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Announcement:

Moody's: California Commission's decision goes a long way in resolving San Bruno for PG&E, a credit positive

09 Apr 2015

New York, April 09, 2015 -- The California Public Utility Commission (CPUC) today in a 4 to 0 vote issued its decision on fines and penalty against Pacific Gas & Electric (PG&E, A3 stable) associated with the San Bruno pipeline explosion that occurred in September of 2010. Despite the multi-billion dollar fines and penalties involved, we view this long waited decision as a credit positive because it substantially reduces the uncertainty associated with the size of the financial impact of the San Bruno incident on PG&E.

This order, which stipulated $300 million of fines and $1.3 billion of shareholder funded expenses, was well within our expectation. The total financial impact is similar to the two proposed decisions previously issued by the CPUC staff from the Safety and Enforcement Division (SED) and by the Administrative Law Judge (ALJ). In both cases, based on the company's latest earnings presentation, PG&E estimated that the unrecoverable costs would be in the range of $4.8 billion, including all unrecoverable costs, fines and penalties related to San Bruno.

Our A3 senior unsecured rating for PG&E has been premised on the expectation that PG&E would have the ability and willingness to fully fund the unrecoverable costs related to San Bruno incident with shareholder equity. Given the amount of equity the company has issued since the incident ($3.5 billion through 2014) and the company's current $25 billion market capitalization, we fully expect that PG&E will have the ability and the continued willingness to fund these fines and penalties with additional equity issuance.

Even though this decision goes a long way to bring San Bruno to a closure for PG&E, we note there are still a few outstanding issues, none of which we believe will have an effect on PG&E's rating.

1. PG&E has stated that it does not anticipate appealing the decision. However, other interest parties may still appeal the decision. Even if the decision is revised, we do not expect any modifications to be material.

2. The CPUC has made its decision on the penalties related to ex-parte communication related to the Gas Transportation and Storage (GT&S) rate case but, in theory, it could still find there are ex-parte penalties unrelated to the GT&S case and assess separate fines and penalties. We do not view the potential for finding an ex-parte violation unrelated to the GT&S to be high and if any penalties were assessed they would likely to be less than the GT&S penalties, which we estimate to be about $100 million to $200 million of a forgone revenue increase.

3. PG&E faces criminal charges from the US Justice Department. We do not believe these charges will have a significant impact on PG&E's credit quality at this point given the difficulty of proving willful and knowing violation of the Pipeline Safety Act beyond a reasonable doubt as well as the likely limited amount of any penalty relative to the size of the company.

Pacific Gas and Electric Company (PG&E) is a California based integrated electric utility engaged in electric and natural gas distribution, electric generation, procurement, and transmission businesses as well as natural gas procurement, transportation, and storage. PG&E serves 5.3 million electric distribution customers and approximately 4.4 million natural gas customers. PG&E delivered 86.3 terawatt hours of electricity to its customers with 36% generated from its own generation facilities in 2014. PG&E is wholly-owned by PG&E Corporation (Baa1, Stable), a holding company headquartered in San Francisco, CA.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Toby Shea
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: California Commission's decision goes a long way in resolving San Bruno for PG&E, a credit positive
No Related Data.
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