Credit Strength Dampens Wildfire Risk for US Electricity Firms

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 US wildfires are sometimes attributed to outdated electricity infrastructure; companies in the sector also face a legal hurdle that can hold them responsible even if their infrastructure is not at fault.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

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    Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.