1. National Governors’ Association April 5, 2001 James Mahoney PG&E National Energy Group and any other company referenced herein which uses the PG&E name or logo are not the same company as Pacific Gas and Electric Company, the California utility. These companies are not regulated by the California Public Utilities Commission, and customers do not have to buy products from these companies in order to continue to receive quality regulated services from the utility. Bringing New Generation To Market

2. Fuel ProductionTransmission Distribution/Sales $51 Billion $97 Billion $19 Billion $41 Billion Annual Revenues: $218 Billion Net Book Value: $461 Billion $10 Billion $245 Billion $57 Billion $149 Billion Source: Cambridge Energy Research Associates COAL 944 MM Short Tons 90% of US Market ($24 Billion) NATURAL GAS 4,610 Bcf 22% of US Market ($10 Billion) OIL 186 Million Barrels 3% of US Market ($3 Billion) OTHER ($14 Billion) 469 GW Fossil Fuel Steam Turbines 66 GW Combined-cycle/ Combustion Turbine 98 GW Nuclear 92 GW Hydro and Other 725 GW Total 714, 500 Circuit Miles of 22 kV and Above Customers (millions) 110 Residential 14 Commercial and Industrial 1 Other 3,220,000 Gigawatt-hours 60 Cycle 3 Phase Understanding the Industry’s Value Chain (Approximate $, 1998)

3. Consumer Price Distribution (Approximate) Fuel ProductionTransmission Distribution/Sales $10 Billion $245 Billion $57 Billion $149 Billion Approximate Percent of Consumers’ Bills 55% 15% 30% WHOLESALE

4. Estimated Capital Needs for Electric Reliability (2000 - 2020) Product Amount __Cost___ Gen Plants 1,300 Plants $520 Billion Interstate Pipelines38,000 Miles $ 35 Billion Distribution Pipe 255,000 Miles $100 Billion Transmission 8,800 Miles $ 5 Billion (est)

5. What Attracts Investment Capital? Stable Policies That Can Be Evaluated Need to Moderate “Parochial” Influence Synchronization Between State and National Policies Integrated Energy and Environmental Policies Regional or Multi-Regional Approach and Consistency Bi-Lateral Contracting Opportunities Provide Consumers the “Chance To Say NO!” CERTAINTY COMMITTMENT RIGHTOUSNESS

6. What Attracts Investment Capital? Stable Policies That Can Be Evaluated –“Transmission Interconnect” Conditions –State/Regional Price Caps –Value of Capacity Need to Moderate “Parochial” Influence –Market Participants –Regulators/legislators –Single State markets Synchronization Between State and National Policies Integrated Energy and Environmental Policies –Multi-Pollutant Program –Clear Targets –Established Weighting: Near/Long Term Goals Regional or Multi-Regional Approach and Consistency Bi-Lateral Contracting Opportunities Provide Consumers the “Chance To Say NO!” CERTAINTY COMMITTMENT Opportunity

7. State Government Can Lead Align Agency Policies and Objectives: DEP/PUC/Energy Office/Consumer Advocate/Tax Promote Inter-Regional Consistency Create Inter-Agency Task Force Strong Statement (Programs) Promoting Conservation Streamlined Permitting and Licensing –Affirmative Statement for Merchant Plant Development –One Stop Shopping –Finite Deadlines –Concrete Definitions –Eliminate “Statement of Need” Governor: “The statements you make and the people you choose…….”

8. State Government Can Lead Set Performance Targets and Provide Market with Flexibility in Meeting Goal –Trading –Banking –Portfolio Averaging Support Multi-Region “RTO” Set Goals for Fuel Diversity

9. Fuel Type of Proposed New Generation (2009 Estimate) Gas 93% Coal Other 4% 5%

10. Electric Price Volatility: Example

11. Qualitative Ranking of Gas Pipeline Customer Types and Their Required Degree of Pipeline Reliability Electric System Grid Reliability Industrial Load Commercial with Limited Alternatives Residential Electric CC with Dual Fuel Electric CC without Dual Fuel Pipeline Customer Types Degree of Pipeline Reliability Required

12. Compressor Failure Scenario

13. STATE GOVERNMENT CAN TAKE THE LEAD