10-Q: Hawaiian Electric Reports Q2 Profit Amid Wildfire Settlement Progress

Hawaiian Electric Industries (HEI) and its utility subsidiary report a return to profitability in Q2 2025, driven by the absence of prior-year wildfire liability accruals and progress on a $1.99 billion settlement.

Summary

• Hawaiian Electric Industries (HEI) reported net income for common stock of $26.1 million ($0.15 EPS) for the three months ended June 30, 2025, a significant improvement from a net loss of $1.3 billion ($-11.74 EPS) in the prior-year period, primarily due to the absence of a $1.71 billion wildfire tort-related claims accrual.
• For the six months ended June 30, 2025, HEI's net income for common stock was $52.8 million ($0.31 EPS), compared to a net loss of $1.25 billion ($-11.37 EPS) in the same period of 2024.
• HEI and Hawaiian Electric Company (Hawaiian Electric) are obligated to contribute $1.99 billion to a global settlement for Maui wildfire tort-related legal claims, with the first $479 million installment classified as a current liability and expected in early 2026, and the remaining $1.44 billion as a noncurrent liability.
• HEI raised approximately $557.7 million from a common stock sale in September 2024, with $479 million transferred to a new subsidiary, GLST1, specifically for the first settlement payment.
• The company's bank segment (ASB) was sold in December 2024, with its results now presented as discontinued operations.
• Pacific Current, HEI's clean energy subsidiary, sold Hamakua Holdings, LLC in March 2025, resulting in a $9.8 million after-tax loss, and classified its remaining solar/BESS and biomass facilities as 'held for sale' in June 2025, incurring a $0.2 million impairment charge.
• Hawaiian Electric's credit ratings were upgraded by Moody's, Fitch, and S&P in May and June 2025, with outlooks revised to Stable or Positive.
• The Utilities achieved a 35.8% Renewable Portfolio Standard (RPS) in 2024, exceeding the 30% goal and earning a $1.9 million reward.
• New Hawaii state laws (Act 191, Act 258, Act 301, Act 266) were signed in July 2025, addressing utility financial distress, wildfire relief funds, settlement appropriations, and renewable energy wheeling.
• The 2025 budget reconciliation bill signed by President Trump on July 4, 2025, is expected to limit federal tax credits for wind and solar projects and impose new tariffs, potentially increasing costs and delaying carbon emission reduction goals.
• The Utilities launched a Public Safety Power Shutoff (PSPS) program on July 1, 2024, and filed a 2025-2027 Wildfire Safety Strategy to mitigate wildfire risks.
• The PUC approved $189.7 million for the Climate Adaptation Transmission and Distribution Resilience Program, with $95 million in federal funds awarded under the IIJA.

Sentiment

Score: 6

Explanation: The sentiment is cautiously positive. While the company has returned to profitability and made significant progress on the wildfire settlement, substantial liabilities remain, and future capital raising efforts are uncertain. Credit rating upgrades are a strong positive, but the long-term outlook for renewable energy faces new federal policy challenges and potential delays. The overall situation shows improvement but still carries considerable risk and uncertainty.

Positives

• HEI and Hawaiian Electric returned to profitability in Q2 2025, reversing significant losses from the prior year due to the absence of the large wildfire tort-related claims accrual.
• Significant progress has been made on the Maui wildfire tort litigation settlement, with definitive agreements in place for a $1.99 billion contribution and the first installment of $479 million secured.
• Credit ratings for both HEI and Hawaiian Electric were upgraded by Moody's, Fitch, and S&P, with outlooks improving to Stable or Positive, indicating increased financial stability.
• Hawaiian Electric achieved a 35.8% Renewable Portfolio Standard (RPS) in 2024, exceeding the 30% statutory goal and earning a $1.9 million reward, demonstrating progress in clean energy transition.
• New state legislation (Act 191, Act 258, Act 301, Act 266) provides a framework for state support in utility financial distress, wildfire relief, and renewable energy integration, potentially enhancing long-term stability.
• The PUC approved $189.7 million for the Climate Adaptation Transmission and Distribution Resilience Program, with $95 million in federal funds awarded, supporting critical infrastructure hardening.
• The Utilities completed Phase 1 deployment of 447,000 advanced meters, servicing approximately 95% of customers, improving grid modernization.
• Hawaiian Electric's Board of Directors approved a $10 million quarterly dividend to HEI for Q1 and Q2 2025, resuming payments after a temporary suspension.
• Customer accounts receivable over 30 days past due decreased by approximately 34% since December 2024, improving cash collections.

Negatives

• HEI's consolidated revenues decreased by 6% for both the three and six months ended June 30, 2025, primarily due to lower electric utility revenues.
• The company still faces a substantial remaining liability of $1.44 billion for the Maui wildfire settlement, requiring additional capital raising efforts with no assurance of success.
• The sale of Hamakua Holdings, LLC resulted in a $9.8 million after-tax loss for Pacific Current.
• The classification of remaining Pacific Current operating subsidiaries as 'held for sale' led to a $0.2 million pretax impairment charge and $5.3 million in tax expense.
• The 2025 budget reconciliation bill and new tariffs are expected to increase costs for new renewable projects and potentially delay the achievement of carbon emission reduction goals.
• The Utilities expect the planned 70% reduction in carbon emissions by 2030 to be achieved later than the original target date due to federal policies and market challenges.
• The Public Safety Power Shutoff (PSPS) program, while a safety measure, is anticipated to cause service disruptions and negatively impact system reliability metrics.
• The federal court overseeing a putative securities class action and state/federal shareholder derivative actions are ongoing, with no assurance of successful defense or adequate insurance coverage for potential settlements.
• The Molokai New Energy Partners (MNEP) breach of contract lawsuit against Maui Electric is ongoing, with trial continued to an undetermined date.

Risks

• Potential for further trade policy changes under the current administration could disrupt supply chains, increase costs for capital goods and equipment, and impact the ability to meet renewable portfolio standards (RPS) goals.
• Significant costs and potential unrecoverable liabilities from the Maui windstorm and wildfires, including ongoing lawsuits and potential regulatory penalties.
• Increased insurance premiums and the potential inability to obtain wildfire and general liability insurance coverage at reasonable rates, if available at all.
• Inability to raise the necessary capital on reasonable terms to fund the remaining $1.44 billion Maui wildfire tort litigation settlement, which could lead to substantial doubt about HEI's and the Utilities' ability to continue as a going concern.
• Potential further dilution to existing shareholders if the Company raises funds by issuing additional equity or equity-linked securities.
• Extreme weather events, including windstorms, tsunamis, and wildfires, exacerbated by climate change, could damage utility equipment or contribute to wildfires.
• Future suspension, material reduction, or extended delay in dividends or other distributions from operating subsidiaries to HEI.
• Further downgrades by securities rating agencies, impacting financing efforts and increasing borrowing costs.
• Risks of suffering uninsured or underinsured losses from natural disasters and operational incidents, including public and employee safety issues.
• International, national, and local economic and political conditions, including the state of Hawaii's tourism, defense, and construction industries, and the impact of global developments.
• Citizen activism, including civil unrest, could negatively impact operations, delay construction, or increase project costs for critical infrastructure.
• The timing, speed, and extent of changes in interest rates and the yield curve, leading to higher borrowing costs and changes in market liquidity.
• The potential delay or disapproval by the Public Utilities Commission (PUC) of renewable energy or resilience proposals and related cost recovery.
• The ability of the Utilities to recover undepreciated costs of fossil fuel generating units if retired before their expected useful life.
• Capacity and supply constraints or difficulties if generating units fail or demand-side resources fall short of forecasted benefits.
• High and/or volatile fuel prices, increasing working capital requirements and customer bills, and potential impacts on utility reliability.
• The impact from the PUC's implementation of Performance-Based Regulation (PBR), including new performance incentive mechanisms (PIMs) and the implications of not achieving performance goals.
• Unfavorable changes in economic conditions, such as sustained inflation, higher interest rates, or recession, impacting customers' ability to pay bills and increasing operating costs.
• Cybersecurity risks and the potential for cyber incidents at HEI, its subsidiaries, and third-party service providers.
• Failure to achieve remaining cost savings commitments related to the management audit ($33 million over 2021-2025 MRP).
• Federal, state, county, and international governmental and regulatory actions, including changes in taxation, environmental laws, and carbon pricing.
• The impact from the PUC's implementation of wheeling for the Utilities, including cost shifting, increased competition, and legal/technical implications.
• Developments in laws, regulations, and policies governing protections for historic, archaeological, and cultural sites, and plant/animal species.
• Discovery of conditions attributable to historical chemical releases, including necessary investigation and remediation costs.
• Decisions by the PUC in rate cases and other proceedings, including delays, adverse changes, and disallowance of project costs.
• The ability of Pacific Current, LLC to achieve its performance objectives, which could affect its ability to service non-recourse debt.
• Reliance on third parties and the risk of their non-performance.

Future Outlook

Management believes it has adequate cash to meet short-term financial obligations, including the first installment of the wildfire settlement in early 2026. However, long-term liquidity remains impacted by the remaining wildfire liability, below-investment-grade credit ratings (despite recent upgrades), and higher working capital requirements due to inflation and elevated fuel prices. The company is actively working on a financing plan for the remaining $1.44 billion settlement amount but provides no assurance of its success, noting that other strategic alternatives may be considered if financing plans are unsuccessful. The Utilities expect the 70% carbon emission reduction by 2030 target to be achieved later than originally planned due to new federal policies and tariffs impacting renewable energy project costs. They remain committed to achieving Hawaii's ambitious renewable energy goals and adapting to new regulatory and legislative developments.

Management Comments

• "The Company intends to vigorously defend itself in the litigation if a definitive settlement is ultimately not achieved."
• "Hawaiian Electric fully supports this humanitarian initiative and has contributed $75 million."
• "Hawaiian Electrics 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 Companys cash and cash equivalents amount of $154 million and GLST1s restricted cash amount of $479 million, both as of June 30, 2025, the available capacity on Hawaiian Electrics ABL Facility and HEIs and Hawaiian Electrics unsecured lines of credit, additional liquidity under HEIs 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, there is no assurance that managements 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 remain committed to working with all stakeholders to reach Hawaiis ambitious renewable energy goals."

Industry Context

The utility industry, particularly in Hawaii, is undergoing a significant transition towards decarbonization and increased resilience against climate change impacts. Hawaiian Electric's efforts to integrate renewable energy, modernize its grid, and implement wildfire safety measures align with broader industry trends and state mandates for clean energy. However, the company faces unique challenges, including the financial aftermath of the Maui wildfires and the complexities of operating in an island grid system. New federal policies, such as the 2025 budget reconciliation bill and tariffs, introduce uncertainty regarding the cost and pace of renewable energy development, a concern for utilities nationwide. The regulatory environment in Hawaii, with its Performance-Based Regulation (PBR) framework and new legislation addressing utility financial stability and renewable energy wheeling, reflects a proactive approach to managing these transitions, albeit with ongoing oversight and potential for disallowances.

Comparison to Industry Standards

• Hawaiian Electric's achieved Renewable Portfolio Standard (RPS) of 35.8% in 2024 exceeds the statutory goal of 30% for 2020, demonstrating strong performance relative to state-mandated renewable energy targets. While specific comparable utility RPS figures are not provided, this indicates a commitment to decarbonization ahead of schedule for the initial milestones.
• The PUC-allowed Return on Average Common Equity (ROACE) of 9.5% for Hawaiian Electric is within the typical range for regulated utilities in the U.S., which often fall between 9-10%. Hawaiian Electric's achieved ROACE of 3.7% (or 8.61% excluding wildfire settlement impacts) for the twelve months ended June 30, 2025, indicates underperformance relative to its allowed rate, suggesting ongoing financial pressures or disallowances not fully recovered through rates.
• The $1.99 billion wildfire settlement, while substantial, is a unique event for Hawaiian Electric. Comparisons to other utilities facing wildfire liabilities (e.g., PG&E in California) would highlight the significant financial burden and the need for robust mitigation and recovery strategies, though the specific context and scale differ.
• The company's capital expenditure plans for grid modernization and resilience, including the $189.7 million Climate Adaptation Transmission and Distribution Resilience Program, are in line with industry efforts to harden infrastructure against extreme weather, a growing concern for utilities globally, particularly those in climate-vulnerable regions.

Corporate Governance

Legal Proceedings

• HEI and Hawaiian Electric are named in approximately 835 lawsuits related to the Maui windstorm and wildfires, with a global settlement agreement for $1.99 billion reached, subject to certain 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 violations of the Securities Exchange Act of 1934, with mediation efforts underway.
• Two putative shareholder derivative actions, In re Hawaiian Electric Industries Inc. and Hawaiian Electric Company, Inc. State Court Derivative Litigation and Hawaii Federal Derivative Actions, are ongoing, alleging breach of fiduciary duty and other claims, with mediation efforts underway.
• Hawaii Electric Light is involved in ongoing litigation with Hu Honua Bioenergy, LLC, where federal antitrust claims were dismissed, state claims dismissed without prejudice, and an appeal has been filed, with negotiations for a potential PPA continuing.
• Maui Electric is a defendant in a breach of contract lawsuit filed by Molokai New Energy Partners (MNEP), with the trial continued to an undetermined date.
• The Utilities are subject to environmental proceedings, including remediation efforts for PCB and fuel oil contamination at the former Molokai Electric Company generation site ($2.4 million reserve) and the Pearl Harbor Superfund Site ($9.5 million reserve).
• The Utilities are involved in an Endangered Species Act lawsuit related to alleged impacts on endangered seabirds from powerlines, street lights, and facility lights, with a settlement agreement reached for powerlines and ongoing discussions for street/facility lights.

Related Party Transactions

• HEI is the sole holder of Hawaiian Electric Company, Inc. common stock.
• HEI has a standing commitment letter to make revolving short-term loans to Hawaiian Electric, with a borrowing limit of $75 million outstanding at any time.
• Hawaiian Electric had short-term borrowings from Maui Electric Company, Limited of $69.2 million as of June 30, 2025.
• HEI assigned 60% of the membership interests of GLST1 (the subsidiary holding the first wildfire settlement payment) to Hawaiian Electric, reported as an investment in an unconsolidated affiliate of $287.3 million on Hawaiian Electric's balance sheet.
• Sales from Hamakua Energy, LLC to Hawaii Electric Light (a regulated affiliate) were eliminated in consolidation until the close of Hamakua Energy's sale on March 10, 2025.

Stakeholder Impact

• Shareholders: Face potential dilution from future equity raises to fund wildfire liabilities, and the quarterly cash dividend on HEI common stock remains suspended. However, the stock may benefit from improved credit ratings and progress on the wildfire settlement.
• Customers: May experience higher electricity rates due to increased costs from wildfire mitigation, renewable energy projects, and inflation. The Public Safety Power Shutoff (PSPS) program could lead to service disruptions. However, they benefit from the suspension of the Earnings Sharing Mechanism (ESM) and customer dividends under PBR.
• Employees: The ongoing litigation and strategic shifts could create uncertainty, but the company's commitment to long-term stability and safety initiatives aims to provide a secure operating environment.
• Creditors: Benefit from the recent credit rating upgrades and the company's efforts to secure financing for wildfire liabilities, which reduces immediate default risk. However, the remaining substantial liabilities and the need for further capital raises still pose risks.
• Suppliers: Renewable energy project delays and new federal policies could impact demand and pricing for equipment and services, particularly for wind and solar components.
• State of Hawaii: New legislation (Acts 191, 258, 301, 266) demonstrates the state's commitment to supporting utility financial stability and renewable energy goals, which is crucial for the state's overall economic and environmental objectives.

Next Steps

• HEI and Hawaiian Electric will continue working on financing plans to raise the additional $1.44 billion needed for the remaining wildfire settlement payments.
• The first installment of the Maui wildfire settlement ($479 million) is expected to be made in early 2026.
• The Class Settlement Agreement for Maui wildfires is subject to final court approval, with objections and opt-out deadlines set for October 8, 2025.
• The Utilities will continue to implement their 2025-2027 Wildfire Safety Strategy, including operational changes, grid hardening, and enhanced inspections.
• The Utilities will continue to monitor and evaluate the potential impact of new federal Executive Orders and changes passed down through the federal contracting officer for the Resilience Program.
• The Utilities plan to file an updated and supplemented PUC application for updated project costs for Grid Modernization Strategy Phase 2 in the third quarter of 2025.
• The PUC will 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 and procedures as mandated by Act 266.
• Hu Honua is to provide a status report to the federal Ninth Circuit court by November 10, 2025, regarding its appeal.
• Negotiations between Hawaii Electric Light and Hu Honua regarding a potential PPA are ongoing, with an intent to submit an application for approval upon completion.
• Maui Electric's breach of contract lawsuit with MNEP has had its trial continued to a date yet to be determined.
• The Utilities will continue to develop their Integrated Demand Response Portfolio Plan.
• The Utilities will continue to accept project applications for small Community-Based Renewable Energy (CBRE) projects.
• The Utilities will continue to work with legal counsel on seeking recovery of losses related to damages sustained to Hamakua Energy's and Mahipapa's plant facilities.
• The PUC will conduct a comprehensive evaluation of the PBR Framework, with the current MRP ending on May 31, 2026, and MRP2 commencing on January 1, 2027.

Key Dates

Recommendation

The filing presents a mixed but improving picture. The return to profitability and significant progress on the Maui wildfire settlement, coupled with credit rating upgrades, are strong positive indicators that reduce immediate financial distress. The company has secured funding for the first settlement installment and is actively pursuing solutions for the remainder. However, substantial liabilities still exist, and the success of future capital raises is not guaranteed. New federal policies introduce uncertainty and potential cost increases for renewable energy projects, which could impact long-term decarbonization goals. Given the ongoing litigation, the need for further capital, and the evolving regulatory and policy landscape, a 'Hold' recommendation is appropriate. Investors should monitor the company's progress on financing the remaining wildfire liabilities, the impact of new federal energy policies, and the outcomes of ongoing legal proceedings before making further investment decisions.

Keywords

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