Why Edison International Stock Just Crashed
Key Points
California will not forbid insurers filing subrogation lawsuits against electric utilities that cause wildfires.
Gov. Newsom had backed the proposal that legislators just shot down.
Mizuho just downgraded Edison International stock.
California electric utility stock Edison International (NYSE: EIX) crashed 24.2% through 2 p.m. ET Monday after a legislative effort in Sacramento to limit utilities' exposure to lawsuits from insurance companies fell apart over the weekend.
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Today's news in California
As Sacramento NBC affiliate KCRA 3 reports, Gov. Gavin Newsom was promoting legislation that would partially insulate Edison International and similar utilities from liability for wildfires caused when their equipment malfunctions. When homes are destroyed in a wildfire, homeowners file home insurance claims with their insurance companies -- which in turn try to "subrogate" their liability by suing the electric utility they deem responsible for the fire.
The legislation in question would have prevented insurance companies from suing utility companies, resulting in the insurers -- not the utilities -- bearing the cost of wildfires. Problem is, the insurers point out that if they're required to bear the full cost of wildfires that result from circumstances outside their control (and more within the utilities' control), they'll need to raise customers' insurance premiums, or even drop insurance for homeowners in high-risk areas.
This argument ultimately prevailed, and legislators refused to go along with the Governor's proposal.
What's next for Edison International
It's not a total loss for Edison International. Compromises proposed over the weekend seek to at least discourage frivolous lawsuits by limiting the attorneys' fees that law firms receive after filing wildfire-damage suits. Also, utility company CEOs may be denied bonuses in years their companies cause wildfires.
But the really big ask -- ending subrogation lawsuits -- failed. That's bad news for Edison International stock, and this morning Mizuho Bank downgraded Edison stock to neutral, and lowered its price target to $70.
Investors today seem to think it's worth even less than that.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.