Integrating Sustainability into Our Business

The last year at PG&E has been characterized by change—to our senior leadership, to our operations and culture, and to how we approach the business of powering Northern and Central California. Our 20,000 employees have embraced a back to basics focus on providing safe, reliable and affordable gas and electric service and our ultimate long-term aim of operating the safest utility in the country.

Focusing on the Basics of Our Business

As we make progress on the fundamentals of our business, we continue to be guided by five overarching corporate goals: public and employee safety, delighting customers, engaging employees, rewarding shareholders and environmental leadership. Importantly, while public and employee safety has always been a part of PG&E’s core values, it was elevated to one of our corporate goals in recognition that it is our most fundamental responsibility and must be at the core of PG&E’s operations and culture.

Our Visions and Values Pyramid

Our Vision and Values

PG&E’s vision and values reinforce our continued focus on our customers and achieving excellence in our operations. We remain steadfast in our commitment to living our values and embracing the behaviors that will allow us to achieve our goals, strategies and vision.

Taken together, these five goals comprise our integrated approach to sustainability, a fact reflected in the industry leading investments we’re making in customer energy efficiency, the career pathways we’re building for the next generation of utility workers, the growing portfolio of renewable energy we’re delivering to customers and the diversity and economic vitality we’re bringing to our supply chain, among many other areas.

California’s regulatory and public policy framework reinforces sustainability at PG&E. Our sustainability commitment is to meet these requirements in a way that minimizes costs for our customers, fosters innovation and new partnerships and looks for opportunities to go beyond what’s required.

For example, decoupling, which breaks the link between our energy sales and revenues, enables PG&E to aggressively pursue customer energy efficiency without the disincentive of a significant financial loss. The state’s “loading order” puts first priority on reducing energy use through energy efficiency and demand-side resources, then renewable generation and, finally, a clean conventional electric supply. Assembly Bill 32, which requires the state to reduce its greenhouse gas emissions, and the Renewable Portfolio Standard, which is expanding renewable supplies for our customers, are other important drivers of sustainability.

Our sustainability commitment is also reflected in the very ways we make progress toward these objectives—by engaging and listening to our customers, employees and many other stakeholders; by benchmarking our performance to identify best practices and make improvements to better serve our customers; by leveraging new tools and technologies; and by doing so in an increasingly open and transparent manner.

Managing Sustainability

The Public Policy Committee of PG&E Corporation’s Board of Directors has primary oversight of sustainability issues, such as environmental compliance and leadership, workforce development and climate change. Other committees of the PG&E Corporation Board and the full Board itself address other components of PG&E’s sustainability portfolio, such as public and employee safety, investments made to build a smarter grid and the pathways to increasing our deliveries of renewable electricity.

Within management, the Chief Sustainability Officer of Pacific Gas and Electric Company is responsible for developing and coordinating PG&E’s sustainability initiatives and overseeing PG&E’s sustainability reporting and measurement. The Chief Sustainability Officer and his team also spearhead community investment, employee engagement and community engagement programs for PG&E and provide strategic input on key business challenges and opportunities.

The Chief Sustainability Officer coordinates with other members of senior management who are responsible for functions such as supply chain management, environmental compliance and customer energy solutions.

Measuring Sustainability

PG&E’s sustainability strategy is framed by PG&E’s five corporate goals. Following the San Bruno accident in 2010, in which a PG&E natural gas pipeline ruptured, we are reexamining our business from top to bottom under new leadership. This includes a thorough review of the specific metrics we are using to determine how we are performing across these various dimensions to align with our enhanced focus on the basics of our business.

We have stated that our long-term goal is to have the safest operations in the country. We have also reaffirmed our strong and continued commitment to our other corporate goals of delighting customers, engaging employees, rewarding shareholders and environmental leadership.

In addition to the Key Sustainability Indicators included in this report, PG&E’s Short-Term Incentive Plan (STIP) reinforces PG&E’s vision and values by rewarding eligible employees for their contributions toward achieving goals that benefit our customers, shareholders, employees and the environment. Each year, we reexamine our STIP to help ensure we are employing the most effective and accurate means of measuring and reinforcing our performance. In doing so, we aim to sharpen our STIP measures, better align our rewards program with the direction of our business and bring increased accountability to PG&E’s overall results.

As shown below, under the 2011 STIP structure, 50 percent of the overall STIP score was based on PG&E’s performance against key operational objectives related to safety, reliability, customer satisfaction, employee engagement and environmental leadership. The remaining 50 percent was based on corporate financial performance, as measured by earnings from operations.

The 2011 STIP was as follows:

2011 STIP—Performance Measures
Measure Relative Weight
Operational Excellence Index 25%
Customer Satisfaction and Brand Health Survey Index 15%
Employee Engagement Premier Survey Results Index 5%
Environmental Leadership Index 5%
Earnings from Operations 50%
Total Weightings 100%

In the 2012 STIP, we are tying safety more closely to compensation than ever before. Safety performance measures—which have been expanded to encompass not only employee safety but also public safety—now determine 40 percent of management’s annual at-risk performance-based pay. This is now the single largest driver for annual at-risk performance-based pay, with financial performance and customer service each representing 30 percent of the total.

2012 STIP—Performance Measures
Measure Relative Weight
Safety1 40%
Customer Satisfaction2 30%
Financial3 30%
Total Weightings 100%

1 Based on four subcomponents: energy supply operations safety, electric operations safety, gas operations safety, and employee safety.

2 Based on three equally weighted metrics: the overall satisfaction of customers, as measured through a quarterly survey; how quickly gas asset information is entered into the Utility’s gas mapping system after a gas project is completed; and the average duration of electricity outages.

3 Based on PG&E Corporation’s earnings from operations.

For more details on the specific measures and targets for our 2011 and 2012 STIP, as well as our 2011 results, please see page 42 of the 2012 PG&E Corporation and Pacific Gas and Electric Company Joint Proxy Statement.

Looking Forward

We recognize that our actions today will define our success in the future. By focusing our efforts on providing safe, reliable and affordable gas and electricity, individually and collectively, we intend to regain our standing in the communities we serve and earn back the trust of our customers and key stakeholders.

As we look for ways to better serve our customers, we will maintain our focus on the broad scope of our environmental efforts. This includes working to reduce our operational footprint, advance clean technologies and protect sensitive habitat and wildlife, with a foundational focus on meeting both the letter and the spirit of our compliance obligations. As we pursue our aspirational goal of environmental leadership, we also remain committed to priorities such as helping to ensure the successful implementation of AB 32 and helping our customers better manage their energy usage, taking advantage of new and emerging technologies and offering tailored programs and services.

As we continue to integrate sustainability into our business, we are also looking to strengthen the social and economic aspects of our sustainability commitment by increasing our contributions to the vitality of the communities we serve.

For example, the investments we are making in our infrastructure will not only lead to a more sustainable and durable system; they will also help make California stronger and will support efforts to revitalize the state’s economy.

We are also placing an increased emphasis on “going local” by better serving our customers where they live and work through more integrated, proactive customer outreach and through local community partnerships—from emergency preparedness efforts to investing in local economic and energy-related workforce development initiatives.

We will continue to expand and improve our sustainability reporting and disclosure and to rely on active engagement with our stakeholders to guide our efforts because we recognize that these are foundational elements of our sustainability program.