Shares of California utilities PG&E and Edison International rose on Tuesday, with state lawmakers expected to vote on a key wildfire bill that doesn't include liability protection for utilities.

Both stocks fell more than 20% on Monday, while shares of fellow California utility Sempra declined 3.1% after the California State Assembly amended Senate Bill 492, leaving out Gov. Gavin Newsom's proposal to limit insurance companies from suing utilities over wildfire-related legal claims.

But with California lawmakers poised to vote sometime Tuesday on the amended legislation, all three stocks were in the green. PG&E was up 1%, Edison International advanced 2%, and Sempra gained 1.6% on Tuesday.

The legislation would bar hedge funds from "claim trading," prohibit executives from receiving bonuses if a utility starts a wildfire that destroys 500 or more structures, and create a program to allow people affected by fires to get paid more quickly.

Wall Street expects the legislation to pass and head to Newsom's desk. The governor will then have 12 days to sign or veto the legislation before it automatically becomes law.

The main issue for Wall Street is that the amended legislation doesn't include liability protection for utilities. At a more granular level, firms are concerned there isn't a long-term funding solution for California's $21 billion wildfire fund, which is paid for by utility shareholders and ratepayers to cover liability.

Wall Street broadly believes California utilities could face liability pressure-and that investors could be left to pay if a slew of claims materialize. This fear is due to the January 2025 Eaton Fire, which roared through Los Angeles; claims related to the blaze could potentially deplete the wildfire fund sooner rather than later.

These investor worries drove both PG&E and Edison International lower on Monday.

Not helping the matter were several negative analyst notes, with Mizuho Securities downgrading PG&E, Edison International, and Sempra to Neutral from Outperform.

Morgan Stanley analyst David Arcaro on Monday said that the legislation "falls short for shareholders" and that there's "significant downside" potential for California utilities "in the event of multiple catastrophic wildfires."

On Tuesday, Bank of America downgraded PG&E and Edison International to Neutral from Buy. BofA analyst Ross Fowler joined the chorus of analysts criticizing the legislation.

"Investors viewed this process as an opportunity for a comprehensive solution to California's wildfire liability framework. Instead, SB 492 advances survivor protections while leaving utility risk largely unchanged," Ross Fowler wrote.

The analyst added that with "wildfire risk elevated and no policy clarity likely for another year," uncertainty should continue to weigh on California utlities.

Financial liability has historically been an issue for PG&E.

The utility in early 2019 filed for Chapter 11 bankruptcy under the weight of massive wildfire liability claims. Shares of PG&E also tumbled between October 2018 and October 2019, and have been slowly attempting a recovery ever since. The utility emerged from Chapter 11 bankruptcy in July 2020.

Wall Street will be paying close attention on Wednesday, when PG&E is expected to give an update on its capital spending plan, growth outlook, and potential return of capital. The utility has scheduled a "post legislative session update" on Wednesday at 8:30 a.m. Eastern time.