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Hawaiian Electric employees work on recovery efforts following the Maui wildfires.
YUKI IWAMURA/AFP/Getty Images
Electric utilities have had to make large payments to wildfire victims and insurance companies in recent years. Hawaiian Electric, which has been accused of playing a role in starting the devastating wildfires in Maui, may be the next step.
At least four lawsuits have been filed against Hawaiian Electric (Stock ticker: HE) seeking damages for fire victims, while disaster modeling firm Karen Clark & Company has estimated insured property losses at $3.2 billion. This combination has raised concerns about the utilities’ ability to pay.
capstoneInc., a Washington, D.C.-based firm that advises investors and companies on regulatory issues, estimates that Hawaiian Electric faces $3.9 billion in potential wildfire liabilities if it is deemed negligent for its role in the Lahaina and Kola fires. The company said in a research note that this amount will dwarf the company’s market value of $ 1.5 billion and increase the risk of filing a strategic bankruptcy file under Chapter 11.
“It is almost likely that the amount of liabilities will significantly exceed the liquidity available to the company,” said Eric Sheriff, managing director and global head of energy at Capstone. Barron. “To the extent that a company’s equipment causes a fire, bankruptcy is clearly something the company will consider — it’s a way of streamlining, and potentially, the process of negotiating and resolving claims.”
While officials have not announced the cause of the fires that have killed at least 114 people, it appears that power lines most likely caused the first reported fire. Video taken by a resident It shows a deteriorating power line igniting dry grass Along a road near Lahaina. Electricity failures were reported by Whisker Labs, a private company that monitors networks, before the fire.
In 2019, Pacific Gas & Electric (PCG), a Northern California utility, It has filed for Chapter 11 bankruptcy yet Its faulty equipment has been found to have caused fires including the 2018 camp fire that killed 85 people and consumed the town of Paradise.
PG&E
I got out of bankruptcy in 2020.
“There’s a really useful historical analogue here with PG&E,” Sheriff said. There are certainly some major differences. But certainly if you’re a management team at a facility that’s now potentially responsible for causing a major fire and facing billions of dollars in liabilities, there’s very clear evidence that PG&E used it.”
In a filing on Friday, the utility provider said it seeks advice but intends to take it as a powerful financial tool.
in an email to Barrona spokesperson for the parent company
Hawaii Electric Industries
And
He said Hawaiian Electric and HEI “intend to be here for the long term, through the rebuilding effort and beyond.”
“As any company might do in this situation, and as we would in the normal course of business, we seek advice from experts — the goal is not to restructure the company but to hold it as the strong financial instrument that Maui and this state need,” the spokesperson said. “We look forward to working with the people of Hawaii to achieve That goal.”
If investigators determine that Hawaiian Electric was the source of at least some of the fires, it could lead to a legal battle between the company and the insurance and reinsurance industry.
In 2019, PG&E $11 billion settlement With insurers for claims caused by fires ignited by utility equipment, including the deadly 2018 Camp Fire. That settlement was part of claim subrogation, the process insurance companies use to try to recover money paid to policyholders from the party responsible for the damage that led to the claims.
Capstone said in its report that it expects “to see a major battle between Hawaii Electric and insurers in a potential replacement based on the estimated $3.2 billion in insurance property losses from the fires.”
Hawaiian Electric’s legal challenges are likely to mount in the coming months, adding pressure to its share price. The stock is down nearly 70% this year and has been choppy over the past week. Shares of the company fell 4.5% midday Monday, to $12.90.
Write to Lauren Foster at lauren.foster@barrons.com