Shares of PG&E Corp. and Edison International plummeted on Aug. 31 after California lawmakers filed legislation falling short of the comprehensive wildfire liability reform that investor-owned utilities have been seeking for years.
The legislation, Senate Bill 492, also leaves out key proposals backed by Governor Gavin Newsom (Democrat).
PG&E Corp.'s stock price traded as low as $13.09 on the morning of Aug. 31, down 21% from the Aug. 28 settle price, and was down more than 18% as of about 1:30 pm ET, while Edison International shares tumbled 24%, trading as low as $53.53. Sempra saw a more muted impact, with shares trading as much as 6% lower than the Aug. 28 settle price, though down a little more than 3% at about 1:30 pm ET.
SB 492, released late on Aug. 28, focuses largely on providing protections for wildfire victims, including through the creation of a new "fast-pay program" for wildfire relief.
The bill does not bar insurance companies from subrogation, under which they can sue utilities to recover their costs for damage claims resulting from wildfires linked to utility assets.
The measure would prohibit insurance companies from transferring subrogation rights to any third party. Individuals, businesses or other entities would also be barred from selling or transferring wildfire claims to a private equity group.
SB 492 also limits the fees that attorneys for an insurance company may recover in a subrogation claim to 10% of a total settlement.
Under the bill, utilities would be required to have an executive pay structure that links compensation to public safety. It bars CEOs and other senior executives from receiving bonuses if a utility triggers a wildfire that damages or destroys 500 structures or more.
State lawmakers face an Aug. 31 deadline to send bills to the governor, except for urgency legislation such as SB 492. Lawmakers could vote on the bill early on Sept. 1.
"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," Newsom said in an Aug. 29 statement.
The legislation marks "real progress for future fire survivors," but did not go far enough, according to the governor. Newsom, whose term ends in January 2027, urged lawmakers to "build on this progress next year" to secure the wildfire fund's "long-term durability, stabilize electricity rates, and ensure fire victims are never again turned into unsecured creditors in a bankruptcy proceeding."
Analyst reaction
"We view this bill as insufficient in shifting liability from utilities, more focused on victim protections without any new investor protections," analysts at Mizuho told clients Aug. 31. "Contrary to our expectation, California lawmakers did not decouple utility liability from wildfire fund solvency, nor did they add a replenishment/evergreen funding mechanism."
"We believe the state's utilities will make another push for legislation in 2027, but with a new administration set to take over in January, we see it as an uphill climb," Mizuho added.
Mizuho downgraded all three utility companies from outperform to neutral, lowering PG&E's target share price to $16, Edison International's to $70 and Sempra's to $84.
PG&E in particular "will struggle to find both dedicated and generalist sponsorship, leaving the stock range-bound despite its attractive absolute valuation," analysts at BMO Capital wrote Aug. 30, while analysts at Barclays noted that California utilities "will continue to trade at a meaningfully discounted valuation."
For PG&E, the legislation has "effectively stalled" the company's path to regaining its investment-grade credit rating since the Chapter 11 bankruptcy process it began in 2019 and completed in 2020 following the Tubbs Fire in 2017, Jefferies analysts wrote.
Utilities had sought deeper liability reform in 2026 after Newsom last year signed legislation that added $18 billion to California's roughly $21 billion wildfire fund.
Utilities respond
Utility executives have warned that California ratepayers could face higher costs, which they reiterated after the bill emerged.
"While the proposed legislation would make some progress in helping wildfire survivors recover and strengthening wildfire preparedness, it would not provide the sustainable solution California needs," PG&E Corp. subsidiary Pacific Gas and Electric Co. said in an Aug. 30 statement.
The bill "does not adequately address the financing risks created by California's current wildfire liability framework" and "falls short of creating the long-term durability needed to attract affordable investment to support a safer, more reliable energy system and help keep costs down for customers," the utility said.
PG&E Corp. has scheduled a "post legislative session update" call for Sept. 2.
Edison International subsidiary Southern California Edison Co. in an Aug. 30 statement said the bill "would not ensure that fire survivors have access to wildfire funds first, would not tackle policies that delay recovery and would not address the stable financing framework utilities need to support California's climate goals and deliver affordable, reliable electricity in a time of increasing demand."
Southern California Edison said it would engage with California's next governor and legislature to "finish the work needed to address the state's wildfire risk."