Southern California Gas Co. Ratings Stand-Alone Credit Profile Revised To #a+#; Outlook Remains Negative

Stocks and Financial Services Press Releases Wednesday October 31, 2018 09:35
Bangkok--31 Oct--S&P Global Ratings

NEW YORK (S&P Global Ratings) Oct. 30, 2018--S&P Global Ratings today affirmed its 'A' issuer credit rating on Southern California Gas Co. (SoCalGas). The outlook remains negative. We also affirmed our 'A-1' short-term rating, the 'A' rating on the company's senior unsecured debt, the 'BBB+' rating on its preferred stock, and the 'A+' rating on its first-mortgage bonds.

The affirmation of our issuer credit rating on SoCalGas reflects our assessment of its stand-alone credit profile (SACP) as well as the cumulative value of regulatory protections in place that we assess as providing sufficient insulation to rate SoCalGas' issuer credit rating two notches above parent Sempra Energy's group credit profile (GCP).

The negative outlook on SoCalGas mirrors our negative outlook on parent Sempra, which reflects our view of Sempra's modestly weakened business risk profile. This incorporates our view that SB 901 is a shorter-term measure and that further longer-term reform is necessary in California to preserve electric utilities' credit quality. This includes reform to the legal doctrine of inverse condemnation. The negative outlook also reflects Sempra's relatively weak consolidated financial measures for its rating.

We could lower the rating within the next two years if the CPUC interprets SB 901 in a manner that does not limit the risks to California electric utilities. We could also lower the ratings on SoCalGas if Sempra's electric utility is a cause of a significant 2018 fire or if there is a further weakening to SDG&E's business risk profile, reflecting continued and persistent California wildfires without a longer-term reform to inverse condemnation. We could also consider a downgrade if Sempra's consolidated financial measures do not improve as expected, with FFO to debt consistently above 16% beginning with 2020. We could also lower SoCalGas' rating if its stand-alone financial measures materially weaken, reflecting FFO to debt consistently below 13%.

We could also affirm the ratings and revise the outlook to stable over the next two years if the frequency and severity of California wildfires materially decrease, the CPUC establishes a track record of effectively limiting risk to the utilities under SB 901, or if inverse condemnation is reformed, limiting the longer-term risks to electric utilities, and Sempra's consolidated FFO to debt improves as expected.

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