Electric utility subsidiary

9 Months Ended

Sep. 30, 2014

Electric utility subsidiary [Abstract]

Revenue taxes. The Utilities’ revenues include amounts for the recovery of various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the period the related revenues are recognized. However, the Utilities’ revenue tax payments to the taxing authorities in the period are based on the prior year’s billed revenues (in the case of public service company taxes and PUC fees) or on the current year’s cash collections from electric sales (in the case of franchise taxes). The Utilities included in the third quarters of 2014 and 2013 and the nine months ended September 30, 2014 and 2013 approximately $74 million, $69 million, $203 million and $198 million, respectively, of revenue taxes in "revenues" and in "taxes, other than income taxes" expense.

Recent tax developments. In September 2013, the Internal Revenue Service (IRS) issued final regulations addressing the acquisition, production and improvement of tangible property, which were effective January 1, 2014. Management does not expect the impact of these new regulations will be material to the Utilities' financial statements since specific guidance on network (i.e., transmission and distribution) assets and generation property had already been received. The IRS also recently issued guidance addressing the disposition of property and providing an election for retroactive disposition of certain property. The Company will be reviewing the impact of this guidance, but does not expect it to have a material effect on the financial statements.

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

In the second quarter of 2014, the Utilities received IRS approval for a change in the method of accounting for revenues recorded to the Utilities’ revenue balancing accounts (RBAs) (from an accrual basis to a billed basis) for income tax purposes, effective January 1, 2014. HEI has included the effects of this change in its estimated income tax payments for 2014. This change will result in improved cash flows by deferring the payment of income taxes on the RBA revenues recognized until the revenues are billed but will reduce the interest to be accrued on the RBA balance as proposed by the Consumer Advocate.

Unconsolidated variable interest entities.

HECO Capital Trust III. HECO Capital Trust III (Trust III) was created and exists for the exclusive purposes of (i) issuing in March 2004 2,000,000 6.50% Cumulative Quarterly Income Preferred Securities, Series 2004 (2004 Trust Preferred Securities) ($50 million aggregate liquidation preference) to the public and trust common securities ($1.5 million aggregate liquidation preference) to Hawaiian Electric, (ii) investing the proceeds of these trust securities in 2004 Debentures issued by Hawaiian Electric in the principal amount of $31.5 million and issued by Hawaii Electric Light and Maui Electric each in the principal amount of $10 million, (iii) making distributions on these trust securities and (iv) engaging in only those other activities necessary or incidental thereto. The 2004 Trust Preferred Securities are mandatorily redeemable at the maturity of the underlying debt on March 18, 2034, which maturity may be extended to no later than March 18, 2053; and are currently redeemable at the issuer’s option without premium. The 2004 Debentures, together with the obligations of the Utilities under an expense agreement and Hawaiian Electric’s obligations under its trust guarantee and its guarantee of the obligations of Hawaii Electric Light and Maui Electric under their respective debentures, are the sole assets of Trust III. Taken together, Hawaiian Electric’s obligations under the Hawaiian Electric debentures, the Hawaiian Electric indenture, the subsidiary guarantees, the trust agreement, the expense agreement and trust guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payments of amounts due on the Trust Preferred Securities. Trust III has at all times been an unconsolidated subsidiary of Hawaiian Electric. Since Hawaiian Electric, as the holder of 100% of the trust common securities, does not absorb the majority of the variability of Trust III, Hawaiian Electric is not the primary beneficiary and does not consolidate Trust III in accordance with accounting rules on the consolidation of VIEs. Trust III’s balance sheets as of September 30, 2014 and December 31, 2013 each consisted of $51.5 million of 2004 Debentures; $50.0 million of 2004 Trust Preferred Securities; and $1.5 million of trust common securities. Trust III’s income statements for the nine months ended September 30, 2014 and 2013 each consisted of $2.5 million of interest income received from the 2004 Debentures; $2.4 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.

Power purchase agreements. As of September 30, 2014, the Utilities had six purchase power agreements (PPAs) for firm capacity and several other PPAs with variable generation independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or small power production facilities with a capacity of 100 kilowatts (kWs) or less who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs. The PPAs with AES Hawaii, Inc. (AES Hawaii), Kalaeloa Partners, L.P. (Kalaeloa), Hamakua Energy Partners, L.P. (HEP) and Hpower comprise approximately 90% of IPP contractual firm capacity available to the Utilities. Purchases from all IPPs were as follows:



	Three months ended September 30				Nine months ended September 30
(in millions)	2014		2013		2014		2013
AES Hawaii	$	38	$	38	$	107	$	98
Kalaeloa	73		80		214		223
HEP	16		15		36		36
Hpower	18		17		50		44
Other IPPs	48		45		139		126
Total IPPs	$	193	$	195	$	546	$	527

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

Since 2004, Hawaiian Electric has continued its efforts to obtain from the IPPs the information necessary to make the determinations required under accounting standards for VIEs. In each year from 2005 to 2013, the Utilities sent letters to the identified IPPs requesting the required information. All of these IPPs declined to provide the necessary information, except that Kalaeloa later agreed to provide the information pursuant to the amendments to its PPA (see below) and an entity owning a wind farm provided information as required under its PPA. Management has concluded that the consolidation of two entities owning wind farms was not required as Hawaii Electric Light and Maui Electric do not have variable interests in the entities because the PPAs do not require them to absorb any variability of the entities. If the requested information is ultimately received from the remaining IPPs, a possible outcome of future analyses of such information is the consolidation of one or more of such IPPs in the Consolidated Financial Statements. The consolidation of any significant IPP could have a material effect on the Consolidated Financial Statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs.

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

Pursuant to the current accounting standards for VIEs, Hawaiian Electric is deemed to have a variable interest in Kalaeloa by reason of the provisions of Hawaiian Electric’s PPA with Kalaeloa. However, management has concluded that Hawaiian Electric is not the primary beneficiary of Kalaeloa because Hawaiian Electric does not have the power to direct the activities that most significantly impact Kalaeloa’s economic performance nor the obligation to absorb Kalaeloa’s expected losses, if any, that could potentially be significant to Kalaeloa. Thus, Hawaiian Electric has not consolidated Kalaeloa in its consolidated financial statements. A significant factor affecting the level of expected losses Hawaiian Electric could potentially absorb is the fact that Hawaiian Electric’s exposure to fuel price variability is limited to the remaining term of the PPA as compared to the facility’s remaining useful life. Although Hawaiian Electric absorbs fuel price variability for the remaining term of the PPA, the PPA does not currently expose Hawaiian Electric to losses as the fuel and fuel related energy payments under the PPA have been approved by the PUC for recovery from customers through base electric rates and through Hawaiian Electric’s ECAC to the extent the fuel and fuel related energy payments are not included in base energy rates. As of September 30, 2014, Hawaiian Electric’s accounts payable to Kalaeloa amounted to $16 million.

Commitments and contingencies.

Environmental regulation. The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances. In recent years, legislative, regulatory and governmental activities related to the environment, including proposals and rulemaking under the Clean Air Act and Clean Water Act (CWA), have increased significantly and management anticipates that such activity will continue.

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

On February 16, 2012, the Federal Register published the EPA’s final rule establishing the EPA’s National Emission Standards for Hazardous Air Pollutants for fossil-fuel fired steam electrical generating units (EGUs). The final rule, known as the Mercury and Air Toxics Standards (MATS), applies to the 14 EGUs at Hawaiian Electric’s power plants. MATS establishes the Maximum Achievable Control Technology standards for the control of hazardous air pollutants emissions from new and existing EGUs. Based on a review of the final rule and the benefits and costs of alternative compliance strategies, Hawaiian Electric has selected a MATS compliance strategy based on switching to lower emission fuels. The use of lower emission fuels will provide for MATS compliance at lower overall costs and avoid the reduction in operational flexibility imposed by emissions control equipment. Hawaiian Electric requested and received a one-year extension, resulting in a MATS compliance date of April 16, 2016. Hawaiian Electric also has pending with the EPA a Petition for Reconsideration and Stay dated April 16, 2012, and a Request for Expedited Consideration dated August 14, 2013. The submittals ask the EPA to revise an emissions standard for non-continental oil-fired EGUs on the grounds that the promulgated standard was incorrectly derived. The Petition and Request submittals to the EPA included additional data to demonstrate that the existing standard is erroneous. Hawaiian Electric has been in contact with the EPA regarding the status of its Petition, but has not been given a time frame for an EPA decision or action.

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

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

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

Potential Clean Air Act Enforcement. On July 1, 2013, Hawaii Electric Light and Maui Electric received a letter from the U.S. Department of Justice (DOJ) asserting potential violations of the Prevention of Significant Deterioration (PSD)

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

Former Molokai Electric Company generation site. In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The EPA has since performed Brownfield assessments of the Site that identified environmental impacts in the subsurface. Although Maui Electric never operated at the Site and operations there had stopped four years before the merger, in discussions with the EPA and the DOH, Maui Electric agreed to undertake additional investigations at the Site and an adjacent parcel that Molokai Electric Company had used for equipment storage (the Adjacent Parcel) to determine the extent of impacts of subsurface contaminants. A 2011 assessment by a Maui Electric contractor of the Adjacent Parcel identified environmental impacts, including elevated polychlorinated biphenyls (PCBs) in the subsurface soils. In cooperation with the DOH and EPA, Maui Electric is further investigating the Site and the Adjacent Parcel to determine the extent of impacts of PCBs, residual fuel oils, and other subsurface contaminants. In March 2012, Maui Electric accrued an additional $3.1 million (reserve balance of $3.6 million as of September 30, 2014) for the additional investigation and estimated cleanup costs at the Site and the Adjacent Parcel; however, final costs of remediation will depend on the results of continued investigation. Maui Electric received DOH and EPA comments on a draft site investigation plan for site characterization in the fourth quarter of 2013. Management concluded that these comments did not require a change to the reserve balance. The site investigation plan is currently being revised and the final site investigation plan will be submitted to the DOH and EPA in the fourth quarter of 2014.

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

In July 2014, the Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is responsible for cleanup of the area offshore of the Waiau Power Plant. The Navy has also requested that Hawaiian Electric reimburse the costs incurred by the Navy to date to investigate the area, and is asking Hawaiian Electric to engage in negotiations regarding the financing and undertaking of future response actions. The extent of the contamination, the appropriate remedial measures to address it, and Hawaiian Electric’s potential responsibility for any associated costs have not yet been determined.

Global climate change and greenhouse gas emissions reduction. National and international concern about climate change and the contribution of greenhouse gas (GHG) emissions (including carbon dioxide emissions from the combustion of fossil fuels) to climate change have led to action by the State and to federal legislative and regulatory proposals to reduce GHG emissions.

In July 2007, Act 234, which requires a statewide reduction of GHG emissions by January 1, 2020 to levels at or below the statewide GHG emission levels in 1990, became law in Hawaii. On June 20, 2014, the Governor signed the final regulations required to implement Act 234 and the regulations went into effect on June 30, 2014. In general, the regulations will require affected sources that have the potential to emit GHGs in excess of established thresholds to reduce GHG emissions by 16% below 2010 emission levels by 2020. The regulations will also assess affected sources an annual fee based on tons per year of GHG emissions commencing on the effective date of the regulations, estimated to be approximately $0.5 million annually for the Utilities. The DOH GHG regulations also track the federal “Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule” (GHG Tailoring Rule, see below) and would create new thresholds for GHG emissions from new and existing stationary source facilities.

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

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

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

On January 8, 2014, the EPA published in the Federal Register its new proposal for New Source Performance Standards for GHG from new generating units. The proposed rule on GHG from new EGUs does not apply to oil- fired combustion turbines or diesel engine generators, and is not otherwise expected to have significant impacts on the Utilities.

On June 18, 2014, the EPA published in the Federal Register its proposed rule for GHG emissions from existing power plants. The rule sets interim and final state-wide, state-specific emission performance goals, expressed as lb CO₂/MWh, that would apply to the state’s affected sources. The interim goal would apply as an average over the period 2020 through 2029, with the final goal to be met by 2030. On the same date, the EPA also published a separate rule for modified and reconstructed power plants. The EPA’s plan is to issue the final rules no later than June 1, 2015. Hawaiian Electric is still evaluating the proposed rules for GHG emissions from existing, modified, and reconstructed sources, and how they might relate to the recently issued State GHG rules. Hawaiian Electric will participate in the federal GHG rulemaking process, and in the implementation of the State GHG rules, to try to reconcile federal GHG regulation, state GHG regulation, and any action the EPA may take as a result of the recent U.S. Supreme Court opinion, to facilitate clear and cost-effective compliance. The Utilities will continue to evaluate the impact of proposed GHG rules and regulations as they develop. Final regulations may impose significant compliance costs, and may require reductions in fossil fuel use and the addition of renewable energy resources in excess of the requirements of the RPS law.

While the timing, extent and ultimate effects of climate change cannot be determined with any certainty, climate change is predicted to result in sea level rise, which could potentially impact coastal and other low-lying areas (where much of the Utilities’ electric infrastructure is sited), and could cause erosion of beaches, saltwater intrusion into aquifers and surface ecosystems, higher water tables and increased flooding and storm damage due to heavy rainfall. The effects of climate change on the weather (for example, floods or hurricanes), sea levels, and water availability and quality have the potential to materially adversely affect the results of operations, financial condition and liquidity of the Utilities. For example, severe weather could cause significant harm to the Utilities’ physical facilities.

The Utilities have taken, and continue to identify opportunities to take, direct action to reduce GHG emissions from their operations, including, but not limited to, supporting DSM programs that foster energy efficiency, using renewable resources for energy production and purchasing power from IPPs generated by renewable resources, burning renewable biodiesel in Hawaiian Electric’s Campbell Industrial Park combustion turbine No. 1 (CIP CT-1), using biodiesel for startup and shutdown of selected Maui Electric generating units, and testing biofuel blends in other Hawaiian Electric and Maui Electric generating units. The Utilities are also working with the State of Hawaii and other entities to pursue the use of liquefied natural gas as a cleaner and lower cost fuel to replace, at least in part, the petroleum oil that would otherwise be used. Management is unable to evaluate the ultimate impact on the Utilities’ operations of eventual comprehensive GHG regulation. However, management believes that the various initiatives it is undertaking will provide a sound basis for managing the Utilities’ carbon footprint and meeting GHG reduction goals that will ultimately emerge.

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

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

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



	Nine months ended September 30
(in thousands)	2014			2013
Balance, beginning of period	$	43,106		$	48,431
Accretion expense	816			833
Liabilities incurred	—			—
Liabilities settled	(11,338		)	(1,165		)
Revisions in estimated cash flows	—			(916		)
Balance, end of period	$	32,584		$	47,183

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

On May 31, 2013, as provided for in its original order issued in 2010 approving decoupling and citing three years of implementation experience for Hawaiian Electric, the PUC opened an investigative docket to review whether the decoupling mechanisms are functioning as intended, are fair to the Utilities and their ratepayers, and are in the public interest. The PUC affirmed its support for the continuation of the sales decoupling (RBA) mechanism and stated its interest in evaluating the RAM to ensure it provides the appropriate balance of risks, costs, incentives and performance requirements, as well as administrative efficiency, and whether the current interest rate applied to the outstanding RBA balance is reasonable. The Utilities and the Consumer Advocate were named as parties to this proceeding and filed a joint statement of position that any material changes to the current decoupling mechanism should be made prospectively after 2016, unless the Utilities and the Consumer Advocate mutually agree to the change in this proceeding. The PUC granted several parties’ motions to intervene. In October 2013, the PUC issued orders that bifurcated the proceeding (Schedule A and Schedule B) and identified issues and procedural schedules for both Schedules.

Schedule A issues include:


•	for the RBA, the reasonableness of the interest rate related to the carrying charge of the outstanding RBA balance and whether there should be a risk sharing adjustment to the RBA;


•	for the RAM, whether it is reasonable to true up all actual prior year baseline projects, which are those capital projects less than $2.5 million, at year end or implement alternative methods to calculate the RAM rate base;


•	whether a risk sharing mechanism should be incorporated into the RBA;


•	whether performance metrics should be determined and reported; and


•	whether other factors should be considered if potential changes to existing RBA and RAM provisions are required.

Schedule B issues include:


•	whether performance metrics and incentives (rewards or penalties) should be implemented to control costs and encourage the Utilities to make necessary or appropriate changes to strategic and action plans;


•	whether the allocation of risk as a result of the decoupling mechanism is fairly reflected in the cost of capital allowed in rates;


•	changes or alternatives to the existing RAM; and


•	changes to ratemaking procedures to improve efficiency and/or effectiveness.

Oral arguments on Schedule A issues were held in January 2014. On February 7, 2014, the PUC issued a decision and order (D&O) on the Schedule A issues, which made certain modifications to the decoupling mechanism. Specifically, the D&O requires:


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


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

The D&O required the Utilities to immediately investigate the possibility of deferring the payment of income taxes on the accrued amounts of decoupling revenue, and to report the results with recommendations to the PUC. The PUC reserved the right to determine in the next decoupling and rate case filings whether each Utilities’ allowed income taxes should be adjusted for this change. The Utilities updated the PUC on their progress in investigating the tax treatment of the revenues included in the RBA balances and provided information to the PUC concerning the application to the IRS for an accounting methods change to recognize RBA revenues for tax purposes when amounts are billed. On April 28, 2014, the Utilities received approval for this change from the IRS, effective January 1, 2014. This change will reduce the amount of interest to be accrued on the RBA balance as proposed by the Consumer Advocate (see "Recent tax developments" above).

As required, the Utilities developed websites to present certain Schedule A performance metrics and proposed additional performance metrics. These metrics are all currently being reviewed by the PUC and, if approved, will be available to the public.

The Schedule A issues on whether it is reasonable to automatically include all actual prior year capital expenditures on baseline projects in the Rate Base RAM and whether a risk sharing mechanism should be incorporated into the RBA, particularly with respect to the PUC’s concerns regarding maintaining and enhancing the Utilities' incentives to control costs and appropriately allocating risk and compensation for risk, will be addressed in the Schedule B proceedings.

On May 20, 2014, the Utilities and other parties filed their respective initial statements of position for the Schedule B issues in this proceeding. Specifically, the Utilities concluded that (1) the existing RAM provision can be modified to address concerns stated by the PUC regarding the review of baseline capital projects and the growth in plant additions, and (2) targeted incentives can be crafted to incentivize the activities identified by the PUC.

On September 15, 2014, the Utilities and other parties filed their respective reply statements of position for the Schedule B issues in this proceeding. Specifically, the Utilities concluded that (1) the existing RAM provision can be modified to address PUC concerns regarding the review of baseline capital projects, and to provide more incentives for the Utilities to control capital expenditure costs while aggressively moving forward with their plans, (2) if the RAM is to be replaced, the Utilities can support transition to a new appropriately designed incentive-based regulatory (IBR) model, (3) developing an IBR mechanism and process consistent with the objectives in the Utilities’ approved plans will also take reasonable time; thus, it would be more reasonable to target 2017 to begin implementation of any new IBR mechanism and decoupling should be retained in the meantime and (4) the Utilities would support the development of performance metrics to be implemented as part of a new IBR mechanism.

The Utilities and other parties participated in panel hearings on Schedule B issues in late October 2014.

Management cannot predict the outcome of the proceedings or the ultimate impact of the proceedings on the results of operation of the Utilities.

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

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

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


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


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


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


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


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

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

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

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

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

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

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

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

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

Fuel oil contracts. On August 27, 2014, Chevron Products Company, a division of Chevron U.S.A. Inc. (Chevron), and Hawaiian Electric entered into a first amendment (Amendment) to the Low Sulfur Fuel Oil Supply (LSFO) Contract, which terminates on December 31, 2016 and may automatically renew for annual terms thereafter unless earlier terminated by either party. The Amendment reduces the price of fuel above certain volumes, allows for increases in the volume of fuel, and modifies the specification of certain petroleum products supplied under the contract. In addition, Chevron agreed to supply a blend of LSFO and ultra-low sulfur diesel as soon as January 2016 (for supply through the end of the contract term, December 31, 2016) to help Hawaiian Electric meet more stringent EPA air emission requirements known as Mercury and Air Toxics Standards. The Amendment is subject to approval of the PUC, and can be terminated if approval is not received by April 15, 2015.

On August 27, 2014, Chevron and the Utilities entered into a third amendment to the Inter-Island Industrial Fuel Oil and Diesel Fuel Supply Contract, which amendment extended the term of the contract through December 31, 2016 and may automatically renew for an annual term thereafter unless earlier terminated by either party.

On August 28, 2014, Hawaiian Electric provided notice to Hawaiian Independent Energy LLC (HIE) that it will not renew the LSFO contract that was assigned to HIE from Tesoro Hawaii Corporation. The term of the contract is through December 31, 2014, and renews automatically unless terminated by either party.

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

Hawaiian Electric also unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric, (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder and (c) relating to the trust preferred securities of Trust III. Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend, redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is unable to make such payments.

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (unaudited)

Three months ended September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	579,777		111,154		112,656		—	(22	)	$	803,565
Expenses
Fuel oil	229,068			29,555		50,809		—	—		309,432
Purchased power	142,121			34,166		16,595		—	—		192,882
Other operation and maintenance	71,584			19,837		16,892		—	—		108,313
Depreciation	27,302			8,975		5,317		—	—		41,594
Taxes, other than income taxes	54,412			10,607		10,169		—	—		75,188
Total expenses	524,487			103,140		99,782		—	—		727,409
Operating income	55,290			8,014		12,874		—	(22	)	76,156
Allowance for equity funds used during construction	1,668			142		127		—	—		1,937
Equity in earnings of subsidiaries	9,800			—		—		—	(9,800	)	—
Interest expense and other charges, net	(11,196		)	(2,811	)	(2,429	)	—	22		(16,414		)
Allowance for borrowed funds used during construction	634			54		52		—	—		740
Income before income taxes	56,196			5,399		10,624		—	(9,800	)	62,419
Income taxes	17,047			1,965		4,030		—	—		23,042
Net income	39,149			3,434		6,594		—	(9,800	)	39,377
Preferred stock dividends of subsidiaries	—			133		95		—	—		228
Net income attributable to Hawaiian Electric	39,149			3,301		6,499		—	(9,800	)	39,149
Preferred stock dividends of Hawaiian Electric	270			—		—		—	—		270
Net income for common stock	$	38,879		3,301		6,499		—	(9,800	)	$	38,879

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (unaudited)

Three months ended September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	38,879		3,301		6,499		—	(9,800	)	$	38,879
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	2,552			317		272		—	(589	)	2,552
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(2,542		)	(319	)	(272	)	—	591		(2,542		)
Other comprehensive income (loss), net of taxes	10			(2	)	—		—	2		10
Comprehensive income attributable to common shareholder	$	38,889		3,299		6,499		—	(9,798	)	$	38,889

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (unaudited)

Three months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	547,434		107,957		108,699		—		(36	)	$	764,054
Expenses
Fuel oil	206,478			27,615		49,267		—		—		283,360
Purchased power	143,280			34,480		17,101		—		—		194,861
Other operation and maintenance	71,498			16,793		16,221		1		—		104,513
Depreciation	25,442			8,547		5,006		—		—		38,995
Taxes, other than income taxes	51,781			10,457		10,234		—		—		72,472
Total expenses	498,479			97,892		97,829		1		—		694,201
Operating income (loss)	48,955			10,065		10,870		(1	)	(36	)	69,853
Allowance for equity funds used during construction	914			222		119		—		—		1,255
Equity in earnings of subsidiaries	10,794			—		—		—		(10,794	)	—
Interest expense and other charges, net	(9,883		)	(2,920	)	(2,266	)	—		36		(15,033		)
Allowance for borrowed funds used during construction	358			91		49		—		—		498
Income (loss) before income taxes	51,138			7,458		8,772		(1	)	(10,794	)	56,573
Income taxes	13,051			1,881		3,326		—		—		18,258
Net income (loss)	38,087			5,577		5,446		(1	)	(10,794	)	38,315
Preferred stock dividends of subsidiaries	—			133		95		—		—		228
Net income (loss) attributable to Hawaiian Electric	38,087			5,444		5,351		(1	)	(10,794	)	38,087
Preferred stock dividends of Hawaiian Electric	270			—		—		—		—		270
Net income (loss) for common stock	$	37,817		5,444		5,351		(1	)	(10,794	)	$	37,817

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (Loss) (unaudited)

Three months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Net income (loss) for common stock	$	37,817		5,444		5,351		(1	)	(10,794	)	$	37,817
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	5,173			720		639		—		(1,359	)	5,173
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(5,156		)	(721	)	(639	)	—		1,360		(5,156		)
Other comprehensive income (loss), net of taxes	17			(1	)	—		—		1		17
Comprehensive income (loss) attributable to common shareholder	$	37,834		5,443		5,351		(1	)	(10,793	)	$	37,834

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (unaudited)

Nine months ended September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	1,623,223		319,629		319,265		—	(61	)	$	2,262,056
Expenses
Fuel oil	628,164			92,234		145,591		—	—		865,989
Purchased power	406,895			91,827		47,399		—	—		546,121
Other operation and maintenance	199,091			48,701		47,691		—	—		295,483
Depreciation	81,903			26,926		15,961		—	—		124,790
Taxes, other than income taxes	152,545			30,127		30,111		—	—		212,783
Total expenses	1,468,598			289,815		286,753		—	—		2,045,166
Operating income	154,625			29,814		32,512		—	(61	)	216,890
Allowance for equity funds used during construction	4,557			328		48		—	—		4,933
Equity in earnings of subsidiaries	28,576			—		—		—	(28,576	)	—
Interest expense and other charges, net	(33,236		)	(8,411	)	(7,403	)	—	61		(48,989		)
Allowance for borrowed funds used during construction	1,728			126		23		—	—		1,877
Income before income taxes	156,250			21,857		25,180		—	(28,576	)	174,711
Income taxes	46,911			8,149		9,626		—	—		64,686
Net income	109,339			13,708		15,554		—	(28,576	)	110,025
Preferred stock dividends of subsidiaries	—			400		286		—	—		686
Net income attributable to Hawaiian Electric	109,339			13,308		15,268		—	(28,576	)	109,339
Preferred stock dividends of Hawaiian Electric	810			—		—		—	—		810
Net income for common stock	$	108,529		13,308		15,268		—	(28,576	)	$	108,529

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (unaudited)

Nine months ended September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Net income for common stock	$	108,529		13,308		15,268		—	(28,576	)	$	108,529
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	7,659			953		817		—	(1,770	)	7,659
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(7,627		)	(955	)	(817	)	—	1,772		(7,627		)
Other comprehensive income (loss), net of taxes	32			(2	)	—		—	2		32
Comprehensive income attributable to common shareholder	$	108,561		13,306		15,268		—	(28,574	)	$	108,561

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Income (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Revenues	$	1,576,068		320,330		313,725		—		(103	)	$	2,210,020
Expenses
Fuel oil	631,824			94,120		151,794		—		—		877,738
Purchased power	389,706			93,880		43,083		—		—		526,669
Other operation and maintenance	212,474			46,158		42,089		2		—		300,723
Depreciation	75,150			25,641		15,074		—		—		115,865
Taxes, other than income taxes	149,282			30,113		29,681		—		—		209,076
Total expenses	1,458,436			289,912		281,721		2		—		2,030,071
Operating income (loss)	117,632			30,418		32,004		(2	)	(103	)	179,949
Allowance for equity funds used during construction	3,144			552		334		—		—		4,030
Equity in earnings of subsidiaries	30,446			—		—		—		(30,446	)	—
Interest expense and other charges, net	(28,723		)	(8,566	)	(6,774	)	—		103		(43,960		)
Allowance for borrowed funds used during construction	1,268			226		132		—		—		1,626
Income (loss) before income taxes	123,767			22,630		25,696		(2	)	(30,446	)	141,645
Income taxes	32,018			7,486		9,706		—		—		49,210
Net income (loss)	91,749			15,144		15,990		(2	)	(30,446	)	92,435
Preferred stock dividends of subsidiaries	—			400		286		—		—		686
Net income (loss) attributable to Hawaiian Electric	91,749			14,744		15,704		(2	)	(30,446	)	91,749
Preferred stock dividends of Hawaiian Electric	810			—		—		—		—		810
Net income (loss) for common stock	$	90,939		14,744		15,704		(2	)	(30,446	)	$	90,939

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Comprehensive Income (Loss) (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Net income (loss) for common stock	$	90,939		14,744		15,704		(2	)	(30,446	)	$	90,939
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Less: amortization of transition obligation, prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	15,520			2,160		1,918		—		(4,078	)	15,520
Less: reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	(15,468		)	(2,162	)	(1,918	)	—		4,080		(15,468		)
Other comprehensive income (loss), net of taxes	52			(2	)	—		—		2		52
Comprehensive income (loss) attributable to common shareholder	$	90,991		14,742		15,704		(2	)	(30,444	)	$	90,991

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Balance Sheet (unaudited)

September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consoli- dating adjustments		Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	43,816		5,464		3,064		—	—		$	52,344
Plant and equipment	3,700,063			1,165,542		1,036,792		—	—		5,902,397
Less accumulated depreciation	(1,245,695		)	(472,044	)	(449,806	)	—	—		(2,167,545		)
Construction in progress	149,115			13,267		16,808		—	—		179,190
Utility property, plant and equipment, net	2,647,299			712,229		606,858		—	—		3,966,386
Nonutility property, plant and equipment, less accumulated depreciation	4,948			82		1,531		—	—		6,561
Total property, plant and equipment, net	2,652,247			712,311		608,389		—	—		3,972,947
Investment in wholly owned subsidiaries, at equity	532,766			—		—		—	(532,766	)	—
Current assets
Cash and cash equivalents	14,856			809		2,621		101	—		18,387
Advances to affiliates	11,800			—		—		—	(11,800	)	—
Customer accounts receivable, net	132,809			31,023		25,901		—	—		189,733
Accrued unbilled revenues, net	108,306			16,474		18,373		—	—		143,153
Other accounts receivable, net	22,386			6,044		3,070		—	(11,992	)	19,508
Fuel oil stock, at average cost	88,285			13,959		16,059		—	—		118,303
Materials and supplies, at average cost	36,502			7,870		16,267		—	—		60,639
Prepayments and other	32,033			6,112		12,358		—	(233	)	50,270
Regulatory assets	44,736			4,855		5,109		—	—		54,700
Total current assets	491,713			87,146		99,758		101	(24,025	)	654,693
Other long-term assets
Regulatory assets	395,343			66,004		59,665		—	—		521,012
Unamortized debt expense	5,830			1,485		1,304		—	—		8,619
Other	42,203			11,889		13,799		—	—		67,891
Total other long-term assets	443,376			79,378		74,768		—	—		597,522
Total assets	$	4,120,102		878,835		782,915		101	(556,791	)	$	5,225,162
Capitalization and liabilities
Capitalization
Common stock equity	$	1,635,751		279,388		253,277		101	(532,766	)	$	1,635,751
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	830,546			190,000		186,000		—	—		1,206,546
Total capitalization	2,488,590			476,388		444,277		101	(532,766	)	2,876,590
Current liabilities
Current portion of long-term debt	—			11,400		—		—	—		11,400
Short-term borrowings from non-affiliates	84,987			—		—		—	—		84,987
Short-term borrowings from affiliate	—			1,000		10,800		—	(11,800	)	—
Accounts payable	107,108			27,077		17,793		—	—		151,978
Interest and preferred dividends payable	16,700			3,772		3,936		—	(7	)	24,401
Taxes accrued	165,787			35,837		35,090		—	(233	)	236,481
Regulatory liabilities	289			—		239		—	—		528
Other	46,727			10,596		17,062		—	(11,985	)	62,400
Total current liabilities	421,598			89,682		84,920		—	(24,025	)	572,175
Deferred credits and other liabilities
Deferred income taxes	404,144			84,905		76,450		—	—		565,499
Regulatory liabilities	244,830			79,389		32,343		—	—		356,562
Unamortized tax credits	49,609			14,914		14,745		—	—		79,268
Defined benefit pension and other postretirement benefit plans liability	192,246			26,435		29,657			—		248,338
Other	51,790			13,347		12,782		—	—		77,919
Total deferred credits and other liabilities	942,619			218,990		165,977		—	—		1,327,586
Contributions in aid of construction	267,295			93,775		87,741		—	—		448,811
Total capitalization and liabilities	$	4,120,102		878,835		782,915		101	(556,791	)	$	5,225,162

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Balance Sheet (unaudited)

December 31, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consoli- dating adjustments		Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	43,407		5,460		3,016		—	—		$	51,883
Plant and equipment	3,558,569			1,136,923		1,006,383		—	—		5,701,875
Less accumulated depreciation	(1,222,129		)	(453,721	)	(435,379	)	—	—		(2,111,229		)
Construction in progress	124,494			7,709		11,030		—	—		143,233
Utility property, plant and equipment, net	2,504,341			696,371		585,050		—	—		3,785,762
Nonutility property, plant and equipment, less accumulated depreciation	4,953			82		1,532		—	—		6,567
Total property, plant and equipment, net	2,509,294			696,453		586,582		—	—		3,792,329
Investment in wholly owned subsidiaries, at equity	523,674			—		—		—	(523,674	)	—
Current assets
Cash and cash equivalents	61,245			1,326		153		101	—		62,825
Advances to affiliates	6,839			1,000		—		—	(7,839	)	—
Customer accounts receivable, net	121,282			28,088		26,078		—	—		175,448
Accrued unbilled revenues, net	107,752			17,100		19,272		—	—		144,124
Other accounts receivable, net	16,373			4,265		2,451		—	(9,027	)	14,062
Fuel oil stock, at average cost	99,613			14,178		20,296		—	—		134,087
Materials and supplies, at average cost	37,377			6,883		14,784		—	—		59,044
Prepayments and other	29,798			8,334		16,140		—	(1,415	)	52,857
Regulatory assets	54,979			6,931		7,828		—	—		69,738
Total current assets	535,258			88,105		107,002		101	(18,281	)	712,185
Other long-term assets
Regulatory assets	381,346			64,552		60,288		—	—		506,186
Unamortized debt expense	6,051			1,580		1,372		—	—		9,003
Other	42,163			11,270		13,993		—	—		67,426
Total other long-term assets	429,560			77,402		75,653		—	—		582,615
Total assets	$	3,997,786		861,960		769,237		101	(541,955	)	$	5,087,129
Capitalization and liabilities
Capitalization
Common stock equity	$	1,593,564		274,802		248,771		101	(523,674	)	$	1,593,564
Cumulative preferred stock—not subject to mandatory redemption	22,293			7,000		5,000		—	—		34,293
Long-term debt, net	830,547			189,998		186,000		—	—		1,206,545
Total capitalization	2,446,404			471,800		439,771		101	(523,674	)	2,834,402
Current liabilities
Current portion of long-term debt	—			11,400		—		—	—		11,400
Short-term borrowings from affiliate	1,000			—		6,839		—	(7,839	)	—
Accounts payable	145,062			24,383		20,114		—	—		189,559
Interest and preferred dividends payable	15,190			3,885		2,585		—	(8	)	21,652
Taxes accrued	175,790			37,899		37,171		—	(1,415	)	249,445
Regulatory liabilities	1,705			—		211		—	—		1,916
Other	48,443			9,033		15,424		—	(9,019	)	63,881
Total current liabilities	387,190			86,600		82,344		—	(18,281	)	537,853
Deferred credits and other liabilities
Deferred income taxes	359,621			79,947		67,593		—	—		507,161
Regulatory liabilities	235,786			76,475		35,122		—	—		347,383
Unamortized tax credits	44,931			14,245		14,363		—	—		73,539
Defined benefit pension and other postretirement benefit plans liability	202,396			28,427		31,339		—	—		262,162
Other	63,374			14,703		13,658		—	—		91,735
Total deferred credits and other liabilities	906,108			213,797		162,075		—	—		1,281,980
Contributions in aid of construction	258,084			89,763		85,047		—	—		432,894
Total capitalization and liabilities	$	3,997,786		861,960		769,237		101	(541,955	)	$	5,087,129

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Changes in Common Stock Equity (unaudited)

Nine months ended September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2013	$	1,593,564		274,802		248,771		101	(523,674	)	$	1,593,564
Net income for common stock	108,529			13,308		15,268		—	(28,576	)	108,529
Other comprehensive income (loss), net of taxes	32			(2	)	—		—	2		32
Common stock dividends	(66,369		)	(8,720	)	(10,762	)	—	19,482		(66,369		)
Common stock issuance expenses	(5		)	—		—		—	—		(5		)
Balance, September 30, 2014	$	1,635,751		279,388		253,277		101	(532,766	)	$	1,635,751

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Changes in Common Stock Equity (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Balance, December 31, 2012	$	1,472,136		268,908		228,927		104		(497,939	)	$	1,472,136
Net income (loss) for common stock	90,939			14,744		15,704		(2	)	(30,446	)	90,939
Other comprehensive income (loss), net of taxes	52			(2	)	—		—		2		52
Common stock dividends	(61,183		)	(10,790	)	(10,513	)	—		21,303		(61,183		)
Balance, September 30, 2013	$	1,501,944		272,860		234,118		102		(507,080	)	$	1,501,944

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Cash Flows (unaudited)

Nine months ended September 30, 2014



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries	Consolidating adjustments		Hawaiian Electric Consolidated
Cash flows from operating activities
Net income	$	109,339		13,708		15,554		—	(28,576	)	$	110,025
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of subsidiaries	(28,651		)	—		—		—	28,576		(75		)
Common stock dividends received from subsidiaries	19,557			—		—		—	(19,482	)	75
Depreciation of property, plant and equipment	81,903			26,926		15,961		—	—		124,790
Other amortization	765			1,950		1,947		—	—		4,662
Increase in deferred income taxes	52,274			5,146		9,972		—	—		67,392
Change in tax credits, net	4,725			687		404		—	—		5,816
Allowance for equity funds used during construction	(4,557		)	(328	)	(48	)	—	—		(4,933		)
Change in cash overdraft	—			—		(1,038	)	—	—		(1,038		)
Changes in assets and liabilities:
Increase in accounts receivable	(17,540		)	(4,714	)	(442	)	—	2,965		(19,731		)
Decrease (increase) in accrued unbilled revenues	(554		)	626		899		—	—		971
Decrease in fuel oil stock	11,328			219		4,237		—	—		15,784
Decrease (increase) in materials and supplies	875			(987	)	(1,483	)	—	—		(1,595		)
Decrease (increase) in regulatory assets	(15,159		)	(2,594	)	222		—	—		(17,531		)
Decrease in accounts payable	(70,916		)	(1,807	)	(5,170	)	—	—		(77,893		)
Change in prepaid and accrued income and utility revenue taxes	(18,131		)	(1,310	)	1,366		—	—		(18,075		)
Decrease in defined benefit pension and other postretirement benefit plans liability	(422		)	—		(326	)	—	—		(748		)
Change in other assets and liabilities	(31,754		)	(3,886	)	(3,024	)	—	(2,965	)	(41,629		)
Net cash provided by operating activities	93,082			33,636		39,031		—	(19,482	)	146,267
Cash flows from investing activities
Capital expenditures	(163,333		)	(33,212	)	(32,560	)	—	—		(229,105		)
Contributions in aid of construction	12,352			6,229		3,159		—	—		21,740
Advances from (to) affiliates	(4,961		)	1,000		—		—	3,961		—
Net cash used in investing activities	(155,942		)	(25,983	)	(29,401	)	—	3,961		(207,365		)
Cash flows from financing activities
Common stock dividends	(66,369		)	(8,720	)	(10,762	)	—	19,482		(66,369		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(810		)	(400	)	(286	)	—	—		(1,496		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	83,987			1,000		3,961		—	(3,961	)	84,987
Other	(337		)	(50	)	(75	)	—	—		(462		)
Net cash provided by (used in) financing activities	16,471			(8,170	)	(7,162	)	—	15,521		16,660
Net increase (decrease) in cash and cash equivalents	(46,389		)	(517	)	2,468		—	—		(44,438		)
Cash and cash equivalents, beginning of period	61,245			1,326		153		101	—		62,825
Cash and cash equivalents, end of period	$	14,856		809		2,621		101	—		$	18,387

Hawaiian Electric Company, Inc. and Subsidiaries

Consolidating Statement of Cash Flows (unaudited)

Nine months ended September 30, 2013



(in thousands)	Hawaiian Electric			Hawaii Electric Light		Maui Electric		Other subsidiaries		Consolidating adjustments		Hawaiian Electric Consolidated
Cash flows from operating activities
Net income (loss)	$	91,749		15,144		15,990		(2	)	(30,446	)	$	92,435
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in earnings of subsidiaries	(30,522		)	—		—		—		30,446		(76		)
Common stock dividends received from subsidiaries	21,379			—		—		—		(21,303	)	76
Depreciation of property, plant and equipment	75,150			25,641		15,074		—		—		115,865
Other amortization	(228		)	1,075		1,623		—		—		2,470
Increase in deferred income taxes	31,361			7,165		9,488		—		—		48,014
Change in tax credits, net	3,773			119		618		—		—		4,510
Allowance for equity funds used during construction	(3,144		)	(552	)	(334	)	—		—		(4,030		)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	37,894			(2,552	)	3,999		—		2,736		42,077
Decrease (increase) in accrued unbilled revenues	(4,381		)	(1,727	)	505		—		—		(5,603		)
Decrease in fuel oil stock	17,945			870		5,517		—		—		24,332
Increase in materials and supplies	(5,392		)	(1,706	)	(1,251	)	—		—		(8,349		)
Increase in regulatory assets	(37,032		)	(7,165	)	(9,117	)	—		—		(53,314		)
Decrease in accounts payable	(10,435		)	(3,343	)	(9,196	)	—		—		(22,974		)
Change in prepaid and accrued income and utility revenue taxes	(7,122		)	(3,566	)	(4,728	)	—		—		(15,416		)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability	1,744			(191	)	(65	)	—		—		1,488
Change in other assets and liabilities	(10,562		)	(1,821	)	4,924		—		(2,736	)	(10,195		)
Net cash provided by (used in) operating activities	172,177			27,391		33,047		(2	)	(21,303	)	211,310
Cash flows from investing activities
Capital expenditures	(164,423		)	(35,900	)	(37,546	)	—		—		(237,869		)
Contributions in aid of construction	15,699			6,160		1,774		—		—		23,633
Other	623			(196	)	—		—				427
Advances from (to) affiliates	(13,600		)	11,050		—		—		2,550		—
Net cash used in investing activities	(161,701		)	(18,886	)	(35,772	)	—		2,550		(213,809		)
Cash flows from financing activities
Common stock dividends	(61,183		)	(10,790	)	(10,513	)	—		21,303		(61,183		)
Preferred stock dividends of Hawaiian Electric and subsidiaries	(810		)	(400	)	(286	)	—		—		(1,496		)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	62,196			—		13,600		—		(2,550	)	73,246
Other	(38		)	(2	)	(2	)	—		—		(42		)
Net cash provided by (used in) financing activities	165			(11,192	)	2,799		—		18,753		10,525
Net decrease in cash and cash equivalents	10,641			(2,687	)	74		(2	)	—		8,026
Cash and cash equivalents, beginning of period	8,265			5,441		3,349		104		—		17,159
Cash and cash equivalents, end of period	$	18,906		2,754		3,423		102		—		$	25,185