Income taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income taxes

Note 12 · Income taxes

The components of income taxes attributable to net income for common stock were as follows:

	HEI consolidated						Hawaiian Electric consolidated
Years ended December 31	2022		2021		2020		2022		2021		2020
(in thousands)
Federal
Current	$	77,595	$	51,455	$	23,207	$	75,118	$	42,794	$	31,950
Deferred	(37,410)		(11,689)		(4,215)		(39,646)		(12,109)		(5,408)
Deferred tax credits, net*	4,031		4,611		10,979		137		302		1,549
	44,216		44,377		29,971		35,609		30,987		28,091
State
Current	11,981		12,119		8,430		15,780		4,861		3,768
Deferred	4,914		6,290		2,509		(1,769)		8,279		8,559
Deferred tax credits, net*	56		21		—		56		21		—
	16,951		18,430		10,939		14,067		13,161		12,327
Total	$	61,167	$	62,807	$	40,910	$	49,676	$	44,148	$	40,418

*     In 2022, 2021 and 2020, primarily represents federal tax credits related to Mauo’s solar-plus-storage project, deferred and amortized starting in 2022, 2021 and 2020, respectively.

A reconciliation of the amount of income taxes computed at the federal statutory rate to the amount provided in the consolidated statements of income was as follows:

	HEI consolidated						Hawaiian Electric consolidated
Years ended December 31	2022		2021		2020		2022		2021		2020
(in thousands)
Amount at the federal statutory income tax rate	$	63,881	$	65,281	$	50,531	$	50,526	$	46,995	$	44,468
Increase (decrease) resulting from:
State income taxes, net of federal income tax benefit	14,438		15,735		9,448		11,026		10,323		9,658
Net deferred tax asset (liability) adjustment related to the Tax Act	(9,886)		(9,886)		(11,267)		(9,886)		(9,886)		(11,267)
Other, net	(7,266)		(8,323)		(7,802)		(1,990)		(3,284)		(2,441)
Total	$	61,167	$	62,807	$	40,910	$	49,676	$	44,148	$	40,418
Effective income tax rate (%)	20.1		20.2		17.0		20.6		19.7		19.1

The tax effects of book and tax basis differences that give rise to deferred tax assets and liabilities were as follows:

	HEI consolidated				Hawaiian Electric consolidated
December 31	2022		2021		2022		2021
(in thousands)
Deferred tax assets
Regulatory liabilities, excluding amounts attributable to property, plant and equipment	$	82,488	$	87,817	$	82,488	$	87,817
Operating lease liabilities	45,016		35,449		37,472		29,661
Retirement benefits	7,692		—		6,852		—
Revenue taxes	51,392		35,040		51,392		35,040
Allowance for bad debts	22,734		26,217		2,195		7,156
Available-for-sale investments	120,405		11,728		—		—
Other1	39,399		46,790		20,287		20,529
Total deferred tax assets	369,126		243,041		200,686		180,203
Deferred tax liabilities
Property, plant and equipment related	511,832		500,659		497,929		490,713
Operating lease right-of-use assets	44,461		35,271		37,472		29,661
Regulatory assets, excluding amounts attributable to property, plant and equipment	22,183		23,700		22,183		23,700
Retirement benefits	—		6,863		—		8,261
Other	53,112		61,308		27,532		36,502
Total deferred tax liabilities	631,588		627,801		585,116		588,837
Net deferred income tax liability	$	262,462	$	384,760	$	384,430	$	408,634

1     As of December 31, 2022, HEI consolidated has deferred tax assets of $4.3 million relating to the benefit of state tax credit carryforwards of $5.6 million. These state tax credit carryforwards primarily relate to the West Loch PV project and do not expire. The Company concluded that as of December 31, 2022, a valuation allowance is not required.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. Based upon historical taxable income and projections for future taxable income, management believes it is more likely than not the Company and the Utilities will realize substantially all of the benefits of the deferred tax assets. As of December 31, 2022 and 2021, valuation allowances for deferred tax benefits were nil. The Utilities are included in the consolidated federal and Hawaii income tax returns of HEI and are subject to the provisions of HEI’s tax sharing agreement, which determines each subsidiary’s (or subgroup’s) income tax return liabilities and refunds on a standalone basis as if it filed a separate return (or subgroup consolidated return).

The following is a reconciliation of the Company’s liability for unrecognized tax benefits for 2022, 2021 and 2020.

	HEI consolidated						Hawaiian Electric consolidated
(in millions)	2022		2021		2020		2022		2021		2020
Unrecognized tax benefits, January 1	$	17.1	$	12.7	$	2.2	$	11.6	$	12.7	$	1.7
Additions based on tax positions taken during the year	19.0		2.8		0.2		0.1		0.3		0.2
Reductions based on tax positions taken during the year	(3.5)		(0.5)		—		—		—		—
Additions for tax positions of prior years	0.6		7.6		11.6		0.2		0.2		11.6
Reductions for tax positions of prior years	(2.6)		(5.5)		(0.1)		(0.2)		(1.6)		(0.1)
Lapses of statute of limitations	—		—		(0.2)		—		—		(0.2)
Settlement	—		—		(1.0)		—		—		(0.5)
Unrecognized tax benefits, December 31	$	30.6	$	17.1	$	12.7	$	11.7	$	11.6	$	12.7

At December 31, 2022 and 2021, there were $10.2 million of unrecognized tax benefits that, if recognized, would affect the Company’s and Utilities’ annual effective tax rate.

HEI consolidated. The Company recognizes interest accrued related to unrecognized tax benefits in “Interest expense-other than on deposit liabilities and other bank borrowings” and penalties, if any, in operating expenses. In 2022, 2021 and

2020, the Company recognized approximately $0.4 million, $0.2 million and $(0.5) million, respectively, in interest expense. The Company had $0.6 million and $0.3 million of interest accrued as of December 31, 2022 and 2021, respectively.

Hawaiian Electric consolidated. The Utilities recognize interest accrued related to unrecognized tax benefits in “Interest expense and other charges, net” and penalties, if any, in operating expenses. In 2022, 2021 and 2020, the Utilities recognized approximately $0.1 million, $0.1 million and $(0.3) million, respectively, in interest expense. The Utilities had $0.2 million and $0.1 million of interest accrued as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, the disclosures above present the Company’s and the Utilities’ accruals for potential tax liabilities, which involve management’s judgment regarding the likelihood of the benefits being sustained under governmental review. While the Company and the Utilities currently do not expect material changes to occur in the next twelve months, the Company and the Utilities are generally unable to estimate the range of impacts on the balance of uncertain tax positions or the impact on the effective tax rate from the resolution of these issues until the Internal Revenue Service addresses them in the current examination process, and therefore, it is possible that the amount of unrecognized benefit with respect to the Company’s and the Utilities’ uncertain tax positions could increase or decrease within the next 12 months. The final resolution of uncertain tax positions could result in adjustments to recorded amounts.

Based on information currently available, the Company and the Utilities believe these accruals have adequately provided for potential income tax issues with federal and state tax authorities, and that the ultimate resolution of tax issues for all open tax periods will not have a material adverse effect on its results of operations, financial condition or liquidity.

The statute of limitations for IRS examinations has expired for years prior to 2017. The Company is currently under IRS examination for the tax years 2017 and 2018. In the fourth quarter of 2020, the Company and the Hawaii Department of Taxation agreed to a final assessment of tax liabilities for the years 2011 through 2018, however, the statute of limitations for Hawaii remains open for tax years 2017 and subsequent.

Tax developments. The Inflation Reduction Act of 2022 (IRA) was signed by President Biden on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax (CAMT) imposed on certain large corporations and a 1% excise tax on stock repurchases after December 31, 2022. Based on current interpretation of the law and current guidance available we do not believe HEI will be impacted by the CAMT or stock repurchase excise tax provisions.

The IRA also creates new tax credits and enhances others to stimulate investment in renewable energy sources. Certain provisions of the IRA will become effective beginning tax year 2023. The Company continues to monitor guidance and assess related tax planning opportunities.