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Hawaiian Electric stock plunges (story update); compounded by lawsuits and public outrage

Investors Sue Hawaiian Electric For ‘Misleading’ Them About Potential Liability For Wildfire

Breaking News – Aug. 25, 2023

Hawaiian Electric faces another lawsuit in a mounting set of legal actions against the Hawaii-based utility.  Latest is an investor-lawsuit which joins a growing list of lawsuits which threaten utility’s future.

On Thursday, investors filed suit against Hawaiian Electric Co.’s parent company, Hawaiian Electric Industries, as well as several of its key current and former executives, alleging that the company and its top leaders violated federal securities laws.

The investor class-action suit, filed in U.S. District Court in California, seeks unspecified damages from the company and those leaders

It states that they made “materially false and misleading statements” in their filings with the Securities and Exchange Commission, and that they failed to disclose to investors that the company’s wildfire prevention protocols were “inadequate.”

Specifically, the suit names former HEI President and CEO Constance Lau, who stepped down in January 2022, as well as her successor in that role, Scott Seu.

It also names the company’s former executive vice president and treasurer, Gregory Hazelton, and Hazelton’s successor, Paul Ito, who now serves as HEI executive vice president, treasurer and chief.

HECO representatives said in a statement Thursday that “we are still reviewing the complaint and have no further comment at this time.”

Hawaiian Electric is accused of removing evidence that its power lines may have started Maui blaze in violation of national guidelines

  • Hawaiian Electric, which is facing at least nine lawsuits linked to the fires, allegedly removed evidence from a scene close to where the blaze broke out
  • The company took equipment including powerlines from a substation before investigators could comb the scene, it is claimed
  • Lawsuits against the company say it failed to switch off power before the fires broke out, despite weather conditions which meant lines could spark a blaze 

Investigators from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) – which investigates fire and arson-related crimes – arrived in Maui last week to help with the probe into how the deadly infernos began.  But by the time they arrived, utility crews had cleared equipment including damaged power lines from a key scene of the fires and moved it to a warehouse, according to a Washington Post report. The scene, a power substation Lahainaluna Road, is close where the fires are believed to have started

Hawaiian Electric, the state’s largest utility, providing power to 95% of the state’s residents, and has seen its stock price fall nearly 68% since the near total fire destruction of Maui’s fabled the town of Lahaina and lives lost.

Stock market attention quickly turned to the utility as the possible cause of the fires on Maui, partly because of videos and photos posted online by residents appeared to show power lines starting fires.  Investors quickly reacted to the bad news that the utility was facing a class-action lawsuit and as the fire death toll continues to climb which each passing day.

The class action lawsuit against the utility alleges that… Maui’s devastating wildfires were caused by the utility’s energized power lines that were knocked down by strong winds, and the deadly fire which contributed to the confirmed loss to date of over 114 lives, with another 1,000 plus lives still unaccounted. Maui officials did confirm on Friday (8-18) that the wildfire death toll has risen to at least 114, while the search for hundreds of missing people continues.

The Lahaina fire was one of four that broke out on the island on Aug. 8. Gov. Green said Friday that at least 2,200 structures have been destroyed and another 500 damaged in the blaze at an estimated cost of about $6 billion.

Maui Fire Grid Repair1Image originally published, New York Times

Earlier this week, the law firm of Singleton Schreiber filed a lawsuit against the company alleging that Hawaiian Electric’s power lines ignited the Maui fires.  The suit specifically alleges that Hawaiian Electric Industries “chose not to deenergize their power lines during the High Wind Watch and Red Flag Warning conditions for Maui before the Lahaina Fire started,” despite knowing the risks of sparking a fire in those conditions.

  • It has not yet been determined officially what started the wildfires on Maui.  In the lead-up to the fires last week, the National Weather Service in Honolulu warned. at least four times. in a series of tweets that dry conditions and strong winds posed a serious threat of fires in some areas of Hawaii.
  • According to the Western Fire Chiefs Association, electrical systems are one of the most common causes of wildfires. Despite this, Hawaiian Electric (HE) did not enforce a public safety power shutoff, a temporary pause of service to certain areas due to increased fire risk. These shutoffs are generally initiated by utility companies based on weather conditions.

“Had these utility companies handled their equipment properly, the people of Lahaina would have been better prepped and prepared to escape the flames,” Paul Starita, Singleton Schreiber’s lead Hawaii attorney, said in a statement.

Preliminary numbers from research firm CoreLogic put the residential property damages at $1.3 billion, but Hawaii Gov. Josh Green estimates the losses “approach $6 billion.”

Utility Financial and Liability Risks

In terms of financial and liability risks facing Hawaiian Electric, one significant differences between Hawaii and California laws governing utilities is that Hawaii does not apply the legal doctrine of inverse condemnation to utilities — a policy which considers the utility liable for damages caused by their equipment whether or not they were found to be at fault for it. However, Hawaiian Electric could still be found to have been negligent as investigations into the fires unfold, Moody’s said.

Like most other utilities, Hawaiian Electric doesn’t maintain insurance for most of its transmission and distribution system so will need to recover costs related to the fire through regulatory support from the Hawaii Public Utilities Commission (and eventually ratepayers), according to Moody’s.

The lawsuit filed by Singleton Schreiber in the Second Circuit Court of State of Hawaii, District of Lahaina contends that Hawaiian Electric knew that de-energizing power lines is a proven method to prevent wildfires, but “they either left their powerlines energized or, after [de-energizing] them, re-energized them too soon.”  The lawsuit further alleges that issues within Hawaiian Electric’s system and processes, including that it had exposed power lines in vegetated areas, didn’t properly maintain tension in the lines to prevent them from sagging, and didn’t properly implement vegetation management programs, all of which contributed to the utility’s failure to prevent the grid and potential contribution to the Maui fires and ignition.

Hawaiian Electric’s financial and cost recovery risks tied to the devastating wildfires in Maui that led to lives lost, and which affected more than 2,200 structures, according to a report issued by Moody’s Investors Service, resulted in the S&P Global earlier this week, and that the utility’s parent company, Hawaiian Electric Industries had been downgraded to junk status in terms of its outstanding debt.

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