About 26% of all regulated North American utilities have a negative outlook or are on credit watch with negative implications, according to a recent S&P Global Ratings midyear report.
In addition to this relatively high negative credit bias, the report said that utilities with “significant coal generation face higher regulatory scrutiny and environmental risks.” This is the first such trends report from S&P Global Ratings.
The first half of 2019 has been “extraordinarily challenging” for California’s regulated investor-owned electric utilities in particular, says S&P Global Ratings’ senior director Gabe Grosberg. At the same time, Grosberg noted that the passage of California’s Assembly Bill 1054 could “lead to a stabilization of credit quality for California’s regulated investor-owned electric utilities.”
Last month Governor Gavin Newsom signed the bill, which establishes a $21 billion fund to help utilities pay for wildfire damage linked to their equipment. Reporting on the complex bill for the Los Angeles Times in July, Taryn Luna wrote, “Weaker credit ratings often lead to higher borrowing costs for utilities, and state regulators have allowed power companies to pass off those capital expenditures to ratepayers through higher monthly bills.”
The bill won over many PG&E critics because it treats the bankrupt utility different from Southern California Edison and San Diego Gas & Electric, analyst Rob Rains told Greentech Media at the time. PG&E can’t participate in the new fund until it comes out of bankruptcy and settles insurance claims related to past fires.
S&P Global Ratings published a report in February warning that it’s “entirely possible” that a second California electric utility could file for voluntary bankruptcy this year.
“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,” the report authors wrote.