Moody's upgrades PG&E's outlook to positive, financial condition improves

Investing.com – Moody’s has affirmed the ratings of PG&E Corporation (NYSE: PCG) and Pacific Gas and Electric Company, while upgrading their outlook from stable to positive, involving approximately $44 billion in debt securities.

The rating agency maintained PG&E’s Baa3 issuer rating and PCG’s Ba2 senior secured rating and Ba3 subordinated debt rating.

Nati Martel, Vice President and Senior Analyst at Moody’s, stated, “The positive outlook reflects our expectation that PCG and PG&E will improve their financial ratios during 2026-2027.” Martel added that the positive credit trajectory indicates ongoing progress in wildfire mitigation efforts and the effectiveness of California wildfire legislation protections.

By the end of 2025, PG&E and PCG reported operational cash flow (excluding changes in working capital) to debt ratios of approximately 16% and 13.5%, respectively. Despite leveraging for capital expenditures, Moody’s expects PG&E to continue generating high teens percentage points of operational cash flow (excluding changes in working capital).

Factors contributing to financial improvement include cost-saving initiatives and the approved 2023 general rate case, which includes scheduled rate increases in 2026. The ability to maintain stronger financial ratios will also depend on the outcome of the pending 2027 general rate case, which will set rates through 2030.

PCG is expected to generate about 15% of operational cash flow (excluding changes in working capital) to debt ratio, supported by management’s plan to limit holding company debt used for funding investments. This approach should keep the holding company debt ratio relative to consolidated debt at around 10%. The company’s 20% target dividend payout ratio compares favorably with peers.

The rating affirmation reflects PG&E’s constructive regulatory relationships and cost recovery mechanisms, balanced against significant wildfire risks within its service area. The rating assumes PG&E will continue to receive safety certification, enabling access to the $21 billion wildfire fund established by California Senate Bill 1054 of 2019.

California’s wildfire risk mitigation framework was strengthened after Senate Bill 254 was enacted in September 2025, committing an additional $18 billion in funding. This reduces the risk of fund exhaustion following the January 2025 wildfire in Los Angeles County, which affected another utility’s service area.

In November 2025, PG&E initiated regulatory proceedings to recover wildfire costs from Dixie (2021) and Kincade (2019), marking the first test of California’s new prudency standards.

Senate Bill 254 requires the fund administrator to submit recommendations on managing wildfire damage costs by April 1, 2026. While some proposed reforms may not be implemented within 12-18 months, the review will identify potential improvements to the current framework.

If PG&E’s operational cash flow (excluding changes in working capital) to debt ratio remains at high teens percentage points (excluding wildfire securitization), its rating could be upgraded. If PCG maintains an operational cash flow (excluding changes in working capital) to debt ratio around 15%, and retained cash flow to debt ratio between 13-14%, then following an upgrade of PG&E’s rating, PCG’s rating could also be raised.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.