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S&P drops PG&E ratings to junk on deteriorating political, regulatory situation

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S&P drops PG&E ratings to junk on deteriorating political, regulatory situation

S&P Global Ratings downgraded PG&E Corp. and its utility subsidiary Pacific Gas and Electric Co. from an investment grade credit rating of BBB- to a speculative rating of B, citing an eroding political and regulatory environment.

The utility's stock price slid 24% on Jan. 7 after Reuters reported that the company has had internal discussions about filing for bankruptcy as it explores options to cover potentially massive liabilities originating from deadly wildfires. PG&E is also considering a sale of its gas utility business, which analysts said would do little to offset the enormous liabilities the company may incur. PG&E could be facing billions of dollars in liabilities for 2017 and 2018 wildfires, not including penalties, fines or punitive damages.

S&P Global Ratings said it will continue to keep PG&E's ratings on creditwatch negative and further downgrades are possible.

"The creditwatch negative placement reflects what we see as the souring political and regulatory environment and our view of the limited options that the company has to effectively manage its operating, financial, and regulatory risks," S&P Ratings said. "We could lower the rating one or more notches over the next few months if explicit steps are not taken by politicians or regulators to improve the regulatory compact despite the company's own missteps. We could also lower the ratings by one or more notches if management does not clearly articulate specific steps it will take to preserve credit quality over the long term."

The rating agency also revised its assessment of management and governance to weak from fair following PG&E's announced search for new directors for both the holding company and its utility subsidiary to enhance their expertise in safety and other "critical areas." The announcement came as the California Public Utilities Commission probes the safety culture at PG&E given the wildfires and the 2010 San Bruno gas pipeline explosion.

PG&E reported equipment problems near the origin of the Camp Fire in Butte County around the time it began. The fire swept through the town of Paradise, killing at least 86 people in the deadliest wildfire in California's history. In November, PG&E said that if its equipment was found to have caused fires in Northern California, it could face liability in excess of its insurance claims.

Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news article can be found here.