text: Research: Rating Action: Moody's assigns Baa1 to PG&E's senior notes; ratings affirmed at Pacific Gas - Moody's
  Approximately $12 Billion of Debt Securities and Bank Facilities Affected
  New York, March 09, 2009 -- Moody's Investors Service assigned a Baa1 senior unsecured rating to PG&E Corporation's (PCG) planned issuance of senior notes. Moody's also affirmed the ratings of Pacific Gas & Electric Company (PG&E: A3 senior unsecured). The rating outlook for PCG and PG&E is stable.
  The Baa1 senior unsecured rating recognizes the expected stability of cash flow and operating earnings over the next several years through credit supportive actions taken by the California Public Utilities Commission (CPUC). For example, in the company's 2007 general rate case, base rates were set for its electric and natural gas distribution business through 2010. In May 2008, the CPUC adopted a three-year cost of capital mechanism that can increase or decrease with changes in the sector's financing costs. PG&E's current authorized ROE is 11.35% based upon a common equity ratio of 52%. In addition, PG&E's liquidity should be protected through the Energy Resource Recovery Account mechanism which requires the CPUC to true-up a utility's revenues and expenses when the under-collection of current power and fuel procurement expenses totals more than 5% of the prior year's procurement expenses. Also, while the company's service territory has been negatively affected by the global economic slowdown, the existence of a decoupling mechanism for electric and gas base rates is expected to mitigate the impact of substantial changes in usage caused by the economy, weather, or a customer's usage patterns.
  As of December 31, 2008, on a consolidated basis the ratio of cash flow from operations pre working capital (CFO pre-W/C) to total adjusted debt at PCG approximated 25.6% and CFO pre-W/C coverage of adjusted interest expense was 4.8x. Over the past three years, the ratio of CFO pre-W/C to total adjusted debt at PCG averaged 26.2% and the CFO pre-W/C coverage of adjusted interest expense averaged 4.8x. Moody's expects these results may weaken slightly during the next two years given the size of the company's capital spending program in 2009 and 2010. These financial results are similar to those recorded at PG&E, since the utility's rate-regulated business represents essentially the entire operations of PCG.
  The Baa1 rating assigned to the new note offering at PCG considers the structural subordination of this debt relative to the $9 billion of debt at the utility. Proceeds from the financing are expected to be infused as equity into PG&E to help fund the company's capital investment program. Management has indicated plans to have up to $500 million of holding company debt over the next several years while also raising between $975 million to $1.35 billion of additional common equity to help support PG&E's capital investment program.
  The stable rating outlook for PCG and PG&E reflects the expected predictability of cash flows over the next several years due to credit supportive decisions from the CPUC, mechanisms in place that reduce volatility, and the lower risk "back to basics" business strategy of the corporation. The stable rating outlook also considers the company's plans to finance its sizeable capital spending over the next several years which includes substantial additions to common equity. Given the holding company's strong reliance on cash flows from the utility, any rating change at PG&E would result in a rating change at PCG.
  Moody's last rating action on PCG and PG&E occurred on December 27, 2007, when Moody's upgraded PCG's Issuer Rating to Baa1 from Baa3 and upgraded PG&E's long term ratings, including it is Issuer Rating and senior unsecured ratings to A3 from Baa1.
  The principal methodology used in rating PCG and PG&E was Rating Methodology: Global Regulated Electric Utilities. It can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors may have been considered in the process of the rating these issuers can also be found in the Credit Policy & Methodologies directory.