Corporate Governance

The policies and practices described in our Corporate Governance Guidelines demonstrate PG&E's commitment to good corporate governance practices. These practices provide a framework within which the Boards of Directors and management of PG&E Corporation and the Utility can pursue the companies' business objectives.

The foundation for these practices is the independence of the Boards and their fiduciary responsibility to the companies' shareholders. The companies' Corporate Governance Guidelines set forth a policy that 75 percent of the directors of each company should be independent, as defined in the Guidelines. As of April 2010, 10 out of 11 members of the PG&E Corporation Board were independent, and 10 out of 12 members of the Utility Board were independent.

Our Corporate Governance Guidelines are published annually in PG&E Corporation's and Pacific Gas and Electric Company's Joint Proxy Statement and are also posted at www.pgecorp.com, along with our Bylaws, Board Committee Charters, codes of conduct for directors and employees and the PG&E Corporation Disclosure and Guidance Policy.

In furtherance of our commitment to good corporate governance and accountability to shareholders, during the past year the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company took the following actions:

1. Amended each company's Corporate Governance Guidelines to: reassess the appropriateness of the Board leadership structure at least annually, require that the lead director have at least one year of experience as a director of the respective company's board and clarify the duties of the lead director role.
2. Adopted a policy that discontinues payments that were previously made to reimburse executives for the tax impact of receiving certain company-provided benefits.
3. Adopted an executive incentive compensation recoupment policy (or "clawback" policy). This policy authorizes recoupment of certain incentive compensation if either PG&E Corporation or Pacific Gas and Electric Company restates its financial statements that are filed with the SEC, and applies to incentive compensation paid with respect to any fiscal year within the three-year period preceding the filing of the restatement.

In addition, the Compensation Committee of the PG&E Corporation Board of Directors adopted a policy that now prohibits granting executives additional years of service under the Supplemental Executive Retirement Plan of PG&E Corporation, and a policy regarding the independence of the Compensation Committee's executive compensation consultant.

Beginning with the 2010 annual meetings, PG&E Corporation and the Utility will provide shareholders with the right to cast an advisory vote (or "say on pay") on the companies' executive compensation policies and practices and the executive compensation disclosed in the Joint Proxy Statement. In response to shareholders, the companies voluntarily agreed to provide such a vote in 2009.

Also in 2010, in accordance with amended SEC proxy disclosure requirements, PG&E Corporation and the Utility expanded their joint proxy disclosure on director qualifications, the companies' board leadership structures and the oversight role of the Boards with respect to risk management and other items.

The Boards of Directors of PG&E Corporation and the Utility are regularly engaged in pertinent governance matters, including those related to environmental performance, corporate responsibility and political activities. For example, the Public Policy Committee of the PG&E Corporation Board has specific oversight of many of the areas addressed in this Sustainability Report, including corporate philanthropy, community involvement, supplier diversity, workforce diversity, climate change and compliance with environmental laws and regulations. In addition, the Public Policy Committee oversees issues pertaining to political contributions and related activities.

PG&E has structures in place to assure stakeholders that all activities related to corporate responsibility and political activities are consistently measured and implemented, and that activities are reported to the Boards of Directors. For example:

1. PG&E Corporation's Environmental Policy outlines PG&E's Environmental Governance Procedures.
2. PG&E's total charitable contributions budget and individual charitable commitments of more than $250,000 are approved by the Boards of Directors of PG&E Corporation and the Utility. Smaller contributions are approved by the PG&E Corporation Chief Executive Officer and/or the President of Pacific Gas and Electric Company and executives and staff within the Corporate Affairs Department, working with colleagues from throughout the company. To reduce the potential for conflicts of interest, no individual may approve a charitable contribution from company funds to an organization in which he/she or family members have a financial or other material interest, including serving on the organization's board of directors.
3. PG&E Corporation and Pacific Gas and Electric Company make bipartisan political contributions in support of their business objectives. In 2009, PG&E contributed $5,487,120.99 to state and local political candidates and ballot measures. These contributions are available at the California Secretary of State website. All political contributions made by PG&E are reviewed by outside counsel and approved by the Senior Vice President, Corporate Affairs and/or the Chairman of the Board. Individual contributions that exceed certain thresholds are approved by the Boards of Directors of PG&E Corporation and/or the Utility. In addition to the contributions made by PG&E, PG&E's employee political action committee, PG&E Employees EnergyPAC, made contributions of $179,150 to federal candidates in 2009 (see chart below). These contributions are reviewed by outside counsel and approved by the Energy PAC board and are available online at the Federal Election Commission website.
   

   PG&E Employees EnergyPAC Contributions—2009

   California Federal Candidates
   House	$48,500
   Senate	$6,350
   Out-of-State Federal Candidates
   House	$21,000
   Senate	$37,800
   National Parties	$26,000
   Leadership PACs	$15,500
   Other	$24,000
   Total	$179,150

PG&E’s corporate governance practices have been evaluated and rated by several institutional shareholder groups and corporate governance organizations. We have consistently received ratings that are well above average compared with other utility companies, as well as general industry companies.

In 2010, RiskMetrics Group (RiskMetrics), a leading provider of risk management and corporate governance products and services to financial market participants, introduced Governance Risk Indicators (GRId), a governance rating methodology that reviews a company’s governance practices across four categories: Audit, Board Structure, Compensation and Shareholder Rights, and rates these practices using a low, medium or high level of concern. As of May 1, 2010, RiskMetrics rated PG&E Corporation’s governance practices in Audit, Board Structure and Shareholder Rights a "low level of concern," and rated Compensation, a "medium level of concern." The methodology for the governance ratings issued by RiskMetrics is reviewed annually.

In addition, as of March 16, 2010, GovernanceMetrics International (GMI), a corporate governance research and ratings agency, gave PG&E Corporation an overall governance rating of 10.0 using a scale of 1.0 (lowest) to 10.0 (highest). The GMI ratings are updated periodically and are determined relative to other utility and general industry companies. As a result, PG&E Corporation’s ratings may change during the course of the year as changes in other rated companies’ governance practices, as well as changes in our own governance practices, are implemented.