Electric utility subsidiary

3 Months Ended

Mar. 31, 2015

Electric utility subsidiary [Abstract]

Revenue taxes. The Utilities’ revenues include amounts for the recovery of various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the period the related revenues are recognized. However, the Utilities’ revenue tax payments to the taxing authorities in the period are based on the prior year’s billed revenues (in the case of public service company taxes and PUC fees) or on the current year’s cash collections from electric sales (in the case of franchise taxes). The Utilities included in the three months ended March 31, 2015 and 2014 approximately $51 million and $65 million, respectively, of revenue taxes in “revenues” and in “taxes, other than income taxes” expense.

Recent tax developments. The Utilities adopted the safe harbor guidelines with respect to network assets in 2011 and, in June 2013, the IRS released a revenue procedure relating to deductions for repairs of generation property, which provides some guidance (that is elective) for taxpayers that own steam or electric generation property. This guidance defines the relevant components of generation property to be used in determining whether such component expenditures should be deducted as repairs or capitalized and depreciated by taxpayers. The revenue procedure also provides an extrapolation methodology that could be used by taxpayers in determining deductions for prior years’ repairs without going back to the specific documentation of those years. The guidance does not provide specific methods for determining the repairs amount. Management intends to adopt a method consistent with this guidance in its 2014 tax return.

Unconsolidated variable interest entities.

HECO Capital Trust III. HECO Capital Trust III (Trust III) was created and exists for the exclusive purposes of (i) issuing in March 2004 2,000,000 6.50% Cumulative Quarterly Income Preferred Securities, Series 2004 (2004 Trust Preferred Securities) ($50 million aggregate liquidation preference) to the public and trust common securities ($1.5 million aggregate liquidation preference) to Hawaiian Electric, (ii) investing the proceeds of these trust securities in 2004 Debentures issued by Hawaiian Electric in the principal amount of $31.5 million and issued by Hawaii Electric Light and Maui Electric each in the principal amount of $10 million, (iii) making distributions on these trust securities and (iv) engaging in only those other activities necessary or incidental thereto. The 2004 Trust Preferred Securities are mandatorily redeemable at the maturity of the underlying debt on March 18, 2034, which maturity may be extended to no later than March 18, 2053; and are currently redeemable at the issuer’s option without premium. The 2004 Debentures, together with the obligations of the Utilities under an expense agreement and Hawaiian Electric’s obligations under its trust guarantee and its guarantee of the obligations of Hawaii Electric Light and Maui Electric under their respective debentures, are the sole assets of Trust III. Taken together, Hawaiian Electric’s obligations under the Hawaiian Electric debentures, the Hawaiian Electric indenture, the subsidiary guarantees, the trust agreement, the expense agreement and trust guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of amounts due on the Trust Preferred Securities. Trust III has at all times been an unconsolidated subsidiary of Hawaiian Electric. Since Hawaiian Electric, as the holder of 100% of the trust common securities, does not absorb the majority of the variability of Trust III, Hawaiian Electric is not the primary beneficiary and does not consolidate Trust III in accordance with accounting rules on the consolidation of VIEs. Trust III’s balance sheets as of March 31, 2015 and December 31, 2014 each consisted of $51.5 million of 2004 Debentures; $50.0 million of 2004 Trust Preferred Securities; and $1.5 million of trust common securities. Trust III’s income statements for the three months ended March 31, 2015 and 2014 each consisted of $0.8 million of interest income received from the 2004 Debentures; $0.8 million of distributions to holders of the Trust Preferred Securities; and $25,000 of common dividends on the trust common securities to Hawaiian Electric. As long as the 2004 Trust Preferred Securities are outstanding, Hawaiian Electric is not entitled to receive any funds from Trust III other than pro-rata distributions, subject to certain subordination provisions, on the trust common securities. In the event of a default by Hawaiian Electric in the performance of its obligations under the 2004 Debentures or under its Guarantees, or in the event any of the Utilities elect to defer payment of interest on any of their respective 2004 Debentures, then Hawaiian Electric will be subject to a number of restrictions, including a prohibition on the payment of dividends on its common stock.

Power purchase agreements. As of March 31, 2015, the Utilities had six purchase power agreements (PPAs) for firm capacity and other PPAs with smaller IPPs and Schedule Q providers (i.e., customers with cogeneration and/or small power production facilities with a capacity of 100 kilowatts (kWs) or less who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs. Approximately 90% of the firm capacity is purchased from AES Hawaii, Inc. (AES Hawaii), Kalaeloa Partners, L.P. (Kalaeloa), Hamakua Energy Partners, L.P. (HEP) and HPOWER. Purchases from all IPPs were as follows:



	Three months ended March 31
(in millions)	2015		2014
AES Hawaii	$	34	$	33
Kalaeloa	44		67
HEP	11		12
HPOWER	16		16
Other IPPs	31		37
Total IPPs	$	136	$	165

Some of the IPPs provided sufficient information for Hawaiian Electric to determine that the IPP was not a VIE, or was either a “business” or “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. Other IPPs, including the three largest, declined to provide the information necessary for Hawaiian Electric to determine the applicability of accounting standards for VIEs.

Since 2004, Hawaiian Electric has continued its efforts to obtain from the IPPs the information necessary to make the determinations required under accounting standards for VIEs. In each year from 2005 to 2014, the Utilities sent letters to the identified IPPs requesting the required information. All of these IPPs declined to provide the necessary information, except that Kalaeloa later agreed to provide the information pursuant to the amendments to its PPA (see below) and an entity owning a wind farm provided information as required under its PPA. Management has concluded that the consolidation of two entities owning wind farms was not required as Hawaii Electric Light and Maui Electric do not have variable interests in the entities because the PPAs do not require them to absorb any variability of the entities. If the requested information is ultimately received from the remaining IPPs, a possible outcome of future analyses of such information is the consolidation of one or more of such IPPs in the Consolidated Financial Statements. The consolidation of any significant IPP could have a material effect on the Consolidated Financial Statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs.

Kalaeloa Partners, L.P. In October 1988, Hawaiian Electric entered into a PPA with Kalaeloa, subsequently approved by the PUC, which provided that Hawaiian Electric would purchase 180 megawatts (MW) of firm capacity for a period of 25 years beginning in May 1991. In October 2004, Hawaiian Electric and Kalaeloa entered into amendments to the PPA, subsequently approved by the PUC, which together effectively increased the firm capacity from 180 MW to 208 MW. The energy payments that Hawaiian Electric makes to Kalaeloa include: (1) a fuel component, with a fuel price adjustment based on the cost of low sulfur fuel oil, (2) a fuel additives cost component, and (3) a non-fuel component, with an adjustment based on changes in the Gross National Product Implicit Price Deflator. The capacity payments that Hawaiian Electric makes to Kalaeloa are fixed in accordance with the PPA. Kalaeloa also has a steam delivery cogeneration contract with another customer, the term of which coincides with the PPA. The facility has been certified by the Federal Energy Regulatory Commission as a Qualifying Facility under the Public Utility Regulatory Policies Act of 1978.

Pursuant to the current accounting standards for VIEs, Hawaiian Electric is deemed to have a variable interest in Kalaeloa by reason of the provisions of Hawaiian Electric’s PPA with Kalaeloa. However, management has concluded that Hawaiian Electric is not the primary beneficiary of Kalaeloa because Hawaiian Electric does not have the power to direct the activities that most significantly impact Kalaeloa’s economic performance nor the obligation to absorb Kalaeloa’s expected losses, if any, that could potentially be significant to Kalaeloa. Thus, Hawaiian Electric has not consolidated Kalaeloa in its consolidated financial statements. A significant factor affecting the level of expected losses Hawaiian Electric could potentially absorb is the fact that Hawaiian Electric’s exposure to fuel price variability is limited to the remaining term of the PPA as compared to the facility’s remaining useful life. Although Hawaiian Electric absorbs fuel price variability for the remaining term of the PPA, the PPA does not currently expose Hawaiian Electric to losses as the fuel and fuel related energy payments under the PPA have been approved by the PUC for recovery from customers through base electric rates and through Hawaiian Electric’s ECAC to the extent the fuel and fuel related energy payments are not included in base energy rates. As of March 31, 2015, Hawaiian Electric’s accounts payable to Kalaeloa amounted to $13 million.

Commitments and contingencies.

Fuel contracts. The Utilities have contractual agreements to purchase minimum quantities of fuel oil, diesel fuel and biodiesel for multi-year periods, some through October 2017. Fossil fuel prices are tied to the market prices of crude oil and petroleum products in the Far East and U.S. West Coast and the biodiesel price is tied to the market prices of animal fat feedstocks in the U.S. West Coast and U.S. Midwest.

Updates. On August 27, 2014, Chevron Products Company (Chevron) and Hawaiian Electric entered into a first amendment of their Low Sulfur Fuel Oil Supply Contract, which was approved by the PUC in March 2015. The Amendment reduces the price of fuel above certain volumes, allows for increases in the volume of fuel, and modifies the specification of certain petroleum products supplied under the contract. In addition, Chevron agreed to supply a blend of low sulfur fuel oil (LSFO) and diesel as soon as January 2016 (for supply through the end of the contract term, December 31, 2016) to help Hawaiian Electric meet more stringent EPA air emission requirements known as Mercury and Air Toxics Standards.

The Utilities are parties to amended contracts for the supply of industrial fuel oil and diesel fuels with Chevron and Hawaii Independent Energy, LLC (HIE), respectively, which were scheduled to end December 31, 2015. In August 2014, Chevron and the Utilities entered into a third amendment to the Inter-Island Industrial Fuel Oil and Diesel Fuel Supply Contract, which amendment extended the term of the contract through December 31, 2016 and provided for automatic renewal for annual terms thereafter unless earlier terminated by either party. In February 2015, Hawaiian Electric executed a similar extension, through December 31, 2016, of the corresponding Inter-Island Industrial Fuel Oil and Diesel Fuel Supply Contract with HIE.

Liquefied natural gas. In August 2014, Hawaiian Electric entered into a 15-year agreement with Fortis BC Energy Inc. (Fortis) for liquefaction capacity for liquefied natural gas (LNG) under tariffed rates approved by the British Columbia Utilities Commission. The agreement, which is subject to Hawaii PUC approval, other regulatory approvals and permits, and other conditions precedent before it becomes effective, provides for LNG liquefaction capacity purchases of 800,000 tonnes per year for the first five years, 700,000 tonnes per year for the next five years, and 600,000 tonnes per year for the last five years. Fortis must also obtain regulatory and other approvals for the agreement to become effective. The Fortis agreement is assignable and can be assigned to the selected bidder in the Utilities’ request for proposal (RFP) for the supply of containerized LNG and will help ensure that liquefaction capacity is available at pricing that management believes will lower customer bills.

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. In recent years, legislative, regulatory and governmental activities related to the environment, including proposals and rulemaking under the Clean Air Act and Clean Water Act (CWA), have increased significantly and management anticipates that such activity will continue.

On August 14, 2014, the Environmental Protection Agency (EPA) published in the Federal Register the final regulations required by section 316(b) of the CWA designed to protect aquatic organisms from adverse impacts associated with existing power plant cooling water intake structures. The regulations were effective October 14, 2014 and apply to the cooling water systems for the steam generating units at Hawaiian Electric’s power plants on the island of Oahu. The regulations prescribe a process, including a number of required site-specific studies, for states to develop facility-specific entrainment and impingement controls to be incorporated in the facility’s National Pollutant Discharge Elimination System permit. In the case of Hawaiian Electric’s power plants, there are a number of studies that have yet to be completed before Hawaiian Electric and the Department of Health of the State of Hawaii (DOH) can determine what entrainment or impingement controls, if any, might be appropriate.

On February 16, 2012, the Federal Register published the EPA’s final rule establishing the EPA’s National Emission Standards for Hazardous Air Pollutants for fossil-fuel fired steam electrical generating units (EGUs). The final rule, known as the Mercury and Air Toxics Standards (MATS), applies to the 14 EGUs at Hawaiian Electric’s power plants. MATS establishes the Maximum Achievable Control Technology standards for the control of hazardous air pollutants emissions from new and existing EGUs. Based on a review of the final rule and the benefits and costs of alternative compliance strategies, Hawaiian Electric has selected a MATS compliance strategy based on switching to lower emission fuels. The use of lower emission fuels will provide for MATS compliance at lower overall costs and avoid the reduction in operational flexibility imposed by emissions control equipment. Hawaiian Electric requested and received a one-year extension, resulting in a MATS compliance date of April 16, 2016. Hawaiian Electric submitted to the EPA a Petition for Reconsideration and Stay dated April 16, 2012, and a Request for Expedited Consideration dated August 14, 2013. The submittals asked the EPA to revise an emissions standard for non-continental oil-fired EGUs on the grounds that the promulgated standard was incorrectly derived. The Petition and Request submittals to the EPA included additional data to demonstrate that the existing standard is erroneous. On April 21, 2015, the EPA issued a notice denying Hawaiian Electric's MATS Petition for Reconsideration along with all other pending MATS petitions. The EPA also issued a report dated March 2015 which presents the detailed rationale for the EPA’s denial of the petitions. Hawaiian Electric is currently reviewing the notice and report.

On February 6, 2013, the EPA issued a guidance document titled “Next Steps for Area Designations and Implementation of the Sulfur Dioxide National Ambient Air Quality Standard,” which outlines a process that will provide the states additional flexibility and time for their development of one-hour sulfur dioxide (SO₂) National Ambient Air Quality Standard (NAAQS) implementation plans. In May 2014, the EPA published a proposed data requirements rule for states to characterize their air quality in relation to the one-hour SO₂ NAAQS. Under the proposed rule, the EPA expects to designate areas as attaining, or not attaining, the one-hour SO₂ NAAQS in December 2017 or December 2020, depending on whether the area was characterized through modeling or monitoring. Hawaiian Electric will work with the DOH in implementing the one-hour SO₂NAAQS and in developing cost-effective strategies for NAAQS compliance, if needed.

Depending upon the specific measures required for compliance with the CWA 316(b) regulations and MATS, and the rules and guidance developed for compliance with the more stringent NAAQS, the Utilities may be required to incur material capital expenditures and other compliance costs, but such amounts and their timing are not determinable at this time. Additionally, the combined effects of these regulatory initiatives may result in a decision to retire or deactivate certain generating units earlier than anticipated.

Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases into the environment associated with current or previous operations and 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 adverse effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.

Potential Clean Air Act Enforcement. On July 1, 2013, Hawaii Electric Light and Maui Electric received a letter from the U.S. Department of Justice (DOJ) asserting potential violations of the Prevention of Significant Deterioration (PSD) and Title V requirements of the Clean Air Act involving the Hill and Kahului Power Plants. The EPA referred the matter to the DOJ for enforcement based on Hawaii Electric Light’s and Maui Electric’s responses to information requests in 2010 and 2012. The letter expresses an interest in resolving the matter without the issuance of a notice of violation. The parties had preliminary discussions in February 2014, and are continuing to negotiate toward a resolution of the DOJ’s claims. As part of the ongoing negotiations, the DOJ proposed in November 2014 entering into a consent decree pursuant to which the Utilities would install certain pollution controls and pay a penalty. The Utilities are currently reviewing the proposal, but are unable to estimate the amount or effect of a consent decree, if any, at this time.

Former Molokai Electric Company generation site. In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The EPA has since performed Brownfield assessments of the Site that identified environmental impacts in the subsurface. Although Maui Electric never operated at the Site and operations there had stopped four years before the merger, in discussions with the EPA and the DOH, Maui Electric agreed to undertake additional investigations at the Site and an adjacent parcel that Molokai Electric Company had used for equipment storage (the Adjacent Parcel) to determine the extent of impacts of subsurface contaminants. A 2011 assessment by a Maui Electric contractor of the Adjacent Parcel identified environmental impacts, including elevated polychlorinated biphenyls (PCBs) in the subsurface soils. In cooperation with the DOH and EPA, Maui Electric is further investigating the Site and the Adjacent Parcel to determine the extent of impacts of PCBs, residual fuel oils, and other subsurface contaminants. In March 2012, Maui Electric accrued an additional $3.1 million (reserve balance of $3.6 million as of March 31, 2015) for the additional investigation and estimated cleanup costs at the Site and the Adjacent Parcel; however, final costs of remediation will depend on the results of continued investigation. Maui Electric received the DOH’s and EPA’s comments on a draft site investigation plan for site characterization in the fourth quarter of 2013. Management concluded that these comments did not require a change to the reserve balance. The site investigation plan was revised to address the EPA’s and DOH’s comments. The final site investigation plan was submitted to the DOH and EPA in December 2014 for their review and approval.

Pearl Harbor sediment study. The U.S. Navy is conducting a feasibility study for the remediation of contaminated sediment in Pearl Harbor. In the course of its study, the Navy identified elevated levels of PCBs in the sediment offshore from the Waiau Power Plant. The results of the Navy’s study to date, including sampling data and possible remediation approaches, are undergoing further federal review. Hawaiian Electric submitted comments on the Navy’s study, including the further investigation and analyses that are necessary to identify appropriate remedial options and actions.

In July 2014, the Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is responsible for cleanup of the area offshore of the Waiau Power Plant. The Navy has also requested that Hawaiian Electric reimburse the costs incurred by the Navy to date to investigate the area, and is asking Hawaiian Electric to engage in negotiations regarding the financing and undertaking of future response actions. The extent of the contamination, the appropriate remedial measures to address it, and Hawaiian Electric’s potential responsibility for any associated costs have not yet been determined. In December 2014, Hawaiian Electric recorded a reserve of $0.8 million for additional investigation of the PCBs in the sediment offshore from the Waiau Power Plant; however, final costs of remediation will depend on the results of the additional investigation. On March 23, 2015, Hawaiian Electric received from the EPA a letter requesting that Hawaiian Electric submit within 45 days a work plan to assess potential sources and extent of PCB contamination onshore at the Waiau Power Plant. The extent of the onshore contamination, the appropriate remedial measures to address it, and any associated costs have not yet been determined.

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 action by the State and to federal legislative and regulatory proposals to reduce GHG emissions.

In July 2007, 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, became law in Hawaii. On June 20, 2014, the Governor signed the final regulations required to implement Act 234 and the regulations went into effect on June 30, 2014. In general, the regulations will require affected sources that have the potential to emit GHGs in excess of established thresholds to reduce GHG emissions by 16% below 2010 emission levels by 2020. The regulations will also assess affected sources an annual fee based on tons per year of GHG emissions commencing on the effective date of the regulations, estimated to be approximately $0.5 million annually for the Utilities. The DOH GHG regulations also track the federal “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule” (GHG Tailoring Rule, see below) and would create new thresholds for GHG emissions from new and existing stationary source facilities.

Several approaches (e.g., “cap and trade”) to GHG emission reduction have been either introduced or discussed in the U.S. Congress; however, no federal legislation has yet been enacted.

On September 22, 2009, the EPA issued its Final Mandatory Reporting of Greenhouse Gases Rule, which requires that sources emitting GHGs above certain threshold levels monitor and report GHG emissions. The Utilities have submitted the required reports for 2010 through 2013 to the EPA. In December 2009, the EPA made the finding that motor vehicle GHG emissions endanger public health or welfare. Since then, the EPA has also issued rules that begin to address GHG emissions from stationary sources, like the Utilities’ EGUs.

In June 2010, the EPA issued its GHG Tailoring Rule covering the permitting of new or modified stationary sources that have the potential to emit GHGs in greater quantities than the thresholds set forth in the rule, under the Prevention of Significant Deterioration program. On June 23, 2014, the U.S. Supreme Court issued a decision that invalidated the GHG Tailoring Rule, to the extent it regulated sources based solely on their GHG emissions. It also invalidated the GHG emissions threshold for regulation.

On December 19, 2014, the EPA released two memoranda outlining the Agency’s plan for addressing the U.S. Supreme Court’s decision. Hawaiian Electric, Hawaii Electric Light and Maui Electric are evaluating the potential impacts of the Agency’s plan on utility operations and permitting. On January 8, 2014, the EPA published in the Federal Register its new proposal for New Source Performance Standards for GHG from new generating units. The proposed rule on GHG from new EGUs does not apply to oil- fired combustion turbines or diesel engine generators, and is not otherwise expected to have significant impacts on the Utilities.

On June 18, 2014, the EPA published in the Federal Register its proposed rule for GHG emissions from existing power plants. The rule sets interim and final state-wide, state-specific emission performance goals, expressed as lb CO₂/MWh, that would apply to the state’s affected sources. The interim goal would apply as an average over the period 2020 through 2029, with the final goal to be met by 2030. On the same date, the EPA also published a separate rule for modified and reconstructed power plants. The EPA’s plan is to issue the final rules by mid-summer 2015. Hawaiian Electric is still evaluating the proposed rules for GHG emissions from existing, modified, and reconstructed sources, and how they might relate to the recently issued State GHG rules. Hawaiian Electric will participate in the federal GHG rulemaking process, and in the implementation of the State GHG rules, to try to reconcile federal GHG regulation, state GHG regulation, and any action the EPA may take as a result of the recent U.S. Supreme Court opinion, to facilitate clear and cost-effective compliance. The Utilities will continue to evaluate the impact of proposed GHG rules and regulations as they develop. Final regulations may impose significant compliance costs, and may require reductions in fossil fuel use and the addition of renewable energy resources in excess of the requirements of the RPS law.

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 DSM programs that foster energy efficiency, using renewable resources for energy production and purchasing power from IPPs generated by renewable resources, burning renewable biodiesel in Hawaiian Electric’s Campbell Industrial Park combustion turbine No. 1 (CIP CT-1), using biodiesel for startup and shutdown of selected Maui Electric generating units, and testing biofuel blends in other Hawaiian Electric and Maui Electric generating units. The Utilities are also working with the State of Hawaii and other entities to pursue the use of liquefied natural gas as a cleaner and lower cost fuel to replace, at least in part, the petroleum oil that would otherwise be used. Management is unable to evaluate the ultimate impact on the Utilities’ operations of eventual comprehensive GHG regulation. However, management believes that the various initiatives it is undertaking will provide a sound basis for managing the Utilities’ carbon footprint and meeting GHG reduction goals that will ultimately emerge.

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 or hurricanes), sea levels, and water availability and quality have the potential to materially adversely affect the results of operations, financial condition and liquidity of the Utilities. For example, severe weather could cause significant harm to the Utilities’ physical facilities.

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 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 obligations to retire plant and equipment, including removal of asbestos and other hazardous materials.

Hawaiian Electric has recorded estimated AROs related to removing retired generating units at its Honolulu and Waiau power plants. These removal projects are ongoing, with significant activity and expenditures occurring in 2014 in partial settlement of these liabilities. Both removal projects are expected to continue through 2015.

Changes to the ARO liability included in “Other liabilities” on Hawaiian Electric’s balance sheet were as follows:



	Three months ended March 31
(in thousands)	2015			2014
Balance, beginning of period	$	29,419		$	43,106
Accretion expense	6			370
Liabilities incurred	—			—
Liabilities settled	(1,614		)	(2,240		)
Revisions in estimated cash flows	—			—
Balance, end of period	$	27,811		$	41,236

Decoupling. In 2010, the PUC issued an order approving decoupling, which was implemented by Hawaiian Electric on March 1, 2011, by Hawaii Electric Light on April 9, 2012 and by Maui Electric on May 4, 2012. Decoupling is a regulatory model that is intended to facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. The decoupling model implemented in Hawaii delinks revenues from sales and includes annual rate adjustments for certain other operation and maintenance (O&M) expenses and rate base changes. The decoupling mechanism has three components: (1) a sales decoupling component via a revenue balancing account (RBA), (2) a revenue escalation component via a RAM and (3) an earnings sharing mechanism, which would provide for a reduction of revenues between rate cases in the event the utility exceeds the return on average common equity (ROACE) allowed in its most recent rate case. Decoupling provides for more timely cost recovery and earning on investments. The implementation of decoupling has resulted in an improvement in the Utilities’ under-earning situation that has existed over the last several years.

On May 31, 2013, as provided for in its original order issued in 2010 approving decoupling and citing three years of implementation experience for Hawaiian Electric, the PUC opened an investigative docket to review whether the decoupling mechanisms are functioning as intended, are fair to the Utilities and their ratepayers, and are in the public interest. The PUC affirmed its support for the continuation of the sales decoupling (RBA) mechanism and stated its interest in evaluating the RAM to ensure it provides the appropriate balance of risks, costs, incentives and performance requirements, as well as administrative efficiency, and whether the current interest rate applied to the outstanding RBA balance is reasonable. In October 2013, the PUC issued orders that bifurcated the proceeding (into Schedule A and Schedule B issues). On February 7, 2014, the PUC issued a decision and order (D&O) on the Schedule A issues, which made certain modifications to the decoupling mechanism. Specifically, the D&O required:


•	An adjustment to the Rate Base RAM Adjustment to include 90% of the amount of the current RAM Period Rate Base RAM Adjustment that exceeds the Rate Base RAM Adjustment from the prior year, to be effective with the Utilities’ 2014 decoupling filing.


•	Effective March 1, 2014, the interest rate to be applied on the outstanding RBA balances to be the short term debt rate used in each Utilities last rate case (ranging from 1.25% to 3.25%), instead of the 6% that had been previously approved.

As required, the Utilities have made available to the public, on the Utilities’ websites, performance metrics identified by the PUC.

On March 31, 2015, the PUC issued an Order related to the Schedule B portion of the proceeding to make certain further modifications to the decoupling mechanism, and to establish a briefing schedule with respect to certain issues in the proceeding. The order modifies the RAM portion of the decoupling mechanism to be capped at the lesser of the RAM Revenue Adjustment as currently determined (adjusted to eliminate the 90% limitation on the current RAM Period Rate Base RAM adjustment that was ordered in the Schedule A portion of the proceeding) and a RAM Revenue Adjustment calculated based on the cumulative annual compounded increase in Gross Domestic Product Price Index (GDPPI) applied to the 2014 annualized target revenues (adjusted for certain items specified in the Order). The 2014 annualized target revenues represent the target revenues from the last rate case, and RAM revenues, offset by earnings sharing credits, if any, allowed under the decoupling mechanism through the 2014 decoupling filing. The Utilities may apply to the PUC for approval of recovery of revenues for Major Projects (including related baseline projects grouped together for consideration as Major Projects) through the RAM above the RAM cap or outside of the RAM through the Renewable Energy Infrastructure Program (REIP) surcharge or other adjustment mechanism. The Utilities and the Consumer Advocate are directed to develop standards and guidelines for eligibility of projects and determination of the amount of eligible cost recovery above the RAM cap for PUC approval. The RAM is amended on an interim basis pending the outcome of the PUC’s review of the Utilities’ Power Supply Improvement Plans. The triennial rate case cycle required under the decoupling mechanism continues to serve as the maximum period between the filing of general rate cases, and the amendments to the RAM do not limit or dilute the ordinary opportunities for the Utilities to seek rate relief according to conventional/traditional ratemaking procedures.

In making the modifications to the RAM Adjustment, the PUC stated the changes are designed to provide the PUC with control of and prior regulatory review over substantial additions to baseline projects between rate cases. It does not deprive the Utilities of the opportunity to recover any prudently incurred expenditure or limit orderly recovery for necessary expanded capital programs.

The RBA, which is the sales decoupling component, is retained, and the PUC made no change in the authorized return on common equity. Performance based ratemaking is not adopted at this time.

On April 15, 2015, the Utilities submitted revised annual decoupling filings for tariffed rates to be effective from June 1, 2015 through May 31, 2016 (unless the filings are modified or suspended by the PUC), and reflected revisions to the RAM based on the Order. The revised 2015 annual incremental RAM revenues for the three Utilities based on the Order amounted to $26.2 million, compared to the 2015 annual incremental revenues of $31.6 million filed on March 31, 2015 based on the methodology prior to the modification of the Order. The revised tariffs also include the collection or refund of the accrued revenue balancing account (RBA) balance and associated revenue taxes as of December 31, 2014 and any accrued earning sharing mechanism credits. The net annual incremental amount to be collected under the tariffs is $14.7 million for the three Utilities.



(in millions)	Hawaiian Electric			Hawaii Electric Light		Maui Electric
Annual incremental RAM adjusted revenues	$	20.3		$	2.4	$	3.4
Annual change in accrued earnings sharing credits to be refunded	$	—		$	—	$	(0.1	)
Annual change in accrued RBA balance as of December 31, 2014 (and associated revenue taxes) to be collected	$	(9.2	)	$	0.1	$	(2.2	)
Net annual incremental amount to be collected under the tariffs	$	11.1		$	2.5	$	1.1
Impact on typical residential customer monthly bill (in dollars) *	$	0.56		$	1.10	$	0.60

* Based on 600 KWH bill for Hawaiian Electric and Maui Electric and 500 KWH bill for Hawaii Electric Light.

The Consumer Advocate has submitted information requests to the Utilities and filed initial questions on the calculations of the RAM revenues based on the March 31, 2015 Order, and the Utilities have responded to an information request from the PUC regarding the tariff filings. The Consumer Advocate has until May 15, 2015 to submit its Statement of Position. The PUC is expected to issue a decision on the tariff filings prior to the June 1, 2015 effective date.

The March 31, 2015 Order directs the Parties to the proceeding to submit initial briefs within 60 days that address the following issues: (1) whether, and if so, how the conventional performance incentive mechanisms proposed in this proceeding should be refined and implemented in this docket; (2) what are the appropriate steps, processes and timing for determining measures to improve the efficiency and effectiveness of the general rate case filing and review process; and (3) what are the appropriate steps, processes, and timing to further consider the merits of the proposed changes to the energy cost adjustment clause (ECAC) identified in this proceeding. In identifying the issue on possible changes to the ECAC, the PUC stated that changes to the ECAC should be made with great care to avoid unintended consequences. Reply briefs are due within 75 days.

Management cannot predict the further outcome of this proceeding or the ultimate impact of the proceeding on the results of operation of the Utilities.

Potential impact of lava flows. In June 2014, lava from the Kilauea Volcano on the island of Hawaii began flowing toward the town of Pahoa. Hawaii Electric Light monitored utility property and equipment near the affected areas and protected that property and equipment to the extent possible (e.g., building barriers around poles). In March 2015 Hawaii Electric Light filed an application with the PUC requesting approval to defer costs incurred by the Company to monitor, prepare for, respond to, and take other actions necessary in connection with the June 2014 Kilauea lava flow such that the Company can request PUC approval to recover those costs in a future rate case.

April 2014 regulatory orders. In April 2014, the PUC issued four orders that collectively address certain key policy, resource planning and operational issues for the Utilities. The four orders are as follows:

Integrated Resource Planning. The PUC did not accept the Utilities’ Integrated Resource Plan and Action Plans submission, and, in lieu of an approved plan, has commenced other initiatives to enable resource planning. The PUC also terminated the Utilities’ integrated resource planning (IRP) cycle, including the filing of a mid-cycle evaluation report, and formally concluded the IRP advisory group. The PUC directed each of Hawaiian Electric and Maui Electric to file within 120 days its respective Power Supply Improvement Plans (PSIPs), and the PSIPs were filed in August 2014. The PUC also provided its inclinations on the future of Hawaii’s electric utilities in an exhibit to the order. The exhibit provides the PUC’s perspectives on the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customers’ interests and the state’s public policy goals.

Reliability Standards Working Group. The PUC ordered the Utilities (and in some cases the Kauai Island Utility Cooperative (KIUC)) to take timely actions intended to lower energy costs, improve system reliability and address emerging challenges to integrate additional renewable energy. In addition to the PSIPs mentioned above, the PUC ordered certain filing requirements which include the following:


•	Distributed Generation Interconnection Plan to be filed within 120 days. The Utilities’ Plan was filed in August 2014.


•	Plan to implement an on-going distribution circuit monitoring program to measure real-time voltage and other power quality parameters to be filed within 60 days. The plan shall achieve full implementation of the distribution circuit monitoring program within 180 days. The Utilities’ Plan was filed in June 2014.


•	Action Plan for improving efficiencies in the interconnection requirements studies to be filed within 30 days. The Utilities’ Plan was filed in May 2014.


•	The Utilities are to file monthly reports providing details about interconnection requirements studies.


•	Proposal to implement an integrated interconnection queue for each distribution circuit for each island grid to be filed within 120 days. The Utilities’ integrated interconnection queue plan was filed in August 2014 and the integrated interconnection queues were implemented in January 2015.

The PUC also stated it would be opening new dockets to address (1) reliability standards, (2) the technical, economic and policy issues associated with distributed energy resources and (3) the Hawaii electricity reliability administrator, which is a third party position which the legislature has authorized the PUC to create by contract to provide support for the PUC in developing and periodically updating local grid reliability standards and procedures and interconnection requirements and overseeing grid access and operation.

Policy Statement and Order Regarding Demand Response Programs. The PUC provided guidance concerning the objectives and goals for demand response programs, and ordered the Utilities to develop within 90 days an integrated Demand Response Portfolio Plan that will enhance system operations and reduce costs to customers. The Utilities’ Plan was filed in July 2014. In August 2014, the PUC invited public comment on the Utilities’ Plan. The Utilities submitted a status update in October 2014, and a second status update was filed with the PUC in March 2015.

Maui Electric Company 2012 Test Year Rate Case. The PUC acknowledged the extensive analyses provided by Maui Electric in its System Improvement and Curtailment Reduction Plan (SICRP) filed in September 2013. The PUC stated that it is encouraged by the changes in Maui Electric’s operations that have led to a significant reduction in the curtailment of renewables, but stated that Maui Electric has not set forth a clearly defined path that addresses integration and curtailment of additional renewables. The PUC directed Maui Electric to present a PSIP within 120 days to address present and future system operations so as to not only reduce curtailment, but to optimize the operation of its system for its customers’ benefit. The Maui Electric PSIP was filed in August 2014, and will be reviewed by the PUC in a new docket along with the Hawaiian Electric and Hawaii Electric Light PSIPs. Maui Electric filed its first annual SICRP status update in September 2014.

Review of PSIPs. Collectively, the PUC’s April 2014 resource planning orders confirm the energy policy and operational priorities that will guide the Utilities’ strategies and plans going forward.

PSIPs for Hawaiian Electric, Maui Electric and Hawaii Electric Light (updating its Power Supply Plan filed in April 2014) were filed in August 2014. The PSIPs each include a tactical plan to transform how electric utility services will be offered to meet customer needs and produce higher levels of renewable energy. Each plan contains a diversified mix of technologies, including significant distributed and utility‑scale renewable resources, that is expected to result, on a consolidated basis, in over 65% of the Utilities’ energy being produced from renewable resources by 2030. Under these plans, the Utilities will support sustainable growth of rooftop solar, expand use of energy storage systems, empower customers by developing smart grids, offer new products and services to customers (e.g., community solar, microgrids and voluntary “demand response” programs), switch from high-priced oil to lower cost liquefied natural gas, retire higher-cost, less efficient existing oil-based steam generators, and lower full service residential customer bills in real dollars.

The PSIPs will be reviewed by the PUC in a new docket, and a number of parties have moved to intervene in the proceeding. In September 2014, the PUC invited the public to comment on the PSIPs. In October 2014, the Utilities filed responses to information requests on the PSIPs from the PUC.

Transitional Distributed Generation Tariff. Consistent with their Distributed Generation Interconnection Plan, on January 20, 2015, the Utilities filed a motion which requested the PUC in pertinent part to:

(1) Reinstitute a program capacity threshold for the Utilities' existing Net Energy Metering (NEM) program;

(2) Approve the Utilities’ proposal to address both existing NEM program participants and those customers presently awaiting interconnection approval under the existing NEM program;

(3) Approve a new Transitional Distributed Generation (TDG) tariff to be available to customers seeking interconnection after the NEM program capacity is reached, which tariff more fairly allocates fixed grid costs to DG customers and credits customers for the value of the excess energy produced by their systems; and

(4) Approve a new standard form TDG contract to allow for the advanced technical capabilities required to integrate higher levels of distributed generation.

Once the requests in the motion are approved, it is contemplated that the Utilities will be able to increase existing circuit penetration limits based upon daytime minimum load, and identify strategic and cost effective investments to circuits and the system to support increased levels of DG. Such investments would be made for the benefit of all customers rather than charging costs only to those installing DG systems on the circuit.

The Utilities had requested approval of their motion within 60 days of filing or by March 20, 2015. However, pursuant to the PUC order described in the following section, the PUC declined to rule on this request.

Distributed Energy Resources (DER) Investigative Proceeding. Consistent with the PUC’s plan to review the technical, economic and policy issues associated with distributed energy resources as noted in the Reliability Standards Working Group order, in March 2015, the PUC issued an order to address DER issues. The PUC order:


(1)	Allowed intervention to ten parties in the proceeding,


(2)	Consolidated portions of two other proceedings related to rules on interconnection of distributed generating facilities with the Utilities system,


(3)	Declined to rule on distributed generation interconnection plan filed in August 2014 as a result of the Reliability Standards Working Group order,


(4)	Declined to rule on Utilities’ TDG motion, filed on January 20, 2015, and instead, directed the parties to collaborate on a “Transition Plan” from existing DER programs, including NEM, to a longer-term DER market structure;


(5)	Ordered the parties to collaborate on issues through a series of bi-weekly technical sessions;


(6)	Issued a Statement of Issues and a Procedural Schedule for the docket that directs the parties to file stipulations on areas of agreement, or separate statements of positions on issues where agreement cannot be reached, by June 29, 2015; and


(7)	Ordered the Utilities to submit weekly reports documenting progress on clearing interconnection applications, and monthly reports on the status of key technical developments to enable DER market growth.

In addition, the PUC provided further clarifications and guidance from their Staff’s perspective on important issues relating to the growth of DER in the State.

Management cannot predict the outcome of the proceedings to review the Plans submitted in response to the PUC’s April 2014 resource planning orders, or the ultimate impact of the proceedings on the results of operations of the Utilities.

Consolidating financial information. Hawaiian Electric is not required to provide separate financial statements or other disclosures concerning Hawaii Electric Light and Maui Electric to holders of the 2004 Debentures issued by Hawaii Electric Light and Maui Electric to Trust III since all of their voting capital stock is owned, and their obligations with respect to these securities have been fully and unconditionally guaranteed, on a subordinated basis, by Hawaiian Electric. Consolidating information is provided below for Hawaiian Electric and each of its subsidiaries for the periods ended and as of the dates indicated.

Hawaiian Electric also 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, (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder and (c) relating to the trust preferred securities of Trust III. 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.Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (unaudited)

Three months ended March 31, 2015



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	399,741		88,055		85,674		—	(28	)	$	573,442
Expenses
Fuel oil	118,403			23,385		35,018		—	—		176,806
Purchased power	103,250			21,893		10,864		—	—		136,007
Other operation and maintenance	70,084			16,399		17,519		—	—		104,002
Depreciation	29,389			9,313		5,541		—	—		44,243
Taxes, other than income taxes	38,201			8,384		8,163		—	—		54,748
Total expenses	359,327			79,374		77,105		—	—		515,806
Operating income	40,414			8,681		8,569		—	(28	)	57,636
Allowance for equity funds used during construction	1,123			145		145		—	—		1,413
Equity in earnings of subsidiaries	7,692			—		—		—	(7,692	)	—
Interest expense and other charges, net	(11,238		)	(2,680	)	(2,435	)	—	28		(16,325		)
Allowance for borrowed funds used during construction	388			53		58		—	—		499
Income before income taxes	38,379			6,199		6,337		—	(7,692	)	43,223
Income taxes	11,235			2,277		2,338		—	—		15,850
Net income	27,144			3,922		3,999		—	(7,692	)	27,373
Preferred stock dividends of subsidiaries	—			134		95		—	—		229
Net income attributable to Hawaiian Electric	27,144			3,788		3,904		—	(7,692	)	27,144
Preferred stock dividends of Hawaiian Electric	270			—		—		—	—		270
Net income for common stock	$	26,874		3,788		3,904		—	(7,692	)	$	26,874

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (unaudited)

Three months ended March 31, 2015



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	26,874		3,788		3,904		—	(7,692	)	$	26,874
Other comprehensive income, net of taxes:
Retirement benefit plans:
Less: amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	4,933			651		600		—	(1,251	)	4,933
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(4,911		)	(651	)	(600	)	—	1,251		(4,911		)
Other comprehensive income, net of taxes	22			—		—		—	—		22
Comprehensive income attributable to common shareholder	$	26,896		3,788		3,904		—	(7,692	)	$	26,896

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (unaudited)

Three months ended March 31, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	512,455		104,931		102,693		—	(17	)	$	720,062
Expenses
Fuel oil	203,547			31,500		51,253		—	—		286,300
Purchased power	123,969			29,491		11,456		—	—		164,916
Other operation and maintenance	58,515			14,047		16,044		—	—		88,606
Depreciation	27,301			8,975		5,327		—	—		41,603
Taxes, other than income taxes	48,184			9,763		10,024		—	—		67,971
Total expenses	461,516			93,776		94,104		—	—		649,396
Operating income	50,939			11,155		8,589		—	(17	)	70,666
Allowance for equity funds used during construction	1,472			65		72		—	—		1,609
Equity in earnings of subsidiaries	8,917			—		—		—	(8,917	)	—
Interest expense and other charges, net	(10,487		)	(2,748	)	(2,505	)	—	17		(15,723		)
Allowance for borrowed funds used during construction	559			25		30		—	—		614
Income before income taxes	51,400			8,497		6,186		—	(8,917	)	57,166
Income taxes	15,710			3,202		2,335		—	—		21,247
Net income	35,690			5,295		3,851		—	(8,917	)	35,919
Preferred stock dividends of subsidiaries	—			134		95		—	—		229
Net income attributable to Hawaiian Electric	35,690			5,161		3,756		—	(8,917	)	35,690
Preferred stock dividends of Hawaiian Electric	270			—		—		—	—		270
Net income for common stock	$	35,420		5,161		3,756		—	(8,917	)	$	35,420

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (unaudited)

Three months ended March 31, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	35,420		5,161		3,756		—	(8,917	)	$	35,420
Other comprehensive income, net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	2,519			344		253		—	(597	)	2,519
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(2,510		)	(344	)	(253	)	—	597		(2,510		)
Other comprehensive income, net of taxes	9			—		—		—	—		9
Comprehensive income attributable to common shareholder	$	35,429		5,161		3,756		—	(8,917	)	$	35,429

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Balance Sheet (unaudited)

March 31, 2015



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consoli- dating adjustments		Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	43,542		5,464		3,016		—	—		$	52,022
Plant and equipment	3,826,826			1,182,567		1,057,130		—	—		6,066,523
Less accumulated depreciation	(1,256,950		)	(478,692	)	(453,448	)	—	—		(2,189,090		)
Construction in progress	135,984			14,947		13,920		—	—		164,851
Utility property, plant and equipment, net	2,749,402			724,286		620,618		—	—		4,094,306
Nonutility property, plant and equipment, less accumulated depreciation	4,949			82		1,531		—	—		6,562
Total property, plant and equipment, net	2,754,351			724,368		622,149		—	—		4,100,868
Investment in wholly owned subsidiaries, at equity	540,032			—		—		—	(540,032	)	—
Current assets
Cash and cash equivalents	5,484			1,654		881		101	—		8,120
Advances to affiliates	12,600			—		—		—	(12,600	)	—
Customer accounts receivable, net	86,157			21,485		17,353		—	—		124,995
Accrued unbilled revenues, net	81,346			14,500		13,648		—	—		109,494
Other accounts receivable, net	13,582			1,571		3,285		—	(9,770	)	8,668
Fuel oil stock, at average cost	65,861			7,983		11,471		—	—		85,315
Materials and supplies, at average cost	34,269			6,589		17,749		—	—		58,607
Prepayments and other	31,970			230		12,534		—	(1,379	)	43,355
Regulatory assets	85,353			9,359		8,033		—	—		102,745
Total current assets	416,622			63,371		84,954		101	(23,749	)	541,299
Other long-term assets
Regulatory assets	598,535			104,663		99,749		—	(103	)	802,844
Unamortized debt expense	5,621			1,396		1,199		—	—		8,216
Other	53,370			15,689		13,214		—	—		82,273
Total other long-term assets	657,526			121,748		114,162		—	(103	)	893,333
Total assets	$	4,368,531		909,487		821,265		101	(563,884	)	$	5,535,500
Capitalization and liabilities
Capitalization
Common stock equity	$	1,686,434		283,129		256,802		101	(540,032	)	$	1,686,434
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	830,546			190,000		186,000		—	—		1,206,546
Total capitalization	2,539,273			480,129		447,802		101	(540,032	)	2,927,273
Current liabilities
Current portion of long-term debt	—			—		—		—	—		—
Short-term borrowings from non-affiliates	30,000			—		—		—	—		30,000
Short-term borrowings from affiliate	—			10,000		2,600		—	(12,600	)	—
Accounts payable	106,975			14,988		16,546		—	—		138,509
Interest and preferred dividends payable	16,678			3,560		4,029		—	(10	)	24,257
Taxes accrued	126,742			30,060		27,449		—	(1,379	)	182,872
Regulatory liabilities	681			—		493		—	—		1,174
Other	49,389			10,126		16,234		—	(9,760	)	65,989
Total current liabilities	330,465			68,734		67,351		—	(23,749	)	442,801
Deferred credits and other liabilities
Deferred income taxes	423,151			89,923		83,910		—	—		596,984
Regulatory liabilities	240,749			79,504		30,388		—	(103	)	350,538
Unamortized tax credits	52,093			15,096		14,848		—	—		82,037
Defined benefit pension and other postretirement benefit plans liability	443,249			68,989		74,927			—		587,165
Other	48,044			12,664		13,609		—	—		74,317
Total deferred credits and other liabilities	1,207,286			266,176		217,682		—	(103	)	1,691,041
Contributions in aid of construction	291,507			94,448		88,430		—	—		474,385
Total capitalization and liabilities	$	4,368,531		909,487		821,265		101	(563,884	)	$	5,535,500

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Balance Sheet (unaudited)

December 31, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consoli- dating adjustments		Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	43,819		5,464		3,016		—	—		$	52,299
Plant and equipment	3,782,438			1,179,032		1,048,012		—	—		6,009,482
Less accumulated depreciation	(1,253,866		)	(473,933	)	(447,711	)	—	—		(2,175,510		)
Construction in progress	134,376			12,421		11,819		—	—		158,616
Utility property, plant and equipment, net	2,706,767			722,984		615,136		—	—		4,044,887
Nonutility property, plant and equipment, less accumulated depreciation	4,950			82		1,531		—	—		6,563
Total property, plant and equipment, net	2,711,717			723,066		616,667		—	—		4,051,450
Investment in wholly owned subsidiaries, at equity	538,639			—		—		—	(538,639	)	—
Current assets
Cash and cash equivalents	12,416			612		633		101	—		13,762
Advances to affiliates	16,100			—		—		—	(16,100	)	—
Customer accounts receivable, net	111,462			24,222		22,800		—	—		158,484
Accrued unbilled revenues, net	103,072			15,926		18,376		—	—		137,374
Other accounts receivable, net	9,980			981		2,246		—	(8,924	)	4,283
Fuel oil stock, at average cost	74,515			13,800		17,731		—	—		106,046
Materials and supplies, at average cost	33,154			6,664		17,432		—	—		57,250
Prepayments and other	44,680			8,611		13,567		—	(475	)	66,383
Regulatory assets	58,550			6,745		6,126		—	—		71,421
Total current assets	463,929			77,561		98,911		101	(25,499	)	615,003
Other long-term assets
Regulatory assets	623,784			107,454		102,788		—	(183	)	833,843
Unamortized debt expense	5,640			1,438		1,245		—	—		8,323
Other	53,106			15,366		13,366		—	—		81,838
Total other long-term assets	682,530			124,258		117,399		—	(183	)	924,004
Total assets	$	4,396,815		924,885		832,977		101	(564,321	)	$	5,590,457
Capitalization and liabilities
Capitalization
Common stock equity	$	1,682,144		281,846		256,692		101	(538,639	)	$	1,682,144
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	830,546			190,000		186,000		—	—		1,206,546
Total capitalization	2,534,983			478,846		447,692		101	(538,639	)	2,922,983
Current liabilities
Short-term borrowings from affiliate	—			10,500		5,600		—	(16,100	)	—
Accounts payable	122,433			23,728		17,773		—	—		163,934
Interest and preferred dividends payable	15,407			3,989		2,931		—	(11	)	22,316
Taxes accrued	176,339			37,548		36,807		—	(292	)	250,402
Regulatory liabilities	191			—		441		—	—		632
Other	48,282			9,866		16,094		—	(9,096	)	65,146
Total current liabilities	362,652			85,631		79,646		—	(25,499	)	502,430
Deferred credits and other liabilities
Deferred income taxes	429,515			90,119		83,238		—	—		602,872
Regulatory liabilities	236,727			77,707		29,966		—	(183	)	344,217
Unamortized tax credits	49,865			14,902		14,725		—	—		79,492
Defined benefit pension and other postretirement benefit plans liability	446,888			72,547		75,960		—	—		595,395
Other	52,446			10,658		13,532		—	—		76,636
Total deferred credits and other liabilities	1,215,441			265,933		217,421		—	(183	)	1,698,612
Contributions in aid of construction	283,739			94,475		88,218		—	—		466,432
Total capitalization and liabilities	$	4,396,815		924,885		832,977		101	(564,321	)	$	5,590,457

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Changes in Common Stock Equity (unaudited)

Three months ended March 31, 2015



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2014	$	1,682,144		281,846		256,692		101	(538,639	)	$	1,682,144
Net income for common stock	26,874			3,788		3,904		—	(7,692	)	26,874
Other comprehensive income, net of taxes	22			—		—		—	—		22
Common stock dividends	(22,601		)	(2,505	)	(3,794	)	—	6,299		(22,601		)
Common stock issuance expenses	(5		)	—		—		—	—		(5		)
Balance, March 31, 2015	$	1,686,434		283,129		256,802		101	(540,032	)	$	1,686,434

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Changes in Common Stock Equity (unaudited)

Three months ended March 31, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2013	$	1,593,564		274,802		248,771		101	(523,674	)	$	1,593,564
Net income for common stock	35,420			5,161		3,756		—	(8,917	)	35,420
Other comprehensive income, net of taxes	9			—		—		—	—		9
Common stock dividends	(22,707		)	(2,941	)	(3,629	)	—	6,570		(22,707		)
Common stock issuance expenses	(3		)	—		(1	)	—	1		(3		)
Balance, March 31, 2014	$	1,606,283		277,022		248,897		101	(526,020	)	$	1,606,283

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Cash Flows (unaudited)

Three months ended March 31, 2015



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Cash flows from operating activities
Net income	$	27,144		3,922		3,999		—	(7,692	)	$	27,373
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of subsidiaries	(7,717		)	—		—		—	7,692		(25		)
Common stock dividends received from subsidiaries	6,324			—		—		—	(6,299	)	25
Depreciation of property, plant and equipment	29,389			9,313		5,541		—	—		44,243
Other amortization	590			500		(401	)	—	—		689
Increase in deferred income taxes	12,048			719		2,365		—	—		15,132
Change in tax credits, net	2,246			200		130		—	—		2,576
Allowance for equity funds used during construction	(1,123		)	(145	)	(145	)	—	—		(1,413		)
Change in cash overdraft	—			—		—		—	—		—
Changes in assets and liabilities:
Increase in accounts receivable	21,703			2,147		4,408		—	846		29,104
Decrease in accrued unbilled revenues	21,726			1,426		4,728		—	—		27,880
Decrease in fuel oil stock	8,654			5,817		6,260		—	—		20,731
Decrease (increase) in materials and supplies	(1,115		)	75		(317	)	—	—		(1,357		)
Increase in regulatory assets	(8,903		)	(1,522	)	(402	)	—	—		(10,827		)
Decrease in accounts payable	(35,128		)	(9,892	)	(4,116	)	—	—		(49,136		)
Change in prepaid and accrued income and utility revenue taxes	(52,273		)	(1,807	)	(9,616	)	—	—		(63,696		)
Increase in defined benefit pension and other postretirement benefit plans liability	—			—		110		—	—		110
Change in other assets and liabilities	(8,439		)	229		534		—	(846	)	(8,522		)
Net cash provided by operating activities	15,126			10,982		13,078		—	(6,299	)	32,887
Cash flows from investing activities
Capital expenditures	(40,594		)	(7,558	)	(6,206	)	—	—		(54,358		)
Contributions in aid of construction	8,121			758		266		—	—		9,145
Advances from affiliates	3,500			—		—		—	(3,500	)	—
Net cash used in investing activities	(28,973		)	(6,800	)	(5,940	)	—	(3,500	)	(45,213		)
Cash flows from financing activities
Common stock dividends	(22,601		)	(2,505	)	(3,794	)	—	6,299		(22,601		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(270		)	(134	)	(95	)	—	—		(499		)
Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	30,000			(500	)	(3,000	)	—	3,500		30,000
Other	(214		)	(1	)	(1	)	—	—		(216		)
Net cash provided by (used in) financing activities	6,915			(3,140	)	(6,890	)	—	9,799		6,684
Net increase (decrease) in cash and cash equivalents	(6,932		)	1,042		248		—	—		(5,642		)
Cash and cash equivalents, beginning of period	12,416			612		633		101	—		13,762
Cash and cash equivalents, end of period	$	5,484		1,654		881		101	—		$	8,120

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Cash Flows (unaudited)

Three months ended March 31, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Cash flows from operating activities
Net income	$	35,690		5,295		3,851		—	(8,917	)	$	35,919
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries	(8,942		)	—		—		—	8,917		(25		)
Common stock dividends received from subsidiaries	6,595			—		—		—	(6,570	)	25
Depreciation of property, plant and equipment	27,301			8,975		5,327		—	—		41,603
Other amortization	235			501		885		—	—		1,621
Increase in deferred income taxes	17,123			862		2,359		—	—		20,344
Change in tax credits, net	1,741			217		74		—	—		2,032
Allowance for equity funds used during construction	(1,472		)	(65	)	(72	)	—	—		(1,609		)
Change in cash overdraft	—			—		(1,038	)	—	—		(1,038		)
Changes in assets and liabilities:
Decrease in accounts receivable	4,131			2,029		2,194		—	450		8,804
Decrease (increase) in accrued unbilled revenues	11,031			(230	)	1,459		—	—		12,260
Decrease (increase) in fuel oil stock	(35,060		)	1,166		(366	)	—	—		(34,260		)
Increase in materials and supplies	(330		)	(387	)	(328	)	—	—		(1,045		)
Increase in regulatory assets	(8,188		)	(881	)	(189	)	—	—		(9,258		)
Decrease in accounts payable	(837		)	(6,032	)	(9,155	)	—	—		(16,024		)
Change in prepaid and accrued income and utility revenue taxes	(39,581		)	(2,791	)	(5,154	)	—	—		(47,526		)
Decrease in defined benefit pension and other postretirement benefit plans liability	(103		)	—		(102	)	—	—		(205		)
Change in other assets and liabilities	(10,874		)	1,041		(698	)	—	(450	)	(10,981		)
Net cash provided by (used in) operating activities	(1,540		)	9,700		(953	)	—	(6,570	)	637
Cash flows from investing activities
Capital expenditures	(49,432		)	(7,530	)	(7,500	)	—	—		(64,462		)
Contributions in aid of construction	4,541			1,121		1,296		—	—		6,958
Advances from (to) affiliates	(12,661		)	900		—		—	11,761		—
Net cash used in investing activities	(57,552		)	(5,509	)	(6,204	)	—	11,761		(57,504		)
Cash flows from financing activities
Common stock dividends	(22,707		)	(2,941	)	(3,629	)	—	6,570		(22,707		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(270		)	(134	)	(95	)	—	—		(499		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	34,096			—		12,661		—	(11,761	)	34,996
Other	(320		)	—		(69	)	—	—		(389		)
Net cash provided by (used in) financing activities	10,799			(3,075	)	8,868		—	(5,191	)	11,401
Net increase (decrease) in cash and cash equivalents	(48,293		)	1,116		1,711		—	—		(45,466		)
Cash and cash equivalents, beginning of period	61,245			1,326		153		101	—		62,825
Cash and cash equivalents, end of period	$	12,952		2,442		1,864		101	—		$	17,359