Pacific Gas & Electric (PCG)

The Board of Directors of PG&E Corporation Recommends a Vote AGAINST This Proposal.

The Board of Directors believes that it is not in shareholders' best interest to undertake the effort and expense requested by this proposal. PG&E Corporation conducts its business principally through its utility subsidiary, Pacific Gas and Electric Company (Utility). The Utility's business is in northern and central California. It has been incorporated in California for over 100 years.

First, reincorporation in another state is an expensive and difficult process that would consume significant management resources and could trigger certain extraordinary obligations under financial arrangements. Reincorporation can only be achieved if PG&E Corporation merges into another company that is incorporated in North Dakota. In that case, all permits, licenses, contracts, and other legal documents would need to be transferred from PG&E Corporation to the new North Dakota entity. In addition, covenants in existing financial agreements may place conditions upon PG&E Corporation's merger into another entity, absent written consent from the parties to those agreements and/or satisfaction of other conditions. Finally, the new entity may be required to file new securities registration statements. Reincorporation also would require shareholder approval.

On the other hand, the Corporation's corporate governance practices consistently receive high ratings from independent ratings firms such as RiskMetrics Group (whose "Corporate Governance Quotient" ratings are cited in company profiles on Yahoo! Finance) and by GovernanceMetrics International. As

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of March 1, 2009, PG&E Corporation's Corporate Governance Quotient was better than 86.7% of the companies in the S&P 500 index and 92.8% of the S&P 500 companies in the utilities sector. As rated by GovernanceMetrics International, PG&E Corporation's overall governance score was a 9.5 as of February 15, 2009, using a scale of 1.0 (lowest) to 10.0 (highest).

In contrast to the proponent's claims, it should be noted that North Dakota law does not permit a company to utilize both majority voting and cumulative voting in routine director elections. For uncontested elections, the laws clearly state that a North Dakota company may adopt a majority voting standard in director elections only if that company's articles provide that shareholders do not have a right to cumulate votes in director elections.

For these reasons, the PG&E Corporation Board of Directors unanimously recommends that shareholders vote AGAINST this proposal.

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis (CD&A) provides information about compensation objectives, policies, and decisions applicable to the named executive officers (NEOs) of PG&E Corporation and Pacific Gas and Electric Company who are listed in the Summary Compensation Table. This CD&A also discusses the compensation that was awarded to, earned by, or paid during 2008 to these NEOs, as disclosed in this proxy statement.

This CD&A answers the following questions:

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Who plays a role in establishing executive compensation?

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What factors guided the Compensation Committee's 2008 Officer Compensation Program goals and objectives?

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How did the Compensation Committee benchmark and establish the 2008 Officer Compensation Program?

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What are the primary components of NEO compensation paid or earned during 2008?

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Annual Compensation—2008 Officer Compensation Program

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Base salary

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Short-term incentives (performance-based cash incentive pay)

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Long-term incentives

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Other compensation

•

Perquisites and related compensation

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Executive stock ownership program

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Post-service benefits

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Retirement/pension

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Payments upon termination

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What Compensation is Payable Upon a Change in Control of PG&E Corporation?

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Are there any material differences in compensation paid to the different NEOs?

The Board of Directors of PG&E Corporation Recommends a Vote AGAINST This Proposal.

This proposal is unnecessary.

Since 2003, PG&E Corporation has had an independent lead director. The duties of the independent lead director are listed in the Corporate Governance Guidelines and mirror those listed in the shareholder's proposal. (See sections 15, 16, and 31 of the Corporate Governance Guidelines at pages 8 to 14 of this Joint Proxy Statement). PG&E Corporation believes that these duties of the independent lead director are highly effective in meeting the proponent's stated goal of increasing the board's independent oversight of management.

The only difference between the Corporation's practices and the proposal is the definition of "independence." PG&E Corporation believes that its outside lead director is truly independent and the Corporation's definition of "independence" complies with and goes beyond the requirements of various regulatory bodies with authority over PG&E Corporation, including the New York Stock Exchange.

For these reasons, the PG&E Corporation Board of Directors unanimously recommends that shareholders vote AGAINST this proposal.

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Compensation Discussion and Analysis

This Compensation Discussion and Analysis (CD&A) provides information about compensation objectives, policies, and decisions applicable to the named executive officers (NEOs) of PG&E Corporation and Pacific Gas and Electric Company who are listed in the Summary Compensation Table. This CD&A also discusses the compensation that was awarded to, earned by, or paid during 2007 to these NEOs, as detailed in the tables and the narrative disclosure that follow this section.

Specifically, the CD&A provides the following information regarding executive compensation at PG&E Corporation and Pacific Gas and Electric Company:

•

Who plays a role in establishing executive compensation?

•

What were the Compensation Committee's 2007 Officer Compensation Program objectives?

•

How did the Compensation Committee benchmark and establish the 2007 Officer Compensation Program?

•

What are the primary components of NEO compensation paid or earned during 2007?

•

Annual Compensation – 2007 Officer Compensation Program

•

Base salary

•

Short-term incentives (performance-based cash incentive pay)

•

Long-term incentives

•

Other annual compensation

•

Perquisites

•

Executive stock ownership program

•

Stipend in lieu of perquisites

•

Post-service benefits

•

Retirement/pension

•

Payments upon termination

•

Payments upon a Change in Control

•

Are there any material differences in compensation paid to the different NEOs?

The Board of Directors of PG&E Corporation Recommends a Vote AGAINST This Proposal.

This proposal is not necessary. The Corporation's existing governance practices already ensure independent oversight of management and sound policymaking. These practices include the following:

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The Corporation's Corporate Governance Guidelines state that at least 75 percent of the Board must be independent. The Guidelines' definition of "independence" can be found on page 7 of the proxy statement, and in many ways is more stringent than applicable requirements of the Securities and Exchange Commission, the New York Stock Exchange, and the American Stock Exchange.

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The Audit Committee, the Finance Committee, the Nominating, Compensation, and Governance Committee, and the Public Policy Committee are each composed solely of independent directors, as defined in the Corporation's Corporate Governance Guidelines and applicable New York Stock Exchange and American Stock Exchange listing requirements.

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The independent directors meet in executive session without management present during each regularly scheduled meeting of the Board of Directors.

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The Chair of the Nominating, Compensation, and Governance Committee also serves as the lead director of the Board, and is selected by and from the independent directors. Among other things, the lead director:

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Presides at all meetings of the Board at which the Chairman is not present, including executive session meetings of the independent directors.

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Serves as a liaison between the Chairman and the independent directors.

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Approves the meeting agendas, schedules, and matters raised at each meeting of the Board of Directors.

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Has the authority to call meetings of the independent directors.

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If requested by major shareholders, is available for consultation and direct communication.

The Corporation's Corporate Governance Guidelines provide that, based on the circumstances existing at a time that there is a vacancy in the office of either the Chairman of the Board or the Chief Executive Officer (CEO), the Board will consider whether the role of the CEO should be separate from that of Chairman of the Board, and, if the roles are separate, whether the Chairman should be selected from the independent directors or should be an employee of the Corporation.

At this time, it is neither appropriate nor prudent to prohibit the CEO from serving as Chairman. Combining the offices of CEO and Chairman contributes to a more efficient and effective Board. The CEO bears primary responsibility for managing the Corporation's business day to day, and is the person in the best position to chair regular Board meetings and help ensure that key business issues and stakeholder interests are brought to the Board's attention. Any director may request the inclusion of specific agenda items for discussion at Board meetings.

The proponent's comments regarding the conduct of the 2005 annual meeting are unjustified and they are not relevant to the subject matter of this proposal. The Corporation's response to these comments is contained in management's response to Item No. 3 (see page 31).

For these reasons, the PG&E Corporation Board of Directors unanimously recommends that shareholders vote AGAINST this proposal.

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Executive Compensation