Pacific Gas and Electric (PCG) is planning to spend nearly $28 billion on capital projects in the next five years. The majority of this funding is allocated for transmission and distribution purposes. Utilities in the US are increasingly investing in grid modernization. Dull growth in the electric business and possible interest rate hikes are forcing them to improve operational efficiency in order to increase profitability.
PCG’s spending plan for the next five years is expected to be financed mainly by debt. As of September 30, 2015, PCG had total debt of $16.4 billion. Of this debt, $15.5 billion is long-term debt. PCG has a debt-to-equity ratio of 1x and a debt-to-capitalization ratio of 0.6x.
PCG’s net debt to EBITDA (earnings before interest, tax, depreciation, and amortization) stands at 3.7x. This ratio indicates how many years it will take a company to repay its current debt using EBITDA if debt and EBITDA stay constant.
S&P (Standard & Poor’s) raised its outlook for PCG to “positive” in mid-2015. The company has a credit rating of “BBB.” Issuance of new equity to fund capital spending in the next five years is expected to maintain a healthy capital structure.
S&P is a renowned credit rating agency that assesses and rates companies based on their financials. In comparison, S&P has given Exelon (EXC) a credit rating of “BBB” and an outlook of “stable.” At the end of fiscal 3Q15, the utility sector’s (XLU) average credit rating was “BBB+.”