What happened

Shares of Edison International (NYSE:EIX) traded down more than 8.5% on Friday as investors monitor the wildfires raging in California and worry about what the damage might mean for the state's utilities. To date, Edison has fared much better than bankrupt PG&E, which was blamed for last year's devastating Camp fire, but investors are clearly wondering how long Edison's luck can hold out.

So what

While PG&E has received most of the attention, Edison equipment is under scrutiny for potentially causing the Saddleridge fire in Southern California that has burned more than 8,000 acres in the San Fernando Valley.

CEO Pedro Pizarro in a March interview with The Los Angeles Times admitted "at least in part, it's luck" that his utility has so far escaped bankruptcy while PG&E is in court protection. And investors in all California utilities, Edison included, have been watching the PG&E bankruptcy closely to get a feel for what they might expect if other energy providers are forced to follow a similar path.

Utility transmission lines across a field.

Image source: Getty Images.

Friday's news flow did little to calm investor fears surrounding Edison. Gov. Gavin Newsom of California declared a state of emergency in areas including Los Angeles County, where Edison provides service and the Tick fire is raging, a day after he held a briefing in which he stressed the ongoing fire threats and "the need to hold utilities accountable" for decisions on when to shut power off due to fire danger.

PG&E also seems to be at risk of losing control of its reorganization, and as it does, the odds are decreasing that equity holders will eventually see a recovery. The judge overseeing PG&E has allowed for alternative restructuring plans to be considered, opening the door for fire victims and other creditors to extract more value out of the company.

Now what

Edison does have some vulnerability, but to date its total potential liability exposure is significantly less than the $30 billion PG&E could owe from the Camp fire alone. California lawmakers need to walk a fine line between punishing the utilities and making sure fire victims are compensated, while still ensuring a continued flow of power to citizens. And for now at least, Edison should benefit from PG&E being the preferred punching bag.

Even after the Friday drop, shares of Edison are still up more than 16% for the year. There are lots of reasons for investors to be drawn to utilities. But given the fire risk surrounding Edison, I'd stay away from this stock and all California utilities until the state figures out a comprehensive plan for how to deal with fires, and the liabilities that follow.