California Compromise on Wildfire Reform Leaves PG&E, Edison More Exposed
California lawmakers’ work to reform wildfire risk management frameworks has produced a compromise that the leaders of the state’s two largest investor-owned utilities say falls short of giving them a stable and lower-cost funding environment.
Patti Poppe, CEO of PG&E Corp., and Pedro Pizarro, her peer at Southern California Edison parent Edison International Inc., have for more than a year pushed for measures to overhaul wildfire liability structures, including by putting in place limits on how much utilities would have to pay should it be shown that their operations contributed to catastrophic fires. But KCRA 3 reported late last week that talks on capping utilities’ liabilities and having insurers cover more of those costs had broken down and a legislators passed a compromise bill over the weekend.
The new legislation prohibits utility executives from getting short-term bonuses if their companies are found to be responsible for starting large fires, limits fees for insurance companies’ lawyers and bans certain financial firms from investing in wildfire claims. But it doesn’t put in place a mechanism to refill an $18 billion wildfire insurance fund created last year or preserve caps on liabilities. Several analysts pointed out the law leaves the companies (along with, to a far lesser extent, Southern California Gas and its parent company, Sempra) with fewer financial protections beyond 2030 – and make the capital they need to fund their plans more expensive.
Gov. Gavin Newsom, who had championed wider-reaching reforms that would have helped the utilities, noted those measures and the creating of a broader wildfire prevention and preparedness strategy in a short statement.
In concise statements of their own, PG&E and Edison said much the same. PG&E executives said the new legislation “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.” And their counterparts of Edison said they’ll continue to work with state leaders.
“California’s wildfire policies must evolve with the changing climate,” the company’s statement read. “Only comprehensive reform can deliver the support fire survivors need, protect customers and enable SCE to access capital at a reasonable cost to build a safer, more resilient future.”
Equity investors won’t wait until the next California legislative session, though. In afternoon trading on Aug. 31, shares of PG&E (Ticker: PCG) were down more than 18% to about $13.50. Shares of Edison (Ticker: EIX) were down 24% to $53.19. In both companies’ cases, those drops equate to market capitalization losses of about $5 billion.
Poppe has this year repeatedly said that insufficient progress from PG&E’s viewpoint on wildfire risk reforms would lead her team to tap the brakes on its investment plans, which top $61 billion from next year through 2030. Without getting into many details, she reiterated that stance after PG&E reported its second-quarter results in late July.
“Our five-year plan assumes that California will follow through on the commitment […] to strengthen the wildfire liability framework. For us, this means a durable and financeable framework that provides greater predictability and one that supports access to low-cost utility capital, thereby protecting customer affordability,” Poppe said. “While our preferred path is to continue executing the plan we’ve laid out, we have a responsibility to investors and customers alike to ensure capital is allocated appropriately under whatever framework ultimately emerges. If the framework remains unresolved or insufficient, then we would need to re-evaluate our capital allocation priorities and long-term investment plans.”
About the Author
Geert De Lombaerde
Senior Editor
A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications T&D World, Healthcare Innovation, IndustryWeek, FleetOwner and Oil & Gas Journal. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.