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Wildfires in California Impact Utility Stocks Amid Growing Evacuations
As fierce winds exacerbate the wildfires raging in the Los Angeles area, the situation has prompted widespread evacuations and fear among residents. The Eaton Fire in Altadena, California, is particularly severe, leading to significant disruptions and safety concerns.
The ramifications of these wildfires are being felt in financial markets, with Edison International’s stock plummeting by 13% during afternoon trading on a recent Wednesday. Southern California Edison, operated by Edison International, is the primary utility servicing the regions directly impacted by the fires.
As of Wednesday morning, nearly 70,000 customers of Edison were without power, as reported on the utility’s outage page. This disruption comes amidst an environment where public utilities are under heightened scrutiny regarding their wildfire prevention strategies. While past incidents have often been linked to faulty power equipment, there is currently no evidence suggesting that Edison equipment was the cause of the ongoing fires.
Bank of America analyst Ross Fowler noted in a recent client communication that despite no indication linking Edison equipment to the ignition of the fires, it is anticipated that the utility will incur additional costs related to fire impacts, reflecting the inherent liabilities utilities face during such crises.
Images of smoke engulfing structures along Sunset Boulevard highlight the peril residents and businesses are confronting. The fires, particularly in the Pacific Palisades area, have led to the loss of at least two lives, with tens of thousands more forced to evacuate.
Historically, the financial fallout from wildfires has been profound for utility companies. A notable example is Pacific Gas and Electric Company, which filed for bankruptcy in 2019 primarily due to liabilities stemming from wildfire damage. Although it successfully emerged from bankruptcy in 2020, the incident has left a lasting impact on the industry’s regulatory landscape.
In response to concerns over utility responsibility, California enacted a law in 2020, known as AB 1054, which aimed to limit the financial liabilities for utility companies in wildfire cases moving forward. This legislation has provided some reassurance to investors, though anxiety remains palpable in the wake of ongoing fires.
Analyst Julien Dumoulin-Smith from Jefferies commented on the sentiment among investors, remarking that uncertainty surrounding fire containment has led to a “sell first, ask questions later” mentality. Nonetheless, he expressed confidence in the AB 1054 protections, which new regulations have put in place to mitigate risks.
Other utility stocks in California are also feeling the pressure: shares of the restructuring PG&E dropped by 4%, while Sempra, which serves the San Diego area, saw a 3% decline. Sempra’s subsidiary, SDG&E, reported on its system status page that it had temporarily shut off power for approximately 7,000 customers due to increased fire hazards.
As the wildfires continue to pose threats across California, the utility sector remains on edge, with both immediate impacts and long-term repercussions looming on the horizon.
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