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Fitch warns wildfires may increase credit risk to Calif. utilities

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Fitch warns wildfires may increase credit risk to Calif. utilities

Fitch Ratings warned Dec. 11 that increased incidents of large wildfires might increase the potential credit risk to investor-owned utilities in California.

California's application of inverse condemnation, which can allow utilities to be held liable for fire damages if their equipment caused damage, even without negligence, removes a clear path to timely or assured recovery of related costs, in Fitch's view, and represents the aggravating factor in increasing credit risk to utilities and their parent companies.

Fitch noted the recent decision by California regulators to deny San Diego Gas & Electric Co.'s request to recover $379 million in costs over six years related to 2007 wildfires. The Sempra Energy subsidiary has indicated that it would apply for a rehearing of the decision and possibly a judicial review.

"The [San Diego Gas & Electric] case is especially pertinent given the wildfires currently raging across parts of [Southern California Edison Co.'s] service territory and recent devastating fires in [Pacific Gas and Electric Co.'s, or PG&E's] service territory," Fitch wrote.

The credit rating agency noted the magnitude of acreage burned in the recent Southern California and Northern California wildfires, compared to the smaller 2015 Butte fire, for which PG&E offered a low-end potential estimate of exposure at $1.1 billion.

"Fitch believes potential liability and funding requirements associated with the Northern California and 2015 Butte wildfires could result in future credit rating downgrades for PG&E and its corporate parent, PG&E Corp., should the utility be found to have caused the fires and inverse condemnation is adopted by the courts," Fitch wrote.

The impact to PG&E's creditworthiness will be driven by the magnitude of its financial liability, the determination of which Fitch expects will take years. If inverse condemnation is invoked and utilities seek recovery of net costs under inverse condemnation, Fitch sees authorization by the California Public Utilities Commission as "not assured, could take many years and is a key source of uncertainty."

SoCalEd is a subsidiary of Edison International.