10-Q: Hawaiian Electric Reports Q3 Profit Amid Wildfire Settlements

Hawaiian Electric Industries reports a significant turnaround in net income for the nine months ended September 30, 2025, driven by the settlement of Maui wildfire litigation and strategic divestitures, while also securing new financing and credit upgrades.

Summary

• Hawaiian Electric Industries (HEI) reported net income for common stock of $83.5 million for the nine months ended September 30, 2025, a substantial improvement from a net loss of $1.36 billion in the prior year, primarily due to the accrual of wildfire tort-related claims in 2024.
• HEI and Hawaiian Electric entered into definitive settlement agreements for the Maui wildfire tort-related legal claims for a total contribution of $1.99 billion, with the first $479 million installment expected no sooner than early 2026.
• A binding term sheet was signed to settle the securities class action for $47.8 million, fully funded by proceeds from the derivative litigation settlement.
• The derivative litigation matters were settled for $100 million, to be fully funded by directors and officers liability insurance policies.
• HEI and Hawaiian Electric increased their unsecured revolving credit facilities to $300 million each and Hawaiian Electric issued $500 million in unsecured senior notes at 6.00% interest, maturing October 1, 2033.
• HEI is divesting all non-utility affiliated companies, with the Utilities intended to be its sole operating company, and has filed a revised request with the PUC to terminate or suspend Affiliate Transaction Requirements.
• The Utilities achieved a 35.8% Renewable Portfolio Standard (RPS) in 2024, exceeding the 30% target and accruing a $1.9 million reward.
• The 2025-2027 Wildfire Safety Strategy was filed, outlining plans to reduce wildfire risk, including the Public Safety Power Shutoff (PSPS) program launched on July 1, 2024.
• The Utilities' decarbonization goal of 70% reduction by 2030 is now expected to be achieved later than originally planned due to various challenges, but they still expect to meet or exceed state RPS goals.
• The PUC accepted the Utilities' Integrated Grid Plan in March 2024 and approved the Climate Adaptation Transmission and Distribution Resilience Program with $95 million in federal funds.
• Hawaiian Electric repaid its $50 million term loan credit facility and redeemed all outstanding cumulative preferred stock for $35.3 million on October 15, 2025.

Sentiment

Score: 7

Explanation: The company has made significant progress in resolving major legal liabilities related to the Maui wildfires, which has led to a substantial improvement in net income and credit rating upgrades. Strategic divestitures and new financing also contribute positively. However, challenges remain with decarbonization targets, potential impacts from federal policies, and ongoing economic uncertainties in Hawaii.

Positives

• Significant improvement in HEI's net income for common stock to $83.5 million for the nine months ended September 30, 2025, from a $1.36 billion loss in the prior year.
• Settlement agreements reached for Maui wildfire tort-related legal claims ($1.99 billion total contribution) and securities class action ($47.8 million), providing clarity on significant liabilities.
• Derivative litigation settled for $100 million, fully covered by D&O insurance.
• Credit rating upgrades from Fitch, Moody's, and S&P for both HEI and Hawaiian Electric, indicating improved financial stability.
• Increased borrowing capacities for HEI's and Hawaiian Electric's unsecured revolving credit facilities to $300 million each, enhancing liquidity.
• Successful issuance of $500 million in unsecured senior notes by Hawaiian Electric, demonstrating renewed access to capital markets.
• Utilities achieved a 35.8% Renewable Portfolio Standard (RPS) in 2024, exceeding the 30% target and earning a $1.9 million reward.
• Completion of all seven Stage 1 renewable energy projects, with Hale Kuawehi Solar and Hoohana Solar reaching commercial operations in March and July 2025, respectively.
• PUC approval for the Climate Adaptation Transmission and Distribution Resilience Program, securing $95 million in federal funds under the IIJA.
• Customer accounts receivable over 30 days past due decreased by 18% since December 2024, and arrears balances declined to near pre-pandemic levels (except on Maui).
• Strategic divestment of non-utility affiliates (ASB, Pacific Current solar/BESS, Hamakua Holdings) to focus on the electric utility business.

Negatives

• HEI's total revenues decreased by 5% for the three months and 6% for the nine months ended September 30, 2025, compared to the prior year, primarily due to lower electric utility revenues.
• Net cash provided by operating activities for HEI consolidated decreased to $284.7 million for the nine months ended September 30, 2025, from $350.9 million in the prior year.
• The decarbonization goal of a 70% reduction in carbon emissions by 2030 is now expected to be achieved later than originally planned due to project delays, increased costs, and federal policies.
• The "One Big Beautiful Bill Act" signed by President Trump on July 4, 2025, may impact the qualification of new wind and solar projects for federal tax credits, potentially leading to higher project costs.
• Trade policies could lead to significant cost increases or supply chain challenges for utility-scale battery projects, as most components are manufactured in or exposed to China.
• The Lanai CBRE RFP project was terminated due to developer withdrawal on October 23, 2024, and the Utilities are exploring other options.
• The Waiau Repower Project (utility self-build) costs were revised upwards to $1.16 billion from an estimated $847 million, citing unavoidable market conditions.
• The Earnings Sharing Mechanism (ESM) remains suspended since August 31, 2023, preventing the Utilities from earning financial rewards from this mechanism.
• Hawaii Island has two generators out of service for extended maintenance, risking generation shortfalls during certain periods.
• The moratorium on disconnections on Maui continues through November 10, 2025, which may contribute to higher bad debt expense.

Risks

• Potential for significant unrecoverable costs from Maui windstorm and wildfires lawsuits and regulatory penalties, exceeding insurance coverage.
• Inability to obtain wildfire and general liability insurance at reasonable rates or at all, and risks of uninsured or underinsured losses.
• Inability to raise necessary capital on reasonable terms to fund the remaining Maui wildfire tort litigation settlement, potentially leading to substantial doubt about going concern or bankruptcy.
• Potential for further shareholder dilution if additional equity or equity-linked securities are issued to raise funds.
• Failure to execute financing plans could result in an event of default and acceleration of debt, potentially leading to bankruptcy if waivers are not received.
• Increased risk of equipment damage, inoperability, or contribution to wildfires due to climate change-exacerbated extreme weather events.
• Future suspension, material reduction, or extended delay in dividends from operating subsidiaries to HEI.
• Further downgrades by securities rating agencies could negatively impact financing efforts and costs.
• Negative impacts from international, national, and local economic and political conditions, including Hawaii tourism, defense, construction industries, real estate markets, federal government shutdowns, global conflicts, and pandemics.
• Challenges in addressing environmental, social, and governance (ESG) priority areas, including safety, reliability, resilience, decarbonization, affordability, secure digitalization, human capital, and climate-related risks.
• Potential for civil unrest, protests, or stakeholder activism to delay projects, increase costs, or prevent completion of critical infrastructure.
• Effects of U.S. government actions on trade, monetary, energy, and environmental policy, including potential carbon pricing or cap-and-trade legislation.
• Higher borrowing costs and changes in market liquidity due to interest rate fluctuations.
• Continued difficulty in accessing credit and capital markets under volatile conditions, leading to higher financing costs due to Maui wildfire uncertainties.
• Risks from changes in the value of pension plan assets and liabilities (stock market, interest rates, mortality).
• Potential delays or disapproval by the PUC for wildfire safety, renewable energy, or resilience proposals, and disallowance of project costs.
• Dependence on the State, IPPs, and developers, and challenges with supply chains and new technologies for renewable energy.
• Growing risk of curtailment of renewable energy production and interconnection constraints as more resources are added to the grid.
• Inability of IPPs to deliver firm capacity or make necessary investments as contracts near term end.
• Inability to negotiate favorable agreements for fuel supply and collective bargaining, or labor disputes.
• Cybersecurity risks and the potential for cyber incidents at HEI, subsidiaries, third-party providers, and customers.
• Failure to achieve remaining cost savings commitment of $33 million over the 2021-2025 multi-year rate period (MRP).
• Cost shifting, increased competition, and legal/technical implications from PUC's implementation of wheeling for renewable energy.
• Discovery of historical chemical releases, compliance costs, fines, and penalties related to environmental regulations.
• Risks associated with the geographic concentration of HEI's businesses in Hawaii.
• Impact of new GAAP standards, potential discontinuance of regulatory accounting, or required consolidation of variable interest entities (VIEs).
• Uncertainty regarding the final outcome of tax positions taken by HEI and its subsidiaries.
• Inability of Pacific Current to achieve performance objectives and service non-recourse debt.
• Reliance on third parties and the risk of their non-performance.

Future Outlook

The company anticipates continued financial stability and progress in its energy transition, despite challenges. The 70% carbon emission reduction goal by 2030 is now expected to be achieved later than planned due to project delays, increased costs, and federal policies, but the company expects to meet or exceed state Renewable Portfolio Standard (RPS) goals. The Public Utilities Commission (PUC) will conduct a comprehensive review of the Performance-Based Regulation (PBR) Framework, with the next multi-year rate period (MRP2) commencing January 1, 2027, and target revenues to be re-based. The company is actively working on a financing plan to fund the remaining Maui wildfire tort claims and expects to have adequate liquidity for short-term obligations. The "One Big Beautiful Bill Act" and trade policies may impact renewable energy project costs and supply chains. A mild recession in Hawaii is forecasted over the next year, with growing risk for a more significant economic downturn.

Management Comments

• Hawaiian Electric fully supports this humanitarian initiative and has contributed $75 million. The Governor announced that other parties, including the State of Hawaii, the County of Maui, and Kamehameha Schools have all agreed to contribute to the fund. Hawaiian Electric's contribution to the Initiative was less than half of the total, and Hawaiian Electric's insurance carriers funded its share of the contributions to the fund. 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.
• The Company intends to vigorously defend itself in the litigation if a definitive settlement is ultimately not achieved.
• Management believes with the Company's cash and cash equivalents amount of $548 million and GLST1's restricted cash amount of $479 million, both as of September 30, 2025, the available capacity on Hawaiian Electric's ABL Facility and HEI's and Hawaiian Electric's increased borrowing capacities of their unsecured lines of credit, additional liquidity under HEI's registered at-the-market offering program, 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 no sooner than early 2026 and its other cash obligations for the next 12 months following the issuance of its September 30, 2025 financial statements.
• While management believes the Company will be able to raise the necessary capital, 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 believe that a holistic approach to climate change is needed, working on both climate mitigation efforts along with climate adaptation efforts.
• The Utilities remain committed to working with all stakeholders to reach Hawaii's ambitious renewable energy goals.
• 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.
• The Utilities are fully aligned with, and supportive of, state policy to achieve a decarbonized future and have made significant progress in reducing emissions through renewable energy and electrification.
• The Utilities are currently evaluating how their existing plans fit within these policies.
• The Utilities are exploring other options for procuring renewable energy on Lanai.
• The Utilities are currently re-scoping GMS Phase 2 and plan to file another updated and supplemented PUC application for updated project costs in the fourth quarter of 2025.
• The Utilities are still assessing the potential impact of the trade policies.
• The Utilities cannot predict the future effects on the Utilities' ability to access additional capital or the future impacts on the Utilities' financial position, results of operations, and cash flows.

Industry Context

The utility sector in Hawaii, represented by Hawaiian Electric, is undergoing a significant transition towards decarbonization and renewable energy, aligning with the state's ambitious 100% RPS goal by 2045. This transition is influenced by regulatory frameworks like Performance-Based Regulation (PBR) and legislative acts promoting resilience and clean energy. The company's efforts to modernize the grid, implement wildfire safety measures, and integrate distributed energy resources are consistent with broader industry trends in grid resilience and distributed generation. However, the industry faces challenges from supply chain disruptions, inflationary pressures, and evolving federal policies (e.g., "One Big Beautiful Bill Act" impacting tax credits, trade policies affecting battery component costs), which can delay project timelines and increase costs. The Maui wildfires highlight the increasing importance of climate adaptation and resilience in utility operations, a critical concern for utilities in disaster-prone regions. The company's divestiture of non-utility assets reflects a trend towards focusing on core regulated utility operations, especially in the face of significant liabilities.

Comparison to Industry Standards

• The Utilities' achieved 35.8% Renewable Portfolio Standard (RPS) in 2024 exceeds Hawaii's statutory 2020 goal of 30%, demonstrating strong progress in renewable energy integration compared to the state's own benchmarks.
• The company's decarbonization goal of 70% reduction by 2030 (from a 2005 baseline) and net-zero by 2045 aligns with aggressive climate targets set by leading utilities globally, though the 2030 target is now expected to be delayed.
• The implementation of a Public Safety Power Shutoff (PSPS) program and a comprehensive Wildfire Safety Strategy is a common practice among utilities in high wildfire risk areas, such as those in California (e.g., PG&E, Southern California Edison), following similar devastating events.
• The use of Performance-Based Regulation (PBR) with mechanisms like Annual Revenue Adjustment (ARA) and Earnings Sharing Mechanism (ESM) is a modern regulatory approach adopted by various utilities to incentivize performance and manage costs, moving away from traditional cost-of-service models.
• The company's efforts in grid modernization, including advanced meters and Integrated Grid Planning, are consistent with smart grid initiatives seen across the U.S. and globally to enhance reliability and integrate distributed energy resources.
• The challenges faced in procuring low-cost financing for new renewable energy projects due to credit rating downgrades, despite state "step-in" legislation (Act 191), highlight a common hurdle for utilities with significant liabilities, contrasting with investment-grade utilities that typically access capital markets more favorably.

Corporate Governance

Legal Proceedings

• Maui Windstorm and Wildfires Tort-Related Legal Claims: HEI and the Utilities are named in several thousand lawsuits. Definitive settlement agreements were reached for $1.99 billion (HEI/Hawaiian Electric share), with the first $479 million installment expected early 2026. The Class Settlement Agreement is subject to final court approval (hearing Jan 8, 2026). Conditions for payment include resolving insurer claims, which the Hawaii Supreme Court has addressed by limiting remedies to liens.
• Securities Class Action (Bhangal v. Hawaiian Electric Industries, Inc., et al.): A binding term sheet was signed on November 5, 2025, to settle this action for $47.8 million, to be fully funded by Derivative Settlement Proceeds.
• Shareholder Derivative Actions (Rice v. Connors, et al., Hamilton v. Lau, et al., etc.): A binding term sheet was signed on November 5, 2025, to settle all outstanding derivative actions for $100 million, fully funded by directors and officers liability insurance policies.
• Hu Honua Bioenergy, LLC Lawsuit: Hu Honua's federal antitrust claims were dismissed, and state claims were dismissed without prejudice. Negotiations for a potential PPA are ongoing, and a federal Ninth Circuit appeal is stayed. Hu Honua filed a state court complaint for remaining state claims.
• Molokai New Energy Partners (MNEP) Lawsuit: MNEP filed a breach of contract complaint against Maui Electric. Trial was continued to February 18, 2026.
• Endangered Species Act Citizen Suit: Notice received from Conservation Groups alleging non-compliance due to impacts on endangered seabirds. A settlement agreement was approved for powerlines, and a second complaint was filed regarding street and facility lights, with a trial set for April 20, 2026.

Related Party Transactions

• HEI is the sole holder of Hawaiian Electric Company, Inc. common stock.
• Sales from Hamakua Energy, LLC to Hawaii Electric Light (a regulated affiliate) were eliminated in consolidation until Hamakua Energy's sale on March 10, 2025.
• HEI transferred $479 million into GLST1, LLC, a new subsidiary, for the first settlement payment. Effective March 31, 2025, HEI assigned 60% of GLST1's membership interests to Hawaiian Electric, reported as an investment in an unconsolidated affiliate.
• Hawaiian Electric unconditionally guarantees Hawaii Electric Light's and Maui Electric's obligations for Special Purpose Revenue Bonds and 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.
• Hawaiian Electric periodically makes short-term loans to Hawaii Electric Light and Maui Electric (e.g., $82.7 million from Hawaiian Electric to Maui Electric as of September 30, 2025).
• Hawaiian Electric's Board of Directors approved a $10 million quarterly dividend to HEI for Q1, Q2, and Q3 2025, after a temporary suspension.

Stakeholder Impact

• Shareholders: Positive impact from improved net income and credit rating upgrades, but potential for future dilution from capital raises. Dividend suspension continues to impact income-focused shareholders.
• Customers: Expected to benefit from wildfire safety measures, grid modernization, and the transition to renewable energy, aiming for safe, reliable, and affordable clean energy. The PUC's suspension of the ESM and the Utilities' commitment to not pass wildfire settlement costs to customers aim to protect ratepayers. Moratorium on disconnections on Maui provides relief to affected customers.
• Employees: Corporate integration plans could involve HEI employees moving to the Utilities. Wildfire safety measures are also aimed at protecting employees.
• Creditors/Lenders: Benefit from improved credit ratings, increased liquidity, and successful debt issuances, reducing perceived risk. The State's Act 191 allows for state step-in during utility financial distress, providing additional assurance.
• Suppliers/IPPs: Act 191 aims to ensure project owners receive payment, addressing concerns about IPPs' ability to procure low-cost financing due to the Utilities' credit rating. However, federal policies and trade policies could impact costs and supply chains for renewable energy developers.
• Regulatory Authorities: The company is actively engaging with the PUC on various regulatory proceedings, including PBR review, wildfire safety, and renewable energy initiatives.

Next Steps

• Finalization of the Securities Action Stipulation of Settlement and Derivative Litigation Settlement Agreement by February 28, 2026.
• Final court approval of the Class Settlement Agreement (hearing scheduled for January 8, 2026).
• Hawaii Supreme Court oral argument on the subrogation appeal scheduled for January 27, 2026.
• Defendants' motion for summary judgment on direct actions brought by insurers (hearing set for November 26, 2025).
• Utilities to collaborate with parties on an alternative PBR re-basing proposal for submission to the PUC by January 7, 2026.
• If alternative PBR proposal fails, Utilities to file re-basing application in the second half of 2026, using a 2027 test year.
• Utilities to file a straw proposal under Track A of the wheeling docket on or before November 10, 2025.
• PUC to issue a procedural order governing Track B of the wheeling docket.
• Utilities to file an updated and supplemented PUC application for updated project costs for GMS Phase 2 in the fourth quarter of 2025.
• PUC decision requested by March 13, 2026, for the Waiau Repower Project.
• Molokai New Energy Partners (MNEP) lawsuit trial against Maui Electric to commence on February 18, 2026.
• Hawaii Electric Light and Hu Honua to provide a status report on negotiations by November 10, 2025.
• Utilities to continue the Habitat Conservation Plan (HCP) process and take specific actions to minimize and mitigate potential impact of powerlines on endangered seabirds.
• Trial for Endangered Species Act complaint regarding street and facility lights scheduled for April 20, 2026.
• Management to continue assessing the impact of the "One Big Beautiful Bill Act" and trade policies on renewable energy projects.
• Management to continue working on a financing plan to raise additional capital for the remaining wildfire tort claims.

Key Dates

Recommendation

The company has made significant strides in addressing the financial fallout from the Maui wildfires through substantial settlement agreements and successful capital market activities, leading to improved liquidity and credit rating upgrades. This de-risking of major liabilities is a strong positive. However, the path to achieving ambitious decarbonization goals faces delays and cost pressures from federal policies and supply chain issues. The economic outlook for Hawaii remains uncertain, and the company still needs to secure additional capital for the remaining wildfire settlement payments. While the immediate crisis appears to be managed, the long-term strategic execution in a complex regulatory and environmental landscape warrants a cautious "hold" position, allowing investors to monitor the successful implementation of financing plans, the pace of renewable energy transition, and the impact of new federal and state policies.

Keywords

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