Pulse check on California: Wildfire reform remains uncertain, potential higher borrowing costs presents affordability risk

With several weeks having passed since the California legislative session ended without passing a comprehensive wildfire reform package, we weigh in on the key debates around the California IOUs (PCG, EIX, SRE). First, while the potential for a special session remains, there is uncertainty on the appetite for stakeholders to convene ahead of the upcoming elections. Second, following Fitch's recent outlook update for PCG, we explore potential impacts to customer bills from higher borrowing costs. We calculate a 0.5%–3.3% impact to the average monthly customer bill for the CA IOUs from a potential 25bp-100bp increase in borrowing costs, all else equal. Based on credit agencies' comments, we believe this reflects the lack of developments around wildfire liability reform. As we have noted before, a near-term catalyst for the CA IOUs could be the potential for a special session to be held, which could narrow the valuation discount for PCG (currently trading at a 55% discount to our coverage