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Corporate Governance

A public company must have the trust of the public to operate successfully. Transparency and integrity form the basis of this trust. Our many stakeholders want to understand what processes and procedures we have in place to ensure that we are operating our business ethically, are able to deliver on our promises and are accountable for our actions.

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 independent nature of the Boards and its 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 December 31, 2008, seven out of eight members of the PG&E Corporation Board and 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 Policy.

In furtherance of our commitment to good corporate governance and accountability to shareholders, in 2009, the Boards of Directors of PG&E Corporation and the Utility each adopted a policy that will give our shareholders a non-binding advisory vote on executive compensation, or a "say on pay," at each annual meeting of shareholders beginning in 2010. PG&E Corporation and the Utility value the input of our shareholders, and the Boards believe that a say on pay policy further aligns the companies' executive compensation objectives with the interests of our shareholders.

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 Corporate Responsibility 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 ensure that all activities related to the myriad aspects of corporate responsibility and our political activities are consistently measured and implemented and their related progress is reported to the PG&E Corporation and Utility Boards of Directors. For example:

• As part of PG&E Corporation's Environmental Policy, a section outlines PG&E's Environmental Governance Procedures. These procedures can be viewed at www.pgecorp.com/corp_responsibility/environmental/policies.
• PG&E's total charitable contributions budget and individual charitable commitments of more than $250,000 are approved by the PG&E Corporation Board of Directors, and smaller contributions are approved by the PG&E Corporation Chief Executive Officer or staff executives within the Public 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.
• Our contributions program also includes many grants that are approved and funded by the PG&E Corporation Foundation.
• All political contributions made by PG&E are reviewed by outside counsel and approved by the Senior Vice President of Public 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 the Utility.