Mizuho Securities downgraded Sempra Energy to neutral from outperform on Monday, citing the failure of California’s wildfire reform efforts to address the state’s ongoing liability risks.
The firm reduced its price target for Sempra Energy to $84 from $104, reflecting concerns that the legislature’s approval of bill SB 492 on the final day of submissions did not include provisions to restock the state’s wildfire fund. Mizuho noted the bill’s text allows a state agency to issue bonds to extend the fund’s existence but does not inject fresh capital, leaving solvency tied to liability limits tied to 20% of utilities’ transmission and distribution rate bases.
California’s legislature adjourned without adopting Governor Gavin Newsom’s proposals to cap wildfire fund withdrawals at $6 billion per incident or eliminate subrogation rights for insurers. Lawmakers also rejected Newsom’s bid to shield utilities from lawsuits by insurers over wildfire damages, a measure intended to reduce financial strain on companies such as Pacific Gas & Electric (PG&E).
PG&E’s shares fell 7.52% in trading, while Sempra Energy declined 0.52% following the downgrade. Wells Fargo downgraded PG&E to equal weight from overweight without changing its profit estimates, while BMO Capital reduced its price target for the utility to $21 from $28 and shifted its rating to market perform from outperform. UBS maintained its buy rating and $22 price target for PG&E, citing the proposed $6 billion liability cap as a potential mitigant to wildfire-related valuation discounts.
Analysts at Mizuho expect California utilities to pursue another legislative approval attempt in 2027, after a new administration takes office in January. The firm’s decision follows PG&E’s management announcement that it would provide an update on Tuesday at 4:00 AM Brasília time, following the close of legislative sessions.
The legislative outcome underscores the persistent uncertainty for California utilities, which remain exposed to wildfire liabilities despite incremental reforms. The absence of a restocking mechanism for the wildfire fund and the failure to adopt broader liability protections leave utilities vulnerable to future financial and operational risks.
