Lawmakers are calling for significant changes at Hawaiian Electric Co. in exchange for letting the utility charge a new fee to customers to raise money to deal with wildfire costs. 

“We put a significant amount of work into the bill, just to understand where HECO is, where investors believe HECO is and what the future looks like,” Sen. Jarrett Keohokalole said in an interview. “Put simply, what’s being proposed is a fundamental change to the dynamic between the state and the utility. And so the question is, What type of fundamental change should be made in return?”

The fundamental change sought by HECO would allow the company to impose new fees on its 460,000 customers statewide outside the standard ratemaking process. The utility could use the fees to finance bonds at a lower interest rate than it could otherwise obtain, which could ultimately mean lower costs to customers. 

Such utility securitizations are increasingly used in the power sector to raise capital. And Hawaii lawmakers and the utility both see securitization as a tool that can benefit HECO and its customers. 

The company faces substantial liabilities related to the Maui wildfires, which destroyed much of Lahaina and killed at least 101 people in August. As a result, shares of parent company Hawaiian Electric Industries have plummeted, and credit rating agencies have downgraded the company’s bond rating, which means it would likely cost HECO more to borrow as it seeks to deal with wildfire costs. 

The new measure would allow HECO “to securitize rates in order to raise capital that can be used to pay for costs and expenses arising out of catastrophic wildfires, providing a vital source of liquidity and preserving the public utilities’ financial viability,” the bill says.

The issue, Keohokalole said, is what concessions HECO will offer in return. 

An original bill proposed by the utility would have imposed relatively few restrictions, although utility executives have said proceeds would only be used for wildfire mitigation.

Although not technically a rate increase, the fee would still have to be approved by the Hawaii Public Utilities Commission with the opportunity for parties to intervene on behalf of consumers and special interests.

Securitization Has Wide Support

HECO’s original bill generated wide-ranging support from groups as varied as the International Brotherhood of Electrical Workers Local Union 1260, the Hawaii Island Chamber of Commerce and the Ulupono Initiative, which invests and advocates to support locally produced food, renewable energy and clean transportation. 

Gov. Josh Green, meanwhile, supported the bill’s intent but said the measure should clearly state bond proceeds would be limited to paying for “wildfire protection plan costs for planning, implementation and execution approved by the public utilities commission,” as Green has proposed in a separate measure outlining a comprehensive wildfire protection plan.

Keohokalole’s version, submitted as a Senate draft passed by the Senate Commerce and Consumer Protection Committee, which he chairs, would allow the utility to use the bonds to recover costs related to the wildfires broadly.

But the utility also would have to take a number of steps in exchange.

Perhaps most notably, the company would have to provide a reorganization plan that would include several conditions. HECO would have to separate its energy generation and grid functions, for instance, and provide for “a system of enhanced local governance and accountability, which may include alternate models of public ownership.”

Bond proceeds could be used to cover “prudently incurred costs that are consistent with a commission-approved plan to mitigate wildfire risk and impacts.”

Additionally, bond money could be used to settle wildfire-related liabilities, but would have to be approved by the PUC, limit burdens on customers and include “shareholder-backed offsets.”

Utility Opposes Amendments

HECO is not happy about the proposed changes.

“We will continue to work with the legislature on SB 2922, but believe key elements of the amendments adopted by the Senate Commerce & Consumer Protection Committee should be removed as they propose changes to long-standing policy and regulatory framework that should be addressed separately from this bill,” Jim Kelly, the company’s vice president for government and community relations and corporate communications, said in a statement. 

“They describe a number of complex, and in our view, unrelated issues that were introduced without any process, testimony or discussion, including splitting up the power generation and transmission and distribution functions of the utility, which would have a major impact on jobs,” Kelly added. “If we want to look at the utility ownership and organizational issues raised by these amendments, we should do it in a separate, thorough and transparent process, not by impeding the progress of the Securitization Act.”

Isaac Moriwake, an attorney with Earthjustice who often appears before the PUC, commended the changes to the bill.

“I appreciate what the legislators are trying to do here in stepping up and protecting the ratepayer and public and adding some balance to a deal that was originally stacked 100% in the utility’s favor,” he said.

He said it makes sense to ask for changes from the utility through the amendments.

“It’s amazing that these weren’t part of the deal to begin with,” he said.

For Keohokalole, the issue is how to prevent another disaster and make sure new fees do not stack up on customers if the utility faces additional crises. He pointed to the Honolulu rail project as an example where lawmakers were asked to approve new revenue streams after the endeavor needed new cash to bail it out.

Keohokalole said he wants to make sure securitization isn’t simply a tool by which customers bail out HECO, and added that he did not like the term “bail out.”

“I don’t like it because if that’s what we do, we fail,” he said.

The bill’s next stop is a joint hearing of the Senate Judiciary and Ways and Means committees, which has not been scheduled. 

In the meantime, Keohokalole said, lawmakers are eagerly awaiting a report by the Hawaii Attorney General’s Office, which could provide more insight into the fire’s cause and HECO’s liability.

Keohokalole said senators have been speaking with a range of experts on finance and utilities to gain a better understanding of HECO’s potential paths forward. 

Although some have called the fires that destroyed Lahaina a unique, “black swan” event that was impossible to predict, Keohokalole said some experts have a different view.

“They’re saying it was a grey swan event,” he said. “It was completely predictable, but the impact wasn’t.”