cash flows, level of indebtedness, overall financial strength, diversification beyond the regulated utility business (in the case of Sempra Energy), and the status of certain capital projects, as
well as other factors beyond their control, such as tax reform, the state of the economy and our industry generally. Downgrades and factors causing downgrades of one or both of the California Utilities can have a material impact on Sempra
Energys credit ratings.
The current Moodys Investors Service, Inc. (Moodys), S&P Global Ratings
(S&P) and Fitch Ratings (Fitch) (collectively, the Rating Agencies) issuer credit ratings for Sempra Energy are Baa1, BBB+ and BBB+, respectively, with Moodys and S&P having changed Sempra
Energys outlook from stable to negative on December 20, 2017 and July 9, 2018, respectively. The changes in outlook were primarily the result of, in the case of Moodys, Sempra Energys planned long-term debt issuance to
fund a portion of the cost of the Oncor acquisition, delays at the Cameron LNG project and the impact on financial credit metrics, and in the case of S&P, the lack of predictability in the California regulatory environment for electric utilities
to consistently recover wildfire-related costs from ratepayers. On September 26, 2018, Moodys confirmed Sempra Energys ratings and negative outlook, reflecting challenges and execution risk that Sempra Energy may face in meeting
certain of Moodys target financial metrics by 2020. On March 18, 2019, S&P affirmed Sempra Energys ratings and negative outlook, stating S&P could lower the ratings of Sempra Energy and its subsidiaries within the next six
months by one or more notches if it does not see explicit steps being taken by regulators or state officials to address wildfire-related risk applicable to the California electric utilities regulatory construct. On April 19, 2019, Fitch
affirmed Sempra Energys ratings and stable outlook.
The Rating Agencies have also initiated credit ratings actions that have
negatively impacted SDG&Es ratings, with such recent actions primarily the result of the Rating Agencies assessments of the increased risk of wildfires in California, the current California regulatory environment, recent wildfires in
California and the possible inability to recover costs and expenses in cases where California investor-owned utilities, like SDG&E, are determined to have had their equipment be the cause of a fire.
Moodys issued a report on June 4, 2019 regarding potential legislative solutions that are being proposed to California Governor
Newsom and the California legislature to manage the long-term costs and liabilities associated with utility-caused wildfires. While Moodys assessed the potential solutions under consideration and generally found that the solutions were credit
positive if implemented, it gave some of these potential solutions a low likelihood of implementation, and has not changed its assessment regarding shortcomings in Californias regulatory environment in light of uncertainty surrounding the
legislative process. Among other things, Moodys believes that lawmakers are not actively considering reforming the inverse condemnation doctrine this year and that the likelihood of that occurring this year is remote.
S&P issued a report on June 7, 2019 updating its views regarding credit risks, potential credit ratings ramifications faced by
regulated electric utilities in California and potential legislative solutions. S&P noted that unless legislation passes in California that reduces the credit risk to electric utilities in California, they expect to downgrade these companies, to
possibly below investment grade ratings, at or around July 12, 2019, which is when the California legislature breaks for summer recess, or sooner if a utility is found to be the cause of a catastrophic wildfire. Further, S&P specified that
Sempra Energys credit ratings could be downgraded below investment grade if SDG&E is found to be the cause of a catastrophic wildfire and further noted that a downgrade of SDG&E could result in a downgrade to Sempra Energy.
On January 21, 2019, S&P downgraded SDG&Es long-term issuer credit rating to BBB+ from
A-
while maintaining its negative outlook. S&P affirmed this rating and maintained its negative outlook on March 18, 2019. On March 5, 2019, Moodys downgraded SDG&Es issuer rating
to Baa1 from A2 while maintaining its negative outlook. On March 11, 2019, Fitch downgraded SDG&Es long-term issuer default rating to BBB+ from
A-,
while maintaining its negative outlook. Fitch
affirmed this rating and maintained the negative outlook on April 19, 2019.
S&P affirmed SoCalGass issuer credit rating at
A with a negative outlook on March 18, 2019, and Fitch also affirmed SoCalGass long-term issuer default rating at A with a stable outlook on April 19, 2019. On
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