California's largest utility companies experienced significant stock declines on Monday after state lawmakers rejected Governor Gavin Newsom's proposal for a wildfire liability overhaul. Shares of Pacific Gas and Electric Company (PG&E Corp.) fell by 20%, while Edison International's shares dropped by 23%. The proposed legislation aimed to change the financial responsibilities associated with utility equipment that causes wildfires, specifically by preventing insurance companies from suing utilities for wildfire-related losses, a move that faced strong opposition from insurers.
Edison International's decline marked its worst single-day drop in over 25 years, with shares falling to $54.22. Together, the two utilities serve approximately 30 million Californians and saw a combined market valuation decrease of around $20 billion on Monday.
Instead of adopting Newsom's proposal, lawmakers supported a narrower compromise due to pushback from insurance companies, hedge funds, and trial lawyers. The core issue centers on subrogation, which allows insurers to seek reimbursement from utilities for costs incurred after paying wildfire victims. Newsom's initial proposal sought to eliminate this practice, later suggesting a phased approach, and finally proposing a limit of 50% recovery for insurers, all of which were rejected by lawmakers.
The final legislation includes measures to prevent utility executives from receiving bonuses if their companies are responsible for significant wildfires and aims to expedite financial assistance to fire survivors. Joy Chen, executive director of the Eaton Fire Survivors Network, criticized the government's role in supporting utility profits at the expense of wildfire survivors, stating that many survivors are facing homelessness and financial difficulties.
Jamie Court, president of Consumer Watchdog, expressed satisfaction with the legislative outcome, emphasizing the need for accountability and maintenance to prevent future wildfires. He criticized the process by which Newsom's proposal was advanced, suggesting it lacked transparency and proper public engagement.
The new legislation prohibits bonuses for utility executives if their company causes significant fire damage and includes caps on attorney fees in wildfire cases, restrictions on hedge fund investments in wildfire claims, and a fast-pay program for victims. It also empowers the California Earthquake Authority to borrow funds for the wildfire liability fund if necessary.
PG&E has been linked to several major wildfires in California, including the Camp Fire in 2018 and the Dixie Fire in 2021. Southern California Edison has faced liability for the Eaton Fire in 2025, which resulted in 19 fatalities and extensive property damage. Both companies have stated that the new legislation does not adequately address the long-term financial risks associated with California's wildfire liability framework.
Governor Newsom acknowledged the need for comprehensive reform and urged lawmakers to continue working on wildfire policy improvements in the future.