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The state of Hawaii and its largest utility holding company, Hawaiian Electric Industries Inc., will still face massive potential liabilities from the Maui wildfires even if all eligible wrongful death and personal injury victims opt in to a settlement fund that Gov. Josh Green is expected to launch this week. 

The looming question is how state and local governments and businesses will fill a larger pool of cash needed to pay billions of dollars in property damage claims — and what role will the public be expected to play. 

The $175 million settlement fund set to go live this week, which includes $75 million from the utility company and $65 million from taxpayers, will offer $1.5 million each to families of the 101 people killed in the August blazes that destroyed much of Lahaina. It also includes money for people injured but not killed.

Green is expected to announce more details on Tuesday ahead of the fund’s Friday launch date. 

But government officials and corporate executives have only begun to publicly address the bigger issue: how to deal with liabilities related to property damage facing the state, Maui County, Hawaiian Electric Industries, Kamehameha Schools and other landowners and utilities. Some estimates peg those costs at $5 billion, which would include claims for destroyed homes, commercial property, merchandise and business interruptions, among other things.

Insurance companies had paid out more than $1 billion for residential property damage claims alone as of Nov. 30, according to the latest available data for the state Insurance Division, and more than 100 insurance companies have filed suit against the state, utilities and landowners for reimbursement. Government officials and legal experts expect the claims could be many times higher when counting people who were uninsured or underinsured, along with commercial property and business losses.

HEI’s liability insurance, meanwhile, amounted to $165 million, of which $75 million has been paid to the death and injury victims’ fund and $34.9 million had been used for legal fees.

“You’ve got to realize that the death cases are a tiny fraction of the lawsuits that will be filed because there are thousands and thousands of property damage claims,” said Mark Davis, a Honolulu trial lawyer who is part of a liaison committee of lawyers representing victims. “The value of these claims will be staggering compared to the amount of what’s been put aside in this settlement fund.” 

Utility Parent Considering ‘Securitization’ To Pay Claims

In a statement, Green said the first phase of the One Ohana Fund was “deeply personal to me” and that he “wanted to create it for humanitarian reasons.” As a result much attention has focused on that fund, designed to get money to people who need it quickly or who want to settle claims and move on with their lives rather than waiting years to resolve litigation that could produce nothing for them.

But officials are also looking ahead to the next chapter, the creation of what some are referring to as “Fund 2.”

“We are actively working to develop Phase Two of the fund, that will address property damage from the fires,” Green added. “We’ll share more about that in coming weeks.”

In the meantime, Hawaiian Electric Industries has offered some insights into how it might raise money to pay wildfire claims. While HEI and its Hawaiian Electric Co. utility subsidiary aren’t the only corporate defendants, they’re at the center of the litigation because fallen live power lines are alleged to have sparked the fires. The vast majority of Hawaii residents are HECO customers, so any increase in electric bills to cover wildfire property damage claims would be passed on to them – analogous to a tax increase.

One tool the utility is considering, HEI’s presidents and chief executive Scott Seu told investors during a recent earnings call, is “securitization.” That’s finance jargon for what’s essentially a fee tacked on to utility bills to pay off bonds issued by companies to raise cash.

The company has drafted bills submitted in the Legislature to legalize utility fee securitization. Green also includes securitization as part of sweeping wildfire mitigation bills in his legislative package. 

While the measures all envision using funds raised from securitization to cover costs related to wildfire mitigation in the future, Seu earlier this month told Wall Street investment analysts that the company also is eye-balling such money as part of a second fund to cover wildfire property damage.

There are “active discussions happening right now with respect to claims dealing with property damage, business losses and the like,” Seu said during the Feb. 13 earnings call. “So the long and short of it is the bills are predominantly forward-looking, albeit there is still capacity to think about funds, securitization and the like, which could possibly apply towards past claims.” 

Seu added that funds raised through securitization might be used to finance a second One Ohana fund for property claims, which he referred to as “Fund 2.” 

“There are any number of options available when you consider what the sources of funding might be, which could include, for example, anything ranging from securitization if it’s deemed appropriate,” he said. 

In an email, Jim Kelly, HECO’s vice president for government and community relations and corporate communications, said, “Asking customers to contribute would be one of the last options.”

Lawmakers are also reluctant to allow the utility to saddle ratepayers with the cost of wildfire claims. A Hawaii Senate committee recently tacked on a slew of requirements HECO would have to meet, including a major restructuring, if the company were allowed to impose new fees on its 460,000 customers to raise money through securitization.

Rep. Nicole Lowen, who chairs the House Energy and Environmental Protection Committee, is also concerned about customers footing the bill for wildfire damage claims. 

“I think now more than ever our job is to protect the ratepayer and act in the public interest,” she said.

Lowen said she had been frustrated that utility executives won’t say how much extra customers could expect to pay. At the very least, she said, the company should be able to provide a schedule showing how much securitization would cost customers under various scenarios.

“We should be able to know, if the bond is ‘X’ amount, then the impact on ratepayers should be ‘Y,’” she said.

Hawaiian Electric also is considering “shareholder contributions” to raise money for Fund 2, Seu said. That would likely mean raising cash by issuing new shares of HEI stock. The move could spare customers the costs of new fees. But diluting the stock would likely further drive down the value of existing HEI shares, which have lost about two thirds of their value since before fires. HEI shares closed at $12.66 on Friday compared to $37.36 on Aug. 7, the day before the fires.

HEI is still figuring out funding sources for Fund 2. 

“It could include use of insurance funds,” Seu told investors. “Governor has also mentioned potential philanthropy. So I’d say that for Fund 2 … we’re working through a number of different options.”

Some say the company needs to take a bolder step, such as the one Hawaiian Airlines took when it filed for bankruptcy protection in 2003 and .

Utilities have many options for raising cash, says , co-managing partner partner with the law firm ASK LLP. A former lawyer with the bankruptcy law powerhouse , Neiger also helped negotiate a $12 billion settlement for victims of the Paradise wildfires in California.

Neiger said that a utility holding company like HEI typically can raise money through loans, an equity investor or a sale of assets. But HEI’s options now are limited because of the lawsuits it faces, Neiger said.

Bills pending in the Legislature could help shore up HEI’s financial profile and reduce liabilities from future catastrophic wildfires, which could make it easier for the company to raise cash from private parties.

For example, a could be infused with cash from the state as well as major landowners and utilities and used to pay for catastrophic wildfire damages. Laying out the need for such a fund, the bill paints the grim scenario now facing Hawaii.

“Litigation regarding wildfire damages can impose massive costs, including on the State, counties, utilities, landowners, and other defendants that may be alleged to have contributed to catastrophic wildfires,” it says. “Such costs can overwhelm these major institutions of the community, undermining their ability to make investments that the State needs.

“Even the possibility of litigation regarding a future catastrophic wildfire can create a cloud of uncertainty that threatens to impair the ability of these entities to attract capital on reasonable terms — capital that is vital to make investments in wildfire prevention, among other priorities,” it adds. “Such an outcome harms everyone.”

Still, some say such policy solutions will only go so far in shoring up the financial and risk profiles of entities like HECO to a point where it can attract new private money. Neiger said a holistic restructuring under the protection of a federal bankruptcy court with plaintiffs at the table along with creditors and an independent trustee could provide the best option for finding a new investor. 

“If you know how to use bankruptcy, it really is a good tool,” he said. 

Davis agreed.

“These issues will never be resolved until there’s new money coming in,” he said. “And that will never happen until there’s a bankruptcy petition.”

Civil Beat’s coverage of Maui County is supported in part by grants from the Nuestro Futuro Foundation.