Nearly a year after the San Bruno, CA, natural gas pipeline rupture and explosion, Pacific Gas and Electric Co. (PG&E) and its parent company face a negative credit outlook from Fitch Ratings, which nevertheless Tuesday affirmed the ratings of the utility and parent PG&E Corp.
Fitch cited “challenges and uncertainties” in the aftermath of the pipeline explosion and fire last year that killed eight people on Sept. 9 in a quiet residential neighborhood about 10 miles south of San Francisco. Among the factors for changing the outlook from stable to negative were:
Fitch did affirm the parent and utility companies’ current mostly “A” and “A-” ratings, which affect about $12 billion in consolidated debt outstanding.
On the positive side, the rating agency listed what it considers the “continued balanced regulatory regime [CPUC]” in California as a key ratings factor for the future, along with effective execution of PG&E’s large capital program and the program’s balanced funding through ongoing CPUC policy. Fitch sees the PG&E-state approach to capital as consistent with federal energy policy.
But lurking in the weeds are a host of unknowns tied to the pipeline disaster aftermath, such as more intense federal and state regulatory scrutiny, the potential for the CPUC to levy fines against the utility, and third-party liability questions. And with this backdrop, the parent company’s CEO Peter Darbee suddenly retired last April 30, and a nationwide search for a permanent successor is ongoing (see Daily GPI, April 26).
Noting that PG&E earlier this year agreed to pay a $26 million fine in a stipulation (see Daily GPI, June 22) with the CPUC, pending regulators’ approval, in the 2008 Rancho Cordova distribution pipeline explosion, Fitch said “a greater fine related to the San Bruno accident cannot be ruled out.”
The utility has estimated that third-party liability tied to San Bruno could be approximately $220-400 million. Last year the parent company booked a charge to earnings reflecting the lower end of the estimated range of total exposure, Fitch noted.
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