News Column

Fitch: Recast DOJ Criminal Allegations A Continuing Risk for PG&E

August 1, 2014

CHICAGO & NEW YORK--(BUSINESS WIRE)-- The superseding criminal indictment of Pacific Gas & Electric Company (PG&E) for obstruction of an agency investigation and violations of the Pipeline Safety Act in connection with PG&E's role in the 2010 San Bruno pipeline explosion is a continued source of headline risk and uncertainty for PG&E from a credit point of view. However, we believe the indictment will not affect its ratings or the ratings of its corporate parent, PG&E Corporation (PCG). Fitch rates both PG&E and PCG 'BBB+'.

The 28-count indictment filed by the U.S. Attorney's Office earlier this week magnifies the uncertainty associated with the criminal investigation, but Fitch believes other key events will likely have more significant influence on PG&E's creditworthiness. The final decision in the California Public Utilities Commission (CPUC) orders instituting investigation (OII) into PG&E's role in the pipeline explosion is expected later this year and will likely have a significant credit impact. Other key events include the utility's pending 2014 general and 2015 gas transmission and storage (GT&S) rate cases. The former could be finalized by the end of September 2014, while a final decision in the GT&S rate case is expected in early 2015 with rates retroactive to Jan. 1, 2015.

The superseding criminal indictment charges the company with obstruction of the National Transportation Safety Board's (NTSB's) investigation in addition to violations of the Pipeline Safety Act and replaces the original indictment filed earlier this year. The new indictment contains 28 counts compared to 12 in the original indictment and raises PG&E's potential exposure to $1.1 billion, double the alleged losses suffered by victims of $565 million according to the indictment.

Fitch continues to believe that San Bruno-related financial exposure in the wake of the criminal indictment is manageable within the current rating category and will focus on investigations underway at the CPUC. The administrative law judges (ALJ) presiding officers' decisions (POD) and final CPUC decision in the OII are expected later this year. In a ruling issued Aug. 31, 2014, the ALJs indicated that the PODs in the OII will be issued within 60 days. The CPUC's Safety and Enforcement Division supports a proposed $2.25 billion of fines and penalties. Fitch calculates that PG&E, from 2010 through the second quarter of 2014, incurred pipeline-related direct costs of approximately $2.6 billion.

The original indictment was filed by the U.S. Department of Justice (DOJ) on April 1, 2014 for alleged violations of the Pipeline Safety Act. The San Bruno pipeline explosion and fire occurred in September 2010, killing eight people, injuring many others and causing extensive property damage. PG&E was notified in June 2011 that it was the target of a criminal investigation underway by the DOJ, the California Attorney General's Office and the San Mateo County District Attorney's Office.

For further information, see our full rating report entitled "Pacific Gas & Electric Company," dated March 2014, available on our website www.fitchratings.com.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research:

Pacific Gas & Electric Company (A Subsidiary of PG&E Corporation)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=740844

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Fitch Ratings

Philip W. Smyth, CFA, +1 212-908-0531

Senior Director

Fitch, Inc.

One State Street Plaza

New York, NY 10004

or

Kellie Geressy Nilsen, +1 212-908-9123

Senior Director

Fitch Wire

or

Media Relations:

Brian Bertsch, +1 212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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