The Rating Agencies have also initiated credit ratings actions that have negatively impacted
SDG&E’s 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.
Moody’s 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 Moody’s 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 California’s regulatory environment in light of uncertainty surrounding the legislative
process. Among other things, Moody’s 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
Energy’s 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&E’s 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, Moody’s downgraded SDG&E’s issuer rating to Baa1 from A2 while maintaining its negative
outlook. On March 11, 2019, Fitch downgraded SDG&E’s 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 SoCalGas’s issuer credit rating at A with a negative outlook on March 18, 2019, and
Fitch also affirmed SoCalGas’s long-term issuer default rating at A with a stable outlook on April 19, 2019. On May 22, 2019, Moody’s affirmed SoCalGas’s long-term rating at A1, but changed its outlook to negative, citing,
among other things, deteriorating credit metrics over the past several years as well as heightened regulatory and political uncertainty for all utilities operating in California. Moody’s noted that SoCalGas’s ratings could be downgraded if
SoCalGas’s credit metrics do not improve materially after the completion of ongoing regulatory proceedings or if the political or regulatory environment deteriorates or becomes more uncertain for local distribution companies operating in
California.
While Sempra Energy’s, SDG&E’s and SoCalGas’s credit ratings are currently investment grade, each of the Rating Agencies
reviews its ratings periodically, and there is no assurance that the current credit ratings and ratings outlooks assigned to Sempra Energy, SDG&E and SoCalGas will not be downgraded. As discussed above, S&P has indicated that, in the absence
of a satisfactory legislative solution, they expect that downgrades may occur at or around July 12, 2019 or sooner if a utility is found to be the cause of a catastrophic wildfire.
A downgrade of Sempra Energy’s or either of its California Utilities’ credit ratings or rating outlooks may materially and adversely affect the
market prices of Sempra Energy’s equity and debt securities, the interest rates at which their borrowings are made and their debt securities and commercial paper are issued, and the various fees on their credit facilities. This could make it
significantly more costly for Sempra Energy, SDG&E, SoCalGas and Sempra Energy’s other subsidiaries to borrow money, to issue debt securities, to enter into new credit facilities and to raise certain other types of capital and/or complete
additional financings. Such negative credit rating actions and the reasons for such actions could materially and adversely affect our cash flows, results of operations and financial condition and the market price of, and our ability to pay the
principal of and interest on, our debt securities.
The foregoing discussion should be read in conjunction with the discussion appearing under the caption
“Risk Factors—Risks Related to Sempra Energy—Certain credit rating agencies may downgrade our credit ratings or place those ratings on negative outlook” in the Annual Report.
Cautionary Note Regarding Forward-Looking Statements
This current report contains statements that are not historical fact and constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In this report, when we use words such as “believes,” “expects,” “anticipates,” “plans,” “estimates,” “projects,” “forecasts,”
“contemplates,” “assumes,” “depends,” “should,” “could,” “would,” “will,” “confident,” “may,” “can,” “potential,” “possible,”
“proposed,” “target,” “pursue,” “outlook,” “maintain,” or similar expressions, or when we discuss our guidance, strategy, plans, goals, vision, mission, opportunities,