S&P: PG&E Corp. Upgraded To 'BBB+', Outlook Positive; Debt Ratings Also Raised
We also raised the issue-level rating on PG&E Corp.'s senior unsecured debt to 'BBB' from 'BBB-' and the issue-level rating on Pacific Gas & Electric Co.'s senior unsecured debt to 'BBB+' from 'BBB'. We also raised the rating at Pacific Gas & Electric Co.'s preferred stock to 'BBB-' from 'BB+'.
"The upgrade reflects the company's continued steps to improve its business risk profile since the 2010 San Bruno gas transmission explosion. We now view the company at the higher-end of the strong business risk profile category. The maximum $3 million fine from the federal criminal trial is significantly below initial estimates of possibly more than $1 billion. In addition, the company has implemented interim rates of $193 million in its gas transmission and storage rate case, entered into a joint proposal to retire Diablo Canyon Nuclear Power Plant at the expiration of its current operating licenses in 2024 and 2025, and filed an $88 million settlement agreement in its electric and gas general rate cases," said credit analyst Gabe Grosberg. "We expect a final order in the gas transmission and storage rate case by year-end 2016 and a final order in the general rate cases by the end of first quarter of 2017."
The positive outlook reflects the potential for a higher rating over the next 6-10 months if the company continues to demonstrate effective management of regulatory risk that is consistent with its peers. This would result in an improved business risk profile while maintain financial measures that consistently exceed the midpoint of the significant financial risk profile category (FFO to debt greater than 18%).
We could affirm the ratings and revise the outlook to stable if there is no further improvement to the company's business risk profile and the company's management of regulatory risk results in consistently below-average regulatory outcomes. Additional ratings downside is possible if the outstanding issues related to the San Bruno pipeline incident and ex-parte issues prove more challenging to resolve than we expect.
We could raise the rating, if the company improves its business risk profile while maintaining financial measures above the higher half of the range for the significant financial risk profile category (FFO to debt greater than 18%). Business risk profile improvement would be predicated on the company continuing to make material strides toward resolving the remaining outstanding issues from the San Bruno pipeline explosion, resolving the remaining ex parte communication issues, and consistently demonstrating, on an ongoing basis, effective management of regulatory risk at a comparable level to its peers despite the legal and operational challenges it has experienced.