Retirement benefits - HECO

6 Months Ended

Jun. 30, 2013

Retirement benefits

5 ·Retirement benefits

Defined benefit pension and other postretirement benefit plans information.  For the first six months of 2013, the Company contributed $42 million (primarily by the utilities) to its pension and other postretirement benefit plans, compared to $53 million (primarily by the utilities) in the first six months of 2012. The Company’s current estimate of contributions to its pension and other postretirement benefit plans in 2013 is $83 million ($81 million by the utilities, $2 million by HEI and nil by ASB), compared to $78 million ($63 million by the utilities, $2 million by HEI and $13 million by ASB) in 2012. In addition, the Company expects to pay directly $2 million ($1 million each by the utilities and HEI) of benefits in 2013, compared to $1 million paid in 2012.

On July 6, 2012, President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21), which included provisions related to the funding and administration of pension plans. This law does not affect the Company’s accounting for pension benefits; therefore, the net periodic benefit costs disclosed for the plans were not affected. The Company elected to apply MAP-21 for 2012, which improved the plans’ Adjusted Funding Target Attainment Percentage (AFTAP) for funding and benefit distribution purposes and thereby reduced the 2012 minimum funding requirement and lifted the restrictions on accelerated distribution options (which restrictions were in effect April 1, 2011 to September 30, 2012) for HEI and HECO and its subsidiaries. The effects of MAP-21 are expected to cause the minimum required funding under Employee Retirement Income Security Act of 1974, as amended (ERISA) to be less than the net periodic cost for 2013 and 2014; therefore, the Company expects to contribute the net periodic cost for these years. If the AFTAP falls below 80% in the future, the restrictions on accelerated distribution options may apply again.

The Pension Protection Act provides that if a pension plan’s funded status falls below certain levels, more conservative assumptions must be used to value obligations under the pension plan. The HEI Retirement Plan fell below these thresholds in 2011 and the minimum required contribution for 2012 incorporated the more conservative assumptions required. However, the HEI Retirement Plan met the threshold requirements in each of 2012 and 2013 so that the more conservative assumptions do not apply for either the 2013 or 2014 valuation of plan liabilities for purposes of calculating the minimum required contribution. Other factors could cause changes to the required contribution levels.

The components of net periodic benefit cost for consolidated HEI were as follows:

	Three months ended June 30												Six months ended June 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2013			2012			2013			2012			2013			2012			2013			2012
Service cost	$	14,121		$	11,397		$	1,103		$	1,008		$	28,210		$	21,588		$	2,152		$	2,104
Interest cost	16,307			16,973			1,855			2,223			32,413			33,744			3,786			4,504
Expected return on plan assets	(18,182		)	(17,736		)	(2,521		)	(2,557		)	(36,267		)	(35,592		)	(5,083		)	(5,178		)
Amortization of prior service gain	(25		)	(82		)	(449		)	(449		)	(49		)	(163		)	(897		)	(897		)
Amortization of net actuarial loss	9,499			6,403			284			299			19,318			12,826			805			752
Net periodic benefit cost	21,720			16,955			272			524			43,625			32,403			763			1,285
Impact of PUC D&Os	(5,286		)	(4,977		)	(187		)	(416		)	(12,722		)	(8,834		)	(584		)	(1,096		)
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	16,434		$	11,978		$	85		$	108		$	30,903		$	23,569		$	179		$	189

Consolidated HEI recorded retirement benefits expense of $23 million and $17 million in the first six months of 2013 and 2012, respectively, and charged the remaining amounts primarily to electric utility plant.

The utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, these retirement benefit costs that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will be amortized over 5 years beginning with the respective utility’s next rate case.

Defined contribution plans information.  For the first six months of 2013 and 2012, the Company’s expense for its defined contribution pension plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan was $2.0 million and $1.8 million, respectively, and cash contributions were $3.0 million and $2.7 million, respectively.

Hawaiian Electric Company, Inc. and Subsidiaries

Retirement benefits

4 ·Retirement benefits

Defined benefit pension and other postretirement benefit plans information.  For the first six months of 2013, HECO and its subsidiaries contributed $41 million to their pension and other postretirement benefit plans, compared to $52 million in the first six months of 2012. HECO and its subsidiaries’ current estimate of contributions to their pension and other postretirement benefit plans in 2013 is $81 million, compared to contributions of $63 million in 2012. In addition, HECO and its subsidiaries expect to pay directly $1.0 million of benefits in 2013, compared to $0.5 million paid in 2012.

On July 6, 2012, President Obama signed the MAP-21, which included provisions related to the funding and administration of pension plans. This law does not affect the utilities’ accounting for pension benefits; therefore, the net periodic benefit costs disclosed for the plans were not affected. The utilities elected to apply MAP-21 for 2012, which improved the plan’s AFTAP for funding and benefit distribution purposes and thereby reduced the 2012 minimum funding requirement and lifted the restrictions on accelerated distribution options (which restrictions were in effect April 1, 2011 to September 30, 2012) for HECO and its subsidiaries. The effects of MAP-21 are expected to cause the minimum required funding under ERISA to be less than the net periodic cost for 2013 and 2014; therefore, the utilities expect to contribute the net periodic cost for these years as they did for 2012. If the AFTAP falls below 80% in the future, the restrictions on accelerated distribution options may apply again.

The Pension Protection Act provides that if a pension plan’s funded status falls below certain levels, more conservative assumptions must be used to value obligations under the pension plan. The HEI Retirement Plan fell below these thresholds in 2011 and the minimum required contribution for 2012 incorporated the more conservative assumptions required. However, the HEI Retirement Plan met the threshold requirements in each of 2012 and 2013 so that the more conservative assumptions do not apply for either the 2013 or 2014 valuation of plan liabilities for purposes of calculating the minimum required contribution. Other factors could cause changes to the required contribution levels.

The components of net periodic benefit cost were as follows:

	Three months ended June 30												Six months ended June 30
	Pension benefits						Other benefits						Pension benefits						Other benefits
(in thousands)	2013			2012			2013			2012			2013			2012			2013			2012
Service cost	$	13,638		$	11,000		$	1,067		$	959		$	27,241		$	20,802		$	2,081		$	2,007
Interest cost	14,883			15,465			1,783			2,147			29,559			30,726			3,644			4,352
Expected return on plan assets	(16,185		)	(15,942		)	(2,480		)	(2,519		)	(32,275		)	(32,002		)	(5,000		)	(5,098		)
Amortization of net transition obligation	—			—			—			(2		)	—			—			—			(4		)
Amortization of net prior service gain	(116		)	(172		)	(451		)	(451		)	(232		)	(344		)	(902		)	(902		)
Amortization of net actuarial loss	8,509			5,845			268			288			17,299			11,714			772			728
Net periodic benefit cost	20,729			16,196			187			422			41,592			30,896			595			1,083
Impact of PUC D&Os	(5,286		)	(4,977		)	(187		)	(416		)	(12,722		)	(8,834		)	(584		)	(1,096		)
Net periodic benefit cost (adjusted for impact of PUC D&Os)	$	15,443		$	11,219		$	—		$	6		$	28,870		$	22,062		$	11		$	(13	)

HECO and its subsidiaries recorded retirement benefits expense of $21 million and $15 million for the first six months of 2013 and 2012, respectively. The electric utilities charged a portion of the net periodic benefit cost to electric utility plant.

The utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, these retirement benefit costs that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will be amortized over 5 years beginning with the respective utility’s next rate case.

Accumulated other comprehensive income.  Reclassifications out of AOCI were as follows:

	Amount reclassified from AOCI
	Three months ended June 30						Six months ended June 30
(in thousands)	2013			2012			2013			2012
Retirement benefit plan items
Amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost	$	5,016		$	3,364		$	10,347		$	6,836		See above
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets	(4,999		)	(3,289		)	(10,312		)	(6,684		)	See above
Total reclassifications	$	17		$	75		$	35		$	152

Defined contribution plan information.  For the first six months of 2013 and 2012, the utilities’ expense for its defined contribution pension plan was $0.3 million and de minimis, respectively.