Market Overview

Everything We Know About The California Fires

Everything We Know About The California Fires

PG&E Corporation (NYSE: PCG) stock plunged Monday after a 12-percent drop Friday as investors grow increasingly concerned about the financial impact of the California wildfires. Although there is no evidence as of yet that the Camp Fire, the Hill Fire or the Woolsey Fire were caused by faulty infrastructure, Height Capital Markets analyst Clayton Allen said a pair of California utility stocks are potentially facing major liability risks.

Market Risk

“Rapidly expanding wildfires in California once again raise the specter of inverse condemnation-related liability for investor-owned utilities in the state,” Allen said in a note. 

PG&E has high exposure to the Camp Fire region, while Edison International (NYSE: EIX) has exposure to the Hill and Woolsey Fires.

“Although no evidence tying either firm to the fires has been released, we think that both utility companies face significant risk under the currently expansive definition of inverse condemnation,” he said.

PG&E reported a power outage in a high-voltage power line at about 6:15 a.m. Thursday near the origin of the Camp Fire, which was first reported about 20 minutes later, according to the San Francisco Chronicle.

What’s To Blame?

In a series of tweets over the weekend, President Donald Trump blamed the fires on poor forest management in California.

Meteorologists say the fires aren’t a result of forest management but rather a combination of extremely strong winds, exceptionally dry conditions and residential overdevelopment.

PG&E pushed earlier this year for a change to wildfire liability laws in California.

Under the law, utility companies are liable for any fires started by utility company equipment, even if the companies were not found to be negligent. The utility companies have argued that the increased frequency and size of California wildfires has created financial risk for them that could threaten the stability of the California electrical grid.

Cost, Containment

The latest round of wildfires may move the ball forward on liability reform, but it’s unlikely that any changes to the law would apply to the current fires, said Height's Allen.

The total cost of the the latest wildfires is expected to exceed $19 billion.

As of Sunday, the Camp Fire was reportedly 25-percent contained, the Woosley Fire was 15-percent contained and the Hill Fire was 75-percent contained, according to CNN. 

Related Links:

PG&E Receives Multiple Upgrades Following New California Wildfire Legislation

A Defensive Play: Morgan Stanley Upgrades The Utilities Sector

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