Hawaiian Electric is accused of involvement in devastating wildfires in Maui, potentially facing billions in liabilities. Bankruptcy and legal battles with insurance companies loom as a possibility.
Hawaiian Electric (ticker: HE), the utility company accused of having a role in the devastating wildfires in Maui, is now facing multiple lawsuits and potential damages. With insured property losses estimated at $3.2 billion by catastrophe modeling firm Karen Clark & Company, concerns arise regarding Hawaiian Electric's financial ability to meet these obligations.
Regulatory advisory firm Capstone warns that Hawaiian Electric could potentially face $3.9 billion in wildfire liabilities if found negligent for its involvement in the Lahaina and Kula fires. Such a massive amount would far exceed the company's market capitalization of $1.5 billion, significantly raising the possibility of a strategic Chapter 11 bankruptcy filing.
Eric Scheriff, managing director and global head of energy at Capstone, highlights the significant mismatch between the liabilities and the company's available liquidity. Considering the potential culpability of Hawaiian Electric's equipment in causing the fires, bankruptcy could serve as a means of streamlining the claims negotiation and resolution process.
While the cause of the fires has yet to be officially determined, evidence points to power lines as a likely factor. A resident's video captures a downed power line igniting dry grass near Lahaina. Moreover, Whisker Labs, a private company monitoring electrical grids, reported electrical disruptions prior to the fire's outbreak.
This situation draws parallels to Pacific Gas and Electric (PCG), which filed for Chapter 11 bankruptcy in 2019 after its faulty equipment was found responsible for blazes, such as the tragic Camp Fire of 2018. The devastating consequences of these fires, resulting in the loss of 85 lives and the destruction of Paradise town, led to PG&E eventually emerging from bankruptcy in 2020.
"There's a really useful historical analog here with PG&E," said Scheriff. "There's certainly some key distinctions. But certainly if you are a management team at a utility that's now potentially liable for causing a large fire and facing billions in liabilities, there's a very clear playbook that PG&E used."
In a Friday filing, the utility provider stated that it is seeking advice but remains committed to maintaining its position as a financially robust utility.
In an email, a spokesperson for parent company Hawaiian Electric Industries expressed their intent to persist through the rebuilding effort and beyond.
"Like any company in this situation would do, and as we do in the normal course of business, we are seeking advice from experts—the goal is not to restructure the company but to endure as a financially strong utility that Maui and this state need," the spokesperson shared. "We look forward to working with the people of Hawaiʻi to achieve this goal."
If investigators determine Hawaiian Electric as the source of some fires, it could trigger a legal battle with insurance and reinsurance companies.
In 2019, PG&E reached an $11 billion settlement with insurance companies for claims related to fires caused by their equipment, one of which was the devastating 2018 Camp Fire. This settlement was part of a subrogation claim, where insurers seek to recover money paid to policyholders from the party responsible for the damage.
Capstone's report anticipates "a major fight between Hawaiian Electric and insurance companies in a potential subrogation process based on the estimated $3.2 billion in insurance property losses from the fires."
Hawaiian Electric's legal challenges are expected to increase in the coming months, intensifying pressure on its share price. The company's stock has seen a sharp decline of nearly 70% this year and has displayed volatility over the past week. As of midday Monday, the company's shares had dropped 4.5%, reaching $12.90.
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