Fitch Ratings has assigned a 'BBB'/'RR2' rating to Pacific Gas and Electric Company's (PG&E) first mortgage bond issuance.

Proceeds from the debt offering will be used to fund certain eligible projects as defined in the prospectus supplement. Pending full disbursement or allocation of an amount equal to the net proceeds of the sustainability mortgage bonds, the proceeds will be held in temporary liquid investments or used to pay long- or short-term debt. Eligible projects include projects supporting climate change adaption, infrastructure investments to support renewables, clean transportation and energy efficiency.

On March 20, 2022, Fitch upgraded PG&E's Issuer Default Rating (IDR) to 'BB+' with a Stable Rating Outlook. The upgrade and Stable Outlook primarily reflect significantly lower levels of wildfires involving PG&E equipment, and associated liabilities, during 2019-2022 compared with 2017-2018. The upgrade also considered credit supportive elements of Assembly Bill (AB) 1054 and Senate Bill (S.B.) 901, management's focus on improving safety and operating performance, and Fitch's expectations for improving credit metrics.

Fitch projects FFO leverage for the utility will improve from 7.1x in 2022 to 5.1x in 2023 and 4.5x in 2024. For PCG, FFO leverage is estimated to improve from 7.8x in 2022 to 5.7x in 2023 and 5.0x in 2024. PG&E is a wholly owned subsidiary of PCG and its core operating utility subsidiary, representing virtually all of PCG's earnings and cash flows.

Key Rating Drivers

For details on PG&E's key rating drivers, see 'Fitch Upgrades PG&E Corp.'s and Pacific Gas and Electric's IDRs to 'BB+'; Outlook Stable' dated March 20, 2023 at 'www.ffitchratings.com'.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Meaningful reduction in the size and scale of prospective wildfire activity in PG&E's service territory;

Consistent improvement in PG&E's safety culture leading to resolution of legal, regulatory and reputational challenges;

Robust A.B. 1054 wildfire fund levels relative to future utility claims;

Improvement in FFO-leverage to better than 5.0x.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Continuation of catastrophic wildfire activity on par with the Northern California wildfires of 2017 and the Camp fire in 2018, and resulting large third-party liabilities under inverse condemnation;

More rapid than expected drawdown of the AB 1054 fund due to persistent wildfire activity and large third-party liabilities;

Inability to address equipment failures and deliver demonstrable improvement in safety culture;

Failure to ameliorate reputational challenges;

Deterioration in rate regulation generally or an unfavorable outcome in PG&E's 2023 GRC;

Unfavorable legislative developments;

These or other factors resulting in FFO-leverage of worse than 5.5x on a sustained basis.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Issuer Profile

Pacific Gas and Electric, a subsidiary of PG&E Corporation, is one of the nation's largest combination electric and gas utilities, serving 16 million people across a 70,000 square mile service territory that spans central and northern California.

Date of Relevant Committee

01 June 2022

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Pacific Gas and Electric Company has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to customer and other constituent impacts associated with wildfire activity, which has had a negative impact on the credit profile is relevant to the rating in conjunction with other factors. The ESG RS reflects Fitch's assessment of wildfire risks to creditworthiness as being manageable within PG&E's current rating category.

Pacific Gas and Electric Company has an ESG Relevance Score of '4' for Exposure to Environmental Impacts due to the impact of rain-drought-rain, high winds and dry ambient conditions on its operations, which has had a negative impact on the credit profile is relevant to the rating in conjunction with other factors. The ESG RS reflects Fitch's assessment of wildfire risks to creditworthiness as being manageable within PG&E's current rating category.

Pacific Gas and Electric Company has an ESG Relevance Score of '4' for Exposure to Social Impacts due to customer and other constituent impacts associated with wildfire activity, which has had a negative impact on the credit profile and is relevant to the rating in conjunction with other factors. The ESG RS reflects Fitch's assessment of wildfire risks to creditworthiness as being manageable within PG&E's current rating category.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

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