Line of Fire: How Wildfires Threaten Utility Credit

Between 2020 and 2024, North America experienced an alarming increase in the frequency and severity of wildfires. Wildfire activity has reached unprecedented levels, fuelled by hotter, drier conditions and decades of fuel buildup in forests. The overall credit profile of the utility sector has been shaken by this new risk landscape.

-- In what used to be considered a stable, low-risk industry, there has been a growing concern that wildfire-related losses, liabilities, and mitigation costs are straining utilities' finances and weakening their credit profile.
-- The wildfire surge presents broad challenges for the electric utility industry. Utilities must not only restore infrastructure but also manage the operational disruptions and customer hardships caused by extended outages.
-- Wildfires can trigger enormous liabilities for utilities if their equipment is found to have sparked the blaze. Under laws in many jurisdictions, utilities can be held financially responsible for the resulting damage, even if they were not negligent. The past few years have seen multiple catastrophic fires blamed on utility infrastructure, leading to lawsuits and damage claims in the billions of dollars.
-- Confronted with this wildfire onslaught, utility companies have been forced to develop and implement a wide array of risk mitigation strategies. The goal is twofold: reduce the chance that utility equipment sparks a wildfire and reduce the damage if a wildfire does occur.

Jasper Shi, Assistant Vice President, Energy, Utilities, and Natural Resources, said, "The lessons of the last five years -- costly as they were -- have spurred the utility industry, regulators, and financial stakeholders to innovate and collaborate in managing wildfire risk. The stakes are high: utilities are critical infrastructure, and their resilience in the face of wildfires is vital for the economy and public safety. The period 2020-24 will likely be remembered as a turning point when the utility industry was forced to reckon with climate-intensified wildfire threats and fundamentally changed its approach to engineering, operations, and financial planning to address this challenge head on."