Fitch Cuts PG&E Outlook to Negative on Failed Wildfire Liability Reform

Fitch Ratings has revised its outlook for PG&E Corporation (NYSE:PCG) and its utility subsidiary, Pacific Gas and Electric Company, to Negative from Stable, signaling a heightened risk of a future credit downgrade. The rating agency affirmed the companies' Issuer Default Ratings at BBB-, which is one notch above non-investment grade, or "junk," status.

Legislative Inaction Drives Downgrade

The primary catalyst for the outlook change was the California legislature's failure to advance significant wildfire liability reform during its recent session, according to Fitch. The agency highlighted the lack of progress on proposed bills, including Senate Bill 254, which aimed to address how wildfire liabilities are distributed among investor-owned utilities.

Fitch noted that an increasingly challenging regulatory environment, combined with the legislative stalemate, has raised credit concerns. The ratings agency explicitly warned that without progress to better socialize, or spread out, the immense costs of wildfires, future credit rating downgrades are likely for the utility.

PG&E Responds with Strategic Review

Following the end of the legislative session, PG&E announced a strategic review of its operations on September 2, 2026. As part of this review, the company plans to reduce its 2027 capital expenditures by $2 billion, bringing the new target to $11.4 billion.

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The utility stated the review will explore options to maintain its investment-grade credit ratings, alleviate pressure on customer bills from high capital costs, and enhance shareholder value. PG&E does not expect the planned spending cut to impact its 2027 general rate case filed in May 2025.

Broader Pressures on Wildfire Funds

Fitch also pointed to growing pressures on the state's existing wildfire funds. Withdrawals from the Assembly Bill 1054 Wildfire Fund related to the Eaton Fire, which investigators concluded was caused by Southern California Edison equipment, are expected to significantly reduce the fund's capacity.

While a separate $18 billion continuation fund under SB 254 mitigates some of this concern, Fitch views another provision of that bill as a credit negative. The provision excludes $6 billion of utility investments in wildfire mitigation from being included in the equity rate base, limiting the return utilities can earn on those critical safety expenditures.