NEWS

WIRES

OTHER

Fitch Affirms PG&E's 'A-' Issuer Default Rating; Outlook Stable

NEW YORK - (BUSINESS WIRE) - Fitch Ratings has affirmed Pacific Gas & Electric Company's (PG&E) ratings as follows:

--Long-term Issuer Default Rating (IDR) at 'A-';

--Senior unsecured notes at 'A';

--Preferred stock at 'A-'

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

The Rating Outlook is Stable. Approximately $9.2 billion of debt is affected by the rating action.

The affirmation and Stable Outlook consider the utility's strong, relatively predictable earnings and cash flows and a balanced regulatory/political environment in California. The ratings and Stable Outlook reflect Fitch's confidence in PG&E's ability to effectively execute, finance and recover its large, projected capital spending budget which is expected to approximate $11 billion through 2011.

The ratings and Outlook also assume that regulatory mechanisms will continue to facilitate timely collection of power supply and other costs and a reasonable return on invested capital. These mechanisms include decoupling of electric and gas rates from sales volume, pre-approval of construction spending, regulatory balancing accounts and forward looking test years, which minimize earnings attrition and ameliorate concerns regarding recovery of planned infrastructure investment and other expenses. The ratings also assume that management will fund its investment program with a balanced mix of debt and equity consistent with its current capital structure.

On July 20, 2009, PG&E submitted a draft of its 2011 general rate case (GRC) application to the Division of Rate Payer Advocates (DRA) of the California Public Utilities Commission (CPUC) requesting a $1.069 billion (6.5%) rate increase. The rate increase request is to recover PG&E's infrastructure and reliability investment during 2011 - 2013. The utility also submitted a notice of intent to file its formal application by Dec. 1, 2009. Following hearings and issuance of an administrative law judge's proposed order in 2010, a final order is expected to be issued by the CPUC before the end of the year, with new rates effective Jan. 1, 2011. The filing also requests that the CPUC adopt new flexible cost recovery mechanisms by establishing balancing accounts for several categories of costs, including new customer connections, uncollectible accounts and employee healthcare costs.

Fitch notes that the CPUC in PG&E's last GRC authorized a $213 million 2007 test-year rate increase, based on an 11.35% authorized return on equity and a 52% equity ratio. In addition, the commission order in PG&E's 2007 GRC approved post-test year inflation rate increases of $125 million in 2008, $160 million in 2009 and $90 million in 2010. PG&E is expected to file its next cost of capital proceeding with the CPUC in 2010 to be effective Jan. 1, 2011.

Liquidity is strong at PG&E and the company demonstrated its ability to access capital markets during the credit crisis, issuing $1.2 billion of senior unsecured notes in the fourth quarter 2008. After amending its credit agreement to remove Lehman Bank as a lender, the utility's revolving credit facility was reduced to $1.94 billion from $2.0 billion, a $60 million reduction. The credit facility backs PG&E's $1.75 billion commercial paper program.

As of March 31, 2009, PG&E had $385 million of commercial paper outstanding at an average yield of 1.15%, $295 million of letters of credit outstanding and $54 million of unrestricted cash and cash equivalents on its balance sheet.

On June 8, 2009, PG&E issued $500 million of floating rate notes (FRNs) that mature June 10, 2010. The interest rate is three-month LIBOR plus 95 basis points and will be reset quarterly on Sept. 10, 2009, Dec. 10, 2009 and March 10, 2010. Proceeds from the FRNs will be used to fund procurement-related collateral and margin requirements.

PG&E is the primary operating subsidiary of its corporate parent, PG&E Corporation (PCG). PG&E is one of the largest combination electric and gas utilities in the U.S., serving 5.1 million electric and 4.3 million natural gas customers in northern and central California. The utility accounts for virtually all of PCG's earnings and cash flows and 94% of consolidated debt.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, New York
Philip W. Smyth, CFA, +1-212-908-0531
Ellen Lapson, CFA, +1-212-908-0504
Media Relations:
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com