Basis of presentation

6 Months Ended

Jun. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of presentation

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited condensed consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric’s Form 10-K for the year ended December 31, 2023.

In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of June 30, 2024 and December 31, 2023, the results of their operations for the three and six months ended June 30, 2024 and 2023, and cash flows for the six months ended June 30, 2024 and 2023. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

For the three and six months ended June 30, 2024, the Company incurred net losses of approximately $1.30 billion and $1.25 billion, respectively. For the three and six months ended June 30, 2024, the Utilities incurred net losses of approximately $1.23 billion and $1.19 billion, respectively. The net losses were primarily due to the accrual of estimated wildfire liabilities totaling approximately $1.71 billion related to the Maui windstorm and wildfire tort-related legal claims (see Note 2).

When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. In making its evaluation, the Company considers, among other things, risks and/or uncertainties related to its results of operations, contractual obligations, including near-term debt maturities, dividend requirements, debt covenant compliance, or other factors impacting the Company’s liquidity and capital resources. As of the date of filing of this Form 10-Q, management has not yet implemented a capital financing plan to address expected wildfire settlement payments. If the conditions resulting in the substantial doubt are not resolved prior to the issuance of the Company’s annual financial statements, or it is not yet probable that management's plans can be effectively implemented to address those conditions, the Company would be in default on certain terms of its taxable debt agreements and syndicated credit facility agreements, and lenders would have the option to call the outstanding debt. Management believes HEI’s and the Utilities’ current cash balance at June 30, 2024 of $124.4 million and $88.6 million, respectively, and available capacity on the asset-based lending facility (ABL Facility) would not be sufficient to fund the Company’s planned expenditures and operational needs, which include potential payments to settle wildfire claims.

These conditions raise substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern within one year after the date that financial statements are issued. The ability to continue as a going concern is dependent primarily upon the Company’s ability to raise the capital necessary to fund the contribution to the settlement of wildfire tort claims while also meeting their obligations to repay their liabilities arising from normal business operations when they become due. The accompanying consolidated financial statements have been prepared on a basis which assumes HEI and the Utilities are a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from any uncertainty related to HEI’s and the Utilities’ ability to continue as a going concern. Such adjustments could be material.

HEI and the Utilities are currently working with their financial advisors on a financing plan to raise the capital necessary to fund the contribution to the settlement of wildfire tort claims. The Company expects to finance the settlement payments over time through a mix of debt, common equity, equity-linked securities or other potential options. While management believes the Company will be able to raise the necessary capital, there is no assurance that management’s plans will be successful.

HEI’s and the Utilities’ future results of operations involve significant risks and uncertainties. Factors that could affect HEI’s and the Utilities’ future operating results and could cause actual results to vary materially from expectations include, but are not limited to, access to capital, ability to attract and retain key personnel, and pending or threatened litigation (including recent litigation noted above).

Recent accounting pronouncements.

Segment Reporting. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through enhanced disclosure requirements of significant segment expenses. These amendments are effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. These amendments apply on a retrospective basis. The Company is currently evaluating the impact of this amendment on the Company’s consolidated financial statements.

Income Taxes. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures to enhance the transparency and decision usefulness of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. These amendments apply on a prospective basis with a retrospective option. Early adoption is permitted. The Company is currently evaluating the impact of this amendment on the Company’s consolidated financial statements.

Climate-related disclosures. In March 2024, the Securities and Exchange Commission (SEC) issued final climate-related disclosure rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors (climate disclosure rules). The rules will require annual disclosure of material greenhouse gas emissions as well as disclosure of governance, risk management and strategy related to material climate-related risks. In addition, the rules require (i) financial statement impacts of severe weather events and other natural conditions; (ii) a roll forward of carbon offset and renewable energy credit balances if material to the Company’s plan to achieve climate-related targets or goals; and (iii) material impacts on estimates and assumptions in the financial statements. The disclosure requirements will begin phasing in for annual periods beginning with calendar year 2025. The Company is currently evaluating the final rule to determine its impact on the Company’s consolidated financial statements. In April 2024, the SEC voluntarily stayed implementation of its climate disclosure rules pending completion of judicial review by the Court of Appeals for the Eighth Circuit.

Reclassifications. Reclassifications of prior year Wildfire tort-related claims amounts were reclassified from “Other liabilities” and “Other current liabilities” for the Company and the Utilities, respectively, to conform to the current year financial statement presentation. Reclassifications did not affect previously reported cash flows, net income or retained earnings.