A Second Utility Giant Loses Billions as Wildfires Rage
(Bloomberg) -- Once again, thousands are fleeing wildfires in California. And, once again, the worry on Wall Street is that a major electric utility might end up on the hook for the damages.
Shares of Edison International resumed declines on Wednesday, a day after their biggest slump in 15 years wiped out more than $3 billion in market value. A fast-moving fire fanned by high winds in Southern California’s Ventura and Santa Barbara counties charred 50,000 acres of land, burned hundreds of homes and damaged citrus crops.
Authorities haven’t cited a cause. But, as with the conflagrations in the state’s famed wine country in October, stock-market investors are worried downed power lines may have played a role in sparking the flames. Under a controversial rule known as “inverse condemnation,” utilities are liable for property damage if their equipment is found to have contributed. In Northern California, similar speculation is centered on PG&E Corp., which has said it’s too soon to pinpoint a cause. Edison said it had no indication its equipment was the source of the latest fires.
“This is like catching a falling knife,” Shahriar Pourreza, an analyst for Guggenheim Securities, said of the stock slide. “Anyone who tells you this is an overreaction really has no idea about the state and what is happening there.”
Edison’s Southern California Edison unit warned that some customers should be prepared to go without electricity for the next few days because of fire damage while transmission lines face further threats. California Governor Jerry Brown declared a state of emergency in Ventura County after hundreds of homes and other structures were destroyed and tens of thousands of residents evacuated.
PG&E lost more than $7 billion in market value after state investigators said they were looking at the San Francisco-based utility’s equipment as a possible cause of deadly fires that tore through wine country.
Edison fell as much as 3.1 percent on Wednesday and traded at $68.75 as of 9:55 a.m. in New York. The stock slid 13 percent on Tuesday, its worst performance since October 2002.
In an early morning update, the company said more than 14,000 of its customers were experiencing outages. Those numbers could change depending on wind and fire conditions through the week.
Based on the apparent origin of the fires and the performance of its system, Southern California Edison said Tuesday it had no indication its equipment was a source. In a statement, the company said the state fire service would be carrying out an investigation.
Under California law, utilities can ask regulators to spread the costs of wildfires to customers. Last month, however, California regulators denied a request by San Diego Gas & Electric to bill customers for expenses related to a decade-old wildfire.
“Based on our initial read of the facts, we expect Edison to absorb any financial implications of this fire, and view the significant stock price drop as an overreaction,’’ SunTrust Robinson Humphrey Inc. wrote in a note Tuesday. “However, we acknowledge that facts are still developing in the case, and the issue could remain an overhang for a while.’’
The fire-stoking winds whipping Southern California will last into Thursday, according to the National Weather Service.
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