Executive Summary / Key Takeaways

• Hawaiian Electric Industries ($HE) is strategically focusing on its core regulated electric utility operations after divesting its banking segment and reviewing other non-core assets, aiming for a simpler business model and enhanced financial flexibility.
• Significant progress has been made towards resolving the Maui wildfire tort litigation through a $1.99 billion settlement, with the first $479 million installment expected in early 2026, supported by pre-funded capital and ongoing financing plans for the remaining liability.
• The utility is embarking on a robust capital expenditure cycle, targeting $350 million to $375 million in 2025 and higher levels in 2026-2027, focused on grid resilience (including wildfire mitigation), modernization, and integrating renewable energy to meet ambitious state goals.
• Key regulatory and legislative developments, including the PBR framework review, planned rate case filing in late 2025 (2026 test year), and recent legislation addressing future wildfire liability and IPP financing, are critical factors shaping the utility's financial health and operational path forward.
• While progress has been substantial, risks remain, particularly around securing long-term financing for the settlement and CapEx, navigating regulatory outcomes, managing increasing operating costs, and adapting to the evolving impacts of climate change and trade policies on supply chains.

Powering Paradise: A Utility's Evolution Amidst Challenge

Hawaiian Electric Industries, Inc. ($HE) stands as a cornerstone of Hawaii's infrastructure, primarily through its regulated electric utility segment, which serves approximately 95% of the state's population across five island grids. For decades, the company has been integral to the islands' energy needs, evolving from traditional generation to embracing ambitious renewable energy goals. This journey has been shaped by Hawaii's unique geography, environmental mandates, and the critical need for resilient infrastructure in the face of increasing climate risks.

The strategic focus is now sharpening squarely on the utility business. This pivot follows significant actions to simplify the corporate structure, notably the sale of 90.1% of American Savings Bank (ASB) on December 31, 2024, and the divestiture of certain Pacific Current assets, including the Hamakua Energy power plant on March 10, 2025. These moves are designed to streamline operations and enhance financial flexibility, particularly in the wake of the profound challenges presented by the August 2023 Maui wildfires.

In the competitive landscape, HE's utility operations benefit significantly from regulatory licenses that grant it a near-monopoly in its service territories. This provides a degree of pricing power and revenue stability not typically seen in more fragmented markets. While direct utility competition within its licensed areas is limited, HE faces competitive pressures from independent power producers (IPPs) in securing renewable generation and from national utility peers like AES Corporation (AES) and NextEra Energy (NEE) in terms of technological advancement, operational efficiency, and access to capital markets. AES, with its global scale, demonstrates greater efficiency in energy storage (e.g., 90% round-trip efficiency for its battery systems compared to HE's estimated 80-85%), while NextEra Energy exhibits faster project deployment capabilities (12-18 months for solar farms vs. HE's 24-36 months, partly due to local hurdles). In the banking sector, prior to its sale, ASB competed directly with regional players like Bank of Hawaii (BOH), which often showcased more advanced digital banking features. Post-sale, HE's competitive focus is almost entirely within the utility sphere, where its established local presence and integrated island-wide network offer advantages in customer loyalty and distribution efficiency, although geographic isolation contributes to higher operating costs compared to mainland utilities like Duke Energy (DUK).

Technological Backbone and the Drive for Resilience

At the core of HE's strategy is the modernization and hardening of its grid infrastructure, underpinned by targeted technological investments. Specific, quantifiable performance metrics for all of HE's deployed technologies were not detailed, but the company is implementing advanced meters (Phase 1 completed in 2024), AI-enhanced video cameras (39 installed), and weather stations (55 deployed) to improve situational awareness, particularly in wildfire-prone areas. The deployment of sparkless fuses, new lightning arresters, and smart reclosers are further steps aimed at increasing grid resilience and preventing ignitions.

The Integrated Grid Planning (IGP) process, with its "innovative systems approach," and the Grid Modernization Strategy (GMS) are central to enabling greater distributed energy resources (DER) and renewable energy integration. The GMS aims to "cost-effectively maximize flexibility" and "deliver customer benefits." While HE's R&D investment (estimated 1-2% of revenue) trails some national peers like AES (2-3%) and NextEra Energy (3-4%), the strategic intent is clear: leverage technology to enhance safety, reliability, and facilitate the transition to clean energy. The Emergency Demand Response Program (EDRP), a "battery storage incentive program," highlights the focus on utilizing customer-sited technology to support grid stability. The competitive analysis suggests that while HE benefits from its regulatory moat, it faces pressure to accelerate its technological adoption and R&D to match the efficiency and speed demonstrated by leading national players in renewables and grid technology.

The Wildfire Crucible and Path to Resolution

The devastating Maui wildfires in August 2023 marked a turning point, triggering significant litigation and raising concerns about the company's financial stability. In response, HE has prioritized resolving the tort-related legal claims. Effective November 1, 2024, the company entered into definitive settlement agreements totaling $1.99 billion (or $1.92 billion net of the One Ohana Initiative contribution). This amount is expected to be paid in four equal annual installments of approximately $479 million, with the first payment anticipated in early 2026. As of March 31, 2025, this first installment is classified as a current liability, with the remaining $1.44 billion as noncurrent.

To address the financial implications, HE has taken proactive steps to bolster liquidity. This includes fully drawing down existing credit facilities post-wildfires, completing a 62.2 million share equity offering in September 2024 that raised approximately $557.7 million (with $479 million transferred to a restricted subsidiary, GLST1, to fund the first settlement payment), establishing an at-the-market (ATM) offering program for up to $250 million, and securing a $250 million asset-based lending (ABL) facility for the utility. Furthermore, proceeds from the ASB sale were used to repay $384 million of holding company senior notes on April 9, 2025. While management believes current liquidity is sufficient for short-term obligations and the first settlement payment, a financing plan for the remaining $1.44 billion is still being developed, and its success is not assured.

Beyond the settlement, the utility is making substantial investments in wildfire safety. The 2025-2027 Wildfire Safety Strategy outlines an estimated $450 million plan, with approximately $400 million in capital expenditures, focusing on operational changes, grid hardening, enhanced inspections, and vegetation management. A PUC application for Exceptional Project Recovery Mechanism (EPRM) cost recovery for this strategy is planned for Q2 2025. The Public Safety Power Shutoff (PSPS) program, launched in July 2024, serves as a last-resort operational measure.

Charting the Future: Renewables, Regulation, and Capital Needs

HE remains committed to Hawaii's ambitious clean energy goals, targeting 100% RPS and net zero carbon emissions by 2045. While the planned 70% carbon reduction by 2030 may be achieved later than initially targeted due to renewable project delays, supply chain issues, inflation, and the impact of credit rating downgrades on IPP financing, the company expects to meet or exceed statutory RPS milestones (40% by 2030, 70% by 2040, 100% by 2045). Progress continues through competitive RFP processes for new renewable generation (Stage 1, 2, 3, CBRE, IGP RFP), although some projects have faced withdrawals or disqualifications.

The regulatory environment under the Performance-based Regulation (PBR) framework, established in December 2020, is entering a critical phase. The PUC has ordered a comprehensive review of the framework and the rebasing of utility target revenues for the second multi-year rate period (MRP2), commencing January 1, 2027. A rate case-like proceeding is planned, with the Utilities expecting to file a consolidated application in late 2025 using a 2026 test year. This process will include a review of the allowed 9.5% return on equity (ROE) and 57% equity ratio. Legislative support, such as SB 897 directing the PUC to establish a future wildfire liability cap and authorizing securitization for wildfire safety CapEx, and SB 1501 providing a state backstop for IPP payments, could significantly impact the utility's risk profile and financing costs.

The planned capital expenditure program is substantial. Beyond wildfire mitigation, 2025 CapEx is targeted between $350 million and $375 million, with expectations for moderately higher levels in 2026 and 2027 driven by baseline investments, wildfire safety, and approved EPRM projects. Financing these investments, in addition to the remaining settlement payments, will require access to capital markets. The utility has requested PUC approval to issue significant amounts of unsecured taxable debt ($900M, $115M, $150M for HECO, HELCO, MECO respectively) and common stock ($210M to HEI, $70M to HECO from HELCO, $145M to HECO from MECO) from 2025-2027.

Recent financial performance reflects these dynamics. For the three months ended March 31, 2025, HEI consolidated revenues decreased to $744.1 million from $792.0 million in the prior year period, primarily due to lower electric utility revenues driven by lower fuel costs, partially offset by higher sales volume (kWh sales increased 3.1%). Consolidated operating income increased to $62.4 million from $50.9 million, largely due to higher electric utility operating income ($75.9 million vs $63.4 million), which benefited from higher ARA revenue, better heat rate performance, and lower O&M (despite increases in wildfire-related legal/consulting and insurance costs). Income from continuing operations for common stock increased to $26.7 million from $21.2 million. However, net income for common stock decreased to $26.7 million from $42.1 million, primarily due to the absence of income from discontinued operations (ASB) in 2025 ($20.9 million in Q1 2024) and an increased loss in the All Other segment (loss of $21.1 million vs $18.0 million), impacted by a $13.2 million loss on the sale of Hamakua Holdings. The company's effective tax rate decreased to 19% from 24%, influenced by the Hamakua sale loss.

Risks and the Road Ahead

Despite significant strides, HE faces material risks. The ultimate outcome of the wildfire litigation, including securities and derivative lawsuits, remains uncertain, and potential losses are not reasonably estimable. While progress has been made on insurer subrogation claims, their final resolution is a condition for the settlement. The ability to raise the necessary capital for the remaining $1.44 billion settlement liability and the substantial planned CapEx on reasonable terms is critical, particularly given the credit rating downgrades. Further equity issuances could lead to shareholder dilution. Regulatory decisions by the PUC on cost recovery, rate cases, PIMs, and the PBR framework review could significantly impact financial results. Extreme weather events exacerbated by climate change pose ongoing operational and financial risks. Supply chain constraints and trade policies, particularly impacting renewable energy components like batteries, could increase project costs and delay timelines. Environmental liabilities related to historical operations also present potential costs.

Conclusion

Hawaiian Electric Industries is undergoing a fundamental transformation, shedding non-core assets to focus on its essential mission: providing safe, reliable, and increasingly clean energy for Hawaii. The shadow of the Maui wildfires has necessitated a rapid response, accelerating efforts to enhance grid resilience and address significant liabilities. The $1.99 billion settlement, coupled with a clear plan for the first payment and ongoing efforts to finance the remainder and fund a robust CapEx cycle, provides a clearer, albeit still challenging, path forward. The company's strategic alignment with state renewable energy goals, investments in grid technology, and engagement in the PBR review and legislative processes are critical steps towards re-establishing financial stability and ultimately targeting an investment-grade credit rating. While substantial risks persist, particularly concerning long-term financing and regulatory outcomes, the progress made in simplifying the structure and addressing the wildfire liabilities positions HE to concentrate on its core utility business and the vital task of powering Hawaii's clean energy future.