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PG&E Corp., Edison International stock prices continue slide as wildfires rage

As wildfires continued to burn out of control in Northern and Southern California, investors dumped stocks of PG&E Corp. and Edison International on Nov. 12, fearing the companies could be held liable for damages.

In Northern California on Nov. 12, thousands of firefighters continued to struggle to control the Camp Fire, which is already one of the deadliest and most destructive fires in the state's history. The fire in Butte County, Calif., wiped out the entire town of Paradise, killing at least 29 people and forcing the town's entire population of about 27,000 people to flee for their lives. PG&E Corp. utility subsidiary Pacific Gas and Electric Co. reported it mobilized multiple operations centers as the fire burned through Butte and Plumas counties, heading in the direction of Chico, Calif., the next-nearest large population center

In Southern California, the Woolsey Fire in Ventura and Los Angeles counties moved west into seaside Malibu, Calif., and the Hill Fire spread in Ventura County The fires have damaged Edison International utility subsidiary Southern California Edison Co. equipment and lines and caused outages in fire-affected areas, the company reported.

In trading Nov. 9, as the fires began, PG&E Corp. shares lost 16.49%, closing at $39.92, and Edison International shares lost 12.12%, finishing at $61.00. The declines continued Nov. 12, with PG&E Corp. plunging at one point below $25 per share before closing at $32.98, down 17.38% for the day. Edison International dropped as low as $45.50 per share before finishing the day at $53.56, down 12.20%.

Moody's Investors Service said the new fires highlight the weaknesses of California's wildfire legislation. "The magnitude of the [Camp] fire's destruction leads us to believe the potential liabilities could be material for PG&E. The negative outlook incorporates a view that additional financial stress on PG&E is likely, both from last year's fires as well as this new fire."

Edison International called for "thoughtful, comprehensive policies to address this statewide problem," saying the utility company strongly supports increased funding for fire suppression and improved forest and land management that was included in Senate Bill 901, which Gov. Jerry Brown signed Sept. 21. Many provisions of the law must still be enacted through regulations. SoCalEd called for enacting "fire-smart" building codes, especially in high-risk areas.

Further, the Southern California utility company cited the need for "proper allocation of legal responsibility," calling on the new Commission on Catastrophic Wildfire Cost and Recovery established under S.B. 901 to examine liability and compensation for fire damage.

SNL Image

Camp Fire burns along a ridgetop near Big Bend, Calif., on Nov. 10.

Source: AP

The new law provides limited relief for the state's utilities by directing regulators to make sure the utilities have enough money to operate when weighing whether to deny reimbursement for wildfire liability claims, and it allows utilities to seek securitization bonds to finance wildfire damages.

However, utilities are still subject to California's unique "inverse condemnation" legal doctrine, under which wildfire damage claims can be made against them if electrical equipment, such as a downed wire, starts a wildfire or contributes to the blaze. Such claims can be made even if the utility reinforced its equipment to prevent damage and took all appropriate fire prevention measures.

Utility equipment has not been blamed for causing any of the current fires.

Moody's said, "The legislation did not repeal or change inverse condemnation, a significant credit negative. The application of inverse condemnation is a unique risk factor affecting the entire California investor owned utility sector."

The Camp Fire broke out Nov. 8, just outside Paradise, and the California Department of Forestry and Fire Prevention reported in a Nov. 12 update that it had only 25% of the blaze under control and that steep, rugged terrain in some areas was impeding control operations of more than 4,500 firefighters. More than 6,450 homes have been destroyed, plus 260 commercial buildings, but firefighters were working around the clock to hold perimeter lines and limit further property losses.

With more than 200 people still unaccounted for, the Camp Fire appeared to be on track to eclipse the Mendocino Complex fires, including the Ranch fire, which combined in August to became the largest wildfire ever recorded in California, though not the deadliest. The October 2017 wine country fires, which scorched 245,000 acres in Napa and Sonoma counties and killed 44 people, holds the record, for now, as the deadliest blaze.

The Woolsey Fire in Southern California killed two people, destroyed 370 structures and scorched more than 90,000 acres but was only 20% contained in an area north of Los Angeles.