Proposed legislation by California lawmakers to address wildfire risk and increase utility accountability fails to address the financing risks that utilities face, BofA Securities said Tuesday, as it downgraded PG&E (PCG) and Edison International (EIX).
The bill addresses fire survivor priorities, including accelerating compensation and restricting claim speculation, but doesn't improve the utility liability framework materially or limit insurance subrogation, BofA said in a client note.
BofA cut is rating on both PG&E and Edison to neutral from buy and reduced its price objective to $13 from $24 for PG&E and to $51 from $81 for Edison.
Shares of PG&E were 1.3% higher in Tuesday trade, while Edison was up 1.5%.
Utility investors were looking for the legislation to provide a comprehensive solution to California's wildfire liability framework, but the bill leaves PG&E's central financing and liability concerns unresolved, BofA said. The lack of policy clarity will likely weigh on PG&E and Edison, the parent company of the Southern California Edison, into 2027, the anlysts said.
"With many consumer-focused priorities now addressed, momentum for broader reform may fade, pushing the debate to 2027 when a new governor and legislature will need to revisit these issues and rebuild consensus around potential solutions," BofA said.
PG&E's plan to make $73 billion in capital expenditures from 2026 through 2030 and its 9% per-share earnings growth outlook for the next three years were "premised on a constructive legislative outcome," BofA said. The company had identified roughly $23 billion of its capital plan as capacity and new business investment, but management warned that inadequate reform would require action, prompting BofA to reduce that amount by $7.3 billion.
In a statement on Sunday, PG&E said the bill doesn't adequately address financing risks created by California's current wildfire liability framework and fell short of creating long-term durability required to secure investment for a more reliable energy system. Southern California Edison said separately that the proposed legislation fails to ensure that fire survivors will get priority access to wildfire funds.
California Governor Gavin Newsom, who was reported to be seeking to protect utilities from insurance claims arising from wildfire disasters, said in a statement on Saturday that a comprise was reached to reduce wildfire risk, support fire survivors and strengthen utilities, but that the system needed a "full structural reform."
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