Executive Summary / Key Takeaways

• Strategic Transformation Underway: Hawaiian Electric Industries ($HE) is undergoing a profound transformation, divesting non-core assets to focus exclusively on its regulated utility operations and enhance financial stability.
• Wildfire Litigation Resolution Progress: Significant strides have been made in resolving the Maui wildfire tort litigation, with a $1.99 billion settlement progressing towards final court approval in early 2026, supported by a favorable Hawaii Supreme Court ruling and state legislation.
• Aggressive Capital Investment for Resilience: The company is embarking on a substantial capital expenditure program, projecting $1.8 billion to $2.4 billion from 2026-2028, primarily for wildfire safety, grid modernization, and renewable energy integration, with a portion of wildfire CapEx expected to be financed via securitization.
• Technological Edge in Island Grid Management: HE is leveraging advanced technologies like AI-assisted cameras, weather stations, and Battery Energy Storage Systems (BESS) to enhance grid resilience, improve safety, and accelerate its transition to 100% renewable energy for its unique island grids.
• Path to Financial Re-strengthening: Recent actions, including a $558 million equity offering, $384 million debt repayment, and increased credit facilities, have bolstered liquidity, with management committed to regaining investment-grade credit ratings despite ongoing challenges.

A Legacy Forged in the Pacific, A Future Defined by Resilience

Hawaiian Electric Industries ($HE), founded in 1891 and headquartered in Honolulu, Hawaii, serves as the vital electric utility for approximately 95% of the state's population across Oahu, Hawaii, Maui, Lanai, and Molokai. Operating five distinct island grids, the company's core mission is to provide safe, reliable, resilient, affordable, and clean energy to its communities. This foundational role has been shaped by a long history, including the acquisition of Molokai Electric Company by Maui Electric in 1989, underscoring its deep roots in the islands' energy infrastructure.

The company's strategic direction is inextricably linked to Hawaii's ambitious energy mandates, aiming for a 100% Renewable Portfolio Standard (RPS) and net-negative carbon emissions by 2045. This commitment places HE at the forefront of the clean energy transition, a journey that has seen it achieve a 34.50% RPS in 2020 and further advance to 35.80% in 2024. This progress, however, has been punctuated by unprecedented challenges, most notably the devastating Maui windstorm and wildfires of August 2023. This event has catalyzed a profound strategic pivot, accelerating HE's focus on operational resilience, wildfire safety, and a streamlined business model.

Technological Bedrock for a Sustainable Grid

Hawaiian Electric's competitive differentiation and strategic execution are increasingly underpinned by its integrated grid modernization strategy and advanced operational technologies, meticulously tailored for the unique demands of isolated island grids and high renewable energy penetration. The company's commitment to technological advancement is evident across several key areas.

In grid management, HE completed the Phase 1 deployment of 447,000 advanced meters in 2024, now servicing approximately 95% of its customers. This extensive rollout enhances grid visibility, supports demand-side management, and improves billing accuracy, providing tangible benefits for both the utility and its customers. For wildfire safety, a critical area post-2023, HE has rapidly deployed all weather stations and AI-assisted high-definition video cameras ahead of schedule, significantly improving situational awareness and enabling quicker responses to potential dangers. The establishment of an in-house meteorologist and a new watch office further bolsters its predictive capabilities for severe weather events. The Public Safety Power Shutoff (PSPS) program, launched on July 1, 2024, represents a proactive operational procedure to de-energize circuits in high-risk fire areas, directly mitigating ignition risks.

Battery Energy Storage Systems (BESS) are central to HE's renewable integration efforts, providing essential grid stability and firm capacity for intermittent renewable sources like solar and wind. In 2025, projects such as Hale Kuawehi Solar (30 MW with 120 MWh batteries) and Hoohana Solar (52 MW with 208 MWh batteries) reached commercial operations. Cumulatively, nine Stage 1 and Stage 2 renewable projects now provide 301.50 MW of capacity with 1771 MWh of battery storage. The Public Utilities Commission (PUC) accepted HE's final Integrated Grid Plan (IGP) in March 2024, outlining a flexible framework for cost-effective decarbonization. Furthermore, demand response programs like the Emergency Demand Response Program (EDRP) have approved applications totaling 43.16 MW on Oahu and 8.23 MW on Maui, designed to address reserve shortfalls and optimize system operations. These technological investments are not merely incremental; they are foundational to HE's ability to meet its ambitious RPS goals, enhance grid resilience against climate change, and ensure public safety, all of which are critical for sustained regulatory support and long-term financial health.

The Crucible of Crisis: Confronting Wildfire Liabilities and Forging Financial Strength

The Maui windstorm and wildfires of August 2023 marked a pivotal and challenging chapter for Hawaiian Electric. The company and its subsidiaries are currently named in several thousand lawsuits, including class actions, alleging negligence and seeking significant damages. While the County of Maui's Origin and Cause Report estimated total economic damage at approximately $6 billion, this figure has not been validated by the company and does not allocate responsibility. As of September 30, 2025, HEI and Hawaiian Electric have accrued an estimated $1.9 billion pre-tax for wildfire tort-related claims, reflecting their obligation to contribute $1.99 billion to a global settlement. This settlement is part of a larger $4.04 billion total defendant contribution.

Significant progress has been made towards finalizing this settlement. A crucial step occurred in February 2025 when the Hawaii Supreme Court ruled that insurers' exclusive remedy for claims against defendants would be limited to asserting liens against settlement amounts obtained by individual plaintiffs, thereby removing a major hurdle. Further legislative support arrived in July 2025 with Act 301, which appropriated state funds for the settlement, and Act 258, which authorized securitization for wildfire safety improvements and directed the PUC to establish an aggregate liability cap for future catastrophic wildfires. These developments are critical for bringing increased certainty to those impacted by the fires and for HE's path toward reestablishing financial stability. The first settlement payment of $479 million is expected no sooner than early 2026, with the amount already held in restricted cash within a dedicated subsidiary, GLST1, LLC.

To bolster its financial position, HEI has undertaken a series of decisive actions. In September 2024, a successful equity offering raised $557.7 million in net proceeds, fully funding the first settlement payment. The company also enhanced its liquidity by increasing its credit facility capacity by a combined $225 million and establishing a $250 million accounts receivable-backed credit facility at the utility. On April 9, 2025, HEI repaid $384 million of senior notes using proceeds from the sale of American Savings Bank. The Hawaiian Electric Board of Directors reinstated a $10 million quarterly dividend to HEI for the first, second, and third quarters of 2025, following a temporary suspension. Furthermore, on October 15, 2025, the Utilities redeemed all of their issued and outstanding cumulative preferred stock for $35.3 million. These actions collectively demonstrate a strong commitment to financial re-strengthening and liquidity management.

Strategic Repositioning: A Sharper Focus on Core Utility Operations

Hawaiian Electric Industries is strategically streamlining its business model to focus exclusively on regulated utility operations. This involves divesting non-core assets to simplify its corporate structure and regulatory position. The most significant step in this direction was the sale of 90.1% of American Savings Bank (ASB) in December 2024. This transaction, which yielded approximately $380 million in net proceeds, was instrumental in reducing holding company debt and enhancing financial flexibility. HEI retains a 9.9% noncontrolling interest in ASB, with plans to divest this remaining stake over the next year.

The company has also been actively divesting assets from its "All Other" segment, primarily Pacific Current. In March 2025, Pacific Current's largest asset, the Hamakua Energy plant, was sold, resulting in a $13.2 million pretax loss on sale. Subsequently, in August 2025, Pacific Current's solar and battery energy storage facilities were sold, with an immaterial gain recorded. A strategic review is ongoing for Pacific Current's remaining biomass facility on Kauai (Mahipapa), which is currently classified as held for sale. These divestitures are part of a broader corporate integration initiative, where the termination of Affiliate Transaction Requirements (ATRs) would allow for a more unified operational structure, with HEI employees potentially moving to the Utilities and a single set of individuals comprising the HEI and Hawaiian Electric boards.

Financial Performance: A Turnaround in Progress

Hawaiian Electric Industries' recent financial performance reflects a company in a significant turnaround phase, moving past the substantial impacts of the 2024 Maui wildfire accruals. For the third quarter of 2025, HEI reported net income of $30.7 million, or $0.18 per share. Excluding wildfire-related expenses and strategic review costs, consolidated core net income stood at $32.8 million, or $0.19 per share, largely comparable to the $32.7 million, or $0.29 per share, recorded in the third quarter of 2024. The utility segment's core net income for Q3 2025 was $39.6 million, a decrease from $43.7 million in the prior year, primarily due to lower tax benefits from R&D tax credits, higher legal and consulting costs (which were deferred in 2024), and increased wildfire mitigation program expenses. Conversely, the holding company's core net loss improved to $6.8 million from $10.9 million in Q3 2024, driven by reduced interest expense following debt retirement and higher interest income from cash held for settlement payments.

Looking at the nine-month period ended September 30, 2025, HEI consolidated net income for common stock reached $83.503 million, a stark improvement from the $1.35 billion net loss reported for the same period in 2024. This significant shift is primarily attributable to the substantial accrual of tort-related claims in the prior year, which had a smaller impact on the effective tax rate in 2025. The "All Other" segment also showed improvement, with a net loss of $40.451 million for the nine months ended September 30, 2025, compared to a $78.931 million loss in 2024. This was due to lower operating losses, higher interest income, and the impact of a $384 million debt paydown in April 2025. Operationally, kilowatt-hour (kWh) sales volume increased by 2% year-over-year in Q3 2025, reflecting warmer weather and ongoing economic recovery post-Maui wildfires, with Maui's energy consumption specifically rising by 7.5%. Customer accounts receivable decreased by $8 million, or 4%, in 2025, and arrears over 30 days past due declined by 18% since December 2024, partly aided by government arrears.

Competitive Landscape: A Niche Player in a Dynamic Sector

Hawaiian Electric operates as a dominant, almost monopolistic, entity within its specific geographic market in Hawaii. This regional focus, while providing a strong regulatory moat, positions HE as a niche player when compared to larger, diversified national utilities such as Duke Energy (DUK), NextEra Energy (NEE), Southern Company (SO), and American Electric Power (AEP). HE's competitive strengths lie in its deep localized expertise, its commitment to sustainability tailored for island environments, and its established regulatory relationships in Hawaii. These factors allow HE to offer resilient energy solutions uniquely suited to its isolated grids.

However, HE's geographic limitations inherently lead to higher operational costs compared to mainland utilities that benefit from economies of scale. Historically, a dependency on imported fuels has also impacted its efficiency. While larger competitors like NextEra Energy excel in the broad, rapid deployment of new technologies across diverse geographies, HE's technological prowess is demonstrated in its focused adaptation and integration of solutions for its unique island grid challenges, such as high distributed energy resource (DER) penetration and the development of microgrids. For instance, HE's advanced meter deployment and its rapid adoption of wildfire safety technologies, including AI-assisted cameras and an in-house meteorologist, highlight a strategic, localized approach to innovation.

Financially, HE's recent performance has been significantly impacted by the Maui wildfire accruals, resulting in a negative net profit margin of -4.05% on a trailing twelve-month (TTM) basis. This contrasts with the generally positive profitability and higher valuation multiples (e.g., P/E and P/B ratios) typically observed in its larger, more stable peers. HE's debt-to-equity ratio of 1.64, while moderate, is a key area of focus as the company works to re-establish investment-grade credit ratings. Indirect competitors, such as rooftop solar installers and advanced battery storage providers, also pose a competitive dynamic by offering decentralized energy solutions that could reduce reliance on the traditional grid. HE actively addresses these through demand response programs and community-based renewable energy initiatives, strategically positioning itself to integrate, rather than merely compete with, these emerging technologies.

Outlook and Strategic Imperatives: Investing in Hawaii's Energy Future

Hawaiian Electric Industries is embarking on a substantial capital expenditure program, signaling a robust investment in the future resilience and sustainability of Hawaii's energy infrastructure. The company projects approximately $400 million in capital expenditures for 2025. This is expected to increase significantly, with a forecast of $550 million to $700 million for 2026. Over the three-year period from 2026 to 2028, total capital expenditures are anticipated to range from $1.8 billion to $2.4 billion. These investments are strategically allocated, with $350 million to $400 million for Annual Revenue Adjustment (ARA) recovered CapEx, $150 million to $200 million for Exceptional Project Recovery Mechanism (EPRM) recovered CapEx, and $50 million to $100 million specifically for wildfire and resilience CapEx, which is planned to be financed through securitization. Key projects driving this spend include the Waiau repowering project, the wildfire safety strategy, and the Army privatization project. These capital plans are, however, contingent on further PUC approvals and ongoing resource adequacy analyses.

A critical regulatory process for the company is the rebasing of Hawaiian Electric's target revenues ahead of the second multiyear rate period (MRP2), scheduled to commence on January 1, 2027. The PUC has ordered a rate case-like proceeding for this, with HE planning to file its application in late 2025, using a 2026 test year. The objective is to establish new target revenues that will enable the utility to earn its authorized Return on Equity (ROE) through efficient performance. HE remains steadfast in its commitment to Hawaii's renewable energy goals, having achieved a 35.80% RPS in 2024 and remaining on track for an interim goal of 40% RPS by 2030. Management has indicated that formal earnings guidance will not be reinstated until the final approval process for the Maui wildfire tort litigation settlement is complete, acknowledging the inherent uncertainties during this transformative period.

Key Risks: The Path Ahead

Despite significant progress, Hawaiian Electric Industries faces several material risks. The ongoing Maui wildfire tort litigation, while progressing towards a $1.99 billion settlement, remains subject to final court approval and the formal dismissal of subrogation insurer claims. Any delays or unforeseen challenges in these administrative steps could impact the timing of settlement payments and prolong financial uncertainty. The company's credit ratings, though recently upgraded, remain below investment grade, which continues to affect its access to capital markets and the cost of debt and equity financing. This is particularly relevant as HEI plans to fund the second settlement payment with debt and/or convertible debt, and subsequent payments with a mix of debt and equity.

Regulatory risks are also prominent, including potential delays by the PUC in approving critical wildfire safety, renewable energy, or resilience proposals, or the disallowance of project costs. The impact of federal policy changes, such as the "One Big Beautiful Bill Act" on renewable energy tax credits and new tariffs on equipment from China, could increase project costs and potentially delay the achievement of RPS goals. Operationally, the implementation of wildfire safety measures, such as the Public Safety Power Shutoff (PSPS) program, may lead to service disruptions and negatively impact system reliability metrics. Furthermore, ongoing litigation, including cases related to Hu Honua Bioenergy, LLC and Molokai New Energy Partners, and environmental liabilities, such as PCB contamination, present additional contingent risks.

Conclusion

Hawaiian Electric Industries stands at a pivotal juncture, undergoing a profound transformation to emerge as a more resilient, focused, and financially robust utility. The company's strategic divestiture of non-core assets, coupled with aggressive capital investments in grid modernization and wildfire safety technologies, underscores its commitment to Hawaii's sustainable energy future. While the shadow of the Maui wildfire litigation has cast a long financial pall, the significant progress towards a comprehensive settlement, bolstered by favorable legal rulings and legislative support for securitization, marks a clear path forward.

HE's unique competitive position in Hawaii, driven by localized expertise and a strategic embrace of advanced technologies for island grid management, is foundational to its long-term viability. Despite the current financial metrics reflecting the extraordinary challenges of 2024, the outlook is characterized by a clear strategic roadmap for capital deployment and a determined effort to regain investment-grade credit. For discerning investors, HE represents a compelling narrative of a utility actively reshaping its destiny, investing in critical infrastructure, and leveraging technological leadership to power a sustainable future for Hawaii, even as it diligently manages the complexities of its past.