Hawaiian Electric Industries Inc's Earnings Call: Rate Case Timing and Capital Recovery Signals Don’t Match

Date of Call: Aug 7, 2026

Financials Results

• EPS: $0.71 per share, including $153.9M non-cash accounting benefit; core EPS $0.13, down from $0.20 in Q2 2025

Guidance:

• O&M expected to be higher for full year 2026 due to transition factors.
• Full year 2026 expected to realize maximum penalty under FCRS and not achieve PIM/SSM rewards, unlike 2025.
• Higher interest expense anticipated for 2026 from debt issuance and non-cash accretion from wildfire liability remeasurement.

Business Commentary:

Wildfire Mitigation and Securitization:

• HEI received approval to recover approximately $350 million of Wildfire Mitigation Plan (WMP) spending through the Exceptional Project Recovery Mechanism (EPRM), including $270 million of capital and $80 million of O&M.
• The company plans to request recovery of WMP costs through securitization instead of EPRM, aiming to implement critical investments at the least possible cost to customers.

Rate Rebasing and O&M Expenses:

• HEI submitted a rate rebasing request for a total $170 million base rate increase, phased over two years, with $125 million proposed to take effect beginning in 2027.
• Higher O&M expenses were driven by increased vegetation management, generation overhaul and maintenance costs, and higher insurance premiums, impacting utility core net income.

Integrated Grid Plan and Competitive Procurement:

• HEI's Integrated Grid Plan (IGP) aims to procure nearly 1,650 gigawatt-hours of variable renewable energy, 465 megawatts of grid forming resources, and 111 megawatts of firm generating capacity.
• The focus is on using competitive procurements to attract the lowest pricing for customers, enhancing reliability, and advancing energy equity.

Financial Results and Credit Ratings:

• HEI reported net income of $123.2 million or $0.71 per share for Q2 2026, including a non-cash accounting adjustment that reduced the Maui wildfire settlement liability by $153.9 million.
• Credit ratings improved following progress in reducing wildfire risk exposure, with S&P upgrading HEI and Hawaiian Electric one notch to double B-minus.

Sentiment Analysis:

Overall Tone: Neutral

• Management acknowledges a transitional year with higher costs and focuses on affordability and regulatory processes. Statements include: '2026 continues to be a year of transition for us' and 'we remain laser-focused on affordability.' Credit rating improvements and WMP approval are positive, but cost and regulatory challenges are noted.

Q&A:

• Question from Michael Lonegan (Barclays): Does the $350 million securitization for the Wildfire Mitigation Plan fall in your capital plan through 2028, and how should we think about rate base growth?
  Response: If approved, securitization would recover costs outside the rate base; the application will be filed this year, and the commission will determine eligibility.

• Question from Michael Lonegan (Barclays): When do you plan to file your next rate case after the rebasing?
  Response: Next rate case is expected around the 2032 timeframe as part of the next five-year multi-year rate plan.

• Question from Michael Lonegan (Barclays): Can you provide more detail on O&M being higher than inflation and expected impacts?
  Response: O&M is categorized into episodic costs (storms), planned spend ahead of recovery (vegetation management), and structural changes (higher insurance). Management is addressing through rate rebasing, PBR Phase 6 process, and internal efficiency measures.

• Question from Michael Lonegan (Barclays): Thoughts on JERA’s proposal to establish a regulated generation utility?
  Response: JERA has expressed intent to apply in Q1 2027; HEI believes the existing regulatory framework should be followed, and they will participate fully in the PUC process, aligning on the state's energy vision.

Contradiction Point 1

Timeline for Next Rate Proceeding

It directly impacts expectations regarding the regulatory timeline for rate case filings, potentially influencing financial planning and investor confidence.

Michael Lonegan (Barclays) - Michael Lonegan (Barclays)

2026Q2: The next rate rebasing is expected to occur in the 2032 timeframe, aligning with the next multi-year rate plan. - [Joe Viola](SVP, Regulatory Affairs)

Given the commission denied filing a rate case after the rebasing proposal, when do you plan to file your next rate case? - Jamieson Ward (Jefferies)

2026Q1: The company is awaiting further guidance from the PUC. They filed a suggested procedural process for review and public input, and are awaiting a certification order from the commission. - [Joe Viola](SVP, Regulatory Affairs)

Contradiction Point 2

Capital Expenditure Treatment for Separate Recovery Projects

It involves a change in the financial treatment of specific capital projects, affecting rate base growth outlook and capital planning.

Michael Lonegan (Barclays) - Michael Lonegan (Barclays)

2026Q2: Yes, to the extent that the company gets approval to securitize the Wildfire Mitigation Plan (WMP) expenses, that amount will not be part of the rate base. - [Paul Ito](CFO)

Does the $350 million securitization for the Wildfire Mitigation Plan count towards the capital plan through 2028, and should it be excluded when considering rate base items during that period? - Michael Lonegan (Barclays)

2026Q1: The increase in CapEx is primarily due to separately recovered projects like the Waiau Repowering Project and Waena BESS... These projects allow for recovery outside the traditional rate case cycle. - [Paul Ito](CFO)

Contradiction Point 3

Insurance Cost Recovery Mechanism

It presents a contradiction on the method for recovering significant operational costs, affecting financial forecasting and risk assessment.

Michael Lonegan (Barclays) - Michael Lonegan (Barclays)

2026Q2: O&M is categorized into three buckets... The company is addressing these through: rate rebasing (which includes insurance increases)... - [Paul Ito](CFO)

What is your rate base growth outlook through 2028? - Unnamed (Based on context)

20260228-2025 Q4: Financing will be a relevering at HEI, leaning more towards convertible debt currently... No financing action is anticipated until after final settlement approval. - [Scott Deghetto](Executive VP and CFO)

Contradiction Point 4

Wildfire Recovery Fund Study Submission Timeline

It involves a discrepancy in the timeline for a critical regulatory submission, impacting strategic planning and stakeholder expectations.

What are the key takeaways from the earnings report? - Michael Lonegan (Barclays)

2026Q2: The company plans to file an application for [wildfire mitigation plan securitization] in 2026, and the Commission will rule on eligibility, which is expected to be approved. - [Paul Ito](CFO)

Does the $350 million securitization for the Wildfire Mitigation Plan fully align with your 2028 capital plan? - Michael Brown (Barclays) – Forwarding for Nicholas Campanella:

20251108-2025 Q3: The PUC is on track to submit its wildfire recovery fund study report to the legislature 20 days before the next legislative session begins. - [Scott W. Seu](CEO)

Contradiction Point 5

Engagement and Stance on JERA's Regulated GenCo Proposal

It reflects a change in the company's engagement level and strategic position regarding a potential partnership or regulatory filing.

Michael Lonegan (Barclays) - Michael Lonegan (Barclays)

2026Q2: JERA has filed a letter with the PUC, intending to submit an application in Q1 2027 to establish a regulated GenCo utility. The process has not formally begun. - [Scott Seu](CEO)

What are your thoughts on JERA’s proposal with the PUC to establish a regulated generation utility? - James Ward (Jefferies) – Forwarding for Julien Dumoulin-Smith:

20251108-2025 Q3: Discussions with PBR parties are underway. A proposal is due to the PUC by January 7, 2026. - [Joe Viola](SVP, Regulatory Affairs)