Eaton Fire Analysis by Jefferies Analysts

Investing.com — Jefferies analysts conducted a thorough analysis of the Eaton Fire in Southern California, examining the state’s wildfire funding framework. This analysis was based on insights from Bob Marshall, CEO of Whisker Labs, focusing on fire causation, utility involvement, and California’s complex “waterfall” funding mechanism related to wildfire policies.

According to Jefferies, Whisker Labs’ data did not indicate any major faults in transmission lines prior to the Eaton Fire, which aligns with findings from Edison International (EIX). The Ting devices from Whisker Labs detected faults to the west of Eaton Canyon before the fire began, but these were linked to distribution lines. Analysts also suggested that the risk of Southern California Edison (SCE) not being de-energized at the distribution level is minimal.

In contrast, the Hurst Fire, which caused less damage (around 800 acres compared to the Eaton Fire’s 14,000 acres), showed clearer connections to SCE.

A significant policy issue highlighted by the analysts is the disparity in wildfire mitigation efforts between investor-owned utilities (IOUs) and municipal utilities. For instance, municipal utilities such as Pasadena Water and Power, operating in high-risk areas, often lack detailed Public Safety Power Shutoff (PSPS) policies.

According to analysts led by Julien Dumoulin-Smith, “We see the lack of uniform mitigation policies across utilities, regardless of the actual cause of the fire, as squarely the biggest policy takeaway.” They also noted the likelihood of implementing PSPS policies at a more granular level across urban areas.

Moreover, the wildfire funding mechanism established under Assembly Bill 1054 (AB 1054) is crucial for managing financial repercussions. As of 2024, the Wildfire Fund is valued at $13 billion and could increase to $27 billion by 2036. The reimbursements from this fund hinge on the prudence of the utilities involved.

Analysts pointed out, “If determined prudent and a safety certification is approved, there is no requirement to reimburse the fund.” Conversely, findings of imprudence could obligate utilities to cover up to 20% of eligible equity rate bases.