Wildfire Risk & Utility Bond Ratings
Wildfires as a Financial Challenge
Wildfire risk isn’t just an operational challenge — it’s a financial one. As America seeks to reindustrialize, the demand for electrical capacity is increasing, and utilities will be competing in the capital markets for investment dollars.
Credit ratings, bond financing, and shareholder confidence are all at risk when utilities operate in wildfire-prone areas. Wildfires have already led to credit downgrades for several investor-owned utilities (IOUs) in the U.S., raising their cost of capital and limiting financial flexibility. Rating agencies like S&P Global and Moody’s now consider wildfire risk a critical factor in assessing a utility’s creditworthiness, making proactive mitigation strategies a financial imperative.
The Financial Impact of Wildfire Risk on Utility Bond Ratings
Since 2000, the reinsurance industry has observed a significant rise in corporate bond downgrades linked to wildfire risk, particularly among utility companies. Aon, a global insurance broker, reports that 100 utilities have experienced downgrades due to wildfire exposure.
S&P Global Ratings noted that in 2024 alone, downgrades among North America’s investor-owned regulated utilities outpaced upgrades for the fifth consecutive year, primarily due to rising wildfire risks and increased capital expenditures. These downgrades underscore the growing financial impact of wildfires on corporate creditworthiness, emphasizing the urgent need for robust risk mitigation strategies across the industry.
While PG&E’s bankruptcy in 2019 remains an extreme case, other utilities have also faced substantial financial challenges due to wildfires. For instance, Xcel Energy’s involvement in the Smokehouse Creek Fire in the Texas Panhandle in early 2024 led the company to set aside $215 million for potential liabilities. Similarly, following the 2023 Maui wildfires, Hawaiian Electric launched a $250 million stock offering to fund settlements.
Credit rating agencies place significant weight on wildfire risk when assessing a utility’s ability to service debt. Utilities operating in high-risk wildfire regions face heightened scrutiny, as past disasters have demonstrated how quickly liabilities can escalate.
Beyond credit downgrades, wildfire-exposed utilities grapple with mounting litigation, regulatory uncertainty, and rising insurance costs, further straining financial stability.
Wildfire Mitigation as a Credit-Positive Strategy
There is an opportunity for utilities to use proactive wildfire mitigation to enhance their financial standing. Moving forward, credit rating agencies will closely evaluate risk reduction programs. Utilities that can demonstrate their mitigation investments result in clearly quantified risk reduction will benefit from a credit-positive factor, helping sustain investment-grade ratings.
Key wildfire mitigation measures that support stronger bond ratings include:
- Independent wildfire risk modeling that integrates operations, equipment hardening, and mitigation efforts, quantifying Value-At-Risk before fires occur.
- Multi-year vegetation management programs to reduce fuel loads, monitor plant growth, and optimize priorities quarterly.
- Continuous Improvement Programs for wildfire risk reduction, based on evolving industry best practices.
- Infrastructure hardening projects, such as insulated lines, undergrounding, and sensor deployment.
- Data-backed risk reporting for independent auditing, ensuring accountability for stakeholders and regulatory compliance through Risk Spend Efficiency or Risk Impact assessments.
here is an opportunity here for proactive wildfire mitigation to strengthen a utility’s financial position. Going forward, credit rating agencies will be reviewing risk reduction programs. Companies that can demonstrate that their mitigation spend achieves clearly quantified risk reduction will have a credit-positive factor that can help sustain investment-grade ratings.
Key wildfire mitigation measures that support stronger bond ratings include:
- Independent wildfire risk modeling that incorporates operations, equipment hardening, mitigation and quantifies the Value-At-Risk before fires start.
- Multi-year vegetation management programs to reduce fuel loads, monitor plant growth and reoptimize the priorities on a quarterly basis.
- Continuous Improvement Programs for wildfire risk reduction, based on Best Practices, which continue to evolve
- Infrastructure hardening projects such as insulated lines, undergrounding, and sensors.
- Data-backed risk reporting for independent auditing for Risk Spend Efficiency or Risk Impact, demonstrating accountability for stakeholders and compliance to regulators.
Athena Intelligence Assists in Maintaining Financial Stability
While utilities have long relied on historical fire data and weather forecasts, integrating vast amounts of government and environmental data into a coherent wildfire risk strategy remains a challenge. Athena Intelligence solves this problem.
Athena’s Voice of the Acre® platform provides utilities with:
- Geospatial wildfire risk modeling that translates complex government datasets into clear, probability-based risk assessments.
- Quarterly risk forecasts that anticipate wildfire-prone conditions up to 12 months in advance, allowing utilities to plan capital expenditures efficiently.
- Public Safety Power Shutoff (PSPS) circuit-level planning tool that helps utilities mitigate economic damage to service communities, safeguarding future revenue.
- Regulatory-grade reporting tools to support cost-recovery cases and credit rating agency reviews.
Making Wildfire Mitigation a Core Financial Strategy
Athena’s wildfire risk intelligence helps CFOs protect credit ratings, secure regulatory support, reduce liabilities and prioritize spending in highest VAR, with real risk probabilities.
CFOs must now treat wildfire mitigation as a core financial strategy. Without a robust plan, credit ratings will suffer, increasing borrowing costs and limiting financial flexibility. Capital costs will rise if wildfire risk is poorly managed. With Athena Intelligence’s insights, utilities can use data to reduce engineering and capital costs, strengthen financial stability, and ensure long-term resilience against growing wildfire threats.
Athena Intelligence is a data vendor with a geospatial, conditional, profiling tool that pulls together vast amounts of disaggregated wildfire and environmental data to generate spatial intelligence, resulting in a digital fingerprint of wildfire risk.
Clients include electric utilities, communities and financial services companies, where Athena’s geospatial intelligence incorporated into multiple products that can be accessed through an online portal. Athena’s data is currently used in wildfire mitigation plans (WMP) and public safety power shutoffs (PSPS), Community Wildfire Protection Plans (CWPP), property insurance underwriting and portfolio risk optimization.
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