Workers with the US Army Corps of Engineers in February removed debris from a home destroyed by the Eaton Fire in Altadena, California.

Bloomberg News

The rating outlooks of seven public electric utilities in California were cut to negative Thursday by S&P Global Ratings, citing increasing wildfire risks.

The negative outlooks reflect the “heightened longer-term credit pressure” and rising potential for future liabilities, and operating and infrastructure costs, associated with wildfires, which have become more frequent and intense in the state, said S&P credit analyst Paul Dyson.

The affected utilities included:are Lassen Municipal Utility District, rated BBB by S&P; Modesto Irrigation District, rated A-plus; Transmission Agency of Northern California, rated A-plus; Sacramento Municipal Utility District, rated AA on senior liens; San Francisco Public Utilities Commission, rated AA; Truckee Donner Public Utility District, rated A-plus; and Turlock Irrigation District, rated AA-minus, which includes bonds issued by the Walnut Energy Center Authority and the Tuolumne Wind Project Authority that are payable as an operating expense of TID.

The seven utilities are the latest to experience rating repercussions from January’s devastating Los Angeles wildfires.

In January, S&P placed the city’s A-rated general obligation bonds on CreditWatch with negative implications and downgraded Los Angeles Department of Water and Power to A from AA-minus for its power system revenue bonds and to AA-minus from AA-plus on its water revenue bonds. It also placed LADWP’s ratings on CreditWatch with negative implications.

Fitch Ratings placed four credits — led by the city of Los Angeles and the Los Angeles Department of Water and Power — on rating watch negative, citing the region’s wildfires, in January. Fitch also placed two utilities tightly linked to LADWP, the Intermountain Power Agency in Utah and Southern California Public Power Authority, on negative watch.

Kroll Bond Rating Agency put bonds issued by the city and LADWP on watch downgrade. Moody’s Ratings lowered to negative from stable the outlooks on LADWP water and electric revenue bonds, city of Los Angeles GO and enterprise bonds, Southern California Public Power Authority projects tied to LADWP, and Utah’s Intermountain Power Authority, which is also closely linked to LADWP.

In February, S&P revised the outlook to negative from stable on investor-owned utilities Edison International and Southern California Edison based on the potential risk of depletion of the wildfire bond fund created by California lawmakers to bail out utilities facing wildfire liability risk.

The Eaton and Palisades fires rank as the No. 2 and 3 most destructive wildfires in California’s recorded history, according to the state Department of Forestry and Fire Protection. Those two fires, along with the Hughes fire, caused 42 fatalities, burned more than 48,000 acres, and destroyed more than 16,000 structures in the county.

Heavily populated neighborhoods were devastated after wildfires quickly spiraled out of control after 80- to 100-mile Santa Ana winds struck a tinder-dry region Jan. 7.

Thursday’s outlook revisions came after a review of S&P’s entire rated portfolio of not-for-profit electric utilities and an analysis of each utility’s specific credit factors, “including the presence of directly- or jointly-owned overhead power lines or customers in high wildfire risk zones,” S&P analysts said in a release.

Those factors were compared against each utility’s resources and procedures to offset wildfire risk, including risk management procedures, liquidity position, and wildfire liability insurance, according to the release.

“The negative outlook also reflects our view that there is a one-in-three chance that we could lower the ratings on these various utilities within the next one-to-two years by one or more notches,” Dyson said.

The ratings changes would come if S&P determines “wildfire mitigation measures combined with liquidity and wildfire liability insurance coverage are no longer commensurate with current ratings,” Dyson said.

He highlighted increasing wildfire vulnerabilities from environmental changes, the risk inherent in California’s interpretation of inverse condemnation, and the potential for infrastructure hardening costs to materially pressure rate affordability as factors that could lead to downgrades.

Inverse condemnation doctrine in California means a utility can be held financially responsible for a wildfire if its facilities were a contributing cause of the fire irrespective of negligence.