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Rating Action:

Moody's places Pacific Gas and Electric's ratings under review up

09 Apr 2007
Moody's places Pacific Gas and Electric's ratings under review up

Approximately $8 Billion of Debt Securities and Bank Credit Facilities Affected.

New York, April 09, 2007 -- Moody's Investors Service placed the long-term ratings of Pacific Gas and Electric Company (PG&E: Baa1 Issuer Rating, senior unsecured debt) and its parent, PG&E Corporation (PCG: Baa3 Issuer Rating) under review for possible upgrade. PG&E's Prime-2 short-term rating for commercial paper is not affected by this rating action.

The review for possible upgrade reflects the expected improvement and predictability in the company's future cash flow due to the constructive general rate case (GRC) decision rendered by the California Public Utilities Commission (CPUC) last month which set rates through the end of 2010, a period in which the company has a large capital investment program.

"The CPUC decision in PG&E's GRC represents another tangible example that the regulatory environment in California for electric utilities has become more predictable and reliable, all of which supports better utility credit quality", said A.J. Sabatelle, Vice President and Senior Credit Officer.

In mid-March 2007, the CPUC, by a 5-0 vote, adopted a settlement which had been reached with the Division of Ratepayer Advocates (DRA) and other interveners concerning the company's GRC. The rate decision establishes new base rates for electric distribution, generation, and gas distribution through the end of 2010. Specifically, base rates will increase by $213 million effective January 2007, followed by rate increases of $125 million, $160 million, and $90 million in each of 2008, 2009, and 2010, respectively. The majority of the rate increases during 2008 through 2010 are intended to provide incremental cash flow in support of the company's approximate $12 billion four-year capital investment program for electric infrastructure and reliability programs.

The review for possible upgrade further considers PCG's lower risk business strategy as virtually all of the company's consolidated revenues, earnings, and cash flow over the next several years are expected to be derived from its regulated utility business.

The rating review will focus on the expected credit metrics for PG&E and PCG over the next several years resulting from the GRC decision and other recent regulatory decisions, the size of the company's capital investment program, and the challenge the company may face in implementing its business strategy, given the existence of high electric rates in the state. The rating review will also consider the potential implications of an upgrade of PG&E's Issuer Rating to A3, which if upgraded, would trigger the elimination of certain provisions in the settlement agreement entered into by the utility, PCG, and the CPUC in December 2003. These provisions include the requirement that until PG&E's Issuer Rating is at least A3, the utility's authorized return on equity will be no less than 11.22% and the utility's authorized equity ratio will be no less than 52%. PG&E's current authorized return on equity is 11.35% and its authorized equity ratio is 52%.

On Review for Possible Upgrade:

..Issuer: California Pollution Control Financing Auth.

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Upgrade, currently Baa1

..Issuer: PG&E Corporation

....Issuer Rating, Placed on Review for Possible Upgrade, currently Baa3

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Upgrade, currently Baa3

..Issuer: Pacific Gas & Electric Company

....Issuer Rating, Placed on Review for Possible Upgrade, currently Baa1

....Multiple Seniority Shelf, Placed on Review for Possible Upgrade, currently (P)Baa1

....Preferred Stock Preferred Stock, Placed on Review for Possible Upgrade, currently Baa3

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Upgrade, currently Baa1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Upgrade, currently Baa1

Outlook Actions:

..Issuer: PG&E Corporation

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Pacific Gas & Electric Company

....Outlook, Changed To Rating Under Review From Stable

Headquartered in San Francisco, California, PCG is a parent holding company, whose principal operating subsidiary is PG&E, a public utility that is principally engaged in providing electric and natural gas distribution and transmission services in Northern and Central California. At December 31, 2006, PCG had total assets of approximately $34.8 billion and operating revenues of approximately $12.5 billion.

New York
William L. Hess
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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