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Income taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income taxes |
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 | 2013 |  |  | 2012 |  |  | 2011 |  |  | 2013 |  |  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | (1,520 | ) |  | $ | (15,411 | ) |  | $ | (7,639 | ) |  | $ | 1,313 |  |  | $ | (26,965 | ) |  | $ | (10,820 | )
Deferred | 73,680 |  |  | 82,138 |  |  | 73,495 |  |  | 58,024 |  |  | 79,437 |  |  | 64,646 |
Deferred tax credits, net | 224 |  |  | 187 |  |  | — |  |  | 224 |  |  | 186 |  |  | — |
| 72,384 |  |  | 66,914 |  |  | 65,856 |  |  | 59,561 |  |  | 52,658 |  |  | 53,826 |
State |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | (1,555 | ) |  | (4,654 | ) |  | 2,437 |  |  | (3,720 | ) |  | (4,940 | ) |  | 1,226 |
Deferred | 6,719 |  |  | 8,710 |  |  | 5,949 |  |  | 6,483 |  |  | 7,441 |  |  | 4,445 |
Deferred tax credits, net | 6,793 |  |  | 5,889 |  |  | 1,690 |  |  | 6,793 |  |  | 5,889 |  |  | 2,087 |
| 11,957 |  |  | 9,945 |  |  | 10,076 |  |  | 9,556 |  |  | 8,390 |  |  | 7,758 |
Total | $ | 84,341 |  |  | $ | 76,859 |  |  | $ | 75,932 |  |  | $ | 69,117 |  |  | $ | 61,048 |  |  | $ | 61,584 |
A reconciliation of the amount of income taxes computed at the federal statutory rate of 35% to the amount provided in the consolidated statements of income was as follows:
| HEI consolidated |  | Hawaiian Electric consolidated
Years ended December 31 | 2013 |  |  | 2012 |  |  | 2011 |  |  | 2013 |  |  | 2012 |  |  | 2011 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount at the federal statutory income tax rate | $ | 86,711 |  |  | $ | 76,092 |  |  | $ | 75,618 |  |  | $ | 67,914 |  |  | $ | 56,812 |  |  | $ | 57,248 |
Increase (decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal income tax benefit | 7,772 |  |  | 6,464 |  |  | 6,550 |  |  | 6,211 |  |  | 5,453 |  |  | 5,042 |
Other, net | (10,142 | ) |  | (5,697 | ) |  | (6,236 | ) |  | (5,008 | ) |  | (1,217 | ) |  | (706 | )
Total | $ | 84,341 |  |  | $ | 76,859 |  |  | $ | 75,932 |  |  | $ | 69,117 |  |  | $ | 61,048 |  |  | $ | 61,584 |
Effective income tax rate | 34.0 | % |  | 35.4 | % |  | 35.1 | % |  | 35.6 | % |  | 37.6 | % |  | 37.7 | %
The Company’s and the Utilities' effective tax rate decreased in 2013 compared to 2012 primarily due to $3.5 million lower deferred taxes related to the tax gross-up of AFUDC-equity and a $3.1 million (including $2.7 million related to the Utilities) out-of-period income tax benefit (see “Out-of-period income tax benefit”). The Company's effective tax rate increased slightly from 2011 to 2012 due primarily to lower utility tax credit amortization and its lower relative impact on higher operating income in 2012, and tax-free bank-owned life insurance proceeds received in 2011. 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 | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
(in thousands) |  |  |  |  |  |  |  |  |
Deferred tax assets |  |  |  |  |  |  |  |  |
Allowance for loan losses | $ | 16,172 |  |  | $ | 17,254 |  |  | $ | — |  |  | $ | — |
Retirement benefits | — |  |  | 266 |  |  | — |  |  | — |
Net operating loss | — |  |  | — |  |  | 19,848 |  |  | 6,413 |
Other | 41,067 |  |  | 34,354 |  |  | 17,295 |  |  | 13,986 |
Total deferred tax assets | 57,239 |  |  | 51,874 |  |  | 37,143 |  |  | 20,399 |
Deferred tax liabilities |  |  |  |  |  |  |  |  |
Property, plant and equipment related | 378,280 |  |  | 316,900 |  |  | 375,771 |  |  | 315,409 |
Goodwill | 23,781 |  |  | 23,781 |  |  | — |  |  | — |
Regulatory assets, excluding amounts attributable to property, plant and equipment | 33,251 |  |  | 33,071 |  |  | 33,251 |  |  | 33,071 |
FHLB stock dividend | 18,847 |  |  | 20,062 |  |  | — |  |  | — |
Repairs deduction | 75,127 |  |  | 69,514 |  |  | 75,127 |  |  | 69,514 |
Retirement benefits | 29,280 |  |  | — |  |  | 23,851 |  |  | 8,688 |
Other | 27,933 |  |  | 27,875 |  |  | 15,602 |  |  | 11,328 |
Total deferred tax liabilities | 586,499 |  |  | 491,203 |  |  | 523,602 |  |  | 438,010 |
Net deferred income tax liability | $ | 529,260 |  |  | $ | 439,329 |  |  | $ | 486,459 |  |  | $ | 417,611 |
Prepayments and other | $ | — |  |  | $ | — |  |  | $ | 20,702 |  |  | $ | — |
Deferred income taxes | 529,260 |  |  | 439,329 |  |  | 507,161 |  |  | 417,611 |
Net deferred income tax liability | $ | 529,260 |  |  | $ | 439,329 |  |  | $ | 486,459 |  |  | $ | 417,611 |
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, 2013, the valuation allowance for deferred tax benefits is not significant. In 2013, the net deferred income tax liability continued to increase primarily as a result of accelerated tax deductions taken for bonus depreciation (resulting from the American Taxpayer Relief Act of 2012). 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) income tax return liabilities and refunds on a standalone basis as if it filed a separate return (or subgroup consolidated return). Consequently, although HEI consolidated does not expect any unutilized net operating loss (NOL) as of December 31, 2013, standalone Hawaiian Electric consolidated expects a $55 million (pretax) NOL for federal tax purposes in accordance with the HEI tax sharing agreement. The deferred tax asset associated with this NOL is included in “Prepayments and other.” HEI consolidated. In 2013, 2012 and 2011, credit adjustments to interest expense on income taxes was reflected in “Interest expense – other than on deposit liabilities and other bank borrowings” in the amount of $0.3 million, $1.4 million and $1.2 million, respectively. The credit adjustments to interest expense were primarily due to the resolution of tax issues with the Internal Revenue Service (IRS). As of December 31, 2013 and 2012, the total amount of accrued interest related to uncertain tax positions and recognized on the balance sheet in “Interest and dividends payable” was $0.4 million and $0.3 million, respectively. As of December 31, 2013, the total amount of liability for uncertain tax positions was $0.9 million and, of this amount, $0.7 million, if recognized, would affect the Company’s effective tax rate. The Company’s unrecognized tax benefits are primarily the result of differences relating to the tax basis of property and equipment. Hawaiian Electric consolidated. In 2013, 2012 and 2011, credit adjustments to interest expense on income taxes was reflected in “Interest and other charges” in the amount of $0.3 million, $0.5 million and $1.0 million, respectively. The credit adjustments to interest expense were primarily due to the resolution of tax issues with the IRS. As of December 31, 2013 and 2012, the total amount of accrued interest related to uncertain tax positions and recognized on the balance sheet in “Interest and preferred dividends payable” was de minimis. As of December 31, 2013, the total amount of liability for uncertain tax positions was $0.5 million and, if recognized, would affect the Utilities' effective tax rate. The Utilities' unrecognized tax benefits are primarily the result of differences relating to the tax basis of property and equipment. The changes in total unrecognized tax benefits were as follows:
| HEI consolidated |  | Hawaiian Electric consolidated
(in millions) | 2013 |  |  | 2012 |  |  | 2011 |  |  | 2013 |  |  | 2012 |  |  | 2011 |
Unrecognized tax benefits, January 1 | $ | 0.8 |  |  | $ | 5.7 |  |  | $ | 15.4 |  |  | $ | 0.4 |  |  | $ | 3.7 |  |  | 14.2 |
Additions based on tax positions taken during the year | — |  |  | 0.3 |  |  | — |  |  | — |  |  | 0.3 |  |  | — |
Reductions based on tax positions taken during the year | — |  |  | — |  |  | (0.6 | ) |  | — |  |  | — |  |  | (0.6 | )
Additions for tax positions of prior years | 0.5 |  |  | — |  |  | 0.1 |  |  | 0.5 |  |  | — |  |  | — |
Reductions for tax positions of prior years | (0.4 | ) |  | (4.1 | ) |  | (8.1 | ) |  | (0.4 | ) |  | (3.6 | ) |  | (8.8 | )
Settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Lapses of statute of limitations | — |  |  | (1.1 | ) |  | (1.1 | ) |  | — |  |  | — |  |  | (1.1 | )
Unrecognized tax benefits, December 31 | $ | 0.9 |  |  | $ | 0.8 |  |  | $ | 5.7 |  |  | $ | 0.5 |  |  | $ | 0.4 |  |  | $ | 3.7 |
The 2012 reduction in unrecognized tax benefits was primarily due to the IRS’s acceptance of the deductibility of costs of repairs to utility generation property for tax years 2007-2009. The 2011 reduction in unrecognized tax benefits was primarily due to the IRS’s issuance of guidance (Revenue Procedure 2011-43, issued in August 2011) on the deductibility of costs of repairs to utility transmission and distribution (T&D) property, including a “safe harbor” method under which taxpayers could transition and minimize the uncertainty of the repairs expense deduction for T&D property. The Company elected the “safe harbor” method in its 2011 tax return, which resulted in the reduction of associated unrecognized tax benefits for 2011. The IRS is currently auditing tax years 2010 and 2011. Tax years 2007 to 2012 remain subject to examination by the Department of Taxation of the State of Hawaii. As of December 31, 2013, the disclosures above present the Company’s and the Utilities' accruals for potential tax liabilities and related interest. 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 related interest, 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. Out-of-period income tax benefit. During 2013, the Company recorded a $3.1 million (including $2.7 million related to the Utilities) out-of-period income tax benefit, resulting primarily from the reversal of deferred tax liabilities due to errors in the amount of book over tax basis differences in plant and equipment. Management concluded that this out-of-period adjustment was not material to either the current or any prior period financial statements. Recent tax developments. In September 2013, the IRS issued final regulations addressing the acquisition, production and improvement of tangible property, which are effective January 1, 2014. Management is currently evaluating the impact of these new regulations, but does not expect a material impact on the Utilities since specific guidance on network (i.e., transmission and distribution) assets and generation property has already been received. The IRS also proposed regulations addressing the disposition of property. The Utilities adopted the safe harbor guidelines with respect to network assets in 2011 and in June 2013, the IRS released a revenue procedure relating to deductions for repairs of generation property, which provides some guidance (that is elective) for taxpayers that own steam or electric generation property. This guidance defines the relevant components of generation property to be used in determining whether such component expenditures should be deducted as repairs or capitalized and depreciated by taxpayers. The revenue procedure also provides an extrapolation methodology that could be used by taxpayers in determining deductions for prior years’ repairs without going back to the specific documentation of those years. The guidance does not provide specific methods for determining the repairs amount. Management continues to evaluate the costs and benefits of adopting this guidance, in order to determine whether and when an election should be made.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 136, 172 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 109 -Paragraph 43, 44, 45, 46, 47, 48, 49 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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