Shares of PG&E (PCG) and Edison International (EIX) are sliding amid California wildfires that began in the former’s service territory. Morgan Stanley analyst Kai Pan argued that given the Incident Report issued by PG&E and other reports that firefighters saw tree branches on power lines in the area, the focus currently appears to be on PG&E equipment.

CALIFORNIA WILDFIRES: In Northern California, 25 people have been reported dead in the Camp Fire, making this the second deadliest fire in California history, according to USA Today, citing authorities. According to the latest update on Cal Fire’s website: “Strong northeast winds are expected to continue through Monday morning. The fire area is still under the influence of low relative humidity, dry fuel moistures. Moderate to extreme fire behavior are possible including; spotting, slope driven runs, torching and crowning. Firefighters will continue to conduct structure defense and perimeter control.” PG&E has also issued a report regarding the Camp Fire, saying that on November 8, PG&E experienced an outage on the Caribou-Palermo 115 kV Transmission line in Butte County. “In the afternoon of November 8, PG&E observed by aerial patrol damage to a transmission tower on the Caribou-Palermo 115 kV Transmission line, approximately one mile north-east of the town of Pulga, in the area of the Camp Fire,” the company stated, adding that “this information is preliminary.” Meanwhile, in Southern California, officials confirmed that two people have died in the Woolsey Fire near Malibu, USA Today reported.

FOCUS ON PG&E EQUIPMENT: In a research note assessing California wildfire risk for utilities and insurers, Morgan Stanley’s Pan told investors that given the incident report issued by PG&E and other reports that firefighters saw tree branches on power lines in the area, focus currently appears to be on PG&E equipment. Under California Inverse Condemnation, PG&E would be responsible for all damages, regardless of whether the company is, or is not, negligent, he contended. Therefore, Pan believes it is “reasonably unlikely” that insurers will be required to cover the full extent of damages from this fire. Regarding Edison, the analyst estimates the stock currently reflects $5.5B in fire liability for 2017 and 2018 fires, plus a permanent 20% discount to peers. This level of liability likely exceeds the amount for which shareholders will be responsible, Pan argued.