Monitoring and Measuring Our Performance

PG&E continuously seeks ways to reduce its environmental footprint. Through our policies, management systems, review processes and programs we ensure that our operations first meet all applicable environmental requirements; we then seek to elevate our performance above and beyond the legal and regulatory requirements.

Revising our Environmental Policy and Governance Structure to Ensure All Employees Understand Their Contribution and Its Importance

Our experience shows that striving to outperform and advancing innovative processes and ideas year after year not only improves performance but also strengthens our position within our industry by driving positive change and efficiency.

Environmental Management Systems

We took steps in 2006 to further develop and enhance our environmental management system (EMS), which is a comprehensive, systematic approach to managing our impacts on the environment and reducing potential environmental risks. Our EMS is the system that provides the mechanism to implement our Environmental Policy. Our EMS is a framework that defines how we:

Develop strategic plans and programs;

Establish corporate objectives and targets;

Institute operational controls and train employees;

Assign accountability and track performance;

Increase employee and public awareness of environmental activities;

Engage management in all aspects of our environmental performance; and

Implement sustainable continuous improvement processes.

We obtained third-party verification in 2006 that our EMS framework is ISO-14001 compliant. To further strengthen our program, we:

Applied a rigorous risk-management process to our program to identify and mitigate any significant risks and prioritize them among all company risks;

Developed draft Environmental Management Plans to address environmental risks from a programmatic level;

Obtained concurrence from line-of-business partners to set aggressive targets and objectives that reduce environmental risks; and

Implemented an Environmental Scorecard to raise environmental awareness and accountability.

We will refine and implement our Environmental Management Plans in 2007. These plans address existing and proposed legal and regulatory changes, resource planning, compliance issues, management strategies, overall accountability and other issues. In addition, they specify key actions required to improve or sustain performance. Metrics from these plans will be reported to senior management on a regular basis.

E-Screen

PG&E rolled out a new procedure called "Environmental Screening and Best Management Practices" in 2006. Otherwise known as "E-Screen," these tools will help ensure that maintenance and construction activities receive the appropriate environmental reviews to protect the environment and mitigate potential environmental risks. Key milestones in 2006 included training 4,500 construction-related employees and 1,650 employees with engineering, design and project management duties. Together, the E-Screen tools will help PG&E reduce the risk of noncompliance with environmental laws and regulations, minimize work stoppages or re-work, improve job scheduling and budgeting, and improve relations with neighbors, customers and regulators. Moving forward, we will continue to further integrate E-Screen into the company's work management processes.

Auditing Our Performance

Our environmental policy requires that we develop and implement a risk-based audit plan to ensure periodic independent review of all aspects of our environmental performance.

We performed 59 formal audits in 2006 to assess compliance of our facilities, operations and vendors with regulatory standards for air and water quality; management of polychlorinated biphenyls (PCBs), hazardous materials, and hazardous waste; and protection of endangered species. All audit findings were reported to the applicable operations officer and were required to be corrected in a timely manner. The program also utilized a cross-business unit, officer-appointed steering committee to review annual audit plans and enhance program processes and communication.

In addition to the formal audits discussed above, PG&E environmental personnel conducted 1,868 compliance assessments, which provided valuable information to operations employees that allow process changes to be identified to prevent compliance issues.

Operational Performance

PG&E's environmental policy requires that we track and report annual environmental performance across a broad spectrum of areas. This section details our performance results for 2006.

Reported Releases and Permit Exceedances

The Utility reported to various government agencies a total of 324 releases to the environment and/or permit exceedances, an 18 percent increase from 2005. The increase is attributable, in part, to a major heat storm during July and August. Our crews and outside contractors respond to all spills—even those with only trace amounts of material—and perform cleanup and reporting in accordance with all applicable laws and regulations. The majority of the releases were minor, involving small amounts of material, and more than half were either weather-related or caused by third-party accidents.

Agency Inspections

Government agencies conducted 517 routine inspections of the Utility's facilities in 2006, up from 513 inspections in 2005. Certified uniform program agencies—such as environmental health departments and fire departments—performed the majority of the inspections and are generally responsible for enforcing hazardous waste and hazardous materials requirements.

Enforcement Actions—Notices of Violation (NOVs)

The Utility received a total of eight NOVs from government agencies during 2006, a decrease from nine NOVs received in 2005. The rate of NOVs in 2006 continued a downward trend, as well. There were 1.55 NOVs per 100 agency inspections in 2006, compared to a three-year average of 1.83.

Of the eight NOVs received during 2006, four involved air quality regulations. One NOV was issued for not complying with air district permit conditions by exceeding daily average particulate matter limits at a site remediation project. Another involved incomplete records retention for the California Air Resources Board's Smoke Check Program for heavy-duty diesel vehicles. The third air-related NOV was for improper maintenance of a hose at a fueling station. And an NOV was received for exceeding air emissions limits during a source test at PG&E's Hinkley Compressor Station.

Three NOVs involved water quality regulations, including one issued by a local environmental health department for failure to prevent a hazardous waste release. A small amount of diesel fuel from an above-ground storage tank leaked into concrete containment, which failed to contain the fuel due to recent rain and possible fractures of the secondary containment. An NOV was issued by a Regional Water Quality Control Board when an annual certification of a storm water pollution prevention plan for a substation construction project was not submitted in a timely manner. And an NOV was received for late submittal of a progress report for a remediation pilot program at the Hinkley Compressor Station.

The Utility also received an NOV for a minor hazardous waste record-keeping issue at our Diablo Canyon Power Plant.

2006 Enforcement Penalties and Settlements

In 2006, the Utility received a total of one NOV resulting in monetary penalties and paid penalties on three other NOVs received in 2005. The penalties totaled $6,800 and all involved air quality regulations. The penalties were $1,000 for exceeding an emissions limit during a source test, $1,000 for failure to properly cover a contaminated soil pile and two separate fines of $2,400 for not submitting Emission Control Plans by the due date.

In response, PG&E swiftly resolved all of these issues by taking appropriate corrective actions and is developing processes to help prevent a future recurrence.