HAWAIIAN ELECTRIC INDUSTRIES INC

Electric utility

Recent developments. See also “Recent developments,” which includes disclosures relating to Maui windstorm and wildfires in HEI’s MD&A.

In 2024, the Utilities accrued estimated wildfire liabilities of approximately $1.92 billion (pre-tax) related to the settlement of the Maui windstorm and wildfire tort-related legal claims (see Note 2 of the Condensed Consolidated Financial Statements). For the three and nine months ended September 30, 2024, the Utilities incurred net losses of approximately $83 million and $1.27 billion, respectively.

In the third quarter of 2024, operation and maintenance expenses were higher by approximately $20 million, or 14%, as compared to the same period in 2023. The increase was mainly due to more generation maintenance work performed, wildfire mitigation program expenditures related to inspections, higher property and general liability insurance costs, andan agreement to settle indemnification claims asserted by the State of Hawaii, partially offset by costs incurred associated with the Maui windstorm and wildfires in 2023.

In thethird quarter of 2024, kWh sales volume increased 1.6% compared to the same period in 2023. The increase reflects the recovery since the Maui windstorm and wildfires as Maui consumption increased 3.8% in thethird quarter of 2024 compared to the same period in 2023. Additionally, increased tourism, especially on Oahu, in 2024 further contributed to the increase of kWh sales.

The price of crude oil has decreased about 7.9% over the same quarter in the prior year. The Utilities are able to pass through fuel costs to customers and have limited fuel cost exposure through a 2% fuel cost-risk sharing mechanism (approximately $3.7 million maximum exposure annually).

In September 2024, the consumer price index increased 2.4% over the last 12 months. In Hawaii, the September 2024 Urban Hawaii (Honolulu) Consumer Price Index (CPI) increased 4.2% over the last 12 months. Under the PBR framework, inflation risk for the Utilities is partially mitigated by an Annual Rate Adjustment (ARA), which is based on a formula that includes a compounded and non-compounded portion.

•The compounded portion of the ARA adjustment includes an adjustment for the annual change in inflation based on the estimated change in Gross Domestic Product Price Index (GDPPI) for the upcoming year, less a predetermined annual productivity factor (currently set at zero), less a 0.22% customer dividend, applied to a basis equal to test year target revenues plus the RAM Revenue adjustments in effect prior to the implementation of PBR, plus the prior adjustment year’s compounded portion of the ARA adjustment. The inflation factor percentage is the consensus projection of annual percentage change in GDPPI for the following calendar year published by Blue Chip Economic Indicators each October. For the 2024 calendar year, the forecasted 2024 GDPPI was 2.18% (net of the 0.22% customer dividend), measured in October 2023, and became effective in rates on January 1, 2024. For the 2025 calendar year, the forecasted 2025 GDPPI was 1.98% (net of the 0.22% customer dividend), measured in October 2024, and is scheduled to become effective in rates on January 1, 2025, pending PUC approval.

•The non-compounded portion of the ARA adjustment includes a subtractive component, representing the management audit savings commitment, or refund to customers, which was approved by the PUC for the years 2021 through 2025.

Customer accounts receivable decreased in 2024 by $36 million, or 15% with the number of accounts past due greater than 90 days decreasing by 43% since December 31, 2023. The decrease in accounts receivables was primarily driven by receipt of government and other program assistance, higher cash receipts associated with increased disconnection efforts and a change in bill due date from 19 days to 15 days in March 2024, along with lower customer bills resulting from lower fuel prices. At this time, while accounts receivable balances continue to remain elevated compared to pre-pandemic levels, with the exception for Maui County, which has been trending down closer to pre-pandemic levels, the decrease in accounts receivable balances since the beginning of the year has reduced working capital requirements and benefited the Utilities’ liquidity. See “Financial Condition—Liquidity and capital resources” for additional information.

System reliability. On March 25, 2024, the Utilities called on Hawaii Island customers to reduce or shift their electricity usage, and in certain instances initiated rolling outages due to a generation capacity shortfall. The situation was due to Hamakua Energy’s unexpected plant shutdown in late February 2024 and also due to the unavailability of generators that have experienced mechanical problems, were at reduced output, or were undergoing maintenance. During that time, generation margins were below targeted levels, especially when wind, solar and hydroelectric output were lower than forecasted. On April 24, 2024, the Utilities lifted their request to conserve electricity as several of the Utilities’ large generators returned to service and on June 3, 2024 Hamakua Energy completed replacement of one combustion turbine and returned it to service. The second combustion turbine returned to service on September 9, 2024. See above in “HEI MD&A-“Other” segment” for discussion relating to Hamakua Energy’s unexpected plant shutdown.

Since the August 2023 Maui windstorm and wildfires, the Utilities have developed a set of Interim Wildfire Safety Measures (IWSM) to mitigate the risk of wildfires in areas identified as having higher risk of wildfire in all service territories (Oahu, Maui County, and Hawaii Island). These interim measures represent actions the Utilities either have already started, or will start in 2024, while the Utilities simultaneously work to develop a more comprehensive Wildfire Safety Strategy. In the near term, it is anticipated that these measures will result in disruptions to service and negatively impact T&D SAIDI and SAIFI. While the Utilities work to refine these measures over time to mitigate customer impacts, the Utilities are currently focused on taking immediate steps to keep island communities safe during extreme weather events. For a discussion regarding the launch of the Public Safety Power Shutoff (PSPS) program, see discussion below under “Interim Wildfire Safety Measures.”

Regulatory developments. On November 15, 2021, President Biden signed into law the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), which includes approximately $550 billion of new federal spending to be allocated over the next five years through various programs. The funding will help the State of Hawaii achieve its sustainability goals, including renewable energy, resilience, and decarbonization, while also prioritizing economic development, equity and affordability. The Utilities are pursuing potential grant funding of projects under various programs as primary applicant as well as in partnership with other organizations. On August 7, 2024, the Utilities received a notification from the U.S. Department of Energy that their application for $95 million in federal funds under IIJAhas been awarded. The Utilities had submitted two full applications that if awarded, would allow for reduction up to $112 million in the Utilities’ recovery under the Exceptional Project Recovery Mechanism (EPRM) and cost to customers. In October 2024, the Utilities were notified that they were not selected in this second round of IIJA funding opportunities. See “Regulatory proceedings” in Note 4 of the Condensed Consolidated Financial Statements for additional discussions.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA) that provides for $258 billion in energy-related provisions over a 10-year period. The provisions of the IRA are intended to, among other things, lower gasoline and electricity prices, incentivize clean energy investment and promote reductions in carbon emissions. The Utilities are exploring clean energy tax incentives included in the IRA that may further reduce the Utilities’ recovery under the EPRM and cost to customers. See Note 11 of the Condensed Consolidated Financial Statements for additional information.

The Utilities cannot predict the ultimate timing and success of securing funding from any federal government programs.

For a discussion regarding the impact of the Maui windstorm and wildfires on the Utilities’ liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.”