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To securitize or not to securitize? This legislative session is teeming with bills that delve into that pivotal question for Hawaiian Electric following last summer’s tragic wildfires on Maui. 

In a recent ������Ƶ’s article titled “Proposed HECO Bailout Bill Could Force The Utility Company To Restructure,” the notion that securitization approval amounts to a “bailout” can be misleading.

Securitization is a financing technique used in a wide variety of situations for both private and public financing. Whether it can be fairly called a bailout depends entirely on what types of expenditures are paid for using the structure.

Securitization of electric rates refers to dedicating revenues from customer bills to help “guarantee” repayment of loans, a process requiring legislative authorization. Proponents argue that securitization offers the advantage of securing funds at lower interest rates compared to corporate bond financing.

As utility customers effectively cover financing costs, this could save the customers money as compared to the alternative. Historically, Hawaiian Electric has raised money through the corporate bond markets and the stock market.  Securitization should be a less expensive option that benefits customers.

So, on its face, this is a good deal.

On the other hand, critics contend that securitization constitutes a form of an “electric utility bailout.” The validity of this claim depends on which utility expenditures can be paid for using this option.

To the extent that there are investments/expenses that the utility must make in order to serve the customer — things that are clearly within the customers’ interest — securitization is likely a good deal for the customer.

For example, virtually everyone would like the electric grid to be more resilient against wildfires, storms, and other natural disasters. Those investments will and must happen, so it makes sense to do so at the lowest financing cost.

Given that plans for such investments are reviewed by the Hawaii Public Utilities Commission and approved with stakeholder engagement, the argument for securitizing such expenditures is very strong.

However, if securitization is allowed to cover costs that should be borne by the utility — including its insurance providers, equity investors, and debt investors — it’s reasonable to think of it as a bailout. This scenario has the potential to shift a spectrum of utility costs, encompassing potential legal expenses, settlements, and penalties, to the customer.

To be clear, the investigations into the Maui wildfires have not concluded, so we express no opinion on the outcome and the utility’s potential liability.

That said, in an extreme situation in which all legal costs and penalties were securitized, it would effectively make the customer liable (and pay for it) rather than the utility. That would be unconscionable.

Whether securitization of utility expenditures is a good idea or a bad idea largely hinges on which expenses can be covered by this, generally attractive, financing tool. It should be used to lower the cost to utility customers for essential resilience investments — not shift liability from the utility to its customers.