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11 Dec 2000
MOODY'S PLACES THE SECURITIES OF PG&E CORPORATION AND PACIFIC GAS AND ELECTRIC UNDER REVIEW FOR POSSIBLE DOWNGRADE.
New York, December 11, 2000 -- Moody's Investors Service has placed the securities of PG&E Corporation
(PG&E Corp.) and its principal subsidiary, Pacific Gas
and Electric Company under review for possible downgrade.
The review for downgrade reflects the financial stress placed on the utility's
and its affiliates' cash flow caused by the continued high cost of wholesale
power in the West. This financial stress has been exacerbated in
recent weeks by the high cost of delivered natural gas and the fact that
a large number of generating plants in the west are currently not operating
for maintenance and other related reasons.
The rating action also reflects the December 7, 2000 decision by
the President of the California Public Utilities Commission (CPUC) to
suspend the schedule for consideration of Pacific Gas and Electric Company's
rate stabilization plan, which layers on additional cash flow uncertainty
for the utility. Also, the December 8, 2000 decision
by the California Independent System Operator (CalISO) to raise the cap
it will pay generators for electricity could add to the amount of undercollections
that the utilities have been incurring. To date, Pacific
Gas and Electric Company has been funding these undercollections through
the issuance of material levels of short-term and intermediate
term debt.
Although Moody's still believes that a constructive regulatory solution
to the California electric problem will surface, Moody's has growing
concerns that the complexity of the issues, including the competing
strategies for addressing the problem, may delay the timing of when
regulatory support, including cash relief, is provided.
To date, most of the ideas have centered around lowering the cost
of electricity in the wholesale market and providing future rate protection
to consumers. These initiatives cover a variety of approaches including
re-regulation of the utility industry in California, restructuring
the California ISO and the California Power Exchange, and shortening
the permitting process for new generating plants so that new capacity
can be brought on-line. Although all of these issues may
need to be examined in order to provide a more efficient market,
resolving them will take time and in the interim, provides little
additional cash flow for Pacific Gas and Electric as they and other California
investor-owned utilities find themselves underwriting this problem.
The Federal Energy Regulatory Commission is scheduled to shortly issue
a final report on recommended solutions for the California market and
the CPUC is scheduled to meet again in late December 2000 to begin analyzing
various approaches toward recovering these costs. Moody's anticipates,
however, that the focus of the December CPUC meeting will be on
accounting solutions, which are clearly important, but do
little to provide any near-term cash relief.
Moody's review will examine the extent to which cash recovery of past
and future wholesale power costs can be achieved as well as the timing
and form of such recovery. The review will also examine the manner
in which key state and federal authorities, including the Governor
of California, respond to this problem, as well as the legal,
regulatory and financial challenges facing the utility as it manages its
way through the myriad of issues.
Ratings under review at Pacific Gas and Electric Company include the first
mortgage bonds and the secured pollution control bonds of Pacific Gas
and Electric Company, both rated A1; the issuer rating,
the senior unsecured notes, the unsecured debentures, the
unsecured pollution control bonds of Pacific Gas and Electric Company,
the bank credit facility, all rated A2; the preferred stock
of Pacific Gas and Electric Company rated "a2"; and a shelf registration
for Pacific Gas and Electric Company's issuance of senior secured debt,
senior unsecured debt, and preferred stock, rated (P)A1,
(P)A2, and (P)"a2", respectively. Also under review
for possible downgrade is Pacific Gas and Electric Company's short-term
rating of Prime-1 and VMIG-1 for commercial paper,
extendible commercial notes, and variable rate demand bonds.
RATING ACTION RATIONALE AT PG&E Corp.
PG&E Corp.'s long-term and short term rating review
reflects PG&E Corp.'s reliance on Pacific Gas and Electric
Company's cash flows and dividends to service PG&E Corp's holding
company obligations. PG&E Corp's rating will be reviewed along
with the rating review contemplated for Pacific Gas and Electric Company
and any action taken on the long-term securities of Pacific Gas
and Electric Company is likely to result in a similar rating action for
PG&E Corp.'s securities.
Ratings under review at PG&E Corp include the issuer rating of A3.
PG&E Corp's short-term debt rating of Prime-1 for commercial
paper and extendible commercial notes remains under review for possible
downgrade.
Separately, Moody's has changed the rating outlook on the debt of
PG&E Generating Company (PG&E Gen: Bank Loan Rating at Baa2)
to negative from stable due to concerns related to the credit quality
of parent company, PG&E Corp. Although Moody's views
PG&E Gen's rating largely on a standalone basis, PG&E Gen
has relied upon its parent for large amounts of credit support to help
finance its growth. PG&E Corp's ability to provide additional
support is constrained in the near-term thereby causing PG&E
Gen to rely upon its own balance sheet as it pursues its own growth initiatives.
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.
New York
Susan D. Abbott
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
New York
A.J. Sabatelle
VP - Sr Credit Officer
Corporate Finance
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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