreed, among other things and subject to certain conditions, to pay to Deutsche Bank AG New York Branch an agency feein the amount of $250,000. which fee was paid by the Debtor on June I9, 2002. (c) Imp nt and Vojilpg Class 4e is impaired by the Plan Faclrholder of an Allowed I etter of Credit Bank Claim is entitled to vote to accept or reject the Plan I

• 2 3

4 5 6 7 8 -r9 10 II 12 13 14 Is 17 19 20 21 22 23 S24 25 26 27 28 2 3 4 6 7 9 10 II 12 13 14 16 S17 is 19 20 21 22 23 24 25 26 27 28 D-9W NY6 19914iS? .4. 4 II (a) Allowarnc The Prior Bond Claims shall be deemed Allowed Pnor Bond Claims in the amount of S453,550,000, plus any and all other accrued and unpaid amounts due by the Debtor under the terms of each of the Prior Reimbursement Agreements: prv!.Bd, hwe._gyg,, that each Allowed Prior Bond Claim will be paid in the amount necessary to tender it unimpaired as set forth herein (b) Distrbubmio. Each Allowed Prior Bond Claim will be reinstated and rendered unimpaired in accordance with section 1124(2) of the Bankruptcy Code' On the Effective Date one of the following shall occur with respect to each Prior Reimbursement Agreement and all of the Allowed Prior Bond Claims arising with iespect thereto' "(i) Each holder of an Allowed Prior Bond Claim will be paid ah in'an imount equal to (A) the outstanding Reimbursement Obligation, or portion thereof. owing to such holder, (B) any and all accrued and unpaid interest owing to such holder in respect of such Reimbursement Obligation or applicable portion thereof at a fluctuating rate ofinterest accordance with the terms of the applicable Reimbursement Agreement, and (C) all other' amounts due and owing to the respective holder of an Allowed Prior Bond Claim under the terms of the respective Prior Reimbursement Agreement, through the Effective Date, (n) Alternatively, upon the written request of the Debtor, with the prior written consent of the respective Prior Letter of Credit Issuing Bank. the related Banks

• 46 -

and each of the other holders of Allowed Prior Bond Claimis related thereto, each such holder of an Allowed Prior Bond Claim will be paid Cash in an amount equal to (A) any and all accrued and unpaid interest owing to such holder in respect of the Reimbursement Obligation or applicable portion thereof owing to such holder at a fluctuating rate ofrinierest in accordance with the terms or the applicable Reimbursement Agreement, and (B) all other amounts (other than the Reimbursement Obligelion or applicable portion thereofl due and owing to the respective holder of an Allowed Prior Bond Claim under the terms of the respective Prior Reimbursement Agreement. through the Effective Date On the Effective Date, the applicable Prior Letter of Credit Issuing Bank, the related Banks and any other holders of Allowed Prior. Bond Claims related thereto shall sell. transfer and assign to the Debtor or its assignee, all ofthe Prior Letter of Credil Issuing Banks'. the applicable Banks'. and all of the related Allowed Prior Bond Cluim holders' rights, title and interest in the applicable Prior Reimbursement Aireement, including, but not limited to. the right to receive repayment of the Related Reimbursement Obligation. together with the right to receive payment of interest thereon as set forth in the applicable Prior Reimbursement Agreement. free and clear of all liens. In such event, on the Effective Date. the Debtor or its assignee shall purchase from the Prior Letter ofCredit Issuing Bank, the related Banks and the holders of the related Allowed Prior Bond Claims. all oftheir rights, title and interests in the applicable Prior Reimbursement Agreement for a purchase price in Cash in an amount equal to the respictive Reimbursement Obligation All of the documents related to the transfer and sale of rights under the Prior Reimbursement Agreement shall be in form and content satisfactory to the Debtor. the Prior Litter ofCredit Issuing Bank. the relatedk Banks and each of the other holders orAllowed Prior Bonds Claims related thereto (c) WaillmlandVoi*"i. Class 4f is unimpaired by the Plan Each holder o'f an Allowed Prior Bond Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 12 QIams 41 -Treasury PC BondClai*m (a) Allowtanc The Treasury PC Bond Claims shall be deemed Allowed Treasury PC Bond Claims in the amount of $80,770,000, plus accrued and unpaid pre-D-0 NYI; 1991437?

2 3 4 S 6 7 8 9 10 II 12 13 ,14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 15 Elm 7I - ESP Claim petition Interest on such amount, plus Allowed Claims in the amount of all unpaid fees and expenses ofthe related Issuer and Bond Trustee accrued through the Petition Date under the terms of the applicable PC Bond Documents Mb) R1iMl mnt rcQ, Each series of Treasury PC'Bonds, and the Loan Agreements and PC Bond Documents related thereto, shall remain outstanding and be reinstated in accordance with section 1124(2) or the Bankruptcy Code Each holdeirof a Treasury PC Bond shall be paid Cash in an amount equal to any and all accrued and unpaid tnlerest owed to such holder in respect of such Treasury PC Bond in accordance with the terms thereof to and including the last scheduled interest payment date preceding the Effective Date All unpaid fees and expenses of the Issuer and Bond Trusteý due and owing under the applicable Loan Agreement shall also be paid in Cash "W() lmlpgie Class 4g Is unimpaired by the Plan Each holder of an Allowed Treasury PC Bond Claim is conclusively presumed to have acce-pted the Plan and is not entitled to vote to accept oýr jrelct the Plan 4 13 Class 5 -Geeral Unsecured Claims (a) Pjg j Each holder of an Allowed General Unsocured Claim shall be paid Cash in an amount equal to such Allowed Claim (which shall include pre petition interest only to the extent not previously paid) (b) Imoairment and Voting Class 5 is impaired by the Plan Each holder of an Allowed General Unsecured Claim is entitled to vote to accept or reject the Plan 4 14 Class 6 - ISO PX and Generstor Claims (a) [Wibuio~jtni Each holder Ofran Allowed ISO. PX and Generatoir Claim shall be paid Cash in an amount equal to suc'hAliowed Claim (which shall include pre petition interest only to the extent not previously paid) (b) Imo sin.and'oling Class 6 is impaired by the Plan Each holder ofran Allowed ISO. PX and Generator Cslaim is entitled to vote to accept or reject the Plan 8 9 10 II 12 13 14 15 16 17 1I 19 20 21 22 23 24 25 26 27 25 2 3 4 "6 7 (b) Liuldstion of nviromentalFire Sopression EMn4M [Ilh hon.T2n and FERC" Lcense Claims All Environmental, Fire Suppression, Pending Litigation, Tort and IhRC License Claims art Disputed Claims and sall be determined, resolved, or adjudicated, as the case may be. in manner as If the Chapter I t Case had' rot been Commenced (except that, under sections 365 and/or 1123(b)(2) oftha Batikrupicy Coda, contractual provisions, accelerations and defaults eliminated or rendered unenforceable by such sections shall remain eliminated or unenforceable, and the stay shall remain un place for any Environmental, Fire Suppression, Pending itigation. Ton and FERC License Claims'as to which sections 365 and/or 1123(bX2l ofthe Bankrupcy Code'are applicable) and shail survive the Effective Date as if the Chapter I I Case had not beer. commenced and. upon the determination, resolution or adjudication of any such Claim as provided herein, such Claim shall be deemed to be n Allowed Environmental Claim. Allowed Fire Suppression Claim. Allowed Pending Litigation Claim, Allowed Ton Claim'or Allowed FERC License Claim, as thE case may be, in the amount or in the manner determined by a Final Order or by a binding award, OarS NiY6 19"14_7? 45 (a) 2IgbW= Each holder ofan Allowed ESP Claim shal be paid Cash In an amount equal to such Allowed Claim (which shall include pre-petition interest only to the extent not previously paid) (N). lm2!iMMenqn tn Class 7 is unpaired by the Plan Each holder of an Allowed ESP Claim is entitled to vote to accept or reject the Plan 4 16 Class I - Environmental. Fire Suporcsslon. Pendin Litigation, Tort and FERC Licnselams (a) Di jlm Subject to Section 4 16(b), each Allowed Environmental, Fire Suppression. Pending Litigation, Torn and FERC License Claim shall be satisfied in full in the ordinary course ofbusines at such time and in such manner as the Debtor or the Reorganized Debtor. as the case may be, is obligated to satisfy such Allowed Claim under applicable law Except as provided under applicable non-bankruptcy law, Post-Petition Interest will not be paid on Allowed Environmental, Fire Suppression, Pending Litigation. Tort and FERC License Claims .47. 11D-0 NYa 19994S I

4 4 2 3 4 4 6 7 8 9 10 II 12 13 14 is 1.6 17 19 20 21 22 23 24 25 26 27 21 agreement, or stitlemi'nt; p59Lc*Lded, howevcrr that in addtionito the Debtor's preservation of all nghts and defenses respecting any Environmental Claim, Fire Suppression Claim. Pending Litigation Claim, Tort Claim or FERC License Claim that exist under applicable nonbankruptcy law. (,) any rejection, avoidance, recovery or othe*r power or defense available to the Debtor under section 365, 5I0 (except subordinatinn). 542, 543, 544, 545, 5471 548. 349.550, 553 or 724 of the Bankruptcy Code is preserved, except with respect to any Environmental Order, and (it) the Debtor may object under iection 502 ofithe Bankruptcy Code to any Environmental Claim. Fire Suppression Claim. Pending Litigation Claim, Tort Claim or FERC License'Claim on the ground that (A) such Environmental Claim. Fire Suppression Claim, Pending Litigation Claim. Torl Claim or FERC License Claim was noi timely asserted in the Chapter Ii Case, (B) such Environmental Claim. Fire Suppression Claim, Pending Litigation Claim. Tort Claim or FERC License Claim is subject to any power or deteiise reserved in clause (i) of this sentence and/or is disallowable under section 502(d) of the Bankruptcy Code. or (C) such Environmental Claim, Fire Suppression Claim. Pending l itigation Claim, Tort Claim or FERC l.icense Claim is ijisallowabli. undcr section 502(e) of the Bankruptcy code, to the extent such section is relied on to, ensure that there is no duplication in the claim of an allegedly subrogated claimant.'on'the one hand, and the underlying claimant whose claim allegedly gave rise to the subrogated claim, on the other, Subject to the foregoing, all Environmental, Fire Suppression, Pending Litigation. Torl and FERC License Claims shall be determined and liquidated under apphicable nonbankrupicy law in the administrative or judicial tnbunal in which they are pending as of the Effectpve Date or, ifno such action is pending on the Effective Date. in any administrative or judicial tnbunal of apropriatejutisdiction (inher than the iankruitcy Court) To effectuate the foregoing, the entry ort e Confirmation Order shall, effective as ofrthe Effective Date, constitute a modification of tny stay or injunction under the Bankruptcy C6de that wouid otherwise' preclude the determination, resolution, or adjudication of any Environmental Claims,*FFire Suppretsiprk Claims, Pending Litigation Claims. Tort Claims or FERC License Claims, except for any Environmental Claim. Fire Suppression Claim. Pending Litigation Claim. Torl Claim or FERC License Claim arising out of the exercise by the Debtor. as Debtor-in-Possession. of any 2 3 4 5 6 7 9 10 II 12 13 14 Is 16 17 II 19 20 21 22 23 24 25 26 27 28 c' NYI I J .40 D5 49. DocI N'Y6 199141_7 - 50. rejection, avoidance, recovery, or other power or defense available to it pursusat to any one or more of sections 365, 510 (except subordination), 542. 543, 544. 545. 547, 548. 549, 550. 553 or 724 of the Bankruptcy Code. except with respect to any Environmental Order Nothing contained in this section 4 16(b) will constitute or be deemed to constitute a waiver or release of any (i) claim, right or Cause of Action that the Debtor or Reorganized Debtor may have against any Person or Governmental Entity in connection with or arising out of any Environmental, Fire Suppression, Pending Litigation, Toil and FERC License Claims, including. but not limited to. any rights under Section 157(b) of Title 28, United States Code, or (ii) defense In any action or proceeding in any administrative or judicial tnbunal, including, but not limited to, with respect to the jurisdiction of such administrative or judicial tnbunal, except a defense to a Claim that was timely filed in the Chapter I I Case and that constitutes an Environmental Claim. a Fire Suppression Claim, a Pending Litigation Claim, a Tort Claim or a FERC License Claim. where such defense is based on the discharge of section 114 1(d) of the Bankruptcy Code In light of the unimpaired pas;-through treatment of Environmental Claims, Fire Suppression Claims, Pending Litigation Claims, Tort Claims and FERC License Claims hereunder, the Reorganized Debtor waives the discharge of section 114 1(d) of the Bankruptcy Code u to any Claim that was timely riled ii the Chapter I I Case and that constitutes an Environmental Claim, a Fire Suppression Claimk'a Pending Litigation Claim. a Tort Claim or a FEkC License Claim As to any consent decree, injunctioi, cleanup and abatement order or any other administrative or judicial order or decree binding upon the Debtor and in effect as of the Effective Date (whether oriinatling before or after the Petition Date) that pertains to any environmental matter described in clauses (a) through (c) of the definition of Environmental Claim heieln (each an' Envlronmental Order"). each such Environmental Order, regardless of whether it constitutes or is characterized as an Environmental Claim, shall also survive the Effective Date as if the Chapter I I Case had not been commenced, shall not be discharged under section 1141(d) of the Bankruptcy Code. and shall not otherwise be adversely affected by the Chapter I I Case (except for any objection to such Environmental Claim based on the contention

2 3 4 5 6 7 a 9 10 II 12 13 14 IS 16 17 IS 19 20 21 22 23 24 25 26 27 28 that such Environmental Order is an Environmental Claim that was not timely asserted in the Chapter I I Case) (c) 1MRAi[11iessar _Y&= Class $ is unimpaired by the Plan Each holder of an Allowed Environmental. File Suppression: Pending Litigation. Tort or FERC License Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 17 [Intentionally Left Dlank] 4 18 Class 10 - Coniveniene Claims. (A) i*aniifiM Each holder of an Allowed Convenience Claim shall be paid Cash in an amount equal to one hundred percent jl00%) of such Allowed Claun (b) hooehsir stasndYgtli Class 10 is unimpaired bythe Plan Each holder ofan Allowed Cotnvenience Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or ieject the Plan 4 19 Class I I - OIDS Claims (a) AU2in.' ilTe QUIIDS Claims shall be deemed Allowed QUIDS Claims in the amount of "300,000,000, plus accrued and unpaid pre-petition interest on such amount (b) "- mniriM Each holder of an Allowed QUIDS Claim salil be papd Cash us an amount equal to such Allowed Claim (c) ImV1MMncnt andY Zosine Class I I is impaired by the Plan Each holder or an Allowed QUIDS Claim is entitled to vote so accept or reject the Plan 4 20 Class 12-Workers' Comoenstion Claims (a) PIs&jz lEich Allowed Workers' Compensation aiim a&rsing prior to the Petition Date shall'be satisfied in full in the ordinary course of business at such ttme and in such manner as the Debtor or the Reoiganized Debtor, as the case may be. is obligated to satisfy such Allowed Claim under applicable law Poat-Petition Workers' Compensation Claims are treated as Administrative Expense Claims herein and shall receive the same pass-through treatment as Workers' Compensation Claims arising pnor to the Petition D4ca NYC 1t143 7 ,$1. 1 2 3 4 S 6 7 9 10 II 12 13 14 IS 16 17 Is 19 20 21 22 23 24 25 26 27 28 A) Date Except as provided under applicable non bankruptcy law, Post-Petition Interest will not be paid on any Workers' Compensation Claims Nothing herein shIll affect (i) the aubrogatton nghts, to the extent applicable or available. of any surety of prc.pictsion or post-peition Workers' Compensation Claims or (it) the rights of the Debtor to object, pursuant to the Bankruptcy Code. to the existence of any such subrogation rights (b) Inm2inCnlnandVolIn Class 12 is umnimpasred under the Plan Each holder of an Allowed Workers' Compensation Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 421 Class 13 -Preferred Stock Foulty Interests (a) T Each holder ofa Preferred Stock Equity Interest shall retain its Preferred Stock in the Reorganized Debtor and shall be paid in Cash aniy dividends and sinking fund payments accrued in respect of such Preferred Stock through the last schcduled payment date pnor to the Effective Date (b) , Impairment nd Voting While the Proponents believe that Class 13 is unimpaired by the Plan, certain holders of Preferred Stock Equity Interests may believe that Class 13 is impaired by the Plan To avoid delaying the voting proccas holders of Preferred Stock Equity Interests are being solicited to vote on the Plan as a precautionary measure so that the voting results will be available if it is determined by the Bankruptcy Court tIhat such Class is impaired Allowing the holdersof Preferred Stock Equity lnterest* to vote hll be without prejudice to the Proponents' contention that this Class is unimpaired and the Proponents reserve the nght to contest any objection to the unimpaired status of this Class 4 22 Class 14 -Comm*n StckEuty Interests (a) lTeasmc The holders of Common Stock Equity Interests shall retain their interests in the Common Stock b) moimeniat ind Voti'* Class' 14 is unimpaired bythe Plan Each holder of an Allowed Common Stock Equity Interest is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan D8 MNYS 1991t $ 1 -55

+4 6 '-'7 8 9 10 II 12 14 14 IS 16 17 19 20 21 22 23 24 25 26 27 28 Sý ARTICI E V PROVISIONS REGARDING VOTING AND "DISTRIBUTIONS UNDER TIIE PLAN AND TRFATMIENT OF DISPU] ED. CON I INCEN r AN4D UNLIQUIDATED ADNIINISTRATIVE SFXPENSE CLAIMS, CLAINIS AND EQUI rY INTERESTS 5 I V_.m.[F1jt* .qyjt Fach'holder ofrecord as of the Voting Record Date ofan Allowed Claim or Equity Interest in an Impaired Class of Claims or Fquity Interests set forth in Article IV hereof %hall be entitled to vote separaleli to accept or reject the Plan with regard to each'lmpaired Class of Claims or Equity Interests as provided in the Procedures Order If the Debtor objects to a Claim: the ClaIlm biecomes'sl Disputed Claim The holder of a Disputed Claim is not entitled to vote on the Plan unless the Debtour or such holder of the Disputed Claim obtains an order of the Bankruptcy Court estimating the aisount of the Disputed Claim for voting purposes If the Debtor does not object to a Claim prior to the date on which the Disclosure Statement and the Ballot awe transmitted to creditors and interest holders for voting, then the holder of such Claim will be pemitited to vote on the Plan in the full amount of the Claim as riled 2 EliminationofVae2antLCLjL Any Class'ifClaims that is not occupied as of the commencement of the Confirmation I learisg by an Allowed Clsam or a Claim' temporanly allowed under Bankruptcy Rule 301 or as to which no vole is cast shall be deemed eliminated from the Plan for purposes of voting to accept or reject ilhe Plan and for purposes of determining acceptance or rejection of the Plan by such Class pursuant to section I 129(a)(l) Of the Bankruptcy Code I I 53 - Nonconsensual C*n-*flm-tio-' If any Impaired Class ofClaims or Fquity Interests entitled to vote shall not accept the Plan by the requisite statutory majonties provided in section t1 26(c) of the Bankruptcy Code, then the Proponents reserve the right to amend the Plan in accordance with Section I I 10 hereofor to undertake to have the Bankruptcy Court confirm the Plan under section 1129(b) of the Bankruptcy Code, or both "5 4 Method of Distributions Under the PMan (a) Disbursing A Rent All distributions under the Plan shall be made by the Debtor as Disbursing Agent or such other Entity designated by the Proponents as 2 3 4 .6 7 S 10 II 12 13 14 15 16 IS 19 20 21 22 23 24 26 27 28 .54. Do-NYd 1"1457 Disbursing Agent A Disbursing Agent shall not be required t6 p'rovlde a'ny bornd, surety or other secuunty for the performance of its duties, unless otherwise ordered by thi Bankrup~tcy Court, and, in the event that a Disbursing Agent is so otherwise orered., all costs and expenses of procuring any such bond, surety or other security shall be bome by the Debtor (b) P-illdbutions to Holder as of the Distribution Re otdDa (I) , Subject to Bankruptcy Rule 9010, all distributions under the Plan shall be made (A) to the holder of each Allowed Claim or Equity Interest at the address of such holder as listed on the Debtor's Bankruptcy Schedules u of the Distribution Record Date. unless the Debtor has been notified in writing ofr change of address, including, without., limitation, by the filing ofa timely proofofClaim or Equity Interest by such holder that provides an address for such holder different from the address reflected on the Debtor's RankuIptcy Schedules. or (I) pursuant to the terms of a particular indenture of the Debtor or in accordance with other written instructions of a trustee under such indenture (it) As of the close of business on the Distribution Record Date, the claims register and records of the stock transfer agent shall be closed, and there shall be no further changes in the record holder of any Claim or Equity Interest The Debtor shall have no obligation to recognize any transfer of any Claim or Equity Interest occumng after the Distribution Record Date ThM Debtor shall instead be authorized and entitled to recognize and deal for all purposes of bhe Plan with only those record holders stated on the claims register or the records of the stock transfer agent as of the close of business on the Distribution Record (c) Distributlons of Cash Any payment of Cash made by the Debtor, pursuant to the Plan shall, at the Debtor's option, be made by check drawn on a domestic bank or wire transfer (d) iMt ofpDstibu*j*.n Except as otherwise set forth In the Plan, payments and distributions to holders of Allowed Claims or Equity Interests on the Effective Date shall be made on the Effective Date. or as soon as practicable thereafter Any psyment or -A].

distribution required to be made under the Plan on a day other than a Business Day shall be made on the next succeeding Business Day (e) Allocation of Plan Distlbutlions All ditnbutions in respect of Allowed Claims shall be allocated first to the portion of such Claims representing interest (., determined for federal income tax purpses), second to the original principal amount of such Claims (as determined for federal income tax purposes), and any exces to the remoaiing portion of such Claims (1) Minimum Distnbution No payment of Cash less than one hundred dollars ($100) shall be made by the Debtor to any holder of an Allowed Claim or Equity Interest unless a request therefor is made in writing to the Debtor (g) Unclaimed Distributions All distributions under the Plan that are unchumed for a period of one (1) year after distribution thereof shall be deemed unclaimed propeny under section 347(b) ofthe Bakruptcy Code ind revealed in the Debtor and any entitlement orany holder ofany Claim or Equity Interest to such distributions shall be extinguished and forever barred (h) Escrow for Disouted Claims (i) 9nersl Tireamgnt On the Effective Dale (or as soon as practicable thereifter), and after making all distributions iequired to be made on the Effective Date. the Reorganized Debtor shall establish one or more separate escrows, each of whuch shall be administered by the Disbursing Agent in accordance with the terms hereof and pursuant to the direction or the Bankruptcy Court, and sll deiipoi or segregate into such escrow account(s) sufficient Cash to make distributions in respect of Disisuted Claims; Rrgyndc'd howgyl that this provision shall not apply to Environmental Claims: Fire Suppression Claims, Pending Litigation Claims. Tort Claims. FERC License Claims and Wcrkers' Compensation Claims. No"' distributions rom'the escrow(s) shall be made untlil such Disputed Claims have been Allowed or otherwise resolved by the Bankruptcy Court and any such distributions shall be made in accordance with the terms hereof The Cash deposited into the escrow account(s) shall be invested in ei'her (i) money market funds consisting primarily of short-term U S treasury 11 NY6 199145i7 .ts. 2 3 4 5 6 7 9 10 II 12 13 14 IS 16 17 Is 19 20 21 22 23 24 25 26 27 28 securities, or (ii) obligations guaranteed by the United States of Amenca or any agency thereof. at the Debtor's option, provided, however, thai a Disputed ISO. PX and Generator Claim shall cam interest through the date of psyment in accordance with Exhibit J to the Plan to the extent it becomes an Allowed Claim as set forth herein A Disputed ISO. PX and Generator Claim shall become ad Allowed Claim 6n the date designated by FERC when paýments are to be made on account of ISO, PX and Generator Claims. pursuant to an unstayed order in the FERC refund proceeding, docket los EROO-95-045 and ELOO-98-042 (which proceeding is discussed in Section IV B of the Disclosure Statement), provided, however, that ifno date is designated in such order, a Disputed ISO, PX and Generator Claim shall automatically become an Allowed Claim forty-five (45) days after the issuance of such order, provided such order has not become stayed To the extent a Disputed Claim becomes an Allowed Claim. such Allowed Claim will be satisfied in the same manner as all other Allowed Claims of the same Class In addition, the holder of such a Claim will receive Post Petition Interest (to the extent such holder is entitled to Post -Petition Interest under the Plan) From and after the Effective Date. such Disputed Claim will eam interest at the same rate earned on the Cash deposited in escrow (iu) Termination of Escrowls) The escrow(s) shall be terminated by the Reorganized Debtor when all distributions from the escrow eccoun't(s) have been made in accordance with the Plan If any Cash remains in an escrow account after all Disputed Claims for which such escrowed properly is being held have been resolved and distributions made in respect thereof, then such Cash shall be used by the Reorganized Debtor first to repurchase the securities to be issued under the Plan and then, if any Cash remains, such Cash shall revert to and become property of the Reorganized Debtor In determining the aggregate amount necessary to fund any escrow account(s), the Debtor may deposit 6l' estimated allowable amount of any Disputed Claim, as determined by the Bankruptcy Court Any such escrow(s) established pursuant to this section 5 4(h) shall be subject to the continuing 3unsdictio of the Bankruptcy Court (nl) , Addilionl Csh If the amount of Cash depositid into the escrow(s) is insufficient to make the required payments once certain Disputed Claims become I)ocM NY6 19914ii?

I 2 3 4 5 6 7 8 9 tO 12 13 14 "15 "- 16 17 1I 19 20 21 22 23 24 25 26 27 28 Allowed Claims, then the Reorganized Debtor will pay the holder of such Allowed Claim the Cash necessary to satoisy the shortfall Any deficiency in the smount of Cash deposited into the escrow(s) shall not limit the Reofganized Debtor's obligation to satisfy Disputed Claims which subsequently become Allowed Claims, and the Reorganized Debtor shall remain liable to satisfy such Allowed Claims pursuant to the Pian

55.

. ss Q0jtignsa tonnd Res~uton jnuisra,,f *oenselai*In 5 4' -p~eCI $& amj Except as It applications for a lowance of compensalion and reimbursement of Professional Compensation and Reimbursement Claims under sections 330 and 503 cf the .46,une; flant*iptc'y Code. the Reorkilaned Dehbtr shall, on and after the Connfirýation Date. have ihe light to makle and rite objectioni to Administr'ative Fxpense Claims and Claims In addition, the Proponents shall, on and after the Confirmation Date', have full party in inierest utatus to make and file objections to Administrative Expense Claints and Claims and to appear e'ond be heard with respect thereto Except as to applications For allowance of comperssation and reini*ursemeni of Professional Compensition arid Reimbursement Claims under sections 330 ihd 503 6f the Bankruptcy Cikde, and with respect to objections filed by the Pr cipoents! on and iftf*tthi Effective Date. the Reorgantzlid Debtor. shall hiave the authority to compromise. settle, otherwise r~solve of withdraW any objections to'Admýlnistravhve Expelrse Cla;ins and Claims and compromise. s&stle or otherwise resolve Disputed Adrs'inisirative Fx'pense Cla Ims and Disputed Claims without tht approval of the Blankruptcy Court Unless otherwise ordered by the Bankruptcy Court, (a) all objections to Claims (except ror Administrative Expense CIaims) shall be served and filed upon the holder of the Claim as to which tt1e objection is made (and, as applicable, upon'the Debt&r, the Committee and the Commission) as soon as practicable, but in no event later than thte Effective Date, and (b) all objections to Administrative Expense Claims shall be served and filed upon the holder of the Administrative Expense Claim'as to which the 6bjection is made (sMsd. as applicable, upon the Debtor, the Committee and the Commission) as soon 's practicsable, but in no Event later than ninety (90) days after the Effective Date 5 6 Prvnent of the Trustees'. Issuer's and Certain Bank Fees To the extent allowed by law and any underlying agreement, any unpaid fees and expenses accrued through 2 3 4 5 6 7 g 9 10 II 12 13 14 15 16 17 is 19 "20 21 22 23 24 25 26 27 28 0e NY& 1"9914s_? -!7. Dclo NY6 19914t_7 -.,5 the Confirmation Date (except for any unpaid fees and expenses previously disallowed by the Bankruptcy Court) of the Bond Trustees and the trustees under the Mortgage, and various indentures, including, but not limited to, the Southern San Joaquir Valley Power Autionty Agreement (acting in their capacities as trustees and. if applicable, acting in their capacities as disbursing agents), the Issuer of the PC Bonds and their respective professionals, and Bank or America. N A. in its capacity is administrative agent under the Revolving Line of Credit (including such administrative agent's attorney's fees), shall be paid by the Debtor within ten (10) days after the Confirsation Date Any such fees and expesnses accruing after the Confirmation Date shall be payable as provided in the applicable agreement providing for such payment. or. in the case of Bank of America. N A. in its capacity as administrative agent under the Revolving Line of Credit, at least quarterly. Upon payment of such fees and expenses, such Persons shall be deemed to have released their Liens securing payment of their fees and expenses for all fees and expenses accrued through the Effective Date 5 7 Ca x.Q.f tl.pz Securities and Agreements. On the Effective Date, the promissory notes, bonds, debentures and all other debt instnuaents evidencing any Claim, including Administrative Expense Claims, other than those that ame reinstated and rendered unimpaired or renewed and extended pursuant to Article IV hereof, respectively, shall be deemed canceled without further act or action under any applicable agreement, law, regulation, order or rule and the obligations of the Debtor under the agreements and indentures governing such Claims, as the case may be. shall be discharged The Ccmmon Stock and Preferred Stock representing Equity Interests shall remain outstanding Iloldersof promi,,oW, notes, bonds, debentures and any and all other debt Instruments evidencing any Claim shall not" be required to surrender such Instruments ARTICLE VI XECUTORY CONTRACTS AND UNEXPIRED LEASES 6 1 Anumpltion and Reiection of Executory Con ts trio UnwxJired Leases Pursuant to sections 365(a) and 1123(bX2) of the Bankruptcy Code, all executory contracts and unexpired leases that exist between the Debtor and any Person or Governmental Entity shall be -so-

deemed assumed by the Debtor as of the Effective Date, except that any executory contract or unexpired lease shall be deemed rejected by the Debtor as of the Effective Date (i) that has been rejected pursuant to a Final Order of the Bankruptcy Court entered prior to the Confirmation Date, (nt) as to which a motion for approval of the rejection of such executory contractor unexpired lease has been filed and served prior to the Confirmation Date or (iW) that is set forth in Schedule 6 I(a)(i) of PG&E's Plan Supplement (executory contracts) (which Schedule is hereby amended to include the Existing Tax Sharing Agreement), or Schedule 6 l(a)it) of PG&E's Plan Supplement (unexpired leases)'. Midci*. howvr~f, that the Debtor reserves the right, on or prior to the conclusion orthe Confirmation Hearing, to amend Schedules 6 N(aXt) and 6 l(sXii) to PG&E's Plan Supplement to delete any executory contract oruanexpired lease therefrom or to add any executory contract or un/expired lease thereto, In which event such executory contract(s) 6r unexpired leasc(s) shall be'demed tobe ass'umed by the Debtor or rejected, as the case may bi. u ofthe Effective Date The Debtor will give notice of any such arnendment to each counterpaliy'to any executory contract or unexpired lease the status of which is changed as a result ofthe amendment (Lt. any exeicutory contract which is to be assumed or rejected as a result of the amendment) and to t&e Proponents If the counterpauty opposes such proposed amendment, the Debtor and the Proponents (provided that the Proponents' Plan reflects such "i'endment) will make all reasonable efforts to provide such counterparly a reasonable opportunity under the circumstances to object prior to confirmation of the Plan. and to the extent that such counterpary has the right to vote on the Plan. or becomes entitled to vote on the Plan a, a result of the amendment to Schedule 6 1(sXi) or 6 ljaX.ii Io PG&E'. Plan Supplement, to provide such counterparny a reasonable amount of time to cast a Ballot to accept or reject the Plan and indicate its preference betwcen tis Plan and PG&E's Plan, or to amend its Ballot The listing ora document on Schedules 6 Ia(Xi) or 6 I (a(it) to PG&E's Plan Supplement shall not A copy of PG&E's Plan Supplement can be obtained through the "Pacific Gas & Electric Company Chapter I I Case" link available through the website maintained by the Bankruptcy Court at hlto//wwwlcanb uscouns toy PG&E's Plan Supplement is listed under docket number 4579 constitute an admission by the Debtor or the Proponents that such document is an executory contract or an unexpired lease or that the Debtor has any liabtlity thereunder Notwithstanding anything to the contrary, the Debtor waives its right to make amendments pursuant to this Section 6 I with respect to the assumption of the PG&E-Westem Area Power Administration Contract 2948A and related contracts. as des*nbed in Exhibit G to PG&E's Disclosure Statement 62 Schedules of Retected Executory Contracts and Unexpired Le!ggjM Incluiivcncs Each executory contract and unexpired lease listed or to be listed on Schedule 6 I(aXi) or 6 I(aXii) to PG&E's Plan Supplement shall include (i) modifications, amendments, supplements, restatements or other similar agreements made directly or indirectly by any agreement. instrument, or other document that in any manner affects such executory contract or unexpired lease. without regard to whether such agreement. instrument oi other document is listed on Schedule 6 I(aXi) or 6 I(a)(ii) to PG&E's Plan Supplement, and (6i) executory contracts or unexpired leases appurtenant to the premises listed on Schedule 6 I(s5(i) or 6 1(a)(,) to PG&E's Plan Supplement, including. without limitation, all easements, licenses, permits, rights, privileges. immunities, options, rights of first refusal, powers, uses. usufructs, reciprocal easement agreements or vault, tunnel or bridge agreements. and any other interests in real estate or rights in rem relating to such premises to the 'extent any ol the foregoing are executury contracts or unexpired leases, unless any of the foregoing agreements previously have been assumed or assumed and assignoed by the Debtor. 63 Approv.a* " Assunmotion or RcieCtion of Executorv Contracts LUnexh Lg-Iess Entry of the Confirmtiion Order sJall. subject to and upon the o&eurrence of the Effective Date. constitute (i) the approval. pursuant to sections 365(s) and 1123(bX2) ofthe B[lnkruptcy Code. of the assumption of the executory contracts and unexpired leases'aasumed pursuant to Section 6 I hereof. (in) the extension of time, pursuant to section 365(i{4) or the Bankruptcy Code. within which the Debtor may assume or reject the unexpired leases of non. residential propcry specified in Section 6 I hereof through the date ofentry of the C6nfirmition Order. and liii) the approval, pursuant to semtiuns 365(a) and 1123(bX2) of the Hankn'prcy Code. DO-1 NYS 1"141.1 -5a. .60 4. 0.0*< N16 tvV143.7

or the rejection of the executory contracts and unexpired leases rejected pursuant to Section 6 1 hereof. 0 64, Cure of Defaults Fxcept as may otherwise be agreed to by the parties. within thirty (30) days afner the Effective Date. the Debtor shall cure any and all undisputed defaults under any executory contract or unexpired lease assumed by the Debtor pursuant to Section 6 1 hereof, in accordance with section 365(bXl)of the Bankruptcy Code All disputed defaults that are required to be cured shall be cured either within thirty (30) days of the entry of a Final Order determining the amount, if any. of the Debtor's liability with respect thereto. or as may otherwise be agreed to by the parties. 65 _ Bar Date for Filisn Proofs of Claim Relatins to Executory Contacts and Unexpired Leases Reiected Pursuant to. or Omitted from.'the Plan Claims arising out of the rejection of an executory contract or unexpired lease pursuant to Section 6 1 hereof must be properly filed in the Chapter I I Case and sered upon the Debtor no lIxter than thirty (30) days aftei the later of(l) notice of entry of an order approving the rejection of such executory contract or unexpired lease. (in) notice of entry of the Confirmation Order. and (im) notice of an armiendrtent to Schedule 6 1(ayi) or 6 I(aXu) to PG&E's Plan Supplement All such Claims not filed within such time shall be forever barred from assertion against the Debtor, its estate and its property. S 66' Assumed Indemnification Oblistions The Assumed Indemnification Claims shall, in all respects, irrespective of whether such claims arise under contracts or executory contracts, survive confirmation of the Plan, remain unaffected thereby, and not be discharged irrespective of whether indemnification, defense. reimbursement or mi18in is owed in connection with an event occurring before, on or after the Petitior Date 67, Comotination and Benefit Proxrins Except as provided in Section 6 I here-f, all s imgs, health care, severance, performance-based cash incentive.retention, .mployee welf re benefit, life insurance, disability and other similar plans and agreerrents of the Debtor are treated as executory contracts under the Plan and shall, on the Effective Date, be deemed assumed by the Debtor in accordance with sections 365(1) and 1123(bX2) of the 1 2 3 4 S 6 7 g 9 10 II 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 28 Bankruptcy Code. and any defaults thereunder shall be cured as provided in Section'6 4 hereof With respect to the Debtor's Retirement Plan, the Debtor afTinms and agrees that it is and will continue to be the contributing sponsor of the Retirement Plan. as defined under 29 U S C I1301(aXI 3) and 29 C F R § 4001 2. or a member of the contnbuting Sponsor's controlled group, as defined under 29 U S C § 1302(a)(I 4) and 29 C F R. § 4001,2 As a contnbuting sponsor (or member of the controlled group) of the Retirement Plan. the Debtor intends to fund the Retirement Plan in accordance with the minimum funding standards under ERISA. 29 U S C 91802. pay all required PBGC insurance premiums, 29 U S C 11307. and comply with all requirements of the Retirement Plan and ERISA The Retirement Plan Is a defined benefit pension plan insured by the Pension Benefit Guaranty Corporation under Title IV ofERISA, 29 USC. §§1301-1461 The Retirement Plan is subject to the minimum funding requirements ofERISA. 29 U S C. § 1084. and section 412 ofthe lritemal Revenue Code. 26 U SC 9412 No provision ofor proceeding within the Debtor's reorganization proceedings. the Plan, nor the Confirmation Order shall in any way be construed as discharging, releasing or relieving the Debtor. the Reorganized Debtor, or any other party in any capacity, from any liability with respect to the Retirement Plan or any other defined benefit pension plan under any law., governmental policy or regulatory provision PBGC and the Retirement Plan shall not be enjoined or precluded from enforcing liability resulting from any of the provisions or the Plan or the Plan's confirmation 6g R Retiree 1efi, Payments, if any. due to any Person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents roer medical, surgical, or hospital care benefits, or benefits in the event of sickness, accident, disability, or death under any plan, fund, or program (through the purchase of insurance or otherwise) maintained or established in whole or in part by the Debtor prior to the Petition Date shall be continued for the duration of the period the Debtor has obligated itself to provide such benefits DcuS NYS t1"1a5_ -tl-Duoa HY6 1"1'g45_7

• 61.

69 Settlement and Stanislaus Com61itmcnts/HNtral Ga (a) Sttlelment and Stanialaus Commitments The obligations under (I) the 1991 Settlement Agreement between NCPA An PG&E in a Nuclear Regulatory Commission (the "LR') proceeding, implementing the Statement of Commtmen'ts accompanying the letter from PG&E to the U S Dpadment'orf'u-scc ofApni' 30, 1976 (the "1991 Settlement Agreement"). (2) the letter from PG.E'to the U"S Department of Justice of Apnl 30. 1976, to the extent that it represents obligations (the "j 2i.._l[') Ad (3) the anlitrusi license conditions included in the Dtablo Canyon Nuclear Power Plant NRC Licenses (the "LikItni dtiM,") (collectively. the 1991 Settlement Agreement, the 1976 Letter and the License Conditions are referred to herein sade "Settlem t a Stanialaus Comm stment") shall remain in effect and pas through the Chapter I i Case unmpaired ýad unaffected so that the Debtor and Reorganized Debtor are obligated for the full Performance., and shall be liable for the nonperformance.'of the Settlement and Stanaslus Commitments Under the Plan. the Debtor and Reorganized Debtor shall assume the 1991 Settlement Agreement (b)" lUi3gg On the Effective Date,. the Reorga*i*zed Debtor shall continue to offer the City of Palo Alto gas transmission and storage services on terms and conditions that provide full panty oftreatment with these provided by the Reorganized Debtor to its own retail gas distribution functions, including, but not limited to, the opportunity to reserve, in advance of any open-season proe.ss, a deined am ,,ount of transmission and storage capacity in any amount up to the amount sufficient to meet ihe City of Palo Alto's projected Abnormal Peak Day (the "AM'") requirements, subject to applicable limits on the amount of each such form of capacity Similarly, on the Effective Date, "vintage rates" for dhe Redwood Path capacity currently held by the City of Palo Alto (6.148 Dtb/day) shall continue to be available to the City of Pa!o Alto for as log ais vintage rates are available to any core customer served by the Reorganized Debtor Dxx4 HY6 1"1i45~7' I 2 3 4 5 6 7 8 9 I1 It 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 28 ARTICLE VII IMPLEMENTATION OFTHE PLAN 7 I 11INseof cjungts On or before the Effective Date. the Reorganized Debtor shall Issue and sell. through one or more public or private offerings, tew debt securities of and new preferred stock in the Reorganized Debtor, the net proceeds of which, in addition to the Debtorli available Cash. will be sufficient to satisfy in full in Cash all Allowed Claims under the Plan to pard in Cash The terms and estimated amounts of the debt secunties l be issued under the Plan are descnbed on Exhibit I hereto THE TERMS AND ESTIMATED AMOUNTS OF THE SECURITIES TO BE ISSUED HEREUNDER REMAIN SUBJECT TO CIIANGE BASED UPON, AMONG OTIHER FACTORS, ACTUAL OR PERCEIVED MARKET CONDITIONS AND RýTING AGENCY REQUIREMENTS AT THE TIME OF ISSUANCE. TIlE AMOUNT OF TIlE REORGANIZED`DEBTOR'S AVAILABLE CASHI ON THE EFFECTIVE DATE. AND THE AMOUNT OF ALLOWED CLAIMS The Proponcnts shall work together cooperatively with their financing and capital markets arranger ind their respective legal and financial advisors in the process of structuring, marketing, pncing and selling the securities, including, without limitation, maLking such adjustments to the securities to be sold as may be necessary or desirable in light of then prevailing market eonditions The securities to be issued are descnbed generally below. (a) goramznjj Debtor Now Money Notes On or before the Effective Date. the Reorganized Debtor shall issue and sell. through one or more private or public offerings, new debt securities in the original aggregate principal amount sufficient to yield net proceeds of approximately S6 56 billion, the terms of whch are set foith on Exhibit I (any and all stch notes, collectively, the "Reorganized Debtor New Money Notes"), the net proceeds of which shall be used to fund payments to holders of Allowed Claims and Allowed Equity Interests (b) &rgeorazed Debtor New Prer;ntL1. On or before the Effective Date. the Reorganized Debtor shall issue and 'ell. through one or more pnvate or public o

ferings, new preferred equity securities su ficient to yield net proceeds ofapp r.xim ately

[)*AP HY6 199145.7 -6i-

• S3.

2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 I1 19 20 21 22 23 24 25 26 27 28 Decision) Moel HY6 19143 $I 75 billion (the "-'orhlnied Dettor New PIrldffn* SI

• ") Mie net proceeds of the Reorganized D)ebtnr's iisuance and sale of new-quity Interesrt shatl he used to fund pa)ments to holders of Allowed Claims and Alloed Fquity' Inerists 7 2 RM

.t _emtn On'oi before the FffTctive Date, or s soon as practicable thereafter, the Reorganired Debtor and the Commission shall have esesufetd and delivered the Reorganiztion Agreement substantially tn the firm attached hereto as Exhibit (the " 7 1 tfle.n.i ofLitutaaiq On or before the Effective Date ard pursuant to 1te Reorganization Agreement. the Debtor shall dismiss the Rate Recovery Litigation. with pre)udice, and shall withdraw the applications filed by the Debtor in connection with PG&E's Plan and listed tn Aricle 3 2(s) (e)ofthe Reorganization Agreement At such time, the Debtor shall execute and deliver to the Proponents all pleadings and release documents required by the Proponents in connection with such dismissal and withdrawals. which shall be in form arid substance satisfactory to the Proponents. and shall specifically releasing any and all claims and (Jiises of Action that the Debtor has or may have against the State of Califoans and the Commission and their respective present and former commissioners (in their official calisicities), "oficeri,'employees. advisors, consultants and professionals, that arise from (a) the facts alleged by the Debtor in the Rate Recovery Lititiation, including, withoui limitation. claims and Causes of Action based upon the filed rate doctnne. tikings, due process and commerce clause violations, except for claims and Causes of Action based upos the Plan or as provided in the Confirmation Order: (b) the Commission's implementation prior to the Effective Date of Assembly Bill I of the 2001-02 First Extraordinary Session (Ch 4, Slats 2001-02 l1 Ex' Seas ) and Assembly Bill 6 of the 2001-02 First Extraordinary Session (Ch 2. Stats 2001.02'1" Ex Sess ),in cluding CPUC Decision Nos 01-03-081 and 01-04-005. and (c) the Commission's Decision Nos 01-03 082 (TURN Accounting 2 3 4 5 6 7 9 10 II 12 13 t4i 16 17 Is 19 20 21 i22 23 24 25 26 27 28 7 4 Nemw Tax Shanie Am-eemennt On or before the Effective Date, or as soon as practicable thereafter, the Reorganized Debtor and the Parent shall have executed and delivered the New Tax Shanng Agreement 7 5 C.O..po_.le Governance (a) 13oxrd of Directors The members of the Board of Directors of the Debtor Immediately prior to the Effective Date shall serve as the initial Board of Directors orthe Reorganized Debtor on and oner the Effective Date Each of the members of such initial Board of Directors shall serve in accordance with the Debtor's Articles of Incorporation and the Debtor's Bylaws. as the same hnly be amended from time to time Mb) O*ler The officers of the Debtor immediately prior to the '5 Effective Date shall serve as the initial officers of the Reorganized Debtor on and after the Effective Date Such officers shall serve in accordance with any employment agreement with the Reorganized Debtor and applicable law (c) Articles of fl iporat and Bylaws The articles of incorporation and bylaws of the Reorganized Debtor shall be ameided to contain provisions necessay to (i) prohibit the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, subject to further amendment of such articles of incorporation and bylaws as permitted by applicable law. (ii) authorize the issuance and sale of the Reorgalnized Debtor New Preferred Stock pursuant to Section 7 1 (b) of the Plan, (di) prohibit the Parent from exercising its voting rights with respect to its Common Stock in the Reorganized Debtor unless and until the Parent executes and delivers to the Reorganized Debtor the New Tax Shauing Agreement, and (iv) effectuate the other provisions of the Plan, in each case without any further action by the Debtor's shareholders or Board of Directors. 7.6 Retrlatory Aoorovols The Commission shall adopt such decislons or orders as are necessary to implement the provisions of Article VII of this Plan, it being understood that, as of and subject to the occurrence of the Confirmation Date, this Plan and the Confirmation Order shall be irrevocably binding upon the Commission, notwithstanding such future decisions and orders of the Commisslon The Debtor shall timely seek any other ftga NY6 1"9t45s _74% .63.

1 2 3 4 5 6 7 a 9 10 II 12 13 14 Is 16 17 Is 19 20 21 22 23 "24 25 26 27 28 regulatory approvals from all applicable Governmental Entities that the Debtor believes ae necessary to effectuate the transactions specified herein 7.7 Working Capital Facility On or before the Effective Date, or as soon as practicable thereafter, the Reorganized Debtor shall obtain ad establish a working capital facility (the "Ei aii') for the pupsesea of funding operating expenses ind seasonal fluctuations in working capital and providing letters ofcredit, as well as funding distributions to the holders of Allowed Claims. ifnecessary The termis of the Exit Facility are set forth on Exhibit 1 78 RBIatory Issues The Commission shall regulate the Reorganized Debtor's operations to the full extent that it regulated the Debtor's oprations prior to the Petitior Date in accordance with all applicable law. In that regard.the Reorganized Debtor shall operate its business In accordance with all applicable laws and regulations promulgated or issued by the Commission and all oth'rGovernmental Entities having jurisdiction over its business. ARTICLE Vill CONFIRMATION AND EFFECTIVENESS OF TIE PLAN 8 I Conditions Precedent to Con firmation The Plan shall not be confirmed by the Bankruptcy Court unless'and unltil the following conditions shall have been talitfled, (a) the Bankruptcy Court shall have entered an order or orders, which may be the Confirmation Order. approving the Plan. authorzing and directing the Debtor to execute, enter into and deliver the Plan. and to execute, implement and take all actions necessary or appropriate to give effect to the transactions contemplated by the Plan, and (b) the Conrfmnaston Order shall be. in form and substance, acceptable to the Proponents 8 2 Conditions Precedent to Effectivenes The Plan shall not become e tectivcunless antd until the following conditions shall have been satisfied or waived pursuant tc Section 8 4 hereof (a) the EfTective Date shall have occurred on or before January 3 1. 2003. D.11 Ho 6 1N91457 .61-1 2 3 4 5 6 7 a 9 10 II 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 28 (b) all actions, docusenta. instruments and agreements necessary to implement the Plan shall have been effected or executed. (c) the Reorganized Debtor shall have consummated the sale of the Reorganized Debtor New Money Notes and the Reorganized Debtor New Preferred Stock as contemplated under Section 7 I hereof and the proceeds thereof shall, in addition to the Debtor's available Cash, be sufficient to pay all Allowed Claims to be paid hereunder and to fund the escrows for Disputed Claims. (d) The Reorganized Debtor shall have obtained and estabished the Exit Facilitr, (e) the Bankruptcy Court shall have entered an order, which may be the Confirmation Order. approving the Debtor's dismissal with prejudice of the Rate Recovery Litigation, (0 the Reorganized Debtor and the Commission shall have executed the Reorganization Agreement. I (g) pursuant to the Reorganization Agreement. the Debtor'shall dismiss the Rate Recovery Litigation, with prejudice, and shall withdraw the'applications filed by the Debtor in connection with PG&E's Plan and listed in Article 3 2(a)-(e) of the Reorganization Agreement, and the Debtor shall have executed and delivered to the Proponents all pleadings and relcase documents requircd by the Proponents in connection with such dismissal and withdrawals, which shall be in form and substance satisfactory to the Proponents, (h) . S&P and Moody'i shall have issued credit ratings for the Reorganized Debtor and its debt securities of iot less than BBB-and Bass.3 respectively. (i) the Debtor shall have received all authorizations, consents, regulatory approvals. rulings. letIers, no-action letters, opinions or documents that are necessry to implement the Plan. and

0) the Plan shall not have been inodified in a mateiial way. including any modification pursuant to Section I1 10 hereof, since the Confirmntion Date ri.,.

NY6 19"145 7 6t

2 3 4 5 6 7 '8 9 10 II 12 13 14 15 16 17 19 20 21 22 23 , 24 25 26 27 28 rsNa mY5 194114,51 -69 8 3 Eff'ct of Failure or Condltions In the event that one or more ofithe conditions specified in Section 8 2 hereof shall not hae occurred or been waived ott or before January 30. 2003 (or such later date as may be hereafter provided in an amended Section 8 2(a)). (a) the Confirmation Order shall be vacated. (b) no-disnbutions under the Plan shall be made, (c) the Debtor and all holders of Claims and Equity Interests shall be restored to the itasul 9uo an.te as of the day inmsediately preceding the Confirmation Date as though the Confirmation Order had never been ent'ered, and (d) the Debtor's obligations with respect to Claims arid Equity Interests shall remain unchanged and nothing contained herein shall constitute or be deemed a waiver or release ofaty Claims or Equity Interests by or against the Debtor or any Person or Governmental Entity or to prejudice in any manner the nghts or the Debtor or any Person or Governmental Entity in any further proceedings Involving the Debtor. pMruyL, lhow.ve, that the amounts paid pursuant to Section 4 2(a) hereof on account or Post Petition Interest may be recharacterized as a payment upon the applicable Allowed Claims. in the Debtor's sole discre'ion, but the Debtor will not'otherwise seek to recover such amounts "1 8'4 Waier ofCorditions As provided in Section 110 hereof, the Proponesnts may "waive 6ne of more of the conditions precedent set forth in Section 8 2 hereof. p3yi4ed howevr that the condition set forth in Section 8 2(h) may only be waived pursuant to Final Order of the Bankruptcy Cour obtained by moti6n filed by the Proponents and after notice and a hearing on not less than t1en (10) days' notice to the Debtor and the United States Trustee. ARTICLE IX " EFFECT OF CONFiR'MATION OF PLAN 9 1 TcrmofrBkniIcytcy lniuncto I hor St_** Unless otherwise provided. all injunctions or stays provided for in the Chapter I I Case under section 105 of t6 Bankruptcy Code, or otherwise.'and in existence on the Confirmation Date. shall remain in full force and effect in accordance with the terms of such injunctions Unless otherwise provided, the' automatic stay provided under section 362 of the Bankruptcy Code shall remain in full force and effect until the Effective Date 1 2 3 4 S 6 7 8 9 10 II 12 13 14 IS 16 17 Is 19 20 21 22 23 24 25 26 27 28 92 ,Revestine or AssO On the Effectie Date. except as Otherwise transferred, sold or otherwise provided for in the Plan. the property of the Debtor's estate shall vest in the Reorganized Debtor. ,1 9 3 Operations Following Effective Date From and after the Effective Date. the Reorganized Debtor may operate its business, and may use, acquire and dispose of property free of any restrictions imposed under the Bankruptcy Code As of the Effective Date. all property of the Reorganized Debtor shall be flee and clear orit Liens, claims sAd interests of holders, of Claims and Equity Interests. except as otherwise provided in the Plan 94 Claims Extinguisb As of the Effective Date. any and all avoidance 7, claims accruing to the Debtor under sections 502(d). 544, 545, 547, 548, 549, 550 and 551 of the Bankruptcy Code and not then pending, shall be extinguished. All other Causes or Action of the Debtor. other than those expressly released or dismissed with prejudice hereunder, shall vest in the Reorganized Debtor 953 DimhrecofgD6b The rights afforded herein and the treatment or all Claims and Equity Interests herein shall be in exchange for and in complete satisfaction. discharge and release or Claims and Equity Interests ofrany nature whatsoever, including any interest accrued on such Claims from and after the Petition Date. against the Debtor or any of its assets or properties. Excepe as otherwise provided herein, as of the Effective Date (a) all such Claims against and Equity Interests In the Debtor shall be satisfied, discharged and released In full and (b) all Persons and Governmental Entities shall be precluded from asserting against the Debtor. its successors, or its assets or pro'perties any other or further Claims or Equity Intereits based upon any act or omission. transaction or other activity of any kind or nature that occurs4 prior to the Confirmation Date 96 Ifiunclioa In addition to and except as otherwise expressly provided herein, in the Confirmation Order or a separale order of the Bankruptcy Court, all entities who have held, hold or may hold Claims against or Equity Interests in the Debtor, are permanently enjoined, on and after the Effective Date, from (a) commencing or continuing in any manner any action or other proceeding of any kind with respect to such Claim or Equity Interest, (b) the Dovi HN'S 1991457 .70.

1 2 3 4 6 7 8 9 10 II 12 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 28 enforcement, attachment, collection or recovery by any manner or means of any judgment. award, decree or order against the Reorganized Debtor on account of any such Claim or Equity Interest, (c) creating. perfecting or enforcing any Lien of any lind against the Reorganized Debtor or against the Reorganized Debtor's property or interests in property on account ofany such Claim or Equity Interest, (d) asserting any right of sctoff, subrogation or recoupment of any kind against any obligation due from the Reorganized Debtor or against the Reorganized Debtor's property or interests in property on account of any such Claim or Equity Interest, and (e) commencing or continuing in any manner any action or other proceeding of any kind with respect to any claims and Causes of Action which are extinguished. dismissed or released pursuant to the Plan The injunction shall also enjoin all parihcs in interest, including, without limitation, all entities who have held, hold or may hold Claims against or Equity Interests in the Debtor, from taking any action in violation of the Confirmation Order Such injunction shall extend to the successors of the Reorginized Debtor, their propeites and interests IWpropecrty Except as provided by Sections II 4. I 1.5 and II 6 hereof, this Section 9 6 shall not enjoin, bar or otherwise impair the commencement or prosecution of direct personal claims aigaist any Person other than the Peor*anized Debtor, including claims 'against the Parent ARTICLE X REI ENITION OF J1UR1ISDICTION As of and subject to the occurrence of the Con firmison Date, the Commismion shall be bound by the Confirmation Order and the Confirmation Order shall be enforceable against the Commission notwithstanding the Commission's and the State of California's objections and defenses based upon the Eleventh Amendment to the United States Constitution or related principles of sovereign immunity or othcrwise After'the Confirmation Date, the Bankruptcy Court shall retain junsdictioti over all matters arising out of, or related to, the Chapter I I Case and the Plan pursuant to, and for thipisrposes of, sections 105(s) and 1142 of the Bankruptcy Code and for, among other things, the following purposes (a) to hear and determine matters related to the Plan. I 2 3 4 S 6 7 8 9 10 II 12 "13 14 15 16 I? is 19 20 21 22 23 24 25 26 27 28 Do-5 NY6 1tt145.7 .- 1. ?I. D*. NY6 I1I4J_7 4%, (b) to bear and determine applications for the assumption or rejection of executory contracts or unexpired leases, if any are pending, and the allowance of cure amounts and Claims resulting therefrom; (c) to bear and determine any and all adversary proceedings. applications and contested matters. (d) to hear and determine any objection to Administrative Expense Claims or Claims. (e) to enter and implement such orders as may be appropriate in the event the Confirmation Order is for any reason stayed, revoked, modified or vacated, (M to issue such ordrrs in aid ofcexcution and consummation ofthe Plan. to the extent authorized by section 1142 of the Bankruptcy Code. (g) to consider any amendmet.ts to or modifications of the Plan, to cure any defect or omission, or to reconcile any inconsistency in any order of the Bankruptcy "Court, including, without limitation, the Confirmation Order. (h) to hear and determine disputes ansing in connection with the Interpretation, implementation or enforcement of the Reorganization Agreement, (i) to hear and determine all applications for compensation and reimbursement of expenses of professionals under sections 330, 331 a'id 503(b) ofth'e Bankruptcy Code. (J) to hear and determine disputes arising in connection with the interpretation. implementation or enforcement of the Plan and/or the Confirmation Order; (k) to hear and determine proceedings to recover assets ofthe Debtor and property of the Debtor's estate, wherever located, (I) to hear and determine matters concerning state, local and federal taxes in accordance with sections 346, 505 and 1146 of the BanLruptcy Code. (m) to hear and determine matters concerning the escrow(s), if any, established pursuant to Section S 4(h) hereof,

I 2 3 4 5 6 7 r 9 10 II 12 13 14 16 17 is 19 20 21 22 23 24 25 26 27 28 (n) io hear any other matter not inconsistent with the fanikiptcy C ode. and (o) to enter a final decree closing the Chapter I I Case ARTICLE Xl I mIISCEI.LANEOUS PROVISIONS It I I i n't n n _h.T~it _acton Pursuant to section 1142 of the BankIrup*cy Code, the Debtor (or the Reorganized DMbtor tier the Effective Dale). shall execute, deliver, rile or record such contracts, instruments, releases, indentures and other agreements or documents and take such other actions as may be necessary or appropriate to effectuate and fAther evidence the terms and conditions of the Plan and any securities issued pursuant to the Plan - I, I,.* II 2 Colrate Action On the Effective Date. all matters provided for under the Plan that would otherwise require approval of the Debtor's shareholders or Boardiof Directors shall be deemed to have occurred and shall be in effect forom and after the Effective Dale pursuant to the applicabe general corporation law of Cahlfomia, the stlate in which the Deb~to, is incorporated, without any requirement of fdrther action by the Debtor's shareholders oi Iloard of Directors On the Effectin e Date, oras soon as practicable thereafter, the DebtOr, shall. if required, rile its amended articles or incorporation with the Secretary of State orf Caliorona, in accordance with the applicable general corporation law of California II 3 Exemotion from Transfer Taxes Pursuant to section I 14 6(c) of the Bankruptcy Code. the issuance, transfer or exchange of notes or issuance of equity icunties under the Plan. the creatiort of any mortgage, deed of trust or other secunty interest, the making or assignment of any lease or sublease, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Plan. shall not be subject to any stamp, real estate transfer, documentary transfer, mortgage recording, sales, use or other similar tax. All sale transactions consummated by the Debtor and approved by the Bankruptcy Court on and after the Petition Date through and including the Effective Date. including, without limitation, the sales. if any, by the Debtor of owned property or assets pursuant to section 363(b) 2 3 4 5 6 7 8 9 12 13 14 16 17 Is 19 20 21 22 23 24 25 26 27 28 Dt. NY$S 1991457 .73. .74. -0 NYa 1"1437? of the Bankruptcy Code, shall be deemed to have been made under, in furtherance or, or in connection with the Plan and, therefore, shall not be subject to any stamp, real estate transfer. documentary transfer, mortgage recording, sales, use or other similar tax II 4 Releses by Debtor (a) As ofthe Effective Date. and subject to the release by the Releasees set forth in Section 115 below, the Debtor releases all of the Releasees from any and all Causes of Action held by, assertable on behalf of or derivative ofthe Debtor. in any way relating to the Debtor. the Debtor-in-Possession. the Chapter I I Case. the Plan. negotiations regarding or concerning the Plan and the ownershlp, management and operation of the Debtor, roided, h that the foregoing shall not operate as a waiver ofor release from any Cases of Action an'sing out of any express contractual obligation owing by any former director, officer or employee to the Debtor or any reimbursement obligation of any former director, officer or employee with respect to a loan or advance made by the Debtor to such former director, officer or employee and is not a waiver of or release for any professionals retained in connection with this Chapter I I Case from claims by their respective clients (b) As of the Effective Date. the Debtor releases the Commission. its present aid for*mer commis sioners in their official capacities and their respective successors, the State of CaliAmia and its officers and commissioners and their respective successors, as well as the Commission's and the State's present and former employees, advisors, consultants and professionals from any and all Causes of Action held by, assertable on behalfofor derivative of the Debtor, in any way r;elating to the Debtor as Debtor-in-Possession, the Chapter I I Case, the Plan, negotiations regarding or concerning the Plan and the ownership, management and Z. opertifon of-the Debtor as Debtor.in-Posseasion 11.5 Limited Release by Releaiee In consideration for release of the' Releasees In Section II 4(a) and other valuable consideration, as of the Effective Date, each of the Releasees, at its option, generally releases the Debtor and the Dehtor-in-Possession and the Reorganized Debtor, in each case in any capacity, fiom any and all Causes of Action held by, assertable on behalf of or derivative from such Releasee, in any way relating to the Debtor. the

Debtor.,n-Possession. the Chapter I I Case, the Plan, negotiations regarding or concerning the Plan and the ownership, management and operation of the Debtor. The release by the Debtor in Section II 4(a) hereof shall he provided only to Releasees who execute and deliver to the Dcbtoi a release as provided in this Section 11.5 ani in a form acceptable to the Debtor. II 6 EJgL!W ' AS ofand subject tohe occurrence of the Confimaion Date, (a) the Proponents shall have been deemed to have negotiated the Plan in good faith, (b) the Proponents shall be deemed to have solicited acceptances of the Plan in good faith ud in compliance with the applicable provisions of the Bankruptcy Code. including, without limitation section,12S(a) of the Bankruptcy Code. and any applicable non-bankruptcy law, nule or regulation governing the adequacy ofidisclosure in connection 'With such solicitation, and (c) the Commnssion and its individual commissioners in their official capacities. the Committee and tits members, and the Conmission's and the Conmittee's respective agents, employees, advisors and attorneys shall be deemed to have psasicipated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in connection with the offer and issiance of any securities under the Plan, and therefore, neither the Commission nor its individual commissioners, the Committee nor its members, nor any ofithe Commission's or the Comiruttce's respective agents. employees, advisors and professionals shall have or inur any liability to any holder ofa Claim or Equity Interest or other party in interest for any act or omission in connection with, related to, or arising out of, the Chapter I I Case, negotiations regarding or concerning the Plan. the pursuit of confirmnation of the Plan, the consummation of the Plan, or the administration orthe Plan or the property to be distributed under the Plan, except for willful misconduct or gross negligence, and, in all respects, the Commission and its individual commissioners, the Committee and its members, and the Commission's and the Committee's respective agents, employees, advisors and professionals shall be entilled to rely upon the advice of counsel with respect to their duties and responsibilities under the Pla 11.7 Termination of Commi~tt The appointment of the Committee shall terminate on the Effective Date, subject to continuation for specific purposes by a Final Order of the Bankruptcy Court Do-0 NY6 I"14 _?1'7 2 3 4 5 6 7 8 9 10 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 "28 I g 8 eeandEgpe1i (a) Upon the Bankruptcy Coul's entry ofra Final Order approving any application by the Commition under section 503(bX3) of the Bankruptcy Code annor the Commission's legal and financial advisors under section 503(b)X4) of the Bankruptcy Code, the amounts authorized for payment thereunder shall be treated as an Admimsrative Eapense Claim and a Professional Compensation and Reimbursement Claim, respectively, and paid in accordance with the provisions of'Sections 2 I and 2 2 hereof, respectively (b) From and after the Confirmation Date, the Riorganized Debtor shall, in the ordinary course of business and without the necessity for any approval by the Bankruptcy Court. pay the reasonable fees and expenses ofprofessional Persons thereafter incurred, including, without limitation, any fees and expenses incurred by the Commission's professionals in connection with the implementation and consuummation ofthe Plan. poide hbQyg. that any dispute regarding the reasonableness ofsuch fees and expenses shell be decided by the Bankruptcy Court II 9 P nent ofStatutory Fee All fees payable pursuant to Section 1930 of title 28 of the United States Code, as determined by the Bankruptcy Court at the Confirmation Ilesaing, shall be paid on or before the Effective Date 11.10 Amendment or Modifical*tn

• f the Plan (a)

A terations, amendments or modifications of or to the Plan may be proposed in writing by the Proponents at any time prior to the Confirmation Date, p that the Plan, as altered, amended or modified, satisfies the conditions oftsections 1122 and 1123 of the Bankruptcy Code and the Proponents shall have complied with section 1125 of the Bankruptcy Code The Plan maybe altered, atmended or modified by the Proponents at any time after the Confirmation Date and before substantial consumrstion ofthe Plan. p that the Plan, as altered, amended or modified, satisfiex the requirements of sections 1122 andI I23 of the Bankruptcy Code and the Bankruptcy Court: al*er notice and a hearnng, confirms thi Plan, as altered, amended or modi fled, under section 1129 of the Bankruptcy Code and the circumstances wanrant ouch alterations, amendments or modtfications A holder of a Claim or Equity Interest 13.0 NY6 19i107T it -75

I 2 3 4 6 7 a 9 10 IO I! 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 28 'I1.14 Notice All notices, requests and demands toor upon the Debtor. the Commission. the Committee or the United States Trustee to be effective shall be in writing and. unless otherwise expressly provided herein, shall be deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonic ally confirmed, addressed as follows j that has accepted the Plan shall be deemed to have accepted the Plan, as altered, amended or modified, If the proposed alteration,'amendment or modification does not materially and adversely change the treatment or such holder's Claim'or Equity Interest I I I I, Syve.rabi~ly In the event that'the Bankruptcy Court detemines that any provision in the Plan is invalid, void or imenforceahle. iuch provision'shall be invalld, void or unenforceable wtth respect to the holder or holders of such Claims or Equity Interests as to which the provtston is determined to be invalid, void or unenforceable The invalidity. voidness nr imenforceahility or any such provision shall in no way limit or affect the enforceability and operative effect of any other provision of the Plan 11.12 R ti g or Will rwl oftlhspplan The Proponents (or either one of them) reserve the right to revoke or withdraw the Plan prior to the Confirmation Date If the Proponents (or either one of them) revoke or withdraw the Plan prior to the o'r7nfirmation Date, then the Plan shall be deemed null and void In such event, nothing contained herein shall constitute or be deemed a waiver or release of any claims by or against the Debtor or any other Person or Governmental Fntity, including the Proponents, or to prejudice tn any mianner the rights of the Debtor or any Person or Govemm.ntal Entity, including the Proponents, in any further proceedings involving the Debtor II 13 fPmdpwi FfIec From and after the Confirmation Date. the Plan shall be binding Upon and inure to the benefit orthe Proponents, the Debtor, the Reorganized Debtor. the holders of Claims and Equity Interests, other parties in interest, and their respective successors and assigns I 2 3 4 5 .6 7 8 9 10 II 12 13 14 '5 16 17 19 20 21 22 23 24 25 26 27 28 Dora NYO i99i4S_? .7?. DO"c NYG t1ist3 7a If to the Debtor Pacific Gas and Electric Company 77 Beale Street P0 Box 7442 San Francisco, California 94120 Attn-General Counsel Telephone* (415) 973-7000 Facsimile, (415) 973-5320 with acopyfo PG&E Corporation One Market. Spear Street Tower, Suite 2400 San Francisco, California 94105 Attn General Counsel Telephone (415) 267.7000. Facsimile: (415) 267.7265 and Iloward, Rice. Nemerovski, Canady. Falk & Rabktn A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco. California 94111 Attn lames L Lopes Telephone. (415)434-1600 Facsimile, (415)217-5910 Ifto the Commission* California Public Utilities Commission 505 Van Ness Avenue San Francisco. California 94102 Attn* General Counsef Telephone: (415) 703.2015 Facsimile. (415) 703.2262 wmh a copy to. Paul, Weiss, MJUMnd. Wharton & Garrison 1285 Avenue of the Americas New York. New York 10019-6064 Attn" Alan W. Komberg Telephone" (212) 373-3000 Facsimile, (212) 757-3990 If to the Committee Mdbank. Tweed, Iladley & McCloy LLP 601 South Figueroa Street. 30th Floor Los Angeles,. California 90017 Attn Paul S Aronzon Telephone. (213)892-4000 Facsimile. (213) 629-5063 .71.-

If to the United Statei Trustee, The Office ofthe United States Trustee 250 Montgomery Street, Suite 1000 San Francisco. California 94104 Attn Patricia Cutlet Telephone. (415) 705.3333 Facsimile (415) 705.3379 I I 15 Q2nmja&Jg Except to the extent the Bankruptcy Code, Bankruptcy Rules or other federal law is applicable, or to the extent an exhibit to the Plan provides otherwise, the rights and obligations arising under this Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Cahifomia, without giving effect to the principles of conflicts of law of such jurisdiction 11.16 Withboldi*a ind Renodine Reouirenentl Except as otherwise provided by the Plan, in connection with the consummation of the Plan, the Debtor shall comply with all applicable withholding and reporting requirements imposed by any federal, state, local or foreign taxing authority and all distributions hereunrder shall be subject to any such withholding and reporting requirements 11.17 Proponents' Plan Sunl*ement The following documents will be contained in the Proponents' Plan Supplement. which shall be filed with the Clerk ofthe Bankruptcy Court at least ten (10) days pnor to the Confirmation Date. (a) The Reorganized Debtor's amended Articles of Incorporation and Bylaws Upon its filing with the Bankruptcy Court, the Proponents' Plan Supplement may be inspected in the office of the Clerk ofthe Bankruptcy Court during normal court hours or through the "Pacific Gas & Electric Company Chapter I I Case" link available through the websilte maintained by the Bankruptcy Court at hltlwww abic sny

g.

In addition, a copy of the Proponents' Plan Supplement will be available on the Commission's website at htlo //www eeuc ce Moy 2 3 4 5 6 7 a 9 10 II 12 13 14 15 16 17 is 19 20 21 22 23 24 25 26 27 28 1118 I Ehb She All exhibits and schedules to the Plan, including the Proponents' Plan Supplement. are incorporated into and are a pan of the Plan as ifset forth in full herein 11 19 SubMralton RiiJk s Nothing in the Plan shall affect (a) the subrogalion rights of any surely, to the extent applicable or available, which, if available or applicable, shall remain in full force and effect. or (b) the nghts of the Debtor to object, pursuant to the Bankruptcy Code, to the existence of such subrogation rights DATED August 30. 2002 D4 HY6 1"99145_7 .9. L)-. NV6 199145S7 No.

elb I 2 3 4 5 6 7 8 9 tO I1 12 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 28 CAI IFOPNIA PUBLIC UTILITIES COMMISSION By Gary h Cohen General Counsel OFFICIAL COMMI rTEE OF UNSECURED CREDFIORS fly ____ (Namie) Chair, Official Committee or Unsecured Creditors APPROVED AS TO CONTENT AND FORM, PAUI WEISS, RIFKIND. WHARTON & GARRISON By Counsel for the California Public Utilities Commission MILBANK, TWEED, HIADLEY & McCLOY LLP By Counsel for the Official Committee of Unsecured Creditors I 2 3 4 5 6 7 8 9 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 28 Doef NY6 I"149_t It. 0 CALIFORNIA PUBLIC UTILITIES "COMMISSION By Gary M Cohen "General Counsel OFFICIAL COMMITTEE OF UNSFCURED CREDITORS By [Name) Chair. Official Committee of Unsecured Creditors APPROVED AS TO CONTENT AND FORM PAUL. WEISS, RIFKIND. WHARTON & GAPJRSON (Counsel for the Caitornia Puiblic U Utilities Commission MILBANK, TWEED, IIADLIýY & McCLOY LLP Byr Counsel for the Official Committee of Unsecured Creditors 01 NY6 19"145_7 .81.

4.

(V 1 CALIFORNIA PUBLIC UTflLITI 3 B uy rM 5 OFFICIAL COMMITTEE OF UNSECURED 6 CREDITORS 7 By: C~hair. O~fld Comamine. of Une$curd 10 APPROVED AS TO CONTENT AND FORM.j~ 12 PAUL, WPISS. RIFKIND. WHARTON 23 Jk GARRISON 14Counsel for thea CaIIomiI Public Is Utllltac Commjujcm MILBANIC, TWEED, HADLEY ki McCLOY LLP 17B.Cowsd &, slim Offid* ýCommatce I2I of Unsecured Credifors 19 20 21 22 23 24 25 26 27 21 D-0 HYL 1"1437 .11.

, I Covenants PLAN EXHIBIT 3 I. New Notes Issuer Amount Credit Rating Coupon Rate Maturity Amortization Denominations Interest Payment Date Ranking Optional Redemption Description of Debt Instruments Events of Default Reorganized Debtor. Estimated to aggregate 56.560,000,000 At least BHH. by S&P and Baa3 by Moody's The coupon rates are expected to reflect market clearing yields for a primary offering for a comparable issue of this maturity size and credit rating. among other factors, at the time ofissuance of issuers in the same Industry To be determined To be determined - the New Notes will either amortize over an average life of not Ieus than _ years or will provide for principal payment at maturity $1,000 Semi-annually The New Notzs will be Unsecured The New Notes are expected to be redeemable at the option of the issuer at any time in whole or in pant, at a price equal to the eggegate of the pnncipal amount to be redeemed, accrued and unpaid interest. and a "make whole premium" The amount of the "make whole premium' is expected to reflect market conditions at the time ofissuance and be determined by negotiation between the issuer and the underwnter(s) The actual calculation in the event redemption is effected is expected to be made by an independent investment banking Institution ofnational standing Amendments The indenture (and any supplemental indentures) under which the New Notes will be issued is expected to include covenants in respect of actions the issuer must take or is precluded from taking similar to those included in indentures governing long term notes ofa comparable credit rating at the time of the Issuance of the New Notes. including, but'not limited to, limitations on liens Nonpayment of interest when due after thidy (30) days of grace period S Nonpayment ofpnnctpal or premium at naturity. Breach of covenant or warranty in the indenture and continuation of such breach for runety (90) days afier notice given to the company Occurrence otevent or condition which uesults in acceleration of a bond. debenture, note or other evidence of money borrowed or the company does not honor its guarantee of any such debt guaranteed by the company in the event of such acceleration with in aggregate outstanding pnncipal amount of more than $50,000.000. and such indebtedness is not discharged or acceleration is not rescinded within thiny (30) days after notice to the issuing company An involuntary bankruptcy petition is riled against the company and such petition is not dismissed within ninety (90) days of filing or entry ofdecree or order adjudging the company or any significant subsidiary to be insolvent or appointing a custodian. receiver, etc. which decree or order remains us effect for ninety (90) days " Commencing a voluntary case under federal or state bankruptcy or insolvency law or other similar law; making an assignment for the benefit ofcreditors, admission in writing of inability to pay debts when due Minislenal anmendments may be adopted without noteholder consent " Modification and amendments may be made by the .* v iN*V 6 1 5 radii ld'yt 19lt* J 6

issuer and the trustee with the consent ora majority in principal amount of the New Notes Amendments to certain specified economic terms of the New Notes (e ff. maturity date, percentage of outstanding notes required to approve cerlain matters) may be adopted only wtth the consent of each noteholder. II. New Working Capital Facillty Borrower Amount Subilmits RegistratlonEse mptIou Initial issuance of New Notes will be registered under the Securities Act. Listing None - traded in over-the-counter market Initial Trading None Procedures Credit Rating Interest Rate Interest Frequency Default Interest Rate Maturity Ranking Struetertng Fee Unused Commitment Fee Excess Cash Flow Sweep Covenants Events of Default Collateral Terms Reorganized Debtor Facility Total Line a) Revolver Sl,885,000,000 b) Capital Expenditure Sub Facility c) Letters of Credit The sublimit for Letters of Credit will be S955,000,000 The sublimit for Working Capital will be $400.000,000 The sublimit for Capital Expenditures will be $500,000.000 At least BOB. by S&P and Han3 by Moody's TBD TBD TBD En~ilt Matmdit a) Revolver January 31, 2008 b) Letters of Credit January31. 2008 Secured by inventory and receivables. TBD TB1D T13D TBD TBD TBD 8

• 1
• - I,,

"5, r., Nis,, I5I. 1% 4:ý 11- "Yo

Plan Exhlbit 4 TAX SHARING ACREEMENT THIS TAX SIHARING AGREEMENT (the "Am '.,! "). dated u of 2002. is entered into between PG&E Corporation, a Califomia corporation ("_CUM), and Pacific Gas and Electric Company. a California corporation ("S*klidiy" Parent is the common parent corporation ofan affiliated group ofcorporations within the meaning of Section 1504(a) of the Internal Revenue Code of 1986. as anmended (the "**2,"), that has elected to file consolidated federal income tax returns, and Subsidiary as a member of such group Parent and Subsidiary desire to set forth in this Agreement their agreement as to certain matters relating to the inclusion ofthc Subsidiary Consolidated Group (as defined below) in the Parent Consolidated Group (as defined below), including the allocation of tax liabilities for years in wluch Subsidiary is so included, and certain other matters relating to taxes The panics agree as follows

1.

Pf"EFILIOL ",Adjustment" shall have the meaning set forth in Section 8 "Agreement Year" shall mean any taxable year beginning on or af*er January I. 2002 dunng which the Subsidiary Consolidated Group is included in the Parent Consolidated Group "Balance Payment" shall have the meaning set forth in Section 4 "Code" shall have the meaning set forth above "Estimated Tax Payments" shall have the meaning set forth in Section 4 "Final Determination" shall mean the final resolution of any tax matter, including, but not limited to, a closing agreement with the IRS or the relevant state. local or foreign taxing authonty. a claim for refulnd which has been allowed, a deficiency notice with respect to which the penod for filing a petition with the Tax Court or the relevant state, local or foreign tribunal hu expired, or a decision of competent jurisdiction that is not subject to appeal or as to which the time for appeal has expired A,

jI 2 "IRS" shall mean the Internal Revenue Service "Parent" shall have the meaning set forth above "Parent Consolidated Group" shall mean the affilied group of corporations (including any predecessors and successors thereto) within the meaning of Section 1$04(s) of the Code electing to file consolidated federal income tax returns and of which Parent is the common parent "..Parent Consolidated Return" shall have the meaning set forth in Section 2 "Post Consolidation Year" shall have the meaning set forth in Section 6 of this Agreement "Pro Forms Subsidiary Attnbute" shall have the meaning set forth in' Section 5. "Pro Forms Subsidiary R'eturm" shall have the meaning set forth in Section 3 "Records" shall have the meaning sel forth in Section 8 "Regulations" shall mean the Treasury regulations promulgated under the Code "Total Periodic Payments" shall ha4e the meaning set forth in Section 4 "Subsidiary" shill have the meaning set forth above "Subsidiary Consolidated Group" shill mean t.eif.iliaed girou "*f* corporation, (including any predecessors and successors thereto) within the meaning of Section 1504(s) of the Code, of which Subsidiary would be the common paient ifit were not Included in the Parent, Consolidated Group "Subsidiary Return Items" shall have the meaning set forth in Section 3 "Subsidiary Tax Package" shall have the meaning set forth in Section 7. . 2, FILING OF CONSOLIDATED RETUR DS AND PAYMENT bF' a CONSOLIDATED TAX LIABILITY.* For all taxable years in which Parent files consolidated federal income tax returns (any such return of the Parent Consolidated Group for any taxable year. a "Parent Consolidate Return") and is entitled to include the Subsidiary Consolidated Group in such returns, Parent ~.3 shall include the Subsidiary Consolidated Group in the consolidated federal income tax returns that it files as the common parent corporation of the Parent Consolidated Group Parent, Subsidiary and the other members of'the Parent Consolidated Group shall file any and all consents, elections or other documents and sake any other actions necessary or appropriate to effect the filing of such federal ifcome tax returns For all taxable years in which the Subsidiary Consolidated Group Is Included in the Parent Consolidated Group. Parent shall pay the entire federal income tax liability of the Parent Consolidated Group and shall indemnify and hold harmless Subsidiary and each member otthe Subsidiary Consolidated Group against any such liability, Prjoded h

v.

that Subsidiary shall make payments to Parent or receive payments from Parent as provided in this Agreement for any Agreement Year.

3.

PRO FORMA SUBSIDIARY RETURn. For each Agreement Year, Parent shall prepare a pro forms federal income tax return for the Subsidiary Consolidated Group (a "Pro Forms Subsidiary Return") Except an otherwise provided in this Agreement, the Pro Forms Subsidiary Return for each Agreement, Year shall be prepared as if Subsidiary filed a consolidated rederal income tax return on behalf of the Subsidiary Consolidated Group for such taxable period. The Pro Forna Subsidiary Return shall reflect any carryovers of net operating losses. net capital losses, excess tax credits, or other tax attnbutes from prior Pro Forma Subsidiary Returns (excluding those attributes that are carnied back pursuant to Section 5) that could have been utilized by the Subsidiary Consolidated Group If the Subsidiary Consolidated Group had never been included in the Parent Consolidated Group and all Pro Forms Subsidiary Returns had been filed as actual returns. The Pro Forma Subsidiary Return shall be prepared in a manner that reflects all elections, positions and methods used in the Parent Consolidated Return that must be applied on a consolidated basis and otherwise shall be prepared in a manner consistent with the Parent Consolidated Return' The provisions of the Code that require consolidated computations. such as Sections 861, 1201-1212 and 123 1, shall be applied separately to the Subsidiary Consolidated Group as if the Subsidiary Consolidated Group and the Parent Consolidated Group (excluding the members of the ' Subsidiary Cornolidated Group) were separate affiliated groups, except that the Pro Forms Subsidiary Return prepared for the last taxable year, or portion thereof, during which the Subsidiary Consolidated Group is included in the Parent Consolidated Return shall also include any gains or losses of the members of the Subsidiary Consolidated Group on transactions within the Subsidiary Consolidated Group that must be taken into account pursuant to Section 1. 1502. 13 of the Regulations and reflected on the Parent Consolidated Return when the Subsidiary Consolidated Group ceases to be Included In the Parent Consolidated Return For each Agreement Year, Section 1.1502.13 of the Regulations shall be applied as if the Subsidiary Consolidated Group were not a member of the Parent Consolidated Group. For purposes of the Agreement, all determninations made as if the Subsidiary Consolidated Group had never been Included In the Parent Consolidated Group and as if all Pro Forms Subsidiary Returns were B.0 ifta n..ou

4 actual returns shall reflect any actual short taxable yeans resulting from the Subsidiary Consolidated Group joining or leaving the Parent Consolidated Group

4.

TAX PAYMEKTS (a) Estimated Income Tax Panyment For each Agreement Year, Subsidiary shall make periodic payments ("Estimated Income Tax Paymentfs) to Parent in such amounts as shall be equal to the estimated tax payments that would be payable by the Subsidiary Consolidated Group if it were not included In the Parent Consolidated Group, no later than the dates on which such estimated tax payments would be due from the Subsidiary Consolidated Group if it were not included In the Parent Consolidated Group (b) Balance Pns lneit 'For each Agreement Yea, Subsidiary shall pay to Parent an amount equal to the tax payment thsa would be payable by the Subsidiary', Consolidated Group if it were 6at included in the Parent Consolidated Group, no later than Match 15 of the following year (the "Bince Pjmlg ") (c) Payments baed on Pro Forms Subsidiary Return For each Agreement Year, Subsidiary shall pay to Parent, within 10 days after the filing of the Parent Consolidated Return for such Agreement Year. an amount equal to the suon of(i) the federal Income tax liability shown on the corresponding Pro Forma Subsidiary Return prepared for such Agreement Year and (ii) the additions to tax. If any. under Section 6655 of the Code that would have been imposed on the Subsidiary Consolidated Group (tceating the amount due to Parent under (i) above as its federal income tax liability and treating any Estimated Tax Payments to Parent pursuant to clause (a) as estimated payments under Section 6655 of the Code) and which result from the inaccuracy of any information provided by Subsidiary to Parent pursuant to Section 7 hereofor from the failure of Subsidiary to provide any requested information, reduced by (iW) the sum for such Agreement Year of the amount or the Estimated Tax Payments and the Balance Payment (collectively, the 'aTotl Periodic Payents"), plus (iv) any interest and additions to tax (other thin under Section 6655 of the Code) that would be due under the Code if the Total Periodic Payments were aclual payments of tax If the Total Periodic Payments to Parent for any Agreement Year exceed the amount of Subsidiary's liability for such Agreement Year under the preceding sentence. Parent shall pay to Subsidiary an amount equal to such excess within 10 days after filing the Parent Consolidated Return for such Agreement Year For purposes of thus Agreement, the term "federal income tax liability" includes the tax imposed by Sections II, 55 and 59A of the Code, or any successor provisions to such Sections - Parent shall notify Subsidiary of any amounts due from Subsidiary to Parent pursuant to this Section 4 at least 5 business days prior to the date such payments are due. and such payments shall not be considered due untl the later of the due date described above or the fifth day after Parent gives such notice.

5.

LOSSES: REFUNDS. Itia Pro Forma Subsidiary Return for any Agreement Year reflects a net operating los. net capital loss, excess tax credit or other tax attribute (a "Pro Form a Subsidiar Aimnbt*"), then, within 10 days after filing the relevant Parent Consolidated Return for such Agreement Year. Parent shall pay to Subsidiary an amount equal to the refund that the Subsidiary Consolidated Group would have received as a result of the carseck of such Pro Forma Subsidiary Attribute to a Pro Forma Subsidiary Return for any prior Agreement Year or Years, assuming that all Pro Forma Subsidiary Returns had been filed As actual returns and that the Subsidiary Consolidated Group had filed returns as a separate affiliated group for all prior taxable years. All calculations of-deemed refunds pursuant to this Section 5 shall include tnterest computed as if the Subsidiary Consolidated Group had filed a claim for refund or an application for a tentative carryback adjustment pursuant to Section 641 I(a) of the Code on the date on wluch the relevant Parent Consolidated Return is filed 6 PAYNItNis FOR ýTAXABLE YEARS AFTER DECONSO MIDATIGN. (a) a, I lyments Bv SubsidiarY To Pjf 1 If for any iaxableyCea After the Subsidiary Consolidated Group ceases to be included in the Parent Consolidated Group (a "EoIL C5nobdahion year'.) (i) the federal income tax liability of'the Subsidiary Consolidated Group is less than (ii) the federal income tax liability that would have been imposed with respect to the same period if the Subsidiary Consolidated Group had not been included in the Parent Consolidated Gro.up for any Agreement Year and all Pro Forms Subsidiary Returns had been actual returns for such years, then Subsidiary shall pay to Parent an amount equal to the excess of the amount specified in clause (it) over the amount specified in clause (i) within 10 days After the filing of the Subsidiary Post Consolidation Year return (b) Payments By Parent To Subsidiar, If for any Post-Consolidation Year. (i) the federal income tax liability of the Subsidiary Consolidated Group is gpeater than (n) the federal income tax liability that would have been imposed with respect to the same penod if the Subsid.ary Consolidated Group had not been included in the Patent Consolidated Group for any Agreement Year and all Pro Forna Subsidiary Returns had been actual returns for such years. then Parent shall pay to Subsidiary an amount equal to the excess of-the amount specified in clause (i) over the amount specified in clause (ii) within 10 days after notification by Subsidiary to Parent of the riling of the Subsidiary Post-Consolidation Year return (c) -Doumentation Prior to the payment of any amounts due pursuant to thus Section 6. the paries shall exchange such information and documentation as is reasonably satisfactory to each of them in order to substantiate the amounts due pursuant to this Sectiio 6 Any disputes as to such amouwits and documentation that cannot be resolved pnor io the date on MY NIt.- I I

6 which a payment is due shall he fiered to an independent accounting firm whose fees sheil paid one-half by Subsidiaryand one half by Parent_ (d) No PiostCnsoUiAg12ny CoK gscb It the'Subsidiary Corisolidatid Groiip federal income tax return with respect to a Post Consohdation Year reflects a net operating loss, net capital loss, excess tax credits or any other tax agnbute, such attntuse .shall not be carried back to a Parent Consolidated Return without the express written consent of Parent, and (unless such consent is given) Subsidiary shall make any available elections or filings that are necessary or desirable to avoid such carrybacks

7.

PREPARATION OF TAX PACKAGE AND OTIIER FINANCIAL, REPORTING INFORMATION Subsidiary shali provide to Parent, in a format determined by Parent, all information requested by Parent as ne'essary to prepare the Parent Consolidated Return and the Pro Forms Subsidiary Return (the "Subsidiary Tax Package) The Subsidiary Tax Package with respect to any taxable year shall be provided to Patent on a basis consistent with practices of the Parent Consolidated Group no later than April I of the following year Subsidiary shall also provide to Parent infoniation required to determine the Total Periodic Payments, current federal taxable iMcomelclinert and deterred tax liabilities. Iax reserve items and any additional current or prior infbttintlbn re4uited by Parent on a timely basis consistent with practices of the Parent' Consolidasted'Grou,

a.

E*TURNS, AUDITS. REFUNDS. AMSlENDED RETURNS. I.TIGATION. ADJUSTNIENTS AND RULIGS. (a) a

• Parent shall hive exclusive and sole responsibilty for the preparation and filing of the Parent Consolidated Returns (including requests for extensions) and any other returns, amended returns ird other documents or statements required to be filed with the IRS in connection with the determination of the federal income tax liability of the Parent Consolidated Group a

(b) Atdilts. Refund Claims Parent will have exclusive and sole responsibility and control with respect to the conduct of IRS examinations bf the returns filed by the Parent Consolidated Group and any refund claims with respect to such returns, including without limitation the right to select counsel, the right ip determine the court or other body in which any contest shall be brought, the right to determine whether to contest a proposed deficiency or to pay a tax and sue for a refund and the right to determine whether and how to appeal any adverse determination Subsidiary shall assist and cooperate with Parent during the course or any such proceeding Parent shall give Subsidiary notice of and consult with Subsidiary with respect to any issues relating to items of income, gain, loss, deduction or credit 0.. levi iv.o I of Subsidiary (any such items, "Sstbsidt aev Rc'urn Items,.) Parent shall not settfe or otherwise Compromise any Subsidiary Return Item that would result in additional liability for Subsidiary under this Agreement without the wnitten consent of Subsidiary, which consent shall not be unreasonably withheld If Subsidiary does not respond to Parent's request for consent within 30 days, Subsidiary shall be deemed to have consented (c) iisto Itf the federal income tag liability o f the parent Consolidated Group becomes the subject of hitigationinn any court, the conduct of the litigation shall be controlled exclusively by Parent Subsidiary shall assist and cooperate with Parent during the course of litigation, and Parent shall consult with Subsidiary regarding any issues relating to Subsidiary Return Items , (d) xpr Subsidiary shall reimburse Parent for all reasonable out-o f-pocket expenses (including, wi'hout limitation, legal, consulting and accounting tees) ins the course of proceedings described in paragraphs (b) and (c) of this Section 8, tO the extent such expenses are reasonably attributable to Subsidiary Return Items for any Agreement Year (e) Recalculation Of ents To Reflect Adiustment To the extent that there is a Final Determination with respect to a Parent Consolidated Return that results in a change In an item relating to such return (an "A4 titiM") that affects the treatment of a Subsidiary Return Item for an Agreement Year, a corresponding adjustment shall be made to the corresponding Pro Forms Subsidiary Return All calculations of payments made pursuant to Sections 4, 5 and 6 of this Agreement shall be recomputed to reflect the effect of any-,, Adjustments on the relevant Pro Forms Subsidiary Return Within 10 days after any such Adjustment, Subsidiary or Parent, as appropriate, shall make a payment to the other party reflecting such Adjustment, plus interest pursuant to Section 9 of the Agreement, calculated u if payments by and to Subsidiary pursuant to Sections 4. 5 and 6 or this Agreement and this Section 8 were payments and refunds of federal income taxes Subsidiary shall further pay to Parent the amount of any penalties or additions to tax incurred by the Parent Consolidated Group as a result of an adjustment to i.my Subsidiary Return Item for an Agreement Year S (I) Ruin Subsidiary shall assist and cooperate with Parenl and take all actions requested by Parent in connection with any ruling requests submitted by Parent to the (g) a Apolicabilitv With Remniet To All Coriolidated ReIir,, The provisions of Sections 8(a), (b) and (C) above shall apply to Parent Consolidated Returns and Subsidiary Return Items for all taxable years in which Subsidiary Is includable in the Parent Consolidated Group D Nyet 19ý_Jl

8 (h) Document Retention Access To Records Ind Use Of Peronnel Until the expiration of the relevant statute of limitations (including extensions). Subsidiary shall (i) retain records, documents, accounting data, computer data and other information (collectively. the "ReorLds") necessary for the preparation, filing, review, audit or defense of all tax returns relevant to an obligation, right or liability of either party under the Agreement. and (ii) give Parent reasonable access to such Records and to its personnel (insuring their cooperation) and premises to the extent relevant to an obligation, right or liability of either party under the Agreement. Prior to disposing of any such Records. Subsidiary shall notify parent in writing of such intention and afford Parent the opportunity to take possession or make copies of such Records at its discretion

9.

INITERESTr Interest required to be paid by or to Subsidiary pursuant to the Agreement shall, unless otherwise specified, be computed at the rate and in the naianer provided in the Code for interest on underpayments and overpayments, respectively, of federal Income tax for the relevant period -Any payments required pursuant to the Agreement which are not made within the time period specified in the Agreement shall bear interest at a rate equal to the rate provided in the Code for interest on underpaymenta of tax.

10.

FOREIGN. STATE AND LOCAL INCOME TAXES. (a) In the cise of foreign, state or local taxes bued on or measured by the net income of the Parent Consolidated Group, or any members of the Parent Consolidated Group (other than solely with respect to the Subsidiary Consolidated Group or solely with respect to members of the Parent Consolidated Group other than members of the Subsidiary Consolidated Group) on a combined. consolidated or unitary basis. the provisions of this Agreement shall apply with equal force to such foreign, state or local tax for each Agreement Year. whether or not the Subsidiary Consolidated Group is included in the Parent Consolidated Group for federal income tax purposes, prid, however, that interest pursuant to the first sentence of Section 9 of this Agreement shall be computed at the rate and in the manner provided under such foreign, state or local law for interest on underpayments and overpayments of such tax for the relevant period, and references to provisions ofthe Code throughout the Agreement shall be deemed to be references to analogous provisions of foreign, state and local law. (b) For any Agreement Year, Parent shall have the sole and exclusive control of(s) the determination of whether a combined, consolidated or unitary tax return should be filed for any foreign, stale or local tax purpose and (b) all foreign, state or local income tax audits and litigation with respect to the Subsidiary Consolidated Group to the same extent as provided in this Agreement for federal income tax matters (including the right in its sole 9 discretion to have Subsidiary pay any disputed taxes and sue for a relund in the forum of Parents choice) Subsidiary shall reimburse Parent for all reasonable out-of-pocket expenses (including. without limitatiod, legal, consulting and accounting fees) in the course of proceedings described in the preceding spntencc, to the extent such expenses are reasonably attributable to the Subsidiary Consolidated Group (c) Parent will provide notice of and consult with Subsidiary with respect to any issue relating to such audits and litigation, and Subsidiary will provide to Parent any information necessary to conduct such audits and litigation Parent shall not settle or otherwise compromise any audits or litigation that would result in additional liability for Subsidiary under this Section 10 without the written consent of Subsidiary. which consent shall not be unreasonably withheld If Subsidiary does not respond to Parent's request for consent within 30 days, Subsidiary shall be deemed to have consented

11.

SUCCESSORS AND ACCESS TO INFORMATION The Agreement shall be binding upon and inure to the benefit of any successor to any of the parties, by merger, acquisition nf assets or otherwise, to the same extent as ifthe successor had been an onginal party to the Agreement, and in such event, all references in this Agreement to a party shall refer instead to the successor of such party. If for any taxable year Subsidiary is no longer included in the Parent Consolidated Group. Parent and Subsidiary agree to provide to the other party any information reasonably required to complete tax returns for taxable periods beginnung after Subsidiary is no longer included in a Parent Consolidated Return. and each of Parent and Subsidiary will cooperate with respect to any audits or litigation relating to any Parent Consolidated Return

12.

GOVERtlNG I AWC The Agreement shall be governed by and construed in accordance with the laws of the State of Caihfomia applicable to contracts entered into and to be fully performed within the State of California 13, The headings in the Agreement are for convenience only and shall not be deemed for any purpose to constitute s part or to affect the interpretation of the Agreement 14 SECTION REFERENCES References to Sections shall, unless otherwise specified, be references to Sections of this Agreement 4' I3, Sld*'l ili4*tl.l

10 II IS. COUNTERPARTS* The Agreement may be executed simultaneously initwo or more counterparts, each of which will be deemed an onginal. end it shall not be necessary in making proofof the Agreement to produce or account for more than one counterpart

16.

E RA LI If any provision or the Agreement is held to be unenforceable for any reason. it shall be adjusted rather than voided, ifpossible, in order to achieve the intent of the parties to the maximum extent practicable In any event. all other provisions of the Agreement shall be deemed valid. binding, and enforceable to their full extent

17.

TERMINATIOK, The Agreement shall remain in force and be binding so long as the applicable penod of assessments (including extensions) remains unexpired for any taxes contemplaled by the Agreement, provid, however, that neither Parent nor Subsidiary shall have any liability to the other party with respecl to tax liabilities for any taxable year in which Subsidiasy is not included mn the Parent Consolidated Return for such year. except as provided in Sect:ons 5 and

18.

SUCCESSOR PROVISION4S, Any reference herein tonan provisionrs of the Code or Treasury Regulations shall be deemed to include any amendments or successor provisions thereto, as appropnrate

19.

COMPLIANCE BY SUBSIDIARIES. Parent and Subsidiary each agrees to cause all members of the Parent Consolidated Group and the Subsidiary Consolidated Group (including predecessors and successors to such members) to comply with the terms of this Agreement IN WITNESS WHEREOF, each of the parties to this Agreement has caused this Agreement to be executed by Its duly authonzed offce on this 2002 PG&E CORPORATION By' Name Title PACIFIC GAS AND ELECTRIC COMPANY By Name Title-D.- NYG 19.W I

REORGANIZATION AGREEMENT THIS REORGANIZATION AGREEMENT ("Agrcement") is entered into by and among the undersigned Paries on this _ day of_ 200, with reference to the following RECITALS OF THlE PARTIES A Pacific Gas & Electric Company ("PG&E") is the Debtor in a Chapter 11. Case No 01,30923 DM (the "Case") pending in the United States Bankruptcy Court for the Northern District of California (the "Court") The Commisston has filed the Plan in the Case to reorganize PG&E B The Pari*es are also currently engaged in the Litigation This Agreement and the Plan will resolve, among other matters, the Litigation C The refinancing and issuance ofSecuritlea contemplated by the Plan and this Agreement create an opportunity for PG&E (i) to reorganiz and to pay in full in cash Allowed Claims or to reinstate Allowed Claims as provided in the Plan. (iu) to issue, and pay, retire, redeem or defcase the Securities, and (nu) to achieve Investment Grade Credit Ratings Nothing contained in this Agreement shall change the proposed treatment for Creditors' claims contained in the Plan D In the exercise of its police and regulatory powers, the Commission is entcnng into this Agreement and shall adopt such decisions and orders as LAi "41349i4

, I 2 it deems necessary to implement and carry out tlfe provisions'of this Agreement, including but not limited, to establishing retail electric rates to provide for payment in full of the Securities in accordance with their respective terms NOW, THEREFORE, in consideration of the foregoing, the agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows ARTICLE ! DEFINITIONS Section I I Certain Defined Terms When used in this Agreement, the following terms shall have the following meaniigs ' (a) "Agreement" shall have the meaning set forth in the introductory paragraph (bs) "Allowed Claims" shall have the meaning ascribed to it in the Plan, including claims that may be allowed from time to time in the Case this Agreemer (c) "Case" shall have the meaning set forth in the Recitals to1 sit (d) "Cogurt " shall have the meaning setforth in the Recitala to this Agreement 3 (e) "Commsslon" shall mean the California Public Utilities Commission, or such successor agency, and the Commissioners thiereof in their official capacities and their respective successors -1 ý I, (f) "Debt" shall mean the debt to be Issued or reinstated, as the case may be, in accordance with the Pln, by PG&E, from time to time to satisfy/Allowed Claims and to fund the escrow for Disputed Claims in the Case, including any and all interest thereon or associated costs as provided in such debt instruments (g) "Disputed Claims" shall have the meaning set forth in the Plan (h) "Effective Date" shall have the meaning set forth in the Plan (i) "FERC" shall mean the Federal energy Regulatory Com'mission "(j) "Investment Grade Credit Ratings" shall mean credit ratings for the Securities and PG&E from both Standard & Poor's Corporation or BBB or better and Moody's Investors Service, Inc of13aa3 or better. (k) "Litigation" shall mean Paific Ga & Electric Comsnay. P .inti vs Locetta M, Lynch. ettl.. DtfeoL.Case No. C-01-3023-VRW, presently pending In the United State-s District Cour for the Northern District of Calirornia (I) "Parties" shall mean the Commission and PG&E LAW 924)4S LAO "441304

4 (in) "Person or Persons" shall mean an individual, partnership, joint venture, corporation, limited liability company, trust, association or unincorporated organization, any governmental authority, or any other entily. (n) -PG&E" shall mean Pacific Gas & Electric Company. a California corporation, and its successors (o) "Plan" shall mean the Comnmlsion plan of reorganization for PO&E in the Cue, as amended from time to time (p) "Preferred Shares" shall mean the eqwty interests to be issued by PG&E. from time to time to satisfy Allowed Claims and to fund the escrow for Disputed Claims in the Cue. in accordance with the Plan. including any and all interest or dividends thereon and associated costs as provided in ouch equity interests (q) , "Recoverable Corts" shall mean the amounts PG&E is authorized by the Commission to recover in retail electic rates in accordance with historic practice for all of its prudently-mcufred costs, including capital investment in property, plant and equipment, a return of capital and a returm en capital and equity to be determined by the Commission from time to time in accordance with its past practices (r) "Recovery Rates " shall mean gross electric retail rates (including surcharges) sufficient (i) to pay the interest and dividends payable on, and to provide funding of required reserves for, the Securities, (ii) to allow PG&E to meet its obligations in respect of scheduled amortization and redemption of the Securities in LAI.235] 69 5 accordance with their terms. (iii) to pay all Recoverable Costs. and (iv) to facilitate achucving and maintaining Investment Grade Credit Ratings (a) "Securities" shall mean the Preferred Sha.r and the Debt (t) "'Securities Repayment Period" shall mean the period commencing on the Effective Date ofthe Plan and ending on the date that the last of the outstanding Secunties have been paid, redeemed or defeased in full Section I 2 , Canpthlize~ TermT All terms defined in this Agreement shall have the meanings ascnbed to them in this Agreement or in the Plan Section I 3 Incorooatiton of Recitals The Recitals arc incorporated herein by reference ARTICLE It RATE STABILIZATION AND COST RECOVERY Section 2 I isuantceolSecuntic From and after the Effective Deii of the Plan. PG&E shall issue or reinstate Securities as provided in the Plan in an amount equal to the sum of(s) the Allowed Claims, together with amounts required to be deposited in escrow for Disputed Claims under the Plan, less (b) PG&E's available cash and cash equivalents The Commission shall adopt such orders or decisions us it deems necessary to authorize PG&E to issue (or to reinstate) and to fully meet its obligations in respect of such Securities in accordance with their respective terms and with the Plan Amounts deposited in the escrow for Disputed Claims under the Plan which are not required to satisfy Allowed Claims shall be used by PG&E to repurchase Securities LAI U4i3t*9

, I 6 Section 2 2 latf Siabsltzlior PG&E shall be authorized to recover in retail electno rates the interest and dividends payable on, runding or required reserves ror, and other amorunts which may be necessary to allow PG&E to meet its obligations in respect ofrscheduled amortization and redemption of. the Securntie; tn accordance with their respective terms: The Commission shall establish retail ele'ctric rates for retail electnc customers in PG&E's service territory at rates sufficient (I) to pay the interest and dividends payable on. funding of'required reserves far. and collection ofother amounts %hich may be necessary to allow PG&E to meet its obligations in respect of scheduled amortization and redemption of the Securities in accordance with their terms, (ii)Ito pay all Recoverable Costs. and (iii) to facilitate achieving and mnaintainini Investment Grade Credit Ratings, provided, however, that in no event may such rates be less than Recovery Rates The Commission shall evaluate the Recovery Rates of PG&E hom time to time. and shall adjust such rates as may be necessary to assure sufficient revenues to satisfy the requiheMn*trn*" tclauses (i) - (iii) above Section 2 3 Credit in The parties acknowledge and agree that the achievement and maintenance of Investment Grade Credit Ratings is important to the reorganization of PG&E All of the Secunties shall have terms and conditions customary for securities that are similar to the Secunties and enjoy or have Investment Grade Credit Ratings Each or the Parties agrees to provide such information as maybe required by the rating agencies, and to cooperate fully with the rating agencies and the other party in obtaining Investment Grade Credit Ratings as expeditiously as possible Section 2 4 Commission Continuinh jurisdiction Subject to Article V, PG&E agrees that the Commission shall retain jurisdiction over PG&E's retail rates, and LAIt UM24131 the assets and business of PG&E. in accordance with Cali fornia law. and shall not seek dunsg the Securities Repayment Period to contest such jurisdiction, Section 2 S Financial Reporling The Parties will cooperate in accounting for and reporting the transactions described in the Plan and this Agreement. Section 2 6 A akn ri. The Parics acknowledge and agree that. until this Agriemernt hs terminated in accordance with Section 4 1. the Recovery Rates shall include the amounts necessary for PG&E to pay all costs associated with the Securities including, but not limited to, the interest and dividends payable on. and other armounts which may be necessary to allow PG&E to meet its obligations in respect of scheduled amortization and redemption of the Securities in accordance with their terms The costs associated with the Securities shall be deemed to have been prudently incurred ARTICLE, III LITIGATION Secticn 3 I Dismisal o o tigatrson On the Effective Date of the Plan PG&E shall file a motion to dismiss the Litigation. with prejudice Section 3 2 Wtthdrawal ofCertain Aolicealiom Promptly upon the Effective Date of the Plan. PG&E shall withdraw certain applications filed with FERC. the Nucletr Regulatory Commission ("NRC"). and the Securities and Exchange Commission ('SEC"), as follows (a) , Applications to Transfer Regulatory Assets filed with the FERC In Docket Nog EC02.31, EL02-36, ES02.17. ER02-456. ER02-455 LAI FMS1419 4. 4

8 . (b) Applications to Transfer Hydro Assets iled with FERC in Project Nos 77.116. 96-031,137-031.175-018. 178-015,233.082. 606-020, 619-095. 803-055, 1061-056, 1121-058, 1333-037, 1354-029, 1403.042, 1962-039, 1988-030, 2105-087, 2106-039. 2107-012, 2130-030. 2155-022, 2310-120, 2467-016, 2661-016. 2687-022. 2735-071. 2118-006. 2281-005, 2479-003. 2678-001, 2781-004, 2734-001. 4851-004, 5536-001. 5828-003, 7009-004, and 10821-002 (e) Applications for Certificates of Public Convenience and Necessity filed with FERC in Docket Not CP02-38, CP02-39. CP02-40. CP02-41. and CP02-42 (d) License Transfer Application filed with the NRC in Docket Nos 50-275-LT. 50-323-LT. (e) Filing with the SEC for Approval under the Public Utilities folding Company Act of 1935 to create Electric Geieration LLC. ETMans LLC. and GTrans LLC ARTICLE IV TERMINATION Section 4 I TEtamnitn Thlus Agreement and any orders entered by the Court contemplated by or required to implement tis Agreement shall terminate at the end of the Secuntiea Repayment Penod.provided Mat all nights of the Parties under this Agreement and any orders entered by the Court contimplaited by or required to implement this Agreement that vest on or pnor to such ten'nmation, including anty rights arising from any default under dus Agreement or the terms of any such orders, shall ILAI 41543)i 9 survive any such termination for the purpose of enforcing such vested nghts ARTICLE V GENERAL PROVISIONS Section 5 I Validity and Binding Effect The Patics and their respective successors and a$signs agree not to contest the validity and enforceability of this Agreement or any order entered by the Court contemplated by or required to implement this Agreement and the Plan This Agreement and any such orders are intended to be enforceable under federal law. notwithstanding any contrary stale law This Agreement, the Plan. upon becoming effective, and the orders to be entered by the Court as contemplated hereby and the Plan, shall be irrevocable and binding upon the Parties, notwithstanding any future decisions and orders of the Commission Section 5 2 Efsrmtn The Parties agree that the Court shall retain junisdiction over the Parties for all purposes relatng to this Agreement and the Plan. including, but not limited to. enforcing any order contemplated by or requiredltA implement this Agreement and the Plan Section 5 3 3alyUe of Soverietn Immunity In connection with any action or proceeding concenung the enforcement of this Agreement. the Plan or other determination of the Paries' nrigts under this Agreement or the Plan. the Commission hereby knowingly and expressly waives all existing and future rights ofsovereign immunity. and all other similar immunities. as adefense Accordingly. the Commission hereby consents to thee junsdiction of any court or other tribunal or forum for such actions or proceedings including, but not limited to. the Coun Tlus waiver is irrevocable and "LAI NW4i1/4d

10 applies to the jurisdiction of any court, legal process, suit. judgment, attachment in aid of execution of a judgment, attachment i'nor to judgment, set off or any other legal process with respect to the enforcement or this Agreement, the Plan or other determination of the Parties' rights under this Agreement It is the intention of this Agreement that neither the Commission, nor any other California entity acting on the Commission's behalf, may assert immunity in an action oe proceeding, as discussed herein, concerning the Parties' rights under this Agreement or the Plan Section 5 4 Counterpart This Agreement may be executed in one or more counterparts, each ofwhlich shall be deemed an original, but all of which together shall constitute one and the same instrument Section S 5 Captions and Paragraph Ifcadinis Captions and paragraph headings used herein are for convenience only an are not a part of this Agreement and shall not bused. in construing it. Section 5 6 E This Agreement, together with the Plan. contains the entire understanding of the Parties concerning the subject matter of this Agreement and. except as expressly provided for herein, supersedes all prior understandings and agreements, whether oral or wntten, among them with respect to the subject matter hereof and thereof There are no representations, warranties, agreements, arnangements or understandings, oral or wntten, between the Parties hereto relating to the subject nmatter of this Agreement and such other documents and instruments which are not fully expressed herein or therein This Agreement may be amended or modified only by an agreement in writing signed by each of the Parties hereto which is filed with and. if necessary, approved by. the Court. LAi "34ii11 II Section 5.7? Tmef Essncri Time is hereby expressly made of the essence with respect to each and every term and provision of this Agreement The Partles acknowledge that each will be relying upon the timely performance by the other of its obligations hereunder as a material inducement to each Party's execution of this Agreement Section 5 9 HgThlrd Party beneficiaries Except is may be specifically set forth in this Agreement or the Plan, nothing in this Agreement, whether express or implied, is intended to confer any eights or remedies under or by reason of this Agreement on any Persons (including, without limitation, any Persons holding claims against or Interests in PG&E) other than the Parties and their respective permitted successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third Persons to any Party, nor give any third Persons any right of subrogation or action against any Party Section 5 9 Authoriti. Enforceability, Each Party represents and warrants to the other that this Agreement hai been duly authorized by all action required of such Party to be bound thereby, and that this Agreement is valid, binding and enforceable obligations of such Party Section 5.10 WAiverofComollance To the extent permitted by applicable law, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition set forth herein may be waived by the Party entitled to the benefit thereof only by a written instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, any prior or subsequent failure to LAI 04241)69

12 comply thercwith The failur of a Party to this Agrecmcnt to assen any of its nghts under this Agreement or otherwise shall not constiute a waiver of such rights Section.511 CjhIf.u-niw, This Agreement shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of California, without giving effect to the conflict of law principles thereof Section S 12 Ahmin= This Agreement is a compromise believed by the Panics to be in the best interests of all Concerned panics Nothing inthis Agreement shall be construed or deemed to be in admission by any of the Panics of any liability or any material fact in connection with the Litigation 13 IN WITNESS WHEREOF, the Panics have executed this Agreement as of the date first wnnen above PACIFIC GAS & ELECTRIC COMPANY By Title CALIFORNIA PUBLIC UTILITIES COMMISSION By Title COMMISSIONERS IN THEIR OFFICIAL CAPACITY Loretta M Lynch Henry M Duque Carl W Wood Geoffrey F. Brown Michael Peevey LAI 824346S LAI11l43)6#

UNITED STATES BANKRUPTCY COURT NORTIIERN DISTRICT OF CALIFORNlIA SAN FRANCISCO DIVISION In re PACIFIC GAS AND ELECTRIC COMPANY. a California corporation, Debtor Federal I D No 94 0742640 Case No 01.30923 DM Chapter I I Case (No Hearing Requested) CALIFORNIA PUBLIC UTILITIES COMMISSION'S AND OFFICIAl. COMMITrVr OF UNSFCURf. CREDITORS' FIRST AMEN.)B. PLAN OF REORGANIZATION UNDER CIIAPTER I I OF THE BANKRUPTCY CODE FOR PACIFIC GAS AND ELECTRIC COMPANY (Dated IM*J.,IuI [I-713L 20021 4 6 7 8 9 10 II 12 13 14 15 (212) 373 3 conlr for theunlel Ciammittee or Ulilluerrd Credlithrs MILBANK-TWEED, lATIERY & 601 aloith FI~aaarta St'eei Sufte 3000 LotrAngept-c.Ca~lfotuagi 90)017 (m] 99400 D.0 NY$ 114954 2 3 4 Counsel for the Califomia Public Utilities Commission, Gary M Cohen Arocles Aguilar Michael M Edson CALIFORNIA PUBLIC UTILITIES COMMISSION 505 Van Ness Avenue Son Francisco. Califomia 94111 (415) 703-2782 17 19 20 21 22 23 24 25 27 28 17

Alan W. KornberP Brian S. IHermann mart F Skanof PAUL. WEISS. RIFKIND, WHlARTON 1785 Avenue of the Americas New York, New York 180019-6064 (2121373-3000 i 2 3 4 S 6 7 S 9 10 II 12 13 14 Is 16 17 I8 19 20 21 22 23 24 25 26 27 28 ARTICLE II 12 ARTICLE 21 22 23 ARTICLE I ARTICLE I 41 42 43 44 45 46 47 48 49 4 10 4 1 4 12 4 13 4 14 4 1I 4 16 4 17 4 1S 4 19 4 20 421 4 22 ARTICLE V 5S1 52 53 54 55 56 57 TABLiEOCO'I"E Page I DEFINITIONS AND CONSTRUCTION OF TERMS......... I Definitions. Interpretation: Application of Delinitions and Rules of Construlion ~.27 I1 TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS. PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS. AND PRIORITY TAX CLAIMS. Administrative Expense Claims 2 Pro fessional Compensation and Reimbursement Claims... Pnonty Tax Claims [P8]. I1 CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS..... 29 IV TREATMENT OF CLAIMS AND EQUITY INTERESTS....................31 Payment of Interest (...................... (*1 Timing ofPayments and Distnbutions........ fl Class I - Other Prionry Claims Class 2 - Other Secured Claims 34 Class 3. Secured Claims Relating to First and R efunding Mortgage 34 Bonds[,]..... B o n s [.... ........................~. *.. 3 4 Class 4a -Mortgage Backed PC Bond Claims Class 4b MBIA Insured PC Bond Claims Class 4c-MBIA Claims Class 4d. Letter of Credit Backed PC Bond Claims I17 Class 4e(--JLetier of Credit Bank Claims. Class 4f. Prior Bond Claims....... 41 Class 4g. Treasury PC Bond Claims 41 Class 5 - General Unsecured Claims 4S Class 6 - ISO, PX and Generator Claims 111 Clas 7 - ESP Claims.. Class 8 - Environmental, Fire Suppression, Pending Litigation. Ton End FERC License Claims [Intentionally Left Blank].4 Class 10 -Convenience Claims Class I I - QUIDS Claims.1 Class 12-Workers' Compensation Claims "II Class 13. Prefened Stock Equity Interests Class 14. Common Stock Equity Interess tS PROVISIONS REGARDING VOTING AND DISTRIBUTIONS UNDER THE PLAN AND TREATMENT OF DISPUTED. CONTINGENT AND UNLIQIJrDATED ADMINISTRATIVE EXPENSE CLAIMS. CLAIMS AND EQUITY INTERESTS Voting of Claims and Equity Interests Elimination of Vacant Classes Noncotensiual Confirmation Method of Distributions Under the Plan. J"j.. Objections to and Resolution of Administrative Expense Claims and Claims Paymenl ofthe TEusteis'. Issuerts and Certin Bag k Fees Cancellation of Existing Secunhies and Agrecements ODc-tNa 1"M4i Oo-8 NY6 I"14) t1ai 4

7 9 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 28 ARTICLE VI EXECUTORY CONTRACTS AND UNEXPIRED LEASES 2 6 I Assumption and Rejection or Execulory Contracts and Unexpired Leases 6 2 Schedules of Rejected Executory Contracts and Unexpired Leases,

• 6 Inclusiveness Approval of Assumption or Rej"ect ion of Executory Contracts and

([80 Unexpired Leases 4 64 Cure ofDefaults 63 Bar Date for Filing Proots of Claim Relating to Executory'Contracts and "' Unexpired Leases Rejected Pursuant to. or Omitted from, the Plan '. ..91 66 Assumed Indemnification Obligations [ ]ig

• 6 7 Compensation and Benefit Programs j..

6 S Retiree Benefits fOj 6 9 -Settlement and Slanislaus Commitmenls/Natural Gas ARTICLE VII. IMPLE MENTATION OF TIlE PLAN(& 7 I lssuance of Secunties.. 7 2 1 11P-e14 +ell lcmenl of"Litigation '. New Tax Shan'g Agreement

7. 4 1 H+'Z...

C o r p o r a te G o "v e r na n c 1 6 74....2. Regulatory A rovls li Crortel. GovernPanlcep Working Cplta ""M. Regustr ARTICLE VIII CONFIRMATION AND EFFECTIVENESS OF THE PLAN (651 8 I Conditions Precedent to Co,ýfimrnstaon 1... .6 82 Conditions Precedent to Effectiveness..... 1 83 Effector Failure or Condilions...... J 8 4 Waiver ofCondilions 162 ARTICLE IX EFFECT O*F CONf[RMAl ION OF PLAN... ' .... [71 91 Term ofBaikruplcy Injuncton or Stays. .67. 92 Revesting of Assets 93 Operations Following Effective Date. 94 Claims Extinluished. ("" 95 Discharge of Deblor 6., 96 Injunction .4.. ARTICLE X RETENTION OF JURISDICTION (691L ARTICLE XI MISCELLANEOUS PROVISIONS -1717 II I Effectuating Docunrfents and Further Transactions.07 1 II 2 Corporate Action 70 11 3 Exemption from Transfer Taxes.... 74 114 Releases by Debtor. "II Limited Release by Releasees.

2..

II 6 Exculpation 1II7 Termination of Committee

4,~.

118 Fees au iExpenses............. B 119 Payment ofSlstaory Fees... 11.10 Amendment or Modification of the Plan 74 I'llII Sevenabilhty...... 1 111 2 Reocation or Withdrawal ofthe Plan.......".".... 11 13 Binding Effect.................... 11 14 Notices.................. 111 11.15 Governing Law....... DoeS NY& I"I4i 45 it j i 2 3 4 5 .6 7 8 9 I0 II 12 13 14 15 16 17 .Is 19 20 21 22 23 24 25 26 27 21 11,16 Withholding and Re rting Requirements................... 11.17u& 11.17 [.-t a 1 plan Supplement,.. 1. 8 z x h io itts S e n e u es........... "7...... 11.19, Subrogaton..igh.......... 179l n I LV.*,4 I -'ý' A--

2 3 4 5 6 "7 a 9 10 II 12 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 28 ARTICLE I DEFINITIONS AND CONSTRUCTION OF TERMIS 1.1 Definiiona As used herein, the following terms have the respective mearungs specified blow Smeans those cert. ain California Pollution Control Finarting Authority, 6 5/8% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1992 Series A issued by the Issuer in the aggregate principal amount of $3S.000.000 20 Bonds means those certain California Pollution Control Financzng Authority, 6 35% Pollution Control Revenue Bonds (Pacific Gas and Electnc Company) 1992 Series B issued by the Issuer in the aggregate principal amount of $50,000,000 3 A means those certain California Pollution Control Financing Authority. S 718% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1993 Series A issued by the Issuer in the aggregate pnncipal amount of S60.000,000 those certain California Pollution Control Financing Authority, 5 85% Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1993 Senes B issued by the Issuer in the aggregate principal amount of $200,000,000 In submittng this Plan and its accompanying Disclosure Statement, the Commisson does no waive any objections or defenses that the Commission or the State of California (as defined below) may have to this Court's jurisdiction over the Commission or the State of California based upon the Eleventh Amendment to the United States Constitution or related pnnciples ofsovereign immunity or otherwise, all of which are hereby reserved Does N'YC 1iS"iJalI The Cahlornia Public Utilities Commission (the "CVMM MIt") [peopeseajnd the C'ommlttee (st defined belowl (collectively, the "Prnnponent,"1 nronons the following rsamended plan of reorganization for Pacific Gas and Electric Company. a California corporation (the "1lb.o'"), pursuant to sec*on 1121 of tille I I of the United States Code. I I U S C. 1j 101 et seq (as amended fhom time to time. the " and the Bankruptcy Court's [O(d*Geda" e4Ma 44r200,JI~g terminating the Debtor's exclusive right to file a plan dalted March I1. 2002 with resnest to the Commhg.nn and July 9-200 with resnect to the Commlitteet'iI 969 Bond means those certain Cahlomia Pollution Control Financing Authority. Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series B iasued by the Issuer in the aggregate principal amount of S160,000,000 9CBonds means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Ga and Electrsc Company) 1996 Series C issued by the Issuer in the aggregate principal amount or $200.000,000 2§D..Bond means those certain California Pollution Control Financing Authority. Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series D issued by the Issuer in the aggregate principal amount of $100,000,000 96E Bonds means those certain California Pollution Control Financing Authority. Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series E issued by the Issuer in the aggregate principal amount of $165.000.000 96FBond means those certain Californiu Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series F issued by the Issuer tn the aggregate principal amount ofS100,000.000 96G Bonds means those certain Cali formia Pollution Control Financing Authonty, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1996 Series G issued by the Issuer in the aggregate principal amount of $62,870,000 97A Blnid means those certain California Pollution Control Financing Authonty, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series A issued by the Issuer in the aggregate principal amount of $45,000,000 Smeans those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series B issued by the Issuer in the aggregate principal amount of rS148.550.000 9 means those certain Cali fornia Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series C issued by the Issuer in the aggregate principal amount ofS48,SS0,000 Do-4 MY6 19"141JIa 2-

1 2 3 4 5 6 7 8 9 in 13 14 "15 16 17 Is 19 20 21 22 23 24 25 26 27 28 97D Bond means those certain California Pollution Control Financing Authority, Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series D issued by the Issuer in the aggregate principal amount of $1 7.900.000 Administrative ExnenslgClaim means all Claims against the Debtor constituting a cost or expense of administration of the Chapter I I Case under sections 503(b) and 507(aX 1) of the Bankruptcy Code. including, without limitation, all actual and necessary costa and expenses of preserving the Debtor's estate, all actual and necessary costs and expenses or operating the business of the Debtor in Possastion. any indebtedness or obligations incurred or assumed by the Debtor-in-Possession in connection with the conduct of its business, all cure amounts owed in respect of executory contracts and unexpired leases assumed by the Debtor-in Possession, all Professtonal Compensation and Reimbursement Claims. and any fees or charges assessed against the Debtor's estate under section 1930 of chapter 123 oftitle 28 of the United States Code AMLLiate has the meaning set forth in section 01 (2) of the Bankruptcy Code S, Allow means, with reference to any Claim against or Equity Interest in the Debtor, (a) arnClaim which has been listed by the Debtor in the Debtor's Bankruptcy Schedulc,.'as such Schedules may be amended by the Debtor from time to time in accordance with Bankruptcy Rule 1009, as liquidated in amount and not disputed or contingent and for which no contrary proof of claim or objection to claim has been filed, (b) any Claim or Equity Interest allowed hereunder, (c) any Claim or Equity Interest which is not Disputed, (d) any Clair or Equity Interest that is compromised, settled or otherwise resolved pursuant to a Final Order of the Bankruptcy Couit or under the Plan, or (e) any Claim or Equity Interest which, if Disputed, has been Allowed by Final Order: provide, however, that Claims allowed solely roe the purpose of voting to accept'or reject this Plan or PG&E's Plan pursuant to an order of the Bankruptcy Court shall not be considered "Allowed Claims" hereunder. Unless otherwise specified herein or by order of the Bankruptcy Court. "Allowe Administrative Expense Clam" or "Allowed Claim" shall not, for any purpose under the Plan, include interest on such Administrative Expense Claim or Claim, as the case may be. from and after the Petition Date -2 3 4 .5 6 7 3 9 10 II 12 13 14 I5 16 17 Is 19 20 21 22 23 24 25 26 27 28 D-V NYS tf9t55J51 Owl NY6 t1ttaljsfl Asumied Coroorate Wde,,niffe; mians all obligations of the Debtor. pursuant to the Debtor's articles of incorporalion or bylaws, applicable stalte law or specific agreement. or any combination of the foregoing, to defend or indemnify, or to reimburse or limit the liability of, its present and any former officers, director's and/or employies'who were officers, directors andior employees, respectively, on or after the Petition Date, solely in their capacities as officers, directors and/or employees of the Debtor, against or with respect to any claims or obligations Assu.med Inrdeminifieliatiopn C-iml mean all Claims, if any, as to which the claimant asserts rights based only upon the Assumed Corporate Indemnities Dlo means the form distributed to each holder of an Impaired Claim or Equity Interest on which such holder shall indicate, among other things, acceptance or rejection of the, Plan and such holder's preference as between this Plan and PG&E'a Plan. .Pin means, with respect to each Reimbursement Agreement.those certain banking or other financial institutions that see signatories thereto (other than the Letter of Credit Issuing Bank) and their respective successors and assigs flanknjp! g has the meaning set forth in the introduction to the Plan Bank-masy Cou means the United Slates Bankrupltcy Court for the No'hem District ofCallifomia having jurisdiction over the Chapter I I Case SI ,,Jsnkkruotcy Ruleg means the Federal Rules of Baudasptey Proceddre u promulgated by the United States Supreme Court under section 2075 of tlitle 23 of the United States Code and any Local Rules of the lasankraptcy Court BondLoa means, with respect to each series of PC Bonds. the loan of the t proceeds from the sale of such series or PC Bonds made by the Issuer to the Debtor pursuant to the terms of the respective Loan Agreement. Bond Truste means, with respect to the PC Bonds. B*nkers Trust Company, a state banling corporation organized under the laws of the State of New York, as trustee, or U S. Bank Tnasl National Association, as trustee, under the Indenture pursuant to which such PC Bonds were Issued, as applicable, and their successors and assigns or any successor trustee under such Indentures appointed In accordance with the terms thereof. -4.

A, I BslunesIDoy means any day other than a Saturday. Sunday or any other day on 2 which commercial banks in Sin Francisco. California or New York. New York are required or 3 authonzed to close by law or executive order. 4 Cash means legal lender of the United States of Amenca 5 Qjaus fA n means, without limitation, any and all actions, causes ofactioa, 6 liabilities, obligations, rights, suits, damages, judgments, claims and demands whatsoever, 7 whether known or unknown, existing or hereafler ansisg, in law, equity or otherwise, based in 8 whole or in pan upon any act or omnission or other event occumog poor to the Petition Date or 9 during the course of the Chapter I I Case, including through the Effective Date. 10 Chatr I I Casmen.s the case under chapter I I of the Bankruptcy Code II commenced by the Debtor in the Bankruptcy Court on April 6. 2001 and filed under Chapter II, 12 CaseNo 01-30923-DM 1 3 Comiumjm tgjLtij2o means Causes of Actitn against the Debtor relating to 14 alleged chromium contamination, including, but not luimted to. the following sixteen (16) civil 1 actions pending in California courts (I) As~xga v PacificGasandElectrcComoanv filed 16 March 1. 1995 in Los Angeles County Superior Court, (ii) Agil

v. Pacific Gas aWn Elcctnc 17 C9mpany f*iled October 4. 1996 in Los Angeles County Superior Court, (iii) Acoss. etAJ. v.

18 Betz Laboratories. Inc ct alt filed November 27, 1996 in'Los Angeles County Superior Court, 19 (Iv) AM v Pacific Gas and Electric Comosnv and Dctz Chemical Com yanv filed July 25. 20 2000 in Los Angeles County Superior Cousi, (v) Baldonad v.PadfcG~ i'andElcctl 21 C riled October 25, 2000 in Los Angeles Superior Court. (vi) (I0k v PacifLc Go]s in 22 El gs* gyLL filed January 30,2001 in Los Angeles County Supenot Court. (vii) jMoc v 23 Pacific Gas & Electric Company, filed March 15. 2001 in San Bernardino County Superior 24 Court, (viii) Foryc v. Pacific Gas & Electric Company filed Much 16.2001 in Sari 25 Bernardino County Superior Court, (ix) E v Pacific Gas & Elctric Comnany filed 26 March 30,2001 in Los Angeles County Supenor Court, (t) AL~fjdQon el l. EM Q 27 Cororaton Pacific Gas and Electc Company, Hciz Chemical CompanY. et al filed Apnl II. 28 2001 in Los Angeles County Superior Court, (xi) Bli eti0 v Pacific Gas and Ee-rInc D-KY6 1t"145$Jsl2

2 3 6 4 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 If C2moany.L IL e., filed April 20, 2001 in Los Angeles County Supenor Court, (xii) 6ooyd et -L v Pacific Gas and Electric Company. ct al riled May 2, 2001 in Los Angeles County Superior Court, (xiii) M sjrl*nesL_ v Paubc Gas and Electric Comi~pgny. filed June 29. 2001 in Los Angeles County Superior Court. (xiv) lKC v Pacific and Elt;ctuicCormpg, filed November 15, 2001 in Los Angeles County Superior Court, (xv) Millet v Pacific Gas and Elctnc Company, filed November 21, 200! in Los Angeles County Superior Court,'and (xvi) LYLe v Prscifric 3 arid Electric Compan, filed March 22,2*002 in Volo County Superior Court Chromium Lbtiction Cltims means all Claims against the Debtor arising from thi Chromium Litigation tor damages or other obligations, including Punitive Damages: rovided, however that Chromiumi Litigation Claims shall not include (a) any Clams, settled, liquidated o determined by Final Order or a binding award, agreement or settlement prior to the Petition Date for anounti jiyabie by the Debtor for damiiagei or other obligations in a fixed dollar amount payable ins laump iusun or by i series of pasvmenls (which Claims arc classified as General Unsecured Claims). (b) Environmental'Claims, (c) Fire Suppression Claims, (dl Pending Litigation Claims, or (e) FERC License Claims C...rnI* the meaning set forh in section 101(5) ofthe BankruptcyCode, ,rovid however, that any claim based on allocations under [GPUG] nmm1i9n Electric Rule

20. Section A. relating t1 undergrounding of electric distribution facilities, shall not be a Claim for purpoase of this Plan and shall pass through the Plan unaffected c h n means a category or holderl of Claims against or Equity Interests in the Debtor as set forth In Articles'll 'and IV of the Plan g

means the Clerk or the Bankruptcy Court Claterl means any properly or interest in property of the estate ofthe Debtor subject to a Lien to secumii the payment or performance of a Claim. which Lien is not subject to avoidance o" otherwise invalid under the Ban1krptcy Code or applicable state law Cormercial Paper means short term promissory nots'of te Debtor bearing various interest rates based on the three (3) month London IntetBank Offered Rate and issued 2 3 4 S 6 7 a 9 10 II 12 13 14 Is 16 17 19 20 21 22 23 24 '25 26 27 28 DoeS NY6 l"liJJIl .6. under commercial paper dealer agreements between the Debtor and (I) Goldman Sachs & Co. dated May 30, 1997, (ii) Bank of America, N A, dated February 7. 1985, (ini) Salomon Smith Barney, Inc. dated November 10. 2000, and (iv) Memll Lynch, Pierce, Fenner & Smith Incorporated (oral agreement) Commercial Paper Claim means all Claims against the'Delbtortirising from Commercial Paper 4 Cqmmlti has the meaning set forth in the introduction to the lan a!i a +/- Its to be file it Pak-a a s a. .......d, r n d.. r... ...L. -... I.. d f - Vmnltt.ee means the official Committee orUnsecured Creditors appointed in the Chapter I I Case by the United States Trustee pursuant to section 1102 of the Bankruptcy Code, as reconstituted from time to time As of the date hereof, the Commitlee is comprised ofiReliant Energy, Inc. Dynegy Power Marketing, Inc, P-E Berkeley, Inc, GWF Power Systems Company. Inc, Bank of Anmerica. N A, Morgan Guaranty, Merrill Lynch. Pierce, Fenne; & Smith, Incorporated, Davey Tree Expert Co, the City of Palo Alto. Cahromis, the State of Tennessee and Pacific Investment Management Company LLC." . oMitlIL.3MP99LAZreSem means that certain Support Agreement. dated September 19, 2001, entered into by and among the Committee, the Debtor and the Parent, as amended from time to time., lomlon StoCk means shares of the Debtor's common stock, par value $550 Mcr share m Common Stock Eauity Inter"s means any right relating to the three hundred twenty-six million, nine hundred twenty-six thousand, six hundred sixty-seven (326,926,667) issued and outstanding shares of Common Stock a o rthe date hereof', all of which are'heldl directly or indirectly by the Parent. Confiratiou Dole means the date on which the Clerk of the Bankruptcy Court enters the Confirmation Order on the Bankruptcy Court's docket. D-c NY6 0"145.[111 .7.

2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 28 Cohnfrmaton lcanl means the hearng held by the Bankruptcy Court to consider confirmation of the Plan pursuant to Section 1128 of the Bankruptcy Code, AS such heanng may be adjourned or continued uorn time to lime ConfiM on'9 rermeans the order ofthe Bankruptcy Court confirming the Plan pursuant to section 1129 of the Bankruptcy Code, which order shall be in form And substance reasonably satisfactory to the {Goud*iga]a.p£imitall Conveeniuc¢ Claims means All Claims against the Debtor held by a vendor, supplier or service provider or arsing from the rejection oftexecutory contracts or unexpired leases under section 365 of the Bankruptcy Code (a) in the Allowed amount ofS"100,000 or less, or (b) consensually reduced to an Allowed amount of$100.000 by the holder of the Claim Smeans the California Public Utilities Code PsbW has the meaning set forth in the introduction to the Plan. means the Debtor in its capacity, a debtor-In-poisession in the Chapter I I Case pursuant to sections 1101. 1107(a) and 1108 of the Bankruptcy Code Debtor's Aclgles of" Lnooorstion means the Debtor's Restated Articles of Incorporation, effective as of May 6, 1998 Debtor's Bankrutstcy Schedules means'the schedules of assets and liabilitles. schedu.le of'current income and cxpcnditures, schedule of cxccutory contracts and unexpired leases, and statement of financial affairs filed in this Chapter I I Case by the Debtor pursuant to section 521 ofthe Bankruptcy Code and Bankruptcy Rule 1007, as amended from time to time Detr' iews means the Debtor's Bylaws, as amended as of Febnuary 21. 2001. 1lsbrlnlli Aglent means any Entity in its capacity as a disbursing agent under Section 5 4 of the Plan DDsclosure StatemenLt means the Disclosure Statement for the Commission's Plan of Reorganization under Chapter I I of the Bankruptcy Code for the Debtor, dated Mayi17, 2002 including, without limitation, all exhibits and schedules thereto, as approved by the Bankruptcy DO. NYS 19914tSil 4 6 7 8 9 10 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 28 I Court pursuant to the Disclosure Statement Order. and as amended modified and/or 2 supnlemented from time to tIme 3Disclosure Slatem'crt rdc, means the ordcrf oftie Bankruptcy Court entered )ursuanl to section 1 125 of the Bankruptcy Code approving the Disclosure Slatement

• sted CI#Ja means, (a) with reference to any Claim against the Debtor. proof of which was timely and properly filed. or in the case o(an Administrative Expense Claim, any Claun or Administrative Expense Claim. as the ease may be, which is disputed under the Plan or as to which the Debtor has interposed a timely objection and/or request for estimation in accordance with section 502(c) of the Bankruptcy Code and/or Bankruptcy Rule 3018. which objection and/or request for estimation his not been withdrawn or determined by a Final Order.

and (b) any Claim against the Debtor. proof of which was required to be filed by order of the Bankruptcy Court or pursuant to applicable law. but as to which a proof ofclaim was not timely or properly filed A Claim that is Disputed by the Debtor as to is amount only shall be deemed Allowed in the amount the Debtor Admits owing. if any, and Disputed as to the excess [k.outed Claim Amount means the disputed portion of the amount set forth in the proofof/claim relaling to a Disputed Claim or, afin amount is estimated in respect ofa Disputed Claim in accordance with section S0 2(c) ofthe Bankruptcy Code and/or Bankruptcy Rule 3018. the amount so estimated pursuant to an order of the Bankruptcy Court PDti.LfQlo Pccord Date means the close of business two (2) Business Days pnor to the Effective Dale Effective Date means the second (2'4) Business Day after the date on which the conditions specified in Section 8 2 hereof have been satisfied or waived EWny has the meaning set furth in Section 101(15) ofthe Bankruptcy Cede tnvlronmentsl. Fire SuLouesslon. PendinI-ailion, Tort and FERC License CIM means all Environmental Claims. Fire Suppression Claims, Pending Litigation Claims, Tort Claims and FERC License Claims E e means all Claims Against the Debtor ansuig rorn any accusation, atllegation notice of violation. action, claim, environmental Lien. demand, ab(tcment D-live 1"1a45~ I

9 10 IC 11 13 14 16 17 18 19 20 21 22 23 24 25 26 27 22 I or other crdrr, restriction or dirrct'on (conditionai or otherwise) by any Governmental Fntity or 2 any other Person tor'perional injury (inhluding. but not limited to, sickness, disease or death). 3 tangible or intangible property damage. Punitive Damages, damage to the environment. 4 nuisance, pollution, contamination or other adverse efrct on the environment or costs (to the S extent recoverable under applicable non bankruptcy law) of any Governmental Entity related 6 thereto, in each case resulting from or baseda Upon (a) the existence, or the continuation of the existence, of a release of(ncluding, but not limited to. sudden or non sudden accidental or non. accidental releases), or exposure to: any hazardous or deleterious matersal. substance, waste. pollutant or contaminant, odor or audible noise in. into or onto the environment (including, but not limited to. the air, %oil, surface water or grouandwiater)'a in,'by, from or related to any property (including any vessels or facilities of the Dbrhor) presently or formerly owned, operated or leased by the Debtor or any activities or operations theiron ('b) the transportation, storage treatment or disposal of any hazardous or deleterious material, s*bstance, waste. pollutant or contaminant in connection with any property /resertly or merly oiled operated or leased by the Debtor or its operations or facilities, or (c) the violation or alleged violation, of any environmental law, order or environmental permit or license oror from any Goverrunental Entity relating to environmental matters connected with any p,operty presently or formerly 6wned, operated or leased by the Debtor, 1grvided, howteer, that Environmental Claims shall not include (I) any Claims fully settled. liquidated at'detenrined bly a Final Order or a binding award. ageement or settlement pnor to the Petition Date for amounts payable by the Debtor for damages or other obligations in a fixed dollar amount payable In a lump sum or by a senes of payments (which Claims are classified as General UnSe~ured Claims), (it) Tort Cl aims. (iii) Fire Suppression Claims. (iv) Pending Litigation Claims, of (v) FERC License Claims Enlvironrmental Ord has the meaning set forth in Section 4 16(b) hereof Eguity nte.res means any share of Common Stock, Prerfered Stock or other instrument evidencing in ownership interest in the Debtor, whether or not transferable, and any option, warrant or other right, contractual or otherwise, to acquire any such interest 2 3 4 '6 7 8 9 10 II 12 13 14 16 17 Is 19, 20 21 22 23 "24 2S 26 27 28 ERIS means the Employee Retirement Incoame Security Act of 1974, as means energy servici provider e c ESP Claim means all Claims against the Debtor arising from PX energy edits payable by the Debtor to ESPs I Existing TaX Sharing Aggremeist means that agreersIent, dated as ofJinuay 1, 1997, for the allocation ofrincome tax liability between the Debtor and the Parent ExiLEl-fr has the meaning set forth in Section 7 6 hereof Federaeludment Rat means the interest rate allowed pursuant to section 1961 01 title 28 of the United States Code. as amended, as published by the Board of Goveorr, of the-, Federal Reserve System for the calendar week that preceded the Petitiorn Date We Rules Civ. Pro, means the Federal Rules or Civil Procedure Smeans the Federal Energy Regulatory Con;mussion EEg Licens means all Claims against the Debtor held by a Goverrnmental Entity arising from or under FERC licenses, including, but not limited to. Belden FERC License 2015 (including fish stocking requirements set forth therein) Fias* rdg means an order or decree of the Bankruptey Court. or any other court of competent jurisdiction. as to which the time to appeal, petition for certiorari, or move for reargument or reheaing has expired and as to which no appeal, petition for ccrtiorri. or other proceedings for reargument or rehearing shall then be pending or as to which anyright to appeal, Petition for certiorari, reargue. or rehear shall have been waived In writing In fonm and lubst;xe satisfactory to the Debtor and the (Geini"eeluPJriaralli-m or. In the event that an appeal, writ ofrcertiorari, or reargsament or rehearing thereof-has been sought. suchorder or decree of-the Banksup'tcy Court or other court of competent jurisdiction shall have bee; determined by the highest court to which such order or decree was appealed, or certiorari, reargument or rehearing shall have been denied and the time to take any further appeal, petition for certiorari or move for reargument or reheanng shall have expired, m , however, that the possibility that a motion under Rule 59 or Rule 60 of the Fed. Rules Civ Pro, or any analogous rule under the D-6N NYd IStids . t0. DS N11 .II. amended Dwo Nyd 1"14$jlll

2 3 4 i 6 7 8 9 II 12 13 14 15 16 17 is 19 20 21 22 23 24 25 26 27 28 Do-a Ne6 i941j0_11 -$I. Bankruptcy Rules or applicable state court rulet of civil procedure, may be filed wsth respect to such order or decree shall not prevent such order or decree from being a Final Order means all Claims against the Debtor by any Governmental Entity for damages and costs resulting from a fire that may be recovered under either state or federal law. including, but not limited to, Claims for damages to property, the cost of estoring all property damaged as a result of the fire, the cost of compensating all other losses resulting from damage to property arising from a fire. and costs tncurred in fighting a fire. including all investigative, administrative. accounting, collection, and other costs, p.ovded hbW.gsx, that the foregoing "including, but not limited to" description of the types of damages and costs that are included in this definition are for illustrative purposes only and do not constitute an acknowledgment or admtssion by the Debtor that any such damages or costs are us fact recoverable under state or federal law First and Refundinh Mortases Bond meant (i) 6 250/ First and Refunding Mortgage Bonds Senes 93C due August 1, 2003. (if) 6 25% First and Refunding Mortgage Bonds Senies 93G due March 1, 2004, (0i) ;5 875% First and Refunding Mortgage Bonds Senies 93E due October 1. 2005. (iv) variable rate First and Refunding Mortgage Bonds Series 81B due August I, 2011. (v) 2 800% First and Refunding Mortgage Bonds Senies 91A due May 1, 2024, (vi) 2 37$% First and Refunding Mortgage BondsSlries 92B due May 1, 2025. (vii) S 250% First and Refbnding Mortgage Bonds Series 92D due November 1.2022, (viii) 725% First and Refunding Mortgage Bonds Senes 93A due March 1, 2026, (ix) 7.2SO0% First and Refunding Mortgage Bonds Series 93D due August 1. 2026. (a) 6 750%/6 Frst and Refunding Mortgage Bonds Series 93F due October 1, 2023, and (xi) 7 050% First and Refunding Mortgage Bonds Series 93H due March 1,. 2024. each itsued by the Debtor under the Mortgage, togethr with any Matured and Unpresenied First and Refunding Mortgage Bonds, Rpyjdr that the Debtor is not waiving any rights or claims it may have under apphlable non-bankruptcy law againat any holder of any Matured and Unpresented First and Refunding Mortgage Bond or any other painy with respect thereto 9 12 i3 14 I5 16 17 12 19 20 21 22 23 24 25 26 27 28 IFirt and Refndinir Moatise Bond ,ocunits means with respect to each series 2 of First and Refunding Mortgage Bonds, the Mortgage, and all of the other docurent, 3 instruments, agreements and cetificates evidencing, secunng, governng or otherwise perunng 4 to the respective Mortgage Loan or the respective series of First and Refunding Mortgage Bonds S or otherwise executed and delivered by or on behalf of the Debtor it connection with any of the 6 foregoing, together with all amendments, modifications. renewals, substitutions and replacements of or to any of the foregoing EL*Rin.Rate Note Claims means all Cliums arosing from the Floating Rate Notes Flogtng Rie Hfoles means the Floating Rate Notes due October 31. 2001. issued by the Debtor under an indenture by and between the Debtor and Wilmington Trust Company, as successor-in interest to The Bank of New York, dated September I, 19g7, together with all amendments, modifications, renewals, substitutions and replacements thereof Forbeaane-Ext* esion and I acr of Credit Fees has the meaning set forth in Section 4 10(bXiv) hereof General Unsecured Claim means (a) Revolving Line of Credit Claims. (b) Medium Tems Note Claiuns. (c) Senior Note Claims, (d) Floating Rate Note Claims, (e) Southern San Joaquin Valley Power Authonty Bond Claims. (0 Claims ag-aist the Debtor arising from the rejection of excLutory contracts and unexpired leases under section 365 of the Bankruptcy Code. (g) Claims against the Debtor relating to pre-petition litigation (other than Pending Litigation Cldims, as defined above in this Sectcnn I 1. which are classified as Class 8 Claims), (h) Claias against the Debtor by the Debtor's vendors, suppliers and service providers, (I) Claims against the Debtor relating to intercompany obligations to Affiliates and (j) Commercial Paper Claims. pfxxd4 h, *l. that General Unsecured Claims will n&t include any unsecured Claims ircluded in any other Class Ul. Mijnrenial Enity has the meaning act forth for a governmental unit in section 101(27) of the Bankruptcy Code a means any Class of Claims against or Equity Interests in the Debtor that is impaired within the meuaiig ofsection 1124 of the Bankruptcy Code L[i NYS 199145 fill -is

2 3 4 6 7 8 9 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 21 Inonturo means, with respect to each senres of PC Bonds. that certsin indenture of trust between the Issuer and the Bond Trustee pursuant to which such series of PC Bonds were issued, as originally executed, together with all amendmeýnts1, modifications, renewals, substitutions and replace-nents thteorofr initial Calculation Date means (t) February 28, 2002 with respect to holders of Allowed Claims in Class 5 for Senior Indebtedness, holders of Allowed Southern San Joaquin Valley Power Autlhority Bond Claims and holders of Allowed CaiAms in Classes 4c, 4f, 4g and II, and (it) June 30. 2002'wiith respect to th'e remaining holders of Allowed Claims in Class 5 and the holders of Allowed Claims in Classes 1. 2. 6. 7 and 10. Iniersti Pm;4 means ihe period commencing on any interest payment date specified herein and ending on the day precedtng the nest succeeding interest payment date, except in respect of the first interest period which extends to June 30, 2002, where the Interest Period shall commence kn the earlier of the Petition Date or the date specified on ExIhibit j hereto and shall end on June 30, 2002 and the second interest period shall contmenceon July I, 2002 Investment Grade Credit Ritina means credit ratings from S&P of BOB-or better and Moody's of Basl3 or better I, tS means the United States Intýr*al Revenue ervice W means the Cali fornia Independent System Operator, ISO,. PX n eLQe nffjt2~t. M ineans all Claims against the Debtor arising from amounts due to the ISO, PX and various power generators baied on purchases of electricity or ancillary services by the Debtor in markets operated by the PX and the ISO Insir means the California Pollutiorn Conirol Financing Authonty, a public instrumentality and political subdivision of the State'of Calforms, organized and existing under the California Pollution Control Financing Authority Act. being Division 27 (commencing' at Section 44500) of the California Hlealth and Safely Code. as supplemented and amended L. Blink A'emen has the meaning set forth in Section [4 LWbjM) hereof 2 3 4 S 6 7 S 9 10 II 12 13 14 is 16 17 IS 19 20 21 22 23 24 25 26 27 28 Dtci NY$ tt14I5jt.* 14. .Is. Leof CrxlI means, with respett to each series of Lener of Credit Backed PC Bonds. that certain irrevocable direct pay letter of credit issued by the 'Letter orCridit Issuing Bank for the account of the Debtor to the Bond Trustee ind deliveredto the Bond Trustee in accordance with the terms of the respective Indenture, securing, among other things, the paymen of the principal of, and interest on, the respective series of Letter of Credit Backed PC Bonds, together with all amendments, modifirations, renewals, substitutions and replacements thereof. Letter of Credit Backed PC B-ond Jgim, means all Claims against the Debtor by the Issuer, Bond Trustee and the holders of Letter of Credit Backed PC Bonds for all amounts due and owing by the Debtor under the Loan Agreements and each of the other PC Bond Documents executed by the Debtor in connection with the issuance of each series of Letter 0afi Credit Backed PC Bonds Letter of Credit Backed PC Bonds meant collectively, any series of 96C Bonds. 96E Bonds. 96F Bonds and/or 97B Bonds that are outstanding as of the Voting Record Date or the Effective Date. as applicable Letter of Credit Issuing P-an meres, with respect to each series of Letter of Credit Backed PC Bonds, the issuer of the Letter of Credit Letter of Credit Bank Claims means all Claims against the Debtor relating to (a) the contingent Claims of each Letter of Credit Issuing Bank and the applicable Banks, if any, with respect to payments which may become due by the Debtor under their respective Reimbursement Agreements (as modified by the LC Bank Agreement), including, without limitation, any and all amounts due by the Debtor as reimbursement of amounts paid by a Letter of Credit Issuing Bank under its Letter of Credit to the Bond Trustee for the payment ofinterest on the related Letter of Credit Backed PC Bonds and any and all Interest and fees due thereunder, and (b) the Claims of the Letter of Credt Issuing Banks and the applicable Banks, If any, for any and all aceeued and unpaid amounts due by the Debtor under their respective Reimbursement Agreements (an modified by the LC Bank Agreement), including amounts due as reimbursement of amounts paid by each Letter of Credit Issuing Bank under its respective Letter of Credit to the D-N NY$ 1"1431812

2 3 4 S 6 7 8 9 10 II 12 13 14 1S 16 17 Is 19 20 21 22 23 24 25 26 27 28 Bond Trustee for the payment of interest on the related series of Leter of Credit Backed PC Bonds and any and all fees duc thereunder LQP means, with respect to each Interest Period, the rate per annum appearing on Bloomberg Professional page BBAM I (or any successor page) as the London interbank offered rate for deposits in U S dollars having the index maturity deiignated by the Debtor at approximately 11.00 a m (London lime) on the LIBOR Interest Determination Date. If no rate appears on Bloomberg Professional page BBAMI, L[BOR shall mean the rate per annum appeasing on Bridge Telerate Inc page 3750 (or any successor page) sa the London interbank offered rate for deposits in U S dollars having the index maturity de'signated by the Debtor at approximately II 00 a m (London time) on the LIBOR Inderest Determination Date. If no rate appears on Bridge Telerate page 3750, the Debtor will request the princip~il London offices of each of four (4) major reference banks in the London iotermnk mariet. as selected by the Debtor, to provide the Debtor with its offered qtlotationfor deposit; in U S dollars having the index maturity designated by the Debtor to prime banks in the London interbank market at approximately II 00 aLm (London time) on such LIBOR Interest Determination Date and in a principal amount that is representative ofa single transaction in U S dollars in such market at such time LIBOR determined will be the arithmetic mean of the offered quotations If fewer thAs two (2) quotations are provided. LIBOR dietermined on such LIBOR Interest Determination Date will be the arithmetic mean of the rates quoted at approximately II 00 a m in Nlew York City on such LIBOR Interest Determination Date. by thee (3) major banks in New York City selected by the Debtor for loans in U S dollars to leading European banks. having the index maturity designated by the Debtor that is representative for a single iransation In U S dollars in such market at such time If the banks so selected are not quotnj as mentioned above. LIBOR will remain LIBOR in effect on such LIBOR Interest Determination Date "L[BOR Interest Detelmination Date rneans 'for an Interest Period. the second (2") London Business Day immediately preceding t&e first day of that Interest Period, except that in the period prior to the Initial Calculation Date. the LIBOR Interest Determination Dates for (a) Allowed Claims under International Swap Dealers Association ("ISDA") Agreements 2 3 4 5 6 7 a 9 I0 II 12 13 14 Is 16 17 18 19 20 21 22 23 24 25 26 27 28 shall be the Petition Date and each anniversary thcrcofpnor to the Imtial Calculation Date, and (b) Allowed Claims for power generators shall be determined between the Debtor and each such power generator, notwithstanding the fact that none of such dates Is an interest payment date. L= has the meaning set forth in section 101(37) of the Bankruptcy Code

Smeans, with respect to each series of PC Bonds. that certain loan agreement by and between the Issuer and the Debtor with respect to such series of PC Bonds, as originally executed. together with all amendments, modifications, renewals, substitutions and replacements thereof aster Ballot means the Ballot to be completed by Nominees of beneficial owners of bonds, notes. debentures or shares of stock of the Debtor Matured and Unnreentled First and Refunding Morttage Bonds means.

collectively, that porion of the Debtor's (a) First and Refunding Mortgage Bonds, Series 1B, 4 25%, (b) First and Refunding Mortgage Bonda. Series JJ. 4 5%. (c) First and Refunding Mortgage Bonds. Series LL. 4 625%, (d) First and Refunding Mortgage Bonds. Series MM. 5 375%, (e) First and Refunding Mortgage Bonds. Series NN, 5 75%. (0) First and Refundning Mortgage Bonds. Series 00. 5 50%,.. and (g) Fust and Refunding Mortgage Bonds, 8% Series 92C, to the extent that (i) such matured bonds have not been presented for payment by the holders thereof, and (it) the Debtor is obligated to pay the pnncipal of, and interest on, such bonds in accordance with the terms thereof under applicable law, provided that the Debtor is not waiving any rights or claims it may have under applicable non bankruptcy law against any holder of any such bond or any other party with respect thereto MBIA Insurance Corporation M .IA*C.Ch ]M means all Claims against the Debtor relating to (a) the contingent Claims of MBIA with respect to payments which may become die by the Debtor under the terms of the MBIA Reimbursement Agreement as reimbursement for payments made by MBIA uhder the PC Bond Insurance Policy, and (b) the Claims oMBIlA for any and all accrued and unpaid amounts due by the Debtor under the MIBIA Reimbursement Agreement, including any'and all amounts due by the Debtor as reimbursement of amounts paid by MBIA under the PC Bond DLocv 6 Y 1051i5ii $ ii D-0 14V6 49141i'U .Is- 't

4 6 .7 9 10 II 12 13 14 15~ 16 17 18 20 21 22 23 24 25 26 27 28 Insurance Policy to the Bond Trustee for the payment ofinteirest on the NtBIA Insured PC Bonds NMB A Inv*ted*rC on_ L mM means all Claims against the Debtor by the Issuer, Bond Trustee and the holders of the.ISIA Insured PC Bonds for all amounts due and owing by the Debtor under the Loan Agreements and each of the other PC Bond Documents executed by the Debtor in connetion with the issua'nce of each series of MBIA Inldred PC Bonds P MB0f.0_.f means those certain Caliromia Pollution Control Financing Authority, Pollution Control Refunding Revenu e Bonds (Pacific Gas and Electric Company) 1996 Series'A issued by the Issuer in the aggregate principal amount of 1200,000.000 r 1 - MBIA Reimbursement Aueýe*mnt means that certain Reimbursement and Ind-mnity Agreement, dated as of May 1,2000, by and between the Debtor and MBiA, pursuant to which MBIA has issued the PC Bond Insu1rance Policy, together with all anendments, modifications, and renewals there~rs '.
M
edium Term Note Clsinia means all Claims against the Debtor ansing from the Medidm Term Notes' Medium Term* NIo meanisisose certain notes beinang various interest rates from 5 810% to g 450% due through October 7. 2013, other than the Senior Notes and the Floating Rate Notes, issued by the Debtor under an indenture by and between the Debtor and Wilmington Trust Company, as successor-in-interest to the Bank 'of New York, dated September l; 1957, together with all amendments, modifications, renewals, substitutions and replacements thereof Mod means Moody's Investors Service Inc or its successor Mortgait means that certain First and Refunding Mortgage, dated December I, 1920, made by the Debtor, under which B1NY Western Trust Company was trustee on the Petition Date, together with all amendments, modifications, renewals, substitutions and replacements thereof I I 2 3 4 S 6 7 9 10 II 12 13 14 is 16 17 ISI 19 20 21 "22 23 ,24 231 25 26 27 28 DMC NY$ t1tsiJ.i 'Ill. Moil &te Backed PC B means Collectivity, the 92A Bonds, the 928 Bonds, the 93A Bonds and the 93n Bonds Moasse Backrd PCBond Claim% means all Claims against the Debtor by the Issuer, Bond Trustee ard the holders of the Mortgage Backed PC Bonds for all amounts due and owing by the Debtor under the Loan Agreement and each of the other PC Bond Documents executed by the Debtor in conection with the issuance of each series bf Mortgage Backed PC

Bonds, Mortauates i1t means, with respect to each series of Mortg.ge Backed PC Bonds, those certain first and refunding mortgage bonds made by the Debtor in favor of the'*

Bond Trustee pursuant to and secured by the Mortgage, in an aggregate principal amount equal to the related series ofMortgage Backed PC Bonds Mor.ne Li means, with respect to each series of First and Refunding Mortgage Bonds, the loans aide by the holders thereof to the Debtor, New Tax Sharilnt A ri means the agreement to be entered into between the Parent and the Reorganized Debtor for the allocation of inconre tax liability, substantially in the form of Exhibit 4 to the Plan

• mine means any brokerage firm or barnk, or te agent of such firm or bank.

holding the securities of& beneficial owner of bonds. notes, drbentures or shares of stock or the Debt'or. s.iinal Letter of Credit Fee his the meaning set forth in Section 4 l0(bXiv) hereof. Other Prioir.yCh~mI means all Claims against the Debtor, other than Administrative Expense Claims or Priority Tax Claims, entitled to priority in right of payment under section 307(s) of the Bankruptcy Code Other Secured ClajMj means all Claims against the Debtor relating to mechanics' and materialmen's liens and secured tax Claims, as well as Secured Claims, other thin Secured Claims Relating to First and Refunding Mortgage Bonds and Mortgage Backed PC Bond Claims Smeans PO&E Corporation, the Debtor's parent company

• IS Dw i*Y6 t9tt43ill

2 3 4 5 6 7 8 9 10 II 12 13 14 IS 16 17 1I 19 20 21 22 23 24 25 26 27 28 I mea". that cenain Plan of Reorganization under Chapter I I ofthe Bankruptcy Code for Pacific Gas and Electric Company proposed by the Debtor and the Parent. dated April 19.2002. iniluding, without limilttion. PG&E's Plan Supplement and all exhibits, supplements, appendices and schedules thereto, either in its present form or as the same may be atered, amended or modified fkom time to time DoN* NY6 19914lJl1 -20 PC Bond Documents means. with respect to each series of PC Bonds. the Loan Agreement. Indenture. and all of the other documents. instruments. apgeemenu and certificates evidencing, securing, goveming or otherwise pertaining to the respective Bond Loan or the respective series of PC Bonds or otherwise executed and delivered by or on bchalf of the Debtor in connection with any of the foregoing, together withb all amendments, modifications, renewals, substitutions and replacements of or to any of the foregoinug PC Bond 101yrince Pohey meains that certain Financial Guaranty Insurance Polic issued by MBIA with respect to the MBIA Insured PC Bonds. together with all amendments, modifications, renewals, substitutions and replacements thereof o means collectively. the Letter of Credit Backed PC Bonds. the MBIA Insured PC Bonds, the Mortgage Backed PC Bonds, the Prior Bonds a the Treasuiy PC Bonds Pendine Litiastion Claims means all Claims against the Debtor that are asserted at litigation pending against the Debtor and tiha ate listcd in in amendment to PG&E's'Plan Supplement. proide x that Pending Litigation Claims shall not include (a) any Claims settled, liquidated or determined by a Final Order or a binding award, agreement or setilement pnor to the Petition Date for amounts payable by the Debtor for damages or other ob.ligltions in a fixed dollar amount payable in a lump sum or by a series ofpayments (which Claims are classified as General Unsecured Claims). (b) Environmental Claims, (c) Fire Suppression Claims, (d) Tort Claims, or (e) FERC License Claims EuMo hu the meaning set forth irnsection 101(41) of the Baokruptcy Code f* means April 6, 2001, the date on which the Debtor commenced the Chapter I I Case 2 3 4 S 6 7 8 9 I1 12 13 14 IS 16 17 18 19 20 21 22 23 24 25 26 27 28 rior Bond Claims means all Claims against the Debtor by the Pnor Letter of Credit Issuing Banks for any and all accrued and unpaid amounts due by the Debtor 6nder their respective Prior Reimbursement Agreements. including amounts due as reimbursement of amounts paid by each Prior Letter of Credit Issuing Bank under its respective Prior Lettia of Credit to the Bond Trustee for the payment of the redemption pnce ofthe related series of Pnor Bonds collectively, the 96B Bonds. the 96D Bonds. the 97A Bonds and the 97C Bonds(,- beslohet:v, -, any son

bid, Vi.~

P~ ~~ oting RNe~4D4*st.-o4Ji Prior Lellergoff redl means, with respect to eac¢arseus ofPnro Bonds. that certain irrevocable direct pay letter ufctdit issued by the Prior I citer of Credit Issuing Bank for the account of the Debtor to the Bond Trustee AMa delivered to the Bond Trustee in accordance D-1 NYu 199145 Jill i I 21 BUD Plan means the documents, schedules and other instruments filed with the Bankruptcy Court in accordance with Section 11.19 ofPG&E's Plan. as amended, modified or supplemented Plan means this islam p renl~ atlnn as amended-modifled or Post-PstiEon Intri his the meaning set forth us Section 4 I hereof. ELtferredSk means the issued and outstanding shares of the Debtor's First Preferred S*ock, pat value $25 00 per share The Debtor's outstanding First Preferred Stock 1s comprised of (a) 6% Non-Redeemable First Preferred, (b) 5 5% Non-Redeemabie First Preferred. (c) 5% Nos-Redeemable First Preferred, (d) 5% Redeemable First Preferred Series D. (e) 5% Redeemable First Preferred Series E. (f) 4 S0% Redeemable First Preferred. (B) 4 501%, Redeemable First Preferred, (h) 4 36% Redeemable First Preferred, (i) 6 ,7% Redeemable First Preferred. 0) 7 04% Redeemable First Preferred. and (k) 6 30% Redeenable First Preferred Preferred Stock Equity Interests means any right relaling to the Debtor's Prcfrre( Stock

I. 19 12 13 14 16 17 18 19 20 21 22 23 24 25 26 27 281 I with the terms of'the respective Indenture which secured, among other things, the payment of the 2 pnncipal of' I and irterest on. the respective series of Pnor Bonds. together with all amendments, 3 modifications, renewals, substitutions and replacements thereof, 4 Ed2LLtlfL t"Po,*,_Dsstiq ba*. means, with respect to each senes of Pnor Bonds, the issuer of the Prior Letter ofeCredit r means, with respect to each series of Prior Bonds, that certain reimbursement or oiler agreement between the Debtor and the Pnor Letter of Credit Issuing Bank providing for. among other things, the issuance of the related Prior Letter of Credit and the reirbursement ofthe Prior Leter ofCredit Issuing Flank for draws made, thereunder, together with all amendments, modifications, renewals, substitutions and replacements thereof I ri lax Clag j mteans all Claims against the Debtor for taxes entitled to prionty in payment under section 507(aXg) of the bannkruptcy Code P 2je-ur .ir me'sns the Order of the'bankruptcy Court approving, among oter things, voting solicitation pi'ocedurýs. the fors of v oting ballots, the soiietation period and the %woiing tabulation procedurei regarding this Plan and PG&E's Plans 'esionl Compensation and Rei~mbu t Claimsmeans all Administrative Expense Claimi for the compensation of professionals and reimbursement of expenses incurred by such professionals, the Commission. the Comiunittee ani members of'the Committee pursuant to sections 330(m) or 503(b)(2). 503(bh3), 50i(b)(4) and m03(6X5) of the Bankruptcy Code I [PreovesPronooents
eans the Commission Prononaei ts' Plan Sunnle men ' means th e doWum e ntL s chedules sa d oth er bi mlespis to he fIled with the Hankruatec Court In aeordanre with section 11.17 of the JLjg. asamended. modifled or su lenenttd r tiU t Punitive Damases means punitive, exemplary or similar damages, or fines. penalties or similar charges that anse in connection with Environmental Claimns, Fire Suppression Claims, Pending Litigation Claims, Tort Claims or FERC License Claims Doa NY6 1" 9 9145_1911 .21. 2 3 4 5 6 7 8 9 10 12 13 14 IS 16 17 18 19 20 21 22 23 24 25 26 27 28 means the California Power Exchange Mj means qualifying facilities operating p;ursuant to the Public Utility Regulatory Policies Act of 1978 and the related rejulations enacted thereunder QUID means the 7 90% Deferrable Interest Subordinated Debentsuris, Series A. Due December 31, 2025 issued by the Debtor under the QUIDS Indenture, together with all amendments, modifications, renewals, substitutions and replacements thereof QUMS Claimg means all Claims arising from the QUIDS Q1 .njrtmLp*rs means the Indenture by and between the Debtor and National City Bank of Indiana, as successor-in-interest to Bank One Trust Company, N A. as successor. in-interest to The First National Bank of Chicago, dated November 28. 1995, as supplemented b: the First Supplemental Indenture dated November 28, 1995, as supplemented by the Second Supplemental Indenture dated March 25, 1996 Rate Recovery Litigation means Pacific Ga i*ell& Electric IGClrntsgg ElantmV [v,-]Lof l ynch, ct ALDikm anuCase No C[-O-4i.s -RAI-01-30l2-VRW. artesslly pendling in the United States District Court for the Northern District of California Reimbursement Axreemnt means, with respect to each series of Letter of Credit Backed PC Bonds, that certain reimbursement or other agreement between the Debtor and the Letter of Credit Issuing Bank and certain other Banks, if any, that are signatories thereto providing for, among other things, the issuance of the related Letter of Credit and the reimbursement of the Letter of Credit Issuing Bank and certain other banks, If any, that we signatories thereto for draws made under such Letter of Credit, together with all anendments,, modifications, renewals, substitutions and replacements thereof' Rm."E tmincL O glinetio, means, with respect to each series of Prior Bonds. that portion of the reimbursement obligation of the Debtor under the Prior Reimbursement Agreement arising with respect to the portion of the final drawing made under the related Prior Letter of Credit for the payment of the principal portion of the redemption price of the related series of Prior Bonds D-eS NY6 1I" lsJil2 .23.

2 3 4 5 6 7 8 9 10 II 62 13 14 is 16 17 Is 19 20 21 22 23 24 25 26 27 28 7.1(a) hereof Reorganlzed Debtor New Preferred Stock has the meanIna set forthkb ReimIetln means the Pacific Gas and Electrc Company Retirement Plan. a lax qualified defined benefit pension plan covered by Title IV of ERISA, as amended, 29 U S C It 1301 sl1Lq (1994 & Supp v2000) KtX2VI9. Qf9Lrda means the Amended and Restated Credit Agreement. dated as of December I, 1997, as amended, as to which Bank ofAmernca, N A was the Administrative Agent on the Petition Date. together with all aritcrdments, modificat*ons, renewals, substitutions and replacements thereof Revolving ine of CtredLt Claim means all Claims agiansi t6* Debtor arising from the Revolving L*ne of Credit. l is.tt.L.ImM means all Claims against the Debtor, to the extent reflected in the Debtor's Bankruptcy Schedules or a proof ofclaim as a Secured Clam. wtich are secured by a Lien on Collateral but only to the extent of the value of such Collateral, as detennaned in accordance with section 506(a) of the Bankruptcy Code. and, in the event that such Claim is Bskum mians all Persons who (t) are present or former officers and directors of the Debtor who were directors and/or officers on or after the Petition Date. (it) serve or served as members of management of the Debtor on or after the Petition Date. (iii) are prscent Or forsion members of the Committee. (iv) are present or former officers and directors and othir Persons who serve or served u members of the management of any present or formner member of the Committee; or (v) are advisors, consultants or professionals of or to the Debtor. the Committee and the members of the Committee, but in each case only to the extent such Persons are or were acting in any of the capacities set forth in (t) through (v) above Rtgnmftnzjd

• d=

means the Debtor, or any successor thereto by merger, consolidation or otherwise, on and after the Effective Date Reorgaplzaglna Agreement hat the meanlng set forth In Section 7-2 hereof, Rcoranilze Debtor New Momne Not-W has the meinoi-set forth in Section subject to a pcrmissible setoff under section 553 of the Bankruptcy Code, to the extent of such Permssible setoff Secured Claims Relating to First and Refunding Mortasse Bonds means all Claims against the Debtor $rising from the First and Refunding Mortgage Bonds i Senior Indebtedness means, collectively. Commerctial Paper Claims. Floating Rate Note Claims. Medium Term Note Claims. Senior Note Claims and Revolving Line of Credit Claims 2 3 4 5 6 7 8 9 10 II 12 13 14 Is 16 I i 18 19 20 2 1 22 23 24 25 26 27 28 Si 12 tes means the 7 375% Senior Notes due November 1. 2005. issued by the Debtor under an indenture by and between the Debtor and Wilmington Trust Company. as successor-in interest to The Bank of Hew, York. dated September 1. 1987. together with all amendments, modifications, renewals, substitutions and replacements thereof Settlement and Suoon Agreement means that certain Amended and Restated Settlement and Support Agreement dated as ofMarch 27, 2002. by and among the Debtor, the Parent and certain holders of Senior Indlebtedncss who are panics thereto Settlement Order means the Order of the Bankruptcy Court daled Much 27. 2002 entitled "Order on Motion by Pacific Gas and Electric Company for Order (A) Approving Settlement and Support Agreement By and Among Plan Proponents and Senior Debtholders, (B) Authorizing Payment of Pre-and Post Petition Interest to Holdesn of Undisputed Claims in Certain Classes, (C) Authorizing Payment of Fees and Expenses of Indenture Trustiee and Paying Agents and (D) Authorizing Debtor to Enter into Similar Agreements" Southern San Joaouan Valley Power AuihonbvA eme means the Agreement between the Debtor and the Southern San Joaquin Valley Power Authority dated as of luly I, 1997, and" related Indenture of Trms dated as of November I, 1991, between the Southern San Joaquin Valley Power Authority and Bank of Amenca N A., u Trustee in respect of anisunt payablc on certain bonds issued by Southern San Joaquin Power Authority maturing in 2001 D-0c ,Y6 19914i4j,13 -24. r 8 rY6 I"i455 5l5. Senior Note Claim means all Claims against the Debtor ansing front the Senior Notts

• il-

2 3 4 5 6 7 S8 9 I0 !1 12 13 14

• 11 16 17 13 19 20 21 22 23 24 25 26 27 28 through January I, 2013. together with all amendments, modifications, renewals, substitutions and replacements thereof Southern San Joaquin Valley Power Authonly BQnd Claijms means all Claims against the Debtor arising from the Southern San Joaquin Valley Power Authonty Agreement SAP means Standard & Poor's, a division of The McGraw Ihll Companies, Inc, or its successor tat or Cali orh i means the State of Califomia and all of its entities depaisminta, boards, offices. cornsmissions, agencies, bureaus, divisions, instrumentslities.

officers, commissioners and employees " iStiedAmoQuri means, with respect to each Letter of Credit. the aggregate amoun! avail*ble to be drawn thereunder, from time to time, in accordance with the terms therof

• T Code means the United States Internal Revenue Code of 1986, as amended.

and the Treasury Regulations thereunder To Claim means (i) the Chromium Litigation Claims and all other Claims igaimrthe Debtoraonsing from any accusation. allegation, notice, action, claim, demand or Rtherwise for personal injury. tangible or intangible property damage, products liability or ditcriminrition, or based on employment, including Punitive Damages; and (it) any claim for indnmnification or conritnbution (whether based on contract. statute or common law) against the Debtor by any third party, where such Indemnification or contrbution claim or such hIlrd party is based on a claint against such third 'party that if asserted directly against the Debtor would be a claim included within the immediately preceding clause (i), *P2.iM., however, that Tort Claims shall not include (a) any Claims settled, liquidated or determined by a Final Order or a binding award. agreement or settlement prior to the Petition Date for amounts payable by the Debtor for damages or other obligations inii a fixed dollar amount payable in a lump sum or by a series of payments (which Claims are classified as General Unsecured Claims). (b) Environmental Claims, (c) Fire Suppression Claims. (id) FERC License Claims, or (e) Pending Litigation Claims I 2 3 4 6 7 8 9 10 II 12 13 I] 14 IS 16 17 19 20 21 22 23 24 25 26 27 28 411. eu Bond Claim means the Cl6ims against the Debtor by the Issuer, Bond Trustee and holders of Treasury PC Bonds for all amounts due and owing by the Debtor under the Loan Agreements and each of the other PC Bond Docut uents executed by the Debtor in connection with the issuance ofeach series olTieasury PC Bonds. ' Treasury !CBond means, collectivel*y the kG Bonds and the 97D Bonds thupnairt means any Class or Claims or Equity Interests which is not Impaired Vo _91R *cQ1D1 means May 21. 2002 YLt* t enator Claims means ill Claims against the Debtor by employees ofthe Debtor forthe payment of workers' compensation benefits under applicablt" law Workems' means (a) the Indemnity Agfrement by PG&E Corporation, dated April 7. 2000, to indemnify American Home Assurances Company in connection with issuance of Surety Bond No 00-207-724 issued on behalf of the Debtor for Workers' Compensation. (b) the Indemnaily Agreement by PO&E Corporation. dated April 7, 2000, to indemnify CAN Insurince Companies in 'co'nection with Issuance of'Surety Bond No 159267371 issued on behalf ofthe Debtor foe Workers' Compensation. (c) the Indemnity Agreement by PG&E Corporation. dated A'pnl 7. 2000. to indemnify Kemper Insurance Companies in connection with issuance of Surely Bond No 955006 Issued on behalf of the Debtor rot Workers' Compensation, (d) the Indemnity Agreemets by PG&E Corporation, dated April 7, 2000. to indemnify Travelers Insurance.a successor to Reliance Insurance Company, in connection with Issuance of Surety Bond Nio B 1686191 issised on behalfor the Debtor for Workers' Compensation, and (e) the Indemnity Agre'e*'ent by PG&E Corporation, dated April 7, 2000. to Indemnify Firemen's Fund Inrsurnce Company in connection with issuance of Surely Bond No I 133362811 issued on behalfro.Ihe Debtor for Workers' Compensation I 2 1B[j!ail

Appolication orDefinitions and Rules otConstructio, Wherever from the context it appears appropriate, each term stated in either the singular or the plural shall Include both the singular and the plural, and pronouns stated In the masculine, D-I NY$ 1"141-1111

.26. [*cO NYS 1"145_1611

2 3 4 S 6 7 1 9 10 II 12 13 14,IS 16 17 II 19 20 21 22 23 24 25 26 27 28 be paid on Allowed Administrative Expense Claims feminine or neuter gender shall include the masculine, feminine and neuter. Unless otherwise specified, all section, article. schedule or exhibit references in the Plan are to the respective Section in, Article or, Schedule to. or Exhibit io, the Plan The words "herein," "hereof" "lereto." "hereunder" and other words of similar import refer to the Plan as a whole and not to any particular section. subsection or clause contained in the Plan The rules of constiction contained in section 102 of the Bankruptcy Code shall apply to the constnrction of the Plan A term used herein that is not defined heren, but that is used in the Bankruptcy Code. shall have the meaning ascribed to that term in the Bankruptcy Code The headings in the Plan are for convenience of reference only and shall not limit or otherwise affect the provisions of the Plan ARTICLE II TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS, PROFESSIONAL COMPENSATION AND REIMBURSEMENT CLAIMS, AND PRIORITY TAX CLAIMS 2 I Administrative Exoense Claims Except to the extent thit anyentity entitled to payment of any Allowed Administrative Expense Claim agrees to a less favorable treatment, each holder of an Allowed Administrative Expense Claim shall ircceive Cash in an amount equal to such Allowed Administrative Expense Claim on the later of the Effective Date and the date such Administrative Expense Claim becomes an Allowed Administrative Expense Claim. or as soon thereafter as is practicable, or on such other date as may be ordered by the Bankruptcy COurt, prilvi4.. owever that Allowed Administrative Expense Claims representing liabilities incurred in the ordinary course of business by the Dcbtor-in-Possesion (including. but riot limited to, real and personal property taxes and fiEaýhisc fees) or liabilities arising under loans or advances to or other obligations incurred by the Debior-in-Poisession shall be paid in full and performed by the Debtor in the ordinary course of busincsa in accoirdanee wit the terms and subject to the conditions of any agreements governing. instments evidenýing or other documents relating to such transactions Except a provided under apphcable non bankruptcy law or certain mareemenintwlth the Dehbtr mnotroved by the Basnkru'sv Court and which are Ineornnrated Into and made

• n.'-

^rtk. ni... n...a..... --..I.,, i no 4 6 7 8 9 10 II 12 13 14 15 16 17 Is 19 20 21 22 23 24 25 26 27 28 D-0 1Y6 NY'91i4ijil .21. - to 2 2 Professional Compensation and Reimbursement Claims The holders of Professional Compensation and Reimbursement Claims shall file their respective final applications for allowances of compensation for services rendered and reimbursement of expenses incurred through the Confirmation Date by no later than the date that is ninety (90) days after the Confirmation Date, or such other date as may be fixed by the Bankruptcy Court I granted by the Bankruptcy Court, such sward shall be paid in full in such amounts as are Allowed by the Bankruptcy Court either (a) on the date such Professional Compensation ard Reimbursement Claim becomes an Allowed Professional Compensauon and Reimbursement Claim. or as soon thereafter as is practicable, or (b) upon such other terms as may be mutually agreed upon between such holder of an Allowed Professional Compensation and Reimbursement Claim and the Debtor Except las provided tunder applicable non bankruptcy law. Post Petition Interest will not be paid on Professional Compensation and Reimbursement Claims. 2 3 Pnonvy Tax Claims Except to the extent (t-ua-holder ofan Allowed Pnority Tax Claim has been paid by the Debtor prior to the Effective Date or agrees to a different titentao. each holder of an Allowed Priorty Tax Claim shall receive, in full and complete settlement, satisfaction and discharge of its Allowed Priority Tax Claim. including Post Petition Interest. Cash in an amount equal to such Allowed Priority Tax Claim ilu alcrued and usoald Post-Pttlilon Inter!it thereon on the later of the Effective Date and the dale such Prioriy Tax Claim becomes an Allowed Priority Tax Claim, or as soon as practicable thercaller ARTICLE Ill CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS Claims against and Equity Interests in the Debtor. other than Admnirstmative Expense Claims, Professional Compensation and Reimbursement Claims and Prionty Tax Claims. are classified for all purposes, including voting, confirmation and distribution pursuant to the Plan, as follows Other Priority Claims Unimpai*ed. 11 l)- 8 NY S 199145-J#11 otUI-rciIInI n interest will not

h.. Cliss 2 3 4a Claim/Interest Other Secured Clairims Secured Claims Relating to First and Reune Mortgage Bonds. Mortgage Backed PC Bond Claims 2 - ' 3 4 7 9 It, II 12 13 14 S,.15,

• I 16 17 19 20 21 22 S.23 24 25 26 27 28

' Common Stock Equity Interests Status Unimpaired ding "Unimpaired Unimpaired Impaired Unimpaired Impaired Ummpaired Unimpaired lmpsired Impaired ImpaTred Unimpaired' Itntentionally LeIt Blank) 4b,, MBIA Insured PC Bond Claims 4c, MBtA Claims _ 1 4d Letter of Credit Backed PC Bond Claims 4e Letter of Credit Bank Claims 4r Pnor Bond Claims 4g Treasury PC Bond Claims 5 General Unsecured Claims 6 ISO, PX and Generator Claims 7 ,ESP Claims ,Environmental, Fire Suppression, Pending Litigation, Tort and FERC License Claims 9 .1 I [intentlionally Left Blank) 10 Con*enienceClaims II QUIDS Cliims 12 Workers' Compensairon Claims 13 MPtferred gtock Eiluity Interests Impaired Unimpaired Unimpaired' iffliail ILAIMsUzId W'bsr'e h [
imewaa~a ~b8v*eJU]*Uzg that Class 13 is unimpaired by the Plan, certain holders of Preferred Stock Equity Interests may believe that Class 13 is impaired by the Plan To avoid delaying the voting process, holders of Preferred Stock Equity Interests will be solicited to vote on the Plan as a precautionary measure so that the voting results will be available if it is determined by the Bankruptcy Court that such Class is impaired 'Allowing the holders of Preferred Stock Equity Interests to vote shall be without prejudice to the [Gemm-]issie JLrma'[@ contention that this Class is unimpaired, and the (Ge*.*nissis oujpon ea[ esreaeJLM the right to contest any objection to the unimpaired status of this Class B* i

• a s Iev I5J512

.t0. 2 3 4 6 7 8 9 1O 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ARTICLE IV' TREATMENT OF CLAIMS AN*D EQUITY INTIFRESTS 4 I PaYment of istcrest Allowed Claims shall include amounts owed with respect to the penod prior to the Petition Date and applicable interest accrued and unpaid during such period Except as otherwise provided herein, holders of Allowed Claims shall also be paid in Cash accrued and unpaid interest on such Allowed Claims from the Petition Date through the EIfective Date ("Pols Pctthon InteTes ) Except as otherwise provided herein, inucluding Exhibit I attached hereto, any Post-Petition Interest shall be calculated and paid at the lowest non-default rate and In accordance with the terins specified in the applicable statute, indenture or instrument governing such Allowed Claim orIf rno such instrument exists, or Irthe applicable tnstrument does not specify a inon-default rate of interest. Post-Petition Interest shall be calculated and paid Dunrig the Chapter I I Case, the Debtor has entered into a number of settlements with various creditors regarding the allowance and treatment of such creditors' Claims under PO&E'& Plan With the exception of those settlement provisions that are unique to the allowance and treatment or such creditors' Claims under PG&E's Plan and are not relevant here, the provisions governing allowance and treatment of creditor Claims set forth in the creditor settlements are (i) incorporated into and made part of the Plan, and (ii) to be assumed 'and performed by the Debtor or Reorganized Debtor, as the case may be, under tl&e Plan By way ofesrapie, the Plan incorporates the principal terms of the following such settlements. the Committee Support Agreement, the Settlement and Support Agreement, the agreements , between the Debtor and various of;he drawn and undrawn Letter ofCredit Banks, the agreements between the Debtor and certain QFs, the agreements between the Debtor and varriioua representatives ofmortgage, pollution control and other bonds issued by the Debtor or Insurance relating to such bonds, the agreements between the Debtor and various generators, the PX and ISO. the Settlement and Stanislaus Commitments stipulation by and between the Debtor, the NCPA and the City of Palo Alto, the stinulutlon and settlementt between the Debtor and the Unnmell C.mmlttee nf'Mortasae Bondholdes. and y other such similar agreements, whether or not the terms of such settlements are specifically referenced in the [ m asggl* '[(] Plan In particular, there Is Incorporated Into and made pan or the (GariviaisiJP]r ,os]n'( Plan and will be assumed end performed by the Debtor or the Reorganized Debtor, to the case may be, under the ([em I ,ui i]ZUnn '{. Plan, the provisions or the Settlement and Support Agreement, with the exception or the "placement fee" provision, "step-up" interest rate provision In section 2(eXii) thereof. the provisions relating to the payment of Class S Claims In notes and the provisions requiring support for the PG&E Plan Specifically, and subject to the foregoing, the [Ge"m ulseJ asea*'t,[s] Plan Incorporates and makes part of its Plan the provisions in the Settlement and Support Agreement contained in paragraphs I. 2(aXI), 1, 4, 5(a), (c), 12, 13, 14 (only as it relates to the (G.mffieaUeg,1I L t,[sI Plan and its implementation). 15,24 and 26 thereof ,31-D D-NYS t1" tisjs* Unimpaired I I I 14 I J*

on such Allowed Claim at the Federal Judgment Rate Except as provided (b- . ) applicable non-bankruptcy lawf r certain aereements wlth the Debtor bonroyed by the Itankruntcy Court and which Ire oinrniorated Into and made a oart of the Pln,. Post Petition Interest will not be paid on the following Allowed Clauis..U.,*%MLAdmifustrative Expense Claims. Professional Compensation and Reimbursement Claims. Environsental. Fire Suppression, Pending Litigation. Torl and FERC License Claims and Workers' Compensation Claims[,] 2 3 4 5 6 7 a 9 10 II 12 I3 14 is 16 17 Is 19 20 21 -22 23 24 25 26 27 28 i 2 3 4 5 6 7 8 9 t0 II 13 14 Is 16 17 is 19 20 21 22 23 24 25 26 27 28 4 2 TJmmsfPavnsents and Distrbutions (a) Pursuant to an Order entered by the Bankruptcy Court on April 9. 2001 authonrzing the Debtor's interim use ofcasl collateral, the Debtor has paid and will continue to pay Post Petition Interest to holders of Allowed Claims in Classes 3 an*d 4a In addition. the Debtor will make payments of Post-Peititon Ineraest 'hat has accrued and is unpaid on and after the Initial Calculation Date through the ilast day ofthe lut calendar quancef ending prior to the Effective Date, in arrears, in quarterly installments (or in the case of the first quarter following the Initial Calculation Date, (or holders of Allowed Claims for which February 28. 2002 is the Initial Calculation Date, the four-month period from March I, 2002 to June 30. 2002) as follows. (x) on the first Business Day of the next calendar quarter to the holders of Allowed Claims in Class S for Senior Indebtedness, the holders ;f Allowed Southern San Joaquin Power Authonly Bond Claims and the holders of Allowed Claims in Clases 4c, 4f. 4& and 1I. and (y) within thirty (30) days following the end of the calendar quarter, to the remaining holders of Allowed Class 5 Claims and the holders of Allowed Claims in Classes 1. 2, 6:7 and 16 Any Post -Pciition Interest that accrues dunng the penod commencing on the'first day of the calendar quarter in which the Effective Date occurs and ending on the Effective Date will be paid on the Effective Date. (b), Pursuant to an Order entered by the Bankruptcy Court on Apnl 9. 2002 approving the Debtor's execution and performance under an agreement with the Letter of Credit Issuing Banks entitled "Summary of Terms with Respect to Forbearance and Proposed Revised Treatment of Letter of Credit Bank Claims in the Plan of Reorganization" [(d,*-t '-' OS Kyl ti41jlsl. -)I-D0.. NY6 1gI141jlu s*.ql "-L....~.

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hro f (c) Pursuant to the Settlement Order and Settlement and Support Agreement. the accrual and payment of Post-Petition Interest shall terminate if(') d'e Debtor is determined by a Ftinl Order of the Bankruptcy Court to be insolvent (on a balance sheet basis) with such interest accrual termination effective as ofthi dale ofinsolvcncy, as determined by the Bankruptcy Court. (ii) upon.onversion uf the Chapter I I Cue to a case under chapter 7. provide that there is not a subsequcnt dctcrinigun of the Baiud*iptcy Court that there are assets of sufficient value to pay Post Petition Interest on the applicable Allowed Claib In circumstances where the accrual and payment of Post Pettlion Interest terminates. any payments of Post Petition Interest may be techaractrlzed and treated as a partial payment of thic pnnctpal amount of the appl..ablc Allowed Claims (d) Except a set forth in Sections 4 2(a) and 4 2(b) above and except to the extent a holder of an Allowed Claim or Equity Interest has otherwise been paid all or a portion of such holder's Allowed Claim or Equity Interest prior to the Effective Date. each ofthe distnbutions specified in this Article IV with respect to tech Allowed Claim &r Equity Interest shall (i) occur on the later ofthe Effectivc Date and the date such Allowed Claim or Eqiilly I) 161161110 In Mn Urutr entereil ny Ing rimaklUnicy rnurt nn 1.n t7 In1 n? runs* wt#' Deblor's execution and Serformarne under the LC Bank Agireemez["] (as defined ig SUetio 4Lfl (Iý ir), the Debtord aa m g gAjde o will ,*".-a"l n-:... 4 ) aY, all the a. plitev

thi,

.L.I A*r.....t.and ".0: Af:.,1J:jHj W make certainPayments to (A-)-lhe Letter of Credit Issuing Banks [*f: .*i. I.]lan (ac*01"A". :1 prfaasi.z*:a.! :L:,..--.:d b1 ".I: L It:..

• fC; u;:J smkj,' agW4B)]Lg the holders of Allowed Claims in Class 4e (of) prior t the II

&ýaer)x~~e~. w i: fC~~ j(it-hini-vtv*O),da aft: t-. C:'irr~ttcJ g~gDacte.a e hurlk In such agreements and Iihaerm oarv, ry-4 the hld.-U~ ofAa AJ Cl-c ]in [Ga.4ta tx:s

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Interest becomes an Allowed Claim or Fqtit Interest. or as soon as practicable therealter, and (it) be in full and complete Settlement, sattisfaction and discharge or such Allowed Claim or Equity Interest I I I 2 4 6 7 9 13 14 16 17 is 19 20 21 22 23 24 26 27 28 4 3 CIpAn.lieethl poonlyCWI 'm (a) 1 DItsmbutiOn1 Each holder ofan Allow'ed'Other Prionty Clasm, tf any, shall be paid Cash in an amount equal to such Allowed Claim (b) lMpaiment nd Vot._g Class I ts unimpaired by the Plan Each holder of an Allo. ed Other Priority Claim Is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 4 Class 2 - Other Secured Claim, (a) f.Lsnn1utao's/Renslatcment ofClais., The Claims of each holder ofan Allowed Other Secured Claim shall, at the option of the Debtor, (i) be reinstated and rendered unimpaired in accordance with section 1124(2) of the BankruptcykCode or (ii) be paid Cash in an amount equal to such Allowed Other Secured Claim, includinrg any interest on such Allowed Other Secured Claim required to be paid pursuant to section 506ib) of the Bankruptcy Code_-. (b) kWgirmtnt and Votii Clas 2 is unimpaired by the Plan Each holder of an Allowed Other Secured Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 5 Class I - Secured Claims Relatina to First and Refundime Mortgage (a) Allowance The Sectured Claims Relating to First an Refunding Morogage Bonds shall be deemed Allowed Secured Claims Relating to Fiist and Refunding Mortgage Bonds in the amount of $2,699.000.000'. plus accrued and unpaid pee petition interest on such amount, plus Allowed Claims in the amount of all unpaid fees and expenses of the This amount is net of the approximately S277 million ofFirst and Refuding Mortgage Bonds held by the Debtor in treasury cars NYC 1tIsJtSj .34. 2 3 4 S 6 7 9 10 12 13 14 17 1 6 is 19 20 21 ' 22 23 24 " 25 26 27 28 .ll.. related mortgage bond trustei accrued through the Petition Date under the terms of the Mortgage (b) ns* 8 d"4eel-w( te-Rd Ie-f_.:s. Me ec Da to -n... zhll outtani anfl4e-eie-*t=d. !. ::.-s:-1,-,:::.t!h em4t~e,,44A-)- efi-. Ba..-z-_..r:; Ce*']ljklLhj] 1 1 Each holder of an Allowed Secured Claim Relating to First and Refunding Mortgage Bonds shall be paid Cash in an amount equal to [(s

ndep, wW L.,1 -:

-:'d .t Isuch (ih*!.i-::i:... i e1... !:_,l.a,d "al 1 - -g H,M, gagg~ i... i:.: 1--e, --ith ttketsy. ~j~~E ~ r~ 8 t~ Efee ~ I-MMs) 9*~ggjggj A inAlassphid C. 4 M-40.1 (c) Lmeairment.an4Y jng Class 3 is [w mlpnred]impair A by the Pian iEach holder ofan Allowed Secured Claim Relating to First and Refunding Mortgage Bonds is( es eluiveyaemed is hev. e..A ] entitled to vote to accept or reject the Plan 46 Clma 4s - Mortgage flfcked tiPjm 1 j* (a) AI.o!gps The Mortgage Backed PC Bond Claims shall be deemed Allowed Secured Claims in the amount or $345,.000.000, plus accrued and umpaid pre. petition Interest on such amount, plus Allowed Claims in the amount of all unpaid fees and expenses of the Mortgage Bond trustee accrued through the Petition Date under the terms of the Mortgage. (b) Reinstatement of Claim, Each series of Mortgage Backed PC Bonds, and each of the PC Bond Documents, shall remain outstanding and be reinstated in acco)rdance with section t1124(2) of the Bankruptcy Code Each holder ofa Mortgage Backed PC Bond shall be paid Cash in an amount equal to any and all accrued and unpaid interest owed to such holder in respect of such Mortgage Backed PC Bond In accordance with the terms thereunder to and including the last scheduled interest payment date preceding the Effective 13teHy 1,1Y45Jel$12l

2 3 4 5 6 7 a "9 10 II 12 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 2g Doc0 NYS iS91l4S.112 6.5 Date All unpaid fees and expenses ofthe Issuer and Bond Tnrstee due and owing under the applicable Loan Agreements shall also be paid in Cash (c) Imonsrmnen!and 'otnIM Class 4a is unimpaired by the Plan, Each holder ofan Allowed Mortgage Backed PC Bond Claim is conclusivelylpresumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 7 Class 4b - MBIA lnsurW PC Bond Claims. (a) A11wim The MBIA Insured PC Bond Claims shall be deemed Allowed MBIA Insured PC Bond Claims in the amount of $200,000,000, plus accrued and unpaid pre-petition interest on such amount, plui'Allowed Claims in the amount ofall unpaid fees and expenses ofthe related Issuer and Bond Trustee accrued through the Petition Date under the terms ofthe applicable PC Bond Documents M(b Reinstatment of Claims The MBIA Insured PC Bonds, and each of the PC Bond Documenta,'shall r~matn outsanding and be reinstated in accordance with section 1124(2) of the Bankruptcy Code Each holder ofa MBIA Insured PC Bond shall be paid Cash in an amount equal to any and all accrued and unpaid interest owed to such holder in respect of such MBL Insured PC Bond in accordance with the terms of the respective MBIA Insured PC Bond. to and including the last schedulei interest payment date preceding the Eflective Date All unpaid fees and expenses of the Issuer and Bond Trustee due and owing under the applicable Loan Agreement shall also be paid in Cash (c) Inwairmi*Lnnnd otiitg Class 4b is unimpaired by the Plan Each holder of an Allowed MBIA Insured PC Bond Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 8 Class 4y - M-BIA Claims (P) Adltwancg The Claims of MBIA with respect to payments which may become due by the Debtor under the terms of the MBIA Reimbursement Agreement as reimbursement for payments madehby MOIA under the PC Bond Insurance Policy "hall be deemed contingent Claims. and the Claims oLMBIA for any and all other accrued and unpaid amounts due by the Debtor under the MOIA Reimbursement Agreement, including anj amn all 2 3 4 5 6 7 9 9 10 II 12 13 14 15 16 17 I[ 19 20 21 22 23 24 25 26 27 28 -37 DuiJ NI'S itgf41ti 12 amounts due by the Debtor as reimbursement of amounts paid by MBLA under the PC Bond Insurance Policy to the Bond Trustee for the payment of interest on the MBIA Insured PC Bonds, shall be deemed Allowed MBIA Claims (b) DjInbulions Each holder ofan Allowed MBIA Claim shall be paid Cash ýqusl to its pro rate share of the aggregate amount paid by MBIA to the Bond Trustee with respect to the payment of interest on the MBIA Insured PC Bonds dunng the period horm the Petition Date to and including the last scheduled interest payment date preceding the Effective Date. together with its pro rat& share of all other amounts due and owing to MBIA under the terms ofthe MBIA Reimbursement Agreement through the Effective Date. including any accrued and unpaid interest due on such amounts to the extent provided in the ýiBIA Reimbursement Agreement at the non-dcfault rate (c) Impirrnenl ndjVotig Class 4c is impaired by the Plan Each holder of an Allowed MBIA Claim is entitled to vote to accept or reject the Plan '3 49 C*las 4d -letter of CredIt Backed PC Bond Claims (a) AlktjM The Letter of Credit Backed PC Bond Claims shall be deemed Allowed Letter of Credit Backed PC Bond Claims in the amount of 5613,550,000. plus accrued and unpaid pre petition interest on such amount, plus Allowed Claimns in the amount of all unpaid fees and expenses of the related Issuer and Bond Trustee accrundthrough-the Petition Date under the terms of the applicable PC Bond Documents (b) B1ssniSntl e of Claims Each senes of Letter of Credit Backed PC Bonds, and each of the PC Bond Documents. shall remain outstanding and be reinstated in accordance with section 1124(2) ofthe Bankruptcy Code Each holderofa Letter ofCredit Backed PC Bond will be paid Cash in an amount equal to any and all accrued a unpaid interes owed to such holder in respect of such Letter of Credit Backed PC Bond in accordance with the terms thereof to and including the last scheduled interest paysrnte date pre~cdiig the Effective Date All unpaid fees and expenses ofthe Issuer and Bond Trustee due and owing under the applicable Loan Agreement ihall also be paid in Cash

'I (c) Impurnt and Voting Class 4d is unimpaired by the Plan Each 2 holder of an Allowed Letter of Credit Backed PC Bond Claim is conclusively presumed to have 3 accepted the Plan and Is not entitled to vote to accept or reject the Plan' 4 4 10 Class 4e--l-Letter of Credit Bank Claims [J()-*J&1Algwgng The Letter of Credit Bank Claims consist of' (i) Allowed 6 Letter of Credit Bank Claims in the amount of any and all accrued and'unpaid amounts due by 7 the Debtor under each orthe Reimbursement Agreements (as modified by the LC Hank 9 Agreement). including, without lmiation, any and all amounts due by the Debtor as 9 reimbursement of amounts paid by a Letter of Credit Issuing Bank under its Letter of Credit to 10 the Bond Trustee for the payment or interest on the related Letter of Credit Backed PC Bonds Sand *y arnd all interest andi fees due thereunder and (is) with respect to payments (wh~ithJaL 12 13 may become due by the Debtor under the terms of each of the Reimbursement Ag.eements (as 14 modified by the LC Bank Agreement), including, wiihout hrmtation, as reimbursement for I5 amounts drawn under the Letters of Credit as well ia for interest and fees due thereun~der, 16 contingent Claims in tin mount equal to any and all such outstanding amounts 17 lWJL-L.IComrnincing (wu*h"e4e*ln June 27. 2001 and condnlonian With 19 resneegi'o each Letter of Credli Ihsu1n:, Bank Until the earller oa ((ID (d[1o]*

1. -]the 20 21 Me soali lyhi Date. flit hedatethe resrettive g.Cler of Credit i

erlisnted o 22 the stated amount thereof It permanraltv reduced, aor fill the date th'at ayv of the related 23 ifrle, er Ietter of Credit Backed PCU Bonds a re redeemed to the extent that the Debtor has 24 not reimbursed the applicable Letter of Credit Issuing Bank and the applicable Banks, if any, ror 25 drawings made on the related Letter of Credit with respect to the payment of interest on the 26 related series of Lener of Credit Backed PC Bonds to the extent provided in the respective 27 Reimbursement Agreement. each holder of an Allowed Letter of Credit Bank Claim will be paid 21 1 ure NYG t1s1sSJSu 011* 2 3 4 5 6 7 9 10 II 12 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 25 Cash in an amount equal to its pro rat. share of the aggregate amount paid by the respective Letter of Credit Issuing Bank to the respective Bond Trustee under the terms of the applicable Letter of Credit with respect to the payment of the interest 6n the Letter or Credit Backed PC Bonds to which such Letter of Credit Bank Claim relates during the period from ihe'Petition Date to and including the last scheduled interest payment date on such Letter of Credit Backed PC Bonds preceding the Effective Date Each holder of an Allowed Letter of Credit Bank Claim will also be paid Cash In an amount equal to its pro rats shareof all other imounts thten due and owing to the respective Letter of Credit Issuing Bank and the applicable Banks, Ir any, under the terms ofthe respective Reimbursement Agreement (other than for reimbýrsement of'drawings on the respective Letter of Credit) through the Effective Date, including, without limiltation, interest at the interelt rate due on such amounts to the extent provided in the respective Reimbursement Agreemenisitf and any due and owing Forbearance, Extension and Letter or Credit Fees (as. hereinafter defined) through the Effective Date, and the reasonable tees and expense, of unrelated third-party professionals retained by the Letter orCredit Issuing Banka, to the extent incurred subsequent to the Petition Date in the Chapter I I Case[rwhitW -eeApe4e&oh

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ýelina t Detel "cd,:.:g:l-tA,*ai ....... t: i pa'; ': D:iata;h flei&tAGNWw.Ylte uaiehas&ag6%@y f: :,th n i:mtcl20ef" . T~I ea t no Lest: :~si~t ani Climintrr~ pa~nr :t-j .~ j~dir~:: t o iiyntistrw'a.

l:1

-E HYS l5,id.S . 39.

2 3 4 6 7 a 9 10 II 12 13 14 is 16 17 1a 19 20 "21 22 23 24 25 26 27 28 I(.-)-I (tI) On the Effective Date one of he followin, shall occur with resinpe Mtoesch series of Letter of Credit BaRcked pC Bonds ind its resoectlve Letter of Credit a the noption of the De to se ar mtely fr e ch series of ILFlter Iof ri~edle Reeked PC Hands:_ (AtI Pu dli¢Ott i211 The iesective ierie's or L etter of Credit Backed PC Bonds shall be called for mandatory tender in accordance'wiih the terms ofathe respective Indenture and shall be purchased by the respective Bond Trustee through a draw on the related Letter of Credit and, at the option ofthe respective Letter of Credit Issuing Bank, shall either be registered in the name of the respective Letter ofCredit Issuing Bank or in the name of the Debtor subject to a first lien security interest in favor of the respective Letter of Credit Issuing Bank to additionally secure the obligations of the Debtor under the related Reimbursement Agreement On the Effective Date, to the extent that the IDeblO.smjettr. or Credit itslne ank and the Banks hnvr not IULr.imbursed m h1r* g[r. the[ apeli.a.. I Letter of Credit Issuing Bad [u.*an M app-eobg 1 lll reeiye Cash ina amount eaual to the sum of In the intereit portion of the ourchase price of the tendered Letter of Credit Backed PC Bonds nald out orf driv on the la LLrMab Jgsne gLetter..L Credit-and fill the acerecate amount aid by the reanetielve Letter or Credit fssulty BankI1 to the respective Bond Trustee under the ers of anlicsble Letter of Credit with respec to the payment offinistei-ae*-Ithe (eele4otoi sneoflinterest an the relsectv Letter of Credit Backed PC Bonds durint the period from aod after June 27.72002 to and Including the last scheduled Interest Paymen date on such Letitr of Credit Backd PC Bondt precedine the Efertlve Date. toether wihh Inierest at thenonn-{default rate due on soab amounts to the 4 6 7 a 9 to II '12 13 114 16 17 18 19 20 21 22 23 24 25 26 27 28 extent provided in the respective Reimbursement Agreement, .--. !:lda: f 2 fCP=,+/-t l-tnI* Cia*.. I:t! ::-::;.: C...... ,i.... rat ao.-.-o"r 4:mw e814h

c:F.:t::: L:as4 fe.4ijGfl On Ltle Effective Date. the Leter of Credit Issuing Bank shall transfer the related Letter of Credit Backed PC Bonds in the agg egate" ggj pnncipal amount as set forth on Exhibit 2 attached hereto to the Debtor or Its lmnifree and clear of all liens On the Effective Date, [eal-aeSeoZn IewadJl~h. Letter otfCredat.hUlhL Bank iGlwAa-Jwtll receive [O Jsaea.i]

Cash it in amount equal to the princpal portion of the purchase pnce of the tendered Letter of Credit Backed PC Bonds paid out of& draw on the respective Letter ofCredt and l1l) a fee lthe "Purthase ODeian Ince.ttyc Fee"t in an ansoupt equaltoO_ *4%' nf the prlncnpal nortilon of the purh ase nries of thie enders, L L.C"dit Bicked PC Bonds paid out ofs draw oa the resnectlve LetttrofCredlt [(BJ)-M-Remrittmir Optio The respective series of Letter of Credit Backe( PC Bonds shAll be called for mandatory tender an accordance with the terms of the respective Indenture ard shall be purchased by the respective Bond Trustee through a draw on ihe related Leter of Credit The Debtor will then either (1 11j) provide or cause to be provided to the respective Do'nd Trustee an alternsatve (J'jCredit -acthty("J" pursuant to the terms ofthe respective lrndentute in lieu of dte existing l etter of Credit, or ((ill[) obtain the consint ofthe Issuer to temarket the respective seies of Letter of Credit Backed PC Bonds without credit irhýlancement in accordance with the terms of the applicable Indenture In either event the respective seres of Letter of Credit Bact'ed PC Bonds shall be reinarket*d, at par, n a;ccordance with the terms of the Indenture and the other PC Bond Documents In sucih event, on the Effective Date. the Lef'er of Credit Issuing Bank will receive(l1-doaw:t.4.hao s6 . to the extent that the (Det-I-etter of Credit Honjk has not "Lreimbursed t e (fm the Doc0 NN6 ts9145 (iSU 4i D.0a NY6 1"9141.(612 .410.

vi 2 3 4 5 6 9 10 11 '12 13 -., 14 Is 16 I? 17 19 20 21 22 23 24 25 26 27 28 [,,l 'l e D b r. n h I s*.

• I L the sum of r A t the I n trn[* rtg ug ft l nrIdt e Letter ofBrn a

ndl.Ir Credit Issuing Bank lILL. Ltf LILI euIM A-M Lf the appltcable[ Ra~ks;, fa dn.. s.e

• ,f ne.,*l 5.. esta*,e~edJI etter of Credit with respect toihe payment of 1

'IlJthe [,O.eted 4ee-*f.. lIUL LonLt, X Letter of Credit Backed PC Bonds .nthe.'iod from and after June 27. 2002 toand in*lunth la scheduled Interest guavment date on such Letter of Credit acked PC Bonds orecedlno thL EffJetive La Isether..ivh Interest at the unn-defut ratie due on iuch amojunt' to the extent p'rovided in the respective Reimbursement Agreement. eespoesw..L-qtn4Ge tl from the elbtor, a fee (the "Rfemarketlno Otion incentive Fee") in n amount eul arete irin mu the reoectlve Letter of Credit Hacked PC Bonds remarketed on thr Efecive Date te uxmznav mt f urlneial of and Interest o which re secured h a m Letter of Credit-with a terM of not less the* one year from the FffAtlve Bite. delivered to the Trustee In aecordanee with the terms of the resnecttve Indenture unon terms aecentahle to the Debtor or an entenuto of the esistinr Letter of Credit delivered to the Trustee In accordne with the terms ofe resetlve Indenture noon terms a LLeot Dbte t, o r ria enul amount of the resnetive Letter of Credit Backed Pr Ronds remArketed on the Efl'ective Date the naymeat of the orincnal fan Interest on which are not secured by sich a rtter of Credit and Bill from the Bond Trustee, an amount equal to the principal portion of the purchase price orthe tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit. which amount shall be 1 2 3 4 5 6 '7 9 '10 II 12 13 14 S16 17 is 19 20 21 22 23 24 25 26 27 28 MCI NtYd IttfidsJlU .41. .4]. paid from the iemarketing proceeds of the respective Letter oCCredit Dacked PC Bonds in accordance with the terms of the respective Indenture [(GH-) Q + o Bonds Opton With respect to each Letter of Credit Issuing Bank and the related Banks, if any, in the event that neither the Purchase Option nor the Remarketing Opton, as applicable, can be consummated or the respective series of Letter of Credit Backed PC Bonds are iedeemed on or prior to the Effective Date as the result of the expir~ation ofthe respective Letter of Credit or otherwise, then at the nntlon of the Debtor Ienately for each etter of Credit Bank eCluIa and Relsn-itrsemeet Agre hr: On the !ffectlve Date. the Letter ofCredit Issuing Bank [an4-h rlshoshaj~ank" an yr..................... ll in an amount equal to the the principal portion of the redemption price of the Cerýet*.eo 4 6'-uýmtdg Letter of Credit Backed PC Bondsm °Ln te regsestive Letter of Credit (the "PrInelnb Rlmharsemeat"l-,i and () ill and afl accrued and enald Interest owlno to the Letter of Credit fssunlt Bank I. resest of aetau Prlnelnal Reimhu'em'ent et a ilu rtuattag rote of Interest. In accrdauzeo with t h 1 e Mtasl. the usnnleahsie Remhbursement Apree.e"nt or (2) On the Effetly.e Date. thb Letter of Credit I/Hols Ra-k shall 2ell1 transfer and ausign to the Debtor or Its assignee. with*st recourse. all of the Letter of Credit lsanlne Btnk's ant rElated R anks' right,, title AnM Interest In the anolcable Letter of Credit B ank IClam and Relmhuurement Aereemenit including, hut not limited to the rioht to receive renayment or the Prnnul D60J tKY6 I"14IJ81

2 3 4 5 6 7 S 9 I0 12 13 14 16 17 is 19 20 21 22 23 24 25 26 27 28 Reimbursement in the oecrepate nriacloal amount vs set forth on Exhibit 2 attached hereto toyether with the riphi to receive nayment of Interest thereon as aet forth I1 the amended Reimbursement Apreement free and clear of all lena. On the Effertlve Date, the Debtor or Its aisienee shalourchage from the Letter of Credit Issulng Bank ae.-d the rclated Banks. If ran all of their riehts thle and Interest In the annlieahle Letter of Credit Bank Ciaim and Ritmburlement Agrmenent fIr u nurChase opree In Cash in eii amount Woull to the sum of fAl the reoective Prinional Reimbursement and fBil any and sit accrued and unnald interest owing to the Letter of Credit lsulne Bank In reUsoct filuch PrnIdInal Reitmsbursement. at fluctuatln rate of Interest. li actordance with the terms oc the annlleable Reimbursement Aereemeut, ((-;)-- ()f In addition to the foregolng with resnet to the No Biond Optin-I (i) the Letter of'Credt IssuIng Bank maintai*s its Lette of Credit outstandi ng in [is insitalIehistaied amount aet forth on Fahibit 2 attached herein through the Effective Date and doei not provide the Trustee with notice of default under its Reimbursement Agreement or non reinstatementl of its Letter of Credi or take any other action which would result in the redemption, either in whole or in part, of he outstanding Letter of Credit Backed PC Bonds Without the prior written consent of the Debtor. and (it) the Letter of Credit Issuing Bank and each of the related Banks, if any, take all action reasonably required by the Debtor to keep the Letter of Credit Backed PC Bonds outstanding and to facilitate either the Purchase Option or the Remarketing Option. as applicable. including. without limitation, giving direction to the Trustee, providing conmercially reasonably indemnification to the Issuer and Trustee, and using their best efforts to consummate the proposed amendments to the terms of the Letter of Credit Backed PC Bonds as set forth (heeein]Leu the LC floek Aereemint (as hereinafter defined) and to consummate either the Purchase Option or the Remarketing Option'as applicable, so as to 1 2 3 4 5 6 7 8 9 10 'It 12 13 14 IS 16 17 Is 19 20 21 22 23 i4 2S 26 27 28 D-a NYC 1t14t5ji .44. 45 maintain for the Debtor the benefits of the tax-exempt financing provided by the related series of Lener of Credit Backed PC Bonds, then[.... : :. tha: : Ln.r C:+/-t Baa.d PC E...d an the Effective nate (A) In the rycnt that the etter 0rcredi Bckd PC Bonds were redeemed pnor to the Effective Date for reasons beynd the control ofthe Letter ofCredit Issuing Bank. the Letter of'Credit Issuing Bank will seceive [G_,-4i ,ao S. "r -";' ]ro m the D ehtor. a fee In an amount enual to of the nriseinal nortion of the redemotion oncre of the redeemed Letter of Credit flirked PC Haonda n14d ot a draw in the risneetlve t.etter of Credit and (H) In the event that the l*etter or -Credli backed P* fonds are redeemed n Ithe Effective Date for reasong beyond the control of the Letter of Credit Isauln Bank. the Letter of Credit Itaulne Rank will receive from the Debtor. a fee (the "No Bonds Optin ree") In an amount ealtop10% of thIe nrlnrInat nortfo or the redeortlon price of the redeemed Letter of Credit Barked PC Ronds nald out of a draw on the recotg"U"9t1erW d~ u*pi*t ehap-o* net:

ad.. W._

tespee4yesk."d rub ea wleh*th 1

• . be :fti-.

O~u ~al# J-1-4mee the ofpe~e-e T.tetDi .E~~oF~ faiW* und~er 11 Dme NY6 1"14J Ila

9 I0 II 12 13 14 +* IS 16 I? S19 20 21 22 23 24 25 26 27 28 Inde we hn .~.eta~e he respeeliv e" eft e 4ft f et,,Cfeesl Raeeked PG -4 t~fll Puirsuant to the terms iroan e 1,lI g Srthor andeachofthe " 6 lwheItls l was approved by (e*,Idee g ofthe Bankruptcy Court entered on (Arevl^ IJJn 7 (9h., 2002; the Letter of Credit Issuing Flanks have agreed, among other things and subject to certain conditions, to (A) maintain each of the Letters nf Ciedit outstanding in the stated amounts set Forth on Exhibit 2 attached hereto, (1i) not provide the Trustee with notice or ane default under any of the Reimbursement Agreements 6r non remistltment of any of the Letters ofCredit or take any other acton which would result in the mandatory tender or tedemption, either in whole or in part ofany of the outstanding Letter' of Credit Backed PC Bonds without the prior written consent of the Debtor. and (C) extend the expiration date of each of the Letters of Credit 51the firstl business day iubsequent to the one (I) year anniversary of the "eaIsaat expiration date of each Letter of Credit ixstaing as of the Petition Date.......... h Letter or orldl hssaln, Bank 1s un MU thoeations set forlh In clauses A) and (tlle rrf lIntereslt asyment dile a nnt he related serljs. Letl r of Pr gokads lImmedlalelv oreedlpiome,le an1[1I*..gl t of such I atter of CredllIs j oh ef lrkjlgj__,lflg e shall be estended In accordance e ithf the Lf' fank A,reement or (ll the occurTre ce or a "Termination Even.(.a Areemeas In consideration for such Forbearance and other actions by the Letter of Credit Issuing Banks. the Debtor (has-&gs.edlJ1W I[aa S e"hetHs41P4J subject to cerlain ZZLmLhjconditionsj1 L In the [ fl ank Agreement (-t"I pay to each Lett'er of Credit Issuing Bank, (I) during the period foom and after [ 'l-.--.

17.

and continuing until (0ti l 02-quarterly, in arrears,. the Letter or Credit fee as set forth in the respective Reimbursement Agreement (the "OriQjgha Lctt 2tet Fe "). together with an amount equal to the positive differenceI i any, of an amount D<Es KYe 19sI43jils .4-. 2 3 4 ? g 9 10 II 12 13 14 is 16 17 is 19 20 21 22 24 25 26 27 28 per anuum equal to two jercern (2%) of the Stated Amount of the Letter of Credit, less the Original Letter of Credit Fee. which total fee accrues from and after December 1. 2001 and until Gi.onIfrss wDGkesv JaeeI,-- 20i. and has been'payable on t'e san'e dates as are set forth for payment of Letter ofCredit Fees ih the applicable Reimbursement Agreement, and (2) during the penod from and after [s.~ l~s i e .Lj, and continuing until the Efrective Date, quarterly, in arrears, the Origi*al Letter of Credit Fee, together with an amoust equal to the positive difference. if any, of an amount Per anuus equal tonthree percent (3%) of.the Stated Amount ofthe Letter of Credit, less the Original Letter of Credit Fee. which total ree accrues from and after {ae ],hai Z..j j until the Effective Date, and shall be Payabl on the same dates as are set forth for payment ortLetterof Credit (((f]E[ in the appli,*abl Reimbursement Agreement (the Originail Letter of Credit Fee tIogether with such additional sums being hereinafter referred to collectively as thh "Lorbesanceý Extension and Letler of Credit E~cfJ) -AddU/IIt,~~.n_..__naUto aba terms of the I C flank Aereesnene. the Debtor hats aereed, amonu other thin, anjd. ja leri t ý1 ertl consditions, to 02 .1 to Deutsche Rlank Ar New York Branch an a peney fee inshe amo,,t of $25OaOO.hieh fee wa I nid by tle Dlebtor onlJune in, 2002. jfa)J(e im nir tand Voiin 61Class 4e is impaired by the Plan Each holder of an Allowed Letier of (dredit Bank Claim is entitled to vote to accept or reject the Plan "4 11 Clas 4f-Prior Bond Claim (1) All)wanc The Prior Bond Claims shall be deemed Ailowed Pnor Bond Claims in the amount of $453.550,000, plus any and all other accrued and unpaid amounts due by the Debtor under the terms of each of the Prior Reimbursement Agreements; pr.vi . how*evr, Ithatieach Al.owed Prior Bond Claim will be paid in the amount necessary to render it unimpaired as set forth herein atsv" Allowed t o9

C'aim i:.. +/-_aedas:.-,

• "th

.e-sio,, oi;){q heee-] Da8 NY6 t1t94J12. -47.

1 2 3 4 5 6 7 8 9 lO II 12 13 14 is 16 17 Is 19 20 21 22 23 24 25 26 27 28 (b) QuiM Each Allowed Prior Bond Claim will be reinstated and rendered unimpaired in accordance with section 1124(2) of the Bankruptcy Code Onthe Effective Date one of the following shall occur with respect to each Prior Reimbursement Agreement and all of the Allowed Prior Bond Claims arising with respect thereto (I) Each holder of an Allowed Prior Bond Claim will be paid Cash in an amount equal to (A) the outstanding Reimbursement Obligation, or portion thereof, owing to such holder. (B) any and all accrued and unpaid interest owing to such holder in respect of such Reimbursement Obligation or applicable portion thereof at a fluctuating rate ofinterest IV accordance with the terms of the applicable Reimbursement Agreement, and (C) all other amounts due and owing to the respective holder of an Allowed Prior Bond Claim under the lerms of the respective Prior Reimbursement Agreement, through the Effective Date (it) Alternatively, upon the wnrten reqtdest of the Debtor. with the prior written consent of the respective Prior Letter of Credit Issuing Bank.tthi related Banks and each of the other holders of Allowed Prior Bond Claims related thereto, eaich suh holder of an Allowed Prior Bond Claim will be paid Cash in an amount equal to (A) any and all accrued and unpaid interest owing to such holder in respect of the Reimbursement Obligation or applicable portion thereof owing to such holder ast a fluctuating rate ofinterest in accordance with the terms of the applicable Reimbursement Agreement, and (B) all other amounts (other than the Reimbursement Obligation or applicable portion thereof) due and owing to the respective holder of an Allowed Prier Bond Claim under the terms of the respective Prior Reimbursement Agreement, through the Effective Date. On the Effective Date, the applicable Prior Letter of Credit Isiums Bank, the related Banks and any other holders of Allowed Prior Bond Claims related thereto shall sell, transfer and assign to the Debtor or its assignee, all of the Prior Letter of Credit Issuing Banks', *e applicable Banks', and all of the related Allowed Prior Bond Claim holders' rights, title and irterest in the applicable Prior Reimbursement Agreement. including, but not limited to, the right to receive repayment of the Related Reimbursement Obligation, together with the right to receive payment of interest thereon as set forth in the applicable Prior Rcimbursement Agreemen,, fBce and clear of all liens In such event, on the D.*a 6 1991431$iti .45-1 2 3 4 S 6 7 8 9 10 II 12 13 14 15 16 17 is 19 20 21 22 23 24 23 26 27 28 D-8i NY6 1t91011_1a~ t#, Effective Date, the Debtor or its assignee shall purchase from the Prior Letter of Credit Issuing Bank. the related Banks and the holders of the related Allowed Prior Bond Claims, all of their rights, title and interests in the applicable Prior Reimbursement Agreement for a purchase pnce in Cash in an amount equal to the respective Reimbursement Obligation. All of the documents related to the transfer and sale of rights under the Pnor Reimbursement Agreement shall be in form and content Satisfactory to the Debtor, the Prior Letter ofCredit Issuing Bani, the related Banks and each of the other holders of Allowed Prior Bonds Claims related thereto (c) Imvai mcnandliVotng Class 4fis unimpaired by the Plan Each holder of an Allowed Prior Bond Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 12 Clans 4g. Treasury PC Bond Claims (a) W The Treasury PC Bond Claims shall be deemed Allowed Treasury PC Bond Claims in the amount of $80,770,000, plus accrued and unlpaid pre petition nterest on such amount, plus Allowed Claims in the amount of all unpaid fees and espenses of the related Issuer and Bond Trustee accrued through the Petition Date un'der the rerius ofthe applicable PC Bond Documents (b) Reinstatement of Claims Each series of Treasury PC Bonds, and the Loan Agreements and PC Bond Documents related thereto, shall remain o'utstanding and be reinstated in accordance with section 1124(2) of the Bankruptcy Code Each holder of a Treasury PC Bond shall be paid Cash in an amount equal to any and all accrued and unpaid interest owed to such holder in respect of such Treasury PC Bond in accordance with the terms thereof to and including the last scheduled interest payment date preceding the Effective Date All unpaid fees and cxpenses of the Issuer and Bond Trustee due and owing under the applicable Loan Agreement shall also be paid in Cash (c) molmpmemn and Vonj g Class 4& is unimpaired by the Plan Each holder of an Allowed Treasury PC Bond Claim is conclusively presumed to have scceptcd the Plan and is not entitled to vote to accept or reject the Plan 4 13 Cst -QGeneral Unsecured Claims -49).

41 i. I 3 4 7 S 9 10 + II 12 13 14 , 15 16 17 Ig 19 20 21 22 23 24 25 26 27 2121 (a) P-111LULMonl Each holder of an Allowed General Unsecured Claim shall be paid Cash in an amount equal to such Allowed Claim (which shall include pre. petition interest only to the extent not previously paid) ) m(h p aiment and Voting Class 5it iimpaired by the Plan Each holder of an Allowed General Unsecured Claim is entitled to vote to accept or reject the Plan 4 14 Cls 6 14Mn~t!00 (a) VlInkulmlh Each holder of-an Allowed ISO, PX and Generator Claim shall be paid Cash in in amount equal to such Allowed Claim (which shall include pre. petition interest only to the extent not previously paid) (b) ImpairinePntVoting Class 6 is impaired by the Plan Each holder of an Allowed ISO, PX and Generator Claim is entitled to vote to accept or reject the Plan '4 '4 15 'Cb t...P (a) D111tbution Each holder of an Allowed ESP Claim shall be paid Cash ittart anmount equal to such Allowed Claim (which shall include pre petition interest only to the extent not preiously paid) N4, '(b) Ilipairnleo Votn 'Class 7 is impairedbythe Plan Each holderof an Allowed ESP Claim is entitled to vote to accept or reject the Plan 4 16 Class 8 - Envfron~rrental.'Fir_ e nPendmin Lit MgL Ji:nLgr FERQ License Claims (a)' Disibu

• to Subject to Section 4 16(b), each Allowed Environmental, Fire Suppression.'Pending Litigation, Tort and FEitC License Claim shall be

,atislied in fall in the ordinary course of business at teh time and in such manner as the Debtor or the Reorganized Debtor, as the case may be, is obligated to satisfy such Allowed Claim under applicable law Except as provided under applicable non-banru'ptcy law, Post-Petiion Interest will not be paid on Allowed Environmental. Fire Suppression, Pending Litigation. Tort'and FERC License Claims I I 2 3 4 5 6 7 9 9 10 I I 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 28 Do *le t NYt6 i145-S1

• 50.

D i -51

• Mb)

Luidation of EnvirP nentald FitS ue Q.I.edin Liti,,. n _To and FERC LicepsieClaM All Environmental, Fire SupPression, Pending Litigation, Tort and FERC License Claims are Disputed Claims aLnd'shall be determined, resolved, or adjudicated, as the case may be, in a manncir as ifthe Chapter II Case had not bees commenced (except that, under sections 365 and/ot'l 123(b)X2) ofthe Bankruptcy Code. contractual provisions, accelerations and defaults eliminated or rendereQ unenforceable by such sections shall remain eliminated or unenforceable, and th'e stay shall remain in place tor any Environmental, Fire Suppression, Pending Litigation. Tort and FERC License CI ms" as to which sections 365 and/or I I23(bX2) of the Blankruptcy Code are applicable) ad shall su'vive the Effective Date a if the Chapter I I Case had not been commenced and, upon the determination, resolution or adjudication of any such Claim u provided herein, such Claim shall be deemed to be in Allowed Environmental Claim. Allowed Fire Suppression Claim. Allowed Pending Litigation Claim, Allowed Tort Claim or Allowed FERC License Claim, as the cae may be, in the amount or in the manner determined by a Final Order or by a binding award, agreement, or settlement, provided. bowever that in addition to the D;btor's preservation of all rights and defenses respecting any Environmental Claim, Fire Suppression Claim. Pending Litigation Claim, Tort Claim or FERC License Claim that exist under applicable nonbeannaptcy law, (I) any rejection, avoidance, recovery or other powerb r defense available to the (rdbe*De*s.,,l under section 363, 510 (except subordination), 542, 541, 544. 545, 547, 548, 549, 550, 553 or 724 of the Bankruptcy Code is preserved, except with respect to any, Environmental Order, and (ii) the Debtor may object under section 502 of the Barnsrup'tc Code to any Environmental Claim, Fire Suppression Claim. Pending Litigation ClaimTort Cl*am* or FERC License Claim on the ground that (A) such Environmental Claim, Fire Suppression Claim Pending Litigation Claim, Tort Claim or FERC License Claim was not timely asserted In the Chapter I I Case, (B) such Environmental Claim, Fire Suppression Clam, Pending Litigation Claim, Tort Claim or FERC License Claim Is subject to any power or defense reaerved in clause (i) of thls sentence and/or is disallowable under section 502(d) of the Bankruptcy Code, or (C) such Environmental Claim. Fire Suppression Claim, Pending Litigation Claim, Tort Claim or NO~ N.Y$ 199141..11]

FERC License Claim is disallowable under section 502(e) of the Bankruptcy Code. to the extent such section is relied on to ensure that there is no duplication in the claim of an allegedly subrogated claimant, on the one hand, and the underlying claimant whose claim allegedly gave rise to the subrogated claim, on the other. Subject to the foregoing, all Environmental. Fire Suppression. Pending Litigation, Tort and FERC License Claims shall be detennined and liquidated under applicable nonbankruptcy law in the administrative or judicial tribunal in which they are pending as oflhe Effective Date or, if no such action is pending on the Effective Date, in any administrative or judicial tribunal of appropriate jurisdiction (other than the Bankruptcy Court) To efTectuate the foregoing, the entry of the Confirmation Order shall, effective as of the Effective Date, constitute a modification of any stay or injunction trider the Bankruptcy Code thai would otherwise preclude the determination, resolution.'or adjudication ofany Environmental Claims, Fire Suppression Claims, Pending Litigation Claims. Tort Claims or FERC License Claims, except for any Environmental Claim. Fire Suppression Claim. Pending Litigation Claim, Tort Claim or FERC License Claim arising out of the exercise by the Debtor, as Debtor-m-Possession. of any rejection, avoidance, recovery, or other power or defei*se available to it pursuant to any one or more of sections 365, 5 10 (except subordination), 542. 543, 544, 545, 547, 548, 549. 550, 553 or 724 of the Bankruptcy Code, except with respect to any Environmental Order Nothing contained in this section 4 16(b) will constitute or be deemed to constitute a waiver or release of any (i) claim, right or Cause of Action that the Debtor or Reorganized Debtor may have asinat any Person or Governmental Entity in connection with or arising out of any Enviuonmental, Fire Suppression, Pending Litigation, Tort and FERC License Claims, including, but not limited to, any rights under Section I 57(b) ofTitle 28, United States Code, or (in) defense in any action or proceeding in any sdm;nistrative or judicilJ tribunal, including, but not limited to, with respect to the jurisdiction of such administrative or judicial tribunal, except a defense to a Claim that was timely hiled in the Chapter I I Case and that constitutes an Environmental Claim. a Fire Su1pression Claim, a Pending Litigation Claim. a Tort Claim or a FERC License Claim. where such defense is based on the dischuge of section 1141(d) of the Bankruptcy Code in light of the unimpaired pass-through treatment of 2 3 4 5 6 7 8 9 10 II 12 13 14 Is 16 17 18 19 20 21 22 23 24 25 26 27 28 Environmental Claims. Fire Suppression Claims. Pending Litigation Claims, Tort Claims and FERC License Claims hereunder, the Reorganized Debtor waives the discharge ofsection 1141(d) of the Bankruptcy Code as to any Claim that was timely filed in the Chapter I I Case an( that constitutes an Environmental Claim. a Fire Suppression Claim, a Pending Litigation Claim, a Tort Claim or a,FERiC License Claim. As to any consent decree, injunction, cleanup and abatement order or any other administrative or judicial order or decree binding upon the Debtor and in effect as of'the Effective Date (whether originating before or after the Petition Date) that pertains to any environmental matter described in clauses (a) through (e) of the definition ofEmnionjmental Claim herein (each an "Environxingisl iOrdc). each such Environmental Order, regardless of whether it constitutes or is charactenzed as an Environmental Claim. shall also survive the Effective Date as if'the Chapter I I Case had not been commenced, shAll not be discharged under section 114 l(d) of the Bankruptcy Code. and shall not otherwise be adversely affected by the Chaspter I I Case (except for any objection to such Environmental Claim based on the contention that such Environmental Order is an Environmental Claim that was not timely asserted in the Chapter I I Case) (c) a Class I is unimpaired by the Plan Each holder of an Allowed Environmental. Fire Suppression. Pending Litigation. *ort or FERC License Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 17 [intentionally Left BlankJ 4 18 Class 1.- Convenience Claims (a) Q. ajtjU Each holder of.an Allowed Convenience Claim, shall be paid Cash in an amount equal to one hundred percent (100%) of such Allowed Claim (b) lmj;pain~ Laiy Class 10 is unimpaired by the Plan Each holder ofan Allowed Convecience Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 19 sOca NHY6 1i141_l5l .55. 51 D-41 N'Y6 19914SJIlU

1 2

• 3 4

5 6 "'7 9 10 II 12 13 14 '16 17 Is 19 20 21 22 23 24 25 26 27 28 Decta hr Y glfltJSslR .S4. (a) Alfo~wpn.e The QUIDS Claims shall be deemed Allowed QUIDS Claims in the amount of S300.0.000. plus accrued and unpaid pre petition interestion such amount (b) Disinbutions Each holder ofan Allowed QUIDS Claim shall be paid Cash in an amount equal to such Allowed Claim (c) Imirmment 8n;Yg4 ng Class I I is impaired by the Plan Each holder of an Allow ed QUIDS Claim is entitled to vote to accept or reject the Plan '420 rk L &4 d6P (a) Distnbulion Each Allowed Workers' Compensation Claim ansing pnor to the Petition Date shall be satisfied in full in the ordinary tourse ofbusiness as such time and in such manner as the Debtor or the Reorganized Debtor. as the case may be, is obligated to sattisfy such Allowed Claim under applicable law Post Petition Workeri' Compensation Claims are treated as Administrative Expense Claims herein and shall receive the same pass-through treatment as Workers" Compen'sation Claims insing pnor to the Petition Daie, EFxcept as provided under applicable non bankruptcy law. Post Petition Interest will not be paid ont any Workers' Compensation Claims Nothing hereln shall affect (i)'the subrogation nghts. to the extent applicable or avatlable, of any'surety'ofpt'e petition or post petition Workers' Compensation Claims or (it) the nghts of the Deb1c3r to obj)ect, pursuant to the Bankruptcy Code. to the existence of any such tatirogatton nghts (b) lm Iairmtent and Voting Class 12 is unimpaired under the Plan Each holder ofan Allowed Workers' Compensation Claim is conclusively presumed to have accepted the Plan and is not entitled to vote to accept or reject the Plan 4 21 Class 13 - Preferred Stock Eguitv Interests r (a) Treatent Each holderof ra Preferred Stock Equity Interest shall retain its Preferred Stock in the Reorganized Debtor and shall be paid in Cash any dividends and sinking fund payments accrued in respect of such Preferred Stock through the last scheduled payment date prior to the Effective Date 2 3 4 5 6 7 8 9 II 12 13 14 Is 16 17 Is 19 20 22 2i3 24 25 26 27 22 - 3s Dor0 KNYC l9l43111] (b) lmrsairsent aid Votins While the Gnt s,-o)Propone [bAheves Jhdlzm that Class 13 is unimpaired by the Plan, certain holders of Prefenred Stock Equity Interests may believe'that Class 13 is impaired by the Plan To avoid delaying the voting process, holders of Preferred Stock Equity Interests are being solicited to vote on the Plan as a precautionary measure so that the voting results will be available if it is deteramned by the Bankruptcy Court that such Class is impaired Allowing the holders of Preferred Stock Equity Interests to vote shall be without prejudice to the [Gemsiio]pr n ngUli'asj contention that this Class is unimpaired and the tesaisei] D.Il rtsrsesve the right to contest any objection to the unimpaired status of this Class 4 22 L 14 - Commson Stok Equity Interests (a) JlqjtmsN The holders of Common Stock Equity Interests shall retain their interests in the Common S-ock[-hhe41"I%6-. Cowman lis te: by 51-p Roettgrniee1d t: nd r ib -iel, (b) 1-mpilusnsn i i Class 14 is limpkntied slm rd by the Plan Esch holder of an Allowed Common Stock Equity Interest is i hum enctu have ayeenrted tle Plan and Is nnt entitled to vote to accept or reject the Plan' ARTICLE V PROVISIONS REGARDING VOTING AND DISTRIBUTIONS UNDER TIlE PLAN AND TREATMENT OF DISPUTED, CONTINGENT AND UNLIQUIDATED ADMINISTRATIVE EXPENSE CLAIMS, CLAIMS AND EQUITY INTERESTS I 5.1 Votin& of Claims and Equitv Interests Each holder of record as of the Voting Record Date of an Allowed Claim or Equity Interest in an Impaired Class or Cla~mslo Equity Interests set forth in Article IV hereofrhall be entitled to vote separately to accept or reject the Plan with regard to each tmpiairid Class of Claims or Equity Interests as provided in the Procedures Order If the Debtor objects to a Claim, the Claim becomes a Disputed Claim The holder orf Disputed Claim is not entitled to vote on the Plan unless the Debtor or such holder of the Disputed Claim obtains an order of the Bankruptcy Court eiitimating the amount of the Disputed Claim for voting purposes If the Debtor does not object to a Claim prior to the I ý f

date on which the Disclosure Statement and the Ballot are transmitted to creditors and interest holders for voting, then the holder of such Claim will be permitted to vote on the Plan in the full amount ofthe Claim as filed 5 2 Ehmmation qf VLcant ClaQes Any Class of Claims that i not occupied as of the commencement of the Confirmation Hearing by an Allowed Claim br a Claim temporarily allowed under Bankruptcy Rule 3018 or as to which no vote is cast siall be deemed eliminated from the Plan for purposes ofvoting to accept or reject the Plan and for purposes of determning acceptance or rejection of the Plan by such Clams pursuant to sction 1129(aX8) of the Bankruptcy Code 5 3, Nonconsensual Confirmation If any Impaired Clua of Clams or Equity Interests entitled to vote shall not accept the Plan by the requisite statutory majorities provided in section 1126(c) ofthe Bankruptcy Code, then the (Giomm" 11'irotionet f,..e.o.,irteur. the right to amend the Plan in accordance with Section 11.10 herrofor to undcrtake to have the Bankruptcy Court confirm the Plan under section 1129(b) of the Bankruptcy Code, or both S 4 Method of Dist0butgonz Under the Plan (a) QPtbvurs*inAg. All distributions under the Plan shall be made by the Debtor as Disbursing Agent or such other Entity designated by the [Comom]re ti, as Disbursing Agent A Disbursing Agent shall not be required to provide any bond, surety or other security for the 'performance of its duties, unless otherwise ordered by the Bankruptcy Court, and, in the event that a Disbursing Agent is so otherwisC ordered, all costs and expenses ofprocuring any such bond, surety or other security shall be borne by the Debtor (b) Distnbutions to Ilolders as of the Ditrbution Record Date (t) Subject to Bankruptcy Rule 9010, all distributions under the Plan shall be made (A) to the holder of each Allowed Claim or Equity Interest at the address of such holder as listed on the Debtor's Bankruptcy Schedules as of the Distribution Record Date, unless the Debtor has been notified in writing of a change of address, including, without limitation, by the filing ofr timely proof of Claim or Equity Interest by such holder that provides 1 2 3 4 6 7 8 9 10 II 12 13 14 Is 16 17 18 19 20 21 22 23 24 25 26 27 28 an address for such holder different from the addrcss reflected on the Debtor's Bankruptcy Schedules, or (B) pursuant to the terms of a particular indenture of the Debtor or iA accordance with other wnrtten instructions of a trustee under such indenture (1i) As of the close of business on the Distribution Record Date, the claims register and records of the stock transfer agent shall be closed, and there shall be no further changes in the record holder of any Claim or Equity Interest The Debtor shall have no obligation to recognize any transfer of any Claim or Equity Interest occumng after the Distribution Record Date The Debtor shall instead be Authorized and entitled to recognize and deal for all purposes of the Plan with only those record holders stated on the claims register or the records of the stock transfer agent as of the close of business on the Distribution Record Date (c) PnIi3l g fofC& Any payment of Cash made by the Debtor pursuant to the Plan shall. at the Debtor's option, be made by check drawn on a domestic bank or wire transfer (d) TImin of Distnbutions Except as otherwise set forth in the Plan, p*ymcnts and distributions to holders of Allowed Claims or Equity Interests on the Effective Date shall be made on the Effective Date, or as soon as practicable thereafter Anypaynent or distribution required to be made under the Plan on a day other than a Business Day shall be mad on the next succceding Business Day (e) Allocation of Plan Diitributions All distributions in respect of Allowed Claims shall be allocated first to the portion of such Claims representing interest (As detemrincd for federal income tax purposes). second to the original principal amount of such Claims (as determined for federal income tax purposes), and any excess to theremasjng portion ofsuch Claims (f) Minimum Distnbulions No payment of Cash less than one hundred dollars ($ 100) shall be made by the Debtor to any holder of an Allotvtei Claim or Equity Interest unless a request therefor is made in writing to the Debtor [)U<a NY$ IvI4$jsuI 51 1,, I M hMY6 J"14s. lU

• S6.

4 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 042 fwhlch oroceedlneIs dIlauted In Section IV. t sit. hhRl..... Ci... (g) .Ln.laIm.e4 Visftp gnu All distrib.tinns under the Plain that are unclaimed for a penod of one (II) year' aice distnhutino thereof shall he deemed 'rnclaimed Properpy under section 347(b) of the Btankrupscy Code and re eseed in the Debtor and any entitlement of any holder of any Claim or Fqtity Interest to such dtstnbutions shall be extinguished and frntever barred I(h) FNr9qy fot-PsspuIOdS11h CO-m (I) -e6taieannl On the Effective Date (ora's sonn as practicable thereafter). and after making all dastnbuttons required to be made on the Effectuve Date. the Reorganized Debtor shall establish one or more separate escrows, each ofwhich shall be administered by the Disbursing Agent in accordance with the terms hereof and pursuant to the direction of the Bankruptcy Court. and shall deposit or scgreate into such'escrow account(s) sufficient Cash to make ditinbutions in respect or Dtsputed Claims, provide., howeve, that this provision shall not apply to Environmental Claims, Fire Suppression Claims. Pending Litigation Claims. Tort Claims, FERC License Claims and Workers' Compensation Claims No distnbutiorssftom the escrow(s) shall be made until such Diputed Claims havi been Allowed or otherwiseresolved by the Banknrptcy Court and any'such dislnbutions shall be made in accordance with the terms hereof The Cash deposited into the escrow ascount(s) shall be invested in either (i) money market funds consisting primanly or short term U S treasury secunties, or (it) obligations guaranteed by the United States or Amrica or any agency thereof. at the Debtor's option[-]L2L d .P a ert a a LkaUIu1LJg,ks!xhrueh tee date of payment In accordance with F-shlhlt I to t,*ni the exItent It becomes an Allowed Claim Us set forth herein. A Di leI1( J ,j ,tieerator Claio n shall become aAloowed "ain oni the date deVP'noted by F7R(sahrn P a y e n t a e t h m a e n a c o u t f l O.P X n dG e n e r a t o r C l a i m s. p u r s un t o. anstaved order In the FFR(C refund nroce.,tlt,, docket Nos_ Fmflfl.OL.A .A, Vrs~o Pa 2 3 4 5 6 7 8 9 10 12 i3 14 16 17 19 20 21 22 23 24 25 26 27 28 DeCO NY6 19914s5j161 )Io b eeoe.J

d.

W To the extent a Disputed Claim becomes an Allowed Claim, such Allowed Claim will be satisfied in the iames'ianner as all other Allowed Claims o't he same Class to addition, the holder or such 2 Clain will receive Post-Petitlion Interest (to the extent such holder is entitled to Post Petition titerest under the Plan) From and after the Effective Date, such Disputed Claim will earn interest at the same rate eamed on the Cash deposited in escrow (it) erminastis!a vwW The escrow(s) shallbe terminated by the Reorganized Debtor when all distnbutions from the escrow account(s) have been made in accordance with the Plan If any Cash remains in an escrow account after all* Disputed Claims for which such escrowed property is being held have been resolved and distributions made in respect thereof'e uch Cash shall ha used by the Rers-anlzed Debtor flrst to reourehase the seurities to be Issoedunder the Plan and then. If any CsL c .zlu, such Cash shall revert to and become property of the Reorganized Debtor In determining the aggregate amount necessary to fund any escrow account(s), the Debtor may deposit the estimated allowable amount of any Disputed Claim, is determined by the Bankruptsc Court Any such escrow(s) established pursuant to this section 5 4(h) shall be subject to the continuing jurisdiction of the Bankruptcy Court (iii) AAdtfqniLQa1h Ifthe axmount of Cash deposited into the escrow(s) is inaufficient to make the required payments once certain Disputed Claims become Allowed Claims. then the Reorganized Debtor will pay the holder of such Allowed Claim the Cash necessary to satisfy the shortfall. Any deficiency in the amount of Cash deposited into the escrow(s) shall not limit the Reorganized Debtor's obligation to satisfy Disputed Claims,which subsequently become Allowed Claims, and the Reorganized Debtor shall remain liable to satisfy such Allowed Claims pursuant to the Plan 55 Objecionss to and Resolution of Administrative Expense Claims an gimiI. Except as to applications for allowance of compensation and reimbursement of Professional Compensation and Reimbursement Claims under sections 330 and 503 of the Bankruptcy Code. the Reorganized Debtor shall, on and slier the Confirmation Date. have the S............ u.u .=*mZ..rn,,,iroyiocss however, that If ms dote is dehleated In such order. a Dlsnaled ISO. PX and GoeeMora, Claim shall altomatiatlly beome asn Allowed aIM m fortY.flve (451 days after the Issuance D-4S NYS 199,45sj.Z .5i. .5$9.

2 3 4 5 6 7 8 9 1O II 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 28 right to make and file objections to Administrative Expense Claims and Claims In addition, the [Gomeiaiaa..n]j~~fl~lg.Ulj shall, on and afler the Confirmation Date, have full party-un-interest status to make and file objections to Administrative Expense Claims and Claims and to appear and be heard with respect thereto Except as to applications for allowance ofcompensalion and reimbursement of Professional Compensation and Reimburser*nt'Cl6ams nunder sections 330 and 503 of the Bankruptcy Code, and with respect to objections Filed by the (G[m lr]nine Is, on and after the Effective Date, the Reorganized Debtor. shall have the authority to compromise, settle, otherwise resolve or withdraw any objections to Administrative Expense Claims and Claims and compromise, settle or otherwise resolve Disputed Administrative Expense Claims and Disputed Claims without the approval ofthe Banknptcy Courn Unless otherwise ordered by the Bankruptcy Court, (a) all objections to Claims (except for Administrative Expense Claims) sihalil be served and filed upon the holder of the Claim as to which the objection is masde (and, as applicable, upon the Debtor, the Committee and the Commission) as soon aspracticable. but in no event later than the Effective Date, and (b) all objections to Administrative Expense Claims shall be served and filed upor the holder of the Admintstrative Expense Claim as to which the objection is made (and. as applicable, upon the Debtor, the Committee and the Commisnioin) as soon as practicable, but in no event later than ninety (90) days after the Effective Date 56 Pahient or the Trustees'. Issuer's and Cerflln nl To the extent allowed by law and any underlying agreement, any unpaid fees and expenses accrued through the Confirmation Dale (except for sny unpaid (ees'and expenses previously disallowed by the Bankruptcy Court) of the Bond Trustees and'the trustees under the Mortgage, and various indentures, including, but not limited to. the Southern San Joaquin Valley Power Authority Agreement (acting in their capacities 's truslees and, ifapplicable, acting in their capacnites as disbursing agents), the lssuer oth1e PC Bonds and their respective professionals, and Bank of America, N A.in its capacity'as adminisirative agent under the Revolving Line of Credit (including such administrative agent's attorney's fees), shall be paid by the Debtor wiihin ten (10) days after the Confirmation Date Any such fees and expenses accruing after the 4 2 3 6 7 9 10 II 12 13 14 IS 16 I? Is 19 20 21 22 23 24 25 26 27 28 D-1 HY6 191Sldl5 Confirmation Date shall be payable as provided in the applicable agreement providing for such payment, or. in the case of Bank of America. N A. in Its capacity as administrative agent under the Revolving Line of Credit,. a least quarterly Upon payment of such fees and expenses, such Persons shall be deemed to have released their Liens securing payment of their fees and expenses for all fees adl expenses aaccrued through the Effective Date 5.7 Cancellation of Existini Scurities and Airreements On the Effective Date. the promissory notes, bonds, debentures and all other debt instruments evidencing any Claim, including Administrative Expense Claims, other than those that are reinstated and rendered unimpaired or renewed and extended pursuant to Article IV hereof, respecuvely, shall be deemed canceled without further act or action under any applicable agreement, law, regulation, order or rule and the obligations of the Debtor under the agreements and indentures governing such Claims, as the case may be. shall be discharged The Common Stock and Preferred Stock representing Equity Interests shall remain outstanding [olders of promissory notes, bonds, debentures and any and all other debt instruments evidencing any Claim shall not be required to suirender such instruments ARTICLE VI EXLCUI1ORY CONTRACTS AND UNEXPIRED LEASESkS 6 1 &stimolion and Reection orExcutory Contrs t'sand lJrnexo*iet.Ir Purumnt to :sections 365(a) and I I23(bX2) of the BAtikruptcy Code, all executory contracts and unexpired leases that exist between the Debtor and any Person or Governmental Entity shall be deemed assumed by the Debtor as of the Effective Date. except that any executory contracl or unexpired lease shall be deemed rejected by the Debtor as of the Effective Date (I) that has been rejected pursuant to a Final Order of the Bankruptcy Court entered prior to the Confirmation Date, (in) as to which a motion for approval of the rejection ofsuch ex.wUl-y conlract or unexpired lease has been filed and served prior to the Confirmalion Dale or (iii) that is set forth in Schedule 6 I (a)(i) of PG&E's Plan Supplement (executory contracts) (which Schedule is hereby amended to include the Existing Tax Sharing Agreement). or Schedule 6 I(sXn) of .So. , D-11 ifi6 1"143j&12

I PG&E's Plan Suppleimsent (unexpired leases)'. qTde4. hqe!t ,. that the Debtor reserves the 2 right, on or prior to the conclusion of the Confirmation lleanng, to amend Schedules 6 1(s)(i) 3 and 6 l(a)(it) to PG&E's Plan Supplerment to delete anyjexecutory contract or unexpired lease 4 therefrom or to add any executory contract or unexpired lease thereto, in which event such 5 executory contract(s) or unexpired lease(s) shall he deemed to be assumed by tIhe Debtor or 6 rejected, as the case may be. as ofthe Effective Date The Debtor will give notice of any such 7 amendment to each counterptry to any executory contract or unexpired lease the status ofrwhich 9 is chansged as a result of the amsendment f_ any executory contract which is to be assumed or 9 rejected as a result of the amendment) and to the Iwmiael1.Lntlif If the counterparty 10 opposes such proposed amendment, the Debtor aid the J(GlUt (provided that II Ithe 444 mi. ation es'lef Plan reflects such amendment) will make all reasonable eWforts 12 to provide such counterpasty a reasonable opportunity under the circumstances to object pnor to 13 confirmation orthe Plan, and to the extent that such counterparty has the right to vote on the 14 Plan, or becomes entitled to vote on the Plan as a result of the amendment to Schedule 6 I(a)(i) 15 or 6 I(a)(ti) to PG&E's Plan Supplement, to provide such counterparty a reasonable amount or" 16 time to cast a Ballot to accept or reject the Plan and indicate its preference between this Plan and 17 PG&E'a Plan. or to amend its Ballot The listing of a douýduiet on Schedules 6.1(a)(i) or il 61(aiXti) to PG&E's Plan Supplement shall not constitute an admission by the Debtor or the 19 [Gom I

• i]*JL2l.ljUM that such document is an executory contract or an unexpired lease or 20 that the Debtor has any liability thereunder Notwithstandumg'anyshinj to the contrary.'the 21 Debtor waives its nght to make amendments pursuant to this Section 6 I with respect to the 22 assumption orthe PG&E-Westem Area Power Administration Contract 2948A and related 23 contracts, as descnbed in Exhibit Gj to PG&E's Disclosure Statement 24 23 26 s

A copy of PG&E's Plan Supplement can be obtained through the "Pacific G(a & Electric 27 Company Chapter I I Case" link available through the websile maintained by the Bankruptcy Court at httn Lwww/Csnb-uscourts apY PG&E's Plan Supplement is listed under docket 28 number 4579 Do-0 Ny6 199141JIt1 62. 2 3 4 5 6 7 9 10 II 12 13 14 IS 16 17 is 19 20 21 22 23 24 25 26 27 25 S, 1 62 Schedules of Retected Esecutory Contracts and Unexpired Lea;Ms I nlusivenes Each executory contract and unexpired lease listed or to be listed on Schedusle 6 I(a)(i) or 6 I (aWi) to PG&E's Plan Supplement shall include (i) modifications, amendments, supplements, reslatements or other similar agreements made directly or indirectly by any agreement, instrument, or other document that in any mannur affects gulh'executory contract or unexpired lease, without regard to whether such agreement, instrument or other document is listed on Schedule 6 I taXi) or 6 1 (a)(6i) to PG&E's Plan Supplement, and' (ii) executory contracts or unexpired leases appurtenant to the premises listed On Schedule 6 I(aXi) or 6 1(aXii) to PG&E's Plan Supplement, including, without limitation, ll easements, licenses, permits. rghts, pnvileges, immunities, options, rights of first refusal powers, uses, usuffrucls, reciprocal easement agreements or vault, tunnel or bridge agreernents, and any other interests in real estate or rights in rem relating to such premises to the extent any oi the foregoing are executory contracts or unexpired leases, unless any of the foregoing agreements previously have been assumed or assumed and assigned by the Debtor 63..proval of Assumtion or Reection of Exector-Cu o, Unnxeirei L.eese Entry of the Confirmation Order shall, subject to and upon the occurrence of the Effective Date, constitute (i) the approval, pursuant to sections 365(a) and 1123(bX2) of the Bankruptcy Code, of the assumption of the executory contracts and unexpired leases assumed pursuant to Section 6 I hereof, (11) the extension of'time, pursuant to section 365(d)(4) of the Bankruptcy Code, within which the Debtor may assume or reject the unexpired leases ofnon residential property specified in Section 6 I hereof through the date of entry of the Conflimuitiot Order, and (iWi) the approval, pursuant to sections 365(a) and I 123(bX2) of the Hankruptc'yCode. of the rejection of the exe'cutory contracts and unexpired leases rejected pursuant to Section 6 f hereof 64 Cue 2ft Default Except as may otherwise be agreed to by the parties, within thirty (30) days after the Effective Date, the Debtor shall cure any and all undisputed deraults under any executory contract or unexpired lease assumed by the Debtor pursuant to Section 6.1 hereof, in accordance with section 365(b)(1) of the Bankruptcy Code All disputed Do--N N~Y$ t*143 tslz -0}.

1 2 3 4 6 7 8 9 10 II 12 13 14 16 17 19 20 21 22 23 24 25 26 27 28 6 6 Assumed Indemnificlaion Obleatlons The Assumed Indemnification Claims shall, In all respects, irrespective of whether such claims &rise under contracts or executory contracts, survive confirmation of the Plan, remain unaffected thereby, and not be discharged irrespective ofwhether indemnification, defense, reimbursement or limitation is owe( in connection with in event occurring before, on or after the Petition Date 67 Compensation and Benefit Proiram Except as provided in Section 6 I hereof, all savings, health care, severance, performance-based cash incentive. retention, employee welfare benefit, life insurance, dlsability and other similar plans and agreements ofthe Debtor aoe treated as executory contracts under the Plan and shall, on the Effective Date, be deemed assumed by the Debtoi in accordance with sections 365(a) and 1123(b){2) of the Bankruptcy Code, and any defaults thcreunder shall be cured as provided in Section 6 4 hereof With respect to the Debtor's Ritarenient Plan, the Debtor affirms and agrees that it is and will continue to be the contributing sponsor ofthe Retirement Plan, as defined under 29 U S C. I 1301(aXI3) and 29 C.F R 4001.2. or a member of the contributing sponsor's controlled group, as defined under 29 U S C § 1302(aX 14) and 29 C F R. § 4001 2 As a contributing sponsor (or member ofthe controlled group) of the Retirement Plan. the Debtor intends to fund -64, Do-. NY6 I"i4Sjitl defaults that are requred to be cured shall be cured either within thirty (30) days of the entry of a Final Order determining the amount, if any, of the Debtor's liability with respect thereto, or as may otherwise be agreed to by the paties 6 13ar Date (or Fuhn Proo's ofClaim Relasina to Executory Contract, and Uncxpired Leases Retected Pursuant to. or Omitted from the pEan Claims arising out of the rejection of in executory contract or unexpired lease pursuant to Section 6 I hereof must be properly filed in the Chapter I I Case and served upon the Debtor no later thin hirny (30) days after the later of(i) notice of entry of an order approving the rejection of such executory contract or unexpired lease. (it) notice of entry of the Confirmation Order. and (iii) notice of an amendment to Schedule 6 l(aXi)or6 l(aXii) to PG&E's Plan Supplement All such Claims not filed within such time shall be forever barred from assernion against the Debtor. its estate and its properly I 2 3 4 5 6 1 9 103 II t2 i3 14 Is 16 1? Is 19 20 21 22 23 24 25 26 27 28 the Retirement Plan in accordance with the minimum unding standards under ERISA, 29 U S C § 1802. pay all required PBGC insurance premiums. 29 U S C 1 1307. and comply with all requirements of the Retirement Plan and ERISA The Retirement Plan isa defined beneit pension plan insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA, 29 US C C*'§1301.1461 The Retirement Plan is subject to the mimmum funding requirements of ERISA, 29 US C § 1084, and section 412 of the internal Revenue Code, 26 US C. 1412 No provision ofror proceeding within the Debtor's reorganization proceedings, the Plan, nor the Confirmation Order shall in any way be construed as discharging, releasing or relieving the Debtor, the Reorganized Debtor, or any other party in any capacity, from any liability with respect to the Retirement Plan or any other defined benefit pension plan under any law, governmental policy or regulatory provision PBGC and the Retirement Plan shall not be enjoined or precluded from enforcing liability resulting from any of the provisions of the Plan or the Plan's confirmation 68 &1i*¢rcelBeneits Payments, if any, due to any Person for the purpose of providing or reimbursing payments for retired employees and their spouses and dependents for medical. surgical, or hospital care benefits, or benefits in the evens of sickness. accident. disability, or death under any plan, fund. or program (through the purchase ofinauance or otherwise) maintained or established in whole or in part by the Debtor pior to the Petition Date shall be continued for the duration ofthc period the Debtor has obligated itsreffto prvide such benefits 69 St~cmnit and Stantlml -Co mantsoiatura! H (a) Set~tlemn And 5tjnisljvsCommtmn The obligations under (I) the 1991 Settlement Agreement between NCPA and PG&E in a Nuclear Regulatory Commission (the "-'fff_) proceeding, implementing the Statement of Commitments accompanying the letter from PG&E to the US DepLrtment of Justice of Apnl 30, 1976 (the "J22 Settlement Aereement"). (2) the lettei from PG&E to the U S Department of Justice of April 30, 1976, to the extent that it represents obligations (the "1961}ic -) and (0) the antitrust license conditions included in the Diablo Canyon Nuclear Power Plant NRC Licenses (the D.0 Hyd i1ii45tj5ui

2 3 4 6 7 8 9 10 II 12 13 14

_ 16 17 8I 19 20 21 22

• 23 24 26 27 28 Does NYe t99145_[51

.66. "License Conditions") (collectively, the 1991 Settlement Agreement. the 1976 Letter and the License Conditions are referred to herein as the "Settlement and Stanislaus Commitments') shall remain in effect and pass through the Chapter I I Case unimpaired and unaffected so that the Debtor and Reorganized Debtor are obligated for the full performance, and shall be liable for the nonperfonnance, of the Settlement and Stanislaus Commitments Under the Plan, the Debtor and Reorganized Debtor shall assume the 1991 Settlement Agreement (b) Natral On the Effective Date, the Reorganized Debtor shall continue to offer the City of Palo Alto gas transmission and storage services on terms and conditions that provide full parity of treatment with those provided by the Reorganized Debtor to its own retail gas distribution functions, including, but not limited to, the opportunity to reserve, in advance ofany open-season process, a defined amount of transmission and storage capacity in any amount up to the amount sufficient to meet the City of Palo Alto's projected Abnormal Peak Day (the"APD") requirements, subject to applicable limits on the amount ofeach such form of capacity Similarly, on the Effective Date, "vintage rates" for the Redwood Path capacity currently held by the City of Palo Alto (6,148 Dth/day) shall continue to be available to the City of PaloAlto for as long as vintage rates are available to any core customei served bythe Reorganized Debtor ARTICLE VII IMPLEMENTATION OFTIlE PLAN _.7 Issuance of Secuntiea On or before the Effective Date, the Reorganized Debtor shall issue and sell, through one or more public or private offerings, new debt secunties of and [Equ'fty -Interest]new preferred stock in the Reorganized Debtor, the net proceeds of which, in addition to the Debtor's available Cash. will be sufficient to satisfy in full in Cash all Allowed Claims under the Plan to be paid in Cash The terms and estimated amounts oftbe debt securities to be issued under the Plan are described on Exhibit 3 hereto [SUGCI4IUZ TERMS AND ESTIMATED AMOUNTS OFTHE SECURITIES TO"I! ISSUED IHEREUNDER REMAIN SUBJECT TO CHANGE BASED UPON. AMONG OTHER FACTORS, ACTUAL OR PERCEIVED MARKET CONDITIONS AND RATING AGENCY REQUIREMENTS AT A A, 1/2  I% 1/2 1/2

THE TIME OF ISSUANCE, THE AMOUNT OF THE REORGANIZED DEBTOR'S AVAILABLE CASH ON THE EFFECTIVE DATE. AND THE AMOUNT OF ALLOWED CLAIMS I A! al 1ki...e prie:.ithei i-s:..".e the.. Cz:ik-* I The Proponents" shall (b iv A... LE..... t~x .~.L+

• 4lwnrL i}an ~

w*L - L.a... ..l.A.IL .L--- h I.. J---I-j. .luuur r ,nvely wni incur runanrine a ini unitsE markets arranger and their resnective feal and financial advisors in the process of structunng, marketing, pricing and selling the secunties, includine, without limitation. makina. such adlustments to the securities to be sold 2. may be neeessarv or desirable In Iiiht of then prevallion market conditions The securities to be issued are described generally below: (a) Reoreanized Debtor Hew Money Notes On or before the Effective Date, the Reorganized Debtor shall issue and sell. through one or more private or public offeenngs, new debt securities in the original aggregate principal amount sufficient to yield net proceeds of approximately $[(-8&-J]J.bdllion. the terms of which are set forth on Exhibit a (any and all such notes, collectively, the Reorsanized Debtor New Money Notes"). the net proceeds of which shall be used to fund payments to holders of Allowed Claims and Allowed Equity Interests (b) Reorganized Debtor New FAi.d'lPreferred rl.seaatalStock On or before the Effective Datethe Reorganized Debtor shall issue and sell, through one or more pnvate or public offenngs. new (-l-,iy .ats i... Reorganized D........ ] d calvit securities sufficient to yield net proceeds of approximately S1.75 billionlah "Reorganized Debtor New Preferred Stoek:) The net proceeds of the Reorganized Debtor's issuance and sale ofnew Equity Interests shall be used to fund payments to holders of Allowed Claims and Allowed Equity Interests Reoreanizatlon Agreement. On or before the Effettlve Date-or a soon as oracticahle thereafter, the Reorganized Debtor and the Commhislon shall have executed and delivered the Reoreanlsation Aereement substantially In the form attlaheg herein.aIvil /h l*aulula*n... n

2.

[ "-]SettWcroent of Litisatlon. On or before the Effective Date and nursuant to the Reoranlztlon Agreement, the Debtor shall dismiss the Rate Recovery Dom0 NY6 199145J511 .67. 1 2 ":3 5 "(,4 .3 16 7 8 19 10 12 13 14 15 16 17 18 19 20 21 2 -2 23 24

• 25 26
• 27 Litigation, with prejudice, and shall withdraw the annllatlnns fied by the Debtor I connection with PM&E's Plan and ilhted In Article ".27ai-el of the Reorusalzali-.D hrumen At such time, the Debtor'shalfexete and deiver In the [G@w inJlroDotien#

all pleadings and reese documents required by the [o] n in connection with such disrmssal and ;glibhdraiwa which shall be in form and substance aatifactory to the [GOM

• lllg shal speciically releasing any and all claims and Causes of Action that the Debtor has or may have against the State of California and the Commission and their respective present and former commissioners (in their official capacities), officers, employees, advisors, consultants and professionals, that alas from (a)

'the facts alleged`by the Debtor in the Rate Recovery Ltigation, Including, without limitationctaims and Causes Of Action based upon the filed rate doctrine, takings. duepr'cess and commerce clause violations, except for claims and Causes of Action based upon the Plan or as provided in the Confirmation Order, (b) the Commission's implementation prior to the Effective Date of Asseribly hill I of the 2001-02 First Extraordinary Session (Ch 4, Statis. 2001'02 I1 Ex. Sees) and Assembly Bill 6 of the 2001-02 First Extraordinary Session (Ch 2, Stats 2001-02 I1 Ex Sess), including CPUC Decision Nos 01-03-08 and 01-04-005; and (c) the Commission's Decision Nos 01-03-082 (TURN Accounting Decision) "/4 [7...-3-New Ta Sharinn Aseement On or before the Effective Date, or as soon as practicable thereafter, the Reorganized Debtor and the Parent shill have executed and delivered the New Tax' Sharing Agreement (a) Board of Directo The members of the Board of Directors ofthe Debtor immediately prior to the Effective Date shall serve as the initial Board of Directors of the Reorganized Debtor on and after the Effectiv e Each of the members ofsuch initial Board of Directors shall serve in accordance with the Debtor's Articles of Incorporation and the Debtor's Bylaws. as the sume may be amended from time to time DoIm NY6 199145J[S*t .o

(d) The Reorganized Debtor shall have obtained and established the Exit Facility. 2 3 7" 4 5 6 7 8 9 10 IO 11 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 28 keorman.tation Agreement and the Debtor shall have executed and delivered to the [Gwi ~ssma]P all pleadings and release documents requtred by the (Geýs" ZMWals] U~ j in connection with such dismidWAAlJLj 1 UJ& which shall be in form and substance satisf'actory to the [Gemmiseen]j. ad ((g)-]S&P and Moody's shall have issued credit ratings for the Reorganized Debtor and its debt securities of not less than BBB-and Baao3, respectively. La ((h-)-the Debtor shall have received all authorizations, consents, regulatory approvals, rulngs, letters, no-action letters, opinions or documents that are'necessary to implement the Plan, and L) [(+])--the Plan shall not have been modified in a material "ay, including any modification pursuant to Section 11.10 hereof. since the Confirmation Date 33 Effect of Failure of Conditions In the event that one or more ofthe conditions specified in Section 8 2 hereof shall not have occurred or been waived on or before January 30. 2003 (or such later date as may be hereafter provided in ad amended Section 8 2(a)), (a) the Confirmation Order shall be vacated, (b) no distnbutions under the Plan shall be made, (c) 6he Debtor and all holders of Claims and Equity Interests shall be restored to the JLu Wto Iniq as of the day immediately preceding the Confirmation Date as though the Conrirmarion Order had never been entered, and (d) the Debtor's obligations with respect to Claims and Equity (e) the Bankruptcy Court shall have entered an order, wluch may be the Conrirmation'Order, approving the Debtor's dismissal with prejudice of the Rate Recovery Litigation: (n the Reorganized Debtor and the CommIssion shall have executed the Reornsnlsatlon Apreement: .[(.4-[twJonursuant to the Reorganl*sllon Aereenmeat At-Debto shall dismiss the Rate Recovery Litigation. with prejudice. and sholl withdraw the nonllestlon filed by the Debtor In connection-with P 1&I'. Plan.n stA A i..5. 1 ",.* .H.t 2 3 4 5 6 7 8 9 l0 II 12 13 14 Is 16 17 19 20 21 22 i3 24 25 26 271 28 Does Y6 1"149914 t DoT- -71. Interests shall remain unchanged and nothing contained herein shall constitute or be deemed a waiver or release of any Claims or Equity Interests by or against the Debtor or any Person or Governmental Entity or to prejudice in any manner the rights of the Debtor or any Person or Governmental Entity in any ftinher proceedings involving the Debtor; provided however that the amounts paid pursuant to Section 4 2(a) hereof on account ofPost-Petition Interest may be recharacterized as a payment upon the applicable Allowed Claims, in the Debtor's sole discretion, but the Debtor will not otherwise seek to recover such amounts 3 4 /gairelofCondnxions As provided in Section I 1.10 hereof, the 7 ' I [Ge," le jgment may waive one or more of the conditions precedent set forth in Section 8 2 hereorf, roid5 l. v that the condition set forth in Section 8 2ff lk) may only be waived pursuant to a Final Order of the Bankruptcy Court obtained by motion fila by the [Gemmleeieei~a]unuza and after notice and a hearing on not less than ten (10) days' notice to the Debtor,.e. C.mi...aiej I and the United States Trustee. ARTICLE IX EFFECT OF CONFIRMATION OF PLAN 9.1 Term of Baninotcv Iniunction or Stays Unless otherwise provided, all injunctions or stays provided for in the Chapter I I Case under section 105 of the Bankruptcy '7,I Code. or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect in accordance with the terms of such Injunctions Unless otherwise provided, the automatic stay provided under section 362 of the Bankruptcy Code shall remain in full force and effect until the Effective Date. 9 2 Revestingof Awes On the Effective Date. except as otherwisi, transferred, sold or otherwise provided for in the Plan, the property of the Debtor's estate shall vest in the Reorganized Debtor 93 Ooeralions Followine Effective Date From and after the Effective Date. the Reorganized Debtor may operate its business, and may use. acquire and dispose ofproperty fie, of any restrictions imposed under the Bankruptcy Code. As of the Effective Date, all

0. am 1hid 9 Q1611h1h d-AL D.0a HYS t1145.1tH?

. 72.-

2 3 4 5 6 7 9 to II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 property of the Reorganized Debtor shall be free and clear of all Liens, claims and interests of holders of Claims and Equity Interests, except as otherwise provided in the Plan 9.4 Claims Extirnuished As ofthe Effective Date, any and all avoidance claims accruing to the Debtor under sections 502(d). 544, 545, 547. 548, 549, 550 and 551 ofthe Bankruptcy Code and not then pending, shall be extinguished All other Causes of Action of the Debtor. other than those expressly released or dismissed with prejudice hereunder, shall vest in the Reorganized Debtor 9 5.DischargeofDbtor The rights afforded herein and the treatnrent of all Claims and Equity Interests herein shall be in exchange for and in complete satisfactior, discharge and release of Claims and Equity Interests of any nature whatsoever, including any interest accrued on such Claims from and after the Petition Date. against the Debtor or any of its assets or properties Except as otherwise provided herein, as of the Effective Date (a) all such Claims against and Equity Interests in the Debtor shall be satisfied, discharged and released in full and (b) all Persons and Governmental Entities shall be precluded from asserting against the Debtor, its successors, or its assets or properties any other or further Claims or Equity Interests based upon any act or omission, transaction or other activity of any kind or nature that occurred prior to the Confirmation Date. 9 6 Inisscion In addition to and except as otherwise expressly provided

herein, in the Confirmation Order or a separate order of the Bankruptcy Court, all entities who have held. hold or may hold Claims against or Equity Interests in the Debtor, are permanently enjoined, on and afler the Effective Date, from (a) commencing or continuing in any manner any action or other proceeding of any kind with respect to such Claim or Equity Interest. (b) the enforcement, attachment, collection or recovery by any manner or means of any judgmeni, award, decree or order against the Reorganized Debtor on account of any such Claim or Equity Interest, (c) creating, perfecting or enforcing any Lien of any kind against the Reorganized Debtor or against the Reorganized Debtor's properly or interests in property on accouni of any such Claim or Equity Interest, (d) asserting any right of setoff, subrogation or recoupment of any kind against any obligation due from the Reorganized Debtor or against the Reorganized Dora NYS6 1"9145j-6

-73. 2 3 4 5 6 7 2 9 10 II 12 13 14 1I 16 17 Is 19 "20 21 22 23 24 25 2i6 "27 28 Dori HY6 I"43J5137. Debtor's property or interests in properly on account of any such Claim or Equity Interest. and (e) commencing or continuing in any manner any action or other proceeding of any kind with respect to any claims and Causes of Action which are extinguished, dismissed or released pursuant to the Plan The injunction shall also enjoin all parties in interest, including. without limitation, all entities who have held, hold or may hold Claims against or Equity Interests in the Debtor, from taking any action in violation of the Confirmation Order Such injunction shall extend to the successors of the Reorganized Debtor, their pmperties and interests in property Except as provided by Sections 11.4. II 5 and II 6 hereof, this Section 9 6 shall not enjoin, bar or otherwise impair the commencement or prosecution of direct personal claims against any Person other than the Reorganized Debtor. including claims against the Parent ARTICLE X RETENTION OF JURISDICTION As ofand subject to the occurrence of the Confirmation Date. the Commission shall be bound by the Confirmation Order and the Confimlation Order shall be enforceable against the Commission notwithstanding the Commission's and the State of California's objections and defenses based upon the Eleventh Amendment to the United States Constitution or related pnnciple of sovereign immunity or otherwise After the Confirmation Date. the Bankruptcy Court shall retain junsdiction over all matters arising out of, or related to, the Chapter I I Case and the Plan pursuant to, and for the purposes of. sections 105(a) and 1142 of the BaEankrsptcy Code and for, among other ihings, the following purposes. (a) to hear and determine matters related to the Plan, (b) to hear and determine applications for the assumption or rejection of executory contracts or unexpired leases, if any are pending, and the allowance of cure amounts and Claims iesulting therefrom. (c) to hear and determine any and all advrsary proceedings. i;pplications and contested matters. (d) to hear and determine any objection to Administrative Expense Claims or Claims;

• 74.*

2 3 4 5 6 7 9 9 ii 12 13 14 1S 16 17 Is 19 20 21 22 23 24 25 26 27 28 (e) to enter and implement such orders as may be appropriate in the event the Confirmation Order is for any reason stayed, revoked, modified or vacated, (I) to issue such orders in aid of execution and consummation of the Plan, toý the extent authorized by section 1142 of the Banknrptcy Code; (g) to consider any amendments to or modifications of the Plan. to cure any defect or omission. or to reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order, Lk) to hear and determine dhioutes arilnya In connection with the Interoretation. imnlentntatlon or enforcement of the Renreanlzatlon Apreement: hear and determine all applications for compensation and reimbursement of expenses ofprofessionals under sections 330, 331 and 503(b) of the Bankruptcy Code, . )1 It+S-+Mo hear and determine disputes ansing in connection with the interpretation. implementation or enforcement of the Plan and/or the Confirmation Order, .) ((j[)--to hear and determine proceedings to recover assets of the Debtor and property of the Debtor's estate, wherever located, U [ r(f to hear and determine matters concerning state, local and federal taxes in accordance with sections 346, 505 and 1146 of the Bankruptcy Code;' (m) [(I)-Jto hear and determine matters concerning the escrow(s), if any, established pursuant to Section 5 4(h) hereof, Lj [(-m)-jto hear any other matter not inconsistent with the Bankruptc) Code; and Uo ((a).lto enter a final decree closing the Chapter I I Case ARTICLE XI MISCELLANEOUS PROVISIONS II I Effectuatine Documents and Further Transaction, Pursuant to section f1142 of the Bankruptcy Code, the Debtor (or the Reorganized Debtor after the Effective Date), shall execute, deliver, file or record such contracts, instruments, releases, indentures and other 2 3 4 6 "7 8 9 11 12 13 14 "16 IS 19 20 "21 22 "23 "24 25 26 27 128 agreements or documents and take such other actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan and any securities issued pursuant to the Plan 11 2 Copi~iale Actiion the Effective Date, all matters provided for under the Plan that would otherwise require approval of the Debtor's shareholders or Board of Directors shall be deemed to have occurred and shall be in effect from and after the Effective Date pursuant to the applicable geneal corporation law of California, the state in which the Debtor is incorporated, without any re'quirement of further action by the Debtor's shireholders oi Board of Directors. On the Effective Date, or as soon as practicable thereafter, the Debtor, shall, ifrequired. file it; amended articles of incorporation with the Secretary of State of California, in accordanie with theapplicable general corporation law ofCalor*na 113 Exemotion from Transfer Taxes Pursuant to section I 146(c) of the Bankruptcy Code, the issuance. transfer or exchange of notes or issuance of equity securities under the Plan, the creation of any mortgage, deed of trust or other security interest, the making orassigin tofiany lease or sublease, or the making or delivery of any deed or othei instrument oftranisfer under, in furtherance of, or in connection with the Plan. shall not be subject to any stamp, real estate transfer, documentary transfer, mortgage recording, sales, use or other similar ttax. All sale transactions consumnated by the Debtor and approved by the Bankruptcy Court on and after the Petition Date through and Including the Effective Date, including., withott limitation, the sales, if any. by the Debtor of owned property or assets pursuant to section 363(b) of the Bankruptcy Code, shall be deemed to have been made under, in furtherance of, or in connecti6n with-the Plan and, therefore. shall not be subject to any stamp, real estate transfer, documentary transfer, mortgage recording, sales, use or other similar tax 114 RdiuehyDebtor (a) As of the Eiffective Date, and subject to the release by the Releasees set forth in Section 11.5 below, the Debtor releases all of the Releasees from any and all Casii or A*ctioti held by, ass reable on bchalf of ordenvative ofthe Debtor, in any way relitingso the Debtor, the Debtor-in-Possession, the Chapter 11 Case, the Plan, negotiations Do NY6 1"99145..91 -76. DDCN# NY6 1"143JlIU -75

2 3 4 5 6 7 8 9 10 II 12 13 14 15 16 17 p 18 19 20 21 22 23 24 25 26 27 28 regarding or concerning the Plan and the ownership, management and operation of the' Debtor; provided, however-that the foregoing shall not operate as a waiver of or release from any Causes of Action a&rsing out of any express contractual obligation owing by any former director, officer or employee to the Debtor or any reimbursement obligation of any former director, officer or employee with respect to a loan or advance made by the Debtor to such former director, officer or employee and is not a waiver of or release for any professionals retained in connection with this Chapter I I Case from claims by their respective clients (b) As of the Effective Date, the Debtor releases the Comrmission, its present and former commissioners in their official capacities and their respective successors, the State of California and its officers and commissioners and their respective successors, as well as the Commission's and the State's present and former employees, advisors, consultants and professionals from any and all Causes of Action held by, assertable on behalf ofor derivative of the Debtor, in any way relating to the Debtor as Debtor-in-Possession, the Chapter I I Case, the Plan, negotiations regarding or concerning the Plan and the ownership, management and opetitio'n of the Debtor as Debtor-in-Possession "11.5 " Limited Release by Releasees In consideration for release of the Releasees in Section II 4(a)-and other valuable consideration, as of the Effective Date, each of the Releasees, at its option, generally releases the Debtor and the Debtor-in-Possession and the Reorganized Debtor, in each case in any capacity, from any and all Causes of Action held by, assertable on behalf of or derivative from such Releasee, in any way relating to the Debtor, the Debtor-in-Possession, the Chapter I I Case. the Plan, negotiations regarding or concerning the Plan and the ownership, management and operation of the Debtor. The release by the Debtor in Section I 1 4(a) hereof shall be provided only to Releasees who execute and deliver to the Debtor a release as provided in this Section 115 and in a form acceptable to the Debtor. 11.6 Exculation As of and subject to the occurrence of the Confirmation Date, (a) the (Gemmiss.ie*] cto.g,jn*nt shall have been deemed to have negotiated the Plan in good faith, (b) the [C mis*i*en]fuaronner shall be deemed to have solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code, 2 3 4 S 6 7 8 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DPOd NY6 199145..Jl .77. including, without limitation section 1125(a) of the Bankruptcy Code, and any applicable non. bankruptcy law, rule or regulation governing the adequacy ofdisclosure in connection with such solicitation, and (c) the Commission and its individual commissioners in their official capacities, the Commiittee and Its members, and the Commission's and the Committee's respective agents, employees, advisors and attorneys shall be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in connection with the offer and issuance of any securities under the Plan, and therefore, neither the Commission nor its individual commissioners. the Committee nor Its members-nor any of the Commission'sar the Comýmlttee's resoectIlv agents, employees, advisors and professionals shall have or incur any liability to any holder'of a Claim or Equity Interest or other party in interest for any act or omission in connection with, related to. or ansing out of, the Chapter I I Case, negotiations regarding or concerning the Plan, the pursuit of confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for will ful misconduct or gross negligence, and. in all respects; the Commission and its individual commissioners, the Committee and Its memhers and the Commission'sadljjlU CmmIttee's reSecv agents, employees, advisors and professionals shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan I1 7 Termination of Committee. The appointment of the Committee shall terminate on the Effective Date. subject to continuation for specific purposes by a Final Order of the Bankruptcy Court 111.8 Fees and Exnpnsg (a)'- Upon the Bankruptcy Court's entry of a Final Order approving any application by the Commission under section 503(b)(3) of the Bankruptcy Code and/orthe Cominission's legal and financial advisors under section 503(b)(4) of the Bankruptcy Code, the amounts authorized for payment thereunder shall be treated as an Administrative Expense Claim and a Professional Compensation and Reimbursement Claim, respectively, and paid in' accordance with the provisions of Sections 2.1 and 2.2 hereof, respectively. D"c# NY6 199145..1$]J - 78.

I 2 3 4 5 16 7 II' 9 l0 11 12 13 14 is

• 16 17 I8 19 20 21 22 23 24 25 26 27 28 (b)

From and after the Confirmation Date. the Reorganizel Debtor shall. in the ordinary course of business and without the necessity for any approval by the Bankruptcy Court., pay the reasonable fees and expenses of professional Persons thereafter incurred, including, without limitation, any fees and expeses incurred by the Commission's professionals in connection with the implemintaýioý and consummation of the Plan; Mtdd1, however that any dispute regarding the reasonablcnesý orsuch fees ind expenses shall be decided by the Bankruptcy Court II 9 Payment of Statutory Fees All fees payable pursuant to Section 1930 of title 28 orthe United States Code, as dcltrmiiied by the Bankruptcy Court at the Confirmation Hearing, shall be paid on or before the Effective Date 111 0 Amendment or Mod ifction ofthe Plant .. (a), Alterations, amendmentsior nodifications'of or to the Plan may be proposed in writing by the [Giiieiltz at' any time prior to the Confirmation Date vmxis that the Plan, as altered, amended or modified, iatiafles'the conditions of sections 1122 and 1123 of the Bankruptcy Code and'the ([Gas e iiajtgugig shall have compilied with section 1125 of the Bankruptcy Code The Plin may bealtered, amended or modified by the (Gemmi )Proonents at any time after the Confirmation Date and before substantial consummation of the Plan, povidcd that the Plan, as altered, amended or modified, satisfies the requirements of sections 1122 and 1123 of the Bankruptcy Code and the Bankruptcy Court, alter notice and a hearing, confirms the Pla4 as ahlerdl, amended6r modified, under section 1129 of the Bankruptcy Code and the circumstances warrant such alterations, amendments or modifications A holder of a Claim or Equity Interest that has accepted the Plan shall be deemed to have accepted the Plan. as altered, amended or modified, if the proposed alteration, amendment or modification does not materially and adversely change the treatment ofsuch holder's Claim or Equity Interest .[(b -.-. .(Th.e u .. e o tta. sl. Gegnti. 1n ....f M: the 'Pre!! !mp!atsa. r ,adif Wa , of-zn an owl ~ ~ ~ ~ n'sdiem medk- ,.. to a Ans I.. -, -1.... .. r r .1.. I 2 .3 4 5 6 7 8 9 10 11 12 13 '14 16 I? 17 t19 20 21 22 23 24 -25 26 27 28 Ithei Debtor, ohs: Cemmaliea a-idi A~ t Stt, Tr1 11.11 xagyibil In the event that the Bankruptcy Court determines that any provision in the Plan is iinvalid, void or unenforceable, such provision shall be invalid, void or unenforceable with respect to the holder or holders of such Claims or Equity Interests as to which the provision is determined to be invalid, void or unenforceaile The invalidity, voidness or unenforceabiity'of any such provision shall in no way limit or affect the enforceability and operative effect of any other provision ofthih Plan 11 12 Reocationor Wthdrawalofthean The (G.mmieelan 1...... LE 1111 -0i relvoke or withdraw we Man prior to the Confirmasii: Date If the [. k ]P te theml reoke or (withdrlw*elfilhdim the Plan pnor to the CofiIrmation Date, then the Plan shall be deem~d null and void In such event, nothing contained herein shall constitute or be deemed a waiver or release of any claims by or agaiqst the Debtor or any other Person or Governmental Entity. including the (Gonv e"arlionen.ntn, or to prejudice in any manner the rights bf the Debtof6r any Person or Governmental Entity, including the [GOMM4"lrO6ý . in any further proceedings involving the Debtor. "11.13 BindmnuI*ffI t From andaftertheConfirmaton Date. thePlan'shallbe binding upon and inure t; the benefit of the [Gemmnoiep ohmneus., the Debtor, the' D-0c HY6 1i145jas t: a.rin Orda af tl. R kra--- L. J t. L n "ad heari ng o n.et L0. tI-an a ( dy n~t I0

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Dat:t Cm tpr-l4Iue fc-..q:en p1:~ :thsEta:I1Cbd .linSn:12(g) (ct:ap4 1t") m~ay ::ly be w-sivcd -u.-attt il&~ 1teB~n~ ~1:ti4t warn:

nserr+/--sg any ;::;-is:n :f the Pir.,

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• 1"13jslz

.79. -.11o.

4) Reorganized Debtor, the holdets of Claims and Equity Interests. other parties in interest, and their respective successors and assigns 11 14 Nuties All notices, requests and demands to or upon the Debtor, the Commission. the Committee or the United States Trustee to be effective shall be in writing and, unless otherwise expressly provided her:ii,'shlall be deemed to have been duly given or made when actually delivered or, in the case of notice by facsiiule transmission. when received and telephonically confirmed, addressed as follows: If to the Debtor. Pacific Gas and Electnc Company 77 Beale Street P 0 Box 7442 San Francisco. California 94120 Attn: General Counsel Telephone: (415) 973-7000 Facsimile: (415)973-5320 2 3 4 6 7 9 t0 11 12 13 14 15 16 17 19 19 20 21 22 23 24 25 26 27 28 2 3 4 5 "6 7 6 9 10 II 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 wth a copy to Paul. Weiss, Rifkind. Wharton,& Gamson 1285 Avenue of the Amencas "New York. New York 10019-6064 " Attn. Alan W. Komberg Telephone: (212) 373-3000 Facsimile. (212) 757-3990 Ifto the Committee: Milbank, Tweed, Hadley & McCloy LLP 601 South Figueroa Street, 30th Floor Los Angeles, Califorma 90017 Attnh Paul S. Aronron Telephone: (213) 892-4000 Facsimile- (213) 629-5063 If to the United States Trustee: The Office ofthe United States Trustee 250 Montgomery Street. Suite 1000 S... .San Francisco, California 94104 Attn- [Sieeseha , e,&honsm jArlAci-u Telephone: (415)705-3333 Facsimile: (415) 705-3379 11.15 GovmlninLaw Except to the extent the Bankruptcy Code, Bankruptcy Rules or other federal law Is applicable, or to the extent an exhibit to the Plan provides otherwise, the nghts and obligations ansing under this Plan shall be governed by, and constnred and enforced in accordance with, the laws of the State of California, without giving effect to the principles ofconflicts of law of such jurisdiction. 11.16 WithholdmaeandRenortniniRutrements Except as otherwite'provided by the Plan, in connection with the consummation of the Plan, the Debtor shall comply with all applicabile withholding and reporting requirements Imposed by any federal, state, local or foreign taxing authority and all distributions hereunder shall be subject to any such withholding and reporting requirements. 11.17 [ lPrononents'Plan Suoeimnt1 The following documents will be contained in the (Gemmis, ] jiess) nrts*'[a] Plan Supplement, which shall be filed with the Clerk of the Bankniptcy Court at least ten (10) days prior to the Confirmation Date, D-2 tf6 1"9145J51 -at-with a copy to: PG&E Corporation One Market, Spear Street Tower, Suite 2400 San Francisco. California 94105 Attn. General Counsel Telephone. (415)267-7000" Facsimile: (415) 267-7265 and .lHoward, Rice, Ncmerovski, Canady. Falk & Rabkin A Professional Corporation Three Embarcadero Center. 7th Floor San Francisco, California 94111 Atim" James L Lopes Telephone: (415) 434-1600 Facsimile: (415) 217-5910 If to the Commis:sion. California Public Utilities Commission 505 Van Ness Avenue San Francisco, Csl:fornia 94102 Attn. General Counsel Telephone: (415) 703-2015 Facsimile: (415) 703-2262 [)-to HY6 1"145-11)2 .17.

(a) The Reorganized Debtor's amended Articles of Incorplratlon and Bylaws I 2 3 4 S 6 7 8 9 10 I! 12 13 14 Is 16 17 18 19 20 21 22 23 24 25 26 227 28 Do.0 NY6 I"145JI51

• 11-PM-30-20 1055'

.4 Upon its filing with the Bankruptcy Court, the (Gea]ssio rie.r!a]igUt Plan Supplement may be inspected in the office of the Clerk of the Bankruptcy Court during normal court hours or through the "Pacific Gas & Electric Company Chapter I I Case" link available through the website maintained by the Bankruptcy Comur as httni/wwwtcmnb.useourtseov. In addition, a copy of the (Comrfinsie]n1Z[os]nte(q Plan Supplement will be available on the Commission's website at hutvflww.couc eq-soy' I IS ExhibilSchdules All exhibits and schedules to the Plan. including the [Gewjnisew]Pflngft'[(sJ Plan Supplement. are incorporated into and are a pa of the Plan as ifset forth in full herein 11 19 Sugn jgn Nothing in the Plan shall affect (a) the lubrogaton, rights of any surety, to the extent applicable or available, which, if available or applicable, shall remain in full force and effect. or (b) the nghts of the Debtor to object, pursuant to the Bankruptcy Code, to the existence of such subrogation rights DATED, (May]Aufut (-*7,JfL 2002 CAUFORNIA PUBLC UTX -CO ON. I'iL Cbatr. Official Cn.mmmffaa af tlh,.ered APPROVED AS TO COMENT AND FORK-2 3 4 5 6 7 8 9 10 I1 12 13 14 Is 16 17 Is 19 20 21 22 23 24 25 26 27 25 Dadm (1"1 t1tJel .*4 4-" PAUL, WEISS. RFKIKD. WHARTON & GARRISON By: Couelg for the Calltfbnla Puiblc Utilties Commission .R ANYLT%*T X.AU O1U. Ceauma for the afficol Commtffee of UMaeeid Creditors TOMrl. P.84 P.64

CALIFORNIA PUBLIC UJTILITIES COMMISSION By: Gary M. Cohen r General Counsel, OFFICIAL COMMITTEE OF ur INSCURED CREDITORS 2 3 4 5 6 7 8 9 10 It 12 13 14 IS 16 17 18 19 20 21 22 23 APPROVED AS TO CONTENT AND FORM. PAUL, WEISS. RIFKIND, WHARTON & GARRISON By,/Viý (Counsel for the Caltfomia Public Utilities Commission aniae/Ja.'tersd+*PelAnlt VV JR, KArt ntV Iv P UhiL Counsel for the omelet Qommltte of Unsecured Creditors Doco NY6 19914t J1,ii [A]PLA' EXHIBIT I Interest Rates for Allowed Claims Contract Type Class l Interest Compaundle1 r interest iayse stDstes I.Ralta cutleon Interval Cesmreeement l After First t Method' Before First I Date Paynsee 1 I '1,.,, I+ A. Contract'--Otber then PC Bonds or First sod Refundina Mnrttlge Bands Floatsi Rate 5 Base Interest Quarterly Last Date Quarterly Notes' Rile 7 383%4 Irterest Paid RevoLv ie 5 Base interest Quarterly Last Date Quarterly oredt Rate 8 000% Interest Paid I Medum Term S Intreset Rate See Semiannually Lost Date Quarterly Notes' Eribft D of Interest Paid Disclosure Statement "Securiry Dncnphoe" Senor Notes' 5

• Base Interest Semiaonuatly Lest Data Quarterly Rate. 9 625%

IntereatlPad DWR S Per Contract N/A N/A DWR Chltr beim offset agarinst aI mounts due Debtor San Joaqutn 5 Per Contraet Semiannually, Last Date Quarterly V. l Interest Paid L/C Banks'

4.

Per Conrrea N/A LatS Date Quarterly I Ineaest Paed Pnor Bonds' 4f Per Contract N/A Last Date Quarterly Interest Paid MBIA 4c Per Contrat N/A Date Fund* Quarterly Retmbursement*s Ftram duisbused Under PC Bood Insuranse "Polcy for Paymentof Interett On MBtA Insured PC Bonds QUIDs' I Per Contract Quarterly Last Date Quar*erly I

• a Intre, Pae d B.

Contrace* -- FIll and RitfnndlnI Moritat Bonds Fier end Per Conrract Senmannually ozlst Dar er Contract S, f IdI II pnterstPad I D.0 VY6 YC7003 VV AW~daa DWrd HY6 M0104.1 Chaslr. Omelal Committee of Unsecurred 24 25 26 27 28 ILIl n t

• 14-

C. CoatrsciJ--PC Bonds Montage 4& Per Contract Per Contract Last Date Per Contract Backed Interest Paid MBIA Backed' 4b Per Contract Pr CfonCtac Lo -Da Per ConWract Inteemst Paid UJC Backedr 4 Pe[4 Ceetteo. Per Contract Last Dale Per Contract Interest Paid Tr.as.Y 4g Peg Contract Per ConftIac Last Date Quarterly C I I I I I I Interest laid D Speel-ComlrIc__--OCC Contractt_ Specified CnrIviretclal 5 Base Interest Quaiterly Last Date Quarterly paper) Rate 7 466%' Interest Paid ISO/(pGcantog ,6 fi o fjri l fl~ul, i , 6 Quarterly R...U.L12 'nzmnast ISDA Claun Floating Amnsally Petition Date Quateerly LIBOR+2% 1 PSlonr* Tsx Stattory e$tMeory ntem statutory _ Claunsa ESP_ 7 Annaually Petition Date (kmd ltercotepany 5 Lowest Defaul Annually Petseton Date Quarterly Rate Under Applicable Sunatet, Indenture nel.Monstueneo' Ogs 3 Lowest Default Annually Petition Date Quatly Procurcmrrent' Rite Under Applitable Stanse, Indenture -~~~, Of Iestrucultet Other Trade - 5 Lowest Deralut Annumally Peition Dote Quartrly Payables' Rate Under Applicable Stalute. Indenture or Inllrmties f Convensen¢e 10 LowentDefaut. -Aninualy Petition Date Quarterly Cleat' is Rate Under Applicable Statue, odlerest. or Immeneno' Etivarorunenakt, I' As Applicable Fire e I Under Non Suppression, Banksuptcy Law Pending Litigation, Tort and FERC License Clhri ms Workcrs' 12 A, Applcable Compensation Uader Nr-Seo Zxhibt D oied Dmcltsour Statemnt for opecuic inerest rues mn ermin lsaarin,,ae, "C"act'" rtefil io c*ntractual peovlslons eiaudimg ilaeruat calctoltions 'M 0,1Bri pay-et wilt be miod: tom dsY1 111Wterhe due thIat PO&E's Di~sclosure S,.s ais ",apinsd Mute di Period ended en Feb*bary 21,2001 Colatauted bsed on scma days elamsed over 360 days. with an mejptied Yield of7 690%, Psymenan lin bere made when due at respect ofthese Oblujone by thd Debi", MBIA or the Lever fCnlit ImmsI Bunks. as sppticmbe Paid by Bond Trusite wie payUrints on Montage Bonds 1Te A*le peyrmi wMU be made on Jly 30,2002 frt dthe parod e-ndd on Jeum 30. 2002. Deotemined an the Pctito Dte eand each anmiversy prno at Ihe dame of Wr paye VA ad aney eientigh Vafna surc Statute. midemint We ist t applies, of If te applicable Simix. indentire or imianien does gon apt*ety a nom-der fslt lote of motorist. Poo Peurasm lerest shllff be calculated twie idd at dt FedeT I uddgn*et Catam cloeaia of 111,000 or less will be paid fullon or beftee hidy 31, 2002

DVIdl, H

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PLAN EXHIBIT 2 Schedule of Letter of Credit Issuing Banks Letter of Onginal Credit Principal, Letter of Credit Stated Amount of Expiration Series Amount Isuing Bank Letter of Credit Date California Pollution Control S200.000.000 Bank otfAmenic, $202,191,.71 5/23/02 Financing Authority. Pollunon N A. Control Refunding Revenue Bonds (Pacific Gts and Electric Compatny) $200,000.000 1996 Sernes C (ithe "96C Boods-) Cahlfonua Pollution Control $165.000.000 Morgan Guaranty $166,808.220 5/23/03 Financing Authority. Pollution Trust Company of Control Refunding Revenue Bonds New York (Pacific Gas and Electric Company) $I65,000,000 1996 Series E (the "96E Bonds") California Pollution Control $100.000.000 BNP Paribu 3101.095,891 S/23/03 Financing Authanty. Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) S100.000,000 1996 Series F (the "96F Bonds California Pollution Control $148.550.000 Deutsche Bank S130.177.946, 9/16/01 Financing Authority. Pollution AGt Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series B (the "97B Bonds) I PLAN EXHIBIT 3' Description of Debt Instruments New NAotes Issuer Amount Credit Raling COUpoo Rate Maturity ' Atnirtelntlon DeAnomlnalloa Interest Payment Dat, Ranking Optional Redemptlon Covennlts Zvent, of Default Reorganized Debtor Estiarted to aggregaite itsz finMOno At least BBB-by S&P and Baa3 by Moody's The coupon rates are expected to renlect market clearing yields for a primary offering for a comparable issue of thi maunurty suzi and credit atning. aimong other factora. at the time of issuance of issuera in the name industry To be detcmuntd To be determined - the New Notes will either amortize over an "average hfe aorrot lena than years or will provide for principal payment at miaurity S1.000 e Sena.annuelly The Ne'w Noes will be Unsecured The New Notes are expected to be redeemable at the option of the Issner ti any tame in whole or io part, at a price equal to the aggregate ofthe principal amoun to be redeemed, accrued and unpaid Innerest, and a "make whole pre*nsum" The amount of the "make whole premirum" is expected to reflect market conditiona at the tune of issuac*e and be determined by negotiation between the Issuer and tie underwriter(s) The actual calculation in the event redemption is effected is expected to be nude by an independent iaventient banking tintitution ofnanonaol standing The indenture (and any aupplemental indentures) under which the New Notes will be issued is expected to include covenaols in reapect of action the iuer must take or is precluded forom taking similar to those included m Indentures goverinig long term notes of a comparable credit rating at the time of the issuance of the New Notes. tncludin, but not limited to, limitations on liens Nonpayment of interest when due after thirty (30) days of grace period DV.e NY$ t047msoj 4 DV Meit-la D13. NY6 3011104_1 hiD NY$. ia 0110. 1 DV ttdi,uu bars NYC J*tl04_l

grace period "* Notpayment o(pincitpl or prenium, at matmity Breach o(Coveaant orFwrs ntyjin the identuresnMd cotinuation oat bch breach for ninety (90) days after notice given to the company Occurrence ofevent or condition which results in accelera*sio O(a bond. debenture, note or other evidnce ofnmsney borrowed or the company does not honor it, guasitns of any such debt guaranteed by the comni y nm the event ofluch accleration with an lggresate outstanding prinecipl amnount ofmore thni S50,000.000. and such indebsednes is not discharged or acceleration is not recnuded within thiry (30) days after notice to the inuamg Company. "* An involuntary bankrupncy petitn is find spagssa U company and such petition sn not diaused wihm ninety (90) days Of fllngorentryofdecre ornOder sdiudlgeg the corsipny or any significant subsidiary to be Insolvent or aPPOn n custodian. sacever. see, which decro or order rennins lIi effect for mety (90) day, "* Comnsenclag a voluntary cese mnd"r hidral or Stole bankruptcy or asoohvecy low or other smnor hwk. making an assignment fro the benefit o¢frediors, aorsiuaon i writing of Viability to pay debts when due "* Minusteria AImendments may be odopted without noftholder consent. "a Modification @ad sntndnt*t Roy be nade by the Issuer and dhe trustee with the consent or asajoity in principal amount or the New Notes "* A"dmiwat 6o certain "'Rsioeod seonoine 1o1ns ofthaNHew Notts (e B,. isuity date, percentage of outsd noe requi*ed so approve certao numtters) smybe adopted only with the consent ofeach noreholder lnitsl issuance of Nw Notes will be registered under the Securities Ac t None - traded in over-the-coanter market None It. New Worktng C Facility Borrower Amount Subllmlts Credit Rating Interest Rote Interest Fnqiter Default Interest Maturity Rtskitng Structuring Fee Unused Cemmilt Fee Excess Cask Fie Sweep Coemensts Events of DefIaulI Collateral Terms splial Reorgsneaed Debtor ) a* )' Revolver o -S1.88l5.000,000 b) Capital Expenditure Sub-Facility c) Letter of Credit The suhtilrmt r Lctim of Credit will be S95,000.Doo The sublurat for Working capital will be S40O.(00.0,to The subslsnt foe Capital Expesidinm will be $ 500,000,000 At least BBB-by S&P ad Bat. by Moodyt TBD my TBD Rate TEBD a) Revolver JIamay3l.120 b) Leters of Credit JanuasIry

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4.

'-4-- -4'-' ? ' in..rtl.n OVRVaamD.1 NY6 30i104, 1A 'Moved to Fof'mlt charize Count 1nsetlons 4e Deletiona 5158 Moved from 0 Moved to, I., Format changed Total changes I I I Plan Exhibit 4 STAX SHARING AGREEMENT. THIS TAX SHARING AGREEMENT (the "Agrctn'.) dated as of_ 2002, is entered into between PG&E Corporation, a California corporation ("Prent"), and Pacific Gas and Electric Company, a California corporation ("Subsidiar ") Parent is the common parent corporation of an affiliated group ofcorporatitos within the meining of Section 1504(a) of the Internal Revenue Code of 1986, as amended (the "Coe"). that has elected to file consolidated federal income tax returns, and Subsidiary is a member of such group. Parent and Subsidiary desire to set forth in flus Agreement their agreement as to certain matters relating to the inclusion of the Subsidiary Consolidated Group (as defined below) in the Parent Consolidated Group (as defined below), including the allocation of tax liabilities for years in which Subsidiary is so included, and certain other matters relating to taxes The parties agree as follows., I., DEFINITIONS. "Adjustment" shall have the meaning set forth in Section 8 9 "Agreement Year ahall mean any taxable year beginning on or after January 1, 2002 during which the Subsidiary Consolidated Group is included in the Parent Consolidated Group. "Balance Payment" shall have the meaning set forth in Section 4 "Code" lhall have the meaning set forth above. ."Estimated Tax Payments" shall have the meaning set forth in Section 4. "*Final Determination" shall mean the final resolution of any tax matter, including, but not limited to, a closing agreement with the IRS or the relevant state, local or foreign taxing authonty, a claim for refund which has been allowed, a deficiency notice with respect to which the penod for filing a petition with the Tax Court or the relevant state, local or foreign tribunal has expired, or a decision of competent jurisdiction that is not subject to appeal or as to which the time for appeal has expired

3 "IRS" shall mean the Internal Revenue Service "Parent" shall have the meaning set forth above "Parent Consolidated Group" shall mean the affiliated group of corporations (including any predecessors and successors thereto) within the meaning of Section 1504(a) of the Code electing to file consolidated federal income tax returns and ofwluch Parent is the common parent "Parent Consolidated Return" shall have the meaning set forth in Section 2. Agreement "Post-Consolidation Year" shall have thi meaning set forth in'Section 6 br this "Pro Forma Subsidiary Attribute" shall hve the meu iorg Se th inSection 5 "Pro Forma Subsidiary Return" shallhave the m'aning*set folth in Section 3 "Records" shall have the meaning set forth in Section 8. "Regulations" shall mean the Treasury regulations prom-ulgated under the Code. "Total Periodic Payments" shall have the meaning set forth in Section 4 "Subsidiary" shail'have the meaning set forth above "Subsidiary Consolidated Group" shall mean the affiliated group of corporations (including any predecessors and successors thereto) within the meaning of Section 1504(a) of the Code. of which Subsidiary would be thecoirsimn parifit if it were not included in the Parent Consolidated Group "Subsidiary Return Items" shall have the meaning set forth in Section 8 "Subsidiary Tax Package" shall have the meaning set forth in Section 7.

2.

FILING OF CONSOLIDATED RETURNS AND PAYMENT OF CONSOLIDATED TAX LIABILITY. For all taxable years in which Paient filts consolidated federal income tax returns (any such return of the Parent Consolidated Group for any taxable year, a"Parent Consolidated Retur') and is enrtitled to include the Subsidiary Consolidated Group in such returns, Parent D* NY$ I." I shall include the Subsidiary Consolidated Group in the consolidated fcderal income tax returns that it files as the common parent corporation of the Parent Consolidated Group. Parent, Subsidiary and the other members of the Parent Consolidatid Group shall file any and all consents, elections or other documents and take any other actions necessary or appropriate to effect the filing of such federal income tax returns For all taxable years in which the Subsidiary Consolidated Group is included in the Parent Consolidated Group. Parent shall pay the entire federal income tax liability of the Parent Consolidated Group and shall indemnify and hold harmless Subsidiary and each member of the Subsidiary Consolidated Group against any such liability; prov~d , however, that Subsidisri shall make payments to Parent or receive payments from Parent as provided in this Agreement for any Agleement Year 3 PRO FOR!MIA SUBSIDIARY RETURN.- V For each Agreement Year, Parent shall prepare a pro form.s federal income tax return for the Subsidiary Consolidated Group (a "Pro Form& Subsidiary Return") Except as otherwise provided in this Agreement, the Pro Forma Subsidiary Return for each Agreement Year shall be prepared as ifSubsidiary filed a consolidated federal income tax return on behalf of the Subsidiary Consolidated Group for such taxable period -The Pro Forma Subsidiary Return shall reflect any carryovers of net operating losses, net capital losses, excess tax credits, or other tax attributes from prior Pro Forma Subsidiary Returns (excluding those attributes that are earned back pursuant to Section 5) that could have been utilized by the Subsidiary Consolidated Group if the Subsidiary Consolidated Groul had aever been included in the Parent' C6rsoiidated Group and all Pro Forma Subsidiary Returns had been filed a actual returns The Ppir*na Subsidiary Return shall be prepared in a manner that reflects all elections, positions and methods used in me Parent Consolidated Return that must be applied on a consolidated basis and otherwise shall be prepared in a manner consistent with the Parent Consolidated Return The provisions of the Code that require consolidated computations, such as Sections 861. 1201-1212 and 123 1. shall be applied separately to the Subsidiary Consolidated Group as if the Subsidiary Consolidated Group and the Parent Consolidated Group (excluding the members of the Subsidiary Consolidated Group) were separate affiliated groups, except that the Pro Fonna Subsidiary Return prepared for the list taxable year, or portion thereof, during which the Subsidiary Consolidated Group is included in the Parent Consolidated Return shall also include any gains or losses or the members of the Subsidiary Consolidated Group on transactions within the Subsidiary Consolidated Group that must be taken into account pursuant to Section 1.1502. 13 ofthe Regulations and reflected on the Parent Consolidated Return when the Subsidtiry Consolidated Group ceases to be included in the Parent Consolidated Return For each Agreement Year. Section 1 1502-13 of the Regulations shall be applied as if the Subsdiary Consolidated Group were not a member of the Parent Consolidated Group For purposes of the Agreement. all determinations made as ifthe Subsidiary Consolidated Group had never been included in the Parent Consolidated Group and as if all Pro Forms Subsidiary Returns were D-, MY& 10ni

5 actual returns shall reflect any actual short taxable years resulting from the Subsidiary Consolidated Group joining or leaving the Parent Consolidated Group

4.

T2~AX P AYMETS "(a) - Estimated Income Tax Payments For each Agreernent Year, Subsidiary shall make periodic payments ("Estimated Income Tax PamenteI") to Parent in suchl amounts as shall be equal to the estimated tax payments that would be payable by the Subsidiary Consolidated Group ifit were not included in the Parent Consolidated Group. no later than the dates on which such estimated tax payments would be due from the Subsidiary Consolidated Group if it wire not included in the Parent Consolidated Group., (b) Balance Py*ment For iach Agreement Yesa'Subsidiary'shall pay to Parent an amount equal to the tax payment that would be payable by the Subsidiary Consolidated Group if it were not included in the Parent Consolidated Group, no later than March 15 of the following year (the "Balance_ PymenI") (c) Payments basid on Pro Fdrma Subsidiary Ret^u'r For each A4r6eemrnt Year, Subsidiary shall pay to Parent, within 10 days after the filing of the Parent Consofidated Return for such Agreement Year. an am6ont equal to the sum of(i) the federal inconhe tai liability shown on the corresponding Pro Forma Subsidiary Return prepared for such Agree:nent Year'and (ii) the additions to tax, if any. under Section 6655 ofthe Code that would have been imposied'n the Subsidiary Consolidated Group (treating the amount duie to Parent under (i) a1'ove as its federal income tax liability and treating any Estimated Tax Payments to Parent pursuant t& clause (a) as estimated payments under Section 6655 of the Code) and which, result from the inaccuracy of any information provided by Subsidiary to Parent pursuant to Section 7 hereofor from the failure of Subsidiary to provide any requested information, reduced by (iii) the sum for such Agreement Year of the amount of the Estimated Tax Payments and the Balance Payment (collectively, the "Total Periodic Payments"). plus (iv) any interest and additions to tax (other than under Section 6655 of the Code) that would be due under the Code if the Total Periodic Payments were actual payments of tax. If the Total Periodic Payments to Parent for any Agreement Year exceed the amount of Subsidiary's liability for such Agreement Year itfider the preceding sentence, Parent shall pay to Subsidiary an amount equal to such excess within 10 days after filing the Parent Consolidated Return for such Agreement Year. For purposes of this Agreement, the term "federal income tax liability" includes the tax imposed by Sections'l 1, 55 and 59A of the Code, or any successor provisions to such Sections Parent shall notify Subsidiary of any amounts due from Subsidiary to Parent pursuant to this Section 4 at least 5 business days pnor to the date such payments are due, and such payments shall not be considered due until the later of the due date described above or the fifth day after Parent gives such notice

5.

LOSSES: REFUNDS. Ifa Pro Forms Subsidiary Return for any Agreement Year reflects a net operating loss, net capital loss. excess tax credit or other tax attribute (a "Pro Forma Subsidiary Attribute"), then, within 10 days after filing the relevant Parent Consolidated Return for such Agreement Year. Parent shall pay to Subsidiary an amount equal to the refund that the Subsidiary Consolidated Group would have received as a result of the carryback of such Pro Forma Subsidiary Attribute to a Pro Forma Subsidiary Return for any pnor Agreement Year or Years, assuming that all Pro Forms Subsidiary Returns had been filed as actual returns and that the Subsidiary Consolidated Group had filed returns as a separate affiliated group for all pnor taxable years All calculations of deemed refunds pursuant to this Section 5 shall include interest computed as if the Subsidiary Consolidated Group had filed a claim for refund or an application for a tentative carryback adjustment pursuant to Section 641 [(a) of the Code on the date on which the relevant Parent Consolidated Return is filed

6. PAYMENTS FOR TAXABLE YEARS AFTER DECONSOLIDATION

"(a) Payments By Subsidiary To Parent Ifforanytaxableyear'afterthe Subsidiary Consolidated Group ceases to be included in the Parent Consolidated Group (a "Post. Consolidation Yeal'), (i) the federal income tax liability of the SubsidiirioConsolidated Group is less than (it) the federal income tax liability that would have been imposed with respect to the same period if the Subsidiary Consolidated Group had not been included in the Parent Consolidated Group for any Agreement Year and all Pro Forms Subsidiary Returns had been actual returns for such years. then Subsid.ary shall pay to Parent an amount equal to the excess of the amount specified in clause (ii) over the amount specified in clause (i)within 10 days after the filing of the Subsidiary Post-Consolidation Year return , i_ - (b) Pasymnts By Parent To Subsadir' If for any Post-Consohidation Year, (i) the federal income tax liability of the Subsidiary Consolidated Group is greater than (ii) the federal income tax liability that would have been imposed with respect to the same penod if the Subsidiary Consolidated Group hid not been included in the Parent Consolidated Group for any Agreement Year and all Pro Foria Subsidiary Returns had been actual returns for such-, years, then Parent shall pay to Subsidiary an amount equal to the excess of the amount specified in clause (i) over the amount specified in clause (ii) within t0 days after notification by Subsidiary to Parent of the filing of the Subsidiary Post-Consolidation Year return (c) Docutisentation Prior to the payment of any amounts due pursuant to this Section 6. the parties shall exchange such information and documentation as is reasonably satisfactory to each of them in order to substantiate the amounts due pursuant to this Section 6 Any disputes as to such amounts and documentation that cannot be resolved prior to the date on O., HY6 19.095f-D.. NY. 9409) dlW

1ý, I) 6 which a payment is due shall be referred to an independent accounting firm whose fees shall paid one-half by Subsidiary and one-half by Parent (d) No Post-Consolidatton Year Carrybacks If the Subsidiary Consolidated Group federal income tax return with respect to a Post-Consolidation Year reflects a net operating loss, net capital loss, excess tax credits or any other tax attribute, such attribute shall not be carried back to a Parent Consolidated Return without the express written consent of Parent, and (unless such consent is given) Subsidiary shall make any available elections or filings that are necessary or desirable to avoid such carrybacka

7.

PREPARATIONOF TAX pACKAGE AND OTHER FiNA-CIAL REPORTING INFORMAITION, Subsidiary shall provide to Parent. in a foniat determined by Parent. all information requested by Parent as necessary to prepare the Parent Consolidated Return and the Pro Forma Subsidiary Return (the "Subsidiary Tax Packate") The Subsidiary Tax Package with respect to any taxable year shall be provided to Parent on a basis consistent with practices of the Parent Consolidated Group no later thin Apnl I of the following year Subsidiary shall also provide to Piieht information required to determine the Total Periodic Payments, current federal taxable income, current and deferred tax liabilities, tax reserve items and any additional current or prior information required by Parent on a timely basis consistent with practices of the Parent Consolidated Group

a.

RETURNS. AUDITS. REFULDS. AMENDED RETURNS. LITIGATION. ADJUSTMEN'TS AND RULINGS, (a) &1.=1[ PLaent shall hive exclusive-and sole responsibility for the preparation and filing of the Parent Consolidated Returns (including requests for extensions) and any other returns, amended returns and other documints-or statements required to be filed with the IRS in connection with the determination of the federal income tax liability of the Parent Consolidated Group (b) Audits-Refund Claims Parent will have exclusive and sole-. responsibility and control with respect to the conduct of IRS examinations of the returns filed by the Parent Consolidated Group and any refund claims with respect to such returns, including without limitation the right to select counsel, the right to determine the court or other body in which any contest shall be brought, the right to determine whether to contest a proposed deficiency or to pay a tax and sue for a refund and the right to determine whether and how to appeal any adverse determination Subsidiary shall assist and cooperate with Parent during the course of any such proceeding Parent shall give Subsidiary notice ofand consult with Subsidiary with respect to any issues relating to items of income, gain, loss, deduction or credit 7 of Subsidiary (any such items. "Subsidiary Return Items") Parent shall not settle or otherwise compromise any Subsidiary Return Item that would result in additional hability for Subsidiary under this Agreement without the written consent of Subsidiary, which consent shall not be unreasonably withheld If Subsidiary does not respond to Parent's request for consent within 30 days, Subsidiary shall be deemed to have conseiited (c) Litiudgn If the federal income tax liability of the Parent Consolidated Group becomes the subject of litigation in any court, the conduct of the litigation shall be controlled exclusively by Parent. Subsidiary shall assist and cooperate with Parent during the course of litigation, and Parent shall consult with Subsidiary regarding any issues relating to Subsidiary Return Items (d).. "E* Subsidiary shall reimburse Parent for all reasonable out-of-pocket expenses (including, without limitation, legal, consulting and accounting fees) in the course of proceedings described in paragraphs (b) and (c) of this Section B, to the extent such expenses are reasonably attributable to Subsidiary Return Items for any Agreement Year. "(e) Recalculation OfPan'ens To Reflect,diustments To the extent that there is a Final Determination with respect to a Parent Consolidated Return that results in a change in an item relating to such return (an "Ad"i lment) that affects the treatment of a Subsidiary Return Iern for an Agreement Year, a corresponding adjustment shall be made to the corresponding Pro Forma Subsidiary Return. All calculations of payments made pursuant to Sections 4, 5 and 6 of this Agreement shall be recomputed to reflect the effect of any Adjustments on the relevant Pro Forma Subsidiary Return Within 10 days after any such Adjustment, Subsidiary or Parent, as appropnate, shall make a payment to the other party reflecting such Adjustment, plus interest pursuant to Section 9 of the Agreement, calculated as if payments by and to Subsidiary pursuant to Sections 4. 5 and 6 of this Agreenent and this S~etion 8 were payments and refunds of federal income taxes Subsidiary shall further pay to Parent the amount of any penalties or additions to tax incurred by the Parent Consolidated Group es a result of an adjustment to any Subsidiary Return Item for an Agreement Year. all... (O Subsidiary shall assist and cooperate with Parent and take all actions requested by Parent in connection with any ruling requests submitted by Parent to the IRS " (B) Assilicabilitv With Resucmet To All Consoldatied RetiMl' The provisions of Sections B(a), (b) and (c) above shall apply to Parent Consolidated Returns and Subsidiary Return Items for all taxable years in which Subsidiary is includable in the Parent Consolidated Group tl. Pa wi" ia3.

I* 8 (h) Document Retention. Access To Records and Use Of Personnel Until the expiration of the relevant statute oflimitations (including extensions), Subsidiary shall (i) retain records, documents, accounting data, computer data and other information (collectively, the "Records") necessary for the preparation, filing, review, audit or defense ofall tax returns relevant to an obligation, right or liability ofetther painy under the Agreement. and (n) give Parent reasonable access to such Records and to its personnel (insurnng their cooperation) and premises to the extent relevant to an obligation, right or liability ofeither party under the Agreement. Prior to disposing of any such Records, Subsidiary shall notify Parent in writing of such intention and afford Parent the opportunity to take possession or make copies of such Records at its discretion

9.

INTEREST. Interest required to be paid by or to Subsidiary pursuant to the Agreement shall, unless otherwise specified, be computed at the rate and in the manner provided us the Code for interest on underpayments and overpayments, respectively, of federal income tax for the relevant period Any payments required pursuant to the Agreement which are not made within the time penod specified in the Agreement shall bear interest at a rate equal to the rate provided in the Code for interest on underpayments of tax. %10., FOREIGN. STATE AND LOCAL INCOME TAXES. (a) I. In the case of foreign, state or local taxes based on or measured by the net income of tle Parent Consolidated Group, or any members of the Parent Consolidated Group (other thin solely with respect to the Subsidiary Consolidated Group or solely with respect to members of the Parent Consolidated Group other than members of the Subsidiary Consolidated Group) on a combined, consolidated or unitary basis, the provisions of this Agreement shall apply with equal force to such foreign, state or local tax for each Agreement Year, whether or not the Subsidiary Consolidated Group is included in the Parent Consolidated Group for federal income tax purposes, provided, howeve., that interest pursuant to the first sentence of Section 9 of this Agreement shall be computed at the rate and in the manner provided under such foreign, state or local law for interest on underpaymenta and overpayments ofsuch tax for the relevant period, and references to provisions of the Code throughout the Agreement shall be deemed to be references to analogous prdvisions of foreign, state and local law I (b) For any Agreement Year, Parent shall have the sole and exclusive control of(a) the determination of whether a combined, consolidated or unitary tax return should be filed for any foreign, state or local tax purpose and (b) all foreign, state or local income tax audits and litigation with respect to the Subsidiary Consolidated Group to the same extent as provided in this Agreement for federal income tax matters (including the nght in its sole ' 1, O,, NY* II,05 9 discretion to have Subsidiary pay any disputed taxes and sue for a refund in the forum of Parents' choice) Subsidiary shall reimburse Parent for all reasonable out-of-pocket expenses (including, without limitation, legal, consulting and accounting fees) us the course of proceedings descnbed in the preceding sentence, to the extent such expenses are reasonably attributable to the Subsidiary Consolidated Group (c) ; Parent will provide notice of and consult with Subsidiary with respect to any issue relating to such audits and litigation, and Subsidiary will provide to Parent' any information necessary to conduct such audits and litigation Parent shall not settle or otherwise compromise any audits or litigation that would result in additional liability for Subsidiary under this Section 10 without the wntten consent of Subsidtary, which consent shall not be unreasonably withheld IfSubsidiary does not respond to Parent's request for consent within 30 days, Subsidiary shall be deemed to have consented ,II. SUCCESSORS AND ACCESS TO INFORJN1'IlON. The Agreement shall be binding upon and inure to the benefit of any siiccessor to any of the parties, by merger, acquisition of assets or otherwise, to the same extent as if the successor had been an original party to the Agreement. and in such event, all references in this Agreement to a party shall refer instead to the successor of such party If for any taxable year Subsidiary is no longer included us the Parent Consolidated Group, Parent and Subsidiary agree to provide to the other party any information reasonably required to complete tax returns for taxable periods beginming after Subsidiary is no longer included in a Parent Consolidated Return. and each of Parent and Subsidiary will cooperate with respect to any audits or litigation relating to any Parent Consolidated Return. I L 12.1 - _GOVERNNING LAW,. The Agreement shall be governed by and construed in accordance with the'alaws of the State of Califomia applicable to contracts entered into and to be fully performed within the State of California

13.

HEADINGS. The headings in the Agreemeni are for convenience only and shall not be deemed for any purpose to constitute a part or to affect the interpretation of the Agreement 1 14. SECTION REFERENCES. ` References to Sections shall, unless otherwise specified, be references to Sections of lis Agreement. .W 11YýC i90 all* ý I I

10 IS COUNTERPARTS The Agreement may be executed simultaneously in two or more counterparts. each of which will be deemed an original, and it shall not be necessary in making proof of the Agreement to produce or account for more than one counterpart. "16.,SEVERABILITY, If any provision of the A greement is held to be unenforceable for any reason. it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the maximum extent practicable In any event, all other provisions of the Agreement shall be deemed valid, binding, and enforceable to their full extent.

17.

TERMINATION. The Agtee'ment shall remain in force and be binding so long as the a*plicable period of assessments (including extensions) remains unexpired for any taxes contemplated by the Agreement; provided, however that neither Parent nor Subsidiary shall have any liability to the other paity with respect to tax liabilities for any taxable year in which Subsidiary is not included in the Parent Consolidated Return for such year, except as provided In Sections 5 and. 10 18 SUCCESSOR PRbVISIONS., Any reference herein to any provisions of the Code or Treasury Regulations shall, be deemed to include any amendments or successor provisions thereto, as appropnate

19.

COMPLIANCE BY SUBSIDIARIES. Parent and Subsidiary each agrees to cause all members of the Parent Consolidated Group and the Subsidiary Consolidated Group (including predecessors and successors to such members) to comply with the terms of this Agreement IN WITNESS WHEREOF, each of the parties to this Agreement has caused this Agreement to be executed by its duly authorized officer on this ,2002. PG&E CORPORATION By: Name: Title PACIFIC GAS AND ELECTRIC COMPANY 'By'. "I, , Name Title', 'x t I D-ta ".~ 1sýot it T

• REORGANIZATION AGREEMENT THIS REORGANIZATION AGREEMENT ("Agreement") is entered into by and among the undersigned Passies on this day of 200, with reference to the following "RECITALS OF THE PARTIES A.

Pacific Gas & Electnc Company ("PG&E") is the Debtor in a Chapter I1. Case No 01-30923 DM (the "Case") pending in the United States Bankruptcy Court for the Northern District of Cali forma (the "Court") The Commission has filed the Plan in the Case to reorganize PG&E B. The Parties are also currently engaged in the Litigation This Agreement and the Plan will resolve, among other matters, the Litigation.

5.

"C: The refinancings and iasiance of Securities contemplated by the Plan and this Agreement create an opportunity for PG&E (i) to reorganize and to pay in full in cash Allowed Claims or to reinstate Allowed Claims as provided in the Plan, (i) to issue, and pay, retire, redeem or defease the Securities, and (iii) to achieve Investment Grade Credit Ratings Nothing contained in this Agreement shall change the proposed treatment for Creditors' claims contained in the Plan D In the exercise of its police and regulatory powers, the Commission is entering into this Agreement and shall adopt such decisions and orders as "2 it deems necessary to implement and carry out the provisions of this Agreement. including but not limited, to establishing retail electrc rates to provide for payment in full of the Secunties in accordance with their respective terms NOW, THEREFORE, in consideration of the foregoing, the agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows " ARTICLE I DEFINITIONS Section 1.1 Certain Defined Terms When used in this Agreement, the following terms shall have the following meanings (a) "Agreement" shall have the meaning set forth in the introductory paragraph (b) "Allowed Claims" shall have the meaning ascnbed to it in the Plan, including claims that may be allowed from time to time in the Case this Agreement this Agreement (c) "Case" shall have the meaning set forth in the Recittals to (d) "Court" shall have the meaning set forth in the Recitals to LAI 945Z4554 tAI 16241369

3 (c) -Commission" shall mean the California Public Utilities Commission, or such successor agency, and the Commissioners thereof in their official capacities and their respective success'ors (f)

• 'Debe" shall mean the debt to be issued or reinstated, as the case may be, in accordance with the Plan, by PG&E. from time to time to satisfy Allowed Claims an~d to fund the escrow for'Disputed Claims in'the Case. including'any and all interest thereon or associated costta as provided in such debt instruments (g)

"Disyputed Claims shall have the meaning set forth in the Plan (h) "Effectiv~e Date" shall have the meaning set forth in the Plan (t) "FERC" shall mean the Federal Energy Regulatory Commission (0)

• 'Investment Grade Credit Ratings " shall mean credit ratings for the Securities and PG&E from both Standard & Poor's Corporation of BBB.

orlictter and Mfoody's Investors'Service, Inc of Baa3orbetter (k) "Litigation" shall mean Pascific Gas &Electric Corriany. Plat, ff. vs. Loretta M. Lynich. ct el.Deendants, Case No C-Ol.3023.VRW, presently pending in the United States District Court for the Northern District of California (1) "Parties" shall mean the Comnmission and PG&E. 4 (mn) "Person or Persons " shall mean an individual, partnership. joint venture, corporation, limited liability company, trust, association or unincorporated organization, any governmental authority, or any other entity. (n) "PG&E" shall mean Pacific Gas & Electric Company, a California corporation, and its successors (o) "Plan" shall mean the Commission plan ofireorganization for PG&E in the Case, as amended from time to time (p) "Preferred Shares" shall mean the equity interests to be issued by PG&E. from time to time to satisfy Allowed Claims and to fund the escrow for Disputedf Claimi in tihe Case, in accordance with the Plan, including any and all interest or dividends thereon ai~d associated costs as provided 'in suchrequity initer'ests (q) "Recoverable Costs" shall mean the amounts PG&E is authorized by the Commission to recover in retail electric rates in accordance with historic practice for all of tsi jýsdtly-incui'red costs, includmincapitall'mvestmesst in property, plant and equlprhent, a return of capital anid a return on capiftal arid eCJisilto be determined by the Commission from time to time in accordance with its past practices 0r "'"Recovery Rates" shall mens jro~si electric retail rates (including surc-haies) iufnicient (i) to~pay the intere.st and dividenc rds payable on, and to provideý fundin'i otri4Iiired rese-rves for, the Securities, (hi)to allow PG&E to meet its obligations in respict of schduled am'ortization and riederption of the Sccirinties* in' L.AI 04243369 'I'

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LAI.634))69

'-I "6 accordance with their terms, (III) to pay all Recoverable Costs, and (iv) to facilitate achieving and maintaining Investment Grade Credit Ratings (s) "Securites" shall mean the Preferred Shares and the Debt (t) "Secuniler Repayment Period" shall mean the period commencing on the Effective Date of the Plan and ending on the date that the last of the outstanding Securities have been paid, redeemed or defeased in full Section 1.2. Capitahzed Term. All terms defined in this Agreement shall have the meanings ascribed to them in this Agreement or in the Plan , Section 1.3. IncoroOration of Recitals The Recitals are incorporated herein by reference., ARTICLE II RATE STABILIZATION AND COST RECOVERY Section 2 1 Issuance of Securties From and after the Effective Date of the Plan. PG&E shall issue or reinstate Secunties as provided in the Plan in an amount equal to the sum of(&) the Allowed Claims. together with amounts required to be deposited in escrow for Disputed Claims under the Plan. less (b) PG&E's available cash and cash equivalents The Co'mission shall adopt such orders or decisions as it deems necessary to authorize PG&E to issue (or to reinstate) and to fully meet its obligations in respect of such Secunties in accordance with their respective terms and with the Plan Amountsdeposited in the escrow for Disputed Claims under the Plan which are not required to satisfy Allowed Claims shall be used by PG&E to repurchase Securities. Section 2 2 Rate Stabilization PG&E shall be authonzed to recover in retail electric rates the interest and divrdends payable on. funding ofrequired reserves for. andothemounts which ma beneessary to allow PG&E to meet its obiigations in respect of scheduled amortization and redemption of. the Secunties in accordance with their respeciivc termsý The Commission shall establish retail electri rates for retail electric customerS in PG&E's 'service terMtory at rates sufficient (i) to pay the interest and dividends Ipayable on funding of required reserves for. and collection of other amounts which maibe necessiry to allow PG&E to meet its obligations II respect of scheduled amortization and ie-emption of the Securities in accordance with their terms. (ii) to pay all Recoverable Costs, and (,,i) to facilitate ichieving and maintaining Investment Grade Credit Ratings, provided, however, that in no event may such rates be less than Recovery Rates The Commission shall evaluate the Recovery Rates of PG&E from time to time, and shall adjust such rates as may be necessary to assure sufficient revenues to satisfy the requirements of clauses (i) - (iii) above. Section 2 3 Credit Rina The parties acknowledge and agree that the achievement and maintenance of Investment Grade Credit Ratings is important to the reorganization of PG&E All of the Secunties shall have terms and conditions customary for aecunties that are similar to the Securities and enjoy or have Investment Grade Credit Ratings. Each of the Parties agrees to provide such information as may be required by the rating igencies, and to-cooperate fully with the -rating agencies and the ottier party In obtaining Investment Grade Credit Ratings as expeditiously as possible. Section 2 4 Commission Continuina lurisdiction Subject to Article V. PG&E agrees that the Commission shall retain jurisdiction over PG&E's retail rates, and LA12624)369 LAI M6O4M15v

7 8 the assets and business of PG&E, in accordance with California law, and shall not seek during the Securities Repayment Period to contest such jurisdiction, Section 2 5 Financial Rortinu The Panies will cooperate in accounting for and reporting the transactions described in the Plan and this Agreement Section 2 6 Acknowledgnment The Parties acknowledge and agree that. until this Agreement has terminated in accordance with Section 4 1, the Recovery Rates shall include the amounts necessary for PG&E to pay all costs associated with the Securities including, but not limited to, the interest and dividends payable on, and other amounts which may be necessary to allow PG&E to meet its obligations in respect of scheduled amortization and redemption or the Securities in accordance with their terms The costs associated with the Securities shall be deemed to have been prudently incurred. ARTICLE III LITIGATION "Section 3.1 Dismissal ofLitiaation On the Effective Date of the PlanW PG&E shall file a motion to dismiss the Litigation. with prejudice Section 32' Withdrawalotof Crtain ADhlications Promptly upon the Effective Date of the PlMi, PG&E shall withdraw certain applications filed with FERC, the Nuclear Regulatory Commi'sionr ("RC"). and the Securities and Exchange Commission ("SEC": as follows.. (a) Applications to Transfer Regulatory Assets filed with the FERC in Docket Nos EC02.31, EL02-36. ES02-17, ER02.456, ER02-455 LAI 06241369 (b) Applications to Transfer Hydro Assets filed with FERC in Project Nos 77-116, 96-031,137.031,175-018, 178-015, 233-082, 606-020, 619-095, 803-055, 1061-056, 1121-058, 1333-037, 1354-029. 1403-042, 1962-039, 1988-030, 2105-087, 2106-039, 2107-012.2130-030,21 *S-022, 2310-120, 2467-016,2661-016, 2687-022, 2735-071. 2118-006.2281-005, 2479-003,267g-001,278i-004.2784-001,4851-004. 5536-001, 5828-003. 7009-004. and 10821-002 - (c) ' Applications for Certificates of Public Conieniehce Kisd Necessity filed with FERC in Docket Hos CP02-38, C?02'39.CP02-40, CP02.41. and CP02-42 I.-. (d) ' License Transfer Apllidationi filed with the NRC in Docket Nos. 50-275-LT, 50-323'-LT." : I (e) Filing with the SEC for Approval under the Public Utilities Holding Company Act of 1935 to create Electric Generation LLC. ETrans LLC. and GTrans LLC. ARTICLE IV TERMINATION Section 4 I Teminatio This Agreement and any orders entered by the Court contemplated by or required to implement this Agreement shall terminate at the end of the Securities Repayment Period, prowded that all rights of the Parties under this Agreement and any orders entered by the Court contemplated by or required to implement this Agreement that vest on or prior to such termination, including any rights ansing from any default under this Agreement or the terms of any such orders, shall LAI.634);49 7

I I 9 survive any such termination for the purpose of enforcing such vested rights. ARTICLE V GENERAL PROVISIONS Section 5.1' Validity nd indin!Effct' The Parties and their respective iuccessors'and usiins'agree'not to contest the validity and enforceability of" this Agreement or any order entered by the Court contermplated by or required to implement this Agreement and the Plan. This'Agreement and any such orders are intended to be enforceable under federal law, notwithstanding any contrary state law. This Agreement, the Plan, upon becoming effective, and the orders to be entered by the Court as contemplated hereby and the Plan, shall be irrevocable and binding upon the Parties, notwithstanding any future decisions and orders of the Commission Section 5 2 Enforcement The Parties agree that the Court shall retain jurisdiction over the Parties for all purposes relating to this Agreement and the Plan, including, but not limited to, enforcing any order contemplated by or required to implement this Agreement and the Plan Section 5 3 Waiver of Sovereimn Immunity. In connection with any action or proceeding concerning the enforcement of this Agreement, the Plan or other determination of the Parties' rights under this Agreement or the Plan, the Commission hereby knowingly and expressly waives all existing and future rights of sovereign immunmiy, and all other simular immunities, as a defense. Accordingly, the Commission hereby consents to the jurisdiction of any court or other tribunal or forun for such actions or proceedings including, but not limited to. the Court. This waiver is irrevocable and, 10 applies to the jurisdiction of any court, legal process, suit, judgment, attachment in aid of execution of a judgment, attachment pnor to judgment, set-off or any other legal process with respect to the enforcement of this Agreement, the Plan or other determination of the Parties' rights under this Agreement. It is the intention ofthis Agreement that neither the Commission, nor any other California entity acting on the Commission's behalf. may assert immunity in an action or proceeding, as discussed herein, concerning the Patties' nghts under this Agreement or the Plan Section 5 4 Countearts This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument Section 5.5 Captions and Pfarer* h eh_]d*hn Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it Section 5 6 Entire Agreement This Agreement, together with the Plan, contains the entire understanding of the Parties concerming the subject matter of this Agreement and. except as expressly provided for herein, supersedes all prior understandings and agreements, whether oral or written, among them with respect to the subject matter hereof and thereof There are no representations, warranties; agreements, arrangements or understandings, oral or written, between the Parties hereto elating to the subject matter of thus Agreement and such other documents and instruments which are not fully expressed herein or therein This Agreement may be amended or modified only by an agreement in writing signed by each of the Parties hereto which is filed with and, if necessary, approved by, the Court. W.AI 1a624i3Ai did LAI $6243369

I Section 5 7 UTme of Essence Time is hereby expressly made of the essence with respect to each and every term and provision of this Agreement The Parties acknowledge that each will be relying upon the timely performance by the other of its obligations hereunder as a matenal inducement to each Party's execution of this Agreement Section 5 8 No Third Party Beneficienes Except as may be specifically set forth in this Agreement or the Plan. nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason ofthis Agreement on any Persons (including, without limitation, any Persons holding claims against or Interests in PG&E) other than the Parties and their respective permitted successors and assigns, nor is-anything in-this Agrecm'ent itnendc~d to relieve oridischarge the obligation or liability of any third Persons to any Party, nor give any third Persons any right of subrogation or action against any Party. Section 5 9 'Authoritv, Enforceability. Each Party represents and warrants to the other that this Agreement has been duly authorized by all action required of such Party to be bound thereby, anid that this Agreement is valid, binding and enforceable obligations of such Party Section 510 Waiver ofComoliar*ce 'To the cxte nt permitted by applicable law, any failure of any of the Paries toomply with any obligation, covenant, agreement or condition set forth herein may be5waivecd by the Party entitled to the benefit thereofonly by a wnitten instrument signed by such Party, but any such waiver shall not operate as a waiver of, or estoppel with respect to, ai prior or subsequent failure to comply therewith The failure of a Party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights Section 5 II Caifornia Law. This Agreement shall be governed by. and shall be construed and enforced in accordance with, the laws of the State of Califomis, wiihout giving effect to the conflict of law principles thereof Section 5.12 Amisst This Agreement is a compromise believed by the Panics to be In the best interests of all concerned parties Nothing in this Agreement shall be construed or deemed to be an admission by any ofthe Parties of any liability or any matenal fact in connection with the Litigation. LAI 164694)369 I I 12 LI-A 06243)69

13 IN WITNESS WHEREOF, the Panies have executed this Agreement as of the date first wntten above. PACIFIC GAS & ELECTRIC COMPANY By:.

Title:

CALIFORNIA PUBLIC UTILITIES COMMISSION By Title. COMMISSIONERS IN THEIR OFFICIAL CAPACITY Loretta M Lynch Henry M Duque Cal W. Wood Geoffrey F. Brown Michael Peevey LAiJIA24]i9}}