Hawaiian Electric says customers should not see rate increases due to wildfire settlement

Customers of Hawaii’s largest electrical utility should not see bill increases due to the utility’s portion of a pending $4 billion Maui wildfire litigation settlement.

Scott Seu, president and CEO of Hawaiian Electric’s parent company, said Friday the utility has no intention to raise rates to cover the utility’s $1.99 billion share of the tentative settlement.

Seu made the declaration during a conference call with stock analysts discussing a financial report filed Friday by Hawaiian Electric Industries Inc.

The $1.99 billion obligation, which if approved by a state judge would be distributed evenly over four years starting in mid-2025, was booked as a loss in HEI’s second quarter, which ended June 30.

After accounting for tax impacts, payment timing, insurance proceeds and other things, HEI said the $1.99 billion obligation amounts to a $1.27 billion hit to company finances in the recent quarter.

The company’s net loss for the quarter, including core operating results from Hawaiian Electric and subsidiary American Savings Bank, was $1.3 billion, compared with a $54.6 million profit in the same quarter in 2023.

Excluding the settlement cost, other wildfire-related expenses and a loss related to revaluing the bank, HEI’s net income from core operations was $49.1 million.

HEI intends to arrange a combination of financing to pay for the settlement over four years.

Such financing could include debt, sales of company equity, equity-linked securities or other things, according to HEI. There also has been speculation that HEI might sell American Savings to help fund litigation claims.

On a tax basis, HEI valued the bank at about $680 million earlier this year. However, as part of reviewing “strategic options” for American Savings, HEI in its second-quarter financial report cut the value of the bank by $82.2 million to reflect a lower value for assets acquired in the 1980s and 1990s.

In part because of the value reduction, the bank contributed a net loss of $45.8 million to HEI in the second quarter, compared with a $20.2 million profit in the second quarter of 2023.

Because there is no current assurance that HEI can obtain funding for its agreed-to settlement cost, HEI had to make a “going concern” disclosure that essentially warns investors that there is a risk that the company cannot pay all its expected near-term obligations.

Scott Deghetto, HEI chief financial officer, said on the conference call that the company anticipates having sufficient time to develop and finalize a plan to finance the settlement payments.

“Keep in mind that this settlement was just agreed to a week ago, and we don’t expect payments to begin until mid-2025 at the earliest,” he said.

Also, HEI and Hawaiian Electric had $213 million in cash on hand at the end of June, according to Deghetto.

Seu said the tentative settlement of more than 600 lawsuits and other loss claims from the Aug. 8, 2023, wildfire that killed 102 people and destroyed most of Lahaina increases certainty for the utility company’s future.

“It’s a very large accomplishment, as it brings certainty and creates a path forward for us,” he said.

Shares of HEI stock closed at $15.50 Friday before the financial report was released.

HEI stock has closed between about $15 and $17 since a July 18 national news report saying there was a tentative $4 billion settlement to cost HEI about $1.5 billion. A day after the report, HEI stock surged to $17.51 from $12.75 the day before.

The day before the Lahaina fire, HEI shares were at $37.36 and since then have closed as low as $7.74 on July 8.

Hawaiian Electric has about 471,000 customers on Oahu, in Maui County and on Hawaii island. The company is generally blamed in litigation over the fire as being the main contributor to the disaster sparked by power lines that blew down in gale-force winds.

Most of the lawsuits also allege that the wind-driven inferno was fueled by dry vegetation on land owned by the state, county, Kamehameha Schools and West Maui Land Co. Additionally, Spectrum Oceanic LLC and Hawaiian Telcom, which share infrastructure with Hawaiian Electric, are defendants in most cases.

Kamehameha Schools has agreed to pay $872.5 million, and the state’s contribution is around $750 million.