Opinion | Hawaii’s Electric Utility Could Soon Feel the Burn

Hawaiian Electric Industries, the monopoly utility serving the Aloha State, is the defendant in a host of class-action and mass-tort lawsuits related to the devastating Lahaina wildfire in Maui on Aug. 8, 2023. The fast-moving fire killed nearly 100 people. Hawaiian Electric now faces more than a dozen separate lawsuits citing negligence in maintaining its infrastructure. One of its shareholders has also filed a derivative suit in the U.S. District Court for the Northern District of California against the company’s executives, former executives and board members.

Hawaiian Electric’s alleged mismanagement runs deeper than “accidental” negligence. The utility is both a monopolist and monopsonist within Hawaii’s power market. This resulted in its management’s failure to invest in proper risk mitigation measures and essential upgrades to the state’s electric grid. The tragedy was waiting to happen.

While plaintiffs seeking damages certainly deserve justice, the longer-term solution is to ensure tragedy doesn’t recur. Only greater competition within Hawaii’s energy market can deliver that result. Residents, lawmakers and Hawaiian Electric’s creditors must insist on it.

Hawaiian Electric has an extensive record of allegedly trying to stifle competition. In one egregious example, Hu Honua Bioenergy—a biomass power supplier—claimed in an amended 2023 complaint to a 2016 lawsuit that the utility engaged in a “straw purchase” scheme of rival Hamakua Partners’ power plant. In November, Hu Honua filed a motion in federal court seeking leave to file this amended complaint, which streamlines and updates its earlier lawsuit. Hu Honua is awaiting approval from a federal judge to proceed with its case. A Hawaiian Electric spokesman told Honolulu Civic Beat that the company had no comment on the claims made in the suit.

In its amended filing, Hu Honua is seeking more than $1 billion in relief from the utility under both federal antitrust laws and Hawaii state law. Operations at Hu Honua’s power plant on the island of Hawaii have long been delayed due to Hawaiian Electric’s allegedly anticompetitive conduct, including, Hu Honua alleges, the utility’s wrongful termination of a power purchase agreement for Hu Honua’s biomass-fueled plant. As rationale for backing out of the deal, Hawaiian Electric previously cited missed construction deadlines, which Hu Honua disputes, claiming in its amended complaint that the utility’s true intent was to “maintain and extend its monopoly.”

Hawaiian Electric’s monopoly status has put shareholders and creditors at risk. With potential damages far exceeding its self-reported $165 million annual liability insurance policy and $500 million in property-damage insurance, Hawaiian Electric is at financial risk. According to estimates from research firm Capstone, the utility faces more than $5 billion in potential damage claims. If these estimates are correct, the utility wouldn’t be able to cover 20% of the damages sought.

Further, Hawaiian Electric didn’t disclose its insurance information to the Securities and Exchange Commission in advance of the tragedy, only disclosing it to state regulators after the fire took place. This oversight has put Hawaiian Electric’s shareholders at risk, leading to a December 2023 class-action lawsuit filed by Hawaiian Electric shareholder Patrick Kallaus. The suit accuses Hawaiian Electric of misleading shareholders and breaching fiduciary duties.

Hawaiian Electric didn’t respond to a request for comment.

It’s likely that Hawaiian Electric will soon be on the hook for huge payouts. Even if investigators ultimately determine that the cause of the wildfires was accidental, the utility could still be liable under suits that claim “inverse condemnation,” which holds that governments can’t make use of private property without adequately compensating owners. In this case, regulated utilities that require the use of easement laws to build power plants and run electrical lines could be held liable for accidents that infrastructure causes. While there is no precedent for these cases being successful in Hawaii, cases related to recent wildfires in California have succeeded.

For creditors, the problem is deeper. Hawaiian Electric’s latest 10-K filing discloses $88 million in short-term debt and nearly $1.7 billion in long-term debt, of which more than $350 million is due to be paid out over the next five years. Many of the holders of these long-term bonds are teachers’ pensions and life-insurance companies. Their beneficiaries may also be affected by the utility’s alleged mismanagement.

Hawaiian Electric’s largest bondholders, according to SEC filings, include the Teachers Insurance and Annuity Association of America, Northwestern Mutual Life Insurance Co., Southern Farm Bureau Life Insurance Co., Reliastar Life Insurance Co., and Woodmen of the World Insurance Society.

Ultimately, the long-term solution for the financial health of Hawaii and the customers served by Hawaiian Electric is for management to welcome greater competition. Hawaiian Electric’s mismanaged monopoly has failed. The utility’s management and board of directors must chart a healthier financial course.

Mr. Moss is founder and former president of RAM Management Group and former member of the New York Merc.