- Edison International’s Southern California utility is considering shutting off power to roughly 246,000 customers, almost 5% of its base, across six counties including Los Angeles, Ventura, Kern, Tulare and Santa Barbara from Wednesday through Friday as Santa Ana winds, low humidity and high temperatures raise wildfire risk.
- PG and E said Tuesday it may cut power to as many as 70,000 customers across 29 counties including Napa and Santa Barbara, bringing the combined total under consideration to around 316,000 customers.
- The National Weather Service has issued a red flag warning for parts of California northwest and east of downtown Los Angeles from 6 a.m. Thursday through 10 p.m. Friday.
- The rationale is explicitly financial as well as physical. Utilities de-energise lines to reduce the chance their equipment sparks fires and to limit potential liabilities. Edison shares fell as much as 3.6% on Wednesday.
What Happened?
Public safety power shutoffs have become a recurring feature of autumn wind events in California.
Why It Matters?
Deliberately not supplying the product has become a rational operating decision, and that is a structural change in what a California utility is. Under the state’s legal framework, a utility can face liability for damage caused by its equipment in ways that make even a modest fire catastrophically expensive relative to the revenue foregone by cutting power to a quarter of a million customers for three days. The asymmetry is so wide that the calculation is not close, which is why shutoffs have become routine rather than exceptional. For investors the consequence is that these companies carry a seasonal operational cost and an uncapped tail risk, and the share price reaction reflects the latter rather than the former. The collision with electricity demand growth is the part worth connecting. Data centres require uninterrupted power, and California utilities now pre-emptively de-energise portions of their service territory multiple times each autumn. That is a physical constraint on hosting AI infrastructure in the state, arriving alongside a political one, with San Francisco having just approved a 45-day moratorium on new data centres extendable for roughly two years. The state is restricting facilities it does not host while being unable to guarantee supply where it does, which helps explain why the buildout concentrates in Texas, Virginia and the Midwest. For anyone modelling where AI capacity gets built, reliability belongs alongside permitting and price. There is a broader point about the asset class. Regulated utilities have traditionally been held for predictable cash flows and low operational risk, and California’s two largest investor-owned utilities now face weather-driven revenue interruption as a normal feature of the business plus liability exposure that has previously threatened solvency in the sector. That is a different risk profile from the one the category is usually bought for, and holders of broad utility exposure may not have chosen it deliberately.
What Next?
The red flag warning runs to 10 p.m. Friday, so the duration and scope of actual shutoffs will be known by the weekend. Watch whether any fire ignites in the affected territory regardless, since that is the outcome the measure exists to prevent and the one that determines the liability. Edison and PG and E will disclose the revenue impact in due course, though it is small relative to the risk being managed. For the longer term, the question for California is whether grid hardening investment reduces the frequency of these events, and the cost of that work is ultimately recovered from ratepayers. Data centre siting decisions are the commercial consequence to follow.
Affected Tickers and Coins: EIX, PCG, SRE
Source: Bloomberg
