2008 Corporate Responsibility Report

How we are creating a smarter foundation for a sustainable future

To Our Stakeholders:

PG&E’s commitment to corporate responsibility has never been more tightly interwoven with our near- and long-term prospects for success.

Our customers, our partners in the community and many of our other stakeholders are grappling with unprecedented pressures due to the economy. More than ever, they are counting on PG&E, not just to deliver essential services, but also to be a steady source of support and a provider of that most valuable of all commodities today, opportunity.

At the same time, they also understand that beyond the need to ease immediate hardships, the crisis of the past year is also summoning us to head in new directions and build the foundations for a more sustainable future. Momentum is gathering today behind the push for bold changes in areas ranging from energy and environmental policy to healthcare reform and new market oversight and corporate governance standards.

We believe our stakeholders are looking to companies like PG&E to step forward, engage collaboratively and constructively, and help the collective effort to forge the solutions to these challenges.

We embrace this call to action, because our vision and values tell us it is the right thing to do, and because we believe it is the best way for us to ensure PG&E’s long-term ability to create value for all of its stakeholders.

Equally important, it is our obligation to do so. Our special charter as a sole provider of utility services is a privilege. We believe it comes with unique responsibilities to give back to the people we serve. It also demands a readiness to be held to high expectations when it comes to doing business responsibly.

Our report this year again provides a wealth of examples of many of the ways in which PG&E and its 20,000 employees are working to meet our responsibilities and realize the greatest opportunities on behalf of our stakeholders.

We take great pride in the many accomplishments from the past year. But we also will be the first to point out that many of our successes are shared, the result of collaborative work with partners who are as committed and passionate as we are. Wherever possible, we seek such partners because the most significant challenges we face are rarely those that any single organization can solve alone.

Last year, for example, we continued to be an active participant in the U.S. Climate Action Partnership. This broad coalition of companies and environmental groups, of which PG&E is a founding member, is now helping to drive national climate change legislation, based on our consensus blueprint for a cap-and-trade program that lowers greenhouse gas emissions while protecting consumers and the economy.

We also partnered with our customers to achieve landmark energy efficiency savings. PG&E’s 2006–2008 energy efficiency programs set a new standard for success. Along the way, we won almost 50 energy efficiency awards, including two ENERGY STAR® awards in 2008.

These initiatives enabled customers to save enough energy to power almost 800,000 homes and enough natural gas to heat another 145,000 for an entire year. Just as critical, the greenhouse gases avoided were equal to taking 476,000 cars off the road for one year. The climate change benefits of energy efficiency are one reason that a top priority for us nationally is encouraging the broader adoption of efficiency programs and standards in other regions of the country.

In addition to using less energy, we must work to bring cleaner energy sources online as well. PG&E’s renewable energy commitments grew last year. New additions included some of the largest ever commitments for utility-scale solar power. In the future, these resources will continue to drive down PG&E’s carbon footprint, which is already one of the lowest among large utilities.

We also continued to help our customers achieve their renewable energy goals. Last year, we added PG&E’s 25,000th solar customer to the grid. In fact, a recent survey showed that PG&E leads the nation in the number of solar customers and in 2008 alone accounted for nearly half of the nation’s total increase in solar connections.

As the examples in our report show, we are applying this same innovation and commitment in other important areas, including helping customers reduce their carbon footprint through our pioneering ClimateSmart™ program and improving our environmental performance through habitat and endangered species protection, land stewardship and operating one of the nation’s largest fleets of clean-fuel vehicles.

These efforts all support the goal we formally adopted earlier this year to be an environmental leader. While we have long been in the forefront on many facets of environmental leadership, elevating it to one of our highest priorities sends a clear signal that we view this as a defining factor in PG&E’s success and an indispensable part of our vision to be the leading utility.

Also critical will always be our engagement with our customers and communities.

As they confront tremendous economic challenges, we are strengthening our outreach, continuing to work with partners such as Habitat for Humanity and local food banks. Another way we are working to help is by enrolling more of our neediest customers in critical financial assistance programs. Our supplier diversity initiatives are also contributing, helping to support many small and medium-sized businesses. In fact, PG&E achieved its highest ever level of diverse spending in 2008.

PG&E’s charitable giving also reached new levels last year. Shareholder-funded charitable contributions were their highest in the company’s history. These were complemented by the record donations our employees gave to support more than 4,000 schools and non-profits through PG&E’s annual Campaign for the Community.

This spirit of service has also been reflected in our employees’ commitment to donating their time to volunteer work. Last year, they gave a record number of hours at company-sponsored opportunities to support various causes in our communities.

Another way we are working to help our communities is through collaborative job training initiatives. We strive for a workforce that reflects the diverse communities we serve. To help achieve this, our PowerPathway™ program and other initiatives are tapping into our communities and helping to create a pipeline of job candidates with the qualifications to work in the energy industry. These efforts are also critical to PG&E’s future, as more than 40 percent of our workforce will become eligible to retire in the next five years.

Just as critical as bringing new talent to PG&E is ensuring that we are retaining and growing our existing employees. This is one reason we have put a substantially increased focus on enhancing our training and professional development initiatives.

But even more essential, this emphasis on training also supports our most important priority as a company: Ensuring the safety of our employees and the public.

Within our operations, we have significantly increased efforts to improve safety performance. As a result, lost workdays, OSHA recordables and motor vehicle incidents all came down significantly in 2008.

But regrettably, this progress was overshadowed. We again experienced the loss of life within our ranks, as well as a number of serious injuries. A tragic accident involving a natural gas home explosion last year also served as a sad reminder of the potential stakes we face when working with gas and electricity.

In 2009, we are intensifying our focus on safety again. We are encouraged by the continued progress to date. However, our goal is zero injuries. While we will not achieve it overnight, we do believe it is achievable over time, and we will not be satisfied until we are there.

Safety is perhaps the most important example of areas in which we know we have to seek stronger results. There are, of course, others as well. For example, we believe we can improve the diversity within our workforce, especially among our leadership ranks. We are also striving to elevate our performance on basic environmental compliance within our operations. As in prior years, this report is as much an opportunity for us to openly and honestly assess these and other areas in which we need to continue working as it is to highlight accomplishments.

Once again, we invite—in fact, we encourage—you to share your thoughts on our report and our performance. Open dialogue is a core part of our culture at PG&E, both within the company and with our stakeholders. We always welcome it.

With that in mind, it is appropriate to close with a word of appreciation.

As we noted last year, this document continues to evolve. What began years ago as a slender update on environmental compliance has matured into a report that covers a broad range of issues with a new level of depth and transparency. We owe much of this progress to good guidance from outside stakeholders. In particular, we appreciate the invaluable input of the independent Ceres stakeholder team who again helped shape this year’s report.

They—and all of our stakeholders—have our sincere commitment to continue striving to excel in those areas where we are strong and to redouble our efforts to elevate our performance in those areas where we see opportunities to improve. In the meantime, thank you for your ongoing interest in PG&E and your support.

Sincerely,

Peter A. Darbee
Chairman of the Board, CEO and President,
PG&E Corporation

Peter A. Darbee

Peter A. Darbee