Fitch Ratings believes that the Aliso Canyon natural gas leak and
subsequent government actions do not warrant an immediate change to the
ratings for Southern California Gas Company (SoCalGas; 'A'/Stable
Outlook) or its parent Sempra Energy (SRE; 'BBB+'/Stable Outlook) at
this time.
Fitch believes that SoCalGas currently has sufficient headroom in its
credit metrics to absorb potential costs associated with the gas leak
that are not covered by insurance policies, which total more than $1
billion according to the company. The utility's credit measures are
strong with funds flow from operations (FFO) lease adjusted leverage at
3.0x as of Sept. 30, 2015. Prior to the incident, Fitch projected that
FFO lease adjusted leverage will weaken moderately, averaging 3.2x
through 2019, primarily due to SoCalGas' large capex program.
Costs associated with the leak may not be quantifiable until after the
injection/withdrawal well is plugged and a root cause analysis
completed. Legal claims, environmental remediation, fines and penalties
could depend upon the cause of the leak and whether company negligence
played a role. Through Dec. 31, 2015, SoCalGas has incurred costs of
approximately $50 million to address the leak and mitigate environmental
and community impacts. Several agencies have issued notices directing
SoCalGas to stop the leak and control the release of natural gas into
the atmosphere.
Headline risk for SoCalGas and SRE is expected by Fitch to remain
elevated at least until the well is plugged. SoCalGas estimates that the
relief well will be completed between the end of February and the end of
March 2016.
SoCalGas' ratings could be under pressure if unrecovered costs
significantly exceed Fitch's expectations, with FFO lease adjusted
leverage rising above 4.5x. Fitch generally views California regulation
as balanced, providing a reasonable opportunity for utilities operating
under the California Public Utilities Commission's (CPUC) jurisdiction
to earn their authorized ROEs. Any meaningful deterioration to the
regulatory compact in the state as a result of the incident would also
be an adverse development.
On Oct. 23, 2015, SoCalGas discovered a leak at one of its injection and
withdrawal wells at its Aliso Canyon gas storage facility. In early
December 2015, the company began drilling a relief well to stop the leak
by plugging the well base. The company is also preparing to drill a
backup relief well as a precaution. On Jan. 6, 2016, California Governor
Jerry Brown declared a state of emergency at the request of residents
and local officials. On Jan. 11, 2016, California Senator Pavley
introduced a package of bills calling for increasing inspection and
safety measures for natural gas infrastructure.
Additional information is available at 'www.fitchratings.com'.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160112006607/en/
Copyright Business Wire 2016
Source: Business Wire
(January 12, 2016 - 6:17 PM EST)
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