Electric utility segment

12 Months Ended

Dec. 31, 2018

Electric utility subsidiary

Electric utility segment

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, 2018 are noted.

Regulatory assets were as follows:

December 31	2018		2017
(in thousands)
Retirement benefit plans (balance primarily varies with plans’ funded statuses)	$	624,126	$	637,204
Income taxes (1-55 years)	114,076		118,201
Decoupling revenue balancing account and RAM regulatory asset (1-2 years)	49,560		64,087
Unamortized expense and premiums on retired debt and equity issuances (19-30 years; 6-18 years remaining)	10,065		11,993
Vacation earned, but not yet taken (1 year)	10,820		11,224
Other (1-50 years; 1-46 years remaining)	24,779		26,588
	$	833,426	$	869,297
Included in:
Current assets	$	71,016	$	88,390
Long-term assets	762,410		780,907
	$	833,426	$	869,297

Regulatory liabilities were as follows:

December 31	2018		2017
(in thousands)
Cost of removal in excess of salvage value (1-60 years)	$	491,006	$	453,986
Income taxes (1-55 years)	413,339		406,324
Retirement benefit plans (5 years beginning with respective utility’s next rate case)	9,546		9,961
Other (5 years; 1-2 years remaining)	36,345		10,499
	$	950,236	$	880,770
Included in:
Current liabilities	$	17,977	$	3,401
Long-term liabilities	932,259		877,369
	$	950,236	$	880,770

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 9).

Major customers.  The Utilities received 11% ($273 million), 11% ($239 million) and 11% ($226 million) of their operating revenues from the sale of electricity to various federal government agencies in 2018, 2017 and 2016, respectively.

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, 2018	Voluntary liquidation  price		Redemption price
Series
C, D, E, H, J and K (Hawaiian Electric)	$	20	$	21
I (Hawaiian Electric)	20		20
G (Hawaii Electric Light)	100		100
H (Maui Electric)	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 $5.9 million, $6.2 million and $6.5 million for general management and administrative services in 2018, 2017 and 2016, respectively. The amounts charged by HEI to its subsidiaries for services provided by HEI employees are allocated primarily on the basis of time expended in providing such services.

For the year ended December 31, 2018 and from the period November 24, 2017 to December 31, 2017, Hamakua Energy, LLC (an indirect subsidiary of HEI) sold energy and capacity to Hawaii Electric Light (subsidiary of Hawaiian Electric and indirect subsidiary of HEI) under a PPA in the amount of $56 million and $3 million, respectively.

Hawaiian Electric’s short-term borrowings from HEI totaled nil at December 31, 2018 and 2017. The interest charged on short-term borrowings from HEI is based on the lower of HEI’s or Hawaiian Electric’s effective weighted average short-term external borrowing rate. If both HEI and Hawaiian Electric do not have short-term external borrowings, the interest is based on the average of the effective rate for 30-day dealer-placed commercial paper quoted by the Wall Street Journal plus 0.15%.

Borrowings among the Utilities are eliminated in consolidation. Interest charged by HEI to Hawaiian Electric was not material for the years ended December 31, 2018 and 2017.

HECO Capital Trust III. Trust III, a wholly-owned unconsolidated subsidiary of Hawaiian Electric, was created and exists for the exclusive purposes of (i) issuing in March 2004 2,000,0006.50% 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’s balance sheet as of December 31, 2018 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 statement for 2018 consisted of $3.4 million of interest income received from the 2004 Debentures; $3.3 million of distributions to holders of the Trust Preferred Securities; and $0.1 million 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.

Unconsolidated variable interest entities.

Power purchase agreements.  As of December 31, 2018, the Utilities had four PPAs for firm capacity (as PGV has been offline since May 2018 due to lava flow on Hawaii Island) and other PPAs with 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 is 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 the predecessor of 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 the predecessor of 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 the predecessor of Hamakua Energy in its consolidated financial statements. In November 2017, HEI acquired the Hamakua project through Hamakua Energy, an indirect subsidiary of Pacific Current, and has consolidated it in HEI’s consolidated financial statements since the date of the acquisition.

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. Two IPPs of as-available energy declined to provide the information necessary for Utilities to determine the applicability of accounting standards for VIEs.

If information is ultimately received from the IPPs, a possible outcome of future analyses of such information is the consolidation of one or both of such IPPs in the Consolidated Financial Statements. The consolidation of any significant IPP could have a material effect on the Consolidated Financial Statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs to the IPP.

Commitments and contingencies.

Fuel contracts.  The Utilities have fuel supply contracts with Island Energy Services, LLC (IES), for low sulfur fuel oil (LSFO), diesel, industrial fuel oil (IFO), and ultra-low sulfur diesel (ULSD), through December 31, 2019. On January 21, 2019, the Utilities and PAR Hawaii Refining, LLC, a Hawaii corporation (PAR), entered into a fuel supply contract for the Utilities' LSFO, high sulfur fuel oil (HSFO), No. 2 diesel (Diesel), and ULSD requirements (Contract), which is effective upon approval by the PUC and terminates on December 31, 2022. This Contract will supply all LSFO, HSFO, Diesel and ULSD for the islands of Oahu, Maui, Molokai and Hawaii. If PAR is unable to provide LSFO, HSFO, Diesel and/or ULSD the Contract allows the Utilities to purchase LSFO, HSFO, Diesel and/or ULSD from another supplier. The Contract will automatically renew upon the conclusion of the original term for successive terms of 1 year beginning on January 1, 2023 unless a party gives written termination notice at least 120 days before the beginning of an extension.

The Contract is subject to approval of the PUC, and can be terminated by either party if approval is not received by January 22, 2020 or if the Utilities’ request for PUC approval is denied. If PUC approves the Contract prior to December 31, 2019, the existing fuel contracts with IES will terminate as agreed with IES under a mutual termination and release agreement entered into on November 28, 2018.

All of the costs incurred under the fuel supply contracts with IES are included in the Utilities’ respective ECAC/ECRCs to the extent such costs are not recovered through the base rates, and the costs incurred under the contract with PAR are requested to be recovered in the Utilities’ respective ECAC/ECRCs to the extent such costs are not recovered through base rates.

Based on the purchase price per barrel as of December 31, 2018, the estimated cost of minimum purchases under the fuel supply contracts is $140 million in 2019. The actual cost of purchases in 2019 could vary substantially from this estimate of minimum purchases as a result of changes in market prices, quantities actually purchased, entry into new supply contracts and/or other factors. The Utilities purchased $0.7 billion, $0.6 billion and $0.4 billion of fuel under contractual agreements in 2018, 2017 and 2016, respectively.

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.

Interim increases. For the year ended December 31, 2018, the Utilities recognized $10 million of revenues with respect to the Maui Electric 2018 rate case interim order. Such amounts recorded are subject to refund, with interest, if they exceed amounts in a final order. 

Power purchase agreements.  Purchases from all IPPs were as follows: 

Years ended December 31	2018		2017		2016
(in millions)
Kalaeloa	$	216	$	180	$	152
AES Hawaii	140		140		149
HPOWER	69		67		71
Puna Geothermal Venture	15		38		28
Hamakua Energy	56		35		29
Hawaiian Commercial & Sugar	—		—		1
Wind IPPs	107		97		113
Solar IPPs	29		27		15
Other IPPs1	7		3		5
Total IPPs	$	639	$	587	$	563

¹ Includes hydro power and other PPAs

As of December 31, 2018, the Utilities had four firm capacity PPAs for a total of 516.5 megawatts (MW) of firm capacity. Since May 2018, PGV facility with 34.6 MW of firm capacity has been offline due to lava flow on Hawaii Island. The PUC allows rate recovery for energy and firm capacity payments to IPPs under these agreements. Assuming that each of the agreements remains in place for its current term (and as amended) and the minimum availability criteria in the PPAs are met, aggregate minimum fixed capacity charges are expected to be approximately $0.1 billion per year for 2019 through 2023 and a total of $0.3 billion in the period from 2024 through 2048.

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 ECAC/ECRC in their rate schedules. The Utilities do not operate, or participate in the operation of, any of the facilities that provide power under the agreements. Title to the facilities does not pass to Hawaiian Electric or its subsidiaries upon expiration of the agreements, and the agreements do not contain bargain purchase options for the facilities.

Purchase power adjustment clause. The PUC has approved purchased power adjustment clauses (PPACs) for the Utilities. Purchased power capacity, O&M and other non-energy costs previously recovered through base rates are now recovered in the PPACs and, subject to approval by the PUC, such costs resulting from new purchased power agreements can be added to the PPACs outside of a rate case. Purchased energy costs continue to be recovered through the ECAC/ECRC to the extent they are not recovered through base rates.

AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amendment No. 2) for a period of 30 years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. In August 2012, Hawaiian Electric filed an application with the PUC seeking an exemption from the PUC’s Competitive Bidding Framework to negotiate an amendment to the PPA to purchase 186 MW of firm capacity, and amend the energy pricing formula in the PPA. The PUC approved the exemption in April 2013, but Hawaiian Electric and AES Hawaii were not able to reach agreement on the amendment. In June 2015, AES Hawaii filed an arbitration demand regarding a dispute about whether Hawaiian Electric was obligated to buy up to 9 MW of additional capacity based on a 1992 letter. Hawaiian Electric responded to the arbitration demand and in October 2015, AES Hawaii and Hawaiian Electric entered into a settlement agreement to stay the arbitration proceeding. The settlement agreement included certain conditions precedent which, if satisfied, would have released the parties from the claims under the arbitration proceeding. Among the conditions precedent was the successful negotiation and PUC approval of an amendment to the existing PPA.

In February 2018, Hawaiian Electric reached agreement with AES Hawaii on Amendment No. 4. However, in June 2018, the PUC issued an order suspending the Amendment No. 4 docket pending a DOH decision on AES’ request for approval of its Emission Reduction Plan and partnership with Hawaiian Electric. If approved by the PUC, Amendment No. 4 will resolve AES Hawaii’s claims.

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 Bioenergy, LLC (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 delays, failed to meet its obligations under the PPA and failed to provide adequate assurances that it could perform or had the financial means to perform. Hawaii Electric Light terminated the PPA on March 1, 2016. On November 30, 2016, Hu Honua filed a civil complaint in the United States District Court for the District of Hawaii that included claims purportedly arising out of the termination of Hu Honua’s PPA. On May 26, 2017, Hawaii Electric Light and Hu Honua entered into a settlement agreement that will settle all claims related to the termination of the original PPA. The settlement agreement was contingent on the PUC’s approval of an amended and restated PPA between Hawaii Electric Light and Hu Honua dated May 5, 2017. In July 2017, the PUC approved the amended and restated PPA, which becomes effective once the PUC’s order is final and non-appealable. On August 25, 2017, the PUC’s approval was appealed by a third party. The appeal is still pending. Hu Honua expects to be ready to be on-line by the end of March 2019.

Utility projects.  Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, or if PUC-imposed caps on project costs are expected to be exceeded, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.

Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) implementation project. On August 11, 2016, the PUC approved the Utilities’ request to commence the ERP/EAM implementation project, subject to certain conditions, including a $77.6 million cap on cost recovery as well as a requirement that the Utilities achieve future cost savings consistent with a minimum of $244 million in ERP/EAM project-related benefits to be delivered to customers over the system’s 12-year service life. The decision and order (D&O) approved the deferral of certain project costs and allowed the accrual of allowance for funds used during construction (AFUDC), but limited the AFUDC rate to 1.75%.

The ERP/EAM Implementation Project went live in October 2018. As of December 31, 2018, the Utilities considered the project implementation completed with incurred costs of $77.5 million of which $16.7 million were charged to O&M expenses, $2.6 million relate to capital costs and $58.2 million are deferred costs. In the Hawaiian Electric 2017 rate case, a settlement agreement approved by the PUC included authorization for the deferred project costs to accrue a return at 1.75% after the project went into service and until the deferred project costs are included in rate base, and for amortization of the deferred costs to not begin until the amortization expense is incorporated in rates and the unamortized deferred project costs are included in rate base. As of December 31, 2018, the accrued carrying costs after the project went into service amounted to $0.2 million.

In February 2019, the PUC approved a methodology for passing the benefits of the new ERP/EAM system to customers developed by the Utilities in collaboration with the Consumer Advocate. The minimum of $244 million in customer benefits to be delivered over the 12-year service life is comprised of $141 million in future net O&M expense reductions and $103 million in future cost avoidance related to capital cost and tax cost. The O&M expense reduction commitments will be recognized as regulatory liabilities between rate cases and passed through to customers as reductions in rates in rate cases. The Utilities will file semi-annual reports detailing the O&M expense reduction benefits, capital cost avoidance benefits, and tax avoidance benefits.

Schofield Generating Station Project. In June 2018, Hawaiian Electric placed into service an approximately 50 MW utility-owned and operated firm, renewable and dispatchable generation facility at Schofield Barracks. The project is located on land leased from the U.S. Army under a 35-year lease. PUC orders resulted in a project cost cap of $157.3 million of which capital costs up to $141.6 million (90% of the cost cap) are recoverable through the Major Project Interim Recovery (MPIR) adjustment mechanism. (See “Decoupling” section below for MPIR guidelines and cost recovery discussion.) Project costs incurred as of December 31, 2018 amounted to $144.9 million. Cost recovery of capital costs in excess of $141.6 million is to be addressed in the next general rate case.

West Loch PV Project. In June 2017, the PUC approved the expenditure of funds for Hawaiian Electric to build, own and operate a utility-owned, grid-tied 20-MW (ac) solar facility on property owned by the Department of the Navy, including a proposed project cost cap of $67 million and a performance guarantee to provide energy at 9.56 cents/kWh or less to the system.

In approving the project, the PUC agreed that the project is eligible for recovery of costs offset by related net benefits under the newly-established MPIR adjustment mechanism. (See “Decoupling” section below for MPIR guidelines and cost recovery discussion.) Hawaiian Electric has provided supplemental materials, as requested by the PUC, to support meeting the MPIR guidelines, accompanied by system performance guarantee and cost savings sharing mechanisms. A decision on these matters is pending.

Hawaiian Electric executed a fixed-price Engineering, Procurement, and Construction (EPC) contract for the project on December 6, 2017. The EPC contract includes the cost of the solar panels for the project, which is not subject to modification due to any tariffs that may be imposed under the current photovoltaic (PV) cell and module import tariffs. Construction of the facility began in the second quarter of 2018, and the facility is expected to be placed in service in the second quarter of 2019. Project costs incurred as of December 31, 2018 amounted to $38.6 million.

Hawaiian Telcom. The Utilities each had separate agreements for the joint ownership and maintenance of utility poles with Hawaiian Telcom, Inc. (Hawaiian Telcom), the respective county or counties in which each utility operates and other third parties, such as the State of Hawaii. The agreements set forth various circumstances requiring pole removal/installation/replacement and the sharing of costs among the joint pole owners. The agreements allowed for the cost of work done by one joint pole owner to be shared by the other joint pole owners based on the apportionment of costs in the agreements. The Utilities maintained, replaced and installed the majority of the jointly-owned poles in each of the respective service territories, and billed the other joint pole owners for their respective share of the costs. The counties and the State had been reimbursing the Utilities for their share of the costs. However, Hawaiian Telcom had been delinquent in reimbursing the Utilities for its share of the costs.

Hawaiian Telcom’s delinquency was resolved by new agreements with Hawaiian Telcom approved by the PUC in October 2018. These new agreements provide for the purchase by the Utilities of Hawaiian Telcom’s interest in all the joint poles, and licensing and operating agreements between the Utilities and Hawaiian Telcom subsequent to the transfer of the joint pole interest to the Utilities, and a settlement on the amount Hawaiian Telcom owed the Utilities under the joint ownership and maintenance agreements. The Utilities’ consideration of approximately $48 million for Hawaiian Telcom’s interest in the poles was offset in part by the settlement of the outstanding receivables owed by Hawaiian Telcom to the Utilities of $19.1 million ($12.3 million at Hawaiian Electric, $5.5 million at Hawaii Electric Light, and $1.3 million at Maui Electric). The remaining consideration for acquiring Hawaiian Telcom’s interest in the joint poles will be settled through the set-off of fees for unbilled poles (since the delinquency and dispute were raised) and for attachment fees and license fees for 2018, and future license fees due from Hawaiian Telcom, after which Hawaiian Telcom will make cash payments for license fees under the agreement.

Environmental regulation.  The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances.

Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.

Former Molokai Electric Company generation site.  In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The EPA has since identified environmental impacts in the subsurface soil at the Site. Although Maui Electric never operated at the Site or owned the Site property, after 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 environmental contamination. 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. Maui Electric has a reserve balance of $2.7 million as of December 31, 2018, representing the probable and reasonably estimable cost to complete 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.

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. The Navy has completed a remedial investigation and a feasibility study (FS) for the remediation of contaminated sediment at several locations in Pearl Harbor and issued its Final FS Report on June 29, 2015. The Navy released the Proposed Plan on February 2, 2016 and the Record of Decision on September 26, 2018 for the Pearl Harbor Sediment Remediation. In the Record of Decision the Navy refined its estimate for the costs of remediation for the site to be $3.4 million.

On March 23, 2015, Hawaiian Electric received a letter from the EPA requesting that Hawaiian Electric submit a work plan to assess potential sources and extent of PCB contamination onshore at the Waiau Power Plant. Onshore sampling at the Waiau Power Plant was completed in two phases in December 2015 and June 2016. Appropriate remedial measures are being developed to address the extent of the onshore contamination, and any associated costs have not yet been determined.

As of December 31, 2018, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $4.8 million. The reserve balance represents the estimable cost for the onshore investigation and the remediation of PCB contamination in the offshore sediment. The final remediation costs will depend on the assessment of potential source control requirements for onshore sediment and actual offshore cleanup costs.

Asset retirement obligations. AROs represent legal obligations associated with the retirement of certain tangible long-lived assets, are measured as the present value of the projected costs for the future retirement of specific assets and are recognized in the period in which the liability is incurred if a reasonable estimate of fair value can be made. The Utilities’ recognition of AROs have no impact on their earnings. The cost of the AROs is recovered over the life of the asset through depreciation. AROs recognized by the Utilities relate to legal obligations associated with the retirement of plant and equipment, including removal of asbestos and other hazardous materials.

The Utilities recorded AROs related to the removal of retired generating units at Hawaiian Electric’s Honolulu and Waiau power plants, certain types of transformers and underground storage tanks, and the abandonment of fuel pipelines, underground injection and supply wells. In 2017, for the retired generating unit removal projects, the AROs were reassessed (resulting in a downward revision in estimated cash flows), the removal projects were completed and the AROs were reduced to nil.

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

(in thousands)	2018			2017
Balance, January 1	$	6,035		$	25,589
Accretion expense	282			10
Liabilities incurred	1,058			5,370
Liabilities settled	(74		)	(527		)
Revisions in estimated cash flows	1,125			(24,407		)
Balance, December 31	$	8,426		$	6,035

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 utility financial stability and facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. The decoupling model implemented in Hawaii in 2011, allows the utilities to recover from customers through annual rate adjustments, target test year revenues, independent of the level of kWh sales, which have declined as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. The decoupling mechanism has the following major components: (1) monthly revenue balancing account (RBA) revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kilowatthour sales, (2) rate adjustment mechanism (RAM) revenues for escalation in certain operation and maintenance (O&M) expenses and rate base changes, (3) major project interim recovery component (MPIR), (4) performance incentive mechanisms (PIMs), and (5) an earnings sharing mechanism, which would provide for a reduction of revenues between rate cases in the event the utility exceeds the ROACE allowed in its most recent rate case. Under the decoupling tariff approved in 2011, the prior year accrued RBA revenues (regulatory asset) and the annual RAM amount are billed from June 1 of each year through May 31 of the following year, which is within 24 months following the end of the year in which they are recorded as required by the accounting standard for alternative revenue programs. Under the decoupling mechanism, triennial general rate cases are required.

Rate adjustment mechanism. The RAM is based on the lesser of: a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). Annualized target revenues reset upon the issuance of an interim or final D&O in a rate case.

The RAM Cap impacted the Utilities’ recovery of capital investments as follows:

• Hawaiian Electric’s RAM revenues were limited to the RAM Cap in 2017 and 2018.

• Maui Electric’s RAM revenues in 2017 and 2018 were below the RAM Cap.

• Hawaii Electric Light’s RAM revenues in 2017 and 2018 were below the RAM Cap.

For the RAM years 2014 - 2016, Hawaiian Electric was allowed to record RAM revenue beginning on January 1 and to bill such amounts from June 1 of the applicable year through May 31 of the following year. Subsequent to 2016, Hawaiian Electric reverted to the RAM provisions initially approved in March 2011— i.e., RAM is both accrued and billed from June 1 of each year through May 31 of the following year.

Major project interim recovery. On April 27, 2017, the PUC issued an order that provided guidelines for interim recovery of revenues to support major projects placed in service between general rate cases.

Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $2.5 million), including, but not restricted to, renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case and all costs that are allowed to be recovered through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital projects that are not recovered through the MPIR would be included in the RAM and be subject to the RAM Cap, until the next rate case when the Utilities would request recovery in base rates.

The PUC approved recovery of capital costs under the MPIR for Schofield Generating Station, which increased revenues in July through December 2018 by $3.4 million and will be collected in customer bills beginning in June 2019. On December 14, 2018, the PUC approved recovery of net operation and maintenance costs for the Schofield Generating Station through the MPIR adjustment mechanism, with accrual commencing as of October 1, 2018, which totaled $0.5 million for 2018. In February 2019, Hawaiian Electric submitted an MPIR filing for 2019 (which accrued effective January 1, 2019) that included the 2019 return on project amount (up to the capped amount) in rate base, depreciation and incremental O&M expenses, for collection from June 2020 through May 2021.

Performance incentive mechanisms. The PUC has ordered the following performance incentive mechanisms (PIM).

• Service Quality performance incentives are measured on a calendar-year basis beginning in 2018. The PIM tariff requires the performance targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels for each of the PIMs to be re-determined upon issuance of an interim or final order in a general rate case for each utility.

• Service Reliability Performance measured by System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $6.7 million - for both indices in total for the three utilities).

• Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3% above and below the target. The maximum penalty or incentive is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or incentives of approximately $1.3 million - in total for the three utilities).

• The Utilities accrued $2.1 million in estimated net service quality penalties for 2018, which will be reflected in the 2019 annual decoupling filing and will reduce customer rates in the period June 1, 2019 through May 31, 2020.

• Demand Response measured by the demand response resources acquired in 2018. The award is up to 5% of the aggregate annual contract value for cost-effective demand response capability contracted with aggregators by December 31, 2018. The maximum award is $0.5 million for the three utilities in total and there are no penalties. This incentive applied to one-time performance in 2018 only. No reward is expected for 2018 performance.

• Procurement of low-cost variable renewable resources through the request for proposal process in 2018 measured by comparison of the procurement price to target prices. The incentive is a percentage of the savings determined by comparing procured price to a target of 11.5 cents per kilowatt-hour for renewable projects with storage capability and 9.5 cents per kilowatt-hour for energy-only renewable projects. There are two phases to this incentive. Phase 1 has an incentive of 20% of the savings for purchased power agreements filed by December 31, 2018 and subsequently approved by the PUC, with a cap of $3.5 million for the three utilities in total. Phase 2 has scaled incentives of 15%, 10% and 5% of the savings for purchased power agreements filed in January, February and March 2019, respectively, and subsequently approved by the PUC, with a cap of $3 million for the three utilities in total. There are no penalties. The Utilities submitted seven agreements for PUC approval in December 2018 which may qualify for rewards. Rewards, if qualified, will be accrued when the contract is approved by the PUC.

Annual decoupling filings. The net annual incremental amounts to be collected (refunded) from June 1, 2018 through May 31, 2019 are as follows:

(in millions)	Hawaiian Electric		Hawaii Electric Light		Maui Electric
2018 Annual incremental RAM adjusted revenues*	$	13.8	$	3.4	$	2.0
Annual change in accrued RBA balance as of December 31, 2017 (and associated revenue taxes)	$	6.6	$	0.7	$	3.2
2017 Tax Act Adjustment **	$	—	$	—	$	(2.8	)
Net annual incremental amount to be collected under the tariffs	$	20.4	$	4.1	$	2.4

* The 2018 annual RAM adjusted revenues for Maui Electric terminated on August 23, 2018, the effective date of interim increase tariff rates that were implemented pursuant to the Interim D&O issued in the Maui Electric consolidated 2015 and 2018 rate case.

**    Maui Electric incorporated a $2.8 million adjustment into its 2018 annual decoupling filing to incorporate the impact of the lower corporate income tax rate and the exclusion of the domestic production activities deduction, as a result of the 2017 Tax Cuts and Jobs Act (the Tax Act). Tax adjustments for Hawaiian Electric and Hawaii Electric Light are described in the discussion below of their respective on-going rate cases.

Performance-based regulation proceeding. On April 18, 2018, the PUC issued an order, instituting a proceeding to investigate performance-based regulation (PBR). The PUC intends to provide a forum to collaboratively develop modifications or new components to better align utility and customer interests. The PUC stated that PBR seeks to utilize both revenue adjustment mechanisms and performance mechanisms to more strongly align utilities’ incentives with customer interests.

The order stated that, in general, the PUC is interested in ratemaking elements and/or mechanisms that result in:

• Greater cost control and reduced rate volatility;

• Efficient investment and allocation of resources regardless of classification as capital or operating expense;

• Fair distribution of risks between utilities and customers; and

• Fulfillment of State policy goals.

Through this investigation, the PUC intends to: (1) identify specific areas of utility performance that should be improved; (2) determine appropriate metrics for measuring successful outcomes in those areas; and (3) establish reasonable financial rewards and/or penalties that are sufficient to incent the utility to achieve those outcomes.

The proceeding has two phases. Phase 1 examines the current regulatory framework and identifies those areas of utility performance that are deserving of further focus in Phase 2. The PUC provided staff reports to the parties, held technical workshops and the parties filed briefs on: 1) goals and outcomes and 2) assessment of the existing regulatory framework and 3) metrics. PUC staff issued a Phase 1 proposal, and parties scheduled to file statements of position in March 2019 and reply statements of position in April 2019. PUC order related to Phase 1 will be issued after reply statements of position. Phase 2 will address design and implementation of performance incentive mechanisms, revenue adjustment mechanisms and other regulatory reforms.

Performance-based ratemaking legislation. On April 24, 2018, Act 005, Session Laws 2018 was signed into law, which establishes performance metrics that the PUC shall consider while establishing performance incentives and penalty mechanisms under a performance-based ratemaking model. The law requires that the PUC establish these performance-based ratemaking mechanisms on or before January 1, 2020. The PUC opened a proceeding on April 18, 2018. See “Performance-based regulation proceeding” above.

Most recent rate proceedings.

Hawaiian Electric consolidated 2014 and 2017 test year rate cases. On February 16, 2018, Hawaiian Electric implemented an interim increase of $36 million. On April 13, 2018, Hawaiian Electric implemented an additional interim rate adjustment to adjust rates for the impact of the Tax Act. On June 22, 2018, the PUC issued its Final D&O, approving final rate relief of a $37.7 million increase before the Tax Act impact reduction of $38.3 million, based on an ROACE of 9.5% and an overall rate of return of 7.57%. The PUC indicated that a revised energy cost recovery clause (ECRC) mechanism shall reflect a 98%/2% fossil fuel generation cost risk-sharing split between ratepayers and Hawaiian Electric, with an annual maximum upside/downside capped at $2.5 million for the utility. On December 7, 2018, the PUC approved the ECRC tariff, consistent with the rate case order, with an effective date of January 1, 2019.

Maui Electric consolidated 2015 and 2018 test year rate cases. On August 9, 2018, the PUC approved an interim rate increase based on a stipulated settlement between Maui Electric and the Consumer Advocate of $12.5 million over revenues at current effective rates based on 7.43% rate of return (which incorporates a ROACE of 9.5% and a capital structure that includes a 57% common equity capitalization) on a $462 million rate base, with the depreciation rates approved in July 2018. Interim rates went into effect on August 23, 2018.

Hawaii Electric Light 2016 and 2019 test year rate cases. In August 2017, the PUC issued an order granting an interim rate increase of $9.9 million based on the Stipulated Settlement Letter of Hawaii Electric Light and the Consumer Advocate filed on July 11, 2017 and an ROACE of 9.5% and subject to refund with interest, if it exceeds amounts allowed in a final order. The interim rate increase was implemented on August 31, 2017. On May 1, 2018, Hawaii Electric Light implemented an interim rate reduction of $9.9 million which was primarily to incorporate the effects of the Tax Act. On June 29, 2018, the PUC issued its Final D&O, approving the rates implemented in the interim rate reduction.

On December 14, 2018, Hawaii Electric Light filed an application for a general rate increase for its 2019 test year rate case, requesting an increase of $13.4 million over revenues at current effective rates (for a 3.4% increase in revenues), based on an 8.3% rate of return (which incorporates a ROACE of 10.5%).

Tax Cuts and Jobs Act impact on utility rates. The Utilities began tracking the impact of the Tax Cuts and Jobs Act of 2017 (Tax Act) as of January 1, 2018. Each Utility accrued regulatory liabilities for estimated tax savings from January 1 to the date incorporated in rates. The Tax Act reductions were incorporated in rates as follows:

• Hawaiian Electric (based on the 2017 test year rate case) - effective April 13, 2018.

• Hawaii Electric Light (based on the 2016 test year rate case) - effective May 1, 2018.

• Maui Electric’s rates were adjusted for the Tax Act as follows:

• adjustments for the period January 1, 2018 through May 31, 2018 are in the annual Revenue Balancing Account adjustment, which became effective on June 1, 2018,

• adjustments for the period June 1, 2018 through August 22, 2018 are embedded in the Revenue Balancing Account, which will be incorporated in rates on June 1, 2019, and

• adjustments from August 23, 2018 and thereafter are incorporated in interim rates as a result of the 2018 test year rate case.

See discussion in “Decoupling” section above.

Consolidating financialinformation. 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, which was issued by Hawaii Electric Light and Maui Electric to HECO Capital Trust III (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 (see Hawaiian Electric and Subsidiaries’ Consolidated Statements of Capitalization) and (c) relating to the trust preferred securities of Trust III (see above under unconsolidated variable interest entities). 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.

Consolidating statement of income

Year ended December 31, 2018

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Revenues	$	1,802,550		375,493		368,700		—	(218	)	[1]	$	2,546,525
Expenses
Fuel oil	523,706			90,792		146,030		—	—			760,528
Purchased power	494,450			95,838		49,019		—	—			639,307
Other operation and maintenance	313,346			70,396		77,749		—	—			461,491
Depreciation	137,410			40,235		25,981		—	—			203,626
Taxes, other than income taxes	170,363			34,850		34,699		—	—			239,912
Total expenses	1,639,275			332,111		333,478		—	—			2,304,864
Operating income	163,275			43,382		35,222		—	(218	)		241,661
Allowance for equity funds used during construction	9,208			478		1,191		—	—			10,877
Equity in earnings of subsidiaries	45,393			—		—		—	(45,393	)	[2]	—
Retirement defined benefits expense—other than service costs	(2,649		)	(417	)	(565	)	—	—			(3,631		)
Interest expense and other charges, net	(52,180		)	(11,836	)	(9,550	)	—	218		[1]	(73,348		)
Allowance for borrowed funds used during construction	4,019			276		572		—	—			4,867
Income before income taxes	167,066			31,883		26,870		—	(45,393	)		180,426
Income taxes	22,333			6,868		5,577		—	—			34,778
Net income	144,733			25,015		21,293		—	(45,393	)		145,648
Preferred stock dividends of subsidiaries	—			534		381		—	—			915
Net income attributable to Hawaiian Electric	144,733			24,481		20,912		—	(45,393	)		144,733
Preferred stock dividends of Hawaiian Electric	1,080			—		—		—	—			1,080
Net income for common stock	$	143,653		24,481		20,912		—	(45,393	)		$	143,653

Consolidating statement of comprehensive income

Year ended December 31, 2018

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Net income for common stock	$	143,653		24,481		20,912		—	(45,393	)		$	143,653
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Net losses arising during the period, net of tax benefits	(26,019		)	(6,090	)	(5,004	)	—	11,094		[1]	(26,019		)
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	19,012			2,819		2,423		—	(5,242	)	[1]	19,012
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	8,325			3,305		2,788		—	(6,093	)	[1]	8,325
Other comprehensive income, net of taxes	1,318			34		207		—	(241	)		1,318
Comprehensive income attributable to common shareholder	$	144,971		24,515		21,119		—	(45,634	)		$	144,971

Consolidating statement of income

Year ended December 31, 2017

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Revenues	$	1,598,504		333,467		325,678		—	(83	)	[1]	$	2,257,566
Expenses
Fuel oil	408,204			63,894		115,670		—	—			587,768
Purchased power	454,189			87,772		44,673		—	—			586,634
Other operation and maintenance	274,391			66,184		71,332		—	—			411,907
Depreciation	130,889			38,741		23,154		—	—			192,784
Taxes, other than income taxes	152,933			31,184		30,832		—	—			214,949
Total expenses	1,420,606			287,775		285,661		—	—			1,994,042
Operating income	177,898			45,692		40,017		—	(83	)		263,524
Allowance for equity funds used    during construction	10,896			554		1,033		—	—			12,483
Equity in earnings of subsidiaries	38,057			—		—		—	(38,057	)	[2]	—
Retirement defined benefits expense—other than service costs	(5,049		)	(93	)	(861	)	—	—			(6,003		)
Interest expense and other charges, net	(48,277		)	(11,799	)	(9,644	)		83		[1]	(69,637		)
Allowance for borrowed funds used during construction	4,089			238		451		—	—			4,778
Income before income taxes	177,614			34,592		30,996		—	(38,057	)		205,145
Income taxes	56,583			13,912		12,704		—	—			83,199
Net income	121,031			20,680		18,292		—	(38,057	)		121,946
Preferred stock dividends of subsidiaries	—			534		381		—	—			915
Net income attributable to Hawaiian Electric	121,031			20,146		17,911		—	(38,057	)		121,031
Preferred stock dividends of Hawaiian Electric	1,080			—		—		—	—			1,080
Net income for common stock	$	119,951		20,146		17,911		—	(38,057	)		$	119,951

Consolidating statement of comprehensive income

Year ended December 31, 2017

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Net income for common stock	$	119,951		20,146		17,911		—	(38,057	)		$	119,951
Other comprehensive income (loss), net of taxes:
Derivatives qualified as cash flow hedges:
Reclassification adjustment to net income, net of tax benefits	454			—		—		—	—			454
Retirement benefit plans:
Net losses arising during the period, net of tax benefits	63,105			3,093		7,329		—	(10,422	)	[1]	63,105
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	14,477			1,903		1,619		—	(3,522	)	[1]	14,477
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(78,724		)	(4,994	)	(9,003	)	—	13,997		[1]	(78,724		)
Other comprehensive income (loss), net of taxes	(688		)	2		(55	)	—	53			(688		)
Comprehensive income attributable to common shareholder	$	119,263		20,148		17,856		—	(38,004	)		$	119,263

Consolidating statement of income

Year ended December 31, 2016

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Revenues	$	1,474,384		311,385		308,705		—	(106	)	[1]	$	2,094,368
Expenses
Fuel oil	305,359			55,094		94,251		—	—			454,704
Purchased power	431,009			81,018		50,713		—	—			562,740
Other operation and maintenance	268,118			64,216		67,597		—	—			399,931
Depreciation	126,086			37,797		23,178		—	—			187,061
Taxes, other than income taxes	141,615			29,017		29,230		—	—			199,862
Total expenses	1,272,187			267,142		264,969		—	—			1,804,298
Operating income	202,197			44,243		43,736		—	(106	)		290,070
Allowance for equity funds used    during construction	6,659			765		901		—	—			8,325
Equity in earnings of subsidiaries	42,391			—		—		—	(42,391	)	[2]	—
Retirement defined benefits expense—other than service costs	(5,058		)	319		(863	)	—	—			(5,602		)
Interest expense and other charges, net	(45,839		)	(11,555	)	(9,536	)	—	106		[1]	(66,824		)
Allowance for borrowed funds used during construction	2,484			294		366		—	—			3,144
Income before income taxes	202,834			34,066		34,604		—	(42,391	)		229,113
Income taxes	59,437			12,277		13,087		—	—			84,801
Net income	143,397			21,789		21,517		—	(42,391	)		144,312
Preferred stock dividends of subsidiaries	—			534		381		—	—			915
Net income attributable to Hawaiian Electric	143,397			21,255		21,136		—	(42,391	)		143,397
Preferred stock dividends of Hawaiian Electric	1,080			—		—		—	—			1,080
Net income for common stock	$	142,317		21,255		21,136		—	(42,391	)		$	142,317

Consolidating statement of comprehensive income

Year ended December 31, 2016

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Net income for common stock	$	142,317		21,255		21,136		—	(42,391	)		$	142,317
Other comprehensive income (loss), net of taxes:
Derivatives qualified as cash flow hedges:
Effective portion of foreign currency hedge net unrealized losses arising during the period, net of tax benefits	(281		)	—		—		—	—			(281		)
Less: reclassification adjustment to net income, net of taxes	(173		)	—		—		—	—			(173		)
Retirement benefit plans:
Net losses arising during the period, net of tax benefits	(42,631		)	(5,141	)	(5,447	)	—	10,588		[1]	(42,631		)
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	13,254			1,718		1,549		—	(3,267	)	[1]	13,254
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of tax benefits	28,584			3,269		3,852		—	(7,121	)	[1]	28,584
Other comprehensive loss, net of tax benefits	(1,247		)	(154	)	(46	)	—	200			(1,247		)
Comprehensive income attributable to common shareholder	$	141,070		21,101		21,090		—	(42,191	)		$	141,070

Consolidating balance sheet

December 31, 2018

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	40,449		5,606		3,612		—	—			$	49,667
Plant and equipment	4,456,090			1,259,553		1,094,028		—	—			6,809,671
Less accumulated depreciation	(1,523,861		)	(547,848	)	(505,633	)	—	—			(2,577,342		)
Construction in progress	193,677			8,781		30,687		—	—			233,145
Utility property, plant and equipment, net	3,166,355			726,092		622,694		—	—			4,515,141
Nonutility property, plant and equipment, less accumulated depreciation	5,314			115		1,532		—	—			6,961
Total property, plant and equipment, net	3,171,669			726,207		624,226		—	—			4,522,102
Investment in wholly-owned subsidiaries, at equity	576,838			—		—		—	(576,838	)	[2]	—
Current assets
Cash and cash equivalents	16,732			15,623		3,421		101	—			35,877
Customer accounts receivable, net	125,960			26,483		25,453		—	—			177,896
Accrued unbilled revenues, net	88,060			17,051		16,627		—	—			121,738
Other accounts receivable, net	21,962			3,131		3,033		—	(21,911	)	[1]	6,215
Fuel oil stock, at average cost	54,262			11,027		14,646		—	—			79,935
Materials and supplies, at average cost	30,291			7,155		17,758		—	—			55,204
Prepayments and other	23,214			5,212		3,692		—	—			32,118
Regulatory assets	60,093			3,177		7,746		—	—			71,016
Total current assets	420,574			88,859		92,376		101	(21,911	)		579,999
Other long-term assets
Regulatory assets	537,708			120,658		104,044		—	—			762,410
Other	69,749			15,944		17,299		—	—			102,992
Total other long-term assets	607,457			136,602		121,343		—	—			865,402
Total assets	$	4,776,538		951,668		837,945		101	(598,749	)		$	5,967,503
Capitalization and liabilities
Capitalization
Common stock equity	$	1,957,641		295,874		280,863		101	(576,838	)	[2]	$	1,957,641
Cumulative preferred stock–not subject to mandatory redemption	22,293			7,000		5,000		—	—			34,293
Long-term debt, net	1,000,137			217,749		200,916		—	—			1,418,802
Total capitalization	2,980,071			520,623		486,779		101	(576,838	)		3,410,736
Current liabilities
Short-term borrowings-non-affiliate	25,000			—		—		—	—			25,000
Accounts payable	126,384			20,045		25,362		—	—			171,791
Interest and preferred dividends payable	16,203			4,203		2,841		—	(32	)	[1]	23,215
Taxes accrued	164,747			34,128		34,458		—	—			233,333
Regulatory liabilities	7,699			4,872		5,406		—	—			17,977
Other	46,391			15,077		20,414		—	(21,879	)	[1]	60,003
Total current liabilities	386,424			78,325		88,481		—	(21,911	)		531,319
Deferred credits and other liabilities
Deferred income taxes	271,438			54,936		56,823		—	—			383,197
Regulatory liabilities	657,210			176,101		98,948		—	—			932,259
Unamortized tax credits	60,271			16,217		15,034		—	—			91,522
Defined benefit pension and other postretirement benefit plans liability	359,174			73,147		71,338		—	—			503,659
Other	61,950			32,319		20,542		—	—			114,811
Total deferred credits and other liabilities	1,410,043			352,720		262,685		—	—			2,025,448
Total capitalization and liabilities	$	4,776,538		951,668		837,945		101	(598,749	)		$	5,967,503

Consolidating balance sheet

December 31, 2017

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	40,392		5,922		3,016		—	—			$	49,330
Plant and equipment	4,144,472			1,207,043		1,053,372		—	—			6,404,887
Less accumulated depreciation	(1,451,612		)	(528,024	)	(496,716	)	—	—			(2,476,352		)
Construction in progress	231,571			8,182		23,341		—	—			263,094
Utility property, plant and equipment, net	2,964,823			693,123		583,013		—	—			4,240,959
Nonutility property, plant and equipment, less accumulated depreciation	5,933			115		1,532		—	—			7,580
Total property, plant and equipment, net	2,970,756			693,238		584,545		—	—			4,248,539
Investment in wholly-owned subsidiaries, at equity	557,013			—		—		—	(557,013	)	[2]	—
Current assets
Cash and cash equivalents	2,059			4,025		6,332		101	—			12,517
Advances to affiliates	—			—		12,000		—	(12,000	)	[1]	—
Customer accounts receivable, net	86,987			22,510		18,392		—	—			127,889
Accrued unbilled revenues, net	77,176			15,940		13,938		—	—			107,054
Other accounts receivable, net	11,376			2,268		1,210		—	(7,691	)	[1]	7,163
Fuel oil stock, at average cost	64,972			8,698		13,203		—	—			86,873
Materials and supplies, at average cost	28,325			8,041		18,031		—	—			54,397
Prepayments and other	17,928			4,514		2,913		—	—			25,355
Regulatory assets	76,203			5,038		7,149		—	—			88,390
Total current assets	365,026			71,034		93,168		101	(19,691	)		509,638
Other long-term assets
Regulatory assets	557,464			122,783		100,660		—	—			780,907
Other	60,157			16,311		15,061		—	—			91,529
Total other long-term assets	617,621			139,094		115,721		—	—			872,436
Total assets	$	4,510,416		903,366		793,434		101	(576,704	)		$	5,630,613
Capitalization and liabilities
Capitalization
Common stock equity	$	1,845,283		286,647		270,265		101	(557,013	)	[2]	$	1,845,283
Cumulative preferred stock–not subject to mandatory redemption	22,293			7,000		5,000		—	—			34,293
Long-term debt, net	924,979			202,701		190,836		—	—			1,318,516
Total capitalization	2,792,555			496,348		466,101		101	(557,013	)		3,198,092
Current liabilities
Current portion of long-term debt	29,978			10,992		8,993		—	—			49,963
Short-term borrowings-non-affiliate	4,999			—		—		—	—			4,999
Short-term borrowings-affiliate	12,000			—		—		—	(12,000	)	[1]	—
Accounts payable	121,328			17,855		20,427		—	—			159,610
Interest and preferred dividends payable	15,677			4,174		2,735		—	(11	)	[1]	22,575
Taxes accrued	133,839			34,950		30,312		—	—			199,101
Regulatory liabilities	607			1,245		1,549		—	—			3,401
Other	43,121			9,818		14,197		—	(7,680	)	[1]	59,456
Total current liabilities	361,549			79,034		78,213		—	(19,691	)		499,105
Deferred credits and other liabilities
Deferred income taxes	281,223			56,955		55,863		—	—			394,041
Regulatory liabilities	613,329			169,139		94,901		—	—			877,369
Unamortized tax credits	59,039			16,167		15,163		—	—			90,369
Defined benefit pension and other postretirement benefit plans liability	340,983			66,447		65,518		—	—			472,948
Other	61,738			19,276		17,675		—	—			98,689
Total deferred credits and other liabilities	1,356,312			327,984		249,120		—	—			1,933,416
Total capitalization and liabilities	$	4,510,416		903,366		793,434		101	(576,704	)		$	5,630,613

Consolidating statements of changes in common stock equity

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2015	$	1,728,325		292,702		263,725		101	(556,528	)	$	1,728,325
Net income for common stock	142,317			21,255		21,136		—	(42,391	)	142,317
Other comprehensive loss, net of tax benefits	(1,247		)	(154	)	(46	)	—	200		(1,247		)
Issuance of common stock, net of expenses	23,991			(5	)	—		—	5		23,991
Common stock dividends	(93,599		)	(22,507	)	(25,261	)	—	47,768		(93,599		)
Balance, December 31, 2016	1,799,787			291,291		259,554		101	(550,946	)	1,799,787
Net income for common stock	119,951			20,146		17,911		—	(38,057	)	119,951
Other comprehensive income (loss), net of taxes	(688		)	2		(55	)	—	53		(688		)
Issuance of common stock, net of expenses	14,000			4		4,801		—	(4,805	)	14,000
Common stock dividends	(87,767		)	(24,796	)	(11,946	)	—	36,742		(87,767		)
Balance, December 31, 2017	1,845,283			286,647		270,265		101	(557,013	)	1,845,283
Net income for common stock	143,653			24,481		20,912		—	(45,393	)	143,653
Other comprehensive income, net of taxes	1,318			34		207		—	(241	)	1,318
Issuance of common stock, net of expenses	70,692			1		1,498		—	(1,499	)	70,692
Common stock dividends	(103,305		)	(15,289	)	(12,019	)	—	27,308		(103,305		)
Balance, December 31, 2018	$	1,957,641		295,874		280,863		101	(576,838	)	$	1,957,641

Consolidating statement of cash flows

Year ended December 31, 2018

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Cash flows from operating activities
Net income	$	144,733		25,015		21,293		—	(45,393	)	[2]	$	145,648
Adjustments to reconcile net income to net cash provided by operating activities
Equity in earnings of subsidiaries	(45,493		)	—		—		—	45,393		[2]	(100		)
Common stock dividends received from subsidiaries	27,408			—		—		—	(27,308	)	[2]	100
Depreciation of property, plant and equipment	137,410			40,235		25,981		—	—			203,626
Other amortization	20,956			5,069		577		—	—			26,602
Deferred income taxes	(9,806		)	(341	)	2,165		—	—			(7,982		)
Allowance for equity funds used during construction	(9,208		)	(478	)	(1,191	)	—	—			(10,877		)
Other	(1,033		)	(213	)	(324	)	—	—			(1,570		)
Changes in assets and liabilities:
Increase in accounts receivable	(51,656		)	(4,867	)	(8,614	)	—	14,220		[1]	(50,917		)
Increase in accrued unbilled revenues	(10,884		)	(1,111	)	(2,689	)	—	—			(14,684		)
Decrease (increase) in fuel oil stock	10,710			(2,329	)	(1,443	)	—	—			6,938
Decrease (increase) in materials and supplies	(1,966		)	886		273		—	—			(807		)
Decrease (increase) in regulatory assets	12,192			71		(3,011	)	—	—			9,252
Increase in accounts payable	14,748			6,104		3,506		—	—			24,358
Change in prepaid and accrued income taxes, tax credits and revenue taxes	24,438			(2,118	)	3,047		—	(331	)	[1]	25,036
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	17,178			(760	)	2,328		—	—			18,746
Change in other assets and liabilities	18,484			8,186		7,794		—	(14,220	)	[1]	20,244
Net cash provided by operating activities	298,211			73,349		49,692		—	(27,639	)		393,613
Cash flows from investing activities
Capital expenditures	(330,531		)	(54,553	)	(60,779	)	—	—			(445,863		)
Contributions in aid of construction	24,828			3,499		2,272		—	—			30,599
Advances from (to) affiliates	—			—		12,000		—	(12,000	)	[1]	—
Other	3,226			1,182		3,843		—	1,831		[1], [2]	10,082
Net cash used in investing activities	(302,477		)	(49,872	)	(42,664	)	—	(10,169	)		(405,182		)
Cash flows from financing activities
Common stock dividends	(103,305		)	(15,289	)	(12,019	)	—	27,308		[2]	(103,305		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(1,080		)	(534	)	(381	)	—	—			(1,995		)
Proceeds from issuance of common stock	70,700			—		1,500		—	(1,500	)	[2]	70,700
Proceeds from issuance of long-term debt	75,000			15,000		10,000		—	—			100,000
Repayment of long-term debt	(30,000		)	(11,000	)	(9,000	)	—	—			(50,000		)
Net decrease in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	(16,999		)	—		—		—	12,000		[1]	(4,999		)
Proceeds from other bank borrowings	25,000			—		—		—	—			25,000
Other	(377		)	(56	)	(39	)	—	—			(472		)
Net cash provided by (used in) financing activities	18,939			(11,879	)	(9,939	)	—	37,808			34,929
Net increase (decrease) in cash and cash equivalents	14,673			11,598		(2,911	)	—	—			23,360
Cash and cash equivalents, January 1	2,059			4,025		6,332		101	—			12,517
Cash and cash equivalents, December 31	$	16,732		15,623		3,421		101	—			$	35,877

Consolidating statement of cash flows

Year ended December 31, 2017

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Cash flows from operating activities
Net income	$	121,031		20,680		18,292		—	(38,057	)	[2]	$	121,946
Adjustments to reconcile net income to net cash provided by operating activities
Equity in earnings of subsidiaries	(38,157		)	—		—		—	38,057		[2]	(100		)
Common stock dividends received from subsidiaries	36,867			—		—		—	(36,742	)	[2]	125
Depreciation of property, plant and equipment	130,889			38,741		23,154		—	—			192,784
Other amortization	2,398			3,225		2,875		—	—			8,498
Deferred income taxes	26,342			3,954		8,004		—	(263	)	[1]	38,037
Allowance for equity funds used during construction	(10,896		)	(554	)	(1,033	)	—	—			(12,483		)
Other	(1,154		)	430		(342	)	—	—			(1,066		)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	1,817			(359	)	45		—	1,411		[1]	2,914
Increase in accrued unbilled revenues	(11,355		)	(2,376	)	(1,630	)	—	—			(15,361		)
Increase in fuel oil stock	(17,733		)	(469	)	(2,241	)	—	—			(20,443		)
Decrease (increase) in materials and supplies	1,603			(661	)	(1,660	)	—	—			(718		)
Increase in regulatory assets	(8,395		)	(4,007	)	(4,854	)	—	—			(17,256		)
Increase (decrease) in accounts payable	23,519			(3,547	)	5,762		—	—			25,734
Change in prepaid and accrued income taxes, tax credits and revenue taxes	16,716			7,961		5,362		—	(177	)	[1]	29,862
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	709			52		(157	)	—	—			604
Change in other assets and liabilities	(16,213		)	(433	)	166		—	(1,411	)	[1]	(17,891		)
Net cash provided by operating activities	257,988			62,637		51,743		—	(37,182	)		335,186
Cash flows from investing activities
Capital expenditures	(339,279		)	(52,077	)	(50,242	)	—	—			(441,598		)
Contributions in aid of construction	57,527			4,293		2,913		—	—			64,733
Advances from (to) affiliates	—			3,500		(2,000	)	—	(1,500	)	[1]	—
Other	(1,711		)	649		400		—	5,240		[1],[2]	4,578
Net cash used in investing activities	(283,463		)	(43,635	)	(48,929	)	—	3,740			(372,287		)
Cash flows from financing activities
Common stock dividends	(87,767		)	(24,796	)	(11,946	)	—	36,742		[2]	(87,767		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(1,080		)	(534	)	(381	)	—	—			(1,995		)
Proceeds from the issuance of common stock	14,000			—		4,800		—	(4,800	)	[2]	14,000
Proceeds from the issuance of long-term debt	202,000			28,000		85,000		—	—			315,000
Funds transferred for redemption of special purpose revenue bonds	(162,000		)	(28,000	)	(75,000	)	—	—			(265,000		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	3,499			—		—		—	1,500		[1]	4,999
Other	(2,506		)	(396	)	(1,003	)	—	—			(3,905		)
Net cash provided by (used in) financing activities	(33,854		)	(25,726	)	1,470		—	33,442			(24,668		)
Net increase (decrease) in cash and cash equivalents	(59,329		)	(6,724	)	4,284		—	—			(61,769		)
Cash and cash equivalents, January 1	61,388			10,749		2,048		101	—			74,286
Cash and cash equivalents, December 31	$	2,059		4,025		6,332		101	—			$	12,517

Consolidating statement of cash flows

Year ended December 31, 2016

(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments			Hawaiian Electric Consolidated
Cash flows from operating activities
Net income	$	143,397		21,789		21,517		—	(42,391	)	[2]	$	144,312
Adjustments to reconcile net income to net cash provided by operating activities
Equity in earnings of subsidiaries	(42,491		)	—		—		—	42,391		[2]	(100		)
Common stock dividends received from subsidiaries	47,843			—		—		—	(47,768	)	[2]	75
Depreciation of property, plant and equipment	126,086			37,797		23,178		—	—			187,061
Other amortization	2,979			1,817		2,139		—	—			6,935
Deferred income taxes	54,721			7,027		12,661		—	(23	)	[1]	74,386
Allowance for equity funds used during construction	(6,659		)	(765	)	(901	)	—	—			(8,325		)
Other	(2,517		)	(750	)	(433	)	—	—			(3,700		)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	10,175			(718	)	1,776		—	(2,682	)	[1]	8,551
Increase in accrued unbilled revenues	(5,741		)	(1,033	)	(410	)	—	—			(7,184		)
Decrease in fuel oil stock	2,216			81		2,489		—	—			4,786
Decrease (increase) in materials and supplies	993			(515	)	272		—	—			750
Increase in regulatory assets	(16,161		)	(1,243	)	(869	)	—	—			(18,273		)
Increase (decrease) in accounts payable	(10,247		)	768		(1,135	)	—	—			(10,614		)
Change in prepaid and accrued income taxes, tax credits and revenue taxes	2,933			2,645		(3,478	)	—	23		[1]	2,123
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	599			53		(168	)	—	—			484
Change in other assets and liabilities	(11,682		)	(78	)	(2,272	)	—	2,682		[1]	(11,350		)
Net cash provided by operating activities	296,444			66,875		54,366		—	(47,768	)		369,917
Cash flows from investing activities
Capital expenditures	(236,425		)	(51,344	)	(32,668	)	—	—			(320,437		)
Contributions in aid of construction	23,611			3,412		3,077		—	—			30,100
Advances from (to) affiliates	—			12,000		(2,500	)	—	(9,500	)	[1]	—
Other	1,932			175		31		—	—			2,138
Net cash used in investing activities	(210,882		)	(35,757	)	(32,060	)	—	(9,500	)		(288,199		)
Cash flows from financing activities
Common stock dividends	(93,599		)	(22,507	)	(25,261	)	—	47,768		[2]	(93,599		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(1,080		)	(534	)	(381	)	—	—			(1,995		)
Proceeds from the issuance of common stock	24,000			—		—		—	—			24,000
Proceeds from the issuance of long-term debt	40,000			—		—		—	—			40,000
Net decrease in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	(9,500		)	—		—		—	9,500		[1]	—
Other	(276		)	(10	)	(1	)	—	—			(287		)
Net cash used in financing activities	(40,455		)	(23,051	)	(25,643	)	—	57,268			(31,881		)
Net increase (decrease) in cash and cash equivalents	45,107			8,067		(3,337	)	—	—			49,837
Cash and cash equivalents, January 1	16,281			2,682		5,385		101	—			24,449
Cash and cash equivalents, December 31	$	61,388		10,749		2,048		101	—			$	74,286

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.