Americas Utilities California Wildfire Reform Term Sheet Balanced Framework, Constructive for PCG

Equity Research 21 August 2026 | 8:26AM EDT

California Wildfire Reform Term Sheet: Balanced Framework, Constructive for PCG

This week, Politico published the term sheet that Governor Newsom has brought to Carly Davenport | the California legislature to address wildfire reform. While there are a number of puts Goldman Sachs & Co. LLC and takes highlighted in the sheet, we recognize that this is not legislation, and bill Beatriz Abreu, CFA text may not directly resemble what is in the term sheet. That said, the proposal | appears to balance puts for the utility including addressing wildfire fund durability as Goldman Sachs & Co. LLC well as liability levels with proposed elimination of subrogation claims, and takes Jaya Patel | including limitations on utility executive compensation, customer bill credits, and Goldman Sachs & Co. LLC impaired returns on wildfire spend above GRC approved levels. While we take no Ananya Jaison view on the outcome, public commentary from Governor Newsom suggests appetite | and urgency from the legislature to pass wildfire reform this session, with continued Goldman Sachs India SPL

comments that the status quo is untenable. From here, we look for actual legislation to be introduced by August 28, with the session ending August 31. We see any resolution on wildfire reform as a positive catalyst for the CA IOUs, including PCG (Buy), EIX (Neutral), and SRE (Buy), and we see the most upside opportunity to PCG given steeply discounted valuation at current levels.

Key proposals in the term sheet

The term sheet appears to balance wildfire liability and recovery reforms with measures that would support utility accountability and provide customer bill relief. From utilities’ perspective, we see the largest benefits coming from enhanced wildfire fund durability and liability reform, while the key offset being shareholder-funded affordability measures and increased oversight on executive compensation.

n Durable Backstop improves wildfire fund longevity and liability visibility. The proposal suggests repealing the 2028 sunset on the SB 254 continuation fund and establish a $6 bn cap on fund-covered claims per wildfire event, which is estimated to increase the probability of fund solvency over the next decade from 53% to 98%. This reduces the probability that any one fire could deplete the wildfire fund. Beyond the $6 bn per event cap (plus $1 bn in self insurance), utilities could securitize remaining claims, and would only be liable for repayment of 20% of the T&D rate base in the event of imprudency.

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n Limits on Payments to other claimants could reduce future wildfire liabilities. The term sheet proposes eliminating insurer subrogation claims against utilities and the wildfire fund, eliminating punitive damages, limiting corporate claims, and restricting recovery of non-economic damages. The largest impact in our view would be the elimination of subrogation claims, which the CEA report estimated could reduce overall wildfire settlement costs by 35%-40%. n Claims recovery, litigation and financing reform may reduce overall claim costs. The proposal recommends limiting litigation financing by private equity, replacing contingency fees with reformed compensation structures, repealing fee-shifting for inverse condemnation claims, and setting a uniform 2-year statute of limitations for all wildfire claims. If implemented, these measures could streamline the recovery process and reduce litigation costs over time.

n Shareholder funded customer bill credit could create an incremental cost for utilities. Participating IOUs would be required to participate in the…