Credit rating agencies are keeping an eye on California’s utilities because of the financial issues associated with wildfires, with some noting there’s a chance that the state may have no major private-sector electricity provider with an investment-grade credit rating by year’s end.
Since Pacific Gas and Electric Co. entered Chapter 11 bankruptcy last month, Moody's Investors Service has placed San Diego Gas and Electric Co. (SDG&E) and Southern California Edison Co. (SCE) on review for downgrade.
"We are re-evaluating the risks associated with the magnitude of exposure and liabilities related to wildfires affecting investor-owned utilities in California that can arise due to the application of a strict liability standard under the inverse condemnation legal doctrine," said senior analyst Natividad Martell. "This unique risk makes all California investor-owned utilities vulnerable to financially and economically severe events."
Last month, when putting SCE and parent Edison International (EI) on notice, Moody's senior credit officer Toby Shea said with climate change "exacerbating the financial and economic damages associated with these wildfires and regulatory and legislative efforts to address inverse condemnation still evolving, uncertainties have increased" for the companies.
S&P Global Ratings credit ratings analysts said earlier this month "all of California's investor-owned regulated electric utilities could be rated below investment grade before the start of the 2019 wildfire season,” with ratings lowered by one notch or more in the next few months for Edison, SCE and SDG&E.
“This indicates that the issuer credit ratings for these entities could be below investment grade before the start of the 2019 wildfire season, which could begin as early as June,” said S&P analysts.
The “potential liability risks are significant in California and that the regulatory mechanism to resolve these risks are unclear at best. Consequently, we believe California electric utilities face ongoing and unresolved risks related to future wildfires.” Because of the lack of clarity, each of the other California utilities potentially could follow PG&E’s lead if faced with a catastrophic wildfire in 2019 and beyond.