California utility stocks cratered Monday after state lawmakers advanced an amended wildfire bill over the weekend without the liability protections investors had priced in. PG&E dropped 18% and Edison International tumbled 23%, while broader utility and market benchmarks barely moved, isolating the selloff to California wildfire statute risk.
PG&E Corporation stock is down 18% to $13.57 by midday. Edison International shares are falling 23% to $54.22, the company's largest single-day decline in more than 25 years. Sempra, cushioned by heavier Texas and Mexico exposure, is down just 2% to $82.22.
Wildfire bill omits investor protections
The California Legislature advanced an amended Senate Bill 492 over the weekend, speeding claims payments to wildfire victims and allowing additional bonds for the state wildfire fund. But it left out the items investors had been pricing in: Governor Gavin Newsom's proposal barring insurers from suing utilities over wildfire claims, a $6 billion per-incident cap on wildfire fund withdrawals, and any mechanism to replenish the fund once depleted.
PG&E said the bill "falls short of creating the long-term durability needed to attract affordable investment" to support a safer, more reliable energy system.
Insurers keep the right to sue
At the center of the fight was subrogation — the process by which insurers, after paying homeowner wildfire claims, sue the utility they hold responsible to recover the cost. Newsom had backed a proposal to bar those insurer lawsuits against utilities, but insurers argued they would need to raise premiums or drop high-risk coverage if forced to absorb the losses instead. Legislators sided with the insurers, and PG&E stock crashed 19.6% through 11:50 a.m. ET Monday as a result.
Compromises did survive, however: proposals to limit attorneys' fees on wildfire-damage suits and to deny utility CEO bonuses in years their companies cause wildfires.
Analysts cut price targets
BMO cut PG&E to Market Perform with a $21 price target, down from $28, and raised its estimated wildfire liability drag on PG&E's valuation to $10 per share from $6. Wells Fargo moved PG&E to Equal Weight with a $24 target. Mizuho cut PG&E to Neutral with a $16 target while moving Edison International to Neutral with a $70 target.
PG&E already sits one notch below investment grade at S&P, and Edison International management has warned that credit rating downgrades for California's investor-owned utilities could follow within days.
Sources: 24/7 Wall St., The Motley Fool
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