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Income Insights

Electric Utilities Face the New Abnormal

By Roger S. Conrad on Nov. 18, 2018

Last year, California responded to inverse condemnation’s threat to utility solvency by passing a securitization bill, allowing companies to issue ratepayer-financed bonds to cover damage costs. But given the uncertainty of how damage recovery would work, it didn’t take long for the magnitude of these fires to overwhelm any confidence in securitization as a solution.

As a result, PG&E shares went into free fall as damage reports worsened. And despite a partial recovery following Public Utilities Commission Chairman Michael Picker’s statement of support for utility solvency, they’re still down by roughly half over the past 10 days. Edison stock is lower by almost 25 percent.

At this point, both utilities have indicated a high probability that their equipment was involved in starting these fires. Equally, however, the only reason these fires were able to spread so quickly and with such deadly force was because of what outgoing Governor Jerry Brown has called a “new abnormal: Extreme dry conditions attributable to changes in the climate.

Further, California has set aggressive goals on climate that are only possible to meet with financially healthy utilities. These include going to 100 percent renewables for electricity generation by 2045 and becoming carbon neutral as a state, in large part with widespread adoption of electric vehicles.

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