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
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.
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)
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Philip W. Smyth, CFA, +1 212-908-0531
One State Street Plaza
New York, NY
Kellie Geressy Nilsen, +1 212-908-9123
Bertsch, +1 212-908-0549
Source: Fitch Ratings