Hawaiian Electric Industries, Inc. (HE) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights several concerns: increased O&M expenses, penalties due to fuel cost risks, and a large settlement payment impacting financial health. Although liquidity remains strong, uncertainties around regulatory timelines and rebasing proposals, along with unclear management responses, add to the negative sentiment. The lack of immediate positive catalysts, such as new partnerships or optimistic guidance, further supports a negative outlook.
Key Financial Performance
Net Income $30.5 million for Q1 2026, up from $26.7 million in Q1 2025. This increase is attributed to reduced Maui wildfire-related expenses and lower losses from the strategic review of Pacific Current.
Earnings Per Share (EPS) $0.18 for Q1 2026, up from $0.15 in Q1 2025. The increase is due to the same reasons as the net income growth.
Utility Core Net Income $35.7 million for Q1 2026, down from $49.7 million in Q1 2025. The decrease is due to higher O&M expenses from severe weather events, increased insurance costs, and higher interest expenses.
Holding Company Core Net Loss $4.8 million for Q1 2026, improved from $9.9 million in Q1 2025. The improvement is due to lower interest expenses following the retirement of holding company debt in April 2025.
Unrestricted Cash on Hand $10 million at the holding company and $437 million at the utility as of Q1 2026. This reflects strong liquidity to handle increased working capital requirements due to rising fuel costs.
Liquidity $535 million available under the holding company's ATM program and credit facility, and $518 million available under the utility's accounts receivable facility and credit facility.
Settlement Payment First $479 million payment made in April 2026 as part of the Maui wildfire tort settlement agreement. Future payments are planned for 2027, 2028, and 2029, funded through a mix of debt and equity.
Waiau CapEx Forecast $157 million expected in 2026, up from previous expectations of $90 million. The increase is due to the approval of the Waiau Generating Station Repowering Project.
Operating and Maintenance (O&M) Expenses Higher in 2026 due to increased insurance premiums, storm response expenses, vegetation management, station maintenance, IT-related costs, and labor and benefit costs. These expenses are expected to significantly outpace inflation.
Fuel Cost Risk Sharing Mechanism (FCRS) Penalty Maximum penalty expected in 2026 due to global energy price increases. This penalty is recorded as a revenue reduction.
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Operating Highlights
Wildfire Mitigation Plan Update: Submitted the first update to the Wildfire Mitigation Plan (WMP) for 2026-2027 to the Public Utilities Commission, with updates to be submitted every two years starting in 2027.
Affordability Measures: Introduced interest-free payment plans for up to six months and $50 bill credits for customers in areas heavily reliant on diesel fuel generation to address rising energy costs.
Rate Rebasing Proposal: Submitted a joint rate rebasing proposal with Ulupono Initiative, proposing a 5.3% increase in consolidated base rates phased over two years, equating to an $8-$12 increase in 2027 and $2-$3 in 2028 for average customer bills.
Waiau Generating Station Repowering Project: Received approval for the $908 million Waiau Generating Station Repowering Project, with cost recovery through the Exceptional Project Recovery Mechanism (EPRM). Contracts for six gas turbines have been executed.
Maui Wildfire Tort Settlement: Finalized a comprehensive settlement agreement for the Maui wildfire tort litigation, with the first of four $479 million annual payments made in April 2026.
Renewable Energy and Decarbonization: Continued focus on adding renewable energy sources like solar plus storage to reduce customer bill volatility and support Hawaii's renewable energy goals.
Performance-Based Regulation (PBR): Advanced a stakeholder-driven approach to utility rate adjustment, including performance incentive mechanisms with 200 basis points available (150 for awards, 50 for penalties).
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Risk or Challenges
Maui Wildfire Tort Settlement: The company is making significant financial commitments to resolve the Maui wildfire tort litigation, including four annual payments of $479 million. This poses a financial strain and impacts liquidity.
Wildfire Risk and Mitigation: The company is under pressure to reduce wildfire risks and strengthen grid resilience, requiring continuous updates to the Wildfire Mitigation Plan and significant investments.
Rising Fuel Costs: Global increases in fuel prices, driven by geopolitical tensions, are causing higher energy costs for customers and impacting the company's working capital and financial stability.
Rate Rebasing and Customer Affordability: The proposed rate rebasing process includes a phased increase in customer bills, which could face resistance and affordability challenges for customers.
Waiau Generating Station Repowering Project: The project faces cost overruns beyond the approved $908 million, with additional recovery only possible in future rate cases, creating financial uncertainty.
Severe Weather Events: Unprecedented heavy rains and storms have increased operational and maintenance expenses, impacting financial performance.
Insurance Costs: Higher insurance premiums, particularly for wildfire liability, are adding to operational costs.
Fuel Cost Risk Sharing Mechanism (FCRS) Penalty: The company expects to incur the maximum penalty under the FCRS due to high fuel costs, reducing revenue.
Higher Operational and Maintenance (O&M) Costs: Increased expenses in areas such as vegetation management, storm response, IT improvements, and labor are significantly outpacing inflation, straining financial resources.
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Guidance & Outlook
Wildfire Mitigation Plan (WMP): The company will continue to submit updated WMPs every other year starting in 2027, covering a 2-year period each time, to foster a predictable and deliberate approach to wildfire risk reduction measures.
Energy Costs and Customer Support: Customers should prepare for potential increases in energy costs in the coming months due to rising global oil prices linked to geopolitical tensions. The company has introduced options to smooth short-term billing spikes, including interest-free payment plans and bill credits.
Rate Rebasing and Customer Impact: The company has submitted a rate rebasing request to increase consolidated base rates by approximately 5.3%, phased over two years (2027 and 2028). This will result in an average customer bill increase of $8-$12 in 2027 and an additional $2-$3 in 2028, varying by island.
Waiau Generating Station Repowering Project: The project has been approved with a cost recovery mechanism totaling $908 million, with an additional $247 million expected to be recovered in a future rate case or rate rebasing proceeding, potentially in 2031.
Settlement Payments: Future settlement payments of $479 million are planned for April 2027, 2028, and 2029, funded through a mix of debt and equity depending on market conditions.
Capital Expenditures (CapEx): The updated CapEx forecast includes approximately $157 million for the Waiau project in 2026, up from previous expectations of $90 million.
Operational and Maintenance (O&M) Costs: Higher O&M costs are expected in 2026 due to increased insurance premiums, storm response expenses, vegetation management, station maintenance, IT-related costs, and labor and benefit costs.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Has there been any change to the phasing of the proposed revenue increase and when will the PUC provide a procedural schedule?
A:No, there hasn't been any change to the phasing of the proposed revenue increase. The company is waiting for further guidance from the commission regarding the procedural schedule.
Q:How should we think about the carrying cost of the $247 million gap for the repowering project and its interaction with the current rebasing proposal?
A:The carrying costs will be accrued at the current approved weighted average cost of capital, which is about 7.37%. There is no interaction with the current rebasing proposal as the project is not yet in service.
Q:Has the PUC opened or indicated a timeline for a formal rule-making docket on the wildfire liability cap under Act 258?
A:The PUC has not issued anything formal but has alluded to an 18- to 24-month expected timeframe to complete the rule-making process.
Q:What are the rating agencies communicating as the remaining gating items for an upgrade?
A:The rating agencies are focused on the outcome of the rate rebasing, progress on reducing wildfire risk, the liability cap, and the wildfire recovery fund. However, they do not disclose exactly which elements are required for an upgrade.
Q:What are the drivers of the increase to the capital program and how much of it is EPRM recovery?
A:The increase in the capital program is largely due to separately recovered projects like Waiau and Waena BESS. Baseline CapEx is $350-$400 million annually, with $250 million approved for 2027 and $135 million pending approval.
Q:What are the current thoughts on the timing of raising funds for the second settlement payment?
A:The company has about a year to decide on raising the funds and will base the decision on market conditions. Convertible debt is an option but will depend on market conditions at the time.
Q:How is the company managing liquidity amid higher oil prices and fuel costs?
A:The company has nearly $1 billion in liquidity, including cash, credit facilities, and an AR ABL facility. They feel confident in their ability to manage liquidity despite a lag in fuel cost recovery.
Q:What is the expectation for bad debt expense if oil prices remain elevated?
A:Bad debt write-off percentage could increase from the typical 10-20 basis points to a peak of 51 basis points, as seen during past crises like COVID and the Ukraine-Russia war.
Q:What is the confidence level around the rebasing proposal amid high customer bills?
A:The company is confident in the proposal, which aims to moderate customer impacts, but acknowledges the PUC's focus on customer affordability due to high oil prices.
Q:What is the status of PIMs in the rebasing proposal?
A:The company is working with stakeholders to propose changes to PIMs to ensure they are achievable, with clear targets and baselines, based on lessons learned from the prior framework.
Q:How should we think about the incremental lag for the Waiau repowering project until it is factored into the 2031 filing?
A:The Waiau project involves six turbines being put into service in phases (2029, 2031, 2033). Recovery will begin in the respective years when each pair of turbines is put into service.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the exact timeline for the PUC's procedural schedule and the specific elements required by rating agencies for an upgrade. Additionally, the response on the achievability of PIMs in the rebasing proposal lacked detailed clarity.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Affordability
EPRM amount
PIMs
PUC
Repowering Project
WMP
Waiau
affordability pressure
approach
basis point
commission
customer bill
energy burden
focus
fuel price
generation project
grid
household energy
impact
increase fuel
milestone
oil price
option
potential
price increase
rate period
rate rebasing
stability
tort
transition
volatility
wildfire risk
HE Transcript
Hawaiian Electric Industries, Inc. (HE) Q1 2026 Earnings Call Transcript
Unknown5-11
The earnings call highlights several concerns: increased O&M expenses, penalties due to fuel cost risks, and a large settlement payment impacting financial health. Although liquidity remains strong, uncertainties around regulatory timelines and rebasing proposals, along with unclear management responses, add to the negative sentiment. The lack of immediate positive catalysts, such as new partnerships or optimistic guidance, further supports a negative outlook.
Hawaiian Electric Industries, Inc. (HE) Q4 2025 Earnings Call Transcript
Unknown2-27
The earnings call presents mixed signals. Financial performance has improved from a net loss to a net income, but core net income has decreased due to higher expenses. The Q&A reveals concerns about financing and regulatory uncertainties, including the potential for a rate case pivot and unclear management responses. The dividend approval is a positive, yet the strategic focus on debt for settlements and capital expenditures introduces risk. The overall sentiment is neutral, reflecting a balance between positive financial recovery and potential regulatory and financial challenges.
Hawaiian Electric Industries, Inc. (HE) Q3 2025 Earnings Call Transcript
Unknown11-7
The earnings call reveals several concerns: declining net income, increased operational risks due to wildfire safety investments, and uncertainties around future guidance and legislation. Although there is a positive element in the form of a quarterly dividend and improved holding company net loss, the lack of clear guidance, declining income, and potential financial strain from debt issuance overshadow these positives. Management's vague responses in the Q&A section further contribute to a negative sentiment. Overall, these factors suggest a negative stock price movement in the short term.
Hawaiian Electric Industries, Inc. (HE) Q2 2025 Earnings Call Transcript
Unknown8-8
The earnings call presents a mixed outlook. Financial performance is stable with core net income growth and a reinstated dividend, but challenges like wildfire liabilities, increased operating costs, and divestment risks persist. The Q&A section revealed management's lack of clarity on critical financial strategies, which may concern investors. Despite some positive elements, such as credit rating improvements and liquidity, the uncertainties and risks balance out the positives, leading to a neutral sentiment.
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