Good morning and welcome to the First Quarter 2006 Earnings Call for the PG&E Corporation. At this time, I'd like to introduce your host Gabe Togneri of PG&E. Thank you and have a great conference.

Thanks for joining our call this morning. All participants are in listen-only mode through both a simultaneous webcast and conference call, and a replay of the webcast will be accessible from our home page after the call. Our earnings release went out earlier today. It's posted on our website along with supplemental tables, and these materials have also been furnished to the SEC through an 8-K filing. In addition to our earnings release, we're filing with the SEC later today our Form 10-Q reports for both the Corporation and Pacific Gas and Electric. I'll remind you that our prepared remarks and the Q&A session that follows contains forward-looking statements based on expectations and assumptions that reflect information currently available to management and actual results may differ materially from those forward-looking statements. So as always, we encourage you to review our SEC filings and obtain additional information to better understand the many factors that could influence future results. Peter Darbee, Chairman and CEO of PG&E Corporation; Tom King, President and CEO of Pacific Gas and Electric Company; and Chris Johns, Senior VP and CFO, will take us through the results and other highlights this morning. Other members of our team are also here and will be available to answer questions and now I'll turn the call over to Peter. Peter Darbee, Chairman and Chief Executive Officer of PG&E Corporation: Thanks, Gabe. Good morning and thanks for joining us. Today's results show that we are off to a solid start for 2006. The Corporation reported total net income of $214 million for the quarter or $0.60 per diluted common share. Additionally, we're reaffirming earnings guidance for 2006 and 2007. Chris Johns will review the financial results and guidance in detail later in today's call. The first thing I'd like to do in…

Thank you Tom. I'll begin by reviewing first quarter results and then discuss our guidance and other financial developments. PG&E Corporation earned $214 million or $0.60 per diluted common share for the quarter on a GAAP basis. This compares to $218 million or $0.54 per diluted share for the same quarter last year. On a non-GAAP basis, consolidated earnings from operations were also $214 million or $0.60 per diluted common share. This compares to $226 million or $0.56 per diluted share for the first quarter last year. The quarter-over-quarter change in earnings per share from operations was largely driven by fewer shares outstanding. As you will recall, we utilized the cash proceeds from the two securitizations last year to balance our equity structure and repurchase over $2 billion worth of stock. This reduction in the number of shares outstanding accounted for $0.07 of the quarter-over-quarter change. In addition, in the first quarter of 2005, we recorded a charge related to environmental remediation in our service territory, accounting for approximately $0.04. There was no similar charges in the first quarter of 2006. These positive changes were offset somewhat by the loss of earnings on the regulatory asset that was securitized in the first quarter of 2005 and the impact of the carrying cost credit that arose from the second securitization in 2005. These items were worth approximately $0.04 each. Specific details on the quarter-over-quarter EPS comparison can be found in Table 3 of our supplemental earnings package. Moving onto guidance. We are reaffirming guidance for 2006 of $2.40 to $2.50 per share from operations. The primary assumptions associated with this guidance is that that we earn our authorized return on equity on a projected rate base of approximately $15.9 billion for 2006. For 2007, we are also reaffirming guidance at $2.65…

Hi, how are you guys?

We're great, thank you.

I only had one question. I wanted to ask you about your upcoming rate case and where you guys stand on this ROE sharing band. I guess you’ve received sort of a recommendation from the Office of Consumer Advocate, I'm not exactly sure of the exact name. I think staff – the actual non-partisan staff has not come out yet, what do you guys think in terms of your chances of getting some sort of a sharing band and including a sharing band that would actually be at least neutral to PG&E?

Michael, this is Chris Johns. As you mentioned, we did propose a sharing mechanism in the rate case. The Department of Ratepayer Advocates, (DRA) which is part of the CPUC, has put a proposal out there that would change the sharing mechanisms slightly, I believe as part of their proposal, they would do away with the sharing on the downside and then they had some changes in the percentages on the upside. It's still very early in the process for us to be able to make a determination as to the likelihood of being able to prevail in getting the sharing mechanism in place. We continue to believe that it is a win-win for both the shareholders and our customers because it allows us to focus on transformation and continue to provide better service to our customers, which then allows for the shareholders to recognize gains associated with that and for our customers to recognize the benefits of that.

But as far as being able to prognosticate the probability of actually getting one?

You know, Michael, again, I think it's really early in the process to do that, the hearings haven't even started yet, and it's really tough to say one way or the other whether we'll be able to get this in.

Gotcha. Thanks a lot.

Our next question comes from the line of Tom O'Neill with Citadel. Go ahead, please. Our next question comes from the line of Leslie Rich with Columbia Management. Go ahead, please.

Hi. You said that the new generation that's part of the RFO is not included in your projected rate base, when are you proposing that construction will commence on that, in 2007 or 2008? A – Christopher Johns: Leslie, I'll let Tom talk about the construction but as far as the projection, you do need to recall that it will be constructed through a turnkey process, and so we won't take ownership until the construction is complete, and that's going to be at the back end of our five years so probably around the 2010 timeframe. So, when you look at our five-year projections, it's not going to have much of an impact over that period of time, but Tom, you might want to comment.

That's right, Chris. The only thing I would add to that would be for the facilities that we intend to own, the way we have the schedule mapped out for the long-term RFO with Commission as we are hoping to seek approval in 2006, therefore, as we watch and help that proceeding proceed forward, we'll have a better idea by the end of the year on how we're going to bring that incremental cost into our new capital projections and facilities come online in the 2009-2010 time range, so this capital as it becomes approved by the Commission will begin to be introduced in '07, '08 and '09, and we'll be able to update the numbers as the proceeding goes forward.

Okay and then could you just repeat, I think I missed what you said about the pension settlement? You said that it was going to result in the fully funded pension by 2010 but I'm not clear, is that recovered from ratepayers and what kind of contribution do you need to make?

Yes, this is Chris again. That is included in the rates under this settlement, it is a proposed settlement agreement that still has to get approval by the CPUC this year but under that settlement agreement, it will allow us to make contributions that over the next four years, including 2006, total about $700 million and those will be recovered through the regulatory process and will allow us to be fully funded by 2010.

Okay great. Thank you.

Our next question comes from the line of Doug Fischer with AG Edwards. Go ahead, please.

Thank you and good morning. A couple of questions. The rate base number for, I believe it’s '06 is a little bit lower than the number that in your New York conference. Can you comment on that? And then you also commented I think a little bit about the potential cost. I missed it or investment dollars in the utility owned degeneration. If you'd repeat what you said there, I happened to miss that. And then on a longer term basis, as we're looking at those new projects and rate base growth beyond 2010, would it be fair to characterize the investment program over the current five-year period as being particularly robust versus what it might be after that period?

We'll tackle those –

Sorry.

No, that's quite all right. We'll tackle those as a group. The first question on rate base, you're right that the average rate base number for 2006 is a little bit less than what it originally had been forecasted earlier in this year, and there's a couple things driving it, one is that the timing of some of the investments are going to be a little bit later in the year than we had anticipated, and remember it's an average rate base so as you push things out, that will have an impact of actually lowering it little bit. And then the amount of working capital that is included in rate base is a little bit less than what was originally projected. Those will not have an impact on our earnings this year because our earnings revenue requirements already set through the 2003 general rate case plus attrition numbers, and so that won't have an impact on the range on our estimates for this year. Tom, you may want to talk about, you had put out the utility owned generation in dollars associated with that?

Yeah. And actually the dollars associated with all seven facilities, our current estimate is around the $900 to $1,100 per kilowatt, and as Chris mentioned in the previous answer, much of that is turnkey other than our own facility which one is turnkey and one, the Humboldt is one that we will put into our capital and build over the coming years. So, the overall range is the 900 to 1,100 and I think that as we proceed on the regulatory process, we will be in a position to provide you those details as we proceed through and hopefully by the end of the year, we'll have updated capital numbers.

But the Humboldt project will be expanding rate base as it is built because it's not turnkey?

That's correct.

That's correct, and that one has already been included in our previous projection. The only one that has not been included in the projections was the Calusa item.

Right, which is turnkey.

And the last part of your question was well how does this five years look with the five years beyond 2010? And I think we're not prepared to talk about the period beyond the current forecast that we've provided to people. Let me just say that there are two ways things could cut. First, we have advanced metering that is going in place right now and that is creating an increase. It's a significant investment so that's representing an increase compared to what we've had in the past as well as some of the other step-ups of CapEx. On the other hand, in the period beyond the five years that we've included in our forecast, there could be other factors that come in. For example, at that point, people in California might look at the infrastructure and say we need to step up the level of investment now that AMI has been taken care of, that leaves room for more investment to modernize the infrastructure. So, I think that there are factors that could go both plus and minus and we're not prepared yet to provide any kind of projection of what CapEx might look beyond the current planning period.

Fair enough and thanks.

Welcome, Doug.

Our next question comes from the line of David Frank with Piqua Capital. Go ahead, please.

Hi, good morning.

Good morning, David.

Just want to ask, going back to Michael's question on the sharing, what the TURN comments regarding the proposed ROE sharing mechanism?

Chris?

Yeah. We are still analyzing TURN'S filings so we don't really have a response on that at this point.

That was Chris Warner, our Chief Counsel for CPUC matters.

And that was my only question. Thank you.

Our next question comes from the line of Lasan Johong with RBC Capital Markets. Go ahead, please.

Good morning. A couple quickies. Am I understanding that the $900 to $1,100 in kW is for the entire seven projects, and not just Humboldt Bay and Calusa?

This is Paul Wong. I'm the Vice President of Energy.

Hi, Paul.

Good morning. The answer to your question is that there's the 900 to 1,100 would apply to the two projects that PG&E would own, and for the other five products which we would contract, we are buying those under a fixed capacity payment structures and we do not know exactly how much it would cost to construct those plants.

So I'm a little confused then. Typically to build a CCGT, it takes about maybe $600 a kW. What's the increase in cost? How do you account for the increase in cost?

According to the California Energy Commission, building a plant in California typically costs about $1,000 per kilowatt, the combined cycle that you referred to, and the possible higher estimate would be associated with higher environmental standards and possibly with the higher cost of doing business in California with land, labor and material.

I think the number that you just threw out is a historical number and what we've seen is the cost of new combined cycles generation has gone up materially.

Yeah it has if that's the case. That's actually quite surprising. Okay, I'll buy that. Second, just administrative question. The $700 million pension recuperation, is that going to be a flat line recovery of 175 million a year?

No. Not quite. We actually in 2006 have a revenue requirement of about $155 million and then from '07 through '09, that will drop down to about $100 million.

On a cash –

That's on the revenue requirement so that's the recovery mechanism.

That's only about $455 million.

Right, and the difference is that a piece of our pension contribution actually gets capitalized so when you think about a revenue requirement, there's an expense piece and then you're recovering the annual amortization piece of it.

Okay, so your revenue line, you are only going to recoup about 455 million of which you would expense all of it and then you would have another additional 245 million of capitalized cost?

That's right and that gets recovered over a longer period of time.

I see. Okay, thank you.

Our next question comes from the line of Michael Lapides with Goldman Sachs. Go ahead please.

Hey guys, thank you. Just one question regarding rate case and specifically regarding Ratepayer Advocates comments and filing. Kind of ignoring their comments on what expense inflation for 2008 and 2009 and only focusing on their adjustments to '07 rate base, what do you view as the earnings impact if the Commission were to adopt their Ratepayer Advocates suggestions?

This is Chris Johns. TURN just put this stuff out on Friday. We don't even have their detailed work papers that support all of the assertions that they've got in there, and so we've got the team analyzing it. As I said in my comments, it looks like it's about $500 million or more of a reduction from what we've proposed, but we still are in the process of really digging into the details around that.

Okay. I mean a large chunk of that 500 million was wage – was related to your operating expenses, but a decent chunk and I'm just looking at the documentations filed on the 14th, seem to be roughly $350 million difference of generation rate base and about $100 million difference of the electric distribution rate base. I'm just trying to understand just that piece of the impact there.

Yeah, and I'm not going to comment. You're talking about TURN, or are you talking about --?

I'm talking about Ratepayer Advocate.

Oh, the RatePayer Advocate.

Yes, filed –

Oh, okay, I'm sorry. I was thinking you were referring to TURN. When we looked at the DRA, there's about $120 some million worth of a difference on their proposals on A&G costs that they just believe that the costs should be less and then there's about $100 million on depreciation expense which is really tied to the cost of removal and the timing of recovery associated with those items.

I would just add that I think we're prepared to describe what their points are but we are not prepared in the least to speculate on what the impact would be on the company because the reality is in this process, the company makes a proposal, there are all sorts of speculative proposals by Ratepayer Advocates organizations, and results usually come in somewhere between them and we're not going to get in the business of trying to create multiple scenarios and multiple earning impacts, and so, I just want to make that clear that something we will not be doing that but we're happy to explain to the best of our knowledge what it is that somebody like the DRA or TURN is proposing.

Okay. I appreciate it guys. Thank you.

All right. Well, I'd like to thank everybody for their interests in PG&E Corporation and we look forward to talking to you as we go forward. Thanks very much.