As a provider of electricity and natural gas to approximately 40 percent of Californians and one in 20 Americans, we recognize that the way we produce and deliver our products and serve our customers has a direct impact on the environment. A healthy environment is necessary for the well-being and vitality of our customers, employees and the communities we serve—as well as society at large. That is why our environmental commitment extends beyond compliance; it requires that we raise the bar for ourselves and that we work with others to do the same. With this challenge comes many exciting opportunities, including further securing America's long-term economic prosperity, reducing our dependence on unstable parts of the world and fostering innovative new technologies.

Putting Efficiency First

Using energy more efficiently is the fastest, most cost-effective way to reduce greenhouse gas emissions. And, in 2006, PG&E celebrated our 30th anniversary of helping customers and communities do just that, saving them money at the same time. Over this time period, PG&E's customer energy-efficiency efforts, both electric and natural gas, have achieved significant cumulative lifecycle energy and cost savings, on the order of $9 billion, and prevented approximately 125 million tons of carbon dioxide (CO₂) from entering the atmosphere.

1 We expect to meet approximately half our demand growth through Customer Energy Efficiency.
2 Our Customer Energy Efficiency programs and other efforts have helped keep California's per capita electric consumption essentially flat for 30 years, while per capita electric consumption nationally increased 50 percent.

In 2006, we also began a new chapter by launching a $1 billion commitment that will extend until 2008—the largest energy-efficiency effort of its kind by a U.S. utility company. We were spurred by the CPUC, which challenged PG&E to reach record-high energy savings targets for this ambitious customer program.

Bringing Energy-Efficient Technologies to Market

To meet the aggressive 2006-2008 targets, PG&E undertook a new, forward-thinking business model that focused squarely on the customer experience. Our approach employs a strategy successfully used by financial planners as they work to understand their clients' individual financial goals, resources, needs and limitations.

Using an integrated portfolio strategy, PG&E worked with our customers and partners to not only meet but exceed the aggressive 2006 energy savings targets agreed upon with the CPUC. Targeting customers in naturally occurring market segments is a key element of the strategy.

2006 Energy Efficiency Portfolio Savings

	2005	2006	2006	2006
	Actual Savings	Goal	Actual Savings¹	% of Goal
Megawatts	115	132	142	107
Gigawatt Hours	459	677	777	115
Million Therms	5.6	10.16	10.69	105

1 PG&E's actual energy savings are on file with the CPUC in our Dec. 2006 Monthly Report (Revised March 2007).

PG&E's energy-efficiency portfolio mix includes a diverse array of rebate programs, financial incentives, training and education, emerging technology projects, development and advocacy of codes and standards for buildings and appliances, marketing and outreach, and program evaluation activities. This allows PG&E to reach customers in many ways—through rebates on purchases of energy-efficient appliances as well as through partnerships that focus on providing specific energy-efficiency services to targeted customers.

We are working through our Pacific Energy Center in San Francisco, Energy Training Center in Stockton, and Food Service Technology Center in San Ramon to promote new technologies and educate our customers on the latest energy efficiency options.

Highlights from 2006 included:

Making the connection between energy efficiency and climate change through the Sonoma County Energy Watch Partnership, one of 22 innovative partnerships with local governments and state entities throughout our service area. The goal of the Partnership is to realize significant energy savings by leveraging Sonoma's ambitious commitment to reduce greenhouse gas emissions throughout the county.

Working directly with manufacturers and retailers to promote and increase sales of ENERGY STAR® qualified compact fluorescent lamps, which use 66 percent less energy than traditional incandescent lamps.

Joining 15 other California electric and gas utilities, state policymakers, and key stakeholders in support of the National Action Plan for Energy Efficiency. If implemented, the plan's recommendations could help avoid greenhouse gas emissions equivalent to over 35 million vehicles.

Contributing $500,000 in shareholder funding to a new Energy Efficiency Research Center at the University of California at Davis. (see this page for details)