Good morning and welcome to the PG&E Corporation First Quarter Earnings Call. At this time, I would like to introduce your host, Gabe Togneri. Thank you and have a good conference. Go ahead Mr. Togneri.

Good morning, everyone, and welcome to our first quarter earnings call. And I'd like to thank you for joining us. We're going to keep today's prepared remarks relatively brief since we'll be holding our Analyst Day on May 22, just about two weeks from now. And before we get into this quarter's results, let's go through the usual formalities. This is a simultaneous webcast and conference call, a replay of which, including the question-and-answer session, will be available from our website. We've issued our earnings press release this morning and it's posted on our website along with all the supplemental tables, including Regulation G reconciliations. We'll refer to some of the information in the tables. So you'll want to have them handy. We've provided these materials in an 8-K report furnished to the SEC this morning, and we do plan to file our 10-Q report for both the Corporation and Pacific Gas and Electric Company a little bit later this morning. I'll remind you that our prepared remarks and the Q&A session that follows contain forward-looking statements based on assumptions and expectations reflecting information currently available to management. As we discussed in more detail in the press release and in the SEC reports, actual results may differ materially from those forward-looking statements. Important factors that can affect those results are described in the reports that we filed from time to time with the SEC. Those factors include the risk factors and other factors described in or referenced in our annual report of Form 10-K for the year ended December 31, 2007 and our 10-Q report for this quarter. Since this is a short call today, you will be hearing from Peter Darbee, Chairman, CEO and President of the Corporation, and Chris Johns, Senior Vice President and CFO. Bill Morrow, President and CEO, of Pacific Gas and Electric Company and other key members of the team are here with us to participate in the Q&A session. And with that, I'll turn the call over to Peter.

Thank you, Gabe and good morning all. The first item that we want to bring to your attention in the principal message of this call is that we are on track to deliver on our guidance for the year 2008. Our results for the first quarter do reflect the significant winter storms that we saw in January and these storms were the most severe since El Nino more than a decade ago. The damage from the winds and trees during the first quarter were enough to down power lines that would stretch from San Francisco to Canada. And as a result, we filed with the CPUC for partial recovery of storm costs. The reason I say partial is because not all counties in California and in our service territory were declared disaster areas. And we expect recovery for these costs early next year. Now, turning to some of the other items during the quarter, the most significant one is that the results for the quarter do reflect the replacement of the steam generator at Diablo Canyon, as well as the refueling outage that occurred for Unit 2. And last year during the first quarter, we did not have an outage, but rather it fell during the second quarter. The replacement of the steam generators are important in that what they will help enable is that we'll be able to run both Unit 1 and 2 when they are both completed very efficiently through the next re-licensing period, which is in approximately 2024 and 2025. Chris is going to have more details with respect to our financial results, but the bottom line is except for the storms, there were no surprises and we are on course to deliver, as I said, our guidance for the year. I want turn now to…

Thank you, Peter. I'll begin by discussing our first quarter results and our guidance and then I'll update you on some key regulatory developments. For the first quarter, PG&E Corporation earned $224 million or $0.62 per diluted common share on both the GAAP and non-GAAP basis. This compares to $256 million or $0.71 per diluted share for the first quarter of 2007, also on both a GAAP and a non GAAP basis. During the quarter, rate-based revenues increased earnings by $0.08 per share quarter-over-quarter relative to 2007, as a result of the additional CPUC authorized revenues in the current FERC transmission owner rate case. These increases were offset by the costs associated with the January storms and the Diablo Canyon outage that Peter just mentioned. The January storms and outage restoration had a negative impact of $0.07 per share as we incurred approximately $43 million of storm-related expenses. There were no similar expenses in the first quarter of last year. The Diablo Unit 2 outage also accounted for a negative $0.07 per share. As expected, the steam generator replacement required this outage to be about double the length of a typical outage, starting in February and wrapping up in mid-April. As you recall, the Diablo Canyon Unit 1 outage occurred entirely in the second quarter of 2007. Miscellaneous items accounted for negative $0.03 per share. This included a penny per severance costs and another penny for a required change in accounting for the dividend participation rights on our convertible debt. Our guidance range for earnings from operations remains at $2.90 to $3 per share for 2008 and $3.15 to $3.25 per share for 2009. Our supplemental earnings materials include a reconciliation of guidance with a projected GAAP EPS. We are also reaffirming our target of 8% compound average annual growth…

Thanks, Chris. Just to recap and summarize, we are reaffirming guidance for the full year. We had a solid quarter from an operational standpoint. We met significant storm challenges during the quarter and we executed well with respect to the steam generator replacement at Diablo Canyon. So, to wrap up, we are looking forward to sharing with you more in a few weeks at our Analyst Day meeting. Thanks very much and now we are ready for questions. Question And Answer

Certainly. We'll now have the question-and-answer session. [Operator Instructions].

Lynn, can I assume that that means there are no questions?

Well, Gabe, let me interject, and Lynn, can you just make sure your system is working correctly because this has happened to me once before in my carrier and it was because the system wasn't working properly. So, can you just verify the technology is working correctly?

Yes, our first question comes from the line of Jonathan Arnold with Merrill Lynch. Please proceed.

Good morning, everyone.

Good morning, Jonathan.

Good morning, Jonathan.

I actually registered my question before, so there may be other people out there too. Quickly on the cost of capital decision, I think you noted this in your 8-K at the time, I apologize if you covered it this morning, I have been jumping back and forth. But there was this uncertainty seem to contradict itself as to whether the intent was to adjust for the amount by which change in the bond index exceeded 100 basis points or whether it would be the entire delta in the bond index including the 100 basis point debt band. Any extra color on sort of how that... why there is a conflict in there and what the intent may have been within the PD?

Yes, Jonathan, this is Chris, and you are correct. As you read through the entirety including the examples that are in the proposed decision, there does appear to be some conflict and some uncertainty as to the intent there. And so we are working with the CPUC staff and team to try to resolve what that conflict is. I don't have any more color on that right now being that it was just issued and we will continue to work with them to try to clarify that.

Okay, thank you.

Thank you Mr. Arnold. Our next question comes from the line of Lasan Johong with RBC Capital Markets. Please proceed.

Thank you. A couple of questions on the situation with Ruby. What is the plan for the replacement of the gas that was supposed to come from Ruby? And also would it be fair to say that cost escalation was at least 50% from the $2 billion original number and generally what kind of cost escalation would you be expecting going forward?

Okay. In terms of the gas supply, we of course draw gas from the northern part of California down from Canada, but we also draw gas up from the south. And so we have access. This would have provided for an additional avenue of gas from the Rockies, which is a basin that we don't currently have good direct access into. There are one or two competing pipeline projects to Ruby. So I think the options are that those projects will advance and I think that's very likely. There is also the chance that the Board at El Paso will say, we are not moving ahead of this transaction as currently configured and as I understand that they have the right to withdraw from their commitment, which is subject to Board approval. And they have the opportunity also to come back and re-bid presumably. So at this point, we think that there are considerable options still available to Pacific Gas and Electric Company and we are not concerned about a shortage of gas. I think it's a question of more availability and also that reduces the cost pressure on our customers as a result. So that's the first one. The second question you had or item you had was the suggestion that the cost associated with Ruby must have increased by may be 50% or more in order for us to make this decision. I don't think we're going to comment on what the percentages are, what we have communicated to you over a period of time and we've heard universally across the industry is cost pressures have been very considerably across all types of electrical equipment and that's supporting it. So we've talked about copper prices up more than 50%, aluminum prices up on that order, transformer prices have been up very substantially on the order of 30% to 50% depending on the type. So we're seeing those levels of cost pressures. The good news is that we made a lot of our commitments previously and have locked things in and so it will be on a prospective basis going forward for us and also the industry to deal with this rising cost environment.

Generally what kind of a rate... I mean, cost pressures are you feeling? And then on the earnings result, the $0.03 miscellaneous, could you kind of walk us through what's that was made up of?

Yes, this is Chris. On the $0.03, we said one of those pennies is due to severance and that's consistent with what our plans were earlier in the year as we looked at the... some of the initiatives that we had take place late in 2007, driving some of the efficiencies out of there. We were aware that we would have some severances. And so that penny was associated with that. Then in addition, there was a new accounting standard that came out on fair values and we had to adjust the fair value of the embedded derivative in our convertible debt that has to do with our dividend participation rights, and that was about a penny. And then the last penny was just an accumulation of a lot of really small items.

On the cost issue, it's really difficult to generalize what we are seeing there. For example, we have the gateway facility that we have been working on, that was started before the most recent pressure on prices and so that project is proceeding somewhat ahead of schedule and below budget. On Colusa, we've been able to jump in on that situation that we described before and we are using in effect some of the profit margin that the EPC had in mind as a contingency cushion for us. So I think right now what we are seeing is like most people when they go to the store or the gas station, they are seeing it crop up at the fringe, at the margin, and that will have an impact over time on people's cost structures. But it's too early to generalize what that impact would be.

Okay, thank you

Thank you Mr. Johong. Our next question comes from the line of Steve Fleishman with Catapult Capital Management. Please proceed.

Hi, Peter.

Hi Steve, how are you?

Good. Just to clarify on your 2008 guidance, you're basically reiterating the same guidance, but within 2008 absorbing $0.07 of storm costs that you weren't expecting because you are not going to get any recovery of any of that until '09. Is that correct or --?

That is. We have picked up a little storm costs from the previous year, but let me have Chris elaborate.

Okay.

Steve, when we look out forward for this year, there is really a couple of things that we look at. Obviously we have to always manage our costs and there will always be things that might increase or decrease, but as we look out during the year, there is really two things that we see on the horizon that are going to help us overcome these storm costs. One is that we reached the smaller settlement agreements with the IRS on some past tax issues that are going to contribute a couple pennies to us. And then, also as you have seen, interest rates have been less than what had originally anticipated during this year. And so we...when we look at our variable debt in our commercial paper programs, we are anticipating that interest expense is going to be a pretty good number less than what we had originally anticipated in. So, when we look at the balance of those versus our storm costs, we see them pretty much offsetting each other.

Okay. The IRS tax settlements that will be in the second quarter then?

No, probably later on during the year.

Okay. One other question goes in terms of the Ruby Pipeline, could you remind me if that was in your long-term CapEx guidance or not?

It was not.

Okay, thank you.

Thanks, Steve.

Thank you, Steve

Thank you, Mr. Fleishman. Our next question comes from the line of Michel Lapides with Goldman Sachs. Please proceed.

Hey, guys. Can you talk a little bit about some of the projects that aren't necessarily in your current rate base guidance kind of for the long-term, but that are potentially sizable projects, whether gas pipeline, whether electric transmission, just so investors can get kind of a feel for what the things are that could move the needle over the next couple of years on rate based growth?

Yes, Michel, this is Chris and I'll be glad to do that, and as a reminder, as we have said in our last couple of calls that we constantly look at our portfolio of items that will impact our earnings and that includes the capital investment and CEE revenues and various cost initiatives. And we need to look at all of those and trade them up. But having said that, when we look at what's been previously communicated as to what's in our capital forecast and what's not, the items that are not in there are things like the Pacific Connecter Gas Pipeline project that we've talked about many times in the past, the potential British Columbia to California electric transmission line, the upgrade of our smart meter project and then any generation, whether that's conventional generation or renewable generation up and above the Gateway, Colusa and Humboldt projects. And then we're constantly looking at any other opportunities, whether it's in gas storage or further electric transmission opportunities.

Okay. Can you talk about the timeline for when you might know about potential new generation projects? I mean, I understand the long-term procurement planning process has wound up and now you are probably at the RFO stage? William (Bill) T. Morrow - President and Chief Executive Officer, Pacific Gas and Electric Company: Yes, this is Bill Morrow. So, Michael, as you recall, the 2004 RFO that we sent out, we have I think 7 projects in and there is a number of those projects that are been delayed and of course, we talked about Colusa and how we had to take that over. We did get permission basically within the 06 RFO from the CPUC to extend and look at ways to which we can recover from this loss of energy out there and that might have some potential, as Chris just mentioned, for that to be within our rate base of that. We are looking at a number of projects right now. I'd say it's probably at the earliest looking at the third quarter before we'd know anything definitive there. But that could stretch al the way into the turn of the year.

And is there a specific docket we should follow in that regard? William (Bill) T. Morrow - President and Chief Executive Officer, Pacific Gas and Electric Company: No, I think we would update as we would go through on the calls here.

Great, thank you, guys.

Thank you, Mr. Lapides. Our next question comes from the line of David Grumhaus with Copia Capital. Please proceed.

Good morning, guys.

Good morning.

Just quick clarification on the storm costs. Have you assumed that the full $43 million of expenses, the negative of $0.07 hit in your guidance or you assuming you get some of that back from this filing?

No, we are assuming the full hit in 2008. The filing that we are making, we don't anticipate that we would see a final order on that until 2009. And so we wouldn't be able to book any of the recovery of that cost until we got that final order.

Okay. So when you get that, do you then book it in 2009?

Yes.

You don't book it until you have it?

That's right.

Okay, that's helpful. Thanks for the time, guys.

Sure.

Thank you, Mr. Grumhaus. Our next question comes from the line of Patrick Forkin with Tejas Securities. Please proceed.

Good morning. I was wondering if you give us a quick update on your smart metering program, are you on track with your CapEx spend for 2008 and how many gas and electric end points do you think you'll have deployed by the end of the year? William (Bill) T. Morrow - President and Chief Executive Officer, Pacific Gas and Electric Company: Patrick, this is Bill Morrow. Yes, we are on track with our schedule. Just some reminders of this, last year, we ended with about 270,000 meters deployed; at the end of the first quarter of this year, we were just over 430,000. The capital program is exactly on track with where we thought we would be at this point and just a reminder, there was an overall $1.7 billion initial program approval. 1.4 of that was associated with capital and we fully expect this year to cross over the million mark, probably in the 1.2 million range for the number of meters that we should have deployed. And just as a reminder, we have filed, of course, for the supplement that we talked about and that was $623 million overall expenditure with $565 million of that associated with capital.

Okay. Just to clarify, you were at 430,000 at the end of the first quarter and you plan on being at 1.2 million by the end of the year? William (Bill) T. Morrow - President and Chief Executive Officer, Pacific Gas and Electric Company: Over a million is the way I categorize this right now.

Okay, thank you.

Thank you, Mr. Forkin. Our next question comes the line of Hugh Wynne with Sanford Bernstein. Please proceed.

I was wondering if I just might have some comments from you on the progress you are making in the... the two other areas that you mentioned are sustaining your EPS forecast, which are the conservation incentive revenues and the other operational efficiencies.

Sure, this is Chris. As far as the energy efficiency items, the CPUC staff has recently release some of their draft energy measurement and verification values that we and the other utilities are reviewing and commenting on, and these draft values will continue to be released throughout the June period of time. We continue to work with the commission and the other IOUs to reach consensus on the measurement methods to be employed and with respect to energy savings and the associated incentive awards. There is a public comment period that will happen through the next couple of months and that we expect in the [ph] CPUC to release the final values later this summer. These final energy measurement and verification values will be used to determine our net energy savings and thus our interim incentive claim for 2008. We will make that claim in the September timeframe and would expect a final CPUC decision before the end of the year. And then as far looking at the next program, 2009 through 2011, we are due to make a filing and believe it will be in June timeframe to lay out the foundation for that, that portion of the incentive mechanisms. And then as far as the initiatives are concerned, we do plan on at our analyst conference talking a little bit more in detail about that, but I will hand it to Bill Morrow to tell you the general areas that we have been working through. William (Bill) T. Morrow - President and Chief Executive Officer, Pacific Gas and Electric Company: And as we reported on the last call, we do see more opportunity within the company to continue to find productivity improvements. We are seeing areas right now that will further the advancements that we made within the procurements of the strategic sourcing. We see opportunities in the real estate. There is some vehicle management elements and of course, some system data enhancements that we think will be able to help us with the number of productivities, improvements as well as the effectiveness on delivering for customer service. And as Chris has said and Peter mentioned in his opening remarks on this, we are going to get in to some more detail when we are up in Napa with many of you.

Great, thanks a lot.

Thank you, Mr. Wynne. Our next quarter is a follow-up question from the line of Lasan Johong with RBC Capital Markets. Please proceed.

Thank you. Hi, Chris, what was your normal or normalized storm costs for the last, say, about 10 years?

Yes, on a normal basis, I think they run around $5 million to $10 million.

Thank you, Chris.

Thank you Mr. Johong. Our next question comes from the line Ashar Khan with SC Capital (sic) [SAC Capital]. Please proceed.

Hi, good morning. Chris, I just wanted to make sure... I don't know if you can comment on this, but three remaining quarters, is there anything why any of them should be down versus in the last year structurally in terms of some outage or something or something like that?

Yes, sure. Other than there is a little bit, as we said, the outage for Diablo last year was in the second quarter, this year it was in the first quarter. I think those will be the biggest structural differences that you'll see from that aspect. Otherwise operationally, we are not anticipating anything that is scheduled to be a large difference.

Okay, thank you.

Thank you Mr. Khan. There are currently no additional questions waiting from the phone lines.

Alright. In that case, I would like to thank everybody for their interest. And whether you are with us in Sonoma or you are listening via webcast a couple of weeks from now, we'll have lots to discuss at that time. Thanks and have a great day.