Proposal Uses Hydroelectric Power to Help Stabilize Energy Prices.

Business Editors and Energy Writers

EDITORS: Please do not use "Pacific Gas and Electric" or "PG&E" when referring to PG&E Corporation or its National Energy Group. The PG&E National Energy Group is not the same company as Pacific Gas and Electric Company, the utility, and is not regulated by the California Public Utilities Commission. Customers of Pacific Gas and Electric Company do not have to buy products or services from the National Energy Group in order to continue to receive quality regulated services from Pacific Gas and Electric Company.

SAN FRANCISCO--(BUSINESS WIRE)--Aug. 9, 2000

As state swelters through long hot summers, cheap

hydroelectric power will ensure consumers pay less for electricity

Citing broad support from a coalition representing consumer advocates, business, labor, agriculture and water interests, Pacific Gas and Electric Company jointly filed an agreement with the California Public Utilities Commission (CPUC) today to commit the utility's hydroelectric generating plants to the effort to help provide needed stability in California's fragile electricity market.

If approved by the CPUC, this settlement agreement creates a compact between customer groups and Pacific Gas and Electric Company that would enhance the economic and environmental benefits of the hydroelectric system for the public. The agreement would supersede current plans for auctioning the hydroelectric plants to third parties which were filed late last year. The agreement calls for PG&E Corporation to retain the hydroelectric generation system within a California-based affiliate. The other signatories to the agreement include The Utility Reform Network (TURN), the Coalition of California Utility Employees (CUE), Agricultural Energy Consumers Association (AECA), California Retailers Association, Sonoma County Water Agency, and Tuolumne Utility District.

"Parties came together to develop this proposal that will moderate prices, and combined with the strong leadership steps taken by Governor Davis last week, will help ensure consumers are protected from the volatility of the market." said Gordon Smith, President and CEO of Pacific Gas and Electric Company. "We are gratified to have the support of large and small consumer groups for this settlement."

The power produced by these hydroelectric facilities will now be committed to the market during the periods when the market needs it the most, thereby reducing price volatility caused by supply shortages. Additionally, the agreement returns 90 percent of any profits from hydroelectric operations to customers. This sharing of revenues will act as a natural "hedge" for customers against rising energy prices since, as market prices increase, so will payments back to customers under the agreement.

"A key component of the settlement is a proposed agreement with the California Independent System Operator (CAISO) that assures that power from the hydroelectric assets will not be bid into the energy market in a way that can raise power prices." said Nettie Hoge, executive director of TURN, and strong supporter of the proposal.

The agreement's key components:

-- Provides a revenue-sharing mechanism that returns 90 percent of profits from the hydroelectric operations to customers

-- Establishes a market value of $2.8 billion for the hydroelectric system that can be used immediately to pay down ratepayer cost obligations

-- Commits PG&E Corporation to establish a $70 million fund to enhance environmental quality, water quality, and recreational opportunities

-- Commits PG&E Corporation to donate or protect through conservation easements approximately 140,000 acres of watershed lands for public use

-- Honors all existing water agreements with downstream users

-- Protects agricultural uses of the water

-- Ensures the facilities will continue to be operated by a highly qualified union workforce

"This settlement benefits both California consumers and PG&E's employees," said Jack McNally, Business Manager of IBEW 1245. "Consumers will be assured that hydroelectric plants will continue to be operated by the same dedicated employees, will continue to provide low cost reliable energy to California consumers, and will continue to be owned by a California company. IBEW 1245 represents the union members who operate and maintain the hydroelectric system.

"This agreement represents a fair valuation of the hydroelectric system," said Michael Boccadoro, director, Agricultural Energy Consumers Association, "this agreement also protects the long-standing beneficial relationship between the hydro operations and the agricultural users in the state."

The settlement agreement filed at the CPUC will be subject to public hearings and review under the California Environmental Quality Act (CEQA). Interested parties will be able to provide comment prior to any CPUC decision. Also, the hydroelectric system transfer requires approval from the Federal Energy Regulatory Commission (FERC).

"The CEQA review process itself will ensure that there are no significant environmental impacts as a result of this transfer," said Gordon Smith. "In addition, keeping the hydroelectric facilities and associated watershed lands together protects the public interest in these assets."

The system includes 174 dams, 68 powerhouses, 360 miles of canals, tunnels, and flumes, and approximately 140,000 acres of watershed land. The hydroelectric system has a capacity of 3,896 megawatts, and provides a clean, renewable, low-cost source of electricity particularly during periods of high demand. The system currently delivers about 5 percent of California's yearly electricity needs, and up to 10% of the State's electricity demand during hot, summer days.

"We have enjoyed a positive working relationship with the folks at PG&E for many years," said Tim McCullough, manager of the Tuolumne Utilities District. "This agreement ensures the water resource will continue to be managed in a way that protects the interests of Tuolumne County residents."

This agreement differs substantially from the transfer contemplated through legislation at the end of August last year. The 1999 Legislative proposal did not include the price stabilizing revenue sharing mechanism. Although the 1999 legislative package ultimately failed to achieve consensus because of the immense complexities of balancing interests through legislative compromise, this year's regulatory filing fulfills the directives of the 1996 restructuring legislation and provides the kind of public and state environmental review that will forge consensus.

PG&E Corporation, with 1999 operating revenues of almost $21 billion and operations in 21 states, markets energy services and products throughout North America through its National Energy Group. PG&E Corporation's businesses also include Pacific Gas and Electric Company, the Northern and Central California utility that delivers natural gas and electricity to one in every 20 Americans.

Please visit our website: www.pgecorp.com.

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