Liability Cap Rulemaking (Act 258)

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Key Considerations on Affordability, Liability, Legal Rights & Processes, and the Insurance Market

In establishing the rules governing the liability cap, the Commission is required to consider a range of potential impacts, including:

• Electric utility credit ratings, borrowing costs, and customer electricity rates, including whether and how a liability cap may improve utility credit ratings and reduce borrowing costs that are ultimately passed through to customers.

• The overall affordability of electric utility service, including the potential impact of a liability cap on customer electricity rates.

• The interests of potential future plaintiffs, including how a liability cap may affect their ability to seek full recovery or damages.

• The liability exposure of potential future co-defendants for claims arising from a catastrophic wildfire.

• The legal rights of any person or entity to indemnity, contribution, and/or subrogation.

• The insurance market in the State of Hawaiʻi, including how a liability cap may affect insurance availability, pricing, and risk exposure for catastrophic wildfires.

Please provide input on how these considerations should guide the design of the liability cap. Many of these considerations are interrelated or may inherently conflict. Example considerations are outlined below to provide additional context and illustrate potential implications and interrelationships to support your response; they are not determinative or meant to limit your response:

• A liability cap is anticipated to help improve utility credit ratings and reduce borrowing costs, which are a component of the electrical rates paid by customers and would support greater affordability of utility electrical service.

• A liability cap would also reduce the possibility of a utility bankruptcy or other economic impairment resulting from potential future catastrophic wildfire liability. This would reduce the likelihood of the increased customer costs and decreased affordability that could result from such an event.

• A liability cap could adversely impact the interests of potential future plaintiffs by limiting their ability to fully recover their damages resulting from a catastrophic wildfire.

• A liability cap could adversely impact potential future codefendants. Act 258 expressly prohibits the reallocation to a codefendant of liability that is unrecoverable from an electrical utility due to the existence of the liability cap. However, it is conceivable that in practice the existence of a liability cap applicable only to electrical utilities could cause plaintiffs or other parties to seek to effectively shift additional liability to codefendants.

• Similarly, a liability cap could adversely impact the legal rights of other parties to seek compensation from an electrical utility, which they would otherwise be entitled to.

• A liability cap could potentially have negative effects on the insurance market in the State of Hawaiʻi by limiting insurers’ ability to recover damages from electrical utilities and thus increasing their wildfire risk exposure.

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Impacts on Requirements for Electric Utilities

Act 258 requires the Commission to consider how the establishment of a liability cap will affect the requirements of electric utilities to:

• Maintain or improve the quality of service to the electric utility’s customers.
• Improve the management of the electric utility doing business in the State.
• Meet state policy goals for clean energy and climate.
• Implement wildfire mitigation plans and improve safety.
• Improve interconnection costs and timeliness.

Act 258 also requires the Commission to consider “The restriction or reduction of compensation packages and bonuses to officers and employees of the electric utility.”

Please provide input on how these considerations, including connections to those discussed in Part 1 above, should guide the design of the liability cap.

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Conditions Which Will Support the Public Interest

The Commission is required to include conditions to ensure that the establishment of the liability cap is consistent with the public interest. These must include annual compliance reporting requirements and procedures for corrective actions if the electric utility is not in compliance.

Please take into account the mandated considerations on potential liability cap impacts on stakeholders (Part 1 above) and requirements for electrical utilities (Part 2 above) when providing input.

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Technical Liability Cap Design

Act 258 requires the Hawaiʻi Public Utilities Commission (PUC) to adopt rules establishing the “maximum amount that each electric utility may pay to resolve claims arising from any covered catastrophic wildfire … without harming ratepayers or materially impacting each electric utility's ability to provide adequate and safe service consistent with the public interest.” (Act 258, Part 1, Section 1; HRS §§ 269-27.9 (a) – (b))

In establishing a liability cap, the Commission is required to determine:

• Whether the maximum payable amount should be applied over a specified period of time or on a per-event basis; and
• How the maximum payable amount shall be determined: as a flat dollar limit, on a scaled basis relative to various measures of a specific utility's size, or other approaches, including hybrid models drawn from other wildfire-prone states.

Taking into account the specific requirements above and the previously covered mandated considerations on potential liability cap impacts on stakeholders and requirements for electrical utilities, we are seeking input on the following questions. Responders are encouraged to share perspectives, examples, data, or lived experiences, and to highlight where tradeoffs may exist. Many of these considerations may involve tradeoffs between affordability, accountability, and access to recovery. Respondents are encouraged to identify and comment on these tradeoffs.

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Community, Culture, and Trust

Public trust is essential to the legitimacy and long-term effectiveness of the Act 258 reforms. The Commission is seeking input on how the liability cap design process can meaningfully incorporate community voice and values. Individuals and organizations affected by the Lahaina disaster are particularly encouraged to share what they have learned from the post-disaster experience, including what worked, what did not, and what should inform the liability cap design process. This input will help ensure the liability cap design reflects community priorities, lived experiences, and long-term trust in the process.

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Interaction with a Potential Recovery Fund

The liability cap and a potential wildfire recovery fund are related but distinct policy tools. This section seeks input on how the design of the liability cap should consider that potential future interaction.

The Wildfire Recovery Fund Study found that a wildfire recovery fund, while likely warranted in the future in some form, should not be designed without also addressing the interconnected consideration of a liability cap design. Your input is requested on how the design of the liability cap should be designed, considering the connection to a prospective wildfire recovery fund. Your input will directly inform how the Commission considers the relationship between these two policy tools in future rulemaking.