Hawaiian Electric Industries, Inc. (HE) is a diversified holding company that provides essential services to the people of Hawaii through its electric utility and banking subsidiaries. With a strong commitment to sustainability and community resilience, HEI is navigating the complex landscape of the Maui wildfires while driving progress towards a decarbonized energy future.

Financials

In the fiscal year 2023, HEI reported consolidated net income of $201.1 million on revenues of $3.68 billion. The company's annual operating cash flow stood at $551.5 million, while its free cash flow reached $103.2 million. These financial metrics demonstrate HEI's ability to generate consistent cash flows and invest in strategic initiatives to support its long-term growth.

The first quarter of 2024 saw HEI earn consolidated net income of $42.1 million, or $0.38 per share. This result included $7.2 million in after-tax expenses related to the Maui wildfires, net of insurance recoveries and deferrals. Excluding these impacts, HEI's core net income and earnings per share were $49.3 million and $0.45, respectively, compared to $54.7 million and $0.50 in the first quarter of 2023.

The Maui Wildfires: Navigating the Aftermath

The devastating Maui wildfires that occurred in August 2023 have had a significant impact on HEI and its subsidiaries. The company continues to work closely with key stakeholders to support the community's recovery efforts, including the launch of the Governor's One 'Ohana Initiative.

As of May 9, 2024, HEI and its Hawaiian Electric subsidiary have been named as defendants in approximately 400 lawsuits related to the Maui wildfires. Subrogation claims from around 160 insurers have also been filed. The Maui Circuit Court has set trial dates for several cases, with the first set for September 2024 and the second for November 2024. HEI is unable to reasonably estimate the potential loss or range of loss from these legal proceedings at this time.

To address the ongoing challenges, HEI is pursuing various strategies to strengthen its financial position and ensure the continued reliability of its services. The company is exploring additional sources of liquidity, including a proposed utility accounts receivable financing facility that is currently awaiting regulatory approval. Additionally, HEI is working with financial advisors to maximize available liquidity and believes it has adequate cash to meet its financial obligations and sustain operations in the short term.

Driving Towards a Sustainable Energy Future

Despite the challenges posed by the Maui wildfires, HEI remains steadfast in its commitment to leading Hawaii's transition to a decarbonized and sustainable energy future. The company's electric utility subsidiary, Hawaiian Electric, is making significant progress on its climate action plan, which aims to reduce carbon emissions from power generation by 70% by 2030, compared to a 2005 baseline.

In the first quarter of 2024, over 35% of Hawaiian Electric's capital budget, or nearly $120 million, was dedicated to wildfire mitigation work. The utility is implementing enhanced wildfire operational strategies, including a public safety power shutoff program, and investing in advanced technologies to improve situational awareness. These efforts are part of the utility's longer-term wildfire safety strategy, which is being developed in collaboration with the community and other stakeholders.

Hawaiian Electric's renewable energy efforts have also continued to advance, with several projects from the Stage 1 and Stage 2 renewable energy requests for proposals reaching commercial operation. The utility is also actively pursuing federal funding opportunities, such as the Infrastructure Investment and Jobs Act, to support its grid modernization and resilience initiatives.

The Inflation Reduction Act of 2022 has also provided new opportunities for HEI, as the company explores clean energy tax incentives that may further reduce the utility's recovery costs and benefit customers.

Diversified Business Model and Resilient Performance

Alongside its electric utility operations, HEI's banking subsidiary, American Savings Bank (ASB), has continued to perform well. In the first quarter of 2024, ASB's net income benefited from higher net interest margin, resulting from the strategic balance sheet repositioning executed in the fourth quarter of 2023. The bank also released a portion of the reserves initially taken following the Maui wildfires, reflecting the resilient economy and better-than-expected outlook.

As of March 31, 2024, ASB's regulatory capital ratios remained well above the "well-capitalized" levels, and the bank maintained a low-risk profile with a straightforward community banking business model. Approximately 86% of ASB's deposits were FDIC insured or fully collateralized, providing a strong foundation for the bank's operations.

HEI's diversified business model, with both regulated utility and banking operations, has helped the company navigate the challenges posed by the Maui wildfires. The utility's decoupling mechanism and various regulatory mechanisms, such as the annual revenue adjustment and exceptional project recovery mechanism, have provided some stability during this period.

Risks and Challenges

While HEI has demonstrated resilience in the face of the Maui wildfires, the company continues to face significant risks and uncertainties. The potential liabilities and damages related to the wildfires and the ongoing legal proceedings remain a significant concern, as the ultimate outcome and financial impact are still unknown.

Additionally, the company's credit rating downgrades following the wildfires have adversely impacted its ability to access capital markets and other sources of debt financing on favorable terms. This, in turn, could affect the company's ability to fund its capital expenditures and investments, including those related to wildfire mitigation and grid modernization.

The economic impact of higher fuel prices, inflation, rising interest rates, and geopolitical tensions also create uncertainty for HEI's operations and financial performance. The company's ability to manage these challenges and maintain its financial stability will be crucial in the coming years.

Conclusion

Hawaiian Electric Industries, Inc. is navigating a complex landscape as it addresses the aftermath of the devastating Maui wildfires and continues to drive progress towards a sustainable energy future for Hawaii. The company's diversified business model, with both regulated utility and banking operations, has provided some stability during this challenging period.

HEI's commitment to community resilience, grid modernization, and renewable energy integration is evident in its strategic initiatives and capital investments. While the company faces significant risks and uncertainties, its focus on operational excellence, financial discipline, and collaborative stakeholder engagement positions it well to overcome the current challenges and deliver long-term value for its shareholders.

As HEI continues to navigate the path forward, investors will closely monitor the company's ability to manage the legal and financial implications of the Maui wildfires, as well as its progress in transitioning to a decarbonized and resilient energy system for the people of Hawaii.