Edison International fell more than 22 percent on Monday. The spread on its 2047 bonds moved by a tenth of a percentage point.
California's legislative session closed without the liability protection utility investors had advocated for. Lawmakers amended Senate Bill 492 over the weekend and left out both of Governor Newsom's central asks: a $6 billion cap on what any single fire can draw from the state wildfire fund, and an end to subrogation, the rule that lets an insurer pay a homeowner's claim and then sue the utility to recover it. It was Edison's largest one-day decline since 2001, and PG&E fell about 19 percent, heading for its worst day since 2020.
Those two markets were looking at the same law. What separates them is a fund. California created it in 2019, after PG&E's bankruptcy, and capitalized it at $21 billion — half from a charge on the electricity bills of Edison, PG&E and San Diego Gas & Electric customers, half from those three companies' shareholders. If a utility is found responsible for a fire, the fund reimburses it for all or most of what it pays out.
That makes subrogation a question about a queue. An insurer pays a burned-out homeowner, bills the utility, and the utility bills the fund. Ending subrogation would have taken the insurers out of the line. Keeping it leaves them in it, and the line ends at the same $21 billion, which CalMatters reports is expected to be drained once Eaton's claims and settlements are counted.
The bill was not one-directional. It bars hedge funds from buying up insurers' claims against electric companies, limits what lawyers can take out of wildfire settlements, and speeds recovery payments to survivors. It can also deny a utility chief executive a bonus in a year the company starts a fire. Utility shareholders, meanwhile, put up roughly half of the original $21 billion themselves.
What did not change is the link that decides how much protection there is. The cap on a utility's wildfire liability is tied to the solvency of the fund — currently 20 percent of its transmission and distribution rate base — and SB 492 leaves the linkage intact and provides no way to refill the pot, which means the protection shrinks as the money goes. Edison has already recorded $1.6 billion of Eaton settlement losses as of June 30.
Roughly 30 million Californians are served by the three utilities that can draw on the fund. They pay a surcharge on their electricity bills, about $3 a month, which lawmakers extended last year to run through 2045. The shares fell more than 22 percent and the bonds moved a tenth of a point, and the distance between those two numbers looks like it is sitting on 30 million utility bills.
An insurer pays a burned-out homeowner, bills the utility, and the utility bills the fund.
