To Our Stakeholders:

Achieving PG&E's vision to become the leading utility in the United States hinges on many factors. But at or near the top of the list will always be our ability to set an example in all facets of corporate responsibility.


Peter A. Darbee

Our performance on corporate responsibility tells stakeholders as much as any balance sheet or income statement about the state of the company and its long-term prospects. Maybe more.

Simply put: Corporate responsibility is an essential barometer of the current and future overall health of our company.

If we are not exacting on safety or environmental compliance or corporate governance, chances are we are not applying the rigor and discipline it takes to perform with excellence in other business operations. If we are failing to discern the right trends when it comes to clean energy or shifts in workforce demographics, we are probably missing other critical strategic issues as well. If we are disengaged from our employees or local communities, it calls into question the quality of our relationships with other key stakeholders.

On the other hand, doing these things well is one of the strongest signs that we are running the business in a way that preserves and builds value on a sustainable basis.

Our report this year again shares some of the many different ways we are planning and acting, nationally and locally, to fulfill our responsibilities to stakeholders and help take care of the world around us.

This starts with our 15 million customers, 20,000 employees, investors, regulators, partners and communities within California. It ultimately extends to everyone who shares PG&E's interest in ensuring a clean, cost-effective and secure energy future for our local, state and national economies.

This challenge has faced us throughout our more than 100-year history. But at no time has it ever been more complex—or more important to defining our success in the eyes of customers and other stakeholders.

As aggressively as we are working to find responsible solutions and create value amid today's many competing business pressures, we will never succeed alone. That's why we strive to cultivate and sustain effective working relationships with a broad universe of partners who are as committed as we are to making a difference.

For example, in the fight to address global warming, we are joining with other leading companies and national environmental organizations to drive action by the federal government.

Last year, as a founding member of the United States Climate Action Partnership, we continued to work closely with policymakers to advocate mandatory, market-based programs to reduce the nation's greenhouse gas emissions. We also continued to work with Ceres, the Clean Energy Group, and 3C, an international business group focused on climate issues.

In the effort to reduce our own environmental footprint, we continue to be a leader in clean energy. On average, more than 50 percent of the electricity we deliver to customers today comes from sources that emit no greenhouse gases. Though we are already significantly cleaner than the average U.S. utility, we are working to make future supplies even cleaner. Last year we signed contracts to add more than 1,000 megawatts of renewable energy to our portfolio, including some of the country's largest solar energy projects.

We've also continued to show leadership in energy efficiency programs. Since the 1970s, we've helped customers save about $22 billion and kept approximately 135 million tons of carbon dioxide out of our skies. Last year we extended this track record by working to meet aggressive new targets for electricity and natural gas savings.

We continue to see opportunities to have an even greater impact in the future by working more closely with technology developers, driving higher efficiency standards, and enrolling customers in the ClimateSmart™ program—an innovative, voluntary option to balance out the carbon footprint from their energy use.

In all we do, it is critical that we stay closely connected with our communities. We recognize that with our special charter to serve northern and central California also comes a major responsibility to give back to our communities.

That's why we contributed a record $18.3 million last year, all from shareholder funds, to charitable organizations. That's why we partnered with Habitat for Humanity to install solar systems on homes it built last year in northern and central California. That's why we provided free solar installations to 40 underserved schools and trained 1,200 teachers to deliver a solar sciences curriculum to their students. And that's why we actively worked to do more business with women, minority and service-disabled-veteran-owned companies in our communities, once again meeting our supplier-diversity spending goals.

Perhaps even more important is that our individual employees embrace and exemplify our commitment to the community. Last year, through nearly 300 company-organized events and their own community efforts, PG&E employees and retirees spent a record 107,000 hours serving their communities, a 20 percent increase over 2006.

Our 20,000 employees will always be PG&E's greatest asset. Today, one of the most important challenges our industry faces is the need to prepare a new generation of workers to follow the large number of utility personnel who are nearing retirement age. We are focused on addressing this need by recruiting and training a highly diverse workforce at all levels of our company.

As proud as we are of many accolades we have received for the diversity in our company, we see opportunities to do better, especially within the ranks of our leadership. Indeed, this is essential to our efforts to better understand and meet the needs of our customers and engage with our communities over the long term.

If people are our most important asset, then we also believe safety must be our most important value, as well as a key measure of corporate responsibility.

Last year, the company's safety performance improved, extending a positive trend from the previous year. In fact, on three key metrics we achieved our best performance ever. That said, we remain unsatisfied with our overall safety performance relative to others in the industry.

Earlier this year, the loss of a PG&E lineman on the job was a stark and saddening reminder that we must continue to focus on instilling a stronger safety culture within PG&E. I and our entire leadership team are committed to this critical objective. It is the right thing for our employees—and the right thing for our business.

Lastly, a note of appreciation and an invitation to our stakeholders.

This document owes much to them. What began years ago as a report card just on our environmental performance now covers a broad range of issues. It does so with a level of detail and transparency that would have been unimaginable 10 years ago, owing in great measure to good guidance from outside stakeholders. In particular, we are grateful to the independent Ceres stakeholder team who helped shape the content and approach in this year's report. Their input has been invaluable.

Which brings me to our invitation.

We need your engagement and feedback in order to continue improving our reporting. Please let us know what you think of this document and our overall performance.

In the meantime, we commit to continue striving to excel where we are strong and to redouble our efforts to elevate our performance where we see opportunities to improve. Thank you for your ongoing support for these efforts at PG&E.

Sincerely,

Peter A. Darbee

Peter A. Darbee

Chairman of the Board, CEO and President,
PG&E Corporation