Correction: Fitch Lowers Outlook for Three California Utilities.

Business Editors

CHICAGO--(BUSINESS WIRE)--Sept. 19, 2000

Fitch:

(Correction: In a press release issued earlier today, the rating for the Preferred Stock issued by San Diego Gas & Electric Company was

incorrectly stated as `A'. The correct rating is `A+'.)

Fitch has lowered its Ratings Outlooks for San Diego Gas and Electric Company (SDG&E), Southern California Edison Company (SCE), and Pacific Gas and Electric Company (PG&E) to Negative from Stable.

The action is due to liquidity pressures stemming from high wholesale electric power costs and uncertain recovery of these expenses under existing regulatory structures.

With caps on certain retail tariffs and a requirement to service their jurisdictions, the utilities have been purchasing power at prices well above frozen rates. Since selling a large part of owned generation as part of the state's initial industry restructuring, the three utilities are now net purchasers of power. Absent a change in the current regulatory and legislative framework or a profound drop in market prices, funding the high priced purchases will likely require increased debt, with a resulting higher interest expense and lower EBITDA weakening financial coverage ratios. To the extent liquidity pressures are sustained, a cash flow shortage could impact utility dividends to their parent companies.

SCE and PG&E are continuing to recover stranded costs through a portion of retail rates frozen through March 31, 2002 at the latest. The cost of procuring power, however, is well above headroom available under frozen rates. These excess operating costs are creating a drain on net cash flow. SDG&E faces excess operating costs to procure power, but completed the recovery of generation-related stranded costs in July 1999.

While political and regulatory uncertainty affects all three utilities, the companies' circumstances are not identical. PG&E and SCE remain subject to the initial rate freezes as agreed to in California's restructuring settlements until no later than March 31, 2002. PG&E and SCE are also permitted to reduce their stranded costs to the extent gains are generated on asset sales or their revaluation.

SDG&E concluded its frozen tariff period in July 1999 and was therefore permitted to bill customers directly for all purchased power costs. Customer distress over high summer billings prompted the California legislature to enact a law that imposed a new freeze on the energy-only portion of SDG&E's residential and small commercial tariffs retroactive to June 1, 2000. The legislation provides no formula directing potential recovery of these costs through retail rates, but states that there will be a reasonable opportunity to recover these excess costs. Resolution of recovery relies on a future California Public Utilities Commission (CPUC) decision; to the extent full recovery is withheld, SDG&E may challenge the ruling in federal court.

The CPUC has not clearly defined its position on a mechanism or timing for recovering power supply costs from consumers after the utilities' frozen tariff periods end. Given the high political visibility of this issue, resolution may require support from the California governor and the legislature. Several alternatives could mitigate the harm to the utilities, including: (1) an extension of the transition period; (2) an end to retail rate freezes and a new formula in California for recovering purchased power costs; (3) wide freedom for the utilities to engage in bilateral contracts and hedging products. Some of the alternatives would require legislative action.

As a quick resolution of this issue is unlikely, the utilities' liquidity could be further pressured. Fitch notes that SDG&E's very low leverage provides the utility the greatest financial flexibility to withstand reduced cash flow. Both SCE and PG&E have formidable financial resources to withstand a stressful season, but a prolonged period of unrecovered costs would have a greater impact on SCE and PG&E.

With its principal office in San Francisco, CA, PG&E is a wholly owned subsidiary of PG&E Corporation. Based in Rosemead, California, SCE is a wholly owned subsidiary of Edison International (EIX). Headquartered in San Diego, CA, SDG&E is a wholly owned subsidiary of Sempra Energy (SRE).

      Securities ratings for SDG&E, SCE and PG&E are as follows:

    San Diego Gas & Electric Company:
    Senior Secured            `AA'
    Senior Unsecured          `AA-`
    Preferred Stock           `A+'
    Commercial Paper          'F1+'

    Southern California Edison Company:
    Senior Secured           `AA-`
    Senior Unsecured         `A+'
    Preferred Stock          `A'
    Commercial Paper         `F1+'

    Pacific Gas & Electric Company:
    Senior Secured           `A'
    Preferred Stock          `A-`

Available on Fitch's web site at `www.fitchratings.com' is a report `Procuring Power in California: A Potential Stranded Cost' dated September 7, 2000.

Fitch is an international rating agency that provides global and capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Company, provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.