A California takeover of bankrupt investor-owned utility Pacific Gas & Electric could have consequences for the state's rating, S&P Global Ratings said Tuesday.
California Gov. Gavin Newsom has twice suggested the state could take over PG&E, first in a Nov. 1 press conference and then Saturday in
If a Chapter 11 restructuring of PG&E involves the state taking direct control of operations, “it could present substantial operating and liability risk to the state of California,” S&P analysts wrote in a credit alert.
“We are just telling the market that the risk of a complete state takeover, including liabilities, are not incorporated in the current general obligation bond rating,” David Hitchcock, an S&P analyst, said in an interview.
S&P rates California AA-minus, with a stable outlook. That's a notch below Fitch Ratings and Moody's Investors Service, which both
If the state assumed full utility operations, “we believe substantial operating and liability risk to the state would include the cost of operations, capital needs and potential wildfire liability risk,” S&P analysts wrote. “How California might pay for a state-sponsored takeover remains uncertain, including any possible costs attributed to local governments.”
S&P is awaiting more details around what the possibilities are.
“I think [state officials] are waiting to see if PG&E exits bankruptcy before the next wildfire on its own,” Hitchcock said. “We have been told by the state, if they come up with a proposal, they don’t expect it to involve the expenditure of general fund money.”
If it does involve risk to the state or the general fund, those risks are not currently incorporated in S&P’s rating, Hitchcock said.
Newsom suggested earlier this month that the state could take over the investor-owned utility if it can’t exit bankruptcy before next year’s wildfire season.
The governor asked the utility’s executives, creditors and shareholders Nov. 1 to come to a meeting in Sacramento last week as he wanted to help broker a mediation to reach a consensual solution.
"It is my hope that the stakeholders in PG&E will put parochial interests aside and reach a negotiated resolution so that we can create this new company and forever put the old PG&E behind us," Newsom said in a
Burdened by an estimated $30 billion in wildfire liabilities from lawsuits, PG&E filed for bankruptcy in January. The Legislature gave PG&E a June 30, 2020 deadline to exit bankruptcy to retain eligibility for a $20 billion wildfire liability fund created through state legislation.
Newsom also appointed his cabinet secretary, Ana Matosantos, as his de facto energy czar to help his administration determine what a 21st-century utility should look like.
The utility is blamed for sparking deadly wildfires in recent years, and Newsom has been highly critical of the utility’s handling of planned outages to reduce wildfire risk that left millions in northern California without power for days on end in October.
PG&E is a sensitive topic for the governor, as over the last two decades, Newsom and his wife,
The state's tax revenue wasn't materially affected by the economic disruption caused by the power cutoffs, according to S&P, which added that state tax revenue has in fact been running ahead of budget.
In the bankruptcy filing Saturday, the state objected to the $11 billion settlement proposal for insurance losses tied to the wildfire saying it could threaten the utility’s bankruptcy exit strategy. In the filing, the state’s lawyers said if PG&E can’t curry enough support for the insurance settlement and its plan to exit bankruptcy, the state would present its own plan.
