Moody's upgrades PG&E on reduced credit risks from wildfires
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Moody's Ratings on Thursday upgraded credit ratings for PG&E Corp. and its Pacific Gas & Electric subsidiary, saying the companies faced reduced financial risks from wildfires.
"PG&E's upgrade reflects the organization's continued improvement in mitigating wildfire risk over the last few years as well as its ability to strengthen both its financial profile and its relationships with key stakeholders," Jeff Cassella, Moody's Ratings vice president and senior credit officer, said in a press release.
The upgrade also reflects the credit quality benefits provided by California's $21 billion wildfire legislation (AB 1054), including continued access to the state's wildfire insurance fund and credit positive shareholder liability cap and cost recovery provisions, Cassella said.
'In the backdrop of the recent LA wildfires, we expect any legislative and regulatory actions resulting from the state's continued wildfire risk will remain supportive for utilities by protecting them from uncapped liabilities due to inverse condemnation," Cassella said.
Since PG&E emerged from a wildfire-related bankruptcy in 2020, the utility has spent more than $20 billion to reduce wildfire risks, including the risk its equipment will cause wildfires, according to the credit rating agency. The utility hasn't experienced any wildfires that significantly affected its finances since 2020, Moody's noted.
Also, PG&E's financial risks are muted by the utility's demonstrated ability to receive approvals for the utility's annual wildfire safety certificate, which allows for the presumption of PG&E's prudence and protects the company with a liability cap on reimbursement to the wildfire fund if it is found imprudent, Moody's said.
PG&E's liability cap is about $4.1 billion, according to Moody's. Although the state's wildfire fund may be used to cover damages from January fires in southern California, Moody's said it expects the remaining amount would be enough to support PG&E's credit ratings and credit quality.
'Further upward movement of PG&E's ratings will be dependent on future increases in the amount available in the fund and the incorporation of a replenishment mechanism or other enhancements following the most recent wildfires,' Moody's said.
Moody's said PG&E is improving its relationship with customers by reducing wildfire risk, including with more targeted and narrower public safety power shut-offs. Moody's also increased the company's 'management credibility and track record' score to reflect PG&E's improved operational and financial performance in recent years and its stronger relationship with key stakeholders.
In its rating actions, Moody's upgraded PG&E Corp.'s senior secured debt ratings one notch to Ba2 from Ba3. Ba ratings are Moody's highest credit tier among non-investment grade ratings, according to a summary of the rating agency's credit scale.
Moody's also upgraded PG&E's ratings, including by increasing the utility's senior secured first mortgage bonds rating to Baa1 from Baa2. Baa ratings are considered to be investment grade obligations with moderate credit risk.
Separately, California Gov. Gavin Newsom, D, on Thursday suspended certain permitting requirements to make it easier for Southern California Edison and the Los Angeles Department of Water and Power to rebuild electric facilities and move power lines underground.
Wildfires in January burned about 47,900 acres in the Los Angeles area and destroyed or damaged about 16,250 buildings, according to Newsom.
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