Fitch downgrades Socal, Edison, and Pacific Gas and Electric

Fitch Inc. made good on its threat Thursday, lowering the bond ratings of Southern California Edison Co., its parent company Edison International, and Pacific Gas and Electric Co. to a 'deeply speculative grade.' It also put Southern California Edison and Pacific Gas and Electric on rating watch negative. Fitch does not rate PG&E Corp., the parent of Pacific Gas and Electric Co.


Fitch Inc. made good on its threat Thursday, lowering the bond ratings of Southern California Edison Co., its parent company Edison International, and Pacific Gas and Electric Co. to a "deeply speculative grade"

It also put Southern California Edison and Pacific Gas and Electric on rating watch negative. Fitch does not rate PG&E Corp., the parent of Pacific Gas and Electric Co.

Warning default is a real possibility, the ratings agency said the California Public Utilities Commission's approval of a 7-15% retail rate increase is "wholly insufficient" to reverse the cash drain that could lead to a default.

To remain solvent, Fitch said, the utilities must be able to recover future power procurement costs, or wholesale power market prices must decline to retail levels set by the PUC. Without such assurance, it said, lenders are unlikely to advance funds to the utilities.

The ability to recover previously incurred power procurement costs, while now billions of dollars, is a large but secondary credit concern, according to the agency.

Fitch said it's possible just a few weeks remain before the utilities' funds are exhausted, while their capacity for meeting financial commitments is reliant upon favorable legislative and regulatory developments.

Should the worst occur, Fitch it should be noted that the utilities' first mortgage debt is secured by desirable generation, transmission, and distribution assets.

Because Edison International has historically generated 50% of its cash flow from Southern California Edison, Fitch said it also downgraded Edison ratings to essentially "junk" bond status.

With legislative and regulatory actions still under discussion by state and federal officials, Fitch said does not believe Thursday's action will be the final word on California's efforts to remedy its power market structure. The rating agency said the outstanding question is whether further substantive action will occur before these companies reach insolvency.

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