Edison International, other utilities to trade at discount on fire risk, analysts say

Jan 9 (Reuters) - Edison International EIX.N and other utilities are expected to trade at a wider discount to the benchmark S&P 500 utilities index .SPLRCU than before as wildfires burning across California underscore the risks of natural disasters on their businesses, Jefferies analysts said in a note on Thursday.

WHY IT'S IMPORTANT

While there has been no determination of the cause of the Southern California wildfires, destructive U.S. blazes in the past have been linked to power infrastructure, leading to devastating financial and legal problems for utilities. Power lines and other systems can also be damaged in fires, adding to potential costs.

CONTEXT

Multiple wildfires surrounding Los Angeles and other areas have killed at least five people, destroyed hundreds of homes and stretched firefighting resources.

The California Wildfire Fund provides financing to reimburse eligible claims arising from a wildfire caused by a utility. It acts as a mechanism for utilities to recover certain costs and expenses arising from wildfire-related maintenance and repair costs.

Jefferies highlighted that as of Dec. 12, 2024, the fund has about $14.7-billion capitalization, though it has the ability to issue secured debt for amounts exceeding its liquidity.

BY THE NUMBERS

Edison has an after-tax liability cap of roughly $3.2 billion, according to Jefferies. The brokerage notes the utilities' shares could be at risk if liabilities for the fires breach the fund size.

KEY QUOTES

Jefferies analysts said even if utility infrastructure was found to not be involved in the fire, utilities are expected to trade at a wider discount than before.

"(If) the number of structures and damage estimates gets unwieldy high approaching the roughly $15-billion current fund size, investors will likely get nervous on incremental exposure."

Edison International did not respond to a request for comment.

MARKET REACTION

Shares of Edison International, which had cut off power for nearly 157,315 customers, closed over 10% lower on Wednesday.

PG&E Corp PCG.N, which had over 3,000 customers without power, closed 3.6% lower.

(Reporting by Vallari Srivastava in Bengaluru; Editing by Rod Nickel)

((Srivastava.Vallari@thomsonreuters.com;))