August 30, 2023

By Josh Price, Eric Scheriff, Alyssa Lu, and Jack Buckley

• Capstone’s updated liability estimate for Hawaiian Electric Industries Inc. (HE) for a potential settlement for the Maui wildfires has risen to $4.9 billion, up from $3.9 billion, after accounting for revised implied loss per structure from prior wildfire settlements and new information regarding fatalities and missing people (see Exhibit 1). We believe the scope of these liabilities—coupled with Hawaiian Electric Co.’s (HECO) recent drawdown from its revolving credit facility—increases the risk of a bankruptcy filing.
• We believe Maui County will likely share some of the costs associated with the fires, particularly related to wrongful deaths, based on recent reports highlighting inadequacies in the emergency response. That said, the magnitude of liabilities for destroyed structures alone—and HE’s confirmation that its infrastructure started the fires early in the morning on August 8^th—likely suggests that Maui County’s culpability would be insufficient to insulate HE entirely from liabilities. While HE claims there was a second fire that ignited at the same location while its power lines were de-energized, we believe a jury would find it unconvincing that the second fire was unrelated to the initial brush fire—ignited by HE’s equipment—if ongoing litigation goes to trial.
• Capstone increasingly believes intervention by state policymakers—and potentially federal policymakers—will likely be necessary to ensure the financial health and function of HECO given the scope of liabilities. Regulators at the Hawaii Public Utilities Commission (PUC) could leverage part of the company’s performance-based ratemaking formula to socialize costs from the 2023 fires with California’s wildfire fund, providing a framework for future legislative action. As we saw with PG&E, de-risking the utility from future wildfires will be key to the path forward for HECO.