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California Faces Deadliest Wildfire, Utilities' Loss Havoc

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In the most destructive wildfire in the state’s history, “Camp Fire” ravaged extensive parts of Northern California, claiming 48 lives so far. Meanwhile, Woolsey Fire caused two deaths in Southern California, with a whopping 57,000 structures still threatened by the fire, per a CNN report.

Needless to say, utilities operating in California are likely to bear the brunt of the losses caused by these wildfires. 

Economic Impact

While the deadly blaze continues in parts of Northern as well as Southern California, disaster modeler CoreLogic predicts that 48,390 homes in the state are at "high or extreme risk" of damage. This is likely to bring potential reconstruction costs to $18 billion.

AccuWeather believes the total damage and economic impact of the California wildfires has already exceeded $80 billion. It may exceed $150 billion and possibly reach $200 billion by next week based on AccuWeather forecast conditions of strong winds and very little rain in the inferno affected areas.

If these conditions persist at least partially into December, this could turn out to be one of the costliest weather and climate disasters in the United States, exceeding the damage caused by recent major hurricanes such as Katrina, Sandy and Harvey.

Impact on Utilities

Shares of electric utility providers in California, particularly PG&E Corp (PCG - Free Report) and Edison International (EIX - Free Report) plunged on concerns that the wildfires ravaging the state could cost them billions of dollars. Notably, PG&E Corp. and Edison International’s subsidiary, Southern California Edison (SCE) have recently released reports suggesting that their equipment may have started the deadly fires now burning at both ends of the state.

Both utilities are currently grappling with power outages affecting tens of thousands of customers. They have submitted initial incident reports to state regulators, which have started investigations.

Consequently, both these Zacks Rank #3 (Hold) stocks have witnessed more than 15% decline in their share price since Nov 8, when the wildfire started to spread widely. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It is imperative to mention in this context that PG&E Corp is already facing liability issues associated with wildfires in wine country that caused damage of up to $17.3 billion in October 2017, per a JP Morgan Chase & Co. estimate. The company recorded a charge of $2.5 billion in the final quarter of 2017 in connection with the Northern California wildfires. Now that it has accepted its role in the latest fire, the company is likely to face more losses in the coming days.

In December 2017, several wind-driven wildfires impacted portions of Southern California Edison’s service territory and caused substantial damage to both residential and business properties and service outages at its customers. During the third quarter of 2018, Moody's and Fitch downgraded the company’s credit ratings due to the exposure related to wildfires. The latest announcement made by the company, in relation to the Woolsey Fire, will make its position in the credit market no better.

Another utility operator in the region, Sempra Energy’s (SRE - Free Report) subsidiary, San Diego Gas & Electric (SDG&E), is also likely to incur huge loss due to the latest wildfires that have destroyed 8,800 structures in Northern California and 435 in Southern California. This company’s shares have lost only 1.7% since Nov 8. However, shares can fall further considering the fact that the blaze has already torched 97,114 acres in Southern California.

Is There a Silver Lining?

Although utility providers are trying to restore their systems, it is difficult to forecast the time needed for full restoration. Moreover, as the fire continues to rage, delayed restoration is likely in most areas, leading to new outages.

The fate of utilities in California hangs in balance for now, since the complete impact of Camp Fire along with Woolsey Fire cannot be gauged at the moment.

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