Pacific Gas & Electric (PCG)

Who Plays a Role in Establishing Executive Compensation?

The Compensation Committee of the PG&E Corporation Board of Directors (Committee) oversees and establishes officer compensation policies for PG&E Corporation, which also covers Pacific Gas and Electric Company and each company's subsidiaries.

On an annual basis, the Committee has retained an independent consulting firm, Hewitt Associates, LLC (Hewitt), to assist in evaluating PG&E Corporation's compensation policies, to provide guidance regarding industry compensation trends and practices, to give advice on competitive compensation levels at companies within a comparator group, and to recommend compensation alternatives that are consistent with PG&E Corporation's compensation policies. During 2008, PG&E Corporation paid Hewitt approximately $225,000 for executive compensation services. Hewitt's fees were presented to the Committee during the Committee's annual review of the services provided by the independent compensation consultant.

Hewitt also performed ongoing health and welfare consulting work for Pacific Gas and Electric Company relating to employee communications, the audit of insurance rates, and other related projects. Consulting fees for these services in 2008 were approximately $360,000. Consultants from Hewitt's Health Management practice continue to support management at Pacific Gas and Electric Company on related projects on an ad hoc basis. In addition, in March 2008, Disability Management Alternatives (DMA), a Connecticut-based firm, began performing short-term disability, long-term disability, and leave management administration services for PG&E Corporation and Pacific Gas and Electric Company. Subsequently in 2008, Hewitt acquired DMA. Fees paid to DMA in 2008 were approximately $2.2 million. The Committee's independent compensation consultant at Hewitt was not involved in any of the health and welfare services stated above or any administrative services provided by DMA.

In 2009, in accordance with its practice of independently evaluating the national market of executive compensation consultants from time to time, the Committee will review proposals from several executive compensation consultants, including Hewitt, for work in 2010.

The Chief Executive Officer (CEO) of PG&E Corporation generally attends a portion of each Committee meeting, but does not participate in the Committee's deliberations or decisions with respect to his pay. At the Committee's request, the CEO reviews with the Committee the performance of the other NEOs, but no other NEO has any input into the executive compensation decisions. The CEO also recommends adjustments, if any, in base pay, the target

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annual incentive opportunity, and equity awards for the other NEOs. These recommendations play a significant role in the compensation-setting process, given the CEO's direct knowledge of the performance and contributions of each of the NEOs. The Committee has discretion to accept, reject, or modify the CEO's recommendations based on the Committee members' collective assessment of the officers' performance and pay position relative to market benchmarks provided by the Committee's independent compensation consultant, as well as PG&E Corporation's overall financial and operating performance.

Additional details regarding the processes for determining and setting executive compensation are set forth on pages 22 and 23 of this Joint Proxy Statement.

Who Plays a Role in Establishing Executive Compensation?

The Compensation Committee of the PG&E Corporation Board of Directors (Committee) oversees and establishes officer compensation policies for PG&E Corporation, which also cover Pacific Gas and Electric Company and each company's subsidiaries. Prior to January 1, 2008, the duties of the current Compensation Committee were performed by the former PG&E Corporation Nominating, Compensation, and Governance Committee.

The Committee retains an independent consulting firm, Hewitt Associates (Hewitt), to help evaluate PG&E Corporation's compensation policies, to provide information about industry compensation practices and competitive compensation levels at companies within a comparator group, and to recommend compensation alternatives that are consistent with PG&E Corporation's compensation policies. During 2007, PG&E Corporation paid Hewitt approximately $165,000 for executive compensation services. Hewitt also performed ongoing health and welfare consulting work for Pacific Gas and Electric Company relating to the audit of insurance rates, vendor selection, and related projects. Consulting fees for 2007 for these services were approximately $176,000. Consultants from Hewitt's Health Management practice continue to support management at Pacific Gas and Electric Company on related projects on an ad hoc basis. In 2007, a Hewitt consulting team from the Newport Beach, California office was engaged to review PG&E Corporation's broad-based employee total remuneration structure and human resources web content. Fees for these one-time projects totaled approximately $150,000 and $85,000, respectively.

The Chief Executive Officer (CEO) of PG&E Corporation generally attends a portion of each Committee meeting, but does not participate in the Committee's deliberations or decision with respect to his pay. At the Committee's request, the PG&E Corporation CEO reviews with the Committee the performance of the other NEOs, but no other NEO has any input into the executive compensation decisions. The PG&E Corporation CEO also recommends adjustments, if any, in base pay, target annual incentive opportunity, and equity awards for the other NEOs. These recommendations play a significant role in the compensation-setting process, given the PG&E Corporation CEO's direct knowledge of the performance and contributions of each of the NEOs'. The Committee has discretion to accept, reject, or modify the PG&E Corporation CEO's recommendations based on the Committee members' collective assessment of the officers' performance and pay position relative to market benchmarks provided by

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the Committee's consultant as well as PG&E Corporation's overall financial and operating performance.

Additional details regarding the processes for determining and setting executive compensation are set forth on pages 22 and 23 of this Joint Proxy Statement.