PG&E 2007 Annual Report Download - page 50

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PG&E Corporation and the Utility seek to maintain or
strengthen their credit ratings in order to provide liquidity
through effi cient access to fi nancial and trade credit, and to
reduce fi nancing costs. PG&E Corporation and the Utility
also seek to maintain the Utility’s CPUC-authorized capital
structure, which includes a 52% common equity component.
In 2007, Moody’s upgraded the Utility’s credit rating to A3,
thereby terminating a provision in the Chapter 11 Settlement
Agreement that had required the CPUC to authorize a mini-
mum 52% common equity ratio and a minimum ROE for
the Utility of 11.22% until the Utility received a credit rat-
ing of A3 from Moody’s or A- from S&P. On December 20,
2007, the CPUC issued a decision maintaining the Utility’s
authorized ROE at 11.35% and its common equity compo-
nent at 52% for 2008.
As of February 2008, PG&E Corporation’s and the Utility’s
credit ratings from Moody’s and S&P were as follows:
Moody’s S&P
Utility
Corporate credit rating A3 BBB+
Senior unsecured debt A3 BBB+
Credit facility A3 BBB+
Pollution control bonds backed by
letters of credit Not rated AA/A-1+
Pollution control bonds backed by
bond insurance A3 to Aaa AA to AAA
Preferred stock Baa2 BBB-
Commercial paper program P-2 A-2
PG&E Energy Recovery Funding LLC
Energy recovery bonds Aaa AAA
PG&E Corporation
Corporate credit rating Baa1 Not rated
Credit facility Baa1 Not rated
Moody’s and S&P are nationally recognized credit rating
organizations. These ratings may be subject to revision or
withdrawal at any time by the assigning rating organization
and each rating should be evaluated independently of any
other rating. A credit rating is not a recommendation to
buy, sell, or hold securities.
As of December 31, 2007, PG&E Corporation had a
credit facility totaling $200 million, which can be increased
to $300 million, subject to obtaining commitments from
existing or new lenders and satisfying other conditions. As
of December 31, 2007, the Utility had a credit facility total-
ing $2.0 billion (“working capital facility”), which can be
increased to $3.0 billion, subject to obtaining commitments
from existing or new lenders and satisfying other conditions.
During 2007, the Utility increased its borrowing capacity
under its commercial paper program from $1.0 billion
to $1.75 billion. As of December 31, 2007, the Utility had
$165 million of letters of credit and $250 million of
borrowings outstanding under its working capital facility.
As of December 31, 2007, the Utility also had $270 million
of outstanding commercial paper. In order to satisfy rating
agency criteria, the Utility treats the amount of its outstand-
ing commercial paper as a reduction to the amount avail-
able under its working capital facility. As authorized by the
CPUC, the total amount of the Utility’s short-term debt at
any time cannot exceed $2 billion (plus up to an additional
$500 million for specifi c contingencies). At December 31,
2007, the Utility had $1.3 billion of short-term debt capacity
available (in addition to $500 million of debt capacity for
specifi c contingencies).
In 2005, the Utility purchased a fi nancial guaranty insur-
ance policy to insure the regularly scheduled payment of
principal and interest on $454 million of pollution control
bonds series 2005 A-G (“PC2005 bonds”) issued by the
California Infrastructure and Economic Development Bank.
In January 2008, the insurer’s credit rating was downgraded
and/or put on review for possible downgrade by several
credit agencies. This has resulted in increases in interest
rates for the PC2005 bonds, which rates are currently set
at auction every 7 or 35 days. To minimize this interest rate
exposure, the Utility intends to exercise its right to purchase
the bonds in lieu of redemption and remarket the bonds
when market conditions are more favorable. The purchase
of the PC2005 bonds is expected to be fi nanced through
issuance of long-term debt.
As discussed below in “Capital Expenditures,” the
Utility expects that its capital expenditures will average
approximately $3.4 billion over each of the next four years.
Subject to additional CPUC authorization as needed, the
Utility forecasts that it will issue an average of $1.4 billion
of long-term debt annually for each of the next four years
(2008–2011), primarily to fi nance forecasted capital expendi-
tures. During 2007, the Utility issued $700 million principal
amount of 5.80% 30-year Senior Notes and $500 million
principal amount of 5.625% 10-year Senior Notes. As the
level of Utility debt increases, the Utility anticipates that it
will need to issue additional common equity to maintain
the 52% CPUC-authorized common equity component of
its capital structure. During 2007, PG&E Corporation made
equity contributions totaling $400 million to the Utility
to meet a portion of the Utility’s forecasted equity needs.
PG&E Corporation anticipates that it will contribute
$2 billion to $2.5 billion of additional equity to the Utility
over the next four years to maintain the Utility’s CPUC-
authorized capital structure.