Executive Summary / Key Takeaways

• Hawaiian Electric Industries (HEI), through its primary utility subsidiary Hawaiian Electric, is undergoing a significant transformation driven by the imperative to resolve Maui wildfire liabilities and accelerate the transition to a resilient, decarbonized grid for Hawaii.
• A definitive settlement agreement for wildfire tort claims, totaling $1.99 billion from HEI/Hawaiian Electric, provides critical clarity, with the first of four annual installments expected in early 2026, supported by recent liquidity enhancements including an equity raise and the sale of American Savings Bank.
• The company is strategically simplifying its structure by divesting non-utility assets like American Savings Bank and Pacific Current holdings to focus solely on regulated utility operations, aiming to strengthen the balance sheet and improve financial flexibility.
• Significant capital investments are planned, particularly for wildfire safety ($450 million estimated for 2025-2027 CapEx) and clean energy integration, supported by legislative efforts like securitization authorization and state financial backstops for IPPs, which are crucial for managing costs and attracting necessary capital.
• While recent financial results reflect the impacts of wildfire-related costs and strategic divestitures, core utility operations show signs of improvement driven by regulatory mechanisms and operational efficiencies, with management targeting a return to investment-grade credit ratings as a key financial objective.

Setting the Scene: Hawaii's Grid at a Crossroads

Hawaiian Electric Industries (HEI) stands as the parent company to Hawaiian Electric, the primary electric utility serving 95% of Hawaii's population across five island grids. For generations, Hawaiian Electric has been the backbone of the state's energy infrastructure, operating as a regulated monopoly with a fundamental mission to provide reliable and affordable power. However, this long-standing role is now defined by an urgent, dual mandate: addressing the profound impacts of the devastating August 2023 Maui wildfires and accelerating Hawaii's ambitious transition towards a 100% renewable portfolio standard (RPS) and net-negative carbon emissions by 2045.

The competitive landscape for Hawaiian Electric is unique. While it operates as a regulated monopoly within Hawaii, its performance and strategic direction are increasingly benchmarked against larger mainland U.S. utilities like Duke Energy (DUK), Southern Company (SO), NextEra Energy (NEE), and PG&E Corporation (PCG). These peers, while operating at vastly different scales and in diverse geographies, face similar industry-wide challenges: grid modernization, integrating intermittent renewable sources, enhancing resilience against extreme weather, and managing significant capital investment programs.

Compared to these peers, Hawaiian Electric operates in a geographically isolated, island environment, presenting unique operational and technological challenges and opportunities. Its grid infrastructure must be particularly resilient against natural disasters common to the Pacific. The company is actively deploying advanced technologies to enhance situational awareness, such as AI-enhanced video cameras and weather stations (55 deployed, 39 cameras installed), and implementing grid hardening measures including upgrading poles, installing covered conductors, sparkless fuses, and smart reclosers. These technologies are critical for improving reliability and safety, particularly in wildfire-prone areas. While direct quantitative comparisons of the benefits of these specific technologies against peers are not readily available, the strategic intent is clear: to leverage technology for enhanced resilience and operational control in its unique island environment. The company's commitment to integrating distributed energy resources (DER) and grid-scale renewables requires sophisticated grid management technologies, including advancements in battery energy storage systems (BESS) and Demand Response (DR) programs like the Emergency Demand Response Program (EDRP), which has approved capacity totaling over 58 MW across Oahu and Maui. This focus on integrating high levels of renewables is a key technological differentiator driven by state mandates, positioning Hawaiian Electric at the forefront of island grid decarbonization, though it faces challenges in the pace of deployment compared to some mainland peers like NextEra Energy, which has achieved faster renewable integration at scale.

Historically, HEI also included a banking segment (American Savings Bank - ASB) and a sustainable infrastructure investment segment (Pacific Current). However, in the wake of the Maui wildfires, a strategic decision was made to simplify the corporate structure and focus on the core regulated utility business. This strategic pivot is central to the company's efforts to regain financial strength and navigate the significant liabilities arising from the wildfires.

Addressing the Wildfire Aftermath and Charting a Financial Course

The August 2023 Maui wildfires inflicted a devastating human toll and caused widespread property damage, including to utility infrastructure. This event triggered numerous lawsuits and fundamentally altered the company's risk profile and financial outlook. In response, HEI and Hawaiian Electric prioritized resolving the tort litigation and strengthening their financial position.

A significant milestone was reached with the definitive settlement agreement for the wildfire tort claims, effective November 1, 2024. Under this agreement, HEI and Hawaiian Electric will contribute a total of $1.99 billion. This settlement provides crucial clarity regarding the magnitude of the liability, a stark contrast to the prior period of uncertainty. The payment structure involves four equal annual installments of approximately $479 million. Progress towards finalizing this settlement continues, bolstered by a favorable Hawaii State Supreme Court decision in February 2025, which ruled that insurers seeking recovery from settling plaintiffs are limited to asserting liens against policyholder recoveries. Management anticipates the remaining court administrative steps will be completed, triggering the first settlement payment, in early 2026.

To bolster liquidity and fund the initial settlement payment, HEI undertook several strategic financial actions. In September 2024, HEI completed a common stock offering, raising approximately $557.7 million in net proceeds, specifically intended to fund the first settlement installment and for general corporate purposes. An at-the-market (ATM) equity offering program for up to $250 million was also established, providing additional financial flexibility, though no shares have been issued under this program as of the latest filing. Further strengthening the balance sheet, HEI completed the sale of 90.1% of American Savings Bank on December 31, 2024. This transaction yielded approximately $380 million in net proceeds, which were subsequently used in April 2025 to repay $384 million of holding company senior notes. At the utility level, a $250 million accounts receivable-backed credit facility (ABL Facility) became effective in July 2024, adding another layer of liquidity, and remained undrawn as of March 31, 2025. These actions collectively addressed the substantial doubt about the company's ability to continue as a going concern that was disclosed in the wake of the wildfires.

As of March 31, 2025, HEI consolidated reported total available liquidity of approximately $1.23 billion, including cash and available credit facilities. The first $479 million settlement payment is held in restricted cash. While management believes current liquidity is sufficient to fund operations and the first settlement installment, they are actively working on financing plans for the remaining $1.44 billion settlement liability, which will involve a combination of debt and equity, with a stated goal of returning to investment-grade credit ratings as a key financial objective. This objective will heavily influence future financing decisions and capital structure management.

Performance and Operational Transformation

Recent financial performance reflects the complex environment the company is operating within. For the first quarter of 2025, HEI reported consolidated net income of $26.7 million ($0.15 per share). This figure includes a $13.2 million pretax loss on the sale of the Hamakua power plant (a Pacific Current asset) and $4.5 million in net wildfire-related expenses. Excluding these items, core net income was $39.8 million ($0.23 per share), an increase from $28.4 million ($0.26 per share) in the first quarter of 2024 (continuing operations). The per-share decrease despite higher net income is due to the significant increase in outstanding shares following the September 2024 equity offering.

The Electric Utility segment, the core of the business, saw its core net income increase to $49.7 million in Q1 2025, up from $44.2 million in Q1 2024. This improvement was driven by factors including better heat rate performance, higher revenues from the Annual Revenue Adjustment (ARA) mechanism under the performance-based regulation (PBR) framework, and lower bad debt expense. These gains were partially offset by increased wildfire mitigation program expenses and higher insurance costs. Utility revenues decreased year-over-year, primarily due to lower fuel oil prices, although this was partially mitigated by a 3.1% increase in kWh sales volume, reflecting warmer weather and economic recovery, particularly a 7.7% increase in Maui consumption.

The "All Other" segment, which includes holding company operations and the remaining Pacific Current assets, reported a lower core net loss of $9.9 million in Q1 2025 compared to $15.8 million in Q1 2024. This improvement was largely attributable to higher interest income earned on the significant cash balance held at the holding company level. The sale of the Hamakua power plant in March 2025, while resulting in a one-time loss on sale, is part of the strategic simplification aimed at focusing on the utility business.

The company is making substantial investments in its utility infrastructure. The 2025-2027 Wildfire Safety Strategy is estimated to cost $450 million, with approximately $400 million allocated to capital expenditures. These investments are critical for grid hardening, enhancing operational procedures (including the Public Safety Power Shutoff program launched in July 2024), and improving situational awareness through technology. Management forecasts total utility capital expenditures for 2025 to be moderately higher than 2024, in the $350 million to $375 million range, with additional CapEx opportunities projected for 2026 and 2027 (adding $150M-$175M and $200M-$250M respectively, including baseline, wildfire safety, and approved EPRM projects).

Progress on the clean energy transition continues, with the utility achieving a 36% RPS in 2024, up from 33% in 2023, remaining on track for the 40% goal by 2030. Key initiatives include the Integrated Grid Planning (IGP) process, development of Demand Response programs, and the ongoing procurement of renewable energy and storage through RFPs. However, the path is not without challenges, as delays and cancellations in independent power producer (IPP) projects due to supply chain issues, cost increases, and financing concerns have impacted the pace of transition. Recent legislation (SB 1501) authorizing a state financial backstop for IPPs aims to mitigate these financing risks and support continued renewable development.

The regulatory environment remains a critical factor. The PBR framework, effective since 2021, governs utility revenues and incentives. The Earnings Sharing Mechanism (ESM) under PBR, which adjusts utility earnings based on achieved ROACE, was temporarily suspended by the PUC in August 2023. A significant upcoming event is the rebasing of utility target revenues for the next multiyear rate period (MRP2), commencing January 1, 2027. This will involve a rate case-like proceeding, with the utility planning to file an application later in 2025 using a 2026 test year. This process will also review potential modifications to the PBR framework, including elements like the allowed ROE and equity ratio, offering an opportunity to align the regulatory framework with the current financial and operational realities.

Risks and Outlook

Despite the significant progress, HEI and Hawaiian Electric face substantial risks. The potential for liabilities from ongoing litigation (securities and derivative actions) remains, although the tort settlement provides clarity on that front. The ability to secure adequate and affordable insurance coverage, particularly for wildfire risk, is a key challenge. Access to capital markets on favorable terms, while improved, is still impacted by credit rating downgrades, posing a risk to financing the remaining settlement payments and necessary capital investments. Regulatory decisions regarding cost recovery for wildfire mitigation, retired assets, and future investments, as well as the outcome of the PBR rebasing process, will significantly impact financial health. Extreme weather events continue to pose operational and financial risks, potentially exacerbating wildfire risk. Supply chain constraints and trade policies could delay renewable projects and increase costs.

However, management expresses optimism about the future, believing the investment thesis is stronger now than at any point since the Maui wildfires. The clarity provided by the tort settlement, the strategic focus on the regulated utility, and the proactive measures taken to enhance liquidity and strengthen the balance sheet are seen as foundational for future stability. Key forward-looking indicators include the finalization of the settlement in early 2026, the execution of financing plans for the remaining settlement payments and robust CapEx program, and the outcomes of the PBR rebasing and ongoing regulatory proceedings. The reinstatement of the utility dividend to HEI for Q1 2025 signals improving financial health at the utility level. The passage of legislation authorizing a study on a wildfire liability cap and securitization for CapEx is viewed as a positive step towards mitigating future risks and managing costs.

Conclusion

Hawaiian Electric Industries is navigating a period of profound transformation, marked by the imperative to address the legacy of the Maui wildfires while simultaneously pursuing a clean energy future for Hawaii. The definitive settlement agreement for wildfire tort claims provides a clear path forward on a major liability, supported by strategic financial maneuvers that have significantly bolstered liquidity and simplified the corporate structure. The focus is now firmly on the regulated utility, with substantial planned investments in grid resilience and renewable energy integration, underpinned by supportive legislative developments aimed at managing costs and attracting capital.

While challenges remain, particularly regarding future financing, insurance, and regulatory outcomes, the company's proactive steps to enhance financial flexibility and improve its operational risk profile position it to pursue its strategic objectives. The upcoming PBR rebasing process will be critical in shaping the utility's financial framework for the coming years. For investors, the story is one of a utility undergoing a necessary, albeit challenging, transformation, with key milestones like settlement finalization, successful financing execution, and favorable regulatory decisions serving as critical indicators of its progress towards long-term stability and the realization of Hawaii's clean energy goals.