S&P Global Ratings: Second California Utility Bankruptcy Possible

S&P Global Ratings analysis
(Photo: An image created by NASA of smoke from the Camp Fire in Northern California, November 2018. Credit: Stuart Rankin, Flickr Creative Commons)

S&P Global Ratings released a report responding to investors’ questions about PG&E Corporation’s voluntary bankruptcy filing last month. The report authors say they think it’s “entirely possible” that a second California electric utility could file for voluntary bankruptcy in 2019.

PG&E, owner of the biggest power utility in the United States, filed for voluntary Chapter 11 bankruptcy protection in late January. The move stemmed from liabilities related to wildfires in Northern California over the past two years, Reuters reported. In court documents, PG&E listed $71.39 billion in assets, and $51.69 billion in liabilities.

Analysts for S&P Global Ratings say they have been reexamining their assessment of California’s regulatory construct for electric utilities.

“We believe that potential liability risks are significant in California and that the regulatory mechanisms to resolve these risks are unclear at best,” Gabe Grosberg, Rebecca Ai, and Steve H. Wilkinson wrote. “California electric utilities face ongoing and unresolved risks related to future wildfires and, to the extent that this lack of clarity lingers, each of the other California electric utilities could potentially follow PG&E’s lead if faced with a catastrophic wildfire in 2019 or beyond.”

Without any regulatory reform, the analysts said that a second California electric utility could potentially file for voluntary bankruptcy this year. However, they added that there is still time for the state to clarify regulations and take constructive steps to support credit quality.

The renewable energy market in California also took a hit when PG&E announced plans to file for bankruptcy. “Two renewable energy projects have already had their debt ratings downgraded in recent weeks because they rely on PG&E for the bulk of their revenues,” the Wall Street Journal reported last month.

Wildfire season in California can start as early as June, the S&P Global Ratings analysts noted.

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