Pacific Gas and Electric Co. (PG&E) and parent PG&E Corp. have been downgraded with a negative outlook by Moody’s Investors Service following a two-month review because of a dividend downgrade and potential implications from Northern California wildfires last year.
Fitch Ratings and Standard & Poor’s Financial Services LLC last month issued downgrades to the credit ratings.
Moody’s review was prompted in late December by PG&E’s decision to suspend dividends “owing to the rising potential for significant liabilities” related to the wildfires last October.
The uncertainty of the state’s political and regulatory environment has been exacerbated by the economic and legal uncertainty of how California applies “inverse condemnation,” which would put the bulk of liability for any wildfire on utilities when their equipment and infrastructure are found to be involved, regardless of whether any negligence is found.
“If PG&E is found liable for any portion of the Northern California wildfires, there is a high degree of uncertainty as to how related costs and liabilities would be recovered from ratepayers,” Moody’s analysts said. Off-balance-sheet liabilities could lead to “material deterioration” of finances, which in turn could lead to an inability to access capital markets.
The California regulatory environment has become “more politically charged with the debate over the state’s application of inverse condemnation,” said Moody’s. “As events become more politicized, we believe the likelihood of constructive changes becomes more challenging.”
A San Francisco-based spokesperson for PG&E told NGI that the utility is committed to finding a solution to the conundrum surrounding the state’s use of the legal theory, as it is “so important to come together to find solutions to address the flawed legal doctrine.”
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