Kakou
Working together for Hawai‘i’s future
2019 Annual Report to Shareholders
Hawai‘i has some of the nation’s most ambitious clean energy goals—100% renewable energy
and a carbon neutral economy by 2045.
Achieving these goals in the right way for our island state will take balancing important community needs, like
affordability, resilience, social equity and cultural considerations, and addressing key challenges, like limited land
and competing needs for that resource—from affordable housing to clean energy to agriculture.
This is why we say reaching our goals must be done in a way that is “kakou,” meaning that it will take our whole
community working together, and “pono,” done in a way that is right and just for our communities. Only together
can we find the solutions that strike the right balance for our island home.
D
Letter to Shareholders
Dear Fellow Shareholders,
We have long viewed the success of our enterprise and the value we deliver to shareholders
as inextricably linked with the value we deliver to our customers, our employees and our
communities, and with the health of our environment, our economy and our state as a whole.
This link has become even more important in the context of achieving our state’s clean
energy and carbon neutrality goals. Our work to achieve these goals will help preserve our
environment, increase our energy independence, strengthen our economy and create long-
term value for our shareholders. Our company, our employees, our customers and our
communities each play a unique role in achieving these goals, and all of us need to work
together to be successful. In other words, it’s a “kakou” thing.
together to be successful. In other words, it’s a “kakou” thing.
The paragraphs that follow summarize what our HEI family of companies achieved over the
course of 2019, and how we are working to advance our state’s goals and create value for
all of our stakeholders.
Solid Financial Results
In 2019 our consolidated companies generated $218 million in net income and $1.99 in
earnings per share (EPS), representing 8% growth over net income and EPS in 2018. Hawaiian
Electric grew earnings by 9% and strengthened its return on equity, while continuing to
deliver on priorities established in its five-year strategic plan. American Savings Bank (ASB)
grew earnings and maintained a strong net interest margin, while growing its dividend to the
holding company by 12%. Now that the bank is operating in its new campus, it sold two of
its former properties and is focused on realizing the benefits of the consolidation into the
new space, including increased collaboration and efficiencies.
Growing Our Dividend
In 2019 we not only continued our record of paying uninterrupted dividends to our shareholders
since 1901, we also increased our annual dividend by 3%. In early 2020 we announced a
second consecutive 3% increase, raising the quarterly dividend from 32 cents to 33 cents
per share, reflecting the strength of our financial performance, and the Board’s confidence
in our future.
“Our work to achieve our
state’s clean energy and
carbon neutrality goals will
help preserve our
environment, increase our
energy independence,
strengthen our economy and
create long-term value for our
shareholders. Our company,
our employees, our customers
and our communities each
play a unique role in achieving
these goals, and all of us need
to work together to be
successful. In other words, it’s
a ‘kakou’ thing.”
Constance H. Lau
President and Chief Executive Officer
Hawaiian Electric Industries, Inc.
*
PACIFIC CURRENT
Provides electricity and related services for
95% of Hawai‘i’s population and operates
3 utilities and 5 separate island grids
3rd largest bank in Hawai‘i with
more than $7 billion in assets and
49 branches across the state
Invests in clean energy and sustainability
projects as a part of HEI’s strategy to be
a catalyst for a better Hawai‘i
*Hawaiian Electric Company, Inc. is a subsidiary of HEI. As a holding company, HEI does not sell products or services and therefore is not regulated by the state Public Utilities Commission.
1
HAWAIIAN ELECTRIC
2019 HIGHLIGHTS
4.6%
The number of residential
rooftop solar systems
increased 4.6%
28%
Over 28% of electricity sales
achieved with renewable
energy. On track to meet or
exceed 2020 goal of 30%
#1
#1 in the nation in residential
rooftop solar penetration, at
19% (more than double that
of the next highest state,
California)
Hawaiian Electric
2019 was a milestone year for Hawaiian Electric. We added a record amount of solar to our
grids, maintained our position as number one in the nation for residential rooftop solar
penetration, and, along with the state of Hawai‘i, received national recognition for leadership
in the transformation to a clean energy, carbon neutral economy. We were also proud to be
named “Utility of the Year” by Utility Dive, an independent industry publication. In December,
we announced that Scott Seu would succeed Alan Oshima as our utility’s next President
and CEO, which became effective February 2020. Scott has been a leader in the utility’s
transformation into a more customer-focused enterprise, and under his leadership, we are
confident that the utility can continue its success in partnering with our many stakeholders
to achieve our state’s clean energy targets.
We made important strides on key priorities of our multi-year strategic transformation plan,
which focuses on delivering affordable, reliable, renewable energy; providing more value to
customers; strengthening our relationships with communities; building resilience; and
maintaining our financial strength. We saw a 21% increase in solar capacity, our largest
maintaining our financial strength. We saw a 21% increase in solar capacity, our largest
single-year increase ever, driven by new utility-scale projects and a nearly 5% increase in
rooftop solar. Utility-scale projects placed in service included our West Loch solar project,
which is now delivering the lowest cost solar in the state. We reached over 28% of energy
sales from renewables, and we are well-positioned to integrate even more renewable energy
onto our grids in the coming years. Regulators approved seven contracts for the lowest cost
solar-plus-storage projects yet seen in Hawai‘i, and we launched one of the industry’s largest
procurement efforts for renewables, with the successful bidders to be named later in 2020.
Scott W. H. Seu
Scott W. H. Seu
President and CEO, Hawaiian Electric
President and CEO, Hawaiian Electric
Prior to his appointment as President and CEO on
Prior to his appointment as President and CEO on
February 15, 2020, Scott served as Hawaiian Electric’s
February 15, 2020, Scott served as Hawaiian Electric’s
Senior Vice President for Public Affairs. Scott has held
Senior Vice President for Public Affairs. Scott has held
leadership positions across the utility since 1993, including in
leadership positions across the utility since 1993, including in
environmental management, customer programs, renewable
environmental management, customer programs, renewable
energy development and system operations.
energy development and system operations.
2
We strive to improve our customers’ experience, and in the fourth quarter we achieved
customer satisfaction scores that placed us in the top third of the industry. We continue
to develop new programs for customers to benefit from the clean energy transformation.
These include our Project Footprint campaign to inspire customers to adopt sustainable
practices and contribute to Hawai‘i’s renewable energy goals. In 2019, Project Footprint
gained national recognition and gained numerous rewards for its innovative approach to
customer engagement.
Community engagement drove much of our resource planning and resilience work in 2019,
providing valuable customer and stakeholder insights to such varied initiatives as Integrated
Grid Planning and a series of resilience and preparedness workshops we led for the windward
communities of Oahu. Stakeholder engagement has also been central to the evolution of our
regulatory framework. In 2019, regulators, the utility and stakeholders began the design phase
of Performance-based Regulation, or PBR, which will be implemented starting in 2021. We
look forward to continued collaboration with participants as we move toward implementation.
Below: Community engagement is a central part of Hawaiian Electric’s strategy, and it is essential in achieving
our clean energy goals in a way that is affordable, safe, reliable and resilient. In 2019 Hawaiian Electric held
numerous forums across our islands to engage directly with customers and other stakeholders on issues such
as renewable energy, resilience and emergency preparedness.
“Collaborating with
communities to strengthen
resilience—working with
community leaders, as well
as our partners in
government and the private
sector to prepare for the
impacts of weather and
other emergencies—is one
of the many reasons I’m
proud of our company’s role
in the community.”
Brandi Crabbe
Community Relations Specialist
Hawaiian Electric
3
HAWAIIAN ELECTRIC
2019 HIGHLIGHTS
21%
2019 saw our largest ever
increase in solar generation
capacity, which increased
21% over 2018
900 MW
500 GWh
210 MW
Launched one of the largest
ever utility renewables
procurement efforts for up to
900 MW renewables, 500
GWh storage and 210 MW
grid services
7 PPAs
260 MW
1 GWh
Secured lowest cost
renewables to date for our
customers: 7 PPAs approved
representing 260 MW solar
and 1 GWh storage
$109 million in customer savings
Completed 20 MW, company-owned West Loch solar project, which is expected to save customers
$109 million and reduce fossil fuel usage by 3 million gallons annually over its 25-year life, while
delivering the lowest-cost renewable energy to date in the state.
We also advanced efforts to improve the utility’s culture and efficiency, and a key accomplishment
in 2019 was completing consolidation of functions and branding under our “One Company”
initiative. Our three utilities across our five-island territory are now operating under a single
name, “Hawaiian Electric.”
Below: Connecting to the ‘aina (land) at Ka‘ala Farm—Hawaiian Electric employees and their families and
friends were among the 150 volunteers who joined The Trust for Public Land to open lo‘i (taro flats) and plant
kalo (taro) at Ka‘ala Farm, the nonprofit organization focused on restoring ancient, abandoned lo‘i kalo in an
area that once served as a “poi bowl” for O‘ahu.
4
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American Savings Bank
ASB continued its record of solid performance in 2019. We performed well through a
challenging interest rate environment for banks, highlighting the consistency, stability and
resiliency of the business. ASB grew earnings while delivering solid loan and core deposit
growth, and remaining relentlessly focused on making banking easy for customers. In 2019,
ASB invested nearly $2 billion in our community—providing the capital to help customers
grow their businesses, plan for retirement or their children’s education, buy a first home, or
invest in energy efficiency and renewable energy systems.
In April, we celebrated the grand opening of our new ASB Campus. At 11-stories and 373,000
square feet, the ASB Campus is the first new office building in the downtown Honolulu area
in the past 25 years. It brings together more than 650 team members previously spread out
across five separate office locations. Being together under one roof allows team members
to work even better together to carry out the bank’s vision of making dreams possible for
Hawai‘i’s families, businesses and communities. We’re already seeing the benefits of the
innovative open floorplans, teammate training center, and variety of collaboration spaces,
which have facilitated faster decisions, process improvements and greater efficiency. ASB’s
focus on its teammates and their work environment shows why it again won several workplace
awards in 2019, including Hawaii Business magazine’s Best Places to Work (for the 11th year
in a row); Fortune’s Great Places to Work (Best Workplaces for Diversity List), and Working
Mother’s Multicultural Workplaces List.
Below: In April 2019, American Savings Bank unveiled the ASB Campus—the first new office building in
downtown Honolulu in nearly 25 years. The 11-story, 373,000-square-foot Campus is located at 300 N.
Beretania Street, directly across from ‘A‘ala Park.
“Our locally-owned and
operated bakery has
served the state of Hawai‘i
with quality food products
and services since 1984.
By partnering with
American Savings Bank, we
were able to secure a loan
to install rooftop solar on
our facilities in Honolulu.
We are proud to partner
with another Hawai‘i-based
company to play a part in
helping our state achieve its
goal towards clean energy.”
Brandon Lam
President
La Tour Bakehouse
5
ASB
2019 HIGHLIGHTS
$1.8 billion
invested in our community
in 2019
$8.7 billion
loaned to Hawai‘i customers
over the last five years
11
consecutive years on Hawaii
Business magazine’s Best
Places to Work list
15,025
Seeds of Service
volunteer hours
(27% increase over 2018)
Above: ASB continues to gain recognition as a great place to work. The bank received numerous recognitions
in 2019, including Hawaii Business magazine’s Best Places to Work (for the 11th year in a row); Fortune’s Great
Places to Work (Best Workplaces for Diversity List), and Working Mother’s Multicultural Workplaces List.
The bank’s investment in the campus neighborhood has helped improve Honolulu’s urban
core for the whole community, and ASB’s teammates have continued to give back to the
community in numerous ways. In 2019, teammates contributed more than 15,000 volunteer
hours and the bank donated more than $1.15 million dollars to local non-profits statewide.
Additionally, more than 1,000 local students across the islands participated in ASB’s 2019
KeikiCo business plan competition last fall, which resulted in awards totaling $190,000 to
14 local schools.
Below: ASB’s Seeds of Service program encourages ASB teammates to give their time and talent to
schools and community organizations. Since the program’s inception, ASB teammates have donated more
than 63,000 hours of volunteer service to schools and non-profit organizations on O‘ahu, Hawai‘i Island,
Maui, Moloka‘i and Kaua‘i.
6
48439 Merrill_HEI-031020_INSERT.indd 6
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Above: The Pacific Current rooftop solar system and EverCharge EV charging station power the Harry
and Jeanette Weinberg Ho‘okupu Center while encouraging EV adoption.
Pacific Current
2019 marked Pacific Current’s first year with its own management team in place. Under the new
team’s leadership, Pacific Current continued to invest in projects advancing Hawai‘i’s sustainability
goals, while optimizing the existing portfolio. In November, Pacific Current’s first investment, the
Hamakua plant, received its first shipment of locally-sourced biodiesel as part of its fuel needs.
We also launched the EverCharge Hawai‘i joint venture to improve electric vehicle charging options
for multi-unit dwellings and high-rise office buildings, encouraging broader electric vehicle adoption.
Construction for the University of Hawai‘i solar-plus-storage projects also moved forward, and
we will start seeing those projects become operational in 2020. We’re proud that Pacific Current
is able to contribute to the sustainability and energy independence of our islands, and also
contribute towards the achievement of our state’s renewable energy goals.
Commitment to Our Communities
HEI has consistently been recognized as one of our state’s most charitable companies. In 2019
our family of companies donated more than $2.4 million in charitable contributions and devoted
over 27,000 volunteer hours to the communities we serve.
Management and Governance Updates
Our Board is committed to ensuring we have the diversity of perspective, skills and expertise to
continue to drive value for our stakeholders. The HEI Board recently welcomed the addition of
Micah Kane, whose extensive leadership experience and in-depth understanding of the
communities HEI serves add to the Board’s oversight of HEI’s Hawai‘i-focused strategies, and
Eva Zlotnicka, whose investment expertise on sustainability matters and experience overseeing
ambitious strategic initiatives will contribute to our efforts to advance Hawai‘i’s sustainability goals.
Finally, I would like to thank Alan Oshima for his tremendous leadership during a time of great
change, as he led our utility through a major transformation and mentored and prepared our next
generation of leaders.
Looking Ahead
I am excited for the opportunities our companies have to continue creating long-term value for
shareholders while helping our state meet its broader renewable energy and sustainability goals.
We are confident that working together, we and our communities and other stakeholders can
achieve our shared renewable energy and carbon neutral future. On behalf of our employees,
our executives, and our Board, we extend a big mahalo (thank you) to our shareholders for
supporting us and making these goals possible.
“The mission of our
Hawai‘i-based non-profit,
Kupu, is to empower
people to bring life to the
land and ocean through
service while restoring the
larger community for a
better tomorrow. We were
especially thankful to
partner with Pacific Current
to install rooftop solar and
an EverCharge electric
vehicle charging station at
our Harry and Jeanette
Weinberg Ho‘okupu
Center, which houses our
culinary program. This will
allow us to save on our
electric bill and significantly
reduce our building’s
carbon footprint. We’re
proud to have worked with
a local partner on a project
that supports the missions
of both organizations as
well as the broader
sustainability goals of our
community and state.”
John Leong
Chief Executive Officer
Kupu Hawai‘i
Aloha,
Constance H. Lau
President and Chief Executive Officer
Hawaiian Electric Industries, Inc.
48439 Merrill_HEI-031020_INSERT.indd 7
7
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Financial Highlights
Years ended December 31
(dollars in millions, except per share amounts)
2019
2018
Operating income1
$
349
$
333
Net income (loss) for common stock by segment
Electric utility
Bank1
Other
Net income for common stock1
Core2 net income for common stock1
Diluted earnings per common share1
Core2 diluted earnings per common share1
Return on average common equity1
Core2 return on average common equity1
Dividends per common share
Annual dividend yield3
Common shares (millions)
December 31
Weighted-average — basic
Weighted-average — diluted
157
89
(28 )
218
218
1.99
1.99
9.8 %
9.8%
1.28
2.7 %
109.0
108.9
109.4
144
83
(24 )
202
202
1.85
1.85
9.5 %
9.5%
1.24
3.4 %
108.9
108.9
109.1
2017
346
120
67
(22)
165
179
1.52
1.65
7.9%
8.6%
1.24
3.4%
108.8
108.7
108.9
Total Shareholder Return
(percent)
Dividend Yield
(percent)
HEI
31.9
57.1
68.2
S&P 500
Index
Edison
Electric
Institute (EEI)
Index
KBW
Regional
Banking
Index
31.5
53.2
73.9
25.8
45.7
64.4
23.8
3.9
53.0
2019
3-Year
5-Year
10-Year
245.5
256.7
214.0
197.7
6
4
2
0
4.3
3.8
3.7
3.4
3.4
3.4
3.4
3.4
3.0
2.7
Source: S&P Global Inc.
HEI NYSE symbol: HE
2015
2016
2017
2018
2019
EEI Index
HEI
Sources: S&P Global Inc. and EEI
(1) 2019 results include an after-tax gain of $5.5 million ($0.05 per diluted share), composed of $10.8 million of gains ($7.9 million after-tax, or $0.07 per diluted share) on sales of
real estate associated with ASB’s transition to its new campus, partially offset by $3.2 million ($2.4 million after-tax, or $0.02 per diluted share) of exit costs associated with the
move to the new campus. After-tax amounts are computed at ASB’s statutory tax rate of 26.8%.
(2) Non-GAAP measure that excludes, for 2017, the tax reform act and related items. See Appendix B to this 2019 Annual Report to Shareholders for the reconciliation of GAAP to
non-GAAP measures.
(3) At December 31.
8
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Hawaiian Electric Industries, Inc.
2019 Annual Report to Shareholders
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant
as Specified in Its Charter
Hawaiian Electric Industries, Inc.
Hawaiian Electric Company, Inc.
Commission
File Number
1-8503
1-4955
State of Hawaii
I.R.S. Employer
Identification No.
99-0208097
99-0040500
(State or other jurisdiction of incorporation)
1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813 - Hawaiian Electric Industries, Inc. (HEI)
1001 Bishop Street, Suite 2500, Honolulu, Hawaii 96813 - Hawaiian Electric Company, Inc. (Hawaiian Electric)
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code:
(808) 543-5662 - HEI
(808) 543-7771 - Hawaiian Electric
Not applicable
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Registrant
Hawaiian Electric
Industries, Inc.
Title of each class
Common Stock, Without Par Value
Securities registered pursuant to Section 12(g) of the Act:
Registrant
Hawaiian Electric Industries, Inc.
Hawaiian Electric Company, Inc.
Trading Symbol
HE
Name of each exchange
on which registered
New York Stock Exchange
Title of each class
None
Cumulative Preferred Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Hawaiian Electric Industries, Inc.
Yes ☒
No ☐
Hawaiian Electric Company, Inc.
Yes ☐
No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Hawaiian Electric Industries, Inc.
Yes ☐
No ☒
Hawaiian Electric Company, Inc.
Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Hawaiian Electric Industries, Inc.
Yes ☒
No ☐
Hawaiian Electric Company, Inc.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Hawaiian Electric Industries, Inc.
Yes ☒
No ☐
Hawaiian Electric Company, Inc.
Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Hawaiian Electric
Industries, Inc.:
Large accelerated filer ☒ Smaller reporting company ☐ Large accelerated filer ☐ Smaller reporting company
Accelerated filer
☐ Emerging growth company
Non-accelerated filer ☐
☐ Emerging growth company ☐ Accelerated filer
Hawaiian Electric
Company, Inc.:
Non-accelerated filer ☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Hawaiian Electric Industries, Inc.
Yes ☐
No ☐
Hawaiian Electric Company, Inc.
Yes ☐
No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Hawaiian Electric Industries, Inc.
Yes ☐
No ☒
Hawaiian Electric Company, Inc.
Yes ☐
No ☒
Aggregate market value
of the voting and non-
voting common equity
held by non-affiliates of
the registrants as of
June 30, 2019
Number of shares of common stock
outstanding of the registrants as of
June 30, 2019
February 13, 2020
Hawaiian Electric Industries, Inc.
(Without Par Value)
Hawaiian Electric Company, Inc.
($6-2/3 Par Value)
$4,745,752,027
108,972,492
108,973,328
None
16,751,488
17,048,783
DOCUMENTS INCORPORATED BY REFERENCE
Hawaiian Electric’s Exhibit 99.1, consisting of:
Hawaiian Electric’s Directors, Executive Officers and Corporate Governance—Part III
Hawaiian Electric’s Executive Compensation—Part III
Hawaiian Electric’s Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters—
Part III
Hawaiian Electric’s Certain Relationships and Related Transactions, and Director Independence—Part III
Hawaiian Electric’s Principal Accounting Fees and Services—Part III
Selected sections of Proxy Statement of HEI for the 2020 Annual Meeting of Shareholders to be filed-Part III
This combined Form 10-K represents separate filings by Hawaiian Electric Industries, Inc. and Hawaiian
Electric Company, Inc. Information contained herein relating to any individual registrant is filed by each
registrant on its own behalf. Hawaiian Electric makes no representations as to any information not relating
to it or its subsidiaries.
TABLE OF CONTENTS
Glossary of Terms
Cautionary Note Regarding Forward-Looking Statements
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Information About Our Executive Officers (HEI)
PART I
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
i
Page
ii
vi
1
17
28
28
28
28
29
30
31
33
69
72
166
166
167
167
168
169
169
170
170
170
182
Defined below are certain terms used in this report:
GLOSSARY OF TERMS
Terms
ABO
ACL
ADIT
AES Hawaii
AFS
AFUDC
ALL
AOCI
AOS
APBO
ARO
ASB
ASB Hawaii
ASC
ASU
Btu
CAA
CERCLA
Chevron
CIAC
CIS
Company
Consolidated Financial
Statements
Definitions
Accumulated benefit obligation
Allowance for credit losses as determined under the new credit loss standard (ASU No. 2016-13), which
requires the measurement of lifetime expected credit losses for financial assets held at the reporting
date (based on historical experience, current conditions and reasonable and supportable forecasts)
Accumulated deferred income tax balances
AES Hawaii, Inc.
Available-for-sale
Allowance for funds used during construction
Allowance for loan losses, as determined under the existing credit loss standard, requires recording the
allowance based on an incurred loss model
Accumulated other comprehensive income (loss)
Adequacy of supply
Accumulated postretirement benefit obligation
Asset retirement obligations
American Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii Inc.
ASB Hawaii, Inc. (formerly American Savings Holdings, Inc.), a wholly-owned subsidiary of Hawaiian
Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
Accounting Standards Codification
Accounting Standards Update
British thermal unit
Clean Air Act
Comprehensive Environmental Response, Compensation and Liability Act
Chevron Products Company, which assigned their fuel oil supply contracts with the Utilities to Island
Energy Services, LLC
Contributions in aid of construction
Customer Information System
When used in Hawaiian Electric Industries, Inc. sections and in the Notes to Consolidated Financial
Statements, “Company” refers to Hawaiian Electric Industries, Inc. and its direct and indirect
subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed
under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; Pacific
Current, LLC and its subsidiaries, Hamakua Holdings, LLC (and its subsidiary, Hamakua Energy,
LLC) and Mauo Holdings, LLC (and its subsidiary, Mauo, LLC) and The Old Oahu Tug Service, Inc.
(formerly Hawaiian Tug & Barge Corp.).
When used in Hawaiian Electric Company, Inc. sections, “Company” refers to Hawaiian Electric
Company, Inc. and its direct subsidiaries.
HEI’s or Hawaiian Electric’s Consolidated Financial Statements, including notes, in Item 8 of this Form
10-K
Consumer Advocate
Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
CBRE
D&O
DBF
DG
DER
Dodd-Frank Act
DOH
DRIP
ECAC
ECRC
EEPS
EGU
EIP
EPA
Community-based renewable energy
Decision and order from the PUC
State of Hawaii Department of Budget and Finance
Distributed generation
Distributed energy resources
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
State of Hawaii Department of Health
HEI Dividend Reinvestment and Stock Purchase Plan
Energy cost adjustment clause
Energy cost recovery clause
Energy Efficiency Portfolio Standards
Electrical generating unit
2010 Executive Incentive Plan, as amended
Environmental Protection Agency - federal
ii
Terms
Definitions
GLOSSARY OF TERMS (continued)
EPS
ERISA
ERL
ERP/EAM
ESG
Exchange Act
FASB
FDIC
FDICIA
federal
FERC
FHLB
FHLMC
FICO
Fitch
FNMA
FRB
GAAP
GHG
GNMA
Gramm Act
Hamakua Energy
Earnings per share
Employee Retirement Income Security Act of 1974, as amended
Environmental Response Law of the State of Hawaii
Enterprise Resource Planning/Enterprise Asset Management
Environmental, social and governance
Securities Exchange Act of 1934
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation Improvement Act of 1991
U.S. Government
Federal Energy Regulatory Commission
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
Fair Isaac Corporation
Fitch Ratings, Inc.
Federal National Mortgage Association
Federal Reserve Board
Accounting principles generally accepted in the United States of America
Greenhouse gas
Government National Mortgage Association
Gramm-Leach-Bliley Act of 1999
Hamakua Energy, LLC, an indirect subsidiary of Pacific Current and successor in interest to Hamakua
Energy Partners, L.P., an affiliate of Arclight Capital Partners (a Boston based private equity firm
focused on energy infrastructure investments) and successor in interest to Encogen Hawaii, L.P.
Hawaii Electric Light
Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
Hawaiian Electric
Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and
parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited, HECO
Capital Trust III (unconsolidated financing subsidiary), Renewable Hawaii, Inc. and Uluwehiokama
Biofuels Corp.
Hawaiian Electric’s MD&A
Hawaiian Electric Company, Inc.’s Management’s Discussion and Analysis of Financial Condition and
Results of Operations in Item 7 of this Form 10-K
HEI
HEI’s 2020 Proxy Statement
Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB
Hawaii, Inc., Pacific Current, LLC and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug &
Barge Corp.)
Selected sections of Proxy Statement for the 2020 Annual Meeting of Shareholders of Hawaiian Electric
Industries, Inc. to be filed after the date of this Form 10-K and not later than 120 days after December
31, 2019, which are incorporated in this Form 10-K by reference
HEI’s MD&A
Hawaiian Electric Industries, Inc.’s Management’s Discussion and Analysis of Financial Condition and
HEIRSP
HELOC
HPOWER
HSFO
HTM
IPP
IRP
IRR
Kalaeloa
kV
kW
kWh
LNG
LSFO
LTIP
Maui Electric
Results of Operations in Item 7 of this Form 10-K
Hawaiian Electric Industries Retirement Savings Plan
Home equity line of credit
City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
High sulfur fuel oil
Held-to-maturity
Independent power producer
Integrated resource plan
Interest rate risk
Kalaeloa Partners, L.P.
Kilovolt
Kilowatt/s (as applicable)
Kilowatthour/s (as applicable)
Liquefied natural gas
Low sulfur fuel oil
Long-term incentive plan
Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
iii
Terms
Mauo
MBtu
MD&A
Merger
GLOSSARY OF TERMS (continued)
Definitions
Mauo, LLC, an indirect subsidiary of Pacific Current
Million British thermal unit
Management’s Discussion and Analysis of Financial Condition and Results of Operations
As provided in the Merger Agreement (see below), merger of NEE Acquisition Sub II, Inc. with and into
HEI, with HEI surviving, and then merger of HEI with and into NEE Acquisition Sub I, LLC, with NEE
Acquisition Sub I, LLC surviving as a wholly owned subsidiary of NextEra Energy, Inc.
Merger Agreement
Agreement and Plan of Merger by and among HEI, NextEra Energy, Inc., NEE Acquisition Sub II, Inc.
and NEE Acquisition Sub I, LLC, dated December 3, 2014 and terminated July 16, 2016
Moody’s
MOU
MPIR
MSFO
MSR
MW
MWh
NA
NEE
NEM
NII
NM
NPBC
NPPC
O&M
OCC
OPEB
OTS
OTTI
Pacific Current
PBO
PCB
PGV
PIMs
PPA
PPAC
PSIPs
PUC
PURPA
PV
QF
QTL
RAM
RBA
Registrant
REIP
RFP
RHI
ROA
ROACE
RORB
RPS
S&P
SASB
SEC
Moody’s Investors Service’s
Memorandum of Understanding
Major Project Interim Recovery
Medium sulfur fuel oil
Mortgage servicing right
Megawatt/s (as applicable)
Megawatthour/s (as applicable)
Not applicable
NextEra Energy, Inc.
Net energy metering
Net interest income
Not meaningful
Net periodic benefits costs
Net periodic pension costs
Other operation and maintenance
Office of the Comptroller of the Currency
Postretirement benefits other than pensions
Office of Thrift Supervision, Department of Treasury
Other-than-temporary impairment
Pacific Current, LLC, a wholly owned subsidiary of HEI and indirect parent company of Hamakua
Energy and Mauo
Projected benefit obligation
Polychlorinated biphenyls
Puna Geothermal Venture
Performance incentive mechanisms
Power purchase agreement
Purchased power adjustment clause
Power Supply Improvement Plans
Public Utilities Commission of the State of Hawaii
Public Utility Regulatory Policies Act of 1978
Photovoltaic
Qualifying Facility under the Public Utility Regulatory Policies Act of 1978
Qualified Thrift Lender
Rate adjustment mechanism
Revenue balancing account
Each of Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc.
Renewable Energy Infrastructure Program
Request for proposals
Renewable Hawaii, Inc., a wholly-owned nonregulated subsidiary of Hawaiian Electric Company, Inc.
Return on assets
Return on average common equity
Return on rate base
Renewable portfolio standards
Standard & Poor’s
Sustainability Accounting Standards Board
Securities and Exchange Commission
iv
Terms
See
SLHCs
SOIP
Spin-Off
SPRBs
ST
state
Tax Act
TCFD
TDR
Tesoro
TOOTS
Trust III
UBC
Utilities
VIE
GLOSSARY OF TERMS (continued)
Definitions
Means the referenced material is incorporated by reference (or means refer to the referenced section in
this document or the referenced exhibit or other document)
Savings & Loan Holding Companies
1987 Stock Option and Incentive Plan, as amended. Shares of HEI common stock reserved for issuance
under the SOIP were deregistered and delisted in 2015.
The previously planned distribution to HEI shareholders of all of the common stock of ASB Hawaii
immediately prior to the Merger, which was terminated
Special Purpose Revenue Bonds
Steam turbine
State of Hawaii
2017 Tax Cuts and Jobs Act (H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018)
Task Force on Climate-related Financial Disclosure
Troubled debt restructuring
Tesoro Hawaii Corporation dba BHP Petroleum Americas Refining Inc., a fuel oil supplier
The Old Oahu Tug Service, Inc., a wholly-owned subsidiary of Hawaiian Electric Industries, Inc.
HECO Capital Trust III
Uluwehiokama Biofuels Corp., a wholly-owned nonregulated subsidiary of Hawaiian Electric
Company, Inc.
Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company,
Limited
Variable interest entity
v
Cautionary Note Regarding Forward-Looking Statements
This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric)
and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future
events or conditions and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or
similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible
future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future
events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the
performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking
statements are not guarantees of future performance.
Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking
statements and from historical results include, but are not limited to, the following:
• international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction
industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual
performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions
concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of future
Federal government shutdowns, including the impact to our customers to pay their electric bills and/or bank loans and the impact on the state
of Hawaii economy; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and
international responses to those conditions; and the potential impacts of global and local developments (including economic conditions and
uncertainties; unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic, potential pandemic or other crisis; the effects of
changes that have or may occur in U.S. policy, such as with respect to immigration and trade);
• the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling or budget
funding, monetary policy, trade policy and tariffs, and other policy and regulatory changes advanced or proposed by President Trump and his
administration;
• weather, natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the increasing effects of climate change,
such as more severe storms, flooding, droughts, heat waves, and rising sea levels) and wildfires, including their impact on the Company’s and
Utilities’ operations and the economy;
• the timing, speed and extent of changes in interest rates and the shape of the yield curve;
• the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and
long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market
conditions, and the cost of such financings, if available;
• the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale,
and the risks inherent in changes in the value of the Company’s pension liabilities, including changes driven by interest rates;
• changes in laws, regulations (including tax regulations), market conditions, interest rates and other factors that result in changes in assumptions
used to calculate retirement benefits costs and funding requirements;
• the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that
the Dodd-Frank Act requires to be promulgated, as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act;
• increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative
investments, which may have an adverse impact on ASB’s cost of funds);
• the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or
proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power
producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments
required to meet renewable portfolio standards (RPS) goals and the impacts of implementation of the renewable energy proposals on future
costs of electricity;
• the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated
Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans,
and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC, the
PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory
policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders
of the PUC;
• capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side
management, distributed generation (DG), combined heat and power or other firm capacity supply-side resources fall short of achieving their
forecasted benefits or are otherwise insufficient to reduce or meet peak demand;
• fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost recovery
clauses (ECRCs);
• the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power
adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB)
tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;
• the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by RAMs;
• the ability of the Utilities to achieve performance incentive goals currently in place;
• the impact from the PUC’s implementation of performance-based ratemaking for the Utilities pursuant to Act 005, Session Laws 2018,
including the potential addition of new performance incentive mechanisms (PIMs), third-party proposals adopted by the PUC in its
implementation of performance-based regulation (PBR), and the implications of not achieving performance incentive goals;
• the impact of fuel price levels and volatility on customer satisfaction and political and regulatory support for the Utilities;
vi
• the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable
energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;
• the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources
will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage;
• the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);
• the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their
units to ensure the availability of their units;
• the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective
bargaining agreements and avoid or mitigate labor disputes and work stoppages;
• new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the
commercial development of energy storage and microgrids and banking through alternative channels;
• cybersecurity risks and the potential for cyber incidents, including potential incidents at HEI, its third-party vendors, and its subsidiaries
(including at ASB branches and electric utility plants) and incidents at data processing centers used, to the extent not prevented by intrusion
detection and prevention systems, anti-virus software, firewalls and other general IT controls;
• failure to achieve cost savings consistent with the minimum $246 million in Enterprise Resource Planning/Enterprise Asset Management
(ERP/EAM) project-related benefits (including $150 million in operation and maintenance (O&M) benefits) to be delivered to customers over
its 12-year estimated useful life;
• federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations
applicable to HEI, the Utilities and ASB (including changes in taxation, increases in capital requirements, regulatory policy changes,
environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of
greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential
carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
• developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal
species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;
• discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any
associated enforcement, litigation or regulatory oversight;
• decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final
decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);
• decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective
actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS);
• potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit
Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and
penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and
regulations or with respect to capital adequacy);
• the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e.,
first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);
• changes in accounting principles applicable to HEI and its subsidiaries, including the adoption of new U.S. accounting standards, the potential
discontinuance of regulatory accounting, the effects of potentially required consolidation of variable interest entities (VIEs), or required
capital/finance lease or on-balance-sheet operating lease accounting for PPAs with IPPs;
• downgrades by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and their impact on results of financing
efforts;
• faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the
impairment of mortgage-servicing assets of ASB;
• changes in ASB’s loan portfolio credit profile and asset quality and/or mix, which may increase or decrease the required level of provision for
loan losses, allowance for loan losses (ALL) and charge-offs;
• the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” on January 1, 2020, which may result in more volatility in
the provision for loan losses prospectively;
• changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;
• unanticipated changes from the expected discontinuance of LIBOR and the transition to an alternative reference rate, which may include
adverse impacts to the Company’s cost of capital, loan portfolio and interest income on loans;
• the final outcome of tax positions taken by HEI and its subsidiaries;
• the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and
losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding
policy limits);
• the ability of the Company’s non-regulated subsidiary, Pacific Current, LLC (Pacific Current), to achieve its performance and growth
objectives, which in turn could affect its ability to service its non-recourse debt;
• the Company’s reliance on third parties and the risk of their non-performance;
• the impact of activism that could delay the construction, or preclude the completion, of third-party or Utility projects that are required to meet
electricity demand and RPS goals; and
• other risks or uncertainties described elsewhere in this report (e.g., Item 1A. Risk Factors) and in other reports previously and subsequently
filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission (SEC).
Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent
required by the federal securities laws, HEI, Hawaiian Electric, ASB, Pacific Current and their subsidiaries undertake no obligation to publicly
update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.
vii
ITEM 1.
BUSINESS
HEI Consolidated
PART I
HEI and subsidiaries and lines of business. HEI is a holding company with its subsidiaries principally engaged in electric
utility, banking, and renewable/sustainable infrastructure investment businesses operating in the State of Hawaii. HEI was
incorporated in 1981 under the laws of the State of Hawaii. HEI’s predecessor, Hawaiian Electric, was incorporated under the
laws of the Kingdom of Hawaii (now the State of Hawaii) on October 13, 1891. As a result of a 1983 corporate reorganization,
Hawaiian Electric became an HEI subsidiary and common shareholders of Hawaiian Electric became common shareholders of
HEI. As a holding company with no significant operations of its own, HEI’s sources of funds are dividends or other
distributions from its operating subsidiaries, borrowings, and sales of equity. The rights of HEI and its creditors and
shareholders to participate in any distribution of the assets of any of HEI’s subsidiaries are subject to the prior claims of the
creditors and preferred shareholders of such subsidiary, except to the extent that claims of HEI in its capacity as a creditor are
recognized as primary. The abilities of certain of HEI’s subsidiaries to pay dividends or make other distributions to HEI are
subject to contractual and regulatory restrictions (see Note 14 of the Consolidated Financial Statements). HEI is headquartered
in Honolulu, Hawaii and has three reportable segments—Electric utility, Bank, and Other.
Electric Utility. Hawaiian Electric and its operating utility subsidiaries, Hawaii Electric Light Company, Inc. (Hawaii
Electric Light) and Maui Electric Company, Limited (Maui Electric), are regulated electric public utilities that provide essential
electric service to approximately 95% of Hawaii’s population through the operation of five separate grids that serve
communities on the islands of Oahu, Hawaii, Maui, Lanai and Molokai. Over the past few years, the three utilities have been
working on restructuring their functions and processes across the islands under an initiative to improve operational efficiencies,
provide consistent positive customer experience, and reduce cost. This initiative was substantially completed in 2019 and, as of
January 1, 2020, the three utilities now operate under one brand, “Hawaiian Electric,” on all five islands served by the utilities,
but remain three separate entities. See also “Electric utility” section below.
Bank. HEI acquired American Savings Bank, F.S.B. (ASB) in 1988. ASB is one of the largest financial institutions in the
State of Hawaii (based on total assets), with assets totaling approximately $7.2 billion as of December 31, 2019. ASB provides
a wide array of banking and other financial services to consumers and businesses. See also “Bank” section below.
Other. The “Other” segment is composed of HEI’s corporate-level operating, general and administrative expenses and the
results of Pacific Current, LLC (Pacific Current). Pacific Current was formed in September 2017 to focus on investing in non-
regulated clean energy and sustainable infrastructure in the State of Hawaii to help reach the state’s sustainability goals. See
also “Electric utility— Hawaii Electric Light firm capacity PPAs” section below and Note 2 of the Consolidated Financial
Statements for additional information on Pacific Current activities. The “Other” segment also includes ASB Hawaii, Inc. (ASB
Hawaii) (a holding company, formerly known as American Savings Holdings, Inc.), which owns ASB, and The Old Oahu Tug
Service, Inc. (TOOTS), which is inactive.
Additional information. For additional information about HEI, see HEI’s MD&A, HEI’s “Quantitative and Qualitative
Disclosures about Market Risk” and HEI’s Consolidated Financial Statements.
The Company’s website address is www.hei.com, where annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports (last 10 years) are made available free of charge in the
Investor Relations section as soon as reasonably practicable after such material is electronically filed with, or furnished to, the
SEC (and available at the SEC’s website at www.sec.gov). The information on the Company’s website is not incorporated by
reference in this annual report on Form 10-K unless, and except to the extent, specifically incorporated herein by reference. HEI
and Hawaiian Electric intend to continue to use HEI’s website as a means of disclosing additional information. Accordingly,
investors should routinely monitor such portions of HEI’s website, in addition to following HEI’s, Hawaiian Electric’s and
ASB’s press releases, SEC filings and public conference calls and webcasts. Investors may also wish to refer to the PUC
website at dms.puc.hawaii.gov/dms in order to review documents filed with and issued by the PUC. No information at the PUC
website is incorporated herein by reference, and the Company has no control over its accuracy or completeness.
Regulation. HEI and Hawaiian Electric are each holding companies within the meaning of the Public Utility Holding
Company Act of 2005 and implementing regulations, which requires holding companies and their subsidiaries to grant the
Federal Energy Regulatory Commission (FERC) access to books and records relating to FERC’s jurisdictional rates. FERC
granted HEI and Hawaiian Electric a waiver from its record retention, accounting and reporting requirements, effective
May 2006.
1
HEI is subject to an agreement entered into with the PUC (the PUC Agreement) which, among other things, requires PUC
approval of any change in control of HEI. The PUC Agreement also requires HEI to provide the PUC with periodic financial
information and other reports concerning intercompany transactions and other matters. It also prohibits the electric utilities from
loaning funds to HEI or its nonutility subsidiaries and from redeeming common stock of the electric utility subsidiaries without
PUC approval. Further, the PUC could limit the ability of the electric utility subsidiaries to pay dividends on their common
stock. See also Note 14 of the Consolidated Financial Statements and “Electric utility—Regulation” below.
HEI and ASB Hawaii are subject to Federal Reserve Board (FRB) regulation, supervision and reporting requirements as
savings and loan holding companies. As a result of the enactment of the Dodd-Frank Act, supervision and regulation of HEI and
ASB Hawaii, as thrift holding companies, moved to the FRB, and supervision and regulation of ASB, as a federally chartered
savings bank, moved to the Office of the Comptroller of the Currency (OCC) in July 2011. In the event the OCC has reasonable
cause to believe that any activity of HEI or ASB Hawaii constitutes a serious risk to the financial safety, soundness or stability
of ASB, the OCC is authorized to impose certain restrictions on HEI, ASB Hawaii and/or any of their subsidiaries. Possible
restrictions include precluding or limiting: (i) the payment of dividends by ASB; (ii) transactions between ASB, HEI or ASB
Hawaii, and their subsidiaries or affiliates; and (iii) any activities of ASB that might expose ASB to the liabilities of HEI and/or
ASB Hawaii and their other affiliates. See also Note 14 of the Consolidated Financial Statements.
The Gramm-Leach-Bliley Act of 1999 (Gramm Act) permitted banks, insurance companies and investment firms to
compete directly against each other, thereby allowing “one-stop shopping” for an array of financial services. Although the
Gramm Act further restricted the creation of so-called “unitary savings and loan holding companies” (i.e., companies such as
HEI whose subsidiaries include one or more savings associations and one or more nonfinancial subsidiaries), the unitary
savings and loan holding company relationship among HEI, ASB Hawaii and ASB is “grandfathered” under the Gramm Act so
that HEI and its subsidiaries will be able to continue to engage in their current activities so long as ASB maintains its qualified
thrift lender (QTL) status test discussed under “Bank—Regulation—Qualified thrift lender test.” ASB met the QTL test at all
times during 2019; however, the failure of ASB to satisfy the QTL test in the future could result in a need for HEI to divest
ASB. Under the Gramm Act, any proposed sale of ASB would have to satisfy applicable statutory and regulatory requirements
and potential acquirers of ASB would most likely be limited to companies that are already qualified as, or capable of qualifying
as, either a traditional savings and loan association holding company or a bank holding company, or as one of the authorized
financial holding companies permitted under the Gramm Act.
HEI is also affected by provisions of the Dodd-Frank Act relating to corporate governance and executive compensation,
including provisions requiring shareholder “say on pay” and “say on pay frequency” votes, mandating additional disclosures
concerning executive compensation and compensation consultants and advisors and further restricting proxy voting by brokers
in the absence of instructions. See “Bank—Legislation and regulation” in HEI’s MD&A for a discussion of effects of the Dodd-
Frank Act on HEI and ASB.
Environmental regulation. HEI and its subsidiaries are subject to federal and state statutes and governmental regulations
pertaining to water quality, air quality and other environmental factors. See the “Environmental regulation” discussions in the
“Electric utility” and “Bank” sections below, and Note 1 of the Consolidated Financial Statements.
Employees. The Company had full-time employees as follows:
December 31
HEI
Hawaiian Electric and its subsidiaries
ASB
2019
45
2,670
1,126
3,841
2018
46
2,704
1,148
3,898
2017
41
2,724
1,115
3,880
2016
41
2,662
1,093
3,796
2015
39
2,727
1,152
3,918
The employees of HEI and its direct and indirect subsidiaries, other than the electric utilities, are not covered by any
collective bargaining agreement. The International Brotherhood of Electrical Workers Local 1260 represents roughly half of the
Utilities’ workforce covered by a collective bargaining agreement that expires on October 31, 2021.
Properties. HEI leases office space from nonaffiliated lessors in downtown Honolulu under leases that expire in
December 2022. See “Electric Utility” and “Bank” sections for a description of properties they own and lease.
Hamakua Energy, LLC, an indirect wholly owned subsidiary of Pacific Current, LLC, owns a total of approximately 93
acres located on the Hamakua coast on the island of Hawaii. Its power plant is situated on approximately 59 acres and the
remaining 34 acres includes surrounding parcels of which 30 acres are located on the ocean front.
2
Electric utility
Hawaiian Electric and subsidiaries and service areas. Hawaiian Electric, Hawaii Electric Light and Maui Electric (Utilities)
are regulated operating electric public utilities engaged in the production, purchase, transmission, distribution and sale of
electricity on the islands of Oahu; Hawaii; and Maui, Lanai and Molokai, respectively. Over the past few years, the three
utilities have been working on restructuring their functions and processes across the islands under an initiative to improve
operational efficiencies, provide consistent positive customer experience, and reduce cost. This initiative was substantially
completed in 2019 and, as of January 1, 2020, the three utilities now operate under one brand, “Hawaiian Electric,” on all five
islands served by the utilities, but remain three separate entities.
In 2019, the electric utilities’ revenues and net income amounted to approximately 89% and 72% respectively, of HEI’s
consolidated revenues and net income, compared to approximately 89% and 71% in 2018 and approximately 88% and 73% in
2017, respectively.
The islands of Oahu, Hawaii, Maui, Lanai and Molokai have a combined population estimated at 1.4 million, or
approximately 95% of the total population of the State of Hawaii, and comprise a service area of 5,815 square miles. The
principal communities served include Honolulu (on Oahu), Hilo and Kona (on Hawaii) and Wailuku and Kahului (on Maui).
The service areas also include numerous suburban communities, resorts, U.S. Armed Forces installations and agricultural
operations. The state has granted Hawaiian Electric, Hawaii Electric Light and Maui Electric nonexclusive franchises, which
authorize the Utilities to construct, operate and maintain facilities over and under public streets and sidewalks. Each of these
franchises will continue in effect for an indefinite period of time until forfeited, altered, amended or repealed.
Sales of electricity.
Years ended December 31
2019
2018
2017
(dollars in thousands)
Hawaiian Electric
Hawaii Electric Light
Maui Electric
* As of December 31.
Customer
accounts*
Electric sales
revenues
Customer
accounts*
Electric sales
revenues
Customer
accounts*
Electric sales
revenues
306,368
$
1,784,982
305,456
$
1,789,527
304,948
$
1,592,016
86,576
72,522
360,019
372,034
85,758
71,875
371,713
364,967
85,925
71,352
331,697
323,882
465,466
$
2,517,035
463,089
$
2,526,207
462,225
$
2,247,595
Regulatory mechanisms. Base electric rates are set in rate cases, and each of the three utilities is currently on a triennial rate
case cycle. The regulatory framework includes a number of mechanisms designed to provide utility financial stability during the
transition toward the state’s 100% renewable energy goals. For example, under the sales decoupling mechanism, the utilities are
allowed to recover from customers, target test year revenues, independent of the level of kilowatthour (kWh) sales, which have
declined, with the exception of 2019, as privately-owned distributed energy resources have been added to the grid and energy
efficiency measures have been put into place. A summary of these regulatory mechanisms is as follows:
Mechanism
Sales decoupling
Description
Provides predictable revenue stream by fixing net revenues at the level approved in last rate
case (revenues not linked to kWh sales)
Revenue adjustment mechanism (RAM)
Annually adjusts revenue to recover general inflation of operations and maintenance
expenses and baseline plant additions between rate cases
Major Projects Interim Recovery adjustment
mechanism (MPIR)
Reduces regulatory lag and permits recovery in between rate cases through the revenue
balancing account (RBA) of costs (net of benefits) for major capital projects including, but
not restricted to, projects to advance renewable energy
Energy cost recovery clause (ECRC) and
purchased power adjustment clause (PPAC)
Allows for timely recovery of fuel and purchased power costs to reduce earnings volatility.
Symmetrical fossil fuel cost risk-sharing (98% customer/2% utility) mechanism established
for Hawaiian Electric and Maui Electric capped at $2.5 million and $0.6 million,
respectively. Hawaii Electric Light’s ECRC does not have cost risk-sharing mechanism
Pension and post-employment benefit
trackers
Allow tracking of pension and post-employment benefit costs and contributions above or
below the cost included in rates in a separate regulatory asset/liability account
Renewable energy infrastructure program
Permits recovery of renewable energy infrastructure projects through a surcharge
Seasonality. kWh sales of the Utilities follow a seasonal pattern, but they do not experience extreme seasonal variations
experienced by some electric utilities on the U.S. mainland. In Hawaii, kWh sales tend to increase in the warmer, more humid
months as a result of increased demand for air conditioning, and with cloudy and rainy weather due to lower production by
3
privately owned customer PV systems. In 2019, kWh sales increased over prior year due to warmer and more humid than
average weather and this is the first time kWh sales have increased over prior year since 2007.
Significant customers. The Utilities derived approximately 11% of their operating revenues in 2019, 2018 and 2017 from
the sale of electricity to various federal government agencies. Hawaiian Electric continues to work with various federal
agencies to implement measures that will help them achieve their energy efficiency, resilience and clean energy objectives.
Selected consolidated electric utility operating statistics.
Years ended December 31
kWh sales (millions)
Residential
Commercial
Large light and power
Other
kWh net generated and purchased (millions)
Net generated
Purchased
RPS (%)
Losses and system uses (%)
Energy supply (December 31)
Net generating capability—MW
Firm and other purchased capability—MW1
Net peak demand—MW2
Btu per net kWh generated
Average fuel oil cost per MBtu (cents)
Customer accounts (December 31)
Residential
Commercial
Large light and power
Other
Electric revenues (thousands)
Residential
Commercial
Large light and power
Other
Average revenue per kWh sold (cents)
Residential
Commercial
Large light and power
Other
Residential statistics
Average annual use per customer account (kWh)
Average annual revenue per customer account
Average number of customer accounts
2019
2018
2017
2016
2015
2,439.3
2,793.0
3,467.2
40.5
8,740.0
4,972.7
4,168.6
9,141.3
28.4
4.2
1,737
517
2,254
1,601
10,860
1,337.6
409,689
54,233
700
844
465,466
2,410.8
2,810.8
3,425.1
42.1
8,688.8
4,966.4
4,139.3
9,105.7
26.7
4.4
1,739
517
2,256
1,598
10,826
1,420.2
407,505
54,075
696
813
463,089
2,334.5
2,867.9
3,443.3
44.7
8,690.4
4,888.4
4,247.1
9,135.5
26.8
4.7
1,673
551
2,224
1,584
10,812
1,114.3
406,241
53,732
656
1,596
462,225
2,332.7
2,911.5
3,555.1
46.0
8,845.3
4,940.4
4,349.1
9,289.5
25.8
4.6
1,669
551
2,220
1,593
10,710
862.3
402,818
55,089
670
1,585
460,162
2,396.5
2,977.8
3,532.9
49.3
8,956.5
5,124.5
4,308.3
9,432.8
23.2
4.8
1,669
555
2,224
1,610
10,632
1,206.5
400,655
54,878
659
1,608
457,800
$
$
$
791,398
829,000
884,722
11,915
2,517,035
28.80
32.44
29.68
25.52
29.39
5,967
1,936
408,768
$
$
$
788,028
843,326
882,443
12,410
2,526,207
29.07
32.69
30.00
25.76
29.47
5,923
1,936
407,044
$
$
$
691,857
766,921
776,808
12,009
2,247,595
25.86
29.64
26.74
22.56
26.82
5,779
1,713
403,983
$
$
$
638,776
711,553
720,878
11,306
2,082,513
23.54
27.38
24.44
20.28
24.61
5,806
1,590
401,796
$
$
$
709,886
798,202
802,366
13,356
2,323,810
25.90
29.62
26.81
22.71
27.05
5,996
1,776
399,674
1 Since May 2018, Puna Geothermal Venture (PGV) has been offline due to lava flow on Hawaii Island; therefore, PGV’s capability has not
been incorporated into the utility’s firm contract power capability as of December 31, 2019.
2 Sum of the net peak demands on all islands served, noncoincident and nonintegrated.
4
Generation statistics. The following table contains certain generation statistics as of and for the year ended December 31,
2019. The net generating and firm purchased capability available for operation at any given time may be more or less than
shown because of capability restrictions or temporary outages for inspection, maintenance, repairs or unforeseen circumstances.
Hawaiian
Electric
Island of
Oahu
Hawaii
Electric
Light
Island of
Hawaii
Maui Electric
Island of
Maui
Island of
Lanai
Island of
Molokai
Total
Net generating and firm purchased capability
(MW) as of December 31, 20191
Conventional oil-fired steam units
Diesel
Combustion turbines (peaking units)
Other combustion turbines
Combined-cycle unit
Biodiesel
Firm contract power2
Net peak demand (MW)3
Reserve margin
Annual load factor
999.5
—
230.8
—
—
57.4
456.5
1,744.2
50.1
29.5
—
46.3
56.3
—
60.0
35.9
96.8
—
—
113.6
—
—
242.2
246.3
1,193.0
192.1
204.3
44.8%
65.4%
26.1%
66.7%
23.2%
62.5%
kWh net generated and purchased (millions)
6,833.8
1,122.1
1,118.6
—
9.4
—
—
—
—
—
9.4
6.1
54.1%
64.4%
34.4
—
9.8
—
2.2
—
—
—
1,085.5
145.5
230.8
48.5
169.9
57.4
516.5
12.0
2,254.1
6.0
100.0%
61.7%
32.4
1,601.5
40.7%
65.2%
9,141.3
1 Hawaiian Electric units at normal ratings; Hawaii Electric Light and Maui Electric units at reserve ratings.
2 Nonutility generators - Hawaiian Electric: 208 MW (Kalaeloa Partners, L.P., oil-fired), 180 MW (AES Hawaii, Inc., coal-fired) and 68.5
MW (HPOWER, refuse-fired); Hawaii Electric Light: 60 MW (Hamakua Energy, LLC, oil-fired). Hawaii Electric Light also has a firm
capacity PPA with PGV for 34.6 MW. However, since May 2018, PGV has been offline due to lava flow on Hawaii Island; therefore,
PGV’s capability has not been incorporated into the utility’s firm contract power capability as of December 31, 2019.
3 Noncoincident and nonintegrated.
Generating reliability and reserve margin. Hawaiian Electric serves the island of Oahu and Hawaii Electric Light serves the
island of Hawaii. Maui Electric has three separate electrical systems—one each on the islands of Maui, Molokai and Lanai.
Hawaiian Electric, Hawaii Electric Light and Maui Electric have isolated electrical systems that are not currently
interconnected to each other or to any other electrical grid and, thus, each maintains a higher level of reserve generation and
cost structure than is typically carried by interconnected mainland U.S. utilities, which are able to share reserve capacity. These
higher levels of reserve margins are required to meet peak electric demands, to provide for scheduled maintenance of
generating units (including the units operated by IPPs relied upon for firm capacity) and to allow for the forced outage of the
largest generating unit in the system.
Nonutility generation. The Utilities have supported state and federal energy policies which encourage the development of
renewable energy sources that reduce the use of fuel oil as well as the development of qualifying facilities. The Utilities’
renewable energy sources and potential sources range from wind, solar, photovoltaic, geothermal, wave and hydroelectric
power to energy produced by municipal waste and other biofuels.
The rate schedules of the electric utilities contain ECRCs (changed from ECACs in 2019) and PPACs that allow them to
recover costs of fuel and purchase power expenses.
In addition to the firm capacity PPAs described below, the electric utilities also purchase energy on an as-available basis
directly from nonutility generators and through its Feed-In Tariff programs. The electric utilities also receive renewable energy
from customers under its Net Energy Metering and Customer Grid Supply programs.
The PUC has allowed rate recovery for the firm capacity and purchased energy costs for the electric utilities’ approved firm
capacity and as-available energy PPAs.
Hawaiian Electric firm capacity PPAs. Hawaiian Electric currently has three major PPAs that provide a total of 456.5 MW
of firm capacity, representing 26% of Hawaiian Electric’s total net generating and firm purchased capacity on the Island of
Oahu as of December 31, 2019.
5
In March 1988, Hawaiian Electric entered into a PPA with AES Hawaii, Inc. (AES Hawaii), a Hawaii-based, indirect
subsidiary of The AES Corporation. The agreement with AES Hawaii, as amended, provides that, for a period of 30 years
beginning September 1992, Hawaiian Electric will purchase 180 megawatts (MW) of firm capacity. The AES Hawaii coal-fired
cogeneration plant utilizes a “clean coal” technology and is designed to sell sufficient steam to be a “Qualifying Facility” (QF)
under the Public Utility Regulatory Policies Act of 1978 (PURPA). See “Commitments and contingencies–Power purchase
agreements–AES Hawaii, Inc.” in Note 3 of the Consolidated Financial Statements for an update regarding this PPA.
Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa
Partners, L.P. (Kalaeloa). The Kalaeloa facility, which is a QF, is a combined-cycle operation, consisting of two oil-fired
combustion turbines burning low sulfur fuel oil (LSFO) and a steam turbine that utilizes waste heat from the combustion
turbines. Hawaiian Electric and Kalaeloa are currently in negotiations to address the PPA term that ended on May 23, 2016. The
PPA automatically extends on a month-to-month basis as long as the parties are still negotiating in good faith, but would end 60
days after either party notifies the other in writing that negotiations have terminated. Hawaiian Electric and Kalaeloa have
agreed that neither party will terminate the PPA prior to July 31, 2020. This agreement contemplates continued negotiations
between the parties and accounts for time needed for PUC approval of a negotiated resolution.
Hawaiian Electric also entered into a PPA in March 1986 and a firm capacity amendment in April 1991 with the City and
County of Honolulu with respect to a refuse-fired plant (HPOWER). Under the PPA, as amended and restated, Hawaiian
Electric is committed to purchase 68.5 MW of firm capacity annually through April 2033.
Hawaii Electric Light firm capacity PPAs. Hawaii Electric Light has two major PPAs that provide a total of 94.6 MW of
firm capacity, representing 34% of Hawaii Electric Light’s total net generating and firm purchased capacity on the Island of
Hawaii as of December 31, 2019.
Hawaii Electric Light has a 35-year PPA, as amended, with Puna Geothermal Venture (PGV) for 34.6 MW of firm capacity
from its geothermal steam facility, which will expire on December 31, 2027. Since May 2018, PGV facility has been offline due
to lava flow on Hawaii Island. PGV is committed to restoring their facility to commercial operation. On December 31, 2019,
Hawaii Electric Light entered into an Amended and Restated PPA with PGV to, among other things, extend the term by 25
years to 2052 and expand the firm capacity capable of being delivered to 46 MW, subject to PUC approval. See “New
renewable PPAs” in the “Developments in renewable energy efforts” section in Electric Utility’s MD&A.
In October 1997, Hawaii Electric Light entered into an agreement with Encogen, which was succeeded by Hamakua
Energy Partners, L. P. (HEP). The agreement requires Hawaii Electric Light to purchase up to 60 MW (net) of firm capacity for
a period of 30 years, expiring on December 31, 2030. The dual-train combined-cycle facility consists of two oil-fired
combustion turbines and a steam turbine that utilizes waste heat from the combustion turbines, which primarily burns naphtha
(a mixture of liquid hydrocarbons) and small amounts of biodiesel beginning in November 2019. In November 2017, Hamakua
Energy, LLC, an indirect subsidiary of HEI, purchased the plant from HEP.
In May 2012, Hawaii Electric Light signed a PPA with Hu Honua Bioenergy, LLC (Hu Honua) for 21.5 MW of renewable,
dispatchable firm capacity fueled by locally grown biomass on the island of Hawaii. This PPA was approved by the PUC in
December 2013, however, the approval was appealed. The Supreme Court issued a decision remanding the matter to the PUC
for further proceedings. See “Commitments and contingencies–Power purchase agreements–Hu Honua Bioenergy, LLC” in
Note 3 of the Consolidated Financial Statements for an update regarding this PPA.
Maui Electric firm capacity PPAs. Maui Electric has no firm capacity PPAs.
Fuel oil usage and supply. The rate schedules of the Utilities include ECRCs (changed from ECACs in 2019) under which
electric rates (and consequently the revenues of the electric utility subsidiaries generally) are adjusted for changes in the
weighted-average price paid for fuel oil and certain components of purchased power, and the relative amounts of company-
generated power and purchased power. See discussion of rates and issues relating to the ECRC below under “Rates,” and
“Electric utility—Material estimates and critical accounting policies–Revenues” in HEI’s MD&A.
Hawaiian Electric’s steam generating units consume low sulfur fuel oil (LSFO) and Hawaiian Electric’s combustion
turbine peaking units consume diesel, including Hawaiian Electric’s Campbell Industrial Park generating facility which recently
converted from B99 grade biodiesel to diesel. Hawaiian Electric’s Schofield Generating Station consumes mostly B99 grade
biodiesel, but is permitted to also burn ultra low sulfur diesel (ULSD).
Hawaii Electric Light’s and Maui Electric’s steam generating units burn high sulfur fuel oil (HSFO) and Hawaii Electric
Light’s and Maui Electric’s Maui combustion turbine generating units burn diesel. Hawaii Electric Light’s and Maui Electric’s
Maui, Molokai, and Lanai diesel engine generating units burn ULSD.
See “Fuel contracts” in Electric utility’s MD&A.
6
The following table sets forth the average cost of fuel oil used by Hawaiian Electric, Hawaii Electric Light and Maui
Electric to generate electricity in 2019, 2018 and 2017:
2019
2018
2017
Hawaiian Electric
$/Barrel
¢/MBtu
Hawaii Electric Light
¢/MBtu
$/Barrel
Maui Electric
Consolidated
$/Barrel
¢/MBtu
$/Barrel
¢/MBtu
81.02
86.11
67.96
1,304.8
1,371.8
1,087.1
81.96
89.81
68.02
1,354.0
1,489.5
1,125.2
86.58
93.60
72.29
1,454.8
1,573.6
1,214.6
82.17
87.90
68.78
1,337.6
1,420.2
1,114.3
The average per-unit cost of fuel oil consumed to generate electricity for Hawaiian Electric, Hawaii Electric Light and
Maui Electric reflects a different volume mix of fuel types and grades as follows:
2019
2018
2017
Hawaiian Electric
% LSFO % Biodiesel/Diesel
7
4
5
93
96
95
Hawaii Electric Light
% HSFO
44
39
43
% Diesel
56
61
57
Maui Electric
% HSFO
24
23
23
% Diesel
76
77
77
The prices that Hawaiian Electric, Hawaii Electric Light and Maui Electric pay for purchased energy from certain older
nonutility generators are generally linked to the price of oil. The AES Hawaii energy prices vary primarily with an inflation
index. The energy prices for Kalaeloa, which purchases LSFO from Par Hawaii Refining, LLC (PAR), vary primarily with the
price of Asian crude oil. A portion of PGV energy prices are based on the electric utilities’ respective short-run avoided energy
cost rates (which vary with their composite fuel costs), subject to minimum floor rates specified in their approved PPA.
Hamakua Energy energy prices vary primarily with the cost of naphtha.
The Utilities estimate that 64% of the net energy they generate will come from fossil fuel oil in 2020 compared to 66% in
2019. Hawaiian Electric generally maintains an average system fuel inventory level equivalent to 47 days of forward
consumption. Hawaii Electric Light and Maui Electric generally maintain an average system fuel inventory level equivalent to
approximately one month’s supply of both HSFO and diesel. The PPAs with AES Hawaii and Hamakua Energy require that
they maintain certain minimum fuel inventory levels.
Rates. Hawaiian Electric, Hawaii Electric Light and Maui Electric are subject to the regulatory jurisdiction of the PUC with
respect to rates, issuance of securities, accounting and certain other matters. See “Regulation” below.
General rate increases require the prior approval of the PUC after public and contested case hearings. Rates for Hawaiian
Electric and its subsidiaries include ECRCs (changed from ECACs in 2019), and PPACs. Under current law and practices,
specific and separate PUC approval is not required for each rate change pursuant to automatic rate adjustment clauses
previously approved by the PUC. PURPA requires the PUC to periodically review the adjustment clauses related to energy cost
of electric and gas utilities in the state, and such clauses, as well as the rates charged by the utilities generally, are subject to
change. PUC approval is also required for all surcharges and adjustments before they are reflected in rates.
See “Electric utility–Most recent rate proceedings,” and “Electric utility–Material estimates and critical accounting
policies–Revenues” in HEI’s MD&A and “Interim increases” and “Utility projects” under “Commitments and contingencies” in
Note 3 of the Consolidated Financial Statements.
Competition. See “Electric utility–Competition” in HEI’s MD&A.
Regulation. The PUC regulates the rates, issuance of securities, accounting and certain other aspects of the operations of
Hawaiian Electric and its electric utility subsidiaries. See the previous discussion under “Rates” and the discussions under
“Electric utility–Results of operations–Most recent rate proceedings.”
On September 15, 2014, the State of Hawaii and the U.S. Department of Energy executed a Memorandum of
Understanding (MOU) recognizing that Hawaii is embarking on the next phase of its clean energy future. The MOU provides
the framework for a comprehensive, sustained effort to better realize its vast renewable energy potential and allow Hawaii to
push forward in three main areas: the power sector, transportation and energy efficiency. This next phase is focused on
stimulating deployment of clean energy infrastructure as a catalyst for economic growth, energy system innovation and test bed
investments.
Energy efficiency. The PUC issued an order on January 3, 2012 approving a framework for Energy Efficiency
Portfolio Standards (EEPS) that set 2008 as the initial base year for evaluation and linearly allocated the 2030 goal to interim
incremental reduction goals of 1,375 GWH by 2015 and 975 GWH by each of the years 2020, 2025 and 2030. Pursuant to the
PUC’s EEPS framework, the PUC has contracted with a public benefits fee administrator to operate and manage energy
7
efficiency programs, and any incentive and/or penalty mechanisms related to the achievement of the goals are at the discretion
of the PUC.
The Division of Consumer Advocacy’s 2018 Compliance Resolution Fund Report states that Hawaii continues to progress
towards its 2020 Renewable Portfolio Standards and EEPS goals. The EEPS has contributed to lower kWh sales; however, the
implementation of sales decoupling has delinked sales and revenues. See “Regulatory mechanisms” above.
Electrification of Transportation. In June 2018, the PUC initiated a proceeding to review the Utilities’ Electrification
of Transportation (EoT) Strategic Roadmap, which provided an economic analysis for light duty electric vehicles on the island
of Oahu, Maui and Hawaii. In July 2019 the Utilities filed a study analyzing data regarding the critical backbone for electric
vehicle charging needs in their service territories. In October 2019, the Utilities filed their EoT Workplan, establishing a
schedule to continue implementation of the EoT roadmap with a focus on EV rate design and make-ready charging
infrastructure in the near-term.
Renewable Portfolio Standards. In 2015, Hawaii’s RPS law was amended to require electric utilities to meet an RPS
of 15%, 30%, 40%, 70% and 100% by December 31, 2015, 2020, 2030, 2040 and 2045, respectively. Energy savings resulting
from energy efficiency programs do not count toward the RPS since 2014 (only electrical generation using renewable energy as
a source counts).
Affiliate transactions. Certain transactions between HEI’s electric public utility subsidiaries (Hawaiian Electric,
Hawaii Electric Light and Maui Electric) and HEI and affiliated interests (as defined by statute) are subject to regulation by the
PUC.
In December 1996, the PUC issued an order in a docket to review the relationship between HEI and Hawaiian Electric and
the effects of that relationship on the operations of Hawaiian Electric. The order required Hawaiian Electric to continue to
provide the PUC with periodic status reports on its compliance with the PUC Agreement (pursuant to which HEI became the
holding company of Hawaiian Electric). Hawaiian Electric files such status reports annually. In the order, the PUC also required
the Utilities to present a comprehensive analysis of the impact that the holding company structure and investments in nonutility
subsidiaries have on a case-by-case basis on the cost of capital to each utility in future rate cases and remove any such effects
from the cost of capital. The Utilities have made presentations in their subsequent rate cases to support their positions that there
was no evidence that would modify the PUC’s finding that Hawaiian Electric’s access to capital did not suffer as a result of
HEI’s involvement in nonutility activities and that HEI’s diversification did not permanently raise or lower the cost of capital
incorporated into the rates paid by Hawaiian Electric’s utility customers.
In December 2018, the PUC established a set of requirements governing transactions and sharing of information between
the Utilities and its affiliates (Affiliate Transaction Requirements, ATRs), which was subsequently modified and clarified in
January 2019 following the Utilities’ motion for reconsideration. The PUC stated the intent of the ATRs is to establish
safeguards to avoid potential market power benefits and cross-subsidization between regulated and unregulated activities. The
requirements include rules on interactions with affiliates, information handling, business development, political activities,
promotional activities, sales of products and services, and employee sharing restrictions. The ATRs include implementing an
internal code of conduct, a compliance plan, including policies and procedures to comply with the requirements, and having an
audit conducted every three years that examines the compliance with the requirements. Penalties for non-compliance depend on
the severity of the violation, and can range from daily fines to divestiture of the Utilities by the holding company.
Other regulations. The Utilities are not subject to regulation by the FERC under the Federal Power Act, except under
Sections 210 through 212 (added by Title II of PURPA and amended by the Energy Policy Act of 1992), which permit the
FERC to order electric utilities to interconnect with qualifying cogenerators and small power producers, and to wheel power to
other electric utilities. Title I of PURPA, which relates to retail regulatory policies for electric utilities, and Title VII of the
Energy Policy Act of 1992, which addresses transmission access, also apply to the Utilities. The Utilities are also required to
file various operational reports with the FERC.
Because they are located in the State of Hawaii, Hawaiian Electric and its subsidiaries are exempt by statute from
limitations set forth in the Powerplant and Industrial Fuel Use Act of 1978 on the use of petroleum as a primary energy source.
See also “HEI–Regulation” above.
Environmental regulation. Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, are subject to
periodic inspections by federal, state and, in some cases, local environmental regulatory agencies, including agencies
responsible for the regulation of water quality, air quality, hazardous and other waste and hazardous materials. These
inspections may result in the identification of items needing corrective or other action. Except as otherwise disclosed in this
report (see “Risk Factors” in Item 1A, and Notes 1 and 3 of the Consolidated Financial Statements, which are incorporated
herein by reference), the Utilities believe that each subsidiary has appropriately responded to environmental conditions
8
requiring action and that, as a result of such actions, such environmental conditions will not have a material adverse effect on
the capital expenditures, earnings and competitive position of the Utilities.
Water quality controls. The generating stations, substations and other utility facilities operate under federal and state
water quality regulations and permits, including, but not limited to, the Clean Water Act National Pollution Discharge
Elimination System (governing point source discharges, including wastewater and storm water discharges) and the Safe
Drinking Water Act Underground Injection Control (regulating disposal of wastewater into the subsurface). On February 1,
2018, the Ninth Circuit Court of Appeals ruled that under certain circumstances, where there may be a connection to surface
water, discharges from underground injection control wells may require National Pollution Discharge Elimination System
permits. This case was appealed to the U.S. Supreme Court who heard the matter in November of 2019. A final decision is
expected in the first quarter of 2020.
Oil pollution controls. The Oil Pollution Act of 1990 (OPA) establishes programs that govern actual or threatened oil
releases and imposes strict liability on responsible parties for clean-up costs and damages to natural resources and property. The
federal Environmental Protection Agency (EPA) regulations under OPA require certain facilities that use or store oil to prepare
and implement Spill Prevention, Control and Countermeasures (SPCC) Plans in order to prevent releases of oil to navigable
waters of the U.S. Certain facilities are also required to prepare and implement Facility Response Plans (FRPs) to ensure
prompt and proper response to releases of oil. The utility facilities that are subject to SPCC Plan and FRP requirements have
prepared and implemented SPCC Plans and FRPs.
Air quality controls. The Clean Air Act (CAA) establishes permitting programs to reduce air pollution. The CAA
amendments of 1990, established the federal Title V Operating Permit Program (in Hawaii known as the Covered Source
Permit program) to ensure compliance with all applicable federal and state air pollution control requirements. The 1977 CAA
Amendments established the New Source Review (NSR) permitting program, which affect new or modified generating units by
requiring a permit to construct under the CAA and the controls necessary to meet the National Ambient Air Quality Standards.
Title V operating permits have been issued for all of the Utilities’ affected generating units.
Hazardous waste and toxic substances controls. The operations of the electric utility are subject to EPA regulations
that implement provisions of the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental
Response, Compensation, and Liability Act (CERCLA, also known as Superfund), the Superfund Amendments and
Reauthorization Act (SARA), and the Toxic Substances Control Act (TSCA).
RCRA underground storage tank (UST) regulations require all facilities that use USTs for storing petroleum products to
comply with established leak detection, spill prevention, standards for tank design and retrofits, financial assurance, operator
training, and tank decommissioning and closure requirements. All of the Utilities’ USTs currently meet the applicable
requirements.
The Emergency Planning and Community Right-to-Know Act under SARA Title III requires the Utilities to report
potentially hazardous chemicals present in their facilities in order to provide the public with information so that emergency
procedures can be established to protect the public in the event of hazardous chemical releases. Since January 1, 1998, the
steam electric industry category has been subject to Toxics Release Inventory (TRI) reporting requirements.
The TSCA regulations specify procedures for the handling and disposal of polychlorinated biphenyls (PCBs), a compound
found in some transformer and capacitor dielectric fluids. The TSCA regulations also apply to responses to releases of PCBs to
the environment. The Utilities have instituted procedures to monitor compliance with these regulations and have implemented a
program to identify and replace PCB transformers and capacitors in their systems. In April 2010, the EPA issued an Advance
Notice of Proposed Rule Making announcing its intent to reassess PCB regulations. The EPA has ceased activity on the PCB
reassessment.
Hawaii’s Environmental Response Law (ERL), as amended, governs releases of hazardous substances, including oil, to the
environment in areas within the state’s jurisdiction. Responsible parties under the ERL are jointly, severally, and strictly liable
for a release of a hazardous substance. Responsible parties include owners or operators of a facility where a hazardous
substance is located and any person who at the time of disposal of the hazardous substance owned or operated any facility at
which such hazardous substance was disposed.
The Utilities periodically discover leaking oil-containing equipment such as USTs, piping, and transformers. Each
subsidiary reports releases from such equipment when and as required by applicable law and addresses the releases in
compliance with applicable regulatory requirements.
9
Additional information. For additional information about Hawaiian Electric, see Hawaiian Electric’s MD&A, Hawaiian
Electric’s “Quantitative and Qualitative Disclosures about Market Risk” and Hawaiian Electric’s Consolidated Financial
Statements, including the Notes thereto.
Properties. As of December 31, 2019, the Utilities’ ownership in generating assets was as follows:
Property
Hawaiian Electric:
Waiau1
Kahe1
Campbell Industrial Park (CIP)1
Honolulu Power Plant1
Schofield Generating Station2
West Loch PV Project3
Hawaii Electric Light4:
Shipman
Waimea
Keahole
Puna
Hill/Kanoelehua
Distributed generators at substation sites
Maui Electric5:
Kahului
Maalaea
Miki Basin
Palaau
Location
(island)
Principal Fuel Type
Generating
Capacity (MW)
Oahu
Oahu
Oahu
Oahu
Oahu
Oahu
Hawaii
Hawaii
Hawaii
Hawaii
Hawaii
Hawaii
Maui
Maui
Lanai
Molokai
LSFO / Diesel
LSFO
Diesel
N/A
Biodiesel / ULSD
Renewable (Solar)
N/A
ULSD
Diesel / ULSD
HSFO / Diesel
HSFO / ULSD
ULSD
HSFO
Diesel / ULSD
ULSD
ULSD
480.8
620.5
129.0
—
49.4
20.0
—
7.5
77.6
36.7
55.4
5.0
35.9
210.4
9.4
12.0
Status
Active
Active
Active
Deactivated in 2014
Active
Active
Retired in 2015
Active
Active
Active
Active
Active
Active
Active
Active
Active
1 The four plants are situated on Hawaiian Electric-owned land having a combined area of 542 acres.
2 Hawaiian Electric has a 35-year land lease on 8.13 acres, effective September 1, 2016 (with an option to extend an additional 10 years), with the Department
of the Army.
3 Hawaiian Electric has a 37-year land lease on 102 acres, effective July 1, 2017, with the Secretary of the Navy.
4 The plants are situated on Hawaii Electric Light-owned land having a combined area of approximately 44 acres. The distributed generators are located within
Hawaii Electric Light-owned substation sites having a combined area of approximately four acres.
5 The four plants are situated on Maui Electric-owned land having a combined area of 60.7 acres.
As of December 31, 2019, the Utilities ownership in fuel storage facilities was as follows:
Facility
Hawaiian Electric:
Barbers Point Tank Farm
Generation sites - various (in aggregate)
Generation sites - various (in aggregate)
Generation sites - various (in aggregate)
Hawaii Electric Light1:
Generation sites - various (in aggregate)
Generation sites - various (in aggregate)
Maui Electric2:
Generation sites - various (in aggregate)
Generation sites - various (in aggregate)
Location
(island)
Oahu
Oahu
Oahu
Oahu
Hawaii
Hawaii
Maui
Maui
Fuel Type
LSFO
LSFO
Diesel
Biodiesel
HSFO
Diesel
HSFO
Diesel
Capacity (barrels
in thousands)
Generation Serviced
1,000
770
132
11
48
82
81
95
Kahe, Waiau
Various
Various
Various
Various
Various
Various
Various
1 There are an additional 19,200 barrels of diesel and 22,770 barrels of HSFO storage capacity for Hawaii Electric Light-owned fuel off-site at Island Energy
Services, LLC (Island Energy)-owned terminalling facilities.
2 There are an additional 56,358 barrels of diesel oil storage capacity off-site at Aloha Petroleum, Ltd. (Aloha Petroleum)-owned terminalling facilities.
10
Other properties. The Utilities own overhead transmission and distribution lines, underground cables, pole (some jointly)
and metal high voltage towers. Electric lines are located over or under public and nonpublic properties.
Hawaiian Electric owns a total of 132 acres of land on which substations, transformer vaults, distribution baseyards and the
Kalaeloa cogeneration facility are located. Hawaiian Electric also owns buildings and approximately 11.6 acres of land located
in Honolulu, which house its operating and engineering departments. It also leases an office building and certain office spaces
in Honolulu, land for office spaces and storage in Pearl City, and a warehousing center in Kapolei.
Hawaii Electric Light owns 6 acres of land in Kona, which is used for a baseyard, and one acre of land in Hilo, which
houses its accounting, customer services and administrative offices. Hawaii Electric Light also leases 3.7 acres of land for its
baseyard in Hilo under a lease expiring in 2030. In addition, Hawaii Electric Light owns a total of approximately 100 acres of
land, and leases a total of approximately 8.5 acres of land, on which hydro facilities, substations and switching stations,
microwave facilities and transmission lines are located. The deeds to the sites located in Hilo contain certain restrictions, but the
restrictions do not materially interfere with the use of the sites for public utility purposes.
Maui Electric’s administrative offices, as well as its engineering and distribution departments, are situated on 9.1 acres of
Maui Electric-owned land in Kahului. Maui Electric also owns approximately 18 acres of land which house some of its
substations, leases approximately 3,600 square feet of land for its telecommunication and microwave facilities, leases
approximately 6,000 square feet of land at Kahului Harbor for pipeline purposes, and leases 17,958 square feet of land at
Puunene for the Puunene Substation. Maui Electric also owns approximately 89 acres of undeveloped land at Waena, Palaau,
and Kahului. Fuel storage facilities are located on Maui Electric-owned properties at Kahului Baseyard, Kahului Power Plant,
Maalaea Power Plant, Miki Basin, Palaau, and Hana. Two, 1-MW stand-by diesel generators are located within the Maui
Electric-owned land at Hana Substation.
See “Hawaiian Electric and subsidiaries and service areas” above for a discussion of the nonexclusive franchises of
Hawaiian Electric and subsidiaries.
See “Generation statistics” above and “Limited insurance” in HEI’s MD&A for a further discussion of some of the electric
utility properties.
Bank
General. ASB is one of the largest financial institutions headquartered in the State of Hawaii with assets of $7.2 billion and
deposits of $6.3 billion, as of December 31, 2019. ASB is a full-service community bank that serves both consumer and
commercial customers and operates 49 branches on the islands of Oahu (34), Maui (6), Hawaii (5), Kauai (3), and Molokai (1).
ASB was acquired by HEI in 1988, and prior to its acquisition, ASB was granted a federal savings bank charter in
January 1987. Prior to that time, ASB had operated since 1925 as the Hawaii division of American Savings & Loan Association
of Salt Lake City, Utah.
In 2019, ASB’s revenues and net income amounted to approximately 11% and 41% of HEI’s consolidated revenues and net
income, respectively, compared to approximately 11% and 41% in 2018 and approximately 12% and 41% in 2017.
At the time of HEI’s acquisition of ASB, HEI agreed with the Office of Thrift Supervision (OTS), Department of
Treasury’s predecessor regulatory agency, that ASB’s regulatory capital would be maintained at a level of at least 6% of ASB’s
total liabilities, or at such greater amount as may be required from time to time by regulation. Under the agreement, HEI’s
obligation to contribute additional capital to ensure that ASB would have the capital level required by the OTS was limited to a
maximum aggregate amount of approximately $65.1 million. As of December 31, 2019, as a result of certain HEI contributions
of capital to ASB over the years, HEI’s maximum obligation under the agreement to contribute additional capital has been
reduced to approximately $28.3 million. ASB is subject to OCC regulations on dividends and other distributions and ASB must
receive a letter from the FRB communicating the OCC’s and FRB’s non-objection to the payment of any dividend ASB
proposes to declare and pay to ASB Hawaii and HEI.
The following table sets forth selected data for ASB (average balances calculated using the average daily balances):
Years ended December 31
Equity to assets ratio
Average equity divided by average total assets
Return on assets
Net income divided by average total assets
Return on equity
Net income divided by average equity
11
2019
2018
2017
9.30%
8.86%
9.10%
1.25
13.48
1.20
13.51
1.02
11.20
Lending activities. See Note 4 of the Consolidated Financial Statements for the composition of ASB’s loan portfolio.
Origination, purchase and sale of loans. Generally, residential and commercial real estate loans originated by ASB are
collateralized by real estate located in Hawaii. For additional information, including information concerning the geographic
distribution of ASB’s mortgage-backed securities portfolio and the geographic concentration of credit risk, see Note 15 of the
Consolidated Financial Statements. The demand for loans is primarily dependent on the Hawaii real estate market, business
conditions, interest rates and loan refinancing activity.
Residential mortgage lending. ASB originates fixed rate and adjustable rate loans secured by single family residential
property, including investor-owned properties, with maturities of up to 30 years. ASB’s general policy is to require private
mortgage insurance when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase
price at origination. For non-owner-occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the
lower of the appraised value or purchase price at origination.
Construction and development lending. ASB provides fixed rate loans for the construction of one-to-four unit residential
and commercial properties. Construction loan projects are typically short term in nature. Construction and development
financing generally involves a higher degree of credit risk than long-term financing on improved, occupied real estate.
Accordingly, construction and development loans are generally priced higher than loans collateralized by completed structures.
ASB’s underwriting, monitoring and disbursement practices with respect to construction and development financing are
designed to ensure sufficient funds are available to complete construction projects. See “Bank—Loan portfolio risk elements”
in HEI’s MD&A and “Multifamily residential and commercial real estate lending” below.
Multifamily residential and commercial real estate lending. ASB provides permanent financing and construction and
development financing collateralized by multifamily residential properties (including apartment buildings) and collateralized by
commercial and industrial properties (including office buildings, shopping centers and warehouses) for its own portfolio as well
as for participation with other lenders. Commercial real estate lending typically involves long lead times to originate and fund.
As a result, production results can vary significantly from period to period.
Consumer lending. ASB offers a variety of secured and unsecured consumer loans. Loans collateralized by deposits are
limited to 90% of the available account balance. ASB offers home equity lines of credit, clean energy loans, secured and
unsecured VISA cards (through a third party issuer), checking account overdraft protection and other general purpose consumer
loans.
Commercial lending. ASB provides both secured and unsecured commercial loans to business entities. This lending
activity is designed to diversify ASB’s asset structure, shorten maturities, improve rate sensitivity of the loan portfolio and
attract commercial checking deposits. ASB offers commercial loans with terms up to ten years.
Loan origination fee and servicing income. In addition to interest earned on residential mortgage loans, ASB receives
income from servicing loans, for late payments and from other related services. Servicing fees are received on loans originated
and subsequently sold by ASB where ASB acts as collection agent on behalf of third-party purchasers.
ASB charges the borrower at loan settlement a loan origination fee. See “Loans” in Note 1 of the Consolidated Financial
Statements.
Deposits and sources of funds. Deposits continue to be the largest source of funds for ASB for use in lending, meeting
liquidity requirements and making investments, and are affected by market interest rates, competition and management’s
responses to these factors. Deposit retention and growth will remain challenging in the current environment due to competition
for deposits and the low level of short-term interest rates. ASB borrows on a short-term basis to compensate for seasonal or
other reductions in deposit flows. ASB may borrow on a longer-term basis to support expanded lending or investment activities.
Advances from the FHLB of Des Moines and securities sold under agreements to repurchase continue to be additional sources
of funds, but they are a higher cost source than deposits.
Competition. The banking industry in Hawaii is highly competitive. At December 31, 2019, there were 8 financial institutions
insured by the FDIC headquartered in the State of Hawaii. While ASB is one of the largest financial institutions in Hawaii,
based on total assets, ASB faces vigorous competition for deposits and loans from two larger banking institutions based in
Hawaii and from smaller institutions that heavily promote their services in niche areas, such as providing financial services to
small and medium-sized businesses, as well as national financial services organizations. Competition for loans and deposits
comes primarily from other savings institutions, commercial banks, credit unions, securities brokerage firms, money market and
mutual funds and other investment alternatives. ASB faces additional competition in seeking deposit funds from various types
of corporate and government borrowers, including insurance companies. Competition for origination of mortgage loans comes
primarily from mortgage banking and brokerage firms, commercial banks, other savings institutions, insurance companies and
real estate investment trusts. See also “Bank—Executive overview and strategy” in HEI’s MD&A.
12
To remain competitive and continue building core franchise value, ASB continues to develop and introduce new products
and services to meet the needs of its consumer and commercial customers. Additionally, the banking industry is constantly
changing and ASB is making the investment in its people and technology necessary to adapt and remain competitive.
The primary factors in ASB’s competition for mortgage and other loans are the competitive interest rates and loan
origination fees it charges, the wide variety of loan programs it offers and the quality and efficiency of the services it provides
to borrowers and the business community. ASB believes that it is able to compete for such loans primarily through the
competitive interest rates and loan fees it charges, the type of mortgage loan programs it offers and the efficiency and quality of
the services it provides to individual borrowers and the business community.
The primary factors in competing for deposits are interest rates, the quality and range of services offered, marketing,
convenience of locations, hours of operation, other non-branch channels such as online and mobile banking and perceptions of
the institution’s financial soundness and safety. To compete effectively, ASB offers a variety of savings and checking accounts
at competitive rates, convenient business hours, convenient branch locations with interbranch deposit and withdrawal privileges
at each branch, convenient automated teller machines and an upgrade of ASB’s electronic banking platform. ASB also
conducts advertising and promotional campaigns.
ASB has been diversifying its loan portfolio from single-family home mortgages to higher-spread, shorter-duration
consumer, commercial and commercial real estate loans. The origination of consumer, commercial and commercial real estate
loans involves risks and other considerations different from those associated with originating residential real estate loans. For
example, the sources and level of competition may be different and credit risk is generally higher than for residential mortgage
loans. These different risk factors are considered in the underwriting and pricing standards and in the allowance for loan losses
established by ASB for its consumer, commercial and commercial real estate loans.
Regulation. ASB, a federally chartered saving bank, is subject to examination and comprehensive regulation by the
Department of Treasury, OCC and the FDIC, and is subject to reserve requirements established by the Board of Governors of
the Federal Reserve System. Regulation by these agencies focuses in large measure on the adequacy of ASB’s capital and the
results of periodic “safety and soundness” examinations conducted by the OCC. In addition, ASB’s holding companies are
subject to the regulatory supervision of the FRB. See “HEI Consolidated–Regulation” above.
Capital requirements. The OCC, ASB’s principal regulator, administers two sets of capital standards — minimum
regulatory capital requirements and prompt corrective action requirements. The FDIC also has prompt corrective action capital
requirements. As of December 31, 2019, ASB was in compliance with OCC minimum regulatory capital requirements and was
“well-capitalized” within the meaning of OCC prompt corrective action regulations and FDIC capital regulations, as follows:
•
•
ASB met applicable minimum regulatory capital requirements (noted in parentheses) as of December 31, 2019 with a
Tier 1 leverage ratio of 9.1% (4.0%), a common equity Tier 1 capital ratio of 13.2% (4.5%), a Tier 1 capital ratio of
13.2% (6.0%) and a total capital ratio of 14.3% (8.0%).
ASB met the capital requirements to be generally considered “well-capitalized” (noted in parentheses) as of
December 31, 2019 with a Tier 1 leverage ratio of 9.1% (5.0%), a common equity Tier 1 capital ratio of 13.2% (6.5%),
a Tier 1 capital ratio of 13.2% (8.0%) and a total capital ratio of 14.3% (10.0%).
The purpose of the prompt corrective action capital requirements is to establish thresholds for varying degrees of oversight
and intervention by regulators. Declines in levels of capital, depending on their severity, will result in increasingly stringent
mandatory and discretionary regulatory consequences. Capital levels may decline for any number of reasons, including
reductions that would result if there were losses from operations, deterioration in collateral values or the inability to dispose of
real estate owned (typically acquired by foreclosure). The regulators have substantial discretion in the corrective actions they
might direct and could include restrictions on dividends and other distributions that ASB may make to HEI (through ASB
Hawaii) and the requirement that ASB develop and implement a plan to restore its capital. Under an agreement with regulators
entered into by HEI when it acquired ASB, HEI currently could be required to contribute to ASB up to an additional
$28.3 million of capital, if necessary, to maintain ASB’s capital position.
In order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers, a financial
institution must hold a buffer of common equity tier 1 capital above its minimum capital requirements in an amount greater
than 2.5% of total risk-weighted assets (capital conservation buffer) which is phased-in through 2019. As of December 31,
2019, ASB met the applicable capital requirements, including the capital conservation buffer.
See “Bank—Legislation and regulation” in HEI’s MD&A for the final capital rules under the Basel III regulatory capital
framework.
13
Examinations. ASB is subject to periodic “safety and soundness” examinations and other examinations by the OCC.
In conducting its examinations, the OCC utilizes the Uniform Financial Institutions Rating System adopted by the Federal
Financial Institutions Examination Council, which system utilizes the “CAMELS” criteria for rating financial institutions. The
six components in the rating system are: Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to
market risk. The OCC examines and rates each CAMELS component. An overall CAMELS rating is also given, after taking
into account all of the component ratings. A financial institution may be subject to formal regulatory or administrative direction
or supervision such as a “memorandum of understanding” or a “cease and desist” order following an examination if its
CAMELS rating is not satisfactory. An institution is prohibited from disclosing the OCC’s report of its safety and soundness
examination or the component and overall CAMELS rating to any person or organization not officially connected with the
institution as an officer, director, employee, attorney or auditor, except as provided by regulation. The OCC also regularly
examines ASB’s information technology practices and its performance under Community Reinvestment Act measurement
criteria.
The Federal Deposit Insurance Act, as amended, addresses the safety and soundness of the deposit insurance system,
supervision of depository institutions and improvement of accounting standards. Pursuant to this Act, federal banking agencies
have promulgated regulations that affect the operations of ASB and its holding companies (e.g., standards for safety and
soundness, real estate lending, accounting and reporting, transactions with affiliates and loans to insiders).
Deposit insurance coverage. The Federal Deposit Insurance Act, as amended, and regulations promulgated by the FDIC,
govern insurance coverage of deposit accounts. In July 2010, the Dodd-Frank Act permanently raised the current standard
maximum deposit insurance amount to $250,000. Generally, the amount of all deposits held by a depositor in the same capacity
(even if held in separate accounts) is aggregated for purposes of applying the insurance limit.
See “Federal Deposit Insurance Corporation assessment” in Note 4 of the Consolidated Financial Statements for a
discussion of FDIC deposit insurance assessment rates.
Recent legislation and issuances. See “Bank–Legislation and regulation” in HEI’s MD&A.
Affiliate transactions. Significant restrictions apply to certain transactions between ASB and its affiliates, including HEI
and its direct and indirect subsidiaries. For example, ASB is prohibited from making any loan or other extension of credit to an
entity affiliated with ASB unless the affiliate is engaged exclusively in activities which the FRB has determined to be
permissible for bank holding companies. There are also various other restrictions which apply to certain transactions between
ASB and certain executive officers, directors and insiders of ASB. ASB is also barred from making a purchase of or any
investment in securities issued by an affiliate, other than with respect to shares of a subsidiary of ASB.
Financial derivatives and interest rate risk. ASB is subject to OCC rules relating to derivatives activities, such as interest
rate swaps, interest rate lock commitments and forward commitments. See “Derivative financial instruments” in Note 4 of the
Consolidated Financial Statements for a description of interest rate lock commitments and forward commitments used by ASB.
Currently ASB does not use interest rate swaps to manage interest rate risk (IRR), but may do so in the future. Generally
speaking, the OCC rules permit financial institutions to engage in transactions involving financial derivatives to the extent these
transactions are otherwise authorized under applicable law and are safe and sound. The rules require ASB to have certain
internal procedures for handling financial derivative transactions, including involvement of the ASB Board of Directors.
With the transfer of the regulatory jurisdiction from the OTS to the OCC, ASB has adopted terminology and IRR
assessment, measurement and management practices consistent with OCC guidelines. Management believes ASB’s IRR
processes are aligned with the Interagency Advisory on Interest Rate Risk Management and appropriate with earnings and
capital levels, balance sheet complexity, business model and risk tolerance.
Liquidity. OCC regulations require ASB to maintain sufficient liquidity to ensure safe and sound operations. ASB’s
principal sources of liquidity are customer deposits, borrowings, the maturity and repayment of portfolio loans and securities
and the sale of loans into secondary market channels. ASB’s principal sources of borrowings are advances from the FHLB of
Des Moines and securities sold under agreements to repurchase from broker/dealers. ASB is approved by the FHLB of Des
Moines to borrow an amount of up to 35% of assets to the extent it provides qualifying collateral and holds sufficient FHLB of
Des Moines stock. As of December 31, 2019, ASB’s unused FHLB of Des Moines borrowing capacity was approximately
$2.3 billion. ASB utilizes growth in deposits, advances from the FHLB of Des Moines and securities sold under agreements to
repurchase to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and make
investments. As of December 31, 2019, ASB had loan commitments, undisbursed loan funds and unused lines and letters of
credit of $1.9 billion. Management believes ASB’s current sources of funds will enable it to meet these obligations while
maintaining liquidity at satisfactory levels.
Supervision. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the FDICIA) establishes a statutory
framework that is triggered by the capital level of a financial institution and subjects it to progressively more stringent
14
restrictions and supervision as capital levels decline. The OCC rules implement the system of prompt corrective action. In
particular, the rules define the relevant capital measures for the categories of “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As of December 31, 2019, ASB was
“well-capitalized.”
Interest rates. FDIC regulations restrict the ability of financial institutions that are undercapitalized to offer interest rates
on deposits that are significantly higher than the rates offered by competing institutions. As of December 31, 2019, ASB was
“well capitalized” and thus not subject to these interest rate restrictions.
Qualified thrift lender test. ASB is a “qualified thrift lender” (QTL) under its federal thrift charter and, in order to maintain
this status, ASB is required to maintain at least 65% of its assets in “qualified thrift investments,” measured on a monthly
average basis in 9 out of the previous 12 months, which include housing-related loans (including mortgage-backed securities)
as well as certain small business loans, education loans, loans made through credit card accounts and a basket (not exceeding
20% of total assets) of other consumer loans and other assets. Institutions that fail to maintain QTL status are subject to various
penalties, including limitations on their activities. In ASB’s case, the activities of HEI, ASB Hawaii and HEI’s other
subsidiaries would also be subject to restrictions if ASB failed to maintain its QTL status, and a failure or inability to comply
with those restrictions could effectively result in the required divestiture of ASB. As of December 31, 2019, and at all times
during 2019, ASB was a qualified thrift lender.
Federal Home Loan Bank System. ASB is a member of the FHLB System, which consists of 11 regional FHLBs, and
ASB’s regional bank is the FHLB of Des Moines. The FHLB System provides a central credit facility for member institutions.
Historically, the FHLBs have served as the central liquidity facilities for savings associations and sources of long-term funds for
financing housing. At such time as an advance is made to ASB or renewed, it must be collateralized by collateral from one of
the following categories: (1) fully disbursed, whole first mortgages on improved residential property, or securities representing
a whole interest in such mortgages; (2) securities issued, insured or guaranteed by the U.S. Government or any agency thereof;
(3) FHLB deposits; and (4) other real estate-related collateral that has a readily ascertainable value and with respect to which a
security interest can be perfected. The aggregate amount of outstanding advances collateralized by such other real estate-related
collateral may not exceed 300% of ASB’s capital.
ASB’s required holding in the stock of the FHLB is both membership and activity-based. Membership is based on a
percentage of total assets (0.12%) while the portion related to activity is based on a percentage of outstanding activity, mainly
advances (4%). As of December 31, 2019, ASB was required and owned capital stock in the FHLB of Des Moines in the
amount of $8.4 million.
Community Reinvestment. The Community Reinvestment Act (CRA) requires financial institutions to help meet the credit
needs of their communities, including low- and moderate-income areas, consistent with safe and sound lending practices. The
OCC will consider ASB’s CRA record in evaluating an application for a new deposit facility, including the establishment of a
branch, the relocation of a branch or office, or the acquisition of an interest in another bank. ASB currently holds a
“satisfactory” CRA rating.
Other laws. ASB is subject to federal and state consumer protection laws which affect deposit and lending activities, such
as the Truth in Lending Act (TILA), the Truth in Savings Act, the Equal Credit Opportunity Act, the Real Estate Settlement
Procedures Act (RESPA), the Home Mortgage Disclosure Act and several federal and state financial privacy acts intended to
protect consumers’ personal information and prevent identity theft, such as the Gramm Act and the Fair and Accurate
Transactions Act. ASB is also subject to federal laws regulating certain of its lending practices, such as the Flood Disaster
Protection Act, and laws requiring reports to regulators of certain customer transactions, such as the Currency and Foreign
Transactions Reporting Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act. ASB’s
relationship with Cetera Investment Services LLC and Cetera Investment Advisers LLC is also governed by regulations
adopted by the FRB under the Gramm Act, which regulate “networking” relationships under which a financial institution refers
customers to a broker-dealer for securities services and employees of the financial institution are permitted to receive a nominal
fee for the referrals. These laws may provide for substantial penalties in the event of noncompliance.
Proposed legislation. See the discussion of proposed legislation in “Bank–Legislation and regulation” in HEI’s MD&A.
Environmental regulation. ASB may be subject to the provisions of Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), Hawaii Environmental Response Law (ERL) and regulations promulgated
thereunder, which impose liability for environmental cleanup costs on certain categories of responsible parties. CERCLA and
ERL exempt persons whose ownership in a facility is held primarily to protect a security interest, provided that they do not
participate in the management of the facility.
15
Additional information. For additional information about ASB, see the sections under “Bank” in HEI’s MD&A, HEI’s
“Quantitative and Qualitative Disclosures about Market Risk” and HEI’s Consolidated Financial Statements, including Note 4
thereto.
Properties. ASB owns or leases several office buildings in downtown Honolulu and owns land on which a number of its
branches are located.
The following table sets forth the number of bank branches owned and leased by ASB by island:
December 31, 2019
Oahu
Maui
Hawaii
Kauai
Molokai
Number of branches
Leased
Owned
Total
9
2
3
2
—
16
25
4
2
1
1
33
34
6
5
3
1
49
As of December 31, 2019, the net book value (NBV) of branches and office facilities was $182 million ($175 million
represents the NBV of the land and improvements for the branches and office facilities owned by ASB and $7 million
represents the NBV of ASB’s leasehold improvements). As of December 31, 2018, the NBV of branches and office facilities of
$190 million ($184 million represents the NBV of the land and improvements for the branches and office facilities owned by
ASB and $6 million represents the NBV of ASB’s leasehold improvements). The leases expire on various dates through
December 2040, but many of the leases have extension provisions.
As of December 31, 2019, ASB owned 111 automated teller machines.
New Headquarters. In 2019, ASB moved into its new headquarters, which it owns, in downtown Honolulu. The
headquarters has approximately 370,000 square feet of space on eleven floors and consolidated five separate offices into one
building where approximately 600 employees are working. In fourth quarter of 2019, ASB sold two office facilities as a result
of the consolidation of employees into the new headquarters and recognized a pretax gain of $10.8 million.
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ITEM 1A.
RISK FACTORS
The businesses of HEI and its subsidiaries involve numerous risks which, if realized, could have a material and adverse
effect on the Company’s financial statements. For additional information for certain risk factors enumerated below and other
risks of the Company and its operations, see “Cautionary Note Regarding Forward-Looking Statements” above and HEI’s
MD&A, HEI’s “Quantitative and Qualitative Disclosures about Market Risk,” the Notes to the Consolidated Financial
Statements, Hawaiian Electric’s MD&A and Hawaiian Electric’s “Quantitative and Qualitative Disclosures About Market
Risk.”
Holding company and company-wide risks.
HEI is a holding company that derives its income from its operating subsidiaries and depends on the ability of those
subsidiaries to pay dividends or make other distributions to HEI and on its own ability to raise capital. HEI is a legal entity
separate and distinct from its various subsidiaries. As a holding company with no significant operations of its own, HEI’s cash
flows and consequent ability to service its obligations and pay dividends on its common stock is dependent upon its receipt of
dividends or other distributions from its operating subsidiaries and its ability to issue common stock or other equity securities
and to incur additional debt. The ability of HEI’s subsidiaries to pay dividends or make other distributions to HEI, in turn, is
subject to the risks associated with their operations and to contractual and regulatory restrictions, including:
•
•
•
•
•
the provisions of an HEI agreement with the PUC, which could limit the ability of HEI’s principal electric public
utility subsidiary, Hawaiian Electric, to pay dividends to HEI in the event that the consolidated common stock equity
of the Utilities falls below 35% of total capitalization of the electric utilities;
the provisions of an HEI agreement entered into with federal bank regulators in connection with its acquisition of its
bank subsidiary, ASB, which require HEI to contribute additional capital to ASB (up to a maximum amount of
additional capital of $28.3 million as of December 31, 2019 under the Regulatory Capital Maintenance/Dividend
Agreement dated May 26, 1988, between HEI, HEIDI (HEI Diversified Inc.) and the Federal Savings and Loan
Insurance Corporation) upon request of the regulators in order to maintain ASB’s regulatory capital at the level
required by regulation;
the minimum capital and capital distribution regulations of the OCC that are applicable to ASB and capital regulations
that become applicable to HEI and ASB Hawaii;
the receipt of a letter from the FRB communicating the OCC’s and FRB’s non-objection to the payment of any
dividend ASB proposes to declare and pay to ASB Hawaii and HEI; and
the provisions of preferred stock resolutions and debt instruments of HEI and its subsidiaries.
The Company, and its credit rating, is subject to risks associated with the Hawaii economy (in the aggregate and on an
individual island basis), volatile U.S. capital markets and changes in the interest rate and credit market environment that have
or could result in higher retirement benefit plan funding requirements, declines in ASB’s interest rate margins and investment
values, higher delinquencies and charge-offs in ASB’s loan portfolio and restrictions on the ability of HEI or its subsidiaries to
borrow money or issue securities. The two largest components of Hawaii’s economy are tourism and the federal government
(including the military). Because the core businesses of HEI’s subsidiaries are providing local public electric utility services
(through Hawaiian Electric and its subsidiaries) and banking services (through ASB) in Hawaii, the Company’s operating
results are significantly influenced by Hawaii’s economy, which in turn is influenced by economic conditions in the mainland
U.S. (particularly California) and Asia (particularly Japan) as a result of the impact of those conditions on tourism, by the
impact of interest rates on the construction and real estate industries and by the impact of federal government spending in
Hawaii, which can be affected by world conditions and, from time to time, the expiration of federal government appropriations
bills. In addition, the Hawaii economy could be directly or indirectly affected by implications and potential impacts of U.S. and
foreign capital and credit market conditions and federal, state and international responses to those conditions and the potential
impacts of global and local developments (including economic conditions and uncertainties; unrest, terrorist acts, wars,
conflicts, political protests, deadly virus epidemic, potential pandemics, or other crisis; the effects of changes that have or may
occur in U.S. policy, such as with respect to immigration and trade).
The recent outbreak of the coronavirus, COVID-19, first identified in Wuhan, Hubei Province, China, has the potential to
impact economic conditions in Hawaii, for example, through a reduction of tourism and business travel to Hawaii. Further, a
prolonged outbreak could potentially impact the ability of the Company’s customers, contractors, suppliers, IPPs, and other
business partners to perform or fulfill their obligations, which could adversely affect the Company’s businesses. For instance,
restrictions on business activities due to COVID-19 may disrupt the global renewable energy supply chain that relies on
Chinese manufacturing capacity for key components (such as solar modules, inverters, wind turbine components) creating
project delays or material price increases for Hawaii renewable projects and procurement processes, which could potentially
jeopardize the Company’s ability to achieve its RPS goals. While the Company has not been materially impacted by COVID-19
to date, the extent of the outbreak and its future impact on the Company’s businesses and its business partners is uncertain and
cannot be reasonably estimated at this time.
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HEI’s and Hawaiian Electric’s securities ratings only reflect the view, at the time the ratings are issued, of the applicable
rating agency. There is no assurance that any such credit rating will remain in effect for any given period of time or that such
rating will not be lowered, suspended or withdrawn entirely by the applicable rating agency if, in such rating agency’s
judgment, circumstances, such as current, past or future effects or events so warrant. Any such lowering, suspension or
withdrawal of any rating may have an adverse effect on the availability of capital to the Company or the market price or
marketability of HEI’s and/or Hawaiian Electric’s securities, which could increase the cost of capital of HEI and Hawaiian
Electric, and such increased costs, including interest charges, under HEI’s and/or Hawaiian Electric’s debt securities and credit
facilities, would result in reductions in HEI’s consolidated net income in future periods. Further, if HEI’s or Hawaiian Electric’s
commercial paper ratings were to be downgraded, HEI and Hawaiian Electric might not be able to sell commercial paper and
might be required to draw on more expensive bank lines of credit or to defer capital or other expenditures. Neither HEI nor
Hawaiian Electric management can predict future rating agency actions or their effects on the future cost of capital of HEI or
Hawaiian Electric. Such ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to
revision or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other
rating.
Changes in the U.S. capital markets can also have significant effects on the Company. For example, pension funding
requirements are affected by the market performance of the assets in the master pension trust maintained for pension plans, and
by the discount rate used to estimate the service and interest cost components of net periodic pension cost and value obligations.
The Utilities’ pension tracking mechanisms help moderate pension expense; however, the significant decline in 2008 in the
value of the Company’s defined benefit pension plan assets resulted in a substantial gap between the projected benefit
obligations under the plans and the value of plan assets, resulting in increases in funding requirements. The increases have
moderated in recent years as investment performance has improved.
Because the earnings of ASB depend primarily on net interest income, interest rate risk is a significant risk of ASB’s
operations. HEI and the Utilities are also exposed to interest rate risk primarily due to their periodic borrowing requirements,
the discount rate used to determine pension funding requirements and the possible effect of interest rates on the electric utilities’
rates of return. Interest rates are sensitive to many factors, including general economic conditions and the policies of
government and regulatory authorities. HEI cannot predict future changes in interest rates, nor be certain that interest rate risk
management strategies it or its subsidiaries have implemented will be successful in managing interest rate risk.
Interest rate risk also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and
decreases in prevailing interest rates generally translate into decreases and increases in the fair values of those instruments,
respectively. Disruptions in the credit markets, a liquidity crisis in the banking industry or increased levels of residential
mortgage delinquencies and defaults may result in decreases in the fair value of ASB’s investment securities and an impairment
that is other-than-temporary, requiring ASB to write down its investment securities. As of December 31, 2019, ASB’s
investment in U.S. Treasury, federal agency obligations, and mortgage-backed securities have an implicit guarantee from the
U.S. government.
HEI and Hawaiian Electric and their subsidiaries may incur higher retirement benefits expenses and have and will likely
continue to recognize substantial liabilities for retirement benefits. Retirement benefits expenses and cash funding
requirements could increase in future years depending on numerous factors, including, but not limited to, the performance of
the U.S. equity markets, trends in interest rates and health care costs, plan amendments, mortality improvements, new laws
relating to pension funding and changes in accounting principles. For the Utilities, however, retirement benefits expenses, as
adjusted by the pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, have been an allowable
expense for rate-making purposes.
The Company is subject to the risks associated with the geographic concentration of its businesses and current lack of
interconnections that could result in service interruptions at the Utilities or higher default rates on loans held by ASB. The
business of the Utilities is concentrated on the individual islands they serve in the State of Hawaii. Their operations are more
vulnerable to service interruptions than are many U.S. mainland utilities because none of the systems of the Utilities are
interconnected with the systems on the other islands they serve. Because of this lack of interconnections, it is necessary to
maintain higher generation reserve margins than are typical for U.S. mainland utilities to help ensure reliable service. Service
interruptions, including in particular extended interruptions that could result from a natural disaster or terrorist activity, could
adversely impact the revenues and costs of some or all of the Utilities.
Substantially all of ASB’s consumer loan customers are Hawaii residents. A significant portion of the commercial loan
customers are located in Hawaii. While a majority of customers are on Oahu, ASB also has customers on the neighbor islands
(whose economies have been weaker than Oahu during the last economic downturn). Substantially all of the real estate
underlying ASB’s residential and commercial real estate loans are located in Hawaii. These assets may be subject to a greater
risk of default than other comparable assets held by financial institutions with other geographic concentrations in the event of
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adverse economic, political or business developments or natural disasters affecting Hawaii and affect the ability of ASB’s
customers to make payments of principal and interest on their loans.
Increasing competition and technological advances could cause HEI’s businesses to lose customers or render their
operations obsolete. The banking industry in Hawaii, and certain aspects of the electric utility industry, are competitive. The
success of HEI’s subsidiaries in meeting competition and responding to technological advances will continue to have a direct
impact on HEI’s consolidated financial performance. For example:
•
•
ASB, one of the largest financial institutions in the state, is in direct competition for deposits and loans not only with
two larger institutions that have substantial capital, technology and marketing resources, but also with smaller Hawaii
institutions and other U.S. institutions, including credit unions, mutual funds, mortgage brokers, finance companies
and investment banking firms. Larger financial institutions may have greater access to capital at lower costs, which
could impair ASB’s ability to compete effectively. New or significant advances in technology (e.g., significant
advances in internet banking) could render the operations of ASB less competitive or obsolete.
The Utilities face competition from IPPs; customer self-generation, with or without cogeneration; customer energy
storage; and the potential formation of community-based, cooperative ownership or municipality structures for
electrical service on all islands it serves. With the exception of certain identified projects, the Utilities are required to
use competitive bidding to acquire a future generation resource unless the PUC finds competitive bidding to be
unsuitable. The PUC sets policies for distributed generation (DG) interconnection agreements and standby rates. The
results of competitive bidding, competition from IPPs, customer self-generation, and potential cooperative ownership
or municipality structures for electric utility service, and the rate at which technological developments facilitating
nonutility generation of electricity, combined heat and power technology, off-grid microgrids, and customer energy
storage may render the operations of the Utilities less competitive or outdated and adversely affect the Utilities and
the results of their operations.
The Company may be subject to information technology and operational system failures, network disruptions, cyber
attacks and breaches in data security that could adversely affect its businesses and reputation. The Company and its
subsidiaries rely on information technology systems, some of which are managed or hosted by third party service providers, to
manage its business data, communications, and other business processes. Such information technology systems may be
vulnerable to cyberattacks or other security incidents, which could result in unauthorized access to confidential data or
disruptions to operations. If the Company is unable to prevent or adequately respond to and resolve an incident, it may have a
material impact on the Company’s operations or business reputation.
Utilities. The Utilities rely on evolving and increasingly complex operational and information systems, networks and
other technologies, which are interconnected with the systems and network infrastructure owned by third parties to support a
variety of business processes and activities, including procurement and supply chain, invoicing and collection of payments,
customer relationship management, human resource management, the acquisition, generation and delivery of electrical service
to customers, and to process financial information and results of operations for internal reporting purposes and to comply with
regulatory financial reporting and legal and tax requirements. The Utilities use their systems and infrastructure to create, collect,
store, and process sensitive information, including personal information regarding customers, employees and their dependents,
retirees, and other individuals. Despite the Utilities security measures, all of their systems are vulnerable to disability, failures
or unauthorized access caused by natural disasters, cybersecurity incidents, security breaches, user error, unintentional defects
created by system changes, military or terrorist actions, power or communication failures or similar events. Any such failure
could have a material adverse impact on the Utilities’ ability to process transactions and provide service, as well the Utilities’
financial condition and results of operations. Further, a data breach involving theft, improper disclosure, or other unauthorized
access to or acquisition of confidential information could subject the Utilities to penalties for violation of applicable privacy
laws, claims by third parties, and enforcement actions by government agencies. A data breach could also reduce the value of
proprietary information, and harm the reputation of the Utilities.
As noted by the U.S. Department of Homeland Security, the utility industry is continuing to experience an increase in the
frequency and sophistication of cybersecurity incidents. The Utilities’ systems have been, and will likely continue to be, a target
of attacks. Further, the Utilities’ operational networks may be subject to new cybersecurity risks due to modernizing and
interconnecting existing infrastructure with new technologies and control systems, including those owned by third parties.
Although the Utilities have not experienced a material cybersecurity breach to date, such incidents may occur and may have a
material adverse effect on the Utilities and the Company in the future. In order to address cybersecurity risks to their
information systems, the Utilities maintain security measures designed to protect their information technology systems, network
infrastructure and other assets. The Utilities actively monitor developments in the area of cybersecurity and are involved in
various related government and industry groups, and brief the Company’s Board quarterly on relevant cybersecurity issues.
Although the Utilities continue to make investments in their cybersecurity program, including personnel, technologies, cyber
insurance and training of Utilities personnel, there can be no assurance that these systems or their expected functionality will be
implemented, maintained, or expanded effectively; nor can security measures completely eliminate the possibility of a
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cybersecurity breach. The Utility maintains cyber liability insurance that covers certain damages caused by cyber
incidents. However, there is no guarantee that adequate insurance will continue to be available at rates the Utility believes are
reasonable or that the costs of responding to and recovering from a cyber incident will be covered by insurance or recoverable
in rates. If the Utilities’ cybersecurity measures were to be breached, the Utilities could suffer financial loss, business
disruptions, liability to customers, regulatory intervention or damage to their reputation.
Due to the size, scope and complexity of the Utilities’ business, the development and maintenance of information
technology systems to process and track information is critical and challenging. The Utilities often rely on third-party vendors
to host, maintain, modify, and update its systems and these third-party vendors could cease to exist, fail to establish adequate
processes to protect the Utilities systems and information, or experience internal or external security incidents. In addition, the
Utilities are pursuing complex business transformation initiatives, which include establishing common processes across
Hawaiian Electric, Hawaii Electric Light and Maui Electric and the upgrade or replacement of existing systems. Significant
system changes increase the risk of system interruptions. Although the Utilities maintain change control processes to mitigate
this risk, system interruptions may occur. Further, delay or failure to complete the integration of information systems and
processes may result in delays in regulatory cost recovery, increased service interruptions of aging legacy systems, or the failure
to realize the cost savings anticipated to be derived from these initiatives.
In the fourth quarter of 2018, the Utilities’ new ERP/EAM system was placed into service. One of the conditions imposed
by the PUC’s approval of the system is the requirement that the Utilities achieve cost savings consistent with a minimum of
$246 million in ERP/EAM project-related benefits to be delivered to customers over the system’s 12-year service life. If the
Utilities are not able to achieve such minimum savings, the PUC could impose financial penalties, such as a reduction of
revenue requirements that could have a material adverse impact the Utilities’ and Company’s results of operations and financial
condition.
The Utilities have disaster recovery plans in place to protect their businesses from information technology service
interruptions. The disaster recovery plans, however, may not be successful in preventing the loss of customer data, service
interruptions and disruptions to operations or damage to important facilities. If any of these systems fail to operate properly or
becomes disabled and the Utilities’ disaster recovery plans do not effectively resolve the issues in a timely manner, the Utilities
could suffer financial loss, business disruptions, liability to customers, regulatory intervention or damage to their reputations,
any of which could have a material adverse effect on the Utilities’ and the Company’s financial condition and results of
operations.
ASB. ASB is highly dependent on its ability to process, on a daily basis, a large number of transactions and relies
heavily on communication and information systems, including those of third-party vendors and other service providers.
Communication and information system failures can result from a variety of risks including, but not limited to, events that are
wholly or partially out of ASB’s control, such as communication line integrity, weather, terrorist acts, natural disasters,
accidental disasters, unauthorized breaches of security systems, energy delivery systems, cyberattacks and other events.
ASB is under continuous threat of loss due to cyberattacks, especially as ASB continues to expand customer capabilities to
utilize the Internet and other remote channels to transact business. Two of the most significant cyberattack risks that ASB faces
are e-fraud and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals extract funds directly from
customers’ or ASB’s accounts using fraudulent schemes that may include Internet-based funds transfers. ASB has been subject
to e-fraud incidents historically. Loss of sensitive customer data are attempts to steal sensitive customer data, such as account
numbers and social security numbers, through unauthorized access to computer systems, including computer hacking. Such
attacks are less frequent, but could present significant reputational, legal and regulatory costs if successful. Intrusion detection
and prevention systems, anti-virus software, firewalls and other general information technology controls have been put in place
to detect and prevent cyberattacks or information system breaches. A disaster recovery plan has been developed in the event of
a natural disaster, security breach, military or terrorist action, power or communication failure or similar event. The disaster
recovery plan, however, may not be successful in preventing the loss of customer data, service interruptions, disruptions to
operations or damage to important facilities. Although ASB devotes significant resources to maintain and regularly upgrade its
systems and processes that are designed to protect the security of ASB’s computer systems, software, networks and other
technology assets and the confidentiality, integrity and availability of information belonging to ASB and its customers, there
can be no assurance that such failures, interruptions or security breaches will not occur or, if they do occur, that they will be
adequately corrected by ASB or its vendors.
If any of these systems fail to operate properly or become disabled even for a brief period of time, ASB could suffer
financial loss, business disruptions, liability to customers, regulatory intervention or damage to its reputation, any of which
could have a material adverse effect on ASB’s and the Company’s financial condition and results of operations.
HEI’s businesses could suffer losses that are uninsured due to a lack of affordable insurance coverage, unavailability of
insurance coverage or limitations on the insurance coverage the Company does have. In the ordinary course of business, HEI
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and its subsidiaries purchase insurance coverages (e.g., property and liability coverages) to protect against loss of, or damage to,
their properties and against claims made by third parties and employees for property damage or personal injuries. However, the
protection provided by such insurance is limited in significant respects and, in some instances, there is no coverage. Some of
the insurance coverages have substantial deductibles or has limits on the maximum amounts that may be recovered. In
common with other companies in its line of business, the Utilities’ overhead and underground transmission and distribution
systems (with the exception of substation buildings and contents), which have a replacement value roughly estimated at $8
billion, are largely not insured against loss or damage because the amount of transmission and distribution system insurance
capacity is limited and the premiums are cost prohibitive. Similarly, the Utilities have no business interruption insurance as the
premiums for such insurance would be cost prohibitive, particularly since the Utilities are not interconnected to other systems.
If a hurricane or other uninsured catastrophic natural disaster were to occur, and if the PUC did not allow the affected Utilities
to recover from ratepayers restoration costs and revenues lost from business interruption, the lost revenues and repair expenses
could result in a significant decrease in HEI’s consolidated net income or in significant net losses for the affected periods.
ASB generally does not obtain credit enhancements, such as mortgagor bankruptcy insurance, but does require standard
hazard and hurricane insurance and may require flood insurance for certain properties. ASB is subject to the risks of borrower
defaults and bankruptcies, special hazard losses not covered by the required insurance and the insurance company’s inability to
pay claims on existing policies.
Increased federal and state environmental regulation will require an increasing commitment of resources and funds and
could result in construction delays or penalties and fines for non-compliance. HEI and its subsidiaries are subject to federal,
state and local environmental laws and regulations relating to air quality, water quality, hazardous substances, waste
management, natural resources and health and safety, which regulate, among other matters, the operation of existing facilities,
the construction and operation of new facilities and the proper cleanup and disposal of hazardous and toxic wastes and
substances. These laws and regulations could result in increased capital, operating, and other costs. HEI or its subsidiaries are
currently involved in investigatory or remedial actions at current, former or third-party sites and there is no assurance that the
Company will not incur material costs relating to these sites. In addition, compliance with these legal requirements requires the
Utilities to commit significant resources and funds toward, among other things, environmental monitoring, installation of
pollution control equipment and payment of emission fees. These laws and regulations, among other things, require that certain
environmental permits be obtained in order to construct or operate certain facilities, and obtaining such permits can entail
significant expense and cause substantial construction delays. Also, these laws and regulations may be amended from time to
time, including amendments that increase the burden and cost of compliance. For example, emission and/or discharge limits
may be tightened, more extensive permitting requirements may be imposed and additional substances may become regulated. In
addition, significant regulatory uncertainty exists regarding the impact of federal or state greenhouse gas emission limits and
reductions.
If HEI or its subsidiaries fail to comply with environmental laws and regulations, even if caused by factors beyond their
control, that failure may result in civil or criminal penalties and fines or the cessation of operations that could have a material
adverse on the Company’s financial condition or results of operations.
Adverse tax rulings or developments or changes in tax legislation could result in significant increases in tax payments and/
or expense. Governmental taxing authorities could challenge a tax return position taken by HEI or its subsidiaries and, if the
taxing authorities prevail, HEI’s consolidated tax payments and/or expense, including applicable penalties and interest, could
increase significantly. Additionally, changes in tax legislation or IRS interpretations could increase the Company’s tax burden
and adversely affect the Company's financial position, results of operations, and cash flows.
The Company could be subject to the risk of uninsured losses in excess of its accruals for litigation matters. HEI and its
subsidiaries are involved in routine litigation in the ordinary course of their businesses, most of which is covered by insurance
(subject to policy limits and deductibles). However, other litigation may arise that is not routine or involves claims that may not
be covered by insurance. Because of the uncertainties associated with litigation, there is a risk that litigation against HEI or its
subsidiaries, even if vigorously defended, could result in costs of defense and judgment or settlement amounts not covered by
insurance and in excess of reserves established in HEI’s consolidated financial statements.
Changes in accounting principles and estimates could affect the reported amounts of the Company’s assets and liabilities
or revenues and expenses. HEI’s consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the U.S. Changes in accounting principles (including the possible adoption of International Financial
Reporting Standards or new U.S. accounting standards), or changes in the Company’s application of existing accounting
principles, could materially affect the financial statement presentation of HEI’s or the Utilities’ consolidated results of
operations and/or financial condition. Further, in preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.
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Material estimates that are particularly susceptible to significant change include the amounts reported for electric utility
revenues; allowance for loan losses; income taxes; investment securities, property, plant and equipment; regulatory assets and
liabilities; derivatives; goodwill; pension and other postretirement benefit obligations; and contingencies and litigation.
The Utilities’ financial statements reflect assets and costs based on cost-based rate-making regulations. Continued
accounting in this manner requires that certain criteria relating to the recoverability of such costs through rates be met. If events
or circumstances should change such that the criteria are no longer satisfied, the Utilities’ expect that their regulatory assets
(amounting to $715 million as of December 31, 2019), net of regulatory liabilities (amounting to $972 million as of
December 31, 2019), would be charged to the statement of income in the period of discontinuance.
Changes in accounting principles can also impact HEI’s consolidated financial statements. For example, if management
determines that a PPA requires the consolidation of the IPP in the financial statements, the consolidation could have a material
effect on Hawaiian Electric’s and HEI’s consolidated financial statements, including the recognition of a significant amount of
assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential
recognition of such losses.
Changes in the accounting principles for expected credit losses were issued by the FASB to replace existing impairment
models, including replacing an “incurred loss” model for loans with a “current expected credit loss” model based on historical
experience, current conditions and reasonable and supportable forecasts. The changes also require enhanced disclosures to help
financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the
credit quality and underwriting standards of an organization’s portfolio. The Company will adopt the new accounting principle
using an effective date of January 1, 2020, and is in the process of finalizing its analysis. The Company estimates that the
increase in the allowance for credit losses as of the adoption date will be between $18 million to $22 million.
Electric utility risks.
The following risks are generally specific to Hawaiian Electric, but could have a material adverse effect on the Company’s
consolidated results of operations, financial condition and liquidity.
Actions of the PUC are outside the control of the Utilities and could result in inadequate or untimely rate increases, in rate
reductions or refunds or in unanticipated delays, expenses or writedowns in connection with the construction of new projects.
The rates the Utilities are allowed to charge for their services and the timeliness of permitted rate increases are among the most
important items influencing the Utilities’ results of operations, financial condition and liquidity. The PUC has broad discretion
over the rates that the Utilities charge their customers. As part of the decoupling mechanism that the Utilities have
implemented, each of the Utilities will file a rate case once every three years. Any adverse decision by the PUC concerning the
level or method of determining electric utility rates, the items and amounts that may be included in rate base, the returns on
equity or rate base found to be reasonable, the potential consequences of exceeding or not meeting such returns, or any
prolonged delay in rendering a decision in a rate or other proceeding could have a material adverse effect on Hawaiian
Electric’s consolidated results of operations, financial condition and liquidity.
To improve the timing and certainty of the recovery of their costs, the Utilities have proposed and/or received approval of
various cost recovery mechanisms including an ECRC (changed from ECAC in 2019), a PPAC, and pension and OPEB
tracking mechanisms, as well as a decoupling mechanism, a major project interim recovery (MPIR) adjustment mechanism, and
a renewable energy infrastructure program (REIP) surcharge. A change in, or the elimination of, any of these cost recovery
mechanisms, could have a material adverse effect on the Utilities. See “Regulatory mechanisms” in Electric Utility’s Business.
On April 18, 2018, the PUC issued an order, instituting a proceeding to investigate performance-based regulation (PBR).
The PUC’s implementation of performance-based ratemaking for the Utilities pursuant to Act 005, Session Laws 2018, could
include, but is not limited to, the potential addition of new performance incentive mechanisms, the adoption of third-party
proposals by the PUC in its implementation of PBR, and penalties for not achieving performance incentive goals. The impacts
of the implementation of PBR cannot be predicted and these impacts could have a material adverse effect on the Utilities. See
“Performance-based regulation proceeding” in Note 3 of the Consolidated Financial Statements.
The Utilities could be required to refund to their customers, with interest, revenues that have been or may be received
under interim rate orders in their rate case proceedings and other proceedings, if and to the extent they exceed the amounts
allowed in final orders.
Many public utility projects require PUC approval and various permits (e.g., environmental and land use permits) from
other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits, or any
adverse decision or policy made or adopted, or any prolonged delay in rendering a decision, by an agency with respect to such
approvals and permits, can result in significantly increased project costs or even cancellation of projects. In the event a project
does not proceed, or if the PUC disallows cost recovery for all or part of a project, or if project costs exceed caps imposed by
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the PUC in its approval of the project, project costs may need to be written off in amounts that could result in significant
reductions in Hawaiian Electric’s consolidated net income.
Energy cost recovery clauses. The rate schedules of each of the Utilities include ECRCs (changed from ECACs in
2019—see below) under which electric rates charged to customers are automatically adjusted for changes in the weighted-
average price paid for fuel oil and certain components of purchased power, and the relative amounts of company-generated
power and purchased power.
ECRCs are subject to periodic review by the PUC. In recent rate cases, the PUC has approved an additional trigger that
would allow a re-establishment of fuel usage efficiency targets under certain conditions and annual automatic adjustments of
fuel usage efficiency targets for all Utilities. In the most recent rate cases for the Utilities, the PUC approved revised ECRCs for
the Utilities, which transferred the remaining fuel and purchased energy expenses recovery from base rates to the ECRCs.
Effective January 1, 2019, ECRC for Hawaiian Electric provides for a 98/2% risk-sharing split between ratepayers and
Hawaiian Electric, of fossil fuel prices above or below a baseline price and the fuel usage efficiency pass-through within a
range, with an annual maximum exposure cap of $2.5 million. Effective September 1, 2019, the ECRC for Maui Electric
reflects 98/2% risk-sharing split between ratepayers and Maui Electric, with an annual maximum exposure cap of $0.6 million.
Hawaii Electric Light’s ECRC does not have a risk-sharing split. See “Most recent rate proceedings” in Note 3 of the
Consolidated Financial Statements.
A change in, or the elimination of, the ECRC could have a material adverse effect on the Utilities.
Electric utility operations are significantly influenced by weather conditions. The Utilities’ results of operations can be
affected by the weather and natural disasters. Weather conditions, particularly temperature and humidity, directly influence the
demand for electricity. In addition, severe weather and natural disasters, such as hurricanes, earthquakes, tsunamis, lava flows
and lightning storms, some of which may become more severe or frequent as a result of global climate changes, can cause
outages and property damage and require the Utilities to incur significant additional expenses that may not be recoverable.
Electric utility operations may be significantly influenced by climate change. While the timing, extent and ultimate effects
of climate change cannot be determined with any certainty, climate change is predicted to result in sea level rise, which could
potentially impact coastal and other low-lying areas (where much of the Utilities’ electric infrastructure is sited), and could
cause erosion of beaches, saltwater intrusion into aquifers and surface ecosystems, higher water tables and increased flooding
and storm damage due to heavy rainfall. The effects of climate change on the weather (for example, floods, hurricanes, heat
waves or drought conditions, the latter of which could increase wildfire risk), sea levels, and water availability and quality, all
have the potential to materially adversely affect the results of operations, financial condition and liquidity of the Utilities. For
example, severe weather and its related impacts could cause significant harm to the Utilities’ physical facilities.
Electric utility operations depend heavily on third-party suppliers of fuel and purchased power. The Utilities rely on fuel
suppliers and shippers, and IPPs to deliver fuel and power, respectively, in accordance with contractual agreements.
Approximately 72% of the net energy generated or purchased by the Utilities in 2019 was generated from the burning of fossil
fuel oil, and purchases of power by the Utilities provided about 46% of their total net energy generated and purchased for the
same period. Failure or delay by fuel suppliers and shippers to provide fuel pursuant to existing contracts, or failure by a major
IPP to deliver the firm capacity anticipated in its PPA, could disrupt the ability of the Utilities to deliver electricity and require
the Utilities to incur additional expenses to meet the needs of their customers that may not be recoverable. In addition, as the
IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to
ensure the availability of their units. Also, as these contractual agreements end, the Utilities may not be able to purchase fuel
and power on terms equivalent to the current contractual agreements.
The capacity provided by the Utilities’ generating resources and third-party purchased power may not be sufficient to meet
customers’ energy requirements. The Utilities rely upon their generating resources and purchased power from third parties to
meet their customers’ energy requirements. The Utilities update their generation capacity evaluation each year to determine the
Utilities’ ability to meet reasonably expected demands for service and provide reasonable reserves for emergencies. These
evaluations are impacted by a variety of factors, including customer energy demand, energy conservation and efficiency
initiatives, economic conditions, and weather patterns. If the capacity provided by the Utilities’ generating resources and third-
party purchased power is not adequate relative to customer demand, the Utilities may have to contract to buy more power from
third parties, invest in additional generating facilities over the long-term, or extend the operating life of existing utility units.
Any failure to meet customer energy requirements could negatively impact the satisfaction of the Utilities’ customers, which
could have an adverse impact on the Utilities’ business and results of operations.
Electric utility and third-party purchased power projects may be significantly impacted by stakeholder activism. The
potential impact of stakeholder activism could increase total utility project costs, and delay the permitting, construction and
overall timing or preclude the completion of third-party or utility projects that are required to meet electricity demand,
23
resilience and reliability objectives, and RPS goals. If a utility project cannot be completed, the project costs may need to be
written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.
Electric utility generating facilities are subject to operational risks that could result in unscheduled plant outages,
unanticipated and/or increased operation and maintenance expenses and increased power purchase costs. Operation of
electric generating facilities involves certain risks which can adversely affect energy output and efficiency levels. Included
among these risks are facility shutdowns or power interruptions due to insufficient generation or a breakdown or failure of
equipment or processes. In addition, operations could be negatively impacted by interruptions in fuel supply, inability to
negotiate satisfactory collective bargaining agreements when existing agreements expire or other labor disputes, inability to
comply with regulatory or permit requirements, disruptions in delivery of electricity, operator error and catastrophic events such
as earthquakes, tsunamis, hurricanes, fires, explosions, floods or other similar occurrences affecting the Utilities’ generating
facilities or transmission and distribution systems.
The Utilities may be adversely affected by new legislation or administrative actions. Congress, the Hawaii legislature and
governmental agencies periodically consider legislation and other initiatives that could have uncertain or negative effects on the
Utilities and their customers. Congress, the Hawaii legislature and governmental agencies have adopted, or are considering
adopting, a number of measures that will significantly affect the Utilities, as described below.
Renewable Portfolio Standards law. In 2015, Hawaii’s RPS law was amended to require electric utilities to meet an
RPS of 15%, 30%, 40%, 70% and 100% by December 31, 2015, 2020, 2030, 2040 and 2045 respectively. Energy savings
resulting from energy efficiency programs do not count toward the RPS after 2014. The Utilities are committed to achieving
these goals and met the 2015 RPS; however, due to the exclusion of energy savings in calculating RPS after 2014 and risks such
as potential delays in IPPs being able to deliver contracted renewable energy, it is possible the Utilities may not attain the
required renewable percentages in the future, and management cannot predict the future consequences of failure to do so
(including potential penalties to be assessed by the PUC). On December 19, 2008, the PUC approved a penalty of $20 for every
MWh that an electric utility is deficient under Hawaii’s RPS law. The PUC noted, however, that this penalty may be reduced, in
the PUC’s discretion, due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the
event or circumstance could not be reasonably foreseen and ameliorated, as described in the RPS law and in an RPS framework
adopted by the PUC. In addition, the PUC ordered that the Utilities will be prohibited from recovering any RPS penalty costs
through rates.
Renewable energy. In 2007, a measure was passed by the Hawaii legislature stating that the PUC may consider the
need for increased renewable energy in rendering decisions on utility matters. Due to this measure, it is possible that, if energy
from a renewable source is more expensive than energy from fossil fuel, the PUC may still approve the purchase of energy from
the renewable source, resulting in higher costs.
Global climate change and greenhouse gas emissions reduction. National and international concern about climate
change and the contribution of GHG emissions (including carbon dioxide emissions from the combustion of fossil fuels) to
climate change have led to federal legislative and regulatory proposals and action by the state of Hawaii to reduce GHG
emissions.
In July 2007, the State Legislature passed Act 234, which requires a statewide reduction of GHG emissions by January 1,
2020 to levels at or below the statewide GHG emission levels in 1990. On June 20, 2014, the Governor signed the final rules
required to implement Act 234 and these rules went into effect on June 30, 2014. In general, Act 234 and the GHG rule require
affected sources that have the potential to emit GHGs in excess of established thresholds to reduce their GHG emissions by
16% below 2010 emission levels by 2020. In accordance with State requirements, the Utilities submitted an Emissions
Reduction Plan (ERP) to the DOH on June 30, 2015. The Utilities submitted a revised ERP on October 17, 2018 and
subsequent revisions on May 15, 2019 and July 26, 2019, to reflect the partnership established between the Utilities and several
IPPs. In this plan, the partnership has committed to a 16% reduction in GHG emissions in accordance with the rule. As of
December 31, 2019, the permits that were pending that would have incorporated the ERP have not been approved, and are
subject to additional public review and potential challenge. Additionally, the loss of the PGV facility on Hawaii Island,
unseasonable weather and the delay of additional renewable projects will make these goals more challenging in the immediate
future. It is expected that with the advent of additional renewable projects and the application to the PUC with respect to the
PGV project, the goals should be attainable.
The Utilities have taken, and continue to identify opportunities to take, direct action to reduce GHG emissions from their
operations, including, but not limited to, supporting demand-side management programs that foster energy efficiency, using
renewable resources for energy production and purchasing power from IPPs generated by renewable resources, and burning
renewable biodiesel at selected Hawaiian Electric and Maui Electric generating units.
24
Performance-based regulation legislation. On April 24, 2018, Act 005, Session Laws 2018 was signed into law, which
establishes performance metrics that the PUC shall consider while establishing performance incentives and penalty mechanisms
under a performance-based ratemaking model. The law requires that the PUC establish these performance-based ratemaking
mechanisms on or before January 1, 2020. The PUC opened a proceeding on April 18, 2018 to investigate performance-based
regulation for the Utilities. See “Performance-based regulation proceedings” in Note 3 of the Consolidated Financial
Statements.
The foregoing legislation or legislation that now is, or may in the future be, proposed present risks and uncertainties for the
Utilities.
The Utilities may be subject to increased operational challenges and their results of operations, financial condition and
liquidity may be adversely impacted in meeting the commitments and objectives of clean energy initiatives and Renewable
Portfolio Standards (RPS). The far-reaching nature of the Utilities’ renewable energy commitments and the RPS goals present
risks to the Company. Among such risks are: (1) the dependence on third-party suppliers of renewable purchased energy, which
if the Utilities are unsuccessful in negotiating purchased power agreements with such IPPs or if a major IPP fails to deliver the
anticipated capacity and/or energy in its purchased power agreement, could impact the Utilities’ achievement of their
commitments to RPS goals and/or the Utilities’ ability to deliver reliable service; (2) delays in acquiring or unavailability of
non-fossil fuel supplies for renewable generation; (3) the impact of intermittent power to the electrical grid and reliability of
service if appropriate supporting infrastructure is not installed or does not operate effectively; (4) the likelihood that the Utilities
may need to make substantial investments in related infrastructure, which could result in increased borrowings and, therefore,
materially impact the financial condition and liquidity of the Utilities; and (5) the commitment to support a variety of
initiatives, which, if approved by the PUC, may have a material impact on the results of operations and financial condition of
the Utilities depending on their design and implementation. These initiatives include, but are not limited to, programs to enable
more customer-sited generation. The implementation of these or other programs may adversely impact the results of operations,
financial condition and liquidity of the Utilities.
Bank risks.
The following risks are generally specific to ASB, but could have a material adverse effect on the Company’s consolidated
results of operations, financial condition and liquidity.
Fluctuations in interest rates could result in lower net interest income, impair ASB’s ability to originate new loans or
impair the ability of ASB’s adjustable-rate borrowers to make increased payments or cause such borrowers to repay their
adjustable-rate loans. Interest rate risk is a significant risk of ASB’s operations. ASB’s net interest income consists primarily of
interest income received on fixed-rate and adjustable-rate loans, mortgage-backed securities and investments, less interest
expense consisting primarily of interest paid on deposits and other borrowings. Interest rate risk arises when earning assets
mature or when their interest rates change in a time frame different from that of the costing liabilities. Changes in market
interest rates, including changes in the relationship between short-term and long-term market interest rates (e.g., a flat or an
inverted yield curve) or between different interest rate indices, and the duration and severity of the changes in market interest
rates can impact ASB’s net interest margin. See “Quantitative and Qualitative Disclosures about Market Risk.”
Although ASB pursues an asset-liability management strategy designed to mitigate its risk from changes in market interest
rates, unfavorable movements in interest rates could result in lower net interest income. Residential 1-4 family fixed-rate
mortgage loans comprised about 40% of ASB’s loan portfolio as of December 31, 2019 and do not re-price with movements in
interest rates. ASB continues to face a challenging interest rate environment. Increases in market interest rates could have an
adverse impact on ASB’s cost of funds. Higher market interest rates could lead to higher interest rates paid on deposits and
other borrowings. Significant increases in market interest rates, or the perception that an increase may occur, could adversely
affect ASB’s ability to originate new loans and grow. An increase in market interest rates, especially a sudden increase, could
also adversely affect the ability of ASB’s adjustable-rate borrowers to meet their higher payment obligations. If this occurred, it
could cause an increase in nonperforming assets and charge-offs. Conversely, a decrease in interest rates or a mismatching of
maturities of interest sensitive financial instruments could result in an acceleration in the prepayment of loans and mortgage-
backed securities and impact ASB’s ability to reinvest its liquidity in similar yielding assets.
Changes in the method for determining London Interbank Offered Rate (LIBOR) and the potential replacement of LIBOR
may affect our loan portfolio and interest income on loans. On July 27, 2017, the United Kingdom’s Financial Conduct
Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether or
not LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to
exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering
committee composed of large U.S. financial institutions, announced replacement of U.S. dollar LIBOR with a new index
calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing
25
Rate (SOFR). The potential effect of the elimination of LIBOR on ASB’s LIBOR-indexed loan portfolio and interest income on
loans cannot yet be determined.
ASB’s operations are affected by factors that are beyond its control, that could result in lower revenues, higher expenses or
decreased demand for its products and services. ASB’s results of operations depend primarily on the income generated by the
supply of, and demand for, its products and services, which primarily consist of loans and deposit services. ASB’s revenues and
expenses may be adversely affected by various factors, including:
•
•
•
•
•
•
•
•
•
•
•
local, regional, national and other economic and political conditions that could result in declines in employment and
real estate values, which in turn could adversely affect the ability of borrowers to make loan payments and the ability
of ASB to recover the full amounts owing to it under defaulted loans;
the ability of borrowers to obtain insurance and the ability of ASB to place insurance where borrowers fail to do so,
particularly in the event of catastrophic damage to collateral securing loans made by ASB;
faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and
investments and the impairment of mortgage servicing assets of ASB;
changes in ASB’s loan portfolio credit profiles and asset quality, which may increase or decrease the required level of
allowance for loan losses;
technological disruptions affecting ASB’s operations or financial or operational difficulties experienced by any outside
vendor on whom ASB relies to provide key components of its business operations, such as business processing,
network access or internet connections;
events of default and foreclosure of loans whereby ASB becomes the owner of a mortgage properties that presents
environmental risk or potential clean up liability;
the impact of legislative and regulatory changes, including changes affecting capital requirements, increasing oversight
of and reporting by banks, or affecting the lending programs or other business activities of ASB;
additional legislative changes regulating the assessment of overdraft, interchange and credit card fees, which can have
a negative impact on noninterest income;
public opinion about ASB and financial institutions in general, which, if negative, could impact the public’s trust and
confidence in ASB and adversely affect ASB’s ability to attract and retain customers and expose ASB to adverse legal
and regulatory consequences;
increases in operating costs (including employee compensation expense and benefits and regulatory compliance costs),
inflation and other factors, that exceed increases in ASB’s net interest, fee and other income; and
the ability of ASB to maintain or increase the level of deposits, ASB’s lowest costing funds.
Banking and related regulations could result in significant restrictions being imposed on ASB’s business or in a
requirement that HEI divest ASB. ASB is subject to examination and comprehensive regulation by the Department of Treasury,
the OCC and the FDIC, and is subject to reserve requirements established by the Board of Governors of the Federal Reserve
System. In addition, the FRB is responsible for regulating ASB’s holding companies, HEI and ASB Hawaii. The regulatory
authorities have extensive discretion in connection with their supervisory and enforcement activities and examination policies
to address not only ASB’s compliance with applicable banking laws and regulations, but also capital adequacy, asset quality,
management ability and performance, earnings, liquidity and various other factors.
Under certain circumstances, including any determination that ASB’s relationship with HEI results in an unsafe and
unsound banking practice, these regulatory authorities have the authority to restrict the ability of ASB to transfer assets and to
make distributions to its shareholders (including payment of dividends to HEI), or they could seek to require HEI to sever its
relationship with or divest its ownership of ASB. Payment by ASB of dividends to HEI may also be restricted by the OCC and
FRB under its prompt corrective action regulations or its capital distribution regulations if ASB’s capital position deteriorates.
In order to maintain its status as a QTL, ASB is required to maintain at least 65% of its assets in “qualified thrift investments.”
Institutions that fail to maintain QTL status are subject to various penalties, including limitations on their activities. In ASB’s
case, the activities of HEI and HEI’s other subsidiaries would also be subject to restrictions, and a failure or inability to comply
with those restrictions could effectively result in the required divestiture of ASB. Federal legislation has also been proposed in
the past that could operate to eliminate the thrift charter or the grandfathered status of HEI as a unitary thrift holding company,
which in turn would result in a required divestiture of ASB. In the event of a required divestiture, federal law substantially
limits the types of entities that could potentially acquire ASB.
Recent legislative and regulatory initiatives could have an adverse effect on ASB’s business. The Dodd-Frank Act, which
became law in July 2010, has had a substantial impact on the financial services industry. The Dodd-Frank Act establishes a
framework through which regulatory reform will be written and changes to statutes, regulations or regulatory policies could
affect HEI and ASB in substantial and unpredictable ways. A major component of the Dodd-Frank Act is the creation of the
Consumer Financial Protection Bureau that has the responsibility for setting and enforcing clear, consistent rules relating to
consumer financial products and services and has the authority to prohibit practices it finds to be unfair, deceptive or abusive.
26
Compliance with any such directives could have adverse effects on ASB’s revenues or operating costs. Failure to comply with
laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage,
which could have a material adverse effect on ASB’s business, results of operations, financial condition and liquidity.
A large percentage of ASB’s loans and securities are collateralized by real estate, and adverse changes in the real estate
market and/or general economic or other conditions may result in loan losses and adversely affect the Company’s profitability.
As of December 31, 2019 approximately 82% of ASB’s loan portfolio was comprised of loans primarily collateralized by real
estate, most of which was concentrated in the State of Hawaii. During 2019, ASB’s HELOC and residential 1-4 family
portfolios grew by 12% and 2%, respectively, and now comprise 78% of total real estate loans. ASB’s financial results may be
adversely affected by changes in prevailing economic conditions, either nationally or in the state of Hawaii, including decreases
in real estate values, adverse employment conditions, the monetary and fiscal policies of the federal and state government and
other significant external events. Adverse changes in the economy may have a negative effect on the ability of borrowers to
make timely repayments of their loans. A deterioration of the economic environment in Hawaii, including a material decline in
the real estate market, further declines in home resales, a material external shock, or any environmental clean-up obligation,
may also significantly impair the value of ASB’s collateral and ASB’s ability to sell the collateral upon foreclosure. In the event
of a default, amounts received upon sale of the collateral may be insufficient to recover outstanding principal and interest. In
addition, if poor economic conditions result in decreased demand for real estate loans, ASB’s profits may decrease if its
alternative investments earn less income than real estate loans.
Expanding commercial, commercial real estate and consumer lending activities may result in higher costs and greater
credit risk than residential lending activities due to the unique characteristics of these markets. ASB had been pursuing a
strategy that included expanding its commercial, commercial real estate and consumer lines of business. Commercial and
commercial real estate loans have a higher risk profile than residential loans. Though both commercial and commercial real
estate loans have shorter terms and earn higher spreads than residential mortgage loans, these loan types generally entail higher
underwriting and other service costs and present greater credit risks than traditional residential mortgages. Commercial loans
are secured by the assets of the business and, upon default, any collateral repossessed may not be sufficient to repay the
outstanding loan balance. In addition, loan collections are dependent on the borrower’s continuing financial stability and, thus,
are more likely to be affected by current economic conditions and adverse business developments. Commercial real estate
properties tend to be unique and are more difficult to value than residential real estate properties. Commercial real estate loans
may not be fully amortizing, meaning that they have a significant principal balance or “balloon” payment due at maturity. In
addition, commercial real estate properties, particularly industrial and warehouse properties, are generally subject to relatively
greater environmental risks than noncommercial properties and to the corresponding burdens and costs of compliance with
environmental laws and regulations. Also, there may be costs and delays involved in enforcing rights of a property owner
against tenants in default under terms of leases with respect to commercial properties. For example, a tenant may seek
protection under bankruptcy laws, which could result in termination of the tenant’s lease.
ASB also has a national syndicated lending portfolio where ASB is a participant in credit facilities agented by established
and reputable national lenders. Management selectively chooses each deal based on conservative credit criteria to ensure a
high-quality, well diversified portfolio. In the event the borrower encounters financial difficulties and ASB is unable to sell its
participation interest in the loan in the secondary market, ASB is typically reliant on the originating lender for managing any
loan workout or foreclosure proceedings that may become necessary. Accordingly, ASB has less control over such proceedings
than loans it originates and may be required to accommodate the interests of other participating lenders in resolving
delinquencies or defaults on participated loans, which could result in outcomes that are not fully consistent with ASB’s
preferred strategies. In addition, a significant proportion of ASB’s syndicated loans are originated in states other than Hawaii
and are subject to the local regional and regulatory risks specific to those states.
Similar to the national syndicated lending portfolio, ASB does not service commercial loans in which it has participation
interests rather than being the lead or agent lender and is subject to the policies and practices of the agent lender, who is the
loan servicer, in resolving delinquencies or defaults on participated loans.
The consumer loan portfolio primarily consists of personal unsecured loans with risk-based pricing. Repayment is based on
the borrower’s financial stability as these loans have no collateral and there is less assurance that ASB will be able to collect all
payments due under these loans or have sufficient collateral to cover all outstanding loan balances.
ASB’s allowance for loan losses may not cover actual loan losses. ASB’s allowance for loan losses is ASB’s estimate of
probable losses inherent in its loan portfolio and is based on a continuing assessment of:
•
•
•
•
existing risks in the loan portfolio;
historical loss experience with ASB’s loans;
changes in collateral value; and
current conditions (for example, economic conditions, real estate market conditions and interest rate environment).
27
If ASB’s actual loan losses exceed its allowance for loan losses, it may incur losses, its financial condition may be
materially and adversely affected, and additional capital may be required to enhance its capital position. In addition, various
regulatory agencies, as an integral part of their examination process, regularly review the adequacy of ASB’s allowance. These
agencies may require ASB to establish additional allowances based on their judgment of the information available at the time of
their examinations. No assurance can be given that ASB will not sustain loan losses in excess of present or future levels of its
allowance for loan losses.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
HEI: None.
Hawaiian Electric: Not applicable.
ITEM 2.
PROPERTIES
HEI and Hawaiian Electric: See the “Properties” sections under “HEI,” “Electric utility” and “Bank” in Item 1. Business
above.
ITEM 3.
LEGAL PROCEEDINGS
HEI and Hawaiian Electric: HEI and Hawaiian Electric (including their direct and indirect subsidiaries) may be involved in
ordinary routine PUC proceedings, environmental proceedings and/or litigation incidental to their respective businesses. See
the descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and
other administrative agencies) in “Item 1. Business,” in HEI’s MD&A and in the Notes 3 and 4 of the Consolidated Financial
Statements. The outcomes of litigation and administrative proceedings are necessarily uncertain and there is a risk that the
outcome of such matters could have a material adverse effect on the financial position, results of operations or liquidity of HEI
or one or more of its subsidiaries for a particular period in the future.
ITEM 4.
MINE SAFETY DISCLOSURES
HEI and Hawaiian Electric: Not applicable.
28
INFORMATION ABOUT OUR EXECUTIVE OFFICERS (HEI)
The executive officers of HEI are listed below. Messrs. Seu and Wacker are officers of HEI subsidiaries rather than of HEI,
but are deemed to be executive officers of HEI under SEC Rule 3b-7 promulgated under the 1934 Exchange Act. HEI executive
officers serve from the date of their initial appointment and are reappointed annually by the HEI Board (or annually by the
applicable HEI subsidiary board), and thereafter are appointed for one-year terms or until their successors have been duly
appointed and qualified or until their earlier resignation or removal. HEI executive officers may also hold offices with HEI
subsidiaries and affiliates in addition to their current positions listed below.
Name
Constance H. Lau
Age
67
Business experience for last 5 years and prior positions with the Company
HEI President and Chief Executive Officer since 5/06
HEI Director, 6/01 to 12/04 and since 5/06
Hawaiian Electric Chairman of the Board, 5/06 to 5/19
ASB Hawaii Director since 5/06
ASB Chairman of the Board since 5/06, Risk Committee member since 2012 and Director since 1999
· ASB Chief Executive Officer, 6/01 to 11/10, and President, 6/01 to 1/08
· ASB Senior Executive Vice President and Chief Operating Officer and Director, 12/99 to 5/01
· HEI Power Corp. Financial Vice President and Treasurer, 5/97 to 8/99
· HEI Treasurer, 4/89 to 10/99, and HEI Assistant Treasurer, 12/87 to 4/89
· Hawaiian Electric Treasurer 12/87 to 4/89 and Assistant Corporate Counsel, 9/84 to 12/87
Gregory C. Hazelton
55
HEI Executive Vice President and Chief Financial Officer since 4/17
HEI Treasurer, 3/18 to 11/19
HEI Senior Vice President, Finance, 10/16 to 4/17
· Prior to rejoining the Company in 2016: Northwest Natural Gas Company, Senior Vice President,
Chief Financial Officer and Treasurer, 2/16 to 9/16, and Northwest Natural Gas Company, Senior
Vice President and Chief Financial Officer, 6/15 to 2/16
· HEI Vice President, Finance, Treasurer and Controller, 8/13 to 6/15
· Prior to joining the Company in 2013: UBS Investment Bank, Managing Director, Global Power
& Utilities Group 3/11 to 5/13
Scott W. H. Seu
54
Richard F. Wacker
57
Hawaiian Electric President and Chief Executive Officer since 2/20
Hawaiian Electric Director since 2/20
· Hawaiian Electric Senior Vice President, Public Affairs, 1/17 to 2/20
· Hawaiian Electric Vice President, System Operation, 5/14 to 1/17
· Hawaiian Electric Vice President, Energy Resources and Operations, 1/13 to 5/14
· Hawaiian Electric Vice President, Energy Resources, 8/10 to 12/12
· Hawaiian Electric Manager, Resource Acquisition Department, 3/09 to 8/10
· Hawaiian Electric Manager, Energy Projects Department, 5/04 to 3/09
· Hawaiian Electric Manager, Customer Installations Department, 1/03 to 5/04
· Hawaiian Electric Manager, Environmental Department, 4/98 to 12/02
· Hawaiian Electric Principal Environmental Scientist, 1/97 to 4/98
· Hawaiian Electric Senior Environmental Scientist, 5/96 to 12/96
· Hawaiian Electric Environmental Scientist, 8/93 to 5/96
ASB President and Chief Executive Officer since 11/10
ASB Director since 11/10
Family relationships; executive arrangements
There are no family relationships between any HEI executive officer and any other HEI executive officer or any HEI
director or director nominee. There are no arrangements or understandings between any HEI executive officer and any other
person pursuant to which such executive officer was selected.
29
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
HEI:
Certain of the information required by this item is incorporated herein by reference to Note 14, “Regulatory restrictions on
net assets” and Note 17, “Quarterly information (unaudited)” of the Consolidated Financial Statements and “Item 6. Selected
Financial Data” and “Equity compensation plan information” under “Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters” of this Form 10-K.
HEI’s common stock is traded on the New York Stock Exchange under the ticker symbol “HE.” The total number of holders
of record of HEI common stock (i.e., registered holders) as of February 13, 2020, was 5,564. On February 11, 2020, the HEI
Board of Directors approved a 1 cent increase in the quarterly dividend from $0.32 per share to $0.33 per share, starting with the
dividend in the first quarter of 2020. HEI currently expects to maintain the dividend at its present level; however, the HEI Board
of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the
Company’s results of operations, the long-term prospects for the Company, and the current and expected future economic
conditions.
Purchases of HEI common shares were made during the fourth quarter to satisfy the requirements of certain plans as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Period*
October 1 to 31, 2019
November 1 to 30, 2019
December 1 to 31, 2019
Total
Total Number
of Shares
Purchased **
Average
Price Paid
per Share **
Total Number of Shares
Purchased as Part of
Publicly Announced Plans
or Programs
Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be Purchased
Under the Plans or Programs
23,372
11,248
148,516
183,136
$
$
$
$
44.80
43.55
44.48
44.47
—
—
—
—
NA
NA
NA
NA
NA Not applicable.
* Trades (total number of shares purchased) are reflected in the month in which the order is placed.
** The purchases were made to satisfy the requirements of the DRIP, the HEIRSP and the ASB 401(k) Plan for shares purchased for cash or by
the reinvestment of dividends by participants under those plans and none of the purchases were made under publicly announced repurchase
plans or programs. Average prices per share are calculated exclusive of any commissions payable to the brokers making the purchases for the
DRIP, the HEIRSP and the ASB 401(k) Plan. Of the “Total number of shares purchased,” 154,786 of the 183,136 shares were purchased for the
DRIP; 23,287 of the 183,136 shares were purchased for the HEIRSP; and the remaining of the183,136 shares were purchased for the ASB 401
(k) Plan. The repurchased shares were issued for the accounts of the participants under registration statements registering the shares issued under
these plans.
Hawaiian Electric:
Since a corporate restructuring on July 1, 1983, all the common stock of Hawaiian Electric has been held solely by its parent,
HEI, and is not publicly traded. Accordingly, information required with respect to “Market information” and “holders” is not
applicable to Hawaiian Electric.
The dividends declared and paid on Hawaiian Electric’s common stock for the quarters of 2019 and 2018 were as follows:
Quarters ended
(in thousands)
March 31
June 30
September 30
December 31
$
2019
2018
$
25,313
25,313
25,313
25,313
25,826
25,826
25,827
25,826
Also, see “Liquidity and capital resources” in HEI’s MD&A.
See the discussion of regulatory and other restrictions on dividends or other distributions in Note 14 of the Consolidated
Financial Statements.
30
ITEM 6.
SELECTED FINANCIAL DATA
HEI:
Selected Financial Data
Hawaiian Electric Industries, Inc. and Subsidiaries
Years ended December 31
(dollars in thousands, except per share amounts)
2019
2018
2017
2016
2015
Results of operations
Revenues
Net income for common stock
Basic earnings per common share
Diluted earnings per common share
Return on average common equity
Financial position *
Total assets
Deposit liabilities
Other bank borrowings
Long-term debt, net—other than bank
Preferred stock of subsidiaries – not subject to
mandatory redemption
Common stock equity
Common equity ratio
Common stock
$
2,874,601
$
2,860,849
$
2,555,625
$
2,380,654
$
2,602,982
217,882
201,774
165,297
248,256
159,877
2.00
1.99
9.8%
1.85
1.85
9.5%
1.52
1.52
7.9%
2.30
2.29
12.4%
1.50
1.50
8.6%
$ 13,745,251
$ 13,104,051
$ 12,534,160
$ 11,881,981
$ 11,275,931
6,271,902
115,110
1,964,365
6,158,852
110,040
1,879,641
5,890,597
190,859
1,683,797
5,548,929
192,618
1,619,019
5,025,254
328,582
1,578,368
34,293
34,293
34,293
34,293
34,293
2,280,260
2,162,280
2,097,386
2,066,753
1,927,640
51%
52%
53%
56%
53%
Book value per common share *
$
20.92
$
19.86
$
19.28
$
19.03
$
Dividends declared per common share
Dividend payout ratio
Market price to book value per common share *
Price earnings ratio **
Common shares outstanding (thousands) *
Weighted-average-basic (thousands)
Shareholders ***
Employees *
1.28
64%
224%
23.5x
108,973
108,949
24,766
3,841
1.24
67%
184%
19.8x
108,879
108,855
25,369
3,898
1.24
82%
188%
23.8x
108,788
108,749
26,064
3,880
1.24
54%
174%
14.4x
108,583
108,102
26,831
3,796
17.94
1.24
82%
161%
19.3x
107,460
106,418
27,927
3,918
At December 31.
*
** Calculated using December 31 market price per common share divided by basic earnings per common share.
*** At December 31. Represents registered shareholders plus participants in the HEI Dividend Reinvestment and Stock Purchase Plan
(DRIP) who are not registered shareholders. As of February 13, 2020, HEI had 5,564 registered shareholders (i.e., holders of record of
HEI common stock), 22,060 DRIP participants and total shareholders of 24,651.
2019 results includes $10.8 million of gains ($7.9 million after-tax at ASB’s statutory tax rate of 26.8%) on sales of real estate associated
with ASB’s transition to its new campus. The gains were partially offset by $3.2 million ($2.4 million after-tax at ASB’s statutory tax rate of
26.8%) of exit costs associated with the move to the new campus. 2018 and 2019 results include the impact of the lower federal corporate tax
rate as a result of the Tax Act. 2018 also reflects certain tax return adjustments relating to the benefit associated with additional tax deductions
taken in the Company’s 2017 tax returns in conjunction with the rate differential provided in the Tax Act. The lower tax rate in 2018 and 2019
was partially offset by other Tax Act changes, including the non-deductibility of excess executive compensation and various fringe benefit
costs. 2017 results include a $14 million adjustment, primarily to reduce deferred tax net asset balances (not accounted for under Utility
regulatory ratemaking) to reflect the lower rates enacted by the Tax Act and $20 million ($11 million, net of tax impacts) lower in RAM
revenues than prior year due to the expiration of the 2013 settlement agreement that allowed the accrual of RAM revenues on January 1 (vs.
June 1) for years 2015 to 2016 at Hawaiian Electric. Results for 2016 and 2015 include merger- and spin-off-related income/(expenses), net of
tax impacts, of $60 million and ($16 million), respectively.
31
Hawaiian Electric:
Selected Financial Data
Hawaiian Electric Company, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Results of operations
Revenues
Net income for common stock
Financial position *
Utility plant
Accumulated depreciation
Net utility plant
Total assets
2019
2018
2017
2016
2015
$ 2,545,942 $ 2,546,525 $ 2,257,566 $ 2,094,368 $ 2,335,166
156,840
143,653
119,951
142,317
135,714
$ 7,485,178 $ 7,092,483 $ 6,717,311 $ 6,327,102 $ 6,037,712
(2,690,157)
(2,577,342)
(2,476,352)
(2,369,282)
(2,266,004)
$ 4,795,021 $ 4,515,141 $ 4,240,959 $ 3,957,820 $ 3,771,708
$ 6,388,682 $ 5,967,503 $ 5,630,613 $ 5,431,903 $ 5,166,123
Current portion of long-term debt
$
95,953 $
— $
49,963 $
Short-term borrowings from non-affiliates
88,987
25,000
4,999
— $
—
—
—
Long-term debt, net
Common stock equity
Cumulative preferred stock-not
subject to mandatory redemption
Capital structure
Capital structure ratios (%)
Debt (short-term borrowings, and long-term debt, net, including
current portion)
Cumulative preferred stock
Common stock equity
*
At December 31.
1,401,714
1,418,802
1,318,516
1,319,260
1,278,702
2,047,352
1,957,641
1,845,283
1,799,787
1,728,325
34,293
34,293
34,293
34,293
34,293
$ 3,668,299 $ 3,435,736 $ 3,253,054 $ 3,153,340 $ 3,041,320
43.3
0.9
55.8
42.0
1.0
57.0
42.2
1.1
56.7
41.8
1.1
57.1
42.1
1.1
56.8
HEI owns all of Hawaiian Electric’s common stock. Therefore, per share data is not meaningful.
2018 and 2019 results include the impact of the lower federal corporate tax rate as a result of the Tax Act, the benefits of which were
returned to customers through a reduction in revenue requirements. 2018 also reflects certain tax return adjustments relating to the benefit
associated with additional tax deductions taken in the Company’s 2017 tax returns in conjunction with the rate differential provided in the Tax
Act. The lower tax rate in 2018 and 2019 was partially offset by other Tax Act changes, including the non-deductibility of excess executive
compensation and various fringe benefit costs. 2017 results include $20 million ($11 million, net of tax impacts) lower in RAM revenues than
prior year due to: 1) the expiration of the 2013 settlement agreement that allowed the accrual of RAM revenues on January 1 (vs. June 1) for
years 2015 to 2016 at Hawaiian Electric, and 2) a $9 million adjustment, primarily to reduce deferred tax net asset balances (not accounted for
under regulatory ratemaking) to reflect the lower rates enacted by Tax Act.
See “Cautionary Note Regarding Forward-Looking Statements” above, the “electric utility” sections and all information related to, or
including, Hawaiian Electric and its subsidiaries in HEI’s MD&A and “Commitments and contingencies” in Note 3 of the Consolidated
Financial Statements for discussions of certain contingencies that could adversely affect future results of operations, financial condition and
cash flows.
32
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
HEI and Hawaiian Electric (in the case of Hawaiian Electric, only the information related to Hawaiian Electric and its
subsidiaries):
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related Notes
that appear in Item 8 of this report. For information on factors that may cause HEI’s and Hawaiian Electric’s actual future
results to differ from those currently contemplated by the relevant forward-looking statements, see “Cautionary Note Regarding
Forward-Looking Statements” at the front of this report and “Risk Factors” in Item 1A. The general discussion of HEI’s
consolidated results should be read in conjunction with the Electric utility and Bank segment discussions that follow.
HEI Consolidated
Executive overview and strategy. HEI is a holding company with operations primarily focused on Hawaii’s electric
utility and banking sectors. In 2017, HEI formed Pacific Current to make investments in non-regulated renewable energy and
sustainable infrastructure projects. HEI has three reportable segments—Electric utility, Bank, and Other.
Electric utility. Hawaiian Electric, Hawaii Electric Light and Maui Electric (Utilities) are regulated operating electric
public utilities engaged in the production, purchase, transmission, distribution and sale of electricity on the islands of Oahu;
Hawaii; and Maui, Lanai and Molokai, respectively.
Bank. ASB is a full-service community bank serving both consumer and commercial customers in the State of Hawaii and
has 49 branches on branches on the islands of Oahu (34), Maui (6), Hawaii (5), Kauai (3), and Molokai (1).
Other. The Other segment comprises HEI’s corporate-level operating, general and administrative expenses and the results
of Pacific Current.
A major focus of HEI’s financial strategy is to grow core earnings/profitability of its Utilities and Bank in a controlled risk
manner and improve operating, capital and tax efficiencies in order to support its dividend and deliver shareholder value.
Together, HEI’s unique combination of power and financial services companies provides the Company with a strong balance
sheet and the financial resources to invest in the strategic growth of its subsidiaries, while providing an attractive dividend for
investors.
Environmental, social and governance risks and opportunities. Environmental, social and governance (ESG)
considerations have long been an integral part of HEI’s strategy to be a “catalyst for a better Hawaii” for the benefit of all
stakeholders. The Company firmly believes that effective management of its ESG risks and opportunities creates a strategic
business advantage; improves the lives of our employees, through focus on employee health, wellness, safety, empowerment
and increased engagement; improves the sustainability, well-being and resilience of our communities, the state and the
environment; and ultimately leads to sustained long-term value creation for our investors.
The HEI Board of Directors is responsible for the oversight of the Company’s enterprise risk management (ERM)
programs, which are designed to address all material risks and opportunities, including ESG considerations. The Board of
Directors has delegated the day-to-day responsibility to execute on these action plans to management. The Company believes
ESG considerations are embedded in our daily actions and drive how we engage with our employees, communities, and
shareholders.
The Company intends to leverage the frameworks developed by the Task Force on Climate-related Financial Disclosure
(TCFD) and the Sustainability Accounting Standards Board (SASB) to communicate our approach and progress on ESG
matters in future filings.
We are committed to achieving a renewable, sustainable energy future, providing leadership in corporate social
responsibility, and adhering to governance best practices.
To learn more about our ESG initiatives please visit www.hawaiianelectric.com/clean-energy-hawaii/sustainability-report
and www.asbhawaii.com/corporate-social-responsibility. Later this year, HEI will be issuing a consolidated sustainability
report, which will be posted on our website at www.hei.com. Our Internet website and the information contained therein or
connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
33
HEI consolidated results of operations.
(dollars in millions, except per share amounts)
Revenues
Operating income
Net income for common stock
Net income (loss) by segment:
Electric utility
Bank
Other
Net income for common stock
Basic earnings per share
Diluted earnings per share
Dividends per share
Weighted-average number of common shares outstanding (millions)
Dividend payout ratio
2019 % change
$
$
$
$
$
$
2,875
349
218
157
89
(28)
218
2.00
1.99
1.28
108.9
64%
— $
5
8
$
$
$
$
$
9
8
(15)
8
8
8
3
—
2018 % change
12
(4)
22
2,861
333
202
$
144
83
(24)
202
1.85
1.85
1.24
108.9
67%
$
20
23
(13)
$
22
$
22
22
$
— $
—
2017
2,556
346
165
120
67
(22)
165
1.52
1.52
1.24
108.7
82%
In 2019, net income for HEI common stock increased 8% to $218 million ($1.99 diluted earnings per share), compared to
$202 million ($1.85 diluted earnings per share) in 2018, due to $13 million and $6 million higher net income at the Utilities and
ASB, respectively, partially offset by $4 million higher net loss at the “other” segment. The increase in the Utilities’ 2019 net
income compared to 2018 was principally due to higher RAM and rate increases and higher MPIR revenues, partially offset by
higher O&M expenses and depreciation. The increase in ASB’s net income was primarily due to gains on sale of properties
exited in connection with ASB’s move to its new campus and higher net interest income as a result of an increase in earning
asset balances and yields, partially offset by higher provision for loan losses and higher compensation and occupancy expenses.
See “Electric utility,” “Bank,” and “HEI Consolidated—Other segment” sections below for additional information on year-to-
year fluctuations.
The Company’s effective tax rate (combined federal and state income tax rates) was lower at 19% in 2019, compared to
20% in 2018, primarily due to tax benefits of bank owned life insurance and increases in tax credit investments.
For a discussion of 2017 results, please refer to the “HEI consolidated results of operations” section in Item 7,
“Management Discussion and Analysis of Financial Condition and Results of Operations—HEI Consolidated,” in the
Company’s 2018 Form 10-K.
Other segment. The “other” business segment (loss)/income includes results of the stand-alone corporate operations of
HEI, ASB Hawaii, Inc. (ASB Hawaii), and Pacific Current, LLC.
(in millions)
Operating loss1
2019
2018
Increase
(decrease)
Primary reason(s)
$
(17) $
(16) $
(1) Lower Pacific Current operating income ($3 million in 2019 vs $4
Interest expense &
other
(21)
(16)
(5)
million in 2018) due to higher Pacific Current administrative and general
expenses. HEI corporate expenses were comparable year-over-year ($19
million in 2019 and 2018).
Increase due to higher average borrowings and higher average interest
rates. Average borrowings increased due primarily to $100 million
tranche B private placement drawn in December 2018 to fund a
contribution of utility equity.
Income tax benefit
10
8
2 Higher tax benefit due to an increase in pretax losses
Net loss
$
(28) $
(24) $
(4)
1 Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.
Economic conditions. The statistical data in this section is from public third-party sources that management believes to be
reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic
Research Organization, U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii
Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local newspapers).
Hawaii’s tourism industry, a significant driver of Hawaii’s economy, ended 2019 with growth in both visitor spending and
arrivals. Visitor expenditures increased 1.4% and arrivals increased 5.4% compared to 2018, although the average length of
34
stay decreased by -2.3% over 2018. The Hawaii Tourism Authority reported an increase in total trans-Pacific air seat capacity
of 2.9% in 2019 compared 2018.
Hawaii’s unemployment rate remained steady at 2.6% in December 2019, which was the same as the 2.6% rate a year ago
in December 2018 and lower than the national unemployment rate of 3.5%.
Hawaii real estate activity, as indicated by the home resale market, experienced growth in median sales prices for
condominiums and decrease in median sale prices for single family homes in 2019. Median sales prices for single family
residential homes were lower by 0.1% and were higher by 1.2% for condominiums on Oahu through December 2019 over the
same time period in 2018. The number of closed sales for single family residential homes was up by 3.9% and for
condominiums was down 4.8% through December of 2019 compared to same time period of 2018.
Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in
international markets. Following price increases throughout the first half of 2019, the price of crude oil has dropped slightly
and remained fairly stable in the second half of 2019.
At its December 2019 meeting, the Federal Open Market Committee (FOMC) decided to maintain the federal funds rate
target range of 1.5% to 1.75% to encourage maximum employment and price stability. The FOMC will continue to will
continue to monitor the implications of incoming information for the economic outlook, including global developments and
muted inflation pressures.
Hawaii’s economy slowed toward the end of 2019 as the population continued to decline, which impacted nonfarm payroll
growth. However, the construction industry continues to perform well and visitor arrivals continue to increase, which is
expected to help support the economy in maintaining a positive, but subdued, growth path. It is unknown at this time what
effects, if any, the coronavirus COVID-19 will have on Hawaii’s visitor industry or its economy.
Liquidity and capital resources. As a result of the Tax Act, utility property is no longer eligible for bonus depreciation.
Consequently, the initial cash requirement for future capital projects will generally increase approximately 10% because of the
loss of the immediate tax benefit from bonus depreciation. The Company believes that its ability to generate cash, both
internally from electric utility and banking operations and externally from issuances of equity and debt securities, commercial
paper and bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial
commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other
cash requirements for the foreseeable future.
The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:
December 31
(dollars in millions)
Short-term borrowings—other than bank
Long-term debt, net—other than bank
Preferred stock of subsidiaries
Common stock equity
2019
2018
$
$
186
1,964
34
2,280
4,464
4% $
44
1
51
100% $
74
1,880
34
2,162
4,150
2%
45
1
52
100%
HEI’s commercial paper borrowings and line of credit facility were as follows:
(in millions)
Commercial paper
Line of credit draws
Undrawn capacity under HEI’s line of credit facility
Year ended
December 31, 2019
Average
balance
End-of-period
balance
December 31,
2018
$
$
41
—
—
$
97
—
150
49
—
150
Note: This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are
disclosed below under “Electric utility—Liquidity and capital resources” below. The maximum amount of HEI’s short-term borrowings in
2019 was $102 million.
HEI utilizes short-term debt, typically commercial paper, to support normal operations, to refinance commercial paper, to
retire long-term debt, to pay dividends and for other temporary requirements, including short-term financing needs of its
subsidiaries. HEI also periodically makes short-term loans to Hawaiian Electric to meet Hawaiian Electric’s cash requirements,
including the funding of loans by Hawaiian Electric to Hawaii Electric Light and Maui Electric, but no such short-term loans to
Hawaiian Electric were outstanding as of December 31, 2019. HEI periodically utilizes long-term debt, historically unsecured
35
indebtedness, to fund investments in and loans to its subsidiaries to support their capital improvement or other requirements, to
repay long-term and short-term indebtedness and for other corporate purposes. See Notes 5 and 6 of the Consolidated Financial
Statements for a brief description of the Company’s loans.
HEI has a $150 million line of credit facility with no amounts outstanding as of December 31, 2019. See Note 5 of the
Consolidated Financial Statements.
The rating of HEI’s commercial paper and debt securities could significantly impact the ability of HEI to sell its
commercial paper and issue debt securities and/or the cost of such debt. As of February 20, 2020, the Fitch, Moody’s and S&P
ratings of HEI were as follows:
Long-term issuer default, long-term and issuer credit, respectively
Commercial paper
Outlook
Fitch Moody’s
WR*
BBB
P-3
F3
Positive
Stable
S&P**
BBB-
A-3
Positive
* Moody’s long-term debt rating was withdrawn because HEI does not currently have any outstanding, publicly traded debt. Moody’s continues to rate
Hawaiian Electric’s long-term debt. See ‘Electric utility–Liquidity and capital resources’ below.
** On February 20, 2020, S&P revised HEI’s outlook to positive and affirmed HEI’s issuer credit and commercial paper ratings.
Note: The above ratings reflect only the view, at the time the ratings are issued or affirmed, of the applicable rating agency, from whom an explanation of the
significance of such ratings may be obtained. Such ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision
or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating.
There were no new issuances of common stock through the Hawaiian Electric Industries, Inc. Dividend Reinvestment and
Stock Purchase Plan (DRIP), Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) or the ASB 401(k) Plan in 2019,
2018, or 2017 and HEI satisfied the share purchase requirements of the DRIP, HEIRSP and ASB 401(k) Plan through open
market purchases of its common stock.
Operating activities provided net cash of $512 million in 2019 and $499 million in 2018. Investing activities used net cash
of $542 million in 2019 and $792 million in 2018. In 2019, net cash used in investing activities was primarily due to capital
expenditures, net increase in loans held for investment, purchases of available-for-sale and held-to-maturity investment
securities and stock from Federal Home Loan Bank and contributions to low-income housing investments, partly offset by
receipt of repayments from available-for-sale and held-to-maturity investment securities, redemption of stock from Federal
Home Loan Bank and proceeds from sale of available-for-sale investment securities and real estate held for sale. In 2018, net
cash used in investing activities was primarily due to capital expenditures, purchases of available-for-sale investment securities,
net increase in loans held for investment, purchases of held-to-maturity investment securities, purchase of stock from Federal
Home Loan Bank and contributions to low-income housing investments, partly offset by receipt of repayments from available-
for-sale investment securities, proceeds from the sale of commercial loans, redemption of stock from Federal Home Loan Bank
and repayments from held-to-maturity investment securities.
Financing activities provided net cash of $88 million in 2019 and $200 million in 2018. In 2019, net cash provided by
financing activities included proceeds from issuance of long-term debt and short-term debt, net increases in deposits and short-
term borrowings, partly offset by payment of common and preferred stock dividends, repayment of long-term debt and funds
transferred for redemption of long -term debt and repayment of short-term debt. In 2018, net cash provided by financing
activities included proceeds from issuance of long-term debt, net increases in deposits and retail repurchase agreements, partly
offset by payment of common and preferred stock dividends, long-term debt maturities and net decreases in short-term debt and
other bank borrowings.
For a discussion of 2017 operating, investing and financing activities, please refer to the “Liquidity and capital resources”
section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—HEI
Consolidated,” in the Company’s 2018 Form 10-K.
Other than capital contributions from their parent company, intercompany services (and related intercompany payables and
receivables), Hawaiian Electric’s periodic short-term borrowings from HEI (and related interest) and the payment of dividends
to HEI, the electric utility and bank segments are largely autonomous in their operating, investing and financing activities. (See
the electric utility and bank segments’ discussions of their cash flows in their respective “Liquidity and capital resources”
sections below.) During 2019, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $101 million
and $56 million, respectively.
A portion of the net assets of Hawaiian Electric and ASB is not available for transfer to HEI in the form of dividends, loans
or advances without regulatory approval. In the absence of an unexpected material adverse change in the financial condition of
the electric utilities or ASB, such restrictions are not expected to significantly affect the operations of HEI, its ability to pay
36
dividends on its common stock or its ability to meet its debt or other cash obligations. See Note 14 of the Consolidated
Financial Statements.
Forecasted HEI consolidated “net cash used in investing activities” (excluding “investing” cash flows from ASB) for 2020
through 2022 consists primarily of the net capital expenditures of the Utilities, estimated to range from $1.1 billion to $1.3
billion over the next three years. In addition to the funds required for the Utilities’ construction programs and debt maturities
(see “Electric utility–Liquidity and capital resources” below), approximately $50 million will be required in 2021 and $150
million in 2022 to repay HEI-issued private placement notes maturing in March 2021 and November 2022, which are expected
to be repaid with the proceeds from the issuance of commercial paper, bank borrowings, other medium- or long-term debt,
common stock and/or dividends from subsidiaries. Additional debt and/or equity financing may be utilized to invest in the
Utilities, bank or Pacific Current; to pay down commercial paper or other short-term borrowings; or to fund unanticipated
expenditures not included in the 2020 through 2022 forecast, such as increases in the costs of, or an acceleration of, the
construction of capital projects of the Utilities or unanticipated utility capital expenditures. In addition, existing debt may be
refinanced prior to maturity with additional debt or equity financing (or both).
Selected contractual obligations and commitments. Information about payments under the specified contractual
obligations and commercial commitments of HEI and its subsidiaries was as follows:
December 31, 2019
(in millions)
Contractual obligations
Investment in qualifying affordable housing projects
Time certificates
Short-term borrowings
Other bank borrowings
Long-term debt
Interest on CDs, other bank borrowings, short-term loan and long-term debt
Operating leases
PPAs classified as leases
Other operating leases
Service bureau contract, maintenance agreements and other
Hawaiian Electric open purchase order obligations1
Hawaiian Electric fuel oil purchase obligations (estimate based on fuel oil
price at December 31)
Hawaiian Electric power purchase–minimum fixed capacity charges not
classified as leases
Total (estimated)
Less than
1 year
1-3
years
3-5
years
More than
5 years
Total
$
$
13
503
186
115
102
86
63
12
20
54
7
9
200
—
—
267
158
105
16
18
19
15
$ — $
64
—
—
159
130
$
1
3
—
—
1,446
718
—
9
4
1
—
—
9
1
—
—
23
770
186
115
1,974
1,092
168
46
43
74
22
51
1,212
$
76
885
$
76
443
$
$
241
2,419
$
444
4,959
1 Includes contractual obligations and commitments for capital expenditures and expense amounts.
The table above does not include other categories of obligations and commitments, such as deferred taxes, trade payables,
amounts that will become payable in future periods under collective bargaining and other employment agreements and
employee benefit plans, and potential refunds of amounts collected from ratepayers (e.g., under the earnings sharing
mechanism). As of December 31, 2019, the fair value of the assets held in trusts to satisfy the obligations of the Company’s
retirement benefit plans did not exceed the retirement benefit plans’ benefit obligation. Minimum funding requirements for
retirement benefit plans have not been included in the tables above; however, see Note 10 of the Consolidated Financial
Statements for 2020 estimated contributions. There were no material uncertain tax positions as of December 31, 2019.
See Note 3 of the Consolidated Financial Statements for a discussion of fuel and power purchase commitments. See Note 4
of the Consolidated Financial Statements for a further discussion of ASB’s commitments.
The Company adopted ASU No. 2016-02 on January 1, 2019, which had a material effect on its balance sheet as of
January 1, 2019 due to the recognition of lease liabilities and right-of-use assets. See Note 1, “Summary of Significant
Accounting Policies—Recent accounting pronouncements—Leases,” and Note 8, “Leases,” of the Consolidated Financial
Statements.
Off-balance sheet arrangements. Although the Company and the Utilities have off-balance sheet arrangements, management
has determined that it has no off-balance sheet arrangements that either have, or are reasonably likely to have, a current or
future effect on the Company’s and the Utilities’ financial condition, changes in financial condition, revenues or expenses,
37
results of operations, liquidity, capital expenditures or capital resources that are material to investors, including the following
types of off-balance sheet arrangements:
1.
2.
3.
4.
obligations under guarantee contracts,
retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements that serve as
credit, liquidity or market risk support to that entity for such assets,
obligations under derivative instruments, and
obligations under a material variable interest held by the Company or the Utilities in an unconsolidated entity that
provides financing, liquidity, market risk or credit risk support to the Company or the Utilities, or engages in leasing,
hedging or research and development services with the Company or the Utilities.
Material estimates and critical accounting policies. In preparing financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change include the amounts reported for pension and other
postretirement benefit obligations; contingencies and litigation; income taxes; regulatory assets and liabilities; electric utility
unbilled revenues; allowance for loan losses; fair value; and asset retirement obligations. Management considers an accounting
estimate to be material if it requires assumptions to be made that were uncertain at the time the estimate was made and changes
in the assumptions selected could have a material impact on the estimate and on the Company’s results of operations or
financial condition.
In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting
Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial
statements—that is, management believes that the policies discussed below are both the most important to the portrayal of the
Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or
complex judgments. The policies affecting both of the Company’s two principal segments are discussed below and the policies
affecting just one segment are discussed in the respective segment’s section of “Material estimates and critical accounting
policies.” Management has reviewed the material estimates and critical accounting policies with the HEI Audit & Risk
Committee and, as applicable, the Hawaiian Electric Audit & Risk Committee.
For additional discussion of the Company’s accounting policies, see Note 1 of the Consolidated Financial Statements and
for additional discussion of material estimates and critical accounting policies, see the electric utility and bank segment
discussions below under the same heading.
Pension and other postretirement benefits obligations. The Company’s reported costs of providing retirement benefits are
dependent upon numerous factors resulting from actual plan experience and assumptions about future experience. For example,
retirement benefits costs are impacted by actual employee demographics (including age and compensation levels), the level of
contributions to the plans, earnings and realized and unrealized gains and losses on plan assets, and changes made to the
provisions of the plans. Costs may also be significantly affected by changes in key actuarial assumptions, including the
expected return on plan assets, the discount rate and mortality. The Company’s accounting for retirement benefits under the
plans in which the employees of the Utilities participate is also adjusted to account for the impact of decisions by the PUC.
Changes in obligations associated with the factors noted above may not be immediately recognized as costs on the income
statement, but generally are recognized in future years over the remaining average service period of plan participants.
Based on various assumptions in Note 10 of the Consolidated Financial Statements, sensitivities of the projected benefit
obligation (PBO) and accumulated postretirement benefit obligation (APBO) as of December 31, 2019, associated with a
change in certain actuarial assumptions, were as follows and constitute “forward-looking statements”:
Actuarial assumption
(dollars in millions)
Pension benefits
Discount rate
Other benefits
Discount rate
Change in assumption
in basis points
Impact on HEI
Consolidated
PBO or APBO
Impact on Consolidated
Hawaiian Electric
PBO or APBO
‘+/- 50
$(177)/$202
$(167)/$190
‘+/- 50
$(14)/$15
$(13)/$15
Also, see Notes 1 and 10 of the Consolidated Financial Statements.
38
Contingencies and litigation. The Company is subject to proceedings (including PUC proceedings), lawsuits and other
claims. Management assesses the likelihood of any adverse judgments in or outcomes of these matters as well as potential
ranges of probable losses, including costs of investigation. A determination of the amount of reserves required, if any, for these
contingencies is based on an analysis of each individual case or proceeding often with the assistance of outside counsel. The
required reserves may change in the future due to new developments in each matter or changes in approach in dealing with
these matters, such as a change in settlement strategy.
In general, environmental contamination treatment costs are charged to expense, unless it is probable that the PUC would
allow such costs to be recovered through future rates, in which case such costs would be capitalized as regulatory assets. Also,
environmental costs are capitalized if the costs extend the life, increase the capacity, or improve the safety or efficiency of
property; the costs mitigate or prevent future environmental contamination; or the costs are incurred in preparing the property
for sale.
See Notes 1, 3 and 4 of the Consolidated Financial Statements.
Income taxes. Deferred income tax assets and liabilities are established for the temporary differences between the financial
reporting bases and the tax bases of the Company’s assets and liabilities using tax rates expected to be in effect when such
deferred tax assets or liabilities are realized or settled. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible.
Management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing
authorities. These potential exposures result because taxing authorities may take positions that differ from those taken by
management in the interpretation and application of statutes, regulations and rules. Management considers the possibility of
alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other
jurisdictions) and advice from its tax advisors. Management believes that the Company’s provision for tax contingencies is
reasonable. However, the ultimate resolution of tax treatments disputed by governmental authorities may adversely affect the
Company’s current and deferred income tax amounts.
See Note 12 of the Consolidated Financial Statements.
Following are discussions of the electric utility and bank segments. Additional segment information is shown in Note 2 of
the Consolidated Financial Statements. The discussion concerning Hawaiian Electric should be read in conjunction with its
consolidated financial statements and accompanying notes.
Electric utility
Executive overview and strategy. The Utilities provide electricity on all the principal islands in the state, other than Kauai, to
approximately 95% of the state’s population, and operate five separate grids. The Utilities’ mission is to provide innovative
energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with
affordable, reliable and clean energy. The goal is to create a modern, resilient, flexible, and dynamic electric grid that enables an
optimal mix of distributed energy resources, such as private rooftop solar, demand response, and grid-scale resources to enable
the creation of smart, sustainable, resilient communities and achieve the statutory goal of 100% renewable energy by 2045.
Transition to renewable energy. The Utilities are fully committed to a 100 percent renewable energy future for Hawaii and
are partnering with the State of Hawaii in achieving its Renewable Portfolio Standard goal of 100% renewable energy by 2045.
Hawaii’s RPS law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by December 31, 2020, 2030, 2040
and 2045, respectively.
The Utilities have made significant progress on the path to clean energy and have been successful in adding significant
amounts of renewable energy resources to their electric systems and exceeded the 2015 RPS goal two years early. The Utilities’
RPS for 2019 was approximately 28% and the Utilities are on track to achieve the 2020 RPS goal of 30%. The Utilities will
continue to actively procure additional renewable energy post-2020 and expect to meet or exceed the next statutory RPS goal of
40% in advance of the 2030 compliance year. (See “Developments in renewable energy efforts” below). Also, since the Hawaii
Clean Energy initiative was launched in 2008, the Utilities have continued to reduce the fuel to produce electricity. The fuel
consumption in 2019 was approximately 82.5 million gallons less than that consumed in 2008. The combination of replacing
fossil fuel generation with renewables, customer conservation efforts, and energy efficiency actions has allowed the Utilities to
achieve its 2020 greenhouse gas emissions reduction target of 16% (compared to a 2010 baseline) ahead of schedule in 2014.
As of the end of 2019, the Utilities have achieved a 18% decrease in greenhouse gas emissions compared to 2010.
If the Utilities are not successful in meeting the RPS targets as mandated by law, the PUC could assess a penalty of $20 for
every MWh that an electric utility is deficient. Based on the level of electricity sales in 2019, a 1% shortfall in meeting the 2020
RPS requirement of 30% would translate into a penalty of approximately $1.75 million. The PUC has the discretion to reduce
the penalty due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or
circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the
39
mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target
had been achieved, which in turn would be expected to subject Hawaiian Electric and Maui Electric to limited commodity fossil
fuel price exposure under a fuel cost risk-sharing mechanism. Currently, the fuel cost risk-sharing mechanism apportions 2% of
the fuel cost risk to the two utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.1 million.
The Utilities are fully aligned with, and supportive of, state policy to achieve a 100% renewable energy future and have
made significant progress in its transformation. This alignment with state policy is reflected in management compensation
programs and the Utilities’ long-range plans, which include aspirational targets in order to catalyze action and accelerate the
transition away from fossil fuels at a pace more rapid than dictated by current law. The long-range plans, including aspirational
targets, serve as guiding principles in the Utilities’ continued transformation, and are updated regularly to adapt to changing
technology, costs and other factors. While there is no financial penalty for failure to achieve the Utilities’ long-range
aspirational objectives, the Utilities recognize that there is an environmental and social cost from the continued use of fossil
fuels.
The state’s policy is supported by the regulatory framework and includes a number of mechanisms designed to provide
utility financial stability during the transition toward the state’s 100% renewable energy future. Under the sales decoupling
mechanism, the Utilities are allowed to recover from customers, target test year revenues, independent of the level of kWh
sales, which have generally declined (with the exception of 2019), as privately-owned distributed energy resources have been
added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms reduce regulatory lag,
such as the rate adjustment mechanism to provide revenues for escalation in certain O&M expenses and rate base changes
between rate cases, and the major project interim recovery mechanism, which allow the Utilities to recover and earn on certain
approved major capital projects placed into service in between rate cases. See “Decoupling” in Note 3 of the Consolidated
Financial Statements.
Integrated Grid Planning. Achieving 100% renewable energy will require modernizing the grid through coordinated
energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities filed its
Integrated Grid Planning (IGP) Report with the PUC on March 1, 2018, which provides an innovative systems approach to
energy planning intended to yield the most cost-effective renewable energy pathways that incorporates customer and
stakeholder input.
The PUC opened a docket to review the IGP process that the Utilities had proposed, and the resulting plans. In March
2019, the PUC accepted the Utilities’ IGP Work plan submitted on December 14, 2018, which describes the timing and scope of
major activities that will occur in the IGP process. The IGP utilizes an inclusive and transparent Stakeholder Engagement model
to provide an avenue for interested parties to engage with the Companies and contribute meaningful input throughout the IGP
process. The IGP Stakeholder Council, Technical Advisor Panel and Working groups have been established and meet regularly
to provide feedback and input on specific issues and process steps in the IGP.
Demand response programs. Pursuant to PUC orders, the Utilities are developing an integrated Demand Response (DR)
Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will
take the form of either rates or incentive-based programs that will compensate customers for their participation individually, or
by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid
services on behalf of participating customers and their distributed assets.
In October 2017, the PUC approved the Utilities’ request made in December 2015 to defer and recover certain computer
software and software development costs for a DR Management System in an amount not to exceed $3.9 million, exclusive of
allowance for funds used during construction, through the Renewable Energy Infrastructure Program (REIP) Surcharge. The
Utilities placed the DR Management System in service in the first quarter of 2019. On October 30, 2019, the Utilities filed the
final cost report, reflecting total project costs of $3.7 million. On February 27, 2020, the PUC approved the Utilities’ request to
recover deferred and other related costs of DR Management System through REIP Surcharge effective March 1, 2020 until such
costs are included in determining base rates.
On January 25, 2018, the PUC approved the Utilities’ revised DR Portfolio tariff structure. The PUC supported the
approach of working with aggregators to implement the DR portfolio. In 2019, the Utilities signed a multi-year Grid Services
Purchase Agreement with a third party aggregator. These contracts pay service providers to aggregate grid-supporting
capabilities from customer-sited Distributed Energy Resources. The first of these five-year contracts in a not-to exceed amount
of $22 million has been executed (PUC approval obtained on August 9, 2019) and is expected to not only deliver benefit
through efficient grid operations but also avoided fuel costs over that 5-year period. The Utilities will select the next set of
aggregators in the first quarter of 2020. As the PUC considers Performance-based Regulation, demonstrated savings resulting
from these contracts could results in shared savings for the Utilities. This complements the Utilities’ transformation and
supports customer choice.
Grid modernization. The overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an
appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and
40
obsolescence, deliver customer benefits and enable greater DER and renewable energy integration. Under the Grid
Modernization Strategy, new technology will help triple private rooftop solar and make use of rapidly evolving products,
including storage and advanced inverters. The Utilities have begun work to implement the Grid Modernization Strategy Phase
1, which received PUC approval on March 25, 2019. The estimated cost for this initial phase is approximately $86 million and
is expected to be incurred over five years. The Utilities filed an application with the PUC on September 30, 2019 for an
Advanced Distribution Management System as part of the second phase of their Grid Modernization implementation. The
estimated cost for the implementation over five years of the Advanced Distribution Management System, which includes
capital, deferred and O&M costs, is $46 million. Additional applications will be filed later to implement subsequent phases of
the strategy. On December 30, 2019, the PUC suspended the Utilities’ application for the Advanced Distribution Management
System pending the Utilities’ filing of a supplemental application for the broad deployment of field devices.
Community-based renewable energy. In December 2017, the PUC adopted a community-based renewable energy (CBRE)
program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the
benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has
two phases.
The first phase, which commenced in July 2018, totals 8 MW of solar photovoltaic (PV) only with one credit rate for each
island. The Utilities’ role is limited to administrative only during the first phase. As administrators, the Utilities will work with
subscriber organizations to allocate capacity, answer general program questions, verify subscriber eligibility and process bill
credits for subscribers. The Utilities are in the process of verifying the projects and awarding the capacity to interested
subscriber organizations.
The second phase will commence after review of the first full year of the first phase. The second phase is contemplated to
be a larger capacity and include multiple credit rates (e.g., time of day) and various technologies. The Utilities will have the
opportunity to develop self-build projects; however 50% of utility capacity will be reserved for low to moderate income
customers.
The PUC held an informal technical conference on July 5, 2019 to review progress and status to the first phase and to
solicit recommendations for the second phase. On August 19, 2019, the Utilities and the Joint Parties submitted their comments
and recommendations for the second phase.
Microgrid services tariff proceeding. In July 2018, the PUC issued an order instituting a proceeding to investigate
establishment of a microgrid services tariff, pursuant to Act 200 of 2018. The PUC granted motions to intervene in the docket
by eight parties (there are currently six parties) and completed its initial procedural schedule in March 2019. In August 2019,
the PUC issued an order stating that the focus for the remainder of the docket is to facilitate the ability of microgrids to
disconnect from the grid and provide backup power to customers and critical energy uses during contingency events.
The PUC also required the parties to form two Working Groups: (1) a Market Facilitation Working Group to recommend
draft tariff language for the Microgrid Services Tariff; and (2) an Interconnection Standards Working Group to develop a new
section of Rule 14H specific to interconnection and islanding/reconnection of microgrids. The Utilities are to file a Draft
Microgrid Services Tariff and Rule 14H Updates by March 30, 2020.
Decoupling. See “Decoupling” in Note 3 of the Consolidated Financial Statements for a discussion of decoupling.
As part of decoupling, the Utilities also track their rate-making ROACEs as calculated under the earnings sharing
mechanism, which includes only items considered in establishing rates. At year-end, each utility’s rate-making ROACE is
compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. Annual earnings
of a utility over and above the ROACE allowed by the PUC are shared between the utility and its ratepayers on a tiered basis.
Earnings sharing credits are included in the annual decoupling filing for the following year. Results for 2019, 2018 and 2017
did not trigger the earnings sharing mechanism for the Utilities.
Regulated returns. Actual and PUC-allowed returns, as of December 31, 2019, were as follows:
%
Rate-making
Return on rate base (RORB)*
Year ended December 31, 2019
Utility returns
PUC-allowed returns
Difference
Hawaiian
Electric
6.90
7.57
Hawaii
Electric
Light
5.97
7.52
Maui
Electric
Hawaiian
Electric
Maui
Electric
Hawaiian
Electric
6.37
7.43
8.02
9.50
7.00
9.50
7.79
9.50
8.80
9.50
ROACE**
Hawaii
Electric
Light
Rate-making ROACE***
Hawaii
Electric
Light
6.72
9.50
Maui
Electric
7.95
9.50
(1.55)
(0.67)
(1.55)
(1.06)
(1.48)
(2.50)
(1.71)
(0.70)
(2.78)
* Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates.
** Recorded net income divided by average common equity.
*** ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation.
41
The gap between PUC-allowed ROACEs and the ROACEs actually achieved is primarily due to: the consistent exclusion
of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual
RAM revenues on June 1 annually rather than on January 1, and O&M increases and return on capital additions since the last
rate case in excess of indexed escalations.
Results of operations.
2019 vs. 2018
2019
2,546
$
2018
2,547
$
721
633
482
456
254
197
761
639
461
444
242
180
157
144
7.8%
7.6%
82.17
8,740
2,670
87.90
8,689
2,704
Increase (decrease)
(dollars in millions, except per barrel amounts)
$
(1)
$
Revenues. Net decrease largely due to:
net of lower fuel prices and higher kWh generated11
net of lower purchased power energy costs and higher kWh purchased2
higher electric rates
(45)
(6)
26
16 MPIR for Schofield Generating Station
3
2
2
1
7
7
3
2
2
higher PIM award due to low-cost variable renewable procurement, better reliability
and call center performance
billing to a third party for mutual assistance work reimbursement
higher state refundable credit due to reduction in amortization period
pole attachment revenues
Fuel oil expense.1 Net decrease due to lower fuel oil prices offset in part by higher
kWh generated
Purchased power expense1,2. Net decrease largely due to lower purchased power
energy price offset in part by higher kWh purchased
Operation and maintenance expense. Increase largely due to:
higher outside services for system support (Asset management, Energy
Management, Enterprise Resources and Grid Modernization systems)
higher generation overhaul costs
reset of pension costs included in rates as part of rate case decisions
higher preventive/corrective maintenance expense for generation facilities
higher medical premium costs
Other expenses. Increase due to higher depreciation expense for plant investments
in 2018
Operating income. Increase due to higher electric rates, offset in part by higher
operation and maintenance, and depreciation expenses
Income before income taxes. Increase due to higher electric rates, lower interest
expense related to the hybrid securities redemption replaced with lower cost debt
and refinancing of revenue bonds and higher AFUDC, offset in part by higher
operation and maintenance and depreciation expense
Net income for common stock. Increase due to higher electric rates and MPIR
revenues, offset in part by higher operating expenses
(40)
(6)
21
12
12
17
13
0.2%
(5.73)
51
(34)
Return on average common equity
Average fuel oil cost per barrel
Kilowatthour sales (millions) 3
Number of employees (at December 31)
1 The rate schedules of the electric utilities currently contain ECRCs (changed from ECACs in 2019) through which changes in fuel oil
prices and certain components of purchased energy costs are passed on to customers.
2 The rate schedules of the electric utilities currently contain PPACs through which changes in purchase power expenses (except purchased
energy costs) are passed on to customers.
3 kWh sales were higher in 2019 when compared to the prior year due largely to warmer humid weather in 2019 than 2018.
Hawaiian Electric’s effective tax rate (combined federal and state income tax rates) in 2019 and 2018 was comparable at
19%. Income tax expense for 2019 reflects higher amortization in 2019 versus 2018 of the Utilities’ regulatory liability related
to certain excess deferred income taxes resulting from the Tax Act’s decrease in federal income tax rate, while 2018 income tax
expense reflects certain tax return adjustments recorded in 2018 relating to the benefit associated with additional tax deductions
taken in the Company’s 2017 tax returns in conjunction with the rate differential provided in the Tax Act.
For a discussion of 2017 results, please refer to the “Results of operations” section in Item 7, “Management Discussion and
Analysis of Financial Condition and Results of Operations—Electric utility,” in the Company’s 2018 Form 10-K.
42
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of December 31,
2019 amounted to $4 billion, of which approximately 29% related to generation PPE, 62% related to transmission and
distribution PPE, and 9% related to other PPE. Approximately 9% of the total net book value relates to generation PPE that has
been deactivated or that the Utilities plan to deactivate or decommission.
Most recent rate proceedings. Unless otherwise agreed or ordered, each electric utility is currently required by PUC order to
initiate a rate proceeding every third year (on a staggered basis) to allow the PUC and the Consumer Advocate to regularly
evaluate decoupling and to allow the utility to request electric rate increases to cover rising operating costs and the cost of plant
and equipment, including the cost of new capital projects to maintain and improve service reliability and integrate more
renewable energy. The PUC may grant an interim increase within 10 to 11 months following the filing of an application, but
there is no guarantee of such an interim increase and interim amounts collected are refundable, with interest, to the extent they
exceed the amount approved in the PUC’s final decision and order (D&O). The timing and amount of any final increase is
determined at the discretion of the PUC. The adoption of revenue, expense, rate base and cost of capital amounts (including the
ROACE and RORB) for purposes of an interim rate increase does not commit the PUC to accept any such amounts in its final
D&O.
Hawaiian Electric filed for a rate increase based on a 2020 test year in August 2019. Hawaii Electric Light filed its 2019
test year rate case in December 2018. Interim rates for Hawaii Electric Light’s 2019 rate case became effective on January 1,
2020, based on an interim order issued in November 2019 maintaining revenues at current effective rates. Final rates for Maui
Electric’s 2018 rate case were effective on June 1, 2019 based on ruling in a D&O issued on March 18, 2019. Rates resulting
from the March 2019 D&O were lower than what had been allowed in the interim order and Maui Electric refunded
approximately $0.5 million to customers in June and July 2019.
Test year
(dollars in millions)
Hawaiian Electric
20171
Request
Interim increase
Interim increase with Tax Act
Final increase
2020
Request
Hawaii Electric Light
20162
Request
Interim increase
Interim increase with Tax Act
Final increase
20193
Request
Interim increase
Maui Electric
20184
Request
Interim increase
Final increase
Date
(filed/
implemented)
Amount
% over
rates in
effect
ROACE
(%)
RORB
(%)
Rate
base
Common
equity
%
Stipulated
agreement
reached with
Consumer
Advocate
12/16/16
$ 106.4
2/16/18
4/13/18
9/1/18
36.0
(0.6)
(0.6)
6.9
2.3
—
—
10.60
9.50
9.50
9.50
8.28
7.57
7.57
7.57
$ 2,002
1,980
1,993
1,993
57.36
57.10
57.10
57.10
8/21/19
$
77.6
4.1
10.50
7.97
$ 2,477
57.15
9/19/16
8/31/17
5/1/18
10/1/18
$
19.3
9.9
1.5
—
12/14/18
$
13.4
1/1/20
0.0
10/12/17
$
8/23/18
6/1/19
30.1
12.5
12.2
6.5
3.4
0.5
—
3.4
0.0
9.3
3.8
3.7
10.60
9.50
9.50
9.50
10.50
9.50
10.60
9.50
9.50
$
$
8.44
7.80
7.80
7.80
8.30
7.52
8.05
$
7.43
7.43
479
482
481
481
537
534
473
462
454
57.12
56.69
56.69
56.69
56.91
56.83
56.94
57.02
57.02
Yes
Yes
Yes
Note: The “Request” date reflects the application filing date for the rate proceeding. The “Interim increase” and “Final increase” date reflects the effective date
of the revised schedules and tariffs as a result of the PUC-approved increase.
1 Final D&O was issued on June 22, 2018.
2 Final D&O was issued on June 29, 2018.
3 The Interim D&O issued on November 13, 2019 approved an adjustment to base rates to maintain revenues at current effective rates.
4 A D&O issued on May 16, 2019 approved Maui Electric’s revised revenue requirements filed based on the March 2019 D&O and final rates which took
effect on June 1, 2019.
43
See also “Most recent rate proceedings” in Note 3 of the Consolidated Financial Statements.
The effects of the Tax Act on the Utilities’ regulated operations accrued to the benefit of customers from the effective date
of January 1, 2018 and were addressed in the Utilities’ rate cases summarized above. Generally, the lower corporate income tax
rate lowers the Utilities’ revenue requirements through lower income tax expense and through the amortization of a regulatory
liability for excess accumulated deferred income taxes (ADIT) resulting from the recording of ADIT in prior years at the higher
income tax rate. The revenues collected in the first and a portion of the second quarters of 2018 reflected income taxes at the
old 35% rate and consequently, the Utilities reduced revenues to the extent the income taxes collected revenue exceeded the
taxes accrued at the new 21% rate. This reduction was recorded to a regulatory liability and electric rates were adjusted in the
second quarter of 2018 to initiate the return of the 2018 excess to customers over various amortization periods. In addition,
rates were adjusted in 2018 to begin returning the excess ADIT that was accumulated as of December 31, 2017. The Tax Act
also excludes the Utilities’ asset additions from qualifying for bonus depreciation (except for certain grandfathered utility
property), which has the offsetting effect of increasing revenue requirement by lowering ADIT and thereby increasing rate base
on a prospective basis.
Performance-based regulation. See “Performance incentive mechanisms” and “Performance-based regulation proceeding”
in Note 3 of the Consolidated Financial Statements.
Developments in renewable energy efforts. Developments in the Utilities’ efforts to further their renewable energy strategy
include renewable energy projects discussed in Note 3 of the Consolidated Financial Statements and the following:
New renewable PPAs.
•
•
•
•
•
In December 2014, the PUC approved a PPA for Renewable As-Available Energy dated October 3, 2013 between
Hawaiian Electric and Na Pua Makani Power Partners, LLC (NPM) for a proposed 24-MW wind farm on Oahu. The
NPM wind farm was expected to be placed into service by August 31, 2019, but has been delayed due to an appeal of
the decision in the Habitat Conservation Permit contested case. NPM has now received its Habitat Conservation
Permit and is constructing the project. Life of the Land (LOL) filed a Motion for Relief to argue the PPA approval was
invalid and should be revised. The Utilities and the Consumer Advocate filed an opposition to this motion for relief. A
hearing on the motion for relief was held on November 22, 2019. The PUC has not yet ruled.
In July 2017, the PUC approved, with certain modifications and conditions, three PPAs for solar energy on Oahu with
Waipio PV, LLC for 45.9 MW, Lanikuhana Solar, LLC for 14.7 MW and Kawailoa Solar, LLC for 49.0 MW. The three
projects are now owned by Clearway Energy Group LLC, whose controlling investor is Global Infrastructure Partners.
On September 19, 2019, Lanikuhana Solar and Waipio PV projects achieved commercial operations. On November 20,
2019, Kawailoa Solar, LLC achieved commercial operations.
In July 2018, the PUC approved Maui Electric’s PPA with Molokai New Energy Partners to purchase solar energy
from a PV plus battery storage project. The 4.88 MW project will deliver no more than 2.64 MW at any time to the
Molokai system. The project is expected to be in service in 2020.
In November 2018, Hawaiian Electric filed with the PUC a PPA for Renewable As-Available Energy dated October
22, 2018 between Hawaiian Electric and EE Ewa, LLC (Palehua) for a proposed 46.8 MW wind farm on Oahu, subject
to PUC approval. On September 6, 2019, the PUC issued an order dismissing without prejudice Hawaiian Electric’s
application for a waiver of the proposed Palehua wind project from the PUC’s framework for competitive bidding and
approval of the PPA. Due to the foregoing, the PPA has been declared null and void.
On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power Purchase
Agreement (ARPPA), subject to approval by the PUC. The ARPPA extends the term of the existing PPA by 25 years to
2052, expands the firm capacity of the facility to 46 MW and delinks the pricing for energy delivered from the facility
from fossil fuel prices to reduce cost to customers. The existing PPA (except for lower-tiered pricing for certain energy
dispatched above 30 MW) will remain in effect until it is superseded by the ARPPA when the expanded capacity is in
commercial operation.
44
Tariffed renewable resources.
•
•
As of December 31, 2019, there were approximately 471 MW, 104 MW and 118 MW of installed distributed
renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric,
respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net
Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply
Plus and Interim Smart Export. As of December 31, 2019, an estimated 29% of single-family homes on the islands of
Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 18% of the Utilities’ total
customers have solar systems.
The Utilities began accepting energy from feed-in tariff projects in 2011. As of December 31, 2019, there were 34
MW, 3 MW and 5 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric,
Hawaii Electric Light and Maui Electric, respectively.
Biofuel sources.
•
•
In July 2018, the PUC approved Hawaiian Electric’s 3-year biodiesel supply contract with Pacific Biodiesel
Technologies, LLC (PBT) to supply 2 million to 4 million gallons of biodiesel at Hawaiian Electric’s Schofield
Generating Station and the Honolulu International Airport Emergency Power Facility (HIA Facility) and any other
generating unit on Oahu, as necessary. The PBT contract became effective on November 1, 2018. Hawaiian Electric
also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel.
Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was recently
extended through June 2021.
Hawaiian Electric has a contingency supply contract with REG Marketing & Logistics Group, LLC to also supply
biodiesel to any generating unit on Oahu in the event PBT is not able to supply necessary quantities. This contingency
contract has been extended to November 2020, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
•
Under a request for proposal process governed by the PUC and monitored by independent observers, in February
2018, the Utilities issued RFPs for 220 MW of renewable generation on Oahu, 50 MW of renewable generation on
Hawaii Island, and 60 MW of renewable generation on Maui. The Utilities selected a final award group for Hawaii
Island in August 2018 and for Maui and Oahu in September 2018.
In December 2018, the Utilities executed a total of seven renewable generation PPAs utilizing photovoltaic technology
paired with a battery storage system for a total of 262MW, of which six PPAs were approved by the PUC in March
2019 and one PPA for Maui Electric is still under PUC review. In February 2019, Hawaiian Electric filed an additional
PPA for a proposed 12.5 MW PV plus battery storage project, which was approved by the PUC on August 20, 2019.
Summarized information for a total of 8 PPAs, including one for Maui Electric that is pending PUC approval, is as
follows:
Utilities
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Total
Number of
contracts
Total
photovoltaic
size (MW)
BESS Size
(MW/
MWh)
Guaranteed
commercial
operation dates
Contract
term
(years)
Total projected
annual payment
(in millions)
4
2
2
8
139.5
139.5/558
9/30/21 & 12/31/21
20 & 25
$
60
75
60/240
75/300
7/20/21 & 6/30/22
7/20/21 & 6/30/22
274.5
274.5 /1,098
25
25
$
30.9
14.1
17.6
62.6
In March 2019 and August 2019, the Utilities received PUC approval to recover the total projected annual payment of
$57.8 million for 7 PPAs through the PPAC to the extent such costs are not included in base rates. The remaining $4.8
million of total projected annual payments for the remaining PPA is pending PUC approval.
•
In continuation of its February 2018 request for proposal process, the Utilities issued its Stage 2 Renewable RFPs for
Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. This procurement plan sought
approximately 900 MW of renewable energy, including 594 MW on Oahu, 135 MW on Maui and a range between 32
to 203 MW on Hawaii Island. This second phase, as approved by the PUC, was open to all renewable and storage
resources, including efforts to add more renewable generation, renewable plus storage, standalone storage and grid
services. The scope of these RFPs has been expanded to accelerate renewable energy procurements beyond the
remainder of the 2022 targets identified in Stage 1 to include the energy requirement associated with the planned
retirement of the Kahului Power Plant on Maui and the upcoming expiration of the agreement for the AES Hawaii
facility on Oahu. For the Grid Services RFP, the targets had been expanded in alignment with the Renewable RFPs.
45
Utility proposals were submitted on November 4, 2019. Proposals from third parties for these RFPs were submitted on
November 5, 2019. Final awards for the renewable projects are scheduled to be made in May 2020. Final awards for
the grid services projects were made starting in January 2020.
•
On November 27, 2019, the Utilities issued RFPs for renewable generation paired with energy storage on the islands
of Lanai and Molokai. Projects may come online as early as 2022. The Utilities are seeking PV paired with storage or
small wind (specified as 100 kW turbines or smaller) on Molokai and PV paired with storage on Lanai. Proposals for
the Molokai RFP were received on February 14, 2020, and are currently being evaluated by the Utilities. The Lanai
RFP has been temporarily postponed, while the Utilities reevaluate the system needs. The Utilities expect to issue an
update to the Lanai RFP no later than March 10, 2020.
Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or
negative effects on the Utilities and their customers. Also see “Environmental regulation” in “Item 1. Business” and Note 3, and
“Major tax developments” in Note 12 of the Consolidated Financial Statements.
Impact of lava flows. In May 2018, a lava eruption occurred within the Leilani Estates subdivision and resulted in the
shutdown of independent power producer PGV’s geothermal facilities. The financial impact to Hawaii Electric Light has not
been material. In March 2019, Hawaii Electric Light and PGV entered into a Rebuild Agreement, which sets forth the parties’
respective responsibilities associated with restoration of facilities and reconnection of the PGV facility to the electric grid.
In June 2019, Hawaii Electric Light filed an application requesting approval to reconstruct the necessary transmission lines.
In December 2019, Hawaii Electric Light filed an application for approval of an amended and restated PPA with PGV. See
“New renewable PPAs” in the “Developments in renewable energy efforts” section above for additional information on the
amended and restated PPA.
Army privatization. On September 27, 2019, Hawaiian Electric was awarded a 50-year contract to own, operate and maintain
the electric distribution system serving the U.S. Army’s 12 installations on Oahu, including Schofield Barracks, Wheeler Army
Airfield, Tripler Army Medical Center, Fort Shafter, and Army housing areas. Hawaiian Electric will acquire, subject to PUC
approval, the Army’s existing distribution system for a purchase price of $16.3 million and will pay the Army in the form of a
monthly credit against the monthly utility services charge over the 50-year term of the contract. Hawaiian Electric filed an
application with the PUC for approval of the Army privatization contract on October 25, 2019.
If approved by the PUC in 2020, Hawaiian Electric would take ownership and all responsibilities for operation and
maintenance of the system in late 2021 for a 50-year term, which would start after the mutually agreed upon one-year transition
period. Under the contract, Hawaiian Electric will make initial capital upgrades over the first six years of the contract and
replacements of aging infrastructure over the 50-year term. In addition to its regular monthly electricity bill, the Army will pay
Hawaiian Electric a monthly utility services charge to cover operations and maintenance expenses and provide recovery for
capital upgrades, capital replacements, and the existing distribution system based on a rate of return determined by the PUC for
regulated utility investments, as well as depreciation expense. A preliminary assessment estimated the capital needs of
approximately $40 million in the first six years of the contract. The annual impact on Hawaiian Electric’s earnings is not
expected to be material and will depend on a number of factors, including the amount and timing of capital upgrades and capital
replacement.
Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC (PAR Hawaii),
for the Utilities’ low sulfur fuel oil (LSFO), high sulfur fuel oil (HSFO), No. 2 diesel, and ultra-low sulfur diesel (ULSD)
requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. This
contract is a requirement contract with no minimum purchases. If PAR is unable to provide LSFO, HSFO, diesel and/or ULSD
the contract allows the Utilities to purchase LSFO, HSFO, diesel and/or ULSD from another supplier. The contract will
automatically renew upon the conclusion of the original term for successive terms of 1 year beginning on January 1, 2023
unless a party gives written termination notice at least 120 days before the beginning of an extension.
The previous fuel contracts with Island Energy Services, LLC, terminated on April 27, 2019, as agreed with IES under a
mutual termination and release agreement entered into in November 2018.
The costs incurred under the contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs.
Liquidity and capital resources. Management believes that Hawaiian Electric’s ability, and that of its subsidiaries, to generate
cash, both internally from operations and externally from issuances of equity and debt securities and commercial paper and
draws on lines of credit, is adequate to maintain sufficient liquidity to fund their respective capital expenditures, investments,
debt repayments, retirement benefit plan contributions and other cash requirements in the foreseeable future.
46
Hawaiian Electric’s consolidated capital structure was as follows:
December 31
(dollars in millions)
Short-term borrowings1
Long-term debt, net
Preferred stock
Common stock equity
2019
2018
$
$
89
1,498
34
2,047
3,668
2% $
41
1
56
100% $
25
1,419
34
1,958
3,436
1%
41
1
57
100%
1 Short-term borrowings as of December 31, 2019 reflect the impact of funding for a senior note of $82 million included in long-term debt,
net, which was paid off on January 1, 2020 (see Note 6 of the Consolidated Financial Statements).
Information about Hawaiian Electric’s commercial paper borrowings, borrowings from HEI, and line of credit facility were
as follows:
(in millions)
Short-term borrowings1
Commercial paper
Line of credit draws
Borrowings from HEI
Undrawn capacity under line of credit facility
Year ended December 31, 2019
Average
balance
End-of-period
balance
December 31,
2018
$
$
44
—
—
—
$
39
—
—
200
—
—
—
200
1 The maximum amount of external short-term borrowings by Hawaiian Electric during 2019 was $158 million. At December 31, 2019,
Hawaiian Electric had short-term borrowings from Hawaii Electric Light of $8 million and Maui Electric had short-term borrowings from
Hawaiian Electric of $27.7 million, which intercompany borrowings are eliminated in consolidation. In addition to the short-term
borrowings above, Hawaiian Electric drew $50 million on December 23, 2019 on a 364-day term loan facility (see Note 5 of the
Consolidated Financial Statements).
Hawaiian Electric utilizes short-term debt, typically commercial paper, to support normal operations, to refinance short-
term debt and for other temporary requirements. Hawaiian Electric also borrows short-term from HEI for itself and on behalf of
Hawaii Electric Light and Maui Electric, and Hawaiian Electric may borrow from or loan to Hawaii Electric Light and Maui
Electric on a short-term basis. The intercompany borrowings among the Utilities, but not the borrowings from HEI, are
eliminated in the consolidation of Hawaiian Electric’s financial statements. The Utilities periodically utilize long-term debt,
borrowings of the proceeds of special purpose revenue bonds (SPRBs) issued by the DBF and the issuance of privately placed
unsecured senior notes bearing taxable interest, to finance the Utilities’ capital improvement projects, or to repay short-term
borrowings used to finance such projects. The PUC must approve issuances, if any, of equity and long-term debt securities by
the Utilities.
Hawaiian Electric has a $200 million line of credit facility with no amounts outstanding at December 31, 2019. See Note 5
of the Consolidated Financial Statements.
Credit ratings. Moody’s and S&P (Rating Agencies) revised Hawaiian Electric’s rating outlook to “positive” from “stable”
on October 21, 2019 and February 20, 2020, respectively. The revision to the rating outlook was primarily based on the
progress of regulatory reform for the Utilities. The Rating Agencies indicated that future upgrades or downgrades in ratings
action are dependent on a variety of factors, including changes in its cash flow from operations ratios and improvements in the
regulatory environment, specifically, a credit-supportive decision in the performance-based regulation proceeding. See
“Performance-based regulation proceeding” in Note 3 of the Consolidated Financial Statements.
47
As of February 20, 2020, the Fitch, Moody’s and S&P ratings of Hawaiian Electric were as follows:
Long-term issuer default, long-term and issuer credit, respectively
Commercial paper
Senior unsecured debt/special purpose revenue bonds
Cumulative preferred stock (selected series)
Outlook
Fitch
BBB+
F2
A-
*
Stable
Moody’s
Baa2
P-2
Baa2
Ba1
Positive
S&P**
BBB-
A-3
BBB-
*
Positive
* Not rated.
** On February 20, 2020, S&P revised Utilities’ outlook to positive and affirmed Utilities’ issuer credit and commercial paper ratings.
Note: The above ratings reflect only the view, at the time the ratings are issued or affirmed, of the applicable rating agency, from whom an explanation of the
significance of such ratings may be obtained. Such ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision
or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating.
SPRBs. SPRBs have been issued by the DBF to finance (and refinance) capital improvement projects of Hawaiian Electric
and its subsidiaries, but the sources of their repayment are the non-collateralized obligations of Hawaiian Electric and its
subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric’s guarantees of its subsidiaries’
obligations.
On February 26, 2019, the PUC approved Hawaiian Electric and Hawaii Electric Light’s request to issue refunding
SPRBs prior to December 31, 2020 to refinance their outstanding Series 2009 SPRBs in the amount of up to $90 million
and $60 million, respectively. Pursuant to this approval, on July 18, 2019, the Department of Budget and Finance of the
State of Hawaii (DBF) issued, at par, Refunding Series 2019 SPRBs in the aggregate principal amount of $150 million with
a maturity of July 1, 2039. See Note 6 of the Consolidated Financial Statements.
On May 24, 2019, the PUC approved the Utilities’ request to issue SPRBs in the amounts of up to $70 million, $2.5
million and $7.5 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2020,
to finance the Utilities’ capital improvement programs. Pursuant to this approval, on October 10, 2019, the DBF issued, at
par, Series 2019 SPRBs in the aggregate principal amount of $80 million with a maturity of October 1, 2049. As of
December 31, 2019, Hawaiian Electric and Hawaii Electric Light had $30.8 million and $0.1 million of undrawn funds
remaining with the trustee, respectively. Maui Electric received all bond proceeds at closing and had no undrawn funds as of
December 31, 2019. See Note 6 of the Consolidated Financial Statements.
On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for
Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval,
prior to June 30, 2024, to finance the Utilities’ multi-project capital improvement programs.
Bank loans. On December 23, 2019, Hawaiian Electric entered into a 364-day, $100 million term loan credit
agreement that matures on December 21, 2020. Hawaiian Electric drew the first $50 million on December 23, 2019 and has
until March 23, 2020 to draw the remaining $50 million, if needed.
Taxable debt. On January 31, 2019, the Utilities received PUC approval (January 2019 Approval) to issue the
remaining authorized amounts under the PUC approval received in April 2018 (April 2018 Approval) in 2019 through 2020
(Hawaiian Electric up to $205 million and Hawaii Electric Light up to $15 million of taxable debt), as well as a
supplemental increase to authorize the issuance of additional taxable debt to finance capital expenditures, repay long-term
and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of
capital expenditures, and to refinance the Utilities’ 2004 junior subordinated deferrable interest debentures (QUIDS) prior
to maturity. In addition, the January 2019 Approval authorized the Utilities to extend the period to issue additional taxable
debt from December 31, 2021 to December 31, 2022. The new total “up to” amounts of taxable debt requested to be issued
through December 31, 2022 are $410 million, $150 million and $130 million for Hawaiian Electric, Hawaii Electric Light
and Maui Electric, respectively.
48
Pursuant to the January 2019 Approval, on May 13, 2019, the Utilities issued through a private placement, $50 million
of unsecured senior notes bearing taxable interest ($30 million for Hawaiian Electric, $10 million for Hawaii Electric Light
and $10 million for Maui Electric) to refinance the Utilities’ 2004 QUIDS. See Note 6 of the Consolidated Financial
Statements. See summary table below.
(in millions)
Total “up to” amounts of taxable debt authorized through 2022
Less:
Taxable debt authorized and issued in 2018 under April 2018 Approval
Taxable debt issuance to refinance the 2004 QUIDS
Remaining authorized amounts
Hawaiian
Electric
Hawaii Electric
Light
$
$
410 $
75
30
305 $
Maui Electric
130
150 $
15
10
125 $
10
10
110
Equity. In October 2018, the Utilities received PUC approval for the supplemental increase to issue and sell
additional common stock in the amounts of up to $280 million for Hawaiian Electric and up to $100 million each for
Hawaii Electric Light and Maui Electric, with the new total “up to” amounts of $430 million for Hawaiian Electric and
$110 million each for Hawaii Electric Light and Maui Electric, and to extend the period authorized by the PUC to issue
and sell common stock from December 31, 2021 to December 31, 2022. In December 2019, Hawaiian Electric sold
$35.5 million of its common stock to HEI and Maui Electric sold $4.9 million of its common stock to Hawaiian
Electric. Hawaii Electric Light did not issue common stock in 2019. See summary table below.
(in millions)
Total “up to” amounts of common stock authorized to issue and sell through 2021
Supplemental increase authorized
Total “up to” amounts of common stock authorized to issue and sell through 2022
Common stock authorized and issued in 2017, 2018 and 2019
Remaining authorized amounts
Hawaiian
Electric
Hawaii Electric
Light
Maui Electric
$
$
150.0 $
10.0 $
280.0
430.0
120.2
309.8 $
100.0
110.0
—
110.0 $
10.0
100.0
110.0
11.2
98.8
Cash flows.
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
2019 Cash Flows Compared to 2018:
Years ended December 31
$
2019
$
423,956
(408,524)
(9,415)
2018
393,613
(405,182)
34,929
Change
$
30,343
(3,342)
(44,344)
Net cash provided by operating activities: The increase in net cash provided by operating activities was primarily
driven by higher cash receipts from customers due to higher electric rates.
Net cash used in investing activities: The increase in net cash used in investing activities was primarily driven by an
increase in capital expenditures related to construction activities.
Net cash provided by financing activities: The decrease in net cash provided by financing activities was primarily
driven by lower proceeds from common stock issuance.
For a discussion of 2017 operating, investing and financing activities, please refer to the “Liquidity and capital resources”
section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—Electric utility,” in
the Company’s 2018 Form 10-K.
Forecast capital expenditures. For the three-year period 2020 through 2022, the Utilities forecast up to $1.3 billion of net
capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental
regulations, unforeseen delays in permitting and timing of PUC decisions. Proceeds from the issuance of equity and long-term
debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents
are expected to provide the funds needed for the net capital expenditures, to pay down commercial paper or other short-term
borrowings, as well as to fund any unanticipated expenditures not included in the 2020 to 2022 forecast (such as increases in
the costs or acceleration of capital projects, or unanticipated capital expenditures that may be required by new environmental
laws and regulations).
49
Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates
may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of
kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and
ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for
fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the
effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting
authorities.
Selected contractual obligations and commitments. The following table presents aggregated information about total
payments due from the Utilities during the indicated periods under the specified contractual obligations and commitments:
December 31, 2019
(in millions)
Short-term borrowings
Long-term debt
Interest on long-term debt
Operating leases
PPAs classified as leases
Other leases
Open purchase order obligations 1
Fuel oil purchase obligations (estimate based on fuel oil price at
December 31)
Purchase power obligations-minimum fixed capacity charges not
classified as leases
Total (estimated)
$
$
Payments due by period
3-5
years
More than
5 years
Less than 1
year
1-3
years
$
— $
100
111
— $
1,257
691
—
3
1
—
—
2
—
—
Total
89
1,505
984
168
20
74
22
89
96
61
63
7
54
7
— $
52
121
105
8
19
15
76
398
51
428
$
76
291
$
241
2,191
$
444
3,308
$
1 Includes contractual obligations and commitments for capital expenditures and expense amounts.
The table above does not include other categories of obligations and commitments, such as deferred taxes, trade payables,
amounts that will become payable in future periods under collective bargaining and other employment agreements and
employee benefit plans and potential refunds of amounts collected from ratepayers (e.g., under the earnings sharing
mechanism). As of December 31, 2019, the fair value of the assets held in trusts to satisfy the obligations of the Utilities’
retirement benefit plans did not exceed the retirement benefit plans’ benefit obligation. Minimum funding requirements for
retirement benefit plans have not been included in the table above. See Note 10 of the Consolidated Financial Statements for
retirement benefit plan obligations and estimated contributions for 2020. There were no material uncertain tax positions as of
December 31, 2019.
See “Biofuel sources” in the “Developments in renewable energy efforts” section above for additional information for
fuel oil purchase obligation. See Notes 3 and 8 of the Consolidated Financial Statements for a discussion of power purchase
commitments and operating leases obligations, respectively.
Competition. Although competition in the generation sector in Hawaii is moderated by the scarcity of generation sites, various
permitting processes and lack of interconnections to other electric utilities, the PUC has promoted a more competitive electric
industry environment through its decisions concerning competitive bidding and distributed generation (DG). An increasing
amount of generation is provided by IPPs and customer distributed generation.
Competitive bidding. In December 2006, the PUC issued a decision that included a final competitive bidding framework,
which became effective immediately. The final framework states, among other things, that: (1) a utility is required to use
competitive bidding to acquire a future generation resource or a block of generation resources unless the PUC finds bidding to
be unsuitable; (2) the framework does not apply in certain situations identified in the framework; (3) waivers from competitive
bidding for certain circumstances will be considered; (4) the utility is required to select an independent observer from a list
approved by the PUC whenever the utility or its affiliate seeks to advance a project proposal (i.e., in competition with those
offered by bidders); (5) the utility may consider its own self-bid proposals in response to generation needs identified in its RFP;
and (6) for any resource to which competitive bidding does not apply (due to waiver or exemption), the utility retains its
traditional obligation to offer to purchase capacity and energy from a Qualifying Facility (QF) at avoided cost upon reasonable
terms and conditions approved by the PUC.
Technological developments. New emerging and breakthrough technological developments (e.g., the commercial
development of energy storage, grid support utility interactive inverters, fuel cells, distributed generation, grid modernization,
50
electrification of transportation, implement predictive analytics using artificial intelligence machine learning algorithms to help
assess the state of health of utility assets and prevent premature failure, and the diversification of generation from renewable
sources) may impact the Utilities’ future competitive position, results of operations, financial condition and liquidity. The
Utilities continue to seek prudent opportunities to develop and implement advanced technologies that align with its technical
and business plans and will support a more reliable, flexible and resilient utility grid.
Environmental matters. See “Electric utility—Regulation—Environmental regulation” under “Item 1. Business” and
“Environmental regulation” in Note 3 of the Consolidated Financial Statements.
Commitments and contingencies. See Item 1A. Risk Factors, and Note 3 of the Consolidated Financial Statements for a
discussion of important commitments and contingencies.
Off-balance sheet arrangements. See “Off-balance sheet arrangements” above in HEI Consolidated section.
Material estimates and critical accounting policies. Also see “Material estimates and critical accounting policies” above in
HEI Consolidated section.
Regulatory assets and liabilities. The Utilities are regulated by the PUC. In accordance with accounting standards for
regulatory operations, the Company’s and the Utilities’ financial statements reflect assets, liabilities, revenues and costs of the
Utilities based on current cost-based rate-making regulations. The actions of regulators can affect the timing of recognition of
revenues, expenses, assets and liabilities.
Regulatory liabilities represent amounts collected from customers for costs that are expected to be incurred in the future, or
amounts collected in excess of costs incurred that are refundable to customers. Regulatory assets represent incurred costs that
have been deferred because their recovery in future customer rates is probable. As of December 31, 2019, the consolidated
regulatory liabilities and regulatory assets of the Utilities amounted to $972 million and $715 million, respectively, compared to
$950 million and $833 million as of December 31, 2018, respectively. Regulatory liabilities and regulatory assets are itemized
in Note 3 of the Consolidated Financial Statements. Management continually assesses whether the regulatory assets are
probable of future recovery by considering factors such as changes in the applicable regulatory environment. Because current
rates include the recovery of regulatory assets existing as of the last rate case and rates in effect allow the Utilities to earn a
reasonable rate of return, management believes that the recovery of the regulatory assets as of December 31, 2019 is probable.
This determination assumes continuation of the current political and regulatory climate in Hawaii and is subject to change in the
future.
Management believes that the operations of the Utilities currently satisfy the criteria for regulatory accounting. If events or
circumstances should change so that those criteria are no longer satisfied, the Utilities expect that their regulatory assets, net of
regulatory liabilities, would be charged to the statement of income in the period of discontinuance, which may result in a
material adverse effect on the Company’s and the Utilities’ results of operations, financial condition and liquidity.
Revenues. Electric utility revenues are based on rates authorized by the PUC and include revenues applicable to estimated
energy consumed in the accounting period, but not yet billed to customers (Unbilled revenues), and RBA revenues or refunds
for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kWh
sales. Unbilled revenues represent an estimate of energy consumed by customers subsequent to the date of the last meter
reading to the end of the current reporting period. As of December 31, 2019, Unbilled revenues amounted to $117 million and
the RBA refunds recognized in 2019 amounted to $11 million.
The rate schedules of the Utilities include ECRCs (changed from ECACs in 2019) under which electric rates are adjusted
for changes in the weighted-average price paid for fuel oil and certain components of purchased power, and the relative
amounts of company-generated power and purchased power. The rate schedules of the Utilities also include PPACs under
which electric rates are more closely aligned with purchase power costs incurred. If the ECRCs, PPACs or RBAs were lost or
adversely modified, it could result in a material adverse effect on the Company’s and the Utilities’ results of operations,
financial condition and liquidity.
Asset retirement obligations. The Utilities recognize asset retirement obligations (AROs), which represent the present value
of expected costs to retire long-lived assets from service, provided a legal obligation exists and a reasonable estimate of the fair
value and the settlement date can be made. The Utilities’ recognition of AROs have no impact on earnings, as the cost of the
AROs are recovered over the life of the asset through depreciation. AROs recognized by the Utilities relate to legal obligations
with the retirement of plant and equipment, including removal of asbestos and other hazardous materials.
The Utilities estimate the ARO using a discounted cash flow model that relies on significant estimates and assumptions
about future decommissioning costs, inflationary rates, and the estimated date of decommissioning. The estimated future cash
flows are discounted using a credit-adjusted risk-free rate to reflect the risk associated with decommissioning the assets. The
51
Utilities have not recorded AROs for assets that are expected to operate indefinitely or where the Utilities cannot estimate a
settlement date (or range of potential settlement dates.) As such, ARO liabilities are not recorded for certain asset retirement
activities, including various Utility-owned generating facilities and certain electric transmission, distribution and
telecommunication assets resulting from easements over property not owned by the Utilities.
Changes in estimated costs, timing of decommissioning or other assumptions used in the calculation could cause material
revision on the recorded liabilities. As of December 31, 2019 and December 31, 2018, the Utilities’ AROs totaled $10 million
and $8 million, respectively.
52
Bank
Executive overview and strategy. ASB, headquartered in Honolulu, Hawaii, is a full-service community bank serving both
consumer and commercial customers. ASB is one of the largest financial institutions in Hawaii and ended 2019 with assets of $7.2
billion and net income of $89 million, compared to assets of $7.0 billion and net income of $83 million in 2018.
ASB provides a wide range of financial products and services, and in order to remain competitive and continue building core
franchise value, ASB is focused on making banking easier for the customer and developing and introducing new products and
services in order to meet market needs. Additionally, the banking industry is constantly changing and ASB is making the
investments in people and technology necessary to adapt and remain competitive, facilitate process improvements in order to
deliver a continuously better experience for its customers, and be a more efficient bank. ASB’s continued focus has been on
efficient growth to maximize profitability and capital efficiency, as well as control expenses. Key strategies to drive organic
growth include:
1.
2.
3.
4.
deepening customer relationships;
building out product and service offerings to open new segments;
fully deploying online and remotely-assisted account opening capabilities; and
prioritizing efficiency actions to gain earnings leverage on organic growth.
The interest rate environment and the quality of ASB’s assets will continue to influence its financial results. A lowering of
interest rates across the yield curve as a result of the Federal Reserve Board’s decreases in short-term interest rates have made it
challenging to maintain ASB’s net interest margin. The potential for compression of ASB’s margin if interest rates continue to
decrease is a risk that is actively managed.
As part of its interest rate risk management process, ASB uses simulation analysis to measure net interest income sensitivity
to changes in interest rates (see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk”). ASB then employs
strategies to limit the impact of changes in interest rates on net interest income. ASB’s key strategies to manage interest rate risk
include:
1.
2.
3.
attracting and retaining low-cost deposits, particularly those in non-interest bearing transaction accounts;
diversifying the loan portfolio with higher-spread, shorter-maturity loans and/or variable rate loans;
focusing investment growth in securities that exhibit less extension risk (i.e., risk of longer average lives) as rates rise.
Results of operations.
•
2019 vs. 2018
(in millions)
Interest income
2019
2018
$
266
$
258
Increase
(decrease)
8
$
Primary reason(s)
Higher interest income was due to higher average loan portfolio
balances and yields, partly offset by a decrease in balances and yields in
the investment securities portfolio. ASB’s average loan portfolio balance
for 2019 was $231 million higher than 2018’s average loan portfolio
balance primarily due to increases in the average HELOC, residential,
commercial and consumer loan portfolio balances of $99 million, $59
million, $40 million and $30 million, respectively. The growth in these
loan portfolios was consistent with ASB’s portfolio mix targets and loan
growth strategy. The 2019 loan portfolio yield increased 5 basis points
compared to the prior year loan portfolio yield due to the repricing of
adjustable rate loans in the latter part of 2018 and early 2019. The
average investment securities portfolio balance decreased by $86
million and the portfolio yield decreased 14 basis points. The decrease
in the portfolio balance was due to ASB’s decision to use investment
portfolio repayments to fund the growth in the loan portfolio rather than
redeploy it into investment securities. The decrease in the investment
yields was due to an increase in the amortization of premiums in the
investment portfolio.
53
(in millions)
Noninterest income
2019
2018
73
56
Increase
(decrease)
17
Revenues
Interest expense
339
18
314
15
Provision for loan losses
24
15
Noninterest expense
185
177
Expenses
Operating income
227
112
207
107
Net income
89
83
25
3
9
8
20
5
6
Primary reason(s)
Noninterest income was higher in 2019 compared to 2018 primarily due
to a gain on sale of real estate, an increase in mortgage banking income
and higher bank-owned life insurance payouts. ASB sold two office
facilities that were no longer needed when ASB moved into its new
campus headquarters, which resulted in a gain on sale of real estate of
$10.8 million. There were no such sales in 2018. The increase in
mortgage banking income was due to an increase in loan sales into the
secondary market as a result of higher residential mortgage loan
production in 2019 compared to 2018. The higher bank-owned life
insurance income was due to higher proceeds from life insurance
policies received in 2019 compared to the previous year.
The increase in revenues was due to higher interest and noninterest
income.
Higher interest expense was primarily due to an increase in term
certificate balances and increased deposit rates. Average deposit
balances for 2019 increased by $155 million compared to 2018 due to
an increase in core deposits and time certificates of $134 million and
$21 million, respectively. Average cost of deposits for 2019 was 27 basis
points, or 4 basis points above the average cost of deposits for 2018.
The other borrowings average balance decreased by $28 million
primarily due to a decrease in repurchase agreements. Average cost of
other borrowings for 2019 was 1.42%, or 32 basis points above the
average cost of borrowings for 2018.
The provision for loan losses for 2019 increased by $8.7 million
compared to the provision for loan losses in 2018. The provision for
loan losses in 2019 was primarily for additional loss reserves for the
consumer and credit scored loan portfolios to cover net charge-offs, and
reserves for an impaired commercial credit, partly offset by the release
of reserves resulting from recoveries of previously charged-off loans.
The provision for loan losses for 2018 was primarily for additional loss
reserves for the consumer loan portfolio as a result of growth and
increased net charge-offs, partly offset by the release of reserves for the
commercial, commercial real estate and HELOC loan portfolios as a
result of improved credit trends.
Higher noninterest expense was primarily due to higher compensation
and employee benefit costs, and increases in occupancy and equipment
expenses. The increase in compensation and employee benefits was due
to an increase in the minimum pay rate for employees, annual merit
increases and higher employee benefit costs. Occupancy and equipment
expenses for 2019 included occupancy, depreciation and equipment
expenses for the new campus while still including the costs of properties
being vacated.
The increase in expenses was primarily due to higher provision for loan
losses, and increases in interest and noninterest expenses.
Higher interest and noninterest income was partly offset by higher
provision for loan losses, higher interest expense and higher noninterest
expenses.
The increase in net income was the result of higher operating income
and lower income tax expense.
Return on average
equity 1
13.5%
13.5%
—%
1 Calculated using the average daily balance
For a discussion of 2017 results, please refer to the “Results of operations” section in Item 7, “Management Discussion and
Analysis of Financial Condition and Results of Operations—Bank,” in the Company’s 2018 Form 10-K.
See Note 4 of the Consolidated Financial Statements for a discussion of guarantees and further information about ASB.
54
Average balance sheet and net interest margin. The following table provides a summary of average balances, including
major categories of interest-earning assets and interest-bearing liabilities:
(dollars in thousands)
Assets:
2019
Interest
income/
expense
Average
balance
Yield/
rate
(%)
Average
balance
2018
Interest
income/
expense
Yield/
rate
(%)
Average
balance
2017
Interest
income/
expense
Yield/
rate
(%)
Interest-earning deposits
$
16,618
$
9,716
320
350
1,406,564
27,512
31,178
1,360
1.92
3.60
2.22
4.94
$
50,658
$
9,726
940
351
1,503,036
35,862
17,485
771
1.86
3.60
2.39
4.41
$
79,927
$
10,770
898
208
1,265,240
27,291
15,427
655
1.12
1.93
2.16
4.24
FHLB stock
Investment securities
Taxable
Non-taxable
Total investment securities
1,434,076
32,538
2.27
1,520,521
36,633
2.41
1,280,667
27,946
2.18
Loans
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial
Consumer
Total loans 1,2
Total interest-earning assets 3
Allowance for loan losses
Noninterest-earning assets
Total Assets
Liabilities and Shareholder’s Equity:
Savings
Interest-bearing checking
Money market
Time certificates
2,181,554
863,468
1,043,479
14,065
620,206
270,340
89,956
40,324
38,826
774
27,950
35,864
4,993,112
233,694
6,453,522
266,902
(54,640)
696,270
$7,095,152
$2,340,671
1,044,315
145,939
810,749
1,904
1,298
953
12,675
16,830
843
767
4.12
4.67
3.72
5.50
4.51
13.27
4.68
4.14
0.08
0.12
0.65
1.56
0.39
2.50
0.96
0.41
2,122,895
860,155
944,065
14,935
579,765
240,414
86,936
39,579
34,634
823
26,689
31,802
4,762,229
220,463
6,343,134
258,387
(53,593)
606,304
$ 6,895,845
$ 2,334,681
1,639
1,006,839
140,225
789,926
4,271,671
41,855
99,162
706
602
11,044
13,991
845
703
4,412,688
15,539
4.10
4.60
3.67
5.51
4.60
13.23
4.63
4.07
0.07
0.07
0.43
1.40
0.33
2.02
0.71
0.35
2,077,705
887,890
889,360
16,837
631,170
205,334
86,934
37,806
30,001
1,011
27,405
24,098
4,708,296
207,255
6,079,660
236,307
4.18
4.26
3.37
6.00
4.34
11.74
4.40
3.89
(55,629)
546,523
$ 6,570,554
$ 2,278,396
1,567
902,678
142,068
696,799
4,019,941
238
168
7,687
9,660
0.07
0.03
0.12
1.10
0.24
79,374
2,245
2.83
97,535
251
4,196,850
12,156
0.26
0.29
Total interest-bearing deposits
4,341,674
Advances from Federal Home Loan
Bank
Securities sold under agreements to
repurchase
33,652
79,647
Total interest-bearing liabilities
4,454,973
18,440
Noninterest bearing liabilities:
Deposits
Other
Shareholder’s equity
Total Liabilities and Shareholder’s
Equity
Net interest income
Net interest margin (%)4
1,848,336
131,691
660,152
$7,095,152
1,763,331
108,976
610,850
$ 6,895,845
1,672,780
102,789
598,135
$ 6,570,554
$ 248,462
$242,848
$224,151
3.85
3.83
3.69
1
2
3
4
Includes loans held for sale, at lower of cost or fair value, of $6.3 million, $2.3 million and $7.4 million as of December 31, 2019, 2018 and
2017, respectively.
Includes recognition of net deferred loan fees of $0.2 million, $0.1 million and $1.7 million for 2019, 2018 and 2017 respectively, together
with interest accrued prior to suspension of interest accrual on nonaccrual loans.
For 2019, 2018 and 2017, the taxable-equivalent basis adjustments made to the table above were not material.
Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.
55
The following table shows the effect on net interest income of (1) changes in interest rates (change in weighted-average
interest rate multiplied by prior year average balance) and (2) changes in volume (change in average balance multiplied by prior
period weighted-average interest rate). Any remaining change is allocated to the above two categories on a pro rata basis.
(in thousands)
Interest income
Interest-earning deposits
FHLB stock
Investment securities
Taxable
Non-taxable
Total investment securities
Loans
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial
Consumer
Total loans
Total increase (decrease) in interest income
Interest expense
Savings
Interest-bearing checking
Money market
Time certificates
Advances from Federal Home Loan Bank
Securities sold under agreements to repurchase
Total decrease (increase) in interest expense
Increase (decrease) in net interest income
$
2019 vs. 2018
Volume
Rate
Total
Rate
2018 vs. 2017
Volume
Total
$
$
31
—
(651) $
(1)
(620) $
(1)
$
455
165
(413) $
(22)
(2,462)
102
(2,360)
454
595
481
(1)
(539)
96
1,086
(1,243)
(261)
(563)
(325)
(1,325)
(181)
(219)
(2,874)
(4,117) $
(2,222)
487
(1,735)
2,566
150
3,711
(48)
1,800
3,966
12,145
9,758
(4)
(29)
(26)
(306)
183
155
(27)
9,731
$
(4,684)
589
(4,095)
3,020
745
4,192
(49)
1,261
4,062
13,231
8,515
(265)
(592)
(351)
(1,631)
2
(64)
(2,901)
5,614
$
3,100
27
3,127
(1,768)
2,972
2,740
(79)
1,587
3,284
8,736
12,483
—
(431)
(436)
(2,253)
528
(448)
(3,040)
9,443
$
5,471
89
5,560
1,770
(1,199)
1,893
(109)
(2,303)
4,420
4,472
9,597
(72)
(37)
2
(1,104)
872
(4)
(343)
9,254
$
42
143
8,571
116
8,687
2
1,773
4,633
(188)
(716)
7,704
13,208
22,080
(72)
(468)
(434)
(3,357)
1,400
(452)
(3,383)
18,697
Earning assets, costing liabilities, contingencies and other factors. Earnings of ASB depend primarily on net interest
income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate
environment has been impacted by disruptions in the financial markets over a period of several years.
Loan originations and mortgage-backed securities are ASB’s primary earning assets.
56
Loan portfolio. ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing,
availability of funds and management’s responses to these factors. The following table sets forth the composition of ASB’s loans
held for investment:
December 31
2019
2018
2017
2016
2015
(dollars in thousands)
Real estate: 1
Residential 1-4
family
Commercial real
estate
Home equity line of
credit
Residential land
Commercial
construction
Residential
construction
Total real estate
Commercial
Consumer
Total loans
Balance
% of
total
Balance
% of
total
Balance
% of
total
Balance
% of
total
Balance
% of
total
$ 2,178,135
42.6
$
2,143,397
44.3
$
2,118,047
45.3
$
2,048,051
43.2
$
2,069,665
44.8
824,830
16.1
748,398
15.4
733,106
15.7
800,395
16.9
690,561
14.9
1,092,125
14,704
21.3
0.3
978,237
13,138
20.2
0.3
913,052
15,797
19.6
0.3
863,163
18,889
18.2
0.4
846,294
18,229
18.3
0.4
70,605
1.4
92,264
1.9
108,273
2.3
126,768
2.7
100,796
2.2
11,670
4,192,069
670,674
257,921
0.2
81.9
13.1
5.0
14,307
3,989,741
587,891
266,002
0.3
82.4
12.1
5.5
14,910
3,903,185
544,828
223,564
0.3
83.5
11.7
4.8
16,080
3,873,346
692,051
178,222
0.3
81.7
14.6
3.7
14,089
3,739,634
758,659
123,775
0.3
80.9
16.4
2.7
5,120,664
100.0
4,843,634
100.0
4,671,577
100.0
4,743,619
100.0
4,622,068
100.0
Less: Deferred fees and
discounts
Allowance for
loan losses
512
(53,355)
(613)
(52,119)
(809)
(53,637)
(4,926)
(55,533)
(6,249)
(50,038)
Total loans, net
$ 5,067,821
$
4,790,902
$
4,617,131
$
4,683,160
$
4,565,781
1
Includes renegotiated loans.
The increase in the loans balance in 2019 was primarily due to growth in the HELOC, commercial, commercial real estate
and residential 1-4 family loan portfolios, which were the portfolios targeted as ASB continued its loan growth strategy of
diversifying the loan portfolio with higher-spread, shorter-maturity loans and/or variable rate loans.
The increase in the loans balance in 2018 was primarily due to growth in the HELOC, consumer, commercial and residential
1-4 family loan portfolios, which were portfolios targeted in ASB’s loan growth strategy.
The decrease in the loans balance in 2017 was primarily due to decreases in the commercial, commercial real estate, and
commercial construction loan portfolios, partly offset by growth in the residential 1-4 family, HELOC, and consumer loan
portfolios. The decrease in the commercial loan portfolio was primarily due to the strategic reductions in the portfolio, including a
$75 million reduction in ASB’s nationally syndicated loan portfolio. The decrease in the commercial real estate loan portfolio was
primarily due to paydown of a large commercial real estate credit. The growth in the residential 1-4 family, HELOC and
consumer loan portfolios were consistent with ASB’s loan growth strategy.
The increase in the loans balance in 2016 was primarily due to growth in the commercial real estate, consumer, commercial
construction and HELOC loan portfolios as a result of demand for these loan types, partly offset by a decrease in the commercial
and residential 1-4 family loan portfolios. The growth in the commercial real estate, consumer, commercial construction and
HELOC loan portfolios was consistent with ASB’s loan growth strategy. The decrease in the commercial loan portfolio was due to
the strategic reduction of ASB’s nationally syndicated loan portfolio by $93 million. The decrease in the residential loan portfolio
was due to ASB’s decision to sell a portion of its loan production with low interest rates to control its interest rate risk.
The increase in the loans balance in 2015 was primarily due to growth in commercial real estate, HELOC and residential 1-4
family loan portfolios, partly offset by a decrease in the commercial loan portfolio. The growth in the commercial real estate,
HELOC and residential loan portfolios was driven by demand for this loan type and was consistent with ASB’s loan growth
strategy.
57
The following table summarizes loans held for investment based upon contractually scheduled principal payments allocated
to the indicated maturity categories:
December 31
Due
(in millions)
Commercial – Fixed
Commercial – Adjustable
Total commercial
Commercial construction – Fixed
Commercial construction – Adjustable
Total commercial construction
Residential construction – Fixed
Residential construction – Adjustable
Total residential construction
Total loans – Fixed
Total loans – Adjustable
Total loans
2019
In
1 year
or less
After 1 year
through
5 years
After
5 years
Total
$
73
$
163
236
—
26
26
12
—
12
85
189
274
$
$
135
247
382
—
27
27
—
—
—
135
274
409
$
$
37
16
53
—
18
18
—
—
—
37
34
71
$
$
245
426
671
—
71
71
12
—
12
257
497
754
Home equity — key credit statistics. Attention has been given by regulators and rating agencies to the potential for
increased exposure to credit losses associated with HELOCs that were originated during the period of rapid home price
appreciation between 2003 and 2007 as they have reached the end of their 10-year, interest-only payment periods. Once the
interest only payment period has ended, payments are reset to include principal repayments along with interest. ASB does not
have a large exposure to HELOCs originated between 2003 and 2007. Nearly all of ASB’s HELOC originations prior to 2008
consisted of amortizing equity lines that have structured principal payments during the draw period. These older equity lines
represent 1% of the HELOC portfolio and are included in the amortizing balances identified in the loan portfolio table below.
December 31
Outstanding balance of home equity loans (in thousands)
Percent of portfolio in first lien position
Net charge-off ratio
Delinquency ratio
2019
2018
$
1,092,125
$
978,237
53.7%
0.01%
0.27%
49.2%
0.01%
0.46%
December 31, 2019
Outstanding balance (in thousands)
% of total
Total
Interest only
2019-2020
2021-2023
Thereafter
amortizing
$ 1,092,125
$
814,174
$
42,694
$
118,153
$
653,327
$
277,951
100%
75%
4%
11%
60%
25%
End of draw period – interest only
Current
The HELOC portfolio makes up 21% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year
period, after which time the HELOC outstanding balance converts to a fully amortizing variable-rate term loan with a 20-year
amortization period. This product type comprises 76% of the total HELOC portfolio and is the current product offering.
Borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully
amortizing fixed-rate loan with level principal and interest payments. As of December 31, 2019, approximately 23% of the
portfolio balances were amortizing loans under the Fixed Rate Loan Option.
Loan portfolio risk elements. When a borrower fails to make a required payment on a loan and does not cure the
delinquency promptly, the loan is classified as delinquent. If delinquencies are not cured promptly, ASB normally commences a
collection action, including foreclosure proceedings in the case of real estate secured loans. In a foreclosure action, the property
collateralizing the delinquent debt is sold at a public auction in which ASB may participate as a bidder to protect its interest. If
ASB is the successful bidder, the property is classified as real estate owned until it is sold. As of December 31, 2019 and 2018,
ASB had nil and $0.1 million, respectively, of real estate acquired in settlement of loans.
In addition to delinquent loans, other significant lending risk elements include: (1) loans which accrue interest and are 90
days or more past due as to principal or interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and (3) loans on
which various concessions are made with respect to interest rate, maturity, or other terms due to the inability of the borrower to
service the obligation under the original terms of the agreement (troubled debt restructured loans). ASB loans that were 90 days or
58
more past due on which interest was being accrued as of December 31, 2019, 2018, 2017, 2016 and 2015 were immaterial or nil.
The following table sets forth certain information with respect to nonaccrual and troubled debt restructured (TDR) loans:
December 31
(dollars in thousands)
Nonaccrual loans—
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total nonaccrual loans
Troubled debt restructured loans not included above—
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total troubled debt restructured loans
2019
2018
2017
2016
2015
$
$
$
$
11,395
195
6,638
448
18,676
5,947
5,113
29,736
9,869
853
10,376
2,644
—
—
23,742
2,614
57
26,413
$ 12,037
—
6,348
436
—
—
18,821
4,278
4,196
$ 27,295
$ 10,194
915
11,597
1,622
—
—
24,328
1,527
62
$ 25,917
$
$
$
$
12,598
—
4,466
841
—
—
17,905
3,069
2,617
23,591
10,982
1,016
6,584
425
—
—
19,007
1,741
66
20,814
$ 11,154
223
3,080
878
—
—
15,335
6,708
1,282
$ 23,325
$ 14,450
1,346
4,934
2,751
—
—
23,481
14,146
10
$ 37,637
$
$
$
$
20,554
1,188
2,254
970
—
—
24,966
20,174
895
46,035
13,962
—
2,467
4,713
—
—
21,142
1,104
—
22,246
In 2019, nonaccrual loans increased $2.4 million primarily due to increases in commercial and consumer nonaccrual loans of
$1.7 million and $0.9 million, respectively. ASB evaluates a restructured loan transaction to determine if the borrower is in
financial difficulty and if the restructured terms are considered concessions—typically terms that are out of market, beyond
normal or reasonable standards, or otherwise not available to a non-troubled borrower in the normal marketplace. A loan
classified as TDR must meet both criteria of financial difficulty and concession. Accruing TDR loans increased by $0.5 million
primarily due to increases of $1.1 million and $1.0 million of commercial and residential land loans, respectively, classified as
TDR, partially offset by a $1.2 million decrease in HELOC loans classified as TDR.
In 2018, nonaccrual loans increased $3.7 million primarily due to increases in HELOC, consumer, and commercial
nonaccrual loans of $1.9 million, $1.6 million and $1.2 million, respectively. Accruing TDR loans increased by $5.1 million
primarily due to a $5.0 million increase in HELOC loans classified as TDR.
In 2017, nonaccrual loans increased slightly by $0.3 million primarily due to higher nonaccrual residential 1-4 family,
HELOC and consumer loans of $1.4 million, $1.4 million and $1.3 million, respectively. Nonaccrual commercial loans decreased
by $3.6 million. Accruing TDR loans decreased by $16.8 million in 2017 primarily due to decreases of $12.4 million, $3.5
million, and $2.3 million of commercial, residential 1-4 family, and residential land loans, respectively, classified as TDRs.
In 2016, nonaccrual loans decreased $22.7 million primarily due to upgrades of specific commercial and commercial real
estate loans, payoff of a troubled commercial loan and a segment of residential mortgages transferred to held-for-sale. Nonaccrual
commercial and residential loans decreased by $13.5 million and $9.4 million, respectively. Accruing TDR loans increased $15.4
million in 2016 primarily due to increases of $13.0 million and $2.5 million of commercial and HELOC loans, respectively,
classified as TDR. The increase in commercial loans classified as TDR was primarily due to two commercial credits being
classified as TDR.
59
Impact of nonperforming loans on interest income. The following table presents the gross interest income for both
nonaccrual and restructured loans that would have been recognized if such loans had been current in accordance with their
original contractual terms, and had been outstanding throughout the period or since origination if held for only part of the period.
The table also presents the interest income related to these loans that was actually recognized for the period.
(dollars in millions)
Gross amount of interest income that would have been recorded if the loans had been current in accordance with
original contractual terms, and had been outstanding throughout the period or since origination, if held for only part
of the period 1
Interest income actually recognized
Total interest income foregone
Year ended
December 31, 2019
$
$
3
2
1
1 Based on the contractual rate that was being charged at the time the loan was restructured or placed on nonaccrual status.
See “Allowance for loan losses” in Note 4 of the Consolidated Financial Statements for information with respect to
nonperforming assets.
Allowance for loan losses. See “Allowance for loan losses” in Note 4 of the Consolidated Financial Statements for the
tables which sets forth the allocation of ASB’s allowance for loan losses. Using an effective date of January 1, 2020, ASB will
adopt ASU 2016-13, Financial Instruments - Measurement of Current Expected Credit Losses on Financial Instruments, which
will modify the accounting for the allowance for loan losses from an incurred loss model to an expected loss model (see Note 1,
“Summary of Significant Accounting Policies” of the Consolidated Financial Statements).
The following table presents the changes in the allowance for loan losses:
$
2019
52,119
23,480
$
2018
53,637
14,745
$
2017
55,533
10,901
$
2016
50,038
16,763
$
2015
45,618
6,275
(dollars in thousands)
Allowance for loan losses, January 1
Provision for loan losses
Charge-offs
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total charge-offs
Recoveries
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total recoveries
Net charge-offs
Allowance for loan losses, December 31
Ratio of allowance for loan losses to loans held for
investment
Ratio of provision for loan losses during the year to
average total loans
Ratio of net charge-offs during the year to average total
loans
$
128
—
353
18
—
—
499
2,722
17,296
20,517
74
—
257
179
—
—
510
2,136
1,608
4,254
16,263
52,119
$
826
—
14
210
—
—
1,050
4,006
11,757
16,813
157
—
308
482
—
—
947
1,852
1,217
4,016
12,797
53,637
$
639
—
112
138
—
—
889
5,943
7,413
14,245
421
—
59
461
—
—
941
1,093
943
2,977
11,268
55,533
$
356
—
205
—
—
—
561
1,074
4,791
6,426
226
—
80
507
—
—
813
2,773
985
4,571
1,855
50,038
1.08%
0.31%
0.34%
1.15%
0.23%
0.27%
1.17%
0.36%
0.24%
1.08%
0.14%
0.04%
26
—
144
4
—
—
174
6,811
21,677
28,662
854
—
17
229
—
—
1,100
2,351
2,967
6,418
22,244
53,355
1.04%
0.47%
0.45%
60
$
The following table sets forth the allocation of ASB’s allowance for loan losses and the percentage of loans in each category
to total loans:
December 31
Allow-
ance
balance
$ 2,380
15,053
6,922
449
2,097
3
26,904
10,245
16,206
$ 53,355
(dollars in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total allowance for loan
losses
December 31
(dollars in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total allowance for loan losses
2019
Allowance
to loan
receivable
%
Loan
receivable
% of
total
Allow-
ance
balance
2018
Allowance
to loan
receivable
%
Loan
receivable
% of
total
Allow-
ance
balance
2017
Allowance
to loan
receivable
%
Loan
receivable
% of
total
0.11
1.82
0.63
3.05
2.97
0.03
0.64
1.53
6.28
1.04
42.6
16.1
21.3
0.3
1.4
0.2
81.9
13.1
5.0
$ 1,976
14,505
6,371
479
2,790
4
26,125
9,225
16,769
100.0
$ 52,119
0.09
1.94
0.65
3.65
3.02
0.03
0.65
1.57
6.30
1.08
44.3
15.4
20.2
0.3
1.9
0.3
82.4
12.1
5.5
$ 2,902
15,796
7,522
896
4,671
12
31,799
10,851
10,987
100.0
$ 53,637
0.14
2.15
0.82
5.67
4.31
0.08
0.81
1.99
4.91
1.15
45.3
15.7
19.6
0.3
2.3
0.3
83.5
11.7
4.8
100.0
2016
Allowance
to loan
receivable
%
Allowance
balance
Loan
receivable
% of
total
Allowance
balance
2015
Allowance
to loan
receivable
%
Loan
receivable
% of
total
$
$
2,873
16,004
5,039
1,738
6,449
12
32,115
16,618
6,800
55,533
0.14
2.00
0.58
9.20
5.09
0.07
0.83
2.40
3.82
1.17
43.2
16.9
18.2
0.4
2.7
0.3
81.7
14.6
3.7
100.0
$
$
4,186
11,342
7,260
1,671
4,461
13
28,933
17,208
3,897
50,038
0.20
1.64
0.86
9.17
4.43
0.09
0.77
2.27
3.15
1.08
44.8
14.9
18.3
0.4
2.2
0.3
80.9
16.4
2.7
100.0
In 2019, ASB’s allowance for loan losses increased by $1.2 million primarily due to an increase in loan loss reserves for the
commercial, commercial real estate and HELOC loan portfolios as a result of loan growth in those loan portfolios. Total
delinquencies of $19.8 million at December 31, 2019 was a decrease of $6.2 million compared to total delinquencies of $26.0
million at December 31, 2018 primarily due to decreases in delinquent residential 1-4 family and HELOC loans. The ratio of
delinquent loans to total loans decreased from 0.54% of total outstanding loans at December 31, 2018 to 0.39% of total
outstanding loans at December 31, 2019. Net charge-offs for 2019 were $22.2 million, an increase of $5.9 million compared to
$16.3 million at December 31, 2018 primarily due to an increase in consumer loan portfolio charge-offs as result of ASB’s
unsecured consumer loan portfolio product offering with risk-based pricing and net charge-offs for an impaired commercial
credit. ASB’s provision for loan losses was $23.5 million, an increase of $8.7 million compared to the provision for loan losses of
$14.7 million for 2018. The increase was due to additional reserves for the consumer and credit scored loan portfolios, and an
impaired commercial credit.
In 2018, ASB’s allowance for loan losses decreased by $1.5 million primarily due to lower loan loss reserves required for the
commercial, commercial construction, commercial real estate and HELOC loan portfolios as a result of improving credit trends,
partly offset by additional loan loss reserves for the consumer loan portfolio. Total delinquencies of $26.0 million at December
31, 2018 was an increase of $2.4 million compared to total delinquencies of $23.6 million at December 31, 2017 primarily due to
increases in delinquent consumer, HELOC and residential 1-4 family loans, partly offset by decreases in delinquent commercial
loans. The ratio of delinquent loans to total loans increased slightly from 0.51% of total outstanding loans at December 31, 2017
to 0.54% of total outstanding loans at December 31, 2018. Net charge-offs for 2018 were $16.3 million, an increase of $3.5
million compared to $12.8 million at December 31, 2017 primarily due to an increase in consumer loan portfolio charge-offs as a
result of ASB’s strategic expansion of its unsecured consumer loan portfolio product offering with risk-based pricing. ASB’s
61
provision for loan losses was $14.7 million, an increase of $3.8 million compared to the provision for loan losses of $10.9 million
for 2017. The increase was due to additional reserves for the consumer loan portfolio, partly offset by lower reserves required for
the commercial, commercial construction, commercial real estate and HELOC loan portfolios as result of improved credit quality
in those loan portfolios.
In 2017, ASB’s allowance for loan losses decreased by $1.9 million primarily due to lower loan loss reserves required for the
commercial, commercial construction, and commercial real estate loan portfolios as a result of a decrease in the portfolio balances
and improving credit trends, partly offset by additional loan loss reserves for the consumer and HELOC loan portfolios. Total
delinquencies of $23.6 million at December 31, 2017 was a slight increase of $0.5 million compared to total delinquencies of
$23.1 million at December 31, 2016 primarily due to increases in delinquent commercial and consumer loans, offset by decreases
in delinquent residential 1-4 family and commercial real estate loans. The ratio of delinquent loans to total loans increased slightly
from 0.49% of total loans outstanding at December 31, 2016 to 0.51% of total loans outstanding at December 31, 2017. Net
charge-offs for 2017 were $12.8 million, an increase of $1.5 million compared to $11.3 million for 2016 primarily due to an
increase in consumer loan portfolio charge-offs as a result of the strategic expansion of ASB’s unsecured consumer loan product
offering with risk-based pricing. ASB’s provision for loan losses was $10.9 million, a decrease of $5.9 million compared to the
provision for loan losses of $16.8 million for 2016. The decrease was primarily due to the release of reserves for commercial real
estate and commercial loan portfolios due to lower outstanding balances and improved credit quality, partly offset by an increase
in loss reserves for the consumer loan portfolio.
In 2016, ASB’s allowance for loan losses increased by $5.5 million primarily due to growth in the commercial real estate and
consumer loan portfolios and increases in reserves for the commercial real estate and unsecured consumer loan portfolios. Total
delinquencies of $23.1 million at December 31, 2016 was $3.0 million lower than total delinquencies of $26.1 million at
December 31, 2015 primarily due to the movement of $6 million of residential loans to held-for-sale. The ratio of delinquent
loans to total loans decreased from 0.57% of total loans outstanding at December 31, 2015 to 0.49% of total loans outstanding at
December 31, 2016. Net charge-offs for 2016 were $11.3 million, an increase of $9.4 million compared to $1.9 million for 2015
primarily due to charge-offs of specific commercial loans and an increase in consumer loan charge-offs as a result of the strategic
expansion of ASB’s unsecured consumer loan product offering with risk-based pricing. ASB’s provision for loan losses was $16.8
million for 2016, an increase of $10.5 million compared to the provision for loan losses of $6.3 million for 2015. The increase in
provision for loan losses was driven by growth in the commercial real estate and consumer loan portfolios as well as specific
reserves for a few commercial loans.
In 2015, ASB’s allowance for loan losses increased by $4.4 million primarily due to growth in the commercial real estate loan
portfolio ($159 million or 29.8% growth in outstanding balances) and increases in reserves for commercial loans. Overall loan
quality remained strong as total delinquencies of $26.1 million at December 31, 2015 was a slight increase of $0.6 million
compared to total delinquencies of $25.5 million at December 31, 2014 primarily due to an increase in delinquent consumer
loans. The ratio of delinquent loans to total loans decreased slightly from 0.58% of total loans outstanding at December 31, 2014
to 0.57% of total loans outstanding at December 31, 2015. Net charge-offs for 2015 were $1.9 million, an increase of $1.3 million
compared to $0.6 million for 2014 primarily due to an increase in consumer loan charge-offs as result of the strategic expansion
of ASB’s unsecured consumer loan product offering with risk-based pricing. ASB’s provision for loan losses was $6.3 million for
2015, an increase of $0.2 million compared to the provision for loan losses of $6.1 million for 2014.
Investment securities. ASB’s investment portfolio was comprised as follows:
December 31
2019
2018
2017
(dollars in thousands)
U.S. Treasury and federal agency obligations
Balance
% of total
Balance
% of total
Balance
% of total
$ 117,787
9% $
154,349
10% $ 184,298
13%
Mortgage-backed securities — issued or guaranteed by
U.S. Government agencies or sponsored agencies
Corporate bonds
Mortgage revenue bonds
Total investment securities
1,165,836
60,057
28,597
85
4
2
1,303,291
49,132
23,636
85
3
2
1,245,988
—
15,427
86
—
1
$ 1,372,277
100% $ 1,530,408
100% $ 1,445,713
100%
Currently, ASB’s investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities,
corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S.
government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan
Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration
(SBA). The weighted-average yield on investments during 2019, 2018 and 2017 was 2.27%, 2.41% and 2.18%, respectively. ASB
did not maintain a portfolio of securities held for trading during 2019, 2018 and 2017.
62
As of December 31, 2019, 2018 and 2017, ASB had $139.5 million, $141.9 million and $44.5 million, respectively, of
investment securities that were purchased and classified as held-to-maturity. The investment securities were classified as held-to-
maturity to enhance ASB’s capital management in a rising rate environment. ASB considers the held-to-maturity classification of
these investment securities to be appropriate as ASB has the positive intent and ability to hold these securities to maturity.
Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the
issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are
also backed by the full faith of the U.S. government. The increase in investment securities was due to the purchase of agency
mortgage-backed and credit securities, corporate bonds, and a mortgage revenue bond with excess liquidity.
The net unrealized losses on ASB’s investment securities were primarily caused by movements in interest rates. All
contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Based upon ASB’s evaluation at
December 31, 2019, 2018, and 2017 there was no indicated impairment as ASB expects to collect the contractual cash flows for
these investments. See “Investment securities” in Note 1 of the Consolidated Financial Statements for a discussion of securities
impairment assessment.
As of December 31, 2019, 2018, and 2017, ASB did not have any private-issue mortgage-backed securities. ASB does not
have any exposure to securities backed by subprime mortgages. See “Investment securities” in Note 4 of the Consolidated
Financial Statements for a discussion of other-than-temporarily impaired securities.
The following table summarizes the current amortized cost of ASB’s investment portfolio (excluding stock of the FHLB of
Des Moines, which has no contractual maturity) and weighted average yields as of December 31, 2019. Mortgage-backed
securities are shown separately because they are typically paid in monthly installments over a number of years.
(dollars in millions)
U.S. Treasury and federal agency obligations
Mortgage-backed securities — issued or guaranteed by
U.S. Government agencies or sponsored agencies
Corporate bonds
Mortgage revenue bonds2
Weighted average yield
After 1
year
through 5
years
After 5
years
through 10
years
$
41
$
29
In 1 year
or less
47
$
After
10 years
Mortgage-
backed
securities
35
24
$
13
60
2.26%
$
$
76
2.75%
$
53
2.44%
16
16
3.17%
Total1
117
$
1,164
59
29
$ 1,369
1,164
$ 1,164
2.44%
2.54%
1 As of December 31, 2019, no investment exceeded 10% of ASB’s shareholder’s equity.
2 Weighted average yield on the mortgage revenue bonds is computed on a tax equivalent basis using a federal statutory tax rate of 21%.
Stock in FHLB. As of December 31, 2019, 2018 and 2017, ASB’s stock in FHLB of Des Moines ($8 million, $10 million
and $10 million, respectively) was carried at cost because it can only be redeemed at par. The amount that ASB is required to
invest in FHLB stock is determined by FHLB requirements. In 2019, 2018 and 2017, ASB received cash dividends of $349,000,
$350,000 and $208,000, respectively, on its FHLB Stock.
Deposits and other borrowings. As of December 31, 2019 and 2018, ASB’s costing liabilities consisted of 98% deposits
and 2% other borrowings.
ASB’s deposits are obtained primarily from residents of Hawaii. Net deposit inflow or outflow, measured as the year-over-
year difference in year-end deposits, was an inflow of $113 million in 2019, compared to an inflow of $268 million in 2018 and
$342 million in 2017.
63
The following table presents the average deposits and average rates by type of deposit. Average balances have been
calculated using the average daily balances.
Years ended December 31
(dollars in thousands)
Interest-bearing deposit liabilities
Average
balance
2019
% of
total
interest-
bearing
deposits
Weighted
average
rate %
Average
balance
2018
% of
total
interest-
bearing
deposits
Weighted
average
rate %
Average
balance
2017
% of
total
interest-
bearing
deposits
Weighted
average
rate %
Savings
Checking
Money market
Certificate
Total interest-bearing
deposit liabilities
$ 2,340,671
53.9%
0.08% $ 2,334,681
54.6%
0.07% $ 2,278,396
56.7%
0.07%
1,044,315
145,939
810,749
24.0
3.4
18.7
0.12
0.65
1.56
1,006,839
140,225
789,926
23.6
3.3
18.5
0.07
0.43
1.40
902,678
142,068
696,799
22.5
3.5
17.3
0.03
0.12
1.10
$ 4,341,674
100.0%
0.39% $ 4,271,671
100.0%
0.33% $ 4,019,941
100.0%
0.24%
Total noninterest-bearing
demand deposit liabilities
1,848,336
Total deposit liabilities
$ 6,190,010
1,763,331
$ 6,035,002
1,672,780
$ 5,692,721
The following table presents the amount of time certificates of deposit of $100,000 or more, segregated by time remaining
until maturity:
(in thousands)
Three months or less
Greater than three months through six months
Greater than six months through twelve months
Greater than twelve months
Amount
204,100
72,436
64,370
115,604
456,510
$
$
Other borrowings consist of advances from the FHLB and securities sold under agreements to repurchases. See “Other
borrowings” in Note 4 of the Consolidated Financial Statements. ASB may obtain advances from the FHLB of Des Moines
provided that certain standards related to creditworthiness have been met. Advances are collateralized by a blanket pledge of
certain notes held by ASB and the mortgages securing them. To the extent that advances exceed the amount of mortgage loan
collateral pledged to the FHLB of Des Moines, the excess must be covered by qualified marketable securities held under the
control of and at the FHLB of Des Moines or at an approved third-party custodian. FHLB advances generally are available to
meet seasonal and other withdrawals of deposit accounts, to expand lending and to assist in the effort to improve asset and
liability management. FHLB advances are made pursuant to several different credit programs offered from time to time by the
FHLB of Des Moines. Securities sold under agreements to repurchase are accounted for as financing transactions and the
obligations to repurchase these securities are recorded as liabilities in the consolidated balance sheets. ASB pledges investment
securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting
arrangements, which provide for conditional right of set-off in case of default by either party; however, ASB presents securities
sold under agreements to repurchase on a gross basis in the balance sheet.
The increase in other borrowings in 2019 was due to an increase in business repurchase agreements, partly offset by the
payoff of FHLB advances.
The decrease in other borrowings in 2018 was due to the payoff of a maturing FHLB advance and a decrease in business
repurchase agreements. The decrease in other borrowings in 2017 was due to the payoff of a maturing FHLB advance, offset by
an increase in business repurchase agreements.
As of December 31, 2019, the unused borrowing capacity with the FHLB of Des Moines was $2.3 billion. The FHLB of Des
Moines continues to be an important source of liquidity for ASB. See “Liquidity and capital resources” below for changes in the
unused borrowing capacity with the FHLB of Des Moines.
Other factors. Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting
the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases
and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair
values of the investment securities.
64
As of December 31, 2019, ASB had an unrealized gain, net of taxes, on available-for-sale investment securities (including
securities pledged for repurchase agreements) in AOCI of $2.5 million compared to an unrealized loss, net of taxes, of $24.4
million as of December 31, 2018. See “Quantitative and Qualitative Disclosures About Market Risk.”
Legislation and regulation. ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s
level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other
institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.” Also see
“Federal Deposit Insurance Corporation Assessment” in Note 4 of the Consolidated Financial Statements.
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Regulation of the financial services
industry, including regulation of HEI, ASB Hawaii and ASB, has changed and will continue to change as a result of the enactment
of the Dodd-Frank Act, which became law in July 2010. Importantly for HEI, ASB Hawaii and ASB, under the Dodd-Frank Act
all of the functions of the OTS transferred on July 21, 2011 to the OCC, the FDIC, the FRB and the Consumer Financial
Protection Bureau (Bureau). Supervision and regulation of HEI and ASB Hawaii, as thrift holding companies, moved to the FRB,
and supervision and regulation of ASB, as a federally chartered savings bank, moved to the OCC. While the laws and regulations
applicable to HEI and ASB did not generally change, the applicable laws and regulations are being interpreted, and new and
amended regulations may be adopted, by the FRB, the OCC and the Bureau. In addition, HEI will continue to be required to serve
as a source of strength to ASB in the event of its financial distress. The Dodd-Frank Act also imposed new restrictions on the
ability of a savings bank to pay dividends should it fail to remain a qualified thrift lender. At all times during 2019, ASB was a
qualified thrift lender.
ASB may also be subject to new state regulation because of a provision in the Dodd-Frank Act that acknowledges that a
federal savings bank may be subject to state regulation and allows federal law to preempt a state consumer financial law on a
“case by case” basis only when (1) the state law would have a discriminatory effect on the bank compared to that on a bank
chartered in that state, (2) the state law prevents or significantly interferes with a bank’s exercise of its power or (3) the state law
is preempted by another federal law.
Final Capital Rules. On July 2, 2013, the FRB finalized its rule implementing the Basel III regulatory capital framework. The
final rule would apply to banking organizations of all sizes and types regulated by the FRB and the OCC, except bank holding
companies subject to the FRB’s Small Bank Holding Company Policy Statement and Savings & Loan Holding Companies
(SLHCs) substantially engaged in insurance underwriting or commercial activities. HEI currently meets the requirements of the
exemption as a top-tier grandfathered unitary SLHC that derived, as of June 30 of the previous calendar year, either 50% or more
of its total consolidated assets or 50% or more of its total revenues on an enterprise-wide basis (calculated under GAAP) from
activities that are not financial in nature pursuant to Section 4(k) of the Bank Holding Company Act. The FRB is temporarily
excluding these SLHCs from the final rule while it considers a proposal relating to capital and other requirements for SLHC
intermediate holding companies (such as ASB Hawaii). The FRB indicated that it would release a proposal on intermediate
holding companies that would specify the criteria for establishing and transferring activities to intermediate holding companies
and propose to apply the FRB’s capital requirements to such intermediate holding companies. The FRB has not yet issued such a
proposal, or a proposal on how to apply the Basel III capital rules to SLHCs that are substantially engaged in commercial or
insurance underwriting activities, such as grandfathered unitary SLHCs like HEI.
Pursuant to the final rule and consistent with the proposals, all banking organizations, including covered holding companies,
would initially be subject to the following minimum regulatory capital requirements: a common equity Tier 1 capital ratio of
4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8% of risk-weighted assets and a tier 1 leverage ratio of 4%, and these
requirements would increase in subsequent years. In order to avoid restrictions on capital distributions and discretionary bonus
payments to executive officers, the final rule requires a banking organization to hold a buffer of common equity tier 1 capital
above its minimum capital requirements in an amount greater than 2.5% of total risk-weighted assets (capital conservation
buffer). In addition, a countercyclical capital buffer would expand the capital conservation buffer by up to 2.5% of a banking
organization’s total risk-weighted assets for advanced approaches banking organizations. The final rule would establish
qualification criteria for common equity, additional tier 1 and tier 2 capital instruments that help to ensure their ability to absorb
losses. All banking organizations would be required to calculate risk-weighted assets under the standardized approach, which
harmonizes the banking agencies’ calculation of risk-weighted assets and addresses shortcomings in capital requirements
identified by the agencies. The phased-in effective dates of the capital requirements under the final rule are:
65
Minimum Capital Requirements
Effective dates
Capital conservation buffer
Common equity Tier 1 ratio + conservation buffer
Tier 1 capital ratio + conservation buffer
Total capital ratio + conservation buffer
Tier 1 leverage ratio
Countercyclical capital buffer — not applicable to ASB
1/1/2015
1/1/2016
1/1/2017
1/1/2018
1/1/2019
4.50%
6.00%
8.00%
4.00%
0.625%
5.125%
6.625%
8.625%
4.00%
0.625%
1.25%
5.75%
7.25%
9.25%
4.00%
1.25%
1.875%
6.375%
7.875%
9.875%
4.00%
1.875%
2.50%
7.00%
8.50%
10.50%
4.00%
2.50%
The final rule was effective January 1, 2015 for ASB. As of December 31, 2019, ASB met the new capital requirements with
a Common equity Tier-1 ratio of 13.2%, a Tier-1 capital ratio of 13.2%, a Total capital ratio of 14.3% and a Tier-1 leverage ratio
of 9.1%.
Subject to the timing and final outcome of the FRB’s SLHC intermediate holding company proposal, HEI anticipates that the
capital requirements in the final rule will eventually be effective for HEI or ASB Hawaii as well. If the fully phased-in capital
requirements were currently applicable to HEI, management believes HEI would satisfy the capital requirements, including the
fully phased-in capital conservation buffer. Management cannot predict what final rule the FRB may adopt concerning
intermediate holding companies or their impact on ASB Hawaii, if any.
Covered Savings Associations. On May 24, 2019, the OCC issued a final rule to allow federal savings associations with total
consolidated assets of $20 billion or less, as reported by the association to the OCC on its call report as of December 31, 2017, to
elect to operate as covered savings associations. A covered savings association generally has the same rights and privileges as a
national bank that has its main office situated in the same location as the home office of the covered savings association, with
some exceptions. It is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that apply to a
national bank, with some exceptions, and must comply with certain rules and regulations applicable to the powers and
investments of a national bank. A covered savings association is not required to comply with the lending and investment limits in
HOLA and is not required to be a qualified thrift lender under HOLA. Finally, a covered savings association is not permitted to
retain or engage in any subsidiaries, assets, or activities that are not permissible for a national bank. ASB has initiated a
preliminary examination of the benefits and disadvantages of such an election with the preservation of being held by a unitary
thrift holding company in mind. ASB is awaiting official FRB commentary, and has not reached a decision on the election.
Liquidity and capital resources.
December 31
(dollars in millions)
Total assets
Investment securities
Loans held for investment, net
Deposit liabilities
Other bank borrowings
2019
% change
2018
% change
$
7,233
1,372
5,068
6,272
115
3
$
(10)
6
2
5
7,028
1,530
4,791
6,159
110
3
6
4
5
(42)
As of December 31, 2019, ASB was one of Hawaii’s largest financial institutions based on assets of $7.2 billion and deposits
of $6.3 billion.
ASB’s principal sources of liquidity are customer deposits, borrowings and the maturity and repayment of portfolio loans and
securities. ASB’s deposits as of December 31, 2019 were $113 million higher than December 31, 2018. ASB’s sources of
borrowings include advances from the FHLB and securities sold under agreements to repurchase from broker/dealers and
commercial account holders. As of December 31, 2019, ASB had no FHLB borrowings outstanding. ASB is approved to borrow
from the FHLB up to 35% of ASB’s assets to the extent it provides qualifying collateral and holds sufficient FHLB stock. As of
December 31, 2019, ASB’s unused FHLB borrowing capacity was approximately $2.3 billion with no FHLB borrowings
outstanding. In February 2020, the FHLB of Des Moines notified ASB that certain assets would no longer qualify as collateral for
FHLB advances, reducing ASB's total FHLB borrowing capacity to approximately $1.5 billion. The notice included high-quality
home equity lines of credit and was technical in nature and unrelated to the credit quality of the home equity loans, of which
approximately 54% are in first lien position. ASB is working with the FHLB to understand the nature of the disqualification of
those assets as collateral and re-establishing eligibility. Although the reduction in borrowing capacity will not impact ASB’s
operations, ASB is evaluating other assets to pledge as collateral to increase its reserve borrowing capacity with the FHLB. Over
the past 10 years, the maximum amount outstanding as of any quarter end was $110 million. As of December 31, 2019, securities
sold under agreements to repurchase totaled $115 million, representing 1.6% of assets. ASB utilizes deposits, advances from the
66
FHLB and securities sold under agreements to repurchase to fund maturing and withdrawn deposits, repay maturing borrowings,
fund existing and future loans and purchase investment and mortgage-backed securities. As of December 31, 2019, ASB had
commitments to borrowers for loans and unused lines and letters of credit of $1.9 billion, of which, commitments to lend to
borrowers whose loan terms have been modified in troubled debt restructurings were nil. Management believes ASB’s current
sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.
As of December 31, 2019 and 2018, ASB had $29.7 million and $27.3 million of loans on nonaccrual status, respectively, or
0.6% of net loans outstanding. As of December 31, 2019 and 2018, ASB had nil and $0.4 million, respectively, of real estate
acquired in settlement of loans.
In 2019, operating activities provided cash of $110 million. Net cash of $120 million was used by investing activities
primarily due to a net increase in loans receivable of $300 million, purchases of available-for-sale investment securities of $108
million, capital expenditures of $24 million, purchases of held-to-maturity investment securities of $13 million, contributions to
low-income housing investments of $7 million and purchases of bank owned life insurance of $4 million, partly offset by receipt
of repayments from available-for-sale investment securities of $273 million, proceeds from the sale of real estate of $21 million,
proceeds from the sale of available-for-sale investment securities of $20 million, repayments from held-to-maturity investment
securities of $16 million and proceeds from the redemption of bank owned life insurance of $6 million. Financing activities
provided net cash of $62 million primarily due to a net increase in deposits of $113 million and a net increase in retail repurchase
agreements of $50 million, partly offset by a net decrease in FHLB advances of $45 million and common stock dividends to HEI
(through ASB Hawaii) of $56 million.
ASB believes that maintaining a satisfactory regulatory capital position provides a basis for public confidence, affords
protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for
growth. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as
well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by
competing institutions. As of December 31, 2019, ASB was well-capitalized (see Note 4 of the Consolidated Financial Statements
for ASB’s capital ratios).
For a discussion of ASB dividends, see “Common stock equity” in Note 4 of the Consolidated Financial Statements.
See “Commitments” and “Contingency” in Note 4 of the Consolidated Financial Statements for a discussion of commitments
and contingencies and off-balance sheet arrangements.
Material estimates and critical accounting policies. Also see “Material estimates and critical accounting policies” for
Consolidated HEI above.
Allowance for loan losses. See Note 1 of the Consolidated Financial Statements and the discussion above under “Earning
assets, costing liabilities and other factors.” ASB maintains an allowance for loan losses believed to be adequate to absorb losses
inherent in its loan portfolio. The level of allowance for loan losses is based on a continuing assessment of existing risks in the
loan portfolio, historical loss experience, changes in collateral values and current conditions (for example, economic conditions,
real estate market conditions and interest rate environment). The allowance for loan losses is allocated to loan types using both a
formula-based approach applied to groups of loans and an analysis of certain individual loans for impairment. The formula-based
approach emphasizes loss factors primarily derived from actual historical default and loss rates, which are combined with an
assessment of certain qualitative factors to determine the allowance amounts allocated to the various loan categories. Adverse
changes in any of these factors could result in higher charge-offs and provision for loan losses.
ASB disaggregates the loan portfolio into loan segments for purposes of determining the allowance for loan losses.
Commercial, commercial real estate, and commercial construction loans are defined as non-homogeneous loans. ASB utilizes a
risk rating system for evaluating the credit quality of such loans. Loans are rated based on the degree of risk at origination and
periodically thereafter, as appropriate. Values are applied separately to the probability of default (borrower risk) and loss given
default (transaction risk). ASB utilizes a numerical-based, risk rating “PD Model” that takes into consideration fiscal year-end
financial information of the borrower and identified financial attributes including retained earnings, operating cash flows, interest
coverage, liquidity and leverage that demonstrate a strong correlation with default to assign default probabilities at the borrower
level. In addition, a loss given default value is assigned to each loan to measure loss in the event of default based on loan specific
features such as collateral that mitigates the amount of loss in the event of default. Together the PD Model and loss given default
construct provide a quantitative, data driven and consistent framework for measuring risk within the portfolio, on a loan by loan
basis and for the ultimate collectability of each loan.
Residential, consumer and credit scored business loans are considered homogeneous loans, which are typically underwritten
based on common, uniform standards. For the homogeneous portfolio, the quality of the loan is best indicated by the repayment
performance of an individual borrower. ASB supplements performance data with external credit bureau data and credit scores
67
such as the Fair Isaac Corporation (FICO) score on a quarterly basis. ASB has built portfolio loss models for each major segment
based on the combination of internal and external data to predict the probability of default at the loan level.
ASB also considers qualitative factors in determining the allowance for loan losses. These include but are not limited to
adjustments for changes in policies and procedures in underwriting, monitoring or collections, economic conditions, portfolio
mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values and any
concentrations of credit.
The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated
probable losses related to unfunded credit facilities and is included in accounts payable and other liabilities in the consolidated
balance sheets. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities,
including an assessment of historical commitment utilization experience, credit risk grading and historical loss rates. This process
takes into consideration the same risk elements that are analyzed in the determination of the adequacy of the allowance for loan
losses, as discussed above. Net adjustments to the reserve for unfunded commitments are included in other noninterest expense in
the consolidated statements of income.
Management believes its allowance for loan losses adequately estimates actual loan losses that will ultimately be incurred.
However, such estimates are based on currently available information and historical experience, and future adjustments may be
required from time to time to the allowance for loan losses based on new information and changes that occur (e.g., due to changes
in economic conditions, particularly in Hawaii). Actual losses could differ from management’s estimates, and these differences
and subsequent adjustments could be material.
Fair value. Fair value estimates are based on the price that would be received to sell an asset, or paid upon the transfer of a
liability, in an orderly transaction between market participants at the measurement date. The fair value estimates are generally
determined based on assumptions that market participants would use in pricing the asset or liability and are based on market data
obtained from independent third party sources. However, in certain cases, ASB uses its own assumptions based on the best
information available in certain circumstances. These valuations are estimates at a specific point in time, based on relevant market
information, information about the financial instrument and judgments regarding future expected loss experience, economic
conditions, risk characteristics of various financial instruments and other factors. These estimates do not reflect any premium or
discount that could result if ASB were to sell its entire holdings of a particular financial instrument at one time. Because no active
trading market exists for a portion of its financial instruments, fair value estimates cannot be determined with precision. Changes
in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the
estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses could have a significant
effect on fair value estimates, but have not been considered in making such estimates.
ASB classifies its financial assets and liabilities that are measured at fair value in accordance with the three-level valuation
hierarchy. Level 1 valuations are based on quoted prices, unadjusted for identical instruments traded in active markets. Level 2
valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active or model-based techniques for which all significant assumptions are observable in the market. Level
3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market or
significant management judgment or estimation. See “Fair value measurements” in Note 1 of the Consolidated Financial
Statements).
Significant assets measured at fair value on a recurring basis include ASB’s mortgage-backed securities available for sale.
These instruments are priced using an external pricing service and are classified as Level 2 within the fair value hierarchy. The
third-party pricing services use a variety of methods to determine fair value including quoted prices for similar securities in an
active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic
prepayment speeds and other observable market factors. To enhance the robustness of the pricing process, ASB compares its
standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range,
the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by
the investment manager and a challenge to the price may be made. Fair value in such cases will be based on the value that best
reflects the data and observable characteristics of the security. In all cases, the fair value used will have been independently
determined by a third-party pricing vendor or non-affiliated broker.
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples
of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan impairments
for certain loans, real estate acquired in settlement of loans and goodwill.
See “Investment securities” and “Derivative financial instruments” in Note 4 and Note 16 of the Consolidated Financial
Statements for additional information regarding ASB’s fair value measurements.
68
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
HEI and Hawaiian Electric (in the case of Hawaiian Electric, only the information related to Hawaiian Electric and its
subsidiaries is applicable):
The Company manages various market risks in the ordinary course of business, including credit risk and liquidity risk. The
Company believes the electric utility and the “other” segment’s exposures to these two risks were not material as of
December 31, 2019.
Credit risk for ASB is the risk that borrowers or issuers of securities will not be able to repay their obligations to the bank.
Credit risk associated with ASB’s lending portfolios is controlled through its underwriting standards, loan rating of commercial
and commercial real estate loans, on-going monitoring by loan officers, credit review and quality control functions in these
lending areas and adequate allowance for loan losses. Credit risk associated with the securities portfolio is mitigated through
investment portfolio limits, experienced staff working with analytical tools, monthly fair value analysis and on-going
monitoring and reporting such as investment watch reports and loss sensitivity analysis. See “Allowance for loan losses” in
Item 7 above and in Note 4 of the Consolidated Financial Statements.
Liquidity risk for ASB is the risk that the bank will not meet its obligations when they become due. Liquidity risk is
mitigated by ASB’s asset/liability management process, on-going analytical analysis, monitoring and reporting information
such as weekly cash-flow analyses and maintenance of liquidity contingency plans.
The Utilities are exposed to some commodity price risk primarily related to their fuel supply and IPP contracts. The
Utilities’ commodity price risk is substantially mitigated so long as they have their current ECRCs in their rate schedules. The
Utilities currently have no hedges against its commodity price risk.
The Company currently has no direct exposure to market risk from trading activities nor foreign currency exchange rate
risk.
The Company considers interest rate risk to be a very significant market risk as it could potentially have a significant effect
on the Company’s results of operations, financial condition and liquidity, especially as it relates to ASB, but also as it may
affect the discount rate used to determine retirement benefit liabilities and minimum contributions, the market value of
retirement benefit plans’ assets and the Utilities’ allowed rates of return. Interest rate risk can be defined as the exposure of the
Company’s earnings to adverse movements in interest rates.
Bank interest rate risk
The Company’s success is dependent, in part, upon ASB’s ability to manage interest rate risk (IRR). ASB’s interest-rate
risk profile is strongly influenced by its primary business of making fixed-rate residential mortgage loans and taking in retail
deposits. Large mismatches in the amounts or timing between the maturity or repricing of interest sensitive assets or liabilities
could adversely affect ASB’s earnings and the market value of its interest-sensitive assets and liabilities in the event of
significant changes in the level of interest rates. Many other factors also affect ASB’s exposure to changes in interest rates, such
as general economic and financial conditions, customer preferences and competition for loans or deposits.
ASB’s Asset/Liability Management Committee (ALCO), whose voting members are officers and employees of ASB, is
responsible for managing interest rate risk and carrying out the overall asset/liability management objectives and activities of
ASB as approved by the ASB Board of Directors. ALCO establishes policies under which management monitors and
coordinates ASB’s assets and liabilities.
See Note 4 of the Consolidated Financial Statements for a discussion of the use of rate lock commitments on loans held for
sale and forward sale contracts to manage some interest rate risk associated with ASB’s residential loan sale program.
Management of ASB measures interest-rate risk using simulation analysis with an emphasis on measuring changes in net
interest income (NII) and the market value of interest-sensitive assets and liabilities in different interest-rate environments. The
simulation analysis is performed using a dedicated asset/liability management software system enhanced with a mortgage
prepayment model and a collateralized mortgage obligation database. The simulation software is capable of generating
scenario-specific cash flows for all instruments using the specified contractual information for each instrument and product
specific prepayment assumptions for mortgage loans and mortgage-backed securities.
NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios. NII
sensitivity is measured as the change in NII in the alternate interest-rate scenarios as a percentage of the base case NII. The base
case interest-rate scenario is established using the current yield curve and assumes interest rates remain constant over the next
69
twelve months. The alternate scenarios are created by assuming “rate ramps” or gradual interest changes and accomplished by
moving the yield curve in a parallel fashion, over the next twelve-month period, in increments of +/- 100 basis points. The
simulation model forecasts scenario-specific principal and interest cash flows for the interest-bearing assets and liabilities, and
the NII is calculated for each scenario. Key balance sheet modeling assumptions used in the NII sensitivity analysis include: the
size of the balance sheet remains relatively constant over the simulation horizon and maturing assets or liabilities are reinvested
in similar instruments in order to maintain the current mix of the balance sheet. In addition, assumptions are made about the
prepayment behavior of mortgage-backed assets, future pricing spreads for new assets and liabilities and the speed and
magnitude with which deposit rates change in response to changes in the overall level of interest rates. Other NII sensitivity
analysis may include scenarios such as yield curve twists or non-static balance sheet changes (such as changes to key balance
sheet drivers).
Consistent with OCC guidelines, the market value or economic capitalization of ASB is measured as economic value of
equity (EVE). EVE represents the theoretical market value of ASB’s net worth and is defined as the present value of expected
net cash flows from existing assets minus the present value of expected cash flows from existing liabilities plus the present
value of expected net cash flows from existing off-balance sheet contracts. Key assumptions used in the calculation of ASB’s
EVE include the prepayment behavior of loans and investments, the possible distribution of future interest rates, pricing spreads
for assets and liabilities in the alternate scenarios and the rate and balance behavior of deposit accounts with indeterminate
maturities. EVE is calculated in multiple scenarios. As with the NII simulation, the base case is represented by the current yield
curve. Alternate scenarios are created by assuming immediate parallel shifts in the yield curve in increments of +/- 100 basis
points (bp) up to + 300 bp. The change in EVE is measured as the change in EVE in a given rate scenario from the base case
and expressed as a percentage. To gain further insight into the IRR profile, additional analysis is periodically performed in
alternate scenarios including rate shifts of greater magnitude and changes in key balance sheet drivers.
ASB’s interest-rate risk sensitivity measures as of December 31, 2019 and 2018 constitute “forward-looking statements”
and were as follows:
Change in interest rates
(basis points)
+300
+200
+100
-100
Change in NII
(gradual change in interest rates)
Change in EVE
(instantaneous change in interest rates)
December 31, 2019
December 31, 2018
December 31, 2019
December 31, 2018
2.8%
2.1
1.3
(2.0)
2.5%
1.9
1.1
(2.3)
15.3%
12.2
7.5
(12.7)
10.0%
8.1
5.1
(11.0)
ASB’s NII sensitivity profile was more asset sensitive as of December 31, 2019 compared to December 31, 2018. The
decrease in long term market rates increased prepayment expectations, resulting in higher reinvestment into lower yielding
fixed-rate mortgage and mortgage-backed investment portfolios. The increased prepayment expectations also drove higher
premium amortization on existing mortgage-backed securities. In addition, the bank had more cash on the balance sheet as of
December 31, 2019, which contributed to higher NII asset sensitivity.
EVE sensitivity increased as of December 31, 2019 compared to December 31, 2018 as the duration of assets shortened
while the duration of liabilities lengthened. The downward shift in the yield curve led to faster prepayment expectations and
shortened the durations of the fixed-rate mortgage and mortgage-backed investment portfolios, while lengthening core deposit
duration.
The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage
change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance
changes and pricing strategies, and should not be relied upon as indications of actual results. To the extent market conditions
and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the
simulation results. NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate
scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate
appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management
might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period
and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent
management’s views of future market movements, the level of future earnings, or the timing of any changes in earnings within
the twelve-month analysis horizon. The actual impact of changes in interest rates on NII will depend on the magnitude and
speed with which rates change, actual changes in ASB’s balance sheet, and management’s responses to the changes in interest
rates.
70
Other than bank interest rate risk
The Company’s general policy is to manage “other than bank” interest rate risk through use of a combination of short-term
debt, long-term debt and preferred securities. As of December 31, 2019, the Company was exposed to “other than bank” interest
rate risk because of its periodic borrowing requirements, the impact of interest rates on the discount rate and the market value of
plan assets used to determine retirement benefits expenses and obligations (see “Pension and other postretirement benefits
obligations” in HEI’s MD&A and “Retirement benefits” in Notes 1 and 10 of the Consolidated Financial Statements) and the
possible effect of interest rates on the electric utilities’ allowed rates of return. Other than these exposures, management
believes its exposure to “other than bank” interest rate risk is not material. The Company’s long-term debt, in the form of
borrowings of proceeds of revenue bonds, privately-placed senior notes and bank term loans, is predominately at fixed rates
(see Note 16 of the Consolidated Financial Statements for the fair value of long-term debt, net-other than bank).
71
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEI and Hawaiian Electric:
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms - HEI
Reports of Independent Registered Public Accounting Firms - Hawaiian Electric
Consolidated Financial Statements
HEI
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Hawaiian Electric
Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Balance Sheets at December 31, 2019 and 2018
Consolidated Statements of Capitalization at December 31, 2019 and 2018
Consolidated Statements of Changes in Common Stock Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
Page
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78
79
80
81
82
84
84
85
86
88
89
90
72
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Hawaiian Electric Industries, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hawaiian Electric Industries, Inc. and subsidiaries (the
"Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income,
changes in shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the
related notes and the schedules listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). We
also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by
COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our
responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
73
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Electric utility segment - regulatory assets and liabilities - Refer to Note 3 to the financial statements
Critical Audit Matter Description
Hawaiian Electric Company, Inc. (“Hawaiian Electric,” or the “Utility”) is subject to rate regulation by the Hawaii Public
Utility Commission (the “PUC”) and accounts for the effects of regulation under FASB Accounting Standards Codification
(“ASC”) Topic 980, “Regulated Operations” as management has determined it meets the requirements under accounting
principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules
to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple
financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities;
operating revenues; operation and maintenance expense; and depreciation expense. As of December 31, 2019, regulatory assets
and liabilities amounted to approximately $715,080,000 and $972,310,000, respectively. The Company’s continued accounting
under ASC Topic 980 generally requires that rates are established by an independent, third party regulator, rates are designed to
recover the costs of providing service, and it is reasonable to assume that rates can be charged to, and collected from,
customers.
Hawaiian Electric’s rates are subject to regulatory rate-setting processes and earnings oversight. Rates are determined and
approved in regulatory proceedings based on an analysis of the Company’s costs to provide utility service and a return on, and
recovery of, Hawaiian Electric’s investment in the utility business. Any decision by the PUC could (1) impact the recovery in
future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) necessitate a refund or
future reductions in rates that should be reported as regulatory liabilities.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to
support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing
the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of
(1) recovery in future rates of incurred costs, and (2) a refund to customers. Given that management’s accounting judgements
are based on assumptions about the outcome of future decisions by the PUC, auditing these judgments required specialized
knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the rate regulators included the following, among others:
• We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future
rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future
reduction in rates that should be reported as regulatory liabilities. Such controls include the monitoring and evaluation
of regulatory developments that may affect the likelihood of recovering costs in future rates or incurring future
reductions in rates.
• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and
regulatory developments.
• We read relevant regulatory orders issued by the PUC for the Company, regulatory statutes, filings made by
interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future
reduction in rates based on precedence of the PUC’s treatment of similar costs under similar circumstances. We
evaluated the external information and compared to management’s recorded regulatory asset and liability balances for
completeness.
•
For regulatory matters in process, we inspected the Company’s filings with the PUC and the filings with the PUC by
intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s
assertions.
• We obtained analyses from management, which includes input from regulatory and legal counsel, as appropriate,
regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities
not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery, or a
future reduction in rates.
74
Allowance for Loan Losses - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The Company maintains an allowance for loan losses (the “Allowance”) to absorb losses inherent in its loan portfolio. As of
December 31, 2019, the total Allowance balance is $53.4 million. The level of Allowance is based on existing risks in the loan
portfolio, historical loss experience, changes in collateral values and current conditions (e.g., economic conditions, real estate
market conditions and the interest rate environment). The Allowance is allocated to loan types using both a formula-based
approach applied to groups of loans and an analysis of certain individual loans for impairment. The formula-based approach
emphasizes loss factors primarily derived from actual historical default and loss rates, which are combined with an assessment
of certain qualitative factors to determine the allowance amounts allocated to the various loan categories. These qualitative
factors include, but are not limited to, adjustments for changes in policies and procedures in underwriting, monitoring or
collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality
control reviews, collateral values and any concentrations of credit.
The selection of relevant and appropriate qualitative factors in calculating the Allowance requires significant management
judgment. Given the magnitude of the loan portfolio and the subjective nature of determining the Allowance, including the
judgments applied by management in determining the qualitative factors, auditing the Allowance attributable to these
qualitative factors involves a high degree of auditor judgment, and increased level of effort, and the need to involve more
experienced audit professionals.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Allowance, included the following procedures, among others:
• We tested the effectiveness of controls over the Allowance, including management’s controls over the respective
qualitative factors.
• We evaluated the reasonableness and conceptual soundness of the Allowance modeling framework, including the use
of qualitative factors.
• We tested the mathematical accuracy of the calculation of the qualitative Allowance as well as the accuracy and
completeness of data used as inputs to the determination of qualitative factors.
• We evaluated the qualitative factors applied to the historical loss rates under the incurred loss model, including
assessing the basis for the factors and the reasonableness of the qualitative factors used in the Allowance.
•
In order to identify potential bias in the determination of the Allowance, we performed analytical analysis, including
retrospective review, where we compared the estimate of losses to actual losses, analyzed ratios of the Allowance to
loans and other relevant metric, such as losses and nonperforming loans, and performed peer analysis where we
compared relevant metrics to comparable financial institutions.
• We evaluated the directional consistency and magnitude of the qualitative adjustments as well as the absolute value of
the Allowance attributable to the qualitative adjustments.
Summary of significant accounting policies - Recent accounting pronouncements - Credit losses - Refer to Note 1 to the
financial statements
Critical Audit Matter Description
On January 1, 2020, the Company will adopt ASU No. 2016-13, “Financial Instruments - Credit Losses”, which requires the
measurement of all expected credit losses for financial assets held at the reporting date (based on historical experience, current
conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial statement users better
understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting
standards of an organization’s portfolio. The Company and Utilities will adopt ASU No. 2016-13 using an effective date of
January 1, 2020 and will apply the guidance using a modified retrospective basis with the cumulative effect of initially applying
the amendments to be recognized in retained earnings as of January 1, 2020.
The allowance for credit losses (ACL) is a material estimate of the Company. As a result of the change from an incurred loss
model to a methodology that considers the credit loss over the expected life of the loan, the Company expects to record, upon
completing its final analysis, an adjustment between $18 million and $22 million to increase the ACL, with a corresponding
adjustment to reduce retained earnings as of January 1, 2020. The ACL requires management to make estimates of the expected
credit losses over the expected life of the loans, including using estimates of future economic conditions that will impact the
amount of such future losses. In order to estimate the expected credit losses, existing credit loss estimation models were
updated and, in certain cases, new models implemented to align with the expected loss framework.
75
The estimation of credit losses significantly changes under the expected loss framework, includes the application of new
accounting policies, the use of new subjective judgments, and changes to loss estimation models. Accordingly, the procedures
performed to audit the disclosure of the expected impact of the adoption of ASU No. 2016-13 involved a high degree of auditor
judgment and required significant effort, including the need to involve our credit specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the disclosure of the expected impact of adopting ASU No. 2016-13 included the following,
among others:
• We tested the effectiveness of management’s internal controls over key assumptions and judgments, expected loss
estimation models, selection and application of new accounting policies, and disclosure of the impact of adoption
discussed in the financial statements.
• We evaluated the adequacy of the Company’s disclosure related to the Adoption of ASU No. 2016-13.
• We evaluated the appropriateness of the Company’s policies, methodologies, and elections involved in the adoption of
the expected loss model.
• We tested the mathematical accuracy of the expected loss estimation models, including the completeness and accuracy
of inputs to the models.
• We involved credit specialist to assist us in evaluating the reasonableness and conceptual soundness of the
methodology as applied in the expected loss estimation models.
• We evaluated the reasonableness of management’s key assumptions and judgments in estimating future credit losses.
/s/ Deloitte & Touche LLP
Honolulu, Hawaii
February 28, 2020
We have served as the Company’s auditor since 2017.
76
Report of Independent Registered Public Accounting Firm
To the Shareholder and the Board of Directors of Hawaiian Electric Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets and statements of capitalization of Hawaiian Electric
Company, Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of
income, comprehensive income, changes in common stock equity, and cash flows, for each of the three years in the period
ended December 31, 2019, and the related notes and the schedules listed in the Index at Item 15(a)(2) (collectively referred to
as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinions.
/s/ Deloitte & Touche LLP
Honolulu, Hawaii
February 28, 2020
We have served as the Company’s auditor since 2017.
77
Consolidated Statements of Income
Hawaiian Electric Industries, Inc. and Subsidiaries
Years ended December 31
(in thousands, except per share amounts)
Revenues
Electric utility
Bank
Other
Total revenues
Expenses
Electric utility
Bank (includes $10.8 million gain on sales of properties in 2019)
Other
Total expenses
Operating income (loss)
Electric utility
Bank
Other
Total operating income
Retirement defined benefits expense—other than service costs
Interest expense, net – other than on deposit liabilities and other bank borrowings
Allowance for borrowed funds used during construction
Allowance for equity funds used during construction
Income before income taxes
Income taxes
Net income
Preferred stock dividends of subsidiaries
Net income for common stock
Basic earnings per common share
Diluted earnings per common share
Weighted-average number of common shares outstanding
Net effect of potentially dilutive shares
Weighted-average shares assuming dilution
2019
2018
2017
$
2,545,942
328,570
$
2,546,525
314,275
$
2,257,566
297,640
89
49
419
2,874,601
2,860,849
2,555,625
2,291,564
2,304,864
1,994,042
217,008
17,355
206,040
16,589
198,104
17,246
2,525,927
2,527,493
2,209,392
254,378
111,562
(17,266)
348,674
(2,806)
(90,899)
4,453
11,987
271,409
51,637
219,772
1,890
217,882
2.00
1.99
108,949
458
109,407
$
$
$
241,661
108,235
(16,540)
333,356
(5,962)
(88,677)
4,867
10,877
254,461
50,797
203,664
1,890
201,774
1.85
1.85
108,855
291
109,146
$
$
$
263,524
99,536
(16,827)
346,233
(7,942)
(78,972)
4,778
12,483
276,580
109,393
167,187
1,890
165,297
1.52
1.52
108,749
184
108,933
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
78
Consolidated Statements of Comprehensive Income
Hawaiian Electric Industries, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Net income for common stock
Other comprehensive income (loss), net of taxes:
Net unrealized gains (losses) on available-for sale investment securities:
Net unrealized gains (losses) on available-for sale investment securities arising during
the period, net of (taxes) benefits of $(10,024), $3,468 and $2,886 for 2019, 2018
and 2017, respectively
2019
2018
2017
$
217,882
$
201,774
$
165,297
27,382
(9,472)
(4,370)
Reclassification adjustment for net realized gains included in net income, net of taxes
of $175, nil and nil for 2019, 2018 and 2017, respectively
(478)
—
Derivatives qualified as cash flow hedges:
Unrealized interest rate hedging losses, net of tax benefit of $409, $151 and nil for
2019, 2018 and 2017, respectively
Reclassification adjustment to net income, net of tax benefits of nil, nil and $289 for
2019, 2018 and 2017, respectively
Retirement benefit plans:
Net gains (losses) arising during the period, net of (taxes) benefits of $(3,892), $9,810
and $(41,129) for 2019, 2018 and 2017, respectively
Adjustment for amortization of prior service credit and net losses recognized during
the period in net periodic benefit cost, net of tax benefits of $3,512, $7,317 and
$10,041 for 2019, 2018 and 2017, respectively
Reclassification adjustment for impact of D&Os of the PUC included in regulatory
assets, net of (taxes) benefits of $(5,610), $2,887 and $(49,523) for 2019, 2018 and
2017, respectively
Other comprehensive income (loss), net of taxes
(1,177)
(436)
—
—
—
—
454
10,914
(28,101)
65,531
10,107
21,015
15,737
(16,177)
30,571
8,325
(8,669)
(78,724)
(1,372)
Comprehensive income attributable to Hawaiian Electric Industries, Inc.
$
248,453
$
193,105
$
163,925
The accompanying notes are an integral part of these consolidated financial statements.
79
Consolidated Balance Sheets
Hawaiian Electric Industries, Inc. and Subsidiaries
December 31
(dollars in thousands)
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable and unbilled revenues, net
Available-for-sale investment securities, at fair value
Held-to-maturity investment securities, at amortized cost
Stock in Federal Home Loan Bank, at cost
Loans held for investment, net
Loans held for sale, at lower of cost or fair value
Property, plant and equipment, net
Land
Plant and equipment
Construction in progress
Less – accumulated depreciation
Operating lease right-of-use assets
Regulatory assets
Other
Goodwill
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Accounts payable
Interest and dividends payable
Deposit liabilities
Short-term borrowings—other than bank
Other bank borrowings
Long-term debt, net—other than bank
Deferred income taxes
Operating lease liabilities
Regulatory liabilities
Defined benefit pension and other postretirement benefit plans
liability
Other
Total liabilities
Preferred stock of subsidiaries - not subject to mandatory
redemption
Commitments and contingencies (Notes 3 and 4)
Shareholders’ equity
Preferred stock, no par value, authorized 10,000,000 shares;
issued: none
Common stock, no par value, authorized 200,000,000 shares;
issued and outstanding: 108,973,328 shares and 108,879,245
shares at December 31, 2019 and 2018, respectively
Retained earnings
Accumulated other comprehensive loss, net of tax benefits
2019
2018
$
100,161
7,545,083
229,953
7,875,197
(2,765,569)
$
$
$
196,813
30,872
300,794
1,232,826
139,451
8,434
5,067,821
12,286
5,109,628
199,171
715,080
649,885
82,190
13,745,251
220,633
24,941
6,271,902
185,710
115,110
1,964,365
379,324
199,571
972,310
513,287
583,545
11,430,698
34,293
—
1,678,257
622,042
$
102,925
7,118,709
267,714
7,489,348
(2,659,230)
$
$
$
169,208
—
325,672
1,388,533
141,875
9,958
4,790,902
1,805
4,830,118
—
833,426
530,364
82,190
13,104,051
214,773
28,254
6,158,852
73,992
110,040
1,879,641
372,518
—
950,236
538,384
580,788
10,907,478
34,293
—
1,669,267
543,623
Net unrealized gains (losses) on securities
Unrealized losses on derivatives
Retirement benefit plans
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
2,481
(1,613)
(20,907)
$
(24,423)
(436)
(25,751)
(20,039)
2,280,260
13,745,251
$
(50,610)
2,162,280
13,104,051
$
The accompanying notes are an integral part of these consolidated financial statements.
80
Consolidated Statements of Changes in Shareholders’ Equity
Hawaiian Electric Industries, Inc. and Subsidiaries
(in thousands, except per share amounts)
Balance, December 31, 2016
Net income for common stock
Other comprehensive loss, net of tax benefits
Reclass of AOCI for tax rate reduction impact
Issuance of common stock:
Share-based plans
Share-based expenses and other, net
Common stock dividends ($1.24 per share)
Balance, December 31, 2017
Net income for common stock
Other comprehensive loss, net of tax benefits
Issuance of common stock:
Share-based plans
Share-based expenses and other, net
Common stock dividends ($1.24 per share)
Balance, December 31, 2018
Net income for common stock
Other comprehensive income, net of taxes
Issuance of common stock:
Share-based plans
Share-based expenses and other, net
Common stock dividends ($1.28 per share)
Balance, December 31, 2019
Common stock
Shares
Amount
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
108,583
$ 1,660,910
$
438,972
$
(33,129) $ 2,066,753
—
—
—
205
—
—
—
—
—
165,297
—
7,440
4,664
(3,083)
—
—
—
(134,873)
108,788
1,662,491
—
—
91
—
—
—
—
2,650
4,126
—
108,879
1,669,267
—
—
94
—
—
—
—
3,092
5,898
—
476,836
201,774
—
—
—
(134,987)
543,623
217,882
—
—
—
(139,463)
—
(1,372)
(7,440)
—
—
—
165,297
(1,372)
—
4,664
(3,083)
(134,873)
(41,941)
2,097,386
—
(8,669)
201,774
(8,669)
—
—
—
2,650
4,126
(134,987)
(50,610)
2,162,280
—
30,571
217,882
30,571
—
—
—
3,092
5,898
(139,463)
108,973
$ 1,678,257
$
622,042
$
(20,039) $ 2,280,260
The accompanying notes are an integral part of these consolidated financial statements.
81
Consolidated Statements of Cash Flows
Hawaiian Electric Industries, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment
Other amortization
Provision for loan losses
Loans originated, held for sale
Proceeds from sale of loans, held for sale
Gain on sale of real estate, held for sale
Deferred income taxes
Share-based compensation expense
Allowance for equity funds used during construction
Other
Changes in assets and liabilities
Decrease (increase) in accounts receivable and unbilled revenues, net
Decrease (increase) in fuel oil stock
Decrease (increase) in regulatory assets
Increase (decrease) in accounts, interest and dividends payable
Change in prepaid and accrued income taxes, tax credits and utility revenue
taxes
Increase (decrease) in defined benefit pension and other postretirement benefit
plans liability
Change in other assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities
Available-for-sale investment securities purchased
Principal repayments on available-for-sale investment securities
Proceeds from sale of available-for-sale investment securities
Purchases of held-to-maturity investment securities
Proceeds from repayments or maturities of held-to-maturity investment securities
Purchase of stock from Federal Home Loan Bank
Redemption of stock from Federal Home Loan Bank
Net decrease (increase) in loans held for investment
Proceeds from sale of commercial loans
Proceeds from sale of real estate held for sale
Capital expenditures
Contributions to low income housing investments
Acquisition of business
Other, net
Net cash used in investing activities
2019
2018
2017
$ 219,772
$ 203,664
$ 167,187
229,858
48,255
23,480
(285,042)
277,119
(10,762)
(15,085)
9,986
(11,987)
10,822
26,083
(11,493)
71,262
(3,054)
214,036
41,593
14,745
(109,537)
112,182
—
(9,368)
7,792
(10,877)
(4,219)
(64,321)
7,054
9,252
21,528
200,658
21,340
10,901
(115,104)
127,951
—
37,835
5,404
(12,483)
(3,324)
(12,875)
(20,794)
(17,256)
34,985
(27,538)
29,429
20,685
(4,482)
(34,724)
512,470
20,871
15,488
499,312
(108,088)
272,949
19,810
(13,057)
15,505
(95,636)
97,160
(300,210)
—
21,060
(457,520)
(6,974)
—
13,292
(541,709)
(224,335)
218,930
—
(103,184)
5,720
(28,292)
28,040
(189,352)
7,149
—
(506,770)
(14,499)
—
14,534
(792,059)
882
(25,551)
420,441
(528,379)
220,231
—
(44,515)
—
(2,868)
4,380
15,887
36,760
—
(430,454)
(17,505)
(76,323)
7,487
(815,299)
(continued)
82
Consolidated Statements of Cash Flows (continued)
Hawaiian Electric Industries, Inc. and Subsidiaries
Years ended December 31
Cash flows from financing activities
Net increase in deposit liabilities
Net increase (decrease) in short-term borrowings with original maturities of three
months or less
Proceeds from issuance of short-term debt
Repayment of short-term debt
Net increase in other bank borrowings with original maturities of three months or
less
Repayment of other bank borrowings
Proceeds from issuance of long-term debt
Repayment of long-term debt and funds transferred for repayment of long-term debt
Withheld shares for employee taxes on vested share-based compensation
Common stock dividends
Preferred stock dividends of subsidiaries
Other
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, January 1
Cash, cash equivalents and restricted cash, December 31
Less: Restricted cash
Cash and cash equivalents, December 31
The accompanying notes are an integral part of these consolidated financial statements.
2019
2018
2017
113,050
165,880
341,668
86,718
75,000
(50,000)
5,070
—
289,349
(287,285)
(997)
(139,463)
(1,890)
(1,836)
87,716
58,477
169,208
(18,999)
25,000
(50,000)
71,556
(50,000)
250,000
(53,887)
(996)
(134,987)
(1,890)
(1,603)
200,074
(92,673)
261,881
67,992
125,000
(75,000)
61,776
(63,534)
532,325
(465,000)
(3,828)
(134,873)
(1,890)
(6,349)
378,287
(16,571)
278,452
227,685
(30,872)
$ 196,813
169,208
261,881
—
$ 169,208
—
$ 261,881
83
Consolidated Statements of Income
Hawaiian Electric Company, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Revenues
Expenses
Fuel oil
Purchased power
Other operation and maintenance
Depreciation
Taxes, other than income taxes
Total expenses
Operating income
Allowance for equity funds used during construction
Retirement defined benefits expense—other than service costs
Interest expense and other charges, net
Allowance for borrowed funds used during construction
Income before income taxes
Income taxes
Net income
Preferred stock dividends of subsidiaries
Net income attributable to Hawaiian Electric
Preferred stock dividends of Hawaiian Electric
Net income for common stock
2019
2018
2017
$
2,545,942
$
2,546,525
$
2,257,566
720,709
633,256
481,737
215,731
240,131
2,291,564
254,378
11,987
(2,836)
(70,842)
4,453
197,140
38,305
158,835
915
157,920
1,080
156,840
$
760,528
639,307
461,491
203,626
239,912
2,304,864
241,661
10,877
(3,631)
(73,348)
4,867
180,426
34,778
145,648
915
144,733
1,080
143,653
$
587,768
586,634
411,907
192,784
214,949
1,994,042
263,524
12,483
(6,003)
(69,637)
4,778
205,145
83,199
121,946
915
121,031
1,080
119,951
$
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Income
Hawaiian Electric Company, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Net income for common stock
Other comprehensive income (loss), net of taxes:
Derivatives qualified as cash flow hedges:
2019
2018
2017
$
156,840
$
143,653
$
119,951
Reclassification adjustment to net income, net of tax benefits of nil, nil and $289
for 2019, 2018 and 2017, respectively
—
—
454
Retirement benefit plans:
Net gains (losses) arising during the period, net of (taxes) benefits of $(1,821),
$9,024 and $(39,587) for 2019, 2018 and 2017, respectively
Adjustment for amortization of prior service credit and net losses recognized
during the period in net periodic benefit cost, net of tax benefits of $3,312,
$6,594 and $9,221 for 2019, 2018 and 2017, respectively
Reclassification adjustment for impact of D&Os of the PUC included in
regulatory assets, net of (taxes) benefits of $(5,610), $2,887 and $(49,523) for
2019, 2018 and 2017, respectively
Other comprehensive income (loss), net of taxes
Comprehensive income attributable to Hawaiian Electric Company, Inc.
5,249
(26,019)
63,105
9,550
19,012
14,477
(16,177)
(1,378)
155,462
$
8,325
1,318
144,971
$
(78,724)
(688)
119,263
$
The accompanying notes are an integral part of these consolidated financial statements.
84
Consolidated Balance Sheets
Hawaiian Electric Company, Inc. and Subsidiaries
December 31
(in thousands)
Assets
Property, plant and equipment
Utility property, plant and equipment
Land
Plant and equipment
Less accumulated depreciation
Construction in progress
Utility property, plant and equipment, net
Nonutility property, plant and equipment, less accumulated depreciation of $111 and $1,255 as of
December 31, 2019 and 2018, respectively
Total property, plant and equipment, net
Current assets
Cash and cash equivalents
Restricted cash
Customer accounts receivable, net
Accrued unbilled revenues, net
Other accounts receivable, net
Fuel oil stock, at average cost
Materials and supplies, at average cost
Prepayments and other
Regulatory assets
Total current assets
Other long-term assets
Operating lease right-of-use-assets
Regulatory assets
Other
Total other long-term assets
Total assets
Capitalization and liabilities
Capitalization (see Consolidated Statements of Capitalization)
Common stock equity
Cumulative preferred stock – not subject to mandatory redemption
Commitments and contingencies (Note 3)
Long-term debt, net
Total capitalization
Current liabilities
Current portion of operating lease liabilities
Current portion of long-term debt, net
Short-term borrowings from non-affiliate
Accounts payable
Interest and preferred dividends payable
Taxes accrued, including revenue taxes
Regulatory liabilities
Other
Total current liabilities
Deferred credits and other liabilities
Operating lease liabilities
Deferred income taxes
Regulatory liabilities
Unamortized tax credits
Defined benefit pension and other postretirement benefit plans liability
Other
Total deferred credits and other liabilities
Total capitalization and liabilities
The accompanying notes are an integral part of these consolidated financial statements.
85
2019
2018
$
$
51,816
7,240,288
(2,690,157)
193,074
4,795,021
49,667
6,809,671
(2,577,342)
233,145
4,515,141
6,956
4,801,977
6,961
4,522,102
11,022
30,872
152,790
117,227
11,568
91,937
60,702
116,980
30,710
623,808
176,809
684,370
101,718
962,897
6,388,682
2,047,352
34,293
1,401,714
3,483,359
63,707
95,953
88,987
187,770
20,728
207,992
30,724
67,305
763,166
113,400
377,150
941,586
117,868
478,763
113,390
2,142,157
6,388,682
$
$
$
35,877
—
177,896
121,738
6,215
79,935
55,204
32,118
71,016
579,999
—
762,410
102,992
865,402
5,967,503
1,957,641
34,293
1,418,802
3,410,736
—
—
25,000
171,791
23,215
233,333
17,977
60,003
531,319
—
383,197
932,259
91,522
503,659
114,811
2,025,448
5,967,503
$
$
$
2019
2018
$
113,678
$
111,696
714,824
681,305
1,220,129
1,164,541
(1,279)
99
2,047,352
1,957,641
Shares
outstanding
December 31,
2019 and 2018
2019
2018
150,000
$
3,000
$
50,000
150,000
250,000
89,657
250,000
175,000
70,000
50,000
1,000
3,000
5,000
1,793
5,000
3,500
7,000
5,000
3,000
1,000
3,000
5,000
1,793
5,000
3,500
7,000
5,000
1,234,657
34,293
34,293
(continued)
Consolidated Statements of Capitalization
Hawaiian Electric Company, Inc. and Subsidiaries
December 31
(dollars in thousands, except par value)
Common stock equity
Common stock of $6 2/3 par value
Authorized: 50,000,000 shares. Outstanding: 17,048,783 shares and
16,751,488 shares at December 31, 2019 and 2018, respectively
Premium on capital stock
Retained earnings
Accumulated other comprehensive income (loss), net of taxes-retirement benefit plans
Common stock equity
Cumulative preferred stock not subject to mandatory redemption
Authorized: 5,000,000 shares of $20 par value and 7,000,000 shares of $100 par value.
Series
Par Value
(dollars in thousands, except par value and shares outstanding)
C-4 1/4%
(Hawaiian Electric)
20
$
D-5%
E-5%
H-5 1/4%
I-5%
J-4 3/4%
K-4.65%
G-7 5/8%
H-7 5/8%
20
20
20
20
20
20
100
100
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaii Electric Light)
(Maui Electric)
86
Consolidated Statements of Capitalization (continued)
Hawaiian Electric Company, Inc. and Subsidiaries
December 31
(in thousands)
Long-term debt
Obligations to the State of Hawaii for the repayment of Special Purpose Revenue Bonds (subsidiary
obligations unconditionally guaranteed by Hawaiian Electric):
2019
2018
$
80,000
$
$
$
150,000
125,000
140,000
47,000
—
542,000
$
$
50,000
67,500
17,500
15,000
50,000
40,000
80,000
14,000
52,000
100,000
70,000
82,000
100,000
35,000
150,000
40,000
963,000
—
963,000
—
—
125,000
140,000
47,000
150,000
462,000
—
67,500
17,500
15,000
50,000
40,000
80,000
14,000
52,000
100,000
70,000
82,000
100,000
35,000
150,000
40,000
913,000
51,546
964,546
1,505,000
1,426,546
7,333
95,953
7,744
—
1,401,714
1,418,802
$
3,483,359
$
3,410,736
3.50%, Series 2019, due 2049
3.20%, Refunding series 2019, due 2039
3.10%, Refunding series 2017A, due 2026
4.00%, Refunding series 2017B, due 2037
3.25%, Refunding series 2015, due 2025
6.50%, Series 2009, due 2039 - redeemed in 2019
Total obligations to the State of Hawaii
Other long-term debt – unsecured:
Taxable senior notes:
4.21%, Series 2019A, due 2033
4.38%, Series 2018A, due 2028
4.53%, Series 2018B, due 2033
4.72%, Series 2018C, due 2048
4.31%, Series 2017A, due 2047
4.54%, Series 2016A, due 2046
5.23%, Series 2015A, due 2045
3.83%, Series 2013A, due 2020
4.45%, Series 2013A and 2013B, due 2022
4.84%, Series 2013A, 2013B and 2013C, due 2027
5.65%, Series 2013B and 2013C, due 2043
4.03%, Series 2012B, due 2020
4.55%, Series 2012B and 2012C, due 2023
4.72%, Series 2012D, due 2029
5.39%, Series 2012E, due 2042
4.53%, Series 2012F, due 2032
Total taxable senior notes
6.50 %, series 2004, Junior subordinated deferrable interest debentures, due 2034 - redeemed in 2019
Total other long-term debt – unsecured
Total long-term debt
Less unamortized debt issuance costs
Less current portion long-term debt, net of unamortized debt issuance costs
Long-term debt, net
Total capitalization
The accompanying notes are an integral part of these consolidated financial statements.
87
Consolidated Statements of Changes in Common Stock Equity
Hawaiian Electric Company, Inc. and Subsidiaries
(in thousands)
Balance, December 31, 2016
Net income for common stock
Other comprehensive loss, net of tax benefits
Reclass of AOCI for tax rate reduction impact
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2017
Net income for common stock
Other comprehensive income, net of taxes
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2018
Net income for common stock
Other comprehensive loss, net of tax benefits
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2019
Common stock
Shares
Amount
Premium
on
capital
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
16,020
$ 106,818
$ 601,491
$ 1,091,800
$
(322) $
1,799,787
—
—
—
122
—
—
—
—
816
—
—
—
—
13,184
119,951
—
209
—
—
(87,767)
—
(688)
(209)
—
—
119,951
(688)
—
14,000
(87,767)
16,142
107,634
614,675
1,124,193
(1,219)
1,845,283
—
—
609
—
—
—
4,062
—
—
—
66,630
143,653
—
—
—
(103,305)
16,751
111,696
681,305
1,164,541
—
—
297
—
—
—
1,982
—
—
—
33,519
156,840
—
—
—
(101,252)
—
1,318
—
—
99
—
(1,378)
—
—
143,653
1,318
70,692
(103,305)
1,957,641
156,840
(1,378)
35,501
(101,252)
17,048
$ 113,678
$ 714,824
$ 1,220,129
$
(1,279) $
2,047,352
The accompanying notes are an integral part of these consolidated financial statements.
88
Consolidated Statements of Cash Flows
Hawaiian Electric Company, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment
Other amortization
Deferred income taxes
Income tax credits, net
State refundable credit
Allowance for equity funds used during construction
Other
Changes in assets and liabilities
Decrease (increase) in accounts receivable
Decrease (increase) in accrued unbilled revenues
Decrease (increase) in fuel oil stock
Increase in materials and supplies
Decrease (increase) in regulatory assets
Increase in regulatory liabilities
Increase (decrease) in accounts payable
Change in prepaid and accrued income taxes, tax credits and revenue taxes
Increase (decrease) in defined benefit pension and other postretirement
benefit plans liability
Change in other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Other
Net cash used in investing activities
Cash flows from financing activities
Common stock dividends
Preferred stock dividends of Hawaiian Electric and subsidiaries
Proceeds from issuance of common stock
Proceeds from issuance of long-term debt
Repayment of long-term debt and funds transferred for repayment of long-term debt
Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with
original maturities of three months or less
Proceeds from issuance of short-term debt
Repayment of short-term debt
Other
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, January 1
Cash, cash equivalents and restricted cash, December 31
Less: Restricted cash
Cash and cash equivalents, December 31
2019
2018
2017
$
158,835
$
145,648
$
121,946
215,731
29,631
(16,284)
27,259
(8,369)
(11,987)
200
20,956
4,511
(12,002)
(5,498)
71,262
1,953
(2,051)
(28,523)
(4,448)
(17,220)
423,956
203,626
26,602
(7,982)
(99)
(6,239)
(10,877)
4,768
(50,917)
(14,684)
6,938
(807)
9,252
37,358
24,358
25,036
18,746
(17,114)
393,613
192,784
8,498
38,037
(52)
(2,251)
(12,483)
1,237
2,914
(15,361)
(20,443)
(718)
(17,256)
3,602
25,734
29,862
604
(21,468)
335,186
(419,898)
(415,264)
(376,865)
11,374
10,082
4,578
(408,524)
(405,182)
(372,287)
(101,252)
(103,305)
(1,995)
35,500
280,000
(283,546)
38,987
75,000
(50,000)
(2,109)
(9,415)
6,017
35,877
41,894
(30,872)
(1,995)
70,700
100,000
(50,000)
(4,999)
25,000
—
(472)
34,929
23,360
12,517
35,877
—
(87,767)
(1,995)
14,000
315,000
(265,000)
4,999
—
—
(3,905)
(24,668)
(61,769)
74,286
12,517
—
$
11,022
$
35,877
$
12,517
The accompanying notes are an integral part of these consolidated financial statements.
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 · Summary of significant accounting policies
General
Hawaiian Electric Industries, Inc. (HEI) is a holding company with direct and indirect subsidiaries principally engaged in
electric utility, banking, and renewable/sustainable infrastructure investment businesses operating in the State of Hawaii. HEI
owns Hawaiian Electric Company, Inc. (Hawaiian Electric), ASB Hawaii, Inc., an intermediate holding company that owns
American Savings Bank, F.S.B. (ASB), and Pacific Current, LLC (Pacific Current). Pacific Current’s significant subsidiaries
include Hamakua Energy, LLC (Hamakua Energy) and Mauo, LLC (Mauo).
Hawaiian Electric and its wholly owned operating subsidiaries, Hawaii Electric Light Company, Inc. (Hawaii Electric
Light) and Maui Electric Company, Limited (Maui Electric), are regulated public electric utilities (collectively, the Utilities) in
the business of generating, purchasing, transmitting, distributing and selling electric energy on all major islands in Hawaii other
than Kauai. See Note 2.
ASB is a federally chartered savings bank providing a full range of banking services to individual and business
customers through its branch system in Hawaii.
Hamakua Energy, owns and operates a 60-megawatt (MW) combined-cycle power plant, which sells the power it
produces only to Hawaii Electric Light. Mauo is a commercial-scale, solar-plus-storage project (8.6 MW of solar and 42.3
MW of storage) currently under construction on the islands of Oahu and Maui.
Basis of presentation. In preparing the consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America (GAAP), management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change for HEI and its subsidiaries (collectively, the
Company) include the amounts reported as fair value for investment securities (ASB only); pension and other postretirement
benefit obligations; contingencies and litigation; income taxes; regulatory assets and liabilities (Utilities only); electric utility
unbilled revenues (Utilities only); asset retirement obligations (Utilities only); and allowance for loan losses (ASB only).
Consolidation. The HEI consolidated financial statements include the accounts of HEI and its subsidiaries. The Hawaiian
Electric consolidated financial statements include the accounts of Hawaiian Electric and its subsidiaries. When HEI or
Hawaiian Electric has a controlling financial interest in another entity (usually, majority voting interest), that entity is
consolidated. Investments in companies over which the Company or the Utilities have the ability to exercise significant
influence, but not control, are accounted for using the equity method. The consolidated financial statements exclude variable
interest entities (VIEs) when the Company or the Utilities are not the primary beneficiaries. In general, significant
intercompany amounts are eliminated in consolidation (see Note 2 for exceptions).
Cash and cash equivalents. The Utilities consider cash on hand, deposits in banks, money market accounts, certificates of
deposit, short-term commercial paper of non-affiliates and liquid investments (with original maturities of three months or less)
to be cash and cash equivalents. The Company considers the same items to be cash and cash equivalents as well as ASB’s
deposits with the Federal Home Loan Bank (FHLB), federal funds sold (excess funds that ASB loans to other banks overnight
at the federal funds rate) and securities purchased under resale agreements with original maturities of three months or less.
Additionally, ASB is required by the Federal Reserve System to maintain noninterest-bearing cash reserves equal to a
percentage of certain deposits. The reserve requirement for ASB at December 31, 2019 and 2018 was $26.2 million and $28.1
million, respectively.
Restricted cash. The Utilities consider funds on deposit with trustees, which represent the undrawn proceeds from the
issuance of special purpose revenue bonds to be restricted cash because these funds are available only to finance (or reimburse
payment of) approved capital expenditures. At December 31, 2019 and 2018, total restricted cash of Utilities was $30.9 million
and nil, respectively (see Note 6).
Property, plant and equipment. Property, plant and equipment are reported at cost. Self-constructed electric utility plant
includes engineering, supervision, administrative and general costs and an allowance for the cost of funds used during the
construction period. These costs are recorded in construction in progress and are transferred to utility plant when construction is
90
completed and the facilities are either placed in service or become useful for public utility purposes. Costs for betterments that
make utility plant more useful, more efficient, of greater durability or of greater capacity are also capitalized. Upon the
retirement or sale of electric utility plant, generally no gain or loss is recognized. The cost of the plant retired is charged to
accumulated depreciation. Amounts collected from customers for cost of removal are included in regulatory liabilities. See
discussion regarding “Utility projects” in Note 3.
Depreciation. Depreciation is computed primarily using the straight-line method over the estimated lives of the assets being
depreciated. Electric utility plant additions in the current year are depreciated beginning January 1 of the following year in
accordance with rate-making. Electric utility plant has lives ranging from 16 to 88 years for production plant, from 10 to 79
years for transmission and distribution plant and from 5 to 65 years for general plant. The Utilities’ composite annual
depreciation rate, which includes a component for cost of removal, was 3.2% in 2019, 2018 and 2017.
Retirement benefits. Pension and other postretirement benefit costs are charged primarily to expense and electric utility plant
(in the case of the Utilities). Funding for the Company’s qualified pension plans (Plans) is based on actuarial assumptions
adopted by the Pension Investment Committee administering the Plans. The participating employers contribute amounts to a
master pension trust for the Plans in accordance with the funding requirements of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), including changes promulgated by the Pension Protection Act of 2006, and considering the
deductibility of contributions under the Internal Revenue Code. The Company generally funds at least the net periodic pension
cost during the year, subject to ERISA minimum and Internal Revenue Code limits and targeted funded status.
Certain health care and/or life insurance benefits are provided to eligible retired employees and the employees’
beneficiaries and covered dependents. The Company generally funds the net periodic postretirement benefit costs other than
pensions (except for executive life) for postretirement benefits other than pensions (OPEB), while maximizing the use of the
most tax-advantaged funding vehicles, subject to cash flow requirements and reviews of the funded status with the consulting
actuary.
Environmental expenditures. The Company and the Utilities are subject to numerous federal and state environmental statutes
and regulations. In general, environmental contamination treatment costs are charged to expense. Environmental costs are
capitalized if the costs extend the life, increase the capacity, or improve the safety or efficiency of property; the costs mitigate
or prevent future environmental contamination; or the costs are incurred in preparing the property for sale. Environmental costs
are either capitalized or charged to expense when environmental assessments and/or remedial efforts are probable and the cost
can be reasonably estimated. The Utilities review their sites and measure the liability quarterly by assessing a range of
reasonably likely costs of each identified site using currently available information, including existing technology, presently
enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition
of other potentially responsible parties.
Income taxes. Deferred income tax assets and liabilities are established for the temporary differences between the financial
reporting bases and the tax bases of the Company’s and the Utilities’ assets and liabilities at federal and state tax rates expected
to be in effect when such deferred tax assets or liabilities are realized or settled. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to
be realized.
HEI and the Utilities’ investment tax credits are deferred and amortized over the estimated useful lives of the properties to
which the credits relate (and for the Utilities, this treatment is in accordance with Accounting Standards Codification (ASC)
Topic 980, “Regulated Operations”).
The Utilities are included in the consolidated income tax returns of HEI. However, income tax expense has been computed
for financial statement purposes as if each utility filed a separate income tax return and Hawaiian Electric filed a consolidated
Hawaiian Electric income tax return.
Governmental tax authorities could challenge a tax return position taken by the Company. The Company and the Utilities
use a “more-likely-than-not” recognition threshold and measurement standard for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
Fair value measurements. Fair value estimates are estimates of the price that would be received to sell an asset, or paid upon
the transfer of a liability, in an orderly transaction between market participants at the measurement date. The fair value
estimates are generally determined based on assumptions that market participants would use in pricing the asset or liability and
are based on market data obtained from independent sources. However, in certain cases, the Company and the Utilities use their
own assumptions about market participant assumptions based on the best information available in the circumstances. These
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
valuations are estimates at a specific point in time, based on relevant market information, information about the financial
instrument and judgments regarding future expected loss experience, economic conditions, risk characteristics of various
financial instruments and other factors. These estimates do not reflect any premium or discount that could result if the Company
or the Utilities were to sell its entire holdings of a particular financial instrument at one time. Because no active trading market
exists for a portion of the Company’s and the Utilities’ financial instruments, fair value estimates cannot be determined with
precision. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could
significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses
could have a significant effect on fair value estimates, but have not been considered in making such estimates.
The Company and the Utilities group their financial assets measured at fair value in three levels outlined as follows:
Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active
markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to
measure fair value whenever available.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs
to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are
not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by
observable market data by correlation or other means.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3
assets and liabilities include financial instruments whose value is determined using discounted cash flow
methodologies, as well as instruments for which the determination of fair value requires significant management
judgment or estimation.
Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the
asset or liability. For instruments classified in Level 1 and 2 where inputs are primarily based upon observable market data,
there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more
significant due to the lack of observable market data.
Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes.
Examples of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan
impairments for certain loans, real estate acquired in settlement of loans, goodwill and asset retirement obligations (AROs).
Earnings per share (HEI only). Basic earnings per share (EPS) is computed by dividing net income for common stock by the
weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that dilutive
common shares for stock compensation is added to the denominator. There were no shares of antidilutive securities outstanding
during the years ended December 31, 2019, 2018 and 2017.
Impairment of long-lived assets and long-lived assets to be disposed of. The Company and the Utilities review long-lived
assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair
value, less costs to sell.
Recent accounting pronouncements.
Leases. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2016-02, “Leases (Topic 842),” which requires that lessees recognize a liability to make lease payments (the lease liability)
and a right-of-use (ROU) asset, representing its right to use the underlying asset for the lease term, for all leases (except short-
term leases) at the commencement date. For finance leases, a lessee is required to recognize interest on the lease liability
separately from amortization of the ROU asset in the consolidated statements of income. For operating leases, a lessee is
required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally
straight-line basis.
The Company adopted ASU No. 2016-02 on January 1, 2019 and used the effective date as the date of initial application.
Consequently, financial information for dates and periods before January 1, 2019 will not be updated and the disclosures
required under the new standard will not be provided (i.e., the Company will continue to report prior comparative periods
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
presented in the financial statements under Accounting Standards Codification (ASC) 840, including the required disclosures
under ASC 840).
The most significant effect of the new standard relates to the recognition of new ROU assets and lease liabilities on the
Company’s balance sheet for purchase power agreements and real estate operating leases. On adoption, the Company
recognized additional lease liabilities of approximately $257 million for the Company and approximately $236 million for the
Utilities ($215 million related to PPAs), based on the present value of the remaining minimum rental payments, with
corresponding ROU assets for existing operating leases, under current leasing standards. In determining the lease liability upon
transition, the Company used the incremental borrowing rates as of the adoption date based on the remaining lease term and
remaining lease payments. See Note 8 for more information.
Credit losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments,” which is intended to improve financial reporting by requiring timelier
recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU
No. 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date (based on
historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial
statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit
quality and underwriting standards of an organization’s portfolio. In addition, ASU No. 2016-13 amends the accounting for
credit losses on available-for-sale (AFS) debt securities and purchased financial assets with credit deterioration. The other-than-
temporary impairment model of accounting for credit losses on AFS debt securities will be replaced with an estimate of
expected credit losses only when the fair value is below the amortized cost of the asset. The length of time the fair value of an
AFS debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists.
The AFS debt security model will also require the use of an allowance to record the estimated losses (and subsequent
recoveries). The Company and Utilities will adopt ASU No. 2016-13 using an effective date of January 1, 2020 and will apply
the guidance using a modified retrospective basis with the cumulative effect of initially applying the amendments to be
recognized in retained earnings as of January 1, 2020.
The allowance for credit losses (ACL) is a material estimate of the Company. As a result of the change from an incurred
loss model to a methodology that considers the credit loss over the expected life of the loan, the Company expects to record,
upon completing its final analysis, an adjustment between $18 million to $22 million to increase the ACL, with a corresponding
adjustment to reduce retained earnings as of January 1, 2020. The ACL is based on the composition, characteristics and quality
of the loans and off balance sheet credit exposures as well as the prevailing economic conditions as of the adoption date. The
increase to the ACL for the loan portfolio will result in a decrease to retained earnings and regulatory capital amounts and
ratios. However, ASB expects to remain well capitalized under the regulatory framework after the adoption of ASU No.
2016-13. Based on the credit quality of the Company’s existing held-to-maturity and AFS investment securities portfolio, the
Company will not recognize an ACL at adoption for those investments. The adoption of the new standard did not have a
material impact to the Utilities’ customer and other accounts receivables and accrued unbilled revenue.
Compensation-retirement benefits-defined benefit plans. In August 2018, the FASB issued ASU No. 2018-14,
“Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the
Disclosure Requirements for Defined Benefit Plans,” which makes minor changes to the disclosure requirements for employers
that sponsor defined benefit pension and/or other postretirement benefit plans. The new guidance eliminates requirements for
certain disclosures that are no longer considered cost beneficial and requires new ones that the FASB considers pertinent. ASU
No. 2018-14 is effective for fiscal years ending after December 15, 2020. The Company early adopted ASU No. 2018-14,
effective for the year ended December 31, 2019, and applied the amended disclosure requirements to all periods presented. See
Note 10 for additional information regarding the Company’s employee benefit plans.
Codification Improvements. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326,
Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which is
intended to clarify certain issues related to the accounting for financial instruments.
• With respect to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04 allows entities to measure the
allowance for credit losses on accrued interest receivable balances separately from other components of the amortized
cost basis of associated financial assets, or to make an accounting policy election not to measure an allowance for
credit losses on accrued interest receivable amounts if an entity writes off the uncollectible accrued interest receivable
balance in a timely manner and makes certain disclosures. ASU No. 2019-04 also allows an entity to make an
accounting policy election regarding the presentation and disclosure of accrued interest receivables and the related
allowance for credit losses for those accrued interest receivables. ASU No. 2019-04 also clarifies certain issues related
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
to transfers between classifications or categories for loans and debt securities, recoveries, variable interest rates and
prepayments, vintage disclosures, and contractual extensions and renewal options.
• With respect to Topic 815, Derivatives and Hedging, ASU No. 2019-04 provides amendments, among others, that
address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements.
• With respect to Topic 825, Financial Instruments, ASU No. 2019-04 clarifies the scope of the guidance and disclosure
requirements with respect to recognizing and measuring financial instruments.
The amended guidance in ASU No. 2019-04 is effective for fiscal years and interim periods beginning after December 15,
2019, with early adoption permitted. The Company adopted ASU No. 2019-04 in the first quarter of 2020 and the impact of the
ASU on the Company’s consolidated financial statements was not material.
Reclassifications. Certain reclassifications have been made to prior years’ financial statements to conform to the 2019
presentation, which did not affect previously reported results of operations.
Electric utility
Regulation by the Public Utilities Commission of the State of Hawaii (PUC). The Utilities are regulated by the PUC and
account for the effects of regulation under FASB ASC Topic 980, “Regulated Operations.” As a result, the Utilities’ financial
statements reflect assets, liabilities, revenues and expenses based on current cost-based rate-making regulations (see Note 3
—“Regulatory assets and liabilities”). Their continued accounting under ASC Topic 980 generally requires that rates are
established by an independent, third-party regulator; rates are designed to recover the costs of providing service; and it is
reasonable to assume that rates can be charged to, and collected from, customers.
The rate schedules of the Utilities include energy costs recovery clauses (ECRCs) under which electric rates are adjusted
for changes in the weighted-average price paid for fuel oil and certain components of purchased power, and the relative
amounts of company-generated power and purchased power. The rate schedules also include purchased power adjustment
clauses (PPACs) under which the remaining purchase power expenses are recovered through surcharge mechanisms. The
amounts collected through the ECRCs and PPACs are required to be reconciled quarterly.
Accounts receivable. Accounts receivable are recorded at the invoiced amount. The Utilities generally assess a late payment
charge on balances unpaid from the previous month. The allowance for doubtful accounts is the Utilities’ best estimate of the
amount of probable credit losses in the Utilities’ existing accounts receivable. At December 31, 2019 and 2018, the allowance
for customer accounts receivable, accrued unbilled revenues and other accounts receivable was $1.4 million and $1.5 million,
respectively.
Electric utility revenues. Revenues related to electric service are generally recorded when service is rendered and include
revenues applicable to energy consumed in the accounting period but not yet billed to the customers. The Utilities also record
revenue under a decoupling mechanism. See “Decoupling” discussion in Note 3 - Electric Utility segment.
Repairs and maintenance costs. Repairs and maintenance costs for overhauls of generating units are generally expensed as
they are incurred.
Allowance for funds used during construction (AFUDC). AFUDC is an accounting practice whereby the costs of debt and
equity funds used to finance plant construction are credited on the statement of income and charged to construction in progress
on the balance sheet. If a project under construction is delayed for an extended period of time, AFUDC on the delayed project
may be stopped after assessing the causes of the delay and probability of recovery.
The weighted-average AFUDC rate was 7.4% in 2019, 7.3% in 2018 and 7.7% in 2017, and reflected quarterly
compounding.
Bank (HEI only)
Investment securities. Investments in debt securities are classified as held-to-maturity (HTM), trading or available-for-sale
(AFS). ASB determines the appropriate classification at the time of purchase. Debt securities that ASB intends to and has the
ability to hold to maturity are classified as HTM securities and reported at amortized cost. Marketable debt securities that are
bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings. Marketable debt securities not classified as either HTM or
trading securities are classified as AFS and reported at fair value. Unrealized gains and losses for AFS securities are excluded
from earnings and reported on a net basis in accumulated other comprehensive income (AOCI) until realized.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Interest income is recorded on an accrual basis. Discounts and premiums on securities are accreted or amortized into
interest income using the interest method over the remaining contractual lives of the agency obligation securities and the
estimated lives of the mortgage-backed securities adjusted for anticipated prepayments. ASB uses actual prepayment experience
and estimates of future prepayments to determine the constant effective yield necessary to apply the interest method of income
recognition. The discounts and premiums on the agency obligations portfolio are accreted or amortized on a prospective basis
using expected contractual cash flows. The discounts and premiums on the mortgage-backed securities portfolio are accreted or
amortized on a retrospective basis using changes in anticipated prepayments. This method requires a retrospective adjustment
of the effective yield each time ASB changes the estimated life as if the new estimate had been known since the original
acquisition date of the securities. Estimates of future prepayments are based on the underlying collateral characteristics and
historic or projected prepayment behavior of each security. The specific identification method is used in determining realized
gains and losses on the sales of securities.
For securities that are not trading securities, individual securities are assessed for impairment at least on a quarterly basis,
and more frequently when economic or market conditions warrant. A security is impaired if the fair value of the security is
less than its carrying value at the financial statement date. When a security is impaired, ASB determines whether this
impairment is temporary or other-than-temporary. If ASB does not expect to recover the entire amortized cost basis of the
security or there is a change in the expected cash flows, an OTTI exists. If ASB intends to sell the security, or will more likely
than not be required to sell the security before recovery of its amortized cost, the OTTI must be recognized in earnings. If
ASB does not intend to sell the security, and it is not more likely than not that ASB will be required to sell the security before
recovery of its amortized cost, the OTTI must be separated into the amount representing the credit loss and the amount related
to all other factors. The amount of OTTI related to the credit loss is recognized in earnings, while the remaining OTTI is
recognized in AOCI. Based on ASB’s evaluation as of December 31, 2019, 2018 and 2017, there was no indicated impairment
as ASB expects to collect the contractual cash flows for these investments.
Stock in Federal Home Loan Bank (FHLB) is carried at cost and is reviewed at least quarterly for impairment, with
valuation adjustments recognized in noninterest income.
Loans. ASB carries loans at amortized cost less the allowance for loan losses, loan origination fees (net of direct loan
origination costs), commitment fees and purchase premiums and discounts. Interest on loans is credited to income as it is
earned. Discounts and premiums are accreted or amortized over the life of the loans using the interest method.
Loan origination fees (net of direct loan origination costs) are deferred and recognized as an adjustment in yield over
periods not exceeding the contractual life of the loan using the interest method or taken into income when the loan is paid off or
sold. Nonrefundable commitment fees (net of direct loan origination costs, if applicable) received for commitments to originate
or purchase loans are deferred and, if the commitment is exercised, recognized as an adjustment of yield over the life of the
loan using the interest method. Nonrefundable commitment fees received for which the commitment expires unexercised are
recognized as income upon expiration of the commitment.
Loans held for sale are stated at the lower of cost or estimated fair value on an aggregate basis. Premiums, discounts and
net deferred loan fees are not amortized while a loan is classified as held for sale. A sale is recognized only when the
consideration received is other than beneficial interests in the assets sold and control over the assets is transferred irrevocably to
the buyer. Gains or losses on sales of loans are recognized at the time of sale and are determined by the difference between the
net sales proceeds and the allocated basis of the loans sold.
Allowance for loan losses. ASB maintains an allowance for loan losses to absorb losses inherent in its loan portfolio. The level
of allowance for loan losses is based on a continuing assessment of existing risks in the loan portfolio, historical loss
experience, changes in collateral values and current conditions (e.g., economic conditions, real estate market conditions and
interest rate environment). The allowance for loan losses is allocated to loan types using both a formula-based approach applied
to groups of loans and an analysis of certain individual loans for impairment. The formula-based approach emphasizes loss
factors primarily derived from actual historical default and loss rates, which are combined with an assessment of certain
qualitative factors to determine the allowance amounts allocated to the various loan categories. Adverse changes in any of these
factors could result in higher charge-offs and provision for loan losses.
ASB disaggregates its portfolio loans into portfolio segments for purposes of determining the allowance for loan losses.
Commercial, commercial real estate, and commercial construction loans are defined as non-homogeneous loans and ASB
utilizes a risk rating system for evaluating the credit quality of the loans. Non-homogeneous loans are also categorized into the
regulatory asset quality classifications—Pass, Special Mention, Substandard, Doubtful, and Loss based on credit quality. ASB
utilizes a numerical-based, risk rating “PD Model” that takes into consideration fiscal year-end financial information of the
borrower and identified financial attributes including retained earnings, operating cash flows, interest coverage, liquidity and
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
leverage that demonstrate a strong correlation with default to assign default probabilities at the borrower level. In addition, a
loss given default (LGD) value is assigned to each loan to measure loss in the event of default based on loan specific features
such as collateral that mitigates the amount of loss in the event of default.
Residential, consumer and credit scored business loans are considered homogeneous loans, which are typically
underwritten based on common, uniform standards. For the homogeneous portfolio, the quality of the loan is best indicated by
the repayment performance of an individual borrower. ASB supplements performance data with external credit bureau data and
credit scores such as the Fair Isaac Corporation (FICO) score on a quarterly basis. ASB has built portfolio loss models for each
major segment based on the combination of internal and external data to predict the probability of default at the loan level.
ASB also considers qualitative factors in determining the allowance for loan losses. These include but are not limited to
adjustments for changes in policies and procedures in underwriting, monitoring or collections, economic conditions, portfolio
mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values and any
concentrations of credit.
The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb
estimated probable losses related to unfunded credit facilities and is included in accounts payable and other liabilities in the
consolidated balance sheets. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded
credit facilities, including an assessment of historical commitment utilization experience, credit risk grading and historical loss
rates. This process takes into consideration the same risk elements that are analyzed in the determination of the adequacy of the
allowance for loan losses, as discussed above. Net adjustments to the reserve for unfunded commitments are included in other
noninterest expense in the consolidated statements of income.
The allowance for loan losses is based on currently available information and historical experience, and future adjustments
may be required from time to time to the allowance for loan losses based on new information and changes that occur (e.g., due
to changes in economic conditions, particularly in Hawaii). Actual losses could differ from management’s estimates, and these
differences and subsequent adjustments could be material.
Nonperforming loans. Loans are generally placed on nonaccrual status when contractually past due 90 days or more, or
earlier if the probability of collection is insufficient to warrant further accrual. All interest that is accrued but not collected is
reversed. A loan may be returned to accrual status if (i) principal and interest payments have been brought current and
repayment of the remaining contractual principal and interest is expected to be made, (ii) the loan has otherwise become well-
secured and in the process of collection, or (iii) the borrower has been making regularly scheduled payments in full for the prior
six months and it is reasonably assured that the loan will be brought fully current within a reasonable period. Cash receipts on
nonaccruing loans are generally applied to reduce the unpaid principal balance.
Loans considered to be uncollectible are charged-off against the allowance for loan losses. The amount and timing of
charge-offs on loans includes consideration of the loan type, length of delinquency, insufficiency of collateral value, lien
priority and the overall financial condition of the borrower. Recoveries on loans previously charged-off are credited back to the
allowance for loan losses. Loans that have been charged-off against the allowance for loan losses are periodically monitored to
evaluate whether further adjustments to the allowance are necessary.
Loans in the commercial and commercial real estate portfolio are charged-off when the loan is risk rated “Doubtful” or
“Loss.” The loan or a portion thereof is determined to be uncollectible after considering the borrower’s overall financial
condition and collateral deficiency. A commercial or commercial real estate loan is considered uncollectible when: (a) the
borrower is delinquent in principal or interest 90 days or more; (b) significant improvement in the borrower’s repayment
capacity is doubtful; and/or (c) collateral value is insufficient to cover outstanding indebtedness and no other viable assets or
repayment sources exist.
Loans in the residential mortgage and home equity portfolios are charged-off when the loan or a portion thereof is
determined to be uncollectible after considering the borrower’s overall financial condition and collateral deficiency. Such loan
is considered uncollectible when: (a) the borrower is delinquent in principal or interest 180 days or more; (b) it is probable that
collateral value is insufficient to cover outstanding indebtedness and no other viable assets or repayment sources exist; (c)
notification of the borrower’s bankruptcy is received or the borrower’s debt is discharged in bankruptcy and the loan is not
reaffirmed; or (d) in cases where ASB is in a subordinate position to other debt, the senior lien holder has foreclosed and ASB’s
junior lien is extinguished.
Other consumer loans are generally charged-off when the balance becomes 120 days delinquent.
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Loans modified in a troubled debt restructuring. Loans are considered to have been modified in a troubled debt restructuring
(TDR) when, due to a borrower’s financial difficulties, ASB makes concessions to the borrower that it would not otherwise
consider for a non-troubled borrower. Modifications may include interest rate reductions, interest only payments for an
extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the
normal market place, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or
repossession of collateral. Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status until the
borrower has demonstrated sustained repayment performance for a period of six consecutive months. However, performance
prior to the modification, or significant events that coincide with the modification, are included in assessing whether the
borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or
after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, or there is
reasonable doubt over the full collectability of principal and interest, the loan remains on nonaccrual status.
Real estate acquired in settlement of loans. ASB records real estate acquired in settlement of loans at fair value, less
estimated selling expenses. ASB obtains appraisals based on recent comparable sales to assist management in estimating the
fair value of real estate acquired in settlement of loans. Subsequent declines in value are charged to expense through a valuation
allowance. Costs related to holding real estate are charged to operations as incurred.
Goodwill. Goodwill is initially recorded as the excess of the purchase price over the fair value of the net assets acquired in a
business combination and is subsequently evaluated at least annually for impairment during the fourth quarter. At December 31,
2019 and 2018, the amount of goodwill was $82.2 million. The goodwill relates to ASB and is the Company’s only intangible
asset with an indefinite useful life.
To determine if there was an impairment to the book value of goodwill pertaining to ASB, the fair value of ASB was
estimated using a valuation method based on a market approach and discounted cash flow method with each method having an
equal weighting in determining the fair value of ASB. The market approach considers publicly traded financial institutions and
measures the institutions’ market values as a multiple to (1) net income and (2) book equity. The median market value multiples
for net income and book equity from the selected institutions were applied to ASB’s net income and book equity to calculate
ASB’s fair value using the market approach. The discounted cash flow method values a company on a going concern basis and
is based on the concept that the future benefits derived from a particular company can be measured by its sustainable after-tax
cash flows in the future. For the three years ended December 31, 2019, there has been no impairment of goodwill.
Mortgage banking. Mortgage loans held for sale are stated at the lower of cost or estimated fair value on an aggregate basis.
Premiums, discounts and net deferred loan fees are not amortized while a loan is classified as held-for-sale. A sale is recognized
only when the consideration received is other than beneficial interests in the assets sold and control over the assets is transferred
irrevocably to the buyer. Gains or losses on sales of loans are recognized at the time of sale and are determined by the
difference between the net sales proceeds and the allocated basis of the loans sold. ASB is obligated to subsequently repurchase
a loan if the purchaser discovers a standard representation or warranty violation such as noncompliance with eligibility
requirements, customer fraud or servicing violations. This primarily occurs during a loan file review. ASB considers and
records a reserve for loan repurchases if appropriate.
ASB recognizes a mortgage servicing asset when a mortgage loan is sold with servicing rights retained. This mortgage
servicing right (MSR) is initially capitalized at its presumed fair value based on market data at the time of sale and accounted
for in subsequent periods at the lower of amortized cost or fair value. Mortgage servicing assets or liabilities are included as a
component of gain on sale of loans. Under ASC Topic 860, “Transfers and Servicing,” ASB amortizes the MSRs in proportion
to and over the period of estimated net servicing income and assess for impairment at each reporting date.
ASB’s MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type such as
fixed-rate 15- and 30-year mortgages and note rate in bands primarily of 50 to 100 basis points. For each stratum, fair value is
calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets.
Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and
expenses associated with servicing residential mortgage loans for others.
ASB uses a present value cash flow model using techniques described above to estimate the fair value of MSRs. Because
observable market prices with exact terms and conditions may not be readily available, ASB compares the fair value of MSRs
to an estimated value calculated by an independent third-party on a semi-annual basis. The third-party relies on both published
and unpublished sources of market related assumptions and its own experience and expertise to arrive at a value. ASB uses the
third-party value only to assess the reasonableness of fair value generated by the valuation model.
Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value,
with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be
unrecoverable.
Loan servicing fee income represents income earned for servicing mortgage loans owned by investors. It includes
mortgage servicing fees and other ancillary servicing income, net of guaranty fees. Servicing fees are generally calculated on
the outstanding principal balances of the loans serviced and are recorded as income when earned.
Tax credit investments. ASB invests in limited liability entities formed to operate qualifying affordable housing projects.
The affordable housing investments provide tax benefits to investors in the form of tax deductions from operating losses
and tax credits. As a limited partner, ASB has no significant influence over the operations. These investments are initially
recorded at the initial capital contribution with a liability recognized for the commitment to contribute additional capital over
the term of the investment.
ASB uses the proportional amortization method of accounting for its investments. Under the proportional amortization
method, ASB amortizes the cost of its investments in proportion to the tax credits and other tax benefits it receives. The
amortization, tax credits and tax benefits are reported as a component of income tax expense.
For these limited liability entities, ASB assesses whether it is the primary beneficiary of the limited liability entity, which is
a variable interest entity (VIE). The primary beneficiary of a VIE is determined to be the party that meets both of the following
criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the
obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE.
Generally, ASB, as a limited partner, is not deemed to be the primary beneficiary as it does not meet the power criterion, i.e., no
power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and no direct ability to
unilaterally remove the general partner.
All tax credit investments are evaluated for potential impairment at least annually, or more frequently, when events or
conditions indicate that it is deemed probable that ASB will not recover its investment. If an investment is determined to be
impaired, it is written down to its estimated fair value and the new cost basis of the investment is not adjusted for subsequent
recoveries in value. As of December 31, 2019, ASB did not have any impairment losses resulting from forfeiture or ineligibility
of tax credits or other circumstances related to its low-income housing tax credit (LIHTC) investments.
At December 31, 2019 and 2018, the carrying amount of LIHTC investments was $66.3 million and $67.6 million,
respectively, and included in other assets in the consolidated balance sheets.
ASB’s unfunded commitments to fund its LIHTC investment partnerships were $23.4 million and $18.1 million as of
December 31, 2019 and 2018, respectively. These unfunded commitments are unconditional and legally binding and are
recorded in other liabilities with a corresponding increase in other assets. As of December 31, 2019, ASB did not have any
impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment
partnerships.
The table below summarizes the amounts in income tax expense related to ASB’s LIHTC investments:
Years ended December 31
(in millions)
2019
2018
2017
Amounts in income taxes related to low-income housing tax credit investments
Amortization recognized in the provision for income taxes
Tax credits and other tax benefits recognized in the provision for income taxes
Net benefit to income tax expense
$
$
(7.9) $
(7.7) $
11.9
10.9
4.0
$
3.2
$
(7.4)
10.7
3.3
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 · Segment financial information
The electric utility and bank segments are strategic business units of the Company that offer different products and services
and operate in different regulatory environments. The accounting policies of the segments are the same as those described for
the Company in the summary of significant accounting policies, except as otherwise indicated and except that federal and state
income taxes for each segment are calculated on a “stand-alone” basis. HEI evaluates segment performance based on net
income. Each segment accounts for intersegment sales and transfers as if the sales and transfers were to third parties (i.e., at
current market prices). Intersegment revenues consist primarily of Hamakua Energy revenues, interest, rent and preferred stock
dividends.
Electric utility
Hawaiian Electric and its wholly owned operating subsidiaries, Hawaii Electric Light and Maui Electric, are public electric
utilities in the business of generating, purchasing, transmitting, distributing and selling electric energy on all major islands in
Hawaii other than Kauai, and are regulated by the PUC. The utility subsidiaries are aggregated within the electric utility
segment because they: (1) are involved in the business of supplying electric energy in the same geographical location (i.e., the
State of Hawaii), (2) have similar production processes that comprise electric generation, (3) serve similar customers within
their franchise territories (e.g., residential, commercial and industrial customers), (4) use similar electric grids to distribute the
energy to their customers, (5) are regulated by the PUC and undergo similar rate-making processes, (6) have similar economic
characteristics and (7) perform financial reporting oversight and management of the business at the consolidated level.
Bank
ASB is a federally chartered savings bank that provides a full range of banking services to individual and business
customers through its branch system in Hawaii. ASB is subject to examination and comprehensive regulation by the Office of
the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), and is subject to reserve
requirements established by the Board of Governors of the Federal Reserve System.
Other
“Other” includes amounts for the holding companies (HEI and ASB Hawaii, Inc.), Pacific Current, and other subsidiaries
not qualifying as reportable segments, and intercompany eliminations.
Pacific Current. Pacific Current was formed in September 2017 to focus on investing in non-regulated renewable energy and
sustainable infrastructure in the State of Hawaii to help achieve the state’s sustainability goals. Significant investments of
Pacific Current made through its subsidiaries, Hamakua Energy, LLC and Mauo, LLC, include:
Hamakua power plant. On November 24, 2017, Hamakua Energy, LLC acquired Hamakua Energy Partners, L.P.’s 60-MW
combined cycle power plant and other assets from affiliates of ArcLight Capital Partners, a private equity firm. The plant sells
all the power it produces to Hawaii Electric Light under an existing power purchase agreement (PPA) that expires in 2030.
Solar + Storage Power Purchase Agreement (PPA). On February 2, 2018, Mauo, LLC executed definitive agreements to
acquire a solar-plus-storage PPA for a multi-site, commercial-scale project that will provide 8.6 MW of solar capacity and 42.3
MWH of storage capacity on the islands of Maui and Oahu. The PPA has a 15-year term with an option to extend for an
additional five years. The system is currently being constructed by a third party contractor under an Engineering, Procurement
and Construction (EPC) contract that was contemporaneously negotiated and executed by Mauo, LLC. The EPC contract
provides a fixed price for the purchase of the completed system, a project completion schedule and performance obligations
designed to match the requirements of the PPA. Mauo, LLC is funding the construction of the project with a construction
facility that will be repaid at the commercial operation date (ultimately with cash from investment tax credits, state renewable
tax credits, non-recourse project debt, and equity). There are five separate project sites, which are expected to be placed into
service during 2020.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment financial information was as follows:
(in thousands)
2019
Revenues from external customers
Intersegment revenues (eliminations)
Revenues
Depreciation and amortization
Interest expense, net
Income (loss) before income taxes
Income taxes (benefit)
Net income (loss)
Preferred stock dividends of subsidiaries
Net income (loss) for common stock
Capital expenditures
Assets (at December 31, 2019)
2018
Revenues from external customers
Intersegment revenues (eliminations)
Revenues
Depreciation and amortization
Interest expense, net
Income (loss) before income taxes
Income taxes (benefit)
Net income (loss)
Preferred stock dividends of subsidiaries
Net income (loss) for common stock
Capital expenditures1
Assets (at December 31, 2018)
2017
Revenues from external customers
Intersegment revenues (eliminations)
Revenues
Depreciation and amortization
Interest expense, net
Income (loss) before income taxes
Income taxes (benefit)
Net income (loss)
Preferred stock dividends of subsidiaries
Net income (loss) for common stock
Capital expenditures1
Assets (at December 31, 2017)
Electric utility
Bank
Other
Total
$
2,545,865
$
328,570
$
166
$
2,874,601
77
2,545,942
245,362
70,842
197,140
38,305
158,835
1,995
156,840
419,898
—
328,570
28,675
18,440
112,034
23,061
88,973
—
88,973
24,175
6,388,682
7,233,017
(77)
89
4,076
20,057
(37,765)
(9,729)
(28,036)
(105)
(27,931)
13,447
123,552
—
2,874,601
278,113
109,339
271,409
51,637
219,772
1,890
217,882
457,520
13,745,251
$
2,546,472
$
314,275
$
102
$
2,860,849
53
2,546,525
230,228
73,348
180,426
34,778
145,648
1,995
143,653
415,264
—
314,275
21,443
15,539
106,578
24,069
82,509
—
82,509
72,666
5,967,503
7,027,894
(53)
49
3,958
15,329
(32,543)
(8,050)
(24,493)
(105)
(24,388)
18,840
108,654
—
2,860,849
255,629
104,216
254,461
50,797
203,664
1,890
201,774
537,369
13,104,051
$
2,257,455
$
297,640
$
530
$
2,555,625
111
2,257,566
201,282
69,637
205,145
83,199
121,946
1,995
119,951
376,865
5,630,613
—
297,640
19,416
12,156
98,716
31,719
66,997
—
66,997
53,272
6,798,659
(111)
419
1,300
9,335
(27,281)
(5,525)
(21,756)
(105)
(21,651)
317
104,888
—
2,555,625
221,998
91,128
276,580
109,393
167,187
1,890
165,297
495,187
12,534,160
1 Contributions in aid of construction balances are included in capital expenditures.
Intercompany electricity sales of the Utilities to ASB and “other” segments are not eliminated because those segments
would need to purchase electricity from another source if it were not provided by the Utilities and the profit on such sales is
nominal.
Bank fees that ASB charges the Utilities and “other” segments are not eliminated because those segments would pay fees to
another financial institution if they were to bank with another institution and the profit on such fees is nominal.
Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 · Electric utility segment
Regulatory assets and liabilities. Regulatory assets represent deferred costs and accrued decoupling revenues which are
expected to be recovered through rates over PUC-authorized periods. Generally, the Utilities do not earn a return on their
regulatory assets; however, they have been allowed to recover interest on certain regulatory assets and to include certain
regulatory assets in rate base. Regulatory liabilities represent amounts included in rates and collected from ratepayers for costs
expected to be incurred in the future, or amounts collected in excess of costs incurred that are refundable to customers. For
example, the regulatory liability for cost of removal in excess of salvage value represents amounts that have been collected from
ratepayers for costs that are expected to be incurred in the future to retire utility plant. Generally, the Utilities include regulatory
liabilities in rate base or are required to apply interest to certain regulatory liabilities. In the table below, noted in parentheses are
the original PUC authorized amortization or recovery periods and, if different, the remaining amortization or recovery periods as
of December 31, 2019 are noted.
Regulatory assets were as follows:
December 31
(in thousands)
Retirement benefit plans (balance primarily varies with plans’ funded statuses)
Income taxes (1-55 years)
Decoupling revenue balancing account and RAM (1-2 years)
Unamortized expense and premiums on retired debt and equity issuances (1-20 years; 1-19 years remaining)
Vacation earned, but not yet taken (1 year)
Other (1-39 years remaining)
Total regulatory assets
Included in:
Current assets
Long-term assets
Total regulatory assets
Regulatory liabilities were as follows:
December 31
(in thousands)
Cost of removal in excess of salvage value (1-60 years)
Income taxes (1-55 years)
Decoupling revenue balancing account and RAM (1-2 years)
Retirement benefit plans (balance primarily varies with plans’ funded statuses)
Other (1-19 years remaining)
Total regulatory liabilities
Included in:
Current liabilities
Long-term liabilities
Total regulatory liabilities
2019
2018
$
554,485
$
624,126
102,612
114,076
—
10,228
12,535
35,220
715,080
30,710
684,370
715,080
$
$
$
49,560
10,065
10,820
24,779
833,426
71,016
762,410
833,426
$
$
$
2019
2018
$
521,977
$
491,006
386,990
413,339
16,370
21,707
25,266
972,310
30,724
941,586
972,310
$
$
$
—
19,129
26,762
950,236
17,977
932,259
950,236
$
$
$
The regulatory asset and liability relating to retirement benefit plans was recorded as a result of pension and OPEB tracking
mechanisms adopted by the PUC in rate case decisions for the Utilities in 2007 (see Note 10).
Major customers. The Utilities received 11% ($281 million), 11% ($273 million) and 11% ($239 million) of their operating
revenues from the sale of electricity to various federal government agencies in 2019, 2018 and 2017, respectively.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cumulative preferred stock. The following series of cumulative preferred stock are redeemable only at the option of the
respective company at the following prices in the event of voluntary liquidation or redemption:
December 31, 2019
Series
C, D, E, H, J and K (Hawaiian Electric)
$
I (Hawaiian Electric)
G (Hawaii Electric Light)
H (Maui Electric)
Voluntary
liquidation price
Redemption
price
$
20
20
100
100
21
20
100
100
Hawaiian Electric is obligated to make dividend, redemption and liquidation payments on the preferred stock of each of its
subsidiaries if the respective subsidiary is unable to make such payments, but this obligation is subordinated to Hawaiian
Electric’s obligation to make payments on its own preferred stock.
Related-party transactions. HEI charged the Utilities $6.0 million, $5.9 million and $6.2 million for general management and
administrative services in 2019, 2018 and 2017, respectively. The amounts charged by HEI to its subsidiaries for services
provided by HEI employees are allocated primarily on the basis of time expended in providing such services.
For the years ended December 31, 2019 and December 31, 2018, Hamakua Energy, LLC (an indirect subsidiary of HEI) sold
energy and capacity to Hawaii Electric Light (subsidiary of Hawaiian Electric and indirect subsidiary of HEI) under a PPA in the
amount of $68 million and $56 million, respectively.
Hawaiian Electric’s short-term borrowings from HEI totaled nil at December 31, 2019 and 2018. Borrowings among the
Utilities are eliminated in consolidation. Interest charged by HEI to Hawaiian Electric was not material for the years ended
December 31, 2019 and 2018.
HECO Capital Trust III. Trust III, a wholly-owned unconsolidated subsidiary of Hawaiian Electric, was created and exists for
the exclusive purposes of (i) issuing in March 2004 2,000,000 6.50% Cumulative Quarterly Income Preferred Securities,
Series 2004 (2004 Trust Preferred Securities) ($50 million aggregate liquidation preference) to the public and trust common
securities ($1.5 million aggregate liquidation preference) to Hawaiian Electric, (ii) investing the proceeds of these trust securities
in 2004 Debentures issued by Hawaiian Electric in the principal amount of $31.5 million and issued by Hawaii Electric Light and
Maui Electric each in the principal amount of $10 million, (iii) making distributions on these trust securities and (iv) engaging in
only those other activities necessary or incidental thereto. On May 15, 2019, Trust III redeemed $50 million of its outstanding
2004 Trust Preferred Securities and $1.5 million of trust common securities. Subsequently a Certificate of Cancellation of
Statutory Trust was filed with the Delaware Secretary of State in order to cancel the Trust III, which became effective on June 10,
2019.
For the year-to-date period ending on the Trust’s cancellation date on June 10, 2019, Trust III’s income statement consisted of
$1.2 million of interest income received from the 2004 Debentures; $1.2 million of distributions to holders of the Trust Preferred
Securities; and $37,000 of common dividends on the trust common securities to Hawaiian Electric.
Unconsolidated variable interest entities.
Power purchase agreements. As of December 31, 2019, the Utilities had four PPAs for firm capacity (excluding the PGV
PPA as Puna Geothermal Venture (PGV) has been offline since May 2018 due to lava flow on Hawaii Island) and other PPAs with
independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or power production
facilities who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs.
Pursuant to the current accounting standards for VIEs, the Utilities are deemed to have a variable interest in Kalaeloa
Partners, L.P. (Kalaeloa), AES Hawaii, Inc. (AES Hawaii) and Hamakua Energy by reason of the provisions of the PPA that the
Utilities have with the three IPPs. However, management has concluded that the Utilities are not the primary beneficiary of
Kalaeloa, AES Hawaii and Hamakua Energy because the Utilities do not have the power to direct the activities that most
significantly impact the three IPPs’ economic performance nor the obligation to absorb their expected losses, if any, that could
potentially be significant to the IPPs. Thus, the Utilities have not consolidated Kalaeloa, AES Hawaii and Hamakua Energy in its
consolidated financial statements. Hamakua Energy is an indirect subsidiary of Pacific Current, and is consolidated in HEI’s
consolidated financial statements.
For the other PPAs with IPPs, the Utilities have concluded that the consolidation of the IPPs was not required because either
the Utilities do not have variable interests in the IPPs due to the absence of an obligation in the PPAs for the Utilities to absorb
any variability of the IPPs, or the IPP was considered a “governmental organization,” and thus excluded from the scope of
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
accounting standards for VIEs. Two IPPs of as-available energy declined to provide the information necessary for Utilities to
determine the applicability of accounting standards for VIEs.
If information is ultimately received from the IPPs, a possible outcome of future analyses of such information is the
consolidation of one or both of such IPPs in the Consolidated Financial Statements. The consolidation of any significant IPP
could have a material effect on the Consolidated Financial Statements, including the recognition of a significant amount of assets
and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such
losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has
a material effect, the Utilities would retrospectively apply accounting standards for VIEs to the IPP.
Commitments and contingencies.
Contingencies. The Utilities are subject in the normal course of business to pending and threatened legal proceedings.
Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings
will be material to its financial position. However, the Utilities cannot rule out the possibility that such outcomes could have a
material effect on the results of operations or liquidity for a particular reporting period in the future.
Power purchase agreements. Purchases from all IPPs were as follows:
Years ended December 31
(in millions)
Kalaeloa
AES Hawaii
HPOWER
Puna Geothermal Venture
Hamakua Energy
Wind IPPs
Solar IPPs
Other IPPs1
Total IPPs
2019
2018
2017
214
139
76
—
68
95
36
5
633
$
$
216
140
69
15
56
107
29
7
639
$
$
180
140
67
38
35
97
27
3
587
$
$
1 Includes hydro power and other PPAs
As of December 31, 2019, the Utilities had four firm capacity PPAs for a total of 516.5 megawatts (MW) of firm capacity.
Since May 2018, PGV facility with 34.6 MW of firm capacity has been offline due to lava flow on Hawaii Island. The PUC
allows rate recovery for energy and firm capacity payments to IPPs under these agreements. Assuming that each of the
agreements remains in place for its current term (and as amended) and the minimum availability criteria in the PPAs are met,
aggregate minimum fixed capacity charges are expected to be approximately $51 million in 2020, $38 million each in 2021, 2022,
2023 and 2024, and $241 million from 2025 through 2033.
In general, the Utilities base their payments under the PPAs upon available capacity and actual energy supplied and they are
generally not required to make payments for capacity if the contracted capacity is not available, and payments are reduced, under
certain conditions, if available capacity drops below contracted levels. In general, the payment rates for capacity have been
predetermined for the terms of the agreements. Energy payments will vary over the terms of the agreements. The Utilities pass on
changes in the fuel component of the energy charges to customers through the ECRC in their rate schedules. The Utilities do not
operate, or participate in the operation of, any of the facilities that provide power under the agreements. Title to the facilities does
not pass to Hawaiian Electric or its subsidiaries upon expiration of the agreements, and the agreements do not contain bargain
purchase options for the facilities.
Purchase power adjustment clause. The PUC has approved purchased power adjustment clauses (PPACs) for the
Utilities. Purchased power capacity, O&M and other non-energy costs previously recovered through base rates are now recovered
in the PPACs and, subject to approval by the PUC, such costs resulting from new purchased power agreements can be added to
the PPACs outside of a rate case. Purchased energy costs continue to be recovered through the ECRC.
Kalaeloa Partners, L.P. Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm
capacity from Kalaeloa. Hawaiian Electric and Kalaeloa are currently in negotiations to address the PPA term that ended on May
23, 2016. The PPA automatically extends on a month-to-month basis as long as the parties are still negotiating in good faith.
Hawaiian Electric and Kalaeloa have agreed that neither party will terminate the PPA (which has been subject to automatic
extension on a month-to-month basis) prior to July 31, 2020, to allow for a negotiated resolution and PUC approval.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amendment No. 2) for a period of 30
years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. Hawaiian
Electric and AES Hawaii have been in dispute over an additional 9 MW of capacity. In February 2018, Hawaiian Electric reached
agreement with AES Hawaii on an amendment to the PPA. However, in June 2018, the PUC issued an order suspending review of
the amendment pending a DOH decision on AES Hawaii’s request for approval of its Emission Reduction Plan and partnership
with Hawaiian Electric. If approved by the PUC, the amendment will resolve AES Hawaii’s claims related to the additional
capacity.
Hu Honua Bioenergy, LLC (Hu Honua). In May 2012, Hawaii Electric Light signed a PPA, which the PUC approved in
December 2013, with Hu Honua for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a
facility on the island of Hawaii. Under the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016.
However, Hu Honua encountered construction and litigation delays, which resulted in an amended and restated PPA between
Hawaii Electric Light and Hu Honua dated May 5, 2017. In July 2017, the PUC approved the amended and restated PPA, which
becomes effective once the PUC’s order is final and non-appealable. In August 2017, the PUC’s approval was appealed by a third
party. On May 10, 2019, the Hawaii Supreme Court issued a decision remanding the matter to the PUC for further proceedings
consistent with the court’s decision which must include express consideration of Green House Gas emissions that would result
from approving the PPA, whether the cost of energy under the PPA is reasonable in light of the potential for GHG emissions, and
whether the terms of the PPA are prudent and in the public interest, in light of its potential hidden and long-term consequences.
On June 20, 2019, the PUC issued an order reopening the docket for further proceedings. On September 29, 2019, the PUC issued
an order setting the procedural schedule for the matter and on December 20, 2019, issued an order modifying the procedural
schedule. Pre-hearing matters will be conducted through March 6, 2020. Thereafter, the PUC will set the date for an evidentiary
hearing and post-hearing briefing. Hu Honua expected to complete construction of the plant in the fourth quarter of 2019, but has
been delayed.
Utility projects. Many public utility projects require PUC approval and various permits from other governmental agencies.
Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits can result in significantly increased project
costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow
cost recovery for all or part of a project, or if PUC-imposed caps on project costs are expected to be exceeded, project costs may
need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.
Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) implementation project. On August 11, 2016,
the PUC approved the Utilities’ request to commence the ERP/EAM implementation project, subject to certain conditions,
including a $77.6 million cap on cost recovery as well as a requirement that the Utilities achieve future cost savings consistent
with a minimum of $246 million in ERP/EAM project-related benefits to be delivered to customers over the system’s 12-year
service life. The decision and order (D&O) approved the deferral of certain project costs and allowed the accrual of allowance for
funds used during construction (AFUDC), but limited the AFUDC rate to 1.75%.
The ERP/EAM Implementation Project went live in October 2018. In the Hawaiian Electric 2017 rate case, a settlement
agreement approved by the PUC included authorization for the deferred project costs to accrue a return at 1.75% after the
project went into service and until the deferred project costs are included in rate base, and for amortization of the deferred
costs to not begin until the amortization expense is incorporated in rates and the unamortized deferred project costs are
included in rate base. As of December 31, 2019, the total deferred project costs and accrued carrying costs after the project
went into service amounted to $59.3 million.
In February 2019, the PUC approved a methodology for passing the future cost saving benefits of the new ERP/EAM system
to customers developed by the Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification
document on June 10, 2019, reflecting $150 million in future net O&M expense reductions and cost avoidance, and $96 million in
capital cost reductions and tax savings over the 12-year service life. To the extent the reduction in O&M expense relates to
amounts reflected in electric rates, the Utilities would reduce future rates for such amounts. As of December 31, 2019, the
Utilities recorded a total of $2.4 million as a regulatory liability for amounts to be returned to customers for reduction in O&M
expense included in rates.
On September 13, 2019, the Utilities filed their Semi-Annual Enterprise System Benefits Report for the period January 1
through June 30, 2019. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance
Metrics and Tracking Mechanism.
West Loch PV Project. In November 2019, Hawaiian Electric placed into service a 20-MW (ac) utility-owned and
operated renewable and dispatchable solar facility on property owned by the Department of the Navy. PUC orders resulted in a
project cost cap of $67 million and a performance guarantee to provide energy at 9.56 cents/kWh or less to the system. Capital
cost recovery under MPIR was approved by the PUC in December 2019 (See “Decoupling” section below for MPIR guidelines
and cost recovery discussion.) Project costs incurred as of December 31, 2019 amounted to $51.4 million and generated
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$13.4 million and $14.0 million in federal and state nonrefundable tax credits, respectively. The tax credits are being deferred and
amortized, starting in 2020, over PUC-approved amortization periods.
Environmental regulation. The Utilities are subject to environmental laws and regulations that regulate the operation of
existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and
toxic substances.
Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other
chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and
as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date
will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations,
financial condition or liquidity.
Former Molokai Electric Company generation site. In 1989, Maui Electric acquired by merger Molokai Electric
Company. Molokai Electric Company had sold its former generation site (Site) in 1983 but continued to operate at the Site under
a lease until 1985. The EPA has since identified environmental impacts in the subsurface soil at the Site.In cooperation with the
Hawaii Department of Health and EPA, Maui Electric further investigated the Site and the Adjacent Parcel to determine the extent
of impacts of polychlorinated biphenyls (PCBs), residual fuel oils and other subsurface contaminants. Maui Electric has a reserve
balance of $2.7 million as of December 31, 2019, representing the probable and reasonably estimable undiscounted cost for
remediation of the Site and the Adjacent Parcel; however, final costs of remediation will depend on cleanup approach
implemented.
Pearl Harbor sediment study. In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that
Hawaiian Electric is a Potentially Responsible Party responsible for the costs of investigation and cleanup of PCBs contamination
in sediment in the area offshore of the Waiau Power Plant as part of the Pearl Harbor Superfund Site. Hawaiian Electric was also
required by the EPA to assess potential sources and extent of PCB contamination onshore at Waiau Power Plant.
As of December 31, 2019, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was
$4.2 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore
investigation and the remediation of PCB contamination in the offshore sediment. The final remediation costs will depend on the
potential onshore source control requirements and actual offshore cleanup costs.
Asset retirement obligations. AROs represent legal obligations associated with the retirement of certain tangible long-lived
assets, are measured as the present value of the projected costs for the future retirement of specific assets and are recognized in
the period in which the liability is incurred if a reasonable estimate of fair value can be made. The Utilities’ recognition of AROs
have no impact on their earnings. The cost of the AROs is recovered over the life of the asset through depreciation. AROs
recognized by the Utilities relate to legal obligations associated with the retirement of plant and equipment, including removal of
asbestos and other hazardous materials.
The Utilities recorded AROs related to 1) the removal of retired generating units, certain types of transformers and
underground storage tanks; 2) the abandonment of fuel pipelines, underground injection and supply wells; and 3) the removal of
equipment and restoration of leased land used in connection with Utility-owned renewable and dispatchable generation facilities.
Changes to the ARO liability included in “Other liabilities” on Hawaiian Electric’s balance sheet were as follows:
(in thousands)
Balance, January 1
Accretion expense
Liabilities incurred
Liabilities settled
Revisions in estimated cash flows
Balance, December 31
2019
$
8,426
$
312
1,594
(8)
—
$
10,324
$
2018
6,035
282
1,058
(74)
1,125
8,426
The Utilities have not recorded AROs for assets that are expected to operate indefinitely or where the Utilities cannot
estimate a settlement date (or range of potential settlement dates). As such, ARO liabilities are not recorded for certain asset
retirement activities, including various Utilities-owned generating facilities and certain electric transmission, distribution and
telecommunications assets resulting from easements over property not owned by the Utilities.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Regulatory proceedings.
Decoupling. Decoupling is a regulatory model that is intended to provide the Utilities with financial stability and
facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable
portfolio standard. The decoupling mechanism has the following major components: (1) monthly revenue balancing account
(RBA) revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which
delinks revenues from kilowatthour sales, (2) RAM revenues for escalation in certain O&M expenses and rate base changes, (3)
MPIR component, (4) performance incentive mechanisms (PIMs), and (5) an earnings sharing mechanism, which would provide
for a reduction of revenues between rate cases in the event the utility exceeds the return on average common equity (ROACE)
allowed in its most recent rate case. Under the decoupling mechanism, triennial general rate cases are required.
Rate adjustment mechanism. The RAM is based on the lesser of: a) an inflationary adjustment for certain O&M
expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic
Product Price Index applied to annualized target revenues (the RAM Cap). Annualized target revenues reset upon the issuance of
an interim or final D&O in a rate case. Each of the Utilities’ RAM revenues was below its respective RAM Cap in 2019. The
2019 RAM also incorporated additional amortization of the regulatory liability associated with certain excess deferred taxes
resulting from the Tax Act decrease in tax rates. The reduction in the RAM revenues will be counterbalanced by the lower income
tax expense and, therefore, will have no net income impact.
Major project interim recovery. On April 27, 2017, the PUC issued an order that provided guidelines for interim
recovery of revenues to support major projects placed in service between general rate cases.
Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital
expenditures net of customer contributions in excess of $2.5 million), including, but not restricted to, renewable energy, energy
efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The
MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in
service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective
recovery mechanisms. The request for PUC approval must include a business case, and all costs that are allowed to be recovered
through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues
approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital projects that are
not recovered through the MPIR would be included in the RAM and be subject to the RAM Cap, until the next rate case when the
Utilities would request recovery in base rates.
The PUC approved recovery of capital costs under the MPIR for Schofield Generating Station, which increased revenues in
2018 by $3.6 million and are being collected in customer bills since June 2019. In February 2019, Hawaiian Electric submitted an
MPIR filing of $19.8 million for 2019 (which accrued effective January 1, 2019) that included the 2019 return on project amount
(up to the capped amount) in rate base, depreciation and incremental O&M expenses, for collection from June 2020 through May
2021.
The PUC approved the Utilities’ requests for MPIR of the cost of the Grid Modernization Strategy Phase 1 project and West
Loch PV project in March and December 2019, respectively. On February 7, 2020, the Utilities submitted an MPIR filing totaling
$24.2 million for the Schofield Generation Station ($19.2 million), West Loch PV project ($4.5 million) and Grid Modernization
Strategy Phase 1 project ($0.5 million for all three utilities) for the accrual of revenues effective January 1, 2020, that included the
2020 return on project amount (up to the capped amount) in rate base, depreciation and incremental O&M expenses, for collection
from June 2021 through May 2022.
Performance incentive mechanisms. The PUC has established the following PIMs.
•
Service Quality performance incentives are measured on a calendar-year basis. The PIM tariff requires the performance
targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels
for each of the PIMs to be re-determined upon issuance of an interim or final order in a general rate case for each utility.
•
•
Service Reliability Performance measured by System Average Interruption Duration and Frequency Indexes
(penalties only). Target performance is based on each utility’s historical 10-year average performance with a
deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to
the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately
$6.7 million - for both indices in total for the three utilities).
Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is
based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3%
above and below the target. The maximum penalty or reward is 8 basis points applied to the common equity share of
106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
each respective utility’s approved rate base (or maximum penalties or rewards of approximately $1.3 million - in
total for the three utilities).
•
•
In December 2018, the Utilities accrued $2.1 million in estimated penalties for service reliability, net of call center
performance rewards, for 2018. As a result of a PUC order denying the exclusion of the impact of a specific project
on the service reliability performance, in May 2019, Hawaiian Electric accrued an additional $1.3 million in service
reliability penalties related to 2018. The net service quality performance penalties related to 2018 were reflected in
the 2019 annual decoupling filing and will reduce customer rates in the period June 1, 2019 through May 31, 2020.
In December 2019, the Utilities accrued $0.3 million in estimated rewards for call center performance, net of service
reliability penalties, for 2019. The net service quality performance rewards related to 2019 will be reflected in the
2020 annual decoupling filing and will increase customer rates in the period June 1, 2020 through May 31, 2021.
•
Procurement of low-cost variable renewable resources through the request for proposal process in 2018 measured by
comparison of the procurement price to target prices. The incentive is a percentage of the savings determined by
comparing procured price to a target of 11.5 cents per kilowatt-hour for renewable projects with storage capability and
9.5 cents per kilowatt-hour for energy-only renewable projects. For PPAs filed by December 31, 2018 and subsequently
approved by the PUC, the incentive is 20% of the savings, with a cap of $3.5 million for the three utilities in total. For
PPAs filed in January, February, and March 2019 and subsequently approved by the PUC, scaled incentives are 15%,
10% and 5%, respectively, of the savings for PPAs, with a cap of $3 million for the three utilities in total. There are no
penalties. On March 25, 2019, the PUC approved six contracts, which were filed by December 31, 2018 and qualified for
incentives. A seventh contract, which was filed in February 2019 and approved in August 2019, also qualified for
incentives. Half of the incentive is earned upon PUC approval of the contract and the other half is eligible to be earned in
the year following the in-service date of the projects. The Utilities accrued $1.7 million in incentives in March 2019,
which were reflected in the 2019 annual decoupling filing and will be recovered in rates in the period June 1, 2019
through May 31, 2020.
On October 9, 2019, the PUC issued an order establishing PIMs for the Utilities with regards to the Variable
Renewable Dispatchable Generation and Energy Storage requests for proposals (RFPs) as well as the Delivery of Grid
Services via Customer-sited Distributed Energy Resources RFPs, that were issued on August 22, 2019 for Oahu, Maui
and Hawaii island. The order establishes pricing thresholds, timelines to complete contracting, and other performance
criteria for the performance incentive eligibility. The PIMs provide incentives only without penalties. The earliest the
Utilities would be eligible for a PIM pursuant to this order is upon PUC approval of executed contracts resulting from
the Phase 2 RFPs. The order requires contracts under the Grid Service RFP be filed for approval by May 2020, and by
September 2020 under the Renewable RFPs. There is no set time period for approval. The Utilities filed a motion for
reconsideration and/or clarification regarding the order on October 21, 2019, relating to certain design aspects and
eligibility criteria for the PIMs.
Annual decoupling filings. The net annual incremental amounts approved to be collected (refunded) from June 1, 2019
through May 31, 2020 are as follows:
(in millions)
2019 Annual incremental RAM adjusted revenues,net of changes in Tax
Act adjustment*
Annual change in accrued RBA balance as of December 31, 2018 (and
associated revenue taxes) which incorporates MPIR recovery
Performance Incentive Mechanisms (net)
Hawaiian
Electric
Hawaii
Electric Light Maui Electric
Total
$
6.5
$
1.1
$
5.4
$
13.0
(12.2)
(1.3)
(2.0)
—
0.8
(0.4)
(13.4)
(1.7)
(2.1)
Net annual incremental amount to be collected (refunded) under the tariffs
$
(7.0) $
(0.9) $
5.8
$
* The 2017 Tax Cuts and Jobs Act (the Tax Act) had two incremental impacts in 2019. First, the 2019 RAM calculation for all of the Utilities incorporated
additional amortization of the regulatory liability associated with certain deferred taxes. Secondly, Maui Electric incorporated a $2.8 million adjustment in its
2018 annual decoupling filing related to the Tax Act which is not recurring in 2019.
Performance-based regulation proceeding. On April 18, 2018, the PUC issued an order, instituting a proceeding to
investigate performance-based regulation (PBR). The PUC stated that PBR seeks to utilize both revenue adjustment mechanisms
and performance mechanisms to more strongly align utilities’ incentives with customer interests.
The order stated that, in general, the PUC is interested in ratemaking elements and/or mechanisms that result in:
•
•
•
•
Greater cost control and reduced rate volatility;
Efficient investment and allocation of resources regardless of classification as capital or operating expense;
Fair distribution of risks between utilities and customers; and
Fulfillment of State policy goals.
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The proceeding has two phases. Phase 1 examined the current regulatory framework and identified those areas of utility
performance that are deserving of further focus in Phase 2. In May 2019, the PUC issued an order concluding Phase 1, which
established guiding principles, regulatory goals, and priority outcomes to guide the development of the PBR mechanisms in Phase
2. The PUC identified the following guiding principles, which will inform the development of the PBR framework: 1) a
customer-centric approach, 2) administrative efficiency to reduce regulatory burdens; and 3) utility financial integrity to maintain
the utility’s financial health. Priority goals (and priority outcomes) identified by the PUC were: enhance customer experience
(affordability, reliability, interconnection experience, and customer engagement), improve utility performance (cost control,
distributed energy resources (DER) asset effectiveness, and grid investment efficiency), and advance societal outcomes (capital
formation, customer equity, GHG reduction, electrification of transportation, and resilience).
The order also outlined the PUC’s vision of a comprehensive PBR framework that would be further developed in Phase 2.
The framework envisioned would include 1) a five-year multi-year rate plan with an index-driven annual revenue adjustment
based on an inflation factor, an X-factor which would encompass productivity, a Z-factor to account for exceptional circumstances
not in the utility’s control and a customer dividend, 2) a symmetric earnings sharing mechanism that would help ensure that utility
earnings do not excessively benefit or suffer from external factors outside of utility control or unforeseen results of regulatory
mechanisms, 3) off-ramp provisions, 4) continuation of the RBA, MPIR adjustment mechanism, the pension and OPEB tracking
mechanism, and other recovery mechanisms, and 5) a portfolio of performance incentive mechanisms for customer engagement
and DER asset effectiveness (rewards only), and interconnection experience (both rewards and penalties), in addition to
scorecards to track progress against targeted performance levels, shared savings mechanisms to apportion savings to the utility
and customers, and reported metrics.
The Phase 2 schedule includes working group meetings through the first half of 2020, followed by statements of positions,
evidentiary hearing in October 2020 and anticipated decision in December 2020.
Most recent rate proceedings.
Hawaiian Electric 2020 test year rate case. On August 21, 2019, Hawaiian Electric filed an application for a general rate
increase for its 2020 test year rate case, requesting an increase of $77.6 million over revenues at current effective rates (for a
4.1% increase in revenues), based on an 8.0% rate of return (which incorporates a ROACE of 10.5%). In September 2019, the
PUC issued an order ruling that Hawaiian Electric’s application was complete as of the date of filing. It also ordered that an
outside consultant, selected by the PUC, would independently conduct a management audit of Hawaiian Electric. The PUC
expects the audit to conclude in May 2020.
Maui Electric consolidated 2015 and 2018 test year rate cases. On August 9, 2018, the PUC approved an interim rate
increase based on a stipulated settlement, that included the effects of the 2017 Tax Act, between Maui Electric and the Consumer
Advocate. On March 18, 2019, the PUC issued its D&O that approved, with certain modifications, the stipulated settlement,
which addressed all issues in the rate case.
Revised tariffs reflecting a final increase of $12.2 million over revenues at current effective rates based on the approved
7.43% rate of return (which incorporates a ROACE of 9.5% and a capital structure that includes a 57% common equity
capitalization) on a $454 million rate base became effective on June 1, 2019. Maui Electric’s ECRC tariff, resulting in the
recovery of all fuel and purchased energy through the ECRC and the removal of the recovery of these costs from base rates,
became effective on September 1, 2019. The ECRC reflects a 98%/2% fossil fuel generation cost risk-sharing split between
ratepayers and Maui Electric, with an annual maximum increase or decrease to revenues to $0.6 million for the utility.
Hawaii Electric Light 2019 test year rate case. On December 14, 2018, Hawaii Electric Light filed an application for a
general rate increase for its 2019 test year rate case, requesting an increase of $13.4 million over revenues at current effective
rates (for a 3.4% increase in revenues), based on an 8.3% rate of return (which incorporates a ROACE of 10.5%).
On September 24, 2019, Hawaii Electric Light and the Consumer Advocate (Parties) filed a Stipulated Partial Settlement
Letter (Partial Settlement) which documented agreements reached with the Consumer Advocate on all of the issues in the
proceeding except for the ROACE, capital structure, amortization period for the state investment tax credit (ITC), and symmetric
or asymmetric automatic annual target heat rate adjustment (collectively, remaining issues). On November 13, 2019, the PUC
issued an interim decision maintaining Hawaii Electric Light’s revenues at current effective rates based on an interim revenue
requirement of $387 million, average rate base of $534 million, and a 7.52% ROR on average rate base that incorporates a
ROACE of 9.5% and 58.0% total equity ratio. On November 25, 2019, the Parties filed separate responses to the interim order,
agreeing that: (1) they do not intend to withdraw from the Partial Settlement; (2) they waive their respective rights to an
evidentiary hearing on the remaining contested issues; and (3) the remaining issues in the proceeding can be decided based on the
evidence in the record and should be the subject of the filing of opening and reply briefs in February 2020. On December 13,
2019, the PUC issued an order approving the interim tariffs (effective January 1, 2020), removing the evidentiary hearing from
108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
the procedural schedule, and scheduling the filing of supplemental evidence on January 17, 2020 and simultaneous opening and
reply briefs on February 3, 2020 and February 24, 2020. There is no statutory deadline for the PUC to issue a final decision.
Consolidating financial information. Consolidating financial information for Hawaiian Electric and its subsidiaries are
presented for the years ended December 31, 2019, 2018 and 2017, and as of December 31, 2019 and 2018.
Hawaiian Electric unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of
Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric
Light and Maui Electric and (b) under their respective private placement note agreements and the Hawaii Electric Light notes and
Maui Electric notes issued thereunder (see Hawaiian Electric and Subsidiaries’ Consolidated Statements of Capitalization).
Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend,
redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is
unable to make such payments.
109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Maui
Electric
378,202
Other
subsidiaries
—
Consolidating
adjustments
(548) [1]
Hawaiian
Electric
Consolidated
2,545,942
$
Consolidating statement of income
Year ended December 31, 2019
(in thousands)
Revenues
Expenses
Fuel oil
Purchased power
Other operation and maintenance
Depreciation
Taxes, other than income taxes
Total expenses
Operating income
Allowance for equity funds used during
construction
Equity in earnings of subsidiaries
Retirement defined benefits expense—other
than service costs
Interest expense and other charges, net
Allowance for borrowed funds used during
construction
Income before income taxes
Income taxes
Net income
Preferred stock dividends of subsidiaries
Net income attributable to Hawaiian
Electric
Preferred stock dividends of Hawaiian
Electric
Hawaiian
Electric
$ 1,803,698
494,728
494,215
319,771
143,470
170,979
1,623,163
180,535
9,955
43,167
Hawaii
Electric
Light
364,590
84,565
90,989
76,091
41,812
33,787
327,244
37,346
816
—
141,416
48,052
85,875
30,449
35,365
341,157
37,045
1,216
—
(2,287)
(51,199)
(422)
(10,741)
(127)
(9,450)
3,666
183,837
25,917
157,920
—
342
27,341
5,990
21,351
534
445
29,129
6,398
22,731
381
157,920
20,817
22,350
1,080
—
—
Net income for common stock
$
156,840
20,817
22,350
Consolidating statement of comprehensive income
Year ended December 31, 2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(548)
—
(43,167) [2]
—
548 [1]
—
(43,167)
—
(43,167)
—
(43,167)
—
720,709
633,256
481,737
215,731
240,131
2,291,564
254,378
11,987
—
(2,836)
(70,842)
4,453
197,140
38,305
158,835
915
157,920
1,080
(43,167)
$
156,840
(in thousands)
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income for common stock
$
156,840
20,817
22,350
—
(43,167)
$
156,840
Other comprehensive income (loss), net of
taxes:
Retirement benefit plans:
Net gains (losses) arising during the period,
net of taxes
Adjustment for amortization of prior
service credit and net losses recognized
during the period in net periodic benefit
cost, net of tax benefits
Reclassification adjustment for impact of
D&Os of the PUC included in regulatory
assets, net of taxes
Other comprehensive loss, net of tax benefits
Comprehensive income attributable to
common shareholder
5,249
373
(204)
9,550
1,455
1,182
(16,177)
(1,378)
(1,840)
(1,152)
(12)
(174)
$
155,462
20,805
22,176
—
—
—
—
—
(169) [1]
5,249
(2,637) [1]
9,550
2,992 [1]
186
(16,177)
(1,378)
(42,981)
$
155,462
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statement of income
Year ended December 31, 2018
(in thousands)
Revenues
Expenses
Fuel oil
Purchased power
Other operation and maintenance
Depreciation
Taxes, other than income taxes
Total expenses
Operating income
Allowance for equity funds used
during construction
Equity in earnings of subsidiaries
Retirement defined benefits expense—other
than service costs
Interest expense and other charges, net
Allowance for borrowed funds used during
construction
Income before income taxes
Income taxes
Net income
Preferred stock dividends of subsidiaries
Net income attributable to Hawaiian
Electric
Preferred stock dividends of Hawaiian Electric
Net income for common stock
$
Hawaiian
Electric
$ 1,802,550
Hawaii
Electric
Light
375,493
Maui
Electric
368,700
Other
subsidiaries
—
Consolidating
adjustments
(218) [1]
Hawaiian
Electric
Consolidated
2,546,525
$
523,706
494,450
313,346
137,410
170,363
1,639,275
163,275
9,208
45,393
90,792
95,838
70,396
40,235
34,850
332,111
43,382
478
—
(2,649)
(52,180)
(417)
(11,836)
4,019
167,066
22,333
144,733
—
144,733
1,080
143,653
276
31,883
6,868
25,015
534
24,481
—
24,481
146,030
49,019
77,749
25,981
34,699
333,478
35,222
1,191
—
(565)
(9,550)
572
26,870
5,577
21,293
381
20,912
—
20,912
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(218)
—
(45,393) [2]
—
218 [1]
—
(45,393)
—
(45,393)
—
(45,393)
—
(45,393)
$
760,528
639,307
461,491
203,626
239,912
2,304,864
241,661
10,877
—
(3,631)
(73,348)
4,867
180,426
34,778
145,648
915
144,733
1,080
143,653
Consolidating statement of comprehensive income
Year ended December 31, 2018
(in thousands)
Net income for common stock
Other comprehensive income (loss), net of
taxes:
Retirement benefit plans:
Net losses arising during the period, net of
tax benefits
Adjustment for amortization of prior service
credit and net losses recognized during the
period in net periodic benefit cost, net of
tax benefits
Reclassification adjustment for impact of
D&Os of the PUC included in regulatory
assets, net of taxes
Other comprehensive income, net of taxes
Comprehensive income attributable to common
shareholder
Hawaiian
Electric
Hawaii
Electric Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
$ 143,653
24,481
20,912
—
(45,393)
$
143,653
(26,019)
(6,090)
(5,004)
19,012
2,819
2,423
8,325
1,318
3,305
34
2,788
207
$ 144,971
24,515
21,119
—
—
—
—
—
11,094 [1]
(26,019)
(5,242) [1]
19,012
(6,093) [1]
(241)
8,325
1,318
(45,634)
$
144,971
111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statement of income
Year ended December 31, 2017
(in thousands)
Revenues
Expenses
Fuel oil
Purchased power
Other operation and maintenance
Depreciation
Taxes, other than income taxes
Total expenses
Operating income
Allowance for equity funds used
during construction
Equity in earnings of subsidiaries
Retirement defined benefits expense—other
than service costs
Interest expense and other charges, net
Allowance for borrowed funds used during
construction
Income before income taxes
Income taxes
Net income
Preferred stock dividends of subsidiaries
Net income attributable to Hawaiian
Electric
Preferred stock dividends of Hawaiian Electric
Net income for common stock
$
Hawaiian
Electric
$ 1,598,504
Hawaii
Electric
Light
333,467
Maui
Electric
325,678
Other
subsidiaries
—
Consolidating
adjustments
(83) [1]
Hawaiian
Electric
Consolidated
2,257,566
$
408,204
454,189
274,391
130,889
152,933
1,420,606
177,898
10,896
38,057
63,894
87,772
66,184
38,741
31,184
287,775
45,692
554
—
(5,049)
(48,277)
(93)
(11,799)
4,089
177,614
56,583
121,031
—
121,031
1,080
119,951
238
34,592
13,912
20,680
534
20,146
—
20,146
115,670
44,673
71,332
23,154
30,832
285,661
40,017
1,033
—
(861)
(9,644)
451
30,996
12,704
18,292
381
17,911
—
17,911
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(83)
—
(38,057) [2]
—
83 [1]
—
(38,057)
—
(38,057)
—
(38,057)
—
(38,057)
$
587,768
586,634
411,907
192,784
214,949
1,994,042
263,524
12,483
—
(6,003)
(69,637)
4,778
205,145
83,199
121,946
915
121,031
1,080
119,951
Consolidating statement of comprehensive income
Year ended December 31, 2017
(in thousands)
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income for common stock
$
119,951
20,146
17,911
—
(38,057)
$
119,951
Other comprehensive income (loss), net of
taxes:
Derivatives qualified as cash flow hedges:
Reclassification adjustment to net income, net
of tax benefits
Retirement benefit plans:
Net gains arising during the period, net of
taxes
Adjustment for amortization of prior service
credit and net losses recognized during the
period in net periodic benefit cost, net of
tax benefits
Reclassification adjustment for impact of
D&Os of the PUC included in regulatory
assets, net of taxes
Other comprehensive income (loss), net of
taxes
Comprehensive income attributable to common
454
—
—
—
—
454
63,105
3,093
7,329
—
(10,422) [1]
63,105
14,477
1,903
1,619
(78,724)
(4,994)
(9,003)
(688)
2
(55)
—
—
—
—
(3,522) [1]
14,477
13,997 [1]
(78,724)
53
(688)
(38,004)
$
119,263
shareholder
$
119,263
20,148
17,856
112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating balance sheet
December 31, 2019
(in thousands)
Assets
Property, plant and equipment
Utility property, plant and equipment
Land
Plant and equipment
Less accumulated depreciation
Construction in progress
Utility property, plant and equipment, net
Nonutility property, plant and equipment, less
accumulated depreciation
Total property, plant and equipment, net
Investment in wholly-owned subsidiaries, at equity
Current assets
Cash and cash equivalents
Restricted cash
Advances to affiliates
Customer accounts receivable, net
Accrued unbilled revenues, net
Other accounts receivable, net
Fuel oil stock, at average cost
Materials and supplies, at average cost
Prepayments and other
Regulatory assets
Total current assets
Other long-term assets
Operating lease right-of-use assets
Regulatory assets
Other
Total other long-term assets
Total assets
Capitalization and liabilities
Capitalization
Common stock equity
Cumulative preferred stock–not subject to
mandatory redemption
Long-term debt, net
Total capitalization
Current liabilities
Current portion of operating lease liabilities
Current portion of long-term debt, net
Short-term borrowings-non-affiliate
Short-term borrowings-affiliate
Accounts payable
Interest and preferred dividends payable
Taxes accrued
Regulatory liabilities
Other
Total current liabilities
Deferred credits and other liabilities
Operating lease liabilities
Deferred income taxes
Regulatory liabilities
Unamortized tax credits
Defined benefit pension and other postretirement
benefit plans liability
Other
Total deferred credits and other liabilities
Total capitalization and liabilities
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
$
42,598
4,765,362
(1,591,241)
165,137
3,381,856
5,310
3,387,166
591,969
5,606
1,313,727
(574,615)
9,993
754,711
114
754,825
—
3,612
1,161,199
(524,301)
17,944
658,454
1,532
659,986
—
2,239
30,749
27,700
105,454
83,148
18,396
69,003
34,876
88,334
27,689
6,885
123
8,000
24,520
17,071
1,907
8,901
8,313
3,725
1,641
1,797
—
—
22,816
17,008
1,960
14,033
17,513
24,921
1,380
487,588
81,086
101,428
174,886
476,390
69,010
720,286
$ 5,187,009
1,537
109,163
15,493
126,193
962,104
386
98,817
17,215
116,418
877,832
$ 2,047,352
298,998
292,870
22,293
1,006,737
3,076,382
7,000
206,416
512,414
63,582
61,958
88,987
8,000
139,056
14,759
143,522
13,363
51,295
584,522
111,598
265,864
664,894
86,852
339,471
57,426
1,526,105
$ 5,187,009
94
13,995
—
—
25,629
3,115
32,541
9,454
11,362
96,190
1,442
53,534
178,474
16,196
69,928
33,926
353,500
962,104
113
5,000
188,561
486,431
31
20,000
—
27,700
23,085
2,900
31,929
7,907
15,297
128,849
360
57,752
98,218
14,820
69,364
22,038
262,552
877,832
—
—
—
—
—
—
—
—
101
—
—
—
—
—
—
—
—
—
101
—
—
—
—
101
101
—
—
101
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
101
—
—
—
—
—
—
—
(591,969) [2]
—
—
(35,700) [1]
—
—
(10,695) [1]
—
—
—
—
(46,395)
—
—
—
—
(638,364)
$
51,816
7,240,288
(2,690,157)
193,074
4,795,021
6,956
4,801,977
—
11,022
30,872
—
152,790
117,227
11,568
91,937
60,702
116,980
30,710
623,808
176,809
684,370
101,718
962,897
6,388,682
$
(591,969) [2]
$
2,047,352
—
—
(591,969)
34,293
1,401,714
3,483,359
—
—
—
(35,700) [1]
—
(46) [1]
—
—
(10,649) [1]
(46,395)
—
—
—
—
—
—
—
(638,364)
$
63,707
95,953
88,987
—
187,770
20,728
207,992
30,724
67,305
763,166
113,400
377,150
941,586
117,868
478,763
113,390
2,142,157
6,388,682
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Consolidating balance sheet
December 31, 2018
(in thousands)
Assets
Property, plant and equipment
Utility property, plant and equipment
Land
Plant and equipment
Less accumulated depreciation
Construction in progress
Utility property, plant and equipment, net
Nonutility property, plant and equipment, less
accumulated depreciation
Total property, plant and equipment, net
Investment in wholly-owned subsidiaries, at equity
Current assets
Cash and cash equivalents
Customer accounts receivable, net
Accrued unbilled revenues, net
Other accounts receivable, net
Fuel oil stock, at average cost
Materials and supplies, at average cost
Prepayments and other
Regulatory assets
Total current assets
Other long-term assets
Regulatory assets
Other
Total other long-term assets
Total assets
Capitalization and liabilities
Capitalization
Common stock equity
Cumulative preferred stock–not subject to mandatory
redemption
Long-term debt, net
Total capitalization
Current liabilities
Short-term borrowings-non-affiliate
Accounts payable
Interest and preferred dividends payable
Taxes accrued
Regulatory liabilities
Other
Total current liabilities
Deferred credits and other liabilities
Deferred income taxes
Regulatory liabilities
Unamortized tax credits
Defined benefit pension and other postretirement
benefit plans liability
Other
Total deferred credits and other liabilities
Total capitalization and liabilities
1,410,043
$ 4,776,538
$
40,449
5,606
3,612
4,456,090
1,259,553
1,094,028
(1,523,861)
(547,848)
(505,633)
193,677
3,166,355
8,781
726,092
5,314
115
3,171,669
726,207
576,838
—
16,732
125,960
88,060
21,962
54,262
30,291
23,214
60,093
15,623
26,483
17,051
3,131
11,027
7,155
5,212
3,177
420,574
88,859
537,708
69,749
607,457
$ 4,776,538
120,658
15,944
136,602
951,668
30,687
622,694
1,532
624,226
—
3,421
25,453
16,627
3,033
14,646
17,758
3,692
7,746
92,376
104,044
17,299
121,343
837,945
$ 1,957,641
295,874
280,863
22,293
1,000,137
2,980,071
7,000
217,749
520,623
5,000
200,916
486,779
25,000
126,384
16,203
164,747
7,699
46,391
386,424
271,438
657,210
60,271
359,174
61,950
—
25,362
2,841
34,458
5,406
20,414
88,481
56,823
98,948
15,034
71,338
20,542
262,685
837,945
—
20,045
4,203
34,128
4,872
15,077
78,325
54,936
176,101
16,217
73,147
32,319
352,720
951,668
114
—
—
—
—
—
—
—
—
101
—
—
—
—
—
—
—
101
—
—
—
101
101
—
—
101
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(576,838) [2]
—
—
—
(21,911) [1]
—
—
—
—
(21,911)
—
—
—
$
49,667
6,809,671
(2,577,342)
233,145
4,515,141
6,961
4,522,102
—
35,877
177,896
121,738
6,215
79,935
55,204
32,118
71,016
579,999
762,410
102,992
865,402
(598,749)
$
5,967,503
(576,838) [2]
$
1,957,641
—
—
(576,838)
—
—
(32) [1]
—
—
(21,879) [1]
(21,911)
—
—
—
—
—
—
34,293
1,418,802
3,410,736
25,000
171,791
23,215
233,333
17,977
60,003
531,319
383,197
932,259
91,522
503,659
114,811
2,025,448
101
(598,749)
$
5,967,503
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statements of changes in common stock equity
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
(in thousands)
Balance, December 31, 2016
Net income for common stock
Other comprehensive income (loss), net of taxes
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2017
Net income for common stock
Other comprehensive income, net of taxes
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2018
Net income for common stock
Other comprehensive loss, net of tax benefits
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2019
Hawaiian
Electric
$ 1,799,787
119,951
(688)
14,000
Hawaii
Electric
Light
291,291
20,146
2
4
259,554
17,911
(55)
4,801
(87,767)
(24,796)
(11,946)
1,845,283
143,653
1,318
70,692
286,647
24,481
34
1
270,265
20,912
207
1,498
(103,305)
(15,289)
(12,019)
1,957,641
156,840
295,874
20,817
(1,378)
35,501
(12)
(1)
280,863
22,350
(174)
4,899
(101,252)
(17,680)
(15,068)
101
(550,946) $
1,799,787
—
—
—
—
(38,057)
53
(4,805)
36,742
119,951
(688)
14,000
(87,767)
101
(557,013)
1,845,283
—
—
—
—
(45,393)
(241)
(1,499)
27,308
143,653
1,318
70,692
(103,305)
101
(576,838)
1,957,641
—
—
—
—
(43,167)
156,840
186
(4,898)
32,748
(1,378)
35,501
(101,252)
$ 2,047,352
298,998
292,870
101
(591,969) $
2,047,352
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statement of cash flows
Year ended December 31, 2019
(in thousands)
Cash flows from operating activities
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income
$
157,920
21,351
22,731
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in earnings of subsidiaries
Common stock dividends received from
subsidiaries
Depreciation of property, plant and equipment
Other amortization
Deferred income taxes
Income tax credits, net
State refundable credit
Allowance for equity funds used during
construction
Other
Changes in assets and liabilities:
Decrease in accounts receivable
Decrease (increase) in accrued unbilled revenues
Decrease (increase) in fuel oil stock
Decrease (increase) in materials and supplies
Decrease in regulatory assets
Increase (decrease) in regulatory liabilities
Increase (decrease) in accounts payable
Change in prepaid and accrued income taxes, tax
credits and revenue taxes
Decrease in defined benefit pension and other
postretirement benefit plans liability
Change in other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Advances to affiliates
Other
Net cash used in investing activities
Cash flows from financing activities
Common stock dividends
(43,204)
32,783
143,470
23,351
(13,547)
27,277
(6,245)
(9,955)
298
25,376
4,912
(14,741)
(4,585)
55,494
102
4,687
—
—
41,812
4,810
(2,383)
(13)
(559)
(816)
(48)
3,326
(20)
2,126
(1,158)
9,218
(1,558)
(3,160)
—
—
30,449
1,470
(354)
(5)
(1,565)
(1,216)
(50)
3,469
(381)
613
245
6,550
3,409
(3,578)
(24,900)
(893)
(3,097)
(3,033)
(15,341)
340,119
(311,538)
(27,700)
5,241
(762)
(6,152)
65,121
(49,811)
(8,000)
297
(653)
(6,940)
51,097
(58,549)
—
1,303
(333,997)
(57,514)
(57,246)
(101,252)
(17,680)
(15,068)
Preferred stock dividends of Hawaiian Electric and
subsidiaries
Proceeds from issuance of common stock
(1,080)
35,500
(534)
—
Proceeds from issuance of long-term debt
190,000
72,500
(381)
4,900
17,500
(183,546)
(70,000)
(30,000)
Repayment of long-term debt and funds transferred
for repayment of long-term dent
Net increase in short-term borrowings from non-
affiliates and affiliate with original maturities of
three months or less
Proceeds from issuance of short-term debt
Repayment of short-term debt
Other
Net cash provided by (used in) financing activities
Net increase (decrease) in cash, cash equivalents and
restricted cash
Cash, cash equivalents and restricted cash, January 1
Cash, cash equivalents and restricted cash,
December 31
Less: Restricted cash
46,987
75,000
(50,000)
(1,475)
10,134
16,256
16,732
32,988
(30,749)
Cash and cash equivalents, December 31
$
2,239
27,700
—
—
(126)
4,525
(1,624)
3,421
1,797
—
1,797
—
—
—
(508)
(16,222)
(8,615)
15,623
7,008
(123)
6,885
116
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
101
101
—
101
(43,167) [2]
$
158,835
43,167 [2]
(32,748) [2]
—
—
—
—
—
—
—
(11,215) [1]
—
—
—
—
—
367 [1]
—
11,215 [1]
(32,381)
—
35,700 [1]
4,533 [1],[2]
40,233
(37)
35
215,731
29,631
(16,284)
27,259
(8,369)
(11,987)
200
20,956
4,511
(12,002)
(5,498)
71,262
1,953
(2,051)
(28,523)
(4,448)
(17,218)
423,956
(419,898)
—
11,374
(408,524)
32,748 [2]
(101,252)
—
(4,900) [2]
—
—
(35,700) [1]
—
—
—
(7,852)
—
—
—
—
—
(1,995)
35,500
280,000
(283,546)
38,987
75,000
(50,000)
(2,109)
(9,415)
6,017
35,877
41,894
(30,872)
11,022
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Consolidating statement of cash flows
Year ended December 31, 2018
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in earnings of subsidiaries
Common stock dividends received from
subsidiaries
Depreciation of property, plant and equipment
Other amortization
Deferred income taxes
Income tax credits, net
State refundable credit
Allowance for equity funds used during
construction
Other
Changes in assets and liabilities:
Increase in accounts receivable
Increase in accrued unbilled revenues
Decrease (increase) in fuel oil stock
Decrease (increase) in materials and supplies
Decrease (increase) in regulatory assets
Increase in regulatory liabilities
Increase in accounts payable
Change in prepaid and accrued income taxes, tax
credits and revenue taxes
Increase (decrease) in defined benefit pension
and other postretirement benefit plans
liability
Change in other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Advances from affiliates
Other
Net cash used in investing activities
Cash flows from financing activities
Common stock dividends
Preferred stock dividends of Hawaiian Electric and
subsidiaries
Proceeds from the issuance of common stock
Proceeds from the issuance of long-term debt
Repayment of long-term debt
Net decrease in short-term borrowings from non-
affiliates and affiliate with original maturities of
three months or less
Proceeds from issuance of short-term debt
Other
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, January 1
$
144,733
25,015
21,293
(45,493)
27,408
137,410
20,956
(9,806)
(83)
(4,941)
(9,208)
3,991
(51,656)
(10,884)
10,710
(1,966)
12,192
26,540
14,748
—
—
40,235
5,069
(341)
(14)
(547)
(478)
348
(4,867)
(1,111)
(2,329)
886
71
5,380
6,104
—
—
25,981
577
2,165
(2)
(751)
(1,191)
429
(8,614)
(2,689)
(1,443)
273
(3,011)
5,438
3,506
24,438
(2,118)
3,047
17,178
(8,056)
298,211
(760)
2,806
73,349
2,328
2,356
49,692
(305,703)
(51,054)
(58,507)
—
3,226
—
1,182
12,000
3,843
(302,477)
(49,872)
(42,664)
(103,305)
(15,289)
(12,019)
(1,080)
70,700
75,000
(534)
—
15,000
(381)
1,500
10,000
(30,000)
(11,000)
(9,000)
(16,999)
25,000
(377)
18,939
14,673
2,059
—
—
(39)
(9,939)
(2,911)
6,332
3,421
—
—
(56)
(11,879)
11,598
4,025
15,623
117
Cash and cash equivalents, December 31
$
16,732
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
101
101
(45,393) [2]
$
145,648
45,393 [2]
(100)
(27,308) [2]
—
—
—
—
—
—
—
14,220 [1]
—
—
—
—
—
—
(331) [1]
—
(14,220) [1]
(27,639)
—
(12,000) [1]
1,831 [1],[2]
(10,169)
100
203,626
26,602
(7,982)
(99)
(6,239)
(10,877)
4,768
(50,917)
(14,684)
6,938
(807)
9,252
37,358
24,358
25,036
18,746
(17,114)
393,613
(415,264)
—
10,082
(405,182)
27,308 [2]
(103,305)
—
(1,500) [2]
—
—
12,000 [1]
—
—
37,808
—
—
—
(1,995)
70,700
100,000
(50,000)
(4,999)
25,000
(472)
34,929
23,360
12,517
35,877
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statement of cash flows
Year ended December 31, 2017
(in thousands)
Cash flows from operating activities
Hawaiian
Electric
Hawaii
Electric Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income
$
121,031
20,680
18,292
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in earnings of subsidiaries
Common stock dividends received from
subsidiaries
Depreciation of property, plant and equipment
Other amortization
Deferred income taxes
Income tax credits, net
State refundable credit
Allowance for equity funds used during
construction
Other
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
Increase in accrued unbilled revenues
Increase in fuel oil stock
Decrease (increase) in materials and supplies
Increase in regulatory assets
Increase in regulatory liabilities
Increase (decrease) in accounts payable
Change in prepaid and accrued income
taxes, tax credits and revenue taxes
Increase (decrease) in defined benefit
pension and other postretirement benefit
plans liability
Change in other assets and liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Advances from (to) affiliates
Other
Net cash used in investing activities
Cash flows from financing activities
Common stock dividends
Preferred stock dividends of Hawaiian Electric
and subsidiaries
Proceeds from the issuance of common stock
Proceeds from the issuance of long-term debt
Repayment of long-term debt
Net increase in short-term borrowings from non-
affiliates and affiliate with original maturities
of three months or less
Other
Net cash provided by (used in) financing
activities
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, January 1
Cash and cash equivalents, December 31
$
(38,157)
36,867
130,889
2,398
26,342
(35)
(1,382)
(10,896)
263
1,817
(11,355)
(17,733)
1,603
(8,395)
2,552
23,519
—
—
38,741
3,225
3,954
(16)
(528)
(554)
974
(359)
(2,376)
(469)
(661)
(4,007)
315
(3,547)
—
—
23,154
2,875
8,004
(1)
(341)
(1,033)
—
45
(1,630)
(2,241)
(1,660)
(4,854)
735
5,762
16,716
7,961
5,362
709
(18,765)
257,988
52
(748)
(157)
(569)
62,637
51,743
(281,752)
(47,784)
—
(1,711)
(283,463)
3,500
649
(47,329)
(2,000)
400
(43,635)
(48,929)
(87,767)
(24,796)
(11,946)
(1,080)
14,000
202,000
(534)
—
28,000
(381)
4,800
85,000
(162,000)
(28,000)
(75,000)
3,499
(2,506)
—
(396)
—
(1,003)
(33,854)
(25,726)
1,470
Explanation of consolidating adjustments on consolidating schedules:
[1] Eliminations of intercompany receivables and payables and other intercompany transactions.
[2] Elimination of investment in subsidiaries, carried at equity.
118
(38,057) [2]
$
121,946
38,057 [2]
(36,742) [2]
—
—
(263) [1]
—
—
—
—
1,411 [1]
—
—
—
—
—
—
(177) [1]
—
(1,411) [1]
(37,182)
—
(1,500) [1]
5,240 [1],[2]
3,740
(100)
125
192,784
8,498
38,037
(52)
(2,251)
(12,483)
1,237
2,914
(15,361)
(20,443)
(718)
(17,256)
3,602
25,734
29,862
604
(21,493)
335,186
(376,865)
—
4,578
(372,287)
36,742 [2]
(87,767)
—
(4,800) [2]
—
—
1,500 [1]
—
33,442
(1,995)
14,000
315,000
(265,000)
4,999
(3,905)
(24,668)
(61,769)
74,286
12,517
(59,329)
61,388
2,059
(6,724)
10,749
4,025
4,284
2,048
6,332
—
101
101
—
—
—
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4· Bank segment (HEI only)
Selected financial information
American Savings Bank, F.S.B.
Statements of Income and Comprehensive Income Data
2019
2018
2017
$
233,632
$
220,463
$
207,255
32,922
266,554
16,830
1,610
18,440
248,114
23,480
224,634
19,275
20,877
6,507
7,687
4,943
10,762
653
2,074
72,778
103,009
21,272
15,306
10,239
8,760
5,512
4,490
1,204
15,586
185,378
112,034
23,061
88,973
29,406
37,762
258,225
13,991
1,548
15,539
242,686
14,745
227,941
18,937
21,311
7,052
5,057
1,493
—
—
2,200
56,050
98,387
17,073
14,268
10,847
7,186
6,134
3,567
2,713
17,238
177,413
106,578
24,069
82,509
(7,119)
$
118,379
$
75,390
$
28,823
236,078
9,660
2,496
12,156
223,922
10,901
213,021
22,796
22,204
7,205
5,539
2,201
—
—
1,617
61,562
94,931
16,699
13,280
10,994
7,232
6,182
3,501
2,904
20,144
175,867
98,716
31,719
66,997
(3,139)
63,858
Years ended December 31
(in thousands)
Interest and dividend income
Interest and fees on loans
Interest and dividends on investment securities
Total interest and dividend income
Interest expense
Interest on deposit liabilities
Interest on other borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Fees from other financial services
Fee income on deposit liabilities
Fee income on other financial products
Bank-owned life insurance
Mortgage banking income
Gain on sale of real estate
Gains on sale of investment securities, net
Other income, net
Total noninterest income
Noninterest expense
Compensation and employee benefits
Occupancy
Data processing
Services
Equipment
Office supplies, printing and postage
Marketing
FDIC insurance
Other expense
Total noninterest expense
Income before income taxes
Income taxes
Net income
Other comprehensive income (loss), net of taxes
Comprehensive income
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reconciliation to amounts per HEI Consolidated Statements of Income*:
Years ended December 31
(in thousands)
Interest and dividend income
Noninterest income
Less: Gain on sale of real estate
*Revenues-Bank
Total interest expense
Provision for loan losses
Noninterest expense
Less: Retirement defined benefits credit (expense)—other than service costs
Add: Gain on sale of real estate
*Expenses-Bank
*Operating income-Bank
Add back: Retirement defined benefits expense (credit)—other than service costs
2019
2018
2017
$
266,554
$
258,225
$
236,078
72,778
(10,762)
328,570
18,440
23,480
185,378
472
(10,762)
217,008
111,562
(472)
56,050
—
314,275
15,539
14,745
177,413
(1,657)
—
206,040
108,235
1,657
61,562
—
297,640
12,156
10,901
175,867
(820)
—
198,104
99,536
820
Income before income taxes
$
112,034
$
106,578
$
98,716
Balance Sheets Data
December 31
(in thousands)
Assets
Cash and due from banks
Interest-bearing deposits
Investment securities
Available-for-sale, at fair value
Held-to-maturity, at amortized cost (fair value of $143,467 and $142,057 at
December 31, 2019 and 2018, respectively)
Stock in Federal Home Loan Bank, at cost
Loans held for investment
Allowance for loan losses
Net loans
Loans held for sale, at lower of cost or fair value
Other
Goodwill
Total assets
Liabilities and shareholder’s equity
Deposit liabilities–noninterest-bearing
Deposit liabilities–interest-bearing
Other borrowings
Other
Total liabilities
Commitments and contingencies
Common stock
Additional paid in capital
Retained earnings
Accumulated other comprehensive loss, net of tax benefits
Net unrealized gains (losses) on securities
Retirement benefit plans
Total shareholder’s equity
Total liabilities and shareholder’s equity
$
2,481
(11,143)
120
2019
2018
$
129,770
48,628
$
122,059
4,225
1,232,826
1,388,533
139,451
8,434
5,121,176
(53,355)
5,067,821
12,286
511,611
82,190
$ 7,233,017
$ 1,909,682
4,362,220
115,110
146,954
6,533,966
1
349,453
358,259
(8,662)
699,051
$ 7,233,017
$
(24,423)
(13,645)
141,875
9,958
4,843,021
(52,119)
4,790,902
1,805
486,347
82,190
$ 7,027,894
$ 1,800,727
4,358,125
110,040
124,613
6,393,505
1
347,170
325,286
(38,068)
634,389
$ 7,027,894
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31
(in thousands)
Other assets
Bank-owned life insurance
Premises and equipment, net
Accrued interest receivable
Mortgage servicing rights
Low-income housing investments
Real estate acquired in settlement of loans, net
Other
Other liabilities
Accrued expenses
Federal and state income taxes payable
Cashier’s checks
Advance payments by borrowers
Other
2019
2018
$
$
$
$
157,465
204,449
19,365
9,101
66,302
—
54,929
511,611
45,822
14,996
23,647
10,486
52,003
146,954
$
$
$
$
151,172
214,415
20,140
8,062
67,626
406
24,526
486,347
54,084
2,012
26,906
10,183
31,428
124,613
Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the
beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the
policies and insurance proceeds paid to ASB upon an insured’s death.
The decrease in premises and equipment, net was due to the sale of two building facilities.
Investment securities. The major components of investment securities were as follows:
(dollars in thousands)
December 31, 2019
Available-for-sale
U.S. Treasury and federal
agency obligations
Mortgage-backed securities
— issued or guaranteed
by U.S. Government
agencies or sponsored
agencies
Corporate bonds
Mortgage revenue bonds
Held-to-maturity
Mortgage-backed securities
— issued or guaranteed
by U.S. Government
agencies or sponsored
agencies
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Less than 12 months
12 months or longer
Estimated
fair value
Number
of issues
Fair value
Amount
Number
of issues
Fair value
Amount
Gross unrealized losses
$ 117,255
$
652
$
(120) $
117,787
2
$
4,110
$
(11)
3
$
27,637
$
(109)
1,024,892
58,694
28,597
6,000
1,363
—
(4,507)
1,026,385
—
—
60,057
28,597
$1,229,438
$
8,015
$ (4,627) $ 1,232,826
19
—
—
21
152,071
(819)
—
—
—
—
$ 156,181
$
(830)
75
—
—
78
318,020
(3,688)
—
—
—
—
$ 345,657
$ (3,797)
$ 139,451
$ 139,451
$
$
4,087
4,087
$
$
(71) $
143,467
(71) $
143,467
1
1
$ 12,986
$ 12,986
$
$
(71) —
(71) —
$
$
— $
— $
—
—
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Less than 12 months
12 months or longer
Estimated
fair value
Number
of issues
Fair value
Amount
Number
of issues
Fair value
Amount
Gross unrealized losses
$ 156,694
$
62
$ (2,407) $
154,349
5
$ 25,882
$
(208)
19
$ 118,405
$ (2,199)
1,192,169
49,398
23,636
789
103
—
(31,542)
1,161,416
(369)
—
49,132
23,636
$1,421,897
$
954
$ (34,318) $ 1,388,533
22
6
—
33
129,011
(1,330)
145
947,890
(30,212)
23,175
(369) —
—
—
$ 178,068
$ (1,907)
—
164
—
—
—
—
$1,066,295
$(32,411)
$ 141,875
$ 141,875
$
$
1,446
$ (1,264) $
142,057
1,446
$ (1,264) $
142,057
3
3
$ 29,814
$ 29,814
$
$
(400)
(400)
2
2
$
$
31,505
31,505
$
$
(864)
(864)
(dollars in thousands)
December 31, 2018
Available-for-sale
U.S. Treasury and federal
agency obligations
Mortgage-backed securities
— issued or guaranteed
by U.S. Government
agencies or sponsored
agencies
Corporate bonds
Mortgage revenue bond
Held-to-maturity
Mortgage-backed securities
— issued or guaranteed
by U.S. Government
agencies or sponsored
agencies
ASB does not believe that the investment securities that were in an unrealized loss position as of December 31, 2019,
represent an OTTI. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly
basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all
securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash
flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and
credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities
before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash
flows for the securities. ASB did not recognize OTTI for 2019, 2018 and 2017.
U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to
maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In
addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying
mortgages.
The contractual maturities of investment securities were as follows:
December 31, 2019
(in thousands)
Available-for-sale
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
Total available-for-sale securities
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
Total held-to-maturity securities
Amortized
Cost
Fair
value
$
60,200
$
75,694
53,225
15,427
60,249
77,225
53,540
15,427
204,546
206,441
1,024,892
1,026,385
$ 1,229,438
$ 1,232,826
$
$
139,451
139,451
$
$
143,467
143,467
122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The proceeds, gross gains and losses from sales of available-for-sale securities were as follows:
Years ended December 31
2019
2018
2017
(in millions)
Proceeds
Gross gains
Gross losses
Interest income from taxable and non-taxable investment securities were as follows:
Years ended December 31
(in thousands)
Taxable
Non-taxable
$
19.8
$
— $
0.7
—
—
—
—
—
—
2019
2018
2017
$ 31,847
$ 37,153
$ 28,398
1,074
609
425
$ 32,921
$ 37,762
$ 28,823
ASB pledged securities with a market value of approximately $546 million as of December 31, 2019 and 2018, as
collateral for public funds and other deposits, automated clearinghouse transactions with Bank of Hawaii, borrowing at the
discount window of the Federal Reserve Bank of San Francisco, and deposits in ASB’s bankruptcy account with the Federal
Reserve Bank of San Francisco. As of December 31, 2019 and 2018, securities with a carrying value of $130 million and $92
million, respectively, were pledged as collateral for securities sold under agreements to repurchase.
Stock in FHLB. As of December 31, 2019 and 2018, ASB’s stock in FHLB was carried at cost ($8.4 million and $10.0
million, respectively) because it can only be redeemed at par and it is a required investment based on measurements of ASB’s
capital, assets and borrowing levels.
Quarterly and as conditions warrant, ASB reviews its investment in the stock of the FHLB for impairment. ASB evaluated
its investment in FHLB stock for OTTI as of December 31, 2019, consistent with its accounting policy. ASB did not recognize
an OTTI loss for 2019, 2018 and 2017 based on its evaluation of the underlying investment.
Future deterioration in the FHLB’s financial position and/or negative developments in any of the factors considered in
ASB’s impairment evaluation may result in future impairment losses.
Loans. The components of loans were summarized as follows:
December 31
(in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Total real estate
Commercial
Consumer
Total loans
Less: Deferred fees and discounts
Allowance for loan losses
Total loans, net
2019
2018
$
2,178,135
$
2,143,397
824,830
1,092,125
14,704
70,605
11,670
748,398
978,237
13,138
92,264
14,307
4,192,069
3,989,741
670,674
257,921
587,891
266,002
5,120,664
4,843,634
512
(53,355)
(613)
(52,119)
$
5,067,821
$
4,790,902
ASB’s policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property
exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property
purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.
123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASB services real estate loans for investors (principal balance of $1.3 billion, $1.2 billion and $1.2 billion as of
December 31, 2019, 2018 and 2017, respectively), which are not included in the accompanying balance sheets data. ASB
reports fees earned for servicing such loans as income when the related mortgage loan payments are collected and charges
loan servicing cost to expense as incurred.
As of December 31, 2019 and 2018, ASB had pledged loans with an amortized cost of approximately $2.9 billion and
$2.7 billion, respectively, as collateral to secure advances from the FHLB.
As of December 31, 2019 and 2018, the aggregate amount of loans to directors and executive officers of ASB and its
affiliates and any related interests (as defined in Federal Reserve Board (FRB) Regulation O) of such individuals, was $24.1
million and $24.0 million, respectively. As of December 31, 2019 and 2018, $18.0 million and $18.3 million of the loan
balances, respectively, were to related interests of individuals who are directors of ASB. All such loans were made at ASB’s
normal credit terms.
Allowance for loan losses. As discussed in Note 1, ASB must maintain an allowance for loan losses that is adequate to
absorb estimated probable credit losses associated with its loan portfolio.
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The allowance for loan losses (balances and changes) and financing receivables were as follows:
(in thousands)
December 31, 2019
Allowance for loan losses:
Residential
1-4 family
Commercial
real estate
Home equity
line of credit
Residential
land
Commercial
construction
Residential
construction
Commercial
Consumer
Total
Beginning balance
$
1,976
$
14,505
$
6,371
$
479
$
2,790
$
(26)
854
(424)
—
—
548
(144)
17
678
(4)
229
(255)
—
—
(693)
4
—
—
(1)
$
9,225
$ 16,769
$
52,119
(6,811)
(21,677)
(28,662)
2,351
5,480
2,967
18,147
6,418
23,480
2,380
$
15,053
$
6,922
$
449
$
2,097
$
3
$
10,245
$ 16,206
$
53,355
898
$
2
$
322
$
— $
— $
— $
1,015
$
454
$
2,691
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
$
$
$
Financing Receivables:
Ending balance
$ 2,178,135
1,482
$
$
15,051
$
6,600
824,830
$ 1,092,125
$
$
449
14,704
$
$
2,097
70,605
$
$
3
$
9,230
$ 15,752
$
50,664
11,670
$
670,674
$ 257,921
$ 5,120,664
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
December 31, 2018
Allowance for loan losses:
$
15,600
$
1,048
$
12,073
$
3,091
$
— $
— $
8,418
$
507
$
40,737
$ 2,162,535
$
823,782
$ 1,080,052
$
11,613
$
70,605
$
11,670
$
662,256
$ 257,414
$ 5,079,927
Beginning balance
$
2,902
$
15,796
$
7,522
$
896
$
4,671
$
(128)
74
(872)
—
—
(353)
257
(1,291)
(1,055)
(18)
179
(578)
—
—
(1,881)
12
—
—
(8)
$
10,851
$ 10,987
$
53,637
(2,722)
(17,296)
(20,517)
2,136
1,608
(1,040)
21,470
4,254
14,745
1,976
$
14,505
$
6,371
$
479
$
2,790
$
4
$
9,225
$ 16,769
$
52,119
876
$
7
$
701
$
6
$
— $
— $
628
$
4
$
2,222
1,100
$
$
14,498
748,398
$
$
5,670
978,237
$
$
473
13,138
$
$
2,790
92,264
$
$
4
$
8,597
$ 16,765
$
49,897
14,307
$
587,891
$ 266,002
$ 4,843,634
$ 2,143,397
$
16,494
$
915
$
14,800
$
2,059
$
— $
— $
5,340
$
89
$
39,697
$ 2,126,903
$
747,483
$
963,437
$
11,079
$
92,264
$
14,307
$
582,551
$ 265,913
$ 4,803,937
$
$
$
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively
evaluated for impairment
Financing Receivables:
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
December 31, 2017
Allowance for loan losses:
Beginning balance
$
2,873
$
16,004
$
5,039
$
1,738
$
6,449
$
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
Financing Receivables:
(826)
157
698
2,902
1,248
1,654
$
$
$
Ending balance
$ 2,118,047
—
—
(208)
15,796
65
15,731
733,106
$
$
$
$
(14)
308
2,189
7,522
647
6,875
913,052
$
$
$
$
(210)
482
—
—
(1,114)
(1,778)
$
$
$
$
896
47
849
15,797
$
$
$
$
4,671
$
4,671
108,273
$
$
12
—
—
—
12
$
16,618
$
6,800
$
55,533
(4,006)
(11,757)
(16,813)
1,852
1,217
(3,613)
14,727
$
10,851
$ 10,987
4,016
10,901
53,637
2,730
50,907
$
$
$
— $
— $
694
$
29
12
$
10,157
$ 10,958
14,910
$
544,828
$ 223,564
$ 4,671,577
Ending balance: individually evaluated
for impairment
Ending balance: collectively evaluated
for impairment
$
18,284
$
1,016
$
8,188
$
1,265
$
— $
— $
4,574
$
66
$
33,393
$ 2,099,763
$
732,090
$
904,864
$
14,532
$
108,273
$
14,910
$
540,254
$ 223,498
$ 4,638,184
Credit quality. ASB performs an internal loan review and grading on an ongoing basis. The review provides management
with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The
objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so
125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include
commercial, commercial real estate and commercial construction loans.
Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of
repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention,
Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and
possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/
guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass
exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset
or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the
liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are
characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of
those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the
basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is
considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.
The credit risk profile by internally assigned grade for loans was as follows:
December 31
(in thousands)
Grade:
2019
2018
Commercial
real estate
Commercial
construction
Commercial
Total
Commercial
real estate
Commercial
construction
Commercial
Total
Pass
$
756,747
$
68,316
$
621,657
$ 1,446,720
$
658,288
$
89,974
$
547,640
$ 1,295,902
Special mention
Substandard
Doubtful
Loss
Total
4,451
63,632
—
—
—
2,289
—
—
29,921
19,096
—
—
34,372
85,017
—
—
32,871
57,239
—
—
—
2,290
—
—
11,598
28,653
—
—
44,469
88,182
—
—
$
824,830
$
70,605
$
670,674
$ 1,566,109
$
748,398
$
92,264
$
587,891
$ 1,428,553
126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The credit risk profile based on payment activity for loans was as follows:
(in thousands)
December 31, 2019
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Total loans
December 31, 2018
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Total loans
30-59
days
past due
60-89
days
past due
Greater
than
90 days
Total
past due
Current
Total
financing
receivables
Recorded
investment>
90 days and
accruing
$
2,588
$
290
$
1,808
$
4,686
$ 2,173,449
$ 2,178,135
$
$
$
—
813
—
—
—
1,077
4,386
—
—
—
—
—
311
3,257
—
2,117
25
—
—
172
2,907
—
824,830
824,830
2,930
1,089,195
1,092,125
25
—
—
1,560
10,550
14,679
70,605
11,670
669,114
247,371
14,704
70,605
11,670
670,674
257,921
8,864
$
3,858
$
7,029
$
19,751
$ 5,100,913
$ 5,120,664
$
3,757
$
2,773
$
2,339
$
8,869
$ 2,134,528
$ 2,143,397
$
—
1,139
9
—
—
315
5,220
—
681
—
—
—
281
3,166
—
2,720
319
—
—
548
2,702
—
4,540
328
—
—
1,144
11,088
748,398
973,697
12,810
92,264
14,307
586,747
254,914
748,398
978,237
13,138
92,264
14,307
587,891
266,002
$
10,440
$
6,901
$
8,628
$
25,969
$ 4,817,665
$ 4,843,634
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The credit risk profile based on nonaccrual loans, accruing loans 90 days or more past due, and TDR loans was as
follows:
December 31
(in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Total
Nonaccrual loans
Accruing loans 90 days
or more past due
Troubled debt restructured loans
not included in nonaccrual loans
2019
2018
2019
2018
2019
2018
$
11,395
$
12,037
$
— $
— $
9,869
$
195
6,638
448
—
—
5,947
5,113
—
6,348
436
—
—
4,278
4,196
—
—
—
—
—
—
—
—
—
—
—
—
—
—
853
10,376
2,644
—
—
2,614
57
$
29,736
$
27,295
$
— $
— $
26,413
$
10,194
915
11,597
1,622
—
—
1,527
62
25,917
127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
December 31
(in thousands)
With no related allowance recorded
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
With an allowance recorded
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Total
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
2019
Unpaid
principal
balance
Recorded
investment
Related
allowance
Recorded
investment
2018
Unpaid
principal
balance
Related
allowance
$
6,817
$
7,207
$
— $
7,822
$
8,333
$
195
1,984
3,091
—
—
1,948
2
14,037
8,783
853
10,089
—
—
—
6,470
505
26,700
15,600
1,048
12,073
3,091
—
—
8,418
507
200
2,135
3,294
—
—
2,285
2
15,123
8,835
853
10,099
—
—
—
6,470
505
26,762
16,042
1,053
12,234
3,294
—
—
8,755
507
—
—
—
—
—
—
—
—
898
2
322
—
—
—
1,015
454
2,691
898
2
322
—
—
—
1,015
454
—
2,743
2,030
—
—
3,722
32
16,349
8,672
915
12,057
29
—
—
1,618
57
23,348
16,494
915
14,800
2,059
—
—
5,340
89
—
3,004
2,228
—
—
4,775
32
18,372
8,875
915
12,086
29
—
—
1,618
57
23,580
17,208
915
15,090
2,257
—
—
6,393
89
—
—
—
—
—
—
—
—
—
876
7
701
6
—
—
628
4
2,222
876
7
701
6
—
—
628
4
$
40,737
$
41,885
$
2,691
$
39,697
$
41,952
$
2,222
128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASB’s average recorded investment of, and interest income recognized from, impaired loans were as follows:
December 31
(in thousands)
With no related allowance recorded
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
With an allowance recorded
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Total
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
2019
2018
2017
Average
recorded
investment
Interest
income
recognized*
Average
recorded
investment
Interest
income
recognized*
Average
recorded
investment
Interest
income
recognized*
$
8,169
$
907
$
8,595
$
445
$
9,440
$
16
2,020
2,662
—
—
4,534
21
17,422
8,390
886
11,319
27
—
—
6,990
360
27,972
16,559
902
13,339
2,689
—
—
11,524
381
—
84
129
—
—
276
4
1,400
359
37
567
—
—
—
132
24
1,119
1,266
37
651
129
—
—
408
28
—
2,206
1,532
—
—
3,275
22
15,630
8,878
982
10,617
37
—
—
1,789
57
22,360
17,473
982
12,823
1,569
—
—
5,064
79
—
75
40
—
—
28
—
588
363
42
440
3
—
—
122
4
974
808
42
515
43
—
—
150
4
91
1,976
1,094
—
—
2,776
1
15,378
9,818
1,241
5,045
1,308
—
—
3,691
57
21,160
19,258
1,332
7,021
2,402
—
—
6,467
58
316
11
101
117
—
—
54
—
599
493
54
251
97
—
—
723
3
1,621
809
65
352
214
—
—
777
3
$
45,394
$
2,519
$
37,990
$
1,562
$
36,538
$
2,220
* Since loan was classified as impaired.
Troubled debt restructurings. A loan modification is deemed to be a TDR when the borrower is determined to be
experiencing financial difficulties and ASB grants a concession it would not otherwise consider. When a borrower
experiencing financial difficulty fails to make a required payment on a loan or is in imminent default, ASB takes a number of
steps to improve the collectability of the loan and maximize the likelihood of full repayment. At times, ASB may modify or
restructure a loan to help a distressed borrower improve its financial position to eventually be able to fully repay the loan,
provided the borrower has demonstrated both the willingness and the ability to fulfill the modified terms. TDR loans are
considered an alternative to foreclosure or liquidation with the goal of minimizing losses to ASB and maximizing recovery.
ASB may consider various types of concessions in granting a TDR including maturity date extensions, extended
amortization of principal, temporary deferral of principal payments, and temporary interest rate reductions. ASB rarely grants
principal forgiveness in its TDR modifications. Residential loan modifications generally involve interest rate reduction,
extending the amortization period, or capitalizing certain delinquent amounts owed not to exceed the original loan balance.
Land loans at origination are typically structured as a three-year term, interest-only monthly payment with a balloon payment
due at maturity. Land loan TDR modifications typically involve extending the maturity date up to five five years and
converting the payments from interest-only to principal and interest monthly, at the same or higher interest rate. Commercial
loan modifications generally involve extensions of maturity dates, extending the amortization period, and temporary deferral
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
or reduction of principal payments. ASB generally does not reduce the interest rate on commercial loan TDR modifications.
Occasionally, additional collateral and/or guaranties are obtained.
All TDR loans are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the
allowance for loan losses based on the appropriate method of measuring impairment: (1) present value of expected future cash
flows discounted at the loan’s effective original contractual rate, (2) fair value of collateral less cost to sell or (3) observable
market price. The financial impact of the calculated impairment amount is an increase to the allowance associated with the
modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed
losses), these amounts are charged off against the allowance for loan losses.
Loan modifications that occurred during 2019, 2018, and 2017 were as follows:
Years ended
December 31, 2019
December 31, 2018
(dollars in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Year ended
(dollars in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Outstanding
recorded
investment
(as of period
end)1
Related
allowance
(as of period
end)
Outstanding
recorded
investment
(as of period
end)1
Related
allowance
(as of period
end)
Number of
contracts
Number of
contracts
11
—
3
3
—
—
8
—
25
$
1,770
$
190
—
442
1,086
—
—
5,523
—
$
8,821
$
—
73
—
—
—
417
—
680
3
—
53
2
—
—
12
—
70
$
566
$
—
6,659
1,338
—
—
2,165
—
$
10,728
$
26
—
578
—
—
—
211
—
815
December 31, 2017
Outstanding
recorded
investment
(as of period
end)1
Related
allowance
(as of period
end)
Number of
contracts
3
—
44
1
—
—
8
1
$
469
$
—
2,791
92
—
—
525
58
57
$
3,935
$
65
—
545
—
—
—
250
29
889
1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-
off, or foreclosed upon by period end are not included.
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Loans modified in TDRs that experienced a payment default of 90 days or more in 2019, 2018, and 2017 and for which
the payment default occurred within one year of the modification, were as follows:
Years ended December 31
(dollars in thousands)
2019
2018
2017
Number of
contracts
Recorded
investment
Number of
contracts
Recorded
investment
Number of
contracts
Recorded
investment
Troubled debt restructurings that subsequently defaulted
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
—
1
—
—
—
1
—
2
$
—
—
81
—
—
—
246
—
327
1
—
—
—
—
—
—
—
1
$
222
—
—
—
—
—
—
—
$
222
If loans modified in a TDR subsequently default, ASB evaluates the loan for further impairment. Based on its evaluation,
adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the
carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a
TDR were nil at December 31, 2019 and 2018.
The Company had $3.5 million and $4.2 million of consumer mortgage loans collateralized by residential real estate
property that were in the process of foreclosure at December 31, 2019 and 2018, respectively.
Mortgage servicing rights (MSRs). In its mortgage banking business, ASB sells residential mortgage loans to
government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no
beneficial interests in these loans other than the servicing rights of certain loans sold.
ASB received $277.1 million, $112.2 million and $128.0 million of proceeds from the sale of residential mortgages in
2019, 2018, and 2017, respectively, and recognized gains on such sales of $4.9 million, $1.5 million, and $2.2 million in 2019,
2018, and 2017, respectively. Repurchased mortgage loans were nil for 2019, 2018 and 2017. The repurchase reserve was $0.1
million as of December 31, 2019, 2018 and 2017.
Mortgage servicing fees, a component of other income, net, were $3.0 million for the years ended December 31, 2019,
2018, and 2017.
Changes in the carrying value of MSRs were as follows:
(in thousands)
December 31, 2019
December 31, 2018
Gross
carrying amount1
Accumulated
amortization1
Valuation allowance
Net
carrying amount
$
$
21,543
18,556
$
$
(12,442)
(10,494)
$
$
— $
— $
9,101
8,062
1 Reflects impact of loans paid in full.
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes related to MSRs were as follows:
(in thousands)
Mortgage servicing rights
Balance, January 1
Amount capitalized
Amortization
Sale of mortgage servicing rights
Other-than-temporary impairment
Carrying amount before valuation allowance, December 31
Valuation allowance for mortgage servicing rights
Balance, January 1
Provision (recovery)
Other-than-temporary impairment
Balance, December 31
2019
2018
2017
$
8,062
$
8,639
$
2,987
(1,948)
—
—
1,045
(1,622)
—
—
9,373
1,239
(1,973)
—
—
9,101
8,062
8,639
—
—
—
—
—
—
—
—
—
—
—
—
Net carrying value of mortgage servicing rights
$
9,101
$
8,062
$
8,639
The estimated aggregate amortization expenses of MSRs for 2020, 2021, 2022, 2023 and 2024 are $1.5 million, $1.2
million, $1.1 million, $0.9 million and $0.8 million, respectively.
ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB
compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance
and/or other-than-temporary impairment for the MSRs.
ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a
valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as
a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income. A direct write-
down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.
Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:
December 31
(dollars in thousands)
Unpaid principal balance
Weighted average note rate
Weighted average discount rate
Weighted average prepayment speed
2019
2018
$
1,276,437
$
1,188,514
3.96%
9.3%
11.4%
3.98%
10.0%
6.5%
The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key
assumptions was as follows:
December 31
(in thousands)
Prepayment rate:
25 basis points adverse rate change
50 basis points adverse rate change
Discount rate:
25 basis points adverse rate change
50 basis points adverse rate change
2019
2018
$
(950) $
(1,947)
(102)
(202)
(250)
(566)
(139)
(275)
The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This
analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair
value of MSRs typically is not linear.
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deposit liabilities. The summarized components of deposit liabilities were as follows:
December 31
(dollars in thousands)
Savings
Checking
Interest-bearing
Noninterest-bearing
Commercial checking
Money market
Time certificates
2019
Weighted-
average
stated rate
Amount
2018
Weighted-
average
stated rate
Amount
0.09% $
2,379,522
0.07% $
2,322,552
0.09
—
—
0.69
1.42
1,062,122
977,459
932,223
150,751
769,825
0.09
—
—
0.63
1.61
1,055,019
932,608
868,119
152,713
827,841
0.24% $
6,271,902
0.27% $
6,158,852
As of December 31, 2019 and 2018, time certificates of $100,000 or more totaled $456.5 million and $500.2 million,
respectively.
The approximate scheduled maturities of time certificates outstanding at December 31, 2019 were as follows:
(in thousands)
Thereafter
2020 $
2021
2022
2023
2024
$
503,214
112,632
87,132
29,134
35,253
2,460
769,825
Overdrawn deposit accounts are classified as loans and totaled $2.4 million and $2.1 million at December 31, 2019 and
2018, respectively.
Interest expense on deposit liabilities by type of deposit was as follows:
Years ended December 31
(in thousands)
Time certificates
Savings
Money market
Interest-bearing checking
Other borrowings.
2019
2018
2017
$
12,675
$
11,044
$
1,904
953
1,298
1,639
602
706
7,687
1,567
168
238
$
16,830
$
13,991
$
9,660
Securities sold under agreements to repurchase. Securities sold under agreements to repurchase are accounted for as
financing transactions and the obligations to repurchase these securities are recorded as liabilities in the consolidated balance
sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements
are subject to master netting arrangements, which provide for conditional right of set-off in case of default by either party;
however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following
tables present information about the securities sold under agreements to repurchase, including the related collateral received
from or pledged to counterparties:
(in millions)
Repurchase agreements
December 31, 2019
December 31, 2018
Gross amount of
recognized liabilities
Gross amount
offset in the
Balance Sheets
Net amount of
liabilities presented
in the Balance Sheets
$
115
65
— $
—
115
65
$
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in millions)
Commercial account holders
December 31, 2019
December 31, 2018
Gross amount not offset in the Balance Sheets
Net amount of
liabilities presented
in the Balance Sheets
Financial
instruments
Cash
collateral
pledged
$
115
$
65
130
$
92
—
—
The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry
into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the
agreements to repurchase continue to be reflected in ASB’s asset accounts. The counterparties or tri-parties may determine that
additional collateral is required based on movements in the fair value of the collateral. Typically, a five percent discount is
taken from the fair value of the investment securities to determine the value of the collateral pledged for the repurchase
agreements.
Information concerning securities sold under agreements to repurchase, which provided for the repurchase of identical
securities, was as follows:
(dollars in millions)
Amount outstanding as of December 31
Average amount outstanding during the year
Maximum amount outstanding as of any month-end
Weighted-average interest rate as of December 31
Weighted-average interest rate during the year
Weighted-average remaining days to maturity as of December 31
Securities sold under agreements to repurchase were summarized as follows:
December 31
2019
2018
2017
65
99
152
0.75%
0.71%
1
$
$
$
141
98
141
0.65%
0.26%
1
$
$
$
$
$
$
2019
115
80
115
0.98%
0.96%
1
2018
Maturity
(dollars in thousands)
Overnight
1 to 29 days
30 to 90 days
Over 90 days
Repurchase
liability
Weighted-
average
interest
rate
Collateralized by
mortgage-backed
securities and federal
agency obligations at
fair value plus
accrued interest
Repurchase
liability
Weighted-
average
interest
rate
Collateralized by
mortgage-backed
securities and federal
agency obligations at
fair value plus
accrued interest
$
115,110
0.98% $
129,527
$
65,040
0.75% $
92,290
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
115,110
0.98% $
129,527
$
65,040
0.75% $
92,290
Advances from Federal Home Loan Bank. FHLB advances were nil and $45 million as of December 31, 2019 and 2018.
ASB and the FHLB are parties to an Advances, Pledge and Security Agreement (Advances Agreement), which applies to
currently outstanding and future advances, and governs the terms and conditions under which ASB borrows and the FHLB
makes loans or advances from time to time. Under the Advances Agreement, ASB agrees to abide by the FHLB’s credit
policies, and makes certain warranties and representations to the FHLB. Upon the occurrence of and during the continuation
of an “Event of Default” (which term includes any event of nonpayment of interest or principal of any advance when due or
failure to perform any promise or obligation under the Advances Agreement or other credit arrangements between the parties),
the FHLB may, at its option, declare all indebtedness and accrued interest thereon, including any prepayment fees or charges,
to be immediately due and payable. Advances from the FHLB are collateralized by loans and stock in the FHLB. As of
December 31, 2019 and 2018, ASB’s available FHLB borrowing capacity was $2.3 billion, and $2.0 billion, respectively. In
February 2020, the FHLB of Des Moines notified ASB that certain assets would no longer qualify as collateral for FHLB
advances, reducing ASB's total FHLB borrowing capacity to approximately $1.5 billion. The notice included high-quality
home equity lines of credit and was technical in nature and unrelated to the credit quality of the home equity loans, of which
approximately 54% are in first lien position. ASB is working with the FHLB to understand the nature of the disqualification of
those assets as collateral and re-establishing eligibility.
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASB is required to obtain and hold a specific number of shares of capital stock of the FHLB. ASB was in compliance with
all Advances Agreement requirements as of December 31, 2019 and 2018.
Common stock equity. ASB is regulated and supervised by the OCC. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on ASB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, ASB must meet specific capital guidelines that involve quantitative measures of ASB’s assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The prompt corrective action provisions impose certain restrictions on institutions that are undercapitalized. The
restrictions imposed become increasingly more severe as an institution’s capital category declines from “undercapitalized” to
“critically undercapitalized.” The regulators have substantial discretion in the corrective actions that might direct and could
include restrictions on dividends and other distributions that ASB may make to ASB Hawaii and the requirement that ASB
develop and implement a plan to restore its capital. In 1988, HEI agreed with the OTS predecessor regulatory agency at the
time, to contribute additional capital to ASB up to a maximum aggregate amount of approximately $65.1 million (Capital
Maintenance Agreement). As of December 31, 2019, as a result of capital contributions in prior years, HEI’s maximum
obligation to contribute additional capital under the Capital Maintenance Agreement has been reduced to approximately $28.3
million.
To be categorized as “well capitalized,” ASB must maintain minimum total capital, Tier 1 capital, and Tier 1 leverage
ratios as set forth in the table below. As of December 31, 2019, and 2018 ASB was in compliance with the minimum capital
requirements under OCC regulations, and was categorized as “well capitalized” under the regulatory framework for prompt
corrective action. There are no conditions or events that management believes have changed the institution’s category under
the capital guidelines.
The tables below set forth actual and minimum required capital amounts and ratios:
(dollars in thousands)
December 31, 2019
Tier 1 leverage
Common equity tier 1
Tier 1 capital
Total capital
December 31, 2018
Tier 1 leverage
Common equity tier 1
Tier 1 capital
Total capital
Actual
Minimum required
Required to be well
capitalized
Capital
Ratio
Capital
Ratio
Capital
Ratio
641,547
641,547
641,547
696,643
606,291
606,291
606,291
660,151
9.06%
13.18%
13.18%
14.31%
8.70%
12.80%
12.80%
13.93%
283,122
219,071
292,094
389,459
278,811
213,190
284,253
379,004
4.00%
4.50%
6.00%
8.00%
4.00%
4.50%
6.00%
8.00%
353,903
316,435
389,459
486,823
348,514
307,941
379,004
473,755
5.00%
6.50%
8.00%
10.00%
5.00%
6.50%
8.00%
10.00%
In 2019, ASB paid cash dividends of $56.0 million to HEI, compared to cash dividends of $50.0 million in 2018. The
FRB and OCC approved the dividends.
Related-party transactions. HEI charged ASB $2.3 million, $2.2 million and $2.1 million for general management and
administrative services in 2019, 2018 and 2017, respectively. The amounts charged by HEI for services performed by HEI
employees to its subsidiaries are allocated primarily on the basis of time expended in providing such services. All amounts
charged to ASB were settled as a capital contribution by HEI to ASB.
Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward
commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest
rate and pricing risks associated with selling loans.
ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a
specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be
held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose
ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage
interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are
carried at fair value with changes recorded in mortgage banking income.
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and
closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed
securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory
delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is
utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with
changes recorded in mortgage banking income.
Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair
value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will
fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
The notional amount and fair value of ASB’s derivative financial instruments were as follows:
December 31
(in thousands)
Interest rate lock commitments
Forward commitments
2019
2018
Notional amount
Fair value
Notional amount
Fair value
$
23,171
$
29,383
297
$
(42)
10,180
$
10,132
91
(43)
ASB’s derivative financial instruments, their fair values, and balance sheet location were as follows:
Derivative Financial Instruments Not Designated
as Hedging Instruments 1
December 31
(in thousands)
Interest rate lock commitments
Forward commitments
2019
2018
Asset
derivatives
Liability
derivatives
Asset
derivatives
Liability
derivatives
$
$
297
3
300
$
$
— $
45
45
$
91
—
91
$
$
—
43
43
1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.
The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses
recognized in ASB’s statements of income:
Derivative Financial Instruments Not Designated
as Hedging Instruments
(in thousands)
Interest rate lock commitments
Forward commitments
Location of net gains
(losses) recognized in
the Statements of Income
Mortgage banking income
Mortgage banking income
Years ended December 31
2019
2018
2017
$
$
206
1
207
$
$
(40) $
(19)
(59) $
(290)
153
(137)
Commitments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the commitments. Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since certain commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. ASB minimizes its exposure to loss under these
commitments by requiring that customers meet certain conditions prior to disbursing funds. The amount of collateral, if any, is
based on a credit evaluation of the borrower and may include residential real estate, accounts receivable, inventory and
property, plant and equipment.
Letters of credit are conditional commitments issued by ASB to guarantee payment and performance of a customer to a
third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities to customers. ASB holds collateral supporting those commitments for which collateral is deemed necessary.
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a summary of outstanding off-balance sheet arrangements:
December 31
(in thousands)
Unfunded commitments to extend credit:
Home equity line of credit
Commercial and commercial real estate
Consumer
Residential 1-4 family
Commercial and financial standby letters of credit
Total
2019
2018
$
1,290,854
$
1,242,804
484,806
70,088
21,131
11,912
515,058
70,292
17,552
13,340
$
1,878,791
$
1,859,046
Contingency. In October 2007, ASB, as a member financial institution of Visa U.S.A. Inc., received restricted shares of
Visa, Inc. (Visa) as a result of a restructuring of Visa U.S.A. Inc. in preparation for an initial public offering by Visa. As a part
of the restructuring, ASB entered into a judgment and loss sharing agreement with Visa in order to apportion financial
responsibilities arising from any potential adverse judgment or negotiated settlements related to indemnified litigation
involving Visa. In November 2012, a federal judge granted preliminary approval to a proposed settlement between merchants
and Visa over credit card fees and in December 2013, a federal judge granted final approval to the settlement. Some merchants
and trade organizations filed a notice of appeal shortly after the approval was issued. As of December 31, 2019, ASB had
accrued a reserve of $1.1 million related to the agreement. Because the extent of ASB’s obligations under this agreement
depends entirely upon the occurrence of future events, ASB’s maximum potential future liability under this agreement is not
determinable.
Federal Deposit Insurance Corporation assessment. The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) raised the minimum reserve ratio for the Deposit Insurance Fund to 1.35 percent but required the Federal
Deposit Insurance Corporation (FDIC) to offset the effect of the increase in the minimum reserve ratio on small institutions
(generally insured depository institutions with total consolidated assets of $10 billion or less) when setting assessments. In
September 2018, the reserve ratio reached 1.36 percent and the FDIC awarded the small institutions an assessment credit,
which was applied to the 2019 second and third quarter assessments for these banks. For the years ended December 31, 2019,
2018 and 2017 ASB’s FDIC insurance expenses were $1.2 million, $2.5 million and $2.6 million, respectively.
Note 5 · Short-term borrowings
Commercial paper and bank term loan. As of December 31, 2019 and 2018, HEI had $97 million and $49 million of
commercial paper outstanding, with a weighted-average interest rate of 2.3% and 2.9%, respectively.
As of December 31, 2019 and 2018, Hawaiian Electric had $39 million of and no commercial paper outstanding,
respectively. Additionally, on December 23, 2019, Hawaiian Electric entered into a 364-day, $100 million term loan credit
agreement that matures on December 21, 2020. The term loan credit agreement includes substantially the same financial
covenant and customary representations and warranties, affirmative and negative covenants, and events of default (the
occurrence of which may result in the loan outstanding becoming immediately due and payable) consistent with those in
Hawaiian Electric’s existing, amended revolving unsecured credit agreement. Hawaiian Electric drew the first $50 million on
December 23, 2019 and has until March 23, 2020, to draw the remaining $50 million, if needed. The weighted-average interest
rate of Hawaiian Electric’s outstanding commercial paper and bank term loan as of December 31, 2019 was 2.3%.
As of December 31, 2019 and 2018, HEI had three letters of credit outstanding in the aggregate amount of $6 million and
$7 million, respectively, on behalf of Hamakua Energy.
Credit agreements. HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of eight financial
institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities), effective July 3,
2017, to amend and restate their respective previously existing revolving unsecured credit agreements. The $150 million HEI
Facility and $200 million Hawaiian Electric Facility both terminate on June 30, 2022. As of December 31, 2019 and
December 31, 2018, no amounts were outstanding under the Credit Facilities. None of the facilities are collateralized.
Under the Credit Facilities, draws would generally bear interest, based on each company’s respective current long-term
credit ratings, at the “Adjusted LIBO Rate,” as defined in the agreement, plus 1.375% and annual fees on undrawn
commitments, excluding swingline borrowings, of 20 basis points. The Credit Facilities contain provisions for pricing
adjustments in the event of a long-term ratings change based on the respective Credit Facilities’ ratings-based pricing grid,
which includes the ratings by Fitch, Moody’s and S&P. Certain modifications were made to incorporate some updated terms
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and conditions customary for facilities of this type. The Credit Facilities continue to contain customary conditions that must be
met in order to draw on them, including compliance with covenants (such as covenants preventing HEI’s/Hawaiian Electric’s
subsidiaries from entering into agreements that restrict the ability of the subsidiaries to pay dividends to, or to repay borrowings
from, HEI/Hawaiian Electric; and a covenant in Hawaiian Electric’s facility restricting Hawaiian Electric’s ability, as well as
the ability of any of its subsidiaries, to guarantee additional indebtedness of the subsidiaries if such additional debt would cause
the subsidiary’s “Consolidated Subsidiary Funded Debt to Capitalization Ratio” to exceed 65%).
Under the HEI Facility, it is an event of default if HEI fails to maintain an unconsolidated “Capitalization Ratio” (funded
debt) of 50% or less or if HEI no longer owns Hawaiian Electric or ASB. Under the Hawaiian Electric Facility, it is an event of
default if Hawaiian Electric fails to maintain a “Consolidated Capitalization Ratio” (equity) of at least 35%, or if Hawaiian
Electric is no longer owned by HEI.
The Credit Facilities will be maintained to support each company’s respective short-term commercial paper program, but
may be drawn on to meet each company’s respective working capital needs and general corporate purposes.
Note 6 · Long-term debt
December 31
(dollars in thousands)
Long-term debt of Utilities, net of unamortized debt issuance costs 1
HEI 2.99% term loan, due 2022
HEI 5.67% senior notes, due 2021
HEI 3.99% senior notes, due 2023
HEI 4.58% senior notes, due 2025
HEI 4.72% senior notes, due 2028
Hamakua Energy 4.02% notes, due 2030, secured by real and personal property of Hamakua Energy, LLC
Mauo LIBOR + 1.375% loan, due 2022
Less unamortized debt issuance costs
2019
2018
$
$
1,497,667
150,000
50,000
50,000
50,000
100,000
59,699
9,349
(2,350)
1,964,365
$
$
1,418,802
150,000
50,000
50,000
50,000
100,000
63,438
—
(2,599)
1,879,641
1 See components of “Total long-term debt” and unamortized debt issuance costs in Hawaiian Electric and subsidiaries’ Consolidated
Statements of Capitalization.
As of December 31, 2019, the aggregate principal payments required on the Company’s long-term debt for 2020 through
2024 are $102 million in 2020, $54 million in 2021, $213 million in 2022, $154 million in 2023 and $5 million in 2024. As of
December 31, 2019, the aggregate payments of principal required on the Utilities’ long-term debt for 2020 through 2024 are
$96 million in 2020, nil in 2021, $52 million in 2022, $100 million in 2023 and nil in 2024.
The HEI term loans and senior notes contain customary representation and warranties, affirmative and negative covenants
and events of default (the occurrence of which may result in some or all of the notes then outstanding becoming immediately
due and payable). The HEI term loans and senior notes also contain provisions requiring the maintenance by HEI of certain
financial ratios generally consistent with those in HEI’s existing, amended revolving unsecured credit agreement. Upon a
change of control or certain dispositions of assets (as defined in the Master Note Purchase Agreements dated March 24, 2011
and October 4, 2018), HEI is required to offer to prepay the senior notes.
The Utilities’ senior notes contain customary representations and warranties, affirmative and negative covenants, and
events of default (the occurrence of which may result in some or all of the notes of each and all of the utilities then outstanding
becoming immediately due and payable) and provisions requiring the maintenance by Hawaiian Electric, and each of Hawaii
Electric Light and Maui Electric, of certain financial ratios generally consistent with those in Hawaiian Electric’s existing,
amended revolving unsecured credit agreement.
Changes in long-term debt.
Mauo. In June 2018, Mauo, LLC, an indirect subsidiary of Pacific Current, LLC, entered into an unsecured $50.5 million
construction loan facility in connection with the construction of the solar-plus-storage PPA project. In October 2019, the loan
was amended to extend the maturity date to March 31, 2022 and to revise certain other defined terms. The loan bears interest at
LIBOR plus 1.375%. As of December 31, 2019, $9 million was outstanding under the facility. The loan is guaranteed by HEI
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and contains restrictive covenants that are substantially the same as the financial covenants contained in HEI’s senior credit
facility, as amended.
Hawaiian Electric. On May 13, 2019, the Utilities issued, through a private placement pursuant to separate Note Purchase
Agreements (the Note Purchase Agreements), the following unsecured notes bearing taxable interest (the Unsecured Notes):
Aggregate principal amount
Fixed coupon interest rate
Maturity date
Principal amount by company:
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Series 2019A
$50 million
4.21%
May 15, 2034
$30 million
$10 million
$10 million
The Unsecured Notes include substantially the same financial covenants and customary conditions as Hawaiian Electric’s
credit agreement. Hawaiian Electric is also a party as guarantor under the Note Purchase Agreements entered into by Hawaii
Electric Light and Maui Electric. The Unsecured Notes may be prepaid in whole or in part at any time at the prepayment price
of the principal amount plus a “Make-Whole Amount,” as defined in the Note Purchase Agreements. On May 15, 2019,
proceeds from the sale were applied to redeem the Utilities’ 2004 junior subordinated deferrable interest debentures at par
value:
2004 Junior subordinated deferrable interest debentures redeemed
Aggregate principal amount
Fixed coupon interest rate
Maturity date
Principal amount by company:
Hawaiian Electric
Hawaii Electric Light
Maui Electric
$51.5 million
6.50%
May 15, 2034
$31.5 million
$10 million
$10 million
On July 18, 2019, the Department of Budget and Finance of the State of Hawaii (DBF) for the benefit of Hawaiian Electric
and Hawaii Electric Light, issued, at par:
Refunding Series 2019 Special Purpose Revenue Bonds
Aggregate principal amount
Fixed coupon interest rate
Maturity date
DBF loaned the proceeds to:
Hawaiian Electric
Hawaii Electric Light
$150 million
3.20%
July 1, 2039
$90 million
$60 million
On July 26, 2019, proceeds from the sale were applied to redeem at par, bonds previously issued by the DBF for the benefit
of Hawaiian Electric and Hawaii Electric Light:
Series 2009 Special Purpose Revenue Bonds Redeemed
Aggregate principal amount
Fixed coupon interest rate
Maturity date
Principal amount by company:
Hawaiian Electric
Hawaii Electric Light
$150 million
6.50%
July 1, 2039
$90 million
$60 million
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On October 10, 2019, the DBF for the benefit of Hawaiian Electric, Hawaii Electric Light and Maui Electric, issued, at par:
Series 2019 Special Purpose Revenue Bonds
Aggregate principal amount
Fixed coupon interest rate
Maturity date
DBF loaned the proceeds to:
Hawaiian Electric
Hawaii Electric Light
Maui Electric
$80 million
3.50%
October 1, 2049
$70 million
$2.5 million
$7.5 million
Proceeds from the Series 2019 Special Purpose Revenue Bonds will be used only to finance capital expenditures, including
reimbursements to the Companies for previously incurred approved capital expenditures. The undrawn funds are deposited with
a trustee and earn interest at market rates. As of December 31, 2019, Hawaiian Electric and Hawaii Electric Light had $30.8
million and $0.1 million of undrawn funds remaining with the trustee, respectively. Maui Electric received all bond proceeds at
closing and had no undrawn funds as of December 31, 2019. Undrawn funds are included in restricted cash in the consolidated
balance sheets. (See Note 1).
On December 31, 2019, Hawaiian Electric and Maui Electric wired approximately $84 million to pay off the Series 2012B
senior note ($62 million for Hawaiian Electric, $20 million for Maui Electric, and approximately $2 million of accrued
interest), which matured on January 1, 2020.
Note 7 · Shareholders’ equity
Reserved shares. As of December 31, 2019, HEI had reserved a total of 18.5 million shares of common stock for future
issuance under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), the Hawaiian Electric Industries Retirement
Savings Plan (HEIRSP), the HEI 2011 Nonemployee Director Stock Plan, the ASB 401(k) Plan and the 2010 Executive
Incentive Plan.
Accumulated other comprehensive income/(loss). Changes in the balances of each component of accumulated other
comprehensive income/(loss) (AOCI) were as follows:
(in thousands)
HEI Consolidated
Hawaiian Electric Consolidated
Net unrealized
gains (losses)
on securities
Unrealized
gains (losses)
on derivatives
Retirement
benefit
plans
Unrealized
gains (losses)
on derivatives
Retirement
benefit
plans
AOCI
AOCI
Balance, December 31, 2016
$
(7,931) $
(454) $ (24,744) $ (33,129) $
(454) $
132
$
(322)
Current period other comprehensive
income (loss) and reclassifications,
net of taxes
Reclass of AOCI for tax rate reduction
impact1
Balance, December 31, 2017
Current period other comprehensive
income (loss) and reclassifications,
net of taxes
Balance, December 31, 2018
Current period other comprehensive
income (loss) and reclassifications,
net of taxes
(4,370)
454
2,544
(1,372)
454
(1,142)
(688)
(2,650)
(14,951)
(9,472)
(24,423)
—
—
(4,790)
(7,440)
(26,990)
(41,941)
(436)
(436)
1,239
(8,669)
(25,751)
(50,610)
26,904
(1,177)
4,844
30,571
—
—
—
—
—
(209)
(209)
(1,219)
(1,219)
1,318
1,318
99
99
(1,378)
(1,378)
Balance, December 31, 2019
$
2,481
$
(1,613) $ (20,907) $ (20,039) $
— $
(1,279) $ (1,279)
1 The Company and the Utilities adopted ASU No. 2018-02 as of the beginning of the fourth quarter of 2017 and elected to reclassify the income tax effects of
the Tax Act from AOCI to retained earnings. Other than this reclassification to retained earnings, the Company and the Utilities release the income tax effects
in AOCI from AOCI when the specific AOCI items (e.g., on a security-by-security basis for ASB’s gains/losses on investment securities) are included in net
income.
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reclassifications out of AOCI were as follows:
Years ended December 31
(in thousands)
HEI consolidated
Net realized gains on securities included in net
income
Derivatives qualifying as cash flow hedges:
Window forward contracts
Retirement benefit plans:
Amortization of prior service credit and net
losses recognized during the period in net
periodic benefit cost
Impact of D&Os of the PUC included in
regulatory assets
Total reclassifications
Hawaiian Electric consolidated
Derivatives qualifying as cash flow hedges
Window forward contracts
Retirement benefit plans:
Amortization of prior service credit and net
losses recognized during the period in net
periodic benefit cost
Impact of D&Os of the PUC included in
regulatory assets
Amount reclassified from AOCI
2019
2018
2017
Affected line item in the Statement of
Income/Balance Sheet
$
(478) $
— $
—
Revenues-bank (gains on sale of investment
securities, net)
—
—
454
Property, plant and equipment-electric utilities
(2017)
10,107
21,015
15,737 See Note 10 for additional details
(16,177)
8,325
(78,724) See Note 10 for additional details
$ (6,548) $ 29,340
$ (62,533)
$
— $
— $
454 Property, plant and equipment (2017)
9,550
19,012
14,477 See Note 10 for additional details
(16,177)
8,325
(78,724) See Note 10 for additional details
Total reclassifications
$ (6,627) $ 27,337
$ (63,793)
Note 8 · Leases
The Company adopted ASU No. 2016-02 and related amendments on January 1, 2019, and used the effective date as the
date of initial application. The Company elected the practical expedient package under which the Company did not reassess
its prior conclusions about whether any expired or existing contracts are or contain leases, whether there is a change in lease
classification for any expired or existing leases under the new standard, or whether there were initial direct costs for any
existing leases that would be treated differently under the new standard. The Company elected the short-term lease
recognition exemption for all of its leases that qualify, and accordingly, does not recognize lease liabilities and ROU assets
for all leases that have lease terms that are 12 months or less. The amounts related to short-term leases are not material. The
Company elected the practical expedient to not separate lease and non-lease components for its real estate and equipment and
fossil fuel and renewable energy PPAs. The Company elected the practical expedient to not assess all existing land easements
that were not previously accounted for in accordance with ASC 840.
The Company leases certain real estate and equipment for various terms under long-term operating lease agreements.
The agreements expire at various dates through 2054 and provide for renewal options up to 10 years. The periods associated
with the renewal options are excluded for the purpose of determining the lease term unless the exercise of the renewable
option is reasonably certain. In the normal course of business, it is expected that many of these agreements will be replaced
by similar agreements. Certain real estate leases require the Company to pay for operating expenses such as common area
maintenance, real estate taxes and insurance, which are recognized as variable lease expense when incurred and are not
included in the measurement of the lease liability.
Additionally, the Utilities contract with independent power producers to supply energy under long-term power purchase
agreements. Certain PPAs are treated as operating leases under the new standard because the Company elected the practical
expedient package under which prior conclusions about lease identification were not reassessed. The fixed capacity payments
under the PPAs are included in the lease liability, while the variable lease payments (e.g., payments based on kWh) are
excluded from the lease liability. Several as-available PPAs have variable-only payment terms based on production. For PPAs
with no minimum lease payments, the Utilities do not recognize any lease liabilities or ROU assets, and the related costs are
reported as variable lease costs.
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In August 2019, Hawaiian Electric entered into a lease agreement for a total office space of approximately 195,000
square feet in downtown Honolulu to lower costs and bring together office workers currently in separate leased buildings.
The lease consists of two different phases with commencement dates of January 2020 and January 2021, respectively, and is
an operating lease for a term of 12 years with various options to extend up to 10 years. Annual base rent expense for each
phase is approximately $1.9 million and $1.7 million, respectively, and the operating lease liability recorded upon
commencement of the first phase of the lease was $21 million and the operating lease liability to be recorded upon
commencement of the second phase is approximately $19 million. In addition to the annual base rent payments that are
included in the lease liability, there are additional payments for operating expenses, which are recognized as variable lease
cost when incurred. These payments are related to operating expenses, such as common area maintenance, various taxes and
insurance. Under the terms of the lease, Hawaiian Electric is entitled to receive up to $5.0 million and $4.6 million in
reimbursements for various office improvements for each phase, respectively. The amounts are to be included as a reduction
to the initial measurement of the ROU asset on each respective commencement date, and will be subsequently adjusted if the
actual reimbursements are different from the initial amounts previously recognized.
The Utilities’ lease payments for each operating lease agreement were discounted using its estimated unsecured
borrowing rates for the appropriate term, reduced for the estimated impact of collateral, which is a reduction of
approximately 15 basis points. ASB’s lease payments for each operating lease agreement were discounted using Federal
Home Loan Bank of Des Moines (FHLB) fixed rate advance rates, which are collateralized, for the appropriate term. The
FHLB is ASB’s primary wholesale funding source and can provide collateralized borrowing rates for various terms starting at
overnight borrowings to 30-year borrowing terms.
Amounts related to the Company’s total lease cost and cash flows arising from lease transaction are as follows:
Year ended December 31, 2019
(dollars in thousands)
Operating lease cost
Variable lease cost
Total lease cost
Other information
HEI consolidated
Hawaiian Electric consolidated
Other
leases
PPAs
classified
as leases
Total
Other
leases
PPAs
classified
as leases
Total
$ 10,265
$
63,319
$ 73,584
$
4,955
$
63,319
$ 68,274
13,034
192,138
205,172
10,272
192,138
202,410
$ 23,299
$ 255,457
$278,756
$ 15,227
$ 255,457
$270,684
Cash paid for amounts included in the measurement of
lease liabilities—Operating cash flows from operating
leases
Weighted-average remaining lease term—operating leases
(in years)
Weighted-average discount rate—operating leases
$ 10,447
$
62,594
$ 73,041
$
5,768
$
62,594
$ 68,362
6.5
3.50%
2.8
3.5
4.08%
3.96%
4.5
4.11%
2.8
2.9
4.08%
4.08%
The following table summarizes the maturity of our operating lease liabilities as of December 31, 2019:
(in millions)
HEI consolidated
Hawaiian Electric consolidated
PPAs
classified as
leases
Other leases
Total
Other leases
PPAs
classified as
leases
Total
2020 $
2021
2022
2023
2024
12 $
10
6
5
4
9
46
(5)
63 $
63
42
—
—
—
168
(9)
$
41 $
159 $
Thereafter
Total lease payments
Less: Imputed interest
Total present value of lease payments1
75
73
48
5
4
9
214
(14)
200
$
$
7 $
63 $
5
3
2
1
2
20
(2)
18 $
63
42
—
—
—
168
(9)
159 $
70
68
45
2
1
2
188
(11)
177
1 The fixed capacity payment related to the existing PPA with PGV, which will expire on December 31, 2027, is not included as a lease liability as of
December 31, 2019 as the facility has been offline since May 2018 due to lava flow on Hawaii Island. The annual capacity payment is approximately $7
million. The lease liability will be remeasured when PGV is back in service.
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The future minimum lease obligations under operating leases in effect as of December 31, 2018, having a term in excess
of one year as determined prior to the adoption of ASC 842 are as follows:
(in millions)
HEI consolidated
Hawaiian Electric consolidated
Other leases
PPAs
classified as
leases
Total
Other
leases
PPAs
classified as
leases
Total
2019 $
11 $
63 $
2020
2021
2022
2023
Thereafter
Total lease payments
$
9
8
5
4
12
49 $
63
63
42
—
—
74
72
71
47
4
12
$
6 $
63 $
6
5
2
2
3
63
63
42
—
—
69
69
68
44
2
3
231 $
280
$
24 $
231 $
255
HEI’s consolidated operating lease expense prior to the adoption of ASC 842 was $21 million and $20 million in 2018
and 2017, respectively. The Utilities’ operating lease expense prior to the adoption of ASC 842 was $11 million each year for
2018 and 2017.
Note 9· Revenues
Revenue from contracts with customers. The revenues subject to Topic 606 include the Utilities’ electric energy sales
revenue and the ASB’s transaction fees, as further described below.
Electric Utilities.
Electric energy sales. Electric energy sales represent revenues from the generation and transmission of electricity to
customers under tariffs approved by the PUC. Transaction pricing for electricity is determined and approved by the PUC for
each rate class and includes revenues from the base electric charges, which are composed of (1) the customer, demand, energy,
and minimum charges, and (2) the power factor, service voltage, and other adjustments as provided in each rate and rate rider
schedule. The Utilities satisfy performance obligations over time, i.e., the Utilities generate and transfer control of the
electricity over time as the customer simultaneously receives and consumes the benefits provided by the Utilities’ performance.
Payments from customers are generally due within 30 days from the end of the billing period. As electric bills to customers
reflect the amount that corresponds directly with the value of the Utilities’ performance to date, the Utilities have elected to use
the right to invoice practical expedient, which entitles them to recognize revenue in the amount they have the right to invoice.
The Utilities’ revenues include amounts for recovery of various Hawaii state revenue taxes. Revenue taxes are generally
recorded as an expense in the year the related revenues are recognized. For 2019, 2018 and 2017, the Utilities’ revenues include
recovery of revenue taxes of approximately $226 million, $226 million and $202 million, respectively, which amounts are in
“Taxes, other than income taxes” expense. However, the Utilities pay revenue taxes to the taxing authorities based on (1) the
prior year’s billed revenues (in the case of public service company taxes and PUC fees) in the current year or (2) the current
year’s cash collections from electric sales (in the case of franchise taxes) after year end. As of December 31, 2019 and 2018,
the Utilities had recorded $132 million and $130 million, respectively, in “Taxes accrued, including revenue taxes” on the
Utilities’ consolidated balance sheet for amounts previously collected from customers or accrued for public service company
taxes and PUC fees, net of amounts paid to the taxing authorities. Such amounts will be used to pay public service company
taxes and PUC fees owed for the following year.
Bank.
Bank fees. Bank fees are primarily transaction-based and are recognized when the transaction has occurred and the
performance obligation satisfied. From time to time, customers will request a fee waiver and ASB may grant reversals of fees.
Revenues are not recorded for the estimated amount of fee reversals for each period. Under the new standard, certain fees paid
to third parties that were previously recognized as a component of noninterest expense are now netted with fee income. The
change in presentation will have no effect on the reported amount of operating income.
Fees from other financial services - These fees primarily include debit card interchange income and fees, automated
teller machine fees, credit card interchange income and fees, check ordering fees, wire fees, safe deposit rental fees, corporate/
business fees, merchant income, online banking fees and international banking fees. Amounts paid to third parties for payment
network expenses are included in this financial statement caption in ASB’s Statements of Income and Comprehensive Income
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Data (in Revenues—Bank financial statement caption of HEI’s Consolidated Statements of Income). Previously, these
expenses were recorded in the other expense financial statement caption of ASB’s Statements of Income and Comprehensive
Income Data (in Expenses—Bank financial statement caption of HEI’s Consolidated Statements of Income).
Fee income on deposit liabilities - These fees primarily include “not sufficient funds” fees, monthly deposit account
service charge fees, commercial account analysis fees and other deposit fees.
Fee income on other financial products - These fees primarily include commission income from the sales of annuity,
mutual fund, and life insurance products. In 2017, ASB began offering a fee-based, managed account product in which income
is based on a percentage of assets under management. ASB satisfies its performance obligations under the managed account
arrangement over time, and consequently, fees for assets under management are recognized over time as the customer
simultaneously receives and consumes the benefit of asset management services. Fees recognized to date from the managed
account product were minimal.
Revenues from other sources. Revenues from other sources not subject to Topic 606 are accounted for as follows:
Electric Utilities.
Regulatory revenues. Regulatory revenues primarily consist of revenues from decoupling mechanism, cost recovery
surcharges and the Tax Act adjustments.
Decoupling mechanism - Under the decoupling mechanism, the Utilities are allowed to recover or obligated to refund
the difference between actual revenue and the target revenue as determined by the PUC, collect revenue adjustment mechanism
and major project interim recovery revenues, and recover or refund performance incentive mechanism penalties or rewards.
These adjustments will be reflected in tariffs in future periods. Under the decoupling tariff approved in 2011, the prior year
accrued RBA revenues and the annual RAM amount are billed from June 1 of each year through May 31 of the following year,
which is within 24 months following the end of the year in which they are recorded as required by the accounting standard for
alternative revenue programs.
Cost recovery surcharges - For the timely recovery of additional costs incurred, and reconciliation of costs and
expenses included in tariffed rates, the Utilities recognize revenues under surcharge mechanisms approved by the PUC. These
will be reflected in tariffs in future periods (e.g., ECRC and PPAC).
Tax Act adjustments - These represent adjustments to revenues for the amounts included in tariffed revenues that will
be returned to customers as a result of the Tax Act.
Since revenue adjustments discussed above resulted from either agreements with the PUC or change in tax law, rather than
contracts with customers, they are not subject to the scope of Topic 606. Also, see Notes 1, 3 and 12 of the Consolidated
Financial Statements. The Utilities have elected to present these revenue adjustments on a gross basis, which results in the
amounts being billed to customers presented in revenues from contracts with customers and the amortization of the related
regulatory asset/liability as revenues from other sources. Depending on whether the previous deferral balance being amortized
was a regulatory asset or regulatory liability, and depending on the size and direction of the current year deferral of surcharges
and/or refunds to customers, it could result in negative regulatory revenue during the year.
Utility pole attachment fees. These fees primarily represent revenues from third-party companies for their access to
and shared use of Utilities-owned poles through licensing agreements. As the shared portion of the utility pole is functionally
dependent on the rest of the structure, no distinct goods appear to exist. Therefore, these fees are not subject to the scope of
Topic 606, but recognized in accordance with ASC Topic 610, Other Income.
Bank.
Interest and dividend income. Interest and fees on loans are recognized in accordance with ASC Topic 310,
Receivables, including the related allowance for loan losses. Interest and dividends on investment securities are recognized in
accordance with ASC Topic 320, Investments-Debt and Equity Securities. See Notes 1 and 4 of the Consolidated Financial
Statements.
Other bank noninterest income. Other bank noninterest income primarily consists of mortgage banking income and
bank-owned life insurance income.
Mortgage banking income - Mortgage banking income consists primarily of realized and unrealized gains on sale of
loans accounted for pursuant to ASC Topic 860, Transfers and Servicing. Interest rate lock commitments and forward loan
sales are considered derivatives and are accounted pursuant to ASC Topic 815, Derivatives and Hedging.
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Bank-Owned Life Insurance (BOLI) - The recognition of BOLI cash surrender value does not represent a contract
with a customer and is accounted for in accordance with Emerging Issues Task Force Issue 06-05, Accounting for Purchases of
Life Insurance-Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4,
Accounting for Purchases of Life Insurance.
Revenue disaggregation. The following tables disaggregate revenues by major source, timing of revenue recognition, and
segment:
(in thousands)
Revenues from contracts with
customers
Year ended December 31, 2019
Year ended December 31, 2018
Electric
utility
Bank
Other
Total
Electric
utility
Bank
Other
Total
Electric energy sales - residential
$ 807,652
$
— $ — $ 807,652
$
801,846
$
— $ — $ 801,846
Electric energy sales - commercial
846,110
—
905,308
16,296
—
—
—
46,659
—
—
—
—
846,110
853,672
—
905,308
16,296
46,659
894,770
17,243
—
—
—
47,300
—
—
—
—
853,672
894,770
17,243
47,300
2,575,366
46,659
— 2,622,025
2,567,531
47,300
— 2,614,831
Electric energy sales - large light
and power
Electric energy sales - other
Bank fees
Total revenues from contracts
with customers
Revenues from other sources
Regulatory revenue
(54,101)
—
Bank interest and dividend income
— 266,554
Other bank noninterest income
Other
Total revenues from other
sources
—
24,677
15,357
—
(29,424)
281,911
Total revenues
$ 2,545,942
$ 328,570
$
—
—
—
89
89
89
(54,101)
266,554
15,357
24,766
(37,687)
—
— 258,225
—
16,681
8,750
—
252,576
(21,006)
266,975
$ 2,874,601
$ 2,546,525
$ 314,275
$
—
—
—
49
49
49
(37,687)
258,225
8,750
16,730
246,018
$ 2,860,849
Timing of revenue recognition
Services/goods transferred at a point
in time
Services/goods transferred over
time
Total revenues from contracts
with customers
$
— $ 46,659
$ — $
46,659
$
— $ 47,300
$ — $
47,300
2,575,366
—
— 2,575,366
2,567,531
—
— 2,567,531
$ 2,575,366
$ 46,659
$ — $ 2,622,025
$ 2,567,531
$ 47,300
$ — $ 2,614,831
There are no material contract assets or liabilities associated with revenues from contracts with customers existing at
December 31, 2018 or December 31, 2019. Accounts receivable and unbilled revenues related to contracts with customers
represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are
disclosed as accounts receivable and unbilled revenues, net on HEI’s consolidated balance sheets and customer accounts
receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s consolidated balance sheets.
As of December 31, 2019, the Company had no material remaining performance obligations due to the nature of the
Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to
customers. For ASB, fees are recognized when a transaction is completed.
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 10 · Retirement benefits
Defined benefit plans. Substantially all of the employees of HEI and the Utilities participate in the Retirement Plan for
Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries (HEI Pension Plan). Substantially all of the
employees of ASB participated in the American Savings Bank Retirement Plan (ASB Pension Plan) until it was frozen on
December 31, 2007. The HEI Pension Plan and the ASB Pension Plan (collectively, the Plans) are qualified, noncontributory
defined benefit pension plans and include, in the case of the HEI Pension Plan, benefits for utility union employees determined
in accordance with the terms of the collective bargaining agreements between the Utilities and the union. The Plans are subject
to the provisions of ERISA. In addition, some current and former executives and directors of HEI and its subsidiaries
participate in noncontributory, nonqualified plans (collectively, Supplemental Plans). In general, benefits are based on the
employees’ or directors’ years of service and compensation.
The continuation of the Plans and the Supplemental Plans and the payment of any contribution thereunder are not assumed
as contractual obligations by the participating employers. The Supplemental Plan for directors has been frozen since 1996. The
ASB Pension Plan was frozen as of December 31, 2007. The HEI Supplemental Executive Retirement Plan and ASB
Supplemental Executive Retirement, Disability, and Death Benefit Plan (noncontributory, nonqualified, defined benefit plans)
were frozen as of December 31, 2008. No participants have accrued any benefits under these plans after the respective plan’s
freeze and the plans will be terminated at the time all remaining benefits have been paid.
Each participating employer reserves the right to terminate its participation in the applicable plans at any time, and HEI and
ASB reserve the right to terminate their respective plans at any time. If a participating employer terminates its participation in
the Plans, the interest of each affected participant would become 100% vested to the extent funded. Upon the termination of the
Plans, assets would be distributed to affected participants in accordance with the applicable allocation provisions of ERISA and
any excess assets that exist would be paid to the participating employers. Participants’ benefits in the Plans are covered up to
certain limits under insurance provided by the Pension Benefit Guaranty Corporation.
Postretirement benefits other than pensions. HEI and the Utilities provide eligible employees health and life insurance
benefits upon retirement under the Postretirement Welfare Benefits Plan for Employees of Hawaiian Electric Company, Inc. and
participating employers (Hawaiian Electric Benefits Plan). Eligibility of employees and dependents is based on eligibility to
retire at termination, the retirement date and the date of hire. The plan was amended in 2011, changing eligibility for certain
bargaining unit employees hired prior to May 1, 2011, based on new minimum age and service requirements effective
January 1, 2012, per the collective bargaining agreement, and certain management employees hired prior to May 1, 2011 based
on new eligibility minimum age and service requirements effective January 1, 2012. The minimum age and service
requirements for management and bargaining unit employees hired May 1, 2011 and thereafter have increased and their
dependents are not eligible to receive postretirement benefits. Employees may be eligible to receive benefits from the HEI
Pension Plan but may not be eligible for postretirement welfare benefits if the different eligibility requirements are not met.
The executive death benefit plan was frozen on September 10, 2009 for participants at benefit levels as of that date.
The Company’s and Utilities’ cost for OPEB has been adjusted to reflect the plan amendments, which reduced benefits and
created prior service credits to be amortized over average future service of affected participants. The amortization of the prior
service credit will reduce benefit until the various credit bases are fully recognized. Each participating employer reserves the
right to terminate its participation in the Hawaiian Electric Benefits Plan at any time.
Balance sheet recognition of the funded status of retirement plans. Employers must recognize on their balance sheets the
funded status of defined benefit pension and other postretirement benefit plans with an offset to AOCI in shareholders’ equity
(using the projected benefit obligation (PBO) and accumulated postretirement benefit obligation (APBO), to calculate the
funded status).
The PUC allowed the Utilities to adopt pension and OPEB tracking mechanisms in previous rate cases. The amount of the
net periodic pension cost (NPPC) and net periodic benefits costs (NPBC) to be recovered in rates is established by the PUC in
each rate case. Under the Utilities’ tracking mechanisms, any actual costs determined in accordance with GAAP that are over/
under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility
will then be amortized over 5 years beginning with the respective utility’s next rate case. Accordingly, all retirement benefit
expenses (except for executive life and nonqualified pension plan expenses, which amounted to $1.1 million and $1.0 million in
2019 and 2018, respectively) determined in accordance with GAAP will be recovered.
Under the tracking mechanisms, amounts that would otherwise be recorded in AOCI (excluding amounts for executive life
and nonqualified pension plans), net of taxes, as well as other pension and OPEB charges, are allowed to be reclassified as a
regulatory asset, as those costs will be recovered in rates through the NPPC and NPBC in the future. The Utilities have
reclassified to a regulatory asset/(liability) charges for retirement benefits that would otherwise be recorded in AOCI
(amounting to the elimination of a potential charge to AOCI of $(21.8) million pretax and $11.2 million pretax for 2019 and
2018, respectively).
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under the pension tracking mechanism, the Utilities are required to make contributions to the pension trust in the amount
of the actuarially calculated NPPC, except when limited by the ERISA minimum contribution requirements or the maximum
contributions imposed by the Internal Revenue Code. Contributions in excess of the calculated NPPC are recorded in a separate
regulatory asset. In 2018, the pension tracking mechanism was modified to allow prior year contributions made in excess of
NPPC to satisfy future contributions, when the ERISA minimum required contribution is less than NPPC. The Utilities reduced
their 2018 contribution for this modification.
The OPEB tracking mechanisms generally require the Utilities to make contributions to the OPEB trust in the amount of
the actuarially calculated NPBC, (excluding amounts for executive life), except when limited by material, adverse
consequences imposed by federal regulations. Future decisions in rate cases could further impact funding amounts.
Defined benefit pension and other postretirement benefit plans information. The changes in the obligations and assets of
the Company’s and Utilities’ retirement benefit plans and the changes in AOCI (gross) for 2019 and 2018 and the funded status
of these plans and amounts related to these plans reflected in the Company’s and Utilities’ consolidated balance sheet as of
December 31, 2019 and 2018 were as follows:
(in thousands)
HEI consolidated
Benefit obligation, January 1
Service cost
Interest cost
Actuarial losses (gains)
Participants contributions
Benefits paid and expenses
Benefit obligation, December 31
Fair value of plan assets, January 1
Actual return on plan assets
Employer contributions
Participants contributions
Benefits paid and expenses
Fair value of plan assets, December 31
Accrued benefit asset (liability), December 31
Other assets
Defined benefit pension and other postretirement benefit plans
liability
Accrued benefit asset (liability), December 31
AOCI debit, January 1 (excluding impact of PUC D&Os)
Recognized during year – prior service credit
Recognized during year – net actuarial (losses) gains
Occurring during year – net actuarial losses (gains)
AOCI debit before cumulative impact of PUC D&Os, December 31
Cumulative impact of PUC D&Os
AOCI debit/(credit), December 31
Net actuarial loss
Prior service cost (gain)
AOCI debit before cumulative impact of PUC D&Os, December 31
Cumulative impact of PUC D&Os
AOCI debit/(credit), December 31
Income taxes (benefits)
AOCI debit/(credit), net of taxes (benefits), December 31
$
$
$
$
$
$
$
2019
2018
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
$
1,991,384
$
188,666
$
2,094,356
$
212,601
62,135
84,267
224,421
—
(83,924)
2,278,283
1,479,067
354,072
48,629
—
(82,568)
1,799,200
2,209
8,004
25,998
2,351
(11,589)
215,639
173,693
35,525
—
2,351
(10,738)
200,831
68,987
77,374
(171,226)
—
(78,107)
1,991,384
1,618,703
(101,406)
38,496
—
(76,726)
1,479,067
2,721
7,933
(25,977)
2,505
(11,117)
188,666
193,995
(11,846)
—
2,505
(10,961)
173,693
(479,083) $
(14,808) $
(512,317) $
(14,973)
19,396
$
— $
10,930
$
—
(498,479)
(14,808)
(523,247)
(479,083) $
(14,808) $
(512,317) $
536,920
$
1,962
$
527,830
$
42
(15,479)
(17,662)
503,821
(474,628)
29,193
503,813
8
503,821
(474,628)
29,193
(7,677)
21,516
$
$
$
1,806
13
2,829
6,610
(7,458)
(848) $
$
11,707
(5,097)
6,610
(7,458)
(848)
219
(629) $
42
(30,084)
39,132
536,920
(498,944)
37,976
536,954
(34)
536,920
(498,944)
37,976
(10,023)
27,953
$
$
$
(14,973)
(14,973)
1,474
1,805
(95)
(1,222)
1,962
(4,929)
(2,967)
8,865
(6,903)
1,962
(4,929)
(2,967)
765
(2,202)
As of December 31, 2019 and 2018, the other postretirement benefit plans shown in the table above had ABOs in
excess of plan assets.
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands)
Hawaiian Electric consolidated
Benefit obligation, January 1
Service cost
Interest cost
Actuarial losses (gains)
Participants contributions
Benefits paid and expenses
Transfers
Benefit obligation, December 31
Fair value of plan assets, January 1
Actual return on plan assets
Employer contributions
Participants contributions
Benefits paid and expenses
Other
Fair value of plan assets, December 31
Accrued benefit liability, December 31
Other liabilities (short-term)
Defined benefit pension and other postretirement benefit plans
liability
Accrued benefit liability, December 31
AOCI debit, January 1 (excluding impact of PUC D&Os)
Recognized during year – prior service credit (cost)
Recognized during year – net actuarial losses
Occurring during year – net actuarial losses (gains)
AOCI debit before cumulative impact of PUC D&Os, December 31
Cumulative impact of PUC D&Os
AOCI debit/(credit), December 31
Net actuarial loss
Prior service cost (gain)
AOCI debit before cumulative impact of PUC D&Os, December 31
Cumulative impact of PUC D&Os
AOCI debit/(credit), December 31
Income taxes (benefits)
2019
2018
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
$
1,837,653
$
181,162
$
1,928,648
$
204,644
60,461
77,851
212,310
—
(77,060)
(311)
2,110,904
1,343,113
326,204
47,808
—
(76,581)
(127)
2,191
7,673
25,123
2,311
(11,382)
(5)
207,073
170,862
34,928
—
2,311
(10,532)
(5)
67,359
71,294
(158,258)
—
(71,535)
145
1,837,653
1,468,403
(91,836)
37,550
—
2,704
7,628
(25,330)
2,472
(10,958)
2
181,162
190,814
(11,625)
—
2,472
(71,060)
(10,801)
56
2
1,640,417
197,564
1,343,113
170,862
$
(470,487) $
(9,509) $
(494,540) $
(10,300)
(518)
(715)
(512)
(669)
$
$
$
$
(469,969)
(8,794)
(494,028)
(9,631)
(470,487) $
(9,509) $
(494,540) $
(10,300)
502,189
$
1,551
$
493,464
$
(7)
(14,658)
(9,446)
478,078
(474,628)
3,450
478,069
$
$
9
478,078
(474,628)
3,450
(888)
1,803
—
2,376
5,730
(7,458)
(1,728) $
10,815
$
(5,085)
5,730
(7,458)
(1,728)
445
(8)
(27,302)
36,035
502,189
(498,944)
3,245
502,173
$
$
16
502,189
(498,944)
3,245
(836)
839
1,803
(98)
(993)
1,551
(4,929)
(3,378)
8,439
(6,888)
1,551
(4,929)
(3,378)
870
AOCI debit/(credit), net of taxes (benefits), December 31
$
2,562
$
(1,283) $
2,409
$
(2,508)
As of December 31, 2019 and 2018, the other postretirement benefit plan shown in the table above had ABOs in excess of
plan assets.
Pension benefits. In 2019, investment returns were higher than assumed rates and together with updates to mortality
assumptions projected generationally, improved the funded position. Actuarial losses due to demographic experience, including
assumption changes, the most significant of which was the decrease in the discount rate used to measure PBO compared to the
prior year, partially offset the improvement in funded position.
In 2018, actuarial gains due to demographic experience, including assumption changes, the most significant of which was
the increase in the discount rate used to measure PBO and updates to mortality assumptions projected generationally improved
funded position but investment losses more than offset any improvement resulting in a deterioration in the funded position.
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other benefits. In 2019, investment returns were higher than assumed rates, which improved funded position and
predominately offset the actuarial losses due to demographic experience, including assumption changes, the most significant of
which was the decrease in the discount rate used to measure APBO. Updates to the per capita claims costs also contributed to a
deterioration in the funded position.
In 2018, actuarial gains due to demographic experience, including assumption changes, the most significant of which was
the increase in the discount rate used to measure APBO along with updates to mortality assumptions projected generationally
and per capita claims costs improved funded position beyond the deterioration caused by investment losses.
The dates used to determine retirement benefit measurements for the defined benefit plans and OPEB were December 31 of
2019, 2018 and 2017.
For purposes of calculating NPPC and NPBC, the Company and the Utilities have determined the market-related value of
retirement benefit plan assets by calculating the difference between the expected return and the actual return on the fair value of
the plan assets, then amortizing the difference over future years – 0% in the first year and 25% in each of years two through five
– and finally adding or subtracting the unamortized differences for the past four years from fair value. The method includes a
15% range restriction around the fair value of such assets (i.e., 85% to 115% of fair value).
A primary goal of the plans is to achieve long-term asset growth sufficient to pay future benefit obligations at a reasonable
level of risk. The investment policy target for defined benefit pension and OPEB plans reflects the philosophy that long-term
growth can best be achieved by prudent investments in equity securities while balancing overall fund and pension liability
volatility by an appropriate allocation to fixed income securities. In order to reduce the level of portfolio risk and volatility in
returns, efforts have been made to diversify the plans’ investments by asset class, geographic region, market capitalization and
investment style.
The asset allocation of defined benefit retirement plans to equity and fixed income securities (excluding cash) and related
investment policy targets and ranges were as follows:
December 31
Assets held by category
Equity securities
Fixed income securities
Pension benefits1
Other benefits2
Investment policy
Investment policy
2019
2018
Target
Range
2019
2018
Target
Range
71%
29
100%
69%
31
100%
70%
30
100%
65-75
25-35
71%
29
100%
70%
30
100%
70%
30
100%
65-75
25-35
1 Asset allocation (excluding cash) is applicable to only HEI and the Utilities. As of December 31, 2019 and 2018, nearly all of ASB’s
pension assets were invested in fixed income securities.
2 Asset allocation (excluding cash) is applicable to only HEI and the Utilities. ASB does not fund its other benefits.
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets held in various trusts for the retirement benefit plans are measured at fair value on a recurring basis and were as
follows:
(in millions)
December 31
Pension benefits
Other benefits
Fair value measurements using
Fair value measurements using
Quoted
prices in
active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
December 31
Level 1
Level 2
Level 3
$
470
610
$
— $
— $
$ — $ —
Equity securities
2019
$
Equity index and exchange-traded funds
Equity investments at net asset value
(NAV)
Total equity investments
Fixed income securities and public
mutual funds
Fixed income investments at NAV
Total fixed income investments
Cash equivalents at NAV
Total
Cash, receivables and payables, net
Fair value of plan assets
Equity securities
Equity index and exchange-traded funds
2018
Equity investments at NAV
Total equity investments
Fixed income securities and public
mutual funds
Fixed income investments at NAV
Total fixed income investments
Cash equivalents at NAV
Total
Cash, receivables and payables, net
Fair value of plan assets
$
$
$
470
610
—
1,080
123
—
123
—
$
507
348
—
855
123
—
123
—
78
1,158
353
245
598
39
1,795
4
1,799
507
348
65
920
310
208
518
36
1,474
5
1,479
—
—
—
230
—
230
—
—
—
—
187
—
187
—
—
—
—
—
—
—
—
—
$
—
—
—
—
—
—
—
—
$
61
69
11
141
52
4
56
4
201
—
201
65
42
10
$
61
69
—
130
49
—
49
—
$
65
42
—
117
107
45
—
45
—
$
152
$
47
4
51
5
173
1
174
—
—
—
2
—
2
—
2
—
—
—
—
—
—
—
$ —
—
—
—
2
—
2
—
2
—
—
—
—
—
—
—
$ —
$
1,203
$
230
$
$
179
$
$
— $
— $
$ — $ —
$
978
$
187
$
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Measured at net asset value
December 31
Redemption
frequency
Redemption
notice period
December 31
Redemption
frequency
Redemption
notice period
Pension benefits
Other benefits
(in millions)
2019
Non U.S. equity funds (a)
Fixed income investments (b)
Cash equivalents (c)
2018
Non U.S. equity funds (a)
Fixed income investments (b)
Cash equivalents (c)
$
$
$
$
78
245
39
362
65
208
36
309
Daily-Monthly
Monthly
Daily
5-30 days
15 days
0-1 day
Daily-Monthly
Monthly
Daily
5-30 days
15 days
0-1 day
$
$
$
$
11
4
4
19
10
4
5
19
Daily-Monthly
Monthly
Daily
5-30 days
15 days
0-1 day
Daily-Monthly
Monthly
Daily
5-30 days
15 days
0-1 day
None of the investments presented in the tables above have unfunded commitments.
(a) Represents investments in funds that primarily invest in non-U.S., emerging markets equities. Redemption frequency for pension benefits assets as of
December 31, 2019 were: daily, 60% and monthly, 40%, and as of December 31, 2018 were daily, 32% and monthly, 68%. Redemption frequency for
other benefits assets as of December 31, 2019 were: daily, 59% and monthly, 41% and as of December 31, 2018 were: daily, 27% and monthly, 73%.
(b) Represents investments in fixed income securities invested in a US-dollar denominated fund that seeks to exceed the Barclays Capital Long Corporate A
or better Index through investments in US-dollar denominated fixed income securities and commingled vehicles.
(c) Represents investments in cash equivalent funds. This class includes funds that invest primarily in securities issued or guaranteed by the U.S. government
or its agencies or instrumentalities. For pension benefits, the fund may also invest in fixed income securities of investment grade issuers.
The fair values of the investments shown in the table above represent the Company’s best estimates of the amounts that
would be received upon sale of those assets in an orderly transaction between market participants at that date. Those fair value
measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the
asset at the measurement date, the fair value measurement reflects the Company’s judgments about the assumptions that market
participants would use in pricing the asset. Those judgments are developed by the Company based on the best information
available in the circumstances.
The fair value of investments measured at net asset value presented in the tables above are intended to permit reconciliation
to the fair value of plan assets amounts.
The Company used the following valuation methodologies for assets measured at fair value. There have been no changes in
the methodologies used at December 31, 2019 and 2018.
Equity securities, equity index and exchange-traded funds, U.S. Treasury fixed income securities and public mutual funds
(Level 1). Equity securities, equity index and exchange-traded funds, U.S. Treasury fixed income securities and public mutual
funds are valued at the closing price reported on the active market on which the individual securities or funds are traded.
Fixed income securities (Level 2). Fixed income securities, other than those issued by the U.S. Treasury, are valued based
on yields currently available on comparable securities of issuers with similar credit ratings.
The following weighted-average assumptions were used in the accounting for the plans:
December 31
Benefit obligation
Discount rate
Rate of compensation increase
Net periodic pension/benefit cost (years ended)
Discount rate
Expected return on plan assets1
Rate of compensation increase2
NA Not applicable
Pension benefits
2018
2019
2017
2019
Other benefits
2018
2017
3.61%
3.5
4.31%
3.5
3.74%
3.5
4.31
7.25
3.5
3.74
7.50
3.5
4.26
7.50
3.5
3.52%
NA
4.34
7.25
NA
4.34%
NA
3.72
7.50
NA
3.72%
NA
4.22
7.50
NA
1 HEI’s and Utilities’ plan assets only. For 2019, 2018 and 2017, ASB’s expected return on plan assets was 4.51%, 3.94% and 4.46%, respectively.
2 The Company and the Utilities use a graded rate of compensation increase assumption based on age. The rate provided above is an average across all future
years of service for the current population.
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company and the Utilities based their selection of an assumed discount rate for 2020 NPPC and NPBC and
December 31, 2019 disclosure on a cash flow matching analysis that utilized bond information provided by Bloomberg for all
non-callable, high quality bonds (generally rated Aa or better) as of December 31, 2019. In selecting the expected rate of return
on plan assets for 2020 NPPC and NPBC: a) HEI and the Utilities considered economic forecasts for the types of investments
held by the plans (primarily equity and fixed income investments), the Plans’ asset allocations, industry and corporate surveys
and the past performance of the plans’ assets in selecting 7.25% and b) ASB considered its liability driven investment strategy
in selecting 3.69%, which is consistent with the assumed discount rate as of December 31, 2019 with a 20 basis point active
manager premium. For 2019, retirement benefit plans’ assets of HEI and the Utilities had a net return of 24.3%.
As of December 31, 2019, the assumed health care trend rates for 2020 and future years were as follows: medical, 7%,
grading down to 5% for 2028 and thereafter; dental, 5%; and vision, 4%. As of December 31, 2018, the assumed health care
trend rates for 2019 and future years were as follows: medical, 7.25%, grading down to 5% for 2028 and thereafter; dental, 5%;
and vision, 4%.
The components of NPPC and NPBC were as follows:
Expected return on plan assets
(111,989)
(108,953)
(102,745)
(in thousands)
HEI consolidated
Service cost
Interest cost
Amortization of net prior service gain
Amortization of net actuarial losses
Net periodic pension/benefit cost
Impact of PUC D&Os
Net periodic pension/benefit cost (adjusted for
impact of PUC D&Os)
Hawaiian Electric consolidated
Service cost
Interest cost
Expected return on plan assets
Amortization of net prior service (gain) cost
Amortization of net actuarial losses
Net periodic pension/benefit cost
Impact of PUC D&Os
Net periodic pension/benefit cost (adjusted for
impact of PUC D&Os)
Pension benefits
Other benefits
2019
2018
2017
2019
2018
2017
$
62,135
$
68,987
$
64,906
$
2,209
$
2,721
$
84,267
77,374
81,185
(42)
15,479
49,850
48,143
(42)
30,084
67,450
25,828
(55)
26,496
69,787
(18,004)
8,004
(12,356)
(1,806)
(13)
(3,962)
3,258
7,933
(12,908)
(1,805)
95
(3,964)
3,842
3,374
9,453
(12,326)
(1,793)
1,130
(162)
1,211
$
$
97,993
$
93,278
$
51,783
$
(704) $
(122) $
1,049
60,461
$
67,359
$
63,059
$
2,191
$
2,704
$
77,851
71,294
(104,632)
(102,368)
7
14,658
48,345
48,143
8
27,302
63,595
25,828
74,632
(95,892)
8
24,392
66,199
(18,004)
7,673
(12,180)
(1,803)
—
(4,119)
3,258
7,628
(12,713)
(1,803)
98
(4,086)
3,842
3,353
9,115
(12,147)
(1,804)
1,102
(381)
1,211
$
96,488
$
89,423
$
48,195
$
(861) $
(244) $
830
The Company recorded pension expense of $59 million, $59 million and $33 million and OPEB expense of $(0.1) million,
nil and $1.0 million in 2019, 2018 and 2017, respectively, and charged the remaining amounts primarily to electric utility plant.
The Utilities recorded pension expense of $57 million, $55 million and $30 million and OPEB (income) expense of $(0.3)
million, $(0.1) million and $0.8 million in 2019, 2018 and 2017, respectively, and charged the remaining amounts primarily to
electric utility plant.
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Additional information on the defined benefit pension plans’ accumulated benefit obligations (ABOs), which do not
consider projected pay increases (unlike the PBOs shown in the table above), and pension plans with ABOs and PBOs in excess
of plan assets were as follows:
December 31
(in billions)
Defined benefit plans - ABOs
Defined benefit plans with ABO in excess of plan assets
ABOs
Fair value of plan assets
Defined benefit plans with PBOs in excess of plan assets
PBOs
Fair value of plan assets
HEI consolidated
Hawaiian Electric
consolidated
2019
2018
2019
2018
$
2.0
$
1.7
$
1.8
$
1.9
1.7
2.2
1.7
1.6
1.4
1.9
1.4
1.8
1.6
2.1
1.6
1.6
1.6
1.3
1.8
1.3
HEI consolidated. The Company estimates that the cash funding for the qualified defined benefit pension plans in 2020
will be $69 million, which should fully satisfy the minimum required contributions to those plans, including requirements of
the Utilities’ pension tracking mechanisms and the Plan’s funding policy. The Company’s current estimate of contributions to
its other postretirement benefit plans in 2020 is nil.
As of December 31, 2019, the benefits expected to be paid under all retirement benefit plans in 2020, 2021, 2022, 2023,
2024 and 2025 through 2029 amount to $91 million, $95 million, $99 million, $103 million, $107 million and $593 million,
respectively.
Hawaiian Electric consolidated. The Utilities estimate that the cash funding for the qualified defined benefit pension plan
in 2020 will be $68 million, which should fully satisfy the minimum required contributions to that Plan, including requirements
of the pension tracking mechanisms and the Plan’s funding policy. The Utilities’ current estimate of contributions to its other
postretirement benefit plans in 2020 is nil.
As of December 31, 2019, the benefits expected to be paid under all retirement benefit plans in 2020, 2021, 2022, 2023,
2024 and 2025 through 2029 amounted to $84 million, $87 million, $90 million, $93 million, $97 million and $544 million,
respectively.
Defined contribution plans information. For 2019, 2018 and 2017, the Company’s expenses for its defined contribution
plans under the HEIRSP and the ASB 401(k) Plan were $7 million, $7 million and $7 million, respectively, and cash
contributions were $7 million, $7 million and $6 million, respectively. The Utilities’ expenses and cash contributions for its
defined contribution plan under the HEIRSP for 2019, 2018 and 2017 were $3 million, $2 million and $2 million, respectively.
Note 11 · Share-based compensation
Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation
to selected employees in the form of stock options, stock appreciation rights (SARs), restricted shares, restricted stock units,
performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was
amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares were added to the shares available for
issuance under these programs.
As of December 31, 2019, approximately 3.2 million shares remained available for future issuance under the terms of the
EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an
estimated 0.7 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of
performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved
at maximum levels).
Restricted stock units awarded under the 2010 Equity and Incentive Plan in 2019, 2018, 2017 and 2016 will vest and be
issued in unrestricted stock in four equal annual increments on the anniversaries of the grant date and are forfeited to the extent
they have not become vested for terminations of employment during the vesting period, except that pro-rata vesting is provided
for terminations due to death, disability and retirement. Restricted stock units expense has been recognized in accordance with
the fair-value-based measurement method of accounting. Dividend equivalent rights are accrued quarterly and are paid at the
end of the restriction period when the associated restricted stock units vest.
153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock performance awards granted under the 2019-2021, 2018-2020 and 2017-2019 long-term incentive plans (LTIP)
entitle the grantee to shares of common stock with dividend equivalent rights once service conditions and performance
conditions are satisfied at the end of the three-year performance period. LTIP awards are forfeited for terminations of
employment during the performance period, except that pro-rata participation is provided for terminations due to death,
disability and retirement based upon completed months of service after a minimum of 12 months of service in the performance
period. Compensation expense for the stock performance awards portion of the LTIP has been recognized in accordance with
the fair-value-based measurement method of accounting for performance shares.
Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as
compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. On June 26, 2019, an additional 300,000 shares
were made available for issuance under the 2011 Director Plan. As of December 31, 2019, there were 310,263 shares remaining
available for future issuance under the 2011 Director Plan.
Share-based compensation expense and the related income tax benefit were as follows:
(in millions)
HEI consolidated
Share-based compensation expense1
Income tax benefit
Hawaiian Electric consolidated
Share-based compensation expense1
Income tax benefit
2019
2018
2017
$
$
10.0
1.4
3.2
0.6
$
7.8
1.1
2.7
0.5
5.4
1.9
1.9
0.7
1 For 2019, 2018 and 2017, the Company has not capitalized any share-based compensation.
Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:
(dollars in millions)
Shares granted
Fair value
Income tax benefit
2019
36,344
1.6
0.4
$
2018
38,821
1.3
0.3
$
2017
35,770
1.2
0.5
$
The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the
closing price of HEI common stock on the grant date.
Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:
Outstanding, January 1
Granted
Vested
Forfeited
Outstanding, December 31
Total weighted-average grant-date fair value of
shares granted (in millions)
2019
Shares
200,358
96,565
(76,813)
(12,469)
207,641
$
$
(1)
33.05
37.82
32.61
34.20
35.36
2018
Shares
197,047
93,853
(75,683)
(14,859)
200,358
$
$
(1)
31.53
34.12
30.56
32.35
33.05
2017
Shares
220,683
97,873
(92,147)
(29,362)
197,047
$
$
(1)
29.57
33.47
28.88
31.57
31.53
$
3.7
$
3.2
$
3.3
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For 2019, 2018 and 2017, total restricted stock units and related dividends that vested had a fair value of $3.2 million, $2.7
million and $3.5 million, respectively, and the related tax benefits were $0.5 million, $0.4 million and $1.1 million,
respectively.
As of December 31, 2019, there was $4.8 million of total unrecognized compensation cost related to the nonvested
restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.5 years.
Long-term incentive plan payable in stock. The 2017-2019, 2018-2020 and 2019-2021 LTIPs provide for performance
awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market
condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made,
subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies
from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is
154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the relevant three-year
period. The other performance condition goals relate to earnings per share (EPS) growth, return on average common equity
(ROACE), Hawaiian Electric’s net income growth, ASB’s efficiency ratio, and Pacific Current’s EBITDA growth and return on
average invested capital.
LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows:
Outstanding, January 1
Granted
Vested (issued or unissued and cancelled)
Forfeited
Outstanding, December 31
Total weighted-average grant-date fair value of shares
granted (in millions)
2019
Shares
65,578
35,215
—
(4,391)
96,402
$
$
(1)
38.81
41.07
—
39.19
39.62
2018
Shares
32,904
37,832
—
(5,158)
65,578
$
$
(1)
39.51
38.21
—
38.84
38.81
2017
Shares
83,106
37,204
(83,106)
(4,300)
32,904
$
$
(1)
22.95
39.51
22.95
39.51
39.51
$
1.4
$
1.4
$
1.5
(1) Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.
The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information
for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and
estimated future stock volatility and dividends of HEI and its peers over the remaining three-year performance period. The
expected stock volatility assumptions for HEI and its peer group were based on the three-year historic stock volatility, and the
annual dividend yield assumptions were based on dividend yields calculated on the basis of daily stock prices over the same
three-year historical period.
The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the
resulting fair value of LTIP awards granted:
Risk-free interest rate
Expected life in years
Expected volatility
Range of expected volatility for Peer Group
Grant date fair value (per share)
2019
2.48%
3
15.8%
15.0% to 73.2%
2018
2.29%
3
17.0%
15.1% to 26.2%
2017
1.46%
3
20.1%
15.4% to 26.0%
$
41.07
$
38.20
$
39.51
For 2017, total vested LTIP awards linked to TSR and related dividends had a fair value of $1.9 million and the related tax
benefits were $0.7 million. There were no share-based LTIP awards linked to TSR with a vesting date in 2018 or 2019.
As of December 31, 2019, there was $1.4 million of total unrecognized compensation cost related to the nonvested
performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of
1.5 years.
LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to
other performance conditions was as follows:
Outstanding, January 1
Granted
Vested
Increase above target (cancelled)
Forfeited
Outstanding, December 31
2019
Shares
276,169
140,855
—
4,314
(17,570)
403,768
$
$
(1)
33.80
37.78
—
33.53
34.66
35.15
2018
Shares
131,616
151,328
—
13,858
(20,633)
276,169
$
$
(1)
33.47
34.12
—
33.49
33.80
33.80
2017
Shares
109,816
148,818
(109,816)
—
(17,202)
131,616
$
$
(1)
25.18
33.47
25.18
—
33.48
33.47
Total weighted-average grant-date fair value of shares
granted (at target performance levels) (in millions)
$
5.3
$
5.2
$
5.0
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For 2017, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $4.2
million and the related tax benefits were $1.6 million. There were no share-based LTIP awards linked to other performance
conditions with a vesting date in 2018 or 2019.
As of December 31, 2019, there was $5.1 million of total unrecognized compensation cost related to the nonvested shares
linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 1.5
years.
Note 12 · Income taxes
The components of income taxes attributable to net income for common stock were as follows:
Years ended December 31
(in thousands)
Federal
Current
Deferred*
Deferred tax credits, net**
State
Current
Deferred
Deferred tax credits, net**
HEI consolidated
2018
2019
2017
Hawaiian Electric consolidated
2017
2018
2019
$
28,736
$
42,903
$
61,534
$
21,751
$
29,649
$
36,267
(4,353)
13,410
37,793
10,472
(10,732)
14,104
13,844
(6,099)
33,967
(12)
(20)
36,792
95,481
17,361
(3,269)
(87)
10,076
3,868
(32)
14,005
13,912
(7,793)
13,155
27,113
5,579
(8,491)
14,104
11,192
(5,245)
35,229
(12)
(20)
24,392
71,476
13,210
(2,737)
(87)
8,947
2,808
(32)
10,386
11,723
Total
$
51,637
$
50,797
$ 109,393
$
38,305
$
34,778
$
83,199
* The 2018 deferred income tax expense includes the final adjustment to reduce the provisional amount recorded in 2017 pursuant to Staff Accounting
Bulletin No. 118 (SAB No. 118). See “Major tax developments” disclosure below for details of the accounting for the enactment of the Tax Act.
** Represents 2019 federal and state tax credits, primarily related to the West Loch PV project, deferred and amortized starting in 2020. See West Loch PV
Project discussion in Note 3.
A reconciliation of the amount of income taxes computed at the federal statutory rate to the amount provided in the
consolidated statements of income was as follows:
Years ended December 31
(in thousands)
Amount at the federal statutory income tax rate
Increase (decrease) resulting from:
HEI consolidated
2018
2017
2019
Hawaiian Electric consolidated
2017
2018
2019
$ 56,996
$ 53,437
$ 96,796
$ 41,399
$ 37,889
$ 71,801
State income taxes, net of federal income tax benefit
11,658
11,832
9,789
8,703
8,080
7,584
Net deferred tax asset (liability) adjustment related to
the Tax Act
Other, net
Total
Effective income tax rate
(9,255)
(7,762)
$ 51,637
(9,540)
(4,932)
$ 50,797
13,420
(10,612)
$ 109,393
(9,255)
(2,542)
$ 38,305
(9,285)
(1,906)
$ 34,778
9,168
(5,354)
$ 83,199
19.0%
20.0%
39.6%
19.4%
19.3%
40.6%
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax effects of book and tax basis differences that give rise to deferred tax assets and liabilities were as follows:
December 31
(in thousands)
Deferred tax assets
Regulatory liabilities, excluding amounts attributable to
property, plant and equipment
Operating lease liabilities
Allowance for bad debts
Other1
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment related
Operating lease right-of-use assets
Regulatory assets, excluding amounts attributable to property,
plant and equipment
Deferred RAM and RBA revenues
Retirement benefits
Other
Total deferred tax liabilities
Net deferred income tax liability
HEI consolidated
Hawaiian Electric consolidated
2019
2018
2019
2018
$
$
100,427
51,573
14,858
54,028
220,886
464,312
51,542
33,897
—
9,684
40,776
600,211
379,325
$
$
104,868
—
14,647
46,036
165,551
437,644
—
37,345
11,278
20,173
31,629
538,069
372,518
$
$
100,427
45,608
560
41,181
187,776
458,349
45,608
33,897
—
13,072
14,001
564,927
377,151
$
$
104,868
—
659
26,522
132,049
434,831
—
37,345
11,278
25,430
6,362
515,246
383,197
1 As of December 31, 2019, HEI consolidated and Hawaiian Electric consolidated have deferred tax assets of $8.7 million and $6.7 million
respectively, relating to the benefit of state tax credit carryforwards of $11.7 million and $9 million respectively. These state tax credit
carryforwards primarily relate to the West Loch PV project and do not expire. The Company concluded that as of December 31, 2019, a
valuation allowance is not required.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods
in which those temporary differences are deductible. Based upon historical taxable income and projections for future taxable
income, management believes it is more likely than not the Company and the Utilities will realize substantially all of the
benefits of the deferred tax assets. As of December 31, 2019 and 2018, valuation allowances for deferred tax benefits were nil.
The Utilities are included in the consolidated federal and Hawaii income tax returns of HEI and are subject to the provisions of
HEI’s tax sharing agreement, which determines each subsidiary’s (or subgroup’s) income tax return liabilities and refunds on a
standalone basis as if it filed a separate return (or subgroup consolidated return).
The following is a reconciliation of the Company’s liability for unrecognized tax benefits for 2019, 2018 and 2017.
(in millions)
Unrecognized tax benefits, January 1
$
Additions based on tax positions taken during the year
Reductions based on tax positions taken during the year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapses of statute of limitations
HEI consolidated
2018
2017
2019
Hawaiian Electric consolidated
2018
2017
2019
$
2.1
0.5
—
0.1
(0.2)
(0.3)
$
4.0
0.3
—
0.1
(0.1)
(2.2)
3.8
0.9
(0.2)
—
(0.5)
—
4.0
$
$
1.6
0.5
—
0.1
(0.2)
(0.3)
3.5
0.3
—
0.1
(0.1)
(2.2)
$
1.7
$
1.6
$
3.8
0.4
(0.2)
—
(0.5)
—
3.5
Unrecognized tax benefits, December 31
$
2.2
$
2.1
$
At December 31, 2019 and 2018, there were $0.5 million of unrecognized tax benefits, if recognized, would affect the
Company’s annual effective tax rate. As of December 31, 2019 and 2018, the Utilities had no unrecognized tax benefits that, if
recognized, would affect the Utilities’ annual effective tax rate. The Company and Utilities believe that the unrecognized tax
benefits will not significantly increase or decrease within the next 12 months.
HEI consolidated. The Company recognizes interest accrued related to unrecognized tax benefits in “Interest expense-
other than on deposit liabilities and other bank borrowings” and penalties, if any, in operating expenses. In 2019, 2018 and
2017, the Company recognized approximately $0.1 million, $(0.1) million and $0.2 million in interest expense. The Company
had $0.6 million and $0.4 million of interest accrued as of December 31, 2019 and 2018, respectively.
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hawaiian Electric consolidated. The Utilities recognize interest accrued related to unrecognized tax benefits in “Interest
expense and other charges, net” and penalties, if any, in operating expenses. In 2019, 2018 and 2017, the Utilities recognized
approximately $0.1 million in interest expense. The Utilities had $0.4 million and $0.3 million of interest accrued as of
December 31, 2019 and 2018, respectively.
As of December 31, 2019, the disclosures above present the Company’s and the Utilities’ accruals for potential tax
liabilities, which involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution
of uncertain tax positions could result in adjustments to recorded amounts. Based on information currently available, the
Company and the Utilities believe these accruals have adequately provided for potential income tax issues with federal and
state tax authorities, and that the ultimate resolution of tax issues for all open tax periods will not have a material adverse effect
on its results of operations, financial condition or liquidity.
IRS examinations have been completed and settled through the tax year 2011 and the statute of limitations has expired for
years prior to 2016, leaving subsequent years subject to IRS examination. The tax years 2011 and subsequent are still subject to
examination by the Hawaii Department of Taxation.
Major tax developments. The changes enacted in the 2017 Tax Cuts and Jobs Act continue to impact corporate taxpayers. The
following summarizes the provisions that have a major impact on the Company.
Lower tax rate. The corporate income tax rate reduction from 35% to 21% lowered the Company’s effective tax rate in
2018 and the subsequent years. For the regulated Utilities, the excess ADIT resulting from the rate change is being returned to
customers over various periods determined with the approval of the PUC.
Bonus depreciation. The Tax Act allows 100% bonus depreciation through the end of 2022 for qualified property
purchased and placed in service after September 27, 2017. The Tax Act provides that property used in the trade or business of a
regulated utility (including the furnishing or selling electrical energy) is not qualified property. However, property placed into
service after September 27, 2017 are grandfathered under the pre-Tax Act rules allowing 50% bonus depreciation if subject to
written binding purchase contracts prior to September 28, 2017.
Other applicable provisions. There are a number of other provisions in the Tax Act that have an impact on the Company,
including the repeal of the domestic production activities deduction (DPAD), non-deductibility of transportation fringe benefits
excluded from employees income, and the increased limitation on the deductibility of executive compensation.
SAB No. 118. On December 22, 2017, the SEC staff issued SAB No. 118 to address the application of GAAP in situations
when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in
reasonable detail to complete the accounting for certain income tax effects of the Tax Act.
The Company applied the guidance in SAB No. 118 when accounting for enactment date effects of the Tax Act in 2017 and
throughout 2018. At December 31, 2017, the Company had not completed its re-measurement of deferred tax assets and
liabilities as a result of the reduction in the US federal corporate income tax rate to 21% and, in accordance with SAB No. 118,
recorded a provisional amount. The Tax Act’s reduction of the corporate tax rate to 21% resulted in a net deferred tax balance
that was in excess of the taxes the Company expected to pay or be refunded in the future when the temporary differences that
created these deferred taxes reverse. The excess related to the Utilities’ deferred taxes that were identified to be refunded in
rates was reclassified to a regulatory liability and is currently being returned to the customers over various periods of time. The
remaining excess was written off through deferred tax expense. Consequently, in 2017, the Company recorded a provisional
increase in deferred tax expense of $13.4 million ($9.2 million at the Utilities). In December 2018, the end date of the
measurement period for purposes of SAB No. 118 passed, and consequently, the Company (and Utilities) completed its analysis
based on available Treasury and legislative guidance relating to the Tax Act.
In 2018, the Company re-measured certain deferred tax assets and liabilities based on the rates at which they were expected
to reverse in the future. For the period ended December 31, 2018, the net deferred tax liabilities decreased by $13.9 million
($13.6 million at the Utilities) with the corresponding net adjustment that decreased deferred tax expense by $5.5 million ($5.2
million at the Utilities) and increased the regulatory liability by $11.3 million. The decrease in deferred tax expense is included
as a component of income tax expense and had the effect of decreasing the effective tax rate in 2018 from 22.1% to 20.0%
(22.2% to 19.3% at the Utilities).
158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 · Cash flows
Years ended December 31
(in millions)
Supplemental disclosures of cash flow information
HEI consolidated
2019
2018
2017
Interest paid to non-affiliates, net of amounts capitalized
$
107
$
102
$
Income taxes paid (including refundable credits)
Income taxes refunded (including refundable credits)
Hawaiian Electric consolidated
Interest paid to non-affiliates, net of amounts capitalized
Income taxes paid (including refundable credits)
Income taxes refunded (including refundable credits)
Supplemental disclosures of noncash activities
HEI consolidated
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)
Loans transferred from held for investment to held for sale (investing)
Common stock issued (gross) for director and executive/management compensation
(financing)1
Obligations to fund low income housing investments, net (investing)
Transfer of retail repurchase agreements to deposit liabilities (financing)
Hawaiian Electric consolidated
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)
HEI Consolidated and Hawaiian Electric consolidated
Electric utility property, plant and equipment
Estimated fair value of noncash contributions in aid of construction (investing)
Acquisition of Hawaiian Telcom’s interest in joint poles (investing)
56
4
68
55
4
64
—
5
11
—
62
9
—
72
34
73
64
31
59
1
4
12
102
44
14
48
83
55
1
63
26
—
38
41
11
13
—
38
18
—
1 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld
to satisfy statutory tax liabilities.
Note 14 · Regulatory restrictions on net assets
The abilities of certain of HEI’s subsidiaries to pay dividends or make other distributions to HEI are subject to contractual
and regulatory restrictions. Under the PUC Agreement, in the event that the consolidated common stock equity of the electric
utility subsidiaries falls below 35% of the total capitalization of the electric utilities (including the current maturities of long-
term debt, but excluding short-term borrowings), the electric utility subsidiaries would, absent PUC approval, be restricted in
their payment of cash dividends to 80% of the earnings available for the payment of dividends in the current fiscal year and
preceding five years, less the amount of dividends paid during that period. The PUC Agreement also provides that the foregoing
dividend restriction shall not be construed as relinquishing any right the PUC may have to review the dividend policies of the
electric utility subsidiaries. As of December 31, 2019, the consolidated common stock equity of HEI’s electric utility
subsidiaries was 56% of their total capitalization (as calculated for purposes of the PUC Agreement). As of December 31, 2019,
Hawaiian Electric and its subsidiaries had common stock equity of $2.0 billion of which approximately $825 million was not
available for transfer to HEI in the form of dividends, loans or advances without regulatory approval.
The ability of ASB to make capital distributions to HEI and other affiliates is restricted under federal law. Subject to a
limited exception for stock redemptions that do not result in any decrease in ASB’s capital and would improve ASB’s financial
condition, ASB is prohibited from declaring any dividends, making any other capital distributions, or paying a management fee
to a controlling person if, following the distribution or payment, ASB would be deemed to be undercapitalized, significantly
undercapitalized or critically undercapitalized. ASB is required to notify the FRB and OCC prior to making any capital
distribution (including dividends) to HEI (through ASB Hawaii). All dividends are subject to review by the OCC and FRB and
receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to
declare and pay to ASB Hawaii and HEI. Generally, the FRB and OCC may disapprove or deny ASB’s request to make a
capital distribution if the proposed distribution will cause ASB to become undercapitalized, or the proposed distribution raises
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
safety and soundness concerns, or the proposed distribution violates a prohibition contained in any statute, regulation or
agreement between ASB and the OCC. As of December 31, 2019, in order to maintain its “well-capitalized” position, ASB
could not transfer approximately $487 million of net assets to HEI.
HEI and its subsidiaries are also subject to debt covenants, preferred stock resolutions and the terms of guarantees that
could limit their respective abilities to pay dividends. The Company does not expect that the regulatory and contractual
restrictions applicable to HEI and/or its subsidiaries will significantly affect the operations of HEI or its ability to pay dividends
on its common stock.
Note 15 · Significant group concentrations of credit risk
Most of the Company’s business activity is with customers located in the State of Hawaii.
The Utilities are regulated operating electric public utilities engaged in the generation, purchase, transmission, distribution
and sale of electricity on the islands of Oahu, Hawaii, Maui, Lanai and Molokai in the State of Hawaii. The Utilities provide the
only electric public utility service on the islands they serve. The Utilities extend credit to customers, all of whom reside or
conduct business in the State of Hawaii. See Note 3 of the Consolidated Financial Statements for a discussion of the Utilities’
major customers. The International Brotherhood of Electrical Workers Local 1260 represents roughly half of the Utilities’
workforce covered by a collective bargaining agreement that expires on October 31, 2021.
Most of ASB’s financial instruments are based in the State of Hawaii, except for the investment securities it owns.
Substantially all real estate loans are collateralized by real estate in Hawaii. ASB’s policy is to require mortgage insurance on
all real estate loans with a loan to appraisal ratio in excess of 80% at origination.
Pacific Current’s investments are in the State of Hawaii since its strategy is focused on investing in non-regulated
renewable energy and sustainable infrastructure in the State of Hawaii.
Note 16 · Fair value measurements
Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation
methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not
carried at fair value:
Short-term borrowings—other than bank. The carrying amount of short-term borrowings approximated fair value because of
the short maturity of these instruments.
Investment securities. The fair value of ASB’s investment securities is determined quarterly through pricing obtained from
independent third-party pricing services or from brokers not affiliated with the trade. Non-binding broker quotes are infrequent
and generally occur for new securities that are settled close to the month-end pricing date. The third-party pricing vendors ASB
uses for pricing its securities are reputable firms that provide pricing services on a global basis and have processes in place to
ensure quality and control. The third-party pricing services use a variety of methods to determine the fair value of securities that
fall under Level 2 of ASB’s fair value measurement hierarchy. Among the considerations are quoted prices for similar securities in
an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic
prepayment speeds, and other observable market factors.
To enhance the robustness of the pricing process, ASB will on a quarterly basis compare its standard third-party vendor’s
price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard
vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by ASB and a challenge to
the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable characteristics
of the security. In all cases, the fair value used will have been independently determined by a third-party pricing vendor or non-
affiliated broker.
The fair value of the mortgage revenue bonds is estimated using a discounted cash flow model to calculate the present value
of future principal and interest payments and, therefore is classified within Level 3 of the valuation hierarchy.
Loans held for sale. Residential and commercial loans are carried at the lower of cost or market and are valued using market
observable pricing inputs, which are derived from third party loan sales and, therefore, are classified within Level 2 of the
valuation hierarchy.
Loans held for investment. Fair value of loans held for investment is derived using a discounted cash flow approach which
includes an evaluation of the underlying loan characteristics. The valuation model uses loan characteristics which includes
product type, maturity dates and the underlying interest rate of the portfolio. This information is input into the valuation models
160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
along with various forecast valuation assumptions including prepayment forecasts, to determine the discount rate. These
assumptions are derived from internal and third party sources. Since the valuation is derived from model-based techniques, ASB
includes loans held for investment within Level 3 of the valuation hierarchy.
Impaired loans. At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Fair value is
determined primarily by using an income, cost or market approach and is normally provided through appraisals. Impaired loans
carried at fair value generally receive specific allocations within the allowance for loan losses. For collateral-dependent loans, fair
value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a
combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal
process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such
adjustments typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be
valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based
on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise
and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Generally, impaired loans are
evaluated quarterly for additional impairment and adjusted accordingly.
Real estate acquired in settlement of loans. Foreclosed assets are carried at fair value (less estimated costs to sell) and are
generally based upon appraisals or independent market prices that are periodically updated subsequent to classification as real
estate owned. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. ASB estimates
the fair value of collateral-dependent loans and real estate owned using the sales comparison approach.
Mortgage servicing rights. MSRs are capitalized at fair value based on market data at the time of sale and accounted for in
subsequent periods at the lower of amortized cost or fair value. MSRs are evaluated for impairment at each reporting date. ASB's
MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type and note rate. For each
stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for
similar assets. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and
income and expenses associated with servicing residential mortgage loans for others. Impairment is recognized through a
valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a
component of loan servicing fees included in "Revenues - bank" in the consolidated statements of income. A direct write-down is
recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. ASB compares the fair value of
MSRs to an estimated value calculated by an independent third-party. The third-party relies on both published and unpublished
sources of market related assumptions and its own experience and expertise to arrive at a value. ASB uses the third-party value
only to assess the reasonableness of its own estimate.
Deposit liabilities. The fair value of fixed-maturity certificates of deposit was estimated by discounting the future cash flows
using the rates currently offered for FHLB advances of similar remaining maturities. Deposit liabilities are classified in Level 2 of
the valuation hierarchy.
Other borrowings. For advances and repurchase agreements, fair value is estimated using quantitative discounted cash flow
models that require the use of interest rate inputs that are currently offered for advances and repurchase agreements of similar
remaining maturities. The majority of market inputs are actively quoted and can be validated through external sources, including
broker market transactions and third party pricing services.
Long-term debt—other than bank. Fair value of long-term debt of HEI and the Utilities was obtained from third-party
financial services providers based on the current rates offered for debt of the same or similar remaining maturities and from
discounting the future cash flows using the current rates offered for debt of the same or similar risks, terms, and remaining
maturities. Long-term debt-other than bank is classified in Level 2 of the valuation hierarchy.
Interest rate lock commitments (IRLCs). The estimated fair value of commitments to originate residential mortgage loans for
sale is based on quoted prices for similar loans in active markets. IRLCs are classified as Level 2 measurements.
Forward sales commitments. To be announced (TBA) mortgage-backed securities forward commitments are classified as
Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market
prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are
determined using quoted prices in the market place that are observable and are classified as Level 2 measurements.
The following table presents the carrying or notional amount, fair value, and placement in the fair value hierarchy of the
Company’s financial instruments. For stock in Federal Home Loan Bank, the carrying amount is a reasonable estimate of fair
value because it can only be redeemed at par.
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands)
December 31, 2019
Financial assets
HEI consolidated
Available-for-sale investment securities
Held-to-maturity investment securities
Stock in Federal Home Loan Bank
Loans, net
Mortgage servicing rights
Derivative assets
Financial liabilities
HEI consolidated
Deposit liabilities
Short-term borrowings—other than bank
Other bank borrowings
Long-term debt, net—other than bank
Derivative liabilities
Hawaiian Electric consolidated
Short-term borrowings
Long-term debt, net
December 31, 2018
Financial assets
HEI consolidated
Available-for-sale investment securities
Held-to-maturity investment securities
Stock in Federal Home Loan Bank
Loans, net
Mortgage servicing rights
Derivative assets
Financial liabilities
HEI consolidated
Deposit liabilities
Short-term borrowings—other than bank
Other bank borrowings
Long-term debt, net—other than bank
Derivative liabilities
Hawaiian Electric consolidated
Short-term borrowings
Long-term debt, net
Estimated fair value
Carrying or
notional
amount
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Total
$ 1,232,826
$
— $
1,204,229
$
28,597
$ 1,232,826
139,451
8,434
5,080,107
9,101
25,179
769,825
185,710
115,110
1,964,365
51,375
88,987
1,497,667
—
—
—
—
—
—
—
—
33
—
—
143,467
8,434
12,295
—
300
—
—
143,467
8,434
5,145,242
5,157,537
12,379
—
12,379
300
765,976
185,710
115,107
2,156,927
2,185
88,987
1,670,189
—
—
—
—
—
—
765,976
185,710
115,107
2,156,927
2,218
88,987
1,670,189
$ 1,388,533
$
— $
1,364,897
$
23,636
$ 1,388,533
—
—
—
—
—
—
—
—
—
34
—
—
142,057
9,958
1,809
—
91
—
—
142,057
9,958
4,800,244
4,802,053
13,618
—
13,618
91
817,667
73,992
110,037
1,904,261
596
25,000
1,443,968
—
—
—
—
—
—
—
817,667
73,992
110,037
1,904,261
630
25,000
1,443,968
141,875
9,958
4,792,707
8,062
10,180
827,841
73,992
110,040
1,879,641
34,132
25,000
1,418,802
162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair value measurements on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were as
follows:
December 31
(in thousands)
2019
2018
Fair value measurements using
Fair value measurements using
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Available-for-sale investment securities (bank segment)
Mortgage-backed securities — issued or guaranteed by
U.S. Government agencies or sponsored agencies
U.S. Treasury and federal agency obligations
Corporate bonds
Mortgage revenue bonds
Derivative assets
Interest rate lock commitments (bank segment)1
Forward commitments (bank segment)1
Derivative liabilities
Interest rate lock commitments (bank segment)1
Forward commitments (bank segment)1
Interest rate swap (Other segment)2
—
—
—
$
— $ 1,026,385
$
— $
— $1,161,416
$
—
—
—
117,787
60,057
—
—
—
28,597
—
—
—
154,349
49,132
—
23,636
$
$
$
$
$
— $ 1,204,229
$ 28,597
$
— $1,364,897
$ 23,636
— $
—
— $
297
3
300
$
$
— $
— $
—
—
— $
— $
91
—
91
$
$
— $
— $
— $
— $
— $
33
—
33
12
2,173
—
—
$
2,185
$
— $
34
—
34
$
9
587
596
$
—
—
—
—
—
—
—
1 Derivatives are carried at fair value in other assets or other liabilities in the balance sheets with changes in value included in mortgage
banking income.
2 Derivatives are included in Other liabilities in the balance sheets.
There were no transfers of financial assets and liabilities between Level 1 and Level 2 of the fair value hierarchy during the
years ended December 31, 2019 and 2018.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
(in thousands)
Mortgage revenue bonds
Balance, January 1
Principal payments received
Purchases
Unrealized gain (loss) included in other comprehensive income
Balance, December 31
2019
23,636 $
—
4,961
—
28,597 $
2018
15,427
—
8,209
—
23,636
$
$
ASB holds two mortgage revenue bonds issued by the Department of Budget and Finance of the State of Hawaii. The
Company estimates the fair value by using a discounted cash flow model to calculate the present value of estimated future
principal and interest payments. The unobservable input used in the fair value measurement is the weighted average discount rate.
As of December 31, 2019, the weighted average discount rate was 3.41% which was derived by incorporating a credit spread over
the one month LIBOR rate. Significant increases (decreases) in the weighted average discount rate could result in a significantly
lower (higher) fair value measurement.
163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fair value measurements on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring
basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of
cost or fair value or from impairment of individual assets. The carrying value of assets measured at fair value on a nonrecurring
basis were as follows:
(in thousands)
December 31, 2019
Loans
December 31, 2018
Loans
Real estate acquired in settlement of loans
Balance
Fair value measurements using
Level 2
Level 1
Level 3
$
25
$
— $
— $
77
186
—
—
—
—
25
77
186
For 2019 and 2018, there were no adjustments to fair value for ASB’s loans held for sale.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments
measured at fair value on a nonrecurring basis:
(dollars in thousands)
December 31, 2019
Residential land
Total loans
December 31, 2018
Home equity lines of credit
Total loans
Real estate acquired in
settlement of loans
$
$
$
$
Fair value
Valuation technique
Significant unobservable
input
Range
Weighted
Average
Significant unobservable
input value (1)
25 Fair value of property or
collateral
Appraised value less 7%
selling cost
N/A (2)
N/A (2)
25
77 Fair value of property or
collateral
Appraised value less 7%
selling cost
N/A (2)
N/A (2)
77
186 Fair value of property or
collateral
Appraised value less 7%
selling cost
N/A (2)
N/A (2)
(1) Represent percent of outstanding principal balance.
(2) N/A - Not applicable. There is one asset in each fair value measurement type.
Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value
measurements.
164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 17 · Quarterly information (unaudited)
Selected quarterly information was as follows:
(in thousands, except per share amounts)
March 31
June 30
Sept. 30
Dec. 31
December 31
Quarters ended
Years ended
HEI consolidated
2019
Revenues
Operating income1
Net income1
Net income for common stock1
Basic earnings per common share 1,2
Diluted earnings per common share 1,3
Dividends per common share
2018
Revenues
Operating income
Net income
Net income for common stock
Basic earnings per common share 2
Diluted earnings per common share 3
Dividends per common share
Hawaiian Electric consolidated
2019
Revenues
Operating income
Net income
Net income for common stock
2018
Revenues
Operating income
Net income
Net income for common stock
$
661,615
$
715,485
$
771,535
$
725,966
$
2,874,601
77,937
46,161
45,688
0.42
0.42
0.32
72,634
42,985
42,512
0.39
0.39
0.32
97,308
63,890
63,419
0.58
0.58
0.32
100,795
66,736
66,263
0.61
0.61
0.32
348,674
219,772
217,882
2.00
1.99
1.28
$
645,874
$
685,277
$
768,048
$
761,650
$
2,860,849
71,889
40,720
40,247
0.37
0.37
0.31
78,799
46,527
46,054
0.42
0.42
0.31
98,064
66,371
65,900
0.61
0.60
0.31
84,604
50,046
49,573
0.46
0.45
0.31
333,356
203,664
201,774
1.85
1.85
1.24
$
578,495
$
633,784
$
688,330
$
645,333
$
2,545,942
56,560
32,625
32,126
55,694
33,073
32,574
71,793
47,277
46,779
70,331
45,860
45,361
254,378
158,835
156,840
$
570,427
$
608,126
$
687,409
$
680,563
2,546,525
51,369
27,974
27,475
55,144
31,668
31,169
74,036
50,210
49,712
61,112
35,796
35,297
241,661
145,648
143,653
Note: HEI owns all of Hawaiian Electric’s common stock, therefore per share data for Hawaiian Electric is not meaningful.
1
2
3
Operating income for the fourth quarter of 2019 includes gains on property sales totaling $10.8 million, and net income and net income
for common stock includes $7.9 million (or $0.07 per share (basic and diluted) at ASB’s 26.8% statutory tax rate).
The quarterly basic earnings per common share are based upon the weighted-average number of shares of common stock outstanding in
each quarter.
The quarterly diluted earnings per common share are based upon the weighted-average number of shares of common stock outstanding
in each quarter plus the dilutive incremental shares at quarter end.
165
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
HEI and Hawaiian Electric: None
ITEM 9A.
CONTROLS AND PROCEDURES
HEI:
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Constance H. Lau, HEI Chief Executive Officer (CEO), and Gregory C. Hazelton, HEI Chief Financial Officer (CFO),
have evaluated the disclosure controls and procedures of HEI as of December 31, 2019. Based on their evaluation, as of
December 31, 2019, they have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15
(e) under the Securities Exchange Act of 1934, as amended) were effective in ensuring that information required to be disclosed
by HEI in reports HEI files or submits under the Securities Exchange Act of 1934:
(1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange
Commission rules and forms, and
(2) is accumulated and communicated to HEI management, including HEI’s CEO and CFO, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended. The
Company’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that
the Company’s internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by
Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which appears herein.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended December 31, 2019 that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Hawaiian Electric:
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Scott W. H. Seu, Hawaiian Electric CEO, and Tayne S. Y. Sekimura, Hawaiian Electric CFO, have evaluated the disclosure
controls and procedures of Hawaiian Electric as of December 31, 2019. Based on their evaluation, as of December 31, 2019,
they have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) were effective in ensuring that information required to be disclosed by Hawaiian
Electric in reports Hawaiian Electric files or submits under the Securities Exchange Act of 1934:
(1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange
Commission rules and forms, and
(2) is accumulated and communicated to Hawaiian Electric management, including Hawaiian Electric’s CEO and CFO, or
persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
166
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended. Hawaiian
Electric’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of Hawaiian Electric’s internal control over financial reporting
as of December 31, 2019 based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Based on this evaluation, management has concluded that Hawaiian Electric’s internal control over financial reporting was
effective as of December 31, 2019.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended December 31, 2019 that
have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial
reporting.
ITEM 9B.
OTHER INFORMATION
HEI and Hawaiian Electric: None
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
HEI:
Information regarding HEI’s executive officers is provided in the “Information about our Executive Officers” section
following Item 4 of this report.
The remaining information required by this Item 10 for HEI is incorporated herein by reference to the following sections in
HEI’s 2020 Proxy Statement:
•
•
•
•
•
•
“Nominees for three Class III directors whose terms expire at the 2023 Annual Meeting”
“Nominee for one Class I director whose term expires at the 2021 Annual Meeting”
“Continuing Class I directors whose terms expire at the 2021 Annual Meeting”
“Continuing Class II directors whose terms expire at the 2022 Annual Meeting”
“Committees of the Board” (portions regarding whether HEI has an audit & risk committee and identifying its
members; no other portion of the Committees of the Board section is incorporated herein by reference)
“Audit & Risk Committee Report” (portion identifying audit & risk committee financial experts who serve on the HEI
Audit & Risk Committee only; no other portion of the Audit & Risk Committee Report is incorporated herein by
reference)
Family relationships; director arrangements
There are no family relationships between any HEI director or director nominee and any other HEI director or director
nominee or any HEI executive officer. There are no arrangements or understandings between any HEI director or director
nominee and any other person pursuant to which such director or director nominee was selected. Information required to be
reported under this caption is incorporated herein by reference to the “Other relationships and related person transactions”
section in HEI’s 2020 Proxy Statement.
Delinquent Section 16(a) reports
Information required to be reported under this caption is incorporated herein by reference to the “Delinquent Section 16
(a) Reports” section in HEI’s 2020 Proxy Statement.
167
Code of Conduct
HEI has a Corporate Code of Conduct that includes a code of ethics applicable to, among others, its principal executive
officer, principal financial officer and principal accounting officer. The Corporate Code of Conduct is available on HEI’s
website at www.hei.com. HEI intends to disclose the information required by Form 8-K, Item 5.05, “Amendments to the
Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics,” through this website and such information will
remain available on this website for at least a 12-month period.
Hawaiian Electric:
The information required by this Item 10 for Hawaiian Electric is incorporated herein by reference to pages 1 to 5 of
Hawaiian Electric Exhibit 99.1.
ITEM 11.
EXECUTIVE COMPENSATION
HEI:
The information required by this Item 11 for HEI is incorporated herein by reference to the information relating to
executive and director compensation in HEI’s 2020 Proxy Statement.
Hawaiian Electric:
The information required by this Item 11 for Hawaiian Electric is incorporated herein by reference to:
•
•
•
Pages 6 to 31 of Hawaiian Electric Exhibit 99.1 to this Form 10-K;
The discussion of “2018-20 Long-Term Incentive Plan” at pages 15-16 of Hawaiian Electric’s Exhibit 99.1 to Annual
Report on Form 10-K for the year ended December 31, 2017; and
Information concerning compensation paid to directors of Hawaiian Electric who are also directors of HEI under the
section of HEI’s 2020 Proxy Statement entitled, “Director Compensation.”
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
HEI:
The information required to be reported under this caption for HEI is incorporated herein by reference to the
“Compensation Committee Interlocks and Insider Participation” section in HEI’s 2020 Proxy Statement.
Hawaiian Electric:
The information required to be reported under this caption for Hawaiian Electric is incorporated herein by reference to
page 21 of Hawaiian Electric Exhibit 99.1.
168
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
HEI:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information required by this Item 12 for HEI is incorporated herein by reference to the “Stock Ownership Information-
Security Ownership of Certain Beneficial Owners” section in HEI’s 2020 Proxy Statement.
Equity Compensation Plan Information
Information as of December 31, 2019 about HEI Common Stock that may be issued under all of the Company’s equity
compensation plans was as follows:
Plan category
Equity compensation plans approved by shareholders
Equity compensation plans not approved by shareholders
Total
(a)
Number of
securities
to be issued upon
exercise of
outstanding
options, warrants
and rights (1)
(b)
Weighted-average
exercise price of
outstanding
options,
warrants and
rights
(c)
Number of securities
remaining available for
future issuance
under equity
compensation plans
(excluding securities
reflected in column (a)) (2)
706,851
—
706,851
$
$
—
—
—
2,759,090
—
2,759,090
(1) This column includes the number of shares of HEI Common Stock which may be issued under the Revised and Amended HEI 2010
Equity Incentive Plan (amended EIP) on account of awards outstanding as of December 31, 2019, including:
EIP
158,649 Restricted stock units plus estimated compounded dividend equivalents (if applicable) *
Shares to be issued in February 2020, 2021 and 2022 under the 2017-2019, 2018-2020 and 2019-2021 LTIPs,
548,202
respectively, plus compounded dividend equivalents
706,851
*
Under the amended EIP as of December 31, 2019, RSUs count as one share against shares available for issuance less estimated
shares withheld for taxes under net share settlement which again become available for the issuance of new shares on a one-to-one
basis.
(2) This represents the number of shares available as of December 31, 2019 for future awards, including 2,448,827 shares available for
future awards under the amended EIP and 310,263 shares available for future awards under the 2011 Nonemployee Director Plan.
Hawaiian Electric:
The information required by this Item 12 for Hawaiian Electric is incorporated herein by reference to pages 31 to 32 of
Hawaiian Electric Exhibit 99.1.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
HEI:
The information required by this Item 13 for HEI is incorporated herein by reference to the sections relating to related
person transactions and director independence in HEI’s 2020 Proxy Statement.
Hawaiian Electric:
The information required by this Item 13 for Hawaiian Electric is incorporated herein by reference to pages 32 to 33 of
Hawaiian Electric Exhibit 99.1.
169
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
HEI:
The information required by this Item 14 for HEI is incorporated herein by reference to the relevant information in the
Audit & Risk Committee Report in HEI’s 2020 Proxy Statement (but no other part of the “Audit & Risk Committee Report” is
incorporated herein by reference).
Hawaiian Electric:
The information required by this Item 14 for Hawaiian Electric is incorporated herein by reference to page 34 of Hawaiian
Electric Exhibit 99.1.
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial statements
See Item 8 for the Consolidated Financial Statements of HEI and Hawaiian Electric.
(a)(2) and (c) Financial statement schedules
The following financial statement schedules for HEI and Hawaiian Electric are included in this report on the
pages indicated below:
Schedule I
Schedule II
NA Not applicable.
Condensed Financial Information of Registrant, Hawaiian Electric
Industries, Inc. (Parent Company) at December 31, 2019 and 2018 and for
the years ended December 31, 2019, 2018 and 2017
Valuation and Qualifying Accounts, Hawaiian Electric Industries, Inc. and
subsidiaries and Hawaiian Electric Company, Inc. and subsidiaries for the
years ended December 31, 2019, 2018 and 2017
Page/s in Form 10-K
HEI
Hawaiian Electric
171-173
175
NA
175
Certain schedules, other than those listed, are omitted because they are not required, or are not applicable, or the required
information is shown in the Consolidated Financial Statements.
ITEM 16.
FORM 10-K SUMMARY
None.
170
Hawaiian Electric Industries, Inc.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
December 31
(dollars in thousands)
Assets
Cash and cash equivalents
Accounts receivable
Notes receivable from subsidiaries
Property, plant and equipment, net
Deferred income tax assets
Other assets and intercompany receivables
Investments in subsidiaries, at equity
Total assets
Liabilities and shareholders’ equity
Liabilities
Accounts payable
Interest payable
Notes payable to subsidiaries
Commercial paper
Long-term debt, net
Retirement benefits liability
Other
Total liabilities
Shareholders’ equity
Preferred stock, no par value, authorized 10,000,000 shares; issued: none
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 108,973,328
shares and 108,879,245 shares at December 31, 2019 and 2018, respectively
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
2019
2018
$
953
779
22,598
2,931
10,754
21,770
3,742
2,604
20,789
3,456
10,147
11,963
2,761,802
2,605,038
2,821,587
$
2,657,739
1,509
$
3,041
—
96,723
399,064
29,367
11,623
541,327
2,001
3,476
34
48,992
398,874
29,565
12,517
495,459
—
—
1,678,257
1,669,267
622,042
(20,039)
543,623
(50,610)
2,280,260
2,162,280
$
2,821,587
$
2,657,739
171
Hawaiian Electric Industries, Inc.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
(in thousands)
Revenues
Equity in net income of subsidiaries
Expenses:
Operating, administrative and general
Depreciation of property, plant and equipment
Taxes, other than income taxes
Total expenses
Income before interest expense and income (taxes) benefits
Retirement defined benefits expense—other than service costs
Interest expense
Income before income benefits
Income benefits
Net income
2019
2018
2017
$
777
$
429
$
798
246,005
226,972
187,097
19,195
19,515
16,578
570
570
20,335
226,447
442
17,930
208,075
9,807
597
509
20,621
206,780
674
12,664
193,442
8,332
548
496
17,622
170,273
1,119
9,389
159,765
5,532
$
217,882
$
201,774
$
165,297
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
STATEMENTS OF COMPREHENSIVE INCOME
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Incorporated by reference are HEI and Subsidiaries’ Statements of Consolidated Comprehensive Income and Consolidated
Statements of Changes in Shareholders’ Equity in Part II, Item 8.
172
Hawaiian Electric Industries, Inc.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
(in thousands)
Net cash provided by operating activities
Cash flows from investing activities
Increase in note receivable from subsidiary
Decrease in note receivable from subsidiary
Capital expenditures
Investments in subsidiaries
Other
Net cash used in investing activities
Cash flows from financing activities
Net increase (decrease) in notes payable to subsidiaries with original maturities of three
months or less
Net increase (decrease) in short-term borrowings with original maturities of three months
or less
Proceeds from issuance of short-term debt
Repayment of short-term debt
Proceeds from issuance of long-term debt
Repayment of long-term debt
Withheld shares for employee taxes on vested share-based compensation
Common stock dividends
Other
Net cash used in financing activities
Net decrease in cash and equivalents
Cash and cash equivalents, January 1
Cash and cash equivalents, December 31
2019
2018
2017
$
131,120
$
135,470
$
99,600
(1,187)
—
(47)
(38,935)
(1,001)
(41,170)
(20,596)
—
(143)
(71,970)
140
(92,569)
(70,000)
66,391
(317)
(22,353)
(177)
(26,456)
—
(30)
98
47,731
—
—
—
—
(997)
(139,463)
(10)
(92,739)
(2,789)
3,742
953
$
(14,000)
—
(50,000)
150,000
—
(996)
(134,987)
(848)
(50,861)
(7,960)
11,702
3,742
$
62,993
125,000
(75,000)
150,000
(200,000)
(3,828)
(134,873)
(756)
(76,366)
(3,222)
14,924
11,702
$
173
NOTES TO CONDENSED FINANCIAL INFORMATION
Basis of Presentation
The “Notes to Consolidated Financial Statements” in Part II, Item 8 should be read in conjunction with the above HEI
(Parent Company) financial statements. All HEI subsidiaries are reflected in the Condensed Financial Statements under the
equity method. Income taxes for equity method investments are included in “Equity in net income of subsidiaries.”
Long-term debt
The components of long-term debt, net, were as follows:
December 31
(dollars in thousands)
HEI 2.99% term loan, due 2022
HEI 5.67% senior note, due 2021
HEI 3.99% senior note, due 2023
HEI 4.58% senior notes, due 2025
HEI 4.72% senior notes, due 2028
Less unamortized debt issuance costs
Long-term debt, net
2019
2018
$
150,000
$
150,000
50,000
50,000
50,000
100,000
(936)
50,000
50,000
50,000
100,000
(1,126)
$
399,064
$
398,874
The aggregate payments of principal required within five years after December 31, 2019 on long-term debt are nil in 2020,
$50 million in 2021, $150 million in 2022, $50 million in 2023, nil for 2024, and $150 million thereafter.
Indemnities
As of December 31, 2019, HEI has a General Agreement of Indemnity in favor of both Liberty Mutual Insurance Company
(Liberty) and Travelers Casualty and Surety Company of America (Travelers) for losses in connection with any and all bonds,
undertakings or instruments of guarantee and any renewals or extensions thereof executed by Liberty or Travelers, including,
but not limited to, a $0.6 million self-insured United States Longshore & Harbor bond and a $0.7 million self-insured
automobile bond.
Income taxes
The Company’s financial reporting policy for income tax allocations is based upon a separate entity concept whereby each
subsidiary provides income tax expense (or benefits) as if each were a separate taxable entity. The difference between the
aggregate separate tax return income tax provisions and the consolidated financial reporting income tax provision is charged or
credited to HEI’s separate tax provision.
Dividends from HEI subsidiaries
In 2019, 2018 and 2017, cash dividends received from subsidiaries were $157 million, $154 million and $125 million,
respectively.
Supplemental disclosures of noncash activities
In 2019, 2018 and 2017, $2.3 million, $2.3 million and $2.8 million, respectively, of HEI accounts receivable from ASB
Hawaii were reduced with a corresponding reduction in HEI notes payable to ASB Hawaii in noncash transactions.
In 2019, 2018 and 2017, $2.3 million, $2.3 million and $2.8 million, respectively, were contributed as equity by HEI into
ASB Hawaii with a corresponding increase in HEI notes payable to ASB Hawaii in noncash transactions.
In 2017, $3.6 million of HEI notes receivable from Hamakua Energy, LLC were converted to equity in a noncash
transaction.
Under the HEI DRIP, common stock dividends reinvested by shareholders in HEI common stock in noncash transactions
was immaterial for 2019, 2018 and 2017 as HEI satisfied the share purchase requirements of the DRIP in 2019, 2018 and 2017
through open market purchases of its common stock rather than new issuances.
174
Hawaiian Electric Industries, Inc. and subsidiaries
and Hawaiian Electric Company, Inc. and subsidiaries
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2019, 2018 and 2017
(in thousands)
Description
Col. A
2019
Col. B
Balance
at begin-
ning of
period
Col. C
Additions
Col. D
Col. E
Charged to
costs and
expenses
Charged
to other
accounts
Deductions
Balance at
end of
period
Allowance for uncollectible accounts – electric utility
Allowance for uncollectible interest – bank
Allowance for losses for loans – bank
2018
Allowance for uncollectible accounts – electric utility
Allowance for uncollectible interest – bank
Allowance for losses for loans – bank
2017
Allowance for uncollectible accounts – electric utility
Allowance for uncollectible interest – bank
Allowance for losses for loans – bank
Deferred tax valuation allowance – HEI
$
$
$
$
$
$
$
$
$
$
1,480
373
52,119
1,178
367
53,637
1,121
1,834
55,533
38
$
$
$
$
$
$
$
$
$
$
2,106
—
$
$
795 (a)
(99)
23,480 (c) $
6,418 (a)
2,474
—
$
$
(4,099)
(a),
(d)
6
14,745 (c) $
4,254 (a)
1,810
—
$
$
785 (a)
—
10,901 (c) $
4,016 (a)
—
$
—
$
$
$
$
$
$
$
$
$
$
3,004 (b)
—
28,662 (b)
(1,927)
(b),
(d)
—
20,517 (b)
(b),
(d)
2,538
1,467
16,813 (b)
38
$
$
$
$
$
$
$
$
$
$
1,377
274
53,355
1,480
373
52,119
1,178
367
53,637
—
(a) Primarily recoveries.
(b) Bad debts charged off.
(c) Represents provision for loan losses.
(d) Reclass (reversal) of allowance for one customer account into other long term assets in 2018 and 2017 were $(4,934), and $841,
respectively.
175
(a)(3) and (b) Exhibits
The exhibits listed for HEI and Hawaiian Electric are listed in the index under the headings “HEI” and “Hawaiian
Electric,” respectively, except that the exhibits listed under “Hawaiian Electric” are also exhibits for HEI.
EXHIBIT INDEX
The exhibits designated by an asterisk (*) are filed herewith. The exhibits not so designated are incorporated by reference to the
indicated filing. A copy of any exhibit may be obtained upon written request for a $0.20 per page charge from the HEI
Shareholder Services Division, P.O. Box 730, Honolulu, Hawaii 96808-0730.
Exhibit no.
HEI:
3(i)
3(ii)
Description
File
Form
Number Exhibit #
Filing
date
HEI’s Amended and Restated Articles of Incorporation.
Amended and Restated Bylaws of HEI effective February 14, 2019.
8-K
8-K
1-8503
1-8503
3(i)
3.1
5/6/09
2/19/19
*
4
Description of HEI Common Stock
Agreement to provide the SEC with instruments which define the rights of
holders of certain long-term debt of HEI and its subsidiaries.
Master Note Purchase Agreement among HEI and the Purchasers thereto,
dated March 24, 2011.
10-K
1-8503
4.1
3/31/93
8-K
1-8503
4(a)
3/28/11
First Supplement to Note Purchase Agreement among HEI and the Purchasers
thereto, dated March 6, 2013.
8-K
1-8503
4(a)
3/6/13
Hawaiian Electric Industries Retirement Savings Plan, restatement effective
January 1, 2013.
10-K
1-8503
Amendment 2014-1 to Hawaiian Electric Industries Retirement Savings Plan,
effective as of January 1, 2015
Amendment 2015-1 to Hawaiian Electric Industries Retirement Savings Plan,
effective as of February 1, 2015
Amendment 2015-2 to Hawaiian Electric Industries Retirement Savings Plan,
effective as of February 1, 2015
Amendment 2019-1 to Hawaiian Electric Industries Retirement Savings Plan,
effective as of May 6, 2019
Amendment 2019-1 to the Hawaiian Electric Industries Retirement Savings
Plan, effective as of May 6, 2019
Amendment 2019-2 to the Hawaiian Electric Industries Retirement Savings
Plan, effective as of August 1, 2019
Master Trust Agreement dated as of September 4, 2012 between HEI and ASB
and Fidelity Management Trust Company, as Trustee
Letter Amendment effective November 28, 2012 to Master Trust Agreement
dated as of September 4, 2012 between HEI and ASB and Fidelity
Management Trust Company.
Letter Amendment effective October 1, 2014 to Master Trust Agreement dated
as of September 4, 2012 between HEI and ASB and Fidelity Management
Trust Company.
First Amendment to Master Trust Agreement (dated as of September 4, 2012)
effective March 1, 2015 between HEI and ASB and Fidelity Management
Trust Company.
Letter Amendment effective August 3, 2015 to Master Trust Agreement (dated
as of September 4, 2012) between HEI and ASB and Fidelity Management
Trust Company.
Letter Amendment effective August 15, 2017 to Master Trust Agreement
(dated September 4, 2012) between HEI and ASB and Fidelity Management
Trust Company.
Second Amendment effective January 1, 2018 to Master Trust Agreement
(dated September 4, 2012) between HEI and ASB and Fidelity Management
Trust Company.
Letter of Direction effective January 2, 2018 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company.
176
4.5
4.4
4.5
4.6
4.7
2/19/13
6/26/19
6/26/19
6/26/19
6/26/19
S-8
S-8
S-8
S-8
333-
232360
333-
232360
333-
232360
333-
232360
10-Q
1-8503
4.2
11/1/19
10-Q
1-8503
4
11/8/12
10-K
1-8503
4.6(a)
2/19/13
10-Q
1-8503
10-Q
1-8503
4
4
11/6/14
5/6/15
10-K
1-8503
4.4(d)
3/1/18
10-Q
1-8503
4
11/2/17
10-K
1-8503
4.4(f)
3/1/18
10-K
1-8503
4.4(g)
3/1/18
4.1
4.2
4.2(a)
4.3
4.3(a)
4.3(b)
4.3(c)
4.3(d)
*
4.3(e)
4.3(f)
4.4
4.4(a)
4.4(b)
4.4(c)
4.4(d)
4.4(e)
4.4(f)
4.4(g)
Exhibit no.
4.4(h)
4.4(i)
*
4.4(j)
4.5
4.5(a)
4.6
4.6(a)
4.6(b)
Description
Third Amendment effective July 1, 2018 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company.
Fourth Amendment effective June 26, 2019 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company.
Letter Amendment effective November 1, 2019 to Master Trust Agreement
(dated September 4, 2012) between HEI and ASB and Fidelity Management
Trust Company.
Hawaiian Electric Industries, Inc. Dividend Reinvestment and Stock Purchase
Plan, as amended and restated effective October 5, 2017.
Hawaiian Electric Industries, Inc. Dividend Reinvestment and Stock Purchase
Plan, as amended and restated.
American Savings Bank 401(k) Plan, restatement effective January 1, 2013.
Amendment 2013-1 to the American Savings Bank 401(k) Plan, effective
January 1, 2014.
Amendment 2019-1 to the American Savings Bank 401(k) Plan, effective as of
May 6, 2019.
*
4.6(c)
Amendment 2020-1 to the American Savings Bank 401(k) Plan, effective as of
January 1, 2020.
10.1
10.2
10.3
Conditions for the Merger and Corporate Restructuring of Hawaiian Electric
Company, Inc. dated September 23, 1982.
Regulatory Capital Maintenance/Dividend Agreement dated May 26, 1988,
between HEI, HEIDI and the Federal Savings and Loan Insurance Corporation
(by the Federal Home Loan Bank of Seattle).
OTS letter regarding release from Part II.B. of the Regulatory Capital
Maintenance/Dividend Agreement dated May 26, 1988.
HEI Exhibits 10.4 through 10.21 are management contracts or compensatory plans or
arrangements required to be filed as exhibits pursuant to Item 15(b) of this report. HEI Exhibits
10.4 through 10.19 are also management contracts or compensatory plans or arrangements with
Hawaiian Electric participants.
File
Form
10-Q
Number Exhibit #
1-8503
4
Filing
date
8/3/18
S-8
333-
232360
4.15
6/26/19
S-3
S-3
10-K
10-K
S-8
333-
220842
333-
234591
1-8503
1-8503
333-
232361
4.3
4.3
4.8
4.7(a)
10/5/17
11/8/19
2/19/13
2/23/16
4.5
6/26/19
10-K
1-8503
10.1
2/28/07
8-K
1-8503
(28)-2
5/26/88**
10-K
1-8503
10.3(a)
3/31/93
10.4
10.5
10.6
10.7
10.7(a)
10.7(b)
10.7(c)
10.7(d)
10.7(e)
10.8
10.9
10.9(a)
HEI Executive Incentive Compensation Plan amended as of February 4, 2013.
HEI Executives’ Deferred Compensation Plan amended and restated effective
January 1, 2019.
Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan, as amended
and restated November 16, 2010.
Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan, as amended
and restated February 14, 2014.
Form of Non-Qualified Stock Option Agreement pursuant to 2010 Equity and
Incentive Plan.
Form of Stock Appreciation Right Agreement pursuant to 2010 Equity and
Incentive Plan.
Form of Restricted Shares Agreement pursuant to 2010 Equity and Incentive
Plan.
Form of Performance Shares Agreement pursuant to 2010 Equity and
Incentive Plan.
Form of Restricted Stock Unit Agreement, amended as of December 15, 2016,
pursuant to 2010 Equity and Incentive Plan, as amended and restated February
14, 2014.
HEI Long-Term Incentive Plan amended as of February 4, 2013.
HEI Supplemental Executive Retirement Plan amended and restated as of
January 1, 2009.
Amendments to the HEI Supplemental Executive Retirement Plan Freezing
Benefit Accruals Effective December 31, 2008.
10-K
10-K
1-8503
1-8503
10.4
10.5
2/19/13
2/28/19
10-K
1-8503
10.6
2/18/11
Proxy
(DEF
14A)
S-8
S-8
S-8
S-8
1-8503 Appendix
3/25/14
D
4.4
4.5
4.6
4.7
5/11/10
5/11/10
5/11/10
5/11/10
333-
166737
333-
166737
333-
166737
333-
166737
10-K
1-8503
10.7(e)
2/24/17
10-K
10-Q
1-8503
1-8503
10.8
10.3
2/19/13
11/5/08
10-K
1-8503
10.9(a)
2/27/09
10.10
HEI Excess Pay Plan amended and restated as of January 1, 2009.
10.10(a)
HEI Excess Pay Plan Addendum for Constance H. Lau.
10-K
10-K
1-8503
1-8503
10.10
2/27/09
10.10(a)
2/27/09
177
Exhibit no.
10.10(b)
Description
Amendment No. 1 dated December 13, 2010 to January 1, 2009 Restatement
of HEI Excess Pay Plan.
10.11
10.12
*
10.13
10.14
10.15
10.16
10.16(a)
10.17
10.18
10.19
10.20
10.20(a)
10.20(b)
10.20(c)
10.20(d)
Form of Change in Control Agreement.
Nonemployee Director Retirement Plan, effective as of October 1, 1989.
HEI 2011 Nonemployee Director Stock Plan, as amended effective October
31, 2019.
Nonemployee Director’s Compensation Schedule effective January 1, 2019.
HEI Non-Employee Directors’ Deferred Compensation Plan.
Executive Death Benefit Plan of HEI and Participating Subsidiaries
restatement effective as of January 1, 2009.
Resolution of the Compensation Committee of the Board of Directors of
Hawaiian Electric Industries, Inc. Re: Adoption of Amendment No. 1 to
January 1, 2009 Restatement of the Executive Death Benefit Plan.
Amended and Restated Severance Pay Plan for Management Employees of
Hawaiian Electric Industries, Inc. and Executive Employees of Affiliates,
effective as of April 2, 2018.
Hawaiian Electric Industries, Inc. Executives’ Deferred Compensation Plan
effective on January 1, 2009.
Form of Indemnity Agreement (HEI, Hawaiian Electric and ASB with their
respective directors and HEI with certain of its senior officers).
American Savings Bank Select Deferred Compensation Plan (Restatement
Effective January 1, 2009).
Amendment No. 1 to January 1, 2009 Restatement of American Savings Bank
Select Deferred Compensation Plan dated December 30, 2009.
Amendment No. 2 to January 1, 2009 Restatement of American Savings Bank
Select Deferred Compensation Plan dated December 29, 2010.
Amendment No. 3 to January 1, 2009 Restatement of American Savings Bank
Select Deferred Compensation Plan dated December 3, 2014.
Amendment No. 4 to January 1, 2009 Restatement of American Savings Bank
Select Deferred Compensation Plan dated December 4, 2017.
*
10.20(e)
Amendment No. 5 to January 1, 2009 Restatement of American Savings Bank
Select Deferred Compensation Plan dated December 5, 2018.
File
Form
10-K
Number Exhibit #
10.10(c)
1-8503
Filing
date
2/19/13
10-K
10-K
1-8503
1-8503
10.11
10.15
2/27/09
3/27/90**
10-K
10-Q
10-Q
1-8503
1-8503
1-8503
10.5
10.5
10.6
2/28/19
11/5/08
11/5/08
10-Q
1-8503
10.1
11/5/09
10-Q
1-8503
10
8/3/18
10-Q
1-8503
10.2
11/5/08
10-Q
1-8503
10.1
11/8/12
10-Q
1-8503
10.7
11/5/08
10-K
1-8503
10.20(a)
2/23/16
10-K
1-8503
10.20(b)
2/23/16
10-K
1-8503
10.20(c)
2/23/16
10-K
1-8503
10.20(d)
3/1/18
10.21
10.21(a)
10.22
* 11
* 21.1
* 23.1
* 31.1
* 31.2
American Savings Bank Supplemental Executive Retirement, Disability, and
Death Benefit Plan, effective January 1, 2009.
10-Q
1-8503
10.8
11/5/08
10-K
1-8503
10.19(b)
2/27/09
10-Q
1-8503
10.1
8/3/17
Amendments to the American Savings Bank Supplemental Executive
Retirement, Disability, and Death Benefit Plan Freezing Benefit Accruals
Effective December 31, 2008.
Second Amended and Restated Credit Agreement, dated as of June 30, 2017,
among HEI, as Borrower, the Lenders Party Thereto and Wells Fargo Bank,
National Association, as Syndication Agent, and Bank of America, N.A.,
MUFG Union Bank, N.A., Barclays Bank PLC, U.S. Bank National
Association and Bank of Hawaii as Co-Documentation Agents, and JPMorgan
Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing
Bank, and JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC, as
Joint Lead Arrangers and Joint Book Runners.
HEI - Computation of Earnings per Share of Common Stock.
HEI - Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm (Deloitte &
Touche LLP).
Certification Pursuant to Section 13a-14 of the Securities Exchange Act of
1934 of Constance H. Lau (HEI Chief Executive Officer).
Certification Pursuant to Section 13a-14 of the Securities Exchange Act of
1934 of Gregory C. Hazelton (HEI Chief Financial Officer).
* 32.1
HEI Certification Pursuant to 18 U.S.C. Section 1350.
* 101.INS
XBRL Instance Document.
* 101.SCH XBRL Taxonomy Extension Schema Document.
* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.
* 101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
178
Exhibit no.
* 101.LAB XBRL Taxonomy Extension Label Linkbase Document.
Description
* 101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in
Exhibit 101)
File
Form
Number Exhibit #
Filing
date
Hawaiian Electric:
3(i).1
3(i).2
3(i).3
3(i).4
3(ii)
Hawaiian Electric’s Certificate of Amendment of Articles of Incorporation.
Articles of Amendment to Hawaiian Electric’s Amended Articles of
Incorporation.
Articles of Amendment to Hawaiian Electric’s Amended Articles of
Incorporation.
10-K
10-K
1-4955
1-4955
3.1
3/31/89
3.1(b)
3/27/90**
10-K
1-4955
3(i).4
3/23/99
Articles of Amendment amending Article V of Hawaiian Electric’s Amended
Articles of Incorporation effective August 6, 2009.
10-Q
1-4955
3(i).4
8/7/09
Hawaiian Electric’s Amended and Restated Bylaws (as last amended August 6,
2010).
8-K
1-4955
3(ii)
8/9/10
*
4
Description of Hawaiian Electric’s Preferred Stock
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
10.1(a)
10.1(b)
10.1(c)
10.1(d)
10.1(e)
10.1(f)
Agreement to provide the SEC with instruments which define the rights of
holders of certain long-term debt of Hawaiian Electric, Hawaii Electric Light
and Maui Electric
Note Purchase Agreement among Hawaiian Electric and the Purchasers that
are parties thereto, dated April 19, 2012.
Note Purchase and Guaranty Agreement among Hawaiian Electric, Maui
Electric and the Purchasers that are parties thereto, dated April 19, 2012.
10-K
1-4955
4.1
3/19/03
8-K
1-4955
4(a)
4/23/12
8-K
1-4955
4(b)
4/23/12
Note Purchase and Guaranty Agreement among Hawaiian Electric, Hawaii
Electric Light and the Purchasers that are parties thereto, dated April 19, 2012.
8-K
1-4955
4(c)
4/23/12
Note Purchase Agreement among Hawaiian Electric and the Purchasers that
are parties thereto, dated September 13, 2012.
Note Purchase Agreement among Hawaiian Electric Company, Inc. and the
Purchasers that are parties thereto, dated as of October 3, 2013.
Note Purchase and Guaranty Agreement among Hawaiian Electric, Maui
Electric Company, Limited and the Purchasers that are parties thereto, dated as
of October 3, 2013.
Note Purchase and Guaranty Agreement among Hawaiian Electric, Hawaii
Electric Light Company, Inc. and the Purchasers that are parties thereto, dated
as of October 3, 2013.
Note Purchase Agreement among Hawaiian Electric Company, Inc. and the
Purchasers that are parties thereto, dated as of October 15, 2015.
Note Purchase and Guaranty Agreement among Hawaiian Electric, Maui
Electric Company, Limited and the Purchasers that are parties thereto, dated as
of October 15, 2015.
Note Purchase and Guaranty Agreement among Hawaiian Electric, Hawaii
Electric Light Company, Inc. and the Purchasers that are parties thereto, dated
as of October 15, 2015.
Note Purchase Agreement among Hawaiian Electric Company, Inc. and the
Purchasers that are parties thereto, dated as of December 15, 2016.
Power Purchase Agreement between Kalaeloa Partners, L.P., and Hawaiian
Electric dated October 14, 1988.
Amendment No. 1 to Power Purchase Agreement between Hawaiian Electric
and Kalaeloa Partners, L.P., dated June 15, 1989.
Lease Agreement between Kalaeloa Partners, L.P., as Lessor, and Hawaiian
Electric, as Lessee, dated February 27, 1989.
Restated and Amended Amendment No. 2 to Power Purchase Agreement
between Hawaiian Electric and Kalaeloa Partners, L.P., dated February 9,
1990.
Amendment No. 3 to Power Purchase Agreement between Hawaiian Electric
and Kalaeloa Partners, L.P., dated December 10, 1991.
Amendment No. 4 to Power Purchase Agreement between Hawaiian Electric
and Kalaeloa Partners, L.P., dated October 1, 1999.
8-K
1-4955
4
9/14/12
8-K
1-4955
4(a)
10/7/13
8-K
1-4955
4(b)
10/7/13
10-Q
1-4955
4
11/7/13
8-K
1-4955
4(a)
10/16/15
8-K
1-4955
4(b)
10/16/15
8-K
1-4955
4(c)
10/16/15
8-K
1-4955
4
12/19/16
10-Q
1-4955
10(a)
11/14/88
10-Q
1-4955
10(c)
8/14/89
10-Q
1-4955
10(d)
8/14/89
10-K
1-4955
10.2(c)
3/27/90**
10-K
1-4955
10.2(e)
3/24/92
10-Q
1-4955
10.1
11/8/00
179
Exhibit no.
10.1(g)
10.1(h)
10.1(i)
10.2(a)
10.2(b)
10.2(c)
10.2(d)
10.2(e)
10.2(f)
10.3(a)
10.3(b)
10.3(c)
10.3(d)
10.3(e)
10.3(f)
Description
Confirmation Agreement Concerning Section 5.2B(2) of Power Purchase
Agreement and Amendment No. 5 to Power Purchase Agreement between
Hawaiian Electric and Kalaeloa Partners, L.P., dated October 12, 2004.
Agreement for Increment Two Capacity and Amendment No. 6 to Power
Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P.,
dated October 12, 2004.
Letter agreement dated July 28, 2016 and executed August 1, 2016 extending
the term of the Power Purchase Agreement between Hawaiian Electric and
Kalaeloa Partners, L.P., dated October 14, 1988 (as amended).
Power Purchase Agreement between AES Barbers Point, Inc. and Hawaiian
Electric, entered into on March 25, 1988.
Agreement between Hawaiian Electric and AES Barbers Point, Inc., pursuant
to letters dated May 10, 1988 and April 20, 1988.
Amendment No. 1, entered into as of August 28, 1988, to Power Purchase
Agreement between AES Barbers Point, Inc. and Hawaiian Electric.
Hawaiian Electric’s Conditional Notice of Acceptance to AES Barbers
Point, Inc. dated January 15, 1990.
Amendment No. 2, entered into as of May 8, 2003, to Power Purchase
Agreement between AES Hawaii, Inc. and Hawaiian Electric.
Amendment No. 4, entered into as of February 14, 2018, to Power Purchase
Agreement between AES Hawaii, Inc. and Hawaiian Electric Company, Inc.
(subject to PUC approval).
Purchase Power Contract between Hawaii Electric Light and Thermal Power
Company dated March 24, 1986.
Firm Capacity Amendment between Hawaii Electric Light and Puna
Geothermal Venture (assignee of AMOR VIII, who is the assignee of Thermal
Power Company) dated July 28, 1989 to Purchase Power Contract between
Hawaii Electric Light and Thermal Power Company dated March 24, 1986.
Amendment made in October 1993 to Purchase Power Contract between
Hawaii Electric Light and Puna Geothermal Venture dated March 24, 1986, as
amended.
Third Amendment dated March 7, 1995 to the Purchase Power Contract
between Hawaii Electric Light and Puna Geothermal Venture dated March 24,
1986, as amended.
Performance Agreement and Fourth Amendment dated February 12, 1996 to
the Purchase Power Contract between Hawaii Electric Light and Puna
Geothermal Venture dated March 24, 1986, as amended.
Fifth Amendment dated February 7, 2011 to the Purchase Power Contract
between Hawaii Electric Light and Puna Geothermal Venture dated March 24,
1986, as amended.
File
Form
10-Q
Number Exhibit #
1-4955
10.3
Filing
date
11/5/04
10-Q
1-4955
10.4
11/5/04
10-Q
1-4955
10
11/4/16
10-Q
1-4955
10(a)
5/16/88
10-K
1-4955
10.4
3/31/89
10-Q
1-4955
10
11/13/89
10-K
1-4955
13(c)
3/27/90**
10-K
1-4955
10.2(e)
3/9/04
10-Q
1-4955
10
5/10/18
10-Q
1-4955
10(a)
8/14/89
10-Q
1-4955
10(b)
8/14/89
10-K
1-4955
10.5(b)
3/27/98
10-K
1-4955
10.5(c)
3/27/98
10-K
1-4955
10.5(b)
3/25/96
10-K
1-4955
10.4(f)
2/17/12
10.3(g)
Power Purchase Agreement between Puna Geothermal Venture and Hawaii
Electric Light dated February 7, 2011.
10-K
1-4955
10.4(g)
2/17/12
*
10.3(h)
10.4(a)
10.4(b)
10.4(c)
10.4(d)
Amended and Restated Power Purchase Agreement between Puna Geothermal
Venture and Hawaii Electric Light dated December 31, 2019 (subject to PUC
approval).
Power Purchase Agreement between Encogen Hawaii, L.P. and Hawaii
Electric Light dated October 22, 1997 (but with the following attachments
omitted: Attachment C, “Selected portions of the North American Electric
Reliability Council Generating Availability Data System Data Reporting
Instructions dated October 1996” and Attachment E, “Form of the
Interconnection Agreement between Encogen Hawaii, L.P. and Hawaii Electric
Light,” which is provided in final form as Exhibit 10.6(b)).
Interconnection Agreement between Encogen Hawaii, L.P. and Hawaii Electric
Light dated October 22, 1997.
Amendment No. 1, executed on January 14, 1999, to Power Purchase
Agreement between Encogen Hawaii, L.P. and Hawaii Electric Light dated
October 22, 1997.
Notice and acknowledgment under power purchase agreement effective
November 24, 2017 by Hamakua Energy, LLC and acknowledged by Hawaii
Electric Light.
10-K
1-4955
10.7
3/27/98
10-K
1-4955
10.7(a)
3/27/98
10-K
1-4955
10.7(b)
3/23/99
10-K
1-4955
10.4(d)
3/1/18
180
File
Form
10-Q
Number Exhibit #
1-4955
10
Filing
date
5/7/19
10-K
1-4955
10.13
3/23/01
10-K
1-4955
10.13(b)
2/19/13
10-K
1-4955
10.14
3/23/01
10-K
1-4955
10.14(b)
2/19/13
10-K
1-4955
10.11(a)
3/1/18
10-Q
1-4955
10.2
8/3/17
Exhibit no.
10.5
Description
Supply Contract for Low Sulfur Fuel Oil, High Sulfur Fuel Oil, No. 2 Diesel,
and Ultra-Low Sulfur Diesel by and between Hawaiian Electric, Hawaii
Electric Light, and Maui Electric and PAR Hawaii Refining, LLC dated
January 21, 2019 (certain confidential information has been omitted)
10.6(a)
10.6(b)
10.7(a)
10.7(b)
10.8
10.9
11
* 21.2
* 31.3
* 31.4
* 32.2
* 99.1
Contract of private carriage by and between HITI and Hawaii Electric Light
dated December 4, 2000.
Consent to Change of Ownership/Control of Carrier by and between K-Sea
Operating Partnership, L.P., and Hawaii Electric Light, dated July 1, 2011.
Contract of private carriage by and between HITI and Maui Electric dated
December 4, 2000.
Consent to Change of Ownership/Control of Carrier by and between K-Sea
Operating Partnership, L.P., and Maui Electric, dated July 1, 2011.
Amended and Restated Power Purchase Agreement between Hawaiian Electric
and Hu Honua Bioenergy, LLC dated May 9, 2017.
Second Amended and Restated Credit Agreement, dated as of June 30, 2017,
among Hawaiian Electric Company, Inc., as Borrower, the Lenders Party
Hereto and Wells Fargo Bank, National Association, as Syndication Agent, and
Bank of America, N.A., MUFG Union Bank, N.A., Barclays Bank PLC, U.S.
Bank National Association and Bank of Hawaii as Co-Documentation Agents,
and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender
and Issuing Bank, and JPMorgan Chase Bank, N.A. and Wells Fargo
Securities, LLC, as Joint Lead Arrangers and Joint Book Runners.
Computation of Earnings Per Share of Common Stock (See note on Hawaiian
Electric’s Item 6. Selected Financial Data).
Hawaiian Electric - Subsidiaries of the Registrant.
Certification Pursuant to Section 13a-14 of the Securities Exchange Act of
1934 of Scott W. H. Seu (Hawaiian Electric Chief Executive Officer).
Certification Pursuant to Section 13a-14 of the Securities Exchange Act of
1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer).
Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350.
Hawaiian Electric’s Directors, Executive Officers and Corporate Governance;
Hawaiian Electric’s Executive Compensation; Hawaiian Electric’s Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters; Hawaiian Electric’s Certain Relationships and Related
Transactions, and Director Independence; and Hawaiian Electric’s Principal
Accounting Fees and Services.
** Date of transmittal letter to SEC.
181
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly
caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The execution of this report by
registrant Hawaiian Electric Company, Inc. shall be deemed to relate only to matters having reference to such registrant and its
subsidiaries.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant)
(Registrant)
By
/s/ Gregory C. Hazelton
Gregory C. Hazelton
By
/s/ Tayne S. Y. Sekimura
Tayne S. Y. Sekimura
Executive Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer
(Principal Financial Officer of HEI)
(Principal Financial Officer of Hawaiian Electric)
Date:
February 28, 2020
Date:
February 28, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrants and in the capacities indicated on February 28, 2020. The execution of this report by each of
the undersigned who signs this report solely in such person’s capacity as a director or officer of Hawaiian Electric
Company, Inc. shall be deemed to relate only to matters having reference to such registrant and its subsidiaries.
Signature
/s/ Constance H. Lau
Constance H. Lau
/s/ Scott W. H. Seu
Scott W. H. Seu
/s/ Gregory C. Hazelton
Gregory C. Hazelton
/s/ Tayne S. Y. Sekimura
Tayne S. Y. Sekimura
/s/ Paul K. Ito
Paul K. Ito
/s/ Patsy H. Nanbu
Patsy H. Nanbu
Title
President & Chief Executive Officer of HEI and
Director of HEI
(Principal Executive Officer of HEI)
President & Chief Executive Officer of Hawaiian Electric
and Director of Hawaiian Electric
(Principal Executive Officer of Hawaiian Electric)
Executive Vice President and Chief Financial Officer
of HEI (Principal Financial Officer of HEI)
Senior Vice President and Chief Financial Officer
of Hawaiian Electric (Principal Financial Officer
of Hawaiian Electric)
Vice President, Tax, Controller and Treasurer
of HEI (Principal Accounting Officer of HEI)
Controller of Hawaiian Electric
(Principal Accounting Officer of Hawaiian Electric)
182
Signature
/s/ Kevin M. Burke
Kevin M. Burke
/s/ Celeste A. Connors
Celeste A. Connors
/s/ Richard J. Dahl
Richard J. Dahl
/s/ Thomas B. Fargo
Thomas B. Fargo
/s/ Peggy Y. Fowler
Peggy Y. Fowler
/s/ Timothy E. Johns
Timothy E. Johns
/s/ Micah A. Kane
Micah A. Kane
/s/ Bert A. Kobayashi, Jr.
Bert A. Kobayashi, Jr.
/s/ Mary G. Powell
Mary G. Powell
/s/ Keith P. Russell
Keith P. Russell
/s/ William James Scilacci, Jr.
William James Scilacci, Jr.
/s/ Kelvin H. Taketa
Kelvin H. Taketa
/s/ Jeffrey N. Watanabe
Jeffrey N. Watanabe
/s/ Eva T. Zlotnicka
Eva T. Zlotnicka
Title
Director of Hawaiian Electric
Director of HEI
Director of HEI
Director of HEI
Director of HEI
Chairman of the Board of Directors of Hawaiian Electric
Director of HEI
Director of Hawaiian Electric
Director of HEI
Director of HEI
Director of HEI
Director of Hawaiian Electric
Chairman of the Board of Directors of HEI
Director of HEI
183
Appendix A
Shareholder Return Performance Graph
The graph below compares the cumulative total shareholder return on HEI Common Stock against the cumulative
total return of the companies listed on the S&P 500 Stock Index and the Edison Electric Institute (EEI) Index of Investor-
Owned Electric Companies (40 companies were included as of December 31, 2019). The graph is based on the market
price of common stock for all companies in the indices at December 31 each year and assumes that $100 was invested on
December 31, 2014, in HEI Common Stock and the common stock of all companies in the indices and that dividends
were reinvested.
Source: S&P Global Inc.
Appendix B
Explanation of HEI’s Use of Certain Unaudited Non-GAAP Measures
HEI and Hawaiian Electric Company management use certain non-GAAP measures to evaluate the performance of
HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator
of the companies’ core operating activities given the non-recurring nature of certain items. Core earnings and other
financial measures as presented here may not be comparable to similarly titled measures used by other companies. The
accompanying tables provide a reconciliation of reported GAAP1 earnings to non-GAAP (core) earnings and the adjusted
return on average common equity (ROACE) for HEI.
The reconciling adjustments from GAAP earnings to core earnings exclude the 2017 impact of the federal tax reform
act due to the adjustment of the deferred tax balances and the $1,000 employee bonuses paid by the bank related to federal
tax reform. Management does not consider these items to be representative of the company’s fundamental core earnings.
Management has shown adjusted non-GAAP (core) net income, adjusted non-GAAP (core) diluted earnings per common
share and adjusted non-GAAP (core) ROACE in order to provide better comparability of core net income, EPS and
ROACE between periods.
RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES
Hawaiian Electric Industries, Inc. and Subsidiaries (HEI)
Unaudited
($ in millions, except per share amounts)
2019
2018
2017
HEI CONSOLIDATED NET INCOME
GAAP (as reported)
Excluding special items (after-tax):
Bonus related to enactment of federal tax reform2
Federal tax reform impacts3
$
217.9
$
201.8
$ 165.3
-
-
-
-
201.8
0.7
13.4
$ 179.5
Non-GAAP (core) net income
$
217.9
$
HEI CONSOLIDATED DILUTED EARNINGS PER COMMON SHARE
GAAP (as reported)
Excluding special items (after-tax):
Bonus related to enactment of federal tax reform2
Federal tax reform impacts3
$
1.99
$
1.85
-
-
-
-
1.52
0.01
0.12
Non-GAAP (core) diluted earnings per common share
$
1.99
$
1.85
$
1.65
HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
Based on GAAP
Based on non-GAAP (core)4
9.8%
9.8%
9.5%
9.5%
7.9%
8.6%
Note: Columns may not foot due to rounding
1 Accounting principles generally accepted in the United States of America
2 Bonus paid by American Savings Bank related to enactment of federal tax reform
3 Reflects the lower rates enacted by federal tax reform, primarily the adjustments to reduce the unregulated net
deferred tax asset balances
4 Calculated as non-GAAP (core) net income divided by average GAAP common equity
Executive Management (as of March 1, 2020)
Hawaiian Electric Industries (HEI)
Constance H. Lau
President and Chief Executive Officer
Chair,
American Savings Bank, F.S.B.
Greg C. Hazelton
Executive Vice President and
Chief Financial Officer
Kurt K. Murao
Executive Vice President,
General Counsel, Chief
Administrative Officer and
Corporate Secretary
Jimmy D. Alberts
Senior Vice President,
Business Development and Strategic Planning
Shelee M. T. Kimura
Senior Vice President,
Customer Service
Colton K. Ching
Senior Vice President,
Planning and Technology
Tayne S. Y. Sekimura
Senior Vice President and
Chief Financial Officer
Danielle K. N. Aiu
Executive Vice President,
Consumer Banking
Natalie M. H. Taniguchi
Executive Vice President,
Enterprise Risk and Regulatory Relations
John S. Ward
Executive Vice President and
Chief Experience Officer
Gabriel S. H. Lee
Executive Vice President,
Commercial Markets
Ann C. Teranishi
Executive Vice President,
Operations
K. Elizabeth Whitehead
Executive Vice President,
Chief Administrative Officer and
Assistant Secretary
Hawaiian Electric
Scott W. H. Seu
President and Chief Executive Officer
Ronald R. Cox
Senior Vice President,
Operations
Sharon M. Suzuki
President,
Maui County and Hawai‘i Island Utilities*
* Hawaiian Electric Subsidiaries
Maui Electric Company, Ltd. and Hawai‘i Electric Light Company, Inc.
American Savings Bank (ASB)
Richard F. Wacker
President and Chief Executive Officer
Steven R. Nakahara
Executive Vice President and
Chief Credit Officer
Dane A. Teruya
Executive Vice President and
Chief Financial Officer
Brian M. Yoshii
Executive Vice President and
Chief Information Officer
Pacific Current
Scott A. Valentino
President
Board of Directors
Jeffrey N. Watanabe
Chair, HEI
Chair, HEI Executive Committee
Retired Founder,
Watanabe Ing LLP
Constance H. Lau
President and CEO, HEI
Director, HEI
Chair, ASB
Admiral Thomas B. Fargo,
USN (Retired)
Vice Chair, HEI
Chair, HEI Compensation
Committee
Chairman, Huntington Ingalls
Industries, Inc.
Former Commander of the U.S.
Pacific Command
Peggy Y. Fowler
Chair, HEI Nominating &
Corporate Governance
Committee
Director, HEI
Chairman, Umpqua Holdings Corp.
Former President and CEO,
Portland General
Electric Company
William James Scilacci, Jr.
Chair, Audit & Risk Committee
Director, HEI
Former Executive Vice President
and Chief Financial Officer, Edison
International
Celeste A. Connors
Director, HEI
Executive Director, Hawai‘i
Green Growth Local2030
Hub
Richard J. Dahl
Director, HEI
Non-Executive Chairman,
Dine Brands Global, Inc.
Chairman, IDACORP, Inc.
Former President and
CEO, James Campbell
Company, LLC
Micah A. Kane
Micah A. Kane
Director, HEI
President and CEO, Hawai‘i
Community Foundation
Mary G. Powell
Director, HEI
Director, ASB
Former President and CEO,
Green Mountain Power
Keith P. Russell
Director, HEI
Chair, ASB Risk
Committee
Director, ASB
President, Russell Financial,
Inc.
Eva T. Zlotnicka
Director, HEI
Managing Director,
ValueAct Spring Fund
Head of Stewardship,
ValueAct Capital
James A. Ajello
Director, ASB
Former Executive Vice
President and Chief
Financial Officer, HEI
Kevin M. Burke
Director, Hawaiian
Electric
Former Chief Marketing
Officer, Square, Inc.
Shirley J. Daniel, Ph.D.
Director, ASB
Professor of Accountancy,
Shidler College of Business,
University of Hawai‘i-Manoa
University of Hawai‘i-Manoa
Elisia K. Flores
Chair, ASB Audit
Committee
Director, ASB
CEO and Vice Chair,
L&L Franchise, Inc.
Former Senior Finance
Manager, General Electric
Company
Timothy E. Johns
Chair, Hawaiian Electric
Chair, Hawaiian Electric
Audit & Risk Committee
President and CEO, Zephyr
Insurance Company, Inc.
Michael J. Kennedy
Director, ASB
CEO, Interstellar
Bert A. Kobayashi, Jr.
Director, Hawaiian
Electric
Chairman, CEO and
Managing Partner,
BlackSand Capital, LLC
Bert A. Kobayashi, Sr.
Director, ASB
Chairman and CEO,
Kobayashi Development
Group LLC
James K. Scott, Ed.D.
Director, ASB
Former President, Punahou
School
Scott W. H. Seu
President and CEO,
Hawaiian Electric
Director, Hawaiian
Electric
Kelvin H. Taketa
Director, Hawaiian
Electric
Former President and
CEO, Hawai‘i Community
Foundation
Richard F. Wacker
President and CEO, ASB
Director, ASB
HEI
Hawaiian Electric
ASB
Jeffrey N. Watanabe,
Chair (1)
Celeste A. Connors (2)
Richard J. Dahl (2, 3)
Admiral Thomas B. Fargo,
USN (Retired) (1, 3, 4)
Peggy Y. Fowler (1, 3, 4)
Micah Kane (4)
Micah Kane (4)
Constance H. Lau (1)
Mary G. Powell (3)
Keith P. Russell (1, 2)
William James Scilacci, Jr. (1, 2)
Eva T. Zlotnicka (3)
Timothy E. Johns, Chair (5)
Kevin M. Burke (5)
Bert A. Kobayashi, Jr.
Scott W. H. Seu
Kelvin H. Taketa
Constance H. Lau, Chair (7)
James A. Ajello (7)
Shirley J. Daniel, Ph.D. (6)
Elisia K. Flores (6)
Michael J. Kennedy (7)
Bert A. Kobayashi, Sr.
Keith P. Russell (6, 7)
James K. Scott, Ed.D.
Richard F. Wacker
HEI Board Committees:
Hawaiian Electric Board Committees:
ASB Board Committees:
(1) Executive
Jeffrey N. Watanabe,
Chair
(2) Audit & Risk
(3) Compensation
Admiral Thomas B. Fargo,
USN (Retired), Chair
(4) Nominating & Corporate
William James Scilacci,
Jr., Chair
Governance
Peggy Y. Fowler, Chair
(5) Audit & Risk
Timothy E. Johns, Chair
(6) Audit
(7) Risk
Elisia K. Flores, Chair
Keith P. Russell, Chair
F
Shareholder Information
Corporate Headquarters
Hawaiian Electric Industries, Inc.
1001 Bishop Street, Suite 2900
Honolulu, Hawai‘i 96813
Telephone: 808-543-5662
Mailing address:
Investor Relations
P.O. Box 730
Honolulu, Hawai‘i 96808-0730
New York Stock Exchange
Common stock symbol: HE
Shareholder Services
c/o Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, NY 11717
Telephone: 808-206-7529
Toll Free: 866-672-5841
M-F 9 a.m. to 9:30 p.m. EST
E-mail: shareholder@broadridge.com
Correspondence about common stock and utility preferred stock
ownership, dividend payments, transfer requirements, changes of
address, lost stock certificates, duplicate mailings, and account status
may be directed to Shareholder Services.
A copy of the 2019 Form 10-K Annual Report for Hawaiian Electric
Industries, Inc. and Hawaiian Electric Company, Inc., including
financial statements and schedules, will be provided by HEI without
charge upon written request directed to Shareholder Services at the
above address for Shareholder Services or through HEI’s website.
Website
Internet users can access information about HEI and its subsidiaries
at http://www.hei.com.
Direct Registration
HEI common stock can be issued in direct registration (book entry)
form. The stock is DRS (Direct Registration System) eligible.
Dividend Reinvestment and Stock Purchase Plan
Any individual of legal age or any entity may buy HEI common stock
at market prices directly from HEI. The minimum initial investment is
$250. Additional optional cash investments may be as small as $25.
The annual maximum investment is $300,000. After your account is
open, you may reinvest all of your dividends to purchase additional
shares or elect to receive some or all of your dividends in cash.
You may instruct HEI to electronically debit a regular amount from
a checking or savings account. HEI can also deposit dividends
automatically to your checking or savings account. A prospectus
describing the plan may be obtained through HEI’s website or by
contacting Shareholder Services.
Annual Meeting
Tuesday, May 5, 2020 at 10:00 a.m. Please direct inquiries to:
American Savings Bank Tower
1001 Bishop Street
8th Floor, Room 805
Honolulu, Hawai‘i 96813
Kurt K. Murao
Executive Vice President,
General Counsel, Chief
Administrative Officer
and Corporate Secretary
Telephone: 808-543-5884
Facsimile: 808-203-1992
To protect the health and safety of our shareholders, the 2020 annual
meeting will be held virtually rather than in person. Please refer to our
proxy statement for details on how to participate.
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
999 Bishop Street, Suite 2700
Honolulu, Hawai‘i 96813
Telephone: 808-543-0700
Facsimile: 855-214-5030
Dividends and Distributions
Common stock quarterly dividends are customarily paid on or
about the 10th of March, June, September, and December to
shareholders of record on the dividend record date.
Utility company preferred stock quarterly dividends are paid on the
15th of January, April, July, and October to preferred shareholders of
record on the 5th of these months.
Institutional Investor and Securities
Analyst Inquiries
Please direct inquiries to:
Julie R. Smolinski
Director, Investor Relations & Strategic Planning
Telephone: 808-543-7300
Facsimile: 808-695-3201
E-mail: ir@hei.com
Transfer Agent
Common stock and utility company preferred stock:
Shareholder Services
c/o Broadridge Corporate Issuer Solutions
To minimize our environmental
impact, this report was printed
on paper containing fibers from
socially and environmentally
responsible forestry products.
To learn more, please visit us at
www.hei.com