2008 Corporate Responsibility Report

How we are creating a smarter foundation for a sustainable future

Industry-Wide Challenges

Photo: Lewis Stewart

By implementing aggressive but cost-effective energy efficiency practices, the United States can reduce carbon dioxide emissions from buildings by 35 percent from projected levels in 2050, according to the Alliance to Save Energy.

Achieving our vision depends on setting clear direction, adhering to our values and managing the business sustainably amid a multitude of ever-evolving, real-world challenges.

Along the way, we, like every large company today, inevitably encounter tough choices. We have to assess and adjust priorities. We have to balance competing or conflicting stakeholder interests. We have to consider trade-offs between immediate versus long-term objectives. We have to acknowledge and work within the practical boundaries imposed by time, economics, technology, government, human resources or other factors.

One important window into a company’s corporate responsibility performance is the way it resolves the tensions that arise as these challenges converge. As a result, we believe it is valuable to provide insight into some of the most significant challenges we face. By doing so, we hope to give stakeholders a clearer lens through which to understand and evaluate PG&E’s overall performance.

While this section focuses on industry-wide challenges, it is important to acknowledge that we also face a number of challenges more specific to PG&E. Two of the most significant are improving safety in our workplace and improving the reliability of our service. In both areas, we made significant strides last year, improving key standard performance statistics. Yet the need to continue doing better is urgent.

We know from benchmarking that other companies in the industry are performing significantly ahead of us. Closing these gaps is requiring us to reexamine and revamp various operational procedures and policies. This was a major priority in 2008, and it remains so in 2009. Ultimately, we recognize that success is essential to achieving our vision of being the leading utility.

Assisting Customers Through the Economic Crisis

Last year, the U.S. economy fell into its deepest recession since World War II, with particularly severe impacts on California. Our home state faces unemployment and home foreclosure rates that are among the highest in the nation. Indeed, the number of customers falling behind on their energy bills has increased significantly over the prior year. As a result, our customers and communities are increasingly looking to PG&E for assistance.

PG&E is focusing aggressively on managing costs, increasing its energy efficiency assistance, offering customers more flexibility and extending financial help to those in need. Through long-standing financial assistance programs, such as CARE, REACH and Energy Partners, PG&E is providing income-qualified customers with a variety of services to help them meet their energy needs.

We are also planning a major expansion of our low-income programs over the next three years. And we have maintained our 2009 charitable-contributions budget at the same level as last year, recognizing that these resources are needed more than ever.

Importantly, the crisis has put a sharp focus on the need for longer-term action on energy issues. New leadership in the White House and Congress has made investments in energy infrastructure, clean technologies and energy efficiency a centerpiece of their massive economic recovery efforts. These initiatives are well aligned with PG&E’s business direction and represent significant long-term benefits for customers.

Transitioning to a Low-Carbon Economy

Last year, scientists continued to report new signs that global climate change is occurring at rates faster and more dangerous than earlier forecasts predicted. We believe the link between man-made greenhouse gas emissions and global climate change is clear and convincing. In response, we believe it is critical that the United States take serious steps to rein in greenhouse gases and begin transitioning to a low-carbon economy.

Today, the utility sector accounts for about 40 percent of U.S. greenhouse gas emissions. As a result, any climate action strategy will necessarily entail significant changes for our industry. This includes PG&E, even though our emissions are already among the lowest in the sector.

Most important, we believe it is essential to put a price on carbon emissions, while also taking steps to protect consumers against higher costs and advance the development and deployment of cleaner, more efficient technologies. Toward that end, PG&E, as a member of the United States Climate Action Partnership (USCAP), helped launch a comprehensive Blueprint for Legislative Action on climate change in early 2009. The centerpiece of this proposal is the establishment of an economy-wide cap-and-trade program to reduce greenhouse gas emissions.

Working through coalitions such as USCAP, we also continue to aggressively promote energy efficiency as a frontline response to addressing global warming. In fact, we believe that being more energy efficient and energy independent, while advancing technologies that will be needed around the world, is not only achievable, but also imperative if we are to successfully address global warming and have the United States regain its leadership position in the international community.

PG&E is also carefully studying the projected impacts of climate change on our business as part of a broader risk management effort to develop climate change adaptation and mitigation plans. These plans include exploring operational changes within our hydroelectric system to mitigate possible negative consequences and engaging with key stakeholders, such as the California Resources Agency, on the state’s climate adaptation strategy.

Expanding Supplies of Renewable Energy

More than half of the states, including California, have adopted formal renewable energy targets. Raising the bar, California’s governor signed an executive order last year to boost the state’s renewable energy standard to 33 percent by 2020—by far the most ambitious target in the nation.

Despite these aggressive efforts, key challenges must be overcome in order to successfully position renewables as a mainstream energy resource.

For example, with the economic downturn, many renewable energy companies are having difficulty accessing the capital they need to finance projects, and developers are facing slowed or halted expansion. PG&E has remained focused on speeding the delivery of renewable energy to our customers, both through contracts with third parties and by pursuing company-owned renewable generation. In fact, PG&E recently announced a major plan for up to 250 megawatts (MW) of utility-owned solar generation.

Another major challenge is the need for robust and extensive improvements and additions to the nation’s electric transmission infrastructure to deliver the electricity generated by new renewable energy facilities, often in remote locations, to population centers. PG&E is working collaboratively at the state, regional and national levels to advocate for the timely construction of transmission lines and permitting of project sites.

Additionally, we need to continue to support advancements in technology to generate, store and transmit clean energy. We are committed to exploring new and existing technologies to meet the state’s objectives and to bringing increasing amounts of clean, renewable energy to our customers.

Making the grid smarter with modern control technology could reduce electricity consumption by up to 10 percent and carbon dioxide emissions by up to 25 percent, according to the Electric Power Research Institute. Photo courtesy of Iberdrola Renewables

Addressing State and Regional Water Shortages

Water scarcity is one of the most complex and pressing issues facing the western United States and has become even more acute recently. California is expected to suffer its third straight year of drought in 2009, leading to restrictions on local water use, rising water bills and economic losses that could rise to $3 billion. We are also seeing increased wildfires and diminished hydroelectric power generation.

To help protect California’s vital water supply system, Governor Schwarzenegger proposed a plan to achieve a 20 percent reduction in statewide per capita water use by 2020. In an effort to do our part, PG&E is implementing a variety of water conservation practices in our facilities, exploring alternative cooling systems in new power plant designs and partnering with our customers and local water agencies.

Additionally, we see promising potential in the link between saving energy and reducing water usage. We are now working with some customers to explore these benefits. Every gallon conserved through an industrial process improvement presents an opportunity to save energy through a reduction of water pumped, water heated and water treated prior to discharge.

Investing in Our Nation’s Energy Infrastructure

The nation’s energy delivery infrastructure of pipes, wires and equipment continues to age faster than replacement efforts—creating an extraordinary opportunity for green job creation to support a smarter, more rapid investment in alternative energy infrastructure and deployment.

According to a recent report commissioned by The Edison Foundation, the electric-power industry will need to invest $298 billion in the nation’s transmission system from 2010 to 2030 to maintain reliable service. And new technologies—from automated home appliances to plug-in hybrid electric vehicles—will dramatically change how utilities deliver electricity and how customers use it.

PG&E is pursuing one of the industry’s most extensive infrastructure investment plans. Last year, despite tight credit markets, we successfully secured more than $2 billion in financing to support this effort. We have also presented regulators with designs for a large set of strategic, integrated investments in new equipment and technology to strengthen reliability over the next six years.

We are also laying the foundation for a smart grid, with the nation’s largest deployment of smart meters. We put in approximately 1.4 million high-tech gas and electric meters in 2008, 1.3 million of which were being remotely read and billed by year’s end. We remain focused on allowing our customers to make intelligent decisions with their energy use and providing energy more cost-effectively.

Satisfying Demand for Natural Gas

We continue to see growing demand for natural gas nationally, driven in large part by the increasing use of natural gas for power generation. In light of concerns over greenhouse gases and an uncertain regulatory climate, power generators are turning away from coal for new power generation, resulting in even greater reliance on gas-fired generation as one likely alternative to coal.

Together, these developments create potential for increasingly constrained gas supplies and higher prices for customers in the future. PG&E is working to both increase supplies and manage demand to help mitigate this prospect.

For example, we continue to support technologies to create utility-scale supplies of renewable natural gas from biogas sources, such as California dairy farms. We are also exploring investments to bring gas into California from other regions. These include a pipeline project in Oregon that would interconnect gas markets in California and the Pacific Northwest with proposed facilities to import liquefied natural gas from overseas. Additionally, PG&E has signed transportation contracts with the planned Ruby Pipeline project that would deliver natural gas to California from the Rocky Mountains, one of the lowest-cost sources of natural gas in the United States.

Planning for the Skilled Workforce Our Industry Needs

Electric and natural gas utilities are facing worker shortages earlier than most other segments of the economy. At PG&E, roughly 42 percent of our employees will be eligible for retirement in the next five years. Many factors influence an individual’s decision to retire, including the health of the economy. Nevertheless, PG&E expects to replace a large portion of our workforce in the near future and is striving to build a workforce that better reflects the communities we serve.

Like other utilities, we have a diverse array of jobs—there is no one set of skills that can meet all of our hiring needs. Additionally, many utility jobs require specific technical skills that take time to develop, and the demand for these skills will only increase as PG&E invests more heavily in infrastructure upgrades.

Yet California schools are not graduating enough workers with the skills needed to fill our expected gap. In 2025, the state is projected to have one million fewer college graduates than it needs—only 35 percent of working-age adults will have a college degree in an economy that will require 41 percent.

To help address this gap, PG&E supports various educational programs designed to reduce dropout rates, especially among low-income and minority students, and to increase minority undergraduate enrollment at University of California campuses. In addition, PG&E’s PowerPathway™ program is partnering with California community colleges, government, labor, foundations and other community-based organizations to prepare individuals for energy sector positions specific to PG&E’s hiring needs.