Storms, Wildfires and Utility Stocks
Disasters are worsening but utilities are becoming more resilient.
Welcome to Dividends with Roger Conrad. If you’ve been enjoying these weekly posts, please consider a subscription to Dividends Premium—including my Actively Managed Income and Growth Portfolio, Dividends Premium REITs and 24/7 access to my Dividends Roundtable, hosted on the Discord application.
Upgrade options are highlighted in this email and in the Substack application. Here’s to your wealth!—RC
Call it climate change, or don’t. But there’s no disputing that violent storms, wildfires and other weather-related catastrophes are doing ever-more damage to Americans’ property, with rising loss of life.
We’re less than two weeks in. And already 2025 has served up an unhealthy helping of disasters: From Winter Storm Blair in the Mid-Atlantic and Winter Storm Cora in the US South to southern California’s deadly and still expanding wildfires.
The result is America’s electric utilities are again on the spot. That’s just months after a pair of devastating hurricanes wrecked Florida and areas of the Southeast, of some which are still digging their way out of the wreckage.
Homeowners and businesses are already paying the price of worsening weather events with big increases in insurance bills. In fact, insurers have effectively withdrawn from many areas deemed at excessive risk.
Utilities can’t prevent catastrophes caused by weather. But getting the lights back on quickly to as many people as possible is as critical for a company’s investors as it is for its customers. And fortunately for all of us, they’re proving increasingly resilient.
That’s absolutely essential--because now more than ever, Americans depend on always available and affordable power. And keeping the juice flowing will only become more critical in coming years, as electrification expands in transportation and artificial intelligence increasingly transforms industries.
Winter Storm Blair wound up burying large swaths of the Plains, Midwest and Mid-Atlantic states in the heaviest snow in years. Cora meanwhile hit the US South from Texas to the Carolinas with “impactful snow and ice.”
Snow and ice are likely to remain in many places longer than in past years. Utilities, however, have so far avoided the magnitude of damage from these storms that was experienced from last year’s hurricanes. And so long as that’s the case, winter weather could be a net positive for many companies, pushing up demand as customers hunker down for the foul weather.
Unfortunately, southern California’s still raging wildfires are a far different story.
The utility at the epicenter appears to be municipally owned Los Angeles Department of Water and Power. Its service territory has been identified as the origin point for at least two of the most damaging fires so far: Palisades and Hurst.
Southern California Edison and its parent Edison International (NYSE: EIX), however, have also received attention. And Edison stock has plunged by more than 25 percent since late November.
That investors are selling Edison first and asking questions is hardly surprising. Memories of wildfires pushing utilities to the brink are still fresh. Hawaiian Electric (NYSE: HE) has avoided bankruptcy for its role in the devastating Maui Fire, thanks to a multi-billion dollar settlement pushed by the state government. But it’s unlikely to pay a dividend anytime soon, as it arranges financing for a $1.9 billion payout.
PG&E Inc’s (NYE: PCG) Pacific G&E, the utility serving northern California, did file bankruptcy in the previous decade following the devastating Camp Fire. And while the company resumed paying dividends, its stock is still at a fraction of its pre-wildfire disaster price.
Edison, however, does not now appear to be a candidate for a similar utility catastrophe.
Over the past seven years or so, the company has invested heavily in grid resilience. That’s included not just aggressively cutting brush but also undergrounding facilities, installing covered conductor wire on its transmission and distribution lines and deploying advanced sensors and artificial intelligence. And during the crisis, management has systematically de-energized power lines ahead of advancing fires.
Edison’s resilience efforts prompted credit rater Moody’s last year to declare the company’s wildfire liability risk reduced by nearly 90 percent from 2018. And preliminary reports appear to indicate its system was not responsible for either igniting or exacerbating the fires as they’ve spread throughout the Los Angeles region.
The still largely uncontained Palisades Fire is by far the worst in the area and the disaster getting most of the press. But it’s not in Edison’s service territory.
The second most deadly so far is the Eaton Fire. It did apparently ignite in Edison’s territory. And the company has received notices from insurers to “preserve evidence linked to the fire.” But management has also filed documents with California regulators stating “no fire agency has suggested that SCE’s electric facilities were involved in the ignition or requested the removal and retention of any SCE equipment” so far.
Edison’s own “preliminary analysis” of “electrical circuit information for the energized transmission lines going through the area for 12 hours prior to the reported start time of the Eaton Fire shows no interruptions or electrical or operation anomalies until more than one hour after the reported start time of the fire.” And the company reports de-energizing power lines ahead of the fire as it spread.
The Hurst Fire’s point of origin is in the territory of the Los Angeles Department of Water and Power. But Edison has acknowledged its transmission facilities are “near the reported ignition site,” and has been “conducting a review of the event.” That wildfire, however, is by far the least destructive of the three to date.
That’s not to minimize the impact of southern California’s ongoing wildfires. And since these three ignited, several others have flared up, driven by hurricane force winds and extremely dry conditions. Some estimates of property damage for the season are now as high as $150 billion. And lives continue to be lost, as emergency services struggle to contain the blazes.
It’s still quite possible state officials will find least some Edison facilities contributed to this unfolding catastrophe. California regulators may put off approving the company’s recovery of previous wildfire costs. And state politicians may take other actions that negatively affect earnings for all utilities in the state, such as requiring larger contributions to the Wildfire Insurance Fund.
But so far Edison’s grid appears to be meeting the resilience test under the worst possible conditions. That’s a stark contrast to 2018. And investor selling looks like an extreme overreaction.