Our Environmental Compliance Performance

A lack of clearly defined roles and responsibilities for compliance activities and a lack of process controls were the primary root causes of many of the compliance violations in 2009. Consequently, the Utility is focusing on integrating environmental compliance roles and responsibilities into work processes in operations to strengthen its environmental programs.

In conjunction with defining roles and responsibilities by compliance activity, the Utility is implementing a new structure for its environmental support organization. Moving from a centralized to a line-of-business-based model, the new structure includes dedicated personnel who provide support directly to a business area, and a program office that provides governance, program support and guidance to achieve company-wide consistency and risk management. These changes will increase accountability for compliance with environmental requirements and regulations.

During 2009, we continued to implement our Environmental Management System (EMS) and identify opportunities for continued performance improvement. We launched process improvement teams in the areas of small scale construction, storm water construction and drinking water, and completed an effort to improve the environmental permitting process for large operation, maintenance and construction projects.

PG&E’s EMS is consistent with international standards (ISO 14001) and employs the widely adopted “Plan, Do, Check, Act” model for continuous improvement, which includes the elements of policy development/planning, implementation and operation, checking and corrective action and management review to evaluate performance.

PG&E measures its environmental compliance performance through a number of indicators such as an environmental compliance dashboard with key enterprise-wide metrics; internal assessments, reviews and audits; environmental agency findings; and metrics for individual business areas.

Training

Training is a key element of any successful compliance program. During 2009, the Utility trained employees on various environmental compliance tasks related to their job responsibilities. We also conducted mandatory training for all employees on the company’s Environmental Policy, reinforcing the critical importance of maintaining compliance with the environmental laws and regulations that govern the business. The training also encouraged employees to go beyond what is required and find new, cost-effective ways to perform their work in a more sustainable manner.

Verifying and Auditing Our Performance

With more than 2,000 environmental requirements regulating our business, we continue to review individual requirements and associated risks, and monitor our compliance in accordance with guidance from the Compliance and Ethics Department. This involves verifying that the applicable requirements are embedded in work processes, adhering to these work processes, ensuring effective controls are in place and monitoring corrective actions.

The Utility has a Compliance Risk Management Department that performs comprehensive environmental facility reviews. In addition, Environmental Operations field personnel perform self-assessments, typically by focusing on a single compliance regulation or any system-wide compliance issue where the Utility has previously experienced non-compliance.

Environmental auditing is an essential tool to evaluate performance and identify areas needing improvement. In 2008, the Internal Auditing Department began conducting systemic and programmatic controls-based audits, as opposed to facility-based audits, to analyze the effectiveness of the Utility’s environmental compliance management systems. In 2009, the Internal Auditing Department performed a management system audit on the Utility’s oil spill prevention control and countermeasure program. Additionally, the Internal Auditing and Compliance Risk Management teams jointly initiated three third-party audits of our Title V air quality program.

During 2009, we performed 738 audits, comprehensive facility reviews and compliance self-assessments of various environmental processes and a cross section of Utility facilities, compared to 496 in 2008. This included 71 comprehensive facility reviews focusing on water quality, air quality and hazardous materials management, approximately 40 of which involved assistance from an outside firm. The results of the comprehensive facility reviews were of particular importance in establishing compliance improvement priorities for 2010.

Given the decline in the Utility’s environmental compliance performance as measured by NOVs, we will continue to evaluate the efficacy of the environmental audit process to ensure it provides timely feedback on areas in need of performance improvement.

Corrective Actions

As part of our commitment to environmental compliance, we are placing a greater emphasis on business area accountability for process improvements to drive system-wide compliance improvements. During 2009, we established a corrective action process that engages business areas to seek permanent resolution of findings to prevent reoccurrence.

Governance and 2010 Priorities

Compliance performance updates are provided weekly to all PG&E Corporation and Utility officers and reviewed monthly by the Utility's officers. In addition, an annual environmental compliance summary is presented to the Public Policy Committee of PG&E Corporation's Board of Directors. These governance processes are designed to ensure that we remain focused on high priority work. Robust operational controls are critical so that actions to meet the Utility's environmental compliance obligations are performed on time, on purpose and are repeatable and reproducible.

Our priorities for 2010 are as follows:

1. Continuing to define compliance tasks and associated roles and responsibilities, and verify performance at the facility and work process levels;
2. Continuing to implement process improvements and enhanced controls, specifically in the areas of permits (obtaining and understanding permits, and building and operating utility facilities in compliance with permit conditions), drinking water systems, construction storm water and construction activity compliance; and
3. Developing programmatic- and regionally-based regulatory agreements, in particular regarding habitat, species and stream protection.

These priorities will position PG&E to improve compliance performance, minimize risk and prevent errors, consistent with our goal of environmental leadership.

PG&E tracks and reports annual environmental performance across a broad spectrum of areas. This section details our performance results for 2009.

Reported Releases and Permit Exceedances

The Utility reported a total of 227 releases and permit exceedances in 2009, a decrease from 286 reported in 2008. A release is defined as an unintentional discharge of a regulated substance that meets a reporting threshold. The Utility reports releases that both meet and fall below regulatory thresholds in an effort to ensure operational transparency to local agencies. Two hundred and nineteen releases were reported in 2009, a decrease from 280 reported in 2008, due primarily to a reduction in weather-related equipment damage, third-party incidents and equipment failures. Ninety-four percent of these releases involved small amounts of mineral oil used in transformers or other petroleum-based substances. The Utility is continually updating emergency response procedures to provide employees and contractors with the tools they need to respond effectively.

PG&E reported eight permit exceedances in 2009, an increase of two from 2008, primarily due to an increase in issues with water systems. An exceedance is defined as a discharge in excess of what is allowed by a permit. Of the eight permit exceedances, one involved nitrogen oxide (NO_X) emissions for air quality, and seven involved water quality exceeding filter turbidity and total coliform bacteria limits. Although the latter indicates a breach in the integrity of the system, none of the exceedances posed a threat to human health.

Agency Inspections

Government agencies conducted 550 routine on-site inspections of PG&E's facilities in 2009, down from 590 inspections in 2008. Local fire and environmental health departments performed the majority of inspections, which focused on hazardous material, hazardous waste and water quality requirements. The remainder of the quality management inspections were performed by agencies such as the California Department of Toxic Substances Control and local air districts.

Enforcement Actions—Notices of Violation

The number of NOVs received during 2009 was 21, an increase from 12 in 2008. Of the 21 NOVs, 9 were self-reported by the Utility to the governing agency. The rate of NOVs per 100 on-site agency inspections in 2009 increased to 3.82 from 2.03 in 2008.

Of the 21 NOVs, 10 involved air quality regulations, 9 involved water quality and 2 were issued for hazardous material/waste regulations. The 10 air violations were in the areas of permitting (both obtaining a permit and adhering to permit conditions) and administrative errors in reporting, and 2 of the 10 were self-reported. Of the nine water violations, seven were for filter turbidity and total coliform bacterial results at four facilities found during routine sampling and two were issued for not adhering to construction permits. The two NOVs issued for hazardous material/waste were for incomplete inventory and improperly stored materials.

During 2009, the Utility completed a Lean Six Sigma process improvement project to improve the root-cause analysis of compliance violations. As a result of this project, the Utility is better positioned to identify the root of the problem and apply systematic corrective actions to prevent reoccurrence.

2009 Enforcement Penalties and Settlements

In 2009, the Utility received two NOVs resulting in monetary penalties. We paid $600 to resolve a 2008 enforcement action, $346 for an outstanding notice of intent fee and $2,700 for a late permit submission, bringing total settlements and penalties in 2009 to $3,646.

Compliance Data	2007	2008	2009
Notices of Violation (NOVs)	14	12	21
Rate of NOVs (per 100 on-site inspections)	2.64	2.03	3.82
Releases/Exceedances	227	286	227
Penalties Paid	$222,450	$119,625	$3,646
Agency Inspections	530	590	550
Audits Performed (System Audits and Comprehensive Facility Reviews)	54*	37*	75
Self-Assessments Performed	1,034	459	663

* Updated figures from 2008 Corporate Responsibility Report.