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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Pacific Gas and Electric Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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Preliminary Copies
[LOGO OF PG&E] PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
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Joint Notice of 1998 Annual Meetings * Joint Proxy Statement
March 2, 1998
To the Shareholders of PG&E Corporation and Pacific Gas and Electric Company:
You are cordially invited to attend the second annual meeting of PG&E
Corporation and the 92nd annual meeting of Pacific Gas and Electric Company. The
meetings will be held concurrently on Wednesday, April 15, 1998, at 10:00 a.m.,
in the Masonic Auditorium, 1111 California Street, San Francisco, California.
The accompanying Joint Proxy Statement contains information about matters
to be considered at both the PG&E Corporation and Pacific Gas and Electric
Company annual meetings. At the annual meetings, PG&E Corporation and Pacific
Gas and Electric Company shareholders will be asked to vote on the election of
directors and ratification of the selection of independent public accountants
for 1998 for their respective companies. The Boards of Directors and management
of PG&E Corporation and Pacific Gas and Electric Company recommend that you vote
"FOR" the nominees for directors and the ratification of the appointment of
Arthur Andersen LLP as the independent public accountants for 1998, as set forth
in the Joint Proxy Statement.
In addition to the matters described above, PG&E Corporation shareholders
will be asked to vote on the proposals submitted by individual PG&E Corporation
shareholders described in the Joint Proxy Statement, if such proposals are
properly presented at the annual meeting. For the reasons stated in the Joint
Proxy Statement, the PG&E Corporation Board of Directors and management
recommend that PG&E Corporation shareholders vote "AGAINST" these proposals.
In addition to the matters described in the second paragraph of this
letter, Pacific Gas and Electric Company shareholders will be asked to vote on a
management proposal to decrease the minimum number of directors. For the reasons
stated in the Joint Proxy Statement, the Pacific Gas and Electric Company Board
of Directors and management recommend that Pacific Gas and Electric Company
shareholders vote "FOR" this proposal.
Your vote on the business at the annual meeting is important. WHETHER OR
NOT YOU PLAN TO ATTEND, PLEASE SIGN, DATE, AND RETURN YOUR PROXY AS SOON AS
POSSIBLE IN THE ENVELOPE PROVIDED SO THAT YOUR SHARES CAN BE REPRESENTED AT THE
ANNUAL MEETING. If you hold shares in both PG&E Corporation and Pacific Gas and
Electric Company, you will be provided with a proxy card for each company. Be
sure to return both proxy cards in the envelopes provided.
During the annual meetings, PG&E Corporation and Pacific Gas and Electric
Company management also will report on operations and other matters affecting
PG&E Corporation and Pacific Gas and Electric Company, act on such other matters
as may properly be presented at the meetings, and respond to shareholders'
questions.
Sincerely,
/s/ Robert D. Glynn, Jr.
Robert D. Glynn, Jr.
Chairman of the Board, Chief
Executive Officer,
and President of PG&E Corporation
Chairman of the Board of
Pacific Gas and Electric Company
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Preliminary Copies
Table of Contents
Joint Notice of Annual Meetings of Shareholders
Joint Proxy Statement
General Information 1
Item No. 1: Election of Directors 2
Information Regarding the Boards of Directors of
PG&E Corporation and Pacific Gas and Electric Company 6
Item No. 2: Ratification of Appointment of Independent
Public Accountants 12
Item Nos. 3-6: Shareholder Proposals 13
(To Be Voted on by PG&E Corporation
Shareholders Only)
Item No. 7: Management Proposal 19
(To Be Voted on by Pacific Gas and
Electric Company Shareholders Only)
Executive Compensation 21
Other Information 34
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Preliminary Copies
Joint Notice of Annual Meetings of Shareholders
of PG&E Corporation and Pacific Gas and Electric Company
March 2, 1998
TO THE SHAREHOLDERS OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY:
The annual meetings of shareholders of PG&E Corporation and Pacific Gas
and Electric Company will be held concurrently in the Masonic Auditorium, 1111
California Street, San Francisco, California, on Wednesday, April 15, 1998, at
10:00 a.m., for the purpose of considering the following proposals:
(1) For PG&E Corporation and Pacific Gas and Electric Company
shareholders, to elect the following 14 and 15 directors,
respectively, to each Board for the ensuing year:
Richard A. Clarke Mary S. Metz
Harry M. Conger Rebecca Q. Morgan
David A. Coulter Carl E. Reichardt
C. Lee Cox John C. Sawhill
William S. Davila Alan Seelenfreund
Robert D. Glynn, Jr. Gordon R. Smith*
David M. Lawrence, MD Barry Lawson Williams
Richard B. Madden
* Gordon R. Smith is a nominee for director of the Pacific
Gas and Electric Company Board only.
(2) For PG&E Corporation and Pacific Gas and Electric Company
shareholders, to ratify each Board of Directors' appointment of
Arthur Andersen LLP as independent public accountants for 1998 for
PG&E Corporation and Pacific Gas and Electric Company;
(3) For PG&E Corporation shareholders only, to act upon four proposals
submitted by PG&E Corporation shareholders and described on pages
13-18 of the Joint Proxy Statement, if such proposals are properly
presented at the meeting;
(4) For Pacific Gas and Electric Company shareholders only, to act upon
the management proposal described on pages 19-20 of the Joint Proxy
Statement; and
(5) For PG&E Corporation and Pacific Gas and Electric Company
shareholders, to transact such other business as may properly come
before the meetings and any adjournments or postponements thereof.
Shareholders of record of PG&E Corporation and Pacific Gas and Electric
Company at the close of business on February 17, 1998, and valid proxyholders
may attend and vote at the respective annual meetings. If your shares are
registered in the name of a brokerage firm or trustee and you plan to attend the
meeting, please obtain from the firm or trustee a letter or other evidence of
your beneficial ownership of those shares to facilitate your admittance to the
meeting. If you are a participant in the PG&E Corporation Dividend Reinvestment
Plan, please note that the PG&E Corporation proxy covers all shares of common
stock in your account, including any shares which may be held in that Plan. If
you hold shares in both PG&E Corporation and Pacific Gas and Electric Company,
you will be provided with a proxy card for each company. Please return both
proxy cards in the envelopes provided.
By Order of the Boards of Directors,
/s/ LESLIE H. EVERETT
Leslie H. Everett
Vice President and Corporate Secretary,
PG&E Corporation and Pacific Gas and Electric
Company
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Preliminary Copies
PG&E Corporation
Pacific Gas and Electric Company
JOINT PROXY STATEMENT
INTRODUCTION
This Joint Proxy Statement is provided to the shareholders of PG&E
Corporation and Pacific Gas and Electric Company in connection with their
respective annual meetings of shareholders and any adjournments or postponements
thereof. The annual meetings are scheduled to be held concurrently at 10:00
a.m., Wednesday, April 15, 1998, at the Masonic Auditorium, 1111 California
Street, San Francisco, California.
As a result of the holding company formation merger in 1997, the
outstanding shares of Pacific Gas and Electric Company common stock were
converted, on a one-for-one basis, into shares of PG&E Corporation common stock.
PG&E Corporation holds 100 percent of the issued and outstanding shares of
Pacific Gas and Electric Company common stock and approximately 95 percent of
the total outstanding voting stock of Pacific Gas and Electric Company. The
outstanding shares of Pacific Gas and Electric Company's first preferred stock
are unchanged by the merger and continue to be outstanding shares of that
company.
GENERAL INFORMATION
The Boards of Directors of PG&E Corporation and Pacific Gas and Electric
Company are soliciting proxies hereunder for use at their respective annual
meetings to be held on April 15, 1998, and at any adjournments or postponements
thereof, and a respective form of proxy is provided with this Joint Proxy
Statement. This Joint Proxy Statement and the accompanying proxy form were first
mailed on or about March 2, 1998, to PG&E Corporation and Pacific Gas and
Electric Company shareholders entitled to vote at the annual meetings.
To the knowledge of the Boards of Directors of PG&E Corporation and
Pacific Gas and Electric Company, the only items of business to be considered at
the meetings are listed in the preceding PG&E Corporation and Pacific Gas and
Electric Company Joint Notice of Annual Meetings of Shareholders and are
explained in more detail on the following pages. By returning your signed proxy,
you authorize the proxyholders named in the proxy to vote your shares as you
indicate on these items of business and to vote your shares in accordance with
management's best judgment in response to other proposals properly presented by
others at the meeting.
You may revoke your signed proxy at any time before it is exercised at
the annual meeting. You may do this by advising the Vice President and Corporate
Secretary of PG&E Corporation or Pacific Gas and Electric Company (as the case
may be) in writing of your desire to revoke your proxy, or by submitting a duly
executed proxy bearing a later date. You also may revoke your proxy by attending
the annual meeting and indicating that you wish to vote in person.
The Boards of Directors of PG&E Corporation and Pacific Gas and Electric
Company have established February 17, 1998, as the record date for the
determination of shareholders of PG&E Corporation and Pacific Gas and Electric
Company entitled to receive notice of and to vote at their respective annual
meetings. As of February 17, 1998, there were __________ shares of PG&E
Corporation common stock, without par value, outstanding and entitled to vote at
the PG&E Corporation annual meeting; each such share is entitled to one vote. As
of February 17, 1998, there were __________ shares of Pacific Gas and Electric
Company first preferred stock, $25 par value, and __________ shares of Pacific
Gas and Electric Company common stock, $5 par value, outstanding and entitled to
vote at the Pacific Gas and Electric Company annual meeting; each such share is
entitled to one vote.
Shares represented by properly executed proxies received by PG&E
Corporation or Pacific Gas and Electric Company prior to or at the annual
meetings will be voted at the respective annual meeting in accordance with the
instructions specified in each proxy, and will be counted for purposes of
establishing a quorum, regardless of how or whether such shares are voted on any
specific proposal. If no instructions are specified in the PG&E Corporation
proxy, the subject shares will be voted (1) FOR the election of the nominees of
the PG&E Corporation Board of Directors, unless authority to vote is withheld as
provided in the proxy, (2) FOR ratification of the appointment of Arthur
Andersen LLP as PG&E Corporation's independent public accountants for 1998, and
(3) AGAINST each of the shareholder proposals that are properly presented at the
meeting. If no instructions are specified in the Pacific Gas and Electric
Company proxy, the
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subject shares will be voted (1) FOR the election of the nominees of the Pacific
Gas and Electric Company Board of Directors, unless authority to vote is
withheld as provided in the proxy, (2) FOR ratification of the appointment of
Arthur Andersen LLP as Pacific Gas and Electric Company's independent public
accountants for 1998; and (3) FOR the management proposal to decrease the
minimum number of directors.
The management proposal to decrease the minimum number of directors of
Pacific Gas and Electric Company must be approved by a majority of the
outstanding shares of voting stock of Pacific Gas and Electric Company. Other
than with respect to the election of directors, each other proposal which may be
presented at the meeting must receive the affirmative vote of a majority of the
shares represented and voting on the proposal. In addition, the affirmative
votes must constitute at least a majority of the required quorum. The required
quorum is a majority of the outstanding shares of voting stock of PG&E
Corporation or Pacific Gas and Electric Company (as the case may be). PG&E
Corporation and Pacific Gas and Electric Company intend to count abstentions
both for purposes of determining the presence or absence of a quorum and in the
total number of shares represented and voting with respect to a proposal.
Accordingly, abstentions will have the same effect as a vote against a proposal.
Broker non-votes, if any, with respect to a proposal will be counted for
purposes of determining the presence or absence of a quorum, but will not be
counted as shares represented and voting with respect to that proposal. Broker
non-votes occur when brokers or nominees have voted on some of the matters to be
acted on at a meeting, but fail to vote on certain other matters because, under
the rules of the New York Stock Exchange, they are not permitted to vote on such
other matters in the absence of instructions from the beneficial owners of the
shares.
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Item No. 1:
Election of Directors of PG&E Corporation and
Pacific Gas and Electric Company
Fourteen and fifteen directors will be elected to serve on the Boards of
Directors of PG&E Corporation and Pacific Gas and Electric Company,
respectively, to hold office until the next annual meetings or until their
successors shall be elected and qualified. The fourteen nominees for director of
PG&E Corporation and the fifteen nominees for director of Pacific Gas and
Electric Company whom the respective Boards propose for election are the same,
except for Gordon R. Smith, who is a nominee for the Pacific Gas and Electric
Company Board only. The composition of these slates of nominees is consistent
with the policy of PG&E Corporation and Pacific Gas and Electric Company that at
least 75 percent of their Boards shall be composed of directors who are neither
current nor former officers or employees of PG&E Corporation, Pacific Gas and
Electric Company, or any of their respective subsidiaries.
Information is provided on the following pages about the nominees for
directors, including their principal occupations for the past five years,
certain other directorships, age, and length of service as a director of PG&E
Corporation and Pacific Gas and Electric Company. Membership on Board
committees, attendance at Board and committee meetings, and ownership of stock
in PG&E Corporation and Pacific Gas and Electric Company are indicated in
separate sections following the individual resumes of the nominees.
Directors of PG&E Corporation and Pacific Gas and Electric Company are
elected from those nominated based on a plurality of votes cast. The nominees
receiving the highest number of affirmative votes (up to the number of directors
to be elected) are elected. Votes against a nominee or votes withheld have no
legal effect. Unless authority to vote is withheld or another contrary
instruction is indicated, properly executed proxies received by PG&E Corporation
or Pacific Gas and Electric Company prior to or at the annual meetings will be
voted FOR the election of the nominees listed on the following pages. All of the
nominees named below have agreed to serve if elected. Should any of the nominees
become unavailable at the time of the meeting to accept nomination or election
as a director, the respective proxyholders named in the enclosed PG&E
Corporation or Pacific Gas and Electric Company proxy will vote for substitute
nominees at their discretion.
THE BOARDS OF DIRECTORS OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC COMPANY
RECOMMEND THE ELECTION OF THEIR RESPECTIVE NOMINEES FOR DIRECTOR PRESENTED
IN THIS JOINT PROXY STATEMENT.
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Nominees for Directors of PG&E Corporation and
Pacific Gas and Electric Company
Biographical Information
RICHARD A. CLARKE
[PICTURE] Mr. Clarke is retired Chairman of the Board of Pacific Gas and
Electric Company. He was Chairman of the Board of Pacific Gas
and Electric Company from May 1986 until his retirement in May
1995, and also was Chief Executive Officer of Pacific Gas and
Electric Company from May 1986 to June 1994. Mr. Clarke, 67, has
been a director of Pacific Gas and Electric Company since 1985
and a director of PG&E Corporation since December 1996. He also
is a director of BankAmerica Corporation, Bank of America NT&SA,
CNF Transportation, and Potlatch Corporation.
HARRY M. CONGER
[PICTURE] Mr. Conger is Chairman of the Board of Homestake Mining Company.
He was Chief Executive Officer of Homestake Mining Company from
December 1978 until his retirement in May 1996, and continues to
serve as a director of that company. Mr. Conger, 67, has been a
director of Pacific Gas and Electric Company since 1982 and a
director of PG&E Corporation since December 1996. He also is a
director of Apex Silver Mines Limited, ASA Limited and CalMat
Co.
DAVID A. COULTER
[PICTURE] Mr. Coulter is Chairman and Chief Executive Officer of
BankAmerica Corporation (bank holding company) and Bank of
America NT&SA, and has been an executive officer of Bank of
America for more than the past five years. Mr. Coulter, 50, has
been a director of Pacific Gas and Electric Company since May
1996 and a director of PG&E Corporation since December 1996.
C. LEE COX
[PICTURE] Mr. Cox is retired Vice Chairman of AirTouch Communications,
Inc. and retired President and Chief Executive Officer of
AirTouch Cellular (cellular telephone and paging services). He
was an executive officer of AirTouch Communications, Inc. and
its predecessor, PacTel Corporation, from 1987 until his
retirement in April 1997, and continues to serve as a director
of AirTouch Communications, Inc. Mr. Cox, 56, has been a
director of Pacific Gas and Electric Company since February 1996
and a director of PG&E Corporation since December 1996. He also
is a director of NETCOM On-Line Communication Services, Inc.
WILLIAM S. DAVILA
[PICTURE] Mr. Davila is President Emeritus of The Vons Companies, Inc.
(retail grocery). He was President of The Vons Companies, Inc.
from 1986 until his retirement in May 1992, and continues to
serve as a director of that company. Mr. Davila, 66, has been a
director of Pacific Gas and Electric Company since 1992 and a
director of PG&E Corporation since December 1996. He also is a
director of Hormel Foods Corporation and Wells Fargo & Company.
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Nominees for Directors of PG&E Corporation and
Pacific Gas and Electric Company
Continued
ROBERT D. GLYNN, JR.
[PICTURE] Mr. Glynn is Chairman of the Board, Chief Executive Officer, and
President of PG&E Corporation and Chairman of the Board of
Pacific Gas and Electric Company, and has been an officer of
PG&E Corporation since December 1996 and an officer of Pacific
Gas and Electric Company since January 1988. Mr. Glynn, 55, has
been a director of Pacific Gas and Electric Company since 1995
and a director of PG&E Corporation since December 1996. He also
is a director of URS Corporation.
DAVID M. LAWRENCE, MD
[PICTURE] Dr. Lawrence is Chairman and Chief Executive Officer of Kaiser
Foundation Health Plan, Inc. and Kaiser Foundation Hospitals,
and has been an executive officer of those companies for more
than the past five years. Dr. Lawrence, 57, has been a director
of Pacific Gas and Electric Company since 1995 and a director of
PG&E Corporation since December 1996. He also is a director of
Hewlett-Packard Company.
RICHARD B. MADDEN
[PICTURE] Mr. Madden is retired Chairman of the Board and Chief Executive
Officer of Potlatch Corporation (diversified forest products).
He was Chief Executive Officer of Potlatch Corporation from 1971
until his retirement in May 1994, and continues to serve as a
director of that company. Mr. Madden, 68, has been a director of
Pacific Gas and Electric Company since 1977 and a director of
PG&E Corporation since December 1996. He also is a director of
CNF Transportation and URS Corporation.
MARY S. METZ
[PICTURE] Dr. Metz is Dean of University Extension, University of
California, Berkeley, and has held that position since July
1991. Dr. Metz, 60, has been a director of Pacific Gas and
Electric Company since 1986 and a director of PG&E Corporation
since December 1996. She also is a director of Longs Drug Stores
Corporation, SBC Communications, and Union Bank of California.
REBECCA Q. MORGAN
[PICTURE] Mrs. Morgan is President and Chief Executive Officer of Joint
Venture: Silicon Valley Network (nonprofit collaborative formed
to address critical issues facing Silicon Valley), and has held
that position since September 1993. Prior to that date, she
served two terms as a California State Senator from 1984 to
1992. Mrs. Morgan, 59, has been a director of Pacific Gas and
Electric Company since 1995 and a director of PG&E Corporation
since December 1996.
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CARL E. REICHARDT
[PICTURE] Mr. Reichardt is retired Chairman of the Board and Chief
Executive Officer of Wells Fargo & Company (bank holding
company) and Wells Fargo Bank, N.A. He was an executive officer
of Wells Fargo Bank, N.A. from 1978 until his retirement in
December 1994, and continues to serve as a director of Wells
Fargo & Company and Wells Fargo Bank, N.A. Mr. Reichardt, 66,
has been a director of Pacific Gas and Electric Company since
1985 and a director of PG&E Corporation since December 1996. He
also is a director of Columbia/HCA Healthcare Corporation,
ConAgra, Inc., Ford Motor Company, McKesson Corporation, Newhall
Management Corporation, and SunAmerica, Inc.
JOHN C. SAWHILL
[PICTURE] Dr. Sawhill is President and Chief Executive Officer of The
Nature Conservancy (international environmental organization),
and has held that position since April 1990. Dr. Sawhill, 61,
has been a director of Pacific Gas and Electric Company since
1990 and a director of PG&E Corporation since December 1996. He
also is a director of The Vanguard Group, Inc. and each of the
Vanguard Funds, registered investment companies, Procter and
Gamble, and NACCO Industries, Inc.
ALAN SEELENFREUND
[PICTURE] Mr. Seelenfreund is Chairman of the Board and former Chief
Executive Officer of McKesson Corporation (distributor of
pharmaceuticals and health care products), and has been an
officer of that company since 1977. Mr. Seelenfreund, 61, has
been a director of Pacific Gas and Electric Company since 1993
and a director of PG&E Corporation since December 1996.
GORDON R. SMITH*
[PICTURE] Mr. Smith is President and Chief Executive Officer of Pacific
Gas and Electric Company, and has been an officer of Pacific Gas
and Electric Company since June 1980. Mr. Smith, 50, has been a
director of Pacific Gas and Electric Company since June 1997.
BARRY LAWSON WILLIAMS
[PICTURE] Mr. Williams is President of Williams Pacific Ventures, Inc.
(venture capital and real estate, consulting, and mediation),
and has held that position since May 1987. Mr. Williams, 53, has
been a director of Pacific Gas and Electric Company since 1990
and a director of PG&E Corporation since December 1996. He also
is a director of APL Limited, CompUSA Inc., Newhall Management
Corporation, and Simpson Manufacturing Co., Inc.
* Gordon R. Smith is a nominee for director of Pacific Gas and
Electric Company only.
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Information Regarding the
Boards of Directors of PG&E Corporation and
Pacific Gas and Electric Company
BOARD COMMITTEES
The committees of the PG&E Corporation Board of Directors are the Executive
Committee, Audit Committee, Finance Committee, Nominating and Compensation
Committee, and Public Policy Committee. The Pacific Gas and Electric Company
Board of Directors has an Executive Committee. The current membership and duties
of these committees are as follows:
<TABLE>
<CAPTION>
Nominating and
Executive Audit Finance Compensation Public Policy
Committees Committee Committee Committee Committee
<S> <C> <C> <C> <C>
R. D. Glynn, Jr.* H. M. Conger* R. B. Madden* C. E. Reichardt* M. S. Metz*
H. M. Conger C. L. Cox R. A. Clarke D. A. Coulter R. A. Clarke
R. B. Madden W. S. Davila D. A. Coulter D. M. Lawrence, MD W. S. Davila
M. S. Metz M. S. Metz C. E. Reichardt J. C. Sawhill R. Q. Morgan
C. E. Reichardt B. L. Williams J. C. Sawhill A. Seelenfreund J. C. Sawhill
Gordon R. Smith (1) B. L. Williams
</TABLE>
* Chair
(1) Member of the Pacific Gas and Electric Company Executive
Committee only.
EXECUTIVE COMMITTEES
Each Executive Committee (no meetings held in 1997), subject to the
provisions of law and certain limits imposed by the PG&E Corporation or the
Pacific Gas and Electric Company Board (as the case may be), may exercise any of
the powers and perform any of the duties of the PG&E Corporation or the Pacific
Gas and Electric Company Board, respectively. The Executive Committees meet as
needed.
AUDIT COMMITTEE
The Audit Committee of PG&E Corporation (four PG&E Corporation Committee
meetings and three Pacific Gas and Electric Company Committee meetings were held
in 1997) advises and assists the Board in fulfilling its responsibilities in
connection with financial and accounting practices, internal controls, external
and internal auditing programs, business ethics, and compliance with laws,
regulations, and policies that may have a material impact on the consolidated
financial statements of PG&E Corporation and its subsidiaries. The Audit
Committee satisfies itself as to the independence and competence of PG&E
Corporation's and Pacific Gas and Electric Company's independent public
accountants, and reviews with the independent accountants and with PG&E
Corporation's or Pacific Gas and Electric Company's officers and internal
auditors the scope and results of the independent accountants' audit work,
consolidated annual financial statements, internal audit and control systems,
and compliance with laws, regulations, policies, and programs. The Audit
Committee also recommends to the Board of Directors the firm of independent
public accountants to be selected to audit PG&E Corporation's and Pacific Gas
and Electric Company's accounts, and makes further inquiries as it deems
necessary or desirable to inform itself as to the conduct of PG&E Corporation's
or its subsidiaries' affairs.
The Audit Committee is composed entirely of directors who are neither
(a) current or former officers or employees of PG&E Corporation or any of its
subsidiaries; (b) consultants to PG&E Corporation or any of its subsidiaries;
nor (c) officers or employees of any other corporation on whose board of
directors any PG&E Corporation officer serves as a member. One member of the
Committee is appointed by the Board of Directors as the Committee's Chair. The
PG&E Corporation and Pacific Gas and Electric Company Committees were
consolidated into a single Audit Committee of the PG&E Corporation Board on
October 15, 1997.
FINANCE COMMITTEE
The Finance Committee of PG&E Corporation (four PG&E Corporation
Committee meetings and four Pacific Gas and Electric Company Committee meetings
were held in 1997) advises and assists the Board with respect to the financial
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and capital investment policies and objectives of PG&E Corporation and its
subsidiary companies, including specific actions required to achieve those
objectives. The Finance Committee reviews long-term financial and investment
plans and strategies, annual financial plans, dividend policy, short-term and
long-term financing plans, proposed capital investments, proposed divestments,
major commercial banking, investment banking, financial consulting, and other
financial relations of PG&E Corporation or its subsidiaries, and price risk
management activities. The PG&E Corporation Finance Committee, the Pacific Gas
and Electric Company Finance Committee, and the PG&E Corporation Capital
Investment Committee (eight Committee meetings were held in 1997) were
consolidated into a single Finance Committee of the PG&E Corporation Board on
December 17, 1997.
One member of the Committee, who is neither a current nor former employee
of, or current consultant to, PG&E Corporation or any of its subsidiaries, is
appointed by the Board of Directors as the Committee's Chair.
NOMINATING AND COMPENSATION COMMITTEE
The Nominating and Compensation Committee of PG&E Corporation (eight PG&E
Corporation Committee meetings and three Pacific Gas and Electric Company
Committee meetings were held in 1997) advises and assists the Boards of PG&E
Corporation, Pacific Gas and Electric Company, and other PG&E Corporation
subsidiaries having non-employee directors with respect to the selection and
compensation of directors; employment, compensation, and benefits policies and
practices; and the development, selection, and compensation of policy-making
officers. The Nominating and Compensation Committee reviews and acts upon the
compensation of officers of PG&E Corporation and its subsidiaries, except that
of the Chief Executive Officers of PG&E Corporation and Pacific Gas and Electric
Company, whose compensation is established by the full PG&E Corporation or
Pacific Gas and Electric Company Board (as the case may be) upon recommendation
of the Committee. The Committee also reviews long-range planning for executive
development and succession, and the composition and performance of the Boards of
PG&E Corporation, Pacific Gas and Electric Company, and any other subsidiary
with non-employee directors. The Nominating and Compensation Committee is
composed entirely of directors who are neither (a) current or former officers or
employees of PG&E Corporation or any of its subsidiaries; (b) consultants to
PG&E Corporation or any of its subsidiaries; nor (c) officers or employees of
any other corporation on whose board of directors any PG&E Corporation officer
serves as a member. One member of the Committee is appointed by the Board of
Directors as the Committee's Chair. The PG&E Corporation and Pacific Gas and
Electric Company Committees were consolidated into a single Nominating and
Compensation Committee of the PG&E Corporation Board on June 18, 1997.
The Nominating and Compensation Committee will consider nominees
recommended by shareholders for election to the Boards of Directors of PG&E
Corporation and Pacific Gas and Electric Company. The names of such nominees,
accompanied by relevant biographical information, should be submitted in writing
to the Vice President and Corporate Secretary of PG&E Corporation or Pacific Gas
and Electric Company (as the case may be). The Nominating and Compensation
Committee seeks qualified, dedicated, and highly regarded individuals who have
experience relevant to PG&E Corporation's or Pacific Gas and Electric Company's
business operations, who understand the complexities of PG&E Corporation's or
Pacific Gas and Electric Company's business environment, and who will represent
the best interests of the shareholders of PG&E Corporation or Pacific Gas and
Electric Company. In accordance with PG&E Corporation's and Pacific Gas and
Electric Company's commitment to equal opportunity, the Committee continues to
seek qualified women and minority candidates for the Boards.
PUBLIC POLICY COMMITTEE
The Public Policy Committee of PG&E Corporation (two PG&E Corporation
Committee meetings and two Pacific Gas and Electric Company Committee meetings
were held in 1997) advises and assists the Board of Directors with respect to
public policy issues which could affect significantly the interests of the
customers, shareholders, or employees of PG&E Corporation or its subsidiaries.
The Public Policy Committee reviews the policies and practices of PG&E
Corporation and its subsidiaries with respect to protection and improvement of
the quality of the environment, charitable and community service organizations
and activities, equal opportunity in hiring and promoting employees, and
development of minority-owned and women-owned businesses as suppliers to PG&E
Corporation and its subsidiaries. The Committee also reviews significant
societal, governmental, and environmental trends and issues which may affect the
operations of PG&E Corporation or its subsidiaries. The PG&E Corporation and
Pacific Gas and Electric Company Committees were consolidated into a single
Public Policy Committee of the PG&E Corporation Board on July 16, 1997.
One member of the Committee, who is neither a current nor former employee
of, or current consultant to, PG&E Corporation or any of its subsidiaries, is
appointed by the Board of Directors as the Committee's Chair.
7
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ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
Fourteen meetings of the PG&E Corporation Board of Directors and 26
meetings of the PG&E Corporation Board committees were held in 1997. Overall
attendance at such meetings was 94%. Individual attendance at meetings of the
PG&E Corporation Board of Directors and Board committees was as follows: R. A.
Clarke 100%, H. M. Conger 89%, D. A. Coulter 89%, C. L. Cox 94%, W. S. Davila
100%, R. D. Glynn, Jr. 100%, D. M. Lawrence 86%, R. B. Madden 100%, M. S. Metz
95%, R. Q. Morgan 78%, S. T. Reeves 89%, C. E. Reichardt 100%, J. C. Sawhill
100%, A. Seelenfreund 86%, S. T. Skinner 94%, and B. L. Williams 100%.
Eleven meetings of the Pacific Gas and Electric Company Board of Directors
and 12 meetings of Pacific Gas and Electric Company Board committees were held
in 1997. Overall attendance at such meetings was 96%. Individual attendance at
meetings of the Pacific Gas and Electric Company Board of Directors and Board
committees was as follows: R. A. Clarke 100%, H. M. Conger 93%, D. A. Coulter
93%, C. L. Cox 100%, W. S. Davila 100%, R. D. Glynn, Jr. 100%, D. M. Lawrence
86%, R. B. Madden 100%, M. S. Metz 94%, R. Q. Morgan 93%, S. T. Reeves 92%, C.
E. Reichardt 100%, J. C. Sawhill 100%, A. Seelenfreund 93%, S. T. Skinner 93%,
G. R. Smith 100%, and B. L. Williams 100%.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of PG&E Corporation or
Pacific Gas and Electric Company receives a quarterly retainer of $7,500 plus a
fee of $1,000 for each Board or Board committee meeting attended. Non-employee
directors who chair Board committees receive an additional quarterly retainer of
$625. Under the Directors' Deferred Compensation Plan, directors of PG&E
Corporation or Pacific Gas and Electric Company may elect to defer with interest
all or part of such compensation for varying periods. In December 1997, to
further align directors' interests with those of PG&E Corporation's
shareholders, the Board of Directors amended the Directors' Deferred
Compensation Plan to permit a director to direct that earnings on deferred
meeting fees and retainers be tied to the market price of PG&E Corporation's
common stock.
No director who serves on both the PG&E Corporation and Pacific Gas and
Electric Company Boards and corresponding committees is paid additional
compensation for concurrent service on Pacific Gas and Electric Company's Board
or its committees, except that separate meeting fees are paid for each meeting
of the Pacific Gas and Electric Company Board, or a Pacific Gas and Electric
Company Board committee, that is not held concurrently or sequentially with a
meeting of the PG&E Corporation Board or a corresponding PG&E Corporation Board
committee. It is the usual practice of PG&E Corporation and Pacific Gas and
Electric Company that meetings of the PG&E Corporation and Pacific Gas and
Electric Company Boards, and corresponding committees, are held concurrently
with each other and, therefore, that a single meeting fee is paid to each
director for each set of meetings.
In addition, directors of PG&E Corporation or Pacific Gas and
Electric Company are reimbursed for reasonable expenses incurred in attending
Board or committee meetings. Directors of PG&E Corporation or Pacific Gas and
Electric Company also are reimbursed for reasonable expenses incurred in
connection with other activities undertaken on behalf of or for the benefit of
PG&E Corporation or Pacific Gas and Electric Company.
Effective January 1, 1998, the Retirement Plan for Non-Employee Directors
of PG&E Corporation was terminated. Directors who have accrued benefits under
the Plan were given a one-time option of receiving at retirement the benefit
accrued through 1997, or of converting the present value of their accrued
benefit into a common stock equivalent investment held in the Deferred
Compensation Plan for Non-Employee Directors. The payment of frozen accrued
benefits and distributions from the Deferred Compensation Plan attributable to
the conversion of retirement benefits cannot be made until the later of age 65
or retirement from the Board.
Since 1996, a portion of director compensation has been composed of equity
ownership in PG&E Corporation. To increase the portion of director pay that is
equity-based and thereby further align the interests of directors with those of
PG&E Corporation's shareholders, the Non-Employee Director Stock Incentive Plan,
a component of the PG&E Corporation Long-Term Incentive Program, became
effective January 1, 1998. For 1998, approximately 45 percent of total director
pay is composed of stock-based compensation, an increase from less than 20
percent based on total director pay in 1997. Under the Non-Employee Director
Stock Incentive Plan, on the first business day of January each year, each non-
employee director of PG&E Corporation is entitled to receive stock-based awards
with a total aggregate value of $30,000, composed of (1) restricted shares of
PG&E Corporation common stock valued at $10,000, and (2) a combination of non-
qualified stock options and common stock equivalents with a total value of
$20,000. Restricted stock and stock options granted under the plan vest over the
five-year period following the date of grant, except that restricted stock and
8
<PAGE>
stock options will vest immediately upon mandatory retirement from the Board at
age 70, upon a director's death or disability, or in the event of a change in
control. Common stock equivalents awarded under the plan are payable in the form
of PG&E Corporation common stock only following a director's retirement from the
Board, upon a director's death or disability, or in the event of a change in
control. Unvested awards are forfeited if the recipient ceases to be a director
for any other reason.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Coulter, a director of PG&E Corporation and Pacific Gas and Electric
Company, is Chairman and Chief Executive Officer of BankAmerica Corporation and
Bank of America NT&SA, which was paid approximately $2.5 million by PG&E
Corporation, Pacific Gas and Electric Company, and their subsidiaries during
1997 in connection with providing credit and banking services to those companies
in the normal course of business. Such credit arrangements and services are
expected to continue to be provided to PG&E Corporation, Pacific Gas and
Electric Company, and their subsidiaries in the future. Mr. Coulter has no
personal interest in these transactions.
Mr. Cox, a director of PG&E Corporation and Pacific Gas and Electric
Company, is retired Vice Chairman of AirTouch Communications, Inc. and retired
President and Chief Executive Officer of AirTouch Cellular, which were paid
approximately $______________ by PG&E Corporation, Pacific Gas and Electric
Company, and their subsidiaries during 1997 in connection with providing
cellular telephone and paging services to those companies in the normal course
of business. Such services are expected to continue to be provided to PG&E
Corporation, Pacific Gas and Electric Company, and their subsidiaries in the
future. Mr. Cox has no personal interest in these transactions.
Dr. Lawrence, a director of PG&E Corporation and Pacific Gas and Electric
Company, is Chairman and Chief Executive Officer of Kaiser Foundation Health
Plan, Inc. and Kaiser Foundation Hospitals, which were paid approximately $23.3
million by PG&E Corporation, Pacific Gas and Electric Company, and their
subsidiaries during 1997 in connection with providing health care services for
employees, retirees, and surviving dependents who elected medical plan coverage
through Kaiser. These services were provided by Kaiser in the ordinary course
of business. PG&E Corporation and Pacific Gas and Electric Company offer a
choice of medical plans to its employees and retirees, but exercise no influence
over which medical plan ultimately is chosen by an employee or retiree. It is
expected that PG&E Corporation and Pacific Gas and Electric Company will
continue to offer Kaiser as a medical plan option in the future. Dr. Lawrence
has no personal interest in these transactions.
Mrs. Morgan, a director of PG&E Corporation and Pacific Gas and Electric
Company, also is President and Chief Executive Officer of Joint Venture: Silicon
Valley Network (JVSV Network), a nonprofit collaborative. As part of Pacific Gas
and Electric Company's overall efforts to retain customers and to stimulate the
economy in the Company's service territory, in 1997 the Company provided
$100,000 of overall support to JVSV Network. Pacific Gas and Electric Company
expects to continue providing support to JVSV Network in the future. Mrs. Morgan
has no personal interest in these transactions.
In September 1997, U.S. Generating Company became a wholly owned subsidiary
of PG&E Corporation. In connection with the acquisition, Mr. Kearney, President
and Chief Executive Officer of U.S. Generating Company since 1989, became a
Senior Vice President of PG&E Corporation. Mr. Kearney is entitled to receive
incentive payments upon completion of the transfer of certain assets related to
U.S. Generating Company and the transfer of interests in certain of U.S.
Generating Company's power plant projects. PG&E Corporation is responsible for
a share of the future incentive payments to be made to Mr. Kearney. No
incentive payments were made to Mr. Kearney under this arrangement in 1997.
BOARD OF DIRECTORS RETIREMENT POLICY
It is the policy of the Boards of Directors of PG&E Corporation and Pacific
Gas and Electric Company that a person may not be designated as a candidate for
election or re-election as a director after he or she has reached the age of 70.
9
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of PG&E Corporation
common stock beneficially owned (as defined in the rules of the Securities and
Exchange Commission) as of January 31, 1998, by the directors of PG&E
Corporation and Pacific Gas and Electric Company, the nominees for director, the
executive officers of PG&E Corporation and Pacific Gas and Electric Company
named in the Summary Compensation Table on page 28, and all directors and
executive officers of PG&E Corporation and Pacific Gas and Electric Company as a
group. The number of shares shown for each such person, and for the directors,
nominees for director, and executive officers as a group, constituted less than
1% of the outstanding shares of PG&E Corporation common stock. As of January 31,
1998, no director, nominee for director, or executive officer owned shares of
any class of Pacific Gas and Electric Company securities. The table also sets
forth common stock units credited to the accounts of directors and executive
officers under PG&E Corporation and Pacific Gas and Electric Company plans that
provide for the deferral of all or a portion of compensation earned by directors
and officers.
<TABLE>
<CAPTION>
(A) (B)
BENEFICIAL DEFERRED COMPENSATION
NAME STOCK OWNERSHIP(1)(2) COMMON STOCK UNITS
<S> <C> <C>
Richard A. Clarke
Harry M. Conger
David A. Coulter
C. Lee Cox
William S. Davila
Robert D. Glynn, Jr.
David M. Lawrence, MD
Richard B. Madden
Mary S. Metz
Rebecca Q. Morgan
Carl E. Reichardt
John C. Sawhill
Alan Seelenfreund
Gordon R. Smith
Barry Lawson Williams
Stanley T. Skinner(3)
Scott W. Gebhardt(3)
L. E. Maddox(3)
Jack J. Jenkins-Stark(3)
Bruce R. Worthington(3)
Gregory M. Rueger(3)
James K. Randolph(3)
E. James Macias(3)
[Kent M. Harvey/
Roger J. Peters](3)
All directors and executive
officers as a group
(__ persons)
</TABLE>
(1) Includes any shares held in the name of the spouse, minor children, or other
relatives sharing the home of the director or executive officer and, in the
case of executive officers, includes shares held in the Pacific Gas and
Electric Company Savings Fund Plan. Except as otherwise indicated below, the
directors, nominees for director, and executive officers have sole voting
and investment power over the shares shown. Voting power includes the power
to direct the voting of the shares held, and investment power includes the
power to direct the disposition of the shares held.
Also includes the following shares of PG&E Corporation common stock in
which the beneficial owners share voting and investment power: Mr.
Coulter, _____ shares; Mr. Cox, _____ shares; Mr. Davila, _____ shares;
Mr. Madden,
10
<PAGE>
_____ shares; Dr. Metz, _____ shares; Mr. Smith, _____ shares; Mr.
________, _____ shares; Mr. ________, _____ shares; and all directors
and executive officers as a group, _____ shares.
(2) Includes shares of PG&E Corporation common stock which the directors and
executive officers have the right to acquire within 60 days of January
31, 1998, through the exercise of vested stock options granted under the
PG&E Corporation Stock Option Plan, as follows: Mr. Clarke, _____
shares; Mr. Glynn, _____ shares; Mr. Skinner, _____ shares; Mr. Jenkins-
Stark, _____ shares; Mr. Worthington, _____ shares; Mr. Smith, _____
shares; Mr. Rueger, _____ shares; Mr. Randolph, _____ shares; Mr.
Macias, _____ shares; Mr. [Harvey/Peters], _____ shares; and all
directors and executive officers as a group, _____ shares. The directors
and executive officers have neither voting power nor investment power
with respect to shares shown unless and until such shares are purchased
through the exercise of the options, pursuant to the terms of the Stock
Option Plan.
(3) Mr. Skinner, Mr. Gebhardt, Mr. Maddox, Mr. Jenkins-Stark, Mr.
Worthington, Mr. Rueger, Mr. Randolph, Mr. Macias, and Mr.
[Harvey/Peters] are executive officers named in the Summary Compensation
Table on page 28.
11
<PAGE>
- --------------------------------------------------------------------------------
Item No. 2:
Ratification of Appointment of Independent Public Accountants
On the recommendation of the Audit Committee of PG&E Corporation, the
Boards of Directors of PG&E Corporation and Pacific Gas and Electric Company
have selected Arthur Andersen LLP as the independent public accountants to
examine the financial statements of PG&E Corporation, Pacific Gas and Electric
Company, and their respective subsidiaries for the year 1998. Arthur Andersen
LLP has been employed to perform this function for Pacific Gas and Electric
Company since 1981 and for PG&E Corporation since 1996.
One or more representatives of Arthur Andersen LLP will be present at
the annual meetings, and will have the opportunity to make a statement and to
respond to appropriate questions.
Although this appointment is not required to be submitted to a vote of
the shareholders, the Boards of Directors of PG&E Corporation and Pacific Gas
and Electric Company believe it is appropriate as a matter of policy to request
that the shareholders ratify the appointment. If the shareholders should not
ratify the appointment, the PG&E Corporation Audit Committee will investigate
the reasons for rejection by the shareholders and each Board of Directors will
reconsider the appointment.
The affirmative vote of a majority of the shares represented and voting
on the proposal is required to ratify the appointment of the independent public
accountants. Abstentions will have the same effect as a vote against the
proposal. Unless marked to the contrary, properly executed proxies received by
PG&E Corporation or Pacific Gas and Electric Company prior to or at the annual
meetings will be voted for this proposal.
THE BOARDS OF DIRECTORS OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC
COMPANY RECOMMEND A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR
ANDERSEN LLP.
- --------------------------------------------------------------------------------
IF YOU DO NOT HOLD ANY SHARES OF PG&E CORPORATION COMMON STOCK, YOU ARE NOT
ENTITLED TO VOTE ON THE FOLLOWING FOUR SHAREHOLDER PROPOSALS.
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Item Nos. 3-6:
Shareholder Proposals
FOR CONSIDERATION BY PG&E CORPORATION SHAREHOLDERS ONLY
The following proposals have been submitted by shareholders for action
at the PG&E Corporation annual meeting. To be approved, each properly presented
proposal must receive the affirmative vote of a majority of the PG&E Corporation
shares represented and voting on the proposal and the affirmative votes must
constitute at least a majority of the required quorum. Abstentions will be
counted in the number of shares represented and voting and will have the same
effect as a vote against the proposal. Broker non-votes with respect to a
particular proposal will be counted for purposes of determining the presence or
absence of a quorum, but will not be counted in the number of shares represented
and voting on the proposal. Proxies solicited by the PG&E Corporation Board of
Directors will be voted "AGAINST" these proposals unless PG&E Corporation
shareholders specify otherwise in their proxies.
ITEM NO. 3: SHAREHOLDER PROPOSAL REGARDING INDEPENDENT DIRECTORS
Mr. John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach,
California 90278, on behalf of Ray T. Chevedden and Veronica G. Chevedden,
Trustees of the Ray T. Chevedden and Veronica G. Chevedden Family Trust, holder
of 3,000 shares of PG&E Corporation common stock, has given notice of his
intention to present the following proposal for action at the PG&E Corporation
annual meeting:
"Appoint Independent Directors for all Key Board Committees to enhance
management oversight. Key board committees include the audit, compensation and
nomination committees. These important oversight-committees require heightened
independence, free of Directors with significant financial and management ties
to PG&E.
The 1997 PG&E proxy statement lists the following Directors with
significant 1996 financial and management ties to PG&E:
1. Dr. David Lawrence CEO of Kaiser Health Plan
* PG&E paid $21-Million ($21,980,178) to Kaiser.
2. David Coulter CEO of Bank of America
* PG&E paid $626,847 to Bank of America to manage $100s-of-
millions of credit, banking and loan services.
3. Lee Cox Vice Chairman of AirTouch Communications
* PG&E paid $1-Million ($1,042,466) to AirTouch.
4. Rebecca Morgan CEO of JVSV Network
* PG&E paid $100,000 to JVSV.
5. Richard Clark
* Retired PG&E CEO - can tend to make him protect his old
policies.
The $10s-of-millions PG&E paid to the companies of PG&E Directors again
in 1997 is highlighted in the "CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS"
heading on page 9 in this proxy statement.
The following 1996 news reports remind shareholders of PG&E's continuing
problems and that the 39% dividend cut has not been restored:
* PG&E pays $333 million in pollution lawsuit
* PG&E customer rates are 40% above the national average
* PG&E cuts dividend 39%
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<PAGE>
Additionally, the need for greater oversight could never be more clear
with the perils and opportunities from utility deregulation.
THIS RESOLUTION IS CONSISTENT WITH THE WIDELY-ACCLAIMED CAMPBELL SOUP
CORPORATE GOVERNANCE STANDARDS WHICH STATES:
THE AUDIT, COMPENSATION/ORGANIZATION AND GOVERNANCE COMMITTEES WILL
CONSIST ENTIRELY OF INDEPENDENT DIRECTORS. COMMITTEE MEMBERS WILL BE APPOINTED
BY THE BOARD.
Independent directors are different from affiliated directors, who have
significant financial or management ties to PG&E, and inside directors who work
full-time for PG&E.
Directors whose companies do substantial business with PG&E arguably put
the interests of their companies first. Their companies earn far more from PG&E
than PG&E pays in director fees.
It is difficult for affiliated directors to initiate constructive
challenges to PG&E management when PG&E can threaten to stop paying each of
their companies $21-million ($21,000,000) to $100,000 every year.
VOTE YES ON ITEM NO. 3: APPOINT INDEPENDENT DIRECTORS TO ALL KEY BOARD
COMMITTEES"
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
PG&E Corporation agrees that having independent directors on the Board
enhances the Board's performance and oversight of corporation management.
Upon its creation in December 1996, the PG&E Corporation Board of
Directors adopted a comprehensive set of corporate governance guidelines. These
guidelines established governance principles which ensure the independence of
the PG&E Corporation Board.
These guidelines call for 75 percent of the Board to be composed of
directors who are neither current nor former employees of PG&E Corporation or
any of its subsidiaries. The PG&E Corporation Board is in compliance with this
guideline.
These guidelines also require that the Audit Committee and the
Nominating and Compensation Committee of the PG&E Corporation Board each be
composed entirely of independent directors. Independent directors are defined in
the guidelines as directors who are neither (a) current nor former employees of
nor consultants to PG&E Corporation or its subsidiaries, nor (b) current nor
former officers or employees of any other corporation on whose board of
directors any officer of PG&E Corporation serves as a member. PG&E Corporation
is in compliance with this guideline.
The PG&E Corporation Board of Directors believes that its current Board
structure and corporate governance policies ensure independent oversight of
management. None of the directors who are affiliated with other companies which
are customers or suppliers of, or providers of services to, PG&E Corporation or
its affiliates possesses a personal interest in the transactions which would
compromise his or her independence or preclude the ability to faithfully fulfill
fiduciary duties to PG&E Corporation's shareholders. The transactions referenced
in the shareholder proposal relate to ordinary business dealings between Pacific
Gas and Electric Company (a subsidiary of PG&E Corporation) and the named
companies.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
14
<PAGE>
Item No. 4: SHAREHOLDER PROPOSAL REGARDING SUPER MAJORITY VOTING
Ms. Ersilia N. Davis, 1488 San Pasqual Street, Pasadena, California
91106, holder of 200 shares of PG&E Corporation common stock, has given notice
of her intention to present the following proposal for action at the PG&E
Corporation annual meeting:
"The shareholders of PG&E Corporation ask and recommend the Board
of Directors to take the necessary steps to amend the company's
governing documents to reinstate SIMPLE MAJORITY VOTE on all issues put
to shareholder vote.
Reinstate simple majority-vote rule to enhance shareholder value.
Delete PG&E governing document sections requiring an overwhelming 75%
shareholder vote. A 75%-vote is called a super-majority vote.
SUPER-MAJORITY RULES ARE WIDELY OPPOSED.
The bi-partisan National Conference of State Legislatures urged
States to ban them. Major pension funds, including those holding PG&E
stock, declare that super-majority rules are not in the best interest of
shareholders.
Also, require that any future super-majority proposal be put to
shareholder vote-as a separate issue and not as part of a resolution
package.
PG&E super-majority provisions mean that if a majority of the
shareholders (but less than an overwhelming 75%) vote to change a super-
majority item, management can ignore the majority.
A competitive company does not need protection from change by
requiring an overwhelming 75%-vote.
VOTE YES FOR RESOLUTION NO. 4: REINSTATE SIMPLE MAJORITY VOTE ON
ALL ISSUES SUBMITTED TO SHAREHOLDER VOTE"
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
PG&E Corporation's Articles of Incorporation and Bylaws contain only one
"super-majority" vote requirement-the "fair price" provisions in Article Eighth
of the Articles of Incorporation. In 1996, the shareholders approved these fair
price provisions through approval of PG&E Corporation's Restated Articles of
Incorporation, as part of the shareholders' approval of the holding company
reorganization. The fair price provisions and the related super-majority
requirement are intended to reduce the possibility of unfair treatment of
shareholders in takeover situations, and are drawn narrowly to achieve that
purpose.
The fair price provisions apply to certain transactions (such as a
merger, consolidation, transfer of substantial assets, or recapitalization)
between PG&E Corporation and another party which owns five percent or more of
the Corporation's stock. This type of transaction must be either (1) approved by
75 percent of the Corporation's outstanding shares, (2) approved by a majority
of the disinterested directors, or (3) satisfy certain "fair price" criteria
with respect to the remaining shareholders. In most cases, a 75 percent
shareholder vote is required to alter, amend, repeal, or adopt any provisions
inconsistent with the fair price provisions.
In addition, the fair price provisions provide that, when evaluating any
proposal or offer involving a business combination or merger or consolidation of
PG&E Corporation, the Board of Directors shall give due consideration to all
factors they may consider relevant. Such factors may include the legal,
economic, environmental, regulatory, and social effects of the proposed
transaction on PG&E Corporation's employees, customers, suppliers, and other
affected persons and entities and on the communities and geographic areas in
which PG&E Corporation provides utility service or is located, and in
particular, the effect on PG&E Corporation's ability to safely and reliably meet
any public utility obligations at reasonable rates.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
15
<PAGE>
Item No. 5: SHAREHOLDER PROPOSAL REGARDING CUMULATIVE VOTING
Mr. Simon Levine, Trustee of the Simon Levine Living Trust, 960
Shorepoint Court, No. 306, Alameda, California 94501, holder of 6,203 shares of
PG&E Corporation common stock, has given notice of his intention to present the
following proposal for action at the PG&E Corporation annual meeting:
"The shareholders of PG&E Corporation request the Board of
Directors take the necessary steps to amend the company's governing
instruments to adopt the following:
REINSTATE CUMULATIVE VOTING FOR THE ELECTION OF PG&E DIRECTORS.
Cumulative voting enables a significant group of stockholders,
though a minority, to elect a candidate of their choice.
With cumulative voting, all of a shareholder's votes for directors
(16-votes per PG&E share) can be cast for a single director or focused
toward particular directors from PG&E's 16 directors.
Cumulative Voting was required by PG&E's corporate By-laws as
recently as 1990.
Cumulative voting would contribute to a more diverse board of
directors to encourage the election of at least one director to focus on
the financial impact of questionable or unethical business practices at
----------------
PG&E.
These news reports highlight the financial impact of PG&E's
questionable or unethical business practices:
Santa Clara County jury slams PG&E with a $30-million ($30,000,000)
------------------------
verdict, finding that the utility's failure to investigate complaints of
toxic fumes at a San Jose office building endangered a pregnant woman
who eventually gave birth to a brain-damaged baby.
San Jose Mercury News July 9, 1997
PG&E pays $850,000 to settle ethics misconduct charge. 50 managers
--------
ordered to take "professional responsibility" course.
Turning Points Autumn 1997
Jury fined PG&E $2-million ($2,000,000) for criminal negligence for a
----------------------
1994 fire which torched 12 homes in historic Rough and Ready, Nevada.
PG&E was guilty of 739 charges of failure to trim trees ignited by
electric wires. Damaging evidence included one PG&E corporate memo
praising managers for reducing tree-trimming costs before the fire.
San Francisco Chronicle June 20, 1997
If a company's performance lags over a sustained period, it is
time for the shareholders to send a message to the Board, reminding them
that they have to hold management-and themselves-to a higher standard.
PG&E's poor performance leads institutional and individual
investors to hold the Directors and Management to a higher standard.
VOTE YES TO REINSTATE CUMULATIVE VOTING FOR THE ELECTION OF
---
DIRECTORS WHO GIVE GREATER ATTENTION TO QUESTIONABLE POLICIES THAT
IMPACT STOCK PRICE."
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST This
PROPOSAL.
PG&E Corporation believes that cumulative voting would erode
shareholders' ability to elect directors who represent the interests of the
shareholders as a whole.
In 1996, the shareholders approved the elimination of cumulative voting
through approval of PG&E Corporation's Restated Articles of Incorporation, as
part of the shareholders' approval of the holding company reorganization.
Previously, at the Pacific Gas and Electric Company 1990 annual meeting, the
shareholders approved an amendment to Pacific Gas and Electric Company's Bylaws
which specified that cumulative voting may not be used in the election of
directors.
Under cumulative voting, the total number of votes that each shareholder
may cast in an election for directors is determined by multiplying the number of
directors to be elected by the number of votes to which the shareholder's
16
<PAGE>
shares are entitled. Each shareholder may "cumulate" his or her votes by giving
them all to one candidate, or may distribute his or her votes among as many
candidates as the shareholder sees fit. Thus, where fourteen directors are to be
elected, a shareholder or group of shareholders holding less than 7 percent of
the shares voting at the meeting would be capable of electing a director. This
is true even if the holders of the remaining 93 percent of the voting shares are
opposed to the election of that candidate and cast their votes to elect fourteen
other directors.
Cumulative voting would give a disproportionate and unfair weight to the
votes cast by a minority shareholder or shareholders. The elimination of
cumulative voting ensures that all directors are elected or removed only by a
majority vote of shareholders voting in the election.
The Board also notes that each of the three news reports cited by Mr.
Levine contains misstatements of fact and neglects to present information that
would provide shareholders with a more full and fair picture of the issues
discussed in those news reports.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
Item No. 6: SHAREHOLDER PROPOSAL REGARDING DIRECTOR COMPENSATION
Mr. Nick Rossi, P.O. Box 249, Boonville, California 95415, holder of 600
shares of PG&E Corporation common stock, has given notice of his intention to
present the following proposal for action at the PG&E Corporation annual
meeting:
"The Shareholders of Pacific Gas and Electric request the Board of
Directors take the necessary steps to amend the company's governing
instruments to adopt the following:
Beginning on the 1999 Pacific Gas and Electric fiscal year all
members of the Board of the Director's total compensation will be solely
in shares of Pacific Gas and Electric common stock each year. A
significant portion of theses shares shall be held and not sold until
their term as a director is up. No other compensation of any kind will
be paid. Including, the elimination of retirement benefits to directors,
excluding existing contracts with directors."
In support of this proposal, Mr. Rossi has submitted the following
statement:
"For many years the Rossi Family have been submitting for
shareholder vote, at this corporation as well as other corporations,
proposals aimed at putting management on the same playing field as the
shareholders. This proposal would do just that.
Many corporations have seen the wisdom in paying directors
primarily or solely in stock. Ownership in the company is the American
way. We feel that this method of compensation should be welcomed by
anyone who feels they have the ability to direct a major corporation's
fortunes. The directors would receive shares each year and be required
to hold a significant portion of these shares. If the corporation does
well, the directors will make more money in the value of the stock they
receive and the dividend that usually rise with more profits. If things
go bad, they will be much more inclined to correct things, because it
will be coming directly out of their pockets. Instead of the way
directors are paid now, where directors receive the same compensation
for good or bad performance."
THE BOARD OF DIRECTORS OF PG&E CORPORATION RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
PG&E Corporation agrees that a significant portion of its directors'
compensation should be composed of equity ownership in the Corporation.
Accordingly, since 1996, a portion of director pay has consisted of restricted
shares of PG&E Corporation common stock. These shares generally vest over a
five-year period and are forfeited if the director ceases to serve on the Board
for any reason other than mandatory retirement at age 70, death, disability, or
change in control. In December 1997, the Board of Directors, upon recommendation
of the Nominating and Compensation Committee, approved amendments to PG&E
Corporation's Long-Term Incentive Program to increase the portion of director
pay that is equity-based. The Board believes these changes will further align
the interests of directors with those of PG&E Corporation's shareholders, and
provide a total director compensation package that is more competitive with
17
<PAGE>
that provided to directors of other energy and industrial companies. As a result
of these changes, approximately 45 percent of total director pay is composed of
stock-based compensation, an increase from less than 20 percent based on total
director pay in 1997. Further, in December 1997, the Board of Directors amended
the Directors' Deferred Compensation Plan to permit a director to direct that
deferred meeting fees and retainers be allocated to a stock-based account.
Please refer to the discussion of "Compensation of Directors" on page 8 for
details concerning these changes.
PG&E Corporation does not agree that directors should be paid solely in
stock. PG&E Corporation desires to have a diverse Board, and requiring that all
compensation paid to directors be in the form of stock could discourage or
prevent highly qualified individuals from serving on the Board in the future.
In addition, in December 1997, the PG&E Corporation Board of Directors
terminated the PG&E Corporation Retirement Plan for Non-Employee Directors
effective January 1, 1998. In connection with the termination of the retirement
plan, directors elected to either (1) freeze their accrued benefit for
distribution at retirement according to current plan provisions, or (2) convert
the present value of their accrued benefit into common stock units that
correspond to the value of PG&E Corporation common stock, to be settled at
retirement.
For these reasons, the PG&E Corporation Board of Directors unanimously
recommends that shareholders vote AGAINST this proposal.
- --------------------------------------------------------------------------------
IF YOU DO NOT HOLD ANY SHARES OF PACIFIC GAS AND ELECTRIC COMPANY FIRST
PREFERRED STOCK, YOU ARE NOT ENTITLED TO VOTE ON THE FOLLOWING MANAGEMENT
PROPOSAL.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
Item No. 7:
Management Proposal
FOR CONSIDERATION BY PACIFIC GAS AND ELECTRIC COMPANY SHAREHOLDERS ONLY
The following proposal has been submitted by Pacific Gas and Electric
Company's management for action at the Company's annual meeting. To be approved,
the proposal must receive the affirmative vote of a majority of the outstanding
voting stock of Pacific Gas and Electric Company. Abstentions and broker non-
votes will have the same effect as a vote against the proposal. Proxies
solicited by the Pacific Gas and Electric Company Board of Directors will be
voted "FOR" this proposal unless the Pacific Gas and Electric Company
shareholders specify otherwise in their proxies.
ITEM NO. 7: MANAGEMENT PROPOSAL REGARDING DECREASE IN THE MINIMUM NUMBER OF
DIRECTORS
At its meeting on February 18, 1998, the Pacific Gas and Electric Company
Board of Directors approved resolutions (1) to amend the Company's Bylaws to
provide that the Board consist of not less than nine nor more than seventeen
directors, and (2) to amend the Company's Articles of Incorporation to delete
the provision requiring that the Board consist of not less than fourteen nor
more than seventeen directors. The proposed amendments to Pacific Gas and
Electric Company's Articles of Incorporation and Bylaws are subject to approval
by the Company's shareholders. Further, the amendment to the Company's Articles
of Incorporation must be filed with the California Secretary of State to become
effective. The proposed amendments would not affect the number of directors to
be elected at the 1998 annual meeting. The number of directors to be elected is
fifteen, the current authorized number of directors fixed in Pacific Gas and
Electric Company's Bylaws.
The proposed amendments would reduce the minimum number of authorized
directors from 14 to nine and would consolidate in the Bylaws all provisions
regarding the number of directors. Reducing the minimum number of authorized
directors would provide Pacific Gas and Electric Company with greater
flexibility to manage the size of its Board and to meet the evolving needs of
the Company in the context of the ongoing changes in the utility industry and
the energy marketplace. Consolidating all Board size requirements in the Bylaws
would streamline Pacific Gas and Electric Company's governing documents and
enable the Company and its shareholders to change the minimum and maximum number
of authorized directors without the need to file amendments to the Articles of
Incorporation with the Secretary of State, as is currently required. These
changes would conform to the provisions regarding the number of directors set
forth in the Articles of Incorporation and Bylaws of PG&E Corporation, Pacific
Gas and Electric Company's parent company.
Paragraph 1 of Article II of Pacific Gas and Electric Company's Bylaws
currently states:
1. NUMBER. The Board of Directors shall consist of fifteen (15)
directors.
The authorized number of directors may be changed by an amendment to the Bylaws
approved by either the shareholders or the directors, provided the new number
falls within the range set forth in the Articles of Incorporation.
The Board of Directors proposes to amend Paragraph 1 of Article II of the
Bylaws to read as follows:
1. NUMBER. The Board of Directors of this corporation shall consist of
such number of directors, not less than nine (9) nor more than seventeen (17),
and the exact number of directors shall be fifteen (15) until changed, within
the limits specified above, by an amendment to this Bylaw duly adopted by the
Board of Directors or the shareholders.
Shareholder approval still would be required to change the minimum or maximum
number of directors set forth in the Bylaws.
19
<PAGE>
Article Fifth of Pacific Gas and Electric Company's Articles of Incorporation
currently provides:
FIFTH: That the Board of Directors of this corporation shall consist of
such number of directors, not less than fourteen (14) nor more than seventeen
(17), as shall be prescribed in the Bylaws.
The Board of Directors by a vote of two-thirds of the whole Board may
appoint from the Directors an Executive Committee, which Committee may exercise
such powers as may lawfully be conferred upon it by the Bylaws of the
Corporation. Such Committee may prescribe rules for its own government and its
meetings may be held at such places within or without California as said
Committee may determine or authorize.
The Board of Directors proposes to delete the first paragraph of Article
Fifth so that the provisions affecting the number of directors would be
contained only in the Bylaws. Article Fifth is proposed to be amended to read as
follows:
FIFTH: The Board of Directors by a vote of two-thirds of the whole Board
may appoint from the Directors an Executive Committee, which Committee may
exercise such powers as may lawfully be conferred upon it by the Bylaws of the
Corporation. Such Committee may prescribe rules for its own government and its
meetings may be held at such places within or without California as said
Committee may determine or authorize.
If the proposed amendment is approved by the shareholders, a Certificate
of Amendment will be filed with the California Secretary of State to amend the
Articles of Incorporation by deleting the first paragraph of Article Fifth.
The affirmative vote of the shareholders of a majority of Pacific Gas
and Electric Company's outstanding voting stock is required to approve and adopt
the proposed amendments to the Company's Articles of Incorporation and Bylaws.
The Board of Directors of Pacific Gas and Electric Company unanimously
recommends that shareholders vote FOR this proposal.
20
<PAGE>
- --------------------------------------------------------------------------------
Executive Compensation
NOMINATING AND COMPENSATION COMMITTEE REPORT ON COMPENSATION
PG&E Corporation is an energy-based holding company headquartered in San
Francisco, California. The Corporation's businesses provide energy services
throughout the United States and in Australia. During 1997, PG&E Corporation
implemented the new holding company structure approved by the shareholders in
1996. PG&E Corporation is now the parent company of Pacific Gas and Electric
Company, one of the nation's largest investor-owned gas and electric utilities
serving more than 13 million people in Northern and Central California, and four
unregulated subsidiaries. The Corporation's four unregulated businesses provide
a wide range of energy products and services on a national basis: U.S.
Generating Company develops, builds, operates, owns, and manages power
generation facilities to supply wholesale and industrial customers; PG&E Gas
Transmission operates approximately 10,000 miles of natural gas pipelines and
natural gas storage facilities and natural gas processing plants in the Pacific
Northwest, Texas, and Australia; PG&E Energy Services provides customers
nationwide with competitively priced natural gas and electricity, and services
to manage and make more efficient their energy consumption; and PG&E Energy
Trading purchases and resells energy commodities and related financial
instruments in major domestic markets, serving PG&E Corporation's other
unregulated businesses, unaffiliated utilities, and large end-use customers.
The Nominating and Compensation Committee of the PG&E Corporation Board of
Directors ("Committee") is responsible for overseeing and establishing executive
compensation policies for PG&E Corporation and its subsidiaries, including
Pacific Gas and Electric Company. The Committee also administers the PG&E
Corporation Long-Term Incentive Program and other employee benefit plans.
This report relates to the compensation paid to executive officers of PG&E
Corporation and Pacific Gas and Electric Company during the fiscal year ended
December 31, 1997. Compensation for the Chief Executive Officers of PG&E
Corporation and Pacific Gas and Electric Company is approved by their respective
Boards of Directors based on the recommendation of the Committee, which is
composed of independent non-employee directors. In establishing the 1997
compensation of the Chief Executive Officers of PG&E Corporation and Pacific Gas
and Electric Company, the recommendations of the Committee were approved without
modification. Compensation for all other PG&E Corporation and subsidiary
officers is approved by the Committee.
The Committee established compensation programs for 1997 to meet four
objectives:
. To attract, retain, and motivate employees with the necessary mix of
skills and experience for the development of PG&E Corporation's
unregulated businesses, as well as the successful operation and expansion
of its utility business;
. To minimize short-term and long-term costs and reduce corporate exposure
to longer-term financial risk;
. To emphasize long-term incentives to further align shareholder and
officers' interests; and
. To achieve maximum value for PG&E Corporation's collective workforce and
focus employees on enhancing total return for the Corporation's
shareholders, by designing compensation programs that facilitate movement
by employees among the Corporation and its subsidiaries.
The Committee retains an independent consultant, Hewitt Associates, to help
evaluate PG&E Corporation's compensation policies, to provide information about
industry compensation practices and competitive pay levels, and to recommend
compensation alternatives which are consistent with PG&E Corporation's
compensation policies. Founded in 1940, Hewitt Associates is an international
firm of consultants and actuaries specializing in the design and administration
of employee compensation and benefit programs.
To meet its objective of paying compensation that is competitive with
similar companies, the Committee selected a group consisting of 27 major energy
and general industry companies (the "comparator group"). The companies selected
are comparable to PG&E Corporation in size and their approach to compensation
emphasizes long-term incentives. Twenty-three of the 27 energy and general
industry companies in the comparator group are included in the Standard & Poor's
500 Stock Index.
21
<PAGE>
For 1997, the Committee established the following specific compensation targets
for officers:
. A significant component of every officer's compensation should be tied
directly to PG&E Corporation's performance for shareholders.
. Annual cash compensation (base salary and target annual incentive) and
benefits should be equal to the average compensation paid to comparable
officers of companies in the comparator group.
. Long-term incentives should be equal to the average compensation paid to
comparable officers of companies in the comparator group, but provide the
opportunity to pay out at the 75th percentile and higher for superior
corporate performance.
Finally, in evaluating compensation program alternatives, the Committee
considers the potential impact on PG&E Corporation of Section 162(m) of the
Internal Revenue Code. Section 162(m) eliminates the deductibility of
compensation over $1 million paid to the five highest paid executive officers of
public corporations, excluding "performance-based compensation." Compensation
programs will qualify as performance-based if (1) the performance targets are
pre-established objective standards, (2) the programs have been approved by
shareholders, and (3) there is no discretion to modify or alter payments after
the performance targets have been established for the year.
The Committee believes that compensation paid under two of PG&E
Corporation's three performance-based plans is deductible under Section 162(m).
A substantial portion of the compensation paid to the executive officers of PG&E
Corporation and Pacific Gas and Electric Company is paid under these qualifying
performance-based plans. Although short-term compensation paid under PG&E
Corporation's third performance-based plan will not be excluded from the
deduction limit under Section 162(m), payments under this plan are conditioned
primarily on the achievement of pre-established corporate financial objectives.
To the extent consistent with the Committee's overall policy of maintaining
a competitive, performance-based compensation program, it is PG&E Corporation's
intent to maintain the tax deductibility of the compensation which it pays. Due
to the restrictive nature of Section 162(m), technical compliance with its
requirements can reduce or eliminate the value of using certain types of plans
designed to provide incentives to increase shareholder value. As a result,
although the Committee, in designing and maintaining a competitive incentive
compensation program, will qualify as much of the compensation for deduction
under Section 162(m) as is reasonably possible, such qualification is not a
mandatory precondition to payments where technical compliance is inconsistent
with the Committee's objective of incenting performance which results in
increased shareholder value. It is anticipated that the amount of any tax
deduction forgone due to the impact of the Section 162(m) limit will be
insignificant.
PRINCIPAL COMPONENTS OF COMPENSATION
BASE SALARY
PG&E Corporation Base Salary
- ----------------------------
PG&E Corporation's executive salaries are reviewed annually by the
Committee based on (1) the results achieved by each individual, (2) expected
corporate financial performance, measured by combined earnings per share,
dividends, and stock price performance, and (3) changes in the average salaries
paid to comparable executives by companies in the comparator group.
In setting the 1997 salary levels for PG&E Corporation's executive
officers, the Committee's objective was that the overall average of the salaries
paid to all officers as a group (including the Chief Executive Officer) should
be approximately equal to the target competitive level.
In 1997, Stanley T. Skinner, who served as Chief Executive Officer of both
PG&E Corporation and Pacific Gas and Electric Company until his retirement on
May 31, 1997, received a base salary of $660,000. (Effective December 31, 1997,
Mr. Skinner also retired as Chairman of the Board.) Robert D. Glynn, Jr. became
Chief Executive Officer of PG&E Corporation on June 1, 1997. Mr. Glynn received
a base salary of $533,333 in 1997, consisting of five months of salary based on
an annual rate of $475,000 for the period January 1 through May 31, 1997, and
seven months of salary based on an annual rate of $575,000 for the period June 1
through December 31, 1997.
22
<PAGE>
The salary levels for Mr. Skinner and Mr. Glynn are 23 percent and 33
percent below, respectively, the average salary of chief executive officers of
the 27 companies in the comparator group. The overall average of the actual base
salaries received by all PG&E Corporation officers (including Mr. Skinner and
Mr. Glynn) for 1997 was below the average salary paid to all officers of the
comparator group.
Pacific Gas and Electric Company Base Salary
- --------------------------------------------
Pacific Gas and Electric Company's executive salaries are reviewed annually
by the Committee based on (1) the results achieved by each individual, (2)
expected corporate financial performance, measured by combined earnings per
share, dividends, and stock price performance, and (3) changes in the average
salaries paid to comparable executives by companies in the comparator group.
In setting the 1997 salary levels for Pacific Gas and Electric Company's
executive officers, the Committee's objective was that the overall average of
the salaries paid to all officers as a group (including the Chief Executive
Officer) should be approximately equal to the target competitive level.
Stanley T. Skinner served as Chief Executive Officer until his retirement
from that position on May 31, 1997. (Effective December 31, 1997, Mr. Skinner
also retired as Chairman of the Board.) Gordon R. Smith became Chief Executive
Officer of Pacific Gas and Electric Company on June 1, 1997. Mr. Smith received
a base salary of $327,917 in 1997, consisting of five months of salary based on
an annual rate of $262,000 for the period January 1 through May 31, 1997, and
seven months of salary based on an annual rate of $375,000 for the period June 1
through December 31, 1997.
The salary level for Mr. Smith is five percent below the average salary of
chief executive officers of the 27 companies in the comparator group. The
overall average of the actual base salaries received by all Pacific Gas and
Electric Company officers (including Mr. Smith) for 1997 was below the average
salary paid to all officers of the comparator group.
ANNUAL INCENTIVE
PG&E Corporation Annual Incentive
- ---------------------------------
The PG&E Corporation Performance Incentive Plan for 1997 was designed to
provide annual incentives to all executive officers based on PG&E Corporation's
success in meeting the 1997 corporate earnings per share objective. To determine
whether the earnings per share objective is met, the Corporation's actual
earnings per share amount is adjusted to eliminate the effect of extraordinary
gains or losses, emphasizing the impact of ongoing results of operations.
At the beginning of the year, target awards are set based on each
executive's responsibilities and salary level. Final awards are determined by
the Committee and may range from zero to twice the target, depending on the
extent to which the earnings per share is achieved. The Committee has discretion
to modify or eliminate awards.
In 1997, PG&E Corporation achieved actual earnings per share of $1.75. For
purposes of the Performance Incentive Plan, this number was adjusted downward to
eliminate the effect of extraordinary events. Therefore, the majority of PG&E
Corporation executive officers received Performance Incentive Plan awards equal
to 70 percent of their target awards.
Pacific Gas and Electric Company Annual Incentive
- -------------------------------------------------
The Pacific Gas and Electric Company Performance Incentive Plan for 1997
was designed to provide annual incentives to all executive officers based on
meeting financial, service, and other measures of the Company, as well as those
of specific business units and departments.
At the beginning of the year, target awards are set based on each
executive's responsibilities and salary level. Final awards are determined by
the Committee and may range from zero to twice the target, depending on the
extent to which the stated objectives are achieved. The Committee has discretion
to modify or eliminate awards.
In 1997, Pacific Gas and Electric Company executives received Performance
Incentive Plan awards ranging from __% to __% of their target awards.
23
<PAGE>
LONG-TERM INCENTIVES
PG&E Corporation Long-Term Incentive Program. The PG&E Corporation Long-
Term Incentive Program permits various stock-based incentive awards to be
granted to executive officers and other employees of the Corporation and its
subsidiaries. The Stock Option Plan and the Performance Unit Plan (each of which
is a component of the Long-Term Incentive Program) provide incentives based on
PG&E Corporation's financial performance over time.
The Stock Option Plan provides incentives based on PG&E Corporation's
ability to sustain financial performance over a three- to ten-year period. Under
the Plan, officers, managers, and other key employees of PG&E Corporation and
its subsidiaries receive stock options based on their responsibilities and
position. These options allow them to purchase a certain number of shares of
PG&E Corporation common stock at the market price on the date of grant
(typically the first business day of each year), provided that they hold the
options for at least two full years and exercise them within ten years. PG&E
Corporation does not reprice or change the terms of options once they have been
granted.
At the Committee's discretion, stock options may be granted with tandem
"stock appreciation rights" which have vesting periods and exercise guidelines
that are similar to the options. These rights allow option-holders to surrender
their options when they have vested and receive a cash payment equal to the
difference between the exercise price and the current market price. No stock
appreciation rights have been granted since 1991.
Stock options also may be granted with or without tandem "dividend
equivalents" which provide for credits to be made to a dividend equivalent
account equal to the current common stock dividend multiplied by the recipient's
unexercised options. For options granted with dividend equivalents, option-
holders are entitled to receive the amounts accumulated in their dividend
equivalent account only when, and to the extent that, the underlying options or
stock appreciation rights are exercised. If a stock appreciation right is
exercised, the option-holder receives the associated dividend equivalent only if
the stock price has appreciated by at least five percent per year from the date
of grant or by at least 25 percent if the options have been held for more than
five years. In June 1997, the Committee adopted the policy that future stock
option grants will not include dividend equivalents, and no grants with dividend
equivalents have been made since that time.
The size of the stock option grant for each executive officer of PG&E
Corporation and Pacific Gas and Electric Company in 1997 was determined by the
Committee based on the Committee's objectives of paying total compensation at
the average total compensation of the companies in the comparator group, and of
tying a substantial component of target total compensation directly to financial
performance for shareholders. In making stock option grants, the size of each
executive officer's stock option grant was determined primarily based on the
compensation objectives described above.
For 1997, Mr. Glynn (the President and Chief Operating Officer of PG&E
Corporation and Pacific Gas and Electric Company until May 31, 1997, and the
President and Chief Executive Officer of PG&E Corporation from June 1, 1997, to
December 31, 1997), and two of the Senior Vice Presidents of PG&E Corporation
named in the Summary Compensation Table each received a supplemental stock
option grant (without dividend equivalents) in addition to their annual stock
option grant. Supplemental stock option grants also were made in 1997 to Mr.
Smith (the President and Chief Executive Officer of Pacific Gas and Electric
Company) and three of the Vice Presidents of Pacific Gas and Electric
Company named in the Summary Compensation Table. These supplemental grants are
intended to align the long-term incentive compensation for the senior officers
of PG&E Corporation and Pacific Gas and Electric Company with the long-term
incentive compensation for comparable senior officers of the companies in the
comparator group, while increasing the portion of those officers' total
compensation which is at risk and tied directly to PG&E Corporation's
performance for shareholders.
The Performance Unit Plan provides incentives based on PG&E Corporation's
ability to sustain superior total returns for shareholders (dividends plus stock
price appreciation) over a three-year period. Under the Plan, officers of PG&E
Corporation and its subsidiaries receive performance units reflecting their
level of responsibility. One-third of the units vest each year. At the end of
each year, the number of vested performance units is increased or decreased
based on PG&E Corporation's three-year total return for shareholders (dividends
plus stock price appreciation) as compared with that of the 49 other largest
energy-based companies in the nation. Each officer receives an incentive payment
equal to the final number of vested units multiplied by the average market price
of PG&E Corporation common stock during the 30-day calendar period prior to the
end of the year.
In determining Performance Unit Plan results for a given year,
PG&E Corporation's corporate performance in the current year is weighted at 60
percent, the performance in the prior year at 25 percent, and the performance in
the year
24
<PAGE>
before that at 15 percent. Each time a cash dividend is declared on PG&E
Corporation common stock, an amount equal to the cash dividend per share
multiplied by the number of units held by a recipient will be accrued on behalf
of the recipient and, at the end of the year, the amount of accrued dividend
equivalents will be increased or decreased by the same percentage used to
increase or decrease the recipient's number of vested performance units for the
year.
For the three years ended December 31, 1997, PG&E Corporation's total
shareholder return had a weighted average ranking of third among the 50 largest
energy-based companies in the nation. Based on this ranking, officers received
awards which were based on 135 percent of the number of vested units.
Executive Stock Ownership Guidelines. Effective January 1, 1998, the
Committee adopted Executive Stock Ownership Guidelines which contain certain
stock ownership targets for executives to be achieved within five years after
becoming an executive officer. The targets are set as a multiple of the
executive's base salary and vary according to the executive's level of
responsibility within the Corporation. The executive stock ownership targets are
as follows: three times base salary for the Chief Executive Officer of PG&E
Corporation; two times base salary for the chief executive officers of the
Corporation's lines of business and the Chief Financial Officer and the General
Counsel of PG&E Corporation; and one and one-half times base salary for the
Senior Vice Presidents of PG&E Corporation. To the extent an executive officer
achieves and maintains the stock ownership targets within the first three years
of becoming an executive officer, the executive officer will be entitled to
receive additional common stock equivalent units to be credited to his or her
Deferred Compensation Plan account balance. The additional common stock
equivalent units will be subject to forfeiture if the executive fails to
maintain the applicable stock ownership target.
BENEFITS
Benefit plans are designed to meet the individual needs of PG&E
Corporation's subsidiaries and to permit portability of benefits among the
Corporation and its subsidiaries. Tax-deferred savings arrangements provide
employees with an opportunity to supplement their retirement income through
employee and matching contributions by PG&E Corporation or one of its
subsidiaries. PG&E Corporation also provides excess retirement benefits for its
executive officers through lifetime annuities based on salary level and years of
service.
SUMMARY
We, the members of the Nominating and Compensation Committee of the Board
of Directors of PG&E Corporation, believe that the compensation programs of PG&E
Corporation and Pacific Gas and Electric Company are successful in attracting
and retaining qualified employees and in tying compensation directly to
performance for shareholders and service to customers. We will continue to
monitor closely the effectiveness and appropriateness of each of the components
of compensation to reflect changes in the business environment of PG&E
Corporation and Pacific Gas and Electric Company.
March 2, 1998
NOMINATING AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF PG&E
CORPORATION
Carl E. Reichardt, Chair
David A. Coulter
David M. Lawrence, MD
John C. Sawhill
Alan Seelenfreund
25
<PAGE>
COMPARISON OF ONE-YEAR TOTAL SHAREHOLDER RETURN(1)
[This graph compares the total return on PG&E Corporation common stock (equal to
dividends plus stock price appreciation) during the past year with that of the
Standard & Poor's 500 Stock Index and the Dow Jones Utilities Index.]
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period PG&E S&P DOW JONES
(Fiscal Year Covered) CORPORATION 500 INDEX UTIL. INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/96 $100 $100 $100
FYE 3/31/97 $113 $103 $ 95
FYE 6/30/97 $118 $121 $100
FYE 9/30/97 $115 $130 $106
FYE 12/31/97 $152 $133 $123
</TABLE>
(1) Assumes $100 invested on December 31, 1996, in Pacific Gas and Electric
Company common stock, the Standard & Poor's 500 Stock Index, and the Dow
Jones Utilities Index, and assumes quarterly reinvestment of dividends.
The total shareholder returns shown are not necessarily indicative of
future returns. As of January 1, 1997, all outstanding shares of Pacific
Gas and Electric Company common stock were converted on a one-for-one
basis to shares of PG&E Corporation common stock.
26
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN(1)
[This graph compares the cumulative total return on PG&E Corporation common
stock (equal to dividends plus stock price appreciation) during the past five
years with that of the Standard & Poor's 500 Stock Index and the Dow Jones
Utilities Index.]
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Measurement Period PG&E S&P DOW JONES
(Fiscal Year Covered) CORPORATION 500 INDEX UTIL. INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-1992 $100 $100 $100
FYE 1993 $112 $110 $110
FYE 1994 $ 83 $112 $ 93
FYE 1995 $104 $153 $123
FYE 1996 $ 84 $189 $134
FYE 1997 $127 $252 $165
</TABLE>
(1) Assumes $100 invested on December 31, 1992, in Pacific Gas and Electric
Company common stock, the Standard & Poor's 500 Stock Index, and the Dow
Jones Utilities Index, and assumes quarterly reinvestment of dividends.
The total shareholder returns shown are not necessarily indicative of
future returns. As of January 1, 1997, all outstanding shares of Pacific
Gas and Electric Company common stock were converted on a one-for-one
basis to shares of PG&E Corporation common stock.
27
<PAGE>
SUMMARY COMPENSATION TABLE
[This table summarizes the principal components of compensation paid to the
Chief Executive Officer and the other most highly compensated executive officers
of PG&E Corporation and Pacific Gas and Electric Company during the past year.]
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------- -----------------------
AWARDS PAYOUTS
(A) (B) (C) (D) (E) (F) (G) (H)
OTHER ALL
ANNUAL SECURITIES OTHER
COMPEN- UNDERLYING LTIP COMPEN-
SALARY BONUS SATION OPTIONS/SARS PAYOUTS SATION
POSITION YEAR ($)(1) ($)(1)(2) ($)(3) (# OF SHARES) ($)(4) ($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
Stanley T. Skinner, 1997 $ 660,000 $ xxx,xxx $ 4,723 185,000 $ 556,081 $108,824
Chairman of the Board (to 12/31/97) 1996 660,000 0 16,595 80,000 0 35,369
and Chief Executive Officer (to 5/31/97) 1995 570,000 471,380 33,543 25,000 34,720 31,020
of PG&E Corporation;
Chairman of the Board (to 12/31/97)
and Chief Executive Officer (to 5/31/97)
of Pacific Gas and Electric Company
Robert D. Glynn, Jr., 1997 $ 533,334 $ xxx,xxx $ 2,108 268,000 $ 408,796 $ 24,780
Chairman of the Board, 1996 450,000 0 13,311 48,000 0 29,108
Chief Executive Officer, and President 1995 338,333 229,437 21,154 10,000 16,986 23,312
of PG&E Corporation; President
and Chief Operating Officer (to 5/31/97)
of Pacific Gas and Electric Company
Scott W. Gebhardt,(6) 1997 $ 281,250 $ xxx,xxx $ xx,xxx 148,500 $ 66,202 $ xx,xxx
Senior Vice President of PG&E Corporation;
President and Chief Executive Officer of
PG&E Energy Services Corporation
L. E. Maddox,(6) 1997 $ 192,329 $ xxx,xxx $ xx,xxx 120,000 $ 66,202 $ xx,xxx
Senior Vice President of PG&E Corporation;
President and Chief Executive Officer of
PG&E Energy Trading Corporation
Jack F. Jenkins-Stark, 1997 $ 308,334 $ xxx,xxx $ 1,200 133,500 $ 145,644 $ 14,155
Senior Vice President of PG&E Corporation; 1996 235,000 0 xx,xxx 23,500 0 xx,xxx
President and Chief Executive Officer of 1995 190,000 124,480 xx,xxx 7,500 12,172 xx,xxx
PG&E Gas Transmission Corporation
Bruce R. Worthington, 1997 $ 284,167 $ xxx,xxx $ 1,033 58,500 $ 140,123 $ 12,788
Senior Vice President and General Counsel 1996 250,000 0 9,054 23,500 0 11,250
of PG&E Corporation 1995 207,000 106,461 10,273 5,000 3,862 9,315
Gordon R. Smith, 1997 $ 327,917 $ xxx,xxx $ 12,178 133,500 $ 145,644 $ 15,366
President and Chief Executive Officer 1996 250,000 0 10,805 23,500 0 11,861
of Pacific Gas and Electric Company 1995 207,000 130,535 17,603 7,500 11,944 9,925
Gregory M. Rueger, 1997 $ 268,000 $ xxx,xxx $ 10,920 33,500 $ 132,430 $ 12,810
Senior Vice President and General Manager - 1996 260,000 57,866 xx,xxx 23,500 0 xx,xxx
Nuclear Power Generation 1995 240,500 120,034 xx,xxx 7,500 13,440 xx,xxx
of Pacific Gas and Electric Company
James K. Randolph, 1997 $ 220,000 $ xxx,xxx $ 8,700 30,000 $ 92,709 $ 9,919
Senior Vice President - 1996 180,000 34,288 xx,xxx 4,500 0 xx,xxx
Distribution and Customer Service 1995 151,000 64,721 xx,xxx 4,500 6,720 xx,xxx
of Pacific Gas and Electric Company
</TABLE>
28
<PAGE>
SUMMARY COMPENSATION TABLE
Continued
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------------------
AWARDS PAYOUTS
(A) (B) (C) (D) (E) (F) (G) (H)
OTHER ALL
ANNUAL SECURITIES OTHER
COMPEN- UNDERLYING LTIP COMPEN-
SALARY BONUS SATION OPTIONS/SARS PAYOUTS SATION
POSITION YEAR ($)(1) ($)(1)(2) ($)(3) (# of Shares) ($)(4) ($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
E. James Macias, 1997 $ 199,000 $ xxx,xxx $ 9,329 30,000 $ 99,342 $ 8,955
Senior Vice President - 1996 160,000 50,370 xx,xxx 5,000 0 xx,xxx
Generation, Transmission, and Supply 1995 134,250 69,682 xx,xxx 4,500 2,240 xx,xxx
of Pacific Gas and Electric Company
[Kent M. Harvey/Roger J. Peters,] 1997 $ xxx,xxx $ xxx,xxx $ xx,xxx xx,xxx $ xx,xxx xx,xxx
[Title] 1996 xxx,xxx xxx,xxx xx,xxx xx,xxx xx,xxx xx,xxx
of Pacific Gas and Electric Company 1995 xxx,xxx xxx,xxx xx,xxx xx,xxx xx,xxx xx,xxx
</TABLE>
(1) For Mr. Skinner, Mr. Glynn, Mr. Jenkins-Stark, and Mr. Worthington,
represents the 1997 total annual compensation paid from both PG&E
Corporation and Pacific Gas and Electric Company based upon the periods of
time worked for each entity. For 1997, Mr. Skinner was paid $553,560 in
total annual compensation ($385,000 in salary and $168,560 in bonus) by PG&E
Corporation and $395,400 in total annual compensation ($275,000 in salary
and $120,400 in bonus by Pacific Gas and Electric Company; Mr. Glynn was
paid $_______ in total annual compensation ($_______ in salary and $_______
in bonus) by PG&E Corporation and $_______ in total annual compensation
($_______ in salary and $_______ in bonus) by Pacific Gas and Electric
Company; Mr. Jenkins-Stark was paid $_______ in total annual compensation
($_______ in salary and $_______ in bonus) by PG&E Corporation and $_______
in total compensation ($_______ in salary and $_______ in bonus) by Pacific
Gas and Electric Company; Mr. Worthington was paid $_______ in total annual
compensation ($_______ in salary and $_______ in bonus) by PG&E Corporation
and $_______ in total annual compensation ($_______ in salary and $_______
in bonus) by Pacific Gas and Electric Company.
(2) Represents payments received or deferred in 1998, 1997, and 1996 for
achievement of corporate and organizational objectives in 1997, 1996 and
1995, respectively, under the Performance Incentive Plan.
(3) Amounts reported consist of (i) officer benefit allowances, (ii) payments of
related taxes, and (iii) with respect to 1995 and 1994, dividend equivalent
payments on performance units under the Performance Unit Plan.
(4) Represents payments received or deferred in 1998 and 1996 for achievement of
corporate performance objectives for the periods 1995 through 1997 and 1993
through 1995, respectively, under the Performance Unit Plan. No payments
were made under the Plan in 1997 with respect to corporate performance for
the period 1994 through 1996.
(5) Amounts reported for 1997 consists of: (1) contributions to defined
contribution retirement plans (Mr. Skinner $4,725, Mr. Glynn $7,200, Mr.
Gebhardt $16,000, Mr. Maddox $12,500, Mr. Jenkins-Stark $7,200, Mr.
Worthington $7,200, Mr. Smith $7,200, Mr. Rueger $7,200, Mr. Randolph
$7,200, Mr. Macias $5,546, and Mr. [Harvey/Peters] $___); (ii) premiums on
indemnity policies to secure the payment of benefits under the Supplemental
Executive Retirement Plan and the Deferred Compensation Plan (Mr. Skinner
$5,370, Mr. Glynn $780, Mr. Jenkins-Stark $280, Mr. Smith $610, and Mr.
Rueger $750); (iii) payments received in lieu of vacation (Mr. Skinner
$76,154); (iv) contributions received or deferred under the Pacific Gas and
Electric company Savings Fund Plan excess benefit arrangement (Mr. Skinner
$22,575, Mr. Glynn $16,800, Mr. Jenkins-Stark $6,675, Mr. Worthington
$5,588, Mr. Smith $7,556, Mr. Rueger $4,860, Mr. Randolph $2,719, Mr. Macias
$3,409, and Mr. [Harvey/Peters] $___); and (v) one-time bonuses received
upon commencement of employment (Mr. Gebhardt__________ and Mr.
Maddox________).
(6) Mr. Gebhardt and Mr. Maddox were not employed by PG&E Corporation or Pacific
Gas and Electric Company in 1996 or 1995.
29
<PAGE>
OPTION/SAR GRANTS IN 1997
[This table summarizes the distribution and the terms and conditions of stock
options granted to the executive officers named in the Summary Compensation
Table during the past year.]
<TABLE>
<CAPTION>
GRANT
INDIVIDUAL GRANTS DATE VALUE
- ----------------------------------------------------------------------------------------------------------- ------------
(A) (B) (C) (D) (E) (F)
% OF TOTAL
NUMBER OF SECURITIES OPTIONS/SARS EXERCISE OR GRANT DATE
UNDERLYING OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#)(1) EMPLOYEES IN 1997 ($/Sh)(2) DATE(3) VALUE ($)(4)
<S> <C> <C> <C> <C> <C>
Stanley T. Skinner 185,000 6.07% $21.125 01-03-2007 $649,000
Robert D. Glynn, Jr. 93,000 3.05% $21.125 01-03-2007 339,360
175,000 5.74% $23.00 05-22-2007 486,500
Scott W. Gebhardt 148,500 4.87% $23.25 03-19-2007 450,995
L. E. Maddox 120,000 3.94% $24.50 05-06-2007 333,600
Jack F. Jenkins-Stark 33,500 1.10% $21.125 01-03-2007 131,295
100,000 3.28% $23.00 05-22-1997 278,000
Bruce R. Worthington 33,500 1.10% $21.125 01-03-1997 131,295
25,000 .82% $23.00 05-22-1997 69,500
Gordon R. Smith 33,500 1.10% $21.125 01-03-2007 131,295
100,000 3.28% $23.00 05-22-2007 278,000
Gregory M. Rueger 33,500 1.10% $21.125 01-03-2007 131,295
James K. Randolph 20,000 .66% $21.125 01-03-2007 78,050
10,000 .33% $23.625 06-19-2007 27,800
E. James Macias 20,000 .66% $21.125 01-03-2007 78,050
10,000 .33% $23.625 06-19-2007 27,800
[Kent M. Harvey/Roger J. Peters]
</TABLE>
(1) All options granted to executive officers in 1997 are exercisable as
follows: one-third of the options may be exercised on or after the second
anniversary of the date of grant, two-thirds on or after the third
anniversary, and 100 percent on or after the fourth anniversary. Options for
the following number of shares were accompanied by tandem dividend
equivalents which provide for credits to be made to the officer's dividend
equivalent account in the amount of the current PG&E Corporation common
stock dividend multiplied by the officer's unexercised options: Mr. Skinner
_____ shares, Mr. Glynn _____ shares, Mr. Gebhardt _____ shares, Mr. Maddox
_____ shares, Mr. Jenkins-Stark _____ shares, Mr. Worthington _____ shares,
Mr. Smith 8,500 shares, Mr. Rueger 8,500 shares, Mr. Randolph 5,000 shares,
Mr. Macias 5,000 shares, and Mr. [Harvey/Peters] _____ shares. Funds in the
account are paid out only when, and to the extent that, the underlying
options are exercised. At the time of exercise, the exercise price may be
paid in cash or shares of PG&E Corporation common stock owned by the
optionee for at least one year, or "cashless exercise" procedures may be
used.
(2) The exercise price is equal to the closing price of PG&E Corporation common
stock on the date of grant.
(3) All options granted to executive officers in 1997 expire 10 years and one
day from the date of grant, subject to earlier expiration in the event of
the officer's termination of employment with PG&E Corporation, Pacific Gas
and Electric Company, or one of their respective subsidiaries.
30
<PAGE>
OPTION/SAR GRANTS IN 1997
Continued
(4) Estimated present values are based on the Black-Scholes Model, a
mathematical formula used to value options traded on stock exchanges and,
for options granted with dividend equivalents, estimated present values
include dividend equivalents. The Black-Scholes Model considers a number of
factors, including the expected volatility and dividend rate of the stock,
interest rates, and time of exercise of the option. The following
assumptions were used in applying the Black-Scholes Model to the 1997 option
grants shown in the table above: volatility of 21.234%, risk-free rate of
return of 6.20%, dividend yield of $1.20 (the annual dividend rate on the
grant date), and an exercise date five years after the date of grant. The
ultimate value of the options will depend on the future market price of PG&E
Corporation common stock, which cannot be forecast with reasonable accuracy.
That value will depend on the future success achieved by employees for the
benefit of all shareholders. The estimated grant date present values for
options with and without dividend equivalents are $7.27 and $2.78 per share,
respectively.
31
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND YEAR-END OPTION/SAR VALUES
[This table summarizes exercises of stock options and tandem stock appreciation
rights (granted in prior years) by the executive officers named in the Summary
Compensation Table during the past year, as well as the number and value of all
unexercised options held by such named executive officers at the end of 1997.]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY
ON EXERCISE VALUE REALIZED OPTIONS/SARs AT OPTIONS/SARs AT
NAME (#)(1) ($)(2) END OF 1997 (#) END OF 1997 ($)(3)
(EXERCISABLE/ (EXERCISABLE/
UNEXERCISABLE) UNEXERCISABLE)
Stanley T. Skinner 0 $0 48,334/286,666 $ 49,483/$1,963,642
Robert D. Glynn, Jr 0 0 23,334/325,166 19,796/ 2,272,704
Scott W. Gebhardt 0 0 0/148,500 0/ 1,048,781
L. E. Maddox 0 0 0/120,000 0/ 697,500
Jack F. Jenkins-Stark 0 0 24,999/164,500 68,384/ 1,117,188
Bruce R. Worthington 0 0 9,667/ 86,333 9,878/ 558,852
Gordon R. Smith 0 0 17,500/164,500 14,844/ 1,117,188
Gregory M. Rueger 0 0 22,500/ 64,500 14,844/ 385,938
James K. Randolph 0 0 14,333/ 39,000 13,540/ 277,719
E. James Macias 0 0 4,834/ 38,666 8,906/ 278,750
[Kent M. Harvey/ 0 0
Roger J. Peters]
</TABLE>
(1) Represents the number of shares for which the named executive officers
exercised options and tandem SARs payable in cash. No shares were
received upon exercise of options due to the use of "cashless exercise"
procedures.
(2) Excludes amounts received under tandem dividend equivalents, if any.
(3) Based on the difference between the option exercise price (without
reduction for the amount of accrued dividend equivalents, if any) and a
fair market value of $30.3125, which was the closing price of PG&E
Corporation common stock on December 31, 1997.
32
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN-AWARDS IN 1997
[This table summarizes the long-term incentive awards made to the executive officers named in the Summary Compensation Table
during the past year.]
ESTIMATED FUTURE PAYOUTS UNDER
AWARDS NON-STOCK PRICE-BASED PLANS
----------------------------------------- -----------------------------------------
(A) (B) (C) (D) (E) (F)
PERFORMANCE OR
OTHER PERIOD
NUMBER OF SHARES, UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME UNITS, OR OTHER RIGHTS(1) OR PAYOUT ($ or #)(2) ($ or #)(2) ($ or #)(2)
<S> <C> <C> <C> <C> <C>
Stanley T. Skinner 20,000 3 years 0 units 20,000 units 40,000 units
Robert D. Glynn, Jr. 20,000 3 years 0 units 20,000 units 40,000 units
Scott W. Gebhardt 5,000 3 years 0 units 5,000 units 10,000 units
L. E. Maddox 5,000 3 years 0 units 5,000 units 10,000 units
Jack F. Jenkins-Stark 5,000 3 years 0 units 5,000 units 10,000 units
Bruce R. Worthington 5,000 3 years 0 units 5,000 units 10,000 units
Gordon R. Smith 5,000 3 years 0 units 5,000 units 10,000 units
Gregory M. Rueger 4,000 3 years 0 units 4,000 units 8,000 units
James K. Randolph 4,000 3 years 0 units 4,000 units 8,000 units
E. James Macias 4,000 3 years 0 units 4,000 units 8,000 units
[Kent M. Harvey/ x,xxx 3 years 0 units x,xxx units x,xxx units
Roger J. Peters]
</TABLE>
(1) Represents performance units granted under the Performance Unit Plan. The
units vest one-third in each of the three years following the grant year,
and are earned over the vesting period based on PG&E Corporation's three-
year total annual shareholder return (dividends plus stock price
appreciation) as compared with that achieved by the 49 other largest
domestic energy utilities. This performance target may be adjusted during
the vesting period, at the sole discretion of the Nominating and
Compensation Committee, to reflect extraordinary events beyond management's
control. In determining PG&E Corporation's total annual shareholder return
relative to the 49 other utilities, third-year performance is weighted at
60%, second-year performance at 25%, and first-year performance at 15%.
Each time a cash dividend is declared on PG&E Corporation common stock, an
amount equal to the cash dividend per share multiplied by the number of
units held by a recipient will be accrued on behalf of the recipient and,
at the end of the year, the amount of accrued dividend equivalents will be
increased or decreased by the same percentage used to increase or decrease
the recipient's number of vested performance units for the year.
(2) Payments are determined by multiplying the number of units earned in a
given year by the average market price of PG&E Corporation common stock for
the last 30-day calendar period of the year.
RETIREMENT BENEFITS
PG&E Corporation and Pacific Gas and Electric Company provide retirement
benefits to some of the executive officers named in the Summary Compensation
Table on page 28. The benefit formula for eligible executive officers is 1.6
percent of the average of the three highest combined salary and annual incentive
awards during the last ten years of service multiplied by years of credited
service. The actual annual retirement benefit for Mr. Skinner, who retired
effective December 31, 1997, was $_______. As of December 31, 1997, the
estimated annual retirement benefits for the most highly compensated executive
officers, assuming credited service to age 65, are as follows: Mr. Glynn,
$__________; Mr. Jenkins-Stark, $__________; Mr. Worthington, $____________; Mr.
Smith, $__________; Mr. Rueger $_________; Mr. Randolph, $__________; Mr.
Macias, $_________; and Mr. [Harvey/Peters], $________. The amounts shown are
single life annuity benefits and would not be subject to any Social Security
offsets.
33
<PAGE>
- -------------------------------------------------------------------------------
OTHER INFORMATION
PRINCIPAL SHAREHOLDERS
The following table presents certain information regarding shareholders who
are known to PG&E Corporation or Pacific Gas and Electric Company to be the
beneficial owners of more than 5 percent of any class of voting securities of
PG&E Corporation or Pacific Gas and Electric Company as of January 31, 1998:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
CLASS OF STOCK BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
Pacific Gas and Electric PG&E Corporation(1)
Company One Market, Spear Tower, Suite 2400
common stock San Francisco, CA 94105
PG&E Corporation State Street Bank and
common stock Trust Company(2)
225 Franklin Street
Boston, MA 02110
Sanford C. Bernstein & Co., Inc.(3)
1 State Street Plaza
New York, NY 10004
</TABLE>
(1) As a result of the formation of the holding company, PG&E Corporation
became the holder of all issued and outstanding shares of Pacific Gas and
Electric Company common stock on January 1, 1997.
(2) The information relating to State Street Bank and Trust Company is based on
beneficial ownership as of December 31, 1997, as reported in a Schedule
13G, dated February __, 1998, filed with the Securities and Exchange
Commission. __________ shares are held by the bank in its capacity as
Trustee of the Pacific Gas and Electric Company Savings Fund Plan for
employees. The Trustee may not vote these shares in the absence of voting
instructions from the Plan participants. The bank also holds ________
shares of PG&E Corporation common stock as trustee of various collective
investment funds and trusts. The bank has sole voting power with respect to
_________ of these shares, shared voting power with respect to _____ of
these shares, sole investment power with respect to __________ of these
shares, and shared investment power with respect to _____ of these shares.
(3) The information relating to Sanford C. Bernstein & Co., Inc. is based on
beneficial ownership as of December 31, 1997, as reported in a Schedule
13G, dated February __, 1998, filed with the Securities and Exchange
Commission.
34
<PAGE>
PROPOSALS BY SHAREHOLDERS - 1999
Any proposal by a shareholder to be submitted for inclusion in proxy
soliciting material for the 1999 annual shareholders' meetings of PG&E
Corporation and Pacific Gas and Electric Company must be received by the Vice
President and Corporate Secretary after April 15, 1998, but no later than
November 2, 1998.
ANNUAL REPORT
PG&E Corporation's and Pacific Gas and Electric Company's joint 1997 Annual
Report to Shareholders, including financial statements, accompanies this Joint
Proxy Statement.
METHOD AND COST OF SOLICITING PROXIES
PG&E Corporation and Pacific Gas and Electric Company intend to solicit
proxies principally by mail. Proxies also may be solicited by personal contact,
telephone, or other means by officers and other employees of PG&E Corporation or
Pacific Gas and Electric Company. PG&E Corporation and Pacific Gas and Electric
Company have retained D. F. King & Co., Inc. to assist in the solicitation of
proxies at an estimated fee of $11,500 plus reimbursement of reasonable
expenses. In addition, brokers, banks, and other fiduciaries and nominees will
be reimbursed for the reasonable expenses of forwarding the Joint Proxy
Statement and other proxy materials to beneficial owners of PG&E Corporation and
Pacific Gas and Electric Company stock. The entire cost of soliciting proxies
will be paid by PG&E Corporation and Pacific Gas and Electric Company.
PG&E Corporation and Pacific Gas and Electric Company also have retained
Corporate Election Services, Inc. to assist in the tabulation of proxies and to
act as the inspector of election at the annual meetings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In accordance with Section 16(a) of the Securities Exchange Act of 1934 and
Securities and Exchange Commission regulations, PG&E Corporation's and Pacific
Gas and Electric Company's respective directors, certain officers, and persons
who own greater than 10 percent of PG&E Corporation's or Pacific Gas and
Electric Company's equity securities are required to file reports of ownership
and changes in ownership of such equity securities with the Securities and
Exchange Commission and the principal national securities exchange on which such
equity securities are registered, and to furnish PG&E Corporation or Pacific Gas
and Electric Company (as the case may be) with copies of all such reports they
file.
Based solely on its review of copies of such reports received or written
representations from certain reporting persons, PG&E Corporation and Pacific Gas
and Electric Company believe that during 1997 all filing requirements applicable
to their directors, officers, and 10 percent shareholders were satisfied.
OTHER MATTERS
Management does not know of any matter to be acted upon at the meetings
other than the matters above described. However, if any other matter should
properly come before the annual meetings, the proxyholders named in the enclosed
proxy will vote the shares for which they hold proxies at their discretion.
By Order of the Boards of Directors of
PG&E Corporation and Pacific Gas and Electric
Company,
/s/ Leslie H. Everett
Leslie H. Everett
Vice President and Corporate Secretary, PG&E
Corporation and Pacific Gas and Electric Company
At the annual meetings of shareholders, real-time captioning services and
headsets will be available for the hearing impaired. Please contact an usher at
the meeting if you wish to be seated in the real-time captioning section or to
use an assistive listening device.
Audio cassette recordings of the meetings will be available, without
charge, for shareholders with impaired vision. Please contact the office of the
Vice President and Corporate Secretary, One Market, Spear Tower, Suite 2400, San
Francisco, CA 94105 or call (415) 973-2880.
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE,
AND RETURN YOUR PROXY AS SOON AS POSSIBLE.
35
<PAGE>
[LOGO OF RECYCLED PAPER] Printed with soybean ink on recycled/recyclable paper
<PAGE>
Preliminary Copies
The undersigned hereby appoints Robert D. Glynn, Jr., Gordon R. Smith, and
Leslie H. Everett, or any of them, proxies of the undersigned, with full power
of substitution, to vote the stock of the undersigned at the annual meeting of
shareholders of Pacific Gas and Electric Company, to be held at 1111 California
Street, San Francisco, California, on Wednesday, April 15, 1998, at 10:00 a.m.,
and at any adjournment or postponement thereof, as instructed on the reverse
hereof and upon all motions and resolutions which may properly be presented for
consideration at said meeting. THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF PACIFIC GAS AND ELECTRIC COMPANY.
PACIFIC GAS AND ELECTRIC COMPANY
Please mark, sign, date, and return
this proxy promptly to Corporate
Election Services, P.O. Box 3200,
Pittsburgh, PA 15230-3200
____________________________ ______, 1998
____________________________ ______, 1998
SHAREHOLDER'S SIGNATURE DATE
If you are signing for the shareholder, please
sign the shareholder's name and your name,
and specify the capacity in which you act.
Shareholder's Proxy For Annual Meeting, April 15, 1998
- --------------------------------------------------------------------------------
-- PLEASE DETACH HERE AND RETURN THIS PROXY TO CORPORATE ELECTION SERVICES IN
THE ENCLOSED REPLY ENVELOPE. --
[LOGO OF PACIFIC GAS AND ELECTRIC COMPANY]
ANNUAL MEETING
To be held at:
Masonic Auditorium
1111 California Street
San Francisco, CA 94108
April 15, 1998, at 10:00 a.m.
-- PLEASE USE THE ATTACHED TICKET TO ATTEND THE ANNUAL MEETING. YOU ALSO MAY
REGISTER AT THE MEETING. --
- --------------------------------------------------------------------------------
PACIFIC GAS AND ELECTRIC COMPANY 1998 Annual Meeting Ticket
FOR THE ANNUAL SHAREHOLDERS' MEETING AT
[10:00 A.M. ON APRIL 15, 1998]
----------------------------
TO BE HELD AT THE MASONIC AUDITORIUM, 1111 CALIFORNIA STREET, SAN FRANCISCO.
(DOORS OPEN AT 9:00 A.M. YOU MAY BYPASS THE REGISTRATION AREA AND PRESENT THIS
TICKET AT THE ENTRANCE TO THE AUDITORIUM.)
Note: Cellular telephones, cameras, tape recorders, etc., will not be allowed
in the auditorium during the meeting, other than for Pacific Gas and Electric
Company purposes. A checkroom will be provided. For your protection, all
briefcases, purses, packages, etc., will be subject to inspection as you enter
the meeting. We regret any inconvenience this may cause you. (See reverse side
for additional information.)
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YOUR PROXY IS SOLICITED BY THE PACIFIC GAS AND ELECTRIC COMPANY BOARD OF DIRECTORS. Unless contrary instructions are given below,
the above designated proxies will vote the Pacific Gas and Electric Company shares for which they hold proxies FOR all items below.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Election of Directors (see Item No. 1 on page 2 of the Joint Proxy Statement)
PACIFIC GAS Nominees are: Richard A. Clarke; Harry M. Conger; David A. Coulter; C. Lee Cox; William S. Davila; Robert D. Glynn,
AND ELECTRIC Jr.; David M. Lawrence, MD; Richard B. Madden; Mary S. Metz; Rebecca Q. Morgan; Carl E. Reichardt; John C. Sawhill;
COMPANY Alan Seelenfreund; Gordon R. Smith; and Barry Lawson Williams
DIRECTORS
RECOMMEND [_] FOR all nominees listed above (except [_] WITHHOLD vote for [_] WITHHOLD vote only for
A VOTE as indicated to the contrary) all nominees ____________________________
FOR
EACH OF Ratification of the appointment of Arthur Andersen LLP as Pacific Gas and Electric
THESE ITEMS Company's independent public accountants (see Item No. 2 on page __ of the FOR AGAINST ABSTAIN
Joint Proxy Statement)............................................................ [_] [_] [_]
Proposal to decrease the minimum number of Directors (see Item No. 7 on page __
of the Joint Proxy Statement)..................................................... [_] [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
-- DETACH HERE AND RETURN THE TOP SECTION TO CORPORATE ELECTION SERVICES IN THE ENCLOSED REPLY ENVELOPE. --
- ------------------------------------------------------------------------------------------------------------------------------------
All available space at the Memorial Temple Garage at 1101 California Street (adjacent to the Masonic Auditorium) has been reserved
to provide complimentary parking for shareholders. However, capacity is limited. Please show your annual meeting ticket to the
garage attendant as you enter the garage.
Real-time captioning services and assistive listening devices will be available at the meeting for shareholders with impaired
hearing. Please contact an usher at the meeting if you wish to be seated in the real-time captioning section or to use an assistive
listening device.
</TABLE>
<PAGE>
Preliminary Copies
PACIFIC GAS AND The undersigned hereby appoints Robert D. Glynn, Jr.,
ELECTRIC COMPANY Gordon R. Smith, and Leslie H. Everett, or any of them,
proxies of the undersigned, with full power of
SHAREHOLDER'S substitution, to vote the stock of the undersigned at the
PROXY annual meeting of shareholders of Pacific Gas and
Electric Company, to be held at 1111 California Street,
SOLICITED BY THE San Francisco, California, on Wednesday, April 15, 1998,
BOARD OF DIRECTORS OF at 10:00 a.m., and at any adjournment or postponement
thereof, as instructed on the reverse hereof and upon all
PACIFIC GAS AND motions and resolutions which may properly be presented
ELECTRIC COMPANY for consideration at said meeting. THIS PROXY IS
SOLICITED BY THE BOARD OF DIRECTORS OF PACIFIC GAS AND
ELECTRIC COMPANY.
1998
Please mark, sign, date,
- ----------------------- _____________________________ ________, 1998
and return this proxy
--------------------- _____________________________ ________, 1998
promptly. SHAREHOLDER'S SIGNATURE DATE
---------
Shareholder's Proxy For If you are signing for the shareholder, please
Annual Meeting, April 15, sign the shareholder's name and your name, and
1998 specify the capacity in which you act.
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YOUR PROXY IS SOLICITED BY THE PACIFIC GAS AND ELECTRIC COMPANY BOARD OF DIRECTORS. Unless contrary instructions are given below,
the above designated proxies will vote the Pacific Gas and Electric Company shares for which they hold proxies FOR all items below.
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Election of Directors (see Item No. 1 on page 2 of the Joint Proxy Statement)
PACIFIC GAS Nominees are: Richard A. Clarke; Harry M. Conger; David A. Coulter; C. Lee Cox; William S. Davila; Robert D.
AND ELECTRIC Glynn, Jr.; David M. Lawrence, MD; Richard B. Madden; Mary S. Metz; Rebecca Q. Morgan; Carl E. Reichardt;
COMPANY John C. Sawhill; Alan Seelenfreund; Gordon R. Smith; and Barry Lawson Williams
DIRECTORS
RECOMMEND [_] FOR all nominees listed above (except [_] WITHHOLD vote for [_] WITHHOLD vote only for
A VOTE as indicated to the contrary) all nominees ___________________________
FOR
EACH OF Ratification of the appointment of Arthur Andersen LLP as Pacific Gas and Electric
THESE ITEMS Company's independent public accountants (see Item No. 2 on page __ of the FOR AGAINST ABSTAIN
Joint Proxy Statement)............................................................. [_] [_] [_]
Proposal to decrease the minimum number of Directors (see Item No. 7 on page __
of the Joint Proxy Statement)...................................................... [_] [_] [_]
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