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Still reeling financially from the devastating wildfires that killed at least 102 people and destroyed much of Lahaina in 2023, Hawaiian Electric Co. wants the state to back the utility’s contracts with wind and solar farms.

The idea is to make sure new projects can come online despite a cloud of uncertainty in financial markets over HECO. 

Rebecca Dayhuff Matsushima, HECO’s vice president for resource procurement, said the company hasn’t finished revising proposed legislation for lawmakers to introduce. But she acknowledged the company has been briefing key lawmakers on its proposal ahead of the legislative session that starts in January.

“We’re still refining that draft and we hope to get close to a final version later this week,” she said.

The idea is for the state to step into HECO’s shoes if the company were to default on payment obligations to wind and solar farms.

At stake, Matsushima said, is the ability for HECO to seamlessly bring online large-scale renewable projects to replace aging fossil-fuel burning generators targeted to shut down in the next several years.  

“Utility scale projects are being put on hold left and right,” said , managing attorney for Earthjustice’s regional office in Honolulu. “Right now, we’re completely stalled out.”

Hawaii Rep. Nicole Lowen, chair of the House Energy and Environmental Protection Committee, said HECO’s proposal makes sense conceptually as a solution and should pose little or no risk to utility customers or taxpayers. 

“But,” Lowen said, “the devil is always in the details.”

Contracts Are Key Part Of Hawaii’s Energy Policy

calls for all electricity sold in the state to be produced from renewable resources by 2045. To achieve that goal, HECO relies on third-party “independent power producers” to build large-scale projects — chiefly wind and solar farms, which require massive investments recouped over decades.

To pay for the projects, the power producers enter long-term contracts with HECO to buy electricity for a certain price. The producers then borrow money to pay for the projects up front, with a promise to use payments from HECO to repay the loans.

The problem is HECO’s credit profile, which was battered after the August 2023 wildfire. The company faces hundreds of lawsuits related to the fire, which was started when a downed HECO power line ignited dry grasses, according to official investigations. As a result, the company’s stock price has plummeted, and its credit rating has been cut to junk status.

That’s made it hard for the power producers to borrow money when they go to credit markets saying their customer is a utility facing billions of dollars in potential liability.

“Independent Power Producers (‘IPPs’) have expressed concerns with the Hawaiian Electric’s credit rating and the inability of the IPPs to finance projects or to finance them at reasonable rates given the Company’s current credit rating and financial situation,” the company explains in a document shared with lawmakers and others.

Securitization 2.0?

The problem has lingered since last session, when it started becoming clear that fallout from the fires was affecting Hawaii’s progress toward its renewable energy goals.

At that time, lawmakers proposed  to enable HECO to strengthen its credit profile by letting it issue . Unlike other types of corporate debt, the new bonds could have been secured by a new fee charged directly to utility customers. 

and are frequently used by utilities to raise money because they bear lower interest rates than standard corporate debt. The securitization bill along with other measures theoretically would have shored up HECO’s credit profile and could have made it easier for the power producers to borrow money at low rates to finance their projects. Supporters included producers like  and , as well as the , which invests in renewables.  

But some lawmakers viewed the securitization bill as an open-ended bailout for HECO and sought sweeping changes from the utility in return. The measure took another political hit when HECO’s chief executive, Shelee Kimura, testified that HECO might use funds from securitization to pay wildfire claims as a last resort. The measure ultimately stalled.

The new idea is a narrower proposal to backstop HECO’s renewable energy contracts using the state’s creditworthiness.

“With the state’s ability to step into the utility’s place, it is likely that financing parties will view contracts with the utility as being supported by the investment grade credit rating of the state instead of the utility, avoiding higher bills and risks to reliability,” the company says in its presentation. 

As envisioned, the proposal would mean little risk to the state if it had to step into HECO’s shoes, Lowen said.

Electricity generated by the power producers would go to customers who would pay for it. But instead of that money flowing through HECO to the power producers, the money would flow through the state.

But Lowen said it’s unlikely the state would have to step up for HECO.

And HECO’s fortunes soon may change dramatically. The utility and its parent, Hawaiian Electric Industries, have joined other defendants in the massive wildfire litigation to craft a $4 billion offer designed to settle all wildfire claims. While the fire victims have agreed to settle, the insurance industry remains a major holdout. Having paid more than $2 billion in wildfire claims to victims, the insurers want to sue HECO and others allegedly responsible for starting the fires to recoup their claims.

The Hawaii Supreme Court is expected to rule next month on whether the parties can settle without the insurers signing on.

In the meantime, HECO’s Matsushima said it’s important to give the power producers confidence to invest in Hawaii. Permits for existing fossil fuel generators on Maui and the Big Island are set to expire in 2028 and additional projects on Maui are heading toward obsolescence in 2030 and 2031. Oahu generators face no deadlines, but there is room for expansion, she said.

It benefits customers to get renewable projects on track to ensure customers reliable access to electricity from clean resources at good prices, Matsushima said.

“This definitely is something we should be looking at,” Earthjustice’s Moriwake said.