HEI Consolidated: Navigating Challenges, Securing the Future

Overview of Financial Performance

HEI, the parent company of Hawaiian Electric, recently released its consolidated financial report for the first quarter of 2025. The report highlights both the company’s resilience in the face of adversity and the challenges it continues to navigate.

The key takeaways from the report are:

• HEI’s net income for common stock in the first quarter of 2025 was $26.7 million, a 26% increase compared to the same period in 2024. This was driven by improved performance in the electric utility segment, partially offset by a decrease in the “all other” segment.

• The company’s effective tax rate for the first quarter of 2025 was 19%, lower than the 24% rate in the same period in 2024, primarily due to a loss from the sale of Hamakua Holdings and a decrease in excess taxes related to share-based awards.

• HEI and Hawaiian Electric have incurred approximately $2.2 billion in expenses related to the Maui windstorm and wildfires since August 2023. The company has accrued losses of $1.92 billion (pre-tax) to settle the resulting tort-related legal claims.

Revenue and Profit Trends

HEI’s consolidated revenues decreased by 6% in the first quarter of 2025 compared to the same period in 2024. This was largely due to a decrease in the electric utility segment, partially offset by an increase in the “all other” segment.

Operating income, however, increased by 23% during the same period, driven by the electric utility segment’s improved performance, which was partially offset by a decrease in the “all other” segment.

The electric utility segment’s net income for common stock increased by 23% in the first quarter of 2025 compared to the same period in 2024. This was primarily due to higher revenue from the Annual Rate Adjustment (ARA), better heat rate performance, and lower operation and maintenance expenses.

In contrast, the “all other” segment’s net loss increased by $3.1 million, or 17%, due to the loss on the sale of Hamakua Holdings, higher interest expense, and higher corporate expenses, partially offset by higher interest income.

Strengths and Weaknesses

Strengths:

• The electric utility segment’s performance has improved, with higher revenue, better heat rate, and lower expenses.
• The company has taken proactive measures to strengthen its financial position, such as drawing down on credit facilities, entering into an asset-based credit facility, and filing a shelf registration for an at-the-market offering program.
• The company has received federal grant funding to support its climate adaptation and resilience efforts.

Weaknesses:

• The company has incurred significant expenses related to the Maui windstorm and wildfires, including $2.2 billion in total expenses and a $1.92 billion (pre-tax) accrual to settle tort-related legal claims.
• The company’s credit ratings have been downgraded, which limits its ability to access unsecured, short-term borrowings and restricts access to capital markets and other financing sources.
• The “all other” segment has experienced a decline in performance, with higher net losses due to the sale of Hamakua Holdings and other factors.

Outlook and Future Considerations

The report highlights several key factors that will shape HEI’s future outlook:

Maui Windstorm and Wildfires:

• HEI and Hawaiian Electric have entered into settlement agreements to resolve the tort-related legal claims arising from the Maui windstorm and wildfires. The total settlement amount is $4.04 billion, with HEI and Hawaiian Electric contributing $1.99 billion.
• The company has classified the first $479 million installment as a current liability and the remaining $1.44 billion as a noncurrent liability on its balance sheet.
• HEI has raised $557.7 million from the sale of common stock to fund the first installment payment and is working on additional financing plans to raise the remaining $1.44 billion.

Economic Conditions:

• Hawaii’s economic recovery has been mixed, with domestic travel rebounding but international travel, including from Japan, remaining below 2019 levels.
• Unemployment rates in Hawaii and nationally have remained relatively stable, but the state is expected to see flat job growth in 2025, with Maui expected to see a 0.9% increase driven by rebuilding efforts.
• Real estate activity in Hawaii has been mixed, with condominium prices increasing and single-family home prices setting new highs, but the number of closed sales decreasing for single-family homes.
• Inflation and higher fuel prices continue to impact the company’s operations, though the Utilities are able to pass through fuel costs to customers.

Regulatory and Legislative Developments:

• The company has received federal grant funding for climate adaptation and resilience projects, but recent executive orders have created uncertainty around the disbursement of these funds.
• The Hawaii State Legislature has passed several bills that could help support the Utilities’ financial stability and ability to procure energy, including an aggregate liability cap on economic damages from future wildfires and securitization to finance wildfire safety improvements.
• The Public Utilities Commission (PUC) has initiated a proceeding to investigate the establishment of electricity wheeling policies and procedures for the electric utilities in Hawaii.

Transition to a Decarbonized Future:

• The Utilities remain committed to achieving their decarbonization and renewable energy goals, though delays and cancellations in new renewable projects, as well as supply chain and inflationary pressures, have slowed the pace of progress.
• The Utilities have developed a Wildfire Safety Strategy to mitigate the risk of wildfires, which includes operational changes, grid hardening, and the launch of a Public Safety Power Shutoff program.
• The Utilities continue to make progress on their Integrated Grid Planning process and demand response programs to support the transition to a decarbonized and sustainable energy future.

Liquidity and Capital Resources

HEI and the Utilities have taken several measures to strengthen their financial position and ensure adequate liquidity:

• As of March 31, 2025, HEI consolidated had $1.2 billion in available liquidity, including $629 million in cash and cash equivalents and $304 million in undrawn credit facilities.
• The Utilities had $504 million in available liquidity, including $130 million in cash and cash equivalents and $374 million in undrawn credit facilities.
• HEI completed a $557.7 million common stock offering in September 2024 to fund the first installment of the Maui windstorm and wildfires settlement, and has filed a shelf registration for an at-the-market offering program.
• The Utilities have entered into an asset-based credit facility that allows them to borrow up to $250 million and are evaluating other sources of liquidity, such as securitization, re-prioritizing capital spending, and reducing operating expenses.
• However, the Utilities’ credit rating downgrades continue to adversely impact their ability to access capital markets and other financing sources, which could impact their long-term liquidity and capital requirements.

Conclusion

HEI’s consolidated financial report for the first quarter of 2025 highlights the company’s resilience in the face of significant challenges, including the Maui windstorm and wildfires and the broader economic conditions. While the electric utility segment has performed well, the company’s overall financial position has been strained by the expenses related to the Maui events and the impact on its credit ratings.

Looking ahead, HEI and the Utilities are focused on securing the necessary financing to settle the Maui windstorm and wildfires claims, while also navigating the transition to a decarbonized energy future and addressing the ongoing economic and regulatory uncertainties. The company’s ability to successfully execute its financing plans and continue to improve the operational and financial performance of its electric utility segment will be critical to its long-term success and its ability to serve the communities of Hawaii.