Hawaiian Electric Plunges Following Maui Fire Class Action Lawsuit
Hawaiian Electric Industries, Inc. (NYSE: HE) had one of its worst weeks after it was reported that Maui Electric, an electric utility subsidiary which serves Maui, knew that taking the extreme step of shutting down the power on Maui would be effective in limiting the spread of wildfires, but decided not to take that action.
Specifically, weather forecasters warned the utility’s management four days before fires destroyed much of Maui, and particularly the historic town of Lahaina, that powerful wind gusts could cause dangerous fire conditions on Maui and on other Hawaiian islands; nevertheless, utility officials did not order a power shutdown. Hawaiian Electric provides electricity to virtually all of Hawaii.
This decision may have played an important role in the rapid spread of the fire that devastated Lahaina. Indeed, the mayor of Maui County confirms that some power lines were energized when they hit the ground.
Not surprisingly, a class-action lawsuit was filed on August 12 against Hawaiian Electric. The suit alleges that the destruction “could have been avoided” had the utility simply shut down the power before the winds turned Maui into a tinderbox. Other U.S. states prone to wildfires, most prominently California, have adopted this strict strategy during times of high wildfire risk.
In turn, the shares of Hawaiian Electric were punished when the market opened on August 14; investors pushed the stock US$11, or 34%, lower to close at US$21.46 that day. Its market capitalization was cut to US$2.35 billion.
Unfortunately, based on the financial pain that Pacific Gas and Electric, a utility which serves northern California and is a subsidiary of PG&E Corporation (NYSE: PCG), suffered as a result of the November 2018 Camp Fire, the shares of Hawaiian Electric may still have significantly more downside. The Camp Fire, which was ignited by a faulty electric transmission line and fanned by high winds and helped by drought conditions, caused at least 85 casualties. The Camp Fire left an estimated US$16.5 billion in damages.
Pacific Gas & Electric was forced to file for Chapter 11 bankruptcy protection because of the fire. It emerged from bankruptcy protection in mid-2020. As part of its bankruptcy plan, Pacific Gas & Electric paid wildfire victims around US$20 billion.
The death toll from the Maui fire is tragically higher than that of the Camp Fire; it is now 114, and this total is expected to continue to grow, with some locals suggesting it is as much as four times as much. In addition, local Maui officials say the cost to rebuild Maui may be around US$5.5 billion.
Of course, the financial future for Hawaiian Electric shareholders will depend on whether any liability will be confined to its Maui Electric subsidiary. The key question for litigants will be whether they can prove that corporate officials played a role in the decision not to shut off the power. If that can be proved affirmatively, the implications for the stock of Hawaiian Electric could be quite dire.
In any event, handicapping the outcome — which will be either bad or disastrous for Hawaiian Electric stock — seems impossible at this juncture. n summary, the risk-reward situation for Hawaiian Electric shareholders seems biased toward the downside.
Hawaiian Electric Industries, Inc. last traded at US$13.77 on the NYSE, down nearly 65% over the last month.
Information for this story was found via Edgar and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
