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S&P downgrades PG&E over Calif. wildfire risks

S&P Global Ratings on Feb. 22 downgraded PG&E Corp. and subsidiary Pacific Gas and Electric Co.'s issuer credit ratings to BBB+ from A- over the risk posed by last year's wildfires at its Northern California service territory.

The downgrade reflects the "management's inability to manage this outsized risk well enough to preserve ratings in the 'A' category," S&P Global Ratings said. The companies' ratings were placed on CreditWatch negative in December 2017, following their announcement to suspend dividend payments.

The ratings are still under watch for possible further downgrades.

According to the ratings agency, the PG&E management did not clarify on when and whether it will reinstate the dividend, which was suspended due to uncertainty on wildfire liabilities. The wildfires resulted to 44 deaths and damaged about 9,000 homes and businesses.

During the recent earnings call, CEO and President Geisha Williams said the company is continuing its fight against California's application of inverse condemnation, calling it "the biggest factor underlying the current uncertainty." Inverse condemnation allows utilities to be liable for wildfire damages caused by their equipment even without negligence.

But S&P Global Ratings noted that the company did not offer new information on the potential wildfire exposure amount that would keep the dividend suspended. "[W]e no longer believe that the company's risk management capabilities are consistent with the prior ratings, and its inability to understand and quantify and therefore adequately manage the wildfire risks has weakened its credit profile," S&P Global Ratings added.

This downgrade also prompted the agency to place Topaz Solar Farms LLC on CreditWatch negative on Feb. 23.

Topaz Solar Farm is a 550-MW facility owned indirectly by Berkshire Hathaway Energy. It receives all revenues from Pacific Gas and Electric under a long-term power purchase agreement.

S&P Global Ratings said anything more than a one-notch drop on the ratings of PG&E, the critical counterparty, would also trigger a drop on the current BBB senior secured ratings of Topaz Solar.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.