XML 62 R28.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Income taxes | 12 Months Ended
--- | ---
Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income taxes |
10 · 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 | 2017 |  |  | 2016 |  |  | 2015 |  |  | 2017 |  |  | 2016 |  |  | 2015 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 61,534 |  |  | $ | 59,873 |  |  | $ | 44,343 |  |  | $ | 36,267 |  |  | $ | 952 |  |  | $ | — |
Deferred* | 33,967 |  |  | 43,666 |  |  | 36,664 |  |  | 35,229 |  |  | 70,513 |  |  | 68,757 |
Deferred tax credits, net | (20 | ) |  | 268 |  |  | 318 |  |  | (20 | ) |  | 268 |  |  | 318 |
| 95,481 |  |  | 103,807 |  |  | 81,325 |  |  | 71,476 |  |  | 71,733 |  |  | 69,075 |
State |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | 10,076 |  |  | 16,473 |  |  | 2,402 |  |  | 8,947 |  |  | 9,232 |  |  | (1,048 | )
Deferred | 3,868 |  |  | 3,452 |  |  | 4,768 |  |  | 2,808 |  |  | 3,873 |  |  | 6,869 |
Deferred tax credits, net | (32 | ) |  | (37 | ) |  | 4,526 |  |  | (32 | ) |  | (37 | ) |  | 4,526 |
| 13,912 |  |  | 19,888 |  |  | 11,696 |  |  | 11,723 |  |  | 13,068 |  |  | 10,347 |
Total | $ | 109,393 |  |  | $ | 123,695 |  |  | $ | 93,021 |  |  | $ | 83,199 |  |  | $ | 84,801 |  |  | $ | 79,422 |
* | Included in the amounts for 2017 are federal deferred income tax expenses of $13.4 million and $9.2 million for the Company and Hawaiian Electric consolidated, respectively, primarily to reduce federal accumulated deferred income tax net asset balances (not accounted for under Utility regulatory ratemaking) to reflect the impact of the Tax Act. See “Lower tax rate” below.
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 | 2017 |  |  | 2016 |  |  | 2015 |  |  | 2017 |  |  | 2016 |  |  | 2015 |
(in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount at the federal statutory income tax rate | $ | 96,796 |  |  | $ | 130,844 |  |  | $ | 89,176 |  |  | $ | 71,801 |  |  | $ | 80,190 |  |  | $ | 75,996 |
Increase (decrease) resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income taxes, net of federal income tax benefit | 9,789 |  |  | 13,915 |  |  | 8,097 |  |  | 7,584 |  |  | 8,494 |  |  | 6,726 |
Net deferred tax asset adjustment related to the Tax Act | 13,420 |  |  | — |  |  | — |  |  | 9,168 |  |  | — |  |  | — |
Other, net | (10,612 | ) |  | (21,064 | ) |  | (4,252 | ) |  | (5,354 | ) |  | (3,883 | ) |  | (3,300 | )
Total | $ | 109,393 |  |  | $ | 123,695 |  |  | $ | 93,021 |  |  | $ | 83,199 |  |  | $ | 84,801 |  |  | $ | 79,422 |
Effective income tax rate | 39.6 | % |  | 33.1 | % |  | 36.5 | % |  | 40.6 | % |  | 37.0 | % |  | 36.6 | %
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 | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
(in thousands) |  |  |  |  |  |  |  |  |
Deferred tax assets |  |  |  |  |  |  |  |  |
Regulatory liabilities, excluding amounts attributable to property, plant and equipment | $ | 104,984 |  |  | $ | — |  |  | $ | 104,984 |  |  | $ | — |
Net operating loss 1 | — |  |  | — |  |  | — |  |  | 9,158 |
Allowance for bad debts | 16,192 |  |  | 24,500 |  |  | 1,812 |  |  | 2,364 |
Other | 24,397 |  |  | 47,201 |  |  | 11,253 |  |  | 18,720 |
Total deferred tax assets | 145,573 |  |  | 71,701 |  |  | 118,049 |  |  | 30,242 |
Deferred tax liabilities |  |  |  |  |  |  |  |  |
Property, plant and equipment related | 415,452 |  |  | 642,266 |  |  | 413,891 |  |  | 640,667 |
Regulatory assets, excluding amounts attributable to property, plant and equipment | 38,314 |  |  | 35,107 |  |  | 38,314 |  |  | 35,107 |
Deferred RAM and RBA revenues | 15,038 |  |  | 26,053 |  |  | 15,038 |  |  | 26,053 |
Retirement benefits | 32,952 |  |  | 48,400 |  |  | 38,020 |  |  | 51,445 |
Other | 32,247 |  |  | 48,681 |  |  | 6,827 |  |  | 10,629 |
Total deferred tax liabilities | 534,003 |  |  | 800,507 |  |  | 512,090 |  |  | 763,901 |
Net deferred income tax liability | $ | 388,430 |  |  | $ | 728,806 |  |  | $ | 394,041 |  |  | $ | 733,659 |
1 | The Hawaiian Electric deferred tax asset for 2016 includes the tax effect of the federal net operating loss carryforward of $9 million, which was utilized in 2017, and federal general business credit carryforwards of $3 million utilized in 2017, net of unrecognized federal tax benefits of $3 million due to uncertain tax positions.
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, 2017 and 2016, valuation allowances for deferred tax benefits was nil and no t significant, respectively. In 2017, the net deferred income tax liability increased primarily as a result of accelerated tax deductions taken for bonus depreciation enacted in the Protecting Americans from Tax Hikes Act of 2015. However, the December 31, 2017 balance decreased following the passage of the Tax Act as described below in "Recent tax developments". The Utilities are included in the consolidated federal and Hawaii income tax returns of HEI and are subject to the provisions of HEI’s tax sharing agreement, which determines each subsidiary’s (or subgroup's) income tax return liabilities and refunds on a standalone basis as if it filed a separate return (or subgroup consolidated return). Consequently, although HEI consolidated did not anticipate any unutilized net operating loss (NOL) as of December 31, 2016, standalone Hawaiian Electric consolidated recognized an unutilized NOL for federal tax purposes in accordance with the HEI tax sharing agreement. In 2017, the NOL was utilized by Hawaiian Electric consolidated, which reduced the deferred tax asset associated with this NOL to nil. The following is a reconciliation of the Company’s liability for unrecognized tax benefits for 2017, 2016 and 2015.
| HEI consolidated |  | Hawaiian Electric consolidated
(in millions) | 2017 |  |  | 2016 |  |  | 2015 |  |  | 2017 |  |  | 2016 |  |  | 2015 |
Unrecognized tax benefits, January 1 | $ | 3.8 |  |  | $ | 3.6 |  |  | $ | — |  |  | $ | 3.8 |  |  | $ | 3.6 |  |  | — |
Additions based on tax positions taken during the year | 0.9 |  |  | — |  |  | — |  |  | 0.4 |  |  | — |  |  | — |
Reductions based on tax positions taken during the year | (0.2 | ) |  | (0.1 | ) |  | — |  |  | (0.2 | ) |  | (0.1 | ) |  | — |
Additions for tax positions of prior years | — |  |  | 0.3 |  |  | 3.6 |  |  | — |  |  | 0.3 |  |  | 3.6 |
Reductions for tax positions of prior years | (0.5 | ) |  | — |  |  | — |  |  | (0.5 | ) |  | — |  |  | — |
Settlements | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Unrecognized tax benefits, December 31 | $ | 4.0 |  |  | $ | 3.8 |  |  | $ | 3.6 |  |  | $ | 3.5 |  |  | $ | 3.8 |  |  | $ | 3.6 |
At December 31, 2017 and 2016, there were $0.5 million and nil, respectively, of unrecognized tax benefits that, if recognized, would affect the Company's annual effective tax rate. As of December 31, 2017 and 2016, there were no unrecognized tax benefits that, if recognized, would affect the Utilities' annual effective tax rate. The Company and Utilities believe that the unrecognized tax benefits will not significantly increase or decrease within the next 12 months. HEI consolidated. The Company recognizes interest accrued related to unrecognized tax benefits in “Interest expense-other than on deposit liabilities and other bank borrowings” and penalties, if any, in operating expenses. In 2017, 2016 and 2015, the Company recognized approximately $0.2 million, $0.2 million and $0.1 million in interest expense. The Company had $0.5 million and $0.3 million of interest accrued as of December 31, 2017 and 2016, respectively. Hawaiian Electric consolidated. The Utilities recognize interest accrued related to unrecognized tax benefits in “Interest expense and other charges, net” and penalties, if any, in operating expenses. In 2017, 2016 and 2015, the Utilities recognized approximately $0.08 million, $0.03 million and $0.1 million, respectively, in interest expense. Additional interest expense related to the Utilities' unrecognized tax benefits was recognized at HEI Consolidated because of the Utilities NOL position. The Utilities had $0.2 million and $0.1 million of interest accrued as of December 31, 2017 and 2016, respectively. As of December 31, 2017, the disclosures above present the Company’s and the Utilities' accruals for potential tax liabilities, which involve management’s judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to recorded amounts. Based on information currently available, the Company and the Utilities believe these accruals have adequately provided for potential income tax issues with federal and state tax authorities, and that the ultimate resolution of tax issues for all open tax periods will not have a material adverse effect on its results of operations, financial condition or liquidity. IRS examinations have been completed and settled through the tax year 2011 and the statute of limitations has tolled for tax year 2013, leaving subsequent years subject to IRS examination. The tax years 2011 and subsequent are still subject to examination by the Hawaii Department of Taxation. Recent tax developments. On December 22, 2017, President Trump signed into law H.R. 1, originally known as the Tax Cuts and Jobs Act, as passed by Congress (Tax Act). This Tax Act is the first comprehensive change in the law since the 1986 Tax Reform Act and will impact all U.S. taxpayers. The changes for corporate taxpayers are numerous but the following summarizes the provisions that have the most impact on the Company. Lower tax rate. For the non-regulated entities (HEI corporate and ASB), the corporate income tax rate reduction from 35% to 21% for 2018 and subsequent years had an immediate income statement impact in 2017, as all accumulated deferred income tax balances (ADIT) were adjusted to reflect the new lower rate as of the enactment date with an offsetting net charge to income tax expense. The Utilities’ excess ADIT that was related to items excluded from regulatory rate base or ratemaking was also recorded as a charge to income tax expense in 2017. However, for regulated entities such as the Utilities, the excess ADIT included in their rates is expected to be returned to customers. The method and timing of returning this benefit will be determined with the approval of the PUC. Going forward for years after 2017, the Company will compute its income tax expense at the new 21% federal rate. The benefit of this lower rate will be reflected in the Utilities' rates, thereby passing the lower tax cost to their customers. The method and timing of adjusting rates for the new tax rate will be determined with the approval of the PUC, along with the return of excess ADIT discussed above. 100% bonus depreciation. The Tax Act allows 100% bonus depreciation through the end of 2022 for qualified property purchased and placed in service after September 27, 2017. However, the Tax Act provides that property used in the trade or business of a regulated utility (including the furnishing or selling electrical energy) is not qualified property. Thus, the Utilities have not taken any bonus depreciation on property placed in service after September 27, 2017. With respect to all other property, the Company expects to take the 100% bonus depreciation on qualified property purchased and placed in service after September 27, 2017. It is not clear what property will be grandfathered based on previous tax law, or whether property subject to written binding purchase contracts prior to September 28, 2017 will qualify for the 100% bonus depreciation. The Company has assumed that bonus depreciation does not apply in the areas that have not been clarified. Interest expense limitation. The Tax Act generally provides a limitation on the deductibility of interest expense in excess of 30% of a business’ adjusted taxable income plus interest income. Adjusted taxable income is essentially taxable income before interest income or expense, depreciation and amortization (adjustment for depreciation and amortization phases out after 2021). This limitation does not apply to interest properly allocable to the trade or business of furnishing or selling electricity and various other regulated utility activities. Thus, the Utilities are not subject to the interest limitation. With respect to the holding company and the bank activities, interest deductibility should not be limited by this new law since the interest income of the Bank more than offsets the interest expense allocated to the non-Utility activity. Other applicable provisions. There are a number of other provisions in the Tax Act that have an impact on the Company, including the narrowing of the exclusions from taxability of certain contributions in aid of construction (CIAC), the repeal of the domestic production activities deduction (DPAD), non-deductibility of transportation fringe benefits excluded from employees income, and the increased limitation on the deductibility of executive compensation. Staff Accounting Bulletin No. 118 (SAB No. 118). On December 22, 2017, the SEC staff issued SAB No. 118 to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In connection with its initial analysis of the impact of the Tax Act, the Company has calculated its best estimate in accordance with its understanding of the law and guidance available as of this filing. The Company has recorded a provisional discrete net tax expense of $13.4 million ($9.2 million at the Utilities), in the period ended December 31, 2017. The provisional net expense primarily consists of the effect of the corporate rate reduction. The Act reduces the corporate tax rate to 21%, effective January 1, 2018 and results in a net deferred tax balance that is in excess of the taxes the Company expects to pay or be refunded in the future when the temporary differences creating these deferred taxes reverse. The excess related to the Utilities' deferred taxes that are expected to be refunded in rates is reclassified to a regulatory liability that will be returned to the customers prospectively. The remaining excess must be written off through deferred tax expense. Consequently the Company has recorded a provisional decrease in net deferred tax liabilities of $271.5 million ($275.7 million at the Utilities), with the corresponding net adjustment to increase deferred income tax expense of $13.4 million ($9.2 million at the Utilities) and to increase regulatory liabilities by $284.9 million. The provisional tax impacts included in the Company’s and Utilities financial statements for the year ended December 31, 2017 may differ from the ultimate impact due to additional analysis, changes in interpretations and assumptions the Company and Utilities have made, Internal Revenue Service and Joint Committee on Taxation guidance that may be issued, and actions the Company and Utilities may take as a result of the Tax Act. The accounting is expected to be complete in 2018.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: 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=65882285&loc=d3e32559-109319 Reference 3: 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=65882285&loc=d3e32718-109319 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=65882285&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=65882285&loc=d3e32537-109319 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration