Exhibit 10.18

THE TERMS AND CONDITIONS OF THIS AGREEMENT ARE PURSUANT TO THE PG&E COMPANY
OFFICER SEVERANCE PLAN, ADOPTED BY THE NOMINATING, COMPENSATION, AND GOVERNANCE
COMMITTEE OF PG&E COMPANY, AND ARE NOT SUBJECT TO NEGOTIATION.

SEPARATION AGREEMENT

This Separation Agreement (“Agreement”) is made and entered into by and between
Nancy McFadden and Pacific Gas and Electric Company (the “Company” or “PG&E”)
(collectively the “Parties”) and sets forth the terms and conditions of
Ms. McFadden’s separation from employment with the Company. The “Effective Date”
of this Agreement is defined in paragraph 18(a).

1.        Resignation. Effective the close of business on December 31, 2010 (for
purposes of this Agreement, the “Date of Resignation”), Ms. McFadden will resign
from her position as Senior Vice President and Special Advisor of Pacific Gas
and Electric Company. Ms. McFadden shall have until February 13, 2011, to accept
this Agreement by submitting a signed copy to the Company. Regardless of whether
Ms. McFadden accepts this Agreement, on the Date of Resignation, she will be
paid all salary or wages and vacation accrued, unpaid and owed to her as of that
date, she will remain entitled to any other benefits to which she is otherwise
entitled under the provisions of the Company’s plans and programs, and she will
receive notice of the right to continue her existing health-insurance coverage
pursuant to COBRA.

The benefits set forth in paragraph 2 below are conditioned upon Ms. McFadden’s
acceptance of this Agreement.

2.        Separation benefits. Even though Ms. McFadden is not otherwise
entitled to them, in consideration of her acceptance of this Agreement, the
Company will provide to Ms. McFadden the following separation benefits:

a.        Severance payment. Under the terms of the PG&E Company Officer
Severance Policy, Ms. McFadden’s severance payment amount is $1,040,400. (ONE
MILLION FORTY THOUSAND FOUR HUNDRED DOLLARS). On the Effective Date of this
Agreement as set forth in paragraph 18(a) below, the Company will make the
severance payment, less applicable withholdings and deductions to Ms. McFadden.

b.        Stock. Upon the Date of Resignation, but conditioned on the occurrence
of the Effective Date of this Agreement as set forth in paragraph 18(a) below,
all unvested restricted stock grants, and performance share grants provided to
Ms. McFadden under PG&E Company’s 2006 Long-Term Incentive Plan shall continue
to vest, terminate, or be canceled as provided under the terms of their
respective plans or program, as modified by the PG&E Company Officer Severance
Policy in effect at the time this Agreement is signed by Ms. McFadden. The
payment and withdrawal of Ms. McFadden’s restricted stock grants, restricted
stock unit grants, and performance share grants shall be as provided under the
terms of their respective plans or program, as modified by the PG&E Company
Officer Severance Policy in effect at the time this Agreement is signed by
Ms. McFadden.

 

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c.        Career transition services. For a maximum period of one year following
the Date of Resignation, the Company will provide Ms. McFadden with executive
career transition services from the firm of Torchiana, Mastrov & Sapiro, Inc.,
in accordance with the contract between the Company and Torchiana, Mastrov &
Sapiro, Inc. Ms. McFadden’s entitlement to services under this Agreement will
terminate when she becomes employed, either by another employer or through
self-employment other than consulting with the Company. If Ms. McFadden becomes
employed, she will promptly notify PG&E Company’s Human Resources Officer to
enable the Company to end the provision of services to her by Torchiana,
Mastrov & Sapiro, Inc.

d.        Payment of COBRA premiums. If Ms. McFadden elects and is otherwise
eligible to continue her existing health-insurance coverage pursuant to COBRA,
the Company will pay her monthly COBRA premiums for the eighteen-month period
commencing the first full month after the Date of Resignation and until and
unless Ms. McFadden becomes covered under the health-insurance plan of another
employer or through self-employment. Ms. McFadden will promptly notify the PG&E
Company’s Human Resources Officer if she becomes employed within that period.

3.        Defense and indemnification in third-party claims. The Company and/or
its parent, affiliate, or subsidiary will provide Ms. McFadden with legal
representation and indemnification protection in any legal proceeding in which
she is a party or is threatened to be made a party by reason of the fact that
she is or was an employee or officer of the Company and/or its parent, affiliate
or subsidiary, in accordance with the terms of the resolution of the Board of
Directors of PG&E Company dated December 18, 1996.

4.        Cooperation with legal proceedings. Ms. McFadden will, upon reasonable
notice, furnish information and proper assistance to the Company and/or its
parent, affiliate or subsidiary (including truthful testimony and document
production) as may reasonably be required by them or any of them in connection
with any legal, administrative or regulatory proceeding in which they or any of
them is, or may become, a party, or in connection with any filing or similar
obligation imposed by any taxing, administrative or regulatory authority having
jurisdiction, provided, however, that the Company and/or its parent, affiliate
or subsidiary will pay all reasonable expenses incurred by Ms. McFadden in
complying with this paragraph.

5.        Release of claims and covenant not to sue.

a.        In consideration of the separation benefits and other benefits the
Company is providing under this Agreement, Ms. McFadden, on behalf of herself
and her representatives, agents, heirs and assigns, waives, releases, discharges
and promises never to assert any and all claims, liabilities or obligations of
every kind and nature, whether known or unknown, suspected or unsuspected that
she ever had, now has or might have as of the Effective Date against the Company
or its predecessors, parent, affiliates, subsidiaries, shareholders, owners,
directors, officers, employees, agents, attorneys, successors, or assigns. These
released claims include, without limitation, any claims arising from or related
to Ms. McFadden’s employment with the Company, its parent or any of its
affiliates and subsidiaries, and the termination of that employment. These
released claims also specifically include, but are not limited, any claims

 

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arising under any federal, state and local statutory or common law, such as (as
amended and as applicable) Title VII of the Civil Rights Act, the Age
Discrimination in Employment Act, the Americans With Disabilities Act, the
Employee Retirement Income Security Act, the California Fair Employment and
Housing Act, the California Labor Code, any other federal, state or local law
governing the terms and conditions of employment or the termination of
employment, and the law of contract and tort; and any claim for attorneys’ fees.

b.        Ms. McFadden acknowledges that there may exist facts or claims in
addition to or different from those which are now known or believed by her to
exist. Nonetheless, this Agreement extends to all claims of every nature and
kind whatsoever, whether known or unknown, suspected or unsuspected, past or
present, and Ms. McFadden specifically waives all rights under Section 1542 of
the California Civil Code which provides that:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN TO HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

c.        With respect to the claims released in the preceding paragraphs,
Ms. McFadden will not initiate or maintain any legal or administrative action or
proceeding of any kind against the Company or its predecessors, parent,
affiliates, subsidiaries, shareholders, owners, directors, officers, employees,
agents, attorneys, successors, or assigns, for the purpose of obtaining any
personal relief, nor (except as otherwise required or permitted by law) assist
or participate in any such proceedings, including any proceedings brought by any
third parties.

6.        Re-employment. Ms. McFadden will not seek any future re-employment
with the Company, its parent or any of its subsidiaries or affiliates. This
paragraph will not, however, preclude Ms. McFadden from accepting an offer of
future employment from the Company, its parent or any of its subsidiaries or
affiliates.

7.        Non-disclosure.

a.        Ms. McFadden will not disclose, publicize, or circulate to anyone in
whole or in part, any information concerning the existence, terms, and/or
conditions of this Agreement without the express written consent of the PG&E
Company’s Chief Legal Officer unless otherwise required or permitted by law.
Notwithstanding the preceding sentence, Ms. McFadden may disclose the terms and
conditions of this Agreement to her family members, and any attorneys or tax
advisors, if any, to whom there is a bona fide need for disclosure in order for
them to render professional services to him, provided that the person first
agrees to keep the information confidential and not to make any disclosure of
the terms and conditions of this Agreement unless otherwise required or
permitted by law.

 

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b.        Ms. McFadden will not use, disclose, publicize, or circulate any
confidential or proprietary information concerning the Company or its
subsidiaries or affiliates, which has come to her attention during her
employment with the Company, unless doing so is expressly authorized in writing
by the PG&E Company’s Chief Legal Officer, or is otherwise required or permitted
by law. Before making any legally-required or permitted disclosure, Ms. McFadden
will give the Company notice at least ten (10) business days in advance.

8.        Non-Disparagement. Ms. McFadden agrees to refrain from performing any
act, engaging in any conduct or course of action or making or publishing any
statements, claims, allegations or assertions, which have or may reasonably have
the effect of demeaning the name or business reputation of the Company, or any
of its parent companies, subsidiaries or affiliates, or any of their respective
employees, officers, directors, agents or advisors in their capacities as such
or which adversely affects (or may reasonably be expected adversely to affect)
the best interests (economic or otherwise) of any of them. The Company agrees to
refrain from performing any act, engaging in any conduct or course of action or
making or publishing any statements, claims, allegations or assertions in any
print, electronic or television media or in investor conference calls or
webcasts, which have or may reasonably have the effect of demeaning the name or
business reputation of Ms. McFadden. The Company further agrees to instruct its
officers, (in each case, while such person remains an officer of the Company) to
comply with the Company’s obligations under this paragraph. In the event the
Company’s Chief Legal Officer or Head of Human Resources acquires actual
knowledge that a violation of the Company’s obligations under this paragraph 8
has occurred, the Company shall take reasonable action to reprimand and further
discourage such behavior in violation of this paragraph 8. Each Party agrees
that nothing in this paragraph 8 shall preclude the other Party from fulfilling
any duty or obligation that she or it may have at law, from responding to any
subpoena or official inquiry from any court or government agency, including
providing truthful testimony, documents subpoenaed or requested or otherwise
cooperating in good faith with any proceeding or investigation, or from taking
any reasonable actions to enforce such party’s rights under this Agreement in
accordance with the dispute resolution provisions specified in paragraph 15
hereof. Each Party shall continue to comply with its or her obligations under
this Paragraph 8 regardless of any alleged breach by the other Party of its or
her agreements contained in this paragraph 8 unless and until there has been a
final determination by a court or an arbitration panel that the other Party has
breached its or her obligations under this paragraph.

9.        No unfair competition.

a.        Ms. McFadden will not engage in any unfair competition against the
Company, its parent or any of its subsidiaries or affiliates.

b.        For a period of one year after the Effective Date, Ms. McFadden will
not, directly or indirectly, solicit or contact for the purpose of diverting or
taking away or attempt to solicit or contact for the purpose of diverting or
taking away:

 

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  (1) any existing customer of the Company or its parent, affiliates or
subsidiaries;

 

  (2) any prospective customer of the Company or its parent, affiliates or
subsidiaries about whom Ms. McFadden acquired information as a result of any
solicitation efforts by the Company or its parent, affiliates or subsidiaries,
or by the prospective customer, during Ms. McFadden’s employment with the
Company;

 

  (3) any existing vendor of the Company or its parent, affiliates or
subsidiaries;

 

  (4) any prospective vendor of the Company or its parent, affiliates or
subsidiaries, about whom Ms. McFadden acquired information as a result of any
solicitation efforts by the Company or its parent, affiliates or subsidiaries,
or by the prospective vendor, during Ms. McFadden’s employment with the Company;

 

  (5) any existing employee, agent or consultant of the Company or its parent,
affiliates or subsidiaries, to terminate or otherwise alter the person’s or
entity’s employment, agency or consultant relationship with the Company or its
parent, affiliates or subsidiaries; or

 

  (6) any existing employee, agent or consultant of the Company or its parent,
affiliates or subsidiaries, to work in any capacity for or on behalf of any
person, company or other business enterprise that is in competition with the
Company or its parent, affiliates or subsidiaries.

10.        Material breach by Employee. In the event that Ms. McFadden breaches
any material provision of this Agreement, including but not necessarily limited
to paragraphs 4, 5, 6, 7, 8 and/or 9, the Company will have no further
obligation to pay or provide to her any unpaid amounts or benefits specified in
this Agreement and will be entitled to immediate return of any and all amounts
or benefits previously paid or provided to her under this Agreement and to
recalculate any future pension benefit entitlement without the additional
credited age she received or would have received under this Agreement. Despite
any breach by Ms. McFadden, her other duties and obligations under this
Agreement, including her waivers and releases, will remain in full force and
effect. In the event of a breach or threatened breach by Ms. McFadden of any of
the provisions in paragraphs 4, 5, 6, 7, 8, and/or 9, the Company will, in
addition to any other remedies provided in this Agreement, be entitled to
equitable and/or injunctive relief and,

 

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because the damages for such a breach or threatened breach will be difficult to
determine and will not provide a full and adequate remedy, the Company will also
be entitled to specific performance by Ms. McFadden of her obligations under
paragraphs 4, 5, 6, 7, 8, and/or 9. Pursuant to paragraph 15, and except as
otherwise prohibited or limited by law, Ms. McFadden will also be liable for any
litigation costs and expenses that the Company incurs in successfully seeking
enforcement of its rights under this Agreement, including reasonable attorney’s
fees.

11.        Material breach by the Company. Ms. McFadden will be entitled to
recover actual damages in the event of any material breach of this Agreement by
the Company, including any unexcused late or non-payment of any amounts owed
under this Agreement, or any unexcused failure to provide any other benefits
specified in this Agreement. In the event of a breach or threatened breach by
the Company of any of its material obligations to him under this Agreement,
Ms. McFadden will be entitled to seek, in addition to any other remedies
provided in this Agreement, specific performance of the Company’s obligations
and any other applicable equitable or injunctive relief. Pursuant to paragraph
15, and except as prohibited or limited by law, the Company will also be liable
for any litigation costs and expenses that Ms. McFadden incurs in successfully
seeking enforcement of her rights under this Agreement, including reasonable
attorney’s fees. Despite any breach by the Company, its other duties and
obligations under this Agreement will remain in full force and effect.

12.        No admission of liability. This Agreement is not, and will not be
considered, an admission of liability or of a violation of any applicable
contract, law, rule, regulation, or order of any kind.

13.        Complete agreement. This Agreement sets forth the entire agreement
between the Parties pertaining to the subject matter of this Agreement and fully
supersedes any prior or contemporaneous negotiations, representations,
agreements, or understandings between the Parties with respect to any such
matters, whether written or oral (including any that would have provided
Ms. McFadden with any different severance arrangements). The Parties acknowledge
that they have not relied on any promise, representation or warranty, express or
implied, not contained in this Agreement. Parole evidence will be inadmissible
to show agreement by and among the Parties to any term or condition contrary to
or in addition to the terms and conditions contained in this Agreement.

14.        Severability. If any provision of this Agreement is determined to be
invalid, void, or unenforceable, the remaining provisions will remain in full
force and effect except that, should paragraphs 4, 5, 6, 7, 8 and/or 9 be held
invalid, void or unenforceable, either jointly or separately, the Company will
be entitled to rescind the Agreement and/or recover from Ms. McFadden any
payments made and benefits provided to her under this Agreement.

15.        Arbitration. With the exception of any request for specific
performance, injunctive or other equitable relief, any dispute or controversy of
any kind arising out of or related to this Agreement, Ms. McFadden’s employment
with the Company (or with the employing subsidiary), the separation of
Ms. McFadden from that employment and from her positions as an officer and/or
director of the Company or any subsidiary or affiliate, or any claims

 

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for benefits, will be resolved exclusively by final and binding arbitration
using a three-member arbitration panel in accordance with the Commercial
Arbitration Rules of the American Arbitration Association currently in effect,
provided, however, that in rendering their award, the arbitrators will be
limited to accepting the position of Ms. McFadden or the Company. The only
claims not covered by this paragraph are any non-waivable claims for benefits
under workers’ compensation or unemployment insurance laws, which will be
resolved under those laws. Any arbitration pursuant to this paragraph will take
place in San Francisco, California. The Parties may be represented by legal
counsel at the arbitration but must bear their own fees for such representation
in the first instance. The prevailing party in any dispute or controversy
covered by this paragraph, or with respect to any request for specific
performance, injunctive or other equitable relief, will be entitled to recover,
in addition to any other available remedies specified in this Agreement, all
litigation expenses and costs, including any arbitrator, administrative or
filing fees and reasonable attorneys’ fees, except as prohibited or limited by
law. The Parties specifically waive any right to a jury trial on any dispute or
controversy covered by this paragraph. Judgment may be entered on the
arbitrators’ award in any court of competent jurisdiction. Subject to the
arbitration provisions of this paragraph, the sole jurisdiction and venue for
any action related to the subject matter of this Agreement will be the
California state and federal courts having within their jurisdiction the
location of the Company’s principal place of business in California at the time
of such action, and both Parties thereby consent to the jurisdiction of such
courts for any such action.

16.        Governing law. This Agreement will be governed by and construed under
the laws of the United States and, to the extent not preempted by such laws, by
the laws of the State of California, without regard to their conflicts of laws
provisions.

17.        No waiver. The failure of either Party to exercise or enforce, at any
time, or for any period of time, any of the provisions of this Agreement will
not be construed as a waiver of that provision, or any portion of that
provision, and will in no way affect that party’s right to exercise or enforce
such provisions. No waiver or default of any provision of this Agreement will be
deemed to be a waiver of any succeeding breach of the same or any other
provisions of this Agreement.

18.        Acceptance of Agreement.

a.        Ms. McFadden was provided over 21 days to consider and accept the
terms of this Agreement and was advised to consult with an attorney about the
Agreement before signing it. The provisions of the Agreement are, however, not
subject to negotiation. After signing the Agreement, Ms. McFadden will have an
additional seven (7) days in which to revoke in writing acceptance of this
Agreement. To revoke, Ms. McFadden will submit a signed statement to that effect
to PG&E Company’s Chief Legal Officer before the close of business on the
seventh day. If Ms. McFadden does not submit a timely revocation, the Effective
Date of this Agreement will be February 23.

 

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b.        Ms. McFadden acknowledges reading and understanding the contents of
this Agreement, being afforded the opportunity to review carefully this
Agreement with an attorney of her choice, not relying on any oral or written
representation not contained in this Agreement, signing this Agreement knowingly
and voluntarily, and, after the Effective Date of this Agreement, being bound by
all of its provisions.

 

Dated: __________________.   PACIFIC GAS AND ELECTRIC COMPANY   By:  
                                                                              
Dated: __________________.   NANCY MCFADDEN                              
                                              

 

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