Risk and Compliance
Management

The Chairman’s
Ethics Council is designed to help raise and address issues relating to business ethics and conduct at PG&E

Sustainability at PG&E relies on our ability to deliver safe, reliable and affordable gas and electric service to the millions of Californians who depend on us. In the course of our regular operations, certain risks such as seismic activity, wildfires and incidents where third-party workers “dig in” and damage buried natural gas pipelines have the potential to interfere with this ability. As a result, PG&E continues to refine its approach to managing risk and facilitating compliance with all applicable laws and regulations.

Our Approach

Risk and compliance at PG&E are managed on three levels:

Enterprise-Wide

PG&E focuses on monitoring and managing three broad categories of risk across the business:

  • Enterprise and Operational Risk. This encompasses risks that could have a potentially catastrophic impact on public and employee safety, reliability, customer trust or PG&E’s financial condition, as well as other risks that arise from our operations.
  • Compliance Risk. This includes all programs designed to help ensure that PG&E complies with both the spirit and the letter of all applicable legal and regulatory requirements.
  • Market and Credit Risk. This includes PG&E’s exposure to risks associated with PG&E’s energy portfolio, including trading in energy commodities, financial hedging and counterparty risk.

Enterprise-wide Risk and Compliance teams, led by our Chief Risk and Audit Officer, are responsible for guiding the risk management process, including incorporating risk management into PG&E’s strategic planning process. On an annual basis, PG&E’s senior executives from every line of business hold a one-day discussion to review and assess our plans to manage risk and compliance. This meeting sets up the foundation for PG&E’s structured strategy and resource allocation discussions. Further, the PG&E Internal Auditing department provides independent objective verification regarding the adequacy of processes and controls to manage business risk, and provides control advisory services throughout PG&E.

These enterprise-wide teams also oversee the development and updating of PG&E’s codes of conduct for the following:

Further, PG&E has established a Chairman’s Ethics Council—comprised of management and union-represented employees at multiple levels—which helps raise and address issues relating to business ethics and conduct at PG&E. The Council meets several times throughout the year, including one meeting that is open to all employees.

Lines of Business

Each line of business within PG&E has its own risk and compliance committee, which reviews all relevant risks, approves risk analyses and mitigation strategies, and tracks mitigation progress. Each committee is led by a senior officer and includes an expert risk manager and a Compliance Champion who helps establish appropriate compliance controls within the line of business.

Boards of Directors

The PG&E Corporation and Pacific Gas and Electric Company Boards and their committees have specific oversight responsibility for risk management in their respective areas:

Entity Risk Oversight Responsibilities
Boards
  • Evaluate risks associated with major investments and strategic initiatives (with assistance from the Finance Committee1)
  • Oversee the implementation and effectiveness of overall legal compliance and ethics programs (with assistance from the Audit Committees)
Audit Committees
  • Discuss the guidelines and policies that govern the processes for assessing and managing major risks
  • Allocate to other Board committees the specific responsibility to oversee identified enterprise risks
  • Consider risk issues associated with overall financial reporting and disclosure processes
  • Discuss programs to monitor compliance with laws, regulations, policies and programs
Finance Committee1
  • Discusses risk exposures related to energy procurement, including energy commodities and derivatives, and other enterprise risks, as assigned by the Audit Committees
Nuclear, Operations and Safety Committee1
  • Discusses risks related to the Utility’s nuclear, gas, electric and other operations and facilities
  • Oversees other enterprise risks, as assigned by the Audit Committees
Compensation Committee1
  • Oversees potential risks arising from the companies’ compensation policies and practices
1 Refers to committees of the PG&E Corporation Board of Directors.

For a full description of Board committee oversight responsibilities, please see PG&E Corporation’s and Pacific Gas and Electric Company’s 2014 Joint Proxy Statement.

2013 Milestones

In 2013, PG&E continued to strengthen its focus on risk-informed decision-making and appropriate training and controls to encourage compliance. Specific examples include:

“Running our business ethically is the foundation of the trust we want to build with our customers and all of our stakeholders. It’s critical to our way forward and the long-term success and sustainability of our company—which we all have a stake in.”

— Tony Earley, Chairman of the Board, Chief Executive Officer and President of PG&E Corporation

  • Introduced a risk and compliance session to our enterprise-wide strategic planning process. Broadly, this process enables PG&E to assess risks, set a strategy to address those risks and then allocate resources to successfully implement our strategy. Each line of business follows a rigorous process to assess the likelihood and impact of various enterprise, operational and compliance risks. The results of these assessments are calibrated across the enterprise, objectively applying the same criteria to all areas of operational focus. Final plans for each line of business include metrics to monitor compliance performance in an ongoing way, and top risks are assessed, managed and monitored. These plans form the basis of PG&E’s deployment of resources—leading to our ultimate goal of employing risk-informed budget allocation.
  • Laid groundwork for risk-informed decision-making within the regulatory process. PG&E’s Gas Transmission and Storage Rate Case, which was filed with the CPUC in 2013, first identifies key risks, then sets priorities to manage or mitigate these risks, and provides detailed revenue requirements to complete the work. In future years, we anticipate that PG&E’s other rate cases will follow a similar framework.
  • Updated our Codes of Conduct. We updated sections of our Employee Code of Conduct related to safety, records retention, confidential and customer-specific information, and political contributions and gifting. We expanded sections of our Supplier Code of Conduct related to the environment, health and safety, labor and human rights, and governance. We also included more objective measures for supplier performance. PG&E’s suppliers are required to comply with the code as part of their contract terms and conditions.

Measuring Progress

PG&E mandates annual compliance and ethics training for all employees, and requires that management employees annually certify that they have read, understand and will comply with our Employee Code of Conduct (union-represented employees receive electronic reminders or briefings from supervisors about the code).

In 2013, more than 99 percent of employees completed our annual compliance and ethics training, which is typically conducted in small groups to stimulate discussion and share experiences. (Each year, and for a variety of reasons, a statistically small number of PG&E’s employees are unable to attend a training session.) Supervisors also led conduct-related briefings with their work groups throughout the year.

Compliance and Conduct Training

We also continued to operate our Compliance and Ethics Helpline for employees. The volume of Helpline calls we received in 2013 was roughly 2.24 calls per 100 employees, falling within the normal range of 0.2 to 7.6 calls per 100 employees according to a benchmark report prepared by NAVEX Global. While we saw a call volume similar to prior years, we saw a 28 percent increase in calls requesting guidance. This indicates that more employees are turning to the Helpline for advice before taking actions that might be in conflict with PG&E’s policies and procedures or the law.

All-Employee Meeting with the Chairman’s Ethics Council

The Chairman’s Ethics Council is designed to help raise and address issues relating to business ethics and conduct at PG&E. According to leaders in the ethics field, the concept of inviting all employees to participate in a “real-time” ethics discussion is rare. In 2013, we doubled participation at the Council’s annual open meeting, indicating a high level of engagement with compliance and ethics issues among employees.

Looking Ahead

As we strengthen and refine our approach to risk and compliance management, we remain committed to operational excellence based on ethical and compliant work. We will drive continuous improvement by:

  • Further driving risk management into our operations;
  • Improving analytical rigor associated with the assessment and monitoring of risk within each business area;
  • Creating a strengthened governance process to oversee risk management activities and progress; and
  • Incorporating risk more fully into PG&E’s annual strategic planning process and future General Rate Case filings.

We are also increasing our communication efforts, including highlighting stories that show employees making the right decisions and finding new ways to promote the right behaviors. We will also pursue specific opportunities for continuous improvement, such as how we investigate allegations of compliance breaches.

Our Sustainability Journey

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