Mizuho Securities reduced its price target on PG&E Corporation by 24% to $16 from $21, downgrading the stock to neutral as California lawmakers failed to pass reforms addressing wildfire liability exposure.
The downgrade follows the legislature’s adjournment without advancing meaningful changes to cap utility liabilities or replenish the state’s wildfire fund. SB 492, passed in the final hours of the session, was described by Mizuho as a technical measure allowing a state agency to issue bonds to extend the fund’s solvency without adding new capital. The bill does not break the link between the fund’s financial health and existing liability caps, which remain fixed at 20% of the transmission and distribution rate base set by the California Public Utilities Commission (CPUC).
Governor Gavin Newsom had proposed limiting fund withdrawals to $6 billion per incident and eliminating subrogation rights, but neither measure was included in the final legislation. The failure to enact broader reforms leaves PG&E and other utilities exposed to escalating wildfire-related costs, a risk that has weighed on investor sentiment.
PG&E shares fell 7.52% on Monday, closing at $16.07, while Edison International declined 4.76% to $70.07. Barclays trimmed its Edison target by 4% to $75 from $78, citing regulatory uncertainty tied to wildfire liability risks. Argus also downgraded Edison from buy to hold, pointing to past incidents such as the 2025 Eaton Fire as a catalyst for increased scrutiny.
The legislative stalemate comes amid a broader shift in California’s approach to wildfire management. A state judge recently ruled against holding Southern California Edison liable for a 2025 wildfire without a trial, a decision that briefly supported the company’s stock. However, Bank of America noted that most U.S. utilities have exceeded earnings expectations this year, driven by rate relief and growth initiatives, despite lingering regulatory and liability concerns.
Analysts anticipate renewed legislative efforts in 2027 under a new administration, though the timeline for substantive reform remains uncertain. The CPUC’s 20% liability cap continues to serve as a key constraint, limiting utilities’ ability to absorb catastrophic losses without passing costs to ratepayers or shareholders.
