Fitch downgrades PG&E outlook on wildfire liability concerns

Fitch Ratings has downgraded the outlook for PG&E Corporation and Pacific Gas and Electric Company to Negative from Stable, citing concerns over their liability for wildfires in California. The rating agency stated that the failure of the California legislature to pass reforms addressing wildfire liability, along with an increasingly challenging regulatory environment, has raised credit concerns for investor-owned utilities.

No meaningful progress was made on Senate Bill 254 or efforts to socialize wildfire liabilities during the recent legislative session. The lack of progress in building upon the wildfire fund administrator’s study and prohibitions on equity returns have created further credit concerns. Senate Bill 492, which aimed to make minor adjustments to California’s wildfire liability framework, failed to pass.

Fitch remains uncertain if the reform process set in motion by Senate Bill 254 will continue, as there is no clear indication that it will. Additionally, the $18 billion continuation fund established under Senate Bill 254 mitigates some credit concerns, but the exclusion of $6 billion in wildfire mitigation investments from the equity rate base is considered an adverse credit development.