In this article, fear and uncertainty related to the wildfires in California are impacting the shares of Edison International, whose Southern California Edison serves as the power utility for areas surrounding Los Angeles. The stock experienced a 10.2% decline on Wednesday and dropped over 13% at its lowest point during the session.
The decrease in stock value coincides with multiple large fires burning in the vicinity of Los Angeles, exacerbated by strong winds hindering containment efforts. Evacuation orders have been issued for tens of thousands of individuals, and at least two casualties have been reported by the Associated Press. On Wednesday, more than 3 million Edison customers were facing power outages, as per the utility’s website.
Public utilities have been contending with challenges concerning wildfire prevention and preparedness for an extended period. Previous wildfires in California have been associated with power equipment issues, although there is currently no public information linking Edison to the ongoing fires.
Bank of America analyst Ross Fowler mentioned in a client note on Wednesday that there is no evidence suggesting that SCE equipment initiated the fires, as no electric service incident report (ESIR) has been filed by SCE. However, media reports have indicated that SCE equipment may have been affected by the fires, potentially leading to additional expenses related to the fires, irrespective of the ignition source.
Historically, wildfires have had significant financial repercussions on utilities and their stakeholders. In 2019, Northern California utility Pacific Gas and Electric Company declared bankruptcy primarily due to wildfire-related liabilities, emerging from bankruptcy in 2020. The enactment of a 2020 state law, AB 1054, has restricted the liability of utility companies moving forward.
Jefferies analyst Julien Dumoulin-Smith expressed in a client note on Wednesday that investors are apprehensive due to the ongoing lack of fire containment, adopting a cautious approach. However, he highlighted confidence in the liability protections outlined in AB 1054, which mitigate potential risks for utilities.
On Wednesday, other California utility stocks also experienced declines. Shares of the restructured PG&E dropped by 3.7%, while Sempra, with operations in power and gas in the San Diego region, saw a 1.7% decrease. Sempra’s SDG&E reported on its website that it had disconnected power for approximately 9,000 customers due to fire hazards.
— CNBC’s Michael Bloom contributed to the reporting.
