SACRAMENTO — Shares of California utilities plunged Monday after lawmakers failed to solve the state’s wildfire liability crisis by identifying a previously undiscovered party willing to pay for everything.
PG&E fell 20%, while Edison International dropped more than 23%, after legislators declined to adopt Gov. Gavin Newsom’s proposal to shift more wildfire liability from utilities toward insurers. Wall Street had hoped Sacramento would provide utilities greater protection from potentially enormous claims.
The state instead advanced legislation focused more heavily on protecting wildfire victims, leaving investors concerned that utilities could remain exposed to open-ended losses.
California officials stressed that the problem remains highly manageable provided wildfire victims are compensated, insurance companies remain solvent, utility customers receive affordable electricity, utilities retain enough capital to harden the grid, investors continue supplying that capital, and nobody asks who ultimately pays when electrical equipment burns down a neighborhood.
“This is really just an allocation problem,” explained one policy expert. “We have victims, insurers, utilities, ratepayers and shareholders. Unfortunately, every group has expressed a strong preference that the allocation occur to one of the other four.”
Analysts warned that unlimited wildfire exposure could discourage investment precisely when California needs billions of dollars spent making the electrical system less likely to cause wildfires.
Lawmakers are therefore expected to continue developing a sustainable framework under which utilities can afford to prevent fires without being financially destroyed by the fires they failed to prevent.
At press time, California was reportedly searching for an innovative sixth stakeholder called “somebody else.”
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