Another northern hemisphere summer, another wildfire record. California is facing the single largest fire that the state has ever seen, and this year many of the western states of Canada and the US have seen multiple outbreaks. US wildfires are sometimes attributed to outdated electricity infrastructure; companies in the sector also face a legal hurdle that can hold them responsible even if their infrastructure is not at fault.
Wildfires also intensify the political and media focus on global warming, with renewed debates about energy source sustainability and optimal technology in electricity generation and transmission.
So electricity companies face a triple challenge: (1) are generation inefficiencies contributing to carbon emissions which make wildfires more likely? (2) is underinvestment in infrastructure one of the causes of wildfires? (3) how vulnerable is their infrastructure as wildfires inexorably increase in size each year?
Addressing these issues requires investment, and companies with stronger credit ratings are better placed to fund the necessary capital spending. This note looks at the credit profile and recent trends for US companies in the electricity sector [please continue below to access full report].
Figure 1: Credit distribution for US Electricity legal entities