PG&E Corporate Responsibility and Sustainability Report 2021

COVID-19 Response

Risk Management

PG&E is committed to the safety of our customers, workforce and the public. Delivering gas and electric service has inherent risk that cannot be eliminated. We strive to embed risk management in every critical business process, making data-driven decisions to support safe, reliable and affordable electric and gas service.

Our Approach

At PG&E, risk management processes are facilitated separately for two key risk areas: Enterprise and Operational Risks, and Market and Credit Risks.

Enterprise and Operational Risks

By systematically identifying, evaluating, mitigating and monitoring risks, PG&E’s Enterprise and Operational Risk Management (EORM) program facilitates the reduction of risk.

Enterprise risks are identified through the EORM program as potentially catastrophic and recommended by senior management for Board-level review at least once every 12 months. The overall program, as well as the enterprise risks, is overseen by senior management and the Boards of Directors. The EORM program is implemented by each line of business (LOB).

The Senior Vice President and Chief Risk Officer (CRO) of PG&E Corporation and Pacific Gas and Electric Company is responsible for overseeing the EORM program. The CRO reports directly to the PG&E Corporation Chief Executive Officer.

With guidance from a central program office, PG&E maintains a risk register of event-based risks and LOB risks. We follow a consistent enterprise-wide approach to identify, evaluate, respond to and monitor risks. With our evaluation methodology, PG&E is able to calculate a baseline risk score and evaluate different mitigation strategies to reduce this score.

The methodology places an emphasis on prioritizing the highest safety risks while also accounting for reliability and financial risk. Risk mitigations are tracked throughout the year and risk assessments are refreshed at least annually to capture the impact of mitigation strategies and to reflect changes in the operating environment. The risk management program provides transparency and accountability for risk reduction progress.

The senior-most executive of each LOB maintains a Risk and Compliance Committee, which has oversight responsibility for all associated activities for risk and compliance programs within their organization. Each Risk and Compliance Committee ensures that activities related to enterprise and operational risk and compliance management within their respective organizations are adequate and effective, and that resources are available as needed.

Market and Credit Risks

For market and credit risks, risk management is implemented through PG&E Corporation’s Risk Policy Committee and the Utility Risk Management Committee. The Vice President and Chief Audit Officer (CAO) of PG&E Corporation and Pacific Gas and Electric Company is responsible market and credit risk management, as well as for internal audit, insurance, third-party risk management, and Sarbanes-Oxley Act compliance.

The CAO reports to the PG&E Corporation Executive Vice President and Chief Financial Officer and to the Audit Committees of the PG&E Corporation and Pacific Gas and Electric Company Boards. The CAO facilitates and is a voting member of the PG&E Corporation Risk Policy Committee and the Utility Risk Management Committee, which address market and credit risks. Both committees include a subset of officers of PG&E Corporation and Pacific Gas and Electric Company.

Board of Directors and Senior Management Risk Oversight

In addition, the PG&E Corporation and Pacific Gas and Electric Company Boards and their respective committees have specific oversight responsibility for risk management in their respective areas:

Entity Risk Oversight Responsibilities
Boards
  • Evaluate risks associated with major investments and strategic initiatives (with assistance from the Finance Committee Footnote 1a)
Audit Committees
  • Discuss the guidelines and policies that govern the processes for assessing and managing major risks
  • Allocate to other Board committees the specific responsibility to oversee identified enterprise risks
  • Consider risk issues associated with overall financial reporting and disclosure processes
  • Discuss programs to monitor compliance with laws, regulations, policies and programs
Finance and Innovation Committee Footnote 1b
  • Oversee enterprise risks, as assigned by the Audit Committees
  • Discuss risk exposure related to energy procurement, including energy commodities and derivatives prices, interest rate, currency, credit and other risks, as allocated by the Audit Committees
Safety and Nuclear Oversight Committees
  • Advise and assist the Boards of Directors with respect to the oversight and review of risk management practices related to Pacific Gas and Electric Company’s nuclear, generation, gas and electric transmission, and gas and electric distribution operations and facilities
  • Oversee other enterprise risks, as allocated by the Audit Committees
  • Oversee cybersecurity risk
People and Compensation Committee Footnote 1c
  • Oversees potential risks arising from compensation policies and practices
  • 1. Committees of the PG&E Corporation Board of Directors only.1a, 1b, 1c

For a full description of Board committee oversight responsibilities, please see the webpages of the Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company.

Senior management and their committees have specific oversight responsibility for risk management in their respective areas:

Entity Risk Oversight Responsibilities
Public Safety Risk Council
  • Develops and monitors the strategic planning and execution for risk management by providing independent review and challenge of key risks; ensures executive leadership knowledge of all key risks; and drives risk management best practices consistently across the enterprise
Compliance, Ethics and Audit Committee
  • Oversees and decides on changes to plans and strategies related to compliance, ethics, audit and non-safety-related risks, including compliance with legal requirements, regulatory requirements and major commitments
PG&E Corporation Risk Policy Committee and the Utility Risk Management Committee
  • Provide oversight and approval of risk exposure related to energy procurement, including energy commodities and derivatives prices, interest rates, currency, credit and other risks, as assigned by the Audit Committees

2020 Milestones

Enterprise and Operational Risks

In 2020, Pacific Gas and Electric Company filed its 2020 Risk Assessment and Mitigation Phase (RAMP) report with the CPUC. This report is a precursor to our 2021 General Rate Case (GRC) filing intended to provide greater visibility and stakeholder engagement around plans for mitigating top safety risks ahead of the GRC filing. The RAMP process and required methodologies are applicable to all of California’s investor-owned utilities.

The filing identified our top 12 safety risks as well as eight cross-cutting factors. For each of the top safety risks, we proposed mitigation programs for 2020 to 2026 and their associated forecasts.

Our top safety risks are as follows:

  • Loss of Containment on Gas Transmission Pipeline
  • Loss of Containment on Gas Distribution Main or Service
  • Large Overpressure Event Downstream of Gas Measurement and Control Facility
  • Wildfire
  • Failure of Electric Distribution Overhead Assets
  • Failure of Electric Distribution Network Assets
  • Large Uncontrolled Water Release
  • Real Estate and Facilities Failure
  • Third-Party Safety Incident
  • Employee Safety Incident
  • Contractor Safety Incident
  • Motor Vehicle Safety Incident

In 2020, the CPUC launched a Safety Model Assessment Proceeding (SMAP-II), seeking to tackle several issues identified by the Commission, intervening parties and the investor-owned utilities in the ongoing risk proceedings pertaining to PG&E’s Plan of Reorganization. Some of the issues being addressed include treatment of mitigations and controls, granular risk tranches, streamlining risk filings and scaling functions.

We are taking an active role in the proceeding—providing our experience from RAMP, as well as proposing meaningful safety and operational metrics that may be expanded to all investor-owned utilities in the state.

Market and Credit Risks

Because of mostly stable energy commodity prices in 2020—except for certain peak hours in August due to extreme temperatures and energy supply shortages—and executing our physical and financial hedge strategy, we met our targets for measures related to hedging, liquidity and market risk.