Bushfires highlight importance of ESG considerations

The Bushfires in Australia, as well as wildfires elsewhere in the world, have underscored the importance of environmental, social and governance (ESG) considerations when evaluating the credit quality of utilities, according to credit ratings agency Fitch Ratings.

Although there had not been any indication Australia’s bushfires had been caused by utility transmission and distribution companies, they said there was precedence for Australian utilities being held responsible for bushfires.

However, financial and regulatory risk had been limited due to the tightening of regulation following the 2009 Black Saturday bushfires in Australia.

“AusNet was held liable for the 2009 wildfires due to its powerlines falling under high winds,” the company said.

“Since that time, the company has been installing Rapid Earth Fault Current Limiters, as mandated by the government, which should cut current to any downed line very quickly and thereby reduce risk for the utility.

“Installation remains underway with the cost ultimately being passed through to customers.”

Australia was not the only example and Fitch Ratings pointed to California as another example of how different regulatory regimes handled the issue.

“California's two most destructive wildfires, the 2018 Camp and 2017 Tubbs wildfires, caused widespread property loss, injury and death across Pacific Gas and Electric Company's (PG&E) service territory,” they said.

“[It] resulted in the utility's and its parent [company] PG&E Corporation's Chapter 11 bankruptcy filing last year. PG&E cited $30 billion of potential liabilities.”