Good afternoon, and welcome to the PG&E Corporation third quarter earnings conference call. At this time I would like to introduce your host, Mr. Gabe Togneri, Vice President of Investor Relations. Thank you. Have a great conference and go ahead Mr. Togneri.

Good day and thanks for joining us to discuss our third quarter earnings. Our press release went out earlier today, as you know, and it is posted on our website along with supplemental tables. These materials have also been furnished to the SEC through an 8-K filing and we are filing our Form 10-Q reports for both the Corporation and PG&E today with the Securities and Exchange Commission. As we proceed with the discussion of results and the Q&A session that will follow, we will make forward-looking statements based on assumptions and expectations that reflect information currently available to management. Actual results may differ materially from those forward-looking statements. We encourage you to review our SEC filings to obtain additional information and to better understand the many factors that could influence future results. All participants are in listen-only mode right now through a simultaneous webcast and conference call. A replay of the webcast will be available from the PG&E Corporation homepage afterwards. Peter Darbee, Chairman and CEO of PG&E Corporation; Tom King, CEO of Pacific Gas and Electric Company; and Chris Johns, Senior Vice President and CFO, will take us through the results and other highlights. Other members of the team are here and are available, if needed, to answer questions. And now I will turn the call over to Peter Darbee.

Thanks, Gabe. As described in our press release we are reporting strong results for the third quarter. Total net income was $393 million or $1.09 per share. As I think you know by now, you can count on us to continue raising the bar for both financial performance and customer service. Based on our year-to-date performance, we are increasing the earnings guidance from operating earnings to $2.45 to $2.55 per share for 2006 and we expect to come in toward the high end of that range. Chris Johns will review the financial results and guidance in detail in a few minutes. I also want to highlight some important accomplishments that relate to the following focused areas: first, transforming our operations and our culture; second, finding win-win opportunities for our customers and shareholders in the regulatory arena; and third, building our profile as an industry leader. On transformation we are making continued strides. One important element of transformation is consolidating certain operations to improve the quality, speed and cost effectiveness of our service. We have now opened four out of seven new resource management centers. The three remaining centers will be fully operational by year-end. These new facilities consolidate planning, design and scheduling functions that were previously handled in up to 70 different locations. The SmartMeter project has now moved from pilot program to implementation. We began the full deployment phase of SmartMeter installations in the southern part of our service territory this month. In addition, in 2007 we will be rolling out new and better technology supporting our operations. It will automate activities done manually today in the areas of materials, planning, procurement and distribution. These accomplishments each represent clear milestones towards our overall goal, which is to improve the quality, speed and cost effectiveness of our service. We are…

Thank you, Peter. I'd like to add a few details to Peter's highlights on our regulatory and legislative progress. We continue to work with our regulators to help customers manage their bills. You will recall that last winter we offered a 10/20 Gas Program to our marketplace. Each customer who reduced their January through March gas usage by 10% received a 20% discount on their April bill. Overall, our customers received more than $40 million in rebates. In October, the CPUC approved our proposal for a new 10/20 Plus Winter Gas Savings Program. This new program offers enhancements over last winter. Customers will be able to earn partial or full 20% credit and we'll be able to increase the number of customers eligible. Every 1% decrease in usage will generate at 1% credit up to 9%. Customers who reduce their usage by 10% or more will receive a 20% bill credit. This program is one way PG&E is helping customers to lower their natural gas costs during some of the most expensive months of the year. All PG&E gas customers are eligible and they are automatically enrolled. And a further effort to help keep the bills lower during the winter season, we have been purchasing gas during the summer and placing it in our underground storage facilities. Our storage provides roughly 20% of the customer's winter needs. We now have our storage essentially filled at a cost of about $1.50 to $2 less per MMBTU than buying gas during the winter based on today's forward prices. This equates to about $50 million in savings to our customers. PG&E is also focused on climate change and we are taking action to reduce greenhouse gas emissions. As one part of our approach to climate change, we are aggressively adding renewables -- renewable…

Thank you, Tom. I'll begin by reviewing our third quarter results and then I will discuss our guidance and other financial developments. PG&E Corporation earned $393 million or $1.09 per diluted common share for the quarter on a GAAP basis. This compares to $252 million or $0.65 per diluted share for the same quarter last year. On a non-GAAP basis, consolidated earnings from operations were $310 million or $0.86 per diluted common share and this compares to $239 million or $0.62 per diluted share for the third quarter last year. The specific quarter over quarter change in earnings per share from operations was driven by several factors. First, as a result of the stock repurchases we completed in 2005, we have a positive $0.05 per share impact from lower shares outstanding. Second, park and lend service fees on our gas transmission business accounted for about $0.02 per share. Next, lower employee benefit expenses, primarily from favorable experience in our long-term disability plan, were worth $0.02 per share. Recent regulatory proceedings which allowed recovery of litigation costs associated with disputed energy claims from the California Energy Crisis totaled $0.03 per share. And in addition, we were able to utilize some capital loss carry-forwards which resulted in a tax benefit worth $0.05 per share. And finally, there were about $0.05 of charges incurred in the third quarter of 2005 that did not reoccur again this year. Moving beyond earnings from operations, there are two items impacting comparability that also affect this quarter's earnings. One item reflects increased earnings associated with the recent FERC order granting us recovery of ISO scheduling coordinator costs that were incurred from 1998 going forward. The other item is a recovery of net interest cost for the period of April 2004 to February of 2005, associated with disputed…

Thanks, Chris. Our accomplishments this quarter demonstrate that we are continuing to execute on our strategy. This encompasses delivering for our customers, focusing on first and second quartile operating performance, establishing a strong cultural and business foundation across the Company and building a stronger presence in our communities. It also includes leading on environmental issues. And on that subject, I will close with a few comments about environmental leadership and climate change. As Tom mentioned, our focus on this issue is driving a variety of activities. So let us provide the context for our view. First, it's our conclusion that the signs have been clear and compelling. We know climate change is occurring and the evidence points to greenhouse gases as the cause. Second, as more and more Americans are beginning to recognize, this represents a profound risk to long-term stability and prosperity for our nation. We see this awareness driving new customer expectations. It's also driving action by policy makers, including California's new climate change law, which we support. There are signs of long-term change in the landscape, and our strategy is designed to help drive and shape that change. This is consistent with our vision to be the nation's leading utility. It's also consistent with our long standing track record of excellence in areas like energy efficiency, and it's consistent with what customers are increasingly expecting from a leader. With that in mind, our focus is on solutions. This includes helping to create a pragmatic and workable regulatory infrastructure in California to achieve the state's greenhouse gas production goals. We are looking forward to joining with leaders in business and other sectors in this effort just as we do through organizations like Ceres and the Clean Energy Group. Our commitment to investors is that we will meet this challenge and continue to deliver solid returns. In fact, we think that the Company's step-up and meet this challenge will emerge as the top performers and leaders in this industry. And now, we're ready to take your questions.

[Operator Instructions]. Our first question comes from the line of Doug Fischer with AG Edwards. Please proceed.

Thank you, and congratulations on another fine quarter. What are the primary drivers of the higher guidance for the year? Is it the tax benefit? Was that contemplated originally or is it something else?

Yes, this is Chris Johns. And really the higher guidance is a result of when you look at our year-to-date performance, it's in line with higher than what we had expected and a lot of it was the items that I mentioned, which we did have some of the tax benefits. We also had some favorable regulatory decisions during this year. And we also saw an increase in our electric transmission revenues during the time period. And so as we look forward to the end of the year, although we have some cost coming down the line that is connected with our transformation and with our maintenance that we had to defer during the storm season, we do believe that we will be able to reach that upper end of that range.

Okay. Thank you, Chris. That's really it for me right now.

Thank you.

Our next question comes from the line of Jonathan Arnold with Merrill Lynch. Please proceed.

Good afternoon.

Hey, Jonathan.

Just I have a couple of questions. First is you mentioned that guidance for 2007 includes normal levels of various items and some of those appear to have come in this quarter. You know, I look back to the third quarter of last year, these two items that you say were there but now aren't there, were not really called out at the time. And I am just wondering if you could be a little more explicit what we mean by normal levels of these litigation items and other such.

Yes, sure. Well, all we are trying to say is that when you look at our earnings for this quarter, there are a couple of things such as the tax benefits and some of the regulatory items. We will always have in any given quarters some items that come in at $0.02, $0.03, $0.04 levels, and a lot of times they will be offsetting. In this quarter, we saw some that all generally were on the positive side. And so when we look forward, we are not anticipating that we will necessarily be able to repeat having being able to utilize capital loss carryforwards on a tax basis or that we will see the same level of transmission revenue. So all we are trying to say is that as we reaffirm our guidance for next year, we are anticipating that it will be pretty normal years on those kind of items.

And is '06 expected to be normal as well or is it running a little above normal on that side?

We, it's running a little bit above, which is why we've raised the guidance for the end of this year.

And then one other thing, Chris, was that I am guessing some of these things hit at the parent because it seems like you had about $0.05 of earnings with the parent this quarter or outside of the utility, let's say, is that correct? And which pieces were in the parent numbers.

Yeah. And that's because we file a consolidated tax return and so the tax benefit utilization is generally up at the holding company level.

Thank you.

Sure.

[Operator Instructions]. Our next question comes from the line of Adar Zango with Zimmer Lucas Partners. Please proceed.

Hi. As you mentioned ALJ has recommended approval of your long-term RFO, which improves the 660 megawatt Calusa plant that you guys are going to own. You've previously referred to capital costs of about 900 to 1100 per kilowatt for this type of plant. Does this range still stand and can you guide to a tighter point in this range?

You roughly, this is Tom, you roughly have the right range and I think you ought to be thinking in the 1000, I would target around the 1000 point.

Thank you

Adar, this is Gabe. What you will see in our disclosures, I think we've mentioned or it was in the 8K, that there is a tighter estimate but it has been filed under confidentiality provisions with the CPUC. So for now the best we are going to give you is that range of 900 to 1100. Adar Zingo: Okay. And when do you expect a final decision in this proceeding?

We should hopefully have that by the year-end.

Okay. Thank you.

Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed.

Hi, guys. Congrats on a great quarter. One question. When we go back and look at some of your investor presentations over the last few months and after talking with you over the last few months, you kind of talk about a rate base of roughly $20 to $20.5 billion by 2010. Is there upside to that number and if so, where with it come from?

Sure. Michael, what I will say is that we have not changed the capital forecast. At this call we are not updating it or reaffirming it today. But, if you go back to what we have previously disclosed as far as our planned capital expenditures, items that have not been included in those are things like our Calusa plant that we have talked about, that is not included in any of those projections, any additional investments in transmission plants, both electric transmission and gas transmission type plants. For instance, we've talked about a project that we are looking at up in the northeast that would be what we refer to as the Pacific Interconnect project, which would be building a gas transportation pipeline from Coos Bay, Oregon down to the California border. Would be about $1 billion total project of which we would be probably about a one-third investor. That’s not included in there. So that as we look at those numbers we are continually looking for what are opportunities to continue to invest in, especially our electric and gas transmission areas, to continue to make those investments for our shareholders.

Okay. Thanks, guys.

[Operator Instructions]. We do have another question from the line of Lasan Johong with RBC Capital Markets. Please proceed.

Hi, Chris, did you say that the CapEx on Contra Costa 8 was going up by $75 million due to the, I think, it was use of dry cooling, was that correct.

That is correct. Our estimate on the capital cost associated with Contra Costa 8 is going to go up about $75 million.

And the -- and you have applied to CPUC for that to be included in the rate base?

This is Tom. There is two things. One is that the original order authorizing Contra Costa 8 there is language that allows for as environmental changes and other permitting issues for us to have the ability to come back and seek recovery of those costs. We have -- this new technology and the direction is being supported by the Energy Commission. We will go back and it is either today or tomorrow to file that advice letter and we have every expectation that we will get authorization for that.

Tom, you said that PG&E's either contemplating or thinking about adding another 200 megawatts of peaking generation in '08?

If you go back a few months, we did file for peaking opportunity for about 200 megawatt in '07. We are going to shift that to '08 because we are working with the Commission and our customers to enhance the demand response program and that focus will be for 2007 and then we will seek 2008. And the reason for that is we actually have enough resources. We had plenty through the heat storm. We have enough resources now. This is more of a potential backstop for peaking needs and extreme situations and we think we are fine for '07. So we are going to move it to '08.

I see. You basing that decision on what happened in '06?

Yes, we are basing that decision on what happened in '06, as well as progress we are making on the demand reduction program.

Does that take into consideration the fact that '06 was a pretty nice hydro year?

Yes, it absolutely takes that into consideration. We've run a complete analysis of their energy needs and we are okay for '07.

Great, thank you. That's it for me.

Thank you.

Our next question comes from the line of Jonathan Arnold with Merrill Lynch, please proceed.

Yes. Just a quick -- another question, please, guys. On the heat storm, you mentioned that that would result in additional maintenance costs from deferrals in the fourth quarter. Things that you didn't spend in the third quarter I guess. Can you quantify what the impact of the heat storm was on a net basis on the third quarter?

Chris, you may have the heat storm number.

We actually gave that in our last quarter call, Jonathan. As I recall, I think we said about $25 million in capital costs and about $5 million of expense.

So that's somewhere in these miscellaneous items.

Yes. Right.

Okay. Great. Thank you.

You bet.

At this time, there are no further questions from the phones.

All right. Well, again, we would like to thank everybody for your interest and we will be in touch as further developments and regulatory approvals come through. Thanks very much.