Fitch Rates SDG&E's First Mortgage Bonds 'AA'

Business Wire, May 17, 2005

NEW YORK -- Fitch Ratings has assigned an 'AA' rating to San Diego Gas and Electric Co.'s (SDG&E) 5.35% $250 million first mortgage bonds, series BBB, due 2035. The Rating Outlook is Stable. The bond proceeds will be used to fund utility capital expenditures.

SDG&E's ratings are supported by its strong credit ratios, limited commodity price exposure, and the increasing stability in the California regulatory environment. EBITDA to interest and debt to EBITDA (adjusted to exclude the effects of securitization debt and include this new debt issuance) equaled 8.3 times (x) and 2.2x, respectively, for the 12 months ended March 31, 2005. Cash flow measures have benefited in recent years from the recovery of revenues deferred during the California energy crisis. SDG&E's commodity price exposure is expected to increase over time from currently modest levels as long-term California Department of Water Resources power supply contracts mature and customer demand grows. However, commodity risk is anticipated to be significantly mitigated by CPUC balancing accounts designed to facilitate timely recovery of SDG&E's power procurement costs.

Ongoing litigation and regulatory proceedings continue to be an overhang on the credit. In particular, the Continental Forge anti-trust litigation, alleging that Sempra Energy (senior unsecured debt rated 'A', Stable Rating Outlook by Fitch) and its subsidiaries restricted natural gas supply into California, is scheduled to go to trial in September 2005. The current ratings and Outlook assume that such matters will be resolved in a manner consistent with the current assessment of the merits of each case and within the limits of Fitch's stress case scenarios.

SDG&E, a regulated operating utility subsidiary of Sempra Energy, provides electric and gas service to more than 3.3 million customers in San Diego and southern Orange counties.