Release Date: August 07, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PUC approved recovery of approximately $350 million in wildfire mitigation plan spending, including $270 million in capital and $80 million in O&M, with an additional $11.5 million for 2025 O&M and $3.9 million annual ongoing O&M.
- Plans to use securitization for WMP cost recovery, which will lower costs to customers and improve affordability.
- Credit ratings improved: S&P upgraded HEI and Hawaiian Electric to double minus, and Moody's upgraded both entities by one notch, reflecting reduced wildfire risk and business risk profile improvements.
- The company is advancing one of the largest competitive renewable generation procurements in state history, seeking nearly 1,650 GWh of variable renewable energy, 465 MW of grid-forming resources, and 111 MW of firm capacity, which could lower costs.
- PUC approved two more solar plus storage PPAs from the Stage 3 RFP, bringing total approved to 166 MW of solar and 670 MWh of battery storage, supporting renewable goals.
- The company has identified over $1.3 billion in transmission and distribution investments through 2035, including $190 million for climate adaptation, to harden the grid and improve resilience.
Negative Points
- Core earnings declined significantly: consolidated core net income was $22.5 million ($0.13 per share) in Q2 2026, down from $35.4 million ($0.20 per share) in Q2 2025, driven by higher interest expense and O&M costs.
- Higher O&M expenses due to increased vegetation management, generation overhaul and maintenance, overhead and underground inspection costs, and higher labor and benefit costs in an inflationary environment.
- The company expects to incur a loss from PIM and shared savings mechanisms (PIMs and SSMs) for the full year 2026, compared to $7.5 million in rewards last year, and will not achieve the same level of rewards.
- The PUC denied the request to launch a new RFP for up to 500 MW of additional firm generation, requiring a demonstration of need, which could delay necessary capacity additions.
- The company faces structurally higher O&M costs, including significantly higher insurance premiums, which are not fully recovered under the current rate framework, and the GDPPI-based annual rate increase has lagged actual cost increases.
- The holding company core net loss widened to $10.1 million in Q2 2026 from $7.1 million in Q2 2025, due to lower interest income after the first settlement payment.
Q & A Highlights
Q: Regarding the $350 million securitization for the wildfire mitigation plan (WMP), does all of that fall within the capital plan through 2028, and how should we think about the rate base growth outlook if that amount is excluded?
A: Paul Ito (CFO) confirmed that if the securitization is approved, the WMP expenses would not be part of rate base and would instead be recovered through the securitization. The company plans to file the application this year, and the commission will rule on eligibility, which they expect to be approved.
Q: After the rate rebasing proposal, when does the company plan to file its next rate case? Is it 5 years after the new rates go into effect, or could it come sooner?
A: Scott Sue (CEO) deferred to Joe Viola (Senior VP of Regulatory Affairs), who stated that the expectation is to rebase rates for the next 5-year multi-year rate plan, meaning the next rebasing process would likely occur around 2032.
Q: Given that O&M is expected to be materially higher than inflation, can you provide more detail on how much higher, and is the 2.6% hit to trailing 12-month earned ROE from O&M and depreciation sustainable for the rest of the year?
A: Paul Ito (CFO) categorized O&M into three buckets: episodic storm costs (not a normal run rate), conscious spending ahead of recovery in areas like vegetation management and maintenance, and structural changes like higher insurance premiums. He outlined mitigation strategies including rate rebasing, phase 6 PBR framework changes, and internal efficiency measures such as insourcing work and improving end-to-end processes.
Q: What are your thoughts on the proposal by Jira (a third party) to establish a regulated generation utility in Hawaii, and how are you engaging with stakeholders given the governor's support?
A: Scott Sue (CEO) acknowledged the public nature of Jira's filings and the governor's support. He stated that HEI's position is that any decision must be in the best interest of all customers and Hawaii. HEI believes the existing regulatory framework should be followed, but they are open to examining efficiency and effectiveness. HEI will participate fully in any PUC process and noted alignment with the governor's goals on affordability, reliability, and clean energy.
Q: Can you clarify the financial impact of the Maui wildfire settlement liability remeasurement on the second quarter results?
A: Paul Ito (CFO) explained that the remaining settlement liability was adjusted down from $1.44 billion to $1.3 billion, reducing expenses by $153.9 million. This non-cash accounting adjustment occurred because the liability became contractual rather than contingent. The benefit will reverse over time through accretion of interest expense over the next 3 years. The remeasurement totaled $136.2 million pre-tax net of accretion, and the company also recognized $8.5 million in insurance recoveries.
Q: What is driving the higher O&M expenses in the second quarter, and how does this impact the full-year outlook?
A: Paul Ito (CFO) attributed the increase to higher vegetation management expenses, generation overhaul and maintenance costs, and overhead and underground inspection costs. For the full year, the company expects higher O&M due to factors such as the loss of deferral authorization for wildfire-related expenses, storm response costs, higher insurance premiums, and elevated IT costs for cyber defenses. They also expect to realize the maximum penalty under the fuel cost risk sharing mechanism and a loss from PIMs and SSMs for 2026.
Q: How is the company addressing affordability concerns while making critical infrastructure investments?
A: Scott Sue (CEO) highlighted the planned securitization for WMP costs to minimize customer impact, competitive procurements for renewable generation to attract lower pricing, and a focus on holistic planning for transmission, distribution, and generation needs. The company has identified over $1.3 billion in investments through 2035 for interconnection points, $60 million for distribution upgrades, and $190 million for climate adaptation programs.
Q: What is the status of the rate rebasing request and the expected timeline for new rates?
A: Scott Sue (CEO) stated that the company resubmitted its rebasing request in July after the commission accepted the proposed methodology. The request includes a $170 million base rate increase phased over 2 years, with $125 million proposed to take effect in 2027. The company has requested an interim decision by December 18, 2026, to allow new rates to go into effect by January 1, 2027, with a final decision expected in mid to late April 2027.
Q: Can you provide an update on the integrated grid plan (IGP) and the recent RFP for generation resources?
A: Scott Sue (CEO) noted that the company submitted its final IGP RFP on July 17, seeking nearly 1,650 GWh of variable renewable energy, 465 MW of grid-forming resources, and 111 MW of firm generating capacity. They also requested to launch an RFP for all fuels by the end of 2026 and asked the PUC to allow a new RFP for up to 500 MW of additional firm generation on Oahu. The PUC responded on August 5, requesting a demonstration of need before advancing such a significant procurement, which the company considers reasonable and plans to address.
Q: How is the company's liquidity position and financing plan for the remaining settlement payments?
A: Paul Ito (CFO) reported total consolidated liquidity of approximately $1.3 billion, with the holding company and utility having $52 million and $186 million in unrestricted cash, respectively. The holding company has $550 million in combined liquidity from its ATM program and credit facility, while the utility has $550 million from its accounts receivable and revolving credit facilities. Financing plans for the remaining settlement payments remain unchanged, targeting investment grade credit metrics. The company also noted S&P's upgrade of HEI and Hawaiian Electric to double minus in July, following Moody's upgrade in April.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
