Corporate Governance

Corporate Governance Guidelines and Director Independence

The policies and practices described in our Corporate Governance Guidelines demonstrate PG&E’s commitment to good corporate governance practices. The foundation for these practices is the independent nature 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. Additionally, only independent directors may serve on PG&E Corporation’s Compensation Committee, Finance Committee, Nominating and Governance Committee, and Public Policy Committee. Each company’s Audit Committee members also must be independent, and must meet additional independence standards.

During an interim period of May 1 to September 12, 2011, the Bylaws of each company set the authorized number of PG&E Corporation directors at 10 (of which 9 are independent) and the authorized number of Utility directors at 11 (of which 9 are independent).

On August 8, 2011, PG&E Corporation announced that the Board of Directors elected Anthony F. Earley, Jr. as Chairman, CEO and President of PG&E Corporation effective September 13, 2011. Effective September 13, the Bylaws of PG&E Corporation will be amended to reflect Mr. Earley’s election as Chairman of the Board. The authorized number of PG&E Corporation directors will be set at 11 (of which 10 will be independent). The Utility Bylaws will remain unchanged.

Our Corporate Governance Guidelines are published annually in PG&E Corporation’s and Pacific Gas and Electric Company’s Joint Proxy Statement and also are posted at PG&E Corporation’s website, along with our Bylaws, Board committee charters, codes of conduct for directors and employees, PG&E’s Political Contribution and Employee Political Activity Policy and the PG&E Corporation Disclosure and Guidance Standard.

Recent Actions

To further our commitment to good corporate governance and accountability to shareholders, the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company recently took the following actions.

1. Increased the stock ownership guidelines for the CEO of PG&E Corporation and certain other officers of the companies, and adopted a policy requiring retention of 50 percent of net earned equity awards until the ownership targets are met.
2. Increased the stock ownership guidelines for Board members to at least five times the value of the then-applicable annual retainer paid for service on the Boards.
3. Amended each company’s Corporate Governance Guidelines to clarify and describe the management development and succession planning process for the CEO and other leadership positions within the companies.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, starting with the 2011 annual shareholders meetings, large companies are required to (1) provide their shareholders with a non-binding advisory vote on executive compensation paid, or a “say on pay,” and (2) at least once every six years, provide their shareholders with a non-binding advisory vote on whether the say-on-pay vote should occur every one, two or three years.

In 2009, PG&E Corporation and the Utility committed to providing shareholders with an annual advisory vote on both executive compensation paid and each company’s pay-for-performance compensation policies and practices. The first such vote was offered at the companies’ 2010 annual meetings, and earned approval from 96.1 percent and 99.8 percent, respectively, of PG&E Corporation and Utility shares that voted.

At the companies’ 2011 annual meetings, PG&E Corporation and the Utility again provided shareholders with a say on pay. In 2011, the companies also provided shareholders with a non-binding advisory vote on the frequency of the advisory say-on-pay vote. In keeping with the companies’ 2009 commitment, the Boards recommended that shareholders vote for a frequency of one year.

Also in 2011, PG&E Corporation and the Utility expanded their proxy disclosure on director qualifications and the oversight role of the Boards with respect to risk management, political contributions and management succession, among other items.

Governance Structures

The Boards of Directors of PG&E Corporation and the Utility are regularly engaged in 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 Corporate Responsibility and Sustainability Report, including, but not limited to, corporate philanthropy, community involvement, supplier diversity, workforce diversity, climate change and the quality of the environment. 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 the myriad aspects of corporate responsibility and our political activities are consistently measured, implemented and reported to the PG&E Corporation and Utility Boards of Directors.

For example, PG&E’s total community investment budget and individual charitable commitments of more than $250,000 are approved by the Boards of Directors of PG&E Corporation and/or the Utility, and smaller contributions are approved by the PG&E Corporation CEO or staff executives within the Corporate Affairs Department, working with colleagues from throughout the company. To reduce the potential for conflicts of interest, no one may approve a charitable contribution from company funds to an organization in which they or family members have a financial interest, including serving on the organization’s board of directors.

The Public Policy Committee of the PG&E Corporation Board of Directors reviews PG&E’s political contributions program and recommends Board and senior management approval limits for political contributions from PG&E to candidates, measures, initiatives, political action committees and certain other organizations that may engage in political activity. The Public Policy Committee also directs the preparation of an annual report detailing political contributions made by PG&E during the preceding year.

Consistent with company values, PG&E Corporation and its affiliates and subsidiaries are committed to full compliance with both the letter and the spirit of all federal, state, local and foreign political laws and to maintaining the highest ethical standards in the way we conduct our business. As part of the company’s commitment to good governance and transparency, all reportable political contributions are publicly disclosed on the websites of the California Secretary of State and the Federal Election Commission. Complete disclosure of our annual political contributions is also publicly available on PG&E Corporation’s website.

PG&E makes corporate political contributions to:

1. campaigns in support of or in opposition to state or local ballot measures that could affect the company’s current or proposed business activities or the economic, social or cultural well-being of the communities that the company serves;
2. campaigns of individual candidates seeking state or local office;
3. political action committees (PACs) sponsored by industry organizations or other organizations;
4. political parties or other organizations that engage in voter registration and similar activities that encourage citizen involvement in the political process;
5. non-profit organizations formed under Section 501(c)(4) of the Internal Revenue Code that engage in issue advocacy, voter registration, voter education, “get-out-the-vote,” and similar activities; and
6. committees formed under Section 527 of the Internal Revenue Code that do not expressly advocate the election or defeat of a candidate, yet do carry out activities that focus upon candidates or sitting elected officials.

Along with civic, charitable and volunteer activities, employees can participate in the political process. All eligible employees may make voluntary contributions to the company’s political action committees: PG&E Corporation Employees EnergyPAC and Pacific Gas and Electric Company State and Local PAC. PAC contributions go directly to support candidates for elective office at both the federal and state levels. By law, PG&E cannot use corporate funds to make contributions to federal candidates.

In 2010, PG&E Corporation Employees EnergyPAC and Pacific Gas and Electric Company State and Local PAC made contributions of $181,400 and $8,500, respectively. PG&E contributed $48,026,797 to state and local political candidates, ballot measures, political parties and other committees. This included our support of Proposition 16, a state ballot initiative defeated by voters last year.

Political Contributions—2010

PG&E Employees Federal PAC Contributions
U.S. House	$70,750
U.S. Senate	$24,300
Leadership/Other PAC	$86,350
Total	$181,400
PG&E Employees State and Local PAC Contributions
Total	$8,500
Corporate Campaign Contributions
Corporate Contributions to Candidates	$513,958
Corporate Contributions to Other Committees	$47,512,839
Total	$48,026,797

Corporate Governance Rankings

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.

As of June 30, 2011, Institutional Shareholder Services, Inc. (ISS), an independent provider of risk management and corporate governance products and services to financial market participants, rated PG&E Corporation’s governance practices in Audit, Board Structure, Compensation, and Shareholder Rights a “low level of concern.”

In addition, as of May 15, 2011, GovernanceMetrics International (GMI), a corporate governance research and ratings agency, gave PG&E Corporation an overall governance rating of 9.0 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.