California utilities PG&E and Edison International were hit with heavy selling on Monday as concerns rose that deadly wildfires ravaging the state could cost them billions of dollars and implicate them in the cause of the biggest blaze.
PG&E and Edison, which serve territories affected by separate wildfires in northern and southern California, could face liabilities from fires potentially ignited by electrical equipment as well as the cost of damages to its infrastructure, analysts said.
Firefighters have been battling multiple blazes in northern and southern California. The Camp fire — as the outbreak in northern California is called — has grown to become the most destructive in the state’s history, burning 109,000 acres and more than 6,000 homes as of Sunday.
Officials said the fire had killed 29 people, while two others had died in a separate blaze near Los Angeles. More than 200 people are missing. An early estimate from Morgan Stanley put insured losses from the Camp fire at $2bn to $4bn, with higher economic costs.
The cause of the Camp fire is under investigation. Cal Fire, the state’s firefighting agency, is reportedly looking into whether electrical equipment could have ignited the blaze.
In a filing with the state’s utilities regulator last week, PG&E said it detected damage to a transmission tower in the area where the Camp fire started, according to the San Francisco Chronicle. The company said the information it provided was preliminary.
Evercore ISI analyst Greg Gordon cut his price target for PG&E shares to $49 from $55, citing an “exposure place holder” of $3.5bn, according to Bloomberg. Investors were discounting more than $20bn in exposure, Mr Gordon said.
Michael Lapides, analyst at Goldman Sachs, said he expected “incremental investor concern” as the wildfires spread. He also noted that a California law passed in August did not contain provisions that would allow utility companies to recover costs related to potential fires this year.
PG&E shares fell about 16 per cent on Monday morning in New York. Trading was briefly halted after the stock dropped nearly 38 per cent earlier in the session. Edison shares retreated as much as 25 per cent before paring their losses to 10.3 per cent. At their lows, PG&E and Edison shares posted their worst intraday performance since California was hit by power shortages about 16 years ago.
The California Fire Fighters, FEMA and First Responders are amazing and very brave. Thank you and God Bless you all!
Edison’s local subsidiary, Southern California Edison, submitted an initial safety incident report that noted an outage in the vicinity of the Woolsey fire, which has forced thousands of Los Angeles-area residents to evacuate. The fires have damaged Southern California Edison equipment and lines, according to the company.
Both PG&E and Edison said they would co-operate fully with any investigations.
PG&E took a $2.5bn charge in the second quarter to cover its potential liabilities from a series of wildfires that happened last year. In June, the California Department of Forestry and Fire Protection linked PG&E-owned power poles and lines to 12 fires that hit northern California in October 2017.
More than 8,000 firefighters were battling the blazes on Monday, while winds fanned flames feeding on dry brush. US president Donald Trump tweeted: “The California Fire Fighters, FEMA and First Responders are amazing and very brave. Thank you and God Bless you all!”
Analysts at Keefe, Bruyette & Woods (KBW) said it was still too early to make credible estimates of the financial losses, but that primary insurers rather than reinsurers would likely bear the majority of the cost to the insurance industry. According to RMS, a modelling firm, 6700 structures have already been destroyed by the Camp fire, and over 15,000 more are threatened.
In a blog on the RMS website Chris Folkman, a senior director at the company, wrote: “The wide dispersion of smoke was a noticeable feature of the fires in many highly populated areas of California. The smoke is sure to result in many insurance claims for evacuation, business interruption, and contents damage.”
The share prices of insurance companies fell on Monday. According to analysis from KBW, the five largest insurers in California by market share are State Farm, Farmers, Liberty Mutual, Allstate and Auto Club Exchange.
Many of those are mutuals or privately owned, but shares in Allstate were down 2 per cent on Monday. Shares in fellow insurers Chubb, Travelers and AIG also fell.
KBW added that AIG and Chubb could have significant exposure to properties in Malibu, which is in the path of the Woolsey Fire in southern California.
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