It is working, but its a little confusing. Incinerate City reduces the units hit points, it doesnt damage them. So a unit standing outside the city may show 17/17 for hit points. When he is in a city with 3 incinerate cities on it he will show as having 14/14 hit points. So it works correctly (i just tested to make sure). But if you are expecting units in the city to start damaged, you aren't going to see that,
Hmm, now I cant help but wonder what happens if I reduce an enemy's sovereign max hp to 0...
....
Curse you stupid cooler, don't be broken so I can go and test it! 
Sincerely
~ Kongdej
