OREANDA-NEWS. Fitch believes the realignment of senior management including the expansion of the office of the president at Pacific Gas and Electric (PG&E) is a modestly constructive event from a credit standpoint for PG&E and its corporate parent, PG&E Corporation.

We believe the appointment of Geisha Williams to the expanded office of president of electric operations and Nick Stavropoulos to president of gas operations underscores continuing management efforts to improve its operations and safety performance record. The promotions are part of a restructuring designed to enhance PG&E's senior management structure in anticipation of PG&E President Chris Johns' retirement later this year. Williams and Stavropoulos are seasoned industry executives with extensive experience managing respective electric and natural gas utility operations.

In April 2015, the California Public Utilities Commission (CPUC) voted to adopt the \\$1.6 billion penalty, as proposed in CPUC president Michael Picker's modified decision in the San Bruno orders instituting investigation (OII). In its deliberations at the public meeting, the four voting commissioners commented at some length regarding ways to improve PG&E's safety culture and practices across all of its businesses in future yet-to-be-determined commission proceedings. To Fitch's knowledge, such proceedings have not been initiated. In addition, the CPUC opened an investigation in November 2014 into PG&E's record-keeping practices for its gas distribution business. The gas distribution OII, continuing CPUC concerns regarding PG&E's operations, and the prospect of future proceedings regarding PG&E's safety culture are sources of uncertainty for investors. These concerns are considered in Fitch's current PCG and PG&E ratings and are not expected by Fitch to result in future credit rating downgrades.

Fitch believes the appointments of Williams and Stavropoulos are consistent with ongoing efforts by PG&E management to address CPUC concerns. Safety Enforcement Division and intervener testimony in the natural gas distribution record keeping OII are scheduled for September 2015 and October 2015, respectively, and hearings are scheduled for January 2016.

The penalty adopted by the CPUC in the San Bruno OII includes \\$850 million of future gas safety work that will not be recoverable in rates, a \\$400 million credit to natural gas customers, a \\$300 million fine payable to California's General Fund, and \\$50 million of other remedies. The commission vote brings to a conclusion the CPUC's OII into PG&E's natural gas business in connection with the September 2010 San Bruno pipeline explosion. The CPUC will review the \\$850 million of safety-related spending by PG&E in the utility's pending gas transmission and storage (GT&S) rate case. A revised schedule in the GT&S proceeding taking into account San Bruno OII mandated safety investment review indicates a final decision by mid-to-late 2016.

Together with disallowed pipeline safety costs already incurred, the OII penalty totals more than \\$2.2 billion. Fitch calculates PG&E has absorbed approximately \\$4.8 billion in unrecoverable San Bruno-related costs during 2011-2014, including the OII penalty. The company has indicated it does not anticipate appealing the decision. The CPUC decision in the penalty phase of the OII is consistent with Fitch's projections and expected by Fitch to be manageable within the current rating category. Resolution of the OII removes a major source of uncertainty and headline risk.

Tony Earley, Chairman, President, and CEO of PG&E Corporation joined the company in September 2011, leading efforts to improve PG&E's operational performance and safety record and resolve natural gas business-related issues. Earley has indicated a desire to serve for 3-5 years stating publicly that succession planning is an important focus of the board of directors. While the timing of Earley's departure and a successor are yet to be defined, Fitch expects the Board will conduct a thorough analysis in selecting a successor either through promotion or external recruitment.