Moody's Investors Service upgraded its outlook for PG&E Corp. and its utility subsidiary Pacific Gas & Electric to positive from stable, partly over PG&E’s efforts to reduce the risk of wildfires.
"PG&E's positive outlook reflects the potential for a higher credit rating as it continues to invest heavily on wildfire mitigation, improves its relationship with stakeholders, and establishes a track record of limiting large, catastrophic wildfires that are caused by the utility's equipment," Jeff Cassella, vice president – senior credit officer, said Wednesday.
The company’s access to the state's $21 billion wildfire insurance fund and supportive provisions of the AB 1054 legislation, which made it easier for utilities to recoup wildfire costs from ratepayers, are also key factors driving the positive outlook, he said.
PG&E, based in San Francisco, has spent more than $15 billion to reduce wildfire threats over the last three years, which has helped prevent utility infrastructure from starting catastrophic fires over that period, according to the credit rating agency.
“PG&E's credit worthiness is dependent on the company's ability to continue to make progress in addressing wildfire risk and reducing exposure to physical climate risks more broadly, an important ESG consideration,” Moody’s said.
Since PG&E Corp. emerged from bankruptcy in 2020, the company's largely new senior management team has improved the company's position with key stakeholders including state regulators, political leaders and customers, Moody’s said.
In December, the California Public Utilities Commission passed a unanimous resolution removing PG&E from an enhanced oversight and enforcement process, citing improved vegetation management practices, the ratings agency said.
Also, SB 884, signed into law last September, provides support for PG&E's plan to bury 10,000 miles of its power lines in areas with fire risks, which would help limit the utility's exposure to wildfires, Moody’s said.
The PUC’s regulatory framework offers PG&E supportive cost recovery mechanisms, such as revenue decoupling, a forward test year and above average rates of return, Moody’s said.
PG&E Corp.'s ESG Credit Impact Score is “very highly negative,” according to Moody’s. The ratings agency said the company’s ESG attributes hurt the company’s credit rating. “Its score reflects a combination of very highly negative environmental risks, high social risks and moderately negative governance risks,” Moody’s said.
While it upgraded the credit outlook for PG&E Corp. and its utility subsidiary, Moody’s left PG&E Corp.’s below-investment grade “corporate family rating” unchanged at Ba2.