*
Years ended December 31
(in millions, except per share amounts)
2021
2020
2019
Operating income1
$
386
$
311
$
348
Net income (loss) for common stock by segment
Electric utility
Bank1
Other
Net income for common stock1
Diluted earnings per common share1
178
101
(33 )
246
2.25
169
58
(29 )
198
1.81
157
89
(28 )
218
1.99
Return on average common equity1
10.4 %
8.6 %
9.8 %
Dividends per common share
1.36
1.32
1.28
Annual dividend yield2
3.3 %
3.7 %
2.7 %
Common shares (in millions)
December 31
Weighted-average — basic
Weighted-average — diluted
109.3
109.3
109.6
109.2
109.1
109.4
109.0
108.9
109.4
HEI
S&P 500
Index
Edison
Electric
Institute (EEI)
Index
KBW
Regional
Banking
Index
2021
21.3
28.7
17.1
36.6
3-Year
24.9
100.4
45.6
54.4
5-Year
48.7
133.4
68.6
29.7
10-Year
132.3
362.6
183.0
225.2
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Acting on Climate Change and Advancing
Energy Independence
The HEI family of companies is uniquely positioned to
advance Hawai‘i’s energy independence and statewide
response to the global climate crisis. As providers of critical
infrastructure and services, our companies play essential
roles in transitioning Hawai‘i away from fossil fuels and
toward a net-zero economy. Our utility, Hawaiian Electric,
anchors these efforts, as it works to directly decarbonize
Hawai‘i’s power and ground transportation sectors while
enhancing the resilience of our grid and our communities
to the impacts of climate change. In addition to advancing
economic development and affordability, our bank, American
Savings Bank, is helping address climate change by providing
financing for customers to invest in clean energy and
resilience projects and by improving sustainability across
its banking operations. Our infrastructure investment platform,
Pacific Current, invests in innovative projects to help Hawai‘i
achieve its climate ambitions and a more sustainable future.
We have already made tremendous progress on our plans
to replace fossil fuels with renewable generation. Buoyed
by a full year of geothermal production and an increase in
private rooftop solar, Hawaiian Electric achieved a consolidated
renewable portfolio standard (RPS) of 38.4% in 2021, up
from 34.5% the year before. This puts us well ahead of
schedule to achieve Hawai‘i’s statutory goal of 40% RPS by
2030. We have reduced the use of oil for power generation
by 113 million gallons, or 25%, since 2008, helping keep
electricity rates in check and reducing customer bill volatility.
Over the past decade, Hawaiian Electric has nearly quadrupled
the amount of renewable energy on its system. And together
with our customers, in 2021 we reached over 1 gigawatt
(GW) of installed solar capacity, most of it customer-owned.
This is a major milestone considering the peak load of our
five-island system is approximately 1.6 GW.
In 2021 Hawaiian Electric also committed to reducing
carbon emissions from power generation1 to 70% below
2005 levels by 2030 and to achieving or exceeding net-
zero carbon emissions from power generation2 by 2045.
We view it as our kuleana (responsibility) to set ambitious
climate goals and plans, and by doing so, to inspire and
enable other sectors of the economy to take action to
reduce carbon emissions.
Hawaiian Electric will achieve its 2030 goal by adding at
least one more gigawatt of renewable energy capacity by
the end of the current decade, adding 50,000 rooftop solar
systems to the 93,000 already on our system, using more
grid-scale and customer-owned energy storage, retiring
and reducing the use of fossil fuel generating units and
ending the use of coal in Hawai‘i in September 2022 when
our contract with the third-party owned coal plant expires.
To reach our 2045 net-zero goal, we’ll also need to pursue
emerging technologies along with cost-effective, low- or
zero-emission fuels like biofuels and green hydrogen.
1 Applies to greenhouse gases (GHGs) in stack emissions from utility-owned generation and from
independent power producer generation on Hawaiian Electric’s system.
2
2 See footnote 1.
The Hawaiian Electric Declaration presents our aspiration that
by 2025, Hawaiian Electric shall be one of the most progressive
and highest-performing companies in the world, serving the
energy needs of each person in Hawai‘i with purpose, compassion,
empathy and aloha for each other and the natural environment.
This declaration is intended to drive us to higher levels of
achievement, guiding our daily decisions and actions as we build
a sustainable Hawai‘i in which our children and grandchildren,
our communities, our customers and our fellow employees will
thrive together.
Hawaiian Electric’s Ambition
Most Progressive and
Forward-Thinking
Energy Company in
the World
Highest Performance
in Customer Service,
Operational Excellence,
and Financial Results
Human-Centered
Internally and
Community-
Centered Externally
malama
hawai‘i
A Company of and for
Hawai‘i, Relentlessly
Dedicated to Serving
the People and Caring for
its Environment
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SUSTAINABLE
HAWAI‘I
2022 Environmental | Social | Governance Report
ESG. At HEI, environmental, social and
gove r nance (ESG) pr inciple s and
sustainability have long been fundamental
values, so much so that we’ve often said
that ESG is in our DNA. We’re committed
to transparency and providing information
to allow customers, community leaders,
investors and other stakeholders to
understand how our strategies and
operations advance our ESG objectives.
To read our ESG report, visit hei.com/esg.
“Life’s most persistent and
urgent question is, ‘What are
you doing for others?’”
–Dr. Martin Luther King, Jr.
HEI Foundation Report
2021
CATALYST
To learn more,
please visit us at
hei.com/foundation
Please be kind to the
environment and recycle.
3
“Hawaiian Electric strives to be one of the most progressive and highest performing
companies in the world, serving the energy needs of each person in Hawai‘i with purpose,
compassion, empathy, and aloha for our fellow humans and our natural environment.”
Hawaiian Electric
In 2021, Hawaiian Electric worked hard to harness cost
efficiencies, enabling it to deliver strong financial results while
providing significant customer savings and advancing our
ambitious climate action plan. We also made significant progress
on our 2021-2025 strategic plan, which centers on three pillars
– creating customer value, strengthening our foundation and
building a stronger Hawai‘i:
• We delivered $8 million in customer savings from cost
efficiencies, and supported customers who faced financial
challenges during the pandemic. We accomplished the latter
through bill relief programs – including a $2 million bill credit
program and extended and deferred payment plans – and by
facilitating customer use of government assistance.
• In June 2021 we successfully transitioned to the new
performance-based regulation (PBR) framework, which we
worked with the Public Utilities Commission and numerous
stakeholders to create. Our focus now is on continued execution
under PBR to increase operational efficiencies, improve
customer experience and advance clean energy initiatives.
Shelee M. T. Kimura
Hawaiian Electric
President and CEO
• We launched programs giving customers more options to
benefit from the clean energy transition, including Battery
Bonus to incentivize customer-owned energy storage and
Quick Connect to enable customers to interconnect solar and
battery systems to the grid faster. This work also helped us
earn a financial reward under PBR – a win-win-win for our
company, our customers and our efforts to reduce fossil fuel
usage and address climate change.
• In recognition of the critical importance of our workforce and
culture, we implemented new leadership development
programs, continued to promote equity and inclusion within
our diverse employee base, and successfully concluded
negotiations with our union, leading to ratification of a new
three-year contract.
• We showed continued climate leadership, committing to the
ambitious carbon reduction goals discussed earlier in this letter.
• We made great strides in our electrification of transportation
strategy, which is crucial to reducing fossil fuel usage, greenhouse
gas emissions and the per-unit cost of energy for customers. Our
e-bus make-ready and commercial electric vehicle (EV) charging
rate pilot programs have now been approved. We also filed an
application to dramatically expand our public EV charging network.
On January 1, 2022, Shelee Kimura became Hawaiian Electric’s
first female president and CEO. Since joining Hawaiian Electric
in 2014, Kimura has held numerous senior leadership positions
in the company, including senior vice president for customer
service and public affairs and senior vice president for business
development and strategy. Kimura was instrumental in developing
Hawaiian Electric’s 2015-2020 transformation strategy, which
helped guide the leap from a traditional utility model to a
transformative clean energy leader in the industry. Prior to joining
Hawaiian Electric, Kimura spent 10 years at HEI, leading corporate
finance and investments, investor relations and strategic planning.
Kimura was born and raised in Hawai‘i, and is the mother of
three children.
4
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38.4%
1,019 MW
RENEWABLE PORTFOLIO STANDARD (RPS)
TOTAL SOLAR CAPACITY
21%
OF RESIDENTIAL CUSTOMERS
WITH ROOFTOP SOLAR
37%
OAHU SINGLE-FAMILY HOMES
WITH ROOFTOP SOLAR
91%
OF NEW ROOFTOP SOLAR INSTALLED
IN 2021 WITH BATTERY STORAGE
99.98%
RELIABILITY
Average service availability
Information as of December 2021 unless otherwise indicated.
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“As I reflect on the last two years, I am extremely proud of the way American Savings Bank
“As I reflect on the last two years, I am extremely proud of the way American Savings Bank
teammates stepped up to tackle the challenges presented by the pandemic while navigating
teammates stepped up to tackle the challenges presented by the pandemic while navigating
the numerous other issues that transpired. It’s never been clearer that everything we do at
the numerous other issues that transpired. It’s never been clearer that everything we do at
ASB stems from the deep care we feel for our customers, community and each other.”
Ann C. Teranishi
American Savings Bank
President and CEO
American Savings Bank
American Savings Bank has performed very well through the
pandemic, demonstrating the value of its conservative
management approach, strong credit quality, and low-cost
funding base. It continues to produce solid earnings that provide
efficient capital to support our consolidated, investment-grade
capital structure and growing dividends to HEI shareholders.
American Savings Bank’s 2021 results reflected improved credit
quality in Hawai‘i’s recovering economy, growth in the bank’s
earning assets (loans and investments), and fees we earned
from supporting customers with Paycheck Protection Program
(PPP) loans.
The bank’s solid financial performance in 2021 was matched with
robust execution on a number of strategies and key initiatives:
• Customers’ reliance on online and other self-service options
grew dramatically through the pandemic. While ASB had already
embarked on an ambitious digital transformation, we accelerated
our efforts to support the shift in customer digital adoption.
We completed our ATM re-fleet, expanded online and mobile
options for our customers and opened four new digital centers
– the first of their kind in Hawai‘i – all to make banking easy
anytime, anywhere. In our digital centers, customers are assisted
in-person and virtually as they learn about digital banking
solutions, while continuing to receive the warm and responsive
service they expect from ASB.
• Supporting Hawai‘i’s economy and affordability for those who
live here continued to be a central focus for ASB in 2021:
- We implemented the second and third rounds of PPP loans,
deploying $551 million in PPP funding to support businesses
and their employees since 2020, achieved mortgage
production volume of $1.2 billion – on par with our record in
2020 – and grew our commercial real estate loan portfolio,
all of which support our local economy.
- We’re proud of our teammates’ efforts to build on the
momentum from 2020 and once again lead the Hawai‘i
Restaurant Card – Business Holiday Card program. The
statewide campaign resulted in the sale of 14,000 cards,
totaling over $750,000, in direct support of our restaurant
and food supply industries.
- We also launched the ASB Financial Education program – a
comprehensive online resource center featuring helpful
information on debt management, budgeting, credit scores
and other topics. In addition, our knowledgeable bank
teammates regularly host seminars on financial topics, such
as purchasing a home, saving and investing, managing credit,
planning for retirement, insuring against losses and preventing
fraud. They also speak on personal financial responsibility and
entrepreneurship at local schools and youth organizations.
In May of 2021, Ann Teranishi was promoted to become American Savings Bank’s
president and CEO. As the bank’s former executive vice president of operations,
Teranishi was responsible for delivering operational improvements to enhance overall
customer experience. She played a key role in transitioning ASB from more traditional
branch-centric operations to online and other self-service options, which have
become increasingly popular with customers during the pandemic. Teranishi was
also responsible for developing an enterprise-wide compliance program, leading
the retail credit team to best-in-class fulfillment times for consumer loans, and
heading strategic initiatives to enhance ASB’s quality of customer service. Teranishi
was born and raised in Hawai‘i, and is the mother of two children.
6
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Pacific Current
Pacific Current made steady progress in its mission to accelerate
Hawai‘i’s sustainable future by supporting and developing
projects that advance the state’s ambitious environmental and
economic goals. In 2021 Pacific Current continued to evaluate
additional opportunities to grow its portfolio of sustainable
infrastructure facilities, increased deployment of EverCharge
electric vehicle charging systems to accelerate electrification
of transportation in Hawai‘i, and made its first investment in the
water sector with a small water-energy purchase agreement
project. These efforts help to keep money in the state by investing
local capital into local projects and local communities. In addition,
Pacific Current helps build Hawai‘i’s talent base by partnering
with and promoting local companies participating in the
sustainable infrastructure transition.
Honoring Our Past, Building Our Future
As we review the milestones of the last year and look toward
the future, we honor Connie Lau, who served the HEI companies
for 37 years before retiring at the end of 2021. Under Connie’s
leadership, American Savings Bank went from a thrift to a full-
service community bank that is consistently ranked among
Hawai‘i’s best places to work, Hawaiian Electric has become
a recognized leader in transitioning off fossil fuels and reducing
carbon emissions, and Pacific Current was established to help
realize a sustainable future for Hawai‘i.
In partnership with our Board, Connie cultivated leadership
throughout our companies – creating opportunities for many
to develop their talents and strengthen our businesses in the
process. I am a beneficiary of this initiative, and am honored
to count among my colleagues Shelee Kimura, who in 2022
succeeded me as president and CEO of Hawaiian Electric, and
Ann Teranishi, who in 2021 was appointed president and CEO
of American Savings Bank. Together with our 3,600 fellow
employees, we’re grateful to Connie for her leadership and
long-standing service to our companies and Hawai‘i.
Forward Thinking, Forward Acting
We’re committed to doing our part to build a future for Hawai‘i
that is economically, environmentally and socially sustainable.
We’re acutely aware that continued success will require
teamwork, discipline, imagination and thoughtful action as we
meet the challenges that lie ahead.
On behalf of our employees, our leadership and our Board, I
wish to thank you, our shareholders, for your confidence and
support of the important work we are doing. Together with you,
and through the integrated efforts of our companies, we will
achieve our aim to put Hawai‘i at the forefront of clean energy,
to create a sustainable and growing local economy, and to
empower our families and communities to flourish.
Me ke aloha pumehana – with warm regards,
Scott W. H. Seu
HEI President and
Chief Executive Officer
From everyone at HEI, mahalo Connie for your leadership.
Connie Lau joined the HEI family of companies in 1984 and held the top post at HEI from 2006 to
2021. She served as president and CEO of American Savings Bank from 2001 to 2008, and prior to
that, held key leadership positions at HEI and Hawaiian Electric.
Her career with HEI and its subsidiaries spanned numerous leadership roles and included spearheading
key initiatives that transformed the companies. In 2008, she signed the agreement with the governor
and other leaders that set the course for Hawaiian Electric’s clean energy transition as part of the
Hawai‘i Clean Energy Initiative. She also led the transformation of American Savings Bank from a thrift
institution to a full-service community bank that is now the third largest bank in the state.
8
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Hawaiian Electric Industries, Inc.
2021 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, 2021
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
Hawaiian Electric Industries, Inc.
☒
Hawaiian Electric Company, Inc.
☐
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, 2021
Number of shares of common stock
outstanding of the registrants as of
June 30, 2021
February 11, 2022
Hawaiian Electric Industries, Inc.
(Without Par Value)
Hawaiian Electric Company, Inc.
($6-2/3 Par Value)
$4,621,670,518
109,311,034
109,311,785
None
17,324,376
17,753,533
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 2022 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
[Reserved]
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 9C
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
ii
v
1
20
34
34
34
34
35
36
36
37
77
80
179
179
180
180
180
181
182
182
183
183
183
195
i
Defined below are certain terms used in this report:
GLOSSARY OF TERMS
Terms
ABO
ACL
AES Hawaii
AFS
AFUDC
AOCI
APBO
ARA
ARO
ASB
ASB Hawaii
ASC
ASU
Btu
CARES Act
CBRE
CERCLA
Company
Consolidated Financial
Statements
Definitions
Accumulated benefit obligation
Allowance for credit losses as determined under the credit loss standard (ASU No. 2016-13, adopted by
the Company on January 1, 2020), 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)
AES Hawaii, Inc.
Available-for-sale
Allowance for funds used during construction
Accumulated other comprehensive income (loss)
Accumulated postretirement benefit obligation
Annual revenue adjustment
Asset retirement obligations
American Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii Inc.
ASB Hawaii, 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
The Coronavirus Aid, Relief, and Economic Security Act enacted March 27, 2020
Community-based renewable energy
Comprehensive Environmental Response, Compensation and Liability Act
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 (listed under Pacific Current); and The Old Oahu Tug Service, Inc. .
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
D&O
DBF
DER
Dodd-Frank Act
DOH
DRAC
DRIP
DSM
ECRC
EIP
EPA
EPRM
EPS
ERISA
ERL
ERP/EAM
ESG
ESM
Exchange Act
FASB
FDIC
Decision and order from the PUC
State of Hawaii Department of Budget and Finance
Distributed energy resources
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
State of Hawaii Department of Health
Demand response adjustment clause
HEI Dividend Reinvestment and Stock Purchase Plan
Demand side management
Energy cost recovery clause
2010 Equity and Incentive Plan, as amended
Environmental Protection Agency - federal
Exceptional Project Recovery Mechanism
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 & Governance
Earnings Sharing Mechanism
Securities Exchange Act of 1934
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
ii
Terms
Definitions
GLOSSARY OF TERMS (continued)
federal
FERC
FHLB
FHLMC
FICO
Fitch
FNMA
FRB
GAAP
GHG
GNMA
Gramm Act
Hamakua Energy
Hawaii Electric Light
Hawaiian Electric
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
Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.
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 and
Renewable Hawaii, Inc. Uluwehiokama Biofuels Corp. was dissolved effective as of July 14, 2020
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
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.
HEI’s 2022 Proxy Statement
Selected sections of Proxy Statement for the 2022 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, 2021, 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
Ka‘ie‘ie Waho
Kalaeloa
kW
kWh
LSFO
LTIP
Maui Electric
Mauo
MBtu
MD&A
Moody’s
MPIR
MSR
MW
MWh
NA
NII
NPBC
NPPC
O&M
OCC
OPEB
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
Ka‘ie‘ie Waho Company, LLC, a subsidiary of Pacific Current
Kalaeloa Partners, L.P.
Kilowatt/s (as applicable)
Kilowatt-hour/s (as applicable)
Low sulfur fuel oil
Long-term incentive plan
Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
Mauo, LLC, a subsidiary of Pacific Current
Million British thermal unit
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Moody’s Investors Service’s
Major Project Interim Recovery
Mortgage servicing right
Megawatt/s (as applicable)
Megawatt-hour/s (as applicable)
Not applicable
Net interest income
Net periodic benefits costs
Net periodic pension costs
Other operation and maintenance
Office of the Comptroller of the Currency
Postretirement benefits other than pensions
iii
Terms
Definitions
GLOSSARY OF TERMS (continued)
OTS
Pacific Current
PBO
PBR
PCB
PGV
PIMs
PPA
PPAC
PUC
PURPA
PV
QF
QTL
RAM
RBA
Registrant
REIP
RFP
RHI
ROACE
RORB
RPS
S&P
SEC
See
SLHCs
SPRBs
SSM
state
Tax Act
TDR
TOOTS
ULSD
Utilities
VIE
Office of Thrift Supervision, Department of Treasury
Pacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings,
LLC, Mauo, LLC, Alenuihaha Developments, LLC, Ka‘ie‘ie Waho Company, LLC, Ka‘aipua‘a, LLC,
Upena, LLC and Mahipapa, LLC
Projected benefit obligation
Performance-based regulation
Polychlorinated biphenyls
Puna Geothermal Venture
Performance incentive mechanisms
Power purchase agreement
Purchased power adjustment clause
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
Revenue 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 average common equity
Return on rate base
Renewable portfolio standards
S&P Global Ratings
Securities and Exchange Commission
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
Special Purpose Revenue Bonds
Shared Savings Mechanism
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)
Troubled debt restructuring
The Old Oahu Tug Service, Inc., a wholly-owned inactive subsidiary of Hawaiian Electric Industries, Inc.
Ultra-low sulfur diesel
Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company,
Limited
Variable interest entity
iv
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 and actual results and financial condition may differ materially from those
indicated in the forward-looking statements.
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’ ability 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; the potential
impacts of global and local developments (including global economic conditions and uncertainties, unrest, terrorist acts, wars,
conflicts, political protests, deadly virus epidemic or other crisis); the effects of changes that have or may occur in U.S. policy,
such as with respect to immigration and trade; and pandemics;
• the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity and any recurrence of the
COVID-19 pandemic due to new variants or insufficient vaccinations, the duration and scope of related government orders and
restrictions, the impact on our employees, customers and suppliers, and the impact of the COVID-19 pandemic on the overall
demand or ability to pay for the Company’s goods and services, all of which could be affected by the pace of distribution,
administration, and efficacy of COVID-19 vaccines over the short- and long-term, as well as the proportion of the population
vaccinated;
• ability to adequately address risks and capitalize on opportunities related to our environmental, social and governance (ESG)
priority areas, which currently include decarbonization, economic health and affordability, reliability and resilience, secure
digitalization, diversity, equity and inclusion, employee engagement, and climate-related risks and opportunities;
• citizen activism, including civil unrest, especially in times of severe economic depression and social divisiveness, which could
negatively impact customers and employees, impair the ability of the Company and the Utilities to operate and maintain their
facilities in an effective and safe manner, and citizen or stakeholder activism that could delay the construction, increase project
costs or preclude the completion, of third-party or Utility projects that are required to meet electricity demand, resilience and
reliability objectives and renewable portfolio standards (RPS) and other climate-related goals;
• 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, energy and environmental policy, and other policy and
regulatory changes advanced or proposed by President Biden 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 resilience and reliability and cost of 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, which could result in lower portfolio
yields and net interest margin, or higher borrowing costs;
• 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 potential higher 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 and mortality improvements;
• 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 Economic Growth, Regulatory Relief and Consumer Protection Act which became Public Law No.: 115-174 on
May 24, 2018, and its associated rules and regulations;
• increasing competition in the banking industry from traditional financial institutions as well as from non-traditional providers of
financial services, including financial service subsidiaries of commercial and manufacturing companies (e.g., increased price
v
competition for deposits, or an outflow of deposits to alternative investments or platforms, 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 RPS and other climate-related goals; the impacts of implementation of the
renewable energy proposals on future costs of electricity and potential penalties imposed by the PUC for delays in the
commercial operations of renewable energy projects;
• 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;
• the ability of the Utilities to recover undepreciated cost of fossil fuel generating units, if they are required to be retired before the
end of their expected useful life;
• 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, 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), annual revenue adjustment (ARA) 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
kilowatt-hour sales;
• the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by the
annual revenue adjustment (ARA), while providing the customer dividend required by performance-based regulation (PBR);
• the ability of the Utilities to achieve performance incentive goals currently in place;
• the impact from the PUC’s implementation of PBR 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 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;
• 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, including use of
digital currencies, which could include a central bank digital currency;
• cybersecurity risks and the potential for cyber incidents, including potential incidents at HEI, its third-party vendors, and its
subsidiaries (including at ASB branches, electric utility plants and IPP-owned facilities) 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 remaining cost savings commitment related to the management audit committed savings of $33 million over
the 2021 to 2025 multi-year rate period (MRP);
• 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 and tax rates, 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 pricing or “cap and trade” legislation that may
fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
vi
• 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 related to PBR or other regulatory changes, the effects of potentially
required consolidation of variable interest entities (VIEs), or required 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 a decrease in net interest income and portfolio yields, 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 credit losses, allowance for credit losses (ACL) and charge-offs;
• 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), and the risks associated with the operation of transmission and
distribution assets and power generation facilities, including public and employee safety issues, and assets causing or
contributing to wildfires;
• 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, which has increased due to the impact from the
COVID-19 pandemic; 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 non-regulated renewable/sustainable infrastructure businesses operating in the State of Hawaii. 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. See also “Electric utility” section below.
Bank. ASB is one of the largest financial institutions in the State of Hawaii (based on total assets), with assets totaling
approximately $9.2 billion as of December 31, 2021. ASB provides a wide array of banking and other financial services to
Hawaii 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), 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.
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.
In October 2021, Pacific Current requested informal guidance from the PUC regarding application of the affiliate
transaction requirements (ATRs) to certain investments. In response, in January 2022, the PUC issued guidance (Order No.
38186, Docket No. 2018-0065) providing that, if Pacific Current acquires or invests in an unaffiliated entity that has been
awarded a power purchase agreement with the Utilities through the Stage 1 or 2 RFPs, such entity would become an “Affiliate”
1
or “Affiliate-Related Entity” under the ATRs, and any wholesale power transactions between the entity and the Utilities,
including under the awarded power purchase agreement, would require PUC review and approval. Such a requirement may
impact Pacific Current’s competitiveness in acquiring and investing in new utility-scale projects in the Utilities’ service
territory and thereby impact the pace and extent of Pacific Current’s growth. Pacific Current is still reviewing the guidance and
has not yet determined its impact.
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 2021; 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.
Human Capital Resources.
Employees. The Company had total and full-time employees as follows:
December 31
2021
2020
2019
HEI and Pacific Current
Hawaiian Electric and its subsidiaries
ASB
Total
employees
49
2,504
1,096
3,649
Full-time
employees
49
2,469
1,079
3,597
Total
employees
49
2,636
1,084
3,769
Full-time
employees
49
2,579
1,064
3,692
Total
employees
50
2,720
1,139
3,909
Full-time
employees
50
2,675
1,111
3,836
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, 2024.
Diversity & inclusion. The diversity of the Company’s workforce, which includes diversity of people, backgrounds,
experiences, thoughts and perspectives, gives the Company an advantage that helps guide the Company’s decision-making and
its ability to meet its customers’ and community’s needs. Additionally, because the Company’s businesses operate exclusively
in Hawaii, which is one of the most racially diverse states in the U.S., the Company believes it is important that its workforce
reflects this diversity. The diversity information that follows is based on total employees, including employees on long-term
leave, part-time employees and temporary employees.
2
Diversity representation
HEI5
Hawaiian Electric
ASB
Female
33.3%
81.8%
67.3%
Racially
diverse1
55.6%
72.7%
83.7%
Female
40.0%
28.3%
28.7%
Racially
diverse1
66.7%
84.5%
90.3%
Executives2
Leaders3
All workforce4
1 Racially diverse defined as all races/ethnicities that are not ‘White’ (as defined by the EEO-1 categories)
2 Executives includes EE0-1 category 1.1-Executive/Sr. Level Officials
3 Leaders includes EE0-1 category 1.2-First/Mid-Level Officials
4 All Workforce includes EE0-1 categories 1.1-Executive/Sr. Level Officials, 1.2-First/ Mid-Level Officials, 2-Professionals, 3-Technicians,
4-Sales Workers, 5-Administrative Support Workers, 6-Craft Workers, 7-Operatives, 8-Laborers and Helpers, 9-Service Workers
5 Includes Pacific Current employees
Racially
diverse1
80.0%
82.2%
89.0%
Female
40.0%
64.3%
66.0%
Racial composition
White
Asian
Black
Hispanic
Native Hawaiian or other Pacific Islander
American Indian or Alaska Native
Hawaii1
21.5%
38.1%
1.8%
10.7%
9.9%
0.2%
HEI2
16.3%
57.1%
2.0%
2.0%
6.1%
2.0%
Diversity-All workforce
Hawaiian Electric
9.7%
52.8%
0.5%
4.6%
10.6%
0.3%
ASB
11.0%
58.9%
1.1%
4.7%
14.2%
0.3%
9.8%
Two or more races
1 Source: 2019 U.S. Census Bureau American Community Survey-Data Profile. While 2020 experimental estimates (pandemic-related) were
17.8%
21.5%
14.5%
available at the time of analysis, 2019 data was used to maintain consistency with previous analyses. U.S. Census Bureau guidance
recommends against comparing 2020 experimental estimates with standard estimates.
2 Includes Pacific Current employees
Employee development & training. In order to meet the changing demands of the industries in which the Company
operates, address the needs of the Company's stakeholders, and design and carry out the Company's strategies, it is crucial for
the Company’s workforce to be highly skilled in their areas of focus. As such, the Company prioritizes specific skill
enhancement training as well as industry and leadership development programs.
Hawaiian Electric. Hawaiian Electric offers Hawaiian Electric and HEI holding company employees skills and
professional training programs, including leadership development courses, employee development courses, technical training,
apprenticeship programs, operational, environmental compliance, cybersecurity awareness and required safety training.
Hawaiian Electric also offers tailored leadership development programs, including supervisor training to transition new
supervisors to critical operational, administrative, and leadership roles as well as leadership and employee assessments geared
to improve productivity and effectiveness in the workplace. Leadership development metrics are included in executive and
management incentive plans. Learning and development initiatives are integrated with annual performance evaluations to
reinforce development as integral parts of individual performance goals. Annual succession planning ensures the identification
and development of successors, high potential individuals, and nurtures a leadership pipeline.
ASB. ASB invests in continuous training and development of its employees. Curriculum includes technical banker
training programs that cover all aspects of banking laws, banking operations, new product and service offerings, legal and
regulatory compliance and company procedures and ethics. The Bank delivers company-wide financial education, empowering
its employees to make wise personal decisions to help meet their financial goals and provide valuable customer guidance. ASB
offers opportunities for all employees to grow and build their careers, through a multitude of soft skills training and leadership
programs, including Leadership Forums, Trust, Emotional Intelligence, Embracing and Driving Change, Diversity and
Inclusion, and Respect in the Workplace. ASB further invests in leadership development through their leadership cohort
programs, designed to help employees grow professionally and personally, enhance their leadership skills, and broaden their
understanding of the banking industry. These include Rise, a 6-month development experience for mid-level managers, and
Leadership Academy, a robust 12-15 month program for well-established leaders. Offerings are delivered in online, instructor-
led, and on-the-job learning formats. ASB’s focus on meaningful growth and development opportunities positions the Bank to
recruit and retain top talent.
Safety and health. As a key priority, the Company strives to create workplace environments where employees feel
physically and emotionally safe. For the Utility, safety is of paramount importance due to the inherent risks involved in certain
aspects of its operations and the critical importance to the State of Hawaii of maintaining the electrical grid. During the
3
COVID-19 pandemic, the Company has continued to modify its operations and policies to align with guidance from the Centers
of Disease Control and Prevention and the Hawaii Department of Health. The Company also monitors the rates of infection
within the state and makes adjustments, accordingly, to limit the risk of transmission in the workplace and ensure the health of
the Company’s employees.
Hawaiian Electric. Hawaiian Electric is committed to maintaining a strong safety culture. Due to the nature of its
operations, safety is of paramount importance. Management strives to provide visible leadership and strategic direction for the
health and safety management system and programs in their area of responsibility. This leadership and direction help to build
and maintain a strong safety culture and drive safety improvement, allocates adequate resources to enable implementation of
safety programs and holds leaders accountable for the implementation of safety programs and resulting health and safety
performance. Executive compensation is tied to achievement of quantified severity and total case incident rate targets (TCIR).
These targets reward improvements in workplace safety, promote employee well-being, and reduce expenses. Hawaiian Electric
promotes a safety culture that aims for zero incidents through all employees taking ownership of safety for themselves, their co-
workers, contractors, and the public. More information on such targets is available in HEI’s annual proxy statement. Hawaiian
Electric also provides a variety of programs and benefits that support employee physical, financial and emotional well-being.
These programs include access to fitness and yoga classes, online corporate wellness activities and education, gym and group
fitness discounts, and financial well-being classes.
ASB. ASB is committed to supporting the continued health and safety of its employees through a wellness program
which takes a holistic approach to improving the health and well-being of its employees by focusing on all aspects of wellness
including nutrition, fitness, mindfulness and finances. ASB also encourages participation in the program through its annual
bank-wide step and weight loss challenges and community charity walks. ASB also offers outdoor and virtual fitness classes,
including high intensity interval training and yoga. ASB’s employees can also participate in a program which allows employees
to enjoy national fitness center chains or workout in their homes at a reduced price. To further support ASB’s employees’ well-
being, ASB rewards everyone who completes an annual preventative health screening with a Wellness Holiday, offers a robust
employee assistance program, and provides many family friendly benefits, including generous and gender-neutral parental
leave.
Workforce Stability. The Company’s employees are its greatest asset and the Company strives to create a highly desirable
place to work.
Hawaiian Electric. Hawaiian Electric seeks to provide compensation and benefits that are comprehensive, market-
competitive, and internally equitable to attract, engage, and retain highly skilled employees. Hawaiian Electric believes that
employee engagement is key to creating a desirable, inclusive, rewarding place to work and conducts employee engagement
surveys on a regular cycle, and, more recently, change management surveys to assess and support the organizations’
adaptability to change. Hawaiian Electric is expanding its strategic workforce planning initiative to build its workforce to
support future transformation plans.
ASB. ASB seeks to attract, develop, and retain high performers who not only excel at their jobs but who also align
with ASB’s priorities and objectives. ASB strives to provide competitive pay and benefits and an award-winning culture that
attracts top talent. ASB regularly conducts anonymous employee surveys to gather feedback on their work experience. Topics
covered include confidence in company leadership, career growth opportunities, diversity and inclusion, and suggestions on
how to create a great place to work. Survey results are shared with leaders, who prioritize actions and activities in response to
feedback to drive meaningful improvements in employee engagement. ASB’s talent management process is integrated into its
business process and its human capital management strategy is part of its business strategy. ASB’s investment in creating a
great place to work and innovative, inclusive programs have resulted in it being recognized both locally and nationally for its
workplace culture.
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 (Hamakua Energy), an indirect wholly owned subsidiary of Pacific Current, which is included in
the “Other” segment, owns a 60-MW dual-train combined-cycle facility and 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. Ka‘ie‘ie Waho Company, LLC (Ka‘ie‘ie Waho), a
wholly owned subsidiary of Pacific Current, owns a 6-MW solar photovoltaic facility located on approximately 20 acres on the
southern coast of the island of Kauai.
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.
4
In 2021, 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 88% and 86% in 2020 and approximately 89% and 72% in
2019, respectively.
The islands of Oahu, Hawaii, Maui, Lanai and Molokai have a combined population estimated at 1.3 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. In November 2020, the PUC approved Hawaiian Electric’s acquisition of the electric distribution systems serving
12 U.S. Army installations on Oahu, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort
Shafter and Army housing areas.
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.
Climate change action plan. The Utilities have set an aggressive goal to cut carbon emissions from power generation 70% by
2030, compared with 2005 levels. The emissions covered by this goal include stack emissions from generation owned by
Hawaiian Electric and independent power producers (IPPs) who sell electricity to the Utilities. In addition, the Utilities have
committed to achieving net zero carbon emissions from power generation by 2045 or sooner. These commitments are aligned
with the Intergovernmental Panel on Climate Change recommendation of no more than 1.5°C average global warming to avoid
potentially devastating climate events.
Key elements of the 2030 plan to reduce emissions include:
• The closing of the state’s last coal plant in 2022 upon expiry of the PPA
• Adding nearly 50,000 rooftop solar systems, more than a 50% increase, compared to the approximately 90,000 systems
online in 2021
• Retiring at least six fossil-fueled generating units and significantly reducing the use of others as new renewable
resources come online
• Adding additional renewable energy projects capable of generating a total of at least 1 gigawatt beyond resources in
place in 2021, including shared solar (community-based renewable energy)
• Using more grid-scale and customer-owned energy storage
• Expanding geothermal resources
• Creating innovative programs that provide customers incentives for using clean, lower-cost energy at certain times of
the day and using less fossil-fueled energy at night
By 2030, Hawaiian Electric’s renewable portfolio standard is expected to exceed 70%, with renewable resources available
to provide close to 100% of the electricity generated on Hawaii Island and in Maui County. Achieving the 70% carbon
emissions reduction by 2030 is highly dependent on the successful completion of renewable IPP projects under Phase 1, Phase
2 and other RFPs.
After 2030, progress on elimination of carbon from power generation assumes continued use of proven resources,
including wind, solar, geothermal, hydroelectric, biofuels and energy storage, along with the development of new technologies.
Those technologies may include offshore wind, green hydrogen, wave energy and carbon-capture—all currently under
development around the world—as well as other solutions that will emerge. A diverse portfolio of resources will also enhance
resilience to climate-related events.
5
Sales of electricity.
Years ended December 31
2021
2020
2019
(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
308,721 $
1,772,183
307,378 $
1,592,463
306,368 $
1,784,982
88,103
73,788
375,775
359,648
87,357
73,304
329,195
317,872
86,576
72,522
360,019
372,034
470,612 $
2,507,606
468,039 $
2,239,530
465,466 $
2,517,035
Regulatory mechanisms. Base electric rates are set in rate cases, and on April 29, 2020, the PUC issued an order
terminating the mandatory triennial rate case cycle in anticipation of the performance-based regulation framework (PBR
Framework). The regulatory framework in effect in 2020 included 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 kilowatt-
hour (kWh) sales, which declined measured on an annual basis from 2008 to 2018, as privately-owned distributed energy
resources have been added to the grid and energy efficiency measures have been put into place.
On December 23, 2020, the PUC issued a D&O in Phase 2 of the PBR proceeding, establishing a new PBR Framework for
the Utilities. The PBR Framework includes, among other matters, a five-year multi-year rate plan with an index-driven annual
revenue adjustment (ARA), which replaces the RAM, modification of the MPIR mechanism (renamed Exceptional Project
Recovery Mechanism (EPRM)) to include deferred and operation and maintenance (O&M) expense projects and to permit the
Utilities to include the full amount of approved costs in the EPRM for recovery in the first year the project goes into service,
pro-rated for the portion of the year the project is in service, and continuation of (i) the revenue balancing account, (ii) the
pension and other postretirement benefit tracking mechanisms, and (iii) energy cost recovery clause, purchased power
adjustment clause, and other recovery mechanisms. See “Commitments and contingencies-Regulatory proceedings-
Performance-based regulation framework” in Note 3 of the Consolidated Financial Statements.
6
A summary of these regulatory mechanisms, most of which have been either maintained, modified, or approved under PBR
as noted, is as follows:
Mechanism
Sales decoupling
Annual Revenue
Adjustment (ARA)
Exceptional Project
Recovery Mechanism
(EPRM)
Energy cost recovery
clause (ECRC) and
purchased power
adjustment clause
(PPAC)
Performance
incentive mechanism
(PIM) / Shared
Savings Mechanism
(SSM)
Pension and other
post-employment
benefit trackers
Renewable energy
infrastructure
program
Expedited Pilot
Process
Description
Provides predictable revenue stream by fixing net
revenues at the level approved in last rate case
(revenues not linked to kWh sales)
Annually adjusts revenue levels during a Multi-Year
Rate Period, determined by formula which includes an
inflation factor, a predetermined productivity
adjustment (currently set at zero), adjustments for
exceptional circumstances not in the Utilities’ control
and a customer dividend.
Reduces regulatory lag and permits recovery of
revenues for net costs of approved eligible projects
placed in service during the Multi-Year Rate Period
through the revenue balancing account (RBA) that is
not provided for by other effective tariffs, the ARA,
Performance Incentive Mechanism (PIMS) or Shared
Savings Mechanisms (SSMs).
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, Hawaii
Electric Light and Maui Electric capped at $2.5
million, $0.6 million and $0.6 million annually,
respectively.
Annually adjusts revenue to recover from or credit
customers for specific areas of the Utilities’
performance measured against the PUC’s approved
targets.
Allow tracking of pension and other post-employment
benefit costs and contributions above or below the cost
included in rates in a separate regulatory asset/liability
account
PBR Framework (effective June 2021)
Maintained under PBR
Replaced the Revenue Adjustment Mechanism (RAM)
effective June 1, 2021. The transition to the ARA
includes the continuation of the 2020 RAM revenue
adjustment.
Formerly known as the Major Projects Interim
Recovery adjustment mechanism (MPIR). The EPRM
was modified to include recovery of both capital and
O&M expenses and to permit the Utilities to include
the full amount of approved costs for recovery in the
first year that projects are placed into service, pro-rated
for the portion of the year that projects are in service.
Maintained under PBR
Maintained under PBR with a portfolio of SSMs and
new PIMs added to encourage acceleration in
renewables, grid services, interconnection, low-to-
moderate income energy efficiency, and advanced
metering infrastructure and allows for financial
rewards for exemplary performance.
Maintained under PBR
Permits recovery of renewable energy infrastructure
projects through a surcharge
Maintained under PBR
Fosters innovation by establishing an expedited
implementation process for pilots that test new
technologies, programs, business models and other
arrangements. Proposed pilots are subject to PUC
approval with a total annual cap of $10 million.
Approved under PBR to allow for timely cost recovery
of annual expenditures of approved pilot projects
through an adjustment to target revenues.
Earnings Sharing
Mechanism (ESM)
Protects the Utilities and customers from excessive
earnings or losses, as measured by the Utilities’
achieved rate making ROACE.
Maintained under PBR, adjusted to reflect a
symmetrical ESM for achieved rate making ROACE
outside of a 300 basis points dead band above or below
the current authorized ROACE of 9.5% for each of the
Utilities.
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
privately owned customer photovoltaic (PV) systems. In 2021, kWh sales increased compared to the prior year due to the
easing of pandemic related restrictions and increased domestic travel to Hawaii, which in turn increased the demand for
electricity.
Significant customers. The Utilities derived approximately 11% of their operating revenues in each of 2021, 2020 and
2019 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.
7
Selected consolidated electric utility operating statistics.
Years ended December 31
MWh sales (thousands)
Residential
Commercial
Industrial
Other
MWh net generated and purchased (thousands)
Net generated
Purchased
MWh customer-sited solar (thousands)
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
Industrial
Other
Electric revenues (thousands)
Residential
Commercial
Industrial
Other
Average revenue per kWh sold (cents)
2021
2020
2019
2018
2017
2,491.6
2,572.5
3,174.3
22.7
8,261.1
4,501.0
4,153.7
8,654.7
1,418.0
38.4
4.3
1,738
540
2,278
1,471
10,988
1,305.4
414,713
54,373
698
828
470,612
2,525.4
2,456.0
3,118.0
20.8
8,120.2
4,629.2
3,896.2
8,525.4
1,325.8
34.5
4.5
1,737
517
2,254
1,471
10,834
1,028.7
412,484
54,035
694
826
468,039
2,439.3
2,793.0
3,467.2
40.5
8,740.0
4,972.7
4,168.6
9,141.3
1,224.6
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
948.4
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
862.6
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
$
843,655 $
802,878
853,293
7,780
691,857
766,921
776,808
12,009
$ 2,507,606 $ 2,239,530 $ 2,517,035 $ 2,526,207 $ 2,247,595
770,135 $
708,180
754,775
6,440
791,398 $
829,000
884,722
11,915
788,028 $
843,326
882,443
12,410
30.35
33.86
31.21
26.88
34.19
27.58
30.50
28.83
24.21
31.01
Residential
Commercial
Industrial
Other
Residential statistics
Average annual use per customer account (kWh)
Average annual revenue per customer account
Average number of customer accounts
1 Puna Geothermal Venture (PGV) with 34.6 MW of firm capacity went offline due to lava flow on Hawaii Island since May 2018, but
returned to service with firm capacity of 13 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter and continued
to provide 23.9 MW for the remainder of 2021.
2 Sum of the net peak demands on all islands served, noncoincident and nonintegrated.
5,779
1,713
403,983
6,022
2,039 $
6,145
1,874 $
5,967
1,936 $
5,923
1,936 $
413,725
410,973
408,768
407,044
$
28.80
32.44
29.68
25.52
29.39
29.07
32.69
30.00
25.76
29.47
25.86
29.64
26.74
22.56
26.82
8
Generation statistics. The following table contains certain generation statistics as of and for the year ended December 31,
2021. 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, 20211
Conventional oil-fired steam units
Diesel internal combustion engine
Simple-cycle combustion turbines
Dual train combined-cycle unit
Biodiesel internal combustion engine
Firm contract power2
Net peak demand (MW)3
Reserve margin
Annual load factor
999.5
—
230.8
—
57.4
456.5
1,744.2
1,072.0
61.6%
68.5%
50.1
29.5
46.3
56.3
—
83.9
266.1
193.9
37.2%
65.5%
35.9
96.8
—
113.6
—
—
246.3
193.4
30.7%
61.3%
MWh net generated and purchased (thousands)
6,435.8
1,112.1
1,038.6
—
9.4
—
—
—
—
9.4
6.1
—
9.8
2.2
—
—
—
12.0
5.8
1,085.5
145.5
279.3
169.9
57.4
540.4
2,278.0
1,471.2
54.1%
68.2%
36.4
106.9%
62.6%
54.8%
67.2%
31.8
8,654.7
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, oil-fired). Hawaii Electric Light also has a firm capacity
PPA with PGV for 34.6 MW that went offline due to lava flow on Hawaii Island since May 2018, but returned to service with firm capacity
of 13 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter. PGV’s capability of 23.9 MW has been
incorporated into the utility’s firm contract power capability as of December 31, 2021.
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 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, 2021.
9
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 and ending on September 1, 2022, Hawaiian Electric will purchase 180 megawatts (MW) of firm
capacity. The AES Hawaii coal-fired cogeneration plant utilizes a “clean coal” technology. 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 Qualifying Facility (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. The PPA term ended on May 23, 2016; however, the parties were in negotiations for a new agreement and
the PPA automatically extended on a month-to-month basis while the parties were negotiating in good faith. The parties
executed an Amended and Restated Power Purchase Agreement on October 29, 2021, which among other provisions extends
the term for ten contract years after the effective date. The Amended and Restated Power Purchase Agreement was filed with
the PUC on November 24, 2021 for review and approval.
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 up until the PPA expires on April 2, 2033.
Hawaii Electric Light firm capacity PPAs. Hawaii Electric Light has two major PPAs that provide a total of 83.9 MW of
firm capacity, representing 32% of Hawaii Electric Light’s total net generating and firm purchased capacity on the Island of
Hawaii as of December 31, 2021.
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, starting in late 2019, biodiesel (comprising approximately 21% of the fuel mix in 2021).
In November 2017, Hamakua Energy, an indirect subsidiary of HEI, purchased the plant from HEP.
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. However, the PGV facility went offline in
May 2018 due to lava flow on Hawaii Island. In March 2019, Hawaii Electric Light entered into a Rebuild Agreement with
PGV, which sets forth the parties’ respective responsibilities associated with restoration of the facility. The Rebuild Agreement
shall govern the terms until PGV becomes fully operational. In December 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. PGV returned to service at a level providing limited output without firm
capacity in the fourth quarter of 2020 and is currently providing 23.9 MW of capacity. See “New renewable PPAs” in the
“Developments in renewable energy efforts” section in Hawaiian Electric’s MD&A.
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 of Hawaii 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 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 “Material estimates and critical accounting
policies–Revenues” in Hawaiian Electric’s MD&A.
Hawaiian Electric’s steam generating units consume 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).
10
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 Hawaiian Electric’s MD&A.
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 2021, 2020 and 2019:
2021
2020
2019
Hawaiian Electric
$/Barrel
¢/MBtu
Hawaii Electric Light
¢/MBtu
$/Barrel
Maui Electric
Consolidated
$/Barrel
¢/MBtu
$/Barrel
¢/MBtu
79.10
62.06
81.02
1,275.9
1,003.7
1,304.8
80.52
63.21
81.96
1,333.9
1,048.3
1,354.0
83.45
66.81
86.58
1,404.0
1,122.7
1,454.8
80.06
63.00
82.17
1,305.4
1,028.7
1,337.6
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:
2021
2020
2019
Hawaiian Electric
% LSFO % Biodiesel/Diesel
7
6
7
93
94
93
Hawaii Electric Light
% HSFO
41
39
44
% Diesel
59
61
56
Maui Electric
% HSFO
22
24
24
% Diesel
78
76
76
The prices that Hawaiian Electric and Hawaii Electric Light 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. On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power
Purchase Agreement, which delinks the pricing for energy delivered from the facility from fossil fuel prices. Hamakua Energy’s
energy prices vary primarily with the cost of naphtha.
The Utilities estimate that 67% of the net energy they generate will come from fossil fuel oil in 2022 compared to 63% in
2021. Hawaiian Electric generally maintains an average system fuel inventory level equivalent to 47 days of forward
consumption. Hawaiian Electric is targeting to increase inventory level equivalent to 59 days in 2022 in response to the
expiration of the PPA with AES Hawaii on September 1, 2022. 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, 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. Public
Utility Regulatory Policies Act of 1978 (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 “Material estimates and critical accounting policies–Revenues” in Hawaiian Electric’s MD&A and “Most recent rate
proceedings,” and “Utility projects” under “Commitments and contingencies” in Note 3 of the Consolidated Financial
Statements.
Competition. See “Competition” in Hawaiian Electric’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
“Most recent rate proceedings” in Note 3 of the Consolidated Financial Statements.
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
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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
efficiency programs, and any incentive and/or penalty mechanisms applicable solely to the public benefit fee administrator and
related to the achievement of the goals are at the discretion of the PUC.
The Division of Consumer Advocacy’s 2019 Compliance Resolution Fund Report states that Hawaii continues to progress
towards its 2030 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. The Utilities followed through on the EoT Workplan in 2020, with three filings: the electric bus
make ready infrastructure pilot, Charge Ready Hawaii commercial infrastructure pilot, and two commercial EV rates, EV-J and
EV-P. The electric bus make ready infrastructure pilot, EV-J and EV-P, and Charge Ready Hawaii commercial infrastructure
pilot were approved by the PUC on May 7, 2021, December 30, 2021 and January 24, 2022, respectively, and will launch in the
first and fourth quarters of 2022. In August 2020, the Utilities committed to electrifying 100% of its class 1 vehicles (sedans,
SUVs and light trucks) by 2035.
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). The Utilities’ also exceeded the 30% RPS target for 2020, achieving an RPS of 34.5%, and in 2021, achieved
an RPS of 38.4%.
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
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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), the Utilities believe that
each subsidiary has appropriately responded to environmental conditions 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).
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. On October 22, 2021, the EPA published its
proposed rule entitled “Alternate PCB Extraction Methods and Amendments to PCB Cleanup and Disposal Regulations” in the
Federal Register. The EPA is proposing to expand options for the methods used to characterize and verify the cleanup of PCBs,
and amend the performance-based disposal option along with other amendments to improve the implementation of the
regulations, clarify ambiguity, and correct technical errors. The EPA comments period closed on January 20, 2022.
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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.
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, 2021, 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.
14
As of December 31, 2021, 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 24,770 barrels of HSFO storage capacity for Hawaii Electric Light-owned fuel off-site at Island Energy
Services, LLC-owned terminalling facilities.
2 There are an additional 56,358 barrels of diesel oil storage capacity off-site at Aloha Petroleum, Ltd-owned terminalling facilities.
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 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 $9.2 billion and
deposits of $8.2 billion, as of December 31, 2021. ASB is a full-service community bank that serves both consumer and
commercial customers and operates 42 branches on the islands of Oahu (29), Maui (6), Hawaii (4), Kauai (2), and Molokai (1).
In 2021, ASB’s revenues and net income amounted to approximately 11% and 41% of HEI’s consolidated revenues and net
income, respectively, compared to approximately 12% and 29% in 2020 and approximately 11% and 41% in 2019.
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
15
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, 2021, 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. In addition to OCC oversight, federal law and Federal Reserve Board
policy require that HEI, as a savings and loan holding company, serve as a source of financial and managerial strength for any
FDIC-insured depository institution that it controls. Accordingly, if ASB were to be in financial distress or to otherwise be
viewed by the regulators as in unsatisfactory condition, HEI could be required to provide additional capital or liquidity support
or take other action, in support of ASB.
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 typically 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 generally 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. While deposits have increased by $785 million in 2021 in part due to PPP loan proceeds and
consumer economic impact payments from the CARES Act stimulus program, deposit retention and sustained growth will
remain challenging in the current environment due to 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 Federal Home Loan Bank (FHLB) of Des Moines and securities
16
sold under agreements to repurchase continue to be additional sources of funds, but they are a higher cost funding source than
deposits.
Competition. The banking industry in Hawaii is highly competitive. At December 31, 2021, there were 7 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. These entities may have a physical presence in the State of Hawaii or operate from out of state and
provide online services. See also “Bank—Executive overview and strategy” in HEI’s MD&A.
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, availability and functionality of 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 other banking options
including online and mobile banking platforms. 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 credit 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.
Changes to Community Bank Leverage Ratio. In April 2020, the federal bank regulatory agencies issued two interim final
rules to implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank
leverage ratio to 8 percent. The two rules modify the community bank leverage ratio framework so that:
•
•
Beginning in the second quarter of 2020 and until the end of 2020, a banking organization that has a leverage ratio of 8
percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and
Community banking organizations will have until January 1, 2022 before the community bank leverage ratio
requirement is re-established at greater than 9 percent.
Under the interim final rules, the community bank leverage ratio requirement was 8 percent beginning in the second quarter
of 2020 and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim
final rules also maintained a two-quarter grace period for a qualifying community banking organization whose leverage ratio
falls no more than 1 percent below the applicable community bank leverage ratio.
In the second quarter of 2020, ASB had adopted the community bank leverage ratio framework and reported its Tier 1
leverage ratio only. Beginning in the third quarter of 2021, ASB began reporting all of the required capital ratios as the Bank
did not meet the requirements of the community bank leverage ratio framework. With Tier 1 leverage, common equity, Tier 1
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capital and total capital ratios of 7.9%, 13.3%, 13.3% and 14.3%, respectively as of December 31, 2021, ASB’s regulatory
capital ratios exceeded the minimum regulatory capital requirements of 4.0%, 4.5%, 6.0% and 8.0%, respectively.
See “Bank—Legislation and regulation” in HEI’s MD&A for the final capital rules under the Basel III regulatory capital
framework.
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, 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.
Management believes ASB’s interest rate risk 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, 2021, ASB’s unused FHLB of Des Moines borrowing capacity was approximately
$2.0 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, 2021, ASB had loan commitments, undisbursed loan funds and unused lines and letters of
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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
restrictions and supervision as capital levels decline. The prompt corrective action capital requirements 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. 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, 2021, 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, 2021, 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, 2021, and at all times
during 2021, 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, 2021, ASB was required and owned capital stock in the FHLB of Des Moines in the
amount of $10.0 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, the Truth in Savings Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures
Act, 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
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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.
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 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, 2021
Oahu
Maui
Hawaii
Kauai
Molokai
Number of branches
Leased
Total
Owned
10
2
3
1
—
16
19
4
1
1
1
26
29
6
4
2
1
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As of December 31, 2021, the net book value (NBV) of branches and office facilities was $175 million ($168 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, 2020, the NBV of branches and office facilities
was $180 million ($174 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, 2021, ASB owned 122 automated teller machines.
In January and February 2022, ASB closed three branches (one each on the islands of Oahu, Maui and Hawaii) that are
owned by the Bank.
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.
COVID-19—Our business, financial condition, liquidity and results of operations are being and could continue to be
adversely impacted by the ongoing effects of the COVID-19 pandemic. Due to the numerous country, state, city and local
jurisdictions that have imposed “shelter-in-place” orders or other restrictions in response to the COVID-19 pandemic, including
travel restrictions that directly impact the Hawaii economy, economic activity in the state has been adversely impacted. While
many restrictions have been subsequently lifted as vaccination rates increased and new daily case counts moderated, leading to
improved economic conditions, new COVID-19 variants, such as Omicron, could require a reinstatement of restrictions that
would threaten the ongoing economic recovery. Until the economy recovers more broadly, the Utilities expect that demand for
electricity will remain muted and past due accounts receivables at the Utilities could remain at an elevated level, which has an
impact on liquidity. While the Utilities expect to recover the difference between PUC approved target revenues and recorded
adjusted revenues (regardless of the level of kWh sales) through the revenue balancing account under the decoupling
mechanism based on estimated sales, starting on January 1st of the following year, the collection occurs on a lagged basis. If the
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difference to be collected, which needs to be financed in the interim, exceeds the Utilities’ current liquidity sources, there can
be no assurance that the Utilities will be able to secure additional liquidity sources at a reasonable cost, or at all, or if the
difference becomes so large that it would result in a significant increase in customer bills, whether the PUC will allow recovery
of such difference through the revenue balancing account. In addition to lower and lagged collections, the COVID-19 pandemic
has also resulted in higher costs and expenses. While the Utilities have been granted deferral treatment of certain COVID-19
related costs, such as higher bad debt expense, non-collection of late payment fees, higher financing costs, sequestration costs
for mission-critical employees and other costs and expenses, there can be no assurance that the PUC will grant recovery of such
costs, and such costs could be material. Additionally, in light of the significant impact that economic conditions have had on
residents and businesses in the state, a stipulated settlement between Hawaiian Electric and the Division of Consumer
Advocacy of the Department of Commerce and Consumer Affairs, reflecting no base rate increase, was submitted in the
Hawaiian Electric 2020 test year rate case, and approved by the PUC in October 2020. While the Utilities were successful in
offsetting the no base rate increase with corresponding cost decreases in 2021, such reduction of cost in future periods is not
assured and, therefore, the inability to achieve targeted cost savings could adversely affect the Utilities’ results of operations in
future periods.
ASB’s net interest income has also been adversely impacted by lower interest rates across the curve, which are influenced
by economic conditions. Accordingly, an extended economic slowdown could have a significant continuing impact on its net
interest income. In addition, while economic conditions improved in 2021, COVID-19 variants, such as Omicron, could lead to
an extended economic slowdown that may affect the ability of borrowers to make payments on their loans, which would have
an adverse impact on ASB’s provision for credit losses.
While the Company believes that it has sufficient liquidity to continue to operate through this crisis, there can be no
assurance that sufficient liquidity will be available if the slowdown in economic activity continues for an extended period of
time or worsens from current levels.
The Company continues to closely monitor the situation and will continue to take appropriate actions to operate its
businesses and protect its workforce while serving customers and the community. If the current weakness in economic activity
persists for an extended period of time or worsens from current levels, it could have a material adverse effect on the Company.
These effects could include, but are not limited to:
• Disruptions or restrictions on employees’ ability to work effectively due to illness, travel restrictions, quarantines,
shelter-in-place orders or other limitations.
• The inability of customers, IPPs, contractors, suppliers, creditors and other business partners to fulfill their obligations
due to various factors, including, but not limited to, supply chain disruptions, labor shortages and wage inflation,
which could result in unanticipated project costs. For example, several IPPs have declared force majeure, citing the
pandemic, which could potentially result in significant project delays or project cancellations. In addition, several of
the recently procured renewable projects have experienced delays or have been declared null and void by the
independent power producers due to a number of issues, including supply chain disruptions.
• Disruption and volatility in the global credit and financial markets, which may increase the cost of capital and could
adversely impact access to capital for the Company and its customers and suppliers.
• Further deterioration in economic conditions, or an extension of slow economic activity, which negatively impacts the
Company’s earnings and liquidity, could also result in an impairment in the carrying value of goodwill or long-lived
assets.
• Actions taken or may be taken, or decisions made or may be made by the Company, as a consequence of the
COVID-19 pandemic, may result in legal claims or litigation against the Company.
Due to the unprecedented nature of the pandemic and the significant uncertainty it creates, including the unknown severity
and duration of the pandemic and the resulting impact it may have on Hawaii businesses and residents of the state, which could
also be affected by the pace of distribution, administration, and efficacy of the COVID-19 vaccine against variants, as well as
the proportion of the population vaccinated and boosted, the Company is unable to predict the full extent of the future impact on
the Company’s businesses at this time, and those impacts could have a material adverse effect on the Company’s results of
operations, financial position, and cash flows.
Holding Company Risk—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:
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•
•
•
•
•
•
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 requires HEI to contribute additional capital to ASB (up to a maximum amount of
additional capital of $28.3 million as of December 31, 2021 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;
obligations under federal law and Federal Reserve Board policy, which require that a savings and loan holding
company serve as a source of financial and managerial strength for any FDIC-insured depository institution that it
controls, and accordingly, if ASB were to be in financial distress or to otherwise be viewed by the regulators as in
unsatisfactory condition, HEI could be required to provide additional capital or liquidity support or take other action,
in support of ASB;
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 the 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.
Credit and Capital Market Risk—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, 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).
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, a significant reduction in the discount
rate or in the value of the Company’s defined benefit pension plan assets could result in a substantial increase in the gap
between the projected benefit obligations under the plans and the value of plan assets, resulting in increases in funding
requirements.
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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, requiring ASB to write down its investment securities. As of December 31, 2021, ASB’s investment in U.S.
Treasury, federal agency obligations, and mortgage-backed securities have an implicit guarantee from the U.S. government.
Geographic Concentration Risk—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 that of 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 also 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’s economy 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 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.
Competitive and Technological Risk—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,
non-traditional providers of financial services 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 or mobile banking) or customer adoption of alternative
banking channels 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 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.
Cybersecurity Risk—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,
ransomware demands or disruptions to operations. In addition, there is increasing cybersecurity risk associated with the broad
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adoption of a remote working environment as a result of the pandemic. 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
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 reputations.
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, experience supply chain compromises or other internal or external
security incidents. In addition, the Utilities are pursuing complex business transformation initiatives, which include the
implementation of new systems 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, or the failure to realize the benefits anticipated to be derived from these initiatives.
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.
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ASB is under continuous threat of loss due to cyberattacks, especially as ASB continues to expand customer capabilities to
utilize the Internet and other digital 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.
Uninsured Losses—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 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.
Environmental Regulation—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.
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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.
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.
Regulatory Risk—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. On December 23, 2020, as part of the D&O establishing
a new PBR Framework, there will be a five-year Multi-year Rate Period (MRP) during which there will be no general rate
cases. In the fourth year of the MRP, the PUC will comprehensively review the PBR Framework to determine if any
modifications or revisions are appropriate.
Any adverse decision by the PUC concerning the level or method of determining electric utility rates at the end of the
multi-year rate period including 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, the denial of exceptional project
recovery applications during the multi-year rate period, adverse impact of adjustments made to the PBR Framework, decisions
on recovery of exogenous items under the PBR Framework, 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 (includes a PUC-ordered 98%/2% risk-sharing split between customers
and the Utilities for fossil fuel price variations from baseline prices, with a current annual aggregate exposure cap of +/- $3.7
million), a PPAC, and pension and OPEB tracking mechanisms, as well as a decoupling mechanism, an exceptional project
recovery mechanism (EPRM) (formerly 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.
Under the new PBR Framework, the Utilities’ annual revenue adjustment (ARA) includes a customer dividend consisting
of a negative adjustment of 0.22% compounded annually and a flow through of the “pre-PBR” savings commitment from the
management audit recommendations developed in the 2020 test year rate case. The ability of the Utilities to recover increasing
costs and earn a reasonable return on capital investments not covered by the annual revenue adjustment (ARA) or not achieving
the customer dividend and cost savings commitment could have a material adverse effect on the Utilities. Under the new PBR
Framework, the existing PIMs continue, and the PUC established new PIMs and is working on additional PIMs with
stakeholders. Not meeting the PIMs that have penalties for not achieving performance incentive goals or PIMs that would
contribute to the Utilities’ ability to achieve their allowed ROACEs could have a material adverse effect on the Utilities.
Based on the current operations of the Utilities and regulatory framework, including the impact of the newly approved PBR
Framework, the Utilities continue to follow regulatory accounting under Accounting Standards Codification (ASC) 980.
Continued accounting in this manner requires that certain criteria relating to the recoverability of such costs through rates be
met, including achieved financial results that support the recovery of costs. If events or circumstances should change, such that
the criteria are no longer satisfied, the Utilities expect that their regulatory assets (amounting to $566 million as of
December 31, 2021), net of regulatory liabilities (amounting to $997 million as of December 31, 2021), would be charged to the
statement of income in the period of discontinuance. See “Performance-based regulation framework” 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.
There is significant uncertainty around the potential impacts related to the recent surge in COVID-19 and the variant
strains. See risk factor, “COVID-19—Our business, financial condition, liquidity and results of operations are being and could
continue to be adversely impacted by the ongoing effects of the COVID-19 pandemic” in the “Holding company and company-
wide” risk factor section for a discussion regarding the risks related to the recovery of deferred COVID-19 costs and expenses.
Weather Conditions Risk—Electric utility operations are significantly influenced by weather conditions and natural
disasters. 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, have occurred in the past and will likely continue to occur in the future. When
these events occur, they can cause outages and property damage and require the Utilities to incur significant additional expenses
that may not be recoverable.
Climate Change Risk—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.
Third Party Performance Risk—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 67% of the net energy generated or purchased by the Utilities in 2021 was generated
from the burning of fossil fuel oil, and purchases of power by the Utilities provided about 48% 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, affect the Utilities’ maintenance schedules that could affect future reliability 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.
Capacity Risk—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 evaluation of long-term generation
capacity every three years to determine the Utilities’ ability to meet reasonably expected demands for service and provide
reasonable reserves for emergencies and other unplanned events. 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, reputation and results of operations.
Stakeholder Activism Risk—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, resilience and reliability objectives, and RPS and other climate related 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 and negatively impact its financial condition and liquidity.
Operational Risk—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
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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, lava flows, floods or other similar occurrences affecting the Utilities’
generating facilities or transmission and distribution systems.
Legislative Risk—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 and 2020 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 greenhouse gas (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, with the most recent revision filed on June 9, 2020, to reflect the
partnership established between the Utilities and several IPPs. In this plan, the partnership committed to a 16% reduction in
GHG emissions in accordance with the rule, which the partnership achieved in 2017 in advance of the 2020 requirement. The
DOH issued the air permits incorporating the ERP including provisions to address the period of unavailability of the PGV
facility on Hawaii Island. It is expected that with the advent of additional renewable projects and the application to the PUC
with respect to the expansion of the PPA for the PGV project, the goals should be attainable.
Hawaii Revised Statutes (HRS) § 269-6(b) requires that “in making determinations of the reasonableness of the costs
pertaining to electric or gas utility system capital improvements and operations, the PUC shall explicitly consider, quantitatively
or qualitatively, the effect of the state’s reliance on fossil fuels on price volatility, export of funds for fuel imports, fuel supply
reliability risk, and greenhouse gas emissions.” Based on HRS § 269-6(b) and recent case law discussing the scope of this
section, the Utilities are performing GHG analyses to quantitatively or qualitatively describe the GHG emissions of proposed
projects that are submitted to the PUC for approval.
In June 2018, House Bill 2182 was signed into law as Act 15 and took effect on July 1, 2018. Among its provisions, Act 15
aligned the state’s clean energy and carbon sequestration efforts with climate initiative goals and established a statewide carbon
neutral goal by 2045. Under this Act, efforts would be made to “sequester more atmospheric carbon and greenhouse gases than
emitted within the state as quickly as practicable, but no later than 2045.” The Hawaii Climate Change Mitigation and
Adaptation Commission, administratively placed under the State Department of Land and Natural Resources, was charged with
endeavoring to achieve the target, and giving consideration to the impact of its plans, decisions and strategies on the state’s
ability to attain the goal. The general functions, duties and powers of the Hawaii Climate Change Mitigation and Adaptation
Commission are set forth in HRS § 225P-3. To achieve its mandates, the Hawaii Climate Change Mitigation and Adaptation
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Commission may recommend plans, decisions and strategies that could have an impact on various entities including the
Utilities.
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. In November 2021, the Utilities
committed to a 70% reduction in power generation GHG emissions by 2030 compared to a 2005 baseline and achievement of
net zero carbon emissions from power generation by 2045. While the reduction is not mandated by law, the Utilities could
suffer reputational harm if it fails to achieve its commitments, which may negatively impact its business.
The foregoing legislation or legislation that now is, or may in the future be, proposed, such as potential carbon “cap and
trade” legislation that, if applicable, may fundamentally alter costs to produce electricity and accelerate the move to renewable
generation, present risks and uncertainties for the Utilities.
Renewable Transition Risk—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, Renewable Portfolio Standards (RPS) and other climate related goals. The far-reaching nature of the
Utilities’ renewable energy commitments and the RPS and other climate related goals present risks to the Company. Among
such risks are: (1) 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; (2) the dependence on outside
parties, such as the state, developers and 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 delays or fails to deliver the
anticipated capacity and/or energy in its purchased power agreement, could impact the Utilities’ achievement of their
commitments to RPS and other climate related goals, eligibility for performance incentive mechanisms associated with the
speed of increasing renewable generation, the ability to retire fossil fuel units, and/or the Utilities’ ability to deliver reliable
service; (3) delays in acquiring or unavailability of non-fossil fuel supplies for renewable generation; (4) 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; (5) the inability to recover the undepreciated cost of fossil fuel generating units if they are required to be
retired before the end of their expected useful life; (6) uncertainties surrounding current and future renewable technologies,
such as solar power, wind power, biofuels, battery storage, hydro, hydrogen, as well as related environmental assessments
required to meet RPS and other climate related goals; (7) the impacts of implementation of the renewable energy proposals on
future costs of electricity and potential penalties imposed by the PUC for delays in the commercial operations of renewable
energy projects; (8) 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; (9)
the imputed debt related to the pending renewable power purchase agreements under the stage 1 and stage 2 RFPs could result
in a credit rating downgrade for the Utilities and the Company; and (10) 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.
Retirement of the AES coal plant—Hawaiian Electric’s ability to deliver reliable power could be impacted by the
availability of AES’ coal plant for the remainder of the PPA term and by the availability of other generating units with the
planned retirement of AES’ coal plant. The AES coal plant provides 180 MW of capacity (approximately 10% of generation)
on Oahu and is scheduled for retirement on September 1, 2022. The availability of the AES coal plant as well as the availability
of other IPP and utility units directly affects Hawaiian Electric’s maintenance schedules for its own and other IPP generation
resources, which in turn could impact Hawaiian Electric’s ability to provide reliable service to its customers. On September 1,
2022, the PPA with AES will terminate and will not be renewed, which will require replacement capacity from other generating
resources. Hawaiian Electric believes its plans, including contingency plans, are adequate to ensure reliable service through the
transition period. These plans include the anticipated addition of ten renewable energy/storage projects, reserve capacity from
existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels,
multiple demand response/distributed energy resources programs and a proposed battery project. However, if there were
unexpected issues with existing generation, or Hawaiian Electric is not able to implement its plans for replacement generation
after September 1, 2022, it could disrupt the ability of Hawaiian Electric to deliver reliable service, result in financial loss that
may not be recoverable, cause business disruptions, result in liability to customers, invite regulatory intervention or result in
damage to Hawaiian Electric’s reputation, any of which could have a material adverse effect on the Utilities’ and the
Company’s financial condition and results of operations.
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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.
Interest Rate Risk—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 42% of ASB’s loan portfolio as of December 31, 2021 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.
LIBOR Sunset Transition Risk—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 (FCA), which regulates LIBOR, announced that it intends to phase out LIBOR by the
end of 2021. On March 5, 2021, the ICE Benchmark Administration Limited (IBA), as administrator of LIBOR, publicly
announced that it intends to cease publication of one week and two month USD LIBOR tenors on December 31, 2021 and the
remaining USD LIBOR tenors on June 30, 2023. 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 Rate (SOFR). ASB has loans and other financial instruments with rates that are either directly or
indirectly tied to LIBOR. Failure to adequately manage this transition process with our customers could adversely impact the
Bank’s reputation.
ASB has formed a cross-functional project team to oversee the transition. The project team reports to Management and the
Board on a periodic basis. The project team is organized around key work streams which cover products, systems and
operational processes impacted by the transition as well as client communication. The project team has completed an inventory
of existing LIBOR-indexed products, which are monitored on an ongoing basis. In addition, the project team has retired all
LIBOR-based originations as of December 31, 2021 and continues to offer floating rate loans with alternative indices, including
SOFR. ASB will continue to monitor legacy contracts and will continue the orderly transition away from LIBOR by June 30,
2023 in accordance with the OCC and other federal financial institution regulatory agencies’ statement on LIBOR transition.
Credit Risk—ASB’s allowance for credit losses may not cover actual loan losses. ASB’s allowance for credit losses is
ASB’s estimate of lifetime expected credit losses on financial instruments and other commitments to extend credit 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;
current conditions (for example, economic conditions, real estate market conditions and interest rate environment) and;
reasonable and supportable forecasts that affect the collectability of the reported amount.
If ASB’s actual loan losses exceed its allowance for credit 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
30
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 credit losses.
Operational Risk—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 credit 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 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 Regulatory Risk—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.
Bank Regulatory Risk - Heightened regulatory requirements if ASB’s total assets exceed $10 billion. As of December 31,
2021, ASB had total assets of approximately $9.2 billion and it is possible that total assets could exceed $10 billion in the near
future. The Dodd-Frank Act and its implementing regulations impose enhanced supervisory requirements on financial
institutions with more than $10 billion in total assets. For financial institutions with more than $10 billion in total assets, such
requirements include, among other things:
31
Increased capital leverage, liquidity and risk management standards;
Examinations by the CFPB for compliance with federal consumer financial protection laws and regulations; and
• Applicability of Volcker Rule requirements and restrictions;
•
•
•
The Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), which was enacted in 2018,
amended the Dodd-Frank Act to raise the $10 billion stress testing threshold to $250 billion, among other things. The federal
financial regulators issued final rules in 2019 to increase the threshold for these stress testing requirements from $10 billion to
$250 billion, consistent with the EGRRCPA.
Limits on interchange fees on debit cards (Durbin Amendment)
ASB is already subject to limits for its interchange fees on debit cards as the Bank’s parent company, HEI, has total assets
exceeding $10 billion and the Durbin Amendment did not exclude unitary thrift holding companies from the threshold for
holding company assets subject to interchange fee limits.
Federal financial regulators may require ASB to take actions to prepare for compliance with the foregoing requirements
before it exceeds $10 billion in total assets. ASB’s regulators may consider its preparation for compliance with these regulatory
requirements when examining the Bank’s operations or considering any request for regulatory approval. ASB may, therefore,
incur compliance costs before it reaches $10 billion in total assets and may be required to maintain the additional compliance
procedures even if the Bank does not grow at the anticipated rate or at all.
Failure to comply with these new requirements may negatively impact the results of ASB’s operations and financial
condition. To ensure compliance, the Bank may be required to invest significant resources, which may necessitate hiring
additional personnel and implementing additional internal controls. These additional compliance costs may have a material
adverse effect on our business, results of operations and financial condition.
Legislative Risk—Legislative and regulatory initiatives could have an adverse effect on ASB’s business. From time to time,
new legislative and other regulatory initiatives are enacted, which could have an adverse effect on ASB’s business. For
example, the Dodd-Frank Act, which became law in July 2010, has had a substantial impact on the financial services industry.
Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/
or reputational damage, which could have a material adverse effect on ASB’s business, results of operations, financial condition
and liquidity.
Product Concentration Risk—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, 2021 approximately 83% 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 2021, ASB’s home
equity lines of credit (HELOC) decreased 13% and the residential 1-4 family portfolios increased by 7%, comprising 73% 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. 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
32
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.
General Risk Factors.
ESG Risk—Increased scrutiny and changing stakeholder expectations with respect to our environmental, social and
governance (ESG) programs may result in increased costs and expenses and may expose the Company to new or incremental
risks. Companies across all industries, including HEI, face increasing stakeholder scrutiny related to ESG practices. These
stakeholders include investors, customers, consumers, employees, lenders and other stakeholders, and in recent years, certain
stakeholders have placed increasing importance on the impact and social cost of their investments. This increased focus and
activism related to ESG may hinder the cost of, or access to, capital or financing as these investors or lenders may elect to
increase their required returns on capital offered to the company, reallocate capital or not commit capital as a result of their
assessment of a company’s ESG profile. Additionally, if the Company fails to adapt, or is perceived to have failed in addressing
investor, lender, and other stakeholder ESG expectations or standards, which continue to evolve, or if the Company fails to
fully and accurately report its progress on ESG initiatives, the Company may suffer reputational damage and its business or
financial condition could be materially and adversely affected.
Human Capital Risk—HEI’s businesses may be unable to attract, hire, engage and retain a highly skilled and diverse
workforce, including senior management, which could affect the Company’s execution of its growth strategy and profitability
and adversely affect its future performance. The skill and experience of the Company’s employees, particularly with respect to
the senior management team, are vital to the Company’s success. The management teams of HEI’s businesses have significant
industry experience and would be difficult to replace. Failure to attract, hire, develop, motivate, and retain highly qualified and
diverse employee talent, to develop and implement adequate succession plans for the senior management team, or to maintain a
successful work culture that fosters collaboration, innovation, and communications could disrupt the Company’s operations and
adversely affect its businesses and its future success. In addition, a variety of economic and social factors are exacerbating the
current labor supply shortage, which may make it difficult to staff critical positions, retain key employees, and could result in
significantly higher costs to maintain appropriate staffing levels with the right talent. The inability to fill these positions or a
delay in staffing these positions could have a significant impact on the Company’s initiatives and strategies, which in turn
would adversely affect the Company’s businesses and their future prospects.
Inflation Risk—The Company’s costs and expenses could increase as a result of inflationary pressures and such increases
may not be fully offset by an increase in revenues. A variety of economic and social factors have recently driven inflation to
levels above the Federal Reserve Board’s long-term target of 2%. Long-term inflationary pressures could result in higher labor,
commodities, materials and supplies, outside services and capital costs, among others, that may not fully be offset by an
increase in revenues, which would adversely affect the Company’s profitability and results of operations. For example, while
the Utilities’ annual revenue adjustment mechanism provides for an annual inflationary adjustment, recent months’ annualized
rates of inflation have surpassed the rate of the last inflationary adjustment for the Utilities’ target revenues. To the extent the
Utilities increase in actual expenses exceeds the amount provided by the last inflationary adjustment and the Utilities are unable
to offset such excess with other efficiencies or cost savings, the Utilities’ profitability could be adversely impacted. Similarly, to
the extent that higher labor and other costs at ASB, due to inflation or other factors, is not fully offset by an increase in non-
interest income or net interest income, which is dependent on interest rates, the shape of the yield curve, earning assets growth
and low-cost deposit liabilities, the Bank’s profitability and results of operations would be adversely impacted.
Pension Liability Risk—HEI and Hawaiian Electric and their subsidiaries may incur higher retirement benefits expenses
and have and will likely continue to be subject to 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.
33
Tax Legislation Risk—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.
Litigation Risk—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 Estimates Risk—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. Material estimates that are particularly susceptible to significant change include the amounts
reported for electric utility revenues; allowance for credit losses; income taxes; investment securities, property, plant and
equipment; regulatory assets and liabilities; derivatives; pension and other postretirement benefit obligations; and contingencies
and litigation.
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.
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 DISCLOSURE
HEI and Hawaiian Electric: Not applicable.
34
INFORMATION ABOUT OUR EXECUTIVE OFFICERS (HEI)
The executive officers of HEI are listed below. Mss. Kimura and Teranishi 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
Scott W. H. Seu
Age
56
Business experience for last 5 years and prior positions with the Company
HEI President and Chief Executive Officer since 1/22
HEI Director since 1/22
ASB Chairman of the Board since 1/22
ASB Hawaii Director since 1/22
· Hawaiian Electric President and Chief Executive Officer, 2/20 to 12/21
· Hawaiian Electric Director, 2/20 to 12/21
· Hawaiian Electric Senior Vice President, Public Affairs, 1/17 to 2/20
· Hawaiian Electric Vice President, System Operation, 5/14 to 12/16
· Hawaiian Electric Vice President, Energy Resources and Operations, 1/13 to 4/14
· 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
Gregory C. Hazelton
57
HEI Executive Vice President and Chief Financial Officer since 4/17
· HEI Executive Vice President, Chief Financial Officer and 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
HEI Executive Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary
since 1/20
· HEI Vice President - Legal & Administration and Corporate Secretary, 10/16 to 12/19
· HEI Associate General Counsel, 3/11 to 10/16
Kurt K. Murao
52
Shelee M. T. Kimura
48
Hawaiian Electric President and Chief Executive Officer since 1/22
· Hawaiian Electric Senior Vice President, Customer Service and Public Affairs, 3/21 to 12/21
· Hawaiian Electric Senior Vice President, Customer Service, 2/19 to 3/21
· Hawaiian Electric Senior Vice President, Business Development & Strategic Planning, 1/17 to 2/19
· Hawaiian Electric Vice President, Corporate Planning & Business Development, 5/14 to 1/17
· HEI, Manager, Investor Relations, Strategic Planning & Budget, 11/09 to 5/14
· HEI Director, Corporate Finance and Investments, 8/04 to 11/09
Ann C. Teranishi
47
ASB President and Chief Executive Officer since 5/21
ASB Director since 5/21
· ASB Executive Vice President, Operations, 2/18 to 5/21
· ASB Senior Vice President, Director of Operations, 1/17 to 1/18
· ASB Senior Vice President, Customer Experience, 5/14 to 1/17
· ASB Senior Vice President, Director of Retail Credit Management, 4/13 to 4/14
· ASB Senior Vice President, Director of Consumer Credit Management, 4/11 to 4/13
· ASB Senior Vice President, Director of Regulatory Compliance, 9/07 to 3/11
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.
35
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 disclosed in Note 14, “Regulatory restrictions on net assets” 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 11, 2022, was 5,194. On February 11, 2022, the
HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.34 per share to $0.35 per share, starting
with the dividend in the first quarter of 2022. 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, 2021
November 1 to 30, 2021
December 1 to 31, 2021
Total
Total Number
of Shares
Purchased **
Average
Price Paid
per Share **
22,403 $
14,067
168,420
204,890
40.70
40.39
40.52
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
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 Hawaiian Electric Industries Retirement Savings Plan (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,” 173,484 of the 204,890 shares were purchased for the DRIP; 25,794 of the 204,890 shares were purchased for the
HEIRSP; and the remaining of the 5,612 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 2021 and 2020 were as follows:
Quarters ended
(in thousands)
March 31
June 30
September 30
December 31
Total
2021
2020
$
$
27,925 $
27,925
27,925
27,925
111,700 $
26,784
26,784
26,784
26,782
107,134
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.
ITEM 6.
[RESERVED]
36
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 42 branches on the islands of Oahu (29), Maui (6), Hawaii (4), Kauai (2), and Molokai (1).
Other. The Other segment comprises the results of Pacific Current, which invests in non-regulated clean energy and
sustainable infrastructure in the State of Hawaii to help reach the state’s sustainability goals, and HEI’s corporate-level
operating, general and administrative expenses.
A major focus of HEI’s financial strategy is to grow core earnings/profitability at the Utilities, Bank and Pacific Current in
a controlled risk manner and optimize operating, capital and tax efficiencies in order to support its dividend and deliver
shareholder value. Together, HEI’s unique combination of power, sustainable investments, 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.
Recent developments—COVID-19. The Company remains focused on the continued safety and well-being of customers,
employees, their families and the community. The Company’s mandatory work-from-home policy remains in effect for certain
employees and this policy has not impaired the Company’s ability to serve customers and maintain effective internal controls
over financial reporting. For personnel that cannot perform their work remotely, the Company has maintained safety protocols
and policies to keep employees safe, while at the same time ensuring the reliability and resilience of its operations.
The Hawaii economy began to improve in the second half of 2021 as case counts declined and vaccination rates increased.
However, the economic recovery experienced a setback early in the third quarter as the declining trend of daily COVID-19 case
counts reversed and began a rapid increase, setting a pandemic high at that time, exceeding approximately 900 cases per day (7-
day average) in early September. As a result of the rising cases, a number of preventative policies were enacted by state, county
and private entities, which included limiting group sizes for indoor and outdoor activities, mandatory vaccinations or adherence
to regular testing protocols, and proof of vaccination or negative COVID-19 test for entry into certain indoor venues under the
state’s Safe Access program. Additionally, the governor of the State of Hawaii made an announcement in late August,
recommending that tourists postpone their visit to Hawaii. These measures contributed to a significant decline in new cases,
leading to a 7-day average of approximately 100 cases in early December.
Following the detection of the Omicron variant in Hawaii in early December, case counts have increased rapidly, reaching
a high of approximately 4,666 new daily cases (7-day average) as of January 19, 2022. Since then, case counts have declined
rapidly, reaching a 7-day average daily case count of 256 as of February 22, 2022. Although the severity of the Omicron variant
appears to be significantly lower than the Delta variant, the higher case counts have led to an increase in hospitalizations.
Despite the case count spike from the Omicron variant, the state remains open for business. The Hawaii Safe Travels
Program, allows domestic transpacific passengers to avoid mandatory quarantine with proof of vaccination or a negative
COVID test taken within 72 hours prior to the flight into Hawaii. On January 3, 2022, the state reduced the mandatory
quarantine period from ten days to five days, consistent with the guidance from the Centers for Disease Control and Prevention.
Hawaii vaccinations have steadily increased with over 75% of the state’s population fully vaccinated as of February 10,
2022 and 36% of those fully vaccinated received a third shot.
37
Tourism numbers remain below pre-pandemic levels, primarily due to a delayed recovery in international travel. However,
domestic travel has recovered significantly and are nearing pre-pandemic levels, with January 2022 average daily passenger
counts at approximately 92% of January 2020 average daily passenger counts. Although the Hawaii economy experienced a
temporary setback with the Delta and Omicron variants, the Company expects that the Hawaii economy will continue to
improve in 2022. In 2021, kWh sales remained below pre-pandemic levels, but were 1.7% higher than 2020 due to increased
economic activity following the loosening of restrictions and an increase in tourism. While the level of kWh sales does not
affect Utility revenues due to decoupling, it may increase or decrease the price per kWh paid by customers. See “Decoupling”
in Note 3 of the Consolidated Financial Statements for a discussion of the decoupling mechanism.
At the Bank, due to favorable credit trends and continued improvement in the economic environment, ASB recorded a
$25.8 million negative provision for credit losses in 2021 compared to a provision for credit losses of $50.8 million in 2020.
Net interest income increased $3.7 million to $237.2 million in 2021 due to higher earning assets, primarily related to growth in
the investment securities portfolio that was principally funded by the growth in deposits. The higher net interest income from
the higher average earning asset balances, PPP income, and lower funding costs was partly offset by the impact of a decrease in
loan portfolio balances and lower earning asset yields as a result of the low interest rate environment.
For further discussion of the impact of the COVID-19 pandemic on the Utilities and the Bank, see “Recent Developments
—COVID-19” in the Electric Utility and Bank sections below. There has been no material impact on the “Other” segment and
Pacific Current as a result of the COVID-19 pandemic as the primary businesses of Pacific Current are supported by PPAs that
provide for contractual cash flows with credit-worthy counterparties.
For a discussion regarding the impact of the economic conditions caused by the pandemic on the Company’s liquidity and
capital resources, see discussion under “Financial Condition–Liquidity and capital resources,” contained in each of the “HEI
Consolidated,” “Electric utility” and “Bank” sections of this MD&A.
Environmental, Social & Governance. At HEI, environmental, social and governance (ESG) principles and sustainability
have long been embedded within all aspects of the Company’s activities and integral to the Company’s efforts to create value
for all of its stakeholders. With all of its operations isolated in the middle of the Pacific Ocean, the Company’s long-term health
and financial performance is inextricably linked with the strength of the Hawaii economy, its communities, and the
environment. That is why long-term shareholder and broader stakeholder value are both served by the Company’s mission to be
a catalyst for a better Hawaii.
In 2021, the Company identified a number of priorities that reflect the essential connection between the health of Hawaii’s
environment, economy and communities and HEI’s long-term success. The key ESG priorities the Company is working to
advance include:
•
•
•
•
•
•
•
decarbonizing the Company’s operations and the broader Hawaii economy;
promoting Hawaii’s economic health and improving affordability for all residents;
ensuring reliability and resilience as the Company navigates the clean energy transition and adapts to a changing
climate;
advancing digitalization of the Company’s operations to better serve customers and increase efficiency while protecting
against cyber-security challenges;
promoting diversity, equity and inclusion both within the Company and in the ways the Company interacts with and
impacts external stakeholders;
increasing employee engagement; and
identifying and integrating climate-related risks and opportunities throughout the Company’s planning and decision-
making.
The Company has also focused on ensuring that ESG considerations are appropriately integrated into governance
structures, strategies and risk management. This includes:
•
Integration of Board oversight of important ESG matters into its existing governance structures and processes. This
includes full Board review of ESG-related strategies, Audit & Risk Committee oversight of ESG risks, Compensation &
Human Capital Management Committee responsibility for ESG-related compensation matters and human capital
management and Nominating and Corporate Governance Committee responsibility for ensuring an appropriate board
governance framework is in place with respect to ESG.
• Robust ESG expertise among board members, including directors with direct experience in renewable energy, climate
change policy and strategy, environmental management and sustainable investing.
• Expanded ESG goals as part of HEI and Utility executive incentive compensation.
• ESG considerations explicitly woven into strategic planning efforts and enterprise risk management processes.
38
The Company is committed to transparency and providing information to allow customers, community leaders, investors
and other stakeholders understand how the Company’s strategies and operations advance ESG objectives and contribute to
long-term stakeholder value creation.
The Company issued its first ESG report in September 2020. The report encompassed ESG policies, principles and results
reported during 2019 across the Company’s two primary operating subsidiaries, Hawaiian Electric and ASB, and was aligned
with Sustainability Accounting Standards Board (SASB) guidance—using the electric utilities standard for Hawaiian Electric,
and the commercial banks, commercial finance, and mortgage finance standards for ASB. On April 22, 2021, the Company
issued its second ESG report. This report continues to include SASB disclosures for Hawaiian Electric and ASB and
incorporates disclosures regarding risks and opportunities related to climate change, as well as associated risk management and
governance processes, based on recommendations from the Task Force on Climate-related Financial Disclosures. It also
outlines key impacts for the Company under two climate scenarios, including a scenario targeted to limit global temperature rise
to 2 degrees Celsius or lower. The Company’s ESG reports can be found at www.hei.com/esg.
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
2021 % change
2020 % change
2019
$ 2,850
386
246
$
$
$
$
$
178
101
(33)
246
2.25
2.25
1.36
109.3
60%
10 $ 2,580
311
24
198
24
5 $
76
(12)
24 $
24 $
24 $
3 $
—
169
58
(29)
198
1.81
1.81
1.32
109.1
73%
(10) $ 2,874
348
(10)
218
(9)
8 $
(35)
(4)
(9) $
(10) $
(9) $
3 $
—
157
89
(28)
218
2.00
1.99
1.28
108.9
64%
In 2021, net income for HEI common stock increased 24% to $246 million ($2.25 diluted earnings per share), compared to
$198 million ($1.81 diluted earnings per share) in 2020, due to $44 million higher net income at ASB and $8 million higher net
income at the Utilities, partially offset by $4 million higher net loss at the “other” segment. The increase in ASB’s 2021 net
income compared to 2020 was primarily due to a negative provision for credit losses as a result of improved credit quality as
the local economy improved significantly from the prior year. Results for 2020 included the impact of the COVID-19 pandemic
on the local and national economy, which resulted in higher provision for credit losses, lower net interest income due to a lower
yield curve and additional noninterest expenses. The increase in the Utilities’ 2021 net income compared to 2020 was
principally due to higher RAM and ARA revenues, which included the customer dividend and an offset of management audit
savings delivered to customers and delivery of Hawaiian Electric ERP benefits commitment completed in 2020, partially offset
by higher operating 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 higher at 20% in 2021, compared to
17.0% in 2020, primarily due to an increase in income before income taxes in 2021, which reduces the rate impact of certain tax
items, lower amortization in 2021 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting
from the Tax Act’s decrease in the federal income tax rate and a decrease in excess tax benefits related to share-based awards in
2021. The factors leading to an increase in the effective tax rate were partially offset by higher nontaxable bank-owned life
insurance and federal research and developments tax credit claims in 2021.
For a discussion of 2019 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 2020 Form 10-K.
39
Other segment. The “other” business segment (loss)/income includes results of the stand-alone corporate operations of
HEI, ASB Hawaii, and Pacific Current.
(in millions)
Revenue1
Operating loss1
Interest expense &
other
Income tax benefit
2021
2020
$
4 $
Increase
(decrease)
3
1 $
Increase in other sales at Pacific Current subsidiaries.
Primary reason(s)
(22)
(19)
(3) Higher HEI corporate operating loss ($25 million in 2021 vs. $22 million
in 2020) primarily due to an increase in incentive compensation. Pacific
Current’s operating income was comparable ($3 million in 2021 and
2020).
(22)
(21)
(1) Interest expense & other in 2021 was slightly higher than in 2020
primarily due to higher interest expense at Pacific Current.
11
11
—
Income tax benefits were comparable in 2021 and 2020, but the income
tax benefit in 2021 reflects a lower effective tax rate, offset by an
increase in pretax losses
Net loss
$
(33) $
(29) $
(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 (UHERO), Department of Health of the State of Hawaii, 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 news media).
Hawaii’s tourism industry, a significant driver of Hawaii’s economy, suffered dramatically with a 73.8% reduction in total
visitor arrivals in 2020 compared with 2019. Starting October 15, 2020, the state launched its Safe Travels Program that allows
travelers to avoid the mandatory 14-day quarantine if they test negative for COVID-19 within 72 hours of departure. Effective
July 8, 2021, domestic visitors can now bypass the mandatory quarantine or COVID-19 test by providing proof of vaccination.
Since the launch of the Safe Travels Program, total daily passenger arrivals have steadily improved, but remain below pre-
pandemic levels. For the fourth quarter of 2021, the average daily passenger count was 249.3% higher than the comparable
period in the prior year, but still 22.2% below 2019. The recovery in total passenger counts from the low levels in 2020 thus far
has been driven by domestic travelers, with international travelers remaining at low levels due to higher restrictions for
international travelers, depending on country of origin. In December 2021, domestic passenger counts were down 0.3%
compared to 2019 pre-COVID-19 levels, while international passenger counts were down 89.7% compared to 2019 pre-
COVID-19 levels.
Hawaii’s seasonally adjusted unemployment rate in December 2021 was 5.7%, which was substantially lower compared to
the December 2020 rate of 10.3%. The national unemployment rate in December 2021 was 3.9% compared to 6.7% in
December 2020. Hawaii’s unemployment rate is expected to continue to improve now that restrictions on travel have been
reduced significantly and increased vaccination rates should enable further reductions in business restrictions.
Hawaii real estate activity through December 2021, as indicated by Oahu’s home resale market, drove an increase in the
median sales price of 9.2% for condominiums and 19.3% for single-family homes compared to the same period in 2020, with
the December median single-family home price tying a record of $1,050,000 set in August. The number of closed sales was up
53.1% for condominiums and up 17.9% for single-family residential homes in 2021 compared to 2020.
Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in
international markets. The price of crude oil gradually increased during the 4th quarter of 2020 and the trend has continued
during the first ten months of 2021.
At its December 15, 2021 meeting, the Federal Open Market Committee (FOMC) decided to maintain the federal funds
rate target range of 0%-0.25%. The FOMC plans to continue to maintain an accommodative stance of monetary policy to
achieve maximum employment and inflation at the rate of 2 percent over the long run. The Federal Reserve stated that it will
decrease its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth
market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and
businesses.
The most recent forecast by UHERO, which was issued on December 17, 2021, forecasts full year 2021 real GDP growth
of 5.8%, increase in total visitor arrivals of 149.2%, increase in real personal income of 0.8%, and an unemployment rate of
7.7%. This forecast reflects improvement of Hawaii’s economy after experiencing a downturn due to the Delta variant of
COVID-19; however, the Omicron variant has set a new record in new daily virus cases and led to implementation of increased
international travel restrictions. The international market is still anticipated to gradually return in 2022 once the Omicron
40
situation clears. Real GDP growth in 2022 is forecasted to be 2.7% supported by a 22.8% increase in total visitor arrivals in
2022 to 8.3 million visitors and a decrease in the unemployment rate to 5.4%. However, a full economic recovery is still
forecasted to be several years out and dependent on the ability to adapt to new COVID-19 threats.
The Company expects economic conditions to improve going forward; however, it is difficult to predict the future path of
the pandemic. If economic conditions worsen from current levels or remain depressed for an extended period of time, it could
have a material unfavorable impact on the Company’s financial position or results of operations in 2022.
See also “Recent Developments—COVID-19” in the “Electric utility” and “Bank” sections below for further discussion of
the economic impact caused by the pandemic.
Liquidity and capital resources. As of December 31, 2021, HEI and Hawaiian Electric had approximately $54 million
and nil of commercial paper outstanding, respectively, and Hawaiian Electric had $52 million of cash and cash equivalents.
As of December 31, 2021, there was no balance on HEI’s revolving credit facility and the available committed capacity
under the revolving credit facility was $175 million (see Note 5 of the Consolidated Financial Statements). As of December 31,
2021, there was no balance on Hawaiian Electric’s revolving credit facility and the available committed capacity under the
revolving credit facility was $200 million. On April 19, 2021, the term of Hawaiian Electric’s $75 million 364-day revolving
credit agreement expired and was not renewed. As of December 31, 2021, ASB’s unused FHLB borrowing capacity was
approximately $2.0 billion and ASB had unpledged investment securities of $2.5 billion that were available to be used as
collateral for additional borrowing capacity.
As of December 31, 2021, the total amount of available borrowing capacity (net of commercial paper outstanding) under
the Company’s committed lines of credit was approximately $321 million, which was a decrease of approximately $39 million
compared to December 31, 2020.
The Company believes that its cash and cash equivalents, expected operating cash flow from subsidiaries, existing credit
facilities, and access to the capital markets will be sufficient to meet the Company’s cash requirements over the next twelve
months and beyond based on its current business plans. However, the Company expects that its liquidity will continue to be
moderately impacted at the Utilities due to ongoing COVID-19 impacts to the local economy. For the Utilities, the elevated
level of unemployment in the state and the moratorium on customer disconnections (which ended on May 31, 2021) have
resulted in higher accounts receivable balances and bad debt expense and may result in higher write-offs in the future. As of
December 31, 2021, approximately $38 million of the Utilities’ accounts receivables were 30 days past due. Of the over 30
days past due amounts, approximately 30% were on payment plans. The Company commenced its disconnection process on a
tiered basis, starting in the third quarter of 2021, targeting the oldest and largest balances first, which is expected to reduce
delinquent accounts receivable balances over time as payments are made. In addition to the cash flow impact from delayed
collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally
result in delayed timing of cash flows, resulting in higher working capital requirements (see “Recent Developments—
COVID-19” in the Electric utility section below). At this time, the delay in customer cash collections has not significantly
affected the Company’s liquidity. The Company is prepared to address, if needed, the potential financing requirement related to
the delayed timing of customer collections.
At ASB, liquidity remains at satisfactory levels, largely due to U.S. economic stimulus programs implemented as a result of
COVID-19 that led to a substantial increase in customer deposits, which grew 11% and 18% in 2021 and 2020, respectively.
ASB’s cash and cash equivalents was $251 million as of December 31, 2021, compared to $293 million as of December 31,
2020. ASB remains well above the “well capitalized” level under the FDIC Improvement Act prompt correction action capital
category, and while the economic outlook has improved and is expected to continue to improve, there are still COVID-19
related business restrictions that remain in place that could create ongoing uncertainty regarding COVID-19’s impact on loan
performance and the allowance for credit losses (see “Recent Developments — COVID-19” in the Bank section below).
To preserve and enhance the Company’s liquidity position and address higher working capital requirements, in light of the
significant and ongoing uncertainty regarding the potential scale and duration of the COVID-19 pandemic and its impact on the
global, national and local economy, the Company completed a number of financing actions in 2021.
•
•
On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial
institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Facilities), to amend and
restate their respective previously existing unsecured revolving credit agreements. The committed capacity under the
HEI Facility was increased to $175 million from $150 million and its term was extended to May 14, 2026. On
February 18, 2022, the PUC approved Hawaiian Electric's request to extend the term of the $200 million Hawaiian
Electric Facility to May 14, 2026 from May 13, 2022.
On September 29, 2021, HEI executed a $125 million private placement utilizing a delayed draw feature, which allows
HEI to draw $75 million and $50 million at any time on or before December 29, 2021 and November 15, 2022,
respectively. On December 29, HEI drew $75 million, the proceeds of which were primarily used to invest in the
41
Utilities’ equity and support its capital expenditure program. Proceeds from the remaining $50 million are expected to
be used to refinance a portion of HEI’s $150 million long-term notes maturing in November 2022 or for other general
corporate purposes. The ability to draw at any time prior to the November 15, 2022 date will provide additional
liquidity in the interim period. The notes bear interest at a weighted average rate of 3.10% and have a weighted
average maturity of 15.7 years.
If further liquidity is deemed necessary, which is not contemplated at this time, the Utilities could also reduce the pace of
capital spending related to non-essential projects. Additionally, the Company has the option to issue new shares rather than
purchase currently outstanding shares on the open market to satisfy share issuances under its Dividend Reinvestment and Stock
Purchase Plan (DRIP) program. The estimated amount of equity capital that could be raised by issuing new shares, rather than
utilizing open market purchases, is estimated to be approximately $30 million on an annual basis, based on historical demand,
but such future amount is dependent on a number of factors, including, without limitation, future share prices, number of
shares/participants in the DRIP program, and the amount of new investment in HEI’s stock by DRIP participants.
HEI material cash requirements. HEI’s material cash requirements include: capital expenditures, labor and benefit costs,
O&M expenses, fuel and purchase power costs, and debt and interest payments at the Utilities; investments in loans and
investment securities at the Bank; labor and benefits costs, shareholder dividends and debt and interest payments at HEI; and
HEI equity contributions to support Pacific Current’s sustainable infrastructure investments. Forecasted HEI consolidated “net
cash used in investing activities” (excluding “investing” cash flows from ASB) for 2022 through 2026 consists primarily of the
net capital expenditures of the Utilities principally related to maintaining and modernizing the grid to allow for the integration
of more renewable energy, improved customer reliability, greater system efficiency and enhanced resilience. The Utilities’
capital expenditures are estimated to range from $2.0 billion to $2.2 billion over the next five years and are expected to be
funded primarily through a combination of retained earnings and proceeds from debt issuance, and if required, contributions of
equity from HEI to maintain the Utilities’ equity capitalization at approximately 58% (see also discussion regarding other
material cash requirements under “Financial Condition–Liquidity and capital resources,” contained in the “Electric utility” and
“Bank” sections below). In addition to the funds required for the Utilities’ construction programs and debt maturities, with
respect to HEI, over the next five years, approximately $150 million will be required in 2022, $50 million in 2023, and $50
million in 2025 to repay maturing debt. Debt maturities are expected to be repaid with the proceeds from the issuance of
commercial paper, bank borrowings, other medium- or long-term debt, issuance of 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; to pay interest costs; or to fund unanticipated expenditures not
included in the 2022 through 2026 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).
42
Selected short-term and long-term 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, 2021
(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
Liabilities for uncertain tax positions
Total (estimated)
Less than
1 year
1-3
years
3-5
years
More than
5 years
Total
$
— $
276
54
88
223
34 $
107
—
—
169
27 $
38
—
—
234
2 $
3
—
—
1,707
94
46
18
20
93
8
163
149
780
8
37
27
39
7
27
17
8
9
—
4
38
7
—
—
63
424
54
88
2,333
1,186
65
120
71
140
17
30
—
950 $
60
8
60
—
661 $ 567 $
157
—
2,698 $
307
8
4,876
$
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, certain 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, 2021, 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 2022 estimated contributions.
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.
Operating activities provided net cash of $376 million in 2021 and $429 million in 2020. Investing activities used net cash
of $1,180 million in 2021 and $1,414 million in 2020. In 2021, net cash used in investing activities was primarily due to
purchases of available-for-sale and held-to-maturity investment securities, capital expenditures, and purchases of stock from
Federal Home Loan Bank, partly offset by receipt of repayments from available-for-sale and held-to-maturity investment
securities, proceeds from sale of available-for-sale investment securities, net decrease in loans held for investment, proceeds
from sale of residential loans and redemption of stock from Federal Home Loan Bank. In 2020, net cash used in investing
activities was primarily due to purchases of available-for-sale investment securities, capital expenditures, net increase in loans
held for investment and purchases of held-to-maturity investment securities and stock from Federal Home Loan Bank, 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.
Financing activities provided net cash of $756 million in 2021 and $1,116 million in 2020. In 2021, net cash provided by
financing activities included net increases in deposits and proceeds from issuance of long-term debt, partly offset by payment of
common and preferred stock dividends, repayment of long-term debt, short-term debt and net decreases in short-term
borrowings. In 2020, net cash provided by financing activities included net increases in deposits and proceeds from issuance of
long-term debt, short-term debt and other bank borrowings, partly offset by payment of common and preferred stock dividends,
repayment of long-term debt, short-term debt and other bank borrowings and net decreases in short-term borrowings and other
bank borrowing with original maturities of three months or less.
For a discussion of 2019 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 2020 Form 10-K.
43
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 2021, Hawaiian Electric, ASB (through ASB Hawaii) and Hamakua Energy paid cash dividends to HEI
of $112 million, $59 million and $1 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
dividends on its common stock or its ability to meet its debt or other cash obligations. See Note 14 of the Consolidated
Financial Statements.
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, as well as 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 short-term and long-term material cash requirements. However, the
COVID-19 pandemic continues to be an evolving situation, and the Company cannot predict the extent or duration of the
outbreak, the future effects that it will have on the global, national or local economy, including the impact on the Company’s
cost of capital and its ability to access additional capital, or the future impacts on the Company’s financial position, results of
operations, and cash flows. See Item 1A. “Risk Factors” in Part I for further discussion of risks and uncertainties.
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
2021
2020
$
$
54
2,322
34
2,391
4,801
1% $
48
1
50
100% $
129
2,119
34
2,338
4,620
3%
46
1
50
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 facility1
1 On May 14, 2021, HEI amended and restated its previously existing revolving unsecured credit agreement to increase the capacity to $175 million from
54 $
—
175
56 $
—
—
65
—
150
$
Year ended December 31, 2021
Average
balance
End-of-period
balance
December 31,
2020
$150 million and extend its term to May 14, 2026. See Note 5 of the Consolidated Financial Statements.
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 commercial paper borrowings in 2021
was $129 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, 2021. HEI periodically utilizes long-term debt, historically unsecured
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. As of December 31, 2021, HEI’s debt maturities
in 2022 include $150 million of long-term debt that matures in November 2022. HEI has partially prefunded $50 million of this
maturity through the $125 million private placement completed in September 2021. See Notes 5 and 6 of the Consolidated
Financial Statements for a brief description of the Company’s loans.
44
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 11, 2022, the Fitch Ratings, Inc. (Fitch),
Moody’s Investors Service (Moody’s) and S&P Global Ratings (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-2
F3
Stable
Stable
S&P
BBB-
A-3
Stable
* 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.
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 HEI DRIP, HEIRSP or the ASB 401(k) Plan in 2021, 2020, or
2019 and HEI satisfied the share purchase requirements of the DRIP, HEIRSP and ASB 401(k) Plan through open market
purchases of its common stock.
Off-balance sheet arrangements. Although the Company and the Utilities have certain 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, 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 credit losses; fair value; and asset retirement obligations (AROs). 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 benefit obligations and 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
45
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.
The discount rate used to calculate the Company’s benefit obligations is a significant assumption that affects the
Company’s benefit obligations. As of December 31, 2021, the discount rate for HEI and the Utilities’ qualified pension plan
was 3.05%. 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, 2021, associated with
a change in the discount rate, 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
+/-50
$(211)/$241
$(199)/$228
$(14)/$16
$(14)/$16
Also, see Notes 1 and 10 of the Consolidated Financial Statements.
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
46
enable the creation of smart, sustainable, resilient communities and achieve its decarbonization goals that are aligned with the
statutory goal of 100% renewable energy by 2045.
Recent developments—COVID-19.
See also Recent developments—COVID-19 in HEI’s MD&A.
Starting in early December, new COVID-19 case counts, which now include the Omicron variant, started to increase and
reached a high of 4,666 cases per day (7-day average) on January 19, 2022. Since then, case counts have declined rapidly,
reaching a 7-day average daily case count of 256 as of February 22, 2022. Although case counts have increased, the severity of
the disease appears to be lower than the Delta variant. As a result, the state and counties have generally not reinstituted the same
restrictions that were put in place to manage the Delta variant. The economy remains open for business and the mandatory
quarantine period for travelers who have not been vaccinated or who have not provided evidence of a negative COVID test has
been reduced to five days. For the full year 2021, driven by the broader reopening of the economy, the demand for electricity
has increased 1.7% from 2020 levels; however, the full year 2021 kWh sales are still 5.5% below the pre-pandemic level of
kWh sales in 2019.
While the Utilities’ electric energy revenues have not been significantly impacted due to the decoupling mechanism, which
allows recovery of the difference between PUC approved target revenues and recorded adjusted revenues regardless of the level
of kWh sales, the timing of customer collections would be delayed (or accelerated) if the level of kWh sales decreases below
(or increases above) the estimated kWh sales. See “Decoupling” in Note 3 of the Consolidated Financial Statements for a
discussion of decoupling. As part of the annual review cycle, the Utilities submit bi-annual decoupling filings (fall and spring
revenue report) to the PUC. The fall revenue report requests recovery by the utility (or refund to customers) of the difference
between recorded adjusted revenues and target revenues under the RBA. The difference is collected or refunded through an
adjustment to customer rates in the following year based on estimated sales, starting on January 1st of that following year,
which has an impact on the timing of the Utilities’ cash flow. Additionally, although the Utilities’ decoupling mechanism
allows for collection under the RBA, the RBA balance accrues interest only at the short-term debt rate from the last rate case
(2.5% for Hawaiian Electric, 3.75% for Hawaii Electric Light and 3.0% for Maui Electric). As of December 31, 2021, the RBA
balance was approximately $28.5 million, compared to $7.6 million as of December 31, 2020. The billed accounts receivable
balance, net of allowance for doubtful accounts as of December 31, 2021, was $187 million, or 26.4% higher, than the billed
account receivable balance as of December 31, 2020, due in part to higher fuel prices resulting in higher bills. The past due
accounts receivable balance increased by $19 million, or 38%, since December 31, 2020 with a corresponding increase in the
number of accounts past due by approximately 13% for the same period. The increase in accounts receivables was primarily
driven by higher fuel prices, as well as lower cash receipts associated with the auto-enrollment of customers in payment plans,
starting in July 2021 through mid-September 2021, under which the past due balances are recovered over a 12-18 month period.
While the moratorium on customer disconnections ended on May 31, 2021, the Utilities initially focused its efforts on working
with customers to enroll in payment plans and seek other bill assistance for customers through funding from non-profit
organizations, as well as state and county relief programs. Starting in September 2021, the Utilities have begun the
disconnection process for those customers that have not enrolled in payment plans or that have not adhered to their payment
plans, beginning with the largest and oldest amounts in arrears. At this time, the delay in customer cash collections has not
significantly affected the Utilities’ liquidity. The Utilities are prepared to address, if needed, the financing requirement related
to the delayed timing of cash flows collected under the decoupling mechanism through the RBA and the modest slowing or
reduction in accounts receivable collections from customers. See “Financial Condition—Liquidity and capital resources” for
additional information.
The Utilities provide an essential service to the State of Hawaii, and have continued to operate to protect the health and
safety of employees and customers and to ensure system reliability, and have been following the Governor’s directive that the
Utilities take necessary measures to ensure they can operate in the normal course. The Utilities have also implemented certain
aspects of their business continuity plans, which includes the activation of its Incident Management Team to closely manage the
response to the pandemic and have implemented practices related to employee and facilities hygiene in order to ensure the
reliability and resilience of their operations.
In the second quarter of 2020, the PUC approved the deferral of certain COVID-19 related costs, such as higher bad debt
expense, higher financing costs, non-collection of late payment fees, increased personal protective equipment costs, and
sequestration costs for mission-critical employees. As of December 31, 2021, these cumulative costs, which have been deferred
and recorded as a regulatory asset, totaled approximately $27.8 million (see also discussion under Item 1A. “Risk Factors” and
“Regulatory assets for COVID-19 related costs” in Note 3 of the Consolidated Financial Statements). The Utilities currently
have approval to defer COVID-19 related costs through December 31, 2021 and will be seeking recovery of the deferred costs
in a separate proceeding at a future date. Looking forward, while the distribution and administration of the COVID-19 vaccine
has allowed for fewer restrictions and a broader reopening of the Hawaii economy, a worsening of COVID-19 case counts with
the Omicron or other variants or a prolonged period of current or more severe COVID-19 restrictions could adversely affect the
ability of the Utilities’ contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations timely, or
47
at all, or require modifications to existing contracts, which could adversely affect the Utilities’ business, increase expenses, and
impact the Utilities’ ability to achieve their RPS and other climate related goals. Additionally, while the state’s aggressive
response to the pandemic has managed to control the spread of the coronavirus, the measures taken have had a negative
economic impact on the state’s businesses and residents, which may influence the PUC’s actions regarding future rate increases.
See “Item 1A. Risk Factors” in Part II for additional discussion of risks.
For a discussion regarding the impact of the economic conditions caused by the COVID-19 pandemic on the Utilities’
liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.”
Performance-based regulations. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving a new performance-
based regulation framework (PBR Framework). See “Regulatory proceedings” under “Commitments and contingencies” in
Note 3 of the Consolidated Financial Statements.
Transition to a decarbonized and sustainable energy future. The Utilities are fully committed to leading and enabling
pathways to a decarbonized and sustainable energy future for Hawaii. The Utilities believe that a holistic approach to
decarbonization is needed, and that such a strategy requires achieving the Utilities’ decarbonization and renewable energy
commitments, facilitating and promoting beneficial electrification, and deploying carbon removal and offsets, among other
levers, to reduce statewide emissions.
In the fourth quarter of 2021, the Utilities set a goal to cut carbon emissions from power generation 70% by 2030,
compared to a 2005 baseline. The emissions covered by this goal include stack emissions from generation owned by Hawaiian
Electric and IPPs who sell electricity to the Utilities. The 2030 commitment would provide a significant portion of the reduction
the entire Hawaii economy needs to meet the U.S. target of cutting carbon emissions by at least 50% economy-wide by 2030.
Hawaiian Electric has also committed to achieving net zero carbon emissions from power generation by 2045 or sooner. Key
elements of the 2030 plan include the closure of the state’s last coal-fired IPP plant in 2022 upon expiry of the PPA, increasing
rooftop solar by more than 50% over 2021 levels, retiring six fossil fuel generating units, adding at least 1 GW of renewable
generation to what was already in place in 2021, increasing grid-scale and customer-owned storage, expanding geothermal
resources, and creating customer incentives for using clean, lower-cost energy at certain times of the day and using less fossil-
fueled energy at night. The retirement of fossil-fueled generating units to achieve the Utilities’ 70% decarbonization goal is
consistent with state policy and supported by Hawaii State law. See “Forecast of capital expenditures—Liquidity and capital
resources” for a discussion of potential capital expenditures related to decarbonization efforts.
On September 1, 2022, the last coal-fired IPP plant in the state, providing approximately 10% of Oahu’s generation, will
cease operations, removing a significant amount of GHG emissions from the Utilities’ generation mix. The plant’s aging
infrastructure could lead to more unscheduled outages compared to historic performance, which may impact system reliability.
See “Retirement of the AES coal plant” in the “Risk Factor” section for additional information on the transition risks.
In anticipation of the retirement of the coal-fired IPP plant, the Utilities have developed plans, including contingency plans,
to ensure reliable service through the transition period. These plans include the anticipated addition of ten renewable energy/
storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with
anticipated higher reserve levels, multiple demand response/distributed energy resources programs and a proposed battery
project. However, future events, including unexpected issues with existing generation, or supply chain issues and inflationary
pressures, as well as federal policies related to solar panel imports, among other factors, delay in the commercial operation of
new generation resources, could disrupt the ability of the Utilities to deliver reliable service. Also, see the “Developments in
renewable energy efforts—New renewable PPAs” section below.
Hawaii’s renewable portfolio standard law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by
December 31, 2020, 2030, 2040 and 2045, respectively. Hawaii law has also established a target of sequestering more
atmospheric carbon and greenhouse gases than emitted within the state by 2045. The Utilities’ strategies and plans are fully
aligned in meeting these targets.
The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals.
The Utilities reached its 2015 RPS goal two years early and exceeded the 30% RPS target for 2020, achieving an RPS of 34.5%
that year. In 2021, the Utilities achieved an RPS of 38.4%. The Utilities will continue to actively procure additional renewable
energy post-2021 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).
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 2021, a 1% shortfall in meeting the 2030
RPS requirement of 40% would translate into a penalty of approximately $1.7 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
48
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 the Utilities to limited commodity fossil fuel price exposure
under a fuel cost risk-sharing mechanism. The fuel cost risk-sharing mechanism apportions 2% of the fuel cost risk to the
utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.7 million. Conversely, the Utilities have
incentives under PIMs that provide a financial reward for accelerating the achievement of renewable generation as a percentage
of total generation, including customer supplied generation. The Utilities may earn a reward for the amount of system
generation above the interpolated statutory RPS goal at $20/MWh in 2022, $15/MWh in 2023, and $10/MWh for the remainder
of the multi-year rate period.
The Utilities are fully aligned with, and supportive of, state policy to achieve a decarbonized future and have made
significant progress in reducing emissions through renewable energy and electrification. 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 throughout its operations 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 are
environmental and social costs from the continued use of fossil fuels.
The State of Hawaii’s policy is supported by the regulatory framework and includes a number of mechanisms designed to
maintain the Utilities’ financial stability during the transition toward the state’s decarbonized 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 and the first quarter of 2020), as privately-owned distributed
energy resources have been added to the grid and energy efficiency measures have been put into place. Other regulatory
mechanisms under the new PBR framework reduce some of the regulatory lag during the multi-year rate plan (MRP), such as
the annual revenue adjustment to provide annual changes in utility revenues and the exceptional project recovery mechanism,
which allows the Utilities to recover and earn on certain approved eligible projects placed into service. See “Regulatory
proceedings” under “Commitments and contingencies” and “Decoupling” in Note 3 of the Consolidated Financial Statements.
Integrated Grid Planning. Achieving high levels of renewable energy and a carbon free electric system will require
modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To
accomplish this, the Utilities are implementing an innovative systems approach to energy planning intended to yield the most
cost-effective renewable energy and decarbonization pathways that incorporates customer and stakeholder input.
The IGP utilizes an inclusive and transparent Stakeholder Engagement model to provide an avenue for interested parties to
engage with the Utilities and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical
Advisory Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues
and process steps in the IGP. The Utilities submitted an updated IGP work plan to the PUC in January 2021. In August 2021,
the Utilities submitted their Revised Inputs and Assumptions to the PUC for review and approval, marking the significant
progress made through the stakeholder engagement phase of the IGP process. Once approved by the PUC, the next phase of the
process, which includes the development of long-range integrated grid plans, will begin.
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.
On June 9, 2021, the PUC issued an order providing guidance to the third Grid Service RFP filed on February 23, 2021.
The proposed Grid Service RFP focused only on Oahu and is seeking 60MW of grid services with focus on capacity reduction
similarly in response to the potential reserve shortfall from the AES coal plant retirement scheduled on September 1, 2022. The
Utilities filed a final draft and received PUC approval to proceed on August 3, 2021. The Utilities subsequently issued an
approved Grid Services RFP and the bids were due on October 13, 2021. The Utilities made their final selections on November
10, 2021 and commenced negotiations immediately after. The Utilities are targeting to execute GSPA contracts in early 2022
and file to the PUC for approval.
On June 8, 2021, the PUC approved the new program, Emergency Demand Response Program (EDRP), a battery storage
incentive program to dispatch electricity between 6 p.m. to 8 p.m. daily from participating residential and commercial
customers, to address the potential reserve shortfalls following the AES coal plant retirement. The PUC approved EDRP for
50MW on Oahu with an incentive budget not to exceed $34 million, which will be recovered via a surcharge cost recovery
mechanism over a 10-year amortization. The Utilities’ implementation plan was approved by the PUC on June 30, 2021, and
the Utilities subsequently filed the updated EDRP tariffs on July 1, 2021. As of December 31, 2021, the Utilities have received
and approved the applications totaling approximately 3.47 MW.
49
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
obsolescence, deliver customer benefits and enable greater distributed energy resources and renewable energy integration.
Under the Grid Modernization Strategy, the Utilities expect that new technology will help increase adoption of private rooftop
solar and make use of rapidly evolving products, including storage and advanced inverters. The Utilities are implementing
Phase 1 of their Grid Modernization Strategy (proportional deployment), 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. As of
December 31, 2021, approximately $36 million has been incurred to date under Phase 1 and is currently being recovered under
the Exceptional Project Recovery Mechanism (formerly known as MPIR adjustment mechanism) until such costs are included
in base rates. The Utilities have deployed over 50,000 advanced meters since the beginning of deployment and is working with
the PUC on plans to expand Phase 1 to cover full service territory.
The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System
(ADMS) as part of the second phase of their Grid Modernization Strategy implementation. However, 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. This supplement and update to the Grid Mod Phase 2
field devices application was filed on March 31, 2021. The estimated cost for the implementation over five years of the ADMS
and field devices, which includes capital, deferred and O&M costs, is $105 million. A PUC order was issued on April 27, 2021,
unsuspending and resuming consideration of the Phase 2 Application. The Utilities filed the reply statement of position on
October 15, 2021, completing the discovery phase of the docket. On November 16, 2021, the PUC suspended the Utilities’
ADMS and Phase 2 field device application to focus the Utilities’ attention on completing Phase 1. The Utilities filed a Motion
for Reconsideration with the PUC in response to the suspension, but was denied. The PUC subsequently clarified that the
Utilities may resume the Phase 2 docket no earlier than six months before Phase 1 is scheduled to be complete. Phase 1 is
currently scheduled to finish by the end of 2023; however, the PUC is considering expanding the scope of Phase 1 meter
installations to full service territory deployment, with proposed completion dates of the third quarter of 2024 or the second
quarter of 2025. Resumption of the Phase 2 proceeding would likely commence six months prior to the completion date
selected by the PUC.
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, closed on April 9, 2020.
The second phase, which commenced on April 9, 2020, allows up to 235 MW across all Hawaiian Electric service
territories in two tranches for small (under 250 kW) and large system sizes to encourage a variety of system sizes. To provide
opportunities for low- to moderate-income (LMI) customers to participate in the program, separate project proposals may be
submitted specifically targeting LMI customers.
Eight RFPs were required by order: one each for Oahu, Maui, Hawaii Island, Molokai, and Lanai, and LMI-specific RFPs
for Oahu, Maui, and Hawaii Island. LMI projects do not have a size cap nor do they decrease the 235 MW capacity available to
other projects.
For Lanai, the Utilities proposed to combine the previously issued Variable Renewable Dispatchable Generation Paired
with Energy Storage RFP and the CBRE RFP to optimize the benefits of procuring renewable energy, spurring development
and increasing the likelihood of success of the CBRE Program on Lanai. See “Developments in renewable energy efforts–
Requests for renewable proposals, expressions of interest, and information” for additional information.
On November 22, 2021, CBRE RFPs for Molokai and Lanai were issued and are currently accepting proposals through
February 15, 2022. On February 8, 2022, the PUC approved, subject to modifications, the CBRE and LMI CBRE RFPs for
Oahu, Maui, and Hawaii Island. The Utilities filed the final RFPs with the PUC on February 23, 2022.
For small CBRE projects less than 250 kW in size, the Utilities are planning to accept projects over a four-month period on
a first come first served basis as soon as the PUC approves the Utilities’ final tariff and contracts, filed on September 8, 2020.
The PUC reserved 30 MW as well as a small amount of unallocated capacity from Phase 1 for small projects in Phase 2 on
Oahu, Maui and Hawaii Island. If applications exceed the program capacity for that island, then a reverse auction process called
Competitive Credit Rate Procurement will be triggered to allocate project capacity and determine the credit rate. The Utilities
have developed a CBRE Portal where customers can subscribe to a project once the Subscriber Organization has added their
project to the portal.
50
Microgrid services tariff proceeding. In enacting Act 200 of 2018, the Hawaii legislature found that Hawaii’s residents
and businesses were vulnerable to disruptions in the islands’ energy systems caused by extreme weather events or other
disasters, and stated its belief that the use of microgrids would build energy resiliency into Hawaii’s communities, thereby
increasing public safety and security. The purpose of Act 200 was therefore to encourage and facilitate the development and use
of microgrids through the establishment of a standard microgrid services tariff. In July 2018, pursuant to Act 200, the PUC
opened a proceeding to investigate the establishment of a microgrid services tariff. In August 2019, the PUC issued an order
prioritizing items for resolution in the docket and directed the Parties to establish working groups (the “Working Group”) to
address issues identified by the PUC.
On March 30, 2020, the Utilities filed a Draft Microgrid Services Tariff and updated language for various distributed
energy resources Rules. On November 30, 2020, the PUC held a technical conference to present its proposed redlines to the
Utilities’ Draft Microgrid Services Tariff and related documents. On February 1, 2021, the Working Group filed its Draft
Microgrid Tariff reflecting areas of consensus and disagreement among the Parties. On May 17, 2021, the PUC issued an order
directing the Utilities to submit the Microgrid Services Tariff and appendices as modified by the PUC. The PUC further stated
its intent to issue a separate order to govern the next phase of the Microgrid Tariff proceeding. On May 27, 2021, the Utilities
filed the Microgrid Service Tariff.
On September 21, 2021, the PUC provided guidance for Phase 2 of the Microgrid Tariff proceeding, specifically
identifying the objective for Phase 2 to promote self-sufficiency and resilience among microgrid project operators, as well as to
further streamline the Microgrid Services Tariff where applicable. Furthermore, the PUC instructed Parties to recommend
priority topics, along with supporting rationale to better inform the topics that will be discussed during this phase of the
proceeding, which the parties submitted by October 21, 2021.
Decoupling. See “Decoupling” in Note 3 of the Consolidated Financial Statements for a discussion of decoupling.
Regulated returns. As part of the PBR Framework’s annual review cycle, the Utilities 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. The D&O in the PBR proceeding modified the earnings sharing mechanism to a symmetric arrangement.
Effective with annual earnings for 2021, the earnings sharing will be triggered for achieved rate-making ROACE outside of a
300 basis points dead band above and below the current authorized rate-making ROACE of 9.5% for each of the Utilities.
Earnings sharing credits or recoveries will be included in the biannual report (formally known as annual decoupling filing) to be
filed with the PUC in the spring of the following year. Results for 2021, 2020, and 2019 did not trigger the earnings sharing
mechanism for the Utilities.
Actual and PUC-allowed returns, as of December 31, 2021, were as follows:
%
Rate-making
Return on rate base (RORB)*
Year ended December 31, 2021
Utility returns
PUC-allowed returns
Difference
Hawaii
Electric
Light
Maui
Electric
Hawaiian
Electric
ROACE**
Hawaii
Electric
Light
Maui
Electric
Hawaiian
Electric
5.96
7.52
6.61
7.43
8.53
9.50
6.51
9.50
7.41
9.50
9.38
9.50
Hawaiian
Electric
7.28
7.37
Hawaii
Electric
Light
7.02
9.50
Maui
Electric
8.22
9.50
Rate-making ROACE***
(0.09)
(1.56)
(0.82)
(0.97)
(2.99)
(2.09)
(0.12)
(2.48)
(1.28)
* 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.
The factors contributing to the difference gap between PUC-allowed ROACEs and the ROACEs actually achieved prior to
the establishment of PBR include the 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 return on
capital additions since the last rate case in excess of indexed escalations. As a result of the D&O in the PBR proceeding, the
Utilities are allowed to recognize previously established RAM adjustment and ARA revenues on January 1 of each year.
51
Results of operations.
2021 vs. 2020
2021
$ 2,540
2020
$ 2,265
Increase (decrease)
$
275
(dollars in millions, except per barrel amounts)
Revenues. Net increase largely due to:
$ 139 higher fuel costs offset by lower kWh generated1
110 higher kWh purchased, higher purchased power energy costs and higher PPAC revenue2
13 higher revenue from 2020 RAM and ARA adjustments, which included the customer
dividend and an offset of management audit savings delivered to customers
6 accrual of Hawaiian Electric ERP system implementation benefits to be returned to
customers completed in 2020
5 higher other revenues from activities billed to third parties
3 higher PIMs revenue
Fuel oil expense.1 Net increase largely due to higher fuel oil prices and lower fuel
efficiency due to planned maintenance outages of certain generating units, partially offset
by lower kWh generated
Purchased power expense1,2. Increase largely due to higher purchased power energy
prices, higher kWh purchased and higher capacity charges
Operation and maintenance expense. Net increase largely due to:
7 more generating facility overhauls and maintenance work performed
3 ERP system costs amortization, which started for Hawaiian Electric in November 2020
2 Customer bill forgiveness and assistance in the fourth quarter of 2021
(2) lower outside services for system support (Interactive Voice Response and development
of portal for CBRE)
(3) lower pension service cost due to reset of pension costs included in rates as part of
Hawaiian Electric final rate case decision
(6) lower Pearl Harbor environmental reserves in 2021
Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation
expense in 2021 for plant investments in 2020
Operating income. Increase due to higher RAM revenues, offset in part by higher
depreciation expense
Income before income taxes. Increase due to higher RAM revenues, lower pension non-
service costs and higher AFUDC, partially offset by higher interest expense related to
new long term debt issued in May 2020 and January 2021 and higher depreciation
expense
Net income for common stock. Increase due to higher RAM revenues and lower
pension non-service costs, partially offset by higher operating expense. See below for
effective tax rate explanation
644
515
129
670
475
569
474
102
1
470
280
224
438
269
212
31
11
12
178
169
8
8.1%
8.1%
—%
Return on average common equity
80.06
63.00
17.06
8,261
8,120
2,469
2,579
141
(110)
Average fuel oil cost per barrel
Kilowatt-hour sales (millions) 3
Number of full-time employees (at December 31)
1 The rate schedules of the electric utilities currently contain ECRCs 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 when compared to prior year largely due to recovery from the effects of the COVID-19 pandemic. Although
international visitor arrivals have not recovered, increases in domestic travel, easing of restrictions, and high vaccination rates led to sales
slowly rebounding as the year progressed but remained lower than pre-pandemic levels in 2019.
Hawaiian Electric’s effective tax rate (combined federal and state income tax rates) in 2021 and 2020 was slightly higher at
20% in 2021, compared to 19%, primarily due to the lower amortization in 2021 of the Utilities’ regulatory liability related to
certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate and a decrease in
excess tax benefits related to share-based awards in 2021. These increases were partly offset by federal research and
development tax claims in 2021.
For a discussion of 2019 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 2020 Form 10-K.
52
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of December 31,
2021 amounted to $4.8 billion, of which approximately 26% related to generation PPE, 65% related to transmission and
distribution PPE, and 9% related to other PPE. Approximately 8% of the total net book value relates to generation PPE that has
been deactivated or that the Utilities plan to deactivate or decommission.
Regulatory proceedings. On December 23, 2020, the PBR D&O was issued, establishing a new PBR Framework. The PBR
Framework implemented a five-year multi-year rate period (MRP), during which there will be no general rate case applications.
In the fourth year of the MRP, the PUC will comprehensively review the PBR Framework to determine if any modifications or
revisions are appropriate. See also “Regulatory proceedings” 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. In
August 2020, the project was energized and commissioning of all wind turbines was completed. However, the project
was paused due to a conductor deficiency. Hawaiian Electric reconductored the 46kV circuit and in December 2020,
the project reached commercial operation.
NPM received its Incidental Take Permit from the Department of Fish and Wildlife Service on September 7, 2018.
Keep the North Shore Country (KNSC) has appealed this decision and the case has been transferred to the Hawaii
Supreme Court. On June 17, 2020, KNSC filed a Motion for Stay Upon Appeal. On August 10, 2020, KNSC’s Motion
for Stay Upon Appeal was denied. Oral arguments were held before the court on April 1, 2021, and the case is ready
for decision making.
KNSC and Kahuku Community Association (KCA) have also petitioned to appeal NPM’s Conditional Use Permits
issued by the Honolulu Department of Planning and Permitting. On August 6, 2020, the Zoning Board of Appeals
(ZBA) granted NPM’s Motions to Dismiss the Appeal Petitions of KNSC and KCA. On November 17, 2020, the ZBA
dismissed the appeals. On November 24, 2020, KNSC and KCA appealed the dismissal to the circuit court. The circuit
court affirmed the ZBA’s dismissal of the appeals on June 30, 2021. On July 1, 2021, KNSC and KCA appealed that
decision to the Hawaii Intermediate Court of Appeals where briefing is currently ongoing. The briefing was scheduled
to conclude on January 28, 2022.
Life of the Land (LOL) filed a Motion for Relief to argue the PUC’s approval for NPM PPA was invalid and should be
revised. Hawaiian Electric 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. On April 16, 2020, the PUC issued an order denying LOL’s Motion
for Relief. On April 27, 2020, LOL filed a Notice of Appeal of the PUC’s order with the Supreme Court of the State of
Hawaii. In June 2021, the Supreme Court denied LOL’s appeal.
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. On March 31, 2021, the PUC suspended the docket pending
the completion of a supplemental environmental review under the Hawaii Environmental Policy Act (HEPA). On
November 2, 2021, the Office of Planning and Sustainable Development of the State of Hawaii (OPSD) sent a letter
(November 2nd Letter) to the Honorable Mitch Roth, County of Hawaii, identifying the Planning Department for the
County of Hawaii to be the accepting agency and approving authority for any required HEPA review. Shortly
thereafter, the PUC lifted the suspension of the docket and stating the docket was ready for decision-making, however,
the PUC gave the parties a chance to brief the PUC if they disagreed that the docket was ready for decision-making.
On November 15, 2021 Puna Pono Alliance responded alleging that any decision should occur after PGV’s completed
supplemental environmental review is available and sent a letter to Mayor Roth questioning OPSD’s authority to issue
the November 2nd Letter. On December 8, 2021 Mayor Roth sent a letter to OPSD requesting clarification on OPSD’s
determination that the County of Hawaii’s Planning Department is correctly identified as the accepting authority.
The Utilities’ renewable energy goals depend, in large part, on the success of renewable projects developed and
operated by independent power producers. Beginning in 2017, the Utilities embarked on an ambitious procurement
effort, selecting multiple solar plus storage efforts to help reach the Utilities renewable portfolio standards goals as
well as to assist the Utilities in retiring fossil fuel generation. Several of the recently procured projects have
experienced delays or have been declared null and void by the independent power producers due to a number of issues,
including supply chain disruptions caused by impacts from the COVID-19 pandemic, solar product detentions at U.S.
53
ports of entry ordered by the U.S. Customers and Border Protection agency, and unforeseen site conditions which
resulted in unanticipated project costs or in some cases the inability to effectively use previously identified project
sites. Significant project delays or failures of these projects increase the risk of the Utilities not meeting the renewable
portfolio standards or other climate related goals, eligibility for performance incentive mechanisms associated with the
speed of increasing renewable generation, and the ability to retire fossil fuel units.
Tariffed renewable resources.
•
•
As of December 31, 2021, there were approximately 550 MW, 117 MW and 131 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, 2021, an estimated 32% of single-family homes on the islands of
Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 20% of the Utilities’ total
customers have solar systems.
The Utilities began accepting energy from feed-in tariff projects in 2011. As of December 31, 2021, there were 43
MW, 3 MW and 6 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 three-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, and has been
extended for one year through December 2022. 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 extended through June 2023. On June 30, 2021, the Utilities issued
an RFP for all fuels, including biodiesel, for supply commencing January 1, 2023. The Utilities and PBT signed an
agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, subject to PUC
approval.
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 2022, 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. As of December 31, 2021, summarized information for a
total of 8 PPAs is as follows:
Utilities
Number of
contracts
Total
photovoltaic
size (MW)
BESS Size
(MW/MWh)
Guaranteed
commercial
operation dates
Contract
term
(years)
Total projected
annual payment
(in millions)
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Total
4
2
2
8
139.5
139.5/558
7/31/22, 9/7/22,
9/30/22 & 8/31/23
20 & 25
$
60
75
60/240
11/3/22 & 12/2/22
75/300
4/28/23 & 10/27/23
274.5
274.5/1,098
25
25
$
31.9
14.1
17.6
63.6
The Utilities have received PUC approvals to recover the total projected annual payment of $63.6 million for the eight
PPAs through the PPAC to the extent such costs are not included in base rates.
In continuation of their February 2018 request for proposal process, the Utilities issued their Stage 2 Renewable RFPs
for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. Final awards for the renewable projects
were made on May 8, 2020. Final awards for the grid services projects were made starting in January 2020. On Oahu,
seven solar-plus-storage projects and one standalone storage project totaling approximately 281 MW of generation and
1.8 GWh of storage were selected. On Maui, three solar-plus-storage projects and one standalone storage project
totaling approximately 100 MW of generation and 560 MWh of storage were selected. On Hawaii Island, two solar-
plus-storage projects and one standalone storage project totaling approximately 72 MW of generation and 492 MWh of
54
storage were selected. Two Utility Self-Build projects were among those selected; a 40-MW, 160-MWh standalone
energy storage system on Maui and a 12-MW, 12-MWh storage system on Hawaii Island. Three renewable plus
storage projects voluntarily withdrew from the process prior to execution of a power purchase agreement for various
reasons, including change in circumstances for the developer and a misunderstanding of contract requirements. As of
December 31, 2021, the Utilities had filed 10 PPAs, 2 grid services purchase agreements (GSPA) and 2 applications
for commitments of funds for capital expenditures for approval of the utility self-build projects with the PUC. On
October 25, 2021, one solar-plus-storage project on Hawaii Island was declared null and void by the developer. On
December 6, 2021, one solar-plus-storage project on Oahu was declared null and void by the developer. On January
14, 2022, the Utilities filed an additional solar plus storage PPA for approval for 42 MW of generation and 168 MWh
of storage.
A summary of the 9 PPAs that are still under active development, is as follows:
Utilities
Number
of
contracts
Total
photovoltaic
size (MW)
BESS Size
(MW/MWh)
Guaranteed commercial
operation dates
Contract
term
(years)
Total projected
annual payment
(in millions)
Hawaiian Electric
Hawaiian Electric
Maui Electric
Total
5
1 *
3
9
214
N/A
100
314
214/983
185/565
100/400
499/1,780
5/17/23, 10/30/23,
12/29/23, 12/31/23 &
4/9/2024
12/30/22
4/30/23, 4/30/23 &
12/29/23
20 & 25
$
20
25
$
59.3
24.0
28.2
111.5
* See further discussion under “Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement” below.
As of December 31, 2021, seven projects that have been approved by the PUC remain in development – six solar-plus-
storage PPAs (257 MW) and one standalone storage PPA (185 MW). The total projected annual payment of $95.8
million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates. On
February 15, 2022, the Utilities filed letters with the PUC requesting approval of amendments to two of the previously-
approved PPAs for Stage 2, one on Oahu and one on Maui, that address delays and price increase due to the
COVID-19 pandemic and the global supply-chain crisis, as well as other market conditions that have arisen during the
development of these projects.
A summary of the GSPAs that were approved by PUC in December 2020 is as follows:
Utilities
Fast Frequency
Response - 1
(MW)
Fast Frequency
Response - 2
(MW)
Capacity -
Load Build
(MW)
Capacity -
Load Reduction
(MW)
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Total
—
6.0
6.1
12.1
26.7
—
—
26.7
14.5
3.2
1.9
19.6
19.4
4.0
4.7
28.1
A summary of the utility self-build projects that are pending PUC approval is as follows:
Utilities
Number of
contracts
BESS Size
(MW/MWh)
Guaranteed commercial
operation dates
Hawaii Electric Light
Maui Electric
Total
1
1
2
12/12
40/160
52/172
12/30/22
4/28/23
•
On November 27, 2019, the Utilities issued RFPs for renewable generation paired with energy storage on the islands
of Lanai and Molokai. The Utilities were seeking PV paired with storage or small wind (specified as 100 kW turbines
or smaller) on Molokai and PV paired with storage on Lanai. The RFP on Lanai was postponed on January 14, 2020 to
allow the Utility to re-evaluate the scope of the RFP in response to announced plans to remove two large resorts from
the grid. Proposals for the Molokai RFP were received on February 14, 2020. In light of a PUC order issued on April
9, 2020 in the CBRE docket, the Utilities proposed in their July 9, 2020 filing to combine the previously issued and
subsequently postponed Lanai RFP with the CBRE RFP described in the order to optimize the benefits of procuring
renewable energy, spurring development and increasing the likelihood of success of the CBRE program on Lanai. On
May 21, 2021, the PUC approved the proposed combined Lanai RFP. On October 15, 2020, the Utilities selected one
project from the Molokai RFP for a total of 4.5 MW of solar and 24 MWh of storage. The developer, however,
55
declined to accept the award. On August 25 and 31, 2021, the Utilities filed proposed final drafts of the CBRE RFPs,
which included three dedicated Low-to-Moderate-Income RFPs on Oahu, Maui and Hawaii, three Tranche 1 RFPs on
Oahu, Maui and Hawaii, a Molokai CBRE RFP, and a combined Lanai Variable and CBRE RFP. On November 22,
2021, CBRE RFPs for Molokai and Lanai were opened. On February 8, 2022, the PUC approved, subject to
modifications, the CBRE and LMI CBRE RFPs for Oahu, Maui, and Hawaii island. The Utilities filed the final RFPs
with the PUC on February 23, 2022.
• The PUC issued a letter to the Utilities requesting development with a Stage 3 RFP on Hawaii Island on January 21,
2021. In accordance with guidance provided by the PUC in a subsequent letter on April 20, 2021, the Utilities filed the
Hawaii Island Grid Needs Assessment on July 15, 2021 and the draft RFP, including model contracts for PV+BESS,
wind+BESS, standalone storage, firm renewable generation, and distributed energy resources aggregators on October
15, 2021. The requirements in the Stage 3 RFP are guided by the results of the Grid Needs Assessment. On February
22, 2022, the PUC sent a letter to the Utilities directing them to develop Stage 3 RFPs for Oahu and Maui. The
Utilities are currently evaluating next steps.
•
On November 17, 2021, the Utilities filed a request with the PUC to develop an RFP for firm renewable generation for
Oahu. On December 22, 2021, the PUC issued guidance to the Utilities on proceeding with such RFP. The Utilities are
developing the RFP requirements and plan to file a draft RFP in the first quarter of 2022.
Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement.
•
In February 2021, the PUC initiated a docket for the purposes of reviewing the status and interconnection progress of
various utility-related renewable projects (i.e. Stage 1 and Stage 2 RFP PPAs and CBRE) and the Utilities’ transition
plans for the expiration of the AES power purchase agreement, the retirement of the Kahului Power Plant, and other
fossil fuel power plant transition plans, as needed. The Utilities filed initial status updates on the project timelines,
steps needed for each of the renewable projects to achieve commercial operation and steps the Utilities are taking to
address projected extensions of guaranteed commercial operation dates (GCOD) for renewable projects under
development, which are due to a variety of factors, including those outside of the control of the Utilities. The PUC
subsequently held status conferences on the Utilities’ updates. In April 2021, the PUC issued an Order directing the
Utilities to establish regulatory liabilities for the difference between the on-peak avoided cost and the unit price
included in the applications for approval of the renewable project PPAs, effective with the GCOD included in the
applications (the earliest GCOD included in the applications is July 2021) or from the date of the Order for CBRE
Phase 1 projects. The amount of regulatory liabilities to be recorded in future periods are not determinable at this time
and would be affected by a number of factors, including the length of the GCOD extension period, the monthly on-
peak avoided cost, as well as the factors described above. The Utilities filed a Motion for Reconsideration of the entire
Order, or in the alternative to clarify that at most the PUC is directing the Utilities to track the information and not
record the information at this time. The Utilities further requested a Stay of the Order pending resolution of the
Motion. The Utilities maintain that extensions of GCODs are allowed under the PUC-approved contracts and that the
Order has the unintended consequence of imposing penalties against the Utilities without due process. In May 2021,
the PUC issued an order clarifying its Order and directed the Utilities to track costs to consumers caused by the
perceived delay of renewable projects, and that the PUC does not intend to, at this time, impose any penalties on the
Utilities. The full text of the Order, Motion for Reconsideration and request for a Stay of the Order, and clarification
Order can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2021-0024).
• Also in April 2021, the PUC approved the Kapolei Energy Storage (KES) PPA (one of the PPAs as a result of the
Stage 2 Renewable RFP process) (KES Decision and Order), subject to nine conditions, including the Utilities
forgoing the second portion of the PIM rewards amounting up to $1.7 million for the Stage 1 RFP PPAs, removing
grid constraints for the Utilities’ CBRE Phase 2 projects and for existing and new distributed energy programs,
financial retirement of Hawaiian Electric generating units by specified dates and adjusting target revenues at the
retirement dates for such retirements, and a requirement to charge the batteries in the project using significant levels of
renewable energy generation. The financial retirement of the generating units described in the KES Decision and Order
is contrary to the intent of Hawaii Revised Statutes §269-6(d), which encourages the recovery of stranded costs for the
retirement of fossil fuel generation, and contrary to the regulatory compact under which in return for agreeing to
commit capital necessary to allow utilities to meet their obligation to serve, utilities are assured recovery of their
investment and a fair opportunity to earn a reasonable return on the capital prudently committed to the business.
Hawaiian Electric filed a Motion for Reconsideration and Stay of the Decision and Order due to potentially significant
financial and operational impacts. In May 2021, the PUC granted, in part, Hawaiian Electric’s Motion for
Reconsideration and Stay. In this Order, the PUC addressed a number of Hawaiian Electric’s concerns, including
removing the condition of the Utilities foregoing the PIM award from Stage 1 RFP projects, agreeing to address grid
constraint concerns in respective DER and CBRE dockets and not in the KES docket, removing the minimum
56
thresholds of charging energy coming from renewable energy generation and corresponding deadlines associated with
these thresholds and modifying the condition on financial retirement of generating units. The PUC indicated the net
book value of generating assets would be addressed at the time of retirement. The full text of the KES Decision and
Order and the Motion for Reconsideration and Stay with respect thereto, and the Order granting, in part, Hawaiian
Electric’s Motion for Reconsideration can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No.
2020-0136).
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 of
the Consolidated Financial Statements.
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 Hawaii 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. On June 30, 2021,
the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. On February 1, 2022, the Utilities and PAR
Hawaii entered into a fuel supply contract commencing January 1, 2023 and Second Amendment to the existing fuel contract to
amend tier-1 volumes. The Second Amendment will take effect contingent upon PUC’s approval. The costs incurred under the
contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs.
On June 9, 2020, the Utilities and PAR Hawaii entered into a First Amendment to the fuel contract. The First Amendment
amends only the LSFO pricing to create a two-tiered structure based on volume, with all tier-1 LSFO up to the tier-1 maximum
to be purchased exclusively from PAR Hawaii at the established pricing, and purchases in excess of that volume (tier-2) either
from PAR Hawaii at the established pricing, or from an alternative supplier. On August 4, 2020, the PUC approved the First
Amendment, which has an effective date of July 15, 2020, on an interim basis. The PUC’s approval order allows the recovery
of such costs associated with the First Amendment through the ECRC to the extent that the costs are not recovered in base rates.
The PUC intends to review whether the First Amendment is reasonable and in the public interest in the final decision, but it will
not subject the recovery of the costs between the interim decision and the final decision to retroactive disallowances.
Army privatization. On October 30, 2020, the PUC approved Hawaiian Electric’s 50-year contract with the U.S. Army 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 the Army’s existing distribution system for a stated purchase price of $16.3 million, under the approved
contract, 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. The final purchase price is subject to Hawaiian Electric completing its due diligence and evaluation of the assets
being acquired.
Hawaiian Electric will take ownership and all responsibilities for operation and maintenance of the system on March 1,
2022 for a 50-year term, after a one-year transition period. Under the contract, Hawaiian Electric will make initial capital
upgrades over the first six years of the contract and replacement 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 PUC
requires Hawaiian Electric to file regular periodic reports on the activities and investments in fulfillment of the contract and will
review the major projects planned on behalf of the Army. 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.
Liquidity and capital resources. As of December 31, 2021, there were no amounts outstanding on Hawaiian Electric’s
revolving credit facility and under its commercial paper program and the total amount of available borrowing capacity under the
Utilities’ committed line of credit was $200 million.
57
Hawaiian Electric expects that its liquidity will continue to be moderately impacted at the Utilities due to ongoing
COVID-19 impacts to the local economy. Compared to pre-pandemic levels, delinquent accounts receivable balances have
increased, which could result in higher write-offs in the future, and kWh sales have generally declined, both of which impact
the timing of cash flows and creates higher working capital requirements. However, the Utilities’ liquidity and access to capital
remains adequate and is expected to remain adequate. As of December 31, 2021, the total amount of available borrowing
capacity (net of commercial paper outstanding) under the Utilities’ committed lines of credit and cash and cash equivalents was
approximately $252 million.
The moratorium on customer disconnections was lifted on May 31, 2021. Starting in the third quarter of 2021, the Utilities
commenced the disconnection process on a tiered basis, targeting the oldest and largest balances first, which is expected to
reduce delinquent accounts receivable balances over time and accelerate cash collections.
Hawaiian Electric’s consolidated capital structure was as follows:
December 31
(dollars in millions)
Short-term borrowings
Long-term debt, net
Preferred stock
Common stock equity
2021
2020
$
$
—
1,676
34
2,262
3,972
—% $
42
1
57
100% $
50
1,561
34
2,142
3,787
1%
41
1
57
100%
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
$
Year ended December 31, 2021
Average
balance
End-of-period
balance
December 31,
2020
8 $
—
—
—
— $
—
—
200
—
—
—
275
Undrawn capacity under line of credit facilities2
1 The maximum amount of external short-term borrowings by Hawaiian Electric during 2021 was approximately $52 million. At
December 31, 2021, Hawaii Electric Light and Maui Electric had short-term borrowings from Hawaiian Electric of $1 million and nil,
respectively, which intercompany borrowings are eliminated in consolidation. In addition to the short-term borrowings above, on January
15, 2021, Hawaiian Electric paid off the $50 million term loan dated as of May 19, 2020 (see Note 5 of the Consolidated Financial
Statements).
2 On April 19, 2021, Hawaiian Electric’s $75 million 364-day revolving credit agreement expired and was not renewed.
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 State of Hawaii Department of Budget and
Finance (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.
Credit agreement. On April 19, 2021, Hawaiian Electric’s $75 million 364-day revolving credit agreement expired and
was not renewed. On May 14, 2021, Hawaiian Electric entered into an agreement with a syndicate of nine financial institutions,
to amend and restate its previously existing $200 million unsecured revolving credit agreement (Hawaiian Electric Facility). As
of December 31, 2021, no amounts were outstanding under the facility. On February 18, 2022, the PUC approved Hawaiian
Electric's request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026 from May 13, 2022. See
Note 5 of the Consolidated Financial Statements.
Credit ratings. On March 17, 2021, S&P upgraded Hawaiian Electric’s issuer credit rating to “BBB” from “BBB-,”
upgraded the short-term and commercial paper ratings to “A-2” from “A-3” and revised the outlook to stable from positive. The
rating upgrade was primarily based on Hawaiian Electric’s strong financial measures, strength of the cumulative value of the
58
regulatory protections, and S&P’s assessment of its stand-alone credit profile as sufficient to rate Hawaiian Electric higher than
HEI.
On April 20, 2021, Moody’s upgraded Hawaiian Electric’s senior unsecured rating and issuer rating to “Baa1” from
“Baa2” and revised the outlook to stable from positive. The rating upgrade reflects Hawaiian Electric’s considerable progress in
adding renewable resources to its energy supply mix and the improving regulatory relationship with the PUC. On June 25,
2021, Fitch affirmed Hawaiian Electric’s “BBB+” long-term issuer default rating, “F2” short-term issuer default rating and
stable outlook.
As of February 11, 2022, 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
* Not rated.
Fitch
BBB+
F2
A-
*
Stable
Moody’s
Baa1
P-2
Baa1
Baa3
Stable
S&P
BBB
A-2
*
*
Stable
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. Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State
of Hawaii (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 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, 2021, Hawaiian Electric had $3 million of undrawn funds remaining with the trustee. Hawaii Electric Light
and Maui Electric had no undrawn funds as of December 31, 2021.
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 (2019 Legislative
Authorization).
On February 9, 2021, the PUC approved the Utilities’ request to issue SPRBs (up to $100 million, $35 million and $45
million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively) through 2022, with the proceeds to be
used to finance the Utilities’ multi-project capital improvement programs. The PUC also approved the use of the expedited
approval procedure to request the issuance and sale of the remaining/unused amount of SPRBs authorized by the 2019
Legislative Authorization (i.e., total not to exceed up to $400 million for Hawaiian Electric, up to $150 million for Hawaii
Electric Light, and up to $150 million for Maui Electric) during the period January 1, 2023 through June 30, 2024.
Bank loans. On January 15, 2021, Hawaiian Electric paid off the $50 million term loan drawn on May 19, 2020.
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.
Pursuant to the approval, on January 14, 2021, the Utilities drew $115 million of proceeds using a delayed draw
feature under a private placement executed on October 29, 2020. The proceeds were used to finance capital expenditures
and reimburse funds used for the payment of capital expenditures.
59
As of December 31, 2021, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $135 million, $85 million,
and $45 million, respectively, of remaining taxable debt to issue prior to December 31, 2022. 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 in 2019
Taxable debt issuance in May 2020
Taxable debt executed in October 2020, but issued on January 14, 2021
Remaining authorized amounts
$
Hawaiian
Electric
Hawaii Electric
Light
$
410 $
Maui Electric
130
150 $
75
30
110
60
135 $
15
10
10
30
85 $
10
10
40
25
45
On September 30, 2021, the Utilities requested PUC approval through the expedited approval process to issue taxable debt
(Hawaiian Electric up to $30 million, Hawaii Electric Light up to $30 million and Maui Electric up to $35 million) prior to
December 31, 2022. On December 13, 2021, the Utilities submitted an updated letter request to modify Hawaiian Electric’s
request to up to $50 million from the original up to $30 million.
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. As of December 31, 2021, Hawaiian Electric,
Hawaii Electric Light, and Maui Electric have $221.4 million, $93.7 million, and $63.2 million, respectively, of
remaining common stock to issue prior to December 31, 2022. See summary table below.
(in millions)
Hawaiian
Electric
Hawaii Electric
Light
Maui Electric
Total “up to” amounts of common stock authorized to issue and sell through 2021
$
150.0 $
10.0 $
Supplemental increase authorized
Total “up to” amounts of common stock authorized to issue and sell through 2022
Less: Common stock authorized and issued in 2017, 2018, 2019, 2020 and 2021
Remaining authorized amounts
$
280.0
430.0
208.6
221.4 $
100.0
110.0
16.3
93.7 $
10.0
100.0
110.0
46.8
63.2
Cash flows. The following table reflects the changes in cash flows for the twelve months ended December 31, 2021
compared to the twelve months ended December 31, 2020:
(in thousands)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Years ended December 31
2021
2020
Change
$
273,133 $ 336,551 $ (63,418)
58,829
(344,794)
(285,965)
(24,911)
29,675
4,764
Net cash provided by operating activities: The decrease in net cash provided by operating activities was primarily
driven by lower cash receipts from customers due to the impact of the pandemic and timing in receipts of payments, and higher
cash paid for fuel stock due to higher fuel oil prices and volume purchased, partially offset by lower cash paid for accounts
payable due to timing .
Net cash used in investing activities: The decrease in net cash used in investing activities was primarily driven by a
decrease 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 net cash from long-term and short-term debts.
For a discussion of 2019 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 2020 Form 10-K.
Material cash requirements. Material cash requirements of the Utilities include O&M expenses, including labor and
benefit costs, fuel and purchase power costs, repayment of debt and interest payments, operating lease obligations, its forecasted
60
capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term
material cash requirements. The cash requirements for O&M, fuel and purchase power costs, debt and interest payments, and
operating lease obligations are generally funded through the collection of the Utilities’ revenue requirement established in the
last rate case and other mechanisms established under the regulatory framework. The cash requirements for capital expenditures
are generally funded through retained earnings, the issuance of debt, and contributions of equity from HEI and generally
recovered through the Utilities’ revenue requirement or other capital recovery mechanisms over time. The Utilities believe that
their ability to generate cash is adequate to maintain sufficient liquidity to fund their material cash requirements. However, the
COVID-19 pandemic is an evolving situation, and the Utilities cannot predict the extent or duration of the outbreak, the future
effects that it will have on the global, national or local economy, including the impacts on the Utilities’ ability, as well as the
cost, to access additional capital, or the future impacts on the Utilities’ financial position, results of operations, and cash flows.
See Item 1A. “Risk Factors” in Part I for further discussion of risks and uncertainties.
Forecast of capital expenditures. For the five-year period 2022 through 2026, the Utilities forecast up to $2.1 billion of net
capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental
regulations and/or unforeseen delays in permitting and timing of PUC decisions. Approximately $1.30 billion is related to
replacement and modernization of generation, transmission and distribution assets; approximately $0.5 billion is related to
climate-related projects to transition to renewable energy or mitigate climate impacts by increasing the resilience of the system,
and approximately $0.3 billion for targeted efforts to improve reliability. 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 2022 to 2026 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).
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 short-term and long-term 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, 2021
(in millions)
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
Liabilities for uncertain tax positions
Total (estimated)
1
Less than 1
year
Payments due by period
3-5
years
More than
5 years
1-3
years
Total
$
52 $
70
100 $
130
172 $
121
1,360 $
727
1,684
1,048
46
12
93
8
30
—
$
311 $
8
28
39
9
60
2
376 $
7
24
8
5
60
—
397 $
4
32
—
—
65
96
140
22
157
—
2,280 $
307
2
3,364
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, 2021, 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 2022.
61
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. 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 long-duration energy storage, grid-forming and black starting inverters in low inertia power systems,
microgrids, distributed generation, grid modernization, 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, test,
pilot, and implement technologies that align with their technical and business plans and support clean energy and decarbonized
goals, while ensuring reliability and resilience as the Utilities adapt to a changing climate.
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, including the PBR Framework, 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, 2021, the consolidated
regulatory liabilities and regulatory assets of the Utilities amounted to $997 million and $566 million, respectively, compared to
$960 million and $767 million as of December 31, 2020, 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, 2021 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, including the impact of the newly approved PBR Framework,
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.
62
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, 2021, Unbilled revenues, net of allowance for doubtful
accounts, amounted to $129 million and the RBA revenue recognized in 2021 amounted to $20 million.
Asset retirement obligations. The Utilities recognize AROs at present value of expected costs to retire long-lived assets
from service, which is estimated 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 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, 2021 and December 31, 2020, the Utilities’ AROs totaled $11.1 million
and $10.7 million, respectively.
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 2021 with assets of
$9 billion and net income of $101 million, compared to assets of $8 billion and net income of $58 million in 2020.
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. The current economic crisis from
the COVID-19 pandemic altered the strategies ASB set out to achieve. Key strategies to drive organic growth include:
1.
2.
3.
deepening customer relationships through the redesign of branch-centric approaches as transactions and engagement
migrate to other channels;
building out product and service offerings to open new segments;
online and remotely-assisted account opening capabilities as there is a much more rapid and pervasive adoption of
online and mobile banking by Hawaii banking customers; and
4.
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 pandemic’s impact on the economy has negatively affected ASB’s net
interest margin and initially impacted credit losses. With the reopening of the economy and government stimulus assistance,
asset quality has improved. The potential for further compression of ASB’s net interest margin if interest rates remain at current
low levels 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.
Recent Developments—COVID-19. See also Recent developments—COVID-19 in HEI’s MD&A.
The Hawaii economy improved significantly in 2021, compared to 2020, due to the impact of stimulus programs and the
loosening of business restrictions; however, the Hawaii economy experienced temporary setbacks with increased COVID-19
case counts stemming from the Delta variant in the third quarter of 2021 and the Omicron variant at the end of 2021. Although
new daily case counts have continued to rise into early 2022 with a peak in late January, hospitalization rates have remained
63
below rates experienced with the Delta variant, and as a result, the state and counties have not reinstituted the same level of
restrictions that were put in place earlier in the pandemic and the Hawaii economy remains largely open for business.
Consistent with the improvement in the Hawaii economy in 2021, the bank’s performance improved in 2021, relative to
2020, with net interest income after provision for credit losses improving to $263.1 million for the year ended December 31,
2021, compared to $182.7 million for the year ended December 31, 2020, primarily driven by a negative provision for credit
losses. Net interest margin declined to 2.91% for the year ended December 31, 2021, compared to 3.29% for the year ended
December 31, 2020. The lower net interest margin was driven by the continued low interest rate environment that resulted in
new loan origination rates remaining below existing portfolio yields. In addition, a change in the mix of earning assets, with a
higher proportion of earning assets composed of investment securities which have a lower yield than the loan portfolio. The
growth in the investment portfolio was driven by the growth in deposits, which grew at a faster pace than the loan portfolio
resulting in excess liquidity being used to purchase investment securities. In the fourth quarter of 2021, the Bank’s net interest
margin was 2.79% compared to 2.90% and 3.12% for the quarters ended September 30, 2021 and December 31, 2020,
respectively.
For the year ended December 31, 2021, the investment securities portfolio increased approximately $900 million, or 41%,
as deposit growth of $785 million, or 11%, which included funds from stimulus programs that were provided to individuals and
businesses, continued to outpace loan growth. The growth in the investment securities portfolio and fees from the PPP program
contributed to higher interest income, partially offsetting the effect of lower loan portfolio balances and earning asset yields on
a year-to-date basis.
In response to COVID-19, ASB made short-term loan modifications to borrowers who were generally payment current at
the time of relief. As of December 31, 2021, approximately $0.6 million of loans remained in their active deferral period.
Approximately $9.0 million of loans were not able to resume their contractual payments and were considered delinquent as of
December 31, 2021.
ASB recorded a negative provision for credit losses in 2021 due to improved credit quality in the commercial, commercial
real estate and consumer loan portfolios and overall lower net charge offs as a result of an improving economic outlook. For the
year ended December 31, 2021, ASB recorded a negative provision for credit losses of $25.8 million, compared to a provision
for credit losses of $50.8 million for the year ended December 31, 2020. The provision for credit losses in future quarters will
be dependent on future economic conditions and changes to borrower credit quality at that time.
In 2021, ASB collected higher fee income compared to 2020 as certain fees were waived during the second and third
quarter of 2020 to accommodate the hardships facing its customers. The Bank restarted its normal fee practices in the fourth
quarter of 2020 and continued throughout 2021. Noninterest expenses that were considered direct and incremental COVID-19
related costs were lower in 2021 compared to 2020.
In 2021, ASB reopened three branches that were temporarily closed during the start of the pandemic, as digital branches,
which provide digital solutions such as full-service ATMs and access to expert bankers through videoconferencing tools while
allowing the Bank to have a more efficient physical footprint. ASB continues to evaluate its branch network to determine
whether further changes may be appropriate given its customers’ use of other banking channels.
ASB’s senior management team continually addresses the impacts to the operations and business of the Bank as a result of
the pandemic and meets regularly with ASB’s board of directors to keep them apprised of the impacts of the COVID-19
pandemic.
The CARES Act was signed into law on March 27, 2020. The CARES Act provided over $2 trillion in economic assistance
for American workers, families, and small businesses, and job preservation for American industries. The PPP was established
under the CARES Act and implemented by the United States Small Business Administration (SBA) to provide a direct
incentive for small businesses to keep their workers on the payroll as a result of the COVID-19 crisis. The Paycheck Protection
Program Flexibility Act was signed into law on June 5, 2020 and the Economic Aid Act was signed into law on December 27,
2020, which amended some of the prior rules and guidelines of the CARES Act. The Economic Aid Act established a second
round of PPP, reopening the PPP for first-time borrowers and allowing for a second draw for businesses that meet more
restrictive eligibility criteria to target businesses hardest hit by the pandemic. Loans issued through the PPP are 100% federally
guaranteed and have a maturity of 2-5 years, depending on when the loan was made, at a fixed interest rate of 1%. Loan
payments will be deferred until the earlier of (a) the date that the forgiven amount is remitted to the lender by the SBA; or (b)
10 months from the date the covered period ends. The SBA will forgive all loan amounts to a particular small business if such
small business is compliant with the terms and conditions of the PPP. Small businesses generally have 24 weeks from
disbursement of the loan to incur allowable expenses such as payroll costs, interest on mortgages, rent and utility expenses that
would be covered by the loan forgiveness rules, with 60% of the loan forgiveness needing to be for payroll costs. Small
businesses may receive partial forgiveness if they do not spend the entirety of their PPP loan on eligible expenses, or if less than
60% of the loan disbursement is spent on payroll costs. Employers had until December 31, 2020 to restore their workforce, or,
64
for a PPP loan made after December 27, 2020, before the last day of the Covered Period. Lenders processed and approved the
PPP loans under delegated authority of the SBA. As an existing SBA certified lender, ASB worked with a number of small
businesses, both customers and non-customers, to complete the loan application forms so that these businesses could participate
in the program. During the first round of PPP, the Bank secured more than $370 million in PPP loans for approximately 4,100
small businesses that supported over 40,000 jobs, ASB received processing fees totaling approximately $13 million and started
recognizing these fees over the life of the loans. During the second round of PPP, ASB secured more than $175 million for
approximately 2,200 small businesses that supported more than 20,000 jobs; ASB received processing fees of approximately $9
million. The remaining PPP loans outstanding as of December 31, 2021 was $69 million.
Other provisions of the CARES Act provides that a financial institution may elect to suspend the requirements under
accounting principles generally accepted in the United States of America (GAAP) for certain loan modifications that would
otherwise be categorized as a TDR and any related impairment for accounting purposes. See Note 4 of the Consolidated
Financial Statements and “Economic conditions” in the “HEI Consolidated” section above.
ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business
model.
65
Results of operations.
•
2021 vs. 2020
(in millions)
Interest income
2021
$ 242
2020
$ 244
Increase
(decrease)
$
(2)
Noninterest income
65
78
(13)
Less: gain on sale of
investment securities, net
(1)
(9)
8
Primary reason(s)
Lower average earning asset yields and lower average loan portfolio
balances partly offset by higher investment security portfolio balances.
Average loan portfolio yields 21 basis points lower - impacted by the
continued low interest rate environment as adjustable rate loans had
repriced lower during the past year and new loan production yields
continue to originate below their portfolio yields.
Average loan portfolio balances decreased $117 million - home equity
lines of credit and commercial loan portfolio balances decreased $175
million and $79 million, respectively, primarily due to repayments in the
portfolio. Average consumer loans portfolio balance decreased $80
million - primarily due to ASB’s decision to reduce production of this loan
product in the current economic environment. Average commercial real
estate loans portfolio balance increased $203 million - primarily due to
demand for this loan type.
Average investment securities portfolio balance increased $1.3 billion -
excess liquidity from strong deposit growth was invested in agency
securities
Average investment securities portfolio yield 38 basis points lower -
impacted by the continued low interest rate environment as new
investment security purchase yields were lower than the investment
security portfolio yield.
Lower mortgage banking income and lower gain on sale of investment
securities, partly offset by higher customer fee income and higher bank-
owned life insurance income.
Lower gain on sale of investment securities - in 2020, ASB sold all of its
Visa Class B restricted shares and recognized a gain of $7.0 million with
no similar sales in 2021.
Lower mortgage banking income - lower residential loan sales volume
primarily due to ASB’s decision to portfolio a larger portion of its
residential loan production in 2021. Loan sale profit margins were lower
in 2021 compared to 2020.
Higher customer fee income - in the second and third quarters 2020, ASB
waived overdraft and other deposit account fees to accommodate the
hardships customers were experiencing during the COVID-19 pandemic.
Normal customer fee practices were resumed in the fourth quarter of 2020
and all of 2021.
Higher bank-owned life insurance income - primarily due to higher
proceeds from life insurance policies received in 2021 compared to 2020.
Gain on sale of investment securities, net, which is included in Noninterest
income above and in the Bank’s statements of income and comprehensive
income in Note 4 of the Consolidated Financial Statements, is classified as
gain on sale of investment securities, net in the consolidated statements of
income, and accordingly, is reflected below following operating income as
a separate line item and excluded from Revenues.
Revenues
306
313
(7)
The decrease in revenues was primarily due to lower interest and
noninterest income.
Interest expense
5
11
(6)
Lower interest expense on deposits and other borrowings.
Lower interest expense on deposits - lower term certificate balances
primarily due to runoff of government term certificates and lower deposit
yields as a result of the continued low interest rate environment.
Average core deposit balances increased $1.2 billion; average term
certificate balances decreased $181 million.
Average deposit yields decreased from 16 basis points to 6 basis points
Lower interest expense on other borrowings - primarily due to lower
repurchase agreement yields as a result of the continued low interest rate
environment.
66
(in millions)
Provision for credit losses
2021
(26)
2020
51
Increase
(decrease)
Primary reason(s)
(77) Negative provision for credit losses reflects favorable credit trends with
continued improvement in the economic environment and a slight shift in
loan portfolio composition with growth in the real estate secured portfolio.
Negative provision for credit losses included credit upgrades in the
commercial real estate and commercial loan portfolios.
Negative provision for credit losses was also due to a shift in loan
portfolio mix - a decrease in personal unsecured loan portfolio balances
which had higher credit loss rates replaced with higher residential and
commercial real estate loan portfolio balances with lower credit loss rates.
The personal unsecured loan portfolio also experienced improved net
charge-off trends.
2020 provision for credit losses included $39 million of COVID-19 related
reserves and loss reserves of $21 million for net charge-offs as well as
other changes in loan portfolio composition and asset quality metrics.
Delinquency rates have decreased - from 0.37% at December 31, 2020 to
0.33% at December 31, 2021 due to lower personal unsecured and home
equity line of credit loan delinquencies, partly offset by higher residential
1-4 family loan delinquencies.
Net charge-offs to average loans have decreased - from 0.40% at
December 31, 2020 to 0.07% at December 31, 2021 due to lower personal
unsecured loan portfolio net charge-offs.
Higher compensation and benefit expenses and data processing expenses
were partly offset by lower COVID-19 related costs and lower pension
expense.
Higher compensation and benefit expenses - increase in incentive
compensation payout for commission based employees, higher
performance-based compensation and payment of the separation and
release agreement with the former President and Chief Executive Officer.
Higher data processing expenses - due to upgrades in ASB’s technology
and data analytics capabilities.
2021 noninterest expense benefited from a one-time credit adjustment for
a change in accounting for the ASB retirement plan.
Lower other expenses - 2020 expenses included higher direct and
incremental COVID-19 related costs1 to enhance cleaning and sanitation
of ASB’s facilities as well as incremental compensation expense.
The decrease in expenses was primarily due to lower provision for credit
losses, and lower interest expense, partly offset by an increase in
noninterest expense.
Lower provision for credit losses and lower interest expense, partly offset
by lower interest and noninterest income, and higher noninterest expenses.
The increase in net income was the result of higher operating income
partly offset by higher income tax expense and lower gain on sale of
investment securities.
Noninterest expense
197
191
6
Expenses
176
253
(77)
Operating income
130
Gain on sale of
investment securities, net
1
60
9
70
(8)
Net income
$ 101
$ 58
$
43
Return on average equity2
1 Higher operating expenses, which were considered direct and incremental COVID-19 related costs, included approximately $2.5 million of
13.8%
5.7%
8.1%
incremental compensation expense and $2.0 million of enhanced cleaning and sanitation costs.
2 Calculated using the average daily balance.
For a discussion of 2019 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 2020 Form 10-K.
See Note 4 of the Consolidated Financial Statements for further information about ASB.
67
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:
2021
2020
2019
Average
balance
Interest
income/
expense
Yield/
rate
(%)
Average
balance
Interest
income/
expense
Yield/
rate
(%)
Average
balance
Interest
income/
expense
Yield/
rate
(%)
Interest-earning deposits
$
69,930 $
93
0.13 $ 153,879 $
241
0.16 $
16,618 $
320
1.92
FHLB stock
Investment securities
Taxable
Non-taxable
10,298
327
3.17
9,481
306
3.23
9,716
350
3.60
2,792,255
42,114
1.51
1,554,812
29,213
1.88
1,406,564
31,178
2.22
54,646
1,177
2.15
32,080
974
3.04
27,512
1,360
4.94
Total investment securities
2,846,901
43,291
1.52
1,586,892
30,187
1.90
1,434,076
32,538
2.27
Loans
Residential 1-4 family
Commercial real estate
2,189,680
78,672
3.59
2,180,013
85,769
3.93
2,181,554
89,956
4.12
1,157,987
38,255
3.30
954,836
34,596
3.62
863,468
40,324
4.67
Home equity line of credit
885,759
27,669
3.12
1,060,444
33,731
3.18
1,043,479
38,826
3.72
Residential land
Commercial
Consumer
Total loans 1,2
18,227
856,226
135,609
924
5.07
36,178
4.23
17,284
12.75
13,799
935,663
215,994
754
5.46
14,065
774
5.50
31,642
3.38
620,206
27,950
4.51
27,728
12.84
270,340
35,864
13.27
5,243,488
198,982
3.79
5,360,749
214,220
4.00
4,993,112
233,694
4.68
Total interest-earning assets 3
8,170,617
242,693
2.97
7,111,001
244,954
3.44
6,453,522
266,902
4.14
Allowance for credit losses
Noninterest-earning assets
Total Assets
Liabilities and Shareholder’s Equity:
Savings
Interest-bearing checking
Money market
Time certificates
(86,691)
742,174
$ 8,826,100
$ 3,069,615
1,237,969
192,044
483,353
(81,193)
762,746
$ 7,792,554
(54,640)
696,270
$ 7,095,152
802
0.03 $ 2,620,311
1,774
0.07 $ 2,340,671
1,904
0.08
242
0.02
1,106,563
471
0.04
1,044,315
1,298
0.12
132
0.07
3,805
0.79
161,084
664,578
465
0.29
145,939
953
0.65
7,944
1.20
810,749
12,675
1.56
Total interest-bearing deposits
4,982,981
4,981
0.10
4,552,536
10,654
0.23
4,341,674
16,830
0.39
Advances from Federal Home Loan Bank
15,319
42
0.27
21,490
146
0.68
33,652
843
2.50
Securities sold under agreements to
repurchase and federal funds purchased
88,405
17
0.02
76,360
314
0.41
79,647
767
0.96
Total interest-bearing liabilities
5,086,705
5,040
0.10
4,650,386
11,114
0.24
4,454,973
18,440
0.41
Noninterest bearing liabilities:
Deposits
Other
Shareholder’s equity
2,833,886
169,967
735,542
Total Liabilities and Shareholder’s Equity
$ 8,826,100
2,276,722
155,589
709,857
$ 7,792,554
1,848,336
131,691
660,152
$ 7,095,152
Net interest income
Net interest margin (%)4
$ 237,653
$ 233,840
$ 248,462
2.91
3.29
3.85
1
2
Includes loans held for sale, at lower of cost or fair value, of $23.0 million, $20.5 million and $6.3 million as of December 31, 2021, 2020
and 2019, respectively.
Includes recognition of net deferred loan fees of $14.3 million, $4.9 million and $0.2 million for 2021, 2020 and 2019 respectively,
together with interest accrued prior to suspension of interest accrual on nonaccrual loans.
3 For 2021, 2020 and 2019, the taxable-equivalent basis adjustments made to the table above were not material.
4 Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.
68
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
2021 vs. 2020
Volume
Rate
Total
Rate
2020 vs. 2019
Volume
Total
$
(38) $
(6)
(110) $
27
(148) $
21
(545) $
(36)
466 $
(8)
(79)
(44)
(6,655)
(343)
(6,998)
(7,473)
(3,243)
(623)
(57)
7,118
(193)
(4,471)
(11,513)
1,234
271
409
2,302
70
19,556
546
20,102
376
6,902
(5,439)
227
(2,582)
(10,251)
(10,767)
9,252
(262)
(42)
(76)
1,837
34
12,901
203
13,104
(7,097)
3,659
(6,062)
170
4,536
(10,444)
(15,238)
(2,261)
972
229
333
4,139
104
(5,062)
(585)
(5,647)
(4,124)
(9,697)
(5,717)
(6)
(3,447)
(1,129)
(24,120)
(30,348)
298
897
577
2,656
466
3,097
199
3,296
(63)
3,969
622
(14)
7,139
(7,007)
4,646
8,400
(168)
(70)
(89)
2,075
231
(1,965)
(386)
(2,351)
(4,187)
(5,728)
(5,095)
(20)
3,692
(8,136)
(19,474)
(21,948)
130
827
488
4,731
697
Securities sold under agreements to repurchase
and federal funds purchased
Total decrease (increase) in interest expense
Increase (decrease) in net interest income
$
339
4,625
(6,888) $
(42)
1,449
10,701 $
297
6,074
3,813 $
422
5,316
(25,032) $
31
2,010
10,410 $
453
7,326
(14,622)
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. In 2020, the Federal
Open Market Committee lowered its federal funds rate target range to 0% - 0.25% in response to the financial crisis caused by
the COVID-19 pandemic, which resulted in a decrease in ASB’s net interest income and net interest margin. A prolonged low
interest rate environment may continue to negatively impact ASB’s net interest income and net interest margin.
Loans and mortgage-backed securities are ASB’s primary earning assets.
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. See “Loans” in Note 4 of the Consolidated
Financial Statements for a composition of ASB’s loan portfolio.
The increase in the loan portfolio balance in 2021 was primarily due to growth in the residential and commercial real estate
loan portfolio balances. The growth in the residential loan portfolio balance was due to ASB’s decision to portfolio a larger
portion of the residential mortgage loan production and reduce the amount of residential loans sold in the secondary market.
The growth in the commercial real estate loan portfolio was due to ASB’s continued effort to diversify its loan portfolio with
higher-spread, shorter-maturity loans and/or variable rate loans. The decrease in the commercial loan portfolio was due to
paydown of the PPP loans which decreased from $300 million at December 31, 2020 to $69 million at December 31, 2021.
The increase in the loans balance in 2020 was primarily due to growth in the commercial, commercial real estate and
HELOC loan portfolio balances, 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.
69
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)
Residential 1-4 family – Fixed
Residential 1-4 family – Adjustable
Total residential 1-4 family
Commercial real estate – Fixed
Commercial real estate – Adjustable
Total commercial real estate
Home equity line of credit– Fixed
Home equity line of credit – Adjustable
Total home equity line of credit
Residential land– Fixed
Residential land – Adjustable
Total residential land
Commercial construction – Fixed
Commercial construction – Adjustable
Total commercial construction
Residential construction – Fixed
Residential construction – Adjustable
Total residential construction
Commercial – Fixed
Commercial – Adjustable
Total commercial
Consumer – Fixed
Consumer – Adjustable
Total consumer
Total loans – Fixed
Total loans – Adjustable
Total loans
In
1 year
or less
After 1 year
through
5 years
2021
After 5 years
through
15 years
After
15 years
$
74 $
310 $
803 $
1,002 $
7
81
59
83
142
27
5
32
1
—
1
—
31
31
11
—
11
71
121
192
47
3
50
290
250
26
336
229
220
449
97
23
120
19
—
19
15
10
25
—
—
—
224
284
508
47
10
57
941
573
59
862
328
126
454
175
161
336
—
—
—
1
—
1
—
—
—
60
32
92
6
1
7
18
1,020
12
—
12
12
336
348
—
—
—
—
34
34
—
—
—
—
1
1
—
—
—
1,373
379
1,026
389
$
540 $
1,514 $
1,752 $
1,415 $
Total
2,189
110
2,299
628
429
1,057
311
525
836
20
—
20
16
75
91
11
—
11
355
438
793
100
14
114
3,630
1,591
5,221
Home equity lines of credit. The home equity lines of credit (HELOC) portfolio makes up 16% 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. 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, 2021, approximately 36% of the portfolio balances were amortizing loans
under the Fixed Rate Loan Option. A HELOC loan is typically in a subordinate lien position to a borrower’s first mortgage
loan, however, approximately 57% of ASB’s HELOC loan portfolio is in a first lien position.
Attention had 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.
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
70
ASB is the successful bidder, the property is classified as real estate owned until it is sold. As of December 31, 2021 and 2020,
ASB had nil 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 more past due on which interest was being accrued as of December 31, 2021 and 2020 were immaterial or nil. The
following table sets forth certain information with respect to nonaccrual loans:
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 nonaccrual loans
Loans receivable, net
Allowance for credit losses
Nonaccrual loans to loans receivable, net
Allowance for credit losses to nonaccrual loans
2021
2020
$
19,748
$
15,325
5,521
397
—
—
40,991
2,138
1,845
11,826
18,722
7,358
408
—
—
38,314
5,147
3,935
$
44,974
$
47,396
$ 5,211,114
$ 5,333,843
$
71,130
$
101,201
0.86%
1.58x
0.89%
2.14x
In 2021, nonaccrual loans decreased $2.4 million primarily due to decreases in commercial real estate, commercial,
consumer and HELOC nonaccrual loans of $3.4 million, $3.0 million, $2.1 million and $1.8 million, respectively, partly offset
by an increase in residential 1-4 family nonaccrual loans of $7.9 million. The increase in residential nonaccrual loans was
attributed to customers that could not resume contractual payments after their deferral period was completed.
In 2020, nonaccrual loans increased $17.7 million primarily due to an increase in commercial real estate nonaccrual loans
of $18.5 million. The increase in commercial real estate nonaccrual loans was primarily attributed to one commercial credit.
See “Allowance for credit losses” in Note 4 of the Consolidated Financial Statements for information with respect to
nonperforming assets.
Allowance for credit losses. See “Allowance for credit losses” in Note 4 of the Consolidated Financial Statements for
the tables which sets forth the allocation of ASB’s allowance for credit losses. On January 1, 2020, ASB adopted Accounting
Standards Update (ASU) 2016-13, Financial Instruments - Measurement of Current Expected Credit Losses on Financial
Instruments, modifying the accounting for the allowance for credit losses from an incurred loss model to an expected loss
model (see Note 1, “Summary of Significant Accounting Policies” of the Consolidated Financial Statements). With the
adoption of ASU 2016-13, ASB added $19.4 million to the allowance for credit losses on January 1, 2020. During 2021, ASB
recorded a negative provision for credit losses related to the allowance for credit losses of $26.4 million primarily due to
decreased reserves for the commercial real estate, commercial and consumer loan portfolios for improved credit quality in those
loan portfolios and a lower personal unsecured loan portfolio balance, which has a higher loss rate than other loan portfolios.
During 2020, ASB recorded a provision for credit losses related to the allowance for credit losses of $49.8 million primarily due
to increased reserves for the commercial, commercial real estate and consumer loan portfolios for expected credit deterioration
due to the COVID-19 pandemic and additional loss reserves to cover net loan charge-offs.
71
ASB maintains a reserve for credit losses that consists of two components, the allowance for credit losses and an allowance
for loan commitments (unfunded reserve). The level of the reserve for unfunded loan commitments is adjusted by recording an
expense or recovery in provision for credit losses. With the adoption of ASU 2016-13, ASB added $1.6 million to the reserve
for unfunded loan commitments on January 1, 2020. For 2021 and 2020, ASB recorded a provision for credit losses for
unfunded commitments of $0.6 million and $1.0 million, respectively. As of December 31, 2021 and December 31, 2020, the
reserve for unfunded loan commitments was $4.9 million and $4.3 million, respectively.
The following table sets forth the allocation of ASB’s allowance for credit losses and the percentage of loans in each
category to total loans:
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
2021
2020
Allowance
balance
Allowance
to loan
receivable %
Loan
receivable
% of total
Allowance
balance
Allowance
to loan
receivable %
Loan
receivable
% of total
$
6,545
24,696
5,657
646
2,186
18
39,748
15,798
15,584
0.28
2.34
0.68
3.25
2.40
0.16
0.92
1.99
13.67
1.36
44.0 $
4,600
20.3
16.0
0.4
1.7
0.2
82.6
15.2
2.2
35,607
6,813
609
4,149
11
51,789
25,462
23,950
100.0 $ 101,201
0.21
3.62
0.71
3.90
3.42
0.10
1.22
2.72
14.19
1.90
40.1
18.4
18.0
0.3
2.3
0.2
79.3
17.5
3.2
100.0
Total allowance for credit losses
$ 71,130
In 2021, ASB’s allowance for credit losses decreased by $30.1 million primarily due to decreases in loan loss reserves for
the commercial real estate, commercial and consumer loan portfolios for improved credit quality. The decrease in the consumer
loan portfolio was also due to the decrease in the personal unsecured loan portfolio outstanding balance. Total delinquencies of
$17.2 million at December 31, 2021 was a decrease of $2.4 million compared to total delinquencies of $19.6 million at
December 31, 2020 primarily due to decreases in delinquent consumer, HELOC and residential land loans, partly offset by an
increase in residential 1-4 family delinquent loans. The ratio of delinquent loans to total loans decreased from 0.37% of total
outstanding loans at December 31, 2020 to 0.33% of total outstanding loans at December 31, 2021. Net charge-offs for 2021
were $3.6 million, a decrease of $17.8 million compared to $21.4 million in 2020 primarily due to a decrease in consumer loan
portfolio net charge-offs.
In 2020, ASB’s allowance for credit losses increased by $47.8 million primarily due to an increase in loan loss reserves for
the commercial, commercial real estate and consumer loan portfolios for expected credit deterioration due to the COVID-19
pandemic and the impact of adopting ASU 2016-13. Total delinquencies of $19.6 million at December 31, 2020 was a decrease
of $0.2 million compared to total delinquencies of $19.8 million at December 31, 2019 primarily due to decreases in delinquent
consumer loans, partly offset by an increase in residential 1-4 family delinquent loans. The ratio of delinquent loans to total
loans decreased from 0.39% of total outstanding loans at December 31, 2019 to 0.37% of total outstanding loans at December
31, 2020. Net charge-offs for 2020 were $21.4 million, a decrease of $0.8 million compared to $22.2 million in 2019 primarily
due to a decrease in consumer loan portfolio net charge-offs.
Investment securities. 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 2021, 2020 and 2019 was 1.52%,
1.90% and 2.27%, respectively. ASB did not maintain a portfolio of securities held for trading during 2021 and 2020.
As of December 31, 2021 and 2020, ASB had $522.3 million and $226.9 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
72
are also backed by the full faith of the U.S. government. The increase in the investment securities portfolio was primarily due to
the purchase of agency mortgage-backed and credit securities with excess liquidity.
The net unrealized gains and 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, 2021 and 2020, 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, 2021 and 2020, 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 the allowance for credit losses for the investment securities portfolio.
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, 2021. 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 bonds1
After 1 year
through 5
years
After 5
years
through 10
years
$
44
$
In 1 year
or less
15
$
—
—
—
18
$
$
—
15
2.10%
—
62
2.06%
$
15
119
1.53%
91
—
13
After
10 years
$ —
Mortgage-
backed
securities
—
$
Total1
150
$
—
—
2,945
—
2,945
31
—
$ —
—
$ 2,945
15
$ 3,141
Weighted average yield
1 Weighted average yield on the mortgage revenue bonds is computed on a tax equivalent basis using a federal statutory tax rate of 21%.
1.53%
—%
1.54%
Stock in FHLB. As of December 31, 2021 and 2020, ASB’s stock in FHLB of Des Moines $10 million and $9 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 2021, 2020 and 2019, ASB received cash dividends of $327,000, $306,000 and
$349,000, respectively, on its FHLB Stock.
Deposits and other borrowings. Deposits continue to be the largest source of funds for ASB and are affected by
market interest rates, competition and management’s responses to these factors. While deposits have increased by $1.1 billion
in 2020 in part due to PPP loan proceeds and consumer economic impact payments from the CARES Act stimulus program,
deposit retention and sustained growth will remain challenging in the current environment due to the low level of short-term
interest rates. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase and federal funds
purchased continue to be additional sources of funds. As of December 31, 2021 and 2020, ASB’s costing liabilities consisted of
99% deposits and 1% 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 $785 million in 2021, compared to an inflow of $1.1 billion in 2020.
The following table presents the amount of time certificates of deposit of $250,000 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
37,556
8,577
23,094
18,381
87,608
$
$
As of December 31, 2021 and 2020, ASB had approximately $1.4 billion and $1.2 billion, respectively, of deposits that
were uninsured.
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
73
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 decreases in other borrowings in 2021 and 2020 were due to decreases in business repurchase agreements. The
increase in other borrowings in 2019 was due to an increase in business repurchase agreements, partly offset by the payoff of
FHLB advances.
As of December 31, 2021, the unused borrowing capacity with the FHLB of Des Moines was $2.0 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.
As of December 31, 2021, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including
securities pledged for repurchase agreements) in accumulated other comprehensive income (AOCI) of $32.0 million compared
to an unrealized gain, net of taxes, of $20.0 million as of December 31, 2020. 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.
Final Capital Rules. On July 2, 2013, the FRB finalized its rule implementing the Basel III regulatory capital framework.
The final rules applied 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).
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 capital
requirements were currently applicable to HEI, management believes HEI would satisfy the capital requirements, including the
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.
74
In the second quarter of 2020, ASB had adopted the community bank leverage ratio framework and was only subject to the
Tier 1 leverage ratio requirement. Beginning in the third quarter of 2021, ASB began reporting all of the required capital ratios
as the Bank did not meet the requirements of the community bank leverage ratio framework. With Tier 1 leverage, common
equity, Tier 1 capital and total capital ratios of 7.9%, 13.3%, 13.3% and 14.3%, respectively as of December 31, 2021, ASB’s
regulatory capital ratios exceeded the minimum regulatory capital requirements of 4.0%, 4.5%, 6.0% and 8.0%, respectively.
See Bank - Regulation in HEI’s “Item 1. Business” for a description of the changes to the community bank leverage ratio
framework.
Liquidity and capital resources.
December 31
(dollars in millions)
Total assets
Investment securities
Loans held for investment, net
Deposit liabilities
Other bank borrowings
2021 % change
2020 % change
$ 9,182
3,097
5,140
8,172
88
9 $ 8,397
2,197
41
5,233
(2)
7,387
11
90
(2)
16
60
3
18
(22)
As of December 31, 2021, ASB was one of Hawaii’s largest financial institutions based on assets of $9.2 billion and
deposits of $8.2 billion.
ASB’s principal sources of liquidity are customer deposits, borrowings and the maturity and repayment of portfolio loans
and securities. The Bank’s liquidity remains at satisfactory levels as deposits continued to grow substantially which enabled
ASB to fund its loan production and purchase investment securities with low cost funding. ASB’s deposits as of December 31,
2021 were $785 million higher than December 31, 2020. 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, 2021,
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, 2021, ASB’s unused FHLB
borrowing capacity was approximately $2.0 billion.
As of December 31, 2021, securities sold under agreements to repurchase totaled $88 million, representing 1.0% of assets.
ASB utilizes deposits, advances from the 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, 2021, 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, 2021 and 2020, ASB had $45.0 million and $47.4 million of loans on nonaccrual status, respectively,
or 0.9% and 0.9%, respectively, of net loans outstanding. As of December 31, 2021 and 2020, ASB had nil real estate acquired
in settlement of loans.
In 2021, operating activities provided cash of $115 million. Net cash of $881 million was used by investing activities
primarily due to purchases of available-for-sale investment securities of $1.5 billion, purchases of held-to-maturity investment
securities of $350 million, contributions to low-income housing investments of $16 million, purchases of bank-owned life
insurance of $13 million and additions to premises and equipment of $11 million, partly offset by receipt of repayments from
available-for-sale investment securities of $583 million, proceeds from the sale of available-for-sale investment securities of
$197 million, net decrease in loans receivable of $72 million, proceeds from sale of residential loans of $60 million, repayments
from held-to-maturity investment securities of $54 million and proceeds from the redemption of bank-owned life insurance of
$6 million. Financing activities provided net cash of $725 million primarily due to a net increase in deposits of $785 million,
partly offset by a net decrease in repurchase agreements of $1 million and common stock dividends to HEI (through ASB
Hawaii) of $59 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, 2021, ASB was well-capitalized (see Note 4 of the Consolidated Financial
Statements for ASB’s capital ratios).
75
For a discussion of ASB dividends, see “Common stock equity” in Note 4 of the Consolidated Financial Statements.
See “Commitments” 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 credit losses. The Company considers the policies related to the allowance for credit losses as critical to the
financial statement presentation. The allowance for credit losses applies to financial assets subject to credit losses and measured
at amortized cost and certain off-balance sheet credit exposures. This includes, but is not limited to loans, loan commitments
and held-to-maturity securities. In addition, the accounting for credit losses on available-for-sale (AFS) debt securities and
purchased financial assets with credit deterioration were amended. The other-than-temporary impairment model of accounting
for credit losses on AFS debt securities was replaced with an estimate of expected credit losses only when the fair value is
below the amortized cost of the asset. The credit loss models use a probability-of-default, loss given default and exposure at
default methodology to estimate the expected credit losses. Within each model or calculation, loans are further segregated based
on additional risk characteristics specific to that loan type, such as risk rating, Fair Isaac Corporation (FICO) score, bankruptcy
score, age of loan and collateral. The Company uses both internal and external historical data, as appropriate, and a blend of
economic forecasts to estimate credit losses over a reasonable and supportable forecast period and then reverts to a longer-term
historical loss experience to arrive at lifetime expected credit losses. The reversion period incorporates forward-looking
expectations about repayments (including prepayments) as determined by the Company’s asset liability management system.
See “Recent Accounting Pronouncements” in Note 1 of the Consolidated Financial Statements for further discussion of the
Company’s allowance for credit losses.
ASB disaggregates the loan portfolio into loan segments for purposes of determining the allowance for credit 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 such as the 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 credit 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 cover expected
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 credit
losses, as discussed above. Net adjustments to the reserve for unfunded commitments are included in the provision for credit
losses in the consolidated statements of income.
Management believes its allowance for credit losses is adequate to cover expected credit losses in the loan portfolio.
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 credit 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.
76
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.
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, 2021.
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 credit 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 credit 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.
77
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, borrowing costs 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. 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
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 interest rate risk profile, additional analysis is periodically
performed in alternate scenarios including rate shifts of greater magnitude and changes in key balance sheet drivers.
78
ASB’s interest-rate risk sensitivity measures as of December 31, 2021 and 2020 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, 2021
December 31, 2020
December 31, 2021
December 31, 2020
5.6 %
4.0
2.3
(2.5)
7.0 %
5.0
2.7
(1.9)
15.5 %
11.7
7.0
(12.6)
31.4 %
23.9
14.0
(25.2)
ASB’s NII sensitivity profile was less asset sensitive as of December, 31, 2021 as compared to December 31, 2020,
primarily driven by the increase in market rates, growth in the fixed rate portion of the HELOC and residential mortgage
portfolios, and core deposit funded investment securities purchases. The increase in market rates decreased prepayment
expectations in the Bank’s fixed-rate mortgage and mortgage-backed investment portfolios, driving decreased asset sensitivity.
In addition, the fixed rate portion of the HELOC and residential mortgage portfolios grew, contributing to decreased asset
sensitivity. Lastly, the deployment of strong core deposit growth into new fixed-rate investment purchases further contributed to
decreased sensitivity.
EVE sensitivity decreased as of December 31, 2021 compared to December 31, 2020 as the duration of assets lengthened.
The steepening of the yield curve led to slower prepayment expectations and lengthened the duration of the fixed-rate mortgage
and mortgage-backed investment portfolios.
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.
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, 2021, 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).
79
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HEI and Hawaiian Electric:
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms (PCAOB ID No. 34) - HEI
Reports of Independent Registered Public Accounting Firms (PCAOB ID No. 34) - Hawaiian Electric
Consolidated Financial Statements
HEI
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Balance Sheets at December 31, 2021 and 2020
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Hawaiian Electric
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Balance Sheets at December 31, 2021 and 2020
Consolidated Statements of Capitalization at December 31, 2021 and 2020
Consolidated Statements of Changes in Common Stock Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Page
81
84
86
86
87
88
89
90
92
92
93
94
96
97
98
80
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, 2021 and 2020, 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, 2021, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2021, 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, 2021, 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. 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.
81
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 Notes 1 and 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 Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 980, “Regulated Operations,” as management believes that the operations of
the Utility currently satisfy the criteria for regulatory accounting. 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, 2021, regulatory assets
and liabilities amounted to approximately $565,543,000 and $996,768,000, 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. On December 23, 2020, the PUC issued a Decision and Order approving a new performance-based regulation
(“PBR”) framework. The framework became fully effective on June 1, 2021.
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 Utility’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 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 the applicability of applying the specialized rules and the impacted account balances, including
disclosures and the high degree of subjectivity involved in assessing the impact of regulatory orders on the financial statements.
Management judgments include assessing the applicability of the specialized rules and the likelihood of (1) recovery in future
rates of incurred costs and (2) a refund to customers. Given that management’s accounting judgments 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 application of specialized rules to account for the effects of cost-based rate regulation and
the uncertainty of future decisions by the rate regulators included the following, among others:
• We tested the effectiveness of management’s controls over (1) the evaluation of the application of specialized rules to
account for the effects of cost-based rate regulation and (2) the evaluation of the likelihood of (a) the recovery in future
rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (b) a refund 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 refunding amounts in rates.
• We evaluated the Company’s conclusion that it should apply the specialized rules to account for the effects of cost-
based rate regulation including considerations as a result of the PBR decision and order.
• 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 Utility, 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 precedents 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 Utility’s filings with the PUC and the filings with the PUC by
intervenors that may impact the Utility’s future rates, for any evidence that might contradict management’s assertions.
•
• We obtained analyses from management as appropriate regarding probability of recovery for regulatory assets or
refund in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that
amounts are probable of recovery, or refundable in rates.
82
Allowance for Credit Losses - Refer to Notes 1 and 4 to the financial statements
Critical Audit Matter Description
The allowance for credit losses is a material estimate of the Company and as of December 31, 2021, the total balance was
$71,130,000. The allowance for credit losses is based on the composition, characteristics, and quality of the loans, as well as the
prevailing economic conditions and reasonable and supportable forecasts. The credit loss models use a probability-of-default,
loss given default, and exposure at default methodology to estimate expected credit losses.
The Company also incorporates qualitative factors to adjust the historical loss rates or other static sources as these rates may not
be an accurate indicator of expected losses in the current portfolio. These qualitative factors include, but are not limited to,
adjustments for changes in policies and procedures in underwriting, monitoring or collections, current and expected 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 for credit losses requires significant
management judgment. Given the magnitude of the qualitative factors and significant amount of judgment required by
management in developing the qualitative component of the overall allowance, performing audit procedures to evaluate the
reasonableness of the allowance for credit losses required a high degree of auditor judgment, an 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 for credit losses included the following, among others:
• We tested the effectiveness of controls over the allowance for credit losses, including management’s controls over the
respective qualitative factors.
• We evaluated the reasonableness and conceptual soundness of the allowance for credit losses modeling framework,
including the use of qualitative factors.
• We tested the mathematical accuracy of the calculation of the qualitative allowance for credit losses 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, including assessing the basis for the factors and
the reasonableness of the qualitative factors used in the allowance for credit losses.
• We evaluated the directional consistency and magnitude of the qualitative adjustments, as well as the absolute value of
•
the allowance for credit losses attributable to the qualitative adjustments.
In order to identify potential bias in the determination of the allowance for credit losses, we performed analytical
analysis, including retrospective review, where we compared the estimate of losses to actual losses, analyzed ratios of
the allowance for credit losses to loans and other relevant metrics, such as losses and nonperforming loans, and
performed peer analysis where we compared relevant metrics to comparable financial institutions, and evaluated the
relevance of the underlying data used to determine qualitative factors, to identify potential bias in the determination of
the allowance for credit losses.
/s/ Deloitte & Touche LLP
Honolulu, Hawaii
February 25, 2022
We have served as the Company’s auditor since 2017.
83
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, 2021 and 2020, 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, 2021, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as
the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2021, 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
audit 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 that 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 opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Electric Utility Segment – Regulatory Assets and Liabilities - Refer to Notes 1 and 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 Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 980, “Regulated Operations,” as management believes that the operations of
the Utility currently satisfy the criteria for regulatory accounting. 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, 2021, regulatory assets
and liabilities amounted to approximately $565,543,000 and $996,768,000, 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. On December 23, 2020, the PUC issued a Decision and Order approving a new performance-based regulation
(“PBR”) framework. The framework became fully effective on June 1, 2021.
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 Utility’s costs to provide utility service and a return on, and
84
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 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 the applicability of applying the specialized rules and the impacted account balances, including
disclosures and the high degree of subjectivity involved in assessing the impact of regulatory orders on the financial statements.
Management judgments include assessing the applicability of the specialized rules and the likelihood of (1) recovery in future
rates of incurred costs and (2) a refund to customers. Given that management’s accounting judgments 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 application of specialized rules to account for the effects of cost-based rate regulation and
the uncertainty of future decisions by the rate regulators included the following, among others:
• We tested the effectiveness of management’s controls over (1) the evaluation of the application of specialized rules to
account for the effects of cost-based rate regulation and (2) the evaluation of the likelihood of (a) the recovery in future
rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (b) a refund 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 refunding amounts in rates.
• We evaluated the Company’s conclusion that it should apply the specialized rules to account for the effects of cost-
based rate regulation including considerations as a result of the PBR decision and order.
• 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 Utility, 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 precedents 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 Utility’s filings with the PUC and the filings with the PUC by
intervenors that may impact the Utility’s future rates, for any evidence that might contradict management’s assertions.
•
• We obtained analyses from management as appropriate regarding probability of recovery for regulatory assets or
refund in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that
amounts are probable of recovery, or refundable in rates.
/s/ Deloitte & Touche LLP
Honolulu, Hawaii
February 25, 2022
We have served as the Company’s auditor since 2017.
85
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
2021
2020
2019
$ 2,539,636 $ 2,265,320 $ 2,545,942
327,917
306,398
313,511
4,345
944
89
2,850,379
2,579,775
2,873,948
2,260,078
1,996,770
2,291,564
178,195
26,040
251,702
19,810
217,008
17,355
2,464,313
2,268,282
2,525,927
279,558
128,203
268,550
61,809
254,378
110,909
(21,695)
(18,866)
(17,266)
386,066
311,493
348,021
Retirement defined benefits credit (expense)—other than service costs
5,848
(3,210)
(2,806)
Interest expense, net – other than on deposit liabilities and other bank borrowings
Allowance for borrowed funds used during construction
(94,363)
3,250
(88,694)
2,992
9,534
528
310,863
62,807
248,056
1,890
8,768
9,275
240,624
40,910
199,714
1,890
(90,899)
4,453
11,987
653
271,409
51,637
219,772
1,890
$
$
$
246,166 $
197,824 $
217,882
2.25 $
2.25 $
1.81 $
1.81 $
109,282
109,140
298
216
2.00
1.99
108,949
458
109,580
109,356
109,407
Allowance for equity funds used during construction
Gain on sale of investment securities, net
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
The accompanying notes are an integral part of these consolidated financial statements.
86
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 of $(18,903), $7,008 and $10,024 for
2021, 2020 and 2019, respectively
2021
2020
2019
$ 246,166 $ 197,824 $ 217,882
(51,636)
19,143
27,382
Reclassification adjustment for net realized gains included in net income, net
of taxes of $(142), $(599) and $(175) for 2021, 2020 and 2019, respectively
(387)
(1,638)
(478)
Derivatives qualified as cash flow hedges:
Unrealized interest rate hedging losses, net of taxes of $(108), $(607) and
$(409) for 2021, 2020 and 2019, respectively
Reclassification adjustment to net income, net of taxes of $13, nil and nil for
2021, 2020 and 2019, respectively
Retirement benefit plans:
Net gains (losses) arising during the period, net of taxes of $53,068, $(20,907)
and $3,892 for 2021, 2020 and 2019, respectively
Adjustment for amortization of prior service credit and net losses recognized
during the period in net periodic benefit cost, net of taxes of $6,665, $8,247
and $3,512 for 2021, 2020 and 2019, respectively
Reclassification adjustment for impact of D&Os of the PUC included in
regulatory assets, net of taxes of $(59,429), $13,825 and $(5,610) for 2021,
2020 and 2019, respectively
Other comprehensive income (loss), net of taxes
(312)
(1,750)
(1,177)
37
—
—
153,121
(60,529)
10,914
19,253
23,689
10,107
(171,345)
(51,269)
39,860
18,775
(16,177)
30,571
Comprehensive income attributable to Hawaiian Electric Industries, Inc.
$ 194,897 $ 216,599 $ 248,453
The accompanying notes are an integral part of these consolidated financial statements.
87
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: 109,311,785 shares and 109,181,124 shares at
December 31, 2021 and 2020, respectively
Retained earnings
Accumulated other comprehensive income (loss), net of taxes
2021
2020
102,910
$
8,085,793
231,495
8,420,198
(3,028,130)
$
$
$
305,551
5,911
344,213
2,574,618
522,270
10,000
5,139,984
10,404
5,392,068
122,416
565,543
747,469
82,190
15,822,637
205,544
19,889
8,172,212
53,998
88,305
2,321,937
384,760
136,760
996,768
348,072
669,215
13,397,460
34,293
103,428
$
7,851,185
214,266
8,168,879
(2,903,144)
$
$
$
341,421
17,558
281,216
1,970,417
226,947
8,680
5,232,642
28,275
5,265,735
153,069
766,708
629,149
82,190
15,004,007
182,347
23,547
7,386,957
129,379
89,670
2,119,129
395,089
160,432
959,786
567,438
618,438
12,632,212
34,293
—
—
1,685,496
757,921
1,678,368
660,398
Net unrealized gains (losses) on securities
Unrealized losses on derivatives
Retirement benefit plans
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
(32,037)
(3,638)
(16,858)
$
19,986
(3,363)
(17,887)
(52,533)
2,390,884
15,822,637
$
(1,264)
2,337,502
15,004,007
$
The accompanying notes are an integral part of these consolidated financial statements.
88
Consolidated Statements of Changes in Shareholders’ Equity
Hawaiian Electric Industries, Inc. and Subsidiaries
(in thousands, except per share amounts)
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
Impact of adoption of ASU No. 2016-13
Balance, January 1, 2020 after adoption of
ASU No. 2016-13
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 ($1.32 per share)
Balance, December 31, 2020
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 ($1.36 per share)
Balance, December 31, 2021
Common stock
Shares
Amount
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
108,879 $ 1,669,267 $ 543,623 $
—
—
94
—
—
—
3,092
5,898
217,882
—
—
—
—
108,973
—
—
1,678,257
—
(139,463)
622,042
(15,372)
(50,610) $ 2,162,280
217,882
—
30,571
30,571
—
—
3,092
5,898
—
(139,463)
(20,039) 2,280,260
(15,372)
—
108,973
1,678,257
606,670
(20,039) 2,264,888
—
—
208
—
—
—
3,973
(3,862)
197,824
—
197,824
—
—
—
18,775
18,775
—
—
3,973
(3,862)
—
109,181
—
—
1,678,368
—
(144,096)
660,398
246,166
—
131
—
—
5,027
2,101
—
—
—
—
(148,643)
109,312 $ 1,685,496 $ 757,921 $
—
—
(144,096)
(1,264) 2,337,502
246,166
—
(51,269)
(51,269)
—
—
5,027
2,101
—
(148,643)
(52,533) $ 2,390,884
The accompanying notes are an integral part of these consolidated financial statements.
89
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 credit losses
Loans originated, held for sale
Proceeds from sale of loans, held for sale
Gain on sale of real estate, held for sale
Gain on sale of investment securities, net
Gain on sale of loans
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 regulatory liabilities
Increase (decrease) in accounts, interest and dividends payable
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes
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 residential loans
Proceeds from sale of real estate held for sale
Capital expenditures
Proceeds from sale of low income housing investments
Contributions to low income housing investments
Other, net
Net cash used in investing activities
90
2021
2020
2019
$ 248,056 $ 199,714 $ 219,772
246,158
238,114
229,858
32,544
(25,825)
52,664
50,811
48,255
23,480
(340,986)
(564,525)
(285,042)
364,848
567,652
277,119
—
—
(10,762)
(528)
(9,275)
(653)
(9,305)
(23,734)
(4,943)
(5,398)
9,135
(1,706)
5,810
(15,085)
9,986
(9,534)
(8,768)
(11,987)
(7,060)
1,366
18,568
(73,811)
2,533
23,933
(45,819)
34,202
(11,493)
(13,874)
1,007
15,358
9,925
41,331
71,262
1,953
(16,562)
(20,068)
(3,054)
(35,610)
(27,538)
(6,660)
(2,029)
(4,482)
(52,882)
(42,189)
(36,677)
375,673
429,407
512,470
(1,464,644) (1,361,594)
583,238
197,354
(349,579)
53,654
(33,022)
31,702
72,489
478,351
169,157
(146,738)
59,894
(27,350)
27,104
(229,311)
59,844
—
—
—
(314,524)
—
(16,131)
(383,895)
6,725
(9,403)
(108,088)
272,949
19,810
(13,057)
15,505
(95,636)
97,160
(300,210)
—
21,060
(457,520)
1
(6,974)
27
3,412
13,291
(1,179,592) (1,413,648)
(541,709)
(continued)
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 (decrease) in other bank borrowings with original maturities of three
months or less
Proceeds from issuance of other bank borrowings
Repayment of other bank borrowings
Proceeds from issuance of long-term debt
2021
2020
2019
785,255
1,115,055
113,050
(10,493)
(71,219)
—
165,000
86,718
75,000
(65,000)
(150,000)
(50,000)
(1,365)
(25,440)
5,070
—
—
30,000
(30,000)
—
—
285,886
415,997
289,349
Repayment of long-term debt and funds transferred for repayment of long-term debt
(82,262)
(178,969)
(287,285)
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
(2,006)
(5,700)
(997)
(148,643)
(144,096)
(139,463)
(1,890)
(1,890)
(3,080)
(3,203)
756,402
1,115,535
(47,517)
131,294
(1,890)
(1,836)
87,716
58,477
358,979
311,462
227,685
358,979
169,208
227,685
(5,911)
(17,558)
(30,872)
$ 305,551 $ 341,421 $ 196,813
The accompanying notes are an integral part of these consolidated financial statements.
91
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 credit (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
2021
2020
2019
$ 2,539,636 $ 2,265,320 $ 2,545,942
644,349
670,494
475,412
229,469
240,354
2,260,078
279,558
9,534
3,890
(72,447)
3,250
223,785
44,148
179,637
915
178,722
1,080
177,642 $
515,274
568,749
474,192
222,733
215,822
1,996,770
268,550
8,768
(763)
(67,794)
2,992
211,753
40,418
171,335
915
170,420
1,080
169,340 $
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
$
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:
2021
2020
2019
$
177,642 $
169,340 $
156,840
Retirement benefit plans:
Net gains (losses) arising during the period, net of taxes of $52,554, $(21,868)
and $1,821 for 2021, 2020 and 2019, respectively
Adjustment for amortization of prior service credit and net losses recognized
during the period in net periodic benefit cost, net of taxes of $6,750, $7,474
and $3,312 for 2021, 2020 and 2019, respectively
Reclassification adjustment for impact of D&Os of the PUC included in
regulatory assets, net of taxes of $(59,429), $13,825, and $(5,610) for 2021,
2020 and 2019, respectively
Other comprehensive loss, net of tax benefits
151,523
(63,050)
5,249
19,461
21,550
9,550
(171,345)
39,860
(16,177)
(361)
(1,640)
(1,378)
Comprehensive income attributable to Hawaiian Electric Company, Inc.
$
177,281 $
167,700 $
155,462
The accompanying notes are an integral part of these consolidated financial statements.
92
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 $59 and $115 as of December
31, 2021 and 2020, 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
Long-term debt, net
Total capitalization
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.
93
2021
2020
$
51,937 $
7,735,983
(2,940,517)
204,569
5,051,972
51,611
7,509,343
(2,819,079)
188,342
4,930,217
6,949
5,058,921
6,953
4,937,170
52,169
3,089
186,859
129,155
7,267
104,078
71,877
46,031
66,664
667,189
47,360
15,966
147,832
101,036
7,673
58,238
67,344
44,083
30,435
519,967
101,470
498,879
165,166
765,515
127,654
736,273
136,309
1,000,236
$ 6,491,625 $ 6,457,373
$ 2,261,899 $ 2,141,918
34,293
34,293
1,624,427
3,920,619
1,561,302
3,737,513
49,368
51,975
—
160,007
17,325
208,280
29,760
71,569
588,284
64,730
—
49,979
133,849
20,350
192,524
37,301
74,262
572,995
65,780
408,634
967,008
103,945
321,780
115,575
1,982,722
69,494
397,798
922,485
111,915
530,532
114,641
2,146,865
$ 6,491,625 $ 6,457,373
2021
2020
$ 118,376 $
115,515
798,526
746,987
1,348,277
1,282,335
(3,280)
(2,919)
2,261,899
2,141,918
Shares
outstanding
December 31,
2021 and 2020
2021
2020
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: 17,753,533 shares and
17,324,376 shares at December 31, 2021 and 2020, respectively
Premium on capital stock
Retained earnings
Accumulated other comprehensive loss, net of tax benefits-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-4.25%
(Hawaiian Electric)
20
$
D-5.00%
E-5.00%
H-5.25%
I-5.00%
J-4.75%
K-4.65%
G-7.625%
H-7.625%
20
20
20
20
20
20
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
(Hawaiian Electric)
100
(Hawaii Electric Light)
100
(Maui Electric)
94
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):
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
Total obligations to the State of Hawaii
Other long-term debt – unsecured:
Taxable senior notes:
3.51%, Series 2020C and 2020E, due 2050
3.28%, Series 2020B and 2020D, due 2040
3.96%, Series 2020A, 2020B and 2020C, due 2050
3.31%, Series 2020A and 2020B, due 2030
4.21%, Series 2019A, due 2034
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
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
4.55%, 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
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.
2021
2020
$
80,000 $
80,000
150,000
125,000
140,000
47,000
150,000
125,000
140,000
47,000
$
542,000 $
542,000
$
70,000 $
45,000
50,000
110,000
50,000
67,500
17,500
15,000
50,000
40,000
80,000
52,000
100,000
70,000
100,000
35,000
150,000
40,000
—
—
50,000
110,000
50,000
67,500
17,500
15,000
50,000
40,000
80,000
52,000
100,000
70,000
100,000
35,000
150,000
40,000
1,142,000
1,684,000
7,598
51,975
1,027,000
1,569,000
7,698
—
1,624,427
1,561,302
$ 3,920,619 $ 3,737,513
95
Consolidated Statements of Changes in Common Stock Equity
Hawaiian Electric Company, Inc. and Subsidiaries
(in thousands)
Balance, December 31, 2018
Net income for common stock
Other comprehensive income, net of taxes
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2019
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, 2020
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, 2021
Common stock
Shares
Amount
Premium
on
capital
stock
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Total
16,751 $ 111,696 $ 681,305 $ 1,164,541 $
99 $
1,957,641
156,840
—
156,840
—
—
297
—
—
—
1,982
—
—
—
276
—
—
—
1,837
—
—
—
33,519
—
—
32,163
—
(101,252)
17,048
113,678
714,824
1,220,129
(1,279)
2,047,352
169,340
—
169,340
—
—
—
—
(1,378)
—
—
(1,378)
35,501
(101,252)
(1,640)
—
—
(1,640)
34,000
(107,134)
—
(107,134)
17,324
115,515
746,987
1,282,335
(2,919)
2,141,918
—
—
429
—
—
—
2,861
—
—
—
51,539
177,642
—
—
—
(111,700)
—
(361)
—
—
177,642
(361)
54,400
(111,700)
17,753 $ 118,376 $ 798,526 $ 1,348,277 $
(3,280) $
2,261,899
The accompanying notes are an integral part of these consolidated financial statements.
96
Consolidated Statements of Cash Flows
Hawaiian Electric Company, Inc. and Subsidiaries
Years ended December 31
(in thousands)
Cash flows from operating activities
2021
2020
2019
Net income
Adjustments to reconcile net income to net cash provided by operating activities
$
179,637 $
171,335 $
158,835
Depreciation of property, plant and equipment
Other amortization
Deferred income taxes
State refundable credit
Bad debt expense
Allowance for equity funds used during construction
Bill credits
Accrued environmental reserve
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 (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
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
Cash and cash equivalents, December 31
229,469
21,737
(3,829)
(10,582)
2,183
(9,534)
2,000
—
1,350
(50,090)
(27,464)
(45,840)
(4,533)
(13,874)
15,358
17,671
26,930
(5,154)
(52,302)
273,133
(292,000)
6,035
(285,965)
(111,700)
(1,995)
54,400
115,000
—
222,733
33,746
3,151
(9,961)
2,115
(8,768)
—
6,556
2,610
(7,286)
15,285
33,699
(6,642)
1,007
(16,562)
(33,129)
(37,180)
(4,306)
(31,852)
336,551
(350,864)
6,070
(344,794)
(107,134)
(1,995)
34,000
255,000
(109,000)
—
—
(50,000)
(941)
4,764
(8,068)
63,326
55,258
(3,089)
52,169 $
(38,987)
100,000
(100,000)
(2,209)
29,675
21,432
41,894
63,326
(15,966)
47,360 $
$
215,731
29,631
(16,284)
(8,369)
2,150
(11,987)
—
406
27,459
18,822
4,495
(12,002)
(5,498)
71,262
1,953
(2,051)
(28,523)
(4,448)
(17,626)
423,956
(419,898)
11,374
(408,524)
(101,252)
(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
The accompanying notes are an integral part of these consolidated financial statements.
97
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 non-regulated renewable/sustainable infrastructure businesses operating in the State of Hawaii.
HEI owns Hawaiian Electric Company, Inc. (Hawaiian Electric), ASB Hawaii, Inc. (ASB Hawaii), an intermediate holding
company that owns American Savings Bank, F.S.B. (ASB), and Pacific Current, LLC (Pacific Current).
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, full-service community bank providing a wide range of banking services to individual and
business customers through its 42 branches on Oahu (29), Maui (6), Hawaii (4), Kauai (2) and Molokai (1).
Pacific Current’s significant subsidiaries include Hamakua Energy, LLC (Hamakua Energy), Mauo, LLC (Mauo) and
Ka‘ie‘ie Waho Company, LLC (Ka‘ie‘ie Waho). 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. Ka‘ie‘ie
Waho owns and operates a 6-MW photovoltaic project, which sells all power produced to Kauai Island Utility Cooperative.
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 credit 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. Significant intercompany amounts
are eliminated in consolidation (see Note 2 for limited 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, 2021 and 2020 was nil. In March 2020, the
Federal Reserve Board reduced the reserve requirement to nil to support the depository institutions during the COVID-19
pandemic and effective March 2021, the change was made permanent.
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. In addition to the Utilities’ funds on deposit with trustees, the Company considers cash held
by trustees related to non-recourse loans at Pacific Current subsidiaries to be restricted cash. At December 31, 2021 and 2020,
total restricted cash of the Company was $5.9 million and $17.6 million, respectively, and for the Utilities was $3.1 million and
$16.0 million, respectively.
98
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
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 51 years for production plant, from 10 to 79
years for transmission and distribution plant, and from 5 to 50 years for general plant. The Utilities’ composite annual
depreciation rate, which includes a component for cost of removal, was 3.2% in 2021, 2020 and 2019.
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
pension trusts 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
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
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.
The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to
the next related to the observability of inputs in fair value measurements may result in a reclassification between the fair value
hierarchy levels and are recognized based on period-end balances.
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, 2021, 2020 and 2019.
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.
Income Taxes. In December 2019, Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes specific
exceptions to the general principles in Topic 740, improves financial statement preparers’ application of income tax-related
guidance and simplifies GAAP under certain situations. ASU No. 2019-12 is effective for public business entities for fiscal
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the ASU as of
January 1, 2021 with no material impact on its consolidated financial statements and related disclosures.
Leases. On July 19, 2021 FASB issued ASU No. 2021-05, “Leases (Topic 842): Lessors–Certain Leases with Variable
Lease Payments.” The ASU allows lessors to treat sales-type leases with variable payments to be classified as operating leases
if the sales-type lease treatment under Topic 842 would result in a selling loss at lease commencement (day-one loss). The
Company early adopted ASU No. 2021-05 as of September 30, 2021 retrospectively to leases that commenced on or after the
adoption of ASU No. 2016-02, “Leases (Topic 842).” The adoption of ASU No. 2021-05 did not have a material impact on the
Company’s consolidated financial statements and related disclosures.
Financial Disclosures. In August 2021, the FASB issued ASU 2021-06, “Presentation of Financial Statements (Topic
205), Financial Services-Depository and Lending (Topic 942), and Financial Services-Investment Companies (Topic 946):
Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures
about Acquired and Disposed Businesses, and No. 33- 10835, Update of Statistical Disclosures for Bank and Savings and Loan
Registrants.” This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases
No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses”, and No. 33-10835, “Update
of Statistical Disclosures for Bank and Savings and Loan Registrants.” The amendments in this update are effective upon
addition to the FASB Codification and the Company determined that this guidance does not have a material impact on the
Company’s consolidated financial statements.
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. Management believes that the operations of
the Utilities, including the impact of the newly approved PBR Framework, currently satisfy the criteria under ASC Topic 980.
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 expected credit losses in the Utilities’ existing accounts receivable. Due to the economic impact of COVID-19 on
customers and the moratorium on electric service disconnections through May 31, 2021, the allowance for doubtful accounts
increased in 2020 and 2021. At December 31, 2021 and 2020, the allowance for customer accounts receivable, accrued unbilled
revenues and other accounts receivable was $26.1 million and $17.8 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.
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 represents the estimated costs of debt (i.e., interest) and
equity funds used to finance plant construction. AFUDC is 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 tax gross up of the allowance for
equity funds used during construction is credited to income taxes on the statement of income and charged to a regulatory asset.
This gross up, net of amortization of the regulatory asset, is reflected in income tax expense.
The weighted-average AFUDC rate was 7.1% in 2021, 7.1% in 2020 and 7.4% in 2019, and reflected quarterly
compounding.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Asset retirement obligations. AROs are accounted for in accordance with ASC 410-20, Asset Retirement Obligations. AROs
are recognized at 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. In the subsequent period, the liability is accreted to its
future value while the asset retirement cost is depreciated over the estimated useful life of the underlying asset. 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. See “Asset retirement obligations” in Note 3.
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.
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.
AFS debt securities with unrealized losses are reviewed quarterly. ASB will first assess whether it intends to sell, or it is
more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is
met, the security’s amortized cost basis is written down to fair value through income. For AFS securities that do not meet the
aforementioned criteria, ASB evaluates whether the decline in fair value is the result of a credit loss or other factors. The
determination of whether or not a credit loss exists is based on consideration of the cash flows expected to be collected from the
debt security. ASB develops these expectations after considering various factors such as agency ratings, the financial condition
of the issuer, payment history, payment structure of the security, industry and market conditions, underlying collateral and other
factors which may be relevant based on the facts and circumstances pertaining to individual securities. If this assessment
indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost
basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair
value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is
recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or
reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS
security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2021,
2020 and 2019, there was no indicated impairment as ASB expects to collect the contractual cash flows for these investments.
Held-to-maturity debt securities are assessed periodically to determine if a valuation allowance is necessary to absorb credit
losses expected to occur over the remaining contractual life of the securities. The carrying amount of held-to-maturity debt
securities is presented net of the valuation allowance for credit losses when such an allowance is deemed necessary.
Stock in 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 credit 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
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 credit losses. The allowance for credit losses (ACL) represents management’s estimate of expected credit
losses over the expected contractual life of the related loans as of the balance sheet date. Contractual terms are adjusted for
expected prepayments but are not extended for expected extensions, renewals or modifications except in circumstances where
ASB reasonably expects to execute a troubled debt restructuring with the borrower or where certain extension or renewal
options are embedded in the original contract and not unconditionally cancellable by the Bank.
Accrued interest receivables on loans are presented in the Consolidated Financial Statements as a component of other
assets. When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest
income is reversed against interest income on loans. ASB follows established policies for placing loans on nonaccrual status, so
uncollectible accrued interest receivable is reversed in a timely manner. As a result, the Bank has elected not to measure an
allowance for credit losses for accrued interest receivables.
Credit losses are charged and recoveries are credited to the ACL. The ACL is maintained at a level the Bank considers to
be adequate and is based on ongoing assessments and evaluations of the collectability of loans. The Bank’s expected credit loss
models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market
and economic conditions if such forecasts are considered reasonable and supportable. Generally, the Bank considers its
forecasts to be reasonable and supportable for a period of up to a year from the estimation date. For periods beyond the
reasonable and supportable forecast period, expected credit losses are estimated by reverting to historical loss information
without adjustment for changes in economic conditions. The Bank evaluates the length of its reasonable and supportable
forecast period, its reversion period and reversion methodology at least annually, or more often if warranted by economic
conditions or other circumstances.
The Bank’s methodology for determining the ACL includes an estimate of expected credit losses on a collective basis for
groups of loans with similar risk characteristics and specific allowances for loans which are individually evaluated.
ASB disaggregates its portfolio loans into portfolio segments for purposes of determining the allowance for credit 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
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.
The Bank also considers qualitative factors in determining the ACL. Qualitative factors are used to capture characteristics
in the portfolio that impact expected credit losses but that are not fully captured within the Bank’s expected credit loss models.
These include but are not limited to adjustments for changes in policies or 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 cover expected losses related to
unfunded credit facilities and is included in accounts payable and other liabilities in the consolidated balance sheets. The
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 credit losses,
as discussed above. Net adjustments to the reserve for unfunded commitments are included in the provision for credit losses in
the consolidated statements of income.
The allowance for credit losses is based on currently available information and historical experience, and future
adjustments may be required from time to time to the allowance for credit 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 credit 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 credit losses. Loans that have been charged-off against the allowance for credit 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.
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.
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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,
2021 and 2020, 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 the market and income approaches. The market approach considers publicly
traded financial institutions and measures the institutions’ market values as a multiple to (1) net income and (2) tangible book
equity. The market approach also looks at sale transactions to determine the fair value under this approach. The income
approach uses a discounted cash flow method to value 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. ASB
used its forecasted net income and estimated cost savings if the Bank were acquired and applied a discount rate to calculate its
discounted cash flows. A capitalization of earnings method was used to calculate a terminal value for the discounted cash flow
method. The income approach was weighted 75%, the publicly traded company valuation method was weighted 20% and the
sale transaction valuation method was weighted 5%. More weight was given to the income approach as this approach uses the
projected performance of ASB in the stressed environment and would be more indicative of the current fair value of the Bank.
For the three years ended December 31, 2021, 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
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.
105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2021, 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, 2021 and 2020, the carrying amount of LIHTC investments was $111.0 million and $83.4 million,
respectively, and included in other assets in the consolidated balance sheets.
ASB’s unfunded commitments to fund its LIHTC investment partnerships were $62.8 million and $41.0 million as of
December 31, 2021 and 2020, respectively. These unfunded commitments are unconditional and legally binding and are
recorded in other liabilities with a corresponding increase in other assets.
The table below summarizes the amounts in income tax expense related to ASB’s LIHTC investments:
Years ended December 31
(in millions)
2021
2020
2019
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
$
$
(10.3) $
(9.6) $
13.9
13.7
3.6 $
4.1 $
(7.9)
11.9
4.0
106
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 electricity 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), Pacific Current and its subsidiaries, and other
subsidiaries not qualifying as reportable segments, and intercompany eliminations.
Pacific Current. Pacific Current was formed in 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, Mauo and Ka‘ie‘ie Waho, include:
Hamakua power plant. In 2017, Hamakua Energy 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-plus-storage power purchase agreement. On February 2, 2018, Mauo 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
megawatt-hour (MWh) of storage capacity on the islands of Maui and Oahu. The PPA has a 15-year term with a customer
option to extend for an additional five years. The system is being constructed by a third party contractor under an Engineering,
Procurement and Construction (EPC) contract that was contemporaneously negotiated and executed by Mauo. 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 solar-plus-storage PPA. Mauo is funding the construction of the project
with a construction facility that will be repaid on a pro rata basis at the commercial operation dates (ultimately with cash from
investment tax credits, state renewable tax credits, non-recourse project debt, and equity).
6-MW photovoltaic system. In September 2020 Ka‘ie‘ie Waho acquired a 6-MW photovoltaic situated on 20 acres of land
on the island of Kauai. Kauai Island Utility Cooperative purchases all of the power generated by the system under a PPA that
expires in 2033.
107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment financial information was as follows:
Electric utility
Bank
Other
Total
(in thousands)
2021
Revenues from external customers
Intersegment revenues (eliminations)
Revenues
Depreciation and amortization
Depreciation and amortization
Interest expense, net
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
Net income (loss) for common stock
Capital expenditures1
Capital expenditures
Assets (at December 31, 2021)
Assets (at December 31, 2021)
2020
Revenues from external customers
Intersegment revenues (eliminations)
Revenues
Depreciation and amortization
Depreciation and amortization
Interest expense, net
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
Net income (loss) for common stock
Capital expenditures1
Assets (at December 31, 2020)
Assets (at December 31, 2020)
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 expenditures1
Assets (at December 31, 2019)
$
2,539,589 $
47
2,539,636
251,206
72,447
223,785
44,148
179,637
1,995
177,642
292,000
6,491,625
$
2,265,281 $
39
2,265,320
256,479
67,794
211,753
40,418
171,335
1,995
169,340
350,864
6,457,373
$
2,545,865 $
77
2,545,942
245,362
70,842
197,140
38,305
158,835
1,995
156,840
419,898
306,398 $
—
306,398
21,124
5,040
130,559
29,325
101,234
—
101,234
11,131
9,181,603
313,511 $
—
313,511
29,349
11,114
69,271
11,688
57,583
—
57,583
12,203
8,396,533
4,392 $
(47)
4,345
6,372
21,916
(43,481)
(10,666)
(32,815)
(105)
(32,710)
11,393
149,409
983 $
(39)
944
4,950
20,900
(40,400)
(11,196)
(29,204)
(105)
(29,099)
20,828
150,101
327,917 $
—
166 $
(77)
327,917
28,675
18,440
112,034
23,061
88,973
—
88,973
24,175
89
4,076
20,057
(37,765)
(9,729)
(28,036)
(105)
(27,931)
13,447
123,552
2,850,379
—
2,850,379
278,702
99,403
310,863
62,807
248,056
1,890
246,166
314,524
15,822,637
2,579,775
—
2,579,775
290,778
99,808
240,624
40,910
199,714
1,890
197,824
383,895
15,004,007
2,873,948
—
2,873,948
278,113
109,339
271,409
51,637
219,772
1,890
217,882
457,520
13,745,251
6,388,682
7,233,017
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.
108
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, 2021 are noted.
Regulatory assets were as follows:
December 31
(in thousands)
2021
2020
Retirement benefit plans (balance primarily varies with plans’ funded statuses)
$ 351,070 $ 592,644
Income taxes (1-55 years)
Decoupling revenue balancing account and RAM (1-2 years)
Unamortized expense and premiums on retired debt and equity issuances (1-18 years; 1-18 years remaining)
Vacation earned, but not yet taken (1 year)
COVID-19 related costs (to be determined by PUC)
Other (1-38 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 (1-79 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)
Solar tax credits (1-20 years)
Other (1-4 years remaining)
Total regulatory liabilities
Included in:
Current liabilities
Long-term liabilities
Total regulatory liabilities
88,087
31,607
7,300
14,255
27,839
45,385
96,171
10,432
8,654
15,665
18,032
25,110
$ 565,543 $ 766,708
$
66,664 $
30,435
498,879
736,273
$ 565,543 $ 766,708
2021
2020
$ 562,514 $ 541,730
337,304
360,426
251
51,734
27,123
17,842
1,957
29,759
8,096
17,818
$ 996,768 $ 959,786
$
29,760 $
37,301
967,008
922,485
$ 996,768 $ 959,786
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% ($267 million), 11% ($249 million) and 11% ($281 million) of their operating
revenues from the sale of electricity to various federal government agencies in 2021, 2020 and 2019, respectively.
109
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, 2021
Series
Voluntary
liquidation price
Redemption
price
C, D, E, H, J and K (Hawaiian Electric)
$
20 $
I (Hawaiian Electric)
G (Hawaii Electric Light)
H (Maui Electric)
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 $5.2 million, $5.6 million and $6.0 million for general management and
administrative services in 2021, 2020 and 2019, 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.
In 2021, 2020 and 2019, Hamakua Energy (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 $54 million, $50 million
and $68 million, respectively.
Hawaiian Electric’s short-term borrowings from HEI totaled nil at December 31, 2021 and 2020. Borrowings among the
Utilities are eliminated in consolidation. Interest charged by HEI to Hawaiian Electric was not material for the years ended
December 31, 2021 and 2020.
Unconsolidated variable interest entities.
Power purchase agreements. As of December 31, 2021, the Utilities had five PPAs for firm capacity (including the Puna
Geothermal Venture (PGV) PPA that went offline in May 2018 due to lava flow on Hawaii Island, but returned to service with
firm capacity of 13.0 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter of 2021) 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 accounting standards for VIEs. 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.
110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Power purchase agreements. Purchases from all IPPs were as follows:
Years ended December 31
(in millions)
Kalaeloa
AES Hawaii
HPOWER
Hamakua Energy
Puna Geothermal Venture
Wind IPPs
Solar IPPs
Other IPPs1
Total IPPs
1 Includes hydro power and other PPAs
2021
2020
2019
$
$
204 $
130
70
29
53
124
50
10
670 $
149 $
133
70
50
1
105
57
4
569 $
214
139
76
68
—
95
36
5
633
As of December 31, 2021, the Utilities had five firm capacity PPAs for a total of 540.4 megawatts (MW) of firm capacity.
The PGV facility with 34.6 MW of firm capacity went offline in May 2018 due to lava flow on Hawaii Island, but returned to
service with firm capacity of 13.0 MW in the first quarter of 2021, and ramped up to 23.9 MW in the second quarter and
continued to provide 23.9 MW for the remainder of 2021. 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 $76 million in 2022, $34 million each in 2023, 2024, 2025 and 2026, and $161 million from 2027 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 energy cost recovery clause (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, operation and maintenance (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 had been negotiating an extension to the PPA, and the PPA had
automatically extended on a month-to-month basis as long as the parties were still negotiating in good faith. In October 2021,
Hawaiian Electric and Kalaeloa signed the Amended and Restated Power Purchase Agreement for Firm Dispatchable Capacity
and Energy (Amended and Restated PPA) to extend the PPA for an additional term of 10 years. In November 2021, Hawaiian
Electric submitted an application for approval of the Amended and Restated PPA to the PUC.
AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amended and Restated Amendment
No. 4) 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 (Amendment No. 4). However, in June
2018, the PUC issued an order suspending review of the amendment pending a Department of Health of the State of Hawaii
(DOH) decision on AES Hawaii’s request for approval of its Emission Reduction Plan and partnership with Hawaiian Electric.
Subsequently on November 25, 2021, Hawaiian Electric and AES Hawaii reached agreement in Amended and Restated
Amendment No. 4 to power purchase agreement (A&RA No. 4) and Hawaiian Electric filed a Withdrawal of Application
regarding Amendment No. 4. A&RA No. 4 resolves AES Hawaii’s claims related to the additional capacity and was filed as an
informational filing with the PUC. Hawaiian Electric does not intend to extend the term of the PPA which will expire on
September 1, 2022.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hawaii Electric Light and Hu Honua dated May 9, 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 greenhouse gas (GHG) 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. As a result, the PUC reopened the docket for further proceedings, including re-examining all of the
issues in the proceedings. On July 9, 2020, the PUC issued an order denying Hawaii Electric Light’s request to waive the
amended and restated PPA from the PUC’s competitive bidding requirements and therefore, dismissed the request for approval
of the amended and restated PPA without prejudice to possible participation in any future competitive bidding process. On
September 9, 2020, the PUC denied Hu Honua’s motion for reconsideration of the PUC’s order. Hu Honua filed its notice of
appeal to the Hawaii Supreme Court of the PUC’s order denying Hu Honua’s motion for reconsideration. On May 24, 2021, the
Hawaii Supreme Court vacated the PUC’s decision and remanded the matter back to the PUC for further proceedings. On June
30, 2021, the PUC issued an order reopening the docket consistent with the Hawaii Supreme Court’s order. A contested case
hearing was scheduled for January and February 2022, and has been rescheduled for March 2022.
Molokai New Energy Partners (MNEP). In July 2018, the PUC approved Maui Electric’s PPA with MNEP to purchase
solar energy from a photovoltaic (PV) plus battery storage project. The 4.88 MW PV and 3 MW Battery Energy Storage
System project was to deliver no more than 2.64 MW at any time to the Molokai system. On March 25, 2020, MNEP filed a
complaint in the United Stated District Court for the District of Hawaii against Maui Electric claiming breach of contract. On
June 3, 2020, Maui Electric provided Notice of Default and Termination of the PPA to MNEP terminating the PPA with an
effective date of July 10, 2020. Thereafter, MNEP filed an amended Complaint to include claims relating to the termination and
Hawaiian Electric filed its Answer to the Amended Complaint on September 11, 2020, disputing the facts presented by MNEP
and all claims within the original and amended complaint. Currently, the discovery phase is ongoing.
Fuels barging contract. On August 23, 2021, the Utilities entered into a five-year inter-island fuel transportation contract
with Sause Bros., Inc., with an estimated annual base rent of $6.2 million, commencing in January 2022 (see Note 8 for lease
discussion). On December 23, 2021, the PUC issued an interim D&O approving the inter-island fuels transportation contract
and recovery of associated costs on an interim basis. The interim decision is effective until the PUC issues its final D&O in the
proceeding.
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 or community support 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. The ERP/EAM
Implementation Project went live in October 2018. Hawaii Electric Light and Hawaiian Electric began to incorporate their
portion of the deferred project costs in rate base and started the amortization over a 12-year period in January 2020 and
November 2020, respectively. The PUC required a minimum of $246 million ERP/EAM project-related benefit to be delivered
to customers over the system’s 12-year service life.
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. In October 2019, the PUC
approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism. As of
December 31, 2021, the Utilities’ regulatory liability was $8.6 million ($5.4 million for Hawaiian Electric, $1.3 million for
Hawaii Electric Light and $1.9 million for Maui Electric) for the O&M expense savings that are being amortized or to be
included in future rates. As part of the settlement agreement approved in the Hawaiian Electric 2020 test year rate case, the
regulatory liability for Hawaiian Electric will be amortized over five years, beginning in November 2020, and the O&M
benefits for Hawaiian Electric was considered flowed through to customers. As part of the PBR proceeding, the regulatory
liability as of December 31, 2020 of approximately $1.6 million and $2.3 million, respectively, for Hawaii Electric Light and
Maui Electric was flowed to customers as part of the customer dividend in the annual revenue adjustment in 2021.
On July 7, 2021, the PUC issued an order modifying the reporting frequency of the Semi-Annual Enterprise System
Benefits (SAESB) reports to an Annual Enterprise System Benefits (AESB) report on the achieved benefits savings. The most
recent AESB report was filed on February 14, 2022 for the period January 1 through December 31, 2021.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 (including a cap of $4.7 million for the in-kind work to be performed in exchange for use of the
Navy property) with capital cost recovery approved under MPIR (See “Performance-based regulation framework” section
below for MPIR guidelines and cost recovery discussion.) Project costs incurred as of December 31, 2021 amounted to $58.8
million and generated $14.7 million and $14.0 million in federal and state nonrefundable tax credits, respectively. For book and
regulatory purposes, the tax credits are being deferred and amortized, starting in 2020, over 25 years and 10 years for federal
and state credits, respectively.
As part of the approval of the project, a performance guarantee mechanism was established, which calls for the Utilities to
provide energy at target annual energy production levels. Customers are compensated for production shortfalls by the amount of
shortfall multiplied by the Equivalent Levelized Energy Price (ELEP) based on the revenue requirements of the actual total cost
of the project, but not to exceed 9.56 cents/kilowatt-hours (kWh). Compensation for shortfalls is provided to customers as a
credit through the PPAC, while production surpluses are refunded to the Utilities up to the amount of previously issued
underproduction credits. In December 2021, the Utilities accrued $0.7 million in estimated underproduction credits to be
returned to customers in 2022 due to not meeting the 2021 annual production target. The 2021 underproduction credit is based
on an interim ELEP representing total project costs as of August 31, 2021. The credit will be trued up based on a final ELEP
based on final project costs.
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 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 federal Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface
soil at the Site. In cooperation with the DOH 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, 2021, representing the probable and reasonably
estimable undiscounted cost for remediation of the Site and the Adjacent Parcel based on presently available information;
however, final costs of remediation will depend on the cleanup approach implemented.
On November 24, 2021, the current landowners of the Site, Misaki’s, Inc., filed a lawsuit against Hawaiian Electric (as
alleged successor in interest to Molokai Electric, the prior owner of the Site) in the Circuit Court of the Second Circuit of the
State of Hawaii (subsequently removed to the U.S. District Court for the District of Hawaii), alleging that Hawaiian Electric is
responsible for remediation of the Site based on the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, section 9601 and the Hawaii Environmental Response Law under Hawaii Revised Statutes Chapter 128D. The lawsuit
seeks reimbursement and indemnification of costs to respond to the alleged release of hazardous substances on the Site, a
declaratory judgment as to liability for response costs and other unspecified damages. Additionally, there are contractual claims
for damages and past rent based on the period when the property was briefly leased back from Misaki’s to Molokai Electric
during the transition of ownership. At this time, the Utilities are unable to determine the ultimate outcome of the lawsuit or the
amount of any possible loss. The Utilities intend to vigorously defend the action.
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 PCB
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, 2021, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination
was $10.3 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore and
offshore investigation and remediation. The final remediation costs will depend on the actual onshore and offshore cleanup
costs.
Asset retirement obligations. 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
Balance, December 31
2021
2020
$
10,692 $
10,324
423
—
(5)
405
—
(37)
$
11,110 $
10,692
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.
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. Prior to the implementation of the performance-based regulation framework (PBR Framework), the
decoupling mechanism had 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
kWh sales, (2) revenue adjustment mechanism (RAM) revenues for escalation in certain O&M expenses and rate base changes,
(3) major project interim recovery (MPIR) adjustment mechanism, (4) performance incentive mechanisms (PIMs), and (5) an
earnings sharing mechanism (ESM), which would provide for a reduction of revenues between rate cases in the event the utility
exceeds the authorized rate-making return on average common equity (ROACE) allowed in its most recent rate case.
Performance-based regulation framework. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving
the new PBR Framework. Under the PBR Framework, the Utilities’ decoupling will continue to be used with modifications, as
described below. The existing cost recovery mechanisms will continue as currently implemented (e.g., the Energy Cost
Recovery Clause (ECRC), Purchased Power Adjustment Clause (PPAC), Demand Side Management surcharge (DSM),
Renewable Energy Infrastructure Program (REIP), Demand Response Adjustment Clause (DRAC), Pension and Other Post-
Employment Benefits (OPEB) tracking mechanisms). In addition to annual revenues provided by the annual revenue
adjustment (ARA), the Utilities may seek relief for extraordinary projects or programs through the Exceptional Project
Recovery Mechanism (EPRM) (formerly known as the MPIR adjustment mechanism) and earn financial rewards for exemplary
performance as provided through a portfolio of PIMs and Shared Savings Mechanisms (SSMs). The PBR Framework will
incorporate a variety of other performance mechanisms, including Scorecards, Reported Metrics, and an expedited Pilot
Process. The PBR Framework also contains a number of safeguards, including a symmetric ESM which protects the Utilities
and customers from excessive earnings or losses, as measured by the Utilities’ achieved rate-making ROACE and a Re-Opener
mechanism, under which the PUC will open an examination, at its discretion, to determine if adjustments or modifications to
specific PBR mechanisms are appropriate. The new PBR Framework became fully effective on June 1, 2021.
On September 17, 2021, the PUC issued an order, including a proposed new set of potential PIMs to address these areas of
PUC concern:
• Grid reliability,
•
•
•
•
Timely retirement of fossil fuel generation units,
Interconnection of large-scale renewable energy projects,
Cost control for fossil fuel, purchased power, and other non-ARA costs, and
Expedient utilization of grid services from demand-side resources
The order established a procedural schedule by which a PBR Working Group (consisting of parties from the docket in
which the new PBR Framework was established) will comment upon and evaluate the potential new PIMs and potentially
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
propose alternatives. The schedule included procedural steps for technical conferences, statements of position filings and an
evidentiary hearing. The PUC has not stated when any new PIMs might become effective. On November 19, 2021, the PUC
modified the procedural schedule. Accordingly, the Utilities filed their preliminary statements of position on February 8, 2022.
The final statements of position are due on March 18, 2022, and an evidentiary hearing during the week of April 4, 2022.
Revenue 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). All Utilities were limited to the RAM Cap
in 2020. Under the PBR Framework, the ARA mechanism replaced the RAM, and became effective on June 1, 2021. The
transition to the ARA includes the continuation of the 2020 RAM revenue adjustment.
Annual revenue adjustment mechanism. The PBR Framework established a five-year multi-year rate period during
which there will be no general rate cases. Target revenues will be adjusted according to an index-driven ARA based on (i) an
inflation factor, (ii) a predetermined X-factor to encompass productivity, which is set at zero, (iii) a Z-factor to account for
exceptional circumstances not in the Utilities’ control and (iv) a customer dividend consisting of a negative adjustment of
0.22% of adjusted revenue requirements compounded annually and a flow through of the “pre-PBR” savings commitment from
the management audit recommendations developed in a prior docket.
As a result of an Order issued by the PUC pursuant to a motion for partial reconsideration the customer dividend for “pre-
PBR” savings commitment portion to be delivered to customers will be at a rate of $6.6 million per year from 2021 to 2025,
and the Enterprise Resource Planning system benefits savings of $3.9 million, to be delivered to customers in 2021. The
implementation of the ARA occurred on June 1, 2021.
Earnings sharing mechanism. A symmetrical ESM for achieved rate-making ROACE outside of a 300 basis points
dead band above or below the current authorized ROACE of 9.5% for each of each of the Utilities. There is a 50/50 sharing
between customers and Utilities for the achieved rate-making ROACE falling within 150 basis points outside of the dead band
in either direction, and a 90/10 sharing for any further difference. A reopening or review of the PBR terms will be triggered if
the Utilities credit rating outlook indicates a potential credit downgrade below investment grade status, or if its achieved rate-
making ROACE enters the outer most tier of the ESM.
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.
On May 26, 2021, the PUC approved 2021 MPIR amounts totaling $21.8 million, including revenue taxes, for the
Schofield Generating Station ($17.6 million), West Loch PV Project ($3.3 million), and Grid Modernization Strategy (GMS)
Phase 1 project ($0.9 million for all three utilities) for the accrual of revenues effective January 1, 2021, that included the 2021
return on project amount (based on approved amounts) in rate base, depreciation and incremental O&M expenses. Under the
PBR Framework, the Utilities began recovery of the annualized 2021 MPIR amounts effective June 1, 2021 through the RBA
rate adjustment.
On September 27, 2021, the PUC issued an order rejecting the Utilities’ August 31, 2021 request to update target revenues
resulting from the GMS Phase 1 Meter Data Management System (MDMS) deferred software go‑live and completion of
implementation through July 2021, as it inappropriately relied on an automatic approval provision in Hawaii Administrative
Rules. The PUC did not rule on the merits of the Utilities’ request and offered the Utilities to file an amended request as soon as
practicable. On October 7, 2021, the Utilities filed an amended request, requesting PUC approval of RBA tariff sheets reflecting
the change to target revenues associated with the GMS Phase 1 MDMS deferred software go-live and completion of
implementation through July 2021, which was approved by the PUC on December 20, 2021.
Exceptional project recovery mechanism. Under the PBR Framework, the existing MPIR adjustment mechanism was
renamed EPRM to include deferred and O&M expense projects and to permit the Utilities to include the full amount of
approved costs in the EPRM for recovery in the first year the project goes into service, pro-rated for the portion of the year the
115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
project is in service. Any pending application for MPIR relief submitted by the Utilities prior to the PBR D&O will be
grandfathered under the MPIR Guidelines. The Utilities may alternatively request that pending MPIR applications be reviewed
under EPRM Guidelines. EPRM recovery will be in accordance with the EPRM Guidelines limited to the lesser of actual
incurred project costs or PUC-approved amounts, net of savings. As of December 31, 2021, the PUC approved two EPRM
projects totaling $41 million to the extent that the project costs are not included in rates. Currently, the Utilities are seeking
EPRM recovery of five projects with total project costs of $264 million, subject to PUC approval.
Pilot process. The PBR D&O approved a Pilot Process to foster innovation by establishing an expedited
implementation process for pilots that test new technologies, programs, business models, and other arrangements. This is
intended to support initiatives by the Utilities to test new programs and ideas quickly and elevate any successful pilots for
consideration of full-scale implementation. The proposed pilots would be subject to PUC approval with a total annual cap of
$10 million. The Pilot Process will feature the two primary activities: an initial “Workplan Development” phase, during which
the Utilities identify and scope areas of interests, so as to inform the subsequent “Implementation” phase, during which the
Utilities submit specific pilot proposals for expedited review by the PUC and implement the pilot upon approval. The PUC will
issue an order, approving, denying, or modifying a proposed Pilot within 45 days of receiving notice of a specific pilot project.
On July 9, 2021, the PUC issued an order approving the Utilities’ proposed Pilot Process submitted in April 2021 with
modifications, including a cost recovery process that generally allows the Utilities to defer and recover total annual
expenditures of approved pilot projects in full over twelve months beginning June 1 of the year following implementation
through the RBA rate adjustment, although the Utilities may determine on a case-by-case basis that a particular project’s
deferred costs should be amortized over a period greater than twelve months. On July 28, 2021, the Utilities submitted the
finalized Pilot Process to govern the review of the pilot project proposals in accordance with the July 9, 2021 order.
On November 30, 2021, the PUC solicited comments from the Parties regarding the Pilot Process Workplan filed by the
Utilities on November 12, 2021. The Utilities filed their response to those comments on January 5, 2022.
Performance incentive mechanisms. The PUC has established the following PIMs: (1) Service Quality performance
incentives, (2) Phase 1 Request for proposal (RFP) PIM for procurement of low-cost renewable energy, (3) Phase 2 RFP PIMs
for generation and generation plus storage project, and Grid Services and standalone storage, (4) new PIMs established in the
PBR D&O.
•
•
•
Service Quality performance incentives (ongoing). 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 remain constant in interim
periods, unless otherwise amended by order of the PUC.
•
•
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 $6.8 million - for both indices in total for the three utilities). In 2021, the Utilities accrued
$0.2 million in estimated penalties for service reliability.
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 each respective utility’s approved rate base (or maximum penalties or rewards of approximately $1.4 million -
in total for the three utilities).
Phase 1 RFP PIM. Procurement of low-cost variable renewable resources through the RFP process in 2018 is
measured by comparison of the procurement price to target prices. Half of the incentive was earned upon PUC
approval of the PPAs. Based on the seven PPAs approved in 2019, the Utilities recognized $1.7 million in 2019 with
the remaining award to be recognized in the year following the in-service date of the projects, which is estimated to
occur from 2023 to 2024.
Phase 2 RFP PIMs. The PUC order issued on October 9, 2019 establishes pricing thresholds, timelines to complete
contracting, and other performance criteria for the performance incentive eligibility. The PIMs provide incentives only
without penalties. On July 9, 2020, the Utilities filed two Grid Service Purchase Agreements for the Grid Service RFP
that potentially qualify for a demand response PIM; however, details of the incentive metrics will be determined by the
PUC. On September 15, 2020, the Utilities filed a PPA that qualified for a PIM incentive and on February 16, 2021,
the Utilities filed one additional PPA that qualified for a declining PIM incentive. The PUC approved two PPAs in
September 2021 and November 2021, and two Grid Services Purchase Agreements on December 31, 2020. In 2021,
the Utilities accrued $0.1 million in incentive related to the two PPAs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
•
The PUC established the following two new PIMs in its PBR D&O, which were approved in an order issued on March
23, 2021 and became effective on June 1, 2021.
•
•
Renewable portfolio standard (RPS)-A PIM that provides a financial reward for accelerating the achievement of
RPS goals. The Utilities may earn a reward for the amount of system generation above the interpolated statutory
RPS goal at $20/MWh in 2021 and 2022, $15/MWh in 2023, and $10/MWh for the remainder of the multi-year
rate period (MRP). Penalties are already prescribed in the RPS as $20/MWh for failing to meet RPS targets in
2030, 2040 and 2045. The evaluation period commenced on January 1, 2021. In 2021, the Utilities accrued
$0.7 million in estimated rewards.
Grid Services Procurement PIM that provides financial rewards for grid services acquired in 2021 and 2022. The
Utilities can earn a total maximum reward of $1.5 million over 2021 and 2022. The evaluation period commenced
on January 1, 2021.
•
The PUC also established the following three new PIMs in its PBR D&O, which were approved by the PUC on May
17, 2021 and became effective on June 1, 2021.
•
•
•
Interconnection Approval PIM that provides financial rewards and penalties for interconnection times for
distributed energy resources systems <100 kW in size. The Utilities can earn a total annual maximum reward of
$3.0 million or a total annual maximum penalty of $0.9 million. The evaluation period commenced on January 1,
2021. In 2021, the Utilities accrued $2.8 million in estimated rewards.
Low-to-Moderate Income (LMI) Energy Efficiency PIM that provides financial reward for collaboration between
the Utilities and the third-party Public Benefits Fee Administrator to deliver energy savings for low- and
moderate-income customers. The Utilities can earn a total annual maximum reward of $2.0 million. The PIM will
initially have a duration of three years and be subject to an annual review. The evaluation period is based on
Hawaii Energy’s program year with the initial evaluation year being the period of July 1, 2021 through June 30,
2022.
Advanced Metering Infrastructure Utilization PIM that provides financial rewards for leveraging grid
modernization investments and engaging customers beyond what is already planned in the Phase 1 Grid
Modernization program. The Utilities can earn a total annual maximum reward of $2.0 million. The PIM will
initially have a duration of three years after which it will be re-evaluated. The evaluation period commenced on
January 1, 2021.
In 2021, the Utilities accrued $3.4 million ($2.6 million for Hawaiian Electric, $0.3 million for Hawaii Electric Light and
$0.5 million for Maui Electric) in estimated rewards net of penalties, for 2021. The net rewards related to 2021 will be reflected
in the 2022 PIMs annual report and 2022 Spring Revenue Report filings.
Annual review cycle. PBR D&O established an annual review cycle for revenue adjustments under the PBR
Framework, including the biannual submission of the revenue reports. The Utilities filed the fall revenue report on October 29,
2021, which was approved by the PUC on December 22, 2021. The filing reflected ARA revenues for 2022 to be collected from
January 1 through December 31, 2022, as follows:
(in millions)
2022 ARA revenues
Management Audit savings commitment
Net 2022 ARA revenues
Hawaiian
Electric
Hawaii Electric
Light
Maui
Electric
Total
$
$
19.8 $
(4.6)
15.2 $
4.9 $
4.8 $
(1.0)
(1.0)
3.9 $
3.8 $
29.5
(6.6)
22.9
The net incremental amounts between the 2021 spring and fall revenue reports are as follows. The amounts are to be
collected (refunded) from January 1 through December 31, 2022 under the RBA rate tariffs, which were included in the 2021
fall revenue report filing.
(in millions)
Hawaiian
Electric
Hawaii
Electric Light Maui Electric
Total
Incremental RAM revenues and ARA revenues
$
41.7 $
8.9
$
10.9 $
61.5
Incremental accrued RBA balance through September 30, 2021 (and
associated revenue taxes)
Incremental Performance Incentive Mechanisms (net)
Incremental MPIR/EPRM Revenue Adjustment
21.9
—
9.8
2.5
—
0.3
(0.1)
0.1
0.3
Net incremental amount to be collected under the RBA rate tariffs
$
73.4 $
11.7
$
11.1 $
24.3
0.1
10.4
96.2
Note: Columns may not foot due to rounding.
117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Most recent rate proceedings.
Hawaiian Electric 2020 test year rate case. On October 22, 2020, the PUC issued a final D&O approving the
stipulated settlement agreement filed in the proceeding. As a result, there will be no increase in base electric rates established in
the 2017 test year rate case. In the final D&O, the PUC approved the capital structure that consists of a 58% total equity ratio,
and an authorized ROACE of 9.5% for the 2020 test year. The resulting return on rate base (RORB) is 7.37%. The D&O
approved the agreement to implement the overall lower depreciation rates approved in the last depreciation study proceeding,
effective January 1, 2020. See “Annual revenue adjustment mechanism” under “Performance-based regulation framework”
above, regarding the PUC’s decision on the treatment of Hawaiian Electric’s Management Audit savings commitment.
Hawaiian Electric’s proposed RBA provision tariff and ECRC tariff submitted on November 6, 2020 were approved by the
PUC on December 11, 2020 and took effect on January 1, 2021.
Hawaii Electric Light 2019 test year rate case. On July 28, 2020, the PUC issued a final D&O, approving the
Stipulated Partial Settlement Letter in part and ordering final rates for the 2019 test year to remain at current effective rates such
that there is a zero increase in rates. The PUC determined that an appropriate authorized ROACE for the 2019 test year is 9.5%,
approved a capital structure of 58% total equity and approved as fair a 7.52% RORB. In addition, the order, among others, (1)
approved a 10-year amortization period for the state investment tax credit; and (2) approved a modification to Hawaii Electric
Light’s ECRC to incorporate a 98%/2% risk-sharing split between customers and Hawaii Electric Light with an annual
maximum exposure cap of +/- $600,000. The proposed final tariffs and PIM tariffs took effect on November 1, 2020, and the
ECRC tariff took effect on January 1, 2021.
Regulatory assets for COVID-19 related costs. On May 4, 2020, the PUC issued an order, authorizing all utilities, including
the Utilities, to establish regulatory assets to record costs resulting from the suspension of disconnections of service during the
pendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC
will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any
savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the
Utilities from charging late payment fees on past due payments. As the moratorium on customer disconnections ended on May
31, 2021, the Utilities have resumed charging late payment fees in July 2021. On June 30, 2020, the PUC issued an order
approving the Utilities’ request made in April 2020 for deferral treatment of COVID-19 related costs through December 31,
2020. On October 1, 2021, the PUC approved the Utilities’ request to extend the deferral period to December 31, 2021. In
December 2021, to keep customers connected and provide some relief to customers experiencing financial difficulty during the
pandemic, the Utilities have committed to issuing $2 million in bill credits to qualified customers. The Utilities will not seek
recovery for the issued bill credits resulting in a reduction to the cumulative deferred costs. As of December 31, 2021, the
Utilities recorded a total of $27.8 million in regulatory assets pursuant to the orders.
Collective bargaining agreement. As of December 31, 2021, approximately 47% of the Utilities’ employees are members of
the International Brotherhood of Electrical Workers, AFL-CIO, Local 1260. The collective bargaining agreement between the
union and the Utilities was set to expire on October 31, 2021 but had been extended through January 3, 2022 while negotiations
for a new agreement continued. On December 3, 2021, the union’s members ratified a new collective bargaining agreement.
The new collective bargaining agreement covers a term from November 1, 2021 to October 31, 2024 and provides for non-
compound 3% general wage increase for each year of the 3-year contract and includes changes to retirement benefits for
employees hired on or after January 1, 2022. (see Note 10)
Consolidating financial information. Consolidating financial information for Hawaiian Electric and its subsidiaries are
presented for the years ended December 31, 2021, 2020 and 2019, and as of December 31, 2021 and 2020.
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.
118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
644,349
670,494
475,412
229,469
240,354
2,260,078
279,558
9,534
—
3,890
(72,447)
3,250
223,785
44,148
179,637
915
178,722
1,080
Consolidating statement of income
Year ended December 31, 2021
(in thousands)
Revenues
Expenses
Fuel oil
Purchased power
Other operation and maintenance
Depreciation
Taxes, other than income taxes
Total expenses
Operating income
Hawaiian
Electric
$ 1,793,372
Hawaii
Electric
Light
381,033
Maui
Electric
365,256
Consolidating
adjustments
(25) [1]
Hawaiian
Electric
Consolidated
$ 2,539,636
442,818
508,642
313,009
155,607
170,604
1,590,680
202,692
80,086
108,997
79,390
40,201
35,499
344,173
36,860
121,445
52,855
83,013
33,661
34,251
325,225
40,031
—
—
—
—
—
—
(25)
Allowance for equity funds used during construction
Equity in earnings of subsidiaries
7,734
45,353
586
—
1,214
—
—
(45,353) [2]
Retirement defined benefits credit (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
3,348
(51,680)
670
(10,353)
(128)
(10,439)
—
25 [1]
2,617
210,064
31,342
178,722
—
178,722
1,080
197
27,960
6,246
21,714
534
21,180
—
436
31,114
6,560
24,554
381
24,173
—
—
(45,353)
—
(45,353)
—
(45,353)
—
Net income for common stock
$
177,642
21,180
24,173
(45,353)
$
177,642
Consolidating statement of comprehensive income
Year ended December 31, 2021
(in thousands)
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income for common stock
$
177,642
21,180
24,173
(45,353)
$
177,642
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Net gains arising during the period, net of taxes
151,523
17,902
16,572
(34,474) [1]
151,523
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
19,461
2,749
2,553
(5,302) [1]
19,461
(171,345)
(20,585)
(18,898)
39,483 [1]
(171,345)
Other comprehensive income (loss), net of taxes
(361)
66
227
(293)
(361)
Comprehensive income attributable to common
shareholder
$
177,281
21,246
24,400
(45,646)
$
177,281
119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statement of income
Year ended December 31, 2020
(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 credit (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
1,080
$ 169,340
Consolidating statement of comprehensive income
Year ended December 31, 2020
Hawaiian
Electric
$ 1,608,305
Hawaii
Electric Light
334,221
Maui
Electric
323,430
Consolidating
adjustments
(636) [1]
Hawaiian
Electric
Consolidated
$ 2,265,320
354,087
446,672
311,781
151,387
154,191
1,418,118
190,187
7,335
47,504
72,202
73,120
73,746
39,041
31,181
289,290
44,931
543
—
88,985
48,957
88,665
32,305
30,450
289,362
34,068
—
—
—
—
—
—
(636)
890
—
—
(47,504) [2]
(1,294)
(48,775)
2,540
197,497
27,077
170,420
—
170,420
672
(10,004)
(141)
(9,651)
—
636 [1]
160
36,302
8,275
28,027
534
27,493
—
27,493
292
25,458
5,066
20,392
381
20,011
—
20,011
—
(47,504)
—
(47,504)
—
(47,504)
—
(47,504)
$
515,274
568,749
474,192
222,733
215,822
1,996,770
268,550
8,768
—
(763)
(67,794)
2,992
211,753
40,418
171,335
915
170,420
1,080
169,340
(in thousands)
Hawaiian
Electric
Hawaii
Electric Light
Maui
Electric
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income for common stock
$ 169,340
27,493
20,011
(47,504)
$
169,340
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 loss, net of tax benefits
Comprehensive income attributable to common
shareholder
(63,050)
(9,424)
(10,897)
20,321 [1]
(63,050)
21,550
3,179
2,763
(5,942) [1]
21,550
39,860
(1,640)
6,025
(220)
8,000
(134)
(14,025) [1]
354
39,860
(1,640)
$ 167,700
27,273
19,877
(47,150)
$
167,700
120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
Net income for common stock
157,920
1,080
$ 156,840
Consolidating statement of comprehensive income
Year ended December 31, 2019
Hawaiian
Electric
$ 1,803,698
Hawaii
Electric Light
364,590
Maui
Electric
378,202
Consolidating
adjustments
Hawaiian
Electric
Consolidated
(548)
[1] $ 2,545,942
494,728
494,215
319,771
143,470
170,979
1,623,163
180,535
84,565
90,989
76,091
41,812
33,787
327,244
37,346
141,416
48,052
85,875
30,449
35,365
341,157
37,045
—
—
—
—
—
—
(548)
9,955
43,167
(2,287)
(51,199)
3,666
183,837
25,917
157,920
—
816
—
1,216
—
—
(43,167)
[2]
(422)
(10,741)
(127)
(9,450)
—
548
[1]
342
27,341
5,990
21,351
534
20,817
—
20,817
445
29,129
6,398
22,731
381
22,350
—
22,350
—
(43,167)
—
(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
156,840
(in thousands)
Hawaiian
Electric
Hawaii
Electric Light
Maui
Electric
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)
(169) [1]
5,249
9,550
1,455
1,182
(2,637) [1]
9,550
(16,177)
(1,378)
(1,840)
(1,152)
2,992 [1]
(12)
(174)
186
(16,177)
(1,378)
$ 155,462
20,805
22,176
(42,981)
$
155,462
121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating balance sheet
December 31, 2021
(in thousands)
Assets
Property, plant and equipment
Hawaiian
Electric
Hawaii
Electric Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian Electric
Consolidated
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
42,737
$
5,097,033
(1,757,096)
159,854
3,542,528
5,606
1,390,361
(619,991)
17,129
793,105
3,594
1,248,589
(563,430)
27,586
716,339
5,302
115
1,532
Total property, plant and equipment, net
Investment in wholly-owned subsidiaries, at equity
3,547,830
793,220
717,871
676,237
—
—
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-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
23,344
3,089
1,000
135,949
92,469
18,624
71,184
42,006
32,140
58,695
5,326
23,422
—
—
28,469
19,529
3,347
12,814
9,727
6,052
3,051
—
—
22,441
17,157
3,031
20,080
20,144
7,114
4,918
478,500
88,315
118,307
78,710
337,903
130,546
547,159
$ 5,249,726
22,442
81,645
17,124
121,211
1,002,746
318
79,331
18,510
98,159
934,337
$ 2,261,899
332,900
343,260
22,293
1,136,620
3,420,812
7,000
234,390
574,290
5,000
253,417
601,677
45,955
39,981
—
111,024
12,442
143,723
22,240
56,752
432,117
46,426
291,027
695,152
76,201
220,480
67,511
1,396,797
$ 5,249,726
35
—
—
22,844
2,269
30,679
4,273
18,540
78,640
291
64,309
92,589
13,532
53,257
30,042
254,020
934,337
3,378
11,994
1,000
26,139
2,617
33,153
3,247
14,158
95,686
19,063
53,298
179,267
14,212
48,900
18,030
332,770
1,002,746
122
—
—
—
—
—
—
—
—
77
—
—
—
—
—
—
—
—
—
77
—
—
—
—
77
77
—
—
77
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
77
$
—
—
—
—
—
—
—
(676,237) [2]
—
—
(1,000) [1]
—
—
(17,735) [1]
—
—
725 [1]
—
(18,010)
51,937
7,735,983
(2,940,517)
204,569
5,051,972
6,949
5,058,921
—
52,169
3,089
—
186,859
129,155
7,267
104,078
71,877
46,031
66,664
667,189
—
—
(1,014) [1]
(1,014)
(695,261)
$
101,470
498,879
165,166
765,515
6,491,625
(676,237) [2]
$
2,261,899
—
—
(676,237)
—
—
(1,000) [1]
—
(3) [1]
725 [1]
—
(17,881) [1]
(18,159)
—
—
—
—
34,293
1,624,427
3,920,619
49,368
51,975
—
160,007
17,325
208,280
29,760
71,569
588,284
65,780
408,634
967,008
103,945
(857) [1]
(8)
(865)
(695,261)
$
321,780
115,575
1,982,722
6,491,625
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, 2020
(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
$
42,411
4,960,470
5,606
3,594
1,352,885
1,195,988
(1,677,256)
(597,606)
(544,217)
143,616
13,043
31,683
3,469,241
773,928
687,048
5,306
3,474,547
626,890
115
774,043
—
1,532
688,580
—
42,205
15,966
26,700
102,736
73,628
17,984
38,777
38,786
34,306
22,095
413,183
125,858
513,192
98,307
737,357
3,046
—
—
23,989
13,631
3,028
8,471
9,896
5,197
1,954
69,212
2,032
—
—
21,107
13,777
2,856
10,990
18,662
4,580
6,386
80,390
1,443
114,461
17,992
353
108,620
20,010
133,896
128,983
$ 5,251,977
977,151
897,953
$ 2,141,918
317,451
309,363
22,293
1,116,426
3,280,637
7,000
216,447
5,000
228,429
540,898
542,792
Current portion of operating lease liabilities
Short-term borrowings-non-affiliate
Short-term borrowings-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
64,599
49,979
—
97,102
14,480
135,018
20,224
57,926
439,328
67,824
282,685
656,270
82,563
373,112
69,558
1,532,012
$ 5,251,977
98
—
18,800
19,570
3,138
29,869
8,785
13,851
94,111
1,344
54,108
173,938
15,363
77,679
19,710
342,142
33
—
7,900
17,177
2,790
27,637
8,292
18,621
82,450
326
61,005
92,277
13,989
79,741
25,373
272,711
977,151
897,953
123
—
—
—
—
—
—
—
—
77
—
—
—
—
—
—
—
—
—
77
—
—
—
—
77
77
—
—
77
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
77
—
—
—
—
—
—
—
(626,890) [2]
—
—
(26,700) [1]
—
—
(16,195) [1]
—
—
—
—
(42,895)
—
—
—
—
$
51,611
7,509,343
(2,819,079)
188,342
4,930,217
6,953
4,937,170
—
47,360
15,966
—
147,832
101,036
7,673
58,238
67,344
44,083
30,435
519,967
127,654
736,273
136,309
1,000,236
6,457,373
(669,785)
$
(626,891) [2]
$
2,141,918
—
—
(626,891)
—
—
(26,700) [1]
—
(58) [1]
—
—
(16,136) [1]
(42,894)
—
—
—
—
—
—
—
(669,785)
$
34,293
1,561,302
3,737,513
64,730
49,979
—
133,849
20,350
192,524
37,301
74,262
572,995
69,494
397,798
922,485
111,915
530,532
114,641
2,146,865
6,457,373
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statements of changes in common stock equity
(in thousands)
Balance, December 31, 2018
Net income for common stock
Other comprehensive income, net of taxes
Issuance of common stock, net of expenses
Common stock dividends
Balance, December 31, 2019
Net income for common stock
Other comprehensive loss, net of tax benefits
Issuance of common stock, net of expenses
Common stock dividends
Dissolution of subsidiary
Balance, December 31, 2020
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, 2021
Hawaiian
Electric
Hawaii Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
$ 1,957,641
295,874
280,863
101
(576,838) $ 1,957,641
156,840
20,817
22,350
(1,378)
35,501
(12)
(1)
(174)
4,899
(101,252)
(17,680)
(15,068)
—
—
—
—
(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
169,340
27,493
20,011
(1,640)
34,000
(220)
7,500
(134)
11,000
(107,134)
(16,320)
(14,384)
—
—
—
—
—
—
—
(24)
2,141,918
317,451
309,363
177,642
21,180
24,173
(361)
54,400
66
227
8,803
24,597
(111,700)
(14,600)
(15,100)
$ 2,261,899
332,900
343,260
77
—
—
—
—
77
(47,504)
169,340
354
(18,500)
30,704
24
(1,640)
34,000
(107,134)
—
(626,891)
2,141,918
(45,353)
177,642
(293)
(33,400)
29,700
(361)
54,400
(111,700)
(676,237) $ 2,261,899
124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hawaiian
Electric
Hawaii Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian Electric
Consolidated
$ 178,722
21,714
24,554
—
(45,353) [2]
$
179,637
Consolidating statement of cash flows
Year ended December 31, 2021
(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
State refundable credit
Bad debt expense
Allowance for equity funds used during
construction
Bill credits
Other
Changes in assets and liabilities:
Increase in accounts receivable
Increase in accrued unbilled revenues
Increase in fuel oil stock
Decrease (increase) in materials and supplies
Decrease (increase) in regulatory assets
Increase (decrease) in regulatory liabilities
Increase 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 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 issuance of common stock
Proceeds from issuance of long-term debt
Net decrease in short-term borrowings from non-
affiliates and affiliate with original maturities of
three months or less
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
58,171
Cash, cash equivalents and restricted cash,
December 31
Less: Restricted cash
Cash and cash equivalents, December 31
26,433
(3,089)
$
23,344
(45,353)
29,700
155,607
16,688
(3,191)
(7,120)
1,159
(7,734)
1,400
366
(41,727)
(18,345)
(32,407)
(3,220)
(15,422)
16,269
9,828
—
—
40,201
3,532
(1,955)
(1,672)
509
(586)
300
(41)
(6,832)
(5,816)
(4,343)
169
24
(1,031)
4,723
—
—
33,661
1,517
1,317
(1,790)
515
(1,214)
300
1,025
(3,071)
(3,303)
(9,090)
(1,482)
1,524
120
3,120
21,217
3,861
1,938
(3,480)
(36,733)
216,224
(950)
(5,833)
45,974
(724)
(8,196)
40,721
(194,984)
(50,516)
(46,500)
25,700
(29,596)
(198,880)
—
1,072
—
1,073
(49,444)
(45,427)
(111,700)
(14,600)
(15,100)
(1,080)
54,400
60,000
(534)
(381)
8,803
30,000
24,597
25,000
—
(17,800)
(7,900)
(50,000)
(702)
(49,082)
(31,738)
—
(119)
5,750
2,280
3,046
5,326
—
5,326
—
(120)
26,096
21,390
2,032
23,422
—
23,422
125
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
77
77
—
77
45,353 [2]
(29,700) [2]
—
—
—
—
—
—
—
—
1,540 [1]
—
—
—
—
—
(86) [1]
—
(1,540) [1]
(29,786)
—
(25,700) [1]
33,486 [1],[2]
7,786
—
—
229,469
21,737
(3,829)
(10,582)
2,183
(9,534)
2,000
1,350
(50,090)
(27,464)
(45,840)
(4,533)
(13,874)
15,358
17,671
26,930
(5,154)
(52,302)
273,133
(292,000)
—
6,035
(285,965)
29,700 [2]
(111,700)
—
(33,400) [2]
—
25,700 [1]
—
—
22,000
—
—
—
—
—
(1,995)
54,400
115,000
—
(50,000)
(941)
4,764
(8,068)
63,326
55,258
(3,089)
52,169
$
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Consolidating statement of cash flows
Year ended December 31, 2020
(in thousands)
Cash flows from operating activities
Hawaiian
Electric
Hawaii
Electric
Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
Net income
$ 170,420
28,027
20,392
—
(47,504) [2]
$
171,335
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
State refundable credit
Bad debt expense
Allowance for equity funds used during
construction
Accrued environmental reserve
Other
Changes in assets and liabilities:
Increase in accounts receivable
Decrease in accrued unbilled revenues
Decrease in fuel oil stock
Increase in materials and supplies
Decrease (increase) in regulatory assets
Decrease in regulatory liabilities
Decrease in accounts payable
(47,504)
30,704
151,387
24,511
2,130
(6,668)
1,042
(7,335)
6,556
1,201
(8,093)
8,832
30,226
(3,910)
8,526
(5,490)
(26,093)
—
—
39,041
5,090
(463)
(1,593)
620
(543)
—
1,322
—
—
32,305
4,145
1,484
(1,700)
453
(890)
—
87
(3,349)
(1,343)
3,327
430
(1,583)
(2,908)
(4,489)
(1,819)
3,126
3,043
(1,149)
(4,611)
(6,583)
(5,217)
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 from affiliates
Other
Net cash used in investing activities
Cash flows from financing activities
(25,757)
(5,483)
(5,998)
(3,092)
(21,124)
280,469
(643)
(8,864)
46,120
(571)
3,635
40,608
(229,127)
(64,346)
(57,391)
1,000
(14,340)
8,000
1,032
—
960
(242,467)
(55,314)
(56,431)
Common stock dividends
(107,134)
(16,320)
(14,384)
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 (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
(1,080)
34,000
205,000
(95,000)
(46,987)
100,000
(100,000)
(1,618)
(12,819)
25,183
32,988
58,171
(15,966)
Cash and cash equivalents, December 31
Cash and cash equivalents, December 31
$
42,205
(534)
(381)
7,500
10,000
(14,000)
11,000
40,000
—
18,800
(19,800)
—
—
(214)
—
—
(377)
5,232
16,058
235
1,797
2,032
—
2,032
(3,962)
7,008
3,046
—
3,046
126
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(24)
(24)
—
—
—
—
—
—
—
—
—
—
(24)
101
77
—
77
47,504 [2]
(30,704) [2]
—
—
—
—
—
—
—
—
5,499 [1]
—
—
—
—
—
58 [1]
—
(5,499) [1]
(30,646)
—
—
222,733
33,746
3,151
(9,961)
2,115
(8,768)
6,556
2,610
(7,286)
15,285
33,699
(6,642)
1,007
(16,562)
(33,129)
(37,180)
(4,306)
(31,852)
336,551
—
(9,000) [1]
18,442 [1],[2]
9,442
(350,864)
—
6,070
(344,794)
30,704 [2]
(107,134)
—
(18,500) [2]
—
—
9,000 [1]
—
—
—
21,204
—
—
—
—
—
(1,995)
34,000
255,000
(109,000)
(38,987)
100,000
(100,000)
(2,209)
29,675
21,432
41,894
63,326
(15,966)
$
47,360
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Hawaiian
Electric
Hawaii
Electric Light
Maui
Electric
Other
subsidiaries
Consolidating
adjustments
Hawaiian
Electric
Consolidated
$ 157,920
21,351
22,731
Consolidating statement of cash flows
Year ended December 31, 2019
(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
State refundable credit
Bad debt expense
Allowance for equity funds used during
construction
Accrued environmental reserve
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
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 and funds transferred
for repayment of long-term debt
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
Other
Repayment of short-term debt
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
(43,204)
32,783
143,470
23,351
(13,547)
(6,245)
1,236
(9,955)
406
27,575
24,150
4,902
(14,741)
(4,585)
55,494
102
4,687
—
—
41,812
4,810
(2,383)
(559)
470
(816)
—
(61)
2,858
(22)
2,126
(1,158)
9,218
(1,558)
(3,160)
—
—
30,449
1,470
(354)
(1,565)
444
(1,216)
—
(55)
3,029
(385)
613
245
6,550
3,409
(3,578)
(24,900)
(893)
(3,097)
(3,033)
(15,747)
340,119
(311,538)
(27,700)
5,241
(333,997)
(762)
(6,152)
65,121
(49,811)
(8,000)
297
(57,514)
(653)
(6,940)
51,097
(58,549)
—
1,303
(57,246)
(101,252)
(17,680)
(15,068)
(1,080)
35,500
190,000
(534)
—
72,500
(381)
4,900
17,500
(183,546)
(70,000)
(30,000)
46,987
75,000
(1,475)
(50,000)
10,134
16,256
16,732
32,988
(30,749)
—
—
(508)
—
27,700
—
(126)
—
(16,222)
4,525
(8,615)
15,623
7,008
(123)
6,885
(1,624)
3,421
1,797
—
1,797
Cash and cash equivalents, December 31
$
2,239
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
127
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
101
101
—
101
(43,167) [2]
$
158,835
43,167 [2]
(32,748) [2]
—
—
—
—
—
—
—
—
(11,215) [1]
—
—
—
—
—
367 [1]
—
11,215 [1]
(32,381)
(37)
35
215,731
29,631
(16,284)
(8,369)
2,150
(11,987)
406
27,459
18,822
4,495
(12,002)
(5,498)
71,262
1,953
(2,051)
(28,523)
(4,448)
(17,624)
423,956
—
35,700 [1]
4,533 [1][2]
40,233
(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
(2,109)
(50,000)
(9,415)
6,017
35,877
41,894
(30,872)
$
11,022
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
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 credit losses
Net interest income after provision for credit 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
Gain 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 expense1
Total noninterest expense
Income before income taxes
Income taxes
Net income
Other comprehensive income (loss), net of taxes
Comprehensive income
2021
2020
2019
$
198,802 $
214,134 $
233,632
43,464
242,266
4,981
59
5,040
237,226
(25,825)
263,051
21,225
16,663
8,770
7,318
9,305
—
528
851
30,529
244,663
10,654
460
11,114
233,549
50,811
182,738
16,447
16,059
6,381
6,483
23,734
—
9,275
(256)
64,660
78,123
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
113,970
104,443
103,009
20,584
17,634
10,327
9,510
4,239
3,870
3,235
13,783
197,152
130,559
29,325
101,234
(52,728)
21,573
14,769
11,121
9,001
4,623
3,435
2,342
20,283
191,590
69,271
11,688
57,583
23,608
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
$
48,506 $
81,191 $
118,379
1 2021 and 2020 include approximately $0.6 million and $5.1 million of certain direct and incremental COVID-19 related costs, respectively.
For 2020, these costs include $2.5 million of compensation expense and $2.0 million of enhanced cleaning and sanitation costs.
128
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
Less: Gain on sale of investment securities, net
*Revenues-Bank
Total interest expense
Provision for credit losses
Noninterest expense
Less: Retirement defined benefits expense (credit)—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
Add back: Gain on sale of investment securities, net
2021
2020
2019
$
242,266 $
244,663 $
266,554
64,660
—
528
306,398
5,040
(25,825)
197,152
(1,828)
—
178,195
128,203
(1,828)
528
78,123
—
9,275
313,511
11,114
50,811
191,590
1,813
—
251,702
61,809
1,813
9,275
72,778
10,762
653
327,917
18,440
23,480
185,378
(472)
10,762
217,008
110,909
(472)
653
Income before income taxes
$
130,559 $
69,271 $
112,034
129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Balance Sheets Data
December 31
(in thousands)
Assets
Cash and due from banks
Interest-bearing deposits
Cash and cash equivalents
Investment securities
Available-for-sale, at fair value
Held-to-maturity, at amortized cost (fair value of $510,474 and $229,963 at
December 31, 2021 and 2020, respectively)
Stock in Federal Home Loan Bank, at cost
Loans held for investment
Allowance for credit 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 income (loss), net of taxes
Net unrealized gains (losses) on securities
Retirement benefit plans
Total shareholder’s equity
Total liabilities and shareholder’s equity
Total liabilities and shareholder’s equity
$
2021
2020
$
100,051
151,189
251,240
$
178,422
114,304
292,726
2,574,618
1,970,417
522,270
10,000
5,211,114
(71,130)
5,139,984
10,404
590,897
82,190
$ 9,181,603
$ 2,976,632
5,195,580
88,305
193,268
8,453,785
1
353,895
411,704
$
(37,782)
727,818
$ 9,181,603
(32,037)
(5,745)
226,947
8,680
5,333,843
(101,201)
5,232,642
28,275
554,656
82,190
$ 8,396,533
$ 2,598,500
4,788,457
89,670
183,731
7,660,358
1
351,758
369,470
19,986
(5,040)
14,946
736,175
$ 8,396,533
2021
2020
December 31
(in thousands)
Other assets
Bank-owned life insurance
Premises and equipment, net
Accrued interest receivable
Mortgage servicing rights
Low-income housing investments
Other
Other liabilities
Accrued expenses
Federal and state income taxes payable
Cashier’s checks
Advance payments by borrowers
Other
$
$
$
$
177,566 $
202,299
20,854
9,950
110,989
69,239
590,897 $
87,905 $
—
33,675
9,994
61,694
193,268 $
163,265
206,134
24,616
10,020
83,435
67,186
554,656
62,694
6,582
38,011
10,207
66,237
183,731
130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
Investment securities. The major components of investment securities were as follows:
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
(dollars in thousands)
December 31, 2021
Available-for-sale
U.S. Treasury and federal
agency obligations
$ 89,714 $
803 $
(427) $
90,090
Mortgage-backed securities* 2,482,618
6,511
(51,206)
2,437,923
Corporate bonds
Mortgage revenue bonds
30,625
15,427
655
—
(102)
—
31,178
15,427
4
120
1
—
$ 44,827 $
(427) —
$
— $ —
1,845,243
(38,321)
18
271,012
(12,885)
12,780
(102) —
—
—
—
—
—
—
$ 271,012 $ (12,885)
—
18
$ 2,618,384 $
7,969 $ (51,735) $ 2,574,618
125
$ 1,902,850 $ (38,850)
Held-to-maturity
US Treasury and Federal
agency obligations
$ 59,871 $
168 $
(170) $
59,869
Mortgage-backed securities* 462,399
1,480
(13,274)
450,605
$ 522,270 $
1,648 $ (13,444) $ 510,474
December 31, 2020
Available-for-sale
U.S. Treasury and federal
agency obligations
$ 60,260 $
2,062 $
— $
62,322
Mortgage-backed securities* 1,825,893
Corporate bonds
Mortgage revenue bonds
29,776
27,185
26,817
1,575
—
(3,151)
1,849,559
—
—
31,351
27,185
$ 1,943,114 $ 30,454 $
(3,151) $ 1,970,417
Held-to-maturity
Mortgage-backed securities* $ 226,947 $
3,846 $
(830) $ 229,963
$ 226,947 $
3,846 $
(830) $ 229,963
* Issued or guaranteed by U.S. Government agencies or sponsored agencies
2
22
24
—
22
—
—
22
7
7
$ 39,594 $
(170) —
$
— $ —
290,883
(7,665)
$ 330,477 $ (7,835)
7
7
106,483
(5,609)
$ 106,483 $ (5,609)
$
— $ —
—
$
— $ —
373,924
(3,151) —
—
—
—
—
—
—
$ 373,924 $ (3,151) —
$ 114,152 $
(830) —
$ 114,152 $
(830) —
$
$
$
—
—
—
—
—
—
— $ —
— $ —
— $ —
ASB does not believe that the investment securities that were in an unrealized loss position as of December 31, 2021,
represent a credit loss. 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’s investment securities portfolio did not require an allowance for credit losses as of December 31,
2021.
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.
131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The contractual maturities of investment securities were as follows:
December 31, 2021
(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
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 held-to-maturity securities
Amortized
Cost
Fair
value
$
15,055 $
15,298
62,461
58,250
—
63,256
58,141
—
135,766
136,695
2,482,618
2,437,923
$ 2,618,384 $ 2,574,618
$
— $
—
—
—
59,871
59,869
—
—
59,871
59,869
462,399
450,605
$ 522,270 $ 510,474
The proceeds, gross gains and losses from sales of available-for-sale securities were as follows:
Years ended December 31
2021
2020
2019
(in thousands)
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
$ 197,354 $ 169,157 $ 19,810
975
(447)
9,275
—
653
—
2021
2020
2019
$ 42,534 $ 29,760 $ 31,848
930
769
1,074
$ 43,464 $ 30,529 $ 32,922
ASB pledged securities with a market value of approximately $416 million and $353 million as of December 31, 2021 and
2020, respectively, as collateral for public funds and other deposits, mortgage pipeline hedge margin, automated clearinghouse
transactions, The Federal Reserve Bank of San Francisco Discount Window and bankruptcy account, and The Federal Home
Loan Bank of Des Moines advance line. In addition, ASB pledged securities with a market value of $161 million and $92
million as of December 31, 2021 and 2020, respectively, as collateral for securities sold under agreements to repurchase.
Stock in FHLB. As of December 31, 2021 and 2020, ASB’s stock in FHLB was carried at cost ($10.0 million and $8.7
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 credit losses as of December 31, 2021, consistent with its accounting policy. ASB did not
recognize any credit losses for 2021, 2020 and 2019 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.
132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 credit losses
Total loans, net
2021
2020
$
2,299,212 $
2,144,239
1,056,982
835,663
19,859
91,080
11,138
983,865
963,578
15,617
121,424
11,022
4,313,934
4,239,745
793,304
113,966
936,748
168,733
5,221,204
5,345,226
(10,090)
(71,130)
(11,383)
(101,201)
$
5,139,984 $
5,232,642
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.
ASB services real estate loans for investors (principal balance of $1.5 billion, $1.5 billion and $1.3 billion as of
December 31, 2021, 2020 and 2019, 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, 2021 and 2020, ASB had pledged loans with an amortized cost of approximately $2.8 billion and $3.0
billion, respectively, as collateral to secure advances from the FHLB.
As of December 31, 2021 and 2020, 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 $13.1
million and $13.2 million, respectively. As of December 31, 2021 and 2020, there was a loan to a related interest of a director
of ASB for $10.0 million. The loan was made at ASB’s normal credit terms.
133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Allowance for credit losses. As discussed in Note 1, ASB must maintain an allowance for credit losses that is adequate to
absorb estimated expected credit losses associated with its loan portfolio.
The allowance for credit losses (balances and changes) and financing receivables by portfolio segment were as follows:
(in thousands)
December 31, 2021
Allowance for credit losses:
Residential
1-4 family
Commercial
real estate
Home equity
line of credit
Residential
land
Commercial
construction
Residential
construction
Commercial
Consumer
Total
Beginning balance
$
4,600
$ 35,607
$
6,813
$
609
$
4,149
$
Charge-offs
Recoveries
Net (charge-offs) recoveries
Provision
Ending balance
(67)
92
25
—
—
—
(45)
113
68
—
61
61
—
—
—
1,920
(10,911)
(1,224)
(24)
(1,963)
$
6,545
$ 24,696
$
5,657
$
646
$
2,186
$
11
—
—
—
7
18
$ 25,462
$ 23,950
$ 101,201
(1,561)
(8,027)
1,468
4,320
(93)
(3,707)
(9,700)
6,054
(3,646)
(9,571)
(4,659)
(26,425)
$ 15,798
$ 15,584
$ 71,130
Average loans outstanding
$ 2,155,322
$ 1,046,276
$ 885,759
$ 18,227
$ 111,711
$ 11,361
$ 856,226
$ 135,609
$ 5,220,491
— %
—%
(0.01%)
(0.33%)
—%
—%
0.01%
2.73%
0.07%
Net charge-offs (recoveries) to average
loans
December 31, 2020
Allowance for credit losses:
Beginning balance, prior to adoption of
ASU No. 2016-13
$
2,380
$ 15,053
$
6,922
$
449
$
2,097
$
Impact of adopting ASU No. 2016-13
2,150
Charge-offs
Recoveries
Net (charge-offs) recoveries
(7)
394
387
208
—
—
—
Provision
Ending balance
(317)
20,346
$
4,600
$ 35,607
$
6,813
$
(541)
(77)
63
(14)
446
(64)
(351)
38
(313)
537
609
289
—
—
—
1,763
4,149
$
3
14
—
—
—
(6)
11
$ 10,245
$ 16,206
$ 53,355
922
16,463
19,441
(5,819)
(19,900)
(26,154)
872
3,381
4,748
(4,947)
(16,519)
(21,406)
19,242
7,800
49,811
$ 25,462
$ 23,950
$ 101,201
Average loans outstanding
$ 2,148,848
$ 861,096
$ 1,060,444
$ 13,799
93,740
$ 10,703
$ 935,663
$ 215,994
$ 5,340,287
Net charge-offs (recoveries) to average
loans
December 31, 2019
Allowance for credit losses:
(0.02) %
—%
—%
2.27%
—%
—%
0.53%
7.65%
0.40%
Beginning balance
$
1,976
$ 14,505
$
6,371
$
479
$
2,790
$
$
$
$
$
$
$
—
—
—
(693)
2,097
$
4
—
—
—
(1)
3
$
9,225
$ 16,769
$ 52,119
(6,811)
(21,677)
(28,662)
2,351
2,967
6,418
(4,460)
(18,710)
(22,244)
5,480
18,147
23,480
$ 10,245
$ 16,206
$ 53,355
81,937
$ 10,513
$ 620,206
$ 270,340
$ 4,986,830
—%
—%
0.72%
6.92%
0.45%
—
2,097
$
$
—
$
1,015
$
454
$
2,691
3
$
9,230
$ 15,752
$ 50,664
Charge-offs
Recoveries
Net (charge-offs) recoveries
Provision
Ending balance
(26)
854
828
(424)
—
—
—
548
(144)
17
(127)
678
(4)
229
225
(255)
$
2,380
$ 15,053
$
6,922
$
449
Average loans outstanding
$ 2,164,759
$ 781,531
$ 1,043,479
$ 14,065
(0.04) %
—%
0.01%
(1.60%)
$
898
$
2
$
322
$
1,482
$ 15,051
$
6,600
$
$
—
449
Net charge-offs (recoveries) to average
loans
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
$ 2,178,135
$ 824,830
$ 1,092,125
$ 14,704
$
70,605
$ 11,670
$ 670,674
$ 257,921
$ 5,120,664
$ 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
134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Allowance for loan commitments. The allowance for loan commitments by portfolio segment were as follows:
(in thousands)
Year ended December 31, 2021
Allowance for loan commitments:
Beginning balance
Provision
Ending balance
Ending balance
Year ended December 31, 2020
Allowance for loan commitments:
Beginning balance, prior to adoption of ASU No. 2016-13
Impact of adopting ASU No. 2016-13
Provision
Ending balance
Home equity
line of credit
Commercial
construction
Commercial
loans
Total
$
$
$
$
300
100
400
$
$
$
3,000 $
700
3,700 $
3,700
1,000 $
(200)
800 $
$
4,300
600
4,900
4,900
392
$
931 $
418 $
(92)
—
300
$
1,745
324
3,000 $
(94)
676
1,000 $
1,741
1,559
1,000
4,300
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
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.
135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows:
(in thousands)
December 31, 2021
Residential 1-4 family
Current
30-59 days past due
60-89 days past due
Greater than 89 days past due
Home equity line of credit
Current
30-59 days past due
60-89 days past due
Greater than 89 days past due
Residential land
Current
30-59 days past due
60-89 days past due
Greater than 89 days past due
Residential construction
Current
30-59 days past due
60-89 days past due
Greater than 89 days past due
Consumer
Current
30-59 days past due
60-89 days past due
Greater than 89 days past due
Commercial real estate
Pass
Special Mention
Substandard
Doubtful
Commercial construction
Pass
Special Mention
Substandard
Doubtful
Commercial
Pass
Special Mention
Substandard
Doubtful
Term Loans by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving Loans
Revolving
loans
Converted
to term
loans
Total
$ 791,758 $ 461,683 $ 133,345 $ 64,421 $ 124,994 $ 712,452 $
— $
— $ 2,288,653
—
—
—
—
—
—
—
—
2,987
809
—
—
—
—
—
2,210
1,468
3,085
791,758
461,683
136,332
65,230
124,994
719,215
—
—
—
—
—
—
—
—
3,019
1,468
6,072
2,299,212
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,572
6,794
1,116
—
—
—
—
—
—
—
—
—
10,572
6,794
1,116
7,856
3,019
—
—
—
—
—
—
7,856
3,019
—
—
—
—
—
—
—
—
—
—
532
—
—
—
532
—
—
—
—
—
37,563
15,488
29,383
10,897
202
59
14
181
127
93
517
392
387
234
183
192
37,838
15,889
30,679
11,506
—
—
—
—
—
267
—
—
—
267
263
—
—
—
263
302
15
8
27
352
—
—
—
—
—
181
—
—
397
578
—
—
—
—
—
794,518
39,116
833,634
296
16
838
313
70
496
609
86
1,334
795,668
39,995
835,663
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19,462
—
—
397
19,859
11,138
—
—
—
11,138
238
12,740
4,157
110,768
—
—
—
156
7
141
70
106
87
1,375
882
941
238
13,044
4,420
113,966
173,794
275,242
19,600
3,529
—
—
684
—
49,317
42,935
13,936
—
56,490
30,870
1,859
—
33,581
259,583
11,602
20,788
1,805
—
32,824
28,543
—
—
—
—
193,394
279,455
106,188
89,219
56,174
320,950
11,602
17,140
43,261
—
—
—
—
—
—
17,140
43,261
—
—
—
—
—
11,342
—
—
—
11,342
—
—
—
—
—
—
—
—
—
—
266,087
40
427
—
96,963
27,336
184
—
79,329
10,071
3,737
—
56,497
31,019
66,570
202
1,777
—
439
4,457
—
8,966
2,961
—
19,337
—
—
—
19,337
96,673
15,303
7,083
—
—
—
—
—
—
—
—
—
—
—
859,609
150,546
46,827
—
1,056,982
91,080
—
—
—
91,080
15,510
708,648
18
1,655
—
62,375
22,281
—
Total loans
$ 1,325,112 $ 934,584 $ 367,452 $ 236,305 $ 217,965 $ 1,119,478 $ 958,710 $
61,598 $ 5,221,204
266,554
124,483
93,137
58,476
35,915
78,497
119,059
17,183
793,304
136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Term Loans by Origination Year
2020
2019
2018
2017
2016
Prior
Revolving Loans
Revolving
loans
Converted
to term
loans
Total
$ 567,282 $ 218,988 $ 111,243 $ 203,916 $ 184,888 $ 849,788 $
— $
— $ 2,136,105
—
—
—
—
476
—
—
—
—
—
—
353
—
—
—
2,629
2,314
2,362
567,282
219,464
111,243
204,269
184,888
857,093
—
—
—
—
—
—
—
—
2,629
2,790
2,715
2,144,239
—
—
—
—
—
939
—
—
—
939
625
—
—
—
625
—
—
—
—
—
22
—
—
—
22
—
—
—
—
—
—
—
—
—
—
272
702
—
300
1,274
—
—
—
—
—
927,106
33,228
960,334
552
267
1,463
298
75
589
850
342
2,052
929,388
34,190
963,578
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
14,615
702
—
300
15,617
11,022
—
—
—
11,022
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8,357
3,427
1,598
—
—
—
—
—
—
—
—
—
8,357
3,427
1,598
385
—
—
—
385
6,919
3,093
—
—
—
—
—
—
6,919
3,093
28,818
406
191
131
67,159
1,085
549
532
37,072
7,207
293
348
18,351
3,758
163,006
727
427
409
155
165
119
4
3
7
—
—
—
138
97
262
29,546
69,325
38,635
7,646
307
348
18,848
270,603
10,261
—
63,301
36,405
14,720
62,168
57,952
4,181
—
280,864
—
114,426
—
124,301
28,432
33,763
1,892
—
64,087
68,287
4,423
48,094
57,640
—
127,799
—
261,388
55,089
155,654
11,000
14,480
1,910
—
—
31,965
26,990
—
5,562
—
—
—
—
—
—
18,000
—
—
—
—
—
16,390
31,965
26,990
18,000
5,562
—
—
—
—
—
392,088
117,791
75,533
29,211
37,836
304
—
23,087
7,785
—
1,920
2,043
—
6,990
4,017
—
12,520
30,264
7,542
—
35,770
13,250
3,113
—
90
59
171
4,078
—
—
—
—
—
—
—
—
—
—
11,004
11,218
1,928
—
2,605
1,491
1,631
168,733
646,247
254,762
82,856
—
983,865
101,514
19,910
—
—
121,424
748,437
155,927
31,997
387
—
—
—
11,000
22,517
—
—
—
22,517
74,520
31,362
5,265
387
(in thousands)
December 31, 2020
Residential 1-4 family
Current
30-59 days past due
60-89 days past due
Greater than 89 days past
Greater than 89 days past due
due
due
Home equity line of credit
Current
30-59 days past due
60-89 days past due
Greater than 89 days past
Greater than 89 days past due
due
due
Residential land
Current
30-59 days past due
60-89 days past due
Greater than 89 days past
Greater than 89 days past due
due
due
Residential construction
Current
30-59 days past due
60-89 days past due
Greater than 89 days past
Greater than 89 days past due
due
due
Consumer
Current
30-59 days past due
60-89 days past due
Greater than 89 days past
Greater than 89 days past due
due
due
Commercial real estate
Pass
Special Mention
Substandard
Doubtful
Commercial construction
Pass
Special Mention
Substandard
Doubtful
Commercial
Pass
Special Mention
Substandard
Doubtful
Total loans
$ 1,339,586 $ 590,363 $ 382,648 $ 335,784 $ 368,904 $ 1,172,236 $ 1,093,287 $
62,418 $ 5,345,226
430,228
148,663
79,496
40,218
50,326
52,133
111,534
24,150
936,748
Revolving loans converted to term loans during 2021 in the commercial, home equity line of credit and consumer
portfolios were $1.8 million, $16.0 million and $2.7 million, respectively.
137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The credit risk profile based on payment activity for loans was as follows:
(in thousands)
December 31, 2021
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, 2020
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
$
3,019 $
1,468 $
6,072 $ 10,559 $ 2,288,653 $ 2,299,212 $
—
609
—
—
—
700
1,375
—
86
—
—
—
313
882
—
1,334
397
—
—
48
941
—
1,056,982
1,056,982
2,029
397
—
—
1,061
3,198
833,634
835,663
19,462
91,080
11,138
792,243
110,768
19,859
91,080
11,138
793,304
113,966
$
5,703 $
2,749 $
8,792 $ 17,244 $ 5,203,960 $ 5,221,204 $
$
2,629 $
2,790 $
2,715 $
8,134 $ 2,136,105 $ 2,144,239 $
—
850
702
—
—
608
2,605
488
342
—
—
—
300
1,491
—
2,052
300
—
—
132
1,631
488
3,244
1,002
—
—
1,040
5,727
983,377
960,334
14,615
121,424
11,022
935,708
163,006
983,865
963,578
15,617
121,424
11,022
936,748
168,733
$
7,394 $
5,411 $
6,830 $ 19,635 $ 5,325,591 $ 5,345,226 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The credit risk profile based on nonaccrual loans were as follows:
(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
December 31, 2021
December 31, 2020
With a
Related
ACL
Without a
Related
ACL
Total
With a
Related
ACL
Without a
Related
ACL
Total
$
16,045 $
3,703 $
19,748 $
8,991 $
2,835 $
11,826
14,104
4,227
97
—
—
1,446
1,845
1,221
1,294
300
—
—
692
—
15,325
5,521
397
—
—
2,138
1,845
15,847
5,791
108
—
—
1,819
3,935
2,875
1,567
300
—
—
3,328
—
18,722
7,358
408
—
—
5,147
3,935
$
37,764 $
7,210 $
44,974 $
36,491 $
10,905 $
47,396
138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:
(in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
December 31, 2021
December 31, 2020
$
6,949 $
3,055
6,021
980
—
—
7,860
52
7,932
3,281
8,148
1,555
—
—
6,108
54
27,078
Total troubled debt restructured loans accruing interest
$
24,917 $
ASB did not recognize interest on nonaccrual loans for 2021, 2020 and 2019.
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 three 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 interest only or amortization period, and temporary
deferral 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.
The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the
present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value
of collateral less cost to sell. The financial impact of the estimated loss 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 credit losses.
139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Loan modifications that occurred during 2021, 2020, and 2019 were as follows:
(dollars in thousands)
Year ended December 31, 2021
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Year ended December 31, 2020
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial
Consumer
Year ended 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
Number of contracts
Outstanding recorded
investment
(as of period end)1
Related allowance
(as of period end)
14 $
8,379 $
—
—
3
—
—
7
—
—
—
799
—
—
2,931
—
24 $
12,109 $
1 $
6
3
4
—
—
54
—
144 $
20,714
85
668
—
—
5,380
—
68 $
26,991 $
11 $
1,770 $
—
3
3
—
—
8
—
—
442
1,086
—
—
5,523
—
442
—
—
38
—
—
205
—
685
6
4,439
11
54
—
—
869
—
5,379
190
—
73
—
—
—
417
—
680
1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed
8,821 $
25 $
upon by period end are not included.
140
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Loans modified in TDRs that experienced a payment default of 90 days or more in 2021, 2020, and 2019 and for which the
payment default occurred within one year of the modification, were as follows:
Years ended December 31
2021
2020
2019
(dollars in thousands)
Troubled debt restructurings that subsequently defaulted
Number of
contracts
Recorded
investment
Number of
contracts
Recorded
investment
Number of
contracts
Recorded
investment
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 $
474
—
—
—
—
—
9
—
483
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
If a loan modified in a TDR subsequently defaults, 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
totaled nil at December 31, 2021 and 2020.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to
suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any
related impairment for accounting purposes.
In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union
Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators
(collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7,
2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past
due reporting and nonaccrual status and charge-offs.
Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not
need to be accounted for as a TDR. The agencies confirmed with the FASB staff that short-term modifications made on a good
faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term
(e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays
in payment. Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due
because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial
institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. Lastly,
during short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.
141
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty
and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral.
Loans considered collateral-dependent were as follows:
December 31, 2021
December 31, 2020
Amortized
cost
Collateral type
Amortized
cost
Collateral type
(in thousands)
Real estate:
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Total real estate
Commercial
Total
$
$
3,493
1,221
1,294
300
6,308
692
7,000
$
Residential real estate property
Commercial real estate property
Residential real estate property
Residential real estate property
2,541 Residential real estate property
2,875 Commercial real estate property
1,567 Residential real estate property
300 Residential real estate property
Business assets
7,283
934 Business assets
$
8,217
ASB had $3.4 million and $3.8 million of consumer mortgage loans collateralized by residential real estate property that
were in the process of foreclosure at December 31, 2021 and 2020, respectively.
142
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The total carrying amount and the total unpaid principal balance of impaired loans and 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
Recorded
investment
2019
Unpaid
principal
balance
2019
Related
allowance
Average
recorded
investment
Interest
income
recognized*
$
$
6,817 $
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
40,737 $
7,207 $
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
41,885 $
— $
—
—
—
—
—
—
—
—
898
2
322
—
—
—
1,015
454
2,691
898
2
322
—
—
—
1,015
454
2,691 $
8,169 $
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
45,394 $
907
—
84
129
—
—
276
4
1,400
359
37
567
—
—
—
132
24
1,119
1,266
37
651
129
—
—
408
28
2,519
* Since loan was classified as impaired.
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 $364.8 million, $567.7 million and $277.1 million of proceeds from the sale of residential mortgages in
2021, 2020, and 2019, respectively, and recognized gains on such sales of $9.3 million, $23.7 million, and $4.9 million in 2021,
2020, and 2019, respectively. Repurchased mortgage loans were nil for 2021, 2020 and 2019. The repurchase reserve was $0.1
million as of December 31, 2021 and 2020.
Mortgage servicing fees, a component of other income, net, were $3.8 million, $3.4 million and $3.0 million for the years
ended December 31, 2021, 2020, and 2019, respectively.
143
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in the carrying value of MSRs were as follows:
(in thousands)
December 31, 2021
December 31, 2020
1 Reflects impact of loans paid in full.
Gross
carrying amount1
Accumulated
amortization1
Valuation allowance
Net
carrying amount
$
$
18,674
22,950
$
$
(8,724)
(12,670)
$
$
— $
(260) $
9,950
10,020
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
2021
2020
2019
$
10,280 $
9,101 $
3,404
(3,734)
—
—
5,096
(3,917)
—
—
8,062
2,987
(1,948)
—
—
Carrying amount before valuation allowance, December 31
9,950
10,280
9,101
Valuation allowance for mortgage servicing rights
Balance, January 1
Provision
Other-than-temporary impairment
Balance, December 31
260
(260)
—
—
—
260
—
260
—
—
—
—
Net carrying value of mortgage servicing rights
$
9,950 $
10,020 $
9,101
The estimated aggregate amortization expenses of MSRs for 2022, 2023, 2024, 2025 and 2026 are $1.6 million, $1.3
million, $1.2 million, $1.0 million and $0.9 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
2021
2020
$
1,481,899
$
1,450,312
3.38%
9.25%
9.77%
3.68%
9.25%
17.70%
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
2021
2020
$
(714) $
(1,608)
(129)
(256)
(738)
(1,445)
(68)
(135)
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.
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
2021
Weighted-
average
stated rate
Amount
2020
Weighted-
average
stated rate
Amount
0.03% $
3,234,646
0.03% $
2,873,727
0.02
—
—
0.06
0.67
1,344,049
1,472,727
1,503,905
192,909
423,976
0.02
—
—
0.09
0.99
1,196,675
1,329,264
1,269,236
169,225
548,830
0.05% $
8,172,212
0.09% $
7,386,957
As of December 31, 2021 and 2020, time certificates of $250,000 or more totaled $87.6 million and $121.3 million,
respectively.
The approximate scheduled maturities of time certificates outstanding at December 31, 2021 were as follows:
(in thousands)
2022
2023
2024
2025
2026
Thereafter
$
275,702
60,049
47,248
24,278
13,736
2,963
$
423,976
Overdrawn deposit accounts are classified as loans and totaled $1.3 million and $1.0 million at December 31, 2021 and
2020, respectively.
145
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
2021
2020
2019
$
3,805 $
7,944 $
12,675
802
132
242
1,774
465
471
1,904
953
1,298
$
4,981 $
10,654 $
16,830
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, 2021
December 31, 2020
(in millions)
Commercial account holders
December 31, 2021
December 31, 2020
Gross amount of
recognized liabilities
Gross amount
offset in the
Balance Sheets
Net amount of
liabilities presented
in the Balance Sheets
$
88 $
90
— $
—
Gross amount not offset in the Balance Sheets
Net amount of
liabilities presented
in the Balance Sheets
Financial
instruments
Cash
collateral
pledged
$
88 $
90
161 $
92
88
90
—
—
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 thousands)
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
2021
2020
2019
$ 88,305
$ 89,670
$ 115,110
88,405
73,738
79,598
129,665
100,580
115,110
0.02%
0.02%
1
0.02%
0.42%
1
0.98%
0.96%
1
146
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Securities sold under agreements to repurchase were summarized as follows:
December 31
Maturity
(dollars in thousands)
Overnight
1 to 29 days
30 to 90 days
Over 90 days
2021
Weighted-
average
interest
rate
Collateralized by
mortgage-backed
securities and federal
agency obligations at
fair value plus
accrued interest
2020
Repurchase
liability
Weighted-
average
interest
rate
Collateralized by
mortgage-backed
securities and federal
agency obligations at
fair value plus
accrued interest
Repurchase
liability
$
88,305
0.02% $
160,847 $
89,670
0.02% $
92,478
—
—
—
—%
—%
—%
—
—
—
—
—
—
—%
—%
—%
—
—
—
$
88,305
0.02% $
160,847 $
89,670
0.02% $
92,478
Advances from Federal Home Loan Bank. FHLB advances were nil as of December 31, 2021 and 2020. 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, investment securities and stock in the FHLB. As of
December 31, 2021 and 2020, ASB’s available FHLB borrowing capacity was $2.0 billion, and $2.1 billion, respectively. In
February 2020, the FHLB of Des Moines notified its members that certain assets, which included high-quality home equity
lines of credit that were priced off a variable index with a fixed rate option, would no longer qualify as collateral for FHLB
Advances and effective October 1, 2020, the FHLB of Des Moines no longer accepted the fixed rate portion of any home equity
lines of credit as collateral. In addition, effective July 13, 2020, the FHLB of Des Moines lowered their Loan to Value (LTV), a
system-wide percentage applied to eligible pledged collateral to determine borrowing capacity, to reflect ongoing risks in the
market due to COVID-19. The lower LTV reduced ASB’s collateral value of the existing pledged loans and the borrowing
capacity. To increase the borrowing capacity at the FHLB of Des Moines, ASB pledged commercial real estate loans and is
evaluating other assets to pledge as collateral to increase its reserve borrowing capacity with the FHLB.
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, 2021 and 2020.
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, 2021, 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. Beginning in the second quarter of 2020, ASB had adopted the community bank leverage
ratio framework and was only required to comply with Tier 1 leverage ratio. Beginning in the third quarter of 2021, ASB began
reporting all of the required capital ratios as the Bank did not meet the requirements to use the community bank leverage ratio
147
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
framework. As of December 31, 2021, and 2020 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, 2021
Tier 1 leverage
Common equity tier 1
Tier 1 capital
Total capital
December 31, 2020
Tier 1 leverage
Actual
Minimum required
Required to be well
capitalized
Capital
Ratio
Capital
Ratio
Capital
Ratio
$
714,789
7.86% $
363,630
4.00% $
454,538
714,789
714,789
769,836
13.29%
13.29%
14.31%
242,072
322,762
430,350
4.50%
6.00%
8.00%
349,659
430,350
537,937
5.00%
6.50%
8.00%
10.00%
677,786
8.38%
323,700
4.00%
404,625
5.00%
In 2021, ASB paid cash dividends of $59.0 million to HEI, compared to cash dividends of $31.0 million in 2020. The FRB
and OCC approved the dividends.
Related-party transactions. HEI charged ASB $2.1 million, $2.3 million and $2.3 million for general management and
administrative services in 2021, 2020 and 2019, 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.
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
2021
2020
Notional amount
Fair value
Notional amount
Fair value
$
39,377 $
638 $
120,980 $
38,000
(11)
100,500
4,536
(500)
148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
2021
2020
Asset
derivatives
Liability
derivatives
Asset
derivatives
Liability
derivatives
$
$
638 $
— $
4,536 $
—
11
—
638 $
11 $
4,536 $
—
500
500
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
Years ended December 31
2021
2020
2019
Mortgage banking income
$
(3,898) $
4,239 $
206
Mortgage banking income
489
(458)
1
$
(3,409) $
3,781 $
207
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.
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
2021
2020
$
1,181,496 $
1,248,773
612,158
62,090
44,262
11,723
574,281
69,168
57,862
13,718
$
1,911,729 $
1,963,802
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 a portion of the 2019 and 2020 assessments for these banks. For the years ended December 31, 2021, 2020 and
2019 ASB’s FDIC insurance expenses were $3.2 million, $2.3 million and $1.2 million, respectively.
149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 · Short-term borrowings
Commercial paper and bank term loan. As of December 31, 2021 and 2020, HEI had $54 million and $65 million of
commercial paper outstanding, respectively. The weighted-average interest rate of HEI’s outstanding commercial paper, as of
December 31, 2021 and 2020 was 0.55% and 0.75%, respectively. On April 20, 2020, HEI closed on a $65 million 364-day
term loan (HEI term loan). The HEI term loan provisions allowed prepayments without penalty. On December 30, 2020, HEI
paid down $50 million of the term loan using $50 million of proceeds from a private placement drawn on December 29, 2020,
and on January 29, 2021, HEI paid off the remaining HEI term loan balance of $15 million.
At both December 31, 2021 and 2020, Hawaiian Electric had no commercial paper outstanding. Hawaiian Electric entered
into a 364-day, $50 million term loan credit agreement, drawing the full $50 million on May 19, 2020. On January 15, 2021,
Hawaiian Electric paid off the $50 million term loan in conjunction with the terms of the loan credit agreement. The weighted-
average interest rate of Hawaiian Electric’s outstanding commercial paper and bank term loan as of December 31, 2020 was
1.9%.
As of December 31, 2020, HEI had three letters of credit outstanding in the aggregate amount of $6 million, on behalf of
Hamakua Energy. As of December 31, 2021, HEI had five letters of credit outstanding in the aggregate amount of $10 million
on behalf of Mauo and Hamakua Energy.
Credit agreements. On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of
nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities) to
amend and restate their respective previously existing revolving unsecured credit agreements. The HEI Facility was increased to
$175 million from $150 million and its term was extended to May 14, 2026. On February 18, 2022, the PUC approved
Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026. In addition to
extending the term, Hawaiian Electric also received PUC approval to exercise its options of two one-year extensions of the
commitment termination date and to increase its aggregate revolving commitment amount from $200 million to $275 million,
should there be a need.
None of the facilities are collateralized. As of December 31, 2021 and 2020, no amounts were outstanding under the Credit
Facilities.
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.
Under the Credit Facilities, draws generally bear interest, based on each company’s respective current long-term credit
ratings, at the “Adjusted LIBO Rate,” as defined in the Credit Facilities, plus 137.5 and 125.0 basis points for HEI and
Hawaiian Electric, respectively, and incur annual fees on undrawn commitments, excluding swingline borrowings, at the rate of
20.0 and 17.5 basis points for HEI and Hawaiian Electric, respectively. The Credit Facilities also include provisions to
accommodate a transition from the London Interbank Offered Rate (LIBOR) to an alternative reference rate, based on the
secured overnight financing rate administered by the Federal Reserve Bank of New York, upon the phase out of LIBOR as a
reference rate.
Additionally, the Credit Facilities contain provisions for pricing adjustments in the event of a long-term ratings change
based on the respective Facility’s ratings-based pricing grid, which includes the ratings by Fitch Ratings, Inc. (Fitch), Moody’s
Investors Service (Moody’s) and S&P Global Ratings (S&P). The Credit Facilities do not contain clauses that would affect
access to the Credit Facilities by reason of a ratings downgrade, nor do they have broad “material adverse change” clauses. In
addition, the Credit Facilities contain provisions for potential annual pricing adjustments to the Eurodollar or Alternate Base
Rate margin on draws and fees on undrawn commitments of up to +/-5 basis points and +/-1 basis point, respectively, based on
performance against certain sustainability-linked metrics. The sustainability-linked metrics include achievement of renewable
portfolio standards in excess of statutory requirements and increasing cumulative penetration of installed MWs of photovoltaic
systems on residential rooftops.
The Credit Facilities also include updated terms and conditions customary for facilities of this type and contain customary
conditions that must be met in order to draw on them, including compliance with covenants (such as covenants preventing
HEI’s and Hawaiian Electric’s respective subsidiaries from entering into agreements that restrict the ability of such subsidiaries
to pay dividends to, or to repay borrowings from, HEI or Hawaiian Electric, as applicable; 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” (as defined in the Hawaiian Electric Facility) to exceed 65%).
150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under the HEI Facility, it is an event of default if HEI fails to maintain an unconsolidated “Capitalization Ratio” (funded
debt) (as defined in the HEI Facility) 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)
(as defined in the Hawaiian Electric Facility) of at least 35%, or if Hawaiian Electric is no longer owned by HEI.
Hawaiian Electric had a $75 million 364-day revolving credit agreement, under which no amounts had been drawn. On
April 19, 2021, the revolving credit agreement expired and was not renewed.
Note 6 · Long-term debt
December 31
(dollars in thousands)
Long-term debt of Utilities, net of unamortized debt issuance costs 1
HEI 5.67% senior notes, due 2021
HEI 2.99% term loan, due 2022
HEI 3.99% senior notes, due 2023
HEI 4.58% senior notes, due 2025
HEI 4.72% senior notes, due 2028
HEI 2.82% senior notes, due 2028
HEI 2.48% senior notes, due 2028
HEI 2.98% senior notes, due 2030
HEI 3.15% senior notes, due 2031
HEI 2.78% senior notes, due 2031
HEI 3.74% senior notes, due 2051
Hamakua Energy 4.02% non-recourse notes, due 20302
Mauo LIBOR + 1.375% loan, due 20233
Mauo 4.90% non-recourse term loan, due 20342
Ka‘ie‘ie Waho 2.79% non-recourse loan, due 20312
Less unamortized debt issuance costs
2021
2020
$ 1,676,402 $ 1,561,302
50,000
150,000
50,000
50,000
100,000
—
—
50,000
—
—
—
—
150,000
50,000
50,000
100,000
24,000
30,000
50,000
51,000
25,000
20,000
52,166
21,702
12,686
56,030
41,046
—
12,145
(3,164)
13,000
(2,249)
$ 2,321,937 $ 2,119,129
1 See components of “Total long-term debt” and unamortized debt issuance costs in Hawaiian Electric and subsidiaries’ Consolidated
Statements of Capitalization.
2 Secured by real and personal property of the respective entity.
3 In December 2021, the loan was amended to allow advances through October 5, 2022, in the maximum aggregate principal amount of up to
$50.5 million and extended the required paydown of the loan balance to the lesser of (i) $7 million or (ii) the amount of state renewable tax
credits not received by October 5, 2022.
As of December 31, 2021, the aggregate principal payments required on the Company’s long-term debt for 2022 through
2026 are $223 million in 2022, $163 million in 2023, $6 million in 2024, $104 million in 2025 and $131 million in 2026. As of
December 31, 2021, the aggregate payments of principal required on the Utilities’ long-term debt for 2022 through 2026 are
$52 million in 2022, $100 million in 2023, nil in 2024, $47 million in 2025 and $125 million in 2026.
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 note purchase agreements of the senior notes), 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.
151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in long-term debt.
HEI. On September 29, 2021, HEI entered into a note purchase agreement (HEI NPA) under which HEI has authorized the
issue and sale of $125 million of unsecured senior notes to be drawn in two tranches at a future date. On December 29, 2021,
HEI drew $75 million, and as defined in the note purchase agreement, at its option, HEI may draw the remaining $50 million of
notes on a delayed basis. The following table displays the draw date for the $75 million draw and the required draw date of the
remaining $50 million of HEI notes to be issued.
HEI Series 2021A HEI Series 2021B HEI Series 2021C HEI Series 2022A HEI Series 2022B
Aggregate principal amount
$30 million
$25 million
$20 million
$30 million
$20 million
Fixed coupon interest rate
Maturity date
Final draw date
2.48%
12/29/2028
12/29/2021
2.78%
12/29/2031
12/29/2021
3.74%
12/29/2051
12/29/2021
2.98%
11/15/2032
11/15/2022
3.94%
11/15/2052
11/15/2022
The $75 million in proceeds were primarily used to invest in the Utilities’ equity to support its capital expenditure
program and maintain a Utilities’ equity capitalization ratio of approximately 58%. The $50 million to be drawn in 2022 is
expected to be used to refinance a portion of $150 million of maturing debt in November 2022. Once drawn, interest on the
notes is paid semiannually on June 15th and December 15th. The HEI note purchase agreements contain certain restrictive
financial covenants that are substantially the same as the financial covenants contained in HEI’s senior credit facility, as
amended. The HEI notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount,
together with interest accrued to the date of prepayment plus a “Make-Whole Amount,” as defined in the agreements.
Mauo non-recourse term loan. On September 3, 2021, Mauo entered into a $24 million credit agreement under which it
has drawn an aggregate of $13 million under a series of notes. The proceeds were used to refinance a portion of a construction
loan related to five solar-battery projects. The notes are non-recourse to Pacific Current and HEI, bear interest at LIBOR plus
1.7%, mature in September 2034, require quarterly principal and monthly interest payments and are collateralized by three
solar-battery projects. In connection with the non-recourse notes drawn under the credit agreement, Mauo entered into interest
rate swaps that effectively convert the rate on the floating rate notes to a fixed rate of 4.90%.
Note 7 · Shareholders’ equity
Reserved shares. As of December 31, 2021, HEI had reserved a total of 16.4 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 ASB 401(k) Plan, the HEI 2011 Nonemployee Director Stock Plan, and the 2010 Equity and
Incentive Plan, as amended.
Accumulated other comprehensive income/(loss). Changes in the balances of each component of AOCI were as follows:
(in thousands)
Balance, December 31, 2018
Current period other comprehensive income (loss) and
reclassifications, net of taxes
Balance, December 31, 2019
Current period other comprehensive income (loss) and
reclassifications, net of taxes
Balance, December 31, 2020
Current period other comprehensive income (loss) and
reclassifications, net of taxes
Balance, December 31, 2021
HEI Consolidated
Hawaiian Electric
Consolidated
Net unrealized
gains (losses)
on securities
Unrealized
gains (losses)
on derivatives
Retirement
benefit
plans
AOCI
AOCI-Retirement
benefit plans
$
(24,423) $
(436) $ (25,751) $ (50,610) $
99
26,904
2,481
17,505
19,986
(1,177)
4,844
30,571
(1,613)
(20,907)
(20,039)
(1,750)
3,020
18,775
(3,363)
(17,887)
(1,264)
(52,023)
(275)
1,029
(51,269)
$
(32,037) $
(3,638) $ (16,858) $ (52,533) $
(1,378)
(1,279)
(1,640)
(2,919)
(361)
(3,280)
152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reclassifications out of AOCI were as follows:
Years ended December 31
(in thousands)
HEI consolidated
Amount reclassified from AOCI
2021
2020
2019
Affected line item in the Statement of
Income/Balance Sheet
Net realized gains on securities included in net income
$
(387) $
(1,638) $
(478) Gain on sale of investment securities, net
Net realized losses on derivatives qualifying as cash flow
hedges
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
Retirement benefit plans:
37
—
—
Interest expense
19,253
23,689
10,107 See Note 10 for additional details
(171,345)
39,860
(16,177) See Note 10 for additional details
$ (152,442) $ 61,911 $ (6,548)
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
$ 19,461 $ 21,550 $ 9,550 See Note 10 for additional details
(171,345)
39,860
(16,177) See Note 10 for additional details
Total reclassifications
$ (151,884) $ 61,410 $ (6,627)
Note 8 · Leases
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 renewal 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. 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.
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 lease 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. In the first quarter of 2021, PGV returned to service with firm capacity of 13 MW and ramped
up to 23.9 MW in the second quarter of 2021. Hawaii Electric Light is required to make fixed capacity payments based on 23.9
MW. As of December 31, 2021, Hawaii Electric Light has a total of $21 million in lease liability with a corresponding ROU
asset for the PGV PPA .
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 25 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.
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
153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
each phase was $21 million and $19 million, respectively. 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 tenant incentives for various
office improvements for each phase, respectively. The amounts were 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. As of December 31, 2021 and 2020, total amount of office improvements for
both phases were $5.7 million and $2.6 million, respectively.
In December 2020, Hawaiian Electric entered into an agreement with an unrelated party to sublease out approximately
64,000 square feet of the downtown Honolulu office space commencing in January 2021. The sublease is an operating lease for
six and a half years with an option to extend the term for an additional two years. Estimated base rent revenue is approximately
$8.3 million for the entire lease term. In addition to the base rent, Hawaiian Electric will also collect from the sublessee its
proportionate share of all operating expenses, utilities, and taxes, which will be recognized as an additional rent revenue.
In August 2021, the Utilities entered into an agreement with an unrelated party for exclusive use of a barge and tug to
transport fuels between islands, commencing in January 2022. The contract is an operating lease with a term of five years with
an option to extend the term for an additional five years. Annual base rent expense is approximately $6.2 million and the
operating lease liability recorded upon commencement was $32 million. In addition to the annual base payment, there are
additional payments for operating expenses, such as inspection expense, wharfage and pipeline tolls, which are recognized as
variable lease cost when incurred.
154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts related to the Company’s total lease cost and cash flows arising from lease transactions are as follows:
Weighted-average discount rate—operating leases
2.84%
3.63%
3.18%
9.1
2.5
6.1
10.0
2.98%
2.5
5.9
3.63%
3.31%
Year ended December 31, 2021
(dollars in thousands)
Operating lease cost
Variable lease cost
Sublease income
Total lease cost
Other information
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)
Year ended December 31, 2020
(dollars in thousands)
Operating lease cost
Variable lease cost
Total lease cost
Other information
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)
HEI consolidated
Hawaiian Electric consolidated
Other
leases
PPAs
classified
as leases
Total
Other
leases
PPAs
classified
as leases
Total
$ 14,184
$ 66,070
$ 80,254
$ 8,578
$ 66,070
$ 74,648
14,360
257,472
271,832
11,586
257,472
269,058
(2,515)
—
(2,515)
(2,515)
—
(2,515)
$ 26,029
$ 323,542
$ 349,571
$ 17,649
$ 323,542
$ 341,191
$ 11,239
$ 62,136
$ 73,375
$ 6,168
$ 62,136
$ 68,304
HEI consolidated
Hawaiian Electric consolidated
Other
leases
PPAs
classified
as leases
Total
Other
leases
PPAs
classified
as leases
Total
$ 11,201
$ 63,319
$ 74,520
$ 6,022
$ 63,319
$ 69,341
12,765
217,173
229,938
9,842
217,173
227,015
$ 23,966
$ 280,492
$ 304,458
$ 15,864
$ 280,492
$ 296,356
$ 10,783
$ 60,801
$ 71,584
$ 6,223
$ 60,801
$ 67,024
Weighted-average discount rate—operating leases
2.87%
4.08%
3.61%
8.9
1.8
4.4
10.1
3.20%
1.8
3.8
4.08%
3.84%
The following table summarizes the maturity of our operating lease liabilities as of December 31, 2021:
(in millions)
2022
2023
2024
2025
2026
Thereafter
Total lease payments
HEI consolidated
Hawaiian Electric consolidated
PPAs
classified as
leases
Other leases
$
11 $
46 $
13
11
7
7
36
85
(11)
4
4
4
3
4
65
(2)
Total
Other leases
PPAs
classified as
leases
Total
57
17
15
11
10
40
150
(13)
$
6 $
46 $
8
7
5
5
30
61
(9)
4
4
4
3
4
65
(2)
52
12
11
9
8
34
126
(11)
Less: Imputed interest
Total present value of lease payments1
115
1 The fixed capacity payment related to the existing PPA with PGV, which will expire on December 31, 2027, is included as a lease liability as of December
63 $
52 $
74 $
63 $
137
$
$
31, 2021. The PGV facility returned to service with firm capacity in the first quarter of 2021. The annual capacity payment based on the most recent
accepted output is approximately $3.8 million. The lease liability will be remeasured when PGV ramps back up to the original contracted firm capacity.
155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 2021, 2020 and 2019, the Utilities’ revenues include
recovery of revenue taxes of approximately $226 million, $202 million and $226 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, 2021 and 2020, the
Utilities had recorded $128 million and $111 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.
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
Data (in Revenues—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. ASB also offers a fee-based, managed account product in which income is based on a
percentage of assets under management.
Other Segment.
Other sales. Other sales primarily consist of revenues from the generation and sale of renewable energy at fixed
contractual prices per kWh to customers under power purchase agreements by Pacific Current subsidiaries. The performance
obligation is satisfied over time as renewable energy is generated and control is transferred to the customer that simultaneously
receives and consumes the benefits provided. Payments from customers are generally due within 30 days from the end of the
billing period. The bill to customers reflect the amount that corresponds directly with the value of performance to date. Pacific
Current has elected to use the right to invoice practical expedient, which entitles it to recognize revenue in the amount they have
the right to invoice.
156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 the decoupling mechanism and cost
recovery surcharges.
Decoupling mechanism - Under the current 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 annual revenue
adjustment mechanism (ARA) and exceptional project recovery mechanism revenues, and recover or refund performance
incentive mechanism penalties or rewards. These adjustments will be reflected in tariffs in future periods. Under the PBR
framework, the accrued RBA revenues as of the preceding September 30 balance and the annual ARA amount are billed from
January 1 through December 31 of each 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 (see “Regulatory proceedings” in Note 3).
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).
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 credit 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.
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.
157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2021
Year ended December 31, 2020
Electric
utility
Bank
Other
Total
Electric
utility
Bank
Other
Total
Electric energy sales - residential
$ 830,653 $
— $ — $ 830,653 $ 766,609 $
— $ — $ 766,609
Electric energy sales - commercial
791,424
—
—
791,424
703,516
—
—
703,516
Electric energy sales - large light
and power
Electric energy sales - other
Bank fees
Other sales
Total revenues from contracts
with customers
Revenues from other sources
Regulatory revenue
837,834
10,770
—
—
—
46,658
—
—
—
—
—
4,086
837,834
10,770
46,658
4,086
751,464
8,054
—
—
—
38,887
—
—
—
—
—
921
751,464
8,054
38,887
921
2,470,681
46,658
4,086
2,521,425
2,229,643
38,887
921
2,269,451
40,069
—
—
40,069
11,869
—
—
11,869
Bank interest and dividend income
—
242,266
—
242,266
—
244,663
—
244,663
Other bank noninterest income
Other
Total revenues from other
sources
—
28,886
17,474
—
—
259
17,474
29,145
—
23,808
29,961
—
—
23
29,961
23,831
68,955
259,740
259
328,954
35,677
274,624
23
310,324
Total revenues
$ 2,539,636 $ 306,398 $ 4,345 $ 2,850,379 $ 2,265,320 $ 313,511 $ 944 $ 2,579,775
Timing of revenue recognition
Services/goods transferred at a point
in time
$
— $ 46,658 $ — $
46,658 $
— $ 38,887 $ — $
38,887
Services/goods transferred over time
2,470,681
—
4,086
2,474,767
2,229,643
—
921
2,230,564
Total revenues from contracts
with customers
$ 2,470,681 $ 46,658 $ 4,086 $ 2,521,425 $ 2,229,643 $ 38,887 $ 921 $ 2,269,451
There are no material contract assets or liabilities associated with revenues from contracts with customers existing at
December 31, 2021 and 2020. 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, 2021, 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.
158
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 costs 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 or as allowed under the new PBR Framework (see “Regulatory proceedings” in Note 3). 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 $1.2 million and $1.1 million in 2021 and 2020, 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
159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 adjustment to AOCI of $(230.8) million pretax and $53.7 million pretax for 2021
and 2020, respectively).
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.
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 2021 and 2020 and the funded status
of these plans and amounts related to these plans reflected in the Company’s and Utilities’ consolidated balance sheets as of
December 31, 2021 and 2020 were as follows:
(in thousands)
HEI consolidated
Benefit obligation, January 1
Service cost
Interest cost
Actuarial (gains) losses
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
Accrued benefit asset (liability), December 31
Other assets
Defined benefit pension and other postretirement benefit plans liability
Accrued benefit asset (liability), December 31
Accrued benefit asset (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 loss
Occurring during year – net actuarial loss (gain)
AOCI debit before cumulative impact of PUC D&Os, December 31
Cumulative impact of PUC D&Os
AOCI debit/(credit), December 31
AOCI debit/(credit), December 31
Net actuarial loss (gain)
Prior service 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
2021
2020
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
$ 2,624,530 $
226,421 $ 2,278,283 $
81,432
75,361
(43,300)
—
(93,384)
2,644,639
2,089,491
271,443
51,777
—
(91,966)
2,320,745
(323,894) $
23,675 $
(347,569)
(323,894) $
557,564 $
—
(27,245)
(182,520)
347,799
(324,162)
23,637 $
347,799 $
—
347,799
(324,162)
23,637
(6,199)
17,438 $
$
$
$
$
$
$
$
2,827
6,122
(8,527)
2,943
(11,635)
218,151
219,873
28,130
—
2,943
(11,635)
239,311
21,160 $
21,663 $
(503)
21,160 $
2,395 $
1,533
(203)
(23,700)
(19,975)
19,166
(809) $
(18,172) $
(1,803)
(19,975)
19,166
(809)
209
(600) $
73,387
81,335
275,973
—
(84,448)
2,624,530
1,799,200
302,566
70,844
—
(83,119)
2,089,491
(535,039) $
25,851 $
(560,890)
(535,039) $
503,821 $
(8)
(33,456)
87,207
557,564
(534,594)
22,970 $
557,564 $
—
557,564
(534,594)
22,970
(5,988)
16,982 $
215,639
2,537
7,407
9,785
2,768
(11,715)
226,421
200,831
27,678
—
2,768
(11,404)
219,873
(6,548)
—
(6,548)
(6,548)
6,610
1,761
(208)
(5,768)
2,395
(1,177)
1,218
5,731
(3,336)
2,395
(1,177)
1,218
(313)
905
As shown in the table above, as of December 31, 2021, the other postretirement benefit plans with APBOs in excess of plan assets
are unfunded plans, and as of December 31, 2020, all of the other postretirement benefit plans had APBOs in excess of plan assets.
160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands)
Hawaiian Electric consolidated
Benefit obligation, January 1
Service cost
Interest cost
Actuarial (gains) losses
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 asset (liability), December 31
Other assets
Other liabilities (short-term)
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 (cost)
Recognized during year – net actuarial loss
Occurring during year – net actuarial loss (gain)
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 (gain)
Prior service 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)
2021
2020
Pension
benefits
Other
benefits
Pension
benefits
Other
benefits
$ 2,440,758 $
217,074 $ 2,110,904 $
207,073
79,463
70,235
(39,755)
—
2,802
5,875
(7,779)
2,886
71,604
75,484
260,102
—
2,515
7,103
9,151
2,717
(85,425)
(11,388)
(77,336)
(11,485)
(332)
2,464,944
1,909,730
266,922
51,079
—
—
209,470
216,315
27,712
—
2,886
—
2,440,758
1,640,417
276,453
69,720
—
—
217,074
197,564
27,207
—
2,717
(84,852)
(11,388)
(76,860)
(11,173)
(262)
—
—
—
2,142,617
235,525
1,909,730
216,315
$
$
$
$
$
$
(322,327) $
26,055 $
(531,028) $
— $
26,055 $
— $
(547)
(321,780)
—
—
(535)
(530,493)
(322,327) $
26,055 $
(531,028) $
538,521 $
1,181 $
478,078 $
—
(27,534)
(181,342)
329,645
(324,162)
1,530
(206)
(22,736)
(20,231)
19,166
(9)
(30,566)
91,018
538,521
(534,594)
5,483 $
(1,065) $
3,927 $
329,645 $
(18,434) $
538,521 $
—
329,645
(324,162)
5,483
(1,412)
(1,797)
(20,231)
19,166
(1,065)
274
—
538,521
(534,594)
3,927
(1,011)
(759)
—
(720)
(39)
(759)
5,730
1,758
(207)
(6,100)
1,181
(1,177)
4
4,508
(3,327)
1,181
(1,177)
4
(1)
3
AOCI debit/(credit), net of taxes (benefits), December 31
$
4,071 $
(791) $
2,916 $
As of December 31, 2020, the other postretirement benefit plan shown in the table above had APBOs in excess of plan
assets.
Pension benefits. In 2021, investment returns were higher than assumed rates and improved the funded position. 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 compared to the prior year, improved funded position while the updates to mortality
assumptions projected generationally, partially offset the improvement.
In 2020, 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.
161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Other benefits. In 2021, investment returns were higher than assumed rates and improved funded position. 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, improved the funded position while the updates to the per capita claims cost to reflect 2022
premiums and mortality assumptions projected generationally, partially offset the improvement.
In 2020, investment returns were higher than assumed rates and together with updates to the per capita claims cost to
reflect 2021 premiums, improved funded position and 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.
The dates used to determine retirement benefit measurements for the defined benefit plans and OPEB were December 31 of
2021, 2020 and 2019.
Through December 31, 2020, for purposes of calculating NPPC and NPBC for all plan assets, the Company and the
Utilities have determined the market-related value of retirement benefit plan assets, primarily equity securities and fixed income
securities, 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). Effective January 1, 2021, the Company
adopted a change in accounting principle for the plans’ fixed income securities from the calculated market-related value method
to the fair value method in the calculation of the expected return on plan assets component of NPPC and NPBC. The remaining
plan assets continue to use the calculated market-related value methodology. The Company considers the fair value approach to
be preferable for its fixed-income securities portfolio because it results in a current reflection of the changes in the value of plan
assets in a way similar to the obligations it is intended to hedge. The Company evaluated the effect of this change in accounting
principle and deemed it to be immaterial to the historical financial statements of the Company and Hawaiian Electric and,
therefore, did not account for the change retrospectively and recorded the cumulative effects from the change in accounting
principle in earnings for non-Utility businesses in the first quarter of 2021. Amounts related to the Utilities were reflected as
adjustments to regulatory assets as appropriate, consistent with the expected regulatory treatment as described in the following
paragraph.
The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit
expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are
recovered over time. Under the 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.
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 of HEI and the Utilities 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. 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. ASB’s frozen, overfunded defined benefit pension plan is invested in a portfolio that uses a
liability-driven investment strategy to limit funded status volatility.
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
U.S. equity securities
Non-U.S equity securities
Fixed income securities
Private equity
Pension benefits1
Other benefits2
2021
2020
59%
13
27
1
100%
58%
14
28
—
100%
Investment policy
Target
Range3
52%
15
30
3
100%
45-65%
5-25%
20-40%
0-5%
2021
2020
58%
15
27
—
100%
57%
16
27
—
100%
Investment policy
Range3
Target
52%
45-65%
15
30
3
100%
5-25%
20-40%
0-5%
1 Asset allocation (excluding cash) is applicable to only HEI and the Utilities. As of December 31, 2021 and 2020, 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.
3 Broad range for equity securities is a minimum of 60% and a maximum of 80% for pension benefits and other benefits.
162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair values of the investments shown in the tables below 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 Company used the following valuation methodologies for assets measured at fair value. There have been no changes in
the methodologies used at December 31, 2021 and 2020.
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, preferred securities (Level 2). Fixed income and preferred 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.
163
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)
2021
U.S. equity securities
Non-U.S. equity securities
U.S. equity index and exchange-traded funds
Non-U.S. equity investments at net asset value (NAV)
Total equity investments
1,546
1,449
Fixed income securities and public mutual funds
Fixed income investments at NAV
Total fixed income investments
Private equity at NAV
Cash equivalents, fund and at NAV
Total
Cash, receivables and payables, net
Fair value of plan assets
2020
U.S. equity securities
Non-U.S. equity securities
U.S. equity index and exchange-traded funds
Non-U.S. 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
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)
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
December 31
December 31
$
432 $
431 $
1 $
53 $
53 $
188
830
96
188
830
—
393
307
700
22
50
146
—
146
—
15
1,610 $
2,318 $
3
2,321
—
—
—
1
247
—
247
—
—
248
24
84
12
173
58
5
63
—
3
24
84
—
161
56
—
56
—
3
239 $
—
220 $
$
239
368 $
368 $
— $
46 $
46 $
172
734
102
172
734
—
1,376
1,274
363
278
641
68
105
—
105
25
2,085 $
4
1,404 $
—
—
—
—
258
—
258
—
258
22
77
13
158
53
5
58
4
22
77
—
145
51
—
51
3
220 $
—
199 $
$
$
$
2,089
$
220
—
—
—
—
—
2
—
2
—
—
2
—
—
—
—
—
2
—
2
—
2
The fair value of investments measured at NAV presented in the table above is intended to permit reconciliation to the fair
value of plan assets amounts.
164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table represents assets measured at NAV.
Measured at NAV
December 31
Redemption
frequency
Redemption
notice period
December 31
Redemption
frequency
Redemption
notice period
Pension benefits
Other benefits
(in millions)
2021
Non-U.S. equity funds (a)
Fixed income investments (b)
Private equity (c)
Cash equivalents (d)
2020
Non-U.S. equity funds (a)
Fixed income investments (b)
Cash equivalents (d)
NA Not applicable
$
$
$
$
96
307
22
35
460
102
278
43
423
Daily-Monthly
Daily
NA
5-30 days
15 days
$
NA
Daily
0-1 day
Daily-Monthly
Daily
5-30 days
15 days
Daily
0-1 day
$
$
$
Daily-Monthly
Daily
NA
Daily
5-30 days
15 days
NA
0-1 day
Daily-Monthly
Daily
Daily
5-30 days
15 days
0-1 day
12
5
—
—
17
13
5
1
19
None of the investments presented in the tables above have unfunded commitments, other than private equity disclosed in (c) below.
(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, 2021 were: daily, 61% and monthly, 39%, and as of December 31, 2020 were daily, 62% and monthly, 38%. Redemption frequency for
other benefits assets as of December 31, 2021 were: daily, 57% and monthly, 43% and as of December 31, 2020 were: daily, 58% and monthly, 42%.
(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 investment in a private equity fund. The fund is valued as reported by the General Partner, based on the valuation of the underlying
investments. As of December 31, 2021, the unfunded commitment of the private equity fund was $66 million; the fund does not allow redemptions but
may be dissolved with six months written notice. The termination date of the fund is November 1, 2100, unless dissolved earlier.
(d) 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 following weighted-average assumptions were used in the accounting for the plans:
December 31
Benefit obligation
Discount rate1
Rate of compensation increase
Net periodic pension/benefit cost (years ended)
Discount rate2
Expected return on plan assets3
Rate of compensation increase4
Pension benefits
2020
2021
2019
2021
Other benefits
2020
2019
3.05%
3.5
2.92%
3.5
3.61%
3.5
3.07%
NA
2.83%
NA
3.52%
NA
2.92
7.25
3.5
3.61
7.25
3.5
4.31
7.25
3.5
2.83
7.25
3.52
7.25
4.34
7.25
NA
NA
NA
NA Not applicable
1 HEI and the Utilities pension benefits discount rate only at December 31, 2021, 2020 and 2019. ASB’s pension benefits discount rate at December 31, 2021,
2020 and 2019 was 3.04%, 2.76% and 3.49%, respectively. All other disclosed rates apply to the Company and the Utilities.
2 ASB’s pension benefits discount rate for the year ended December 31, 2021 and 2020 was 2.76% and 3.49%. All other disclosed rates apply to the Company
and the Utilities.
3 HEI and the Utilities’ plan assets only (gross return). For 2021, 2020 and 2019, ASB’s expected return on plan assets was 2.96%, 3.69% and 4.51%,
respectively.
4 HEI 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. NA for ASB.
The Company and the Utilities based their selection of an assumed discount rate for 2022 NPPC and NPBC and
December 31, 2021 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, 2021. In selecting the expected rate of return
on plan assets for 2022 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 3.24%, which is consistent with the assumed discount rate as of December 31, 2021 with a 20 basis point active
165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
manager premium. For 2021, retirement benefit plans’ assets of the Company and the Utilities had a net return of 13.2% and
14.2%, respectively.
As of December 31, 2021, the assumed health care trend rates for 2022 and future years were as follows: medical, 6.50%,
grading down to 5% for 2028 and thereafter; dental, 5%; and vision, 4%. As of December 31, 2020, the assumed health care
trend rates for 2021 and future years were as follows: medical, 6.75%, grading down to 5% for 2028 and thereafter; dental, 5%;
and vision, 4%.
The components of NPPC and NPBC were as follows:
(in thousands)
HEI consolidated
Service cost
Interest cost
Pension benefits
Other benefits
2021
2020
2019
2021
2020
2019
$
81,432 $
73,387 $
62,135 $
2,827 $
2,537 $
75,361
81,335
84,267
6,122
7,407
2,209
8,004
Expected return on plan assets
(132,223)
(113,800)
(111,989)
(12,957)
(12,124)
(12,356)
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)
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)
—
27,245
51,815
27,963
8
33,456
74,386
20,997
(42)
(1,533)
(1,761)
(1,806)
15,479
49,850
48,143
203
(5,338)
4,839
208
(3,733)
3,179
(13)
(3,962)
3,258
$
79,778 $
95,383 $
97,993 $
(499) $
(554) $
(704)
$
79,463 $
71,604 $
60,461 $
2,802 $
2,515 $
70,235
75,484
77,851
5,875
7,103
2,191
7,673
(125,404)
(107,369)
(104,632)
(12,755)
(11,957)
(12,180)
—
27,534
51,828
27,963
9
30,566
70,294
20,997
7
(1,530)
(1,758)
(1,803)
14,658
48,345
48,143
206
(5,402)
4,839
207
(3,890)
3,179
—
(4,119)
3,258
$
79,791 $
91,291 $
96,488 $
(563) $
(711) $
(861)
The Company recorded pension expense of $47 million, $59 million, $59 million in 2021, 2020 and 2019, respectively, and
OPEB income of $(0.1) million in 2021, 2020 and 2019 and charged the remaining amounts primarily to electric utility plant.
The Utilities recorded pension expense of $47 million, $55 million and $57 million, respectively, and OPEB income of $(0.2)
million, $(0.2) million and $(0.3) million in 2021, 2020 and 2019, respectively, and charged the remaining amounts primarily to
electric utility plant.
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
2021
2020
2021
2020
$
2.3 $
2.3 $
2.1 $
—
—
2.5
2.2
2.1
2.0
2.5
2.0
—
—
2.5
2.1
2.1
2.1
1.9
2.4
1.9
166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
HEI consolidated. The Company estimates that the cash funding for the qualified defined benefit pension plans in 2022
will be $41 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 2022 is nil.
As of December 31, 2021, the benefits expected to be paid under all retirement benefit plans in 2022, 2023, 2024, 2025,
2026 and 2027 through 2031 amount to $102 million, $105 million, $108 million, $112 million, $116 million and $632 million,
respectively.
Hawaiian Electric consolidated. The Utilities estimate that the cash funding for the qualified defined benefit pension plan
in 2022 will be $41 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 2022 is nil.
As of December 31, 2021, the benefits expected to be paid under all retirement benefit plans in 2022, 2023, 2024, 2025,
2026 and 2027 through 2031 amounted to $93 million, $96 million, $99 million, $102 million, $106 million and $580 million,
respectively.
Defined contribution plans information. For each of 2021, 2020 and 2019, the Company’s expenses and cash contributions
for its defined contribution plans under the HEIRSP and the ASB 401(k) Plan were $6 million, $7 million and $7 million,
respectively. The Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP for 2021, 2020
and 2019 were $3 million.
Retirement benefit plan changes. On December 3, 2021, the Utilities’ union members ratified a new collective bargaining
agreement (see Note 3), which includes changes to retirement benefits for all new employees commencing employment on or
after January 1, 2022. The changes ratified in the collective bargaining agreement will apply to all employees of HEI and the
Utilities first hired on or after January 1, 2022 (New Employees). New Employees are not eligible to participate in the HEI
Pension Plan. Instead, New Employees will receive a non-elective employer contribution, equal to 10% of their annual
compensation, subject to a vesting schedule, to their account under the HEIRSP, the defined contribution plan for HEI and the
Utilities. Only New Employees are impacted by the retirement benefit plan changes. There are no retirement benefit plan
changes for employees hired on or before December 31, 2021.
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, 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, 2021, approximately 2.9 million shares remained available for future issuance under the terms of the
EIP, assuming recycling of shares withheld to satisfy statutory tax liabilities relating to EIP awards, including an estimated 0.5
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 EIP in 2021, 2020, 2019 and 2018 will vest and be issued in unrestricted stock in
three (2021) or four (2020, 2019, 2018) 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.
Stock performance awards granted under the 2021-23, 2020-22 and 2019-21 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.
167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. In June 2019, an additional 300,000 shares were
made available for issuance under the 2011 Director Plan. As of December 31, 2021, there were 244,347 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
2021
2020
$
9.1 $
1.4
5.8 $
1.0
2.7
0.6
1.8
0.4
2019
10.0
1.4
3.2
0.6
1 For 2021, 2020 and 2019, 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
2021
29,816
1.3 $
0.3
2020
36,100
1.3 $
0.3
2019
36,344
1.6
0.4
$
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
Outstanding, December 31
Total weighted-average grant-date fair value of
2021
Shares
193,939 $
137,582
(79,623)
(18,450)
233,448 $
(1)
40.89
34.66
38.51
39.92
38.10
2020
Shares
207,641 $
78,595
(77,719)
(14,578)
193,939 $
(1)
35.36
47.99
34.19
36.20
40.89
2019
Shares
200,358 $
96,565
(76,813)
(12,469)
207,641 $
(1)
33.05
37.82
32.61
34.20
35.36
shares granted (in millions)
$
4.8
$
3.8
$
3.7
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For 2021, 2020 and 2019, total restricted stock units and related dividends that vested had a fair value of $3.0 million, $4.2
million and $3.2 million, respectively, and the related tax benefits were $0.6 million, $0.7 million and $0.5 million,
respectively.
As of December 31, 2021, there was $4.6 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 2.0 years.
Long-term incentive plan payable in stock. The 2019-21, 2020-22 and 2021-23 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 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 EPS growth, return on average common equity (ROACE), renewable portfolio standards,
Hawaiian Electric’s net income growth, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth
and return on average invested capital.
168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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)
2021
Shares
89,222 $
46,024
(32,355)
(11,917)
90,974 $
(1)
42.10
41.12
38.20
43.07
42.86
2020
Shares
96,402 $
24,630
(29,409)
(2,401)
89,222 $
(1)
39.62
48.62
39.51
41.22
42.10
2019
Shares
65,578 $
35,215
—
(4,391)
96,402 $
(1)
38.81
41.07
—
39.19
39.62
$
1.9
$
1.2
$
1.4
(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 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. A dividend assumption
is not required for the Monte Carlo simulation because the grant payout includes dividend equivalents and projected returns
include the value of reinvested dividends.
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)
2021
0.19%
3
29.9%
25.6% to 102.9%
$
41.12
2020
1.39%
3
13.1%
13.6% to 95.4%
2019
2.48%
3
15.8%
15.0% to 73.2%
$
48.62
$
41.07
For 2021 and 2020, total vested LTIP awards linked to TSR and related dividends had a fair value of $0.8 million and $2.6
million, respectively, and the related tax benefits were $0.2 million and $0.4 million, respectively. There were no share-based
LTIP awards linked to TSR with a vesting date in 2019.
As of December 31, 2021, there was $1.0 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
1.6 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
2021
Shares
220,715 $
184,102
(43,155)
(7,646)
(47,674)
306,342 $
(1)
41.03
34.37
34.12
39.06
38.74
38.42
2020
Shares
403,768 $
98,522
(135,804)
(136,163)
(9,608)
220,715 $
(1)
35.15
48.10
33.48
36.44
38.36
41.03
2019
Shares
276,169 $
140,855
—
4,314
(17,570)
403,768 $
(1)
33.80
37.78
—
33.53
34.66
35.15
Total weighted-average grant-date fair value of shares
granted (at target performance levels) (in millions)
$
6.3
$
4.7
$
5.3
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For 2021 and 2020, total vested LTIP awards linked to other performance conditions and related dividends had a fair value
of $1.7 million and $7.6 million, respectively, and the related tax benefits were $0.4 million and $1.2 million, respectively.
There were no share-based LTIP awards linked to other performance conditions with a vesting date in 2019.
As of December 31, 2021, there was $3.4 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 1.7
years.
169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
Hawaiian Electric consolidated
2021
2020
2019
2021
2020
2019
$
51,455 $
23,207 $
28,736 $
42,794 $
31,950 $
21,751
(11,689)
(4,215)
(4,353)
(12,109)
(5,408)
(7,793)
10,979
29,971
13,410
37,793
302
30,987
1,549
28,091
13,155
27,113
8,430
2,509
—
10,472
(10,732)
14,104
13,844
4,861
8,279
21
3,768
8,559
—
13,161
12,327
5,579
(8,491)
14,104
11,192
18,430
10,939
4,611
44,377
12,119
6,290
21
Total
$
62,807 $
40,910 $
51,637 $
44,148 $
40,418 $
38,305
*
In 2021 and 2020, primarily represents federal tax credits related to Mauo’s solar-plus-storage project, deferred and amortized starting in 2021 and 2020,
respectively. In 2019, primarily represents federal and state credits related to Hawaiian Electric’s West Loch PV project, deferred and amortized starting in
2020.
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)
HEI consolidated
Hawaiian Electric consolidated
2021
2020
2019
2021
2020
2019
Amount at the federal statutory income tax rate
$ 65,281
$ 50,531
$ 56,996
$ 46,995
$ 44,468
$ 41,399
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit
15,735
9,448
11,658
10,323
9,658
8,703
Net deferred tax asset (liability) adjustment related to
the Tax Act
Other, net
Total
Effective income tax rate
(9,886)
(11,267)
(9,255)
(9,886)
(11,267)
(9,255)
(8,323)
(7,802)
(7,762)
(3,284)
(2,441)
(2,542)
$ 62,807
$ 40,910
$ 51,637
$ 44,148
$ 40,418
$ 38,305
20.2%
17.0%
19.0%
19.7%
19.1%
19.4%
170
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
HEI consolidated
Hawaiian Electric consolidated
2021
2020
2021
2020
Regulatory liabilities, excluding amounts attributable to
property, plant and equipment
$
87,817 $
93,684 $
87,817 $
Operating lease liabilities
Revenue taxes
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
Retirement benefits
Other
Total deferred tax liabilities
93,684
34,586
22,726
4,835
24,741
35,449
35,040
26,217
58,518
41,582
22,726
31,973
44,127
29,661
35,040
7,156
20,529
243,041
234,092
180,203
180,572
500,659
35,271
23,700
6,863
61,308
487,209
41,370
25,841
18,407
56,354
490,713
29,661
23,700
8,261
36,502
627,801
629,181
588,837
473,734
34,586
25,841
20,537
23,672
578,370
Net deferred income tax liability
$
397,798
1 As of December 31, 2021, HEI consolidated and Hawaiian Electric consolidated have deferred tax assets of $11.0 million and $2.5 million
respectively, relating to the benefit of state tax credit carryforwards of $14.6 million and $3.4 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, 2021, a
valuation allowance is not required.
395,089 $
408,634 $
384,760 $
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, 2021 and 2020, 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 2021, 2020 and 2019.
(in millions)
HEI consolidated
2020
2019
2021
Hawaiian Electric consolidated
2020
2019
2021
Unrecognized tax benefits, January 1
$
12.7 $
2.2 $
2.1 $
12.7 $
1.7 $
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
Settlement
2.8
(0.5)
7.6
(5.5)
—
—
0.2
—
11.6
(0.1)
(0.2)
(1.0)
0.5
—
0.1
(0.2)
(0.3)
—
0.3
—
0.2
(1.6)
—
—
0.2
—
11.6
(0.1)
(0.2)
(0.5)
Unrecognized tax benefits, December 31
$
17.1 $
12.7 $
2.2 $
11.6 $
12.7 $
1.6
0.5
—
0.1
(0.2)
(0.3)
—
1.7
At December 31, 2021 and 2020, there were $10.2 million and $11.6 million, respectively, of unrecognized tax benefits
that, if recognized, would affect the Company’s annual effective tax rate. As of December 31, 2021 and 2020, the Utilities had
$10.2 million and $11.6 million, respectively, of unrecognized tax benefits that, if recognized, would affect the Utilities’ annual
effective tax rate.
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 2021, 2020 and
171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2019, the Company recognized approximately $0.2 million, $(0.5) million and $0.1 million, respectively, in interest expense.
The Company had $0.3 million and $0.1 million of interest accrued as of December 31, 2021 and 2020, respectively.
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 2021, 2020 and 2019, the Utilities recognized
approximately $0.1 million, $(0.3) million and $0.1 million, respectively, in interest expense. The Utilities had $0.1 million and
$0.1 million of interest accrued as of December 31, 2021 and 2020, respectively.
As of December 31, 2021, 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 benefits being sustained under governmental
review. While the Company and the Utilities currently do not expect material changes to occur in the next twelve months, the
Company and the Utilities are generally unable to estimate the range of impacts on the balance of uncertain tax positions or the
impact on the effective tax rate from the resolution of these issues until the Internal Revenue Service addresses them in the
current examination process, and therefore, it is possible that the amount of unrecognized benefit with respect to the Company’s
and the Utilities’ uncertain tax positions could increase or decrease within the next 12 months. 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.
The statute of limitations for IRS examinations has expired for years prior to 2017. The Company is currently under IRS
examination for the tax years 2017 and 2018. In the fourth quarter of 2020, the Company and the Hawaii Department of
Taxation agreed to a final assessment of tax liabilities for the years 2011 through 2018, however, the statute of limitations for
Hawaii remains open for tax years 2017 and subsequent.
172
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 13 · Cash flows
Years ended December 31
(in millions)
Supplemental disclosures of cash flow information
HEI consolidated
2021
2020
2019
Interest paid to non-affiliates, net of amounts capitalized
$
98 $
98 $
Income taxes paid (net of refundable credits)
Income taxes refunded (including refundable credits)
Hawaiian Electric consolidated
Interest paid to non-affiliates, net of amounts capitalized
Income taxes paid (net of 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)
Real estate transferred from property, plant and equipment to other assets held-for-sale
(investing)
Right-of-use assets obtained in exchange for operating lease obligations (investing)
Common stock issued (gross) for director and executive/management compensation
(financing)1
Obligations to fund low income housing investments, net (investing)
Hawaiian Electric consolidated
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)
Right-of-use assets obtained in exchange for operating lease obligations (investing)
HEI Consolidated and Hawaiian Electric consolidated
Electric utility property, plant and equipment
Estimated fair value of noncash contributions in aid of construction (investing)
41
7
71
45
5
48
61
3
44
7
36
43
44
8
32
3
65
41
3
44
—
—
26
16
25
41
17
10
107
56
4
68
55
4
64
—
—
7
5
11
62
2
9
Reduction of long-term debt from funds previously transferred for repayment (financing)
1 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld
82
—
—
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, 2021, the consolidated common stock equity of HEI’s electric utility
subsidiaries was 57% of their total capitalization (as calculated for purposes of the PUC Agreement). As of December 31, 2021,
Hawaiian Electric and its subsidiaries had common stock equity of $2.3 billion of which approximately $919 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
173
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
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, 2021, in order to maintain its “well-capitalized” position, ASB
could not transfer approximately $232 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, 2024.
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 projects located 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.
174
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
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.
Collateral dependent loans. Collateral dependent loans have been adjusted to fair value. When a loan is identified as
collateral dependent, the Company measures the impairment using the current fair value of the collateral, less selling costs.
Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals,
but in some cases, the value of the collateral may be estimated as having little or no 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. If it is determined
that the value of the collateral dependent loan is less than its recorded investment, the Company recognizes this impairment and
adjusts the carrying value of the loan to fair value through the allowance for credit losses.
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. ASB includes MSRs within Level 3 of the
valuation hierarchy.
Time deposits. 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 fixed-rate long-term debt—other than bank 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. The carrying amount of floating rate long-term debt—other than bank approximated fair value because of the short-
term interest reset periods. 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
175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
(in thousands)
December 31, 2021
Financial assets
HEI consolidated
Available-for-sale investment securities
Held-to-maturity investment securities
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
Long-term debt, net
December 31, 2020
Financial assets
HEI consolidated
Available-for-sale investment securities
Held-to-maturity investment securities
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
$ 2,574,618 $
— $
2,559,191 $
15,427 $ 2,574,618
522,270
5,150,388
9,950
57,377
423,976
53,998
88,305
2,321,937
57,000
1,676,402
—
—
—
—
—
—
—
—
11
—
510,474
—
510,474
10,403
5,218,121
5,228,524
—
909
14,480
—
14,480
909
442,361
53,998
88,304
2,624,130
5,271
—
—
—
—
—
442,361
53,998
88,304
2,624,130
5,282
1,955,710
—
1,955,710
$ 1,970,417 $
— $
1,943,232 $
27,185 $ 1,970,417
—
—
—
—
—
—
—
—
500
—
—
229,963
—
229,963
28,354
5,410,976
5,439,330
—
4,536
10,705
—
10,705
4,536
552,800
129,379
89,669
2,487,790
4,530
49,979
1,890,490
—
—
—
—
—
—
—
552,800
129,379
89,669
2,487,790
5,030
49,979
1,890,490
226,947
5,260,917
10,020
120,980
548,830
129,379
89,670
2,119,129
137,500
49,979
1,561,302
176
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)
2021
2020
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
Interest rate swap (Other segment)2
Derivative liabilities
Forward commitments (bank segment)1
Interest rate swap (Other segment)2
—
—
—
$
— $ 2,437,923 $
— $
— $ 1,849,559 $
—
—
—
90,090
31,178
—
—
—
15,427
—
—
—
62,322
31,351
—
27,185
$
$
$
$
$
— $ 2,559,191 $ 15,427 $
— $ 1,943,232 $ 27,185
— $
638 $
— $
— $
4,536 $
—
271
—
—
—
— $
909 $
— $
— $
4,536 $
11 $
— $
— $
500 $
— $
—
5,271
—
—
4,530
11 $
5,271 $
— $
500 $
4,530 $
—
—
—
—
—
—
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 assets and 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, 2021 and 2020.
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
2021
2020
27,185 $
(11,758)
—
—
28,597
(1,641)
229
—
15,427 $
27,185
$
$
Mortgage revenue bonds are 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, 2021, the weighted average discount rate was 2.07% 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.
177
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. As of December 31, 2021, there were no financial instruments
measured at fair value on a nonrecurring basis. The carrying value of assets measured at fair value on a nonrecurring basis were
as follows:
(in thousands)
December 31, 2020
Loans
Mortgage servicing rights
Balance
Fair value measurements using
Level 2
Level 3
Level 1
$
387 $
— $
— $
3,001
—
—
387
3,001
For 2021 and 2020, 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, 2020
Commercial loan
Mortgage servicing rights
$
$
Fair value
Valuation technique
Significant unobservable
input
Range
Weighted
Average
Significant unobservable
input value (1)
387 Fair value of collateral
Appraised value less
selling cost
N/A (2)
N/A (2)
3,001 Discounted cash flow
Prepayment speed
15%-22%
Discount rate
22%
9.3%
(1) Represents 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.
178
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
Scott W. H. Seu, 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, 2021. Based on their evaluation, as of
December 31, 2021, 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, 2021 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, 2021.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 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, 2021 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
Shelee M. T. Kimura, 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, 2021. Based on their evaluation, as of
December 31, 2021, 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.
179
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, 2021 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, 2021.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the quarter ended December 31, 2021 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
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
HEI and Hawaiian Electric: None
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
HEI:
PART III
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 2022 Proxy Statement:
•
•
•
•
“Director Nominees for Election”
“Continuing Directors”
“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)
180
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 2022 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 2022 Proxy Statement.
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 6 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 2022 Proxy Statement.
Hawaiian Electric:
The information required by this Item 11 for Hawaiian Electric is incorporated herein by reference to:
•
•
•
Pages 7 to 35 of Hawaiian Electric Exhibit 99.1 to this Form 10-K;
The discussion of “2020-22 Long-Term Incentive Plan” at pages 17 to 19 of Hawaiian Electric’s Exhibit 99.1 to
Annual Report on Form 10-K for the year ended December 31, 2020; and
Information concerning compensation paid to directors of Hawaiian Electric who are also directors of HEI under the
section of HEI’s 2022 Proxy Statement entitled, “Director Compensation.”
COMPENSATION & HUMAN CAPITAL MANAGEMENT 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 & Human Capital Management Interlocks and Insider Participation” section in HEI’s 2022 Proxy Statement.
Hawaiian Electric:
The information required to be reported under this caption for Hawaiian Electric is incorporated herein by reference to page
23 of Hawaiian Electric Exhibit 99.1.
181
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 2022 Proxy Statement.
Equity Compensation Plan Information
Information as of December 31, 2021 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)
509,881 $
—
509,881 $
—
—
—
2,617,603
—
2,617,603
(1) This column includes the number of shares of HEI Common Stock which may be issued under the HEI 2010 Equity and Incentive Plan,
as amended (EIP) on account of awards outstanding as of December 31, 2021, including:
EIP
164,269 Restricted stock units plus estimated compounded dividend equivalents (if applicable)*
Shares to be issued in February 2022, 2023 and 2024 under the 2019-21, 2020-22 and 2021-23 LTIPs, respectively,
345,612
plus compounded dividend equivalents**
509,881
* Under the EIP as of December 31, 2021, 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.
** For shares to be issued in February 2023 and 2024 under the 2020-22 and 2021-23 LTIPs, respectively, the number of shares to be
issued assumes that applicable performance goals are achieved and shares are issued at maximum levels, reduced by the estimated
number of shares withheld for taxes.
(2) This represents the number of shares available as of December 31, 2021 for future awards, including 2,373,256 shares available for
future awards under the EIP and 244,347 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 35 to 36 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 2022 Proxy Statement.
Hawaiian Electric:
The information required by this Item 13 for Hawaiian Electric is incorporated herein by reference to pages 36 to 37 of
Hawaiian Electric Exhibit 99.1.
182
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 2022 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 38 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, 2021 and 2020 and for
the years ended December 31, 2021, 2020 and 2019
Valuation and Qualifying Accounts, Hawaiian Electric Industries, Inc. and
subsidiaries and Hawaiian Electric Company, Inc. and subsidiaries for the
years ended December 31, 2021, 2020 and 2019
Page/s in Form 10-K
HEI
Hawaiian Electric
184-186
188
NA
188
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
HEI and Hawaiian Electric: None
183
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
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
Commercial paper
Short-term debt, net
Long-term debt, net
Retirement benefits liability
Other
Total liabilities
Shareholders’ equity
2021
2020
$
479 $
873
2,052
17,000
15,940
299
738
2,456
14,236
18,726
3,025,729
2,893,781
$ 3,062,073 $ 2,930,236
$
914 $
2,238
53,998
—
548,480
26,340
39,219
671,189
673
2,918
64,491
14,909
449,145
31,688
28,910
592,734
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:
109,311,785 shares and 109,181,124 shares at December 31, 2021 and 2020, respectively
1,685,496
1,678,368
Retained earnings
Accumulated other comprehensive loss, net of tax benefits
Total shareholders’ equity
Total liabilities and shareholders’ equity
757,921
660,398
(52,533)
(1,264)
2,390,884
2,337,502
$ 3,062,073 $ 2,930,236
184
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 tax benefits
Retirement defined benefits expense—other than service costs
Interest expense
Income before income tax benefits
Income tax benefits
Net income
2021
2020
2019
$
105 $
208 $
777
278,743
227,098
246,005
24,006
20,731
19,195
414
514
24,934
253,914
485
654
21,870
205,436
(114)
634
18,444
235,584
10,582
18,237
186,565
11,259
570
570
20,335
226,447
442
17,930
208,075
9,807
$
246,166 $
197,824 $
217,882
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.
185
Hawaiian Electric Industries, Inc.
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
2021
2020
2019
$ 154,151 $ 134,363 $ 131,120
—
—
—
(1,187)
22,719
(10)
(20)
—
(47)
(76,232)
(42,664)
(38,935)
180
2,435
(1,001)
(76,062)
(17,530)
(41,170)
(10,493)
(32,232)
47,731
—
65,000
(15,000)
(50,000)
150,000
50,000
(50,000)
—
—
—
66,300
(66,300)
—
—
—
—
—
—
(2,006)
(5,700)
(997)
(148,643)
(144,096)
(139,463)
(1,767)
(459)
(10)
(77,909)
(117,487)
(92,739)
180
299
(654)
(2,789)
953
3,742
953
$
479 $
299 $
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 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
Proceeds from issuance of syndicated credit facility
Repayment of syndicated credit facility
Withheld shares for employee taxes on vested share-based compensation
Common stock dividends
Other
Net cash used in financing activities
Net increase (decrease) in cash and equivalents
Cash and cash equivalents, January 1
Cash and cash equivalents, December 31
186
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
HEI 2.82% senior notes, due 2028
HEI 2.48% senior notes, due 2028
HEI 2.98% senior notes, due 2030
HEI 3.15% senior notes, due 2031
HEI 2.78% senior notes, due 2031
HEI 3.74% senior notes, due 2051
Less unamortized debt issuance costs
Long-term debt, net
2021
2020
$
150,000 $
150,000
—
50,000
50,000
100,000
24,000
30,000
50,000
51,000
25,000
20,000
50,000
50,000
50,000
100,000
—
—
50,000
—
—
—
(1,520)
(855)
$
548,480 $
449,145
The aggregate payments of principal required within five years after December 31, 2021 on long-term debt are $150
million in 2022, $50 million in 2023, nil in 2024, $50 million in 2025, nil for 2026, and $300 million thereafter.
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 2021, 2020 and 2019, cash dividends received from subsidiaries were $172 million, $145 million and $157 million,
respectively.
Supplemental disclosures of noncash activities
In 2021, 2020 and 2019, $2.1 million, $2.3 million and $2.3 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 2021, 2020 and 2019, $2.1 million, $2.3 million and $2.3 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.
Under the HEI DRIP, common stock dividends reinvested by shareholders in HEI common stock in noncash transactions
was immaterial for 2021, 2020 and 2019 as HEI satisfied the share purchase requirements of the DRIP in 2021, 2020 and 2019
through open market purchases of its common stock rather than new issuances.
187
Hawaiian Electric Industries, Inc. and subsidiaries
and Hawaiian Electric Company, Inc. and subsidiaries
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2021, 2020 and 2019
(in thousands)
Description
Col. A
2021
Allowance for uncollectible accounts –
electric utility
2020
Allowance for uncollectible accounts –
electric utility
2019
Allowance for uncollectible accounts –
electric utility
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
$ 17,809
$
4,183
$ 11,795 (a)
$
7,687 (b)
$ 26,100
$ 1,377
$
2,100
$ 18,041 (a)
$
3,709 (b)
$ 17,809
$ 1,480
$
2,106
$
795 (a)
$
3,004 (b)
$
1,377
(a)
Includes recoveries, as well as $10,700 and $16,700 of bad debt expenses for 2021 and 2020, respectively, that have been deferred to
regulatory assets pursuant to a PUC order as the recovery is probable. Total deferred bad debt expense of $10,700 in 2021 is net of a
$2,000 reversal associated with customer bill credits to be provided under the Utilities’ bill forgiveness program.
(b) Bad debts charged off.
188
(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.
Exhibit no.
Description
HEI’s Amended and Restated Articles of Incorporation effective June 2, 2020.
HEI’s Amended and Restated Bylaws effective June 2, 2020.
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.
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
HEI:
3(i)
3(ii)
4
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)
4.3(g)
4.3(h)
4.4
4.4(a)
4.4(b)
4.4(c)
4.4(d)
4.4(e)
4.4(f)
*
*
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 2019-2 to the Hawaiian Electric Industries Retirement Savings
Plan, effective as of August 1, 2019
Amendment 2020-1 to the Hawaiian Electric Industries Retirement Savings
Plan, effective as of March 13, 2020
Amendment 2021-1 to the Hawaiian Electric Industries Retirement Savings
Plan, effective as of November 30, 2021
Amendment 2021-2 to the Hawaiian Electric Industries Retirement Savings
Plan, effective as of December 9, 2021
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 effective March 1, 2015 to Master Trust Agreement (dated
as of September 4, 2012) 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.
189
File
Form
Number Exhibit #
10-Q
8-K
10-K
10-K
1-8503
1-8503
1-8503
1-8503
3.1
3.1
4
4.1
Filing
date
8/6/20
6/8/20
2/28/20
3/31/93
8-K
1-8503
4(a)
3/28/11
S-8
S-8
S-8
S-8
333-
232360
333-
232360
333-
232360
333-
232360
10-Q
1-8503
10-Q
1-8503
4.5
4.4
4.5
4.6
4.7
4.2
4.1
2/19/13
6/26/19
6/26/19
6/26/19
6/26/19
11/1/19
5/5/20
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
Exhibit no.
4.4(g)
4.4(h)
4.4(i)
4.4(j)
4.4(k)
4.4(l)
4.5
4.6
4.6(a)
4.6(b)
4.6(c)
10.1
10.2
10.3
Description
Letter of Direction effective January 2, 2018 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company.
Third Amendment effective July 1, 2018 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company.
File
Form
10-K
Number Exhibit #
1-8503
4.4(g)
Filing
date
3/1/18
10-Q
1-8503
4
8/3/18
Fourth Amendment effective June 26, 2019 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company.
S-8
333-
232360
4.15
6/26/19
Letter Amendment effective November 1, 2019 to Master Trust Agreement
(dated September 4, 2012) between HEI and ASB and Fidelity Management
Trust Company.
Fifth Amendment effective March 1, 2020 to Master Trust Agreement (dated
September 4, 2012) between HEI and ASB and Fidelity Management Trust
Company
Letter Amendment effective October 15, 2021 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 November 8, 2019.
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.
10-K
1-8503
4.4(j)
2/28/20
10-Q
1-8503
4.2
5/5/20
10-Q
1-8503
4
11/5/21
S-3
10-K
10-K
S-8
333-
234591
1-8503
1-8503
333-
232361
4.3
4.8
4.7(a)
4.5
4.1
11/8/19
2/19/13
2/23/16
6/26/19
2/28/20
Amendment 2020-1 to the American Savings Bank 401(k) Plan, effective as of
January 1, 2020.
10-K
1-8503
Conditions for the Merger and Corporate Restructuring of Hawaiian Electric
Company, Inc. dated September 23, 1982.
10-K
1-8503
10.1
2/28/07
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).
8-K
1-8503
(28)-2
5/26/88**
OTS letter regarding release from Part II.B. of the Regulatory Capital
Maintenance/Dividend Agreement dated May 26, 1988.
10-K
1-8503
10.3(a)
3/31/93
HEI Exhibits 10.4 through 10.20 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 10.18 are also management contracts or compensatory plans or arrangements with
Hawaiian Electric participants.
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
HEI Executive Incentive Compensation Plan amended as of February 4, 2013.
HEI Executives’ Deferred Compensation Plan amended and restated effective
January 1, 2019.
10-K
10-K
1-8503
1-8503
10.4
10.5
2/19/13
2/28/19
Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan, as amended
and restated November 16, 2010.
10-K
1-8503
10.6
2/18/11
1-8503 Appendix
3/25/14
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.
Proxy
(DEF
14A)
S-8
S-8
S-8
S-8
333-
166737
333-
166737
333-
166737
333-
166737
Form of Restricted Stock Unit Agreement, pursuant to 2010 Equity and
Incentive Plan, as amended and restated February 5, 2021.
10-Q
1-8503
D
4.4
4.5
4.6
4.7
10
HEI Long-Term Incentive Plan amended and restated as of February 5, 2021.
HEI Supplemental Executive Retirement Plan amended and restated as of
January 1, 2009.
10-K
10-Q
1-8503
1-8503
10.8
10.3
190
5/11/10
5/11/10
5/11/10
5/11/10
5/10/21
2/26/21
11/5/08
File
Form
10-K
Number Exhibit #
1-8503
10.9(a)
Filing
date
2/27/09
10-K
10-K
10-K
10-K
10-K
10-K
10-Q
10-Q
1-8503
10.10
2/27/09
1-8503
10.10(a)
2/27/09
1-8503
10.10(c)
2/19/13
1-8503
1-8503
1-8503
1-8503
1-8503
10.11
10.15
10.13
10.5
10.6
2/27/09
3/27/90**
2/28/20
11/5/08
11/5/08
10-Q
1-8503
10.1
11/2/09
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-K
1-8503
10.20(e)
2/28/20
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
8/9/21
10-Q
1-8503
10.2
8/9/21
Exhibit no.
10.9(a)
Amendments to the HEI Supplemental Executive Retirement Plan Freezing
Benefit Accruals Effective December 31, 2008.
Description
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.
10.10(b)
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
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.
HEI Non-Employee Directors’ Deferred Compensation Plan.
Executive Death Benefit Plan of HEI and Participating Subsidiaries
restatement effective as of January 1, 2009.
10.15(a)
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.
10.16
10.17
10.18
10.19
10.19(a)
10.19(b)
10.19(c)
10.19(d)
10.19(e)
10.20
10.20(a)
10.21
10.22***
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.
Amendment No. 5 to January 1, 2009 Restatement of American Savings Bank
Select Deferred Compensation Plan dated December 5, 2018.
American Savings Bank Supplemental Executive Retirement, Disability, and
Death Benefit Plan, effective January 1, 2009.
Amendments to the American Savings Bank Supplemental Executive
Retirement, Disability, and Death Benefit Plan Freezing Benefit Accruals
Effective December 31, 2008.
Executive Separation and Release Agreement dated as of May 5, 2021 between
Richard F. Wacker, American Savings Bank, F.S.B., and Hawaiian Electric
Industries, Inc.
Third Amended and Restated Credit Agreement, dated as of May 14, 2021,
among Hawaiian Electric Industries, Inc., as Borrower, the Lenders Party
Hereto, and Bank of America, N.A. and U.S. Bank National Association, as
Co-Syndication Agents, and Wells Fargo Bank, National Association, MUFG
Union Bank, N.A., Barclays Bank PLC, Bank of Hawaii and The Toronto-
Dominion Bank, New York Branch, 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 Bank of America, N.A. as
Sustainability Structuring Agents and JPMorgan Chase Bank, N.A., BofA
Securities, Inc. and U.S. Bank National Association, as Joint Lead Arrangers
and Joint Book Runners.
* 11
* 21.1
* 23.1
* 31.1
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 Scott W. H. Seu (HEI Chief Executive Officer).
191
Exhibit no.
* 31.2
Description
File
Form
Number Exhibit #
Filing
date
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.
* 101.LAB XBRL Taxonomy Extension Label Linkbase Document.
* 101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in
Exhibit 101)
Hawaiian Electric:
3(i).1
3(i).2
3(i).3
3(i).4
3(ii)
4
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)
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
Description of Hawaiian Electric’s Preferred Stock
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
10-K
1-4955
1-4955
4
4.1
2/28/20
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.
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
Amendment No. 1 to Power Purchase Agreement between Hawaiian Electric
and Kalaeloa Partners, L.P., dated June 15, 1989.
10-Q
1-4955
10(c)
8/14/89
192
Exhibit no.
10.1(c)
10.1(d)
10.1(e)
10.1(f)
10.1(g)
10.1(h)
10.1(i)
Description
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.
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).
*
10.1(j)
Amended and Restated Power Purchase Agreement between Hawaiian Electric
and Kalaeloa Partners, L.P., dated October 29, 2021.
File
Form
10-Q
Number Exhibit #
1-4955
10(d)
Filing
date
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
10-Q
1-4955
10.3
11/5/04
10-Q
1-4955
10.4
11/5/04
10-Q
1-4955
10
11/4/16
10.2(a)
10.2(b)
10.2(c)
10.2(d)
10.2(e)
Power Purchase Agreement between AES Barbers Point, Inc. and Hawaiian
Electric, entered into on March 25, 1988.
10-Q
1-4955
10(a)
5/16/88
Agreement between Hawaiian Electric and AES Barbers Point, Inc., pursuant
to letters dated May 10, 1988 and April 20, 1988.
10-K
1-4955
10.4
3/31/89
Amendment No. 1, entered into as of August 28, 1988, to Power Purchase
Agreement between AES Barbers Point, Inc. and Hawaiian Electric.
10-Q
1-4955
10
11/13/89
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.
10-K
1-4955
13(c)
3/27/90**
10-K
1-4955
10.2(e)
3/9/04
*
10.2(f)
Amended and Restated Amendment No.4, entered into as of November 25,
2021, to Power Purchase Agreement between AES Hawaii, Inc. and Hawaiian
Electric
10.3(a)
10.3(b)
10.3(c)
10.3(d)
10.3(e)
10.3(f)
10.3(g)
10.3(h)
Purchase Power Contract between Hawaii Electric Light and Thermal Power
Company dated March 24, 1986.
10-Q
1-4955
10(a)
8/14/89
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.
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
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
Amended and Restated Power Purchase Agreement between Puna Geothermal
Venture and Hawaii Electric Light dated December 31, 2019 (subject to PUC
approval).
10-K
1-4955
10.3(h)
2/28/20
193
Exhibit no.
10.4(a)
10.4(b)
10.4(c)
10.4(d)
10.5
10.5(a)
Description
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.
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)
First Amendment dated June 9, 2020 to 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
Inter-Island Fuel Transportation Contract between Sause Bros., Inc. and
Hawaiian Electric dated August 23, 2021 (certain confidential information has
been omitted)
File
Form
10-K
Number Exhibit #
1-4955
10.7
Filing
date
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
10-Q
1-4955
10
5/7/19
10-Q
1-4955
10
8/6/20
10.8
10.9***
11
* 21.2
* 31.3
* 31.4
* 32.2
* 99.1
Amended and Restated Power Purchase Agreement between Hawaiian Electric
and Hu Honua Bioenergy, LLC dated May 9, 2017.
10-K
1-4955
10.11(a)
3/1/18
10-Q
1-4955
10.3
8/9/21
Third Amended and Restated Credit Agreement, dated as of May 14, 2021,
among Hawaiian Electric Company, Inc., as Borrower, the Lenders Party
Hereto, and Bank of America, N.A. and U.S. Bank National Association, as
Co-Syndication Agents, and Wells Fargo Bank, National Association, MUFG
Union Bank, N.A., Barclays Bank PLC, Bank of Hawaii and The Toronto-
Dominion Bank, New York Branch, 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 Bank of America, N.A. as
Sustainability Structuring Agents and JPMorgan Chase Bank, N.A., BofA
Securities, Inc. and U.S. Bank National Association, as Joint Lead Arrangers
and Joint Book Runners.
Computation of Earnings Per Share of Common Stock (Calculated using
December 31 market price per common share divided by basic earnings per
common share).
Hawaiian Electric - Subsidiaries of the Registrant.
Certification Pursuant to Section 13a-14 of the Securities Exchange Act of
1934 of Shelee M. T. Kimura (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.
*** Schedules and exhibits have been omitted from this filing pursuant to Item 601(a) (5) of the Regulation S-K. We agree to furnish a copy
of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.
194
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, Chief Financial Officer
(Principal Financial Officer of HEI)
(Principal Financial Officer of Hawaiian Electric)
and Treasurer
Date:
February 25, 2022
Date:
February 25, 2022
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 25, 2022. 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/ Scott W. H. Seu
Scott W. H. Seu
/s/ Shelee M. T. Kimura
Shelee M. T. Kimura
/s/ Gregory C. Hazelton
Gregory C. Hazelton
/s/ Tayne S. Y. Sekimura
Tayne S. Y. Sekimura
/s/ Paul K. Ito
Paul K. Ito
/s/ Shannon K. Asato
Shannon K. Asato
/s/ James A. Ajello
James A. Ajello
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, Chief Financial Officer and Treasurer
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)
Director of Hawaiian Electric
195
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/ Elisia K. Flores
Elisia K. Flores
/s/ Peggy Y. Fowler
Peggy Y. Fowler
/s/ Timothy E. Johns
Timothy E. Johns
/s/ Micah A. Kāne
Micah A. Kāne
/s/ Alana Kobayashi Pakkala
Alana Kobayashi Pakkala
/s/ Keith P. Russell
Keith P. Russell
/s/ William James Scilacci, Jr.
William James Scilacci, Jr.
/s/ Kelvin H. Taketa
Kelvin H. Taketa
/s/ Toby B. Taniguchi
Toby B. Taniguchi
Title
Director of Hawaiian Electric
Director of HEI
Director of HEI
Chairman of the Board of Directors 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 Hawaiian Electric
Director of Hawaiian Electric
196
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 (39 companies were included as of December 31, 2021). 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, 2016, in HEI Common Stock and the common stock of all companies in the indices and that dividends
were reinvested.
COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN
*+,-./01+23+43*5,56.7089340893:9./37+7.63/975/2
*+,-./01+23+43*5,56.7089340893:9./37+7.63/975/2
*+,-./01+23+43*5,56.7089340893:9./37+7.63/975/2
$250
!%"#
!%"#
!%"#
$200
!%##
!%##
!%##
$150
!$"#
!$"#
!$"#
$100
!$##
!$##
!$##
$50
!"#
!"#
!"#
2016
%#$&
%#$&
%#$&
Source: S&P Global Inc.
2017
%#$'
%#$'
%#$'
2018
%#$(
%#$(
%#$(
2019
%#$)
%#$)
%#$)
2020
%#%#
%#%#
%#%#
2021
%#%$
%#%$
%#%$
Hawaiian Electric Industries, Inc.
!"#"$$"%&'()*+,$*&-%./0+,$)01&-%*2
!"#"$$"%&'()*+,$*&-%./0+,$)01&-%*2
!"#"$$"%&'()*+,$*&-%./0+,$)01&-%*2
S&P 500 Index
345&677&-%.)8
345&677&-%.)8
345&677&-%.)8
EEI Index
''-&-%.)8
''-&-%.)8
''-&-%.)8
Executive Management (as of March 1, 2022)
HEI
Scott W. H. Seu
President and Chief Executive Officer,
Hawaiian Electric Industries, Inc.
Chair, American Savings Bank, F.S.B.
Gregory C. Hazelton
Executive Vice President and Chief
Financial Officer
Kurt K. Murao
Executive Vice President, General
Counsel, Chief Administrative Officer
and Corporate Secretary
Darcy L. Endo-Omoto
Vice President, Executive Advisor
to the President
Avelino J. Halagao, Jr.
Vice President, Corporate and
Community Advancement
President, HEI Foundation
Paul K. Ito
Vice President, Tax, Controller
and Treasurer
Christine N. Ohashi
Vice President, Internal Audit
Julie R. Smolinski
Vice President, Investor Relations and
Corporate Sustainability
HAWAIIAN ELECTRIC
Shelee M. T. Kimura
President and Chief Executive Officer
Jimmy D. Alberts
Senior Vice President and Chief
Operations Officer
Jason E. Benn
Senior Vice President and
Chief Information Officer
Colton K. Ching
Senior Vice President,
Planning and Technology
Tayne S. Y. Sekimura
Senior Vice President, Chief Financial
Officer and Treasurer
Joseph P. Viola
Senior Vice President, Customer,
Legal and Regulatory Affairs
Claire K. S. Cooper
Vice President, Human Resources
and Chief People Strategist
Rebecca L. Dayhuff Matsushima
Vice President, Resource Procurement
Robert C. Isler
Vice President, Power Supply
James P. Kelly
Vice President, Government and
Community Relations and Corporate
Communications
Erin P. Kippen
Vice President, General Counsel,
Chief Compliance Officer and
Corporate Secretary
Keola Siafuafu
Vice President, Enterprise Operations
Services
Rudy W. Tamayo
Vice President, Energy Delivery
Edward S. Tavares
Vice President, Cybersecurity Risk
Management and Chief Information
Security Officer
AMERICAN SAVINGS BANK
Ann C. Teranishi
President and Chief Executive Officer
Danielle K. N. Aiu
Executive Vice President, Consumer
Banking
Gabriel S. H. Lee
Executive Vice President,
Commercial Markets
Steven R. Nakahara
Executive Vice President,
Chief Credit Officer
David S. Oyadomari
Executive Vice President,
Customer Experience and Operations
Natalie M. H. Taniguchi
Executive Vice President, Enterprise
Risk and Regulatory Relations
Dane A. Teruya
Executive Vice President and
Chief Financial Officer
John S. Ward
Executive Vice President and
Chief Marketing and Product Officer
K. Elizabeth Whitehead
Executive Vice President and Chief
Administrative Officer
Brian M. Yoshii
Executive Vice President and Chief
Information Officer
PACIFIC CURRENT
Scott A. Valentino
President
HEI
Timothy E. Johns
Chair, Hawaiian Electric
Chair, Hawaiian Electric Audit
and Risk Committee
President and CEO, Zephyr
Insurance Company, Inc.
HEI
50687 Merrill_HEIAR21-030722-1025pm_OL.indd 1
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