Dive Brief:

• Despite uncertainties, Fitch Ratings believes the regulatory environment in California supports investment grade ratings for the state's utilities in the near- to intermediate-term.
• There is growing uncertainty around possible penalties for Pacific Gas and Electric’s (PG&E) role in the San Bruno pipeline tragedy. Also adding to investor concerns are lost recovery related to the shut down of the San Onofre nuclear plant, long delays in major rate cases and lowered authorized returns on equity (ROE), according to the Fitch report.

Dive Insight:

Fitch expects that California's investor-owned utilities – PG&E, San Diego Gas & Electric and Southern California Edison – will spend around $34 billion on capital projects from 2013 to 2015. However, the California Public Utilities Commission has adopted mechanisms like decoupling and pre-approval of capital spending that support utility investments, according to Fitch.

“These regulatory mechanisms collectively provide California-based IOUs with a reasonable opportunity to earn their authorized ROEs and are reflected in Fitch’s credit ratings,” Fitch said. “That is unlikely to change.”