California utility stocks tumble as amended wildfire bill preserves insurer claims

Brokerage BMO downgraded PG&E to a "market perform" rating from "outperform" after the amendment, while Mizuho cut Edison to a "neutral" rating from "outperform."

"The proposed legislation does nothing to ensure the wildfire fund's long-term solvency (and associated liability cap), which exposes investors to open-ended wildfire-related tail risk," analysts at the brokerage said on the impact of the amendment on PG&E.

However, California lawmakers settled on allowing the issuance of bonds to expand financing and did not make changes to insurers' right to seek recovery from utilities.

"We reached a compromise that blocks hedge funds from profiteering off wildfire survivors, bars utility executives from taking bonuses when their company ignites a fire, and gets money into survivors’ hands faster," California Governor Gavin Newsom said in a statement.

Utilities stocks slid in premarket trading on Monday after an amendment to a Senate bill in California did little to alter the exposure of grid operators in the state to wildfire liabilities.

Shares of PG&E PCG.N and Edison International EIX.N, which operate public utilities in California, fell 15.7% and 10.4%, respectively, while Sempra SRE.N fell 3.5%.

The state has been particularly vulnerable to the risks related to wildfires over the past couple of years and some lawmakers had sought to bring about broader cost-sharing reforms to avoid pressure on the state's Wildfire Fund.