Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2024, for Hawaiian Electric Industries, Inc. (HEI) and its principal subsidiary, Hawaiian Electric Company, Inc. (Hawaiian Electric). HEI operates three primary segments: Electric Utility (providing electricity to Hawaii), Bank (American Savings Bank, F.S.B.), and Other (including Pacific Current, LLC, focused on clean energy). The reporting period is dominated by the financial and operational impacts of the August 2023 Maui windstorm and wildfires, including the accrual of significant tort-related liabilities and ongoing litigation.
Key Financial Metrics
| Metric (Nine Months Ended Sept 30, 2024) | HEI Consolidated | Electric Utility | Bank (ASB) |
|---|---|---|---|
| Total Revenues | $2,732.9 million | $2,410.5 million | $312.2 million |
| Net Income (Loss) | $(1,356.3) million | $(1,271.3) million | $(6.1) million |
| Net Income (Loss) for Common Stock | $(1,357.8) million | $(1,272.8) million | $(6.1) million |
| Diluted EPS | $(12.16) | N/A | N/A |
| Operating Cash Flow | $350.9 million | $322.6 million | $49.0 million (estimated from segment data) |
| Cash and Cash Equivalents (Sept 30, 2024) | $1,159.6 million | $147.6 million | $332.7 million |
| Long-Term Debt (Net) | $2,836.5 million | $1,888.0 million | N/A |
| Wildfire Tort-Related Claims Liability | $1,915.0 million | $1,915.0 million | N/A |
Material Changes vs. Prior Period
- Net Loss: HEI reported a net loss of $1.36 billion for the nine months ended September 30, 2024, compared to net income of $151.9 million in the same period in 2023. This reversal is primarily due to the accrual of approximately $1.92 billion in estimated wildfire tort-related liabilities.
- Wildfire Accruals: The Electric Utility segment recorded $1.875 billion in wildfire tort-related claims for the nine months ended September 30, 2024, compared to $75 million in the prior year period. This reflects the finalization of settlement estimates.
- Impairment Charges:
- Bank Segment: Recorded a non-cash goodwill impairment charge of $82.2 million in the second quarter of 2024 following a strategic review of American Savings Bank (ASB).
- Other Segment: Recorded a non-cash asset impairment charge of $35.2 million in the third quarter of 2024 related to Pacific Current assets.
- Equity Financing: In September 2024, HEI completed the sale of 62.2 million shares of common stock, raising net proceeds of approximately $557.7 million to fund the first installment of the wildfire settlement.
- Bank Performance: ASB reported a net loss of $6.1 million for the nine months ended September 30, 2024, compared to net income of $50.1 million in 2023, driven by the goodwill impairment and higher interest expenses.
Guidance, Outlook, and Risks
- Settlement Agreement: Effective November 1, 2024, HEI and Hawaiian Electric entered into definitive settlement agreements to resolve tort-related legal claims arising from the Maui wildfires. The total contribution is $1.99 billion, payable in four equal annual installments of $479 million, with the first payment expected in late 2025.
- Going Concern: Management previously disclosed substantial doubt about the ability to continue as a going concern in Q2 2024. However, following the equity offering and the establishment of a financing plan for the settlement, management believes current cash balances ($677.7 million for HEI and $147.6 million for Hawaiian Electric, excluding ASB), available credit facilities, and expenditure reductions alleviate these conditions for the next 12 months.
- Capital Markets: Credit rating downgrades to below investment grade (B- by S&P, B by Fitch) continue to restrict access to capital markets and increase borrowing costs. HEI has filed an At-The-Market (ATM) offering program for up to $250 million to raise additional capital for remaining settlement payments.
- Regulatory Environment: The Utilities are subject to Performance-Based Regulation (PBR). The Public Utilities Commission (PUC) has temporarily suspended the Earnings Sharing Mechanism (ESM) to prevent customers from bearing wildfire costs. The Utilities are pursuing federal funding (IIJA) for grid resilience projects.
- Operational Risks: Risks include the potential for additional uninsured losses, the inability to fully recover wildfire costs through rates or insurance, and the impact of extreme weather events on grid reliability and insurance premiums.
Investor Verification Checklist
- Settlement Conditions: Verify the status of conditions precedent for the $1.99 billion wildfire settlement, specifically the resolution of insurer subrogation claims and court approvals, which must be met before payments are due.
- Financing Plan Execution: Monitor the success of HEI's efforts to raise the remaining capital required for the three subsequent settlement installments, given current credit rating constraints.
- Insurance Recoveries: Track the timing and amount of insurance recoveries, as the filing notes that future recoveries remain indeterminable and an insurance receivable has not been recorded for property damage.
- Bank Liquidity: Review ASB's liquidity position and regulatory capital ratios, noting the suspension of dividends to HEI to preserve capital.
- Renewable Energy Progress: Assess the impact of project delays and supply chain issues on the Utilities' ability to meet Hawaii's Renewable Portfolio Standards (RPS) and avoid potential penalties.