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Hawaii Lawmakers Are Considering Ways To Help HECO Pay Maui Fire Costs


Hawaii Lawmakers Are Considering Ways To Help HECO Pay Maui Fire Costs

Jan 25, 2024 | 9:17 am ET
By Stewart Yerton/Civil Beat
Bills introduced in the Legislature would allow Hawaiian Electric to pay for wildfire damage, litigation expenses and settlements with cash raised from the sale of bonds paid off with new fees on ratepayers. (Kevin Fujii/Civil Beat/2023)

Bills introduced in the Legislature would allow Hawaiian Electric to pay for wildfire damage, litigation expenses and settlements with cash raised from the sale of bonds paid off with new fees on ratepayers. (Kevin Fujii/Civil Beat/2023)

State legislators have introduced measures to bail out Hawaiian Electric by allowing the utility to raise cash by increasing costs to consumers without going through the standard rate-making process. 

Two such utility securitization bills have been submitted at Hawaiian Electric’s request, and two more as part of Gov. Josh Green’s package the Legislature will consider this session, which opened last week and runs through early May. 

The bills would allow Hawaiian Electric to issue a new type of bond to pay for wildfire mitigation and for expenses related to the wildfires that killed 100 people and destroyed much of Lahaina in August. Those expenses potentially include legal fees and settlements related to scores of lawsuits alleging the utility should be held liable for starting the fires. 

Hawaiian Electric stressed that the legislation was not intended to shift the cost of legal claims to ratepayers; however, the bills could have that effect depending on how they are implemented.

The measures would allow the troubled utility to raise money at much lower interest rates than currently possible under traditional financing mechanisms. Hawaiian Electric’s corporate bond rating has been slashed since the Maui fires, meaning the company would have to pay high rates to borrow money — and likely pass those costs on to ratepayers. 

Under the proposed “Catastrophic Wildfire Securitization” measures in the House and Senate, the company would be able issue bonds that would be paid off directly by ratepayers. Securitized by utility customers, such bonds are considered low risk – meaning a lower interest rate –  and Hawaiian Electric could issue them to raise cash quickly. 

The legislation envisions the utility using the cash “to fund near-term costs and expenses to develop and implement effective plans for wildfire risk mitigation, contribute to disaster relief funds, and, as necessary, fund litigation and settlements.”

The result is that Hawaiian Electric customers could ultimately be on the hook for paying a massive amount of claims related to the fires, depending on how Hawaiian Electric used the money.

Earlier this month, for example, 142 insurance companies in 26 states and a half-dozen countries filed suit in Honolulu, asking the court to require Hawaiian Electric to pay the insurers back more than $1 billion for residential property claims paid out so far. Dozens of other plaintiffs have filed similar suits in state court in Maui.

Ratepayers Could Save Money Over The Long Term

Henry Curtis, executive director of Life of the Land, said securitizing ratepayer revenue as the bill envisions could be a good deal for ratepayers in the long run. If Hawaiian Electric were on the hook for excessive interest rates to pay off junk bonds issued to raise cash, those costs ultimately would get passed on to ratepayers, said Curtis, who frequently intervenes in matters before the Public Utilities Commission.

Lower interest loans ultimately would benefit customers, Curtis said.

“If implemented correctly, it will be better for ratepayers,” he said.

Jim Kelly, Hawaiian Electric’s vice president for government and community relations and corporate communications, stressed that the bill merely enables the utility to issue the special bonds subject to regulatory approval. Under the bill, the Hawaii Public Utilities Commission would still determine whether the bonds’ uses and costs to ratepayers were “just and reasonable” and “consistent with the public interest.”

Parties such as the Hawaii Consumer Advocate and Life of the Land would be able to participate as they do in other matters, such as cases involving proposed rate increases, Kelly said.

One issue involves how Hawaiian Electric would be able to use bond proceeds, Curtis said. Using the money for wildfire mitigation measures and things like grid hardening would be different from using money from ratepayers to pay off Hawaiian Electric’s liabilities.

“The question is, ‘If the utility is liable for some of the fire, should the shareholders be liable or should the ratepayers be liable?’” he said.

Hawaiian Electric’s Kelly said the utility didn’t intend to use the bond proceeds on legal claims.

“This is a financing tool that we may or may not need and the PUC will ultimately decide what’s just and reasonable,” he said in a statement. “The primary intent of this bill is not to charge claims costs to customers but to develop the lowest cost financing option that will enable us to continue making investments, including for safety and grid resilience.”

Lawmakers could still tweak the measure, which was drafted by Hawaiian Electric, to limit the way bond proceeds could be used. And the PUC also could have some say.

So while the bill specifically cites “litigation and settlements” as potential expenses the bonds could cover, Curtis said, “That is potentially but not necessarily a red flag.”

Another issue involves protections for ratepayers, to make sure they are not paying a higher interest rate than necessary, which can add up over the life of a bond. 

Colorado Sen. Chris Hansen, who has a doctorate in energy economics from the University of Oxford and helped draft Colorado’s utility securitization bill, said ratepayer protections can include authorizing the PUC to hire an independent investment adviser. It also means getting the lowest possible interest rate, which could be comparable to U.S. Treasury securities, he added.

“These are basically some of the lowest risk bonds you can imagine,” he said.

Joe Fischera, founder and chief executive of Saber Partners in New York, said government officials often fall into a “savings trap” when dealing with such bonds by being willing to accept a lower interest rate than the utility could get through traditional financing. 

“You don’t just want a lower rate; you want the lowest rate,” said Fichera, who has advised public utility commissions in Texas, New Jersey, North Carolina and Florida, among other states. “You don’t want to overpay Wall Street.”

While Hawaiian Electric’s proposed measures focus on securitizing electric rates, Green’s House and Senate companion bills take a broader approach. They look to create a process for utilities to develop wildfire risk protection plans and submit them to the commission for approval, as well as establishing a securitization scheme.

“The governor believes we need to ensure wildfire mitigation and prevention policies and plans are adopted,” said Blake Oshiro, a senior adviser to the governor. “We also need to find reasonable ways to finance these improvements and investments. The securitization model proposed in the bill helps provide resources, in a manner that should be minimal impact on utility customers’ electric bills.” 

Civil Beat’s coverage of Maui County is supported in part by a grant from the Nuestro Futuro Foundation.