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Rating Action:

Moody's assigns A3 to PG&E's senior notes and affirms ratings; outlook stable

08 Sep 2010

Approximately $12 billion of debt securities affected

New York, September 08, 2010 -- Moody's Investors Service assigned a A3 rating to Pacific Gas and Electric Company's (PG&E) planned issuance of senior notes.

Concurrent with this rating assignment, Moody's affirmed all of PG&E's ratings, including all senior unsecured debt, all senior unsecured tax-exempt debt, its Issuer Rating, and senior unsecured bank credit facility at A3, all preferred stock at Baa2, and PG&E's short-term rating for all commercial paper at Prime-2. Moody's also affirmed the ratings of PG&E Corporation (PCG), including its bank credit facility and all senior unsecured debt at Baa1. Additionally, Moody's affirmed ratings on the shelf registration for PG&E's issuance of all senior unsecured debt at (P)A3 and for PCG's issuance of all senior unsecured debt, subordinated debt, and preferred stock rated (P)Baa1, (P)Baa2,and (P) Baa3, respectively.

The rating outlooks for PG&E and PCG are stable.

Assignments:

..Issuer: Pacific Gas & Electric Company

....Senior Unsecured Regular Bond/Debenture, Assigned A3

RATINGS RATIONALE

PG&E's A3 senior unsecured rating reflects the continuing evidence of a more credit supportive regulatory environment in California, the sustainability of strong historical credit metrics, a sizeable capital investment program, and a corporate strategy centered around regulated rate base growth through infrastructure related investments. PCG's Baa1 senior unsecured rating reflects the focused business strategy around its regulated utility, the fairly conservative dividend payout ratio, and the degree of structural subordination that exists for debtholders at the parent. For more information on PG&E and PCG, please see the most recent Credit Opinion for each issuer which can be found on moody.com under the issuer's name.

PG&E's stable rating outlook reflects the expected predictability of cash flows over the next several years due to the credit supportive mechanisms currently in place within California that reduce volatility, coupled with the lower risk business strategy of the parent. The stable rating outlook also factors in the company's plans to finance its sizeable capital spending over the next several years with sufficient equity to maintain a 52% equity ratio at the utility which could include additions to common equity.

In light of the very large capital investment program at PG&E and the uncertainty surrounding the outcome of the General Rate Case, along with the future composition of the California Public Utilities Commission, limited prospects exist for the ratings to be upgraded in the near-term. However, the ratings could be upgraded following clarity around these issues, particularly if the current trend of credit supportive regulatory decisions leads to PG&E's cash flow to total debt being above 28% or the ratio of cash flow to total interest being above 5.0x on a sustainable basis.

The rating of PG&E could be downgraded if the company elects to finance its growing capital expenditures more aggressively with higher leverage, or if there is a material reversal of the current trend of increasing regulatory consistency leading to the utility's cash flow to total debt falling below 22% or the ratio of the utility's cash flow to total interest falling below 4.5x for an extended period.

Given the focused strategy of PCG and the modest amount of holding company debt, any rating change at the utility is likely to result in a similar rating change at the parent.

The principal methodology used in rating Pacific Gas & Electric Company was Regulated Electric and Gas Utilities rating methodology published in August 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Headquartered in San Francisco, California, PG&E Corporation is a holding company that conducts its business primarily through Pacific Gas and Electric Company, a vertically integrated utility.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
A.J. Sabatelle
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's assigns A3 to PG&E's senior notes and affirms ratings; outlook stable
No Related Data.
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