Fitch: PCG/PG&E's Ratings Unchanged by CPUC Penalty Decision

NEW YORK--(BUSINESS WIRE)-- PG&E Corporation (PCG) and Pacific Gas and Electric Company's (PG&E's) 'BBB+' Issuer Default Ratings (IDR) are unchanged by $1.6 billion of penalties, fines and remedies mandated by the California Public Utilities Commission (CPUC). The Rating Outlook for PCG and PG&E is Stable.

The CPUC voted on April 9, 2015 to adopt the penalty at yesterday's public meeting as proposed in President Picker's modified decision different. The vote brings to a conclusion the CPUC's orders initiating investigation (OII) into PG&E's natural gas business in connection with the September 2010 San Bruno pipeline explosion.

Together with disallowed pipeline safety costs already incurred, the OII penalty totals more than $2.2 billion. Fitch calculates that PG&E has absorbed approximately $4.8 billion in unrecoverable San Bruno-related costs during 2011 - 2014 (including the OII penalty). The company has indicated that it does not anticipate appealing the decision.

The CPUC decision in the penalty phase of the OII is consistent with Fitch's projections and expected by Fitch to be manageable within the current rating category. Resolution of the OII removes a major source of uncertainty and headline risk.

Remaining uncertainties include the anticipated 3Q 2015 final decision in PG&E's gas transmission and storage (GT&S) rate case (including a potential $231 million penalty related to the utility's ex-parte communications breach), the 28-count U.S. criminal indictment, CPUC investigation of gas distribution business record keeping and funding of the $1.6 billion OII penalty.

Fitch assumes PCG will, as indicated in public comments by management, fund the entire penalty with equity. This, combined with a reasonable outcome in PG&E's GT&S rate case could trigger future positive rating actions.

However, CPUC initiatives discussed and supported at the public meeting by the four voting commissioners to examine and improve PG&E's safety practices across all of its businesses in future commission proceedings injects a continuing element of uncertainty, in Fitch's view.

On April 9, 2015, the CPUC voted to adopt President Picker's modified decision different imposing a $1.6 billion penalty on PG&E.

The penalty includes $850 million of future gas safety work that will not be recoverable in rates, a $400 million credit to natural gas customers, a $300 million fine payable to California's General Fund and $50 million of other remedies.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology: Including short-Term Ratings and Parent Subsidiary Linkage' (May 28, 2014);

--'Recovery Ratings and Notching Criteria for Utilities' (March 5, 2015);

--'Rating U.S. Utilities, Power, and Gas Companies' (March 11, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863298

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

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Fitch Ratings
Primary Analyst
Philip W. Smyth, CFA
Senior Director
+1 212-908-0531
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Julie Jiang
Director
+1 212-908-0708
or
Committee Chairperson
Peter Molica
Senior Director
+1 212-908-0288
or
Media Relations:
Alyssa Castelli, +1 212-908-0540
[email protected]
Elizabeth Fogerty, +1 212-908-0526
[email protected]

Source: Fitch Ratings

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