10-Q: Hawaiian Electric Navigates Wildfire Settlements, Boosts Renewables

Hawaiian Electric Industries reports improved Q2 2025 earnings, driven by the absence of prior-year wildfire tort claims, while advancing renewable energy projects and securing financing for Maui wildfire settlements.

Summary

• HEI consolidated net income for common stock significantly improved to $26.085 million in Q2 2025 from a net loss of $1,295.484 million in Q2 2024, primarily due to the absence of the $1.71 billion wildfire tort-related claims recorded in the prior year.
• For the six months ended June 30, 2025, HEI's net income for common stock was $52.756 million, a substantial improvement from a $1,253.362 million net loss in the same period of 2024.
• HEI and Hawaiian Electric entered into definitive settlement agreements for Maui wildfire tort claims, obligating them to contribute a total of $1.99 billion in four equal annual installments of approximately $479 million, with the first payment expected in early 2026.
• The first settlement installment of $479 million has been transferred to a new subsidiary, GLST1, with restricted disbursement.
• The Hawaii legislature passed Act 301, appropriating state funds for the Maui wildfire settlement, and the Hawaii Supreme Court clarified that insurers' exclusive remedy for subrogation claims is asserting liens against policyholders' settlement amounts.
• Hawaiian Electric's Q2 2025 net income was approximately $39.2 million, compared to a net loss of $1.2 billion in Q2 2024.
• Electric utility kWh sales volume increased by 3.1% in Q2 2025 compared to the prior year, with Maui energy consumption up 7.7%.
• The "All Other" segment's net loss improved to $(13.065) million in Q2 2025 from $(20.303) million in Q2 2024, benefiting from lower interest expense and higher interest income.
• The sale of 90.1% of American Savings Bank (ASB) closed on December 31, 2024, with its results now reported as discontinued operations.
• Pacific Current sold Hamakua Holdings, LLC on March 10, 2025, resulting in an after-tax loss of $9.8 million, and classified its remaining operating subsidiaries as "held for sale" in June 2025.
• Credit ratings for both HEI and Hawaiian Electric were upgraded by Moody's, Fitch, and S&P in May/June 2025, with outlooks revised to Stable/Positive.
• The Utilities achieved a 35.8% Renewable Portfolio Standard (RPS) in 2024, earning a $1.9 million reward, exceeding the 30% statutory goal for 2020.

Sentiment

Score: 7

Explanation: The company reported significantly improved financial results due to the absence of prior-year wildfire accruals and made substantial progress on wildfire settlements, securing initial funding and favorable legal/legislative developments. Credit rating upgrades are also positive. However, significant capital remains to be raised for future settlement payments, and renewable energy targets face delays and cost increases due to federal policy shifts and project challenges. The economic outlook for Hawaii is also a concern.

Positives

• Significant improvement in HEI's consolidated net income and EPS for Q2 and six months ended June 30, 2025, primarily due to the absence of the large wildfire tort claims accrual from the prior year.
• Definitive settlement agreements reached for Maui wildfire tort claims, providing a clear path forward for resolving a major liability.
• State of Hawaii passed Act 301, appropriating funds for the Maui wildfire settlement, and Act 191, allowing state intervention in utility financial distress to ensure project payments.
• Hawaii Supreme Court ruling on subrogation claims limits insurers' remedies to liens against policyholders' settlement amounts, reducing direct liability risk for the company.
• Credit ratings for both HEI and Hawaiian Electric were upgraded by major agencies (Moody's, Fitch, S&P) in May/June 2025, indicating improved financial stability and outlook.
• Electric utility kWh sales volume increased by 3.1% in Q2 2025, reflecting economic recovery and warmer weather, with Maui consumption up 7.7%.
• Customer accounts receivable over 30 days past due decreased by 34% since December 31, 2024, indicating improved collection efforts.
• Utilities continue to make significant progress towards renewable energy goals, achieving a 35.8% RPS in 2024 and earning a $1.9 million reward.
• All seven Stage 1 renewable energy projects have reached commercial operations, adding 259.5 MW of PV and 1038 MWh of BESS capacity.
• A federal grant of $95 million under the IIJA was officially awarded for the Climate Adaption Transmission and Distribution Resilience Program.
• Hawaiian Electric Board approved a $10 million quarterly dividend for Q1 and Q2 2025 to HEI, signaling a return of some distributions.

Negatives

• HEI consolidated revenues decreased by 6% for both Q2 and the six months ended June 30, 2025, primarily due to lower electric utility revenues.
• The company expects the 70% carbon emissions reduction target by 2030 to be achieved later than originally planned due to project delays, higher costs, federal policies, and credit rating downgrades.
• President Trump's 2025 budget reconciliation bill and Executive Orders are expected to limit federal tax credits for wind and solar projects and impose new tariffs, likely increasing costs and causing project delays for renewable energy.
• Five Stage 2 renewable projects were declared null and void by IPPs, and two were mutually terminated, impacting renewable energy targets.
• One Grid Services Purchase Agreement was terminated due to the aggregator's financial difficulties, affecting approximately 1,200 customers.
• Hawaii Island faces risks of generation shortfalls due to two generators being out of service for extended maintenance.
• The Public Safety Power Shutoff (PSPS) program, while a wildfire safety measure, will lead to service disruptions and negatively impact system reliability metrics.
• The Utilities are still evaluating the potential impact of new trade policies on capital goods and raw materials costs, particularly for battery components sourced from China.
• The company is still working on a financing plan to raise the additional $1.44 billion needed for the remaining wildfire settlement payments, with no assurance of success.
• The moratorium on disconnections on Maui continues through September 4, 2025, which may impact collections in that area.
• The sale of Hamakua Holdings, LLC resulted in an after-tax loss of $9.8 million for Pacific Current.
• Pacific Current recognized a pretax impairment charge of $0.2 million and tax expense/ITC recapture of $5.3 million for its remaining operating subsidiaries classified as "held for sale."

Risks

• Maui Windstorm and Wildfires Litigation: Potential for further liabilities from ongoing securities class action and shareholder derivative lawsuits, with no assurance of successful defense or adequate insurance coverage.
• Financing and Liquidity: Inability to raise the remaining $1.44 billion capital necessary for the wildfire tort litigation settlement on reasonable terms, which could alleviate future conditions causing substantial doubt about HEI's and the Utilities' ability to continue as a going concern.
• Credit Rating Impact: Despite recent upgrades, credit ratings remain below investment grade, limiting access to unsecured, short-term borrowings and restricting access to capital markets and other debt/equity financing sources on timely or acceptable terms.
• Shareholder Dilution: Potential for further dilution to existing shareholders if the company raises funds by issuing additional equity or equity-linked securities.
• Regulatory Penalties: Risk of penalties from the PUC for delays in commercial operations of renewable energy projects or failure to meet Renewable Portfolio Standard (RPS) targets (e.g., $20/MWh for RPS deficiency).
• Project Delays and Cost Increases: Delays and cancellations in new renewable third-party generation resources, higher costs due to supply chain disruptions, inflationary pressures, and federal policies (e.g., new tariffs, changes to tax credits) impacting the pace of decarbonization and renewable energy goals.
• Operational Reliability: Disruptions to service and negative impacts on Transmission and Distribution System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) due to interim wildfire safety measures and the Public Safety Power Shutoff (PSPS) program.
• Generation Shortfalls: Risk of generation shortfalls on Hawaii Island due to two generators being out of service for extended maintenance.
• Environmental Regulations: Ongoing legal and regulatory proceedings related to environmental laws, hazardous waste, and endangered species, with potential for fines, penalties, or significant remediation costs (e.g., Pearl Harbor sediment study, former Molokai Electric Company generation site, Endangered Species Act notice).
• Economic Conditions: Unfavorable changes in economic conditions, such as sustained inflation, higher interest rates, or recession, negatively impacting customers' ability to pay utility bills and increasing operating costs not recoverable from customers.
• Cybersecurity Risks: Potential for cyber incidents at HEI, its subsidiaries, third-party service providers, contractors, and customers.
• Trade Policy Changes: Potential for further trade policy changes under the current administration to disrupt supply chains and increase costs for capital goods, equipment, and battery components, threatening project viability.
• IPPs Non-Performance: Risk of independent power producers (IPPs) not delivering firm capacity as anticipated in Power Purchase Agreements (PPAs), or having less economic incentive to invest as contracts near term end.
• Litigation Outcomes: Inability to predict the ultimate outcome or make a reasonable estimate of loss for ongoing legal proceedings (e.g., Hu Honua, Molokai New Energy Partners).
• Regulatory Disallowance: Risk of PUC disallowing cost recovery for all or part of projects, or if PUC-imposed caps on project costs are exceeded, leading to write-offs.
• Climate Change Impacts: Increased risk of utility equipment damage, inoperability, or contribution to wildfires due to extreme weather events exacerbated by climate change.

Future Outlook

Management believes that with current cash, restricted cash, available credit facilities, and expenditure reduction efforts, there is sufficient liquidity to fund operations and satisfy obligations for the next 12 months, including the first wildfire settlement installment. However, the company is actively working on a financing plan for the remaining $1.44 billion settlement, with no assurance of success. The 70% carbon emissions reduction target by 2030 is now expected to be achieved later than planned due to project delays, increased costs, and federal policy impacts. Hawaii's economic outlook is forecast to worsen with limited GDP growth in 2025 and a mild recession in 2026, with recovery expected to be slow and risks remaining exceptionally large.

Management Comments

• "The Company's objective continues to be to operate a strong, financially healthy enterprise to empower a thriving future for Hawaii."
• "While the fundamentals of its businesses remain strong, the Company took prudent and measured actions to reinforce its commitment to serving the community for the long term."
• "Hawaiian Electric fully supports this humanitarian initiative [One Ohana Initiative] and has contributed $75 million... Hawaiian Electric's commitment to contribute to the One Ohana Initiative is not an admission of guilt or reflection of fault or liability related to the wildfires."
• "Management believes with the Company's cash and cash equivalents amount of $154 million and GLST1's restricted cash amount of $479 million, both as of June 30, 2025, the available capacity on Hawaiian Electric's ABL Facility and HEI's and Hawaiian Electric's unsecured lines of credit, additional liquidity under HEI's registered at-the-market offering program as well as expenditure reduction efforts, the Company has adequate cash to meet its financial obligations and sustain operations in the short term, including available sufficient liquidity to fund the first installment of the settlement of wildfire tort claims expected to be made in early 2026 and its other cash obligations for the next 12 months following the issuance of its June 30, 2025 financial statements."
• "While management believes the Company will be able to raise the necessary capital [for remaining settlement], there is no assurance that management's plans will be successful. If the financing plans are unsuccessful, the Company may need to consider other strategic alternatives."
• "The Utilities are fully committed to leading and enabling pathways to a decarbonized and sustainable energy future for Hawaii."
• "The Utilities believe that a holistic approach to climate change is needed, working on both climate mitigation efforts along with climate adaptation efforts."
• "The Utilities are currently focused on taking immediate steps to keep island communities safe during extreme weather events."
• "The Utilities will continue to work with key stakeholders in balancing the risk of utility-related wildfires with the risk to the public arising from not having electricity."

Industry Context

The U.S. utility sector is undergoing a significant transition towards renewable energy and grid modernization, driven by climate change concerns and regulatory mandates. Hawaiian Electric Industries operates within this context, facing unique challenges and opportunities in Hawaii. The company's commitment to 100% renewable portfolio standards by 2045 aligns with broader industry decarbonization trends, but is complicated by the specific geographic and regulatory environment of island grids. The recent legislative actions in Hawaii (Acts 191, 258, 266, 301) demonstrate a proactive state-level effort to support utility financial stability and accelerate renewable energy transition, which could serve as a model or benchmark for other regions facing similar challenges. However, federal policy shifts (e.g., President Trump's Executive Orders impacting tax credits) introduce uncertainty, a common theme across the renewable energy industry. The ongoing wildfire liabilities highlight the increasing importance of climate adaptation and resilience in utility operations, a growing focus for utilities globally.

Comparison to Industry Standards

• The Utilities' achievement of a 35.8% Renewable Portfolio Standard (RPS) in 2024 exceeds the 30% statutory goal for 2020, demonstrating strong performance relative to state mandates.
• The commitment to 70% carbon emissions reduction by 2030 and net-zero by 2045 aligns with ambitious decarbonization targets set by leading utilities globally, though the company now expects to achieve the 2030 target later than initially planned due to various challenges.
• The PUC's 2024 Inclinations and Governor Green's EO 25-01 set aggressive targets for renewable electricity production (e.g., 100% for Hawaii and Maui counties by 2035), which are more stringent than many mainland U.S. utility targets, reflecting Hawaii's unique energy independence goals.
• The implementation of performance-based regulation (PBR) and mechanisms like the Exceptional Project Recovery Mechanism (EPRM) and Performance Incentive Mechanisms (PIMs) positions the Utilities within a modern regulatory framework designed to incentivize performance and investment, similar to progressive regulatory models adopted in other states.
• The company's experience with wildfire liabilities and the subsequent settlement and legislative support (Acts 191, 258, 301) could provide a case study for other utilities in high-risk wildfire zones, such as those in California (e.g., PG&E, Southern California Edison), on managing and financing such catastrophic events.
• The challenges faced in procuring low-cost financing for new renewable projects due to credit rating downgrades, even with state support, highlight a common hurdle for utilities undergoing significant capital-intensive transitions, comparable to issues faced by utilities in other regions with large infrastructure investment needs.

Corporate Governance

Legal Proceedings

• Approximately 835 lawsuits related to the Maui windstorm and wildfires are pending against HEI and the Utilities as of July 29, 2025, alleging responsibility for the fires, negligence, personal injury, wrongful death, emotional distress, and inverse condemnation.
• HEI and Hawaiian Electric entered into definitive settlement agreements to resolve tort-related legal claims arising from the Maui wildfires for a total contribution of $1.99 billion, subject to conditions including insurer claims resolution and court approval.
• A putative securities class action (Bhangal v. Hawaiian Electric Industries, Inc., et al.) is ongoing in federal court, alleging materially false and misleading statements or omissions regarding wildfire prevention and safety protocols.
• Consolidated shareholder derivative actions (In re Hawaiian Electric Industries Inc. and Hawaiian Electric Company, Inc. State Court Derivative Litigation) are pending in Hawaii state court, alleging breach of fiduciary duty, abuse of control, corporate waste, unjust enrichment, and aiding and abetting breach of fiduciary duty related to the Maui wildfires and prior disclosures.
• Consolidated shareholder derivative actions (In Re Hawaiian Electric Industries, Inc., Stockholder Derivative Litigation) are stayed in Hawaii federal court, pending resolution of the Securities Action and other derivative actions.
• Litigation with Hu Honua Bioenergy, LLC is ongoing, with federal antitrust claims dismissed, state claims dismissed without prejudice, and an appeal filed in the Ninth Circuit court while negotiations for a PPA continue.
• A breach of contract lawsuit by Molokai New Energy Partners (MNEP) against Maui Electric is in the discovery phase, with trial continued to an undetermined date.
• Maui Electric has a reserve balance of $2.4 million for the probable and reasonably estimable cost of remediation for environmental impacts at the former Molokai Electric Company generation site, with a pre-trial hearing in June 2025 and trial tentatively set for October 2025.
• Hawaiian Electric has a reserve account balance of $9.5 million for PCB contamination investigation and remediation at the Pearl Harbor Superfund Site.
• A citizens' suit under the federal Endangered Species Act was filed regarding alleged impacts on endangered seabirds caused by the Utilities' powerlines, street lights, and facility lights on Maui and Lanai, with a settlement agreement reached for powerlines and an interim agreement for lights, but a trial is set for April 20, 2026, for the lights aspect.

Related Party Transactions

• Hawaiian Electric unconditionally guarantees Hawaii Electric Light's and Maui Electric's obligations to the State of Hawaii for Special Purpose Revenue Bonds and under private placement note agreements.
• Hawaiian Electric is obligated to make dividend, redemption, and liquidation payments on Hawaii Electric Light's and Maui Electric's preferred stock if the respective subsidiary is unable to make such payments.
• Effective March 31, 2025, HEI assigned 60% of the membership interests of GLST1 to Hawaiian Electric, totaling $287.3 million, reported as Investment in unconsolidated affiliate on Hawaiian Electric's balance sheet.
• HEI has committed to make revolving short-term loans to Hawaiian Electric up to $75 million under the Intercompany Borrowing Policy, though no borrowings were outstanding as of June 30, 2025.
• Hawaii Electric Light and Maui Electric had short-term borrowings from Hawaiian Electric of nil and $69.2 million, respectively, as of June 30, 2025.

Stakeholder Impact

• Shareholders: Significant improvement in net income and EPS, but ongoing need for capital raise for wildfire settlements and potential dilution from equity issuances. Suspension of HEI common stock dividend continues. Credit rating upgrades are positive for investor confidence.
• Customers: Wildfire safety measures (e.g., PSPS program) will lead to service disruptions. Fuel cost pass-through mechanisms mean customers bear most fuel price changes. Regulatory mechanisms like PBR aim to balance utility financial stability with customer affordability. New laws (Act 191, 258, 266) aim to support energy transition and potentially mitigate future wildfire costs for customers.
• Employees: No direct impact mentioned, but ongoing litigation and financial restructuring could create uncertainty. Wildfire safety strategies emphasize public and employee safety.
• Creditors: Credit rating upgrades are positive, potentially improving access to capital markets in the future. Repayment of $384 million senior notes reduces debt. However, the large remaining wildfire liability and ongoing need for financing pose continued risks.
• Suppliers/IPPs: State intervention (Act 191) aims to ensure project owners receive payment, addressing concerns about IPPs' ability to procure low-cost financing due to utility credit ratings. Delays and cancellations of renewable projects impact IPPs.
• Community: Wildfire settlements provide compensation to victims. Decarbonization efforts aim for a cleaner, more sustainable energy future for Hawaii. Grid modernization and resilience programs aim to protect communities from climate change impacts.

Next Steps

• The first installment of the Maui wildfire tort litigation settlement is expected in early 2026.
• HEI is working with financial advisors on additional financing plans for the remaining $1.44 billion wildfire settlement amount.
• Objections to the Class Settlement Agreement are due by October 8, 2025, with the opt-out deadline also on that date.
• The court has not yet set a date for a hearing to consider final approval of the Class Settlement Agreement.
• The hearing on HEI's motion to stay the Hawaii State Action (derivative litigation) is scheduled for September 8, 2025.
• Hu Honua is to provide a status report to the Ninth Circuit court by November 10, 2025, regarding its appeal.
• Utilities plan to file another updated and supplemented PUC application for GMS Phase 2 project costs in Q3 2025.
• Utilities are exploring other options for procuring renewable energy on Lanai after a project developer withdrew.
• The PUC intends to establish an informal working group to explore further modifications to the Microgrid Services Tariff.
• The Utilities are awaiting further direction from the PUC regarding the implementation of electricity wheeling policies as mandated by Act 266.
• Utilities will continue negotiations with Hu Honua with the intent to submit an application for approval of a PPA.
• Utilities are currently assessing the potential impact of Act 266 related to wheeling.
• Utilities are monitoring for impacts of new Executive Orders and changes passed down through the federal contracting officer for the Resilience Program.
• Utilities will continue to refine interim wildfire safety measures to mitigate customer impacts.
• Utilities will proceed with implementing an alternative solution for stranded customers from the terminated Grid Services Purchase Agreement, pending PUC approval.
• Utilities will continue the HCP process and take specific actions to minimize and mitigate the potential impact of powerlines while the document is being prepared, as per settlement agreement for Endangered Species Act.
• Utilities and Pacific Biodiesel Technologies, LLC's biodiesel supply agreement will become effective upon PUC approval.
• Utilities are currently accepting project applications for small CBRE projects less than 250 kW in size.
• The PUC will issue an order addressing the PBR Framework performance and next steps after reviewing briefs.
• The proceeding to re-base the Utilities target revenues for MRP2 will proceed in two tracks, with the first focused on revenue requirements prior to MRP2 commencement and the second on final determination and rate design.
• Utilities requested PUC approval by October 31, 2025, for new common stock issuance authorization for 2025-2027.

Key Dates

Recommendation

While Hawaiian Electric Industries has shown significant financial recovery in Q2 2025 due to the absence of prior-year wildfire accruals and has made substantial progress in settling the Maui wildfire tort claims, significant uncertainties remain. The company still needs to raise $1.44 billion for future settlement payments, and while financing plans are underway, success is not assured. The recent credit rating upgrades are a positive signal, but the company's ability to access capital markets on favorable terms is still constrained. Furthermore, the ambitious renewable energy transition faces headwinds from federal policy changes, project delays, and increased costs, which will impact the timeline for decarbonization goals. The economic outlook for Hawaii is also projected to be challenging. Given the mixed bag of positive developments (settlement progress, credit upgrades, Q2 earnings improvement) and persistent risks (remaining capital needs, renewable energy challenges, economic uncertainty), a 'hold' recommendation is appropriate. Investors should monitor the progress of the remaining capital raise, the execution of renewable energy projects, and the broader economic conditions in Hawaii.

Keywords

Hawaiian Electric Industries, HEI, Hawaiian Electric, Utility, Energy, Renewable Energy, Maui Wildfires, SEC Filing, 10-Q, Financial Results, Settlement, Credit Ratings, ESG, Decarbonization, Grid Modernization, Hawaii, Power Purchase Agreements, Capital Raise, Litigation, Regulatory, Sustainability