To:  OII Agreement Settling Parties

 Attached for your review and comment is a draft advice filing in
which PG&E proposes to reduce the in-kind shrinkage allowances for on-system
transmission and distribution service to the level proposed in PG&E's 2000
Biennial Cost Allocation Proceeding (BCAP).  PG&E's current adopted
shrinkage allowances require customers to deliver more in-kind shrinkage gas
than is actually needed on PG&E's pipeline system.  Reducing shrinkage
allowances to the proposed levels in PG&E's 2000 BCAP will more accurately
reflect currently projected customer usage.  PG&E is requesting your review
and support of this adjustment to shrinkage allowances.  October 1, 2000, is
the target implementation date.

 PG&E is continuing to study ways to better manage shrinkage on its
system. For this purpose, PG&E is examining the mechanisms used by other
pipelines.  If the Company determines that further proposals should be
implemented, such as a true-up mechanism to adjust for the over- and
under-collection of shrinkage that has occurred since the beginning of the
Gas Accord, or which may occur in the future, it may file for such proposals
through a separate mechanism.  As with this filing, PG&E will seek your
input prior to making any official advice filing.

 Please provide any comments on the attached no later than Friday,
July 7, 2000, to Ms. Cynthia Crane by e-mail at CMC5@PGE.com or in writing
to PG&E, Mail Code N15A, P.O. Box 770000, San Francisco, CA  94177.  If
comments are favorable, PG&E will file this advice filing the third week of
July with a proposed implementation date of October 1, 2000.  Please contact
Ms. Cynthia Crane at (415) 973-5809 if you have any questions.


 Sincerely,

 Dan Thomas
 Manager, California Gas Transmission


 <<ALShrinkage_LTR>>

 - ALShrinkage_LTR.doc