California utility shares tumble as wildfire bill fails to ease liability risks (updated)
UPDATE 2-California utility shares tumble as wildfire bill fails to ease liability risks Updates shares in paragraph 2 and adds graphic
By Johann M Cherian and Arunima Kumar
Aug 31 (Reuters) - Shares of California's major electric utilities fell sharply on Monday after a Senate bill amendment did little to reduce their exposure to wildfire liabilities and address the long-term solvency of the state's wildfire fund.
Shares of PG&E PCG.N tumbled 19.7%, on track for their biggest percentage drop in over six years, while Edison International EIX.N declined 22.9%, set for the steepest percentage drop since April 2001. Sempra SRE.N shares fell 2.8%.
Mizuho Securities downgraded all three utilities to "neutral" from "outperform", while BMO Capital Markets downgraded PG&E to "market perform" from "outperform".
The amended Senate Bill 492 creates a fast-pay program for wildfire survivors, expands wildfire prevention and preparedness efforts and changes rules governing the Wildfire Fund's Continuation Account.
The legislation, however, does not create a mechanism to replenish the wildfire fund, according to Mizuho analysts, who added that it also did not separate utility liability from the solvency of the wildfire fund. The fund is financed in part by utilities.
California's utilities have faced growing wildfire-related liabilities, with PG&E emerging from bankruptcy in 2020 after its equipment was linked to several deadly fires.
The state created a $21 billion Wildfire Fund to help cover future claims, while utilities have pushed for broader reforms to reduce their exposure to wildfire costs.
BMO Capital Markets said the bill did not ensure the fund's long-term solvency or protect utilities from wildfire-driven bankruptcies. It said its new $21 price target for PG&E assumes uncapped future wildfire liability after 2030.
The bill allows the administrator of the Continuation Account to issue bonds to support the account and related expenses. Mizuho said the provision does not provide new money for the fund and would instead extend its existence.
The legislation also preserves insurers' ability to recover wildfire-related payments from utilities and bars private equity groups from buying wildfire claims or funding wildfire advertising.
"We reached a compromise that blocks hedge funds from profiteering off wildfire survivors, bars utility executives from taking bonuses when their company ignites a fire, and gets money into survivors' hands faster," California Governor Gavin Newsom said in a statement.
(Reporting by Johann M Cherian and Arunima Kumar in Bengaluru and additional reporting by Pooja Menon; Editing by Devika Syamnath)