Nearly 100 utilities’ credit ratings downgraded since 2020 as wildfire risks grow

• Increased wildfire risk has contributed to nearly 100 utility company credit downgrades since 2020, according to a report by global consulting firm Charles River Associates.
• Lower credit ratings have made it more difficult for utilities to borrow money while insurance and wildfire mitigation costs have increased, the report states. These costs have largely been passed on to consumers in the form of rate increases, according to Andrew Dressel, vice president of energy at Charles River Associates.
• However, wildfire mitigation practices seem to be effective in reducing utilities’ legal risks. Credit downgrades have become less common in states that took early action to address wildfire litigation, Dressel said.

Dive Insight:

The increased risk of wildfire — and wildfire-related litigation — could significantly erode the financial stability of utilities in fire-prone areas, according to Charles River Associates. But emerging evidence suggests that public policy and utility-led wildfire mitigation efforts are effective in reducing these risks, Dressel said.

Credit rating agencies like Moody’s, Fitch and S&P Global have recently downgraded a raft of utility credit ratings, often citing wildfire risk as a key factor in these decisions. Initially, the downgrades applied only to Southern California utilities, like Pacific Gas & Electric, that had been directly impacted by catastrophic wildfires, Dressel said. But the Labor Day fires in Oregon and the Marshall Fire in Colorado triggered another wave of downgrades throughout the West. Further downgrades are now expanding to the Southern Plains and the Southeast following the Smokehouse Fire in Texas, he said.

All in all, Charles River Associates tallied 99 utility downgrades by S&P since 2020, compared with 72 downgrades from 2016 to 2017 and just 34 from 2012 to 2015.

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