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Peter A. Darbee
Chairman of the Board, CEO,
and President PG&E Corporation
Chairman of the Board
Pacific Gas and Electric Company
A Letter to Our Stakeholders:
Can any company today seriously aspire to a leading role in its industry if it does not also demonstrate a track record of leadership in corporate responsibility issues?
At PG&E—where we have stated a new vision to become the leading utility in the United States—our belief is that the answer to this question clearly is no.
A firm commitment to corporate responsibility, both in principle and practice, is an absolute prerequisite for achieving and sustaining our vision. It is as much a key to our future as the sweeping changes we are now pursuing to serve customers better, faster and more cost effectively.
Companies embracing corporate responsibility have often explained it as just “the right thing to do” or something that “makes good business sense.” We wholeheartedly agree.
But we also believe that excellence in all areas of corporate responsibility has now become even more: Managing issues in a way that accounts for and integrates various social, civic, economic and environmental factors is now a basic competency for any leading company.
Companies today have to be increasingly adept at seeing and making sense of the connections between their business and these dynamics. We have to be attuned to these dynamics and their impact on value, positive or negative, especially impacts that are not measured in financial statements. And we have to be mindful that, in many respects, our businesses operate at the consent of a broad array of stakeholders.
Leaders who build this thinking into their corporate culture will gain invaluable insights that competitors miss. They will build stronger relationships with customers and other stakeholders. They will see farther ahead than others.
As a result, they will make more savvy decisions. They will more astutely manage future risks. They will discover new opportunities, and more of those opportunities will be “win-win.”
To choose climate change as one example, limits on greenhouse gas emissions appear to us to be both important and inevitable in the near future. Rather than waiting, we have already taken actions, like understanding and certifying our greenhouse gas emissions with the California Climate Action Registry. But, equally important, we are looking at new avenues this challenge may open for PG&E to create value for customers and shareholders using our expertise and innovation in areas like energy efficiency.
This is the mindset of a leading company, and it reflects the approach we aim to take with all corporate responsibility issues—from environmental stewardship and public health and safety to diversity, community engagement and corporate governance.
This report details scores of examples that illustrate the work we did in these vital areas last year.
Our performance in 2005 was overwhelmingly positive.
We continued to take bold action on pressing environmental challenges, most notably climate change.
We added new sources of renewable power to our supply portfolio, including solar and wind.
We continued to invest in energy efficiency, building on a track record that has helped keep California’s per capita energy consumption flat over the past 30 years, compared with an increase of 50 percent for the rest of the country.
We launched a successful campaign to help customers combat high natural gas prices through conservation.
In our communities, we increased our shareholder-funded charitable contributions by well over 50 percent to $11.9 million. We also engaged through volunteer efforts and innovative programs like installing solar power technology in schools and in homes built by Habitat for Humanity.
Among our employees, we engaged in more constructive dialogue than ever before about our values as a company.
And in the area of corporate governance, third-party experts such as Institutional Shareholder Services continued to rate our corporate governance practices among the best in our industry, and industry in general.
Ironically, one of the most important opportunities for PG&E to demonstrate its values last year arose from events that occurred far away from our service area in the states along the Gulf Coast.
We experienced the repercussions of Hurricanes Katrina and Rita on several fronts. Above all, like the rest of the country, we felt the urgent need to help provide assistance to the people who suffered in the aftermath. PG&E and its employees gave nearly $720,000 to the American Red Cross, and PG&E donated another $50,000 to local charities.
Economically, the damage to vital Gulf Coast natural gas facilities helped drive market prices to record levels, creating one of the toughest winter heating seasons ever for our customers.
PG&E responded by increasing contributions to assistance programs for low-income customers and partnering with various stakeholders to educate customers about ways to lower their bills. We also created a successful program to promote conservation by offering customers a rebate for reducing their energy use.
As a company whose home is in one of the planet’s most seismically active areas, Katrina and Rita were also stark reminders of the tremendous responsibility we share for helping to prepare our communities for the worst.
In particular, they underscored that the aftershocks of large-scale disasters hit hardest for those who are least equipped socially and economically to respond. PG&E is currently helping to fund the Bay Area Red Cross “Prepare Bay Area” project. This effort will train one million residents, primarily in underserved communities that are most vulnerable, to prepare for and respond to a large-scale disaster.
Additionally, last year’s record hurricane season has helped put a new attention and urgency on the climate change debate. To many observers, Katrina and Rita were omens of more extreme weather that some believe may accompany global climate change.
We support decisive regulatory action now to address this challenge, including capping carbon emissions and allowing companies to create and trade carbon allowances to meet reduction requirements. In our view, this approach makes the most sense at the federal level. The more numerous the players and the sources for reductions and emissions allowances, the more successful and cost-effective the program will be.
While we are proud of these and other accomplishments last year, we were not satisfied with our results in every facet of the business.
For example, we fell short of our supplier diversity targets. Although FORTUNE magazine rated us 11th among the nation’s top employers for minorities, we also continue to have room to strengthen diverse representation in our management ranks.
On the operations front, while we improved our employee safety statistics over recent years, we can still do better.
And in our communities, we see the need to do even more to reconnect with our customers.
As we go forward and work to achieve our vision, our pledge is that, at every level and in every part of the company, we will always be guided by the clear set of values we articulated last year:
Putting our values into words for the first time has made for a powerful statement to employees, customers, regulators, shareholders, and other stakeholders. Within the company, they have fast become a touchstone for us as we operate on a day-to-day basis. And they are understood as the bedrock on which we are building PG&E’s future.
If one recent event exemplifies this better than any other, it may be the settlement that effectively resolved 10 years of litigation related to the use of chromium decades ago. In our announcement, we took accountability for PG&E’s actions in the 1950s, 60s, and 70s. We expressed our sincere hope that, despite our differences, the settlement would offer closure for the plaintiffs and PG&E, allowing both parties a way forward. And we unequivocally affirmed the critical importance of ensuring that our conduct always aligns with our values.
Thank you for your continuing interest in PG&E. Your feedback on this report and on our performance is always welcome, and we hope you will share it with us.
Peter A. Darbee