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Establishing Priorities to Transform Our Business and Achieve Our Vision

  Establishing a clear set of priorities is paramount to achieving our vision of
becoming the leading utility in the United States. Employees must have a solid
understanding of what is expected of them and how what they are doing supports the company's overall efforts. At the same time, our shareholders, our regulators and our customers must understand and support the steps the company is taking to better provide our products and services and position us well for the future. The priorities PG&E established for 2006 were shared broadly and tie directly to our goals of delighting our customers, rewarding our shareholders and energizing our employees.

For 2006, our priorities included:

Advance business and culture transformation. Moving transformation ahead is essential for PG&E to successfully achieve its vision.
By the end of 2006, more than 40 transformation initiatives were fully or partially deployed; they achieved approximately $175 million in savings during 2006.
These initiatives included opening all seven new Resource Management Centers and centralizing and streamlining work previously done in 70 different locations.
We also implemented our PG&E Tomorrow program, which brought management into the field to meet employees and talk about our transformation initiatives; more than 18,000 of our approximately 20,000 employees have now had the opportunity to visit with management.

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Provide attractive shareholder returns. A utility whose finances are healthy and sound, and is meeting—or exceeding—shareholder expectations is in the best position to do the right things for its customers, its communities and society as a whole.
In 2006, PG&E Corporation exceeded its earnings per share estimate. Earnings per share from operations for 2006 grew by nearly 10 percent compared with 2005. This surpassed our projected growth rate of 7.5 percent. We expect to continue growing earnings on a trajectory that is one of the strongest among comparable utilities.
PG&E's strategy and outlook continue to resonate with the market. Our stock price ended 2006 just below the all-time peak it hit in December. For shareholders, the growth in stock price, plus four quarters of steady common dividend, added up to a total annual return of approximately 31 percent. PG&E's returns beat the S&P 500, the S&P Electrics, and the S&P Multi Utility Index.

Innovative Partnerships With the High-Tech Industry

Increase investment in utility infrastructure. Similar to many utilities, PG&E is making major capital additions to its infrastructure in order to support growth and improve existing service. This benefits the homes and businesses we serve. It also provides corresponding opportunities for shareholders to earn additional returns. And it allows us to transform our system to one which will be able to support, leverage and provide the advanced energy solutions necessary to create a sustainable energy future.
In 2006, infrastructure investments in electric and gas distribution and transmission and electric generation totaled $2.4 billion, up from $1.9 billion in 2005.
We have received regulatory approval for revenues that will support ongoing capital investments averaging $2.8 billion annually between 2007 and 2011; in 2008 and 2009, this figure is expected to rise to more than $3 billion annually.
We have also received regulatory approval for a total capital investment of $1.4 billion between 2006 and 2010; this capital will support our SmartMeter™ initiative, and we have already begun deploying these funds. These meters will help to facilitate demand response, the next generation of "smart" end use technologies, and plug-in hybrid electric vehicles.
Finally, we have received regulatory approval for a total capital investment of $1.3 billion between 2009 and 2010; this capital will be used to construct new PG&E-owned electric-generating facilities, which will use some of the most advanced and efficient technologies available.

Making Energy Bill Payment Fast, Easy, and More Resource-Efficient

Implement an energy procurement plan. Rejuvenating California's energy supply and infrastructure is one business driver. Another is laying the groundwork for a sustainable energy future that reduces the overall carbon intensity of our economy and ensures a diversity of reliable and affordable energy choices.
PG&E's energy procurement efforts are modeled on California's Energy Action Plan, which prioritizes energy efficiency and demand response, renewable generation, and low-emitting conventional energy resources. We are leveraging smart, sustainable resource planning to facilitate the development and deployment of cleaner, more efficient technologies.
In 2006, more than 50 percent of the electricity we delivered to our customers came from resources that produce no or low amounts of greenhouse gas emissions.
We exceeded the aggressive energy-efficiency targets established by the California Public Utilities Commission, avoiding the need to secure an additional 142 MW of peak power for our customers. And our electric and natural gas customer energy-efficiency savings for 2006 prevented the release of 489,000 tons of carbon dioxide (CO2) into the atmosphere.
We also signed more than a dozen contracts for new supplies of California-eligible renewable generation, with the potential to provide more than 500 MW of capacity fueled by biomass, geothermal, biogas and other renewable resources.

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