Hawaiian Electric's accounting windfall vs. its actual problem

Hawaiian Electric's net income in the second quarter of 2026 was $138 million, up from $39 million in the same quarter a year earlier. If you read only that headline, you'd think the company that caused the deadliest wildfire in Hawaiian history has figured something out.

The basic point is that the headline number is an accounting artifact. Strip out the wildfire-related entries and core net income fell from $35.4 million to $22.5 million, missing Wall Street estimates by about a third. The stock, currently at $12.40, is down 26% over the last four months. The market appears to have done the arithmetic before the press release hit.

Here is how the machine works.

When the Maui wildfires struck in August 2023, Hawaiian Electric — a regulated utility owned by the holding company Hawaiian Electric Industries, or HEI — faced tort litigation on a scale the company had never encountered. A global settlement, agreed in principle in August 2024 and finalized in March 2026 after subrogation (insurance recovery) claimants withdrew their appeals, calls on HEI to pay roughly $1.99 billion in four annual installments of about $479 million.

HEI set up a liability reserve to track what it expected to owe. Accounting rules require that this reserve be adjusted over time as the terms become clearer — the discount rate changes, the probability of additional claims shifts, the exact payment schedule crystallizes. When the settlement crossed the finish line, the company remeasured the reserve. According to CFO Paul Ito, the remaining liability was adjusted downward from $1.44 billion to $1.3 billion.

That write-down shows up as a $153.9 million pre-tax, non-cash benefit in Q2 2026. It's real accounting, and it's real on the income statement, but it doesn't reflect that the company's business got better. It reflects that the company's estimate of what it owes got cheaper. The company is still paying $1.99 billion — it just had previously been holding aside more than it now believes it needs.

This is basically the same move a company makes when it reduces a litigation reserve after a case settles for less than feared. Except here, the "less than feared" is $140 million on a $2 billion obligation — material, but not a fundamental change in the company's financial trajectory.

The plumbing runs deeper.

There's a second accounting layer. On January 14, 2026, the Hawaii Public Utilities Commission authorized HEI to use deferred accounting for wildfire-related operations and maintenance expenses incurred between June and December 2025. Deferred accounting, in utility-regulation language, means the company doesn't have to hit its income statement with those costs right now. Instead, it books them as an asset and recovers them from customers over time through regulated rates.

So the company gets the PUC to say: "You can defer these costs instead of recognizing them as an expense." That pushes costs from the current quarter into future rate cycles. The timing of the deferral order — just months before Q2 2026 reporting — means that some of the wildfire-related cost pressure that would have shown up in 2025 and early 2026 earnings got pushed onto customers' bills instead.

The PUC also separately approved recovery of $350 million in wildfire mitigation spending — $270 million in capital and $80 million in O&M — to be recovered through securitization. Securitization, for those who don't follow utility regulation, is a mechanism that lets a utility recover approved costs through customer bill charges that are structured as bond-like payments, bypassing the slower traditional rate-case process.

The combined effect is a regulatory system that says: you caused the disaster, you'll pay the settlement, but your customers will also foot the bill for making the grid safer afterward. That's not scandalous in utility regulation — cost recovery for safety spending is standard. But it does blur the line between who ultimately bears the financial consequence of the wildfires: shareholders, through the settlement; or ratepayers, through the recovery mechanism.

What's actually happening to the business.

Under the accounting layers, the operational picture is more like a utility that's getting more expensive to run. O&M costs are up $7.5 million year over year. Interest expense rose $4.1 million on debt issued in September 2025. Insurance premiums are higher, reflecting the new risk reality. Vegetation management costs are higher. Labor costs are higher.

Management called 2026 a "transitional year" with structurally higher costs and losses from performance incentive mechanisms — regulatory programs that reward utilities for meeting targets and penalize them for missing. Last year HEI collected $7.5 million in performance rewards. This year the company is on track to lose money on them instead.

The relief, such as it is, is supposed to come from a 2027 rate rebasing request that seeks $169.8 million in phased revenue increases — $125 million in interim rates starting January 2027, with an additional $44.8 million depreciation adjustment in 2028. That's months away and not guaranteed in the full amount.

So what is the $153.9 million really?

It's the gap between what HEI thought it might owe and what the court-approved settlement actually requires, marked to the income statement as a one-time benefit. In the simplest model, it's about 9% of the remaining liability — a material rounding adjustment, not a business turnaround.

The investor who reads the GAAP headline and thinks "profits are up 3x" has been shown the accounting version of the company. The investor who strips it out and sees a 36% decline in core earnings — on top of rising structural costs, lost performance rewards, and a rate case still pending — has been shown the economic version. The stock, down a quarter from its highs, seems to be pricing the latter.

The funny thing, if you want to call it that, is that the company that lit a Hawaiian town on fire is still trying to convince everyone that it's a fundamentally improving business. The accounting helped the headline. The business hasn't.

In practice, the question isn't whether the remeasurement benefit is legitimate. It is. The question is whether a utility whose core earnings are declining, whose cost structure is getting heavier, and whose rate relief is a year away should be read as a company whose "profit soared." The machine does its work. Whether you buy the output depends on which income statement you trust.