Hawaiian Electric’s Earnings Call Balances Risks and Recovery

Hawaiian Electric Industries, Inc. ((HE)) has held its Q1 earnings call. Read on for the main highlights of the call.

Hawaiian Electric Industries’ latest earnings call struck a cautious but constructive tone, as management balanced meaningful progress on legacy wildfire issues with mounting cost pressures and volatile fuel dynamics. The company emphasized that resolving the Maui wildfire settlement and shoring up liquidity has reduced headline risk, but investors were reminded that core earnings are under pressure and 2026 will be a transition year.

Maui Wildfire Settlement Eases Legal Overhang

Final conditions for the Maui wildfire tort settlement were satisfied on April 10, 2026, and Hawaiian Electric made the first of four annual $479 million payments using funds pre-positioned in a special-purpose vehicle. Management framed the settlement as a pivotal milestone that removes a major litigation overhang and allows the company to focus on recovery and system resilience.

GAAP Net Income and EPS Improve Year on Year

On a GAAP basis, first-quarter 2026 net income rose to $30.5 million from $26.7 million a year earlier, with earnings per share climbing to $0.18 from $0.15. The double-digit percentage gains in both net income and EPS reflect lower wildfire-related expenses and demonstrate some headline improvement despite underlying headwinds.

Core Earnings Weaken Despite Lower Wildfire Costs

Consolidated core net income came in at $31.0 million, or $0.18 per share, while utility core net income was $35.7 million. Management underscored that wildfire-related expenses dropped to under $1 million from roughly $4.5 million, yet core results still declined year over year, highlighting that other operating pressures have taken center stage.

Joint Rate Rebasing Proposal Targets Gradual Increases

The company submitted a joint rate rebasing proposal with the Ulupono Initiative, calling for about a 5.3% consolidated base rate increase phased over two years. If approved, average customer bills would rise by an estimated $8–$12 per month in 2027 and $2–$3 in 2028, with the plan also embedding 200 basis points of performance incentive mechanisms that balance potential rewards and penalties.

Waial Repowering Wins Approval with EPRM Recovery

Regulators approved the Waial repowering project and authorized cost recovery via an EPRM mechanism totaling $908 million, reflecting the original $847 million plus inflation. Hawaiian Electric has already signed contracts for six gas turbines to secure manufacturing slots, which will push near-term capital spending higher but is intended to strengthen long-term reliability.

Liquidity Profile Remains Robust

Management highlighted strong near-term liquidity of roughly $1.0 billion at quarter-end, spanning cash, credit lines and accounts receivable facilities. The holding company has about $535 million of available capacity, while the utility has around $518 million, giving the group notable flexibility to manage volatility and funding needs.

Rating Agencies Turn Incrementally Positive

Following the settlement progress, Moody’s upgraded the utility to Ba1 from Ba2 and the parent to Ba2 from Ba3, while S&P and Fitch maintained positive outlooks. Rating agencies are closely tracking the rate rebasing process, wildfire risk mitigation efforts, and the design of liability caps and recovery funds that could further shape the credit story.

Customer Affordability Support and Electrification Push

To offset higher bills, Hawaiian Electric rolled out new support options on April 6, including interest-free payment plans of up to six months and $50 bill credits for customers in diesel-reliant regions. Management also reiterated a long-term focus on electrification and adoption of rooftop solar and electric vehicles as pathways to lowering overall household energy costs.

CapEx Outlook Rises with Waial Investment

Capital spending guidance was lifted to reflect the Waial project, with Waial-related CapEx in 2026 now expected at around $157 million versus a prior estimate near $90 million. Baseline annual capital investment is projected in the $350–$400 million range, signaling a sustained build-out of infrastructure even as the company navigates funding constraints.

Consolidated Core Earnings Slide in Transition Year

Consolidated core net income fell about 22% to $31.0 million in the quarter, with core EPS dropping to $0.18 from $0.23. Management described 2026 as a transitional year, emphasizing that the earnings pressure reflects elevated cost structures that have yet to be fully addressed through rates or efficiency measures.

Utility Segment Sees Material Profit Compression

Utility core net income declined sharply to $35.7 million from $49.7 million, a drop of roughly 28% year over year. The main drivers were higher operations and maintenance expenses, including storm response and other operational cost increases, which are expected to remain a drag until regulatory recovery catches up.

Severe Weather Drives Up Storm Response Costs

Extreme weather events, including unprecedented heavy rains and damaging winds, forced the utility into 35 days of emergency response. The Kona storms, estimated to have caused about $2 billion in overall damages and prompting a federal disaster declaration, significantly inflated O&M and storm-related spending.

O&M Inflation Outpaces General Price Levels

Looking ahead, management warned that 2026 operating and maintenance expenses will significantly outpace broad inflation, reflecting higher insurance premiums, storm response, vegetation management and plant overhauls. Rising IT and cyber security spend, alongside increased labor and benefit costs, are further tightening margins and complicating cost control.

Fuel Price Spike Strains Working Capital and Revenue

Sharp increases in global oil prices have lifted working capital needs, owing to the one to two month lag between fuel purchases and recovery through customer bills. The company expects to incur the maximum penalty under its fuel cost risk-sharing mechanism, which will directly reduce reported revenue and add short-term P&L pressure.

Waial Cost Recovery Gap Emerges

While regulators approved $908 million of recoverable costs for Waial via EPRM, management expects actual project costs to surpass that figure. The company plans to seek recovery of an estimated $247 million shortfall in a future rate case, likely around the early 2030s, creating a long lead-time regulatory question for investors to monitor.

Higher Interest Costs and Future Settlement Financing

Interest expense rose year on year, influenced in part by a $500 million high-yield bond issued last September. Hawaiian Electric expects to fund future Maui settlement payments, including the second installment anticipated around 2028, through opportunistic debt or convertible debt issuance, which could impact leverage and credit metrics depending on market conditions.

Bad Debt and Affordability Risks Under Watch

Management cautioned that sustained high fuel prices could lead to rising bad debt as customer affordability is stretched. Historically, the company’s worst bad-debt experience reached about 51 basis points versus a typical 10–20 basis points, underscoring the potential downside risk to collections and cash flow if economic conditions or bill levels deteriorate.

Forward Guidance Highlights Transition and Regulatory Milestones

For the near term, the company guided to a challenging 2026, with core earnings already down from $39.8 million to $31 million and utility core profits sliding from $49.7 million to $35.7 million. Management is banking on its rate rebasing request, elevated but targeted CapEx, staged Waial turbine in-service dates and disciplined funding of future settlement payments to gradually restore earnings power and maintain credit strength.

Hawaiian Electric’s earnings call underscored a story of progress amid pressure, with the Maui settlement and liquidity bolstering the balance sheet even as storms, fuel prices and O&M inflation erode profitability. Investors will be watching how regulators respond to the rebasing proposal, how effectively the company manages its cost base and how the Waial project unfolds, all of which will shape the next chapter of this transition.