HE (HE) Q4 2025: $479M Maui Settlement Nears as PBR Overhaul and CapEx Cycle Reshape Utility Trajectory
HE’s fourth quarter marked a pivotal transition as legal settlements, regulatory reform, and capital deployment converged to define the utility’s next era. With the Maui wildfire settlement process entering its final stage and performance-based regulation (PBR) rebasing on deck, HE is actively restructuring its financial and operational playbook. The company’s forward path is tightly linked to regulatory outcomes and capital market access, setting a high-stakes agenda for 2026 and beyond.
Summary
- Maui Settlement Resolution Accelerates: Final court approvals and appeals near completion, unlocking settlement payments and reducing legal overhang.
- PBR Rebasing and Incentive Overhaul: Joint proposal aims to realign rates, incentives, and risk allocation amid an elevated capex cycle.
- Capital Structure and Liquidity in Focus: Funding for wildfire safety and grid resilience hinges on low-cost securitization and market-dependent equity moves.
Performance Analysis
HE’s 2025 results reflect a transition year shaped by legal, regulatory, and capital allocation milestones. Net income rebounded from a prior year loss, though core utility profitability slipped modestly due to higher operating and maintenance (O&M) costs, increased interest expense, and the absence of prior-year tax credits. The utility segment, which is the company’s primary earnings engine, saw core net income dip as wildfire-related consulting and legal fees flowed through, partially offset by insurance recoveries.
Liquidity remains a central theme, with $486 million in unrestricted cash at the utility and a further $16 million at the holding company, bolstered by $500 million in debt raised last year and expanded revolver capacity. Dividend policy held steady, while the company maintained flexibility through its at-the-market (ATM) equity program and plans for further asset sales, including the remaining stake in American Savings Bank. Capital expenditures (CapEx) are set to climb further in 2026 and beyond, reflecting grid hardening, wildfire mitigation, and renewable integration priorities.
- O&M and Interest Expense Drag: Utility earnings pressured by deferred legal costs and higher rates, offsetting operational gains.
- Settlement-Driven Balance Sheet Moves: Cash held in reserve for the first Maui payment, with future tranches to be funded via debt or convertible debt depending on market conditions.
- CapEx Trajectory Upward: Projected spend of $550–700 million for 2026 and further increases through 2028 signal a sustained investment cycle.
Overall, the quarter’s results underscore the company’s pivot from crisis management to proactive regulatory and capital strategy execution, with near-term earnings stability contingent on both settlement timing and regulatory clarity.
Executive Commentary
"We've advanced key initiatives, including progressing the Maui Wildfire Tort Settlement, pursuing legislative measures that support our communities as we deal with the risk of wildfires, implementing wildfire safety improvements that have reduced the risk of ignition from utility equipment, and laying the groundwork for a successful second multi-year rate period under our performance-based regulation, or PBR, framework."
Scott Siu, HEI President and CEO
"There have been no changes to our settlement financing plan since what we communicated last quarter. We still expect to fund the second settlement payment with debt and or convertible debt and expect that payments thereafter will be funded with a mix of debt and equity depending on market conditions."
Scott DeGetto, HEI Executive Vice President and CFO
Strategic Positioning
1. Wildfire Settlement Resolution
The Maui wildfire tort settlement is approaching resolution, with court approvals mostly secured and only one insurer appeal outstanding. Settlement payments, including the initial $479 million tranche, are expected in the second half of 2026, removing a significant legal and financial overhang.
2. Performance-Based Regulation (PBR) Rebase and Incentive Redesign
HE is moving forward with a joint rebasing proposal under the PBR framework, targeting a more flexible rate structure, improved inflation adjustments, and redesigned performance incentive mechanisms (PIMs). The company is pushing for incentives that are both achievable and better aligned with controllable outcomes, aiming for potential 150–200 basis point upside to allowed returns if targets are met.
3. Capital Structure and Liquidity Management
Liquidity remains robust thanks to recent debt issuance and revolver upsizing. Future settlement payments will be funded through a mix of debt and equity, with a preference for convertible debt in current market conditions. The ATM equity program and planned bank stake divestiture provide further flexibility.
4. Elevated CapEx Cycle and Securitization
CapEx is set to rise sharply, driven by wildfire safety, grid resilience, and clean energy mandates. Management is pursuing securitization—using dedicated bonds repaid from customer surcharges—to lower financing costs for these investments, aiming to minimize ratepayer impact.
5. Regulatory and Legislative Engagement
HE is actively engaged in PUC rulemaking and legislative processes to establish a wildfire liability cap and fund, with an 18–24 month timeline for rule finalization. These regulatory milestones are critical to long-term financial stability and risk management.
Key Considerations
The company’s near-term trajectory is defined by the intersection of legal resolution, regulatory reform, and capital allocation. Each of these levers carries significant execution risk and opportunity.
Key Considerations:
- Maui Settlement Execution: Timing and finality of court approvals will dictate the pace of cash outflows and reset investor focus away from litigation risk.
- PBR Rebasing Uncertainty: The structure and acceptance of the upcoming joint proposal will shape earnings power and rate stability for the next multi-year period.
- CapEx and Securitization Path: Access to low-cost securitized financing is pivotal to balancing infrastructure investment and customer affordability.
- Market-Dependent Funding: Debt, convertible debt, ATM equity, and asset sales all remain contingent on capital market conditions and regulatory approvals.
- Leadership Transition: CFO changeover comes at a critical juncture, with continuity supported by the outgoing CFO’s consulting role.
Risks
HE faces material risks from regulatory delays, legal uncertainties, and capital market volatility. The timing and outcome of the final insurer appeal and PBR rebasing process are critical. Rising CapEx and reliance on external financing expose the company to interest rate and market sentiment swings. Any setbacks in wildfire liability cap legislation or securitization approvals could pressure both credit metrics and ratepayer affordability.
Forward Outlook
For Q1 2026, HE expects:
- Continued progress on court approvals for Maui settlement, with payment expected in the second half of 2026.
- Submission and regulatory review of the joint PBR rebasing proposal by March 6, with a 30-day administrative review period to follow.
For full-year 2026, management maintained CapEx guidance:
- $550–700 million in utility capital expenditures, with further increases projected for 2027 and 2028.
Management emphasized that key milestones for 2026 include finalizing the settlement, advancing the PBR rebasing process, and securing securitization approval for wildfire safety investments.
- Settlement payment timing is contingent on the resolution of all appeals.
- PBR rebasing outcome will set the utility’s earnings and rate trajectory for the next multi-year cycle.
Takeaways
HE’s investment case now pivots on regulatory and legal execution, with CapEx and rate design as key swing factors for future returns.
- Legal Overhang Diminishing: Settlement progress and favorable court rulings sharply reduce litigation risk, but finality remains dependent on one outstanding appeal.
- Regulatory Reset Underway: The PBR rebasing and PIM redesign process will determine the utility’s long-term earnings power and risk-sharing structure.
- Funding Flexibility Needed: Securitization, ATM equity, and asset sales must be timed to market conditions to support a rising investment cycle without eroding credit quality or rate competitiveness.
Conclusion
HE’s Q4 2025 results mark a turning point, as the company transitions from crisis response to proactive regulatory and capital management. The next year will test management’s ability to deliver on settlement, regulatory, and financing milestones, all while navigating a demanding CapEx agenda and evolving risk landscape.
Industry Read-Through
HE’s experience highlights the growing intersection of utility wildfire risk, regulatory innovation, and capital intensity across the sector. The move toward PBR frameworks with meaningful, achievable incentives is gaining traction as utilities seek to align earnings with controllable performance. The use of securitization for wildfire and resilience investments could become a template for other utilities facing similar climate-driven risks. Finally, the importance of legal clarity and liquidity management is underscored in an era of heightened catastrophic event exposure, offering lessons for peers in wildfire-prone and storm-impacted regions.