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PG&E Corp. downgrade over fire ties puts PPA counterparty ratings at risk

The credit ratings of two companies that have power purchase agreements with PG&E Corp. were downgraded after the California-headquartered utility's equipment was linked to devastating wildfires, raising the possibility that other counterparties could also see their credit ratings at risk.

The credit ratings of PG&E Corp. and its utility subsidiary, Pacific Gas and Electric Co., were downgraded by all three major rating agencies in November after the utility's equipment was linked to the outbreak of the Camp Fire, which, among other things, resulted in Paradise, Calif., being destroyed

Credit rating agencies have since downgraded the ratings of the owners of two power plants whose output is supplied under contract to Pacific Gas & Electric. According to an S&P Global Market Intelligence analysis, the company has at least 3,931 MW of capacity contracted from power plants whose owners have credit ratings. That capacity is spread across 82 power plants owned by 34 companies. PG&E holds contracts for 90% or more of the capacity from 73 of those facilities.

The list of plant owners includes eight companies with ratings from S&P Global Ratings of BB+ or below, and many of their contracts with PG&E are for most or all of the associated plant's capacity. Leading that group, as measured by the total amount of capacity under contract, is Atlantica Yield PLC, a BB-rated company that owns the 275-MW Abengoa Mojave Solar Project in San Bernardino County, Calif., whose full output is under contract with Pacific Gas & Electric into 2039. The facility comprises nearly half of the company's owned capacity. Pattern Energy Group Inc., one of the lowest-rated plant owners on the list at BB-, has a contract with Pacific Gas & Electric for the full capacity of the 101-MW Hatchet Ridge Wind plant in Shasta County, Calif., through 2025.

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Since PG&E Corp.'s downgrade, operators of two large solar facilities whose output is contracted to the company have also been downgraded. Pacific Gas & Electric has a 25-year contract for the full output of the Topaz Solar Farm, the largest solar facility in the U.S., at 586 MW. Citing counterparty risk, Fitch Ratings lowered the rating of Topaz Solar Farms LLC's $1.1 billion senior notes to BBB- from BBB, following similar downgrades by S&P Global Ratings and Moody's. The plant's owner, MidAmerican Solar LLC, is also the majority owner of the 348-MW Agua Caliente Solar plant, of which 329 MW is contracted to Pacific Gas & Electric. MidAmerican Solar is a business unit of Berkshire Hathaway Energy.

Separately, Fitch downgraded Genesis Solar LLC's $140.4 million of nonguaranteed debt to BBB- from BBB. The full 250-MW output of the Genesis Solar Energy Project is contracted to Pacific Gas & Electric. The plant, in Riverside County, Calif., is owned by subsidiaries of NextEra Energy Inc.

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