Shares of Edison International, whose Southern California Edison is the electricity utility for the areas immediately surrounding the city of Los Angeles, seem to be suffering from fear and uncertainty over the California wildfires.
Wednesday afternoon trading saw a 13% decline in the stock price.
The dip coincides with a number of big flames raging in the Los Angeles area, which may be challenging to suppress due to the strong winds predicted. According to the Associated Press, at least two people have perished and tens of others have been advised to flee.
According to the utility’s website, as of Wednesday morning, around 70,000 Edison customers were without power.
For years, public utilities have struggled with difficulties related to preparedness and prevention of wildfires. Although electrical equipment problems have been related to previous wildfires in California, there is currently no publicly available information linking Edison to the fires.
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Since SCE has not yet submitted an electric service incident report (ESIR), there is currently no proof that SCE equipment is thought to have caused the fire. We would anticipate some additional costs associated with the fire, independent of the source of ignition, according to several media reports suggesting SCE equipment has been at least touched by the fires, Bank of America analyst Ross Fowler wrote in a note to investors on Wednesday.
In the past, utilities and their investors have suffered significant financial losses due to wildfires. Pacific Gas and Electric Company, a utility in Northern California, declared bankruptcy in 2019 mostly as a result of its liability for wildfires. In 2020, the utility came out of bankruptcy.
However, AB 1054, a state statute passed in 2020, restricted utility corporations’ future liabilities.
Our discussions have left investors uneasy due to the lack of containment with a sell first, ask questions later mentality. Julien Dumoulin-Smith, an analyst at Jefferies, wrote in a note to clients on Wednesday that “we remain comfortable due to the AB 1054 liability protections that limit the tail risks for the utilities.”
On Wednesday, other utility stocks in California also saw a decline. 4% of the reconstituted PG&E dropped in value.Sempra, which provides gas and electricity in the San Diego region, saw a 3% decline. On its website, Sempra’s SDG&E stated that it has cut off electricity to roughly 7,000 customers because of the potential of a fire.
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