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05 Jan 2001
MOODY'S LOWERS THE SENIOR UNSECURED DEBT RATING OF PG&E CORPORATION TO Baa3 FROM A3 AND LOWERS THE SENIOR SECURED DEBT RATING OF PACIFIC GAS AND ELECTRIC TO Baa2 FROM A1. RATINGS REMAIN ON REVIEW FOR POSSIBLE DOWNGRADE.
New York, January 05, 2001 -- Moody's Investors Service has lowered the ratings of PG&E Corporation
(Issuer Rating to Baa3 from A3) and the ratings of Pacific Gas and Electric
Company (Senior Secured Debt to Baa2 from A1) following the January 4th
decision by the California Public Utilities Commission (CPUC).
The ratings remain under review for further downgrade.
The rating action reflects the generally weak CPUC rate order, which
provides a modest average interim rate increase of around 10%,
and fails to adequately address the mismatch that the utility must pay
to secure electricity in the wholesale power market. The rating
also incorporates Moody's view that signs of support from the Legislature
and from the Governor's office are beginning to emerge which, if
implemented quickly, could help to bolster the utility's financial
integrity. The Governor ordered a special legislative session that
began on January 3rd to act on energy matters, which could provide
solutions towards fixing the problem. Of interest is the legislature's
plans to introduce securitization legislation, which, if approved,
could provide an effective tool for helping to fund wholesale power costs.
Moreover, the current rating incorporates a view that key state
and federal decision makers are keenly interested in trying to avoid a
utility insolvency, given the ramifications that it might have on
the state's economy.
Still, Pacific Gas and Electric Company's and PG&E Corporation's
near term liquidity remains Moody's principal concern. The rating
of the utility and the holding company could decline to below investment
grade if liquidity concerns are not shored up promptly. The utility
has very large payments that it must make to the California Power Exchange
and to the California Independent System Operator, which will ultimately
require external financing. Moody's will assess the utility's ability
to meet these near-term payment requirements through cash conservation
measures or through other external financing means. In light of
the inadequate response from the CPUC in its January 4th rate order,
the utility's ability to address these upcoming financing needs and to
strengthen liquidity now rests, in large part, with potential
actions taken by the legislature and by other various state or federal
officials. As such, Pacific Gas and Electric Company's and
PG&E Corporation's ratings could be further negatively impacted in
the near-term unless legislative, state, or federal
actions help to establish a near-term liquidity plan that will
strengthen and extend the utility's financial viability, ultimately
providing confidence to the broader credit markets.
Moody's will also monitor the implications for Pacific Gas and Electric
Company regarding the outcome of two separate lawsuits filed by Southern
California Edison Company (SCE) against Federal Energy Regulatory Commission
(FERC) and against the CPUC. The outcome of both cases, although
providing little benefit towards the liquidity issue, could strengthen
the utility's intermediate term position concerning the wholesale market
place and its ability to recover wholesale power costs.
The rating action regarding PG&E Corporation incorporates the above-outlined
views concerning Pacific Gas and Electric Company as a principal source
of cash flow for the holding company and also incorporates the cash flow
contribution and potential value that exists for the corporation from
subsidiaries of The National Energy Group.
Ratings downgraded include the first mortgage bonds and the secured pollution
control bonds of Pacific Gas and Electric Company, lowered to Baa2
from A1; the issuer rating, the senior unsecured notes,
the unsecured debentures, the unsecured pollution control bonds
of Pacific Gas and Electric Company, lowered to Baa3 from A2;
the preferred stock of Pacific Gas and Electric Company, lowered
to "ba1" from "a2"; and a shelf registration for Pacific Gas and
Electric Company's issuance of senior secured debt, senior unsecured
debt, and preferred stock, lowered to (P)Baa2, (P)Baa3,
(P)"ba1"from (P)A1, (P)A2, and (P)"a2", respectively.
Also, Pacific Gas and Electric Company's short-term rating
for commercial paper and extendible commercial notes is lowered to Prime-3
from Prime-1, and its rating for variable rate demand bonds
is lowered to VMIG-3 from VMIG-1. Additionally,
PG&E Corporation's issuer rating is lowered to Baa3 from A3 and its
commercial paper is lowered to Prime-3 from Prime-1.
Headquartered in San Francisco, California, PG&E Corporation
is an energy services company and the parent holding company of Pacific
Gas and Electric Company, an operating public utility engaged principally
in the business of providing electricity and natural gas distribution
and transmission services throughout most of Northern and Central California.
Susan D. Abbott
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
VP - Senior Credit Officer
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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