In an attempt to understand the process of electrical conduction in polyacrylonitrile (PAN)-based carbon fibers, calculations were carried out on cluster models of the fiber consisting of carbon, nitrogen, and hydrogen atoms, using the modified intermediate neglect of differential overlap (MINDO) molecular orbital (MO) method. The models were developed based on the assumption that PAN carbon fibers obtained with heat treatment temperatures (HTT) below 1000 °C retain nitrogen in a graphite-like lattice. For clusters modeling an “edge” nitrogen site, analysis of the occupied MO's indicated an electron distribution similar to that of graphite. A similar analysis for the somewhat less stable “interior” nitrogen site revealed a partially localized π electron distribution around the nitrogen atom. The differences in bonding trends and structural stability between edge and interior nitrogen clusters led to a two-step process proposed for nitrogen evolution with increasing HTT.