Investor-Owned Utilities to Face Largest Liabilities from California Wildfires: Fitch -- Update
By Maria Armental
Fitch Ratings said Wednesday it sees a mixed credit fallout from
the recent California wildfires and investor-owned utilities like
PG&E Corp. taking the brunt of the risk.
Earlier this year, the credit-rating firm downgraded PG&E
and Edison International's Southern California Edison because of
potential outsized liabilities from the wildfires. PG&E remains
on negative credit watch, which means another downgrade could
"The increased frequency of wildfires and sheer magnitude of
potential exposure, coupled with an uncertain path to recovery,
meaningfully expands business risk for electric utilities operating
in California," Fitch said, adding that utilities' credit risks
reflect the application of California's application of inverse
Under a provision in California's constitution known as inverse
condemnation, utilities can be held liable for property damage and
legal expenses if their equipment is deemed to have been involved
in igniting a fire, even if the utility followed all rules and
The state approved a law that gives utilities a clearer path to
recover wildfire-related costs by issuing bonds paid off by
customer surcharges -- provided that state regulators determine the
companies acted reasonably in maintaining and operating their
equipment and mitigating fire risks.
PG&E's stock has lost more than half of its value over the
past 12 months and spreads have widened significantly as its
financial exposure to the 2017 wildfires has been estimated at $15
billion. PG&E's liability would significantly increase if its
equipment is linked to the deadliest fires, the Tubbs Fire in 2017
and the Camp Fire this year.
PG&E, whose Pacific Gas & Electric Co. unit is
California's largest utility, has disclosed that a problem occurred
on one of its high-voltage power lines in Northern California some
15 minutes before the start of the Camp Fire was reported. Fire
officials haven't ruled on the cause of the fire.
Fitch also sees some counterparty risk for Kinder Morgan Inc.'s
Ruby Pipeline because of significant exposure to PG&E.
The re-insurance, home construction and U.S. public finance
sectors could also be impacted because of a state-wide economic
slowdown, damaged infrastructure and associated environmental
issues, Fitch said.
-- Erin Ailworth and Sara Randazzo contributed to this
Write to Maria Armental at email@example.com
(END) Dow Jones Newswires
November 28, 2018 15:14 ET (20:14 GMT)
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