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Moody's downgrades Calif. utilities on continuing wildfire liability risk

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Moody's downgrades Calif. utilities on continuing wildfire liability risk

Moody's on Sept. 6 downgraded ratings on San Diego Gas & Electric Co., Edison International and its subsidiary Southern California Edison Co., and PG&E Corp. and its subsidiary Pacific Gas and Electric Co., citing recent California legislation that did not go far enough in limiting wildfire liability exposure for the utilities.

California's Senate Bill 901, which passed Aug. 31, limited wildfire liabilities of investor-owned utilities, but did not repeal or change the doctrine of inverse condemnation.

"SB901 failed to address the most important risk factor, inverse condemnation, and the benefits it provides are dependent on implementation by state regulators," Moody's analysts said in separate Sept. 6 research notes. Inverse condemnation allows utilities to be held financially responsible for wildfires if their assets were determined to be the cause.

The rating agency described inverse condemnation as a unique risk factor for all California investor-owned utilities, weakening its assessment of the credit supportiveness of the state legislative and regulatory framework compared to other regulatory environments.

Moody's lowered all of SDG&E's long-term ratings, including its issuer rating to A2 from A1 and senior secured rating to Aa3 from Aa2. The ratings outlook for the Sempra Energy subsidiary is stable.

Meanwhile, Moody's downgraded SoCalEd's senior unsecured rating to A3 from A2 and commercial paper rating to Prime-2 from Prime-1, and Edison International's senior unsecured rating to Baa1 from A3. The rating outlooks for both companies were revised to stable from negative.

The rating agency also lowered utility subsidiary Pacific Gas and Electric's issuer and senior unsecured ratings to Baa1 from A3 and preferred stock to Baa3 from Baa2, as well as parent PG&E Corp.'s issuer and senior unsecured ratings to Baa2 from Baa1, subordinated shelf to (P)Baa3 from (P)Baa2, and preferred shelf to (P)Ba1 from (P)Baa3. The rating outlooks for both companies remain negative.

Wildfire cost was among the key issues during the second-quarter utility earnings season. California lawmakers tossed a lifeline to the utilities by passing SB 901 on Aug. 31, reducing the potential for utilities in the state to be forced into bankruptcy protection.

"[T]he bill is nevertheless a net credit positive over the existing situation for all of California's regulated utilities and it is evidence of extraordinary legislative intervention to address material risks faced by the state's critical infrastructure utility companies," Moody's said.

S&P Global Ratings on Sept. 5 also downgraded the issuer credit rating of SDG&E over wildfire liability risks.

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