Hawaiʻi Attorney General Anne Lopez released part of its probe Wednesday into the Maui wildfires. The report covers the timeline and response to the disaster, which killed at least 101 people.
Hawaiian Electric could face close to $5 billion in potential liabilities from lawsuits filed over the fires, according to Capstone, a consulting firm that studies utilities under stress for its investor clients.
The Conversation talked to Capstone analysts Alyssa Lu and Josh Price before the report was released, as state lawmakers prepare to decide on legislation that could involve the Public Utilities Commission and impact HECO's bottom line.
"Anytime there's a market dislocation or a significant liability facing a publicly traded stock, Capstone will endeavor to provide a view and dig into the information as much as possible to ensure that our clients are best informed on the situation at hand," Price said.
Price said Capstone was aware that the attorney general's report would not detail the fire's origin or cause, and would not change the picture from a liability standpoint.
The U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives is investigating the cause. It's unclear exactly when the ATF report will be released.
Interview Highlights
On how the various Lahaina fire reports could affect Hawaiian Electric and Maui County from a liability standpoint
JOSH PRICE: What we are looking for, we heard some hints about this yesterday during the Maui Fire Department's press conference, is the report from and the analysis from the ATF that will actually get into the details on fire origin and causation. That will be critical for, we think, the litigation and liability picture. Right now, I think most people assume and HECO admitted that its infrastructure and equipment started the first fire. But there's this uncertainty around whether it smoldered, whether it was fully extinguished, whether there was a second fire unrelated to that equipment. And I think that lingering uncertainty is an impact in the market and having an impact on the litigation. Now, one of the key things we saw yesterday in some of the headlines around the attorney general's report that should come out today was a finding that the Maui Fire Department and Police Department acted prudently and weren't to be at fault or blame here. I do think in the litigation where, you know, Maui County is the defendant alongside HECO and some other entities. Anything that deflects blame away from Maui County, in theory, should be negative for HECO when thinking about the share of liability or ultimate responsibility in a settlement or any verdicts that Hawaiian Electric could face. But I don't think there's going to be anything specifically that bolsters or hinders HECO's argument around the second fire in this attorney general's report. But anything that moves blame away from other defendants in the litigation, in theory, should be negative for Hawaiian Electric.
On how various measures making their way through the Legislature could affect HECO's future
ALYSSA LU: I think there are two key bills that really impact Hawaiian Electric at this point that are still moving forward in the legislature. One is SB2922, which is the securitization bill, and the other is HB2700 and SB3344, the companion bill, that establish the Hawaiʻi Wildfire Relief Fund. So at a high level, the securitization bill would allow Hawaiian Electric to securitize costs going forward associated with future wildfire protection plans that they file in front of the PUC. The bill language has been significantly amended since its initial proposal. And that initial proposal would have allowed them to also securitize costs associated with the August Maui fires, and all future catastrophic wildfires. That bill language is still being debated and we don't have the final version of the bill yet. But the current version of the bill really focuses on those forward-looking wildfire protection plan costs. And then the other bill that's still moving forward is the Hawaiʻi Wildfire Relief Fund. And that would create an insurance fund that utilities and other entities including the state could contribute to that would provide compensation for property damage resulting from future catastrophic wildfires. I would say HECO's future is really reliant on the passage of these bills. HECO's credit rating right now has been downgraded by multiple rating agencies to "junk" status, which has significantly limited their access to capital. And even outside of addressing liabilities associated with the Maui fires, HECO will need to make significant investments in wildfire mitigation and prevention projects going forward, which would be extremely difficult without securitization financing at this point. So in the scenario where you don't have that happen, you would likely see HECO run out of financing options pretty quickly. And similarly, with the Hawaiʻi Wildfire Relief Fund, that would provide a significant amount of insurance protection for the utility going forward. Right now, they potentially face billions in liabilities from the Maui fires. So having that fund that they're able to contribute to in the future, especially to resolve property damage claims, would provide them with significant insurance.
On public and lawmaker perception of the securitization bill
ALYSSA LU: SB2922 originated in the Senate, and it was initially called the Catastrophic Wildfire Securitization Act. And that bill has language in it that noted the tough spot that HECO is in financially right now. And it proposed to allow HECO to securitize costs associated with the August wildfires. And that version of the bill was essentially viewed by lawmakers and citizens as a bailout bill for HECO. But now that the bill has been significantly amended, especially after it was transferred over to the House, now it really has go-forward language that focuses on those wildfire protection plan costs and focuses on utility wildfire prevention efforts going forward for future wildfires. And so that has significantly increased the likelihood that especially the House lawmakers, which have been reluctant to really look at any bill that is viewed as a bailout bill for HECO, that's really increased the likelihood that the House would be willing to pass this.
This interview aired on The Conversation on April 17, 2024. The Conversation airs weekdays at 11 a.m. on HPR-1. Sophia McCullough adapted this story for the web.
