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S&P Raises Ratings, Outlooks on Two CA Utilities

In another sign that California's two major utilities have recovered since the state's energy crisis, Standard & Poor's Ratings Services last Wednesday raised their respective credit ratings and declared their individual outlooks were "Stable."

S&P raised Pacific Gas and Electric Co.'s corporate credit rating to "BBB" from "BBB-," and it affirmed the utility's triple-B rating (BBB) on its senior secured debt. For Edison International and its utility, Southern California Edison Co., the rating agency raised their corporate ratings to "BBB" and "BBB+," respectively.

S&P analyst David Bodek said PG&E's upgrade was prompted by "favorable regulatory developments that are viewed as supportive of credit quality and as strengthening legislative and regulatory protections created in response to California's 2000-2001 energy crisis." He particularly called out as positive the California Public Utilities Commission decision last December to extend an electricity-buying rate component that was set to expire late this year.

He said that PG&E's current ratings reflect the utility's "current and projected financial profile, as well as the regulatory, operational and litigation risks it faces."

For Edison, Bodek said the same factors contributed to the upgrade -- a combination of favorable regulatory developments and the strengthened balance sheet. The parent company and utility were evaluated separately, S&P said.

To keep the higher ratings, the utility will have to "sustain sound credit metrics in the face of resource needs that will require either additional debt or give rise to debt equivalents, and a demonstration of an ongoing ability to recover costs in a timely manner that protects cash flow," along with no negative financial factors from Edison International or its non-utility units, Bodek said.

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