Recent wildfires in California have instigated a palpable sense of fear and uncertainty that is heavily impacting the stock performance of Edison International, the parent company of Southern California Edison. On Wednesday alone, Edison’s shares plummeted by 10.2%, reflecting widespread investor concern. By the end of trading, the stock was down over 13% at its session lows. As multiple massive wildfires rage around Los Angeles, the potential for further exacerbation due to predicted strong winds looms large. This environmental threat has led to the evacuation of tens of thousands of residents, with the Associated Press reporting at least two fatalities.
As a vital utility provider, Edison is essential for millions in the region, yet the wildfires have placed a severe strain on its operations. The utility disclosed that over three million of its customers were facing outages as of Wednesday, highlighting the crisis’s immediate effects. Such widespread disruptions are likely to be interpreted unfavorably by investors, who prioritize stability in utility stocks.
Utilities in California have faced heightened scrutiny after being linked to past wildfires, particularly an infamous case involving Pacific Gas and Electric (PG&E). That company declared bankruptcy in 2019, primarily due to liabilities stemming from wildfire-related damages. Although PG&E navigated its way out of bankruptcy in 2020, the scars of such events remain fresh in the investment community, causing risk-averse behavior among stakeholders.
Edison’s current predicament raises historical parallels, although the company now benefits from California’s legislative changes aimed at reducing financial liability for utilities. Specifically, the 2020 law known as AB 1054 was designed to limit utility liabilities in wildfire incidents, which may grant Edison a more secure position compared to PG&E in earlier years. As Jefferies analyst Julien Dumoulin-Smith observed, investor sentiment is fraught with anxiety, even amidst these legal safeguards. Decisive feelings of “sell first, ask questions later” dominate discussions, with the market responding to uncertainty rather than actual developments.
It’s noteworthy that Edison’s decline is not an isolated event; other California utility stocks have also witnessed significant downturns. Notable losses include a 3.7% drop for PG&E’s reconstituted shares and a 1.7% dip for Sempra Energy, whose operations include power and gas in the San Diego area. Sempra’s subsidiary, SDG&E, announced power shutoffs for approximately 9,000 customers due to fire risks, which underscores a wider trend of preemptive measures across the industry.
The interconnectedness of these utility stocks and their collective vulnerability to environmental crises underscores the delicate balance utilities must strike. While the AB 1054 protections provide a buffer, the underlying fear of potential liabilities and the threat of catastrophic fires continue to exert pressure on stock performance. To summarize, as wildfires rage in California, the ensuing investor anxiety over utility stocks paints a complex picture, illustrating the far-reaching implications of environmental disasters on financial markets.