Smaller Utilities Most Exposed to California Wildfire Risk: S&P

(Bloomberg) -- Small water and sewer utilities in California will struggle to recover after wildfires, especially if they’re near wilderness areas or far from large cities, according to a new report from S&P Global Ratings.

After major natural disasters in the state, utilities are typically required to front the costs of repairs and are only reimbursed by the Federal Emergency Management Agency and state government afterward. Utilities in towns that are small or poor, on the edge of flammable wilderness, or far from a major city will have particular trouble in paying for those costs upfront or reestablishing service quickly so they can resume collecting revenue, according to the report by credit analyst Tim Tung.

California has been rocked by deadly and destructive fires that burned across the state in recent weeks. The most severe, the Camp Fire, destroyed thousands of homes and other structures, killed 79 people with about 700 still missing, and burned over 151,000 acres in the northern part of the state.

California’s fire season is set to get longer and more severe, the report states, if recent research on California’s climate holds true. The report warned that "in the future, the state will experience shorter, more concentrated rain seasons" as well as "longer dry periods during which fires may threaten."

Key Takeaways:

  • "Historically, the impact of wildfires on California municipal water and sewer credit quality has been somewhat muted because of the limited level of damage to the service area and utility assets" : S&P
  • "While largely unprecedented in magnitude, the razing of the town of Paradise, Calif., shows that if a similar catastrophe were to occur, there is a certain combination of characteristics that could impair a municipal utility’s ability to restore service in a timely manner and generate revenue to pay debt service": S&P
  • According to S&P, utilities that are most at risk include the following characteristics:
    • Relatively small as measured by population or connection count
    • Service areas located within a wilderness-urban interface area
    • Service areas that are not integrated into a metropolitan area economy and where housing and employment are more likely to be co-located, and therefore an increased potential that displaced residents might resettle elsewhere following a catastrophic disaster given that those anchors in the local community are no longer present
    • Lower income or wealth levels that may make it more challenging to rebuild following a disaster, particularly if property owners are under-insured for damage
  • S&P said it identified 14 municipal water and sewer systems that share some or all of these characteristics:
Utility nameRatingDebt Outstanding ($,000)
Amador Water AgencyA-40,183
Fillmore SewerBBB+48,440
Fillmore WaterA+5,850
Grass ValleyAA-10,417
Lake County Sanitation DistrictA-5,620
Ojai Valley Sanitary DistrictAA8,984
Santa Paula SewerA+84,754
Santa Paula WaterA+48,609
Truckee Donner Public Utility DistrictAA-23,218
Ukiah SewerA60,910
Ukiah WaterA+2,489

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