Deferred Compensation Plan - PG&E CORP - 3-5-1998 by PCG-Agreements

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									EXHIBIT 10.4 PG&E CORPORATION DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS (As Amended and Restated Effective as of December 17, 1997) 1. Establishment and Purpose The is the controlling and definitive statement of the PG&E Corporation Deferred Compensation Plan for NonEmployee Directors ("Plan"). The Plan was originally adopted on December 18, 1996, by the Board of Directors of PG&E Corporation to provide Directors of PG&E Corporation an opportunity to defer payment of their Meeting Fees and Retainer Fees. The Plan is also intended to establish a method of paying Meeting Fees and Retainer Fees which will assist the Corporation in attracting and retaining persons of outstanding achievement and ability as members of the Board of Directors of the Corporation. 2. Definitions (a) "Beneficiary" means the person, persons, or entity designated by the Director to receive payment of the Director's Deferred Compensation Account in the event of the death of the Director. (b) "Board" and "Board of Directors" means the Board of Directors of the Corporation. (c) "Committee" shall mean the Nominating and Compensation Committee of the Board. (d) "Corporation" means PG&E Corporation, a California corporation. (e) "Deferred Compensation Account" means the bookkeeping account established pursuant to Section 6 on behalf of each Director who elects to participate in the Plan. (f) "Deferred Election Form" means a participation form to be supplied by the Secretary of the Corporation. (g) "Director" means a member of the Board of Directors who is not an employee of the Corporation or any subsidiary thereof. (h) "Director's Termination Date" shall mean the effective date of the Director's resignation from the Board of Directors of the Corporation. (i) "Meeting Fee" means the amount of compensation paid by the Corporation to a Director for his or her attendance and services at a meeting of the Board of Directors or any committee thereof. A Meeting Fee shall not include (i) any Retainer Fee, (ii) any reimbursement by the Corporation of expenses incurred by a Director incidental to attendance at a meeting of the Board of Directors or of a committee thereof or of any other expense incurred on behalf of the Corporation, or (iii) any amount payable with respect to services rendered prior to January 1, 1997.

(j) "Plan" shall mean the PG&E Corporation Deferred Compensation Plan for Non-Employee Directors. (k) "Retainer Fee" means the amount of compensation paid by the Corporation to a Director for retaining his or her services during a calendar quarter. A Retainer Fee shall not include (i) any Meeting Fee, (ii) any reimbursement by the Corporation of expenses incurred by a Director incidental to attendance at a meeting of the Board of Directors or of a committee thereof or of any other expense incurred on behalf of the Corporation, or (iii) any amount payable with respect to services rendered prior to January 1, 1997. (l) "Year" shall mean the calendar year.

(j) "Plan" shall mean the PG&E Corporation Deferred Compensation Plan for Non-Employee Directors. (k) "Retainer Fee" means the amount of compensation paid by the Corporation to a Director for retaining his or her services during a calendar quarter. A Retainer Fee shall not include (i) any Meeting Fee, (ii) any reimbursement by the Corporation of expenses incurred by a Director incidental to attendance at a meeting of the Board of Directors or of a committee thereof or of any other expense incurred on behalf of the Corporation, or (iii) any amount payable with respect to services rendered prior to January 1, 1997. (l) "Year" shall mean the calendar year. 3. Eligibility Each Director who receives a Meeting Fee or Retainer Fee for service on the Board of Directors shall be eligible to participate in the Plan. 4. Participation In order to commence participation in the Plan in 1997, a Director must file a deferral election with the Secretary of the Corporation prior to January 1, 1997. In order to commence participation in the Plan for calendar quarters commencing on or after April 1, 1997, a Director must file a Deferral Election Form with the Secretary of the Corporation prior to the first day of the calendar quarter for which participation is to become effective. Notwithstanding the foregoing, in the case of a newly elected Director, an election to participate shall be effective for the calendar quarter in which the Director is first elected if it is filed before the date the Director first receives a Meeting Fee or Retainer Fee (but in no event later than one month following the date of election). A participating Director may defer: (a) All Retainer Fees only; or (b) All Meeting Fees only; or (c) All Retainer Fees and all Meeting Fees. The Retainer Fees and Meeting Fees deferred under (a), (b), or (c), above, shall be net of any amounts which a Director has authorized the Corporate Secretary to transmit to the Corporation's Dividend Reinvestment and Common Stock Purchase Plan. Partial deferral of Retainer Fees or Meeting Fees is not permitted. Payment to the Director of deferred compensation may, at the election of the participating Director, be paid in a lump sum or in a series of ten or less approximately equal annual installments. Payment to the Director may commence in the Year following the Director's Termination Date or in such earlier year as the Director may specify on the Deferral Election Form. 2 5. Deferral Election A Director who elects to participate in the Plan shall file an executed Deferral Election Form with the Secretary of the Corporation indicating the compensation to be deferred, the time and form of distribution, and the Beneficiary designations described in Section 9. The Director's deferral election shall become effective and apply with respect to Meeting Fees and Retainer Fees earned for the first calendar quarter after the Deferral Election Form is filed with the Secretary of the Corporation and all subsequent calendar quarters until revoked (by electing not to further defer either Meeting Fees or Retainer Fees) or modified by the Director. The Director shall notify the Secretary of the Corporation in writing of any such revocation or modification, which shall apply solely to amounts deferred with respect to calendar quarters following the calendar quarter in which the revocation or modification is received by the Secretary of the Corporation.

5. Deferral Election A Director who elects to participate in the Plan shall file an executed Deferral Election Form with the Secretary of the Corporation indicating the compensation to be deferred, the time and form of distribution, and the Beneficiary designations described in Section 9. The Director's deferral election shall become effective and apply with respect to Meeting Fees and Retainer Fees earned for the first calendar quarter after the Deferral Election Form is filed with the Secretary of the Corporation and all subsequent calendar quarters until revoked (by electing not to further defer either Meeting Fees or Retainer Fees) or modified by the Director. The Director shall notify the Secretary of the Corporation in writing of any such revocation or modification, which shall apply solely to amounts deferred with respect to calendar quarters following the calendar quarter in which the revocation or modification is received by the Secretary of the Corporation. Notwithstanding the foregoing, the Director's designation as to time and form of distribution to the Director of deferred compensation may not be revoked or modified by the Director either as to amounts already deferred or as to amounts to be deferred in the future. 6. Credits to Deferred Compensation Account Upon receipt of a duly filed Deferral Election Form, the Corporation shall establish a Deferred Compensation Account to which shall be credited an amount equal to the Meeting Fees and/or Retainer Fees which would have been payable currently to the Director but for the terms of the deferral election. Retainer Fees and Meeting Fees shall be credited to the Director's Deferred Compensation Account as of the following dates: (a) The deferred Retainer Fee for each calendar quarter shall be credited to such Account as of the first day of such calendar quarter; and (b) The deferred Meeting Fee shall be credited to such Account as of the first business day following the date of the meeting for which the Meeting Fee was earned. 7. Interest During Deferral Period At such time as participant elects to participate in the Plan, he shall also elect to have his account balances credited to the Utility Bond Fund or to the PG&E Phantom Stock Fund. Participant shall make such elections and in such percentages as the Plan Administrator shall prescribe. Participant shall be able to reallocate account balances between the funds and reallocate new deferrals at such time and in such manner as the Plan Administrator shall prescribe; provided, however, that a participant may not reallocate Phantom Stock Fund units and the earnings thereon which were credited to a participant's Deferred Compensation Account in connection with the termination of the PG&E Corporation Retirement Plan for Non- Employee Directors. Anything to the contrary herein notwithstanding, a participant may not reallocate account balances between funds if such reallocation would result in a non-exempt discretionary transaction under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or any successor to Rule 16b-3, as in effect when the reallocation is requested. 3 (a) Utility Bond Fund On the first day of each calendar quarter, interest shall be credited on the balance in each participant's Deferred Compensation Account as of the last day of the immediately preceding calendar quarter. Such interest shall be at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the first day of the calendar quarter in which the interest is to be credited. Such interest shall become a part of the Deferred Compensation Account and shall be paid at the same time or times as the balance of the Deferred Compensation Account. Notwithstanding the above, if a participant has requested that his account balance be reallocated to the PG&E Phantom Stock Fund before the end of the quarter, prorated interest on the participant's account balance shall be calculated at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately

(a) Utility Bond Fund On the first day of each calendar quarter, interest shall be credited on the balance in each participant's Deferred Compensation Account as of the last day of the immediately preceding calendar quarter. Such interest shall be at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the first day of the calendar quarter in which the interest is to be credited. Such interest shall become a part of the Deferred Compensation Account and shall be paid at the same time or times as the balance of the Deferred Compensation Account. Notwithstanding the above, if a participant has requested that his account balance be reallocated to the PG&E Phantom Stock Fund before the end of the quarter, prorated interest on the participant's account balance shall be calculated at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the date of reallocation, shall be credited to the participant's account on the date of reallocation, and shall be subject to the reallocation request. (b) PG&E Phantom Stock Fund Deferrals and transfers into this Fund shall be converted into units representing a share of PG&E Corporation stock, where the value of a unit is the average of the high and low price of a share of PG&E Corporation common stock as traded on the New York Stock Exchange for the 30-day period preceding the date of deferral or transfer into this Fund. Thereafter, the value of a unit shall fluctuate with the value of a share of PG&E Corporation common stock. Each time that the Corporation pays a dividend on its stock, an amount equal to such dividend, multiplied by the number of PG&E Phantom Stock Fund units held in a participant's account, shall be credited to a participant's account and converted into additional units. 8. Form and Time of Payment to a Director of Deferred Compensation Account Payment to a Director of his or her Deferred Compensation Account shall be made in cash prior to January 31 in each Year in which payment is to be made in accordance with the Director's deferral election; provided, however, that amounts attributable to Phantom Stock Fund units and the earnings thereon which were credited to a participant's Deferred Compensation Account in connection with the termination of the PG&E Corporation Retirement Plan for Non-Employee Directors may not be distributed from the Plan until the latter of the participant's retirement from the Board, or age 65. 9. Effect of Death of Participant Upon the death of a Director who participated in the Plan, all amounts, if any, remaining in his or her Deferred Compensation Account shall be distributed to the Beneficiary designated by the Director. Such distribution shall be made at the time or times specified as part of the Beneficiary designation of the Director's deferral election (but, in no event shall such distribution be made later than ten years after the death of the Director or in more than ten approximately equal annual installments). The Committee, however, reserves the right to determine in its sole discretion that payment shall be made at a different time or times (but no later than ten years after the death of the Director). If the designated Beneficiary does not survive the Director or dies before receiving payment in full of the Director's Deferred Compensation Account, payment of the remaining balance shall be made as soon as practicable in a lump sum to the estate of the last to die of the Director or the designated Beneficiary. All Beneficiary designations (including selection of the timing and manner of payments to any Beneficiary) may be revoked or modified at the Director's option. The Director shall notify the Secretary of the Corporation in writing of any such revocation or modification. 4 10. Participant's Rights Unsecured The interest under the Plan of any participating Director and such Director's right to receive a distribution of his or her Deferred Compensation Account shall be an unsecured claim against the general assets of the Corporation. The Deferred Compensation Account shall consist of bookkeeping entries only, and no Director shall have an interest in or claim against any specific asset of the Corporation pursuant to the Plan. 11. Statement of Deferred Compensation Account

10. Participant's Rights Unsecured The interest under the Plan of any participating Director and such Director's right to receive a distribution of his or her Deferred Compensation Account shall be an unsecured claim against the general assets of the Corporation. The Deferred Compensation Account shall consist of bookkeeping entries only, and no Director shall have an interest in or claim against any specific asset of the Corporation pursuant to the Plan. 11. Statement of Deferred Compensation Account The Secretary of the Corporation shall provide to each participating Director an annual statement of his or her Deferred Compensation Account no later than January 31 each year. 12. Nonassignability of Interests The interests and property rights of any Director under the Plan shall not be assignable either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any act in violation of this Section 12 shall be void. 13. Administration of the Plan The Plan shall be administered by the Committee. In addition to the powers and duties otherwise set forth in the Plan, the Committee shall have full power and authority to administer and interpret the Plan, to establish procedures for administering the Plan, and to take any and all necessary action in connection therewith. The Committee's interpretation and construction of the Plan shall be conclusive and binding on all persons. 14. Amendment or Termination of the Plan The Board of Directors may amend, suspend, or terminate the Plan at any time. In the event of such termination, the Deferred Compensation Accounts of participating Directors shall be paid at such times and in such forms as shall be determined pursuant to Section 8, unless the Board of Directors shall prescribe a different time or times for payments of such Accounts. 5

EXHIBIT 10.5 PG&E CORPORATION DEFERRED COMPENSATION PLAN FOR OFFICERS 1. Purpose This is the controlling and definitive statement of the PG&E Corporation Deferred Compensation Plan for Officers ("PLAN")./1/ The PLAN which became effective on November 5, 1997, takes the place of and assumes the existing benefits accrued under the Deferred Compensation Plan of the Pacific Gas and Electric Company. The PLAN provides an opportunity for OFFICERS and other designated key employees of the CORPORATION and its subsidiaries and affiliates to defer payment of (1) part of their salaries, (2) all or part of their INCENTIVE PLAN AWARDS, (3) all of their SAVINGS FUND PLAN EXCESS BENEFITS, (4) unused PERQUISITE ALLOWANCES under the Executive Flexible Perquisites Program, (5) all or a portion of their PERFORMANCE UNITS under the Performance Unit Plan, and (6) such other payments, awards, allowances, or benefits as the COMMITTEE may in the future determine appropriate. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS are automatically credited to participant accounts maintained by the PLAN. 2. Definitions (a) "BENEFICIARY" means the person, persons, or entity designated by the PLAN participant on the

EXHIBIT 10.5 PG&E CORPORATION DEFERRED COMPENSATION PLAN FOR OFFICERS 1. Purpose This is the controlling and definitive statement of the PG&E Corporation Deferred Compensation Plan for Officers ("PLAN")./1/ The PLAN which became effective on November 5, 1997, takes the place of and assumes the existing benefits accrued under the Deferred Compensation Plan of the Pacific Gas and Electric Company. The PLAN provides an opportunity for OFFICERS and other designated key employees of the CORPORATION and its subsidiaries and affiliates to defer payment of (1) part of their salaries, (2) all or part of their INCENTIVE PLAN AWARDS, (3) all of their SAVINGS FUND PLAN EXCESS BENEFITS, (4) unused PERQUISITE ALLOWANCES under the Executive Flexible Perquisites Program, (5) all or a portion of their PERFORMANCE UNITS under the Performance Unit Plan, and (6) such other payments, awards, allowances, or benefits as the COMMITTEE may in the future determine appropriate. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS are automatically credited to participant accounts maintained by the PLAN. 2. Definitions (a) "BENEFICIARY" means the person, persons, or entity designated by the PLAN participant on the DEFERRAL ELECTION FORM to receive payment of the participant's DEFERRED COMPENSATION ACCOUNT in the event of the death of the participant. (b) "BOARD" and "BOARD OF DIRECTORS" means the BOARD OF DIRECTORS of the CORPORATION or, when appropriate, any committee of the BOARD which has been delegated authority to take action with respect to the PLAN. (c) "COMMITTEE" means the Nominating and Compensation Committee of the BOARD. (d) "CORPORATION" means PG&E Corporation, a California corporation. (e) "DEFERRAL ELECTION FORM" means a participation form to be supplied by the Human Resources Department of the CORPORATION. (f) "DEFERRED COMPENSATION ACCOUNT" means the bookkeeping account established pursuant to Section 6 on behalf of each ELIGIBLE EMPLOYEE who elects to participate in the PLAN. /1/ Words in all capitals are defined in Section 2.

(g) "ELIGIBLE EMPLOYEE" means an OFFICER and such other key employees as may be designated by the PLAN ADMINISTRATOR as eligible to participate in the PLAN. (h) "INCENTIVE PLAN AWARD" means a monetary award payable under the annual short-term performance incentive plan maintained by the CORPORATION, or any of its subsidiaries or affiliates. (i) "OFFICER" means all OFFICERS of the CORPORATION and its subsidiaries and affiliates in Officer Band 6 and above. (j) "PERFORMANCE UNITS" means the amounts which are payable as a result of units earned under the CORPORATION'S Performance Unit Plan, as may be revised thereafter from time to time.

(g) "ELIGIBLE EMPLOYEE" means an OFFICER and such other key employees as may be designated by the PLAN ADMINISTRATOR as eligible to participate in the PLAN. (h) "INCENTIVE PLAN AWARD" means a monetary award payable under the annual short-term performance incentive plan maintained by the CORPORATION, or any of its subsidiaries or affiliates. (i) "OFFICER" means all OFFICERS of the CORPORATION and its subsidiaries and affiliates in Officer Band 6 and above. (j) "PERFORMANCE UNITS" means the amounts which are payable as a result of units earned under the CORPORATION'S Performance Unit Plan, as may be revised thereafter from time to time. (k) "PERQUISITE ALLOWANCE" means the amounts which an OFFICER can use for the reimbursement of certain designated expenses under the CORPORATION'S Executive Flexible Perquisites Program. (l) "PLAN" means the PG&E Corporation Deferred Compensation Plan for Officers. (m) "PLAN ADMINISTRATOR" shall mean the senior Human Resources officer of the CORPORATION. (n) "SALARY" means the amount of compensation payable by the CORPORATION or by any of its subsidiaries or affiliates to an ELIGIBLE EMPLOYEE for his or her duties. It does not include any amount payable with respect to services rendered prior to an ELIGIBLE EMPLOYEE'S election to defer according to Section 5 of this PLAN. (o) "SAVINGS FUND PLAN EXCESS BENEFITS" means amounts payable to OFFICERS under the SAVINGS FUND PLAN EXCESS BENEFITS arrangement as originally adopted on December 20, 1989, and as may be revised thereafter from time to time. (p) "SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS" means the special premiums awarded to eligible OFFICERS under the Executive Stock Ownership Guidelines approved by the COMMITTEE on October 15, 1997, as may hereafter be amended from time to time. (q) "TERMINATION DATE" means the last day on which the PLAN participant is an employee of the CORPORATION, one of its subsidiaries, or of an association affiliated with the CORPORATION. (r) "YEAR" means the calendar YEAR. 3. Eligibility Each OFFICER who receives a SALARY for service as an OFFICER of the CORPORATION shall be eligible to participate in the PLAN. Any other -2-

ELIGIBLE EMPLOYEE shall be eligible to participate in the PLAN consistent with the terms set by the PLAN ADMINISTRATOR in its designation of such key employee as an ELIGIBLE EMPLOYEE. 4. Participation In order to commence participation in the PLAN, a participant must file a DEFERRAL ELECTION FORM with the PLAN ADMINISTRATOR. An election to defer (i) an INCENTIVE PLAN AWARD, (ii) SALARY, or (iii) PERFORMANCE UNITS must be filed prior to the beginning of the YEAR in which said amounts are paid. An election to defer SAVINGS FUND PLAN EXCESS BENEFITS must be filed prior to the beginning of the Savings Fund Plan YEAR to which the Excess Benefits are attributable. An election to defer unused PERQUISITE ALLOWANCES may be filed at any time. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS are automatically deferred into the PLAN immediately upon grant. Notwithstanding the foregoing, upon first becoming an ELIGIBLE EMPLOYEE, an election to

ELIGIBLE EMPLOYEE shall be eligible to participate in the PLAN consistent with the terms set by the PLAN ADMINISTRATOR in its designation of such key employee as an ELIGIBLE EMPLOYEE. 4. Participation In order to commence participation in the PLAN, a participant must file a DEFERRAL ELECTION FORM with the PLAN ADMINISTRATOR. An election to defer (i) an INCENTIVE PLAN AWARD, (ii) SALARY, or (iii) PERFORMANCE UNITS must be filed prior to the beginning of the YEAR in which said amounts are paid. An election to defer SAVINGS FUND PLAN EXCESS BENEFITS must be filed prior to the beginning of the Savings Fund Plan YEAR to which the Excess Benefits are attributable. An election to defer unused PERQUISITE ALLOWANCES may be filed at any time. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS are automatically deferred into the PLAN immediately upon grant. Notwithstanding the foregoing, upon first becoming an ELIGIBLE EMPLOYEE, an election to participate shall be effective for the month following the filing of a DEFERRAL ELECTION FORM, provided said Form is filed within 60 days following the date when the employee first becomes an ELIGIBLE EMPLOYEE. (a) Deferral of SALARY A participant may defer from 5 percent to 30 percent of his or her monthly SALARY. (b) Deferral of INCENTIVE PLAN AWARDS A participant may defer all or part of his or her INCENTIVE PLAN AWARDS. (c) Deferral of SAVINGS FUND PLAN EXCESS BENEFITS A participant may defer all amounts which would otherwise be paid in cash under the SAVINGS FUND PLAN EXCESS BENEFITS arrangement. Partial deferrals of SAVINGS FUND PLAN EXCESS BENEFITS are not permitted. (d) Deferral of PERQUISITE ALLOWANCES A participant may elect to defer any unused portion of his or her flexible PERQUISITE ALLOWANCE. (e) Deferral of PERFORMANCE UNITS A participant may elect to defer all or part of his or her PERFORMANCE UNITS. (f) Deferral of SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS. All of an OFFICER'S SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS are automatically deferred to the PLAN immediately upon grant. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS and -3-

any dividends earned thereon remain unvested until the third anniversary of the date on which they are credited to an OFFICER'S DEFERRED COMPENSATION ACCOUNT. Unvested SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS and any dividends earned thereon shall be forfeited if an OFFICER'S stock ownership falls below the levels set forth in the Executive Stock Ownership Guidelines. Upon retirement or death of a participant, unvested SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS and any dividends credited thereon shall immediately vest and shall be payable in accordance with the terms of the PLAN. 5. Deferral Election An ELIGIBLE EMPLOYEE who elects to participate in the PLAN shall file an executed DEFERRAL

any dividends earned thereon remain unvested until the third anniversary of the date on which they are credited to an OFFICER'S DEFERRED COMPENSATION ACCOUNT. Unvested SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS and any dividends earned thereon shall be forfeited if an OFFICER'S stock ownership falls below the levels set forth in the Executive Stock Ownership Guidelines. Upon retirement or death of a participant, unvested SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS and any dividends credited thereon shall immediately vest and shall be payable in accordance with the terms of the PLAN. 5. Deferral Election An ELIGIBLE EMPLOYEE who elects to participate in the PLAN shall file an executed DEFERRAL ELECTION FORM with the PLAN ADMINISTRATOR which (i) indicates the percentage of SALARY and applicable pay periods, and the amount of any INCENTIVE PLAN AWARD, PERFORMANCE UNITS, SAVINGS FUND PLAN EXCESS BENEFITS, unused PERQUISITE ALLOWANCES, and such other eligible payments, awards, allowances, or benefits to be deferred under the PLAN; and (ii) specifies the time and form of distribution and designates a BENEFICIARY. The participant's deferral election of SALARY shall continue from YEAR to YEAR until terminated or modified by written notice to the PLAN ADMINISTRATOR. Deferral elections of INCENTIVE PLAN AWARDS, PERFORMANCE UNITS, SAVINGS FUND PLAN EXCESS BENEFITS, and unused PERQUISITE ALLOWANCES, only are effective for the year following the year in which the executed DEFERRAL ELECTION FORM is filed with the PLAN ADMINISTRATOR. Thereafter, a new DEFERRAL ELECTION FORM must be filed with the PLAN ADMINISTRATOR in order to maintain deferrals in subsequent years. Notice of termination or modification of SALARY, INCENTIVE PLAN AWARDS, and/or PERFORMANCE UNITS deferral shall not become effective until the first day of the month following the month in which such written notice is received by the PLAN ADMINISTRATOR. In no event shall any notice of termination or modification affect amounts deferred prior to the effective date of such notice. Notwithstanding the foregoing, the participant's designation as to time and form of distribution to the participant may not be revoked or modified by the participant as to amounts already deferred. 6. Credits to DEFERRED COMPENSATION ACCOUNT Upon receipt of a completed DEFERRAL ELECTION FORM, the CORPORATION shall establish a DEFERRED COMPENSATION ACCOUNT to which shall be credited such amounts as the participant has elected to defer under the terms of the PLAN. SALARY which is deferred shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as of each payroll period. Deferred INCENTIVE PLAN AWARDS shall be credited to the participant's DEFERRED -4-

COMPENSATION ACCOUNT on the first of the month following the announcement of the granting of the participant's individual INCENTIVE PLAN AWARD. SAVINGS FUND PLAN EXCESS BENEFITS shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as of January 1 following the YEAR to which such Excess Benefits are attributable. PERQUISITE ALLOWANCES shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as soon as practicable after receipt of a DEFERRAL ELECTION FORM specifying the dollar amount to be deferred. PERFORMANCE UNITS and INCENTIVE PLAN AWARDS shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as of the first business day following the date of payment. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT immediately upon the date of grant. Each SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUM shall be equal to a share of PG&E Corporation common stock. The initial value of a SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUM shall be the average

COMPENSATION ACCOUNT on the first of the month following the announcement of the granting of the participant's individual INCENTIVE PLAN AWARD. SAVINGS FUND PLAN EXCESS BENEFITS shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as of January 1 following the YEAR to which such Excess Benefits are attributable. PERQUISITE ALLOWANCES shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as soon as practicable after receipt of a DEFERRAL ELECTION FORM specifying the dollar amount to be deferred. PERFORMANCE UNITS and INCENTIVE PLAN AWARDS shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT as of the first business day following the date of payment. SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall be credited to the participant's DEFERRED COMPENSATION ACCOUNT immediately upon the date of grant. Each SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUM shall be equal to a share of PG&E Corporation common stock. The initial value of a SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUM shall be the average of the daily high and low price of a share of PG&E Corporation common stock as traded on the New York Stock Exchange for the 30-day period preceding the date that the SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUM is credited to a participant's DEFERRED COMPENSATION ACCOUNT. Each time that the CORPORATION pays a dividend on its stock, an amount equal to such dividend, multiplied by the number of a participant's SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall be credited to the participant's account and converted into additional SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS. The number of additional SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall be calculated by dividing the aggregate amount of credited dividends by the average of the daily high and low price of a share of PG&E Corporation common stock as traded on the New York Stock Exchange for a period of five trading days ending on the eight day of the month, or, if such day is not a business day, on the business day next preceding the eighth. Thereafter, the value of a SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUM shall fluctuate with the value of a share of PG&E Corporation common stock. 7. Earnings During Deferral Period At such time as participant elects to participate in the PLAN, he shall also elect to have his account balances allocated to the Utility Bond Fund or to the PG&E Phantom Stock Fund. Participant shall make such elections and in such percentages as the PLAN ADMINISTRATOR shall prescribe. Participant shall be able to reallocate account balances between the funds and reallocate new deferrals at such time and in such manner as the PLAN ADMINISTRATOR shall prescribe; provided, however, that SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS and earnings and dividends thereon may not be reallocated. Anything to the contrary herein notwithstanding, a participant may not reallocate account balances between funds if such reallocation would result in a non-exempt Discretionary Transaction as defined in Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or any successor to Rule 16b-3, as in effect when the reallocation is requested. -5(a) Utility Bond Fund On the first day of each calendar quarter, interest shall be credited on the balance in each participant's DEFERRED COMPENSATION ACCOUNT as of the last day of the immediately preceding calendar quarter and prorated based on the number of days in the quarter that the balance was allocated to the Utility Bond Fund. Such interest shall be at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the first day of the calendar quarter in which the interest is to be credited. Such interest shall become a part of the DEFERRED COMPENSATION ACCOUNT and shall be paid at the same time or times as the balance of the DEFERRED COMPENSATION ACCOUNT. Notwithstanding the above, if a participant has requested that his account balance be reallocated to the PG&E Phantom Stock Fund before the end of the quarter, prorated interest on the participant's account balance shall be calculated at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the date of reallocation, shall be credited to the participant's account on the date of reallocation, and shall be subject to the reallocation request. (b) PG&E Phantom Stock Fund Deferrals and reallocations from the Utility Bond Fund to the PG&E Phantom Stock Fund shall be converted into

(a) Utility Bond Fund On the first day of each calendar quarter, interest shall be credited on the balance in each participant's DEFERRED COMPENSATION ACCOUNT as of the last day of the immediately preceding calendar quarter and prorated based on the number of days in the quarter that the balance was allocated to the Utility Bond Fund. Such interest shall be at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the first day of the calendar quarter in which the interest is to be credited. Such interest shall become a part of the DEFERRED COMPENSATION ACCOUNT and shall be paid at the same time or times as the balance of the DEFERRED COMPENSATION ACCOUNT. Notwithstanding the above, if a participant has requested that his account balance be reallocated to the PG&E Phantom Stock Fund before the end of the quarter, prorated interest on the participant's account balance shall be calculated at a rate equal to the AA Utility Bond Yield reported in Moody's Public Utility, published in the issue of Moody's Investors Service immediately preceding the date of reallocation, shall be credited to the participant's account on the date of reallocation, and shall be subject to the reallocation request. (b) PG&E Phantom Stock Fund Deferrals and reallocations from the Utility Bond Fund to the PG&E Phantom Stock Fund shall be converted into units representing a share of PG&E Corporation common stock. The initial value of a unit shall be the average of the daily high and low price of a share of PG&E Corporation common stock as traded on the New York Stock Exchange for the 30-day period preceding the date that (i) deferrals are credited to a participant's account in the PG&E Phantom Stock Fund, or (ii) the PLAN ADMINISTRATOR receives a reallocation request. Each time that the CORPORATION pays a dividend on its stock, an amount equal to such dividend, multiplied by the number of units credited to a participant's account, shall be credited to the participant's account and converted into additional units. The number of additional units shall be calculated by dividing the aggregate amount of credited dividends by the average of the daily high and low price of a share of PG&E Corporation common stock as traded on the New York Stock Exchange for a period of five trading days ending on the eight day of the month, or, if such day is not a business day, on the business day next preceding the eighth. Thereafter, the value of a unit shall fluctuate with the value of a share of PG&E Corporation common stock. 8. Effect of Deferral on Qualified Benefit PLANS A participant who participates in this PLAN shall continue to be eligible to participate in all CORPORATION benefit PLANS. However, no amount deferred under this PLAN shall be deemed to be covered compensation or SALARY for the purposes of computing percentage of participation and benefits to which the OFFICER may be entitled under the CORPORATION Retirement and Savings Fund Plans and any other CORPORATION benefit plans which are qualified under Section 401(a) of the Internal Revenue Code of 1954, as amended. -69. Form and Time of Payment to a Participant of DEFERRED COMPENSATION ACCOUNT Payment to the participant of deferred compensation allocated to the Utility Bond Fund or the PG&E Phantom Stock Fund shall be made in the form of cash. At the election of the participant, the cash may be paid in a lump sum or in a series of ten or less approximately equal annual installments. Payment to the participant shall be made at such time and in such form as the participant has specified on the DEFERRAL ELECTION FORM(s) previously filed with the PLAN ADMINISTRATOR. Notwithstanding the foregoing, deferrals attributable to SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall only be paid in the form of one or more certificates for a number of shares of PG&E Corporation common stock equal to the number of vested SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS following a participant's retirement or, if earlier, death or termination of employment. Payment to a participant of his or her DEFERRED COMPENSATION ACCOUNT shall be made in January of each YEAR in which payment is to be made in accordance with the participant's deferral election. All payments from the DEFERRED COMPENSATION ACCOUNT shall be subject to all tax withholdings or other reductions which may be required by law. 10. Effect of Death of Participant

9. Form and Time of Payment to a Participant of DEFERRED COMPENSATION ACCOUNT Payment to the participant of deferred compensation allocated to the Utility Bond Fund or the PG&E Phantom Stock Fund shall be made in the form of cash. At the election of the participant, the cash may be paid in a lump sum or in a series of ten or less approximately equal annual installments. Payment to the participant shall be made at such time and in such form as the participant has specified on the DEFERRAL ELECTION FORM(s) previously filed with the PLAN ADMINISTRATOR. Notwithstanding the foregoing, deferrals attributable to SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall only be paid in the form of one or more certificates for a number of shares of PG&E Corporation common stock equal to the number of vested SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS following a participant's retirement or, if earlier, death or termination of employment. Payment to a participant of his or her DEFERRED COMPENSATION ACCOUNT shall be made in January of each YEAR in which payment is to be made in accordance with the participant's deferral election. All payments from the DEFERRED COMPENSATION ACCOUNT shall be subject to all tax withholdings or other reductions which may be required by law. 10. Effect of Death of Participant Upon the death of a participant who participated in the PLAN, all amounts, if any, remaining in his or her DEFERRED COMPENSATION ACCOUNT shall be distributed in a lump sum to the BENEFICIARY designated by the OFFICER on the DEFERRAL ELECTION FORM. Earnings, as determined under Section 7 of the PLAN, shall be credited to the date of distribution. Any shares of PG&E Corporation common stock to be issued in settlement of the deceased participant's SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS shall be issued in the name of the participant's designated beneficiary. If the designated BENEFICIARY does not survive the participant or dies before receiving payment in full of the participant's DEFERRED COMPENSATION ACCOUNT, a lump sum payment of the remaining balance (and a distribution of the shares of PG&E Corporation common stock issuable in settlement of the deceased participant's SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS) shall be made as soon as practicable to the estate of whoever dies last, the participant or the designated BENEFICIARY. All BENEFICIARY designations may be changed by the participant at any time without the consent of a BENEFICIARY. The participant shall notify the PLAN ADMINISTRATOR in writing of any such change of BENEFICIARY. 11. Participant's Rights Unsecured The interest under the PLAN of any participant and such participant's right to receive a distribution of his or her DEFERRED COMPENSATION ACCOUNT shall be an unsecured claim against the general assets of the CORPORATION. The DEFERRED COMPENSATION ACCOUNT shall consist of bookkeeping -7-

entries only, and this PLAN does not create an interest in, nor permit a claim against, any specific asset of the CORPORATION pursuant to the PLAN. 12. Annual Statement of DEFERRED COMPENSATION ACCOUNT As soon as practicable after the close of each YEAR, each participant shall be provided with a statement describing the status of his or her DEFERRED COMPENSATION ACCOUNT as of the end of the preceding YEAR. The statement shall reflect the totals of amounts deferred during the YEAR, the amount of interest credited, the amount of PG&E Phantom Stock Fund units, the amount of SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS (if any), the amount of payments made during the YEAR, if any, and the net balance remaining in the account at the end of the YEAR. 13. Nonassignability of Interests The interest and property rights of any participant under the PLAN shall not be assignable either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment

entries only, and this PLAN does not create an interest in, nor permit a claim against, any specific asset of the CORPORATION pursuant to the PLAN. 12. Annual Statement of DEFERRED COMPENSATION ACCOUNT As soon as practicable after the close of each YEAR, each participant shall be provided with a statement describing the status of his or her DEFERRED COMPENSATION ACCOUNT as of the end of the preceding YEAR. The statement shall reflect the totals of amounts deferred during the YEAR, the amount of interest credited, the amount of PG&E Phantom Stock Fund units, the amount of SPECIAL INCENTIVE STOCK OWNERSHIP PREMIUMS (if any), the amount of payments made during the YEAR, if any, and the net balance remaining in the account at the end of the YEAR. 13. Nonassignability of Interests The interest and property rights of any participant under the PLAN shall not be assignable either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor's process, and any act in violation of this Section 13 shall be void. 14. Administration of the PLAN The PLAN shall be administered by the PLAN ADMINISTRATOR. The PLAN ADMINISTRATOR shall have full power and authority to administer and interpret the PLAN, to establish procedures for administering the PLAN, and to take any and all necessary action in connection therewith. The PLAN ADMINISTRATOR's interpretation and construction of the PLAN shall be conclusive and binding on all persons. 15. Amendment or Termination of the PLAN The CORPORATION may amend, suspend, or terminate the PLAN at any time. In the event of such termination, the DEFERRED COMPENSATION ACCOUNTS of participants shall be paid in accordance with the participant's deferral election. Adopted pursuant to the delegation contained in the Resolution of the Board of Directors of PG&E Corporation dated June 18, 1997.
By: /s/ Robert D. Glynn, Jr. ______________________________ Robert D. Glynn, Jr. President and Chief Executive Officer PG&E Corporation

-8-

Adopted pursuant to the delegation contained in the Resolution of the Board of Directors of Pacific Gas and Electric Company dated June 18, 1997.
By: /s/ Gordon R. Smith ______________________________ Gordon R. Smith President and Chief Executive Officer Pacific Gas and Electric Company

-9-

EXHIBIT 10.6

Adopted pursuant to the delegation contained in the Resolution of the Board of Directors of Pacific Gas and Electric Company dated June 18, 1997.
By: /s/ Gordon R. Smith ______________________________ Gordon R. Smith President and Chief Executive Officer Pacific Gas and Electric Company

-9-

EXHIBIT 10.6 THE PACIFIC GAS AND ELECTRIC COMPANY SAVINGS FUND PLAN FOR NON-UNION EMPLOYEES This is the controlling and definitive statement of the Pacific Gas and Electric Company Savings Fund Plan for Non-Union EMPLOYEES /1/ in effect on and after October 1, 1997. The PLAN, which covers ELIGIBLE EMPLOYEES of the COMPANY and other EMPLOYERS, is a further revision of the one originally placed in effect by the COMPANY as of April 1, 1959. It has since been amended from time to time. The PLAN as amended may be further amended retroactively in order to meet applicable rules and regulations of the Internal Revenue Service, the United States Department of Labor and all other applicable rules and regulations. The PLAN is maintained for the exclusive benefit of participants or their BENEFICIARIES, and contributions or benefits under the PLAN do not discriminate in favor of HIGHLY COMPENSATED EMPLOYEES. ELIGIBILITY AND PARTICIPATION 1. Eligibility A non-union EMPLOYEE becomes an ELIGIBLE EMPLOYEE upon commencement of employment. Once eligibility occurs it continues as long as the EMPLOYEE remains a non-union EMPLOYEE and SERVICE continues. 2. Participation To become a participant, an ELIGIBLE EMPLOYEE must provide NOTICE to the PLAN ADMINISTRATOR of the ELIGIBLE EMPLOYEE'S election to participate and to be bound by the terms of the PLAN. Through such NOTICE, the ELIGIBLE EMPLOYEE shall: (a) authorize the EMPLOYER to reduce his COVERED COMPENSATION by a stated percentage and to contribute such amount to the PLAN as a SECTION 401(k) (b) elect to make NON-SECTION 401(k) CONTRIBUTIONS, if any, to the PLAN; and (c) instruct the PLAN ADMINISTRATOR as to the manner in which EMPLOYEE contributions and matching EMPLOYER CONTRIBUTIONS are to be invested. /1/ Words in all capitals are defined in Section 30. CONTRIBUTIONS

EXHIBIT 10.6 THE PACIFIC GAS AND ELECTRIC COMPANY SAVINGS FUND PLAN FOR NON-UNION EMPLOYEES This is the controlling and definitive statement of the Pacific Gas and Electric Company Savings Fund Plan for Non-Union EMPLOYEES /1/ in effect on and after October 1, 1997. The PLAN, which covers ELIGIBLE EMPLOYEES of the COMPANY and other EMPLOYERS, is a further revision of the one originally placed in effect by the COMPANY as of April 1, 1959. It has since been amended from time to time. The PLAN as amended may be further amended retroactively in order to meet applicable rules and regulations of the Internal Revenue Service, the United States Department of Labor and all other applicable rules and regulations. The PLAN is maintained for the exclusive benefit of participants or their BENEFICIARIES, and contributions or benefits under the PLAN do not discriminate in favor of HIGHLY COMPENSATED EMPLOYEES. ELIGIBILITY AND PARTICIPATION 1. Eligibility A non-union EMPLOYEE becomes an ELIGIBLE EMPLOYEE upon commencement of employment. Once eligibility occurs it continues as long as the EMPLOYEE remains a non-union EMPLOYEE and SERVICE continues. 2. Participation To become a participant, an ELIGIBLE EMPLOYEE must provide NOTICE to the PLAN ADMINISTRATOR of the ELIGIBLE EMPLOYEE'S election to participate and to be bound by the terms of the PLAN. Through such NOTICE, the ELIGIBLE EMPLOYEE shall: (a) authorize the EMPLOYER to reduce his COVERED COMPENSATION by a stated percentage and to contribute such amount to the PLAN as a SECTION 401(k) (b) elect to make NON-SECTION 401(k) CONTRIBUTIONS, if any, to the PLAN; and (c) instruct the PLAN ADMINISTRATOR as to the manner in which EMPLOYEE contributions and matching EMPLOYER CONTRIBUTIONS are to be invested. /1/ Words in all capitals are defined in Section 30. CONTRIBUTIONS 3. EMPLOYEE Contributions To become a contributing participant, an ELIGIBLE EMPLOYEE must make SECTION 401(k) CONTRIBUTIONS, NON-SECTION 401(k) CONTRIBUTIONS, or a combination of both to the PLAN through payroll deduction. All contributions withheld by the EMPLOYER from COVERED COMPENSATION are paid over to the TRUSTEE, unconditionally credited to the participant's account and invested in accordance with the participant's instructions. (a) SECTION 401(k) CONTRIBUTIONS. A SECTION 401(k) CONTRIBUTION is an election to defer the receipt of a specified whole percentage of COVERED COMPENSATION which would otherwise be currently

CONTRIBUTIONS 3. EMPLOYEE Contributions To become a contributing participant, an ELIGIBLE EMPLOYEE must make SECTION 401(k) CONTRIBUTIONS, NON-SECTION 401(k) CONTRIBUTIONS, or a combination of both to the PLAN through payroll deduction. All contributions withheld by the EMPLOYER from COVERED COMPENSATION are paid over to the TRUSTEE, unconditionally credited to the participant's account and invested in accordance with the participant's instructions. (a) SECTION 401(k) CONTRIBUTIONS. A SECTION 401(k) CONTRIBUTION is an election to defer the receipt of a specified whole percentage of COVERED COMPENSATION which would otherwise be currently payable to a participant. The EMPLOYER shall reduce the participant's COVERED COMPENSATION by an amount equal to the percentage of the SECTION 401(k) CONTRIBUTION elected by the participant. Under current law, SECTION 401(k) CONTRIBUTIONS deferred by a participant under the PLAN are not subject to federal or state income tax until actually withdrawn or distributed from the PLAN. (b) FLEXDOLLARS. By giving NOTICE, a participant in the COMPANY'S Flex Plan may elect to have any unused FLEXDOLLARS contributed to this PLAN. Any FLEXDOLLARS contributed to this PLAN shall be deemed SECTION 401(k) CONTRIBUTIONS and shall be subject to all restrictions and limitations applicable to SECTION 401(k) CONTRIBUTIONS. FLEXDOLLAR contributions shall not be eligible for matching EMPLOYER CONTRIBUTIONS as described in Section 4. (c) NON-SECTION 401(k) CONTRIBUTIONS. NON-SECTION 401(k) CONTRIBUTIONS differ from SECTION 401(k) CONTRIBUTIONS in that a participant has already paid taxes on the amounts contributed to the PLAN. All EMPLOYEE Contributions made to the PLAN as it existed prior to October 1, 1984, are considered to be NON-SECTION 401(k) CONTRIBUTIONS and are so recorded in the accounts maintained by the PLAN ADMINISTRATOR. NON-SECTION 401(k) CONTRIBUTIONS must be made in whole percentages of COVERED COMPENSATION, and the sum of all SECTION 401(k) CONTRIBUTIONS and NON-SECTION 401(k) CONTRIBUTIONS made by a participant may not exceed 15 percent of the participant's COVERED COMPENSATION. (d) CHANGING CONTRIBUTIONS. By giving NOTICE to the PLAN ADMINISTRATOR, a participant may direct the PLAN ADMINISTRATOR to cease or resume making contributions, or to change the rate of contributions. Any such change shall become effective within 30 days of receipt by the PLAN ADMINISTRATOR of such NOTICE. -24. Employer Contributions (a) Each and every time that participants make Section 401(k) or non- section 401(K) CONTRIBUTIONS to the PLAN eligible for matching EMPLOYER CONTRIBUTIONS, the COMPANY shall make a matching EMPLOYER CONTRIBUTION to the PLAN in cash or in whole shares of COMMON STOCK, or partly in both. Matching EMPLOYER CONTRIBUTIONS shall be limited to an amount equal to three-quarters of the aggregate participant contributions eligible for matching EMPLOYER CONTRIBUTIONS under the provisions of Subsection 4(a)(1). The COMPANY shall charge to each EMPLOYER its appropriate share of matching EMPLOYER CONTRIBUTIONS. (1) SECTION 401(k) and NON-SECTION 401(k) CONTRIBUTIONS Eligible for Matching EMPLOYER CONTRIBUTIONS. Although a participant may elect to defer up to 15 percent of COVERED COMPENSATION to the PLAN, the maximum amount of a participant's contributions eligible for matching EMPLOYER CONTRIBUTIONS shall be one of the following percentages of COVERED

4. Employer Contributions (a) Each and every time that participants make Section 401(k) or non- section 401(K) CONTRIBUTIONS to the PLAN eligible for matching EMPLOYER CONTRIBUTIONS, the COMPANY shall make a matching EMPLOYER CONTRIBUTION to the PLAN in cash or in whole shares of COMMON STOCK, or partly in both. Matching EMPLOYER CONTRIBUTIONS shall be limited to an amount equal to three-quarters of the aggregate participant contributions eligible for matching EMPLOYER CONTRIBUTIONS under the provisions of Subsection 4(a)(1). The COMPANY shall charge to each EMPLOYER its appropriate share of matching EMPLOYER CONTRIBUTIONS. (1) SECTION 401(k) and NON-SECTION 401(k) CONTRIBUTIONS Eligible for Matching EMPLOYER CONTRIBUTIONS. Although a participant may elect to defer up to 15 percent of COVERED COMPENSATION to the PLAN, the maximum amount of a participant's contributions eligible for matching EMPLOYER CONTRIBUTIONS shall be one of the following percentages of COVERED COMPENSATION: a) up to 3 percent, with at least one but less than three years of SERVICE; or b) up to 6 percent, with at least three years of SERVICE. c) for a participant who is absent from work and receiving temporary compensation under any state Worker's Compensation Law or under the COMPANY'S LONG TERM DISABILITY PLAN, the larger of: i) the maximum percentage calculated under (a) or (b), whichever is applicable; or ii) the dollar amount which was eligible for matching EMPLOYER CONTRIBUTIONS immediately before the participant's absence began. (b) Investment of EMPLOYER CONTRIBUTIONS. All EMPLOYER CONTRIBUTIONS made to the PLAN shall be invested by the TRUSTEE in accordance with a participant's INVESTMENT FUND directions. 5. Rollover Contributions (a) With the approval of the Plan Administrator, an Eligible Employee may make a rollover to the Plan in cash an amount which constitutes all or part of an eligible rollover distribution (as defined in Section 402(c)(4) of the Code). However, a direct or indirect transfer to this Plan from another qualified plan will not be permitted if such transfer would subject this Plan to the qualified joint and survivor rules of Code Section 401(a)(11) -3-

(b) The Employer, the Plan Administrator and the Trustee have no responsibility for determining the propriety of, proper amount or time of, or status as a tax-free transaction of any transfer under Subsection (a) above. (c) The Plan administrator shall develop such procedures, and may require such information from the individual who is requesting to make a rollover to the Plan, as necessary or desirable in order to determine that the proposed rollover will meet the requirements of this Section 5. (d) A rollover will be credited to the participant's account and will be recorded separately as a Rollover Contribution by the Plan Administrator as soon as practicable following the receipt thereof by the Trustee. (e) The Plan Administrator in its discretion may direct the return to the participant (or the transfer to another trustee or custodian designated by the participant) of any Rollover Contribution and any earnings thereon to the extent the Plan Administrator determines that such return may be necessary to insure the continued qualification of this Plan under Section 401(a) of the Code. (f) Rollover Contributions shall not be eligible for matching Employer Contributions as described in Section 4.

(b) The Employer, the Plan Administrator and the Trustee have no responsibility for determining the propriety of, proper amount or time of, or status as a tax-free transaction of any transfer under Subsection (a) above. (c) The Plan administrator shall develop such procedures, and may require such information from the individual who is requesting to make a rollover to the Plan, as necessary or desirable in order to determine that the proposed rollover will meet the requirements of this Section 5. (d) A rollover will be credited to the participant's account and will be recorded separately as a Rollover Contribution by the Plan Administrator as soon as practicable following the receipt thereof by the Trustee. (e) The Plan Administrator in its discretion may direct the return to the participant (or the transfer to another trustee or custodian designated by the participant) of any Rollover Contribution and any earnings thereon to the extent the Plan Administrator determines that such return may be necessary to insure the continued qualification of this Plan under Section 401(a) of the Code. (f) Rollover Contributions shall not be eligible for matching Employer Contributions as described in Section 4. 6. Limitations (a) Average Deferral Percentage Limitation. In any PLAN YEAR, the average rate of SECTION 401(k) CONTRIBUTIONS as a percentage of compensation for all participating HIGHLY COMPENSATED ELIGIBLE EMPLOYEES shall not exceed the larger of: (1) the average rate of SECTION 401(k) CONTRIBUTIONS as a percentage of compensation for all other participating ELIGIBLE EMPLOYEES multiplied by 1.25 percent; or (2) the lesser of: a) the average rate of SECTION 401(k) CONTRIBUTIONS as a percentage of compensation for all other participating ELIGIBLE EMPLOYEES multiplied by 2; or b) the average rate of SECTION 401(k) CONTRIBUTIONS as a percentage of compensation for all other participating ELIGIBLE EMPLOYEES plus 2 percentage points, or such lesser amount as the Secretary of the Treasury may prescribe in order to prevent the multiple use of this alternative limitation with respect to any HIGHLY COMPENSATED participant. If multiple use of the alternative limitation occurs with respect to the Average Deferral Percentage Limitation and Average Contribution Percentage Limitation in this PLAN, it will be corrected by reducing the actual contribution percentage of HIGHLY COMPENSATED participants in the manner described in Section 6(c), below. -4-

The average rate of SECTION 401(k) CONTRIBUTIONS for a PLAN YEAR for a designated group of ELIGIBLE EMPLOYEES shall be the average of the ratios, calculated separately for each participating ELIGIBLE EMPLOYEE in the group, of the amount of SECTION 401(k) CONTRIBUTIONS made by each EMPLOYEE for the PLAN YEAR, to the EMPLOYEE'S compensation for such PLAN YEAR. As used in this subsection, compensation shall mean compensation paid by an EMPLOYER to the participant during the PLAN YEAR which is required to be reported as wages on the participant's form W-2 and shall also include compensation which is not currently includable in the participant's gross income by reason of the application of CODE Sections 125 and 402(e)(3). For purposes of this subsection, the ratio of the amount of SECTION 401(k) CONTRIBUTIONS to a participant's compensation for any participant who is HIGHLY COMPENSATED for the PLAN YEAR and who is eligible to have elective deferrals or qualified employer deferral contributions allocated to his account under two or more plans or arrangements described in Section 401 (k) of the CODE that are maintained by an employer or affiliated employer shall be determined as if all such SECTION 401(k) CONTRIBUTIONS, elective deferrals and qualified employer deferral contributions were made under a single arrangement.

The average rate of SECTION 401(k) CONTRIBUTIONS for a PLAN YEAR for a designated group of ELIGIBLE EMPLOYEES shall be the average of the ratios, calculated separately for each participating ELIGIBLE EMPLOYEE in the group, of the amount of SECTION 401(k) CONTRIBUTIONS made by each EMPLOYEE for the PLAN YEAR, to the EMPLOYEE'S compensation for such PLAN YEAR. As used in this subsection, compensation shall mean compensation paid by an EMPLOYER to the participant during the PLAN YEAR which is required to be reported as wages on the participant's form W-2 and shall also include compensation which is not currently includable in the participant's gross income by reason of the application of CODE Sections 125 and 402(e)(3). For purposes of this subsection, the ratio of the amount of SECTION 401(k) CONTRIBUTIONS to a participant's compensation for any participant who is HIGHLY COMPENSATED for the PLAN YEAR and who is eligible to have elective deferrals or qualified employer deferral contributions allocated to his account under two or more plans or arrangements described in Section 401 (k) of the CODE that are maintained by an employer or affiliated employer shall be determined as if all such SECTION 401(k) CONTRIBUTIONS, elective deferrals and qualified employer deferral contributions were made under a single arrangement. For purposes of determining the ratio of the amount of SECTION 401(k) CONTRIBUTIONS to a participant's compensation for a participant who is HIGHLY COMPENSATED by reason of being one of the ten highestpaid EMPLOYEES or a 5 percent owner of the controlled group of corporations, as defined in Section 414 of the CODE, the SECTION 401(k) CONTRIBUTIONS and compensation of such participant shall include the SECTION 401(k) CONTRIBUTIONS and compensation of the participant's family members, as defined in Section 414 of the CODE, and such family members shall be disregarded in determining the average rate of SECTION 401(k) CONTRIBUTIONS for non-HIGHLY COMPENSATED participants. The determination and treatment of SECTION 401(k) CONTRIBUTIONS of any participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. (b) Average Contribution Percentage Limitation. In any PLAN YEAR, the average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS as a percentage of compensation for all participating HIGHLY COMPENSATED ELIGIBLE EMPLOYEES shall not exceed the larger of: (1) the average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS as a percentage of compensation for all other participating ELIGIBLE EMPLOYEES multiplied by 1.25; or (2) the lesser of: a) the average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS as a percentage of compensation for all other participating ELIGIBLE EMPLOYEES multiplied by 2; or -5-

b) the average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS for all other participating ELIGIBLE EMPLOYEES plus 2 percentage points, or such lesser amount as the Secretary of the Treasury may prescribe in order to prevent the multiple use of this alternative limitation with respect to any HIGHLY COMPENSATED participant. If multiple use of the alternative limitation occurs with respect to the Average Deferral Percentage Limitation and Average Contribution Percentage Limitation in this PLAN, it will be corrected by reducing the actual contribution percentage of HIGHLY COMPENSATED participants in the manner described in Section 6(c), below. The average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS for a PLAN YEAR for a designated group of ELIGIBLE EMPLOYEES shall be the average of the ratios, calculated separately for each participating ELIGIBLE EMPLOYEE in the group, of the amount of NONSECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS made by and on behalf of each EMPLOYEE for the PLAN YEAR, to the EMPLOYEE'S compensation for such PLAN YEAR. As used in this subsection, compensation shall mean compensation paid by an EMPLOYER to the participant during the PLAN

b) the average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS for all other participating ELIGIBLE EMPLOYEES plus 2 percentage points, or such lesser amount as the Secretary of the Treasury may prescribe in order to prevent the multiple use of this alternative limitation with respect to any HIGHLY COMPENSATED participant. If multiple use of the alternative limitation occurs with respect to the Average Deferral Percentage Limitation and Average Contribution Percentage Limitation in this PLAN, it will be corrected by reducing the actual contribution percentage of HIGHLY COMPENSATED participants in the manner described in Section 6(c), below. The average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS for a PLAN YEAR for a designated group of ELIGIBLE EMPLOYEES shall be the average of the ratios, calculated separately for each participating ELIGIBLE EMPLOYEE in the group, of the amount of NONSECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS made by and on behalf of each EMPLOYEE for the PLAN YEAR, to the EMPLOYEE'S compensation for such PLAN YEAR. As used in this subsection, compensation shall mean compensation paid by an EMPLOYER to the participant during the PLAN YEAR which is required to be reported as wages on the participant's form W-2 and shall also include compensation which is not currently includable in the participant's gross income by reason of the application of CODE Sections 125 and 402(e)(3). For purposes of this subsection, the ratio of the amount of NONSECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS to a participant's compensation for any participant who is HIGHLY COMPENSATED for the PLAN YEAR and who is eligible to have elective deferrals or qualified employer deferral contributions allocated to his account under two or more plans or arrangements described in Section 401(k) of the CODE that are maintained by an employer or affiliated employer shall be determined as if all such NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS, elective deferrals and qualified employer deferral contributions were made under a single arrangement. For purposes of determining the ratio of the amount of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS to a participant's compensation for a participant who is HIGHLY COMPENSATED by reason of being one of the ten highest-paid EMPLOYEES or a 5 percent owner of the controlled group of corporations, as defined in Section 414 of the CODE, the NONSECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS and compensation of such participant shall include the NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS and compensation of the participant's family members, as defined in Section 414 of the CODE, and such family members shall be disregarded in determining the average rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS for non-HIGHLY COMPENSATED participants. The determination and treatment of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS of any participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. -6-

(c) In the event that the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE, in its sole and absolute discretion, determines that the rate of SECTION 401(k) CONTRIBUTIONS, and/or the rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS will exceed either or both of the maximum limitations contained in subsections 6(a) and 6(b), the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall instruct the PLAN ADMINISTRATOR to reduce the rate of contributions made by HIGHLY COMPENSATED participants so that the limitations will be met. The PLAN ADMINISTRATOR shall first determine the maximum average rate of contributions which can be made by the HIGHLY COMPENSATED participants. The contributions made by HIGHLY COMPENSATED participants shall then be reduced, on a prospective basis, until the limitations are met. Any necessary reduction shall be made by first reducing the highest rate of SECTION 401(k) CONTRIBUTIONS or NON-

(c) In the event that the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE, in its sole and absolute discretion, determines that the rate of SECTION 401(k) CONTRIBUTIONS, and/or the rate of NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS will exceed either or both of the maximum limitations contained in subsections 6(a) and 6(b), the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall instruct the PLAN ADMINISTRATOR to reduce the rate of contributions made by HIGHLY COMPENSATED participants so that the limitations will be met. The PLAN ADMINISTRATOR shall first determine the maximum average rate of contributions which can be made by the HIGHLY COMPENSATED participants. The contributions made by HIGHLY COMPENSATED participants shall then be reduced, on a prospective basis, until the limitations are met. Any necessary reduction shall be made by first reducing the highest rate of SECTION 401(k) CONTRIBUTIONS or NONSECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS as may be appropriate, currently authorized by participants, with such rate to be reduced in one percent increments until the maximum permissible average rate of contributions is met. Notwithstanding any other provision of the PLAN, if, as of the end of a PLAN YEAR, the PLAN fails to meet either or both of the tests described in subsections 6(a) or 6(b), the PLAN ADMINISTRATOR shall, on or before December 31 of the following PLAN YEAR distribute to each HIGHLY COMPENSATED participant, beginning with the participant having the higher ratio, such excess portion of the participant's SECTION 401(k) CONTRIBUTIONS, and/or NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS (and any income allocable to such portion), until the PLAN satisfies both of the tests. Distributions made to satisfy the limitations described in subsection 6(b) shall include both NON-SECTION 401 (k) CONTRIBUTIONS and related matching EMPLOYER CONTRIBUTIONS in accordance with the requirements of Treasury Regulation SECTION 1.401(m)-l(e)(4). If there is a loss allocable to such excess amount, the amount of the distribution shall in no event be less than the lesser of the (i) participant's account or (ii) the participant's SECTION 401(k) CONTRIBUTIONS, or NON-SECTION 401(k) CONTRIBUTIONS and EMPLOYER CONTRIBUTIONS, as appropriate, for the PLAN YEAR. For the PLAN YEARS 1987, 1988, 1989, 1990 and 1991 only, the PLAN ADMINISTRATOR may elect to make qualified non-elective employer contributions within the meaning of Section 401(m)(4)(c) of the CODE, on behalf of such non-HIGHLY COMPENSATED participants who are EMPLOYEES of Pacific Service Employees Association as will cause the PLAN to meet the appropriate limits set forth in subsections 6(a) and 6 (b). For purposes of PLAN withdrawals qualified non-elective employer contributions shall be treated as SECTION 401(k) CONTRIBUTIONS. For purposes of determining whether the PLAN meets either or both of the limits set forth in subsections 6(a) and 6(b), the PLAN ADMINISTRATOR may elect to make the look-back year calculation as provided in Regulation 1.414(q)-ITA-14(b)(1) for any determination year on the basis of the calendar year ending with the applicable determination year. -7-

(d) Annual Section 401(k) Limitation. Effective as of January 1, 1987, no participant shall be permitted to make Section 401(k) CONTRIBUTIONS to the PLAN during any PLAN YEAR in excess of $7,000, multiplied by the adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the CODE for years beginning after December 31, 1987, as applied to elective deferrals. A participant who is unable to make SECTION 401(k) CONTRIBUTIONS which would have been eligible for matching EMPLOYER CONTRIBUTIONS because of the limitation contained in this subsection 6(d), shall be entitled to make NONSECTION 401(k) CONTRIBUTIONS in an amount equal to the amount of SECTION 401(k) CONTRIBUTIONS that could have been made but for the subsection 6(d) limitation. Such NON-SECTION 401(k) CONTRIBUTIONS shall be eligible for matching EMPLOYER CONTRIBUTIONS as though they were SECTION 401(k) CONTRIBUTIONS, subject to the limitations contained in Section 6. (e) Section 415 Limitation. Anything herein to the contrary notwithstanding, in no event shall the annual additions to a participant's accounts in a YEAR exceed the lesser of (1) 25 percent of the participant's compensation (as defined in subparagraph

(d) Annual Section 401(k) Limitation. Effective as of January 1, 1987, no participant shall be permitted to make Section 401(k) CONTRIBUTIONS to the PLAN during any PLAN YEAR in excess of $7,000, multiplied by the adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the CODE for years beginning after December 31, 1987, as applied to elective deferrals. A participant who is unable to make SECTION 401(k) CONTRIBUTIONS which would have been eligible for matching EMPLOYER CONTRIBUTIONS because of the limitation contained in this subsection 6(d), shall be entitled to make NONSECTION 401(k) CONTRIBUTIONS in an amount equal to the amount of SECTION 401(k) CONTRIBUTIONS that could have been made but for the subsection 6(d) limitation. Such NON-SECTION 401(k) CONTRIBUTIONS shall be eligible for matching EMPLOYER CONTRIBUTIONS as though they were SECTION 401(k) CONTRIBUTIONS, subject to the limitations contained in Section 6. (e) Section 415 Limitation. Anything herein to the contrary notwithstanding, in no event shall the annual additions to a participant's accounts in a YEAR exceed the lesser of (1) 25 percent of the participant's compensation (as defined in subparagraph 6(e)(1), below) for the YEAR or (2) $30,000, or, if greater, one- fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the CODE as in effect for the PLAN YEAR. For purposes of applying the limitations of Section 415 of the CODE, the annual additions which must be kept within the limits set forth above, shall mean the sum credited to a participant's account for any PLAN YEAR of (i) EMPLOYER CONTRIBUTIONS and SECTION 401(k) CONTRIBUTIONS, (ii) NON-SECTION 401(k) CONTRIBUTIONS, and (iii) any amounts allocated to an individual medical account, as defined in Sections 415(l)(2) and 419A(d)(2) of the CODE. The compensation limitation percentage referred to above shall not apply to (i) any contribution for medical benefits, as defined in Section 419A(f)(2) of the CODE, after a participant's separation from SERVICE which is otherwise treated as an annual addition, or (ii) any amount which is otherwise treated as an annual addition under Section 415(l)(1) of the CODE. (1) Solely for purposes of applying the Section 415 limitations, compensation shall include all of a participant's wages, salaries, fees for professional service, and other amounts received for personal services actually rendered in the course of employment with an EMPLOYER (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses). For purposes of applying the Section 415 limitations, compensation shall not include any of the following: a) Contributions made by an EMPLOYER to a plan of deferred compensation to the extent that, before the application of the Section 415 limitations to that plan, the contributions are not includable in the gross income of the participant for the taxable year in which contributed. Any distributions from a plan of deferred compensation are not considered as compensation for Section 415 purposes, regardless of whether such amounts are includable in the gross income of the EMPLOYEE when distributed. However, any amounts received by a participant pursuant to an unfunded, nonqualified plan may be considered as -8-

compensation for Section 415 purposes in the year such income is includable in the gross income of the EMPLOYEE. b) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by a participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. c) Amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option. d) Other amounts which receive special tax benefits such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the participant). In the event that the annual additions to a participant's accounts would exceed the Section 415 Limitations, the PLAN ADMINISTRATOR shall first reduce the participant's NONSECTION 401(k) CONTRIBUTIONS until the Section 415 limitations are met.

compensation for Section 415 purposes in the year such income is includable in the gross income of the EMPLOYEE. b) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by a participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture. c) Amounts realized from the sale, exchange, or other disposition of stock acquired under a qualified stock option. d) Other amounts which receive special tax benefits such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the participant). In the event that the annual additions to a participant's accounts would exceed the Section 415 Limitations, the PLAN ADMINISTRATOR shall first reduce the participant's NONSECTION 401(k) CONTRIBUTIONS until the Section 415 limitations are met. (f) If a participant of this PLAN is also a participant in the COMPANY'S RETIREMENT PLAN, Section 415 of the CODE imposes a combined benefit limitation. Contributions to this PLAN will nevertheless be permitted to the maximum extent permitted by Section 415 of the CODE and the terms of the PLAN. If the combined maximum benefit permitted would be exceeded, the benefit from the COMPANY'S RETIREMENT PLAN shall be reduced so that the limitation will be met. The combined maximum benefit for a participant shall be determined pursuant to the provisions of Section 415(e) of the CODE. At the election of the PLAN ADMINISTRATOR, special transitional rules may apply for both the defined benefit fraction and the defined contribution fraction for EMPLOYEES who were participants as of December 31, 1982. (g) Top Heavy Provisions. In the event that the PLAN is or becomes "Top Heavy", as that term is defined in Section 416(g) of the CODE, the provision contained in Special Provision A shall supersede any conflicting provision of the PLAN. (h) For purposes of determining all benefits under the PLAN, for PLAN YEARS beginning after 1988 and before 1994, the maximum compensation of each EMPLOYEE that may be taken into account each PLAN YEAR shall not exceed $200,000 (as adjusted by the Secretary of the Treasury under Section 401(a)(17) of the CODE. For purposes of determining all benefits under the PLAN, for PLAN YEARS beginning after 1993, the maximum compensation of each EMPLOYEE that may be taken into account each PLAN YEAR shall not exceed $150,000 (as adjusted by the Secretary of the Treasury under Section 401(a)(17) of the CODE). In determining the compensation of a HIGHLY COMPENSATED EMPLOYEE for purposes of this limitation, the rules of Section 414(q)(6) of the CODE shall apply, except that the term "family" shall include only the spouse of the EMPLOYEE and any lineal descendants of the -9-

EMPLOYEE who have not attained age 19 before the close of the YEAR. If the aggregate compensation of family members exceeds the applicable compensation limit of compensation as limited by Section 401(a)(17) of the CODE, then the amount of compensation considered under the PLAN for each family member is proportionately reduced so that the total equals the applicable compensation limitation under Section 401(a)(17) of the CODE. SELECTION OF INVESTMENT FUNDS 7. (a) SECTION 401(k) CONTRIBUTIONS, NON-SECTION 401(k) CONTRIBUTIONS, and EMPLOYER CONTRIBUTIONS. By giving NOTICE, a participant shall instruct the PLAN ADMINISTRATOR to invest his SECTION 401(k) CONTRIBUTIONS, NON-SECTION 401(k) CONTRIBUTIONS, and EMPLOYER CONTRIBUTIONS in one or more INVESTMENT FUNDS. The minimum amount which can be invested in

EMPLOYEE who have not attained age 19 before the close of the YEAR. If the aggregate compensation of family members exceeds the applicable compensation limit of compensation as limited by Section 401(a)(17) of the CODE, then the amount of compensation considered under the PLAN for each family member is proportionately reduced so that the total equals the applicable compensation limitation under Section 401(a)(17) of the CODE. SELECTION OF INVESTMENT FUNDS 7. (a) SECTION 401(k) CONTRIBUTIONS, NON-SECTION 401(k) CONTRIBUTIONS, and EMPLOYER CONTRIBUTIONS. By giving NOTICE, a participant shall instruct the PLAN ADMINISTRATOR to invest his SECTION 401(k) CONTRIBUTIONS, NON-SECTION 401(k) CONTRIBUTIONS, and EMPLOYER CONTRIBUTIONS in one or more INVESTMENT FUNDS. The minimum amount which can be invested in any single INVESTMENT FUND shall be one percent of a participant's current contributions to the PLAN. A participant may elect to invest more than the minimum amount in any INVESTMENT FUND, provided that any such increase must be in increments of one percent. (b) CHANGE OF INVESTMENT FUND ALLOCATIONS. By giving NOTICE to the PLAN ADMINISTRATOR, a participant may (1) change the percentage levels of future contributions which are to be allocated to any INVESTMENT FUND or FUNDS or, (2) change the INVESTMENT FUNDS in which his future contributions are to be invested. Each election regarding investment of future contributions shall be effective with the next deposit of contributions. THE INVESTMENT FUNDS 8. PG&E Corporation Common Stock Fund This FUND is invested primarily in common stock of PG&E Corporation/2/, with a small portion invested in cash or cash equivalents. The FUND also holds COMMON STOCK and the earnings thereon attributable to EMPLOYER CONTRIBUTIONS and participant contributions made to the Basic Fund of the PLAN as it existed prior to April 1, 1983, as well as all COMMON STOCK which has been transferred to this PLAN from the TRASOP and PAYSOP Plan. All cash dividends received by the TRUSTEE on COMMON STOCK are reinvested in the FUND. (a) Investment Generally. Whenever the TRUSTEE invests cash in COMMON STOCK, the EMPLOYEE BENEFIT FINANCE COMMITTEE shall direct the /2/ Prior to January 1, 1997, this FUND was invested primarily in the common stock of the Pacific Gas and Electric Company. Effective January 1, 1997, all PG&E common stock was converted to common stock of PG&E Corporation by operation of the formation of PG&E Corporation. -10-

TRUSTEE to purchase the COMMON STOCK either (i) at a public sale on a recognized stock exchange, (ii) directly from PG&E Corporation at a price equal to that day's closing price for COMMON STOCK on the New York Stock Exchange, or (iii) from a private source at a price no higher than the price that would have been payable under (i). (b) Voting of COMMON STOCK. Each and every time common shareholders of PG&E Corporation who are not participants in the PLAN are entitled to vote COMMON STOCK, participants shall have an absolute right to vote COMMON STOCK. Whenever participants are given the opportunity to vote COMMON STOCK, the TRUSTEE shall inform each participant of all relevant material received by the TRUSTEE with a written request for confidential voting instructions. The TRUSTEE is required to vote the COMMON STOCK credited to a participant's account as the participant directs. If the participant does not give such instructions within the required time, the TRUSTEE may not vote any

TRUSTEE to purchase the COMMON STOCK either (i) at a public sale on a recognized stock exchange, (ii) directly from PG&E Corporation at a price equal to that day's closing price for COMMON STOCK on the New York Stock Exchange, or (iii) from a private source at a price no higher than the price that would have been payable under (i). (b) Voting of COMMON STOCK. Each and every time common shareholders of PG&E Corporation who are not participants in the PLAN are entitled to vote COMMON STOCK, participants shall have an absolute right to vote COMMON STOCK. Whenever participants are given the opportunity to vote COMMON STOCK, the TRUSTEE shall inform each participant of all relevant material received by the TRUSTEE with a written request for confidential voting instructions. The TRUSTEE is required to vote the COMMON STOCK credited to a participant's account as the participant directs. If the participant does not give such instructions within the required time, the TRUSTEE may not vote any COMMON STOCK credited to a participant's account. (c) Cost of UNITS. The cost of a UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the COMMON STOCK FUND. (d) Value of UNITS. The value of a UNIT is the value of the COMMON STOCK held in the FUND at the closing price on the New York Stock Exchange plus the cash held in the FUND, as determined by the TRUSTEE each BUSINESS DAY, less any fees or other expenses which are charged to the FUND which shall reduce the earnings of that fund, divided by the number of UNITS. Each payment into the COMMON STOCK FUND of contributions shall increase, and each payment out of the COMMON STOCK FUND shall decrease, the number of UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 9. United States Bond Fund This FUND was maintained for the purpose of investing EMPLOYEE contributions in United States BONDS. This FUND also holds all BONDS attributable to participant contributions made to the Basic Fund of the PLAN as it existed prior to April 1, 1983. Income from BONDS is reflected in the greater redemption values of the BONDS. BONDS held in this FUND cannot be transferred to another INVESTMENT FUND under the transfer provisions of Section 18. Effective July 1, 1991, the U.S. BOND FUND no longer accepts EMPLOYEE contributions. BONDS purchased to date with EMPLOYEE contributions will continue to be held in the PLAN until a distribution is requested by the EMPLOYEE in accordance with current PLAN provisions. 10. Large Company Stock Index Fund (LCSF) This FUND is maintained for the purpose of investing in a diversified portfolio consisting principally of common stock of large US companies and securities convertible into -11-

common stock. However, at no time shall the LCSF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the LCSF INVESTMENT MANAGER. The LCSF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions received from the LCSF INVESTMENT MANAGER. A participant's account is credited with the number of LCSF UNITS purchased with contributions allocated to his account. (a) Cost of LCSF UNITS. The cost of a LCSF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the

common stock. However, at no time shall the LCSF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the LCSF INVESTMENT MANAGER. The LCSF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions received from the LCSF INVESTMENT MANAGER. A participant's account is credited with the number of LCSF UNITS purchased with contributions allocated to his account. (a) Cost of LCSF UNITS. The cost of a LCSF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the LCSF. (b) Value of LCSF UNITS. The value of a LCSF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of LCSF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of the payment. 11. Small Company Stock Index Fund (SCSF) This FUND is maintained for the purpose of investing in a diversified portfolio consisting principally of common stock of small capitalization US companies and securities convertible into common stock. However, at no time shall the SCSF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the SCSF INVESTMENT MANAGER. The SCSF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions received from the SCSF INVESTMENT MANAGER. A participant's account is credited with the number of SCSF UNITS purchased with contributions allocated to his account. (a) Cost of SCSF UNITS. The cost of a SCSF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the SCSF. (b) Value of SCSF UNITS. The value of a SCSF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of SCSF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of the payment. -1212. International Stock Index Fund (ISF) This FUND is maintained for the purpose of investing in a diversified portfolio consisting principally of non-US common stock and securities convertible into common stock. However, at no time shall the ISF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the ISF INVESTMENT MANAGER. The ISF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions received from the ISF INVESTMENT MANAGER. A participant's account is credited with the number of ISF UNITS purchased with contributions allocated to his account. (a) Cost of ISF UNITS. The cost of a ISF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the

12. International Stock Index Fund (ISF) This FUND is maintained for the purpose of investing in a diversified portfolio consisting principally of non-US common stock and securities convertible into common stock. However, at no time shall the ISF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the ISF INVESTMENT MANAGER. The ISF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions received from the ISF INVESTMENT MANAGER. A participant's account is credited with the number of ISF UNITS purchased with contributions allocated to his account. (a) Cost of ISF UNITS. The cost of a ISF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the ISF. (b) Value of ISF UNITS. The value of a ISF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of ISF UNITS. Each payment into the FUND of contributions shall increase, and each payment out the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of the payment. 13. Stable Value Fund (SVF) This FUND is designed to provide participants with preservation of principal while earning a stable and consistent rate of return. The FUND is made up of investment contracts with a diversified group of insurance companies, banks, and other financial institutions which provide for credited interest rates and terms that are negotiated at the time of purchase. Contributions made to the SVF are invested in a portfolio of investment contracts. The SVF INVESTMENT MANAGER directs the day-to-day investment of the FUND. The blended interest earned on all contracts held in the portfolio is posted daily to the participant's account. (a) COST OF SVF UNITS. The cost of a SVF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the SVF. (b) VALUE OF SVF UNITS. The value of a SVF UNIT is the value of the SVF assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the SVF), divided by the number of SVF UNITS. Each payment into the SVF of contributions shall increase, and payments out of the SVF shall decrease, the number of SVF UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. -1314. Bond Index Fund (BIF) The BIF is maintained for the purpose of investing in a diversified portfolio consisting principally of marketable fixed-income securities. At no time shall the BIF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the BIF INVESTMENT MANAGER. The BIF INVESTMENT MANAGER directs the day-to-day investment of the BIF. Contributions to the BIF are paid over to the TRUSTEE and invested in accordance with instructions received from the BIF INVESTMENT MANAGER. A participant's account is credited with the number of BIF UNITS purchased with contributions allocated to his account. (a) Cost of BIF UNITS. The cost of a BIF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the

14. Bond Index Fund (BIF) The BIF is maintained for the purpose of investing in a diversified portfolio consisting principally of marketable fixed-income securities. At no time shall the BIF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the BIF INVESTMENT MANAGER. The BIF INVESTMENT MANAGER directs the day-to-day investment of the BIF. Contributions to the BIF are paid over to the TRUSTEE and invested in accordance with instructions received from the BIF INVESTMENT MANAGER. A participant's account is credited with the number of BIF UNITS purchased with contributions allocated to his account. (a) Cost of BIF UNITS. The cost of a BIF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the FUND. (b) Value of BIF UNITS. The value of a BIF UNIT is the value of the BIF assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the BIF), divided by the number of BIF UNITS. Each payment into the BIF of contributions shall increase, and each payment out of the BIF shall decrease, the number of BIF UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 15. Conservative Asset Allocation Fund (CAAF) The FUND is maintained for the purpose of investing in a diversified portfolio with a primary emphasis on bonds and a secondary emphasis on stocks. This Fund has an allocation to each of the following Funds: the Small Company Stock Index Fund (SCSF), the Large Company Stock Index Fund (LCSF), the International Stock Index Fund (ISF), and the Bond Index Fund (BIF). At no time shall the CAAF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the CAAF INVESTMENT MANAGER. The CAAF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions from the CAAF INVESTMENT MANAGER. A participant's account is credited with the number of CAAF UNITS purchased with contributions allocated to his account. (a) Cost of CAAF UNITS. The cost of an CAAF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the CAAF. (b) Value of CAAF UNITS. The value of a CAAF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of -14-

CAAF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 16. Moderate Asset Allocation Fund (MAAF) The FUND is maintained for the purpose of investing in a diversified portfolio with an emphasis on stocks and bonds. This Fund has an allocation to each of the following Funds: the Small Company Stock Index Fund (SCSF), the Large Company Stock Index Fund (LCSF), the International Stock Index Fund (ISF), and the Bond Index Fund (BIF). However, at no time shall the MAAF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the MAAF INVESTMENT MANAGER.

CAAF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 16. Moderate Asset Allocation Fund (MAAF) The FUND is maintained for the purpose of investing in a diversified portfolio with an emphasis on stocks and bonds. This Fund has an allocation to each of the following Funds: the Small Company Stock Index Fund (SCSF), the Large Company Stock Index Fund (LCSF), the International Stock Index Fund (ISF), and the Bond Index Fund (BIF). However, at no time shall the MAAF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the MAAF INVESTMENT MANAGER. The MAAF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions from the MAAF INVESTMENT MANAGER. A participant's account is credited with the number of MAAF UNITS purchased with contributions allocated to his account. (a) Cost of MAAF UNITS. The cost of an MAAF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the MAAF. (b) Value of MAAF UNITS. The value of a MAAF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of MAAF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 17. Aggressive Asset Allocation Fund (AAAF) The FUND is maintained for the purpose of investing in a diversified portfolio with a primary emphasis on stocks and a secondary emphasis on bonds. This Fund has an allocation to each of the following Funds: the Small Company Stock Index Fund (SCSF), the Large Company Stock Index Fund (LCSF), the International Stock Index Fund (ISF), and the Bond Index Fund (BIF). However, at no time shall the AAAF be invested in securities issued or guaranteed by the COMPANY or any of its subsidiaries, except to the extent that any such securities are held in a commingled account invested in by the AAAF INVESTMENT MANAGER. The AAAF INVESTMENT MANAGER directs the day-to-day investment of the FUND. Contributions to this FUND are paid over to the TRUSTEE and invested in accordance with instructions from the AAAF INVESTMENT MANAGER. A participant's account is credited with the number of AAAF UNITS purchased with contributions allocated to his account. -15-

(a) Cost of AAAF UNITS. The cost of an AAAF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the AAAF. (b) Value of AAAF UNITS. The value of a AAAF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of AAAF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 18. Transfer of Investment Fund Balances (a) By giving NOTICE to the PLAN ADMINISTRATOR, a participant may elect to transfer any portion of the

(a) Cost of AAAF UNITS. The cost of an AAAF UNIT shall be the current value of a UNIT as determined by the TRUSTEE as of the valuation date immediately preceding the date that the TRUSTEE invests contributions in the AAAF. (b) Value of AAAF UNITS. The value of a AAAF UNIT is the value of the FUND assets, as determined each BUSINESS DAY by the TRUSTEE, less any liabilities (other than the interests of participants in the FUND), divided by the number of AAAF UNITS. Each payment into the FUND of contributions shall increase, and each payment out of the FUND shall decrease, the number of FUND UNITS by a number equal to the amount of the payment divided by the last UNIT value determination immediately preceding the date of payment. 18. Transfer of Investment Fund Balances (a) By giving NOTICE to the PLAN ADMINISTRATOR, a participant may elect to transfer any portion of the contributions held in his account, plus the earnings thereon, from any INVESTMENT FUND to another INVESTMENT FUND or FUNDS. A transfer shall be effective and shall be valued on the day it is made, if such day is a BUSINESS DAY, and the participant provides NOTICE of such transfer prior to the closing time of the New York Stock Exchange. All other transfers shall be effective and valued as of the next BUSINESS DAY. Upon receipt of a transfer NOTICE, the TRUSTEE shall value the UNITS to be transferred from the FUND and convert the UNITS to cash. The FUND account of the participant shall be debited with the number of UNITS transferred from that FUND and the TRUSTEE shall purchase with the cash proceeds realized from the converted UNITS, UNITS in the appropriate FUND or FUNDS, as designated by the participant. The cost of the UNITS purchased shall be the value of the FUND UNITS as determined on the date of transfer, and the number of UNITS purchased shall be credited to the appropriate INVESTMENT FUND account of the participant. (b) COMMON STOCK FUND -- Overall Limitation. Anything herein to the contrary notwithstanding, if, as of any single month, the TRUSTEE is required, as a result of the transfer provisions of this Section 18, to sell on the open market more than one percent of the number of outstanding shares of COMMON STOCK, then the TRUSTEE shall immediately so advise the EMPLOYEE BENEFIT FINANCE COMMITTEE. The EMPLOYEE BENEFIT FINANCE COMMITTEE may, in its sole discretion, limit, prorate, or temporarily suspend further sales of COMMON STOCK by the PLAN or take whatever steps necessary to ensure an orderly market in COMMON STOCK. The percentage limitation set forth in this subsection shall be applied to the excess of shares sold on the open market less shares purchased to meet Section 18 requirements for the applicable period. -16PARTICIPANT'S INTEREST IN THE PLAN 19. Participant Accounts The PLAN ADMINISTRATOR maintains a separate account for each PLAN participant which records the participant's interest in each of the INVESTMENT FUNDS, together with EMPLOYER CONTRIBUTIONS made on his behalf. Each account is charged with participant transfers and withdrawals and credited with its appropriate share of FUND income. The account maintained by the PLAN ADMINISTRATOR for each participant also records separately the participant's SECTION 401(k) CONTRIBUTIONS and NONSECTION 401(k) CONTRIBUTIONS, the UNITS purchased therewith, and the earnings thereon. All Basic Contributions and Supplemental Contributions made to the PLAN as it existed prior to October 1, 1984, are recorded as NON-SECTION 401(k) CONTRIBUTIONS on the records maintained by the PLAN ADMINISTRATOR. Whenever UNITS attributable to a participant's SECTION 401(k) CONTRIBUTIONS are transferred to another FUND OR FUNDS, the resulting UNITS are also recorded as attributable to SECTION 401(k) CONTRIBUTIONS. Similarly, UNITS attributable to NON-SECTION 401(k) CONTRIBUTIONS which are transferred to another FUND or FUNDS are also recorded as NON-SECTION 401(k) CONTRIBUTIONS. A participant is at all times fully vested in his own contributions and all

PARTICIPANT'S INTEREST IN THE PLAN 19. Participant Accounts The PLAN ADMINISTRATOR maintains a separate account for each PLAN participant which records the participant's interest in each of the INVESTMENT FUNDS, together with EMPLOYER CONTRIBUTIONS made on his behalf. Each account is charged with participant transfers and withdrawals and credited with its appropriate share of FUND income. The account maintained by the PLAN ADMINISTRATOR for each participant also records separately the participant's SECTION 401(k) CONTRIBUTIONS and NONSECTION 401(k) CONTRIBUTIONS, the UNITS purchased therewith, and the earnings thereon. All Basic Contributions and Supplemental Contributions made to the PLAN as it existed prior to October 1, 1984, are recorded as NON-SECTION 401(k) CONTRIBUTIONS on the records maintained by the PLAN ADMINISTRATOR. Whenever UNITS attributable to a participant's SECTION 401(k) CONTRIBUTIONS are transferred to another FUND OR FUNDS, the resulting UNITS are also recorded as attributable to SECTION 401(k) CONTRIBUTIONS. Similarly, UNITS attributable to NON-SECTION 401(k) CONTRIBUTIONS which are transferred to another FUND or FUNDS are also recorded as NON-SECTION 401(k) CONTRIBUTIONS. A participant is at all times fully vested in his own contributions and all EMPLOYER CONTRIBUTIONS credited to his account, together with income attributable thereto. 20. Account Statements As soon as practicable after the end of each CALENDAR QUARTER, all participants will receive from the ADMINISTRATOR a statement of their interest in the PLAN. PLAN WITHDRAWALS 21. Withdrawal During Service Except as provided in this Section, withdrawals of any part of a participant's interest in the PLAN are not permitted as long as SERVICE continues. A participant may never replace in the TRUST FUND any UNITS or cash which have been withdrawn. By submitting a withdrawal Form, a participant may make withdrawals as provided below. (a) SECTION 401(k) CONTRIBUTIONS. (1) A participant may withdraw all or part of the UNITS, including income thereon and including additional UNITS attributable thereto, bought with the participant's SECTION 401(k) CONTRIBUTIONS upon the occurrence of any of the following events: a) the participant is disabled and is receiving benefits under the LONG TERM DISABILITY PLAN; or b) the participant has attained age 59 1/2. -17-

(2) A participant may withdraw an amount equal to his SECTION 401(k) CONTRIBUTIONS, as we ll as any income and UNITS attributable to income accrued thereon prior to January 1, 1989, upon receipt of satisfactory proof by the PLAN ADMINISTRATOR that the withdrawal is required to meet immediate and heavy financial needs of the participant which constitute a valid hardship as defined under the CODE and regulations issued by the Secretary of the Treasury. A request for a withdrawal for one of the following reasons will be deemed to be on account of a valid hardship: a) To cover medical expenses (as defined in Section 213(d) of the CODE) of the participant, the participant's spouse or dependents (as defined in Section 152 of the CODE); b) The purchase of a participant's principal place of residence, but not including mortgage payments; c) To meet tuition payments for the next semester or quarter of post-secondary education for the participant, his

(2) A participant may withdraw an amount equal to his SECTION 401(k) CONTRIBUTIONS, as we ll as any income and UNITS attributable to income accrued thereon prior to January 1, 1989, upon receipt of satisfactory proof by the PLAN ADMINISTRATOR that the withdrawal is required to meet immediate and heavy financial needs of the participant which constitute a valid hardship as defined under the CODE and regulations issued by the Secretary of the Treasury. A request for a withdrawal for one of the following reasons will be deemed to be on account of a valid hardship: a) To cover medical expenses (as defined in Section 213(d) of the CODE) of the participant, the participant's spouse or dependents (as defined in Section 152 of the CODE); b) The purchase of a participant's principal place of residence, but not including mortgage payments; c) To meet tuition payments for the next semester or quarter of post-secondary education for the participant, his spouse, children or dependents; or d) To prevent the eviction of the participant from his principal place of residence, or to prevent a foreclosure of the mortgage on the participant's principal place of residence. A request for a withdrawal under this subsection 21(a)(2) will not be deemed to be for immediate and heavy financial needs unless the participant represents that the need cannot be met from the following resources: a) through reimbursement or compensation by insurance or otherwise, b) by reasonable liquidation of the participant's resources, c) by cessation of contributions to the PLAN, or d) by other distributions, withdrawals or nontaxable loans from any plans maintained by an EMPLOYER, or by borrowing from commercial sources on reasonable commercial terms. For purposes of this Subsection 21(a)(2), a participant's resources shall be deemed to include any assets of his spouse and minor children that are reasonably available to the participant. In addition, withdrawals under Subsection 21(a)(2) may not exceed the amount actually required to meet the participant's immediate financial needs. (3) A participant who withdraws UNITS under Subsection 21(a) will automatically be suspended from the PLAN and will not be permitted to resume making contributions to the PLAN for six months following the date upon which the withdrawal Form is processed by the PLAN ADMIN-18-

ISTRATOR. After suspension ends, contributions may be resumed by giving NOTICE to the PLAN ADMINISTRATOR. (b) NON-SECTION 401(k) CONTRIBUTIONS. A participant may at any time elect to withdraw all or any part of the UNITS including income thereon and including additional UNITS attributable thereto, bought with the participant's NON-SECTION 401(k) CONTRIBUTIONS to the PLAN. Such an election will not cause suspension from the PLAN. (c) EMPLOYER CONTRIBUTIONS. (1) A participant may withdraw all or any part of the UNITS, including the income attributable thereto, bought with EMPLOYER CONTRIBUTIONS which were made to the PLAN at anytime prior to the second YEAR preceding the current YEAR. For example, UNITS, including the income attributable thereto, purchased with EMPLOYER CONTRIBUTIONS made in 1981 and prior years may be withdrawn in 1984 or anytime thereafter. Such an election will not cause suspension from the PLAN.

ISTRATOR. After suspension ends, contributions may be resumed by giving NOTICE to the PLAN ADMINISTRATOR. (b) NON-SECTION 401(k) CONTRIBUTIONS. A participant may at any time elect to withdraw all or any part of the UNITS including income thereon and including additional UNITS attributable thereto, bought with the participant's NON-SECTION 401(k) CONTRIBUTIONS to the PLAN. Such an election will not cause suspension from the PLAN. (c) EMPLOYER CONTRIBUTIONS. (1) A participant may withdraw all or any part of the UNITS, including the income attributable thereto, bought with EMPLOYER CONTRIBUTIONS which were made to the PLAN at anytime prior to the second YEAR preceding the current YEAR. For example, UNITS, including the income attributable thereto, purchased with EMPLOYER CONTRIBUTIONS made in 1981 and prior years may be withdrawn in 1984 or anytime thereafter. Such an election will not cause suspension from the PLAN. (2) UNITS, including the income attributable thereto, bought with EMPLOYER CONTRIBUTIONS which would not be withdrawable under Subsection 21(c)(1), shall nonetheless be withdrawable upon the occurrence of any of the following events: a) the participant is disabled and is receiving benefits under the LONG TERM DISABILITY PLAN; b) the participant attains 59-1/2; or c) the participant has requested and is entitled to receive a hardship distribution which meets the requirements of Subsection 21(a)(2) but only if all amounts distributable under Subsection 21(a) have been exhausted. Anything herein to the contrary notwithstanding, if as of any single month, the TRUSTEE is required as a result of the withdrawal provisions of this Subsection 21(c), to sell on the open market more than one percent of the outstanding shares of COMMON STOCK, then the TRUSTEE shall immediately so advise the EMPLOYEE BENEFIT FINANCE COMMITTEE. The EMPLOYEE BENEFIT FINANCE COMMITTEE may, in its sole discretion, limit, prorate, or temporarily suspend further sales of COMMON STOCK by the PLAN or take whatever steps necessary to ensure an orderly market in COMMON STOCK. A participant shall submit the appropriate Form to the SAVINGS FUND PLAN directing the PLAN ADMINISTRATOR as to the amount of the withdrawal. Distribution will be made as soon as practicable after receipt of the withdrawal Form. Upon each withdrawal, the UNITS credited to the appropriate FUND or FUNDS will be reduced by the number of UNITS withdrawn. Withdrawals from the BOND FUND can only be made in United States BONDS. Withdrawals from the COMMON STOCK FUND may be made in cash or whole shares of stock at the -19-

election of the participant. Withdrawals of LCSF, SCSF, ISF, SVF, BIF, CAAF, MAAF or AAAF UNITS will be made in cash at the then current value of the UNITS; or, at the election of the participant, the UNITS will be transferred to the COMMON STOCK FUND pursuant to Section 18 and distribution will be made in whole shares of COMMON STOCK. (d) ROLLOVER CONTRIBUTIONS. A participant may at any time elect to withdraw all or any part of the UNITS including income thereon bought with the participant's Rollover Contributions to the PLAN. Such an election will not cause suspension from the PLAN. (e) ORDERING OF WITHDRAWALS. Whenever the PLAN ADMINISTRATOR is required to make a distribution under this Section 21 or Section 22, the PLAN ADMINISTRATOR shall first withdraw UNITS and earnings thereon attributable to a participant's NON-SECTION 401(k) CONTRIBUTIONS made prior to 1987, followed by UNITS and earnings thereon attributable to NON-SECTION 401(k) CONTRIBUTIONS made after 1986, followed by Units and earnings thereon attributable to Rollover Contributions, followed by

election of the participant. Withdrawals of LCSF, SCSF, ISF, SVF, BIF, CAAF, MAAF or AAAF UNITS will be made in cash at the then current value of the UNITS; or, at the election of the participant, the UNITS will be transferred to the COMMON STOCK FUND pursuant to Section 18 and distribution will be made in whole shares of COMMON STOCK. (d) ROLLOVER CONTRIBUTIONS. A participant may at any time elect to withdraw all or any part of the UNITS including income thereon bought with the participant's Rollover Contributions to the PLAN. Such an election will not cause suspension from the PLAN. (e) ORDERING OF WITHDRAWALS. Whenever the PLAN ADMINISTRATOR is required to make a distribution under this Section 21 or Section 22, the PLAN ADMINISTRATOR shall first withdraw UNITS and earnings thereon attributable to a participant's NON-SECTION 401(k) CONTRIBUTIONS made prior to 1987, followed by UNITS and earnings thereon attributable to NON-SECTION 401(k) CONTRIBUTIONS made after 1986, followed by Units and earnings thereon attributable to Rollover Contributions, followed by UNITS withdrawable under Subsection 21(c)(1) followed by UNITS withdrawable under Subsection 21(c)(2), but only if available for withdrawal under that subsection, followed by UNITS and earnings thereon attributable to a participant's SECTION 401(k) CONTRIBUTIONS, but only to the extent that such UNITS can be withdrawn by the participant under Subsection 21(a). 22. Termination of Participation Participation in the PLAN ends as of the date that a participant ceases to be an ELIGIBLE EMPLOYEE. Although a former participant may elect to have an account balance held in the PLAN under Section 23 after participation ends, a former participant may not contribute to the PLAN, except that contributions to the PLAN will be accepted with respect to retroactive wage payments. A former participant who has an account balance in the PLAN may make withdrawals from the account balance, and transfer from one or more FUNDS to another FUND or FUNDS pursuant to the terms of the PLAN. Upon the death of a participant, the PLAN ADMINISTRATOR shall distribute the participant's account balance to the participant's BENEFICIARY within a reasonable time but not later than 60 days after receipt of a completed withdrawal form or 180 days after the PLAN ADMINISTRATOR receives NOTICE of the participant's death. If the BENEFICIARY does not complete a withdrawal form within the time periods set forth above, the distribution shall be in cash and paid directly to the BENEFICIARY. 23. Distribution of Plan Benefits (a) Upon termination of participation, a distribution shall be made of the balances allocated to a participant's accounts if the value of the participant's account is $3,500 or less. Such distribution shall be made no later than the 60th day following the close of the PLAN YEAR in which participation terminates, unless the participant elects to receive distribution at an earlier date. If the value of a participant's account exceeds $3,500, distribution will be made upon receipt by -20-

the PLAN ADMINISTRATOR of the written distribution request of the participant. Distribution will therefore be made within 60 days of the receipt of such distribution request. Any provision of the PLAN notwithstanding, if participation continues beyond the end of the YEAR in which the participant attains age 70-1/2, distribution of the participant's entire interest in the PLAN shall be made no later than April 1 of the YEAR following the YEAR in which the participant attains age 70-1/2. All distributions due under the PLAN shall be payable only out of the PLAN's assets as directed by the ADMINISTRATOR. Unless a cash distribution is requested the TRUSTEE will distribute a certificate for the whole shares of COMMON STOCK, the United States BONDS, and the TRUSTEE'S check for the then current value of all other UNITS credited to the participant's account, plus any uninvested cash. Alternatively, at the direction of the participant, FUND UNITS other than U.S. SAVINGS BONDS UNITS may be transferred to the COMMON STOCK FUND pursuant to Section 18 and distribution will be made in

the PLAN ADMINISTRATOR of the written distribution request of the participant. Distribution will therefore be made within 60 days of the receipt of such distribution request. Any provision of the PLAN notwithstanding, if participation continues beyond the end of the YEAR in which the participant attains age 70-1/2, distribution of the participant's entire interest in the PLAN shall be made no later than April 1 of the YEAR following the YEAR in which the participant attains age 70-1/2. All distributions due under the PLAN shall be payable only out of the PLAN's assets as directed by the ADMINISTRATOR. Unless a cash distribution is requested the TRUSTEE will distribute a certificate for the whole shares of COMMON STOCK, the United States BONDS, and the TRUSTEE'S check for the then current value of all other UNITS credited to the participant's account, plus any uninvested cash. Alternatively, at the direction of the participant, FUND UNITS other than U.S. SAVINGS BONDS UNITS may be transferred to the COMMON STOCK FUND pursuant to Section 18 and distribution will be made in whole shares of COMMON STOCK. If a participant elects a cash distribution, upon receipt of the appropriate Form requesting such distribution, the TRUSTEE will distribute the then current value of the INVESTMENT FUND UNITS and uninvested cash. Until the TRUSTEE converts INVESTMENT FUND UNITS to cash, all UNITS shall continue to share in investment gains and losses. Distributions from the BOND FUND can only be made in United States BONDS. (b) Any provision of the PLAN notwithstanding: Unless the participant otherwise elects, distribution to such participant shall be made (or shall commence) not later than the 60th day after the close of the PLAN YEAR in which occurs the latest of the following events: (1) The participant attains age 65; (2) The participant attains the 10th anniversary of the date on which he or she became a participant under the PLAN; or (3) The participant's termination of employment with the EMPLOYER. (c) Distributions hereunder will be made in accordance with Section 401(a)(9) of the CODE and the regulations thereunder, including Treasury regulation Section 1.401(a)(9)-2, which are incorporated by reference herein. 24. Direct Rollovers Notwithstanding any provision of the PLAN to the contrary that would otherwise limit a participant's election under this section, effective January 1, 1993, a participant or BENEFICIARY who is a surviving spouse may elect, at the time and in the manner prescribed by the PLAN ADMINISTRATOR, to have any portion of an eligible rollover distribution, as defined below, paid directly to an eligible retirement plan, as defined below, specified by the participant or BENEFICIARY who is a surviving spouse in a direct -21-

rollover. Any taxable portion of an eligible rollover distribution that is not transferred directly to an eligible retirement plan will be subject to mandatory federal income tax withholding. (a) An eligible rollover distribution shall mean any distribution of all or any portion of the balance to the credit of the participant, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the participant or the joint lives (joint life expectancies) of the participant and his or her designated BENEFICIARY, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the CODE; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) An eligible retirement plan shall mean an individual retirement account described in Section 408(a) of the

rollover. Any taxable portion of an eligible rollover distribution that is not transferred directly to an eligible retirement plan will be subject to mandatory federal income tax withholding. (a) An eligible rollover distribution shall mean any distribution of all or any portion of the balance to the credit of the participant, except that an eligible rollover distribution does not include any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the participant or the joint lives (joint life expectancies) of the participant and his or her designated BENEFICIARY, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the CODE; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (b) An eligible retirement plan shall mean an individual retirement account described in Section 408(a) of the CODE, an individual retirement annuity described in Section 408(b) of the CODE, an annuity plan described in Section 403(a) of the CODE, or a qualified trust described in Section 401(a) of the CODE, that accepts the participant's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. ADMINISTRATIVE PROVISIONS 25. Company's Powers and Duties The COMPANY, acting through its BOARD OF DIRECTORS or Executive Committee, reserves to itself the exclusive power to amend, suspend or terminate the PLAN as provided below and to appoint and remove from time to time: (a) The individuals comprising the EMPLOYEE BENEFIT FINANCE COMMITTEE; (b) The individuals comprising the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE; and (c) The EMPLOYERS whose EMPLOYEES may participate in the PLAN. All powers and duties not reserved to the COMPANY are delegated to the EMPLOYEE BENEFIT FINANCE COMMITTEE and to the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE. Action of either committee shall be by vote of a majority of the members of the committee at a meeting, or in writing without a meeting and evidenced by the signature of any member who is so authorized by the committee. The COMPANY indemnifies each member of each committee against any personal liability or expense arising out of any action or inaction of the committee or of any member of the committee or of such individual, except that due to his own willful misconduct. -2226. Funding and Investment Provisions The EMPLOYEE BENEFIT FINANCE COMMITTEE appointed by the COMPANY'S BOARD OF DIRECTORS to serve at its pleasure has the express powers and duties described in this section. (a) Appointments. The EMPLOYEE BENEFIT FINANCE COMMITTEE has the sole power and duty from time to time to appoint and remove the TRUSTEE, the INVESTMENT MANAGER, actuaries, accountants and such other advisors and consultants as may be needed for the proper financial administration and investment of the assets of the PLAN. Supplementing such appointments, the EMPLOYEE BENEFIT FINANCE COMMITTEE may enter into appropriate agreements with each TRUSTEE, INVESTMENT MANAGER or other advisors appointed under this paragraph and delegate to them appropriate powers and duties. The EMPLOYEE BENEFIT FINANCE COMMITTEE may appoint and delegate to one or more individuals the power and duty to handle the day-to-day financial administration of the PLAN. Such individuals need not be members of the committee and shall serve at the pleasure of the committee. (b) Investment Policy. The funding policy is set forth in Sections 3 and

26. Funding and Investment Provisions The EMPLOYEE BENEFIT FINANCE COMMITTEE appointed by the COMPANY'S BOARD OF DIRECTORS to serve at its pleasure has the express powers and duties described in this section. (a) Appointments. The EMPLOYEE BENEFIT FINANCE COMMITTEE has the sole power and duty from time to time to appoint and remove the TRUSTEE, the INVESTMENT MANAGER, actuaries, accountants and such other advisors and consultants as may be needed for the proper financial administration and investment of the assets of the PLAN. Supplementing such appointments, the EMPLOYEE BENEFIT FINANCE COMMITTEE may enter into appropriate agreements with each TRUSTEE, INVESTMENT MANAGER or other advisors appointed under this paragraph and delegate to them appropriate powers and duties. The EMPLOYEE BENEFIT FINANCE COMMITTEE may appoint and delegate to one or more individuals the power and duty to handle the day-to-day financial administration of the PLAN. Such individuals need not be members of the committee and shall serve at the pleasure of the committee. (b) Investment Policy. The funding policy is set forth in Sections 3 and 4. The EMPLOYEE BENEFIT FINANCE COMMITTEE has the sole power and duty to establish the investment policy and to review and revise it from time to time as the committee shall determine in its sole discretion. A copy of the current investment policy will be available for participants' review in the ADMINISTRATOR'S office. Any revision of the investment policy shall not be an amendment of the PLAN. 27. Administration The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE, appointed by the COMPANY'S BOARD OF DIRECTORS to serve at its pleasure, is the ADMINISTRATOR of the PLAN and is responsible for the overall administration of the PLAN. The ADMINISTRATOR has the sole power and duty to establish, and from time to time revise, such rules and regulations as may be necessary to administer the PLAN in a nondiscriminatory manner for the exclusive benefit of participants and all other persons entitled to benefits under the PLAN. The ADMINISTRATOR shall also maintain such records and make such computations, interpretations and decisions as may be necessary or desirable for the proper administration of the PLAN. The ADMINISTRATOR shall maintain for participants' inspection copies of the PLAN, TRUST AGREEMENT, investment policy, each agreement with an INVESTMENT MANAGER, the latest annual report, PLAN description and summary description and any amendments or changes in any of these documents. On written request, participants may obtain from the ADMINISTRATOR a copy of any of these documents at a cost established by the ADMINISTRATOR from time to time. The ADMINISTRATOR may appoint and delegate to one or more individuals the power and duty to handle the day-to-day administration of the PLAN. Such individuals need not be members of the committee and shall serve at the pleasure of the committee. -23-

The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall serve as the final review committee under the PLAN, to determine conclusively for all parties any and all questions arising from the administration of the PLAN and shall have sole and complete discretionary authority and control to manage the operation and administration of the PLAN, including, but not limited to, the determination of all questions relating to eligibility for participation and benefits, interpretation of all PLAN provisions, determination of the amount and kind of benefits payable to any participant or BENEFICIARY, and construction of disputed or doubtful terms. Such decisions shall be conclusive and binding on all parties and not subject to further review. 28. Claims and Appeals Procedure If a claim is denied in whole or in part, the ADMINISTRATOR shall furnish to the claimant a written notice setting forth: (a) Specific reason(s) for the denial,

The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall serve as the final review committee under the PLAN, to determine conclusively for all parties any and all questions arising from the administration of the PLAN and shall have sole and complete discretionary authority and control to manage the operation and administration of the PLAN, including, but not limited to, the determination of all questions relating to eligibility for participation and benefits, interpretation of all PLAN provisions, determination of the amount and kind of benefits payable to any participant or BENEFICIARY, and construction of disputed or doubtful terms. Such decisions shall be conclusive and binding on all parties and not subject to further review. 28. Claims and Appeals Procedure If a claim is denied in whole or in part, the ADMINISTRATOR shall furnish to the claimant a written notice setting forth: (a) Specific reason(s) for the denial, (b) The PLAN provision(s) on which the denial is based, (c) A description of any material or information, if any, necessary for the claimant to perfect the claim, and an explanation of why such material or information is necessary, and (d) Information concerning the steps to be taken if claimant wishes to submit a claim for review. The above information shall be furnished to the claimant within 90 days after the claim is received by the ADMINISTRATOR. If a claimant is not satisfied with the written NOTICE described in the preceding paragraph, such claimant may request a full and fair review by so notifying the ADMINISTRATOR in writing within 90 days after receiving such notice. If a review is requested the claimant shall also be entitled, upon written request, to review pertinent documents and to submit issues and comments in writing. The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall furnish the claimant with a written final decision within 60 days after receipt of the request for review. 29. Qualified Domestic Relations Orders The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall apply the provisions of this section with regard to a Domestic Relations Order (as defined below) to the extent not inconsistent with Section 414(p) of the CODE. The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall establish procedures, consistent with Section 414(p) of the CODE, to determine the qualified status of any Domestic Relations Order, to administer distributions under any Qualified Domestic Relations Order (as defined below), and to provide to the Participant and the Alternate Payee(s) (as defined below) all notices required under Section 414(p) of the CODE with respect to any Domestic Relations Order. -24-

Within a reasonable period of time after the receipt of a Domestic Relations Order (or any modification thereof), the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall determine whether such order is a Qualified Domestic Relations Order. For purposes of this section: (a) Alternate Payee shall mean any spouse, former spouse, child, or other dependent of a participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the PLAN with respect to such Participant. (b) Domestic Relations Order shall mean any judgment, decree, or order (including approval of a property

Within a reasonable period of time after the receipt of a Domestic Relations Order (or any modification thereof), the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall determine whether such order is a Qualified Domestic Relations Order. For purposes of this section: (a) Alternate Payee shall mean any spouse, former spouse, child, or other dependent of a participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the PLAN with respect to such Participant. (b) Domestic Relations Order shall mean any judgment, decree, or order (including approval of a property settlement agreement) which: (1) relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant; and (2) is made pursuant to a state domestic relations law (including a community property law). (c) Qualified Domestic Relations Order shall mean a Domestic Relations Order which meets the requirements of Section 414(p)(1) of the CODE. 30. Lost Participant or Beneficiary If, after three years, the ADMINISTRATOR cannot locate a participant or BENEFICIARY who is entitled to a distribution from an account, the UNITS, cash or COMMON STOCK in the account shall be applied to reduce the amount of future EMPLOYER CONTRIBUTIONS payable to the PLAN. A participant or BENEFICIARY who is entitled to a distribution from an account which has previously been applied to reduce EMPLOYER CONTRIBUTIONS under this Section 30 shall, upon filing a written claim, have the account reinstated in full and upon such reinstatement shall receive a distribution of the balance in the reinstated account, with interest at the prevailing legal rate accrued from the date his account was applied to reduce EMPLOYER CONTRIBUTIONS. 31. Benefits Are Not Assignable Except as may be required by law, a participant's interest in the PLAN and that of a participant's BENEFICIARY or spouse shall not be subject in any manner to assignment, anticipation, alienation, sale, transfer, pledge, encumbrance or charge, whether voluntary or involuntary, and any attempt to so assign, anticipate, sell, transfer, pledge, encumber or charge the same shall be void. -2532. Facility of Payment If the ADMINISTRATOR determines that any individual entitled to any payment under the PLAN is physically or mentally incompetent and no guardian or conservator has been appointed to receive such payment, the ADMINISTRATOR may cause all payments thereafter becoming due to such individual to be applied for and on behalf of and for the benefit of such individual. Payments made pursuant to this provision shall completely discharge the EMPLOYER, the ADMINISTRATOR, the TRUSTEE and all fiduciaries of all further responsibility with respect to such individual. 33. Future of the Plan If participation in the PLAN is ended because a substantial portion of an EMPLOYER'S property is sold or otherwise disposed of or because an EMPLOYER withdraws from the PLAN, a participant's interest is determined in accordance with the provisions of the next paragraphs as if the PLAN itself has been terminated. The COMPANY hopes and expects to continue this PLAN indefinitely, but because future conditions cannot be foreseen, its BOARD OF DIRECTORS necessarily reserves the right to amend or terminate the PLAN at any

32. Facility of Payment If the ADMINISTRATOR determines that any individual entitled to any payment under the PLAN is physically or mentally incompetent and no guardian or conservator has been appointed to receive such payment, the ADMINISTRATOR may cause all payments thereafter becoming due to such individual to be applied for and on behalf of and for the benefit of such individual. Payments made pursuant to this provision shall completely discharge the EMPLOYER, the ADMINISTRATOR, the TRUSTEE and all fiduciaries of all further responsibility with respect to such individual. 33. Future of the Plan If participation in the PLAN is ended because a substantial portion of an EMPLOYER'S property is sold or otherwise disposed of or because an EMPLOYER withdraws from the PLAN, a participant's interest is determined in accordance with the provisions of the next paragraphs as if the PLAN itself has been terminated. The COMPANY hopes and expects to continue this PLAN indefinitely, but because future conditions cannot be foreseen, its BOARD OF DIRECTORS necessarily reserves the right to amend or terminate the PLAN at any time. However, no amendment, merger or consolidation of the PLAN may be made which would reduce the right that any individual may then have with respect to the PLAN's assets then being held under the PLAN or permit any funds to revert to an EMPLOYER or to be used for any purpose except for the exclusive benefit of participants, spouses and BENEFICIARIES. If the PLAN is terminated, all contributions to the PLAN shall cease but the PLAN shall continue to operate in all other respects until all of the TRUST assets have been distributed in accordance with the provisions of the PLAN in effect on the date of its termination. In the event of a merger or consolidation with, or transfer of assets or liabilities to any other plan, if such other plan is then terminated, participant shall receive a benefit immediately after such merger, consolidation, or transfer which is equal to or greater than the benefit which participant would have received had the PLAN terminated immediately prior to such merger, consolidation, or transfer.
34. Definitions ----------AAAF: ----Aggressive Asset Allocation Fund: --------------------------------The Aggressive Asset Allocation Fund. A fund invested in a diversified portfolio with a primary emphasis on stocks and a secondary emphasis on bonds. (See Section 17) Employee Benefit Administrative Committee, Market Street, 3d Floor, Mail Code N3X, P.O. Box 770000, San Francisco, California 94177 The Bond Index Fund.

Administrator: --------------

BIF: ----26-

Beneficiary: ------------

The person or persons entitled to receive any distribution due under the Plan in the event of a participant's death. For a married participant, the participant's spouse shall automatically be the Beneficiary unless the participant, with the written consent of his spouse, elects to designate another person or persons to be Beneficiary. The consent of the spouse shall be in writing, shall acknowledge the effect of the consent, and shall

Beneficiary: ------------

The person or persons entitled to receive any distribution due under the Plan in the event of a participant's death. For a married participant, the participant's spouse shall automatically be the Beneficiary unless the participant, with the written consent of his spouse, elects to designate another person or persons to be Beneficiary. The consent of the spouse shall be in writing, shall acknowledge the effect of the consent, and shall be witnessed by a notary public or Plan representative. A participant designates a Beneficiary on a Designation of Beneficiary Form available from the Plan Administrator. In the event an unmarried participant does not designate a Beneficiary, the participant's estate shall be deemed to be the Beneficiary. The Board of Directors of Pacific Gas and Electric Company. A fund invested in United States Savings Bonds. (See Section 9) A fund invested in marketable fixed-income securities. (See Section 14) Series "EE" Savings Bonds issued by the United States Treasury. If the issuance of Series "EE" Bonds is discontinued, Bonds will refer to any other Bond issued by the United States Treasury which the Employee Benefit Finance Committee selects for purchase under the Plan. Any day that the New York Stock Exchange is open for business. The Conservative Asset Allocation Fund. The three month period commencing on January 1, April 1, July 1 or October 1. The Internal Revenue Code of 1986, as amended from time to time. Pacific Gas and Electric Company.

Board of Directors: ------------------Bond Fund: ---------Bond Index Fund: ----------------

Bonds: ------

Business Day: ------------CAAF: ----Calendar Quarter: -----------------

Code: ----Company: -------Common Stock: -------------27-

The common stock issued by PG&E Corporation.

Common Stock Fund: ------------------

A fund invested in the common stock issued by PG&E Corporation. (See Section 8) A fund invested in a diversified portfolio with a primary emphasis on bonds and a secondary emphasis

Conservative Asset Allocation Fund: -----------------------------------

Common Stock Fund: ------------------

A fund invested in the common stock issued by PG&E Corporation. (See Section 8) A fund invested in a diversified portfolio with a primary emphasis on bonds and a secondary emphasis on stocks. (See Section 15) Earnings from an Employer, including straight-time pay for hours worked, shift and nuclear premiums at the straight-time rate, straight-time pay for temporary upgrades, vacation pay (including vacation pay upon retirement), inclement weather pay, sick leave pay, holiday pay, differential pay for military training, pay for other time off with permission carrying full pay, temporary compensation under any state Worker's Compensation Law, payments under the Long Term Disability Plan, or supplemental benefits for industrial injury. Covered Compensation shall not include pay or shift and nuclear premiums for more than 40 hours per week, overtime bonuses, vacation or holiday pay requests other special fees or allowances, per diem allowances, payments, other than temporary compensation, made under any Workers' Compensation Law, voluntary wage benefit or state disability plans, or any other benefit plan. For Plan Years beginning after 1988 and before 1994, the maximum Covered Compensation of each Employee that may be taken into account each Plan Year shall not exceed $200,000 (as adjusted by the Secretary of the Treasury under Section 401(a)(17) of the Code. For Plan Years beginning after 1993, the maximum Covered Compensation of each Employee that may be taken into account each Plan Year shall not exceed $150,000 (as adjusted by the Secretary of the Treasury under Section 401(a)(17) of the Code). In determining the Covered Compensation of a Highly Compensated Employee for purposes of this limitation, the rules of Section 414(q)(6) of the Code shall apply, except that the term "family" shall include only the spouse of the Employee and any lineal descendants of the Employee who have not attained age 19 before the close of the Year. If the aggregate Covered Compensation of family members exceeds the applicable compensation limit as -28-

Conservative Asset Allocation Fund: -----------------------------------

Covered Compensation: ---------------------

limited by Section 401(a)(17) of the Code, then the amount of

limited by Section 401(a)(17) of the Code, then the amount of Covered Compensation considered under the Plan for each family member is proportionately reduced so that the total equals the applicable compensation limitation under Section 401(a)(17) of the Code. Eligible Employee: -----------------One entitled to become a contributing participant, provided, however, a "leased employee," as defined in Section 414(n)(2) of the Code shall not be entitled to become an Eligible Employee An Employee of an Employer who is not represented by a union.

Employee: --------Employee Benefit Administrative Committee: -------------------------------

The Employee Benefit Administrative Committee referred to in Section 27. The Employee Benefit Finance Committee referred to in Section 26. Pacific Gas and Electric Company, Pacific Service Employees Association, and any other company, association, or credit union designated by the Board of Directors as eligible to participate in this Plan as an Employer. Any contributions to the Plan by Company. Amounts which a participant elects pursuant to the Company's Flex Plan to contribute as Section 401(k) Contributions. Rules governing FlexDollars are contained in the Company's Flex Plan; rules governing the treatment of FlexDollars under this Plan are contained in Subsection 3(b). The Company Stock Fund, The Bond Fund, the Bond Index Fund, the Large Company Stock Index Fund, the Small Company Stock Index Fund, the International Stock Index Fund, the Stable Value Fund, the Conservative Asset Allocation Fund, the Moderate Asset Allocation Fund and the Aggressive Asset Allocation Fund or any of them. -29-

Employee Benefit Finance Committee: ----------------------------------Employer: ---------

Employer Contributions: ----------------------FlexDollars: ------------

Fund: -----

Highly Compensated: -------------------

Whether an Eligible Employee is Highly Compensated shall be determined using the simplified method under Code Section 414(q)(12) as described in applicable Treasury regulations or other guidance issued by the

Highly Compensated: -------------------

Whether an Eligible Employee is Highly Compensated shall be determined using the simplified method under Code Section 414(q)(12) as described in applicable Treasury regulations or other guidance issued by the Internal Revenue Service. The Company Stock Fund, The Bond Fund, the Bond Index Fund, the Large Company Stock Index Fund, the Small Company Stock Index Fund, the International Stock Index Fund, the Stable Value Fund, the Conservative Asset Allocation Fund, the Moderate Asset Allocation Fund and the Aggressive Asset Allocation Fund or any of them. STABLE VALUE FUND. PRIMCO Capital Management, Inc., 101 South Fifth Street, Louisville, Kentucky 40202, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. BOND INDEX FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. LARGE COMPANY STOCK INDEX FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. SMALL COMPANY STOCK INDEX FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. INTERNATIONAL STOCK INDEX FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. -30-

Investment Fund: ----------------

Investment Manager: -------------------

CONSERVATIVE ASSET ALLOCATION FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. MODERATE ASSET ALLOCATION FUND. State Street Bank and Trust, Two

CONSERVATIVE ASSET ALLOCATION FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. MODERATE ASSET ALLOCATION FUND. State Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. AGGRESSIVE ASSET ALLOCATION FUND. Stat Street Bank and Trust, Two International Place, Boston, MA 02110, or such other firm or individual as may be selected from time to time by the Employee Benefit Finance Committee. Long Term Disability Plan: -------------------------Part B of the Group Life Insurance and Long term Disability Plan of Pacific Gas and Electric Company as amended January 1, 1991. The Moderate Asset Allocation Fund.

MAAF: ----Moderate Asset Allocation Fund: -------------------------------

A fund invested in a diversified portfolio with an emphasis on stocks and bonds. (See Section 16) Employee contributions to the Plan as described in Subsection 3(c) and all Employee Contributions made prior to October 1, 1984. NonSection 401(k) Contributions are made with after-tax dollars. Any method of communication, whether electronic, telephonic, written or other, provided that the Plan Administrator has communicated in writing to participants any such method and its format as appropriate and acceptable. This Company's Savings Fund Plan for Non-Union Employees, as amended, revised and set forth herein. The Company's Retirement Plan as revised from time to time. -31-

Non-Section 401(k) Contributions: ---------------------------------

Notice: -------

Plan: -----

Retirement Plan: ----------------

Rollover Contribution: ----------------------

An amount contributed by a participant which originated from another employer's qualified plan which is eligible for rollover under Section 402(c)(4) of the Code. 245 Market Street, 3d Floor Mail Code N3X P.O. Box 770000 San Francisco, CA 94177

Savings Fund Plan Office: -------------------------

Rollover Contribution: ----------------------

An amount contributed by a participant which originated from another employer's qualified plan which is eligible for rollover under Section 402(c)(4) of the Code. 245 Market Street, 3d Floor Mail Code N3X P.O. Box 770000 San Francisco, CA 94177

Savings Fund Plan Office: -------------------------

Section 401(k) Contributions: -----------------------------

Amounts deferred from a Participant's Covered Compensation as described in Subsection 3(a). Section 401(k) Contributions are made with pre-tax dollars. The period of time commencing with the first day of employment or reemployment for an Employer and ending on participant's Severance from Service Date. If an Employee with less than one year of Service is rehired after a period of severance which extends for 12 months or more, the Employee shall be treated as a new Employee for all purposes, and the Service and compensation before the Severance from Service Date shall not be recognized for any purpose of the Plan. Participants who have a period of severance after they have completed at least one year of Service and who are later rehired, immediately become Eligible Employees entitled to contribute in accordance with their total years of Service. Service shall also include all years of Service with: (a) Any corporation which is a member of the same controlled group of corporations as the Company or of any other Employer (within the meaning of Section 414(b) of the Code); (b) Any trade or business under the common control of the Company or of any other Employer (within the meaning of Section 414(c) of the Code); (c) Any service organization which is a member of the same affiliated service group as the Company or of any other Employer (within the meaning of -32-

Service: --------

Section 414(m) of the Code). Severance From Service Date: ---------------------------A. The date on which an Employee quits, retires, is discharged or dies; or

Section 414(m) of the Code). Severance From Service Date: ---------------------------A. The date on which an Employee quits, retires, is discharged or dies; or The first anniversary of the first date of a period in which a participant remains absent from work for an Employer for any reason other than resignation, retirement, discharge, or death. For the purpose of determining the Severance from Service Date, the following periods shall not be considered as absences from work for an Employer: (1) Absence on a leave of absence authorized by an Employer. Absence because of illness or injury as long as the participant is entitled to receive sick leave pay or is entitled to receive benefits under the provisions of the Voluntary Wage Benefit Plan, a state disability plan, the Long Term Disability Plan, or a Workers' Compensation Law. Absence for military service or service in the Merchant Marines so long as reemployment rights are protected by law. Absence caused by layoff for lack of work of less than 12 continuous months for a Participant who has less than five years of service, or 24 continuous months for a Participant who has five or more years of service.

B.

C.

(2)

(3)

(4)

Stable Value Fund: ------------------

A fund invested in fixed rate, fixed term investment contracts. (See Section 13) The Stable Value Fund.

SVF: ----33-

Trust: ------

The Trust into which all contributions are deposited and from which all distributions are made. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02101, or such other bank or trust company

Trustee: --------

Trust: ------

The Trust into which all contributions are deposited and from which all distributions are made. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02101, or such other bank or trust company selected by the Employee Benefit Finance Committee which agrees to act as Trustee or successor Trustee of the Trust pursuant to the Trust Agreement. The agreement between the Company and the Trustee. A measurement of participant's interest in the Investment Funds. For purposes of the Bond Fund, a unit shall be a United States Bond. The calendar year beginning January 1 and ending December 31.

Trustee: --------

Trust Agreement: ---------------Unit: -----

Year: -----

-34-

SPECIAL PROVISION A TOP HEAVY PROVISIONS (a) General Rule For any PLAN YEAR for which this PLAN is a "top-heavy plan" as defined in subsection (g) below, any other provisions of this PLAN to the contrary notwithstanding, this PLAN shall be subject to the following provisions: (1) The minimum contribution provisions of subsection (b). (2) The limitation on contribution set by subsection (d). (b) Minimum Contribution Provisions Each participant who (i) is a non-key EMPLOYEE (as defined in subsection (i) below) and (ii) is employed on the last day of the PLAN YEAR, even if such individual is excluded from the PLAN for failing to make mandatory contributions to the PLAN, shall be entitled to have contributions allocated to his account of not less than three percent (the "minimum contribution percentage") of the participant's compensation (within the meaning of Section 415 of the CODE). In determining the minimum contribution percentage to be allocated to an EMPLOYEE'S account, a key EMPLOYEE'S SECTION 401(k) CONTRIBUTIONS shall be considered as an EMPLOYER CONTRIBUTION. However, SECTION 401(k) CONTRIBUTIONS on behalf of EMPLOYEES other than key EMPLOYEES will not be considered as EMPLOYER CONTRIBUTIONS. The minimum contribution percentage set forth above shall be reduced for any PLAN YEAR in which the percentage at which contributions are made (or required to be made) under the PLAN for the PLAN YEAR for the key EMPLOYEE for whom such percentage is the highest for such PLAN YEAR is less than three percent. For this purpose, the percentage with respect to a key EMPLOYEE (as defined in subsection (g) below) shall be determined by dividing the contributions (including forfeitures and SECTION 401(k) CONTRIBUTIONS) made for such key EMPLOYEES by so much of his total compensation for the PLAN YEAR. Contributions taken into account under the immediately preceding sentence shall include contributions under this

SPECIAL PROVISION A TOP HEAVY PROVISIONS (a) General Rule For any PLAN YEAR for which this PLAN is a "top-heavy plan" as defined in subsection (g) below, any other provisions of this PLAN to the contrary notwithstanding, this PLAN shall be subject to the following provisions: (1) The minimum contribution provisions of subsection (b). (2) The limitation on contribution set by subsection (d). (b) Minimum Contribution Provisions Each participant who (i) is a non-key EMPLOYEE (as defined in subsection (i) below) and (ii) is employed on the last day of the PLAN YEAR, even if such individual is excluded from the PLAN for failing to make mandatory contributions to the PLAN, shall be entitled to have contributions allocated to his account of not less than three percent (the "minimum contribution percentage") of the participant's compensation (within the meaning of Section 415 of the CODE). In determining the minimum contribution percentage to be allocated to an EMPLOYEE'S account, a key EMPLOYEE'S SECTION 401(k) CONTRIBUTIONS shall be considered as an EMPLOYER CONTRIBUTION. However, SECTION 401(k) CONTRIBUTIONS on behalf of EMPLOYEES other than key EMPLOYEES will not be considered as EMPLOYER CONTRIBUTIONS. The minimum contribution percentage set forth above shall be reduced for any PLAN YEAR in which the percentage at which contributions are made (or required to be made) under the PLAN for the PLAN YEAR for the key EMPLOYEE for whom such percentage is the highest for such PLAN YEAR is less than three percent. For this purpose, the percentage with respect to a key EMPLOYEE (as defined in subsection (g) below) shall be determined by dividing the contributions (including forfeitures and SECTION 401(k) CONTRIBUTIONS) made for such key EMPLOYEES by so much of his total compensation for the PLAN YEAR. Contributions taken into account under the immediately preceding sentence shall include contributions under this PLAN and under all other defined contribution plans required to be included in an aggregation group (as defined in subsection (f)(2) below) but shall not include any plan required to be included in such aggregation group if such plan enables a defined contribution plan required to be included in such group to meet the requirements of the CODE prohibiting discrimination as to contributions or benefits in favor of EMPLOYEES who are officers, shareholders or the highly-compensated or prescribing the minimum participation standards. Contributions taken into account under this subsection (b) shall not include any contributions under the Social Security Act or any other Federal or State law. -35(c) Limitations on Contributions In the event that the EMPLOYER also maintains a defined benefit PLAN providing benefits on behalf of participants in this PLAN, one of the two following provisions shall apply: (1) If for the PLAN YEAR this PLAN would not be a "top-heavy PLAN" as defined in subsection (a)(2) above if "90 percent" were substituted for "60 percent," then subsection (b) shall apply for such PLAN YEAR as if amended so that "four percent" were substituted for "three percent". (2) If for the PLAN YEAR this PLAN would continue to be a "top-heavy PLAN" as defined in subsection (f) below if "90 percent" were substituted for "60 percent," then the denominator of both the defined contribution PLAN fraction and the defined benefit PLAN fraction shall be calculated as set forth in Section 415 (e) of the CODE for the limitation year ending in such PLAN YEAR by substituting "1.0" for "1.25" in each place such figure appears, except with respect to any individual for whom there are no EMPLOYER CONTRIBUTIONS

(c) Limitations on Contributions In the event that the EMPLOYER also maintains a defined benefit PLAN providing benefits on behalf of participants in this PLAN, one of the two following provisions shall apply: (1) If for the PLAN YEAR this PLAN would not be a "top-heavy PLAN" as defined in subsection (a)(2) above if "90 percent" were substituted for "60 percent," then subsection (b) shall apply for such PLAN YEAR as if amended so that "four percent" were substituted for "three percent". (2) If for the PLAN YEAR this PLAN would continue to be a "top-heavy PLAN" as defined in subsection (f) below if "90 percent" were substituted for "60 percent," then the denominator of both the defined contribution PLAN fraction and the defined benefit PLAN fraction shall be calculated as set forth in Section 415 (e) of the CODE for the limitation year ending in such PLAN YEAR by substituting "1.0" for "1.25" in each place such figure appears, except with respect to any individual for whom there are no EMPLOYER CONTRIBUTIONS allocated or any accruals for such individual under the defined benefit PLAN. Furthermore, the transitional rule set forth in Section 415 (e) of the CODE shall be applied by substituting "$41,500" for "$51,875". (d) Coordination with Other Plans In the event that another defined contribution or defined benefit plan maintained by the EMPLOYER provides contributions or benefits on behalf of participants in this PLAN, such other plan shall be treated as a part of this PLAN pursuant to applicable principles (such as Rev. Rul. 81-202 or any successor ruling or regulations) in determining whether this PLAN satisfies the requirements of subsection (b), (c) and (d). Such determination shall be made upon the advice of counsel by the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE. (e) Top-Heavy Plan Definition This PLAN shall be a "top-heavy plan" for any PLAN YEAR if, as of the determination date (as defined in subsection (f)(1) below), the aggregate of the accounts under the PLAN and any required aggregation group or permissive aggregation group of plans for participants (including former participants) who are key EMPLOYEES (as defined in subsection (g) below but not including accounts of individuals excluded under section 416(g)(4)(E) of the CODE) exceeds 60 percent of the present value of the aggregate of the accounts for all participants, excluding former key EMPLOYEES, or if this PLAN is required to be in an aggregate group (as defined in subsection (f)(3) below) which for such PLAN YEAR is a top-heavy group (as defined in subsection (f)(4) below). (1) "Determination date" means for any PLAN YEAR the last day of the immediately preceding PLAN YEAR. (2) "Valuation date" means the last day of each PLAN YEAR. -36-

(3) "Aggregation group" means the group of plans, if any, that includes both the group of plans that are required to be aggregated and the group of plans that are permitted to be aggregated. (A) The group of plans that are required to be aggregated (the "required aggregation group") includes (i) Each plan of the EMPLOYER (as defined in subsection (i) below) in which a key EMPLOYEE is a participant, including collectively-bargained plans, and (ii) Each other plan, including collectively-bargained plans of the EMPLOYER (as defined in subsection (i) below) which enables a plan in which a key EMPLOYEE is a participant to meet the requirements of the CODE prohibiting discrimination as to contributions or benefits in favor of EMPLOYEES who are officers, shareholders or the highly-compensated or prescribing the minimum participation standards. (B) The group of plans that are permitted to be aggregated (the "permissive aggregation group") includes the required aggregation group plus one or more plans of the EMPLOYER (as defined in subsection (i) below) that is not part of the required aggregation group and that the EMPLOYEE BENEFIT ADMINISTRATIVE

(3) "Aggregation group" means the group of plans, if any, that includes both the group of plans that are required to be aggregated and the group of plans that are permitted to be aggregated. (A) The group of plans that are required to be aggregated (the "required aggregation group") includes (i) Each plan of the EMPLOYER (as defined in subsection (i) below) in which a key EMPLOYEE is a participant, including collectively-bargained plans, and (ii) Each other plan, including collectively-bargained plans of the EMPLOYER (as defined in subsection (i) below) which enables a plan in which a key EMPLOYEE is a participant to meet the requirements of the CODE prohibiting discrimination as to contributions or benefits in favor of EMPLOYEES who are officers, shareholders or the highly-compensated or prescribing the minimum participation standards. (B) The group of plans that are permitted to be aggregated (the "permissive aggregation group") includes the required aggregation group plus one or more plans of the EMPLOYER (as defined in subsection (i) below) that is not part of the required aggregation group and that the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE certifies as constituting a plan within the permissive aggregation group. Such plan or plans may be added to the permissive aggregation group only if, after the addition, the aggregation group as a whole continues not to discriminate as to contributions or benefits in favor of officers, shareholders or the highly-compensated and to meet the minimum participation standards under the CODE. (4) "Top-heavy group" means the aggregation group, if as of the applicable determination date, the sum of the present value of the cumulative accrued benefits for key EMPLOYEES under all defined benefit plans included in the aggregation group plus the aggregate of the accounts of key EMPLOYEES under all defined contribution plans included in the aggregation group exceeds 60% of the sum of the present value of the cumulative accrued benefits for all EMPLOYEES, excluding former key EMPLOYEES, under all such defined benefit plans plus the aggregate accounts for all EMPLOYEES, excluding former key EMPLOYEES, under such defined contribution plans. If the aggregation group that is a top- heavy group is a required aggregation group, each plan in the group will be top heavy. If the aggregation group that is a top-heavy group is a permissive aggregation group, only those plans that are part of the required aggregation group will be treated as top-heavy. If the aggregation group is not a top-heavy group, no plan within such group will be top-heavy. (5) In determining whether this PLAN constitutes a "top-heavy plan," the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE (or its agent) shall make the following adjustments in connection therewith: -37-

(A) When more than one plan is aggregated, the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall determine separately for each plan as of each plan's determination date the present value of the accrued benefits or account balance. The results shall then be aggregated separately by adding the results of each plan as of the determination dates for such plans that fall with the same calendar year. (B) In determining the present value of the cumulative accrued benefit or the amount of the account of any EMPLOYEE, such present value or account shall include the amount in dollar value of the aggregate distributions made to such EMPLOYEE under the applicable plan during the five-year period ending on the determination date, unless reflected in the value of the accrued benefit or account balance as of the most recent valuation date. Such amounts shall include distributions to EMPLOYEES which represented the entire amount credited to their accounts under the applicable plan. (C) Further, in making such determination, in any case where an individual is a "non-key EMPLOYEE" as defined in subsection (h) below, with respect to an applicable plan, but was a key EMPLOYEE with respect to such plan for any prior PLAN YEAR, any accrued benefit and any account of such EMPLOYEE shall be altogether disregarded. For this purpose, to the extent that a key EMPLOYEE is deemed to be a key EMPLOYEE if he or she met the definition of key EMPLOYEE within any of the four preceding PLAN YEARS, this provision shall apply following the end of such period of time. (f) Key EMPLOYEE

(A) When more than one plan is aggregated, the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall determine separately for each plan as of each plan's determination date the present value of the accrued benefits or account balance. The results shall then be aggregated separately by adding the results of each plan as of the determination dates for such plans that fall with the same calendar year. (B) In determining the present value of the cumulative accrued benefit or the amount of the account of any EMPLOYEE, such present value or account shall include the amount in dollar value of the aggregate distributions made to such EMPLOYEE under the applicable plan during the five-year period ending on the determination date, unless reflected in the value of the accrued benefit or account balance as of the most recent valuation date. Such amounts shall include distributions to EMPLOYEES which represented the entire amount credited to their accounts under the applicable plan. (C) Further, in making such determination, in any case where an individual is a "non-key EMPLOYEE" as defined in subsection (h) below, with respect to an applicable plan, but was a key EMPLOYEE with respect to such plan for any prior PLAN YEAR, any accrued benefit and any account of such EMPLOYEE shall be altogether disregarded. For this purpose, to the extent that a key EMPLOYEE is deemed to be a key EMPLOYEE if he or she met the definition of key EMPLOYEE within any of the four preceding PLAN YEARS, this provision shall apply following the end of such period of time. (f) Key EMPLOYEE The term "key EMPLOYEE" means any EMPLOYEE or former EMPLOYEE under this PLAN who, at any time during the PLAN YEAR containing the determination date or during any of the four preceding PLAN YEARS, is or was one of the following: (1) An officer of the EMPLOYER having an annual compensation greater than 50 percent of the amount in effect under Section 415(b)(1)(A) of the CODE for such PLAN YEAR. Whether an individual is an officer shall be determined by the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE on the basis of all the facts and circumstances, such as an individual's authority, duties and term of office, not on the mere fact that the individual has the title of officer. For any such PLAN YEAR, these shall be treated as officers no more than the lesser of: (A) 50 EMPLOYEES, or (B) the greater of three EMPLOYEES or 10 percent of the EMPLOYEES. For this purpose, if there are more than 50 officers, the 50 highest- paid officers shall be the key EMPLOYEES. (2) One of the ten EMPLOYEES owning (or considered as owning, within the meaning of the constructive ownership rules of the CODE) the largest interests in the EMPLOYER (as defined in subsection (i)). An EMPLOYEE who has some ownership interest is considered to be one of the top ten owners unless at least ten other EMPLOYEES own a greater interest than that EMPLOYEE. However, an -38-

EMPLOYEE will not be considered a top ten owner for a PLAN YEAR if the EMPLOYEE earns an amount equal to or less than the maximum dollar limitation on contributions and other annual additions to a participant's account in a defined contribution PLAN under the CODE as in effect for the calendar year in which the determination date falls. (3) Any person who owns (or is considered as owning within the meaning of the constructive ownership rules of the CODE) more than five percent of the outstanding stock of the EMPLOYER or stock possessing more than five percent of the combined total voting power of all stock of the EMPLOYER. (4) A one percent owner of the EMPLOYER having an annual compensation from the EMPLOYER of more than $150,000, and who owns more than one percent of the outstanding stock of the EMPLOYER or stock possessing more than one percent of the combined total voting power of all stock of the EMPLOYER. For purposes of this subsection, compensation means all items includable as compensation for purposes of applying

EMPLOYEE will not be considered a top ten owner for a PLAN YEAR if the EMPLOYEE earns an amount equal to or less than the maximum dollar limitation on contributions and other annual additions to a participant's account in a defined contribution PLAN under the CODE as in effect for the calendar year in which the determination date falls. (3) Any person who owns (or is considered as owning within the meaning of the constructive ownership rules of the CODE) more than five percent of the outstanding stock of the EMPLOYER or stock possessing more than five percent of the combined total voting power of all stock of the EMPLOYER. (4) A one percent owner of the EMPLOYER having an annual compensation from the EMPLOYER of more than $150,000, and who owns more than one percent of the outstanding stock of the EMPLOYER or stock possessing more than one percent of the combined total voting power of all stock of the EMPLOYER. For purposes of this subsection, compensation means all items includable as compensation for purposes of applying the limitations on contributions and other annual additions to a participant's account in a defined contribution plan and the maximum benefit payable under a defined benefit plan under the CODE. For purposes of parts (1), (2), (3) and (4) of this definition, a BENEFICIARY of a key EMPLOYEE shall be treated as a key EMPLOYEE. For purposes of parts (3) and (4), each EMPLOYER is treated separately (without regard to the definition in subsection (i)) in determining ownership percentages; but, in determining the amount of compensation, the definition of EMPLOYER in subsection (i) is taken into account. (g) Non-key EMPLOYEE The term "non-key EMPLOYEE" means any EMPLOYEE (and any beneficiary or an EMPLOYEE) who is not a key EMPLOYEE. (h) Employer The term "employer" as defined in Section 34 of this PLAN. -39-

I, Leslie H. Everett, do hereby certify that I am the Vice President and Corporate Secretary of the PACIFIC GAS AND ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of California, and that the above and foregoing is a full, true and correct copy of the Pacific Gas and Electric Company SAVINGS FUND PLAN FOR NON-UNION EMPLOYEES as the same exists at the date of this certification. WITNESS my hand and the seal of the said corporation hereunto affixed this day of Leslie H. Everett Vice President and Corporate Secretary of PACIFIC GAS AND ELECTRIC COMPANY -40-

EXHIBIT 10.8 THE PACIFIC GAS AND ELECTRIC COMPANY RETIREMENT PLAN

PART I TABLE OF CONTENTS

I, Leslie H. Everett, do hereby certify that I am the Vice President and Corporate Secretary of the PACIFIC GAS AND ELECTRIC COMPANY, a corporation organized and existing under the laws of the State of California, and that the above and foregoing is a full, true and correct copy of the Pacific Gas and Electric Company SAVINGS FUND PLAN FOR NON-UNION EMPLOYEES as the same exists at the date of this certification. WITNESS my hand and the seal of the said corporation hereunto affixed this day of Leslie H. Everett Vice President and Corporate Secretary of PACIFIC GAS AND ELECTRIC COMPANY -40-

EXHIBIT 10.8 THE PACIFIC GAS AND ELECTRIC COMPANY RETIREMENT PLAN

PART I TABLE OF CONTENTS RETIREMENT PLAN
Page ---INTRODUCTION...................................................1 ELIGIBILITY AND PARTICIPATION..................................2 SERVICE........................................................2 BREAK IN SERVICE AND REEMPLOYMENT..............................2 NORMAL RETIREMENT DATE.........................................3 BASIC PENSION BENEFIT FORMULA..................................3 EARLY RETIREMENT PENSION BENEFIT FORMULA.......................4 PENSIONS WHERE EMPLOYMENT ENDS BEFORE AGE 55...................5 DEFERRED RETIREMENT............................................5 FORMS OF PENSION...............................................6 SPOUSE'S PENSION...............................................7 WITHDRAWAL OF PARTICIPANT CONTRIBUTIONS ON TERMINATION OF EMPLOYMENT..................................................9 DEATH BENEFITS.................................................9 FACILITY OF PAYMENT............................................9 BENEFITS ARE NOT ASSIGNABLE...................................10 EMPLOYER CONTRIBUTIONS........................................10 COMPANY'S POWERS AND DUTIES...................................10 FUNDING AND INVESTMENT PROVISIONS.............................11

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

13. 14. 15. 16. 17. 18.

EXHIBIT 10.8 THE PACIFIC GAS AND ELECTRIC COMPANY RETIREMENT PLAN

PART I TABLE OF CONTENTS RETIREMENT PLAN
Page ---INTRODUCTION...................................................1 ELIGIBILITY AND PARTICIPATION..................................2 SERVICE........................................................2 BREAK IN SERVICE AND REEMPLOYMENT..............................2 NORMAL RETIREMENT DATE.........................................3 BASIC PENSION BENEFIT FORMULA..................................3 EARLY RETIREMENT PENSION BENEFIT FORMULA.......................4 PENSIONS WHERE EMPLOYMENT ENDS BEFORE AGE 55...................5 DEFERRED RETIREMENT............................................5 FORMS OF PENSION...............................................6 SPOUSE'S PENSION...............................................7 WITHDRAWAL OF PARTICIPANT CONTRIBUTIONS ON TERMINATION OF EMPLOYMENT..................................................9 DEATH BENEFITS.................................................9 FACILITY OF PAYMENT............................................9 BENEFITS ARE NOT ASSIGNABLE...................................10 EMPLOYER CONTRIBUTIONS........................................10 COMPANY'S POWERS AND DUTIES...................................10 FUNDING AND INVESTMENT PROVISIONS.............................11 ADMINISTRATION................................................11 CLAIMS PROCEDURE..............................................12 QUALIFIED DOMESTIC RELATIONS ORDERS...........................12 AMENDMENT, TERMINATION, AND MERGER............................13 DEFINITIONS AND CROSS-REFERENCES..............................13

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

SPECIAL PROVISIONS A, B, C, D, E, F, G, H, I, J, K, L, M AND N..20-76

-1RETIREMENT PLAN

PART I TABLE OF CONTENTS RETIREMENT PLAN
Page ---INTRODUCTION...................................................1 ELIGIBILITY AND PARTICIPATION..................................2 SERVICE........................................................2 BREAK IN SERVICE AND REEMPLOYMENT..............................2 NORMAL RETIREMENT DATE.........................................3 BASIC PENSION BENEFIT FORMULA..................................3 EARLY RETIREMENT PENSION BENEFIT FORMULA.......................4 PENSIONS WHERE EMPLOYMENT ENDS BEFORE AGE 55...................5 DEFERRED RETIREMENT............................................5 FORMS OF PENSION...............................................6 SPOUSE'S PENSION...............................................7 WITHDRAWAL OF PARTICIPANT CONTRIBUTIONS ON TERMINATION OF EMPLOYMENT..................................................9 DEATH BENEFITS.................................................9 FACILITY OF PAYMENT............................................9 BENEFITS ARE NOT ASSIGNABLE...................................10 EMPLOYER CONTRIBUTIONS........................................10 COMPANY'S POWERS AND DUTIES...................................10 FUNDING AND INVESTMENT PROVISIONS.............................11 ADMINISTRATION................................................11 CLAIMS PROCEDURE..............................................12 QUALIFIED DOMESTIC RELATIONS ORDERS...........................12 AMENDMENT, TERMINATION, AND MERGER............................13 DEFINITIONS AND CROSS-REFERENCES..............................13

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

SPECIAL PROVISIONS A, B, C, D, E, F, G, H, I, J, K, L, M AND N..20-76

-1RETIREMENT PLAN 1. Introduction This is the controlling and definitive statement of the Pacific Gas and Electric Company Retirement PLAN /1/ which, with certain exceptions, is effective on and after January 1, 1996, for EMPLOYEES who are employed by Pacific Gas and Electric Company and other EMPLOYERS. This PLAN is a further revision of the PLAN, originally placed in effect by the COMPANY January 1, 1937,

RETIREMENT PLAN 1. Introduction This is the controlling and definitive statement of the Pacific Gas and Electric Company Retirement PLAN /1/ which, with certain exceptions, is effective on and after January 1, 1996, for EMPLOYEES who are employed by Pacific Gas and Electric Company and other EMPLOYERS. This PLAN is a further revision of the PLAN, originally placed in effect by the COMPANY January 1, 1937, which has been amended from time to time in the intervening years. Rights of PARTICIPANTS in this PLAN will not be less than rights of PARTICIPANTS under COMPANY'S PLAN as it existed before 1996. The purpose of this PLAN is to distribute the corpus and income of accumulated PENSION trust funds in accordance with the PLAN. Under no circumstances shall contributions or benefits under this PLAN discriminate in favor of a "highly compensated EMPLOYEE," as that term is defined using the simplified method under CODE Section 414(q)(12) as described in applicable Treasury regulations or other guidance issued by the Internal Revenue Service. Forfeitures of nonvested accrued benefits under the PLAN shall not be applied to increase benefits any EMPLOYEE could otherwise receive under the terms of the PLAN. Except for pension adjustments provided for in Special Provision G, PARTICIPANTS who retire or terminate employment before the effective date of any amendment are not affected or benefited by such amendments. Since final regulations governing many statutory requirements of the Employee Retirement Income Security Act of 1974 (ERISA) have not yet been issued, the COMPANY reserves the right to retroactively modify the final language of the revised PLAN to conform to these requirements. As provided for in Section 414(f) of the CODE, the PLAN has elected to be treated as a single employer plan. This PLAN consists of Part I and Part II. Part I applies solely to EMPLOYEES not covered by a collective bargaining agreement, and Part II applies solely to EMPLOYEES whose benefits are the subject of collective bargaining with a union representing EMPLOYEES of the COMPANY. /2/ /1/ Words in all capitals are defined in Section 23. /2/ For PLAN YEARS prior to January 1, 1995, only management EMPLOYEES were PARTICIPANTS in Part I of the PLAN; prior to January 1, 1995, weekly-paid, non-union EMPLOYEES participated in Part II. -1PART I 2. Eligibility and Participation An EMPLOYEE automatically becomes a PARTICIPANT in the PLAN on the first day of work for an EMPLOYER, and participation continues until the PARTICIPANT's SERVICE is terminated. 3. Service (a) The SERVICE of a PARTICIPANT on any date shall consist of the sum of the following: (1) Any CREDITED SERVICE as of December 31, 1975, as defined under the PLAN prior to the January 1, 1976, amendment and reproduced in Special Provision F, and (2) The elapsed time from the first day of employment with an EMPLOYER (but not earlier than January 1, 1976) to the PARTICIPANT's SEVERANCE FROM SERVICE DATE, excluding any periods of BREAK IN SERVICE and any SERVICE cancelled by the operation of Sections 4 and 13. (b) For EMPLOYEES who attain PART-TIME status at any time on or after January 1, 1991, service benefit accruals will be based on the following SERVICE:

PART I 2. Eligibility and Participation An EMPLOYEE automatically becomes a PARTICIPANT in the PLAN on the first day of work for an EMPLOYER, and participation continues until the PARTICIPANT's SERVICE is terminated. 3. Service (a) The SERVICE of a PARTICIPANT on any date shall consist of the sum of the following: (1) Any CREDITED SERVICE as of December 31, 1975, as defined under the PLAN prior to the January 1, 1976, amendment and reproduced in Special Provision F, and (2) The elapsed time from the first day of employment with an EMPLOYER (but not earlier than January 1, 1976) to the PARTICIPANT's SEVERANCE FROM SERVICE DATE, excluding any periods of BREAK IN SERVICE and any SERVICE cancelled by the operation of Sections 4 and 13. (b) For EMPLOYEES who attain PART-TIME status at any time on or after January 1, 1991, service benefit accruals will be based on the following SERVICE: (1) Paragraph (a) of this Section will apply to all SERVICE prior to January 1, 1991; (2) All SERVICE after December 31, 1990 in which the EMPLOYEE is designated as a PART-TIME EMPLOYEE shall be prorated for purposes of benefit accruals based on the ratio of actual straight-time hours worked in the calendar year to the full-time hourly equivalent (2,080 per calendar year) rounded to the nearest month. 4. Break in Service and Reemployment Upon reemployment with an EMPLOYER after a BREAK IN SERVICE, prior SERVICE earned under the PLAN will be treated for eligibility, vesting and/or benefit accrual as follows: (a) If a PARTICIPANT has a BREAK IN SERVICE starting on or after January 1, 1989, the SERVICE of such PARTICIPANT prior to the BREAK IN SERVICE will be cancelled unless such prior SERVICE was at least five years or, in the event that such prior SERVICE was less than five years, if the period of the BREAK IN SERVICE was less than the prior SERVICE. (b) If a PARTICIPANT has a BREAK IN SERVICE starting on or after January 1, 1985, but before January 1, 1989, the SERVICE of such PARTICIPANT prior to the BREAK IN SERVICE will be cancelled unless such prior SERVICE was at least 10 years or, in the event that such prior SERVICE was less than 10 years, such prior SERVICE will be cancelled if the period of the BREAK IN SERVICE is equal to or exceeds the greater of (i) five years or (ii) the period of SERVICE prior to the BREAK IN SERVICE. (c) If a PARTICIPANT has a BREAK IN SERVICE starting on or after January 1, 1976, but before January 1, 1985, the SERVICE of such PARTICIPANT prior to the BREAK IN SERVICE will be cancelled unless such prior SERVICE was at least 10 years or, in the event that such prior SERVICE was less than 10 years, if the period of the BREAK IN SERVICE was less than the prior SERVICE. If the PARTICIPANT's contributions to the PLAN have been withdrawn, -2-

restoration of the PARTICIPANT's prior SERVICE will be in accordance with the provisions of Section 12. (d) EMPLOYEES who were PARTICIPANTS in the PLAN prior to January 1, 1976, and whose prior SERVICE would not be restored under the provisions of (a) of this Section, but would have been restored under the provisions of the PLAN prior to the January 1, 1976, amendment, shall continue to be eligible to have their prior SERVICE restored under the rules of the PLAN prior to the January 1, 1976, amendment. Such rules are set forth in Special Provision E.

restoration of the PARTICIPANT's prior SERVICE will be in accordance with the provisions of Section 12. (d) EMPLOYEES who were PARTICIPANTS in the PLAN prior to January 1, 1976, and whose prior SERVICE would not be restored under the provisions of (a) of this Section, but would have been restored under the provisions of the PLAN prior to the January 1, 1976, amendment, shall continue to be eligible to have their prior SERVICE restored under the rules of the PLAN prior to the January 1, 1976, amendment. Such rules are set forth in Special Provision E. 5. Normal Retirement Date NORMAL RETIREMENT DATE is the first day of the month following a PARTICIPANT's 65th birthday. 6. Basic Pension Benefit Formula A PARTICIPANT whose SERVICE continues to NORMAL RETIREMENT DATE or beyond/3/ is entitled to a BASIC PENSION payable on ACTUAL RETIREMENT DATE and on the first day of each month thereafter as long as the PARTICIPANT lives./4/ (a) The monthly amount of the BASIC PENSION for a PARTICIPANT whose entire SERVICE is accrued as a PARTICIPANT in Part I of this PLAN shall be a monthly amount equal to 1.6 percent of the PARTICIPANT's average BASIC MONTHLY SALARY for the final 36 consecutive months of SERVICE,/5/ multiplied by the number of whole and fractional years of SERVICE. The amount so determined shall take the place of all other retirement income to which a PARTICIPANT might otherwise have been entitled under any suspended plan of an EMPLOYER or predecessor company. (b) The monthly amount of the BASIC PENSION for a PARTICIPANT whose classification is changed and who has accrued SERVICE under both Part I and Part II of this PLAN shall be the larger of (1) or (2) below: (1) The amount produced by computing all years of SERVICE pursuant to the applicable formula for the new classification. (2) The amount equal to the sum of (i) a pension benefit for SERVICE prior to the change in classification, computed pursuant to the applicable formula for the PARTICIPANT's old classification in effect at the time of the change in classification; and (ii) a pension benefit for SERVICE after the change in classification, computed pursuant to the formula applicable for the PARTICIPANT's new job classification. Each portion of the BASIC PENSION calculated under (i) and (ii) above shall be subject to all the applicable reductions imposed in PART I and PART II with respect to age and early retirement, joint pensions, marital pensions, and the election of an alternative spouse's pension. /3/ See Section 9 for the conditions under which this may occur. /4/ See Section 10 for the conditions under which other forms of pension may be substituted for the BASIC PENSION. /5/ A married PARTICIPANT'S EARLY RETIREMENT PENSION shall be in the form of a MARITAL PENSION, computed as provided in Section 10b. In lieu of a MARITAL PENSION, a PARTICIPANT may elect any of the alternative forms of the EARLY RETIREMENT PENSION described in Section 10b. and subject to the rules contained therein. -3-

(c) The monthly amount of the BASIC PENSION for a PARTICIPANT receiving LONG TERM DISABILITY PLAN benefits on ACTUAL RETIREMENT DATE shall be computed under (1) or (2) below, as applicable: (1) For EMPLOYEES receiving LONG TERM DISABILITY PLAN benefits on January 1, 1988, a monthly benefit equal to 1.6 percent of the larger of (i) the PARTICIPANT'S BASIC MONTHLY SALARY for the last month of active SERVICE or (ii) the PARTICIPANT'S LONG TERM DISABILITY PLAN benefit for the

(c) The monthly amount of the BASIC PENSION for a PARTICIPANT receiving LONG TERM DISABILITY PLAN benefits on ACTUAL RETIREMENT DATE shall be computed under (1) or (2) below, as applicable: (1) For EMPLOYEES receiving LONG TERM DISABILITY PLAN benefits on January 1, 1988, a monthly benefit equal to 1.6 percent of the larger of (i) the PARTICIPANT'S BASIC MONTHLY SALARY for the last month of active SERVICE or (ii) the PARTICIPANT'S LONG TERM DISABILITY PLAN benefit for the month immediately preceding ACTUAL RETIREMENT DATE. The result obtained in (i) or (ii) shall be multiplied by the number of whole or fractional years of SERVICE. (2) For EMPLOYEES who start receiving LONG TERM DISABILITY PLAN benefits after January 1, 1988, a monthly benefit equal to 1.6 percent of the larger of (i) the average BASIC MONTHLY SALARY for the final consecutive 36 months of active SERVICE or (ii) the PARTICIPANT'S LONG TERM DISABILITY PLAN benefit for the month immediately preceding ACTUAL RETIREMENT DATE. The result obtained in (a) or (b) shall be multiplied by the number of whole and fractional years of SERVICE. 7. Early Retirement Pension Benefit Formula If a PARTICIPANT's SERVICE ends after the first day of the month following said PARTICIPANT's 55th birthday, and before NORMAL RETIREMENT DATE or death, the PARTICIPANT shall elect to receive either: (a) A BASIC PENSION computed as provided in Section 6, or a MARITAL PENSION computed as provided in Section 10b., whichever is applicable, payable beginning with NORMAL RETIREMENT DATE; or (b) An EARLY RETIREMENT PENSION with payments to begin on the PARTICIPANT's EARLY RETIREMENT DATE and to continue on the first day of each month thereafter so long as PARTICIPANT lives. EARLY RETIREMENT DATE is the date selected by the PARTICIPANT for commencement of payment of retirement benefits. This date must be the first day of any month after the termination of SERVICE and before the PARTICIPANT's 65th birthday. To elect an EARLY RETIREMENT PENSION, PARTICIPANT must notify the EMPLOYER in writing at least 30 days before the EARLY RETIREMENT DATE the PARTICIPANT selects. The monthly amount of the PARTICIPANT's EARLY RETIREMENT PENSION/6/ will be as follows: (1) If PARTICIPANT has less than 15 years of SERVICE on the EARLY RETIREMENT DATE, the amount of the BASIC PENSION shall be reduced by one-fourth of one percent for each month (three percent per year) between PARTICIPANT's NORMAL RETIREMENT DATE and PARTICIPANT's EARLY RETIREMENT DATE; or (2) If PARTICIPANT has at least 15 but less than 30 years of SERVICE and is 62 years of age or older on the EARLY RETIREMENT DATE, the amount shall be the PARTICIPANT's BASIC PENSION computed to the PARTICIPANT's EARLY RETIREMENT DATE; or /6/ A married PARTICIPANT'S EARLY RETIREMENT PENSION shall be in the form of a MARITAL PENSION, computed as provided in Section 10b and Section 7. In lieu of a MARITAL PENSION, a PARTICIPANT may elect any of the alternative forms of the EARLY RETIREMENT PENSION described in Section 10b. and subject to the rules contained therein. -4-

(3) If PARTICIPANT has at least 15 but less than 25 years of SERVICE and is less than 62 years of age on the EARLY RETIREMENT DATE, the amount of the BASIC PENSION shall be reduced by one-fourth of one percent for each month (three percent per year) by which PARTICIPANT's EARLY RETIREMENT DATE precedes PARTICIPANT's 62nd birthday, and further reduced by 1/12th of one percent for each month (one percent per year) by which PARTICIPANT's EARLY RETIREMENT DATE precedes PARTICIPANT's 60th birthday; or

(3) If PARTICIPANT has at least 15 but less than 25 years of SERVICE and is less than 62 years of age on the EARLY RETIREMENT DATE, the amount of the BASIC PENSION shall be reduced by one-fourth of one percent for each month (three percent per year) by which PARTICIPANT's EARLY RETIREMENT DATE precedes PARTICIPANT's 62nd birthday, and further reduced by 1/12th of one percent for each month (one percent per year) by which PARTICIPANT's EARLY RETIREMENT DATE precedes PARTICIPANT's 60th birthday; or (4) If PARTICIPANT has at least 25 but less than 30 years of SERVICE and is less than 62 years of age on the EARLY RETIREMENT DATE, the amount of the BASIC PENSION shall be reduced by one-fourth of one percent for each month (three percent per year) by which PARTICIPANT's EARLY RETIREMENT DATE precedes PARTICIPANT's 62nd birthday; or (5) If a PARTICIPANT has at least 30 years of SERVICE and is less than 60 years of age on the EARLY RETIREMENT DATE, the amount of the BASIC PENSION shall be reduced by one- half of one percent for each month (up to a maximum of 12 months or six percent) by which PARTICIPANT'S EARLY RETIREMENT DATE precedes PARTICIPANT's 60th birthday, and further reduced by one-fourth of one percent for each month (three percent per year) by which PARTICIPANT'S EARLY RETIREMENT DATE precedes PARTICIPANT's 59th birthday; or (6) If PARTICIPANT has at least 30 years of SERVICE and is 60 years of age or older on the EARLY RETIREMENT DATE, the amount shall be the PARTICIPANT's BASIC PENSION computed to the PARTICIPANT's EARLY RETIREMENT DATE. (7) If a PARTICIPANT has at least 35 years of SERVICE and is 55 years of age or older on EARLY RETIREMENT DATE, and such PARTICIPANT was formerly a PARTICIPANT on December 31, 1994, in Part II of the PLAN, the amount shall be the PARTICIPANT'S BASIC PENSION computed to the PARTICIPANT'S EARLY RETIREMENT DATE. See Special Provision B for a table of EARLY RETIREMENT reductions. 8. Pensions Where Employment Ends Before Age 55 Until January 1, 1989, a PARTICIPANT with at least 10 years of SERVICE will be designated as a former EMPLOYEE rather than a retired EMPLOYEE if such PARTICIPANT's SERVICE ends before the first day of the month which follows the PARTICIPANT's 55th birthday. Effective January 1, 1989, any PARTICIPANT with at least five years of SERVICE will be designated as a former EMPLOYEE if such PARTICIPANT's SERVICE ends before the first day of the month which follows the PARTICIPANT's 55th birthday. Such former EMPLOYEE has a vested right to receive a PENSION with the same rights of election and in the same amounts as provided in Section 7, provided that the earliest election date for commencement of PENSION payments is the first day of the month after the PARTICIPANT's 55th birthday and the latest shall be April 1 of the year following the year in which the PARTICIPANT attains age 70 1/2. Such a PARTICIPANT is also entitled to the elections provided in Sections 10 (Forms of Pension), 12 (Withdrawal of Participant Contributions on Termination of Employment), 13 (Death Benefits in Certain Cases), and 15 (Facility of Payment). 9. Deferred Retirement An EMPLOYEE may continue in employment beyond the NORMAL RETIREMENT DATE only at the request of an EMPLOYER or as may be required by law. A PARTICIPANT whose employment continues -5-

beyond NORMAL RETIREMENT DATE shall not be entitled to a pension until PARTICIPANT's ACTUAL RETIREMENT DATE. Any provision of the PLAN notwithstanding, distributions from the PLAN shall comply with the requirements of CODE Section 401(a)(9) and the regulations thereunder. The amount of the PENSION payable shall be the PENSION benefit accrued as of the April 1 following the end of the year in which the EMPLOYEE attains age 70 1/2, adjusted for any elections made by the PARTICIPANT and any forms of PENSION required under Section 10.

beyond NORMAL RETIREMENT DATE shall not be entitled to a pension until PARTICIPANT's ACTUAL RETIREMENT DATE. Any provision of the PLAN notwithstanding, distributions from the PLAN shall comply with the requirements of CODE Section 401(a)(9) and the regulations thereunder. The amount of the PENSION payable shall be the PENSION benefit accrued as of the April 1 following the end of the year in which the EMPLOYEE attains age 70 1/2, adjusted for any elections made by the PARTICIPANT and any forms of PENSION required under Section 10. Pursuant to CODE Section 401(a)(9)(A)(ii), if an EMPLOYEE continues employment beyond the end of the year in which the EMPLOYEE attains age 70 1/2, a PENSION shall be distributed, commencing not later than April 1 of the calendar year following the calendar year in which the EMPLOYEE attains age 70 1/2, over the life of the EMPLOYEE or over the joint lives of the EMPLOYEE and the EMPLOYEE'S SPOUSE or other JOINT PENSIONER. If an EMPLOYEE dies after the distribution of the EMPLOYEE'S interest in the PLAN has begun, then, in accordance with CODE Section 401(a)(9)(B)(i), the remaining portion of the EMPLOYEE'S accrued PENSION benefit, if any, will be distributed at least as rapidly as under the method of distributions being used as of the date of his or her death. If an EMPLOYEE dies before the ACTUAL RETIREMENT DATE, then the EMPLOYEE'S SPOUSE may elect to postpone receiving distributions under the SPOUSE'S PENSION, but postponement of receipt of benefits shall not extend beyond the date that the EMPLOYEE would have attained age 70 1/2. Death benefits provided under the PLAN shall be no more than incidental, within the meaning of the CODE, to the PLAN'S primary purpose of providing retirement benefits to EMPLOYEES. 10. Forms of Pension (a) Joint Pension With Non-Spouse For a PARTICIPANT who is unmarried on the ACTUAL RETIREMENT DATE, the normal form of a PENSION shall be a BASIC PENSION or an EARLY RETIREMENT PENSION which terminates on the PARTICIPANT'S death. A MARITAL PENSION, as described in 10(b) below, is the normal form of PENSION for PARTICIPANTS who are married on the ACTUAL RETIREMENT DATE. However, any PARTICIPANT, whether married or unmarried, who wishes to have the PENSION continued in whole or in part after the PARTICIPANT'S death for the life of a non-spouse JOINT PENSIONER, may elect to have the applicable normal form of PENSION paid as a JOINT PENSION by giving the EMPLOYER at least 30 days' advance written notice prior to the PARTICIPANT'S ACTUAL RETIREMENT DATE. If such an election is made, the PARTICIPANT will receive a reduced BASIC or EARLY RETIREMENT PENSION for life and, upon the PARTICIPANT'S death, the non-spouse JOINT PENSIONER designated by the PARTICIPANT will receive that proportion of such reduced PENSION, up to 100 percent, which the PARTICIPANT has elected, for the remainder of the JOINT PENSIONER'S life. Non-spouse JOINT PENSIONS shall be determined in accordance with an actuarial formula which is set forth in Special Provision C. (b) Joint Pension With Spouse For a PARTICIPANT who is married on the ACTUAL RETIREMENT DATE, the normal form of PENSION shall be a MARITAL PENSION, reducing the amount of the PARTICIPANT'S BASIC PENSION and providing that on the PARTICIPANT'S death one-half of such MARITAL PENSION will be continued to the SPOUSE for the remainder of the SPOUSE'S life. -6-

In lieu of the MARITAL PENSION, a married PARTICIPANT, by making a QUALIFIED ELECTION prior to ACTUAL RETIREMENT DATE, may elect one of the following options: (1) a JOINT PENSION with SPOUSE which provides that an amount equal to either 25, 75 or 100 percent of a reduced BASIC or EARLY RETIREMENT PENSION will, upon the PARTICIPANT'S death, be continued

In lieu of the MARITAL PENSION, a married PARTICIPANT, by making a QUALIFIED ELECTION prior to ACTUAL RETIREMENT DATE, may elect one of the following options: (1) a JOINT PENSION with SPOUSE which provides that an amount equal to either 25, 75 or 100 percent of a reduced BASIC or EARLY RETIREMENT PENSION will, upon the PARTICIPANT'S death, be continued for the remainder of the SPOUSE'S life, or (2) a SPECIAL JOINT PENSION with SPOUSE which provides an amount of one-half or 100 percent of a reduced BASIC or EARLY RETIREMENT PENSION that, upon the PARTICIPANT'S death, will be continued for the remainder of the SPOUSE'S life. However, if the SPOUSE predeceases the PARTICIPANT, future PENSION payments will be restored to the amount of the full BASIC or EARLY RETIREMENT PENSION that the PARTICIPANT would be entitled to receive if no SPECIAL JOINT PENSION with SPOUSE had been elected. MARITAL PENSIONS and JOINT PENSIONS with SPOUSE shall be determined in accordance with an actuarial formula which is set forth in Special Provision D. Special Provision D also includes tables of factors which apply to typical options which may be elected. SPECIAL JOINT PENSIONS with SPOUSE shall also be determined in accordance with the actuarial formula which is set forth in Special Provision D, but actuarially adjusted further to reflect the value of the restoration feature. Provision D also includes tables of the factors which apply to SPECIAL JOINT PENSION options that may be elected. (c) Basic or Early Retirement Pension Terminating Upon The Death Of The Participant Under this option, no additional PENSION payments are made to anyone after the PARTICIPANT'S death. (d) Conditions Applicable To All Forms Of Pensions The CONSENT of the SPOUSE is required whenever a QUALIFIED ELECTION is made which would provide benefits to a surviving SPOUSE less than those provided by a MARITAL PENSION. The SPOUSE of a PARTICIPANT may not receive a benefit under any provisions of this Section if a larger SPOUSE'S PENSION is payable under Section 11. 11. Spouse's Pension (a) If a married PARTICIPANT dies while employed by an EMPLOYER and prior to the ACTUAL RETIREMENT DATE, or within 30 days thereafter, the PARTICIPANT's surviving SPOUSE will be eligible to receive a SPOUSE's PENSION if, at the time of the PARTICIPANT'S death, (i) the PARTICIPANT was at least 55 years of age, or (ii) the sum of the PARTICIPANT's age and years of SERVICE equaled 70 or more. (69.5 or more is rounded to 70.) The amount of the SPOUSE's PENSION is one-half of the PENSION that the PARTICIPANT would have been entitled to receive, and will be calculated as if: (1) the PARTICIPANT had elected a BASIC PENSION under Section 10(b)(3), (2) the first day of the month following the PARTICIPANT's death had been the PARTICIPANT's ACTUAL RETIREMENT DATE, and -7-

(3) The PARTICIPANT had in fact retired on that date without reduction for early retirement. However, if the SPOUSE is more than 10 years younger than the PARTICIPANT, the amount of the SPOUSE's PENSION shall be reduced 1/20th of one percent for each full month in excess of 120 months' difference in their ages,

(3) The PARTICIPANT had in fact retired on that date without reduction for early retirement. However, if the SPOUSE is more than 10 years younger than the PARTICIPANT, the amount of the SPOUSE's PENSION shall be reduced 1/20th of one percent for each full month in excess of 120 months' difference in their ages, except that such reduction shall not result in a SPOUSE's PENSION lower than would have been payable if the PARTICIPANT had retired as of the date of death and elected an optional form providing for continuation of 50 percent to a named JOINT PENSIONER with SPOUSE the same sex and age of the SPOUSE, under the provisions of Section 10(b)(1). The SPOUSE's PENSION is payable to the PARTICIPANT's surviving SPOUSE on the first day of the month following the PARTICIPANT's death and the first day of each month thereafter so long as the SPOUSE lives. (b) The surviving SPOUSE of a PARTICIPANT or of a former EMPLOYEE who dies prior to actual retirement date shall be entitled to receive a SPOUSE's PENSION under this Section 11(b) if, at the time of the death of the PARTICIPANT or former EMPLOYEE, (i) the PARTICIPANT or former EMPLOYEE had at least five years of SERVICE, and (ii) the surviving SPOUSE does not qualify for a SPOUSE's PENSION under Section 11(a), above. A SPOUSE's PENSION under this Section 11(b) shall be payable on the first day of the month following the later of (i) the date of death or (ii) the month in which the deceased PARTICIPANT or former EMPLOYEE would have attained his 55th birthday. By submitting an election form to the PLAN ADMINISTRATOR, a SPOUSE may elect to begin receiving a SPOUSE's PENSION at a specified later date. Unless a vested PARTICIPANT or vested former EMPLOYEE and his or her SPOUSE have elected otherwise pursuant to a QUALIFIED ELECTION, if a PARTICIPANT dies on or before age 55, the PARTICIPANT'S or FORMER EMPLOYEE'S surviving SPOUSE (if any) will receive the same benefit that would have been payable if the PARTICIPANT or former EMPLOYEE had: (1) separated from SERVICE on the date of death (or date of separation from SERVICE, if earlier), (2) survived to age 55, (3) retired with a MARITAL PENSION at age 55, (4) died on the day of retirement, and begun to receive benefit payments at the date as of which the PARTICIPANT or former EMPLOYEE would have attained age 55. Unless a surviving SPOUSE elects otherwise, the surviving SPOUSE will begin to receive payments at the date as of which the PARTICIPANT or former EMPLOYEE would have attained age 55. Benefits commencing after this date will be the ACTUARIAL EQUIVALENT of the benefit to which the surviving SPOUSE would have been entitled if benefits had commenced at this date. A PARTICIPANT's SPOUSE may not receive both a SPOUSE's PENSION under this Section and a MARITAL or JOINT PENSION under Section 10. If the PARTICIPANT dies within 30 days after the PARTICIPANT's ACTUAL RETIREMENT DATE, the SPOUSE will receive the larger of the monthly Pensions under this Section and Section 3.10, but not both. -812. Withdrawal of Participant Contributions on Termination of Employment A PARTICIPANT's contributions to the PLAN may not be withdrawn prior to ACTUAL RETIREMENT DATE or other termination of SERVICE. After a PARTICIPANT's SERVICE is terminated, the PARTICIPANT, by written notice to the PARTICIPANT's EMPLOYER at least 30 days before the date the PENSION begins, may elect to have such CONTRIBUTIONS PLUS INTEREST returned. If a PARTICIPANT elects to withdraw such CONTRIBUTIONS PLUS INTEREST, the PENSION the PARTICIPANT would otherwise be entitled to at the NORMAL or EARLY RETIREMENT DATE shall be

12. Withdrawal of Participant Contributions on Termination of Employment A PARTICIPANT's contributions to the PLAN may not be withdrawn prior to ACTUAL RETIREMENT DATE or other termination of SERVICE. After a PARTICIPANT's SERVICE is terminated, the PARTICIPANT, by written notice to the PARTICIPANT's EMPLOYER at least 30 days before the date the PENSION begins, may elect to have such CONTRIBUTIONS PLUS INTEREST returned. If a PARTICIPANT elects to withdraw such CONTRIBUTIONS PLUS INTEREST, the PENSION the PARTICIPANT would otherwise be entitled to at the NORMAL or EARLY RETIREMENT DATE shall be reduced by an amount that reflects the actuarial value of the contributions withdrawn. The factors used to reduce the PENSION of a PARTICIPANT who has withdrawn his contributions shall comply with CODE Sections 411(a)(7)(D) and 411(c)(2)(B) and are contained in the table set forth in Special Provision I. 13. Death Benefits If a PARTICIPANT with contributions on deposit in the PLAN dies before receiving payments from the PLAN equal to the amount of the PARTICIPANT's CONTRIBUTIONS PLUS INTEREST, the difference between the payments made and the CONTRIBUTIONS PLUS INTEREST will be paid to the named BENEFICIARY, unless a PENSION is payable to the PARTICIPANT's surviving SPOUSE or JOINT PENSIONER. If a PENSION is payable after such PARTICIPANT's death, and if upon the death of the SPOUSE or JOINT PENSIONER the total combined amount paid to the PARTICIPANT and the SPOUSE or JOINT PENSIONER does not equal the amount of the PARTICIPANT's CONTRIBUTIONS PLUS INTEREST, the difference between the total amount paid and the PARTICIPANT's CONTRIBUTIONS PLUS INTEREST will be paid to the BENEFICIARY of the SPOUSE or JOINT PENSIONER. 14. Facility of Payment (a) If the present value of all PENSION benefits payable under the PLAN to any individual is less than $3,500.00 as of the date of SEVERANCE FROM SERVICE or ACTUAL RETIREMENT DATE, the equivalent value shall be paid in a lump sum, as directed by the ADMINISTRATOR. For PARTICIPANTS terminating before age 55, present value means the ACTUARIAL EQUIVALENT of the normal retirement benefit commencing at NORMAL RETIREMENT DATE. For PARTICIPANTS retiring at or after age 55, present value means the ACTUARIAL EQUIVALENT of the early, normal or deferred retirement benefit commencing at ACTUAL RETIREMENT DATE. In determining the present value, the PLAN ADMINISTRATOR shall use the Unisex Mortality Table for 1984 (UP-84) and the interest rates set, as of the first day of the PLAN YEAR in which the lump sum payment is made, by the Pension Benefit Guaranty Corporation for the purpose of determining the present value of a lump sum distribution on PLAN termination. (b) If the ADMINISTRATOR determines that any individual entitled to any payment under the PLAN is physically or mentally incompetent to handle the payment and no guardian or conservator has been appointed to receive such payment, the ADMINISTRATOR may cause all payments thereafter becoming due to such individual to be applied for and on behalf of and for the benefit of such individual. Payments made pursuant to this provision shall completely discharge the EMPLOYER, the ADMINISTRATOR, the Trustee, and all fiduciaries of all further responsibility with respect to such individual. (c) If the distributee of any eligible rollover distribution (as defined below) elects to have the distribution paid directly to an eligible retirement plan (as defined below), and if the distributee specified, according to the manner specified by the PLAN, the eligible retirement plan to which such distribution is to be paid, then the distribution shall be made in the form of a direct trustee-to-9-

trustee transfer to the eligible retirement plan specified by the distributee. The trustee-to-trustee transfer shall be made available only if the distribution from the PLAN would be subject to federal income taxation. The term "eligible rollover distribution" shall mean any distribution to a PARTICIPANT or former EMPLOYEE of all or part of the balance to the credit of the PARTICIPANT or former EMPLOYEE in the PLAN. The term shall not, however, include any distribution which is one of a series of "substantially equal periodic payments" (as

trustee transfer to the eligible retirement plan specified by the distributee. The trustee-to-trustee transfer shall be made available only if the distribution from the PLAN would be subject to federal income taxation. The term "eligible rollover distribution" shall mean any distribution to a PARTICIPANT or former EMPLOYEE of all or part of the balance to the credit of the PARTICIPANT or former EMPLOYEE in the PLAN. The term shall not, however, include any distribution which is one of a series of "substantially equal periodic payments" (as defined at CODE Section 402(c)(4)(A), or any distribution that is required under CODE Section 401(a)(9). The term "eligible retirement plan" means an individual retirement account described in CODE Section 408(a), an individual retirement annuity described in CODE Section 408(b) (other than an endowment contract), an annuity plan described in CODE Section 403(a), or a qualified defined contribution plan, the terms of which permit the acceptance of rollover distributions. 15. Benefits Are Not Assignable Except as may be required by law, a PARTICIPANT's interest in the PLAN, either before or after retirement, and that of a PARTICIPANT's SPOUSE, JOINT PENSIONER, or BENEFICIARY shall not be subject to assignment, anticipation, sale, transfer, pledge, encumbrance, or charge, whether voluntary or involuntary, and any attempt to so assign, anticipate, sell, transfer, pledge, encumber, or charge shall be void. 16. Employer Contributions The COMPANY shall contribute to the PLAN such amount of EMPLOYER CONTRIBUTIONS as the EMPLOYEE BENEFIT FINANCE COMMITTEE, with the advice of the actuary, shall determine is necessary to keep the PLAN funded in accordance with the Funding Policy and to satisfy any minimum funding standard required by the Internal Revenue SERVICE or the Department of Labor. The EMPLOYEE BENEFIT FINANCE COMMITTEE shall determine and charge to each EMPLOYER its share of the EMPLOYER contributions made by the COMPANY. 17. Company's Powers and Duties The COMPANY, acting through its Board of Directors or Executive Committee, reserves to itself the exclusive power to amend, suspend, or terminate the PLAN as provided below and to appoint and remove from time to time: (a) The individuals comprising the EMPLOYEE BENEFIT FINANCE COMMITTEE; (b) The individuals comprising the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE; (c) The EMPLOYERS whose EMPLOYEES may participate in the PLAN. (d) Except as provided in Section 20, the appropriate committees established by the COMPANY shall serve as the final review committees, under the PLAN, to determine conclusively for all parties any and all questions arising from the administration of the PLAN and shall have sole and complete discretionary authority and control to manage the operation and administration of the PLAN, including, but not limited to, the determination of all questions relating to eligibility for participation and benefits, interpretation of all PLAN provisions, determination of the amount and kind of benefits payable to any PARTICIPANT, SPOUSE or beneficiary, and construction of -10-

disputed or doubtful terms. Such decisions shall be conclusive and binding on all parties and not subject to further review. All powers and duties not reserved to the COMPANY are delegated to the EMPLOYEE BENEFIT FINANCE COMMITTEE and to the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE. Action of either committee shall be by vote of a majority of the members of the committee at a meeting, or in writing

disputed or doubtful terms. Such decisions shall be conclusive and binding on all parties and not subject to further review. All powers and duties not reserved to the COMPANY are delegated to the EMPLOYEE BENEFIT FINANCE COMMITTEE and to the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE. Action of either committee shall be by vote of a majority of the members of the committee at a meeting, or in writing without a meeting, and evidenced by the signature of any member who is so authorized by the committee. The COMPANY indemnifies each member of each committee against any personal liability or expense arising out of any action or inaction of the committee or of any member of the committee or of such individual, except that due to his own willful misconduct. 18. Funding and Investment Provisions The EMPLOYEE BENEFIT FINANCE COMMITTEE appointed by the COMPANY's Board of Directors to serve at its pleasure has the express powers and duties described in this Section. (a) Appointments. The EMPLOYEE BENEFIT FINANCE COMMITTEE has the sole power and duty from time to time to appoint and remove the Funding Agents, the Investment Manager, actuaries, accountants, and such other advisors and consultants as may be needed for the proper financial administration and investment of the assets of the PLAN. Supplementing such appointments, the EMPLOYEE BENEFIT FINANCE COMMITTEE may enter into appropriate agreements with each Trustee, Investment Manager or other advisors appointed under this paragraph and delegate to them appropriate powers and duties. The EMPLOYEE BENEFIT FINANCE COMMITTEE may appoint and delegate to one or more individuals the power and duty to handle the day-to-day financial administration of the PLAN. Such individuals need not be members of the committee and shall serve at the pleasure of the committee. (b) Funding Policy. The EMPLOYEE BENEFIT FINANCE COMMITTEE has the sole power and duty to establish a funding policy and an investment policy and to review and revise it from time to time as the committee shall determine in its sole discretion. All EMPLOYER contributions to the PLAN shall be paid to Funding Agents which may be one or more insurance companies or corporate trustees, or to any combination thereof, as the EMPLOYEE BENEFIT FINANCE COMMITTEE may determine from time to time. These contributions, and all previous contributions of PARTICIPANTS and EMPLOYERS, together with the proceeds of their investment, shall be held and administered by these Funding Agents pursuant to the agreements between the COMPANY and the Funding Agents. All of the PLAN'S assets held by Funding Agents are available to pay benefits on behalf of all PARTICIPANTS covered by this PLAN. 19. Administration The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE, appointed by the COMPANY's Board of Directors to serve at its pleasure, is the ADMINISTRATOR of the PLAN and is responsible for the overall administration of the PLAN. The ADMINISTRATOR has the sole power and duty to establish, and from time to time revise, such rules and regulations as may be necessary to administer the PLAN in a nondiscriminatory manner for the exclusive benefit of PARTICIPANTS and all other persons entitled to benefits under the PLAN. The ADMINISTRATOR shall also maintain such records and make such computations, interpretations, and decisions as may be necessary or desirable for the proper administration of the PLAN. The ADMINISTRATOR may demand such proof of age of any PARTICIPANT, JOINT PENSIONER, or SPOUSE as it considers necessary, and it may adjust any PENSION or other payment or payments thereafter due under the PLAN as it deems appropriate and equitable to correct any factual error or misrepresentation. The ADMINISTRATOR shall maintain for PARTICIPANTS' inspection copies of the PLAN, trust agreement, -11-

investment policy, each agreement with an Investment Manager, the latest annual report, PLAN description, and summary description, and any amendments or changes in any of these documents. On written request, PARTICIPANTS may obtain from the ADMINISTRATOR a copy of any of these documents at a cost established by the ADMINISTRATOR from time to time.

investment policy, each agreement with an Investment Manager, the latest annual report, PLAN description, and summary description, and any amendments or changes in any of these documents. On written request, PARTICIPANTS may obtain from the ADMINISTRATOR a copy of any of these documents at a cost established by the ADMINISTRATOR from time to time. All expenses of administration may be paid out of the PLAN's assets upon authorization by the appropriate committee, unless paid by the COMPANY. Such expenses shall include any expenses incident to the functioning of the ADMINISTRATOR, including, but not limited to, fees for accountants, actuaries, counsel, investment managers and other specialists and their agents, and other costs of administering the PLAN. 20. Claims Procedure If a claim is denied in whole or in part, the ADMINISTRATOR shall furnish to the claimant a written notice setting forth: (a) Specific reason(s) for the denial, (b) The PLAN provision(s) on which the denial is based, (c) A description of any material or information, if any, necessary for the claimant to perfect the claim, and an explanation of why such material or information is necessary, and (d) Information concerning the steps to be taken if claimant wishes to submit a claim for review. The above information shall be furnished to the claimant within 90 days after the claim is received by the ADMINISTRATOR. If a claimant is not satisfied with the written notice described in the preceding paragraph, such claimant may request a full and fair review by so notifying the ADMINISTRATOR in writing within 90 days after receiving such notice. If a review is requested the claimant shall also be entitled, upon written request, to review pertinent documents and to submit issues and comments in writing. The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall furnish the claimant with a written final decision within 60 days after receipt of the request for review. 21. Qualified Domestic Relations Orders The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall apply the provisions of this section with regard to a Domestic Relations Order (as defined below) to the extent not inconsistent with Section 414(p) of the CODE. The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall establish procedures, consistent with Section 414(p) of the CODE, to determine the qualified status of any Domestic Relations Order, to administer distributions under any Qualified Domestic Relations Order (as defined below), and to provide to the PARTICIPANT and the Alternate Payee(s) (as defined below) all notices required under Section 414(p) of the CODE with respect to any Domestic Relations Order. Within a reasonable period of time after the receipt of a Domestic Relations Order (or any modification thereof), the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall determine whether such order is a Qualified Domestic Relations Order. For purposes of this section: -12-

(a) Alternate Payee shall mean any SPOUSE, former SPOUSE, child, or other dependent of a PARTICIPANT who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the PLAN with respect to such PARTICIPANT.

(a) Alternate Payee shall mean any SPOUSE, former SPOUSE, child, or other dependent of a PARTICIPANT who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, the benefits payable under the PLAN with respect to such PARTICIPANT. (b) Domestic Relations Order shall mean any judgment, decree, or order (including approval of a property settlement) which: (1) relates to the provision of child support, alimony payments, or marital property rights to a SPOUSE, former SPOUSE, child, or other dependent of a PARTICIPANT; and (2) is made pursuant to a state domestic relations law (including a community property law). (c) Qualified Domestic Relations Order shall mean a Domestic Relations Order which meets the requirements of Section 414(p)(1) of the CODE. 22. Amendment, Termination, and Merger The COMPANY hopes and expects to continue this PLAN indefinitely but, because future conditions cannot be foreseen, its Board of Directors necessarily reserves the right to change, suspend, or terminate the PLAN at any time. However, no change can be made which would adversely affect the rights which any PARTICIPANT, retired EMPLOYEE, former EMPLOYEE, SPOUSE, JOINT PENSIONER, or BENEFICIARY may then have with respect to funds then being held under the PLAN by any Funding Agent or permit any such funds to revert to an EMPLOYER or be used for any purpose except for the exclusive benefit of PARTICIPANTS, Pensioners, and their SPOUSES, JOINT PENSIONERS, and BENEFICIARIES. In the event the PLAN is partially terminated, terminated or suspended, all EMPLOYER contributions with respect to the affected PARTICIPANTS shall cease and the accrued benefits of the affected PARTICIPANTS shall become nonforfeitable. Subject to applicable requirements of notice to the Pension Benefit Guaranty Corporation governing termination of PENSION benefit plans, the funds held under the PLAN by the Funding Agents shall be applied to provide the PENSIONS, benefits and refunds accrued to the date of termination or suspension and to the extent funded. Such provision shall be made in such manner as the ADMINISTRATOR shall direct, including the purchase of paid-up annuities, distribution in installments, or lump- sum distributions and shall be in conformance with the requirements and priorities established by various governmental agencies to oversee PLAN suspensions and terminations. Notwithstanding any contrary provisions of the PLAN, after its termination and after all liabilities for the payment of PENSIONS, benefits and refunds to the date of termination have been satisfied or provided for in accordance with the foregoing, any funds remaining with the Funding Agents shall be returned to the COMPANY. This PLAN shall not be merged into or consolidated with any other PLAN, nor shall any of its assets or liabilities be transferred to any other PLAN, unless each PARTICIPANT in this PLAN would (if such other PLAN then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit such PARTICIPANT would have been entitled to receive immediately before the merger, consolidation, or transfer (if this PLAN had then terminated). 23. Definitions and Cross-References
Actual Retirement Date: ---------------------The date of one of the following, whichever is applicable (a) The date on which an EARLY RETIREMENT PENSION begins

-13(b) (c) The PARTICIPANT'S Normal Retirement Date, or If the PARTICIPANT continues in the employ of an EMP beyond Normal Retirement Date, the first day of the following termination of SERVICE.

Actuarial Equivalent or

For purposes of determining actuarially equivalent benefi

(b) (c)

The PARTICIPANT'S Normal Retirement Date, or If the PARTICIPANT continues in the employ of an EMP beyond Normal Retirement Date, the first day of the following termination of SERVICE.

Actuarial Equivalent or Actuarial Equivalence: --------------------Administrator: -------------

For purposes of determining actuarially equivalent benefi this PLAN, the provisions of Special Provision D shall ap

The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE referred to Section 20, 201 Mission Street, 19th Floor, Mail Code P19 Box 770000, San Francisco, California 94177. The rate of pay used to calculate the monthly earnings fr EMPLOYER, adjusted to reflect nuclear premium payments, i but excluding payments from the LONG TERM DISABILITY PLAN other bonuses, premiums, special allowances, overtime pay other payments. For a PARTICIPANT who is paid weekly or bi-weekly, BASIC MONTHLY SALARY shall be equal to the PARTICIPANT'S weekly pay rate multiplied by 4.33, rounded the nearest Five Dollars. For purposes of calculating a PARTICIPANT'S accrued benef this PLAN, the compensation limitations of CODE Section 401(a)(17) shall be applicable. For purposes of calculati accruals after December 31, 1993, the amount of a PARTICI compensation taken into account shall not exceed $150,000 such greater amount permitted by the Secretary of the Tre For purposes of calculating accruals after December 31, 1 before January 1, 1994, the amount of compensation taken account shall not exceed $200,000, or such greater amount permitted by the Secretary of the Treasury. Unless otherwise provided under this PLAN, each CODE Sect 401(a)(17) employee's accrued benefit under this PLAN wil greater of the accrued benefit determined for the employe 1 or 2 below: 1. The employee's accrued benefit determined with respec benefit formula applicable for the PLAN YEAR beginnin after January 1, 1994, as applied to the employee's t of SERVICE taken into account under the PLAN for the benefit accruals, or The sum of: (a) the employee's accrued benefit as of the last da beginning before January 1, 1994, frozen in acco 1.401(a)(4)-13, and the employee's accrued benefit determined under applicable for the PLAN YEAR beginning on or aft

Basic Monthly Salary: --------------------

2.

(b)

-14applied to the employee's years of service credi PLAN YEARS beginning on or after January 1, 1994 accrual. A CODE Section 401(a)(17) employee means an employee whos as of a date on or after the first day of the first PLAN January 1, 1994, is based on compensation for a year begi day of the first PLAN YEAR beginning on or after January $150,000. Basic Pension: ------------The PENSION due at the later of NORMAL RETIREMENT DATE or RETIREMENT DATE and unreduced because of marital status. Sections 6 and 10b. The individual or individuals or intervivos trust or trus a PARTICIPANT, SPOUSE, or JOINT PENSIONER designates to r any death benefits due pursuant to Section 13. Such desig must be made on forms provided by the EMPLOYER and filed ADMINISTRATOR. A PARTICIPANT, or the PARTICIPANT'S SPOUSE receiving a SPOUSE's PENSION), may change the designated

Beneficiary: -----------

applied to the employee's years of service credi PLAN YEARS beginning on or after January 1, 1994 accrual. A CODE Section 401(a)(17) employee means an employee whos as of a date on or after the first day of the first PLAN January 1, 1994, is based on compensation for a year begi day of the first PLAN YEAR beginning on or after January $150,000. Basic Pension: ------------The PENSION due at the later of NORMAL RETIREMENT DATE or RETIREMENT DATE and unreduced because of marital status. Sections 6 and 10b. The individual or individuals or intervivos trust or trus a PARTICIPANT, SPOUSE, or JOINT PENSIONER designates to r any death benefits due pursuant to Section 13. Such desig must be made on forms provided by the EMPLOYER and filed ADMINISTRATOR. A PARTICIPANT, or the PARTICIPANT'S SPOUSE receiving a SPOUSE's PENSION), may change the designated Beneficiary from time to time by filing an appropriate wr notice with the ADMINISTRATOR. In the absence of a design the Beneficiary shall be the estate of the person entitle make the designation. There were no employee contribution December 31, 1972. Therefore, EMPLOYEES who first became Participants in the PLAN after said date were not require permitted to name a Beneficiary. A BREAK IN SERVICE occurs 12 months after the SEVERANCE F SERVICE DATE if during such 12-month period an EMPLOYEE d work for an EMPLOYER. Once a Break in Service occurs, it continues until an EMPLOYEE is reemployed by an EMPLOYER. CODE shall mean the Internal Revenue CODE of 1986, as ame from time to time. Pacific Gas and Electric Company.

Beneficiary: -----------

Break in Service: ----------------

Code: ---Company: ------Consent: -------

The CONSENT by a SPOUSE that is required for a QUALIFIED ELECTION. Any such CONSENT shall be effective only with r to such SPOUSE. A CONSENT permitting designation by the PARTICIPANT without further CONSENT from the SPOUSE must acknowledge that the SPOUSE has the right to limit CONSEN specific BENEFICIARY and also to a specific benefit form, that the SPOUSE voluntarily elects to relinquish either o of such rights. A revocation of a prior QUALIFIED ELECTIO made by a PARTICIPANT without the CONSENT of the SPOUSE a time prior to the commencement of benefits. An unlimited of revocations shall be permitted. No CONSENT obtained un provision shall be valid unless the PARTICIPANT has recei proper

-15NOTICE. Contributions Plus Interest: --------------------------The cumulative total of contributions made by a PARTICIPA the PLAN under Section 13; paragraph (b) of Special Provi and to the COMPANY's Retirement PLAN as it existed before plus interest at two percent per year on a PARTICIPANT's contributions made after 1953, compounded annually to 197 together with interest at five percent compounded annuall 1975 on all contributions and previous interest. See Special Provision F.

Credited Service: ---------------Early Retirement Date: --------------------Early Retirement Pension: ------------------------Employee: --------

See Section 7.

See Section 7.

An EMPLOYEE of an EMPLOYER who is not covered by a collec bargaining agreement. A "leased employee," as defined in 414(n) of the CODE, shall not be considered an EMPLOYEE e

NOTICE. Contributions Plus Interest: --------------------------The cumulative total of contributions made by a PARTICIPA the PLAN under Section 13; paragraph (b) of Special Provi and to the COMPANY's Retirement PLAN as it existed before plus interest at two percent per year on a PARTICIPANT's contributions made after 1953, compounded annually to 197 together with interest at five percent compounded annuall 1975 on all contributions and previous interest. See Special Provision F.

Credited Service: ---------------Early Retirement Date: --------------------Early Retirement Pension: ------------------------Employee: --------

See Section 7.

See Section 7.

An EMPLOYEE of an EMPLOYER who is not covered by a collec bargaining agreement. A "leased employee," as defined in 414(n) of the CODE, shall not be considered an EMPLOYEE e to become a PARTICIPANT in the PLAN. Notwithstanding any provisions in the PLAN, solely for purposes of CODE Secti 414(n)(3), the term EMPLOYEE shall, to the extent require CODE Section 414, include leased EMPLOYEES. The EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE referred to Section 19.

Employee Benefit Administrative Committee: -----------------------The Employee Benefit Finance Committee: ----------------Employer: --------

The EMPLOYEE BENEFIT FINANCE COMMITTEE referred to in Sec

Pacific Gas and Electric Company, Pacific Service Employe Association, and any other company, association, or credi designated by the Board of Directors as eligible to parti in this PLAN is an EMPLOYER. See Section 10.

Joint Pension: ------------Joint Pensioner: ---------------

The individual designated by a PARTICIPANT upon the elect JOINT PENSION who will be entitled upon the PARTICIPANT's to receive a PENSION, as explained in Section 10. Part B of the Pacific Gas and Electric Company's Group Li Insurance and Long Term Disability Plan. See Section 10(b).

Long Term Disability Plan: ------------------------Marital Pension: --------------Maximum Pension: --------------Normal Retirement Date: ---------------------Notice: ------

See Special Provision H.

The first of the month following the PARTICIPANT's 65th b

The NOTICE that is required by this PLAN pursuant to CODE

-16Section 417 in order to waive the MARITAL PENSION. In the case of MARITAL PENSION, the PLAN shall provide to PARTICIPANT, and to each vested former EMPLOYEE, no less days and no more than 90 days prior to the annuity starti a written explanation of: (i) the terms and conditions of MARITAL PENSION, (ii) the right to make and the effect of election to waive the MARITAL PENSION, (iii) the rights o PARTICIPANT's or the former EMPLOYEE'S SPOUSE, (iv) the r make an election to waive the MARITAL PENSION and the eff revoking a previous election to waive the MARITAL PENSION (v) the relative values of the various optional forms of under the PLAN.

Section 417 in order to waive the MARITAL PENSION. In the case of MARITAL PENSION, the PLAN shall provide to PARTICIPANT, and to each vested former EMPLOYEE, no less days and no more than 90 days prior to the annuity starti a written explanation of: (i) the terms and conditions of MARITAL PENSION, (ii) the right to make and the effect of election to waive the MARITAL PENSION, (iii) the rights o PARTICIPANT's or the former EMPLOYEE'S SPOUSE, (iv) the r make an election to waive the MARITAL PENSION and the eff revoking a previous election to waive the MARITAL PENSION (v) the relative values of the various optional forms of under the PLAN. Participant: ----------Part-Time Employee: -----------------Pension: ------Plan: ---Plan Year: --------See Section 2.

An EMPLOYEE whose regularly scheduled work week is less t hours. Retirement income payable under the PLAN.

The Company's Retirement Plan as amended, revised and set herein. The PLAN YEAR shall be the calendar year which shall also limitation year for purposes of applying the annual benef limitations of CODE Section 415. An election qualifying under CODE Section 417(a) to waive or both, of the 50 percent spousal survivor annuities tha based on the MARITAL PENSION and that are described in Se 10(b) or 11(b) of the PLAN. Any such waiver shall not be considered a QUALIFIED ELECTION unless: (a) the PARTICIPA SPOUSE furnishes a written CONSENT to the election, (b) t election designates a specific alternate BENEFICIARY, inc any class of BENEFICIARIES or any contingent BENEFICIARIE may not be changed without spousal CONSENT (or the SPOUSE expressly permits designations by the PARTICIPANT without further spousal CONSENT, (c) the SPOUSE'S CONSENT acknowl the effect of the election, and (d) the SPOUSE'S CONSENT witnessed by a PLAN representative or a notary public. A PARTICIPANT'S waiver of the survivor annuity will not con a QUALIFIED ELECTION unless the form of benefit payment m be changed without spousal CONSENT, or the SPOUSE express permits designations by the PARTICIPANT without any furth spousal CONSENT. If it is established to the satisfaction PLAN representative that such written CONSENT may not be because there is no SPOUSE or the SPOUSE cannot be locate a waiver will be deemed a QUALIFIED ELECTION. For full-time EMPLOYEES, the period of time commencing wi first day of work for an EMPLOYER and ending on PARTICIPA SEVERANCE FROM SERVICE Date. For

Qualified Election: ------------------

Service: -------

-17periods of PART-TIME and intermittent employment, SERVICE accrual is prorated based on the ratio of actual hours wo to the full-time equivalent (2,080 per calendar year) rou Such proration is applicable for any employment period be PART-TIME or intermittent status on or after January 1, 1 earlier of Participant's return to full time status or th FROM SERVICE DATE. The method of computing SERVICE is des Severance from Service Date: --------------------------(i) The date prior to NORMAL RETIREMENT DATE on which an is discharged or dies, or the ACTUAL RETIREMENT DATE The first anniversary of the first date of a period remains absent from work for an EMPLOYER for any re retirement, discharge, or death.

(ii)

For the purpose of determining the Severance from SERVICE the following periods shall not be considered as absences work for an EMPLOYER: (a) Absence on a leave of absence authorized by the EMPL

periods of PART-TIME and intermittent employment, SERVICE accrual is prorated based on the ratio of actual hours wo to the full-time equivalent (2,080 per calendar year) rou Such proration is applicable for any employment period be PART-TIME or intermittent status on or after January 1, 1 earlier of Participant's return to full time status or th FROM SERVICE DATE. The method of computing SERVICE is des Severance from Service Date: --------------------------(i) The date prior to NORMAL RETIREMENT DATE on which an is discharged or dies, or the ACTUAL RETIREMENT DATE The first anniversary of the first date of a period remains absent from work for an EMPLOYER for any re retirement, discharge, or death.

(ii)

For the purpose of determining the Severance from SERVICE the following periods shall not be considered as absences work for an EMPLOYER: (a) (b) Absence on a leave of absence authorized by the EMPL Absence because of illness or injury so long as the receive sick leave pay or is entitled to receive ben of the Voluntary Wage Benefit Plan, a state disabili Group Life Insurance and Long Term Disability Plan, Law. Absence for military service or service in the Merch Marines so long as reemployment rights are protected Absence caused by layoff for lack of work of less th continuous months for a PARTICIPANT who has less tha of SERVICE, or 24 continuous months for a PARTICIPAN five years or more of SERVICE.

(c)

(d)

Special Joint Pension: --------------------Spouse: ------

See Section 10.

(a)

If a PARTICIPANT dies in SERVICE, SPOUSE shall mean PARTICIPANT's wife or husband at the time of the PAR death. If a PARTICIPANT dies after ACTUAL RETIREMENT DATE, shall means the PARTICIPANT's wife or husband at the PARTICIPANT's Actual Retirement.

(b)

-18Spouse's Pension: ---------------See Section 11.

-19-

SPECIAL PROVISION A Payment of all PENSIONS to PARTICIPANTS which commenced before January 1, 1969, under the Retirement Plan of the COMPANY, its Past Service Plan, its Supplemental Benefits and under any applicable retirement plan of a predecessor company shall continue to be made under the PLAN, without regard to the separate sources from which such pensions were previously paid. SPECIAL PROVISION B EARLY RETIREMENT REDUCTIONS IN PERCENTAGE POINTS Years Of Service At Early Retirement Date
Age at Retirement Less Than 15 Years 15 But Less Than 25 Years 25 But Less Than 30 Years 30 Years And Above

Spouse's Pension: ----------------

See Section 11.

-19-

SPECIAL PROVISION A Payment of all PENSIONS to PARTICIPANTS which commenced before January 1, 1969, under the Retirement Plan of the COMPANY, its Past Service Plan, its Supplemental Benefits and under any applicable retirement plan of a predecessor company shall continue to be made under the PLAN, without regard to the separate sources from which such pensions were previously paid. SPECIAL PROVISION B EARLY RETIREMENT REDUCTIONS IN PERCENTAGE POINTS Years Of Service At Early Retirement Date
Age at Retirement -----------64 63 62 61 60 59 58 57 56 55 Less Than 15 Years --------3 6 9 12 15 18 21 24 27 30 15 But Less Than 25 Years ------------0 0 0 3 6 10 14 18 22 26 25 But Less Than 30 Years ------------0 0 0 3 6 9 12 15 18 21 30 Years And Above --------0 0 0 0 0 6 9 12 15 18

-20-

SPECIAL PROVISION C JOINT PENSION WITH NON-SPOUSE (Entire Provision Amended 1/1/88) The amount of non-spouse JOINT PENSION shall be determined by the use of Actuarial Tables which provide 12%, 16%, 25%, 33-1/3%, 50%, 66-2/3%, 75% and 100% of the JOINT PENSION to a non-spouse JOINT PENSIONER who survives the death of the PARTICIPANT. Partial Actuarial Tables of 50% and 100% have been attached. The following tables illustrate the factors to be applied for typical options which may be elected for 50% and 100%. EXAMPLE: Assume the PARTICIPANT is age 62 and elects a 50% or 100% option with a non-spouse age 50. Also assume that the PARTICIPANT's BASIC PENSION is $1,000 per month.
NonSpouse's Option --------50% 100% NonSpouse's Portion --------.50 1.00 Non-Spouse's Pension In Event of Participant's Death -------------------$430.50 $756.00

Option Factor -----.861 .756

X X

Basic Pension ------$1,000. $1,000.

= =

Reduced Pension ------$861. $756.

X X

= =

SPECIAL PROVISION A Payment of all PENSIONS to PARTICIPANTS which commenced before January 1, 1969, under the Retirement Plan of the COMPANY, its Past Service Plan, its Supplemental Benefits and under any applicable retirement plan of a predecessor company shall continue to be made under the PLAN, without regard to the separate sources from which such pensions were previously paid. SPECIAL PROVISION B EARLY RETIREMENT REDUCTIONS IN PERCENTAGE POINTS Years Of Service At Early Retirement Date
Age at Retirement -----------64 63 62 61 60 59 58 57 56 55 Less Than 15 Years --------3 6 9 12 15 18 21 24 27 30 15 But Less Than 25 Years ------------0 0 0 3 6 10 14 18 22 26 25 But Less Than 30 Years ------------0 0 0 3 6 9 12 15 18 21 30 Years And Above --------0 0 0 0 0 6 9 12 15 18

-20-

SPECIAL PROVISION C JOINT PENSION WITH NON-SPOUSE (Entire Provision Amended 1/1/88) The amount of non-spouse JOINT PENSION shall be determined by the use of Actuarial Tables which provide 12%, 16%, 25%, 33-1/3%, 50%, 66-2/3%, 75% and 100% of the JOINT PENSION to a non-spouse JOINT PENSIONER who survives the death of the PARTICIPANT. Partial Actuarial Tables of 50% and 100% have been attached. The following tables illustrate the factors to be applied for typical options which may be elected for 50% and 100%. EXAMPLE: Assume the PARTICIPANT is age 62 and elects a 50% or 100% option with a non-spouse age 50. Also assume that the PARTICIPANT's BASIC PENSION is $1,000 per month.
NonSpouse's Option --------50% 100% NonSpouse's Portion --------.50 1.00 Non-Spouse's Pension In Event of Participant's Death -------------------$430.50 $756.00

Option Factor -----.861 .756

X X

Basic Pension ------$1,000. $1,000.

= =

Reduced Pension ------$861. $756.

X X

= =

Tables for 12%, 16%, 33-1/3%, 66-2/3%, or 75% are available upon request. Tables for Beneficiary's Age at Pensioner's Retirement of less than 25 years or greater than 84 years are also available upon request. -21-

SPECIAL PROVISION C JOINT PENSION WITH NON-SPOUSE (Entire Provision Amended 1/1/88) The amount of non-spouse JOINT PENSION shall be determined by the use of Actuarial Tables which provide 12%, 16%, 25%, 33-1/3%, 50%, 66-2/3%, 75% and 100% of the JOINT PENSION to a non-spouse JOINT PENSIONER who survives the death of the PARTICIPANT. Partial Actuarial Tables of 50% and 100% have been attached. The following tables illustrate the factors to be applied for typical options which may be elected for 50% and 100%. EXAMPLE: Assume the PARTICIPANT is age 62 and elects a 50% or 100% option with a non-spouse age 50. Also assume that the PARTICIPANT's BASIC PENSION is $1,000 per month.
NonSpouse's Option --------50% 100% NonSpouse's Portion --------.50 1.00 Non-Spouse's Pension In Event of Participant's Death -------------------$430.50 $756.00

Option Factor -----.861 .756

X X

Basic Pension ------$1,000. $1,000.

= =

Reduced Pension ------$861. $756.

X X

= =

Tables for 12%, 16%, 33-1/3%, 66-2/3%, or 75% are available upon request. Tables for Beneficiary's Age at Pensioner's Retirement of less than 25 years or greater than 84 years are also available upon request. -21SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.844 .847 .849 .851 .853 .855 .858 .860 .863 .866 .868 .871 .874 .877 .880 .884 .887 .890 .893 .897 .900 .904 .907 .911 56 ---.836 .838 .840 .842 .844 .847 .849 .852 .854 .857 .860 .863 .866 .869 .872 .875 .879 .882 .886 .889 .893 .896 .900 .904 57 ---.827 .829 .831 .833 .835 .838 .840 .843 .846 .848 .851 .854 .857 .860 .864 .867 .870 .874 .877 .881 .885 .889 .892 .896 58 ---.817 .819 .821 .824 .826 .828 .831 .833 .836 .839 .842 .845 .848 .851 .855 .858 .862 .865 .869 .873 .876 .880 .884 .888 59 ---.807 .809 .811 .814 .816 .818 .821 .824 .826 .829 .832 .835 .839 .842 .845 .849 .852 .856 .860 .864 .868 .872 .876 .880 60 ---.797 .799 .801 .803 .806 .808 .811 .813 .816 .819 .822 .825 .829 .832 .835 .839 .843 .846 .850 .854 .858 .862 .867 .871 61 ---.786 .788 .790 .793 .795 .797 .800 .803 .806 .809 .812 .815 .818 .821 .825 .829 .832 .836 .840 .844 .848 .853 .857 .861 62 ---.775 .777 .779 .781 .784 .786 .789 .792 .794 .797 .801 .804 .807 .811 .814 .818 .822 .826 .830 .834 .838 .842 .847 .851 63 ---.763 .765 .767 .769 .772 .774 .777 .780 .783 .786 .789 .792 .796 .799 .803 .806 .810 .814 .818 .823 .827 .832 .836 .841 64 ---.751 .753 .755 .757 .760 .762 .765 .768 .771 .774 .777 .780 .784 .787 .791 .795 .798 .803 .807 .811 .816 .820 .825 .830 65 ---.738 .740 .742 .745 .747 .750 .752 .755 .758 .761 .764 .768 .771 .775 .778 .782 .786 .790 .794 .799 .803 .808 .813 .818 66 ---.725 .727 .729 .731 .734 .736 .739 .742 .745 .748 .751 .754 .758 .761 .765 .769 .773 .777 .782 .786 .791 .795 .800 .805 67 ---.711 .713 .715 .718 .720 .723 .725 .728 .731 .734 .737 .741 .744 .748 .752 .756 .760 .764 .768 .773 .777 .782 .787 .792 68 ---.697 .699 .701 .703 .706 .708 .711 .714 .717 .720 .723 .727 .730 .734 .737 .741 .746 .750 .754 .759 .764 .768 .774 .779 69 ---.682 .684 .686 .689 .691 .694 .696 .699 .702 .705 .708 .712 .715 .719 .723 .727 .731 .735 .740 .744 .749 .754 .759 .764

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.844 .847 .849 .851 .853 .855 .858 .860 .863 .866 .868 .871 .874 .877 .880 .884 .887 .890 .893 .897 .900 .904 .907 .911 .914 56 ---.836 .838 .840 .842 .844 .847 .849 .852 .854 .857 .860 .863 .866 .869 .872 .875 .879 .882 .886 .889 .893 .896 .900 .904 .907 57 ---.827 .829 .831 .833 .835 .838 .840 .843 .846 .848 .851 .854 .857 .860 .864 .867 .870 .874 .877 .881 .885 .889 .892 .896 .900 58 ---.817 .819 .821 .824 .826 .828 .831 .833 .836 .839 .842 .845 .848 .851 .855 .858 .862 .865 .869 .873 .876 .880 .884 .888 .892 59 ---.807 .809 .811 .814 .816 .818 .821 .824 .826 .829 .832 .835 .839 .842 .845 .849 .852 .856 .860 .864 .868 .872 .876 .880 .884 60 ---.797 .799 .801 .803 .806 .808 .811 .813 .816 .819 .822 .825 .829 .832 .835 .839 .843 .846 .850 .854 .858 .862 .867 .871 .875 61 ---.786 .788 .790 .793 .795 .797 .800 .803 .806 .809 .812 .815 .818 .821 .825 .829 .832 .836 .840 .844 .848 .853 .857 .861 .866 62 ---.775 .777 .779 .781 .784 .786 .789 .792 .794 .797 .801 .804 .807 .811 .814 .818 .822 .826 .830 .834 .838 .842 .847 .851 .856 63 ---.763 .765 .767 .769 .772 .774 .777 .780 .783 .786 .789 .792 .796 .799 .803 .806 .810 .814 .818 .823 .827 .832 .836 .841 .846 64 ---.751 .753 .755 .757 .760 .762 .765 .768 .771 .774 .777 .780 .784 .787 .791 .795 .798 .803 .807 .811 .816 .820 .825 .830 .835 65 ---.738 .740 .742 .745 .747 .750 .752 .755 .758 .761 .764 .768 .771 .775 .778 .782 .786 .790 .794 .799 .803 .808 .813 .818 .823 66 ---.725 .727 .729 .731 .734 .736 .739 .742 .745 .748 .751 .754 .758 .761 .765 .769 .773 .777 .782 .786 .791 .795 .800 .805 .811 67 ---.711 .713 .715 .718 .720 .723 .725 .728 .731 .734 .737 .741 .744 .748 .752 .756 .760 .764 .768 .773 .777 .782 .787 .792 .798 68 ---.697 .699 .701 .703 .706 .708 .711 .714 .717 .720 .723 .727 .730 .734 .737 .741 .746 .750 .754 .759 .764 .768 .774 .779 .784 69 ---.682 .684 .686 .689 .691 .694 .696 .699 .702 .705 .708 .712 .715 .719 .723 .727 .731 .735 .740 .744 .749 .754 .759 .764 .770

-22SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.918 .921 .925 .928 .932 .935 .938 .942 .945 .948 .951 .954 .957 .960 .963 .965 .968 .970 .972 .975 .977 56 ---.911 .915 .918 .922 .926 .929 .933 .936 .940 .943 .947 .950 .953 .956 .959 .962 .965 .967 .970 .972 .974 57 ---.904 .908 .912 .916 .919 .923 .927 .931 .934 .938 .942 .945 .948 .952 .955 .958 .961 .964 .967 .969 .972 58 ---.896 .900 .904 .908 .913 .917 .921 .925 .928 .932 .936 .940 .944 .947 .951 .954 .957 .960 .963 .966 .969 59 ---.888 .892 .897 .901 .905 .909 .914 .918 .922 .926 .930 .934 .938 .942 .946 .949 .953 .956 .960 .963 .966 60 ---.880 .884 .888 .893 .897 .902 .906 .911 .915 .920 .924 .928 .932 .937 .941 .944 .948 .952 .955 .959 .962 61 ---.870 .875 .880 .884 .889 .894 .898 .903 .908 .912 .917 .922 .926 .931 .935 .939 .943 .947 .951 .955 .958 62 ---.861 .866 .870 .875 .880 .885 .890 .895 .900 .905 .910 .914 .919 .924 .929 .933 .938 .942 .946 .950 .954 63 ---.850 .855 .860 .865 .870 .876 .881 .886 .891 .896 .902 .907 .912 .917 .922 .927 .931 .936 .940 .945 .949 64 ---.840 .845 .850 .855 .860 .866 .871 .876 .882 .887 .893 .898 .904 .909 .914 .920 .925 .930 .934 .939 .944 65 ---.828 .833 .839 .844 .849 .855 .861 .866 .872 .878 .883 .889 .895 .901 .906 .912 .917 .923 .928 .933 .938 66 ---.816 .821 .827 .832 .838 .844 .849 .855 .861 .867 .873 .879 .885 .891 .897 .903 .909 .915 .920 .926 .931 67 ---.803 .808 .814 .820 .826 .832 .838 .844 .850 .856 .863 .869 .875 .882 .888 .894 .900 .907 .913 .918 .924 68 ---.790 .795 .801 .807 .813 .819 .825 .831 .838 .844 .851 .858 .864 .871 .878 .884 .891 .897 .904 .910 .916 69 ---.775 .781 .787 .793 .799 .806 .812 .819 .825 .832 .839 .846 .853 .860 .867 .874 .881 .888 .894 .901 .908

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.918 .921 .925 .928 .932 .935 .938 .942 .945 .948 .951 .954 .957 .960 .963 .965 .968 .970 .972 .975 .977 .979 .980 .982 .984 56 ---.911 .915 .918 .922 .926 .929 .933 .936 .940 .943 .947 .950 .953 .956 .959 .962 .965 .967 .970 .972 .974 .976 .978 .980 .982 57 ---.904 .908 .912 .916 .919 .923 .927 .931 .934 .938 .942 .945 .948 .952 .955 .958 .961 .964 .967 .969 .972 .974 .976 .978 .980 58 ---.896 .900 .904 .908 .913 .917 .921 .925 .928 .932 .936 .940 .944 .947 .951 .954 .957 .960 .963 .966 .969 .971 .974 .976 .978 59 ---.888 .892 .897 .901 .905 .909 .914 .918 .922 .926 .930 .934 .938 .942 .946 .949 .953 .956 .960 .963 .966 .968 .971 .973 .976 60 ---.880 .884 .888 .893 .897 .902 .906 .911 .915 .920 .924 .928 .932 .937 .941 .944 .948 .952 .955 .959 .962 .965 .968 .971 .973 61 ---.870 .875 .880 .884 .889 .894 .898 .903 .908 .912 .917 .922 .926 .931 .935 .939 .943 .947 .951 .955 .958 .961 .965 .968 .970 62 ---.861 .866 .870 .875 .880 .885 .890 .895 .900 .905 .910 .914 .919 .924 .929 .933 .938 .942 .946 .950 .954 .957 .961 .964 .967 63 ---.850 .855 .860 .865 .870 .876 .881 .886 .891 .896 .902 .907 .912 .917 .922 .927 .931 .936 .940 .945 .949 .953 .957 .960 .964 64 ---.840 .845 .850 .855 .860 .866 .871 .876 .882 .887 .893 .898 .904 .909 .914 .920 .925 .930 .934 .939 .944 .948 .952 .956 .960 65 ---.828 .833 .839 .844 .849 .855 .861 .866 .872 .878 .883 .889 .895 .901 .906 .912 .917 .923 .928 .933 .938 .942 .947 .951 .955 66 ---.816 .821 .827 .832 .838 .844 .849 .855 .861 .867 .873 .879 .885 .891 .897 .903 .909 .915 .920 .926 .931 .936 .941 .946 .950 67 ---.803 .808 .814 .820 .826 .832 .838 .844 .850 .856 .863 .869 .875 .882 .888 .894 .900 .907 .913 .918 .924 .930 .935 .940 .945 68 ---.790 .795 .801 .807 .813 .819 .825 .831 .838 .844 .851 .858 .864 .871 .878 .884 .891 .897 .904 .910 .916 .922 .928 .933 .939 69 ---.775 .781 .787 .793 .799 .806 .812 .819 .825 .832 .839 .846 .853 .860 .867 .874 .881 .888 .894 .901 .908 .914 .920 .926 .932

-23SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.985 .987 .988 .989 .990 .991 .992 .993 .994 .995 56 ---.984 .985 .987 .988 .989 .990 .991 .992 .993 .994 57 ---.982 .984 .985 .987 .988 .989 .990 .991 .992 .993 58 ---.980 .982 .984 .985 .987 .988 .989 .991 .992 .993 59 ---.978 .980 .982 .984 .985 .987 .988 .990 .991 .992 60 ---.976 .978 .980 .982 .984 .985 .987 .988 .990 .991 61 ---.973 .976 .978 .980 .982 .984 .986 .987 .989 .990 62 ---.970 .973 .975 .978 .980 .982 .984 .986 .987 .989 63 ---.967 .970 .973 .975 .978 .980 .982 .984 .986 .987 64 ---.963 .966 .970 .972 .975 .978 .980 .982 .984 .986 65 ---.959 .963 .966 .969 .972 .975 .978 .980 .982 .984 66 ---.954 .958 .962 .966 .969 .972 .975 .978 .980 .982 67 ---.949 .954 .958 .962 .965 .969 .972 .975 .978 .980 68 ---.944 .948 .953 .957 .961 .965 .969 .972 .975 .978 69 ---.937 .943 .948 .952 .957 .961 .965 .968 .972 .975

-24SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.667 .669 .671 .674 .676 .679 .681 .684 .687 .690 .693 .697 .700 .704 .708 .712 .716 .720 .725 .729 .734 .739 .744 .750 .755 71 ---.652 .654 .656 .658 .661 .663 .666 .669 .671 .675 .678 .681 .685 .688 .692 .696 .700 .705 .709 .714 .719 .724 .729 .734 .740 72 ---.636 .638 .640 .642 .645 .647 .650 .653 .655 .659 .662 .665 .669 .672 .676 .680 .684 .689 .693 .698 .703 .708 .713 .718 .724 73 ---.620 .622 .624 .626 .628 .631 .633 .636 .639 .642 .645 .649 .652 .656 .659 .663 .668 .672 .677 .681 .686 .691 .697 .702 .708 74 ---.603 .605 .607 .609 .612 .614 .617 .619 .622 .625 .628 .632 .635 .639 .643 .647 .651 .655 .660 .664 .669 .674 .680 .685 .691 75 ---.586 .588 .590 .592 .595 .597 .600 .602 .605 .608 .611 .614 .618 .621 .625 .629 .633 .638 .642 .647 .652 .657 .662 .668 .673 76 ---.569 .571 .573 .575 .577 .580 .582 .585 .588 .591 .594 .597 .600 .604 .607 .611 .616 .620 .624 .629 .634 .639 .644 .650 .655 77 ---.551 .553 .555 .557 .560 .562 .564 .567 .570 .573 .576 .579 .582 .586 .589 .593 .597 .602 .606 .611 .616 .621 .626 .631 .637 78 ---.533 .535 .537 .539 .542 .544 .546 .549 .552 .555 .558 .561 .564 .567 .571 .575 .579 .583 .588 .592 .597 .602 .607 .613 .618 79 ---.515 .517 .519 .521 .524 .526 .528 .531 .533 .536 .539 .542 .545 .549 .552 .556 .560 .564 .569 .573 .578 .583 .588 .594 .599 80 ---.497 .499 .501 .503 .505 .507 .510 .512 .515 .518 .520 .524 .527 .530 .534 .537 .541 .545 .550 .554 .559 .564 .569 .574 .580 81 ---.479 .481 .483 .485 .487 .489 .491 .494 .496 .499 .502 .505 .508 .511 .515 .518 .522 .526 .530 .535 .539 .544 .549 .554 .560 82 ---.461 .462 .464 .466 .468 .470 .473 .475 .477 .480 .483 .486 .489 .492 .495 .499 .503 .507 .511 .515 .520 .524 .529 .535 .540 83 ---.442 .444 .446 .448 .450 .452 .454 .456 .459 .461 .464 .467 .470 .473 .476 .480 .483 .487 .491 .495 .500 .505 .509 .515 .520 84 ---.424 .426 .427 .429 .431 .433 .435 .437 .440 .442 .445 .448 .451 .454 .457 .460 .464 .468 .472 .476 .480 .485 .489 .494 .500

-25SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S

PENSIONER WHOSE RETIREMENT AGE IS:

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.667 .669 .671 .674 .676 .679 .681 .684 .687 .690 .693 .697 .700 .704 .708 .712 .716 .720 .725 .729 .734 .739 .744 .750 .755 71 ---.652 .654 .656 .658 .661 .663 .666 .669 .671 .675 .678 .681 .685 .688 .692 .696 .700 .705 .709 .714 .719 .724 .729 .734 .740 72 ---.636 .638 .640 .642 .645 .647 .650 .653 .655 .659 .662 .665 .669 .672 .676 .680 .684 .689 .693 .698 .703 .708 .713 .718 .724 73 ---.620 .622 .624 .626 .628 .631 .633 .636 .639 .642 .645 .649 .652 .656 .659 .663 .668 .672 .677 .681 .686 .691 .697 .702 .708 74 ---.603 .605 .607 .609 .612 .614 .617 .619 .622 .625 .628 .632 .635 .639 .643 .647 .651 .655 .660 .664 .669 .674 .680 .685 .691 75 ---.586 .588 .590 .592 .595 .597 .600 .602 .605 .608 .611 .614 .618 .621 .625 .629 .633 .638 .642 .647 .652 .657 .662 .668 .673 76 ---.569 .571 .573 .575 .577 .580 .582 .585 .588 .591 .594 .597 .600 .604 .607 .611 .616 .620 .624 .629 .634 .639 .644 .650 .655 77 ---.551 .553 .555 .557 .560 .562 .564 .567 .570 .573 .576 .579 .582 .586 .589 .593 .597 .602 .606 .611 .616 .621 .626 .631 .637 78 ---.533 .535 .537 .539 .542 .544 .546 .549 .552 .555 .558 .561 .564 .567 .571 .575 .579 .583 .588 .592 .597 .602 .607 .613 .618 79 ---.515 .517 .519 .521 .524 .526 .528 .531 .533 .536 .539 .542 .545 .549 .552 .556 .560 .564 .569 .573 .578 .583 .588 .594 .599 80 ---.497 .499 .501 .503 .505 .507 .510 .512 .515 .518 .520 .524 .527 .530 .534 .537 .541 .545 .550 .554 .559 .564 .569 .574 .580 81 ---.479 .481 .483 .485 .487 .489 .491 .494 .496 .499 .502 .505 .508 .511 .515 .518 .522 .526 .530 .535 .539 .544 .549 .554 .560 82 ---.461 .462 .464 .466 .468 .470 .473 .475 .477 .480 .483 .486 .489 .492 .495 .499 .503 .507 .511 .515 .520 .524 .529 .535 .540 83 ---.442 .444 .446 .448 .450 .452 .454 .456 .459 .461 .464 .467 .470 .473 .476 .480 .483 .487 .491 .495 .500 .505 .509 .515 .520 84 ---.424 .426 .427 .429 .431 .433 .435 .437 .440 .442 .445 .448 .451 .454 .457 .460 .464 .468 .472 .476 .480 .485 .489 .494 .500

-25SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.761 .767 .773 .779 .785 .792 .798 .805 .812 .819 .826 .833 .840 .848 .855 .862 .870 .877 .884 .891 .898 71 ---.746 .752 .758 .764 .770 .777 .784 .790 .798 .805 .812 .820 .827 .835 .843 .850 .858 .866 .873 .881 .888 72 ---.730 .736 .742 .748 .755 .762 .768 .775 .783 .790 .798 .805 .813 .821 .829 .837 .845 .854 .862 .870 .878 73 ---.713 .720 .726 .732 .739 .746 .753 .760 .767 .775 .783 .790 .799 .807 .815 .824 .832 .841 .849 .858 .866 74 ---.697 .703 .709 .715 .722 .729 .736 .743 .751 .759 .767 .775 .783 .792 .800 .809 .818 .827 .836 .845 .853 75 ---.679 .685 .692 .698 .705 .712 .719 .726 .734 .742 .750 .758 .767 .776 .785 .794 .803 .812 .821 .831 .840 76 ---.661 .667 .674 .680 .687 .694 .701 .709 .717 .725 .733 .741 .750 .759 .768 .778 .787 .797 .806 .816 .826 77 ---.643 .649 .655 .662 .669 .676 .683 .691 .699 .707 .715 .724 .733 .742 .751 .761 .770 .780 .790 .801 .811 78 ---.624 .630 .637 .643 .650 .657 .664 .672 .680 .688 .696 .705 .714 .724 .733 .743 .753 .763 .774 .784 .795 79 ---.605 .611 .617 .624 .631 .638 .645 .653 .661 .669 .677 .686 .695 .705 .715 .725 .735 .745 .756 .767 .778 80 ---.585 .591 .598 .604 .611 .618 .625 .633 .641 .649 .658 .667 .676 .685 .695 .705 .716 .727 .738 .749 .760 81 ---.566 .572 .578 .584 .591 .598 .605 .613 .621 .629 .638 .646 .656 .665 .675 .686 .696 .707 .718 .730 .741 82 ---.546 .551 .558 .564 .571 .578 .585 .592 .600 .608 .617 .626 .635 .645 .655 .665 .676 .687 .698 .710 .722 83 ---.525 .531 .537 .543 .550 .557 .564 .571 .579 .587 .596 .605 .614 .624 .634 .644 .655 .666 .678 .690 .702 84 ---.505 .511 .517 .523 .529 .536 .543 .550 .558 .566 .575 .584 .593 .602 .612 .623 .634 .645 .657 .668 .681

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.761 .767 .773 .779 .785 .792 .798 .805 .812 .819 .826 .833 .840 .848 .855 .862 .870 .877 .884 .891 .898 .905 .912 .918 .925 71 ---.746 .752 .758 .764 .770 .777 .784 .790 .798 .805 .812 .820 .827 .835 .843 .850 .858 .866 .873 .881 .888 .896 .903 .910 .917 72 ---.730 .736 .742 .748 .755 .762 .768 .775 .783 .790 .798 .805 .813 .821 .829 .837 .845 .854 .862 .870 .878 .885 .893 .900 .908 73 ---.713 .720 .726 .732 .739 .746 .753 .760 .767 .775 .783 .790 .799 .807 .815 .824 .832 .841 .849 .858 .866 .874 .882 .890 .898 74 ---.697 .703 .709 .715 .722 .729 .736 .743 .751 .759 .767 .775 .783 .792 .800 .809 .818 .827 .836 .845 .853 .862 .871 .879 .888 75 ---.679 .685 .692 .698 .705 .712 .719 .726 .734 .742 .750 .758 .767 .776 .785 .794 .803 .812 .821 .831 .840 .849 .859 .868 .876 76 ---.661 .667 .674 .680 .687 .694 .701 .709 .717 .725 .733 .741 .750 .759 .768 .778 .787 .797 .806 .816 .826 .836 .845 .855 .864 77 ---.643 .649 .655 .662 .669 .676 .683 .691 .699 .707 .715 .724 .733 .742 .751 .761 .770 .780 .790 .801 .811 .821 .831 .841 .851 78 ---.624 .630 .637 .643 .650 .657 .664 .672 .680 .688 .696 .705 .714 .724 .733 .743 .753 .763 .774 .784 .795 .805 .816 .826 .837 79 ---.605 .611 .617 .624 .631 .638 .645 .653 .661 .669 .677 .686 .695 .705 .715 .725 .735 .745 .756 .767 .778 .789 .800 .811 .822 80 ---.585 .591 .598 .604 .611 .618 .625 .633 .641 .649 .658 .667 .676 .685 .695 .705 .716 .727 .738 .749 .760 .771 .783 .794 .806 81 ---.566 .572 .578 .584 .591 .598 .605 .613 .621 .629 .638 .646 .656 .665 .675 .686 .696 .707 .718 .730 .741 .753 .765 .777 .789 82 ---.546 .551 .558 .564 .571 .578 .585 .592 .600 .608 .617 .626 .635 .645 .655 .665 .676 .687 .698 .710 .722 .734 .746 .759 .771 83 ---.525 .531 .537 .543 .550 .557 .564 .571 .579 .587 .596 .605 .614 .624 .634 .644 .655 .666 .678 .690 .702 .714 .727 .739 .752 84 ---.505 .511 .517 .523 .529 .536 .543 .550 .558 .566 .575 .584 .593 .602 .612 .623 .634 .645 .657 .668 .681 .693 .706 .719 .732

-26SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.931 .936 .942 .947 .952 .956 .961 .964 .968 .972 71 ---.923 .929 .935 .941 .946 .951 .956 .960 .964 .968 72 ---.915 .921 .928 .934 .940 .945 .951 .955 .960 .964 73 ---.906 .913 .920 .927 .933 .939 .945 .950 .955 .960 74 ---.896 .904 .911 .918 .925 .932 .938 .944 .950 .955 75 ---.885 .893 .902 .909 .917 .924 .931 .937 .943 .949 76 ---.873 .882 .891 .900 .908 .916 .923 .930 .937 .943 77 ---.861 .870 .880 .889 .898 .906 .914 .922 .929 .936 78 ---.847 .858 .868 .877 .887 .896 .905 .913 .921 .928 79 ---.833 .844 .854 .865 .875 .885 .894 .903 .912 .920 80 ---.817 .829 .840 .851 .862 .872 .883 .892 .902 .911 81 ---.801 .813 .825 .836 .848 .859 .870 .881 .891 .900 82 ---.784 .796 .808 .821 .833 .845 .856 .868 .879 .889 83 ---.765 .778 .791 .804 .817 .829 .842 .854 .866 .877 84 ---.746 .759 .773 .786 .800 .813 .826 .839 .851 .863

-27SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S

PENSIONER WHOSE RETIREMENT AGE IS:

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 50% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.931 .936 .942 .947 .952 .956 .961 .964 .968 .972 71 ---.923 .929 .935 .941 .946 .951 .956 .960 .964 .968 72 ---.915 .921 .928 .934 .940 .945 .951 .955 .960 .964 73 ---.906 .913 .920 .927 .933 .939 .945 .950 .955 .960 74 ---.896 .904 .911 .918 .925 .932 .938 .944 .950 .955 75 ---.885 .893 .902 .909 .917 .924 .931 .937 .943 .949 76 ---.873 .882 .891 .900 .908 .916 .923 .930 .937 .943 77 ---.861 .870 .880 .889 .898 .906 .914 .922 .929 .936 78 ---.847 .858 .868 .877 .887 .896 .905 .913 .921 .928 79 ---.833 .844 .854 .865 .875 .885 .894 .903 .912 .920 80 ---.817 .829 .840 .851 .862 .872 .883 .892 .902 .911 81 ---.801 .813 .825 .836 .848 .859 .870 .881 .891 .900 82 ---.784 .796 .808 .821 .833 .845 .856 .868 .879 .889 83 ---.765 .778 .791 .804 .817 .829 .842 .854 .866 .877 84 ---.746 .759 .773 .786 .800 .813 .826 .839 .851 .863

-27SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.731 .734 .737 .740 .744 .747 .751 .755 .759 .763 .768 .772 .777 .781 .786 .791 .797 .802 .807 .813 .819 .824 .830 .836 .842 56 ---.718 .721 .724 .727 .731 .734 .738 .742 .746 .750 .754 .759 .764 .768 .773 .779 .784 .789 .795 .800 .806 .812 .818 .824 .830 57 ---.704 .707 .710 .714 .717 .721 .725 .728 .732 .737 .741 .746 .750 .755 .760 .765 .771 .776 .782 .788 .793 .799 .806 .812 .818 58 ---.691 .694 .697 .700 .703 .707 .711 .715 .719 .723 .727 .732 .736 .741 .746 .751 .757 .762 .768 .774 .780 .786 .793 .799 .805 59 ---.676 .679 .683 .686 .689 .693 .696 .700 .704 .708 .713 .717 .722 .727 .732 .737 .743 .748 .754 .760 .766 .773 .779 .785 .792 60 ---.662 .665 .668 .671 .675 .678 .682 .686 .690 .694 .698 .703 .707 .712 .717 .723 .728 .734 .740 .746 .752 .758 .765 .771 .778 61 ---.647 .650 .653 .656 .660 .663 .667 .671 .675 .679 .683 .687 .692 .697 .702 .707 .713 .719 .724 .731 .737 .743 .750 .757 .764 62 ---.632 .635 .638 .641 .644 .648 .651 .655 .659 .663 .667 .672 .677 .681 .687 .692 .697 .703 .709 .715 .721 .728 .734 .741 .748 63 ---.617 .619 .622 .625 .629 .632 .636 .639 .643 .647 .651 .656 .661 .665 .670 .676 .681 .687 .693 .699 .705 .712 .718 .725 .732 64 ---.601 .603 .606 .609 .613 .616 .619 .623 .627 .631 .635 .639 .644 .649 .654 .659 .665 .670 .676 .682 .689 .695 .702 .709 .716 65 ---.585 .587 .590 .593 .596 .599 .603 .607 .610 .614 .618 .623 .627 .632 .637 .642 .648 .653 .659 .665 .671 .678 .685 .692 .699 66 ---.568 .571 .574 .576 .580 .583 .586 .590 .593 .597 .601 .606 .610 .615 .620 .625 .630 .636 .642 .648 .654 .660 .667 .674 .681 67 ---.551 .554 .557 .560 .563 .566 .569 .573 .576 .580 .584 .588 .593 .597 .602 .607 .612 .618 .624 .630 .636 .642 .649 .656 .663 68 ---.535 .537 .540 .543 .545 .549 .552 .555 .559 .562 .566 .570 .575 .579 .584 .589 .594 .600 .605 .611 .618 .624 .631 .638 .645 69 ---.518 .520 .523 .525 .528 .531 .534 .538 .541 .545 .549 .553 .557 .561 .566 .571 .576 .581 .587 .593 .599 .605 .612 .619 .626

-28SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S

PENSIONER WHOSE RETIREMENT AGE IS:

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.731 .734 .737 .740 .744 .747 .751 .755 .759 .763 .768 .772 .777 .781 .786 .791 .797 .802 .807 .813 .819 .824 .830 .836 .842 56 ---.718 .721 .724 .727 .731 .734 .738 .742 .746 .750 .754 .759 .764 .768 .773 .779 .784 .789 .795 .800 .806 .812 .818 .824 .830 57 ---.704 .707 .710 .714 .717 .721 .725 .728 .732 .737 .741 .746 .750 .755 .760 .765 .771 .776 .782 .788 .793 .799 .806 .812 .818 58 ---.691 .694 .697 .700 .703 .707 .711 .715 .719 .723 .727 .732 .736 .741 .746 .751 .757 .762 .768 .774 .780 .786 .793 .799 .805 59 ---.676 .679 .683 .686 .689 .693 .696 .700 .704 .708 .713 .717 .722 .727 .732 .737 .743 .748 .754 .760 .766 .773 .779 .785 .792 60 ---.662 .665 .668 .671 .675 .678 .682 .686 .690 .694 .698 .703 .707 .712 .717 .723 .728 .734 .740 .746 .752 .758 .765 .771 .778 61 ---.647 .650 .653 .656 .660 .663 .667 .671 .675 .679 .683 .687 .692 .697 .702 .707 .713 .719 .724 .731 .737 .743 .750 .757 .764 62 ---.632 .635 .638 .641 .644 .648 .651 .655 .659 .663 .667 .672 .677 .681 .687 .692 .697 .703 .709 .715 .721 .728 .734 .741 .748 63 ---.617 .619 .622 .625 .629 .632 .636 .639 .643 .647 .651 .656 .661 .665 .670 .676 .681 .687 .693 .699 .705 .712 .718 .725 .732 64 ---.601 .603 .606 .609 .613 .616 .619 .623 .627 .631 .635 .639 .644 .649 .654 .659 .665 .670 .676 .682 .689 .695 .702 .709 .716 65 ---.585 .587 .590 .593 .596 .599 .603 .607 .610 .614 .618 .623 .627 .632 .637 .642 .648 .653 .659 .665 .671 .678 .685 .692 .699 66 ---.568 .571 .574 .576 .580 .583 .586 .590 .593 .597 .601 .606 .610 .615 .620 .625 .630 .636 .642 .648 .654 .660 .667 .674 .681 67 ---.551 .554 .557 .560 .563 .566 .569 .573 .576 .580 .584 .588 .593 .597 .602 .607 .612 .618 .624 .630 .636 .642 .649 .656 .663 68 ---.535 .537 .540 .543 .545 .549 .552 .555 .559 .562 .566 .570 .575 .579 .584 .589 .594 .600 .605 .611 .618 .624 .631 .638 .645 69 ---.518 .520 .523 .525 .528 .531 .534 .538 .541 .545 .549 .553 .557 .561 .566 .571 .576 .581 .587 .593 .599 .605 .612 .619 .626

-28SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.848 .854 .860 .866 .872 .878 .884 .890 .895 .901 .907 .912 .918 .923 .928 .933 .937 .942 .946 .950 .954 56 ---.837 .843 .849 .855 .862 .868 .874 .880 .886 .893 .898 .904 .910 .916 .921 .926 .931 .936 .941 .946 .950 57 ---.825 .831 .838 .844 .851 .857 .864 .870 .877 .883 .890 .896 .902 .908 .914 .919 .925 .930 .935 .940 .945 58 ---.812 .819 .826 .832 .839 .846 .853 .860 .866 .873 .880 .887 .893 .900 .906 .912 .918 .924 .929 .934 .939 59 ---.799 .806 .813 .820 .827 .834 .841 .848 .855 .863 .870 .877 .884 .890 .897 .904 .910 .916 .922 .928 .933 60 ---.785 .792 .799 .807 .814 .821 .829 .836 .844 .851 .859 .866 .873 .881 .888 .895 .902 .908 .915 .921 .927 61 ---.771 .778 .785 .793 .800 .808 .816 .823 .831 .839 .847 .855 .862 .870 .878 .885 .892 .900 .906 .913 .920 62 ---.756 .763 .770 .778 .786 .794 .802 .810 .818 .826 .834 .842 .851 .859 .867 .875 .882 .890 .897 .905 .912 63 ---.740 .747 .755 .763 .771 .779 .787 .795 .804 .812 .821 .829 .838 .846 .855 .863 .872 .880 .888 .895 .903 64 ---.723 .731 .739 .747 .755 .763 .771 .780 .789 .798 .806 .815 .824 .833 .842 .851 .860 .868 .877 .885 .893 65 ---.706 .714 .722 .730 .738 .747 .755 .764 .773 .782 .791 .800 .810 .819 .829 .838 .847 .856 .865 .874 .883 66 ---.689 .697 .705 .713 .721 .730 .738 .747 .756 .766 .775 .785 .794 .804 .814 .824 .833 .843 .853 .862 .871 67 ---.671 .679 .687 .695 .703 .712 .721 .730 .739 .749 .758 .768 .778 .788 .799 .809 .819 .829 .839 .849 .859 68 ---.652 .660 .668 .676 .685 .693 .702 .712 .721 .731 .741 .751 .761 .772 .782 .793 .803 .814 .825 .835 .845 69 ---.633 .641 .649 .657 .666 .674 .683 .693 .702 .712 .722 .733 .743 .754 .765 .776 .787 .798 .809 .820 .831

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.848 .854 .860 .866 .872 .878 .884 .890 .895 .901 .907 .912 .918 .923 .928 .933 .937 .942 .946 .950 .954 .958 .962 .965 .968 56 ---.837 .843 .849 .855 .862 .868 .874 .880 .886 .893 .898 .904 .910 .916 .921 .926 .931 .936 .941 .946 .950 .954 .958 .961 .965 57 ---.825 .831 .838 .844 .851 .857 .864 .870 .877 .883 .890 .896 .902 .908 .914 .919 .925 .930 .935 .940 .945 .949 .953 .957 .961 58 ---.812 .819 .826 .832 .839 .846 .853 .860 .866 .873 .880 .887 .893 .900 .906 .912 .918 .924 .929 .934 .939 .944 .949 .953 .957 59 ---.799 .806 .813 .820 .827 .834 .841 .848 .855 .863 .870 .877 .884 .890 .897 .904 .910 .916 .922 .928 .933 .939 .944 .948 .953 60 ---.785 .792 .799 .807 .814 .821 .829 .836 .844 .851 .859 .866 .873 .881 .888 .895 .902 .908 .915 .921 .927 .932 .938 .943 .948 61 ---.771 .778 .785 .793 .800 .808 .816 .823 .831 .839 .847 .855 .862 .870 .878 .885 .892 .900 .906 .913 .920 .926 .932 .937 .942 62 ---.756 .763 .770 .778 .786 .794 .802 .810 .818 .826 .834 .842 .851 .859 .867 .875 .882 .890 .897 .905 .912 .918 .925 .931 .936 63 ---.740 .747 .755 .763 .771 .779 .787 .795 .804 .812 .821 .829 .838 .846 .855 .863 .872 .880 .888 .895 .903 .910 .917 .923 .930 64 ---.723 .731 .739 .747 .755 .763 .771 .780 .789 .798 .806 .815 .824 .833 .842 .851 .860 .868 .877 .885 .893 .901 .908 .916 .922 65 ---.706 .714 .722 .730 .738 .747 .755 .764 .773 .782 .791 .800 .810 .819 .829 .838 .847 .856 .865 .874 .883 .891 .899 .907 .914 66 ---.689 .697 .705 .713 .721 .730 .738 .747 .756 .766 .775 .785 .794 .804 .814 .824 .833 .843 .853 .862 .871 .880 .889 .897 .905 67 ---.671 .679 .687 .695 .703 .712 .721 .730 .739 .749 .758 .768 .778 .788 .799 .809 .819 .829 .839 .849 .859 .868 .878 .887 .895 68 ---.652 .660 .668 .676 .685 .693 .702 .712 .721 .731 .741 .751 .761 .772 .782 .793 .803 .814 .825 .835 .845 .855 .865 .875 .884 69 ---.633 .641 .649 .657 .666 .674 .683 .693 .702 .712 .722 .733 .743 .754 .765 .776 .787 .798 .809 .820 .831 .842 .852 .863 .873

-29SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.971 .974 .976 .979 .981 .983 .985 .986 .988 .989 56 ---.968 .971 .974 .976 .979 .981 .983 .985 .986 .988 57 ---.965 .968 .971 .974 .976 .979 .981 .983 .985 .987 58 ---.961 .965 .968 .971 .974 .977 .979 .981 .983 .985 59 ---.957 .961 .965 .968 .971 .974 .977 .979 .982 .984 60 ---.952 .957 .961 .965 .968 .971 .974 .977 .980 .982 61 ---.948 .952 .957 .961 .965 .968 .971 .975 .977 .980 62 ---.942 .947 .952 .957 .961 .965 .968 .972 .975 .978 63 ---.936 .941 .947 .952 .956 .961 .965 .968 .972 .975 64 ---.929 .935 .941 .946 .952 .956 .961 .965 .969 .972 65 ---.921 .928 .934 .940 .946 .951 .956 .961 .965 .969 66 ---.913 .920 .927 .934 .940 .946 .951 .956 .961 .965 67 ---.904 .912 .919 .926 .933 .939 .945 .951 .956 .961 68 ---.893 .902 .910 .918 .926 .932 .939 .945 .951 .958 69 ---.882 .892 .900 .909 .917 .925 .932 .939 .945 .951

-30SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S

PENSIONER WHOSE RETIREMENT AGE IS:

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.971 .974 .976 .979 .981 .983 .985 .986 .988 .989 56 ---.968 .971 .974 .976 .979 .981 .983 .985 .986 .988 57 ---.965 .968 .971 .974 .976 .979 .981 .983 .985 .987 58 ---.961 .965 .968 .971 .974 .977 .979 .981 .983 .985 59 ---.957 .961 .965 .968 .971 .974 .977 .979 .982 .984 60 ---.952 .957 .961 .965 .968 .971 .974 .977 .980 .982 61 ---.948 .952 .957 .961 .965 .968 .971 .975 .977 .980 62 ---.942 .947 .952 .957 .961 .965 .968 .972 .975 .978 63 ---.936 .941 .947 .952 .956 .961 .965 .968 .972 .975 64 ---.929 .935 .941 .946 .952 .956 .961 .965 .969 .972 65 ---.921 .928 .934 .940 .946 .951 .956 .961 .965 .969 66 ---.913 .920 .927 .934 .940 .946 .951 .956 .961 .965 67 ---.904 .912 .919 .926 .933 .939 .945 .951 .956 .961 68 ---.893 .902 .910 .918 .926 .932 .939 .945 .951 .958 69 ---.882 .892 .900 .909 .917 .925 .932 .939 .945 .951

-30SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.500 .503 .505 .508 .511 .514 .517 .520 .523 .527 .531 .535 .539 .543 .548 .552 .557 .563 .568 .574 .580 .586 .593 .600 .607 71 ---.483 .486 .488 .491 .493 .496 .499 .502 .505 .509 .513 .516 .520 .525 .529 .534 .539 .544 .549 .555 .561 .567 .573 .580 .587 72 ---.466 .468 .471 .473 .476 .478 .481 .484 .488 .491 .494 .498 .502 .506 .511 .515 .520 .525 .530 .536 .542 .548 .554 .561 .567 73 ---.449 .451 .453 .456 .458 .461 .464 .466 .470 .473 .476 .480 .484 .488 .492 .496 .501 .506 .511 .517 .522 .528 .534 .541 .548 74 ---.432 .434 .436 .438 .441 .443 .446 .449 .452 .455 .458 .462 .465 .469 .473 .478 .482 .487 .492 .497 .503 .509 .515 .521 .528 75 ---.414 .416 .419 .421 .423 .426 .428 .431 .434 .437 .440 .443 .447 .451 .455 .459 .463 .468 .473 .478 .483 .489 .495 .501 .507 76 ---.397 .399 .401 .403 .406 .408 .411 .413 .416 .419 .422 .425 .429 .432 .436 .440 .445 .449 .454 .459 .464 .469 .475 .481 .487 77 ---.380 .382 .384 .386 .388 .391 .393 .396 .398 .401 .404 .407 .411 .414 .418 .422 .426 .430 .435 .440 .445 .450 .455 .461 .467 78 ---.364 .365 .367 .369 .371 .374 .376 .378 .381 .384 .387 .390 .393 .396 .400 .403 .407 .412 .416 .421 .425 .431 .436 .442 .447 79 ---.347 .349 .351 .353 .355 .357 .359 .361 .364 .366 .369 .372 .375 .378 .382 .385 .389 .393 .397 .402 .406 .411 .417 .422 .428 80 ---.331 .333 .334 .336 .338 .340 .342 .344 .347 .349 .352 .355 .357 .361 .364 .367 .371 .375 .379 .383 .388 .392 .397 .403 .408 81 ---.315 .316 .318 .320 .322 .324 .326 .328 .330 .332 .335 .337 .340 .343 .346 .350 .353 .357 .361 .365 .369 .374 .379 .384 .389 82 ---.299 .301 .302 .304 .306 .307 .309 .311 .314 .316 .318 .321 .323 .326 .329 .332 .336 .339 .343 .347 .351 .355 .360 .365 .370 83 ---.284 .285 .287 .288 .290 .292 .294 .295 .298 .300 .302 .304 .307 .310 .312 .315 .319 .322 .326 .329 .333 .337 .342 .346 .351 84 ---.269 .270 .272 .273 .275 .276 .278 .280 .282 .284 .286 .288 .291 .293 .296 .299 .302 .305 .309 .312 .316 .320 .324 .328 .333

-31SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S

PENSIONER WHOSE RETIREMENT AGE IS:

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.500 .503 .505 .508 .511 .514 .517 .520 .523 .527 .531 .535 .539 .543 .548 .552 .557 .563 .568 .574 .580 .586 .593 .600 .607 71 ---.483 .486 .488 .491 .493 .496 .499 .502 .505 .509 .513 .516 .520 .525 .529 .534 .539 .544 .549 .555 .561 .567 .573 .580 .587 72 ---.466 .468 .471 .473 .476 .478 .481 .484 .488 .491 .494 .498 .502 .506 .511 .515 .520 .525 .530 .536 .542 .548 .554 .561 .567 73 ---.449 .451 .453 .456 .458 .461 .464 .466 .470 .473 .476 .480 .484 .488 .492 .496 .501 .506 .511 .517 .522 .528 .534 .541 .548 74 ---.432 .434 .436 .438 .441 .443 .446 .449 .452 .455 .458 .462 .465 .469 .473 .478 .482 .487 .492 .497 .503 .509 .515 .521 .528 75 ---.414 .416 .419 .421 .423 .426 .428 .431 .434 .437 .440 .443 .447 .451 .455 .459 .463 .468 .473 .478 .483 .489 .495 .501 .507 76 ---.397 .399 .401 .403 .406 .408 .411 .413 .416 .419 .422 .425 .429 .432 .436 .440 .445 .449 .454 .459 .464 .469 .475 .481 .487 77 ---.380 .382 .384 .386 .388 .391 .393 .396 .398 .401 .404 .407 .411 .414 .418 .422 .426 .430 .435 .440 .445 .450 .455 .461 .467 78 ---.364 .365 .367 .369 .371 .374 .376 .378 .381 .384 .387 .390 .393 .396 .400 .403 .407 .412 .416 .421 .425 .431 .436 .442 .447 79 ---.347 .349 .351 .353 .355 .357 .359 .361 .364 .366 .369 .372 .375 .378 .382 .385 .389 .393 .397 .402 .406 .411 .417 .422 .428 80 ---.331 .333 .334 .336 .338 .340 .342 .344 .347 .349 .352 .355 .357 .361 .364 .367 .371 .375 .379 .383 .388 .392 .397 .403 .408 81 ---.315 .316 .318 .320 .322 .324 .326 .328 .330 .332 .335 .337 .340 .343 .346 .350 .353 .357 .361 .365 .369 .374 .379 .384 .389 82 ---.299 .301 .302 .304 .306 .307 .309 .311 .314 .316 .318 .321 .323 .326 .329 .332 .336 .339 .343 .347 .351 .355 .360 .365 .370 83 ---.284 .285 .287 .288 .290 .292 .294 .295 .298 .300 .302 .304 .307 .310 .312 .315 .319 .322 .326 .329 .333 .337 .342 .346 .351 84 ---.269 .270 .272 .273 .275 .276 .278 .280 .282 .284 .286 .288 .291 .293 .296 .299 .302 .305 .309 .312 .316 .320 .324 .328 .333

-31SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.614 .622 .630 .638 .646 .655 .664 .673 .683 .693 .703 .714 .725 .736 .747 .758 .770 .781 .793 .804 .816 71 ---.594 .602 .610 .618 .626 .635 .644 .654 .663 .673 .684 .694 .705 .716 .728 .740 .751 .763 .775 .787 .799 72 ---.575 .582 .590 .598 .606 .615 .624 .633 .643 .653 .663 .674 .685 .697 .708 .720 .732 .745 .757 .769 .782 73 ---.555 .562 .570 .577 .586 .594 .603 .613 .622 .632 .643 .654 .665 .676 .688 .700 .712 .725 .738 .751 .764 74 ---.534 .542 .549 .557 .565 .574 .582 .592 .601 .611 .622 .632 .644 .655 .667 .679 .692 .705 .718 .731 .744 75 ---.514 .521 .529 .536 .544 .553 .561 .570 .580 .590 .600 .611 .622 .634 .646 .658 .671 .684 .697 .711 .724 76 ---.494 .501 .508 .515 .523 .532 .540 .549 .558 .568 .578 .589 .600 .612 .624 .636 .649 .662 .676 .689 .703 77 ---.474 .480 .487 .495 .502 .510 .519 .528 .537 .546 .556 .567 .578 .589 .601 .614 .627 .640 .653 .667 .682 78 ---.454 .460 .467 .474 .481 .489 .497 .506 .515 .524 .534 .545 .556 .567 .579 .591 .604 .617 .631 .645 .659 79 ---.434 .440 .446 .453 .461 .468 .476 .484 .493 .502 .512 .522 .533 .644 .556 .568 .581 .594 .608 .622 .636 80 ---.414 .420 .426 .433 .440 .447 .455 .463 .472 .481 .490 .500 .510 .521 .533 .545 .557 .571 .584 .598 .613 81 ---.394 .400 .406 .413 .419 .426 .434 .442 .450 .459 .468 .478 .488 .499 .510 .522 .534 .547 .560 .574 .589 82 ---.375 .381 .387 .393 .399 .406 .413 .421 .429 .437 .446 .455 .465 .476 .487 .498 .511 .523 .537 .550 .565 83 ---.356 .362 .367 .373 .379 .386 .393 .400 .408 .416 .424 .434 .443 .453 .464 .475 .487 .500 .513 .526 .540 84 ---.338 .343 .348 .354 .360 .366 .373 .380 .387 .395 .403 .412 .421 .431 .441 .452 .464 .476 .489 .502 .516

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OF SUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.614 .622 .630 .638 .646 .655 .664 .673 .683 .693 .703 .714 .725 .736 .747 .758 .770 .781 .793 .804 .816 .827 .838 .849 .860 71 ---.594 .602 .610 .618 .626 .635 .644 .654 .663 .673 .684 .694 .705 .716 .728 .740 .751 .763 .775 .787 .799 .811 .823 .835 .846 72 ---.575 .582 .590 .598 .606 .615 .624 .633 .643 .653 .663 .674 .685 .697 .708 .720 .732 .745 .757 .769 .782 .794 .807 .819 .831 73 ---.555 .562 .570 .577 .586 .594 .603 .613 .622 .632 .643 .654 .665 .676 .688 .700 .712 .725 .738 .751 .764 .777 .790 .802 .815 74 ---.534 .542 .549 .557 .565 .574 .582 .592 .601 .611 .622 .632 .644 .655 .667 .679 .692 .705 .718 .731 .744 .758 .771 .785 .798 75 ---.514 .521 .529 .536 .544 .553 .561 .570 .580 .590 .600 .611 .622 .634 .646 .658 .671 .684 .697 .711 .724 .738 .752 .766 .780 76 ---.494 .501 .508 .515 .523 .532 .540 .549 .558 .568 .578 .589 .600 .612 .624 .636 .649 .662 .676 .689 .703 .718 .732 .746 .761 77 ---.474 .480 .487 .495 .502 .510 .519 .528 .537 .546 .556 .567 .578 .589 .601 .614 .627 .640 .653 .667 .682 .696 .711 .726 .741 78 ---.454 .460 .467 .474 .481 .489 .497 .506 .515 .524 .534 .545 .556 .567 .579 .591 .604 .617 .631 .645 .659 .674 .689 .704 .720 79 ---.434 .440 .446 .453 .461 .468 .476 .484 .493 .502 .512 .522 .533 .644 .556 .568 .581 .594 .608 .622 .636 .651 .666 .682 .698 80 ---.414 .420 .426 .433 .440 .447 .455 .463 .472 .481 .490 .500 .510 .521 .533 .545 .557 .571 .584 .598 .613 .628 .643 .659 .675 81 ---.394 .400 .406 .413 .419 .426 .434 .442 .450 .459 .468 .478 .488 .499 .510 .522 .534 .547 .560 .574 .589 .604 .619 .635 .651 82 ---.375 .381 .387 .393 .399 .406 .413 .421 .429 .437 .446 .455 .465 .476 .487 .498 .511 .523 .537 .550 .565 .580 .595 .611 .627 83 ---.356 .362 .367 .373 .379 .386 .393 .400 .408 .416 .424 .434 .443 .453 .464 .475 .487 .500 .513 .526 .540 .555 .571 .586 .603 84 ---.338 .343 .348 .354 .360 .366 .373 .380 .387 .395 .403 .412 .421 .431 .441 .452 .464 .476 .489 .502 .516 .531 .546 .562 .578

-32SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OFSUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.870 .880 .890 .899 .908 .916 .924 .931 .938 .945 71 ---.857 .868 .878 .888 .898 .907 .915 .923 .931 .938 72 ---.843 .854 .865 .876 .886 .896 .906 .915 .923 .931 73 ---.828 .840 .852 .863 .874 .885 .895 .905 .914 .922 74 ---.811 .824 .837 .849 .861 .873 .884 .894 .904 .913 75 ---.794 .807 .821 .834 .847 .859 .871 .882 .893 .903 76 ---.775 .790 .804 .818 .831 .844 .857 .869 .881 .892 77 ---.756 .771 .785 .800 .814 .828 .842 .855 .868 .880 78 ---.735 .751 .766 .781 .797 .811 .826 .840 .853 .866 79 ---.714 .730 .746 .762 .778 .793 .808 .823 .838 .852 80 ---.691 .708 .724 .741 .757 .774 .790 .806 .821 .836 81 ---.668 .685 .702 .719 .736 .753 .770 .787 .803 .819 82 ---.644 .661 .679 .696 .714 .731 .749 .766 .784 .800 83 ---.620 .637 .654 .672 .690 .709 .727 .745 .763 .781

. . . . . . . . . .

-33-

SPECIAL PROVISION D MARITAL PENSIONS, JOINT PENSIONS WITH SPOUSES AND SPECIAL JOINT PENSIONS WITH SPOUSES

SPECIAL PROVISION C FACTORS TO BE APPLIED TO EMPLOYEE'S RETIREMENT INCOME TO DETERMINE INCOME UNDER CONTI ANNUITANT OPTION IF 100% OFSUCH INCOME IS CONTINUED TO CONTINGENT ANNUITANT BENEFICIARY'S AGE AT PENSIONER'S RETIREMENT --------------75 76 77 78 79 80 81 82 83 84

PENSIONER WHOSE RETIREMENT AGE IS: 70 ---.870 .880 .890 .899 .908 .916 .924 .931 .938 .945 71 ---.857 .868 .878 .888 .898 .907 .915 .923 .931 .938 72 ---.843 .854 .865 .876 .886 .896 .906 .915 .923 .931 73 ---.828 .840 .852 .863 .874 .885 .895 .905 .914 .922 74 ---.811 .824 .837 .849 .861 .873 .884 .894 .904 .913 75 ---.794 .807 .821 .834 .847 .859 .871 .882 .893 .903 76 ---.775 .790 .804 .818 .831 .844 .857 .869 .881 .892 77 ---.756 .771 .785 .800 .814 .828 .842 .855 .868 .880 78 ---.735 .751 .766 .781 .797 .811 .826 .840 .853 .866 79 ---.714 .730 .746 .762 .778 .793 .808 .823 .838 .852 80 ---.691 .708 .724 .741 .757 .774 .790 .806 .821 .836 81 ---.668 .685 .702 .719 .736 .753 .770 .787 .803 .819 82 ---.644 .661 .679 .696 .714 .731 .749 .766 .784 .800 83 ---.620 .637 .654 .672 .690 .709 .727 .745 .763 .781

. . . . . . . . . .

-33-

SPECIAL PROVISION D MARITAL PENSIONS, JOINT PENSIONS WITH SPOUSES AND SPECIAL JOINT PENSIONS WITH SPOUSES MARITAL PENSIONS and JOINT PENSIONS with SPOUSES shall be determined by multiplying factors calculated in accordance with the 1951 Male Group Annuity Table at 5% interest, with the following modifications: (i) PARTICIPANT's mortality rates shall be determined by adding 41% of the rates at PARTICIPANT's ages to 59% of the rates at ages five years lower. (ii) SPOUSE's mortality rates shall be determined by adding 59% of the rates at SPOUSE's ages to 41% of the rates at ages five years lower. (iii) For MARITAL PENSIONS, the factors shall be calculated taking into account only one-half of the costs of the benefits to surviving SPOUSES. (iv) When the proportions of the JOINT PENSIONS to be continued to SPOUSES exceed 50%, the factors shall be calculated in such a way that the values of such JOINT PENSIONS are equal to the values of corresponding MARITAL PENSION. (v) When the proportions of the JOINT PENSIONS to be continued to SPOUSES are less than 50%, the factors shall be calculated taking into account only one-half of the costs to surviving SPOUSES. (vi) Whenever a factor calculated for a MARITAL or JOINT PENSION with SPOUSE is smaller than the corresponding factor for a non- spouse JOINT PENSION, the non-spouse JOINT PENSION factor shall be substituted for the calculated factor. The following tables illustrate the factors to be applied for typical options which may be elected between 25% and 100%. EXAMPLE: Assume the PARTICIPANT is age 62 and Spouse age 60. Also assume that the PARTICIPANT's BASIC PENSION is $1,000 per month.
Spouse's Pension In Event of Participant's Death --------------------

Spouse's Option ---------

Option Factor ------

Basic Pension --------

Reduced Pension --------

Spouse's Portion --------

SPECIAL PROVISION D MARITAL PENSIONS, JOINT PENSIONS WITH SPOUSES AND SPECIAL JOINT PENSIONS WITH SPOUSES MARITAL PENSIONS and JOINT PENSIONS with SPOUSES shall be determined by multiplying factors calculated in accordance with the 1951 Male Group Annuity Table at 5% interest, with the following modifications: (i) PARTICIPANT's mortality rates shall be determined by adding 41% of the rates at PARTICIPANT's ages to 59% of the rates at ages five years lower. (ii) SPOUSE's mortality rates shall be determined by adding 59% of the rates at SPOUSE's ages to 41% of the rates at ages five years lower. (iii) For MARITAL PENSIONS, the factors shall be calculated taking into account only one-half of the costs of the benefits to surviving SPOUSES. (iv) When the proportions of the JOINT PENSIONS to be continued to SPOUSES exceed 50%, the factors shall be calculated in such a way that the values of such JOINT PENSIONS are equal to the values of corresponding MARITAL PENSION. (v) When the proportions of the JOINT PENSIONS to be continued to SPOUSES are less than 50%, the factors shall be calculated taking into account only one-half of the costs to surviving SPOUSES. (vi) Whenever a factor calculated for a MARITAL or JOINT PENSION with SPOUSE is smaller than the corresponding factor for a non- spouse JOINT PENSION, the non-spouse JOINT PENSION factor shall be substituted for the calculated factor. The following tables illustrate the factors to be applied for typical options which may be elected between 25% and 100%. EXAMPLE: Assume the PARTICIPANT is age 62 and Spouse age 60. Also assume that the PARTICIPANT's BASIC PENSION is $1,000 per month.
Spouse's Pension In Event of Participant's Death -------------------$244.00 $477.50 $685.50 $876.00

Spouse's Option --------25% 50% 75% 100%

Option Factor -----.976 .955 .914 .876

X X X X

Basic Pension -------$1,000. $1,000. $1,000. $1,000.

= = = =

Reduced Pension -------$976. $955. $914. $876.

X X X X

Spouse's Portion -------.25 .50 .75 1.00

= = = =

SPECIAL JOINT PENSIONS with SPOUSES shall be determined using the same actuarial assumptions described above and are illustrated in the tables following the JOINT PENSION tables. -34-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 25% OPTION ELECTION

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 25% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.969 .970 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 .980 .981 .982 .983 .984 .985 .986 .987 56 ---.967 .968 .969 .970 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 .981 .982 .983 .984 .984 .985 57 ---.964 .965 .966 .967 .968 .969 .970 .972 .973 .974 .975 .976 .977 .978 .979 .980 .981 .982 .983 .984 58 ---.962 .963 .964 .965 .966 .967 .968 .969 .970 .972 .973 .974 .975 .976 .977 .978 .979 .980 .981 .982 59 ---.959 .960 .961 .962 .963 .965 .966 .967 .968 .969 .970 .972 .973 .974 .975 .976 .977 .979 .980 .981 60 ---.956 .957 .958 .960 .961 .962 .963 .964 .966 .967 .968 .969 .970 .972 .973 .974 .975 .977 .978 .979 61 ---.953 .954 .955 .957 .958 .959 .960 .962 .963 .964 .965 .967 .968 .969 .971 .972 .973 .975 .976 .977 62 ---.950 .951 .952 .953 .955 .956 .957 .959 .960 .961 .963 .964 .965 .967 .968 .969 .971 .972 .974 .975 63 ---.946 .948 .949 .950 .951 .953 .954 .955 .957 .958 .960 .961 .962 .964 .965 .967 .968 .970 .971 .973 64 ---.943 .944 .945 .947 .948 .949 .951 .952 .953 .955 .956 .958 .959 .961 .962 .964 .966 .967 .969 .970 65 ---.939 .940 .941 .943 .944 .946 .947 .948 .950 .951 .953 .955 .956 .958 .959 .961 .963 .964 .966 .967 66 ---.935 .936 .937 .939 .940 .942 .943 .945 .946 .948 .949 .951 .953 .954 .956 .958 .959 .961 .963 .964 67 ---.930 .932 .933 .934 .936 .937 .939 .940 .942 .944 .945 .947 .949 .951 .952 .954 .956 .958 .959 .961 68 ----.926 .927 .929 .930 .931 .933 .935 .936 .938 .939 .941 .943 .945 .947 .948 .950 .952. .954 .956 .958 69 ---.921 .922 .924 .925 .927 .928 .930 .932 .933 .935 .937 .939 .940 .942 .944 .946 .948 .950 .952 .954

NOTE: Factors for additional age combinations are available from the Administrator. -35-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 25% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.987 .988 .989 .990 .990 .991 .992 .992 .993 .994 .994 56 ---.986 .987 .988 .989 .990 .990 .991 .992 .992 .993 .993 57 ---.985 .986 .987 .988 .988 .989 .990 .991 .992 .992 .993 58 ---.984 .985 .985 .986 .987 .988 .989 .990 .991 .991 .992 59 ---.982 .983 .984 .985 .986 .987 .988 .989 .990 .990 .991 60 ---.980 .981 .983 .984 .985 .986 .987 .988 .989 .989 .990 61 ---.978 .980 .981 .982 .983 .984 .985 .986 .987 .988 .989 62 ---.976 .978 .979 .980 .981 .983 .984 .985 .986 .987 .988 63 ---.974 .976 .977 .978 .980 .981 .982 .983 .985 .986 .987 64 ---.972 .973 .975 .976 .978 .979 .980 .982 .983 .984 .985 65 ---.969 .971 .972 .974 .975 .977 .978 .980 .981 .983 .984 66 ---.966 .968 .970 .971 .973 .975 .976 .978 .979 .981 .982 67 ---.963 .965 .967 .969 .970 .972 .974 .975 .977 .979 .980 68 ---.960 .962 .964 .966 .967 .969 .971 .973 .975 .976 .978 69 ---.956 .958 .960 .962 .964 .966 .968 .970 .972 .974 .976

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 25% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.987 .988 .989 .990 .990 .991 .992 .992 .993 .994 .994 .995 .995 .995 .996 56 ---.986 .987 .988 .989 .990 .990 .991 .992 .992 .993 .993 .994 .995 .995 .995 57 ---.985 .986 .987 .988 .988 .989 .990 .991 .992 .992 .993 .993 .994 .995 .995 58 ---.984 .985 .985 .986 .987 .988 .989 .990 .991 .991 .992 .993 .993 .994 .994 59 ---.982 .983 .984 .985 .986 .987 .988 .989 .990 .990 .991 .992 .993 .993 .994 60 ---.980 .981 .983 .984 .985 .986 .987 .988 .989 .989 .990 .991 .992 .993 .993 61 ---.978 .980 .981 .982 .983 .984 .985 .986 .987 .988 .989 .990 .991 .992 .992 62 ---.976 .978 .979 .980 .981 .983 .984 .985 .986 .987 .988 .989 .990 .991 .992 63 ---.974 .976 .977 .978 .980 .981 .982 .983 .985 .986 .987 .988 .989 .990 .991 64 ---.972 .973 .975 .976 .978 .979 .980 .982 .983 .984 .985 .987 .988 .989 .990 65 ---.969 .971 .972 .974 .975 .977 .978 .980 .981 .983 .984 .985 .986 .987 .989 66 ---.966 .968 .970 .971 .973 .975 .976 .978 .979 .981 .982 .984 .985 .986 .987 67 ---.963 .965 .967 .969 .970 .972 .974 .975 .977 .979 .980 .982 .983 .985 .986 68 ---.960 .962 .964 .966 .967 .969 .971 .973 .975 .976 .978 .980 .981 .983 .984 69 ---.956 .958 .960 .962 .964 .966 .968 .970 .972 .974 .976 .978 .979 .981 .982

NOTE: Factors for additional age combinations are available from the Administrator. -36-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 50% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.942 .943 .945 .947 .948 .950 .952 .954 .955 .957 .959 .961 .962 .964 .966 .968 56 ---.938 .939 .941 .943 .945 .946 .948 .950 .952 .954 .956 .957 .959 .961 .963 .965 57 ---.934 .935 .937 .939 .941 .942 .944 .946 .948 .950 .952 .954 .956 .958 .960 .962 58 ---.929 .931 .933 .934 .936 .938 .940 .942 .944 .946 .948 .950 .952 .954 .956 .958 59 ---.924 .926 .928 .930 .932 .934 .936 .938 .940 .942 .944 .946 .948 .950 .953 .955 60 ---.919 .921 .923 .925 .927 .929 .931 .933 .935 .938 .940 .942 .944 .946 .949 .951 61 ---.914 .916 .918 .920 .922 .924 .926 .929 .931 .933 .935 .938 .940 .942 .945 .947 62 ---.909 .911 .913 .915 .917 .919 .921 .923 .926 .928 .930 .933 .935 .938 .940 .942 63 ---.903 .905 .907 .909 .911 .914 .916 .918 .920 .923 .925 .928 .930 .933 .935 .938 64 ---.897 .899 .901 .903 .906 .908 .910 .912 .915 .917 .920 .922 .925 .927 .930 .933 65 ---.891 .893 .895 .897 .899 .902 .904 .906 .909 .911 .914 .917 .919 .922 .925 .927 66 ---.885 .887 .889 .891 .893 .895 .898 .900 .903 .905 .908 .911 .913 .916 .919 .922 67 ---.878 .880 .882 .884 .886 .889 .891 .894 .896 .899 .901 .904 .907 .910 .913 .916 68 ---.871 .873 .875 .877 .879 .882 .884 .887 .889 .892 .895 .898 .900 .903 .906 .909 69 ---.863 .865 .868 .870 .872 .875 .877 .880 .882 .885 .888 .891 .894 .897 .900 .903

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 50% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.942 .943 .945 .947 .948 .950 .952 .954 .955 .957 .959 .961 .962 .964 .966 .968 .969 .971 .972 .974 56 ---.938 .939 .941 .943 .945 .946 .948 .950 .952 .954 .956 .957 .959 .961 .963 .965 .966 .968 .970 .972 57 ---.934 .935 .937 .939 .941 .942 .944 .946 .948 .950 .952 .954 .956 .958 .960 .962 .963 .965 .967 .969 58 ---.929 .931 .933 .934 .936 .938 .940 .942 .944 .946 .948 .950 .952 .954 .956 .958 .960 .962 .964 .966 59 ---.924 .926 .928 .930 .932 .934 .936 .938 .940 .942 .944 .946 .948 .950 .953 .955 .957 .959 .961 .963 60 ---.919 .921 .923 .925 .927 .929 .931 .933 .935 .938 .940 .942 .944 .946 .949 .951 .953 .955 .958 .960 61 ---.914 .916 .918 .920 .922 .924 .926 .929 .931 .933 .935 .938 .940 .942 .945 .947 .949 .952 .954 .956 62 ---.909 .911 .913 .915 .917 .919 .921 .923 .926 .928 .930 .933 .935 .938 .940 .942 .945 .947 .950 .952 63 ---.903 .905 .907 .909 .911 .914 .916 .918 .920 .923 .925 .928 .930 .933 .935 .938 .940 .943 .946 .948 64 ---.897 .899 .901 .903 .906 .908 .910 .912 .915 .917 .920 .922 .925 .927 .930 .933 .936 .938 .941 .944 65 ---.891 .893 .895 .897 .899 .902 .904 .906 .909 .911 .914 .917 .919 .922 .925 .927 .930 .933 .936 .939 66 ---.885 .887 .889 .891 .893 .895 .898 .900 .903 .905 .908 .911 .913 .916 .919 .922 .925 .928 .931 .934 67 ---.878 .880 .882 .884 .886 .889 .891 .894 .896 .899 .901 .904 .907 .910 .913 .916 .919 .922 .925 .928 68 ---.871 .873 .875 .877 .879 .882 .884 .887 .889 .892 .895 .898 .900 .903 .906 .909 .913 .916 .919 .922 69 ---.863 .865 .868 .870 .872 .875 .877 .880 .882 .885 .888 .891 .894 .897 .900 .903 .906 .909 .913 .916

NOTE: Factors for additional age combinations are available from the Administrator. -37-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 50% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.976 .977 .979 .980 .981 .983 .984 .985 .986 .987 .988 56 ---.973 .975 .976 .978 .979 .981 .982 .984 .985 .986 .987 57 ---.971 .973 .974 .976 .977 .979 .980 .982 .983 .985 .986 58 ---.968 .970 .972 .974 .975 .977 .979 .980 .982 .983 .984 59 ---.965 .967 .969 .971 .973 .975 .976 .978 .980 .981 .983 60 ---.962 .964 .966 .968 .970 .972 .974 .976 .978 .979 .981 61 ---.959 .961 .963 .965 .967 .970 .972 .974 .975 .977 .979 62 ---.955 .957 .960 .962 .964 .967 .969 .971 .973 .975 .977 63 ---.951 .953 .956 .958 .961 .963 .966 .968 .970 .972 .974 64 ---.946 .949 .952 .955 .957 .960 .962 .965 .967 .970 .972 65 ---.942 .945 .947 .950 .953 .956 .959 .961 .964 .966 .969 66 ---.937 .940 .943 .946 .949 .952 .955 .957 .960 .963 .966 67 ---.931 .934 .938 .941 .944 .947 .950 .953 .956 .959 .962 68 ---.926 .929 .932 .936 .939 .942 .945 .949 .952 .955 .958 69 ---.919 .923 .926 .930 .933 .937 .940 .944 .947 .951 .954

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 50% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.976 .977 .979 .980 .981 .983 .984 .985 .986 .987 .988 .989 .990 .991 .992 56 ---.973 .975 .976 .978 .979 .981 .982 .984 .985 .986 .987 .988 .989 .990 .991 57 ---.971 .973 .974 .976 .977 .979 .980 .982 .983 .985 .986 .987 .988 .989 .990 58 ---.968 .970 .972 .974 .975 .977 .979 .980 .982 .983 .984 .986 .987 .988 .989 59 ---.965 .967 .969 .971 .973 .975 .976 .978 .980 .981 .983 .984 .985 .987 .988 60 ---.962 .964 .966 .968 .970 .972 .974 .976 .978 .979 .981 .983 .984 .985 .987 61 ---.959 .961 .963 .965 .967 .970 .972 .974 .975 .977 .979 .981 .982 .984 .985 62 ---.955 .957 .960 .962 .964 .967 .969 .971 .973 .975 .977 .979 .980 .982 .984 63 ---.951 .953 .956 .958 .961 .963 .966 .968 .970 .972 .974 .976 .978 .980 .982 64 ---.946 .949 .952 .955 .957 .960 .962 .965 .967 .970 .972 .974 .976 .978 .980 65 ---.942 .945 .947 .950 .953 .956 .959 .961 .964 .966 .969 .971 .973 .976 .978 66 ---.937 .940 .943 .946 .949 .952 .955 .957 .960 .963 .966 .968 .971 .973 .975 67 ---.931 .934 .938 .941 .944 .947 .950 .953 .956 .959 .962 .965 .967 .970 .972 68 ---.926 .929 .932 .936 .939 .942 .945 .949 .952 .955 .958 .961 .964 .967 .969 69 ---.919 .923 .926 .930 .933 .937 .940 .944 .947 .951 .954 .957 .960 .963 .966

NOTE: Factors for additional age combinations are available from the Administrator. -38-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 75% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.890 .893 .896 .899 .902 .905 .908 .911 .915 .918 .921 .924 .927 .931 .934 .937 56 ---.883 .886 .889 .892 .895 .898 .901 .905 .908 .911 .915 .918 .922 .925 .928 .932 57 ---.875 .878 .881 .885 .888 .891 .894 .898 .901 .905 .908 .912 .915 .919 .922 .926 58 ---.868 .871 .874 .877 .880 .884 .887 .891 .894 .898 .901 .905 .909 .912 .916 .920 59 ---.859 .863 .866 .869 .872 .876 .879 .883 .887 .890 .894 .898 .902 .906 .910 .913 60 ---.851 .854 .857 .861 .864 .868 .871 .875 .879 .883 .886 .890 .894 .898 .902 .906 61 ---.842 .845 .849 .852 .856 .859 .863 .867 .870 .874 .878 .882 .887 .891 .895 .899 62 ---.833 .836 .840 .843 .847 .850 .854 .858 .862 .866 .870 .874 .878 .883 .887 .891 63 ---.824 .827 .830 .834 .837 .841 .845 .849 .853 .857 .861 .865 .869 .874 .878 .883 64 ---.814 .817 .820 .824 .827 .831 .835 .839 .843 .847 .851 .856 .860 .865 .869 .874 65 ---.803 .807 .810 .814 .817 .821 .825 .829 .833 .837 .842 .846 .851 .855 .860 .865 66 ---.793 .796 .800 .803 .807 .811 .814 .819 .823 .827 .831 .836 .840 .845 .850 .855 67 ---.782 .785 .789 .792 .796 .800 .804 .808 .812 .816 .821 .825 .830 .835 .840 .845 68 ---.771 .774 .778 .781 .785 .789 .792 .797 .801 .805 .810 .814 .819 .824 .829 .834 69 ---.760 .763 .766 .770 .773 .777 .781 .785 .789 .794 .798 .803 .808 .813 .818 .823

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 75% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.890 .893 .896 .899 .902 .905 .908 .911 .915 .918 .921 .924 .927 .931 .934 .937 .940 .943 .946 .949 56 ---.883 .886 .889 .892 .895 .898 .901 .905 .908 .911 .915 .918 .922 .925 .928 .932 .935 .938 .942 .945 57 ---.875 .878 .881 .885 .888 .891 .894 .898 .901 .905 .908 .912 .915 .919 .922 .926 .930 .933 .936 .940 58 ---.868 .871 .874 .877 .880 .884 .887 .891 .894 .898 .901 .905 .909 .912 .916 .920 .924 .927 .931 .935 59 ---.859 .863 .866 .869 .872 .876 .879 .883 .887 .890 .894 .898 .902 .906 .910 .913 .917 .921 .925 .929 60 ---.851 .854 .857 .861 .864 .868 .871 .875 .879 .883 .886 .890 .894 .898 .902 .906 .911 .915 .919 .923 61 ---.842 .845 .849 .852 .856 .859 .863 .867 .870 .874 .878 .882 .887 .891 .895 .899 .903 .908 .912 .916 62 ---.833 .836 .840 .843 .847 .850 .854 .858 .862 .866 .870 .874 .878 .883 .887 .891 .896 .900 .905 .909 63 ---.824 .827 .830 .834 .837 .841 .845 .849 .853 .857 .861 .865 .869 .874 .878 .883 .887 .892 .897 .901 64 ---.814 .817 .820 .824 .827 .831 .835 .839 .843 .847 .851 .856 .860 .865 .869 .874 .879 .884 .888 .893 65 ---.803 .807 .810 .814 .817 .821 .825 .829 .833 .837 .842 .846 .851 .855 .860 .865 .870 .875 .880 .885 66 ---.793 .796 .800 .803 .807 .811 .814 .819 .823 .827 .831 .836 .840 .845 .850 .855 .860 .865 .870 .876 67 ---.782 .785 .789 .792 .796 .800 .804 .808 .812 .816 .821 .825 .830 .835 .840 .845 .850 .855 .860 .866 68 ---.771 .774 .778 .781 .785 .789 .792 .797 .801 .805 .810 .814 .819 .824 .829 .834 .839 .845 .850 .856 69 ---.760 .763 .766 .770 .773 .777 .781 .785 .789 .794 .798 .803 .808 .813 .818 .823 .828 .834 .839 .845

NOTE: Factors for additional age combinations are available from the Administrator. -39-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 75% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.952 .955 .958 .961 .963 .966 .968 .971 .973 .975 .977 56 ---.948 .951 .954 .957 .960 .962 .965 .968 .970 .972 .975 57 ---.943 .946 .950 .953 .956 .959 .962 .964 .967 .970 .972 58 ---.938 .942 .945 .948 .952 .955 .958 .961 .964 .967 .969 59 ---.933 .936 .940 .944 .947 .951 .954 .957 .960 .963 .966 60 ---.927 .931 .935 .939 .942 .946 .950 .953 .956 .960 .963 61 ---.920 .925 .929 .933 .937 .941 .945 .948 .952 .956 .959 62 ---.914 .918 .922 .927 .931 .935 .939 .943 .947 .951 .955 63 ---.906 .911 .915 .920 .925 .929 .934 .938 .942 .946 .950 64 ---.898 .903 .908 .913 .918 .923 .927 .932 .936 .941 .945 65 ---.890 .895 .900 .905 .910 .916 .921 .925 .930 .935 .940 66 ---.881 .886 .892 .897 .902 .908 .913 .918 .924 .929 .933 67 ---.871 .877 .883 .888 .894 .900 .905 .911 .916 .922 .927 68 ---.861 .867 .873 .879 .885 .891 .897 .902 .908 .914 .920 69 ---.851 .857 .863 .869 .875 .881 .887 .894 .900 .906 .912

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 75% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.952 .955 .958 .961 .963 .966 .968 .971 .973 .975 .977 .979 .981 .982 .984 56 ---.948 .951 .954 .957 .960 .962 .965 .968 .970 .972 .975 .977 .979 .980 .982 57 ---.943 .946 .950 .953 .956 .959 .962 .964 .967 .970 .972 .974 .976 .978 .980 58 ---.938 .942 .945 .948 .952 .955 .958 .961 .964 .967 .969 .972 .974 .976 .978 59 ---.933 .936 .940 .944 .947 .951 .954 .957 .960 .963 .966 .969 .971 .974 .976 60 ---.927 .931 .935 .939 .942 .946 .950 .953 .956 .960 .963 .966 .968 .971 .974 61 ---.920 .925 .929 .933 .937 .941 .945 .948 .952 .956 .959 .962 .965 .968 .971 62 ---.914 .918 .922 .927 .931 .935 .939 .943 .947 .951 .955 .958 .962 .965 .968 63 ---.906 .911 .915 .920 .925 .929 .934 .938 .942 .946 .950 .954 .958 .961 .964 64 ---.898 .903 .908 .913 .918 .923 .927 .932 .936 .941 .945 .949 .953 .957 .960 65 ---.890 .895 .900 .905 .910 .916 .921 .925 .930 .935 .940 .944 .948 .952 .956 66 ---.881 .886 .892 .897 .902 .908 .913 .918 .924 .929 .933 .938 .943 .947 .951 67 ---.871 .877 .883 .888 .894 .900 .905 .911 .916 .922 .927 .932 .937 .942 .946 68 ---.861 .867 .873 .879 .885 .891 .897 .902 .908 .914 .920 .925 .930 .936 .940 69 ---.851 .857 .863 .869 .875 .881 .887 .894 .900 .906 .912 .918 .923 .929 .934

NOTE: Factors for additional age combinations are available from the Administrator. -40-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 100% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.844 .847 .851 .855 .860 .864 .868 .873 .877 .881 .886 .890 .895 .899 .904 .908 56 ---.834 .838 .842 .846 .850 .855 .859 .864 .868 .873 .877 .882 .887 .892 .896 .901 57 ---.824 .828 .832 .836 .841 .845 .850 .854 .859 .864 .868 .873 .878 .883 .888 .893 58 ---.814 .818 .822 .826 .831 .835 .840 .844 .849 .854 .859 .864 .869 .874 .879 .884 59 ---.803 .807 .811 .816 .820 .825 .829 .834 .839 .844 .849 .854 .860 .865 .870 .876 60 ---.792 .796 .800 .805 .809 .814 .819 .824 .829 .834 .839 .844 .850 .855 .860 .866 61 ---.781 .785 .789 .793 .798 .803 .807 .812 .817 .823 .828 .833 .839 .845 .850 .856 62 ---.769 .773 .777 .782 .786 .791 .796 .801 .806 .811 .817 .822 .828 .834 .839 .845 63 ---.757 .761 .765 .770 .774 .779 .784 .789 .794 .799 .805 .810 .816 .822 .828 .834 64 ---.744 .748 .753 .757 .762 .766 .771 .776 .782 .787 .793 .798 .804 .810 .816 .822 65 ---.732 .736 .740 .744 .749 .754 .759 .764 .769 .774 .780 .786 .791 .797 .804 .810 66 ---.719 .723 .727 .731 .736 .740 .745 .750 .756 .761 .767 .772 .778 .784 .791 .797 67 ---.705 .709 .713 .718 .722 .727 .732 .737 .742 .748 .753 .759 .765 .771 .777 .784 68 ---.692 .696 .700 .704 .709 .713 .718 .723 .728 .734 .739 .745 .751 .757 .763 .770 69 ---.678 .682 .686 .690 .695 .699 .704 .709 .714 .719 .725 .731 .737 .743 .749 .756

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 100% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.844 .847 .851 .855 .860 .864 .868 .873 .877 .881 .886 .890 .895 .899 .904 .908 .913 .917 .922 .926 56 ---.834 .838 .842 .846 .850 .855 .859 .864 .868 .873 .877 .882 .887 .892 .896 .901 .906 .910 .915 .919 57 ---.824 .828 .832 .836 .841 .845 .850 .854 .859 .864 .868 .873 .878 .883 .888 .893 .898 .903 .908 .912 58 ---.814 .818 .822 .826 .831 .835 .840 .844 .849 .854 .859 .864 .869 .874 .879 .884 .890 .895 .900 .905 59 ---.803 .807 .811 .816 .820 .825 .829 .834 .839 .844 .849 .854 .860 .865 .870 .876 .881 .886 .892 .897 60 ---.792 .796 .800 .805 .809 .814 .819 .824 .829 .834 .839 .844 .850 .855 .860 .866 .872 .877 .883 .888 61 ---.781 .785 .789 .793 .798 .803 .807 .812 .817 .823 .828 .833 .839 .845 .850 .856 .862 .868 .873 .879 62 ---.769 .773 .777 .782 .786 .791 .796 .801 .806 .811 .817 .822 .828 .834 .839 .845 .851 .857 .863 .870 63 ---.757 .761 .765 .770 .774 .779 .784 .789 .794 .799 .805 .810 .816 .822 .828 .834 .840 .846 .853 .859 64 ---.744 .748 .753 .757 .762 .766 .771 .776 .782 .787 .793 .798 .804 .810 .816 .822 .829 .835 .842 .848 65 ---.732 .736 .740 .744 .749 .754 .759 .764 .769 .774 .780 .786 .791 .797 .804 .810 .816 .823 .830 .837 66 ---.719 .723 .727 .731 .736 .740 .745 .750 .756 .761 .767 .772 .778 .784 .791 .797 .804 .810 .817 .824 67 ---.705 .709 .713 .718 .722 .727 .732 .737 .742 .748 .753 .759 .765 .771 .777 .784 .791 .797 .804 .811 68 ---.692 .696 .700 .704 .709 .713 .718 .723 .728 .734 .739 .745 .751 .757 .763 .770 .777 .784 .791 .798 69 ---.678 .682 .686 .690 .695 .699 .704 .709 .714 .719 .725 .731 .737 .743 .749 .756 .763 .770 .777 .784

NOTE: Factors for additional age combinations are available from the Administrator. -41-

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 100% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.930 .934 .938 .942 .946 .950 .953 .957 .960 .963 .966 56 ---.924 .928 .933 .937 .941 .945 .949 .952 .956 .959 .962 57 ---.917 .922 .926 .931 .935 .940 .944 .948 .951 .955 .959 58 ---.910 .915 .920 .925 .929 .934 .938 .943 .947 .951 .955 59 ---.902 .908 .913 .918 .923 .928 .933 .937 .942 .946 .950 60 ---.894 .900 .905 .911 .916 .921 .926 .931 .936 .941 .945 61 ---.885 .891 .897 .903 .908 .914 .919 .925 .930 .935 .940 62 ---.876 .882 .888 .894 .900 .906 .912 .918 .923 .928 .934 63 ---.866 .872 .878 .885 .891 .897 .904 .910 .916 .921 .927 64 ---.855 .861 .868 .875 .882 .888 .895 .901 .908 .914 .920 65 ---.843 .850 .857 .864 .871 .878 .885 .892 .899 .906 .912 66 ---.831 .839 .846 .853 .860 .868 .875 .882 .890 .897 .903 67 ---.819 .826 .834 .841 .849 .857 .864 .872 .879 .887 .894 68 ---.805 .813 .821 .829 .837 .845 .853 .860 .868 .876 .884 69 ---.792 .799 .807 .815 .824 .832 .840 .848 .857 .865 .873

SPECIAL PROVISION D FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT VARIOUS OPTIONS WITH THEIR ELIGIBLE SPOUSE 100% OPTION ELECTION (Continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.930 .934 .938 .942 .946 .950 .953 .957 .960 .963 .966 .969 .971 .974 .976 56 ---.924 .928 .933 .937 .941 .945 .949 .952 .956 .959 .962 .965 .968 .971 .974 57 ---.917 .922 .926 .931 .935 .940 .944 .948 .951 .955 .959 .962 .965 .968 .971 58 ---.910 .915 .920 .925 .929 .934 .938 .943 .947 .951 .955 .958 .962 .965 .968 59 ---.902 .908 .913 .918 .923 .928 .933 .937 .942 .946 .950 .954 .958 .961 .965 60 ---.894 .900 .905 .911 .916 .921 .926 .931 .936 .941 .945 .949 .953 .957 .961 61 ---.885 .891 .897 .903 .908 .914 .919 .925 .930 .935 .940 .944 .949 .953 .957 62 ---.876 .882 .888 .894 .900 .906 .912 .918 .923 .928 .934 .939 .943 .948 .952 63 ---.866 .872 .878 .885 .891 .897 .904 .910 .916 .921 .927 .932 .938 .943 .947 64 ---.855 .861 .868 .875 .882 .888 .895 .901 .908 .914 .920 .926 .931 .937 .952 65 ---.843 .850 .857 .864 .871 .878 .885 .892 .899 .906 .912 .918 .924 .930 .936 66 ---.831 .839 .846 .853 .860 .868 .875 .882 .890 .897 .903 .910 .917 .923 .929 67 ---.819 .826 .834 .841 .849 .857 .864 .872 .879 .887 .894 .901 .908 .915 .921 68 ---.805 .813 .821 .829 .837 .845 .853 .860 .868 .876 .884 .892 .899 .906 .913 69 ---.792 .799 .807 .815 .824 .832 .840 .848 .857 .865 .873 .881 .889 .897 .904

NOTE: Factors for additional age combinations are available from the Administrator. -42-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.966 .967 .967 .968 .969 .969 .970 .971 .971 .972 .973 .974 .974 .975 .976 .977 41 ---.964 .964 .965 .966 .966 .967 .968 .969 .969 .970 .971 .972 .972 .973 .974 .975 42 ---.961 .962 .963 .963 .964 .965 .965 .966 .967 .968 .969 .969 .970 .971 .972 .973 43 ---.959 .959 .960 .961 .961 .962 .963 .964 .965 .965 .966 .967 .968 .969 .970 .970 44 ---.956 .957 .957 .958 .959 .960 .960 .961 .962 .963 .964 .965 .965 .966 .967 .968 45 ---.953 .954 .955 .955 .956 .957 .958 .959 .959 .960 .961 .962 .963 .964 .965 .966 46 ---.950 .951 .952 .952 .953 .954 .955 .956 .957 .957 .958 .959 .960 .961 .962 .963 47 ---.947 .948 .949 .949 .950 .951 .952 .953 .954 .954 .955 .956 .957 .958 .959 .960 48 ---.944 .945 .945 .946 .947 .948 .949 .950 .950 .951 .952 .953 .954 .955 .956 .957 49 ---.940 .941 .942 .943 .944 .944 .945 .946 .947 .948 .949 .950 .951 .952 .953 .954 50 ---.937 .938 .938 .939 .940 .941 .942 .943 .944 .945 .946 .947 .948 .949 .950 .951 51 ---.933 .934 .935 .936 .937 .937 .938 .939 .940 .941 .942 .943 .944 .945 .947 .948 52 ---.929 .930 .931 .932 .933 .934 .935 .936 .936 .937 .939 .940 .941 .942 .943 .944 53 ---.926 .926 .927 .928 .929 .930 .931 .932 .933 .934 .935 .936 .937 .938 .939 .940 54 ---.921 .922 .923 .924 .925 .926 .927 .928 .929 .930 .931 .932 .933 .934 .935 .937

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.966 .967 .967 .968 .969 .969 .970 .971 .971 .972 .973 .974 .974 .975 .976 .977 .977 .978 .979 .980 41 ---.964 .964 .965 .966 .966 .967 .968 .969 .969 .970 .971 .972 .972 .973 .974 .975 .975 .976 .977 .978 42 ---.961 .962 .963 .963 .964 .965 .965 .966 .967 .968 .969 .969 .970 .971 .972 .973 .973 .974 .975 .976 43 ---.959 .959 .960 .961 .961 .962 .963 .964 .965 .965 .966 .967 .968 .969 .970 .970 .971 .972 .973 .974 44 ---.956 .957 .957 .958 .959 .960 .960 .961 .962 .963 .964 .965 .965 .966 .967 .968 .969 .970 .971 .972 45 ---.953 .954 .955 .955 .956 .957 .958 .959 .959 .960 .961 .962 .963 .964 .965 .966 .967 .968 .969 .970 46 ---.950 .951 .952 .952 .953 .954 .955 .956 .957 .957 .958 .959 .960 .961 .962 .963 .964 .965 .966 .967 47 ---.947 .948 .949 .949 .950 .951 .952 .953 .954 .954 .955 .956 .957 .958 .959 .960 .961 .962 .963 .964 48 ---.944 .945 .945 .946 .947 .948 .949 .950 .950 .951 .952 .953 .954 .955 .956 .957 .958 .960 .961 .962 49 ---.940 .941 .942 .943 .944 .944 .945 .946 .947 .948 .949 .950 .951 .952 .953 .954 .955 .957 .958 .959 50 ---.937 .938 .938 .939 .940 .941 .942 .943 .944 .945 .946 .947 .948 .949 .950 .951 .952 .953 .955 .956 51 ---.933 .934 .935 .936 .937 .937 .938 .939 .940 .941 .942 .943 .944 .945 .947 .948 .949 .950 .951 .952 52 ---.929 .930 .931 .932 .933 .934 .935 .936 .936 .937 .939 .940 .941 .942 .943 .944 .945 .947 .948 .949 53 ---.926 .926 .927 .928 .929 .930 .931 .932 .933 .934 .935 .936 .937 .938 .939 .940 .942 .943 .944 .946 54 ---.921 .922 .923 .924 .925 .926 .927 .928 .929 .930 .931 .932 .933 .934 .935 .937 .938 .939 .940 .942

NOTE: Factors for additional age combinations are available from the Administrator. -43-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.980 .981 .982 .983 .983 .984 .985 .985 .986 .986 .987 41 ---.979 .979 .980 .981 .982 .982 .983 .984 .984 .985 .986 42 ---.977 .978 .978 .979 .980 .981 .982 .982 .983 .984 .984 43 ---.975 .976 .977 .977 .978 .979 .980 .981 .981 .982 .983 44 ---.973 .974 .975 .975 .976 .977 .978 .979 .980 .981 .981 45 ---.970 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 46 ---.968 .969 .970 .971 .972 .973 .974 .975 .976 .977 .978 47 ---.966 .967 .968 .969 .970 .971 .972 .973 .974 .975 .976 48 ---.963 .964 .965 .966 .967 .968 .969 .971 .972 .973 .974 49 ---.960 .961 .962 .963 .965 .966 .967 .968 .969 .970 .971 50 ---.957 .958 .959 .961 .962 .963 .964 .965 .967 .968 .969 51 ---.954 .955 .956 .958 .959 .960 .961 .963 .964 .965 .966 52 ---.950 .952 .953 .954 .956 .957 .958 .960 .961 .962 .964 53 ---.947 .948 .950 .951 .952 .954 .955 .957 .958 .959 .961 54 ---.943 .945 .946 .947 .949 .950 .952 .953 .955 .956 .958

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.980 .981 .982 .983 .983 .984 .985 .985 .986 .986 .987 .988 .988 .989 .989 .990 .990 .991 .991 .992 41 ---.979 .979 .980 .981 .982 .982 .983 .984 .984 .985 .986 .986 .987 .988 .988 .989 .989 .990 .990 .991 42 ---.977 .978 .978 .979 .980 .981 .982 .982 .983 .984 .984 .985 .986 .986 .987 .988 .988 .989 .989 .990 43 ---.975 .976 .977 .977 .978 .979 .980 .981 .981 .982 .983 .984 .984 .985 .986 .986 .987 .988 .988 .989 44 ---.973 .974 .975 .975 .976 .977 .978 .979 .980 .981 .981 .982 .983 .984 .984 .985 .986 .987 .987 .988 45 ---.970 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 .981 .981 .982 .983 .984 .984 .985 .986 .987 46 ---.968 .969 .970 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 .980 .981 .982 .983 .984 .985 .985 47 ---.966 .967 .968 .969 .970 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 .980 .981 .982 .983 .984 48 ---.963 .964 .965 .966 .967 .968 .969 .971 .972 .973 .974 .975 .976 .977 .978 .979 .980 .981 .981 .982 49 ---.960 .961 .962 .963 .965 .966 .967 .968 .969 .970 .971 .973 .974 .975 .976 .977 .978 .979 .980 .981 50 ---.957 .958 .959 .961 .962 .963 .964 .965 .967 .968 .969 .970 .971 .972 .974 .975 .976 .977 .978 .979 51 ---.954 .955 .956 .958 .959 .960 .961 .963 .964 .965 .966 .968 .969 .970 .971 .972 .974 .975 .976 .977 52 ---.950 .952 .953 .954 .956 .957 .958 .960 .961 .962 .964 .965 .966 .968 .969 .970 .971 .973 .974 .975 53 ---.947 .948 .950 .951 .952 .954 .955 .957 .958 .959 .961 .962 .963 .965 .966 .968 .969 .970 .971 .973 54 ---.943 .945 .946 .947 .949 .950 .952 .953 .955 .956 .958 .959 .961 .962 .963 .965 .966 .968 .969 .970

NOTE: Factors for additional age combinations are available from the Administrator. -44-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.992 .993 .993 .993 .994 .994 .994 .995 .995 .995 41 ---.991 .992 .992 .993 .993 .993 .994 .994 .994 .995 42 ---.990 .991 .991 .992 .992 .993 .993 .994 .994 .994 43 ---.989 .990 .991 .991 .991 .992 .992 .993 .993 .994 44 ---.988 .989 .990 .990 .991 .991 .992 .992 .993 .993 45 ---.987 .988 .988 .989 .990 .990 .991 .991 .992 .992 46 ---.986 .987 .987 .988 .989 .989 .990 .990 .991 .991 47 ---.985 .985 .986 .987 .987 .988 .989 .989 .990 .990 48 ---.983 .984 .985 .985 .986 .987 .988 .988 .989 .989 49 ---.981 .982 .983 .984 .985 .986 .986 .987 .988 .988 50 ---.980 .981 .982 .983 .983 .984 .985 .986 .987 .987 51 ---.978 .979 .980 .981 .982 .983 .984 .984 .985 .986 52 ---.976 .977 .978 .979 .980 .981 .982 .983 .984 .985 53 ---.974 .975 .976 .977 .978 .979 .980 .981 .982 .983 54 ---.972 .973 .974 .975 .976 .978 .979 .980 .981 .982

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.992 .993 .993 .993 .994 .994 .994 .995 .995 .995 .996 .996 .996 .996 .997 .997 .997 .997 .997 .998 41 ---.991 .992 .992 .993 .993 .993 .994 .994 .994 .995 .995 .995 .996 .996 .996 .996 .997 .997 .997 .997 42 ---.990 .991 .991 .992 .992 .993 .993 .994 .994 .994 .995 .995 .995 .996 .996 .996 .996 .997 .997 .997 43 ---.989 .990 .991 .991 .991 .992 .992 .993 .993 .994 .994 .994 .995 .995 .995 .996 .996 .996 .996 .997 44 ---.988 .989 .990 .990 .991 .991 .992 .992 .993 .993 .993 .994 .994 .994 .995 .995 .995 .996 .996 .996 45 ---.987 .988 .988 .989 .990 .990 .991 .991 .992 .992 .993 .993 .993 .994 .994 .995 .995 .995 .996 .996 46 ---.986 .987 .987 .988 .989 .989 .990 .990 .991 .991 .992 .992 .993 .993 .994 .994 .994 .995 .995 .995 47 ---.985 .985 .986 .987 .987 .988 .989 .989 .990 .990 .991 .991 .992 .992 .993 .993 .994 .994 .994 .995 48 ---.983 .984 .985 .985 .986 .987 .988 .988 .989 .989 .990 .991 .991 .992 .992 .993 .993 .993 .994 .994 49 ---.981 .982 .983 .984 .985 .986 .986 .987 .988 .988 .989 .990 .990 .991 .991 .992 .992 .993 .993 .994 50 ---.980 .981 .982 .983 .983 .984 .985 .986 .987 .987 .988 .989 .989 .990 .990 .991 .992 .992 .992 .993 51 ---.978 .979 .980 .981 .982 .983 .984 .984 .985 .986 .987 .987 .988 .989 .989 .990 .991 .991 .992 .992 52 ---.976 .977 .978 .979 .980 .981 .982 .983 .984 .985 .986 .986 .987 .988 .988 .989 .990 .990 .991 .991 53 ---.974 .975 .976 .977 .978 .979 .980 .981 .982 .983 .984 .985 .986 .987 .987 .988 .989 .989 .990 .991 54 ---.972 .973 .974 .975 .976 .978 .979 .980 .981 .982 .983 .984 .985 .985 .986 .987 .988 .988 .989 .990

NOTE: Factors for additional age combinations are available from the Administrator. -45-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.998 .998 .998 .998 .998 .998 .999 .999 .999 .999 41 ---.997 .998 .998 .998 .998 .998 .998 .998 .999 .999 42 ---.997 .997 .998 .998 .998 .998 .998 .998 .998 .999 43 ---.997 .997 .997 .997 .998 .998 .998 .998 .998 .998 44 ---.997 .997 .997 .997 .997 .998 .998 .998 .998 .998 45 ---.996 .996 .997 .997 .997 .997 .997 .998 .998 .998 46 ---.996 .996 .996 .996 .997 .997 .997 .997 .998 .998 47 ---.995 .995 .996 .996 .996 .997 .997 .997 .997 .997 48 ---.995 .995 .995 .996 .996 .996 .996 .997 .997 .997 49 ---.994 .994 .995 .995 .995 .996 .996 .996 .997 .997 50 ---.993 .994 .994 .995 .995 .995 .996 .996 .996 .996 51 ---.993 .993 .994 .994 .994 .995 .995 .995 .996 .996 52 ---.992 .993 .993 .993 .994 .994 .995 .995 .995 .996 53 ---.991 .992 .992 .993 .993 .994 .994 .995 .995 .995 54 ---.990 .991 .992 .992 .993 .993 .994 .994 .994 .995

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.998 .998 .998 .998 .998 .998 .999 .999 .999 .999 41 ---.997 .998 .998 .998 .998 .998 .998 .998 .999 .999 42 ---.997 .997 .998 .998 .998 .998 .998 .998 .998 .999 43 ---.997 .997 .997 .997 .998 .998 .998 .998 .998 .998 44 ---.997 .997 .997 .997 .997 .998 .998 .998 .998 .998 45 ---.996 .996 .997 .997 .997 .997 .997 .998 .998 .998 46 ---.996 .996 .996 .996 .997 .997 .997 .997 .998 .998 47 ---.995 .995 .996 .996 .996 .997 .997 .997 .997 .997 48 ---.995 .995 .995 .996 .996 .996 .996 .997 .997 .997 49 ---.994 .994 .995 .995 .995 .996 .996 .996 .997 .997 50 ---.993 .994 .994 .995 .995 .995 .996 .996 .996 .996 51 ---.993 .993 .994 .994 .994 .995 .995 .995 .996 .996 52 ---.992 .993 .993 .993 .994 .994 .995 .995 .995 .996 53 ---.991 .992 .992 .993 .993 .994 .994 .995 .995 .995 54 ---.990 .991 .992 .992 .993 .993 .994 .994 .994 .995

NOTE: Factors for additional age combinations are available from the Administrator. -46-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.917 .918 .919 .920 .921 .921 .922 .923 .924 .925 .927 .928 .929 .930 .931 .933 .934 .935 .937 .938 56 ---.913 .913 .914 .915 .916 .917 .918 .919 .920 .921 .922 .923 .925 .926 .927 .928 .930 .931 .932 .934 57 ---.908 .909 .910 .911 .912 .912 .913 .914 .916 .917 .918 .919 .920 .921 .923 .924 .925 .927 .928 .930 58 ---.903 .904 .905 .906 .907 .908 .909 .910 .911 .912 .913 .914 .915 .917 .918 .919 .921 .922 .924 .925 59 ---.898 .899 .900 .901 .902 .903 .904 .905 .906 .907 .908 .909 .911 .912 .913 .915 .916 .917 .919 .920 60 ---.893 .894 .895 .896 .897 .898 .899 .900 .901 .902 .903 .904 .905 .907 .908 .909 .911 .912 .914 .915 61 ---.888 .888 .889 .890 .891 .892 .893 .894 .895 .896 .898 .899 .900 .901 .903 .904 .906 .907 .909 .910 62 ---.882 .883 .884 .885 .886 .887 .888 .889 .890 .891 .892 .893 .895 .896 .897 .899 .900 .902 .903 .905 63 ---.876 .877 .878 .879 .880 .881 .882 .883 .884 .885 .886 .887 .889 .890 .891 .893 .894 .896 .897 .899 64 ---.870 .871 .872 .873 .874 .875 .876 .877 .878 .879 .880 .881 .883 .884 .885 .887 .888 .890 .892 .893 65 ---.864 .865 .865 .866 .867 .868 .869 .870 .871 .873 .874 .875 .876 .878 .879 .881 .882 .884 .885 .887 66 ---.857 .858 .859 .860 .861 .862 .863 .864 .865 .866 .867 .868 .870 .871 .873 .874 .876 .877 .879 .880 67 ---.850 .851 .852 .853 .854 .855 .856 .857 .858 .859 .860 .862 .863 .864 .866 .867 .869 .870 .872 .874 68 ---.843 .844 .845 .846 .847 .848 .849 .850 .851 .852 .853 .855 .856 .857 .859 .860 .862 .863 .865 .867 69 ---.836 .837 .838 .838 .839 .840 .841 .842 .844 .845 .846 .847 .849 .850 .851 .853 .854 .856 .858 .859

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.917 .918 .919 .920 .921 .921 .922 .923 .924 .925 .927 .928 .929 .930 .931 .933 .934 .935 .937 .938 56 ---.913 .913 .914 .915 .916 .917 .918 .919 .920 .921 .922 .923 .925 .926 .927 .928 .930 .931 .932 .934 57 ---.908 .909 .910 .911 .912 .912 .913 .914 .916 .917 .918 .919 .920 .921 .923 .924 .925 .927 .928 .930 58 ---.903 .904 .905 .906 .907 .908 .909 .910 .911 .912 .913 .914 .915 .917 .918 .919 .921 .922 .924 .925 59 ---.898 .899 .900 .901 .902 .903 .904 .905 .906 .907 .908 .909 .911 .912 .913 .915 .916 .917 .919 .920 60 ---.893 .894 .895 .896 .897 .898 .899 .900 .901 .902 .903 .904 .905 .907 .908 .909 .911 .912 .914 .915 61 ---.888 .888 .889 .890 .891 .892 .893 .894 .895 .896 .898 .899 .900 .901 .903 .904 .906 .907 .909 .910 62 ---.882 .883 .884 .885 .886 .887 .888 .889 .890 .891 .892 .893 .895 .896 .897 .899 .900 .902 .903 .905 63 ---.876 .877 .878 .879 .880 .881 .882 .883 .884 .885 .886 .887 .889 .890 .891 .893 .894 .896 .897 .899 64 ---.870 .871 .872 .873 .874 .875 .876 .877 .878 .879 .880 .881 .883 .884 .885 .887 .888 .890 .892 .893 65 ---.864 .865 .865 .866 .867 .868 .869 .870 .871 .873 .874 .875 .876 .878 .879 .881 .882 .884 .885 .887 66 ---.857 .858 .859 .860 .861 .862 .863 .864 .865 .866 .867 .868 .870 .871 .873 .874 .876 .877 .879 .880 67 ---.850 .851 .852 .853 .854 .855 .856 .857 .858 .859 .860 .862 .863 .864 .866 .867 .869 .870 .872 .874 68 ---.843 .844 .845 .846 .847 .848 .849 .850 .851 .852 .853 .855 .856 .857 .859 .860 .862 .863 .865 .867 69 ---.836 .837 .838 .838 .839 .840 .841 .842 .844 .845 .846 .847 .849 .850 .851 .853 .854 .856 .858 .859

NOTE: Factors for additional age combinations are available from the Administrator. -47-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.939 .941 .942 .944 .945 .947 .948 .950 .951 .953 .954 56 ---.935 .937 .938 .940 .941 .943 .944 .946 .948 .949 .951 57 ---.931 .933 .934 .936 .937 .939 .941 .942 .944 .946 .947 58 ---.927 .928 .930 .931 .933 .935 .936 .938 .940 .942 .943 59 ---.922 .924 .925 .927 .929 .930 .932 .934 .936 .937 .939 60 ---.917 .919 .920 .922 .924 .926 .927 .929 .931 .933 .935 61 ---.912 .914 .915 .917 .919 .921 .922 .924 .926 .928 .930 62 ---.906 .908 .910 .912 .914 .915 .917 .919 .921 .923 .925 63 ---.901 .903 .904 .906 .908 .910 .912 .914 .916 .918 .920 64 ---.895 .897 .898 .900 .902 .904 .906 .908 .910 .912 .915 65 ---.889 .890 .892 .894 .896 .898 .900 .902 .904 .907 .909 66 ---.882 .884 .886 .888 .890 .892 .894 .896 .898 .900 .903 67 ---.875 .877 .879 .881 .883 .885 .887 .889 .892 .894 .896 68 ---.868 .870 .872 .874 .876 .878 .880 .883 .885 .887 .890 69 ---.861 .863 .865 .867 .869 .871 .873 .876 .878 .880 .883

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.939 .941 .942 .944 .945 .947 .948 .950 .951 .953 .954 .956 .957 .959 .960 .962 .963 .965 .966 .968 56 ---.935 .937 .938 .940 .941 .943 .944 .946 .948 .949 .951 .953 .954 .956 .957 .959 .960 .962 .964 .965 57 ---.931 .933 .934 .936 .937 .939 .941 .942 .944 .946 .947 .949 .951 .952 .954 .956 .957 .959 .961 .962 58 ---.927 .928 .930 .931 .933 .935 .936 .938 .940 .942 .943 .945 .947 .949 .950 .952 .954 .956 .957 .959 59 ---.922 .924 .925 .927 .929 .930 .932 .934 .936 .937 .939 .941 .943 .945 .947 .948 .950 .952 .954 .956 60 ---.917 .919 .920 .922 .924 .926 .927 .929 .931 .933 .935 .937 .939 .941 .943 .945 .946 .948 .950 .952 61 ---.912 .914 .915 .917 .919 .921 .922 .924 .926 .928 .930 .932 .934 .936 .938 .940 .942 .944 .946 .948 62 ---.906 .908 .910 .912 .914 .915 .917 .919 .921 .923 .925 .927 .929 .932 .934 .936 .938 .940 .942 .944 63 ---.901 .903 .904 .906 .908 .910 .912 .914 .916 .918 .920 .922 .924 .927 .929 .931 .933 .935 .938 .940 64 ---.895 .897 .898 .900 .902 .904 .906 .908 .910 .912 .915 .917 .919 .921 .924 .926 .928 .931 .933 .935 65 ---.889 .890 .892 .894 .896 .898 .900 .902 .904 .907 .909 .911 .913 .916 .918 .920 .923 .925 .928 .930 66 ---.882 .884 .886 .888 .890 .892 .894 .896 .898 .900 .903 .905 .907 .910 .912 .915 .917 .920 .922 .925 67 ---.875 .877 .879 .881 .883 .885 .887 .889 .892 .894 .896 .899 .901 .904 .906 .909 .911 .914 .917 .919 68 ---.868 .870 .872 .874 .876 .878 .880 .883 .885 .887 .890 .892 .895 .897 .900 .902 .905 .908 .910 .913 69 ---.861 .863 .865 .867 .869 .871 .873 .876 .878 .880 .883 .885 .888 .890 .893 .896 .898 .901 .904 .907

NOTE: Factors for additional age combinations are available from the Administrator. -48-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.969 .971 .972 .973 .974 .976 .977 .978 .979 .980 56 ---.967 .968 .969 .971 .972 .974 .975 .976 .977 .978 57 ---.964 .965 .967 .968 .970 .971 .973 .974 .975 .977 58 ---.961 .962 .964 .966 .967 .969 .970 .972 .973 .975 59 ---.958 .959 .961 .963 .965 .966 .968 .969 .971 .972 60 ---.954 .956 .958 .960 .962 .963 .965 .967 .968 .970 61 ---.950 .952 .954 .956 .958 .960 .962 .964 .966 .967 62 ---.946 .949 .951 .953 .955 .957 .959 .961 .963 .964 63 ---.942 .944 .947 .949 .951 .953 .955 .957 .959 .961 64 ---.938 .940 .942 .945 .947 .949 .951 .954 .956 .958 65 ---.933 .935 .938 .940 .942 .945 .947 .950 .952 .954 66 ---.927 .930 .933 .935 .938 .940 .943 .945 .948 .950 67 ---.922 .925 .927 .930 .933 .935 .938 .941 .943 .946 68 ---.916 .919 .922 .924 .927 .930 .933 .936 .939 .941 69 ---.910 .913 .916 .919 .922 .925 .928 .930 .933 .936

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.969 .971 .972 .973 .974 .976 .977 .978 .979 .980 .981 .982 .983 .984 .985 .986 .987 .987 .988 .989 56 ---.967 .968 .969 .971 .972 .974 .975 .976 .977 .978 .980 .981 .982 .983 .984 .985 .985 .986 .987 .988 57 ---.964 .965 .967 .968 .970 .971 .973 .974 .975 .977 .978 .979 .980 .981 .982 .983 .984 .985 .986 .987 58 ---.961 .962 .964 .966 .967 .969 .970 .972 .973 .975 .976 .977 .978 .979 .981 .982 .983 .984 .985 .986 59 ---.958 .959 .961 .963 .965 .966 .968 .969 .971 .972 .974 .975 .976 .978 .979 .980 .981 .982 .983 .984 60 ---.954 .956 .958 .960 .962 .963 .965 .967 .968 .970 .971 .973 .974 .976 .977 .978 .980 .981 .982 .983 61 ---.950 .952 .954 .956 .958 .960 .962 .964 .966 .967 .969 .971 .972 .974 .975 .976 .978 .979 .980 .981 62 ---.946 .949 .951 .953 .955 .957 .959 .961 .963 .964 .966 .968 .970 .971 .973 .974 .976 .977 .978 .980 63 ---.942 .944 .947 .949 .951 .953 .955 .957 .959 .961 .963 .965 .967 .969 .970 .972 .973 .975 .976 .978 64 ---.938 .940 .942 .945 .947 .949 .951 .954 .956 .958 .960 .962 .964 .966 .968 .969 .971 .973 .974 .976 65 ---.933 .935 .938 .940 .942 .945 .947 .950 .952 .954 .956 .959 .961 .963 .965 .967 .968 .970 .972 .974 66 ---.927 .930 .933 .935 .938 .940 .943 .945 .948 .950 .953 .955 .957 .959 .961 .963 .965 .967 .969 .971 67 ---.922 .925 .927 .930 .933 .935 .938 .941 .943 .946 .948 .951 .953 .956 .958 .960 .962 .964 .966 .968 68 ---.916 .919 .922 .924 .927 .930 .933 .936 .939 .941 .944 .947 .949 .952 .954 .956 .959 .961 .963 .965 69 ---.910 .913 .916 .919 .922 .925 .928 .930 .933 .936 .939 .942 .945 .947 .950 .953 .955 .957 .960 .962

NOTE: Factors for additional age combinations are available from the Administrator. -49-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.990 .990 .991 .991 .992 .992 .993 .993 .994 .994 56 ---.989 .989 .990 .991 .991 .992 .992 .993 .993 .994 57 ---.988 .988 .989 .990 .990 .991 .992 .992 .993 .993 58 ---.986 .987 .988 .989 .990 .990 .991 .992 .992 .993 59 ---.985 .986 .987 .988 .989 .989 .990 .991 .991 .992 60 ---.984 .985 .986 .987 .988 .988 .989 .990 .991 .991 61 ---.983 .984 .985 .986 .987 .987 .988 .989 .990 .991 62 ---.981 .982 .983 .984 .985 .986 .987 .988 .989 .990 63 ---.979 .980 .982 .983 .984 .985 .986 .987 .988 .989 64 ---.977 .979 .980 .981 .982 .984 .985 .986 .987 .988 65 ---.975 .977 .978 .979 .981 .982 .983 .984 .985 .987 66 ---.973 .974 .976 .978 .979 .980 .982 .983 .984 .985 67 ---.970 .972 .974 .975 .977 .978 .980 .981 .983 .984 68 ---.967 .969 .971 .973 .975 .976 .978 .979 .981 .982 69 ---.964 .966 .968 .970 .972 .974 .976 .977 .979 .980

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 50% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.990 .990 .991 .991 .992 .992 .993 .993 .994 .994 56 ---.989 .989 .990 .991 .991 .992 .992 .993 .993 .994 57 ---.988 .988 .989 .990 .990 .991 .992 .992 .993 .993 58 ---.986 .987 .988 .989 .990 .990 .991 .992 .992 .993 59 ---.985 .986 .987 .988 .989 .989 .990 .991 .991 .992 60 ---.984 .985 .986 .987 .988 .988 .989 .990 .991 .991 61 ---.983 .984 .985 .986 .987 .987 .988 .989 .990 .991 62 ---.981 .982 .983 .984 .985 .986 .987 .988 .989 .990 63 ---.979 .980 .982 .983 .984 .985 .986 .987 .988 .989 64 ---.977 .979 .980 .981 .982 .984 .985 .986 .987 .988 65 ---.975 .977 .978 .979 .981 .982 .983 .984 .985 .987 66 ---.973 .974 .976 .978 .979 .980 .982 .983 .984 .985 67 ---.970 .972 .974 .975 .977 .978 .980 .981 .983 .984 68 ---.967 .969 .971 .973 .975 .976 .978 .979 .981 .982 69 ---.964 .966 .968 .970 .972 .974 .976 .977 .979 .980

NOTE: Factors for additional age combinations are available from the Administrator. -50-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.904 .906 .908 .909 .911 .913 .915 .917 .919 .921 .923 .925 .927 .929 .931 .933 .935 .937 .939 .941 41 ---.898 .900 .902 .904 .905 .907 .909 .911 .913 .915 .917 .919 .921 .923 .926 .928 .930 .932 .934 .936 42 ---.892 .894 .896 .897 .899 .901 .903 .905 .907 .909 .911 .913 .916 .918 .920 .922 .924 .927 .929 .931 43 ---.885 .887 .889 .891 .893 .895 .897 .899 .901 .903 .905 .907 .909 .912 .914 .916 .919 .921 .923 .926 44 ---.879 .880 .882 .884 .886 .888 .890 .892 .894 .896 .899 .901 .903 .905 .908 .910 .913 .915 .917 .920 45 ---.872 .873 .875 .877 .879 .881 .883 .885 .887 .889 .892 .894 .896 .899 .901 .904 .906 .909 .911 .914 46 ---.864 .866 .868 .870 .872 .874 .876 .878 .880 .882 .885 .887 .889 .892 .894 .897 .899 .902 .905 .907 47 ---.856 .858 .860 .862 .864 .866 .868 .870 .872 .875 .877 .880 .882 .884 .887 .890 .892 .895 .898 .900 48 ---.849 .850 .852 .854 .856 .858 .860 .862 .865 .867 .869 .872 .874 .877 .879 .882 .885 .888 .890 .893 49 ---.840 .842 .844 .846 .848 .850 .852 .854 .857 .859 .861 .864 .866 .869 .872 .874 .877 .880 .883 .886 50 ---.832 .834 .836 .838 .840 .842 .844 .846 .848 .851 .853 .856 .858 .861 .864 .866 .869 .872 .875 .878 51 ---.823 .825 .827 .829 .831 .833 .835 .837 .840 .842 .845 .847 .850 .852 .855 .858 .861 .864 .867 .870 52 ---.815 .816 .818 .820 .822 .824 .826 .829 .831 .833 .836 .838 .841 .844 .846 .849 .852 .855 .858 .861 53 ---.805 .807 .809 .811 .813 .815 .817 .820 .822 .824 .827 .829 .832 .835 .838 .840 .843 .846 .850 .853 54 ---.796 .798 .800 .802 .804 .806 .808 .810 .813 .815 .817 .820 .823 .825 .828 .831 .834 .837 .840 .844

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.904 .906 .908 .909 .911 .913 .915 .917 .919 .921 .923 .925 .927 .929 .931 .933 .935 .937 .939 .941 41 ---.898 .900 .902 .904 .905 .907 .909 .911 .913 .915 .917 .919 .921 .923 .926 .928 .930 .932 .934 .936 42 ---.892 .894 .896 .897 .899 .901 .903 .905 .907 .909 .911 .913 .916 .918 .920 .922 .924 .927 .929 .931 43 ---.885 .887 .889 .891 .893 .895 .897 .899 .901 .903 .905 .907 .909 .912 .914 .916 .919 .921 .923 .926 44 ---.879 .880 .882 .884 .886 .888 .890 .892 .894 .896 .899 .901 .903 .905 .908 .910 .913 .915 .917 .920 45 ---.872 .873 .875 .877 .879 .881 .883 .885 .887 .889 .892 .894 .896 .899 .901 .904 .906 .909 .911 .914 46 ---.864 .866 .868 .870 .872 .874 .876 .878 .880 .882 .885 .887 .889 .892 .894 .897 .899 .902 .905 .907 47 ---.856 .858 .860 .862 .864 .866 .868 .870 .872 .875 .877 .880 .882 .884 .887 .890 .892 .895 .898 .900 48 ---.849 .850 .852 .854 .856 .858 .860 .862 .865 .867 .869 .872 .874 .877 .879 .882 .885 .888 .890 .893 49 ---.840 .842 .844 .846 .848 .850 .852 .854 .857 .859 .861 .864 .866 .869 .872 .874 .877 .880 .883 .886 50 ---.832 .834 .836 .838 .840 .842 .844 .846 .848 .851 .853 .856 .858 .861 .864 .866 .869 .872 .875 .878 51 ---.823 .825 .827 .829 .831 .833 .835 .837 .840 .842 .845 .847 .850 .852 .855 .858 .861 .864 .867 .870 52 ---.815 .816 .818 .820 .822 .824 .826 .829 .831 .833 .836 .838 .841 .844 .846 .849 .852 .855 .858 .861 53 ---.805 .807 .809 .811 .813 .815 .817 .820 .822 .824 .827 .829 .832 .835 .838 .840 .843 .846 .850 .853 54 ---.796 .798 .800 .802 .804 .806 .808 .810 .813 .815 .817 .820 .823 .825 .828 .831 .834 .837 .840 .844

NOTE: Factors for additional age combinations are available from the Administrator. -51-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.943 .945 .947 .949 .951 .953 .955 .957 .959 .960 .962 41 ---.939 .941 .943 .945 .947 .949 .951 .953 .955 .957 .959 42 ---.934 .936 .938 .940 .942 .945 .947 .949 .951 .953 .955 43 ---.928 .930 .933 .935 .937 .940 .942 .944 .946 .949 .951 44 ---.922 .925 .927 .930 .932 .935 .937 .939 .942 .944 .946 45 ---.916 .919 .921 .924 .927 .929 .932 .934 .937 .939 .941 46 ---.910 .913 .915 .918 .921 .923 .926 .929 .931 .934 .936 47 ---.903 .906 .909 .912 .914 .917 .920 .923 .925 .928 .931 48 ---.896 .899 .902 .905 .908 .911 .914 .916 .919 .922 .925 49 ---.889 .892 .895 .898 .901 .904 .907 .910 .913 .916 .919 50 ---.881 .884 .887 .890 .893 .897 .900 .903 .906 .909 .912 51 ---.873 .876 .879 .883 .886 .889 .892 .896 .899 .902 .906 52 ---.865 .868 .871 .874 .878 .881 .885 .888 .891 .895 .898 53 ---.856 .859 .863 .866 .869 .873 .876 .880 .884 .887 .891 54 ---.847 .850 .854 .857 .861 .864 .868 .872 .875 .879 .883

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.943 .945 .947 .949 .951 .953 .955 .957 .959 .960 .962 .964 .965 .967 .969 .970 .971 .973 .974 .975 41 ---.939 .941 .943 .945 .947 .949 .951 .953 .955 .957 .959 .960 .962 .964 .966 .967 .969 .970 .972 .973 42 ---.934 .936 .938 .940 .942 .945 .947 .949 .951 .953 .955 .957 .959 .960 .962 .964 .966 .967 .969 .970 43 ---.928 .930 .933 .935 .937 .940 .942 .944 .946 .949 .951 .953 .955 .957 .959 .960 .962 .964 .966 .967 44 ---.922 .925 .927 .930 .932 .935 .937 .939 .942 .944 .946 .948 .951 .953 .955 .957 .959 .961 .962 .964 45 ---.916 .919 .921 .924 .927 .929 .932 .934 .937 .939 .941 .944 .946 .948 .951 .953 .955 .957 .959 .961 46 ---.910 .913 .915 .918 .921 .923 .926 .929 .931 .934 .936 .939 .941 .944 .946 .948 .951 .953 .955 .957 47 ---.903 .906 .909 .912 .914 .917 .920 .923 .925 .928 .931 .934 .936 .939 .941 .944 .946 .948 .951 .953 48 ---.896 .899 .902 .905 .908 .911 .914 .916 .919 .922 .925 .928 .931 .933 .936 .939 .941 .944 .946 .949 49 ---.889 .892 .895 .898 .901 .904 .907 .910 .913 .916 .919 .922 .925 .928 .931 .933 .936 .939 .941 .944 50 ---.881 .884 .887 .890 .893 .897 .900 .903 .906 .909 .912 .916 .919 .922 .925 .928 .931 .933 .936 .939 51 ---.873 .876 .879 .883 .886 .889 .892 .896 .899 .902 .906 .909 .912 .915 .918 .922 .925 .928 .931 .934 52 ---.865 .868 .871 .874 .878 .881 .885 .888 .891 .895 .898 .902 .905 .909 .912 .915 .919 .922 .925 .928 53 ---.856 .859 .863 .866 .869 .873 .876 .880 .884 .887 .891 .894 .898 .902 .905 .909 .912 .915 .919 .922 54 ---.847 .850 .854 .857 .861 .864 .868 .872 .875 .879 .883 .887 .890 .894 .898 .901 .905 .909 .912 .916

NOTE: Factors for additional age combinations are available from the Administrator. -52-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.977 .978 .979 .980 .981 .982 .983 .984 .985 .986 41 ---.974 .976 .977 .978 .979 .981 .982 .983 .984 .985 42 ---.972 .973 .975 .976 .977 .978 .980 .981 .982 .983 43 ---.969 .971 .972 .974 .975 .976 .978 .979 .980 .981 44 ---.966 .968 .969 .971 .972 .974 .975 .977 .978 .979 45 ---.963 .964 .966 .968 .970 .971 .973 .974 .976 .977 46 ---.959 .961 .963 .965 .967 .968 .970 .971 .973 .974 47 ---.955 .957 .959 .961 .963 .965 .967 .969 .970 .972 48 ---.951 .953 .955 .958 .960 .962 .964 .965 .967 .969 49 ---.946 .949 .951 .954 .956 .958 .960 .962 .964 .966 50 ---.942 .944 .947 .949 .952 .954 .956 .959 .961 .963 51 ---.937 .939 .942 .945 .947 .950 .952 .955 .957 .959 52 ---.931 .934 .937 .940 .943 .945 .948 .951 .953 .955 53 ---.925 .929 .932 .935 .938 .941 .944 .946 .949 .952 54 ---.919 .923 .926 .929 .933 .936 .939 .942 .945 .947

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.977 .978 .979 .980 .981 .982 .983 .984 .985 .986 .987 .988 .988 .989 .990 .990 .991 .992 .992 .993 41 ---.974 .976 .977 .978 .979 .981 .982 .983 .984 .985 .985 .986 .987 .988 .989 .989 .990 .991 .991 .992 42 ---.972 .973 .975 .976 .977 .978 .980 .981 .982 .983 .984 .985 .986 .987 .987 .988 .989 .990 .990 .991 43 ---.969 .971 .972 .974 .975 .976 .978 .979 .980 .981 .982 .983 .984 .985 .986 .987 .988 .989 .989 .990 44 ---.966 .968 .969 .971 .972 .974 .975 .977 .978 .979 .980 .981 .983 .984 .985 .986 .986 .987 .988 .989 45 ---.963 .964 .966 .968 .970 .971 .973 .974 .976 .977 .978 .979 .981 .982 .983 .984 .985 .986 .987 .988 46 ---.959 .961 .963 .965 .967 .968 .970 .971 .973 .974 .976 .977 .979 .980 .981 .982 .983 .984 .985 .986 47 ---.955 .957 .959 .961 .963 .965 .967 .969 .970 .972 .973 .975 .976 .978 .979 .980 .981 .983 .984 .985 48 ---.951 .953 .955 .958 .960 .962 .964 .965 .967 .969 .971 .972 .974 .975 .977 .978 .979 .981 .982 .983 49 ---.946 .949 .951 .954 .956 .958 .960 .962 .964 .966 .968 .970 .971 .973 .974 .976 .977 .979 .980 .981 50 ---.942 .944 .947 .949 .952 .954 .956 .959 .961 .963 .965 .967 .968 .970 .972 .973 .975 .976 .978 .979 51 ---.937 .939 .942 .945 .947 .950 .952 .955 .957 .959 .961 .963 .965 .967 .969 .971 .972 .974 .976 .977 52 ---.931 .934 .937 .940 .943 .945 .948 .951 .953 .955 .958 .960 .962 .964 .966 .968 .970 .972 .973 .975 53 ---.925 .929 .932 .935 .938 .941 .944 .946 .949 .952 .954 .956 .959 .961 .963 .965 .967 .969 .971 .972 54 ---.919 .923 .926 .929 .933 .936 .939 .942 .945 .947 .950 .953 .955 .957 .960 .962 .964 .966 .968 .970

NOTE: Factors for additional age combinations are available from the Administrator. -53-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.993 .994 .994 .995 .995 .995 .996 .996 .996 .996 41 ---.992 .993 .993 .994 .994 .995 .995 .995 .996 .996 42 ---.992 .992 .993 .993 .994 .994 .995 .995 .995 .996 43 ---.991 .991 .992 .992 .993 .994 .994 .994 .995 .995 44 ---.990 .990 .991 .992 .992 .993 .993 .994 .994 .995 45 ---.988 .989 .990 .991 .991 .992 .992 .993 .994 .994 46 ---.987 .988 .989 .990 .990 .991 .992 .992 .993 .993 47 ---.986 .987 .987 .988 .989 .990 .991 .991 .992 .993 48 ---.984 .985 .986 .987 .988 .989 .989 .990 .991 .992 49 ---.982 .983 .985 .986 .986 .987 .988 .989 .990 .991 50 ---.980 .982 .983 .984 .985 .986 .987 .988 .989 .990 51 ---.978 .980 .981 .982 .983 .985 .986 .987 .988 .988 52 ---.976 .978 .979 .981 .982 .983 .984 .985 .986 .987 53 ---.974 .976 .977 .979 .980 .981 .983 .984 .985 .986 54 ---.972 .973 .975 .977 .978 .980 .981 .982 .983 .985

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 40 ---.993 .994 .994 .995 .995 .995 .996 .996 .996 .996 41 ---.992 .993 .993 .994 .994 .995 .995 .995 .996 .996 42 ---.992 .992 .993 .993 .994 .994 .995 .995 .995 .996 43 ---.991 .991 .992 .992 .993 .994 .994 .994 .995 .995 44 ---.990 .990 .991 .992 .992 .993 .993 .994 .994 .995 45 ---.988 .989 .990 .991 .991 .992 .992 .993 .994 .994 46 ---.987 .988 .989 .990 .990 .991 .992 .992 .993 .993 47 ---.986 .987 .987 .988 .989 .990 .991 .991 .992 .993 48 ---.984 .985 .986 .987 .988 .989 .989 .990 .991 .992 49 ---.982 .983 .985 .986 .986 .987 .988 .989 .990 .991 50 ---.980 .982 .983 .984 .985 .986 .987 .988 .989 .990 51 ---.978 .980 .981 .982 .983 .985 .986 .987 .988 .988 52 ---.976 .978 .979 .981 .982 .983 .984 .985 .986 .987 53 ---.974 .976 .977 .979 .980 .981 .983 .984 .985 .986 54 ---.972 .973 .975 .977 .978 .980 .981 .982 .983 .985

NOTE: Factors for additional age combinations are available from the Administrator. -54-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.787 .788 .790 .792 .794 .796 .798 .801 .803 .805 .808 .811 .813 .816 .819 .822 .825 .828 .831 .834 56 ---.777 .779 .781 .782 .784 .787 .789 .791 .793 .796 .798 .801 .803 .806 .809 .812 .815 .818 .821 .825 57 ---.767 .769 .771 .772 .774 .776 .779 .781 .783 .786 .788 .791 .793 .796 .799 .802 .805 .808 .811 .815 58 ---.757 .759 .760 .762 .764 .766 .768 .771 .773 .775 .778 .780 .783 .786 .789 .792 .795 .798 .801 .805 59 ---.746 .748 .750 .752 .754 .756 .758 .760 .762 .765 .767 .770 .772 .775 .778 .781 .784 .787 .791 .794 60 ---.736 .737 .739 .741 .743 .745 .747 .749 .751 .754 .756 .759 .761 .764 .767 .770 .773 .776 .780 .783 61 ---.725 .726 .728 .730 .732 .734 .736 .738 .740 .743 .745 .748 .750 .753 .756 .759 .762 .765 .768 .772 62 ---.714 .715 .717 .719 .721 .723 .725 .727 .729 .731 .734 .736 .739 .741 .744 .747 .750 .753 .757 .760 63 ---.702 .704 .705 .707 .709 .711 .713 .715 .717 .719 .722 .724 .727 .730 .732 .735 .738 .742 .745 .748 64 ---.691 .692 .694 .695 .697 .699 .701 .703 .705 .708 .710 .712 .715 .718 .720 .723 .726 .729 .733 .736 65 ---.679 .680 .682 .683 .685 .687 .689 .691 .693 .695 .698 .700 .703 .705 .708 .711 .714 .717 .720 .723 66 ---.667 .668 .670 .671 .673 .675 .677 .679 .681 .683 .685 .688 .690 .693 .695 .698 .701 .704 .707 .711 67 ---.654 .656 .657 .659 .661 .662 .664 .666 .668 .670 .673 .675 .677 .680 .682 .685 .688 .691 .694 .698 68 ---.642 .643 .645 .646 .648 .650 .652 .653 .655 .658 .660 .662 .664 .667 .669 .672 .675 .678 .681 .684 69 ---.629 .631 .632 .634 .635 .637 .639 .641 .643 .645 .647 .649 .651 .654 .656 .659 .662 .665 .668 .671

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.787 .788 .790 .792 .794 .796 .798 .801 .803 .805 .808 .811 .813 .816 .819 .822 .825 .828 .831 .834 56 ---.777 .779 .781 .782 .784 .787 .789 .791 .793 .796 .798 .801 .803 .806 .809 .812 .815 .818 .821 .825 57 ---.767 .769 .771 .772 .774 .776 .779 .781 .783 .786 .788 .791 .793 .796 .799 .802 .805 .808 .811 .815 58 ---.757 .759 .760 .762 .764 .766 .768 .771 .773 .775 .778 .780 .783 .786 .789 .792 .795 .798 .801 .805 59 ---.746 .748 .750 .752 .754 .756 .758 .760 .762 .765 .767 .770 .772 .775 .778 .781 .784 .787 .791 .794 60 ---.736 .737 .739 .741 .743 .745 .747 .749 .751 .754 .756 .759 .761 .764 .767 .770 .773 .776 .780 .783 61 ---.725 .726 .728 .730 .732 .734 .736 .738 .740 .743 .745 .748 .750 .753 .756 .759 .762 .765 .768 .772 62 ---.714 .715 .717 .719 .721 .723 .725 .727 .729 .731 .734 .736 .739 .741 .744 .747 .750 .753 .757 .760 63 ---.702 .704 .705 .707 .709 .711 .713 .715 .717 .719 .722 .724 .727 .730 .732 .735 .738 .742 .745 .748 64 ---.691 .692 .694 .695 .697 .699 .701 .703 .705 .708 .710 .712 .715 .718 .720 .723 .726 .729 .733 .736 65 ---.679 .680 .682 .683 .685 .687 .689 .691 .693 .695 .698 .700 .703 .705 .708 .711 .714 .717 .720 .723 66 ---.667 .668 .670 .671 .673 .675 .677 .679 .681 .683 .685 .688 .690 .693 .695 .698 .701 .704 .707 .711 67 ---.654 .656 .657 .659 .661 .662 .664 .666 .668 .670 .673 .675 .677 .680 .682 .685 .688 .691 .694 .698 68 ---.642 .643 .645 .646 .648 .650 .652 .653 .655 .658 .660 .662 .664 .667 .669 .672 .675 .678 .681 .684 69 ---.629 .631 .632 .634 .635 .637 .639 .641 .643 .645 .647 .649 .651 .654 .656 .659 .662 .665 .668 .671

NOTE: Factors for additional age combinations are available from the Administrator. -55-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.838 .841 .845 .848 .852 .856 .859 .863 .867 .871 .875 56 ---.828 .832 .835 .839 .843 .846 .850 .854 .858 .862 .866 57 ---.818 .822 .825 .829 .833 .837 .841 .845 .849 .853 .857 58 ---.808 .812 .815 .819 .823 .827 .831 .835 .839 .843 .847 59 ---.797 .801 .805 .808 .812 .816 .820 .825 .829 .833 .837 60 ---.787 .790 .794 .798 .802 .806 .810 .814 .818 .823 .827 61 ---.775 .779 .783 .786 .790 .794 .799 .803 .807 .812 .816 62 ---.764 .767 .771 .775 .779 .783 .787 .791 .796 .800 .805 63 ---.752 .755 .759 .763 .767 .771 .775 .780 .784 .789 .793 64 ---.739 .743 .747 .751 .755 .759 .763 .767 .772 .776 .781 65 ---.727 .730 .734 .738 .742 .746 .750 .755 .759 .764 .769 66 ---.714 .718 .721 .725 .729 .733 .737 .742 .746 .751 .756 67 ---.701 .704 .708 .712 .716 .720 .724 .728 .733 .738 .742 68 ---.688 .691 .695 .698 .702 .706 .711 .715 .719 .724 .729 69 ---.674 .678 .681 .685 .689 .693 .697 .701 .705 .710 .715

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.838 .841 .845 .848 .852 .856 .859 .863 .867 .871 .875 .878 .882 .886 .890 .894 .898 .902 .905 .909 56 ---.828 .832 .835 .839 .843 .846 .850 .854 .858 .862 .866 .870 .874 .878 .882 .886 .890 .894 .898 .902 57 ---.818 .822 .825 .829 .833 .837 .841 .845 .849 .853 .857 .861 .865 .869 .874 .878 .882 .886 .890 .895 58 ---.808 .812 .815 .819 .823 .827 .831 .835 .839 .843 .847 .852 .856 .860 .865 .869 .873 .878 .882 .887 59 ---.797 .801 .805 .808 .812 .816 .820 .825 .829 .833 .837 .842 .846 .851 .855 .860 .864 .869 .874 .878 60 ---.787 .790 .794 .798 .802 .806 .810 .814 .818 .823 .827 .832 .836 .841 .845 .850 .855 .860 .864 .869 61 ---.775 .779 .783 .786 .790 .794 .799 .803 .807 .812 .816 .821 .825 .830 .835 .840 .845 .850 .855 .860 62 ---.764 .767 .771 .775 .779 .783 .787 .791 .796 .800 .805 .810 .814 .819 .824 .829 .834 .839 .845 .850 63 ---.752 .755 .759 .763 .767 .771 .775 .780 .784 .789 .793 .798 .803 .808 .813 .818 .823 .828 .834 .839 64 ---.739 .743 .747 .751 .755 .759 .763 .767 .772 .776 .781 .786 .791 .796 .801 .806 .812 .817 .822 .828 65 ---.727 .730 .734 .738 .742 .746 .750 .755 .759 .764 .769 .773 .778 .784 .789 .794 .799 .805 .811 .816 66 ---.714 .718 .721 .725 .729 .733 .737 .742 .746 .751 .756 .761 .766 .771 .776 .781 .787 .793 .798 .804 67 ---.701 .704 .708 .712 .716 .720 .724 .728 .733 .738 .742 .747 .752 .757 .763 .768 .774 .780 .785 .791 68 ---.688 .691 .695 .698 .702 .706 .711 .715 .719 .724 .729 .734 .739 .744 .749 .755 .760 .766 .772 .778 69 ---.674 .678 .681 .685 .689 .693 .697 .701 .705 .710 .715 .720 .725 .730 .735 .741 .747 .752 .758 .764

NOTE: Factors for additional age combinations are available from the Administrator. -56-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.913 .917 .920 .924 .927 .930 .934 .937 .940 .943 56 ---.906 .910 .914 .917 .921 .925 .928 .931 .935 .938 57 ---.899 .903 .907 .911 .915 .918 .922 .926 .929 .933 58 ---.891 .895 .900 .904 .908 .912 .916 .920 .924 .927 59 ---.883 .887 .892 .896 .901 .905 .909 .913 .917 .921 60 ---.874 .879 .884 .888 .893 .897 .902 .906 .911 .915 61 ---.865 .870 .875 .880 .884 .889 .894 .899 .903 .908 62 ---.855 .860 .865 .870 .876 .881 .886 .891 .895 .900 63 ---.844 .850 .855 .861 .866 .871 .877 .882 .887 .892 64 ---.834 .839 .845 .850 .856 .862 .867 .873 .878 .883 65 ---.822 .828 .834 .839 .845 .851 .857 .863 .868 .874 66 ---.810 .816 .822 .828 .834 .840 .846 .852 .858 .864 67 ---.797 .803 .810 .816 .822 .828 .835 .841 .847 .854 68 ---.784 .790 .797 .803 .810 .816 .823 .829 .836 .842 69 ---.771 .777 .784 .790 .797 .803 .810 .817 .824 .830

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.913 .917 .920 .924 .927 .930 .934 .937 .940 .943 .946 .948 .951 .954 .956 .959 .961 .963 .965 .967 56 ---.906 .910 .914 .917 .921 .925 .928 .931 .935 .938 .941 .944 .947 .950 .952 .955 .958 .960 .962 .964 57 ---.899 .903 .907 .911 .915 .918 .922 .926 .929 .933 .936 .939 .942 .945 .948 .951 .954 .957 .959 .961 58 ---.891 .895 .900 .904 .908 .912 .916 .920 .924 .927 .931 .934 .938 .941 .944 .947 .950 .953 .955 .958 59 ---.883 .887 .892 .896 .901 .905 .909 .913 .917 .921 .925 .929 .932 .936 .939 .943 .946 .949 .952 .954 60 ---.874 .879 .884 .888 .893 .897 .902 .906 .911 .915 .919 .923 .927 .931 .934 .938 .941 .944 .948 .951 61 ---.865 .870 .875 .880 .884 .889 .894 .899 .903 .908 .912 .916 .921 .925 .929 .932 .936 .940 .943 .946 62 ---.855 .860 .865 .870 .876 .881 .886 .891 .895 .900 .905 .909 .914 .918 .922 .927 .931 .934 .938 .942 63 ---.844 .850 .855 .861 .866 .871 .877 .882 .887 .892 .897 .902 .907 .911 .916 .920 .924 .929 .933 .936 64 ---.834 .839 .845 .850 .856 .862 .867 .873 .878 .883 .889 .894 .899 .904 .909 .913 .918 .922 .927 .931 65 ---.822 .828 .834 .839 .845 .851 .857 .863 .868 .874 .880 .885 .890 .896 .901 .906 .911 .916 .920 .925 66 ---.810 .816 .822 .828 .834 .840 .846 .852 .858 .864 .870 .876 .881 .887 .893 .898 .903 .908 .913 .918 67 ---.797 .803 .810 .816 .822 .828 .835 .841 .847 .854 .860 .866 .872 .878 .884 .889 .895 .900 .906 .911 68 ---.784 .790 .797 .803 .810 .816 .823 .829 .836 .842 .849 .855 .861 .868 .874 .880 .886 .892 .897 .903 69 ---.771 .777 .784 .790 .797 .803 .810 .817 .824 .830 .837 .844 .851 .857 .864 .870 .876 .882 .888 .894

NOTE: Factors for additional age combinations are available from the Administrator. -57-

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.969 .971 .973 .975 .976 .978 .979 .981 .982 .983 56 ---.967 .969 .970 .972 .974 .976 .977 .979 .980 .982 57 ---.964 .966 .968 .970 .972 .974 .975 .977 .979 .980 58 ---.961 .963 .965 .967 .969 .971 .973 .975 .977 .978 59 ---.957 .960 .962 .965 .967 .969 .971 .973 .975 .976 60 ---.953 .956 .959 .961 .964 .966 .968 .971 .973 .974 61 ---.949 .952 .955 .958 .961 .963 .966 .968 .970 .972 62 ---.945 .948 .951 .954 .957 .960 .963 .965 .967 .970 63 ---.940 .944 .947 .950 .953 .956 .959 .962 .965 .967 64 ---.935 .939 .942 .946 .949 .952 .956 .958 .961 .964 65 ---.929 .933 .937 .941 .945 .948 .951 .955 .958 .961 66 ---.923 .927 .931 .936 .939 .943 .947 .950 .954 .957 67 ---.916 .920 .925 .930 .934 .938 .942 .946 .949 .953 68 ---.908 .913 .918 .923 .928 .932 .937 .941 .945 .948 69 --.90 .90 .91 .91 .92 .92 .93 .93 .93 .94

SPECIAL PROVISION D SPECIAL JOINT PENSION WITH SPOUSE FACTORS USED TO DETERMINE THE REDUCED ANNUAL RATE OF RETIREMENT ANNUITY PAYABLE TO JOINT PENSIONERS WHO ELECT THE SPECIAL JOINT PENSION OPTION WITH THEIR SPOUSE 100% OPTION ELECTION (continued)
SPOUSE'S AGE AT PENSIONER'S RETIREMENT ------------80 81 82 83 84 85 86 87 88 89 PENSIONER WHOSE RETIREMENT AGE IS: 55 ---.969 .971 .973 .975 .976 .978 .979 .981 .982 .983 56 ---.967 .969 .970 .972 .974 .976 .977 .979 .980 .982 57 ---.964 .966 .968 .970 .972 .974 .975 .977 .979 .980 58 ---.961 .963 .965 .967 .969 .971 .973 .975 .977 .978 59 ---.957 .960 .962 .965 .967 .969 .971 .973 .975 .976 60 ---.953 .956 .959 .961 .964 .966 .968 .971 .973 .974 61 ---.949 .952 .955 .958 .961 .963 .966 .968 .970 .972 62 ---.945 .948 .951 .954 .957 .960 .963 .965 .967 .970 63 ---.940 .944 .947 .950 .953 .956 .959 .962 .965 .967 64 ---.935 .939 .942 .946 .949 .952 .956 .958 .961 .964 65 ---.929 .933 .937 .941 .945 .948 .951 .955 .958 .961 66 ---.923 .927 .931 .936 .939 .943 .947 .950 .954 .957 67 ---.916 .920 .925 .930 .934 .938 .942 .946 .949 .953 68 ---.908 .913 .918 .923 .928 .932 .937 .941 .945 .948 69 --.90 .90 .91 .91 .92 .92 .93 .93 .93 .94

NOTE: Factors for additional age combinations are available from the Administrator. -58-

SPECIAL PROVISION E As in Effect Prior to January 1, 1976 A PARTICIPANT who is rehired after a BREAK IN SERVICE shall be treated as a new PARTICIPANT for all purposes, and the PARTICIPANT's SERVICE and compensation before the BREAK IN SERVICE shall not be recognized for any purpose of the PLAN, except as follows: (a) Upon either the death or retirement of a PARTICIPANT with broken SERVICE, the last period of CREDITED SERVICE immediately preceding the PARTICIPANT's latest employment date by EMPLOYER shall be counted as SERVICE provided: (1) The PARTICIPANT has accrued at least five years of SERVICE since last re-employed by EMPLOYER, and (2) The PARTICIPANT was last re-employed by EMPLOYER within five years of the date the PARTICIPANT's latest previous employment was terminated; and (3) The PARTICIPANT had accrued at least five years of CREDITED SERVICE prior to the date the PARTICIPANT's last previous employment with EMPLOYER terminated. (b) All other periods of prior employment with EMPLOYER, if any, shall not be counted as SERVICE. SPECIAL PROVISION F CREDITED SERVICE (a) As in effect prior to January 1, 1976: All SERVICE prior to ACTUAL RETIREMENT DATE, provided the PARTICIPANT joined the PLAN on

SPECIAL PROVISION E As in Effect Prior to January 1, 1976 A PARTICIPANT who is rehired after a BREAK IN SERVICE shall be treated as a new PARTICIPANT for all purposes, and the PARTICIPANT's SERVICE and compensation before the BREAK IN SERVICE shall not be recognized for any purpose of the PLAN, except as follows: (a) Upon either the death or retirement of a PARTICIPANT with broken SERVICE, the last period of CREDITED SERVICE immediately preceding the PARTICIPANT's latest employment date by EMPLOYER shall be counted as SERVICE provided: (1) The PARTICIPANT has accrued at least five years of SERVICE since last re-employed by EMPLOYER, and (2) The PARTICIPANT was last re-employed by EMPLOYER within five years of the date the PARTICIPANT's latest previous employment was terminated; and (3) The PARTICIPANT had accrued at least five years of CREDITED SERVICE prior to the date the PARTICIPANT's last previous employment with EMPLOYER terminated. (b) All other periods of prior employment with EMPLOYER, if any, shall not be counted as SERVICE. SPECIAL PROVISION F CREDITED SERVICE (a) As in effect prior to January 1, 1976: All SERVICE prior to ACTUAL RETIREMENT DATE, provided the PARTICIPANT joined the PLAN on the date when the PARTICIPANT first became eligible and participated therein continuously thereafter. An EMPLOYEE who first became eligible to join the COMPANY's Retirement PLAN prior to January 1, 1969, was permitted a grace period of six months beyond the EMPLOYEE'S eligibility date. An EMPLOYEE who first became eligible to join the PLAN on or after January 1, 1969, was permitted a grace period of 60 days beyond the EMPLOYEE'S eligibility date. Subject to these grace periods, if an EMPLOYEE did not become a PARTICIPANT when first eligible the EMPLOYEE'S CREDITED SERVICE did not begin until the EMPLOYEE became a PARTICIPANT. If a PARTICIPANT suspended contributions at any time between January 1, 1969, and December 31, 1972, inclusive. CREDITED SERVICE did not accrue to the PARTICIPANT after the date of such suspension of contributions. CREDITED SERVICE did not include any time for which a vacation allowance may be paid subsequent to an EMPLOYEE'S NORMAL RETIREMENT DATE. (b) Effective April 1, 1981: An EMPLOYEE who first became eligible to join the PLAN prior to January 1, 1973, but who for any reason did not do so, shall, except those EMPLOYEES who have had their CREDITED SERVICE previously adjusted by action of the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE (EBAC), be allowed the opportunity to have such lost CREDITED SERVICE restored. An EMPLOYEE'S CREDITED SERVICE shall not be adjusted or restored except as follows: (1) Prior to April 1, 1982, any EMPLOYEE described above shall, upon application to EBAC, be permitted to buy back any portion of the five years of lost CREDITED SERVICE -59-

immediately preceding the latest date on which an EMPLOYEE became a member of the PLAN. Such restored CREDITED SERVICE shall not, in combination with current SERVICE, exceed PARTICIPANT's actual

immediately preceding the latest date on which an EMPLOYEE became a member of the PLAN. Such restored CREDITED SERVICE shall not, in combination with current SERVICE, exceed PARTICIPANT's actual COMPANY SERVICE. The cost for restoring such CREDITED SERVICE shall be computed at the rate of five percent of an EMPLOYEE'S current monthly wage rate for each month of restored CREDITED SERVICE. (2) In addition to the above, and prior to April 1, 1982, any EMPLOYEE described above shall, upon application to EBAC, be permitted to buy back any portion of the lost CREDITED SERVICE which is in excess of the five years permitted in (1) above. The cost for restoring such excess CREDITED SERVICE shall be computed at the rate of ten percent of an EMPLOYEE'S current monthly wage rate for each month of restored excess CREDITED SERVICE. For the purpose of applying Section 13 (Withdrawal of PARTICIPANT Contributions on Termination of Employment) only that portion of the payment made above, for restoration of lost CREDITED SERVICE, which the EMPLOYEE would have contributed had the EMPLOYEE participated in the PLAN at that time will be considered as CONTRIBUTIONS. SPECIAL PROVISION G PENSION AND LTD ADJUSTMENTS (a) Effective December 31, 1997, the PENSION of any PARTICIPANT who retired or the PENSION of a person receiving a SPOUSE's PENSION or a JOINT PENSION, will be increased as follows:
Increase -------9.0% 5.0% 2.5%

Retired on or before 12/31/78 Retired between 1/1/79 and 12/31/86 Retired between 1/1/87 and 12/31/92

A minimum monthly increase of $50 will be provided to retirees with at least 30 years of SERVICE, and a retirement date at or after normal retirement age. A minimum monthly increase of $25 will be provided to surviving SPOUSES of such retirees. (b) The above adjustments shall apply to those Participants who are receiving Long Term Disability Benefit payments. (c) By Company resolutions dated June 17, 1964, February 25, 1969, April 9, 1974, September 20, 1977, March 4, 1980, July 15, 1981, and December 21, 1983, the amounts of pensions received by certain pensioners were increased in accordance with the provisions of said resolutions. The money required to fund these additional payments is based on actuarial factors and the required contributions are paid into the Plan. The Company intends to continue making these additional payments out of Plan assets and on the same basis as it has done in the past. -60-

SPECIAL PROVISION H MAXIMUM PENSION This PLAN incorporates by reference the benefit limitations imposed by CODE Section 415. The annual benefit amount otherwise payable to a former EMPLOYEE at any time will not exceed the maximum permissible amount under CODE Section 415. For purposes of determining compliance with the Section 415 benefit limitations, the limitation year shall be the PLAN YEAR. If the benefit the PARTICIPANT would otherwise accrue in a limitation year would produce an annual benefit in excess of the maximum permissible amount under CODE Section 415, then the rate of accrual will be reduced so that the annual benefit will equal

SPECIAL PROVISION H MAXIMUM PENSION This PLAN incorporates by reference the benefit limitations imposed by CODE Section 415. The annual benefit amount otherwise payable to a former EMPLOYEE at any time will not exceed the maximum permissible amount under CODE Section 415. For purposes of determining compliance with the Section 415 benefit limitations, the limitation year shall be the PLAN YEAR. If the benefit the PARTICIPANT would otherwise accrue in a limitation year would produce an annual benefit in excess of the maximum permissible amount under CODE Section 415, then the rate of accrual will be reduced so that the annual benefit will equal the maximum permissible amount. If a PARTICIPANT in this PLAN also participates in any defined contribution plan maintained by an EMPLOYER, the sum of the PARTICIPANT'S "Defined Benefit Fraction" and the PARTICIPANT'S "Defined Contribution Fraction" shall not exceed 1.0. In the event that in any PLAN YEAR the sum of the PARTICIPANT'S Defined Benefit Fraction and the PARTICIPANT'S Defined Contribution Fraction exceed 1.0, then the PENSION payable under this PLAN shall be reduced so that the sum of such fractions in respect of that PARTICIPANT will not exceed 1.0." For purposes of determining the PLAN'S compliance with CODE Section 415, the annual benefit is a retirement benefit payable under the PLAN in the form of a straight life annuity. Except as provided below, a benefit payable in a form other than a straight life annuity must be adjusted to an actuarially equivalent straight life annuity before applying the limitations of Section 415. The interest rate assumption used to determine actuarial equivalence will be the greater of rate used in Special Provision D or 5 percent. No actuarial adjustment to the benefit is required for the value of a qualified joint and survivor annuity, the value of benefits that are not directly related to retirement benefits (such as the qualified disability benefit, pre-retirement death benefits, and postretirement medical benefits), and the value of post- retirement cost-of-living increases made in accordance with 415(d) of the CODE. The annual benefit does not include any benefits attributable to EMPLOYEE contributions or rollover contributions or the assets transferred from a qualified plan not maintained by the COMPANY. Compensation, for purposes of determining the PLAN'S compliance with Section 415 of the CODE, shall mean all of each PARTICIPANT'S wages, tips, and other Box 10 compensation on the PARTICIPANT'S Form W-2. SPECIAL PROVISION I If prior to 1989 SERVICE terminates with at least ten years of SERVICE, or with at least five years of SERVICE after 1988, the PENSION the PARTICIPANT would otherwise be entitled to receive shall be reduced because of the withdrawal. If the withdrawal occurs prior to age 55, the yearly PENSION payable at the NORMAL RETIREMENT DATE, prior to reduction for EARLY RETIREMENT (if any), shall be reduced by the product of the amount withdrawn and the applicable factor selected from the following table: -61Age Last Birthday At Refund Date ------------25 26 27 28 29 30 31 32 33 Age Last Birthday At Refund Date ----------40 41 42 43 44 45 46 47 48

Factor -----.6705 .6385 .6081 .5792 .5516 .5253 .5003 .4765 .4538

Factor -----.3225 .3072 .2925 .2786 .2653 .2527 .2407 .2292 .2183

Age Last Birthday At Refund Date ------------25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Factor -----.6705 .6385 .6081 .5792 .5516 .5253 .5003 .4765 .4538 .4321 .4116 .3920 .3733 .3556 .3386

Age Last Birthday At Refund Date ----------40 41 42 43 44 45 46 47 48 49 50 51 52 53 54

Factor -----.3225 .3072 .2925 .2786 .2653 .2527 .2407 .2292 .2183 .2079 .1980 .1886 .1796 .1710 .1629

If the withdrawal occurs after age 55, the yearly PENSION payable at the ACTUAL RETIREMENT DATE, after reduction for EARLY RETIREMENT (if any), shall be reduced by the product of the amount withdrawn and the applicable factor selected from the following table:
Age Last Birthday At Refund Date ----------55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

Factor -----.0775 .0792 .0810 .0829 .0849 .0871 .0894 .0919 .0946 .0975 .1000 .1039 .1074 .1111 .1151 .1192

Notwithstanding the foregoing, in no event will the PENSION be reduced by more than one-third. The monthly reduction is computed by multiplying the appropriate factor times the PARTICIPANT'S contributions including interest and dividing that amount by twelve months. -62EXAMPLE:
Assumptions: Age 60 Basic Pensions Contributions Interest Total

= = = =

$1,500.00/month $6,000.00 3,000.00 --------$9,000.00 - 65.33* ------

Pension with contributions = $1,434.67/month plus interest withdrawn

EXAMPLE:
Assumptions: Age 60 Basic Pensions Contributions Interest Total

= = = =

$1,500.00/month $6,000.00 3,000.00 --------$9,000.00 - 65.33* ------

Pension with contributions = $1,434.67/month plus interest withdrawn *Calculation: (Contributions + Interest x Age 60 Refund Factor) : 12 Months

($9,000 x .0871 : 12 Months = $65.33) -63-

SPECIAL PROVISION J TOP HEAVY PROVISIONS (a) General Rule For any PLAN YEAR for which this PLAN is a "top-heavy plan" as defined in subsection (g) below, any other provisions of this PLAN to the contrary notwithstanding, this PLAN shall be subject to the following provisions: (1) The vesting provisions of subsection (b). (2) The minimum benefit provisions of subsection (c). (3) The limitation on compensation set by subsection (d). (4) The limitation on benefits set by subsection (e). If any individual has not performed SERVICE for an EMPLOYER at any time during the five-year period ending on the last day of the preceding PLAN YEAR, any accrued benefit for such individual shall not be taken into account for purposes of determining whether the PLAN is a "top-heavy plan." For purposes of determining whether the PLAN is top-heavy, a non-key EMPLOYEE'S accrued benefit must be determined as if it is accrued not more rapidly than the slowest accrual rate permitted under CODE Section 411(b)(1)(C) (i.e., the "fractional rule"). (b) Vesting Provisions Each PARTICIPANT who (i) has completed an hour of SERVICE during any PLAN YEAR in which the PLAN is top heavy and (ii) has completed the number of years of credited SERVICE specified in the following table shall have a nonforfeitable right to the percentage of the benefit accrued under this PLAN derived from EMPLOYER contributions correspondingly specified in the following table:
Years of credited service: 2 3 4 5 6 or more Percentage of nonforfeitable benefit: 20 40 60 80 100

SPECIAL PROVISION J TOP HEAVY PROVISIONS (a) General Rule For any PLAN YEAR for which this PLAN is a "top-heavy plan" as defined in subsection (g) below, any other provisions of this PLAN to the contrary notwithstanding, this PLAN shall be subject to the following provisions: (1) The vesting provisions of subsection (b). (2) The minimum benefit provisions of subsection (c). (3) The limitation on compensation set by subsection (d). (4) The limitation on benefits set by subsection (e). If any individual has not performed SERVICE for an EMPLOYER at any time during the five-year period ending on the last day of the preceding PLAN YEAR, any accrued benefit for such individual shall not be taken into account for purposes of determining whether the PLAN is a "top-heavy plan." For purposes of determining whether the PLAN is top-heavy, a non-key EMPLOYEE'S accrued benefit must be determined as if it is accrued not more rapidly than the slowest accrual rate permitted under CODE Section 411(b)(1)(C) (i.e., the "fractional rule"). (b) Vesting Provisions Each PARTICIPANT who (i) has completed an hour of SERVICE during any PLAN YEAR in which the PLAN is top heavy and (ii) has completed the number of years of credited SERVICE specified in the following table shall have a nonforfeitable right to the percentage of the benefit accrued under this PLAN derived from EMPLOYER contributions correspondingly specified in the following table:
Years of credited service: 2 3 4 5 6 or more Percentage of nonforfeitable benefit: 20 40 60 80 100

"Credited service" as used in this subsection (b) shall constitute SERVICE as defined in Section 22 of this PLAN.

Each PARTICIPANT's nonforfeitable accrued benefit shall not be less than his nonforfeitable accrued benefit determined as of the last day of the last PLAN YEAR in which the PLAN was a top-heavy PLAN. If the PLAN ceases to be top- heavy, each PARTICIPANT with five or more years of SERVICE, whether or not consecutive, shall have his nonforfeitable accrued benefit determined in accordance with this Section and Section 3. Each such PARTICIPANT shall have the right to elect the applicable schedule within 60 days after the day the PARTICIPANT is issued written notice by the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE, or as otherwise provided in accordance with regulations issued under the provision of the Internal Revenue CODE of 1954, as amended, relating to changes in the vesting schedule. -64-

This provision shall apply without regard to contributions or benefits under Social Security or any other Federal or State law. (c) Minimum Benefit Provisions

This provision shall apply without regard to contributions or benefits under Social Security or any other Federal or State law. (c) Minimum Benefit Provisions Each PARTICIPANT who (i) is a non-key employee (as defined in subsection (i) below) and (ii) has completed 1,000 hours of SERVICE during any PLAN YEAR shall be entitled to an accrued benefit in the form of an annual retirement benefit (as defined in paragraph (1) below) that shall be not less than the applicable percentage (as defined in paragraph (2) below) of the PARTICIPANT's average annual compensation for years in the testing period (as defined in paragraph (3) below). (1) "Annual retirement benefit" means a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at NORMAL RETIREMENT DATE as defined in Section 22 of this PLAN or its actuarial equivalent. (2) "Applicable percentage" means the lesser of two percent multiplied by the number of top-heavy PLAN YEARs of service (as defined in paragraph (4) below) of 20 percent. (3) "Testing period" means, with respect to a PARTICIPANT, the period of consecutive years (not exceeding five) of SERVICE during which the PARTICIPANT had the greatest aggregate compensation from the EMPLOYER. The testing period shall not include any year of SERVICE not included as a year of SERVICE as defined in paragraph (4) below. The testing period shall also not include any year of SERVICE that ends in a PLAN YEAR beginning before January 1, 1984 or during which the PLAN was not a top-heavy plan. (4) "Years of service" means SERVICE as defined in Section 3 of this PLAN. Benefits taken into account under this Subsection shall not include any benefits payable under the Social Security Act or any other Federal or State law. (d) Limitation on Benefits In the event that the EMPLOYER also maintains a defined contribution PLAN providing contributions on behalf of PARTICIPANTS in this PLAN, one of the two following provisions shall apply: (1) If for the PLAN YEAR this PLAN would not be a "top-heavy plan" as defined in subsection (g) below if "90 percent" were substituted for "60 percent," then subsection (c) shall apply for such PLAN YEAR as if amended so that the "applicable percentage" means the lesser of three percent multiplied by the number of years of SERVICE (as defined in paragraph (4) of subsection (c)) during which the PLAN would be top- heavy (as defined in subsection (g)) and the overall applicable percentage does not exceed the lesser of 30% or 20% plus 1% for each year the PLAN is taken into account under this subsection ((e)(1)). (2) If for the PLAN YEAR this PLAN would continue to be a "top-heavy plan" as defined in subsection (g) below if "90 percent" were substituted for "60 percent," then the denominator of both the defined contribution PLAN fraction and the defined benefit plan fraction shall be calculated as set forth in Special Provision H for the limitation year ending in such PLAN YEAR by substituting "1.0" for "1.25," except with respect to any individual for whom there are no EMPLOYER contributions, forfeitures or voluntary nondeductible contributions allocated or any accruals for such individual under the defined benefit PLAN. Furthermore, the transitional rule set forth in CODE Section 415 shall be applied by substituting "$41,500" for $51,875". -65(e) Coordination with Other Plans In the event that another defined contribution or defined benefit PLAN maintained by the EMPLOYER provides contributions or benefits on behalf of PARTICIPANTS in this PLAN, such other PLAN shall be treated as a part of this PLAN pursuant to applicable principles (such as Rev. Rul. 81-202 or any successor ruling) in

(e) Coordination with Other Plans In the event that another defined contribution or defined benefit PLAN maintained by the EMPLOYER provides contributions or benefits on behalf of PARTICIPANTS in this PLAN, such other PLAN shall be treated as a part of this PLAN pursuant to applicable principles (such as Rev. Rul. 81-202 or any successor ruling) in determining whether this PLAN satisfies the requirements of subsection (b), (c) and (d). Such determination shall be made upon the advice of counsel by the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE. (f) Top-heavy Plan Definition This PLAN shall be a "top-heavy plan" for any PLAN YEAR if, as of the determination date (as defined in subsection (g)(1) below), the present value (as determined in subsection (g)(2) below) of the cumulative accrued benefits under the PLAN for participants (including former participants) who are key employees (as defined in subsection (h) below) exceeds 60 percent of the present value of the cumulative accrued benefits under the PLAN for all participants, excluding former key employees, or if this PLAN is required to be in a aggregation group (as defined in subsection (g)(3) below) which for such PLAN YEAR is a top-heavy group (as defined in subsection (g)(4) below). (1) "Determination date" means for any PLAN YEAR the last day of the immediately preceding PLAN YEAR. (2) The present value shall be determined as of the most recent valuation date that is within the twelve-month period ending on the determination date and as described in the regulations under the Internal Revenue CODE as of 1954, as amended. (3) "Aggregation group" means the group of plans, if any, that includes both the group of plans that are required to be aggregated and the group of plans that are permitted to be aggregated. (A) The group of plans that are required to be aggregated (the "required aggregation group") includes (i) Each plan of the EMPLOYER (as defined in subsection (j) below) in which a key employee is a PARTICIPANT, including collectively-bargained plans, and (ii) Each other plan, including collectively-bargained plans of the EMPLOYER (as defined in subsection (j) below) which enables a plan in which a key employee is a PARTICIPANT to meet the requirements of the Internal Revenue CODE of 1954, as amended, prohibiting discrimination as to contributions or benefits in favor of employees who are officers, shareholders or the highly-compensated or prescribing the minimum participation standards. (B) The group of plans that are permitted to be aggregated (the "permissive aggregation group") includes the required aggregation group plus one or more plans of the EMPLOYER (as defined in subsection (j) below) that is not part of the required aggregation group and that the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE certifies as constituting a plan within the permissive aggregation group. Such plan or plans may be added to the permissive aggregation group only if, after the addition, the aggregation group as a whole continue not to discriminate as to contributions or benefits in favor of officers, shareholders or the highly-compensated and to meet the minimum participation standards under the Internal Revenue CODE of 1954, as amended. (4) "Top-heavy group" means the aggregation group, if as of the applicable determination date, the sum of the present value of the cumulative accrued benefits for key employees under all defined benefit plans included in the aggregation group plus the aggregate of the accounts of key employees under all defined -66-

contribution plans included in the aggregation group exceeds 60% of the sum of the present value of the cumulative accrued benefits for all employees, excluding former key employees, under all such defined benefit plans plus the aggregate accounts for all employees, excluding former key employees, under such defined contribution plans. If the aggregation group that is a top-heavy group is a required aggregation group, each Plan in the group will be top heavy. If the aggregation group that is a top-heavy group is a permissive aggregation group, only those plans that are part of the required aggregation group will be treated as top-heavy. If the

contribution plans included in the aggregation group exceeds 60% of the sum of the present value of the cumulative accrued benefits for all employees, excluding former key employees, under all such defined benefit plans plus the aggregate accounts for all employees, excluding former key employees, under such defined contribution plans. If the aggregation group that is a top-heavy group is a required aggregation group, each Plan in the group will be top heavy. If the aggregation group that is a top-heavy group is a permissive aggregation group, only those plans that are part of the required aggregation group will be treated as top-heavy. If the aggregation group is not a top-heavy group, no plan within such group will be top- heavy. (5) In determining whether this PLAN constitutes a "top-heavy plan", the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE (or its agent) shall make the following adjustments in connection therewith: (A) When more than one plan is aggregated, the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE shall determine separately for each plan as of each plan's determination date the present value of the accrued benefits or account balance. The results shall then be aggregated by adding the results of each plan as of the determination dates for such plans that fall within the same calendar year. (B) In determining the present value of the cumulative accrued benefit or the amount of the account of any employee, such present value or account shall include the amount in dollar value of the aggregate distributions made to such employee under the applicable plan during the five-year period ending on the determination date, unless reflected in the value of the accrued benefit or account balance as of the most recent valuation date. Such amounts shall include distributions to employees which represented the entire amount credited to their accounts under the applicable plan. (C) Further, in making such determination, in any case where an individual is a "non-key employee" as defined in subsection (h) below, with respect to an applicable plan, but was a key employee with respect to such plan for any prior PLAN YEAR, any accrued benefit and any account of such employee shall be altogether disregarded. For this purpose, to the extent that a key employee is deemed to be a key employee if he met the definition of key employee within any of the four preceding PLAN YEARS, this provision shall apply following the end of such period of time. (g) Key Employee The term "key employee" means any employee or former employee under this PLAN who, at any time during the PLAN YEAR containing the determination date or during any of the four preceding PLAN YEARS, is or was one of the following: (1) An officer of the EMPLOYER (as defined in subsection (j)). Whether an individual is an officer shall be determined by the EMPLOYEE BENEFIT ADMINISTRATIVE COMMITTEE on the basis of all the facts and circumstances, such as an individual's authority, duties and term of office, not on the mere fact that the individual has the title of an officer. For any such PLAN YEAR, there shall be treated as officers no more than the lesser of: (A) 50 employees, or (B) the greater of three employees or 10 percent of the employees. For this purpose, the highest-paid officers shall be selected. Business organizations other than corporations shall be deemed to have no officers. (2) One of the ten employees owning (or considered as owning, within the meaning of the constructive ownership rules of the Internal Revenue CODE of 1954, as amended) the largest -67-

interests in the EMPLOYER (as defined in subsection (j)). An employee who has some ownership interest is considered to be one of the top ten owners unless at least ten other employees own a greater interest than that employee. However, an employee will not be considered a top ten owner for a PLAN YEAR if the employee earns less than the maximum dollar limitation on contributions and other annual additions to a PARTICIPANT's

interests in the EMPLOYER (as defined in subsection (j)). An employee who has some ownership interest is considered to be one of the top ten owners unless at least ten other employees own a greater interest than that employee. However, an employee will not be considered a top ten owner for a PLAN YEAR if the employee earns less than the maximum dollar limitation on contributions and other annual additions to a PARTICIPANT's account in a defined contribution plan under the Internal Revenue CODE of 1954, as amended, as in effect for the calendar year in which the determination date falls. (3) Any person who owns (or is considered as owning within the meaning of the constructive ownership rules of the CODE more than five percent of the outstanding stock of the EMPLOYER or stock possessing more than five percent of the combined total voting power of all stock of the EMPLOYER. (4) A one percent owner of the EMPLOYER having an annual compensation from the EMPLOYER of more than $150,000, and possessing more than five percent of the combined total voting power of all stock of the EMPLOYER. For purposes of this subsection, compensation means all items includable as compensation for purposes of applying the limitations on contributions and other annual additions to a PARTICIPANT's account in a defined contribution plan and the maximum benefit payable under a defined plan under the Internal Revenue CODE of 1954, as amended. For purposes of parts (1), (2), (3) and (4) of this definition, a beneficiary of a key employee shall be treated as a key employee. For purposes of parts (3) and (4), each EMPLOYER is treated separately (without regard to the definition in subsection (j)) in determining ownership percentages; but, in determining the amount of compensation, the definition of EMPLOYER in subsection (j) is taken into account. (h) Non-Key Employee The term "non-key employee" means any employee (and any beneficiary of an employee) who is not a key employee. (i) Employer The term "employer" means EMPLOYER as defined in Section 22 of this PLAN. (j) Collective Bargaining Rules The provisions of subsection (b), (c) and (d) above do not apply with respect to any employee included in a unit of employees covered by a collective bargaining agreement unless the application of such subsections has been agreed upon with the collective bargaining agent. (k) Distributions to Key Employees Any other provisions of this PLAN to the contrary notwithstanding, distribution of the entire interest in this PLAN of each PARTICIPANT who is or any time has been a key employee shall commence no later than the end of the taxable year of the PARTICIPANT in which the PARTICIPANT attains age 70 1/2. SPECIAL PROVISION K I. Introduction -68This Special Provision K, an amendment to the COMPANY'S RETIREMENT PLAN, adopted by the COMPANY'S Board of Directors on December 17, 1986, is the controlling and definitive statement of the Voluntary Retirement Incentive program ("VRI"). The purpose of the VRI is to reduce a surplus of COMPANY employees in certain designated operations. The VRI is a part of the RETIREMENT PLAN, and except as otherwise provided in this Special Provision K, shall be administered in accordance with and subject to the terms of the RETIREMENT PLAN. Terms in all capitals are

This Special Provision K, an amendment to the COMPANY'S RETIREMENT PLAN, adopted by the COMPANY'S Board of Directors on December 17, 1986, is the controlling and definitive statement of the Voluntary Retirement Incentive program ("VRI"). The purpose of the VRI is to reduce a surplus of COMPANY employees in certain designated operations. The VRI is a part of the RETIREMENT PLAN, and except as otherwise provided in this Special Provision K, shall be administered in accordance with and subject to the terms of the RETIREMENT PLAN. Terms in all capitals are defined in Section 22 of the RETIREMENT PLAN. Terms underlined are defined in Section VII of Special Provision K. The decision of an Eligible Employee to elect to participate in the VRI is wholly voluntary, and an election not to participate in the VRI shall in no way affect benefits under the RETIREMENT PLAN to which an Eligible Employee might otherwise be entitled. II. Eligibility to Participate in the VRI Eligible Employees shall be any full-time active employee of the COMPANY or of a Participating Employer, born on or before January 1, 1937, who has at least 15 years of SERVICE on January 1, 1987. For purposes of this VRI only, the term active employee shall not include an employee of the COMPANY or a Participating Employer, (i) who, on January 1, 1987, is presently receiving benefits under Part B of the Group Life Insurance and Long Term Disability Plan; (ii) who, as of January 1, 1987, is on personal or medical leave, with or without pay; or (iii) who is a former employee whose ACTUAL RETIREMENT DATE was November 1, 1986, or earlier. Anything herein to the contrary notwithstanding, an Eligible Employee who (i) elects not to participate in the VRI and (ii) prior to January 1, 1988, is severed under the Company's Corporate Severance Program, shall be entitled to receive a Basic VRI Benefit under this Special Provision K. Such Basic VRI Benefit shall be in lieu of any benefits to which the Eligible EMPLOYEE would otherwise be entitled to receive under the Corporate Severance Program. For purposes of calculating the Basic VRI Benefit under this provision, the VRI Retirement Date shall be the first of the month following the month in which the employee is severed. III. Election to Participate An Eligible EMPLOYEE must elect to participate in the VRI by submitting a completed and signed VRI enrollment form which is received by a designated COMPANY representative no later than January 30, 1987, except that Eligible Employees who are employed by Pacific Gas Transmission Company will have until the close of business, September 30, 1987, to submit their completed and signed VRI enrollment form to a designated employer representative. An Eligible EMPLOYEE who fails to submit a timely enrollment form shall be deemed to have elected not to participate in the VRI. The election of an Eligible Employee not to participate in the VRI, whether through failure to timely submit a VRI election form or otherwise, shall be conclusive and binding on the employee, employee's spouse, heirs, and assigns. IV. VRI Benefit A. Basic VRI Benefit. An Eligible Employee who elects in a timely manner to participate in the VRI shall be entitled to receive a Basic VRI Benefit under the RETIREMENT PLAN equal to the BASIC PENSION benefit formula calculated under Subsection 6(a)(1), with the following adjustments:

-69-

1. BASIC MONTHLY SALARY shall mean the PARTICIPANT'S BASIC MONTHLY SALARY on January 1, 1986, increased by 5 percent; 2. SERVICE shall mean the PARTICIPANT'S SERVICE as of the VRI Retirement Date selected by the PARTICIPANT, increased by five years; and 3. The EARLY RETIREMENT PENSION reduction provisions of Subsection 7(b) shall not apply to any Basic VRI Benefit payable under this Special Provision K. B. A Basic VRI Benefit shall be payable as of the VRI Retirement Date selected by the Eligible Employee and shall be paid as soon as practicable after the applicable VRI Retirement Date. Eligible Employees who elect to participate in the VRI shall not be subject to the age 55 requirement contained in Section 8. C. Section 10 of the RETIREMENT PLAN shall control the conditions under which other forms of pension may be substituted for the Basic VRI Benefit. Thus, although a PARTICIPANT is entitled to receive a Basic VRI Benefit, if the PARTICIPANT is married, Section 10(b) of the RETIREMENT PLAN requires that the Basic VRI Benefit be converted to a MARITAL PENSION, unless the PARTICIPANT'S spouse CONSENTS to an alternative form of pension.

1. BASIC MONTHLY SALARY shall mean the PARTICIPANT'S BASIC MONTHLY SALARY on January 1, 1986, increased by 5 percent; 2. SERVICE shall mean the PARTICIPANT'S SERVICE as of the VRI Retirement Date selected by the PARTICIPANT, increased by five years; and 3. The EARLY RETIREMENT PENSION reduction provisions of Subsection 7(b) shall not apply to any Basic VRI Benefit payable under this Special Provision K. B. A Basic VRI Benefit shall be payable as of the VRI Retirement Date selected by the Eligible Employee and shall be paid as soon as practicable after the applicable VRI Retirement Date. Eligible Employees who elect to participate in the VRI shall not be subject to the age 55 requirement contained in Section 8. C. Section 10 of the RETIREMENT PLAN shall control the conditions under which other forms of pension may be substituted for the Basic VRI Benefit. Thus, although a PARTICIPANT is entitled to receive a Basic VRI Benefit, if the PARTICIPANT is married, Section 10(b) of the RETIREMENT PLAN requires that the Basic VRI Benefit be converted to a MARITAL PENSION, unless the PARTICIPANT'S spouse CONSENTS to an alternative form of pension. D. The Basic VRI Benefit payable under this Special Provision K shall be in lieu of any benefit which might otherwise be payable under the RETIREMENT PLAN. E. A participant who elects to participate in VRI shall also be entitled to make the elections provided in Sections 10 (Forms of Pension), 12 (Withdrawal of Participant Contributions on Termination of Employment), 13 (Death Benefits), and 14 (Facility of Payment). V. VRI Retirement Dates At such time as an employee elects to participate in the VRI, he shall select a VRI Retirement Date. For purposes of this Special Provision K, a VRI Retirement Date shall mean one of the following: A. For Eligible Employees other than Eligible Employees employed by Pacific Gas Transmission Company: 1. February 1, 1987, provided, however, that eligible participants have completed all necessary VRI enrollment procedures prior to January 15, 1987; 2. March 1, 1987; 3. April 1, 1987; or 4. The first of any month during the period commencing with March 1, 1987, and ending with and including October 1, 1987. This Subsection V.A.4. shall only apply in the event that the COMPANY or the Participating Employer, as the case may be, has a demonstrated business need which requires the retention of the Eligible Employee. Should the business needs of the COMPANY or of a Participating Employer require the retention of an Eligible Employee beyond October 1, 1987, the VRI Retirement Date shall be the first of any month during the period subsequent to October 1, 1987, and ending with and including July 1, 1988. The selection of any such VRI

Retirement Date subsequent to October 1, 1987, shall be made by the COMPANY, or Participating Employer, through an appropriate member of the COMPANY's Management Committee. -70B. For Eligible Employees employed by Pacific Gas Transmission Company: 1. October 1, 1987, provided, however, that eligible participants have completed all necessary VRI enrollment procedures prior to September 15, 1987; 2. November 1, 1987; or 3. The first of any month during the period commencing with December 1, 1987, and ending with and including June 1, 1988. This Subsection V.B.3. shall only apply in the event that Pacific Gas Transmission Company has a demonstrated need which requires the retention of the Eligible Employee. The VRI Retirement Date selected shall also be the date as of which an Eligible Employee ceases to be an employee of the COMPANY or a Participating Employer, as the case may be. VI. Revocation of Election An Eligible Employee who has elected to participate in the VRI may revoke his election, provided, however, that any such revocation shall only be effective if received by the COMPANY on or before January 30, 1987, for those Eligible Employees who elected a VRI Retirement Date of February 1, 1987; February 15, 1987, for those Eligible Employees who elected a VRI Retirement Date of March 1, 1987, or later; September 30, 1987, for those Eligible Employees of Pacific Gas Transmission Company who elected a VRI Retirement Date of October 1, 1987; or October 15, 1987, for those Eligible Employees of Pacific Gas Transmission Company who elected a VRI Retirement
--------Date of November 1, 1987, or later. ------ ----------

VII. Definitions A. Basic VRI Benefit: The benefit calculated under Section IV of this Special Provision K. B. Eligible Employee: An employee of the COMPANY or of a Participating Employer who has met the eligibility criteria as set forth in Section II on January 1, 1987. For purposes of this Special Provision K only, Eligible Employee shall not include any COMPANY Officer at the vice presidential level, or above. C. Participating Employer: Natural Gas Corporation, Pacific Gas Transmission Company, and Pacific Service Employees Association. D. VRI: The COMPANY's Voluntary Retirement Incentive program as set forth in this Special Provision K. E. VRI Retirement Date: The date selected by an Eligible Employee under Section V of this Special Provision K.

B. For Eligible Employees employed by Pacific Gas Transmission Company: 1. October 1, 1987, provided, however, that eligible participants have completed all necessary VRI enrollment procedures prior to September 15, 1987; 2. November 1, 1987; or 3. The first of any month during the period commencing with December 1, 1987, and ending with and including June 1, 1988. This Subsection V.B.3. shall only apply in the event that Pacific Gas Transmission Company has a demonstrated need which requires the retention of the Eligible Employee. The VRI Retirement Date selected shall also be the date as of which an Eligible Employee ceases to be an employee of the COMPANY or a Participating Employer, as the case may be. VI. Revocation of Election An Eligible Employee who has elected to participate in the VRI may revoke his election, provided, however, that any such revocation shall only be effective if received by the COMPANY on or before January 30, 1987, for those Eligible Employees who elected a VRI Retirement Date of February 1, 1987; February 15, 1987, for those Eligible Employees who elected a VRI Retirement Date of March 1, 1987, or later; September 30, 1987, for those Eligible Employees of Pacific Gas Transmission Company who elected a VRI Retirement Date of October 1, 1987; or October 15, 1987, for those Eligible Employees of Pacific Gas Transmission Company who elected a VRI Retirement
--------Date of November 1, 1987, or later. ------ ----------

VII. Definitions A. Basic VRI Benefit: The benefit calculated under Section IV of this Special Provision K. B. Eligible Employee: An employee of the COMPANY or of a Participating Employer who has met the eligibility criteria as set forth in Section II on January 1, 1987. For purposes of this Special Provision K only, Eligible Employee shall not include any COMPANY Officer at the vice presidential level, or above. C. Participating Employer: Natural Gas Corporation, Pacific Gas Transmission Company, and Pacific Service Employees Association. D. VRI: The COMPANY's Voluntary Retirement Incentive program as set forth in this Special Provision K. E. VRI Retirement Date: The date selected by an Eligible Employee under Section V of this Special Provision K. SPECIAL PROVISION M I. Introduction This Special Provision M, an amendment to the COMPANY'S RETIREMENT PLAN, adopted by the

COMPANY'S Board of Directors on February 17, 1993, is the controlling and definitive statement of the Voluntary Retirement Incentive program ("VRI"). The purpose of the VRI is to reduce a surplus of -71COMPANY employees in certain designated operations. The VRI is a part of the RETIREMENT PLAN, and except as otherwise provided in this Special Provision M, shall be administered in accordance with and subject to the terms of the RETIREMENT PLAN. Terms in all capitals are defined in Section 22 of the RETIREMENT PLAN. Terms underlined are defined in Section VII of Special Provision M. The decision of an Eligible Employee to elect to participate in the VRI is wholly voluntary, and an election not to participate in the VRI shall in no way affect benefits under the RETIREMENT PLAN to which an Eligible Employee might otherwise be entitled. II. Eligibility to Participate in the VRI An Eligible Employee shall be any active employee of the COMPANY whose base job classification on February 17, 1993, is in a Targeted Organization and who was born on or before December 31, 1942, and has at least 15 years of SERVICE on December 31, 1992. For purposes of this VRI only, the term active employee shall not include an employee of the COMPANY (i) who, on February 17, 1993, is presently receiving benefits under Part B of the Group Life Insurance and Long Term Disability Plan; (ii) who is on a leave of absence, with or without pay, which began on or prior to August 17, 1992; or (iii) who is a former employee whose ACTUAL RETIREMENT DATE was February 1, 1993, or earlier. III. Election to Participate An Eligible Employee must elect to participate in the VRI by submitting a completed and signed VRI enrollment form which is received by a designated COMPANY representative no later than April 23, 1993. An Eligible Employee who fails to submit a timely enrollment form shall be deemed to have elected not to participate in the VRI. The election of an Eligible Employee not to participate in the VRI, whether through failure to submit a timely VRI election form or otherwise, shall be conclusive and binding on the employee, employee's spouse, heirs, and assigns. IV. VRI Benefit A. Basic VRI Benefit. An Eligible Employee who elects in a timely manner to participate in the VRI shall be entitled to receive a Basic VRI Benefit under the RETIREMENT PLAN equal to the BASIC PENSION benefit formula calculated under Subsection 6(a)(1), with the following adjustments: 1. SERVICE shall mean the PARTICIPANT'S SERVICE as of last VRI Retirement Date for such Eligible Employee, increased by three years; and 2. The EARLY RETIREMENT PENSION reduction provisions of Subsection 7(b) shall not apply to any Basic VRI Benefit payable under this Special Provision M. B. A Basic VRI Benefit shall be payable as of the VRI Retirement Date selected by the Eligible Employee and shall be paid as soon as practicable after the applicable VRI Retirement Date. Eligible Employees who elect to participate in the VRI shall not be subject to the age 55 requirement

COMPANY employees in certain designated operations. The VRI is a part of the RETIREMENT PLAN, and except as otherwise provided in this Special Provision M, shall be administered in accordance with and subject to the terms of the RETIREMENT PLAN. Terms in all capitals are defined in Section 22 of the RETIREMENT PLAN. Terms underlined are defined in Section VII of Special Provision M. The decision of an Eligible Employee to elect to participate in the VRI is wholly voluntary, and an election not to participate in the VRI shall in no way affect benefits under the RETIREMENT PLAN to which an Eligible Employee might otherwise be entitled. II. Eligibility to Participate in the VRI An Eligible Employee shall be any active employee of the COMPANY whose base job classification on February 17, 1993, is in a Targeted Organization and who was born on or before December 31, 1942, and has at least 15 years of SERVICE on December 31, 1992. For purposes of this VRI only, the term active employee shall not include an employee of the COMPANY (i) who, on February 17, 1993, is presently receiving benefits under Part B of the Group Life Insurance and Long Term Disability Plan; (ii) who is on a leave of absence, with or without pay, which began on or prior to August 17, 1992; or (iii) who is a former employee whose ACTUAL RETIREMENT DATE was February 1, 1993, or earlier. III. Election to Participate An Eligible Employee must elect to participate in the VRI by submitting a completed and signed VRI enrollment form which is received by a designated COMPANY representative no later than April 23, 1993. An Eligible Employee who fails to submit a timely enrollment form shall be deemed to have elected not to participate in the VRI. The election of an Eligible Employee not to participate in the VRI, whether through failure to submit a timely VRI election form or otherwise, shall be conclusive and binding on the employee, employee's spouse, heirs, and assigns. IV. VRI Benefit A. Basic VRI Benefit. An Eligible Employee who elects in a timely manner to participate in the VRI shall be entitled to receive a Basic VRI Benefit under the RETIREMENT PLAN equal to the BASIC PENSION benefit formula calculated under Subsection 6(a)(1), with the following adjustments: 1. SERVICE shall mean the PARTICIPANT'S SERVICE as of last VRI Retirement Date for such Eligible Employee, increased by three years; and 2. The EARLY RETIREMENT PENSION reduction provisions of Subsection 7(b) shall not apply to any Basic VRI Benefit payable under this Special Provision M. B. A Basic VRI Benefit shall be payable as of the VRI Retirement Date selected by the Eligible Employee and shall be paid as soon as practicable after the applicable VRI Retirement Date. Eligible Employees who elect to participate in the VRI shall not be subject to the age 55 requirement contained in Section 8. C. Section 10 of the RETIREMENT PLAN shall control the conditions under which other forms of pension may be substituted for the Basic VRI Benefit. Thus, although a PARTICIPANT is -72-

entitled to receive a Basic VRI Benefit, if the PARTICIPANT is married, Section 10(b) of the RETIREMENT PLAN requires that the Basic VRI Benefit be converted to a MARITAL PENSION, unless the PARTICIPANT'S spouse CONSENTS to an alternative form of pension. D. The Basic VRI Benefit payable under this Special Provision M shall be in lieu of any benefit which might otherwise be payable under the RETIREMENT PLAN. E. A participant who elects to participate in VRI shall also be entitled to make the elections provided in Sections 10 (Forms of Pension), 12 (Withdrawal of Participant Contributions on Termination of Employment), 13 (Death Benefits), and 14 (Facility of Payment). V. VRI Retirement Dates At such time as an employee elects to participate in the VRI, he shall select a VRI Retirement Date. For purposes of this Special Provision M, a VRI Retirement Date shall mean one of the following: A. May 1, 1993; B. June 1, 1993; or C. The first of any month during the period commencing with July 1, 1993, and ending with and including June 1, 1994. This Subsection C shall only apply in the event that the COMPANY has a demonstrated business need which requires the retention of the Eligible Employee. The selection of any such VRI Retirement Date subsequent to June 1, 1993, can be made only with the written approval of both of the Company's Executive Vice Presidents. The VRI Retirement Date selected shall also be the date as of which an Eligible Employee ceases to be an employee of the COMPANY. VI. Revocation of Election An Eligible Employee who has elected to participate in the VRI may revoke his election, provided, however, that any such revocation shall only be effective if received by the COMPANY on or before April 23, 1993, for those Eligible Employees who elected a VRI Retirement Date of May 1, 1993; or April 30, 1993, for those Eligible Employees who elected a VRI Retirement Date of June 1, 1993, or later.
---------- ----

VII. Definitions ----------A. Basic VRI Benefit: ----- --- ------The benefit calculated under Section IV of this

Special Provision M. B. Eligible Employee: An employee of the COMPANY who has met the eligibility criteria as set forth in Section II. For purposes of this Special Provision M only, Eligible Employee shall not include any COMPANY Officer. C. Targeted Organization: Distribution Business Unit; Engineering and Construction Business Unit; Gas Supply Business Unit except the Gas Dispatch Department and except employees with job levels of 32 and above; Nuclear Operations Support Department; Nuclear Safety and Regulatory Affairs Department; Nuclear Engineering and Construction Services Department; Nuclear Business and Financial Management Department; Nuclear Documentation and Support Department; Quality Assurance Department; human resources departments, including business unit

-73-

human resources organizations being consolidated with corporate human resources; computer and telecommunication services departments, including business unit and corporate services organizations being consolidated with corporate computer and telecommunication services departments; Corporate Communications departments, including business unit media and employee communications units being consolidated with Corporate Communications departments; community and governmental relations departments including regional public affairs units being consolidated with corporate governmental relations departments; and the Economics and Forecasting Department. D. VRI: The COMPANY's Voluntary Retirement Incentive program as set forth in this Special Provision M. E. VRI Retirement Date: The date selected by an Eligible Employee under Section V of this Special Provision M. SPECIAL PROVISION N I. Introduction This Special Provision N, an amendment to the COMPANY'S RETIREMENT PLAN, authorized by the COMPANY'S Board of Directors on September 21, 1994, is the controlling and definitive statement of the Voluntary Retirement Incentive program ("VRI"). The purpose of the VRI is to reduce a surplus of COMPANY EMPLOYEES. The VRI is a part of the RETIREMENT PLAN, and except as otherwise provided in this Special Provision N, shall be administered in accordance with and subject to the terms of the RETIREMENT PLAN. Terms in all capitals are defined in Section 22 of the RETIREMENT PLAN. Terms underlined are defined in Section VII of Special Provision N. The decision of an Eligible Employee to elect to participate in the VRI is wholly voluntary, and an election not to participate in the VRI shall in no way affect benefits under the RETIREMENT PLAN to which an Eligible Employee might otherwise be entitled. II. Eligibility to Participate in the VRI An Eligible Employee shall be any active EMPLOYEE of the COMPANY who was born on or before September 30, 1944, and has at least 15 years of SERVICE on September 30, 1994. For purposes of this VRI only, the term active EMPLOYEE shall not include an EMPLOYEE of the COMPANY (i) who, on September 30, 1994, is presently receiving benefits under Part B of the Group Life Insurance and Long Term Disability Plan; (ii) who is on a leave of absence, with or without pay, which began on or prior to March 30, 1994; (iii) who elected to retire under Special Provision M of Part I of the RETIREMENT PLAN or Special Provision N of Part II of the RETIREMENT PLAN; (iv) who has received or is scheduled to receive severance benefits under the COMPANY'S Workforce Management Program, Letter Agreement No. 93-42-PGE and Letter Agreement No. 93-23esc, or under any other written agreement between the COMPANY and the EMPLOYEE in which the EMPLOYEE has received benefits in connection with the termination of such EMPLOYEE'S employment; (v) who is a former EMPLOYEE who was terminated for cause; or (vi) who is a former EMPLOYEE whose ACTUAL RETIREMENT DATE was July 1, 1994, or earlier. III. Election to Participate -74An Eligible Employee must elect to participate in the VRI by completing and signing the VRI enrollment and

human resources organizations being consolidated with corporate human resources; computer and telecommunication services departments, including business unit and corporate services organizations being consolidated with corporate computer and telecommunication services departments; Corporate Communications departments, including business unit media and employee communications units being consolidated with Corporate Communications departments; community and governmental relations departments including regional public affairs units being consolidated with corporate governmental relations departments; and the Economics and Forecasting Department. D. VRI: The COMPANY's Voluntary Retirement Incentive program as set forth in this Special Provision M. E. VRI Retirement Date: The date selected by an Eligible Employee under Section V of this Special Provision M. SPECIAL PROVISION N I. Introduction This Special Provision N, an amendment to the COMPANY'S RETIREMENT PLAN, authorized by the COMPANY'S Board of Directors on September 21, 1994, is the controlling and definitive statement of the Voluntary Retirement Incentive program ("VRI"). The purpose of the VRI is to reduce a surplus of COMPANY EMPLOYEES. The VRI is a part of the RETIREMENT PLAN, and except as otherwise provided in this Special Provision N, shall be administered in accordance with and subject to the terms of the RETIREMENT PLAN. Terms in all capitals are defined in Section 22 of the RETIREMENT PLAN. Terms underlined are defined in Section VII of Special Provision N. The decision of an Eligible Employee to elect to participate in the VRI is wholly voluntary, and an election not to participate in the VRI shall in no way affect benefits under the RETIREMENT PLAN to which an Eligible Employee might otherwise be entitled. II. Eligibility to Participate in the VRI An Eligible Employee shall be any active EMPLOYEE of the COMPANY who was born on or before September 30, 1944, and has at least 15 years of SERVICE on September 30, 1994. For purposes of this VRI only, the term active EMPLOYEE shall not include an EMPLOYEE of the COMPANY (i) who, on September 30, 1994, is presently receiving benefits under Part B of the Group Life Insurance and Long Term Disability Plan; (ii) who is on a leave of absence, with or without pay, which began on or prior to March 30, 1994; (iii) who elected to retire under Special Provision M of Part I of the RETIREMENT PLAN or Special Provision N of Part II of the RETIREMENT PLAN; (iv) who has received or is scheduled to receive severance benefits under the COMPANY'S Workforce Management Program, Letter Agreement No. 93-42-PGE and Letter Agreement No. 93-23esc, or under any other written agreement between the COMPANY and the EMPLOYEE in which the EMPLOYEE has received benefits in connection with the termination of such EMPLOYEE'S employment; (v) who is a former EMPLOYEE who was terminated for cause; or (vi) who is a former EMPLOYEE whose ACTUAL RETIREMENT DATE was July 1, 1994, or earlier. III. Election to Participate -74An Eligible Employee must elect to participate in the VRI by completing and signing the VRI enrollment and waiver and release forms provided by the COMPANY and returning the completed forms to a designated COMPANY representative no

An Eligible Employee must elect to participate in the VRI by completing and signing the VRI enrollment and waiver and release forms provided by the COMPANY and returning the completed forms to a designated COMPANY representative no later than November 21, 1994. An Eligible Employee who fails to submit timely both enrollment and waiver and release forms shall be deemed to have elected not to participate in the VRI. The election of an Eligible Employee not to participate in the VRI, whether through failure to timely submit VRI election and waiver and release forms or otherwise, shall be conclusive and binding on the EMPLOYEE, EMPLOYEE'S spouse, heirs, and assigns. IV. VRI Benefit A. Basic VRI Benefit. An Eligible Employee who elects in a timely manner to participate in the VRI shall be entitled to receive a Basic VRI Benefit under the RETIREMENT PLAN equal to the BASIC PENSION benefit formula calculated under Subsection 6(a)(1) with the following adjustments: 1. SERVICE shall mean the PARTICIPANT'S SERVICE as of the VRI Retirement Date for such Eligible Employee, increased by three years; and 2. The EARLY RETIREMENT PENSION reduction provisions of Subsection 7(b) shall not apply to any Basic VRI Benefit payable under this Special Provision N. B. A Basic VRI Benefit shall be payable as of the VRI Retirement Date and shall be paid as soon as practicable after the applicable VRI Retirement Date. Eligible Employees who elect to participate in the VRI shall not be subject to the age 55 requirement contained in Section 8. C. Section 10 of the RETIREMENT PLAN shall control the conditions under which other forms of pension may be substituted for the Basic VRI Benefit. Thus, although a PARTICIPANT is entitled to receive a Basic VRI Benefit, if the PARTICIPANT is married, Subsection 10(b) of the RETIREMENT PLAN requires that the Basic VRI Benefit be converted to a MARITAL PENSION, unless the PARTICIPANT'S spouse consents to an alternative form of pension. D. The Basic VRI Benefit payable under this Special Provision N shall be in lieu of any benefit which might otherwise be payable under the RETIREMENT PLAN. E. A PARTICIPANT who elects to participate in VRI shall also be entitled to make the elections provided in Sections 10 (Forms of Pension), 12 (Withdrawal of Participant Contributions on Termination of Employment), 13 (Death Benefits), and 14 (Facility of Payment). V. VRI Retirement Dates At such time as an EMPLOYEE elects to participate in the VRI, he shall select a VRI Retirement Date. For purposes of this Special Provision N, a VRI Retirement Date shall mean one of the following: A. January 1, 1995; or B. The first of any month during the period commencing with February 1, 1995, and ending with and including

January 1, 1996. This Subsection B shall only apply in the event that the COMPANY has a demonstrated business need which requires the retention of the Eligible Employee. The selection of any such VRI Retirement Date subsequent to January 1, 1995, can be made only with the written approval of the COMPANY'S Chief Executive Officer. The VRI Retirement Date selected shall also be the date as of which an Eligible Employee ceases to be an EMPLOYEE of the COMPANY. -75-

VI. Revocation of Election An Eligible Employee who has elected to participate in the VRI may revoke his election, provided, however, that any such revocation shall only be effective if received by the COMPANY on or before November 28, 1994. VII. Definitions A. Basic VRI Benefit: The benefit calculated under Section IV of this Special Provision N. B. Eligible Employee: An EMPLOYEE of the COMPANY who has met the eligibility criteria as set forth in Section II. EMPLOYEES of Pacific Gas Transmission Company, PG&E Enterprises, Pacific Service Employees Association, and any other subsidiary or affiliate of the COMPANY are not Eligible Employees for purposes of this VRI. C. VRI: The COMPANY's Voluntary Retirement Incentive program as set forth in this Special Provision N. D. VRI Retirement Date: The date selected by an Eligible Employee under Section V of this Special Provision N. -76-

EXHIBIT 10.13 PG&E CORPORATION RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS (As Amended December 17, 1997) 1. Purpose and Effective Date The purpose of the Plan, which was effective January 1, 1997, was to promote the interests of the Corporation by providing Retirement benefits to Directors in order to encourage their continued service on the Board of Directors of the Corporation. The Plan was terminated effective January 1, 1998, except that (i) Directors who had retired from the Corporation's Board of Directors prior to that date continue to receive payments under the Plan in accordance with the terms of the Plan as they existed prior to said date; and (ii) Directors who had not retired prior to that date were offered the one time election to (a) convert the net present value of the benefit accrued immediately prior to January 1, 1998, into units in the PG&E Stock Fund of the Deferred Compensation Plan for Non-Employee Directors and to transfer such units to that plan, the valuation of said accrued benefits to be made according to assumptions adopted by the Senior Human Resources Officer of the Corporation, or (b) to receive the benefits accrued under this Plan prior to January 1, 1998, upon their retirement from the Board in accordance with Section 3. In computing the benefits to be received under (ii)(a) or (b) above, the Retainer used shall be the Retainer applicable as of January 1, 1998. 2. Definitions

VI. Revocation of Election An Eligible Employee who has elected to participate in the VRI may revoke his election, provided, however, that any such revocation shall only be effective if received by the COMPANY on or before November 28, 1994. VII. Definitions A. Basic VRI Benefit: The benefit calculated under Section IV of this Special Provision N. B. Eligible Employee: An EMPLOYEE of the COMPANY who has met the eligibility criteria as set forth in Section II. EMPLOYEES of Pacific Gas Transmission Company, PG&E Enterprises, Pacific Service Employees Association, and any other subsidiary or affiliate of the COMPANY are not Eligible Employees for purposes of this VRI. C. VRI: The COMPANY's Voluntary Retirement Incentive program as set forth in this Special Provision N. D. VRI Retirement Date: The date selected by an Eligible Employee under Section V of this Special Provision N. -76-

EXHIBIT 10.13 PG&E CORPORATION RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS (As Amended December 17, 1997) 1. Purpose and Effective Date The purpose of the Plan, which was effective January 1, 1997, was to promote the interests of the Corporation by providing Retirement benefits to Directors in order to encourage their continued service on the Board of Directors of the Corporation. The Plan was terminated effective January 1, 1998, except that (i) Directors who had retired from the Corporation's Board of Directors prior to that date continue to receive payments under the Plan in accordance with the terms of the Plan as they existed prior to said date; and (ii) Directors who had not retired prior to that date were offered the one time election to (a) convert the net present value of the benefit accrued immediately prior to January 1, 1998, into units in the PG&E Stock Fund of the Deferred Compensation Plan for Non-Employee Directors and to transfer such units to that plan, the valuation of said accrued benefits to be made according to assumptions adopted by the Senior Human Resources Officer of the Corporation, or (b) to receive the benefits accrued under this Plan prior to January 1, 1998, upon their retirement from the Board in accordance with Section 3. In computing the benefits to be received under (ii)(a) or (b) above, the Retainer used shall be the Retainer applicable as of January 1, 1998. 2. Definitions The following terms shall have the meanings set forth below, if capitalized: (a) "Retainer" means the annual retainer paid to Board members for service on the Board of Directors as adjusted from time to time. The definition does not include any additional amount paid for service on a Board committee or as Board committee chairman or any amount specifically paid for attendance at Board or Board committee meetings. (b) "Corporation" means PG&E Corporation. (c) "Board" means the Board of Directors of the Corporation.

EXHIBIT 10.13 PG&E CORPORATION RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS (As Amended December 17, 1997) 1. Purpose and Effective Date The purpose of the Plan, which was effective January 1, 1997, was to promote the interests of the Corporation by providing Retirement benefits to Directors in order to encourage their continued service on the Board of Directors of the Corporation. The Plan was terminated effective January 1, 1998, except that (i) Directors who had retired from the Corporation's Board of Directors prior to that date continue to receive payments under the Plan in accordance with the terms of the Plan as they existed prior to said date; and (ii) Directors who had not retired prior to that date were offered the one time election to (a) convert the net present value of the benefit accrued immediately prior to January 1, 1998, into units in the PG&E Stock Fund of the Deferred Compensation Plan for Non-Employee Directors and to transfer such units to that plan, the valuation of said accrued benefits to be made according to assumptions adopted by the Senior Human Resources Officer of the Corporation, or (b) to receive the benefits accrued under this Plan prior to January 1, 1998, upon their retirement from the Board in accordance with Section 3. In computing the benefits to be received under (ii)(a) or (b) above, the Retainer used shall be the Retainer applicable as of January 1, 1998. 2. Definitions The following terms shall have the meanings set forth below, if capitalized: (a) "Retainer" means the annual retainer paid to Board members for service on the Board of Directors as adjusted from time to time. The definition does not include any additional amount paid for service on a Board committee or as Board committee chairman or any amount specifically paid for attendance at Board or Board committee meetings. (b) "Corporation" means PG&E Corporation. (c) "Board" means the Board of Directors of the Corporation. (d) "Director" means a non-employee director or advisory director of PG&E Corporation. (e) "Plan" means the PG&E Corporation Retirement Plan for Non-Employee Directors, as amended from time to time. (f) "Eligible Director" means a Director who (i) is not an employee of the Corporation or its subsidiaries or affiliates at the time of the Director's Retirement; (ii) was a Director on or after January 1, 1997; and (iii) has served as a Director for a total of sixty calendar months or more, including service as an employee-director. Solely for purposes of determining whether a Director is an Eligible Director, service also shall include calendar months during which a Director (i) was serving as a director or advisory director of Pacific Gas and Electric Company, or (ii) was serving concurrently as a Director and as a director or advisory director of Pacific Gas and Electric Company. A month in which a

Director was serving concurrently as a director or advisory director of Pacific Gas and Electric Company shall be counted as one month. (g) "Retirement" occurs when an Eligible Director ceases to be a member of the Board for any reason other than as a result of gross misconduct. (h) "Length of Service" is the Eligible Director's number of months of service as a Director, rounded to the next highest calendar quarter (for example, a Director who served 73 months would receive 25 quarterly payments-73 divided by 3, rounded to the next highest integer). Length of Service shall also include (i) service prior to

Director was serving concurrently as a director or advisory director of Pacific Gas and Electric Company shall be counted as one month. (g) "Retirement" occurs when an Eligible Director ceases to be a member of the Board for any reason other than as a result of gross misconduct. (h) "Length of Service" is the Eligible Director's number of months of service as a Director, rounded to the next highest calendar quarter (for example, a Director who served 73 months would receive 25 quarterly payments-73 divided by 3, rounded to the next highest integer). Length of Service shall also include (i) service prior to January 1, 1997, as a director or advisory director of Pacific Gas and Electric Company; and (ii) concurrent service as both a Director of this Corporation and as a director or advisory director of the Pacific Gas and Electric Company. Length of Service shall not include service after December 31, 1997. Service as an employee-director shall not be included in the computation of Length of Service for purposes of determining the amount of Retirement benefits. 3. Retirement Payments (a) Upon Retirement, an Eligible Director shall be paid each quarter an amount equal to the quarterly retainer paid to Directors as of the earlier of (i) the date of the Eligible Director's retirement from the Board, or (ii) the date immediately preceding the termination of the Plan. Retirement payments shall not be adjusted to reflect changes in the quarterly retainer effective after the date of the Eligible Director's Retirement. (b) Retirement payments shall begin in the calendar quarter immediately following the calendar quarter in which the Eligible Director retired from the Board or attained the age of 65, whichever comes later. The payments shall continue on a quarterly basis for a period equal to the Eligible Director's Length of Service. (c) If an Eligible Director dies after completing the service requirement for Retirement, but prior to receiving all Retirement payments, any remaining payments shall be made to such deceased Director's surviving spouse. (d) If an Eligible Director dies after completing the service requirement for Retirement, but prior to Retirement, his or her surviving spouse will receive payments equal to the amount to which the Eligible Director would have been entitled had he or she retired on the day prior to his or her date of death. 4. Disability If an Eligible Director ceases to serve on the Board as a result of disability, the Board in its sole discretion may waive the minimum service requirements or permit the commencement of Retirement benefits prior to age 65. -25. Gross Misconduct If an Eligible Director ceases to serve on the Board as a result of gross misconduct, any Retirement benefits payable under the Plan to such Eligible Director shall be canceled immediately and irrevocably. For purposes of this section, "gross misconduct" shall mean that an Eligible Director has (i) disclosed confidential business information of any type concerning the Corporation or any of its subsidiaries or affiliates to any party for any form of compensation which constitutes "gross income," as defined under Section 61 of the Internal Revenue Code or Regulations issued thereunder; or (ii) been indicted for intentionally or knowingly committing a crime against the Corporation or any of its subsidiaries or affiliates under federal law or the law of the state in which such act occurred; provided, however, an Eligible Director shall not be deemed to have committed gross misconduct if subsequent to being indicted for such a crime, the indictment is dismissed, a plea of nolo contendere is accepted, or the Eligible Director has been found to be "not guilty" in a trial before an appropriate criminal court. 6. Amendment and Termination The Board reserves the right to amend, suspend, or terminate this Plan at any time. However, no such amendment, suspension, or termination shall have an adverse effect on Retirement payments to be made to an

5. Gross Misconduct If an Eligible Director ceases to serve on the Board as a result of gross misconduct, any Retirement benefits payable under the Plan to such Eligible Director shall be canceled immediately and irrevocably. For purposes of this section, "gross misconduct" shall mean that an Eligible Director has (i) disclosed confidential business information of any type concerning the Corporation or any of its subsidiaries or affiliates to any party for any form of compensation which constitutes "gross income," as defined under Section 61 of the Internal Revenue Code or Regulations issued thereunder; or (ii) been indicted for intentionally or knowingly committing a crime against the Corporation or any of its subsidiaries or affiliates under federal law or the law of the state in which such act occurred; provided, however, an Eligible Director shall not be deemed to have committed gross misconduct if subsequent to being indicted for such a crime, the indictment is dismissed, a plea of nolo contendere is accepted, or the Eligible Director has been found to be "not guilty" in a trial before an appropriate criminal court. 6. Amendment and Termination The Board reserves the right to amend, suspend, or terminate this Plan at any time. However, no such amendment, suspension, or termination shall have an adverse effect on Retirement payments to be made to an Eligible Director who retires prior to such amendment, suspension, or termination. 7. Prohibition or Alienation No Director shall have the right to alienate, assign, encumber, hypothecate, or pledge his or her interest in any payments to be made under the Plan, voluntarily or involuntarily, and any attempt to so dispose of any such interest shall be void. The Corporation shall have the right to set off against Retirement payments under the Plan any amounts due and owing from the Eligible Director to the Corporation and its parent, subsidiaries, or affiliates, to the extent permitted by law. 8. Unfunded Plan The Plan is unfunded, and the Corporation shall not be required to segregate any cash or establish any separate account or accounts to fund any Retirement payment to be made under the Plan. 9. Entire Plan This document is a complete statement of the Plan and as of its effective date supersedes all prior plans, proposals, representations, promises, inducements, written or oral, relating to its subject matter. The Corporation shall not be bound or liable to any Director for any representation, promise, or inducement made by any person which is not embodied in this document or in any authorized written amendment to the Plan. -310. Applicable Law The Plan will be construed and enforced in accordance with the laws of California. -4-

EXHIBIT 10.15 PG&E CORPORATION LONG-TERM INCENTIVE PROGRAM (As amended and restated effective as of January 1, 1998) 1. Purpose of the Program This is the controlling and definitive statement of the PG&E Corporation Long-Term Incentive Program, as

10. Applicable Law The Plan will be construed and enforced in accordance with the laws of California. -4-

EXHIBIT 10.15 PG&E CORPORATION LONG-TERM INCENTIVE PROGRAM (As amended and restated effective as of January 1, 1998) 1. Purpose of the Program This is the controlling and definitive statement of the PG&E Corporation Long-Term Incentive Program, as amended and restated herein (hereinafter called the PROGRAM/1/). The purpose of the PROGRAM is to advance the interests of the CORPORATION by providing ELIGIBLE PARTICIPANTS with financial incentives to promote the success of its long-term (five to ten years) business objectives, and to increase their proprietary interest in the success of the CORPORATION. It is the intent of the CORPORATION to reward those ELIGIBLE PARTICIPANTS who have a significant impact on improved long-term corporate achievements. Inasmuch as the PROGRAM is designed to encourage financial performance and to improve the value of shareholders' investment in PG&E CORPORATION, the costs of the PROGRAM will be funded from corporate earnings. 2. Program Administration The PROGRAM shall be administered by the COMMITTEE, except that the BOARD OF DIRECTORS shall administer the PROGRAM with respect to grants of INCENTIVE AWARDS TO NON-EMPLOYEE DIRECTORS. The BOARD OF DIRECTORS may at any time revest authority to administer the PROGRAM in all respects in the BOARD OF DIRECTORS. Subject to the provisions of the PROGRAM, the COMMITTEE or the BOARD OF DIRECTORS, as the case may be, shall have full and final authority, in its sole discretion: (a) to determine the ELIGIBLE PARTICIPANTS to whom INCENTIVE AWARDS shall be granted and the number of shares of COMMON STOCK to be awarded under each INCENTIVE AWARD, based on the recommendation of the CHIEF EXECUTIVE OFFICER (except that awards to the CHIEF EXECUTIVE OFFICER shall be based on the recommendation of the BOARD OF DIRECTORS and awards to NONEMPLOYEE DIRECTORS shall be based on the recommendation of the COMMITTEE); (b) to determine the time or times at which INCENTIVE AWARDS shall be granted; (c) to designate the types of INCENTIVE AWARD being granted; /1/ Capitalized words are defined in Section 20 hereof.

(d) to vary the OPTION vesting schedule described in the STOCK OPTION PLAN; (e) to determine the terms and conditions, not inconsistent with the terms of the PROGRAM, of any INCENTIVE AWARD granted hereunder (including, but not limited to, the consideration and method of payment for shares purchased upon the exercise of an INCENTIVE AWARD, and any vesting acceleration or exercisability provisions in the event of a CHANGE IN CONTROL or TERMINATION), based in each case on such factors as the COMMITTEE or BOARD OF DI RECTORS shall deem appropriate; (f) to approve forms of agreement for use under the PROGRAM;

EXHIBIT 10.15 PG&E CORPORATION LONG-TERM INCENTIVE PROGRAM (As amended and restated effective as of January 1, 1998) 1. Purpose of the Program This is the controlling and definitive statement of the PG&E Corporation Long-Term Incentive Program, as amended and restated herein (hereinafter called the PROGRAM/1/). The purpose of the PROGRAM is to advance the interests of the CORPORATION by providing ELIGIBLE PARTICIPANTS with financial incentives to promote the success of its long-term (five to ten years) business objectives, and to increase their proprietary interest in the success of the CORPORATION. It is the intent of the CORPORATION to reward those ELIGIBLE PARTICIPANTS who have a significant impact on improved long-term corporate achievements. Inasmuch as the PROGRAM is designed to encourage financial performance and to improve the value of shareholders' investment in PG&E CORPORATION, the costs of the PROGRAM will be funded from corporate earnings. 2. Program Administration The PROGRAM shall be administered by the COMMITTEE, except that the BOARD OF DIRECTORS shall administer the PROGRAM with respect to grants of INCENTIVE AWARDS TO NON-EMPLOYEE DIRECTORS. The BOARD OF DIRECTORS may at any time revest authority to administer the PROGRAM in all respects in the BOARD OF DIRECTORS. Subject to the provisions of the PROGRAM, the COMMITTEE or the BOARD OF DIRECTORS, as the case may be, shall have full and final authority, in its sole discretion: (a) to determine the ELIGIBLE PARTICIPANTS to whom INCENTIVE AWARDS shall be granted and the number of shares of COMMON STOCK to be awarded under each INCENTIVE AWARD, based on the recommendation of the CHIEF EXECUTIVE OFFICER (except that awards to the CHIEF EXECUTIVE OFFICER shall be based on the recommendation of the BOARD OF DIRECTORS and awards to NONEMPLOYEE DIRECTORS shall be based on the recommendation of the COMMITTEE); (b) to determine the time or times at which INCENTIVE AWARDS shall be granted; (c) to designate the types of INCENTIVE AWARD being granted; /1/ Capitalized words are defined in Section 20 hereof.

(d) to vary the OPTION vesting schedule described in the STOCK OPTION PLAN; (e) to determine the terms and conditions, not inconsistent with the terms of the PROGRAM, of any INCENTIVE AWARD granted hereunder (including, but not limited to, the consideration and method of payment for shares purchased upon the exercise of an INCENTIVE AWARD, and any vesting acceleration or exercisability provisions in the event of a CHANGE IN CONTROL or TERMINATION), based in each case on such factors as the COMMITTEE or BOARD OF DI RECTORS shall deem appropriate; (f) to approve forms of agreement for use under the PROGRAM; (g) to construe and interpret the PROGRAM and any related INCENTIVE AWARD agreement and to define the terms employed herein and therein; (h) except as provided in Section 18 hereof, to modify or amend any INCENTIVE AWARD or to waive any restrictions or conditions applicable to any INCENTIVE AWARD or the exercise or realization thereof;

(d) to vary the OPTION vesting schedule described in the STOCK OPTION PLAN; (e) to determine the terms and conditions, not inconsistent with the terms of the PROGRAM, of any INCENTIVE AWARD granted hereunder (including, but not limited to, the consideration and method of payment for shares purchased upon the exercise of an INCENTIVE AWARD, and any vesting acceleration or exercisability provisions in the event of a CHANGE IN CONTROL or TERMINATION), based in each case on such factors as the COMMITTEE or BOARD OF DI RECTORS shall deem appropriate; (f) to approve forms of agreement for use under the PROGRAM; (g) to construe and interpret the PROGRAM and any related INCENTIVE AWARD agreement and to define the terms employed herein and therein; (h) except as provided in Section 18 hereof, to modify or amend any INCENTIVE AWARD or to waive any restrictions or conditions applicable to any INCENTIVE AWARD or the exercise or realization thereof; (i) except as provided in Section 18 hereof, to prescribe, amend and rescind rules, regulations and policies relating to the administration of the PROGRAM; (j) except as provided in Section 18 hereof, to suspend, terminate, modify or amend the PROGRAM; (k) to delegate to one or more agents such administrative duties as the COMMITTEE or BOARD OF DIRECTORS may deem advisable, to the extent permitted by applicable law; and (l) to make all other determinations and take such other action with respect to the PROGRAM and any INCENTIVE AWARD granted hereunder as the COMMITTEE may deem advisable, to the extent permitted by applicable law. Notwithstanding the provisions contained in the foregoing paragraph, the CHIEF EXECUTIVE OFFICER shall have the authority, in his sole discretion: (a) to grant INCENTIVE AWARDS to any ELIGIBLE PARTICIPANT who, at the time of the INCENTIVE AWARD grant, (i) is not an officer of the CORPORATION or a DIRECTOR, and (ii) if such ELIGIBLE PARTICIPANT is an EMPLOYEE, is receiving an annual salary which is below the level which requires approval by the COMMITTEE; (b) to determine the time or times at which INCENTIVE AWARDS shall be granted to such ELIGIBLE 2

PARTICIPANTS; (c) to designate the types of INCENTIVE AWARD being granted to such ELIGIBLE PARTICIPANTS; and (d) to vary the OPTION vesting schedule described in the STOCK OPTION PLAN for the OPTIONS granted to such ELIGIBLE PARTICIPANTS; provided, however, that all grants of INCENTIVE AWARDS by the CHIEF EXECUTIVE OFFICER shall conform to the guidelines previously approved by the COMMITTEE. 3. Shares of Stock Subject to the Program There shall be reserved for use under the PROGRAM (subject to the provisions of Section 13 hereof) a total of 23,389,230 shares of COMMON STOCK, which shares may be authorized but unissued shares of COMMON STOCK or issued shares of COMMON STOCK which shall have been reacquired by PG&E CORPORATION. Such shares consist of (i) 13,000,000 shares of COMMON STOCK originally reserved for use under the PROGRAM at the time it first became effective on January 1, 1992, (ii) 389,230 shares of COMMON STOCK remaining under the 1986 OPTION PLAN and carried over to the PROGRAM, and (iii) 10,000,000 shares of COMMON STOCK added to the PROGRAM effective as of January 1, 1996. If (i) any INCENTIVE AWARD expires or terminates for any reason without having been exercised or purchased in full, (ii) an INCENTIVE AWARD is surrendered in exchange for one or more other INCENTIVE AWARDS, or (iii) any RESTRICTED STOCK is forfeited, then, in each such case, any unexercised,

PARTICIPANTS; (c) to designate the types of INCENTIVE AWARD being granted to such ELIGIBLE PARTICIPANTS; and (d) to vary the OPTION vesting schedule described in the STOCK OPTION PLAN for the OPTIONS granted to such ELIGIBLE PARTICIPANTS; provided, however, that all grants of INCENTIVE AWARDS by the CHIEF EXECUTIVE OFFICER shall conform to the guidelines previously approved by the COMMITTEE. 3. Shares of Stock Subject to the Program There shall be reserved for use under the PROGRAM (subject to the provisions of Section 13 hereof) a total of 23,389,230 shares of COMMON STOCK, which shares may be authorized but unissued shares of COMMON STOCK or issued shares of COMMON STOCK which shall have been reacquired by PG&E CORPORATION. Such shares consist of (i) 13,000,000 shares of COMMON STOCK originally reserved for use under the PROGRAM at the time it first became effective on January 1, 1992, (ii) 389,230 shares of COMMON STOCK remaining under the 1986 OPTION PLAN and carried over to the PROGRAM, and (iii) 10,000,000 shares of COMMON STOCK added to the PROGRAM effective as of January 1, 1996. If (i) any INCENTIVE AWARD expires or terminates for any reason without having been exercised or purchased in full, (ii) an INCENTIVE AWARD is surrendered in exchange for one or more other INCENTIVE AWARDS, or (iii) any RESTRICTED STOCK is forfeited, then, in each such case, any unexercised, unpurchased, surrendered or forfeited shares which were subject to such INCENTIVE AWARD (except shares as to which a related TANDEM SAR has been exercised) shall again be available for the future grant of INCENTIVE AWARDS under the PROGRAM (unless the PROGRAM has terminated). In addition, shares may be reused or added back to the PROGRAM to the extent permitted by applicable law. 4. Eligibility INCENTIVE AWARDS will be granted only to ELIGIBLE PARTICIPANTS. ISOS will be granted only to EMPLOYEES. The COMMITTEE, in its sole discretion, may grant INCENTIVE AWARDS to an ELIGIBLE PARTICIPANT who is a resident or citizen of a foreign country, with such modifications as the COMMITTEE may deem advisable to reflect the laws, tax policy or customs of such foreign country. The PROGRAM shall not confer upon any RECIPIENT any right to continuation of employment, service as a DIRECTOR or consulting relationship with the CORPORATION; nor shall it interfere in any way with the right of the RECIPIENT or the CORPORATION to terminate such employment, service as a DIRECTOR or consulting relationship at any time, with or without cause. 3 5. Designation of Incentive Awards At the time of the grant of each INCENTIVE AWARD under the Program, the COMMITTEE (or the CHIEF EXECUTIVE OFFICER, in the case of INCENTIVE AWARDS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof, or the BOARD OF DIRECTORS, in the case of INCENTIVE AWARDS granted by the BOARD OF DIRECTORS to NONEMPLOYEE DIRECTORS ) shall determine whether such INCENTIVE AWARD is to be designated as an ISO, NON-QUALIFIED STOCK OPTION, SAR, DIVIDEND EQUIVALENT, PERFORMANCE UNIT, stock grant, RESTRICTED STOCK, LSAR, PHANTOM STOCK or other STOCK-BASED AWARD; provided, however, that ISOS may be granted only to EMPLOYEES. Notwithstanding such designation, to the extent that the aggregate FAIR MARKET VALUE (determined for each share as of the date of grant of the OPTION covering each share) of the shares with respect to which OPTIONS designated as ISOS become exercisable for the first time by any RECIPIENT during any calendar year exceeds $100,000, such OPTIONS shall be treated as NON-QUALIFIED STOCK OPTIONS. INCENTIVE AWARDS shall be awarded at no cost to the RECIPIENT. Any INCENTIVE AWARD may be granted alone, contingent upon, in addition to or in TANDEM with one or more other INCENTIVE AWARDS granted under the PROGRAM. In addition, except as provided in Section 12 hereof, any INCENTIVE AWARD may be granted in exchange for one or more other INCENTIVE AWARDS.

5. Designation of Incentive Awards At the time of the grant of each INCENTIVE AWARD under the Program, the COMMITTEE (or the CHIEF EXECUTIVE OFFICER, in the case of INCENTIVE AWARDS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof, or the BOARD OF DIRECTORS, in the case of INCENTIVE AWARDS granted by the BOARD OF DIRECTORS to NONEMPLOYEE DIRECTORS ) shall determine whether such INCENTIVE AWARD is to be designated as an ISO, NON-QUALIFIED STOCK OPTION, SAR, DIVIDEND EQUIVALENT, PERFORMANCE UNIT, stock grant, RESTRICTED STOCK, LSAR, PHANTOM STOCK or other STOCK-BASED AWARD; provided, however, that ISOS may be granted only to EMPLOYEES. Notwithstanding such designation, to the extent that the aggregate FAIR MARKET VALUE (determined for each share as of the date of grant of the OPTION covering each share) of the shares with respect to which OPTIONS designated as ISOS become exercisable for the first time by any RECIPIENT during any calendar year exceeds $100,000, such OPTIONS shall be treated as NON-QUALIFIED STOCK OPTIONS. INCENTIVE AWARDS shall be awarded at no cost to the RECIPIENT. Any INCENTIVE AWARD may be granted alone, contingent upon, in addition to or in TANDEM with one or more other INCENTIVE AWARDS granted under the PROGRAM. In addition, except as provided in Section 12 hereof, any INCENTIVE AWARD may be granted in exchange for one or more other INCENTIVE AWARDS. 6. Stock Options, Tandem Stock Appreciation Rights and Tandem Dividend Equivalents Except as provided in Section 9 below (relating to grants of INCENTIVE AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole discretion, may grant ISOS, NON-QUALIFIED STOCK OPTIONS, TANDEM SARS and TANDEM DIVIDEND EQUIVALENTS to ELIGIBLE PARTICIPANTS, subject to the terms and conditions set forth in the STOCK OPTION PLAN attached hereto as Exhibit A. 7. Performance Units Except as provided in Section 9 below (relating to grants of INCENTIVE AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole discretion, may grant PERFORMANCE UNITS to ELIGIBLE PARTICIPANTS, subject to the terms and conditions set forth in the PERFORMANCE UNIT PLAN attached hereto as Exhibit B. 4 8. Other Incentive Awards Except as provided in Section 9 below (relating to grants of INCENTIVE AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole discretion, may grant other INCENTIVE AWARDS (including, but not limited to, SARS granted without OPTIONS, DIVIDEND EQUIVALENTS granted without OPTIONS, stock grants, RESTRICTED STOCK, LSARS, PHANTOM STOCK or other STOCK-BASED AWARDS) to ELIGIBLE PARTICIPANTS, subject to such terms and conditions as the COMMITTEE shall deem appropriate. 9. Grants of Incentive Awards to Non-Employee Directors NON-EMPLOYEE DIRECTORS will only be eligible to be granted DIRECTOR RESTRICTED STOCK, PHANTOM STOCK and NON-QUALIFIED STOCKOPTIONS in accordance with, and subject to the terms and conditions contained in, the NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN RULES attached hereto as Exhibit C. 10. Termination of Employment or Relationship with the CORPORATION The COMMITTEE may, in its sole discretion, establish terms and conditions pertaining to the effect of TERMINATION on INCENTIVE AWARDS granted to a RECIPIENT prior to TERMINATION, to the

8. Other Incentive Awards Except as provided in Section 9 below (relating to grants of INCENTIVE AWARDS to NON-EMPLOYEE DIRECTORS), the COMMITTEE, in its sole discretion, may grant other INCENTIVE AWARDS (including, but not limited to, SARS granted without OPTIONS, DIVIDEND EQUIVALENTS granted without OPTIONS, stock grants, RESTRICTED STOCK, LSARS, PHANTOM STOCK or other STOCK-BASED AWARDS) to ELIGIBLE PARTICIPANTS, subject to such terms and conditions as the COMMITTEE shall deem appropriate. 9. Grants of Incentive Awards to Non-Employee Directors NON-EMPLOYEE DIRECTORS will only be eligible to be granted DIRECTOR RESTRICTED STOCK, PHANTOM STOCK and NON-QUALIFIED STOCKOPTIONS in accordance with, and subject to the terms and conditions contained in, the NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN RULES attached hereto as Exhibit C. 10. Termination of Employment or Relationship with the CORPORATION The COMMITTEE may, in its sole discretion, establish terms and conditions pertaining to the effect of TERMINATION on INCENTIVE AWARDS granted to a RECIPIENT prior to TERMINATION, to the extent permitted by applicable law. 11. Tax Withholding When a RECIPIENT incurs tax liability in connection with the exercise of an INCENTIVE AWARD or the receipt of shares of COMMON STOCK pursuant to an INCENTIVE AWARD, which tax liability is subject to tax withholding under applicable tax laws, and the RECIPIENT is obligated to pay the CORPORATION an amount required to be withheld under applicable tax laws, the RECIPIENT may satisfy the withholding tax obligation by (i) electing to have the CORPORATION withhold such amount from his or her current compensation through payroll deductions, or (ii) making a direct payment to the CORPORATION in cash or by check. The COMMITTEE may, in its sole discretion, permit a RECIPIENT to satisfy all or part of his or her withholding tax obligations by having the CORPORATION withhold from the shares to be issued to the RECIPIENT that number of shares having a FAIR MARKET VALUE equal to the amount required to be withheld determined on the date when taxes otherwise would be withheld in cash. The payment of withholding taxes in this manner, if permitted by the COMMITTEE, shall be subject to such restrictions as the COMMITTEE may impose, including any restrictions required by rules of the Securities and Exchange Commission. 5 12. Replacement of Grants The COMMITTEE may, in its sole discretion, offer a RECIPIENT (other than NON-EMPLOYEE DIRECTORS) the option of surrendering an unexercised OPTION or other INCENTIVE AWARD in exchange for another INCENTIVE AWARD of the same type or for a different type of INCENTIVE AWARD; provided, however, that no OPTION or INCENTIVE AWARD may be exchanged for a new OPTION or INCENTIVE AWARD having an OPTION PRICE or purchase price that is lower than the OPTION PRICE or purchase price of the original OPTION or INCENTIVE AWARD. 13. Deferral of Payments The COMMITTEE may, in its sole discretion, approve a RECIPIENT'S deferral of any cash payments which may become due under the PROGRAM. Such deferrals shall be subject to any conditions, restrictions or requirements as the COMMITTEE may determine. 14. Adjustments Upon Changes in Number or Value of Shares of Common Stock If there are any changes in the number or value of shares of COMMON STOCK by reason of stock dividends,

12. Replacement of Grants The COMMITTEE may, in its sole discretion, offer a RECIPIENT (other than NON-EMPLOYEE DIRECTORS) the option of surrendering an unexercised OPTION or other INCENTIVE AWARD in exchange for another INCENTIVE AWARD of the same type or for a different type of INCENTIVE AWARD; provided, however, that no OPTION or INCENTIVE AWARD may be exchanged for a new OPTION or INCENTIVE AWARD having an OPTION PRICE or purchase price that is lower than the OPTION PRICE or purchase price of the original OPTION or INCENTIVE AWARD. 13. Deferral of Payments The COMMITTEE may, in its sole discretion, approve a RECIPIENT'S deferral of any cash payments which may become due under the PROGRAM. Such deferrals shall be subject to any conditions, restrictions or requirements as the COMMITTEE may determine. 14. Adjustments Upon Changes in Number or Value of Shares of Common Stock If there are any changes in the number or value of shares of COMMON STOCK by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, mergers, consolidations or other events that materially increase or decrease the number or value of issued and outstanding shares of COMMON STOCK, the COMMITTEE may make such adjustments as it shall deem appropriate, in order to prevent dilution or enlargement of rights. 15. Non-Transferability of Incentive Awards An INCENTIVE AWARD shall not be transferable by the RECIPIENT otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the CODE, Title I of ERISA or the rules thereunder. During the lifetime of the RECIPIENT, an INCENTIVE AWARD may be exercised only by the RECIPIENT or by an alternate payee under a qualified domestic relations order. 16. Change in Control Upon the occurrence of a CHANGE IN CONTROL (as defined below): (a) Any time periods relating to the exercise or realization of any INCENTIVE AWARD granted hereunder shall be accelerated so that such INCENTIVE AWARD may be immediately exercised or realized in full ; (b) All shares of RESTRICTED STOCK granted hereunder shall immediately cease to be forfeitable; 6

(c) All conditions relating to the realization of any STOCK-BASED AWARD granted hereunder shall immediately terminate; and (d) The COMMITTEE may offer any RECIPIENT the option of having the CORPORATION purchase his or her INCENTIVE AWARD for an amount of cash which could have been attained upon the exercise or realization of such INCENTIVE AWARD had it been fully exercisable or realizable; unless the COMMITTEE in its sole discretion determines that such CHANGE IN CONTROL will not adversely impact the RECIPIENTS of INCENTIVE AWARDS hereunder and is in the best interests of the shareholders of PG&E CORPORATION. The COMMITTEE may make such further provisions with respect to a CHANGE IN CONTROL as it shall deem equitable and in the best interests of the shareholders of PG&E CORPORATION. Such provision may be made in any agreement relating to any INCENTIVE AWARD granted hereunder, by amendment to any such agreement or by resolution of the COMMITTEE. The phrase "CHANGE IN CONTROL" shall have such meaning as ascribed thereto from time to time by the COMMITTEE and set forth in any agreement relating to any INCENTIVE AWARD granted hereunder or by resolution of the COMMITTEE; provided, however, that, notwithstanding the foregoing, a "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the EXCHANGE ACT, but excluding

(c) All conditions relating to the realization of any STOCK-BASED AWARD granted hereunder shall immediately terminate; and (d) The COMMITTEE may offer any RECIPIENT the option of having the CORPORATION purchase his or her INCENTIVE AWARD for an amount of cash which could have been attained upon the exercise or realization of such INCENTIVE AWARD had it been fully exercisable or realizable; unless the COMMITTEE in its sole discretion determines that such CHANGE IN CONTROL will not adversely impact the RECIPIENTS of INCENTIVE AWARDS hereunder and is in the best interests of the shareholders of PG&E CORPORATION. The COMMITTEE may make such further provisions with respect to a CHANGE IN CONTROL as it shall deem equitable and in the best interests of the shareholders of PG&E CORPORATION. Such provision may be made in any agreement relating to any INCENTIVE AWARD granted hereunder, by amendment to any such agreement or by resolution of the COMMITTEE. The phrase "CHANGE IN CONTROL" shall have such meaning as ascribed thereto from time to time by the COMMITTEE and set forth in any agreement relating to any INCENTIVE AWARD granted hereunder or by resolution of the COMMITTEE; provided, however, that, notwithstanding the foregoing, a "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the EXCHANGE ACT, but excluding any benefit plan for EMPLOYEES or any trustee, agent or other fiduciary for any such plan acting in such person's capacity as such fiduciary), directly or indirectly, becomes the beneficial owner of securities of PG&E CORPORATION representing twenty percent (20%) or more of the combined voting power of PG&E CORPORATION's then outstanding securities; (b) during any two consecutive years, individuals who at the beginning of such a period constitute the BOARD OF DIRECTORS cease for any reason to constitute at least a majority of the BOARD OF DIRECTORS, unless the election, or the nomination for election by the shareholders of PG&E CORPORATION, of each new DIRECTOR was approved by a vote of at least two-thirds (2/3) of the DIRECTORS then still in office who were DIRECTORS at the beginning of the period; or (c) the shareholders of PG&E CORPORATION shall have approved (i) any consolidation or merger of PG&E CORPORATION in which PG&E CORPORATION is not the continuing or surviving corporation or pursuant to which shares of COMMON STOCK are converted into cash, securities or other property, other than a merger of PG&E CORPORATION in which the holders of the COMMON STOCK 7

immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the CORPORATION, or (iii) any plan or proposal for the liquidation or dissolution of PG&E CORPORATION. Notwithstanding the foregoing, the phrase "CHANGE IN CONTROL" shall not apply to any reorganization or merger initiated voluntarily by PG&E CORPORATION in which PG&E CORPORATION is the continuing surviving entity. 17. Listing and Registration of Shares Each INCENTIVE AWARD shall be subject to the requirement that if at any time the COMMITTEE shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby under any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory body, including the California Public Utilities Commission, is necessary or desirable as a condition of, or in connection with, the granting of such INCENTIVE AWARD or the issue or purchase of shares thereunder, such INCENTIVE AWARD may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the COMMITTEE.

immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the CORPORATION, or (iii) any plan or proposal for the liquidation or dissolution of PG&E CORPORATION. Notwithstanding the foregoing, the phrase "CHANGE IN CONTROL" shall not apply to any reorganization or merger initiated voluntarily by PG&E CORPORATION in which PG&E CORPORATION is the continuing surviving entity. 17. Listing and Registration of Shares Each INCENTIVE AWARD shall be subject to the requirement that if at any time the COMMITTEE shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby under any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory body, including the California Public Utilities Commission, is necessary or desirable as a condition of, or in connection with, the granting of such INCENTIVE AWARD or the issue or purchase of shares thereunder, such INCENTIVE AWARD may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the COMMITTEE. 18. Amendment and Termination of the Program and Incentive Awards The BOARD OF DIRECTORS or the COMMITTEE may at any time suspend, terminate, modify or amend the PROGRAM in any respect; provided, however, that to the extent necessary and desirable to comply with Section 422 of the CODE (or any other applicable law or regulation, including the requirements of any stock exchange on which the COMMON STOCK is listed or quoted), shareholder approval of any PROGRAM amendment shall be obtained in such a manner and to such a degree as is required by the applicable law or regulation. No suspension, termination, modification or amendment of the PROGRAM may, without the consent of the RECIPIENT, adversely affect his or her rights under INCENTIVE AWARDS theretofore granted to such RECIPIENT. In the event of amendments to the CODE or applicable rules or regulations relating to ISOS subsequent to the date hereof, the CORPORATION may amend the PROGRAM, and the CORPORATION and RECIPIENTS holding OPTION agreements may agree to amend outstanding OPTION agreements, to conform to such amendments. The BOARD OF DIRECTORS or COMMITTEE may make such amendments or modifications in the terms and conditions of any INCENTIVE AWARD as it may 8

deem advisable, or cancel or annul any grant of an INCENTIVE AWARD; provided, however, that no such amendment, modification, cancellation or annulment may, without the consent of the RECIPIENT, adversely his or her rights under such INCENTIVE AWARD; and provided further the BOARD OF DIRECTORS or COMMITTEE may not reduce the OPTION PRICE or purchase price of any OPTION or INCENTIVE AWARD below the original OPTION PRICE or purchase price. Notwithstanding the foregoing, the BOARD OF DIRECTORS or COMMITTEE reserves the right, in its sole discretion, to (i) convert any outstanding ISOS to NON-QUALIFIED STOCK OPTIONS, (ii) to require a RECIPIENT to forfeit any unexercised or unpurchased INCENTIVE AWARDS, any shares received or purchased pursuant to an INCENTIVE AWARD, or any gains realized by virtue of the receipt of an INCENTIVE AWARD in the event that such RECIPIENT competes against the CORPORATION, and (iii) to cancel or annul any grant of an INCENTIVE AWARD in the event of a RECIPIENT'S TERMINATION FOR CAUSE. For purposes of the PROGRAM, "TERMINATION FOR CAUSE" shall include, but not be limited to, termination because of dishonesty, criminal offense or violation of a work rule, and shall be determined by, and in the sole discretion of, the BOARD OF DIRECTORS or COMMITTEE.

deem advisable, or cancel or annul any grant of an INCENTIVE AWARD; provided, however, that no such amendment, modification, cancellation or annulment may, without the consent of the RECIPIENT, adversely his or her rights under such INCENTIVE AWARD; and provided further the BOARD OF DIRECTORS or COMMITTEE may not reduce the OPTION PRICE or purchase price of any OPTION or INCENTIVE AWARD below the original OPTION PRICE or purchase price. Notwithstanding the foregoing, the BOARD OF DIRECTORS or COMMITTEE reserves the right, in its sole discretion, to (i) convert any outstanding ISOS to NON-QUALIFIED STOCK OPTIONS, (ii) to require a RECIPIENT to forfeit any unexercised or unpurchased INCENTIVE AWARDS, any shares received or purchased pursuant to an INCENTIVE AWARD, or any gains realized by virtue of the receipt of an INCENTIVE AWARD in the event that such RECIPIENT competes against the CORPORATION, and (iii) to cancel or annul any grant of an INCENTIVE AWARD in the event of a RECIPIENT'S TERMINATION FOR CAUSE. For purposes of the PROGRAM, "TERMINATION FOR CAUSE" shall include, but not be limited to, termination because of dishonesty, criminal offense or violation of a work rule, and shall be determined by, and in the sole discretion of, the BOARD OF DIRECTORS or COMMITTEE. 19. Effective Date of the Program and Duration The Program first became effective as of January 1, 1992. The subsequent amendment and restatement of the PROGRAM as of January 1, 1996, was approved by the shareholders of Pacific Gas and Electric Company at its Annual Meeting on April 17, 1996. Effective January 1, 1997, the PROGRAM was assumed by PG&E CORPORATION. At its meeting on October 15,1997, the BOARD OF DIRECTORS amended and restated the PROGRAM effective January 1, 1998, to (i) reflect the adoption of new RULE 16B-3 which became effective November 1, 1996, and (ii) provide automatic formula awards of NON- QUALIFIED STOCK OPTIONS and PHANTOM STOCK to NON-EMPLOYEE DIRECTORS within the limits of the PROGRAM as previously approved by shareholders in 1996. Unless terminated sooner pursuant to Section 16 hereof, the PROGRAM shall terminate on December 31, 2005. 20. Definitions a. BOARD OF DIRECTORS means the Board of Directors of PG&E CORPORATION. b. CHANGE IN CONTROL has the meaning set forth in Section 16 hereof. c. CHIEF EXECUTIVE OFFICER means the Chief Executive Officer of PG&E CORPORATION. 9 d. CODE means the Internal Revenue Code of 1986, as amended from time to time. e. COMMITTEE means the Nominating and Compensation Committee of the BOARD OF DIRECTORS or any successor to such committee. f. COMMON STOCK means common shares of PG&E CORPORATION with no par value and any class of common shares into which such common shares hereafter may be converted. g. CONSULTANT means any person, including an advisor, who is engaged by the CORPORATION to render services. h. CORPORATION means PG&E CORPORATION, and any parent corporation (as defined in Section 424 (e) of the CODE) or subsidiary corporation (as defined in Section 424(f) of the CODE). i. DIRECTOR means any person who is a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation (as defined in Section 424(e) of the CODE) which may hereafter be established, including an advisory, emeritus or honorary

d. CODE means the Internal Revenue Code of 1986, as amended from time to time. e. COMMITTEE means the Nominating and Compensation Committee of the BOARD OF DIRECTORS or any successor to such committee. f. COMMON STOCK means common shares of PG&E CORPORATION with no par value and any class of common shares into which such common shares hereafter may be converted. g. CONSULTANT means any person, including an advisor, who is engaged by the CORPORATION to render services. h. CORPORATION means PG&E CORPORATION, and any parent corporation (as defined in Section 424 (e) of the CODE) or subsidiary corporation (as defined in Section 424(f) of the CODE). i. DIRECTOR means any person who is a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation (as defined in Section 424(e) of the CODE) which may hereafter be established, including an advisory, emeritus or honorary director. j. DIRECTOR RESTRICTED STOCK means RESTRICTED STOCK granted to a NONEMPLOYEE DIRECTOR under the NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN. k. DIVIDEND EQUIVALENT means a right that entitles the RECIPIENT to receive cash or COMMON STOCK based on the dividends declared on the COMMON STOCK covered by such right. l. ELIGIBLE PARTICIPANT means any KEY EMPLOYEE. It also means, if so identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of INCENTIVE AWARDS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof), other EMPLOYEES, DIRECTORS, CONSULTANTS, employees or consultants of any affiliates of PG&E CORPORATION, and other persons whose participation in the PROGRAM is deemed by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of INCENTIVE AWARDS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof) to be in the best interests of the CORPORATION. m. EMPLOYEE means any person who is employed by the CORPORATION. The payment of a director's fee or consulting fee by 10

the CORPORATION shall not be sufficient to constitute "employment" by the CORPORATION. n. ERISA means the Employee Retirement Income Security Act of 1974, as amended. o. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. p. FAIR MARKET VALUE means the closing price of the COMMON STOCK reported on the New York Stock Exchange Composite Transactions for the date specified for determining such value. q. INCENTIVE AWARD means any ISO, NON-QUALIFIED STOCK OPTION, SAR, DIVIDEND EQUIVALENT, PERFORMANCE UNIT or other STOCK-BASED AWARD granted under the PROGRAM. r. ISO means an OPTION intended to qualify as an incentive stock option

the CORPORATION shall not be sufficient to constitute "employment" by the CORPORATION. n. ERISA means the Employee Retirement Income Security Act of 1974, as amended. o. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. p. FAIR MARKET VALUE means the closing price of the COMMON STOCK reported on the New York Stock Exchange Composite Transactions for the date specified for determining such value. q. INCENTIVE AWARD means any ISO, NON-QUALIFIED STOCK OPTION, SAR, DIVIDEND EQUIVALENT, PERFORMANCE UNIT or other STOCK-BASED AWARD granted under the PROGRAM. r. ISO means an OPTION intended to qualify as an incentive stock option under Section 422 of the CODE. s. KEY EMPLOYEE means the Corporate Secretary, Treasurer, Vice Presidents and other executive officers of PG&E CORPORATION above the rank of Vice President. It also means, if so identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of INCENTIVE AWARDS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof), executive officers of wholly-owned subsidiaries of PG&E CORPORATION (including subsidiaries which become such after adoption of the PROGRAM) and any other key management employee of PG&E CORPORATION or any wholly-owned subsidiary of PG&E CORPORATION. t. LSAR means a limited stock appreciation right which is exercisable only in the event of a CHANGE IN CONTROL. u. 1986 OPTION PLAN means the Pacific Gas and Electric CORPORATION 1986 Stock Option Plan, as amended to date. v. NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE. w. NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN RULES means the Non-Employee Director Stock Incentive Plan attached hereto as Exhibit C or any successor rules which the BOARD OF DIRECTORS may adopt from time to time with respect to the grant of INCENTIVE AWARDS to NON-EMPLOYEE DIRECTORS under the PROGRAM. 11 x. NON-QUALIFIED STOCK OPTION means any OPTION which is not an ISO. y. OPTION means an option to purchase shares of COMMON STOCK granted under the STOCK OPTION PLAN. z. OPTION PRICE means the purchase price for the COMMON STOCK upon exercise of an OPTION. aa. PERFORMANCE UNIT means a performance unit granted under the PERFORMANCE UNIT PLAN. bb. PERFORMANCE UNIT PLAN means the Performance Unit Plan Rules attached hereto as Exhibit B or any successor rules which the COMMITTEE may adopt from time to time with respect to the grant of PERFORMANCE UNITS under the PROGRAM.

x. NON-QUALIFIED STOCK OPTION means any OPTION which is not an ISO. y. OPTION means an option to purchase shares of COMMON STOCK granted under the STOCK OPTION PLAN. z. OPTION PRICE means the purchase price for the COMMON STOCK upon exercise of an OPTION. aa. PERFORMANCE UNIT means a performance unit granted under the PERFORMANCE UNIT PLAN. bb. PERFORMANCE UNIT PLAN means the Performance Unit Plan Rules attached hereto as Exhibit B or any successor rules which the COMMITTEE may adopt from time to time with respect to the grant of PERFORMANCE UNITS under the PROGRAM. cc. PG&E CORPORATION means PG&E CORPORATION, a California corporation. dd. PHANTOM STOCK means allocated hypothetical shares of COMMON STOCK that can be converted at a future date into cash or stock. ee. PROGRAM means the PG&E Corporation Long-Term Incentive Program as amended and restated herein and as may be amended from time to time. ff. RECIPIENT means the ELIGIBLE PARTICIPANT receiving the INCENTIVE AWARD, or his or her legal representative, legatees, distributees or alternate payees, as the case may be. gg. RESTRICTED STOCK means COMMON STOCK that is subject to forfeiture by the RECIPIENT to the CORPORATION under such circumstances as may be specified by the COMMITTEE in its sole discretion. hh. RETIREMENT means the Actual Retirement Date under the Pacific Gas and Electric Company Retirement Plan. ii. RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. jj. SAR means a stock appreciation right whose value is based on the increase in the FAIR MARKET VALUE of the COMMON STOCK covered by such right. 12 kk. SECTION 16 OFFICER means any person who is designated by the BOARD OF DIRECTORS as an executive officer of PG&E CORPORATION and any other person who is designated as an officer of PG&E CORPORATION for purposes of Section 16 of the EXCHANGE ACT. ll. STOCK-BASED AWARD means any award that is valued in whole or in part by reference to, or is otherwise based on, the COMMON STOCK, including, but not limited to, stock grants, RESTRICTED STOCK, LSARS and PHANTOM STOCK. mm. STOCK OPTION PLAN means the Stock Option Plan Rules attached hereto as Exhibit A or any successor rules which the COMMITTEE may adopt from time to time with respect to the grant of OPTIONS under the PROGRAM. nn. TANDEM refers to an INCENTIVE AWARD granted in conjunction with another INCENTIVE AWARD.

kk. SECTION 16 OFFICER means any person who is designated by the BOARD OF DIRECTORS as an executive officer of PG&E CORPORATION and any other person who is designated as an officer of PG&E CORPORATION for purposes of Section 16 of the EXCHANGE ACT. ll. STOCK-BASED AWARD means any award that is valued in whole or in part by reference to, or is otherwise based on, the COMMON STOCK, including, but not limited to, stock grants, RESTRICTED STOCK, LSARS and PHANTOM STOCK. mm. STOCK OPTION PLAN means the Stock Option Plan Rules attached hereto as Exhibit A or any successor rules which the COMMITTEE may adopt from time to time with respect to the grant of OPTIONS under the PROGRAM. nn. TANDEM refers to an INCENTIVE AWARD granted in conjunction with another INCENTIVE AWARD. oo. TERMINATION occurs when an EMPLOYEE ceases to be employed by the CORPORATION as a common law employee, when a DIRECTOR ceases to be a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation which may hereafter be established (as the case may be), or when the relationship between the CORPORATION and a CONSULTANT or other ELIGIBLE PARTICIPANT terminates, as the case may be. pp. TERMINATION FOR CAUSE has the meaning set forth in Section 18 hereof. 13

EXHIBIT A PG&E CORPORATION STOCK OPTION PLAN (As amended and restated effective as of January 1, 1997) 1. Purpose of the Plan This is the controlling and definitive statement of the PG&E Corporation Stock Option Plan, as amended and restated herein (hereinafter called the PLAN/2/). The purpose of the PLAN is to advance the interests of the CORPORATION by providing ELIGIBLE PARTICIPANTS with financial incentives to promote the success of its long-term (five to ten years) business objectives, and to increase their proprietary interest in the success of the CORPORATION. It is the intent of the CORPORATION to reward those ELIGIBLE PARTICIPANTS who have a significant impact on improved long-term corporate achievements. Inasmuch as the PLAN is designed to encourage financial performance and to improve the value of shareholders' investment in PG&E CORPORATION, the costs of the PLAN will be funded from corporate earnings. 2. Plan Administration The PLAN shall be administered by the COMMITTEE, which shall be constituted in such a manner as to comply with the rules governing a plan intended to qualify as a discretionary plan under RULE 16b-3. Subject to the provisions of the PLAN, the COMMITTEE shall have full and final authority, in its sole discretion: (a) to determine the ELIGIBLE PARTICIPANTS to whom OPTIONS shall be granted and the number of shares of COMMON STOCK to be awarded under each OPTION, based on the recommendation of the CHIEF EXECUTIVE OFFICER (except that awards to the CHIEF EXECUTIVE OFFICER shall be shall be based on the recommendation of the BOARD OF DIRECTORS); provided, however, that the number of shares of COMMON STOCK to be awarded under each OPTION shall be subject to the limitations specified in Section 5 hereof; (b) to determine the time or times at which OPTIONS shall be granted;

EXHIBIT A PG&E CORPORATION STOCK OPTION PLAN (As amended and restated effective as of January 1, 1997) 1. Purpose of the Plan This is the controlling and definitive statement of the PG&E Corporation Stock Option Plan, as amended and restated herein (hereinafter called the PLAN/2/). The purpose of the PLAN is to advance the interests of the CORPORATION by providing ELIGIBLE PARTICIPANTS with financial incentives to promote the success of its long-term (five to ten years) business objectives, and to increase their proprietary interest in the success of the CORPORATION. It is the intent of the CORPORATION to reward those ELIGIBLE PARTICIPANTS who have a significant impact on improved long-term corporate achievements. Inasmuch as the PLAN is designed to encourage financial performance and to improve the value of shareholders' investment in PG&E CORPORATION, the costs of the PLAN will be funded from corporate earnings. 2. Plan Administration The PLAN shall be administered by the COMMITTEE, which shall be constituted in such a manner as to comply with the rules governing a plan intended to qualify as a discretionary plan under RULE 16b-3. Subject to the provisions of the PLAN, the COMMITTEE shall have full and final authority, in its sole discretion: (a) to determine the ELIGIBLE PARTICIPANTS to whom OPTIONS shall be granted and the number of shares of COMMON STOCK to be awarded under each OPTION, based on the recommendation of the CHIEF EXECUTIVE OFFICER (except that awards to the CHIEF EXECUTIVE OFFICER shall be shall be based on the recommendation of the BOARD OF DIRECTORS); provided, however, that the number of shares of COMMON STOCK to be awarded under each OPTION shall be subject to the limitations specified in Section 5 hereof; (b) to determine the time or times at which OPTIONS shall be granted; (c) to designate the OPTIONS being granted as ISOS or NON-QUALIFIED STOCK OPTIONS; /2/ Capitalized words are defined in Section 20 hereof. 14

(d) to vary the OPTION vesting schedule described in Section 11 hereof; (e) to determine the terms and conditions, not inconsistent with the terms of the PLAN, of any OPTION granted hereunder (including, but not limited to, the consideration and method of payment for shares purchased upon the exercise of an OPTION, and any vesting acceleration or exercisability provisions in the event of a CHANGE IN CONTROL or TERMINATION), based in each case on such factors as the COMMITTEE shall deem appropriate; (f) to approve forms of agreement for use under the PLAN; (g) to construe and interpret the PLAN and any related OPTION agreement and to define the terms employed herein and therein; (h) except as provided in Section 18 hereof, to modify or amend any OPTION or to waive any restrictions or conditions applicable to any OPTION or the exercise thereof; (i) except as provided in Section 18 hereof, to prescribe, amend and rescind rules, regulations and policies

(d) to vary the OPTION vesting schedule described in Section 11 hereof; (e) to determine the terms and conditions, not inconsistent with the terms of the PLAN, of any OPTION granted hereunder (including, but not limited to, the consideration and method of payment for shares purchased upon the exercise of an OPTION, and any vesting acceleration or exercisability provisions in the event of a CHANGE IN CONTROL or TERMINATION), based in each case on such factors as the COMMITTEE shall deem appropriate; (f) to approve forms of agreement for use under the PLAN; (g) to construe and interpret the PLAN and any related OPTION agreement and to define the terms employed herein and therein; (h) except as provided in Section 18 hereof, to modify or amend any OPTION or to waive any restrictions or conditions applicable to any OPTION or the exercise thereof; (i) except as provided in Section 18 hereof, to prescribe, amend and rescind rules, regulations and policies relating to the administration of the PLAN; (j) except as provided in Section 18 hereof, to suspend, terminate, modify or amend the PLAN; (k) to delegate to one or more agents such administrative duties as the COMMITTEE may deem advisable, to the extent permitted by applicable law; and (l) to make all other determinations and take such other action with respect to the PLAN and any OPTION granted hereunder as the COMMITTEE may deem advisable, to the extent permitted by applicable law. Notwithstanding the provisions contained in the foregoing paragraph, the CHIEF EXECUTIVE OFFICER shall have the authority, in his sole discretion: (a) to grant OPTIONS to any ELIGIBLE PARTICIPANT who, at the time of the OPTION grant, (i) is not an officer of the CORPORATION or a DIRECTOR, and (ii) if such ELIGIBLE PARTICIPANT is an EMPLOYEE, is receiving an annual salary which is below the level which requires approval by the COMMITTEE; (b) to determine the time or times at which OPTIONS shall be granted to such ELIGIBLE PARTICIPANTS; (c) to designate the OPTIONS being granted to such ELIGIBLE PARTICIPANTS as ISOS or NONQUALIFIED STOCK OPTIONS; and (d) to vary the OPTION vesting schedule described in Section 11 hereof for the OPTIONS granted to such ELIGIBLE PARTICIPANTS; provided, however, that (x) all grants of OPTIONS by the CHIEF EXECUTIVE OFFICER shall conform to the guidelines previously approved by the 15

COMMITTEE, and (y) the number of shares of COMMON STOCK to be awarded under each OPTION shall be subject to the limitations specified in Section 5 hereof. 3. Shares of Stock Subject to the Plan There shall be reserved for use under the PLAN and for the grant of any other incentive awards pursuant to the PROGRAM (subject to the provisions of Section 14 hereof) a total of 23,389,230 shares of COMMON STOCK, which shares may be authorized but unissued shares of COMMON STOCK or issued shares of COMMON STOCK which shall have been reacquired by PG&E CORPORATION. If any OPTION expires or terminates for any reason without having been exercised in full, then any unexercised, shares which were subject to such OPTION (except shares as to which a related TANDEM SAR has been exercised) shall again be available for the future grant of OPTIONS under the PLAN (unless the PLAN has terminated). In addition, shares may be reused or added back to the PLAN to the extent permitted by applicable law.

COMMITTEE, and (y) the number of shares of COMMON STOCK to be awarded under each OPTION shall be subject to the limitations specified in Section 5 hereof. 3. Shares of Stock Subject to the Plan There shall be reserved for use under the PLAN and for the grant of any other incentive awards pursuant to the PROGRAM (subject to the provisions of Section 14 hereof) a total of 23,389,230 shares of COMMON STOCK, which shares may be authorized but unissued shares of COMMON STOCK or issued shares of COMMON STOCK which shall have been reacquired by PG&E CORPORATION. If any OPTION expires or terminates for any reason without having been exercised in full, then any unexercised, shares which were subject to such OPTION (except shares as to which a related TANDEM SAR has been exercised) shall again be available for the future grant of OPTIONS under the PLAN (unless the PLAN has terminated). In addition, shares may be reused or added back to the PLAN to the extent permitted by applicable law. 4. Eligibility OPTIONS will be granted only to ELIGIBLE PARTICIPANTS. ISOS will be granted only to EMPLOYEES. The COMMITTEE, in its sole discretion, may grant OPTIONS to an ELIGIBLE PARTICIPANT who is a resident or citizen of a foreign country, with such modifications as the COMMITTEE may deem advisable to reflect the laws, tax policy or customs of such foreign country. The PLAN shall not confer upon any OPTIONEE any right to continuation of employment, service as a DIRECTOR or consulting relationship with the CORPORATION; nor shall it interfere in any way with the right of the OPTIONEE or the CORPORATION to terminate such employment, service as a DIRECTOR or consulting relationship at any time, with or without cause. 5. Limitation on Options and SARs Awarded to Any Eligible Participant The aggregate number of shares of COMMON STOCK with respect to which any ELIGIBLE PARTICIPANT may be granted OPTIONS and SARS under the PLAN during any calendar year shall in no event exceed two percent (2%) of the total number of shares reserved for use under the PLAN. 6. Designation of Options At the time of the grant of each OPTION under the PLAN, the COMMITTEE (or the CHIEF EXECUTIVE OFFICER, in the case of OPTIONS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof) shall determine whether such OPTION is to be designated as an ISO 16

or a NON-QUALIFIED STOCK OPTION; provided, however, that ISOS may be granted only to EMPLOYEES. Notwithstanding such designation, to the extent that the aggregate FAIR MARKET VALUE (determined for each share as of the date of grant of the OPTION covering each share) of the shares with respect to which OPTIONS designated as ISOS become exercisable for the first time by any OPTIONEE during any calendar year exceeds $100,000, such OPTIONS shall be treated as NON- QUALIFIED STOCK OPTIONS. OPTIONS shall be awarded at no cost to the OPTIONEE. 7. Option Price The OPTION PRICE of the COMMON STOCK under each OPTION issued shall be the FAIR MARKET

or a NON-QUALIFIED STOCK OPTION; provided, however, that ISOS may be granted only to EMPLOYEES. Notwithstanding such designation, to the extent that the aggregate FAIR MARKET VALUE (determined for each share as of the date of grant of the OPTION covering each share) of the shares with respect to which OPTIONS designated as ISOS become exercisable for the first time by any OPTIONEE during any calendar year exceeds $100,000, such OPTIONS shall be treated as NON- QUALIFIED STOCK OPTIONS. OPTIONS shall be awarded at no cost to the OPTIONEE. 7. Option Price The OPTION PRICE of the COMMON STOCK under each OPTION issued shall be the FAIR MARKET VALUE of the COMMON STOCK on the date of grant. 8. Stock Appreciation Rights At the discretion of the COMMITTEE, an OPTION may be granted with or without a TANDEM SAR which permits the OPTIONEE to surrender unexercised an OPTION or portion thereof and to receive in exchange a payment having a value equal to the difference between (x) the FAIR MARKET VALUE of the COMMON STOCK covered by the surrendered portion of the OPTION on the date the SAR is exercised and (y) the OPTION PRICE for such COMMON STOCK. The SAR is subject to the same terms and conditions as the related OPTION, except that (i) the SAR may be exercised only when there is a positive spread (i.e., when the FAIR MARKET VALUE of the COMMON STOCK subject to the OPTION exceeds the OPTION PRICE), (ii) in accordance with Section 9 hereof, payment of the DEA (if any) to the OPTIONEE may be restricted, and (iii) if the OPTIONEE is a SECTION 16 OFFICER, DIRECTOR or other person whose transactions in the COMMON STOCK are subject to Section 16(b) of the EXCHANGE ACT, the SAR may be exercised only during the period beginning on the third (3rd) business day following the date of release of the CORPORATION's quarterly or annual statement of earnings and ending on the twelfth (12th) business day following such date. Upon the exercise of a SAR, the number of shares subject to exercise under the related OPTION shall be automatically reduced by the number of shares represented by the OPTION or portion thereof surrendered. No payment will be required from the OPTIONEE upon the exercise of a SAR, except that any amount necessary to satisfy applicable federal, state or local tax requirements shall be withheld. 9. Dividend Equivalent Account At the discretion of the COMMITTEE, an OPTION may be granted with or without TANDEM DIVIDEND EQUIVALENTS. When an OPTION is granted with 17

TANDEM DIVIDEND EQUIVALENTS, a Dividend Equivalent Account ("DEA") shall be established for the OPTIONEE. This DEA shall be credited quarterly on each dividend record date with dividends which would have been paid on the COMMON STOCK subject to the unexercised portion of the OPTION (including any portion which has not yet vested on the record date), if such portion had been exercised. Except as provided in Section 12(d) hereof, at the time the OPTION or any related SAR is exercised, the OPTIONEE shall receive all funds which have accumulated in the DEA with respect to the shares of COMMON STOCK for which the OPTION or SAR is being exercised; provided, however, that if the OPTIONEE exercises a SAR, such DEA funds shall only be paid to the OPTIONEE if (i) the percentage increase in the FAIR MARKET VALUE of the COMMON STOCK over the OPTION PRICE averages at least five percent (5%) per year for the first five (5) years after the grant, or (ii) in the case of OPTIONS held for longer than five (5) years from the date of grant, such FAIR MARKET VALUE has increased by at least twenty-five percent (25%) over the OPTION PRICE. 10. Terms of Options The term of each ISO shall be for ten (10) years from the date of grant, subject to earlier termination as provided in Section 12 hereof. The term of each NON-QUALIFIED STOCK OPTION shall be ten (10) years and one

TANDEM DIVIDEND EQUIVALENTS, a Dividend Equivalent Account ("DEA") shall be established for the OPTIONEE. This DEA shall be credited quarterly on each dividend record date with dividends which would have been paid on the COMMON STOCK subject to the unexercised portion of the OPTION (including any portion which has not yet vested on the record date), if such portion had been exercised. Except as provided in Section 12(d) hereof, at the time the OPTION or any related SAR is exercised, the OPTIONEE shall receive all funds which have accumulated in the DEA with respect to the shares of COMMON STOCK for which the OPTION or SAR is being exercised; provided, however, that if the OPTIONEE exercises a SAR, such DEA funds shall only be paid to the OPTIONEE if (i) the percentage increase in the FAIR MARKET VALUE of the COMMON STOCK over the OPTION PRICE averages at least five percent (5%) per year for the first five (5) years after the grant, or (ii) in the case of OPTIONS held for longer than five (5) years from the date of grant, such FAIR MARKET VALUE has increased by at least twenty-five percent (25%) over the OPTION PRICE. 10. Terms of Options The term of each ISO shall be for ten (10) years from the date of grant, subject to earlier termination as provided in Section 12 hereof. The term of each NON-QUALIFIED STOCK OPTION shall be ten (10) years and one (1) day from the date of grant, subject to earlier termination as provided in Section 12 hereof. Any provision of the PROGRAM to the contrary notwithstanding, no OPTION shall be exercised after the time limitations stated in this Section 10. 11. Limitations on Exercise (a) Each OPTION granted under the PROGRAM shall become exercisable and vested only to the following extent: (i) up to one-third (1/3) of the OPTIONS granted may be exercised on or after the second (2nd) anniversary of the date of grant; (ii) up to two-thirds (2/3) of the OPTIONS granted may be exercised on or after the third (3rd) anniversary of the date of grant; and (iii) up to one hundred percent (100%) of the OPTIONS granted may be exercised on or after the fourth (4th) anniversary of the date of grant. (b) No OPTION under the PROGRAM designated by the COMMITTEE as an ISO and granted before January 1, 1987 may be exercised while there is outstanding in the hands of the OPTIONEE any ISO which was granted before the granting of the ISO hereunder sought to be exercised. For this purpose an ISO shall be treated as outstanding until such OPTION is (i) exercised in full, (ii) surrendered in full by exercising SARS pursuant to Section 8 hereof, or (iii) rendered void by reason of lapse of time. 18 12. Termination of Employment or Relationship with the CORPORATION (a) In the event of a TERMINATION by reason of a discharge or TERMINATION FOR CAUSE, any unexercised OPTIONS theretofore granted to an OPTIONEE under the PROGRAM shall forthwith terminate. (b) In the event of a TERMINATION by reason of RETIREMENT, all OPTIONS held by the OPTIONEE, to the extent that such OPTIONS have not previously expired or been exercised, shall become fully exercisable and vested, notwithstanding the provisions of Section 11(a) hereof, and the OPTIONEE shall have the right to exercise such OPTIONS in full at any time within their respective terms or within five (5) years after such RETIREMENT, whichever is shorter. This five-year period shall be extended if an OPTIONEE remains on the BOARD OF DIRECTORS after RETIREMENT. In such case, the OPTIONS may be exercised as long as the OPTIONEE remains a DIRECTOR and for a period of six (6) months thereafter, or within five (5) years after RETIREMENT, whichever is longer; provided, however, that no OPTION may be exercised after the expiration of its term. Notwithstanding the foregoing, any ISOS held by the OPTIONEE may be exercised only within their respective terms or within three (3) months after RETIREMENT, whichever is shorter. (c) In the event of a TERMINATION by reason of disability or death, all OPTIONS held by the OPTIONEE, to the extent that such OPTIONS have not previously expired or been exercised, shall become fully exercisable and vested, notwithstanding the provisions of Section 11(a) hereof, and the OPTIONEE (or the OPTIONEE'S estate or a person who acquired the right to exercise such OPTIONS by bequest or inheritance) shall have the right to exercise such OPTIONS at any time within their respective terms or within one (1) year after the date of such TERMINATION, whichever is shorter. The term "disability" shall, for the purposes of the PLAN, be

12. Termination of Employment or Relationship with the CORPORATION (a) In the event of a TERMINATION by reason of a discharge or TERMINATION FOR CAUSE, any unexercised OPTIONS theretofore granted to an OPTIONEE under the PROGRAM shall forthwith terminate. (b) In the event of a TERMINATION by reason of RETIREMENT, all OPTIONS held by the OPTIONEE, to the extent that such OPTIONS have not previously expired or been exercised, shall become fully exercisable and vested, notwithstanding the provisions of Section 11(a) hereof, and the OPTIONEE shall have the right to exercise such OPTIONS in full at any time within their respective terms or within five (5) years after such RETIREMENT, whichever is shorter. This five-year period shall be extended if an OPTIONEE remains on the BOARD OF DIRECTORS after RETIREMENT. In such case, the OPTIONS may be exercised as long as the OPTIONEE remains a DIRECTOR and for a period of six (6) months thereafter, or within five (5) years after RETIREMENT, whichever is longer; provided, however, that no OPTION may be exercised after the expiration of its term. Notwithstanding the foregoing, any ISOS held by the OPTIONEE may be exercised only within their respective terms or within three (3) months after RETIREMENT, whichever is shorter. (c) In the event of a TERMINATION by reason of disability or death, all OPTIONS held by the OPTIONEE, to the extent that such OPTIONS have not previously expired or been exercised, shall become fully exercisable and vested, notwithstanding the provisions of Section 11(a) hereof, and the OPTIONEE (or the OPTIONEE'S estate or a person who acquired the right to exercise such OPTIONS by bequest or inheritance) shall have the right to exercise such OPTIONS at any time within their respective terms or within one (1) year after the date of such TERMINATION, whichever is shorter. The term "disability" shall, for the purposes of the PLAN, be defined in Section 22(e)(3) of the CODE. (d) In the event of a TERMINATION by reason of a divestiture or change in control of a subsidiary of PG&E CORPORATION, which divestiture or change in control results in such subsidiary no longer qualifying as a subsidiary corporation under Section 424(f) of the CODE, all OPTIONS held by the OPTIONEE, to the extent that such OPTIONS have not previously expired or been exercised, shall become fully exercisable and vested, notwithstanding the provisions of Section 11(a) hereof, and the OPTIONEE shall have the right to exercise such OPTIONS in full at any time within their respective terms or within three (3) years after such TERMINATION, whichever is shorter. This three-year period shall be extended if an OPTIONEE remains on the BOARD OF DIRECTORS after such TERMINATION. In such case, the OPTIONS may be exercised as long as the OPTIONEE remains a DIRECTOR and for a period of six (6) months thereafter, or within three (3) years after such TERMINATION, whichever is longer; provided, however, that no OPTION may be exercised after the expiration of its term. Notwithstanding the foregoing, any ISOS held by the OPTIONEE may be 19

exercised only within their respective terms or within three (3) months after such TERMINATION, whichever is shorter. (e) In the event of a TERMINATION for any reason other than those specified in subparagraphs (a) through (d) above, (i) any unexercised OPTION or OPTIONS granted under the PROGRAM shall be deemed canceled and terminated forthwith, except that the OPTIONEE may exercise any unexercised OPTIONS theretofore granted which are otherwise exercisable and vested within the provisions of Section 11(a) hereof, during the balance of their respective terms or within thirty (30) days of such TERMINATION, whichever is shorter, and (ii) the DEA (if any) shall not be credited with any dividends paid after the date of such TERMINATION. (f) Notwithstanding the provisions of subparagraphs (a) through (e) above, the COMMITTEE may, in its sole discretion, establish different terms and conditions pertaining to the effect of TERMINATION, to the extent permitted by applicable federal and state law. 13. Payment for Shares Upon Exercise of Options The exercise of any OPTION shall be contingent upon receipt by the CORPORATION of (i) cash (including any DEA funds payable to the OPTIONEE in connection with the exercise of such OPTION), (ii) check, (iii) shares of COMMON STOCK, (iv) an executed exercise notice together with irrevocable instructions to a

exercised only within their respective terms or within three (3) months after such TERMINATION, whichever is shorter. (e) In the event of a TERMINATION for any reason other than those specified in subparagraphs (a) through (d) above, (i) any unexercised OPTION or OPTIONS granted under the PROGRAM shall be deemed canceled and terminated forthwith, except that the OPTIONEE may exercise any unexercised OPTIONS theretofore granted which are otherwise exercisable and vested within the provisions of Section 11(a) hereof, during the balance of their respective terms or within thirty (30) days of such TERMINATION, whichever is shorter, and (ii) the DEA (if any) shall not be credited with any dividends paid after the date of such TERMINATION. (f) Notwithstanding the provisions of subparagraphs (a) through (e) above, the COMMITTEE may, in its sole discretion, establish different terms and conditions pertaining to the effect of TERMINATION, to the extent permitted by applicable federal and state law. 13. Payment for Shares Upon Exercise of Options The exercise of any OPTION shall be contingent upon receipt by the CORPORATION of (i) cash (including any DEA funds payable to the OPTIONEE in connection with the exercise of such OPTION), (ii) check, (iii) shares of COMMON STOCK, (iv) an executed exercise notice together with irrevocable instructions to a broker to either sell the shares subject to the OPTION or hold such shares as collateral for a margin loan and to promptly deliver to the CORPORATION the amount of sale or loan proceeds required to pay the OPTION PRICE, (v) any combination of the foregoing in an amount equal to the full OPTION PRICE of the shares being purchased, or (vi) such other consideration and method of payment, other than a note from the OPTIONEE, as the COMMITTEE, in its sole discretion, may allow (which, in the case of an ISO shall be determined at the time of grant), to the extent permitted by applicable law. For purposes of this paragraph, shares of COMMON STOCK that are delivered in payment of the OPTION PRICE must have been previously owned by the OPTIONEE for a minimum of one year, and shall be valued at their FAIR MARKET VALUE as of the date of the exercise of the OPTION. The CORPORATION shall not make loans to any OPTIONEE for the purpose of exercising OPTIONS. 14. Adjustments Upon Changes in Number or Value of Shares of Common Stock If there are any changes in the number or value of shares of COMMON STOCK by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, mergers, consolidations or other events that materially increase or decrease the number or value of issued and outstanding shares of COMMON STOCK, the COMMITTEE may make such adjustments as it shall deem appropriate, in order to prevent dilution or enlargement of rights. 20 15. Non-Transferability of Options An OPTION shall not be transferable by the OPTIONEE otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the CODE, Title I of ERISA or the rules thereunder. During the lifetime of the OPTIONEE, an OPTION may be exercised only by the OPTIONEE or by an alternate payee under a qualified domestic relations order. 16. Change in Control Upon the occurrence of a CHANGE IN CONTROL (as defined below): (a) Any time periods relating to the exercise of any OPTION granted hereunder shall be accelerated so that such OPTION may be immediately exercised in full; and (b) The COMMITTEE may offer any OPTIONEE the option of having the CORPORATION purchase his or her OPTION for an amount of cash which could have been attained upon the exercise of such OPTION had it been fully exercisable; unless the COMMITTEE in its sole discretion determines that such CHANGE IN CONTROL will not adversely

15. Non-Transferability of Options An OPTION shall not be transferable by the OPTIONEE otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the CODE, Title I of ERISA or the rules thereunder. During the lifetime of the OPTIONEE, an OPTION may be exercised only by the OPTIONEE or by an alternate payee under a qualified domestic relations order. 16. Change in Control Upon the occurrence of a CHANGE IN CONTROL (as defined below): (a) Any time periods relating to the exercise of any OPTION granted hereunder shall be accelerated so that such OPTION may be immediately exercised in full; and (b) The COMMITTEE may offer any OPTIONEE the option of having the CORPORATION purchase his or her OPTION for an amount of cash which could have been attained upon the exercise of such OPTION had it been fully exercisable; unless the COMMITTEE in its sole discretion determines that such CHANGE IN CONTROL will not adversely impact the OPTIONEES of OPTIONS hereunder and is in the best interests of the shareholders of PG&E CORPORATION. The COMMITTEE may make such further provisions with respect to a CHANGE IN CONTROL as it shall deem equitable and in the best interests of the shareholders of PG&E CORPORATION. Such provision may be made in any agreement relating to any OPTION granted hereunder, by amendment to any such agreement or by resolution of the COMMITTEE. The phrase "CHANGE IN CONTROL" shall have such meaning as ascribed thereto from time to time by the COMMITTEE and set forth in any agreement relating to any OPTION granted hereunder or by resolution of the COMMITTEE; provided, however, that, notwithstanding the foregoing, a "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the EXCHANGE ACT, but excluding any benefit plan for EMPLOYEES or any trustee, agent or other fiduciary for any such plan acting in such person's capacity as such fiduciary), directly or indirectly, becomes the beneficial owner of securities of PG&E CORPORATION representing twenty percent (20%) or more of the combined voting power of PG&E CORPORATION's then outstanding securities; (b) during any two consecutive years, individuals who at the beginning of such a period constitute the BOARD OF DIRECTORS cease for any reason to constitute at least a majority of the BOARD OF DIRECTORS, unless the election, or the nomination for election by the shareholders of PG&E CORPORATION, of each new 21

DIRECTOR was approved by a vote of at least two-thirds (2/3) of the DIRECTORS then still in office who were DIRECTORS at the beginning of the period; or (c) the shareholders of PG&E CORPORATION shall have approved (i) any consolidation or merger of PG&E CORPORATION in which PG&E CORPORATION is not the continuing or surviving corporation or pursuant to which shares of COMMON STOCK are converted into cash, securities or other property, other than a merger of PG&E CORPORATION in which the holders of the COMMON STOCK immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the CORPORATION, or (iii) any plan or proposal for the liquidation or dissolution of PG&E CORPORATION. Notwithstanding the foregoing, the phrase "CHANGE IN CONTROL" shall not apply to any reorganization or merger initiated voluntarily by PG&E CORPORATION in which PG&E CORPORATION is the continuing surviving entity.

DIRECTOR was approved by a vote of at least two-thirds (2/3) of the DIRECTORS then still in office who were DIRECTORS at the beginning of the period; or (c) the shareholders of PG&E CORPORATION shall have approved (i) any consolidation or merger of PG&E CORPORATION in which PG&E CORPORATION is not the continuing or surviving corporation or pursuant to which shares of COMMON STOCK are converted into cash, securities or other property, other than a merger of PG&E CORPORATION in which the holders of the COMMON STOCK immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the CORPORATION, or (iii) any plan or proposal for the liquidation or dissolution of PG&E CORPORATION. Notwithstanding the foregoing, the phrase "CHANGE IN CONTROL" shall not apply to any reorganization or merger initiated voluntarily by PG&E CORPORATION in which PG&E CORPORATION is the continuing surviving entity. 17. Listing and Registration of Shares Each OPTION shall be subject to the requirement that if at any time the COMMITTEE shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby under any securities exchange or under any state or federal law or the consent or approval of any governmental regulatory body, including the California Public Utilities Commission, is necessary or desirable as a condition of, or in connection with, the granting of such OPTION or the issue or purchase of shares thereunder, such OPTION may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the COMMITTEE. 18. Amendment and Termination of the Plan and Options The BOARD OF DIRECTORS or the COMMITTEE may at any time suspend, terminate, modify or amend the PLAN in any respect; provided, however, that, to the extent necessary and desirable to comply with RULE 16b3 or with Section 422 of the CODE (or any other applicable law or regulation, including the requirements of any stock exchange on which the COMMON STOCK is listed or quoted), shareholder approval of any PLAN amendment shall be obtained in such a manner and to such a degree as is required by the applicable law or regulation. No suspension, termination, modification or amendment of the PLAN may, without the consent of the OPTIONEE, adversely affect his or her rights under OPTIONS theretofore granted to such OPTIONEE. In the event of amendments to the CODE or applicable rules or regulations relating to ISOS subsequent to the date hereof, the CORPORATION may amend the PLAN, and the CORPORATION and OPTIONEES 22

holding OPTION agreements may agree to amend outstanding OPTION agreements, to conform to such amendments. The COMMITTEE may make such amendments or modifications in the terms and conditions of any OPTION as it may deem advisable, or cancel or annul any grant of an OPTION; provided, however, that no such amendment, modification, cancellation or annulment may, without the consent of the OPTIONEE, adversely affect his or her rights under such OPTION; and provided further the COMMITTEE may not reduce the OPTION PRICE or purchase price of any OPTION or OPTION below the original OPTION PRICE or purchase price. Notwithstanding the foregoing, the COMMITTEE reserves the right, in its sole discretion, to (i) convert any outstanding ISOS to NON-QUALIFIED STOCK OPTIONS, (ii) to require a OPTIONEE to forfeit any unexercised or unpurchased OPTIONS, any shares received or purchased pursuant to an OPTION, or any gains realized by virtue of the receipt of an OPTION in the event that such OPTIONEE competes against the CORPORATION, and (iii) to cancel or annul any grant of an OPTION in the event of a OPTIONEE'S

holding OPTION agreements may agree to amend outstanding OPTION agreements, to conform to such amendments. The COMMITTEE may make such amendments or modifications in the terms and conditions of any OPTION as it may deem advisable, or cancel or annul any grant of an OPTION; provided, however, that no such amendment, modification, cancellation or annulment may, without the consent of the OPTIONEE, adversely affect his or her rights under such OPTION; and provided further the COMMITTEE may not reduce the OPTION PRICE or purchase price of any OPTION or OPTION below the original OPTION PRICE or purchase price. Notwithstanding the foregoing, the COMMITTEE reserves the right, in its sole discretion, to (i) convert any outstanding ISOS to NON-QUALIFIED STOCK OPTIONS, (ii) to require a OPTIONEE to forfeit any unexercised or unpurchased OPTIONS, any shares received or purchased pursuant to an OPTION, or any gains realized by virtue of the receipt of an OPTION in the event that such OPTIONEE competes against the CORPORATION, and (iii) to cancel or annul any grant of an OPTION in the event of a OPTIONEE'S TERMINATION FOR CAUSE. For purposes of the PROGRAM, "TERMINATION FOR CAUSE" shall include, but not be limited to, termination because of dishonesty, criminal offense or violation of a work rule, and shall be determined by, and in the sole discretion of, the COMMITTEE. 19. Effective Date of the Plan and Duration The PLAN first became effective as of January 1, 1992. It has since been amended and restated. The amended and restated PLAN became effective as of January 1, 1996, upon approval by the shareholders of Pacific Gas and Electric Company at its Annual Meeting on April 17, 1996. Effective January 1, 1997, the PLAN was assumed by PG&E CORPORATION. Unless terminated sooner pursuant to Section 18 hereof, the PLAN shall terminate on December 31, 2005. 20. Definitions a. BOARD OF DIRECTORS means the Board of Directors of PG&E CORPORATION. b. CHANGE IN CONTROL has the meaning set forth in Section 16 hereof. c. CHIEF EXECUTIVE OFFICER means the Chief Executive Officer of PG&E CORPORATION. d. CODE means the Internal Revenue Code of 1986, as amended from time to time. 23 e. COMMITTEE means the Nominating and Compensation Committee of the BOARD OF DIRECTORS or any successor to such committee. f. COMMON STOCK means common shares of PG&E CORPORATION with no par value and any class of common shares into which such common shares hereafter may be converted. g. CONSULTANT means any person, including an advisor, who is engaged by the CORPORATION to render services. h. CORPORATION means PG&E CORPORATION, and any parent corporation (as defined in Section 424 (e) of the CODE) or subsidiary corporation (as defined in Section 424(f) of the CODE). i. DEA means a Dividend Equivalent Account described in Section 9 hereof. j. DIRECTOR means any person who is a member of the BOARD OF DIRECTORS or the Board of Directors

e. COMMITTEE means the Nominating and Compensation Committee of the BOARD OF DIRECTORS or any successor to such committee. f. COMMON STOCK means common shares of PG&E CORPORATION with no par value and any class of common shares into which such common shares hereafter may be converted. g. CONSULTANT means any person, including an advisor, who is engaged by the CORPORATION to render services. h. CORPORATION means PG&E CORPORATION, and any parent corporation (as defined in Section 424 (e) of the CODE) or subsidiary corporation (as defined in Section 424(f) of the CODE). i. DEA means a Dividend Equivalent Account described in Section 9 hereof. j. DIRECTOR means any person who is a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation (as defined in Section 424(e) of the CODE) which may hereafter be established, including an advisory, emeritus or honorary director. k. DIVIDEND EQUIVALENT means a right that entitles the OPTIONEE to receive cash or COMMON STOCK based on the dividends declared on the COMMON STOCK covered by such right. l. ELIGIBLE PARTICIPANT means any KEY EMPLOYEE. It also means, if so identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of OPTIONS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof), other EMPLOYEES, DIRECTORS, CONSULTANTS, employees or consultants of any affiliates of PG&E CORPORATION, and other persons whose participation in the PROGRAM is deemed by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of OPTIONS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof) to be in the best interests of the CORPORATION; provided, however, that DIRECTORS who are not EMPLOYEES shall not be ELIGIBLE PARTICIPANTS for purposes of the PLAN. m. EMPLOYEE means any person who is employed by the CORPORATION. The payment of a director's fee or consulting fee by the CORPORATION shall not be sufficient to constitute "employment" by the CORPORATION. 24 n. ERISA means the Employee Retirement Income Security Act of 1974, as amended. o. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. p. FAIR MARKET VALUE means the closing price of the COMMON STOCK reported on the New York Stock Exchange Composite Transactions for the date specified for determining such value. q. ISO means an OPTION intended to qualify as an incentive stock option under Section 422 of the CODE. r. KEY EMPLOYEE means the Corporate Secretary, Treasurer, Vice Presidents and other executive officers of PG&E CORPORATION above the rank of Vice President. It also means, if so identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of OPTIONS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof), executive officers of wholly-owned subsidiaries of PG&E CORPORATION (including subsidiaries which become such after adoption of the PROGRAM) and any other key management employee of PG&E CORPORATION or any wholly-owned subsidiary of PG&E CORPORATION. s. NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE.

n. ERISA means the Employee Retirement Income Security Act of 1974, as amended. o. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. p. FAIR MARKET VALUE means the closing price of the COMMON STOCK reported on the New York Stock Exchange Composite Transactions for the date specified for determining such value. q. ISO means an OPTION intended to qualify as an incentive stock option under Section 422 of the CODE. r. KEY EMPLOYEE means the Corporate Secretary, Treasurer, Vice Presidents and other executive officers of PG&E CORPORATION above the rank of Vice President. It also means, if so identified by the COMMITTEE (or by the CHIEF EXECUTIVE OFFICER, in the case of OPTIONS granted by the CHIEF EXECUTIVE OFFICER to certain ELIGIBLE PARTICIPANTS pursuant to Section 2 hereof), executive officers of wholly-owned subsidiaries of PG&E CORPORATION (including subsidiaries which become such after adoption of the PROGRAM) and any other key management employee of PG&E CORPORATION or any wholly-owned subsidiary of PG&E CORPORATION. s. NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE. t. NON-QUALIFIED STOCK OPTION means any OPTION which is not an ISO. u. OPTION means an option to purchase shares of COMMON STOCK granted under the PLAN. v. OPTIONEE means the ELIGIBLE PARTICIPANT receiving the OPTION, or his or her legal representative, legatees, distributees or alternate payees, as the case may be. w. OPTION PRICE means the purchase price for the COMMON STOCK upon exercise of an OPTION. x. PG&E CORPORATION means PG&E CORPORATION, a California corporation. 25 y. PLAN means this Stock Option Plan as amended and restated herein and as may be amended from time to time, or any successor plan which the COMMITTEE may adopt from time to time with respect to the grant of OPTIONS under the PROGRAM. z. PROGRAM means the PG&E Corporation Long-Term Incentive Program, as amended and restated effective as of January 1, 1997, and as may be amended from time to time, pursuant to which the PLAN is adopted. aa. RETIREMENT means the Actual Retirement Date under the Pacific Gas and Electric Company Retirement Plan. ab. RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the PLAN. ac. SAR means a stock appreciation right whose value is based on the increase in the FAIR MARKET VALUE of the COMMON STOCK covered by such right. ad. SECTION 16 OFFICER means any person who is designated by the BOARD OF DIRECTORS as an executive officer of PG&E CORPORATION and any other person who is designated as an officer of PG&E CORPORATION for purposes of Section 16 of the EXCHANGE ACT. ae. TANDEM refers to a DIVIDEND EQUIVALENT or SAR (as the case may be) granted in conjunction with an OPTION.

y. PLAN means this Stock Option Plan as amended and restated herein and as may be amended from time to time, or any successor plan which the COMMITTEE may adopt from time to time with respect to the grant of OPTIONS under the PROGRAM. z. PROGRAM means the PG&E Corporation Long-Term Incentive Program, as amended and restated effective as of January 1, 1997, and as may be amended from time to time, pursuant to which the PLAN is adopted. aa. RETIREMENT means the Actual Retirement Date under the Pacific Gas and Electric Company Retirement Plan. ab. RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the PLAN. ac. SAR means a stock appreciation right whose value is based on the increase in the FAIR MARKET VALUE of the COMMON STOCK covered by such right. ad. SECTION 16 OFFICER means any person who is designated by the BOARD OF DIRECTORS as an executive officer of PG&E CORPORATION and any other person who is designated as an officer of PG&E CORPORATION for purposes of Section 16 of the EXCHANGE ACT. ae. TANDEM refers to a DIVIDEND EQUIVALENT or SAR (as the case may be) granted in conjunction with an OPTION. af. TERMINATION occurs when an EMPLOYEE ceases to be employed by the CORPORATION as a common law employee, when a DIRECTOR ceases to be a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation which may hereafter be established (as the case may be), or when the relationship between the CORPORATION and a CONSULTANT or other ELIGIBLE PARTICIPANT terminates, as the case may be. ag. TERMINATION FOR CAUSE has the meaning set forth in Section 12 hereof. 26

EXHIBIT B PERFORMANCE UNIT PLAN OF PG&E CORPORATION (As amended and restated effective as of January 1, 1997) This is the controlling and definitive statement of the Performance Unit Plan ("PLAN"/3/) for ELIGIBLE EMPLOYEES of PG&E CORPORATION ("CORPORATION") and such other companies, affiliates, subsidiaries, or associations as the BOARD OF DIRECTORS may designate from time to time. The PLAN was first adopted by the BOARD in 1989 and was effective January 1, 1990. It has since been amended from time to time. ARTICLE I DEFINITIONS 1.01 Board of Directors or Board shall mean the BOARD OF DIRECTORS of the CORPORATION or, when appropriate, any committee of the BOARD which has been delegated the authority to take action with respect to the PLAN. 1.02 Committee shall mean the Nominating and Compensation Committee of the BOARD OF DIRECTORS.

EXHIBIT B PERFORMANCE UNIT PLAN OF PG&E CORPORATION (As amended and restated effective as of January 1, 1997) This is the controlling and definitive statement of the Performance Unit Plan ("PLAN"/3/) for ELIGIBLE EMPLOYEES of PG&E CORPORATION ("CORPORATION") and such other companies, affiliates, subsidiaries, or associations as the BOARD OF DIRECTORS may designate from time to time. The PLAN was first adopted by the BOARD in 1989 and was effective January 1, 1990. It has since been amended from time to time. ARTICLE I DEFINITIONS 1.01 Board of Directors or Board shall mean the BOARD OF DIRECTORS of the CORPORATION or, when appropriate, any committee of the BOARD which has been delegated the authority to take action with respect to the PLAN. 1.02 Committee shall mean the Nominating and Compensation Committee of the BOARD OF DIRECTORS. 1.03 Corporation shall mean PG&E CORPORATION, a California corporation. 1.04 Eligible Employee shall mean employees of the CORPORATION who are officers at the vice presidential level or above, the corporate secretary, the controller, and the treasurer of the CORPORATION, and such other employees of the CORPORATION, other companies, affiliates, subsidiaries, or associations as may be designated by the COMMITTEE. 1.05 Performance Targets shall mean the annual CORPORATION financial and operational goals adopted by the COMMITTEE to be used in determining awards under the PLAN. 1.06 Plan shall mean the Performance Unit Plan ("PUP") as set forth herein and as may be amended from time to time. /3/ Words in all capitals are defined in Article I. 27 1.07 Plan Administrator shall mean the COMMITTEE or such individual or individuals as that COMMITTEE may appoint to handle the day-to-day affairs of the PLAN. 1.08 Price shall mean the average market price of STOCK for the last 30-day period of the YEAR preceding the YEAR in which UNITS are payable. 1.09 PUP Units shall mean the units granted to ELIGIBLE EMPLOYEES who participate in the PLAN. A PUP UNIT has the equivalent value of the current market price of a share of STOCK at the time of grant. 1.10 Stock shall mean the common stock of the CORPORATION and any class of common shares into which such STOCK hereafter may be converted. 1.11 Vesting Period shall mean the three calendar YEARS commencing with the YEAR in which PUP UNITS are granted. 1.12 Year shall mean a calendar year.

1.07 Plan Administrator shall mean the COMMITTEE or such individual or individuals as that COMMITTEE may appoint to handle the day-to-day affairs of the PLAN. 1.08 Price shall mean the average market price of STOCK for the last 30-day period of the YEAR preceding the YEAR in which UNITS are payable. 1.09 PUP Units shall mean the units granted to ELIGIBLE EMPLOYEES who participate in the PLAN. A PUP UNIT has the equivalent value of the current market price of a share of STOCK at the time of grant. 1.10 Stock shall mean the common stock of the CORPORATION and any class of common shares into which such STOCK hereafter may be converted. 1.11 Vesting Period shall mean the three calendar YEARS commencing with the YEAR in which PUP UNITS are granted. 1.12 Year shall mean a calendar year. ARTICLE II 2.01 Prior to the beginning of each YEAR, the COMMITTEE shall determine whether PUP UNITS will be granted for such YEAR, the ELIGIBLE EMPLOYEES to whom PUP UNITS will be granted, and the number of PUP UNITS to be granted to each ELIGIBLE EMPLOYEE. Employees who become ELIGIBLE EMPLOYEES after the beginning of a YEAR shall be entitled to a prorata grant of PUP UNITS. 2.02 At the same time that the COMMITTEE makes its determination as to the granting of PUP UNITS, it shall also establish PERFORMANCE TARGETS. Although it is intended that PERFORMANCE TARGETS will not change in the course of the YEAR, the COMMITTEE reserves the right to modify or adjust a previously set PERFORMANCE TARGET if, in its sole discretion, extraordinary events warrant such modification or adjustment; provided, however, that no such modification or adjustment shall increase the amount of any payment that would otherwise be due based upon performance as measured against the original PERFORMANCE TARGET. 2.03 Each grant of PUP UNITS shall have its own VESTING PERIOD. Subject to modification as measured against a given YEAR's applicable PERFORMANCE TARGET, each grant of PUP UNITS shall be payable as follows: a. One-third after the end of the first YEAR of the VESTING PERIOD; b. One-third after the end of the second YEAR of the VESTING PERIOD; and 28

c. One-third after the end of the third YEAR of the VESTING PERIOD. 2.04 To determine the number of PUP UNITS earned, the applicable PERFORMANCE TARGET shall be the PERFORMANCE TARGET for the YEAR in which the PUP UNITS vest. Performance as measured against the applicable PERFORMANCE TARGET for a YEAR shall modify all PUP UNITS that vest at the end of such YEAR. The PERFORMANCE TARGETS established by the COMMITTEE may modify the number of UNITS earned from 0% to 200% of the number of vested UNITS. 2.05 ELIGIBLE EMPLOYEES shall receive a cash payment as soon as practicable following the YEAR PUP UNITS vest pursuant to the schedule set forth in Section 2.03. The amount of the payment shall be equal to the product of the number of PUP UNITS earned multiplied by the PRICE of STOCK. 2.06 Each time that the CORPORATION declares a dividend on its STOCK, an amount equal to the dividend multiplied by an ELIGIBLE EMPLOYEE's outstanding, but unearned PUP UNITS, shall be accrued on behalf of each ELIGIBLE EMPLOYEE. As soon as practicable following the end of each YEAR, ELIGIBLE

c. One-third after the end of the third YEAR of the VESTING PERIOD. 2.04 To determine the number of PUP UNITS earned, the applicable PERFORMANCE TARGET shall be the PERFORMANCE TARGET for the YEAR in which the PUP UNITS vest. Performance as measured against the applicable PERFORMANCE TARGET for a YEAR shall modify all PUP UNITS that vest at the end of such YEAR. The PERFORMANCE TARGETS established by the COMMITTEE may modify the number of UNITS earned from 0% to 200% of the number of vested UNITS. 2.05 ELIGIBLE EMPLOYEES shall receive a cash payment as soon as practicable following the YEAR PUP UNITS vest pursuant to the schedule set forth in Section 2.03. The amount of the payment shall be equal to the product of the number of PUP UNITS earned multiplied by the PRICE of STOCK. 2.06 Each time that the CORPORATION declares a dividend on its STOCK, an amount equal to the dividend multiplied by an ELIGIBLE EMPLOYEE's outstanding, but unearned PUP UNITS, shall be accrued on behalf of each ELIGIBLE EMPLOYEE. As soon as practicable following the end of each YEAR, ELIGIBLE EMPLOYEES shall receive a cash payment of the dividends accrued for that YEAR, modified by performance for that YEAR as measured under Section 2.04. 2.07 An ELIGIBLE EMPLOYEE may elect to defer the payment of PUP UNITS and/or dividends paid on PUP UNITS by making a timely election under the Deferred Compensation Plan. Deferrals of benefits payable under this Plan shall be subject to the rules contained in the Deferred Compensation Plan governing elections to defer and receipt of deferred amounts. ARTICLE III 3.01 Retirement. Upon retirement under the terms of Pacific Gas and Electric Company's Retirement Plan, all outstanding PUP UNITS continue to be payable according to the terms of the PLAN. Thus, the number of UNITS eventually earned by a retired employee is still subject to modification depending on the extent to which applicable PERFORMANCE TARGETS are met during the YEAR preceding the January in which UNITS become payable under the schedule of Section 2.03. A retired employee is not entitled to receive grants of PUP UNITS after normal or early retirement date, as those terms are defined under Pacific Gas and Electric Company's Retirement Plan. 3.02 Disability. If an ELIGIBLE EMPLOYEE is both disabled and entitled to receive benefits under Pacific Gas and Electric Company's Long Term Disability Plan, UNITS granted prior to the date of disability shall continue to be payable 29

according to the terms of this PLAN. An ELIGIBLE EMPLOYEE is not entitled to receive grants of PUP UNITS after the date of disability as determined under the provisions of the Long Term Disability Plan. If an ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE because of disability and is not entitled to receive benefits under Pacific Gas and Electric Company's Long Term Disability Plan, all outstanding grants of PUP UNITS become vested and payable as soon as practicable in the YEAR following the YEAR in which the ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE. All of the UNITS payable shall be subject to modification based upon performance as measured against the PERFORMANCE TARGET for the YEAR in which the ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE. 3.03 Death. In the event of the death of an ELIGIBLE EMPLOYEE, all outstanding grants of PUP UNITS held by the ELIGIBLE EMPLOYEE at the date of death shall become vested and payable as soon as practicable in the YEAR following the YEAR of death. All of the UNITS payable after an ELIGIBLE EMPLOYEE's death shall be subject to modification based upon performance as measured against the PERFORMANCE TARGET for the YEAR in which the death of the ELIGIBLE EMPLOYEE occurs. 3.04 Termination. If an ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE for any reason other than retirement as defined under Pacific Gas and Electric Company's Retirement Plan, disability, or death, all outstanding grants of PUP UNITS shall be canceled as of the date that the ELIGIBLE EMPLOYEE ceases to

according to the terms of this PLAN. An ELIGIBLE EMPLOYEE is not entitled to receive grants of PUP UNITS after the date of disability as determined under the provisions of the Long Term Disability Plan. If an ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE because of disability and is not entitled to receive benefits under Pacific Gas and Electric Company's Long Term Disability Plan, all outstanding grants of PUP UNITS become vested and payable as soon as practicable in the YEAR following the YEAR in which the ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE. All of the UNITS payable shall be subject to modification based upon performance as measured against the PERFORMANCE TARGET for the YEAR in which the ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE. 3.03 Death. In the event of the death of an ELIGIBLE EMPLOYEE, all outstanding grants of PUP UNITS held by the ELIGIBLE EMPLOYEE at the date of death shall become vested and payable as soon as practicable in the YEAR following the YEAR of death. All of the UNITS payable after an ELIGIBLE EMPLOYEE's death shall be subject to modification based upon performance as measured against the PERFORMANCE TARGET for the YEAR in which the death of the ELIGIBLE EMPLOYEE occurs. 3.04 Termination. If an ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE for any reason other than retirement as defined under Pacific Gas and Electric Company's Retirement Plan, disability, or death, all outstanding grants of PUP UNITS shall be canceled as of the date that the ELIGIBLE EMPLOYEE ceases to be an ELIGIBLE EMPLOYEE. ARTICLE IV ADMINISTRATIVE PROVISIONS 4.01 Administration. The PLAN shall be administered by the PLAN ADMINISTRATOR who shall have the authority to interpret the PLAN and make such rules as it deems appropriate. The PLAN ADMINISTRATOR shall have the duty and responsibility of maintaining records, making the requisite calculations, and disbursing payments hereunder. The PLAN ADMINISTRATOR's interpretations, determinations, rules, and calculations shall be final and binding on all persons and parties concerned. 4.02 Amendment and Termination. The CORPORATION may amend or terminate the PLAN at any time, provided, however, that no such amendment or termination shall adversely affect PUP UNITS which an ELIGIBLE EMPLOYEE has earned prior to the date of such amendment or termination. PUP UNITS outstanding but unearned at the date of any such amendment or termination may, in the sole discretion of the CORPORATION, be canceled, and the CORPORATION shall have no obligation to provide a substitute benefit of lesser, equal, or greater value. 30

4.03 Nonassignability of Benefits. The benefits payable under this PLAN or the right to receive future benefits under this PLAN may not be anticipated, alienated, pledged, encumbered, or subject to any charge or legal process, and if any attempt is made to do so, or a person eligible for any benefits becomes bankrupt, the interest under the PLAN of the person affected may be terminated by the PLAN ADMINISTRATOR which, in its sole discretion, may cause the same to be held if applied for the benefit of one or more of the dependents of such person or make any other disposition of such benefits that it deems appropriate. 4.04 No Guarantee of Employment. Nothing contained in this PLAN shall be construed as a contract of employment between the CORPORATION or the ELIGIBLE EMPLOYEE, or as a right of the ELIGIBLE EMPLOYEE to be continued in the employ of the CORPORATION, to remain as an officer of the CORPORATION, or as a limitation on the right of the CORPORATION to discharge any of its employees, with or without cause. 4.05 Benefits Unfunded and Unsecured. The benefits under this PLAN are unfunded, and the interest under this PLAN of any ELIGIBLE EMPLOYEE and such ELIGIBLE EMPLOYEE's right to receive a distribution of benefits under this PLAN shall be an unsecured claim against the general assets of the CORPORATION. 4.06 Applicable Law. All questions pertaining to the construction, validity, and effect of the PLAN shall be determined in accordance with the laws of the United States, and to the extent not preempted by such laws, by the laws of the State of California. 31

EXHIBIT C PG&E CORPORATION NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN (As amended and restated effective as of January 1, 1998) 1. Purpose of the Plan This is the controlling and definitive statement of the PG&E Corporation Non-Employee Director Stock Incentive Plan (hereinafter called the PLAN/4/). The purpose of the PLAN is to advance the interests of the CORPORATION by providing NON-EMPLOYEE DIRECTORS with financial incentives to promote the success of its long-term (five to ten years) business objectives, and to increase their proprietary interest in the success of the CORPORATION. Inasmuch as the PLAN is designed to encourage financial performance and to improve the value of shareholders' investment in PG&E CORPORATION, the costs of the PLAN will be funded from corporate earnings. 2. Formula Awards of Director Restricted Stock, Non-Qualified Stock Options and Phantom Stock to Non-Employee Directors All awards of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK under the PLAN shall be automatic and non-discretionary, and shall be made strictly in accordance with the provisions contained herein. No person shall have any discretion to select which NONEMPLOYEE DIRECTORS shall be granted DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS or PHANTOM STOCK. Further, no person shall have any discretion to determine the number of shares of DIRECTOR RESTRICTED STOCK awarded to a NON-EMPLOYEE DIRECTOR, and, except as otherwise provided in Section 4 with respect to a NON-EMPLOYEE DIRECTOR'S election to allocate formula awards between NON- QUALIFIED STOCK OPTIONS and PHANTOM STOCK, no person shall have any discretion to determine the number of shares underlying NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK awarded to a NON-EMPLOYEE DIRECTOR. 3. Awards of Director Restricted Stock (a) On the first business day of each calendar year beginning on January 1, 1998, during the duration of the PLAN, each person who is a NON- EMPLOYEE DIRECTOR on the first business day of the applicable

EXHIBIT C PG&E CORPORATION NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN (As amended and restated effective as of January 1, 1998) 1. Purpose of the Plan This is the controlling and definitive statement of the PG&E Corporation Non-Employee Director Stock Incentive Plan (hereinafter called the PLAN/4/). The purpose of the PLAN is to advance the interests of the CORPORATION by providing NON-EMPLOYEE DIRECTORS with financial incentives to promote the success of its long-term (five to ten years) business objectives, and to increase their proprietary interest in the success of the CORPORATION. Inasmuch as the PLAN is designed to encourage financial performance and to improve the value of shareholders' investment in PG&E CORPORATION, the costs of the PLAN will be funded from corporate earnings. 2. Formula Awards of Director Restricted Stock, Non-Qualified Stock Options and Phantom Stock to Non-Employee Directors All awards of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK under the PLAN shall be automatic and non-discretionary, and shall be made strictly in accordance with the provisions contained herein. No person shall have any discretion to select which NONEMPLOYEE DIRECTORS shall be granted DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS or PHANTOM STOCK. Further, no person shall have any discretion to determine the number of shares of DIRECTOR RESTRICTED STOCK awarded to a NON-EMPLOYEE DIRECTOR, and, except as otherwise provided in Section 4 with respect to a NON-EMPLOYEE DIRECTOR'S election to allocate formula awards between NON- QUALIFIED STOCK OPTIONS and PHANTOM STOCK, no person shall have any discretion to determine the number of shares underlying NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK awarded to a NON-EMPLOYEE DIRECTOR. 3. Awards of Director Restricted Stock (a) On the first business day of each calendar year beginning on January 1, 1998, during the duration of the PLAN, each person who is a NON- EMPLOYEE DIRECTOR on the first business day of the applicable calendar year shall receive a grant of DIRECTOR RESTRICTED STOCK in an amount to be determined in accordance with the formula set forth in /4/ Capitalized words are defined in Section 15 hereof. 32

this Section 3(a). The number of shares of DIRECTOR RESTRICTED STOCK to be granted to each NONEMPLOYEE DIRECTOR each calendar year shall be determined by (i) dividing ten thousand dollars ($10,000) by the FAIR MARKET VALUE of the COMMON STOCK on the first business day of the applicable calendar year, and (ii) rounding the resulting number down to the nearest whole share. No person shall receive more than one (1) grant of DIRECTOR RESTRICTED STOCK during any calendar year. (b) Shares of DIRECTOR RESTRICTED STOCK shall vest cumulatively as follows:(i) twenty percent (20%) of such shares on the first anniversary of the date of grant; (ii) forty percent (40%) of such shares on the second anniversary of the date of grant; (iii) sixty percent (60%) of such shares on the third anniversary of the date of grant; (iv) eighty percent (80%) of such shares on the fourth anniversary of the date of grant; and (v) one hundred percent (100%) of such shares on the fifth anniversary of the date of grant. Shares of DIRECTOR RESTRICTED STOCK may not be resold or otherwise transferred by a GRANTEE until such shares are vested in accordance with the provisions of this Section 3(b).

this Section 3(a). The number of shares of DIRECTOR RESTRICTED STOCK to be granted to each NONEMPLOYEE DIRECTOR each calendar year shall be determined by (i) dividing ten thousand dollars ($10,000) by the FAIR MARKET VALUE of the COMMON STOCK on the first business day of the applicable calendar year, and (ii) rounding the resulting number down to the nearest whole share. No person shall receive more than one (1) grant of DIRECTOR RESTRICTED STOCK during any calendar year. (b) Shares of DIRECTOR RESTRICTED STOCK shall vest cumulatively as follows:(i) twenty percent (20%) of such shares on the first anniversary of the date of grant; (ii) forty percent (40%) of such shares on the second anniversary of the date of grant; (iii) sixty percent (60%) of such shares on the third anniversary of the date of grant; (iv) eighty percent (80%) of such shares on the fourth anniversary of the date of grant; and (v) one hundred percent (100%) of such shares on the fifth anniversary of the date of grant. Shares of DIRECTOR RESTRICTED STOCK may not be resold or otherwise transferred by a GRANTEE until such shares are vested in accordance with the provisions of this Section 3(b). 4. Annual Election to Receive Non-Qualified Stock Options and Phantom Stock By June 30 of each calendar year during the term of the Plan, each person who is then a NON-EMPLOYEE DIRECTOR shall deliver to the Corporate Secretary a written election to receive either NON-QUALIFIED STOCK OPTIONS or PHANTOM STOCK, or both, on the first business day of the following calendar year, provided the person continues to be a NON-EMPLOYEE DIRECTOR on the date the award would otherwise be made. A NON-EMPLOYEE DIRECTOR may allocate between NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK in minimum increments with a value equal to $5,000, as determined in accordance with Section 5 below with respect to NON-QUALIFIFED STOCK OPTIONS, and Section 6 below, with respect to PHANTOM STOCK. All awards of NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK made to NON-EMPLOYEE DIRECTORS shall comply with Section 5 and Section 6 below, respectively. A NON-EMPLOYEE DIRECTOR who has failed to make a timely election or who became a NON-EMPLOYEE DIRECTOR after June 30 shall be awarded NONQUALIFIED STOCK OPTIONS and PHANTOM STOCK, each with a value of $10,000 as determined in accordance with Section 5 and Section 6, respectively, provided that the NON-EMPLOYEE DIRECTOR continues to be a NON-EMPLOYEE DIRECTOR on the on the first business day of the following calendar year. Notwithstanding the foregoing, elections for calendar year 1998 must be received by December 31, 1997, to be effective on the first business day of calendar year 1998. 33 5. Grant of Non-Qualified Stock Options to Non-Employee Directors (a) On the first business day of each calendar year beginning on January 1, 1998, during the duration of the PLAN, each person who is then a NON-EMPLOYEE DIRECTOR and who has elected to receive an award of NON- QUALIFIED STOCK OPTIONS in accordance with Section 4, shall receive a grant of NONQUALIFIED STOCK OPTIONS with a value (as determined in accordance with the Black-Scholes stock option valuation method which will use the average November closing price of PG&E Corporation stock as the value for PG&E Corporation stock) equal to $5,000, $10,000, $15,000, or $20,000, as previously elected by the NON-EMPLOYEE DIRECTOR (the "Elected Option Value"), provided, however that a NONEMPLOYEE DIRECTOR who has failed to make a timely election in accordance with Section 4 shall receive a grant of NON-QUALIFIED STOCK OPTIONS with a value (as determined in accordance with the BlackScholes stock option valuation method which will use the average November closing price of PG&E Corporation stock as the value for PG&E Corporation stock) equal to $10,000. The number of shares subject to the NONQUALIFIED STOCK OPTIONS to be granted to each NON-EMPLOYEE DIRECTOR each calendar year shall be that number which will yield a present value of the NON-QUALIFIED STOCK OPTIONS, as of the first business day of the applicable calendar year, equal to (i) the Elected Option Value (or $10,000 in the case of a NON-EMPLOYEE DIRECTOR who has failed to make a timely election in accordance with Section 4 or who became a NON-EMPLOYEE DIRECTOR after June 30), and (ii) rounding the resulting number down to the nearest whole share. No person shall receive more than one grant of NON-QUALIFIED STOCK OPTIONS during any calendar year.

5. Grant of Non-Qualified Stock Options to Non-Employee Directors (a) On the first business day of each calendar year beginning on January 1, 1998, during the duration of the PLAN, each person who is then a NON-EMPLOYEE DIRECTOR and who has elected to receive an award of NON- QUALIFIED STOCK OPTIONS in accordance with Section 4, shall receive a grant of NONQUALIFIED STOCK OPTIONS with a value (as determined in accordance with the Black-Scholes stock option valuation method which will use the average November closing price of PG&E Corporation stock as the value for PG&E Corporation stock) equal to $5,000, $10,000, $15,000, or $20,000, as previously elected by the NON-EMPLOYEE DIRECTOR (the "Elected Option Value"), provided, however that a NONEMPLOYEE DIRECTOR who has failed to make a timely election in accordance with Section 4 shall receive a grant of NON-QUALIFIED STOCK OPTIONS with a value (as determined in accordance with the BlackScholes stock option valuation method which will use the average November closing price of PG&E Corporation stock as the value for PG&E Corporation stock) equal to $10,000. The number of shares subject to the NONQUALIFIED STOCK OPTIONS to be granted to each NON-EMPLOYEE DIRECTOR each calendar year shall be that number which will yield a present value of the NON-QUALIFIED STOCK OPTIONS, as of the first business day of the applicable calendar year, equal to (i) the Elected Option Value (or $10,000 in the case of a NON-EMPLOYEE DIRECTOR who has failed to make a timely election in accordance with Section 4 or who became a NON-EMPLOYEE DIRECTOR after June 30), and (ii) rounding the resulting number down to the nearest whole share. No person shall receive more than one grant of NON-QUALIFIED STOCK OPTIONS during any calendar year. (b) The OPTION PRICE of the COMMON STOCK subject under each NON-QUALIFIED STOCK OPTION shall be the FAIR MARKET VALUE of the COMMON STOCK on the date of grant. The exercise of any NON-QUALIFIED STOCK OPTION shall be contingent upon receipt by the CORPORATION of (i) cash, (ii) check, (iii) shares of COMMON STOCK, (iv) an executed exercise notice together with irrevocable instructions to a broker to either sell the shares subject to the NON-QUALIFIED STOCK OPTION or hold such shares as collateral for a margin loan and to promptly deliver to the CORPORATION the amount of sale or loan proceeds required to pay the OPTION PRICE, or (v) any combination of the foregoing in an amount equal to the full OPTION PRICE of the shares being purchased. For purposes of this paragraph, shares of COMMON STOCK that are delivered in payment of the OPTION PRICE must have been previously owned by the GRANTEE for a minimum of one year, and shall be valued at their FAIR MARKET VALUE as of the date of the exercise of the NON-QUALIFIED STOCK 34

OPTION. The CORPORATION shall not make loans to any GRANTEE for the purpose of exercising NONQUALIFIED STOCK OPTIONS. (c) Each NON-QUALIFIED STOCK OPTION granted under the Plan shall become exercisable and vested cumulatively as follows: (i) up to thirty-three percent (33%) of the NON-QUALIFIED STOCK OPTION may be exercised on or after the second anniversary of the date of grant; (ii) up to sixty- six percent (66%) of the NON-QUALIFIED STOCK OPTION may be exercised on or after the third anniversary of the date of grant; and (iii) up to one hundred sixty percent (100%) of the NON-QUALIFIED STOCK OPTION may be exercised on or after the fourth anniversary of the date of grant. (d) The term of each NON-QUALIFIED STOCK OPTION shall be ten years and one day from the date of grant, subject to earlier termination as provided in Section 9 hereof. Any provision of the PLAN to the contrary notwithstanding, no NON-QUALIFIED STOCK OPTION shall be exercised after the time limitations stated in this Section 5(d). 6. Awards of Phantom Stock to Non-Employee Directors (a) On the first business day of each calendar year beginning on January 1, 1998, during the duration of the PLAN, each person who is then a NON-EMPLOYEE DIRECTOR and who has elected to receive an award of PHANTOM STOCK in accordance with Section 4, shall be credited with an amount of PHANTOM STOCK with a value (as determined by the FAIR MARKET VALUE of the COMMON STOCK on the first business day of the applicable calendar year) equal to $5,000, $10,000, $15,000, or $20,000, as previously elected by

OPTION. The CORPORATION shall not make loans to any GRANTEE for the purpose of exercising NONQUALIFIED STOCK OPTIONS. (c) Each NON-QUALIFIED STOCK OPTION granted under the Plan shall become exercisable and vested cumulatively as follows: (i) up to thirty-three percent (33%) of the NON-QUALIFIED STOCK OPTION may be exercised on or after the second anniversary of the date of grant; (ii) up to sixty- six percent (66%) of the NON-QUALIFIED STOCK OPTION may be exercised on or after the third anniversary of the date of grant; and (iii) up to one hundred sixty percent (100%) of the NON-QUALIFIED STOCK OPTION may be exercised on or after the fourth anniversary of the date of grant. (d) The term of each NON-QUALIFIED STOCK OPTION shall be ten years and one day from the date of grant, subject to earlier termination as provided in Section 9 hereof. Any provision of the PLAN to the contrary notwithstanding, no NON-QUALIFIED STOCK OPTION shall be exercised after the time limitations stated in this Section 5(d). 6. Awards of Phantom Stock to Non-Employee Directors (a) On the first business day of each calendar year beginning on January 1, 1998, during the duration of the PLAN, each person who is then a NON-EMPLOYEE DIRECTOR and who has elected to receive an award of PHANTOM STOCK in accordance with Section 4, shall be credited with an amount of PHANTOM STOCK with a value (as determined by the FAIR MARKET VALUE of the COMMON STOCK on the first business day of the applicable calendar year) equal to $5,000, $10,000, $15,000, or $20,000, as previously elected by the NON-EMPLOYEE DIRECTOR (the "Elected Phantom Stock Value"). The number of shares of PHANTOM STOCK to be granted to each NON-EMPLOYEE DIRECTOR each calendar year shall be determined by (i) dividing the Elected Phantom Stock Value (or $10,000 in the case of a NON-EMPLOYEE DIRECTOR who has failed to make a timely election in accordance with Section 4 or who became a NON-EMPLOYEE DIRECTOR after June 30) by the FAIR MARKET VALUE of the COMMON STOCK on the first business day of the applicable calendar year and (ii) rounding the resulting number down to the nearest whole share. No person shall receive more than one grant of PHANTOM STOCK during any calendar year. The shares of PHANTOM STOCK awarded to a NON-EMPLOYEE DIRECTOR shall be credited to a newly established PHANTOM STOCK account for the NON- EMPLOYEE DIRECTOR. Each share of PHANTOM STOCK shall be deemed to be equal to one share of COMMON STOCK on the date of grant, and shall thereafter flucuate in value in accordance with the FAIR MARKET VALUE of the COMMON STOCK. 35

(b) Each NON-EMPLOYEE DIRECTORS' PHANTOM STOCK account shall be credited quarterly on each dividend record date with additional shares of PHANTOM STOCK determined by (i) dividing the amount of dividends which would have been paid on the number of shares of COMMON STOCK equal to the number of shares of PHANTOM STOCK previously credited to the PHANTOM STOCK account by the FAIR MARKET VALUE of the COMMON STOCK on the dividend record date, and (ii) rounding the resulting number down to the nearest whole share of PHANTOM STOCK. No additional shares of PHANTOM STOCK shall be credited to a NON-EMPLOYEE DIRECTOR'S account after the date of the NONEMPLOYEE DIRECTOR'S TERMINATION. (c) Payment of the shares of PHANTOM STOCK credited to a NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall only be made after the NON- EMPLOYEE DIRECTOR'S RETIREMENT or MANDATORY RETIREMENT from the BOARD OF DIRECTORS. Payment shall be made only in the form of shares of COMMON STOCK equal to the number of shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account on the date of RETIREMENT or MANDATORY RETIREMENT. The NON-EMPLOYEE DIRECTOR may elect to receive the number of shares of COMMON STOCK to which he is entitled in a lump sum distribution of the entire amount or in an equal number of annual installments over a period not to exceed ten years from the date of the NONEMPLOYEE DIRECTOR'S RETIREMENT or MANDATORY RETIREMENT. 7. Shares of Stock Subject to the Plan

(b) Each NON-EMPLOYEE DIRECTORS' PHANTOM STOCK account shall be credited quarterly on each dividend record date with additional shares of PHANTOM STOCK determined by (i) dividing the amount of dividends which would have been paid on the number of shares of COMMON STOCK equal to the number of shares of PHANTOM STOCK previously credited to the PHANTOM STOCK account by the FAIR MARKET VALUE of the COMMON STOCK on the dividend record date, and (ii) rounding the resulting number down to the nearest whole share of PHANTOM STOCK. No additional shares of PHANTOM STOCK shall be credited to a NON-EMPLOYEE DIRECTOR'S account after the date of the NONEMPLOYEE DIRECTOR'S TERMINATION. (c) Payment of the shares of PHANTOM STOCK credited to a NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall only be made after the NON- EMPLOYEE DIRECTOR'S RETIREMENT or MANDATORY RETIREMENT from the BOARD OF DIRECTORS. Payment shall be made only in the form of shares of COMMON STOCK equal to the number of shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account on the date of RETIREMENT or MANDATORY RETIREMENT. The NON-EMPLOYEE DIRECTOR may elect to receive the number of shares of COMMON STOCK to which he is entitled in a lump sum distribution of the entire amount or in an equal number of annual installments over a period not to exceed ten years from the date of the NONEMPLOYEE DIRECTOR'S RETIREMENT or MANDATORY RETIREMENT. 7. Shares of Stock Subject to the Plan There shall be reserved for use under the PLAN and for the grant of any other INCENTIVE AWARDS pursuant to the PROGRAM (subject to the provisions of Section 10 hereof) a total of 23,289,230 shares of COMMON STOCK, which shares may be authorized but unissued shares of COMMON STOCK or issued shares of COMMON STOCK which shall have been reacquired by PG&E CORPORATION. 8. Dividend, Voting and Other Shareholder Rights Except as otherwise provided in the PLAN, each GRANTEE shall have all of the rights of a shareholder of PG&E CORPORATION with respect to all outstanding shares of DIRECTOR RESTRICTED STOCK registered in his or her name, whether or not such shares are vested, including the right to receive dividends and other distributions paid or made with respect to such shares and the right to vote such shares. No GRANTEE shall have any of the rights of a shareholder of PG&E CORPORATION with respect to a NON-QUALIFIED STOCK OPTION until the shares acquired upon exercise of such NON-QUALIFIED STOCK 36

OPTION have been issued and registered in his or her name. No GRANTEE shall have any of the rights of a shareholder of PG&E CORPORATION with respect to PHANTOM STOCK credited to the NONEMPLOYEE DIRECTOR'S PHANTOM STOCK account under the Plan. 9. Termination of Status as a Non-Employee Director (a) In the event of a TERMINATION by reason of disability or death, (i) all shares of DIRECTOR RESTRICTED STOCK held by the GRANTEE shall become fully vested, notwithstanding the provisions of Section 3(b) hereof, and the GRANTEE (or the GRANTEE'S estate or a person who acquired the shares of DIRECTOR RESTRICTED STOCK by bequest or inheritance) shall have the right to resell or transfer such shares at any time, (ii) all NON-QUALIFIED STOCK OPTIONS held by the GRANTEE, to the extent that such NON-QUALIFIED STOCK OPTIONS have not previously expired or been exercised, shall become fully vested and exercisable, notwithstanding the provisions of Section 5(c) hereof, and the GRANTEE (or the GRANTEE'S estate or a person who acquired the right to exercise the NON-QUALIFIED STOCK OPTION by bequest or inheritance) shall have the right to exercise the NON-QUALIFIED STOCK OPTIONS at any time within their respective terms or within one (1) year after the date of the GRANTEE'S death or disability, whichever is shorter, and (iii) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall immediately become payable to the GRANTEE (or the GRANTEE'S estate or a person who acquired the shares of PHANTOM STOCK by bequest or inheritance) in the form of a number of shares of COMMON STOCK equal to the number of shares of PHANTOM STOCK

OPTION have been issued and registered in his or her name. No GRANTEE shall have any of the rights of a shareholder of PG&E CORPORATION with respect to PHANTOM STOCK credited to the NONEMPLOYEE DIRECTOR'S PHANTOM STOCK account under the Plan. 9. Termination of Status as a Non-Employee Director (a) In the event of a TERMINATION by reason of disability or death, (i) all shares of DIRECTOR RESTRICTED STOCK held by the GRANTEE shall become fully vested, notwithstanding the provisions of Section 3(b) hereof, and the GRANTEE (or the GRANTEE'S estate or a person who acquired the shares of DIRECTOR RESTRICTED STOCK by bequest or inheritance) shall have the right to resell or transfer such shares at any time, (ii) all NON-QUALIFIED STOCK OPTIONS held by the GRANTEE, to the extent that such NON-QUALIFIED STOCK OPTIONS have not previously expired or been exercised, shall become fully vested and exercisable, notwithstanding the provisions of Section 5(c) hereof, and the GRANTEE (or the GRANTEE'S estate or a person who acquired the right to exercise the NON-QUALIFIED STOCK OPTION by bequest or inheritance) shall have the right to exercise the NON-QUALIFIED STOCK OPTIONS at any time within their respective terms or within one (1) year after the date of the GRANTEE'S death or disability, whichever is shorter, and (iii) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall immediately become payable to the GRANTEE (or the GRANTEE'S estate or a person who acquired the shares of PHANTOM STOCK by bequest or inheritance) in the form of a number of shares of COMMON STOCK equal to the number of shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account. The term "disability" shall, for the purposes of the PLAN, be defined in Section 22(e)(3) of the CODE. (b) In the event of a TERMINATION by reason of MANDATORY RETIREMENT, (i) all shares of DIRECTOR RESTRICTED STOCK held by the GRANTEE shall become fully vested, notwithstanding the provisions of Section 3(b) hereof, and the GRANTEE shall have the right to resell or transfer such shares at any time, (ii) the NON-QUALIFIED STOCK OPTIONS then held by the GRANTEE, to the extent that such NON-QUALIFIED STOCK OPTIONS have not previously expired or been exercised, shall become fully vested and exercisable, notwithstanding the provisions of Section 5(c) hereof, and the GRANTEE shall have the right to exercise the NON-QUALIFIED STOCK OPTIONS at any time within their respective terms or within five (5) years after such MANDATORY RETIREMENT, whichever is shorter; and (iii) all shares of PHANTOM STOCK credited to the NONEMPLOYEE DIRECTOR'S 37

PHANTOM STOCK account shall become payable to the GRANTEE in accordance with Section 6(c) hereof. (c) In the event of a TERMINATION for any reason other than those specified in subparagraphs (a) and (b) above, (i) any unvested shares of DIRECTOR RESTRICTED STOCK granted hereunder shall be forfeited and the GRANTEE shall return to the CORPORATION for cancellation any stock certificates representing such forfeited shares which forfeited shares shall be deemed to be canceled and no longer outstanding as of the date of TERMINATION; and from and after the date of TERMINATION, the GRANTEE shall cease to be a shareholder with respect to such forfeited shares and shall have no dividend, voting or other rights with respect thereto, (ii) any NON-QUALIFIED STOCK OPTIONS granted hereunder that have not yet vested and become exercisable shall terminate, (iii) the GRANTEE shall have the right to exercise NON-QUALIFIED STOCK OPTIONS, to the extent that such NON-QUALIFIED STOCK OPTIONS have vested and become exercisable as of the date of TERMINATION, at any time within their respective terms or within three months after such TERMINATION, whichever is shorter, after which the NON-QUALIFIED STOCK OPTIONS shall terminate, and (iv) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall be forfeited on the date of TERMINATION; provided, however, that if the TERMINATION results from the NON-EMPLOYEE DIRECTOR'S RETIREMENT, then the PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall become payable in accordance with Section 6(c) hereof. (d) Notwithstanding the provisions of subparagraphs (a) through (c) above, the BOARD OF DIRECTORS may, in its sole discretion, establish different terms and conditions pertaining to the effect of TERMINATION, to the

PHANTOM STOCK account shall become payable to the GRANTEE in accordance with Section 6(c) hereof. (c) In the event of a TERMINATION for any reason other than those specified in subparagraphs (a) and (b) above, (i) any unvested shares of DIRECTOR RESTRICTED STOCK granted hereunder shall be forfeited and the GRANTEE shall return to the CORPORATION for cancellation any stock certificates representing such forfeited shares which forfeited shares shall be deemed to be canceled and no longer outstanding as of the date of TERMINATION; and from and after the date of TERMINATION, the GRANTEE shall cease to be a shareholder with respect to such forfeited shares and shall have no dividend, voting or other rights with respect thereto, (ii) any NON-QUALIFIED STOCK OPTIONS granted hereunder that have not yet vested and become exercisable shall terminate, (iii) the GRANTEE shall have the right to exercise NON-QUALIFIED STOCK OPTIONS, to the extent that such NON-QUALIFIED STOCK OPTIONS have vested and become exercisable as of the date of TERMINATION, at any time within their respective terms or within three months after such TERMINATION, whichever is shorter, after which the NON-QUALIFIED STOCK OPTIONS shall terminate, and (iv) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall be forfeited on the date of TERMINATION; provided, however, that if the TERMINATION results from the NON-EMPLOYEE DIRECTOR'S RETIREMENT, then the PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTOR'S PHANTOM STOCK account shall become payable in accordance with Section 6(c) hereof. (d) Notwithstanding the provisions of subparagraphs (a) through (c) above, the BOARD OF DIRECTORS may, in its sole discretion, establish different terms and conditions pertaining to the effect of TERMINATION, to the extent permitted by applicable federal and state law. 10. Adjustments Upon Changes in Number or Value of Shares of Common Stock If there are any changes in the number or value of shares of COMMON STOCK by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, mergers, consolidations or other events that materially increase or decrease the number or value of issued and outstanding shares of COMMON STOCK, the BOARD OF DIRECTORS or COMMITTEE may make such adjustments as it shall deem appropriate, in order to prevent dilution or enlargement of rights. 11. Non-Transferability NON-QUALIFIED STOCK OPTIONS, PHANTOM STOCK, and shares of DIRECTOR RESTRICTED STOCK that have not vested in accordance with the 38

provisions of Section 3(b) hereof, shall not be transferable by the GRANTEE otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the CODE, Title I of ERISA or the rules thereunder. 12. Change in Control Upon the occurrence of a CHANGE IN CONTROL (as defined below), (i) any time periods relating to the vesting of any shares of DIRECTOR RESTRICTED STOCK granted hereunder shall be accelerated so that all such shares immediately become fully vested, (ii) any time periods relating to the vesting of NON- QUALIFIED STOCK OPTIONS granted hereunder shall be accelerated so that all such NON-QUALIFIED STOCK OPTIONS immediately become fully vested and exercisable for the remainder of their terms, and (iii) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTORS' PHANTOM STOCK accounts shall become payable in accordance with Section 6(c) hereof as if the CHANGE IN CONTROL constituted a RETIREMENT, unless the COMMITTEE or BOARD OF DIRECTORS determines that such CHANGE IN CONTROL will not adversely impact the GRANTEES' DIRECTOR RESTRICTED STOCK, NONQUALIFIED STOCK OPTIONS, or PHANTOM STOCK granted hereunder and is in the best interests of the shareholders of PG&E CORPORATION. The COMMITTEE or BOARD OF DIRECTORS may make such further provisions with respect to a CHANGE IN CONTROL as it shall deem equitable and in the best interests of the shareholders of PG&E CORPORATION. Such provision may be made in any agreement relating to any

provisions of Section 3(b) hereof, shall not be transferable by the GRANTEE otherwise than by will or the laws of descent and distribution, or pursuant to a qualified domestic relations order as defined by the CODE, Title I of ERISA or the rules thereunder. 12. Change in Control Upon the occurrence of a CHANGE IN CONTROL (as defined below), (i) any time periods relating to the vesting of any shares of DIRECTOR RESTRICTED STOCK granted hereunder shall be accelerated so that all such shares immediately become fully vested, (ii) any time periods relating to the vesting of NON- QUALIFIED STOCK OPTIONS granted hereunder shall be accelerated so that all such NON-QUALIFIED STOCK OPTIONS immediately become fully vested and exercisable for the remainder of their terms, and (iii) all shares of PHANTOM STOCK credited to the NON-EMPLOYEE DIRECTORS' PHANTOM STOCK accounts shall become payable in accordance with Section 6(c) hereof as if the CHANGE IN CONTROL constituted a RETIREMENT, unless the COMMITTEE or BOARD OF DIRECTORS determines that such CHANGE IN CONTROL will not adversely impact the GRANTEES' DIRECTOR RESTRICTED STOCK, NONQUALIFIED STOCK OPTIONS, or PHANTOM STOCK granted hereunder and is in the best interests of the shareholders of PG&E CORPORATION. The COMMITTEE or BOARD OF DIRECTORS may make such further provisions with respect to a CHANGE IN CONTROL as it shall deem equitable and in the best interests of the shareholders of PG&E CORPORATION. Such provision may be made in any agreement relating to any DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS, or PHANTOM STOCK granted hereunder, by amendment to any such agreement or by resolution of the COMMITTEE or BOARD OF DIRECTORS. The phrase "CHANGE IN CONTROL" shall have such meaning as ascribed thereto from time to time by the COMMITTEE or BOARD OF DIRECTORS and set forth in any agreement relating to any DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS, or PHANTOM STOCK granted hereunder or by resolution of the COMMITTEE or BOARD OF DIRECTORS; provided, however, that, notwithstanding the foregoing, a "CHANGE IN CONTROL" shall be deemed to have occurred if: (a) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the EXCHANGE ACT, but excluding any benefit plan for EMPLOYEES or any trustee, agent or other fiduciary for any such plan acting in such person's capacity as such fiduciary), directly or indirectly, becomes the beneficial owner of securities of PG&E CORPORATION representing twenty percent (20%) or more of the combined voting power of PG&E CORPORATION's then outstanding securities; 39

(b) during any two consecutive years, individuals who at the beginning of such a period constitute the BOARD OF DIRECTORS cease for any reason to constitute at least a majority of the BOARD OF DIRECTORS, unless the election, or the nomination for election by the shareholders of PG&E CORPORATION, of each new DIRECTOR was approved by a vote of at least two-thirds (2/3) of the DIRECTORS then still in office who were DIRECTORS at the beginning of the period; or (c) the shareholders of PG&E CORPORATION shall have approved (i) any consolidation or merger of PG&E CORPORATION in which PG&E CORPORATION is not the continuing or surviving corporation or pursuant to which shares of COMMON STOCK are converted into cash, securities or other property, other than a merger of PG&E CORPORATION in which the holders of the COMMON STOCK immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the CORPORATION, or (iii) any plan or proposal for the liquidation or dissolution of PG&E CORPORATION. Notwithstanding the foregoing, the phrase "CHANGE IN CONTROL" shall not apply to any reorganization or merger initiated voluntarily by PG&E CORPORATION in which PG&E CORPORATION is the continuing surviving entity. 13. Amendment and Termination of the Plan

(b) during any two consecutive years, individuals who at the beginning of such a period constitute the BOARD OF DIRECTORS cease for any reason to constitute at least a majority of the BOARD OF DIRECTORS, unless the election, or the nomination for election by the shareholders of PG&E CORPORATION, of each new DIRECTOR was approved by a vote of at least two-thirds (2/3) of the DIRECTORS then still in office who were DIRECTORS at the beginning of the period; or (c) the shareholders of PG&E CORPORATION shall have approved (i) any consolidation or merger of PG&E CORPORATION in which PG&E CORPORATION is not the continuing or surviving corporation or pursuant to which shares of COMMON STOCK are converted into cash, securities or other property, other than a merger of PG&E CORPORATION in which the holders of the COMMON STOCK immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the CORPORATION, or (iii) any plan or proposal for the liquidation or dissolution of PG&E CORPORATION. Notwithstanding the foregoing, the phrase "CHANGE IN CONTROL" shall not apply to any reorganization or merger initiated voluntarily by PG&E CORPORATION in which PG&E CORPORATION is the continuing surviving entity. 13. Amendment and Termination of the Plan The BOARD OF DIRECTORS or the COMMITTEE may at any time suspend, terminate, modify or amend the PLAN in any respect; provided, however, that, to the extent necessary and desirable to comply with the CODE (or any other applicable law or regulation, including the requirements of any stock exchange on which the COMMON STOCK is listed or quoted), shareholder approval of any PLAN amendment shall be obtained in such a manner and to such a degree as is required by the applicable law or regulation. No suspension, termination, modification or amendment of the PLAN may, without the consent of the GRANTEE, adversely affect his or her rights with respect to DIRECTOR RESTRICTED STOCK, NONQUALIFIED STOCK OPTIONS or PHANTOM STOCK theretofore granted to such GRANTEE. Except as provided in Section 2 hereof, the BOARD OF DIRECTORS or COMMITTEE may make such amendments or modifications in the terms and conditions of any grant of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS or PHANTOM STOCK as it may deem advisable, or cancel or annul any grant of DIRECTOR RESTRICTED STOCK, 40

NON-QUALIFIED STOCK OPTIONS or PHANTOM STOCK; provided, however, that no such amendment, modification, cancellation or annulment may, without the consent of the GRANTEE, adversely affect his or her rights with respect to such grant. 14. Effective Date of the Plan and Duration This PLAN became effective as of January 1, 1996, upon approval by the shareholders of Pacific Gas and Electric Company at its Annual Meeting on April 17, 1996. Effective January 1, 1997, the PLAN was assumed by PG&E CORPORATION. At its meeting on December 17, 1997, the BOARD OF DIRECTORS amended and restated the PLAN effective January 1, 1998, to (i) reflect the adoption of new RULE 16B-3 which became effective November 1, 1996, and (ii) provide automatic formula awards of NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK to NON-EMPLOYEE DIRECTORS within the limits of the PROGRAM as previously approved by shareholders in 1996. Unless terminated sooner pursuant to Section 13 hereof, the PLAN shall terminate on December 31, 2005. 15. Definitions i) BOARD OF DIRECTORS means the Board of Directors of PG&E CORPORATION.

NON-QUALIFIED STOCK OPTIONS or PHANTOM STOCK; provided, however, that no such amendment, modification, cancellation or annulment may, without the consent of the GRANTEE, adversely affect his or her rights with respect to such grant. 14. Effective Date of the Plan and Duration This PLAN became effective as of January 1, 1996, upon approval by the shareholders of Pacific Gas and Electric Company at its Annual Meeting on April 17, 1996. Effective January 1, 1997, the PLAN was assumed by PG&E CORPORATION. At its meeting on December 17, 1997, the BOARD OF DIRECTORS amended and restated the PLAN effective January 1, 1998, to (i) reflect the adoption of new RULE 16B-3 which became effective November 1, 1996, and (ii) provide automatic formula awards of NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK to NON-EMPLOYEE DIRECTORS within the limits of the PROGRAM as previously approved by shareholders in 1996. Unless terminated sooner pursuant to Section 13 hereof, the PLAN shall terminate on December 31, 2005. 15. Definitions i) BOARD OF DIRECTORS means the Board of Directors of PG&E CORPORATION. ii) CHANGE IN CONTROL has the meaning set forth in Section 10 hereof. iii) CODE means the Internal Revenue Code of 1986, as amended from time to time. iv) COMMITTEE means the Nominating and Compensation Committee of the BOARD OF DIRECTORS or any successor to such committee. v) COMMON STOCK means common shares of PG&E CORPORATION with no par value and any class of common shares into which such common shares hereafter may be converted. vi) CORPORATION means PG&E CORPORATION, and any parent corporation (as defined in Section 424 (e) of the CODE) or subsidiary corporation (as defined in Section 424(f) of the CODE). vii) DIRECTOR means any person who is a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation (as defined in Section 424(e) of the CODE) which may hereafter be established, including an advisory, emeritus or honorary director. 41 viii) DIRECTOR RESTRICTED STOCK means RESTRICTED STOCK granted to a NONEMPLOYEE DIRECTOR under the PLAN. ix) EMPLOYEE means any person who is employed by the CORPORATION. The payment of a director's fee or consulting fee by the CORPORATION shall not be sufficient to constitute "employment" by the CORPORATION. x) ERISA means the Employee Retirement Income Security Act of 1974, as amended. xi) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. xii) FAIR MARKET VALUE means the closing price of the COMMON STOCK reported on the New York Stock Exchange Composite Transactions for the date specified for determining such value. xiii) GRANTEE means the NON-EMPLOYEE DIRECTOR receiving the DIRECTOR RESTRICTED

viii) DIRECTOR RESTRICTED STOCK means RESTRICTED STOCK granted to a NONEMPLOYEE DIRECTOR under the PLAN. ix) EMPLOYEE means any person who is employed by the CORPORATION. The payment of a director's fee or consulting fee by the CORPORATION shall not be sufficient to constitute "employment" by the CORPORATION. x) ERISA means the Employee Retirement Income Security Act of 1974, as amended. xi) EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. xii) FAIR MARKET VALUE means the closing price of the COMMON STOCK reported on the New York Stock Exchange Composite Transactions for the date specified for determining such value. xiii) GRANTEE means the NON-EMPLOYEE DIRECTOR receiving the DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS and PHANTOM STOCK or his or her legal representative, legatees, distributees or alternate payees, as the case may be. xiv) MANDATORY RETIREMENT means retirement as a DIRECTOR at age 70 or at such other age as may be specified in the retirement policy for the BOARD OF DIRECTORS or the Board of Directors of any parent corporation which may hereafter be established (as the case may be), as in effect at the time of a NONEMPLOYEE DIRECTOR'S TERMINATION. xv) NON-EMPLOYEE DIRECTOR means a DIRECTOR who is not an EMPLOYEE. xvi) NON-QUALIFIED STOCK OPTION means a option to purchase shares of COMMON STOCK which is not intended to qualify as an incentive stock option under Section 422 of the CODE. xvii) PG&E CORPORATION means PG&E CORPORATION, a California corporation. xviii) PHANTOM STOCK means allocated hypothetical shares of COMMON STOCK that can be converted at a future date into stock. xix) PLAN means this Non-Employee Director Stock Incentive Plan, as may be amended from time to time, or any successor plan which the COMMITTEE or BOARD OF DIRECTORS may adopt from time to time 42

with respect to the grant of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS, PHANTOM STOCK or other stock-based incentive awards under the PROGRAM. xx) PROGRAM means the PG&E Corporation Long-Term Incentive Program, as amended and restated effective as of January 1, 1998, and as may be amended from time to time, pursuant to which this PLAN is adopted. xxi) RESTRICTED STOCK means COMMON STOCK that is subject to forfeiture by the GRANTEE to the CORPORATION under such circumstances as may be specified by the COMMITTEE. xxii) RETIREMENT means TERMINATION of service on the BOARD OF DIRECTORS after serving continuously for five consecutive years. xxiii) RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the PLAN. xxiv) TERMINATION occurs when a NON-EMPLOYEE DIRECTOR ceases to be a member of the BOARD

with respect to the grant of DIRECTOR RESTRICTED STOCK, NON-QUALIFIED STOCK OPTIONS, PHANTOM STOCK or other stock-based incentive awards under the PROGRAM. xx) PROGRAM means the PG&E Corporation Long-Term Incentive Program, as amended and restated effective as of January 1, 1998, and as may be amended from time to time, pursuant to which this PLAN is adopted. xxi) RESTRICTED STOCK means COMMON STOCK that is subject to forfeiture by the GRANTEE to the CORPORATION under such circumstances as may be specified by the COMMITTEE. xxii) RETIREMENT means TERMINATION of service on the BOARD OF DIRECTORS after serving continuously for five consecutive years. xxiii) RULE 16b-3 means Rule 16b-3 under the EXCHANGE ACT or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the PLAN. xxiv) TERMINATION occurs when a NON-EMPLOYEE DIRECTOR ceases to be a member of the BOARD OF DIRECTORS or the Board of Directors of any parent corporation which may hereafter be established (as the case may be). 43

Exhibit 10.16 PG&E CORPORATION EXECUTIVE STOCK OWNERSHIP PROGRAM Administrative Guidelines (November 19, 1997) 1. Description. The Executive Stock Ownership Program ("Program") was approved by the Nominating and Compensation Committee of the Board of Directors on October 15, 1997. The Program is an important element of the Committee's compensation policy of aligning executive interests with those of the Corporation's shareholders. As an integral part of the Program, the Committee also authorized the use of Special Incentive Stock Ownership Premiums ("SISOPs") which are designed to provide incentives to Eligible Executives to assist in achieving minimum stock ownership targets established by the Committee. These Guidelines, along with the written materials provided to the Committee on October 15, 1997, describe the Program which became effective on January 1, 1998. The Program is administered by the Corporation's Senior Human Resources Officer. 2. Eligible Executives. The Chief Executive Officer shall designate the officers of the Corporation and its affiliates who shall be Eligible Executives covered by the Program. Initially, the officers covered by the Guidelines and the applicable stock ownership Target are:
-------------------------------------------------------------------------Officer Band Position Stock Ownership Target -------------------------------------------------------------------------1 CEO 3 x base salary -------------------------------------------------------------------------2 Heads of Business Lines, 2 x base salary CFO, & General Counsel -------------------------------------------------------------------------3 SVPs & VP-HR of Corp. 1.5 x base salary --------------------------------------------------------------------------

3. Annual Milestones. Under the Guidelines, stock ownership levels are designed to be achieved by the end of the fifth calendar year following the calendar year in which an officer first becomes an Eligible Executive ("Target Date"). Annual Milestones have been established as a means of measuring progress towards achieving Targets and of providing incentives for Eligible Executives to expeditiously meet their Targets. The Annual Milestone at

Exhibit 10.16 PG&E CORPORATION EXECUTIVE STOCK OWNERSHIP PROGRAM Administrative Guidelines (November 19, 1997) 1. Description. The Executive Stock Ownership Program ("Program") was approved by the Nominating and Compensation Committee of the Board of Directors on October 15, 1997. The Program is an important element of the Committee's compensation policy of aligning executive interests with those of the Corporation's shareholders. As an integral part of the Program, the Committee also authorized the use of Special Incentive Stock Ownership Premiums ("SISOPs") which are designed to provide incentives to Eligible Executives to assist in achieving minimum stock ownership targets established by the Committee. These Guidelines, along with the written materials provided to the Committee on October 15, 1997, describe the Program which became effective on January 1, 1998. The Program is administered by the Corporation's Senior Human Resources Officer. 2. Eligible Executives. The Chief Executive Officer shall designate the officers of the Corporation and its affiliates who shall be Eligible Executives covered by the Program. Initially, the officers covered by the Guidelines and the applicable stock ownership Target are:
-------------------------------------------------------------------------Officer Band Position Stock Ownership Target -------------------------------------------------------------------------1 CEO 3 x base salary -------------------------------------------------------------------------2 Heads of Business Lines, 2 x base salary CFO, & General Counsel -------------------------------------------------------------------------3 SVPs & VP-HR of Corp. 1.5 x base salary --------------------------------------------------------------------------

3. Annual Milestones. Under the Guidelines, stock ownership levels are designed to be achieved by the end of the fifth calendar year following the calendar year in which an officer first becomes an Eligible Executive ("Target Date"). Annual Milestones have been established as a means of measuring progress towards achieving Targets and of providing incentives for Eligible Executives to expeditiously meet their Targets. The Annual Milestone at the end of the first full calendar year is 20 percent of the Target, and the Annual Milestone for each succeeding year is an additional 20 percent of the Target. Annual Milestones shall be adjusted to reflect changes in base salary; provided, however, that in each instance any such modification shall be amortized over the remaining original five-year term. Following the Target Date, annual Targets also shall be modified to reflect changes in base salary.

4. Calculation of Stock Ownership Levels. Stock ownership level is the dollar value of stock and stock equivalents owned by an Eligible Executive and calculated as of the last day of the calendar year ("Measurement Date"). The purpose of this calculation is to determine the value of the stock or stock equivalent owned by the Eligible Executive as compared with the Annual Milestone or Target for that executive. For purposes of this calculation, the value per share of stock or stock equivalent ("Measurement Value") is the average closing price of PG&E Corporation common stock as traded on the New York Stock Exchange for the last thirty (30) trading days of the year. a) The value of stock beneficially owned by the Eligible Executive is determined by multiplying the number of shares owned beneficially on the Measurement Date times the Measurement Value. b) The value of PG&E Corporation Phantom Stock Units (including vested SISOP units, as discussed below) is determined by multiplying the number of vested units held by the Eligible Executive on the Measurement Date times the Measurement Value. c) The value of stock held in the PG&E Corporation stock fund of any defined contribution plan maintained by

4. Calculation of Stock Ownership Levels. Stock ownership level is the dollar value of stock and stock equivalents owned by an Eligible Executive and calculated as of the last day of the calendar year ("Measurement Date"). The purpose of this calculation is to determine the value of the stock or stock equivalent owned by the Eligible Executive as compared with the Annual Milestone or Target for that executive. For purposes of this calculation, the value per share of stock or stock equivalent ("Measurement Value") is the average closing price of PG&E Corporation common stock as traded on the New York Stock Exchange for the last thirty (30) trading days of the year. a) The value of stock beneficially owned by the Eligible Executive is determined by multiplying the number of shares owned beneficially on the Measurement Date times the Measurement Value. b) The value of PG&E Corporation Phantom Stock Units (including vested SISOP units, as discussed below) is determined by multiplying the number of vested units held by the Eligible Executive on the Measurement Date times the Measurement Value. c) The value of stock held in the PG&E Corporation stock fund of any defined contribution plan maintained by PG&E Corporation or any of its subsidiaries is value of the Eligible Executive's PG&E Corporation stock fund on the Measurement Date. d) The value of vested stock options is the difference between the number of options multiplied by the Measurement Value minus the number of options multiplied by the option exercise price (for purposes of this calculation, any value attributable to dividend equivalents is excluded). 5. Award of SISOPs. SISOPs are awarded to Eligible Executives who achieve and maintain stock ownership levels prior to the end of the third year following the year in which an officer first became an Eligible Executive. For purposes of determining awards, the total stock ownership level is calculated as set forth under paragraph 4, on the Measurement Date. The amount of a SISOP award shall be equal to: a) For the first year, 20 percent of the amount of the Eligible Executive's stock ownership level at the end of the year, up to the Annual Milestone, plus an additional 30 percent of the amount by which the stock ownership level exceeds the Annual Milestone up to the target; and b) For each of the second and third years, 20 percent of the amount up to the Annual Milestone by which the end of the year stock ownership level exceeds the beginning of the year stock ownership level, plus an additional 30 percent of the amount by which the end of the year balance exceeds the Annual Milestone, up to the Target. 2

Each time a SISOP award calculation is made, a second calculation also is made to determine the minimum number of shares which must be retained by the Eligible Executive to avoid forfeiture of the SISOP award ("Minimum Ownership Level") as discussed below in paragraph 7. This calculation converts the dollar value of the stock ownership level used as the basis for qualifying for SISOPs into a number of shares of stock. It is calculated by dividing the stock ownership level by the Measurement Value. Thus, for example, if an Eligible Executive's stock ownership level was $250,000 and the Measurement Value was $25 per share, then the Minimum Ownership Level would be 10,000 shares. For purposes of this calculation, the maximum share ownership level used is the Eligible Executive's Target. If an Eligible Executive has a share ownership level higher than his/her target, the increment over the target is not included. Thus, for example, if an Eligible Executive has a target of $750,000 and his/her share ownership level is $900,000, then only $750,000 is used to calculate the Minimum Ownership Level. 6. SISOPs Credited to the Deferred Compensation Plan. Upon award, SISOPs are credited to the PG&E Corporation Phantom Stock Fund of the Deferred Compensation Plan and converted into Units of that Fund. The initial value of a Unit shall be calculated in accordance with the valuation of initial deferrals into the PG&E Corporation Phantom Stock Fund of the Deferred Compensation Plan. Once a SISOP Unit is credited to the account of an Eligible Executive under the Deferred Compensation Plan, it shall be subject to all of the terms and conditions applicable to Units held in the PG&E Corporation Phantom Stock Fund, and such other Plan

Each time a SISOP award calculation is made, a second calculation also is made to determine the minimum number of shares which must be retained by the Eligible Executive to avoid forfeiture of the SISOP award ("Minimum Ownership Level") as discussed below in paragraph 7. This calculation converts the dollar value of the stock ownership level used as the basis for qualifying for SISOPs into a number of shares of stock. It is calculated by dividing the stock ownership level by the Measurement Value. Thus, for example, if an Eligible Executive's stock ownership level was $250,000 and the Measurement Value was $25 per share, then the Minimum Ownership Level would be 10,000 shares. For purposes of this calculation, the maximum share ownership level used is the Eligible Executive's Target. If an Eligible Executive has a share ownership level higher than his/her target, the increment over the target is not included. Thus, for example, if an Eligible Executive has a target of $750,000 and his/her share ownership level is $900,000, then only $750,000 is used to calculate the Minimum Ownership Level. 6. SISOPs Credited to the Deferred Compensation Plan. Upon award, SISOPs are credited to the PG&E Corporation Phantom Stock Fund of the Deferred Compensation Plan and converted into Units of that Fund. The initial value of a Unit shall be calculated in accordance with the valuation of initial deferrals into the PG&E Corporation Phantom Stock Fund of the Deferred Compensation Plan. Once a SISOP Unit is credited to the account of an Eligible Executive under the Deferred Compensation Plan, it shall be subject to all of the terms and conditions applicable to Units held in the PG&E Corporation Phantom Stock Fund, and such other Plan provisions which by their terms specifically govern SISOPs. 7. Forfeiture of Units. Units attributable to SISOPs do not vest until the third anniversary of the date that they are credited to the Deferred Compensation Plan. So long as SISOP Units remain unvested, such Units are subject to forfeiture if, on each Measurement Date, the number of shares and units held by the Eligible Executive is less than the Minimum Ownership Level established when the SISOPs were granted (see paragraph 5). To determine forfeiture, the following steps are followed on each Measurement Date: a) The number of shares and vested units held by the Eligible Executive is determined. b) The share-equivalent of the value of the vested "in the money" stock options is determined by dividing the value of such options (computed in the manner described in 4(d)) by the current Measurement Value (e.g., if the value of the vested "in the money" options is $100,000 and the current Measurement Value is $25 per share, then the share equivalent is 4,000 shares). c) The number of shares, vested units, and share-equivalents of vested "in the money" options is added together. This total (Current Holdings) is compared 3

with the Minimum Ownership Level determined when the SISOPs were granted. If the Current Holdings are equal to or greater than the Minimum Ownership Level, then no unvested SISOPs are forfeited. If the Current Holdings are less than the Minimum Ownership Level, then the unvested SISOPs are forfeited in the same proportion as the Current Holdings are less than Minimum Ownership Level (for example, if the Current Holdings are 20 percent less than the Minimum Ownership Level, then 20 percent of the SISOPs are forfeited). 8. Failure to Achieve or Maintain Target. Failure to achieve stock ownership levels at Target on the Target Date, or to maintain stock ownership levels at Target on any Measurement Date thereafter, will result in the deferral into the Phantom Stock Fund of the Deferred Compensation Plan of annual awards from the Performance Unit Plan ("PUP") and the Performance Incentive Plan ("PIP"). As of any measurement date, to the extent that stock ownership levels are below Target, PUP awards shall be converted into Units and held in the Phantom Stock Fund. If, with the addition of the Units attributable to the PUP award, the stock ownership level is still below Target for any Measurement Date, any PIP award above target also shall be converted into Units held in the Phantom Stock Fund, to the extent of Target. Such conversion of PUP and PIP awards shall continue for successive Measurement Dates, if necessary, until Target is met. Units attributable to PUP and PIP awards described in this paragraph 8 will be paid from the Deferred Compensation Plan as soon as practicable after the date on which such payment will not result in a stock ownership level below Target, or such latter date as may be elected by the Eligible Executive at the time that the award is credited to the Deferred Compensation Plan for

with the Minimum Ownership Level determined when the SISOPs were granted. If the Current Holdings are equal to or greater than the Minimum Ownership Level, then no unvested SISOPs are forfeited. If the Current Holdings are less than the Minimum Ownership Level, then the unvested SISOPs are forfeited in the same proportion as the Current Holdings are less than Minimum Ownership Level (for example, if the Current Holdings are 20 percent less than the Minimum Ownership Level, then 20 percent of the SISOPs are forfeited). 8. Failure to Achieve or Maintain Target. Failure to achieve stock ownership levels at Target on the Target Date, or to maintain stock ownership levels at Target on any Measurement Date thereafter, will result in the deferral into the Phantom Stock Fund of the Deferred Compensation Plan of annual awards from the Performance Unit Plan ("PUP") and the Performance Incentive Plan ("PIP"). As of any measurement date, to the extent that stock ownership levels are below Target, PUP awards shall be converted into Units and held in the Phantom Stock Fund. If, with the addition of the Units attributable to the PUP award, the stock ownership level is still below Target for any Measurement Date, any PIP award above target also shall be converted into Units held in the Phantom Stock Fund, to the extent of Target. Such conversion of PUP and PIP awards shall continue for successive Measurement Dates, if necessary, until Target is met. Units attributable to PUP and PIP awards described in this paragraph 8 will be paid from the Deferred Compensation Plan as soon as practicable after the date on which such payment will not result in a stock ownership level below Target, or such latter date as may be elected by the Eligible Executive at the time that the award is credited to the Deferred Compensation Plan for Officers. 4

EXHIBIT 11 PG&E CORPORATION COMPUTATION OF EARNINGS PER COMMON SHARE
-------------------------------------------------------------------------------Year ended December 31, ---------------------------------(in thousands, except per share amounts) 1997 1996 1995 -------------------------------------------------------------------------------EARNINGS PER COMMON SHARE (EPS) AS SHOWN IN THE STATEMENT OF CONSOLIDATED INCOME Earnings available for common stock Average common shares outstanding Basic EPS $715,940 ======== 410,040 ======== $1.75 ======== $722,096 ======== 412,542 ======== $1.75 ======== $1,268,597 ========== 423,692 ========== $2.99 ==========

DILUTED EPS (1) Earnings available for common stock Average common shares outstanding Add exercise of options, reduced by the number of shares that could have been purchased with the proceeds from such exercise (at average market price) Average common shares outstanding as adjusted $715,940 ======== 410,040 $722,096 ======== 412,542 $1,268,597 ========== 423,692

211 --------

9 --------

126 ----------

410,251 412,551 423,818 ======== ======== ========== Diluted EPS $ 1.75 $ 1.75 $ 2.99 ======== ======== ========== -----------------------------------------------------------------------------

(1) This presentation is submitted in accordance with Statement of Financial

EXHIBIT 11 PG&E CORPORATION COMPUTATION OF EARNINGS PER COMMON SHARE
-------------------------------------------------------------------------------Year ended December 31, ---------------------------------(in thousands, except per share amounts) 1997 1996 1995 -------------------------------------------------------------------------------EARNINGS PER COMMON SHARE (EPS) AS SHOWN IN THE STATEMENT OF CONSOLIDATED INCOME Earnings available for common stock Average common shares outstanding Basic EPS $715,940 ======== 410,040 ======== $1.75 ======== $722,096 ======== 412,542 ======== $1.75 ======== $1,268,597 ========== 423,692 ========== $2.99 ==========

DILUTED EPS (1) Earnings available for common stock Average common shares outstanding Add exercise of options, reduced by the number of shares that could have been purchased with the proceeds from such exercise (at average market price) Average common shares outstanding as adjusted $715,940 ======== 410,040 $722,096 ======== 412,542 $1,268,597 ========== 423,692

211 --------

9 --------

126 ----------

410,251 412,551 423,818 ======== ======== ========== Diluted EPS $ 1.75 $ 1.75 $ 2.99 ======== ======== ========== -----------------------------------------------------------------------------

(1) This presentation is submitted in accordance with Statement of Financial Accounting Standards No. 128.

EXHIBIT 12.1 PACIFIC GAS AND ELECTRIC COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
--------------------------------------------------------------------------------------------------------Year ended December 31, --------------------------------------------------(dollars in millions) 1997 1996 1995 1994 199 --------------------------------------------------------------------------------------------------------Earnings: Net income $ 768 $ 755 $ 1,339 $ 1,007 $ 1, Adjustments for minority interests in losses of less than 100% owned affiliates and the Company's equity in undistributed losses (income) of less than 50% owned affiliates 3 4 (3) Income tax expense 609 555 895 837 Net fixed charges 628 683 716 729 ------------------------------Total Earnings $ 2,005 $ 1,996 $ 2,954 $ 2,570 $ 2, ======== ======== ======== ======= ==== Fixed Charges: Interest on long-term debt, net $ 485 $ 574 $ 616 $ 639 $ Interest on short-term borrowings 101 75 83 77 Interest on capital leases 2 3 3 2 Capitalized Interest 1 1 2

EXHIBIT 12.1 PACIFIC GAS AND ELECTRIC COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
--------------------------------------------------------------------------------------------------------Year ended December 31, --------------------------------------------------(dollars in millions) 1997 1996 1995 1994 199 --------------------------------------------------------------------------------------------------------Earnings: Net income $ 768 $ 755 $ 1,339 $ 1,007 $ 1, Adjustments for minority interests in losses of less than 100% owned affiliates and the Company's equity in undistributed losses (income) of less than 50% owned affiliates 3 4 (3) Income tax expense 609 555 895 837 Net fixed charges 628 683 716 729 ------------------------------Total Earnings $ 2,005 $ 1,996 $ 2,954 $ 2,570 $ 2, ======== ======== ======== ======= ==== Fixed Charges: Interest on long-term debt, net $ 485 $ 574 $ 616 $ 639 $ Interest on short-term borrowings 101 75 83 77 Interest on capital leases 2 3 3 2 Capitalized Interest 1 1 2 AFUDC Debt 16 7 11 11 Earnings required to cover the preferred stock dividend and preferred security distribution requirements of majority owned subsidiaries 24 24 3 ------------------------------Total Fixed Charges $ 629 $ 684 $ 716 $ 731 $ 8 ======== ======== ======== ======= ==== Ratios of Earnings to Fixed Charges 3.19 2.92 4.13 3.52 3. ---------------------------------------------------------------------------------------------------------

Note: For the purpose of computing Pacific Gas and Electric Company's ratios of earnings to fixed charges, "earnings" represent net income adjusted for the minority interest in losses of less than 100% owned affiliates, cash distributions from and equity in undistributed income or loss of Pacific Gas and Electric Company's less than 50% owned affiliates, income taxes and fixed charges (excluding capitalized interest). "Fixed charges" include interest on long-term debt and short-term borrowings (including a representative portion of rental expense), amortization of bond premium, discount and expense, interest of subordinated debentures held by trust, interest on capital leases, and earnings required to cover the preferred stock dividend requirements.

EXHIBIT 12.2 PACIFIC GAS AND ELECTRIC COMPANY COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
--------------------------------------------------------------------------------------------------------Year ended December 31, --------------------------------------------------(dollars in millions) 1997 1996 1995 1994 199 --------------------------------------------------------------------------------------------------------Earnings: Net income $ 768 $ 755 $ 1,339 $ 1,007 $ 1, Adjustments for minority interests in losses of less than 100% owned affiliates and the Company's equity in undistributed losses (income) of less than 50% owned affiliates 3 4 (3) Income tax expense 609 555 895 837

EXHIBIT 12.2 PACIFIC GAS AND ELECTRIC COMPANY COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
--------------------------------------------------------------------------------------------------------Year ended December 31, --------------------------------------------------(dollars in millions) 1997 1996 1995 1994 199 --------------------------------------------------------------------------------------------------------Earnings: Net income $ 768 $ 755 $ 1,339 $ 1,007 $ 1, Adjustments for minority interests in losses of less than 100% owned affiliates and the Company's equity in undistributed losses (income) of less than 50% owned affiliates 3 4 (3) Income tax expense 609 555 895 837 Net fixed charges 628 683 716 729 ------------------------------Total Earnings $ 2,005 $ 1,996 $ 2,954 $ 2,570 $ 2, ======== ======== ======== ======= ==== Fixed Charges: Interest on long-term debt $ 485 $ 574 $ 616 $ 639 $ Interest on short-term debt 101 75 83 77 Interest on capital leases 2 3 3 2 Capitalized Interest 1 1 2 AFUDC Debt 16 7 11 11 Earnings required to cover the preferred stock dividend and preferred security distribution requirements of majority owned subsidiaries 24 24 3 ------------------------------Total Fixed Charges $ 629 $ 684 $ 716 $ 731 $ ------------------------------Preferred Stock Dividends: Tax deductible dividends $ 10 $ 10 $ 11 $ 5 $ Pretax earnings required to cover non-tax deductible preferred stock dividend requirements 39 39 100 96 ------------------------------Total Preferred Stock Dividends $ 49 $ 49 $ 111 $ 101 $ ------------------------------Total Combined Fixed Charges and Preferred Stock Dividends $ 678 $ 733 $ 827 $ 832 $ ======== ======== ======== ======= ==== Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends 2.96 2.72 3.57 3.09 2 ---------------------------------------------------------------------------------------------------------

Note: For the purpose of computing Pacific Gas and Electric Company's ratios of earnings to combined fixed charges and preferred stock dividends, "earnings" represent net income adjusted for the minority interest in losses of less than 100% owned affiliates, cash distributions from and equity in undistributed income or loss of Pacific Gas and Electric Company's less than 50% owned affiliates, income taxes and fixed charges (excluding capitalized interest). "Fixed charges" include interest on long-term debt and short-term borrowings (including a representative portion of rental expense), amortization of bond premium, discount and expense, interest on capital leases, interest of subordinated debentures held by trust, and earnings required to cover the preferred stock dividend requirements of majority owned subsidiaries. "Preferred stock dividends" represent pretax earnings which would be required to cover such dividend requirements.

EXHIBIT 13 Selected Financial Data
(in millions, except per share amounts) 1997 1996 1995 1

EXHIBIT 13 Selected Financial Data
(in millions, except per share amounts) 1997 1996 1995 1 --------------------------------------------------------------------------------------------------------PG&E Corporation(1) For the Year Operating revenues $15,400 $ 9,610 $ 9,622 $10, Operating income 1,728 1,896 2,763 2, Net income 716 722 1,269 Earnings per common share 1.75 1.75 2.99 2 Dividends declared per common share 1.20 1.77 1.96 1 At Year End Book value per common share Common stock price per share Total assets Long-term debt (excluding current portions) Rate reduction bonds (excluding current portions) Preferred stock and securities of subsidiary with mandatory redemption provisions (excluding current portions) Pacific Gas and Electric Company For the Year Operating revenues Operating income Income available for common stock At Year End Total assets Long-term debt (excluding current portions) Rate reduction bonds (excluding current portions) Preferred stock and securities with mandatory redemption provisions (excluding current portions)

$ 21.30 30.31 30,557 7,659 2,776

$ 20.73 21.00 26,237 7,770 -

$ 20.77 28.38 26,871 8,049 -

$ 20 24 27, 8,

437

437

437

$ 9,495 1,831 735

$ 9,610 1,896 722

$ 9,622 2,763 1,269

$10, 2,

$25,147 6,218 2,776 437

$26,237 7,770 437

$26,871 8,049 437

$27, 8,

(1) PG&E Corporation became the holding company for Pacific Gas and Electric Company on January 1, 1997. The Selected Financial Data of PG&E Corporation and Pacific Gas and Electric Company for the years 1993 through 1996 are identical because they represent the accounts of Pacific Gas and Electric Company as the predecessor of PG&E Corporation. See Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition for further discussion of the holding company formation and matters relating to certain data above. 16

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition San Francisco-based PG&E Corporation provides energy services throughout the United States and Australia. We were formed as a holding company on January 1, 1997, to respond to new business opportunities and changes in the energy industry. As a result, Pacific Gas and Electric Company became a subsidiary of its new parent holding company, PG&E Corporation, and its ownership interest in its unregulated subsidiaries was transferred to PG&E Corporation. Under our new corporate structure, we provide integrated energy services through our various business lines: Pacific Gas and Electric Company (Utility) Our Utility provides gas and electric service to Northern and Central California. Our Utility is regulated by the California Public Utilities Commission (CPUC), the Federal Energy Regulatory Commission (FERC), and the Nuclear Regulatory Commission, among others. Unregulated Business Operations We provide a wide range of integrated energy products and services designed to take advantage of the opening of the competitive energy marketplace throughout the United States. Through our other subsidiaries, we provide the following energy services: Gas Transmission: We own and operate approximately 10,000 miles of natural gas pipelines, natural gas storage

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition San Francisco-based PG&E Corporation provides energy services throughout the United States and Australia. We were formed as a holding company on January 1, 1997, to respond to new business opportunities and changes in the energy industry. As a result, Pacific Gas and Electric Company became a subsidiary of its new parent holding company, PG&E Corporation, and its ownership interest in its unregulated subsidiaries was transferred to PG&E Corporation. Under our new corporate structure, we provide integrated energy services through our various business lines: Pacific Gas and Electric Company (Utility) Our Utility provides gas and electric service to Northern and Central California. Our Utility is regulated by the California Public Utilities Commission (CPUC), the Federal Energy Regulatory Commission (FERC), and the Nuclear Regulatory Commission, among others. Unregulated Business Operations We provide a wide range of integrated energy products and services designed to take advantage of the opening of the competitive energy marketplace throughout the United States. Through our other subsidiaries, we provide the following energy services: Gas Transmission: We own and operate approximately 10,000 miles of natural gas pipelines, natural gas storage facilities, and natural gas processing plants in the Pacific Northwest, Texas, and Australia through PG&E Gas Transmission (PG&E GT). PG&E GT's Pacific Northwest operations are regulated by the FERC, and its Texas operations are regulated by the Texas Railroad Commission. Electric Generation: We develop, build, operate, own, and manage power generation facilities across the United States through U.S. Generating Company (USGen). In 1998, USGen expects to complete the acquisition of the New England Electric System fossil fuel and hydroelectric power plants. This acquisition is discussed further in the Acquisitions and Sales section below. Energy Services and Commodities: We provide customers nationwide with competitively-priced natural gas and electricity and services to manage and make more efficient their energy consumption through PG&E Energy Services (PG&E ES). Through PG&E Energy Trading (PG&E ET), we purchase and resell energy commodities and related financial instruments in major domestic markets, serving PG&E Corporation's other unregulated businesses, unaffiliated utilities, and large end-use customers. Overview This is a combined annual report of PG&E Corporation and Pacific Gas and Electric Company. Therefore, our Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition apply to both PG&E Corporation and the Utility. PG&E Corporation's consolidated financial statements include the accounts of PG&E Corporation and its wholly owned and controlled subsidiaries, including the Utility (collectively, the Corporation). Our Utility's consolidated financial statements include its accounts as well as those of its wholly owned and controlled subsidiaries. Because PG&E Corporation did not become the holding company for the Utility until January 1, 1997, the 1995 and 1996 consolidated financial statements represent the accounts of the Utility on a consolidated basis as predecessor of PG&E Corporation. Management's Discussion and Analysis should be read in conjunction with the consolidated financial statements. In Management's Discussion and Analysis, we explain the results of operations for the years 1995 through 1997 and discuss our financial condition. Our discussion of financial condition includes: . energy industry restructuring and how this restructuring will influence future results of operations, . liquidity and capital resources, including discussions of capital financing activities, estimated capital spending for the next three years, and uncertainties that could affect future results, and . risk management activities. 17

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition This combined annual report, including our Letter to Shareholders above and our discussion of results of operations and financial condition below, contains forward-looking statements that involve risks and uncertainties. Also, words such as "estimates," "expects," "anticipates," "plans," "believes," and similar expressions identify forward-looking statements involving risks and uncertainties. These risks and uncertainties include, but are not limited to, the ongoing restructuring of the electric and gas industries, the outcome of the regulatory proceedings related to those restructurings, our Utility's ability to collect revenues sufficient to recover transition costs in accordance with its cost recovery plan, the impact of our recent or planned acquisitions as discussed in the Acquisitions and Sales section below, the approval of our Utility's 1999 General Rate Case application resulting in the Utility's ability to earn its authorized rate of return as discussed in the Letter to Shareholders above and in the Regulatory Activity section below, and our ability to successfully compete outside our traditional regulated markets, as discussed in the Letter to Shareholders above. The ultimate impacts on future results of increased competition, the changing regulatory environment, our expansion into new businesses and markets, and the CPUC's decision on the 1999 General Rate Case application are uncertain, but all are expected to fundamentally change how we conduct our business. The outcome of these changes and other matters discussed below may cause future results to differ materially from historic results, or from results or outcomes currently expected or sought by PG&E Corporation. Results of Operations In this section, we provide the components of our earnings for 1997, 1996, and 1995. We then explain why operating revenues and expenses for 1997 and 1996 were different from the year before. The following table shows our results of operations and total assets for 1997, 1996, and 1995. The results of operations for PG&E Corporation on a stand-alone basis and intercompany eliminations have been shown as Corporate and Other.
Unregulated Corporate Business and Utility Operations Other Total --------------------------------------------------------------------------(in millions) 1997 Operating revenues Operating expenses Operating income (loss) before income taxes Income available for common stock Total assets

$ 9,495 $6,351 $ (446) $15,400 7,664 6,433 (425) 13,672 -------------------------------------------$ 1,831 $ (82) $ (21) $ 1,728 ============================================ $ 735 $ 8 $ (27) $ 716 ============================================ $25,147 $6,224 $ (814) $30,557 ============================================

1996 Operating revenues Operating expenses Operating income before income taxes Income available for common stock Total assets

$ 8,989 $ 679 $ (58) $ 9,610 7,179 595 (60) 7,714 -------------------------------------------$ 1,810 $ 84 $ 2 $ 1,896 ============================================ $ 707 $ 15 $ $ 722 ============================================ $23,567 $2,858 $ (188) $26,237 ============================================

1995 Operating revenues Operating expenses Operating income before income taxes

$ 9,243 $ 447 $ (68) $ 9,622 6,556 376 (73) 6,859 -------------------------------------------$ 2,687 $ 71 $ 5 $ 2,763

============================================ Income available for common stock Total assets $ 1,210 $ 59 $ $ 1,269 ============================================ $24,689 $2,578 $ (396) $26,871 ============================================

Earnings Per Common Share: Basic and diluted earnings per common share were $1.75, $1.75, and $2.99 for 1997, 1996, and 1995, respectively. Earnings per common share were affected by the activity discussed below. 18

Utility Results: 1997 COMPARED TO 1996 Our Utility operating revenues in 1997 increased $506 million from 1996. The largest portion of the increase was due to transition cost recovery related to the revisions in the Diablo Canyon Nuclear Power Plant (Diablo Canyon) ratemaking structure discussed in Electric Transition Plan below. A portion of the increase is due to increased revenues associated with electric transmission and distribution system reliability authorized by California Assembly Bill 1890, the electric industry restructuring legislation. There was also an increase in energy cost revenues to recover energy cost increases and changes in sales volume provided by our Utility's energy rate recovery mechanism. Under energy rate recovery mechanisms, energy rate revenues generally equal energy costs and, thus, increases in the cost of energy do not affect operating income. Our Utility operating expenses in 1997 increased $485 million from 1996. The increase was due primarily to the increase in Diablo Canyon depreciation (which provided the revenue increases discussed above for recovery of the increased depreciation) and the increase in cost of energy. This increase was partially offset by a decrease in expenses for several 1996 one-time charges associated with gas transportation commitments and a 1996 onetime charge due to a litigation reserve. Other income increased in 1997 compared to 1996 primarily due to a gain on the buyout of a long-term contract for gas transportation service. 1996 COMPARED TO 1995 Our Utility operating revenues in 1996 decreased $254 million from 1995 due to revenue reductions ordered in the 1996 General Rate Case. The revenue decrease was also due to a decline in the Diablo Canyon generation price, as provided in the Diablo Canyon rate case settlement. This lower generation price was partially offset by higher net generation, which was a result of fewer scheduled refuelings in 1996 compared to 1995. We maintain an automatic adjustment clause (Gas Balancing Account) pursuant to which 1996 revenues were increased to reflect the increase in gas prices in 1996 as compared to 1995. However, this increase to gas revenues was offset by a corresponding revenue decrease ordered in the 1996 General Rate Case. Our Utility operating expenses increased $623 million in 1996 primarily due to charges for gas transportation commitments, increases in gas and purchased power prices, increases in expenses related to transmission and distribution system reliability, and increases in litigation costs. Unregulated Business Results: 1997 COMPARED TO 1996 Our unregulated business operating revenues in 1997 increased $5,672 million from 1996. This was primarily due to a $4,524 million increase in energy commodities and services revenues from the acquisitions of Energy Source (ES) in December 1996, Teco Pipeline Company (Teco) in January 1997, and Valero Energy Corporation (Valero) in July 1997. Also contributing to the increase were the new revenues from the gas pipeline operations of Teco and Valero. Our unregulated business operating expenses in 1997 increased $5,838 million from 1996 which essentially reflects the increase in the cost of gas for resale due to the above acquisitions and our expansion into the energy commodities and services industry. Other income increased in 1997 compared to 1996 primarily due to the gain on the sale of International

Utility Results: 1997 COMPARED TO 1996 Our Utility operating revenues in 1997 increased $506 million from 1996. The largest portion of the increase was due to transition cost recovery related to the revisions in the Diablo Canyon Nuclear Power Plant (Diablo Canyon) ratemaking structure discussed in Electric Transition Plan below. A portion of the increase is due to increased revenues associated with electric transmission and distribution system reliability authorized by California Assembly Bill 1890, the electric industry restructuring legislation. There was also an increase in energy cost revenues to recover energy cost increases and changes in sales volume provided by our Utility's energy rate recovery mechanism. Under energy rate recovery mechanisms, energy rate revenues generally equal energy costs and, thus, increases in the cost of energy do not affect operating income. Our Utility operating expenses in 1997 increased $485 million from 1996. The increase was due primarily to the increase in Diablo Canyon depreciation (which provided the revenue increases discussed above for recovery of the increased depreciation) and the increase in cost of energy. This increase was partially offset by a decrease in expenses for several 1996 one-time charges associated with gas transportation commitments and a 1996 onetime charge due to a litigation reserve. Other income increased in 1997 compared to 1996 primarily due to a gain on the buyout of a long-term contract for gas transportation service. 1996 COMPARED TO 1995 Our Utility operating revenues in 1996 decreased $254 million from 1995 due to revenue reductions ordered in the 1996 General Rate Case. The revenue decrease was also due to a decline in the Diablo Canyon generation price, as provided in the Diablo Canyon rate case settlement. This lower generation price was partially offset by higher net generation, which was a result of fewer scheduled refuelings in 1996 compared to 1995. We maintain an automatic adjustment clause (Gas Balancing Account) pursuant to which 1996 revenues were increased to reflect the increase in gas prices in 1996 as compared to 1995. However, this increase to gas revenues was offset by a corresponding revenue decrease ordered in the 1996 General Rate Case. Our Utility operating expenses increased $623 million in 1996 primarily due to charges for gas transportation commitments, increases in gas and purchased power prices, increases in expenses related to transmission and distribution system reliability, and increases in litigation costs. Unregulated Business Results: 1997 COMPARED TO 1996 Our unregulated business operating revenues in 1997 increased $5,672 million from 1996. This was primarily due to a $4,524 million increase in energy commodities and services revenues from the acquisitions of Energy Source (ES) in December 1996, Teco Pipeline Company (Teco) in January 1997, and Valero Energy Corporation (Valero) in July 1997. Also contributing to the increase were the new revenues from the gas pipeline operations of Teco and Valero. Our unregulated business operating expenses in 1997 increased $5,838 million from 1996 which essentially reflects the increase in the cost of gas for resale due to the above acquisitions and our expansion into the energy commodities and services industry. Other income increased in 1997 compared to 1996 primarily due to the gain on the sale of International Generating Company, Ltd. which was partially offset by write-downs of certain nonregulated investments. 1996 COMPARED TO 1995 Our unregulated business operating revenues and operating expenses in 1996 increased $232 and $219 million, respectively, from 1995 primarily due to the purchase of ES in December 1996. This purchase created $283 million of revenue but was offset by an increase in the cost of gas for resale. The increase in both operating revenues and operating expenses was partially offset by a decrease due to the sale of DALEN Corporation in 1995. Other income decreased in 1996 compared to 1995 primarily due to write-downs of certain nonregulated investments in 1996.

19

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Common Stock Dividend: Our common stock dividend is based on a number of financial considerations, including sustainability, financial flexibility, and competitiveness with investment opportunities of similar risk. Our current quarterly common stock dividend is $.30 per common share, which corresponds to an annualized dividend of $1.20 per common share. The CPUC set a number of conditions when PG&E Corporation was formed as a holding company. One of these conditions requires our Utility to maintain, on average, its CPUC-authorized capital structure, potentially limiting the amount of dividends our Utility may pay PG&E Corporation. At December 31, 1997, our Utility was in compliance with its CPUC-authorized capital structure. We believe that our Utility will continue to meet this condition in the future without affecting our ability to pay common stock dividends to common shareholders. Financial Condition We begin this section by discussing the energy industry. We also discuss how the Corporation is responding to restructuring on a national level, including recent and planned acquisitions. We then discuss liquidity and capital resources and our risk management activities. Energy Industry: The Electric Business: California has been in the forefront of the nation's move towards competitive energy markets. In 1998, Californians will be able to choose who will provide their electric power. Customers within our Utility's service territory can purchase electricity (1) from our Utility, (2) from retail electricity providers (for example, marketers including our energy service subsidiary, brokers, and aggregators), or (3) directly from unregulated power generators. Our Utility will continue to provide distribution services to substantially all electric consumers within its service territory. To create this competitive generation market, California has established a Power Exchange (PX) and an Independent Systems Operator (ISO). The PX will be an open electric marketplace where electricity prices are set. The ISO will oversee California's electric transmission grid making sure that all generators have comparable access. California utilities will retain ownership of utility transmission facilities but will relinquish operating control to the ISO. Competing electric providers will bid their electric commodity into the PX. The PX will accept the lowest bids to satisfy the aggregate electric demand and establish a market price. Customers choosing to buy power directly from non- regulated generators or retailers will pay for that generation based upon negotiated contracts. The PX and ISO are expected to be operational by March 31, 1998. CPUC regulation requires our Utility to purchase all electric power for its retail customers from the PX. And, we must bid all of our Utility-generated electric power to the PX. Generation revenues currently make up approximately 30 percent of our total Utility revenues. The competitive market environment will significantly change the way our Utility earns revenues. Over the past several years, we have been taking steps to prepare for these changes. We have been working with the CPUC to ensure a smooth transition into the competitive market environment. And, we have made strategic investments throughout the nation that will further position us as a national energy provider. The following sections discuss the transition plan. A discussion of the investments we have made is included in Our Response to Changes in Our Industry, below. ELECTRIC TRANSITION PLAN In the new competitive market, our Utility's generation revenues will be determined principally by the market through sales to the PX. However, market- based revenues may not be sufficient to recover (that is, to collect from customers) all generation costs resulting from past CPUC decisions. To recover these uneconomic costs, called "transition costs," and to ensure a smooth transition to the competitive environment, our Utility in conjunction with other California electric utilities, the CPUC, state legislators, consumer advocates, and others, developed a transition plan, in the form of state legislation, to position California for the new market environment. 20

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Common Stock Dividend: Our common stock dividend is based on a number of financial considerations, including sustainability, financial flexibility, and competitiveness with investment opportunities of similar risk. Our current quarterly common stock dividend is $.30 per common share, which corresponds to an annualized dividend of $1.20 per common share. The CPUC set a number of conditions when PG&E Corporation was formed as a holding company. One of these conditions requires our Utility to maintain, on average, its CPUC-authorized capital structure, potentially limiting the amount of dividends our Utility may pay PG&E Corporation. At December 31, 1997, our Utility was in compliance with its CPUC-authorized capital structure. We believe that our Utility will continue to meet this condition in the future without affecting our ability to pay common stock dividends to common shareholders. Financial Condition We begin this section by discussing the energy industry. We also discuss how the Corporation is responding to restructuring on a national level, including recent and planned acquisitions. We then discuss liquidity and capital resources and our risk management activities. Energy Industry: The Electric Business: California has been in the forefront of the nation's move towards competitive energy markets. In 1998, Californians will be able to choose who will provide their electric power. Customers within our Utility's service territory can purchase electricity (1) from our Utility, (2) from retail electricity providers (for example, marketers including our energy service subsidiary, brokers, and aggregators), or (3) directly from unregulated power generators. Our Utility will continue to provide distribution services to substantially all electric consumers within its service territory. To create this competitive generation market, California has established a Power Exchange (PX) and an Independent Systems Operator (ISO). The PX will be an open electric marketplace where electricity prices are set. The ISO will oversee California's electric transmission grid making sure that all generators have comparable access. California utilities will retain ownership of utility transmission facilities but will relinquish operating control to the ISO. Competing electric providers will bid their electric commodity into the PX. The PX will accept the lowest bids to satisfy the aggregate electric demand and establish a market price. Customers choosing to buy power directly from non- regulated generators or retailers will pay for that generation based upon negotiated contracts. The PX and ISO are expected to be operational by March 31, 1998. CPUC regulation requires our Utility to purchase all electric power for its retail customers from the PX. And, we must bid all of our Utility-generated electric power to the PX. Generation revenues currently make up approximately 30 percent of our total Utility revenues. The competitive market environment will significantly change the way our Utility earns revenues. Over the past several years, we have been taking steps to prepare for these changes. We have been working with the CPUC to ensure a smooth transition into the competitive market environment. And, we have made strategic investments throughout the nation that will further position us as a national energy provider. The following sections discuss the transition plan. A discussion of the investments we have made is included in Our Response to Changes in Our Industry, below. ELECTRIC TRANSITION PLAN In the new competitive market, our Utility's generation revenues will be determined principally by the market through sales to the PX. However, market- based revenues may not be sufficient to recover (that is, to collect from customers) all generation costs resulting from past CPUC decisions. To recover these uneconomic costs, called "transition costs," and to ensure a smooth transition to the competitive environment, our Utility in conjunction with other California electric utilities, the CPUC, state legislators, consumer advocates, and others, developed a transition plan, in the form of state legislation, to position California for the new market environment. 20

There are three principal elements to this transition plan: (1) an electric rate freeze and rate reduction, (2)

There are three principal elements to this transition plan: (1) an electric rate freeze and rate reduction, (2) recovery of transition costs, and (3) economic divestiture of Utility-owned generation facilities. Each one of these three elements, the impact of the transition plan on our Utility's customers, and the impact of the transition plan on our application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation," are discussed below. The transition plan will remain in effect until the earlier of March 31, 2002, or when we have recovered our authorized transition costs as determined by the CPUC. This period is referred to as the transition period. At the conclusion of the transition period, we will be at risk to recover any of our Utility's remaining generation costs through market-based revenues. . Rate Freeze and Rate Reduction The first element of the transition plan is an electric rate freeze and an electric rate reduction. During 1997, electric rates for our Utility's customers were held at 1996 levels. Effective January 1, 1998, we reduced electric rates for our Utility's residential and small commercial customers by 10 percent and will hold their rates at that level. The rate freeze will continue until the end of the transition period. To pay for the 10 percent rate reduction, we financed $2.9 billion of our transition costs with rate reduction bonds. See Cash Flows from Financing Activities below. . Transition Cost Recovery The second element of the transition plan is recovery of transition costs. Transition cost recovery has five parts for determining: (1) which costs are eligible for recovery as transition costs, (2) when they can be recovered, (3) how transition cost revenues will be determined, (4) how transition costs will be expensed, and (5) what happens when transition cost revenues differ from the related expenses. Each of these five parts is discussed below. The first part of transition cost recovery is determining which Utility costs are eligible for recovery as transition costs. These costs include: (1) above- market sunk costs (sunk costs are costs associated with Utility-owned generating facilities that are fixed and unavoidable and currently included in our Utility customers' electric rates) and future costs, such as costs related to plant removal, (2) costs associated with the Utility's long-term contracts to purchase power at above-market prices from Qualifying Facilities (QF) and other power suppliers, and (3) generation-related regulatory assets and obligations. (In general, regulatory assets are expenses deferred in the current or prior periods to be included in rates in subsequent periods.) Transition costs that are disallowed by the CPUC for collection from Utility customers will be written off. Each of the types of eligible transition costs are discussed below. Sunk costs associated with Utility-owned generation facilities are currently included in our Utility customers' rates. Above-market sunk costs are those whose values recorded on our balance sheet (book value) are expected to be in excess of their market values. Conversely, below-market sunk costs are those whose market values are expected to be in excess of their book values. In general, the total amount of sunk costs to be included as transition costs will be based on the aggregate of above-market and below-market values. The above- market portion of sunk costs is eligible for recovery as a transition cost. The below-market portion of sunk costs will reduce other unrecovered transition costs. A valuation of Utility-owned generation facilities where the market value exceeds the book value could result in a material charge if the Utility retains the facility. This is because any excess of market value over book value would be used to reduce other transition costs without being collected in rates. We will not be able to determine the exact amount of sunk costs that will be recoverable as transition costs until a market valuation process (appraisal, spin, or sale) is completed for each of our Utility's generation facilities. The first of these valuations occurred in 1997 when we agreed to sell three Utility- owned electric plants for $501 million. The sale is expected to close during 1998. (See Generation Divestiture below.) The rest of the valuation process will be completed by December 31, 2001. At December 31, 1997, our Utility's net investment in Diablo Canyon and Utility-owned non-nuclear generation facilities was $3.7 billion and $2.7 billion, respectively, including the plants to be sold in 1998. 21

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Our Utility has agreed to purchase electric power from QFs and other power suppliers under long-term contracts

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition Our Utility has agreed to purchase electric power from QFs and other power suppliers under long-term contracts expiring on various dates through 2028. Over the life of these contracts, the Utility estimates that it will purchase approximately 360 million megawatt-hours (MWh) at an aggregate average price of 6.3 cents per kilowatt-hour (kWh). To the extent that this price is above the market price, our Utility will be able to collect the difference between the contract price and the market price from customers, as a transition cost, over the term of the contract. In addition, as of December 31, 1997, we have accumulated approximately $1.5 billion of generation-related net regulatory assets. The net regulatory assets are eligible for recovery as transition costs. The CPUC has the ultimate authority to determine which costs are eligible to be recovered as transition costs. Reviews by the CPUC to determine the reasonableness of transition costs are being conducted and will continue to be conducted throughout the transition period. The second part of transition cost recovery is determining when eligible transition costs can be recovered. Under the transition plan, most transition costs must be recovered by March 31, 2002. This recovery period is significantly shorter than the recovery period of the related assets prior to restructuring. Recovery of transition costs during this shorter period is referred to as accelerated recovery. The CPUC believes that acceleration reduces risks associated with recovery of all our Utility's generation assets, including Diablo Canyon and hydroelectric facilities. As a result, in accordance with the transition plan, we are receiving a reduced return for all of our Utility-owned generation facilities. In 1997, the reduced return was 7.13 percent as compared to an authorized return of 9.45 percent. The reduced return on non-nuclear generation assets, effective July 28, 1997, resulted in a $24 million decrease in earnings ($0.06 per share) in 1997 and will have a continued impact throughout the transition period. Although most transition costs must be recovered by March 31, 2002, certain transition costs can be included in customers' electric rates after the transition period. These costs include: (1) certain employee-related transition costs, (2) above-market payments under existing QF and power-purchase contracts discussed above, and (3) unrecovered electric industry restructuring implementation costs. In addition, transition costs financed by the issuance of rate reduction bonds are expected to be recovered over the term of the bonds. Further, the Utility's nuclear decommissioning costs are being recovered through a CPUC-authorized charge, which will extend until sufficient funds exist to decommission the facility. During the rate freeze, this charge will not increase our Utility customers' electric rates. Excluding these exceptions, we will write-off any transition costs not recovered during the transition period. The third part in transition cost recovery is determining the amount of electric utility revenues under frozen rates that are available to recover eligible transition costs. As directed by the CPUC, we have separated, or unbundled, the Utility's previously authorized cost-of-service electric revenues into separate categories. Unbundling enables us to allocate revenue provided by frozen electric rates into transmission, distribution, public purpose programs, and generation based upon their respective cost of service. Revenues provided by frozen rates will also be used to recover other authorized Utility costs, including nuclear decommissioning, rate reduction bond debt service, and transition cost recovery. The portion of the unbundled revenue to be provided for transition cost recovery is based upon mechanisms approved by the CPUC. Revenue provided for recovery of most non-nuclear transition costs is based upon their acceleration within the transition period. For nuclear transition costs, revenues provided for transition cost recovery are based on: (1) an established Incremental Cost Incentive Price per kWh generated by Diablo Canyon to recover certain ongoing costs and capital additions, and (2) the acceleration of our investment in Diablo Canyon from a period ending in 2016 to a five-year period ending December 31, 2001. The fourth part of transition cost recovery addresses the depreciation and amortization of transition costs. Based on our Utility's evaluation of the transition plan and state legislation and CPUC decisions related to the transition plan, our Utility is depreciating Diablo Canyon over a five-year period ending December 31, 2001. The change in depreciable life increased Diablo Canyon's depreciation expense for 1997, as 22

compared to 1996, by $583 million. In addition, most generation-related regulatory assets are being amortized on a straight-line basis, in accordance with their recovery under the transition plan, beginning January 1, 1998. Further, upon valuation of generation facilities, any losses will be amortized over the remaining transition period as a transition cost. Any gains will be recognized and used to reduce other transition costs at the time of valuation. In the fifth part of transition cost recovery we compare (1) revenues provided for transition cost recovery with (2) the costs associated with accelerated recovery including the depreciation of Diablo Canyon and the amortization of regulatory assets. If the revenues exceed the accelerated costs, certain transition costs may be further accelerated until all transition costs are recovered or March 31, 2002, whichever is earlier. If the accelerated costs exceed the revenues, the costs will be deferred. At the end of the transition period, any over collection of these amounts will be returned to customers. Our Utility's ability to recover its transition costs during the transition period will be dependent on several factors. These factors include: (1) the continued application of the regulatory framework established by the CPUC and state legislation, (2) the amount of transition costs approved by the CPUC, (3) the market value of our Utilityowned generation facilities, (4) future Utility sales levels, (5) future Utility fuel and operating costs, (6) the extent to which our Utility's authorized revenues to recover distribution costs are increased or decreased, and (7) the market price of electricity. Given our current evaluation of these factors, we believe that we will recover our transition costs. Also, we believe that our regulatory assets and Utility-owned generation plants are not impaired. However, a change in one or more of these factors could affect the probability of recovery of transition costs and result in a material charge. During 1997, the difference between billed revenues and authorized revenues was used to recover transition costs, including most of the accelerated Diablo Canyon sunk costs. . Generation Divestiture The third element of the transition plan is the economic divestiture of Utility- owned generation facilities. In 1997, California utilities produced a significant portion of the state's electric generation needs. In a competitive market, the CPUC is concerned that this level of generation may give existing utilities undue influence on the PX price. As part of the transition plan, we have agreed to sell a significant portion of our generation facilities to alleviate this concern. In 1997, we agreed to sell three electric Utility-owned fossil-fueled generating plants to Duke Energy through an auction process. The aggregate bid accepted for these plants was $501 million. These three fossil-fueled plants have a combined book value at December 31, 1997, of approximately $370 million and a combined capacity of 2,645 megawatts (MW). The three power plants were Morro Bay, Moss Landing, and Oakland. The sales have been approved by the CPUC. However, they are still subject to approval of the transfer of various permits and licenses. Additionally, the Utility will retain liability for required environmental remediation of any pre- closing soil or groundwater contamination at these plants. As a result of retaining such environmental remediation liability, we do not expect any material adverse impact on the Utility's or our financial position or results of operations. We expect the sale of these three plants to close in 1998. We plan to conduct another auction of our four remaining Utility-owned fossil- fueled plants and our Utilityowned geothermal facilities in the first half of 1998. These additional plants have a combined generating capacity of 4,718 MW and a combined book value at December 31, 1997, of approximately $790 million. Together the eight power plants represent 98 percent of the Utility's fossil- fueled generating capacity and all of the Utility's geothermal generating capacity. The eight plants currently generate approximately 22 percent of the Utility's total electric sales. The Utility is currently evaluating its options related to its remaining generation facilities and may decide not to retain its economic investment in those facilities. During the transition period, the proceeds from the sale of our plants will be used to offset transition costs associated with other Utility electric generation facilities. Therefore, we do not expect any material adverse impact on the Utility's or our financial position or results of operations 23

compared to 1996, by $583 million. In addition, most generation-related regulatory assets are being amortized on a straight-line basis, in accordance with their recovery under the transition plan, beginning January 1, 1998. Further, upon valuation of generation facilities, any losses will be amortized over the remaining transition period as a transition cost. Any gains will be recognized and used to reduce other transition costs at the time of valuation. In the fifth part of transition cost recovery we compare (1) revenues provided for transition cost recovery with (2) the costs associated with accelerated recovery including the depreciation of Diablo Canyon and the amortization of regulatory assets. If the revenues exceed the accelerated costs, certain transition costs may be further accelerated until all transition costs are recovered or March 31, 2002, whichever is earlier. If the accelerated costs exceed the revenues, the costs will be deferred. At the end of the transition period, any over collection of these amounts will be returned to customers. Our Utility's ability to recover its transition costs during the transition period will be dependent on several factors. These factors include: (1) the continued application of the regulatory framework established by the CPUC and state legislation, (2) the amount of transition costs approved by the CPUC, (3) the market value of our Utilityowned generation facilities, (4) future Utility sales levels, (5) future Utility fuel and operating costs, (6) the extent to which our Utility's authorized revenues to recover distribution costs are increased or decreased, and (7) the market price of electricity. Given our current evaluation of these factors, we believe that we will recover our transition costs. Also, we believe that our regulatory assets and Utility-owned generation plants are not impaired. However, a change in one or more of these factors could affect the probability of recovery of transition costs and result in a material charge. During 1997, the difference between billed revenues and authorized revenues was used to recover transition costs, including most of the accelerated Diablo Canyon sunk costs. . Generation Divestiture The third element of the transition plan is the economic divestiture of Utility- owned generation facilities. In 1997, California utilities produced a significant portion of the state's electric generation needs. In a competitive market, the CPUC is concerned that this level of generation may give existing utilities undue influence on the PX price. As part of the transition plan, we have agreed to sell a significant portion of our generation facilities to alleviate this concern. In 1997, we agreed to sell three electric Utility-owned fossil-fueled generating plants to Duke Energy through an auction process. The aggregate bid accepted for these plants was $501 million. These three fossil-fueled plants have a combined book value at December 31, 1997, of approximately $370 million and a combined capacity of 2,645 megawatts (MW). The three power plants were Morro Bay, Moss Landing, and Oakland. The sales have been approved by the CPUC. However, they are still subject to approval of the transfer of various permits and licenses. Additionally, the Utility will retain liability for required environmental remediation of any pre- closing soil or groundwater contamination at these plants. As a result of retaining such environmental remediation liability, we do not expect any material adverse impact on the Utility's or our financial position or results of operations. We expect the sale of these three plants to close in 1998. We plan to conduct another auction of our four remaining Utility-owned fossil- fueled plants and our Utilityowned geothermal facilities in the first half of 1998. These additional plants have a combined generating capacity of 4,718 MW and a combined book value at December 31, 1997, of approximately $790 million. Together the eight power plants represent 98 percent of the Utility's fossil- fueled generating capacity and all of the Utility's geothermal generating capacity. The eight plants currently generate approximately 22 percent of the Utility's total electric sales. The Utility is currently evaluating its options related to its remaining generation facilities and may decide not to retain its economic investment in those facilities. During the transition period, the proceeds from the sale of our plants will be used to offset transition costs associated with other Utility electric generation facilities. Therefore, we do not expect any material adverse impact on the Utility's or our financial position or results of operations 23

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition from any of these divestitures. . Customer Impacts of Transition Plan Under the transition plan, once the PX and ISO are operational, all electric customers may choose their electric commodity provider. During the transition period, all customers will be billed for electricity used, for transmission and distribution services, for public purpose programs, and for recovery of transition costs. Customers who choose to purchase their electricity from non- Utility energy providers will see a change in their total bill only to the extent that their contracted electric commodity price differs from the PX price. Transition costs are being recovered from all Utility distribution customers through a nonbypassable charge regardless of their choice in commodity provider. As transition costs are nonbypassable, we do not believe that the availability of choice to our customers will have a material impact on our ability to recover transition costs. In addition to supplying commodity electric power, once the ISO and PX are operational, commodity electric providers will be able to choose the method of billing their customers and whether to provide their customers with metering services. We will track cost savings that result when billing, metering, and related services within our Utility's service territory are provided by another entity. Once these cost savings, or credits, are approved by the CPUC and the customer's energy provider is performing billing and metering services, we will reduce the customer's bill by the savings. The electric provider will then charge their customers for these services. To the extent that these credits equate to our actual cost savings from reduced billing, metering, and related services, we do not expect a material adverse impact on the Utility's or our financial condition or results of operations. . The Transition Plan and SFAS No. 71 In 1997, to comply with new accounting guidance, we discontinued the application of SFAS No. 71 for the generation portion of our Utility business. The new accounting guidance requires that regulatory assets and liabilities (both those in existence today and those created under the terms of the transition plan) be allocated to the portion of the business from which the source of the regulated cash flows is derived. Under the transition plan, generation-related regulatory assets are eligible for recovery as transition costs from customers of our Utility's electric distribution business. Accordingly, they have been allocated to that business. As we believe the recovery of our transition costs from these customers is probable, the discontinuation of application of SFAS No. 71 to our Utility's generation business did not have a material effect on our financial statements. As of December 31, 1997, we have recorded approximately $1.5 billion of generation-related regulatory assets. Given the current regulatory environment, our Utility's electric transmission business and most areas of the Utility's electric distribution business are expected to remain rate regulated and, as a result, we will continue to apply the provisions of SFAS No. 71. However, as discussed above, once the ISO and PX are operational, unregulated electric providers may provide their customers with billing and metering services. In the future, electric providers may be allowed to provide other distribution services (such as customer inquiries and uncollectibles). Any discontinuance of SFAS No. 71 for these portions of our Utility electric distribution business is not expected to have a material adverse impact on the Utility's or our financial position or results of operations. The Gas Business: Through our Utility, we sell natural gas and provide natural gas transportation services to our customers. Currently, our customers may buy gas directly from competing suppliers and purchase gas transmission- and distribution-only services from us. Our Utility transmission system transports gas throughout California to our distribution system which, in turn, delivers gas to end-use customers. Utility transmission and distribution services for all customers have historically been "bundled" or sold together at a combined rate. Most of our industrial and larger commercial (noncore) customers purchase their commodity gas from marketers and brokers. Substantially all residential and smaller commercial (core) customers buy their commodity gas as well as transmission and distribution services from us. In order to ensure competitive prices for our customers, we negotiate short-term supply arrangements with numerous providers. 24

Restructuring of the natural gas industry on both the national and the state level has given choices to California utility customers to meet their gas supply needs. The Gas Accord Settlement (Accord), a multi-party settlement approved by the CPUC in 1997, continues the process of restructuring the gas industry in California. The Accord

Restructuring of the natural gas industry on both the national and the state level has given choices to California utility customers to meet their gas supply needs. The Gas Accord Settlement (Accord), a multi-party settlement approved by the CPUC in 1997, continues the process of restructuring the gas industry in California. The Accord is expected to be implemented in March 1998. More specifically, the Accord has four principal elements: 1. The Accord separates or "unbundles" the rates for our Utility's gas transportation system. Once the Accord is implemented, we will offer transmission and distribution services as separate and distinct services to our noncore customers. Unbundling will give these customers the opportunity to select from a menu of services offered by the Utility and will enable them to pay only for the services that they use. Unbundling will also make access to the transmission system possible for all gas marketers and shippers, as well as noncore end-users. As a result, the Accord will make our Utility's transmission system more accessible to a greater number of customers. 2. The Accord increases the opportunity for our Utility's core customers to select the commodity gas supplier of their choice. Greater customer choice will increase competition among suppliers providing gas to core customers and will reduce our role in purchasing gas for such customers. Despite these changes, we will continue to purchase gas as a regulated supplier for those who request it. 3. The Accord changes the way in which our Utility's costs of purchasing gas for core customers through 2002 are regulated. Prior to 1994, we were authorized to collect all costs of purchased gas through rates as long as the CPUC deemed the costs to be reasonable. The Accord replaces the CPUC reasonableness reviews with the core procurement incentive mechanism (CPIM), a form of incentive ratemaking. Apart from a "tolerance band" constructed around market benchmarks, the CPIM will reward us if we are able to buy gas for our core customers at a price below a specified market index price and penalize us if we buy gas at a price above the market index price. Actual core procurement costs measured from 1994 through 1997 have generally been within the CPIM tolerance band. 4. The Accord settled various regulatory issues involving our Utility and various other parties. Resolution of these issues did not have a material adverse impact on the Utility's or our financial position or results of operations. The Accord also establishes gas transmission rates for the period from March 1998 through December 2002 for our Utility's core and noncore customers and eliminates regulatory protection for variations in sales volumes for noncore transmission revenues. As a result, we will be at risk for variations between actual and forecasted noncore transmission throughput volumes. However, we do not expect these variations to have a material adverse impact on the Utility's or our financial position or results of operations. Rates for distribution services will continue to be set by the CPUC and designed to provide us an opportunity to recover our costs of service and include a return on our investment. Our Response to Changes in Our Industry: ACQUISITIONS AND SALES Over the past several years, we have taken steps to take advantage of the changing electric and gas markets and to become a national energy company. In order to accomplish this, we have made several investments to position ourselves to expand and to integrate in the gas transmission market, the energy trading market, the retail energy services market, and the unregulated electric generation market. These investments are highlighted below. In 1997, we created a gas transmission business in Texas, through the acquisitions of Teco Pipeline Company (Teco) and Valero Energy Corporation's (Valero) natural gas and natural gas liquids business. Teco was acquired for approximately $378 million, consisting of $317 million of PG&E Corporation common stock and the purchase of a $61 million note. Valero was acquired for approximately $1.5 billion, consisting of 31 million shares of PG&E Corporation common stock along with the assumption of approximately $780 million in longterm debt. Valero pipeline operations have averaged approximately $147 million in revenues and expenses each month since August 1997. Teco pipeline operations have averaged approximately $6 million in revenues and expenses each month since January 1997. Further, in 1997, we strengthened our presence in the 25

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition unregulated electric generation market. We completed our acquisition of our partner's interests in three U.S. Generating Company (USGen) partnerships we previously jointly owned with Bechtel Enterprises, Inc. (Bechtel). We are now the sole owner of USGen, the largest independent power developer and manager operating in the United States, U.S. Operating Services Company, USGen's operations and maintenance affiliate, and its power marketing affiliate USGen Power Services, L.P. Additionally, we have acquired all or part of Bechtel's interest in several power projects that are affiliated with USGen. Through its affiliates, USGen has ownership or management interests in 15 electric generating facilities operating in eight states. Additionally, in 1997, USGen was selected to buy a portfolio of electric generating assets and power supply contracts from the New England Electric System (NEES) for $1.59 billion, plus $85 million for early retirement and severance costs previously committed to by NEES. Including fuel and other inventories and transaction costs, financing requirements are expected to total approximately $1.75 billion, of which approximately $1 billion will be funded through a combination of project level debt as well as debt of USGen. In addition, $750 million of equity will be contributed over two years and will be financed initially using short-term debt of PG&E Corporation. The assets contain a balance of hydro, coal, oil, and natural gas generation facilities. The acquisition is subject to regulatory approval, among other conditions. We expect the acquisition to be completed in the second half of 1998. Maximizing the benefits of the gas transmission, electric generation, and energy service supply businesses on a national level requires procurement, scheduling, and risk management capabilities. In order to assure the efficient management of the risks and rewards of supplying our customers' energy needs and to optimize our corporate assets, we have combined the trading and risk management businesses of Energy Source (acquired in 1996), Teco, and Valero to form PG&E Energy Trading (PG&E ET). PG&E ET purchases and resells energy commodities and related financial instruments in major domestic markets, serving PG&E Corporation's other unregulated businesses, unaffiliated utilities, and large end-use customers. Our national energy strategy does not currently contemplate continued investment in international generation projects. Therefore, in 1997, we sold to Bechtel our interest in International Generating Company, Ltd., a joint venture between PG&E Corporation and Bechtel, together with all of our related project interests. The sale has resulted in an after-tax gain of approximately $120 million, which was recorded in 1997. REGULATORY ACTIVITY This section discusses items affecting future Utility authorized revenues: the 1999 General Rate Case; a 1998 Revenue Adjustment associated with the electric transition plan, discussed above; and the 1998 Cost of Capital Proceeding. Any requested change in authorized electric revenues resulting from any of these proceedings would not impact our Utility's customer electric rates because these rates are frozen in accordance with the electric transition plan. However, increases in authorized electric revenues would reduce the amount of revenue available to recover transition costs. . The Utility's 1999 General Rate Case (GRC) In December 1997, we filed our 1999 GRC application with the CPUC. During the GRC process, the CPUC examines our Utility's non-fuel related costs to determine the amount we can charge customers. In our application, we requested an increase in our Utility's authorized revenues, effective January 1, 1999. The requested increase consists of an increase of $693 million in electric utility revenues and an increase of $501 million in gas utility revenues over authorized 1997 revenues. The 1999 GRC will not affect the authorized revenues of electric and gas transmission services or of gas storage services. The authorized revenues for each of these services are determined in other proceedings. Electric transmission revenues for 1998 are expected to be authorized by the FERC. In 1997, we filed an application with the FERC requesting electric transmission revenues of $305 million. The requested revenue is consistent with electric transmission revenues in CPUC-authorized 1997 electric rates. The FERC- authorized rates will be effective 26

once the ISO and PX are operational. Also, revenues associated with gas transmission and storage services were authorized as part of the Gas Accord. See Gas Business, above, for a discussion of the Gas Accord. . The Utility's 1998 Electric Revenue Adjustment The electric transition plan (see Electric Business above) allows for increases in revenues previously authorized in the 1996 GRC for system safety and reliability. The CPUC increased 1997 authorized revenues for these services by $160 million. The CPUC also authorized an additional $86 million in 1998 for system safety and reliability. . The Utility's 1998 Cost of Capital Proceeding The CPUC authorized a cost of capital for the Utility's gas and electric distribution assets in 1998 of 9.17 percent. The authorized 1998 cost of common equity is 11.20 percent which is lower than the 11.60 percent authorized for 1997. The CPUC contends that this decrease reflects the level of business and regulatory risks the Utility now faces. The authorized cost of capital will decrease 1998 authorized electric and gas revenue by approximately $25 million and $9 million, respectively. The Utility has requested a rehearing of the Cost of Capital decision. We believe that business and regulatory risks have not been reduced and that our requested cost of common equity of 12.25 percent is more appropriate. The rehearing is expected to occur in 1998. Consistent with the rate freeze, there will be no change in electric rates in 1998 and the lower authorized revenues will be offset by additional transition cost recovery. As discussed above, the CPUC separately reduced the authorized return on our Utility's electric generation-related assets to 7.13 percent. Also, the return on our Utility's electric transmission-related assets will be determined by the FERC in 1998. Finally, the return on our Utility's gas transmission and storage businesses was incorporated in rates established in the Gas Accord. Liquidity and Capital Resources: Cash Flows from Operating Activities: Net cash provided by operating activities totaled $2.6, $2.6, and $3.3 billion in 1997, 1996, and 1995, respectively. Cash from operations exceeded capital requirements for all years presented. Cash Flows from Financing Activities: PG&E CORPORATION During 1997, we issued $752 and $317 million of common stock to acquire Valero and Teco, respectively. These acquisitions did not require the use of cash. We also issued $54 million of common stock through the Dividend Reinvestment Plan and the employee Long-Term Incentive Plan. Also in 1997, we repurchased $804 million of our common stock on the open market and paid dividends of $524 million. During 1996 and 1995, we issued $220 and $140 million shares of common stock, respectively, through the employee Savings Fund Plan, the Dividend Reinvestment Plan, and the employee Long-Term Incentive Plan. In 1996, we repurchased $455 million shares of our common stock and paid dividends of $844 million. In 1995, we repurchased $601 million shares of our common stock and paid dividends of $891 million. In previous years, the Board of Directors (Board) authorized us to repurchase up to $2 billion of our common stock on the open market or in negotiated transactions. In 1997, the Board increased this authorization to a total of $4 billion. Through December 31, 1997, the Corporation had repurchased approximately $2.3 billion of its common stock under this program. As part of this Board authorization, in January 1998, the Corporation entered into a specific transaction to repurchase 37 million shares of common stock at $30.3125 per share. In connection with this transaction, the Corporation has entered into a forward contract with an investment institution. The Corporation will retain the risk of increases and the benefit of decreases in the price of the common shares purchased through the forward contract. This obligation will not be terminated until the investment institution has replaced the shares sold to the Corporation through purchases on the open market or through privately negotiated transactions. The contract is anticipated to expire by December 31, 1998. In January 1997, we established a $500 million revolving credit facility, and in August 1997, we entered into an 27

Management's Discussion and Analysis of Consolidated Results of Operations and Financial Condition additional $500 million temporary credit facility. Both of these credit facilities are to be used for general corporate purposes. There were no borrowings under these facilities at December 31, 1997. During 1997, our unregulated business operations issued $30 million and retired $109 million of long-term debt. Also in 1997, we assumed approximately $780 million of long-term debt in connection with the acquisition of Valero. In 1996, we entered into additional loan agreements of $92 million to finance the PG&E Gas Transmission acquisition of assets in Queensland, Australia. During 1995, our unregulated business operations issued $400 million of bonds, $70 million of medium-term notes, and $109 million of commercial paper which is classified as long-term debt. Substantially all of the proceeds from the debt issued in 1995 were used to refinance outstanding debt. The classification of commercial paper as long-term debt is based on the availability of committed credit facilities expiring in 2000 and management's intent to maintain such amounts in excess of one year. UTILITY In 1997, 1996, and 1995, our Utility redeemed or repurchased $225, $1,113, and $758 million, respectively, of long-term debt to manage the overall balance of our Utility's capital structure. Long-term debt maturing during 1997, 1996, and 1995 was not refinanced. In 1997, our Utility issued $360 million of variable rate pollution control bonds and repurchased the same amount of fixed-rate pollution control bonds. In 1996, our Utility repurchased $988 million of variable and fixed interest rate pollution control mortgage bonds and loan agreements which were replaced with variable interest rate pollution control loan agreements. In December 1997, a subsidiary of the Utility issued $2.9 billion of rate reduction bonds through a special purpose entity established by the California Infrastructure and Economic Development Bank. The proceeds will be used by the Utility to retire debt and reduce equity. The bonds will facilitate a 10 percent rate reduction for residential and eligible small commercial customers, effective January 1, 1998. During the term of the bonds, the Utility will collect from its residential and small commercial customers a separate nonbypassable charge on behalf of the special purpose entity to recover principal, interest, and related costs of the bonds. The bonds are secured by the separate charge, which does not belong to the Utility. The bonds are not secured by the Utility's assets. While the bonds are reflected as a long-term liability on our balance sheet, creditors of the Utility do not have any recourse to revenues from the separate charge. The Utility maintains a $1 billion revolving credit facility which expires in 2002. The facility may be extended annually for additional one-year periods upon mutual agreement between the Utility and the banks. There were no borrowings under this credit facility in 1997 or 1996. The table below provides information about our debt obligations and the rate reduction bonds at December 31, 1997:
Expected maturity date 1998 1999 2000 2001 2002 Thereafter Total(1) ---------------------------------------------------------------------------------------------------(in millions) Long-term debt Fixed rate $659 $294 $460 $330 $515 $4,712 $6,970 Average interest rate 5.8% 6.3% 6.0% 7.8% 7.7% 7.2% 6.9% Variable rate $1,348 $1,348 Rate reduction bonds $125 $265 $280 $300 $290 $1,641 $2,901 Average interest rate 5.9% 6.0% 6.2% 6.2% 6.3% 6.4% 6.3%

(1) The fair value of long-term debt and rate reduction bonds is essentially the same as the book value. 28

28

Cash Flows from Investing Activities: The primary uses of cash for investing activities are additions to property, plant, and equipment; unregulated investments in partnerships; and acquisitions. Capital Spending: Our estimated capital spending for the next three years is shown below:
Year ended December 31, 1998 1999 2000 -------------------------------------------------------------(in millions) Utility capital requirements $1,835 $1,739 $1,617 Other capital requirements 2,091 246 192 Maturing debt obligations and sinking funds 784 559 740 -------------------------Total $4,710 $2,544 $2,549 ==========================

Utility expenditures will be primarily for improvements to facilities to enhance their efficiency and reliability, to extend their useful lives, and to comply with environmental laws and regulations. Other capital expenditures will be primarily for the purchase of electric generating assets and power supply contracts for NEES, discussed above in Acquisitions and Sales. Environmental Matters: We are subject to laws and regulations established to both improve and maintain the quality of the environment. Where our properties contain hazardous substances, these laws and regulations require us to remove or remedy the effect on the environment. At December 31, 1997, the Utility expects to spend $232 million for clean-up costs at identified sites over the next 30 years. If other responsible parties fail to pay or identified outcomes change, then these costs may be as much as $442 million. Of the $232 million, the Utility expects to recover $157 million in future rates. The liability also includes $58 million related to power plant decommissioning for environmental clean-up, which the Utility recovered through depreciation. Additionally, the Utility is seeking recovery of costs from insurance carriers and from other third parties. (See Note 13 of Notes to Consolidated Financial Statements.) Year 2000: In 1995, we began and presently continue to review and assess our computer and information systems in anticipation of the year 2000. At that time, our software programs and systems for critical financial and operational information will be required to recognize this date in the next millennium. The Year 2000 issue exists because many computer programs use only two digits to identify a year in the date field and were developed without considering the impact of the upcoming change in the century. We currently expect to complete critical software conversion modifications by the end of 1998. We do not currently anticipate any material adverse impact on the Utility's or our financial position or results of operations as a result of the Year 2000 issue. Accounting for Decommissioning Expense: In 1996, the Financial Accounting Standards Board issued an Exposure Draft (ED) entitled "Accounting for Certain Liabilities Related to Closure and Removal of Long-Lived Assets." A revised ED is expected in 1998. If the ED is adopted as currently proposed: (1) annual expense for power plant decommissioning could increase, and (2) the estimated total cost for power plant decommissioning could be recorded as a liability, with recognition of an increase in the cost of the related power plant, rather than accrued over time as accumulated depreciation. We do not believe that this change, if implemented as proposed, would have a material adverse impact on the Utility's or our financial position or results of operations. (See Note 2 of Notes to Consolidated Financial Statements for discussion of electric industry restructuring.) Legal Matters: In the normal course of business, the Corporation and the Utility are named as a party in a number of claims and

Cash Flows from Investing Activities: The primary uses of cash for investing activities are additions to property, plant, and equipment; unregulated investments in partnerships; and acquisitions. Capital Spending: Our estimated capital spending for the next three years is shown below:
Year ended December 31, 1998 1999 2000 -------------------------------------------------------------(in millions) Utility capital requirements $1,835 $1,739 $1,617 Other capital requirements 2,091 246 192 Maturing debt obligations and sinking funds 784 559 740 -------------------------Total $4,710 $2,544 $2,549 ==========================

Utility expenditures will be primarily for improvements to facilities to enhance their efficiency and reliability, to extend their useful lives, and to comply with environmental laws and regulations. Other capital expenditures will be primarily for the purchase of electric generating assets and power supply contracts for NEES, discussed above in Acquisitions and Sales. Environmental Matters: We are subject to laws and regulations established to both improve and maintain the quality of the environment. Where our properties contain hazardous substances, these laws and regulations require us to remove or remedy the effect on the environment. At December 31, 1997, the Utility expects to spend $232 million for clean-up costs at identified sites over the next 30 years. If other responsible parties fail to pay or identified outcomes change, then these costs may be as much as $442 million. Of the $232 million, the Utility expects to recover $157 million in future rates. The liability also includes $58 million related to power plant decommissioning for environmental clean-up, which the Utility recovered through depreciation. Additionally, the Utility is seeking recovery of costs from insurance carriers and from other third parties. (See Note 13 of Notes to Consolidated Financial Statements.) Year 2000: In 1995, we began and presently continue to review and assess our computer and information systems in anticipation of the year 2000. At that time, our software programs and systems for critical financial and operational information will be required to recognize this date in the next millennium. The Year 2000 issue exists because many computer programs use only two digits to identify a year in the date field and were developed without considering the impact of the upcoming change in the century. We currently expect to complete critical software conversion modifications by the end of 1998. We do not currently anticipate any material adverse impact on the Utility's or our financial position or results of operations as a result of the Year 2000 issue. Accounting for Decommissioning Expense: In 1996, the Financial Accounting Standards Board issued an Exposure Draft (ED) entitled "Accounting for Certain Liabilities Related to Closure and Removal of Long-Lived Assets." A revised ED is expected in 1998. If the ED is adopted as currently proposed: (1) annual expense for power plant decommissioning could increase, and (2) the estimated total cost for power plant decommissioning could be recorded as a liability, with recognition of an increase in the cost of the related power plant, rather than accrued over time as accumulated depreciation. We do not believe that this change, if implemented as proposed, would have a material adverse impact on the Utility's or our financial position or results of operations. (See Note 2 of Notes to Consolidated Financial Statements for discussion of electric industry restructuring.) Legal Matters: In the normal course of business, the Corporation and the Utility are named as a party in a number of claims and lawsuits. Substantially all of these have been litigated or settled with no material adverse impact on either the Utility's or our financial position or results of operations. See Note 13 of Notes to Consolidated Financial

Statements for further discussion of significant pending legal matters. 29

Inflation: Financial statements, which are prepared in accordance with generally accepted accounting principles, report operating results in terms of historic costs and do not evaluate the impact of inflation. Inflation affects our construction costs, operating expenses, and interest charges. In addition, the Utility's electric revenues will not reflect the impact of inflation due to the current electric rate freeze. However, inflation at the levels currently being experienced is not expected to have a material adverse impact on the Utility's or our financial position or future results of operations. Price Risk Management: We have established an officer-level price risk management committee and adopted a price risk management policy approved by the Board for our trading and risk management activities. The price risk management committee oversees implementation of our policy, approves the trading and price risk management policies of our subsidiaries, and monitors compliance with the policy. Our price risk management policy allows derivatives to be used for both hedging and non-hedging purposes (a derivative is a contract whose value is dependent on or derived from the value of some underlying asset). We use derivatives for hedging purposes primarily to offset underlying commodity price risks. We also participate in markets using derivatives to create liquidity and maintain a market presence. Such derivatives include forward contracts, futures, swaps, and options. Our price risk management policy and the trading and risk management policies of our subsidiaries prohibit the use of derivatives whose payment formula includes a multiple of some underlying asset. In 1997, we approved and implemented trading and risk management policies for PG&E ET and continued to seek regulatory approval to manage commodity price risks in our Utility business. The fair value of market risk sensitive instruments (which includes our hedging and non-hedging instruments described above) as of December 31, 1997, is immaterial for financial instruments subject to commodity price risk. Additionally, as of December 31, 1997, the Corporation calculated value-at-risk based on a 95 percent confidence level using five-day holding periods. Using this methodology, the potential for near-term losses in future earnings, fair values, and cash flows from reasonably possible near-term changes in market prices for financial instruments subject to commodity price risk is immaterial. We anticipate an increase in the level of trading and risk management activity in 1998 due to expected growth in our unregulated national energy businesses and a continuing effort to manage anticipated price risks in our Utility business. Our Utility manages price risk independently from the activities in our unregulated businesses. 30

PG&E Corporation Statement of Consolidated Income
(in millions, except per share amounts) Year ended December 31, 1997 1996 --------------------------------------------------------------------------------------------------------Operating Revenues Utility $ 9,495 $8,989 Energy commodities and services 5,905 621 --------------------------Total operating revenues 15,400 9,610 --------------------------Operating Expenses Cost of energy for utility 2,974 2,709 Cost of energy commodities and services 5,511 356 Operating and maintenance 3,298 3,427 Depreciation and decommissioning 1,889 1,222 --------------------------Total operating expenses 13,672 7,714 --------------------------Operating Income 1,728 1,896 Interest expense, net (665) (632)

Inflation: Financial statements, which are prepared in accordance with generally accepted accounting principles, report operating results in terms of historic costs and do not evaluate the impact of inflation. Inflation affects our construction costs, operating expenses, and interest charges. In addition, the Utility's electric revenues will not reflect the impact of inflation due to the current electric rate freeze. However, inflation at the levels currently being experienced is not expected to have a material adverse impact on the Utility's or our financial position or future results of operations. Price Risk Management: We have established an officer-level price risk management committee and adopted a price risk management policy approved by the Board for our trading and risk management activities. The price risk management committee oversees implementation of our policy, approves the trading and price risk management policies of our subsidiaries, and monitors compliance with the policy. Our price risk management policy allows derivatives to be used for both hedging and non-hedging purposes (a derivative is a contract whose value is dependent on or derived from the value of some underlying asset). We use derivatives for hedging purposes primarily to offset underlying commodity price risks. We also participate in markets using derivatives to create liquidity and maintain a market presence. Such derivatives include forward contracts, futures, swaps, and options. Our price risk management policy and the trading and risk management policies of our subsidiaries prohibit the use of derivatives whose payment formula includes a multiple of some underlying asset. In 1997, we approved and implemented trading and risk management policies for PG&E ET and continued to seek regulatory approval to manage commodity price risks in our Utility business. The fair value of market risk sensitive instruments (which includes our hedging and non-hedging instruments described above) as of December 31, 1997, is immaterial for financial instruments subject to commodity price risk. Additionally, as of December 31, 1997, the Corporation calculated value-at-risk based on a 95 percent confidence level using five-day holding periods. Using this methodology, the potential for near-term losses in future earnings, fair values, and cash flows from reasonably possible near-term changes in market prices for financial instruments subject to commodity price risk is immaterial. We anticipate an increase in the level of trading and risk management activity in 1998 due to expected growth in our unregulated national energy businesses and a continuing effort to manage anticipated price risks in our Utility business. Our Utility manages price risk independently from the activities in our unregulated businesses. 30

PG&E Corporation Statement of Consolidated Income
(in millions, except per share amounts) Year ended December 31, 1997 1996 --------------------------------------------------------------------------------------------------------Operating Revenues Utility $ 9,495 $8,989 Energy commodities and services 5,905 621 --------------------------Total operating revenues 15,400 9,610 --------------------------Operating Expenses Cost of energy for utility 2,974 2,709 Cost of energy commodities and services 5,511 356 Operating and maintenance 3,298 3,427 Depreciation and decommissioning 1,889 1,222 --------------------------Total operating expenses 13,672 7,714 --------------------------Operating Income 1,728 1,896 Interest expense, net (665) (632) Other income and expense 201 13 --------------------------Income Before Income Taxes 1,264 1,277 Income taxes 548 555 ---------------------------

PG&E Corporation Statement of Consolidated Income
(in millions, except per share amounts) Year ended December 31, 1997 1996 --------------------------------------------------------------------------------------------------------Operating Revenues Utility $ 9,495 $8,989 Energy commodities and services 5,905 621 --------------------------Total operating revenues 15,400 9,610 --------------------------Operating Expenses Cost of energy for utility 2,974 2,709 Cost of energy commodities and services 5,511 356 Operating and maintenance 3,298 3,427 Depreciation and decommissioning 1,889 1,222 --------------------------Total operating expenses 13,672 7,714 --------------------------Operating Income 1,728 1,896 Interest expense, net (665) (632) Other income and expense 201 13 --------------------------Income Before Income Taxes 1,264 1,277 Income taxes 548 555 --------------------------Net Income $ 716 $ 722 =========================== Weighted Average Common Shares Outstanding 410 413 Earnings Per Common Share, Basic and Diluted $ 1.75 $ 1.75 Dividends Declared Per Common Share $ 1.20 $ 1.77 The accompanying Notes to the Consolidated Financial Statements are an integral part of thi

31

PG&E Corporation Consolidated Balance Sheet
(in millions) At December 31, 1997 1996 -----------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents $ 237 $ 131 Short-term investments 1,160 13 Accounts receivable Customers, net 1,514 1,152 Regulatory balancing accounts 658 444 Energy marketing 830 387 Inventories and prepayments 626 584 --------------Total current assets 5,025 2,711 Property, Plant, and Equipment Utility 32,972 31,716 Gas transmission 3,484 1,594 Other 57 --------------Total property, plant, and equipment (at original cost) 36,513 33,310 Accumulated depreciation and decommissioning (16,041) (14,302) --------------Net property, plant, and equipment 20,472 19,008 Other Noncurrent Assets Regulatory assets 2,337 2,518 Nuclear decommissioning funds 1,024 883 Other 1,699 1,117 --------------Total noncurrent assets 5,060 4,518 --------------Total Assets $ 30,557 $ 26,237 ======== ========

PG&E Corporation Consolidated Balance Sheet
(in millions) At December 31, 1997 1996 -----------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents $ 237 $ 131 Short-term investments 1,160 13 Accounts receivable Customers, net 1,514 1,152 Regulatory balancing accounts 658 444 Energy marketing 830 387 Inventories and prepayments 626 584 --------------Total current assets 5,025 2,711 Property, Plant, and Equipment Utility 32,972 31,716 Gas transmission 3,484 1,594 Other 57 --------------Total property, plant, and equipment (at original cost) 36,513 33,310 Accumulated depreciation and decommissioning (16,041) (14,302) --------------Net property, plant, and equipment 20,472 19,008 Other Noncurrent Assets Regulatory assets 2,337 2,518 Nuclear decommissioning funds 1,024 883 Other 1,699 1,117 --------------Total noncurrent assets 5,060 4,518 --------------Total Assets $ 30,557 $ 26,237 ======== ========

32

PG&E Corporation Consolidated Balance Sheet
(in millions) At December 31, 1997 --------------------------------------------------------------------------------------------------------Liabilities and Equity Current Liabilities Short-term borrowings $ 103 Current portion of long-term debt 659 Current portion of rate reduction bonds 125 Accounts payable Trade creditors 754 Other 620 Energy marketing 758 Accrued taxes 226 Other 739 ------------Total current liabilities 3,984 Noncurrent Liabilities Long-term debt Rate reduction bonds Deferred income taxes Deferred tax credits Other Total noncurrent liabilities Preferred Stock of Subsidiary With Mandatory Redemption Provisions 6.30% and 6.57%, outstanding 5,500,000 shares, due 2002-2009 Utility Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures, 7.90%, 12,000,000 shares, due 2025 Stockholders' Equity Preferred stock of subsidiary, par value $25, authorized 75,000,000 shares Without mandatory redemption provisions

7,659 2,776 4,029 339 2,034 ------------16,837

137

300

PG&E Corporation Consolidated Balance Sheet
(in millions) At December 31, 1997 --------------------------------------------------------------------------------------------------------Liabilities and Equity Current Liabilities Short-term borrowings $ 103 Current portion of long-term debt 659 Current portion of rate reduction bonds 125 Accounts payable Trade creditors 754 Other 620 Energy marketing 758 Accrued taxes 226 Other 739 ------------Total current liabilities 3,984 Noncurrent Liabilities Long-term debt Rate reduction bonds Deferred income taxes Deferred tax credits Other Total noncurrent liabilities Preferred Stock of Subsidiary With Mandatory Redemption Provisions 6.30% and 6.57%, outstanding 5,500,000 shares, due 2002-2009 Utility Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures, 7.90%, 12,000,000 shares, due 2025 Stockholders' Equity Preferred stock of subsidiary, par value $25, authorized 75,000,000 shares Without mandatory redemption provisions Nonredeemable-5% to 6%, outstanding 5,784,825 shares Redeemable-4.36% to 7.44%, outstanding 10,297,404 shares Common stock, no par value, authorized 800,000,000 shares; issued and outstanding, 417,665,891 and 403,504,292 shares Reinvested earnings Total stockholders' equity Commitments and Contingencies (Notes 1, 2, 3, 4, 12, and 13) Total Liabilities and Stockholders' Equity

7,659 2,776 4,029 339 2,034 ------------16,837

137

300

145 257 6,366 2,531 ------------9,299 ------------$30,557 =============

The accompanying Notes to the Consolidated Financial Statements are an integral part of this stateme

33

PG&E Corporation Statement of Consolidated Cash Flows
(in millions) Year ended December 31, 1997 19 --------------------------------------------------------------------------------------------------------Cash Flows From Operating Activities Net income $ 716 $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, decommissioning, and amortization 2,014 Deferred income taxes and tax credits-net (159) Other deferred charges and noncurrent liabilities 159 Gain on sale of assets (120) Net effect of changes in operating assets and liabilities: Accounts receivable (242) Regulatory balancing accounts receivable (74) Inventories (4)

PG&E Corporation Statement of Consolidated Cash Flows
(in millions) Year ended December 31, 1997 19 --------------------------------------------------------------------------------------------------------Cash Flows From Operating Activities Net income $ 716 $ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, decommissioning, and amortization 2,014 Deferred income taxes and tax credits-net (159) Other deferred charges and noncurrent liabilities 159 Gain on sale of assets (120) Net effect of changes in operating assets and liabilities: Accounts receivable (242) Regulatory balancing accounts receivable (74) Inventories (4) Accounts payable 210 Accrued taxes (54) Other working capital (85) Other-net 257 ------------Net cash provided by operating activities 2,618 ------------Cash Flows From Investing Activities Capital expenditures (1,822) ( Investments in unregulated projects (75) Acquisitions (41) Proceeds from sale of assets 146 Other-net 21 ------------Net cash used by investing activities (1,771) ( ------------Cash Flows From Financing Activities Net increase (decrease) in short-term borrowings (587) Long-term debt issued 386 Long-term debt matured, redeemed, or repurchased-net (961) ( Proceeds from issuance of rate reduction bonds 2,881 Preferred stock redeemed or repurchased Utility obligated mandatorily redeemable preferred securities issued Common stock issued 54 Common stock repurchased (804) Dividends paid (524) Other-net (39) ------------Net cash used by financing activities 406 ( ------------Net Change in Cash and Cash Equivalents 1,253 Cash and Cash Equivalents at January 1 144 ------------Cash and Cash Equivalents at December 31 $ 1,397 $ ============= Supplemental disclosures of cash flow information Cash paid for: Interest (net of amounts capitalized) $ 624 $ Income taxes 801

The accompanying Notes to the Consolidated Financial Statements are an integral part of thi

34

PG&E Corporation Statement of Consolidated Common Stock Equity, Preferred Stock, and Preferred Securities
Preferred Stock of Subsidiary S Total Without Additional Common Mandatory Common Paid-in Reinvested Stock Redemption R (dollars in millions) Stock Capital Earnings Equity Provisions P --------------------------------------------------------------------------------------------------------Balance December 31, 1994 $2,151 $3,806 $2,677 $8,634 $733 ------------------------------------------------------------------

PG&E Corporation Statement of Consolidated Common Stock Equity, Preferred Stock, and Preferred Securities
Preferred Stock of Subsidiary S Total Without Additional Common Mandatory Common Paid-in Reinvested Stock Redemption R (dollars in millions) Stock Capital Earnings Equity Provisions P --------------------------------------------------------------------------------------------------------Balance December 31, 1994 $2,151 $3,806 $2,677 $8,634 $733 -----------------------------------------------------------------Net income 1,269 1,269 Common stock issued (5,316,876 shares) 27 113 140 Common stock repurchased (21,533,977 shares) (108) (195) (298) (601) Preferred securities issued(1) (12,000,000 shares) Preferred stock redeemed (13,237,554 shares) (8) (8) (331) Cash dividends declared Common stock (830) (830) Other (5) (5) -----------------------------------------------------------------Balance December 31, 1995 2,070 3,716 2,813 8,599 402 -----------------------------------------------------------------Net income 722 722 Common stock issued (9,290,102 shares) 47 173 220 Common stock repurchased (19,811,396 shares) (99) (182) (174) (455) Cash dividends declared Common stock (729) (729) Other 3 4 7 -----------------------------------------------------------------Balance December 31, 1996 2,018 3,710 2,636 8,364 402 -----------------------------------------------------------------Net income 716 716 Holding company formation 3,710 (3,710) Common stock issued (2,302,544 shares) 54 54 Acquisitions (45,683,005 shares) 1,069 1,069 Common stock repurchased (33,823,950 shares) (496) (308) (804) Cash dividends declared Common stock (485) (485) Other 11 (28) (17) -----------------------------------------------------------------Balance December 31, 1997 $6,366 $ $2,531 $8,897 $402 ================================================================== (1)Relates to utility obligated mandatorily redeemable preferred securities of trust holding solely Utili

The accompanying Notes to the Consolidated Financial Statements are an integral part of this

35

Pacific Gas and Electric Company Statement of Consolidated Income
(in millions) Year ended December 31, 1997 1996 1995 ----------------------------------------------------------------------------Operating Revenues Electric utility $7,691 $7,160 $7,387 Gas utility 1,804 1,829 1,856 Energy commodities and services 621 379 ---------------------Total operating revenues 9,495 9,610 9,622 Operating Expenses Cost of electric energy 2,501 2,261 2,117 Cost of gas 473 448 286 Cost of energy commodities and services 356 47

Pacific Gas and Electric Company Statement of Consolidated Income
(in millions) Year ended December 31, 1997 1996 1995 ----------------------------------------------------------------------------Operating Revenues Electric utility $7,691 $7,160 $7,387 Gas utility 1,804 1,829 1,856 Energy commodities and services 621 379 ---------------------Total operating revenues 9,495 9,610 9,622 Operating Expenses Cost of electric energy 2,501 2,261 2,117 Cost of gas 473 448 286 Cost of energy commodities and services 356 47 Operating and maintenance 2,905 3,427 3,049 Depreciation and decommissioning 1,785 1,222 1,360 ---------------------Total operating expenses 7,664 7,714 6,859 Operating Income 1,831 1,896 2,763 Interest expense, net (570) (632) (678) Other income and expense 116 46 149 ---------------------Income Before Income Taxes 1,377 1,310 2,234 Income taxes 609 555 895 ---------------------Net income 768 755 1,339 Preferred dividend requirement and redemption premium 33 33 70 ---------------------Income Available for Common Stock $ 735 $ 722 $1,269 ====================== The accompanying Notes to the Consolidated Financial Statements are an integral part of this

36

Pacific Gas and Electric Company Statement of Consolidated Cash Flows
(in millions) Year ended December 31, 1997 --------------------------------------------------------------------------------------------------------Cash Flows From Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, decommissioning, and amortization Deferred income taxes and tax credits-net Other deferred charges and noncurrent liabilities Net effect of changes in operating assets and liabilities: Accounts receivable Regulatory balancing accounts receivable Inventories Accounts payable Accrued taxes Other working capital Other-net Net cash provided by operating activities Cash Flows From Investing Activities Capital expenditures Investments in unregulated projects Acquisitions Proceeds from sale of assets Other-net Net cash used by investing activities Cash Flows From Financing Activities Net increase (decrease) in short-term borrowings Long-term debt issued Long-term debt matured, redeemed, or repurchased-net Proceeds from issuance of rate reduction bonds (681) 355 (852) 2,881 (1,522) (117) ---------(1,639) ----------

$

768 1,914 (182) 167

(582) (74) 12 (80) (62) (128) 15 ---------1,768 ----------

Pacific Gas and Electric Company Statement of Consolidated Cash Flows
(in millions) Year ended December 31, 1997 --------------------------------------------------------------------------------------------------------Cash Flows From Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, decommissioning, and amortization Deferred income taxes and tax credits-net Other deferred charges and noncurrent liabilities Net effect of changes in operating assets and liabilities: Accounts receivable Regulatory balancing accounts receivable Inventories Accounts payable Accrued taxes Other working capital Other-net Net cash provided by operating activities Cash Flows From Investing Activities Capital expenditures Investments in unregulated projects Acquisitions Proceeds from sale of assets Other-net Net cash used by investing activities Cash Flows From Financing Activities Net increase (decrease) in short-term borrowings Long-term debt issued Long-term debt matured, redeemed, or repurchased-net Proceeds from issuance of rate reduction bonds Preferred stock redeemed or repurchased Company obligated mandatorily redeemable preferred securities issued Dividends paid Other-net Net cash used by financing activities Net Change in Cash and Cash Equivalents Cash and Cash Equivalents at January 1 Cash and Cash Equivalents at December 31 Supplemental disclosures of cash flow information Cash paid for: Interest (net of amounts capitalized) Income taxes (681) 355 (852) 2,881 (739) (14) ---------950 ---------1,079 144 ---------$ 1,223 ========== (1,522) (117) ---------(1,639) ----------

$

768 1,914 (182) 167

(582) (74) 12 (80) (62) (128) 15 ---------1,768 ----------

$

547 841

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 37

Pacific Gas and Electric Company Consolidated Balance Sheet
(in millions) At December 31, 1997 1996 ------------------------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents $ 80 $ 131 Short-term investments 1,143 13 Accounts receivable Customers, net 1,204 1,152 Regulatory balancing accounts 658 444 Related parties 459 Energy marketing 387

Pacific Gas and Electric Company Consolidated Balance Sheet
(in millions) At December 31, 1997 1996 ------------------------------------------------------------------------------------------Assets Current Assets Cash and cash equivalents $ 80 $ 131 Short-term investments 1,143 13 Accounts receivable Customers, net 1,204 1,152 Regulatory balancing accounts 658 444 Related parties 459 Energy marketing 387 Inventories and prepayments 523 584 ----------------------Total current assets 4,067 2,711 Property, Plant, and Equipment Electric Gas Total property, plant, and equipment (at original cost) Accumulated depreciation and decommissioning Net property, plant, and equipment Other Noncurrent Assets Regulatory assets Nuclear decommissioning funds Other Total noncurrent assets Total Assets

26,033 25,052 6,939 8,258 ----------------------32,972 33,310 (15,558) (14,302) ----------------------17,414 19,008

2,283 2,518 1,024 883 359 1,117 ----------------------3,666 4,518 ----------------------$ 25,147 $ 26,237 =======================

38

Pacific Gas and Electric Company Consolidated Balance Sheet
(in millions) At December 31, 1997 1996 -------------------------------------------------------------------------------------------------------Liabilities and Equity Current Liabilities Short-term borrowings $ $ 681 Current portion of long-term debt 580 210 Current portion of rate reduction bonds 125 Accounts payable Trade creditors 441 490 Related parties 134 Other 578 548 Energy marketing 388 Accrued taxes 229 310 Deferred income taxes 149 157 Other 373 496 ---------------------Total current liabilities 2,609 3,280 Noncurrent Liabilities Long-term debt Rate reduction bonds Deferred income taxes Deferred tax credits Other Total noncurrent liabilities Preferred Stock With Mandatory Redemption Provisions 6.30% and 6.57%, outstanding 5,500,000 shares, due 2002-2009

6,218 7,770 2,776 3,304 3,941 338 380 1,810 1,663 ---------------------14,446 13,754

137

137

Pacific Gas and Electric Company Consolidated Balance Sheet
(in millions) At December 31, 1997 1996 -------------------------------------------------------------------------------------------------------Liabilities and Equity Current Liabilities Short-term borrowings $ $ 681 Current portion of long-term debt 580 210 Current portion of rate reduction bonds 125 Accounts payable Trade creditors 441 490 Related parties 134 Other 578 548 Energy marketing 388 Accrued taxes 229 310 Deferred income taxes 149 157 Other 373 496 ---------------------Total current liabilities 2,609 3,280 Noncurrent Liabilities Long-term debt Rate reduction bonds Deferred income taxes Deferred tax credits Other Total noncurrent liabilities Preferred Stock With Mandatory Redemption Provisions 6.30% and 6.57%, outstanding 5,500,000 shares, due 2002-2009 Company Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures, 7.90%, 12,000,000 shares, due 2025 Stockholders' Equity Preferred stock, par value $25, authorized 75,000,000 shares Without mandatory redemption provisions Nonredeemable-5% to 6%, outstanding 5,784,825 shares Redeemable-4.36% to 7.44%, outstanding 10,297,404 shares Common stock, no par value, authorized 800,000,000 shares, 403,504,292 shares outstanding, each year Reinvested earnings Total stockholders' equity Commitments and Contingencies (Notes 1, 2, 3, 12, and 13) Total Liabilities and Stockholders' Equity

6,218 7,770 2,776 3,304 3,941 338 380 1,810 1,663 ---------------------14,446 13,754

137

137

300

300

145 257

145 257

4,582 5,728 2,671 2,636 ---------------------7,655 8,766 ---------------------$25,147 $26,237 ======================

The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 39

Pacific Gas and Electric Company Statement of Consolidated Common Stock Equity, Preferred Stock, and Preferred Securities
P Total Additional Common M Common Paid-in Reinvested Stock R (dollars in millions) Stock Capital Earnings Equity P --------------------------------------------------------------------------------------------------------Balance December 31, 1994 $2,151 $ 3,806 $2,677 $ 8,634 ------------------------------------------------------Net income 1,339 1,339 Common stock issued (5,316,876 shares) 27 113 140

Pacific Gas and Electric Company Statement of Consolidated Common Stock Equity, Preferred Stock, and Preferred Securities
P Total Additional Common M Common Paid-in Reinvested Stock R (dollars in millions) Stock Capital Earnings Equity P --------------------------------------------------------------------------------------------------------Balance December 31, 1994 $2,151 $ 3,806 $2,677 $ 8,634 ------------------------------------------------------Net income 1,339 1,339 Common stock issued (5,316,876 shares) 27 113 140 Common stock repurchased (21,533,977 shares) (108) (195) (298) (601) Preferred securities issued(1) (12,000,000 shares) Preferred stock redeemed (13,237,554 shares) (8) (14) (22) Cash dividends declared Preferred stock (56) (56) Common stock (830) (830) Other (5) (5) ------------------------------------------------------Balance December 31, 1995 2,070 3,716 2,813 8,599 ------------------------------------------------------Net income 755 755 Common stock issued (9,290,102 shares) 47 173 220 Common stock repurchased (19,811,396 shares) (99) (182) (174) (455) Cash dividends declared Preferred stock (33) (33) Common stock (729) (729) Other 3 4 7 ------------------------------------------------------Balance December 31, 1996 2,018 3,710 2,636 8,364 ------------------------------------------------------Net income 768 768 Holding company formation (1,146) (1,146) Cash dividends declared Preferred stock (33) (33) Common stock (699) (699) Other (1) (1) ------------------------------------------------------Balance December 31, 1997 $2,018 $ 2,564 $2,671 $ 7,253 =======================================================

(1) Relates to Company obligated mandatorily redeemable preferred securities of trust holding solely Utility subordinated debentures. The accompanying Notes to the Consolidated Financial Statements are an integral part of this statement. 40

Notes to Consolidated Financial Statements Note 1: Significant Accounting Policies Basis of Presentation: PG&E Corporation became the holding company of Pacific Gas and Electric Company (the Utility) on January 1, 1997. Prior to that time, the Utility was the predecessor of PG&E Corporation. The Utility's interests in its unregulated subsidiaries were transferred to PG&E Corporation. This is a combined annual report of PG&E Corporation and the Utility. Therefore, the Notes to Consolidated Financial Statements apply to both PG&E Corporation and the Utility. PG&E Corporation's consolidated

Notes to Consolidated Financial Statements Note 1: Significant Accounting Policies Basis of Presentation: PG&E Corporation became the holding company of Pacific Gas and Electric Company (the Utility) on January 1, 1997. Prior to that time, the Utility was the predecessor of PG&E Corporation. The Utility's interests in its unregulated subsidiaries were transferred to PG&E Corporation. This is a combined annual report of PG&E Corporation and the Utility. Therefore, the Notes to Consolidated Financial Statements apply to both PG&E Corporation and the Utility. PG&E Corporation's consolidated financial statements include the accounts of PG&E Corporation and its wholly owned and controlled subsidiaries, including the Utility (collectively, the Corporation). The Utility's consolidated financial statements include its accounts as well as those of its wholly owned and controlled subsidiaries. PG&E Corporation and the Utility have identical 1995 and 1996 consolidated financial statements because they each represent the accounts of the Utility as a predecessor of PG&E Corporation. All significant intercompany transactions have been eliminated from the consolidated financial statements. Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of revenues, expenses, assets, and liabilities and the disclosure of contingencies. Actual results could differ from these estimates. Accounting principles utilized include those necessary for rate-regulated enterprises which reflect the ratemaking policies of the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC). Operations: The Corporation is a national energy company providing electric and gas utility services through its regulated subsidiary Pacific Gas and Electric Company and other energy related services through its unregulated integrated subsidiaries. The Utility generates electricity and procures, transmits, and distributes both electricity and natural gas to customers throughout most of Northern and Central California. Through its other subsidiaries, the Corporation: . Owns and operates natural gas pipelines, natural gas storage facilities, and natural gas processing plants in the Pacific Northwest, Texas, and Australia. . Develops, builds, operates, owns, and manages power generation facilities across the United States. . Provides customers nationwide with competitively-priced natural gas and electricity and services to manage and make more efficient their energy consumption. . Purchases and resells energy commodities and related financial instruments in major domestic markets, serving PG&E Corporation's other unregulated businesses, unaffiliated utilities, and large end-use customers. Regulation and SFAS No. 71: The Utility is regulated by the CPUC, the FERC, and the Nuclear Regulatory Commission, among others. The gas transmission business in the Pacific Northwest is regulated by the FERC. The gas transmission business in Texas is regulated by the Texas Railroad Commission. The Corporation and the Utility account for the financial effect of regulation in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." This statement allows them to record certain regulatory assets and liabilities which will be included in future rates and would not be recorded under GAAP for nonregulated entities. In addition, SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," requires the Corporation and the Utility to write off regulatory assets when they are no longer probable of recovery. On an ongoing basis, the Corporation and the Utility review their regulatory assets and liabilities for the continued applicability of SFAS No. 71 and the effect of SFAS No. 121.

41

Notes to Consolidated Financial Statements Net regulatory assets including regulatory balancing accounts receivable and net regulatory liabilities are comprised of the following:
December 31, 1997 ------------------------------------------------------------------------------(in millions) Electric industry restructuring transition costs/(1)/ $1,535 Unamortized loss, net of gain, on reacquired debt 296 Regulatory assets for deferred income tax 278 Regulatory balancing accounts (net) 235 Other (net) 174 -----$2,518 ====== December 31, 1996 -------------------------------------------------------------------------------(in millions) Regulatory assets for deferred income tax $1,133 Unamortized loss, net of gain, on reacquired debt 377 Diablo Canyon regulatory assets 364 Regulatory balancing accounts (net) 323 Other (net) 555 -----$2,752 ======

/(1)/ See Note 2, "Electric Industry Restructuring," for further discussion. Revenues and Regulatory Balancing Accounts: Electric and gas utility revenues recorded by the Utility include amounts for services rendered but unbilled at the end of the year. The Utility also records revenues for changes in regulatory balancing accounts established by the CPUC. Specifically, sales balancing accounts accumulate differences between authorized and actual base revenues. Energy cost balancing accounts accumulate differences between the actual cost of gas and electric energy and the revenues designated for recovery of such costs. Recovery of gas and electric energy costs through energy cost balancing accounts is subject to reasonableness reviews by the CPUC. The regulatory balancing accounts accumulate balances until they are refunded to or received from Utility customers through authorized rate adjustments. Accounting for Derivative Instruments: The Corporation, through its subsidiaries, engages in price risk management activities for both non-hedging and hedging purposes. The Corporation conducts non-hedging activities principally through its unregulated subsidiary, PG&E Energy Trading (PG&E ET), using a variety of financial instruments. These instruments include forward contracts involving the physical delivery of an energy commodity, swaps, futures, options, and other contractual arrangements. Additionally, the Corporation engages in hedging activities using futures, options, and swaps to hedge the impact of market fluctuations on energy commodity prices, interest rates, and foreign currencies. The Utility manages price risk independently from the activities in our unregulated businesses. The Corporation's net gains and losses associated with price risk management activities during 1997 were immaterial. Property, Plant, and Equipment: Plant additions and replacements are capitalized. The capitalized costs include labor, materials, construction overhead, and an allowance for funds used during construction (AFUDC) or capitalized interest. AFUDC is the estimated cost of debt and equity funds used to finance regulated plant additions. The Utility recovers AFUDC in rates through depreciation expense over the useful life of the related asset. The original cost of retired plant and removal costs less salvage value is charged to accumulated depreciation

Notes to Consolidated Financial Statements Net regulatory assets including regulatory balancing accounts receivable and net regulatory liabilities are comprised of the following:
December 31, 1997 ------------------------------------------------------------------------------(in millions) Electric industry restructuring transition costs/(1)/ $1,535 Unamortized loss, net of gain, on reacquired debt 296 Regulatory assets for deferred income tax 278 Regulatory balancing accounts (net) 235 Other (net) 174 -----$2,518 ====== December 31, 1996 -------------------------------------------------------------------------------(in millions) Regulatory assets for deferred income tax $1,133 Unamortized loss, net of gain, on reacquired debt 377 Diablo Canyon regulatory assets 364 Regulatory balancing accounts (net) 323 Other (net) 555 -----$2,752 ======

/(1)/ See Note 2, "Electric Industry Restructuring," for further discussion. Revenues and Regulatory Balancing Accounts: Electric and gas utility revenues recorded by the Utility include amounts for services rendered but unbilled at the end of the year. The Utility also records revenues for changes in regulatory balancing accounts established by the CPUC. Specifically, sales balancing accounts accumulate differences between authorized and actual base revenues. Energy cost balancing accounts accumulate differences between the actual cost of gas and electric energy and the revenues designated for recovery of such costs. Recovery of gas and electric energy costs through energy cost balancing accounts is subject to reasonableness reviews by the CPUC. The regulatory balancing accounts accumulate balances until they are refunded to or received from Utility customers through authorized rate adjustments. Accounting for Derivative Instruments: The Corporation, through its subsidiaries, engages in price risk management activities for both non-hedging and hedging purposes. The Corporation conducts non-hedging activities principally through its unregulated subsidiary, PG&E Energy Trading (PG&E ET), using a variety of financial instruments. These instruments include forward contracts involving the physical delivery of an energy commodity, swaps, futures, options, and other contractual arrangements. Additionally, the Corporation engages in hedging activities using futures, options, and swaps to hedge the impact of market fluctuations on energy commodity prices, interest rates, and foreign currencies. The Utility manages price risk independently from the activities in our unregulated businesses. The Corporation's net gains and losses associated with price risk management activities during 1997 were immaterial. Property, Plant, and Equipment: Plant additions and replacements are capitalized. The capitalized costs include labor, materials, construction overhead, and an allowance for funds used during construction (AFUDC) or capitalized interest. AFUDC is the estimated cost of debt and equity funds used to finance regulated plant additions. The Utility recovers AFUDC in rates through depreciation expense over the useful life of the related asset. The original cost of retired plant and removal costs less salvage value is charged to accumulated depreciation upon retirement of plant in service. Property, plant, and equipment is depreciated using a straight-line remaining-life method. The Utility's composite

Property, plant, and equipment is depreciated using a straight-line remaining-life method. The Utility's composite depreciation rates were 5.00, 3.65, and 4.09 percent for the years ended December 31, 1997, 1996, and 1995, respectively. The increase in the composite rate in 1997 as compared to 1996 and 1995 reflects higher depreciation expense associated with Diablo Canyon Nuclear Power Plant (Diablo Canyon). See Note 2, Electric Industry Restructuring. Gains and Losses on Reacquired Debt: Any gains and losses on reacquired debt associated with regulated operations that are subject to the provisions of SFAS No. 71 are deferred and amortized over the remaining original lives of the debt reacquired, consistent with ratemaking principles. Gains and losses on reacquired debt associated with unregulated operations are recognized in earnings at the time such debt is reacquired. 42

Inventories: Stored nuclear fuel inventory is stated at lower of average cost or market. Nuclear fuel in the reactor is amortized based on the amount of energy output. Other inventories include materials and supplies, gas stored underground, and fuel oil. Materials and supplies and gas stored underground are valued at average cost. Fuel oil is valued by the last-in-first-out method. Cash Equivalents and Short-Term Investments: Cash equivalents (stated at cost, which approximates market) include working funds. The Utility's short-term investments consist primarily of money market funds and some commercial paper with original maturities of three months or less. These investments were made with the proceeds from the issuance of the rate reduction bonds. See Note 7, Rate Reduction Bonds. Note 2: Electric Industry Restructuring 1997 was the first year of California's transition into a new competitive electric generation market. In the new competitive market, the Utility's generation revenues will be determined principally by the market. However, market-based revenues may not be sufficient to recover (that is, to collect from customers) certain generation costs resulting from past CPUC decisions. To recover these uneconomic costs, called "transition costs," and to ensure a smooth transition to the competitive environment, the Utility, in conjunction with other California electric utilities, the CPUC, state legislators, consumer advocates, and others, developed a transition plan, in the form of state legislation, to position California for the new market environment. There are three principal elements to this transition plan: (1) an electric rate freeze and rate reduction, (2) recovery of transition costs, and (3) economic divestiture of Utility-owned generation facilities. Each one of these three elements and the impact of the transition plan on the application of SFAS No. 71 are discussed below. The transition plan will remain in effect until the earlier of March 31, 2002, or when the Utility recovers its authorized transition costs as determined by the CPUC. This period is referred to as the transition period. At the conclusion of the transition period, the Utility will be at risk to recover any of its remaining generation costs through marketbased revenues. Rate Freeze and Rate Reduction During 1997, electric rates for the Utility's customers were held at 1996 levels. Effective January 1, 1998, the Utility reduced electric rates for its residential and small commercial customers by 10 percent and will hold their rates at that level. The rate freeze will continue until the end of the transition period. To pay for the 10 percent rate reduction, the Utility financed $2.9 billion of its transition costs with rate reduction bonds. See Note 7, Rate Reduction Bonds. Transition Cost Recovery Costs eligible for transition cost recovery include: (1) above-market sunk costs (sunk costs are costs associated with Utility-owned generating facilities that are fixed and unavoidable and currently included in the Utility customers' electric rates) and future costs, such as costs related to plant removal, (2) costs associated with the Utility's long-term contracts to purchase power at prices from Qualifying Facilities (QF) and other power suppliers, and (3) generation-related regulatory assets and obligations. (In general, regulatory assets are expenses deferred in the current or prior periods to be included in rates in subsequent periods.) Transition costs that are disallowed by

Inventories: Stored nuclear fuel inventory is stated at lower of average cost or market. Nuclear fuel in the reactor is amortized based on the amount of energy output. Other inventories include materials and supplies, gas stored underground, and fuel oil. Materials and supplies and gas stored underground are valued at average cost. Fuel oil is valued by the last-in-first-out method. Cash Equivalents and Short-Term Investments: Cash equivalents (stated at cost, which approximates market) include working funds. The Utility's short-term investments consist primarily of money market funds and some commercial paper with original maturities of three months or less. These investments were made with the proceeds from the issuance of the rate reduction bonds. See Note 7, Rate Reduction Bonds. Note 2: Electric Industry Restructuring 1997 was the first year of California's transition into a new competitive electric generation market. In the new competitive market, the Utility's generation revenues will be determined principally by the market. However, market-based revenues may not be sufficient to recover (that is, to collect from customers) certain generation costs resulting from past CPUC decisions. To recover these uneconomic costs, called "transition costs," and to ensure a smooth transition to the competitive environment, the Utility, in conjunction with other California electric utilities, the CPUC, state legislators, consumer advocates, and others, developed a transition plan, in the form of state legislation, to position California for the new market environment. There are three principal elements to this transition plan: (1) an electric rate freeze and rate reduction, (2) recovery of transition costs, and (3) economic divestiture of Utility-owned generation facilities. Each one of these three elements and the impact of the transition plan on the application of SFAS No. 71 are discussed below. The transition plan will remain in effect until the earlier of March 31, 2002, or when the Utility recovers its authorized transition costs as determined by the CPUC. This period is referred to as the transition period. At the conclusion of the transition period, the Utility will be at risk to recover any of its remaining generation costs through marketbased revenues. Rate Freeze and Rate Reduction During 1997, electric rates for the Utility's customers were held at 1996 levels. Effective January 1, 1998, the Utility reduced electric rates for its residential and small commercial customers by 10 percent and will hold their rates at that level. The rate freeze will continue until the end of the transition period. To pay for the 10 percent rate reduction, the Utility financed $2.9 billion of its transition costs with rate reduction bonds. See Note 7, Rate Reduction Bonds. Transition Cost Recovery Costs eligible for transition cost recovery include: (1) above-market sunk costs (sunk costs are costs associated with Utility-owned generating facilities that are fixed and unavoidable and currently included in the Utility customers' electric rates) and future costs, such as costs related to plant removal, (2) costs associated with the Utility's long-term contracts to purchase power at prices from Qualifying Facilities (QF) and other power suppliers, and (3) generation-related regulatory assets and obligations. (In general, regulatory assets are expenses deferred in the current or prior periods to be included in rates in subsequent periods.) Transition costs that are disallowed by the CPUC for collection from customers will be written off. Sunk costs associated with Utility-owned generation facilities are currently included in the Utility customers' rates. Above-market sunk costs are those whose values recorded on the Utility's balance sheet (book value) are expected to be in excess of their market values. Conversely, below-market sunk costs are those whose market values are expected to be in excess of their book values. In general, the total amount of sunk costs to be included as transition costs will be based on the aggregate of above-market and below-market values. The above-market portion of sunk costs is eligible for recovery as a transition cost. The below-market portion of sunk costs will reduce other unrecovered 43

Notes to Consolidated Financial Statements transition costs. A valuation of Utility-owned generation facilities where the market value exceeds the book value could result in a material charge if the Utility retains the facility. This is because any excess of market value over book value would be used to reduce other transition costs without being collected in rates. The Utility will not be able to determine the exact amount of sunk costs that will be recoverable as transition costs until a market valuation process (appraisal, spin, or sale) is completed for each of the Utility's generation facilities. The first of these valuations occurred in 1997 when the Utility agreed to sell three of its electric plants for $501 million. This sale is expected to close during 1998 (see Generation Divestiture below). The rest of the valuation process will be completed by December 31, 2001. At December 31, 1997, the Utility's net investment in Diablo Canyon and non-nuclear generation facilities was $3.7 billion and $2.7 billion, respectively, including the plants to be sold in 1998. The Utility has agreed to purchase electric power from QFs and other power suppliers under long-term contracts expiring on various dates through 2028. Over the life of these contracts, the Utility estimates that it will purchase approximately 360 million megawatt-hours (MWh) at an average aggregate price of 6.3 cents per kilowatt-hour (kWh). To the extent that this price is above the market price, the Utility will be able to collect the difference between the contract price and the market price from customers, as a transition cost, over the term of the contract. In addition, as of December 31, 1997, the Utility has accumulated approximately $1.5 billion of generationrelated net regulatory assets. The net regulatory assets are eligible for recovery as transition costs. The CPUC has the ultimate authority to determine which costs are eligible to be recovered as transition costs. Reviews by the CPUC to determine the reasonableness of transition costs are being conducted and will continue to be conducted throughout the transition period. Under the transition plan, most transition costs must be recovered by March 31, 2002. This recovery period is significantly shorter than the recovery period of the related assets prior to restructuring. Recovery of transition costs during this shorter period is referred to as accelerated recovery. The CPUC believes that acceleration reduces risks associated with recovery of all utility generation assets, including Diablo Canyon and hydroelectric facilities. As a result, in accordance with the transition plan, the Utility is receiving a reduced return for all of its generation facilities. In 1997, the reduced return was 7.13 percent as compared to an authorized return of 9.45 percent. The reduced return on non-nuclear generation assets, effective July 28, 1997, resulted in a $24 million decrease in earnings ($.06 per share) in 1997 and will have a continued impact throughout the transition period. Although most transition costs must be recovered by March 31, 2002, certain transition costs can be included in customers' electric rates after the transition period. These costs include: (1) certain employee-related transition costs, (2) above-market payments under existing QF and power- purchase contracts, and (3) unrecovered electric industry restructuring implementation costs. In addition, transition costs financed by the issuance of rate reduction bonds are expected to be recovered over the term of the bonds. Further, the Utility's nuclear decommissioning costs are being recovered through a CPUC- authorized charge which will extend until sufficient funds exist to decommission the facility. During the rate freeze, this charge will not increase Utility customers' electric rates. Excluding these exceptions, the Utility will write- off any transition costs not recovered during the transition period. Under the terms of the transition plan, as directed by the CPUC, the Utility has separated, or unbundled, its previously authorized cost-of-service electric revenues into separate categories. Unbundling enables the Utility to allocate revenue provided by frozen electric rates into transmission, distribution, public purpose programs, and generation based upon their respective cost of service. Revenues provided by frozen rates will also be used to recover other authorized Utility costs, including nuclear decommissioning, rate reduction bond debt service, and transition cost recovery. The portion of the unbundled revenue to be provided for transition cost recovery is based upon mechanisms approved by the CPUC. Revenue provided for recovery of most non-nuclear transition costs is based upon their acceleration

44

within the transition period. For nuclear transition costs, revenues provided for transition cost recovery are based on (1) an established Incremental Cost Incentive Price per kWh generated by Diablo Canyon to recover certain ongoing costs and capital additions, and (2) the acceleration of recovery of the Utility's investment in Diablo Canyon from a period ending in 2016 to a five- year period ending December 31, 2001. Based on the Utility's evaluation of the transition plan and state legislation and CPUC decisions related to the transition plan, the Utility is depreciating Diablo Canyon over a five-year period ending December 31, 2001. The change in depreciable life increased Diablo Canyon's depreciation expense for 1997, as compared to 1996, by $583 million. In addition, most generation- related regulatory assets are being amortized on a straight-line basis, in accordance with their recovery under the transition plan, beginning on January 1, 1998. Further, upon valuation of generation facilities, any losses will be amortized over the remaining transition period as a transition cost. Any gains will be recognized and used to reduce other transition costs at the time of valuation. Any difference between (1) revenues provided for transition cost recovery and (2) the costs associated with accelerated recovery, including the depreciation of Diablo Canyon and the amortization of regulatory assets, is being tracked. If the revenues exceed the accelerated costs, certain transition costs may be further accelerated until all transition costs are recovered or March 31, 2002, whichever is earlier. If the accelerated costs exceed the revenues, the costs will be deferred. At the end of the transition period, any overcollection of these amounts will be returned to customers. The Utility's ability to recover its transition costs during the transition period will be dependent on several factors. These factors include: (1) the continued application of the regulatory framework established by the CPUC and state legislation, (2) the amount of transition costs approved by the CPUC, (3) the market value of Utility-owned generation facilities, (4) future Utility sales levels, (5) future Utility fuel and operating costs, (6) the extent to which the Utility's authorized revenues to recover distribution costs are increased or decreased, and (7) the market price of electricity. Given its current evaluation of these factors, the Utility believes that it will recover its transition costs. Also, the Utility believes that its regulatory assets and generation facilities are not impaired. However, a change in one or more of these factors could affect the probability of recovery of transition costs and result in a material charge. During 1997, the difference between billed revenues and authorized revenues was used to recover transition costs, including most of the accelerated Diablo Canyon sunk costs. Generation Divestiture In 1997, California utilities produced a significant portion of the state's electric generation needs. In a competitive market, the CPUC is concerned that this level of generation may give existing utilities undue influence on the market price for power. As part of the transition plan, the Utility has agreed to sell a significant portion of its generation facilities to alleviate this concern. In 1997, the Utility agreed to sell three fossil-fueled electric generating plants to Duke Energy through an auction process. The aggregate bid accepted for these plants was $501 million. These three plants have a combined book value at December 31, 1997, of approximately $370 million and a combined capacity of 2,645 megawatts (MW). The three power plants were Morro Bay, Moss Landing, and Oakland. The sales have been approved by the CPUC. However, they are still subject to approval of the transfer of various permits and licenses. Additionally, the Utility will retain liability for required environmental remediation of any pre- closing soil or groundwater contamination at these plants. The Utility does not expect any material adverse impact on its financial position or results of operations as a result of retaining such environmental remediation liability. The Utility expects the sale of these three plants to close in 1998. The Utility plans to conduct another auction of its four remaining Utility- owned fossil-fueled plants and its geothermal facilities in the first half of 1998. These additional plants have a combined generating capacity of 4,718 MW and a combined book value at December 31, 1997, of approximately $790 million. Together the eight power plants represent 98 percent of the Utility's fossil-fueled generating capacity and all of the

within the transition period. For nuclear transition costs, revenues provided for transition cost recovery are based on (1) an established Incremental Cost Incentive Price per kWh generated by Diablo Canyon to recover certain ongoing costs and capital additions, and (2) the acceleration of recovery of the Utility's investment in Diablo Canyon from a period ending in 2016 to a five- year period ending December 31, 2001. Based on the Utility's evaluation of the transition plan and state legislation and CPUC decisions related to the transition plan, the Utility is depreciating Diablo Canyon over a five-year period ending December 31, 2001. The change in depreciable life increased Diablo Canyon's depreciation expense for 1997, as compared to 1996, by $583 million. In addition, most generation- related regulatory assets are being amortized on a straight-line basis, in accordance with their recovery under the transition plan, beginning on January 1, 1998. Further, upon valuation of generation facilities, any losses will be amortized over the remaining transition period as a transition cost. Any gains will be recognized and used to reduce other transition costs at the time of valuation. Any difference between (1) revenues provided for transition cost recovery and (2) the costs associated with accelerated recovery, including the depreciation of Diablo Canyon and the amortization of regulatory assets, is being tracked. If the revenues exceed the accelerated costs, certain transition costs may be further accelerated until all transition costs are recovered or March 31, 2002, whichever is earlier. If the accelerated costs exceed the revenues, the costs will be deferred. At the end of the transition period, any overcollection of these amounts will be returned to customers. The Utility's ability to recover its transition costs during the transition period will be dependent on several factors. These factors include: (1) the continued application of the regulatory framework established by the CPUC and state legislation, (2) the amount of transition costs approved by the CPUC, (3) the market value of Utility-owned generation facilities, (4) future Utility sales levels, (5) future Utility fuel and operating costs, (6) the extent to which the Utility's authorized revenues to recover distribution costs are increased or decreased, and (7) the market price of electricity. Given its current evaluation of these factors, the Utility believes that it will recover its transition costs. Also, the Utility believes that its regulatory assets and generation facilities are not impaired. However, a change in one or more of these factors could affect the probability of recovery of transition costs and result in a material charge. During 1997, the difference between billed revenues and authorized revenues was used to recover transition costs, including most of the accelerated Diablo Canyon sunk costs. Generation Divestiture In 1997, California utilities produced a significant portion of the state's electric generation needs. In a competitive market, the CPUC is concerned that this level of generation may give existing utilities undue influence on the market price for power. As part of the transition plan, the Utility has agreed to sell a significant portion of its generation facilities to alleviate this concern. In 1997, the Utility agreed to sell three fossil-fueled electric generating plants to Duke Energy through an auction process. The aggregate bid accepted for these plants was $501 million. These three plants have a combined book value at December 31, 1997, of approximately $370 million and a combined capacity of 2,645 megawatts (MW). The three power plants were Morro Bay, Moss Landing, and Oakland. The sales have been approved by the CPUC. However, they are still subject to approval of the transfer of various permits and licenses. Additionally, the Utility will retain liability for required environmental remediation of any pre- closing soil or groundwater contamination at these plants. The Utility does not expect any material adverse impact on its financial position or results of operations as a result of retaining such environmental remediation liability. The Utility expects the sale of these three plants to close in 1998. The Utility plans to conduct another auction of its four remaining Utility- owned fossil-fueled plants and its geothermal facilities in the first half of 1998. These additional plants have a combined generating capacity of 4,718 MW and a combined book value at December 31, 1997, of approximately $790 million. Together the eight power plants represent 98 percent of the Utility's fossil-fueled generating capacity and all of the 45

Notes to Consolidated Financial Statements Utility's geothermal generating capacity. The eight plants generate approximately 22 percent of the Utility's total electric sales. The Utility is currently evaluating its options related to its remaining generation facilities and may decide not to retain its economic investment in those facilities. During the transition period, the proceeds from the sale of the plants will be used to offset transition costs associated with other Utility electric generation facilities. Therefore, the Corporation does not expect any material adverse impact on its or the Utility's financial position or results of operations from any of these divestitures. The Transition Plan and SFAS No. 71 The Utility accounts for the financial effect of regulation in accordance with SFAS No. 71. This statement allows the Utility to record certain regulatory assets and liabilities which would be included in future rates and would not be recorded under generally accepted accounting principles for nonregulated entities. In addition, SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," requires the Utility to write off regulatory assets when they are no longer probable of recovery. In 1997, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus on Issue No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71, Accounting for the Effects of Certain Types of Regulation, and No. 101, Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71" (EITF 97-4), which provided authoritative guidance on the applicability of SFAS No. 71 during the transition period. The EITF requires the Utility to discontinue the application of SFAS No. 71 for the generation portion of its operations as of July 24, 1997, the effective date of EITF 97-4. The discontinuation of application of SFAS No. 71 did not have a material effect on the Utility's financial statements because EITF 97-4 requires that regulatory assets and liabilities (both those in existence today and those created under the terms of the transition plan) be allocated to the portion of the business from which the source of the regulated cash flows is derived. The Utility has accumulated approximately $1.5 billion of generation-related regulatory assets which are eligible for collection from distribution customers and which the Utility considers probable of recovery. Substantially all regulatory assets are reflected on the Utility's and PG&E Corporation's balance sheets in regulatory balancing accounts and regulatory assets. In addition, above-market generation-related sunk costs, which will be determined as part of the market valuation process discussed above, and above-market QF costs will be eligible for collection from distribution customers. Given the current regulatory environment, the Utility's electric transmission business and most areas of the distribution business are expected to remain regulated, and as a result, the Utility will continue to apply the provisions of SFAS No. 71. However, in May 1997, the CPUC issued decisions that allow customers to choose their electricity provider beginning January 1, 1998. The decisions also allow the electricity provider to provide their customers with billing and metering services, and indicate that electricity providers may be allowed to provide other distribution services (such as customer inquiries and uncollectibles) in the future. Any discontinuance of SFAS No. 71 for these portions of the Utility's electric distribution business is not expected to have a material adverse impact on the Utility's or the Corporation's financial position or results of operations. Note 3: Natural Gas Matters Gas Accord: In 1998, the Utility will implement a multi-party settlement, called the Gas Accord (Accord), that will continue to restructure the gas industry in California. The Accord, which received CPUC approval in 1997, has four principal elements. First, the Accord separates the rates for gas transmission services from gas distribution services. Second, the Accord increases the opportunity for residential and smaller commercial (core) customers to choose the commodity gas supplier of their choice. Third, the Accord establishes a new way to measure the reasonableness of the Utility's gas purchases based upon market indices. Fourth, 46

the Accord settled numerous regulatory issues between the Utility and other parties. The resolution of these issues did not have a material adverse impact on the Utility's or the Corporation's financial position or results of

Notes to Consolidated Financial Statements Utility's geothermal generating capacity. The eight plants generate approximately 22 percent of the Utility's total electric sales. The Utility is currently evaluating its options related to its remaining generation facilities and may decide not to retain its economic investment in those facilities. During the transition period, the proceeds from the sale of the plants will be used to offset transition costs associated with other Utility electric generation facilities. Therefore, the Corporation does not expect any material adverse impact on its or the Utility's financial position or results of operations from any of these divestitures. The Transition Plan and SFAS No. 71 The Utility accounts for the financial effect of regulation in accordance with SFAS No. 71. This statement allows the Utility to record certain regulatory assets and liabilities which would be included in future rates and would not be recorded under generally accepted accounting principles for nonregulated entities. In addition, SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to be Disposed Of," requires the Utility to write off regulatory assets when they are no longer probable of recovery. In 1997, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) reached a consensus on Issue No. 97-4, "Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71, Accounting for the Effects of Certain Types of Regulation, and No. 101, Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71" (EITF 97-4), which provided authoritative guidance on the applicability of SFAS No. 71 during the transition period. The EITF requires the Utility to discontinue the application of SFAS No. 71 for the generation portion of its operations as of July 24, 1997, the effective date of EITF 97-4. The discontinuation of application of SFAS No. 71 did not have a material effect on the Utility's financial statements because EITF 97-4 requires that regulatory assets and liabilities (both those in existence today and those created under the terms of the transition plan) be allocated to the portion of the business from which the source of the regulated cash flows is derived. The Utility has accumulated approximately $1.5 billion of generation-related regulatory assets which are eligible for collection from distribution customers and which the Utility considers probable of recovery. Substantially all regulatory assets are reflected on the Utility's and PG&E Corporation's balance sheets in regulatory balancing accounts and regulatory assets. In addition, above-market generation-related sunk costs, which will be determined as part of the market valuation process discussed above, and above-market QF costs will be eligible for collection from distribution customers. Given the current regulatory environment, the Utility's electric transmission business and most areas of the distribution business are expected to remain regulated, and as a result, the Utility will continue to apply the provisions of SFAS No. 71. However, in May 1997, the CPUC issued decisions that allow customers to choose their electricity provider beginning January 1, 1998. The decisions also allow the electricity provider to provide their customers with billing and metering services, and indicate that electricity providers may be allowed to provide other distribution services (such as customer inquiries and uncollectibles) in the future. Any discontinuance of SFAS No. 71 for these portions of the Utility's electric distribution business is not expected to have a material adverse impact on the Utility's or the Corporation's financial position or results of operations. Note 3: Natural Gas Matters Gas Accord: In 1998, the Utility will implement a multi-party settlement, called the Gas Accord (Accord), that will continue to restructure the gas industry in California. The Accord, which received CPUC approval in 1997, has four principal elements. First, the Accord separates the rates for gas transmission services from gas distribution services. Second, the Accord increases the opportunity for residential and smaller commercial (core) customers to choose the commodity gas supplier of their choice. Third, the Accord establishes a new way to measure the reasonableness of the Utility's gas purchases based upon market indices. Fourth, 46

the Accord settled numerous regulatory issues between the Utility and other parties. The resolution of these issues did not have a material adverse impact on the Utility's or the Corporation's financial position or results of operations.

the Accord settled numerous regulatory issues between the Utility and other parties. The resolution of these issues did not have a material adverse impact on the Utility's or the Corporation's financial position or results of operations. The Accord also establishes gas transmission rates for the period from March 1998 through December 2002 for all customers and eliminates regulatory protection for variations in sales volumes for transmission revenues from industrial and larger commercial (noncore) customers. As a result, the Utility will be at risk for variations between actual and forecasted noncore transmission throughput volumes. However, these variations are not expected to have a material adverse impact on the Utility's or the Corporation's financial position or results of operations. Transportation Commitments: The Utility has long-term gas transportation service contracts with various Canadian and interstate pipeline companies. For the duration of these contracts, the Utility has agreed to pay the pipeline companies an amount each year for capacity rights on their pipelines. The amount that the Utility pays each year varies due to changes in the rates of the pipeline companies. The total amounts the Utility paid under these contracts were approximately $255, $269, and $245 million in 1997, 1996, and 1995, respectively. These amounts include payments made by the Utility to PG&E Gas Transmission (PG&E GT) of approximately $49, $57, and $70 million in 1997, 1996, and 1995, respectively. These payments are eliminated in the consolidated financial statements of the Corporation. Also, a contract for Southwest pipeline capacity expired in December 1997. Total payments associated with this contract were approximately $149 million in 1997. The following table summarizes the Utility's capacity on various pipelines and the related annual payments for capacity at December 31, 1997:
Total Firm Annual Capacity Demand Held Charges Contract Pipeline Company (MMcf/d) (in millions) Expiration ============================================================================ PG&E GT 600 $44 Oct. 2005 Transwestern 200 29 Mar. 2007 NOVA 600 20 Oct. 2001 ANG 600 13 Oct. 2005

As a result of regulatory changes, the Utility no longer procures gas for most of its noncore customers, resulting in a decrease in the Utility's need for capacity on these pipelines. Despite these changes, the Utility continues to procure gas for substantially all of its core customers and its noncore customers who choose bundled service. To the extent that the Utility's current capacity holdings exceed demand for gas transportation by its customers, the Utility will continue its efforts to broker such excess capacity. Note 4: Acquisitions and Sales In December 1996, the Corporation acquired Energy Source, a wholesale commodity marketing company for approximately $23 million. The acquisition was accounted for as a purchase. In January 1997, the Corporation acquired Teco Pipeline Company (Teco) for approximately $378 million, consisting of $317 million of PG&E Corporation common stock and the purchase of a $61 million note. Teco has investments in natural gas pipelines and gas gathering and processing facilities located in Texas. Teco also owns a gas marketing company in Houston. The acquisition was accounted for as a purchase. In April 1997, PG&E Enterprises (Enterprises), a wholly owned subsidiary of PG&E Corporation, sold its interest in International Generating Company, Ltd. (InterGen), a joint venture between Enterprises and Bechtel Enterprises, Inc. (Bechtel), and all of its related project interests, to Bechtel. The sale has resulted in an after-tax gain of approximately $120 million. On July 31, 1997, the Corporation completed its acquisition of Valero Energy Corporation's (Valero) natural gas business located in Texas. Valero also owns a gas marketing business. PG&E Corporation issued approximately 31 million shares of its common stock to acquire Valero along with the assumption of approximately $780 million

in long-term debt, equating to a purchase price of approximately $1.5 billion. The acquisition was accounted for as a purchase. In August 1997, the Corporation announced that its subsidiary, U.S. Generating Company (USGen), had agreed 47

Notes to Consolidated Financial Statements to buy a portfolio of electric generating assets and power supply contracts from the New England Electric System (NEES) for $1.59 billion, plus $85 million for early retirement and severance costs previously committed to by NEES. Including fuel and other inventories and transaction costs, financing requirements are expected to total approximately $1.75 billion, of which approximately $1 billion will be funded through a combination of project level debt as well as debt of USGen. In addition, $750 million of equity will be contributed over two years and will be financed initially using short-term debt of PG&E Corporation. The assets to be acquired contain a balance of hydro, coal, oil, and natural gas generation facilities. We expect the acquisition to be completed in the second half of 1998. The acquisition is subject to regulatory approval, among other conditions. In September 1997, the Corporation completed an acquisition of two partnerships previously jointly owned by it and Bechtel. In December 1997, the Corporation closed the acquisition of a third such partnership. The Corporation is now the sole owner of USGen, an independent power developer and manager, U.S. Operating Services Company, USGen's operations and maintenance affiliate, and USGen's power marketing affiliate, USGen Power Services, L.P. Additionally, the Corporation has acquired all or part of Bechtel's interest in several power projects that are affiliated with USGen. In connection with the acquisitions completed in 1996 and 1997, discussed above, the Corporation recorded approximately $432 million of goodwill, subject to final purchase price adjustments. These amounts will be amortized on a straight-line basis over a 30 to 40 year period. Note 5: Common and Preferred Stock and Utility Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures Common Stock: PG&E Corporation: The Corporation has authorized 800 million shares of no-par common stock of which 418 million shares were issued and outstanding as of December 31, 1997. Prior to the formation of the Corporation, the Utility held $5 par value common stock. The stock was converted to PG&E Corporation common stock (no par value) at the formation of the holding company. As of December 31, 1997, the Board of Directors has authorized the repurchase of up to $1.7 billion of common stock on the open market or in negotiated transactions. In January 1998, the Corporation repurchased 37 million shares of its common stock at $30.3125 per share. In connection with this transaction, the Corporation has entered into a forward contract with an investment institution. The Corporation will retain the risk of increases and the benefit of decreases in the price of the common shares purchased through the forward contract. This obligation will not be terminated until the investment institution has replaced the shares sold to the Corporation through purchases on the open market or through privately negotiated transactions. The contract is anticipated to expire by December 31, 1998. Utility: The CPUC set a number of conditions when PG&E Corporation was formed as a holding company. One of these conditions requires the Utility to maintain, on average, its CPUC-authorized capital structure, potentially limiting the amount of dividends the Utility may pay PG&E Corporation. At December 31, 1997, the Utility was in compliance with its CPUC-authorized capital structure. The Corporation believes that the Utility will continue to meet this condition in the future without affecting the Corporation's ability to pay common stock dividends to common shareholders. Preferred Stock: Holders of the Utility's nonredeemable preferred stock at December 31, 1997, have rights to

Notes to Consolidated Financial Statements to buy a portfolio of electric generating assets and power supply contracts from the New England Electric System (NEES) for $1.59 billion, plus $85 million for early retirement and severance costs previously committed to by NEES. Including fuel and other inventories and transaction costs, financing requirements are expected to total approximately $1.75 billion, of which approximately $1 billion will be funded through a combination of project level debt as well as debt of USGen. In addition, $750 million of equity will be contributed over two years and will be financed initially using short-term debt of PG&E Corporation. The assets to be acquired contain a balance of hydro, coal, oil, and natural gas generation facilities. We expect the acquisition to be completed in the second half of 1998. The acquisition is subject to regulatory approval, among other conditions. In September 1997, the Corporation completed an acquisition of two partnerships previously jointly owned by it and Bechtel. In December 1997, the Corporation closed the acquisition of a third such partnership. The Corporation is now the sole owner of USGen, an independent power developer and manager, U.S. Operating Services Company, USGen's operations and maintenance affiliate, and USGen's power marketing affiliate, USGen Power Services, L.P. Additionally, the Corporation has acquired all or part of Bechtel's interest in several power projects that are affiliated with USGen. In connection with the acquisitions completed in 1996 and 1997, discussed above, the Corporation recorded approximately $432 million of goodwill, subject to final purchase price adjustments. These amounts will be amortized on a straight-line basis over a 30 to 40 year period. Note 5: Common and Preferred Stock and Utility Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures Common Stock: PG&E Corporation: The Corporation has authorized 800 million shares of no-par common stock of which 418 million shares were issued and outstanding as of December 31, 1997. Prior to the formation of the Corporation, the Utility held $5 par value common stock. The stock was converted to PG&E Corporation common stock (no par value) at the formation of the holding company. As of December 31, 1997, the Board of Directors has authorized the repurchase of up to $1.7 billion of common stock on the open market or in negotiated transactions. In January 1998, the Corporation repurchased 37 million shares of its common stock at $30.3125 per share. In connection with this transaction, the Corporation has entered into a forward contract with an investment institution. The Corporation will retain the risk of increases and the benefit of decreases in the price of the common shares purchased through the forward contract. This obligation will not be terminated until the investment institution has replaced the shares sold to the Corporation through purchases on the open market or through privately negotiated transactions. The contract is anticipated to expire by December 31, 1998. Utility: The CPUC set a number of conditions when PG&E Corporation was formed as a holding company. One of these conditions requires the Utility to maintain, on average, its CPUC-authorized capital structure, potentially limiting the amount of dividends the Utility may pay PG&E Corporation. At December 31, 1997, the Utility was in compliance with its CPUC-authorized capital structure. The Corporation believes that the Utility will continue to meet this condition in the future without affecting the Corporation's ability to pay common stock dividends to common shareholders. Preferred Stock: Holders of the Utility's nonredeemable preferred stock at December 31, 1997, have rights to annual dividends per share ranging from $1.25 to $1.50. The Utility's redeemable preferred stock without mandatory redemption provisions is subject to redemption at the Utility's option, in whole or in part, if the Utility pays the specified redemption price plus accumulated and unpaid dividends through the redemption date. Annual dividends and redemption prices per share at December 31, 1997, range from $1.09 to $1.86 and from $25.00 to $27.25, respectively. In January 1998, the Utility redeemed all of its

48

7.44% redeemable preferred stock, of which $65 million was outstanding at December 31, 1997, at a redemption price of $25 per share. The Utility's redeemable preferred stock with mandatory redemption provisions consists of 3 million shares of the 6.57% and 2.5 million shares of the 6.30% series at December 31, 1997. The 6.57% series and 6.30% series may be redeemed at the Utility's option beginning in 2002 and 2004, respectively, at par value plus accumulated and unpaid dividends through the redemption date. These series of preferred stock are subject to mandatory redemption provisions entitling them to sinking funds providing for the retirement of stock outstanding. The estimated fair value of the Utility's preferred stock with mandatory redemption provisions at December 31, 1997, and 1996, was approximately $146 million and $135 million, respectively, based on quoted market prices. Dividends on all preferred stock are cumulative. All shares of preferred stock have voting rights and equal preference in dividend and liquidation rights. Upon liquidation or dissolution of the Utility, holders of preferred stock would be entitled to the par value of such shares plus all accumulated and unpaid dividends, as specified for the class and series. Utility Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures: The Utility, through its wholly owned subsidiary, PG&E Capital I (Trust), has outstanding 12 million shares of 7.90% cumulative quarterly income preferred securities (QUIPS), with an aggregate liquidation value of $300 million. Concurrent with the issuance of the QUIPS, the Trust issued to the Utility 371,135 shares of common securities with an aggregate liquidation value of approximately $9 million. The Trust in turn used the net proceeds from the QUIPS offering and issuance of the common stock securities to purchase subordinated debentures issued by the Utility with a face value of approximately $309 million, an interest rate of 7.9 percent, and a maturity date of 2025. These subordinated debentures are the only assets of the Trust. Proceeds from the sale of the subordinated debentures were used to redeem and repurchase higher-cost preferred stock. The Utility's guarantee of the QUIPS, considered together with the other obligations of the Utility with respect to the QUIPS, constitutes a full and unconditional guarantee by the Utility of the Trust's contractual obligations under the QUIPS issued by the Trust. The subordinated debentures may be redeemed at the Utility's option beginning in 2000 at par plus accrued interest through the redemption date. The proceeds of any redemption will be used by the Trust to redeem QUIPS in accordance with their terms. Upon liquidation or dissolution of the Utility, holders of these QUIPS would be entitled to the liquidation preference of $25 per share plus all accrued and unpaid dividends thereon to the date of payment. The estimated fair value of the Utility's QUIPS at December 31, 1997, and 1996, was approximately $304 million and $291 million, respectively, based on quoted market prices. Note 6: Long-Term Debt Long-term debt at December 31, 1997, and 1996, consisted of the following:
December 31, 1997 1996 ========================================================================== (in millions) Utility long-term debt First and refunding mortgage bonds Maturity Interest rates 1998-2001 4.63% to 8.75% $ 861 $ 880 2002-2006 5.875% to 7.875% 1,354 1,392 2007-2019 6.35% to 8.875% 160 520 2020-2026 5.85% to 8.80% 2,498 2,628 --------------------Principal amounts outstanding 4,873 5,420 Unamortized discount net of premium (42) (50) --------------------Total mortgage bonds 4,831 5,370 Pollution control loan agreements, variable rates, due 2016-2026 1,348 988

7.44% redeemable preferred stock, of which $65 million was outstanding at December 31, 1997, at a redemption price of $25 per share. The Utility's redeemable preferred stock with mandatory redemption provisions consists of 3 million shares of the 6.57% and 2.5 million shares of the 6.30% series at December 31, 1997. The 6.57% series and 6.30% series may be redeemed at the Utility's option beginning in 2002 and 2004, respectively, at par value plus accumulated and unpaid dividends through the redemption date. These series of preferred stock are subject to mandatory redemption provisions entitling them to sinking funds providing for the retirement of stock outstanding. The estimated fair value of the Utility's preferred stock with mandatory redemption provisions at December 31, 1997, and 1996, was approximately $146 million and $135 million, respectively, based on quoted market prices. Dividends on all preferred stock are cumulative. All shares of preferred stock have voting rights and equal preference in dividend and liquidation rights. Upon liquidation or dissolution of the Utility, holders of preferred stock would be entitled to the par value of such shares plus all accumulated and unpaid dividends, as specified for the class and series. Utility Obligated Mandatorily Redeemable Preferred Securities of Trust Holding Solely Utility Subordinated Debentures: The Utility, through its wholly owned subsidiary, PG&E Capital I (Trust), has outstanding 12 million shares of 7.90% cumulative quarterly income preferred securities (QUIPS), with an aggregate liquidation value of $300 million. Concurrent with the issuance of the QUIPS, the Trust issued to the Utility 371,135 shares of common securities with an aggregate liquidation value of approximately $9 million. The Trust in turn used the net proceeds from the QUIPS offering and issuance of the common stock securities to purchase subordinated debentures issued by the Utility with a face value of approximately $309 million, an interest rate of 7.9 percent, and a maturity date of 2025. These subordinated debentures are the only assets of the Trust. Proceeds from the sale of the subordinated debentures were used to redeem and repurchase higher-cost preferred stock. The Utility's guarantee of the QUIPS, considered together with the other obligations of the Utility with respect to the QUIPS, constitutes a full and unconditional guarantee by the Utility of the Trust's contractual obligations under the QUIPS issued by the Trust. The subordinated debentures may be redeemed at the Utility's option beginning in 2000 at par plus accrued interest through the redemption date. The proceeds of any redemption will be used by the Trust to redeem QUIPS in accordance with their terms. Upon liquidation or dissolution of the Utility, holders of these QUIPS would be entitled to the liquidation preference of $25 per share plus all accrued and unpaid dividends thereon to the date of payment. The estimated fair value of the Utility's QUIPS at December 31, 1997, and 1996, was approximately $304 million and $291 million, respectively, based on quoted market prices. Note 6: Long-Term Debt Long-term debt at December 31, 1997, and 1996, consisted of the following:
December 31, 1997 1996 ========================================================================== (in millions) Utility long-term debt First and refunding mortgage bonds Maturity Interest rates 1998-2001 4.63% to 8.75% $ 861 $ 880 2002-2006 5.875% to 7.875% 1,354 1,392 2007-2019 6.35% to 8.875% 160 520 2020-2026 5.85% to 8.80% 2,498 2,628 --------------------Principal amounts outstanding 4,873 5,420 Unamortized discount net of premium (42) (50) --------------------Total mortgage bonds 4,831 5,370 Pollution control loan agreements, variable rates, due 2016-2026 1,348 988 Unsecured medium-term notes, 4.93% to 9.9%, due 1998-2014 587 829 Debentures, 12%, due 2000 58

Other long-term debt Total Utility long-term debt Long-term debt of unregulated business operations Total long-term debt Current portion of long-term debt Long-term debt, net of current portion

32 31 --------------------6,798 7,276 1,520 704 --------------------8,318 7,980 659 210 --------------------$7,659 $7,770 =====================

49

Notes to Consolidated Financial Statements Utility: Mortgage Bonds: All real properties and substantially all personal properties of the Utility are subject to the lien of the mortgage bonds, and the Utility is required to make semi-annual sinking fund payments for the retirement of the bonds. Additional mortgage bonds may be issued subject to CPUC approval, up to a maximum total amount outstanding of $10 billion. The Utility redeemed or repurchased $167 million and $182 million of mortgage bonds in 1997 and 1996, respectively, with interest rates ranging from 5.375 percent to 8.875 percent. Included in the total of outstanding mortgage bonds at December 31, 1997, and 1996, are $705 million of mortgage bonds held in trust for the California Pollution Control Financing Authority (CPCFA) with interest rates ranging from 5.85 percent to 8.875 percent and maturity dates ranging from 2007 to 2026. In addition to these mortgage bonds, the Utility holds long-term loan agreements with the CPCFA as described below. Pollution Control Loan Agreements: Loan agreements from the CPCFA totaled $1,348 million and $988 million, respectively, at December 31, 1997, and 1996. Interest rates on the loans vary with average annual interest rates for 1997 ranging from 3.01 percent to 3.92 percent. These loans are subject to redemption by the holder under certain circumstances. These loans are secured by irrevocable letters of credit which mature as early as 2000. Unregulated Business Operations: Long-term debt of unregulated business operations, as of December 31, 1997, consisted primarily of first mortgage bonds of $409 million, medium-term and senior notes of $404 million, unsecured notes and debentures of $397 million, and other long-term debt of $310 million. The fixed interest rates on these obligations range from 6.33 percent to 9.25 percent, with maturities ranging from 1998 to 2025. Outstanding long-term debt as of December 31, 1996, consisted primarily of $470 million of unsecured notes and debentures, and other long-term debt of $234 millon. Repayment Schedule: At December 31, 1997, the Corporation's combined aggregate amounts of maturing longterm debt and sinking fund requirements for the years 1998 through 2002, are $659, $294, $460, $330, and $515 million, respectively. The Utility's share of those sinking fund requirements is $601, $217, $223, $233, and $389 million, respectively. Fair Value: The estimated fair value of the Corporation's total long-term debt at December 31, 1997, and 1996, was approximately $8.3 billion and $8.0 billion, respectively. The estimated fair value of the Utility's total longterm debt at December 31, 1997, and 1996, was approximately $7.0 billion and $7.3 billion, respectively. The estimated fair value of long-term debt was determined based on quoted market prices, where available. Where quoted market prices were not available, the estimated fair value was determined using other valuation techniques (for example, the present value of future cash flows). Note 7: Rate Reduction Bonds

Notes to Consolidated Financial Statements Utility: Mortgage Bonds: All real properties and substantially all personal properties of the Utility are subject to the lien of the mortgage bonds, and the Utility is required to make semi-annual sinking fund payments for the retirement of the bonds. Additional mortgage bonds may be issued subject to CPUC approval, up to a maximum total amount outstanding of $10 billion. The Utility redeemed or repurchased $167 million and $182 million of mortgage bonds in 1997 and 1996, respectively, with interest rates ranging from 5.375 percent to 8.875 percent. Included in the total of outstanding mortgage bonds at December 31, 1997, and 1996, are $705 million of mortgage bonds held in trust for the California Pollution Control Financing Authority (CPCFA) with interest rates ranging from 5.85 percent to 8.875 percent and maturity dates ranging from 2007 to 2026. In addition to these mortgage bonds, the Utility holds long-term loan agreements with the CPCFA as described below. Pollution Control Loan Agreements: Loan agreements from the CPCFA totaled $1,348 million and $988 million, respectively, at December 31, 1997, and 1996. Interest rates on the loans vary with average annual interest rates for 1997 ranging from 3.01 percent to 3.92 percent. These loans are subject to redemption by the holder under certain circumstances. These loans are secured by irrevocable letters of credit which mature as early as 2000. Unregulated Business Operations: Long-term debt of unregulated business operations, as of December 31, 1997, consisted primarily of first mortgage bonds of $409 million, medium-term and senior notes of $404 million, unsecured notes and debentures of $397 million, and other long-term debt of $310 million. The fixed interest rates on these obligations range from 6.33 percent to 9.25 percent, with maturities ranging from 1998 to 2025. Outstanding long-term debt as of December 31, 1996, consisted primarily of $470 million of unsecured notes and debentures, and other long-term debt of $234 millon. Repayment Schedule: At December 31, 1997, the Corporation's combined aggregate amounts of maturing longterm debt and sinking fund requirements for the years 1998 through 2002, are $659, $294, $460, $330, and $515 million, respectively. The Utility's share of those sinking fund requirements is $601, $217, $223, $233, and $389 million, respectively. Fair Value: The estimated fair value of the Corporation's total long-term debt at December 31, 1997, and 1996, was approximately $8.3 billion and $8.0 billion, respectively. The estimated fair value of the Utility's total longterm debt at December 31, 1997, and 1996, was approximately $7.0 billion and $7.3 billion, respectively. The estimated fair value of long-term debt was determined based on quoted market prices, where available. Where quoted market prices were not available, the estimated fair value was determined using other valuation techniques (for example, the present value of future cash flows). Note 7: Rate Reduction Bonds In December 1997, PG&E Funding LLC (SPE), a special-purpose entity wholly owned by the Utility, issued $2.9 billion of rate reduction bonds to the California Infrastructure and Economic Development Bank Special Purpose Trust PG&E-1 (Trust), a special-purpose entity. The terms of the bonds generally mirror the terms of the pass-through certificates issued by the Trust. The proceeds of the rate reduction bonds were used by the SPE to purchase from the Utility the right, known as "transition property," to be paid a specified amount from a nonbypassable tariff levied on residential and small commercial customers which was authorized by the CPUC pursuant to state legislation. The rate reduction bonds have maturities ranging from ten months to ten years, and bear interest at rates ranging from 5.94 percent to 6.48 percent. The bonds are secured solely by the transition property and there is no recourse to the Utility or the Corporation.

At December 31, 1997, the combined aggregate amounts of maturing rate reduction bonds, for the years 1998 50

through 2002, are $125, $265, $280, $300, and $290 million, respectively. The estimated fair value of the rate reduction bonds was approximately $2.9 billion at December 31, 1997. The estimated fair value of the bonds was determined based on quoted market prices. While the SPE is consolidated with the Utility for purposes of these financial statements, the SPE is legally separate from the Utility. The assets of the SPE are not available to creditors of the Utility or the Corporation, and the transition property is legally not an asset of the Utility or the Corporation. Note 8: Short-Term Borrowings In January 1997, the Corporation established a $500 million revolving credit facility, which expires in 2002. In August 1997, the Corporation entered into an additional $500 million temporary credit facility which expires in 1998. Both of these credit facilities are to be used for general corporate purposes. There were no borrowings under these credit facilities at December 31, 1997. In addition, the Utility maintains a $1 billion revolving credit facility which expires in 2002. The facility may be extended annually for additional one- year periods upon mutual agreement between the Utility and the banks. There were no borrowings under this credit facility in 1997 or 1996. At December 31, 1997, the Corporation had outstanding $103 million of short-term bank borrowings at a 6.9 percent weighted average interest rate. In addition to borrowing from banks on a short-term basis, the Corporation and certain of its subsidiaries sell commercial paper, having a maturity of one to ninety days, to provide financing for various corporate purposes. The carrying amount of short-term borrowings approximates fair value. At maturity, commercial paper can be either reissued or replaced with borrowings from the revolving credit facility. At December 31, 1997, the Corporation had no commercial paper outstanding. At December 31, 1996, the Utility had outstanding $681 million of commercial paper at a 5.83 percent weighted average interest rate. At December 31, 1997, the Utility required no short-term borrowings due to the receipt of the rate reduction bond proceeds. Note 9: Nuclear Decommissioning Decommissioning of the Utility's nuclear power plants is scheduled to begin in 2015 with scheduled completion in 2034. Nuclear decommissioning means to safely remove nuclear facilities from service and reduce residual radio activity to a level that permits termination of the Nuclear Regulatory Commission license and release of the property for unrestricted use. The estimated total obligation for nuclear decommissioning costs, based on a 1997 site study, is approximately $1.4 billion in 1997 dollars (or $5.1 billion in future dollars). This estimate assumes after-tax earnings on the taxqualified and nontax-qualified decommissioning funds of 6.16 percent and 5.21 percent, respectively, as well as a future annual escalation rate of 5.5 percent for decommissioning costs. The decommissioning cost estimates are based on the plant location and cost characteristics for the Utility's nuclear plants. Actual decommissioning costs are expected to vary from this estimate because of changes in assumed dates of decommissioning, regulatory requirements, technology, and costs of labor, materials, and equipment. The estimated total obligation is being recognized proportionately over the license of each facility. For the years ended December 31, 1997, 1996, and 1995, nuclear decommissioning costs recovered in rates were $33, $33, and $54 million, respectively. Based on the 1997 site study, the amount approved to be recovered in rates in 1998 and annually, until the commencement of decommissioning, is $33 million. This amount will be reviewed in future rate proceedings.

through 2002, are $125, $265, $280, $300, and $290 million, respectively. The estimated fair value of the rate reduction bonds was approximately $2.9 billion at December 31, 1997. The estimated fair value of the bonds was determined based on quoted market prices. While the SPE is consolidated with the Utility for purposes of these financial statements, the SPE is legally separate from the Utility. The assets of the SPE are not available to creditors of the Utility or the Corporation, and the transition property is legally not an asset of the Utility or the Corporation. Note 8: Short-Term Borrowings In January 1997, the Corporation established a $500 million revolving credit facility, which expires in 2002. In August 1997, the Corporation entered into an additional $500 million temporary credit facility which expires in 1998. Both of these credit facilities are to be used for general corporate purposes. There were no borrowings under these credit facilities at December 31, 1997. In addition, the Utility maintains a $1 billion revolving credit facility which expires in 2002. The facility may be extended annually for additional one- year periods upon mutual agreement between the Utility and the banks. There were no borrowings under this credit facility in 1997 or 1996. At December 31, 1997, the Corporation had outstanding $103 million of short-term bank borrowings at a 6.9 percent weighted average interest rate. In addition to borrowing from banks on a short-term basis, the Corporation and certain of its subsidiaries sell commercial paper, having a maturity of one to ninety days, to provide financing for various corporate purposes. The carrying amount of short-term borrowings approximates fair value. At maturity, commercial paper can be either reissued or replaced with borrowings from the revolving credit facility. At December 31, 1997, the Corporation had no commercial paper outstanding. At December 31, 1996, the Utility had outstanding $681 million of commercial paper at a 5.83 percent weighted average interest rate. At December 31, 1997, the Utility required no short-term borrowings due to the receipt of the rate reduction bond proceeds. Note 9: Nuclear Decommissioning Decommissioning of the Utility's nuclear power plants is scheduled to begin in 2015 with scheduled completion in 2034. Nuclear decommissioning means to safely remove nuclear facilities from service and reduce residual radio activity to a level that permits termination of the Nuclear Regulatory Commission license and release of the property for unrestricted use. The estimated total obligation for nuclear decommissioning costs, based on a 1997 site study, is approximately $1.4 billion in 1997 dollars (or $5.1 billion in future dollars). This estimate assumes after-tax earnings on the taxqualified and nontax-qualified decommissioning funds of 6.16 percent and 5.21 percent, respectively, as well as a future annual escalation rate of 5.5 percent for decommissioning costs. The decommissioning cost estimates are based on the plant location and cost characteristics for the Utility's nuclear plants. Actual decommissioning costs are expected to vary from this estimate because of changes in assumed dates of decommissioning, regulatory requirements, technology, and costs of labor, materials, and equipment. The estimated total obligation is being recognized proportionately over the license of each facility. For the years ended December 31, 1997, 1996, and 1995, nuclear decommissioning costs recovered in rates were $33, $33, and $54 million, respectively. Based on the 1997 site study, the amount approved to be recovered in rates in 1998 and annually, until the commencement of decommissioning, is $33 million. This amount will be reviewed in future rate proceedings. At December 31, 1997, the total nuclear decommissioning obligation accrued was $1.0 billion and was included in the balance sheet classification of Accumulated Depreciation and Decommissioning. Decommissioning costs recovered in rates are placed in external trust funds. The earnings on the external trusts accumulate in the fund balance and are included in the

51

Notes to Consolidated Financial Statements balance sheet classification of Other Noncurrent Assets. These funds along with accumulated earnings will be used exclusively for decommissioning and cannot be released from the trust funds until authorized by the CPUC. The following table provides a summary of amortized cost and fair value of these nuclear decommissioning funds:
Year ended December 31, Maturity Dates 1997 1996 =============================================================================== (in millions) Amortized cost U.S. government and agency issues 1998-2027 $ 422 $375 Equity securities 257 281 Municipal bonds and other 1998-2021 70 33 Gross unrealized holding gains 287 199 Gross unrealized holding losses (12) (5) ------------------Fair value $1,024 $883 ===================

The proceeds received during 1997 and 1996 from sales of securities were approximately $1.4 billion and $1.5 billion in each year, respectively. During 1997 and 1996, the gross realized gains on sales of securities held as available-for-sale were $40 million and $14 million, respectively, and the gross realized losses on sales of securities held as available-for-sale were $24 million and $20 million, respectively. The cost of debt and equity securities sold is determined by specific identification. Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is responsible for the permanent storage and disposal of spent nuclear fuel. The Utility has signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from the Utility's nuclear power facilities. The DOE's current estimate for an available site to begin accepting physical possession of the spent nuclear fuel is 2012. At the projected level of operation for Diablo Canyon, the Utility's facilities are sufficient to store on-site all spent fuel produced through approximately 2006. It is likely that an interim or permanent DOE storage facility will not be available for Diablo Canyon's spent fuel by 2006. The Utility is examining options for providing additional temporary spent fuel storage at Diablo Canyon or other facilities, pending disposal or storage at a DOE facility. Note 10: Employee Benefit Plans Retirement Plans: Several of the Corporation's subsidiaries provide noncontributory defined benefit pension plans for their employees. The Utility's plan represents substantially all of the plan assets and the projected benefit obligation. All descriptions and assumptions are based on the Utility's plan which covers the largest number of employees. The schedules below aggregate all of the Corporation's plans. Pension benefits are based on an employee's years of service and base salary. The Corporation's policy is to fund each year not more than the maximum amount deductible for federal income tax purposes and not less than the minimum legal funding requirement. The following schedule reconciles the plans' funded status to the prepaid pension cost or accrued pension liability recorded on the Consolidated Balance Sheet:
December 31, 1997 1996 ================================================================================ (in millions) Actuarial present value of benefit obligations Vested benefits $(3,659) $(3,486) Nonvested benefits (198) (178) ---------------------Accumulated benefit obligation (3,857) (3,664)

Notes to Consolidated Financial Statements balance sheet classification of Other Noncurrent Assets. These funds along with accumulated earnings will be used exclusively for decommissioning and cannot be released from the trust funds until authorized by the CPUC. The following table provides a summary of amortized cost and fair value of these nuclear decommissioning funds:
Year ended December 31, Maturity Dates 1997 1996 =============================================================================== (in millions) Amortized cost U.S. government and agency issues 1998-2027 $ 422 $375 Equity securities 257 281 Municipal bonds and other 1998-2021 70 33 Gross unrealized holding gains 287 199 Gross unrealized holding losses (12) (5) ------------------Fair value $1,024 $883 ===================

The proceeds received during 1997 and 1996 from sales of securities were approximately $1.4 billion and $1.5 billion in each year, respectively. During 1997 and 1996, the gross realized gains on sales of securities held as available-for-sale were $40 million and $14 million, respectively, and the gross realized losses on sales of securities held as available-for-sale were $24 million and $20 million, respectively. The cost of debt and equity securities sold is determined by specific identification. Under the Nuclear Waste Policy Act of 1982, the Department of Energy (DOE) is responsible for the permanent storage and disposal of spent nuclear fuel. The Utility has signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from the Utility's nuclear power facilities. The DOE's current estimate for an available site to begin accepting physical possession of the spent nuclear fuel is 2012. At the projected level of operation for Diablo Canyon, the Utility's facilities are sufficient to store on-site all spent fuel produced through approximately 2006. It is likely that an interim or permanent DOE storage facility will not be available for Diablo Canyon's spent fuel by 2006. The Utility is examining options for providing additional temporary spent fuel storage at Diablo Canyon or other facilities, pending disposal or storage at a DOE facility. Note 10: Employee Benefit Plans Retirement Plans: Several of the Corporation's subsidiaries provide noncontributory defined benefit pension plans for their employees. The Utility's plan represents substantially all of the plan assets and the projected benefit obligation. All descriptions and assumptions are based on the Utility's plan which covers the largest number of employees. The schedules below aggregate all of the Corporation's plans. Pension benefits are based on an employee's years of service and base salary. The Corporation's policy is to fund each year not more than the maximum amount deductible for federal income tax purposes and not less than the minimum legal funding requirement. The following schedule reconciles the plans' funded status to the prepaid pension cost or accrued pension liability recorded on the Consolidated Balance Sheet:
December 31, 1997 1996 ================================================================================ (in millions) Actuarial present value of benefit obligations Vested benefits $(3,659) $(3,486) Nonvested benefits (198) (178) ---------------------Accumulated benefit obligation (3,857) (3,664) Effect of projected future compensation increases (561) (529) ----------------------

Projected benefit obligation Plan assets at market value Plan assets in excess of projected benefit obligation Unrecognized prior service cost Unrecognized net gain Unrecognized net transition obligation Prepaid pension cost (accrued pension liability)

---------------------(4,418) (4,193) 6,419 5,526 ---------------------2,001 1,333 121 83 (2,135) (1,559) 74 86 ---------------------$ 61 $ (57) ======================

The Utility's share of the plan assets in excess of projected benefit obligation for 1997 and 1996 was $2.0 and $1.3 billion, respectively. The Utility's share of the prepaid pension cost for 1997 was $75 million and the accrued pension liability for 1996 was $53 million. Plan assets consist primarily of common stocks and fixed income securities. Unrecognized prior service costs and net gains are amortized on a straight-line basis over the 52

average remaining service period of active plan participants. The transition obligation is being amortized over 17.5 years from 1987. Using the projected unit credit actuarial cost method, net pension income consisted of the following components:
Year ended December 31, 1997 1996 1995 ================================================================================ (in millions) Service cost for benefits earned $ (101) $(100) $ (83) Interest cost (313) (302) (291) Actual return on plan assets 1,139 811 968 Net amortization and deferral (598) (353) (586) ----------------------------------Net pension income $ 127 $ 56 $ 8 ===================================

The Utility's share of the plan's net pension income for 1997, 1996, and 1995 was $128, $57, and $8 million, respectively. Net pension income or cost is calculated using expected return on plan assets. The difference between actual and expected return on plan assets is included in net amortization and deferral and is considered in the determination of future net pension income or cost. In 1997, 1996, and 1995, actual return on plan assets exceeded expected return. In conformity with SFAS No. 71, regulatory adjustments have been recorded in the income statement and balance sheet of the Utility which reflect the difference between Utility pension income or cost determined for accounting purposes and that for rate making, which is based on a funding approach. The following actuarial assumptions were used in determining the plans' funded status and net pension income. Year-end assumptions are used to compute funded status, while prior year-end assumptions are used to compute net pension income.
December 31, 1997 1996 1995 ================================================================================ (in millions) Discount rate 7.5% 7.5% 7.25% Rate of future compensation increases 5% 5% 5% Expected long-term rate of return on plan assets 9% 9% 9%

average remaining service period of active plan participants. The transition obligation is being amortized over 17.5 years from 1987. Using the projected unit credit actuarial cost method, net pension income consisted of the following components:
Year ended December 31, 1997 1996 1995 ================================================================================ (in millions) Service cost for benefits earned $ (101) $(100) $ (83) Interest cost (313) (302) (291) Actual return on plan assets 1,139 811 968 Net amortization and deferral (598) (353) (586) ----------------------------------Net pension income $ 127 $ 56 $ 8 ===================================

The Utility's share of the plan's net pension income for 1997, 1996, and 1995 was $128, $57, and $8 million, respectively. Net pension income or cost is calculated using expected return on plan assets. The difference between actual and expected return on plan assets is included in net amortization and deferral and is considered in the determination of future net pension income or cost. In 1997, 1996, and 1995, actual return on plan assets exceeded expected return. In conformity with SFAS No. 71, regulatory adjustments have been recorded in the income statement and balance sheet of the Utility which reflect the difference between Utility pension income or cost determined for accounting purposes and that for rate making, which is based on a funding approach. The following actuarial assumptions were used in determining the plans' funded status and net pension income. Year-end assumptions are used to compute funded status, while prior year-end assumptions are used to compute net pension income.
December 31, 1997 1996 1995 ================================================================================ (in millions) Discount rate 7.5% 7.5% 7.25% Rate of future compensation increases 5% 5% 5% Expected long-term rate of return on plan assets 9% 9% 9%

Postretirement Benefits Other Than Pensions: Several of the Corporation's subsidiaries provide contributory defined benefit medical plans for retired employees and their eligible dependents and noncontributory defined benefit life insurance plans for retired employees. The Utility's plan represents substantially all of the plan assets and the total accumulated postretirement benefit obligation. All descriptions and assumptions are based on the Utility's plan which covers the largest number of employees. The schedules below aggregate all of the Corporation's plans. Most employees retiring at or after age 55 are eligible for these benefits. The medical benefits are provided through plans administered by an insurance carrier or a health maintenance organization. Certain retirees are responsible for a portion of the costs for these benefits. The CPUC has authorized the Utility to recover these benefits for 1993 and beyond. Recovery is based on the lesser of the annual accounting costs or the annual contributions on a tax-deductible basis to appropriate trusts. The policy is to fund each year an amount consistent with the basis for rate recovery. The following schedule reconciles the medical and life insurance plans' funded status to the postretirement benefit liability recorded on the Consolidated Balance Sheet:

December 31, 1997 1996 ========================================================================== (in millions) Accumulated postretirement benefit obligation Retirees $(400) $(445) Other fully eligible participants (140) (132) Other active plan participants (367) (344) -------------------Total accumulated postretirement benefit obligation (907) (921) Plan assets at market value 823 666 -------------------Accumulated postretirement benefit obligation in excess of plan assets (84) (255) Unrecognized prior service cost 20 22 Unrecognized net gain (375) (227) Unrecognized transition obligation 393 420 -------------------Accrued postretirement benefit liability $ (46) $ (40) ====================

The Utility's share of the accumulated postretirement benefit obligation in excess of plan assets for 1997 and 1996 was $64 and $249 million, respectively. The Utility's share of the accrued postretirement benefit liability for 1997 and 1996 was $29 and $38 million, respectively. Plan assets consist primarily of common stocks and 53

Notes to Consolidated Financial Statements fixed income securities. Unrecognized prior service costs are amortized on a straight-line basis over the average remaining years of service to full eligibility of active plan participants. Unrecognized net gains are amortized on a straight-line basis over the average remaining years of service of active plan participants. The transition obligation is being amortized over 20 years from 1993. Using the projected unit credit actuarial cost method, net postretirement medical and life insurance cost consisted of the following components:
Year ended December 31, 1997 1996 1995 ================================================================================ (in millions) Service cost for benefits earned $(21) $(22) $(17) Interest cost (65) (66) (65) Actual return on plan assets 144 91 109 Amortization of unrecognized prior service cost (2) (2) (2) Amortization of transition obligation (25) (26) (26) Net amortization and deferral (71) (38) (70) ---------------------------------Net postretirement benefit income (cost) $(40) $(63) $(71) ==================================

The Utility's share of the plan's net postretirement benefit cost for 1997, 1996, and 1995 was $38, $61, and $71 million, respectively. The discount rate, rate of future compensation increases, and expected long-term rate of return on plan assets used in accounting for the postretirement benefit plans for 1997, 1996, and 1995 were the same as those used for the pension plan. The assumed health care cost trend rate for 1998 is approximately 9.5 percent, grading down to an ultimate rate in 2005 of approximately 6.0 percent. The effect of a one-percentage-point increase in the assumed health care

Notes to Consolidated Financial Statements fixed income securities. Unrecognized prior service costs are amortized on a straight-line basis over the average remaining years of service to full eligibility of active plan participants. Unrecognized net gains are amortized on a straight-line basis over the average remaining years of service of active plan participants. The transition obligation is being amortized over 20 years from 1993. Using the projected unit credit actuarial cost method, net postretirement medical and life insurance cost consisted of the following components:
Year ended December 31, 1997 1996 1995 ================================================================================ (in millions) Service cost for benefits earned $(21) $(22) $(17) Interest cost (65) (66) (65) Actual return on plan assets 144 91 109 Amortization of unrecognized prior service cost (2) (2) (2) Amortization of transition obligation (25) (26) (26) Net amortization and deferral (71) (38) (70) ---------------------------------Net postretirement benefit income (cost) $(40) $(63) $(71) ==================================

The Utility's share of the plan's net postretirement benefit cost for 1997, 1996, and 1995 was $38, $61, and $71 million, respectively. The discount rate, rate of future compensation increases, and expected long-term rate of return on plan assets used in accounting for the postretirement benefit plans for 1997, 1996, and 1995 were the same as those used for the pension plan. The assumed health care cost trend rate for 1998 is approximately 9.5 percent, grading down to an ultimate rate in 2005 of approximately 6.0 percent. The effect of a one-percentage-point increase in the assumed health care cost trend rate for each future year would increase the accumulated postretirement benefit obligation at December 31, 1997, by approximately $76 million and the 1997 aggregate service and interest costs by approximately $8 million. Net postretirement benefit cost is calculated using expected return on plan assets. The difference between actual and expected return on plan assets is included in net amortization and deferral and is considered in the determination of future postretirement benefit cost. In 1997, 1996, and 1995, actual return on plan assets exceeded expected return. Long-term Incentive Program: PG&E Corporation maintains a Long-term Incentive Program (Program) which provides for grants of stock options to eligible participants with or without associated stock appreciation rights and dividend equivalents. As of December 31, 1997, 24.5 million shares of common stock have been authorized for award under the program. At December 31, 1997, stock options on 6,181,819 shares, granted at option prices ranging from $16.75 to $34.25, were outstanding, of which 1,902,545 were exercisable. In 1997, 3,048,400 options were granted at an average option price of $22.55. Outstanding stock options expire ten years and one day after the date of grant and become exercisable on a cumulative basis at one-third each year commencing two years from the date of grant. In 1997, 1996, and 1995, stock options on 232,815, 72,960, and 235,568 shares, respectively, were exercised at option prices ranging from $16.75 to $33.13. Effective January 1, 1996, the Corporation adopted SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires the Corporation to disclose stock option costs based on the fair value of options granted. For the years ended December 31, 1997 and 1996, the fair value of options granted was not material to the Corporation's results of operations or earnings per share.

Note 11: Income Taxes The Corporation files a consolidated federal income tax return that includes domestic subsidiaries in which its ownership is 80 percent or more. Income tax expense includes current and deferred income taxes resulting from operations during the year. Tax credits are amortized over the life of the related property. 54

The significant components of income tax expense were:
PG&E Corporation Utility Year ended December 31, 1997 1996 1995 1997 1996 1995 ================================================================================== (in millions) Current $ 707 $ 705 $1,011 $ 791 $ 705 $1,011 Deferred (119) (132) (98) (142) (132) (98) Tax credits-net (40) (18) (18) (40) (18) (18) -------------------------------------------------------Total income tax expense $ 548 $ 555 $ 895 $ 609 $ 555 $ 895 ========================================================

The significant components of net deferred income tax liabilities were:
PG&E Corporation Utility December 31, 1997 1996 1997 1996 ===================================================================================================== (in millions) Deferred income tax assets $1,108 $1,308 $ 962 $1,308 Deferred income tax liabilities: Regulatory balancing accounts 311 294 311 294 Plant in service 3,621 3,624 3,144 3,624 Income tax regulatory asset 430 454 420 454 Other 924 1,034 540 1,034 --------------------------------------------------Total deferred income tax liabilities 5,286 5,406 4,415 5,406 --------------------------------------------------Total net deferred income taxes $4,178 $4,098 $3,453 $4,098 =================================================== Classification of net deferred income taxes: Included in current liabilities $ 149 $ 157 $ 149 $ 157 Included in noncurrent liabilities 4,029 3,941 3,304 3,941 --------------------------------------------------Total net deferred income taxes $4,178 $4,098 $3,453 $4,098 ===================================================

The differences between income taxes and amounts determined by applying the federal statutory rate to income before income tax expense were:
PG&E Corporation Year ended December 31, 1997 1996 1995 199 ========================================================================================================= Federal statutory income tax rate 35.0% 35.0% 35.0% 35.0 Increase (decrease) in income tax rate resulting from: State income tax (net of federal benefit) 5.3 3.8 5.0 4.6 Effect of regulatory treatment of depreciation differences 8.1 6.0 3.2 7.5 Tax credits-net (3.2) (1.4) (0.8) (2.9 Effect of lower taxes on foreign earnings (2.2) Other-net 0.3 (1.0) ---------------------------------Effective tax rate 43.3% 43.4% 41.4% 44.2 ==================================

55

The significant components of income tax expense were:
PG&E Corporation Utility Year ended December 31, 1997 1996 1995 1997 1996 1995 ================================================================================== (in millions) Current $ 707 $ 705 $1,011 $ 791 $ 705 $1,011 Deferred (119) (132) (98) (142) (132) (98) Tax credits-net (40) (18) (18) (40) (18) (18) -------------------------------------------------------Total income tax expense $ 548 $ 555 $ 895 $ 609 $ 555 $ 895 ========================================================

The significant components of net deferred income tax liabilities were:
PG&E Corporation Utility December 31, 1997 1996 1997 1996 ===================================================================================================== (in millions) Deferred income tax assets $1,108 $1,308 $ 962 $1,308 Deferred income tax liabilities: Regulatory balancing accounts 311 294 311 294 Plant in service 3,621 3,624 3,144 3,624 Income tax regulatory asset 430 454 420 454 Other 924 1,034 540 1,034 --------------------------------------------------Total deferred income tax liabilities 5,286 5,406 4,415 5,406 --------------------------------------------------Total net deferred income taxes $4,178 $4,098 $3,453 $4,098 =================================================== Classification of net deferred income taxes: Included in current liabilities $ 149 $ 157 $ 149 $ 157 Included in noncurrent liabilities 4,029 3,941 3,304 3,941 --------------------------------------------------Total net deferred income taxes $4,178 $4,098 $3,453 $4,098 ===================================================

The differences between income taxes and amounts determined by applying the federal statutory rate to income before income tax expense were:
PG&E Corporation Year ended December 31, 1997 1996 1995 199 ========================================================================================================= Federal statutory income tax rate 35.0% 35.0% 35.0% 35.0 Increase (decrease) in income tax rate resulting from: State income tax (net of federal benefit) 5.3 3.8 5.0 4.6 Effect of regulatory treatment of depreciation differences 8.1 6.0 3.2 7.5 Tax credits-net (3.2) (1.4) (0.8) (2.9 Effect of lower taxes on foreign earnings (2.2) Other-net 0.3 (1.0) ---------------------------------Effective tax rate 43.3% 43.4% 41.4% 44.2 ==================================

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12: Commitments Letters of Credit: The Utility uses approximately $335 million in standby letters of credit to secure future workers'

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 12: Commitments Letters of Credit: The Utility uses approximately $335 million in standby letters of credit to secure future workers' compensation liabilities. Restructuring Trust Guarantees: Tax-exempt trusts have been established to oversee the development of the operating framework for the competitive generation market (See Note 2, Electric Industry Restructuring). The CPUC has authorized California utilities to guarantee bank loans of up to $300 million to be used by the trusts for this purpose. Under this authorization, the Utility has guaranteed up to a maximum of $135 million of these loans. Power-Purchase Contracts: By federal law, the Utility is required to purchase electric energy and capacity provided by cogenerators and small power producers. The CPUC established a series of power-purchase contracts and set the applicable terms, conditions, price options, and eligibility requirements. Under these contracts, the Utility is required to make payments only when energy is supplied or when capacity commitments are met. The total cost of these payments is recoverable in rates. The Utility's contracts with these power producers expire on various dates through 2028. Total energy payments are expected to decline in the years 1998 through 2001. Total capacity payments are expected to remain at current levels during this period. Deliveries from these power producers account for approximately 18 percent of the Utility's 1997 electric energy requirements, and no single contract accounted for more than five percent of the Utility's energy needs. The Utility has negotiated early termination or suspension of certain power- purchase contracts. These amounts are expected to be recovered in rates and as such are reflected as deferred charges on the accompanying balance sheet. At December 31, 1997, the total discounted future payments remaining under early termination or suspension contracts is $53 million. The Utility also has contracts with various irrigation districts and water agencies to purchase hydroelectric power. Under these contracts, the Utility must make specified semi-annual minimum payments whether or not any energy is supplied (subject to the provider's retention of the FERC's authorization) and variable payments for operation and maintenance costs incurred by the providers. These contracts expire on various dates from 2004 to 2031. These costs are also recoverable in rates. At December 31, 1997, the undiscounted future minimum payments under these contracts are $34 million for each of the years 1998 through 2002 and a total of $349 million for periods thereafter. Irrigation district and water agency deliveries in the aggregate account for approximately four percent of the Utility's 1997 electric energy requirements. The amount of energy received and the total payments made under all of these power-purchase contracts were:
Year ended December 31, 1997 1996 1995 -----------------------------------------------------------------------------------------------(in millions) Kilowatt-hours received 24,389 26,056 26,468 Energy payments $ 1,157 $ 1,136 $ 1,140 Capacity payments $ 538 $ 521 $ 484 Irrigation district and water agency payments $ 56 $ 52 $ 50

Note 13: Contingencies Nuclear Insurance: The Utility has insurance coverage for property damage and business interruption losses as a member of Nuclear Electric Insurance Limited (NEIL). Under this policy, if a nuclear generating facility of a member utility suffers a loss due to a prolonged accidental outage, the Utility may be subject to maximum assessments of $23 million (property damage) and $7 million (business interruption), in each case per policy period, in the event losses exceed the resources of NEIL.

The Utility has purchased primary insurance of $200 million for public liability claims resulting from a nuclear incident. An additional $8.7 billion of coverage is provided by secondary financial protection which provides for loss sharing among utilities owning nuclear generating facilities if a costly incident occurs. If a nuclear incident results in 56

claims in excess of $200 million, the Utility may be assessed up to $159 million per incident, with payments in each year limited to a maximum of $20 million per incident. Environmental Remediation: The Corporation may be required to pay for environmental remediation at sites where the Corporation has been or may be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or the California Hazardous Substance Account Act. These sites include former manufactured gas plant sites, power plant sites, and sites used by the Utility for the storage or disposal of materials which may be determined to present a significant threat to human health or the environment because of an actual or potential release of hazardous substances. Under CERCLA, the Corporation's financial responsibilities may include remediation of hazardous substances, even if the Utility did not deposit those substances on the site. The Utility records a liability when site assessments indicate remediation is probable and a range of reasonably likely cleanup costs can be estimated. The Utility reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring, and site closure. Unless there is a better estimate within this range of possible costs, the Utility records the lower end of this range. The cost of the hazardous substance remediation ultimately undertaken by the Utility is difficult to estimate. It is reasonably possible that a change in the estimate will occur in the near term due to uncertainty concerning the Utility's responsibility, the complexity of environmental laws and regulations, and the selection of compliance alternatives. The Utility had an accrued liability at December 31, 1997, of $232 million for hazardous waste remediation costs at those sites, including fossil-fueled power plants, where such costs are probable and quantifiable. Environmental remediation at identified sites may be as much as $442 million if, among other things, other potentially responsible parties are not financially able to contribute to these costs or further investigation indicates that the extent of contamination or necessary remediation is greater than anticipated at sites for which the Utility is responsible. This upper limit of the range of costs was estimated using assumptions least favorable to the Utility, based upon a range of reasonably possible outcomes. Costs may be higher if the Utility is found to be responsible for cleanup costs at additional sites or identifiable possible outcomes change. Of the $232 million liability discussed above, the Utility expects to recover $157 million in future rates. The liability also includes $58 million related to power plant decommissioning for environmental clean-up, which the Utility recovered through depreciation. Additionally, the Utility is seeking recovery of costs from insurance carriers and from other third parties. The Corporation believes the ultimate outcome of these matters will not have a material adverse impact on its or the Utility's financial position or results of operations. Helms Pumped Storage Plant (Helms): Helms is a three-unit hydroelectric combined generating and pumped storage plant owned by the Utility. At December 31, 1997, the Utility's net investment was $691 million. This net investment is comprised of the pumped storage facility (including regulatory assets of $51 million), common plant, and dedicated transmission plant. As part of the 1996 General Rate Case decision in December 1995, the CPUC directed the Utility to perform a cost- effectiveness study of Helms. In July 1996, the Utility submitted its study, which concluded that the continued operation of Helms is cost effective. The Utility recommended that the CPUC take no action and address Helms along with other generating plants in the context of electric industry restructuring. Under electric industry restructuring, the uneconomic, above-market portion of Helms is eligible for recovery as a transition cost. However, the Utility will be placed at risk to recover its future operating costs in the newly restructured electric generation market.

claims in excess of $200 million, the Utility may be assessed up to $159 million per incident, with payments in each year limited to a maximum of $20 million per incident. Environmental Remediation: The Corporation may be required to pay for environmental remediation at sites where the Corporation has been or may be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) or the California Hazardous Substance Account Act. These sites include former manufactured gas plant sites, power plant sites, and sites used by the Utility for the storage or disposal of materials which may be determined to present a significant threat to human health or the environment because of an actual or potential release of hazardous substances. Under CERCLA, the Corporation's financial responsibilities may include remediation of hazardous substances, even if the Utility did not deposit those substances on the site. The Utility records a liability when site assessments indicate remediation is probable and a range of reasonably likely cleanup costs can be estimated. The Utility reviews its sites and measures the liability quarterly, by assessing a range of reasonably likely costs for each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. These estimates include costs for site investigations, remediation, operations and maintenance, monitoring, and site closure. Unless there is a better estimate within this range of possible costs, the Utility records the lower end of this range. The cost of the hazardous substance remediation ultimately undertaken by the Utility is difficult to estimate. It is reasonably possible that a change in the estimate will occur in the near term due to uncertainty concerning the Utility's responsibility, the complexity of environmental laws and regulations, and the selection of compliance alternatives. The Utility had an accrued liability at December 31, 1997, of $232 million for hazardous waste remediation costs at those sites, including fossil-fueled power plants, where such costs are probable and quantifiable. Environmental remediation at identified sites may be as much as $442 million if, among other things, other potentially responsible parties are not financially able to contribute to these costs or further investigation indicates that the extent of contamination or necessary remediation is greater than anticipated at sites for which the Utility is responsible. This upper limit of the range of costs was estimated using assumptions least favorable to the Utility, based upon a range of reasonably possible outcomes. Costs may be higher if the Utility is found to be responsible for cleanup costs at additional sites or identifiable possible outcomes change. Of the $232 million liability discussed above, the Utility expects to recover $157 million in future rates. The liability also includes $58 million related to power plant decommissioning for environmental clean-up, which the Utility recovered through depreciation. Additionally, the Utility is seeking recovery of costs from insurance carriers and from other third parties. The Corporation believes the ultimate outcome of these matters will not have a material adverse impact on its or the Utility's financial position or results of operations. Helms Pumped Storage Plant (Helms): Helms is a three-unit hydroelectric combined generating and pumped storage plant owned by the Utility. At December 31, 1997, the Utility's net investment was $691 million. This net investment is comprised of the pumped storage facility (including regulatory assets of $51 million), common plant, and dedicated transmission plant. As part of the 1996 General Rate Case decision in December 1995, the CPUC directed the Utility to perform a cost- effectiveness study of Helms. In July 1996, the Utility submitted its study, which concluded that the continued operation of Helms is cost effective. The Utility recommended that the CPUC take no action and address Helms along with other generating plants in the context of electric industry restructuring. Under electric industry restructuring, the uneconomic, above-market portion of Helms is eligible for recovery as a transition cost. However, the Utility will be placed at risk to recover its future operating costs in the newly restructured electric generation market. 57

Notes to Consolidated Financial Statements Because the CPUC has not specifically addressed the cost-effectiveness study, the Utility is currently unable to predict whether there will be further changes in rate recovery. The Corporation believes that the ultimate outcome

Notes to Consolidated Financial Statements Because the CPUC has not specifically addressed the cost-effectiveness study, the Utility is currently unable to predict whether there will be further changes in rate recovery. The Corporation believes that the ultimate outcome of this matter will not have a material adverse impact on its or the Utility's financial position or results of operations. Legal Matters: Chromium Litigation: In 1994 through 1997, several civil suits were filed against the Utility on behalf of approximately 3,000 individuals. The suits seek an unspecified amount of compensatory and punitive damages for alleged personal injuries and, in some cases, property damage, resulting from alleged exposure to chromium in the vicinity of the Utility's gas compressor stations at Hinkley, Kettleman, and Topock. The Utility is responding to the suits and asserting affirmative defenses. The Utility will pursue appropriate legal defenses, including statute of limitations or exclusivity of workers' compensation laws, and factual defenses including lack of exposure to chromium and the inability of chromium to cause certain of the illnesses alleged. The Corporation believes that the ultimate outcome of this matter will not have a material adverse impact on its or the Utility's financial position or results of operations. Texas Franchise Fee Litigation: In connection with PG&E Corporation's acquisition of Valero, now known as PG&E Gas Transmission, Texas Corporation (GTT), GTT succeeded to the litigation described below. GTT and various of its affiliates are defendants in at least two class action suits and five separate suits filed by various Texas cities. The class action suits involve plaintiffs that serve as class representatives for classes consisting of every municipality in Texas (excluding certain cities which filed separate suits) in which any of the defendants engaged in business activities related to natural gas or natural gas liquids or sold or supplied gas or used public rights-of-way. Generally, these cities allege, among other things, that (1) the defendants that own or operate pipelines have occupied city property and conducted pipeline operations without the cities' consent and without compensating the cities, and (2) the defendants that are gas marketers have failed to pay the cities for accessing and utilizing the pipelines located in the cities to flow gas under city streets. Plaintiffs also allege various other claims against the defendants for failure to secure the cities' consent. Damages are not quantified. The Corporation believes that the ultimate outcome of these matters will not have a material adverse impact on its financial position. 58

Note 14: Segment Information The Corporation's business segments consist of the Utility and Unregulated Business Operations (consisting of gas transmission, electric generation, and energy services and commodities). The Corporation's business segment information was:
Pacific Gas and Electric Company Unregulated Electric Gas Total Business Co (in millions) Utility Utility Utility Operations an --------------------------------------------------------------------------------------------------------1997

Note 14: Segment Information The Corporation's business segments consist of the Utility and Unregulated Business Operations (consisting of gas transmission, electric generation, and energy services and commodities). The Corporation's business segment information was:
Pacific Gas and Electric Company Unregulated Electric Gas Total Business Co (in millions) Utility Utility Utility Operations an --------------------------------------------------------------------------------------------------------1997 Operating revenues $ 7,691 $ 1,804 $ 9,495 $5,905 $ Intersegment revenues(1) 13 90 103 446 ----------------------------------------------------------Total operating revenues 7,704 1,894 9,598 6,351 ----------------------------------------------------------Depreciation and decommissioning 1,521 264 1,785 104 Operating income before income taxes(2) 1,510 321 1,831 (82) Capital expenditures 1,196 333 1,529 341 Total assets at year end(3) 19,546 5,601 25,147 6,224 1996 Operating revenues Intersegment revenues(1) Total operating revenues Depreciation and decommissioning Operating income before income taxes(2) Capital expenditures Total assets at year end(3) 1995 Operating revenues Intersegment revenues(1) Total operating revenues Depreciation and decommissioning Operating income before income taxes(2) Capital expenditures Total assets at year end(3)

$ 7,160 $ 1,829 $ 8,989 $ 621 $ 12 70 82 58 ( ----------------------------------------------------------7,172 1,899 9,071 679 ( ----------------------------------------------------------920 256 1,176 46 1,758 52 1,810 84 922 309 1,231 173 18,431 5,136 23,567 2,858 (

$ 7,387 $1,856 $ 9,243 $ 379 $ 13 85 98 68 ----------------------------------------------------------7,400 1,941 9,341 447 ----------------------------------------------------------1,007 267 1,274 86 2,267 420 2,687 71 680 195 875 90 19,441 5,248 24,689 2,578

(1) Intersegment electric and gas revenues are accounted for at tariff rates prescribed by the CPUC. (2) General corporate expenses are allocated in accordance with FERC Uniform System of Accounts and requirements of the CPUC. (3) Utility includes an allocation of common plant in service and allowance for funds used during construction. (4) Corporate and other assets consist of cash and cash equivalents, short-term investments, receivables transferred from affiliates, and other assets. (5) Includes consolidating eliminations. 59

Quarterly Consolidated Financial Data (Unaudited) Due to the seasonal nature of the Utility business and the scheduled refueling outages for Diablo Canyon, operating revenues, operating income, and net income are not generated evenly every quarter during the year. PG&E Corporation 1997: All four quarters of 1997 reflected an increase in revenues and expenses due to the acquisitions discussed in the Notes to the Consolidated Financial Statements.

Quarterly Consolidated Financial Data (Unaudited) Due to the seasonal nature of the Utility business and the scheduled refueling outages for Diablo Canyon, operating revenues, operating income, and net income are not generated evenly every quarter during the year. PG&E Corporation 1997: All four quarters of 1997 reflected an increase in revenues and expenses due to the acquisitions discussed in the Notes to the Consolidated Financial Statements. In the second quarter of 1997, other income increased primarily due to the gain on the sale of International Generating Company, Ltd., which was partially offset by write-downs of certain nonregulated investments. Utility 1997: All four quarters of 1997 reflected an increase in operating revenues primarily due to the revisions to the Diablo Canyon ratemaking structure, changes in sales volume provided by the Utility's energy rate recovery mechanisms, and an increase in energy cost revenues to recover energy cost increases. Operating expenses increased primarily due to the increases in Diablo Canyon depreciation and the cost of energy. 1996: In the second quarter of 1996, operating expenses increased primarily due to the settlement of a litigation claim. In the third quarter of 1996, operating expenses increased primarily due to charges for gas transportation commitments. In the fourth quarter of 1996, operating revenues and operating expenses increased primarily due to the purchase of Energy Source in December 1996. Other income decreased due to write-downs of certain nonregulated investments. The Corporation's common stock is traded on the New York, Pacific, and Swiss stock exchanges. There were approximately 180,000 common shareholders of record at December 31, 1997. Dividends are paid on a quarterly basis.
Quarter ended December 31 September 30 June 30 --------------------------------------------------------------------------------------------------------(in millions, except per share amounts) 1997 PG&E Corporation Operating revenues $4,889 $4,063 $3,083 Operating income 265 628 371 Net income 94 257 193 Earnings per common share, basic and diluted .22 .62 .49 Dividends declared per common share .30 .30 .30 Common stock price per share High 30.94 24.94 25.00 Low 23.00 22.69 22.38 Utility Operating revenues Operating income Income available for common stock 1996 PG&E Corporation and Utility Operating revenues Operating income Net income Earnings per common share, basic and diluted Dividends declared per common share Common stock price per share High Low

$2,401 390 180

$2,541 626 269

$2,279 370 122

$2,700 509 141 .34 .30 24.25 20.88

$2,522 525 225 .55 .49 23.88 19.50

$2,139 288 104 .25 .49 23.75 21.50

60

Report of Independent Public Accountants To the Shareholders and the Board of Directors of PG&E Corporation and Pacific Gas and Electric Company: We have audited the accompanying consolidated balance sheets of PG&E Corporation (a California corporation) and subsidiaries and of Pacific Gas and Electric Company (a California corporation) and subsidiaries as of December 31, 1997, and 1996, and the related statements of consolidated income, cash flows, and common stock equity, preferred stock, and preferred securities for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the management of PG&E Corporation and of Pacific Gas and Electric Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of PG&E Corporation and subsidiaries and of Pacific Gas and Electric Company and subsidiaries as of December 31, 1997, and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP San Francisco, California February 9, 1998 Responsibility for Consolidated Financial Statements At both PG&E Corporation and Pacific Gas and Electric Company (the Utility), management is responsible for the integrity of the accompanying consolidated financial statements. These statements have been prepared in accordance with generally accepted accounting principles. Management considers materiality and uses its best judgment to ensure that such statements reflect fairly the financial position, results of operations, and cash flows of PG&E Corporation and the Utility. PG&E Corporation and the Utility maintain systems of internal controls supported by formal policies and procedures which are communicated throughout PG&E Corporation and the Utility. These controls are adequate to provide reasonable assurance that assets are safeguarded from material loss or unauthorized use and that necessary records are produced for the preparation of consolidated financial statements. There are limits inherent in all systems of internal controls, based on the recognition that the costs of such systems should not exceed the benefits to be derived. PG&E Corporation and the Utility believe that their systems of internal control provide this appropriate balance. PG&E Corporation management also maintains a staff of internal auditors who evaluate the adequacy of, and assess the adherence to, these controls, policies, and procedures for all of PG&E Corporation, including the Utility. Both PG&E Corporation's and the Utility's consolidated financial statements have been audited by Arthur Andersen LLP, PG&E Corporation's independent public accountants. The audit includes a review of the internal accounting controls and performance of other tests necessary to support an opinion. The auditors' report contains an independent informed judgment as to the fairness, in all material respects, of reported results of operations and financial position. The Audit Committee of the Board of Directors for PG&E Corporation meets regularly with management, internal auditors, and Arthur Andersen LLP, jointly and separately, to review internal accounting controls and auditing and financial reporting matters. The internal auditors and Arthur Andersen LLP have free access to the Audit Committee, which consists of five outside directors. The Audit Committee has reviewed the financial data contained in this report.

PG&E Corporation and the Utility are committed to full compliance with all laws and regulations and to conducting business in accordance with high standards of ethical conduct. Management is taking the steps necessary to ensure that all employees and other agents understand and support this commitment. Guidance for corporate compliance and ethics is provided by an officers' Ethics Committee and by a Legal Compliance and Business Ethics organization. PG&E Corporation and the Utility believe that these efforts provide reasonable assurance that each of their operations are conducted in conformity with applicable laws and with their commitment to ethical conduct. 61

Directors Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company* Richard A. Clarke Chairman of the Board, Retired, Pacific Gas and Electric Company Harry M. Conger Chairman of the Board, Homestake Mining Company David A. Coulter Chairman and Chief Executive Officer, BankAmerica Corporation and Bank of America NT&SA C. Lee Cox Vice Chairman, Retired, AirTouch Communications, Inc. and President and Chief Executive Officer, Retired, AirTouch Cellular William S. Davila President Emeritus, The Vons Companies, Inc. (retail grocery) Robert D. Glynn, Jr. Chairman of the Board, Chief Executive Officer, and President, PG&E Corporation and Chairman of the Board, Pacific Gas and Electric Company David M. Lawrence, MD Chairman and Chief Executive Officer, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals Richard B. Madden Chairman of the Board and Chief Executive Officer, Retired, Potlatch Corporation

Directors Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company* Richard A. Clarke Chairman of the Board, Retired, Pacific Gas and Electric Company Harry M. Conger Chairman of the Board, Homestake Mining Company David A. Coulter Chairman and Chief Executive Officer, BankAmerica Corporation and Bank of America NT&SA C. Lee Cox Vice Chairman, Retired, AirTouch Communications, Inc. and President and Chief Executive Officer, Retired, AirTouch Cellular William S. Davila President Emeritus, The Vons Companies, Inc. (retail grocery) Robert D. Glynn, Jr. Chairman of the Board, Chief Executive Officer, and President, PG&E Corporation and Chairman of the Board, Pacific Gas and Electric Company David M. Lawrence, MD Chairman and Chief Executive Officer, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals Richard B. Madden Chairman of the Board and Chief Executive Officer, Retired, Potlatch Corporation (diversified forest products) Mary S. Metz Dean, University Extension, University of California, Berkeley Rebecca Q. Morgan President and Chief Executive Officer, Joint Venture:

Silicon Valley Network (nonprofit collaborative addressing critical issues facing Silicon Valley) Carl E. Reichardt Chairman of the Board and Chief Executive Officer, Retired, Wells Fargo & Company and Wells Fargo Bank, N.A. John C. Sawhill President and Chief Executive Officer, The Nature Conservancy (international environmental organization) Alan Seelenfreund Chairman of the Board and former Chief Executive Officer, McKesson Corporation (distributor of pharmaceuticals and health care products) Gordon R. Smith* President and Chief Executive Officer, Pacific Gas and Electric Company Barry Lawson Williams President, Williams Pacific Ventures, Inc. (venture capital and real estate, consulting, and mediation) Permanent Committees of PG&E Corporation and Pacific Gas and Electric Company** Executive Committees Within limits, may exercise powers and perform duties of the Boards. Robert D. Glynn, Jr., Chair Harry M. Conger Richard B. Madden Mary S. Metz Carl E. Reichardt Gordon R. Smith** Audit Committee Reviews financial statements and internal audit and control procedures with independent public accountants. Harry M. Conger, Chair C. Lee Cox

William S. Davila Mary S. Metz Barry Lawson Williams Finance Committee Reviews long-term financial and capital investment policies and objectives, and actions required to achieve those objectives. Richard B. Madden, Chair Richard A. Clarke David A. Coulter Carl E. Reichardt John C. Sawhill Barry Lawson Williams Nominating and Compensation Committee Recommends candidates for nomination as directors, recommends compensation and employee benefit policies and practices, and reviews planning for executive development and succession. Carl E. Reichardt, Chair David A. Coulter David M. Lawrence, MD John C. Sawhill Alan Seelenfreund Public Policy Committee Reviews public policy issues which could significantly affect customers, shareholders, employees, or the communities served, and recommends plans and programs to address such issues. Mary S. Metz, Chair Richard A. Clarke William S. Davila Rebecca Q. Morgan John C. Sawhill ** The composition of the Boards of Directors is the same, except that Gordon R. Smith is a member of the Pacific Gas and Electric Company Board of Directors only. ** Except for the Executive Committee, all Committees listed above are committees of the PG&E Corporation Board of Directors. The Executive Committees of the PG&E Corporation and Pacific Gas and Electric Company Boards have the same members, except that Gordon R. Smith is a member of the Pacific Gas and Electric Company Executive Committee only. 62

Officers PG&E Corporation Robert D. Glynn, Jr. Chairman of the Board, Chief Executive Officer, and President Tony F. DiStefano Senior Vice President, Corporate Development Scott W. Gebhardt Senior Vice President

Officers PG&E Corporation Robert D. Glynn, Jr. Chairman of the Board, Chief Executive Officer, and President Tony F. DiStefano Senior Vice President, Corporate Development Scott W. Gebhardt Senior Vice President Thomas W. High Senior Vice President, Administration and External Relations Jack F. Jenkins-Stark Senior Vice President Joseph P. Kearney Senior Vice President L. E. Maddox Senior Vice President Michael E. Rescoe Senior Vice President, Chief Financial Officer, and Treasurer G. Brent Stanley Senior Vice President, Human Resources Bruce R. Worthington Senior Vice President and General Counsel Leslie H. Everett Vice President and Corporate Secretary Christopher P. Johns Vice President and Controller Jackalyne Pfannenstiel Vice President, Business Planning Greg S. Pruett Vice President, Corporate Communications Daniel D. Richard, Jr. Vice President, Governmental Relations

Linda Y. H. Cheng Assistant Corporate Secretary Wondy S. Lee Assistant Corporate Secretary Eric Montizambert Assistant Corporate Secretary Gabriel B. Togneri Assistant Treasurer Pacific Gas and Electric Company Robert D. Glynn, Jr. Chairman of the Board Gordon R. Smith President and Chief Executive Officer Kent M. Harvey Senior Vice President, Chief Financial Officer, and Treasurer E. James Macias Senior Vice President and General Manager, Generation, Transmission, and Supply Business Unit James K. Randolph Senior Vice President and General Manager, Distribution and Customer Service Business Unit Daniel D. Richard, Jr. Senior Vice President, Governmental and Regulatory Relations Gregory M. Rueger Senior Vice President and General Manager, Nuclear Power Generation Business Unit Shan Bhattacharya Vice President, Distribution Engineering and Planning Thomas E. Bottorff Vice President, Rates and Account Services Jeffrey D. Butler

Vice President, Distribution Operations, Maintenance, and Construction Barbara Coull Williams Vice President, Human Resources Leslie H. Everett Vice President and Corporate Secretary Katheryn M. Fong Vice President, Customer Revenue Transactions Roger J. Gray Vice President, General Services Robert L. Harris Vice President, Community Relations Russell M. Jackson Vice President, Customer Service Christopher P. Johns Vice President and Controller Junona A. Jonas Vice President, Gas and Electric Supply Steven L. Kline Vice President, Regulatory Relations Thomas C. Long Vice President, General Rate Case Project William R. Mazotti Vice President, Gas and Electric Transmission Roger J. Peters Vice President and General Counsel Robert P. Powers Vice President, Diablo Canyon Operations and Plant Manager Frank J. Regan Vice President,

Governmental Relations Lawrence F. Womack Vice President, Nuclear Technical Services Linda Y. H. Cheng Senior Assistant Corporate Secretary Wondy S. Lee Assistant Corporate Secretary Eric Montizambert Assistant Corporate Secretary Gabriel B. Togneri Assistant Treasurer U.S. Generating Company Joseph P. Kearney President and Chief Executive Officer P. Chrisman Iribe Executive Vice President and Chief Operating Officer PG&E Gas Transmission Jack F. Jenkins-Stark President and Chief Executive Officer Terrence E. Ciliske President and Chief Executive Officer of PG&E Gas Transmission-Texas Michael J. McDonald Managing Director of PG&E Gas Transmission - Australia PG&E Energy Services Scott W. Gebhardt President and Chief Executive Officer James C. Davis Senior Vice President, Integrated Services William R. Doucette Senior Vice President, Sales PG&E Energy Trading

L. E. Maddox President and Chief Executive Officer 63

Shareholder Information Shareholder Services Office 77 Beale Street, Room 2600 San Francisco, CA 94105-1814 Call Toll Free 1.800.367.7731 Fax 415.973.7831 For financial and other information about PG&E Corporation and Pacific Gas and Electric Company, please visit our web sites, www.pgecorp.com and www.pge.com If you have questions about your account or need copies of PG&E Corporation's or Pacific Gas and Electric Company's publications, please write or call the Shareholder Services Office at: Manager of Shareholder Services David M. Kelly Mail Code B26B P.O. Box 770000 San Francisco, CA 94177-0001 1.800.367.7731 If you have general questions about PG&E Corporation or Pacific Gas and Electric Company, please write or call the Corporate Secretary's Office: Corporate Secretary Leslie H. Everett One Market, Spear Tower, Suite 2400 San Francisco, CA 94105-1108 415.973.2880 Securities analysts, portfolio managers, or other representatives of the investment community should write or call the Investor Relations Office: Manager of Investor Relations David E. Kaplan One Market, Spear Tower, Suite 2400 San Francisco, CA 94105-1108 415.973.3007 PG&E Corporation General Information 415.973.7000 Pacific Gas and Electric Company General Information 415.973.7000 Stock Held in Brokerage Accounts ("Street Name") When you purchase your stock and it is held for you by your broker, the shares are listed with us in the broker's name, or "street name." We do not know the identity of the individual shareholders who hold their shares in this manner-we simply know that a broker holds a number of shares which may be held for any number of investors.

Shareholder Information Shareholder Services Office 77 Beale Street, Room 2600 San Francisco, CA 94105-1814 Call Toll Free 1.800.367.7731 Fax 415.973.7831 For financial and other information about PG&E Corporation and Pacific Gas and Electric Company, please visit our web sites, www.pgecorp.com and www.pge.com If you have questions about your account or need copies of PG&E Corporation's or Pacific Gas and Electric Company's publications, please write or call the Shareholder Services Office at: Manager of Shareholder Services David M. Kelly Mail Code B26B P.O. Box 770000 San Francisco, CA 94177-0001 1.800.367.7731 If you have general questions about PG&E Corporation or Pacific Gas and Electric Company, please write or call the Corporate Secretary's Office: Corporate Secretary Leslie H. Everett One Market, Spear Tower, Suite 2400 San Francisco, CA 94105-1108 415.973.2880 Securities analysts, portfolio managers, or other representatives of the investment community should write or call the Investor Relations Office: Manager of Investor Relations David E. Kaplan One Market, Spear Tower, Suite 2400 San Francisco, CA 94105-1108 415.973.3007 PG&E Corporation General Information 415.973.7000 Pacific Gas and Electric Company General Information 415.973.7000 Stock Held in Brokerage Accounts ("Street Name") When you purchase your stock and it is held for you by your broker, the shares are listed with us in the broker's name, or "street name." We do not know the identity of the individual shareholders who hold their shares in this manner-we simply know that a broker holds a number of shares which may be held for any number of investors. If you hold your stock in a street name account, you receive all dividend payments, tax forms, publications, and proxy materials through your broker. If you are receiving unwanted duplicate mailings, you should contact your broker to eliminate the duplications. PG&E Corporation Dividend Reinvestment Plan If you hold PG&E Corporation or Pacific Gas and Electric Company stock in your own name, rather than through a broker, you may automatically reinvest dividend

payments from common and/or preferred stock in shares of PG&E Corporation common stock through the Dividend Reinvestment Plan (the "Plan"). You may obtain a Plan prospectus and enroll by contacting the Shareholder Services Office. If your certificates are held by a broker (in "street name"), you are not eligible to participate in the Plan. Direct Deposit of Dividends If you hold stock in your own name, rather than through a broker, you may have your common and/or preferred dividends transmitted to your bank electronically. You may obtain a direct deposit authorization form by contacting the Shareholder Services Office. Replacement of Dividend Checks If you hold stock in your own name and do not receive your dividend check within five business days after the payment date, or if a check is lost or destroyed, you should notify the Shareholder Services Office so that payment may be stopped on the check and a replacement mailed. Lost or Stolen Stock Certificates If you hold stock in your own name and your stock certificate has been lost, stolen, or in some way destroyed, you should notify the Shareholder Services Office immediately. [LOGO OF RECYCLED PAPER] Pages 17-64 printed on recycled paper. 64

EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated February 9, 1998, included or incorporated by reference in this Form 10-K, into the previously filed registration statements as follows: (1) PG&E Corporation's Form S-3 Registration Statement File No. 333- 16255 (relating to PG&E Corporation's Dividend Reinvestment Plan); (2) Pacific Gas and Electric Company's Form S-3 Registration Statement File No. 33-64136 (relating to $2,000,000,000 aggregate principal amount of Pacific Gas and Electric Company's First and Refunding Mortgage Bonds and Medi